By Author [ A  B  C  D  E  F  G  H  I  J  K  L  M  N  O  P  Q  R  S  T  U  V  W  X  Y  Z |  Other Symbols ]
  By Title [ A  B  C  D  E  F  G  H  I  J  K  L  M  N  O  P  Q  R  S  T  U  V  W  X  Y  Z |  Other Symbols ]
  By Language
all Classics books content using ISYS

Download this book: [ ASCII | HTML | PDF ]

Look for this book on Amazon

We have new books nearly every day.
If you would like a news letter once a week or once a month
fill out this form and we will give you a summary of the books for that week or month by email.

Title: Principles of Political Economy
Author: Perry, Arthur Latham
Language: English
As this book started as an ASCII text book there are no pictures available.
Copyright Status: Not copyrighted in the United States. If you live elsewhere check the laws of your country before downloading this ebook. See comments about copyright issues at end of book.

*** Start of this Doctrine Publishing Corporation Digital Book "Principles of Political Economy" ***

This book is indexed by ISYS Web Indexing system to allow the reader find any word or number within the document.

available by Internet Archive/American Libraries

Note: Images of the original pages are available through
      Internet Archive/American Libraries. See

Transcriber's note:

      Text enclosed by underscores is in italics (_italics_).

      Text enclosed by tilde characters is transliteration of
      Greek (~dragma~).


       *       *       *       *       *


        Edition. 12mo. 357 pp. Price, $1.50.

        pp. Price, $2.00.

    3. POLITICAL ECONOMY. Twenty-First Edition. Crown
        8vo. 600 pp. Price, $2.50.

       *       *       *       *       *




Orrin Sage Professor of History and Political Economy in
Williams College

    _"No task is ill where Hand and Brain
     And Skill and Strength have equal gain,
     And each shall each in honor hold,
     And simple manhood outweigh gold."_

New York
Charles Scribner's Sons

Copyright, 1890,
by Arthur Latham Perry.



                       J. STERLING MORTON

                           OF NEBRASKA

                   A FRIEND OF THE PEOPLE ALSO

                      FOUNDER OF ARBOR DAY


It is now exactly twenty-five years since was published my first book
upon the large topics at present in hand. It was but as a bow drawn at
a venture, and was very properly entitled "Elements of Political
Economy." At that time I had been teaching for about a dozen years in
this Institution the closely cognate subjects of History and Political
Economy; cognate indeed, since Hermann Lotze, a distinguished German
philosopher of our day, makes prominent among its only _five_ most
general phases, the "industrial" element in all human history; and
since Goldwin Smith, an able English scholar, resolves the elements of
human progress, and thus of universal history, into only _three_,
namely, "the moral, the intellectual, and the productive."

During these studious and observant years of teaching, I had slowly
come to a settled conviction that I could say something of my own and
something of consequence about Political Economy, especially at two
points; and these two proved in the sequel to be more radical and
transforming points than was even thought of at the first. For one
thing, I had satisfied myself, that the word "Wealth," as at once a
strangely indefinite and grossly misleading term, was worse than
useless in the nomenclature of the Science, and would have to be
utterly dislodged from it, before a scientific content and defensible
form could by any possibility be given to what had long been called in
all the modern languages the "Science of Wealth." Accordingly, so far
as has appeared in the long interval of time since 1865, these
"Elements" were the very first attempt to undertake an orderly
construction of Economics from beginning to end without once using or
having occasion to use the obnoxious word. A scientific substitute for
it was of course required, which, with the help of Bastiat, himself
however still clinging to the technical term "Richesse," was discerned
and appropriated in the word "Value"; a good word indeed, that can be
simply and perfectly defined in a scientific sense of its own; and,
what is more important still, that precisely covers in that sense all
the three sorts of things which are ever bought and sold, the three
only Valuables in short, namely, material Commodities, personal
Services, commercial Credits. It is of course involved in this
simple-looking but far-reaching change from "Wealth" to "Value," that
Economics become at once and throughout a science of Persons buying
and selling, and no longer as before a science of Things howsoever
manipulated for and in their market.

For another thing, before beginning to write out the first word of
that book, I believed myself to have made sure, by repeated and
multiform inductions, of this deepest truth in the whole Science,
which was a little after embodied (I hope I may even say _embalmed_)
in a phrase taking its proper place in the book itself,--_A market for
Products is products in Market_. The fundamental thus tersely
expressed may be formulated more at length in this way: One cannot
Sell without at the same instant and in the same act Buying, nor Buy
anything without simultaneously Selling something else; because in
Buying one pays for what he buys, which is Selling, and in Selling one
must take pay for what is sold, which is Buying. As these universal
actions among men are always voluntary, there must be also an
universal motive leading up to them; this motive on the part of both
parties to each and every Sale can be no other than the mutual
satisfaction derivable to both; the inference, accordingly, is easy
and invincible, that governmental restrictions on Sales, or
prohibitions of them, must lessen the satisfactions and retard the
progress of mankind.

Organizing strictly all the matter of my book along these two lines of
Personality and Reciprocity, notwithstanding much in it that was
crude and more that was redundant and something that was ill-reasoned
and unsound, the book made on account of this original mode of
treatment an immediate impression upon the public, particularly upon
teachers and pupils; new streaks of light could not but be cast from
these new points of view, upon such topics especially as Land and
Money and Foreign Trade; and nothing is likely ever to rob the author
of the satisfaction, which he is willing to share with the public, of
having contributed something of importance both in substance and in
feature to the permanent up-building of that Science, which comes
closer, it may be, to the homes and happiness and progress of the
People, than any other science. And let it be said in passing, that
there is one consideration well-fitted to stimulate and to reward each
patient and competent scientific inquirer, no matter what that science
may be in which he labors, namely, this: Any just generalization, made
and fortified inductively, is put thereby beyond hazard of essential
change for all time; for this best of reasons, that God has
constructed the World and Men on everlasting lines of Order.

As successive editions of this first book were called for, and as its
many defects were brought out into the light through teaching my own
classes from it year after year, occasion was taken to revise it and
amend it and in large parts to rewrite it again and again; until, in
1883, and for the eighteenth edition, it was recast from bottom up for
wholly new plates, and a riper title was ventured upon,--"Political
Economy,"--instead of the original more tentative "Elements." Since
then have been weeded out the slight typographical and other minute
errors, and the book stands now in its ultimate shape.

My excellent publishers, who have always been keenly and wisely alive
to my interests as an author, suggested several times after the
success of the first book was reasonably assured, that a second and
smaller one should be written out, with an especial eye to the needs
of high schools and academies and colleges for a text-book within
moderate limits, yet soundly based and covering in full outline the
whole subject. This is the origin of the "Introduction to Political
Economy," first published in 1877, twelve years after the other. Its
success as a text-book and as a book of reading for young people has
already justified, and will doubtless continue to justify in the
future, the forethought of its promoters. It has found a place in many
popular libraries, and in courses of prescribed reading. Twice it has
been carefully corrected and somewhat enlarged, and is now in its
final form. In the preface to the later editions of the "Introduction"
may be found the following sentence, which expresses a feeling not
likely to undergo any change in the time to come:--"I have long been,
and am still, ambitious that these books of mine may become the
horn-books of my countrymen in the study of this fascinating Science."

Why, then, should I have undertaken of my own motion a new and third
book on Political Economy, and attempted to mark the completion of the
third cycle of a dozen years each of teaching it, by offering to the
public the present volume? One reason is implied in the title,
"_Principles of Political Economy_." There are three extended
historical chapters in the earlier book, occupying more than
one-quarter of its entire space, which were indeed novel, which cost
me wide research and very great labor, and which have also proven
useful and largely illustrative of almost every phase of Economics;
but I wanted to leave behind me one book of about the same size as
that, devoted exclusively to the Principles of the Science, and using
History only incidentally to illustrate in passing each topic as it
came under review. For a college text-book as this is designed to
become, and for a book of reading and reference for technical
purposes, it seems better that all the space should be taken up by
purely scientific discussion and illustration. This does not mean,
however, that great pains have not been taken in every part to make
this book also easily intelligible, and as readable and interesting as
such careful discussions can be made.

A second reason is, to provide for myself a fresh text-book to teach
from. My mind has become quite too thoroughly familiarized with the
other, even down to the very words, by so long a course of instructing
from it, for the best results in the class-room. Accordingly, a new
plan of construction has been adopted. Instead of the fourteen
chapters there, there are but seven chapters here. Not a page nor a
paragraph as such has been copied from either of the preceding books.
Single sentences, and sometimes several of them together, when they
exactly fitted the purposes of the new context, have been incorporated
here and there, in what is throughout both in form and style a new
book, neither an enlargement nor an abridgment nor a recasting of any
other. I anticipate great pleasure in the years immediately to come
from the handling with my classes, who have always been of much
assistance to me from the first in studying Political Economy, a fresh
book written expressly for them and for others like-circumstanced; in
which every principle is drawn from the facts of every-day life by way
of induction, and also stands in vital touch with such facts (past or
present) by way of illustration.

The third and only other reason needful to be mentioned here is, that
in recent years the legislation of my country in the matter of cheap
Money and of artificial restrictions on Trade has run so directly
counter to sound Economics in their very core, that I felt it a debt
due to my countrymen to use once more the best and ripest results of
my life-long studies, in the most cogent and persuasive way possible
within strictly scientific limits, to help them see and act for
themselves in the way of escape from false counsels and impoverishing
statutes. Wantonly and enormously heavy lies the hand of the national
Government upon the masses of the people at present. But the People
are sovereign, and not their transient agents in the government; and
the signs are now cheering indeed, that they have not forgotten their
native word of command, nor that government is instituted for the
sole benefit of the governed and governing people, nor that the
greatest good of the greatest number is the true aim and guide of
Legislation. I am grateful for the proofs that appear on every hand,
that former labors in these directions and under these motives have
proven themselves to have been both opportune and effective; and I am
sanguine almost to certainty, that this reiterated effort undertaken
for the sake of my fellow-citizens as a whole, will slowly bear
abundant fruit also, as towards their liberty of action as
individuals, and in their harmonious co-operation together as entire
classes to the end of popular comforts and universal progress.

                                                A. L. PERRY.

      November 25, 1890.


        CHAPTER I.
    VALUE                                      1

        CHAPTER II.
    MATERIAL COMMODITIES                      80

        CHAPTER III.
    PERSONAL SERVICES                        181

        CHAPTER IV.
    COMMERCIAL CREDITS                       271

        CHAPTER V.
    MONEY                                    361

        CHAPTER VI.
    FOREIGN TRADE                            451

        CHAPTER VII.
    TAXATION                                 540

    INDEX                                    587




The first question that confronts the beginner in this science, and
the one also that controls the whole scope of his inquiries to the
very end, is: What is the precise subject of Political Economy? Within
what exact field do its investigations lie? There is indeed a short
and broad and full answer at hand to this fundamental and
comprehensive question; and yet it is every way better for all
concerned to reach this answer by a route somewhat delayed and
circuitous, just as it is better in ascending a mountain summit for
the sake of a strong and complete view to circle up leisurely on foot
or on horseback, rather than to dash straight up to the top by a
cog-wheel railway and take all of a sudden what might prove to be a
less impressive or a more confusing view.

The preliminary questions are: What sort of facts has Political
Economy to deal with, to inquire into, to classify, to make a science
of? Are these facts easily separable in the mind and in reality from
other kinds of facts perhaps liable to be confounded with them? Are
they facts of vast importance to the welfare of mankind? And are the
activities of men everywhere greatly and increasingly occupied with
just those things, with which this science has exclusively to do? Let
us see if we cannot come little by little by a route of our own to
clear and true answers for all these questions.

If one should take his stand for an hour upon London Bridge, perhaps
the busiest bit of street in the world, and cast his eyes around
intelligently to see what he can see, and begin also to classify the
things coming under his vision, what might he report to himself and to
others? Below the bridge in what is called the "Pool," which was
dredged out for that very purpose by the ancient Romans, there lie at
anchor or move coming and going many merchant-ships of all nations,
carrying out and bringing in to an immense amount in the whole
aggregate tangible articles of all kinds to and from the remote as
well as the near nations of the earth. All this movement of visible
goods, home and foreign, is in the interest and under the impulse of
Buying and Selling. The foreign goods come in simply to buy, that is,
to pay for, the domestic goods taken away; and these latter go out in
effect even if not in appearance to buy, that is, to pay for, the
foreign goods coming in. At the same hour the bridge itself is covered
with land-vehicles of every sort moving in both directions, loaded
with salable articles of every description; artisans of every name are
coming and going; merchants of many nationalities step within the
field of view; and porters and servants and errand-boys are running to
and fro, all in some direct relation to the sale or purchase of those
visible and tangible things called in Political Economy _Commodities_.
Moreover, vast warehouses built in the sole interest of trade on both
sides the river above and below the bridge, built to receive and to
store for a time till their ultimate consumers are found, some of
these thousand things bought and sold among men, lift their roofs
towards heaven in plain sight. Doubtless some few persons, like our
observer himself, may be on the spot for pleasure or instruction, but
for the most part, all that he can see, the persons, the things, the
buildings, even the bridge itself, are where they are in the interest
of _Sales_ of some sort, mostly of Commodities. What is thus true of a
single point in London is true in a degree of every other part of
London, of every part of Paris and of Berlin, and in its measure of
every other city and village and hamlet in the whole world. Wherever
there is a street there is some exchange of commodities upon it, and
wherever there is a market there are buyers and sellers of

If the curiosity of our supposed observer be whetted by what he saw on
London Bridge, and if the natural impulse to generalize from
particulars be deepened in his mind, he may perhaps on his return to
America take an opportunity to see what he can see and learn what he
can learn within and around one of the mammoth cotton mills in Lowell
or Fall River or Cohoes. Should he take his stand for this purpose at
one of these points, say Lowell, he will be struck at once by some of
the differences between what he saw on the bridge and what he now sees
in the mill. He will indeed see as before some commodities brought in
and carried out, such as the raw cotton and new machinery and the
finished product ready for sale, but in general no other commodities
than the cotton in its various stages of manufacture, and those like
the machinery and means of transportation directly connected with
transforming the cotton into cloth and taking it to market.

But he sees a host of persons both within and without the mill, all
busy here and there, and all evidently bound to the establishment by a
strong unseen tie of some sort; he sees varying degrees of authority
and subordination in these persons from the Treasurer, the apparent
head of the manufactory, down to the teamsters in the yard and the
common laborers within and without; he will not find the owners of
the property present in any capacity, for they are scattered
capitalists of Boston and elsewhere, who have combined through an act
of incorporation their distinct capitals into a "Company" for
manufacturing cotton; besides their Treasurer present, whose act is
their act and whose contracts their contracts, he will see an Agent
also who acts under the Treasurer and directly upon the Overseers and
their assistants in the spinning and weaving and coloring and
finishing rooms, and under these Operatives of every grade as skilled
and unskilled; and lastly he will observe, that the direct
representatives of the owners and all other persons present from
highest to lowest are conspiring with a will towards the common end of
getting the cotton cloth all made and marketed.

What is it that binds all these persons together? A little tarrying in
the Treasurer's office will answer this question for our observer and
for us. He will find it to be the second kind of Buying and Selling.
At stated times the Treasurer pays the salary of the Agent, and his
own. He pays the wages of the Overseers and the wages of all the
Operatives and Laborers,--men and women and children. Here he finds a
buying and selling on a great scale not of material commodities as
before, but of personal services of all the various kinds. Every man
and woman and child connected with the factory and doing its work
sells an intangible personal service to the "Company" and takes his
pay therefor, which last is a simple buying on the part of the unseen
employers. Here, then, in this mill is a single specimen of this
buying and selling of personal services, which is going on to an
immense extent and in every possible direction in each civilized
country of the world, and everywhere to an immensely increased volume
year by year. Clergymen and lawyers and physicians and teachers and
legislators and judges and musicians and actors and artisans of every
name and laborers of every grade sell their intangible services to
Society, and take their pay back at the market-rate. The aggregate
value of all these services sold in every advanced country is probably
greater than the aggregate value of the tangible commodities sold
there. At any rate, both classes alike, commodities and services, are
bought and sold under substantially the same economic principles.

The inductive appetite in intelligent persons, that is to say, their
desire to classify facts and to generalize from particulars, almost
always grows by what it feeds on; and our supposed observer will
scarcely rest contented until he has taken up at least one more
stand-point, from which to observe men's Buying and Selling. Suppose
now he enter for this purpose on any business-day morning the New York
Clearing-House. He will see about 125 persons present, nearly one half
of these bank clerks sitting behind desks, and the other half standing
before these desks or moving in cue from one to the next. The room is
perfectly still. Not a word is spoken. The Manager of the Clearing
with his assistant sits or stands on a raised platform at one end of
the room, and gives the signal to begin the Exchange. No commodities
of any name or nature are within the field of view. The manager indeed
and his assistant and two clerks of the establishment who sit near him
are in receipt of salaries for their personal services, and all the
other clerks present receive wages for their services from their
respective banks, but the exchange about to commence is no sale of
personal services any more than it is a sale of tangible commodities.
It is however a striking instance of the buying and selling of some
valuables of the third and final class of valuable things.

At a given signal from the manager the (say) 60 bank messengers, each
standing in front of the desk of his own bank and each having in hand
before him 59 small parcels of papers, the parcels arranged in the
same definite order as the desks around the room, step forward to the
next desk and deliver each his parcel to the clerk sitting behind it,
and so on till the circuit of the room is made. It takes but ten
minutes. Each parcel is made up of cheques or credit-claims, the
_property_ of the bank that brings it and the _debts_ of the bank to
which it is delivered. Accordingly each bank of the circle receives
through its sitting clerk its own _debits_ to all the rest of the
banks, and delivers to all through its standing messenger its own
_credits_ as off-set. In other words, each bank buys of the rest what
it owes to each with what each owes to it. It is at bottom a mutual
buying and selling of debts. There is of course a daily balance on one
side or the other between every two of these banks, which must be
settled in money, because it would never happen in practice that each
should owe the other precisely the same sum on any one day; but
substantially and almost exclusively the exchange at the
Clearing-House is a simple trade in credit-claims. Each bank pays its
debts by credits. A merchant is a dealer in commodities, a laborer is
a dealer in services, and a banker is a dealer in credits. Each of the
three is a buyer and seller alike, and the difference is only in the
kind of valuables specially dealt in by each. In all cases alike,
however, there is no buying without selling and no selling without
buying; because, when one buys he must always pay for what he buys and
that is selling, and when one sells he must always take his pay for
what he sells and that is buying. This is just as true when one credit
is bought or sold against a commodity or a service, and when two or
more credits are bought and sold as against each other, as it is when
two commodities or two services are exchanged one for the other.

But the Clearing-House is not by any means the only place where
credits or debts (they are the same thing) are bought and sold. Every
bank is such a place. Every broker's office is such a place. Every
place is an establishment of the same kind where commercial rights,
that is, claims to be realized in future time and for which a
consideration is paid, are offered for sale and sold. The amount of
transactions in Credits in every commercial country undoubtedly
surpasses the amount in Commodities or that in Services.

Now our supposed observer and classifier, having noted on London
Bridge the sale of material commodities, and in the Lowell Mill the
sale of personal services, and within the New York Clearing-House the
sale of credit-claims, has seen in substance everything that ever was
or ever will be exhibited in the world of trade. He may rest. There is
no other class of salable things than these three. Keen eyes and minds
skilled in induction have been busy for two millenniums and a half
more or less to find another class of things bought and sold among
men, and have not yet found it or any trace of it. This work has been
perfectly and scientifically done. The generalization is completed for
all time.

The _genus_, then, with which Political Economy deals from beginning
to end, has been discovered, can be described, and is easily and
completely separable for its own purposes of science from all other
kinds and classes and _genera_ of things, namely, Salable things or
(what means precisely the same) Valuable things or (what is exactly
equivalent) Exchangeable things. In other words, the sole and single
class of things, with which the Science of Political Economy has to
do, is Valuables, whose origin and nature and extent and importance it
is the purpose of the present chapter to unfold. We have fully seen
already that this Genus, Valuables, is sub-divided into three
_species_, and three only, namely, Commodities, Services, Credits. A
little table here may help at once the eye and the mind:--


    _The Genus_        _Valuables_

                       { _Commodities_
    _The Species_      { _Services_
                       { _Credits_

If only these three species of things are ever bought and sold, then
it certainly follows that only six kinds of commercial exchanges are
possible to be found in the world, namely these:--

    1. _A commodity for a commodity._
    2. _A commodity for a personal service._
    3. _A commodity for a credit-claim._
    4. _A personal service for another service._
    5. _A personal service for a credit-claim._
    6. _One credit-claim for another._

Though the kinds of possible exchanges are thus very few, the
exchanges themselves in one or other of these six forms and in all of
them are innumerable on every business day in every civilized country
of the globe. And this point is to be particularly noted, that while
buying and selling in these forms has been going on everywhere since
the dawn of authentic History, it has gone on all the while in
ever-increasing volume, it is increasing now more rapidly and
variously than ever, and moreover all signs foretell that it will play
a larger and still larger part in the affairs of men and nations as
this old world gains in age and unity.

Damascus is one of the very oldest cities of the world, and its very
name means a "_seat of trade_." We are told in the Scriptures, that
Abraham about 2000 years before Christ went up out of Egypt "very rich
in cattle, in silver, and in gold," and the only possible way he could
have acquired these possessions was by buying and selling. He
afterwards purchased the cave and the field in Hebron for a family
burial-place, and "weighed unto Ephron the silver which he had named
in the audience of the sons of Heth, four hundred shekels of silver,
current money with the merchant." We may notice here, that there were
then "merchants" as a class, that silver by weight passed as "money"
from hand to hand, and that in the lack of written deeds to land, as
we have them, sales were "made sure" before the faces of living men,
who would tell the truth and pass on the word. Abraham indeed seems to
have given the pitch for the song of trade sung by his descendants,
the Jews, from that day to this; for Jacob, his grandson, was a
skilled trafficker, not to say a secret trickster, in his bargains;
and wherever in the Old World or the New the Jews have been, _there_
have been in fact and in fame busy buyers and sellers.

But the Jews have had no special privileges in the realm of trade; on
the contrary, they have always been under special disabilities both
legal and social. Even in England, the most liberal country in Europe,
they were exiled for long periods, maltreated at all points of contact
with other people, more or less put under the ban of the Common and
the Statute law, often outrageously taxed on their goods and persons,
and studiously kept out of the paths of highest public employment even
down to a time within the memory of living men.[1] Yet so natural is
the impulse to trade, so universally diffused, so imperative also if
progress is in any direction to be attained, that the English and all
other peoples were as glad to borrow money, that is, buy the use of
it, of the persecuted Jews, as the latter were to get money by buying
and selling other things, and then to loan it, that is, sell the use
of it, under the best securities (never very good) for its return with
interest, that they could obtain. Happily, the mutual gains that
always wait on the Exchanges even when their conditions are curtailed,
of course attended the mutilated exchanges between Jews and
Christians: otherwise, they would not continue to take place.

Christianity, however, as the perfected Judaism, gradually brought in
the better conditions, the higher impulses, and the more certain
rewards, of Trade, all which, we may be sure, were designed in the
divine Plan of the world. What is called the Progress of Civilization
has been marked and conditioned at every step by an extension of the
opportunities, a greater facility in the use of the means, a more
eager searching for proper expedients, and a higher certainty in the
securing of the returns, of mutual exchanges among men. There have
been indeed, and there still are, vast obstacles lying across the
pathway of this Progress in the unawakened desires and reluctant
industry and short-sighted selfishness of individuals, as well as in
the ignorant prejudices and mistaken legislation of nations; but all
the while Christianity has been indirectly tugging away at these
obstacles, and Civilization has been able to rejoice over the partial
or complete removal of some of them; while also Christianity directly
works out in human character those chief qualities, on which the
highest success of commercial intercourse among men will always
depend, namely, Foresight, Diligence, Integrity, and mutual Trust; so
that, what we call Civilization is to a large extent only the result
of a better development of these human qualities in domestic and
foreign commerce.

Contrary to a common conception in the premises, the sacred books of
both Jews and Christians display no bias at all against buying and
selling, but rather extol such action as praiseworthy, and also those
qualities of mind and habits of life that lead up to it and tend too
to increase its amount, and they constantly illustrate by means of
language derived from traffic the higher truths and more spiritual
life, which are the main object of these inspired writers. It is
indeed true that the chosen people of God were forbidden to take Usury
of each other, though they were permitted to take it freely of
strangers, and that they were forbidden to buy horses and other
products out of Egypt, for fear they would be religiously corrupted by
such commercial intercourse with idolaters; but there is nothing of
this sort in the law of Moses that cannot be easily explained from the
grand purpose to found an agricultural commonwealth for religious
ends, in which commonwealth no family could permanently alienate its
land, and in which it was a great object to preserve the independence
and equality of the tribes and families. Throughout the Old Testament
there is no word or precept that implies that trade in itself is not
helpful and wholesome; there were sharp and effective provisions for
the recovery of debts; there were any number of exhortations to
diligence in business, such as, "_In the morning sow thy seed, and at
evening withhold not thy hand_"; King Solomon himself made a gigantic
exchange in preparation for the temple with King Hiram of Tyre, by
which the cedars of Lebanon were to be paid for by the grain and oil
of the agricultural kingdom; chapter xxvii of the prophet Ezekiel is a
graphic description of the commerce of the ancient world as it
centered in the market of Tyre, a description carried out into detail
both as to the nations that frequented that market and as to the
products that were exchanged in it,--"_silver, iron, tin, lead,
persons of men, vessels of brass, horses, horsemen, mules, horns of
ivory, ebony-wood, carbuncles, purple work, fine linen, corals,
rubies, wheat, pastry, syrup, oil, balm, wine of Helbon, white wool,
thread, wrought iron, cassia, sweet reed, cloth, lambs, rams, goats,
precious spices, precious stones, splendid apparel, mantles of blue,
embroidered work, chests of damask, and gold_"; and chapter xxxi of
Proverbs describes the model housewife in terms like these,--

    "_The heart of her husband trusteth in her,
     And he is in no want of gain.
     She seeketh wool and flax,
     And worketh willingly with her hands.
     She is like the merchants' ships;
     She bringeth her food from afar.
     She riseth while it is yet night,
     And giveth food to her family,
     And a task to her maidens.
     She layeth a plan for a field and buyeth it;
     With the fruit of her hands she planteth a vineyard.
     She perceiveth how pleasant is her gain,
     And her lamp is not extinguished in the night.
     She putteth forth her hands to the distaff,
     And her hands take hold of the spindle.
     She maketh for herself coverlets;
     Her clothing is of fine linen and purple.
     She maketh linen garments and selleth them,
     And delivereth girdles to the merchants._"

Still more explicit and instructive are the words and spirit of the
New Testament. There cannot be the least doubt that the whole
influence of Christianity is favorable to the freest commercial
exchanges at home and abroad, because these depend largely on mutual
confidence between man and man, of which confidence Christianity is
the greatest promoter. It may be conceded at once that our Lord
"_overthrew the tables of the money-changers and the seats of them
that sold doves_" within the sacred precincts of the temple, but
this, not because it is wrong to change money or sell doves, but
because that was not the _place_ for such merchandising; so He himself
explained his own action in the sequel; provincial worshippers coming
up to Jerusalem must needs have their coins changed into the money of
the Capital, and must needs buy somewhere the animal victims for
sacrifice; but the whip of small cords had significance only as to the
_place_, and not at all as to the _propriety_, of such trading.

