The Science of Wealth: A Manual of Political Economy [Fifth ed.]

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THE

SCIENCE OF WEALTH A MANUAL OF POLITICAL ECONOMY.

EMBRACING

THE LAWS OF TRADE, CURRENCY,

AND FINANCE.

By

AM ASA WALKER,

LECTURER ON PUBLIC ECONOMY

IN

LL.D.,

AMHERST COLLEGE.

FIFTH EDITION REVISED.

LITTLE,

BOSTON BROWN, AND COMPANY. 1869.

Entered, according to Act of Congress, in the year 1866, by

A In the Clerk

:

s Office

MAS A WALKER,

of the District Court of the District of Massachusetts.

CAMBRIDGE

:

STEREOTYPED AND PRINTED BY JOHN WILSON AND SOS.

;

PREFACE TO THE FIFTH EDITION.

In preparing the present edition of the Science of Wealth has endeavored to correct all and otherwise, that have been discov-

for the press, the author errors, typographical

and has inserted, at page 237, an original section on " The Development of the National Banking System.'' When the first edition of this work was published, in 1866, ered,

the National Banks had but just

commenced

and the system was an untried experiment. it

has been greatly enlarged

:

its full

dred millions has been issued

throughout

all

its

ity,

owing

circulation of three hunits

operations extended

such facts and

seemed

It

desira-

statistics as

would

character and effects, both as affording a profita-

ble investment,

country.

and

the States of the Union.

ble, therefore, to present

exhibit

;

their career

Since that time,

and as

affecting the general interests of the

This has been necessarily done with great brevto the limited

space at

No

command.

our country's history has been so instructive

upon

period in all

ques-

tions appertaining to economic science as the present decade.

Four years of war upon the largest

four years more of peace

;

scale,

value by the legal-tender act of Congress

mium on

and nearly

the suspension of the laws of ;

the high pre-

gold occasioned by the redundancy of the cur-

P

IV

It

E V A

('

B.

rency, and the discredit of the government arising from the

uncertainty of a favorable

issue

to

the contest

;

the de-

rangement of the national industry, first by the outbreak of war, and then by the return of peace; the creation of an immense national debt, and the establishment of a system of taxation of corresponding magnitude, all these, in

—

and multiplied phenomena, have been exhibited upon a scale more stupendous than ever known before in this or any other country. their various

Economy but has

Scarcely a principle of Political

a striking elucidation in our recent national

Many

received

experience.

questions, once in dispute, have been settled beyond

controversy.

That prices depend, other things equal, on that the wages of labor

the quantity of currency in use

;

neither rise as rapidly or as high as commodities, that rise

medium

is ;

when

occasioned by an expansion of the circulating

that

gold,

standard of value,

—

when demonetized, ceases and many analogous

these,

to be

the

questions,

have been illustrated by the financial operations of the gov-

ernment in such a manner that there

is

now no longer

occasion for a difference of opinion.

But much is yet to be learned from the events of the The government and the banks must, sooner or later, resume specie payments. To accomplish this, contraction must be carried to such an extent as to bring the currency down to its natural volume. As a consequence, prices must fall to their normal rates. All this will cause future.

as great changes, reversed in their effects, as followed the

expansion of 1863-4, and while not a dollar of property will be destroyed, or the

diminished,

all

wealth of the nation be at

all

commodities must be reduced to their actual

worth in the commerce of the world.

This will bring the

industry of the country into a healthy condition, and give to the laboring classes a large addition to their incomes,

computed in those things upon which they

when

subsist.

This restoration of the standard of value

will

terminate

PEEK A C E. all

dispute as to the

manner

in

V

which the bonds of the gov-

be paid, since there will then be but

ernment

shall

currency

for the rich

and the poor, the

laborer, the bondholder

and the taxpayer.

low rate of

will then be able to consolidate its debt at a interest, either

with or without

nicipal taxation, as

it

shall

troversies will thus be

liability to State

deem

ended

:

and mu-

All financial con-

best.

the industry of the nation,

having a sound standard by which to measure will enter with full

one

and the The government

capitalist

products,

its

advantage into the universal competition

of trade.

All this must follow from resumption, yet

it

cannot be

accomplished without inconvenience and loss to those con-

That cannot

nected with the business affairs of the nation. be helped.

It is the inevitable

consequence of such a con-

travention of the laws of wealth as the passage of an act

making the promises

of the government a legal tender

necessarily occasion in

the final result

;

must

yet every day's

delay enhances the difficulty, and increases the demoralization inseparable

from the existence of a

false

measure of

value.

The labor movement, which scarcely attracted attention when this work was first issued, has grown to most formiWorking-men have met in numerous dable dimensions. conventions throughout Europe and this country, and

dis-

cussed with great earnestness the various questions connected with their peculiar interests and relations.

It is a

matter of sincere congratulation that the tone of these conventions, at

first

violent

and unreasonable, has gradually

become more consonant with the true interests of both capital

and

labor.

The

utility of strikes is

vocated, and the use of coercive measures

no longer adis

condemned

;

while the expediency of co-operation for purposes of trade

and industry

is

being more and more insisted upon and

practically adopted.

The trade

of the country, so sadly interrupted by the

P R

VI

i:

F A C E.

events of the last seven years,

demands the

early attention

Seldom has the mercantile marine of any largely reduced, or its commerce more more nation been

of Congress.

generally deranged than that of the United States by the devastations of war and the contemporaneous acts of the

Heavy and

law-making power.

indiscreet taxation, joined

with the paralyzing effects of a greatly depreciated currency, have nearly put an end to ship-building, once a thriv-

ing and important branch of industry

;

while the onerous,

discriminating duties placed upon foreign merchandise has greatly diminished the trade

and lessened the prosperity of

the nation.

In view of the facts

appear probable

we have enumerated,

that the questions

Taxation, and

Wages

will

many years Economy is

come.

Indeed,

all

to

lose if

it

does not

of Currency, Trade,

any of their interest

we judge

likely to be studied with greater interest

classes of citizens in the future than

for

aright, Political

it

by

has been in

the past. A.

North Brookfleld,

Mass., November, 1868.

W.

PREFACE.

In the preparation of the following work, hope, while furnishing a

Manual of

which should present clearly and principles of the

analysis

science, to

has been

my

Economy,

Political

intelligibly the leading

afford

and description of the

it

a

full

and thorough

different currencies

used in

the Commerce of the world, especially to exhibit the nature

and

effects

mixed-currency system of the United

of the

States.

Regarding the instruments of exchange as

essential, not

only to the largest production, but to an equitable distribution felt

and advantageous consumption, of wealth, that a

I

have long

work was needed which should give more promi-

nence to the subject of money and currency than heretofore received.

I

it

has

have searched in vain for any work

on Political Economy, domestic or foreign, which

even

attempted such a complete view of the monetary question, in all its

bearings, as

it

appears to

me

to

demand.

Especially

does such a work seem to be called for at the present time,

when

there are

more

conflicting views

and wider

differences

PREPACK.

Vlll

among

of opinion subject,

professors of economic science on this

and more popular ignorance and misconception,

than on any other.

To

pass lightly over a matter so impor-

tant, so interwoven with all the great interests of society,

has seemed

me

to

a great

wrong

who, as scholars,

to those

are expected to prepare themselves for active duties and responsible positions, and, as citizens, are to decide by their votes the financial policy of the country.

In 1857, I endeavored, in a series of articles upon Political

Economy, in the (New York) " Merchants' Magazine,"

show the nature and practical influence

as

I

same

mixed currency, and

first

to its

This, so far

These

attempt of the kind.

connection with other matter appertaining to the

subject,

of that year.* cal

of

upon trade and industry.

know, was the

articles, in

effects

were published in pamphlet form in December In 1859, a small but excellent work on

Economy appeared, from

Politi-

the pen of Professor Bascom,

of Williams College, presenting the currency question with

great correctness, but with such brevity as not, in fully to

year,

meet the wants of the

and since

this

public.

work has been mostly

It is a

view,

in manuscript, a

manual has been published by Professor Perry, liams College.

my

Within the present

work of great merit

;

also of Wil-

the chapter on

Foreign Traple being the most able essay upon that subject

which has

fallen

sound views

in

under

my

observation.

regard to currency, and a more extended

discussion than any that has preceded give so full analysis as I

seems to

me

The work contains

it

;

yet

it

does not

had already prepared, such

one work, at least, should contain.

* Walker on Money and Mixed Currency, 83

pp.

as

it

PREFACE. And

here I would recognize the earnest and efficient

labors of William

1841-2 "

in

ix

M. Gouge, of Philadelphia, who published

A Journal

of Banking," and subsequently "

A

Short History of Paper Money," in both of which he presented an immense array of facts, calculated to

awaken

statistics,

He was

inquiry.

and arguments,

the pioneer in the

great work of calling public attention to the effects of such

a substitute for this

money

;

and his labors are appreciated

country and Europe, by those acquainted with

in

his

writings.

Nor would

I fail to

acknowledge the valuable services

rendered to this department of the science by a profound student and able writer in our public journals, over the

sig-

nature of " Bullionist," whose untiring efforts have done very much, to diffuse correct ideas in regard to the nature of

money and currency. I

presume many persons

will feel that a larger space

been given to currency than properly belongs I

can only reply, that nothing

is

to

inserted not

it.

To

deemed

has this rele-

vant and essential to a complete understanding of the question at issue, in

all its relations.

Statistics, facts,

and

diagrams have been introduced to substantiate the principles announced, It

may

and impress

be thought, that too

their truthfulness.

many and

too minute details

have been given in regard to trade and business experience has shown me, that

we cannot

affairs

safely

;

but

assume

that the students of a college, or the masses of the people,

are so well informed in regard to these matters as to

make

such explanations and illustrations unnecessary.

Another motive that has influenced

my mind

in

the

;

PREFACE.

X

preparation of this volume has been the desire to produce

a work especially accessible and useful to business men,

merchants, manufacturers, &c.

They have a deep and

immediate personal interest in

economical questions, and

need particularly to be

all

informed of the character of

fully

that instrumentality by which exchanges obligations

discharged.

responsibilities

They

and hazards of

are

are

made, and

not prepared for the

their several callings, unless

they fully comprehend the causes which operate to increase or depress trade, to assure or endanger credit, to expand or contract currency.

Economy may be considered

Political

as emphatically a business science.

But, while a knowledge of the laws of wealth desirable it

and useful

for particular classes

is

especially

and professions,

obvious that the masses of the people should have an

is

intelligent understanding of its principles.

where suffrage

universal, every

man

is

virtually a law-

His opinions will influence his action in his choice

giver.

of those

which

is

In a country

who

are to decide the policy of the government,

will be but the general expression of the popular will.

man

Every

has his ideas of currency, trade, and finance

and, however imperfect or mistaken, they influence his political

action.

diffusion of

Hence

the great desirableness of a general

sound views upon

all

questions appertaining to

the economical interests of the country.

That with

Political

Economy

is

morals or religion, nor in any way appertaining to

human

welfare, except so far as relates to the production

and accumulation of wealth,

may

a science having nothing to do

is

a

common

be fearlessly asserted, that no other

opinion

;

but

it

science is so inti-

PREFACE.

XI

mately connected with the destiny of the

human

race, in its

Such has been the

highest and most enduring interests.

uniform testimony of those in the clerical profession who have given special attention to

Dr.

teachings.

its

Chal-

mers, while he held the chair of Divinity in the University of Edinburgh, gave lectures

upon

Political

Economy.

In

the preface to the volume he published upon the subject, he says, "

We

cannot bid adieu to Political Economy without

an earnest recommendation of

upon

its

his address before

Economy "

science, which, next to the gospel, will

all

who

enter

Rev. Dr. Bethune, in

the Literary Society of Yale

1845, spoke of Political

it is,

lessons to

the ecclesiastical profession."

College,

as that philanthropic

whose legitimate offspring

do more than any thing else for the elevation and

fraternization of our race."

Bishop Whately was heard to

remark, a short time before his death, that " no theological

seminary should be without

its

chair of Political

Economy."

Agreeing fully with the opinions expressed by these eminent men, I have

felt desirous,

throughout the following

work, to show how perfectly the laws of wealth accord with all

those moral and social laws which appertain to the

higher nature and aspirations of man.

Taxation

in all its forms, as

imposed by national,

state, or

municipal authority, has received a large share of attention in this work.

The

fiscal condition of

great change that has taken place in the

the country, by which the different

modes

of raising revenue have become matters of the first impor-

tance to every citizen, has been an inducement to enter

more

fully into

details

than usual with writers on the

general science of public economy.

The American system

PREFACE.

Xii

more complex, perhaps, than any

of taxation

is

the fact of

its

triple

character

other, from

that on the part of the

;

general government being both direct and indirect, while that

by State and municipal authorities

direct,

upon property and

is,

in the main,

The National Debt and

polls.

Public Finances occupy that position in the present work

which their importance seems almost be regarded as a

made

References are late

M. Frederick

new one in this

subject

may

in this country.

work

No

Bastiat.

The

to require.

to the writings of the

author of the present age

has done more to dispel popular delusions, and expose pop-

—

ular sophisms,

would be well this country

Political

if

own

especially in his

his writings

country, France.

were more

It

extensively read in

and the republication of his " Harmonies of

;

Economy

" here would be a great benefaction to

the public.

We

are already furnished with the valuable work of John

Stuart Mill,

who

Though more

is

undoubtedly the ablest of living writers.

especially adapted to

European than American

use in the application of economic principles, sively read in this country. is

it

is

exten-

While the science of wealth

always and everywhere the same,

certain subjects of which

it

it is

equally true that

treats have a

interest in one country than another

;

more

practical

and, of course, the

importance attached to different topics will be determined

by that consideration. poor-laws, ful

may

Pauperism, and the economy of the

be a matter of deep concern where a fright-

proportion of the people are

charity, but of little consequence

dependent upon public

where very few, as in

country, are found in that condition.

this

It is for this reason,

PREFACE.

Xlll

that each community, while recognizing precisely the

economic laws, finds that the subjects to which they

same

may be

applied vary greatly in importance. I cannot claim for

the

work

early

life

I

myself any peculiar qualifications for

have undertaken.

Some twenty years

of

my

were devoted to pursuits connected with the trade

and manufacturing industry of the country, while a longer period has since been devoted to the study of the laws of wealth.

A

practical

affairs generally,

knowledge of business and banking

and a most earnest and persistent search

for the truth in all matters appertaining to

ence, are

the

my

favorite sci-

only claims I have to the attention of the

public.

I

should do injustice to

my own

feelings, if I did not

acknowledge the valuable assistance of

my

son, General

Francis A. "Walker, late of the volunteer service of the

United States, without whose aid impossible,

amid other avocations,

it

would have been nearly

to complete this work.

A.

North Brookfield, Mass.,

1866.

W,

—

—

TABLE OF CONTENTS.

BOOK I.— DEFINITIONS.

—

Science. — Distinguished from — Man's wants and nature's supply being — How affected economy a positive science, — Prejudices which retard progress, — Definition of Wealth. — Includes of value, and

Character of the Chapter I. The economical circle, 2.

—

politics, 1.

3.

constant, political

by

legislation, 4.

Chapter

II.

all articles

nothing else,

Chapter IH. by human

far

5.

its

7.

— Definition of Value.

exchange,

effort,

Objects of human desire, obtained

have value, and none

and nothing

else,

8.

—

else.

Value

Illustrations,

is

chiefly

power

in

from F.

Bastiat, 9.

— One of kind, — Distinction between Value and assumed to be a good, wealth Material — degree, of

Chapter IV.

Utility.

14. and not Nature gives value to nothing,

—

Chapter V.

Chapter VI. Growth of

Definition of Labor.

— Services of slaves not labor,

— Definition of Capital. — The

18.

labor of the past, 19.

capital illustrated, 20.

Chapter VII. tors,

15.

1G.

— Relation

of Capital and Labor.

not antagonists, 21.

— Should be competi-

their hostility in France, 22.

— General Division of Science. — Production, — Distribution, consumption, 23.

Chapter Vni. change, 22.

— Results of

the

ox-

—

—

CONTENTS.

XVI

BOOK

II.

— PRODUCTION.

— Forms of Production. — Transmutation work of 24. — Agriculture supplies men and materials 26. — Transother industries, 25. — Includes mining and work of manufacturer, 26. — Distribution of manuformation

Chapter

chiefly

I.

for

agriculturist,

fisheries,

chiefly

governed by the industrial

factures, not so generally as agriculture,

genius of peoples, 27. dents,

— By

territorial

— Manufacturers employ — Transportation power,

machine

by great

chiefly

29.

does the chemist belong?

acci-

but greater

fewer laborers,

28.

— Where

advantages;

work of merchant,

this division arbitrary;

29.

their

forms generally united, 30.

Chapter labor;

Chapter

II.

— Conditions

of

the

co-operation of capital

IDT.

— Division

— Division

— Illustrated; does saving of — How carried fact? 33. this

far

in

— The Advantages of Division of Labor. — Increased dex-

— Time

terity;

better knowledge of business,

sition;

invention facilitated, as in American manufactures, 35.

Individual

— Power

abilities

adapted to work

of capital increased;

reduced, 37. facilitated,

Chapter V.

— Apprenticeship

supervision

the weakest employed, 36.

shortened, 38.

to the

fails

when

;

profits

development

Division of Labor.

when

— When

the

interested personal

the operations cannot be sufficiently local-

necessities

seasons;

for example, agricul-

agricultural products to rise in price;

division of labor applied to sciences ties

— Social

classes increased, 39.

— By the of the 41. — Hence tendency of

ized, 40.

saved in tran-

manufactures concentrated;

and influence of laboring

The Limitations

;

3-4.

operation can no longer be subdivided;

ture,

of

economic culture, 31.

of Labor.

time promote indolence? 32.

Chapter IV.

Highest Production.

;

and professions, 42.

— Special-

recommended, 43.

Chapter VI.

— Tends — Lesson of comcramp and enfeeble the mind tends by the greater communicativeness, 45. — By the

— The

Disadvantages of Division of Labor. This may be avoided, 44.

enervate the laborer, 43. the recent

war

;

to

—

to

;

this

pensated, in part,

intimate connection of mental faculties, and

by opportunities outside

CONTENTS.

—

Tends to lower average of health, shorten Table showing average of life and diminish reproduction, 47. Checkdifferent occupations; inaccuracies in vital statistics, 48.

of labor for culture, 46.

—

life,

in

XV11

—

ing propagation in cities not an evil; business for themselves 49.

— To

relation of this to the formation of character,

;

the fairness of remuneration;

— The

ment, 50.

last

number doing

lessens the

steadiness of employ-

to

disadvantage being removed by the mutual

system in trade, insurance,

&c,

fisheries,

52. __

Chapter VII.

— The Division of Labor

— Balance of re— The mercantile

(concluded').

of the principle, 53.

sults in favor of extension

theory, 54.

Chapter VIH. employed wealth;

in

— The

capital

— Capital

Co-operation of Capital. 55.

reproduction,

— Distinction

wealth

is

between capital and

comes from savings of labor, 56.

— Fixed

and

cir-

culating, 57.

Chapter IX.

— The Co-operation of Capital (continued). — No

unpro-

ductive capital, 58.

— The

Chapter X.

Co-operation of Capital (continued).

of capital and labor effective when

in just

— The union

proportions

labor to

;

coun— That amount varies — What United States? — In Great Britain? why — Can there be a surplus of capital? Ireland so depressed, lesson from Genoa and Venice, 64. — Capital checked by luxury, 65. — Emigration of union Chapter XI. — The Co-operation of Capital (concluded). — decide the amount, 60.

in

62.

in

tries, 61.

different

63.

is

capital, 66.

Its

with labor effective, again, when each the death of industry, 66.

Spanish conquests ted, 68.

— Limits

;

to

— Warning

from Asia its

corporations; again,

again,

there

chief of multiplied restrictions

Chapter XII.

;

aggregation;

when

— Economic

;

is

— All

—

when

injustice

;

— From

is

well distribuin regard to

capital

?

— Mis-

politician impertinent, 70.

Is the distinction

Adam

Smith's

between prolist

of unpro-

— Examples,

73.

secondary influences of produc-

rebound from consumption, 74.

consumption. 75.

reward

from France, 67.

labor productive, 72.

— Economic culture concerned with tion, the

its

American error

work of

Culture.

sure of

freedom of industry, 69.

ductive and unproductive labor real ductive laborers, 71.

is

— Here production

touches

——

—

CONTENTS.

XV111

BOOK m.— EXCHANGE. Part

Chapter

I.

— Trade.

— Arises from — Divided domestic,

The Principle of Trade.

I.

division of labor;

carrying, and amount governed by surplus production, 79. kind of proThose trade most together whose productions differ Climate, social condition, ethnical ducts determined by soil, 80. peculiarities; territorial division of labor, 81. Has few limitations General principles of trade are necesand no disadvantages, 82. that community often insity of surplus, community of interests Largest production and best dependent of direct exchange, 83. distribution effected by territorial division of labor; international unity secured; wars diminished in number, malignity, and duraillustrated

foreign,

by savage

78.

—

life,

77.

as

Its

;

—

—

—

;

—

tion, 84.

Chapter n. to

— Obstructions chiefly

as protection

;

—

—

protection; this of three kinds, -

— May be regarded

from physical obstructions, 85.

diminished by improved by bulk and weight Protection from But never annihilated, 87. obstructions; illustrated by American civil war, 88. Legal

Measured

transportation, 86. social

to Trade.

protection

industry;

local

Only necessary to discuss the

Chapter IH.

Protection.

— — prohibition, bounties, imposts, 89. last, 90.

— May

be for four causes,

— revenue,

to

encourage home production, to support capital already enlisted, to

commercial independence

secure

species

of taxation, 90.

— Should

decided in regard to protection

;

for revenue,

considered

be governed by what to encourage

;

home

shall

;

a

be

production,

two propositions, 91. Reducible to one, i.e. man's economic desires need government by Illustrated by American manufacture of iron law; that, false, 92. best example, for six reasons stated yet we do not produce successNor of capital: why? not for want of knowledge, 93. fully Imbusiness creates its own; nor of facilities and material, 94. example from India nor of natural portance of juxtaposition protection why, then ? we can do better superior profitableness of Yet protection was applied, 96. Effect? iron agriculture, 95. considered;

the battle-field of protection

;

—

;

;

—

;

;

;

;

—

produced; a great loss to general production, 97. periments, 98.

—

;

— Excluded country

— — Wasteful

ex-

suffers less than the protected,

——

;

CONTENTS. 99.

— Folly

xix

of anticipating agricultural glut; the natural growth of

manufactures, 100.

Chapter IV.

—

of the Protection Theory. That it is necessary Answer, this protects good and bad alike, and encourages the birth and growth of worthless enterprises the infant may cost more than the man will be worth example, beet-root sugar in France, 102. That it will protect us against the pauper labor of Europe answer, this system started the immigration, and has continued it, 104. That it raises the average Fallacies

—

to protect infant manufacturers, 101.

;

—

;

of

which

profits,

simply absurd, 105.

— —That manufacturing coun-

somehow, richer than agricultural

tries are,

105.

is

— Besides, only those

answer, they are older,

;

are richer which have taken to manufac-

—

by reason of natural adaptations, .106. Manufactures, to a arise by natural protection in every country; to attempt more than this is simply waste of power, 107. That it is

tures

certain extent,

—

necessary to develop our resources

answer, American

;

always been fully occupied, and, when business

can do no more by force of law

it

;

by waiting,

Protection (continued).

given in chap.

ever, to

iii.

justice

;

;

an absurdity

in

independence

;

— Have

answer, not a question of economy

;

for

better, howthem than repeat and continue mistakes by

,

— Examined

the protected than the excluded, 112.

original

— Fourth ;

rejoinder,

—

it

is

necessary

and found untrue, 111. ;

is

reason, to secure

— Final

found to be more injurious to

— French

treaty of

natural industry of the United States

sections

to do, 115.

.

answer, simple barbarism

claim of the protectionist, retaliation

some

;

allowing all the protectionist claims, protection

American politics 109

to safety in war, 110.

— The

discussed two reasons

next, to support existing manufactures, on the

pay outright

false legislation

113.

profitable

our ores will not spoil

108.

Chapter V. ground of

;

labor has

most

let alone, in the

is

Mr. Cobden, agriculture;

would manufacture without protection, as they began " Let us alone," the policy of trade, 115. Was the

policy

—

of

New

England;

protection the disease of in-

dustry, 117.

Chapter VI.

— Balance of Trade. — The

ascertained

by inspection of

official

true state of trade cannot be

returns

;

the profit of exporta-

and importation generally make the difference between an adverse Frauds at or favorable trade; our foreign trade in 1863, 118.

tion

—

Custom House other, 120.

sufficient to

change the balance from one side

to the

—

— ;

XX

CONTENTS.

book m. Part

Chapter

I.

the different

exchange,

medium of exchange,

requirements

money,

122.

of such a standai-d,

credit,

forms of Currency.

barter,

viz.

in-

— A currency wanted to — And a standard of value; 123. — Currency of four kinds, as

mixed, and mercantile currency, 124.

Money. — Forms used — Advantages gold and value, 127. — Conveniently portable,

Chapter

— Three

currency, different forms of

attending barter, 121.

difficulties

act as a

viz.

— Instruments of Exchange

— Barter and

struments of credit;

II.

ages and countries,

in different

IT.

126.

silver; possess value, are stable in

of

malleable, of uniform quality

everywhere, can be readily alloyed or refined, are indestructible by accident, generally diffused, sufficiently plentiful for trade, 128.

And 130.

nearly inconsumable by use, 129.

— United

no value

Chapter

States

its

—

advantages,

Government seigniorage, 130 government gives weight and fineness, 131. ;

to coin, only certifies

— Credit Currency. — Transfers

ITT.

inevitably at a discount sions

— Coinage,

of prices

rise

;

;

folly of

effect

gold

bill

debts, does not pay

by Congress,

132.

them

— Occa-

on United States during Rebellion

—Vitiates contracts — Never kept the 135. — In a forced

depreciates fixed incomes and real estate, 133. (see American Revolution and Rebellion), 134. natural volume of currency; seldom paid,

loan

;

a direct tax, 136.

to

effect

— Government does not get

full

value, 137.

Loss to United States during late war from use of credit currency, 138.

Chapter IV.

— Mixed Currency. — A modern invention; Bank — Composition called mixed, because consisting

England, 138.

;

value and credit

ments, 139.

;

its

quality the proportion between the

— Convertibility distinguished from

— Inconvertible of bank returns

definition of terms, 141.

ele-

redeemableness, 140.

currency annihilated by being redeemed ;

two

of

of

;

analysis

— Bank balances the most

dangerous element; agency in suspension of banks of New York and of Englaud, 142. — Resources of banks — What the source of motive power

Bank 144.

;

profit

?

definition of terms,

Quality of the United States currency 1860, 146.

of banking, 147

— — Grand problem

in expansion, 145.

;

CONTENTS.

XXI

— Analysis of Deposits. — Already defined and active as compulsory, —May be kept to secure discounts, 149. — Highly dangerous to the the England, as there are no usury laws, 150. — currency not known

Chapter V.

arise in five

;

ways, 148.

fiduciary,

classified

;

first

in

;

Other kinds legitimate Overstone, 151.

much an more

;

currency ? opinion of Lord Board of Currency; they are as

are deposits

— Of New-York

instrumentality of exchange as bank-notes, 152.

active

stocks not immediate resources to a

;

bank

;

— Indeed, cannot be

realized in panic or pressure, 153.

Chapter VI.

— We

— Mixed

Currency, Fluctuations in Quantity and Quality.

have two great questions:

satisfactorily the functions of

interests

?

1st,

money ?

does mixed currency perform

what

2d,

its effects

upon public mixed

— Only one of these at present (see chap, x.)

154.

currency not governed by laws of value, beoause

it

;

has not value

can be increased without labor, and must be withdrawn for reasons not affecting articles costing labor, 155. cess, because

it

— Expansion

always in ex-

and a feverish demand, 156.

creates speculation

—

Because, also, banks are interested to crowd

it

place from any cause which affects credit

hence without regard to

laws of value, 157.

;

out

;

contraction takes

— Export of specie withdraws only

its

own amouut

of value currency, but of credit currency that amount multiplied by a

no better than unsound

in panic

;

—

Sound banks movement of expansion begins with

factor expressing proportion of credit to value, 158.

— Tides

the banks, not from want of trade, 159.

of business need

not be ruinous, 160.

— Tables and Diagrams of Mixed-Currency Fluctua— Table in absolute quantity, United States, 1834-59, 161.

Chapter VII. tions.

I.,

— Diagram

period; Table capita,

and proportion of specie per

in currency

1,

II.,

capita,

same

extremes of fluctuation, currency United States per

and quality of same, 1834-59, 162.

currencies in the several States, 1860 sachusetts, different dates

;

;

— Table HI., quality of

Table IV., of currency of Mas-

currency of

New

England a unit under

Suffolk system, 163.

— Mixed

Chapter VIII. vi.).

— Two

— Mixed

offices

Medium of Exchange (see chap, medium to transfer commodities, 164.

Currency as a

of such a

;

currency satisfactory for this

coin always reliable, 165.

currency, for

He must fail

it ;

— The

;

to discharge indebtedness

,

best trader cannot rely on mixed

may be withdrawn when his

credit not reliable for

in panic; they choose suspension, 168.

— — Dilemma of banks

obligations mature, 166.

money, 167.

—

—

CONTENTS.

XX11

— Vast impor— Mixed Currency as Standardqf — Denial by some of a standard answer, — The shown 170. — Legal tender, what? be unjust and misand diagrams prove mixed currency of value without chievous a standard, 172. — Immense an equivalent, 173. — Extract from "North-American Review;" what 174. — Distinction between price and value, 175 — 170. — Table V., average from Confederate — Diagram corretwenty-six often commodities explained by except and currency spondence of omitted reasons law of speculations, 179. — Cotton and

Chapter IX.

Value.

a

tance of this function, 169.

;

171.

fluctuations

in

to

tables

transfers

as

Price,

it?

is

States,

Illustrated

price

years, 177.

for

prices

2,

as

circulation,

for

flour

after

given; these calculations per capita ; these fluctuations greater currency, 180.

possible with value 181.

— Who

gained

may be

gains by

only price

?

;

distinction

;

gains

on former

not the laborer,

this?

all

who

— Effect

it ?

182.

thaii

illustrated,

— What

is

debtor or creditor, as the case

between general and

special prices, 183.

— En— Effects of a Mixed Currency (see chap. puts the finances at the mercy of a 184. — Currency of Massachusetts, Diagram No. 3; savings banks complicate the matter, 185. — Elements of our population make highly dangerous, 186. — 2d, Demoralizes society and

Chapter X.

vi.).

dangers domestic tranquillity

1st,

;

faction,

this

industry,

by exciting

to speculation,

ruining without blame, 187. 187.

enriching without merit, and

— 3d, Endangers national

safety in war,

— Obliges a nation to carry on war with broken-down currency

;

England against Napoleon; United States in great Rebellion, 188. If any gain can be made by substitution of credit, it should be 4th, Discourages domestic manureserved till the emergency, 189. factures, and puts a nation at a disadvantage in commerce, 191. Distresses of American Has always neutralized our tariff, 192.

—

—

manufactures due to the currency restrict

importations,

spondence

in

two

disproved

lines,

193.

popular error, that high duties

;

by Diagram 4

— Another cause

shows relation between currency and imports

195.— Extract from "

;

;

want of corre-

needed; Diagram 5

exact correspondence,

Bankers' Magazine," 186.

—

XL Effects of Mixed Currency (concluded). 5th, Disturbs and enhances interest, 196. This the natural result of its raising prices and increasing indebtedness, while itself falls away at the

Chapter

—

— Frequent

moment

of need

ations

highest interest with greatest expansion

;

199.

Diagram

6,

197.

— Interest United — Table VL, fluctuation

currency, 198.

pared

;

in

States

and extreme ;

fluctu-

lowest with least

and Great Britain com-

in interest,

United States and

—

;

CONTENTS.

XX111

Great Britain, 1844-58, 200.— Table VII., fluctuations at Bank of

England, 160

r

}

ears

effects

;

of great revolutions indicated, 201.

Currency of Great Britain compared to that of the United States as

—

Irish and deposits superior quality of British, 202. and Scotch currency estimated specie in United Kingdom numerous Failures in United States; British bank failures in Scotland, 203. Diagram reserve; Table VIII., fluctuations in bank reserve, 204. No. 7 effects of mixed currency on American agriculture its pro-

to circulation

;

;

;

—

—

;

;

ducts sold at gold prices, while the farmer purchases at curren ca-

—

Table IX., price of wheat and flour from 1846-59, with compared with general prices (see chap, ix.) no corresInterest of the "West pondence suffering of Western farmers, 206. for value money, 207. prices, 205.

currency

;

;

—

;

— Fallacies regarding a Mixed Currency. — That — Credit not capital 2d, that cost than mixed money, 208. — Instruments, to be cheap, must be not cost of value currency, 209. — Damage of mixed currency

Chapter XII.

1st,

increases capital, 207.

efficient

is

keep

out,

it

greatly exceeds the saving, 210.— Gold circumixed currency requires machinery and great expense to 211. Adam Smith's figure, and comments 3d, that it ;

—

;

has caused the prosperity of the United States, 212. for the supposition

;

;

4th, that there

— No grounds

not gold and silver enough

is

discovery of Australia and California, 213.

absurd since

was true

much gold never used

as

money

amount used

;

States not greatly increased by yield of California, 214.

exported

;

men, 215. credit,

;

;

currency estimated lates itself;

it

less

it

;

quotation from J. S. Mill

— Particularly

;

5th, that

injurious to them,

which they especially need

;

6th, that

it is

— Never in

United

— Has been

favorable to young

enhancing the risks of

we could

not have banks

from — Banking may be profitable without banks, but only to British joint-stock banks, 217. — Do not object manufacture of currency, 218. — Banks used to be safe and bene-

without

it,

216.

;

illustrated

to

ficial

;

Bank

of

Hamburg

the only cause of the evil

7th, that

it

"stave off" suspension ;

is

;

;

the only cure, to supply

— 8th,

That banks ought to

suspension the only relief the public can

;

a wrong, but one included in the original

currency, 220.

pansion

can be regulated by law

want of value

no remedy but revolution, 219.

that;

have

;

is

—

9th,

That

not always or generally, 221.

affected, 222.

— Nothing

wrong of fictitious by ex-

at least stockholders are enriched

— How

stockholders

may be

but price gained, and that unjustly and to

the prejudice of one party

;

it is

swindling, 223.

—

— :; ;

CONTENTS.

XXIV Chapter XTTT.

— Mercantile

Currency.

— A substitute

for the precious

metals; combines reliability with the convenience of paper; not a novelty, 224.

on

needs

land

— First substitute currency;

specie;

full

Bank of Amsterdam,

such

225.

currency, 226.

a

Bank of Genoa,

— English

based

bills

— Bank of Hamburg

Eng-

;

finance continually

disturbed, and millions of annual loss involved, for a paltry saving

— The change of currency easy — Amount of paper money required United States legitimate banking 229. — Needs no easy some banks would be superseded banking should be but not the manufacture of currency, 230. — Government should furnish a currency, 231. — This would United States

effect

still

worse, 227.

to

issue of small notes, 228.

:

in

profitable,

;

legislation

transition

;

;

;

free,

certified

not give the government any control over the currency, 232.

Chapter XIV.

— The National Currency of

from the old system

;

is

the United States

under national control

.

— Differs

ultimate redemption

;

— Legal tender; uniform value through the banks holding "lawful money" with 234. — Last provision frustrated by allowing

of notes secured, 233. provision

States;

which

made

redeem,

to

for

" balances " to be counted

;

these banks have no capital to lend, 235.

— Resembles the old system

in liability to

nishes a standard of value equally delusive

speculation

;

extends credit

;

expand and contract; raises prices

;

increases imports

;

fur-

and creates

counteracts protec-

and discourages home manufactures will continue to cause stringency and panic guaranty of ultimate redemption no security against a " run," 236. Development of the new system statistics of tion,

;

;

—

;

— Large incomes of these the business of the country, 239. — New system

the national banks, 237. Effects

upon

institutions, 238.

—

better,

because more susceptible of reform, 240.

Chapter XV. Evidences of Debt. Ex parte, and not negotiable

—

— Three kinds notes

;

;

bills

;

lustrated; exchange, foreign and domestic, 242.

expense 244.

;

indirect exchange, 243.

— Saving

calculated

;

— Foreign

indirect

trade of United States 1857, 245.

Exchange the barometer of trade value of the pound sterling, 247.

foreign

book accounts, 240.

of exchange, 241.

— Great

exchange

;

illustrated.

exchange illustrated

rate of British exchange explained

— Expense of shipping gold, 24S. — pound

sterling

;

are bills of ex-

change currency? do not pass from hand to hand, 249. are generally on time selves discharged by currency if

— Are them;

not proper

dishonored, do not reduce amount of currency, 250.

not affect prices currency, 251.

;

Il-

— Natural rate of exchange, 246. ;

Rectification of the legal value of

tender;

—

saving of

— Do

their scarcity cannot create panic, therefore not

—

;

CONTENTS.

XXV

BOOK IV.— DISTRIBUTION.

— Divisions of Subject. — Distribution out of — Labor, physical, mental, and subsidiary, the two forms, one receiving capital loaned receive wages other rent, 253. — Government claims a share; we have therefore to

Chapter

avisos

the

I.

divi-

sion of labor, 252.

all

interest,

in

;

provide for wages,

profit, interest, rent,

and taxation.

—

Governed bylaws of value; vary in different Wages. Importance of freedom and equality in and ages, 254. Wages depend on securing fair wages; necessary wages, 255. distinction between real and nominal wages business enterprise

Chapter

II.

—

countries

—

;

illustrated, 256.

Chapter

III.

— Facts

in point, 257.

— Proportionate

Rise and Fall of Wages.

so soon or high as commodities generally

demand

;

fall

sooner

;

difficult to ascertain rise

unquestionably have a tendency to advance 1860, 259.

— Difference

rise

or

fall

of real wages

;

1810 compared with

;

from character of employments; danger;

— Unhealthy

disgrace, 260.

— Do not

reason, no speculative

;

trades

compensation should be made

;

agricultural wages, for this reason, lowest of

all,

261.

