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IN  MEMORIAM 
BERNARD  MOSES 


Sheldon  d'   Compa7?/y's   Text-^Books.  ' 

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paragraphs,  the  preparation  of  manuscript,  and  the  criticism  of 
the  completed  composition. 

lUWs  Science  of  Hhetorlc 

An  introduction  to  tlie  Laws  of  Effective  Discourse.  By 
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sity. 

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sity, and  Professor  of  Moral  Philosophy.  Fiftieth  thousand. 
12mo,  cloth. 

Elements  of  Political  Economy 

By  Francis  Wayland,  D.D.,  late  President  of  Brown  Uni- 
versity.   12 mo,  cloth,  403  pages. 

Recast  by  Aaron  L.  Chapin,  D.  D.,  President  of  Beloit 
College. 

No  text-book  on  the  subject  has  gained  such  general  accept- 
ance, and  been  so  extensively  and  continuously  used,  as  Dr. 
Wayland's.  Dr.  Chapin  has  had  chiefly  in  mind  the  wants  of 
the  class-room,  as  suggested  by  an  experience  of  many  years. 
His  aim  has  been  to  give  in  full  and  pi'oportioned,  yet  clear 
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FIRST    PKINCIPLES 


POLITICAL  ECONOMY, 


CONCISE L  Y  PRESENTED 


FOR  THE  USE  OF  CLASSES  I:N'  HIGH  SCHOOLS 
AND  ACADEMIES. 


AARON    L.   CHAPIN,   D.D., 

PRESIDENT   OF  BELOIT   COLLEGE. 


NEW  YORK : 
SHELDON    AND    COMPANY, 

8  Murray  Street. 
1880. 


I.  -^" 


FIRST  PRINCIPLES 


HBni 
Chi 


POLITICAL    EOOI^rOMT. 

One  volume.    16mo.    225  pages. 

Concisely  presented  for  High  Schools  and  Academies,  hy  Aaron  L. 
Chapin,  D.D.,  President  of  Beloit  College. 


II. 

WAYLAND'S    ELEMENTS 

OP 

POLITICAL    ECONOMY. 


Eecast,  and  revised  by  Aaron  L.  Chapin,  President  of  Beloit  College. 

FOR  COLLEGE  USE. 

One  volume.    12mo.    425  pages. 


Copyright,  1879, 
By  SHELDON  &  CO. 

ElecirotyPed  hy  Rand,  Avery ^  $^  Co.,  Boston. 


PEEFACE. 


From  several  quarters,  there  came  a  call  for  a  concise 
compend  of  the  principles  of  Political  Economy,  which 
could  be  used  as  a  text-book  for  advanced  classes  in 
high  schools  and  academies.  In  this  little  book,  the 
author  has  attempted  to  respond  to  that  call.  He  has 
not  tried  to  make  a  book  for  children,  nor  to  make  the 
science  easy  for  youth  of  more  maturity;  but  he  has 
endeavored  simply  and  clearly,  in  as  few  words  as  possi- 
ble, to  present  the  subject  for  the  study  of  persons  who 
have  learned  something  of  the  power  of  language,  and 
have  been  trained  to  think  and  reason  for  themselves. 

The  '*  Exercises  "  thrown  in  all  along  are  not  intended 
to  furnish  teachers  with  questions  on  the  text.  Every 
one  fit  to  teach  this  and  kindred  subjects  will  frame  his; 
own  questions  best.  But  they  are  designed,  like  the- 
problems  in  arithmetic  or  algebra,  to  suggest  practical 
applications  of  the  principles  and  topics  of  discussion 
which  will  introduce  some  diversity  of  opinions,  and 
extend  the  range  of  the  subject  somewhat  beyond  the 
limits  of  the  text-book. 

The  book  is  a  condensed  presentation  of  the  matter 

887329 


IV  PREFACE. 

contained  in  the  teger  work  r^Jlcftiilj  issued  as  a  modifi- 
cation of  Waj^land'sf  J^lei^a^nia-  of  Political  Economy ;  and, 
for  a  fuller  trtatxiiejit  of  the  topics  noticed,  reference  is 
made  to  that  book.  It  is  desirable  that  every  teacher 
should  also  have  at  hand  for  reference  one  or  more  other 
works  of  prominent  writers,  such  as  those  of  Adam 
Smith,  McCulloch,  Mill,  Fawcett,  Thornton,  and  Jevons, 
of  England ;  Roscher  of  Germany  (an  excellent  transla- 
tion of  which  has  recently  appeared) ;  and  those  of 
Bowen,  Perry,  Carey,  Thompson,  Bascom,  A.  Walker, 
F.  A.  Walker,  Sumner,  and  D.  A.  Wells,  of  our  own 
country. 

Generally  the  author's  aim  has  been  to  give  a  clear 
statement  of  principles,  avoiding  the  advocacy  of  one 
side  or  the  other  of  disputed  questions.  In  the  last 
chapter,  however,  positive  opinions  are  expressed  on  the 
issue  between  protection  and  free  trade,  partly  as  an 
example  of  the  application  of  principles  to  pending 
questions,  and  partly  to  indicate  the  present  strong  drift 
of  both  philosophical  and  practical  economists  on  that 
question.  If  it  shall  serve  to  elicit  opposite  views  for 
full  discussion  in  the  class-room,  the  author's  aim  will 
be  best  accomplished;  for  it  is  his  earnest  hope  that 
this  introduction  of  this  important  brancn  of  science  to 
the  study  of  our  schools  may  tend  to  a  more  intelligent 
apprehension  of  economic  laws  on  the  part  of  our  peo- 
ple generally. 

Beloit  College,  Jan.  1, 1880. 


co:n"tei^ts. 


INTRODUCTION. 
DEFINITIONS    AND    DIVISIONS. 

PAGE 

Political  Economy  defined 5 

Fundamental  truths. 
Wealth  defined 6 

Sources  of  wealth,  original,  secondary. 

How  increased. 
Value  defined 7 

Its  maximum  and  minimum  limits. 

Divisions  of  the  Science 8 

Exercises 10 

PART  I. 

PRODUCTION. 
Threefold  Subdivision .11 

CHAPTER  I. 

SECTION  I.  —-  OF  LABOR. 

Labor  defined 11 

Kinds  of  labor :  1.  Physical  labor.    2.  Mental  labor. 

What  physical  labor  does. 

What  mental  labor  does  directly :  1.  Discovery.    2.  Inven- 
tion.   3.  Oversight. 

Mental  labor  indirectly  concerned  in  production. 
Changes  effected  by  Labor 13 

1.  Transmutation.    2.  Transformation.    3.  Transportation. 
Exercises 15 

V 


VI  CONTENTS. 

SECTION  n.  —  MEANS  FOR  INCREASING  THE  EFFECT- 
^  IVENESS  OF  LABOR. 

Ageistts  of  Nature  most  available        ....     16 

Animal  power,  sunlight,  gravitation,  wind,  steam,  gunpow- 
der, &c.,  electricity  and  galvanism,  chemical  forces. 

Agents  for  directing  Power 17 

How  Natural  Agents  make  Labor  Effective  ,       .     18 
Division  of  Labor  defined       .       .       .       .       .       .19 

It  implies  analysis  and  distribution  of  parts. 
Advantages  of  Division  of  Labor         ....      20 

1.  Shortens  apprenticeship.    2.  Saves  time.    3.  Increases 
dexterity.    4.  Suggests  inventions.    5.  Employs  diverse 
capacities. 
Exercises 21 

SECTION  III. — LABOR  IN  GREAT  MANUFACTURING 
ESTABLISHMENTS. 

"What  such  Establishments  require     ....     23 
1.  Large  capital.    2.  Many  laborers.    3.  Rapid  production. 

4.  Wide  markets.    5.  Executive  ability  in  superintend- 
ence ;  in  finances. 

"Why  not  set  up  at  once  in  a  New  Country?   .        ,      24 
how  they  promote  the  general  welfare        .       .     25 

1.  They  multiply  and  cheapen  products.    2.  Increase  variety 
of  gratifications.     3.  Favor  certain  employment  for 
laborers.    4.  Balance  diflferent  branches  of  industry. 
Evils  incident  to  Division  of  Labor    ....      26 

1.  Endangers  physical  health.    2.  Dwarfs  minds.    3.  Im- 
pairs independence.     4.  Risk  of  sweeping  disaster. 

5.  Fosters  jealousies  and  antagonisms. 

Exercises .28 

CHAPTEK  II. 

of  capital. 
Capital  defined   .       .       .       .    '  ,       .       .       .       .      30 

Mistakes  corrected :  1.  Capital  not  synonymous  with  wealth. 
2.  Nor  with  money.   3.  Does  not  include  human  quali- 
ties. 
Origin  of  Capital,  the  Fruit  of  Labor  saved  .       .     32 

Forms  of  Capital 33 

1.  Implements  and  machinery.    2.  Materials.    3.  Means  of 
subsistence.    4.  Finished  products. 

Consumption  of  Capital 34 

Destruction  passing  on  all  its  forms. 


CONTENTS.  Vii 

Productive  AND  Unproductive  Capital       .       .       .     36 

Fixed  and  Circulating  Capital 36 

Exercises 37 

CHAPTER  III. 

THE  CO-OPEKATION  OF  LABOR  AND  CAPITAL. 

Labor  and  Capital  Partners 39 

Most  harmoniously  united  in  one  person. 

"Why  this  cannot  be  Universal 39 

1.  Capital  tends  to  increase.    2.  Men's  tastes  differ.    3.  Large 

establishments  necessary  to  some  forms  of  production. 

Conditions  which  favor  the  Union  of  Capital  and 

Labor 41 

1.  General  distribution  of  capital.  2.  Ratio  of  capital  to 
number  of  laborers.  3.  Assurance  of  just  reward  to 
each.  This  depends  on,  a,  division  of  property; 
6,  just  laws ;  c,  freedom  to  both  capital  and  labor. 
4.  Intellectual  and  moral  culture. 
Exercises       .       .       .       . 43 

PART  n. 

CONSUMPTION". 

The  Nature  op  Consumption 45 

Kinds  of  Consumption        .       .       .       .       •       .       .46 

CHAPTER  L 
involuntary  consumption. 

Natural  Consumption .     46 

Accidental  Consumption   . 47 

VHiat  insurance  does. 

Immaterial  and  Notional  Consumption       ...     48 
Exercises 48 

CHAPTER  II. 

voluntary  consumption. 

Two  Objects,  Reproduction,  Gratification       .       .     50 

section  I.  —  consumption  fob  reproduction. 

The  Rule  of  Economy 51 

For  capital :  a,  Use  no  more  than  necessary.    &,  Use  the 

cheapest  possible,    c,  Exhaust  all  utilities. 
For  labor:  a,  Use  no  more  than  is  needed,    b,  Use  labor 
adapted  to  the  purpose,    c,  See  that  the  labor  is  per- 
formed. 


Vlll  CONTENTS. 

Cabeful  Study  op  Pbocesses  essential  to  Economy,  53 
Eestrictions  on  either  Labor  or  Capital  against 

Economy 53 

Economy  promotes  the  General  Welfare  ...  53 

Exercises 64 

SECTION  II. — CONSUMPTION  FOR  GEATIFICATION. 

Kinds  of  Gratification 55 

1.  Those  which  preserve  health  and  life.  2.  Those  -which 
delight  the  senses.  3.  Intellectual  gratifications.  4.  So- 
cial gratifications.    5.  Moral  gratifications. 

The  Bule  of  Economy  applicable  to  all   ...     67 

0,  Consume  only  the  needed  amount.  6,  Make  consumption 

perfect,    c,  Select  carefully  the  gratifications. 
The  Reciprocal  Relation  of  Consumption  and  Pro- 
duction      68 

Extreme  frugality  and  extreme  luxury  to  be  avoided. 
Exercises 60 

CHAPTER  III. 
public  consumption. 
The  Nature  op  Public  Consumption     ....     61 
The  Purposes  to  which  it  is  applied    ....      62 

1.  For  support  of  government.    2.  For  public  improvements. 

3.  To  advance  science,  and  difiiise  intelligence.  4.  For 
popular  education.  5.  For  care  of  afflicted  classes. 
6.  To  relieve  poverty.    7.  For  a  nation's  defence. 

Two  Rules  op  Economy  in  Public  Consumption        ,     65 
Exercises 65 

PART  III. 

DISTRIBUTIOlSr. 
Distribution  defined  ....*...     67 
The  Parties  to  be  recognized        .....     67 

Laborers,  owners  of  capital,  the  government. 
Subdivisions 68 

CHAPTER  I. 

THE  remuneration  OF  LABOR. 

Terms  used,  "Wages,  Salaries,  Commissions,  Fees     .     69 

section  I. — nominal  and  real  wages. 
The  Distinction  between  Nominal  and  Real  Wages,     70 


CONTENTS.  IX 

Causes  of  the  Difpekence 70 

1.  Money  fluctuations.    2.  Forms  of  payment.    3.  Regular- 
ity of  employment.    4.  Duration  of  power  to  labor. 

section  ii.  —  the  efficiency  of  labok. 
The  Distinction  between  Nominal  and  Real  Cost 

OF  Labor 72 

Causes  of  Difference  of  Efficiency    ....     72 
1.  Race-qualities.    2.  Diet  and  clothing.   3.  Personal  habits. 

4.  Degree  of  intelligence.  5.  Technical  education. 
6.  Cheerfulness. 

Exercises 74 

SECTION  III.  —  considerations  WHICH  DETER- 
MINE THE  RATE  OF  WAGES. 

Wages  imply  a  Contract 76 

Considerations  which  determine  the  Rate        .       .     76 
1.  Cost  of  living,  necessary  wages.    2.  Value  of  the  prod- 
ucts, maximum    limit.    3.  Custom.     4.  Competition, 
most  influential  of  all.    5.  The  Golden  Rule. 
Combinations  to  resist  Competition      ....      80 

Strikes,  trades-unions,  combinations  of  employers. 
Exercises 84 

SECTION  IV. — CAUSES  OF  VARIATION  IN  THE 
REMUNERATION  OF  LABOR. 

Circumstances  affecting  Competition  ....      85 
1.  Ease  or  difiiculty  of  the  employment.    2.  Skill  required. 
3.   Trust   involved.     4.   Constancy   of  employment. 

5.  Probability  of  success. 

Salaries,  Commissions,  and  Fees 87 

Labor  so  compensated  involves :  1.  Superior  natural  gifts. 

2.  Personal  character. 

Extraordinary  Compensation   in  Learned  Profes- 
sions   

The  Case  of  Authors  and  Artists 
Offices  of  Honor,  Clergyivien,  and  Scientists 
Eemuneration  for  Women's  Labor  ....  90 
Beasons  why  it  is  less  than  that  of  Men.  .  .  90 
1.  Physical  and   mental   constitution.     2.  Home  sphere. 

3.  Prospective  marriage.  4.  The  actual  organization 
of  industry.  5.  Feminine  instincts.  6.  Partial  sup- 
port from  friends. 

The  Case  of  Women  of  Genius 92 


X  CONTENTS. 

Conclusions 92 

a,  Absolute  equality  unattainable.    6,  Present  inequality 
unreasonable,    c,  How  relief  is  to  come.    d5,  Woman 
queen  in  the  home. 
Exercises 9^ 

CHAPTER  11. 

THE  REMUNERATION  OF  CAPITAL. 

The  Justice  of  Remuneration  for  Capital        .       .     95 
Threefold  Subdivision 96 

SECTION  I. —RENT. 

Rent  defined 97 

Rent  of  Agricultural  Lands 97 

Productiveness  depends  on  Fertility  and  Situation,  97 

Rent  of  City  Property  depends  on  Location    .       .  98 

Why  Rents  rate  less  than  Interest    ....  98 

Exercises 99 

section  II.  —  interest  and  dividends. 

Interest  defined 100 

The  Term  implies  a  Mutual  Advantage      .        .       ,    101 

Interest  on  Capital  not  Wrongful  Usury        .        .    102 

Circumstances  which  determine  Rates  of  Interest,    102 

1.  Risk,  depending  on:  a,  personal  character;  b,  character 

of  the  business ;  c,  character  of  the  government.    2. 

Convenience  of  the  investment:  a,  facility  of  transfer; 

bi  permanency ;  c,  punctuality  in  payment  of  interest. 

3.  The  profits  of  industry.    4.  Ratio  of  demand  to 

supply  of  capital. 
"Why  Interest  is  High  in  a  New  Country.        .       .    106 

Usury  Laws  explained 106 

"Why  Usury  Laws  are  Unreasonable  ....    106 
1.  They  violate  a  right  of  property.    2.  Civil  law  cannot  fix 

prices.    3.  The  price  of  capital  most  variable.    4.  These 

laws  increase  burdens.    6.  Such  laws  never  enforced. 

Dividends  defined 108 

They  depend  on  success  of  industry.   They  include  interest 

and  profits. 
Exercises 109 

CHAPTER  nL 

distribution  of  profits. 

Profits  defined Ill 


CONTENTS.  XI 

Items  of  Expense  to  be  deducted  from  Proceeds   .    Ill 
1.  Wages.   2.  Salaries.  3.  Interest.  4.  Insurance.   5.  Taxes. 

Percentage   on  Capital  not  a  True   Measure  of 

Profits 112 

Three  Members  of  the  Partnership  to  be  recog- 
nized          ...    113 

Capital,  executive  agency,  labor. 

A  Fair  Distribution  of  Profits  harmonizes  Labor 
AND  Capital 114 

Co-operative  Associations 115 

Exercises 116 

CHAPTER  IV. 

REVENUES  OF  THE  GOVERNMENT. 

The  Claims   of  Government   take  Precedence  of 

other  Claims 118 

Taxation,  the  Maxim  of  Free  Government       .       .  119 

Adam  Smith's  Maxims 119 

Direct  and  Indirect  Taxation 120 

Tariffs  defined 121 

Duties,  Specific  and  Ad  Valorem 121 

National  and  State  Taxation  in  the  United  States,  122 

National  Taxes 123 

a,  Excises,    b,  Stamps,    c,  Licenses,    dt  Income  tax. 

State  Taxation,  how  imposed 125 

Equitable   Taxation  should   reach  All  Kinds  of 

Property 126 

Liability  to  Double  Taxation 126 

Exercises 127 

PART  IV. 

c 

EXCHANGE. 
Importance  of  this  Department 129 

CHAPTER  I. 

NATURE,  NECESSITY,  AND  AGENTS  OF  EXCHANGE. 

Exchange  defined 130 

*  Value  the  Central  Term 131 

The  Law  of  Supply  and  Demand 131 

Three  Classes  of  Commodities 131 

1.  Things  wbich  cannot  be  multiplied.    2.  Things  easily 
multiplied.  3.  Things  multiplied  at  extraordinary  cost. 


XU  CONTENTS. 

Fundamental  Principles  stated  by  Mill  .  .  .  132 
1.  Value  a  relative  term.  2.  Market  value  depends  on  sup- 
ply  and  demand.  3.  Cost  defines  natural  value.  4.  The 
natural  value  of  some  things  a  scarcity  value.  5.  Things 
that  have  a  scarcity  value  not  easily  increased.  6.  A 
monopoly  value  is  a  scarcity  value.  7.  The  natural 
value  of  an  article  equals  the  cost  value  of  the  most 
costly  portion.  8.  The  condition  of  stable  equilibrium 
in  exchange  is  that  things  exchange  at  their  cost  value. 

Necessity  of  Exchange 134 

Between  individuals ;  betvs^een  nations. 

The  Agents  of  Exchange 136 

Merchants,  Retailers,  Middle-Men      .        .       .       .137 

Factors,  jobbers,  shipping-merchants,  importers,  bankers, 

brokers,  underwriters. 

Outgoing  and  Incoming  Currents  of  Trade       .       .    138 

Exercises 140 

CHAPTER  II. 

MONEY  AN  INSTRUMENT  OF  EXCHANGE. 

Difficulties  of  Exchange  by  Barter  ....    142 
Money  defined 143 

section  I. — THE  FUNCTIONS  OF  MONEY. 

Money  as  a  Standard  of  Value 144 

Money  as  a  Medium  of  Exchange 145 

Essential  Qualities  of  Money 146 

1.  Stability  of  value.    2.  Universal  acceptableness.    3.  Di- 
visibility without  loss  of  value. 
One  Substance  should  fulfil  both  Functions  .       .  147 
Money  not  necessary  as  a  Medium  of  Every  Ex- 
change        147 

Every  Thing  comes  to  have  its  Price  .        .        .       .148 

Articles  used  as  Money 148 

Uniformity  of  Money  throughout  the  World  de- 
sirable    .       . 149 

Exercises 150 

SECTION  II.  —  SPECIE. 

Qualities  which  fit  Gold  and  Silver  for  Money  .  153 
1.  They  have  intrinsic  utility.  2.  They  cost  labor.  3.  They 
concentrate  great  value  in  small  bulk.  4.  They  are 
divisible  without  loss.  5.  They  are  of  uniform  quality. 
6.  They  can  be  easily  verified.  7.  They  are  indestruc- 
tible.    8.  They  are  adapted  to  each  other. 


CONTENTS.  Xrn 

Legitimate    Agency    of    Government    respecting 
Money 155 

1.  To  name  a  legal  tender.    2.  To  regulate  coinage. 
Things  to  be  regarded  in  Coinage        ....    156 
1.  Quality  of  the  metal.    2.  Size  of  coins.    3.  Form  of  coins. 

Seigniorage 157 

What  may  be  done  with  Worn  Coins  and  Foreign 

Coins 158 

The  Question  of  a  Double  Standard  ....    159 

Gold  for  main  standard,  silver  as  subsidiary. 
General  Truths  respecting  Money      ....    160 
1.  The  cost  of  money  equals  the  cost  of  the  article  exchanged 
for  it.    2.  Freedom  of  commerce  equalizes  the  supply 
of  money.    3.  The  amount  of  money  small  in  propor- 
tion to  exchanges  made.    4.  Increase  of  money  in  a 
country  not  of  itself  advantageous.    5.  Abundance  of 
money  not  an  index  of  prosperity.    6.  A  false  maxim 
refuted. 
Exercises 162 

CHAPTEK  III. 
credit  an  instrument  of  exchange. 

Credit  defined 164 

section  i. — the  forms  of  credit. 
The  Leading  Forms  in  which  Credit  appears   .       .    165 
1.  Book-accounts.   2.  Loans.   3.  Mercantile  paper.   4.  Bank- 
deposits.    5.  Stocks.    6.  Bonds.    7.  Circulating  notes. 

SECTION  II.— THE  USEFUL  FUNCTIONS  OF  CREDIT. 

Mistakes  corrected 167 

Credit  is  not  capital,  — does  not  create  capital. 

Borrower  and  lender  cannot  use  the  same  capital  at  once. 
The  Useful  Functions  of  Credit  stated    .        .       .    168 

1.  It  brings  wealth  into  use  as  capital.  2.  It  draws  out  in- 
dustrial talent.  3.  It  quickens  exchanges.  4.  It  is  a 
direct  instrument  of  exchange  between  individuals, 
between  distant  cities,  between  nations.  5.  It  may  be 
put  into  paper-money. 

section  iii.  —  the  abuses  of  credit. 

Some  Abuses  of  Credit  stated 172 

1.  Too  freely  granted.  2.  By  wild  speculations  of  borrow- 
ers. 3.  By  extravagant  living  of  debtors.  4.  By  con- 
fidence-operations. 5.  By  betrayal  of  trusts.  6.  By 
over-estimate  of  assets.  7.  By  excessive  issue  of  paper- 
money. 


XIV  CONTENTS. 

Mischiefs  caused  by  these  Abuses        ....    174 

a,  Fluctuating  prices;  b,  Honest  men  pay  for  bad  debts; 
c,  Trade  made  a  game  of  chance;  dt  Moral  sense  dead- 
ened ;  e,  Force  of  contracts  relaxed. 

Exercises 175 

CHAPTER  IV. 

BANKS  AND  PAPER-MONEY. 

Banks,  Agents  of  Credit 177 

SECTION  I.  —  OFFICES  OF  BANKS. 

Four  Offices  of  Banks 178 

1.  To  collect  and  keep  money-deposits.  2.  To  negotiate 
money-exchanges,— peculiarity  of  British  exchange. 

3.  To  make  loans  and  discounts.  4.  To  issue  circulat- 
ing notes. 

SECTION  II.  —  THE  UNITED-STATES  NATIONAL- 
BANK  SYSTEM. 

Main  Features  of  the  Law     .       .       .       .       .       .182 

The  Liabilities  of  National  Banks      .        .        .        .184 

1.  The  capital  stock".    2.  Circulating  notes.    3.  Deposits. 

4.  Balances  due  other  banks.  5.  Surplus  funds  and 
issues.  6.  Undivided  profits.  7.  Miscellaneous  lia- 
bilities. 

The  Resources  of  National  Banks  .  .  .  .186 
1.  Loans.  2.  United-States  bonds  to  protect  circulation.  3. 
Bonds  and  stocks  held  as  investments.  4.  Balances 
due  from  other  banks.  5.  Real  estate.  6.  Exchanges 
and  cash  items.  7.  Currency.  8.  Funds  to  redeem 
circulation.    9.  Miscellaneous  items. 

The  Sources  of  Profits  of  Banks         ....    186 
1.  Interest:  a,  on  United-States  bonds;   b,  on  circulating 
notes ;  c,  on  capital  and  reserves ;  d,  on  deposits  loaned. 
2.  Premiums   on  exchange.    3.  Commissions  for  col- 
lections. 

Private  Banking  Houses  and  Savings  Banks     .       .    186 

SECTION  III. —PAPER-MONEY. 

Distinction  between  Paper-money  and  Money-paper,    187 

Kinds  of  Paper-money 188 

1.   Mercantile    currency.    2.    National-bank    currency.    3. 

Mixed  currency.    4.  Credit  currency.   5.  Paper-money 

secured  by  real  estate. 


CONTENTS.  XV 

<;HARACTERIST1CS  OP  PAPER-MONEY 190 

1.  Convenient.  2.  Economical.  3.  Involves  always  credit. 
4.  Can  never  serve  as  a  standard  of  value.  6.  Can  cir- 
culate  only  in  the  country  where  it  is  issued.  6.  Liable 
to  fluctuations.  7.  Causes  prices  to  fluctuate.  8.  Gov- 
ernments  tempted  to  issue  it  without  limit.  9.  Made  a 
legal  tender,  it  is  a  forced  loan.  10.  A  cause  of  panics. 
11.  Tends  to  make  commerce  a  game  of  chance.  12. 
Blunts  the  public  conscience. 

Exercises 193 

CHAPTER  V. 

INTERNATIONAL  TRADE. 

Fundamental  Propositions 195 

1.  All  nations  of  one  blood.    2.  Earth  and  its  resources 
given  to  the  one  human   race.    3.  Earth's  resources 
best  developed  when  each  country  produces  that  for 
which  it  is  best  adapted.    4.  Earth's  blessings  best  dis- 
tributed by  free  mutual  exchanges. 
New  Facilities  for  Intercommunication  welcomed  .    196 
False    Doctrines   formerly   prevalent   on   Inter- 
national Trade 197 

The  Theories  of  Protection  and  Free  Trade  dis- 
tinctly STATED 198 

Arguments  for  Protection  considered         .        .        .    199 
1.  Protection  necessary  to  Varied  Industry     .       .    199 
Varied  industry  admitted  to  be  a  blessing,    a,  Every  coun- 
try has  varied  resources;  6,  also  diversity  of  talent; 
c,  men  have  diverse  wants ;  c?,  varied  industry  makes 
a  home-market ;  c,  it  favors  social  and  moral  advance- 
ment. 
Put  Protection  is  not  necessary  to  Varied  Indus- 
try      201 

a,  Industry  has  a  natural  growth,  b,  Free  competition  the 
healthy  stimulus  to  that  growth,  c,  Varied  industry 
springs  up  as  fast  as  increase  of  labor  and  capital  war- 
rant, d,  The  instinct  for  accumulation  a  safe  guide. 
e,  Artificial  stimulus  produces  re-action.  /,  Foreign 
products  are  purchased  with  fruits  of  most  effective 
labor,  g,  Foreign  competition  cannot  crush  natural 
growth,  h,  Artificial  nursing  makes  a  sickly  growth. 
Protection  cannot  add  to  natural  resources,  nor  create  capi- 
tal, nor  create  men  of  skill.  It  can  only  change  the 
direction  of  capital  and  labor. 


y^n  CONTENTS. 

2.  Protection  maintains  National  Independence      .    204 

Two  kinds  of  independence.    Protection  fosters  independ- 
ence of  isolation. 

3.  Agricultural  Products  need  a  Home-market       .    206 

Free  trade  the  condition  of  a  healthy  home-market. 
Positive  Objections  to  Protection       ....    208 
1.  It  fosters  antagonism  of  industries.    2.  It  leads  to  over- 
production.   3.  It  reduces  revenues  of  the  State.    4.  It 
is  an  unstable  policy.    5.  It  demoralizes  legislation. 
6.  It  corrupts  public  morals. 
The    Experiment    of    Free    Trade    between    our 

States 210 

The  Golden  Rule  applicable  to  Nations   .       .       .211 
Exercises 212 


INTRODUCTION. 


DEFINITIONS  AND    DIVISIONS. 

Political  Economy  is  the  science  which  shows 
how  things  intended  to  satisfy  our  wants  are  pro- 
duced, and  how  they  are  consumed  ;  how  they  are 
distributed  among  a  people,  and  how  they  are  ex- 
changed one  for  another  all  over  the  world. 

The  science  springs  from  four  fundamental  truths : 

1.  God  has  made  men  creatures  of  many  wants, 
and  filled  the  world  in  which  they  live  with  means 
for  satisfying  those  wants. 

2.  The  labor  of  men  is  necessary  to  draw  out  the 
materials  of  nature,  and  to  fit  them  for  use  in  meet- 
ing men's  wants. 

3.  The  exertion  of  labor  establishes  for  the  laborer 
a  right  of  property  in  the  things  which  he  produces. 

4.  The  right  of  property  implies  the  right  of  ex- 
change or  sale,  and  diversity  of  labor  necessitates 
between  men  exchanges  of  the  fruits  of  their  labor. 

Three  desires  in  men  contend  for  the  mastery  :  — 

1.  Desire  of  ease.     This  tends  to  repress  labor. 

2.  Desire  of  present  gratification.  This  tends  to 
consume  the  fruits  of  labor  at  once. 

5 


6  POLITICAL  ECONOMY. 

3.  Desire  of  means  for  future  gratifications.  This 
tends  to  stimulate  labor,  and  to  save  its  fruits. 

A  man  or  a  nation  grows  rich  only  as  the  third  of 
these  desires  overrules  the  other  two. 

Wealth  is  the  collective  name  for  all  useful  things 
which  can  be  owned  and  exchanged.  Some  things 
are  ver}^  useful,  yet  they  form  no  part  of  wealth, 
because  they  cannot  be  exclusively  appropriated. 
Such  are  air,  sunlight,  and  commonly  water.  Other 
things,  such  as  bread,  salt,  cloth,  iron,  houses,  &c., 
are  capable  both  of  satisf3ing  wants,  and  of  being 
exclusively  possessed  and  exchanged.  Only  these 
are  properl}-  accounted  wealth. 

The  original  source  of  wealth  is  the  bounty  of  God 
in  nature. 

The  secondary  source  of  wealth  is  human  labor 
directed  to  bring  forth  the  bounty  of  nature  in 
form,  in  time,  and  in  place,  to  meet  the  wants  of 
men. 

Wealth  is  increased  only  by  constant  reproduction, 
i.e.,  by  destroying  some  useful  articles  to  bring  forth 
others.  Thus  the  wheat  that  is  sown  must  die,  in 
order  that  a  new  crop  may  spring  from  it,  yielding 
thirty,  sixty,  or  a  hundred  fold :  the  leather  in  the 
hide  must  be  cut  up  to  make  shoes,  in  which  form  it 
meets  wants.  If  a  man  consumes  all  his  wheat,  he 
will  have  none  to  sow.  The  tanner  prepares  his 
leather,  expecting  it  to  be  used  up  for  shoes.  Ab- 
stinence and  foresight  attend  all  productive  labor. 
Thus  industry  and  frugality  are  indispensable  con- 
ditions of  the  increase  of  wealth. 


INTRODUCTION.  7 

Value  is  purchasing  power,  or  that  quality  in  an 
object  which  gives  it  power  to  command  other  objects 

in  exchange.  The  term  supposes  always  a  compari- 
son of  two  objects  with  reference  to  an  exchange. 
Thus  value  is  a  relative,  not  an  absolute,  quality. 

Two  things  are  combined  in  this  quality  of  value, 
—  first,  utility,  that  is,  adaptedness  to  satisfy  want 
or  gratify  desire ;  second,  cost,  that  is,  some  labor 
necessary  to  produce  the  object.  We  can  think  of 
nothing  which  has  greater  utility  than  air  and  light ; 
but  they  have  no  value,  because  they  are  so  freely 
supplied  to  all  that  they  cost  no  labor.  If  one  has 
spent  a  day's  labor  in  making  a  table,  he  will  not 
give  it  to  his  neighbor  for  air  or  light  which  he  can 
have  for  nothing  ;  nor  will  he  exchange  it  for  a  box 
which  he  could  make  with  half  a  daj-'s  labor.  So, 
in  general,  the  value  of  an  article  is  determined  very 
much  by  the  labor  which  it  costs  to  produce  or  pro- 
cure it.  Things  are  exchanged  at  what  is  called 
their  natural  value,  when  the  terms  are  adjusted  by 
the  relative  cost,  labor  for  labor. 

The  utility  of  an  object  is  its  desirableness  for 
gratification.  This  may  var}^  with  circumstances, 
such  as  individual  taste,  the  fashion  of  the  day,  the 
emergency  of  the  hour,  &c.  To  one  who  cannot 
read,  a  book  will  have  no  use  ;  for  his  own  gratifica-  - 
tion  he  will  give  nothing  for  it.  One  will  readil}' 
give  a  gold  watch  for  a  loaf  of  bread  when  there  is 
no  other  means  of  saving  him  from  starvation ;  then 
the  value,  the  purchasing  power,  of  the  loaf,  rises  a 
thousand-fold  above  its  actual  cost. 

These  two  elements  thus  define  the  extreme  limits 


8  POLITICAL  ECONOMY. 

of  value.  The  most  one  will  give  for  an  object  is 
determined  by  his  estimate  of  its  utility,  or  the 
gratification  it  will  afford  him.  The  least  a  man 
will  ordinarily  take  for  an  object  is  determined  by 
its  cost,  or  the  labor  necessary  to  produce  it. 

Between  these  limits  value  may  temporarily  fluc- 
tuate, as  the  relations  of  supply  and  demand  vary. 
When  the  supply  of  an  object  is  small,  and  many 
persons  desire  it,  the  purchasing  power  of  that  ob- 
ject is  increased  by  competition  among  the  buyers. 
When  a  larger  quantity  of  an  article  has  been  pro- 
duced than  is  wanted,  the  purchasing  power  of  that 
article  is  diminished  by  competition  among  the  sell- 
ers. But  this  state  of  things,  in  either  case,  will 
not  continue  long  ;  for  free  competition  tends  always 
to  settle  the  value  of  all  things  upon  the  natural 
basis  of  cost. 

Divisions.  —  Political  economy  treats  of  the  pro- 
duction of  things  to  satisfy  wants.  Hence  the  two 
leading  divisions  of  the  science  are  Production  and 
Consumption. 

Production  is  the  process  of  labor  applied  to  ob- 
jects of  nature  to  adapt  them  to  the  satisfaction 
of  wants.  We  can  neither  create  nor  annihilate  an}^ 
part  of  matter;  but  we  can  modify  almost  ever}^ 
thing  so  as  to  impart  to  it  some  utility,  —  that  is, 
we  can  create  value.  Under  this  division,  therefore, 
are  considered  the  processes  and  laws  by  which 
labor  gives  value  to  things.  The  substances  thus 
brought  out  are  called  products. 

Consumption    is    the    act   of  destroying   utilities 


INTRODUCTION'.  9 

either  for  immediate  gratifications,  or  to  produce 
some  new  utility  for  future  gratifications.  The 
actual  destruction  of  values  is  necessarily  involved. 
Under  this  division  are  considered  the  laws  which 
govern  the  economical  use  of  w^ealth  to  satisfy  wants 
or  gratify  desires. 

There  are  among  men-  great  diversities  of  capacity 
for  labor.  It  is  therefore  good  economy  of  produc- 
tive effort  to  unite  the  labors  of  many  persons  on  a 
particular  product,  so  that  each  may  contribute  the 
part  which  he  can  do  best.  Yet  each  person  has  a 
variety  of  wants,  while  his  own  labor  is  devoted  to 
one  thing.  He  must  therefore  get  what  he  needs  in 
exchange  for  what  he  makes.  Hence  arise  two  other 
branches  of  our  science,  logically  subordinate  to  those 
just  mentioned,  though  practicall}'  of  the  highest  im- 
portance.    They  are  Distribution  and  Exchange. 

Distribution  embraces  questions  of  equit}^  and 
practical  methods  pertaining  to  the  assignment  to 
different  laborers  of  their  respective  shares  of  values 
produced.  Here  are  considered  the  difficult  problems 
growing  out  of  the  mutual  relations  of  employers 
and  employed. 

Exchange  is  the  act  of  transferring  things  from 
one  to  another,  according  to  their  values.  Each 
individual  is  busied  in  creating  one  utility,  and 
wants  a  thousand.  Each  country  produces  of  cer- 
tain articles  far  more  than  it  needs,  and  needs 
many  others  which  it  cannot  produce  at  all.  Hence 
the  necessity  of  universal  and  ceaseless  exchange. 
Under  this  division  are  considered  the  instruments, 


10  POLITICAL  ECONOMY. 

the   laws,   and    the    processes,   which    relate    to   the 
mutual  transfer  of  values. 

The  most  difficult  problems  of  political  economy 
belong  to  the  departments  of  distribution  and  ex- 
change. 

EXERCISES. 

1.  Mention  some  articles  of  wealth. 

2.  Tell  what  you  know  of  the  manner  in  which  they  are 
produced. 

3.  Name  what  you  can  of  the  utilities  of  each. 

4.  Do  savages,  or  civilized  men,  have  the  most  wants  ? 
Why? 

5.  Why  has  air  no  value  ? 

6.  When  and  why  may  water  have  value  ? 

7.  How  does  iron  exist  in  nature  ? 

8.  State  what  you  can  of  the  processes  of  labor  which 
render  iron  useful. 

9.  If  a  farmer  gives  a  bushel  of  wheat  for  a  razor,  why 
is  it  a  fair  bargain  ? 

10.  Whence  comes  the  great  value  of  the  diamond  ? 

11.  Why  does  the  value  of  an  article  decline  as  it  goes  out 
of  fashion  ? 

12.  What  events  in  Europe  may  enhance  the  value  of  the 
American  farmer's  wheat-crop  ?    Why  ? 

13.  Why  has  cotton  less  value  than  wool  ? 

14.  What  different  kinds  of  labor  are  represented  in  a  yard 
of  calico? 

15.  How  are  the  ten  cents  paid  for  that  yard  of  calico 
distributed  to  the  several  parties  who  have  labored  to  pro- 
duce it  ? 

16.  How  does  a  merchant's  labor  add  value  to  the  goods 
he  sells  ? 

17.  Why  are  strawberries  and  peaches  generally  cheapest 
in  the  market  Saturday  afternoon  ? 

18.  How  does  foreign  commerce  benefit  our  agriculturists 
and  manufacturers  ? 

19.  How  do  railroads  help  to  develop  the  wealth  of  a 
country  ? 


POLITICAL   ECONOMY. 


PART  I. 

PRODUCTION. 

Production  is  the  process  of  drawing  out  means 
to  satisfy  human  wants  by  labor  applied  to  natural 
objects.  Labor  is  the  first  essential.  Some  prod- 
ucts of  former  labor  are  also  requisite  to  begin  with. 
To  these  the  name  Capital  is  given.  This  branch 
of  political  economy  will  therefore  be  best  presented 
under  three  subdivisions.  The  first  will  treat  of 
Labor,  the  second  of  Capital,  and  the  third  of  the 
co-operation  of  these  two  factors. 


CHAPTER  I. 

SECTION  L— OF  LABOR. 


Labor  is  tlie  voluntary  exertion  of  human  beings 
put  forth  to  attain  some  desired  object. 

The  processes  of  production  give  scope  for  the 
exercise  of  all  the  faculties  of  man.  Hence  two 
kinds  of  labor  are  to  be  recognized  :  — 

1.  Physical  labor,  in  which  muscular  exertion  is 
the  chief  thing.  ii 


12  POLITICAL  ECONOMY. 

2.  Mental  labor,  which  engages  chiefly  the  facul- 
ties of  the  mind. 

All  productive  industry  combines  some  ph3^sical 
and  some  mental  effort.  Even  the  day-laborer  must 
exercise  his  mind  to  handle  his  shovel  with  judg- 
ment and  skill.  In  general,  labor  is  effective  in 
proportion  as  it  is  directed  by  intelligent  mind. 

Physical  labor  only  moves  things.  It  depends  on 
the  capacity  of  living  muscle  to  contract  and  ex- 
pand, as  governed  by  the  will.  But  this  power  to 
produce  motion  under  the  control  of  intelligent  mind 
gives  man  unlimited  command  over  the  forces  of 
nature  to  achieve  his  purposes. 

Mental  labor  is  directly  concerned  in  the  produc- 
tion of  wealth  in  three  ways  :  — 

1.  In  investigation  to  discover  the  properties  and 
laws  of  matter.  So  chemical  research  made  known 
the  substance  phosphorus,  and  its  property  of  start- 
ing into  flame  under  friction. 

2.  In  invention  to  devise  methods  and  instru- 
ments by  which  the  properties  of  matter  may  be 
made  to  meet  human  wants.  So  matches  were  in- 
vented, —  a  very  simple  instrument,  by  which  phos- 
phorus is  used  to  kindle  our  fires.  So  the  spinning- 
jenny  and  the  power-loom  were  devised  to  facilitate 
and  cheapen  the  process  of  making  cloth. 

3.  In  oversight  and  superintendence.  In  the  sim- 
plest kinds  of  labor,  mind  must  direct  muscle. 
Where  numbers  are  joined  in  labor  for  a  given 
product,  one  ingenious  mind,  superintending,  gives 
effect  to  the  muscular  exertions  of  a  score  of  igno- 
rant workers. 


OF  LABOR.  13 

It  is  obvious,  that,  in  the  wide  range  of  produc- 
tive industry,  mental  labor  is  quite  as  essential  as 
ph^^sical  labor.  Whatever,  therefore,  quickens  the 
mental  activity  and  promotes  the  intelligence  of  a 
people,  tends  to  the  increase  of  their  wealth. 

Mental  labor  is  also  indirectly  instrumental  in 
production,  as  it  is  applied  to  improve  the  phj^sical 
health  and  the  mental  capacity  of  individuals,  and 
to  maintain  order,  justice,  and  security  in  human 
society.  Here  belong  the  mother's  care  in  nursing 
and  training  children ;  the  teacher's  labor  to  de- 
velop the  minds  of  youth  ;  the  lawj^er's  counsel  and 
pleadings  to  define  and  maintain  the  rights  and  ob- 
ligations of  men  under  the  rule  of  civil  law ;  the 
minister's  efforts,  by  the  truths  and  precepts  of 
God's  word,  to  form  good  consciences,  and  improve 
the  public  moral  sense ;  and  the  varied  services  of 
legislators  and  officers  of  government  to  insure  sta- 
bility and  order  in  the  very  structure  of  society. 
Though  these  labors  do  not  directly  bring  forth 
material  products,  they  favor  all  the  productive 
industry  of  a  people,  and  are  as  essential  to  the 
best  results  of  its  processes  as  the  manual  labor  of 
the  farmer  or  the  blacksmith. 

The  Chang^es  effected  by  Labor  applied  to 
matter  may  all  be  reduced  to  three,  which  are  indi- 
cated by  the  three  words.  Transmutation,  Transfor- 
mation, and  Transportation. 

1.  Transmutation  is  a  change  In  the  elementary 
form  of  matter.  So,  by  the  labor  of  the  farmer, 
carbon,  gases,  and  water  are  changed  into  wheat; 


14  POLITICAL  ECONOMY. 

by  that  of  the  chemist,  acids  and  alkalies  are 
changed  into  salts ;  by  that  of  the  tanner,  skins 
and  tannin  are  changed  into  leather. 

2.  Transformation  is  a  change  in  the  aggregate 
form  of  matter.  The  shoemaker  transforms  a  hide 
of  leather  into  shoes ;  the  smith  transforms  a  piece 
of  iron  into  a  horse-shoe ;  the  spinner  transforms  a 
bale  of  cotton  into  thread,  and  the  weaver  trans- 
forms the  thread  into  cloth. 

3.  Transportation  is  a  change  in  the  place  of  mat- 
ter, as  when  a  cargo  of  wheat  is  transported  by  ship 
from  New  York  to  Liverpool,  or  ten  tons  of  dry 
goods  are  transported  by  rail-car  from  New  York  to 
Chicago. 

In  a  general  wa}^  these  changes  represent  respec- 
tively the  agricultural,  the  mechanical,  and  the  com- 
mercial departments  of  human  industry ;  and  each 
contributes  an  important  element  of  utility.  He 
who  makes  the  flour,  and  he  who  transports  it  to 
the  people  who  need  it,  render  as  important  services 
for  the  satisfaction  of  wants  as  the  farmer  who  raises 
the  wheat.  These  divers  forms  of  labor  stimulate 
and  support  each  other. 

These  several  forms  of  labor  enter  in  different 
degrees  into  the  value  of  different  articles.  Thus 
butchers*  meat  and  green  vegetables  derive  most  of 
their  value  from  transmutation ;  clothing,  cutlery, 
&c.,  derive  the  greater  part  of  their  value  from 
transformation  ;  and  the  value  of  bulky  articles  like 
coal  is  determined  very  much  by  the  cost  of  trans- 
portation. In  most  articles,  however,  we  see  more 
or  less  of  all  these  forms  of  labor  combined.     By 


OF  LABOR.  15 

new  devices  and  increased  facilities  for  either  of 
tliese  forms  of  labor,  production  is  enlarged  and 
improved,  and  comforts  are  multiplied. 

EXERCISES. 

m 

1.  Wliat  is  the  difference  between  labor  and  play  ? 

2.  What  is  skill  ? 

3.  How  are  man's  muscle  and  mind  and  a  force  of  nature 
combined  in  driving  a  nail  ? 

4.  What  kinds  of  labor  produced  the  magnetic  tele- 
graph ? 

5.  How  does  that  invention  aid  production  ? 

6.  What  services  do  the  chemist  and  pattern-drawer  in  a 
calico-mill  render  ? 

7.  How  is  the  payment  of  a  high  salary  to  the  manager 
of  a  cotton-mill  good  economy  ? 

8.  How  is  production  favored  by  the  brain-work  of  stu- 
dents of  science,  of  inventors,  of  lawyers,  of  teachers,  of 
legislators,  judges,  and  magistrates  ? 

9.  If  you  buy  a  pocket-knife  for  fifty  cents,  how  many 
and  what  forms  of  labor  does  the  price  represent  ? 

10.  How  do  good  roads  favor  production  ? 

11.  How  do  the  operations  of  thieves  and  swindlers  affect 
production  ? 

12.  Do  gamblers  and  speculators  contribute  to  the  increase 
of  wealth  ? 

13.  How  does  the  prevalence  of  drunkenness  affect  the 
industry  of  a  community  ? 

14.  Are  men  who  labor  in  the  learned  professions  fitly 
called  non-producers? 


16  POLITICAL  ECONOMY. 


SECTION"  II.  — MEANS  FOR  INCREASING  THE 
EFFECTIVENESS  OF  LABOR. 

Economy  of  labor  is  ♦an  important  consideration 
in  the  increase  of  wealth.  Man's  physical  power  is 
limited,  and  his  strength  is  soon  exhausted.  But 
there  are  forces  of  nature  which  are  stronger  than 
he,  and  some  of  which  never  tire.  These  he  can 
bring  into  his  service,  and  so  at  the  same  time  re- 
lieve the  burden  and  multiply  the  products  of  his 
labor. 

There  is  also  great  difference  in  the  capacities  of 
different  men.  Some  have  strong  muscles  and  dull 
minds.  Others  have  strong  minds  in  weak  bodies. 
Some  are  specially  fitted  for  one  kind  of  labor,  and 
others  for  another.  The  fruits  of  labor  will  there- 
fore be  increased,  if  man}-  join  hands  under  a  sys- 
tematic arrangement  which  sets  every  one  to  doing 
the  particular  work  for  which  he  is  best  fitted. 

There  are  thus  two  ways  in  which  the  effective- 
ness of  human  labor  ma}^  be  increased :  — 

First,  by  devices  for  employing  the  agents  and 
forces  of  nature. 

Second,  by  a  systematic  division  of  labor. 

1.  The  agents  and  forces  of  nature  most  available 
for  production  are  :  — 

a.  The  muscular  power  and  instincts  of  animals. 

b.  The  light  and  heat  of  the  sun. 

c.  The  force  of  gravitation,  especially  in  falling 
water. 


EFFECTIVENESS  OF  LABOR.  17 

d.  Moving  currents  of  wind. 

e.  The  expansive  force  of  steam. 

/.  The  explosive  force  of  gunpowder,  dynamite, 
&c. 

g.  The  attractions  and  repulsions  of  electricity 
and  galvanism. 

h.  The  action  of  chemical  forces. 

To  these  we  must  add,  for  combining  and  direct- 
ing all  kinds  of  forces,  the  mechanical  principles  or 
powers  ;  viz.,  the  lever,  the  pulley,  the  inclined  plane, 
the  wheel  and  axle,  the  wedge,  and  the  screw. 

The  properties  of  matter  embodied  in  these  agents 
are  the  gift  of  God,  and  of  themselves  cost  us  noth- 
ing. But  in  most  cases,  to  make  them  available, 
some  instrument  must  be  employed  which  has  cost 
labor.  Thus,  to  control  animal  power,  we  need 
yoke  or  harness,  cart  or  wagon,  &c.  ;  a  lens  enables 
us  to  intensify  the  light  and  heat  of  the  sun ;  by 
means  of  a  water-wheel  or  pendulum  we  command 
the  force  of  gravitation  ;  by  a  wind- wheel  we  catch 
the  force  of  moving  air ;  by  a  steam-engine  we  ac- 
cumulate and  direct  the  expansive  force  of  steam ; 
by  a  hammer  we  combine  the  principle  of  the  lever 
with  the  force  of  gravitation  and  the  density  of 
steel ;  and  the  complicated  machiner}"  of  a  cotton- 
mill  is  but  an  adjustment  of  various  means  to  the 
great  purpose  of  physical  labor,  which  we  have  seen 
to  be  to  produce  and  direct  motion. 