One of our Lord's parables, the parable of the Talents, sets forth in
several striking lights the privilege and duty and reward of diligent
trading. "_Then he that had received the five talents went and traded
with the same, and made them other five talents._" And when this
servant came to the reckoning, and brought as the result of his free
and busy traffic "_five talents more_," the prompt and hearty approval
of his lord--"well done, thou good and faithful servant"--becomes the
testimony of the New Testament to the merit and the profit and the
benefit of a vigorous buying and selling. For this servant could not
have been authoritatively pronounced good and faithful if the results
of his action commended had been in any way prejudicial to others. The
truth is, as we shall abundantly see by and by with the reasons of it,
that any man who buys and sells under the free and natural conditions
of trade, benefits the man he trades with just as much as he benefits
himself. But the parable has a still stronger word in favor of
exchanges. There was another servant also entrusted with capital by
his lord at the same time, when the latter was about to travel "_into
a far country_." We are expressly told that distribution was made "_to
every man according to his several ability_," and thus this servant
was only entrusted with a single talent, the size of the capital given
to him being in just proportion to the size of the man,--the smallest
share falling of course to the smallest man. But he had the same
opportunity as the two others. The world was open to him. Capital was
in demand, if not in those parts then in some other, to which, like
his lord, he might straightway take his journey. But when his time of
reckoning came, and he had nothing to show for the use of his capital,
he upbraided his lord as a hard man for expecting any increase, and
brought out his bare talent wrapped in a napkin, saying, "_I was
afraid, and I went and hid thy talent in the earth_." His wise lord at
once denounced this servant as "_wicked and slothful_," insisted that
his money ought to have been "_put to the exchangers_," and said
finally in a just anger "_cast ye the unprofitable servant into outer

It is moreover in incidental passages of the Scriptures, in which the
methods of business are commended to the searchers after higher
things, that we see their high estimate of those methods and gains.
"_Buy the truth, and sell it not; buy wisdom and understanding_"
(Prov. xxiii, 23). "_Buying up for yourselves opportunities_" (Col.
iv, 5). "_I counsel thee to buy of me gold refined by fire, that thou
mayest be rich; and white garments, that thou mayest be clothed; and
eye-salve to anoint thine eyes, that thou mayest see_" (Rev. iii, 18).
"_But rather let him labor, working with his hands at that which is
good, that he may have to give to him that is in need_" (Eph. iv, 28).
"_But if any one provideth not for his own, and especially for those
of his own house, he hath denied the faith, and is worse than an
unbeliever_" (1 Tim. v, 8).

Now, the universal test and proof of any truth is its harmony with
some other truths. Does an alleged truth fall in with and fill out
well some other demonstrated and accepted proposition, or a number of
such other propositions? If so, then that truth is _proved_. Human
reason can no further go. The mind rests with relish and content in a
new acquisition. To apply this to the case in hand,--if men were
designed of their Maker to buy and sell to their own mutual benefit
and advancement, if mankind have always been buying and selling as
towards that end and with that obvious result, and if the Future
promises to increase and reduplicate the buying and selling of the
Present in every direction without end, and all in the interest of a
broad civilization and a true and lasting progress; and if, in harmony
with these truths, the written revelation of God in every part of it
assumes that buying and selling in its inmost substance and essential
forms be good and righteous and progressive, and suitable in all its
ends and methods to illustrate and enforce ends and methods in the
higher kingdom of spiritual and eternal Life;--then these coördinate
truths will logically and certainly follow, (1) that Trade is natural
and essential and beneficial to mankind; (2) that it constitutes in an
important sense a realm of human thought and action by itself,
separate from the neighboring realm of Giving, and equally from the
hostile realm of Stealing; and (3) that a careful analysis of what
buying and selling in its own peculiar nature is, a thorough
ascertainment and a consequent clear statement of its fundamental
laws, and a faithful exposure of what in individual selfishness and in
subtle or open Legislation makes against these laws, _must be of large
consequence to the welfare of mankind_.

Accordingly, let us now attempt such Analysis and Ascertainment and
Exposure. This is precisely the task that lies before us in this
book--just this, and nothing more. The term, "Political Economy," has
long been and is still an elastic title over the zealous work of many
men in many lands; but in the hands of the present writer during a
life now no longer short, the term has always had a definite meaning,
the work has covered an easily circumscribed field, and so the present
undertaking concerns only Buying and Selling and what is essentially
involved in that. This gives scope and verge enough for the studies of
a life-time. This has the advantage of a complete sphere of its own.
Terms may thus be made as definite as the nature of language will ever
allow; definitions will thus cover things of one kind only; and
generalizations, although they may be delicate and difficult, will
deal with no incongruous and obstinate material.

1. The grandfather of the writer, an illiterate but long-headed
farmer, was able to give good points to his three college-bred sons,
by insisting that they look "_into the natur on't_." What, then, are
the ultimate elements of Buying and Selling? What are the invariable
conditions that precede, accompany, and follow, any and every act of
Trade? Of course we are investigating now and throughout this treatise
the deliberative acts of reasonably intelligent human beings, in one
great department of their common foresight and rational action. We
have consequently nothing to do here with Fraud or Theft or Mania or
Gift. Acts put forth under the impulse of these are direct opposites
of, or at best antagonistic to, acts of Trade. They tend to kill
trade, and therefore they are no part of trade. These, then, and such
as these, aside, we will now analyze a single Act of Exchange at one
time and place,--which will serve in substance for all acts of
exchange in all times and places, and just find out for ourselves what
are the Fundamentals and Essentials of that matter, with which alone
we have to do in this science of Political Economy.

Incidental reference was had a little way back to an Exchange once
made between King Solomon of Jerusalem and King Hiram of Tyre. Let
that be our typical instance. (a) _There were two persons_, Solomon
and Hiram. Those two, and no more, stood face to face, as it were, to
make a commercial bargain. They made it, and it was afterwards
executed. The execution indeed concerned a great many persons on both
sides, and occupied a long period of time; but the bargain itself, the
trade, the exchange, the covenant, concerned only two persons, and
occupied but a moment of time. It made no difference with the bargain
as such, with the binding nature of it, with the terms of it, with the
mutual gains of it, that each person represented a host of others,
subordinates and subjects, who would have to coöperate in the carrying
of it out, because each king had the right to speak for his subjects
as well as for himself, for commercial purposes each was an agent as
well as a monarch, the word of each concluded the consent and the
action of others as well as his own. Nor did it make any, the least,
difference with this exchange or the advantages of it, that each party
to it belonged to, was even the head of, independent and sometimes
hostile Peoples. Commerce is one thing, and nationality a totally
different thing. The present point is, in the words of the old
proverb,--"It takes two to make a bargain." And it takes _only_ two to
make a bargain. When corporations and even nations speak in trade,
they speak, and speak finally, through one accredited agent. We reach,
then, as the first bit of our analysis of Trade, the fact, that there
are always two parties to it, "the party of the first part and the
party of the second part."

(b) _There were two desires_, Solomon's desire for cedar-timbers to
build the temple with, and Hiram's desire for wheat and oil with which
to support the people of his sterile kingdom. "_So Hiram gave Solomon
cedar-trees and fir-trees according to all his desire: and Solomon
gave Hiram twenty thousand measures of wheat for food to his
household, and twenty measures of pure oil._" The desire of each
party was personal and peculiar, known at first only to himself, but
upon occasion became directed towards something in the possession of
the other, and each at length became aware of the desire of the other,
and also of his own ability to satisfy the want of the other. If
Solomon could have satisfied his desire for timber by his own or his
subjects' efforts directly, this trade would never have taken place;
if Hiram or his subjects could have gotten the wheat and oil directly
out of their narrow and sandy strips of sea-coast, this trade would
not have taken place; and so there must be in every case of trade not
only two desires each springing from a separate person, but also each
person must have in his possession something fitted to gratify the
desire of the other person, and each be willing to yield that
something into the possession of the other for the sake of receiving
from him that which will satisfy his own desire, and so both desires
be satisfied indirectly.

Here is the deep and perennial source of exchanges. Men's desires are
so many and various, and so constantly becoming more numerous and
miscellaneous, and so extremely few of his own wants can ever be met
by any one man directly, that the foundation of exchanges, and of a
perpetually increasing volume of exchanges, is laid in the deep places
of human hearts, namely, in Desires ever welling up to the surface and
demanding their satisfaction through an easy and natural interaction
with the ever swelling Desires of other men. Here too is a firm
foundation (a chief foundation) of human Society. Reciprocal wants,
which can only be met through exchanges, draw men together locally and
bind them together socially, in hamlets and towns and cities and
States and Nations, and also knit ties scarcely less strong and
beneficent between the separate and remotest nationalities of the
earth. It is certain that an inland commercial route connected the
East of Asia with the West of Europe centuries before Christ, and that
a traffic was maintained on the frontier of China between the Sina and
the Scythians, in the manner still followed by the Chinese and the
Russians at _Kiachta_. The Sina had an independent position in Western
China as early as the eighth century before Christ, and five centuries
later established their sway under the dynasty of Tsin (whence our
word "China") over the whole of the empire. The prophet Isaiah
exclaims (xlix, 12), "Behold! these shall come from far; and behold!
these from the North and from the West; _and these from the land of
Sinim_." The second bit of our analysis leads to Desires as an
essential and fundamental element in every commercial transaction.

(c) _There were two efforts_, those of the Tyrians as represented by
King Hiram and those of the Israelites as represented by King Solomon.
It was no holiday task that was implied in the proposition of Solomon
to the party of the other part,--"_Send me now cedar-trees, fir-trees,
and algum-trees out of Lebanon; for I know that thy servants are
skilful to cut timber in Lebanon; even to prepare me timber in
abundance, for the house which I am about to build shall be
wonderfully great._" On the other hand, the efforts insolved on the
part of the people of Israel in paying for these timbers, and for
their transportation by sea from Lebanon to Joppa, were equally
gigantic. Solomon's offer in return for the proposed service of the
Tyrian king was in these words,--"_And behold, I will give to thy
servants, the hewers that cut timber, twenty thousand measures of
beaten wheat, and twenty thousand measures of barley, and twenty
thousand baths of wine, and twenty thousand baths of oil._"

The reason why two efforts are always an element in every act of
traffic, however small or however large the transaction may be, is the
obvious reason, that the things rendered in exchange, whether they be
Commodities, Services, or Credits, invariably cost efforts of some
kind to get them ready to sell and to sell them, and no person can
have a just claim to render them in exchange, who has not either put
forth these efforts himself or become proprietor in some way of the
result of such efforts. Efforts accordingly are central in all trade.
Every trade in its inmost nature is and must be either an exchange of
two Efforts directly, as when one of two farmers personally helps his
neighbor in haying for the sake of securing that neighbor's personal
help in his own harvesting, or an exchange of two things each of which
is the result of previous Efforts of somebody, as when a man gives a
silver dollar for a bushel of wheat. The third bit of the present
analysis brings us to Efforts, perhaps the most important factor in
the whole list.

(d) _There were also two reciprocal estimates_, the estimate of King
Hiram of all the efforts requisite to cut and hew and float the
timber, as compared with the aggregate of efforts needed to obtain the
necessary wheat and barley and wine and oil in any other possible way;
and the estimate of King Solomon of all the labors required to grow
and market these agricultural products, as compared with what would
otherwise be involved in getting the much-wished-for timbers. Such
estimates invariably precede every rational exchange of products. It
is not in human nature to render a greater effort or the result of it,
when a lesser effort or the result of it will as well procure the
satisfaction of a desire. Efforts are naturally irksome. No more of
them will ever be put forth than is necessary to meet the want that
calls them forth. No man in his senses will ever put more labor on
anything, with which to buy something else, than is necessary to get
that something else by direct effort or through some other exchange.
Here we are on ground as solid as the very substance of truth can make
it. The Jews of Solomon's time were too shrewd and sparing of irksome
labor to devote themselves for years to the toils of the field and of
the vat to get by traffic the materials for their temple, if they
could have gotten those materials by a less expenditure of toil in any
other way. Those Phoenicians of Tyre and Sidon, the born merchants of
the East, the founders of commercial Carthage in the West, if they
could have extorted from the reluctant sands of their coast the
cereals and the vines and olives requisite for their own support with
only so much of exertion as was needed to get that to market with
which to buy them, would never have taken the indirect in preference
to the direct method. They took the indirect, because it was the
easier, and therefore the better.

It may, accordingly, be laid down as a maxim, that men never buy and
sell to satisfy their wants but when that is the easiest and best way
to satisfy them. It saves effort. It saves time. It saves trouble. It
divides labor. It induces skill. It propels progress. But in order to
determine which may be the easier way, requires constant _estimates_
on the part of each party to a possible trade. Shall I shave myself or
go to the barber? Before I decide, I estimate the direct effort in the
light of the effort to get that with which to pay the barber for his
service. If I trade with him, it is because I deem it easier, cheaper
in effort, more convenient in time. Trade means comparisons in every
case--comparisons by both parties--and in the more recondite and
complicated cases, elaborate comparisons and often comprehensive
calculations involving future time.

Now these estimates inseparable from exchanges, and these
calculations which are a factor in all the far-reaching exchanges, are
mental activities. They quicken and strengthen the _minds_ of men.
Trade is usually, if not always, the initial step in the mental
development of individuals and nations. Desires stir early in the
minds of all children; efforts more or less earnest are the speedy
outcome of natural desires; direct efforts, however, to satisfy these
soon reach their limits; it is now but a step over to simple
exchanges, by which the desires are met indirectly; exchanges once
commenced tend to multiply in all directions, and the estimates that
must precede and accompany these are mental states,--the more of them,
the greater the mental development, the higher the education;
consequently, commerce domestic and foreign is a grand agency in
civilization, a constant and broadening impulse towards progress in
all its forms; and Christianity, as we have already seen, is friendly
to commerce in its every breath. Those, therefore, who talk and preach
about Trade as tending to _materialism_, do not know what they are
talking about. Because Commodities are material things, and because a
portion of the trade of the world concerns itself with commodities,
these shallow thinkers jump to the conclusion that trade is
materialistic. _It is just the reverse._ Let us hear no more from
Professor Pulpit or Platform that buying and selling is antagonistic
to men's higher intellectual and spiritual culture, because the
present careful analysis has brought us indubitably to mental
Estimates and prolonged comparisons, which are activities of Mind, as
the fourth and a leading factor among the radical elements of Sale.

(e) _There were two renderings_, King Hiram's rendering at Joppa the
desired cedars from the mountains of Lebanon, and King Solomon's
rendering in return at Tyre the food products grown in his fertile
country. These renderings were visible to all men. Unlike the desires
and the estimates, which were subjective and invisible; the actual
exchange of the products, the culmination of the previous efforts, the
stipulated renderings by and to each party, were outward and
objective--"known and read of all men." This is the reason why public
attention is always strongly drawn to this particular link of the
chain of events which we are now unlocking and taking apart, while
other links of the series, that are just as essential, almost wholly
escape observation. The ports and the markets are apt to be noisy and
conspicuous, when the desires and the estimates and the satisfactions,
without which in their place there would be no market-places, work in
silence, and leave no records except the indirect one of the
renderings themselves.

It is of great moment to note here, that each of the two parties to an
exchange always has an advantage over the other, either absolute or
relative, in the rendering his own product, whatever it may be, as
compared with his present ability to get directly or through any other
exchange the product he receives in return. Take the example in hand.
Cedars and sandal-wood were natural to Mount Lebanon; there were no
other workmen in those regions of country that could "_skill to hew
timber like unto the Sidonians_"; the Mediterranean afforded a level
and free and easy highway from its northern coast to the Judean
seaport at Joppa; and all these natural and acquired facilities put
King Hiram into a posture of advantage in the rendering of timber, not
only over the Jews, but also over all the other peoples in the basin
of the midland sea. Still this advantage, great as it was, could only
be made a real and palpable gain to themselves, the proprietors of the
timber, by means of some exchange with somebody else, by which some
wants of their own greater than their present want of timber, could
be supplied by means of the timber. They had more of that commodity,
and more skill to fashion and transport it, than their present and
immediately prospective needs could make use of; and the only way in
which they could practically avail themselves of their advantages,
was, to sell their surplus timber and buy with it something that they
needed more. Otherwise their very advantage perished with them. God
has scattered such a diversity of blessings and capacities and
opportunities over the earth on purpose, that, through traffic, on
which his special benediction rests, the good of each part and people
may become the portion of other parts and peoples.

So, on the other hand, of the southern neighbors of the Tyrians. There
the earth brought forth by handfuls. There was an abundance of corn in
the land, even to the tops of the mountains. Its fruit did indeed
shake like Lebanon. But there were no cedars there, no fir-trees, no
sandal-woods. How short-sighted, then, and futile, would it have been
for the Jews, to try to hang on in their own behoof to all the natural
advantages that God had given to them, and to say, We will not part
with the direct results of any of them, we will build treasure-cities
as they did in Egypt, we will store up all the fruits of these fat
years against the possible coming of some famine years in the time to
come. That is anything in ordinary times but the divine plan. It is
anything but the letter and spirit of the divine injunction: "_Him
that keepeth back corn the people curse; but blessing shall be upon
the head of him that selleth it_" (Prov. xii, 26). Had they talked and
acted thus, no temple could then have been built in Jerusalem, and the
people of that generation would have lost the moral and religious
impulse and uplifting of their service and sacrifice. Their grain
would have become worthless from its very abundance, and would have
decayed on their hands. They would have missed a great gain for
themselves, and would have snatched away from their neighbors to the
northward a providential opportunity for an equal gain.

The general truth must not be lost sight of here, even in passing,
that all trade whatsoever is based upon a Diversity of relative
Advantage as between the parties exchanging products. If, for example,
the Hills of Judah and the Mountains of Israel had been covered with
timber suitable for building the temple, and the coasts of Tyre and
Sidon and the foot-hills of Lebanon had been fertile stretches of
arable land, this particular trade would never have been thought of
and could never have been realized. There would have been no gain in
it for either party, and unless there be a valid gain for both parties
at least in prospect, no trade will ever spring into being, because
there would be no motive, no impulse, no reason, in it. Unless the
Jews could get the timber easier by raising grain to pay for it, and
the Tyrians get the oil and wheat and barley easier by cutting and
floating timber to pay for them,--no trade; but the greater easiness
to each actually came about, because each had an Advantage both
natural and acquired over the other in his own rendering, and the
mutual gain of the trade was wholly owing to that circumstance. So far
as that matter went, the Tyrians had no cause to envy their neighbors
the superior soil of the south, for they reaped indirectly but
effectively a part of those harvests for themselves; and the Jews had
no reason to be jealous of their northern neighbors on account of the
noble forests crowning their mountains, because through trade they
secured easily to themselves a share of that vast natural advantage.
Diversity of Advantage both natural and acquired is the sole ground of
Trade both domestic and foreign; and consequently by means of trade
the peculiar advantages of each are fully shared in by all.

It is perhaps less obvious but surely equally true, that the greater
the relative diversity of advantage as between two exchangers, the
more profitable does the exchange become to each. If the Vale of
Sharon had been twice as fertile as it was, and the cedars of Lebanon
twice as large and lofty as they were, the easier and better would
Israel have gotten its timber, and the more secure and abundant would
have become the food of Tyre and Sidon; and, therefore, the more
unreasonable, or rather the more absurd and wicked, would have been
any envy or jealousy of either of the superior advantages at any point
or points of the other. So universally. By the divine Purpose as
expressed in the constitution of Nature, in the structure of Man, and
in the laws of Society, Trade in good measure and degree imparts to
each the bounties of all, arms each with the power of all, and impels
each by the progress of all.

One other important matter is closely connected with these two
Renderings, which is the fifth bit in succession of our present
analysis, namely this, that traffic renderings always make necessary
new and better routes of travel and transportation. It is mainly for
this reason, that persons and things have to be carried to distances
less or greater in order to consummate these Renderings of home and
foreign commerce, that roads by land and routes by sea have been
sought for and found, made and made shorter, improved as to method and
facilitated as to force, from the dawn of History until the present
hour. It was to get the goods of India, and so find a market for the
goods of Europe, that the earliest land routes between the two were
tried and maintained. The ground-thought of Columbus, meditated on for
years, was to discover a new commercial way to India; Magellan with
the same intent sailed westward through the Straits that wear his
name, and so circumnavigated the globe; repeated searches mainly with
the mercantile view, never long intermitted, have attempted ever since
the North-West or the North-East passage to India; Vasco da Gama in
1497 boldly accomplished the East passage, and thus changed for all
the Continents the channels of trade; the West now trades with all the
East through the Suez Canal, dug for that express purpose; and the
words, "Panama" and "Nicaragua" are upon everybody's lips, simply
because through Central America is the shortest and safest route for
men and goods to and from all the Oceans.

Quite recently Dr. W. Heyd has announced through the Berlin
Geographical Society the discovery of two commercial routes from India
to the West not hitherto described. Trebizond (on the Black Sea) and
Tana (at the mouth of the Don) were the chief distributing points.
Through Tana passed westward the pepper and ginger and nutmeg and
cloves; and the price of spices is said to have doubled in Italy, when
the Italians were for a time shut out of Tana in 1343. The chief
overland route from India to Tana ran through Cabul to Khiva by the
Oxus, and then by land through Astrakhan. The other route to Trebizond
passed through Persia, and came out by Tabriz to the Black Sea. It may
perhaps be pardoned, if a far homelier, more modern, and even local,
illustration be given of the present point, that trade makes roads.
The western wall of Williamstown is the mountain range of the
Taconics, whose general height is about 2000 feet above tide water at
Albany. Within the limits of this town are four natural depressions or
passes over this range, which is also the watershed between the Hoosac
River on the east and the Little Hoosac on the west. About the
beginning of this century, the population was quite sparse in both
these valleys, while the impulse to travel and traffic over the
barrier was sufficient to build (wholly at local expense) wagon roads
over each of the four passes, one of which soon after became a
turnpike between Northampton and Albany; and another was built mainly
to accommodate the medical practice on the west side of the mountain
of Dr. Samuel Porter--a Williamstown surgeon of local eminence. So
soon as railroads were constructed to run down these parallel valleys
(railroads themselves are perhaps the best illustration of the point
in hand), the mountain roads were relatively deserted, and only two of
them are now open to transient travel.[2]

Lastly, (f) _There were two satisfactions_, the satisfaction of the
southern king in actually obtaining the excellent timbers, without
which the cherished national temple could not have gone up; and the
satisfaction by the northern king in the easy receiving of the
abundant food products for the daily maintenance of his court and
kingdom. The simple story of these commercial transactions between Jew
and Tyrian indicates clearly enough, what might have been anticipated
and what always happens in such circumstances, not only a mutual
satisfaction at the completion of each specific exchange, but also a
general relation of contentment and peace in consequence of
advantageous commercial intercourse. "_And Hiram, king of Tyre, sent
his servants unto Solomon; for he had heard, that they had anointed
him king in the room of his father; because Hiram was ever a lover of
David. And it came to pass, when Hiram heard the words of Solomon,
that he rejoiced greatly, and said, Blessed be the Lord this day,
which hath given unto David a wise son over this great people; and
there was peace between Hiram and Solomon; and they two made a league

It is plain to reason and to all experience, that mutual Satisfactions
are the ultimate thing in exchanges. Our present analysis can go no
further, for the reason, that we have now reached in Satisfactions the
end, for the sake of which all the previous processes have been gone
through with. Persons do not engage in buying and selling for the mere
pleasure of it, but always for the sake of some satisfactions
derivable to both parties from the issue of it. Ordinary
self-inspection and foresight and industry being presupposed, the
issue of exchanges is just what was expected by the two persons, the
satisfaction of each follows as a matter of course, and stimulates to
new exchanges in ever-widening circles.

Since the desires of all men, which the efforts of other men can
satisfy through exchange, are indefinite in number and unlimited in
degree, there is no end of human Satisfactions to be reached along
this road of reciprocal trade; and since the very object of all trade
and the actual result of all trade (the exceptions are infinitesimal)
is to multiply and reduplicate continually mutual Satisfactions among
men; we can see right here what a loss and wrong it is, what a wanton
destruction of possible human happiness it is, what a bar to progress
among men in comforts and powers it is, for nations to impede and to
prohibit commerce by legislation! As we shall see more fully in a
later chapter, Governments can have no moral or constitutional right
to restrict the trade of their people, except in the sole interest of
revenue or health or morals.

Such is the constitution of the universe, that a really good thing is
usually cognate with and inseparable from a good many other good
things. Buying and selling, as we have now clearly seen, springs right
out of the nature of men in the circumstances in which they are
providentially placed on the earth, and ends in the satisfaction of
innumerable wants common to all men. This makes trade a thoroughly
good thing in itself; and consequently it is intimately associated
with many other good things. The scriptural instance, that we have
been examining, gives a neat illustration of this: "_and there was
peace between Hiram and Solomon; and they two made a league
together_." The mutually profitable exchange of commodities led to a
feeling of amity between the two neighboring kings; the feeling of
amity led to a treaty of Peace between the two adjacent nations; and
the "_league_" so ratified not only kept out war from their borders,
but also permitted the unhindered continuance of profitable exchanges
between them.