— Education of

makes him more efficient, and commands a reward fruNeutralizes gality of the laborer makes him independent, 262. the advantage of the employer distinction of sex influences wages Equality of numbers; industrial sphere of rate of difference, 263. woman closely circumscribed her products more dispensable hence Cannot be increased by mere philinferiority of compensation, 264. the laborer

;

;

—

;

;

—

;

;

—

anthropic efforts

;

change must be effected on economic principles

her occupations must be increased, 265.

— Another

classification of

wages, paid respectively for physical, mental, moral power, 266.

Gradation of wages on

this

plan

integrity; high rewards, 267.

nomical philosophy

common to Chapter IV. to

— Labor

Their agency ;

—

economical importance and value of

— Objected,

confounds moral and eco-

answer, they do meet,

and

this

ground

is

both, 268.

combine as

unions

;

;

;

Combinations.

capitalists

;

official registration

lawful, but

these unions, 271.

— Laborers

have same right

— — Trades'

friendly associations of England, 269. ;

moral influence, 270.

no coercion may be employed within or without

— Strikes

lawful within the

same

restrictions, 272.

——

;;

CONTENTS.

XXVI

— Do not permanently wages must do 273. — Co-operative raise

;

freedom, intelligence, and virtue

associations

this,

;

account at length by

Professor Fawcett, 274.

—

Chapter V.

—

The remuneration of the business man, 279. Profits. Must not be confounded with interest, wages, or rent, 280. The

—

forms

may be

united

freedom necessary to secure

;

fair profits, 281.

— Rate of

Profits of capital an inaccurate term, 282.

—

profit tends to

decline, from acceleration of exchanges, increasing competition,

more rapid intercourse

— Rapidity of exchange

nity, 283.

—

difference in rate of profits in

;

on

profit illustrated, 284.

new countries Western States of America profgoverned by demand and supply, 285. Tendency to reduce

Profits large in

its

its effect

;

and same commu-

;

profits further discussed illustrated, 286.

;

effect

;

—

on

temporary

profit of

— Dividends, how

rise

of wages

287.

classified ?

— Reward of circulating by — By human wants interest dependent on productiveness of labor, 289. — Governed by demand and supply abo290. — Increase of British usmy laws; usury laws

Chapter VI.

capital; justified

Interest.

right of property, 288.

;

;

ineffective,

lition

expense of borrowing, by danger and secrecy of transaction exchange, 291.

fictitious still

and

further influenced

—'Create

by hazard of

compulsory deposits; capital

;

this

;

create

interest

depends on honesty

of a people, and efficiency of laws affecting property

thrift

by unsoundness of currency, 292. legal rate should be fixed

interest influenced

from Europe and America

;

— Illustrations in the

absence

of any agreement, 293.

Chapter VII.

— Rent. — Reward of fixed capital

tance in United States

— Land

;

implies ownership

the foundation of rent

;

does not appear in hunter or

shepherd state; begins with agriculture, 295. element

;

not of great impor-

;

implies society, 294.

;

— Location

with no difference of quality

— Cost

element;

illustrated,

from Great Britain

297.

illustrated, 296.

;

illustrated

;

first

—

of importation, third element;

all

cases,

298.

— Great

European improvements land appendages do not Reason, difference between West and East, 300. ;

—

become gratuitous

VUI.—

;

all,

Fertility the second

application of capital, fourth element

not proportionally productive in

Chapter

the

rent would appear though there were enough land for

city rents generally

;

extent of

sell for cost,

299.

— Improvements

on level with

interest, 301.

Wages, Bent, Interest, and Profits, as relatively afwages did

fected by Currency Jnjlation.—'Sot affected in equal degree

;

—

— ;;

CONTENTS. not

1864-5 as prices did, 302.

rise in

as high as profits

somewhat, but not

— The

laborer loses

supposed;

is,

— Rents advanced

on

loss

;

hold to a degree in

all

little,

man

gains, but not so greatly as all,

— Ex-

of the war

expansions.

all

;

receives revenue

in

;

free

share in every product, has a lien on every article of value of taxation

it

in

;

just

propounded by Adam Smith Explained and illustrated;

—

308.

304.

— Facts

fixed incomes, 305.

— Principles of Taxation. — Necessity of government by taxation, 306. — Importation United States country, 307. — Government own a and equal a

Chapter IX.

tion,

interest

state of things illustrated, 303.

;

however, the only party who gains at

cept speculators

must be

the business

;

XXV11

;

principles

;

equality of contribu-

first,

second, taxation must be

— Third, convenience of payment to be considered fourth, economy how the principle may be violated 310. — By disturbing industry; by by great machinery of

certain

and

plain, 309.

last

;

;

collection,

encouragement to smuggling a

fifth

principle proposed,

by interruptions and vexatious

;

taxation of mischievous

forms of American taxation, 311.

and

as direct

Chapter X. specific

— National

State

;

;

visits

;

consumption taxes divided,

indirect, 312.

—

—

National Taxation. 1 Customs duties of two kinds, and ad valorem; American policy has fluctuated, 312.

Specific duties unjust

revenue, 313.

.

;

ad valorem create

;

fraud,

— Customs as a mode of taxation

;

and so

far defeat

easy and effective

;

a tax on consumption without reference to ability, therefore unjust

not clear and plain to the contributor, 314.

home

raise the value of the

— Moreover,

— Example of taxa-

part of what the people pay; illustrated, 315. tion

laid

on

articles

not of

as they

product, government gets only a small

home production

;

customs expensive

—

on account of the machinery, 316. Additional estimates showing expense of raising revenue by customs, 317. Bounties preferable

— — Excise as a mode of taxation; unnot so expensive more vexatious, 319. — Taxes

for protection to customs, 318. equal, like customs

;

;

on disadvantageous consumption Great Britain thus obtained, 320.

;

eminently desirable

— Stamps, cheap,

revenue

;

efficient,

in

unequal

licenses desirable, 321.

Chapter XI.

National Taxation (continued).

perfectly just principle States, 322.

— Should

difficulties alleged

know, and

;

;

established in

;

tax; in

only

United

be no exemptions as to persons or amount;

people do not

will learn;

— Income

Great Britain

know their income

;

answer, should

some are dishonest; answer, every year

in-

;

CONTENTS.

XXV111

creases difficulty of fraud; should be put on oath, 323. to

have income known; answer,

— Do

not like

are copartners in taxation, and

all

the contribution of each ought to be

known; income deferred must

— Taxation of exports reduces power comwheat, 325. — Effect shown; except where there a merce, virtual monopoly of product, 326. — This we have cotton universal demand, 327. — Restricted culture; United States control the probe estimated, 324.

in

e.g.

is

in

duction

neously

production constantly increasing

;

price advancing simulta-

;

yield in United States different years, 328.

;

limited export duty

revenue yielded

Chapter XII.

;

would not

;

— Value of crop — Amount of ;

curtail the market, 329.

cotton capacity of United States, 330.

—

—

Is direct increased by rebellion State Taxation. method of; false position of poll-tax payers, in regard to appropriaIncome-tax would remove the diffitions and expenditures, 332. ;

;

—

poll-tax unreasonable in

culty;

system, 333.

— Burden

itself,

but tolerated as part of a

thrown on property;

unjust and mischievous, 334.

— Great

effect

disparity

on small farmers

of taxation

;

ad-

vantages which the poll-tax payer derives from government, 335.

Return made bined

;

affect

for these

each other's injustice, 336.

among

taxation

not be relied on 337.

States ;

considered

taxation of credits

— Matter discussed;

an element into injustice

as

;

it is,

all

— Apportionment of national

cheaper, if the

;

;

being known, has entered as

— Income-tax

credit should be taxed

pay higher

interest, 349.

of frugality

;

341.

;

would avoid

— Proportion

of national

amount of income exempted better Such exemption diminishes the operation

large

—

all

taxation of government

;

bonds; importance of the question, 339. debt to estimated wealth

States could

propriety has been questioned,

this liability,

purchases, 338.

—

and national system com-

effect of State

;

;

consolidation of national debt

;

proposition in Congress,

— Desirable, but no exemption from taxation should be allowed

such exemption separates the rights of voters from their responsibilities

;

creates a mischievous class, 342.

— Unjust

to limit, in this way, the control of State

property

;

ment of

the debt, involving endless taxation

creates inequality

certain sections, 343.

;

will create

for national authority

and town authorities over

an interest against the pay;

particularly unjust to

— Absorbs too large a proportion of the wealth

into the debt, as our bonds will be returned in consequence from

Europe

;

entirely unnecessary

now

;

never was good policy

of British financiers in Napoleonic wars, 344.

our debt need not burden the country excessively should be effected, but not in a single issue considered, 345.

;

;

wisdom

— If wisely managed, ;

a consolidation

proposed sinking fund

—

;

CONTENTS. Chapter XTTT debtedness

Foreign Indebtedness.

.

of four kinds,

;

—

remedy

for these

;

— Exporting

indebtedness

the

;

Economy

corporate State, 346.

;

of foreign in-

may be

these

;

— National

amount already sent abroad

tion of public stocks considered

made, 347.

1st,

individual,

enforced by law, are of great extent legal

XXIX

no

;

2d, exporta-

;

desirableness depends on return

;

regarded as extending mercantile

stocks

much on

return will depend

condition

of the

tariff will

— Disadvantage which stocks are now exported not help 349. — The remedy should be applied to the

currency

rapid depletion of the United States

currency, 348.

;

at

it,

objection to foreign

;

—

Makes no we should be glad to have the use of foreign capital errors of financial management during the rebellion Our debt can be cheaply wisdom of the Confederate loan, 351. negotiated abroad, if rightly put out; can make no operations advanindebtedness difference

debtor cannot choose his creditor, 350.

;

who

the creditor

is

;

;

;

—

tageously under an expanded currency

indebtedness endangers a nation, 352.

owning, not the party owing, the debt source

fallacies respecting a national

;

proposition, 353.

— If

" our debt

the war was a financial

ment

is

blessing

three billions poorer

has been spent in war, 354. destroy wealth; not so;

ment

is ;

indefinite fear that foreign

;

— The danger

so

no

;

debt

;

this

Mr. Jay Cooke's

first

much added

nobody

is

to the party

is

can arise from

evil

to

richer,

our wealth," the govern-

the wealth which the debt represents

;

— If debt

again, " debt

wealth, repudiation would

is is

active capital;" govern-

debt, like individual, can be hypothecated to obtain capital, 355.

— Again,

it

" gives

stability to

the satisfaction of the people

repeated and violent changes

;

;

government; " government depends on France has large debt, yet undergoes but " every government creditor is in-

who holds the debt ? not one make his interest from it so large The debt will be Illustrated, 358. again, " it insures protection to home

; terested in the stability of the nation "

citizen in fifty holds

as the taxation

it

enough stock

industry," 359. tection

;

—

—

imposes, 357.

a source of discord and faction

to

;

— England has a large debt, and has repudiated pro-

again, "

it is

a desirable basis for banking " debt

for sound banking; again,

;

"the generation contracting

is

is

no basis

under no

—

But nations obligation to pay " this simply enslaves posterity, 360. Ours should be must sometimes create debts;" very rarely, 361. ;

—

paid within the century, 362.

Chapter XTV.

— Rise and Growth of

no large national debt ever paid

modern system

;

his

;

the

Modem

William

war with France, 363.

Financial System.

—

England author

of

III. of

— Disadvantages of former

kings of England; William established a regular scheme of borrow-

——

;

CONTENTS.

XXX ing

incorporated

;

Bank of England

— Also

land-tax, 364.

unlimited credit

all

;

to

manage

the debt

;

established

new system;

indirect taxation; results of the

check on war expenditures removed, taxation

transferred to the poor

the aristocracy conciliated, 365.

;

— Progress

— Diagram of the British national debt; 367. — Advantages and mischiefs of

of British national debt, 366. the bank grows up with

increasing indebtedness

of the masses 371.

indi-

it,

— Fruit of

rect taxation, 368.

all

this policy; extension of

over the civilized world

;

war system

;

impoverishment

such a debt throws taxation on the productive classes,

;

— Altered condition of the United States, 371.

Chapter XV.

— On

the

Laws of

Inheritance

and Bequest.

does the world belong, the living or the dead? 371. of government

;

Mr. McCulloch's argument

;

—

— Laws entailing property established coun— Wealth tends pass out of the hands of a family or the property of the poor 374. — This of the rich in certain

373.

class,

to

liability

to contravene entail

a concern

the world belongs to

the living, 372. tries,

— To whom

It is

;

it

by law

is

their rightfulness

is

to rob

them

the laws of primogeniture and

;

subsistence secured to

;

powers of industrial appropriation, 375.

man

only in his

— Analogy of nature

;

defeat

by making property inalienable, and you deExpediency of such laws entailed prive him of subsistence, 376. monopoly of estates generally too large for economic well-being wealth and monopoly of wives, 377. Diminish the industrial desires draw off wealth to luxury, 378. Come to men incompetent his right to appropriate

—

;

;

— —

;

to administer them, 379.

BOOK Chapter

I.

— CONSUMPTION. Subject. — Destruction

Divisions of the

subject for science; trated, 381.

V.

of wealth not a

consumption the use of wealth, 380.

— Upon consumption depends reproduction;

—

consumption often cannot be defined or even detected, 382. the less real

;

— Not

relations of production, exchange, distribution,

consumption illustrated; ous, public,

Illus-

the acts of

and

consumption divided as mistaken, luxuri-

and reproductive.

Chapter n.

Mistaken Consumption.

tion without result

— Secondary

uses

;

— Capital applied

for reproduc-

frequent failures of industrial enterprises, 383.

of such failures,

i.e.

railroads,

factories,

&c,

—

—

CONTENTS. 884.

— Large

fallible

385.

;

XXxi

proportion of industrial misadventures

extravagance in outlay

— Wealth

why ?

;

capital

great accidents or developments,

;

unproductively applied

not capital

is

waste or

is

;

luxury, 386.

Chapter

Luxurious Consumption.

III.

General foi'mula 387.

— Direction

— What

do luxuries directly

varies with individual taste;

— Encourages

encourage industry?

illustration,

discourage another;

capital thus spent pays less

employed reproductively, 389. try

?

luxury? 386.

is

standard varies with classes, countries, and ages,

;

the desire to spend

economic importance of

is

this

their general diffusion, 390.

388.

one class to

wages than

the origin of the desire to gain

great

;

of luxuries increased by

this influence

;

that

— Do they indirectly encourage indus-

— Only temperate and harmonious

sumption of wealth in luxury encourages industry

con-

place of morality,

;

391.

Chapter IV.

— On

the

—

Luxuries Degree of Luxurious Consumption. an extent of necessary wages, 392.

not confined to the rich;

French and English workmen compared 393.

— Relative

Britain;

popularization of luxuries,

;

consumption in luxury by different classes

historical

examples of luxury, 394.

— The

in

Great

causes of luxu-

rious consumption, a surplus, preponderance of desire to spend over

desire to gain tal

;

;

this influenced

by security and profitableness of

extent to which luxury can be carried

Modifications of this

;

and

art

;

capi-

Gibbon's theory, 395.

no certain proportion for

— Of learning

as a luxury, 396.

;

all

nations

have value

;

—

idleness

;

their price

— Quantity of labor bestowed on them governed by supply and demand of such consumption, 398. — Sunnituary laws; supported by urgent reasons, 399. — Found impracticable; causes, 400. — Violations not proved; against human nature; varies, 897.

:

effect

easily

laws in the interest of morality should be sustained, 401.

Chapter V.

— Public Consumption. — Economical reason for — Right to participate in consumption share

ment, 401.

;

govern?

402.

Government should take nothing from individual enterprise anecGovernment should do nothing for display; historical dote, 403. ;

—

progress in this direction expense of govExpendiernment varies with circumstances and character, 404.

instances of frugality

tures of

;

;

European nations; of United

consumption encourage industry

?

if

States, 405.

unnecessary,

— — Does

it is

public

only charity,

requiring great expense beyond the help given to the poor, 406. saves self-respect, entails burden on the future

;

if

—

necessary, public

—

CONTENTS.

XXX11 does not get

some

;

duties

government; these occasions few and of government consumption uates dependence

— If

409.

;

government expends

States in recent

needing support;

Who

it

the

;

should

perpet-

occasions

when

necessary,

it

expenditures of United

;

— Field of agency — Constituents of the pauperism, 412. — Not very impor-

of

what

;

classes

Roman

?

administer

this

;

411.

relation,

vicious

economically done eties

;

induces political corruption,

at disadvantage

its strict

statistics

tant in United States

require

;

and Poor-Laics.

by family

restricted

— Disadvantages

war not economically advantageous, 410.

— Charity

Chapter VI.

definite, 408.

seldom needed by the people

;

demoralizes industry

should not go beyond

—

Government never must be undertaken directly by

of the outlay, 407.

value

full

operates successfully

charity

by private

;

class

entitled

cruelty

may be most

hands,

another and advantageous

charity

to

Christian

;

414.

mode of

all

?

judiciously

— Mutual

charity;

who

law, 413.

—

and

-relief soci-

such

agencies

—

Europe and the United States, 415. Christian scheme of the Quakers or Friends, 415. All these methods insufficient, and the State must engage in the work, 415. By what branches of the government to what extent two English methods allotment of land and parish allowance, 416. Failure of this system to what extent poor-laws may be effective, 417. Able-bodied workmen as paupers, 418. Pauperism of England, 418. In what form should charity be administered? 418,419. How government should furnish charitable assistance, 420. In what spirit charity extensive

in

—

—

;

;

;

—

—

;

—

—

—

—

should be dispensed, 421.

Chapter VII.

—

—

The Finance of War, 422. Fallacy that more money wanted in time of war than in peace evil effects of this government becomes the greater operator in war, and changes the is

;

;

direction

of industry, but does not increase

business

as

truly

as

materials, provisions,

more necessary

agriculture,

production

needs

similar

;

war a

resources,

—

"Raising money" no services, 422. Except for obtainwar than peace, 423.

and

in time of

and

—

ing foreign assistance.

Chapter VIII. fact in public

manent

—

War the greatest Economy of the War System, 425. consumption not accidental consisting of (1) a per-

military

;

;

and naval force

national indebtedness;

;

(2) constant preparations

British statistics in proof, 426.

;

—

— State— Small pro-

of European armies; muster roll of the British army, 427.

ment of

national debt of each

European power, 428.

(3) large

Statistics

— —

— ;

CONTENTS.

XXX111

—

portionate amount required for civil service in Great Britain, 428. Rapid increase of war expenditures statement of Mr. Gladstone, 429. War expenditures must be greatly increased by the revolution in ;

—

naval warfare inaugurated in the United States during the Rebellion

—

"Merrimack" and "Monitor," 430. Questions whether new and improved ideas of international intercourse are not quite as desirable

the

as

new

human

engines of

States, 431.

destruction, 431.

— Modern war

policy of nations

is

changed, 432.

common

not the same

— Condition of the United

debts will never be paid until the war

—

Is

war a moral necessity? would

sense that establishes courts of justice for

individuals, establish a similar institution for the settlement of inter-

national disputes? 432. in

war armament, 434.

— Folly of — Influences

rival

(6) increasing intercourse

;

(c)

— Changes

armaments, 433.

adverse to war; (c) commerce;

education of the masses

;

(d)

example

of the neutralization of the American lakes and the Black Sea, 435.

—A

—

Motion of Mr. Cobden in Lord Palmerston's declaration the French emperor's proposal; declined only by Great Britain, 437. Reply of Emperor of Russia, King of Prussia, and other monarchs, 438. The public press in favor of disarmament, 438 and 439.- -The congress of nations probable, 436.

House of Commons

;

;

—

—

question rests with Great Britain, France, and the United States, 440

Chapter FX.

Economy of Public Education.

— Objection

to compul-

sory education in England not appreciated in the United States, 440.

— Economic

crime

;

results of education

(2) creates

;

(1)

prevents pauperism and

higher economical condition, 441.

the United States as illustrations, 442.

— Scotland and

— Secures more uniform

dis-

tribution, 4-13.

Chapter X.

— Reproductive Consumption. —

Its character

necessity for the use of reproductive capital, 444.

— What

and origin;

— Importance of

amount of reproductive consumption indisCapital must provide for the increase of population; must supply its own wants, 447. Must support government, 448. What amount of reproductive confrugality, 445.

pensable

sumption

(1) capital

;

is

must support labor, 446.

—

— — occasion ask question 449. — The degree somewhat determined by and &c, 450. — Desires

desirable? 448.

Little

to

this

in

a normal state of society, geographical position

political relations,

spend unequally developed

Chapter his

XL

in different

— Reference — Three 453. — The

Population.

two postulates, 452.

(2) as to

propagation,

to the theory of

fallacies;

(3)

to

communities, 451.

Malthus,

(1) as to subsistence;

supposed necessary relation

;

CONTENTS.

XXXIV

— Reference to English pauperism, 458-460. — Misgovernment and influences, 461. — Differences the

of distress to these postulates, 456.

— Causes that

457.

war;

self-restraint

limit population,

and

social

in

increase of the native and foreign population (1)

emigrants mostly young persons, 462.

healthy employments

;

—

how accounted for (2) Engage in more

;

(3) but, principally, are far less influenced

prudential considerations

;

American and foreign marriages

463. — Comparison of deaths — Reflections upon the given, 464. chusetts,

in

in

by

Massa-

same population, note, 463.

facts

— Importance of a Right Consumption. — The moral and — What a right consumption would bring, 465. — Wealth has genera466. — No natural obstacles to constant increase and the general amelioration of the condition of mankind, 467. — of a wrong and right use of wealth, 467. — The science of wealth not complete which does not embrace moral considerations, 468. — What

Chapter XII.

social interest that attaches to the wealth, attaches to its use, 465. its

tions,

its

Illustration

is

the economic

good ? the question answered, 469, 470.

THE SCIENCE OF WEALTH A MANUAL OF POLITICAL ECONOMY.

POLITICAL ECONOMY. BOOK

I.

DEFINITIONS. CHAPTER

I.

CHARACTER OP THE SCIENCE. Political Economy

is

fesses to teach the laws

Science of Wealth, and pro by which the production and con-

the

sumption of wealth are governed.

The term, " since

it

political

economy,"

leads the popular

mind

is

not a fortunate one,

to a misapprehension of

what the science actually teaches, and confounds it with politics, or the science of government, from which it is distinct.

The tary,

relations into

and

for the

which these sciences enter are volun-

supposed advantage of both, not from any

logical necessity to complete either.

government of the

A

just

and

efficient

state is important to realize the largest

development of wealth, but only as a condition under which the laws of wealth, already complete and harmonious,

may

have their own proper sway.

Government cannot furnish a new power

new agency the

agencies

ing

in nature.

It can, to

exercise of existing power,

is

;

but

it

in

man, or a

a certain extent, control

and the use of existing

can control only by limiting them. Nothlegislation. The science of wealth is

added through

l

in

[BOOK

DEFINITIONS.

2

complete in think

it

Political

own

its

principles,

economy

is,

though the statesman may

them

policy to contravene

I.

for a

supposed good.

then, silent before the law.

science of wealth would he no less complete and cer-

The

government render the creation

tain, should the action of

The

or possession of wealth impossible. dicate itself by saying, that,

my

be as

laws determine.

science would vin-

when wealth is created, it must The independence of these

sciences does not imply that they are indifferent to each other.

The statesman must consult the economist

step, if

he would use the powers of government to national

at every

advantage, and legislate in accordance with the natural

laws of wealth, and to the advancement of the national dustry.

in-

not intended here to enforce this as a duty,

It is

but to show, by these remarks, the relation of the statesman to the science

we

are to investigate.

economy teaches the

Political

man

relation of

to those

which he can obtain only by his efforts. he needs food, clothing, and shelter he

objects of his desire

He

has wants

many

wishes

;

:

things not vital to him.

stitute his wants, in the

the

first fact

view of

of the science.

These wants can only be second

fact.

By The

his wants.

it,

man

Together, these con-

political

economy.

by

satisfied

This

foundation of

It is the

This

efforts.

is

is

all.

the

builds on the foundation laid in

objects or satisfactions obtained

by these which

efforts are collectively called wealth, or those things

contribute to the welfare of

be noticed. pleted.

It

The

may

man.

This

circle of political

is

hereafter appear that there

progress, an unceasing self-multiplication faction creates a

through an

the third fact to

economy

new want, which

;

is

is

here com-

a perpetual

that each satis-

in turn seeks its object

effort.

Let us make a formal statement of what we have obtained

:

—

Wants,

Efforts, Satisfactions

Desires, Labor,

Wealth.

;

or,

CHAP.

CHARACTER OF THE SCIENCE.

I.]

The wants of man,

which are

in

all

3

the springs of wealth,

and form with times and from his nature. They are

are various, and change their place

But they

circumstances.

arise

They commence

a certain and constantly operating force.

with man's existence, and terminate only with his and,

when

all

life:

the desires of the individual are satisfied in

the grave, and his labor paralyzed, the wealth he lays

down

becomes the possession of other men, with full strength and fresh desires and so the creation of wealth

in death

;

goes on in ever-increasing circles, expanded by the central force,

— the wants of man.

While the individual awakens

but slowly to the consciousness of his needs, gradually exhausts his activity in supplying them, and finally resigns all as

he passes from

we

life,

sum

find that the

of such

wants and energies experiences no diminution by an atom,

no suspension

for

an

instant.

Differing as these do in the

individual, they are, in the world, as well ascertained

and

determinate as the facts on which any other science rests.

While the one element of wants or

desires

is

secured in

the constitution of man's being, the other clement

stancy of

—

them is nature, and the permanence we

the relation of effort or labor to

created world, — a foundation sure enough

—

viz.,

fixed in the conattribute to the to build upon.

on the one hand, man's being were so constituted that his wants should cease, or be intermitted without any reason If,

at the time,

too

weak

to

and without any assurance of return, or prove

move

the activities towards their satisfaction

;

on the other, nature were so disposed that labor had no guaranty of reward, resulting indifferently in good to the or,

laborer, or

in nothingness,

who performs

it,

— we

or in positive

injury

to

him

could have no science (f political

economy. But, as man's being and nature's laws are found in experience, political

ence.

economy

Nothing in

or problematic.

its

is

to be regarded as a positive sci-

fundamental principles

None

of

its

is

hypothetical

methods are whimsical or

acci-

[BOOK

DEFINITIONS.

4

Each thing

dental.

All

its

is

I.

susceptible of clear demonstration.

parts are calculable.

"Political

economy

same

plainly belongs to the

class of

sciences with mechanics, astronomy, optics, chemistry, electricity,

and, in general,

all

those physical sciences which

have reached the inductive stage.

Its

premises are not

arbitrary figments of the mind, formed without reference to

concrete existences, like those of mathematics

nor are

;

its

conclusions mere generalized statements of observed facts, like those of the purely inductive natural sciences."*

In his

efforts

we have

to supply his wants,

avails himself of the

powers of nature, the

man

said,

fertility of

the

earth, the stimulating quality of the sun's rays, the agencies

of wind, water,

and steam,

—

all

mechanical supports at his hand.

But such

must, therefore, recog-

and know the laws by which they are governed.

nize these,

ical

the dynamical forces and

He

inquiries do not

economist.

He

come within the field of the politthem from the hands of the

takes

own

physical philosopher, furnished to his

Let us say, then, that

human

nature in

use. its

wants, the

physical laws which supply them, and the statistics of hu-

man

industry in

all its

manifestations, are the material of

our science.

economy

Political

is

a science whose laws

turbed in their operation, or tion,

by the legislation of the

affect the

movements of the

made perplexing state.

may

be

dis-

to observa-

No enactment

planets, nor could the

could

utmost

tyranny of his age obscure the eye of the philosopher who looked on the revolution of the earth.

economy,

as a science, is physical,

So far as

political

depending on the forces

and agencies of nature, it is above legislation. So far as it depending on human nature, it can be hindered or The desires of man may be deflected by laws not its own. influenced by enactments, not made to cease, not brought is moral-,

into being

;

for they are all in his nature

* Logical Method of

Political

:

they have been

Economy, by Professor Cairnes,

p. 38.

CHAP.

and they are indestructible.

created, state,

CHARACTER OF THE SCIENCE.

I.]

while

it is

impotent

to present

5

But the

man

force of the

with a single

new

motive, or to erase one from his mind, can yet modify and control what already exist.

Practically, this is the great dis-

turbing force which political economy has encountered in

Wealth

the past.

in direct antagonism to

own

its

laws.

The express purpose of much reform

human morals by an

sires, or, at least, to

gratification of

all

the constant subject of legislation often

is

reform

such desires

legislation

has been to

external pressure on man's de-

human manners by denying ;

and

this,

all

not in the interest

of religion, or for the safety of the state, but in matters of

dress

and equipage.

Other legislation has sought to supply

supposed deficiencies in

human

intelligence,

tuted blind laws for the keen sight

of

and has

substi-

personal interest

and business experience. Institutions have been created, or have grown up, whose actual effect at the present time, if not their avowed design, is to counteract the operation of the natural laws of wealth

have become

interests

;

and with these

allied in

institutions vast

such a manner as to influence

the material welfare of a great portion of the people.

Hence

the laws of political economy are not only contravened by direct legislation,

ways by

but are obstructed or perverted in many

false social

It will

political opinions.

be easily recognized as a part of that

ture of which principles

and

we have spoken,

human

na-

that the promulgation of

whose legitimate operation threatens the over-

throw of long-established abuses, or which interfere with existing customs, should excite prejudice and opposition. This

one of the chief

the science has had to Here we have the reason why it has made comparatively little progress, and is the only science that cannot obtain a candid and impartial examination from the mass of mankind. It is a long time since chemistry was considered a diabolical art, since geology and archaeology were excommunicated as infidel, since the docis

encounter from the

first.

difficulties

—

[BOOK

DEFINITIONS.

6

was an

trine of gravitation

Church

I.

offence in the nostrils of the

but prejudices and ignorance and partial interests

;

never opposed economical truths more vehemently than

to-

day.

"

A

science that comes in contact with the interests of

men, which

lies in

the region of daily action and desire,

will find its theories

more severely

proofs

more frequently questioned, and

tried,

its

than one which has to do with

the relations of abstract ideas, or the facts of the external

economy is not a science varying with climate and country. There is not an English and an American political economy distinct from each other, and, in a measure, the reverse of each other. The forces of huworld.

man

Political

nature, the agents of production, the arithmetic of

gains, arc the

same everywhere, and lead

to the

same

prin-

economic action." Bascom's Political Economy. Of the advantage of a knowledge of political economy, the same writer thus speaks " The knowledge which it imparts is of an important and if we choose to make that the test of a most practical character. Wealth underlies all civilization, and ultimately, therefore, in a large measure, both knowledge and religion. It is among the lowest, but also ciples of

:

—

—

the

first,

steps to social

worth and national strength.

are not to value wealth for that which that to which

can be made to minister.

it

come, or rather

in

it is

may come,

itself,

In

its

all intellectual, social,

We

but for retinue

and

reli-

gious advantages."

CHAPTER

n.

DEFINITION OF WEALTH. Having now given the ence

is

terms to inquiries.

three great facts on which the

sci-

becomes necessary to fix precisely the be used in the further development of these

founded,

it

Political

economy

is

unlike

all

other sciences in

;

CHAP.

DEFINITION OP WEALTH.

II.]

has not the option of making or choosing

this, that it

own

From the in common words

nature of the case,

terms.

adopt

use.

It is

has to speak of wealth

It

and

labor

capital

;

encumbered with

;

of

of production, exchange, distribution, and

;

the discussion of this science, definite, exclusive,

and

Each has a yet, when used in must have one meaning as

it

;

precise as the terms of natural his-

confusion from this source can only

liability to

be guarded

attached to

of value and utility

variety of meanings in popular language

The

the

all

These are common phrases.

consumption.

tory.

its

obliged to

it is

may have been

notions, false or loose, which these.

7

against by being kept constantly in

mind.

Until the proper definitions become instinctive, so that they

own

arise freely in their

shapes on the mention of such

terms, there will be a constant slipping back, as their habitual

meanings in common

laborious reference of the

mind

tend to diminish the force of

ments where they appear. encountered by writers,

is

were, to

it

the best, the

to formal definitions will

representations and argu-

all

The

At

life.

greatest obstacle, however,

not that arising through popular

prepossessions in regard to words

;

but

their

it is

own

mis-

application of language, confounding things essentially dis.

tinct,

and clothing exact principles in expressions

and indeterminate

We

as to

have said that

but what

wealth

is

make

political

economy

lands, ships, merchandise, with a general all

that

includes

we

call property.

all objects

A discussion

of

No

no substitute

its

apology offered.

will lead to ceaseless

The

principle

Political

is

"and

it

is

houses,

so forth,"

—

In science, the term "wealth"

of value, and no other.

far as the explicitness in view.

vague

treats of wealth

In popular language,

?

so

science impossible.

principles will be satisfactory only so

and exclusiveness of is

this

term

is

to be given for the definition,

The

least deviation

from

held

and

this line

entanglements and perplexities.

cardinal.

economy has been

The

science turns on

it.

called the " science of values."

[BOOK

DEFINITIONS.

8

No

more

definition could be

but we shall more popular, and as

strictly accurate

retain that already given, as being

nearer to the customary use of the words. science

I.

;

It is, then, the

of wealth, understanding that wealth consists

of

objects of value only.

CHAPTER

III.

DEFINITION OF VALUE. What,

then,

possess value

is

value

When

?

does an article or commodity

?

an object of man's desire, and can be obtained only by man's efforts. Any thing upon which these two conthat is, a power in exchange. ditions unite will have value

When

it is

;

Value

the exchange power which one commodity or

is

service has in relation to another.

That such a power does exist, is not a matter of dispute. Its influence is felt and acknowledged in every Country, This it is which excites to industry, civilized or savage. This power creates commerce, and supports government. obeys laws as certain and immutable as those which apperJust as man is tain to any of the great forces of nature. sure to feel wants, to put forth efforts, to realize satisfactions

;

so he

is

sure to be found exchanging an excess for a

home product for that which comes from abroad, his mind for the work of another's body. of work

novelty, a

the

Again

let

us remark, that the term " value " always ex-

presses precisely fact.

power in exchange, and no other power or

Desirableness

objects are

more

is

not value.

the light of day, the heat of the sun

They all

Utility is not value.

No

useful and desirable than atmospheric air, ;

yet these have no value.

will exchange for nothing, because any one

he wishes without

effort.

may have

CHAP.

An who

object, to possess value,

is

obtain is

DEFINITION OF VALUE.

III.]

9

must be desired by some one

willing to render a service or equivalent in order to

what a man

gets,

The use

value.

he cannot have it without. It what another will give, that determines

for the reason that

it,

of this term, in

utmost importance.

its strictest

sense, is of the

confounded with any thing, or taken into any partnership, the whole science is thrown into conIf

fusion.

common

has been

It

for writers to speak of exchangeable

value, intrinsic value, value in use, &c.

are

The

inappropriate.

adjectives

have no significance whatever. value

but

these terms

all

superfluous

To speak

they

:

of exchangeable

speak of exchangeable exchangeability.

to

is

;

are

The

term " value," in the science of values, always implies power in exchange, and nothing else.

Of

the writers on the subject, no one seems to have

all

been more

and

full

of value than

Economy: "

—

Bastiat, in his "

M.

"Theorists have set out, in the value with

perceived the consequences of

it,

error

exchange,

— an unwieldy

The theory

tautology,

services. time

do

wheu

a

this for

first

time,

is to

The man

you

we

arithmetic.

in use

which had the

Value

is

(p. 161).

economy

relation of two

idea of value entered into the world for the said to his brother,

;

'

'

Do

id

fault of attach

is to political

the

diffi-

and value

phenomena"

of value," he further says, "

what numeration

when they

and,

they thought to obviate the

ing the same word 'value' to two opposite "

;

Political

by confounding

instance,

first

by imagining a difference between value

culty

illustration

Harmonies of

first

This was their

utility.

and

clear in the definition

this for

first

me, and I will

they had come to an agreement

:

could say the two services exchanged,

then, for the

— were

tcorth

each other."

The eyes.

man and the paralytic is given in The blind man says, " I have limbs you have carry you you shall be my guide." Each

case of the blind

illustration.

I will

receives a benefit

:

:

;

their services are exchanged,

— valued by

10

[BOOK

DEFINITIONS.

Here we have value appearing, not

each other.

wealth, but in services ; yet the principle

when

is

in material

just the same as

the hatter says to the bootmaker, " I will give

you a They

hat for a pair of boots," and they change accordingly. really

exchange their mutual

form of material

into the

Another

services,

illustration is given

and get

to him,

for

'

you

me

Bring

;

My

it.

:

—

my

thirst

neighbor,

I go two miles to the

water, and I will do something in the

one

:

;

neighbor goes on the same errand.

Here

I will teach your child to spell.'

two services

which have been put

objects.

" I wish for water to quench spring,

worth the other.

is

I say

mean time

the exchange of

is

Presently, I say to

my

Instead of teaching your child while you are gone for

'

the water, I will pay you twopence each time.' accepted,

I.

we

say the service

is

neighborhood employ the same

water-merchant

;

man

The

It has not

water, at

changed

its

first

is

is

If others in the

to bring water,

and the value of water

the value of wheat.

of wealth.

If the proposal

worth twopence.

he becomes a

as fully recognized as

valueless,

is

now an

article

chemical qualities, but services

have become materialized, or incorporated with

it.

If the well, in

the case supposed, were brought nearer to the village, the value of the water would be reduced, because less labor or service would

be required

to obtain it."

Suppose an aqueduct built by the joint labor of the munity.

The

not the less

business of the

is

human

water-carrier has ceased

com;

but

the value of the water, delivered at the door, the

product of labor.

The

labor has been invested with a permanent

form, as pipes, walls of masonry, gates, &c.

Labor has been accu-

mulated for the purpose, instead of using the hourly labor of the

The

water-carrier. carries

"We have gave value

;

the same.

said that

it

was not the

properties of the water that

no more does the value reside

The water-works

on the ground, to

industry of the bricklayer and the plumber

water years after they ceased to work on the aqueduct.

at the rate of a million

each square league.

in the

mere delivery of

of some regions furnish them water

and a balf square

feet a

Yet the water has no value there

;

agencies employed are not the labor of man, but the currents of

— Nature's

pipes and conduits.

day

for the air,

CHAP.