These  instruments,  when  simple,  like  a  hammer,  a 
spade,  a  plane,  are  called  tools.  When  complicated, 
like  a  fanning-mill,  a  spinning-jenn}^,  or  a  steam- 
engine,  they  are  called  machines.     Some  instruments 


18  POLITICAL  ECONOMY. 

are  required  in  every  kind  of  labor,  for  human 
limbs  and  muscles  and  brains  unassisted  can  accom- 
plish but  little.  The  inventions  of  the  last  fifty 
years  have  introduced  elaborate  machinery  into  all 
branches  of  industry.  One  man  with  a  pair  of 
horses,  a  plough,  a  drill,  and  a  cultivator,  can  culti- 
vate ten  times  as  much  land  as  he  could  with  only  a 
spade  and  Ifoe. 

This  use  of  natural  agents  increases  the  effective- 
ness of  labor  in  two  wa}  s  :  — 

First,  it  enables  one  man  to  do  the  work  which 
must  otherwise  require  a  number  of  persons,  and  so 
either  sets  free  a  portion  of  labor  for  other  occupa- 
tions, or  greatly  multiplies  and  cheapens  products. 

Second,  it  achieves  what  no  amount  of  labor  un- 
assisted could  perform.  So  the  telegraph-machine 
is  a  means  of  instantaneous  communication  between 
places  a  thousand  miles  apart ;  the  locomotive  can 
propel  a  train  of  cars  at  the  rate  of  forty  or  sixty 
miles  an  hour ;  a  screw-machine  will  turn  out  screws 
by  the  million,  with  a  uniformity  and  nicety  of  finish 
which  could  not  be  attained  by  hand- work. 

The  great  benefit  thus  realized  is  in  multipl3ing 
the  means  of  satisfjing  human  wants,  and  bringing 
them  within  the  reach  of  all  classes  of  people.  An 
incidental  disadvantage  is,  that,  with  the  introduc- 
tion of  labor-saving  machinery,  many  persons  are 
thrown,  at  least  temporarily,  out  of  emplo^'ment,  or 
are  compelled  to  learn  new  methods  of  labor.  It 
involves  also  the  danger  of  over-production  in  cer- 
tain articles,  and  of  a  general  disturbance  of  the 
harmonious  relations  of  different  branches  of  Indus- 


EFFECTIVENESS  OF  LABOR.  19 

try.  Nevertheless  the  good  results  far  outweigh  the 
evil ;  and  we  may  hope  that  the  problem,  now  before 
the  world,  of  adjusting  the  system  of  labor  to  the 
new  condition  of  things,  will  soon  find  a  happy 
solution,  which  shall  be  equitable  and  advantageous 
to  all. 

2.  Division  of  Labor  applied  to  production 
means  that  different  kinds  of  labor  be  distributed  to 
different  individuals  and  classes  so  that  all  shall  do 
that  for  which  they  are  best  fitted. 

The  principle  is  illustrated  on  a  broad  scale  in 
the  peculiar  industries  of  different  countries  adapted 
to  their  respective  advantages.  Thus  tea  is  a  spe- 
cial product  of  China,  cotton  of  our  Southern  States, 
cutlery  of  England,  silk  goods  of  France  and  Italy. 

In  all  civilized  communities  people  take  up  differ- 
ent trades  and  professions  according  to  their  several 
capacities,  tastes,  and  circumstances.  The  results 
of  labor  are  both  increased  and  improved  when  the 
farmer  and  the  baker,  the  blacksmith  and  the  jew- 
eller, the  weaver  and  the  tailor,  the  merchant,  the 
lawyer,  the  doctor,  &c.,  each  devotes  his  energies 
to  the  work  of  his  particular  calling.  This  order  of 
things  marks  the  chief  difference  between  savage 
and  civilized  life. 

But  as  a  technical  term  of  political  economy,  divis- 
ion of  labor  has  a  more  specific  application  to  labor 
employed  on  particular  products.  Suppose,  for  ex- 
ample, an  establishment  for  the  manufacture  of 
watches  is  projected.  The  watch  is  made  up  of 
many  diflferent  parts.     Obviously  it  will  economize 


20  POLITICAL  ECONOMY. 

labor  to  assign  each  part  to  one  man  or  set  of  men. 
Thus  the  wise  application  of  the  principle  involves 
two  things :  — 

1.  An  analysis  of  the  article  to  be  produced,  and 
of  the  work  to  be  done,  into  distinct  and  simple 
parts. 

2.  A  distribution  of  these  parts  to  the  persons 
employed,  so  that  each  workman  shall  confine  him- 
self as  nearly  as  possible  to  a  single  operation. 

The  system  is  complete  when  the  several  opera- 
tions keep  each  other  going,  —  when  there  are  no 
superfluous  hands,  and  none  are  kept  idle  waiting 
on  others'  movements,  — when  the  several  processes 
fit  into  each  other  like  the  gearing  of  smooth-running 
machinery. 

The  special  advantages  of  division  of  labor 
may  be  stated  as  follows  :  — 

1.  It  shortens  the  period  requisite  for  one  to 
become  an  expert  workman.  It  is  quite  evident  that 
one  operation  can  be  learned  more  quickly  and  more 
perfectly  than  ten  or  twenty. 

2.  It  saves  the  time  which  v^^ould  be  lost  in  pass- 
ing from  one  kind  of  work  to  another.  B}'  the  law 
of  habit,  an  operation  often  repeated  becomes  easy ; 
mind  and  muscle  adapt  themselves  to  one  form  of  ' 
labor,  and  acquire  a  capacity  for  continued  exertion. 
It  will  take  some  time  to  "  get  brain  and  hand  in  " 
to  another  operation.  Where  compUcated  tools  must 
be  adjusted  to  different  kinds  of  work,  this  consid- 
eration is  of  more  importance.  "  Time  is  money," 
said  Franklin.  This  is  especially  true  in  all  matters 
concerning  the  production  of  wealth. 


EFFECTIVENESS  OF  LABOR.  21 

3.  It    increases    the    dexterity   of    the    workmen. 

Repeated  "practice  makes  perfect."  The  mind, 
the  e^^e,  the  hand,  are  trained  to  quickness  and 
precision  by  the  repetition  of  a  single  operation. 
In  a  boiler-factor}^  the  rapidity  and  precision  with 
which  the  man  plies  his  hammer  to  form  the  rivet- 
heads  is  wonderful.  He  has  acquired  this  dexterity 
by  devoting  himself  to  this  single  operation. 

4.  Division  of  labor  suggests  the  contrivance  of 
tools  to  facilitate  operations.  Many  of  our  most 
valuable  inventions  have  originated  with  workmen 
whose  attention  was  devoted  to  particular  processes. 
New  improvements  are  thus  continually  brought 
forward. 

5.  Division  of  labor  brings  into  most  profitable 
service  all  diversities  of  talent  and  capacity.  In  the 
manufacture  of  fine  glass-ware,  one  part  of  the 
process  requires  high  artistic  genius  ;  another,  judg- 
ment and  skill,  the  fruit  of  experience  ;  another,  ful- 
ness and  strength  of  lungs  ;  and  others,  the  simplest 
forms  of  manual  labor.  It  were  poor  economy  to 
set  a  raw  hand  to  engrave  a  delicate  pattern,  or 
to  send  the  artist  to  carry  the  vessels  from  the  fur- 
nace to  the  annealing-oven.  By  systematic  arrange- 
ment each  can  be  kept  doing  that  for  which  he  is 
best  fitted,  and  for  which  he  receives  wages  accord- 
ing to  its  importance. 

EXERCISES. 

1.  How  much  can  a  man  do  for  himself  without  any 
tools  ? 

2.  What  force  of  nature  does  the  Indian's  bow  bring 
into  service? 


22  POLITICAL  ECONOMy. 

3.  Is  there  any  definable  limit  to  man's  dominion  over 
other  animals  and  the  forces  of  nature  ? 

4.  Name  the  animals  which  have  been  subdued  to  serve 
man. 

5.  Name  as  many  as  you  can  of  the  useful  inventions  of 
the  present  century. 

6.  What  natural  agent  does  the  mariner's  compass  ren- 
der available,  and  for  what  purpose  ? 

7.  What  natural  agents  are  employed  in  photography, 
and  by  what  means  ? 

8.  On  what  agencies  of  nature  do  the  agricultural  crops 
depend  ? 

9.  What  is  the  function  of  the  great  balance-wheel  in  a 
mill  for  rolling  iron  ? 

10.  By  what  principles  is  the  power  of  a  slowly-moving 
water-wheel  distributed  to  a  hundred  whirling  spindles  ? 

11.  What  natural  agents  and  what  mechanical  powers 
does  an  axe  combine  ? 

12.  Mention  some  of  the  purposes  to  which  the  natural 
agent  heat  is  applied. 

13.  Why  are  inanimate  forces  preferable  to  animal  power  ? 

14.  State  the  comparative  advantages  of  water-power  and 
steam-power. 

15.  Give  an  illustration  of  the  principle  of  division  of 
labor,  and  how  it  increases  the  effectiveness  of  labor. 

16.  State  the  various  kinds  of  labor  involved  in  making  a 
pair  of  shoes. 

17.  Suppose  a  man  works  alone  at  shoemaking,  doing  all 
the  parts  himself,  how  can  he  economize  his  labor  ? 

18.  Why  do  shoes  made  in  a  wholesale  way  in  a  factory 
cost  less  than  shoes  made  to  order  ? 

19.  How  does  the  division  of  labor  affect  the  employment 
of  women  and  children  ? 

20.  How  does  it  develop  and  employ  the  highest  talent  ? 

21.  Do  the  use  of  machinery  and  the  division  of  labor 
make  labor  more,  or  less,  respectable  ? 


MANUFACTURING  ESTABLISHMENTS.       23 


SECTION   III. —  LABOR   IN    GREAT   MANUFAC- 
TURING ESTABLISHMENTS. 

The  two  means  for  increasing  the  productiveness 
of  labor,  treated  of  in  the  previous  section,  are  so 
mutually  related  that  the  one  involves  the  other. 
The  use  of  labor-saving  machinery  unites  many  per- 
sons in  the  same  process  of  production,  and  necessi- 
tates the  distribution  of  the  parts  of  the  process. 
On  the  other  hand,  the  division  of  labor  to  an}^  great 
extent  is  ordinarily  impracticable,  except  in  connec- 
tion with  the  use  of  machinery.  Both  t^nd  to  the 
setting-up  of  large  establishments,  in  which  the  full 
beneJSt  of  these  means  of  increased  productiveness 
is  realized. 

For  their  successful  operation,  these  establish- 
ments require 

1.  Large  investments  of  capital  in  machinery, 
buildings,  &c. 

2.  Large  numbers  of  laborers,  of  different  grades, 
under  one  general  management. 

3.  The  rapid  production  of  articles  in  great  quan- 
tities. 

4.  An  extensive  market  for  the  disposal  of  the 
products. 

5.  Great  executive  ability  of  two  kinds,  — 

a.  In  the  superintendence  of  the  mechanical  pro- 
cesses. 

b.  In  the  general  financial  management  of  pur- 
chases and  sales,  credits,  collections,  and  sharp 
competitions  on  a  large  scale. 


24  POLITICAL  ECONOMY. 

The  application  of  the  two  principles  may  be  said 
to  be  limited  by  these  several  considerations.  In  a 
new  country  there  is  little  accumulation  of  either 
wealth  or  population :  the  demand  for  particular 
articles  is  small ;  facilities  for  transportation,  which 
would  widen  the  market,  are  few ;  and  the  first 
emigrants,  though  young  and  energetic,  have  yet 
to  develop  mutual  confidence  and  high  executive 
ability.  Hence  labor  begins  with  each  man's  doing 
by  himself  all  kinds  of  work  with  few  and  simple 
tools.  But  in  due  time  diverse  industry  is  devel- 
oped as  naturally  as  a  tree  grows.  As  wealth  is 
accumulated,  and  population  increases,  new  wants 
arise,  and  new  means  of  satisfying  them  are  provided. 
As  roads  and  bridges  are  made,  and  railways  push 
themselves  on,  the  market  is  widened,  enterprise  is 
stimulated,  talents  are  brought  forward,  and  great 
establishments  are  set  up  for  production  on  a  large 
scale.  Such  a  natural  growth  is  far  more  healthy 
and  sound  than  the  premature  development  which 
comes  from  forced,  artificial  appliances. 

When  a  large  establishment  has  been  started,  a 
deficiency  in  either  of  the  five  particulars  named  may 
prove  disastrous.  If  the  funds  at  command  are  all 
put  into  what  the  English  call  "  the  plant,"  the 
enterprise  may  fail  for  lack  of  working  capital ;  or 
skilled  laborers  may  be  scarce  ;  or  the  products  may 
be  diminished  through  insuflScient  or  unfit  material ; 
or,  on  the  contrary,  the  products  may  be  in  excess 
of  the  demand,  with  no  provision  for  enlarging  the 
market.  Most  disastrous  of  all  is  the  lack  of  ex- 
ecutive abilit}^  and  wisdom   in   either  the   detailed 


MANUPACTURIXG  ESTABLISHMENTS.       25 

processes  of  the  manufacture,  or  the   general   ad- 
ministration of  the  business. 

When,  however,  these  conditions  are  fulfilled,  by 
a  harmonious  combination  of  all  the  elements  in  due 
proportion,  the  highest  efficiency  of  labor  is  attained. 
The  general  welfare  is  thus  greatly  promoted  in 
several  wa^^s. 

1.  Primarily  and  chiefly,  products  are  multiplied 
and  cheapened.  The  large  estabhshment  economizes 
labor,  as  appears  in  what  was  said  of  division  of 
labor.  It  economizes  materials,  saving  every  item 
of  utility  in  the  scraps  and  odds  and  ends  w^hich  in 
production  on  a  small  scale  would  be  thrown  away. 
Thus,  in  the  large  packing-houses,  the  hoofs,  the 
horns,  the  bones,  even  the  blood  and  refuse  matter, 
of  the  animals  slaughtered,  are  utilized.  It  econo- 
mizes supervision  also  ;  one  man  of  brains  being  able 
to  oversee  and  direct  the  operations  of  five  hundred 
or  a  thousand  workmen  easih'  and  effectively.  As  a 
consequence,  the  cost  of  articles  is  reduced,  so  that 
thousands  instead  of  hundreds  of  people  can  afford 
to  use  them.  Thus  the  great  cotton-factories  have 
l»rought  down  the  cost  of  common  musUn  from  fift}^ 
cents  to  six  cents  per  yard,  and  all  classes  of  people 
can  use  it  freely  and  abundantly. 

2.  Production  on  a  large  scale  tends  to  increase 
the  variety  of  objects  which  minister  gratifications. 
How  many  new  and  beautiful  fabrics  made  of  cot- 
ton have  the  great  factories  given  to  the  world ! 
The  article  caoutchouc,  called  India-rubber  formerly, 
because  its  onl}'  known  use  was  to  rub  out  pencil- 
marks,  is  now  brought  out  from  large  estabHshments 


26  POLITICAL  ECONOMY. 

for  working  it,  in  a  hundred  forms,  adapted  to  ren- 
der most  important  services.  The  concentration  of 
labor  quickens  invention. 

3.  Such  organization  of  labor  increases  tlie  cer- 
tainty of  the  steady  employment  of  laborers.  On  the 
first  introduction  of  labor-saving  machiner^^,  work- 
men have  been  often  thrown  into  a  panic  lest  they 
should  lose  emploj^ment ;  but  almost  invariably, 
under  the  augmented  production  and  reduced  cost, 
the  demand  is  so  extended  that  the  labor  required 
is  increased,  instead  of  being  diminished.  Thus  the 
actual  condition  of  the  English  weavers  was  greatly 
improved  by  the  introduction  of  the  power-loom. 
Notwithstanding  occasional  fluctuations  consequent 
on  over-production  and  financial  revulsions,  the  ten- 
denc}^  of  large  manufacturing  establishments  is  to 
insure  constancy  of  employment  to  laborers  of  all 
grades. 

4.  This  sj'stem  of  large  productive  operations 
helps  to  maintain  a  proper  balance  between  different 
branches  of  industry.  Increased  production  in  one 
department  stimulates  activity  in  every  other,  both 
by  the  example  of  success,  and  by  an  actual  demand 
for  other  products,  to  meet  the  various  wants  of 
large  numbers  of  people  gathered.  So,  gradually, 
the  use  of  machinery  and  the  division  of  labor  are 
combined  in  large  establishments  for  making  all 
kinds  of  articles,  from  friction-matches  to  locomo- 
tive-engines ;  and  some  common  interests  bind  all 
together. 


MANUFACTURING  ESTABLISHMENTS.        27 

Certain  evils  incident  to  the  minute  divis- 
ion of  labor  in  large  establishments  must  also  be 
noticed. 

1.  There  is  danger  that  the  physical  health  and 
vigor  of  laborers  will  be  impaired.  There  is  more 
or  less  involved,  long  and  close  confinement  to  a 
single  operation,  which  overtasks  one  hmb  or  set  of 
muscles,  in  a  posture  which  cramps  and  oppresses 
the  vital  organs,  under  exposure  to  deleterious  gases 
and  exhalations,  and  to  the  breathing  of  air  bereft 
of  oxygen,  and  charged  with  carbonic  acid.  There 
are  also  strong  temptations  to  the  confinement  and 
excessive  labor  of  children  not  full-grown,  and  to  the 
overtasking  of  women,  unfitting  them  to  be  healthy 
mothers.  The  vital  statistics  of  large  manufactur- 
ing towns  present  painful  facts  illustrating  this  evil. 

2.  There  is  danger  that  the  mind  will  be  contracted 
and  enfeebled.  When  one's  attention  and  energies 
are  absorbed  for  ten  hours  each  day  in  sharpening 
pins  or  counting  buttons  by  a  machine,  his  soul' must 
be  cramped,  and  its  development  hindered,  unless 
special  means  are  taken  to  counteract  the  tendency. 

3.  The  division  of  labor  involves  some  loss  of  in- 
dependence and  self-respect.  The  number  of  those 
who  manage  business  for  themselves  is  diminished  ; 
and  men  dependent  on  wages  lack  something  of  that 
manliness  of  character  which  is  gained  under  the 
responsibility  of  a  business  of  their  own. 

4.  When  a  large  establishment  fails,  it  involves  a 
sweeping  disaster.  The  fate  of  great  numbers  of 
workmen  hangs  on  the  wisdom  of  one  manager. 
Thus  the  mischiefs  of  a  general  financial  crisis  are 
aggravated. 


28  POLITICAL  ECONOMY. 

5.  Mutual  suspicions,  jealousies,  and  antagonisms 
are  fostered  in  large  manufacturing  establishments. 
The  natural  inequality  of  men  is  increased.  Some 
chafe  under  subordination  to  others ;  and  one  rest- 
less, jealous  spirit  may  disturb  the  cheerful  labor 
of  hundreds.  On  the  other  hand,  the  possession  of 
power  prompts  some  employers  and  managers  to  an 
imperious  disregard  of  the  rights  of  those  under 
them. 

These  evils  are  to  be  recognized,  yet  they  are  not 
incurable.  By  many  manufacturing  companies  spe- 
cial pains  are  taken  to  counteract  them,  with  favor- 
able results.  We  may  hope  for  relief  to  come  from 
the  present  agitation  of  the  labor- question,  and  from 
whatever  measures  promote  intelligence  and  foster 
the  sentiments  of  justice  and  good-will. 

EXERCISES. 

1.  Describe  any  large  manufacturing  establishment  you 
may  have  visited. 

2.  What  natural  agents  are  brought  into  use  by  its 
machinery  ? 

3.  How  many  persons  are  employed  in  it,  and  how  is 
the  work  distributed  among  them  ? 

4.  How  much  are  the  articles  produced  improved  and 
cheapened  ? 

5.  Where  do  these  articles  find  a  market  ? 

6.  What  special  qualities  has  the  superintendent  ? 

7.  What  is  the  condition  of  a  people  who  have  no 
machinery  or  division  of  labor  ? 

8.  Is  it  luxuries,  or  necessaries,  that  are  most  produced 
in  large  manufactories  ? 

9.  Is  it  the  rich,  or  the  poor,  who  are  most  benefited  by 
the  reduced  cost  of  manufactures  ? 

10.  Is  it  wise,  or  foolish,  for  the  laborers  in  Mexico  to 


MANUFACTURING  ESTABLISHMENTS.       29 

destroy  reapers   and    other   labor-saving  agricultural  ma- 
chinery introduced  ?    Why  ? 

11.  Will  the  setting-up  of  a  large  factory  in  your  town 
affect  laborers  favorably,  or  unfavorably  ?    Why  ? 

12.  Why  are  laws  needed  to  regulate  the  employment  of 
children  in  factories  ? 

13.  How  may  the  danger'  to  the  health  of  laborers  in 
factories  be  relieved  ? 

14.  What  can  be  done  to  save  minds  from  being  dwarfed  ? 

15.  Must  one  necessarily  sacrifice  a  proper  spirit  of  inde- 
pendence and  self-respect  by  becoming  an  employe  in  such 
an  establishment  ? 

16.  What  is  the  effect  of  successful  enterprise  in  one 
branch  of  industry  on  all  others  ? 


30  POLITICAL  ECONOMY. 


CHAPTER  II. 

OF  CAPITAL. 

Its  Definition.  Capital  is  that  part  of  wealth 
•which  is  employed,  or  designed  to  be  employed,  in 
production.  Since  this  word  is  used  vaguely,  we 
need  to  adhere  to  a  strict  definition.  Let  us  notice 
two  or  three  mistakes  which  tend  to  confuse  ideas 
on  this  subject. 

1.  Capital  is  not  synonymous  w^ith  wealth.  All 
capital  is  wealth  ;  but  all  wealth  is  not  capital.  Sup- 
pose a  farmer's  crop  this  year  gives  him  a  hundred 
bushels  of  wheat  to  spare.  He  may  lay  it  up  in  his 
granary  for  his  own  future  use  ;  or  he  may  sell  it  for 
gold,  and  bury  the  gold  for  safe  keeping  ;  or  he  may 
spend  the  gold  for  a  fine  picture  with  which  to  adorn 
his  parlor.  In  either  case  it  is  a  part  of  his  wealth ; 
but  since,  in  either  case,  it  will  do  nothing  to  increase 
his  next  ^^ear's  crop  or  income,  it  is  not  capital.  If, 
however,  he  exchanges  his  surplus  wheat  for  a  horse, 
or  spends  the  avails  of  it  on  labor  to  clear  and  drain 
his  fields,  or  buys  with  it  a  share  of  stock  in  a 
flouring-mill,  he  turns  this  part  of  his  wealth  into 
capital.  His  wheat  is  gone,  or  the  money  is  gone  ; 
but  in  the  horse,  or  the  improved  land,  or  the  share 
in  the  mill,  it  is  to  work  out  for  him  more  wealth 
next  year. 


OF  CAPITAL.  81 

2w  Capital  is  not  synonymous  with  money.  Money 
buried  in  the  ground  produces  nothing.  A  man 
intending  to  start  a  woollen-mill  may  need  first  to 
turn  some  of  his  property  into  money  with  which 
to  pay  for  buildings,  machinery,  &c.  His  fifty  thou- 
sand dollars  deposited  in  the  bank  for  this  purpose 
is  his  prospective  capital ;  but  it  will  not  become 
for  him  actual  capital  till  it  is  paid  out  for  a  build- 
ing, a  water-wheel,  spinning-jennies,  and  power- 
looms.  When  his  establishment  is  complete,  his 
money  will  be  all  gone  ;  but  now  he  has  his  capital 
all  ready  for  service.  Money  in  circulation  is  an 
instrument  of  exchange,  and  so  performs  an  impor- 
tant function  for  all  productive  industry ;  but  it  is 
just  a  wheelbarrow  to  pass  things  from  one  to 
another.  The  confusion  of  ideas  comes  from  the 
fact  that  capital,  and  indeed  all  wealth,  is  estimated 
in  terms  of  money ;  but  in  reality  only  a  small  por- 
tion of  an  individuaPs  or  a  nation's  capital  is  in  the 
form  of  money ;  and  always  the  quality  of  money  is 
of  far  more  consequence  than  its  quantity. 

3.  Capital  does  not  properly  include  human 
qualities,  such  as  strength,  skill,  judgment,  energy, 
Integrity.  These  are  often  spoken  of  loosely  as  a 
part  of  capital.  Certainly  they  are  very  important 
elements  of  production,  and  are  the  result  of  pre- 
vious productive  effort ;  but  they  are  qualities  of 
labor,  and  so,  in  the  distinctions  of  our  science,  are 
more  properly  classed  under  that  head,  as  we  have 
seen. 

Varying  the  form  of  our  definition  a  little  in  view 
of  these  mistakes,  we  ma}^  say  Capital  includes  all 


32  POLITICAL  ECONOMY. 

material   products   devoted   to   purposes   of   further 
production. 

The  Origin  of  CapitaL  Capital  is  always  the 
fruit  of  past  labor  saved.  A  farmer's  boy  once 
received  as  the  first  wages  of  his  labor  an  ewe- 
lamb.  He  might  have  sold  the  lamb,  and  spent 
the  avails  on  his  immediate  gratification ;  but  he 
chose  to  keep  it,  and  care  for  her  and  her  3'oung. 
The  clip  of  wool  and  the  natural  increase  from  year 
to  year  were  in  like  manner  saved,  till  he  came  into 
possession  of  a  valuable  flock ;  then  he  sold  the 
flock,  and  with  the  avails  commenced  business  as 
a  merchant.  Thus  the  first-fruit  of  his  labor  saved 
became  the  nucleus  of  a  capital  which  fostered  the 
industries  of  two  continents.  Such  is  universall}'  the 
origin  and  growth  of  capital.  It  begins  in  saving, 
and  grows  by  the  continued  exercise  of  industry 
and  frugality.  The  first  step  of  the  savage  towards 
civilization  is  to  learn  forethought  and  self-denial. 

In  this  aspect  of  the  matter,  capital  is  simply  past 
labor  embodied,  and  reserved  for  present  labor  to 
work  with.  Hence  we  see  that  labor  and  capital 
are  not  so  diverse  as  many  suppose.  In  nature 
they  are  akin,  and  indispensable  to  each  other  in 
the  processes  of  production  ;  always  combined  for  a 
common  end.  They  are  set  in  antagonism  to  each 
other  only  through  a  popular  sentiment,  or  an  or- 
ganization of  society  radically  false  and  wrong. 

Forms  of  Capital.  The  products  of  previous 
labor  appear  as  capital  in  man}^  and  varied  forms, 
but  all  may  be  grouped  under  four  heads  ;  — 


OF  CAPITAL.  88 

1.  Implements  and  machinery  by  which  present 
labor  is  made  effective.  Here  are  included  the  cart, 
the  plough,  the  divers  tools,  machines,  and  useful 
and  laboring  animals  of  the  fanner ;  the  axe,  the 
plane,  the  awl,  and  the  hammer  of  the  mechanic ; 
the  engines  and  various  machinery  of  the  manufac- 
turer ;  and  the  wagon,  the  ship,  the  railway  and  its 
rolling-stock  for  the  transportation  of  goods.  To 
this  category  belong  also  the  land  and  its  improve- 
ments by  drainage,  irrigation,  fences  or  hedges,  &c., 
and  buildings  for  barns,  workshops,  storehouses,  and 
manufactories.  To  all  of  this  the  general  term 
Fixed  Capital  is  often  applied.  With  the  activity 
of  invention,  and  the  multiplication  of  machinery, 
the  amount  of  capital  in  this  form  becomes  very 
large. 

2.  Materials  to  which  present  labor  is  to  be  applied. 
Under  this  head  may  be  set  down  the  farmer's  seed 
and  manure  ;  the  manufacturer's  raw  materials,  such 
as  lumber,  cotton,  iron,  wool,  leather,  &c. ;  his  sec- 
ondary materials,  such  as  yarn,  steel,  gold-leaf,  &c. ; 
and  his  auxiliary  materials,  such  as  coal  for  raising 
steam,  chlorine  for  bleaching,  acids,  alkalies,  and 
d3'e-stuffs  for  coloring.  All  these  come  with  values, 
as  the  products  of  former  labor,  to  have  their  values 
increased  by  new  transformation  under  present  labor. 

3.  Means  of  subsistence  for  laborers.  Men  must 
have  food  and  clothing  and  shelter  while  they  work. 
This  must  come  from  previous  labor,  as  the  crops  of 
last  year  sustain  the  farmer  and  his  help  while  this 
3"ear's  crops  are  maturing.  Under  this  head  must 
be  embraced  dwelling-houses,  as  well  as  all  kinds  of 


eS4  POLITICAL  ECONOMY. 

provisions  and  apparel  needful  for  the  support  and 
comfort  of  families.  In  large  establishments  the 
provision  made  for  salaries  and  wages  covers  all 
these  items. 

4.  Finished  products  waiting  for  a  market.  The 
process  of  production  is  not  completed  till  the  prod- 
ucts pass  from  the  producer's  hands.  A  farmer 
may  not  choose  to  dispose  of  his  crop  as  soon  as  it 
is  gathered.  At  certain  seasons,  the  manufacturer 
may  be  compelled  to  accumulate  a  large  stock  of  his 
goods,  in  readiness  for  a  brisk  sale  when  the  market 
opens.  For  the  time,  the  crop,  or  the  stock  of 
goods,  absorbs  a  portion  of  capital.  This  necessity 
is  incident  to  every  line  of  productive  industry,  and 
allowance  must  be  made  for  it  in  providing  capital 
for  the  business. 

In  civilized  societ}',  something  in  these  forms  of 
capital  is  essential  to  every  kind  of  production. 
The  blacksmith  who  works  by  himself  must  have 
forge  and  anvil,  hammer  and  tongs,  for  instruments  ; 
some  iron  for  material ;  a  home,  with  some  store  of 
clothing  and  food,  for  his  subsistence ;  and  a  few 
finished  horseshoes  hanging  in  his  window,  ready 
for  the  first  call.  And  the  capital  of  a  great  cotton- 
factory,  though  counted  b}"  millions,  may  all  be 
resolved  into  these  four  forms. 

The  Consumption  of  Capital.  Though  capital 
is  the  fruit  of  saving,  3^et  it  is  the  fixed  law  of  pro- 
duction that  labor  applied  to  capital  destroys  value  of 
one  kind  in  order  to  bring  forth  a  superior  value  of 
another  kind. 


OF  CAPITAL.  35 

This  change  is  passing  on  capital  in  each  of  its 
forms.  The  instruments  slowly  and  surely  wear 
away  by  use,  the  materials  are  immediately  de- 
stroyed, food  is  rapidly  consumed,  clothing  more 
slowly,  and  the  house  more  gradually  still,  but  none 
the  less  surely  ;  and  the  finished  product  sold  is  lost 
to  the  producer,  to  appear  again  in  new  implements, 
new  materials,  new  means  of  subsistence,  and  new 
products.  This  is  the  unceasing  round  of  values 
destroj^ed  for  the  sake  of  greater  values  produced. 
The  difference  between  the  value  consumed  and  the 
value  produced  is  the  profit,  —  the  end  steadily 
aimed  at.  It  matters  not  in  what  form  the  value 
re-appears,  provided  only  it  is  greater  than  that 
destroyed.  If  a  value  is  destroyed  to  produce 
another  only  equal  to  it,  we  lose  our  labor.  If  a 
value  is  destroyed,  and  nothing  is  reproduced,  we 
lose  both  labor  and  capital.  Individuals  and  nations 
grow  rich  only  as  the  value  created  is  superior  to 
the  value  of  both  the  labor  and  capital  consumed. 

Mr.  Mill  says,  "  The  greater  part,  in  value,  of  the 
wealth  now  existing  in  England,  has  been  produced 
by  human  hands  within  the  last  twelve  months.  A 
very  small  proportion  indeed  of  that  large  aggre- 
gate was  in  existence  ten  years  ago ;  of  the  i)resent 
productive  capital  of  the  country,  scarcely  any  part 
except  farm-houses  and  a  few  ships  and  machines ; 
and  even  these  would  not,  in  most  cases,  have  sur- 
vived so  long,  if  fresh  labor  had  not  been  employed 
within  that  period  in  putting  them  in  repair.  Capi- 
tal is  kept  in  existence  from  nge  to  age,  like  popula- 
tion, not  by  preservation,  but  by  reproduction." 


36  POLITICAL  ECONOMY. 

Productive  and  Unproductive  Capital,      By 

our  definition,  all  capital  is,  or  is  designed  to  be, 
productive.  Wealth  that  is  not  productive  is  not 
capital.  But  capital  is  sometimes  unprofitably  in- 
vested, as  in  a  mill  or  a  railway  abandoned.  Some- 
times in  a  financial  revulsion,  or  in  consequence  of 
over-production,  the  business  of  a  great  factor}^  is 
suspended.  In  these  cases,  for  the  time,  capital  is 
unproductive.  Then  it  loses  its  ordinary  profit ; 
and,  besides,  machinery  unemplo3'ed  generally  suf- 
fers damage  quite  as  fast  as  when  running.  Sound 
economy  requires  that  capital  be  constantly  joined 
with  labor,  and  so  made  productive. 

Fixed  and  Circulating  Capital.  We  notice 
these  as  terms  quite  commonly  used ;  but  the  dis- 
tinction they  indicate  is  neither  yery  im^oortant  nor 
very  accurately  defined.  In  general,  fixed  capital 
means  little  more  than  land,  buildings  for  both  busi- 
ness and  dwellings,  tools,  and  machiner3\  Circu- 
lating capital  means  finished  products  in  passage 
from  producers  to  customers.  Thus  fixed  capital 
brings  out  its  fruits  in  circulating  capital.  And 
since,  in  prosperous  production,  the  A^alues  produced 
are  greater  than  those  consumed,  the  surplus  of  cir- 
culating capital  is  very  naturally  turned  into  fixed 
capital  for  enlarged  operations.  A  particular  article 
may  be  set  down  under  the  one  head  or  the  other, 
according  to  its  relations.  A  plough,  for  instance, 
in  the  plough-factory,  just  finished,  or  in  the  hands 
of  the  merchant,  is  circulating  capital ;  held  by  the 
farmer  for  use,  it  is  a  part  of   his  fixed  capital. 


OF  CAPITAL.  37 

Money,  though  it  circulates  more  freely  than  any 
thing  else,  must  be  classed  with  fixed  capital.  It 
is  an  instrument  of  exchange,  which,  like  a  wagon, 
a  ship,  or  a  locomotive,  runs  to  and  fro  continually, 
only  to  move  other  things. 

EXERCISES. 

1.  Is  a  workman's  coat  an  item  of  capital?  How  is  it 
with  his  Sunday  suit  ? 

2.  Is  money  deposited  in  a  bank  for  safe-keeping  merely 
capital  to  the  depositor  ?  What  if  the  banker  loans  that 
money  to  a  manufacturer  ? 

3.  When  may  a  piano-forte  be  regarded  as  an  item  of 
capital  ? 

4.  Suppose  a  man  has  great  skill  as  an  engraver,  but  no 
plates  nor  tools  to  employ  his  skill.  Is  his  skill  capital  ? 
Can  the  plates  be  made  productive  capital  without  the  skill  ? 

5.  Do  the  savings  of  a  miser  increase  capital  ? 

6.  What  risks  are  involved  in  putting  one's  savings  into 
capital  ? 

7.  What  is  the  ultimate  effect  of  extravagant  living  on 
production  ? 

8.  If  a  seamstress  pays  for  a  sewing-machine  out  of 
her  earnings,  what  does  the  machine  represent  ?  What 
advantage  does  it  yield  ? 

9.  Illustrate  the  forms  of  capital  in  the  case  of  a 
cabinet-maker  working  by  himself. 

10.  Illustrate  the  same  point  in  any  large  factory  with 
which  you  are  familiar. 

11.  What  capital  is  necessary  for  a  wood-chopper  who 
works  by  the  day  ? 

12.  If  the  Pacific  Mills  pay  each  week  six  thousand  dol- 
lars wages,  what  items  of  capital  does  the  sum  represent  ? 

13.  What  items  of  capital  appear  in  the  annual  inventory 
of  a  shoe-factory  ? 

14.  How  is  the  capital  consumed  in  the  yearly  wear  of 
machinery  replaced  ?  In  estimating  profits,  what  allowance 
must  be  made  for  this  ? 


88  rOLITICAL  ECONOMY. 

15.  A  farmer  paid  five  hundred  dollars  for  stock  in  a 
railway  running  near  his  farm.  The  suhsequent  sale  of 
the  road  under  foreclosure  of  honds  made  the  stock  worth- 
less. But  the  facilities  of  the  road  add  ten  cents  a  bushel 
to  the  price  at  which  he  sells  his  wheat.  Is  the  capital 
which  he  put  into  the  railroad  productive,  or  unproductive  ? 

16.  When  is  a  threshing-machine  fixed,  and  when  circu- 
lating capital  ? 


CO-OPERATION   OF  LABOR  AND  CAPITAL.     39 


CHAPTER  III. 

THE    CO-OPERATION   OF  LABOR  AND  CAPITAL. 

In  the  processes  of  production,  liabor  and 
Capital  are  Partners,  Co-ad jutors  for  a  com- 
mon end,  Sharers  in  a  joint  result.  Each  is  ne- 
cessary to  the  other;  each  is  helpless  without  the 
other.  The  most  stalwart  man  can  produce  nothing 
without  food  and  clothing,  tools  and  materials,  — 
the  fruit  of  previous  labor,  i.e.,  capital.  Facto- 
ries filled  with  ingenious  machinery,  warehouses 
full  of  cotton,  stores  of  finished  goods,  capital  in 
whatever  form  or  amount,  can  do  nothing  to  in- 
crease itself.  Thus  labor  and  capital  are  the  two 
necessar3^  and  inseparable  factors  in  the  production 
of  wealth. 

For  their  co-operation  these  elements  meet  most 
harmoniously  in  the  same  person;  that  is,  when  the 
laborer  owns  capital  enough  to  emplo}^  his  own 
labor.  Then  one  will,  one  self-interest,  controls 
both,  and  jealousy  is  excluded.  But  this  adjust- 
ment cannot  be  universal,  for  three  reasons  :  — 

1.  Capital  under  the  application  of  labor  tends  to 
increase,  SO  that  the  man  soon  finds  in  his  hands  a 
surplus,  to  employ  which  he  must  seek  another,  who 
has  only  labor,  to  work  under  him.     Thus  a  distinc- 


40  POLITICAL  ECONOMY. 

tion  between  laborer  and  capitalist,  employer  and 
employed,  is  sure  to  rise. 

2.  The  great  diversity  of  capacities  and  tastes 
among  men  necessitates  a  separation  into  two 
classes.  Often  the  man  strongest,  and  most  skilful 
for  labor,  has  no  tact  to  manage  business,  and  save 
its  returns.  On  the  other  hand,  men  of  great  finan- 
cial ability  are  not  infrequently  physically  weak,  and 
unfit  for  manual  toil. 

3.  Certain  forms  of  production  must  be  carried  on 
in  large  establisliments,  where  are  combined  large 
amounts  of  capital  and  great  numbers  of  laborers. 
The  advantages  of  machinerj^  and  the  division  of 
labor  can  be  secured  in  no  other  way.  Some  things, 
like  ships  and  locomotives,  can  be  made  only  by 
such  combinations ;  and  even  such  things  as  pins, 
buttons,  and  matches  are  most  economically  pro- 
duced on  a  large  scale. 

Thus  the  two  factors  are  separated:  the  capital 
falls  to  some  persons,  and  the  capacity  to  labor  to 
others.  The  abstract  equality  and  mutual  depend- 
ence of  the  two  factors  is  disturbed,  jealousies 
spring  up,  and  short-sighted  self-interest  produces 
antagonism  between  them.  As  the  parties  meet  to 
enter  into  contract,  the  capitalist  has  the  advantage, 
because  he  has  something  which  he  can  live  on ; 
while  the  laborer  must  work,  or  starve.  The  capital- 
ist is  tempted  to  use  his  advantage ;  and  the  con- 
sciousness of  dependence  makes  the  laborer  sensitive, 
and  suspicious  of  wrong.  Against  their  own  true 
interests,  the  parties  are  led  thus  to  array  themselves 
against  each  other. 


CO-OPERATION  OF  LABOR  AND   CAPITAL.     41 

Conditions  on  which  the  Harmonious  Union 
and  Effective  Co-operation  of  Latoor  and  Capital 
depend : — 

1.  A  general  distribution  of  capital;  that  is,  such 
a  condition  of  things,  that  the  capital  of  a  country 
is  in  many  rather  than  few  hands ;  that  laborers 
themselves  shall  have,  or  be  encouraged  to  secure, 
some  capital.  All  means  which  help  laborers  to 
save  their  earnings  favor  this  condition. 

2.  The  ratio  of  the  amount  of  capital  to  the  number 
of  laborers.  It  is  a  fundamental  principle  of  Politi- 
cal Economy  that  industry  is  limited  by  capital,  and 
every  increase  of  capital  demands  increase  of  labor. 
The  grand  regulator  is  free  competition  on  either 
side,  under  which  the  tendency  is  towards  an  equi- 
librium ;  for  nature  provides  for  the  steady  increase 
of  both  capital  and  labor  in  some  definite  proportion. 

3.  The  certainty  that  labor  and  capital  shall  each 
have  its  just  reward.  Nobody  questions  the  right 
of  the  laborer  to  a  reward  for  his  toil.  If  we 
remember  that  capital  is  the  fruit  of  past  labor 
saved,  the  right  of  its  owner  to  a  reward  for  its  use 
is  equally  plain.  The  reward  of  each  must  come 
from  the  product  of  their  union.  To  insure  this 
certainty  of  reward,  certain  things  in  the  social 
organization  are  essential.  ' 

a.  There  must  be  division  of  property,  personal 
ownership  in  every  thing  that  can  by  labor  be  made 
an  object  of  value,  and  appropriated.  Without  this, 
capital  cannot  be.  The  theory  of  communism  is 
false  to  nature,  and  fatal  to  industry. 

b,  A  prevalent  moral  sentiment  and  just  laws  must 


42  POLITICAL  ECONOMY. 

give  security  to  property-rights.  These  safeguards 
are  needed  to  pre^'ent  robbery  and  fraud  by  individ- 
uals, and  to  restrain  governments  from  oppression. 

C.  There  is  needed,  for  both  capital  and  labor, 
perfect  freedom,  unrestricted  by  monopolies,  or  special 
legislation.  The  inherent  right  of  every  man  to  do 
what  he  will  with  his  own,  provided  he  do  no  wrong 
to  his  neighbor,  is  not  to  be  questioned.  Ordinarily, 
each  will  judge  best  for  himself  as  to  ,the  use  he  will 
make  of  both  his  labor  and  his  capital. 

4.  The  general  intellectual  and  moral  culture  of 
a  people  is  an  important  condition  of  the  effective 
co-operation  of  labor  and  capital.  Intelligence  in 
the  laborer  adds  to  his  efficiency.  Honesty  and  in- 
tegrity are  of  the  highest  consequence  to  the  safe 
investment  of  capital.  With  reference  to  the  co- 
operation of  the  two,  it  is  important  that  both 
parties,  as  they  meet,  be  able  to  take  broad  views 
of  their  common  interests  and  mutual  dependence. 
Harmon}^  between  the  two  requires  mutual  respect ; 
and  the  basis  of  this  is  self-respect  on  the  part  of 
each,  which  springs  from  a  clear,  intelligent  under- 
standing of  relations,  rights,  and  privileges.  Thus 
means  for  the  general  education  of  a  people,  and  the 
culture  of  good  consciences  by  all  religious  influ- 
ences, have  an  economical  value  which  cannot  be 
over-rated. 

There  is  reason  to  believe  that  laborers  have  some 
occasion  to  complain  of  hardships  from  the  oppres- 
sion of  capital ;  3'et  the  wrong  is  not  all  on  one  side. 
The  agitation  of  questions  at  issue  between  the 
parties  will  do  good,  if  it  leads  to  a  better  under- 


CO-OPERATION  OF  LABOR  AND  CAPITAL.     43 

standing  and  a  controlling  regard  for  their  common 
interests.  But  measures  which  directly  increase 
jealousy  between  them,  organizations  which  contem- 
plate hostility  and  violence,  can  only  aggravate  the 
evil,  and  work  damage  to  both  sides.  Combinations 
on  either  side  to  rule  out  fair  competition,  and  repress 
freedom  of  individual  judgment  and  action,  are 
positively  and  only  mischievous.  Whatever  tends 
to  increase  the  intelligence,  and  promote  the  thrift 
and  independence,  of  laborers,  is  helpful  to  hearty 
and  profitable  co-operation. 

EXERCISES. 

1.  Illustrate  the  partnership  of  labor  and  capital  in  the 
case  of  a  blacksmith  who  owns  his  shop,  tools,  &c.,  and 
works  by  himself. 

2.  Suppose,  at  the  end  of  a  year,  the  blacksmith  has  a 
surplus  of  earnings.  How  can  he  use  it  to  extend  his  busi- 
ness? 

3.  Explain  the  co-operation  of  labor  and  capital  when 
he  has  a  hired  man  working  with  him. 

4.  How  are  labor  and  capital  partners  in  a  watch-factory, 
whose  capital,  valued  at  a  hundred  thousand  dollars,  is 
owned  by  a  hundred  stockholders,  and  employs  a  hundred 
hands  ? 

5.  In  what  ways  might  a  laborer  in  such  a  factory  turn 
his  surplus  earnings  into  capital  ? 

6.  Suppose  a  skilful  workman,  with  little  tact  for  mana- 
ging business,  and  a  poor  workman,  with  great  executive 
ability.  Is  it  best  that  each  should  attempt  to  run  a  small 
business  of  his  own  ? 

7.  Which  is  best  for  a  country,  —  to  have  its  land,  as  in 
England,  owned  in  large  tracts  by  a  few  landlords,  or  to 
have  it,  as  in  our  country,  held  in  small  farms  owned  by 
those  who  work  them  ? 

8.  What  is  the  effect  on  industry  of  a  social  organization 
which  divides  people  into  fixed  classes,  as  rich  and  poor  ? 


44  POLITICAL  ECONOMY. 

9.  Show  how  competition  affects  the  union  of  capital 
with  labor,  when  the  laborers  are  few  in  proportion  to  the 
amount  of  capital,  and  vice  versa. 

10.  Does  the  world  owe  any  man  a  living  without  labor  ? 

11.  If  the  property  of  a  town  were  all  held  in  common, 
how  would  industry  be  affected  ? 

12.  How  does  the  lack  of  division  of  property  among  the 
Indians  hinder  their  civilization  ? 

13.  Can  labor  and  capital  meet  in  successful  co-operation 
where  the  public  sentiment  tolerates  fraud  and  robbery  ? 
Which  party  there  suffers  most  ? 

14.  Show  the  effect  on  capital  and  labor  of  an  oppressive 
government,  like  that  of  Turkey. 

15.  What  are  monopolies  ?  How  do  they  interfere  with 
the  advantageous  co-operation  of  labor  and  capital  ? 

16.  Suppose  a  government  offers  a  bounty  for  the  pro- 
duction of  woollen  goods.  Who  pays  the  bounty  ?  Is  it 
just  and  equitable  ? 

17.  Is  it  good  policy,  by  bounties  or  high  protective  tariffs, 
to  build  up  one  branch  of  industry  at  the  expense  of  all 
others  ? 

18.  When  labor  is  scarce,  and  the  profit  of  production  is 
large,  can  any  combination  of  employers  to  keep  down  the 
wages  of  labor  long  succeed  ? 

19.  When  there  is  no  profit  on  the  production  of  cotton- 
goods,  can  a  strike  on  the  part  of  the  mill-hands  prevent 
the  reduction  of  wages  ? 

20.  What  means  do  you  think  best  adapted  to  promote 
justice,  mutual  confidence,  and  good-will  between  laborers 
and  capitalists  ? 


CONSUMPTION.  45 


PART   II. 

CONSUMPTION. 

The  Nature  of  Consumption.  All  the  pro- 
cesses of  political  economy  contemplate  actual 
gratifications  as  the  ultimate  end.  This  is  the 
legitimate  use  of  wealth.  It  can  be  attained  only 
by  consuming  the  results  of  production.  Con- 
sumption is  thus  the  counterpart  of  production, 
and  in  its  widest  signification  it  is  simply  the  de- 
struction of  value.  B}^  this  is  meant  not  the  anni- 
hilation of  material  substances,  but  the  extinction 
of  particular  forms  of  utility.  Thus  when  bread 
is  eaten,  when  a  coat  is  worn  out,  when  a  tree  is 
felled,  when  a  hide  of  leather  is  cut  up,  the  particu- 
lar utilit}^  which  each  possessed  is  destroyed.  It  is 
in  the  nature  of  things  an  established  law,  that  we 
can  neither  create  new  values,  nor  gratif}^  our  desires, 
except  by  the  destruction  of  existing  value. 

It  is  to  be  noted,  however,  that  one  act  of  con- 
sumption does  not  necessaril}^  destroy  all  the  utilities 
of  an  article.  The  linen  of  a  worn-out  shirt  has 
still  an  important  utility  as  material  for  the  manu- 
facture of  paper.  From  the  ashes  of  burned  wood 
may  be  extracted  an  alkali  useful  in  making  soap. 


46  POLITICAL  ECONOMY. 

Hence  economy  in  consumption  requires  effort  to 
exhaust  the  utilities  embodied  in  all  objects. 

Kinds  of  Consumption,  There  are  several  ways 
in  which  values  are  destroyed  by  the  extinction  of 
utility,  all  of  which  come  within  the  range  of  our 
broad  definition  of  consumption.  Sound  economy 
must  make  account  of  all. 

A  general  distinction  is  made  as  we  speak  of 
consumption  as  Involuntary  or  Voluntary ;  i.e.,  as 
effected  without  or  with  direct  design  on  the  part  of 
man. 


CHAPTER   I. 
INYOLUNTARY  CONSUMPTION. 

Under  this  head  three  specifications  may  be  named. 

1.  Natural  Consumption;  that  is,  the  waste  of 
utility,  the  destruction  of  value,  which  is  the  work 
of  nature.  All  things  tend  to  decay.  Wood  and 
vegetables  rot,  iron  rusts,  linen  goods  become  mil- 
dewed, woollen  goods  and  furs  are  moth-eaten,  grain 
in  store  heats  and  spoils,  flour  turns  sour,  and  all 
things  in  use,  even  gold  and  silver,  insensibly  wear 
away.  To  this  head  is  to  be  referred  also  the 
destruction  caused  by  locusts,  chinch-bugs,  vermin, 
&c.  "  It  is  estimated  that  in  England  the  destruc- 
tion caused  by  rats,  mice,  insects,  &c.,  amounts  to 
ten  shillings  an  acre  per  year,  equal  to  ten  million 
pounds  per  annum." 