So it is always. Peace waits on Commerce. Good-will among the nations
is strengthened by the ties of interest and profit among their
citizens. The mercantile classes as such are always averse to war,
because war is the natural enemy of exchanges. Thus traffic leads to
peace and tends to maintain it, and peace preludes increased
prosperity, and commercial prosperity under freedom is wholly friendly
to mental and moral progress, and Christianity walks before and all
along this line of individual and national blessing. The commercial
treaty of 1860 between France and England has tended powerfully,
perhaps more powerfully than any other single cause, to keep those
formerly inter-belligerent nationalities in peace and amity ever

We will now put into a little table the final results of the present
analysis of Buying and Selling. The ultimate elements seem to be

    1. _Two Persons._         4. _Two Estimates._
    2. _Two Desires._         5. _Two Renderings._
    3. _Two Efforts._         6. _Two Satisfactions._

The thoughtful reader will note in this table the fact, that three of
these elements are objective, that is, outward and visible; and the
other three are subjective, that is, inward and invisible. Persons,
Efforts, Renderings, are seen and known of all men; Desires,
Estimates, Satisfactions, can be directly known only to the persons
who feel and make them. This is a peculiarity of Political Economy,
that has been far too little observed even when it has been observed
at all. Objective and subjective elements in it meet and mingle in
each transaction. Indeed, they alternate, as is shown in the table
above: first a Seen, and then an Unseen, Element throughout. It is
this commingling of outward and inward, visible and invisible, that
makes all the difficulty and gives all the fascination in Political
Economy. Whatever carries us into the steady though billowy play of
universal human nature is at once difficult and fascinating.

Quite contrary, however, to a common impression, the _certainty_ both
of action and prediction in all the other Sciences as well as in
Economics lies rather in the unseen elements than in those that are
seen. Take for an example the calculation of an eclipse: it is not so
much from what is visible in the heavens and on the earth that the
astronomer infers and predicts to the instant the shadow of one orb
thrown upon another, as it is from the wholly hidden but ever-enduring
forces of gravitation constantly relating these orbs one to the other.
So it is of the Sciences generally; progress is made in them and
certainties are reached in connection with them, "_while we look not
at the things which are seen, but at the things which are not seen;
for the things which are seen are but for a time; but the things which
are not seen are everlasting_." Invisible Desires and Satisfactions
felt in connection with Exchanges are among the most constant elements
of human nature; they, as it were, give birth to the relatively more
transient (though visible) data of Efforts and Renderings; while
inferences and conclusions and even predictions may be securely drawn
from all of these, giving a solid ground for Political Economy to
stand on,--almost as solid as the ground of the chief Physical

2. We will next examine the inmost nature and the outward
manifestations of _Value_. "Value" is by much the most important word
in the Science of Economics; and we must, therefore, comprehend it
thoroughly, root and branch. Nearly all the writers in English have
used in place of this the word "Wealth" and those in other languages
some equivalent and equally concrete word; but the present writer
fully satisfied himself some twenty-five years ago, that it is
impossible to use that word to any advantage in economical
discussions, owing to its inherent ambiguities and concrete
associations in the minds of men. He utterly discarded the word at
that time, and has found not the least occasion to pick it up again
since, and believes now that his substitution of the word "Value" in
place of it will ultimately be seen to have been his greatest
contribution to that Science, to which he devoted his life.

Even professed and excellent logicians, like John Stuart Mill, found
the word "Wealth" an insoluble element in the science of Economics; he
commenced his great work by writing, that it was not really needful to
_define_ the word which nevertheless he laid at the foundation of his
discussions, that "every one has a notion sufficiently correct for
common purposes of what is meant by Wealth"; he goes on, however, to
give at least a half-dozen definitions of the word, no two of which
are at all consistent with each other, only one of which embodies a
clear and scientific conception, and even to this one he himself does
by no means coherently adhere throughout his treatise. No wonder, that
this great man died thoroughly dissatisfied with his own work in
Economics, and wishing for longer life in which to recast and improve
it! No wonder, too, that the crowd of writers both English and
American, many of them able and thoughtful and otherwise logical, who
have been content to continue to use this irreducible and utterly
unscientific word at the bottom, have made a mess of it!

In dropping the word, "Wealth," accordingly, Political Economy has
dropped a clog, and its movements are now relatively free and certain;
and it is all the more incumbent on the Science for that very reason
to define the good word that it substitutes for a bad one with
absolute clearness, to explain it through and through until it become
quite transparent, and then always to use it in its defined and
economical sense, and none other, even though the same word be
properly enough used in other senses in common speech and in other
than scientific relations. Exactly that is what we are now going to
attempt to do in a simple and consecutive order.

(a) Perhaps it will help us to find out precisely what Value _is_ by
seeing as clearly as possible at the outset what it is _not_. It is
not _easy_, and never can be made so, to teach and to learn distinctly
what Value is in its ultimate nature and constant changes. Here is the
one unavoidable difficulty that lies at the very threshold of
Political Economy; and this difficulty, which is not found as in the
case of "Wealth" in the meaning of the word but in the complex
character of that which the word describes, once overmastered, and one
walks thereafter with ease and pleasure throughout the economic
domain. It would be wrong and cruel to deny that just here is one hard
place in the road for teacher and pupils to get over. It arises wholly
from the nature of the subject, as we shall soon see, and not at all
from the insufficiency of the word, Value. We have already seen fully,
that Buying and Selling in each and every transaction is complex and
relative, involving twelve elements every time; that Desires and
Estimates and Renderings are especially relative,--each party to a
trade desires something in possession of the other, estimates that
something relatively to something in his own possession, and finally
renders to the other his own something for the sake of receiving the
other's something. Now everybody is used to all this and practically
understands it perfectly, but it is complicated and reciprocal
nevertheless, and Value, which is the single birth of the two
Renderings, though perfectly intelligible to him that takes pains, is
not a thing to be seized once for all at a passing trot.

Value, then, is _not_ a quality of single things, belonging to them as
if by nature, as hardness is a quality of a rock or gravity is an
attribute of gold; because all physical qualities in physical things,
all that which makes or helps to make anything such as it is, may
be learned by a study of the things themselves by themselves; a
careful examination and analysis of the mechanical and chemical
properties of any physical thing will discover all its distinguishing
characteristics, all that makes it that particular thing in
distinction from all other things; but it is plain already, that the
_Value_ of anything (if it have value) cannot be found out by studying
that particular thing by itself alone; the questioning of the senses
however minute, the test of the laboratory however delicate, can never
determine how much anything is _worth_, because that always implies a
comparison between _two_ things, or more strictly a comparison between
two Renderings in exchange. Value is not an attribute of single
things: not even if the things be physical and tangible.

Now two other kinds of things are bought and sold besides physical and
tangible things, namely, personal services and commercial credits; and
it is very plain, that Value cannot be a quality of any one personal
service rendered, as looked at by itself, such as the service of a
physician towards a fever patient, because the service in and of
itself might be the same whether rendered to his own child or the
child of one of his patrons, while in the former case there would be
no value, and in the latter there would be; and so too the very name
"commercial credit" implies an exchange of two Renderings, out of
which Value always emerges, and not at all an attribute of one credit
considered by itself. Value is no more a characteristic of single
intangible services and claims than it is of single intangible
commodities rendered.

And what makes all this still more certain is, that Value even in
physical things, and perhaps still more in services and claims, is all
the while changing under demand and supply, now rising and then
falling, while the physical properties of things, that make them what
they are, are fixed and unchangeable. A gold eagle, for example, has
certain primary qualities as gold, without which it would not be gold;
it is hard and heavy and colored: gold is gold the world over and in
all ages: Value is not one of these primary qualities, nor even a
secondary quality, nor any quality at all, of gold as such; because
circumstances are readily conceived and have often occurred, in which
gold has no Value even in exchange; for instance, among a crew
abandoned at sea, a bag of gold belonging to one of the sailors might
not buy even a biscuit belonging to another; all the natural qualities
of the gold are present,--it is still yellow and weighty and
solid,--but its Value has escaped altogether. Gold is always 19 times
heavier than water: specific gravity is a _quality_ and is constant in
all physical things: Value is not a quality in this sense at all,
inasmuch as it is something that is constantly changing, rising or
falling, and not infrequently disappearing altogether, leaving no

Ignorance of this vastly important truth has pecuniarily ruined
thousands upon thousands of the people of this country during the last
20 years. They have gone into the mining of metals, gold and silver
and copper, sometimes as individuals and more often as companies
gathering in the driblets of investors, under the notion that if they
could only get these metals out of the ground their Value would be
just as secure and fixed as their physical qualities. They found out
their mistake in bitterness of spirit. For example, the Value of an
ounce of silver has gone down and down and down as the quantity of
silver excavated has increased under zealous digging, in accordance
with the universal and pitiless law of Supply and Demand. So of
copper. And both these great monetary interests went to Congress and
secured the passage of laws designed to lift artificially the Values
that were sinking naturally under increased Supply, the silver men by
a law requiring the United States to buy and mint at least $2,000,000
in silver each month whether the silver dollars were needed or not,
and the copper men by a law imposing a tariff-tax on foreign copper
that has actually lifted the price two cents a pound on the average of
the whole 20 years above the average price of copper in the markets of
the world.

Take another illustration of disappearing Values, this time in lands,
long supposed to be the most stable in value of all human possessions.
Whole tiers of farms in the writer's native town in New Hampshire, and
for that matter all over New England as well, that in his boyhood
supported large families, and when sold usually brought a fair price,
are now abandoned of their owners as wholly or comparatively
worthless, and are allowed to grow up into forest again, without a
sign of present human habitation upon them. Value is something that
needs to be studied carefully, if it is to be fully understood.

(b) Perhaps the origin of the word, "Value," will throw some light
upon its nature and changes. Etymology can never be safely despised in
scientific discussions, although words are perpetually changing their
meaning in the mouths of men. No science can afford to build upon the
transient meaning of a word; and yet it is clearly possible so to use
words as to reach and describe ultimate and unchanging facts in
science; and some knowledge of the original meaning of words is always
a help in getting at those definitions and analyses of facts that are
permanent in science. Let us hold fast to the cheering truth
exemplified on all sides of every science, that a just analysis and
exact description of ultimate facts in any department of knowledge are
for all time, in spite of the transient meaning of current words.

The present word is derived from the Latin VALERE, _to pass for, to be
worth_. There is a strong hint of a _comparison_ in the original
meaning of the word, and the current use of it both in Latin and
English develops the hint into a certainty. In common language, when
the Value of anything is asked for, the answer always comes in the
terms of something else. If the question be, How much is it worth? the
answer is, So many dollars or cents. Now the cents or dollars are very
different things from those whose value is thus inquired after; and so
we see again from another point of view that Value is a relative
matter, since it clearly implies a comparison between two distinct
things; and, if so, it is clearly enough not a quality of any one
thing, and of course it would be useless to try to ascertain the Value
of anything by a study of that thing alone. Etymology thus easily
brings us up to our present vital question, and will assist us to
solve it completely.

(c) _What is Value?_ Plainly it is the result of a comparison
instituted between two things, using the word, "things," here in its
broadest sense. But who institutes the comparison? And who is
competent to announce the result of it in Value? A comparison is
required in order to ascertain the length of a stick of timber in feet
and inches, and a carpenter's square is the instrument by which the
comparison is made, and it makes no difference in the result whose the
square is or whose the stick of timber is, since the square and the
stick have in common the physical quality of length, and a simple
comparison of square with stick determines the length of the latter,
and one man in this case may determine the result by himself alone,
and it is not needful that he be the _owner_ of either of the things

But it is a different kind of comparison from this that issues in
Value. Let us suppose an exchange of a bushel of wheat for a mason's
trowel: there is no common physical quality, as length, between the
wheat and the trowel; and it is evident, that no _one_ man can measure
in any form one of these two commodities by means of the other. It is
a peculiar kind of comparison that is involved in any and every trade;
and the first peculiarity of it is, as we have already seen in another
connection, that it always requires "two persons" to make it; and each
of the two persons must always be the virtual _owner_ of one of the
two things exchanged. A thief may indeed go through the motions of
selling a stolen horse, but as he is not the owner of the horse there
can be no sale, and the actual owner may take his horse wherever he
finds it even in the hands of an innocent third party. In other words,
there must ever be "two efforts" also, two legitimate efforts giving a
valid claim of ownership to each of the two parties in the exchange.

And there is a second distinctive peculiarity in that comparison that
ends in Value, namely, the two things to be exchanged are not compared
directly with each other at all, as square and stick are compared,
but in the light of the "two desires" with which we are already
familiar, and in that of the "two estimates" resulting therefrom. The
owner of the wheat desires a trowel, and the owner of the trowel
desires a bushel of wheat; the former estimates the effort it has
already cost him to procure the wheat in a sort of comparison with the
effort that it would otherwise cost him to procure the trowel, and he
does not trade unless the trowel seem more and better to him than does
the wheat; the latter estimates the effort it has cost him to procure
the trowel in a sort of comparison with the effort it would cost him
to procure otherwise the wheat that he wants, and he does not trade
unless the wheat then and there seem more desirable than the trowel,
which he already has; and these two relative estimates of the two
owners must _coincide_, that is, the owner of the wheat must think
more of the trowel than of the wheat, and the owner of the trowel must
think more of the wheat than of the trowel, before these two parties
can ever trade. So of all traffic whatsoever.

Now the third and last distinctive peculiarity of that kind of
comparison out of which Value emerges is this,--an _action_ is
necessary in order to complete the comparison. Desires and estimates
may have been never so busy, but no Value can ever be born until an
outward action takes place in the "two renderings" of our former
analysis. Then first we come out upon plain and solid ground. We leave
the play of the subjective elements, which yet are essential in the
premises, and touch firmly objective realities. _The trowel-maker
passes over his tool in the sight of men to the wheat-grower in firm
possession and ownership, and takes in return for it from him the
grain, which the latter passes over to the former for the sake of
receiving the trowel._ The two "satisfactions" follow as a matter of
course, and that whole transaction as a commercial exchange and as
the sole subject of Political Economy is ended.

_But where is the "Value," of which we have been in search?_ The
answer is easy and certain and unevadible. _The Value is in the
Renderings, and nowhere else._ The value of the trowel is the wheat,
that is actually given in exchange for it; and the value of the wheat
is equally the trowel, for the sake of getting which the wheat was
rendered. What was the Value of King Hiram's cedar-timbers? The oil
and wheat actually returned in pay for them. What was the Value of the
oil and wheat sent northward by King Solomon? The timbers rendered in
direct exchange for the same. This is not merely the only possible
answer to the question, _What is Value?_ but it is also a perfectly
complete and satisfactory answer. Common language here corresponds
exactly with scientific language. "How much did the horse cost?" "One
hundred dollars." The dollars have nothing whatever in common with the
horse, except that they express his Value at the time; the horse has
nothing in common with the dollars, except that it expresses the Value
of the dollars at the time. It is just as exact to say, it means
precisely the same thing to say, the dollars are worth the horse, as
to say, the horse is worth the dollars.

In general terms, the Value of anything is something else received in
return for it, when each owner renders the one _for the sake of_
getting the other. This is the whole of it, so far as any specific
valuable thing is concerned. We shall indeed need after a little, and
shall have no trouble in finding, an abstract and universal definition
of "_Value_," as an abstract and scientific term perfectly
circumscribing the field of Economics. Here and now we are dealing
with the simpler concrete question, What is the value of any specific
valuable thing? The unvarying answer is, Some other specific valuable
thing already exchanged for the first! There may be expected value,
estimated value, but actual value there is none, until a real exchange
has settled how much the value is. The value of anything is something
else already exchanged for it. Value is not simply a relation
subsisting between two things, the result of a careful comparison
between them, but rather an actual fact established in connection with
them. The universal formula of Value is _quid pro quo_, in which
formula _quid_ stands for one of the valuables and _quo_ for the
other, and _pro_ unfolds the motive of each owner for the reciprocal
receiving and rendering.

Here a caution is needful. Because nobody can tell what the value of
anything is until something else has been put over against it in order
to get it and actually received therefor, and because the only
possible way to express the value of either is in the terms of the
other,--the trowel is worth the wheat and the wheat is worth the
trowel,--one must not therefore jump to the conclusion that the value
of either is settled for all time or even for any future time. It is
only settled for _this_ time. In Economics as in Christianity, Now is
the accepted time. There is nothing fixed in Values, and never can be
from the nature of the case, because Desires are personal to
individuals, and Efforts fluctuate with times and persons, and
Estimates that wait on these vary from necessity, and the Renderings
of to-day may not be the chosen renderings of other persons in the
same articles to-morrow. Value is not a quality at all, still less is
it a permanent quality, of anything; it is a relation established
between two things when these are in the hands of two given persons;
but now when these are in the hands of two different persons, whose
views are pretty sure to differ from the former, and a new relation is
sought to be established between these in the old way of Estimates,
is it strange that a new balance is struck, and Value is expressed in
quite different terms?

One of the chief charms of Political Economy is the open secret, that
it deals not with rigidities and inflexible qualities and mathematical
quantities and the unchanging laws of matter, but with the billowy
play of desires and estimates and purposes and satisfactions, all of
which are mental states, and all of which are subject in the general
to ascertainable laws, though laws of a quite different kind from
those of Mechanics. Values come and they go. Within certain limits and
under certain conditions they may be anticipated and even predicted,
but never with the precision of an eclipse or the result of a known
chemical combination. There is a useful and fascinating Science of
Value, as we shall see indubitably by and by in the present chapter;
but it is a science that deals primarily with _persons_ and only
secondarily with _things_, with mind and not with matter, with the
general undulations of the sea and not with the crests of the waves.
And all this is so, because Values are relative, because the
announcements in the market-place to-day may stand listed differently
to-morrow and very differently next year, and because old values may
disappear altogether and many new ones come in, all in accordance with
the incessant changes in the wants and labors and fashions and
projects of men.

We are now in a good place to see once for all the sharp distinction
there is between Utility and Value. These two are often confounded to
the deep detriment of our Science; and no clear thinking is possible
in Economics without drawing this line sharp, and then holding it
fast; for the hazard of this confusion is all the greater, because
Utility is always connected with Value, although it is a totally
different thing from Value. We will see. Utility is the simple
capacity of anything to gratify the desire of anybody. This is at
once the etymological as well as the popular signification of the
word. It is derived from the Latin _utor_, to make use of, a word that
is often conjoined in Latin with _fruor_, to enjoy; so much so, that
the two verbs are often put together, _utor et fruor_, and also often
without the conjunctive, _utor fruor_. Utility, then, is a quality of
innumerable things. Anything that is _good for_ anything, anything
_useful_, anything that has the power to still _the desires_ of any
person, has Utility. But multitudes of things that have this capacity
to gratify human desires are never bought and sold, and therefore can
have no Value, since nobody will give anything for them. The air we
breathe, the water we refresh ourselves with from spring or brook, the
light of the sun and moon and stars, the fragrance of the flowers, the
mountain prospect that delights the eye,--all these, and thousands
more, possess the highest utility, but no value whatsoever. They are
free. They are the bounty of God. They are never bought and sold. They
are a vast class of things by themselves, with which Political Economy
as such has nothing to do.

Nevertheless the element of Utility comes into every case of Value,
because the element of Desire comes into every case of Value, and
whatever merely satisfies the Desire of any person is Utility, whether
that capacity be the direct gift of God or whether the Efforts of men
have been employed to bring it about. It is just here that we see the
precise function of our "two efforts" in each case of Value, in
distinction from mere Utility in all cases: much of utility is
absolutely free, no effort of men having been put forth to secure it,
for example, the fragrance of the wild rose; much more of utility is
the commingled bounty of Nature and the gratuitous effort of men, for
example, the fragrance of the domestic rose brought by the householder
himself into his own yard for the gratification of his own family;
while by much the most of utility is commingled free gift of God and
the compensated efforts of men, for example, the fragrance of the bank
of roses cultivated and cared for by the hired gardener. It is
important for our purposes to discriminate carefully the three kinds
of Utility: (1) what is wholly disconnected from the efforts of men,
and comes freely from the hand of God; (2) what is mingled with the
unpaid efforts of men, so that the satisfaction of the desire comes
partly from Nature and partly from unbought effort; and (3) the
compound utility that is partly free gift and partly the result of
compensated labor. The last is the only kind of Utility that stands in
any connection with Value.

And even this is very different from Value. Utility in all three of
its forms--now free, now onerous, now partly bought--is always a
quality of one thing by itself, going straight to the satisfaction of
some desire, and there an end. It is simplicity itself compared with
Value, which is always a resultant of several things, and is
specifically a relation of mutual purchase established between two
"renderings," each of which expresses the value of the other, in each
of which is embodied an "effort" made by each of the two "persons"
rendering, and each of which excites a "desire" and an "estimate"
before being passed over in ownership to another, and a "satisfaction"

The utility in every valuable rendering comes partly from free Nature
and partly from compensated effort, but it is remarkable, that a
principle, with which we are to become very familiar later on, namely,
Competition, eliminates for the most part from all influence upon
Value that portion of the Utility that is the free gift of God. The
great Father never takes pay for anything, and never authorizes
anybody to take pay in his behalf; and, moreover, has arranged things
so, that it is exceedingly difficult for any person to extort anything
from another person on the strength of anything that God has made, and
man has not improved. Take, for example, ten horses of any general
grade, brought into the same market by their ten owners for sale.
These men did not make these horses, but they have cared for and
trained them, or at least have become proprietors by purchase or
otherwise of the results of such care and training. The Utility in
each horse is compound, consisting partly of what God has done for him
and partly of what man has done for him,--the two parts inextricably
interwoven,--and all ten are offered now for sale. Each of the owners
would indeed be glad to get something for his horse on the ground of
what God has done to make him sound and strong and fleet, in addition
to a fair compensation for what he (and his predecessors) has done in
raising and breaking him; but the cupidity of all is likely to be
thwarted by the ultimate willingness of some to sell their horses for
a price covering the element of human "efforts" involved, and the
action of these tends to fix a general rate for the whole ten, and
thus the gratuitous element is eliminated from influence on Value.
Even if the ten owners should combine for a higher price, there are
doubtless a plenty of horses of that general grade elsewhere, some of
whose owners are content to get back an equivalent for their own and
others' "efforts" expended on their horses; and so the action of these
tends to fix the general price for horses of that kind for that time
and place at a point not above a fair estimate of the onerous human
elements involved; thus throwing out by the action of competition all
effect of natural Utility upon the Value of horses then and there. So
of all other products of that kind.

It is true, that in certain unique cases, in which competition has
little or no play, because there is only one or a very few owners of
such unique products, one cannot certainly say that free Utility may
_not_ influence the Value to lift it above the gauge of human efforts
involved; but such cases are rare, and relatively unimportant; and the
tendency is immensely strong, under the natural and beneficial
condition of things, for Values to graduate themselves through the
reciprocal estimates and renderings of commerce, down to the actual
and onerous contribution of _men_ to that Utility that underlies

Thus we are brought again and again from differing points of view to
the "two renderings" as central and determinative in Value, and also
more specifically to the "two efforts" of persons rather than any free
contribution of Nature as constituting that portion of the compound
Utility, whose function it is to gratify the "two desires" that
precede the realization of Value,--that portion of the utility in any
rendering that must be _compensated for_ by the other rendering. Now
in order to reach in a moment more our final definition of "Value," a
definition, it is believed, that will cover all the cases and take the
life out of endless disputes, we need a scientific term to carry
easily and exactly the meaning of any economic _rendering_. Let that
word be SERVICE. We must have it in its generalized meaning, to cover
the renderings of all the three kinds, in distinction from the term
"personal services," which we have already used and shall continue to
use to designate one class only of things exchanged, in
contradistinction to "commodities" and to "credits," the other two


We offer this definition of "Value" to our readers in much confidence,
that they will find it exact and adequate and altogether trustworthy.
No one of them, however, is precluded from attempts to improve it in
breadth and brevity and beauty; and all are invited to pick logical
flaws in it, whether of ambiguity or superfluity or deficiency. Many
minds and many hands in many lands have left their impress on parts of
this definition, for example, Aristotle in Greece and Bastiat in
France and Macleod in Great Britain; the present writer thinks, that
he has bettered the definition of Bastiat, namely, "_Value is the
relation of two services exchanged_," by precisely _defining_ the
relation as one of mutual purchase; and he is sure, that he has
improved the definition of Macleod, namely, "_The value of any
economic quantity is any other economic quantity for which it can be
exchanged_," by making his definition at once more abstract and more
general and more definite, and also by escaping the slight implication
in the word, "quantity," that only material things are exchanged in

The immense importance of securing _first_ a clear and correct
Definition of "Value," which is the foundation-word and the
circumference-word of Political Economy, and _then_ of using that term
and all other scientific terms in the Science in their defined senses
only, will certainly be appreciated by those who have wandered in the
wide wilderness of the discussions on the undefinable word, "Wealth,"
and especially by those who have reflected most upon the vast and
illimitable significance of economic Exchanges on the welfare of
mankind. Associate Justice Miller of the Supreme Court of the United
States, not an Economist in the technical sense, referred in 1888, in
words that are worth remembering, to "_the philosophical maxim of
modern times, that of all the agencies of civilization and progress of
the human race commerce is the most efficient_." In August of that
year John Sherman of Ohio, a man far enough from being a technical
Economist, said in the Senate of the United States, that "_it is
almost a crime against civilization_" to maintain commercial barriers
between Canada and the United States.