DEFINITION OP VALUE.

III.]

The diamond,

as

11

M. Bastiat observes, makes a great figure It is adduced as an illustra-

in works on political economy.

tion of the laws of value, or of the supposed disturbance of

those laws

and, as he gives a more full and satisfactory

;

explanation of the cause of value in a diamond than any other writer,

we

words

shall quote his

:

—

" I take a walk along the sea-beach, and I find by chance a

magnificent diamond.

Why ? Am Have

I

am

thus put in possession of great value.

I about to confer a great benefit on the

I devoted myself to a long and laborious

considers that I have rendered

it

him a great

race

?

Neither the

But, undoubtedly, because the person to

one or the other. transfer

human

work ?

whom

service,

—

I

all

many rich men desire it, and I alone can render it. The grounds of his judgment may be controverted. Be it so. It may be founded in pride or vanity. Granted again. But this judgment has nevertheless been formed by a man who is disposed the greater that

to act

upon

it,

and that

is

my

sufficient for

Far from

argument.

the judgment being based on a reasonable appreciation of utility,

we may

allow that the very reverse

great sacrifices for what far

is

is

the case.

utterly useless.

from bearing a necessary proportion

the person

who

renders the service,

proportion to the labor saved to the

In

Ostentation makes this case, the value,

to the labor

performed by

may be said rather to person who receives it.

bear

This

general law, which has not, so far as I know, been observed by theoretical writers, nevertheless prevails universally in practice.

"The

diamond may be supposed

transaction relative to the

give rise to the following dialogue

"

'

Give

"

'

With

me

your diamond,

all

my

heart.

:

—

to

sir.'

Give me,

in exchange,

your labor

for

an

entire year.'

"

'

acquisition has not cost

"

'

well, sir

Your Very " Yes '

;

:

find

you a minute's work.'

an equally lucky minute.'

but, in strict equity, the

exchange ought

to

be one of

equal labor.'

" I

'

No

:

in strict equity,

upon mine.

upon me ? yourself

you put your value on your

I don't force you

Give

me

:

why

service,

and

should you lay a constraint

a whole year's labor, or seek a diamond for

12

[BOOK

DEFINITIONS. "

'

But

that might entail on

ably end in nothing.

me

ten years' work, and

would be wiser and more

It

I.

would probprofitable to

devote those ten years to another employment.' "

'

It

and that

why

you exacting,

I attach great value to the service.

it is

only because you regard the labor

which I have performed; but consider will find

me

reasonable in

"

*

It is not less true that

"

'

And,

nothing,

if

it is

you

my

profit

by

nature.'

away what I have found, for little or you who would profit by it. Besides, if this diamond it is

not because Nature has been elaborat-

She does

since the beginning of time.

it

also the labor I save you,

demands.'

I were to give

possesses great value,

ing

I thus save you nine,

you only one year's work.

the reason

is

If I appear to

and you

was rendering you

precisely on that account I imagined I

is

a service in asking

as

much

for a

drop

of dew.'

"

'

Yes

;

but, if

could no longer lay it i

to

Very

true

;

diamonds were as common as dew-drops, you

down

the law to me, and

and, in that case, you

make your

me, or would you be disposed to recompense

you could perform

service

The

more

me

highly for a

yourself.'

result of this dialogue,

that value no

conditions.'

would not address yourself

M.

Bastiat regards as proving

resides in the

diamond than

in air or

water. " It resides exclusively in the services which

we

suppose to be

rendered and received with reference to these things, and

mined by the

bargaining of the parties

free

change.

The pretended

services,

real

with them.

and

is

value of commodities

to

the water, or the

air.

No

from the

exclusively

among men."

:

deter-

the ex-

only the value of

in the commodities themselves,

be found in a loaf of bread than in a diamond,

It proceeds

Again

is

is

or imaginary, received and rendered in connection

Value does not reside

no more

who make

final

part of the remuneration goes to Nature.

consumer of the

article,

and

is

distributed

—

" In order that a service should possess value in the economical sense of the word, real, conscientious,

it is

not at

all

indispensable that

and useful service.

It

is

it

should be

sufficient that it is

:

DEFINITION OF VALUE.

CHAP, in.]

accepted, and paid for

by another

13 depends wholly on

It

service.

the judgment

we form

morals

always be the best auxiliary of

will

in each case

;

and

Economic science would be impossible

the reason

this is

if

we

why

economy.

political

admitted as values

only values correctly and judiciously appreciated."

Value does not always

exist

The

a visible form.

in

wealth of a nation is generally supposed to consist in the aggregate of buildings,

&c.

;

but

its

material objects having value,

ships, its

its

lands,

power of creating wealth, named, but the intelligence, skill,

potential wealth, or

includes not only

all

these

and productive energy of

industry,

— in

merchandise, treasure, canals, railroads,

No

citizens.

its

in-

ventory of a nation's effects will give an adequate idea of

economic condition, unless we hold in view

its

capacity of

its

development, and the industrial genius of the people.

The main the

common

principle in the theory of value

phrase, "

— that is, what some

A

thing

is

is

worth what

one will give for

it

;

expressed in

it

will fetch,"

the value depend-

ing on the will of the purchaser, as determined by his

judgment.

Value

is

the appreciation of services.

The value

command If there

of a thing

is

;

is

no resistance

it

will

to the possession of

an

article, it

Labor alone does not always create

but value never exists in an

willing to give labor, in

for

the service or labor which

in exchange.

can have no value. value

is

article, unless

some form or

other, in

some one exchange

it.

The ancients thus described

the combinations of exchange

Do ut des, Do ut facias,

Commodity

for

Commodity

for service.

Facio ut

Service for commodity.

des,

Facio ut facias, Service

This statement exhausts principle.

all

commodity.

for service.

the

modifications

of

the

11

[BOOK

DEFINITIONS.

CHAPTER DISTINCTION BETWEEN

We

now gone

have

over

all

IV.

VALUE AND

a while on one part of

it

;

UTILITY.

the ground belonging to the

but we cannot leave

theory of value:

I.

it

without dwelling

without clearly marking the

—

boundary which separates

it from the domain of utility, a most troublesome and intrusive neighbor. There is between utility and value a distinction as real as between weight and color.

Suppose a farmer in Vermont has one thousand bushels of wheat that

it

;

will

its

value

make

A farmer

is

forty

two thousand

dollars.

Its utility is,

thousand pounds of bread.

in Illinois has one thousand bushels of wheat,

equally good ; but

its

utility is just the

same.

value

is

only one thousand dollars.

make as much Vermont. The value, It will

as good, as the

wheat of

not reside in the

utility,

Its

bread, and then, does

but in the power in exchange.

The

wheat of Vermont commands a higher price than that of Illinois,

because of

location

means

it.

its

location nearer to the market.

labor: that

This will be

still

is,

Here

the labor required to overcome

more apparent,

if

we suppose

the far-

mer removed a thousand

miles by land from any market. His wheat might then have no value yet its natural, inhe;

rent utility would be as great as ever.

Take another

illustration.

A

pound of small

nails or

tacks formerly had the value of twenty-five cents, equal to

By

one-fourth of a day's labor. chinery, the value

was

the twentieth part of a day's labor the time as at

first.

the introduction of ma-

reduced to ten, then to five cents, or

The value

;

of

the utility remaining

many

all

articles, especially

those called manufactures, are, in the ordinary progress of

human hilated.

effort,

This

constantly diminishing, though never anniis

because the labor or service to be appreci-

VALUE AND

CHAP. IV.] ated in such values

is

distinction

15

constantly lessening, though

In this

never wholly disappear. certain

UTILITY.

is

seen,

between value and

utility,

the most beneficent laws of the science, which as follows

:

but one of

may be

stitution of the gratuitous agencies of Nature,

is

can

stated

Value moves, diminished constantly by the sub-

nuity and industry of man. in the

it

not only the

man and

wants of

the primary fact.

by the inge-

Utility remains fast-anchored

the properties of matter. again, — not

This

But value moves to inValues are no greater, but there

crease, but to multiply.

are

The

more of them.

growing wants of man.

factor that multiplies is the ever-

Now,

utility

begins to move, ex-

panding with the enlargement of man's increase of the fruits of labor. that the

human

race

is

activities, and the Here we have the promise

destined to a constant augmentation

of utilities, bringing in a great amelioration of

Man

is

its

condition.

relieved from part of his labor only to feel

wants, and so, through fresh factions in Political

efforts, to find

new

greater satis-

life.

economy makes no inquiry whether the increase is, in truth and on the whole,

of material objects of desire

a good.

It

assumes

this.

It leaves to others the discussion

whether the highest interests of society are attained by

and by denying the inman. This kindness, and those instincts, politiIt can cal economy accepts, and goes forward from them. never become stoic. It is not a science, unless wealth is a repelling the kindness of Nature, stincts of

good. It is a science

;

and

it

has no doubt that the healthful,

honest increase of physical necessaries, comforts, luxuries,

and refinements, with' the opportunities which they bring for mental improvement and moral culture, with the safeguards they place upon social order and personal rights, and with the manifold strong and subtile motives which they contribute to the exertion of all the human faculties, and the full, friendly intercourse of all communities

and peoples,

—

it

16

[BOOK

DEFINITIONS.

has no doubt that this to prove

so.

it

It

is

But

desirable.

does not found It takes

refutation of asceticism.

it

itself

I.

does not labor

on any supposed

without inquiry the uni-

versal inclination to the accumulation of wealth, under the

mutual duties and common

restraints of

We have

rights.

said that Nature adds value to nothing.

Though

unceasingly at work for man, she receives no compensation.

She creates tuitously.

utilities beyond computation, but does all graWind, water, and steam are most efficiently

engaged in producing commodities necessary to the welfare of

mankind

;

and the earth

is

many

unceasingly active to bring

Yet all is done without adding to the wealth of the world. The forces " work The power of for nothing," and hence confer no value. the wind, for example, in propelling vessels, adds no value But, it may be objected, would to the articles transported. great deal more to transport that merchandise, a it not cost if it had to be done by human hands working at the oar ? forth man's

food in its

Certainly

and, from the very illustration,

;

forms.

it

appears that

the power of the wind has not increased the value, but rather diminished

it.

It

has taken the slaves from the

bench, and does the merchant's rowing for him. ture's work, not

man's labor

while utility stands

;

It is

Na-

and hence value goes down,

fast.

Transportation does, indeed, add to the value, but only

because man's vessels and man's labor are employed in effecting

it.

from value.

All the natural forces that If a

merchant were

to

make

come

in take off

a charge for the

use of his vessel, the payment of his hands, and the ordi-

nary rate of profit on his voyage, and, besides these, for the Competition it would not be allowed. would correct his philosophy and the eloquence of unsold merchandise would be his teacher in the theory of value. Take steam for an example in point. The services of tins great agent in England are probably equal to the muscular but the whole of it effort of one hundred millions of men use of the wind,

;

;

CHAP.

VALUE AND

IV.]

All that

is

gratuitous.

is

machinery and

is

17

UTILITY.

required to secure these services

whose whole value has been given by

fuel,

labor. If

we look

to the fertility of the land,

by

far the greatest

of all the natural forces engaged in production, confers no value.

find that

it

men pay

for the use of it

The answer

?

Is

Why

asked, "

it

buy

it

Why,

we

then, do

at a large price

at length to this question will be deferred

discussion of rent

;

but

it

will

be

shall

?

"

the

till

purpose

sufficient for the

argument to say, that it is because appropriated or owned (whether rightly or wrongly) by individuals of the present

who can make a profitable use of it themselves. There are many special products which have been

pre-

sented, in discussion of this subject, as exceptions to the principle, that value

comes only with and by labor;

e.g.,

precious stones, curiosities, the precious metals, monopolies, patents,

&c, &c.

The

relations of the first

two are

Of gold and

Bastiat.

silver, it is

ever the theories of the past,

it is

work

fully

M. enough to say, that, whatnow an abundantly recog-

defined in the extract already offered from the

of

nized fact, that the mining of these metals proceeds strictly

according to the laws of industry, with hardly accidents to

and chances.

It is estimated, that,

its

ordinary

when brought

market, these metals have cost sixty-six cents on the

dollar.

The remaining

thirty-four cents constitute the re-

muneration of the laborer and the

capitalist

;

which cannot

be regarded as excessive when the privations, risks, and hardships of the occupation are kept in view.

Monopolies

and patents confer no value, but simply contravene its laws. This is their object. They are designed, by giving the exclusive right to produce or sell a given article, to reward the favored party for his skill in invention, or for a general

good supposed to be conferred upon the community.

They

upon the public

for the

are compulsory contributions levied benefit of individuals. 2

18

[BOOK

DEFINITIONS.

CHAPTER

I.

V.

DEFINITION OF LABOR.

We

have defined value at great length and with various with the result, to our minds, that it arises

illustrations,

from the union »of desire and labor ; but we have not defined the latter term.

What

is

labor

?

The voluntary

human

efforts of

beings to produce objects

of desire.

Labor

always irksome.

is

This

Men do

law.

is

not vol-

untarily put forth their exertions, except for a reward.

By

the beneficent provision of Nature, habit assists our activities

pain

great desires overcome the sense of weariness and

;

movement

the impetus of one

;

Toil has

next.

its

compensations.

But not the

wholesome.

less is

of

it,

of man's natural inclinations.*

carries us

on into the

Its fruit is pleasant itself,

It is

and

against the drift

because

men

do not

voluntarily put forth exertions, except for a reward, that

every thing which costs labor will, as a general rule, com-

mand fore

a corresponding

it

is

amount of

that labor is

service or labor.

There-

the essential measure of value.

Whatever disturbing causes there may be, it will, on the whole and in the long-run, be true that labor commands its equivalent in labor.

In this definition, we have spoken of voluntary

efforts

uncompensated efforts are They are merely the result of

alone, because involuntary or

not to be classed as labor. the use of a given *

"

Labor

is

amount

of capital.

either bodily or mental, or, to express the distinction

comprehensively, either muscular or nervous in the idea, not solely the exertion

kind,

all

Slaves are owned,

itself,

;

but

and

it is

more

necessary to include

all feelings

of a disagreeable

bodily inconvenience or mental annoyance, connected with the em-

ployment of one's thoughts or muscles, or both, in a particular occupation.' J. Stuakt Mill, Principles of Political Economy, p. 29, Am. ed., vol. i.

—

DEFINITION OF CAPITAL.

OHAP. VI.]

oxen employment as

like horses or

their

;

and what value they confer so

much

not unimportant, because trolled

19

we

capital.

is

from

This distinction

is

shall see that capital is con-

by other laws than those which govern labor.

Under a

free-labor system, as will be shown, there are

two proprietors of value,

Under a

— the

laborer and the capitalist.

slave-labor system, only the latter has

any share in

the product.

CHAPTER

VI.

DEFINITION OF CAPITAL. Labor

enters into production, or the creation of values, in

two ways

:

—

As the labor of the present. Second, As the labor of the past.

First,

We which

call the first

" labor " simply

accumulated labor.

is

;

the second, " capital,"

In their nature, these are

They have assumed different forms, have acquired independent rights, and each obeys certain laws These two forms of labor may be, and peculiar to itself. often are, owned by different persons. One man has present This must be his own. Another labor at his command. identical.

This may be his own, or that of which he has come into possession.

has accumulated labor. others, of

In practice, the two forms of labor must come together

and help each other, if they would effect the barest subsistence of mankind. Even the naked savage goes hungry till he gets his bow and his fishing-hook by the labor of his hands.

As

society goes forward to plenty, comfort, luxury,

civilization, the

union and mutuality of the two become

more intimate and wealth produced.

vital.

By

such a connection alone

is

20

DEFINITIONS.

The growth

of capital, and the steps by which

it

[BOOK

I.

comes

to

may be best An able-bodied workman

proper position in the creation of values,

its

shown by a familiar

illustration.

presents himself to you, having the

full disposal

of his

own

powers, fully representing the labor of the present, and that only.

We

sities as to

will,

however, compromise so far with his neces-

allow

him

to

be clothed

though each

;

article

he

wears has come from the labor of the past, and, in this supposition,

is

capital.

He

has no tools

you have you must deny him ;

and,

if

no work that can be done without tools, employment. His chances, then, of labor, are hardly as one to a hundred without tools. In the other ninety-nine, he starves for want of capital. But, by chance, you find

work requiring no help from accumulated labor. You set him to clearing a field by throwing the stones into heaps. He has secured subsistence for the day without capital. It was uncertain whether he would obtain it. It is certain the employment cannot last long, since need of such assistance and you send him closes, perhaps, with the first evening ;

away

to-morrow

away

His livelihood

helpless in the midst of civilization. is

more

still

precarious.

his earnings for the day.

He

But no

:

chooses to lay

he carries

them out

an axe, rather than on any object of comfort or pleasure.

in

He

He appears the next mornHe has enlarged the sphere of his activity, perhaps, fifty-fold. He has now fifty chances of employment. He has secured work for fifty days. Before the has practised a self-denial.

ing with his axe.

provide for his imme-

close of this period,

he can, by

diate bodily wants

pay for his clothes, for which we gave

him

credit

more

;

thrift,

in charity than logic

;

and become the

possessor of a pick and shovel, scythe and rake.

a

full farm-laborer, able to

do any part of the

He

is

strictly neces-

sary work of agriculture with such tools as he has, and rightfully expect is,

now

employment every day of the

year.

may So

in the grand field of the world's industry, that capital

the accumulation of labor

— helps the labor of the

it

—

present,

CHAP.

RELATION OF CAPITAL AND LABOR.

VII.]

not only to

its

immediate sustenance, but

to

21

permanent

occupation, to increase, and to the highest economic

civi-

lization.

CHAPTER

VII.

RELATION OP CAPITAL AND LABOR. But

this

union creates the competing interests of labor and

capital, since they are generally

An

found in different hands.

Each has had the whole of its own They are competiproduct, but a most melancholy whole. interest

now

tors

is,

in scientific meaning, a share.

Before, each

only a share.

;

for those shares are not

determined absolutely in the

nature of the union to which they have consented.

It is

by

the earnestness and persistency of competition alone that either can secure its remuneration, or maintain its existence.

But they

are not antagonists.

All their

effort,

even in

the severest assertion of their individual claims, goes to the increase of the their

mutual

purpose

common

service.

so far as

is,

it

property, and the advancement of Antagonism tends to destroy. Its

proceeds, to remove one or the other

The competition of labor and capital never ceases but it respects the bond of union in which only each has its own full development. Here we see the folly of the supposed antagonism. They of the parties. ;

and should divide the results of industry in and good feeling. False philosophy, or unprincipled politics, may alienate their interests, and set them at Capitalists may encroach on labor. discord. Laborers may, in their madness, destroy capital. Such is the work of ignorance and evil passions. It is the surpassing folly of the members that combined to cut off supplies from the are partners,

good

faith

stomach.

However in

mutual

far

strife may be carried, it must result and health can only be restored by ob-

such a

injuries

;

—

22

[BOOK

DEFINITIONS.

taming the recognition of the

The

each.

and obligations of

full rights

condition of well-being

is

I.

A

peace.

false philos-

ophy has set the world at war for ages, proclaiming that what one nation may gain another must lose. Such a philosophy has had its trial, extending over centuries of waste and terror and is now, fortunately, dishonored through the ;

whole

civilized world.

Akin

to

it is

the belief that hatred

normal relations of

and

and retaliation are the and that mutual dis-

labor,

and hurtfulness are inevitable in all the developments Such a belief blasphemes against the harmo-

trust

of industry.

nies of Providence,

of

capital

man and

—

nature.

is sightless

It

ciple of hurt, not help,

before the glorious order

was the popular

faith in

such a prin-

between the two great divisions of

industrial power, that effected the Revolution in France.

The cruel, shallow selfishness of capital has robbed labor by means of law. Labor, impoverished, ignorant, degraded, has often turned upon its tyrant, and laid in a common waste church and state, letters and wealth.

CHAPTER

VIII.

THE GENERAL DIVISIONS OP THE SCIENCE. 1st, It satisfy

to satisfy as fully

inquire in what

how

and

has wants which he can

employed

;

easily as possible,

manner

the forces at his

this

we

are

can be done most

command may

first

desires

led to

effectively,

be most advantageously

what are the laws which govern OF WEALTH.

in other words,

the PRODUCTION 2d,

man

being admitted that

from the world around him, and which he

Since

men have

different capacities

and

tastes,

since they are placed in a variety of circumstances as to soil,

climate,

and

civilization,

—

their products will be vari-

CHAP.

VIII.]

GENEEAL DIVISIONS OF THE SCIENCE.

ous ; and yet, since

all

men

desire nearly the

23

same

objects,

an interchange of their respective commodities will become a Hence arises that department of industry called necessity. exchange, the laws of which

economy 3d, Almost

it is

the province of political

to investigate.

which men desire are produced by

all objects

One

the joint efforts of several individuals.

strength

;

another, skill

must be distributed among them As this division, it is quite tions. to the caprice of individuals,

all,

contributes

yet the product

another, capital :

;

and in just propor-

clear, should not

be

left

but be determined by natural

becomes one of the departments of inquiry upon which the political economist must enter. It is here his duty to ascertain what those laws are, and under what cir-

laws,

it

cumstances and conditions they will tribution of the 4th,

As

all

an equitable

effect

dis-

wealth which has been produced.

commodities created by

human

exertion are

designed for use, and as such use implies consumption

more

or less rapid, and as

upon

this

depends the power and

disposition for reproduction, the question of consumption

has a scientific place will be

among

the objects of our inquiry, and

found to possess a practical importance second only

to that of production.

These are the four great questions which suggest the general divisions of our subject

viz.,

;

production, exchange,

and consumption of wealth. Exchange might not improperly be regarded as belonging

distribution,

to the first general division, since

the actual production of wealth tates

:

contributes largely in

it

yet, as it also greatly facili-

and increases consumption, and has influence through-

out the whole domain of to regard it as a separate

human

industry,

department

;

it

and

seems desirable

it

has often been

treated as such by writers on the general subject.

;

BOOK

II.

PRODUCTION. CHAPTER

I.

FOEMS OF PRODUCTION. All values are created by modifications of

Man

cannot create one particle

change

finds, or

its

By TRANSMUTATION,

;

ways

condition, in three by

existing matter.

but he can modify what he viz.

;

:

—

TRANSFORMATION, by TRANSPORTATION.

First,

by transmutation.

This

is

eminently the work of the agriculturist, who,

and and grains

availing himself of the chemical agencies of the earth air,

transmutes seeds into vegetables,

fruits,

and these again, by the aid of animal organizations, into This is the most extensive branch butter, beef, hides, &c. of industry, and employs probably four-fifths of the race from generation to generation.

great pyramid

of production.

human

It is the base of the

material

It furnishes the

and not this with an unceasonly, but it renews and restores their waste ing supply of fresh bodily and mental power. The air of trade and of the mill heats and rises, and cold currents and the support of

all

other forms of labor

;

rush in from the prairie and the mountain.

The

foot of

commerce, and the busy gatherings of men. He comes with clumsy tread and homespun dress but he takes the first place in the market the rustic is ever turned to the marts of

;

and the synagogue. falling, stares

[24]

Basil enters Constantinople as night

about on the magnificence of the

city,

is

and

CHAP.

is

He

Macedon.

tired of

25

Church of

asleep on the steps of the

falls

He

FORMS OF PRODUCTION.

I.]

St.

Diomede.

has business on the throne of

He who restored the laws of the Eastern emand reclaimed the lands deluged by the barbarian floods, is the exemplar of the countryman, in all times, gazing rudely around on the luxury his homely virtues are to appropriate. The millionnaire dashes by in his splendid the world. pire,

turnout

a raw,

:

tall lad,

with a bundle on a stick, looks on

— the employer of that man's

with wonder,

children.

Just as agriculture sends to the markets and the mills of the world their materials, so

Strength and even

go

life

it

sends them their workmen.

fast in the eager competitions of

manufactures and trade.

Cool

hills,

blood, flows in

air, fresh

The

from the country, to supply the waste.

bare, bleak

where Nature grudges every morsel of food, and stabs

cruelly through every chink in the wall, every rent in the clothes, feed the

orous

life

run

busy

off

with men.

cities

from them

The streams

of vig-

to refresh the plains below.

Agriculture has no need to receive back, in any form,

The power

her contributions to the other occupations.

to

give without exhaustion lies in the liberal, healthful repro-

duction of

Nature.

man, when

Here, after

War and

ing.

living in

hurts,

all its

intimate

quick or lingering deaths

and

men

will

social order

may

waste our kind in

by the side of the born be to hold up the frame of industry

when

;

but

still,

their supporters faint

agriculture does get back a certain share of

Because

it is

for heal-

pestilence, the fierce contest of the mart,

the stifling atmosphere of the mill,

brooks,

with

relations

humanity comes

and fail. what it

Yet gives.

not a labor of ambition, because honors are

not to be gathered in the

fields it cultivates,

because the ex-

citements of machinery and association are not to be found in its

work or

ized in city

;

its

play, because quick wealth is not to be real-

slow increase, the rustic turns himself to the

and because

it

is

not a labor, of ambition, and for

each of the other reasons given, the

citizen,

weary with

all,

—

[BOOK

PRODUCTION.

26

II.

goes back to the open fields and fresh air of the country.

The cabbages

of Diocletian, the eggs of

and Lawrences.

to agriculture for Basils, Astors,

But

the department of agriculture

popular view of

When

it.

John Ducas Vata-

William Temple, are the return made

ces, the apples of Sir

grain

is

is

not confined to the

produced, the seed must

be planted in prepared ground, the long interval of growth

must be filled with care and labor and, at last, work of harvesting completes the round of duties that go the production of the grain. But there are great indus-

to maturity

;

the to

the department of agriculture, where harvesting

tries in

alone

performed by man.

is

Man's part

is to

industry

mining,

is

find

and

Nature has done

all

— whether

the rest.

Such an

to take of her bounty.

of iron or coal, whether of

diamonds underground in Golconda, or sponge under water

Such an industry

in the Archipelago.

whether of whales

off

the fisheries,

So great, indeed,

or of pearl-oyster off Ceylon. entific

is

Greenland, of cod off Newfoundland, is

the

sci-

extension of the department of agriculture, that even

the smelting of the ore, and the transportation from the fishing-grounds to the port from which the venture began, are included in

it,

because these

first

put the products in

Any

the possession of the capitalist in an available form. further change, whether to

make

the metal up into forms

for use, or carry the fish or oil or pearls to market,

come under the other forms

of production, to which

proceed.

Man

modifies matter and exchanges

its

condition,

would

we now

—

Secondly, by transformation.

This

is

chanic.

the business of the manufacturer and the me-

These create values by changing the forms of

matter, as cotton and wool into cloth, iron into tools and

implements. industry.

This

is

the second great department of

Its ramifications

same vigor and extent. Since a whole, do not meet wants so primitive

yet not everywhere of the

manufactures, as

human

extend throughout the world,

CHAP.

FORMS OF PRODUCTION.

1.]

and absolute as does agriculture, they dent in

all

industry, found not to be

27

by a law

are,

evi-

so equally diffused.

Those needs which are peremptory and instant will, from that reason, tend to obtain their supply from the immediate neighborhood in which they

The nearer objects of more cosmopolitan

arise.

desire approach to being luxuries, the

they become.

Other reasons, which will appear in our prog-

ress, will further

factures,

in

account for the unequal growth of manu-

which have yet more uniformity than

statistical

tables, or

in

general

is

exhibited

estimation, since the

staple articles of manufacture attract

more

attention than

those multiform smaller products which far outweigh them in value.

The

distribution of manufactures is governed

of conditions,

lowing 1.

:

—

The

among which may be

by a variety

briefly stated the fol-

industrial genius of a people.

"Without plun-

ging into the deep questions of ethnical differences, or

compensations in the whole of character,

it is

yet evident

beyond discussion, that the active powers of every people have something of their own which they do not fully share with others.

Were

all

the nations of the earth possessed

of mental, moral, and physical qualities which could be positively estimated to be, in the

quite certain that they

sum

would be

of them, equal,

far

it

is

from similar: their

energies would develop in different lines towards different objects.

some

Patience and a kind of business faith distinguish

mark

and are impressed disand daring speculation no less characterize others. To a class of minds thoroughly representative of more than one nation, mechanpeoples,

their features,

tinctly in the results of industry.

ical

contrivance

gives

the

Activity

same glow of pleasure that

rewards the painter for his years of reserved, secretive disposition

may

toil.

A

distrustful,

be observed through the

entire industry of another country, tending to individualize efforts

and discourage combination.

The

catalogue of

[BOOK

PRODUCTION.

28

much

has been extended sufficiently to account for

traits

of the inequality which exists in the distribution of

II.

manu-

among the nations of the civilized world. The territorial advantages of a people, which are

factures 2.

both positive and negative in their nature, people

—

positive, as a

endowed with water-power, and with the coland lime for

is

location of necessary materials, as of ore, coal,

making iron

;

negative, as a people is not attracted to other

branches of production by superior

It

facilities.

esti-

is

mated that Holland has not agricultural capacities to supply a third of its population. With some peoples, this niggardliness of soil would have been a reason for emigration or starvation

;

but there, uniting with the peculiar genius of

the inhabitants, this necessity has produced a wealthy and flourishing state.

It

has ever been held by moral writers,

that such unkindness

of Nature

energies of a people, where

it

develops the industrial

is

not so extreme as to

destroy even the conditions of production. is

But the inquiry

too abstruse for our purpose. 3.

Great accidents, belonging neither to the essential

genius of the people, or

its territorial

endowments.

Such

are the transcendent discoveries in the sciences and the arts.

Such are wars which exhaust nations, leaving them weak generations. Such are persecutions, like that which scattered over the continent six hundred thousand Huthe cunning artisans of France; like that which guenots, wrought devastation still greater in the " reconciled " provinces of Spain.* Such was the windfall of the Indies in

for

—

the lap of Europe.

The

desirableness of such a distribution

of manufactures will be discussed elsewhere.

here

is

only to show by what

means

it

Our purpose

comes about so un-

equally.

Passing

now from

this question,

aggregate of such industries,

we

and looking only

find

it

* " Our manufactures were the growth of the persecutions Countries."

to the

to be small, if

— Edmund Bukke, in his speech to the electors of

in the

Bristol.

we Low

CHAP.

29

FORMS OF PRODUCTION.

I.]

number

consider only the

of those employed.

But labor

here acts in connection with a greater amount of capital

than in agriculture, and avails

itself of

more and mightier

The factor into which labor is multiincreased when we enter the workshop and

agencies of Nature. plied

vastly

is

the mill.

But man modifies matter or changes

its

condition,

—

Thirdly, by transportation.

The merchant does not

primarily create value in objects,

but enhances that already existing by transporting such objects

The kind.

from one

locality to another.

characteristic illustration is

New

Cotton bought at

of the most familiar

Orleans, in 1860, for twelve

cents per pound, transported to Liverpool, would have sold, say, for fifteen cents.

By

his capital

and

skill,

the mer-

chant has added twenty-five per cent to the value. or exchangeability of the cotton. of the world so much.

He,

He

has increased the wealth

therefore, has

produced value.

transactions are useful alike to the producer and to

Such the consumer of the

articles transported.

In so far as the transportation of products gives them value, ject

;

it

belongs to the present general division of the sub-

but

its

methods and agencies are so unlike those of it is governed by laws so

the other forms of production, peculiar

and

and complete in themselves, it composes so large department of inquiry, that it is, for

easily separate a

the discussion of

its

principles, placed as a general division

of the science under the

title

the sphere of production,

we

of " Exchange."

To complete

recognize here the share

it

has

means by which and the impressive phenomena exhibited in the operation of this agency throughout the entire world, are set apart

in creating values

;

but the

this is effected,

for special consideration.

We

have thus gone through the three forms in which

modifies

matter to create values,

formation, and transportation.

— transmutation,

The inquiry

will

at

man

trans-

once

;

[HOOK

PRODUCTION.

30

occur, whether these exhaust duction.

all

possible efforts in

The answer may come out more

II.

pro-

clearly if

we

proceed by an illustration.

The

chemist,

— what

He has been

ues ?

is

his position in the world of val-

ranked, by some scientific writers,

among

the agricultural class, because he so aids and directs the

processes of Nature as to produce objects of value by chang-

ing the elementary powers of acids and alkalies into &c.

That

is,

he transmutes.

that he belongs

seems more accurate

It

among producers

just so far as he assists in

any one of the three forms defined. of the agriculturist, helping

the farm.

how

salts,

to say,

He works

by the side

best to direct the labor of

Here the chemist produces

He works by

value.

the side of the manufacturer, with lubricants and solvents,

removing obstacles which no muscular strength could shake

and here, again, he produces values. He may, also, labor by the side of the merchant, making much cunning use of Nature and here, again, he produces values, in the form ;

From

of transportation.

each he receives remuneration in

proportion as he renders service.

The division we have made of production modes seems to afford the best view attainable ject.

in

It will

of the sub-

be observed, that these are not distinct forms

which labor appears, as in

result

into three

from an arbitrary

so

many moulds

;

but that they

classification of individual efforts,

according to the best reason of the case.

The whole

— that

it

than any other which

is

authority of such a classification consists in this, is

more complete and

definite

offered.

may

All these forms of productive effort single

commodity

;

be united in a

and, indeed, there are but few products

which do not contain them all. To the agriculturist has Yet, practibeen attributed the work of transmutation. cally,

he performs every function of

human labor and, known agency of ;

directly or indirectly, uses nearly every

Art or Nature.

The manufacturer has

the

work of

trans-

CHAP.

CONDITIONS OP THE HIGHEST PRODUCTION.

II.]

formation

31

but he can only create values by mingling his

;

labor with that of the agriculturist and the merchant, and

thus the final product

is

the property of

By what

all.

principle, and through what force, the remuneration of each is determined, will appear under the title of " DistribuSuch, then, are the general forms in which man tion."

puts forth his efforts for the satisfaction of his desires.

CHAPTER

II.

CONDITIONS OP THE HIGHEST PRODUCTION.

some form, produces

If labor, through

wealth,

we

are

and conditions that

led to inquire into the circumstances

increase

all

diminish the efficiency of this great force.

or

That there are mighty variations as

it

appears in different

and even in adjacent communities, is so manifest as hardly to require mention or illustration. If the wealth of any nation cannot be determined merely countries,

by the proportion of of

its territory to

clearly cannot,

discussion of rectly,

its

population to that of the world, or

the general mass of the globe,

— the question, Why?

all

it

those influences which directly or indi-

immediately or remotely, make one to

another.

— as

introduces us to the

These may be classed as follows: Division of Labor.

Co-operation of Capital. Economic Culture.

—

differ

from

32

[BOOK

PRODUCTION.

CHAPTER

II.

III.

DIVISION OF LABOR. In some countries, a

man

wishing for a chair goes into the

forest, fells a tree, carries the

the parts, and puts

rude and imperfect

timber to his workshop, forms

them together article,

but

it

into a chair.

It is

a

has cost him the labor of

two days. In other communities, we find a chair, equally service-

more elegant, produced by the labor of half a Here one man cuts the timber, another transports

able and far day.

to the mill,

another saws

it

into suitable dimensions, an-

other forms the legs, another the seat, another the back,

another puts the parts together, while it.

A

great

labor of

many

many

still

another paints

chairs are produced by the combined

individuals

;

and the

result

has the value of only half a day's labor. the labor employed in the

making of

is,

that one chair

Three-fourths of

chairs

is,

then, liber-

ated, to rest in idleness, or to apply itself to further pro-

duction with

still

increasing results, as the desires which

control efforts shall determine.

We

cannot be ignorant,

some communities, labor, when set free, does waste itself in idleness and frolic. But this is true chiefly of those in which leisure is bestowed, not by man's contrivance, but by the generosity of Nature. Here the power of labor is too often corrupted by the very luxuriance of growth, which gives it great opportunities, and opens a

that, in

world

to its easy conquest.

But

it

may

safely be

assumed, that such an industrial

genius in a people, as seeks to lessen present labor by the distribution of

its

several offices, will find fresh objects of

desire.

The very thoughtfulness and

fidence,

and mutuality of

effect

service,

care, the social con-

which are required

to

a division of labor, insure such a susceptibility to new

;

CHAP.

DIVISION OF LABOR.

III.]

33

industrial wants as shall necessitate the

employment of

all

the labor so relieved.

The savage who can provide himself with

clothing, shel-

and food in twenty days of the year, may be willing to spend the rest of the time in doing nothing. But it was ter,

never heard that men came together to do any thing, and remain content to do nothing more. The full discussion and illustration of this principle, which governs the use of labor saved, belongs to the third inquiry; viz., that of " Economic Culture." We have here, strictly, to show only

how

labor

saved by the division of employments.

is

forms the great shall find

is

all

introduced

into

We

as general as the

will admit.

We

nature of the different

phenomena and

its

it

human

has yet activity.

principles special at-

as economical, connect themselves with is

being rapidly

do not find that

for the greatest interests of society,

;

What

is

ultimate limit in any sphere of

its

multiplies the

every department of industry, and will

shall give its

tention

soil

This force

other inquiries.

become

employments reached

We

more of the explanation of wealth than can

be found in

finally

This

industrial civilization.

powers faster than the

all its

Here

seed.

modern

the most important condition of production,

it

multiplying

fact of

moral as well

it.

the significance of division of labor, as expressed

in the fewest

words ?

each

It is, that

workman

confine him-

self to a single operation.

In this way,

great and successful manufactures are

all

carried on.

One person

Take, for illustration, that of boots. fronts

;

one crimps

one the linings

;

;

8ticb.es the

backs

;

;

;

one trees

;

;

one strips out the

one makes the heels

;

one sides up

cuts the

one cuts out the backs,

one pastes together

one cuts the soles

sole leather

one buffs

one cuts in

;

;

one binds

one packs, marks, &c.

;

;

one

one bottoms

Here are

six-

teen persons employed in the production of a single boot.

In

many

cases, a still further division of the parts 8

is

made

[BOOK

PRODUCTION.

34

In passing,

with success.

it

may

II.

be remarked, that, of those

operations, seven are performed by the aid of machines, as

distinguished in popular acceptation from tools, which latter are controlled by the hand, and have

all

man. As long ago as Adam Smith wrote,

their motive

power

in the muscular force of

sons to

make

Such, in description, sider its

it

took sixteen per-

a pin. is

division of labor.