The  degree  of  this  kind  of  consumption  varies 
with  the  climate  of  different  regions.     It  appears  in 


INVOLUNTARY  CONSUMPTION.      47 

one  form  under  the  influence  of  heat,  in  another 
under  the  power  of  cold.  It  is  most  general  and 
most  rapid  in  tropical  countries.  It  is  most  within 
the  control  of  man  in  the  Temperate  Zone,  but  no 
part  of  the  world  and  no  form  of  wealth  is  wholly 
exempt  from  this  liability. 

Sound  economy  calls  for  prudent  foresight  and 
diligent  labor  to  prevent  as  much  as  possible  this 
kind  of  consumption.  Yet,  after  the  best  that  man 
can  do,  there  will  be  much  of  waste  and  loss  from 
this  cause,  which  must  be  carefully  taken  into 
account  in  the  estimate  of  wealth  and  in  plans  for 
its  increase. 

2.  Accidental  Consumption.  Under  this  head 
may  be  included  those  sudden  calamities  which  carry 
sweeping  destruction  before  them,  proceeding  some- 
times from  the  carelessness  of  men,  sometimes  from 
the  unforeseen  and  inexplicable  action  of  nature's 
forces.  Such  are  great  fires,  railway- collisions, 
steamboat-explosions,  shipwrecks,  floods  and  torna- 
does, earthquakes  and  volcanic  eruptions,  ava- 
lanches and  land-slides.  The  annual  destruction 
of  values  in  these  ways  is  very  great.  Wealth  in 
every  form  and  in  all  countries  is  more  or  less  liable 
to  be  thus  suddenly  consumed.  No  human  art  or 
foresight  is  competent  to  prevent  it  altogether. 

To  meet  this  liability  various  methods  of  insurance 
have  been  adopted.  But  insurance  cannot  prevent 
the  loss  caused  by  destructive  accidents.  It  onl}' 
relieves  individuals  b}^  distributing  the  loss  when  it 
occurs.  When  a  house  is  burned,  the  destruction 
of  value  is  absolute  ;  the  wealth  of  the  community 


48  POLITICAL  ECONOMY. 

is  by  so  much  diminished.  If  it  was  insured,  the 
impoverishment  of  the  individual  owner  is  prevented 
only  by  bringing  many  to  share  the  damage. 

3.  Immaterial  and   Notional   Consumption. 

These  terms  are  used  by  Roscher  to  indicate  that 
dechne  of  value  which  comes  from  lapse  of  time  or 
change  of  fashion.  Thus  the  chief  value  of  a  daily 
newspaper  is  gone  when  it  is  a  week  old,  although 
in  itself  it  is  the  same  thing  as  on  the  day  it  was 
issued.  So,  too,  all  sorts  of  fancy-goods,  six 
months  after  they  are  brought  to  market,  lose  a 
considerable  part  of  their  value  b}^  a  change  of 
fashion.  If  we  remember  that  value  is  simply 
"  purchasing  power,"  it  is  evident,  that,  in  the  light 
of  our  science,  these  causes  effect  a  consumption 
which  is  as  real  as  that  which  comes  from  the  actual 
destruction  of  the  articles.  Manufacturers  and  mer- 
chants and  consumers  also  must  take  this  loss  into 
account. 

This  kind  of  consumption  varies  much  in  different 
nations,  and  with  different  classes  of  people.  In 
Germany  fashions  change  much  less  than  in  France. 
In  some  countries,  while  the  aristocratic  and  wealthy 
classes  change  their  dress  with  the  fashion,  the  con:- 
mon  people  wear  their  clothes  till  they  go  to  pieces. ' 
In  general,  this  kind  of  consumption  increases  with 
the  advance  of  civilization. 

EXERCISES. 

1.  Uliistrate  the  relation  of  consumption  to  production 
in  a  particular  instance. 

2.  Are  all  men  producers  ?    Are  all  consumers  ? 


INVOLUNTAKY  CONSUMPTION.  49 

3.  Illustrate  the  definition  of  consumption  by  the  ordi- 
nary expenses  of  a  family. 

4.  Can  you  think  of  any  gratification  which  can  be 
attained  without  some  destruction  of  value  ? 

5.  When  a  barrel  of  flour  is  made  into  bread,  what  is 
consumed  ? 

6.  When  the  bread  is  eaten,  what  other  consumption 
takes  place  ? 

7.  When  a  manufactory  stands  idle  for  six  months,  what 
kind  of  consumption  is  involved  ? 

8.  Wliy  is  it  good  economy  for  a  farmer  to  keep  his  tools 
and  machines  under  cover  when  not  in  use  ? 

9.  The  burning  of  Chicago  created  a  great  demand  for 
labor  and  materials  for  rebuilding :  was  the  loss  occasioned 
by  the  fire  thereby  diminished  ? 

10.  A  ship  and  cargo,  worth  together  half  a  million  dol- 
lars, were  totally  wrecked  at  sea;  but  thirty  days  after- 
ward insurance  amounting  to  four-fifths  of  their  value 
was  paid  to  the  owners.  What  was  the  total  destruction 
of  value  involved,  and  on  whom  did  the  loss  fall  ? 

11.  In  Germany,  military  officers  are  required  to  wear 
buttons  marked  with  the  initials  of  the  reigning  sovereign : 
what  special  effect  on  the  value  of  their  uniforms  must 
follow  the  emperor's  death  ? 

12.  When  and  why  is  it  good  economy  for  a  merchant 
to  sell  his  fancy-goods  at  less  than  their  cost  ? 

13.  Which  involves  the  greater  consumption  of  ladies' 
dresses,  actual  wear,  or  change  of  fashion  ? 

14.  What  is  the  effect  of  frequent  changes  of  fashion 
on  production  ? 


60  POLITICAL  ECONOMY. 


CHAPTER  11. 

VOLUNTARY   CONSUMPTION. 

There  are  two  objects  for  which  men  of  their  own 
purpose  destroy  existing  values.  The  one  is  the 
increase  of  wealth  by  reproduction;  the  other  is 
immediate  gratification.  Reproductive  consumption 
demands  care,  skill,  and  labor,  while  consumption 
for  gratification  ordinarily  requires  neither.  Hence 
the  former  is  more  or  less  irksome ;  the  latter  is  a 
present  joy. 

We  can  rarely  use  the  same  value  for  these  two 
distinct  and  opposite  purposes.  One  cannot  eat 
his  cake,  and  have  it  to  sell  for  something  else.  A 
man  cannot  spend  a  hundred  dollars  for  a  social 
entertainment,  and  have  the  same  money  as  capital 
in  his  business.  On  the  other  hand,  the  value  in- 
vested in  tools  and  materials  for  production  is  not 
available  for  the  suppl}^  of  food  for  the  table  or  fur- 
niture for  the  house.  These  two  kinds  of  consump- 
tion may  therefore  be  best  presented  in  distinct 
sections. 


CONSUMPTION  FOR  REPRODUCTION.        51 


SECTION  I.  —CONSUMPTION  FOR  REPRODUCTION. 

In  presenting  the  laws  of  production,  it  was  shown 
that  the  creation  of  vahies  requires  a  union  of  capi- 
tal and  labor  in  which  both  are  consumed.  Sound 
economy  respecting  consumption  for  this  object  pre- 
scribes the  general  rule,  that  the  destruction  of  value 
for  the  desired  product  be  always  the  least  which 
will  meet  the  necessity.  This  rule  is  applicable  to 
both  capital  and  labor. 

As  respects  capital,  the  following  suggestions  are 
in  point :  — 

a.  The  amount  of  capital  should  be  no  greater 
than  is  necessary.  In  cutting  cloth  for  garments, 
leather  for  shoes,  boards  for  furniture,  &c.,  there  is 
opportunity  for  great  saving  or  great  waste  of  ma- 
terials. In  agriculture,  sowing  done  by  drilling 
saves  much  seed.  Care  in  the  selection  and  adjust- 
ment of  tools  and  machinery  may  also  do  much  to 
diminish  the  cost  of  products.  It  is  unwise  to 
employ  a  steam-engine  of  a  hundred  horse-power, 
when  only  half  that  amount  of  power  is  needed ;  or 
to  use  delicate  cutting-tools  for  coarse  work. 

b.  The  kind  of  capital  employed  should  be  of  the 
lowest  value  that  will  accomplish  the  purpose. 
Straw  is  a  cheaper  material  for  paper  than  rags  ;  yet, 
for  many  purposes,  paper  made  partly  or  wholly  of 
straw  serves  well.  Chemistry  applied  to  the  arts 
has  introduced  cheaper  dye-stuffs  for  prints.  Re- 
search and  invention  are  thus  constantly  economizing 


62  POLITICAL  ECONOMY. 

the  cost  of  production,  and  every  manufacturer  needs 
to  avail  himself  of  the  fruits  of  such  study. 

The  frequent  adulteration  of  articles  is  an  abuse 
of  this  principle.  In  such  cases,  the  aim  is  to  pass 
off  goods,  under  false  appearances,  for  what  the}'- 
are  not ;  which  is  simply  fraud,  never  to  be  justified. 

C.  Every  utility  of  the  substances  employed  in 
production  sliould  be  exhausted.  There  are  frag- 
ments which  may  be  saved.  Thus  in  the  manufac- 
ture of  jewelry,  the  filings  and  sweepings  of  the 
workroom  yield  a  considerable  value.  There  are 
secondar}^  utilities  which  may  be  developed,  as  the 
refuse  of  a  large  slaughter-house  furnishes  materials 
for  soap,  candles,  and  glue.  Formerly  the  seed  of 
the  cotton-crop  was  mostly  thrown  away  ;  now  from 
the  kernel  large  quantities  of  valuable  oil  are  ex- 
tracted ;  the  oil-cake  furnishes  excellent  food  for 
cattle  and  sheep ;  the  hull  of  the  seed  fields  soluble 
phosphate  of  lime  and  potash  for  manure  ;  and  the 
spent  hull  makes  a  white  and  clean  paper-stock.  By 
realizing  these  new  values  the  cost  of  producing 
cotton-fibre  is  reduced. 

A  chief  advantage  of  production  on  a  large  scale 
is,  that  it  warrants  different  operations  for  develop- 
ing these  minor  utilities,  which  in  small  establish- 
ments are  wasted. 

As  respects  labor,  the  rule  of  economy  suggests 
three  corresponding  points  :  — 

a.  The  labor  employed  should  be  neither  more 
nor  less  than  will  effect  the  intended  result.  A  super- 
numerary laborer  wastes  both  his  own  time  and  that 


CONSUMPTION  FOR  REPRODUCTION.   53 

of  others.  A  deficienc}'  in  the  number  of  laborers 
tends  to  confusion,  and  precludes  the  most  economi- 
cal division  of  labor.  The  great  advantage  of  ma- 
chinery is  not  that  it  diminishes  labor,  but  that  it 
multiplies  the  products  of  a  given  amount  of  labor, 
and  so  economizes  production. 

b.  The  grade  of  labor  should  be  carefully  adapted 
to  diflferent  operations.  All  the  advantages  of  ''  di- 
vision of  labor  "  come  into  account  here.  It  is  wise, 
when  great  skill  is  required,  to  employ  a  man  of  skill 
at  high  wages.  It  is  unwise  to  put  such  a  laborer 
upon  work  which  can  be  as  well  done  by  an  unskilled 
workman  at  less  wages. 

C.  The  labor  paid  for  should  be  all  performed. 
To  secure  this,  efficient  superintendence  is  all-essen- 
tial. '' Time  is  mone}^,"  says  the  maxim.  Certainly 
it  is  money  to  him  who  pays  money  for  it.  Every 
hour  paid  for  that  is  spent  in  idleness  is  so  much 
unprofitable  consumption,  — an  absolute  loss.  Good 
superintendence  often  makes  all  the  difference  be- 
tween success  and  failure  in  the  conduct  of  busi- 
ness. 

From  these  considerations  it  is  evident :  — 

1.  That  the  economical  consumption  of  capital 
and  labor  depends  chiefly  on  the  careful  study  and 
accurate  knowledge  of  the  nature  of  the  processes 
of  production. 

2.  That  all  restrictions  on  the  freedom  of  capital 
and  labor  are  opposed  to  economy  of  production. 

3.  Economy  of  labor  and  capital  in  production 
promotes  the  general  welfare,  by  saving  from  destruc- 


54  POLITICAL  ECONOMY. 

tion  much  that  ma}^  be  made  tributary  to  the  satisfy- 
ing of  human  wants. 

EXERCISES. 

1.  Illustrate  the  distinction  between  consumption  for 
reproduction,  and  consumption  for  gratification. 

2.  Suppose  a  man  buys  a  piano-forte  for  $500,  and  then 
mortgages  the  piano  for  $300  with  which  to  buy  tools  for 
his  business.  Does  the  same  value  serve  the  double  purpose 
of  gratification  and  reproduction  ? 

3.  Give  examples  of  waste  and  saving  in  the  materials 
of  production. 

4.  How  do  contrivances  for  the  more  perfect  consump- 
tion of  fuel  in  steam-engines  favor  production  ? 

5.  Name  an  article  which  has  been  both  cheapened  and 
improved  by  the  use  of  cheaper  materials. 

6.  Is  the  use  of  barytes,  instead  of  white-lead,  for  mak- 
ing paint,  a  legitimate  economy  ? 

7.  Name  an  instance  of  a  secondary  utility  secured  by 
productive  operations  on  a  large  scale. 

8.  What  is  the  consequence  of  employing  five  men  on 
the  work  of  four  ? 

9.  Is  he  always  the  most  economical  laborer  who  works 
for  lowest  wages  ? 

10.  What  need  of    a  foreman  at  high  wages  in  each 
department  of  a  cotton-factory  ? 

11.  Which  is  the  best  regulator  of  consumption  for  pro- 
duction, prescriptive  law,  or  free  competition  ?    Why  ? 

12.  Would  it  be  a  blessing  to  either  laborers  or  the  com- 
munity if  labor  were  restricted  to  eight  hours  a  day  ? 


CONSUMPTION  FOR  GRATIFICATION.        55 


SECTION  IL  — CONSUMPTION  FOR   GRATIFICA- 
TION. 

The  ultimate  end  of  all  industr}'  is  to  provide  for 
the  wants  of  men,  and  to  minister  to  their  happiness. 
The  products  of  industr}^  may  fitly  be  consumed  on 
several  kinds  of  gratification. 

1.  Gratifications  essential  to  the  preservation  of 
health  and  life.  All  men  require  food,  clothing,  and 
shelter.  Hence  these  are  called  necessities.  The 
term  is,  however,  used  relativel}^,  not  absolutely. 
The  measure  and  qualit}-  of  goods  needed  in  this 
form  varies  with  circumstances,  such  as  climate, 
grade  of  civilization,  occupation,  and  social  position, 
and  also  with  the  taste,  temperament,  and  education 
of  different  persons.  A  bamboo  hut,  a  measure  of 
rice,  and  a  few  yards  of  cotton  cloth,  suffice  for  the 
pariah  of  India.  A  respectable  citizen  of  our  coun- 
try requires  values  a  hundred-fold  greater. 

2.  Gratifications  which  delight  the  senses  and 
tastes.  The  mere  sustaining  of  existence  comes  far 
short  of  filling  out  the  measure  /Of  men's  capacity 
for  enjo3^ment.  Such  things  as  delicacies  for  the 
table,  beautiful  dress  and  equipage,  ornamental  fur- 
niture, the  products  of  fine  art  in  painting,  statuary, 
architecture,  and  music,  public  exhibitions  to  please 
the  eye  and  the  ear,  yield  rich  gratifications  to  peo- 
ple of  taste.  The  desires  which  run  in  this  direction 
are  natural.  Their  gratification,  within  due  limits, 
is  refining  and  elevating.     Means  for  these  gratifica- 


56  POLITICAL  ECONOMY. 

tions  may  be  drawn  from  the  resources  of  nature, 
and  quite  generally  distributed.  It  is  morally  and 
socially  healthful  for  people  of  every  class  to  enjoy 
some  things  which  they  esteem  luxuries. 

At  the  same  time,  there  are  in  this  direction  dan- 
gers to  be  carefully  avoided.  Appetites  unnaturally 
formed  and  unduly  pampered  may  gain  the  master}^, 
and  lead  to  indulgences  which  produce  miser}'  instead 
of  happiness.  These  things  ma}^  minister  only  to  a 
desire  for  vain  ostentation,  which  breeds  discontent, 
envyings,  and  jealousies,  —  the  bane  of  happiness. 
And  men  are  sometimes  led  by  a  refined  taste  into 
ruinous  extravagance,  which  exhausts  their  means, 
and  robs  them  of  even  the  necessaries  of  life.  Self- 
control  and  prudent  forethought  should  ever  regulate 
both  the  desires  and  their  gratification. 

3.  Intellectual  gratifications,  from  fit  exercise  of 
the  mind  and  the  acquisition  of  knowledge.  These 
aflfect  the  higher  part  of  men*s  nature,  and  3deld  a 
pleasure  exceedingly  rich  and  pure,  with  a  consump- 
tion of  values  comparatively'  small.  All  are  capable 
of  enjoyment  in  some  degree  from  this  source,  and 
the  capacity  for  it  increases  as  provision  for  it  is 
enlarged. 

4.  Social  gratifications,  through  the  exercise  of 
hospitality  and  all  acts  of  friendliness,  in  the  varied 
contact  of  men  with  one  another.  By  the  constitu- 
tion of  our  nature  we  are  formed  for  mutual  inter- 
course and  fellowship,  and  through  the  good- will 
which  seeks  to  please  others  we  find  a  rich  gratifica- 
tion for  ourselves.  Such  gratifications  bind  society 
by  strong  and  healthful  ties,  and  promote  the  general 
happiness. 


CONSUMPTION  FOR  GRATIFICATION.        57 

5.  Moral  gratifications,  through  the  culture  of  a 
good  conscience  toward  God  and  toward  men,  and 
the  exercise  of  benevolence.  To  secure  these,  some 
value  must  be  consumed  in  the  support  of  rehgious 
institutions  and  in  gifts  of  charity.  By  such  expen- 
ditures the  noblest  capacities  of  our  nature  are  drawn 
out ;  and  for  the  expenditure  there  is  returned  the 
richest  satisfaction,  —  a  satisfaction  not  hmited  to 
the  moment,  but  abiding  for  the  lifetime  of  the  soul. 

The  rule  of  economy  applicable  to  consumption 
for  gratification  is  essentially  the  same  as  that  laid 
down  for  reproduction.  It  may  be  stated  in  a  gen- 
eral way  thus :  Sound  economy  dictates  that  we 
secure  the  largest  and  best  gratification  at  the  least 
practicable  consumption  of  values.  This  rule  sug- 
gests 

a.  That  the  quantity  of  articles  consumed  be 
limited  by  the  actual  needs.  Americans  may  learn 
economy  in  this  respect  from  most  European  peoples. 
Quite  generally  our  tables  are  loaded  with  a  profusion 
of  food  which  is  simply  wasteful.  Ordinarily  it  is 
more  economical  to  jjurchase  supplies  for  the  house- 
hold from  day  to  day,  at  retail,  than  at  wholesale, 
though  the  prices  paid  are  higher.  So,  too,  it  is 
commonly  unwise  to  purchase  an  article  just  because 
it  is  cheap.  The  first  and  main  question  is  always* 
''Is  it  needed?" 

h.  The  consumption  should  be  as  perfect  as  pos- 
sible, exhausting  every  utility.  The  surplus  of  a 
dinner  may  provide  for  the  next  breakfast.  An 
article  of  clothing  outgrown  by  one  child  may  be 
made  over  for  a  younger.     Bad  cooking  is  always 


58  POLITICAL  ECONOMY. 

wastefuL  Hence  it  is  good  economy  to  provide  a 
house  with  the  best  cooking-utensils,  with  fuel  that 
produces  most  heat,  and  with  competent  servants. 
Hence,  too,  a  knowledge  of  domestic  economy  and 
a  careful  superintendence  of  the. operations,  on  the 
part  of  the  mistress  of  a  family,  is  of  the  highest 
consequence  to  home  comfort. 

C.  Good  judgment  is  to  be  exercised  in  the  selec- 
tion of  our  gratifications.  Of  two  gratifications  that 
are  equal,  it  is  wise  to  choose  the  least  expensive. 
That  which  favors  physical  health  is  to  be  preferred 
to  that' which  tends  to  disease.  Those  which  refine, 
strengthen,  and  elevate  our  being  are  to  be  chosen, 
rather  than  those  which  degrade  and  weaken  us.  In 
our  individual  gratifications  we  have  occasion  to 
regard  social  consequences,  and,  both  for  our  own 
sake  and  for  the  good  of  others,  choose  those  which 
improve,  in  preference  to  those  which  demoralize, 
society. 

In  general,  intellectual  and  moral  pleasures  are 
inexpensive,  as  compared  with  sensual  gratifications, 
and  those  which  minister  to  fashion  and  vanity. 
The  cost  of  an  hour  of  drunken  frolic  or  gluttonous 
feasting  will  buy  books  for  a  year's  higher  enjoy- 
ment ;  and  the  sums  spent  in  the  ostentatious  dis- 
play of  dress,  at  the  beck  of  the  despot  Fashion, 
would  furnish  means  for  many  deeds  of  charity 
which  would  fill  with  perennial  joy  the  hearts  of  both 
giver  and  receiver. 

Before  leaving  this  topic,  a  few  things  need  to  be 
said   on   the  reciprocal  relation  between  production 


CONSUMPTION  FOR  GRATIFICATION.        59 

and  consumption  for  gratification.  The  production 
of  goods  is  always  carried  on  with  reference  to  their 
consumption,  and  rapid  and  ample  consumption  is 
the  true  stimulus  of  production.  As  another  has 
expressed  it,  "  Material  welfare  consists  in  an  ample 
consumption:  ample  production  assures  abundance; 
and,  under  the  law  of  competition,  abundant  pro- 
duction assures  rapid  and  more  equal  consumption." 

Extreme  frugality  would  leave  goods  in  the  hands 
of  producers  uncalled  for,  and  at  once  throw  laborers 
out  of  emplo3^ment  and  out  of  the  means  of  living. 
Extreme  luxury  would  consume  resources  and  hinder 
the  accumulation  of  capital  necessary  for  production. 
Th6  problem  is,  to  find  the  golden  mean  which  shall 
keep  the  balance  that  sustains  prosperous  industry, 
by  a  steady  demand  for  its  products.  The  problem 
can  be  solved  only  as  each  man  studies  it,  and  finds 
the  solution  for  himself  by  using  his  means  for 
healthful  gratifications,  at  the  same  time  limiting  his 
gratifications  by  a  due  regard  to  his  means. 

Where  great  inequalities  of  condition  prevail,  the 
lavish  expenditure  of  the  rich  in  luxurious  consump- 
tion is  no  doubt  a  blessing,  as  it  gives  employment 
and  the  means  of  living  to  the  poor.  But  for  the 
greatest  general  good  there  is  a  better  use  of  the 
superfluous  wealth  of  the  rich,  by  its  employment  as 
capital  in  a  way  to  give  the  poor  a  chance  to  increase 
their  means,  and  at  the  same  time  to  multiply  and 
cheapen  products  so  that  all  the  people — the  rich 
and  the  poor  alike  —  may  have  more  of  comforts 
and  luxuries  within  their  reach. 


60  POLITICAL  ECONOMY. 

EXERCISES. 

1.  Name  what  you  think  are  necessaries  of  life. 

2.  Name  the  luxuries  enjoyed  in  your  home. 

3.  Name  some  articles  which  are  necessaries  in  one 
family  and  luxuries  in  another. 

4.  Can  you  name  an  article  now  regarded  as  a  universal 
necessity,  which  was  unknown  two  hundred  years  ago  ? 

5.  Illustrate  the  different  wants  of  people  of  different 
classes  and  of  different  countries. 

6.  Is  it  an  extravagant  outlay  for  a  rich  man  of  culture 
to  spend  twenty  thousand  dollars  for  a  library  ?  What  if 
his  library  is  kept  for  show,  and  seldom  used  ? 

7.  Illustrate  the  evil  of  undue  indulgence  in  luxuries. 

8.  Are  cheap  goods  always  the  most  economical  ? 

9.  Wlien  is  a  large  outlay  for  a  social  entertainment 
justifiable  ? 

10.  Is  there  any  exception  to  the  rule  that  one's  gratifi- 
cations should  be  limited  by  his  income  ? 

11.  When  is  it  important  to  learn  how  to  spend;  as  well 
as  how  to  save  ? 

12.  Is  it  desirable  that  all  should  restrict  their  expendi- 
tures to  bare  necessities  ? 

13.  How  can  we  dispose  of  our  surplus  food-products, 
unless  we  use  tea,  sugar,  silk,  &c.,  brought  from  other 
countries  ? 


PUBLIC  CONSUMPTION  61 


CHAPTER  IIL 

PUBLIC  CONSUMPTIOlSr. 

The  Nature  of  Public  Consumption.  Under 
the  social  instinct  mankind  gather  and  live  in  com- 
munities. This  gives  rise  to  certain  common  wants, 
which  are  provided  for  by  public  agents  of  the 
government,  using  means  drawn  from  those  who 
compose  the  society  or  state,  by  taxation. 

These  common  or  public  wants  can  be  satisfied 
only  by  the  destruction  of  values,  just  as  in  indi- 
vidual consumption.  It  is  to  be  remembered  that 
the  values  thus  destro3^ed  are  a  part  of  the  property 
of  individual  citizens  taken  for  public  use.  In  gen- 
eral, the  government  has  nothing  to  expend  but 
what  is  contributed  by  its  tax-paying  citizens.  In 
ancient  times  despotic  governments  called  out  thou- 
sands of  their  people  to  labor  directly  in  building 
city- walls  and  other  public  works,  and  collected  from 
others  the  food  necessary  to  sustain  them,  and  the 
materials  to  be  used.  This  was  a  direct  and  obvious 
draft  on  private  property  for  public  use.  In  medi- 
aeval times,  when  a  sovereign  made  war,  he  called  on 
his  vassals  to  send  each  his  quota  of  men,  fur- 
nished with  horses  and  armor,  and  food  for  their 
sustenance.  Each  individual  thus  felt  immediately 
the  burden  of  the  values  destroyed  in  public  con- 


62  POLITICAL  ECONOMY. 

sumption.  The  same  thing  is  involved  in  the 
modern  system  of  providing  for  the  public  consump- 
tion by  taxes  paid  in  money.  The  farmer  sells  a 
portion  of  his  grain,  and  with  the  money  pays  his 
tax  ;  the  next  day  the  commissary  of  an  army  may 
take  the  same  mone}^,  and  buy  up  the  same  grain  for 
the  use  of  the  government  troops.  Or,  if  the  pro- 
cess is  more  complex  and  roundabout,  it  comes  ulti- 
mately to  the  same  thing,  —  a  part  of  the  farmer's 
crop  is  consumed,  its  value  destroyed,  not  for  his 
private  advantage,  but  for  a  public  use. 

A  clear  apprehension  of  this  very  simple  truth  is 
needed  to  correct  a  notion  entertained  by  many,  and 
often  expressed,  that  large  public  expenditures  are 
a  benefit,  provided  only  the  money  remains  in  the 
country.  In  all  public  consumption  it  is  goods, 
real  values,  that  are  destroyed.  The  wisdom  of  the 
expenditure  is  determined  by  inquiring  what  propor- 
tion the  benefit  attained  bears  to  the  value  destroj^ed. 
The  benefit,  however,  may  appear  in  an  immaterial 
form,  as  in  the  maintenance  of  justice  and  the  pro- 
motion of  general  intelligence.  The  thing  to  be 
insisted  on  is  that  there  shall  come  a  real  good  as 
large  as  possible,  from  a  destruction  of  value  as 
little  as  possible. 

The  Purposes  to  which  Public  Consumption 
is  properly  applied  may  be  specified  as  follows  :  — 

1.  For  the  support  and  administration  of  govern- 
ment. Law  and  order  are  grand  essentials  of  good 
society.  On  them  depend  the  security  of  private 
property  and   of  personal    enjoyment.     To  secure 


PUBLIC  CONSUMPTION.  63 

these,  legislators,  executive  officers,  and  judges  must 
be  supported,  and  buildings  furnishing  suitable 
accommodations  for  these  functions  of  government 
must  be  erected  at  the  public  expense.  It  is  good 
economy  to  pay  salaries  sufficient  to  secure  the  best 
talent  for  these  services. 

2.  For  Tvorks  of  public  convenience,  commonly 
called  public  improvements.  Here  are  included 
such  things  as  paving,  cleaning,  and  lighting  the 
streets  of  a  city,  providing  water-works  and  sewer- 
age, constructing  roads  and  canals,  improving  har- 
bors, building  and  sustaining  light-houses,  &c. 
These  works  confer  benefits  upon  the  whole  commu- 
nity. It  is  just,  therefore,  that  they  should  be  paid 
for  out  of  the  common  treasury.  For  them,  also,  it 
is  often  necessarj^  that  private  property  be  taken  for 
public  use,  by  the  right  of  eminent  domain,  a  right 
pecuhar  to  the  government. 

8.  For  advancing  science,  and  diffusing  intelli- 
gence for  common  interests.  Under  this  head  be- 
long exploring  expeditions,  astronomical  observa- 
tions, geological  surveys,  coast-surveys,  meteorolo- 
gical observations,  entomological  investigation,  and 
the  whole  post-office  system  as  a  means  of  diffusing 
intelligence  and  promoting  social  communication. 
Expenditures  for  these  things  jdeld  broad,  general 
benefits  of  the  highest  importance.  By  its  system 
of  storm-signals,  our  National  Observatory  saves 
yearly  wealth  exposed  to  the  dangers  of  the  sea, 
whose  value  is  a  hundred-fold  that  consumed  in  its 
maintenance. 

4.   For  the  promotion  of  popular  education.     The 


64  POLITICAL  ECONOMY. 

prosperity  of  a  country  depends  very  much  on  the 
intelligence  of  its  people.  General  education  tends 
to  a  wise  application  of  industry,  and  makes  it  more 
effective.  It  brings  labor  and  capital  to  meet  more 
nearly  on  an  equality,  and  promotes  the  harmony  of 
their  co-operation.  It  is  of  advantage  to  ever}" 
honest  man  to  have  inteUigent  men  to  associate  and 
to  deal  with.  For  such  a  common  blessing  it  is  fit 
that  tha  common  funds  provide,  to  some  extent,  and 
at  the  same  time,  that  scope  be  given  for  private 
beneficence  to  be  exercised  for  the  same  end. 

5.  For  the  care  of  classes  afflicted  by  peculiar 
calamities  or  deprivations.  Hospitals  for  the  sick 
and  for  the  insane,  and  institutions  in  which  the  deaf, 
the  blind,  and  the  feeble-minded  may  by  peculiar 
processes  receive  an  education,  are  here  referred  to. 
Our  common  s}Tiipathies  and  benevolence  prompt 
such  means  of  rehef  for  the  unfortunate.  They  can 
be  most  economically  provided  by  the  government. 
Their  benefits  must  be  largely  gratuitous  because 
such  misfortunes  come  in  largest  proportion  upon 
the  poor. 

6.  For  the  relief  of  poverty.  The  poor  we  have 
always  with  us.  Every  encouragement  should  be 
given  to  the  exercise  of  private  charit}"  for  its  relief, 
because  Christian  beneficence  brings  a  blessing  to 
the  giver  as  well  as  to  the  receiver.  But  there  is 
necessity  also  for  some  public  provision  for  the  poor, 
to  meet  some  cases  which  fall  outside  the  range  of 
private  beneficence,  and  also  to  offer  some  facilities 
for  the  poor  to  do  something  towards  their  own 
support.     It  is  unwise,  however,  to  dispense  either 


PUBLIC  CONSUMPTION.  66 

public  or  private  charity  in  a  way  to  encourage 
pauperism. 

7.  For  the  nation's  defence.  The  general  gOOd 
is  involved  in  the  nation's  life.  While  selfishness 
rules  human  hearts  as  it  does,  especially  in  in- 
ternational relations,  exigencies  will  arise  when 
nothing  but  military  force  will  save  a  nation's  life. 
Such  exigencies  must  be  anticipated  by  due  appro- 
priations for  forts,  and  armies,  and  navies,  and  the 
various  munitions  of  war.  When  war  is  inevitable, 
then  no  expense  is  unreasonable  which  is  necessarj'- 
to  prosecute  it  with  the  utmost  vigor.  Yet  it  must 
ever  be  remembered  that  war  is  always  destructive, 
terribly  destructive,  of  both  wealth  and  of  men  who 
produce  wealth. 

With  reference  to  the  whole  range  of  public  con- 
sumption, sound  economy  dictates  two  plain  and 
simple  rules :  — 

1.  The  style  and  scale  of  national  expenditures 
should  be  such  as  to  command  the  respect  and  honor- 
able pride  of  the  people  Tvithout  useless  display. 

2.  The  methods  of  national  expenditures  should 
be  such  as  to  hold  all  agents  of  government  to  a 
direct  and  strict  responsibility,  and  to  insure  the 
utmost  fidelity  in  the  discharge  of  all  trusts. 

EXERCISES. 

1.  Illustrate  the  destruction  of  values  drawn  from  pri- 
vate wealth,  in  the  public  lighting  of  city  streets.  What 
benefit  accrues  therefrom,  and  who  enjoy  the  benefit  ? 

2.  Is  fraud  in  public  expenditures  less  criminal  than  in 


66  POLITICAL  ECONOMY. 

private  relations?    What  false  sentiment  prevails  on  this 
subject  ? 

3.  Name  the  blessings  of  good  government  which  war- 
rant expenditures  for  its  support. 

4.  The  members  of  the  British  Parliament  receive  no 
compensation  for  their  services  :  what  objections  to  apply- 
ing the  same  rule  to  our  members  of  Congress  ? 

5.  Why  should  the  general  government  maintain  light- 
houses, instead  of  leaving  the  citizens  of  each  port  to  pro- 
vide their  own  ? 

6.  Give  reasons  for  or  against  the  policy  of  railways 
being  built  and  run  by  the  government. 

7.  Should  the  government  control  the  operations  of  the 
electric  telegraph  as  it  does  the  postal  system  ? 

8.  Why  is  it  right  for  a  legislature  to  appropriate  money 
for  a  state  geological  survey  ? 

9.  Why  is  it  right  that  a  man  who  has  no  children  be 
taxed  for  public  schools  ? 

10.  What  benefit  accrues  from  monuments,  Fourth-of- 
July  celebrations,  &c.,  to  justify  the  outlay  of  public  funds 
for  such  purposes  ? 

11.  Why  should  a  state  maintain  special  institutions  for 
the  care  of  the  insane  and  the  education  of  the  deaf  ? 

12.  Why  should  criminals  in  a  state-penitentiary  be  com- 
pelled to  work  ? 

13.  Should  those  whom  sickness  or  calamity  has  reduced 
to  poverty  feel  disgraced  by  accepting  public  relief  ? 

14.  Mention  some  of  the  evils  of  pauperism  as  it  exists 
in  England. 

15.  How  does  war  stimulate  production  ?  Does  this  fact 
make  war  less  a  calamity  ? 


DISTRIBUTION.  67 


PART   III. 

DISTRIBUTION. 

We  have  seen,  that,  for  the  production  of  wealth, 
labor  must  be  joined  with  capital ;  that  various  kinds 
of  labor  and  divers  forms  of  capital  are  involved ; 
that  the  general  industry  of  a  people  includes  the 
labor  of  men  of  various  occupations  and  profes- 
sions ;  and  that  the  protection  of  good  government 
is  essential  to  prosperous  industry.  The  value  of 
each  article  produced,  estimated  by  its  cost,  repre- 
sents, therefore,  a  number  of  different  services  ren- 
dered by  different  persons. 

Thus  problems  arise  respecting  the  distribution,  to 
each  one  concerned  in  the  process  of  production,  of 
his  share  of  the  value  created.  The  third  division 
of  our  science  is  occupied  with  these  problems,  and 
may  be  defined  thus  :  — 

Distribution  is  that  department  of  Political 
Economy  which  determines  the  principles  on  which 
the  proceeds  of  industry  are  divided  among  the  par- 
ties concerned  in  their  production. 

The  parties  to  be  recognzied  are  three :  First, 
the  Laborers  of  all  grades,  whose  energies,  phj'sical 
and    mental,    are    directly   or    indirecil}'   engaged. 


68  POLITICAL  ECONOMY. 

Second,  the  Owners  of  the  Capital,  the  fruit  of  past 
labor  saved,  and  now  combined  with  present  labor 
for  a  joint  result.  Third,  the  Government,  which 
secures  the  safety  and  the  rights  of  all,  and  which 
draws  on  the  proceeds  of  Indus tr}^  generally  for  its 
maintenance. 

But  the  stimulus  to  all  industry  and  enterprise  is 
the  anticipation  of  profits,  i.e.,  a  surplus  of  values 
produced  above  those  consumed  ;  and  the  success  of 
industry  is  measured  by  its  profits.  Hence  arises  a 
special  question  of  prime  importance,  respecting  the 
apportionment  of  the  profits. 

This  department  will  be  treated,  therefore,  under 
four  subdivisions,  viz. :  — 

1.  The  Remuneration  of  Labor. 

2.  The  Remuneration  of  Capital. 

3.  The  Distribution  of  Profits. 

4.  The  Revenues  of  the  Government. 


CHAPTER  I. 

THE  REMUNERATION  OF  LABOR. 

Terms  used.  The  compensation  of  labor  is  ex- 
pressed by  difi'erent  terms.  Mr.  F.  A.  Walker  sa^s 
that  "of  English-speaking  people,  three  -  fourths 
probabl}',  two- thirds  certainly,  subsist  on  wages." 
This  term  is  applied  to  manual  labor  of  all  grades. 
It  means  a  stipulated  reward  for  services  rendered, 
rated  either  by  the  time  occupied  or  by  the  work 
accomplished,  by  the  da}^  or  b}^  the  piece.     It  pre- 


THE  REMUNERATION  OF  LABOR.  69 

supposes  the  relation  of  employers  and  employed, 
bound  by  mutual  stipulations,  which  may  be  varied 
or  terminated  on  short  notice. 

Salary  expresses  a  fixed  sum  of  money,  reckoned 
usually  by  the  year,  for  services  which  involve  brain- 
work  and  responsible  trust.  Thus  in  a  large  manu- 
factory, the  mass  of  laborers  receive  wages,  but  the 
treasurer,  the  superintendent,  &c.,  have  salaries. 
Clergymen,  teachers,  and  civil  officers  are  generally 
compensated  by  salaries.  The  term  implies  an  en- 
gagement of  some  permanence,  and  a  grade  of  ser- 
vice requiring  special  qualifications  and  previous 
education. 

Some  agents  are  compensated  by  commissions; 
that  is,  a  certain  rate  per  cent  of  the  value  involved 
in  each  transaction.  The  term  is  applied  to  brokers, 
insurance-agents,  collectors,  travelling  salesmen,  and 
the  like.  In  this  case,  the  employer  is  responsible 
only  for  what  is  actually  done ;  and  the  agent's 
reward  depends  on  his  personal  enterprise,  tact,  and 
fidelity. 

Lawyers,  physicians,  and  certain  civil  officers  are 
remunerated  by  fees.  The  term  originated  probably 
in  the  gratuity  formerly  oflTered  by  a  party  benefited 
for  a  service  done.  Hence  more  or  less  indefinite- 
ness  in  this  mode  of  remuneration.  The  rate  is 
adjusted  for  each  particular  service  by  usage,  or  by 
the  arbitrary  demand  of  the  party  rendering  the 
service,  or  by  the  good- will  of  the  party  served. 

The  questions  respecting  wages  involve  the  most 
difficult  problems  of  Distribution,  and  demand  our 
first  attention. 


70  POLITICAL  ECONOMY. 


SECTION  L— NOMINAL  AND  REAL  WAGES. 

Nominal  wages  are  wages  estimated  in  terms  of 
mone}^ 

Real  wages  are  measured  by  the  necessaries,  com- 
forts, and  luxuries  of  life,  which  they  will  command. 
It  is  important  to  observe  this  distinction,  in  com- 
paring the  rates  of  wages  in  different  countries  and 
at  different  periods.  The  money- wages  of  an  Eng- 
lish laborer  may  be  much  less  than  that  allowed  an 
American ;  but  the  prices  of  all  things  which  sup- 
port life  may  be  so  much  lower  in  England  than  in 
America  as  to  nulUfy  the  difference.  The  laborer 
who  receives  the  lowest  money-wages  may  be  the 
best  off.  In  1843  the  rate  of  wages  for  an  Ameri- 
can day-laborer  was  one  dollar  per  day ;  in  1865 
the  nominal  rate  was  doubled :  3^et  the  one  dollar 
of  1843  would  buy  a  third  more  of  comforts  than 
the  two  dollars  of  1865. 

Several  causes  tending  to  produce  this  difference 
are  worthy  of  notice. 

1 .  The  most  influential  of  all  is  the  fluctuations  in 
the  purchasing  power  of  money.  A  sudden  increase 
in  the  amount  of  that  which  passes  as  money  must 
diminish  the  purchasing  power  of  each  dollar.  The 
fact  appears  in  enhanced  prices  for  all  commodities. 
The  use  of  paper  money  leads  generally  to  sudden 
expansions  and  contractions.  The  worst  mischief 
of  such  fluctuations  falls  on  those  who  live  by  wages. 

2.  The  form  of  payment  often  makes  a  difference 


NOMINAL  AND  REAL  WAGES.  71 

between  Jiominal  and  real  wages.  While  wages  are 
generally  reckoned  in  money,  they  are  not  always 
paid  in  money.  With  farm- laborers,  their  board  is 
counted  as  a  part  of  their  wages.  Manufacturing 
laborers  are  sometimes  paid  by  the  "truck-system," 
as  it  is  called ;  that  is,  by  orders  on  stores,  where 
prices  are  fixed  somewhat  arbitrarily,  ruling  out 
competition. 

3.  The  greater  or  less  regularity  of  employment 
affects  the  real  value  of  wages.  In  agriculture, 
brick-making,  house-building,  the  fisheries,  and  the 
like,  labor  is  in  measure  precluded  at  certain  seasons 
and  crowded  at  others.  The  real  remuneration  of 
labor  must  therefore  be  estimated  not  by  the  wages 
of  one  day  or  one  month,  but  by  that  rate  as  quali- 
fied by  the  regularity  or  irregularity  of  each  occupa- 
tion. 

4.  The  duration  of  the  power  to  labor  must  be 
taken  into  account  in  determining  the  difference 
between  nominal  and  real  wages.  Vital  statistics 
show  that  the  number  of  years  during  w^hich  a  man 
can  expect  to  have  strength  and  vigor  to  earn  wages 
varies  with  men  of  different  nationalities,  in  different 
climates,  and  in  different  occupations.  Glass-blow- 
ing, and  almost  all  work  in  mines,  are  exhausting 
occupations.  Men  can  continue  them  but  few  years. 
To  know  the  real  compensation  of  labor,  therefore, 
we  must  estimatffe  the  wages  of  a  lifetime. 

If  the  use  of  machinery  tends  to  depress  nominal 
wages,  it  tends  also  to  multiply  and  cheapen  the 
necessaries  of  life  so  as  to  enhance  real  wages. 
The  laborer  of  to-day  enjoys  many  comforts  which 


72  POLITICAL  ECONOMY. 

were  hardly  known  a  half-century  ago.  At  the 
same  time  the  fact  of  having  enjoyed  these  things 
freely  makes  it  a  hardship  now  to  be  in  any  degree 
deprived  of  them. 


SECTION  IL— THE  EFFICIENCY  OF  LABOR. 

Labor,  as  an  element  of  production,  must  be  esti- 
mated not  by  the  time  occupied,  nor  by  the  rate  of 
wages  paid,  but  by  the  efficiency  of  the  labor  itself. 
With  respect  to  efficiency,  men  differ  greatly.  All 
who  have  occasion  to  employ  numbers  of  men  know 
this  very  well,  and  must  recognize  a  distinction 
between  the  nominal  cost  of  labor,  indicated  b}'  the 
wages  paid,  and  its  real  cost,  estimated  b}^  the  value 
of  the  work  done.  The  English  contractor,  Mr. 
Brassey,  found  that  a  London  bricklayer  employed 
at  five  shillings  a  day  did  more  work  than  two  coun- 
try workmen  who  were  each  paid  three  shillings  and 
sixpence  a  da3\ 

We  may  name  the  following  causes  of  difference 
in  efficiency :  — 

1 .  Peculiar  qualities  of  blood  and  race.  Physical 
influences,  such  as  local  climate,  customary  food, 
and  habits  of  Ufe,  continued  through  many  genera- 
tions, modifj^  the  physical  structure  of  a  race. 
Hence  come  differences  in  height,  weight,  muscular 
strength,  and  especially  in  nervous  force  and  spirit. 
Thus  the  Chinese  and  Japanese  fall  below  the  aver- 
age of  men  in  stature,  and  the  Scotch  rise  above 
it.  The  French,  without  great  size  or  vigor,  are 
more  than  ordinarily  quick  and  active.     The  Eng- 


THE  EFFICIENCY  OF  LABOR.  73 

lish  and  Germans  have  great  patience  and  endur- 
ance. Peculiar  characteristics  become  hereditary, 
and  mark  whole  races. 

2.  The  quantity  and  quality  of  food  and  clothing. 
A  man  who  lives  chiefly  on  potatoes  or  rice  cannot 
have  the  strength  and  vigor  of  those  who  have  a 
more  varied  and  generous  diet.  This  matter  is 
carefully  studied  in  the  rearing  of  working-animals : 
why  should  it  not  be  as  much  regarded  with  respect 
to  working-men?  Clothing  and  food  help  each 
other  in  maintaining  the  warmth  of  the  body. 

3.  Habits  respecting  cleanliness  of  person,  and 
purity  of  air  and  water.  Whatever  depresses  a 
man's  vitality  must  diminish  his  efficiency.  What 
can  more  effectually  impair  health  and  depress  nerv- 
ous force,  than  to  live,  as  too  many  laborers  do, 
crowded  in  narrow,  filthy  tenements,  where  the  sun- 
light is  excluded,  and  the  water  is  contaminated 
with  sewage-matter,  and  the  air  is  charged  with 
noxious  poisons? 

4.  Intelligence  is  an  important  element  of  efficiency 
in  a  laborer.  One  who  has  learned  to  read  and  write 
has  thereby  improved  his  capacity  to  learn  and 
exercise  a  trade.  Intelligent  laborers  can  think  for 
themselves,  and  with  little  superintendence  strike 
for  the  object  aimed  at  in  their  labor,  at  the  same 
time  exercising  their  invention  to  devise  means  for 
increasing  the  efficiency  of  their  toil. 

5.  Technical  education  and  industrial  associations 
increase  the  efficiency  of  labor.  Instincts  are  heredi- 
tary ;  and  one  gains  unconscious  tuition  by  contact 
and  familiarity  with  organized  industry.     In  asso- 


74  POLITICAL  ECONOMY. 

elation  with  good  workmen,  a  boy  grows  into  habits 
of  quick  observation  and  manual  dexterity,  and  so 
learns  the  best  part  of  his  trade  before  be  begins 
his  regular  apprenticeship. 

6.  Cheerfulness  and  hopefulness  of  spirit  help 
much  to  make  labor  efficient.  These  qualities  grow 
out  of  self-respect,  social  intercourse,  and  the  labor- 
er's personal  interest  in  the  result  of  his  work. 
Slave-labor  lacks  these  elements,  and  is  therefore 
unprofitable.  The  laborers  may  be  put  on  starva- 
tion-wages, and  so  reduced  to  the  level  of  slaves. 
It  is  for  the  interest  of  employers,  as  well  as  of 
laborers,  that  wages  should  be  such  as  to  inspire 
cheerful  hope. 

EXERCISES. 

1.  If  the  annual  product  of  a  watch-factory  is  valued  at 
half  a  million  dollars,  among  what  parties  must  this  sum 
be  divided*? 

2.  What  claim  has  a  stockholder  of  the  company  on  the 
product  ? 

3.  How  will  the  workman  who  makes  only  hair-springs 
get  his  share  ? 

4.  Whence  come  the  means  to  pay  the  tax  of  five  hun- 
dred dollars  laid  on  the  property  ? 

5.  How  large  a  portion  of  the  fifty  employes  will  receive 
wages  ? 

6.  Who  of  them  will  be  paid  salaries  ? 

7.  How  will  the  salesman  who  travels  to  sell  the  watches 
be  paid  ? 

8.  How  is  the  lawyer  employed  to  collect  bad  debts 
compensated  ? 

9.  JS'ominal  wages  are  now  in  1879  fifty  per  cent  lower 
than  in  1873  :  how  is  it  with  real  wages  ? 

10.  Illustrate  how  an  increase  of  money  affects  real 
wages. 


THE  EFFICIENCY   OF  LABOR.  75 

11.  Under  an  expanding  currency,  do  wages  rise  as  soon 
or  as  high  as  the  prfces  of  goods  ?  Why  ?  Which,  wages 
or  prices,  first  go  down  under  a  contraction  of  currency  ? 

12.  What  objection  may  a  laborer  make  to  receiving  his 
wages  in  orders  on  a  store,  especially  if  the  store  belongs 
to  his  employers  ? 

13.  Why  is  it  right  that  the  nominal  wages  of  a  brick- 
layer should  be  higher  than  those  of  a  shoemaker  ?    ■ 

14.  Do  you  know  any  reason  why  the  smelters  of  lead- 
ore  should  be  paid  higher  wages  than  farm-laborers  just  by 
them? 

15.  What  causes  combine  to  make  our  native  American 
or  Yankee  laborers  peculiarly  efficient  ? 

16.  Why  is  it  good  economy  for  a  manufacturing  com- 
pany to  provide  neat  and  convenient  tenements  for  their 
employes  ? 

17.  Is  it  a  wise  and  just  law  which  compels  laborers  to 
send  their  children  to  school  for  a  certain  portion  of  their 
time?    Wliy? 

18.  What  is  the  advantage  of  thorough  apprenticeship  to 
a  trade  ? 

19.  Does  the  habit  of  singing  while  at  his  work  impair, 
or  improve,  a  laborer's  efficiency  ? 


76  POLITICAL  ECONOMY. 


SECTION  IIL  —  COIS'SIDERATIONS  WHICH  DETER- 
MINE THE  RATE  OF  WAGES. 

Wages  imply  a  contract  between  two  parties,  —  a 
promised  reward  for  promised  services.  The  two 
parties  join  in  the  contract  for  their  mutual  advan- 
tage, yet  each  having  a  separate  interest.  The 
wages  agreed  on  must  be  determined  by  some  regard 
to  each  of  these  separate  interests. 