There were tokens a plenty in the year of Grace just referred to, that
the Science of Value in all the lands of the civilized world, and
particularly in the United States, was drawing to itself a new and
more popular esteem. It was seen more clearly and felt more deeply
than ever before, that this science has a weighty word for every man
and woman and child in the world; that there are certain Rights in
every one inherent and inalienable to buy and sell for his own
advantage; that most if not all of the Governments, under the lead of
comparatively few selfish and powerful men, were infringing upon these
Rights, and robbing under the forms of Law the masses of their
citizens to immense amounts for the special benefit of these very men;
that the only sure defences of the people against these abuses of all
kinds were in the maintenance and diffusion of the scientific and
consequently disinterested principles and maxims of a sound Political
Economy; that such a science was only friendly to the broadest rights,
to universal gains, to illimitable increase in human comforts and
powers, to international fellowship, to peace on earth and good-will
among men; that, accordingly, a science of such scope and tendencies
must be encouraged and cultivated and improved; that what had been
crude in it, and narrow, and merely national, must be sloughed off;
that the English and insular and special speculations of a century
ago, which regarded "Wealth" as consisting of material things only,
excepting however considerable portions of Adam Smith's immortal book,
were antiquated and unusable; that the Science had really moved into a
broader and still a well-circumscribed field, new and more permanent
foundations were being laid, and fresh contributions from all
countries should be welcomed; and that the time had fully come, when
the accepted truths of this Science, like those of the other developed
sciences, should be practically and steadily applied to the betterment
of mankind. Under these broadening and inspiriting and uplifting
conditions Political Economy, as never before, thanked God and took

3. Having now a satisfactory definition of Value, and knowing
accordingly just what Valuables are in clear distinction from all
other things in the world, we must examine with some care two or three
of the most general facts and laws and limits of Value, before we pass
in the next following chapters to study in detail each of the three
kinds of Valuables, namely, material Commodities, personal Services,
commercial Credits.

(a) Since Value in general is the relation of mutual purchase between
two Services, and consequently the specific value of either can only
be expressed by the other,--one Valuable being always measured by the
Valuable exchanged against it,--it follows as a matter of course that
such a thing as a general Rise or Fall of Valuables is an
impossibility. The rise of one valuable involves of necessity a fall
in the other, as the fall of one implies the rise of the other. If the
articles exchanged be bushels of wheat and dollars of silver, and if a
bushel buys a dollar to-day, then wheat is worth a dollar a bushel;
but if wheat rises next week, so that a dollar will not buy a full
bushel, that is precisely the same thing as saying, that the dollar
has fallen in its purchasing-power as compared with the wheat. Such
specific changes in the purchasing-power of one Valuable over another
are incessant throughout the commercial world, and a merchant's
sagacity consists in anticipating these so far as possible and in
availing himself of them alertly and prudently; but each one of us
must needs see clearly and hold firmly in mind, that each fall in the
purchasing-power of a Valuable means a corresponding rise of power in
the other Valuable,--if the first buys more of the second than before,
then the second must buy less than before of the first; and,
consequently, a general rise of Valuables is a contradiction in terms,
and so of course is a general fall of Valuables.

This brings us to _Price_. Price is Value reckoned in money; and this
is the only difference in the meaning of the two terms. When one
valuable is sold against another, even when one of the two is money,
each is the _Value_ of the other: Value is the general and universal
term in Economics. When any other valuable is sold against money, the
amount of money it buys is called its _Price_: Price is a specific and
restricted term in Economics. Since we shall study Money thoroughly in
a later chapter, and there explain the origin and extent of its
functions throughout, it is only in order to remark here, that it is
for convenience' sake, that is, to make easy the comparison of
valuables one with another, that Value in commerce is commonly reduced
to Price. Money becomes a sort of measure, by means of which to
compare all other valuables with each other. In order to ascertain the
Price of a Valuable, it only needs to be sold once against money; but
in order to ascertain the Value of a Valuable, it would need to be
sold once against all other valuables whatsoever. This last is clearly
impracticable; and so Value for practical purposes is reduced to
Price. The General is made Particular for convenience. Hence we have
"Prices current," but never Values current.

Now it will be plain to all, how there may easily be and often is a
general rise or fall of Prices while a rise or fall of Values is
impossible. Price is a relative word as much as Value is, but it does
not relate to so many things. Price is specific, and Value universal.
Both equally involve buying and selling, but one sale of a single
valuable against money leads to Price, while ten thousand sales of the
same valuable against other than money would not conduct to complete
Value. That would require a sale of this valuable against all other
valuables in the world, and a complete statement of the comparative

General, or at least universal, changes of Prices in rise or fall in
any given country are due to general and great changes in the Money
current there. Subordinate changes in other valuables, money being
supposed to remain uniform, will of course vary their Prices; but it
is impossible that such changes should affect equally or even
generally all the various and numberless valuables of a whole country;
while some are coming easier, others are coming harder, while some are
more desired than formerly others are less desired, and this will
bring in of course altered prices, some higher and some lower; but a
general rise of all prices, or a general fall in the same, can only
come about by great changes of some kind in the circulating medium,
that is, the money, of the country. For example, in the United States,
between 1862 and 1878 inclusive, a government paper promise, called
_greenbacks_, was the current money of the country; owing to its
excessive issue, and to some doubt in the minds of the people whether
the paper would ever be redeemed in gold, it soon became depreciated
as compared with gold, the premium on which over the paper money
varied at different times from 1 to 185 _per centum_; as all other
valuables were then sold against greenback money, which had declined,
their prices naturally rose in some sort of proportion as the medium
fell; general _values_ remained much as before, but general _prices_
were much enhanced; and when, after the resumption of specie payments
in January, 1879, gold became again the standard medium, general
prices declined in full accordance with the same universal principle

(b) Prices, as we have now seen, are only a subordinate form of
Values: the universal law that regulates all the variations of them
both, within certain fixed limits to be examined shortly, is called
the LAW OF SUPPLY AND DEMAND. This is perhaps the most comprehensive
and beautiful law in Political Economy. We shall look at it now only
in outline: the filling in will be the pastime and profit of all that
is to come.

"Demand" is a technical term in Economics, and accordingly needs to be
defined, and then always used in its defined sense. So is "Supply."
_Demand is the "desire" of a "person" for something in the hands of
another person, coupled with the possession of something else capable
of buying that something._ Mere desire has no function in Political
Economy: hungry and penniless children passing by the stalls of a
great market, have no influence on the prices or values of the viands,
on which they cast their eager glances: only desires accompanied by
"efforts" competent to excite the desires and to pay for the efforts
of another are a Demand. Supply is the same thing as Demand looked at
from the other side. Supply is the correlative of Demand. The Supplyer
is a person, who has in his possession something desired by the
Demander, and who in turn desires something in the hands of the
Demander, when both are willing to exchange their "renderings." There
is no economical difference in the position of the Demander and the
Supplyer. Each is equally a Demand and a Supply with reference to the
other. It is the old and ever-recurring case of Value, the
propositions being here stated in their most universal terms.

For simplicity's sake, however, and for convenience, without altering
the substance of the definitions a particle, the valuables when looked
at as a Demand are practically reduced in all markets to their
equivalent in Money, so that Money offered or ready to be offered
against any other exchangeable thing constitutes what is called in
commercial language a Demand; and this is sufficiently accurate as
well as current, although it must always be remembered that each
valuable in any market in reality constitutes a Demand for another,
and is equally a Supply in reference to that other. _Supply is any
exchangeable thing offered for sale against any other exchangeable
thing._ For example, corn in any market is at bottom a Demand and a
Supply at once for every valuable offered in that market at that time,
say, ploughs for one thing; but in the talk of the market, the
presence of corn there, or its being ready to be immediately brought
there and offered in exchange for money, constitutes what is called a
Supply of corn; money offered, or ready to be offered, in exchange for
corn, constitutes what is called a Demand.

On this account Money seems to play a much more important part in
trade than it actually does play; the corn is sold in the terms of
money, that is, for dollars and cents as denominations of Value;
convenience dictates such a reduction of general Value to this
particular form of it, because this is found to make easier the
ultimate exchange; but there is not one chance in a hundred, as trade
runs nowadays in the larger markets, that this seller of corn will
take his pay for it in actual money whether metallic or paper; money
is never an ultimate product, but only an intermediate one; this
seller of corn wants perhaps a plough or some other farming implement,
and ten to one he will take for his corn a bill or order in some form
on the seller of ploughs, and it will be corn for a plough, each
becoming a Demand and a Supply for the other, though money or rather
its denominations has acted as an agent in bringing about the final
trade; the details of all this in manner and result will be as plain
as day when we come to study "Money" and "Credits" in following
chapters; while the essential point to be noted here is, that all
Valuables are a Demand and Supply as towards one another. In other

What, then, is Market-Value returned in the terms of Money? And what
is the universal Law of it?

Market-value is the present rate of exchange between dollars and cents
and any other valuable, that can be fairly graded in a class made up
of valuables similar to itself; and the law of market-value is the
equation of Supply and Demand, that is, the current rate is adjusted
when money enough is offered to take off within the usual times the
valuables on hand and offered for sale. If Demand for any reason
become quickened, and the Supply be not increased, there is
competition among buyers for the stock in market, and the market-rate
rises or tends to rise. If, on the other hand, Demand become sluggish,
the Supply remaining the same, there is a like competition among the
sellers to dispose of their stock, and market-value sinks or tends to
sink. So far it is the simple action on Value of the element of one
"desire" expressing itself through a money-demand, the elements of
"desire" and of "efforts" expressing themselves through Supply being
supposed to remain stable, and the pulsations in the market-rate
follow accordingly.

How far can this simple action go? Demand increasing, Supply remaining
as before, market-rate rises: how far can it rise from this cause?
Here we must remember that Demand not only acts upon Value, but also
Value reacts upon Demand. As Value rises, the number of those whose
means or inclinations enable them to purchase at the new rate is
constantly diminished: there are ten persons who may wish an article
at one dollar, of whom not over four will wish it at two dollars, and
perhaps only one at three dollars. Every rise in market-rate then,
under the impulse of enlarged Demand, tends to cut off a part of that
Demand, that is, to lessen the number of those who will purchase at
the increased price; and the rate consequently can only rise to that
point, whatever it be, where an equalization takes place between the
Supply and Demand, between the quantity of flour, for example, offered
at the enhanced rate, and the quantity of money in the hands of those
willing to exchange it for flour at the higher rate.

Just so in the reverse way, when Demand is slackened, Supply
continuing as before, the market-rate is sure to decline; but
declining rates tend strongly in turn to increase the demand by
bringing the article within the range of a larger number of
purchasers; Society is like a pyramid, each lower stratum is broader
than the one above; and so the decline of rates under a weaker Demand
is arrested by a stronger Demand coming from a wider circle of buyers,
and a new market-rate is determined at the point of equalization
between the new Demand and the old Supply. Thus every rise or fall of
Demand tends to check itself, and will check itself in all the great
classes of valuables, even without any variations in the Supply;
everything oscillates under the variations of Demand; while the point
of stable equilibrium, if we may use the expression of anything so
unstable as Market-value, is always the equation of Supply and Demand.

But all considerable variations of market-rate are commonly checked at
an earlier point than the one just indicated by variations in the
Supply. A sharper Demand carries up the market-rate, and a higher
market-rate commonly acts upon Supply to enlarge it, and an increased
Supply too checks the rise of market-rate. _Per contra_, a slacker
Demand lowers market-rates, and lowered rates often lessen the Supply
by the action of holders and speculators,--holders withdrawing their
stock for a better market, and speculators buying now when the article
is cheap to store away until it shall be dearer. Thus rise of
market-rate from Demand growing stronger is checked doubly; first, by
curtailing the number of would-be buyers, and second, by enlarging the
Supply: the fall of market-rate from Demand growing weaker is checked
doubly; first, by increasing the number of consumers of a now cheaper
article, and second, by a diminution of Supply by the action of
holders and speculators. This double and harmonious working of the law
of the Equalization of Demand and Supply is one of the most
comprehensive and beautiful laws in Political Economy.

Besides this, we must note the effect on Value of conditions in Supply
only, Demand being supposed to continue steady. There are three
classes of valuables in respect to the law of their Supply. (1) When
the Supply is scant, and cannot be increased at all, as is the case
with choice antiques and certain gems and paintings by the old
masters, their value may rise to any point under the action of Demand,
there is and can be in such cases no market-rate, and the individual
value will be struck at the point of equalization of the demand then
existing with the supply there offered. For instance, the French
Government paid, in 1852, 615,300 francs for a painting by Murillo,
which had belonged to Marshal Soult. The genuine Murillos are
comparatively few, and their number cannot be increased, and their
merit causes a strong "desire" to possess them, and their value rises
in connection with the limitation of Supply to a point beyond which no
one purchaser can be found. When this painting was offered in Paris
for sale, many "persons" of course were anxious to buy it, there was
but one painting, there could be but one purchaser, value rose under
the influence of a sharp Demand, the rise could not be checked by any
duplication of the Supply, and the equation was complete and the value
for that sale determined when one party distanced all other
competitors and offered a sum greater than any one else would give.
The same principle controls all sales of this sort, and is practically
the principle of the _Auction_, whose very name indicates its nature
in this regard, that Demand becomes restricted to one party, and that
the highest bidder.

(2) When the Supply, instead of being absolutely limited, can only be
increased with difficulty or after the lapse of time, similar but less
extreme results will be observed. Let us suppose, that pianos are
selling in some rural community at $300 each, that there are twenty
persons in the place who want a piano immediately, that there are but
fifteen pianos on hand, and that the number cannot be increased for
half a year. The market-rate will certainly rise above $300. How much
above? To that point, at which only fifteen of the twenty will be
willing to purchase at the new rate. The equation of Supply and Demand
will be reached by a rising rate which cuts off five competitors. This
is the principle, working only roughly in practice through the
estimates and good judgment of dealers and purchasers. A better
illustration of this second class of cases is, perhaps, the Grains and
other agricultural products. When these have been gathered, there is
no more home supply for a year; and any deficiency in the crops will
raise their market-rate, not at all in the ratio of the deficiency,
but according to the relations of the diminished Supply to a new
Demand. Since the abolition of the Corn-Laws in England in 1846, and
the resulting ease of grain-imports from abroad, a deficiency of home
crops has no such effect on the price of cereals as it had before that
time; when, according to Tooke's History of Prices, an expected
falling-off of one third in the crops often doubled and sometimes
quadrupled the usual prices; which shows that the world ought to
become one country in respect to all food supplies, as indeed happily
it is now for the most part, each country allowing them to be
distributed freely everywhere in accordance with this law of Demand
and Supply. Speculation is more busy in grain, in cotton, and in such
things generally, because a new Supply can only be had once a year;
early information is eagerly sought at the trade centres in regard to
the prospects of the growing crops, and has its influence one way or
the other on current prices; but the world is so wide and all the
parts of it now so closely connected together by steamship and
telegraph, that the prices of the great food staples are remarkably
uniform over the earth, and Speculation has not the chance it once had
to count and "corner."

(3) In the only remaining and by far most comprehensive class of
cases, in which the Supply of Commodities and Services and Credits can
be readily and indefinitely increased to meet enhanced Demand, and
easily withdrawn from market and stored when Demand declines, each
rise and fall of market-rate tends to be speedily checked through the
mere action of Supply; and the doubly and harmoniously working Law but
just now referred to keeps Value in this class of cases comparatively
steady all over the world.

(c) It only remains in this branch of the general discussion on Value,
to indicate the Limits, within which all oscillations of Value are
contained. These extreme limits are specially to be found in the
element of Value which we have called "Efforts." We have clearly seen
already, that "efforts" (or Labor) are not, as has been often
asserted, the cause of Value, but only one of several constituent
causes; if Labor be asserted to be the sole cause of Value, the
inquiry becomes instantly pertinent, what is the cause of the value of
Labor; yet we know, that "efforts" always stand in preconnection with
value, and, the mutual "desires" being presupposed, there must always
be Limitations of Value lying partly in the efforts made by the person
serving and partly in the efforts saved to the person served. In every
valuable transaction, each of the parties is reciprocally serving and
served, and it is clear, that the two would not exchange "renderings"
unless the service which each renders to the other is less onerous
than the "efforts" which each would have to make if each served
himself directly. For example, it takes a certain effort for me to
bring water from the spring for the use of my family; I am willing to
pay a neighbor for bringing it for me, but I should not be willing to
make a greater effort for him in return than the effort is to bring it
myself; neither should I be willing to make an effort for him in
return which I regarded just as onerous as the bringing the water
myself; and unless there is some service which he will accept less
onerous to me than that, I shall continue to bring the water. On the
other hand, he will surely not render the service to me of bringing
the water, unless it be less onerous to him to do so than the doing
that for himself which I am ready to do for him.

This principle, applicable to all exchanges whatsoever, draws on the
one side the outermost line, beyond which Value never can pass. It may
be asserted with confidence, that no person will ever knowingly make a
greater effort to satisfy a desire through exchange, than the effort
needful to satisfy it without an exchange. Therefore, it follows,
that all exchanges lessen onerous efforts among men relatively to the
satisfaction of their desires, and tend to lessen these more and more
as exchanges multiply in number and variety, otherwise the exchanges
would not take place.

Moreover, within this outermost Limit of Value, which is made by the
comparative onerousness of the respective "efforts," there is a second
limitation of a similar kind to be found specially in the element
which we have called "estimates." The estimate of each exchanger is
based at once on his own effort about to be rendered and on his desire
for the return service offered: the element of effort in the case of
both being considered for the time as fixed, Value will vary according
to the varying desire of each for the return service of the other,
affecting of course the "estimate" of each, and furnishing also a
secondary Limit of Value. To pursue the same illustration, suppose I
regard the effort required to bring the water myself as 10; that there
are several persons, who would be glad to do that service for me at a
return service which I consider as 8; that there are two persons, who
are willing to do it for something which I estimate at 6; and that
there is only one person, who will do it for a return service which I
regard as 5. It is evident, that the extreme limits of that service to
me are 10 and 5. Higher than 10 it cannot go, lower than 5 it cannot
sink. But why have I before me three possible classes of renderers?
Because the persons in each class, while estimating their own efforts
alike in the proposed rendering to me, have varying "desires" as
towards a possible rendering from me to them, and consequently put
differing "estimates" upon the possible transactions. The man who will
bring the water for 5 has for some reason (no matter what) a stronger
desire for the return than anybody else, and I should of course
employ him so long as he would serve me on those terms; if he decline
the exchange, I fall back on one of the two persons in the class above
him, and Value rises now from 5 to 6, and will be steadier there than
it was before; if each of these in turn should give out, I should fall
back upon the larger class ready to serve me at 8, and Value would be
very steady at that rate, because there are numerous competitors; and
by no possibility could it rise above 10. Between 10 and 5 the value
may fluctuate, but it cannot overpass these Limits in either direction
under existing circumstances.

Therefore we may conclude, that the _maximum_ Value of any Service in
exchange will be struck at the point where the recipient will prefer
to serve himself, or go without the satisfaction, rather than make the
exchange; and the _minimum_ Value of any Service in exchange is struck
at the point below which the recipient cannot get himself served even
by him who most highly estimates the return service offered.

(4) We come now to the last and most important Inquiry in this initial
chapter, namely this, _Can there be, and is there, a strict Science of
Buying and Selling? Is there a Science by itself, clear and certain,
that covers and controls Valuables?_

Here we must go slowly, if we would go surely. We must first find out
exactly what a Science is in general, and then ascertain in particular
whether Political Economy bears all the marks and stands all the tests
of the other genuine Sciences. What is a Science?

_A Science is the body of exact definitions and sound principles
educed from and applied to a single class of facts or phenomena._

The very first condition, accordingly, of any science is, that there
be a single class of facts, objective or subjective, that can be
separated from all other classes of facts, in the mind by a
generalization and in words by a definition, and that such
generalization and definition be clearly made and held; the second
condition is, that the class of facts so circumscribed and defined be
open to some or all of the logical processes of construction, of which
the most important are Induction and Deduction; the third condition
is, that the subordinate definitions and working principles within the
inchoate Science be all educed from and applied to these circumscribed
facts in strict accordance with these well-known logical processes;
and the last condition is, that these definitions and principles have
gradually become "_a body_," in which there is an organic arrangement
of parts, all being placed in a just order and mutual interdependence.
There is no old Science, and there can be no new Science, in which
these four conditions do not meet and become blended; and the beauty
of it is, that this Definition applies to any Science in all stages of
its growth. No one of all the Sciences is as yet completed; but just
so soon as any correct definitions and principles are drawn from and
applied to any _class_ of things clearly circumscribed as such, and
these definitions and principles are orderly arranged in a _body_,
there is an incipient Science; and its progress towards perfection
will proceed in precisely the same manner in which its foundations
have been laid; new facts and principles and definitions will
gradually be discovered, and these when reapplied to the class of
things out of which they have sprung, will lead to corrections and
adjustments and enlargements of the Science; and no matter how far
these logical processes may be carried, the general Definition with
which we start will also be found ample at the end of the journey.

All of the Sciences without exception have been developed into their
present position in just this manner; and they fall easily into three
great classes, namely, the Exact, the Physical, and the Moral
Sciences. The ground of this triple classification is partly the
distinct subject-matter in the three classes of Sciences, and partly
the distinctive prominence of one or more of the logical processes of
construction in each.

Thus, the class of the Exact Sciences consists only of the formal
Logic, and pure Mathematics. These two are distinct from all other
sciences, because their logical method of procedure is wholly
Deductive. Deduction is the process of the mind, by which we pass from
a _general_ truth to a _particular_ case under it, that is to say,
from _more_ to _less_ inclusive propositions. Stuart Mill argues at
much length in his book on Logic, that even the axioms of pure
Mathematics are originally gained by Induction, while others claim
that the truth of these axioms is perceived _intuitively_, but no
matter how this point is decided, the construction process of the Pure
Mathematics is from the General to the Particular. So it is also with
the Aristotelian logic, whose Major Premise, whether only _supposed_
to be true or intuitively _perceived_ or inductively _proved_ is
always General in its terms. This is the form of Aristotle's
Syllogism:--All sinners deserve to be punished; John is a sinner; and
therefore, John deserves punishment.

Physical Sciences are those concerned with the classifications and
laws of action belonging to material substances. There are a great
circle of these, of which Astronomy, Botany, and Chemistry, may serve
as examples. They have been mostly developed since the time, and in
accordance with the methods, of Lord Bacon; who, in strong reaction
against the Deductive logic of Aristotle, exalted Induction or the
mode of generalizing from _particulars_, as the true way of building
up Sciences; and, as the subject-matter of each of the physical
sciences is well open to observation and experiment, to Induction and
Deduction, and to corrective verifications, both inductive and
deductive, the new method proved remarkably pregnant and successful.
Each of these sciences has a distinct _Class_ of objects or phenomena
to which its attention is directed; the class is circumscribed by the
scientific Conception and Definition; its devotees as a rule are
skilled in using the Baconian tools; and consequently, its conclusions
receive the confidence and control the action of men. All of the
Physical Sciences are constantly enlarging "the body of exact
definitions and sound principles" connected with their several classes
"of facts or phenomena."

Moral Sciences are those concerned with the classifications and laws
of action belonging to beings having Thoughts and Desires and Will.
The most developed of these sciences at present are Metaphysics,
Ethics, and Economics. Each of these is concerned with a single class
of phenomena, which may be exactly conceived of and defined, and is
open to the logical processes by which alone Sciences can be built up.
But Induction cannot march up with quite so sure a stride, nor
Deduction descend with so large degrees of certainty, in relation to
_persons_ endowed with free-will, as in relation to physical
substances held firm in the grip of unvaried law. Still, the doubt
always attaches far more to the actions of an _individual_ than to the
actions of the _masses_ of men. It is much easier to know human nature
in general, than one man in particular, because many Inductions guided
by observation and History make it almost certain how masses of men
will act under a given set of conditions, while any one _may_ act in a
contrary way. Deduction, accordingly, cannot hold quite the same place
in the Moral Sciences so far as individuals are concerned, as it holds
in the Physical and Exact Sciences; but this lack is perhaps more
than made up by other advantages. _Experience_ in the moral sciences
corresponds to _Experiments_ in the physical sciences. Then there is
the great advantage of _Introspection_; since each man has within
himself the means of interpreting and testing the inductions of
Metaphysics, Ethics, and Economics. Then also there is the great
resource of _Feigned Cases_, which, provided only they be cases
possible to occur, open up to Reasoning a new means of proving and
correcting. Besides these, which it enjoys in common with them,
Economics, as we shall soon see, possesses one other great advantage
over and above the rest of the Moral Sciences.

Since, then, Political Economy deals primarily with Persons, and only
quite secondarily with Things, it is, under the definition and on
every ground, a "moral science"; yet it must not be confounded in the
least with what is sometimes called the science of Morals, or Ethics.
There is one word that marks and circumscribes the field of Ethics,
and that word is _Ought_; there is one word also that marks and
circumscribes the field of Economics, and that word is _Value_. Now,
the idea of _obligation_, on which ethical science is founded, and the
idea of _gainful exchange_, on which economical science is founded,
are totally distinct ideas. The imperatives of ethical obligation rest
upon the consciences of men, and Duty is to be done at all hazards;
guilt is incurred if it be neglected; while pecuniary gains and
losses, however large, do not, or at least ought not, weigh a feather
against an intuition of Right and Wrong. Economics, on the other hand,
does not aspire to place its feet upon this lofty ethical ground; no
man is ever under any moral obligation to make a trade; he properly
makes it or not, according to his present sense of its gainfulness to
himself; and so economic science finds a solid and adequate footing
upon the expedient and the useful. Ethics appeals only to an
enlightened conscience, and certain conduct is approved because it is
Right, and for no other reason; Economics appeals only to an
enlightened self-interest, and exchanges are made because they are
mutually Advantageous, and for no other reason; each of the two
Sciences, therefore, has a basis and sphere of its own, and the
grounds of the two are not only independent, but also incommensurable.

We will now apply _seriatim_ to Political Economy the four fundamental
conditions belonging to all recognized Sciences, and so determine for
ourselves whether it be not a strict science, and thus worthy in its
leading propositions of all acceptation.

(a) Every science must have to begin with a definite Class of facts,
which lie in an easily circumscribable field, and which are not likely
to be confounded with other facts of a differing nature. Economy has
such a class of facts, that lie in such a field, and that cut
themselves off by sharp lines from all other things. _Valuables_ is
its class of things. It has nothing to do with any other class of
things. Its field is Value, or Sales, or Exchanges. This field is
perfectly definite. Sales are never confounded with gifts, and are
never confounded with thefts. They have a distinctive character of
their own. They have always been in the world, will always be in the
world in ever-multiplying volume, and no one ever mistakes their main
features for anything else. Anything whatsoever that is salable, or is
about to be made so, comes within the view of Economics, and
scientifically it cares for nothing else. While it finds its field
definite, it also finds it broad. It has no wish to encroach on other
sciences, nor will it tolerate any encroachments on its own. Before
anything is sold, or is being made ready to sell, it cares nothing
what other science employs itself upon that thing; after the thing is
sold, Economy loses its interest in it, and other sciences may take it
up if they choose. Valuableness is the one quality that constitutes
the Class of things with which the Science is conversant, and it
claims complete jurisdiction over all things just so far forth as they
have this one quality, and no farther. Now there _is_ in the actual
world such a Class of things; its exterior boundaries have been
exactly ascertained by a long series of Inductions and Deductions,
tentative, corrective, and confirmatory; and accordingly, Political
Economy has now in full possession the first grand condition of a

(b) This great class of facts, thus reached by logical Generalization
and grasped and held by a mental Conception and fixed by an adequate
verbal Definition, is remarkably open to all the logical processes of
reasoning, by which alone sciences are constructed, and thus possesses
in full measure the second grand condition of the Sciences. Not one
logical resource is denied to the economists: all the tools of the
scientific workshop are at their hands. Let us now catalogue these in
their order.