Let us con-

advantages, limitations, and disadvantages.

CHAPTER

IV. «

THE ADVANTAGES OF DIVISION OF LABOR. 1st, It gives increased dexterity.

how

tion testifies

All

common

observa-

rapid and accurate our motions become,

when confined to a single operation. The juggler is not more remarkable for the nice use of his muscles, than is an accomplished mechanic at his bench. The powers of his body are in perfect discipline. They have learned their The parts, and obey instantaneously and harmoniously. more simple the movement assigned, the greater will be the efficiency of performance.

2d, It allows the business.

This

the bodily.

is

workman

to the

a better knowledge of his

mental powers what the

first is to

The man has a He knows more about it

It gives intellectual dexterity.

mastery of his special operation.

if he had two things to think of and care for. He becomes shrewd in every motion. He adapts his labor to

than

the material

;

he discriminates between the qualities of

that material.

He

with more

and

difficulties of his work These two advantages of the division of labor are shown in the different wages which skilled mechanics obtain as compared with unskilled, able skill

meets the

little

less waste.

seamen with landsmen.

;

ADVANTAGES OF DIVISION OP LABOR.

CHAP. IV.]

3d, It saves time, in passing from one

work

35 to another.

In the making of a chair after the primitive fashion we

have supposed, a great deal of time

from one part of

to another,

it

tion to that of another.

laborer to be engaged in

will be spent in passing

from the place of one opera-

And, even where we suppose a two operations only, there is still

a loss inflicted, just as often as he has occasion to leave one for another.

It is

not a loss alone of the time physically

necessary in effecting the transition, but each operation will

mind

During the first part, the attention will be distracted by what has During the last part, the attention will run just been left. The shadow is cast both on, anticipating what is to come. leave something to harass the

in the other.

ways upon the mind. 4th, It facilitates the invention of tools

a treasure of gold or iron or

more man who owns the discoverer

If

apt, other things being equal, to be the

is

a casual visitor.

oil is

and machines.

hid under the ground, the

land, and resides So, if there

is

and works on

it,

than

a possibility of adapting

foreign forces to the production of values, the inventor will,

on the same condition, more probably be the workman than any one else he is constantly engaged upon the operation he desires, of course, to simplify it, since it is a law of mind ;

;

he do as little work as possible for a certain result knows the wants of the subject he knows all the capabilihe thinks about it all the time, and can ties of his material experiment without changing his place. Therefore, try an by the logic of Nature, he invents. And, in fact, few of the great aids to industry have been discovered by disinterThey came from the laboring brain of the ested science. Where the work was almost too delicate for mechanic. human eyes, a thousand iron fingers go around to do it, never losing their nimbleness, nor ever getting weary where the work was too great for human strength, monster arms swing the hammer, or toss the load in air. The history of American manufactures expounds the to

;

;

;

36

[BOOK

PRODUCTION.

phrase, "Necessity

Even the

the mother of invention."

is

South have been directed

slaves of the

way we have

ical discoveries, in the

to

II.

important mechan-

described.

One simple

operation, constantly employing the attention, must, in time, lose all its secrets.

5th, It secures the better adaptation of physical

and men-

No consideration is more vital than this. The work which man finds to do, the efforts he has to make for satisfactions, however high his wants may rise, will be tal abilities.

of the most various character, and require the most diverse

There are operations which demand great strength

powers.

others, rapid

motion

mechanical eye

;

;

others,

;

others,

:

a

and trust others, high Such qualities, even those

fidelity

and education.

intelligence

good judgment

others,

;

purely physical, are not found equally in all; nay, by the

compensations of Nature, they are generally, though nut necessarily,

found

Therefore, unless

apart.

work were

divided according to the several qualities required, a defi-

ciency in one would neutralize the

workman from employment,

all

the others, and exclude

or compel

him

to

work

at

great disadvantage.

The

extensive applications of tins principle will occur to

Each man finds the sphere of his highest useis endowed by Nature. Those who are gifted with education and ingenuity devote all their time and energy to duties appropriate to such powers. They thus confer on others the advantage of their own gifts, and are themselves spared from drudgery and uncongenial labor. The poorest in qualifications, also, find a place in which every mind.

fulness as he

they can produce within the great partnership of society.

Women cate

are enabled to undertake business of the most deli-

and important character,

sufficient

;

while children of

otherwise occupy men.

all

to

which

their

strength

is

ages take parts that would

The power saved

or gained, by

such an adaptation of talents to special branches of industry, is incalculable.

Without

it,

a great part of the

human

ADVANTAGES OP DIVISION OF LABOR.

CHAP. IV.]

37

race would be helpless paupers, and the remainder would

earn a scanty and miserable livelihood. himself

is

Man working by

a poacher on the domain of Nature

industrial society, found empires, build cities,

men, in

;

and

establish

commerce.

And

not merely do

their full is

all find in

occupation and

fair

a proper division of labor

reward, but the work of each

just as truly productive as that of any other.

who watches crows does

as

at that business as the

He

takes the place of some

bravest and greatest of earth.

one who goes away to do a larger work. this is only a

boy

In anthropology,

man.

in political economy, he is a

;

The boy

much

He

and the other make together two men. 6th, It increases the power of capital in production, tends to concentrate manufactures in large establishments, and reduce

profits.

Supposing

men

all

equally capable of carrying on inde-

pendent business, which seven

men

is

not the case,

—

if

we compare

each with a capital of $1,000 and one

we

a capital of $7,000,

shall find the economical

man

The former must do

greatly in favor of the latter.

with

advantage busi-

ness on a small scale, and purchase materials in small quantities.

The

latter

can buy at wholesale prices, can

afford to go often to market,

formed, and will

In addition to

work

sell as

and

to keep himself well in-

well as buy to great advantage.

this, the large

manufacturer can afford to

for a smaller rate of profit.

A single hatter, for example, who makes only $2,000 worth of hats, must secure 25 per cent, in order to have a uet income of $500 while the man who can make $20,000 ;

worth of hats

will, if

income of $2,500.

he realize only 12J per cent, have an

A cotton manufacturer, who makes

yards per day, or 900,000 per annum, a cent per yard

profit,

if

3,000 he gets but half

has an income of $4,500

who makes but 300 yards per or double the profit, gets but

;

the

man

day, at one cent per yard,

[BOOK

PRODUCTION.

38

We

see from these illustrations

why

II.

the great establish-

A

ments drive smaller ones out of the market.

tendency

to a reduction of profits is a natural consequence of this.

Therefore, other things being equal,

is

it

manufacturing establishments should be

desirable

that

sufficiently large

to secure all the advantages of concentrated capital,

and

complete division of labor.

effect the

7th, It shortens apprenticeship.

Every

art, trade, or profession

apprenticeship,

more

must be preceded by an what is

or less extended, according to

A

necessary to be learned.

trade, which, in order to be

perfectly understood in all its parts, requires an apprentice-

ship of seven years, operations, may,

—

it is

if it

be subdivided into seven different

evident, be obtained with as great a

degree of perfection by an average, in each branch, of one year's service.

Some

one year, others

less.

Now, we

of the parts

For example

:

—

Seven men serve seven years each in

all,

require

find this to be practically true

a great saving of time, and time

—

may

is

;

more than

and the result

is

money.

to learn to

make

hats,

49 years

a service of

Seven men serve one year each

to learn to

make a 7

seventh of a hat, equal to

Saving of

„

42 years

in the mechanical education of every seven

men employed

in this

manner.

Apply

this principle to the

manufacturers of Massachusetts, which

has at least 75,000 skilled workmen, and suppose the apprenticeship to be seven years,

we have

—

75,000 at 7 years each 75,000 at

1

year each

Saving of in

525,000 years 75,000

„

450,000 years

one generation of skilled workmen. It will

be observed that* these are years of apprenticeship,

ADVANTAGES OF DIVISION OF LABOR.

CHAP. IV.]

In considering what

not of labor.

is

39

the saving to the

wealth of the country, we must estimate the amount of

workmen during the apprenticeship Per contra, we must take greater amount of material destroyed in

values created by these

under the

system supposed.

first

into account the

teaching each

man

to

do

all

the parts, and the greater inter-

ruption of the employer or journeyman.

we suppose

If

these years, saved from apprenticeship,

have an average value of $200, we have a saving of

to

$90,000,000 for each generation of skilled workmen in Massachusetts.

The

principle,

under which

this saving of

time

is

made,

cannot be disputed. 8th, It gives opportunity for greater social development,

and increases the This

is

social

power of

labor.

immediately of moral interest

;

but

Not only

table.

is

has impor-

it

The principle itself the workman brought near

tant economic bearings.

is

indispu-

his fellows,

and, by such contact, stimulated to industry, to acquisition, to taste

means

;

not only does such association of purposes and

afford

vancement,

—

more of the instruments of

does the close neighborhood of all

intellectual ad-

schools, lectures, churches, journals

;

not only

mind quicken and brighten

the faculties, teaching by example, and firing by con-

by such association, workmen are brought nearer their employers, have a greater sympathy and cooperation, act intelligently and harmoniously as to their rights, and form a public opinion among themselves which troversy

;

but,

has often been found a great power, economically and

civilly.

Such an association, moreover, brings the workman nearer the government and the public force sometimes for evil, ;

but often for good.

A

population thus concentrated

capable of prodigious impulses.

empire are not equal to the

mob

of the capital.

ment knows and respects the power of

how

fully disfranchised it

may

is

All the artisans of the

this class,

be in the law

Govern-

no matter

;

40

[book

PRODUCTION.

CHAPTER

n.

V.

THE LIMITATIONS TO THE DIVISION OP LABOR.

But

the great principle of division of labor, so very bene in

ficial

which

its

operations,

When

the principle has been so far applied that each

operation has been

human

yet limited by certain conditions,

cannot disregard.

it

1st,

is

made

as simple and fully a unit as

division, but only repetition.

process so far as to give the rally

Beyond

ingenuity can devise.

Any workman

this, there

no

is

attempt to refine the less

than one natu-

complete motion of the body, will only embarrass and

delay industry. 2d,

When

the concentration of capital has become so

great that interested personal supervision cannot be brought to bear prise,"

upon each department, and upon the whole

enter-

with sufficient intensity to insure efficiency and fidelity

on the part of those employed, and harmony in the general conduct of the business.

Beyond

this point, the

advantages

derived from the power of concentration are neutralized.

may even become

mischievous.

It is well that there

It

should

be limitations, because they prevent such aggregations of

would swallow up the whole industry of a state. Experience shows that the greatest establishments are not always or generally the most profitable. Those which are capital as

large

enough

to secure all the real

advantages of concen-

trated capital and combined effort, yet are small

enough

to

be brought under direct, personal, interested supervision, are the most beneficial to their owners and the public. 3d,

Where

the industry consists of an indefinite

number

of parts, yet the special circumstances will not allow each

workman

profitable

employment

in a single operation,

example, agriculture in most of the fact that

its

its

branches

:

first,

—

for

from

operations cannot be sufficiently localized

LIMITATIONS TO DIVISION OP LABOR.

OHAP. V.]

and, second, from the necessities of the seasons.

ment

is

capable of so

'

much

41

No

subdivision as this

departyet, in

;

none experiences so little. In mining, the fisheries, and many incidental matters, it is effected to a considerable extent but, in most of the parts of pure practice,

;

agriculture,

it

made

are indeed

Boys and women

has very limited range. useful in

but they have not the same

it,

continuous and profitable employment as in manufactures.

Nor does

their

work correspond

precisely with

what

They

required in our definition of the division of labor. are occupied, generally, not in one operation so

is

much

as in

a miscellaneous class of light duties, too variable to realize the dexterity and thoroughness obtained elsewhere.

There are other instances which seem

to

to the conditions of the highest efficiency.

community

are employed for an entire to

team

;

Some persons

to plant, to graft, or

but not only does the extent of territory limit

their application to a single pursuit, but the

seasons drives them from one

month.

approach near

to

change of the

another almost every

and gardening for large markets, American example in agriculture yet each

Stock-raising,

afford the best

;

not only a considerable department in

itself,

but whoever engages in either of them must do

much

of these

is

not directly connected with

The culture

it.

of the grape realizes, perhaps, as fully the

mechanical advantage of division of labor as any in agriculture.

But, generally speaking, the farmer

is

a laborer of a

thousand duties. This fact alone does not account for the different productiveness of the manufacturing and the agricultural interests.

In the nature of their objects,

machinery must be applied tions.

The mechanic

arts,

to

them

it

is

found that

in far different propor-

which can be localized

highest degree of concentration, and

made

to the

general to

all

seasons of the year, admit also of prodigious multiplication

by

[BOOK

PRODUCTION.

42

From

artificial agents.

these considerations,

II.

we deduce

the principle, that the value of agricultural products, as a

— that

class,

is,

their

—

than agricultural,

power

in

exchange

for products other

A bushel

will be constantly increasing.

of corn, in 1820, would purchase only four yards of cotton

In I860,

cloth.

it

or better quality.

would purchase ten yards of the same This difference will continue to grow

wider and Avider as the mechanic arts advance

;

but not

inasmuch as the materials of manufactures are always themselves of agricultural origin, and hence the

indefinitely,

depreciation of the price

We

have thus

far

is

limited.

spoken of the division of labor as

applied only to direct, material production, affecting the

laboring

them

;

classes,

and those immediately superintending

but the principle has been extended

as well as that which

The

professions

is

to

mental labor,

simply muscular.

known

as the learned,

and others which

have an important though indirect agency in production (for, unless

they have some agency in production,

we have

nothing to do with them here), naturally divide themselves into branches

sion offers.

more or less numerous and special, as occaThe recognition of professions and industrial

classes is itself a tribute to the great principle of the divis-

ion of labor

;

but

it

proceeds

still

functions, within those professions

further, to assign special

and

classes, to individual

members.

Thus labor

is

the law,

when a

sufficient concentration

and conveyances, of insurance, of marine

and

of legal

secured, branches into the departments of titles losses, forfeiture

salvage, of patents, of criminal jurisprudence, &c.

In

medicine, the eye, the ear, the skin, consumption, fevers, cancers, have each their

own

practitioners.

That science and skill are promoted by such subdivision, and that the immediate efficiency of professional labor

is

greatly increased thereby, cannot be intelligently

questioned.

CHAP.

DISADVANTAGES OP DIVISION OP LABOR.

VI.]

As any community advances specialties are

to

a higher

more and more resorted

43

civilization,

Individuals,

to.

finding themselves peculiarly adapted by their talents and tastes to a particular calling, or for the pursuit of

having unusual advantages

give themselves

it,

They concentrate upon their resources. They

it

up

to that object.

their thoughts, their

time, and

They know more, and can

excel.

do better, in their chosen line than those about them. gives

them

looked

matter

to,

position

They are sought

because they have something that

how humble

investigation, if a

world

and power.

He

receives its honors

any position in

life,

are

No

his field of

understands something perfectly, his

— whether a hamlet

resort to him.

wanted.

how minute

his station, or

man

is

This

for,

or an empire or the race -2- will

becomes a benefactor of society. He and rewards. There is no person in however exalted or lowly, who may not

advantageously cultivate a specialty.

CHAPTER

VI.

THE DISADVANTAGES OP THE DIVISION OP LABOR. 1st, It

tends to enervate the laborer, because

as a general fact, give full activity

it

does not,

and development

to all

the functions of the body.

We

shall proceed to

show

that this is true of those classes

who perform what we have designated

as material labor,

while the very distinction of mental labor implies such a separation between the natural functions as seems not to consist with the best physical condition of those engaged.

Common

observation will affirm that this

It is not necessary,

is

strikingly true.

but the tendency exists.

In the material occupations,

it is

found that confinement

to a single operation is ofton highly injurious.

There are

[BOOK

PRODUCTION.

44 forms of labor which

sufficiently exercise the several parts

The mere

of the body.

motion brings

fact of uniformity of

But there are those which

no objection to such as these.

require the constant fatiguing use of

injury of the rest of the body

some member,

still

require the

;

— whether we —

the city

itself,

it

workman

organs;

to poison his blood with

In the great centres of capital and

unwholesome gases. labor,

to the

others require a cramping

posture that oppresses and disorders the vital others

II.

regard the mill, or that larger mill,

is

notorious that distortion, paralysis,

and organic feebleness, are more common than where labor and the laborer changes his work and his place

is diffused,

frequently.

That

manufacturing

this will occur in the course of all

industry

is

That

probable.

clearly appear.

The

it

is

does not so

inevitable

sanitary arts keep even pace with the

advance of machinery.

The

civil

war

in

America developed

astonishingly the resources, which are at the

command

of

government, to suppress malaria, and reform the habitaThe growth of manly sports, and the tions of disease. cultivation of gymnastics for health's sake, are likely to

work a great change for the better in the sanitary conditions The intelligent precaution of operatives in of our people. every country, where their remuneration

than robbery, can guard against

all

is

any thing

less

excessive derangement

of the bodily functions. It is

perhaps significant to the question whether the

application

of the bodily powers to a single

action is really in practice injurious, that

we

continuous find in

the

Massachusetts, ranging over sixteen years, the average life of " laborers having no special trades " to be less by two years than that of " active mechanics in statistics

of

shops."

Mechanical operations were formerly considered as disand even our modern phi;

qualifying for military service

losophy has found in them a reason for the employment of

DISADVANTAGES OF DIVISION OP LABOR.

CHAP. VI.]

45

mercenaries, and the maintenance of standing armies. the great

civil

beyond

that,

war just referred

all dispute,

districts are not so

camp and

field as

to exhibited the novel fact,

the troops raised in agricultural

hardy in the privations and exposures of

those coming from the towns.

This does

not, however, imply a better state of health at

may

But

home.

It

be, that the latter class find, in the constant exercise

and the out-door employment, just that change of habit and condition which they needed. All that is different from

more

their usual course of life is in the direction of

and motion

light

;

air

and

while the agricultural laborers find no

They have been accustomed employment but the harsh necessities of the service come to them fresh and strong. It is perhaps the direction of influences more than the degree of them which change except

for the worse.

to active

;

determines these matters of health

mechanical occupations, contrary in spite of

to

;

or

may

it

be, that

general opinion and

some plain drawbacks, do tend

frame and the sinew, and lend force and

to

compact the

vitality to the or-

Whatever the explanation, we will rest with the fact, and endurance made by

gans.

that, in the severe trial of strength

the war, the mechanical

occupations have not been dis-

credited.

2d, This system, in

some of its

applications and in certain

full employment and expansion to all the powers of the mind which its normal development requires. This is obvious. The mind, if intensely devoted for a whole life to a single effort, and that perhaps of the most simple kind, cannot but be unfavorably

degrees of extension, does not give that

affected. it

will

To a.

Unless counteracting influences are resorted

undoubtedly be contracted and enervated. this liability are

opposed three compensations

The great communicativeness observable

:

to,

—

in such cir-

cumstances, the eager discussions, the free inquiry, the school, h.

and the lyceum.

The saving

principle that the

employment of one mem-

46

[BOOK

PRODUCTION.

II.

The They interpenetrate so completely that it is impossible to move one without affecting the rest. If we compare the mind to a reservoir, we may say that the individual powers and dis-

her

is,

human

a certain extent, the employment of

to

faculties,

all.

mental and physical, arc a knot.

positions flow out of

it

many streams

as so

;

nothing to prevent them from flowing back,

but there

is

the level

is

if

The special use of one may develop more strong and active than the others.

sufficiently disturbed. it

greatly

;

make

it

But such a predominance is not distortion. Few minds are capable of even and temperate growth. In this principle resides the variety of

human

character.

may

It

be ques-

tioned whether any but the most gifted can be educated in

any other way so thoroughly and application to

some

efficiently as

single matter.

philosophy rouse the

full

the majority of cases,

it

Generalization and broad

powers of but few

will

by interested

intellects.

remain true that intense,

ited, persistent labor directed to

one point

is

better than the

languid, nerveless, unspurred, rambling play of ulties.

all

the fac-

Mind, to be energetic, must not be republican.

powers must be centralized.

Some must be

In spir-

The

despotic.

Indeed, the argument against division of labor on this

would be better expressed by saying, that the constant and even with consciousness, in the operation, that it makes man, in some sense, a machine. This is, to a considerable extent, score

repetition of single acts so far dispenses with thought,

true

;

the compensation being that

portunity for discussion

and

it

affords a greater op-

reflection,

if

the

workman

chooses to avail himself of the kind of mental leisure which is

afforded by the

fore,

monotony of

ual faculties, that

is to

has been carried to c.

his occupation.

It is, there-

not the excessive use, but the disuse, of the intellect-

The laborer

be feared in those arts to which labor

its fullest division.

is

not

all

workman.

While

his special

occupation provides for his subsistence, and endows

him

with energy, industry, and concentrativeness of mind and

CHAP. VI.]

DISADVANTAGES OP DIVISION OP LABOR.

47

and other duties, ample, if compensate for all the evil mental

character, he has other hours

reasonably used, to effects of his It will

continuous

toil.

be observed, that

it is

only to the division of labor

beyond a certain point, that the objections

we have

discussed

A

more ill-developed society, with more ill-developed members, could not be conceived than where this principle was not applied at all. In fact, there could be neither members nor society but here and there a have any application.

;

savage would bask in the

summer

sun, or hide himself in

the storms of winter, in hopeless, helpless barbarism.

However we may

speculate, a priori,

on the consequences

of dividing minutely the parts of labor,

we may perhaps

get a stronger light and a better view by observing the

mightiest experiment of industry ever

—

that of

England

to-day.

Nowhere

known

in the world,

are the natural advan-

more apparant nowhere has manufacturing been more elaborated. Yet no person can be tages of agriculture

;

cognizant of the condition of the English population, with-

out being assured that the manufacturing, laboring class

is

almost immeasurably above the agricultural in intelligence,

and obedience to law. Probably the most conservative nobleman of the realm would admit that the former class is far better qualified for the in independence of character,

franchise than the latter. 3d, It will follow, from

what has been already urged, that

division of labor, in its greatest extension, has a tendency,

or at least there

is

found in

average of health, to shorten

it

life,

a

liability, to

lower the

and prevent the natural

increase of population.

All these results are found, on examination,

but

still

more or

above the general facts of the country, in

less,

all

the

great centres of manufacturing industry, where the full possibilities

of the mechanic arts are realized by the intense

subdivision of labor.

This result can only be partially and

confusedly shown by statistics

:

still

enough can be

ex-

48

[BOOK

PRODUCTION.

tracted

to

assure us that there

energy, whether or not

is

II.

a great loss of vital

necessary to such a state of

it is

industry.

The American average follows

*

:

—

of

life

may

be expressed nearly as

64 years.

Cultivators of the earth

Active mechanics out of shops

....

50

„

Active mechanics in shops

47^

„

Inactive mechanics in shops

41 £

„

Laborers, no special trades

45 \ „

These

statistics,

many

results of

accurately gathered and showing the

years, require " correction " in several par-

ticulars, if the real lesson of

them

to

is

be obtained.

In

the first place, two-thirds of the class of mechanics as pre-

sented here are engaged in such occupations as do not allow any very extended subdivision of the parts, so that the average of the great manufacturing establishments and their dependent cities

would be found

more

still

striking.

In the second place, the agricultural occupations are continually

making contribution

to

manufactures of their best

blood and bone, renewing the natural waste of the mill and shop, and so interfering with the statistics of the subject.

This element can neither be eliminated nor determined.

We tant

shall rest satisfied with is it at

knowing

it is

of the healthiest cities of America.

true that

there.

So impor-

times, that Lowell appears on the tables as one

much

It is

unquestionably

of the historical feebleness and mortality of

such places has been avoided by more humane and intelligent precautions, by gymnastic sports and out-door games,

aud by a better adaptation of all the conditions of prodticand well-being. But the great fact which accounts for this seeming healthfulness of a tion to the necessities of life

manufacturing vigorous,

city is the constant infusion

young blood

of the fresh,

of the country.

• Massachusetts Begistration of Births, Deaths, and Marriages.

CHAP.

DISADVANTAGES OF DIVISION OF LABOR.

VI.]

49

a disadvantage in this respect, that

It is not necessarily

manufactures, in their greatest centralization, prevent the full

Indeed,

natural increase of population.

ficent

provision of Nature which checks

it is

a bene-

less

is

nourishment and care and exercise

Far from being a

shall secure its best development.

misfortune,

is

where the offspring

precisely those circumstances likely to receive that

which

it

propagation in

well that those

who

are to live in the cities

should be born in the country, and get size and strength on the hills and in the open

This tendency does not go

air.

so far as to deprive the dwellers in the

cities,

and the work-

and wool, of the cares and the pleasures and Yet the law that men shall be born upon the land is as clear in history, and in our common observation, as any fiat of Nature. 4th, The division of labor lessens the number of those who do business on their own account. This is a natural consequence of what has been shown. We have said that ers in brass

the culture of paternity.

toward concentration

capital has a tendency

;

and,

if it

be

The result of this, in agriabsorb the yeomanry into the class of those

aggregated, labor must also be. culture,

who

is

to

labor by the day or month, with no interest in the

land.

The

result in manufacturing is to subordinate hun-

dreds of operatives to the control of a single

has a threefold relation

:

a.

To

will.

This

the formation of character.

Something of independence and self-respect is unquestionably lost, so far as these depend on external conditions. Position and responsibility do foster and strengthen manliness

will not it

By

and self-mastery.

independence of each

is

the

division

sacrificed to the

be doubted, that, on the whole,

should be so

;

nor can

it

the sacrifice

government,

man b.

To

has to

good of

it is

all.

the It

desirable that

be denied that there are partial

drawbacks, even in this plain tendency of is

of labor,

make

civilization.

the fairness of remuneration.

few now participate in the

profits.

4

It

in society, in industry, in

A very

The great bulk

of

—

50

PRODUCTION.

workmen ments. to

receive only wages,

[BOOK

II.

and that on temporary engagebe excessive, and is likely

may

This disproportion

be where laws or institutions check enterprise, and

discourage individual

In such cases, laborers are

effort.

practically a herd of cattle, driven about

from place

mend

receiving bare subsistence, and unable to dition.

This

is

a lamentable state of things

No one

good principle.

to place,

their con-

an abuse of a

;

can deny, however, that the worst-

treated operatives of the civilized world receive infinitely

more than

if

men were

the efforts of

independent, and each was

left to

individual and

all

satisfy his

wants from

But, even

if

the primitive resources of Nature.

we come

forward from the barbarous state to that in which the work of

man

has divided

itself into

numerous trades, each of and compare this

these, however, yet remaining distinct,

with the present subdivided,

we

—

state, in

which trades have been repeatedly

capital aggregate

and labor subordinate,

shall yet find that the share of the poorest laborer in the

mighty product of our industry of to-day

is

greater than

Augustus, says Arbuthnot, had neither glass

ever before.

windows nor a shirt to his back. Thus much could be urged of the wretchedest operatives on the earth but, when we regard the condition of labor as it exists in nearly all the countries of the world, we shall quickly confess, that, though the laborer has given up Ins share of profits, he receives back, as wages, far more objects of desire than he could have obtained in the old way. c. To to his

;

By the attraction of labor many laborers is made depend-

the steadiness of employment. to great centres, the fate of

This

ent on that of a few capitalists. scientifically

and

historically.

It

is

a great

must continue.

It

fact,

has

form of great industrial distresses, of a general suspension of mechanical labor from causes issued, in the past, in the

affecting only the mercantile credit

of the employers, of

frantic appeals for support, of laws in

assumes the duty of providing work

which government

for its

whole popula-

DISADVANTAGES OP DIVISION OP LABOR.

CHAP. VI.]

51

and revolution. So far as this will occur in spite of prudence and careful management, it is the condition on which we have the advantages of division of tion, of riots

labor.

Men

must go

cannot cross the great ocean alone.

They

and embark More of them would

together, have help of each other,

their fortunes

common

on a

perhaps be safe

if

bottom.

each was on a ship of his

own

;

but that

cannot well be.

Even

in regard to steadiness of employment, the aggre-

gation of capital and consequent division of labor assist

workman up

the

to

a certain point.

That point

is

more completely

greater the structure, the

it

the great

Then, the

catastrophe which no structure can withstand.

crushes the

laborer.

Where

capital is

itself better

;

concentrated,

and, of course, the

it

is

stronger, protects

workman

shares in this

power and immunity. Where the industry of thousands is controlled by the mind of one, it will be more intelligently and harmoniously administered, and with a larger view of the business. By such superiority of union in production (for that is

synonymous with

division of labor), the industry

of a country is lifted clean over obstacles which individual enterprise could not pass,

would shatter the in masses,

when

it

—

is

preserved amid storms that

feeble fabric of single hands.

Industry

receives a shock, can hold on to the accu-

mulations of the past and to the credit of the future, and so stands firm.

But when the blow becomes so heavy as to shatter even the great workshops of modern industry, and they come down, then truly the fall is great. The ruin is more comhad prostrated a village of huts. the springs power has burst the wells been filled have long since been broken down up and there iS no supply for immediate wants. Such a plete than if the storm

The

reservoir of gathered

;

;

;

loss is repaired slowly.

and looks up again

;

The trampled

but the oak

grass raises

lies as it falls.

itself,

Independ-

52

[BOOK

PRODUCTION.

II.

ent has been discouraged by collective industry ; the shop has

been abandoned for the mill

;

each workman has learned

no one can buy, make, and no one dares to undertake any business, foreseeing sell For a while, all is that the corporation must rise again. only the fraction of a trade

;

;

distress.

It

is

ated industry

is

only

when

the stately fabric of associ-

reared again, that plenty

is

known

in the

land.

We have discussed, somewhat at length, the relations which division of labor holds to the condition of the laborer, by depriving him of the opportunity to do business on his own

account.

Until recently,

it

the advantages of the principle

obtained without this defect

;

has been supposed that could not practically be

that capital could not be con-

and the trades perfected, without diminishing the independence and self-reliance of labor. But recent developments seem to be anticipating the objection. It is now centrated,

a matter of

common

interest in business,

merchants

practice to admit the laborer to an

—a

is

done by

by master mechanics

to their

This

share in profits.

to their salesmen,

workmen, by ship-owners

to their hands.

All stock-com-

of whatever character, admit of this principle. Mutual industrial associations for trade, mining, and insurance, furnish its most significant and hopeful applications.

panies,

no reason why these should not be extended much by further a gradual growth, as they are found convenient There

and

is

profitable.

Just so far as a sufficient spring of

self-

interest can be maintained in the effort, both of the employer,

or manager, and of the operative, so far profits

be applied to

ficial results.

all

may

mutuality of

departments with the most bene-

;

.

THE DIVISION OF LABOR.

CHAP. VH.]

CHAPTER

53

VII.

THE DIVISION OF LABOR (concludecC)

We

have passed through the discussion of the advantages,

the limitations, aud the disadvantages of the division of labor. If,

now, we inquire on which side the balance

will be

no question that

extension of the law.

It

lies,

there

in favor of the application

it is

and

appears as the great multiplying

power of modern industry it has made the difference it resides in man's between barbarism and civilization ;

;

being as the principle of help

;

it is

the only

name

that

savage nature fears. If

we could

personify the forces of matter and the treas-

ures of the earth, holding council

how

they might escape

being enslaved or plundered by rapacious man, we should hear them say " Let us spread disunion among our foes :

let

us convince them that their interests are separate, and

lie

apart

Then

the

let

;

among them suspicion and hatred. make them languid, and winter on them. The waves shall overwhelm

us excite

summer sun

shall bring torpor

shall

them, struggling singly with the ocean starve, the

snow

shall freeze

them.

;

the drought shall

So will we conquer, and

be safe."

And

indeed, as if they had so talked, like the councillors

of a state invaded by a powerful foe, and had so planned,

we

find

them

for ages deceiving the hearts of

men, sowing

dissension, and enkindling strife by treacherous bounties of

gold and precious stones, like bribes sent into an enemy's

camp.

Nations

fell

to quarrelling about the accidental

trivial treasures scattered, in

Great wars were waged to secure paltry bal-

their paths.

ances in coin

and

fraud of their full rights, upon

:

wealth of continents was disregarded.

Men

stood over against each other, hunted for gold in the dust,

;

54

PRODUCTION.

[BOOK

neglecting the mighty riches that lay deep in

the

II.

soil.

They had no heart to say, Let us help each other, and see what we can do. Whole peoples acted, and look now in history just as we imagine miners to do when they suspect the presence of some great treasure among them each ;

hunting

silent

steadfast lids

that

;

by himself, casting angry glances from under each heart beating fast with fear and wrath

some other may

find

hateful

first;

it

all,

and hating

one another.

That this sketch is not exaggerated, let it be said, to the shame of mankind, that the Mercantile theory was undoubted

till

the middle of the last century

and pursuing as

truth,

policy, the

proclaiming as

;

world over, the double

lie

and silver, and that what one people gains in trade another must lose. So man had need of his fellow only to rob him man had so need of Nature that the only wealth is gold

;

only to get her gold. Palaces and warehouses floating safely on the waves

breakwaters along the sea arterial

;

coast-lines of docks

connecting oceans

bridges leaping rivers

;

the woods groaning in the windmills

ing corn in the valleys

pegging shoes crystals,

and wharves

railroads to the length of the continents

;

;

;

;

the genii of

brook-nymphs grind-

;

the spirit of the air hard at

mountains of iron

;

canals

split

open

;

work

precious

forming for ten million years, strewn about the

land, — these are the

first fruits

of

man's confidence in his

fellow.

CHAPTER

VIII.

THE CO-OPERATION OF CAPITAL. This

is

the second grand condition, through which the

productiveness of labor

We define

is

increased.

have before spoken of capital it strictly.

:

we now proceed

to

CHAP.

THE CO-OPERATION OP CAPITAL.

VIII.]

It is that portion of

The

wealth employed in reproduction.

an important one.

distinction involved is

wealth of the term " reproduction "

is

that the object of any thing

not

tal is wealth,

but

all

is

gations, with a constant view, ulterior end.

And we

All capi-

The very use

not capital.

testifies to

is

or perfection, but that there

some

65

the feeling of

fulfilled in its

own

man

creation

an endless series of propa-

and with increasing

force, to

find that production does go

forward, not by the increase alone of the laboring class, not

by mere annual savings and gross accumulation, but by the employment of that which before was an object of desire in

now a means

itself,

as

Since

it is

to the gratification of

recognized that

human wants

new

desires.

create others of

and hence go on increasing in number and urnecessary that human efforts should find some having force a corresponding rate of increase, by which to assist themselves in supplying the growing demand. Such an agent is found in capital, which is taken out of wealth. A man may have much wealth, and use little capital. Wealth is as it is had; capital, as it is used. For example, a man may live in a house worth thirty thousand dollars, and have ten thousand dollars invested in a ship, from which he derives all his support, and which forms his capital. It may be asked, Is not the house itself capital ? It is so far their kind,

gency,

it is

as necessary to production, in sheltering the producer and his family, even with the style

degree of society. is

Beyond

and comfort usual

this, it ceases to

to such a

be capital.

It

devoted, not to the creation of values, but to personal

enjoyment and culture

;

noble and worthy ends for wealth,

but not for capital.

We may change the supposition. The man may have a house worth ten thousand dollars, and ships to the value of thirty thousand dollars. Tho difference to production will be apparent, inasmuch as his active capital three-fourths fourth.

of his wealth, while before

now

it

consists of

was only one-

PRODUCTION.

56 It will follow

from this

[BOOK

II.

much

of

illustration, that there is

the wealth of the world which

it

is

difficult

to

classify

whether as capital or not, much in which the two ends unite, much in which the share devoted to reproduction is

no discredit on the distinction which stands manifest to all. There are many such

itself,

casts

Still, this

doubtful.

principles in political

economy, the general direction and

character of which cannot be intelligently doubted, yet in

whose particular applications we find ent contradictions across

the

;

just

as

tlie

difficulties

and appar-

mountain-ranges stretch

continent, unmistakable in their great course,

shedding the waters of one slope to the east and of the other to the west,

Fauna

making

clear separation between the Flora

and

of the adjacent countries, and forming impassable

boundaries of empire, yet are occasionally interrupted by

one cause or twisted away by another, so that we find peaks here and there, which a

little critic

can take his stand upon,

and deny the geography of the hemisphere.

How

does capital arise

From

?

the net savings of labor.

A

person

who earns

five

hundred dollars a year, and places one hundred dollars of it in a savings-bank, or invests it in land or machinery or railroad stock, or anywhere at work, has increased his own capital and the capital of the country by so much. It is not what he lays aside for use in his own occupation merely, but for use anywhere. All capital

comes in

this way.

A

country increases in

accumumembers. If the individuals of a nation apply none of their net income to reproduction, there is no increase of the national capital. If they withdraw any of capital just in proportion to the increase of capital

lated by its

their capital to

meet personal consumption, the lountry

becomes poorer.

Many

of the considerations which pertain to the accumu-

lation of capital,

and the ultimate use of

it,

belong to the

discussions of economic culture, or go further on, to the gene-

CHAP.

THE CO-OPERATION OP CAPITAL.

VIII.]

ral division of

We have

" Consumption."

57

simply to do with

those principles which apply existing capital to the wants of

present labor. Capital

as " fixed " or " circulating."

known

is

Fixed capital consists of every description of property

employed in production, which, from

its

nature, cannot be

advantageously changed to any other use than that for

was

The land, buildings, and and warehouses of the merchant, the machines and implements of the manufacturer, belong to this class. They must be used for the purposes to which they are particularly adapted, or they which

it

tools

of the

originally designed.

farmer, the

ships

little value. They are fixed. The ship cannot be used as a wagon, or the spinning-jenny as a locomotive.

have

Circulating capital, on the other hand, consists of those

commodities which can be readily changed from

articles or

one purpose of production to another.

Of

stock and produce of the farmer, the

money and wares

this class are the

the merchant, the raw materials of the mechanic.

are easily transferred from one business to another,

indeed from one place to another, and

Of

great variety of forms. mobile, as

it

these,

all

may

of

These

and

be used in a

money

is

the most

can be changed without delay or loss to any

occupation or locality.

Fixed

is,

capital, not

that,

but in

capital

in its nature,

merely in its

its

more permanent than

adaptations, for

existence.

its

The greater part

— stock and materials,

for

example

—

circulating

name

implies

of circulating is

held only in

the immediate view of transmuting or transferring or trans-

porting

it,

so that

shall pass into fixed capital.

it

on the contrary, it has taken this, it is only by destruction.

its

ultimate form.