1 .  On  the  side  of  the  laborer,  the  first  considera- 
tion is  the  cost  of  living.  The  man  depends  on  his 
wages  to  pro\dde  for  himself  shelter,  food,  and  cloth- 
ing, that  he  may  be  kept  in  health  and  vigor,  fit  for 
work.  More  than  this,  since  man  is  short-lived, 
children  must  be  reared,  in  order  that  the  stock  of 
laborers  may  be  continued.  There  must  be  also 
some  provision  for  the  laborer  in  his  old  age,  when 
he  is  too  feeble  to  work.  Whatever  is  essential  to 
the  support  of  the  laborer  and  family,  must  thus  be 
taken  into  the  account ;  and  this  consideration  deter- 
mines what  some  writers  term  necessary  wages.  Its 
chief  force  is  to  define  a  limit  below  which  wages 
cannot  be  set  to  continue  long  without  inducing 
misery,  and  reducing  the  number  of  laborers. 

The  cost  of  living  varies  in  different  climates, 
and,  to  some  extent,  according  to  the  habits  of  dif- 
ferent races  and  classes  of  people.  Hence  in  warm 
countries  wages  may  be  lower  than  in  cold.  The 
habits  of  the  Chinese  enable  them  to  live  on  less 
wages  than  Americans.     It  is,  however,  a  bad  sign 


THE  RATE  OF  WAGES.  77 

for  a  people's  prosperity  and  happiness,  when  wages 
are  pressed  down  to  this  lowest  limit.  The  compen- 
sation of  labor  should  be  such  as  to  give  the  diU- 
gent  and  thrifty  a  chance  to  multiply  their  comforts 
and  improve  their  condition. 

2.  On  the  side  of  the  employer,  the  main  consid- 
eration is  the  value  of  the  products.  The  employer 
embarks  his  energy  and  capital  in  a  branch  of  pro- 
ductive industry,  expecting  from  the  sale  of  the 
products  to  have  a  surplus  for  his  own  reward,  after 
paying  wages  and  all  other  costs.  His  power  to 
pay  wages  depends  on  the  purchasing  power  of 
these  products.  When  their  price  in  the  market 
rises,  he  can  afford  to  pay  higher  wages ;  when  it 
decHnes,  he  may  be  compelled  to  stipulate  for  re- 
duced wages.  The  value  may  be  so  reduced  that 
he  will  have  no  alternative  but  to  close  his  opera- 
tions, and  extricate  his  capital  as  best  he  may. 

The  chief  force  of  this  consideration  is  to  define 
a  limit  on  the  other  side,  —  a  limit  above  which 
wages  cannot  rise  to  continue  long  without  ruining 
the  business.  The  laborer  comes  to  the  negotia- 
tion, asking  at  least  such  wages  as  are  necessary  for 
his  support.  The  employer  comes,  offering  at  most 
such  wages  as  he  thinks  the  value  of  the  products 
will  enable  him  to  pay.  The  actual  agreement  will 
strike  a  point  between  the  tw^o  extremes,  fixed  by 
other  considerations  hereafter  to  be  named.  These 
two  considerations  suggest  this  general  statement. 

The  minimum  limit  of  wages  is  the  rate  necessary 
for  the  support  of  the  laborer  and  his  family.  The 
maximum  limit  is  the  rate  determined  by  the  market- 


78  POLITICAL  ECONOMY. 

value  of  the  products.      The    mere   will   of    either 
party  cannot  safely  change  these  fixed  limitations. 

3.  The  customary  rate  of  wages  is  a  consideration 
of  some  force  in  determining  the  rate  that  shall  be. 
There  is  always  a  presumption  in  favor  of  existing 
usage,  which,  in  the  negotiation,  may  be  pleaded  on 
one  side  or  the  other  with  some  effect.  This  con- 
sideration resists  an}^  contemplated  change.  Thus, 
when,  in  1865,  an  inflation  of  the  currency  in  the 
United  States  had  increased  the  cost  of  living,  and 
at  the  same  time  increased  the  prices  of  products, 
there  was  need  that  wages  be  advanced ;  but  em- 
ployers clung  to  the  old  rates,  and  3delded  very 
reluctantly  to  the  rightful  demands  of  their  employes. 
Ten  years  later  the  condition  of  things  was  just  the 
opposite.  Both  the  cost  of  living  and  the  prices  of 
all  productions  were  greatly  reduced,  and  employers 
were  constrained  to  reduce  wages  accordingly.  But 
then  the  laborers  clung  to  existing  rates,  and  resisted 
the  proposed  reduction,  often  with  violence.  This 
is,  however,  a  qualifying,  rather  than  a  determining 
consideration.  Like  the  law  of  inertia  in  phj'sics, 
it  resists  or  impedes  all  changes  of  wages. 

4.  Competition  is  beyond  all  others  the  controlling 
consideration,  determining  the  rate  of  wages.  The 
other  considerations  named  have  some  weight.  This, 
while  it  cannot  nullify,  does  overbear  them. 

Competition  is  the  struggle  of  ti;vo  or  more  persons 
to  gain  the  same  thing  at  the  same  time.  Many  labor- 
ers are  seeking  wages,  and  high  wages,  at  the  same 
time.  Many  emploj^ers  are  seeking  profits  as  large 
as  possible  at  the  same  time.     Competition  becomes 


ipk 


THE  RATE  OF  WAGES.  79 


active  just  in  proportion  to  the  comparative  num- 
bers on  either  side.  If  the  number  of  laborers  is 
large  in  proportion  to  the  employment  offered,  a 
sharp  competition  arises  between  those  seeking 
work.  Each,  rather  than  lose  his  chance  for  wages, 
will  lower  the  rate  at  which  he  will  contract.  If  the 
number  of  employers  is  large,  with  a  large  amount 
of  capital  in  proportion  to  the  number  of  laborers, 
a  sharp  competition  arises  among  employers.  Each, 
rather  than  lose  his  chance  for  anticipated  profits, 
will  raise  the  rate  of  wages  he  is  willing  to  pay. 

If,  for  any  reason,  the  wages  in  a  particular 
branch  of  industry  rise  above  the  ordinary  rate,  a 
speed}^  rush  of  laborers  into  that  employment  inten- 
sifies competition  till  the  wages  are  brought  down. 
On  the  other  hand,  if  a  particular  branch  of  pro- 
duction yields  profits  above  the  ordinarj^  rate,  there 
comes  a  rush  of  employers  with  their  capital  into 
that  business ;  wages  are  raised,  and  products  are 
multiplied  and  cheapened  till  profits  are  brought 
down  to  the  ordinary  level.  Competition  thus  tends 
to  bring  wages  and  profits  to  an  equilibrium  most 
favorable  to  the  interests  of  all.  In  the  nature  of 
things,  competition  is  inevitable :  it  has  a  blessing 
in  it,  and  it  is  simply  absurd  to  ignore  or  con- 
demn it. 

If  competition  were  universally  free  and  fair,  it 
would  do  much  to  remove  present  inequalities  of 
condition,  and  the  burdens  and  the  benefits  of  human 
industry  would  be  equally  distributed.  But  over- 
reaching selfishness  is  continually  interfering  with 
competition  to  make  it  neither  free  nor  fair.     We 


80  POLITICAL  ECONOMY. 

cannot  rule  out  all  competition.  It  would  be  neither 
just  nor  wise  to  do  so  if  we  could.  But  much 
may  be  done  to  resist  abuses  of  the  principle,  and 
to  give  full  scope  for  its  natural  and  beneficent 
function. 

5.  The  Golden  Rule  of  Christ,  "Whatsoever  3e 
would  that  men  should  to  you,  do  ye  even  so  to 
them,"  presents  a  consideration  which  both  Political 
Economy  and  Christian  Ethics  ma}^  fitly  recognize 
and  enforce  in  its  application  to  the  question  of 
wages.  Genuine  self-interest,  as  distinct  from  rank 
selfishness,  dictates  the  adoption  of  this  rule.  There 
are  pleasing  indications  that  it  is  in  increasing  meas- 
ure regarded  in  the  mutual  relations  of  labor  and 
capital.  Men  like  Mr.  Bright  in  England,  and  cor- 
porations like  the  Pacific  Mills  in  our  country,  act- 
ing on  this  principle,  show  clearly  how  it  tends  to 
soften  animosities,  to  inspire  mutual  confidence,  and 
to  eflfect  genial  co-operation,  so  as  to  increase  the 
eflficiency  of  industry,  and  give  all  an  equal  share  in 
its  products. 

Certain  combinations  to  resist  competition  must  be 
noticed   in  this  connection.     Combinations  on  th 
part  of  laborers  take  two  forms,  strikes  and  trades 
unions. 

A  strike  is  a  mutual  agreement  of  a  number  of 
workmen  to  stop  work  until  their  employers  accede 
to  certain  prescribed  terms.  It  must  be  admitted 
that  laborers  have  a  right  to  define  terms  of  the 
contract  with  their  employers,  and  to  refuse  to  work 
except  on  those  terms.     It  is  their  right  also  to 


THE  RATE  OF  WAGES.  81 

combine  in  counsel  and  effort  to  maintain  their  com- 
mon interests,  and  earnestly  to  press  their  claims. 
But  one  set  of  workmen  have  no  right  to  interfere 
with  the  freedom  of  others  who  do  not  choose  to 
join  the  strike.  The  first,  the  most  sacred,  the 
dearest  right  of  ever}^  laborer,  is  the  right  to  do 
what  he  -will  with  himself,  his  time,  his  strength,  his 
skill.  Yet  since  the  strike,  in  order  to  be  effective, 
must  rule  out  all  competition,  threats  and  violence, 
instead  of  simple  persuasion,  are  resorted  to  as 
means  of  preventing  other  laborers  willing  to  work 
from  doing  so.  This  is  a  flagrant  outrage  on  the 
most  precious  right  of  freemen. 

As  a  strong  and  determined  assertion  of  a  reason- 
able claim,  a  strike  may  do  good  service ;  but  the 
claim  is  reasonable  only  when  the  necessities  of  the 
laborers  require,  and  the  prices  of  products  permit, 
the  increase  of  wages,  or  whatever  better  terms  are 
insisted  on.  Then  there  is  a  better  way :  it  is  b}^  a 
frank  and  open  negotiation  between  the  parties.  In 
prosperous  times,  there  is  little  occasion  for  strikes. 
In  adverse  times,  strikes  can  accomplish  onl}^  dis- 
aster to  all  parties.  For,  as  Mr.  Brasse}'  sa^^s, 
"  Strikes  against  a  falling  market  always  fail." 

Trades-unions  are  combinations  of  laborers  of 
particular  trades  in  permanent  organizations  to 
promote  the  general  interests  of  their  respective 
fraternities.  These  associations  often  perform  the 
functions  of  mutual  benevolent  societies.  Contri- 
butions are  made  for  the  relief  of  sick,  disabled, 
and  distressed  members ;  and  measures  are  em- 
plo3'ed  to  promote  S3'mpath\',  social  enjo3'ment,  and 


82  POLITICAL  ECONOMY. 

mental  culture.      They  thus  render  beneficial  ser- 
vice, and  are  worthy  of  praise  and  encouragement. 

But  often  these  associations  attempt  to  regulate 
wages,  by  resisting  competition,  in  two  wa3^s  :  First, 
by  promoting  and  sustaining  strikes,  in  which  they 
are  likely  to  aggravate  the  evils  already  referred  to, 
because  under  them  the  strike  is  better  organized 
and  more  domineering.  They  are  apt  also  to  insist 
on  uniformity  of  wages  irrespective  of  thfe  varying 
abilities  and  efficiency  of  different  workmen,  which 
involves  injustice  to  superior  artisans  as  well  as  to 
emplo3xrs.  Second,  by  restricting  apprenticeship, 
which  is  simply  an  attempt  to  rule  out  free  compe- 
tition, and  give  to  a  limited  number  of  persons  a 
monopoly  of  certain  forms  of  skilled  labor.  This 
Involves  the  injustice  and  mischief  which  are  inher- 
ent in  the  very  principle  of  monopoly.  If  generally 
carried  out,  it  would  set  the  various  branches  of 
industry  in  antagonism  to  each  other,  and  tend,  as 
Mr.  Brassey  says,  "to  establish  that  subdivision  of 
caste  which  has  been  the  great  curse  of  India." 
When  managed  for  these  ends,  trades-unions  involve 
heavy  taxes  on  the  members,  and  often  subjection 
to  selfish  and  reckless  leaders,  who  seek  their  own 
personal  interests  rather  than  the  common  good. 

On  the  other  side,  combinations  of  employers  are 
often  formed  to  resist  competition.  Such  combina- 
tions sometimes  attempt  to  regulate  the  prices  of 
products,  creating  a  monopoly  in  the  general  mar- 
ket. Their  action  in  this  form  belongs  to  the 
department  of  exchange.      They   attempt   also  to 


THE  RATE  OF  WAGES.  83 

regulate  wages  by  agreements  not  to  pay  above 
certain  rates.  While  the  right  to  enter  into  such 
agreements  cannot  be  .questioned,  the  actual  combi- 
nation involves  an  abuse  of  the  power  of  capital 
to  tyrannize  over  labor  and  dictate  terms.  It  pro- 
duces in  the  laborer  a  sense  of  injury,  and  incites 
antagonism  and  attempts  at  retaliation,  which  pre- 
vent the  cheerful  co-operation  of  the  two  great 
factors  of  industry. 

Such  combinations  seldom  succeed  in  controlling 
wages  except  for  very  brief  periods.  To  be  effec- 
tive, the  combination  must  embrace  all  who  are 
engaged  in  a  particular  industry,  and  also  all  the 
capital  likely  to  be  drawn  into'  it.  .  If  the  wages 
fixed  by  the  combination  are  so  low  as  to  make  the 
profits  larger  than  those  of  other  forms  of  business, 
free  capital  will  rush  in  and  bid  for  laborers  b}^  rais- 
ing wages,  thus  renewing  competition,  and  defeating 
the  end  sought. 

Experience  shows  that  combinations  on  either 
side,  to  prevent  free  competition,  cannot,  for  any 
long  time,  materially  influence  the  rates  of  wages. 
Such  attempts  interfere  with  the  natural  law  of 
supply  and  demand,  which  is  the  grand  regulator  of 
wages  for  the  best  interest  of  all  .concerned.  When 
issues  arise  between  the  parties  to  the  labor-con- 
tract, the  surest  way  to  a  fair  adjustment  is  by  frank 
mutual  explanations,  or,  in  the  last  resort,  by  joint 
reference  to  just  arbitration.  In  most  cases,  the 
occasion  of  difficulties  may  be  forestalled  by  the 
culture  of  mutual  good -will  in  active  co-operation 
for  the  common  good,  intelligently  apprehended  and 
prosecuted  on  both  sides. 


84  POLITICAL  ECONOMY. 

EXERCISES. 

1.  Can  either  party,  employers  or  employed,  arbitrarily 
fix  a  rate  of  wages  for  labor  ? 

2.  Can  the  government,  by  law,  fix  a  rate  which  will 
stand  ?    Why  not  ? 

3.  Why  ought  not  laborers  to  be  content  with  wages 
which  suffice  for  their  bare  support  ? 

4.  Illustrate  the  effect  of  climate  on  the  scale  of  living, 
and  by  consequence  on  the  rate  of  wages. 

5.  When  the  cost  of  living  is  increased,  are  laborers  to 
be  blamed  for  demanding  higher  wages  ? 

6.  Are  manufacturers  to  be  blamed  for  reducing  wages 
when  the  prices  of  their  products  decline  ? 

7.  When  business  is  depressed,  is  it  right  that  high 
dividends  to  stockholders  should  be  maintained  by  reduced 
wages  ? 

8.  Illustrate  the  conservative  mfluence  of  custom  on 
wages  in  some  one  trade. 

9.  Why  is  the  rate  of  wages  generally  higher  in  a  new 
than  in  an  old  country  ? 

10.  Illustrate  the  effect  of  a  financial  panic  on  wages. 

11.  What  reason  have  laborers  to  think  that  free  compe- 
tition bears  most  hardly  on  them  ? 

12.  If  over  -  population  by  sharp  competition  reduces 
wages  to  the  starvation  limit,  can  a  strike  relieve  the 
case  ?    How  can  such  a  case  be  relieved  ? 

13.  State  the  results,  good  or  bad,  of  any  strike  which 
you  have  known  about. 

14.  State  what  benefits  and  what  evils  you  have  known 
to  come  from  membership  in  a  trades-union. 

15.  What  consequences  would  follow  if  the  policy  of 
limiting  the  number  of  apprentices  were  carried  out  in  all 
forms  of  industry  requiring  skill  ? 

16.  What  is  there  to  prevent  the  application  of  "  the 
Golden  Rule  "  in  the  mutual  relations  of  laborers  and  their 
employers  ? 


KEMUNERATION  OF  LABOR.  85 


SECTION  IV.  —  CAUSES    OF  VARIATION  IN  THE 
REMUNERATION  OF  LABOR. 

Evidently  all  kinds  of  labor  are  not  compensated 
alike.  Competition  tends  to  produce  uniformity  of 
compensation.  Whatever,  then,  diminishes  the  in- 
tensity of  competition,  opens  the  way  for  other 
causes  to  produce  variation.  Several  circumstances 
thus  affecting  competition  may  be  named  :  — 

1.  The  ease  or  difficulty,  the  agreeableness  or  dis- 
agreeableness,  of  the  employment.  For  easy  work, 
many  are  ready  to  compete ;  but  from  hard  work, 
many  draw  back,  and  the  number  able  to  put  forth 
great  muscular  effort  is  small.  Mining- work  under 
ground  is  disagreeable  ;  the  number  willing  to  en- 
gage in  it  is  much  less  than  of  those  ready  to  do 
pleasanter  work  on  the  surface  :  hence  only  a  better 
compensation  will  induce  any  to  go  below.  It  is 
not  an  uncommon  thing  for  a  gentleman  to  pay  a 
male  cook  more  than  his  private  secretary ;  the 
dignity  attached  to  the  one  office,  and  the  menial 
character  of  the  other,  accounting  for  the  difference. 

2.  The  skill  required  in  the  operation.  Here  we 
note  the  difference  between  simple  labor  and  edu- 
cated labor.  Skill  can  be  acquired  only  by  practice 
and  training,  which  cost  both  time  and  money.  It 
becomes  thus  an  investment,  for  which  the  possessor 
may  justly  ask  a  compensation.  •  Unusual  skill  sup- 
poses unusual  natural  endowment,  the  rarity  of 
which  precludes  sharp  competition. 


86  POLITICAL  ECONOMY. 

3 .  The  amount  of  trust  involved  in  the  occupation. 

In  services  about  banks,  or  which  in  any  way  involve 
the  handling  of  money ;  in  manufactures  where,  as 
in  the  case  of  jewelrj^,  the  precious  metals  are  put 
into  the  hands  of  workmen  as  materials  ;  in  railway 
operations,  where  the  safet}^  of  many  persons  and  of 
large  amounts  of  property  depends  on  the  conduct 
of  a  single  engineer, — in  these  and  similar  cases, 
good  judgment  and  incorruptible  integrity,  as  well 
as  skill,  are  required.  This  combination  of  qualities 
is  comparatively  rare.  Hence,  while  the  demand  is 
imperative,  the  suppl}^  is  small,  and  competition  for 
such  places  is  restricted.  For  such  positions,  it  is 
good  economy  to  pay  trustworthy  men  extraordinary 
compensation. 

4.  The  constancy  or  inconstancy  of  employment. 
In  out-door  occupations,  such  as  those  of  the  car- 
penter and  bricklayer,  work  is  interrupted  by  bad 
weather,  rainy  days,  and  the  winter- season.  The 
compensation  for  the  working  time  must  be  larger 
than  ordinar}",  to  cover  the  time  when  work  must  be 
suspended. 

5.  The  probability  or  improbability  of  success. 
This  consideration  applies  more  to  what  are  called 
the  professions  than  to  ordinary  trades.  He  who 
learns  the  trade  of  a  carpenter  ma}'  be  almost  sure 
of  finding  emplo3^Ilent  at  some  compensation ;  but 
one  who  studies  for  the  profession  of  a  lawj^er  has 
hardly  an  even  chance  of  being  able  to  live  by 
his  profession,  and,  at  best,  must  persevere  through 
years  of  unremunerated  toil,  to  establish  a  reputa- 
tion which  will  assure  him  full  success.     The  high 


REMUNERATION  OF  LABOR.  87 

remuneration  for   successful    practice  is   the  prize 
which  sustains  one  in  the  earlier  stages  of  the  race. 

The  remuneration  of  labor  by  salaries,  com- 
missions, and  fees,    involves    some    peculiarities 
which  must  be  noticed. 

1.  The  labor  which  is  thus  compensated  is  gen- 
erall}^  of  a  kind  that  requires  both  superior  natural 
gifts,  and  special  and  expensive  education. 

2.  It  is  also  true  of  it,  that  on  the  one  side,  per- 
sonal character  and  reputation,  and  on  the  Other,  tlie 
respectability,  dignity,  and  permanence  of  the  ser- 
vice, are  highl}^  estimated. 

These  considerations,  more  or  less,  rule  out  ordi- 
nar}^  competition,  and  put  the  mutual  contract  in 
each  case  on  special  grounds.  The  whole  number 
of  those  whose  labor  is  thus  compensated  is  small, 
compared  with  the  great  body  of  those  who  receive 
wages ;  and,  to  'the  few  so  favored,  a  large  share 
of  the  proceeds  of  industry  is  actually  distributed. 
This  seems  like  injustice ;  but  it  must  be  remem- 
bered that  it  is  chiefly  public  and  administrative 
services  that  are  compensated  b}^  salaries  and  fees. 
In  any  productive  enterprise,  —  a  woollen-mill  or 
watch-factor}",  for  instance,  —  a  wise  and  vigorous 
executive  administration  is  essential  to  make  the 
business  profitable.  It  is  for  the  interest  of  every 
one  in  the  establishment  who  receives  wages,  that, 
for  the  place  of  high  trust,  the  best  talent  should 
be  secured  by  a  salary  sufficient  to  command  it. 
So,  too,  all  private  interests  are  promoted  when 
public  affairs  are  guided  by  men  of  ability  and  integ- 


88  POLITICAL  ECONOMY. 

rity.  For  offices  of  government,  which  require  men 
of  more  than  ordinary  capacity,  it  is  right,  there- 
fore, that  more  than  ordinary  compensation  should 
be  provided. 

The  apparent  injustice  is  entirely  relieved,  if  the 
wa}'  is  open  for  every  one  to  make  the  most  of  him- 
self, and  to  rise  in  position  and  emolument  accord- 
ing to  his  real  merit.  This  is  illustrated  in  the  case 
of  George  Stephenson.  He  began  his  career  as  an 
engine-boy  at  the  lowest  wages.  As  his  mechani- 
cal genius  was  developed,  he  was  made  an  engine- 
wright,  and  put  upon  a  salar}^  of  a  hundred  pounds 
a  year,  when  he  thought  his  fortune  was  made. 
But  by  patient  stud}^  and  labor  he  invented  the  loco- 
motive-engine, and  became  "the  father  of  railways." 
Then  the  services  of  his  later  3'ears  received  munifi- 
cent remuneration.  The  world,  enjoying  unspeak- 
able benefits  from  his  achievements,  pronounces  that 
remuneration  justly  and  worthily  bestowed. 

In  the  learned  professions,  especially  those  of  law 
and  medicine,  men  of  highest  ability  and  repute 
receive  extraordinary  remuneration,  simply  because 
such  men  distance  competition  and  custom.  Where 
great  interests  are  at  stake,  it  is  sound  economy  to 
emplo}^  the  best*legal  talent  at  any  price.  In  a 
crisis  of  life  or  death,  the  best  medical  counsel  is 
cheap  at  any  cost.  After  the  reputation  has  been 
achieved,  law3'ers  like  Webster  and  Choate,  and 
physicians  like  Mott  and  Parker,  would  be  over- 
whelmed with  business  if  they  did  not  limit  it  by 
high  charges.  It  is  not  unusual  for  members  of 
these  professions  to  agree  upon  a  scale  of  fees  to 


REMUXERATIOX  OF  LABOR.  89 

be  charged.  But  such  agreements  can  fix  only  the 
minimum  limit,  leaving  an  open  range  above  for 
compensation  to  be  increased  according  to  each 
(>ne's  ability  and  reputation.  These  higher  rates 
ire  the  prizes  which  stimulate  the  efforts  of  young 
aspirants  in  these  professions. 

The  difference  of  remuneration  is  most  marked 
In  the  departments  of  literature  and  fine  art.  A  few 
lines  from  the  pen  of  a  Brj'ant  or  a  Longfellow,  a 
few  strains  of  music  from  a  Jenny  Lind  or  a  Kel- 
logg, a  painting  done  by  a  Church  or  a  Bierstadt, 
a  statue  from  the  chisel  of  a  Thorwaldsen  or  a 
Powers,  command  prices  that  seem  to  common  folk 
absurdly  extravagant.  But  these  products  are  in- 
imitable fruits  of  highest  genius,  which  sets  those 
who  have  it  above  all  competition,  in  the  enjo3'ment 
of  an  unrestricted  monopoly. 

Generally  men  in  all  callings  and  professions  in- 
sist on  the  highest  remuneration  they  can  command. 
But  often  the  honor,  dignity,  and  permanence  of 
certain  positions  are  considerations  of  weight  on 
the  other  side.  Thus  a  lawyer,  whose  practice 
would  3deld  an  income  of  twenty-five  thousand  dol- 
lars, may  accept  a  place  for  life  on  the  bench  of 
the  United  States  Supreme  Court  at  a  salary-  of  ten 
thousand  dollars. 

Men  devoted  to  scientific  research,  clerg3^men, 
and  teachers,  are,  as  a  whole,  confessedh^  under- 
paid, when  compared  with  men  of  equal  ability  and 
attainments  in  other  professions.  But  with  many 
of  them,  delight  in  the  study  of  truth,  and  devotion 
to  the  work  of  Christian  beneficence  for  the  well- 


90  POLITICAL  ECONOMY. 

being  of  mankind,  wliich  find  satisfaction  and  joy 
in  the  service  itself,  go  far  to  balance,  in  their  esti- 
mation, the  meagreness  of  their  pecuniary  reward. 

The  remuneration  for  women's  labor  in  most 
emplo3'ments  is  less  than  that  of  men  for  similar 
services.  The  fact  is  apparent  on  ever}^  hand.  In 
present  circumstances,  the  following  reasons,  though 
they  may  not  altogether  justify  it,  account  for  the 
fact. 

1 .  It  is  a  prevalent  opinion,  that  for  miscellaneous 
labor,  women  are  by  physical  and  mental  constitution 
inferior  to  men  in  the  qualities  essential  to  highest 
efficiency.  In  the  spinning-room  of  a  cotton-fac- 
tor}^, men  are  emplo3'ed  almost  entirely,  because 
women  have  not  the  strength  to  handle  the  jennies. 
In  the  weaving-room,  two  or  three  men  work  with 
a  hundred  women.  The  women  tend  the  looms  as 
well  as,  or  better  than,  the  men  ;  but  for  oversight, 
the  men  are  needed  to  meet  exigencies  for  which 
women  are  supposed  to  be  unequal. 

2.  In  the  order  of  nature  and  in  the  constitution 
of  society,  the  sphere  of  activity  for  most  -women  is 
ordained  to  be  in  the  home,  each  the  solace  and 
help  of  a  husband,  and  the  nourisher  and  mentor  of 
their  children.  This  fact  tends  to  rule  out  women 
from  man}^  occupations,  and  to  create  the  impres- 
sion that  it  is  unwomanly  to  enter  them. 

3.  The  wages  of  men  are  adjusted  to  the  presump- 
tion that  each  has  or  -will  have  a  family  to  provide 
for ;  and  those  of  w^omen,  to  an  anticipation  that  each 
will  in  due  time,  by  marriage,  be  relieved  of  her  own 


REMUNERATION  OF  LABOR.  91 

support.  A  very  large  proportion  of  the  women 
who  to-day  depend  on  their  own  labor  are  j^oung 
persons  who  are  passing,  one  after  another,  into  new 
relations,  where  they  are  to  be  cared  for  by  men's 
earnings. 

4.  Productive  industry  is  now  organized  on  the 
assumption  that  women's  w^ork  is  to  receive  less  com- 
pensation than  men's.  In  most  cases,  the  greater 
cheapness  of  female  labor  is  the  chief  reason  for 
employing  it.  The  prices  of  all  commodities  into 
which  this  kind  of  labor  enters  are  diminished  there- 
by. If  the  rule  is  a  false  one,  it  cannot  be  suddenly 
changed  without  deranging  the  entire  systems  of 
production  and  exchange. 

5.  There  are  feminine  instincts  w^hich  prompt 
w^omen  to  draw  back  from  many  occupations  because 
they  are  coarse,  or  involve  too  rough  jostling  with  the 
world.  These  instincts  are  natural ;  and  when  they 
are  crushed  out,  the  charm  of  womanhood  is  gone. 
Yet  the  prevailing  tendenc}^  is  to  make  them  excess- 
ive, so  as  to  produce  a  morbid  sentiment  of  false 
delicacy. 

The  foregoing  considerations  limit  the  number 
of  occupations  open  to  women ;  and  these  are  so 
crowded,  that  competition  is  intense,  and  low  wages 
are  inevitable. 

6.  This  competition  is  made  sharper  by  the  fact 
that  many  w^omen  who  seek  employment  are  partly 
or  w^holly  supported  by  other  resources  than  their 
own  labor.  These  can  and  often  do  underbid 
others  who  have  nothing  but  their  wages  to  depend 
on.     Not  infrequently,  too,  the  fact  of  their  better 


92  POLITICAL  ECONOMY. 

circumstances,  their  better  appearance,  and,  it  may 
be,  their  superior  intelligence,  secures  for  them  the 
preference. 

Notwithstanding  all  this,  there  are  exceptional 
cases  even  now,  where  women  of  superior  energy 
or  genius  command  for  their  services  a  remunera- 
tion equal  to  that  accorded  to  men  for  like  work. 
This  is  especially  true  of  women's  work  in  fine  art. 
The  female  stars  in  music  and  the  drama,  such  as 
Kellogg  and  Siddons ;  in  painting  and  sculpture, 
such  as  Rosa  Bonheur  and  Harriet  Hosmer ;  in 
poetry  and  light  literature,  such  as  Mrs.  Browning 
and  Mrs.  Stowe, — receive  from  an  admiring  public 
ample  compensation  for  their  productions.  Occa- 
sionally, too,  a  woman  possessed  of  great  executive 
ability  for  managing  business  wins  for  herself  a 
full  reward.  But  these  exceptions  are  so  few  as  to 
prove,  rather  than  controvert,  the  rule. 

As  the  case  now  stands,  good  judgment  must 
accept  the  following  conclusions  :  — 

a.  In  the  nature  of  things,  there  are  reasons 
why,  in  general,  the  remuneration  for  women's  work 
should  fall  somewhat  below  that  of  men.  Absolute 
equality  between  the  sexes  in  this  respect  is  not 
likely  to  be  attained. 

h.  This  inequality,  as  a  present  matter  of  fact,  is 
much  greater  than  is  either  right  or  necessar3\  The 
distress  that  comes  from  it  cries  out  in  the  name  of 
justice  and  philanthropy  for  relief. 

c.  The  needed  relief  can  come  onl}^  as  the  sphere 
of  competition  is  widened,  and  its  intensity  relieved, 
by  opening  for  women  free  access  to  all  fit  occupa- 


REMUNERATION  OF  LABOR.  93 

tions.  The  chief  obstacle  to  this  is  the  ban  imposed 
by  women  themselves  on  one  another,  under  the 
tyrann}'  of  fashion  and  prejudice  and  mawkish  sen- 
timentalism.  There  is  no  good  reason  why  with 
women,  as  with  men,  honest  work  well  done  should 
not  be  always  respected  and  honored.  A  change 
of  opinion  on  this  point,  in  female  circles,  will  be  a 
change  of  public  opinion. 

d.  In  the  quiet  sphere  of  domestic  life,  woman 
renders  to  society  her  noblest,  most  blessed  service, 
—  a  service  whose  worth  cannot  be  estimated  in 
terms  of  current  money.  Her  position  of  queenly 
power  in  that  sphere  must  ever  be  carefully  guarded. 

On  the  whole,  the  outlook  of  to-day  is  full  of 
hope  for  the  success  of  a  conservative  reform,  which 
shall  correct  existing  wrongs  without  impairing  those 
most  sacred  rights  of  woman  which  centre  in  the 
home. 

EXERCISES. 

1.  Why  pay  a  glass-blower  for  five  hours*  work  more 
than  a  porter  in  the  same  establishment  for  a  whole  day  ? 

2.  Why  are  extraordinary  wages  paid  to  men  who  work 
at  rolling  iron  ? 

3.  Why  do  men  working  in  a  powder-mill  expect  higher  , 
wages  than  they  would  ask  in  a  flouring-mill  ? 

4.  If  a  man  spends  five  years  learning  the  engraver's 
art,  how  is  he  to  be  compensated  for  his  outlay  of  time  and 
money  ? 

5.  Illustrate  how  a  trustworthy  character  may  have  a 
money-value. 

6.  Why  is  a  higher  price  charged  for  a  coat  made  to 
order  than  for  one  of  a  wholesale  stock  ? 

7.  'Why  are  the  wages  of  a  locomotive-engineer  higher 
than  those  of  a  fireman  whose  work  is  harder  ? 


94  POLITICAL  ECONOMY. 

8.  If  seven  out  of  ten  who  study  law  fail  of  success, 
what  inducement  is  there  to  seek  the  profession? 

9.  Why  is  it  right  that  the  general  scale  of  salaries 
should  be  higher  than  that  of  wages  ? 

10.  On  what  grounds  may  an  eminent  surgeon  charge  a 
fee  of  a  thousand  dollars  for  an  operation  which  occupies 
but  two  hours  ? 

11.  Is  it  unjust  for  an  artist  like  Powers  to  ask  what  he 
will  for  the  products  of  his  genius  ? 

12.  Is  it  wrong  for  a  clergyman  to  change  his  place  for  an 
increased  salary  ? 

13.  Why  do  women  prefer  to  live  in  a  garret,  and  earn  a 
pittance  with  the  needle,  rather  than  to  go  into  domestic 
service  in  comfortable  homes  at  good  wages  ? 

14.  What  would  be  the  consequences,  good  or  bad,  if  the 
salaries  of  female  teachers  were  made  the  same  with  those 
of  males  of  the  same  grade  ? 

15.  Is  it  desirable  that  women  should  engage  in  field- 
work,  or  in  the  legal  profession  ? 


REMUNEKATIOX  OF  CAPITAL.  95 


CHAPTER  11. 

THE  REMUNERATION  OF  CAPITAL. 

Justice  requires  that  the  owner  of  capital 
should  be  compensated  for  its  use.  Capital  is 
a  necessary  partner  with  labor  in  the  production  of 
wealth.  Its  two  most  important  forms  are :  first, 
the  "plant,"  i.e.,  the  buildings,  tools,  and  machinery 
to  work  in  and  to  work  with  ;  and,  second,  the  mate- 
rials to  work  upon.  Labor  and  skill  can  do  nothing 
till  these  are  provided. 

Capital  is  the  fruit  of  past  labor  preserved  by 
self-denial.  One's  right  of  property  in  that  which 
he  has  earned  and  saved  is  the  same  as  his  right 
to  his  present  power  to  labor.  No  man  expects  to 
put  forth  his  powers  in  present  labor  without  some 
reward.  Why  should  one  be  expected  to  give  the 
use  of  the  fruits  of  his  past  labor  and  self-denial 
without  reward?  The  hope  of  such  reward  is  the 
special  inducement  to  diligence  and  saving.  Sup- 
pose James  Brown  has  health  and  strength  and  skill 
as  a  blacksmith,  but  no  shop,  no  tools,  no  iron. 
John  Smith  has  by  previous  labor  and  thrift  become 
the  independent  owner  of  a  shop  and  its  appurte- 
nances, but,  broken  in  health,  is  unable  to  work. 
Eaqji  is  helpless  without  that  which  the  other  can 
furnish.     Both  will  derive  advantasie  from  the  union 


96  POLITICAL  ECONOMY. 

of  these  two  properties,  the  power  to  labor,  and  the 
capitaL  This  union  maj^  be  effected  in  either  of 
three  ways,  —  Smitli  may  hire  Brown  to  work  with 
his  shop  and  tools  send  iron,  and  pay  him  wages, 
taking  the  surplus  of  the  proceeds  for  himself;  or 
Brown  may  hire  Smith's  shop  and  tools,  and  pay 
him  rent  for  their  use,  taking  for  himself  the  sur- 
plus of  all  he  can  earn ;  or  Brown  may  buy  of 
Smith  the  shop  and  tools,  giving  him,  since  he  has 
no  mone}',  a  note  and  mortgage  for  their  value,  on 
which  he  is  to  pay  interest  ever}'  3'ear.  Can  any- 
body question  the  rightfulness  of  either  of  these 
transactions?  The}^  are  but  three  modes  of  doing 
one  and  the  same  thing,  —  that  is,  of  bringing  labor 
and  capital  into  partnership.  The  first  estabhshes 
the  relation  of  employer  and  employe  ;  the  second, 
that  of  landlord  and  tenant ;  the  third,  that  of 
creditor  and  debtor.  Each  involves  a  simple  shar- 
ing of  the  joint  product  of  industry. 

This  simple  case  illustrates  the  equitable  grounds 
of  the  remuneration  of  capital  in  all  its  aspects. 
The  principle  is  the  same,  if  Brown  borrows  money 
for  the  purchase  at  the  bank,  and  pays  the  interest 
there ;  or  if  ten  persons  contribute  means  for  the 
purchase,  and  so  make  a  stock  company,  each  to 
receive  dividends  on  the  profits  of  the  business 
instead  of  interest. 

For  the  fuller  presentation  of  the  subject,  it  may 
be  considered  under  three  heads  ;  viz..  Rent,  Inter- 
est, Dividends. 


RENT.  97 


SECTION  I.— RENT. 

Rent  is  the  compensation  paid  for  the  use  of  land 
and  its  appendages,  commonly  called  real  estate.     It 

implies  ownership  of  land,  and  a  right  on  the  part 
of  the  owner  to  receive  a  compensation  for  its  use 
when  he  lets  it  to  another. 

In  Great  Britain  and  other  countries,  where  the 
influence  of  the  old  feudal  system  is  still  felt,  the 
problems  of  rent  are  man}'  and  complicated,  because 
the  titles  to  lands  are  encumbered  by  entails  and 
mortmains.  But  in  our  countr}^  lands  are  held  in 
fee-simple,  w^hich  makes  the  ownership  absolute,  and 
the  transfer  by  sale  or  lease  eas}^  and  simple. 

For  agricultural  purposes,  the  amount  of  rent 
which  land  will  command  must  depend  mainly  on 
its  productiveness,  which  is  determined  by  the  fer- 
tility of  the  soil,  and  the  situation  with  reference 
to  a  market  for  the  produce.  Fertile  lands  near  to 
a  good  market  command  the  highest  rent,  because 
the  farmers  are  assured  of  both  good  crops  and 
good  prices.  With  reference  to  a  new  country 
inland,  the  opening  of  railways  and  other  facilities 
for  tranportation  enhances  rents :  first,  b}^  virtuall}^ 
bringing  the  lands  near  to  the  old  markets ;  and, 
second,  by  favoring  the  emigration  of  population  to 
build  cities  and  develop  varied  industries,  and  so 
to  form  new  markets. 

Beauty  of  situation,  good  neighborhood,  and  prox- 
imity to  schools  and  churches,  are  also  minor  con- 


98  rOLITICAL  ECONOMY. 

siderations  of  more  or  less  weight  in  determining 
the  rents  of  agricultural  lands. 

In  this  countr}^,  farms  are  quite  commonly  rented 
'*  on  shares;  '*  that  is,  the  landlord  receives  in  com- 
pensation for  the  use  of  his  land  a  certain  propor- 
tion of  the  crops.  The  capitalist  thus  shares  with 
the  laborer  the  risks  as  well  as  the  profits  of  the 
business. 

In  cities,  rents  for  lots  and  buildings  are  deter- 
mined almost  entirely  by  location,  witli  respect  to 
centres  of  business,  the  character  of  the  neighbor- 
hood, and  the  freaks  of  fashion.  A  store  in  the 
centre  of  business  will  rent  for  much  more  than  one 
half  a  mile  off,  because  a  merchant  tliere  will  sell 
ten  times  as  many  goods  as  in  the  other  location. 
A  residence  in  a  respectable  or  fashionable  quarter 
of  the  cit}'  commands  the  highest  rent,  because  it 
secures  pleasant  surroundings,  or  gratifies  pride  and 
vanity.  With  the  growth  of  cities,  the  centres  of 
business  and  the  fashionable  quarters  are  subject 
to  change  from  time  to  time,  so  as  materially  to 
var}^  the  rent-value  of  property  ;  and  this  fact  needs 
to  be  considered  when  capital  is  invested  in  that 
form. 

Generally,  except  in  the  favorite  locations  of 
great  cities,  rents  are  fixed  at  a  lower  percentage  on 
the  market  value  of  the  property  than  the  average 
rate  of  profits  from  business,  and  less  than  the 
average  rate  of  interest.  The  chief  reasons  for  this 
are  the  greater  security  of  capital  in  real  estate,  and 
the  probability,  that,  with  the  advance  of  society, 
the  value  of  real  estate  will  be  increased.     Property 


RENT.  99 

in  land  cannot  be  run  awa}^  with,  nor  destroyed,  nor 
fraudulently  disposed  of;  and  not  infrequently,  by 
the  mere  rise  of  value,  a  small  capital  in  this  form 
grows  into  a  fortune. 

EXERCISES. 

1.  What  would  be  the  effect  on  industry  if  a  rule  were 
established,  that  an  owner  of  capital  could  have  no  com- 
pensation for  its  use  when  loaned  to  another  ? 

2.  Under  such  a  rule,  which  would  suffer  most,  laborers, 
or  capitalists  ? 

3.  If  it  is  right  for  one  to  borrow  capital  for  his  own 
advantage,  is  it  wrong  for  the  lender  to  claim  a  share  in 
that  advantage? 

4.  What  does  the  term  "  real  estate  "  include  ? 

5.  Could  the  resources  of  the  earth  be  developed  to 
advantage,  if  there  were  no  private  property  in  land  ? 

6.  Why  will  a  poor  farm  near  a  seaport  command  higher 
rent  than  one  of  richer  soil  a  hundred  miles  away  ? 

7.  How  has  the  opening  of  railways  to  the  West  affected 
the  value  of  New-England  farms  ? 

8.  Why  does  the  character  of  its  neighborhood  affect 
the  value  of  a  farm  ? 

9.  Illustrate  the  great  inequalities  in  the  rate  of  rent  for 
city  property,  and  the  reasons  therefor. 

10.  Why  should  the  average  rent  for  real  estate  be  but 
five  per  cent  on  its  value,  when  the  average  interest  for 
money  is  eight  per  cent  ? 

11.  Can  you  give  an  instance,  and  the  facts,  of  a  fortune 
made  by  the  purchase  and  management  of  real  estate  ? 


100  POLITICAL  ECONOMY. 


SECTION  XL— INTEREST  AND  DIVIDENDS. 

Interest  is  the  compensation  paid  for  the  use  of 
capital  estimated  in  money.  This  is  to  be  preferred 
to  the  more  common  definition  of  interest  as  "the 
price  paid  for  the  use  of  money,"  because  it  covers 
the  whole  ground.  Money  as  the  medium  of  ex- 
change is  the  most  convenient  form  in  which  loans 
can  be  made.  When  credit  is  extended  in  anj^  wa}', 
the  value  is  set  down  in  terms  of  mone^^  on  which 
interest  may  be  reckoned  as  the  parties  agree,  or  as 
the  law  may  prescribe.  But  it  should  alwa3^s  be 
borne  in  mind  that  what  the  borrower  wants  is  not 
the  mone}^  but  the  capital  which  it  represents,  or 
for  which  it  is  immediately  expended. 

Thus  one  may  buy  land  for  a  site,  and  have  a 
building  erected  on  it,  and  purchase  a  steam-engine 
and  machinery  for  a  mill,  and  cotton  to  be  worked 
up,  at  each  step  giving  his  note  for  a  part  of  the 
value,  to  be  paid  at  a  future  date  with  interest.  Or, 
instead  of  doing  this,  he  may  borrow  of  a  friend  or 
at  the  bank  money  enough  to  meet  his  deficiency, 
giving  his  note  for  the  whole  with  interest ;  and  then 
set  up  his  establishment  complete,  by  purchases 
made  for  cash.  The  transactions  are  essentially  the 
same.  In  the  first  case,  the  loan  is  made  of  the 
capital  directl}^,  without  passing  any  money ;  in 
the  other  case,  the  monej'  is  only  a  means  of  reach- 
ing the  capital.  The  land,  the  mill,  the  engine,  the 
machinery,  and  the  cotton  are  what  the  manufacturer 


INTEREST  AND  DIVIDENDS.  101 

wants,  and  what  he  actuaHyihprrQws^as  capital  for 
his  business.  \>'>l'''  '>    ''  >        '  '  - 

Interest  is  reckoned  ,at' a^ccjrtaiu;'pei\' Cjefrti*  ^f'^ 
certain  value  defined  in'tofns'of  morle3%  'wliich'  is 
called  the  principal.  The  percentage  is  called  the 
rate,  and  is  usually  stated  as  the  rate  per  annum, 
though  often  payable  at  shorter  intervals  than  a  year. 

The  word  interest  is  a  Latin  verb,  and  means,  "it 
is  of  advantage."  The  term  implies  a  mutual  advan- 
tage to  borrower  and  lender,  and  thus  recognizes 
the  natural  and  necessary  partnership  of  capital  and 
labor.  It  is  for  the  advantage  of  the  skilful  laborer 
to  borrow,  at  a  reasonable  interest,  as  much  as  it  is 
for  the  advantage  of  the  capitalist  to  loan.  Were 
there  no  money-lenders,  there  could  be  no  money- 
borrowers  ;  and,  were  there  no  monej^-borrowers,  the 
industrious  artisan  would  be  the  greatest  sufferer. 
The  parties  come  together  for  their  mutual  advan- 
tage. Why,  then,  should  it  be  thought  any  more 
odious  for  one  to  lend  for  his  own  advantage,  than 
for  another  to  borrow  for  his  own  advantage?  So 
far  as  the  transaction  itself  is  concerned,  both  must 
be  regarded  as  equally  honest  and  honorable.  This 
mutual  advantage  marks  the  chief  difference  between 
a  loan  and  a  gift.  A  gift  implies  benevolence:  a 
loan  implies  interest.  A  giver  sacrifices  his  own 
advantage  for  the  benefit  of  the  receiver :  a  lender 
and  a  borrower  confer  each  a  benefit  on  the  other, 
adjusted  as  equitably  as  possible.  Lenders  are 
sometimes  avaricious,  exacting,  oppressive.  So, 
too,  borrowers  are  sometimes  profligate,  negligent, 
fraudulent.       These    are  abuses  which  selfishness 


102  POLITICAL  ECONOMY. 

thrusts  into  this,,  as  into  all  business  transactions. 
They  onght  not  to  impeach  the  legitimacy  of  the 
txnr)s;apfie^i  itself  rigbtlj  conducted. 

Some  people  think  it  W^ong  that  interest  should 
be  taken,  because  under  the  name  usury  the  Scrip- 
tures denounce  it,  and  our  Saviour  prescribes  it  as  a 
rule  of  Christian  love,  that  men  should  lend,  hoping 
for  nothing  in  return.  But  the  cases  contemplated 
in  the  Scriptures-  are  loans  made  to  relieve  pressing 
necessities  of  the  need}^,  not  loans  of  capital  made 
with  a  view  to  profitable  industr3\  The  law  of 
Christian  charity,  which  bids  us  give  to  the  poor, 
looking  for  no  return  of  either  principal  or  interest, 
is  still  binding  ;  but  it  does  not  apply  to  loans  which 
are  only  a  means  of  uniting  labor  and  capital  in  a 
common  enterprise,  for  their  mutual  advantage.  It 
seemed  necessary  to  say  so  much  to  correct  .certain 
false  ideas  which  are  put  forth  and  are  gaining  cur- 
rency in  these  days.  Interest,  properl}-  understood 
and  regulated,  involves  no  extortion,  works  no  in- 
jury, but  confers  great  and  important  benefits,  by 
encouraging  both  saving  and  the  judicious  employ- 
ment of  capital  saved. 

The  Rate  of  Interest  is  determined  chiefly  by 
four  considerations,  viz.,  risk,  convenience  of  invest- 
ment, profits  of  industry,  and  the  ratio  between  sup- 
ply and  demand  of  capital. 

1.  Risk.  When  one  makes  a  loan,  he  puts  a 
portion  of  his  property  out  of  his  own  hands  into 
the  control  of  another.  There  is  a  chance  that  it 
may  never  come  back  to  him.     His   compensation 


INTEREST  AND  DIVIDENDS.  103 

inust  be  proportioned  to  that  chance.  If  he  holds 
pledges  which  make  him  secure,  he  will  be  content 
with  a  small  interest ;  if  he  has  no  security,  and  the 
borrower  proposes  to  embark  in  a  doubtful  enter- 
prise, he  can  be  induced  to  make  the  loan  only  by 
the  promise  of  a  large  compensation. 

The  risk  depends  upon  several  circumstances. 

a.  The  personal  character  of  the  borrower  qualifies 
the  risk.  The  character  that  can  safely  be  trusted 
involves  industry  and  sobriety,  fekill,  good  sense, 
pecuniary  abihty,  and  moral  integrity.  Where  these 
are  combined  in  the  borrower,  the  probabilities  are 
strong  that  he  will  succeed,  and  honestly  fulfil  his 
promise  to  pay  ;  and  the  lender  runs  but  little  risk. 

h.  The  character  of  the  business  in  which  the  bor- 
rowed capital  is  to  be  emploj^ed  aflTects  the  risk. 
Capital  invested  in  a  powder-mill  is  in  great  danger 
of  sudden  destruction ;  in  farming  operations  it  is 
almost  absolutely  safe.  Money  loaned  to  a  specu- 
lator in  mining-stocks  is  put  into  bubbles  that  a 
breath  may  burst ;  loaned  to  an  industrious  me- 
chanic, it  ma}^  not  move  so  fast,  but  it  is  sure  to 
come  around  in  time,  with  increase. 

C.  The  character  of  the  government  aflfects  the  risk 
incurred  in  lending  capital.  A  despotic  government, 
which  plunders  its  citizens  by  irregular  and  oppres- 
sive taxation,  makes  all  private  property  and  all 
industry  insecure.  Thus  in  a  countr}^  like  Turkey 
a  great  risk  attends  all  pecuniary  contracts,  and  the 
rate  of  interest  is  high.  Where  the  laws  are  bad, 
or  are  inefficient  to  maintain  justice,  for  lack  of 
force  in  their  execution,  there  is  great  risk  in  loaning 


104  POLITICAL  ECONOMY. 

capitaL  We  do  not  wonder  that  in  mediaeval  times 
the  Jewish  money-lenders  charged  enormous  rates 
of  interest,  when  we  understand  that  the  laws  fur- 
nished no  safeguards  for  their  protection :  they  and 
their  contracts  were  subject  to  the  caprice  of  petty 
lords,  who  were  little  better  than  robbers  b}^  pro- 
fession. So,  too,  the  stability  of  a  government  is 
an  important  consideration.  A  revolution  often 
dissolves  contracts,  dissipates  securities,  and  renders 
obligations  valueless.  Hence  in  Mexico  the  rate  of 
interest  is  very  high,  while  in  Great  Britain  it  is 
very  low  for  both  public  and  private  loans. 