(1) _Induction._ This is the logical and universal process, by which
the mind naturally passes up from a certain number of observed cases,
in which a certain quality appears, to a Generalization, which is a
conception of the mind followed by a statement in words to the effect,
that _all possible cases_ of that kind will exhibit the quality
already observed in _the few cases_. It has as its basis a confidence
in the resemblances and uniformities of Nature; it proceeds upon the
axiom that Nature throughout is consistent with herself; and this
confidence has been ten thousand times justified in the issue, when it
is found that Nature preordained the Sciences by causing grand
analogies to run through each department of her works, including man
and his works. The structure of the human mind corresponds with these
objective resemblances; it seizes upon them, and delights in them, and
naturally and joyfully infers and concludes that what has been
observed of _a part_ may be safely affirmed of _the whole_ of that
kind; accordingly, the world over, when certain things are found to be
true in a considerable number of cases, the mind leaps over space and
time to a whole class, and frames for itself a general rule or
principle, which binds all the cases into one bundle, and thereafter
confidently affirms what is known to be true of some to be probably
true of all. This is inductive Generalization; and the strength and
the joy of it is well expressed by Descartes: "_I have thought that I
could take as a just generalization that which I very clearly and
vividly conceived to be true._"

Experience in Economics corresponds to Experiment in the Physical
Sciences, and furnishes to Induction all the fuel it can ask for to
feed its logical furnace and to forge the chains that bind the Cases
to the Classes. Personal experience in buying and selling, local
experience in buying and selling, and national experience in buying
and selling, with all that belongs to these, the records of which are
full to overflowing, afford to the inductive inquirer in Economics an
inexhaustible supply of material. Instances abound. Particulars may be
gathered up one by one on every hand and linked into the inductive
chain. If any doubt be felt about the strength of any one of these
chains, another one may at once be linked in terms drawn from another
field of Experience with a view to test the strength of the first.
Most fortunate from this point of view is the United States, because
here there are States with substantive powers of control over most
matters of trade within their borders, as well as a Nation with
sovereign powers of control over some points of trade within the
country as a whole. This feature has given birth to commercial
experiments as well as commercial experience of all kinds; and
Induction rejoices in all these abundant materials for generalization
thus furnished free of cost to Science, though unfortunately not free
of cost to the People.

(2) _Deduction._ This is a logical process exactly the reverse of the
first, in that it descends from a generalized statement reached by the
inductive process to some particular, or subordinate class of
particulars, ostensibly covered by the general maxim. Induction
examines a number of particulars, and then makes a leap, it may be a
long leap, over all intervening particulars, to its Generalization
clamping them. The main use of Deduction is to make sure of any one of
these overleaped particulars, which may come into importance, and thus
confirm the generalization, or correct it. It is not strictly true,
what is often alleged against deductive reasoning, that there is
nothing _new_ in its result, that the Induction had already passed
through that particular in rising to its Generalization, and therefore
to descend to any particular link to examine that, is something
useless. The exact truth is, that it _is_ useless to examine again
deductively the very particulars that were carefully studied
inductively, but on the other hand there is always much actually
untraversed territory between these already examined particulars and
the inductive generalization, and Deduction is often very useful in
carrying us down to questionable points in this territory. Even Lord
Bacon, who scorned the syllogism, admits this: "_Axioms duly and
orderly formed from particulars easily discover the way to new
particulars, and thus render sciences active._"

We will illustrate this by a reference to Franklin's famous induction
to prove the identity of lightning with electricity. Only one
experiment, and that a very rude one, was needful in this case;
although usually many experiments, or the careful observation of many
particulars, are necessary in inductions; but the generalization
having been gained, Deduction had a chance to try its hand; it had
long been observed that electricity could be conducted from point to
point, and if electricity and lightning be identical, then lightning
can be so conducted; therefore, deduced Franklin, a pointed iron rod
elevated above buildings will harmlessly conduct lightning from the
clouds into the ground. Deduction gave mankind the lightning-rod, and
so made one point of science "_active_," as Bacon phrased it; and it
is noticeable, that Turgot's felicitous epigram turns on the deductive
rather than the inductive side of Franklin's experiment: _Eripuit
coelo fulmen sceptrumque tyrannis._

Let us catch up another illustration from the science of Botany, to
show how Deduction may strengthen and sharpen an inductive result. The
botanists say, that apple-tree blossoms are always five-petaled,
because blossoms from a large number of apple-trees in various
localities have been observed to have just five petals to the blossom;
so far, they affirm inductively, and indeed securely; but they have
also reached by means of another induction a much broader law of
plant-life, namely, that outside-growers, when they have petaled
flowers at all, always have them five-fold; now apple-trees are
outside-growers; and therefore, deductively also, and conclusively
beyond shadow of question, apple-tree blossoms are five-petaled.

Political Economy is just as open to Deduction as it is to Induction,
and the two continually are reaching each other the hands of
economical reasoning, not always indeed pursuing each a separate and
distinct path to the end, as in the botanical instance just adduced;
because in practice the two processes mingle constantly, and neither
is carried out in full and due form, since premises used by the mind
are often dropped in the statement, and shortened forms of expression
take the place of long-drawn-out formulas. But all good reasoning in
Economics, as in all other sciences, is analyzable into one or other
of these two processes, both based alike on the uniformities of Nature
and the structure of the human mind.

Deduction has not quite the same scope and certainty in Economics as
in the Physical Sciences, because any one _may_ act contrary to the
vastly probable action of many individuals; still, it is a safe and
potent process in economics, since it may descend securely from the
larger masses to the smaller, even though perchance the individual
escape, because of the simplicity and universality and certainty of
the impulses that lead men to exchange. John Bascom gives the reason
well, why both Induction and Deduction have so firm a grasp upon this
science: "_Between one dollar and two dollars a man has no choice, he
must take the greater; between one day and two days of labor he must
take the less; between the present and the future he must take the
present. This is not a sphere of caprice, nor scarcely even of
liberty; the actions themselves present no alternative, and, if an
alternative giving an opportunity for choice does arise, it arises
from some partial or individual impulse, from some one of those
transitory and foreign influences, which, while rippling the surface,
neither belong to nor affect the current of the stream._"

(3) _Introspection._ Everybody buys and sells, and almost everybody
watches the action of his own mind enough to see what are his
_motives_ in buying and selling, and soon comes to know also that the
other party has corresponding motives. Even the child knows perfectly,
that it takes two to make a bargain, that each party renders
something to the other, that each is glad to part with something for
the sake of receiving something from the other, and that this higher
esteem put by each on what is taken from the other makes for each the
gain of the trade. A very little introspection tells anybody, that
were this higher esteem wanting in the minds of either of the two, the
trade would not take place at all. Everybody within the pale of
_compos mentis_ knows, that, were his own desire for the rendering of
another to increase, he himself would offer more of his own rendering
rather than forego the trade; and he rightly infers, that what is true
of himself is true of all other men; and so, every seller rightly
tries to display his wares in such a way as to increase the desire of
buyers for them; knowing full well from his own experience in buying
that, other things being equal, they will be willing to render him
more for them in consequence.

The phrase above, "rightly infers," is based upon the truth, that all
men are remarkably alike in certain great departments of action; and
that, in no department are they so nearly alike as in this of buying
and selling. Introspection, therefore, an easy self-knowledge open to
all persons alike, and a personal experience in these matters that
everybody gains, give most trustworthy answers to Inductive inquiry
along these lines. Trade is natural and gainful, as any person can
see, who stops to ask himself why he has made, or is about to make, a
given trade; and if natural and gainful to _him_, equally so for
precisely the same reasons to the party of the other part; hence no
law or encouragement is needed to induce any persons to enter upon
traffic; and any law, or artificial obstacle, that hinders any two
persons from trading, who would otherwise trade, not only interferes
with an inalienable right that belongs to both, but also destroys an
inevitable gain that would otherwise accrue to both. Political
economy is very fortunate, accordingly, in being able to make its
appeal to the common sense of all men, giving sound starting-points
through self-knowledge possessed by all men, guiding to safe steps by
means of Induction all who like to generalize and prove, and
especially breaking up current fallacies by asking the potent
question, "How would you like it yourself?"

(4) _Feigned Cases._ There are two kinds of these, namely, those which
might be realized in actual fact, and those which never can be so
realized. The acute mind of the Greeks marked in their flexible
language a decided difference between the class of suppositions that
might possibly become facts, and another class of suppositions
impossible to become facts, by developing a distinct form of expression
for each. This distinction must always be borne in mind by those who
use or note in economical discussions the expedient of Feigned Cases.
Reasoning is always legitimate and often pregnant from suppositions,
whenever these are such as might readily become facts of experience,
because in that case the argument proceeds upon recognized and
inductive resemblances; but otherwise, no inference at all can be drawn
from them, because it is an universal truth in Nature and in Logic, _ex
nihilo nihil fit_, out of nothing nothing can come. In plausible
suppositions impossible to become facts is a nest of logical fallacies,
that need to be watched. A good illustration may be found in the
Monetary Conference at Paris in 1881. Delegates were there from all the
nations of Europe, from the United States, and even the distant India.
Some of these in their eagerness for a factitious ratio of value
between gold and silver forgot the important distinction now in hand,
and argued of the good results to flow from the realization of a
supposition, _which in fact never could be realized_. Mr. Evarts voiced
the French and American delegates in this declaration: "_Any ratio now
or of late in use by any commercial nation, if adopted by an important
group of states, could be maintained; but the adoption of a ratio of
15-1/2 silver to 1 of gold would accomplish the principal object with
less disturbance in the monetary systems to be affected by it than any
other ratio._" The fallacy in this passage is in the words, "could be
maintained," which are a supposition, and what is much worse, a
supposition contrary to fact, from which all arguing is nugatory. Why
it is contrary to fact will be seen at length in the following chapter
on Money.

On the other hand, a supposition that may clearly become a fact is a
substantive thing, and logical inferences may be drawn from it, just
as geometrical inferences may be drawn from a _supposed_ circle: the
circle on the page is not a _perfect_ circle--no such circle was ever
drawn--but _suppose_ it perfect, as it might possibly be, and argument
becomes at once valid. Let us take another Monetary Conference at
Paris in 1867 as an illustration: its judgment as voiced by Mr.
Ruggles of New York was taken with logical propriety, when the great
benefits of an international coinage of gold alone were argued and
announced, because, while that was then a mere conjectural project, it
was possible any day by mutual agreement among the nations to become a
reality. An international coinage of gold is a simple question of
equivalence of _weights_ in the coins of different countries: an
equivalence of _values_ as between gold and silver coins for any great
length of time is neither simple nor possible.

(5) _Results measurable in numbers._ The four preceding logical
processes of proof and construction Political Economy is glad to share
with the other Moral Sciences, but this fifth and last one it has to
itself alone, and this is its chief scientific advantage over them,
and is consequently the main reason why it is already more advanced
and more symmetrically developed than any of them. In common with them
it has important subjective elements, such as Desires, Estimates, and
Satisfactions; in marked advantage over them it has also objective
elements, that can be weighed and measured and even hardened into
statistics. Economics has an ever ready objective test, which mere
mental and ethical and other moral processes never can have from their
very nature. The _result_ of each and of all economic transactions may
be measured by money, and put down in a ledger, and published to the
world in the form of statistics. An economic blunder, whether in
legislation or in private action, pretty soon proves itself to be such
by the lessened gains of somebody, and these losses can be stated
arithmetically; and similarly, an economic improvement evidences
itself at once by increased gains coming to somebody; while it may
take years and years to work out the results of an ethical mistake,
and even then their amount can only be guessed at.

Theories in metaphysics can only be tested by the _Reason_ of men, and
reasonable men without apparent bias of motive take opposite views of
Sensations and Intuitions and Volitions; while theories in economics,
which can be even better tested by the _Reason_, have an additional
and almost immediate and constantly recurring test through men's
pockets and the tables of the Census. The people indeed sometimes
deceive themselves, and are also too often deceived by others, in
these matters of buying and selling; but it is none the less of the
utmost consequence to this Science, that all the results of good and
bad practice in Economics work themselves at last into a definite
shape, into facts and figures that cannot lie. It is not, as in Ethics
and Metaphysics, that tendencies and potencies only are ascertained,
but everything speedily drifts into results measurable in numbers,
which stand out like landmarks against the sky. It is just for this
reason, as both the schools of the Roman lawyers admitted, namely,
that we have in all cases the Return-Service as the outward expression
and measure of the Desire and Effort of him who renders the service,
and because it makes no difference which of two services exchanged be
regarded as the return-service, that our Science is reared on the firm
ground of objective realities, notwithstanding the strong subjective
elements that have a constant part in it.

(c) The third condition of a recognized Science is, that the logical
processes appropriate to its class of facts have been already
carefully applied to them and a certain number of "exact definitions
and sound principles" have been already "educed from and applied to"
them. We do not hesitate a moment to claim, that this condition also
is fairly and fully met by Political Economy, and that this is a
"Science" under the definition from every point of view, and
particularly from this third point of view; and a few examples will
now be given as a specimen merely of the logical work already achieved
in Economics. First, Induction more or less busy for two thousand
years has given at last an exact and acceptable definition of the
Science, and impliedly an exact description of the class of facts with
which it is conversant, namely, the Science of Sales, or what is
exactly equivalent, the Science of Value; and Deduction at all points
along this slow road has helped to correct and to broaden successive
imperfect inductions, which an inquisitive and tentative and cautious
spirit--the mainspring of Constructive Science--has instituted from
time to time.

Second, precisely the same processes often repeated have ascertained
beyond question, that there are only three classes of Valuables and
the exact differences between them, and that, consequently, only six
cases of Value are possible to happen.

Third, so many nations at different times in all ages have lowered the
standard of their Money under a misapprehension of its nature and in a
vain hope of profit, and a general scale of rising prices following
each attempt of this kind having been several times observed and no
instance to the contrary, Economists came by Induction to assert the
proposition, that falling Moneys cause rising Prices; the proposition
stood secure on inductive grounds alone; but so soon as a perfect
definition of Money, namely, a Measure of Services, had at last been
reached both inductively and deductively, it became at once a safe
Deduction from the definition, that rising Prices must succeed a
falling Measure. Thus assurance became doubly sure.

Fourth, Introspection gives each buyer and seller such firm possession
of _his own motive_ in buying and selling, that he naturally and
inductively concludes on the ground that men are substantially alike,
that the _motive is similar_ in the party of the other part; each
further step of experience in traffic assures him of this beyond a
doubt,--each wants to get and does get something from the other of
more consequence to him than what he gives; every attempted deviation
from rectitude in trade so far forth throws the trader out from
opportunity to trade; opportunity to trade is nothing in the world but
_a market_; a market is nothing in the world but men with products in
their hands, desiring to buy other products with these; the more men
anywhere with the more products in their hands of all sorts to buy
with, the better market everywhere for other men (the more the better)
with other products of all kinds to buy with; all the appropriate
logical processes in action and reaction, all the commercial
experience of all men everywhere, and all the true statistics of
traffic ever gathered, do but assure the inductive assent to one of
the best and broadest of all the Generalizations in Economics, namely
this: _A market for products is products in market._

(d) Are the definitions and principles already logically educed from
and applied to the great class of Valuables orderly arranged in "_a
body_"? This is the only inquiry that remains, in order to determine
whether Political Economy is already a "Science" in the strictest
sense of that term. It is admitted, that a jumble of even just
definitions and principles do not constitute a science, but only these
when placed in a just order and interdependence. A "body" implies an
organic arrangement of parts. It has been well said of the human body,
that all its parts are reciprocally means and ends; the same may be
said of every living organic body, whether vegetable or animal; and
the same may be said in the way of analogy of every developed and
recognized Science. All the definitions and propositions and
illustrations in any science should be so arranged, as to show the
mutual relations and reciprocal dependence of all the parts, and as to
display the whole in harmony and symmetry.

It is as certain as anything in the future can be in science, that new
principles will be discovered in Economics as Time and Inquiry go on,
and that these will find their place little by little in a fuller and
more rounded "body" than is at present possible; while it is also as
certain as anything in the future of science can be, that the Outline
of economics is already perfectly drawn, that the great class of
Valuables will never be enlarged nor be better described, that the
category of Commodities, Services, Credits, is completed for all time,
and that the analysis of each act of trade into two Desires and two
Efforts and two Estimates and two Renderings and two Satisfactions
will never yield additional elements. Political Economy is already a
body of exact definitions and sound principles educed from and
applied to a single class of facts. This body will indeed be enlarged
by a future and finer scientific construction, the arrangement and
interdependence of its parts will be better exhibited, the form and
filling up of the Science within the outline already determined is
sure to become more compact, more robust, and more beautiful, as the
decades and centuries go by; while, as in the human body throughout
all the changes of its growth and mature life, that future body of
economic science in all its stages towards perfection will be but the
continuation and fuller development of the present "body" of Political


[1] Green's Short History of the English People, p. 591.

[2] See on this general topic, Mommsen's Provinces of the Roman
Empire, _passim._



Valuables fall naturally and exactly into three classes, Commodities,
Services, and Credits. The reasons are obvious at first glance, why
articles falling in the first class occupied the thoughts and the
efforts of men almost exclusively for the first thousand years of
recorded history. Commodities appealed to the senses of men: they are
visible, tangible, weighable. Some form of personal slavery existed
everywhere, and largely withdrew attention from personal services
bought and sold; and there was not apparently sufficient personal
confidence between man and man in the earlier ages to allow much
development of credits, whose ground is personal trust and whose
sphere is future time. Commodities, on the other hand, fitted by the
efforts of some men to satisfy the immediate wants of other men, all
ready for delivery, to be exchanged against other commodities
similarly fitted and at hand, took the field apparently in the
earliest ages of recorded Time, gradually became very large in volume,
opened new routes of travel and transportation, and served to connect
in a rough and ready way neighboring tribes and even neighboring

_Commodities are the class of Valuables comprising material things,
organic and inorganic, fitted by human efforts to satisfy human
desires._ Cattle were probably among the first things to become
valuable, that is, salable; and it is certain, that they became very
early in many quarters of the world a sort of Money or standard of
comparison among other things exchangeable, and indeed they continue
to be such in some quarters to this day. Near the middle of the sixth
book of the Iliad occur these lines:--

    "Then did the son of Saturn take away
    The judging mind of Glaucus, when he gave
    His arms of gold away for arms of brass
    Worn by Tydides Diomed,--_the worth
    Of fivescore oxen for the worth of nine_."

Gold and silver also became valuable in the ordinary way in very early
times, and later became Money or a medium in exchanging other things;
and much later other metals came into use as commodities and then too
as money; for the Latin word for money, _pecunia_, derived from
_pecus_, cattle, seems to imply some original equivalence in value
between the bronze stamped with the image of cattle and the cattle
themselves. Parcels of land subdued and improved by human hands were
probably bought and sold in some portions of the world as early as
anything was,--at any rate very early. Land-parcels are a commodity
under the definition. Another passage from Homer, towards the end of
the seventh book of the Iliad, displays some of the commodities in
common use during the heroic age in Greece:--

                  "But the long-haired Greeks
    Bought for themselves their wines; some gave their brass,
    And others shining steel; some bought with hides,
    And some with steers, and some with slaves, and thus
    Prepared an ample banquet."

The earliest detailed record of a commercial transaction in
commodities, is the purchase by Abraham of the field and cave in
Hebron, more than 2000 years before Christ. It is narrated at length
in Genesis xxiii. Long before this purchase, however, it is said of
Abraham that he "went up out of Egypt very rich in cattle, in silver,
and in gold." This formal sale to him in Hebron of the field and cave
of Machpelah is in all its parts instructive to us, and full of signs
of the drift of those times. It was "_in the audience of the sons of
Heth, before all that went in at the gate of his city, that the field
and the cave were made sure unto him for a possession. And Abraham
weighed unto Ephron the silver which he had named in the audience of
the sons of Heth, four hundred shekels of silver, current money with
the merchant._" In the lack of written and recorded deeds to
land-parcels, as we have them now, the sale of them was "_made sure_"
before the faces of living men, who would tell the truth and pass on
the word. The market-place in those days was "_at the gate of the
city_," where the judges also used to hold their courts, the place
most frequented of all, and sales were made "_before all that went
in_" thither; "_in the audience of the sons of Heth_" was the silver
weighed out, and the field made sure in exchange. Then there were
"merchants" as a class; silver passed by weight rather than by tale,
although it had already passed beyond a mere commodity and had become
money, "_current money with the merchant_"; and even at this day the
Bank of England takes in and pays out gold and silver by balance
rather than by count, though they be in coined money: it is the more
accurate method.

The author of the book of Job, believed to be of great antiquity, and
certainly true to nature and to fact in its essential parts, knew very
well the modes in which the ancient mines were wrought, and the worth
of the commodities extracted:--

    "Truly there is a vein for silver,
    And a place for gold, which men refine.
    Iron is obtained from earth,
    And stone is melted into copper.
    Man putteth an end to darkness;
    He searcheth to the lowest depths
    For the stone of darkness and the shadow of death.
    From the place where they dwell they open a shaft;
    Forgotten by the feet,
    They hang down, they swing away from men.
    The earth, out of which cometh bread,
    Is torn up underneath, as it were by fire.
    Her stones are the place of sapphires,
    And she hath clods of gold for man.
    The path thereto no bird knoweth,
    And the vulture's eye hath not seen it;
    The fierce wild beast hath not trodden it;
    The lion hath not passed over it.
    Man layeth his hand upon the rock;
    He upturneth mountains from their roots;
    He cleaveth out streams in the rocks,
    And his eye seeth every precious thing;
    He bindeth up the streams, that they trickle not,
    And bringeth hidden things to light."

The prophet Ezekiel, who wrote in the sixth century before Christ,
incidentally described in his chapter xxvii the commerce in
commodities, that then centered in the city of Tyre on the eastern
Mediterranean. "_All the ships of the sea with their mariners were in
thee to traffic in thy merchandise: many islands were at hand to thee
for trade: with silver, iron, tin, and lead, they traded in thy fairs:
they brought thee for payment horns of ivory and ebony-wood._" Among
the commodities besides these exchanged in that market, are mentioned
by the prophet horses and mules and lambs and rams and goats, wine of
Helbon and white wool, fine linen and embroidered work, and riding
cloths and mantles of blue and chests of damask and thread, wheat and
pastry and syrup and oil and balm, precious spices and cassia and
sweet reed, and gold and carbuncles and corals and rubies. These old
Phoenicians of Tyre colonized Carthage, and thus bore a vast trade in
commodities to the West, going overland into the heart of Africa for
dates and salt and gold-dust and slaves, and by sea through the
Pillars of Hercules northward to the British Isles for the sake of the
trade in tin.

The amount of transactions in commodities, the first class of
Valuables, has been constantly increasing, under natural impulses
which we shall have shortly to describe, from the dawn of authentic
History down to the present moment; and figures are baffled in
expressing to our minds the sum of these transactions even in a single
country, still more their aggregate in the commercial world. The
foreign trade of every country is almost exclusively in commodities,
and is only a small fraction of its domestic trade in the same; and
so, when we remember that the foreign trade of the United States, for
example, under a commercial system designed and adapted to curtail
such trade, amounted in 1889 to about $1,600,000,000, and the foreign
trade by Great Britain the same year to about 4,000,000,000, we gain a
glimpse, we touch as it were the hem of the garment, of the gigantic
traffic of the world in commodities alone.

_The Production of Commodities is the getting them ready to sell and
the selling them._

1. We must look first at the REQUISITES of such production. They are
three, _Natural Agents_, _Human Efforts_, _Reserved Capital_. The
following lines of Whittier touch incidentally on these three
requisites, and may serve us as a general introduction to them:--

    "Speed on the ship!--But let her bear
       No merchandise of sin,
    No groaning cargo of despair
       Her roomy hold within.

    "No Lethean drug for Eastern lands,
      No poison-draught for ours:
    But honest fruits of toiling hands,
      And Nature's sun and showers!"

Natural Agents include not only "Nature's sun and showers," but also
all the forces and fertilities and materials of free Nature, that men
may and do avail themselves of in preparing commodities to exchange
with the commodities of other men. Of higher rank in Production than
these natural agencies are the Efforts of men in molding them so as to
answer other men's Desires, of which efforts the "toiling hands" of
the poet are a symbol. They include also the inventive brains and
eloquent tongues and the skilful manipulations of every name. The
poet's "ship" is an instance of capital, which is always a result of
previous toil reserved to help on some future sales. These three
elements, Nature, Labor, Capital, conspire in all production of
commodities. Nature comes first with her free forces and materials;
and then present toil aided by the results of past toil in the form of
capital does all the rest in getting commodities ready to sell and
selling them. Let us now note each of these three a little more

(a) Natural Agents. The most important point about these is, that they
are the free gifts of God, and continue so throughout the
complications and transformations wrought on them and through them by
Labor and Capital, until the material commodity of whatever kind is
finally sold, and so passes out of the purview of our Science. Many of
the gifts of God, like the air we breathe and the light in which we
recreate ourselves and the water of refreshment drunk from spring or
brook, do not connect themselves in any way with commodities bought
and sold, and nobody ever thinks of them as salable at all; but it has
seemed and still seems to many, as if the natural fertility in a
land-parcel, the water-fall along the course of river or stream, the
timber-growth which the hand of man planted not, the deposit of gold
or coal in the bowels of the earth, and other such-like cases in which
natural gifts _do_ connect themselves with human services and then are
sold, lifted the Value of the things sold above the point to which the
mere human efforts, whether past or present, would raise it. In point
of fact, this seeming is not a reality, as will fully appear in the
sequel. God is a Giver, and never a Seller; and he has arranged it so
in his great world of gifts, that, however much shrewd men may try to
monopolize these gifts and then dole them out to other men for pay,
they are always practically thwarted in the attempt. God himself never
takes pay for anything, and has never authorized anybody to take pay
in his behalf; and when this role of Seller of free gifts, which have
cost him nothing and which he has not improved, is taken up by any
one, he is shortly crowded off the stage in shame by other actors true
to Nature.