It

If

There, it

loses

does not intend to assume

any higher condition. It is in this

way

that fixed capital receives the mighty

annual additions which astonish us on the page of the statistician.

The products

of last year form a part of

[BOOK

PRODUCTION.

58

II.

the houses, ships, railroads, and machinery of the present.

The farmer adds something to his stock, or his land, or his The mechanic widens his shop, and multiplies buildings. his tools. The merchant enlarges his business, and extends The laborer saves something out of his his connections. wages, beyond the demands of immediate subsistence. It is in this way that fixed capital is increased by the contriThe products of labor are butions of circulating capital. generally in this form

without being

itself

;

and

In popular language,

all

enabled to pay

wealth

convenient for occasional use.

however, that, while property

many

is

is

its tribute

divided into real estate

not

scientific,

must bear

in mind,

This distinction,

and .personal property. is

it is

impoverished.

all real

We

if

estate is fixed, all personal

not circulating capital.

Ships, machinery,

other things not attached to the

and

are personal

soil,

property, though standing in the category of fixed capital.

CHAPTER

IX.

THE CO-OPERATION OF CAPITAL (continued). Is

the distinction between productive It

has been urged by

siderable length.

It is susceptible of

capital real

involves

?

many important

and unproductive

many much

writers at conillustration.

It

considerations.

There is, however, no such thing as unproductive capital. There may be misapplied wealth, misused wealth, wasted wealth but capital reproduces. If any discrimination is necessary between that portion of wealth which is applied ;

successfully to reproduction,

such an end, but tal is that

fails in

and that which

attaining

it,

is

we may

intended for

say that capi-

portion of wealth applied to reproduction, which

: ;

CHAP.

THE CO-OPERATION OP CAPITAL.

IX.]

secures a compensation to

its

59

Whatever

owner.

his inten-

he uses any part of his wealth without multiplying it,

tion, if

remains wealth he has not made it capital it may, by unproductive use, cease even to be wealth. Wealth put into an enterprise which results in nothing is no more it

;

;

capital than wealth put into a house

probably

is

wealth as

which burns down, and

little.

Nay, more so far as wealth thus applied, while making some return, fails of securing the fair, average remunera:

tion of capital,

it

so far ceases to be capital.

wealth merged for a time it is

It

may

be

be wealth lost for ever

not capital.

A complete illustration mon

may

it

;

business.

of this principle

Suppose a

man to be

found in com-

is

possessed of

fifty

terprise does not succeed

dividends

;

sand dollars

en-

the stock does not pay adequate

;

the value of the shares has sunk to

Would any one

shares

The

of certain stock, par value one hundred dollars.

say that his capital, so

fifty dollars.

was

far,

but two thousand

five thou-

hundred Half of his investment has been sunk; half is

dollars.

?

Clearly,

it is

five

capital.

But

has been urged, that

it

that does

example its

a railroad

:

is

which

We

;

yet,

though

it

owner.

For

does not pay divi-

passes.

have nothing to do, in the discussion of production,

with any such incidental advantages, even

may

its

improves the industry of the country through

it

it

capital is reproductive

projected and built, does not pay

stock sinks to nothing

dends,

much

not afford a remuneration to

be, that, in the

if

they exist.

consumption of wealth, we

It

shall find

principles explaining the effects of such an investment.

In the light of production, however,

we can

only say, that,

in so far as the railroad does not remunerate its owner,

ceases to be capital.

So

far as it is

agriculture or manufactures, try of the

community,

it

is

and

it

supposed to promote

indirectly help the indus-

simply on the level of the

[BOOK

PRODUCTION.

60

gratuitous gifts of Nature,

— the powers of the wind,

and sun, or the courses of streams and valleys

man

II.

rain,

assisting

;

unquestionably, but having no value, being neither

capital nor wealth.

A ital

its building is no more capBoth may transport commodities with a

canal that does not pay for

than a river.

great saving of labor, and with great encouragement to production.

The world abounds

in natural bridges, causeways,

roads, mountain cuts, dikes, &c.

If a

man, with

ill

advice,

constructs artificial works of this character, which prove

much

failures,

he adds just so

world.

Economically speaking,

erty

it

:

what

to

is

gratuitous in the

has ceased to be prop-

it

has become common.

CHAPTER

X.

THE CO-OPERATION OP CAPITAL (continued).

Having considered

the two great agents by which all wealth

and labor, we come to speak of their inquire under what circumstances it will be

is created, viz. capital

union, and to

most

effective.

1st,

When

a due proportion of each

halts without capital

;

shall govern the other

is

found.

capital wastes without labor.

Which

?

Labor

Which

shall be the fixed quantity

which the other must conform? Labor, certainly, because it is less variable in amount. It can be diminished or

to

increased but slowly, depending as

human

it

does on the propaga-

an element that is determined positively, in the old countries, to a very gradual growth, and, in new countries, has never more than doubled itself

tion of the

race

in thirty or forty years. to very rapid fluctuations

;

Capital, ;

on the contrary,

is liable

can be accumulated, under favor-

able circumstances, with great ease

;

and can be wasted or

scattered just as fast under different conditions.

THE CO-OPERATION OF CAPITAL.

CHAP. X.]

Labor, then, being that which tity,

most restricted in quan-

must, in order to the highest production,

capital

conform to

is

61

it.

requires, not as

There must be as much capital as labor We do not labor as capital needs.

much

put this on the ground of any superior rights of labor. Capital is the labor of the past, and has rights as perfect as that of the present.

"What this proportion should be in any community,

would be impossible

to declare beforehand, as

impossible to decide precisely what

it is

in fact.

it is

it

even

Still less

could a proportion be determined which capital should bear It is plain that this will vary to labor in all communities. according to the occupation

as, for instance,

;

we have seen

that in agriculture there cannot be so general application of machinery as in manufactures

because

its

;

while, on the other hand,

operations cannot be localized or

made

inde-

pendent of the seasons, the number of tools is thereby greatly increased each farmer requiring certain tools, yet ;

not using them to their

full

capacity at any season, and

let-

them lie idle for months. The mechanic, on the other hand, while he uses a greater

ting

share of tool-power, has

it

yet so arranged that the tools

lie

idle little of the time. It is plain that the

proportion will vary, also, according

to the natural advantages a person or

community

enjoys.

Expensive clothing and shelter are essential to the support of the laborer in some climates in others, a piece of cotton ;

cloth

and a bamboo hut serve

In some countries, there

is

for protection the year round.

required an

pipes and conduits to water the

soil,

immense system of

barely to preserve ani-

an equable moisture is preserved the whole twelve months without any application of capital. In some, strongly constructed and carefully coimected dikes and levees, extending hundreds of miles, are essential to the

mal

life

;

in others,

use of the land In some, the

;

others were placed high and dry at

soil is

first.

so generous with fruit, that, " if you

[BOOK

PRODUCTION.

62

II.

;

Nature with a hoe, she laughs with a harvest " in others, the earth has to be carried in baskets up the sides tickle

That which,

of the mountains. capital, acquired

a free

would be

in one country,

by labor and having value,

is,

in another,

gift.

For these and other manifest reasons, the proportion that should exist between labor and capital cannot be mined with any considerable degree of assurance.

many

deterIt is

tools as

workmen need-

ing to use them, else some will stand idle.

It is equally

plain that there should be as

plain that an excess of tools will not help at all in produc-

Capital

tion.

ment

is

the instrument of labor

;

and the

instru-

should, of course, be adapted to the power of the

laborer and the

By

work

to

be done.

the census of 1860, " the real

and personal property Union was valued (slaves excluded) at $14,183,000,000." * A calculation made at the Treasury Department estimates the products of 1860 at 26.8 per cent of the wealth of the country at that time. Without intending to vouch of the

at all for the correctness of this estimate,

approximately true

;

and,

if so,

we

doubtless

it is

shall be surprised, if

we

look at the large proportion of annual product to the accu-

mulated wealth of the nation. ence, cent,

If,

for the sake of conveni-

we call the annual product 25, instead of 26.8 per we find that it amounts to $3,545,750,000 per annum.

It certainly

appears almost incredible that the total amount

of wealth accumulated in the country since its

first settle-

ment should be only equal to four times the product in 1860 but such we understand to be the statement. If so, it shows what an immense proportion of all the wealth ;

annually produced ures, too,

is

annually consumed.

we may make an

From

these

fig-

estimate of the proportion of the

product which belongs to labor and capital.

Allowing for

the use of the latter ten per cent, in the shape of interest

and

rent, or use, the

amount

will then stand thus

* Report of the Secretary of the Treasury, 1865.

:

—

;

63

THE CO-OPERATION OP CAPITAL.

CHAP. X.]

Aggregate national wealth, $14,183,000,000,

10 per cent,

at

is

$1,418,300,000, which deducted from the whole product, as before, of $3,545,750,000, will leave us the share of labor, $2,127,450,000, or about two-thirds of the whole.

From wealth

these statistics,

we

find that the whole

national

only equal to about seven times the gross earnings

is

of labor for a single year.

We have also an opportunity of comparing the wealth and production of the United States with Great Britain. The estimated wealth of the latter, according to Leone Levi (see his

work on Taxation, page

$1000 per capita

;

6), is $30,000,000,000, or

the estimated yearly production, $3,000,-

000,000, or $100 per capita.

The wealth

States, according to the foregoing figuring,

of the United and taking the

whole population, as in 1860, at 31,443,321, while the amount that, while

of product per capita

is

is $451 each $112 each: so

Great Britain has more than double the capital,

she has less annual product per capita.

This

tion of the well-known fact, that capital

and

labor, interest

at least double in this country

what they are

and wages, are

is

a confirma-

in Great Britain. We must not confound the annual product with the annual accumulation the latter being but a ;

small fraction of the former. Capital should, at least, increase in a degree correspond-

ing to the increase of population. crippled,

land

wages

may

fall,

If

it

does not, labor

and starvation eventually ensues.

Her

be quoted as an illustration.

soil,

is

Ire-

wrested

from the people by conquest at different periods, from the reign of Henry II. to the Battle of the Boyne, has passed into the hands of foreigners,

surplus products.

who draw away annually

all

her

Population increases from year to year

but capital does not increase correspondingly. the waste of the soil

and of implements

is

Nay, even

not fully and

honestly supplied.

What

is

the necessary consequence

?

and ultimate starvation or emigration.

Increasing poverty,

We

have said that

[BOOK

PRODUCTION.

64

Four

formed from the animal savings of labor.

capital is

IT.

million pounds a year go from Ireland to absentee landlords,

and eight million pounds are taken away every year The Irish people can make no savings. There

in taxes.

can be no increase of their capital. tion

is

Is

it

Starvation or emigra-

their inevitable fate.

possible that there should be a surplus of capital

It is evident that there

may become

such a surplus,

if

?

we

assume that production itself does not expand in the meanGiven a certain industry, within defined limits, it time. may become full and overflowing with its accumulations. By economy and thrift, these multiply fast, and crowd their barriers. Common observation shows this to be often true, with the enterprises of individuals. ferred to other branches, or cations.

A

The excess

withdrawn

is

trans-

for personal gratifi-

seamstress, who, by saving, obtains a sewing

machine, has a wonderful help in her industry

;

but a sec-

ond sewing machine would not assist her a single stitch. The same is true of special occupations. The limit of profitable production being reached, the amount of capital employed cannot well be increased.

The product, being now flows off

generally in the form of circulating capital,

to other business, or is turned to purposes of

adornment

and culture.

The same

is

communities.

also found true,

States

and

though more rarely, of entire

cities

sometimes reach the limits

within wliich they desire to use capital in their traditional

They become bankers for the world, or direct sumptuous houses and works of art. Such were Genoa and Venice under the merchant princes, who, having reached the boundaries of known trade, and brought industries.

their profits to

all its

machinery to the perfection of existing

wisely enough at

first,

art,

began,

that wonderful career of architecture,

whose ultimate extravagance exhausted the industry that it rise, and passed the commerce of the world to traders who had not become gentlemen.

gave

THE CO-OPERATION OP CAPITAL.

CHAP. X.]

evident, then, that, within the

It is

65

bounds of present

occupations, capital might easily attain a surplus, increasing as

can more rapidly than population.

it

only as applied by labor; and therefore

It is its

productive

production

is

limited by the capacities of labor.

But

and on the whole of things, the limits of industry do not remain the same. Wants expand, as we have seen. Capital is relieved from its former employments, and goes on to new efforts. It can hardly multiply fast enough to meet the growing demand. Enterprises spring up over night. Capital hardly breathes, for the work it has to do.

We

in fact,

when

believe that the time

ive in the

world

calculation.

capital shall

so distant at the

It is

become excess-

beyond the occasions of reasonable

is far

nearest, so doubtful

every way, as not to be a question in a practical science, like political

day when

all

that can find

wanted

We

economy.

are not called on to provide for the

the continents shall be crowded with wealth

no room

to

work.

When

wealth ceases to be

consumed in Yet we are not to anticipate the same rapid progress at all times and everywhere which we see in a new country like our own, full of wants, and stimulated to for capital,

it

is

pretty certain to be

luxury.

Capital

efforts.

has

its

checks, just as population has.

Theoretically, steady increase

each meets obstacles

cally,

;

is

is lost

certain in both

here,

The forces which operate to stay it may be up as follows a certain disinclination of :

grate

;

practi-

:

and checked briefly

there.

summed

capital to emi-

the lessening power of personal supervision from a

distance

;

and a

distrust in the administration of foreign

laws.

Another constant force operating against the increase of found in those wants of man which do not look

capital is

to reproduction.

human

The

desire to spend is just as truly in

nature as the desire to earn, and can be as accu-

rately calculated.

Hence

it

follows, that, as the desire to 5

PRODUCTION.

66

[BOOK

II.

earn loses power by capital becoming plenty and cheap, the

A man

desire to spend gains force.

is

not nearly as likely

use his money for personal gratification

to

eight per cent for

Yet, for

it,

colonize.

It

in its

own

when he can

get

get only four.

when

these obstacles, capital,

all

demands of labor

the

when he can

as

it

has supplied

has gone abroad to

vicinity,

has carried on great wars in which

it

had no and

interest, has developed the resources of infant states,

saved old nations tottering to their fall. Capital has gone round the world in the same boat with the inspired discoverer. It watched with Columbus the weeds drifting from an unknown land it " stared at the Pacific " by the ;

side of stout Cortes

was

it

;

it

debarked with the gallant Cook, nor

frightened at the savage violence which took his

Like Caesar,

it

would not wait

It freighted vessels for countries not

to ports never visited

by

come

for the boat to

civilized

CHAPTER

named

;

it

life.

to land.

sent fleets

man.

XI.

THE CO-OPERATION OP CAPITAL (concluded).

The union of capital and labor will be most effectwhen each is sure of its just reward. If the rights of

2d, ive,

man

as a holder of property are sacred,

and his rights as

laborer equally so, the greatest motive to production can

be secured. restricted.

If otherwise, the creation of wealth will

Men

will not

work or

be

save, unless sure of their

reward.

There cannot come, out of the earth or heaven, a blow that and hopelessly as

levels all industry in the dust so quickly

wrong done between labor and *

by

It will

capital

:

capital.*

Pestilence, drouth,

be recollected that production carried on by slaves the producer being a chattel, the whole product

is

is

done wholly

that of capital

THE CO-OPERATION OF CAPITAL.

CHAP. XI.]

67

or floods do not so thoroughly and permanently prostrate the strength and hopes of a country as a breath of suspicion

on the union of the two great agents of production. Then There is comes an antagonism, indeed, fatal to both. hardly any climate or soil so unpropitious that man will not struggle on, earning his livelihood with

much

rance, and laying something by for the future.

endu-

There

is

hardly any government so rigorous as wholly to suppress the energy of

its

There

people.

exhaustive that something for is

man.

In

all

still

is

hardly any taxation so

cannot be got out of Nature

these difficulties, the motive to exertion

not destroyed.

But

if

foul play or legal fraud

comes

between labor or capital and their reward, the very life of industry ceases at the thought. The spring of work is broken.

admirable parts and

Its

cunning mechanism

its

The exactions and oppressions of

are useless, motionless.

the old regime had not so broken the spirit of France, but that her population and her wealth

went on increasing,

slowly, painfully, but constantly, certainly. tion

came

;

The. Revolu-

the Convention questioned the rights of prop-

and sequestered the Half this would have entire endowment of the Church. been enough for ruin. The industry of France dropped where it stood. In a few months, the Convention was deviserty, confiscated the estates of nobles,

ing schemes by which work should be provided by the State for all its citizens.

the kingdom.

Capital had fled to the dark places of

Labor was

helpless, crippled, starving.

What

had wrought all this ? The violation of rights. Property was discredited capital outlawed labor prostrate. Labor is the first to suffer. Its wants are instant, imme;

;

diate, vital.

Capital, in such economical convulsions, has

the privilege of leviathan.

and give up breathing

It

can dive down to the depths,

for a while.

If labor goes under,

it

dies. It is familiar to

every reader of history

how

the brutal

rapacity of the Spanish conquerors terrified the nations of

[BOOK

PRODUCTION.

68

H.

Peru and the Antilles, and shut up the treasures of the New World in a secrecy that even torture could not break. The

wisdom

of the

man

that

owned the hen

that laid the golden

egg has been embodied a thousand times in the acts of govit is ernment. The result is never the enriching of one ;

ever the ruin of it

"Wealth itself becomes valueless, since

all.

has no security in possession, and only excites the cupid-

common

ity of the

tyrant.

If such is admitted to be the effect of occasional invasions

of property rights, either in labor or capital,

many

prepared to explain the barrenness of

we

shall be

countries the

and best endowed of the world.

oldest

The dreariness

of Asia rises in eloquent vindication of

the harmonies of natural law.

potism has there

made

safety only in poverty

A perfidious

and cruel

Man

property undesirable.

and degradation.

The Jewish

des-

finds is

per-

haps the only people that has pursued wealth steadily and unremittingly, in spite of injustice and robbery. 3d,

The union

of labor and capital

is

the latter is appropriately distributed.

most

effective

when

Capital creates no

It must be joined with labor. its own powers. Somebody must use it, bring his personal energies to bear upon it, set it in motion, watch its operations, work with it. The farmer, the merchant, the manufacturer, must each

values by

bestow constant attention on the capital he employs, or

no good

come of it. more

will

the application, the profits. it

This

is

The more

intense and vigilant

certain the return, the larger the

a well-known practical principle

;

and from

follows that the point will be reached where an individual

has so

much

capital

under his control that his entire

efforts,

by himself and those working under his direction, are not sufficient to secure its greatest effectiveness.

such a case, tal full

it is

Of course, in

economically right that the excess of capi-

should be transferred to some other position, where

its

productiveness can be obtained.

Such limitations are highly

beneficial to society

;

for,

were

THE CO-OPERATION OF CAPITAL.

CHAP. XI.]

69

there no restrictions of this kind, were capital in vast aggre-

gations equally efficient as in smaller bodies, the business of the world might be controlled, and the profits appropriated,

by a very few persons.

The

point

Such a concentration

of great importance.

is

of capital as effects the highest division of labor, and the application of machinery, is desirable for the interest

fittest

of

all

and

;

But

for those purposes,

and up

to such a degree, cap-

concentrated has a wonderful power in production.

ital so

aggregation, merely,

its

is

a hinderance rather than a

After the two advantages spoken of above are once

help.

secured, capital becomes potent and beneficial just in pro-

portion as

various powers

By such

distributed.

it is

It

defends itself better in emergencies

it

;

comes makes use of

distribution, it

and natural advantages.

closer to labor

;

it

adapts itself more shrewdly to peculiarities of circumstance it

has a keener intelligence of the public wants

mands a

greater

tends

employes with more accuracy

its

amount

of executive talent ;

it

;

it

;

it

;

com-

superin-

saves the pieces,

keeps machinery oiled, looks after tools.

The man who it.

He

is

is to

gain by the work

is

brought nearer to

well served, because he serves himself.

For a long time,

it

was a

favorite belief with the

can people, that corporations were the most

efficient

Ameriagents

work was not so great as to be beyond individual enterprise. The older wisdom of the country turns more and more to the smaller establishments, of production, even where the

which secure

full,

interested personal supervision of labor.

The English economy has always

preferred these, except

where the operations were beyond the reach of ordinary capital.

4th,

The union

where there

is

of capital

and labor

is

most

effective

the greatest freedom of industry.

Whenever a population is sufficiently intelligent to underits own interests, it should be left to direct its own

stand

labors.

Its

industry should never be interfered with by

[BOOK

PRODUCTION.

70 In

government.

all

countries which

as enlightened or civilized, like the

may be

II.

considered

European and Anglo-

American, the people have no occasion to look to government for direction as to the business they shall engage in, or the

manner

in which

they shall conduct

it.

Every

branch of industry, in a normal state of society, grows spontaneously out of the wants and capacities of the people. Tillage, manufacturers,

commerce,

up in They can never

fisheries, spring

the places to which they are best adapted.

be advantageously forced into being, or maintained by gov-

ernmental authority and patronage. best in its

own

soil.

Every plant

Soils and climates vary

:

will thrive

productions

will differ in consequence.

But our immediate

topic relates, not to acts of govern-

ment, based on a distinct purpose to change the general which will be more approcourse of national industry, priately discussed elsewhere,

— — but

impose minor restrictions

directing the

;

rather to those which

modes of labor, and prescribing the condi-

moulding the forms of

capital,

tions of their union.

All limitations of the rights and

powers of capital or labor, not required by the public morality or security, are useless and mischievous.

No lawmaker

can gather and express the desires of his

people so accurately and seasonably as they are shown in the

market demand or set in train and carry on their efforts, with myriad instrumentalities, to that end, so savingly and ;

earnestly as

is

done by interested, educated

present satisfactions so fully and happily as

merchant whose fortune

is to

answer

capitalists is

;

or

done by the

for his appreciation of

the public wants.

The work of the politician in this behalf is gratuitous and impertinent. It is an indignity to industry which will be revenged upon the people. Capital and labor should be mobilized as far as possible

turn to the right or to the heritage.

On

;

free to collect or divide, to

left

;

free in gift, purchase,

and

the contrary, the effort of legislation has gen-

ECONOMIC CULTURE.

CHAP.

XII.]

erally

been to impose checks and limitations and hinder-

71

ances everywhere.

We

have thus discussed at length the union of capital

and labor

passing close by the great practical questions of

;

protection and entail, but reserving them, the one to the

Exchange," the other to that of " Distribu-

division of " tion."

CHAPTER

XII.

ECONOMIC CULTURE.

We

shall best define the field of this

agency by discussing

one of the most severely contested questions of

economy,

What

viz.

:

—

political

the distinction between productive and unpro-

is

ductive labor?

The form

of this question

is

unfortunate, and has caused

the greater part of the confusion prevailing on the subject.

In

of slight importance

itself, it is

but, in the course of the

;

discussion, a very grave matter has

become involved with

it,

helping the understanding of neither.

Adam

Dr.

Smith insisted strongly on the distinction

between productive and unproductive laborers. former class he embraced objects, fit

to

all

those

which are generally admitted

mankind.

who produce to

In the material

be of use and bene-

Such, clearly, are farmers, mechanics, and

merchants, in the general application of their industry. Of unproductive laborers, he says, " In this class must be

ranked some of the greatest and most important, and some of the most frivolous professions, sicians,

men

— churchmen, lawyers, phy-

of letters of all kinds, players, buffoons, musi-

This somewhat &c." by Dr. Smith has suffered curtailment by writers since. The distinction between physical

cians, opera-singers, opera-dancers,

extended almost

all

list

[BOOK

PRODUCTION.

72

II.

and mental labor, between direct and indirect agency in production, could not long be permitted to remain as founding a distinction between productive and unproductive labor. It

is

who preserves the life and workman on the farm or in the shop is productive with him and that the lawyer by whom

clear that the physician

strength of the

equally

;

of

transfers

secured,

property are

and personal safety

effected,

equally productive with the owner or the over-

is

seer.

One occupation after another, " important or frivolous," was withdrawn from the unproductive class, as prejudices disappeared in the light of a better philosophy, and as the part of each in the great economy became manifest so that now little is left of that sweeping condemnation of un;

productiveness passed by the father of the science upon the

Yet there

learned and artistic professions.

which

it is

of labor is production.

We

is

to

though he tion.

productive.

The only

do not, in either popular

or scientific language, call by that

makes

a residuum,

our business to clear away.

All labor, in the economic sense, office

is

name the efforts a* man dam or girdle trees,

do mischief, to dig away a

may

devote his utmost energies to such destruc-

Nor do we

reward, whether

it

call that labor

which does not seek a

be play, though of the hardest kind, or

gratuitous service, however useful to the recipient.

more should we

call

or mistaken effort which fails of

Labor

is

its

defined as the efforts of

isfaction of his desires. is

No

by the name of labor that misdirected

a shot thrown away.

Every It is

reward.

man

directed to the sat-

effort that is

not so directed

wasted power, not labor.

If I

spend a twelvemonth in the invention of a machine, which,

when completed,

is

of no sort of use to any one, and for

which I can get nothing,

my

exertions have been unproduc-

worked enough for a reward but, as it proved, my work was not directed to the satisfaction of human desires. So of expenditures to improve land, which in no tive.

I have

;

CHAP.

ECONOMIC CULTURE.

XII.]

way enhance of effort

But

:

it

There

its fertility.

perhaps

may

much

is

is

73

a great deal of this kind

inevitable.

be urged, Suppose a

It is waste, not labor.

man works

preparing ground, planting, and cultivating nearly ready

;

before his eyes, and leaves

Was

has done.

till

but a flood comes, and carries

him nothing

to

there not labor bestowed

the labor was productive, and

it

had

its

his crop is

all

from

off

what he Certainly and

show

?

months

for

for

;

reward, not the less

that each individual effort did not carry off its result in a

complete form at the time, but waited for the harvest.

Value was produced able, appreciable,

at every stroke of the shovel

marketable value

—

just as truly as

been taken home at the close of each day.

—

palp-

if it

had

Labor had been

its recompense but the flood made a Not the less was there labor, not the less was there production, not the less was there value.

there,

and received

robbery of

;

it all.

this view, we see that all labor is productive. But it may be asked, Does it make no difference to the community what objects of labor are selected, and by what means these objects are attained ? Certainly and, in this inquiry, we reach the field of economic culture, which is

In

;

that education of the desires, that instruction of efforts,

and that use of

which will unite to bring out and satisfactions in ever-increasing circles desires, efforts, Here arise, properly, all the important quesof industry. tions which were formerly discussed under the head of prosatisfactions,

ductive or unproductive labor.

Now it

can be asked with

effect,

whether the opera-dancer,

churchman are useful whether they instruct the efforts, and dispose the sat-

the physician, and the

expand the

desires,

isfactions of

men

Let us inquire

;

to a constantly enlarging industry.

closely.

It will be readily granted, that

these and other similar classes

may have

influence upon,

or power in, production in two forms, either primary or

secondary.

[BOOK

PRODUCTION.

74

Primary, where a direct part

II.

taken, an active agency

is

maintained, in the creation of values. Secondary, ing

human

when an

effect is

produced, which, hy modify-

capacities or desires,

however indirectly and

in

whatever degree, brings about ultimately a greater creation of values.

For example: maintains

that great class which, in various offices,

civil justice

and order, has indisputably a primary

influence or power by rendering possible the present crea-

and by watching over their keeping and Government and the law are great agencies of production. Without them, however desirous people might be of wealth, and however capable of effort, little or nothing could be produced. Robbery and violence would scatter and destroy what already exists, and a universal waste would speedily follow. But they have, also, a secondary power or influence for it is found that the maintenance of peace and property rights awakens new and increasing desires, widens the horizon of ambition, and stimulates everywhere to honest industry. Civil security is an education fbr wealth, an economic culture. Then that great class which teaches has both a primary primary, in that it and a secondary power and influence, tion of values,

transfer.

;

—

gives instruction to present labor, as

with the

difficulties

mechanical laws electric

letter,

and the of

;

it is

struggling to-day

explains chemical and

and establishes the alphabet, the written

communication, the rules of book-keeping,

art of navigation

mind brings

and

;

of production

it

:

secondary, in that the progress

infallibly to higher stations of aspiration

activity.

The work of the physician is almost mary character. He saves the lives preserves their strength to labor.

entirely of the pri-

of producers, and

This secondary power or

influence of his profession, if such exists,

is

distant

and

trivial.

On

the other hand,

we

shall

add nothing

to the dignity of

CHAP.

ECONOMIC CULTURE.

XII.]

75

churchman or priest or minister, by attributing to him any direct power in production. Yet his part may be no less important because secondary. The influence of religion is hardly less marked than that of race, in the creation of the

If its influence tend to improve the morals,

values.

thus aid in the preservation of public order

mind, and thus give

it

nobler and higher aspirations, and a

better appreciation of the right uses of wealth,

a great auxiliary to

That

its

—

it

must be

production.

class of agencies

mary comes within

and

to elevate the

;

which we have designated as

The

the view of production.

pri-

class of

secondary agencies belongs to the department of consumption,

which treats of the use of wealth, so that

forth

more wealth.

Here, in economic culture,

is

it

may

bring

the point at which pro-

duction, passing by exchange and distribution, comes into relation

with consumption.

In

pure theory, production

and consumption complete the economic good, which is reproduction. The harvest which is gained in production is sown or wasted, as the case may be, in consumption, to re-appear in a

more abounding harvest, or in barrenness,

in reproduction.

Practically, however,

we have

to intro-

duce the laws of exchange and distribution, as the agencies by winch production is finished, and consumption made possible.

We

have used metaphors drawn from the chemistry of

agriculture to express the significance of economic culture.

To

illustrate

from mechanics, we should say that

No

of the re-action of labor.

something external.

Labor

The energy with which

it

is

is

it

treats

force can re-act except from

a force directed to an object. to

move

in a

new

direction

depend on the temper and shape of the body on which impinges. Reproduction, then, is the rebound of pro-

will it

duction from consumption. If labor

expends

itself

on objects that do not stimulate to

further efforts or serve as instruments to further produc-

PRODUCTION.

76 but rather

tion,

faculties, it is

[BOOK

II.

debauch the energies and corrupt the

evident that reproduction will be lessened

and debased, and the whole course of industry be downward.

on the contrary, labor expends itself on objects that present fresh and urgent desires, and excite to renewed If,

activities, it is

evident that the course of production

up-

is

ward and the people will rise economically, with a rapidity and force, such as signalized the career, in the fourteenth ;

century, of Florence the eighteenth, of States.

;

in the seventeenth, of Holland

England

;

;

in

in the nineteenth, of tke United

BOOK

III.

EXCHANGE. PART FIRST.— TRADE. CHAPTER

I.

THE PRINCIPLES OP TRADE.

Exchange has

origin from the division of labor; and

its

the further that division

given to exchange.

is

carried, the greater extension is

If each

man

by his own work, trade could not

supplied his

own wants

But, so far from

exist.

this being the rule of industrial society, the article to

a

man

devotes

all his

labor

may

which

be such as he never used,

perhaps never saw used.

Exchange

is

that agency which brings a

man what

wants for what he does not want, which furnishes tion for his desires out of objects

none of

gratify few or

As

he

gratifica-

which are adapted

to

his desires.

the division of labor begins in the most savage state,

so exchange

venison divide.

is

known

there.

One goes

another, to the river for

;

Half the

fish is

into the

At

fish.

woods

for

night, they

given for half the meat.

Perhaps

other parties are introduced.

Instead of exchanging the

whole of their

each of the two gives a por-

fish or venison,

tion for a trinket, for herbs

and another portion

to the

which he alone knows how to

medicine

man

We

have

collect.

here brought in exchange, not only in regard to the plain necessaries of uries.

Yet

life,

but to the services of science and to lux-

all this

occurs in the daily

life

of the savage [771

EXCHANGE.

78

Only one went

for venison

[BOOK

Only

four have venison now.

:

III.

The hunter and the fisherman have trinkets and medicine they know not how to get. The doctor and the cripple who made the trinket have one went fishing

four have fish to eat.

-

fish

:

and venison they could not procure

This

the idea of exchange.

is

industry of a hamlet

;

it

It

for themselves.

extends

to the

first

enlarges to take in the entire com-

munity it remains through all the successive modifications and refinements of labor and accumulations of capital. It it crosses rivers, then narrow seas, then the goes abroad broad ocean hunting out everywhere what the seller wants, ;

;

;

carrying everywhere what the buyer wants.

The word

"exchange" expresses the economical principle of all its office is the creation and apportionment of wealth. " Trade "

exchanges.

is

a technical term for the

It is

exchange realized.

sum

this:

of all actual

—

There are several kinds of trade 1st, Domestic or home trade, which includes what :

commonly known

2d, Carrying trade, in which the carriers have est in the

is

as the coasting trade.

no

inter-

commodities beyond their transportation.

3d, Foreign or international trade, to

" commerce "

is

which the word

generally applied.

These kinds of trade are subdivided into the wholesale, retail, and jobbing trades ; and specialized indefinitely as the iron, cotton, shoe trades, &c.

Whence does trade arise ? From the desire which individuals and communities have for each other's products. tial to

trade

;

since, if

It is evident that this is essen-

men

or peoples produced by them-

selves all they wished for, there could, as

no occasion for an exchange. is sufficient for trade,

since

it

we have

said, be

It is evident, also, that this

supplies all the motive that

can exist for an exchange.

To what extent can trade be carried ? To the extent of the surplus production

of each individ-

CHAP.

I

THE PRINCIPLES OF TRADE.

]

79

Given the aggregate surplus products of all we have the amount

ual or nation.

the people of a country severally, and of

its entire

Given the aggregate surplus products of we have the amount of its foreign

trade.

the people collectively, and trade. Illustration

:

Suppose a community of one hundred indi-

viduals, each producing three

— aggregate revenue,

thirty

hundred

dollars'

worth a year,

thousand dollars.

If each per-

son desires to consume only one hundred dollars' worth of

own

his

articles,

sand

But

dollars.

neighbors,

he will have

— aggregate

dollars' worth,

it is

after

if,

trade two hundred community, twenty thouexchanging around with his left for

in the

found that each member of the community

has one hundred dollars which he does not wish to part with

any thing he can get

for

at

home, we have the aggregate

surplus available for foreign trade, ten thousand dollars. Ordinarily, individuals or peoples do not wish to part

with

all their

products.

Ohio, for example, does not wish

to dispose of all her wheat.

home consumption. The

A

share must be kept for

surplus will be exchanged for other

commodities abroad. Exactly the amount to be so retained will depend, within certain limits, on the degree of disposability.

wheat

is

in

demand,

are offered for retain its

it

;

it,

— that

— the

is,

the

more of

The more the

desirable things

less will the producers be inclined to

the greater effort will they

make

to dispense with

use themselves, or substitute other things for

But ple.

this result will It

amount

it

at

home.

be limited by the necessities of the peo-

cannot be calculated on to increase very largely the available for trade.

It will, of course,

be remarked, that the amount of sur-

plus, in particular countries, will vary with the character of their products.

We

can suppose an entire people engaged

make no use themselves. In such a case, their trade would be to the amount of their whole production and their whole consumption. In fact, in industry, of which they

[BOOK

EXCHANGE.

80

this condition of things is never realized.

approached, the more general the trade.

III.

The nearer it is The more vital

and primitive the articles produced, the greater will be the share consumed at home. Ohio has no such trade, proportionately, as

Rhode Island; not

necessarily because

the

more, but that she produces more of what

latter produces

The people

she does not want.

of

Birmingham consume

but an infinitesimal part of the articles they produce.

We

have here the principle that the wealth of a people

not determined

We

extent of

by. the

is

its trade.

have said that the trade of a community, whose whole

production was exchanged, would be equal to

and consumption.

It

would be

so,

its

production

but that would be deter-

mined by its production only. It would be this alone which would carry in its hands into the markets of the world, and on this would depend what it should get there.

it

What

persons or communities will trade most largely

with each other

?

Other things equal, those whose productions

Two

not

tailors will

traffic

much

trade with the shoemaker and hatter. extensively with Illinois

;

differ

together.

most.

Both

will

Indiana will not trade

but both will trade largely with

Russia and Sweden will Louisiana and Massachusetts. make very few exchanges, because their productions are as much alike. Both will deal largely with the West Indies. What determines the character and kind of products each country will afford

?

and physical conformation. One will be a wheatEach will sponraising, another a wool-growing country. taneously turn its industry in that direction where it will 1st, Soil

produce the greatest values with the least outlay of labor

and

capital.

This must be where the natural adaptations This operates, in respect to na-

of the land are followed. tions, precisely as

one farm

is

we

see

it

in smaller communities,

where

especially fitted for grazing, another for tillage,

another for timber.

CHAP.

THE PEINCIPLES OF TRADE.

I.]

From

2d, Climate.

81

.

the Arctic regions to the tropics,

from Siberia to Hindostan,

infinite variety,

is

both of heat

Some countries are deluged with twenty-five water in a season ; * others parch the year round

and moisture. feet of

with ten inches. in twelve

;

Some

are locked with frost eight months

others are open the year round.

It is

evident

that the conditions which are admitted to have given rise to the differing species of fruits

and grains and vegetables

will

control their increase. 3d, Social condition. Brazil,

Take, for examples, England and

— one distinguished

endowments of

its citizens

for the high

moral and mental

the other having a heteroge-

;

neous population, in a poor and semi-barbarous condition.

The

latter

would, plainly, seek to enrich themselves from soil, from the wild wealth of the from the precious ores and stones

the spontaneous yield of the

pampas and the

forests,

along their streams and in natural caves, rather than

till

the ground to the fertility of a garden, sink shafts into the

up highways upon the into the needle and lancet. solid rock, cast

rivers,

and work iron

4th, Difference of race.

This

is

additional to differences of social condition, and

looks to those peculiarities of industrial character in the races of

man, which are no

less distinguishable

peculiarities of stature, complexion,

and

feature.

than their

These do

not affect the degree of production only, as greater or less, but multiply the fashions, and complete the varieties of wealth. All the causes here enumerated conspire to give a great

extent and activity to trade.

It is in the

world that we have illustrated

—

commerce of the

THE TERRITORIAL DIVISION OP LABOR.

The Chinese

raise tea

and

silk.

This

is

their specialty,

* The mountains south of Bombay receive three hundred and twenty inches of water a year, mostly in three months.