2.  The  convenience  of  the  investment  has  an  im- 
portant bearing  on  the  rate  of  interest.  Three 
points  have  here  to  be  considered. 

a.  Facility  of  transfer.  One  who  loans  his  capital 
likes  to  have  it  so  invested  that  he  can  easily  com- 
mand it  for  his  own  use  in  case  of  need.  A  bond 
of  the  United  States,  or  a  certificate  of  stock  in  a 
well-established  bank,  may  be  easily  transferred  and 
made  available. 

6.  Permanency  of  investment.  A  lender  at  the 
same  time  desires  that  a  good  investment  should  run 
on  undisturbed  as  long  as  practicable,  unless  he  has 
occasion  to  recall  his  capital.  A  government-bond, 
that  runs  twenty  years  will  for  this  reason  be  taken 
up  at  a  less  rate  of  interest  than  one  that  runs  only 
five  years. 

C.  Punctuality  in  the  payment  of  interest.  Those 
who  loan  their  capital  wish  to  count  with  certainty 
on  their  interest,  and  to  secure  it  without  trouble. 
A  well-secured  bond,  with  interest-coupons  attached, 


INTEREST   AXD  DIVIDENDS.  105 

given  b}'  a  prompt  business  man,  will  ordinarily 
command  money  at  a  low  rate  of  interest,  because 
of  this  convenience. 

British  consols,  which  represent  the  consolidated 
debt  of  England,  run  at  from  three  to  four  per  cent 
interest,  because  the}^  combine  these  three  advan- 
tages in  the  form  of  investment  they  offer.  For  the 
same  reason  our  United-States  bonds  are  eagerly 
bought  up  at  a  premium,  though  they  bear  only  four 
or  four  and  a  half  per  cent  interest. 

3.  The  profits  of  industry  vary  at  different  times 
and  in  different  countries,  and  affect  the  rate  of 
interest.  Here  we  look  at  the  matter  from  the 
standpoint  of  the  borrower.  He  must  consider 
what  he  can  afford  to  pay,  and  that  evidently  must 
depend  on  the  profit  he  can  gain  by  the  use  of  capi- 
tal. If,  as  sometimes  happens,  a  business  3'ields  so 
large  profits  that  the  capital  is  doubled  in  a  year, 
one  can  well  afford  to  pay  twent3^-five  or  even  fifty 
per  cent  for  capital  to  be  employed  in  such  a  busi- 
ness ;  w^hereas,  if  through  any  cause  a  particular 
industry  yields  only  three  per  cent  of  profit,  one 
cannot  afford  to  pay  even  six  per  cent  for  capital  to 
be  embarked  in  that  business. 

4.  Tlie  ratio  between  supply  and  demand  of  capital, 
more  than  any  other  one  cause,  determines  the  rate 
of  interest.  This  is  only  a  recognition  of  the 
principle  of  competition  acting  here  as  elsew^here. 
When  the  number  of  borrowers  is  large,  and  their 
wants  are  large,  but  the  amount  of  capital  available 
is  small,  the  competition  is  sharp  on  the  side  of  the 
borrowers,  and  they  bid  up  on  the  rate  of  interest. 


106  POLITICAL  ECONOMY. 

When  the  conditions  are  reversed,  the  competition 
is  sharp  between  the  lenders,  and  the}'  bid  against 
each  other  by  offering  loans  at  lower  rates  of  interest. 

The  best  adjustment?  of  supply  and  demand  de- 
pends on  the  freedom  of  capital;  that  is,  the  unfet- 
tered liberty  of  ever}'  man  to  employ  his  capital  in 
any  innocent  way  he  pleases.  Such  freedom  tends 
always  towards  a  healthful  equilibrium,  which  sup- 
ports industry  by  securing  to  both  partners  a  fair 
and  satisfactory  reward. 

In  a  new  and  prosperous  country  interest  is  al- 
ways high,  because  the  profits  of  industry  are  large, 
and  the  supply  of  capital  on  the  ground  wis  small, 
while  to  distant  capitalists  the  risk  seems  great. 
But  the  constant  tendency  of  civilization  is  to  re- 
duce the  rate  of  interest,  because  wealth  increases 
rapidly  both  by  immigration  and  by  the  natural 
fruits  of  industry,  and  because  risk  is  diminished 
by  more  perfect  securities.  This  process  goes  on 
by  certain  fixed  laws.  The  natural  development  is 
healthiest.  The  action  of  those  laws  is  only  marred 
and  hindered  by  the  untimely  interference  of  legis- 
lation. 

Usury  Liaws.  These  are  laws  designed  to  restrict 
the  rate  of  interest  by  a  defined  limit.  They  inter- 
fere with  the  freedom  of  capital,  and  are  in  conflict 
with  the  first  principles  of  sound  political  economy, 
as  several  considerations  show  :  — 

1 .  They  violate  a  right  of  property.  A  man  has 
the  same  right  to  the  market-rate  for  the  use  of  his 
capital  in  money,  as  he  has  to  the  market-rate  for 


INTEREST  AND  DIVIDENDS.  107 

the  rent  of  his  house,  or  the  hire  of  his  horse,  or 
the  charter  of  his  ship. 

2.  The  civil  law  cannot  fix  a  price  for  the  use  of 
capital,  any  more  than  it  can  fix  a  price  at  which 
flour,  or  iron,  or  any  other  commodity,  must  be  sold. 
In  all  these  matters,  the  law  of  competition  is  supe- 
rior to  the  civil  law. 

3.  The  price  of  capital  is  more  variable  than  that 
of  other  commodities.  This  is  made  evident  in  the 
great  marts  of  business,  by  daily  quotations  of  the 
rate  of  interest. 

4.  These  laws,  instead  of  diminishing,  actually  in- 
crease the»burden  of  interest  to  the  most  needy  bor- 
rowers. The  lender  must  be  compensated  for  the 
additional  risk  from  the  penalty  of  the  law. 

5.  Such  laws  are  never  fully  enforced,  as  is  obvi- 
ous from  the  daily  newspaper  reports  just  referred 
to.  Men  who  want  money  will  pa}'  what  they  please 
for  it,  and  those  who  have  it  to  loan  will  get  what 
they  can.  Such  laws  only  put  law-abiding  capital- 
ists at  a  disadvantage,  or  drive  them  out  of  the 
market  for  the  benefit  of  unscrupulous  sharpers  and 
Sh3^1ocks. 

Money  is  a  necessary  of  life  in  active  industr}^ 
and  trade,  and  for  that  reason  it  ought  to  be  left 
free  to  the  action  of  the  natural  law  of  supply  and 
demand.  In  active  commercial  centres  this  is  com- 
ing to  be  understood.  Every  State  should  have  a 
statute  defining  a  legal  rate  of  interest  for  cases 
in  which  the  contract  indicates  no  specific  rate. 
Beyond  this,  legal  sanction  and  security  for  all 
reasonable  contracts  in  loaning  capital,  under  free 


108  POLITICAL   ECONOMY. 

competition,  constitute  the  surest  safeguard  against 
excessive  interest.  It  is  a  hopeful  sign  that  in 
Great  Britain,  and  in  Massachusetts  and  other 
American  States,  usury  laws  have  been  aboUshed. 

Dividends.  This  term  denotes  the  remuneration 
of  capital  invested  in  stock  companies.  These  com- 
panies unite  contributions  of  capital  from  a  number 
of  persons  for  large  operations,  such  as  cotton  or 
woollen  factories,  banking,  insurance,  railways,  tele- 
graphs, &c.  The  whole  capital  is  divided  into 
shares,  usually  of  one  hundred  dollars  each,  which 
are  freely  bought  and  sold  in  the  stock-market. 
With  a  company  honestly  managed,  as  the  business 
runs  on,  accounts  are  balanced  semi-annually,  and 
the  proceeds  are  ascertained.  The  surplus  of  these 
proceeds,  after  providing  for  all  expenses,  and  laying 
aside  a  reserve  to  meet  emergencies,  is  divided  to 
the  stockholders,  giving  a  certain  percentage  to  each 
share. 

This  form  of  compensation  for  the  use  of  capital 
is  marked  by  two  peculiarities  :  First,  the  remunera- 
tion depends  altogether  on  the  success  of  the  industry 
in  each  case.  Second,  the  dividend  embraces  two 
elements ;  viz.,  interest  and  profits.  If  the  mill,  the 
railwa}^  or  whatever,  has  barely  paid  other  expenses, 
capital  will  have  no  remuneration ;  if  it  has  earned 
enough  to  pay  the  capital  ordinar}^  interest,  the 
dividend  is  identical  with  interest ;  if  it  has  earned 
more,  so  as  to  make  dividends  of  ten  or  twenty  per 
cent  annually,  the  capital  receives  extraordinary 
remuneration.     The  chance  or  expectation  of  such 


INTEREST  AND  DIVIDENDS.  109 

extraordinary  remuneration,  and  the  convenience  of 
investments  in  that  form,  are  the  chief  inducements 
for  putting  capital  into  stocks. 

The  mismanagement,  frauds,  and  defalcations 
which  attend  the  operations  of  stock-companies, 
involve  great  sacrifices.  A  careful  estimate  of  the 
results  of  such  investments  would  probably  show 
average  returns  much  less  than  ordinary  interest. 

EXERCISES. 

1.  Show  the  rightfulness  of  interest  in  the  case  of  a 
farmer,  who,  growing  old,  sells  for  ten  thousand  dollars 
the  farm  he  has  worked  for  forty  years,  and  loans  the 
money  at  eight  per  cent,  expecting  the  interest  to  support 
him  for  the  rest  of  his  days. 

2.  Illustrate  the  advantage  to  a  young  skilled  mechanic, 
of  borrowing  capital  to  set  him  up  in  business. 

3.  If  a  manufacturer  sells  a  farmer  a  reaping-machine, 
taking  his  note  for  payment  to  be  made  in  three  annual 
instalments^  why  is  it  right  to  charge  interest  on  the  de- 
ferred payments  ? 

4.  Why  should  a  grocer  sell  his  goods  at  a  less  price  for 
cash  than  if  he  gives  the  buyer  six  months'  credit  without 
interest  ? 

5.  If  it  is  right  for  a  machinist  to  take  a  note  with  inter- 
est in  part  payment  for  a  steam-engine,  is  it  wrong  for  a 
banker  to  take  a  like  note  with  interest,  for  money  loaned, 
that  the  buyer  may  pay  for  the  engine  at  once  ? 

6.  What  considerations  induce  capitalists  to  prefer  to 
invest  in  government  bonds  which  pay  four  and  a  half  per 
cent,  rather  than  in  notes  and  mortgages  at  eight  per  cent  ? 

7.  Why  is  it  that  the  government  of  Chili  can  hardly 
borrow  money  at  ten  per  cent,  while  the  British  govern- 
ment borrows  all  it  needs  at  three  per  cent  ? 

8.  How  could  a  poor  man,  who  in  1843  pre-empted  gov- 
ernment land  in  Wisconsin  at  $1.25  per  acre,  afford  to  pay, 


110  POLITICAL  ECONOMY. 

a  year  after,  fifty  per  cent  interest  for  money  to  complete 
his  purchase  of  the  government  ? 

9.  What  reasons  combine  to  cause  a  high  rate  of  inter- 
est in  our  young  Western  States  ? 

10.  Account  for  the  decline  of  interest  in  Illinois  since 
1840,  from  twenty-five  per  cent  to  eight  per  cent.  How 
much  has  direct  legislation  done  to  cause  that  decline  ? 

11.  When  is  a  high  rate  of  interest  a  sign  of  prosperity  ? 
when  of  adversity  ? 

12.  State  some  of  the  ways  in  which  usury  laws  are 
evaded.  What  is  the  moral  effect  of  laws  thus  openly 
disregarded  ? 

13.  Can  a  stock-company  be  justified  in  declaring  divi- 
dends not  earned,  and  borrowing  money  to  pay  them  ? 

14.  Why  are  stock-companies  specially  exposed  to  frauds  ? 

15.  What  do  you  understand  by  the  "  bulls  ''  and  *'  bears  " 
of  Wall  Street  ? 


DISTRIBUTION  OF  PROFITS.  HI 


CHAPTER  III. 

DISTRIBUTION  OF  PROFITS. 

Writers  on  Political  Economy'  have  used  the  term 
profits  with  much  looseness  and  ambiguity.  Many 
define  it  to  mean  the  remuneration  paid  for  the  use  of 
capital.  Mill  says  profit  embraces  the  three  items, 
interest,  insurance,  and  wages  of  superintendence. 
Mr.  Walker  represents  profits  as  the  share  which 
falls  to  the  employer  or  manager.  This  loose  and 
varied  use  of  an  important  term  is  not  scientific. 
Our  science  requires  the  term  with  a  specific  mean- 
ing, properly  expressed,  we  think,  in  the  following 
definition :  — 

Profits  are  the  net  proceeds,  —  the  surplus  of 
values,  after  all  necessary  expenses  of  production 
have  been  deducted. 

According  to  the  principles  laid  down  in  previous 
chapters,  the  following  items  are  to  be  included  in 
necessary  expenses :  — 

1 .  Wages  paid  for  common  and  skilled  labor  of  all 
grades. 

2.  Salaries  paid  for  oversight  and  management, 
including  all  superintendence  and  administration, 
mechanical  and  financial. 

3.  Interest  on  capital  invested. 

4.  Insurance  to  guard  against  certain  risks. 


112  POLITICAL  ECONOMY. 

5.  Taxes  paid  for  protection  from  the  government. 

If  the  products  of  an  industrial  establishment 
l^rovide  for  these  expenses,  and  nothing  more,  the 
business  just  sustains  itself,  but  it  3'ields  no  profits. 
In  such  a  case,  since  all  parties  get  their  legitimate 
compensation,  the}'  ma}'  be  satisfied  to  run  on  so 
for  years.  But  in  general  the  expectation  of  profits 
is  the  necessary  stimulus  of  enterprising  industry, 
and  the  aim  is  to  make  profits  as  large  as  possible. 

When  one  combines  in  himself  the  functions  of 
operative,  manager  and  capitalist,  wages,  salary, 
interest  and  profits  if  there  be  any,  all  come  to 
him.  No  question  of  distribution  arises ;  but  even 
in  such  a  case,  it  is  well  for  one  to  keep  his  accounts 
so  as  to  define  what  is  properly  to  be  reckoned  as 
wages  for  labor,  salary  for  management,  and  inter- 
est for  capital :  only  so  can  the  profits  of  the  busi- 
ness be  accurately  estimated. 

Though  a  common  usage,  it  is  yet  a  serious  error, 
to  express  the  measure  of  profits  in  a  business,  by  a 
percentage  on  the  capital  invested,  as  though  the 
profits  belong  exclusively  to  the  capitalist.  In  many 
cases,  the  labor  is  of  more  account  than  the  capital. 
A  shoemaker  with  a  capital  of  five  hundred  dollars 
may,  by  untiring  industry  through  a  year,  make  his 
proceeds  count  a  hundred  per  cent  on  that  amount, 
and  yet  receive  an  insuflScient  return  for  his  labor. 
Twenty  per  cent  on  five  hundred  thousand  dollars 
invested  in  a  great  manufacturing  establishment 
may  pay  well  for  labor  and  management  and  ordi- 
nary interest  on  capital,  with  a  large  margin  for 
profits.     Hence  it  is  often  better  for  one  to  work 


DISTRIBUTION  OF  PROFITS.  113 

for  wages  or  a  salary  in  connection  with  a  large 
establishment,  rather  than  attempt  an  independent 
business.  So  with  truth  is  it  said,  "It  is  in  the 
nature  of  trade  and  manufacture  that  great  capital 
drives  small  capital  out  of  the  field :  it  can  work  for 
smaller  returns." 

It  is  evident  that,  according  to  our  definition, 
profits  can  be  legitimatel}^  increased  only  in  one  of 
two  ways,  either  by  reducing  expenses,  or  by  increas- 
ing the  amount  and  the  value  of  the  products.  It  is 
for  a  wdse  and  faithful  manager  carefullj^  to  study 
both  sides  of  the  problem ;  and  hence  his  is  the 
most  important  service,  and  it  deserves  the  highest 
compensation.  But  it  does  not  follow,  therefore, 
that  the  entire  profits  should  be  appropriated  to  the 
manager,  or  ^''entrepreneur^''  as  the  French  term 
him. 

Fop  a  fair  distribution  of  profits,  there  must  be 
combined  with  these  views  of  the  nature  of  profits, 
a  full  recognition  of  that  partnership  which  we  have 
seen  to  be  a  fundamental  principle  of  productive 
industry.  In  this  partnership  there  are  three  mem- 
bers,—  the  capital,  the  executive  capacity,  and  the 
labor.  Each  is  entitled  to  a  fair  compensation  for 
the  service  rendered,  and  each  is  entitled  to  a  share 
in  the  surplus  fruits  of  their  co-operation.  We  may 
not  say  either  an  equal  share  or  equal  compensa- 
tion ;  because  capital  takes  the  greater  risk,  and  is 
liable  to  the  heaviest  losses,  and  it  is  fair  that  this 
chance  of  greater  loss  should  be  balanced  by  a 
chance  of  greater  gain  ;  because,  also,  the  amount 


114  POLITICAL  ECONOMY. 

of  profits  is  due  chiefly  to  the  executive  wisdom  and 
energy  of  the  manager,  and  he  is  entitled  to  a  pro- 
portionatel}^  larger  share  in  the  returns.  After  due 
allowance  for  these  considerations,  however,  there 
is  a  share  which  justl}^  belongs  to  the  labor,  and 
which  should  be  distributed  among  those  who  make 
up  this  third  member  of  the  firm,  according  to  each 
laborer's  merit  and  grade  in  the  service  rendered. 

The  rising  antagonism  between  labor  and  capital 
will  be  best  counteracted,  we  believe,  by  measures 
adapted  to  secure  a  fairer  distribution  of  profits  on 
this  basis.  To  devise  the  best  measures  for  this 
will  require  much  earnest  stud}",  and  experiments 
carefully  conducted  with  good- will  and  patience  on 
both  sides.  No  doubt  it  will  be  found  that  meas- 
ures must  be  varied  to  suit  different  cases  and  cir- 
cumstances. What  works  well  in  one  case  may  not 
do  so  in  another.  Tact  and  common  sense  must 
be  used  to  apply  the  principle  which  is  one  and 
common.  There  are  obstacles  in  the  way  of  the 
immediate  adoption  of  siich  measures.  False  ideas 
on  the  part  of  both  workmen  and  their  employers 
must  be  corrected,  mutual  confidence  must  be  estab- 
lished, and  common  usage  must  be  changed.  These 
are  things  not  to  be  accomplished  in  a  day.  Yet 
there  is  good  reason  to  believe  that  if  attention  is 
turned  earnestly  on  the  study  of  this  specific  object, 
obstacles  will  be  overcome,  measures  will  be  defined 
and  successfully  applied,  and  the  result  will  be  more 
of  justice,  harmony,  and  efficiency,  in  the  actual 
operations  of  industry,  and  abiding  relief  from  dan- 
gers which  threaten  the  peace  and  prosperity  of  the 
nation. 


DISTEIBUTIOK  OF  PROFITS.  115 

Co-operative  associations  are  designed  to  secure  a 
more  equitable  distribution  of  profits  in  the  interest 
especially  of  workmen.  Their  ordinary  plan  is  for 
a  number  of  workingmen  of  some  one  branch  of 
industry  to  join  their  means  and  their  hands  to 
carry  on  business,  expecting  to  divide  the  entire 
proceeds  among  themselves  by  some  defined  rule  of 
equity.  Some  such  organizations  have  succeeded 
for  a  time,  but  most  of  them  have  soon  ended  in 
failure.  The  reasons  are  obvious.  There  is  apt  to 
be  a  deficienc}'  of  capital,  which  puts  the  associa- 
tion to  a  disadvantage  in  competition  with  other 
establishments.  Again,  jealousies  among  the  mem- 
bers are  apt  to  spring  up,  and  prevent  the  harmony 
and  unity  of  action  which  are  essential  to  best 
results.  A  greater  diflSculty  is  to  secure  the  man- 
aging ability,  on  which,  after  all,  success  mainly 
depends.  A  majoritj-vote  in  mass-meeting  cannot 
fulfil  the  function  of  a  "  captain  of  industry''  of 
judgment  and  will-power  to  plan  and  direct.  Such 
associations,  it  has  been  said,  aim  to  dispense  with 
the  "  entrepreneur^^'  and  divide  his  proper  remuner- 
ation. This  means  onl}^  that  the  laborers  are  tr3dng 
to  appropriate  all  the  profits  to  themselves,  which 
involves  essentially  the  same  mistake  as  when  the 
capitalists  or  managers  try  to  take  the  whole.  The 
partnership  heartily  entered  into,  vigorousl}^  main- 
tained, and  so  conducted  as  to  insure  the  rights  of 
each  class  of  members,  is  most  liliely  to  estabhsh 
an  equitable  distribution  of  profits. 


116  POLITICAL  ECONOMY. 

EXERCISES. 

1.  A  cabinet-maker  with  a  capital  of  $15,000  employed 
six  men,  the  average  of  whose  wages  was  $12  each  per 
w^eek;  paid  a  bookkeeper  a  salary  of  $600,  and  managed 
the  business  himself.  He  paid  for  rent,  taxes,  and  insur- 
ance, $1,200,  and  legal  interest  was  seven  per  cent.  After 
replacing  capital  consumed,  the  proceeds  of  the  business 
for  a  year  amounted  to  $12,000.  Allowing  $2,000  for  his 
compensation  as  manager,  what  were  the  profits  for  the 
year? 

2.  For  the  subsequent  five  years  the  proceeds  averaged 
$15,000  per  year,  and  ten  per  cent  of  the  profits  were  annu- 
ally distributed  to  the  employes  in  addition  to  wages  and 
salary:  what  amount  of  profits  fell  to  each  of  the  parties 
during  that  period  ? 

3.  The  next  year,  by  sharp  competition,  increased  cost 
of  lumber,  and  dull  trade,  the  proceeds  were  reduced  so  as 
barely  to  meet  expenses,  as  before  defined;  why  would  it 
be  worth  while  to  keep  on  in  such  a  case  ? 

4.  Then  came  a  financial  revulsion ;  and  for  three  years 
the  proceeds  annually  came  $2,000  short  of  meeting  ex- 
penses, and  the  pay  of  all  employes  was  reduced  ten  per 
cent:  what  was  the  actual  loss  to  the  several  parties? 

5.  With  the  return  of  better  times,  $5,000  added  capital 
was  invested  in  the  introduction  of  steam-power  and 
machinery,  by  which  the  annual  products  were  doubled 
in  amount;  and  for  the  next  five  years  the  annual  proceeds 
rose  to  $20,000:  what  were  the  annual  profits?  Distributed 
as  before,  what  share  fell  to  each  of  the  parties  ? 

6.  Estimate  the  profits  of  the  business  for  the  whole 
period  of  fifteen  years. 

7.  If  the  whole  establishment  had  been  burned  up  at  the 
time  of  greatest  depression,  with  insurance  to  the  amount 
of  only  two-thirds  the  value,  whose  would  have  been  the 
loss? 

8.  Suppose  a  blacksmith,  working  by  himself  with  a  capi- 
tal of  $300,  earns  in  a  year  $400:  has  he  made  any  profits? 

9.  If  a  great  cotton-factory  produces  annually  20,000,000 


DISTRIBUTION  OF  PROFITS.  117 

yards  of  cloth,  and  the  superintendent  contrives  to  reduce 
the  cost  of  production  one  mill  per  yard,  how  much  will 
the  profits  thereby  be  increased,  supposing  prices  are  un- 
changed ? 

10.  The  cost  of  production  remaining  the  same,  suppose 
the  market-price  to  advance  one  cent  a  yard:  how  much 
will  the  profits  be  increased  ? 

11.  What  effect  on  the  efiiciency  of  labor,  and  economy  in 
the  use  of  materials,  may  be  expected  from  allowing  labor- 
ers a  share  in  the  profits  ? 

12.  State  the  main  features  of  any  co-operative  associa- 
tion you  know  of,  and  its  results. 


118  POLITICAL  ECONOMY. 


CHAPTER  IV. 

REVENUES  OF  THE  GOVERNMENT. 

Good  government,  efficiently  administered,  is 
essential  to  prosperous  industry  and  social  enjoy- 
ment. Everj^  citizen  derives  a  benefit  from  such  a 
government,  and  may  fitly  be  called  on  to  contribute 
a  portion  of  his  wealth  for  its  maintenance.  The 
government  represents  a  common  public  interest 
superior  to  any  private  interest :  its  claims  there- 
fore justl}^  take  precedence  of  all  others.  Since  the 
public  revenues  must  be  drawn  from  the  proceeds  of 
a  people's  industrj^,  the  consideration  of  this  topic 
coHies  properly  under  this  division  of  our  science 
which  treats  of  distribution. 

Taxation  is  the  means  employed  to  gather  from 
a  people  the  revenues  of  its  government.  To  devise 
and  apply  an  equitable  sj'stem  of  taxation,  is  one  of 
the  most  difficult  problems  of  legislation,  —  a  prob- 
lem which  should  be  studied  in  the  hght  of  political 
economy,  with  reference  to  its  one  object ;  viz.,  the 
raising  of  a  revenue  for  the  state. 

In  despotic  governments,  the  will  of  the  ruler 
determines  arbitrarily  both  the  measure  and  the 
methods  of  taxation,  and  great  inequality  and  op- 
pression prevail.     It  is  a  fundamental  principle  of 


REVENUES   OF   THE   GOVERNMENT.        119 

free  and  just  government,  that  taxes  shall  be  im- 
posed by  representatives  of  the  people  through  rea- 
sonable and  proportional  assessments  on  all  estates, 
and  that  they  shall  be  collected  by  agents  acting 
under  defined  powers  and  direct  accountabilit3\ 

Adam  Smith's  Maxims.  The  father  of  modern 
political  econom}^  laid  down  four  rules  of  equitable 
taxation  as  follows  :  — 

1.  "  The  subjects  of  every  state  ought  to  contribute 
tovrard  the  support  of  the  government  as  nearly  as 
possible  in  proportion  to  their  respective  abilities; 
that  is,  in  proportion  to  the  revenue  which  tliey  re- 
spectively enjoy  under  the  protection  of  the  state. 

2.  ''  The  tax  which  each  individual  is  bound  to  pay 
ought  to  be  certain,  and  not  arbitrary.  The  time  of 
payment,  the  manner  of  payment,  the  quantity  to  be 
paid,  ought  all  to  be  clear  and  plain  to  the  contribu- 
tor, and  to  every  other  person. 

3 .  "  Every  tax  ought  to  be  levied  at  the  time  and  in 
the  manner  in  w^hich  it  is  most  likely  to  be  convenient 
for  the  contributor  to  pay  it. 

4.  "  Every  tax  ought  to  be  so  contrived  as  both  to 
take  out  and  to  keep  out  of  the  pockets  of  the  people 
as  little  as  possible  over  and  above  w^hat  it  brings  into 
the  public  treasury  of  the  state." 

These  maxims  embody  leading  principles  of  equity, 
b}^  which  all  schemes  of  taxation  may  be  tested. 

Direct  and  Indirect  Taxation.  According  to 
Mr.  Mill's  definitions,  ''A  direct  tax  is  one  which 
is  demanded  from  the  very  persons  who  it  is  in- 


120  POLITICAL  ECONOMY. 

tended  or  desired  should  pay  it.  Indirect  taxes  are 
those  which  are  demanded  from  one  person,  in  the 
expectation  and  intention  that  he  shall  indemnify 
himself  at  the  expense  of  another."  A  poll-tax,  a 
tax  on  land,  live-stock,  tools,  furniture,  &c.,  and  an 
income  tax,  are  examples  of  direct  taxes.  Duties 
on  imported  goods,  and  excises  on  liome  manufac- 
tures, are  examples  of  indirect  taxation ;  the  im- 
porter or  manufacturer  who  pays  the  tax,  adding 
the  amount  of  the  tax  to  the  price  of  the  goods,  to 
be  ultimately  paid  by  the  consumers. 

Direct  taxation  fairly  applied  conforms  most  fully 
to  the  principles  embodied  in  the  maxims  just 
stated.  But  it  involves  labor  and  expense  in  col- 
lection, prompts  concealment  and  evasion,  especiall}^ 
with  respect  to  personal  property,  and  provokes  dis- 
satisfaction, because  men,  when  they  pay  the  tax, 
know  and  feel  the  full  force  of  the  burden. 

Indirect  taxation  violates  nearly  all  of  Mr.  Smith's 
maxims,  and  imposes  the  burden  unequally,  each 
one  paying  not  according  to  his  abilit}^,  but  accord- 
ing to  his  necessities^  so  that  a  poor  man  with  a  large 
family  often  contributes  in  this  way  for  the  support 
of  the  government  much  more  than  his  neighbor 
with  ten  times  his  wealth.  But  indirect  taxes,  being 
laid  in  gross  on  goods  at  the  port  of  entry  or  at  the 
manufactor}^  are  easily  collected,  and  are  cheerfully 
submitted  to,  because  no  one  thinks  of  the  tax  he 
pa^'s  when  it  is  hidden  in  the  price  of  the  goods  he 
buys.  Direct  taxes  are  certainly  most  in  harmony 
with  the  genius  of  a  republican  government  whose 
strength   lies   in   the  intelligent  support  of  a  free 


REVENUES   OF  THE   GOVERNMENT.       121 

people.  Such  a  people  ought  to  know  what  taxes 
they  pay,  and  -when  and  how^  they  pay  them,  that 
they  may  watch  with  becoming  jealousy  over  the 
public  expenditure,  and  make  their  voice  heard  in 
all  legislation  on  matters  of  finance.  It  must  be 
confessed,  however,  that  no  nation  has  yet  attained 
to  such  a  standard  of  general  intelligence,  honesty, 
and  patriotism,  as  warrants  the  dispensing  with  the 
convenient  and  easy  method  of  raising  revenues  by 
indirect  taxation.  We  have  need,  therefore,  to  give 
it  some  further  consideration. 

Tariffs.  This  term  signifies  strictly  the  lists  of 
imported  articles  subject  to  tax,  with  the  duties 
laid  on  each  class.  Protective  tariffs,  designed  to 
encourage  certain  home  manufactures,  will  be  con- 
sidered in  another  place.  The  tariff  is  noticed  here 
only  as  a  revenue  measure,  —  one  form  of  indirect 
taxation. 

Duties  are  imposed  in  two  forms,  specific  and 
ad-valorem.  Specific  duties  are  taxes  laid  on  articles 
by  the  piece,  the  pound,  the  yard,  the  gallon,  &c., 
without  reference  to  their  value.  Ad-valorem  duties 
are  indicated  by  a  defined  percentage  of  the  value 
of  each  class  of  goods.  Specific  duties  are  simple 
and  clear.  The  collector  needs  to  know  only  the 
quantity  of  the  goods,  and  easily  reckons  the  duty 
to  be  paid.  But  in  this  case  the  tax  is  unequal. 
Suppose  a  dut}'  of  ten  cents  per  pound  laid  on  tea. 
The  value  of  the  tea  consumed  by  the  poor  is  thirty 
cents  a  pound,  while  that  used  by  the  rich  is  valued 
at  a  dollar  or  more :  hence  the  poor  man  pays  a  tax 


122  POLITICAL  ECONOMY. 

of  thirty-three  and  one-third  per  cent,  while  the  rich 
man  pays  only  ten  per  cent  on  the  valuation.  Ad- 
valorem  duties  la}^  the  tax  more  equalty,  but  involve 
more  difficulty  in  collection,  since  the  value  as  well 
as  the  quantity  of  the  goods  must  be  ascertained. 
This  opens  the  way  to  fraud  by  means  of  false 
invoices :  hence  the  government  is  compelled  to 
employ  a  host  of  appraisers,  who  come  into  alter- 
cations with  importers,  and  sometimes  take  bribes, 
and  sometimes  refuse  to  recognize  an  invoice  that 
is  honest  and  true. 

For  revenue  purposes,  the  best  tariff  is  one  that 
lays  a  specific  duty  of  moderate  amount  on  a  com- 
paratively short  list  of  articles  vrhich  are  not  pro- 
duced at  home.  In  many  countries,  the  heaviest 
duties  are  laid  on  commodities,  such  as  intoxicating 
liquors,  the  consumption  of  which  is  regarded  as 
injurious.  As  a  check  on  immorality,  the  measure 
is  of  little  avail,  for  experience  shows  that  the  con- 
sumption of  such  articles  is  not  materiall}'  dimin- 
ished by  the  tax  ;  but,  as  a  source  of  revenue,  it  is 
found  to  yield  large  results. 

National  and  State  Taxation.  The  Constitu- 
tion of  the  United  States  authorizes  Congress  to 
impose  taxes  in  everj^  form,  subject  to  the  qualifi- 
cations that  direct  taxes  must  be  apportioned  to  the 
several  States  according  to  their  respective  popula- 
tions, and  that  all  duties,  imposts,  and  excises  must 
be  uniform  throughout  the  United  States.  It  ex- 
pressly forbids  any  State  to  lay  any  imposts  or 
duties  on  imports  or  exports,  except  for  executing 


REVENUES  OF  THE  GOVERNMENT.   123 

its  inspection  laws.  Hitherto,  the  National  govern- 
ment has  been  sustained  for  the  most  part  by  indi- 
rect taxes,  in  the  form  of  duties  on  imports,  while 
the  State  governments  depend  on  direct  taxes.  To 
provide  for  the  expenses  of  the  recent  war  of  the 
Rebellion,  however,  the  general  government  adopted 
four  other  forms  of  taxation,  which  deserve  a  brief 
notice :  — 

a.  Excises.  Congress  laid  taxes  on  certain  arti- 
cles of  domestic  manufacture,  to  be  collected  by  the 
sale  of  stamps,  which  must  be  affixed  by  the  manu- 
facturer, or  by  an  officer  of  the  government,  to  the 
goods,  before  they  were  thrown  on  the  market. 
This  is  an  indirect  tax,  which  involves  great  ex- 
pense in  collection,  since  the  government  must  keep 
agents  in  every  part  of  the  countrj^  to  guard  against 
evasion  of  the  tax.  From  a  large  list  of  articles 
thus  taxed  at  first,  only  liquors  and  tobacco  are  now 
taxed  in  this  way. 

b.  Stamps.  This,  too,  is  an  indirect  tax,  levied 
by  requiring  stamps  to  be  attached  to  various  in- 
struments and  forms  of  business  in  order  to  give 
them  legal  force.  By  this  means  the  postal  ser- 
vice is  almost  wholly  provided  for  at  a  ver}^  slight 
charge  to  the  people.  It  was  also  applied  to  bank- 
checks,  deeds,  notes,  wills,  &c.  It  is  an  economi- 
cal and  equitable  mode  of  distributing  the  public 
burdens,  for  it  touches  directly  the  wealth  of  the 
countr}^  in  transition,  and  at  points  where  it  needs 
government  protection  to  insure  security.  Great 
Britain  raises  over  fifty  millions  of  revenue  each 
year  from  the  sale  of  stamps. 


124  POLITICAL  ECONOMY. 

c.  Licenses.  This  is  a  tax  imposed  by  requiring 
men  to  bu}-,  at  specified  rates,  government  certifi- 
cates authorizing  them  to  engage  in  certain  kinds 
of  business.  It  is  objected  to  such  taxation,  that 
it  discriminates  unequally  among  industrial  occupa- 
tions. In  its  favor,  it  is  urged  that  it  draws  from 
parties  such  as  peddlers,  insurance-companies  out- 
side the  State,  and  some  professional  men  who 
could  not  otherwise  be  reached,  a  just  return  for 
the  protection  of  the  government  which  they  enjo}'. 

d.  Income  tax.  This  is  a  form  of  direct  tax 
levied  by  imposing  a  certain  percentage  on  the 
annual  incomes  of  individual  citizens.  Theoreti- 
cally, this  is  the  most  equitable  of  all  taxes,  since  it 
touches  men  exactly  according  to  their  abilities.  If, 
however,  the  percentage  is  uniform  for  all  incomes, 
it  must  bear  heavily  on  those  whose  incomes  are 
small.  To  relieve  this,  two  measures  are  adopted. 
The  first  is  to  exempt  all  incomes  below  a  certain 
amount ;  the  other  is  to  establish  two  or  three 
grades,  and  make  the  percentage  greatest  on  the 
larger  incomes.  The  chief  objections  to  an  income 
tax  are  the  difficult}^  of  ascertaining  men's  real  in- 
comes, and  the  labor  and  cost  of  collecting  it.  The 
British  government  has  nevertheless,  employed  this 
method  of  taxation  for  forty-five  3'ears  so  success- 
fully, that  nearly  one-sixth  of  the  annual  revenue 
of  the  kingdom  is  derived  from  this  source.  The 
United  States  collected  an  income  tax  for  ten  years, 
from  1863  to  1872.  In  1866  the  amount-  thus  col- 
lected was  about  sixty-one  millions.  Actual  expe- 
rience under  the  law  tended  to  relieve  diflSculties 
and  objections. 


KEVENUES  OF  THE  GOYERNMENT.      125 

Under  State  authority,  all  taxes  are  direct,  laid  on 
persons  by  poll-taxes,  on  property  by  assessment, 
and  on  certain  kinds  of  business  by  licenses.  The 
poll-tax  is  ordinarilj'  a  small  amount  levied  on  every 
male  citizen  who  has  attained  his  majority.  It 
recognizes  the  protection  which  the  government 
extends  to  persons,  and  is  often  made  in  theory  a 
condition  of  the  electoral  franchise. 

Taxes  on  property  are  imposed  in  all  the  States 
b}'  essential!}^  the  same  method.  Assessors  are 
elected  in  ever}'  town  and  city,  who  estimate  the 
value  of  all  property  subject  to  taxation.  Real 
estate  is  commonly  set  down  at  from  twenty-five 
to  thirty  per  cent  less  than  its  market  value.  Per- 
sonal property  is  sometimes  returned  in  prepared 
lists  by  the  owners,  and  sometimes  estimated  by 
the  assessor.  In  the  first  case,  the  owners  may  be 
required  to  make  oath  to  the  completeness  and 
truthfulness  of  their  returns;  in  the  other,  if  the 
owner  thinks  the  assessor's  estimate  too  high,  he 
may  "  swear  it  down  *'  to  what  he  believes  to  be  the 
true  amount.  The  original  assessments  are  in  most 
of  the  States  referred  to  boards  of  equalization  ap- 
pointed for  each  county;  and  their  judgment  is 
subsequently  reviewed  by  a  general  board  for  the 
State.  Upon  the  basis  of  the  valuation  of  property 
so  determined,  the  taxes  for  State  purposes  are 
apportioned  to  each  county,  cit}',  and  town.  Each 
county,  cit}^,  town,  and  school-district  is  authorized 
to  levy  taxes  for  its  local  purposes.  These  also  are 
apportioned  on  the  basis  of  the  State  valuation, 
except  in  case  of  certain  city  improvements,  such 


126  POLITICAL  ECONOMY. 

as  opening,  paving,  and  lighting  streets,  which  are 
charged  upon  the  adjoining  propert}^  Sound  econ- 
omy dictates  that  all  these  taxes  be  collected  in 
each  town  or  city-ward  at  one  time  by  one  collector, 
furnished  with  a  tax-list  covering  all. 

If  other  means  fail  to  secure  the  taxes,  goods 
may  be  seized,  and  lands  may  be  sold,  to  make  up 
the  amount  required,  the  title  thus  given  being  made 
complete  after  a  certain  period  allowed  the  original 
owner  for  redemption. 

Equitable  taxation  requires  property  of  every  kind 
to  be  assessed.  In  actual  experience,  however,  prop- 
erty in  the  form  of  real  estate  bears  the  larger 
share  of  the  burd.en.  Personal  property  can  be 
easily  concealed  or  removed  by  those  who  wish  to 
evade  their  share  of  the  taxes ;  and,  with  men  of 
weak  consciences,  the  temptation  is  strong  to  make 
false  returns,  and  even  to  commit  perjury,  when 
detection  is  almost  impossible. 

Property  in  railways,  banks,  &c.,  is  usually  taxed 
as  a  whole  by  the  State  within  whose  jurisdiction  it 
lies.  If  each  individual  stockholder  is  also  taxed 
for  his  share,  there  is  evidently  a  double  taxation 
on  that  property. 

The  same  thing  happens  often  when  one  is  re- 
quired to  pay  a  tax  on  the  evidences  of  debt  which 
he  may  hold,  such  as  notes,  bonds,  mortgages,  &c. 
These  things  are  onl}^  S3'mbols,  whose  multiplication 
makes  no  increase  of  real  wealth.  Suppose  A  B 
holds  his  neighbor's  note  for  two  thousand  dollars, 
secured  by  mortgage  on  a  farm  worth  four  thousand. 
The  property  is  one,  the  farm.     The  note  and  mort- 


REVENUES   OF   THE   GOVERNMENT.       127 

gage  only  indicate  that  A  B  has  a  lien  on  that 
property  for  one-half  its  value.  The  credit  given 
and  received  has  added  nothing  to  that  value.  The 
one  property  is  justly  subject  to  taxation.  Who 
shall  pay  the  tax  ?  In  strictest  equity,  each  of  the 
parties  should  pa}^  a  half;  but,  in  the  very  terms  of 
the  mortgage,  the  mortgagor  engages  to  pay  all 
taxes  that  may  be  levied  on  the  land.  This  is  a 
part  of  the  contract,  and  the  interest  is  adjusted  to 
that  usage.  If  the  mortgagor  is  taxed  for  the 
whole  farm,  and  the  mortgagee  is  also  taxed  on  the 
mortgage  he  holds,  there  is  evidently  a  double  taxa- 
tion on  two  thousand  dollars. 

These  cases  show  the  difficulty  of  adjusting  a 
system  of  taxation  in  accordance  with  strict  equit3\ 
A  perfect  S3^stem  seems  an  unattainable  ideal ;  but 
it  will  be  approximated  just  in  proportion  as  senti- 
ments of  honesty  and  patriotism  are  cultivated  among 
a  people,  and  as  legislators  apprehend  and  apply  in 
their  action  on  this  subject  the  fundamental  princi- 
ples of  Political  Economy. 

EXERCISES. 

1.  Wliat  source  of  revenue  has  our  government  other 
than  taxation  ? 

2.  What  was  the  effect  on  the  people  of  Rome,  when  the 
government  was  wholly  maintained  by  the  plunder  of  the 
provinces,  without  taxation  at  home  ? 

3.  Is  it  desirable  that  a  people  should  be  altogether  re- 
lieved from  contributing  to  the  support  of  their  govern- 
ment ? 

4.  On  what  grounds  are  the  public  taxes  made  a  first 
lien  on  all  private  property  ? 

5.  Is  it  right  that  an  aristocratic  or  priestly  class  should 
be  exempt  from  taxation  ? 


128  POLITICAL  ECONOMY. 

6.  Can  you  tell  how  the  Turkish  government  levies  its 
taxes,  and  what  is  the  effect  on  the  industry  of  its  people  ? 

7.  What  question  respecting  taxes  was  a  prominent 
issue  in  the  war  of  the  American  Revolution  ? 

8.  Can  you  state  the  mode  of  collecting  taxes  in  France 
in  the  eighteenth  century,  by  *^  farmers-general,"  and  the 
wrongs  that  attended  it  ? 

9.  How  does  taxation  by  duties  on  imports  conflict  with 
the  first  and  second  maxims  of  Adam  Smith  ? 

10.  Why  is  the  close  of  the  year  generally  chosen  in  our 
country  as  the  time  for  collecting  taxes  ? 

11.  Is  that  an  economical  kind  of  tax  of  which  half  the 
amount  is  consumed  in  the  cost  of  collection  ? 

12.  Illustrate  the  difference  between  specific  and  ad- 
valorem  duties. 

13.  Can  you  state  some  of  the  complications  and  absurdi- 
ties of  our  American  tariff  in  this  year,  1879  ? 

14.  If  by  requiring  stamps  of  small  amounts  on  bank- 
checks,  notes,  deeds,  wills,  &c.,  a  revenue  of  several  mil- 
lions can  be  raised,  with  no  expense  for  collection  beyond 
the  cost  of  printing  the  stamps,  is  there  any  good  reason 
why  the  measure  should  not  be  adopted  ? 

15.  What  good  reasons  can  be  urged  by  honest  and  patri- 
otic men  against  a  moderate  income  tax  ? 

16.  Is  it  a  good  sign  for  our  nation,  that  the  people  seem 
averse  to  direct  taxation,  the  measure  and  pressure  of 
which  they  can  exactly  know  and  feel  ? 

17.  Is  it  any  less  dishonest,  by  evasion,  to  cheat  the  gov- 
ernment out  of  a  legitimate  tax,  than  to  cheat  a  laborer 
out  of  his  wages,  or  a  creditor  out  of  his  dues  ? 

17.  Illustrate  the  method  of  assessing  and  collecting 
State  taxes,  by  the  case  of  a  tax-receipt  from  the  collector 
of  your  own  town  or  city. 

19.  What  is  the  meaning  of  a  *' tax-title  "  to  land  ? 

20.  State  any  instance  of  double  taxation  which  you 
know  of. 

21.  On  what  grounds  may  school  and  church  property  be 
exempt  from  taxation  ? 


EXCHANGE.  129 


PART  IV. 

EXCHANGE. 

Wealth  is  transferred  from  producers  to  con- 
sumers by  manifold  exchanges.  The  division  of 
labor  which  increases  production  necessitates  ex- 
change. With  advancing  civilization  the  processes 
of  exchange  are  systematized  into  a  very  compli- 
cated and  extensive  social  machinery, — how  com- 
plicated, one  may  see  if  he  will  try  to  trace  the 
cotton  in  the  shirt  he  wears  back  to  the  field  on 
which  it  grew ;  how  extensive,  will  appear  if  one 
will  consider  how  many  parts  of  the  world  contrib- 
ute to  the  sum  of  daily  comforts  with  which  his 
table  and  his  home  are  furnished.  Hence,  in  the 
science  of  Political  Economy,  exchange  holds  the 
place  of  highest  importance ;  and  some  have  pro- 
posed to  adopt,  as  a  title  for  the  science,  the  term 
Catallactics,  the  science  of  exchanges. 

A  full  but  concise  presentation  of  the  first  princi- 
ples of  this  part  of  our  subject  will  be  given  in 
several  distinct  chapters.  Only  b}^  a  clear  appre- 
hension of  these  principles  can  the  hard  problems 
of  economics  be  solved. 


130  POLITICAL  ECONOMY. 


CHAPTER   I. 

THE  NATURE,  NECESSITY,  AND  AGENTS  OF 
EXCHANGE. 

As  a  specific  act,  exchange  is  a  transaction  in 
-which  two  parties  voluntarily  transfer  to  each  other 
the  right  of  property  in  certain  items  of  wealth  which 
are  regarded  as  equivalents.  Observe  that  the  trans- 
fer must  be  voluntary,  else  it  involves  robber}' :  it 
must  convey  on  each  side  a  right  of  property,  else 
it  is  fraud. 

It  is  often  said  that  exchange  may  be  either  of 
commodity  for  commodity,  as  when  one  gives  a  table 
for  a  pair  of  boots  ;  or  of  commodity  for  labor,  as 
when  one  gives  fift}^  pounds  of  flour  for  a  day's 
work  at  mowing ;  or  of  labor  for  labor,  as  when  a 
mason  gives  a  day's  work  in  exchange  for  a  carpen- 
ter's work  for  a  day.  This  is  proper  enough  to 
indicate  the  precise  form  of  the  transaction  ;  but  in 
reality  it  is  not  the  labor  itself,  but  the  value  in 
some  form  of  wealth,  the  product  of  the  labor, 
which  is  contemplated. 

Value  is  thus  the  central  term  of  this  branch  of 
our  science.  Just  here  let  the  student  turn  back  to 
the  definition  and  explanations  of  value  as  given  on 
pages  7  and  8.     From  the  views  there  given  we 


THE  NATUKE  OF  EXCHANGE.     131 

derive  the  following  formula,  applicable  to  all  ex- 
changes :  — 

Value  =  cost  +  or— the  effect  of  the  ratio  of  demand 
fto  supply. 

The  general  arena  of  exchange  is  called  the 
market,  a  term  which  signifies  not  so  much  a  locality, 
as  the  actual  relation  of  demand  to  supply  at  the 
place  and  time  contemplated  for  making  exchanges. 
By  demand  is  meant  the  extent  of  desire  for  an 
article.  Supply  expresses  the  quantity  of  the  article 
at  hand  to  meet  that  desire.  Between  these  two 
factors  competition  works  continually  variations  in 
the  value  of  commodities.  When  demand  is  great 
in  proportion  to  supply,  value  is  enhanced  by  com- 
petition among  the  buyers.  When  supply  is  great 
in  proportion  to  demand,  value  is  reduced  by  compe- 
tition among  the  sellers.  So,  for  the  variation  of 
value  under  the  law  of  demand  and  supply,  we  have 
another  simple  formula,  as  follows  :  — 

Value  rises  directly  as  the  demand,  inversely  as  the 
supply. 

The  tendency  of  free  competition  is  to  produce  an 
equilibrium  between  supply  and  demand  (see  p.  79), 
and  so  to  make  cost  the  general  standard  of  value. 
Mr.  J.  S.  Mill  distributes  all  things  that  are  bought 
and  sold  into  three  classes. 

First,  There  are  things  of  which  it  is  physically 
Impossible  to  increase  the  quantity  beyond  certain 
narrow  limits.  Such  are  ancient  sculptures,  paint- 
ings of  old  masters,  rare  books  or  coins,  and  wines 
produced  only  under  peculiar  conditions  of  soil, 
climate,  and  exposure. 


132  POLITICAL  ECONOMY. 

Second,  There  are  things  which  at  a  moderate  out- 
lay of  labor  and  capital  can  be  multiplied  indefinitely. 

With  laborers  and  machinery  enough,  such  things  as 
cotton  and  woollen  goods,  shoes,  hats,  &c.,  might 
be  multiplied  a  thousand-fold,  or  at  least  till  the 
limit  of  the  earth's  capacity  to  yield  materials  is 
reached. 