This is the place for a grand induction. When we study in detail the
free gifts of God to this world and its inhabitants, we find they come
and keep coming _in great classes_. This is one of the uniformities of
Nature, on whose solid ground men tread and stride in safe inductive
reasoning. Can a farmer get pay in the price of his grain for the
original fertility of his field, which neither he nor his fathers nor
his neighbors have bettered or made more available? Doubtless he would
be _glad_ to do so, doubtless he _would_ do so, were it not for the
primary fact, that such fertilities as his are in a _class_ of fields,
that other men in more or less proximity to him raise grain on other
fields, whose original fertility is equal to that in his field; and
some of these other men in common competition with the rest as sellers
will be willing to part with _their_ grain for a price which will be a
fair equivalent for the onerous human services rendered in getting
their grain ready to sell and selling it; and the free action of
_these_ men as sellers will tend to fix a general market-rate for
grain then and there, at which rate _all_ must sell whether they will
or nill; and where now is the effect on price of God's free gift? It
is still free.

Here is a fine water-fall on the bounding river, the banks are low at
this point, just the place for mill and factory, the weight of God's
free water will turn the wheels, a hamlet will grow up around
them--perhaps a city,--can the riparian owner charge a fancy price for
site of dam and mill? He might under some circumstances; but the same
river doubtless, above, below, rolling over similar geological strata,
leaps and falls at other points also; there are other owners of
mill-privileges within hail; besides, there are other streams and
tributaries in the region round about; and water has a knack of
dropping to the lower levels. God's gifts are broad in classes;
competition naturally has free play; natural agents are an essential
factor in commodities; so and more so are human efforts; but Values
tend perpetually and powerfully under natural competition between men
as sellers to proportion themselves to the onerous human efforts
involved, and to eliminate completely from all influence on themselves
the broad and bountiful gifts of Providence.

What has been observed to be true in respect to two or three or more
of the classes of God's free gifts _to_ men, or _in_ men, may almost
certainly be inferred to be true of all such classes. Therefore,
inductively, _such free gifts have no effect on Values to lift them,
their influence being eliminated by human competition_. Of course, if
there be unique cases of remarkable gifts, falling in no class,
subject consequently to no competition, one cannot say confidently
that the free element in conjunction with the onerous element may not
make the return-service greater than it would be otherwise. It may,
or it may not, make it greater. There is no living principle at work
in such cases, that makes it certain, that the return-service will
_not_ be greater. Still, unique cases, if they exist, are of little or
no consequence in Economics. They are most remarkably few, at all
events. Where come in the solitary gifts, that may later be connected
with Valuables, on the round earth as God fashioned it? Gold, silver,
diamonds, copper, coal, tin, amber, spice-shrubs, chinchona-trees, and
all such things, have been scattered too widely and liberally for
individuals to monopolize them, or even combinations of men unless
they be assisted by law. Where even are the unique cases of God-given
talent or genius in men themselves, such as may become connected with
Valuables of the second class? Daniel Webster had his competitors in
the Court-room and in the Senate, Ben Jonson did not let Shakspeare
have it all his own way on the stage, and even "Milton's starry
splendor" did not make Paradise Lost sell well.

We must just note here in passing the supreme importance in an
economical point of view of untrammelled competition in the sale of
commodities. It is the divinely-appointed means, and the only possible
means, of preventing wide-spread injustice through Monopoly. Nothing
else in the world can be made effective to estop men from robbing
their fellow-men through exchanges artificially restricted; from
charging more in the market for their wares than a just compensation
for their own efforts; from enriching themselves by impoverishing
their neighbors; from worsening the quality of their wares offered for
sale; and from relying upon the artificial restrictions put on their
competitors, rather than on their own skill and enterprise and the
goodness of their goods, for a market. The Common Law of England holds
monopolies to be illegal, and the reasons given (11 Coke, 84) are,
first, because the price of the commodity will be raised; second,
because the quality of the commodity will not be so good and
merchantable as it was before; and third, because they are apt to
throw many working people out of employment. It is nothing less than a
crime against Civilization, than a sin against the clear ordinance of
God, than an artificial obstruction to individual and national
Progress, to put up bars and barriers by law for the purpose of
cutting off competition, whether domestic or foreign, either by
putting disabilities in the path of any or through monopoly
tariff-taxes, in the buying and selling of useful commodities

(b) Human Efforts. Every way unlike the free forces and materials of
Nature, indispensable as these are in the production of commodities,
is the second requisite in such productions, namely, the onerous
efforts of men. Persons are very different from things, from powers,
from lifeless materials. Persons act from motives only. Minds lie back
of bodily exertions, impelling and guiding them. Such efforts as are
needful to mold materials into commodities are only put forth in view
of, and for the sake of, a remunerative return; and only rational
beings, acting under motives whose goal is in the future, capable of
foresight and of adapting means to ends, can put forth such efforts.
No degree of training can make even the most intelligent animals
capable in any degree of that kind of exertion, which we call _Labor_;
and there is no improvement whatever in the methods of animals in
reaching their instinctive ends,--the beaver builds his dam and the
bee gathers and deposits the honey exactly as bees and beavers did
ages ago.

In the strictest sense, accordingly, there is no such thing as
physical labor, because the mental must coöperate with the physical
even in the lowest forms of human exertion; and in the same sense
there can be no such thing as exclusively mental labor, for the bodily
powers conspire more or less in the highest intellectual efforts that
are ever sold. Nevertheless, both the phrases, physical labor and
mental labor, are convenient and not harmful, whenever on the one side
the bodily powers seem to be predominant in the effort, and on the
other the intellectual.

It is now to be noticed, that all that men can do, when they labor
physically, is _to move something_. When a man works with his hands or
his feet or his whole body, all that he does or can do, is to begin a
series of motions or resistances to motion, for this good reason,
human muscles in their very structure are capable only of starting
motion and stopping motion. All the marvellous results of physical
effort in all the world have flowed from so simple a matter as the
contraction and expansion of muscle; and the world of materials is so
cunningly constructed, that, when these are moved into right position
by human hands, or by some form of capital itself the result of
previous human handling, the free powers of Nature do all the rest,
and valuable commodities are the good outcome. For one example, when
the woodman fells a tree for sale, he brings a series of motions
(_labor_) to bear upon the trunk, by means of his sharp axe
(_capital_), and then the power of gravitation (_nature_) seizes the
tree and brings it crashing to the earth. For a second illustration,
wool and cotton have by nature a certain tenacity of fibre, and what
is more to the point, a certain _kinkiness_ of fibre easily
interlinking one with another indefinitely in length; men move these
separate fibres in certain relations to each other by an instrument
(_capital_) called a spindle, and the result is thread; then other men
move these threads into relations with each other by means of an
implement (_capital_) called a shuttle, and the outcome is a web of
cloth; lastly, the tailor moves his shears through the cloth, and then
his needles, and the issue is a coat, a commodity, the valuable for
which all these processes were gone through with, and by the sale of
which all the onerous factors therein are compensated.

Now, since human muscles are soon wearied in action, and since motion
is the only thing required of men in the production of commodities,
they naturally look around for outside help in this matter; and the
first help they lighted on for moving things was the domestic animals,
the ox and ass and horse, doubtless domesticated in the very
beginnings of society; and as these can be used in so many different
places, and for such a variety of purposes, and are so cheaply reared,
they are exceedingly useful as a motive power, and will probably never
be superseded as such. Inanimate auxiliaries in moving things into
right position for the production of commodities, such as the
water-wheel and wind-mill, were undoubtedly brought into use much
later; and much later still, steam and electricity and other more
subtle and recondite natural agents. All of these helps, whether
animate or inanimate, do but cause simple motions of the same kind as
those caused by the human hand. The most ponderous engine merely
reduplicates that which the arm of a child is capable of; while in
point of delicacy and firmness of touch, perhaps no machinery can
subdivide and apply this motion so skilfully as the human fingers can.
It is said that some of the lace made wholly by hand is finer and more
delicate than any yet woven by machinery, although the introduction of
machinery into lace-making has cheapened lace products in general to a
small fraction of their former cost.

What we commonly call "_Power_," then, by whatever instrumentality
furnished, is simple auxiliary motion, additional to that of physical
human Labor. Commodities are produced in unlimited quantity and
variety by such labor, assisted by the free forces of nature applied
by means of animals and implements, which are capital. But such labor
is irksome as well as wearisome, and is never expended except in view
of a reward, which is secured only from the sale of the finished

(c) Reserved Capital. We must examine the nature of Capital with care,
and follow its varied forms without confusion, because it is the only
other factor besides labor in the production of commodities, that has
to be paid for out of their sale.

Simplest cases are always the best in economical discussions. Let us
take for illustration a recently observed case from the gold hills of
North Carolina. All the methods are strongly primitive, but all the
elements of production are present. A negro woman is the laborer, the
bits of gold scattered in the soil are the free gift of nature, a
bored log to divert the water from the mountain stream, and a tin pan
in which to gather and wash the sand and gravel, are two crude forms
of capital; free gravitation also brings the water through the log,
and free gravity carries down the particles of gold to the bottom of
the washing-pan, and many other agencies of free nature coöperate in
this very simple case of production; and besides the log and the pan,
there are doubtless some other forms of capital, at least the whittled
plug to stop at need the flow of water through the log. The chief
factor in these processes of production is still the laborer, the
motions of her hands in stirring the sand and picking out the precious
bits at the bottom of the pan are the chief motions, the labor is both
physical and mental,--no animal could be trained to adopt means to
ends like this negro woman.

It is her capital that now engages our attention. _Any Valuable
outside of man himself reserved to assist in the production of further
valuables is Capital._ The idea of growth and increase inheres in the
very word, which is derived from the Latin noun, _caput_, a head, a
source, and gives intimation in its etymology of its scientific
meaning. The word, _caput_, is often used in classical Latin for a sum
of money put out at interest, and its derivative, _capitale_, is also
used in the same sense, at least in mediæval Latin; and from this form
of the word have come into English not only _Capital_, but also by
corruption _Cattle_ and _Chattels_. Flocks and herds were at one time
the principal riches of our Saxon ancestors, and also the principal
means of _increasing_ their riches, and in process of time the same
root-word came to be spelled differently as applied to animate or
inanimate things of value; while the notion implied in the Latin
_caput_, and in the English _source_, came along in all three of these
words; and hence the careful definition of Capital above given.

It makes no difference whether the colored woman bored her own log by
means of an item of capital already existing, namely, an auger, or
hired another person to bore it for her, or bought the log already
perforated, it is an article of Capital, a valuable kept to increase
future valuables; she might doubtless sell it for something to a
new-comer wishing to operate other sand in the neighborhood, but she
keeps it to help herself gather more gold for ultimate sale, she
practises what we call in Economics _abstinence_ and must have her
reward for this in the form of _profits_ from the ultimate sale of her
commodity, gold, as well as a reward for her labor in the form of
_wages_ from the same source. As one person furnishes both the labor
and capital in this case, there is no actual division of the gross
return into wages and profits, as there always must be when separate
parties furnish the two essential factors, both of which must be
remunerated by the sale of the commodity. What is thus true of the
log, is equally true of the tin-pan, and even of the plug also, if it
be capable of repeated use and cost something of labor and the help of
a previous item of capital, namely, the jack-knife. Our negro woman of
the South is a small capitalist as well as a rude laborer, and
practises _abstinence_ as well as puts forth _exertion_, and
consequently is entitled to receive _profits_ as well as _wages_ in
the return she gets for her gold-dust when she sells it.

We are now beginning to see what the nature of Capital is, and what
the motives are for employing it. In the production of commodities
Capital is always something that makes easier to the producers the
getting ready to sell and the selling of future commodities. The
capital always spares more or less of onerous and irksome human
exertion. It always mediates between some free force of Nature and
some otherwise more onerous effort of men. The sole motive to employ
capital in any one or in all of its multitudinous forms from the
simplest to the most complex is to throw off upon the ever-willing
shoulders of Nature some part of the irksome effort that would
otherwise come to the easily-wearied muscles of men. Nature is "good,"
to use a commercial term, for all she can be made to carry of men's
work, through implements devised and machinery contrived to apply, to
commodities in every stage of their transformation and transportation
till the last, the ever-present potencies of this physical world.
These potencies cost nothing. The implements and machinery cost much
in present labor and previously created capital. The ultimate sale of
commodities must make return for all the forms of capital employed in
their production, in the shape of Profits, the reward of
_abstinence_; and for all the forms of direct labor employed in their
production, in the shape of Wages, the reward of personal _effort_.

The beaver gnaws down the tree with his teeth from generation to
generation in precisely the same manner; but man is a being more nobly
endowed than the beaver, and no sooner had he occasion to fell trees,
than something of the nature of an axe suggested itself to his
ingenuity. It is true, that his earliest attempts at axe-making were
probably of the rudest sort, but just as soon as anything was devised,
whether of flint or shell or metal, that rendered easier the felling
of a tree, Capital made a beginning along that line of obstacles. Our
chief interest in studying the implements of the successive so-called
Ages of Stone and Bronze and Iron, is to witness the increasing
degrees of ingenuity displayed by those pre-historic men. Among the
more gifted races, progress in this direction was perhaps more rapid
than we are wont to think it was, since Tubal-Cain, the first
artificer of record, is said to have "_hammered all kinds of
implements out of copper and iron_" (Gen. iv, 22). Lucretius, writing
in the century before the Christian era, put down the following lines
in vigorous Latin, as translated by Mason Good:--

    "Man's earliest arms were fingers, teeth, and nails,
    And stones, and fragments from the branching woods;
    Then copper next; and last, as later traced,
    The tyrant iron."

We are at no loss, then, to explain the origin of Capital and its
motives. Tools are invented and employed for no other reason than
this, that, by means of their help, the human efforts are lessened
relatively to the given satisfactions. Since it requires tools to make
tools, the progress of this branch of capital must have been
relatively slow at first; but, since every advance in mechanical
contrivance makes still further advances easier, there is a natural
tendency, which facts abundantly exemplify, to a more and more rapid
progression in the number and perfection of all implements of
production. The same motive that impelled to the first invention, has
impelled to the whole series of inventions since, and will constantly
impel to further inventions till the end of time. Every step of this
progress gives birth to a larger and still larger proportion of
satisfactions relatively to efforts; marks an increasing control on
the part of man over the powers of Nature; and gives promise for the
time to come of greater advantages still in both of these directions.
The powers of Nature, such as those which make the grain grow, bring
the tree down, turn the water-wheel, impel the locomotive, and send
the message round the world, all stand ready to slave in the service
of man; but in order to make their aid available for human purposes,
there must be a plough, an axe, a wheel, an engine, an electric
machine; and it is because capital brings gratuitous natural forces
into service, and the more so as capital progresses, that the Value of
those commodities produced by the aid of capital tends constantly to
decline as compared with those commodities, in the production of which
capital conspires less.

It is already plain, that the class, Capital, is a smaller and a
peculiar sub-class under the great class, Valuables; nothing can
become Capital until it first become a Valuable, and then be
_capitalized_ by a distinct act or intention on the part of the owner
to reserve it in his own hands as an aid in further production, or
transfer it to other hands to be so used, he meanwhile receiving
profits as the reward of his abstinence; only a _transferable_
valuable, accordingly, can become Capital in any case, that is to say,
it must be either a Commodity or a Credit, since personal services,
though they may be sold, cannot be put over into the hands of another
to be used in production, and therefore cannot become Capital in any
case; and the chief peculiarity of this sub-class, Capital, is, unlike
the three great classes of Valuables, each of which is utterly
distinct from the other two, so that a Commodity can never become a
Credit or a personal Service either of the others, that Capital as a
class has extremely flexible limits, and consequently certain
Commodities and Credits may easily enough be Capital to-day, and fall
back to-morrow into their respective classes of mere Valuables and the
next day come out from the class Non-Capital into the class Capital
again. The same commodities and credits may be capital at one time,
and non-capital at another, though they must be valuable all the time,
or cease to be commodities and credits. When it is said that a young
man's talents and skill are his "capital," the word of course is used
in a metaphorical sense, and the meaning is, that skill and talents
are _like_ capital in some respects. Popular language is not

Cicero wrote long ago: "Optimum et in privatis familiis et in
republica vectigal est parsimonia." _Abstinence is the best means of
revenue as well in private families as in the State._ The source of
Capital in a distinct act of will saving or sparing from present use
(_parsimonia_) a valuable commodity or credit, and the quick nature of
Capital as adding to itself (_vectigal_) in profits, are both brought
out in this Latin maxim, which is rather an expression of an old and
ingrained Roman sentiment than anything original with Cicero. It is
the very nature as well as the very name of "Capital" to increase
itself by rapid increments. It is as well the Stream as the Source.
For example, any sum of money soon doubles itself when put out at
compound interest, because the original sum increases day and night
until it be repaid. It is of the essence of every form of Capital _to
make growth_, because its sole purpose as such is to become an aid to
future and further production. A trowel in the hands of a mason, which
is capital, pays for itself every day he works with it, and perhaps
every hour of the day, in the increased production wrought by means of
it. The wheel, which free water turns, though a costly implement,
repays that cost a hundred fold in the additional bushels of wheat
turned into flour through its aid as capital. So of all implements. So
of all machinery. So of all means of transportation: ships, canals,

There was a strange prejudice in ancient and mediæval times against
this natural increase of capital out of its own bowels, as it were,
owing probably to this dictum of Aristotle: "_For usury is most
reasonably detested, as the increase of our fortune arises from the
money itself, and not by employing it for the purpose for which it was
intended._" In 1360, a French bishop, Nicole Oresme, repeats the error
of Aristotle under the same rhetorical image: "_It is monstrous and
contrary to Nature that a barren stock should give birth, that a thing
sterile in its whole being should fructify and be multiplied from
itself, and such a thing is money._" Even Shakspeare catches up the
old figure: "_Is your gold and silver ewes and rams?_" Shylock
answers: "_I cannot tell; I make it breed as fast._" In the light of
the three requisites of Production, in the light of the purpose and
wisdom of God in arranging the active forces of this world, the
prejudice in question disappears, and intelligence rejoices in the
ever-increasing use of Capital as the handmaid of Labor, in the quick
and sure reward of him who practises abstinence, in the production of
commodities constantly made easier and cheaper in all directions, in a
scale of comforts for the masses of men assuredly rising, in a
divinely appointed force lifting like Christianity itself upon the
otherwise sagging condition of mankind.

Capital assumes but two economical forms, namely, Circulating Capital
and Fixed Capital. _Circulating Capital is all those capitalized
products, whether commodities or credits, the returns for the sale or
use of which are derived at once and once for all._ All circulating
capital will be found in one or other of the following sub-forms: (1)
raw materials; (2) wages paid out in view of an ultimate profit; (3)
completed products on hand for sale; and (4) products bought and held
for the sake of resale. The crucial test of circulating capital is the
question, Are the returns to be secured by the single use or single
transfer of that particular product? Tools, for example, in the hands
of him who has manufactured them for sale is circulating capital.
_Fixed Capital is all those capitalized products, which are purchased
or held with a view of deriving an income from their delayed and
repeated use._ All fixed capital will probably be found in one or
other of the sub-forms following: (1) tools and machinery in use; (2)
buildings used for productive purposes; (3) permanent improvements in
land parcels; (4) investments in aid of locomotion and transportation;
(5) products rented or retained for that purpose; and (6) the national
money considered as a whole.

2. We will next look at the essential CONDITIONS of the production of
Commodities. These are also three, as are the Requisites, namely,
_Association_, _Invention_, _Freedom_. More or less will men make and
sell to one another commodities in any state of society, in which
there is permitted any considerable degree of association of men with
men locally or commercially, in which is encouraged in any way the
universal spirit of invention or the desire to get hard things done
easier, and in which some degree of liberty of action and security of
property and equality of privileges is guaranteed; but it is very
plain, that the production of commodities will increase in all
directions and become the greatest in that age and country when and
where are allowed the closest ties of human association both in place
and in commerce, the freest scope and largest rewards of inventive
genius, and the highest possible degree of liberty and security and
equality of rights. Let us illustrate from a state of things in the
southern half of the United States during the first half of the
nineteenth century. For the most part the land owners lived on
isolated plantations widely separate from one another, these
plantations were cultivated by gangs of slaves, a system that tends to
bring all manual labor into contempt, the poor whites scattered in
hamlets felt themselves above the slaves and beneath the masters,
intercourse between the three classes was little, opportunity to
better essentially their condition was denied to all three alike,
there were but few cities sprinkled over the vast territory and these
relatively small, the only commodity produced on a large scale was raw
cotton, the simple device for ginning this had been invented in the
decade preceding by a college boy from Connecticut, the agricultural
implements were of the rudest kind, even the coarse shoes for the
slaves were bought at the North;--in short, the degree of association
and invention and freedom was each so low, that the production of
commodities was exceedingly small, even as compared with what that
production became in one quarter of a century after the abolition of

(a) Association. If we may continue for purpose of illustration our
childhood trust in the story of De Foe, Robinson Crusoe came to lead a
very tolerable life upon his desolate island by means of his own
industry directed so as to satisfy his own wants by his own efforts.
He did everything for himself, and had no opportunity to buy anything
or sell anything. The whole course of such an isolated life could
never develop the idea of Value, would require no such word as
Commodities or suggest their production, and such a man while solitary
upon his island could not possess Property in the true sense of that
word. Association is the first main condition of Production, because
of the natural obstacles interposed between the isolated man and the
supply of his various wants. If any one man try to surmount a
considerable number of these natural obstacles, he must miserably
fail, because his powers are not adequate to the task; and hence it
follows, that, in a state of isolation, _men's wants exceed their
powers_; but now let the same man devote himself to overcome a single
class of obstacles, for instance, those in the way of procuring
suitable clothing, and his powers are adequate to this, he soon
acquires skill in it, he learns to avail himself of the free help of
Nature and the facilitating processes of art, he is able to realize
large products along his line, and is now ready to offer his surplus
in exchange with other men, who meanwhile have been giving themselves
each to another class of obstacles, have concentrated efforts and
skill upon them, have succeeded by the help of Nature and art in
surmounting them, and are now ready to offer their surplus commodities
in exchange for others; and, the exchanges beginning to be made in all
directions, men find that they thus obtain vastly greater
satisfactions for their various desires than they could possibly get
by direct efforts: so that we may even say, that, in a state of
society through association, _men's powers tend to overtake their

Without association with his fellow-men, there is no creature so
helpless, so unable to reach his true end, as is man; and therefore it
is, that the impulse to association is one of the strongest of our
natural impulses. Men come together, as it were by instinct, into
society; and, thus associating themselves together, it is soon
discovered, not only that there are various desires in the different
members of the community, which are now readily met by coöperation and
mutual exchange, but also that there are very different powers in the
different individuals in relation to those obstacles which are to be
surmounted. The tastes and aptitudes of different men are very
diverse. There is a great diversity in natural gifts. One man has
physical strength, another mechanical ingenuity, a third a
philosophical turn, and a fourth a bent and genius for traffic. Now,
then, Nature speaks in as loud a voice as she can utter, in favor of
such a degree of association and exchange as shall allow a free
development of these varying capacities, while they work upon the
obstacles to the gratification of men's wants, which lie appropriately
opposite to them.

Men must come together either locally or commercially, must learn each
other's wants, must compare with each other powers and tastes and
opportunities, must come to have some confidence in each other, and
then they will begin by rendering mutual services back and forth to
experience the better satisfactions and the new strength that
exchanges bring. Whatever improves the character of men, and thus
leads to greater confidence among them, will enlarge their commerce,
and knit closer and wider ties of association and production.
Neighborhood associations and productions soon create a surplus to be
exchanged for something else with other neighborhoods; parts of single
nations however remote from each other find a relative diversity of
advantage and an increasing profit in connecting themselves by the
ties of trade; and the separate nations learn, though late, that they
are only one great family for the grand ends of production and
progress. Even within the single nation, there is a strong tendency
for particular trades to localize themselves in one spot, as for
instance, the manufacture of skin gloves has centered itself for the
United States in Gloversville, N. Y.; and so in the great cities that
are centres of distribution, for example, the wholesale grocers of St.
Paul are on one street, the dry goods houses of Boston are in close
proximity, and the booksellers of New York are tending towards each
other in place.

Now, this broad association as between persons and nations, instead of
detracting at all from the individuality and power of each, is the
very thing that brings out the individuality and intensifies the power
of each; because it is only thus that full scope is given to the
exercise and development of each peculiar power whether of the
individual or the nation. Hence the strong tendency everywhere visible
in the world of commerce towards Specialties: the old single trades
and vocations and professions are constantly breaking themselves up
into parts, and each man is taking up that for which he is naturally
best fitted and has specially trained himself, and all to the great
advantage of individuality and personal power and progress. Mr. Carey
is certainly right in his principle (much insisted on in all his
books), that the degree of individuality depends on the degree of
association, each advancing hand in hand with the other; and he is as
certainly wrong in lacking confidence in the natural forces at work
tending to the highest degree of association and consequently to the
highest degree of individuality. These forces are immensely strong.
Men come together as it were by instinct, being conscious of
individual feebleness; personal interest is soon seen to follow the
bent of social attraction; a just sense of personal dignity and
importance in being a substantive part in the ongoings of society
enormously strengthens the impulse to association and individuality;
the progress of each and all in achievement and elevation still
further knits the ties of union; and lastly, a strong feeling of
social justice, of what is _due_ to others as well as to one's
self,--that every man has an inalienable right to his full
_opportunity_ and all that that implies, to buy and sell and get gain,
to life and liberty and the pursuit of happiness. When motives and
powers and potencies such as these, proven to be universal by broad
and constant inductions, fail as economical forces to secure
association and individuality, then it will be time to look around
with Mr. Carey for some inferior and factitious force.