6

;

82

[BOOK

EXCHANGE.

•

III.

The Cubans

the form of industry to them most profitable.

produce sugar; and the Sicilians, oranges, for the same reaEngland excels all nations in useful manufactures son. France, in those of taste and beauty States has

Under

its

while the United

;

great industrial power in cotton and wheat.

the operation of natural laws, each country employs

and disposes of its labor, without any arbitrary enactments, in just the way most congenial and profitable in other words, in that way which develops its greatest industrial power, ;

and secures the largest possible production. Suppose, on the contrary, that we of the United States should determine to raise our

own

oranges.

We

could do

and create a supply equal to the demand. The cost of one orange would probably be equal to the cost of raising a bushel of wheat, which would procure for us abroad one hundred oranges. The loss would be equal to ninety-nine so,

We

out of every hundred oranges.

should force a cer-

tain part of the labor engaged in other pursuits into the

business of raising oranges.

equal to the

demand

;

for, at

The supply would be

fully

the rate of a bushel of wheat

The people

for each orange,

few oranges would be wanted.

would

enjoyment of ninety-nine out of every hun-

lose the

dred oranges they would otherwise consume, and could just as well have, if allowed to pay for

If

we turn

them

in wheat.

to the advantages alleged * of the division of

labor individually,

we

shall find that each

one of them holds

good in the application of the principle territorially. it may be assumed that it is here more active and since the differences

those of individuals.

of communities

On

Indeed, efficient,

range higher than

the other hand, the limitations

prescribed are indefinitely removed

when we come

to

the

industry and the disadvantages disappear That would be a bold philosophy that should declare a people one-sided which does not produce every So far from being considered a defect, thing it consumes.

field of national

;

altogether.

* See Production, ch.

iv. et seq.

CHAP.

THE PEINCIPLES OF TEADE.

I.]

83

that races or nationalities should develop very strongly in special directions,

highly desirable.

is

it

While

nothing from the individual excellence, each

takes

it

contributes

with a greater generosity to the completeness of the whole.

From

these general considerations of trade,

the following principles

:

—

we deduce

That individuals must produce a surplus of their own commodities to have an opportunity to trade, and must 1st,

trade to

make

create wealth, 2d,

it

an object to produce a surplus.

That every nation

is

Any

every other nation. tion of

Wants

and wealth creates wants. interested in the production of

thing which impedes the produc-

any individual or community injures the trade of Such causes, for example, are pestilence, as the

the world.

cholera, yellow-fever, ture, as earthquakes

of the late

war

the world, and,

and plague the convulsions of naand inundations war, as in the case ;

;

in India, which sensibly affected the trade of still

more

striking

and recent, in the case was felt,

of the great Rebellion in the United States, which it

may

almost be said, by every

Not a consumer of

human

being on the globe.

cotton, high or low, civilized or savage,

but suffered in consequence.

That

3d,

this

mutual interest exists between any two

nations, whether they have direct commercial intercourse

or not.

For example

:

there

may

be a

German

principality

that purchases nothing of the United States, yet

chase largely of the cotton yarn of England.

a demand for American cotton States

;

;

it

may

pur-

That causes

that benefits the Southern

that, in turn, helps the trade of the

that, again, the producers of the

West, on

North

whom

;

and

the North

depends for agricultural supplies.

By such

ramifications, exchange extends itself through

the world. 4th, Since, by the laws of trade, those countries which lie most remote from each other, and are most unlike in soil, climate, civilization, and ethnical characteristics, are most

84

EXCHANGE.

neaily united by commerce, torial division of labor, the

[BOOK

III.

shown, that, by this terrimost extended production and

it is

most beneficent distribution of all the commodities and that, if any nation creates an

the

of the earth are secured article of peculiar

;

desirableness,

is

it

placed within the

Every invention or improvement becomes, in this way, the common property of mankind. 5th, That commerce harmonizes all differences in the reach of

all.

industry of the world. " All Nature's difference makes

Any

all

Nature's peace."

natural impediment or artificial obstruction to the

intercourse of nations, in fact, so far injures the production

and trade of

A

"

all.

commercial nation," says Sir James Mackintosh,

" has the same interest in the wealth of her neighbors that a tradesman has in the wealth of his customers.

.

.

.

Not an

acre of land has been brought into cultivation in the wilds of Siberia, or on the shores of the Mississippi, which has

not widened the market for English industry." 6th,

That commerce diminishes the number of wars, and

shortens their duration.

There may have been a time when the galleons of Spain

and the Indiaman of England bringing home the stored treasures of barbarism influenced the cupidity of govern-

ments

to the point of war.

But

as

commerce abandoned

the spoils of conquest for the honest industry of the world, as

became widened, its connections more intimate, benefits more popular, the temptation to plunder and

its field

its

violence died away.

The advantages

of a peaceful partici-

pation in trade are greater to every people, even those least

maritime, than a

all that

Drake or a Doria.

now

could be hoped from the ravages of

The whole

the inalienable ally of peace.

sufficient,

thus

far, to

prevent

all

negotiations, tempers grievances,

interest of It

wars.

commerce

is

has not been found

But

and delays

it

enters into

violence.

And

CHAP.

when, in it

OBSTRUCTIONS TO TRADE.

II.]

an argument

still

influential by reason of

war

declared and waged, more impressive and the distresses and inconveniences

spite of its admonitions,

remains

85

is

for peace

attending the loss of accustomed

CHAPTER

traffic.

n.

OBSTRUCTIONS TO TRADE.

—

These are of three kinds First, physical, which are natural second, social, which are incidental third, legal, which are conventional. Looking at these in the light of what has gone before, we shall be inclined to regard them as so much imposed as a burden on industry, shackling the movements of capital and labor. But they have been presented in another aspect, as if :

;

;

there were compensations for this hinderance of spontane-

ous trade

;

and

we

to this, also,

will attend.

Inasmuch, therefore, as these obstructions to trade have been regarded as the protection of local industry, and on that account have been received with favor by rulers,

tion.

we shall speak The propriety

of

them

of the

scientific

men and

as different forms of protec-

term " protection " we

shall

discuss at another point. 1st,

Physical protection.

This results from obstacles which Nature interposes. They may all be expressed by the single term " location."

The wheat

of

as against the

Vermont has a wheat of

of transportation

protection in its

Illinois, to the

from the

own markets

extent of

latter to the

all

the cost

former State.

the cost of transportation and attendant charges are cents per bushel, then the farmers of

Vermont

If fifty

can, as far

as competition from Illinois is concerned, continue to sell

EXCHANGE.

86 their

[BOOK

wheat until they reach a price

fifty

cents per bushel

greater than they could obtain but for this.

not

much

enrich the farmer

may may be

All this

for the greater price

;

HI.

rendered necessary by the additional labor required.

But,

much. On the other hand, the mechanic of Vermont must pay more, up The protection of the to fifty cents, for a bushel of wheat. at

any

rate, it assists

him

in selling just so

farmer, though a natural one,

sumer.

The mechanic,

is

at the expense of the con-

in so far as his bread

is

concerned,

is

placed at a disadvantage in production, in competition with those

who can purchase their wheat at the prices of Illinois. him more to live he must, therefore, charge more

It costs

:

for his wares, and, of course, sell less. If,

now, the introduction of railroads reduces the cost of

Vermont farmers The consequence of this that class in Vermont will

transportation to twenty-five cents, the

have

lost half their protection.

will naturally be, that some of become mechanics, because the latter class has gained what the former has lost, by the reduction in the cost of transporAny thing which reduces the price of agricultural tation.

products has a tendency to increase

all

other branches of

production.

This protection amounts generally to an entire prohibition of the foreign article in the case of certain manufactures,

such as houses, barns, stores, &c, which might often be

more conveniently and cheaply than in the country where they are to be occupied but the cost of transportation puts it out of the question, except in cases where the There have local facilities are very crude and insufficient. erected

;

been great numbers of houses sent out by ship

and Australia

;

and there

are,

to California

even now, remaining in the

eastern portion of the United States, houses which were

framed in the old world, or which are made of brick imported from England.

•

Yet, looking to the whole of things,

we

find that this class

of protection builds up, in every country, an

amount of

CHAP.

OBSTRUCTIONS TO TRADE.

II.]

87

manufacturing and mining industry, often amounting to its consumption in that line. Such a protection to industry being in the nature of

one-half of

things, and, in fact, being the very condition of material

we have no more call to inquire whether it is we have to ask the same concerning weight. and must continue. The effect of it may be less-

existence,

desirable than It exists,

ened by man's contrivances, but can never be annihilated.

Those very contrivances will be among the effects of it. In a certain sense, and to a degree, such obstructions, even when apparently removed, tection

still

continue to exert a pro-

Suppose, for example, a swamp,

on local industry.

near a certain town, requires a detour of all

passengers and freight.

the industry of the place. structed or the travel it

is

swamp

miles for

now, a causeway

If,

is

con-

drained, so that the difficulty of

avoided, the protection

exists in the

many

a natural protection on

It is

is

removed, unless, indeed,

form of the debt incurred

for drainage.

either case, the people are relieved of a certain

labor once indispensable

;

In

amount of

" and, though their " protection

has been removed, their industry has been greatly benefited.

In the prodigious enterprises undertaken by science and labor for removing, in every direction, obstacles to uninter-

rupted communication, do we not find the best practical

commentary on

all artificial

and conventional arrangements

for putting countries further apart

by imposing restrictions

on commerce ? If the approach of foreign industry is undesirable, it is an economic curse, that the steamship and the Indiaman have replaced the galleys of Columbus or the Let the ocean be turned to triremes of Themistocles. quicksand, and the earth to mire that so the mutual hurt;

fulness of nations

may

cease in an entire impossibility of

reaching each other.

The second termed

social.

of the

We

what we have

modes of protection

is

have also called

incidental, there

it

EXCHANGE.

88

[BOOK

III.

being no original intention to affect the direction of labor.

from social obstructions or political disturbances. These increase the protection afforded the interests of parIt arises

A

ticular localities.

most impressive

war of

the results of the

in

The production and

States.

illustration is

found

the Rebellion in the United

sale of cotton

was greatly

hin-

This operated as

dered, and, for a time, almost annihilated.

an immense protection to the cotton of India and Egypt, where, before, the culture was comparatively unprofitable. Yet, under the encouragement of the American war,

it

be-

came more advantageous than any other branch of industry. Indeed, so largely was it raised in India, that the country increased in wealth at a rate quite astonishing, and a great

was

industrial revolution, for the time at least,

But

it

was

countries.

at a

What

heavy expense to

all

India gained, Europe and America lost;

the former as producer, the latter as consumer.

of the world

effected.

other peoples and

The wealth

was not increased, but greatly diminished, and

natural and healthy commerce widely deranged.

its

Even India

itself

has not been permanently benefited by

demand

the extraordinary

for her cotton.

The return of

down

the price of her

peace in the United States, bringing

great staple, has caused extensive bankruptcy and

commercial

The season

distress.

led to the wildest

great

of artificial prosperity

extravagance and speculation, to the

neglect of the culture of rice and other needful crops, so

unwonted prosend, produce equal depression and

that the event, which, for a while, brought perity, must, in the

suffering.

In some countries, the despotic rapacity of the govern-

ment, and the violence and fraud that pervade society, serve as a great protection to the industry of others, by diminish

ing personal safety and business security in trade.

Such

an element affords the same encouragement to others as the to

introduction the sales

of a

of others.

bear It

into

one

store

plainly reduces

would give the quantity

J

CHAP.

;;

OBSTEUCTIONS TO TRADE.

II.

89

or quality of inducements that can be held out to buyers in the

community where the disturbance or disorder

ex-

ists.

Suppose the Gulf of Mexico to be infested with pirates, so and risk of property should double

that the danger to life

the price of sugar brought from

New

New

Orleans to

York.

This increase of price, caused by the cost of insurance against robbery and murder, so long as

it

lasted,

would be

a protection to that extent to the cultivation of maple sugar in the

North.

War, under result,

all

circumstances, whatever the occasion or

whether between different nations or parts of the

same, always has the

effect of disturbing trade, arresting

and disturbing the harmony of the economic world. 3d, The last of the modes of protection is what we have It is purely conventional, and arises with the called legal. all

the healthful agencies of production,

direct purpose of affecting production, or, at least,

the expectation that such will be the result. firstly,

This

by the prohibition of imports from one or

secondly, by a direct

industry

or, thirdly,

;

premium on

with

is effected,

all

nations

the products of

home

by the imposition of duties on the

for-

eign article.

The former method entirely out

It

so violent

of the sympathies

In so far as

statesmanship. trade.

is

may

it

of

and extreme as to be modern economy and

exists, it intends to destroy

arise during a state of war, or in greatly

embittered controversies for purposes of injury or revenge in

which case

its effects

are to be regarded rather as be-

longing to a state of war, and as incidental to

it,

though

brought in by specific enactment.

The second, though used

at different times

and in

differ-

ent countries, has never been a favorite with governments,

although

it is

encouragement

by to

far the

most economical mode of giving

a particular branch of industry.

illustration of the great

An

advantage of this mode of protec-

90

EXCHANGE.

tion over that of laying duty

[BOOK

on exports

will

III.

be given in our

chapter on national taxation.

We

shall

have to do, then, only with that kind of legal

protection which

imports.

is

secured by the imposition of duties on

This has been the practice of nations generally,

and so with more or less effect. England formerly laid taxes on four hundred articles brought into her ports from France. The United States has always maintained a system of import duties of a varying character, sometimes directed to one object and sometimes to another, in a greater or less degree,

as the popular feeling went.

CHAPTER

III.

PROTECTION.

Legal

protection

may

four general reasons 1st,

2d,

:

be imposed from one or more of

—

To raise a revenue. To encourage the production

of certain commodities

at home.

3d, 4th,

To support existing forms of production. To secure commercial independence.

All these will be examined in detail.

To raise a revenue. So far as this is the only conway in which the state can raise a certain sum of money which it must have, it is but a mode of taxation, with which we have no present concern. So far as it also affects 1st,

venient

industry, called

it

it

becomes a species of protection. We have not on industry is known

incidental, because its bearing

and considered

in its imposition.

So far as the element of

should be subject to the judgment which shall be pronounced on what follows. If the " protection " of certain domestic products be found a good, then protection remains,

it

the revenue duties should be so disposed as to afford

them

CHAP. all

PROTECTION.

III.]

same time that

possible assistance at the

public purse.

If,

91

on the other hand,

it is

it

serves the

decided to be mis-

chievous to substitute man's law for Nature's, such revenue duties should, as far as

may

be imposed on articles where

To encourage

2d,

consist with the public safety, it

mislead industry.

will not

the growth or manufacture of certain

commodities at home.

This

is

the field in which protection

joins battle of choice with freedom of industry.

other particular reasons,

its

argument

linked with some real or fancied necessity

;

ground propositions which

:

tion takes

freely it

and

to defend

man,

as

In

all

the

shall see,

but here protec-

fairly, virtually

assumes

First, that the desires of

we

as

is,

—

making two

an industrial being, are

so blind, so passionate, or so weak, as to require correction

by the public

will,

enlightening, chastening, or stimulating.

Second, that the efforts of man, as an industrial being, are not sufficient, of themselves, to achieve the satisfaction

of desires, without the aid of law, coercing

him

to that

which he would not voluntarily undertake.

What

is

industrially wanting, then, in

man's nature, either

individually or in voluntary association,

is to

be supplied by

such enactments as are called protective.

We

will inquire about the

second of these propositions,

with the view of reducing both to one.

Man's industrial efforts can never be assisted in production by any legal enactment. Deriving all value from labor, we have here an adamantine basis, which no sophistry can

Laws may be supposed to stimulate desires, or to rethem but they cannot lay hand on man's labor, except It is a power given by the Creator, to work to hinder it. upon the constant properties of matter. It has no fellow in its work its only tools are capital, its own creature, and nature, whose forces are fixed by God. Labor has its move.

press

;

;

commission and

man

its

reward in

itself.

Just as surely as

cannot add one cubit to his stature, so

to help

man's labor, except through man's

is

law impotent

desires.

EXCHANGE.

92

There

It is, that the efforts

one.

to

men

will

Those efforts are those Man's work is man's objects.

are included in their desires.

desires going out after their

want

ITT.

another reason, more abstract, for reducing these

is

two propositions

make

[BOOK

active.

We

have thus to consider only the

theory of protection

;

first

proposition in the

namely, that the desires of man, in

Men, as con-

the economic sense, need government by law.

sumers, are to be shut off from certain objects to which they naturally incline

;

and, as capitaMsts or laborers, are to be

shut up to certain

efforts,

which, so far as the legislation

has any influence, are not the direct, simple, and proper

means

to the satisfaction of existing wants.

not at

all in

And

all this

the interests of morality or good government,

but wholly with a view to the greater wealth and industrial prosperity of the community. basis in a

want of confidence

ple to direct their

own

This proposition has

only

in the intelligence of the peo-

desires,

labor to gratify such desires.

its

and of the competency of

The

proposition here reaches

no argument. Consciousness and experience must affirm or deny sharply and decisively. Such wisdom or power, we believe, has not been vouchsafed to a point where there

legislators,

is

whether absolute or representing the

will of a

people.

Economically,

ment

is

it

will ever

remain true, that the govern

best which governs least.

The wants

of a people

are the sole proper, the sole possible, motives for production.

Nothing can be substituted for them. Any thing that seems The to take their place is merely a debasement of them. whether laborers or capitalists, secure, any other possible means, the gratification of such wants. Their intelligence is always superior on such These we believe to be points to that of any foreign body. experience, not dependent absolute affirmations of universal

interests of producers,

better than

on reasoning, not condescending to argument. General proposition There is no sense so subtile as that :

CHAP.

PROTECTION.

III.]

with which a

man

detects his

own

93

There

wants.

is

no spur

so sharp as that which urges hirn to satisfy them.

This

is all

the defence

seems necessary

it

the direct attack of the protection theory.

we meet

troublesome when

on ground not

terests,

its

it

make

to

It will

against

be more

in alliance with other in-

own, and displaying uncertain

colors.

then, protection

If,

ciples,

is

founded on

we should expect

to find

it

false

economical prin-

working mischief in

its

application to national industry, perverting the desires, crip-

pling the efforts, and plundering the satisfactions of society.

Since the subject

of great practical importance and of

is

great popular interest,

we

will take

an illustration at length

from the history of American industry, exhibiting the principles thus far attained.

We

choose the manufacture of iron, for six reasons

Because

1st,

own

it

country, and

may is

2d, Because its

it

—

all others. There monopoly about it.

found in almost

therefore, nothing of the nature of a

from

:

be produced in great amount in our is,

enjoys the largest natural protection arising

weight and bulk.

3d, Because

it

is

one of the most simple of

all

manu-

factures.

Because

4th,

it

has been tried on a large scale, affording

material for great inductions, and freeing the results from

any imputation of accident. Because the public attention has been turned

5th,

a long time, and

it is

it

for

better understood than any other

we

to

could name.

Because a stronger argument can be made in favor

6th,

of

its

receiving governmental protection than any other.

What scribed sively

?

is

the fact in regard to the manufacture so de-

At

present, iron cannot be so cheaply

produced in the United States as

foreign article. 1st,

Why

is this ?

We

Not that we do not know how

to

and exten-

exclude the

answer negatively to

make

it.

:

—

Being, as

EXCHANGE.

94

has been said, the most simple of

[BOOK

all

III.

manufactures, we have

had, from the earliest settlement of the colonies, the necessary knowledge, and have produced

from our colonial

it

days.

Not that we have not sufficient capital. No branch of business is more accessible than iron-making, or requires 2d,

As

less capital proportionally.

ness was

up

commenced with

to a certain point.

branches of industry,

Had it

a matter of fact, the busi-

little difficulty, it

and we succeeded

been as profitable as other

would, like the manufacture of

demands Yet the latter industry has been carried The former has stopped far the full demand.

boots and shoes, have been extended to the full of the country.

nearly to short of It is to

it.

be observed, in this connection, that a successful

own

Labor no more seeks assistance from capital, than capital employment by labor. Every year of profitable enterprise affords a surplus, which can be applied to the increase of business more efficiently than twice the amount of raw capital, coming in The daily or monthly increments are applied the lump. with an aptness and a promptness that make them far more business, once started, creates

its

capital.

useful than wholesale, occasional accessions of capital from

abroad. 3d,

Not

that

we have not

the best natural facilities for the

manufacture. Five great conditions of success are found most remarkably in the United States,

— (a) Our ore

is

not only of excellent

and most abundant, but (£>) is found very generally on the surface and (c) in proximity to the best rives Navigation, and almost always in close juxtaposition to (o?) coal Perhaps in no for smelting, and (e) limestone for flux. quality

other country of the world are these requisites so fully secured.

The absence

of a single one of

them might be

suffi-

cient to destroy the prospect of production.

The importance

of this element will be seen in the follow-

PROTECTION.

CHAP. HI.]

95

ing remarks from Dr. Allen's excellent work on "India, Ancient and Modern "

—

:

" India has valuable iron mines (the writer once heard a distin-

guished geologist,

enough

iron

to

who had been

inspecting them, say they contained

supply the world)

in the country

is

;

and yet nearly

the iron used

all

procured from Europe, because the iron mines

are in one province, and the coal

in another."

is

Not that the manufacture here lacks a good natural America has been put at a great distance from

4th,

protection.

seen.

The effects of such a protection we have already The foreign product is, in this case, charged with

freight

and insurance

Europe.

for a

This, with articles having

voyage of three thousand miles.

little

bulk or weight for the value,

might not serve as a great encouragement duct

;

but, with iron,

Why,

then, with

it is

these facilities, do

all

home

to the

pro-

a very considerable item.

we not produce

our iron without governmental protection

?

There

is

all

but

one reason.

We

can do better.

labor than by

How

can this be

making still

making ?

We

can obtain our iron with less

it.

Because, though

we have

facilities for

any other people, we have

iron, greater perhaps than

greater facilities for raising agricultural products.

We can raise forty bushels of wheat with, say, twenty days' labor that will purchase a ton of iron, to produce which

would cost twenty-five days' labor all our iron.

:

net saving, five days, or

twenty per cent on

What

is

the explanation of this state of things

Land

is

an instrument, and the greatest of

ducing agricultural values.

wheat lars

is

Good

?

all,

in pro-

arable land, on which

raised in England, is worth, say,

two hundred

dol-

an acre.

In this country, the same

is

worth, say, twenty dollars.*

* Often not a fourth part of that sum. The government holds the host dollar and twenty-five cents, and gives it away to actual

wheat land at one settlers.

EXCHANGE.

96

[BOOK

HI.

Then, with our price of land, we have the advantage, so

far,

over the European, in the production of crops, of nine-tenths,

or ninety per cent.

Our

capital in land is ten times as pro-

On

ductive as that of England.

the other hand,

we have

not an equal advantage over the European in making iron

have said, the chief

him more labor (and labor is, item in making iron), that labor

him much

day than

for,

although

per cent

costs

it

less per

So that,

less.

it

if it is

costs us

as

;

we

costs

say, at least, fifty

;

estimated to cost him twice

much labor to make iron, still labor costs him no more in money than ours costs us. In respect of labor, then, we are as

on a

level.

So far as money, as capital again has

money

is

the

is

concerned, the European

advantage of us by

fifty

per cent, since

as well worth eight per cent here as four per

cent there.

Now,

these facilities which the

European has, from the

cheapness of labor and capital, counterbalance to a great extent, if not fully, the advantages which

ease with which

we can

we have from

the

get the materials of which iron

is

made. If so, in getting our iron

by raising wheat, we have the net

advantage over the European of ninety per cent in the land, the great item of expense in such products

which

is

much

so, indeed, that

is

;

so

the pure rent of farms in England

estimated to equal the entire wages of the agricultural

laborers.

Thus

it is

that our unequalled natural advantages, aris-

ing from cheap virgin lands, render to

make

iron, or

engage in

many

it

unprofitable for us

other kinds of manufac-

tures.

Such is the situation. We will now apply protection. Government, in 1816, laid a duty of thirty dollars per ton on bar iron equal to about fifty per cent on the cost of ;

the foreign article. policy.

Let us inquire into the

effect of this

CHAP.

PROTECTION.

III.]

97

Labor and capital were at once 1st, Iron was produced. withdrawn from other occupations, and invested in furnaces and iron-making. We undertook to make iron ourselves, under the

belief, that,

with a protection of thirty dollars per

manufacture would be found very

ton, the

far, the object of the duty

2d,

A

profitable.

So

was accomplished.

was caused to the general production of Labor and capital were withdrawn from pur of ordinary profitableness, and invested in business great loss

the country. suits

that required fifty per cent protection to If the duty

at all.

ture in 1816, as called for,

it

— does

made under

was necessary

was, it

—

for a

make

it

to establish the

still

profitable

manufac-

higher protection was

not follow, that, on the whole amount

the forced system of production, there was a loss

to the country of thirty-three

and one-third per cent

thirty-

;

three and one-third per cent of ninety, the enhanced price,

being Is

fifty it

per cent on sixty, the original price

possible that there can be

?

production of wealth was decreased so much.

this ? The The enhanced

price, thirty dollars per ton, took the following

*

It

*

any doubt of

form

:

—

should be understood that there can be no greater discount than one cent, which takes the ichole of any thing; yet there are men who

hundred per

and even well versed in financial matters, who speak very flippantly of two hundred or five hundred per cent discount. Professor Fawcett, in his " Manual of Political Economy," page 365, says, " Mr. Gladstone has been confident in his belief that a reduction of one hundred per cent, in the price of inferior French wines, will cause those wines to be purchased by classes of society in this country who have never before purchased them and, therefore, the consumption will increase more than one hundred per Certainly, Mr. Gladstone is right in supposing the consumption would cent." be increased more than one hundred per cent, if the price were reduced one hundred per cent but it seems almost incredible that the Chancellor of the Exchequer could have used the expression attributed to him. The fact that Professor Fawcett himself could write in tins manner shows the importance of having the exact meaning of the term " discount " defined and determined. A writer in one of the most respectable magazines in New York lately stated that a certain commodity " had fallen six hundred per cent." Occurrences of this kind are frequent. The difficulty in the case seems to be, that discount and premium (or advance) are confounded. The first is limited to one hunprofess to be learned

;

;

dred, the latter

is

illimitable.

7

—

;

[BOOK

EXCHANGE.

98

in.

Suppose the consumption of the United States at that time, 1816, to have been eighty thousand tons per

annum, and

that,

we

under the system of protection,

made twenty thousand

tons,

importing the balance

there was, then, paid duty on sixty thousand tons,

$1,800,000

at thirty dollars

Twenty thousand

by

tons made, at a price enhanced

600,000

thirty dollars

Total enhanced cost to the people *

.

.

.

$2,400,000

.

more than the average hundred thousand dollars was The lost to the country, both to people and government. sum of one million and eight hundred thousand dollars went The protection of iron cost two to the national revenue.

Now,

as the iron-masters did not get

rate of profits, the entire six

million

and four hundred thousand

dollars, the people pay-

ing a tax not the less on the domestic than on the foreign product.

But the

real loss to the country

was much

greater, be-

cause, 3d, Many wasteful and disastrous experiments were made. "When any branch of industry grows up naturally, it commences upon a small scale, and is cautiously extended, as

found profitable. wise.

A

Under a forced system,

duty of thirty dollars a ton

Pennsylvania

is full

of iron ore

is

and

laid

it is

sum by

tion of fifty per cent

So everybody reasons

acts.

?

iron.

What

coal.

her from making a vast

it ?

quite other-

upon

prevents

Has she not a ;

protec-

so everybody

Great establishments are started at once.

There

is

no occasion longer to consult adaptations of character, experience in business, or local economy.

Success and fortune

are secured to all by omnipotent protection.

headlong into the work,

if,

thing so serious as work.

indeed, they suppose

it

plunge

to be

any

Merchants, professional men,

farmers, mechanics, all are seized with the

making.

Men

mania of

iron-

Large iron works are hastily and ignorantly got up.

* Besides all the profits

charged on the duties and enhanced cost of the iron.

CHAP.

99

PKOTECTION.

III.]

Incompetent heads manage them. Inexperienced hands work in them. Imperfect iron comes out of them. Inevitable loss attends them.

Insolvency

And more to

is

the end of them.

the iron interest clamors loudly and successfully for Fifty per cent

protection.

is

not enough for the people

These are not accidental or peculiar

pay extra on iron.

but natural and certain, where the great laws of

results,

trade and the even course of production are disturbed.

"We have seen these marked

effects of protection in the

How

of the excluded country? " protection " is adequate, Just so far as the

'protected country.

What

cannot send us iron. trade

then

?

much

So

England

of her iron

cut off; and her capital and industry must be directed

is

wheat, or to some other less profitable, productive,

to raising

and natural employment. A part of it is forced into wheatgrowing, and this reduces the quantity she would naturally require of

our market

;

far as her labor

as

it

Her industry

American wheat.

vantageous

is

cannot find employment,

has done by crowded packet

and the United

We

it

less ad-

So

must emigrate,

lines, to Australia,

Canada,

will

be most injured by this commercial

?

answer, decidedly, the protected, because England

would not have made, on the iron sent ten per cent of

made

States.

Which country warfare

is

correspondingly diminished.

some

;

while

we make a

us, more, say, than

clean loss, as

thirty or forty per cent

;

that

we have

is, all left

seen,

of the fifty

per cent enhancement of price, after the profits of the Ameri-

can manufacturer are deducted.

But

it

may

be urged, that,

if

a part of the labor of the

country had not been taken from agriculture,

its

products

would have counterbalanced what was lost by the manufacture of iron. This is a favorite view with a certain class of minds. There are would have declined

in value,

and

this

EXCHANGE.

100

many

who

theorists

of prices,

[BOOK

III.

are continually foretelling the decline

and general starvation

many

;

business men,

who

are expecting daily to exhaust the market, and reach the limit

industry

of their

;

many

householders,

who dread

the disappearance of fuel and light from the earth, with untold horrors beside.

Such persons are much

afraid of using

nature up.

The markets

of the world being open to us, all our sur-

plus products would remain in demand. Provisions, especially, are a sort of " legal tender " the world over and there ;

seems to be no immediate occasion to anticipate their disuse. There is no market that keeps open so long and surely as

The English

this.

ports were wrested from the monopolists

of grain, by a power that government and society could not resist,

— the power of indignant want.

overdone agricultural products

is

The misfortune

of

one that statesmen may

well leave to their successors.

But, if there were no other markets open but those at home, there would be a certain tendency, not at all frightful in

its

ours

vehemence, to a decline of prices, in a country because an agricultural people,

;

under favorable

cumstances, always produces more than

would, sooner or

sible glut, let

As soon work

is

claimed for such a pos-

us inquire into the results.

as wheat, to take

tural products,

days'

that

all

cir-

consumes, and

such a surplus as to lower the

later, create

Admitting, then,

price.

it

like

had

it

fallen so

as the exponent of

low that

to get a ton of iron

it

all agricul-

required as

many

by raising wheat as by work-

ing the ore, the manufacture would be successfully intro-

duced.

That

is

precisely the point at which this branch of

industry would legitimately begin.

It

would not spring up

suddenly, at some arbitrary point, but grow up in those

where the natural protection was most felt, and facilifor instance, in a region ties for production were greatest for from any considerable market, where iron could only be places

;

obtained by long and expensive transportation, where the

FALLACIES OP PROTECTIVE THEORY.

CHAP. IV.]

101

land was not adapted to wheat, but where ore, coal, and lime

were

plentiful.

It

would extend

to all parts of the country

was as advantageous as wheat-growing. The business would be introduced without any disturbance of existing interests without wild, extravagant, and wasteful experiwhere

it

;

would be a natural development and growth, not It would feel its way with a sense as subtile and secure as that with which the plant raises itself into a world of big trees and wild tornadoes, and fierce, rushments.

It

an arbitrary creation.

ing

life.

CHAPTER

IV.

THE FALLACIES OF THE PROTECTIVE THEORY.

We leave

now

the illustrations of the principles of protection,

We

as exhibited in the manufacture of iron.

have shown the unsoundness of

which proposes to substitute production.

But there

still

all

believe

we

that political philosophy

artificial for

natural laws, in

remains some popular argu-

ments, which we will notice. 1st, It is

claimed as good policy to protect " an infant

manufacture"

until

then take care of

it is

itself,

well established, because

it

will

and ultimately confer great wealth

—

Of this it may be said («) There is no assurance, under a system which removes the sole test of usefulness and self-support from the producon the country.

:

tion of a people, that enterprises will not spring

never will come to maturity, which have no

up which

vital force of

themselves, which exist solely by reason of the protection,

never become remunerative.

and

will

why

not bad, since the test of bad or good has been with-

If

good enterprises,

drawn ? In such a rankness of unnatural growth, it is far more likely that weeds will be produced than useful plants. Thus the whole industry of a country may become perverted

;

EXCHANGE.

102

and

by removing the principle of competition.

falsified

will be

[BOOK

no reason

III.

There

for healthful industries to spring up,

which

will not also give life to

such as are weak, tardy, ephemeral

to such as are parasitic

and exhausting.

(&) Other things aside, the desirableness of raising the " infant " will depend very much on the length of time and total cost required to bring it to full

age and

size.

There

have been nations that exposed sickly and unpromising children, holding

it

to be for the

none but such as promised

members

advantage of the state to rear to

become vigorous and useful

Religion and humanity have changed

of society.

this,

out of respect for the image of

man

creature

;

God found

and now the cripple and the

in every hu-

idiot are reared

But the protective policy extends same kindness and forbearance to industry. No matter

tenderly and patiently. the

how

plainly palsy, scrofula, or fatuity

form or features, the infant tude, that only changes to gets punier

is

may

appear in the

sure of an affectionate solid

become more anxious as the infant

and weaker.

France protected one of these industrial infants beet-sugar culture.

Dr.

Wayland

said of

it,

;

i.e.,

in 1837, "

the

The

present protection costs one million and four hundred thou

sand pounds per annum. twenty years,

it

will

Suppose

amount

million pounds sterling

;

to

no

this to

less

continue for

than twenty-eight

the interest of which, at five per

two and a half pence per pound, one hundred and twenty-six million pounds of sugar, or nearly the whole annual amount of sugar now consumed in France." cent, will bring, at

In 1865,

we can say

that this child, born in the early part

of the great Napoleon's career, has not yet

enough

to

become strong

walk alone, or hardy enough to take the

Supposing an equable annual consumption of any requires but

common

tection to the extent of

school arithmetic to fifty

air.

article, it

show that a

pro-

per cent, continuing for eighteen

amount to a sum, which, would furnish the nation in that

years, would

at six per cent inter-

est,

article to the

end of

time, without ever paying any thing that

man to

more

so costly to bring up ought to

is ;

103

FALLACIES OF PROTECTIVE THEORY.

CHAP. IV.]

whereas

it is

for

A

it.

make a very

child

useful

generally true that such children have

be brought up three or four times over, and then live on

the poor-rates.

If

such a protection, however, were to be it then

continued only eighteen years, and the necessity for

become self-supporting, it would yet be true that every pound would have two prices, added one, the present cost of making the other, to each other cease, the industry having

;

:

on old protection equal to the present cost. In fact, iron and sugar have been protected in this country And all for what ? since 1816, and the duties still continue.

interest

Where

is

the advantage of

making a great annual

sacrifice,

will grow up was growing up slowly, but successfully, before there was any protection ? (c) Finally, no sound and healthful manufacture needs The phrase " infancy " is entirely sophprotection at all. istical, as applied to any branch of legitimate industry. Each one comes full-grown and full-armed into life. We do not mean that it has no growth, as far as extension is concerned. It certainly does go on from town to town, from But there is no State to State, out of small beginnings. for a long time, to establish

of itself as soon as

it will

an industry that

pay, as

infancy, so far as completeness or robustness of

cerned.

life is

con-

Suppose, for example, that there was but one man-

ufacturer of iron in the country, and he produced only to the

amount

of five thousand dollars a year.

Yet,

if

he could

bring to the market as good and cheap an article as the foreigner, he

would be none the worse

for being a solitary

producer on some mountain in Pennsylvania.

The

secu-

any manufacture does not reside in the number of those engaged, but in its power to meet the public wants. However few may be employed, however humble their berity of

ginnings, they stand simply in their ability to sell a good article at a reasonable price,

and are as strong in

ever was the proudest guild of London.

this as

;

Of course, there

is

a period in every enterprise

experiment and outlay.

is

[BOOK

EXCHANGE.

104

meet the

able to

for it gets the

There

is

necessity.

But

capital

is

when

III.

all

always ready and

belongs to capital to do this

It

remuneration of

it

when

the yield begins.

a remarkable confirmation of the truth of these

remarks in the history of the boot and shoe manufactures of They never asked for protection never the United States. ;

received any notice in all the conflicts for increased tariffs.

The trade grew up the first

naturally, steadily,

and

profitably,

from

increasing gradually, with the growth of the coun-

;

try, until, at the

present time,

not only the largest, but

it is

one of the most profitable branches of manufacturing indusIn Massachusetts alone, this manufacture extends to try. over

millions of dollars annually, and

fifty

by

is

far the

most

advantageous branch of industry in the State.

There

is

another popular argument for protection.

2d, It is claimed that

we ought to

protect our labor against

the pauper labor of Europe.

do this? Does it prevent the Europe from entering into competition with ours ? not, in fact, bring them to our very doors ?

Does a

restrictive tariff

laborers of

Does

it

For iff,

fifty

viz.

years prior to the date of the

first

important

tar-

181G, there was no immigration of any consequence.

Soon after this, we began to attract skilled workmen. Some were expressly hired to come over to teach us how to spin, weave,

As we

n.\is

Massachusetts /SO'O of Specie

Deposits in Savings Banks /; \fiuiom

EFFECTS OF A MIXED CURRENCY.

CHAP. X.]

185

Now, should any cause operate by which confidence

in the

solvency of the general banking system of the country

is

happen that a run will be made on the savings institutions. These can only meet their engagements by drawing on the banks. But, if shaken,

it

will naturally, nay, inevitably

these have all their resources strained to meet the ordinary

wants of the business community, how can the drafts of the saving banks be met ? How can currency be supplied for this

demand

extraordinary

intelligently

?

This question can only be

answered by reference to the condition of both

these kinds of institutions.