Third,  There  are  things  which  can  be  produced  in 
limited  quantity  at  a  given  cost,  but  to  increase  the 
quantity  involves  a  much  greater  proportional  cost. 
Such  are  the  agricultural  products  of  a  defined  area 
of  land.  A  field  that  yields  twenty-five  bushels  of 
wheat  to  the  acre  ma}'  be  made  to  3'ield  forty  bushels, 
but  the  cost  will  be  more  than  doubled. 

With  these  distinctions  in  mind,  the  following 
fundamental  principles  of  exchange,  as  presented 
for  the  most  part  by  Mr.  Mill,  are  plain  and  almost 
self-evident. 

1.  Value  is  a  relative  term.  All  goods  sold  are 
paid  for  in  goods  of  another  kind.  Whoever  sells 
a  thing  becomes  in  the  act  a  purchaser  of  some 
other  thing,  and  the  value  of  each  is  simpl}^  what  it 
brings  in  the  trade.  The  values  of  all  things  can 
never,  therefore,  rise  or  fall  at  once.  A  rise  of 
value  on  one  side  implies  a  fall  on  the  other  side. 

Here  the  distinction  between  value  and  price  must 
be  observed.  Price  is  value  expressed  in  terms  of 
the  single  article  money.  If  the  amount  of  money 
in  a  country  be  suddenly  increased,  as  was  the  case 
in  the  United  States  in  the  years  from  1861  to  1865, 
the  prices  of  all  things  will  rise  together,  because 
mone}'  is  cheapened.      The   prices  of   wheat   and 


THE  NATURE  OF  EXCHANGE.     133 

broadcloth  may  thus  be  doubled  at  the  same  time 
without  changing  the  value  of  either :  it  will  take 
the  same  amount  of  wheat  to  buy  a  yard  of  broad- 
cloth as  before.  If  it  takes  twice  as  much  wheat  to 
buy  a  hat  this  year  as  it  did  last,  the  fact  imphes  a 
change  of  value  on  one  side  or  the  other.  If  the 
hat  holds  the  same  relation  to  all  other  articles  as 
before,  it  is  evident  that  wheat  has  for  some  reason 
declined  in  value.  If  all  other  articles  must  be 
doubled  to  buy  the  hat,  it  is  evident  that  the  hat  has 
risen  in  value. 

2.  The  temporary  or  market  value  of  a  thing 
depends  on  the  demand  and  supply;  rising  as  the 
demand  rises,  and  falling  as  the  supply  rises.  As  a 
thing  grows  cheaper,  however,  under  an  increased 
supply,  the  demand  increases  in  greater  proportion  ; 
because  every  step  downward  in  the  value  widens 
the  circle  of  those  who  are  able  to  buy  the  article. 

3.  Things  have  also  a  permanent,  or,  as  it  may  be 
called,  a  natural  value,  to  which  the  market  value, 
after  every  variation,  tends  to  return  ;  and  the  oscil- 
lations compensate  for  one  another,  so  that  on  the 
average  commodities  are  exchanged  at  about  their 
natural  value. 

4.  The  natural  value  of  some  things  is  a  scarcity 
value ;  but  most  things  naturally  exchange  for  one 
another  in  the  ratio  of  their  cost  of  production,  or  at 
what  may  be  termed  their  cost  values. 

5.  The  things  which  are  natural  and  permanently 
at  a  scarcity  value  are  those  of  v^rhich  the  supply 
cannot  be  increased  at  all,  or  not  sufficiently  to  sat- 
isfy the  whole  demand  which  would  exist  for  them 
at  their  cost  value. 


134  POLITICAL  ECONOMY. 

6 .  A  monopoly  value  means  a  scarcity  value.  Mo- 
nopoly cannot  give  a  value  to  any  thing,  except 
through  a  limitation  of  the  supply. 

7.  Every  commodity  of  which  the  supply  can  be 
indefinitely  increased  by  labor  and  capital  exchanges 
for  other  things  proportionally  to  the  cost  necessary 
for  producing  and  bringing  to  market  the  most  costly 
portion  of  the  supply  required.  The  natural  value 
is  synonymous  with  the  cost  value ;  and  the  cost 
value  of  a  thing  means  the  cost  value  of  the  most 
costly  portion  of  it  vrhich  the  market  demands. 

8.  If  competition  be  free,  the  perturbations  of 
value  caused  by  variations  of  demand  and  supply 
continue  only  during  a  period  which  cannot  exceed 
the  length  of  time  necessary  for  increasing  or  dimin- 
ishing the  supply.  Under  the  pressure  of  competi- 
tion, demand  and  supply  rush  towards  an  equilib- 
rium; but  the  condition  of  stable  equilibrium  is 
when  things  exchange  for  each  other  according  to 
their  cost,  or  at  what  is  fitly  called  their  natural 
value. 

The  Necessity  of  Exehangre  springs  from  the 
diversity  of  nature's  resources,  the  diversity  of  human 
capacities  and  tastes,  and  the  ivide  reach  of  human 
desires,  all  of  which  prescribe  for  human  industry 
the  principle  of  division  of  labor.  As  men  advance 
in  intelligence,  their  desires  are  multiplied ;  at  the 
same  time,  by  discovery  and  invention  the  resources 
of  nature  are  unfolded  in  full  proportion.  Desire 
stimulates  invention,  and  successful  invention  wakes 
new  desires.     There  is  no  assignable  limit  to  the 


THE  NATURE  OF  EXCHANGE.     135 

development  of  either  men's  desires  or  nature's 
resources. 

Out  of  man's  social  nature  spring  sjinpathies, 
attractions,  interests,  which  widen  his  associations, 
and  multiply  his  opportunities,  as  both  a  giver  and 
receiver  of  good  things.  Hence  comes  a  law  of 
interdependence,  which  forbids  that  any  man  should 
live  either  for  or  by  himself  alone.  Thus  human 
industry  is  varied  ;  and  each  does  that  for  which  he 
is  best  fitted,  or  which  he  likes  best,  while  mutual 
exchanges  enable  each  to  get  what  he  wants  by 
giving  what  he  can  spare. 

Where  the  diverse  labor  of  many  is  combined  to 
produce  a  single  object,  exchange  is  the  indispensable 
means  of  breaking  up  and  distributing  the  value,  SO 
that  each  may  receive  his  share,  and  use  it  to  meet 
his  wants.  The  little  screws  which  a  man  in  a 
watch-factory  makes  by  the  thousand  will  not  them- 
selves feed  or  clothe  him.  The  part  which  each  one 
of  a  hundred  men  contributes  to  the  building  of  a 
steam-engine  is  of  no  use  apart  from  the  whole,  and 
yet  no  one  can  rightly  appropriate  the  whole.  But 
the  complete  watch  or  engine  may  be  exchanged  for 
food  and  clothing  and  other  things  which  are  desira- 
ble and  exactly  suited  to  the  needs  of  all  concerned. 

The  same  principles  apply  with  equal  force  to 
exchanges  between  different  nations.  In  many  cases 
the  aptitudes  of  different  nations  for  the  creation  of 
pecuhar  products  is  fixed  by  unchangeable  geographi- 
cal and  physiological  law.  Moreover,  a  nation  at 
one  period  of  its  history  is  best  adapted  to  produce 
certain  articles.      It  is  obviously  best  that  each 


136  POLITICAL  ECONOMY. 

nation  should  devote  its  energies  to  the  production 
of  those  things  for  which  it  has  the  greatest  facilities, 
and  by  exchange  with  other  nations  make  the  sur- 
plus of  its  own  products  provide  the  products  of 
other  countries  which  its  people  need.  Through 
the  mutual  intercourse  of  nations  for  trade,  civiliza- 
tion is  developed,  and  the  happiness  of  the  human 
race  is  increased.  Thus  the  conditions  of  our  being 
demand  the  processes  of  exchange  as  imperatively  as 
the  processes  of  production. 

The  Ag-ents  of  Exchangre.  Exchange  is  a 
distinct  department  of  useful  industry,  by  which 
commodities  are  transferred  from  the  producers  to 
the  consumers,  in  such  places,  at  such  times,  and  in 
such  quantities,  as  are  most  convenient.  It  involves 
labor,  and  so  adds  to  the  cost  of  objects ;  it  adds 
also  to  their  desirableness,  by  bringing  them  within 
the  reach  of  those  whose  wants  are  to  be  gratified. 
Thus  in  both  ways  it  enhances  their  value  to  the 
benefit  of  both  parties.  By  it  the  producer  is  helped 
to  dispose  of  his  products,  and  the  consumer  gets 
things  just  where  and  when  and  as  they  will  best 
meet  his  wants.  Obviously  this  labor  will  be  most 
economically  performed  by  persons  who  devote 
themselves  exclusively  to  it,  receiving  a  fair  com- 
pensation for  their  service.  This  compensation  is 
made  up  by  a  percentage  charged  on  the  values 
transferred,  of  which  each  party  pays  a  portion ; 
that  is,  the  producer  sells  his  products  to  the  ex- 
changer for  something  less  than  he  would  ask  of  the 
consumer  directly,  and  the  consumer  pays  the  ex- 


THE  NATURE  OF  EXCHANGE.  137 

changer  a  little  more  than  if  he  bought  directly  of 
the  producer.  But  the  expense  of  conducting  the 
exchanges  is  far  less  than  it  would  be  without  such 
intervention. 

Merchants  is  a  general  name  for  those  who  devote 
themselves  to  the  business  of  exchange ;  but  the 
term  embraces  a  great  variety  of  agents.  We  can 
attempt  only  a  concise  exposition  of  a  few  names 
and  services.  In  the  commerce  of  every  community 
are  to  be  recognized  two  great  currents  of  trade,  — 
an  outgoing  current  and  an  incoming  current.  The 
outgoing  current  bears  away  what  a  people  have  to 
spare ;  the  incoming  current  brings  back  what  a 
people  want.  In  a  new  country  a  retail  merchant 
stands  at  the  turning-point  where  these  currents 
meet.  He  gathers  up  in  small  quantities  the  surplus 
products  of  his  neighborhood,  and  starts  them  on  the 
current  of  outgoing  trade,  to  float,  it  may  be,  half 
round  the  world  to  find  their  ultimate  consumers  ;  in 
exchange  for  these,  he  dispenses  to  his  neighbors 
small  quantities  of  foreign  products  which  they  need. 

As  population  increases,  and  products  are  multi- 
plied, another  agent  appears  on  the  ground,  called 
a  middle-man,  a  produce-buyer,  a  commission-dealer. 
By  arrangement  he  buys  up  for  some  house  at  a 
commercial  centre  the  grain,  the  cotton,  the  wool, 
the  pork,  the  butter,  or  whatever  of  one  kind  or  of 
many  kinds  of  produce  may  be  ordered,  and  is  paid 
by  a  percentage  on  the  values  purchased.  With  the 
introduction  of  railways  come  in  the  warehouse-men, 
doing  the  same  thing  at  every  station.  From  these 
the  goods  are  sent  to  the  consignee  or  produce-broker 


138  POLITICAL  ECONOMY. 

in  the  interior  city,  —  Chicago  or  Buffalo,  for  in- 
stance. They  pass  on  the  goods  to  the  shipping- 
merchant  in  the  great  seaport,  like  New  York  or 
Baltimore,  thence  to  be  exported  to  the  ends  of  the 
earth. 

In  former  times,  when  manufactured  articles  were 
made  by  hand,  in  a  small  waj^,  at  the  homes  of 
workmen,  they  were  gathered  and  thrown  on  the 
current  of  trade  in  much  the  same  manner.  But 
since  the  use  of  machinery  has  concentrated  manu- 
facturing in  large  establishments,  these  products 
are  passed  out  upon  the  currents  of  trade  through 
the  agency  of  factors  or  commission-merchants,  each 
factory  or  mill  having  its  own  agent  of  this  kind  at 
the  commercial  emporium,  who  manages  the  sale  of 
its  goods  in  the  general  market,  and  is  compensated 
sometimes  by  salary,  oftener  by  a  percentage  on  the 
amount  of  sales.  A  domestic  factor  renders  this 
service  in  the  countrj'  in  which  the  goods  are  made ; 
a  foreign  factor  attends  to  the  business  in  another 
country. 

The  incoming  current  of  trade  may  be  best  traced 
by  taking  a  stand  at  a  port  of  entry,  —  say  New 
York.  Here  the  agency  of  the  importer  is  first  to 
be  noticed.  He  studies  the  wants  of  his  own  coun- 
try, and  the  products  and  prices  of  foreign  countries 
generall}^  with  respect  to  a  particular  class  of  com- 
modities, and  imports  what  he  thinks  the  people  will 
use.  These  goods  he  sells  generally  in  bulk,  by 
sample,  to  wholesale  merchants  in  his  own  and  other 
cities.  The}^  in  turn  open  them  more  fully,  and  sell 
by  bale  or  case  to  jobbers.     Of  them  the  retail 


THE  NATURE  OF  EXCHANGE.     139 

merchants  buy  by  the  piece  or  small  package,  to  be 
passed  to  individual  consumers  in  such  quantities  as 
they  desire,  and  the  distribution  is  complete. 

To  this  list  of  agents  must  be  added  bankers, 
brokers,  &c.,  —  the  whole  class  of  those  who  have 
to  do  with  money  and  credit,  the  instruments  of 
exchange ;  also  those  who  as  underwriters  and 
insurers  distribute  the  risks,  by  land  and  by  sea, 
involved  in  trade. 

Thus  in  outline  we  get  a  view  of  the  manifold 
processes  and  agencies  of  exchange.  Their  compli- 
cations are  intricate ;  yet  by  a  hidden  law  of  self- 
adjustment  the  machinery  works  out  its  legitimate 
result,  so  that  the  wants  of  men  are  met  with  little 
waste  of  the  products  of  industry.  Rapid  exchange 
is  the  necessary  stimulus  to  production.  When 
trade  is  dull,  all  industr}^  languishes :  when  it  is 
brisk,  labor  works  on  with  cheerful  hope,  assured  of 
its  reward.  The  legitimate  service  of  exchangers 
adds  something  to  the  utility  of  all  things  that  pass 
through  their  hands.  It  tends  to  cheapen  every 
thing  offered  in  the  market,  and  to  enrich  the  market 
bj'-  a  thousand-fold  multiplication  of  comforts  and 
luxuries  for  the  life  of  man.  How  absurd,  then,  the 
outcry  sometimes  made  against  merchants,  that  they 
produce  nothing,  and  are  but  drones  and  leeches  of 
society ! 

Nevertheless  sound  economy  requires  that  the 
number  and  expense  of  these  agencies  be  reduced 
as  far  as  practicable,  consistently  with  the  end  to  be 
attained.  There  is  also  good  reason  to  protest 
against  the   abuse  of  a   necessary  instrumentality 


140  POLITICAL  ECONOMY. 

sometimes  witnessed,  when  a  trader  or  a  company 
of  traders  combine  to  produce  an  artificial  scarcitj^, 
that  by  suddenl}^  raising  prices  they  msiy  rob  the 
people,  and  enrich  themselves.  Those  operations 
which  produce  corners  in  wheat,  and  the  like,  outrage 
the  first  principles  of  justice  and  honesty.  Too 
many  of  our  so-called  ''boards  of  trade"  tolerate 
and  encourage  such  abuses  of  trust  and  power. 

EXERCISES. 

1.  Trace  the  exchanges  through  which  the  material  of 
your  knife  has  passed,  from  the  iron-ore  in  the  mine,  to  your 
hand. 

2.  If  you  pay  a  hundred  dollars  for  a  stolen  horse,  why 
is  it  not  a  valid  exchange  ? 

3.  What  two  elements  define  the  extreme  limits  of  value? 

4.  Why  does  a  merchant  need  to  study  daily  the  news- 
paper-list of  current  prices  ? 

5.  How  does  the  failure  of  the  crop  in  England  increase 
the  value  of  American  wheat  ? 

6.  When  we  have  a  large  American  crop  and  no  foreign 
demand,  how  is  the  value  of  wheat  affected  ? 

7.  What  gives  the  extraordinary  value  to  a  genuine 
painting  done  by  Raphael  ? 

8.  If  it  required  eight  bushels  of  wheat  to  pay  for  a  ton 
of  coal  last  year,  and  only  six  bushels:  this  year,  how  can 
you  tell  which  article  has  changed  in  value  ? 

9.  When  will  a  change  of  price  indicate  a  change  of 
value  ? 

10.  The  introduction  of  the  power-loom  increased  the 
supply  of  cotton-cloth  a  hundred-fold.  What  effect  had 
this  on  the  value  of  the  article  ?  What  effect  on  the 
demand  ? 

11.  What  is  the  effect  of  a  patent-right  on  the  value  of  a 
patented  article  ? 

12.  What  does  the  maxim,  "Competition  is  the  life  of 
trade,"  mean  ?    Is  it  true  ? 


THE  NATUEE  OF  EXCHANGK     141 

13.  What  useful  functions  do  merchants  perform  ? 

14.  By  which  of  the  three  occupations,  agriculture, 
manufacture,  or  commerce,  do  men  grow  rich  fastest  ? 
Which  involves  the  greatest  risks  ? 

15.  When  the  commerce  of  a  nation  is  prosperous,  which 
will  have  the  greater  value,  its  exports  or  its  imports  ? 

16.  Why  is  it  right  that  the  retail  merchant  should  charge 
a  higher  percentage  on  the  price  of  the  goods  he  sells  than 
the  wholesale  merchant  ? 


142  POLITICAL  ECONOMY. 


CHAPTER  11. 

MONEY  AN  INSTEUMENT  OF  EXCHANGE. 

We  have  seen  that  the  processes  of  production 
are  much  facihtated  and  improved  b}^  the  use  of 
proper  instruments  or  tools.  Proper  instruments 
are  no  less  necessary  for  the  processes  of  exchange. 
Barter,  that  is,  the  direct  exchange  of  one  commodity 
for  another,  involves  man}-  inconveniences  and  seri- 
ous difficulties. 

For  instance,  a  man  has  made  a  table  which  he 
wants  to  exchange  for  bread,  shoes,  and  a  hat.  His 
product  is  one  thing,  and  indivisible  :  the  things  he 
wants  are  many  and  diverse.  How  can  he  effect  the 
desired  exchange  ?  It  will  take  a  builder,  with  six 
hired  carpenters,  three  months  to  build  a  house  : 
how  shall  he  provide  his  workmen  with  daily  food, 
&c. ,  unless  by  some  device  he  can  draw  on  the  value 
of  the  house  before  it  is  finished?  When  a  man 
does  nothing  but  make  rivets  for  knife-handles,  how 
is  he  to  subsist  b}^  exchange  in  kind  ? 

A  yet  greater  embarrassment  in  exchange  by  bar- 
ter comes  from  the  difficult}^  of  adjusting  the  equa- 
tion of  value  between  different  articles.  How  is  it  to 
be  determined  whether  a  shovel  is  a  fair  equivalent 
for  a  pair  of  boots,  or  a  bushel  of  wheat  for  a  book  ? 
By  what  rule  shall  it  be  settled  that  a  farm-laborer 


MONEY  AN  INSTRUMENT  OF  EXCHANGE.  143 

is  fairl}"  compensated  for  a  month's  work  by  a  suit 
of  clothes? 

Under  the  pressure  of  these  difficulties,  men  have 
been  driven  to  invent  means  of  relief.  Savages 
have  adopted  certain  pretty  shells,  which  they  called 
wampum,  as  counters  for  exchanges.  By  a  common 
instinct,  civilized  peoples  of  different  ages  and  coun- 
tries have  used  silver  and  gold  as  a  medium  of 
exchange. 

In  the  complicated  operations  of  modern  com- 
merce, money  and  credit  are  the  two  great  instru- 
ments of  exchange.  In  the  order  of  both  time  and 
importance,  money  comes  first ;  and  without  it  the 
other  has  no  meaning.  Yet  credit,  though  only  a 
symbol  of  money,  is  the  grand  instrument  which  ac- 
complishes the  greater  part  of  the  world's  exchanges  ; 
when  properl}^  regulated,  rendering  a  service  whose 
value  cannot  be  measured,  but,  when  abused,  caus- 
ing unspeakable  convulsion  and  disaster. 

The  nature  and  functions  of  these  two  instruments 
will  be  presented  in  this  and  the  next  chapters. 

Money  Is  some  useful  product  of  labor,  universally 
desired,  to  which  all  other  commodities  are  referred 
as  a  measure  of  their  relative  values ;  Tvhich  is  em- 
ployed also  as  an  intermediary  instrument  for  the 
actual  exchanges  of  different  kinds  of  virealth  for  each 
other. 

It  is  of  the  highest  importance  that  all  which  is 
embraced  in  this  long .  definition  be  clearly  appre- 
hended. To  unfold  and  illustrate  the  chief  points, 
we  present  them  in  two  sections. 


144  POLITICAL  ECONOMY. 


SECTION  I.  — THE  FUNCTIONS  OF  MONET. 

Our  definition  indicates  two  functions  of  money. 

First,  Money  establishes  a  universal  standard  of 
value. 

Second,  Money  is  a  medium  for  the  exchange  of 
values. 

As  a  standard  of  value,  money  performs  an  office 
like  that  of  a  pound- weight,  or  a  yard-stick,  or  a 
gallon-measure.  These  instruments  are  adjusted  to 
measure  each  a  certain  quality,  viz.,  weight,  or 
length,  or  bulk.  Just  so  the  money-dollar  is  adjusted 
to  measure  the  quality  called  value.  Obviously, 
whatever  is  used  to  measure  a  quality  in  another 
thing  must  itself  possess  that  quality.  Hence,  only 
a  thing  of  value  can  measure  value. 

But,  according  to  the  definition  of  value  heretofore 
given,  two  elements  combine  in  the  value  of  any 
object;  viz.,  utility,  or  desirableness,  and  cost,  the 
exponent  of  labor.  Whatever  substance,  then,  is 
used  as  money,  must  be  desired  as  a  means  of  grati- 
fication ;  and,  the  nearer  it  comes  to  being  always 
and  everywhere  desired,  the  better  is  it  fitted  for  its 
purpose.  It  must  be  also  a  substance  which  can  be 
obtained  only  by  labor ;  and,  the  more  uniform  the 
amount  of  labor  necessary  to  obtain  it,  the  better 
will  it  serve  its  purpose  as  money.  It  is  indis- 
pensable that  these  two  elements  be  combined. 
Hence  our  definition  says  money  is  "  some  useful 
product  of  labor,"  for  nothing  else  can  have  value. 


THE  FUNCTIONS  OF  MONEY.  145 

Furthermore,  it  is  important  that  any  standard  of 
measurement  be  fixed  -with  exactness,  and  kept  as 
invariable  as  possible.  An  India-rubber  j^ard-stick 
would  be  a  very  uncertain  standard  of  length.  The 
French  metric  system  has  for  its  base  the  ten- 
millionth  of  the  quadrant  of  a  terrestrial  meridian, 
called  a  metre.  It  cost  seven  years  of  great  labor 
to  determine  it  with  exactness ;  but,  once  ascer- 
tained, it  stands  forever  unchangeable,  and  furnishes 
a  standard  unit  of  measurement  for  all  the  mate- 
rial qualities,  length,  surface,  volume,  and  weight. 
Nature  furnishes  no  such  absolutely  fixed  and  in- 
variable unit  of  value  ;  but  certainly,  for  their  stand- 
ard of  value,  men  need  to  select  the  thing  in  nature 
which  is  most  stable  and  unalterable  in  the  elements 
of  utility  and  cost. 

Such  a  substance,  once  adopted  and  generally 
accepted,  determines  by  comparison  with  itself  a 
price  for  every  thing;  and  then,  in  the  transactions 
of  trade,  all  things  are  exchanged  directly  or  indi- 
rectly by  these  prices.  But  let  it  be  ever  remem- 
bered, that  the  price  of  a  thing  is  simply  its  value 
measured  by  money;  and,  just  in  proportion  as  the 
value  of  money  is  variable,  all  operations  of  ex- 
change must  be  attended  with  uncertainty  and 
confusion. 

In  its  second  function,  as  a  medium  of  exchange, 

money  performs  an  office  like  that  of  a  basket,  or  a 
wheelbarrow,  or  a  cart,  —  it  is  simpl}^  an  instrument 
of  transfer.  The  real  object  of  all  trade  is  to  eflect 
an  exchange  of  commodity  for  commodity.      The 


146  POLITICAL  ECONOMY. 

difficulty  of  doing  this  directly  by  barter  has  been 
already  noticed.  Money  comes  in  to  relieve  that 
difficulty.  B}^  means  of  it,  two  simple  exchanges 
readily  accomplish  what  could  not  be  effected  by 
one.  Thus  the  man  can  sell  his  table  for  money ; 
that  is,  he  puts  the  value  of  the  table  into  mone}^, 
just  as  the  farmer  puts  his  eggs  into  a  basket. 
The  money  is  easily  divided ;  and  the  baker,  the 
shoemaker,  and  the  hatter  are  ready,  each  for  a 
portion  of  the  money,  to  give  him  the  bread,  the 
shoes,  and  the  hat  he  needs.  In  all  the  manifold 
and  complicated  operations  of  trade,  money,  as  it 
passes  from  hand  to  hand,  is  fulfilling  this  simple 
office  of  a  vehicle  of  transfer,  or,  as  it  is  better 
termed,  a  medium  of  exchange.  One  silver  dollar 
may  thus  effect  twenty  different  exchanges  in  a  day, 
just  as  a  wheelbarrow  may  be  used  to  transport 
twenty  different  loads. 

Such  a  common  medium  of  exchange  must  have 
three  essential  qualities. 

First,  Precision  and  stability  of  value :  the  same 
qualities  which  we  saw  to  be  essential  for  the  first- 
named  function  of  money. 

Second,  Universal  acceptableness,  so  that  it  will 
be  readily  received  by  everybody  for  things  offered 
in  sale. 

Third,  Divisibility  into  parts,  representing,  with- 
out loss  of  value,  different  degrees  of  value,  so  as 
to  furnish  an  exact  equivalent  of  any  required 
amount. 

We  can  conceive  that  one  substance  might  be 
adopted  as  a  standard   of  value,  and  another  em- 


THE  FUNCTIONS  OF  MONEY.  147 

ployed  as  a  medium  of  exchange ;  but  this  would 
involve  many  practical  inconveniences.  For  the 
wide  and  varied  operations  of  exchange,  it  is  quite 
necessary  that  the  same  substance  should  fulfil  these 
two  functions,  combining  in  itself  the  qualities  es- 
sential for  both. 

This  does  not  imply,  however,  that  money  must 
be  actually  used  as  a  medium  in  every  exchange. 
With  a  standard  of  value  once  fixed,  commodities 
can  be  measured  b}^  it,  and  have  their  price  fixed, 
and  then  be  directly  exchanged  for  each  other. 
Thus  the  farmer's  wife  brings  her  basket  of  eggs 
and  her  firkin  of  butter  to  the  village  grocer.  The 
price  for  these  articles  is  fixed  in  terms  of  money ; 
the  prices  of  the  grocer's  tea  and  sugar  and  spice 
are  fixed  in  the  same  way.  Then,  by  a  simple  com- 
parison of  prices,  the  one  class  of  articles  is  set 
over  against  the  other,  and  the  trade  is  consummated 
without  any  payment  of  money  on  either  side.  Just 
this  thing  is  going  on  all  the  time  -in  the  commerce 
between  New  York  and  Chicago.  By  processes 
hereafter  to  be  explained,  car-loads  of  goods  are 
balanced  off  against  car-loads  of  wheat,  to  the 
amount  of  millions  of  dollars,  without  any  actual 
pa3'ment  of  money.  Thus  most  of  the  world's  trade 
is  really  exchange  in  kind.  At  every  step  the 
reckoning  is  kept  in  terms  of  money,  and  in  the  last 
settlement  the  balance  must  be  paid  in  money. 

In  the  multifarious  transfers  of  trade,  money 
comes  into  close  identification  with  all  wealth ;  for 
every  thing  that  has  value  comes  at  some  time  to  have 
its  price,  that  is,  to  be  estimated  in  terms  of  money. 


148  POLITICAL  ECONOMY. 

Hence  the  great  mistake,  to  which  thousands  of  men 
still  cling,  of  regarding  money  as  the  most  desirable 
of  all  things  to  be  brought  into  a  country.  This  mis- 
take can  be  best  corrected  by  a  clear  apprehension 
of  the  fact  that  money  is  but  an  instrument  of  ex- 
change, itself  forming  but  a  ver}'  small  part  of  the 
world's  wealth,  and  capable  of  increasing  wealth  only 
as  it  carries  every  other  kind  of  wealth  where  it  is 
most  needed  to  satisfy  human  wants. 

Any  article  which  has  value  may  perform  the 
functions  of  money.  Thus,  b}^  different  nations,  and 
in  different  ages  of  the  world,  various  articles  have 
been  emplo^'ed.  Peoples  who  live  b}^  hunting  use 
skins  as  money.  In  the  territory  of  the  Hudson 
Bay  Company  the  beaver-skin  is  the  unit  of  value, 
and  their  money-table  runs  thus  :  ' '  Three  martens 
are  equal  to  one  beaver,  one  white  fox  to  two 
beavers,  one  black  fox  or  bear  to  four  beavers,  a 
rifle  to  fifteen  beavers."  Pastoral  nations  use  cattle 
as  an  instrument  of  exchange.  Homer  tells  us  that 
the  armor  of  Diomede  cost  nine  oxen.  The  Greeks 
and  Romans  stamped  their  earliest  coin  with  the 
figure  of  an  ox  or  a  sheep.  Hence  the  Latin  word 
for  money,  pecunia,  from  pecus^  cattle.  In  ancient 
S3Tacuse  and  Britain,  money  was  made  of  tin ;  in 
Sparta,  of  iron ;  in  Carthage,  of  a  preparation  of 
leather  ;  in  Burmah,  of  lead  ;  in  Russia,  of  platinum. 
In  Scotland,  former^,  nails  were  used ;  among  the 
Chinese,  pieces  of  silk  ;  in  Tartary,  cubes  of  pressed 
tea ;  in  Abyssinia,  salt.  Slaves  passed  as  money 
among  the  old  Anglo-Saxons,  tobacco  in  Virginia, 


THE  FUNCTIONS  OF  MONEY.  149 

codfish  in  Newfoundland,  bullets  and  wampum  in 
the  early  history  of  Massachusetts,  logwood  in  Cam- 
peachy,  sugar  in  the  West  Indies,  soap  in  Mexico. 
*  But  from  the  time  of  Abraham,  who  paid  to  the 
children  of  Heth  ''three  hundred  shekels  of  silver, 
current  money  with  the  merchant,"  until  now,  silver 
and  gold  have  been  the  chief  monc}^  of  the  civilized 
world.  It  should  be  noted,  however,  that,  when  any 
thing  used  as  mone^^  is  devoted  to  another  use,  its 
functions  as  money  cease.  Gold  or  silver  coin  turned 
into  plate,  just  as  really  as  tobacco  or  sugar  passed 
to  a  consumer,  is  no  longer  money. 

We  have  seen  that  whatever  is  used  for  money 
must  be  a  thing  universally  desired.  If  a  nation 
were  isolated  from  all  others,  so  that  its  exchanges 
were  wholly  internal,  it  would  be  enough  that  its 
money  be  acceptable  to  its  own  people  alone.  But 
with  the  advance  of  civilization,  more  and  more 
does  the  stream  of  each  nation's  trade  flow  outward 
to  meet  and  cross  and  blend  with  the  streams  from 
every  other  natioji,  in  the  great  ocean  of  a  world- 
wide commerce.  Hence  the  necessity  that  the  sub- 
stance adopted  for  the  standard  of  value  and  the 
medium  of  exchange  be  the  same  and  uniform  in  all 
countries,  the  world  over. 

The  most  profitable  exchange  for  any  country  is 
to  export  what  is  most  abundant  and  therefore  least 
valuable  at  home,  and  to  import  what  is  most  wanted 
and  therefore  most  valuable  at  home.  Mone}^  may 
accumulate  in  one  country  so  as  to  be  lower  in  value 
than  other  commodities.     Then  it  is  of  advantage 


150  POLITICAL  ECONOMY. 

to  send  away  the  mone}^,  and  in  exchange  to  bring 
in  needed  commodities.  This  can  easily  be  done,  if 
the  money  of  each  country  is  the  same  with  that  of 
every  other. 

Such  a  uniformity  of  mone}-  throughout  the  civil- 
ized world  would  tend  to  prevent  that  fluctuation  in 
the  value  of  money  which  disturbs  and  deranges  all 
operations  of  exchange.  With  freedom  for  monej^ 
to  flow  out  or  to  flow  in  to  one  and  another  country, 
as  a  temporarj^  surplus  or  deficiency  may  demand, 
universal  commerce  becomes  a  great  reservoir,  to 
maintain  its  value  at  a  common  equilibrium  every- 
where, just  as  the  ocean  maintains  the  sea-level 
uniform  for  the  world. 

It  is  obvious  that  the  adoption  by  any  community 
or  state  of  a  kind  of  money  that  is  not  acceptable 
in  other  countries  must  exclude  that  people  in  great 
measure  from  the  commerce  of  the  world.  Hence 
the  mischief  of  an  irredeemable  paper  money,  or  of 
a  standard  of  specie  at  variance  with  that  of  other 
commercial  nations.  For  a  country  which  adopts 
these  expedients,  the  result  is  inevitably  to  impede 
trade,  and  to  impair  industry. 

EXERCISES. 

1.  Show  how  division  of  labor  creates  a  special  necessity 
for  money  to  aid  exchanges. 

2.  Illustrate  the  special  difficulty  which  a  painter  would 
find,  under  strict  barter-exchange,  in  disposing  of  a  fine 
picture  that  cost  him  two  months'  labor. 

3.  Can  you  conceive  of  the  conditions  of  trade,  if  there 
were  no  means  of  fixing  prices  for  commodities  ? 

4.  If  there  were  no  money,  what  inducement  would 


THE  FUNCTIONS  OF  MONEY.      151 

there  be  for  one  to  produce  more  than  he  needed  for  him- 
self, or  how  could  one  accumulate  wealth  by  saving  ? 

5.  It  has  been  said,  "There  is  no  machine  which  saves 
as  much  labor  as  money  does."  Is  the  statement  true? 
Show  how  money  is  a  means  of  saving  labor. 

6.  Why  might  not  the  pebbles  of  a  gravel-hill  be  used  as 
money  ?  How  are  slips  of  pictured  paper  any  better  for  the 
purpose  ? 

7.  What  qualities  for  use  as  money  have  precious  stones, 
such  as  rubies,  sapphires,  and  diamonds  ?  What  important 
quality  do  they  lack  ? 

8.  A  farmer  sold  fifty  bushels  of  wheat  for  $50.  He  then 
bought  a  suit  of  clothes  for  $20,  paid  $10  for  a  gown  for  his 
wife,  and  $10  for  shoes  for  his  children,  and  bought  $10 
worth  of  sugar,  rice,  tea,  and  coffee.  Illustrate  the  two 
functions  of  money  in  the  transactions. 

9.  Wliat  would  be  the  effect  on  trade,  if  gold  and  silver 
coin  were  liable,  as  formerly,  to  be  debased  at  the  arbitrary 
will  of  a  sovereign  ? 

10.  The  values  exchanged  during  a  single  day  In  New 
York  have  been  reported  as  high  as  $400,000,000.  In  what 
respect  was  money  concerned  with  them  all,  and  in  what 
respect  with  but  a  small  part  of  the  exchanges? 

11.  Can  you  account  for  the  fact  that  during  this  year 
(1879)  the  foreign  trade  of  the  United  States  brought  home 
large  amounts  of  gold  and  silver  money  ? 

12.  How  will  the  importer  in  New  York  decide  whether 
to  send  out  wheat,  or  money,  in  payment  for  his  goods 
bought  in  Liverpool  ? 

13.  Is  it  good  policy  for  a  government  to  forbid  the  expor- 
tation of  specie,  when  that  will  buy  the  goods  wanted  from 
abroad  to  better  advantage  than  any  thing  else  ? 

14.  For  what  utilities  besides  their  service  as  money  are 
gold  and  "silver  desirable  ?  Would  they  be  used  as  money, 
if  they  could  be  used  for  nothing  else  ?  Are  they  still 
money,  when  wrought  into  gold-leaf  or  silver  spoons? 

15.  The  Spartan  government  tried  to  guard  the  people 
from  avarice  and  luxury  by  making  iron  money  for  the 
country:  can  you  tell  with  what  result? 


162  POLITICAL  ECONOMY. 

16.  If  other  leading  commercial  nations  make  gold  the 
one  standard  of  value,  what  will  be  the  consequence  if 
our  government  insist  on  making  silver  the  standard  for 
this  country  ? 


SPECIE.  153 


SECTION  II.— SPECIE. 

The  precious  metals,  gold  and  silver,  possess 
certain  qualities,  peculiarly  combined,  which  give 
them  special  fitness  to  fulfil  the  functions  of  mone}'. 
Hence,  when  prepared  and  marked  for  that  pur- 
pose, they  are  called  specie.  These  qualities  may 
be  particularly  noticed  as  follows :  — 

1 .  Gold  and  silver  have  an  intrinsic  utility.  Their 
brilliancy,  their  malleability,  their  resistance  of  cor- 
rosion, and  th^ir  permanence,  make  them  desirable 
for  personal  ornaments,  for  plate,  and  for  the  mani- 
fold decoration  of  temples,  houses,  and  equipages. 
For  this  reason  they  have  always  had  a  charm  for 
all  sorts  of  people.  Their  use  as  money  only  en- 
hances, and  makes  more  constant  and  stead}^,  their 
general  desirableness. 

2.  These  metals  are  obtainable  only  by  labor;  and 
the  amount  of  labor  necessary  to  obtain  them  is  more 
invariable  than  that  which  pertains  to  other  sub- 
stances. Now  and  then  one  has  stumbled  upon  a 
nugget  of  pure  gold  of  great  value  ;  but  ordinaril}'-, 
gold  and  silver  are  obtained  bj-  labor  in  long  and 
patient  search,  in  washing  sands,  breaking  rocks, 
reducing  ores,  and  separating  the  pure  metals  from 
other  substances.  The  amount  produced  is  depend- 
ent on  the  labor  employed. 

In  respect  to  the  two  elements  of  value,  desirable- 
ness, and  cost  measured  by  labor,  gold  and  silver  are 
permanent  and  uniform  beyond  any  other  products. 


154  POLITICAL  ECONOMY. 

Hence  their  value  is  more  stable  than  that  of  any 
thmg  else. 

3 .  These  metals  concentrate  a  large  amount  of  value 
in  a  small  bulk.  The}^  are  conveniently  portable. 
One  may  easily  carry  in  his  pocket  the  value  of  a 
wagon-load  of  wheat  or  a  car-load  of  cattle  when 
put  into  the  form  of  gold. 

4.  These  substances  are  capable  of  minute  division 
vv^ithout  loss.  A  gold  eagle  or  a  silver  dollar  may 
be  divided  into  ten  equal  parts,  and  each  part  will 
have  the  value  of  just  one-tenth  of  the  original  coin. 
Not  so  with  diamonds,  which  also  concentrate  value. 
A  large  diamond  is  worth  many  times  its  weight  in 
small  diamonds ;  and,  once  broken  into  pieces,  its 
original  value  can  never  be  restored. 

5.  These  metals  are  of  uniform  quality.  Pure 
gold  or  silver  is  the  same  always  and  ever^^here ; 
readil}^  allo3'ed  to  make  the  coin  harder,  but  easily 
restored  to  its  original  puritj^  without  loss. 

6.  The  value  of  a  definite  portion  of  these  sub- 
stances can  be  easily  verified.  They  are  malleable, 
easity  wrought  into  any  shape,  and  capable  of  re- 
ceiving and  retaining  a  distinct  impression.  Their 
lustre,  uniform  weight,  and  resistance  to  the  action 
of  acids,  make  it  easy  to  detect  adulteration. 

7.  These  metals  are  nearly  indestructible  by  acci- 
dent or  use.  No  ordinary  fire  consumes  them  ;  the}' 
are  not  decomposed  by  atmospheric  influences  ;  they 
wear  away  very  slowly. 

8.  These  two  metals  are  adapted  to  each  other  for 
the  different  exchanges,  large  and  small,  which  the 
trade  of  the  civilized  world  requires.      Gold  too  mi- 


SPECIE.  155 

nutely  divided  would  be  counted  with  difficulty,  and 
easily  lost.  For  large  exchanges  silver  would  be 
inconvenient,  on  account  of  its  great  bulk.  They 
are  thus  well  adapted  in  use  to  supplement  each 
other. 

These  metals  are  emplo^^ed  as  the  money  of  the 
world,  not  because  ordained  to  this  by  authorit}^  of 
human  governments,  but  because  in  the  ordinance 
of  nature  the}'  possess  in  peculiar  degree  those 
qualities  so  essential  to  represent  precise  amounts 
of  value,  and  are  ever  exchangeable  for  the  same 
amounts  of  value.  In  the  strictest  sense,  these 
metals  coined  constitute  the  only  real  money  uni- 
versally recognized. 

There  is  nevertheless  a  legitimate  agency  of 
government  with  respect  to  money.      Men  use 

mone}^  in  exchanges  for  the  same  reason  that  they 
use  hammers  in  driving  nails, — because  they  thus 
save  time  and  labor,  and  the  work  is  thereby  better 
done.  Yet  the  convenience  of  money  may  be  in- 
creased by  the  action  of  the  government  in  two 
ways. 

First,  By  indicating  a  uniform  instrument  of  ex- 
change; that  is,  by  establishing  the  precious  metals 
as  a  legal  tender.  If  I  owe  a  man  for  a  hat,  and  he 
will  not  take  the  silver  I  offer  in  payment,  but  de- 
mands beaver-skins,  I  may  not  be  able  to  procure 
them :  if,  on  the  other  hand,  I  offer  him  leather,  and 
refuse  to  give  him  any  thing  else,  he  ma}^  be  de- 
frauded. To  prevent  disputes,  the  government 
needs  to  enact  a  law,  specifying  what  shall  be  a 


156  POLITICAL  ECONOMY. 

full  and  valid  discharge  of  such  an  obligation  when 
nothing  definite  has  been  agreed  upon.  Such  a  law 
need  not  interfere  with  special  contracts  for  the 
exchange  of  particular  objects. 

Second,  The  government  can,  better  than  any 
other  party,  prepare  the  metals  used  as  money  for 
the  purpose  by  coining.  It  is  evident  that  the  coin- 
ing of  money  cannot  be  safel}'  intrusted  to  individ- 
uals. It  would  present  temptations  to  dishonesty, 
too  great  for  ordinary  human  virtue.  Hence,  in  all 
civilized  countries,  the  coining  of  money  is  regarded 
as  the  sovereign  act  of  the  government  through  care- 
fully selected  agents.  In  our  country,  this,  with  all 
other  rights  of  full  sovereignty^  is  vested  in  the 
National  Government  alone.  Congress  has  the  ex- 
clusive power  to  coin  mone}'. 

In  the  coinage  three  things  must  be  regarded  :  — 

First,  The  quality  of  the  coin.  The  metal  of  the 
coinage  must  be  of  uniform  purit3\  It  is  of  advan- 
tage to  mingle  with  the  pure  metal  some  portion  of 
alloy,  to  make  the  coin  harder,  and  the  better  to  set 
the  standard  of  purity  at  an  exact  i3oint.  But  the 
precise  measure  of  this  adulteration  should  be  fixed 
by  law,  invariable  and  clearlj'  made  known. 

Second,  The  size  of  the  coins  should  be  adjusted 
to  the  convenience  of  exchange.  If  too  large,  they 
cannot  well  be  carried  about,  nor  fitted  to  different 
values  ;  if  too  small,  they  are  liable  to  be  lost,  and 
increase  the  trouble  of  counting.  Also,  different 
pieces  should  be  adjusted  to  each  other  so  as  to  be 
conveniently  enumerated.  For  this,  the  decimal 
system,  as  adopted  in  the  United  States  and  in 
France,  is  pro1)a])ly  prefcM-ablo  to  any  otlier. 


SPECIE.  167 

Third,  The  form  of  the  coins  should  be  such  that 
each  piece  shall  indicate  definitely  its  value  at  sight. 
For  convenience  in  counting  and  piling,  flat  coins 
are  best.  To  diminish  friction,  some  thickness  is 
requisite.  The  surface  should  bear  a  well-marked 
impression ;  common  so  far  as  to  indicate  the  na- 
tionalit}'  of  the  coinage,  differing  so  far  as  to  dis- 
tinguish different  pieces,  and  in  full  relief  so  as  to 
make  apparent  any  filing  or  wearing-away  of  the 
metal.  The  same  end  is  subserved  by  milling  the 
edges,  and  raising  the  rim.  It  is  advisable,  also, 
that  the  amount  of  pure  metal  be  stamped  on  the 
face  of  each  coin. 

Since  the  manufacture  of  coins  requires  labor  with 
expensive  machinery,  and  since  the  act  of  coinage 
does  impart  a  slight  addition  of  value  to  the  metal, 
it  is  right  that  the  owner  should  pay  for  the  service 
rendered.  The  charge  made  for  coining  bullion 
brought  to  the  mint  is  called  seigniorage.  At  the 
United-States  mint  the  seigniorage  for  gold  coins  is 
only  one-fifth  of  one  per  cent. 

In  continual  use,  coin  becomes  worn,  its  impres- 
sion is  effaced,  and  its  value  is  diminished.  Being 
thus  unfitted  for  circulation,  it  is  but  fair  that  the 
government  should  repair  the  loss,  and  not  leave  it 
to  fall  wholly  on  the  last  holder.  Accordingly  our 
government  provides  that  gold  coins  of  the  United 
States  may  be  received  at  the  treasury  at  their 
denominational  value,  provided  that,  after  a  circula- 
tion of  twenty  3'ears,  they  are  not  reduced  in  weight 
more  than  one-half  of  one  per  centum. 

The  government  has  also  authority  to  control  the 


158  POLITICAL  ECONOMY. 

circulation  within  its  own  territory  of  foreign  coins. 
Otherwise,  worn  and  depreciated  coin  of  other  coun- 
tries may  come  in,  and  drive  out  its  own  superior 
money.  Thus  some  years  ago,  our  government 
ordered  that  worn  Spanish  and  Mexican  silver  coins 
should  be  received  only  at  a  discount  of  twent}^  per 
cent  on  their  face-value,  though  they  were  really 
depreciated  only  ten  per  cent.  This  made  the  old 
coins  worth  more  as  bullion  than  as  coin ;  and  they 
were  collected  and  melted. 

The  heterogeneous  monetary  sj^stems  of  different 
countries  involve  troublesome  fractional  operations 
in  reducing  the  coinage  of  one  country  to  that  of 
another.  It  is  therefore  very  desirable  that  the 
attempts  to  secure  a  system  of  correlated  interna- 
tional coinage  for  the  civilized  nations  of  the  world 
should  succeed.  A  slight  change  in  the  systems  of 
the  leading  commercial  nations  will  secure  uniformity. 
If  with  this  change  a  uniform  sj^stem  of  weights  and 
measures  could  also  be  adopted,  the  exchanges  of 
the  world  would  be  greatly  facilitated. 

Governments  have  often  transcended  their  legiti- 
mate powers  in  legislation  about  money.  Thus 
laws  forbidding  the  exportation  and  importation  of 
money,  laws  arbitrarily  changing  the  value  of  the 
coinage,  and  laws  making  any  thing  but  gold  and 
silver  a  legal  tender,  involve  injustice,  mischief,  and 
often  absurdit3\ 

The  Question  of  a  Double  Standard.     The  use 

of  both  gold  and  silver  as  money  is  highly  advan- 
tageous, almost  indispensable ;  but  the  question  is 


SPECIE.  159 

raised  and  miicli  agitated,  Should  the  standard  of 
value  be  defined  in  terms  of  each  metal,  and  both  be 
made  legal  tender  to  an  unlimited  extent?     If  the 

relative  value  of  the  two  metals  were  constant,  so 
that  they  would  always  rise  or  fall  together,  there 
would  be  no  objection  to  the  double  standard.  But 
in  the  nature  of  things  this  is  impossible  ;  for  each 
metal  has  its  independent  sources  of  supply,  and 
value,  as  we  have  seen,  varies  with  the  fluctuations 
of  supply.  When  two  kinds  of  money  of  different 
valuation  are  thrown  into  the  trade  of  a  country 
together,  it  is  a  law,  as  fixed  as  the  law  of  gravita- 
tion, that  the  cheaper  money,  of  inferior  value,  w^ill 
drive  out  the  dearer  money,  whose  value  is  greater. 
If  the  government  comes  in  often  to  adjust  the 
relations  of  the  two  metals,  this  interference  dis- 
turbs the  operations  of  trade.  This  difficulty  would 
be  relieved  in  measure,  if  all  commercial  nations 
were  to  adopt  the  double  standard ;  but  even  then 
some  international  congress  would  need  from  time 
to  time  to  define  the  relative  value  of  the  two 
metals. 

For  its  function  as  a  standard  of  value,  it  is  of 
the  highest  importance  that  the  value  of  money  be 
as  invariable  as  possible.  Thus  far  in  the  history 
of  the  world,  gold  has  been  the  more  stable  of  the 
two  metals.  It  would  seem,  therefore,  most  advan- 
tageous that  gold  should  be  adopted  as  the  main 
standard,  w^ith  a  wide  range  for  the  employment  of 
silver  as  subsidiary  coin.  In  that  case,  the  advan- 
tages of  the  two  metals  would  be  secured ;  each 
would  become  the  complement  of  the  other,  fulfil- 


160  POLITICAL  ECONOMY. 

ling  its  function  as  money  in  a  sphere  to  which  the 
other  is  not  adapted. 

The  views  given  of  the  nature  and  functions  of 
mone}'  warrant  the  following  propositions  as  infer- 
ences or  corollaries :  — 

1.  In  every  exchange,  the  cost  of  the  money  em- 
ployed is  to  be  regarded  as  equal  to  the  cost  of  the 
article  for  which  it  is  exchanged.  If  ten  dollars  is 
the  price  of  a  barrel  of  flour  in  Lima,  it  is  because 
the  cost  of  producing  so  much  silver  there  is  equal 
to  the  cost  of  producing  the  flour  and  its  transporta- 
tion. This  is  the  natural  law  of  exchange,  varied 
only  by  incidental  circumstances  and  artificial  ap- 
pliances, which  temporarily  affect  the  supply  of 
money  or  of  goods. 

2.  The  universal  freedom  of  commerce,  and  the 
use  among  all  nations  of  the  same  kind  of  money  as 
the  instrument  of  exchange,  must  tend  to  equalize 
any  variations  in  the  cost  or  in  the  supply  of  money. 
The  commerce  of  the  world  is  the  great  reservoir, 
the  ocean  encompassing  the  globe,  into  which  all 
contributing  streams  of  mone}'  flow  ;  and  its  level  is 
essentially  the  same  everywhere.  By  a  law  as  sim- 
ple and  constant  as  that  of  the  tides,  the  money- 
market  will  regulate  itself,  provided  trade  is  free 
and  money  real  and  the  same  everyvrhere. 