(b) Invention. This is the second main condition in the production of
commodities; because production is processes, getting something ready
to sell and selling it; and Nature stands ever ready with her free
agencies to facilitate these processes, just so far as the inventive
brain of man can contrive to unite the two. Invention is the marriage
of a gratuitous force to an onerous process, and the fruit of that
union is an easier way and multiplied utilities. There are some in
every considerable community, and more in every community enlarged by
the natural association but just now described, who have the knack of
contrivance, who find their joy in finding a new power in Nature or
some new application of an old power; were it not for unhindered
association and free exchange, the individuality of these would be
effectually repressed, and they would have to drudge for their daily
bread; but the importance of inventors is well understood in every
progressive community, and under advanced exchanges their livelihood
is guaranteed by those who hope to profit by its results while their
work is maturing; and Production rejoices and grows strong and throws
out unnumbered hands to make instant use of the new power and the
easier processes, in order to multiply commodities in number and

As an illustration of all this, the reader will be interested in a
brief account of the series of Inventions made in Great Britain during
the last third of the eighteenth century, in consequence of which the
Cotton Industry was established in that country in such preëminence as
has to this day baffled the attempts of all other countries even to
approximate it.

We catch our first glimpse of Cotton in the pages of Herodotus, who
wrote more than 400 years B.C. in relation to India as follows:
"_There are trees, which grow wild there, the fruit whereof is a wool
exceeding in beauty and goodness that of sheep. The natives make their
clothes of this tree-wool._" This passage is interesting, as showing
that the first comparison of cotton with wool exhibited their
resemblance in whiteness and in _kinkiness_, which latter quality
enables them both to be spun into yarn; as showing also, that the
Hindoos very early both spun and wove cotton, and then made it into
clothes; and as showing lastly, the appropriateness of the original
name given to cotton in Europe, namely, "tree-wool," a name by which
the Germans still designate it (Baumwolle). If the extreme East
furnishes the first notice of cotton, the extreme West follows it next
in order. When the Spaniards discovered Central and Southern America
in the first quarter of the sixteenth century, they reported that they
found the Mexicans clothed in cotton cloth.

But wool was the staple of England. Parliament and people were jealous
of cotton, lest it might prove a rival to wool, and actually
prohibited the introduction of printed calicoes (so called from
Calicut in India whence they were exported). The taste, however, for
calicoes increased in spite of the prohibition, which was afterwards
intermitted for a revenue duty on plain cotton, which was then rudely
printed on blocks in London, Manchester, and elsewhere; but the
prohibition of Parliament against wearing printed calicoes was first
repealed in 1736. Fifteen years later the United Kingdom imported only
2,976,610 lbs. of raw cotton, and exported only £45,986 of cotton
goods; in one century the import of cotton became 500 times larger
than that, and the export of cottons 1300 times larger than that; and
this prodigious result was due mainly to three or four inventions
occurring within short times of each other, by means of which the free
forces of nature took the place of the onerous efforts of men.

John Hargreaves, a poor weaver in the neighborhood of Blackburn in
Lancashire, was returning home from a long walk, in which he had been
purchasing a further supply of yarn for his own loom. Spinning at that
time only admitted of one thread spun at a time by one pair of hands,
one of which turned the wheel and thus made the single spindle rapidly
revolve, and the other hand pulled gently upon the "roving" attached
to the spindle and thus drew it out to the requisite tenuity twisted
into yarn. The "carding," then effected by rude instruments called
hand-cards, by means of which the fibres of the cotton were
disentangled and straightened and laid parallel with each other; and
the "roving," a process by which the short fleecy rolls stripped off
the hand-cards were applied to the spindle and made into thick threads
only slightly twisted, were the two preparatory operations for the
spinning. All these operations were slow and clumsy, and the
consequent expensiveness of the yarn formed a great obstacle to the
establishment of the cotton manufacture in England. The improvements
made in the loom of that period by Kay, father and son, had shortly
before doubled the power of each weaver, and the spinners could not
keep up in furnishing material to the weavers.

As Hargreaves entered his cottage from this excursion to get yarn to
keep his loom agoing, his wife, Jenny, accidentally upset the spindle,
which, as was her wont, she was diligently using. Her husband noticed
that the spindle, which was now thrown into an upright position,
continued to revolve just as when horizontal, and that the thread was
still spinning in his wife's hands. The idea immediately occurred to
him, that it might be possible to connect a considerable number of
upright spindles with the revolutions of one wheel, and thus multiply
the power of each spinster. "_He contrived a frame in one part of
which he placed eight rovings in a row, and in another part a row of
eight spindles. The rovings, when extended to the spindles, passed
between two horizontal bars of wood, forming a clasp which opened and
shut somewhat like a parallel ruler. When pressed together this clasp
held the threads fast; a certain portion of roving being extended from
the spindles to the wooden clasp, the clasp was closed, and was then
drawn along the horizontal frame to a considerable distance from the
spindles, by which the threads were lengthened out and reduced to the
proper tenuity; this was done with the spinner's left hand, and his
right hand at the same time turned a wheel which caused the spindles
to revolve rapidly, and thus the roving was spun into yarn. By
returning the clasp to its first situation and letting down a piercer
wire the yarn was wound upon the spindle._"

The powers of Hargreaves' machine soon became known among his ignorant
neighbors, notwithstanding his strenuous efforts to keep his admirable
invention a secret, and these neighbors naturally enough concluded
that a contrivance, which enabled one spinster to do the work of
eight, would throw many people out of employment. A mob broke into his
house and destroyed his machine. Hargreaves retired in disgust to
Nottingham, where by means of the friendly assistance of one other
person he was enabled to take out a patent for his invention, which he
called in compliment to his industrious wife the "_Spinning-Jenny_."
This invention gave a new impulse to the cotton manufacture, but had
it been unaccompanied by other improvements, no purely cotton goods
could have been made in England; because the yarn spun by the new
jenny, like that previously spun by hand, was not fine enough nor hard
enough to be used as warp, and linen or woollen threads had
consequently to be employed for that purpose.

In the very year, however, in which John Hargreaves, the poor weaver,
migrated to Nottingham, Richard Arkwright, a poor barber's assistant,
took out a patent for his still more celebrated machine for spinning
by rollers. In one respect Arkwright was much worse off than
Hargreaves: the latter had a helpmate meet for him, the former had a
wife who is said to have destroyed the models her husband had made and
to have opposed him in every step of his career. But Arkwright was not
deterred from his life pursuit by the poverty of his circumstances or
the scandalous conduct of his wife. After many years of intense and
opposed devotion to the possible application of a simple principle he
had conceived in his mind, namely, that of spinning by means of
rollers revolving at varying rates of rapidity, he succeeded in
contriving and patenting his memorable machine, which, more than any
other one invention, localized and concentrated in England the
gigantic cotton-industry of the world. Arkwright's idea and
achievement was to pass the coarse thread drawn out from the rovings
over two pairs of rollers in succession, the first of which revolving
slowly fined the thread down evenly and gradually, and then this
thread was passed over a second pair of rollers turning with a high
velocity and drawing out the line into any requisite tenuity. Thus a
cotton thread was spun capable of being used as warp. Cotton cloth as
such could now be manufactured in England.

From the circumstance that the mill, at which Arkwright's machinery
was first erected, was driven by water power, the machine received the
inappropriate name of the "water-frame"; and the thread spun on these
rollers was commonly called the "water-twist." The old mode of carding
the cotton by hand now furnished the "rovings" too slowly to meet the
wants of the new spinning-jenny and the new water-frame; and these
great inventions would consequently have proven comparatively useless,
had not a more efficient and rapid process of carding the cotton
superseded just at the right time the old system of hand-carding.
Lewis Paul introduced revolving cylinders for carding the raw cotton
into rovings preparatory to spinning, in partial imitation perhaps of
Arkwright's principle of spinning the rovings by the rotatory motion
of rollers. Paul's machine consisted "_of a horizontal cylinder,
covered in its whole circumference with parallel rows of cards with
intervening spaces, and turned by a handle. Under the cylinder was a
concave frame, lined internally with cards exactly fitting the lower
half of the cylinder, so that when the handle was turned, the cards of
the cylinder and of the concave frame worked against each other and
carded the wool. The cardings were of course only of the length of the
cylinder, but an ingenious apparatus was attached for making them into
a perpetual carding. Each length was placed on a flat broad riband,
which was extended between two short cylinders, and which wound upon
one cylinder as it unwound from the other._"

While the foregoing series of inventions placed an almost unlimited
supply of cotton yarn at the disposal of the weaver, the machinery as
yet introduced was still incapable of providing yarn fit for the
finest grades of cotton cloth. The "water-frame" indeed spun abundant
twist for warps, but it could not furnish the finest qualities of
yarn, because these were too tenuous to bear safely the pull of the
rollers while they wound themselves on the bobbin. Samuel Crompton, a
young weaver living near Bolton, possessed the ingenuity needful to
remove this difficulty. He succeeded in combining in one machine,
which from its nature is happily called the "mule," the several
excellences of Hargreaves' spinning-jenny and Arkwright's water-frame.
Copying after the latter, the mule has a system of rollers to reduce
the roving; copying after the former it has spindles without bobbins
to give the twist; and the thread is stretched and spun at the same
time by the spindles after the rollers have ceased to give out the
rove. "_The distinguishing feature of the mule is that the spindles,
instead of being stationary, as in both the other machines, are placed
on a movable carriage which is wheeled out to the distance of
fifty-four or fifty-six inches from the roller beam, in order to
stretch and twist the thread, and wheeled in again to wind it on the
spindles. In the jenny, the clasp which held the rovings was drawn
back by the hand from the spindles; in the mule, on the contrary, the
spindles recede from the clasp, or from the roller-beam which acts as
a clasp. The rollers of the mule draw out the roving much less than
those of the water-frame, and they act like the clasp of the jenny by
stopping and holding fast the rove, after a certain quantity has been
given out, whilst the spindles continue to recede for a short distance
farther, so that the draught of the thread is in part made by the
receding of the spindles. By this arrangement, comprising the
advantages both of the roller and the spindles, the thread is
stretched now gently and equably, and a much finer quality of yarn can
therefore be produced._"

The ingenuity of Hargreaves, Arkwright, and Crompton had been
exercised to provide the weaver with yarn, and had now indeed provided
him with more yarn than he could use; the spinster had beaten the
weaver, just as the weaver had previously beaten the spinster; and the
making of cotton cloth seemed likely to continue sluggish, because the
yarn could not be woven any faster than a skilled workman could weave
it with Kay's improved fly-shuttle. In the summer of 1784, a Kentish
clergyman named Edmund Cartwright, being in conversation with some
Manchester gentlemen, one of whom observed that, "as soon as
Arkwright's patent expired so many mills would be erected and so much
cotton spun that hands would never be found to weave it," replied,
"Arkwright must then set his wits to work to invent a weaving-mill."
Notwithstanding the unanimous opinion expressed by the Manchester
gentlemen, that such a weaving-machine was wholly impracticable, the
clergyman himself within three years had invented and brought into
successful operation the "_power-loom_." Subsequent inventors improved
the idea which Cartwright originated, and before 1834 there were not
less than 100,000 power-looms at work in Great Britain alone.[3]

Substantially the same machinery invented for carding and spinning and
weaving cotton was very shortly and successfully applied to the
carding and spinning and weaving of wool, because the wisdom of Nature
imparted to them both the same sort of tenacity of fibre, the same
capacity in that fibre to be spun into a thread of indefinite length
by means of the little loops or kinks easily interlocking contiguous
fibres into a single thread, which two obvious resemblances gave an
identical name to the animal and vegetable products otherwise so
different from each other.

The spirit of Invention, one of the chief conditions in the production
of material commodities, thus simply illustrated along the line of a
single manufacture, may serve us for a sample of similar improvements
taken and taking place in scores upon scores of other lines of effort
and production. The principle is the same in all cases past and
present and still to come, namely this, to throw the strain from the
mind and muscles of men upon the forces and agencies of free Nature,
with which the world around us is crowded in our behalf, and which are
waiting to slave in the service of mankind without rest and without
fatigue,--without money and without price.

(c) Freedom. By far the most important of all the conditions, under
which the production of material commodities goes broadly forward, is
liberty of action on the part of the individual; because, wherever
such liberty is conceded, association and invention and all other
needful conditions follow right along by laws of natural sequence. By
liberty of individual action is meant the practical right of every man
to employ his own efforts for the satisfaction of his own wants in his
own way, whether directly or through exchange. Each man's right of
individual freedom is limited of course by every other man's right to
equal freedom, which the first man is not at liberty to infringe; and
also, in certain few and limited respects, by what is sometimes called
the "general good," the judge of the application of which must be the
government under which the man lives. With these limitations, which
are few in number and never serious in degree when rightly applied,
and which limit in common all other rights whatsoever, the right of
every man to buy and sell and get gain is just as fully a right as the
right of breathing. It stands on the same impregnable ground. It is a
natural and self-evident and inalienable right, with which each man
has been endowed by his Creator, to put forth efforts for his own
well-being and for those dependent upon him, either directly or by
means of efforts exchanged with other men equally free; and he is a
slave in spirit and position, who tamely submits to have his own
rights of buying and selling curtailed, or to stand by and see the
rights of his fellow-citizens similarly curtailed, unless such act of
interference and curtailment on the part of his Government be
justified by a solid proof that some other public or private rights,
which are at least as well based as his own, would be endangered by
the exercise of his own.

In what cases may a Government properly step in to regulate or
prohibit the buying and selling of its citizens? Hundreds of
inductions extending through hundreds of years have been carefully and
logically conducted in order to reach a just and comprehensive answer
to this question; and in all probability the cases have been
inductively ascertained for all time, and they are these: _such buying
and selling may be controlled and prohibited, as are proven to be
contrary_ (1) _to the public Morals_, (2) _to the public Health_, (3)
_to the public Revenue_. All other buying and selling may be safely
assumed to be both profitable to the parties to it, and also useful to
the Commonwealth in general; and any interference with it by public
authority is a high-handed infringement of natural rights, a blow
aimed at the life and source of property. These wrongful strokes at
private rights, this restriction on the freedom of individuals to
exchange products for their own welfare, is now mostly confined in
civilized countries to the region of Taxation. Within this region the
wrongs are still frightful. Judge Cooley, in his "Principles of
Constitutional Law," states the matter as follows: "_Constitutionally
a tax can have no other basis than the raising of revenue for public
purposes; and whatever governmental action has not this basis is
tyrannical and unlawful. A tax on imports, therefore, the purpose of
which is not to raise a revenue, but to discourage and indirectly
prohibit some particular import for the sake of some home
manufacturer, may well be questioned as being merely colorable, and
therefore not warranted by constitutional principle._"

Formerly, governments interfered almost beyond belief with the freedom
of their people in all industrial and commercial action; dictating
what should and what should not be grown and manufactured, what should
and what should not be exported and imported; decreeing by
proclamation or enacting by statute, the number of apprentices each
artisan might employ, and the years during which these must serve as
such, and the conditions under which they might then work as
journeymen; the materials to be used in woven fabrics, and even the
widths and other minor features of such fabrics, were prescribed in
the foremost of the European nations; in the reign of St. Louis of
France, a "Book of Trades" was issued under royal authority and is
still extant, which organizes minutely and subjects to cumbersome
rules more than one hundred separate industries as then practised;
England was the country of the great trading "Companies," and of all
of these the same may be said as Adam Smith said of the Turkey Company
formed in 1579, namely, it was "a strict and oppressive monopoly";
among others there were the African Company established in 1530, the
Russia Company beginning its operations in 1553, the East India
Company chartered on the very last day of the seventeenth century and
going out of existence in our own time, and the Hudson's Bay Company,
chartered in 1670 and so having the sole control in trade of a region
forty times larger than all England; while the colonial system
prevailing for two centuries in all the countries of Western Europe
regulated the commerce and controlled the manufactures in the colonies
with a single eye to the benefits of the mother country, as those were
conceived of under the wretched Mercantile system.

Happily, since governments have become more enlightened than formerly,
they are perceiving for the most part that they have not the least
right to interfere in those ways or in any ways with the natural right
of their people to make and grow freely all material commodities, and
to buy and sell these freely in the best markets wherever these
markets are to be found; and they are also perceiving, that by such
interference incalculable losses of property and indefinite
retardations of progress are caused to their people, as well as
weakness to themselves as governments through a more difficult
gathering of taxes and a harder maintenance of prestige and power.

The only motive to a mutual exchange of services, whether in one or in
all of their three kinds, that is to say, to a free production of
commodities and services and credits, is always and everywhere the
mutual benefit of the two parties exchanging. After all the processes
have been gone through with and the exchanges are consummated, all the
parties are richer than before, that is, they have more
_satisfactions_, otherwise the processes and exchanges would instantly
cease. Therefore, a universally free production benefits everybody,
and harms nobody. Moreover, under a system of free production, every
man is allowed under the stimulus of self-interest to work away at
those obstacles to the gratification of human desires which he feels
himself best able to overcome, to follow the bent of his own mind, and
to avail himself of all those free helps in his peculiar work which
Nature offers to him. Under these circumstances, obstacles give way
in all directions; the amount of material products produced is vastly
augmented, the number and variety and excellence of personal services
proffered are indefinitely increased, and credits compelling the
Future to pay tribute to production are multiplied; the diversified
and rapidly increasing desires of all persons in such a community are
readily met through profitable exchanges; while all peculiar
facilities natural and acquired are taken immediate advantage of, the
diversities of relative advantage in production become marked in all
directions, and a new day of industrial and commercial prosperity is
ushered in. Because under freedom all men are sure to dispose of their
industrial efforts to the best advantage, they have the strongest
possible motives to put them forth; since they can purchase with them
what they will and when they will, and where they will. Thus freedom
leads to extended association, and also to the invention of machinery
and all labor-saving appliances.

3. We are now in position to understand thoroughly the ultimate
GROUNDS of the production of material commodities. We have seen, that
these commodities have been multiplying in number and variety and
excellence ever since the beginnings of history, that they are
everywhere multiplying now at a rate hitherto unprecedented and
undreamed of, and that improved and improving methods of
transportation by land and sea are now carrying these back and forth
to the ends of the earth. What is the _principle_, under which these
things have been done, are now being done, and are certain to be done
in the time to come?

The physical and moral obstacles, that Nature has interposed to the
gratification of the multitudinous and constantly increasing desires
of men, are so great in all directions, that the powers of the
individual man are utterly unable to surmount any considerable number
of them; while at the same time, the physical and moral powers,
adapted under sufficient motives to overcome these obstacles, are very
diverse in the different individuals of mankind. Not only is there a
surprising diversity in original gifts, but also the powers acquired
by gradual concentration of personal effort upon one set of obstacles
become exceedingly diverse, as does moreover familiarity in the use of
the gratuitous forces of nature which lend their aid towards
overcoming these particular obstacles. As the result of one or two or
all of these, one man naturally comes to have a vast advantage over
others in his particular branch of business, whatever that may be;
each of these others by precisely the same means comes to have a
legitimate advantage over the first in his own branch of effort,
whatever that may be; and if, as always happens practically, the first
has desires which the varied efforts of the others can satisfy, and
they too desires which his efforts can satisfy, nothing more is
necessary to profitable exchanges between them than this diversity of
relative advantage at different points.

It is solely because a given effort irksome in itself put forth for
another person, in view of and for the sake of a return-service from
him, realizes more of satisfaction to both parties than when put forth
for one's self directly, that commercial exchanges ever take place
among men. The sole ground of these, the principle underlying them
whatsoever depend on diversity of relative advantage in the production
of commodities or services or credits as between the persons
exchanging; and this diversity of relative advantage exists by God's
appointment primarily among individual men as such, and only
secondarily on the ground of the varied soil and climate and position
and natural gifts of different parts of the earth. Reserving these
secondary considerations, which are quite secondary in importance
also, to a later detailed discussion, it is very clear and of central
consequence in our science that a diversity of relative advantage in
different things displays itself as between the individuals of every
community and country large and small. There is no hamlet in any land
in which one man has not an advantage over his neighbors in the making
of clothes, another in the making and setting of horse-shoes, a third
in the building of houses, a fourth in the curing of diseases, and
another in the keeping a school; while each of those neighbors has
undoubtedly some advantage or other over each of these in some trade
or means of livelihood. As a natural result of this diversity any two
of these villagers may profitably exchange their respective efforts
with each other, provided of course each has a desire for the product
of the other, to the manifest lessening of the effort of each
relatively to the satisfaction of each, and the more so as the
relative superiority of each to the other in his own trade is the

This point will repay some pains in minute illustration. If the
blacksmith can make and set horse-shoes only a trifle better than the
tailor could do this if he tried, and the tailor can make coats only a
little better than the blacksmith could make one if he chose, there
will be but a slight benefit to each in their changing works with one
another. For the sake of definiteness, let us say, that the tailor's
capacity for making coats is 6, and his capacity in making and setting
horse-shoes is 5; and also that the blacksmith's capacity for shoeing
horses is 6, and his ability in making coats is 5. Each has a relative
superiority to the other of 1 in his own trade; and if they exchange
efforts, as they probably would under these circumstances, there is
only an advantage of 2 to be divided between them.

Now let us suppose (what might easily become a fact), that the tailor
by exclusive and augmented attention to the conditions of his own
craft carries up his capacity for making coats to 15, the blacksmith's
efficiency in both the trades remaining the same as before. There will
now be an increased motive to both the artisans for exchanging
products with one another, and a larger gain to each than before as
the result of such exchange. The diversity of relative advantage as
between the two has now gone up from 2 to 11. The tailor can now make
a coat much better and quicker than before; and though the blacksmith
owing to his inertness can neither make nor set horse-shoes any better
than before, still less make coats any better, he will after all by
still trading with the tailor reap a part of the benefit of the
latter's increased efficiency in making coats; the new coat is at once
better and costs less than the previous one; the tailor is still less
inclined than before to leave his new and greater advantage over the
blacksmith to set himself to shoeing his own horse; even on the old
terms the blacksmith can do that 1 better than he himself can, and
rather than forego the trade he will naturally offer the blacksmith
somewhat better terms than before, or in other words will feel
impelled to share with the blacksmith a part of the proceeds and
rewards of his own now superior skill and diligence. The trade began
on the sole basis of a relative diversity of advantage as between the
two mechanics, each in his own craft; this relative diversity, without
which no exchange ever takes place between any two persons, has now
gone up as between these two from 2 units of advantage to 11 units of
advantage; how will these 11 units be divided in this case? Nobody can
tell exactly how they will be divided. Two things about it, however,
are _certain_ at least in their tendencies and potencies. The
blacksmith is sure to get some part of the extra fruit of his
neighbor's new push and spirit, while the tailor is sure to get as his
own reward by much the larger part of the whole blessed 11.

We must by no means omit to notice the logical inference from this
instance, nor fail to make the proper inductive generalization from a
sufficient number of similar instances. It is this: no man can make
any essential improvement in any of the methods of producing material
commodities, without at the same time benefiting other people as well
as himself. Under natural law, which is no respecter of persons, he
can by no possibility selfishly take to himself the entire fruits of
his own growing skill and vigor. The only way in which he can gather
in at all the fruits of these is to sell their proceeds in the open
market. To broaden his own market for now better and more abundant
goods he must offer them to everybody on somewhat better terms than
formerly--and the better the terms the broader the market--and he can
well afford to do this, because the goods now cost him less of irksome
human effort. Every improvement in the production of commodities is
precisely of that complexion. The issue of every invention, of every
improved process of every kind, is, so far forth, a cheaper product.
And this public gain follows, must follow, individual enterprise at
single points, even when the great mass of exchangers remain at the
old stage of sluggishness. Whatever increases at one point even, and
_a fortiori_ at two points, the diversity of relative advantage as
between any two exchangers, is of benefit to them both, and the
greater this relative diversity becomes the greater the benefit to

Now let us see how the matter stands, when tailor and blacksmith at
the same time feel and obey the impulses to a more skilled and
vigorous artisan life. Suppose the blacksmith too carries up his
efficiency in his own trade to 15, just as the tailor has done, the
potency of each in the trick of the other remaining as before at 5;
under these circumstances when the two come to trade with each other,
each has a relative superiority over the other of 10, and there is an
advantage of 20 points to be divided between the two; the trade is now
ten times more profitable to each than it was at the outset, when
there was only an aggregate of 2 units for the division between two
parties; and accordingly the motive to an exchange and the gain of an
exchange as between tailor and blacksmith are ten times greater than
they were before. Therefore we lay down the principle, as inductively
ascertained and as universally applicable to all exchanges, that the
greater the relative superiority at different points as between the
parties exchanging, the more beneficial and profitable do the
exchanges become to all the participators in them. If this principle
be just, and we may well flatter ourselves that it will be found to be
just, it follows, that every man who has anything to buy or sell, is
directly interested in the highest success of his fellow-exchangers,
that every trade finds its own advantage in the success of all other
trades, and that all discoveries and inventions by which Nature is
made to pay tribute to art is, restrictions apart, so much clear gain
to the world at large. In the light of sound and broad principles,
what David Hume called the "Jealousy of Trade" is simply silly.

The mainspring that impels all buyers and sellers to quicken their
movements and to improve their methods and thus and otherwise to
cheapen their costs of production, is the natural press of
_competition_. Somebody else is offering this product, or will offer
it, for less than we are now selling it for, and we must contrive
some way by shortened times or cheaper processes or a quicker zeal not
to be beaten in this market-race, is the silent argument ever making
itself felt on the mind and hand of the producer. Such natural action
always increases the general diversity of relative advantage as among
buyers and sellers.

But, on the other hand, whatever lessens or threatens to lessen this
natural and most beneficial stress of competition among producers of
similar commodities at home or abroad, necessarily lessens the motive
on the part of these producers to excellence of quality in their goods
and to cheapness of their cost, because it makes less the diversity of
relative advantage as between these producers and those producers of
other commodities against which the first exchange. The units of
advantage that would otherwise be divided between the exchangers are
diminished; the motives to trade and the rewards of trade are thus
lessened to each pair of parties subject to such diminution of
competition, and consequently to the community, or nation, or family
of nations, as a whole; and accordingly this is the precise place for
us to look into the nature and effects of _Monopoly_, so called, and
to perceive once for all, that Monopoly is the enemy of mankind.