We The

purpose, take the currency of Massachu-

will, for this

1860

setts as it stood in

:

—

savings banks had on deposit

$45,000,000

. (deposits r™ , r I he currency ' banks had { ,

30,000,000

-,

25,000,000

(circulation

Total

$100,000,000

The currency banks had

6,500,000

specie

Difference

This

is

$93,500,000

exhibited in Currency Diagram No. 3.

Here, then, are legal immediate demands, upon the currency banks, of

fifty-five

millions

banks, of forty-five millions.

;

and, upon the savings

Suppose there should

arise

some dissatisfaction, or public uneasiness, which should prompt to a run on both these kinds of banks. It certainly is possible,

not to say probable.

Suppose that the

institu-

tions for savings are called on for only one-fourth of their

They must look to the banks for eleven millions currency at once. The banks begin to pay out their bills

deposits.

of

but the specie

;

is at

once demanded, and of that they have

but six and one-half millions against their own immediate liabilities of fifty-five millions. They could not stand a run of two days, because their

own

drawn in was discov-

deposits would be

specie just as soon as the real state of affairs

[BOOK

EXCHANGE.

186

in.

The banks must, therefore, suspend at once. What would naturally follow in a time of great public excitement, ered.

when

the interests of

some party or

eral breaking-up of society

faction required a gen-

?

not enough to evade this, by saying that such an

It is

event has never happened, though the banks have several

That

times suspended. that

it

never

is

quite true

;

yet

it

does not follow

Previous suspensions have originated in

will.

Suppose, on the other hand, a run were

commercial causes.

made on account the laboring class

of political or social disturbances

—

;

that

factory operatives, railroad gangs, the

servants in our families

— were

incited to

demand

their de-

Could they not prostrate

posits in the savings institutions.

the entire currency in twenty-four hours, by merely demand-

ing their just dues

?

Whether such a probability

is

remote or uncertain,

it

does not seem wise to maintain a system which can, by any possibility,

produce results so disastrous

;

especially, if there

are no advantages whatever in such a state of things.

Premonitory symptoms have not been wanting of such a catastrophe as, under aggravating circumstances, might over-

throw

all

moneyed

the

institutions of the country,

endanger the government

We

are

and even

itself.

not the homogeneous people

we

were.

We

have elements of weakness and discord that did not exist in

We

earlier times. tion, as

much

have, especially, a large foreign popula-

interested as any other in the funds of our

savings institutions, which might, at any moment,

voked to do

so,

if

pro-

throw our whole banking system into sus-

pension. It

cannot be wise to ignore these palpable facts, or the

consequences that, in the natural course of things, are likely to

come out

of them.

The danger can only be removed by

a change of system. II.

A

mixed currency has a demoralizing influence upon

a community, industrially and socially.

EFFECTS OF A MIXED CURRENCY.

CHAP. X.] If

187

what has been said in regard to this kind of currency an influence cannot for a moment be ques-

correct, such

is

tioned.

If

excites to wild

it

one time, and plunges

without fault at another

and extravagant speculation

at

victims into bankruptcy and ruin

its

and expecta-

excites hopes

if it

;

which must necessarily come

to disappointment and enormous extent the natural risks of trade, and exposes all business operations tb an incalculable hazard, then the mercantile character and the

tions

distress

if it

;

increases to an

—

general tone of morals cannot but be unfavorably affected.

The

influences that hold

men

to

probity, steady

strict

industry, and a strong sense of honor, are feeble enough,

and have enemies enough, without the discouragements and embarrassments arising from such causes as we have described.

Society should place

its

premium on

virtue,

and not on

vice.

Those who have witnessed the

terrible convulsions occur-

ring in the United States within forty years, well

how sad has been

know but

too

the effect on individual and national

character. It is

unnecessary to dwell upon a point so evident, and so

generally admitted by its

all

who understand

the matter

;

yet

recognition could not properly be omitted in the exami-

nation of the mixed-currency system. III.

A mixed

currency endangers the national safety in

war.

With the

existing ideas and institutions of society, and

while no preparations are

made

in time of peace to prevent it, and thus, war system, it

the recurrence of war, but every effort to meet of course, to strengthen and perpetuate the

becomes a matter of great interest to inquire as to the effects of a mixed currency on the safety of a nation in the event of war.

We

have already shown that a mixed currency

affected

by a demand

for specie to

send abroad.

is

greatly

Hence, as

[book

exchange.

188

in.

an extraordinary importation of and materials, and as such extraordi nary importation must require the shipment of specie, a contraction and panic, or speedy suspension, must be the

war must always

call for

foreign merchandise

certain consequence.

Again, since so great a part of a mixed currency usually consists of credit,

and since credit

rests wholly

on

confi-

dence, Uny thing which impairs the latter compels a contraction or withdrawal of the currency.

Now, war generally, we may say uniformly, does this how long it may last, how great may be the demand money, how large the destruction of capital, and what

the

and therefore

its

for

:

final issue,

must be a matter of doubt

;

for

occurrence always impairs public confidence to a greater or less extent.

These two causes, then, are at once brought to bear upon mixed currency with fatal effect. The result has always been, and always must be, that, under such circumstances, because their circulathe mixed-currency banks suspend tion cannot be withdrawn at the time without producing universal bankruptcy, annihilating their own capital, and a

;

stopping the wheels of government.

England during the war with Napoleon in the United States during the war of 1812, and in the time It

was so

in

;

of the great Rebellion.

What comes

in consequence of

obliged to carry on

its

broken-down currency. ces

in

great

all this ?

The nation

This, of course, involves the finan-

embarrassment, vastly increases the public

expenditures and the national indebtedness. financial system of the country is crippled,

weak

No

is

vast pecuniary operations with a

The whole

and becomes as

as its currency.

better illustration of the truth of this statement

was

perhaps ever afforded than that found in the experience of the United States during

its

great struggle.

The country was suddenly involved

in a

stupendous war,

EFFECTS OF A MIXED CURRENCY.

CHAP. X.]

—

189

technically, only a civil war, but, practically, a great inter-

national struggle, so vast were

was

it

sectional

on

tions,

;

different

its

dimensions, so strictly

a conflict between two different civilizathough contiguous portions of the Amer-

ican continent.

At the commencement of the struggle, the currency, we have before said, amounted, circulation and deposits,

as to

four hundred and sixty millions against eighty-three mil-

Upon

lions of specie.

greatly did

it

mere threat of

secession, so

and their example was followed most of the Western, and many of the Eastern, were

South began to suspend until

the

impair public confidence that the banks at the ;

first shock had passed most of the banks in the loyal States resumed specie payments but the large demands of the government, in the

in a state of suspension.

After the

by,

;

coiirse of about a

twelvemonth, compelled a universal sus-

pension by both the national treasury and the banks, and the whole country was thrown upon an irredeemable paper currency.

All this happened, not because the currency was so redundant, but because full

on

it

was

so unsound.

specie, this disastrous result

Had

it

been based in

would have been avoided.

Now, if it ever could be supposed politic or safe to send away the real money of a country and live on credit, if this could ever be regarded as good economy or statesmanship, when should it be done ? When the nation is in prosperity, and does not need this little gain, or when it is strained to agony in the struggles of war ? If this is really a resource, should

it

wine and people,

be spent in time of peace for extra imports of silks, or

when

it

reserved to the great

may

trial of life for the

bring back the munitions of war

?

hundred millions of currency, was it wise to send gold that form our material it off in years of quiet and prosperity, instead of reserving it If

we were

to dispense with three

to the decisive hour of our nationality

?

In time of war, a mixed currency always becomes an un-

[BOOK

EXCHANGE.

190

III.

mixed paper currency. Being at all times really inconvertany disturbance in public affairs which destroys, or

ible,

even essentially impairs public confidence, will cause a general suspension of the mixed-currency banks, and, of course, of the government,

value currency.

— and

If this is true, it,

— then every

and the substitution of a all

credit for a

the facts of history go to prove

nation, which, in time of peace, relies

a mixed currency, must, in time of war, suffer

all

upon

the dis-

an irredeemable paper currency; must

asters incident to

pay a great deal more in

all its

purchases, require larger

—

greater in proportion and accumulate greater debt, as the currency is deficient in the element of value.

loans,

"

A

nation

may

paper currency."

The

—

almost as well go to war with paper guns as a J.

Y. Smith.

was certainly very strongly exhibited in the experience of the government of the United States durtruth of this

ing the Rebellion.

The

failure of the currency compelled

the national legislature to adopt the arbitrary measure of

making

its

own irredeemable

notes legal tender.

This was a palpable violation of the most sacred rights of the people, and involved the treasury in a labyrinth of em-

barrassment and wasteful expenditure.

knows no law, demanded

all this

;

Necessity, which

and there may be

or no blame on the immediate agents.

The law

little

of value

had already been violated by the introduction, in peace, of the element of credit into that currency, which the government was obliged to make use of in time of war. It was not easy to change its character at such a crisis, and it was allowed to go on to its proper consequences. If these are the natural and inevitable results of a mixed currency in such an event,

is it

not true that a people im-

posing on themselves a mixed currency can never be financially

IV.

"prepared

A

for

war"?

mixed currency discourages domestic manufao

EFFECTS OF A MIXED CURRENCY.

CHAP. X.]

191

and imports, and puts the balance of trade against the people employing tures, disturbs the proper relation of exports

the greater proportion of credit.

These

be recognized as injurious by

effects will

of persons

;

but those

who

all

classes

are so solicitous for the positive

encouragement of domestic manufactures, and for the restraint of imports, as to favor the enactment of prohibitory or protective laws imposing duties on the foreign article, will,

of course, most fully appreciate and deeply feel this

tendency of a mixed currency.

The course

of this will be best observed in an illustration

from the manufacture of a

specific article

:

—

" Suppose that a certain kind of broadcloth can be afforded by

New

the foreign manufacturer, delivered at

per yard

would

the

;

cost

two

course, then,

ment,

in

same

we

dollars

York,

might be made

article

a yard, without any

make

cannot afford to

order to encourage

its

for

two

dollars

in this country, but profit

the article.

Of The govern-

whatever.

production here, lays a duty upon

but, at the same time, which manufacture a mixed currency, and double the natural amount of money. The American manufacturer now

the imported article of

fifty

cents per yard

;

establishes banks

but wages and materials have so adby the expansion of the currency, that it costs him twenty-five to fifty per cent more than it otherwise would have done. He builds machinery but this also costs him pz-oportionably high. He proceeds to purchase raw materials, and employ labor in manufacturing but all are advanced in price for the same reason.

proceeds to erect his mills

vanced in

;

price,

;

;

His own expenses

for living are also greater

;

and, should he be

obliged to hire money, that will generally be found to have advanced in price, or rate of interest.

make if

Under

these circumstances, he cannot

the cloth so as to afford a profit

;

and

he should clamor for more protection.

it

will not be surprising

But

it

may be

said, that

the same causes that have advanced the expenses of living, and,

consequently, of labor, will equally have advanced the price of

Not so. The price of the broadcloth will be determined by the rate at which it can be afforded by the foreign manufacturer and if he can pay the duty of fifty cents per yard, and

broadcloth.

;

yet obtain a fair

profit,

he will send

all

the market demands.

EXCHANGE.

192 " There

is

[BOOK

another view of the matter.

Suppose we would ex-

We

port our plain cottons, for example, to India.

English

article,

III.

there meet the

made under a currency more valuable than our

own, which can consecpaently be afforded for less; since, with the same amount of the money of India (i.e., value money), the English manufacturer can pay for much more labor in England than the

American manufacturer can in America. It is true that the rate of wages is lower iu England than in this country but, in addition ;

England has the very great advantage of a currency nearer the currency of international exchange, which is always strictly

to this,

value money.

In such a state of things, not

were or ever

So

factures.

will

all

the tariffs that ever

be imposed can adequately protect our manu-

far as they

have arisen or flourished, *

it

has been in

spite of these disadvantages."

During the continuance of the compromise tariff, estaband which terminated in 1842, the currency varied from $11.82 to $17.61 per capita, equal to an expanwhile, during the same sion of more than fifty per cent period, prices (as shown by table V., page 177) fluctuated The variation in prices was larger even to a greater extent.

lished in 1832,

;

than the percentage of protective duties.

So the

when

tariff of

1842, which began to take effect in 1843,

the currency was $6.18 per capita, was

more than

counterbalanced by the expansion of the currency

to

$9.94

But the manufacturer suffered as much from the periodical contractions as from the expansions that preceded them for while, by the latter, the duties were rendered nugatory, all business men met great losses from the failures and the general derangement and stagnation which

in 1846.

;

the former produced.

No

tariff of

as the people of the whole nation

reasonable extent, such

would endure, can ever

place the domestic manufacturer in a position of security

and of

reliable profit, while

competing with such an immense

advance in prices as must certainly accompany an expansion of the currency. Nor can it fail to be true, that the normal industrial development of * Walker on

any country, in which such a

Money and Mixed Currency,

p. 39.

-

70

360 350 340 330 320 7)10

300 290 280 '270

260

MUiom

250

cfImprints.

2M

Ciurrencp.

:>io

210

330

220

1839

320

•ill)

310

200

300

190

290

180

170

280

270

i>:>i|

KiO

260

150

250

Ml

240

1.10

230

I

120

220

110

210

200 190 /hi/m r/s

ISO

170

_I60 150 to

I

uo -120

no 100 to

90 S) 70

EFFECTS OF A MIXED CUERENCY.

CHAP. X.]

With these explanations to inquire into

its

of the diagram,

195

we

are prepared

teachings.

any such correspondence between the two lines indicate that one is governed by the other ? Does it

Is there

as to

appear, that, as the tariff rises, importations as

it is

lowered, importations increase

?

fall off;

that,

Certainly not.

We

can perceive no such striking correspondence between the

two lines as

to lead

us to believe that importations are gov-

erned greatly by the

There seems

to

tariff.

be a disturbing influence which deranges

movement

the natural

The two

of the line of consumption.

lines clearly

do not show such

correspondence

a

as to prove that importations are uniformly governed by the tariff.

A

reference to

Diagram No. 5

will,

we

think,

show the

disturbing cause, or rather by what law importations are controlled.

Here we

find a correspondence so uniform

as to decide the question,

beyond

foreign merchandise depends in the country

;

and persistent

cavil, that the

upon the quantity

demand

for

of currency

and, as that increases or diminishes, so does

the consumption of imported articles.

The immense expansion up a

to

still

of 1836 carried the consumption

$10.93 per capita, under a

medium

tariff; while,

under

lower one, in 1840, the consumption was but $5.21.

Whereas,

if

consumption

is

governed by the

tariff, it

should

have been higher than in 1836.

According to the natural effects of the tariff (the enhanced price of foreign commodities), consumption should be highest when the

tariff is lowest,

and

vice versa.

We

have seen that such correspondence does not take place.

We

then conclude that some other force or influence operpower of protective duties, and even

ates to neutralize the

The

diagram proves the existence of such a cause, and shows its effects on im-

reverse the natural effect.

ports.

last

[BOOK

EXCHANGE.

196

in.

Hence we may lay it down as a principle, that a sound is more important, as affording protection against

currency

foreign competition, than a high

We

tariff.

by quoting the following forcible and just statement, found in the " Bankers' Magazine " (New York) for 1859-60, page 2 remarks on

close our

this subject,

:

" So far as the currency of a country thing inferior to bullion lion's

back,

of

it is

is

little

—

alloyed, so far as

is

any

allowed to ride as a dead weight on bul-

consequence whether such dead weight

be composed of lead or copper, paper or leather nor, so far as the country's home trade is concerned, does it matter whether the sub;

stitute for bullion circulates in distinct pieces, or is incorporated

into the gold

and

to the profits of

silver coin at the mint.

It

is

of great importance

our foreign trade, however, that every fraction of

gold and silver in our currency should have of alloy, or paper inseparably attached to

its it

;

own proper

share

so that foreign pro-

ducers, after they have taken paper-money prices of us for their

goods, shall not

by palming

As

gold.

are

made

wind up

things to

their business (as they

their share of

now

have done hitherto)

paper money upon us at par for actual

are managed,

American trade and industry

buy paper at the banks at the price of gold, and

sell

gold to foreigners at the price of paper."

CHAPTER

XI.

EFFECTS OF A MIXED CURRENCY (concluded).

A

V.

mixed currency causes unnatural and extreme

fluc-

tuations in the rate of interest. If a

mixed currency

is

in its nature constantly fluctuating,

at one time very redundant, at another very scarce,

seem

to follow, as

interest,

which

is

merely the

sum

or currency, would he equally so.

such

is

the fact.

it

would

a necessary consequence, that the rate of paid for the use of money, Practically,

While the currency

is

we

find that

in the process of

N^fi 'err

36 in

EFFECTS OF A MIXED CURRENCY.

CHAP. XI.]

enlarged by

expansion, and

is

money must be

plenty,

new

197

issues from day to day,

and the rate of interest low. When the currency has become largely increased, and speculation has been engendered by the rise of prices, the demand for money will increase faster than the supply, and the rate of interest will begin to advance.

When

the banks have arrived at that point at which they

must of necessity

contract,

and they begin

to take in their

currency, and, of course, to create a scarcity of the means

of 'paying debts, then the rate of interest will rise to a very

high point, not unfrequently to four or six times

natural

its

rate.

The indebtedness which must now be met,

the expansion has encouraged

at all events

of property cannot be

made

and

at

for cash,

any

sacrifice.

because

all

Sales

cash re-

sources are needed to meet existing indebtedness, rapidly

maturing the

;

and, consequently, a great pressure

The

money market.

is

made upon

severity of this is indicated by the

rate of interest.

Such being the

facts in the case,

we need

not be surprised

to find that the highest rates of interest are paid at times

when

there

is far

more than the average amount

of cur-

rency.

On

the other hand,

when indebtedness has been

dis-

charged, both by the banks and individuals, and the cur-

rency reduced to very moderate dimensions,

we

find the rate

of interest very low. Interest was up to Take the years 1837 and 1857. amount of curgreater a there was yet thirty-six per cent ;

rency, per capita, then in use, than ever before or since.

Take the years 1842-43, for an opposite example, when there was less currency than ever before. Money was very plenty and very cheap. This law has governed the rate of interest at all times under our currency, and is strikingly exhibited in our Dia-

gram No.

6, inserted herewith.

—

[BOOK

EXCHANGE.

11)8

By

diagram, we see, The frequent and extreme

III.

this

First,

fluctuations in the rate

of interest.

when

Second, That the highest rates of interest occur there

the greatest expansion of the currency, as witness

is

1886, L839, L854, and 185T. Third, That the lowest rates of interest are found where there

is

amount

the smallest

Fourth,

We

of currency, as in 1843-45.

observe some remarkable exceptions to these

general facts.

In 1834, we find the interest up to twenty-four per cent, while, in the following year, easily

it

was down

This

to five.

Bank then

United-States

sirous of recharter

;

in existence

is

The

explained by those cognizant of the facts.

was extremely deit was thought

and, to secure this,

necessary to produce a tremendous pressure in the

money

market, or, in the expressive language of the day, " put on This result was a high rate of interest.

the screws."

The

following year, 1835, the

course, and interest

fell

bank took the opposite

below the natural

rate.

In 1836, there was a great expansion of the currency, as

shown rife,

in the

lower line of the diagram.

the banks could not

interest

went up

meet the demand

to thirty per cent.

Speculation was for

money, and

In 1837, the banks

suspended, then issued freely, and interest went down to a

low point.

In 1838, the work of contraction began

titude of banks

pressure upon

went up still in.

in the

West and South

the solvent banks became great

;

a mul-

and the

failed, ;

interest

to eighteen per cent.

The year 1839 witnessed

greater distress for money.

Resumption of specie pay-

Mils

by the banks began to take place, and consequently

a great contraction of the currency.

There was also a very

large exportation of specie that year; and, by these

causes, the rate of interest ran

up

combined

to thirty-six per cent.

In 1840, on the other hand, more specie was imported than exported.

The indebtedness

of the country

had been,

in

great measure, discharged, and est

199

EFFECTS OF A MIXED CURRENCY.

CHAP. XI.]

was down

money was

to five or six per cent.

plenty.

Inter-

In 1841, there was

again an export of specie, and also in 1842

;

and the rate of

and twelve per cent. But, in 1843, more than twenty millions of Interest was, gold were imported, and money was a drug. Large amounts were negofor a while, almost nominal. interest

went up

to nine

the lowest point was reached,

and a half per cent. time forward, we have only the natural

tiated as low as three

From

this

results

mixed currency in its fluctuations. In 1847, the rate of eighteen per cent, though the curinterest was high, rency was not redundant. This was the year of the Irish famine and we imported twenty-two millions of gold above the exports. From 1849 to 1857, the currency was constantly increasing. Severe fluctuations in the money market took place, but no grand revulsion until 1857, when so great was the inflation of the currency, and consequently the of a

—

—

;

general credit of the country, that an explosion took place interest going significant,

up

to thirty-six per cent.

and form an

;

All these facts are

essential part of the history of

mixed-currency banking.

The comparative fluctuations in the United States and is shown by the following table of rates of interest from 1844, when Sir Robert Peel's act was passed, up to fifteen years. The rates of the Bank of 1858, inclusive,

England

—

England are from official sources those in the United States are furnished by one* who has kept himself acquainted with :

The banks being profrom taking more than a fixed per

the street rates in the city of Boston. hibited by legislation

cent, the actual value of interest, or the use of

money, can

only be ascertained from quotations of transactions outside.

These are

essentially correct, as applied,

not only to the par-

market in which they were taken, but large money markets of the country. ticular

to the other

* Joseph G. Martin, Esq., Boston, author of many valuable tables. &c.

statistical

TABUt

[book

EXCHANGE.

200

VI., thawing the Fluctuations in the Rates

United States

Year.

from 1844

to

of

Interest in

1858, inclusive.

England and

in.

the

CHAP. XI.] Table

EFFECTS OF A MIXED CURRENCY.

VII., showing the Fluctuations in the

for 160 Years, divided

Term.

1704 1815 1836 1844 1859

to to to to to

1814, inc. 1835, „ 1843, „ 1858, „ 1863, „

201

Rate of Interest at the Bank of England

into different Periods.

[BOOK

EXCHANGE.

202

in.

THE CURRENCIES OF GREAT BRITAIN AND THE UNITED STATES COMPARED.

From 1844

1859, inclusive (sixteen years), the average

to

circulation of all the banks

was

— English,

thirty-seven millions sterling

;

Irish,

and Scotch

—

average specie, eighteen

millions.

We

have not at hand any account of the deposits in any

of these banks, except the

Bank

of England.

In that, the

average of deposits, public and private, was about sixteen millions, while the circulation is

well

made

known

was nearly twent} -one.

It

Kingdom

are

r

that the deposits of the United

chiefly in those joint-stock

banks which do not issue

currency, but are confined to the operations of legitimate

In addition to

banking. that the

Bank

deposits,

which go

We

this,

we have

the consideration

of England receives very largely of public

make up

to

the

sum

already stated.

shall therefore be safe in estimating that the deposits

of all the currency banks of the United

Kingdom

are less

in proportion to their circulation than are those of the

of England.

If,

average, in

all

circulation,

we

then,

fifty

per cent of the

have the following result for the cur:

—

of England's circulation

„

„

deposits

Other Banks' circulation „

„

Bank

the deposits to be on the

the remaining banks, shall

rency of Great Britain

Bank

we assume

deposits (estimated)

21,000,000 16,000,000 16,000,000

8,000,000

61,000,000 Total specie, as before

18,000,000

This would be equal to nearly thirty per cent against eighteen per cent in the currency of the United States,

showing a considerable superiority in quality. But this is only a partial view of the matter.

The Bank

of England issues no notes of less denomination than five

EFFECTS OF A MIXED CURRENCY.

CHAP. XI.]

The banks

pounds. less

203

of Ireland and Scotland issue none

than one pound (or

five dollars)

while, in the United

;

States generally, bank-notes are issued as low as one dollar

This makes a vast difference

(or four shillings sterling). in the

amount of

specie in the hands of the people.

All small transactions are

may

made

in gold.

A

traveller

pass months in England, and expend thousands of

dollars, without ever seeing a bank-note in the

hands of any-

body.

Probably

it

would not be extravagant

there was, on an average, a

each inhabitant. higher

has,

indeed, been

we should

fifty

From greater

suppose, that

estimated

much

have, on a population of twenty-six mil-

lions, fifty-two millions sterling,

and

to

equal to two pounds to

but allowing only two pounds each, equal to ten

;

dollars,

It

sum

equal

to, say,

two hundred

million dollars.

the foregoing statements, is

it

will be seen

how much

the stability of the currency of Great Britain

than that of the United States.

The currency

of Scotland approaches

more nearly

to that

of this country than any other section of Great Britain.

One-pound notes are issued to the extent of two-thirds of its whole circulation and the proportion of specie held by the banks is smaller. The consequence is, that monetary affairs are more fluctuating, and the number of bankruptcies greater, than in ;

the other part of Great Britain.

There are no

by which to determine the

reliable statistics

mixed-

relative proportion of failures in each of the different

currency countries of the world

;

but,

had we the

data,

it

would undoubtedly appear that the proportion of failures in each country was governed strictly by the character of its currency.

In the United States, where the currency for the thirty-five

world, the

last

years has been weaker than any other in the proportion of failures

are well

known

to be

EXCHANGE.

204

been

rious in

one hundred.

There

is

It is the natural

this result.

fluctuating

III.

The common estimate has

greater than anywhere else.

ninety in

[BOOK

and unreliable currency.

nothing myste-

consequence of a

Notwithstanding this

greater stability of the English currency, as compared with that of the United States,

it is still

so essentially defective,

so alloyed or adulterated with the element of credit, that

it

produces in degree, though not in extent, the same evils suffered in the United States.

empire of Great Britain turbation.

is

The commerce

The "reserve"

man

Bank

of the

watched with the greatest solicitude every business

of the vast

kept in a state of continual per-

:

as

it

of England

is

rises or falls, so

in the nation is affected.

This has

become more strikingly apparent within the last twenty The fluctuations in the bank rate of interest have been more frequent and violent than previously, and seem

years.

growing worse from year to year.

to be

We

annex a Table VIII. showing the bank reserve for each year from 1844 to 1858, and the corresponding rates of interest charged by the Bank of England, together with ,

a diagram, Table

No

7,

representing the same.

VIII., showing the Rates of Interest each

Tear in

the

Bank of England,

Amount of the Bank Reserve at the corresponding Date, from 1844 inclusive, and the Suspensions of the Bank Act.

with the

Teak.

to

1858,

N"7. BANK

Reserve II

MtlUeru

OF

ENGLAND JIM

Sterling IvVl

13

12

II

II)

9 8

7

6

5

1 2 /lfin/r He-serve I

SOeresl /'/// r///

/t/r/f

of/hleresl

—

205

EFFECTS OF A MIXED CURRENCY.

CHAP. XI.]

Observe the correspondence between Diagrams No. 6

and

The

7.

rate of interest in both countries

by the same disturbing

affected

force,

evidently

is

though in

different

degrees.

EFFECTS OF MIXED CURRENCY UPON AMERICAN AGRICULTURE.

Unfavorable as the influence of mixed currency all

upon

is

branches of industry, the agriculture of the United

States is especially injured by

it,

because, as a people,

we

have a large surplus of agricultural products, that must find sale in foreign markets.

Whatever such surplus

for export, determines the price of the whole

the value or price

is

determined by

Such products are

gold.

its

is

crop

worth ;

and

value or price in

virtually sold for gold.

It is

always a matter of choice with the merchant whether to

The must be sold at a gold standproduce of the farmer, then, ard but all he purchases for himself and family is bought

send wheat,* for example, or gold, as a remittance.

;

How much

at

currency prices.

is

seen at the present time,

difference this

may make

when commodities

in general

are one hundred and twenty per cent above par, while gold is

but forty.

now (1865)

The currency one but we are

to inquire

hold good at

times, under a

;

all

is

a credit, or inconvertible

whether the principle does not

mixed or

partially converti-

"We therefore refer to the

ble currency.

statistical tables

of the Financial Report of 1863, as heretofore, for prices,

and construct a

table

which exhibits the price of

flour

the price of cotton for fourteen years prior to 1860.

and

We

shown in our Table V., previously given (see page 178,) and also the volume of the currency, per capita, at corresponding also give the general prices of certain commodities, as

dates

:

* Wheat ported.

may

be taken as an exponent of

all

agricultural products ex-

206

EXCHANGE.

[book m.

Taui.e IX., shcnring the Price of Flour and Cotton from 1846 to 1859, inclusive (14 Tears), with the 'Currency per Cajnta, and General Prices at corresponding Dates.

Teaks.

;

CHAP.

At

MIXED-CURRENCY FALLACIES.

XII.]

the time

we

207

West

are writing, the people of the

suffering prodigiously from the influence of a

are

redundant

consume of purchased commodities they pay one hundred and twenty per cent advance upon All they

currency.

while their products, wheat, corn,

about forty per cent, tressed,

and clamor against the

reason to do

currency, to one from the

as they have

tariff. ;

much

Whenever they

see this,

for the agriculturists of the na-

power of the country

tion hold the political all this

tariff,

but they suffer a loss of ten dollars from the

;

the evil will be remedied

and

&c, can only be advanced gold. They feel dis-

— the premium on

class of producers,

in their hands,

East or West, North or

South, in Maine or Texas, Florida or Minnesota, are alike interested in this matter.

Again, agriculture

more disturbed by speculative

is

erations than other branches of industry.

are great staples, the necessaries of

subject to quick decay for a rise of prices.

life.

Its

op-

products

They

are not

hence can be monopolized and held

;

The sudden and

excessive expansions

mixed currency afford great opportunities for operations of this sort and no products, probably, are so much speculated upon as those of the farmer and planter. The of a

;

profit of all this

who can command

goes to those

sources of the banks.

The producers

than benefited by these unnatural

are far

the re-

more injured

disturbances

of

the

market.

CHAPTER

XII.

PALLACIE3 REGARDING A MIXED CURRENCY. Fallacy

1st.

That, by means of mixed-currency banks,

the capital of a country Capital tion.

is

is

greatly increased.

the portion of wealth employed in reproduc-

Money

is

one form of

capital.

To

the banker or

EXCHANGE.

208 money-lender,

it

may be

[BOOK

his entire capital

chant, manufacturer, or agriculturist,

in.

but, to the mer-

;

capital only as

it is

instrument by which he obtains those commodities

the

which constitute his main capital, upon which he does his work, and from which he makes his profits. Of the great mass of the world's capital, money is but a small fraction.

Credit

said, is that portion of

Money

is

no part

is

we have

Capital,

at all.

wealth employed in reproduction.

that portion of capital which is employed in re-

production, for the special purpose of effecting easily that

exchange of values which

itself confers value,

because done

by labor.

To

the greater part of mankind,

by which

capital is obtained

Now, were tal

it

money

is

only the

from those who have

not for mixed-currency banks,

loaned in the form of

money would be

means

it.

the capi-

all

reliable.

Mixed

currency, for the time being, takes the place of actual

money, and becomes an instrument by which capital is transferred. But its nature is, as we have seen, to issue in greater volume than necessary for the wants of commerce, and, by this, to disturb the business of the country, cause an unnatural rise of prices, an increase of imports, a decrease of exports, and finally a call for real money, which will cause the

very

withdrawal of

moment when, owing

has caused, will then

it is

all

the extra currency at the

to the increased indebtedness

more needed than

at

any other period.

it

It

be discovered that this excess was not capital, or

actual value, but credit, in the guise of capital, which the mixed-currency banks had issued, and which they were compelled to withdraw when most wanted.

Fallacy 2d.

That mixed currency

is

cheaper than a value

currency, more economical, and therefore more desirable. Specie costs parison

:

much

labor.

therefore, as

it

more conveniently handled, popular idea.

Paper costs but

little

in

com-

answers the same purpose, and it

confers a benefit.

Tins

is

is

a

CHAP.

MIXED-CURRENCY FALLACIES.

XII.]

Money, we have do not

said, is

an instrument, nothing

wear

eat, drink, or

209 else

we

;

All tools, instruments, or

it.

appliances should be as cheap as possible, provided, always,

they are safe and

would be cheaper to have ploughs made wholly of wood. They would be lighter, and quite as handsome, as when made partly of iron. But would they be as useful, and, in the end, as profitable ?

A

paper cap

would

it

cheaper than one of leather or cloth

is

be as durable and comfortable

in the first instance

it

costs less,

The same principle what we have already

for use.

If

true, it

it

It

efficient.

it

but

;

If not, although

would not be desirable

applies to money.

said of a

mixed currency

is

wanting in those qualities which would make

is

cheaper than a value currency.

It

fully or perfectly a single function of

trade, because

it

itself credit

;

credit is

its

and impairs it by blown upon.

But the gain by the currency

is

does not discharge

money.

It

deranges

does not obey the laws of trade.

creases credit enormously, by

own

?

It in-

expansions, because its

contractions

it

when

is

its

this substitution of credit for value in

insignificant,

when compared with

the great

interests of trade.

The average

of paper circidation in the United States from

1850 to 1859, inclusive, ten years, was not more than $6.25 per capita.

If

capita for the shall

have

left

from

this

we deduct

the average specie per

same time held by the banks, viz. $2.25, we $4.00, as the amount for each individual of

credit circulation.

On

that amount, the saving,

if

any,

is

made. If we compute the interest at six per cent, we have twenty-four cents as the annual saving to each individual by the use of credit currency a saving worth the

to be

;

attention of the statesman, if

it

could be properly and safely

made, but paltry in comparison with the losses and disturbances incident to a mixed currency.

In this connection,

it

seems proper 14

to introduce a distinct

EXCHANGE.

210 calculation of the

from

damage occasioned

[BOOK to the

III.

people generally

this cause.

On

the 7th of January, 1841, Congress requested of the

Secretary of the Treasury,

first,

a return of the losses sus-

tained by the government from using banks as depositaries, its connection generally with them and, secondly, amount the people had lost on account of the banks and their issues. The replies were in substance as follows *

and by

;

the

:

Losses sustained by government to the year 1837

S15, 492,000

.

.

„

sustained by the public

„

by bank suspensions and by depreciated notes

„

by destruction of bank-notes

„

by counterfeits beyond

„

by

—

108,885,721

losses

.

95,000,000 7,121,332

by coin

fluctuations, revulsions, sacrifices

.... ....

Aggregate

4,444,444

150,000,000

$380,943,497

Such were the estimates of the losses

and mixed currency the minds of men

to the people

the government resulting from the use of a

up

There can be no doubt, in

to 1841.

who were

in business during the period covered

by these

figures, that they are so far correct that they fail only

by

reason of being set too low, particularly those of the last

item

;

viz.,

" losses by fluctuations, revulsions, and sacrifices."

Twenty-four years have elapsed now (1865) since the foregoing table was prepared

;

and, during that time, the cur-

rency has been doubled, the country has passed through several contractions

suffered as

much

and one or two explosions, and has

probably as in the preceding period.

If

would amount to seven hundred and sixty million dollars. But suppose it to be only five hundred million dollars that amount would furnish gold and silver

so, the total loss

:

currency

sufficient,

not only to supply our wants at present,

but for generations to come.

Some have supposed that a money instead of

use of paper

great saving coin.

But

* See " Merchants' Magazine,"

vol.

1.

made by

is

it is

the

not necessary

p. 9.

CHAP.

MIXED-CURRENCY FALLACIES.

XII.]

211

have a mixed currency in order to avoid abrasion of the coin. A mercantile currency, based wholly on specie, would

to

equally avoid loss from this cause, and yet secure

all

the

advantages of a value currency. But, in

fact,

the abrasion of paper currency

than that of gold

that

;

is, it

costs

more

greater

is far

keep out one

to

hundred dollars of currency than it does to keep out Gold and silver circulate one hundred dollars in coin. themselves but it requires a formidable machinery to circulate paper promises, a machinery far more costly than the slow wear of the precious metals. No banker would venture ;

—

currency can be maintained for one-

to say that a paper

twentieth of one per cent per It

may

annum.

sum by

be said that the banks gain a considerable

Doubtless

the accidental destruction of their notes.

;

but

The amount estimated to have disappeared in this manner up to 1841, as we have seen in the table just cited, was put at seven millions of what they gain somebody

A very

dollars.

classes, as also

But,

if

we must

loses.

large proportion of this

fell

on the poorer

do the losses by counterfeiting.

we would comprehend

the question of economy,

appreciate the expense of maintaining

cers,

managers, and subordinates of

with

all

fifteen

all

the

the incidental charges of their operations.

moderate calculation,

this

would not average

thousand dollars to each bank, or a total dollars per

offi-

hundred banks,

sum

At a

less than four

of six million

annum.

This argument of economy in the use of credit money was presented by Dr. Adam Smith eighty years ago. Even then the danger was apparent, though the system had not

been developed to

Had

its

proper character and consequences.

the writer witnessed the great convulsions from 1797

he would have dismissed, as wholly an idle fancy, the scheme of substituting the " Dsedalian wings " (say, to 1857,

rather, the Icarian wings) of credit for the " solid

of value.

He

says

:

—

ground "

"

[BOOK

EXCHANGE.

212

The

money which

gold aud silver

circulates in

III.

any country

may very properly be compared to a highway which, while it circulates, and carries to market all the grass and corn of the country, ;

produces

not a single pile of either.

itself

of banking, by providing,

if

I

may be

a sort of

wagon-way through the

vert, as it

were, a great part of

and thereby

cornfields,

produce of

its

to

The

judicious operations

allowed so violent a metaphor,

air,

enable the country to con-

highways into good pastures and increase very considerably the annual its

The commerce and industry of the must be acknowledged, though they may be

land and labor.

country, however,

it

somewhat augmented, cannot be altogether so secure, when they are thus, as it were, suspended upon the Daedalian wings of papi r money, as when they travel about upon the solid ground of gold ai id silver. Over and above the accidents to which they are exposed from the unskilfulness of the conductors of this paper money, they are liable to several others, from which no prudence or skill of those conductors can guard them."

This comparison

is

full

and just

Nations have been trying to

make

pensing with the vital condition of

in every particular.

a small saving by disall their

wealth.

These

political

farmers have always ached to be ploughing up and

seeding

down

the very highways

more intent on

this

their

"

disposal.

violent, but rather

A

of their industry;

far

than to improve the land already at

wagon-way through the

air "

is

no

a modest, metaphor for the schemes by

which they propose to make nothing do the work of something.