3.  The  amount  of  money  in  any  country  and  in 
all  countries  is  very  small  in  proportion  to  the  whole 
amount  of  vs^ealth  and  of  values  exchanged.  As  a 
standard  of  value,  money  regulates  all  exchanges. 
As  a  medium  of  transfer,  it  is  actually  employed  in 


SPECIE.  161 

bnt  few.  It  performs  its  office  best  when  it  moves 
rapidly.  It  flows  from  one  country  to  another  only 
in  the  process  of  equalisation  just  spoken  of. 

4.  It  is  of  no  advantage  to  increase  the  amount 
of  money  in  a  country,  unless  it  is  demanded  by  an 
increase  of  production  and  of  active  trade.  Money 
is  only  an  instrument  like  a  plough  or  a  power-loom. 
It  is  of  no  advantage  to  a  community  to  have  a 
hundred  ploughs  when  only  fifty  can  be  used,  or 
forty  looms  when  twenty  will  do  all  the  work.  In 
a  city  isolated  from  the  rest  of  the  world,  to  double 
the  amount  of  money  will  merely  double  prices.  If 
its  trade  with  other  places  is  free,  the  superfluous 
money  will  float  away  on  the  tide  of  commerce  to 
some  place  where  it  is  needed,  just  as  a  surplus  of 
wheat  or  cotton  goods  must  do. 

5.  The  abundance  or  scarcity  of  money  in  a  coun- 
try is  not  of  itself  a  trustworthy  index  of  prosperity 
or  adversity.  We  must  look  back  of  the  fact  to  its 
cause.  A  scarcity  of  money,  caused  by  an  increase 
of  products  and  great  activity  of  trade,  is  a  sign  of 
prosperity.  Money  abundant  because  business  is 
stagnant,  and  exchanges  are  few,  indicates  adver- 
sity. 

6.  The  maxim,  "It  matters  not  what  becomes  of 
property,  so  long  as  the  money  is  in  the  country,"  is 
false  and  delusive.  Labor  and  capital  valued  at  a 
million  dollars  were  expended  on  a  great  manufac- 
tory which  proved  an  utter  failure.  So  much  prop- 
erty was  lost,  none  the  less  so  because  the  money 
paid  out  in  setting  up  the-  establishment  is  still  cir- 
culating among  the  people.     The  money  was  in  that 


162  POLITICAL  ECONOMY. 

case  but  the  instrument  of  throwing  away  so  much 
of  value.  It  cannot  bring  back  the  values  lost.  If 
a  thief  should  empty  your  storehouse  in  the  night 
with  a  wheelbarrow,  it  would  not  relieve  your  loss  to 
find  the  wheelbarrow  in  the  morning,  left  for  some 
honest  use. 

The  minds  of  many  are  mystified  on  this  subject 
by  the  complications  of  credit  with  mone3\  A  great 
part  of  the  apparent  variations  in  the  value  of  money 
in  diff*erent  countries  and  at  different  epochs  is  due 
to  the  same  cause. 

Real  money  held  to  its  rightful  'functions  is  one 
of  the  most  useful  inventions  ever  devised.  One 
sa3^s,  not  extravagantly,  "  Money,  in  a  nation's 
economy,  is  what  the  blood  is  in  the  life  of  the 
animal.  It  is,  so  to  speak,  the  common  reservoir 
in  which  all  food  is  first  dissolved,  and  by  which,  at 
a  later  stage,  the  elements  of  nutrition  and  preserva- 
tion are  distributed  to  the  several  organs.  There  is 
indeed  no  machine  w^hich  has  saved  as  much  labor 
as  money." 

EXERCISES. 

1.  Specify  some  of  the  purposes,  other  than  money,  for 
which  gold  and  silver  are  used. 

2.  Is  the  absorption  of  the  precious  metals  for  these 
purposes  a  benefit,  or  an  injury? 

3.  In  estimating  the  cost  of  gold,  what  must  be  set  off 
against  the  good  fortune  of  some  who  obtain  rich  lumps 
with  only  the  labor  of  picking  them  up? 

4.  If  gold  should  become  as  abundant  and  as  easily  ob- 
tained as  iron,  how  would  its  fitness  for  money  be  affected  ? 

5.  Platinum  is  a  rare  and  useful  metal;  why  is  not  it  as 
well  fitted  for  money  as  gold  ? 


SPECIE.  163 

6.  What  means  are  adopted  to  test  the  genuineness  of 
gold  and  silver  coins? 

7.  We  have  coins  made  of  copper  and  nickel  :  what 
qualities  of  real  money  do  they  lack? 

8.  Could  a  mere  enactment  of  government  prevent  the 
use  of  gold  and  silver  for  money  ? 

9.  Could  a  law  of  Congress  cause  circles  of  leather, 
stamped,  to  pass  as  money  ?    Why  not  ? 

10.  Illustrate  the  necessity  that  the  government  should 
define  some  legal  tender. 

11.  When  Jesus  was  asked  whether  the  Jews  ought  to 
pay  tribute  to  Caesar,  what  was  the  pertinence  of  his  asking 
in  reply,  whose  image  the  coin  of  the  country  bore  ? 

12.  Why  would  not  little  solid  globes  of  silver,  such  as 
the  Chinese  use,  answer  the  purpose  of  money  as  well  as 
our  coins  ? 

13.  Why  do  the  manufacturers  of  silver  prefer  silver  coins 
for  the  material  of  spoons,  &c.  ? 

14.  Where  large  amounts  of  specie  are  transferred,  is  the 
transfer  made  by  count,  or  by  weight  ?    Why  ? 

15.  When  Germany  was  composed  of  a  great  number  of 
petty  sovereign  states,  what  inconvenience  did  travellers 
meet  with  respect  to  their  money  ?  How  is  that  incon- 
venience now  removed  ? 

16.  If  commercial  nations  should  adopt  a  uniform  stand- 
ard and  system  of  coinage,  and  uniform  weights  and  meas- 
ures, how  would  the  study  of  arithmetic  in  our  schools  be 
affected  ? 

17.  Can  any  act  of  Congress  keep  the  ratio  of  value  be- 
tween gold  and  silver  permanent  ? 

18.  If  silver  dollars  are  worth  more  than  gold  dollars, 
which  will  disappear? 

19.  How  is  it  detei-mined  that  you  must  give  a  silver  dol- 
lar for  a  good  pocket-knife  ? 

20.  The  great  fire  in  Chicago  consumed  property  valued 
at  $200,000,000,  but  scarcely  any  of  the  money  in  the  city 
was  destroyed  :  was  the  loss  any  less  because  the  money 
remained  ? 


164  POLITICAL  ECONOMY. 


CHAPTER  III. 

CREDIT  AN  INSTRUMENT  OF  EXCHANGE. 

In  its  broadest  sense,  credit  is  confidence  in  the 
truthfulness  and  integrity  of  a  fellow-man.  Some 
exercise  of  it  is  essential  to  the  very  existence  of 
human  societ3^  The  simplest  services  cannot  be 
interchanged  without  credit.  If  3'ou  hire  a  laborer 
for  a  day's  work,  you  trust  him  as  one  able  and 
faithful  to  do  the  work,  and  he  trusts  you  for  his 
pay  till  the  end  of  the  da3\  Civilization  advances 
with  the  growth  of  such  mutual  confidence. 

As  a  technical  term  of  Political  Economy,  credit  is 
trust  in  the  promise  of  an  equivalent  to  be  rendered 
at  a  future  time,  for  values  immediately  transferred. 
In  the  processes  of  exchange ,  credit  becomes  a 
substitute  for  money,  and  so  a  distinct  and  indis- 
pensable instrument  for  effecting  all  kinds  of  ex- 
changes. A  very  small  part  of  the  exchanges  of 
the  world's  commerce  is  effected  by  the  direct 
agency  of  money.  Credit  is  the  instrument  em- 
ployed for  all  the  rest.  Its  utility  can  hardl}^  be 
over-estimated.  At  the  same  time  it  is  a  dangerous 
instrument,  because  so  liable  to  abuse. 

In  treating  the  subject,  we  need  to  notice  sever- 
ally, the  forms  of  credit,  the  useful  functions  of 
credit,  and  the  mischievous  abuses  of  credit. 


THE  FORMS  OF  CREDIT.  165 


SECTION  I.— THE  FORMS   OF  CREDIT. 

The  leading  forms  in  which  credit  enters  into  the 
operations  of  exchange  are,  — 

1.  Book-accounts.  A  seller  extends  credit  to  a 
bu3'er  by  simply  charging  the  value  of  his  purchase 
to  him  on  his  book.  The  butcher  wants  the  baker's 
bread,  and  the  baker  wants  the  butcher's  meat. 
Each  makes  his  morning  purchase  of  the  other,  to 
be  charged  in  account.  On  the  da}^  of  settlement 
the  two  accounts  are  summed  up,  and  th^  difference 
on  the  one  side  or  the  other  is  paid  in  money,  or 
carried  forward  to  new  account.  So,  too,  a  farmer 
anticipates  the  returns  of  his  harvest  by  a  running 
account  at  the  store.  In  either  case  the  direction  to 
make  the  charges  implies  the  promise  to  pa3^ 

2.  Loans.  A  lender  trusts  the  promissory  note 
of  the  borrower,  engaging  to  pay  with  interest,  at  a 
definite  date  in  the  future,  the  money  now  loaned, 
or  the  mone}'- value  of  the  goods  now  sold.  The 
borrower  may  give  securitj^  for  the  promise  of  his 
note  by  a  chattel-mortgage,  or  a  mortgage  on  real 
estate. 

3.  Mercantile  paper.  In  this  case  the  promise 
takes  the  form  of  a  negotiable  note,  given  by  a  job- 
ber to  a  manufacturer  or  importer,  or  b}^  a  retailer 
to  a  jobber  for  goods  bought  to  be  sold  again.  'The 
note  runs  for  a  short  time, — thirty,  sixty,  or  ninety 
da^^s, — to  be  provided  for  by  the  avails  of  a  second 
sale.     Such  paper  is  often  passed  to  second  hands, 


166  POLITICAL  ECONOMY. 

and  ma}'  itself  become  a  marketable  article  in  the 
communit}',  subject  to  the  regular  dealings  of 
brokers. 

4.  Bank-deposits.  The  depositor  gives  his  banker 
credit  for  money  put  into  his  hands  to  be  paid  on 
his  order,  and  accepts  a  certificate  of  deposit,  or  an 
entr^'-  on  his  bank-book,  as  the  promise,  the  voucher, 
for  the  transaction.  The  orders  by  which  the  de- 
posits are  drawn  out  are  called  checks.  These  may 
float  about,  with  a  limited  circulation,  as  tokens  of 
credit  at  home.  Or,  on  a  wider  range,  taking  the 
form  of  bills  of  exchange,  the  credit  thus  originated 
may  reach  round  the  globe,  doing  good  service  in 
the  exchanges  of  individuals  and  of  nations. 

5.  Stocks.  A  number  of  persons  wishing  to  com- 
bine their  capital  for  manufacturing,  banking,  build- 
ing a  railway,  or  whatever,  form  a  stock-company. 
Each  gives  credit  to  the  company  for  the  capital  he 
puts  in,  and  accepts  a  certificate  of  stock  as  the 
promise,  or  voucher.  These  stock- certificates  are 
transferable ;  and  credit  in  this  form  becomes  an 
article  of  merchandise  with  a  current  price,  more 
or  less  variable,  from  causes  natural  or  artificial. 

6.  Bonds.  These  are  issued  b}'  corporations, 
cities,  states,  and  nations,  as  evidences  of  debt. 
Whoever  holds  these  gives  credit  to  the  bod}^  cor- 
porate or  politic,  whose  promise  is  embodied  in  the 
bond.  These,  like  stocks,  are  made  articles  of 
merchandise,  and  are  sought  by  many  for  the  invest- 
ment of  money.  They  are  also  often  made  the 
sport  of  wild  and  reckless  speculation,  and  so  credit 
furnishes  instruments  for  stock-gamblers  to  play 
with. 


THE  USEFUL  FUNCTIONS  OF  CREDIT.    167 

7.  Promissory  notes,  issued  by  banks  or  govern- 
ments, and  designed  to  pass  from  hand  to  hand  as 
currency.  Such  are  our  United-States  "  green- 
backs "  and  national-bank  notes.  In  this  category 
are  included  all  forms  of  "  paper  money."  The  pub- 
lic, receiving  and  using  these,  gives  credit  to  the 
governments  or  banks,  and  confidence  rises  or  falls 
with  all  causes  which  affect  the  ability  or  the  sta- 
bility of  the  promissor.  In  this  form  credit  flies 
everj'where,  and  attaches  itself  to  every  transaction 
of  business ;  safe  and  helpful,  or  liable,  like  a  bub- 
ble, to  sudden  inflations  and  collapses,  which  shake 
and  unsettle  all  trade  and  all  industry. 

It  is  believed  that  all  forms  of  credit  in  use  may 
be  classed  under  one  or  other  of  these  heads.  In 
all  cases  the  true  basis  of  credit  is  real  wealth, 
existing  or  prospective,  supposed  to  be  at  the  com- 
mand of  the  party  trusted.  Its  essence  is  confidence 
in  the  ability,  truthfulness,  and  integrity  of  the  party 
trusted. 


SECTION    n.  — THE    USEFUL    FUNCTIONS    OF 
CREDIT. 

As  we  take  up  this  topic,  a  few  words  are  needed 
in  the  outset  to  correct  some  false  notions  quite 
common. 

Credit  is  not  capital.  It  is  only  a  means  of 
transferring  capital  from  one  person  who  cannot 
use  it,  to  another  who  can.  If  a  man  has  borrowed 
ten  thousand  dollars  to  set  up  a  flouring-mill,  giving 


108  POLITICAL  ECONOMY. 

his  note  for  the  amount,  there  is  but  one  capital, 
and  it  is  all  in  the  mill.  The  note  which  the  lender 
holds  is  a  simple  sj-mbol  of  the  one  capital,  indi- 
cating that  it  belongs,  not  to  the  miller,  but  to  the 
holder  of  the  note. 

Credit  does  not  of  itself  create  capital.  It  has  no 
magical  power  to  make  something  out  of  nothing. 
Wealth  does  not  grow  by  the  mere  act  of  passing 
from  hand  to  hand.  It  can  be  increased  only  by 
union  with  labor.  Credit  transfers  it  for  such  a 
union  :    it  can  do  no  more. 

The  same  capital  cannot  be  used  by  both  the  bor* 
rower  and  the  lender  at  the  same  time.  A  farmer 
who  has  lent  a  neighbor  his  plough,  cannot  at  the 
same  time  use  the  plough  on  his  own  field.  No 
more  can  B  use  for  his  own  purposes  the  thousand 
dollars  which  he  lent  to  A.  He  may  get  a  thou- 
sand dollars  b}^  selling  the  note  to  C  at  its  face 
value,  and  C  ma}^  sell  it  to  D,  and  so  on  till  it  gets 
to  Z  ;  but  each  move  onl}"  changes  the  lender  of  the 
one  original  sum.  In  the  end  the  whole  series  of 
transactions  will  be  settled  b}^  one  act,  when  A  pays 
Z,  and  takes  up  the  note. 

But  credit,  when  held  to  its  legitimate  functions, 
renders  important  services  to  all  departments  of 
industry. 

1.  Credit  brings  wealth  into  the  form  of  capital, 
and  makes  it  available  for  the  increase  of  w^ealth. 
Widows,  minors,  aged  persons,  professional  men, 
otherwise  occupied,  and  unfamiliar  with  manufac- 
tures and  trade,  are  often  the  owners  of  property 
from  which  they  need  an  income  ;  but  they  cannot, 


THE  USEFUL  FUNCTIONS   OF  CREDIT.    169 

by  their  own  labor,  make  it  productive.  By  means 
of  credit  this  wealth  is  made  productive  capital  for 
the  benefit  of  all  parties.  Credit  also  gathers  up  the 
small  savings  of  man}-,  and  puts  them  into  union 
w^ith  labor  for  profitable  use. 

2.  Credit  gives  efficiency  to  the  industrial  talent 
of  a  people.  By  means  of  it  many  a  poor  man,  of 
strength  and  skill,  obtains  the  needed  capital  b}'' 
which  alone  his  powers  can  be  emploj^ed  and  devel- 
oped. A  large  portion  of  the  most  successful  busi- 
ness-men in  our  country  have  begun  w^ith  only  their 
own  faculties  and  energies,  and  a  character  to  com- 
mand confidence,  and  bring  them  capital  on  credit. 

In  the  light  of  these  two  of  its  functions,  credit 
is  indispensable,  both  to  the  full  drawing  out  of  the 
capital  of  a  countr}',  and  to  the  full  development  of 
its  industrial  talent.  Thus  it  touches  both  the 
springs  of  productive  industry,  —  capital  and  labor. 

3.  Credit  quickens  exchanges.  The  crops  of  the 
farmer  stored  in  his  granar^^,  and  the  products  of 
the  manufacturer  waiting  for  purchasers,  are  capi- 
tal lying  idle.  By  selling  to  the  middle-man  or  the 
jobber  on  credit,  this  wealth  is  set  moving  at  once 
towards  the  consumers  who  need  it,  and  the  pro- 
ducers have  means  for  new  products.  Rapid  ex- 
changes turn  over  capital  often,  and  with  every  turn 
wealth  is  multiplied.  The  most  important  functions 
of  credit  fall  within  the  sphere  of  exchange. 

4.  Credit  serves  directly  as  an  instrument  of  ex- 
change. This  is  evident  in  book-accounts.  A  buys 
of  B,  and  B  buys  of  A  ;  the  values  being  entered  in 
the  account  on  either  side.     On  settlement  there 


170  POLITICAL  ECONOMY. 

may  be  a  small  balance  to  be  paid  in  money.  But 
for  the  greater  part  of  the  transfers,  the  credit-entry 
has  sufficed.  The  aggregate  of  exchanges  thus 
effected  is  very  large. 

The  same  thing  is  done  on  a  larger  scale  by  credit 
in  the  form  of  bank-deposits.  Suppose  four  men  do 
business  at  the  same  bank.  A  pays  B  a  hundred 
dollars  for  a  horse,  by  his  check  on  the  bank.  B 
msiy  make  a  payment  of  the  same  amount  on  the 
same  day  and  in  the  same  way  to  C,  and  C  to  D, 
and  D  again  to  A.  The  four  checks  are  passed  into 
the  bank.  On  each  of  four  accounts  in  the  bank 
corresponding  entries  are  made.  At  the  close  of 
the  day  the  accounts  stand  as  they  did  at  the 
beginning.  But  those  entries  have  effected  four 
exchanges,  without  drawing  out  or  even  counting 
a  dollar  of  money. 

The  New- York  Clearing  House  is  a  central  bank 
of  deposits  for  all  the  banks  of  the  city ;  and  the 
scale  on  which  credit  fulfils  the  function  we  are 
speaking  of  is  illustrated  by  the  fact  that  transac- 
tions of  exchange  for  one  da}',  amounting  to  more 
than  two  hundred  million  dollars,  are  settled  in  the 
space  cf  one  hour,  requiring  the  transfer  of  only  a 
few  thousand  dollars  in  money  to  provide  for  small 
deficiencies  here  and  there. 

Credit  fulfils  a  like  office  in  adjusting  exchanges 
between  distant  cities.  The  sales  and  purchases  of 
every  community,  as  well  as  of  every  individual, 
must  be  substantially^  equal.  The  agricultural  prod- 
ucts sent  from  Chicago  must  pay  for  the  goods 
brought  from  New  York.     The  chief  instrument  of 


THE  USEFUL  FUNCTIONS  OF  CREDIT.  171 

this  exchange  is  credit,  in  the  fonn  of  drafts,  passed 
through  the  banks  of  the  two  cities.  Thus  produce- 
dealer  A  in  Chicago  ships  five  thousand  dollars' 
worth  of  wheat  to  B,  his  consignee  in  New  York, 
and  makes  a  draft  on  B  for  the  amount,  which  he 
deposits  in  his  Chicago  bank.  The  bank  forwards 
the  draft  to  the  bank  in  New  York  with  which  it 
deals,  and  the  same  day  sells  to  C,  a  Chicago  mer- 
chant, its  draft  on  the  New- York  bank  for  five 
thousand  dollars,  to  pay  for  goods  h&  has  received 
from  a  New- York  importer.  The  return  of  the 
drafts  all  around  closes  the  transactions  ;  and  credit 
has  eff*ected  the  exchange  of  wheat  for  dry  goods, 
with  only  the  labor  of  making  a  few  ledger-entries, 
and  writing  two  or  three  letters. 

The  case  is  essentially  the  same  between  the 
chief  trading  cities  all  over  the  virorld.  The  foreign 
trade  of  Boston  is  mainly  an  account-current  with 
all  the  cities  of  the  world  with  which  she  has  com- 
merce. Provisions  sent  from  Boston  to  the  West 
Indies  are  made  to  pay  for  tea  imported  from  China, 
by  means  of  credit  in  the  form  of  bills  of  exchange, 
passed  through  Liverpool  as  an  intermediate  centre 
of  trade. 

5.  Credit,  to  a  limited  extent,  may  be  safely  put 
into  the  form  of  currency  or  paper-money.  It  is  a 
rule  of  sound  economy,  to  use  the  cheapest  tools 
which  will  serve  the  desired  purpose.  If  promissory 
notes  of  banks,  to  an  amount  equal  to  double  the 
specie  they  hold,  will  effect  exchanges  well  and 
safely,  the  real  value  of  half  the  gold  and  silver, 
fixed  in  money,  may  be  devoted  to  other  purposes. 


172  POLITICAL  ECONOMY. 

So  far  the  instrument  of  exchange  is  cheapened,  to 
advantage.  This  use  of  credit,  however,  runs  close 
upon  the  line  of  danger,  and  needs  careful  restric- 
tions. 

For  all  these  functions  of  credit  a  basis  of  sound 
money  is  indispensable.  Nothing  but  real  money 
made  of  gold  and  silver  can  furnish  the  universal 
standard  of  value  required.  This  is  the  ballast  of 
the  ship  of  trade.  Credit  furnishes  the  sails.  Any 
ballast  that  easily  shifts  in  a  storm  brings  danger  to 
the  ship.  The  credit  which  circles  the  world,  and 
binds  all  civilized  nations  together  hy  the  common 
interests  and  mutual  service  of  universal  commerce, 
must  be  sustained  by  the  all-pervading  presence  of 
money,  whose  value  is  uniform  and  stable. 

sectio:n-  iil  — the  abuses  of  ceedit. 

Credit  is  in  its  nature  illusory,  since  it  springs  out 
of  men's  hopes,  and  rests  on  prospective  rather  than 
real  wealth.  Hence  there  is  an  element  of  danger 
alwaj's  in  close  connection  with  its  legitimate  use, 
and  it  is  especially  hable  to  abuse.  Some  of  its 
abuses  may  be  named,  as  follows:  — 

1.  Credit  is  abused  when  too  freely  granted. 
Thus  the  thriftless  spendthrift  runs  up  an  account, 
never  to  be  paid.  In  his  eagerness  to  trade,  the 
New- York  jobber  trusts  his  goods  to  a  swindling 
adventurer,  who  runs  to  some  little  AYestern  cit}^ 
rushes  off  the  goods  at  less  than  cost,  and  disap- 
pears just  as  his  notes  fall  due.  Too  often  bankers 
have  to  moiu-n  over  their  too  easy  allowance  of  over- 
drafts. 


THE  ABUSES  OF  CREDIT.       .  173 

2.  Credit  is  abused  by  the  wild  speculation  of 
borrowers.  One  who  does  business  with  borrowed 
capital  is  bound  to  avoid  great  risks.  But  often 
men  working  with  the  capital  of  others  embark 
recklessly  on  uncertain  ventures,  in  which  they 
would  not  risk  their  own  property.  Thus  the  capi- 
tal of  banks  is  sometimes  involved  in  gambling 
operations  of  the  stock-exchange. 

3.  Credit  is  abused  by  the  extravagant  living  of 
debtors.  It  is  said  that  of  those  who  enter  the 
mercantile  profession,  ninety-nine  of  every  hundred 
fail.  Nine-tenths  of  these  failures  are  due  to  rash 
ventures  and  extravagant  expenses,  incurred  with- 
out regard  to  pending  debts. 

4.  Credit  is  abused  by  confidence-operations.  The 
term  includes  schemes  of  speculation,  which  have 
only  credit  for  their  basis,  whether  organized  under 
a  temporary  illusion,  like  the  operations  in  Western 
lands  in  1836,  or  with  a  fraudulent  purpose,  like 
many  mining-companies.  The  commercial  history 
of  the  world  is  full  of  instances  of  the  strange  facil- 
ity with  which  the  imagination  and  credulity  of  men 
are  imposed  upon. 

5.  Credit  is  abused  by  the  betrayal  of  trusts. 
Cashiers  and  bookkeepers  conceal  their  thefts  by 
false  entries ;  presidents  perjure  themselves,  swear- 
ing to  false  statements ;  stockholders'  notes  are 
counted  as  cash  capital ;  trusted  agents  run  away 
with  funds  of  their  employers.  Such  acts  are  pos- 
sible, and  all  too  common,  under  loose  methods  of 
credit. 

6.  Credit  is  abused  by  the  over-estimate  of  assets, 


174  POLITICAL  ECOI^rOMY. 

sometimes  for  purposes  of  fraud,  sometimes  through 
simple  self-deception  ;  every  man  desiring  to  see  the 
bright  rather  than  the  dark  side  of  his  business- 
prospects. 

7.  The  most  sweeping  and  mischievous  abuse  of 
credit  appears  in  the  excessive  issue  of  paper-money. 
This  touches  all  the  processes  of  exchange  with 
disturbing  force,  and  is  the  source  of  panics  and 
commercial  crises. 

Some  of  the  mischiefs  caused  by  these  abuses  of 
credit  may  be  mentioned. 

a.  They  cause  ruinous  fluctuations  of  prices.  Mr. 
Mill  says,  "  In  a  state  of  commerce  in  which  much 
credit  is  habitually  given,  general  prices  at  any 
moment  depend  much  more  on  the  state  of  credit 
than  on  the  quantity  of  mone}'.*' 

6.  Honest  men  are  compelled  to  pay  for  the  losses 
"Which  proceed  from  bad  debts.  The  profits  of  the 
merchant  must  be  enough  to  guard  him  from  loss  in 
the  risks  he  runs,  and  these  come  from  his  paying 
customers. 

C.  These  abuses  of  credit  tend  to  turn  all  trade 
into  a  game  of  chance.  Here  and  there  a  splendid 
prize  is  won,  and  it  dazzles  men's  eyes, 

d.  Through  familiarity  with  failures  and  frauds, 
the  moral  sense  is  deadened  -with  respect  to  a  debtor's 
obligations.  How  can  it  be  otherwise  when  a  bank- 
rupt's settlement  with  his  creditors  at  fifty  cents  on 
the  dollar  is  a  common  fact  ? 

e.  The  abuse  of  credit  tends  to  relax  the  bonds 
of  law  for  the  enforcement  of  contracts.  As  a 
matter  of  fact,  under  this  influence,  the  collection 


THE  ABUSES  OF  CREDIT.  175 

of  debts  b}^  legal  process  has  become  difficult,  almost 
impossible. 

These  evils  call  for  earnest  and  persistent  efforts 
to  raise  the  tone  of  public  sentiment  and  common 
practice  respecting  credit.  The  honest  part  of  the 
debtor  class  are  most  of  all  interested  in  securing 
such  a  reform. 

EXERCISES. 

1.  What  would  be  the  effect  on  the  social  life  of  men,  if 
mutual  distrust  prevailed  ?    Illustrate. 

2.  Illustrate  by  an  actual  or  supposed  case  each  of  the 
forms  of  credit  named:  viz.,  book-accounts,  loans,  mercan- 
tile paper,  bank-deposits,  stocks,  bonds,  and  circulating 
promissory  notes. 

3.  A  bought  fifty  dollars'  worth  of  goods  of  B ;  B  bought 
nothing  of  A,  but  bought  fifty  dollars'  worth  of  C,  and  C 
bought  fifty  dollars'  worth  of  A;  corresponding  charges  are 
made  on  the  several  book-accounts :  how  can  the  whole  be 
settled  by  credit,  without  the  payment  of  any  money  ? 

4.  Explain  a  usage  common  with  banks,  called  "dis- 
counting mercantile  paper.'' 

5.  Suppose  you  buy  twenty-five  dollars'  worth  of  books 
in  New  Haven,  Conn.,  and  send  in  payment  a  draft  for  the 
amount  made  by  a  Kenosha  bank  on  a  New- York  bank: 
explain  the  functions  of  cre^lit  in  the  transaction. 

6.  B  holds  a  certificate  for  a  thousand  dollars  of  the 
stock  of  the  First  National  Bank  of  Chicago:  what  does 
that  certificate  mean  ?  What  is  meant  by  the  expression, 
"hypothecating  stock"  ? 

7.  A  grocer  pays  a  farmer  a  five-dollar  United-States 
greenback  for  a  firkin  of  butter:  is  it  a  money-payment  or 
a  credit-payment  ?    Prove  your  answer. 

8.  Suppose  Congress  at  its  next  session  should  order  a 
hundred  million  dollars  additional  greenbacks  to  be  issued : 
would  the  act  add  that  amount  to  the  capital  of  the  coun- 
try? 


176  POLITICAL  ECONOMY. 

9.  Suppose,  instead,  a  hundred  million  gold  dollars 
should  be  issued  from  the  mint :  would  the  capital  of  the 
country  be  increased  by  so  much  ? 

10.  How  does  a  savings-bank  increase  capital  ? 

11.  How  does  credit  help  a  manufacturer  to  anticipate  the 
sale  of  his  products  for  the  payment  of  his  employes  ? 

12.  Can  you  explain  the  "letters  of  credit"  which  many 
use  to  provide  for  their  expenses  in  travelling  in  Europe  ? 

13.  Is  it  a  wrong  to  a  man  to  ask  for  some  evidence  of 
his  character  before  extending  credit  to  him  ? 

14.  Is  it  right  for  one  who  is  doing  business  on  borrowed 
capital  to  embark  in  doubtful  speculations  ? 

15.  What  is  the  real  cause  of  most  of  the  defalcations 
which  so  often  occur? 

16.  Is  it  generally  either  unjust  or  unkind  to  insist  on  the 
prompt  and  faithful  fulfilment  of  pecuniary  obligations  ? 

17.  Is  it  advisable  to  restore  the  laws  of  imprisonment  for 
debt  which  were  in  force  in  all  our  States  sixty  years  ago  ? 

18.  Why  should  not  defalcation  be  classed  with  theft  and 
robbery  as  a  grave  crime  ? 


BANKS  AND  PAPER-MONEY.  177 


CHAPTER  IV. 

BANKS  AND  PAPER-MONEY. 

The  word  bank  is  of  Italian  origin.  In  the 
infancy  of  European  commerce,  the  Jews  in  Italy 
were  wont  to  assemble  in  the  market-places  of  the 
principal  towns,  seated  on  benches,  ready  to  lend 
and  exchange  money:  hence  the  term  "bank," 
from  banco ^  a  bench.  When  any  of  these  money- 
lenders failed,  his  bench  was  broken,  and  so  we 
have  the  word  bankrupt. 

In  the  sj^stem  of  modern  commerce,  banks  are 
the  chief  agents  of  credit.  Credit,  as  we  have 
seen,  holds  an  important  place  in  the  processes  of 
exchange.  The  principle  of  division  of  labor  re- 
quires that  some  persons  should  make  it  their  spe- 
cial business  to  direct  and  manage  its  complicated 
machinery.  In  banking  institutions,  men  devote 
themselves  to  the  systematic  administration  of  credit 
for  the  manifold  service  of  trade  and  industry,  a 
service  which  is  indispensable  and  invaluable.  Like 
all  other  good  agencies,  this  may  be  abused  and 
misdirected.  This  danger  will  be  best  guarded 
against,  when  the  legitimate  functions  and  uses  of 
banks  are  well  understood  by  all  classes  of  people. 


178  •       POLITICAL  ECOiS^OMY. 


SECTION  L  — THE  OFFICES  OF  BANKS. 

Banks  fulfil  four  distinct  offices :  — 

1 .  The  collection  and  custody  of  money-deposits  to 

be  the  basis  of  credit  in  trade.  If  all  the  exchanges 
of  a  community  were  to  be  effected  by  money  alone, 
every  business-man  must  have  in  his  own  keeping 
a  considerable  amount  of  money.  To  guard  this 
from  robbery  and  loss,  would  involve  no  little  pains 
and  expense.  In  doing  any  large  business,  the 
mere  counting  of  the  specie  paid  and  received  would 
require  much  labor.  It  is  an  important  office  of  a 
bank  to  relieve  these  risks  and  labor,  by  establish- 
ing, in  a  convenient  locality,  a  safe  central  reposi- 
tory' for  the  specie  of  a  communitj-,  and  charging  a 
cashier  and  other  officers  with  the  responsibility  of 
its  safe  keeping  and  transfer.  Then,  as  individ- 
uals deposit  what  the}"  receive,  and  draw  for  what 
they  pay,  credit  is  made,  in  the  manner  heretofore 
described,  to  effect  a  great  part  of  each  day's  ex- 
changes, while  the  money  lies  secure  in  the  vaults 
prepared  for  it.  It  would  be  good  economy  to 
make  such  an  arrangement,  even  if  all  who  enjoyed 
its  benefits  had  to  contribute  directly  to  pay  the 
banker  for  his  service.  But  the  compensation  de- 
rived from  their  other  offices  enables  the  banks  to 
do  all  this  gratuitously. 

2.  Closely  allied  to  this  is  the  office  of  banks  in 
negotiating  money-exchanges.  The  coin  issued  by 
one  nation  does  not  pass  freely  in  another  country 


THE  OFFICES  OF  BANKS.  179 

where  it  is  not  known.  A  German  immigrant  com- 
ing into  New  York  will  need  to  turn  the  thalers  he 
brings  from  his  native  land  into  American  dollars. 
At  the  bank  he  can  do  it  safely  b}^  pa^^ing  a  small 
fee,  for  there  the  relative  value  of  the  two  coinages 
is  well  understood  ;  and  the  next  da}^  perhaps,  some 
one  going  abroad  will  call  on  the  bank  for  exchange 
the  other  way.  But  a  more  important  and  exten- 
sive business  of  this  kind  is  needed  to  provide  for 
pa3'ments  to  be  made  in  distant  and  foreign  places, 
by  drafts  and  bills  of  exchange.  A  genuine  draft 
on  Chicago  is  acceptable  in  all  the  North-western 
States.  A  draft  on  New  York  is  good  in  any  part 
of  our  country.  A  bill  of  exchange  on  London  will 
command  money  for  its  possessor  in  any  city  of  the 
civilized  world.  Banks,  through  the  credit  they 
have  with  each  other,  are  prepared  to  furnish  their 
customers  with  orders  of  this  kind  as  the}'  may 
desire,  their  payment  being  for  the  most  part  actu- 
ally made  by  the  exchange  of  goods  shipped  to  and 
fro.  This  resolves  the  commerce  of  the  world  into 
barter-exchange.  The  banks  charge  a  slight  pre- 
mium for  exchange  of  this  kind,  the  rate  varjing 
with  the  balance  of  trade  between  different  places. 
The  daily  newspapers  of  leading  cities  give  the 
prices-current  for  exchange  as  they  do  for  goods 
bought  and  sold. 

The  quotations  for  British  exchange  are  peculiar, 
and  need  explanation.  The  premium  for  exchange 
on  London  will  be  seen  ordinarily  stated  at  from 
nine  to  ten  and  a  half  per  cent.  This  apparently 
high  rate  is  due  to  the  fact,  that,  at  the  time  our 


180  POLITICAL  ECONOMY. 

government  was  formed,  the  old  Spanish  milled 
dollar  was  in  use,  and  $4.44  was  fixed  as  the  rate 
at  which  the  pound  sterling  must  be  computed  at 
our  custom-houses.  Since  then  our  American  coin- 
age has  been  changed ;  and  the  relative  value  of 
gold  and  silver  has  changed,  so  that  now  a  pound 
sterling  equals  $4.86  of  American  coin,  but  the  old 
mode  of  computation  is  continued :  hence  British 
exchange  in  New  York  is  at  par  when  it  is  quoted 
at  nine  and  a  half  per  cent  premium,  the  difference 
between  $4.44  and  $4.86.  This  needs  to  be  borne 
in  mind  in  all  calculations  of  the  cost  of  bills  on 
London. 

3.  To  make  loans  and  discounts  is  another  office 
of  banks.  The  union  of  capital  and  labor  is  neces- 
sary to  produce  wealth.  But  often  one  has  the 
capital,  and  another  the  capacity  to  labor.  A  bank, 
as  an  agent  of  credit,  brings  the  two  elements  to- 
gether in  the  most  expeditious  and  convenient  way. 
He  who  has  capital  puts  it  into  the  bank  to  be 
loaned  for  him.  He  who  needs  capital  can  go  to 
the  bank,  and  borrow.  The  banker,  devoting  him- 
self to  this  occupation  of  loaning,  becomes  expert 
in  the  negotiations,  keeps  himself  informed  as  to 
the  character  and  responsibility  of  borrowers,  and 
understands  all  the  legal  forms  essential  for  a  valid 
contract. 

The  terms  loan  and  discount  indicate  two  dif- 
ferent modes  of  lending,  adopted  b}'  different  classes 
of  banks.  Savings  banks  receive  on  deposit  the 
small  savings  of  great  numbers  of  people,  make 
loans  for  long  time  secured  b}^  real  estate  or  other 


THE   OFFICES   OF   BAXKS.  181 

ample  securities,  and  collect  the  interest  semi-annu- 
alty  as  it  accrues.  Commercial  banks  gather  funds 
of  the  wealthy  as  their  capital,  and  the  temporar}^ 
I  deposits  of  men  in  active  business,  and  make  their 
loans  for  short  time,  sixty  or  ninety  daj's,  on  per- 
sonal security,  taking  interest  in  advance  as  a  dis- 
count or  deduction  from  the  principal  sum  borrowed. 
4.  A  fourth  office  performed  by  many  banks  is 
to  issue  promissory  notes  for  general  circulation  as 
a  substitute  for  specie.  This  creates  one  kind  of 
paper-money,  which  will  be  treated  of  in  a  subse- 
quent section.  A  few  words  here  will  suffice  to 
indicate  the  manner  in  which  such  notes  are  thrown 
into  circulation.  A  portion  of  specie  is  set  apart 
as  the  basis  of  the  issue.  Thus  the  bank  loans  not 
the  specie  which  it  holds,  but  its  own  notes  paj-able 
in  specie,  receiving  in  return  the  notes  of  individ^ 
uals  guaranteed  by  indorsers  for  the  amount  loaned, 
to  be  paid  at  a  future  day.  Really,  the  bank  loans 
its  own  credit.  The  notes  thrown  out  are  mere 
symbols  of  value,  not  representatives  of  it  as  specie 
is.  If  the  amount  issued  is  just  equal  to  the  amount 
of  specie  in  the  vaults,  the  holders  of  the  notes 
have  a  double  securit}" ;  viz.,  the  specie  in  the  bank, 
and  the  obligations  of  those  to  whom  the  notes 
were  loaned.  The  security  might  be  considerably 
reduced  with  safet}',  by  issuing  notes  somewhat  in 
excess  of  the  specie  in  reserve,  since  they  could 
never  be  all  presented  at  once.  But,  without  well- 
devised  checks,  this  course  leads  to  danger.  This 
office  is  not  necessarily  associated  with  the  others 
named. 


182  POLITICAL  ECONOMY. 

In  the  fulfilment  of  these  offices,  banks,  as  public 
corporations  of  known  character,  offer  inducements 
for  the  introduction  of  foreign  capital.  This  inci- 
dental benefit  is  of  great  importance  to  the  advance 
of  a  new  country. 

Through  these  offices,  banks  render  important 
services  to  the  finances  of  sovereigns  and  states, 
steadjdng  and  strengthening  the  bands  of  govern- 
ment, and  furnishing  timely  aid  in  the  emergencies 
of  war  and  of  great  national  enterprises. 


SECTION  XL  —  THE  UNITED-STATES    NATIONAL- 
BANK  SYSTEM. 

The  limits  of  this  work  do  not  give  place  for  a 
history  of  banking,  or  an}^  notice  of  foreign  banks. 
The  present  bank-system  of  our  own  countr}^  must, 
however,  be  briefly  presented. 

This  sj'stem  was  established  b}^  Act  of  Congress 
in  1863.  It  is  under  the  charge  of  a  bureau  of  the 
Treasury  Department,  the  chief  officer  of  which  is 
the  comptroller  of  the  currency. 

Under  this  act  a  national  bank  may  be  organized 
b}'  any  number  of  persons  not  less  than  five,  the 
capital  in  any  instance  to  be  not  less  than  $100,000, 
except  that  in  cities  containing  a  population  not 
exceeding  six  thousand,  banks  ma}^  be  established 
with  a  capital  of  not  less  than  $50,000;  in  cities 
having  a  population  of  fifty  thousand  or  more,  the 
capital  of  each  bank  must  be  not  less  than  $200,000. 

Not  less  than  one-third  of  the  capital  must  be 
invested  in  United-States  bonds,  upon  the  security 


UNITED-STATES  NATIONAL-BANK  SYSTEM.    183 

of  which  circulating  notes  may  be  issued  equal  in 
amount  to  ninety  per  cent  of  their  current  market- 
value,  but  not  to  exceed  ninety  per  cent  of  the  par 
value  of  the  bonds  deposited.  The  notes,  officially 
certified  by  the  Treasurer  of  the  United  States  and 
the  Register  of  the  Treasury,  are  receivable  at  par 
in  the  United  States  in  all  payments  to  and  from 
the  government,  except  for  duties  on  imports,  inter- 
est on  the  public  debt,  and  in  redemption  of  the 
treasury-notes.  They  are  redeemable  on  demand 
in  lawful  money  of  the  United  States. 

A  subsequent  act  of  Congress  laid  a  tax  of  ten 
per  cent  on  the  circulating  notes  of  previousl}'  exist- 
ing State  banks,  in  consequence  of  which  most  of 
those  banks  re-organized  under  the  national  system. 
Thus  our  present  bank- currency  consists  of  notes 
of  national  banks,  which  are  of  uniform  value  in 
all  parts  of  the  country,  the  payment  of  which  is 
guaranteed  by  the  government.  Provision  is  made 
for  frequent  visitation  of  the  banks  by  government 
officials,  to  investigate  their  operations ;  stated  re- 
ports are  called  for ;  and  the  comptroller  of  the  cur- 
rency may  appoint  a  receiver  to  wind  up  any  bank 
which  is  in  an  unsound  condition. 

The  national  banks  may  receive  deposits,  sell 
bills  of  exchange,  and  loan  mone}^  at  the  rates  of 
interest  allowed  by  law  in  the  States  where  they  are 
located.  For  the  circulating  notes  this  system  pro- 
vides all  the  securit}^  which  the  credit  of  the  United 
States  can  give.  But  it  provides  no  security  for 
deposits  and  other  liabilities,  except  that  all  share- 
holders are  held  individually  liable  to  the  extent  of 


184  POLITICAL  ECONOMY. 

the  amount  of  their  stock,  in  addition  to  what  they 
have  paid  for  their  stock.  The  law  now  fixes  no 
Umits  to  the  number  of  banks  that  may  be  organ- 
ized, or  to  the  total  amount  of  notes  that  may  be 
thrown  into  circulation.  The  circulation  has  ranged 
from  three  hundred  to  three  hundred  and  fift}^  mil- 
Hon  dollars.  Of  the  more  than  two  thousand  na- 
tional banks  which  have  been  organized,  very  few 
have  failed,  and  the  public  has  incurred  no  loss  on 
the  currency. 

From  Feb.  25,  1863,  to  Nov.  1,  1879,  there  had 
been  organized  2,438  national  banks.  Of  these 
only  81  had  been  placed  in  the  hands  of  receivers 
to  be  closed,  307  had  gone  into  voluntary  liquida- 
tion ;  leaving  2,050  in  operation  at  the  last-named 
date,  with  capital  $455,240,000,  deposits  $713,400,- 
000,  and  circulating  notes  outstanding  $337,181,- 
418. 

The  system  will  be  further  illustrated  by  a  state- 
ment of  the  liabilities,  the  resources,  and  the  profits 
of  the  banl^s. 

The  Liabilities  are  as  follows :  — 

1.  Tlie  capital  stock. 

2.  Tlie  circulating  notes. 

3.  Deposits. 

4.  Balances  due  to  other  banks,  especially  from 
banks  in  the  great  cities  to  those  in  the  country. 

5.  Surplus  funds  and  reserves,  held  to  strengthen 
the  banks  against  contingencies,  which  are  a  virtual 
addition  to  the  capital,  and  belong  to  stockholders. 

6.  Undivided  profits  and  unpaid  dividends. 


UNITED  STATES  XATIONAL-BANK  SYSTEM.  185 

7.  Miscellaneous  liabilities,  small  obligations  not 
classified. 

The  Resources  embrace  the  following  items  :  — 
•     1.  Loans,  which  represent  the  chief  business  of 
the  bank. 

2.  United-States  bonds  deposited  with  the  comp- 
troller. 

3.  United-States  bonds  and  other  stocks  and  bonds 
held  as  investments.     The  reserves  take  this  form. 

4.  Balances  due  from  other  banks. 

5.  Real  estate,  a  place  for  business  and  property 
taken  for  debts. 

6.  Exchanges  and  cash  items,  —  bills  of  exchange, 
drafts,  &c.,  on  hand. 

7.  National-bank  notes  and  legal-tender  notes, 
held  to  meet  daily  calls  for  currency. 

8.  Legal-tender  notes  and  specie,  for  the  redemp- 
tion of  circulation. 

9.  Miscellaneous  resources,  small  items  not  classi- 
fied. 

In  a  regular  bank  statement  the  liabilities  and 
resources  thus  pi'esented  balance  each  other,  and 
the  items  on  either  side  show  the  actual  condition 
of  the  bank. 

The  sources  of  Profits  of  banks  are,  — 
1.  Interest,  from  several  distinct  sources. 

a.  Interest  on  United-States  bonds  deposited 
with  the  comptroller. 

b.  Interest  on  circulating  notes  loaned. 

c.  Interest  on  the  remaining  capital  and  reserves 
loaned,  or  held  in  productive  stocks. 

d.  Interest  on  a  portion  of  the  deposits  also 
loaned. 


186  POLITICAL  ECONOMY. 

2.  Premiums  on  exchange. 

3.  Commissions  for  collections.  Claims  from 
abroad  are  often  sent  to  a  bank,  as  an  agent  of 
established  character,  for  collection. 

With  prudent  management  the  profits  of  banking 
are  sure,  and  compare  favorabl}^  with  those  of  any 
other  business.  The  undue  expansion  of  loans,  in 
order  to  increase  profits,  involves  the  danger  of 
throwing  the  centre  of  gravity  outside  the  base, 
with  a  consequent  downfall. 

Private  banking-houses  exist  in  all  parts  of  the 
country,  and  fulfil  all  the  oflflces  named  except  the 
issue  of  circulating  notes.  Some  of  these  have 
gained  a  character  and  standing  which  command 
a  world-wide  confidence.  Their  credit  rests  upon 
personal  integrity,  wise  management,  and  large 
resources  accumulated  through  years  of  devoted 
industry. 

Savings  banks,  mostly  without  capital,  simply  re- 
ceive and  loan  deposits.*  The  savings  banks  of  our 
country,  673  in  number,  thus  manage  funds  amount- 
ing to  over  $750,000,000,  drawn  from  some  millions 
of  depositors. 

In  May,  1879,  the  entire  banking  business  of  our 
country  was  represented  by  6,360  institutions,  whose 
aggregate  capital  was  $656,500,000,  and  which  had 
credited  on  their  books  deposits  amounting  to  $1,- 
893,500,000. 

The  comptroller  of  the  currency,  in  his  report 
dated  Nov.  1,  1879,  estimates  the  circulating  me- 
dium of  our  country  as  follows  :  — 


PAPER  MONEY.  187 

Treasury-notes  (greenbacks)  outstanding      .  $346,681,016 

ISTational-bank  notes  outstanding  .        .        .  337,181,418 

Gold  in  the  treasury       .        .        .        •        .  157,960,193 

Silver  in  the  treasury 50,078,620 

Coin  in  the  banks 42,173,741 

Estimate  of  coin  held  by  the  people      .        .  231,478,515 

Total $1,165,553,503 


SECTION  III.— PAPER  MONEY. 

Real  Money  is  made  of  the  precious  metals,  and 
is  capable  of  representing  all  kinds  of  values,  be- 
cause it  has  value  in  itself.  But  on  account  of  its 
bulk,  its  weight,  and  its  costliness,  some  more  con- 
venient instrument  is  desirable  for  many  operations 
of  exchange.  The  ancient  commercial  nations  felt 
this  need,  and  took  various  measures  to  meet  it. 
The  Carthaginians  adopted  a  s^^mbolic  money,  made 
of  any  object  of  the  size  of  a  coin,  enclosed  in  a 
leather  envelope,  and  stamped  with  the  seal  of  the 
state.  The  Doge  of  Venice,  and  other  sovereigns 
of  the  middle  ages,  issued  leather  money  as  a  prom- 
ise of  future  paj^ment.  The  Chinese,  as  far  back 
as  the  seventh  centur}'  A.  D.,  had  various  kinds 
of  paper  mone}^  which  they  called  ''fljing  coins.'* 
The  necessity  is  acknowledged  to-da}^,  and  all  com- 
mercial nations  are  using  some  kind  of  paper  money. 

Roscher  notes  well  a  distinction  to  be  made  be- 
tween paper  money  and  money  paper.  The  latter 
term  embraces  drafts,  bills  of  exchange,  certificates 
of  stock,  bonds  of  cities,  states,  &c.,  and  like  forms 
on  paper,  which  are  definite  calls  for  mone}^,  titles 
of  ownership,  evidences  of  debt.     These  are  bought 


188  POLITICAL  ECONOMY. 

and  sold,  and  so,  in  a  sense,  circulate ;  but,  like 
substantial  goods,  they  require  money  to  circulate 
them.  Paper  money,  on  the  other  hand,  is  intended 
for  circulation,  in  the  place  of  mone3\  It  must  be 
itself  ever  afloat,  as  a  means  of  floating  every  thing 
else.  It  is  made  up  of  promises  to  pay  monej',  but 
to  no  definite  person,  in  no  definite  place,  at  no 
definite  time  ;  good  for  the  functions  of  money  in 
purchases  and  sales,  just  so  far  and  just  so  long  as 
men  believe  the  promise. 

Several  kinds  of  paper  money  ma}'  be  specified. 

1.  There  is  what  Mr.  Walker  terms  mercantile 
currency.  This  signifies  promises  of  banks  to  pay 
certain  amounts  of  money  on  demand ;  the  bank 
holding  the  full  amount  of  coined  money  or  bullion 
in  reserve  to  fulfil  the  promise  of  ever}^  bill  issued. 
Such  were  the  notes  of  the  Bank  of  Amsterdam  as 
first  issued ;  such  are,  and  have  been  for  more  than 
two  hundred  and  fifty  3- ears,  the  notes  of  the  Bank 
of  Hamburg.  Such  are  the  gold- certificates  of  the 
United-States  Treasury.  These  involve  only  truth- 
fulness and  integrity  on  the  part  of  the  bankers  or 
oflficers  of  the  government  to  insure  entire  credit. 
Such  notes  combine  the  convenience  of  paper  with 
the  security  of  specie.  Its  basis  is  solid  and  im- 
movable.    It  is  paper  money  resting  on  real  money. 

2.  There  is  our  national-bank  currency,  which 
consists  of  bank-notes  secured  by  a  reserve  of  gov- 
ernment-bonds instead  of  specie  ;  the  government 
holding  the  securities,  guaranteeing  the  fulfilment 
of  the  promises,  and  requiring  the  banks  to  hold 
specie  in  readiness,   sufficient  to  make  payments 


PAPER  MONEY.  189 

when  called  for.  Here  the  strength  of  the  security 
is  measured  by  the  credit  of  the  nation.  It  is 
paper  mone}'  resting  on  money  paper. 

3.  Mixed  currency.  This  is  composed  of  written 
promises  to  pay  specie  on  demand,  issued  by  banks 
in  excess  of  the  actvial  amount  of  specie  held  for 
their  redemption.  It  is  called  mixed  because  its 
basis  is  partly  coined  mone}^,  and  partly  credit  in 
the  notes  of  their  customers  discounted  by  the 
banks.  The  notes  of  the  Bank  of  England  and  of 
the  Bank  of  France  are  of  this  character ;  and  such 
were  the  notes  of  the  old  State  banks  and  of  the 
United-States  Bank  in  our  country.  The  strength 
of  the  securit}'  in  this  case  depends  on  the  propor- 
tion of  specie  to  credit.  When  so-called  "wild- 
cat" banks  were  started,  with  no  capital  except  the 
notes  of  stockholders,  and  no  specie,  there  was 
notliing  but  credit  to  sustain  the  circulation,  and 
banks  and  circulation  soon  collapsed  together. 

4.  Credit  currency.  This  consists  of  engraved 
notes,  bearing  promises  of  a  government  to  pay 
specified  sums  of  money.  The  Continental  money 
of  Revolutionary  times,  and  the  present  United- 
States  treasury-notes,  are  examples  of  this  kind  of 
paper-money.  On  the  face  of  the  greenback  we 
read,  "The  United  States  will  pay  the  bearer  ten 
dollars."  On  its  back  we  read,  "This  note  is  a  legal 
tender  at  its  par  value  for  all  debts,  public  and 
private,  except  duties  on  imports,  and  interest  on 
the  public  debt."  This  engraved  slip  of  paper  is, 
then,  only  an  evidence  of  debt.  The  legal  tender 
clause  on  its  back  forces  men  to  take  it  in  payment 


190  POLITICAL  ECONOMY. 

of  goods.  But  as  it  passes  from  hand  to  hand  it 
simply  transfers  debts :  it  cannot  pay  them.  You 
owe  your  butcher  ten  dollars,  and  give  him  a  green- 
back in  payment,  l^'ou  are  released  thereb}^,  but 
the  government  is  now  the  debtor  in  your  place.  It 
is  not  itself,  as  a  gold  eagle  would  be,  a  quid  pro 
quo  for  the  butcher's  meat :  yet  it  will  serve  as  a 
medium  of  exchange,  while  men  have  faith  in  the 
government.  But  let  the  suspicion  arise  that  the 
government  can  not  or  will  not  fulfil  its  promise,  and 
the  purchasing  power  of  these  paper  slips  at  once 
declines,  and  quickl}^  comes  to  nought,  as  did  the 
Continental  money  and  the  paper  money  of  the  Con- 
federate States. 

5.  Paper  money  secured  by  real  estate.  Such 
were  the  assignats  of  France.  In  the  Revolution 
of  1789,  large  estates  of  the  Church,  and  of  wealthy 
nobles  who  had  fled  from  the  countrj^  were  confis- 
cated, and  made  the  basis  of  paper  money,  made  up 
of  promises  of  the  government  for  a  certain  number 
of  francs,  each  note  being  at  the  same  time  a  cer- 
tificate of  title  to  a  certain  amount  of  land  of  the 
same  value.  But  the  troublous  times  caused  the 
value  of  lands  to  depreciate  ;  and,  when  the  amount 
of  assignats  issued  rose  to  more  than  forty-five 
billion  francs,  the  promise  and  the  assigned  land- 
title  became  worthless. 

From  this  view  of  what  paper  money  is,  the  fol- 
lowing statements  are  evidently  true.  They  are 
also  confirmed  by  actual  experience. 

1.  It  is  a  very  convenient  instrument  of  exchange. 


PAPER  MONEY,  191 

2.  As  respects  its  material  it  is  economical;  so 
far  as  it  can  safely  be  used  in  place  of  real  money, 
it  sets  free,  for  other  uses,  the  more  costly  gold  and 
silver. 

3.  It  has  in  it  always  the  element  of  credit.  Even 
a  gold- certificate  is  nothing  to  me  except  as  I  cred- 
it the  statement  that  the  treasurer  holds  the  gold 
read}'^  to  pay  it.  The  managers  of  the  Bank  of 
Amsterdam  betrayed  their  trust ;  and,  as  soon  as 
the  fact  was  known  that  the  gold  was  gone  from  its 
vaults,  its  notes  were  good  for  nothing. 

4.  While  paper  money  ma}'  be  a  convenient  me- 
dium of  exchange,  it  can  never  serve  as  a  standard 
of  value.  Its  promise  must  be  expressed  in  terms 
of  real  mone}^,  dollars ;  and  a  dollar  means  a  speci- 
fied number  of  grains  of  silver,  a  defined,  substan- 
tial value.  The  paper  note  must  carry  with  it  the 
vision  and  the  hope  of  a  silver  dollar,  at  some  time 
to  be  realized,  or  it  can  have  no  purchasing  power. 
If  our  government  should  say,  by  word  or  act,  that 
the  actual  redemption  of  its  greenback  promise  is 
not  to  be  expected,  its  treasury- notes  would  drop 
to  the  ground  like  autumn  leaves,  utterly  worthless. 

5.  Paper  money  can  ordinarily  circulate  only  in 
the  country  where  it  is  issued. 

6.  Paper  money  is  itself  liable  to  fluctuate  in 
value.  It  will  be  always  compared  with  gold ;  and 
if,  by  increased  issues,  it  is  out  of  proportion  to  the 
standard,  gold  will  be  at  a  premium,  which  means 
always  that  paper  is  depreciated. 

7.  By  the  expansion  and  contraction  of  its  issues, 
paper  money  tends  to  keep  the  prices  of  aU  com- 
modities fluctuating. 


192  POLITICAL  ECONOMY. 

8.  Governments,  whether  republican  or  monar- 
chical, when  once  they  have  begun  to  issue  paper 
money,  are  under  strong  temptation  to  go  on  increas- 
ing its  volume,  till  its  redemption  is  impossible.      It 

is  said  that  no  paper  money  issued  by  a  govern- 
ment on  its  own  credit  alone  has  ever  been  re- 
deemed. It  is  to  be  hoped  that  our  nation  will 
prove  an  exception  to  this  statement,  and  give  to 
the  world  an  example  of  truthfulness  and  honesty 
worthy  to  be  imitated. 

9.  A  law,  like  our  "  legal- tender  act,'*  making  the 
circulation  of  the  government's  paper  money  compul- 
sorj^^,  simply  forces  a  loan  from  a  people.  In  its 
exigenc}'  the  United  States  wanted  guns,  ships,  pro- 
visions, &c.  It  ordered  them  of  the  manufacturers, 
and  paid  in  promises,  which  was,  in  effect,  borrow- 
ing instead  of  purchasing.  Then,  to  relieve  the 
manufacturers,  it  passed  a  law  compelling  the  people 
to  take  the  promises,  and  so  to  carry  the  loan. 

10.  The  expansion  and  contraction  of  paper 
money  disturbs  all  the  functions  of  credit,  and  is 
to  a  great  extent  the  real  cause  of  commercial 
crises,  panics,  and  hard  times. 

11.  The  instabilit}'  of  paper  mone}"  tends  to  re- 
solve all  commercial  transactions,  and  especially 
credit  transactions,  into  games  of  chance,  —  losing 
games  for  the  many. 

12.  The  promises  of  paper  mone}^  unfulfilled  tend 
to  blunt  and  deaden  the  public  conscience,  and  to 
demoralize  a  people. 

The  upshot  of  all  is,  not  that  paper  money  is  to 
be  altogether  banished,  for  that  is  impossible,  but 


PAPER  MONEY.  193 

that  its  issue  and  its  use  must  be  carefully  restricted 
by  all  the  appliances  of  wise  legislation  and  sound 
public  sentiment. 

EXERCISES. 

1.  What  inconveniences  would  be  experienced  in  the 
business  of  a  town  of  six  thousand  people  without  a  bank  ? 

2.  How  does  a  bank  increase  the  capital  of  a  com- 
munity ? 

3.  What  benefit  do  farmers  derive  from  banks  ? 

4.  If  you  have  a  doubtful  coin,  why  do  you  take  it  to 
the  bank  to  be  tested  ? 

5.  What  is  the  effect  of  a  large  shipment  of  grain  from 
Chicago  to  New  York  on  the  premium  charged  in  Chicago 
for  New- York  exchange  ? 

6.  What  advantage  is  it  to  the  owner  of  capital  to  loan 
his  money  through  a  bank  ? 

7.  What  advantage  is  it  to  the  borrower  to  get  his  loans 
from  a  bank  ? 

8.  Which  involves  the  larger  outlay  for  interest,  a  pri- 
vate loan  for  a  year  of  $10,000,  at  eight  per  cent,  or  the 
same  amount  taken  from  the  bank  by  discount,  renewed 
every  sixty  days  through  the  year?  Calculate  the  differ- 
ence. 

9.  In  what  respects  is  our  national-bank  system  more 
advantageous  than  the  former  system  of  State  banks  to  the 
general  business  of  the  whole  country  ? 

10.  Is  it  as  profitable  to  the  bankers  ? 

11.  In  the  bank-statements  of  liabilities  and  resources, 
which  are  the  items,  on  either  side,  of  chief  consequence, 
as  indicating  the  soundness  of  a  bank  ? 

12.  Which  are  most  important  with  reference  to  its 
profits  ? 

13.  What  profit  has  a  national  bank  from  its  circulating 
notes  ? 

14.  What  embarrassment  may  they  cause  to  the  bank  ? 

15.  If  another  war  should  compel  our  government  to 


194  POLITICAL  ECONOMY. 

double  the  amount  of  its  bonded  debt,  what  would  be  the 
effect  on  our  national  banks  ? 

16.  Explain  the  relation  between  sound  and  prosperous 
banking,  and  the  general  prosperity  of  business. 

17.  State  in  detail  the  conveniences  of  paper  money. 

18.  State  in  detail  its  evils  or  dangers. 

19.  Which  kind  of  paper  money  named  in  the  text  is 
safest  ? 

20.  Which  involves  the  greatest  risks  ? 

21.  What  is  the  special  danger  of  paper  money  issued  by 
governments  ? 

22.  What  caused  the  rapid  advance  in  prices  from  1863  to 
1870? 

23.  How  were  the  profits  of  business  affected  by  that 
inflation  ? 

24.  Was  the  re-action  from  1873  to  1879  avoidable  ?  Was 
it  healthful  to  business,  though  trying  and  painful  ? 

25.  If  no  attempt  had  been  made  to  resume  specie  pay- 
ments, what  must  have  happened  to  our  paper  money? 
What  to  business  generally  ? 

26.  Who  get  the  advantage  of  fluctuations  incident  to 
the  too  free  issue  of  paper  money  ?  Who  suffer  most  from 
its  disastrous  effect  ? 

27.  Read  the  story  of  the  "Mississippi  Scheme,''  and 
state  John  Law's  fallacy.  Is  not  the  same  fallacy  involved 
in  the  reasoning  of  those  who  advocate  the  continued  and 
unlimited  issue  of  American  paper  money  ?  Are  not  like 
consequences  probable  ? 

28.  What  would  be  the  effect  of  prohibiting  the  issue  of 
circulating  notes  of  less  denomination  than  ten  dollars  ? 
How  is  it  in  England  and  in  France  ? 


INTEEJS^ATIONAL  TKADE.  195 


CHAPTER  V. 

INTERNATIONAL  TRADE. 

1 .  The  nations  of  men  are  of  one  blood,  and  con- 
stitute one  family. 

2.  All  the  face  of  the  earth,  with  its  great  diver- 
sity of  resources  and  productions,  is  given  to  the  one 
human  race. 

3.  The  blessings  which  the  earth  has  to  yield  are 
developed  in  largest  measure  as  the  people  of  every 
land  devote  themselves  to  the  production  of  those 
forms  of  w^ealth  for  w^hich  their  country  is  best 
adapted. 

4.  The  happiest  distribution  of  those  blessings  is 
secured  by  Intercommunication  and  mutual  ex- 
changes, made  as  free  as  possible  between  all 
nations. 

Accepting  the  first  of  these  propositions  as  the 
teaching  of  Christianity,  confirmed  by  reason  and 
common  sense,  the  other  three  embody  the  first 
principles  of  Political  Economy  in  their  broad  ap- 
plication to  the  highest  welfare  of  mankind.  After 
the  lapse  of  centuries,  the  world  is  now  fast  coming 
to  act  on  the  practical  belief  of  these  simple  funda- 
mental truths.  Within  the  last  hundred  3'ears  the 
discoveries  of  science  and  the  activit}^  of  invention 
combined  have  astonished  the  world  b}^  the  new 


196  POLITICAL  ECONOMY. 

facilities  furnished  to  give  extension  and  freedom  to 
the  mutual  intercourse  and  trade  of  nations.  All 
civilized  people  hail  with  joy  the  beneficent  changes 
which  have  come  to  each  countr}^  and  to  the  world 
b}^  the  introduction  of  steam  to  give  speed  and  cer- 
tainty to  navigation,  of  the  locomotive  and  rail-car 
to  shorten  distance  as  measured  by  time,  and  of  the 
electric  telegraph,  which  annihilates  time  and  dis- 
tance, and  permits  contracts  and  all  commercial 
negotiations  to  be  adjusted  to  present  facts  in  all 
parts  of  the  world.  The  common  sense  of  men, 
expressed  by  their  instinctive,  prompt  adoption  of 
these  inventions,  pronounces  universal  freedom  of 
trade  a  common  blessing.  In  accord  with  this  prin- 
ciple, the  civilization  of  the  world  is  advancing  with 
rapid  strides. 

Until  a  comparatively^  recent  period  there  was 
nothing  which  could  properl}^  be  called  iiiternational 
trade.  We  do  indeed  read  in  historj-,  as  far  back 
as  its  records  go,  of  overland  merchantmen,  like  the 
caravan  of  Ishmaelites  to  whom  Joseph  was  sold ; 
of  cities  like  T^tc  and  Carthage,  and  some  of  the 
Greek  cities,  which  grew  rich  and  great  b}-  a  sort* 
of  world-wide  commerce  ;  and  in  the  mediaeval  time 
of  the  Italian  cities,  Venice,  Genoa,  and  others, 
whose  trade  swept  the  seas,  and  brought  in  to  indi- 
vidual merchants  and  to  the  coffers  of  the  state 
wealth  untold.  But  those  merchant- caravans  and 
fleets  of  commerce  were  mere  go-betweens  for  peo- 
ples who  stood  aloof,  in  antagonism  towards  each 
other.  These  traders  went  ever}' where,  buying 
whatever  the}'  could  at  the  cheapest,   and   selling 


INTERNATIONAL  TRADE.  197 

what  they  could  at  the  dearest,  and  took  the  chief 
advantage  to  themselves.  They  grew  rich  out  of 
their  contact  with  all,  but  they  awakened  no  com- 
mon interests  between  the  different  peoples  they 
visited.  They  left  only  the  incidental  benefit  of 
furnishing  each  with  some  things  they  did  want,  and 
carrying  away  some  things  they  did  not  want.  That 
trade  fostered  no  international  good-will,  and  gave 
rise  to  no  free  international  intercourse. 

False  doctrines  then  prevailed,  as,  that  ''  Nations 
are  natural  enemies  to  each  other ;  "  "In  trade,  one 
nation  can  gain  only  what  another  nation  has  lost ; '' 
"A  nation's  wealth  is  increased  only. as  money  is 
brought  in  and  held  fast;"  "Better  to  give  two 
dollars  which  remain  in  the  country  for  a  com- 
modity, than  only  one  dollar  which  goes  out  of  the 
country."  These  false  doctrines  led  to  the  most 
harassing  restrictions  on  all  commercial  intercourse. 
Different  trades  were  organized  as  rival  guilds,  each 
guarding  carefully  its  own  secrets,  and  eager  to 
secure  special  privileges.  Tolls  were  collected  at 
every  city's  gates  on  all  goods  brought  in.  Each 
nation  sought  to  build  up  its  own  industry  by  break- 
ing down  that  of  others.  Strange  and  absurd  laws 
were  enacted,  defining  what  things  the  people  should 
and  what  they  should  not  consume,  and  resisting  or 
distorting  all  the  natural  laws  of  trade. 

Happily,  other  and  better  views  have  now,  in 
great  measure,  supplanted  the  old  false  doctrines, 
and  the  absurd  regulations  have  for  the  most  part 
disappeared  from  the  statute-books.  One  theory, 
however,  which  originated  in  the  mediaeval  ideas 


198  POLITICAL  ECONOMY. 

of  feudal  isolation,  still  lingers  with  tenacious  hold 
on  many  minds,  and  with  power  to  sway  the  policy 
of  states,  our  own  free  Republic  especially,  against 
the  principles  of  sound  economy.  It  is  that  which 
is  known  as  the  theory  of  protection,  carried  out  in 
the  enactment  of  protective  tariflfs.  The  limits  of 
this  work  do  not  admit  of  an  extended  discussion 
of  this  theory.  We  cannot,  however,  do  less  than 
to  attempt  a  concise  statement  of  the  question  as  it 
now  agitates  the  public  mind,  in  the  light  of  those 
first  principles  of  our  science  which  we  have  been 
studying. 

The  Theory  of  Protection  distinctly  stated  is, 
that,  in  order  to  promote  home  industry,  the  im- 
portation of  certain  articles,  from  countries  where 
they  can  be  produced  cheaper  than  at  home,  should 
be  prohibited  or  restricted  by  heavy  duties. 

In  direct  opposition  to  this,  — 

The  Theory  of  Free  Trade  affirms  that  a  na- 
tion's wealth  and  prosperity  are  best  promoted  by 
maintaining  the  utmost  freedom  for  the  exchange 
of  all  commodities  among  its  own  people,  and  -with 
the  people  of  other  countries. 

The  mere  statement  of  the  principles  suggests  two 
conflicting  economic  sj^stems.  In  practical  legisla- 
tion two  corresponding  policies  have  been  in  conflict 
through  all  the  history  of  our  nation.  There  seems 
no  place  for  compromise  :  truth  and  wisdom  must  lie 
on  one  side  or  the  other. 

In  the  discussion  of  each  department  of  our  sci- 
ence, freedom  appears  as  the  natural  law  of  industry 


INTERNATIONAL  TRADE.  199 

and  trade.  But  on  the  face  of  it  the  theory  of  pro- 
tection involves  an  interference  with  freedom ;  an 
interference  which  affects  all  of  the  four  depart- 
ments,—  production,  consumption,  distribution,  and 
exchange,  though  applied  most  directly  to  the  last- 
named.  Is  it  not  plain,  then,  that  the  presumption 
is  against  the  theory  that  the  burden  of  proof  is 
laid  over  upon  its  advocates?  What  are  the  argu- 
ments urged  to  sustain  it  ?  We  can  notice  only  the 
three  most  important  and  plausible.     It  is  said,  — 

1 .  Protection  is  necessary  to  secure  that  variety  of 
industry  and  that  balance  of  different  industries 
■which  are  essential  to  a  people's  prosperity.  This 
is  the  broad  proposition  which  underlies  and  in- 
cludes all  arguments  for  the  system.  In  form  the 
argument  is  logical.  It  gives  for  a  major  premise 
the  affirmation  that  a  varied  and  balanced  industry 
is  essential  to  a  people's  prosperity.  The  minor 
premise  is  that  protection  is  a  necessary  means  to 
varied  and  balanced  industry.  If  the  premises  are 
admitted,  the  conclusion  is  sound :  a  protective  pol- 
icy must  favor  a  people's  prosperity. 

The  truth  of  the  major  premise  cannot  be  ques- 
tioned. On  the  other  hand,  it  is  worthy  to  be  pre- 
sented in  full  force,  resolved  into  several  particulars, 
as  a  kind  of  summar}^  of  economic  principles. 

a.  Every  country  has  a  great  variety  of  resources, 
and  the  development  of  all  its  resources  conduces  to 
its  greatest  wealth. 

b.  Among  the  population  of  every  country  there 
is  a  corresponding  diversity  of  native  talent,  and 


200  POLITICAL  ECONOMY. 

labor  is  most  effective  when  every  one  has  scope  for 
doing  that  for  which  he  is  best  fitted. 

C.  The  actual  wants  of  men  are  equally  diverse, 
and  the  highest  happiness  of  a  people  depends  on 
the  degree  in  which  these  varied  wants  are  provided 
for. 

d.  A  diversity  of  occupations  makes  a  home-mar- 
ket for  all  sorts  of  products,  saving  cost  of  trans- 
portation, favoring  division  of  labor,  and  binding  all 
classes  together  by  ties  of  mutual  helpfulness  and 
common  interests. 

e.  Varied  industry  favors  the  social  and  moral  ad- 
vancement of  a  people,  quickening  and  broadening 
minds,  enlarging  hearts,  and  impelling  to  noblest 
action  in  the  lines  of  rectitude  and  benevolence. 

These  statements  will  be  readily  accepted  by  all 
candid  minds.  As  bearing  on  the  question  under 
consideration,  they  need  but  a  single  qualification. 
It  does  not  follow  that  a  people  must  hasten  by  all 
means  to  develop  every  source  of  wealth  existing 
among  them,  or  maintain  at  all  hazards  every  pos- 
sible form  of  industry.  The  people  of  Barbadoes 
have  ample  facilities  for  raising  table-vegetables, 
^  but  they  have  greater  advantages  for  raising  sugar. 
Hence  it  may  be  good  policy  for  them  to  produce 
mainly  sugar,  and  get  the  other  provisions  from 
other  countries,  where  the  cost  of  raising  them  is 
greater,  perhaps,  than  it  would  be  on  their  own  soil. 
Man}^  such  cases  do  exist,  but  they  are  exceptions 
which  prove  the  rule. 

The  real  issue  is  joined  on  the  second  or  minor 
premise,  — protection  is  necessary  to  secure  diversi- 


INTERNATIONAL  TRADE.  201 

fled  industry.  This  proposition  is  met  by  a  flat 
denial,  and  the  positive  affirmation  that  there  is  a 
better  and  surer  way  of  reaching  that  result.  Where 
no  interference  or  obstruction  is  allowed,  there  comes 
a  spontaneous  development  which  is  safe  and  con- 
stant, because  it  is  in  accordance  with  nature's  law. 
This  thought  may  be  unfolded  in  a  few  distinct,  yet 
connected,  propositions. 

a.  There  is  a  natural  growth  of  human  industry, 
the  laws  of  which  are  as  fixed  and  certain  as  those 
which  pertain  to  the  growth  of  a  tree. 

6.  Free  competition  is  the  healthy  stimulus  to  that 
growth. 

c.  Under  the  natural  law  of  development,  industry 
will  be  applied  to  the  several  native  resources  of  a 
country  as  fast  as  the  increase  of  labor  and  capital 
will  warrant. 

d.  Men's  instinct  for  accumulation,  following  di- 
verse individual  capacities,  tastes,  and  predilections, 
is  the  safest  guide  to  determine  the  order  in  which 
labor  and  capital  shall  be  applied  to  those  various 
resources.  Under  it,  whatever  promises  a  profit  will 
be  undertaken  as  soon  as  it  can  be  without  sacrifi- 
cing a  greater  profit  elsew^here. 

e.  The  attempt  to  force  labor  and  capital  into 
certain  employments  before  their  time  deranges  the 
order  of  nature,  and  produces  re-actions  which  hinder 
the  desired  result. 

/.  At  any  stage  of  this  development,  if  exchange 
is  free,  foreign  products  are  purchased  w^ith  the  fruits 
of  a  people's  most  effective  labor,  that  is,  with  those 
articles  which  they  can  then  produce  to  the  best 


202  POLITICAL  ECONOMY. 

advantage  ;  which  they  can  best  afford  to  part  with, 
because  they  are  obtained  at  the  least  cost.  By  all 
such  advantageous  trade,  capital,  the  prime  element 
of  varied  industry,  is  increased,  and  labor  is  sus- 
tained. 

g.  When,  by  this  natural  progress,  a  people  come 
to  take  up  a  new  industr}'^  for  which  they  have  nat- 
ural advantages  and  God-given  capacity,  no  foreign 
competition  can  crush  it;  for,  even  in  its  infancy,  it 
is  charged  with  the  nation's  hfe  and  strength. 

h.  An  industry  which  is  not  indigenous,  which 
has  no  natural  advantages,  or  which  is  prematurely 
set  up  and  fostered  by  artificial  means,  can  have 
only  a  sickly,  uncertain  life,  and  is  supported  at  a 
wasteful  expenditure  of  a  nation's  resources. 

The  strong  reason  urged  on  the  other  side  to  prove 
that  protection  is  necessary  is  thus  presented  :  — 

**  Foreign  competition  crushes  out  the  home  pro- 
duction of  all  but  the  rudest  and  coarsest  articles 
of  manufacture,  and  prevents  the  estabhshment  of 
a  varied  industry,  unless  the  government  interfere, 
as  the  personification  of  the  nation  and  its  co-ordi- 
nating power,  to  restore  the  equilibrium  by  discour- 
aging imports." 

If  the  question  is  raised,  how  foreign  competition 
is  able  to  do  this,  the  answer  must  be  that  the  for- 
eign COUntr}^  has  either  superior  natural  resources, 
or  more  abundant  capital,  or  laborers  in  greater 
numbers,  and  better  skilled  for  the  work  to  be  done, 
or  possibly  all  these  advantages  combined.  If  this 
be  so,  it  may  be  asked  again,  how  can  government 
interference,  discouraging  imports,   counterbalance 


INTERNATIONAL  TRADE.  20S 

these  advantages  ?  It  is  quite  evident  that  protec- 
tion cannot  add  to  the  natural  resources  of  a  coun- 
try. It  can  never  give  to  France  the  coal-fields  of 
England,  nor  bring  to  the  prairies  of  Illinois  the 
water-powers  of  New  England,  nor  secure  to  Ger- 
many the  cotton-raising  facilities  of  our  Southern 
States.  Obviously  a  protective  tariff  cannot  create 
capital.  Capital  springs  and  grows  only  by  industry 
and  frugality.  It  is  the  fruit  of  saving.  And  cer- 
tainly legislation  has  no  power  to  create  men,  or 
endow  them  with  skill.  Population  increases  both 
by  births  and  by  immigration,  according  to  the 
abundance  of  the  necessaries  of  life  which  are  fur- 
nished ;  and  a  people  grow  in  skill  as  they  grow  in 
intelligence,  and  bring  their  faculties  into  active 
exercise. 

All  that  protection  can  do  is  to  concentrate  capi- 
tal and  labor  on  one  employment,  and  for  this  it 
lays  a  special  burden  on  all  others  for  the  benefit 
of  the  favored  occupation.  The  advocates  of  this 
policy  keep  out  of  sight  the  fact  that  it  can  do  noth- 
ing more  than  to  change  the  direction  of  capital  and 
labor,  and  that  the  duty  is  a  tax  laid  upon  the  many 
for  the  benefit  of  a  few.  When  articles  of  foreign 
production  are  imported,  they  are  to  be  paid  for  by 
the  products  of  home-labor  and  capital;  and  the 
question  of  economy  is.  Which  is  the  cheapest? 
Which  will  bring  the  largest  returns  for  a  certain 
amount  of  labor,  —  to  make  these  articles  ourselves, 
or  to  make  something  else  with  which  to  bu}'  them? 
Left  free  from  government  interference,  home  labor 
and  capital  will  lay  hold  of  whatever  natural  re- 


204  POLITICAL  ECONOMY. 

sources  a  country  possesses,  and,  with  reference  to 
both  home  wants  and  foreign  wants,  produce  the 
thino-s  most  feasible  and  desirable  at  the  cheapest 
possible  rates.  The  surplus  of  these  products  w^ill 
pay  for  the  foreign  goods.  Capital  will  be  increased 
by  both  the  productive  industry  and  the  trade  ;  and, 
as  a  people  grow  strong  in  capital  and  in  men,  it  is 
not  possible  for  foreign  competition  to  restrict  their 
industry,  or  to  prevent  their  taking  up  all  the  variety 
of  industry  which  their  needs  require,  and  the  facili- 
ties of  their  country  favor.  Competition,  free  and 
fair,  is  ever  the  strongest  and  healthiest  stimulus 
of  both  productive  industry  and  wide-spread  active 
trade. 

2.  It  is  strongly  urged  that  protection  is  a  neces- 
sary means   of   maintaining    national  independence. 

This  is  a  specious  argument,  because  the  phrase 
"national  independence''  has  a  patriotic  ring,  to 
which  the  popular  ear  and  the  popular  heart  are 
peculiarly  sensitive.  But,  as  it  stands  in  the  propo- 
sition before  us,  it  simply  covers  a  subtle  sophistry. 
For  individuals  and  for  nations  there  are  two 
kinds  of  independence.  One  may  withdraw  from 
his  fellow-men  to  a  cave  in  the  wilderness,  and  thus 
keep  himself  alive,  and  possibly  find  interest  and 
enjoyment  in  a  hermit-life.  He  may  glory  in  his 
independence.  But  is  there  any  thing  noble  in  such 
isolation?  Is  it  the  way  for  a  man  to  make  the 
most  of  himself?  The  independence  of  genuine 
manhood  is  of  another  sort.  It  is  individuality  of 
capacities,  acquisitions,  and  character,  which  is  able 


INTERNATIONAL  TRADE.  205 

to  stand  on  its  own  basis  in  full  and  free  relations 
with  fellow-men.  It  is,  in  tlie  midst  of  society,  a 
distinct  personality,  giving  and  receiving,  support- 
ing and  supported,  blessing  and  blessed,  through 
the  varied  intercourse  which  nature  prompts,  and  by 
which  the  completest  development  of  the  man  and 
of  the  race  is  advanced.  So  of  nations,  there  is  an 
independence  of  isolation,  such  as  China  and  Japan 
until  recently  maintained.  But  that  independence 
which  is  the  strength  and  glory  of  a  nation  is  of 
another  kind.  It  is  an  individuality  of  national 
resources  and  character  which  stands  up  in  the  full 
brotherhood  of  nations,  and  in  the  consciousness  of 
its  own  strength  enters  into  all  offices  of  mutual 
dependence  through  which  nations  grow,  and  civili- 
zation makes  progress. 

The  policy  of  protection  fosters  the  narrower  kind 
of  independence.  It  is  a  restrictive  policy.  Carried 
out  to  its  logical  conclusion,  it  leads  to  isolation. 
The  sophistry  referred  to  consists  in  the  conceal- 
ment of  this  fact,  w^hile  the  term  "  national  inde- 
pendence "  is  put  forth  in  its  broader,  nobler  sense. 

In  an  economic  i)oint  of  view,  the  real  independ- 
ence of  a  nation  is  commercial  independence.  That 
means,  not  that  it  does  not  need  or  will  not  have  the 
productions  of  other  nations,  but  that  it  is  able  to 
command  them.  The  basis  of  such  independence 
is  the  home-production  of  wealth.  The  way  to 
increase  wealth  is  to  use  to  the  best  possible  advan- 
tage the  gifts  of  nature,  and  then,  in  the  world's 
great  mart,  sell  where  things  can  be  sold  on  the 
best  terms,  and  buy  where  things  can  be  bought  on 


206  POLITICAL  ECONOMY. 

the  best  terms.  The  nation  is  strongest  and  most 
complete  in  her  independence,  which  can  open  most 
freel}^  every  avenue  for  the  wealth  of  the  world  to 
flow  in  upon  her,  because,  as  the  fruit  of  her  own 
vital  energies,  freely  exerted,  she  has  wealth  in 
abundance  to  give  a  fair  equivalent. 

A  nation  comes  to  this  full  maturity  b}^  a  steady 
natural  growth,  just  as  a  child  comes  to  full  man- 
hood. In  both  cases  freedom  is  the  law  of  growth. 
Fair  competition  helps  a  nation's  growth  both  in 
general  wealth  and  in  particular  industries,  just  as 
the  wrestling  of  a  boy  with  one  older  and  stronger 
than  himself  helps  to  develop  in  him  particular 
muscles,  and  the  pluck  and  vigor  of  a  whole  man- 
hood. When  at  times  worsted  and  thrown,  the 
boy  may  rise  and  say,  ''You  beat  me  now,  but  I 
don*t  give  up  the  contest.  Let  me  get  my  growth, 
and  I'll  show  you  what  I  can  do."  The  effort  by 
protection  to  hasten  a  nation's  independence  is  like 
binding  an  infant's  limbs  in  splints,  that  he  may 
sooner  stand  alone.  The  artificial  appliance  may 
develop  prematurely  a  single  function,  but  it  is  at  a 
wasteful  expense  of  general  vigor,  and  is  quite  sure 
to  induce  chronic  weakness  and  deformity. 

3.  The  advantages  of  a  home  market  for  agri- 
cultural products  are  often  urged  in  favor  of  the 
protective  system.  It  is  certainly  an  advantage  to 
a  farmer  to  find,  in  a  manufacturing  village  near,  a 
market  for  his  produce.  But,  if  this  market  is  made 
and  sustained  for  him  by  a  protective  tariff,  he  must 
pay  for  tools,  for  salt,  for  dry-goods,  for  many  of 


INTEKNATIONAL  TRADE.  207 

the  manufactured  articles  he  needs,  from  twenty  to 
fifty  per  cent  more  than  they  would  cost  under  the 
rule  of  free  trade.  This  adds  to  the  cost  of  pro- 
ducing his  crops,  and  offsets  what  he  may  save  in 
the  expense  of  transportation  to  the  distant  com- 
mercial city. 

But  here,  as  in  the  first  case,  we  take  issue  directly 
on  the  main  point.  The  assumption  that  protection 
creates  the  home-market  is  a  fallacy.  These  centres 
of  varied  industry  grow  up  naturally  and  healthily 
with  the  increase  of  population  and  wealth.  Me- 
chanical genius,  the  investigating  turn  of  mind,  the 
energy  of  will-power,  managing  capacity,  —  these 
qualities  come  not  of  protective  tariffs.  They  are 
the  gifts  of  God  to  men.  Left  to  themselves,  and 
stimulated  by  competition,  they  spontaneously  lay 
hold  on  all  gifts  of  God  in  nature,  and,  using  all 
available  capital,  set  up  the  workshops  of  industrj', 
wherever  best  opportunities  are  presented. 

Furthermore,  the  term  "  home  market,"  in  this 
discussion,  has  force  only  as  it  implies  the  produc- 
tion at  home  of  all  manufactures  wanted,  and  the 
consumption  at  home  of  all  agricultural  produce 
raised, —  a  condition  of  things  attainable,  if  at  all, 
only  after  the  lapse  of  centuries.  Meantime  a 
people  must  buy  the  things  they  cannot  produce, 
by  selling  the  surplus  of  that  which  they  can  pro- 
duce. For  a  long  time  to  come  this  countr}^  will 
have  a  large  surplus  of  breadstuffs,  cotton,  petro- 
leum, silver  and  gold,  to  dispose  of.  We  can  sell  to 
others  onl}^  as  we  give  others  a  fair  chance  to  sell 
to  us.     Domestic  commerce  and  foreign  commerce 


208  POLITICAL  ECONOMY. 

are  necessarily^  interlocked.  The  prices  of  agricul- 
tural products  in  our  home  markets  are  determined 
by  the  prices  in  markets  abroad.  Where  trade  is 
freest,  the  prices  will,  on  the  average,  be  the  best. 
Hence  free  trade  is  the  essential  condition  of  a 
sound  and  healthy  home  market.  Of  all  classes, 
those  devoted  to  agriculture  bear  the  heaviest  share 
of  the  burden  laid  by  the  protective  tariff,  while 
they  reap  no  direct  benefit  from  it. 

There  are  positive  objections  to  the  system  of 
protection,  which  may  be  conciselj'  stated  as  fol- 
lows :  — 

1.  Protection  introduces  and  fosters  antagonism 
between  the  different  industries  of  a  country.  The 
idea  of  giving  protection  to  every  branch  of  indus- 
try is  absurd.  The  theory  implies  special  encour- 
agement to  certain  manufactures  b}^  taxing  all  other 
interests  in  their  behalf.  The  duty  which  protects  the 
woollen-manufacture  increases  the  cost  of  the  wool- 
grower's  clothing,  while  the  competition  of  cheap 
wools  from  abroad  keeps  down  the  price  of  his 
product.  A  tariff  on  the  foreign  wools  will  enhance 
the  cost  of  material  to  the  manufacturer.  So  two 
parties  whose  interests  are  really  one  are  set  against 
each  other. 

2.  The  unnatural  stimulus  given  by  protective 
legislation  leads  to  over-production,  and  consequent 
stagnation  and  failure.  The  first  effect  of  a  high 
dut}^  is  to  raise  prices,  and  increase  the  profits  of 
the  protected  industry.  This  causes  a  rush  into  that 
branch  of  production,  till  it  is  quickly  overdone,  and 
a  disastrous  re-action  comes. 


INTERNATIONAL  TRADE.  209 

8.  Prot^tion  diminishes  the  legitimate  revenues 
of  the  state,  at  the  same  time  that  it  lays  a  heavy 
tax  on  the  people.  Just  so  far  as  the  tariff  is  pro- 
tective in  its  operation,  it  reduces  the  imposts  from 
which  the  government  gets  its  income  ;  yet,  just  so 
far  as  prices  of  the  protected  article  in  the  market 
are  enhanced  by  the  tariff,  all  consumers  pay  a 
special  tax  for  the  benefit  of  the  favored  producer. 

4.  In  its  application,  the  policy  of  protection  must 
be  unstable,  disturbing  the  course  of  industry  by 
frequent  changes.  This  follows  inevitably  from  the 
conflict  of  interests  just  referred  to.  When  the 
duty  on  iron  is  high,  all  who  use  iron  as  the  mate- 
rial of  their  industry  clamor  against  it.  So  new 
candidates  for  the  special  favor  press  their  suit  for 
a  change  of  the  tariff  in  their  interest.  With  every 
session  of  Congress  movements  are  made  for  some 
change  of  the  tariff.  A  protective  tariff  can  never 
be  made  fair  and  equal  to  all ;  for  its  fundamental 
principle  is  an  unjust  favoritism,  against  which  those 
not  favored  instinctively  protest  and  contend. 

5.  Protection  tends  to  demoralize  our  national 
legislation.  The  lobby  of  the  Capitol  is  thronged 
with  representatives  of  certain  manufactures,  seek- 
ing to  obtain  or  to  perpetuate  special  protection. 
Money  is  freely  used,  and  bargains  are  made  to 
combine  the  friends  of  separate  measures,  when 
votes  are  given.  Proposed  acts  come  thus  to  be 
judged  of  not  by  their  real  merits,  but  by  their 
relation  to  personal  interests. 

6.  Protection  tends  to  corrupt  the  public  morals 
and  the  public  service.     It  offers  strong  temptations 


210  POLITICAL  ECONOMY. 

to  the  violation  of  law  by  smuggling.  The  resist- 
ance of  men's'  consciences  to  this  temptation  is 
slight,  because  the  tariff-law  rests  on  no  ground  of 
absolute  right.  The  nice  sense  of  honor  and  right 
is  deadened ;  and  the  making  of  false  invoices,  the 
swearing  of  false  oaths,  and  direct  bribery  at  the 
custom-house,  are  regarded  as  venial  sins.  Officials 
of  the  government  come  into,  collusion  and  partner- 
ship with  these  crimes,  and  betray  the  sacred  public 
trusts  with  which  they  are  charged. 

Until  within  the  last  half-century,  the  protective 
policy  has  ruled  the  industry  and  trade  of  the  world, 
with  only  here  and  there  an  exception,  like  Holland 
in  her  best  days.  Free  trade  has  had  scarcely  a 
chance  to  try  its  experiment.  Its  principles  are, 
however,  illustrated  and  sustained  in  the  hundred 
years'  history  of  our  nation's  independent  life.  The 
States  of  our  republic,  in  their  extent  of  territory, 
their  diversity  of  resources,  the  varied  races  and 
endowments  of  their  people,  and  their  distinctive 
interests,  constitute  a  world  by  themselves.  For- 
tunately our  Constitution  forever  forbids  the  pro- 
tective policy  to  restrict  their  trade  with  each  other. 
Here  is  a  broad  arena  for  the  experiment  of  free 
trade.  For  nearly  forty  years  the  writer  has  watched 
the  course  of  that  experiment  in  the  unfolding 
growth  of  a  young  Western  State.  Her  chief  in- 
dustry was  at  the  first,  and  must  long  continue  to 
be,  agriculture.  But  as  population  poured  into  the 
prairies  and  groves,  and  agriculture  yielded  a  sur- 
plus of  home  capital,  and  a  basis  of  credit  was  laid 


IKTERNATIONAL  TRADE.  211 

for  the  introduction  of  Eastern  capital,  every  kind 
of  industry  suited  to  her  climate  and  conditions  has 
been  successfully  established.  Her  mines  have  been 
worked,  her  water-powers  have  been  utilized,  villages 
and  cities  have  sprung  up  suddenly,  and  the  diverse 
genius  and  taste  of  her  sons  have  found  ample  scope 
and  stimulus  for  profitable  exercise.  According  to 
the  theory  of  protection,  the  competition  of  New- 
England  manufactures,  brought  in  freely  by  the 
best  facilities  for  cheap  and  rapid  transportation, 
should  have  "  crushed  out  the  home  production  of 
all  but  the  rudest  and  coarsest  articles  of  manufac- 
ture." But  the  facts  are  all  against  the  theory. 
Woollen-factories,  cotton-factories,  shoe-factories, 
iron- works,  machine-shops,  paper-mills,  establish- 
ments for  making  agricultural  implements,  all  have 
been  set  up  and  carried  on  with  a  success  that 
promises  to  be  abiding  and  expanding.  This  result 
of  a  brief  but  fair  experiment  of  the  principle  of 
free  trade  confirms  every  phase-  of  that  doctrine, 
and  shows  that  what  is  philosophically  sound  and 
true  is  also  practically  safe  and  wise. 

The  Golden  Rule  of  Christ  is  full  of  wisdom  and 
righteousness  in  its  application  to  the  intercourse  of 
nations.  We  cherish  the  fond  hope  that  the  day 
is  not  distant  when  the  nations  will  conform  their 
policies  to  the  rule,  and  "  do  each  to  others  as  they 
would  have  others  do  to  them."  Then  the  theory 
of  protection,  with  its  false  ideas  of  antagonism  and 
selfish  isolation,  will  have  no  place ;  but,  instead, 
the  brotherhood  of  nations  as  well  as  of  individual 


212  POLITICAL  ECONOMY. 

men  will  be  recognized,  and  the  broad  philanthropy 
which  Christianity  inculcates,  and  aims  to  make  uni- 
versal, will  have  free  scope  to  work  out  the  world's 
emancipation  from  all  wrong  and  evil.  In  such  a 
state  the  first  principles  of  sound  Political  Economy 
will  find  their  consummate  application. 

EXERCISES. 

1.  Illustrate  the  effects  of  steam  applied  to  navigation 
on  the  commerce  of  the  world. 

2.  What  benefits  have  accrued  therefrom  ? 

3.  What  effect  had  the  opening  of  the  Erie  Canal  on  the 
condition  of  the  early  settlers  of  Western  New  York,  as 
respects  the  wheat  they  raised  ?  as  respects  the  goods  they 
needed  ? 

4.  Did  that  improvement  help,  or  hinder,  the  increase 
of  their  wealth  ?  Did  it  hasten,  or  delay,  the  introduction  of 
manufactures  in  the  region  ? 

5.  If  it  is  expedient  to  restrict  the  importation  of  goods 
from  abroad,  why  should  so  much  expense  be  laid  out  in 
removing  obstructions  to  free  communication  ? 

6.  How  is  the  department  of  production  affected  by  the 
policy  of  protection  ? 

7.  How  does  it  affect  consumption  ? 

8.  How  does  it  affect  distribution  ? 

9.  How  does  it  affect  exchange  ? 

10.  Explain  the  difference  between  a  revenue  tariff  and 
a  protective  tariff. 

11.  Show  how  a  tariff  of  forty  per  cent  on  iron  will  tax 
the  farmers. 

12.  Will  such  a  tariff  yield  much  revenue  to  the  govern- 
ment ?    Who  gets  the  benefit  of  the  tax  ? 

13.  How  and  when  is  it  expected  that  the  farmers  will 
get  an  indirect  benefit  from  the  tariff  ? 

14.  If  a  farmer  can  buy  a  suit  made  in  England  for  ten 
bushels  of  wheat,  is  there  any  justice  in  compelling  him  to 
pay  fifteen  bushels  for  a  suit  of  American  manufacture  ? 


INTERNATIONAL  TRADE.  213 

15.  If  the  tariff  excludes  a  great  part  of  English  manu- 
factures, can  we  expect  the  English  to  buy  freely  our  corn 
and  pork  ?  If  we  expect  to  sell  to  a  foreign  country,  must 
we  not  also  buy  of  them  ? 

16.  If  capital  is  accumulated  by  agricultural  industry,  and 
labor  grows  abundant,  is  any  artificial  means  needed  to  turn 
it  to  the  setting-up  of  manufactures  ? 

17.  While  capital  and  labor  applied  to  farming  are  yield- 
ing satisfactory  returns,  is  it  expedient  to  turn  them  to 
some  other  employment  not  so  profitable  ? 

18.  Is  Robinson  Crusoe's  independence  a  thing  to  be 
desired  ? 

19.  Does  Chinese  isolation,  as  it  was,  meet  your  ideal  of 
national  prosperity  ? 

20.  Explain  how  a  high  tariff  tends  to  over-production  in 
the  industries  protected. 

21.  Why  might  not  a  tariff  be  adjusted  to  favor  all 
branches  of  industry  alike  ? 

22.  Can  you  tell  any  thing  about  corruption  in  the  custom- 
house in  New  York  ? 

23.  How  would  a  low  rate  of  duties,  uniform  on  all  im- 
ported goods,  relieve  that  corruption  ? 

24.  Has  any  protective  tariff  in  our  country  been  allowed 
to  continue  long  without  changes  ? 

25.  Can  you  tell  how  the  iron  interest  in  our  country  has 
been  affected  by  such  frequent  changes  of  the  tariff  ?, 


OLNEY'S  SERIES  OF  MATHEMATICS. 

Olney's  Priinai^y  Arithmetic  Illustrated 

Olney^s  Elements  of  Arithmetic  Illustrated,,. 

Olney^s  Practical  Arithmetic 

Olfiey^s  Science  of  Arithmetic 

Olney^s  Introduction  to  Algebra 

Olney^s  Complete  Algebra 

Olney^s  Book  of  Test  Examples  in  Algebra. . . 

Olney^s   University  Algebra 

Olney^s  Elements  Geom»  c€-  Trigonom.  (Scli.  Ed.) 

Olney^s  Elements  of  Geometry,    Separate 

Olney^s  Elements  of  Trigonometry,     Separate. . 

Olney^s  Elements  of  Geometry  and  Trigonom-         • 
etry,     (Univ.  Ed.,  with  Tables  of  Logarithms.) 

Olney^s  Elements  of  Geometry  and  Trigonom- 
etry,   (University  Edition,  without  Tables.) 

Olney^s  General  Geometry  and  Calculus 

The  universal  favor  with  which  these  books  have  been  received 
by  educators  in  all  parts  of  the  country,  leads  the  publishers  to 
think  that  they  have  supplied  a  felt  want  in  our  educational  ap- 
pliances. 

There  is  one  feature  which  characterizes  this  series,  so  unique, 
and  yet  so  eminently  practical,  that  we  feel  desirous  of  calling 
special  attention  to  it.     It  is 

The  facility  with  which  the  books  can  be  used  for  classes  of 

all  grades,  and  In  schools  of  the  widest 

diversity  of  purpose. 

Each  volume  in  the  series  is  so  constructed  that  it  may  be  used 
with  equal  ease  by  the  youngest  and  least  disciplined  who  should 
be  pursuing  its  theme,  and  by  those  who  in  more  mature  years 
and  with  more  ample  i)reparation  enter  upon  the  study. 


Sheldo7i  S  Compa7iys  Text-^Books, 


PHYSIOLOG-IES. 

Hooker^ s  First  Book  in  Physiology.  For  Public  Schools. 

Hooker^s   Neiv  JPJiysiology.    Revised,  corrected,  and  put 

into  the  most  perfect  form  for  text-book  use.     By  J.  A.  Sewall, 

M.  D.,  of  the  Illinois  State  Normal  University. 

A  few  of  the  excellencies  of  these  books,  of  which  teachers  and  others  have 

spoken,  are :  1st.  Their  clearness,  both  in  statement  and  description.    2d.  The 

skill  with  which  the  interesting  points  of  the  subject  are  brought  out.    3d.  The 

exclusion  of  all  useless  matter ;  other  books  on  this  subject  having  much  in 

them  which  is  useful  only  to  medical  students.    4th.  The  exclusion,  so  far  as 

is  possible,  of  strictly  technical  terms.    5th.  The  adaptation  of  each  book  to 

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THE  UNIVERSITY  OF  CALIFORNIA  LIBRARY 

plied  in  a  great  variety  or  examples  m  every-aay  me,  lur  piauucu  m  i^kjkjs^- 
kecping, 

Faliner^s  Blanks  to  do.    (5  numbers). 

Palmer's   Practical   Book-Keeping*     By   Joseph   n. 

Palmer,  A.M.,  Instructor  in  New  York  Free  Academy.    12mo. 

167  pages. 
Blanks  to  do.  (Journal  and  Ledger), 
iK^cy  to  do.