A man

by selling his

might as reasonably try

own blood

its

commerce of money.

of

its

Nor

to

make a saving

as a nation gain aught by robbing It is

an attempt

foundation, the animal of

to cheat the

house

its food.

first and on the face. Exshown that this extensive system of aerial railways is rather more costly in its outlay than the more natural one that rests upon the ground. Industrial ballooning has always been difficult and dangerous. Fallacy od. That the use of mixed currency has been is it

even economy, at the

perience has

the cause of the great prosperity of the United States.

CHAP.

MIXED-CUERENCY FALLACIES.

XII.]

This

doubtless, a very idle assumption,

is,

Yet thousands are influenced by

discussion.

A

213

coincidence is taken,

by

unworthy of

it.

force, for a cause.

The United States have prospered greatly, and at the same time there has been a large consumption of intoxicaSurely this does not prove that the prosperity

ting drinks.

of the country was caused by the use of liquor.

Has

the country flourished by reason

such use effort

of,

Intoxicating liquors stimulate

?

therefore they increase production.

;

or in despite

men

of.

to greater

Mixed currency

stimulates exchanges, increases prices, promotes speculations

;

therefore

Such

is

it is

favorable to production.

the reasoning, and

In both, the misdirection of

it is

equally good in each case.

effort

and the certain depression

of energy are kept out of sight.

gave strength or wisdom or

man

being,

skill

Mixed currency never or economy to any hu-

and therefore never can have increased the

products of the country, or enlarged

ner whatever.

Its

its

wealth, in any man-

unnatural excitements are followed by

unnatural prostration.

Men do

not work more, but they

trade more, speculate more, and squander more, during the

More is expended for foreign more extravagance and waste, which

flood-time of an expansion.

luxuries

;

there

is

superficial observers take to be indications of prosperity.

In the time of reckoning, trade

was

is

as

much

depressed as

it

falsely stimulated.

Fallacy

4,th.

That there

is

not gold and silver enough in

existence to form a currency adequate to the rapidly ex-

tending operations of commerce

;

and therefore resort must

be had to paper substitutes.

Twenty years ago, this was regarded as an unanswerable argument in favor of credit currency. The recent discoveries of apparently inexhaustible mines, and the immense production already realized, have to a great extent silenced the senseless clamor once raised on this point. assertion

is

as true

now

as ever.

Yet the

Only about one-half of

[BOOK

EXCHANGE.

214 the whole

amount of precious metals

in possession of

III.

man,

from the fifteenth to the middle of the nineteenth centuries, was required for coin ; the balance remaining in plate and ornaments, mostly in Europe and the East. The reason of such general error on this point the totally inadequate ideas prevailing as to the

currency needed for trade.

found in

is

amount

of

People are informed, that the

annual products of the United States, for example, are, say, and they fancy that four thousand four thousand millions ;

millions of currency, or something near that

sary to transfer this

sum,

neces-

is

immense production whereas it is amount is required. " Ways and Means of Payment," esti:

true that a very small fraction of the

Mr. Col well, in his

all the securities issued in the United States, " promissory notes, bank-notes, bank credits, and including

mates that other

currency,

buyer and

—

seller,"

in

short, all

— amount

to

which intervene between one thousand million dol-

months, or four thousand million dollars know that all this is wiped off with, at we Yet year. per the most, not more than four hundred million dollars of cur-

lars every three

rency, or about one-tenth of the aggregate indebtedness.

Now, that the people

of the United States could not com-

mand

sufficient gold to furnish a

wants

is

currency equal

fornia, for at least twelve years, has lions,

to their

preposterous, since the yearly production of Cali-

— in

all,

say, six

amounted

to fifty mil-

hundred millions of gold a sum about ;

double our requirements for a sound currency. Instead of using this,

we

find that the

amount of

specie

in all the banks in 1848, the time of the discovery of the

gold mines, was forty-six millions, and that on the

first

January, 18G0, the amount was eighty-three millions ing, that, of all the gold obtained

;

from California, only

seven millions, or about one-sixteenth, had found

of

showthirty-

its

way

bank currency of the country. In the mean time, the total exports of the nation had increased from one hundred and fifty-four to three hundred and sixty millions, or into the

MIXED-CURRENCY FALLACIES.

CHAP. XII.]

more than double. in

bank

1839

to

for

215

Again, the amount of specie per capita

ten years prior to the discoveries, say from

1848 inclusive, was $2.07

;

while for the succeeding

ten years, 1849 to 1858 inclusive, it was but $2.10,

an actual gain of but

— showing

three cents to each individual, notwith-

standing the accessions of gold to the amount of six hundred millions, or twenty dollars per capita.

What had become

of this gold

?

had been exported.

It

Why ?

Because the credit currency of the country expelled that part, which, but for itself, would have formed a reliable

and

sufficient

The

currency for the nation.

actual per-

centage of specie to currency from 1840 to 1849, ten years,

was twenty per cent; from 1850 to 1859, ten years, only showing that the quality of the currency was actually poorer after than before the gold discovseventeen per cent,

—

eries.

But, while there

is

it is

thus seen to be practically untrue that

not enough of the precious metals to furnish

the currency needed in the most extended commerce, plainly false in theory.

the currency

We

have already shown, that, as

increased, prices advance

is

all

it is

so that

;

money

becomes no more plenty by augmenting its quantity. John Stuart Mill says: "The uses of money are in no respect promoted by increasing the quantity which exists

and

circulates in a country, the service

it

performs being

as well rendered by a small $s by a large aggregate amount.

Two

many persons but two million pounds sterling will carry

million quarters of corn will not feed so

as four millions

on as much

;

traffic, will

buy and

sell

as

many commodities

as four millions, though at lower prices." Sufficient has

though popular,

been said is

in refutation of a fallacy, which,

really not entitled to

much

consideration.

That mixed-currency banks are particularly favorable to those who have little capital, and must, of necessity, depend upon credit, since they increase the facilities Fallacy 5th.

for obtaining capital.

[BOOK

EXCITANGE.

216

III.

Whatever impairs credit and increases the risk of loaning must he unfavorahle to those who most need to borrow. Other things being equal, it must be easier to get credit in a community where only one in twenty fails than where one

in five fails; the less the risk, the less the hesitation in

Now, does

giving credit.

the credit

money

of a

rency diminish the risk of general credits?

Comnion-sense teaches, and ards of credit

must be just

of any country.

adverse to

all

mixed cur-

Far from

in proportion to the credit

money

Instead, therefore, of being favorable,

it is

The

persons wanting the use of capital.

it.

haz-

statistics prove, that the

haz-

ards of credit in the United States are at least four times as

would be under a value money currency. more difficult it is for persons of limited means to do any thing on their own account. Unless an interest can be secured in some large banking institution, business on a large scale is impossible, great as they

The more

credits are extended, the

because the manufacturer or dealer will give long credit,

he can get credit at the banks.

If

if

be true, as we have

it

seen, that introducing credit into the currency extends all

the indebtedness of the country, this

disadvantage of

That

men

all

all this is

must operate

to the

of limited capital.

quite unnecessary, is proved

by the con-

1863 to 1865, when no credits transactions being essentially on immediate

dition of things in the years

were given, payment. dence

;

all

The war

effected this,

by destroying

all

confi-

but the fact that the business of the country was

carried on without extensive credits shows that such were

always unnecessary.

A mixed currency, far from being advantageous

to persons

needing credit, has an entirely opposite influence, and constantly tending to reduce the

number

of those

is

who can

obtain sufficient to participate in the profits of business.

Fallacy 6th.

not exist, and

would be

lost.

That, without a mixed currency, banks could all

the advantages

now

derived from them

MIXED-CURRENCY FALLACIES.

CHAP. XII.]

Such

among

the general impression

is

217

the masses of the

Propose to them the expulsion of the credit

people.

ele-

ment; that is, to forbid the issue of notes beyond the specie the reply comes at once that there would be no in hand banking, and we should have no banks. object in This view of the matter arises from the fact that we have :

never had in the United States any banks that did not man-

"We have therefore

ufacture currency out of their credit.

come

to

But this is Banking and currency-making functions, though here uniformly

regard the two things as inseparable.

an entirely erroneous view. are two perfectly distinct united.

Banking may be carried on to any degree, and in the profitable manner, without the issue of a single bank-

most

This

note.

is

done in Great Britain, to a wonderful extent,

by joint-stock and private banks. portion of

own

all

Only a very small pro-

Kingdom

the banks in the United

notes; yet they

make dividends

issue their

so large as to aston-

ish us.

As an

illustration of this species of banking,

Bank

the fact, that, while the

we mention

of England, with a capital of

fourteen millions, has deposits, public and private, of but

twenty millions on an average, the three principal banks of London,

with an

aggregate paid-up

capital

of

only

£2,320,000, have on deposit £46,158,105; and that, while the

Bank

of

England declares a dividend of about

seven per cent, these banks

much

turing interest a of

England

dollar of currency. their condition

six or

profit of

about

and furnish the commercial and manufac-

thirty per cent,

Bank

make an average

—

:

itself.

We

larger

And

amount

of capital than the

yet they manufacture not a

present the following statement of Net

Paid-up capitnl.

London and Westminster Union London Joint Stock .

.

Deposits.

profits for 6 mos.

Percentage per ami.

£1,000,000

£15,629,095

£147,816

720,000

16,472,279

114,324

38.11

600,000

14,056,731

80,573

26.86

£2,320,000

£46,158,005

£342,713

29.56

[BOOK

EXCHANGE.

218

Of

III.

kinds of banks, with their branches, there are, in

all

the United Kingdom, about five thousand, a small portion Yet, as a general rule, only of them being banks of issue. Such as are regarded as " sucall make large dividends. cessful," divide

from

fifteen to twenty-five per cent.

It is

a

curious and instructive fact, that, while the average rate of interest is there only half as great as in the

United States,

bank dividends are much greater. The largest dividends arc made by those banks which issue no notes whatthe

ever.

This fact gives sufficient proof,

make

in order to

if

large dividends,

any were needed,

that,

not necessary for a

it is

well-managed bank to manufacture cur-

well-established,

rency.

Banks belong intrusted

by one

another class.

A

to civilization. class

The

of

bank

persons with

and

social elevation.

chines, of vast is

money

power and

Banks

;

and these indicate ma-

are labor-saving

Their legitimate purpose

utility.

simply to facilitate the use of money, to

effective in

exchange, to give

is collected

make

it

more

greater activity in circu-

it

A

This they accomplish.

lation.

to loan

existence of such institutions implies

the existence of capital and confidence culture

an institution

is

large

amount of

capital

in one building, fitted especially for the purpose.

This gives greater security and convenience than

if

the

same

were scattered abroad in many hands, and accidental places

The lender knows where

of keeping.

;

would probably remain unknown

No

well-informed

tutions

go to dispose of

the borrower, where such fund's can be The bank introduces these parties, who otherwise

his surplus funds

obtained.

to

man

to each other.

can be opposed to banking

conducted in a proper manner.

It

insti

would be

as

reasonable to object to railroads.

Banks, until a comparatively recent period, were as harmless as they est,

were useful.

but benefited

all.

They

When

did no injury to any intei

•

confined to the loaning of

CHAP.

219

MIXED-CUKRENCY FALLACIES.

XII.]

and

actual values, to the negotiation and collection of notes bills

of exchange, and

reception and transfer of

to the

money, they performed an immense service to the world. But when they undertook, not only to loan money, but to make it, to issue credit in the form of notes promising value,

was changed. Hamburg, which has existed since 1619, never promised a dollar which it did not hold in its vaults. It never expanded the currency, and therefore never had occasion to contract it. It has never suspended specie paytheir character

The Bank

ments

for

of

an hour,* and, while so conducted, never

has created no panic, and has in no way ness of the

It

city.

disturbed the busi-

has conferred incalculable benefits on

European commerce, while contributing growth and prosperity of Hamburg. Confining actually left

and

It

will.

itself to the

loan of

steadily

its capital

to

the

and of money

on deposit, to the transfer of surplus funds,

to the negotiation of

commercial paper, a bank can,

make good

honestly and ably conducted,

if

dividends, and

perform valuable services for the community, and furnish the public with

all

the notes their convenience and that

of the banks require.

Fallacy 1th.

That a mixed currency can be

effectually

regulated by law.

Many

of the mischiefs arising from a

mixed currency are

so obvious that all persons desire their removal, and naturally resort to legal enactments for that purpose.

The

statute-books of every State in the American Union contain laws for the regulation of mixed-currency banks. Commissioners have been appointed in many States, and a Bureau Ingenuity has been burdened to of Currency established. devise regulations by which these evils may be removed or

modified,

There it

— with what success

is

?

but one defect in a mixed currency

wants the element of value. * Various

There

is

no

;

and that

sufficient

reports in 1857 to the contrary notwithstanding

is,

rem-

[BOOK m.

EXCHANGE.

220

edy, but to supply this, by providing that banks shall issue no promises of their own for which they have not in posses-

But

sion the actual values they promise.

change the whole system, to

and

make

to cut off all the profits arising

is,

would be

to

from the issue of bank

The only complete remedy, then,

debt as currency. toration; that

this

the currency mercantile,

is res-

a return to the original design and purpose

of banking.

Fallacy 8th.

That

it is

for the interest of the public, that

the banks, in times of panic or stringency, should be ena-

bled to " stave off" suspension.

On

the contrary, this can be obviated only to the misfor-

A

tune of the business community.

severe pressure for

money, as in the United States in 1847, 1851, and 1854, is But how experienced, and yet the banks do not suspend. do they avoid it ? By throwing the strain upon the mercan-

and business community. This they can always do to a limited extent, and thus maintain their own credit but it is done at an enormous amount of embarrassment and loss

tile

;

to all

engaged in business

affairs.

The banks may not only escape damage, but may even profit very much by a pressure, if it does not come to be a panic for it greatly enhances the rate of interest. The rate of interest in the Bank of England, from 1848 to 1856, did not average three and a half per cent. In 1857, when there was a severe pressure, the bank was able to obtain ten per ;

had a harvest of profit. The banks of the United States had a similar opportunity

cent.

It

when the price of money " in the street" (for we have no means of knowing what it was on an average in bank) was up to eighteen per cent in 1851, when it went up to sixteen and in 1854, when it rose to eighteen. In in 1847,

;

:

all

these cases, the banks profited by the distress they had

themselves created

;

but, in 1857, the pressure

became

over-

whelming, and, after having run the street rate up to three per cent per month, they suspended payment.

CHAP. If

MIXED-CURRENCY FALLACIES.

XII.]

221

were necessary, we might multiply instances from mixed currency of the United States and

it

the history of the

England of the same kind. A semi-revulsion is sure to take place, under such a currency, every three or four years, and a general break-down once in about nine or ten.

The greater strength

of the British banks, together with

the temporary suspension of the bles the

Bank

of

England

to

Bank Act

throw the

of 1844, ena-

sacrifices incident to

a great pressure more entirely upon the public than can be

done in

Indeed, since the law of 1844 just bank has increased its average rate of interest, as we have seen, very much. Practically, mixed-currency banks expand as often and as much as possible and, when the re-action comes, hold on to specie payments and a high rate of interest, until the this country.

referred to, the

;

bankruptcy of their debtors begins

to be so

alarming as to

endanger their own securities.

They then suspend, allow

their debtors to

pay up in the

notes they cannot redeem in specie, and thus settle the in-

debtedness of themselves and the public. or design to do this

;

but such

is

the whole, a highly satisfactory one

Fallacy 9th.

There

is

no plan

the natural result, and, on to the

banking

interest.

That, whatever the effect upon other classes,

bank stockholders

at least are

made

richer by an expansion

of the currency.

That

this is not universally true will

appear on exam-

ination.

An

expansion of the currency raises prices

to be indisputable.

richer

or

If so, the stockholder

poorer by the cause that

that we take may be made

:

increases

his

bank

dividends.

For example

:

suppose he has an income from various

$5,000

sources of

And from bank

stock

Total income

1,000

$6,000

[book m.

exchange,

222

In consequence of an increase of circulation by the banks,

he gets an increase of $500, equal to fifty per cent on his But bank dividends, making bis whole income $6,500. prices in

and commodities have advanced twenty-five per cent inflation. What he would have

consequence of the

bought before for $6,000, now costs him $7,500. The result, then, is, that the bank stockholder has gained $500 in

and

his dividends,

he

lost

$1,500 in his purchases

;

so that

actually $1,000 poorer, reckoning the real satisfactions

is

or commodities,

There

is

&c, which he

nothing

obtains from his income.

fictitious in this statement.

The natural

and certain operation of an inflation of currency affects in just this way all who hold bank stocks, but have the main

But we can

part of their income from other sources.

sup-

pose a case in which the stockholder would gain by expansion.

For example

From

:

he has an income from bank stock of

.

.

$4,000 1,000

salary

$5,000

Total income

Now, by expansion, cent, as before

;

his dividends are increased fifty per

and his income stands

:

—

From bank stock From salary

$6,000 1,000

$7,000 Prices have advanced, as before, twenty-five per cent, so that

what he could have bought

$6,250 a

;

for $5,000,

costs

him

gainer by $750.

Those two cases present,

it is

believed, a fair illustration

upon bank stocks

of the effects of an increase of dividends

occasioned by an inflation of the currency. if

now

but, since his income has increased to $7,000, he is

a man's income

may

is

It is seen, that,

derived mainly from such sources, he

gain by an increase of his dividends, notwithstanding

the rise in price.

But few persons are so

situated.

Nearly

::

MIXED-CURRENCY FALLACIES.

CHAP. Xn.J all

capitalists

223

have a variety of investments, bank stock

being only one of them

so that, to the great

;

holders even, the gain by increased dividends

mass of stockis more than

counterbalanced by the loss from enhanced prices.

Who

gains by fictitious currency

?

may be asked, if stockholders do not expansions, who does ? There is an increase who gets the advantage ? But

it

gain by bank of dividends

This inquiry brings us face to face with one of the prime mysteries of currency, and, indeed, of political economy. " Who gains by fictitious currency ? " Before answering this,

we

will ask,

What

of actual value

sisting

Prices are changed by

We

answer, nothing but price.

Tallies are not created

it.

By

remain the same.

gained by a currency not con-

is

?

they

:

change in the standard or

the

mixed currency, prices no longer Prices are increased. Those accurately determine values. who hold commodities while prices are advancing, gain by measure from a value

to a

may discharge may make

such an advance.

Debtors

with less value.

Speculators

;

favorable opera-

The value of every commodity has been

tions.

with

their obligations

interfered

the integrity of every contract to pay value has been

impaired.

Some are constantly gaining others, it may be, unconscious of the cause ;

both parties,

prosperity or adversity.

bad, as

men

" Times " are said to be good or

gain without earning, or

lose

without a

Here we have the answers of the questions,

a grand system of insidious swindling."

fault.

— What

gained by a mixed currency ? Who gains by it ? Such is the " consummation" of mixed currency. castle "

losing

of such

" It

is

is

So said " Hard-

(who was no other than Mr. Page of the Bank of and what that shrewd observer forty years ago

England)

then discovered

;

is

apparent

now

to all

who

enter into a full

examination of the subject.* * Richard Cobden repeated

this

remark of Mr. Page

to the

author at

Manchester, more than twenty years since, with his emphatic approval.

EXCHANGE.

224

CHAPTER

III.

XIII.

MERCANTILE CURRENCY.

IV.

We

[iSOOK

have thus

rency.

far examined three different kinds of curMoney, consisting of the precious metals this

1st,

:

we have found

to be

admirably adapted to the wants of

trade, except that, for large exchanges,

some, requiring

much

it is

too cumber-

labor and time in use.

vertible paper, or credit currency, which,

2d, Incon-

we have

seen, never

has been, and in the nature of things never can be kept at par with coin, and

is

convertible

3d,

A

which, as

paper,

when

therefore highly injurious

duced into commerce.

mixed currency, is

it

intro-

or partly

constantly varying in

and quantity, cannot be relied on as a medium of exchange or a standard of value. quality

We now

come

a mercantile, or

to the consideration of

substitute currency. It is quite

combine

all

apparent that a currency

without the disadvantages which arable from the third.

We

the convenience of paper.

there

is

is

needed which shall

the advantages of the two kinds

we have

want the

increase the currency beyond

its

We

much

and

perfectly united,

have no occasion to

natural volume, because

that would impair the standard of value.

have so

mentioned,

reliability of coin

With these

nothing more to desire.

first

seen to be insep-

We

wish only to

currency, and of such a kind, as the laws of

trade demand, and, if undisturbed, will always secure.

such a currency practicable ? In answering this question, we remark that it would not be an entire novelty, since experiments of this character have Is

been made most successfully upon a large ing over several centuries.

scale,

and extend-

CHAP.

MERCANTILE CURRENCY.

XIII.]

225

THE FIRST SUBSTITUTE CURRENCY ESTABLISHED. Ill

Bank of

the early part of the fourteenth century, the

Genoa, or House of for the

St.

management

the bank performed

George, was established, especially

of the public debt. all

existing wants of trade, at a period

scale.

when Genoa was com-

Of course,

mercially the centre of Europe.

were on a gigantic

But, in addition,

such services as were required by the

Its affairs

its

operations

were conducted with

the greatest skill and fidelity, and were continued from

its

foundation up to the time Genoa was united to the French Empire, " when the bank was abolished, and the rentes,

3,400,000 Genoese

were transferred

lire,

which they owed their

This bank, like the Bank of England, had vested in the public debt

and

silver, for

creditors,

to the account-books of France."

which

it

;

but

it

its

stock in-

received deposits of gold

gave credit to the depositor.

deposits, being easily transferable,

These

were employed largely

in

commercial transactions.

The bank

also issued bills extensively

;

deposits represented coins of full weight

but " these

and

value,

bills and and were

The common currency business and minor transactions, was

payable on demand in such corns." of Genoa, for retail coin.

Thus the Genoese were furnished with a currency peradapted to their wants. It had all the reliability

fectly

of specie, with the convenience of a paper circulation, and

conferred immense advantages upon the trade of the city for

more than five hundred years.* The Bank of Amsterdam was established in 1609 as a bank of deposit, receiving gold and silver coins of all denominations and all nationalities, ascertaining their exact value, and passing the amount to the credit of the depositor, or * For an

Payment"

interesting account of this bank, see "

(p.

311

et seq.),

The Ways and Means of

by Stephen Colwell, of Philadelphia 15

[BOOK

EXCHANGE.

226

III.

These regiving him a receipt (recipisse) for the same. ceipts passed from hand to hand, and formed a circulating

medium for large monetary transactions. The Bank of Hamburg was established tint of

are

Amsterdam,

it is

made by checks

the present day. in its vaults.

It is

of the city.

It

expansion.

It

a bank of deposit

;

in

and

in the transfer of receipts.

never promises more

same time,

it

has

under the guardianship and guaranty

connected with

all

It exists at

has never deranged trade by contraction or

tributed greatly to the prosperity of the city,

nience of

payments

coin than

has always been found reliable.

It

Like

1619. all

Hamburg

It

has con-

and the conve-

in trade.

At the

has paid a considerable and constant revenue

it

premium being charged on

to the city, a small agio or

all

deposits.

We

have referred to these individual banks, not

history of their operations, but to

show that the

to give a

essential

principle of a substitute currency has been long recognized,

and thoroughly

tried in practice.

to have developed this afford a perfect

To keep forming

model

most

fully.

The Bank of Genoa seems Yet none of them would

for the present age.

gold and silver coin in bank, while they are pertheir functions outside, with the perfect accu-

all

currency seeks to

realize.

be more effectually done in

—

this is what a mercantile beyond doubt that this can the present, than in any preced-

racy and vastly augmented force, It is

ing age, since confidence and intelligence are more general

and controlling. England affords the best such

a

currency at the present day, when the commerce of

the world

Genoa was land its

is

illustration of the necessity for

is

perhaps one hundred times greater than when

its

chief mart.

The monetary

condition of Eng-

peculiarly appropriate in this connection, because

present currency

is

probably the best in quality of

all

the mixed currencies, and one with which the public generally are well acquainted.

Yet, notwithstanding this supe-

;

CHAP.

MERCANTILE CURRENCY.

XIII.]

we

227

on which depend the trade and commerce of the British Empire, in a state of continual fluctuation, a matter of unceasing solicitude the bank reserve, riority,

find the currency,

:

by which

its

discounts

millions

in

1846, to

must be governed, varying from ten one and a half millions in 1847 ;

twelve and a half millions in 1849, to four millions in 1854

one and a half millions in 1857, to thirteen and a half millions in

1858

with corresponding variations in the rates

;

Diagram No.

of interest, as seen in our

Why all

this fluctuation

and anxiety

watching of the amount of bullion

?

in

7.

Why

this

bank

constant

Why

?

this

nervous solicitude about* the reserve?

There is only one reason and that is, that the Bank of England has issued from ten to fourteen millions sterling of notes, for which it holds no specie That is all the diffi;

!

culty.

has disturbed the laws of value, by issuing that as

It

money which had

only the promise of value

;

and, conse-

quently, has expelled the actual value from the country in

which

it

was needed.

And what does the Bank of England gain by all this ? Why, the interest upon all the excess of its notes over the bullion in it

bank

;

that

is, if its

notes are twenty millions, and

holds eight millions of specie, then on twelve millions

it

obtains interest, which, at say four per cent, as an average, is

equal to four hundred and eighty thousand pounds per

annum.

So, then,

it is

for this paltry consideration that the

currency of Great Britain

is

and the business community gain

is

kept in constant fluctuation,

This

in continual anxiety.

equivalent to about fourpence per head for the pop-

Yet for this the public must, on an the amount of many millions per annum.

ulation of the nation.

average, suffer to

The people

of the United States, having a

much

larger

proportion of the credit element in their currency, suffer still

more.

The remedy

for all these evils is a very simple one,

and

make

tho

perfectly feasible

whenever government sees

fit

to

;

EXCHANGE.

228 needful enactments.

Not only

[BOOK

so, but,

III.

from the nature of

The experiment most conservative can

the case, there need be no violent change.

may

be

made

as cautiously as the

desire. f it

1

be assumed that the banks of the United States have

usually twenty per cent of specie, then, if Congress should require an annual addition, to this proportion, of ten per it would require a period of eight years to bring the amount up to the proposed limit. That it would secure one

cent,

of the grandest results to all the great industrial and com-

mercial interests of society ever known, there cannot be the slightest doubt.

If the principles

practical results

we have

previously laid down, and the

which follow, are such as we have stated,

then no one nation need to hesitate in

making

this experi-

may not follow their examcommunity which has the soundest currency will, other things equal, have the most profitable industry and the most advantageous commerce. With such a currency, as there will be no inducement to

ment ple

;

for fear that other nations

for the

issue notes further than convenience less

demands, none of a

denomination than ten dollars will probably be issued.

The Bank

of

England

issues,

we must bear

in

notes less than five pounds (twenty-five dollars).

mind, no In Scot-

land and Ireland, notes are circulated as low as one pound

and

it is

found that two-thirds of their circulation consists

of these notes.

Yet there

no more occasion

is

notes in Scotland and Ireland than England. sult

is,

that the bankers

in those notes,

make

profits

which the people pay

receive no benefit whatever

;

while

for

one-pound

The only

re-

on their credit issued for,

but for which they

all their

industrial

and

trading interests are rendered more unstable and fluctuating

by the more sensitive currency. In Massachusetts, where notes are issued as low as one dollar,

it

has been found from

statistical returns that

more

than twenty per cent of the whole circulation was of notes \

;

CHAP.

XIII.]

under

five

229

MERCANTILE CURRENCY.

The exclusion

dollars.

of these

notes

alone

would reduce the credit element one-fifth. If all under ten were excluded, the paper circulation would be reduced at. If such a result would follow, then, least as much more. taking the whole currency of the United States as it was in 1857, when the circulation was largest, and amounted to two hundred and fourteen millions, if we deduct from that amount forty per cent, equal to eighty-five million and six hundred thousand dollars, we shall have near one hundred and twenty-eight millions as the paper currency of the country, and that would represent an equal amount of gold in the banks

;

while

all

the rest of the currency of the nation

would be in specie, in the hands of the people. But there need be no legal restriction whatever upon the issue of such a currency, and it matters not how voluminous it may be since

it

will

be composed in fact of value money, will

obey the laws of value, and, of course, will regulate

itself.

There would then be no expansions or contractions, except from the legitimate operations of trade and the currency ;

would be perfectly sound. Notes may be safely still it denominations, and to any amount of any issued, would be desirable that no small notes should be put out, of the nation

;

because

it is

better that the people should have the coin, so

far as practicable

rather than that

banks, where

it

and convenient, in it

their

own

possession,

should be needlessly accumulated in

would be more exposed

to

danger in case of

a popular outbreak, or a financial coup d'etat.

That legitimate banking may be made sufficiently profitunder such a system, we have seen in the case of the joint-stock banks of England. All banks, like them, should be authorized to receive deposits, and allow such an interest upon them as they might choose to pay. If there were no issue of promises as currency, which in the nature of the case it was impossible for them to make good, there would able

be no danger in allowing them to borrow and loan money

on any terms they pleased.

To attempt

to control the

[HOOK

EXCHANGE.

2Sfl

HI.

operations of such banks would be as useless and absurd as to attempt to regulate the trade in flour or cotton.

There would be no occasion

to enact that

such a currency

would take care gold, and easier be good as would of its own itself. Of such a would circulate and it therefore in use currency it might be said, in the language of Mr. Burke, " It is of value in commerce, because in law it is of none." The transition from an unreliable currency, like that of the United States and England, to a sound mercantile should be received in payment of dues. reputation.

It

It

;

currency, can be

made

so gradually as not for a

retard or interrupt the course of business.

It

moment

would only

be necessary to require that the proportion of specie to culation shall be gradually increased

from time

to

cir-

to time, until

the final exclusion of credit, as an element of the currency, shall be effected. If,

measure into practical operation,

in carrying such a

should appear that there were banks which could not

it

make

good dividends, such institutions would be discontinued of their own choice, as not actually required by the wants Their capital would be paid

of the business community.

back without any essential loss

to the stockholders.

Those

management would of course be obliged to seek other employments, more beneficial to The the country, and perhaps equally so to themselves. amount of disturbance so produced would not exceed that occasioned, many times, by the invention of a new descrip-

who were concerned

in their

tion of machinery.

Much

has been said, at different times, of the desirable-

Of the propriety and rightfulness

ness of free banking. of allowing any person freely as

who chooses

to carry

on banking, as

farming or any other branch of business, there can

be no doubt.

But

it is

not,

and can never be, expedient or

right to authorize by law the universal manufacture of cur-

rency.

While banking, as

inconvertible paper, the

at present,

more

it is

means

the issuing of

guarded and restricted

CHAP.

MERCANTILE CURRENCY.

XIII.]

But when such paper

the better.

much

notes equivalent to so

is

231

forbidden, and only

coin are issued, banking

may

The only thing to be assured should be made except upon specie

be as free as brokerage.

would

no issues

be, that

With

in hand.

would wish

this restriction,

no banker

plain that

is

it

own

to issue a circulation, unless for his

why any banker, making

not the slightest reason

con-

But, in truth, there

venience in transacting business.

should engage in the manufacture of currency.

It

is

loans,

no more

appertains to his vocation than to that of the merchant.

On

the other hand, there

and danger

to himself

is

the most manifest impropriety

and the public

His

in his doing so.

business leads him, of necessity, to incur great risks

and become frequent, as they will when there is a great pressure for money, the banker will be suspected, and his depositors begin to withdraw their funds, at the very moment when he is least able this being well

to spare them.

known, as soon

All this

is

;

as failures

inevitable

;

and therefore no one

taking such risks, and exposed to such contingencies, should

be allowed by law to issue his promises as money. Fortunately, while

is

it

thus improper that bankers or

banking institutions should be intrusted with

this

impor-

tant function, there is not the slightest necessity for

Government very properly

certifies to the

ness of the national coin ; and

it is

weight and

it.

fine-

equally incumbent upon

the government to certify to the soundness of the paper circulation, itself.

which convenience requires instead of the coin

It should receive the gold of the people, and give

certificates therefor

its

;

and those

certificates (of all the

denominations required) would form a circulating medium, perfectly reliable, unfluctuating,

and well adapted

to all the

purposes of trade.

To do for

it

government need assume no new function

;

already issues this very kind of certificates for deposits

of specie.

such.

this,

They are

When

called " gold notes,"

the specie standard

is

and

circulate as

restored, all the notes

232

EXCHANGE.

[BOOK

III.

government being the trustee for holding the coin. This would not give any new power to the government, or confer any additional political Being merely a trustee, with no patronage to influence. bestow, no loans to make, no accommodations to grant, in

circulation

will

be gold notes,

there could be no occasion to fear that the currency of the

country would be swayed by partisan politics.* Table X.

Kind.

Specie

— Characteristics of the Different

Currencies.

THE NATIONAL CURRENCY.

CHAP. XIV.]

CHAPTER

233

XIV.

THE NATIONAL CURRENCY OP THE UNITED STATES.

Having given an extended

analysis of

mixed currency as

has heretofore existed in the United States, that

we should

it

it

seems proper

notice the important changes in that cur-

rency soon to be consummated.

In the month of February, 1863, Congress enacted a law establishing a national

and uniform system of currency.

This has since been put into operation to such an extent as nearly to supersede the State-bank system.

now

to inquire in

respect

it is like,

what respect

We

propose

from, and in what

it differs

the latter.

DIFFERENCES. It differs

from the old system, in

that,

—

(1) Being created by national instead of State authority, it is entirely within the control of Congress, which, according to the last section of the National at

any time " (2) It

alter,

amend, or repeal

may

government of the

This provision we presume to be unique,

and without any precedent

;

for the

government

ply a trustee, holding security for these notes, as in

and some other

Act,

the notes issued are guaranteed

differs, in that all

as to their ultimate redemjrtion by the

United States.

Bank

it."

States,

on the safety-fund

not sim-

is

New York

principle,

stocks are deposited to secure the circulation, but lutely guarantees the final

payment of

all

it

where abso-

these notes in

full.

Every banking association, on

its

organization,

deliver to the Treasurer of the United States the

the United States bearing interest, and

is

must

bonds of

then entitled to

receive from the Comptroller of the Currency circulating

notes of different denominations, in blank, equal in amount

EXCHANGE.

234

to ninety per cent of the current

[BOOK

III.

market value of the bonds

so transferred, but not exceeding the par value of such In case the notes issued by the banks are not paid

bonds.

by them according to promise, the Comptroller

bonds

may

sell

the

and redeem the notes, making up \r> same any deficiency there may be in the This, it will be seen, does not secure the imme-

as security,

left

the holders of the securities.

diate convertibility, but the ultimate redemption, of the cir-

culation.

(3) in

It differs, again, in that these notes are legal

payment of "taxes,

excises, public lands,

and

tender

all

other

dues to the United States, except for duties," and also are

by the United States in payment of all salaries and other demands owing by the United States, except interest upon the public debt but they are not a legal tender legal tender

;

as between other parties.

(4) Unlike the State-bank notes, those of the national banks, owing to the provision just mentioned, will doubtless

have a nearly uniform value in

and

will therefore

all

parts of the United States,

be generally acceptable as currency.

(5) They differ also in this, that the national banks are compelled by law to keep on hand a certain proportion of " lawful money " to their circulation and deposits. In specified cities,* this proportion is fixed at twenty-five per

cent

;

in all other places, at fifteen.

Under

the State systems, there

was no

legal obligation

on

the banks to keep any specie whatever, except in a few cases, as in Louisiana

and (recently) in Massachusetts, and

one or two other States. the national banks

But

this provision in regard to

is practically, to

a great extent, only a

nominal matter, because the law provides that " bank balances (due from one bank to another) shall be deemed to be * These

New

Boston, City.

cities are

St. Louis,

Orleans, Cincinnati,

New

Louisville, Chicago, Detroit, Milwaukie,

Cleveland, Pittsburgh, Baltimore, Philadelphia,

York, Albany, Leavenworth, San Francisco, and Washington

THE NATIONAL CURRENCY.

CHAP. XIV.]

money;" and

lawful

235

may be

therefore, as these balances

created fictitiously for the very purpose, the clause obliging

money " a nullity. How-

the banks to keep a certain proportion of " lawful

with which to redeem their notes

but, as

we have

is

may

ever real these bank balances

nearly

be, they are not specie,

before shown, constitute the most danger-

ous and explosive element of a mixed currency. This

is

one of the great defects of the law, and, until

removed by the repeal of

this provision,

it is

would alone make

the system a dangerous and unreliable one.

Let us look

moment at the manner in which it may operate. The Merchants' Bank, Baltimore, lias a balance against

for a

the Chemical Bank,

The

New York,

for

twenty thousand

dollars.

latter bank has a balance against the Globe Bank,

The Globe has a

Boston, for twenty thousand dollars.

balance against the Merchants' Bank, Baltimore, for twenty

thousand circle,

Here

dollars.

which

is to

But

or lawful money.

strength

to

may

be

sixty thousand dollars in this

is it

the currency,

object of requiring

currency

is

be reckoned as equal to so

it

so

?

So

far

much

has the opposite

reliable

;

is,

that the

but, if so, does not

this provision, to a large extent, frustrate that object

far

The

effect.

any specie, or lawful money,

made more

specie,

from giving any

?

So

from giving strength, every banker knows that these

balances are a cause of weakness and peril in time of panic. It

can easily be seen that a very large proportion of the

nominal amount of specie or lawful money required may be held in these " balances." Lastly, the national differ from the old State banks in this, that

the latter had almost their entire capital to loan

to the business little

or none at

to the

community, while the new banks will have all, having loaned their capital at the outset

government, by the purchase of

its

bonds.

They

can, therefore, only loan their credit, in the shape of circulation

endorsed by the government, together with

deposits.

their

[UOOK

EXCHANGE.

ID.

RESEMBLANCES. Tlic

new currency resembles

in that it will be a tics,

when

specie

that of the old State banks,

mixed currency, with

all its

characteris-

payments arc restored.

(a) It will expand and contract from the same causes, and, so far as can be seen, with the same violence and to

an equal extent, and consequently will be as fluctuating as the currency

is

it

designed to supersede, except in so far

as a larger proportion of specie shall be held for its re-

demption. (b) It will be

an equally delusive and

false

standard of

value, having in itself but a small proportion of value. It will raise prices

(