Monopoly is a word derived from two Greek words, which mean when
combined _selling alone_, that is, the privilege of selling one's
commodity free from the competition to which it is naturally subject
by other sellers than the privileged one. Monopoly is thus artificial
restraint imposed on some buyers and sellers for the supposed benefit
of other buyers and sellers. It is wholly unnatural. It is usually
enjoyed under the forms of law. Its beneficiaries commonly cajole or
extort from Government by hook or by crook the exclusive privilege of
selling certain commodities in a designated market. Their motive is
purely selfish: it is simply and solely to get for themselves a
return-service artificially enhanced by selling commodities in a
legally restricted market. The effect in the first instance usually
corresponds to their expectations. The public are at their mercy so
far as the designated commodities are concerned.

The general story of monopolies is a dreary stretch of record of human
greed and wrong on the one hand, and of wide-spread poverty and
suffering and slowly-gathering resistance on the other. We will look
at only two instances at present in the long account, premising that,
the motives of greed and grab are the same in all instances, and the
results of wrong and hate on the part of those oppressed by them are
the same also in all instances. Let Macaulay (I, 40) tell us something
of the first instance selected for illustration. "_But at length the
Queen took upon herself to grant patents of monopoly by scores. There
was scarcely a family in the realm which did not feel itself aggrieved
by the oppression and extortion which this abuse naturally caused.
Iron, oil, vinegar, coal, saltpetre, lead, starch, yarn, skins,
leather, glass, could be bought only at exorbitant prices. The House
of Commons met in an angry mood. It was in vain that a courtly
minority blamed the Speaker for suffering the acts of the Queen's
Highness to be called in question. The language of the discontented
party was high and menacing, and was echoed by the voice of the whole
nation. The coach of the chief Minister of the Crown was surrounded by
an indignant populace, who cursed the monopolies, and exclaimed that
the prerogative should not be suffered to touch the old liberties of
England. There seemed for a moment to be some danger that the long and
glorious reign of Elisabeth would have a shameful and disastrous end.
She, however, with admirable judgment and temper, declined the
contest, put herself at the head of the reforming party, redressed
the grievance, thanked the Commons in touching and dignified language
for their tender care of the general weal, brought back to herself the
hearts of the people, and left to her successors a memorable example
of the way in which it behooves a ruler to deal with public movements
which he has not the means of resisting._"

Perhaps some one of my readers may suggest, that these are the words
of a Whig-Liberal, and may thus exaggerate the cause of the people as
against the monopolists. Well, then, let us hear the words of a high
Tory-Loyalist, the historian Hume (IV, 335, 350), in relation to the
same monopolies. "_The active reign of Elizabeth had enabled many
persons to distinguish themselves in civil and military employments;
and the Queen, who was not able from her revenue to give them any
rewards proportioned to their services, had made use of an expedient
which had been employed by her predecessors, but which had never been
carried to such an extreme as under her administration. She granted
her servants and courtiers patents for monopolies; and those patents
they sold to others, who were thereby enabled to raise commodities to
what price they pleased, and who put invincible restraints upon all
commerce, industry, and emulation in the arts. It is astonishing to
consider the number and the importance of those commodities which were
thus assigned over to patentees. Currants, salt, iron, powder, cards,
calf-skins, felts, pouldavies, ox-skin-bones, train oil, lists of
cloth, potashes, anise-seeds, vinegar, seacoals, steel, aquavitæ,
brushes, pots, bottles, saltpetre, lead, accidences, oil, calamine
stone, oil of blubber, glasses, paper, starch, tin, sulphur, new
drapery, dried pilchards, transportation of iron ordnance, of beer, of
horn, of leather, importation of Spanish wool, of Irish yarn; these
are but a part of the commodities which had been appropriated to
monopolists. These monopolists were so exorbitant in their demands,
that in some places they raised the price of salt from sixteen pence a
bushel to fourteen or fifteen shillings. Such high profits naturally
begat intruders upon their commerce; and in order to secure themselves
against encroachments, the patentees were armed with high and
arbitrary powers from the Council, by which they were enabled to
oppress the people at pleasure, and to exact money from such as they
thought proper to accuse of interfering with their patent. The
patentees of saltpetre, having the power of entering into every house,
and of committing what havoc they pleased in stables, cellars, or
wherever they expected saltpetre might be gathered, commonly extorted
money from those who desired to free themselves from this damage or
trouble. And while all domestic intercourse was restrained, lest any
scope should remain for industry, almost every species of foreign
commerce was confined to exclusive Companies, who bought and sold at
any price that they themselves thought proper to offer or exact._"

"_The Government of England during that age, however different in
other particulars, bore in this respect some resemblance to that of
Turkey at present: the Sovereign possessed every power, except that of
imposing taxes; and in both countries, this limitation, unsupported by
other privileges, appears rather prejudicial to the people. In Turkey,
it obliges the Sultan to permit the extortion of the pashas and
governors of provinces, from whom he afterwards squeezes presents and
takes forfeitures: in England, it engaged the Queen to erect
monopolies, and grant patents for exclusive trade; an invention so
pernicious, that had she gone on during a tract of years at her own
rate, England, the seat of riches, and arts, and commerce, would have
contained at present as little industry as Morocco or the coast of

But, some one will say, Hume and Macaulay are historians, writing
long after these events took place, and may likely have been too
favorable in their judgment to freedom of trade domestic and foreign.
It is indeed true, that both of them were firmly convinced that
freedom of trade is an inalienable right as well as an unspeakable
blessing to all men everywhere. So, then, let us go back to
contemporaries. Let us hear the eye and ear witnesses of the
grievances complained of in 1601. Robert Cecil was then prime minister
of Queen Elizabeth. He and his father had had more to do in granting
the monopolies than any other persons in the realm except the Queen.
Said he from his place in the Commons on the 25th of November: "_I
say, therefore, there shall be a proclamation general throughout the
realm, to notify Her Majesty's resolution in this behalf. And because
you may eat your meat more savory than you have done, every man shall
have salt as good and cheap as he can buy it or make, freely without
danger of that patent which shall be presently revoked. The same
benefit shall they have which have cold stomachs, both for aqua vitæ
and aqua composita and the like. And they that have weak stomachs, for
their satisfaction, shall have vinegar and alegar, and the like, set
at liberty. Train oil shall go the same way; oil of blubber shall
march in equal rank; brushes and bottles endure the like judgment.
Those that desire to go sprucely in their ruffs, may at less charge
than accustomed obtain their wish; for the patent for starch, which
hath so much been prosecuted, shall now be repealed. The patents for
calf-skins and felts, for leather, for cards, for glass, shall also be
suspended, and left to the law._"

Five days later one hundred and forty members of the House were
formally received by Elizabeth in person, the Speaker having been
instructed to convey their thanks to her majesty; and, after the
Speaker's address, he with the rest knelt down, and the Queen gave her
answer as follows: "_Mr. Speaker, you give me thanks, but I doubt me,
I have more cause to thank you all, than you me: for had I not
received a knowledge from you, I might have fallen into the lap of an
error, only for lack of true information. Since I was queen, yet never
did I put my pen to any grant, but that upon pretext and semblance
made unto me that it was both good and beneficial to the subjects in
general, though a private profit to some of my ancient servants who
had deserved well; but the contrary being found by experience, I am
exceeding beholding to such subjects as would move the same at first.
I have ever used to set the last judgment-day before mine eyes, and so
to rule as I shall be judged to answer before a higher judge. To whose
judgment-seat I do appeal, that never thought was cherished in my
heart that tended not to my people's good. And now if my kingly bounty
hath been abused, and my grants turned to the hurt of my people,
contrary to my will and meaning; or if any in authority under me have
neglected or prevented what I have committed to them, I hope God will
not lay their culps and offences to my charge. Though you have had,
and may have, many princes more mighty and wise, sitting in this seat,
yet you never had, or shall have, any that will be more careful and

These were the last words of Elizabeth to the Commons of England. She
died in a little more than a year. In a little less than a year before
the death of her successor, the famous Act of Parliament of 1624
declares, that all monopolies, grants, letters patent for the sole
buying, selling, and making of goods and manufactures, shall be
thereafter wholly null and void. Though this Act, and many others, was
violated more or less in the next reign, it effectually secured in the
long run the freedom of industry in England; and in the opinion of
excellent authorities, has done more to excite the spirit of invention
and industry, and to accelerate the progress of commerce in that
country, than any other law on the statute book.

Our second instance of Monopolies shall be drawn from the state of
things in the United States in this year of Grace, 1890. The
monopolies of to-day are secured by means of an instrument called a
Tariff, which, later on in these pages, will be fully discussed in its
history, inmost nature, and invariable effects. Here it will suffice
to say, that a tariff is nothing in the world but a combination of
Taxes, which taxes the people of the country, on which the tariff is
imposed, are obliged to pay in one form or another. The only word ever
uttered by a tariff, the only word a tariff from its own nature can
utter, is, _Thou shalt pay_! The ostensible reason for levying these
taxes is the constitutional one of getting money into the national
Treasury,--"_to pay the debts and provide for the common defence and
general welfare of the United States_"; but the real purpose of laying
these tariff-taxes at present is only secondarily and remotely the
ostensible and constitutional one; because, on the authority of
Professor Taussig of Harvard University, there is not a single one of
over 4000 items of taxes in this tariff, that is designed primarily to
get money into the treasury from the pockets of the people, but every
one of them is designed more or less and more rather than less to
raise the price of domestic goods to our own people artificially by
keeping out of the country by means of these taxes on them the foreign
goods, which would otherwise come into a profit. In other words, there
is no purely revenue-tax in our immense tariff at present, but every
item in the enormous list is a so-called and mis-called

By this shutting off from domestic goods the natural competition of
corresponding foreign goods by means of such tariff-taxes, a monopoly
is created at the instance and for the sole benefit of certain classes
of privileged home-producers. They can sell alone (monopoly) just so
far as other sellers are kept out by these heavy taxes. The goal of
all their striving is to get an artificially-enhanced price for their
own products at the cost of their countrymen by means of a market
restricted to themselves through obstacles excluding foreign sellers.
The end proposed by these shrewd manipulators is realized in fact.
Domestic prices are lifted on so-called "protected" goods. This is the
first effect of the monopoly. It has often been alleged, and with
great vehemence by the late Horace Greely, that competition among the
domestic producers of such wares will lower their price again to the
natural point; but if this is so, what _motive_ have the individual
producers to work so assiduously in elections and lobbyings to get on
and keep on these tariff-taxes? Again, Mr. Greely, and all others of
like association, forgets the admirable generalization of Robert
Stephenson,--"_Where combination is possible, competition is
impossible._" Combination among producers to keep up prices is always
possible in a market restricted by law. This has been proven on a
large scale in the United States during each of the past thirty years:
combinations among coal operators to keep up the prices of "protected"
coal by restricting the annual output of their collieries;
combinations among carpet and other woollen manufacturers to maintain
high prices of their fabrics by restricting their workmen to certain
hours per day or to certain months per year; have been among the
commonest of industrial events in all this interval. Within a very few
years past there has come into almost universal vogue among these
monopolists a new kind of combination called "_Trusts_,"--again
abusing a good word by making it cover an abominable purpose,--which
are probably illegal at Common Law, which only become possible under
monstrously unjust tariff laws, and which work wide-spread wrong among
the masses of the people.

A second effect of this monopoly (as of all monopolies) is to worsen
the quality of the goods sold in an artificially restricted market.
The historian Gibbon noticed this fact more than a century ago, and
said: "_The spirit of monopolists is narrow, lazy and oppressive.
Their work is more costly and less productive than that of independent
artists; and the new improvements so eagerly grasped by the
competition of freedom, are admitted by them with slow and sullen
reluctance._" Alfred Lapoint, United States consul in Peru, warned the
State Department at Washington in 1883 of this poor quality of our
manufactures, which were then trying to find a South American market.
He wrote: "_It is my duty to indicate that great carelessness prevails
with our manufacturers; for instance, I was called upon to purchase in
the United States a steam pump and boiler, which I ordered from one of
the most famed manufacturers, and when it arrived, not alone was the
boiler inadequate for the pump, but actually after two months' work
the upper tube sheet split in three parts, a proof of its bad quality
and construction._" As men are, a natural competition among buyers and
sellers is just as needful to keep up the quality of goods as to keep
down their price. Good quality always costs more of effort and skill
and capital than bad quality: why should producers continue to furnish
good quality to a market from which a free competition in good
qualities is excluded by law? Every tendency of human nature, as well
as every relevant fact in history, attests, that poor wares at high
rates invariably attends upon tariff-monopolies. Shoddy takes the
place of wool. Cheaper crowds out better material. Skilled workmanship
is displaced by unskilled. Processes of manufacture are hastened in
time, and left incomplete to the damage of the goods in order to save
capital. Monopoly is always and everywhere the foe of excellence.

A third effect of tariff-monopoly is to prevent the sale abroad of
domestic goods to the same extent and amount as foreign wares are kept
out by these monopoly-taxes. This vital and fundamental result is
almost always overlooked. If a man or a nation refuse to _buy_ of a
proffered customer, they cannot by any possibility _sell_ to him;
because buying and selling are reciprocal and synchronous; because it
takes two to make a bargain; because material commodities, for the
most part, ultimately, exchange against each other; and because the
only motive a foreigner ever has to bring his goods _hither_, is to
take in exchange for them our domestic goods at a profit, and carry
these _hence_. To forbid entrance to foreign goods is to forbid exit
to domestic goods. Monopoly-tariff-taxes, therefore, so far forth,
destroy the market for home products, without creating or tending to
create, any other market for them. Such taxes, accordingly, cause a
dead loss all around,--to the foreign producer who wants to buy our
products with his own, to the home producer who wants to sell his own
products against those, and even to the government also as a
tax-collector, which can get no revenue on foreign goods excluded by

There is a final and deeper point of view, from which all such
monopolies are wholly condemnable. _They lessen of necessity,--from
their own nature and inexorable operation_,--THE DIVERSITY OF RELATIVE
ADVANTAGE AS BETWEEN EXCHANGERS, on which diversity, as we have now
seen, the whole fact and gain of exchanges depend. Taxes on raw
materials, for example, whether actually paid on them or used to
enhance the price of other corresponding materials as in the
tariff-taxes, increase the costs of all products into which such taxed
materials enter, and so restrict the market of the home-producer by
lessening his relative advantage as compared with the relative
advantage of the foreigner over him. He cannot sell so well, perhaps
cannot sell at all, his cost-enhanced products. Monopoly-taxes on
industrial processes of any kind, on the means of transportation, have
similar effects on the cost of products; and of course, similar
effects in lessening Diversity, in restricting markets, and in
destroying the life of Trade.

Before quitting this subject, it may be well for us briefly to
classify Monopolies.

(a) Patent Rights. In the great parliamentary Statute of 21 James I,
which declared the exclusive privileges to use any and to sell any
merchandise to be contrary to the ancient and fundamental laws of the
realm, and all grants and dispensations for such monopolies to be of
none effect, two exceptions had been made; the first, in favor of
Patents for fourteen years to the true and first inventors of new
manufactures within the realm; and the second, in favor of the grants
by Act of Parliament to any Company for the enlargement of foreign
Trade, of which the East India Company chartered on the last day of
the last year of the sixteenth century became the most famous and the
longest-lived. Open letters or letters _patent_, as they were called,
giving to inventors exclusive authority to vend for a limited time any
chattel or article of commerce, of which a _model_ could be made
showing the point and application of what was claimed to be _new_; and
Copyrights, which grant an exclusive property also for a limited time
to authors and discoverers of something new and useful, of which a
model cannot be made, or, as it is phrased in the Constitution of the
United States, "_the exclusive right to their respective writings and
discoveries_"; are a part of the results among all English-speaking
peoples of the two exceptions in this famous and beneficent Act of

In the United States a patent lasts for 17 years, and is not reissued
except by a special act of Congress; a copyright lasts for 28 years,
and may be renewed by the author, his widow, or children, for 14 years
longer. In the constitution of the new German Empire of 1871, this
protection of intellectual property (_der Schutz des geistigen
Eigenthums_) is expressly included in the matters which are to be
dealt with by the _Reichstag_ or imperial parliament.

Now while patents and copyrights are a monopoly under the definition,
they are quite distinct in their purpose and spirit from the
monopolies already described. On the whole, Society does well in
trying to protect, by law, inventors and thinkers in the sole use and
benefit of their respective products for a brief and specified time.
There are large difficulties in the way of reaching this end
practically, as is proven by the endless and expensive lawsuits in
such cases, but the postulate on which it is attempted is sound,
namely, that otherwise citizens would have less motive to think and to
invent; since in that case only the public-spirited and the rich could
or would devote themselves to an important branch of the public
progress. A patent or copyright is merely a return service which
Society renders for a service received. It violates no man's right of
property, as an ordinary monopoly does, but on the other hand is a
provision to protect for a time a new right of property created by the
thought and efforts of a deserving class of men. The phrase,
"intellectual property," used above in translating from the German, is
not well chosen, since we have amply learned that anything is property
that can be bought and sold, that simple rights of many kinds are
constantly on sale in the market, and consequently that patents and
copyrights are at once proper and property because they are a
technical return-service for other services ready to be rendered to
the community.

(b) Revenue Rights. Once at a court ball, Napoleon the First noticed a
lady very richly dressed and wearing splendid diamonds, and on asking
for her name, ascertained that she was the wife of a tobacco
manufacturer of Paris; whereupon it occurred immediately to the quick
mind of the French ruler, that the State might just as well have those
great profits as an individual; and the sale of tobacco in all its
forms became accordingly a State monopoly in the interest of taxation,
and so it has continued to this day, and yields now about 400,000,000
francs a year. Other nations have adopted to some small extent this
mode of indirect taxation of their people. By legally cutting off the
competition of all private dealers in the taxed article, and by
preventing to the utmost of their power its being smuggled into the
country, Governments are enabled to sell the article at a price
enhanced artificially by the monopoly; but all that the people are
made to pay _extra_ under the monopoly, saving the costs of
maintaining it, goes directly into the treasury of the State; and, so
far forth, becomes an unobjectionable mode of taxation. Under all
forms of taxation, the aim should clearly be, that the Treasury
receive all that the People are made to pay, except the cost of an
economical collection.

(c) Tariff Monopolies. The United States has never undertaken, like
France and Germany, to vend directly and exclusively an article taxed
by themselves for the sole purpose of revenue; but unfortunately they
have undertaken and still maintain (1890) monopolies a thousand times
more unjust and objectionable than any such revenue-monopoly can be;
they have laid distinct tariff-taxes upon thousands of foreign
articles, not with the design of getting revenue from them, but with
an avowed and realized design of _preventing_ revenue by means of
these taxes, since they have made the taxes so high and onerous as to
be in many cases absolutely prohibitory of the entry of the goods, and
in all cases more or less prohibitory of such entry. Revenue can only
be gotten on goods that come in, while the very intent and result of
these taxes is to shut the foreign goods out on which they are levied,
so as to give certain domestic producers (who have themselves secured
this legislation) the monopoly of the home market in these goods.

This is the very core of public wrong-doing. This is the worst form of
monopoly that ever existed in a civilized country. Queen Elizabeth's
monopolies, which so roused the ire of the Parliament of 1601, were
nothing in enormity as compared with these tariff-taxes. Civilization
long ago sloughed off such direct grants of personal privilege as were
forbidden forever by the Act of 1624, and accordingly there is no need
of mentioning these in the present classification. Tariff-taxes for
other ends than pure revenue are the worst monopolies in existence,
because (1) they compel the people to pay under ostensible taxes many
times more than the Treasury gets from them in actual revenue; (2)
they are wholly deceptive in their terms, and their operation is
clothed in disguises difficult to strip off; (3) they are always put
on at the instance and under the pressure of the man (or men) who
expects thereby to raise the price of his own wares at the expense of
his countrymen; (4) they create under legal forms however
unconstitutional privileged classes in the community; (5) their first
effect is invariably to make the rich richer and the poor poorer; (6)
their ultimate effect is to impoverish the privileged classes
themselves by taking away from them the natural spur of competition
and self-dependence, in consequence of which their own goods become
poor, and their zeal flags, and they come to lean still more heavily
on monopoly-supports; (7) they destroy the market for domestic goods
to precisely the same extent as they cut off the market for foreign
goods, and (8) their whole retinue of evils is wrapped up in the great
fact, that the _Diversity of Relative Advantage_ is thereby diminished
both as among domestic producers of commodities and as between foreign
and domestic producers.

The expression, "natural monopoly," is sometimes used of those, who,
under freedom, and using to the utmost their natural gifts and
acquired skill, have distanced all local competitors, and may be said
to control the market in their own interest, furnishing the best goods
at the cheapest rates. This is in no proper sense of the term a
"monopoly." Production has no complaint to make of any such
pre-eminence in excellence and opportunity. It harms nobody and
benefits everybody. Exchange rejoices over every man and woman and
child, who so puts his head and heart and hand into his own peculiar
product as to outstrip all others in that one line in point of ease
and excellence, and so be able to offer a service at once better and
cheaper than any one else can offer it then and there; and when all
men and women and children, so far as they are employed commercially,
come to possess a "natural monopoly" each in his own specialty, then
Exchanges become as profitable and progressive as possible then and
there, because the ever-blessed diversity of relative advantage has
its utmost limit.

4. We come now to consider the natural LIMITS, if any such there be,
to the Production of material commodities. This point has been much
discussed. For example, Dr. Chalmers, a Scotch clergyman of great
intelligence, profoundly moved by the condition of the poor in
Glasgow, published in 1822 an interesting but not over-sound treatise
entitled "Political Economy," in which the proposition is maintained,
that the universal market is strictly limited, and therefore that,
were it not for the unproductive consumption of the rich and
luxurious, and the equally unproductive consumption of national wars,
there would soon be a general glut of material commodities, and
consequently Production would have to cease for the lack of a vent for
its products. Pretty soon we shall be able to detect the enormous
fallacy in this proposition. On the other hand, in 1803, Jean-Baptiste
Say, a very competent French economist, in chapter xv of his
well-known treatise, fully developed this very important proposition,
if true, namely, _that production may go on indefinitely in all
directions without ever a fear of reaching a general glut of

What is a market? What is a limited market? What is an illimitable
market? A market, as we have already seen in substance, is nothing in
the world but certain _persons_ somewhere with return-services in
their hands desirous to part with these in order to get, that is, to
buy, some other services offered in exchange. Each set of services is
equally a market in relation to the other set. _A market is always
persons having something in their hands to sell._ Buyers and sellers
are equally a market in relation to each other. Whenever anybody goes
forth to buy, he must of course take with him something with which to
pay for what he wants to buy, that is to say, he must become a seller
the very instant he becomes a buyer; and whenever anybody wants to
sell something, he must of course want something already in the hands
of somebody else, in which to take his pay, that is, he becomes a
buyer the moment he becomes a seller. This helps us to see perfectly
what a market is. Defined in the terms of persons, _a market is two
men, each glad to get the product of the other, and to render in
return his own product_; defined in the terms of things, _a market for
products is products in market_.

Now, what can limit the universal market for material products?
Clearly, it can only be limited either in the element of _Desires_ or
in the element of _Return-Services_. But the desires of all men, even
of one man, which the efforts of other men may satisfy, have never yet
come to a stand-still. Who ever heard of even one man, who was in
possession of all the products of all kinds, that he wanted? Even if
there were one such man somewhere, there are millions upon millions of
other men, whose desires for products such as the efforts of other men
can furnish are unlimited in number and infinite in degree. It is not
possible, therefore, that there should be a lack of human desires
anywhere, that could put any bound to the production of commodities or
hinder in the least its ever-swelling march.

If only two things can limit the universal market, and if there never
has been and never can be any lack on the part of some men of Desires
which the efforts of other men can satisfy through exchange, can there
ever be any lack in the second element of a market, namely, in
Return-services? It is not meant to be asserted, that there are not
definite limitations at any one time or place, or in the whole world
at any given period, in the capacities of men then and there to
produce material commodities, with their knowledge of things and
powers of invention; but what _is_ meant to be asserted is this, that
wherever Production is most busy and universal in response to the
desires of some men somewhere, _there_ will be the greatest plenty of
return-services, with which to pay for the services of these "some
men somewhere" offered in response to the desires of the first set of
producers. Therefore, no general glut of products is possible to
occur. The more and the more _kinds_ of commodities produced anywhere,
the better market _that_ for the more and the more kinds of
commodities produced somewhere else. The nearer Industry may seem to
be about to come to the goal of a limit, the farther off from that
goal it is in reality. The aggregate of human industrial powers has
indeed a potential limit at any one moment, but the knowledge of
things and the power of invention and the means of transportation are
enlarging every moment of time; so that, that potential limit never
can become an actual limitation. Human industry will go on enlarging
and diversifying itself so long as the world shall stand.

Let us put this vastly important argument in other and briefer words:
the Desires of men which the Efforts of other men can satisfy through
exchange are unlimited in number and indefinite in degree; and
therefore, mutual industrial efforts can continue to be put forth in
exchange, until these unlimited and indefinite desires of all men are
all met,--a goal which clearly never can be reached.

This proposition demolishes at a stroke the fallacy, that pervades Dr.
Chalmers' book but just now alluded to; and, what is more to the
present point, demolishes equally fallacies current and prevalent in
the United States at this hour. What our national industries need and
all they need, what they always needed and all they ever will need, is
a quick market for their products; products in market is the only
market for products; but the United States for 30 years past has been
putting vast obstacles in the shape of formidable taxation in the way
of the presence of products from abroad in our domestic market, and
consequently and inexorably the market for domestic products has been
lost in foreign countries, to the immense and irreparable damage of
domestic producers as well as to the foreign producers themselves.

No general glut of exchangeable products is possible to take place in
this world under natural liberty and just law, because under these the
diversity of relative advantage and consequently the profitableness of
commercial exchanges is all the time widening everywhere, tending to
bring the whole earth into a commercial and blessed union.

On the other hand, while a general glut of products is impossible to
occur under a decent freedom, a partial glut in respect to certain
commodities in certain places is very common. Through want of
foresight as to a prospective demand, or miscalculation as to its
probable amount, particular services are sometimes offered in too
great abundance or of a kind not now adapted to the chosen market, and
in respect to these the market may truly be said to be glutted. This
frequently happens with editions of books; more copies are printed
than can be sold at paying prices. Also, when the fashion changes,
which is after all less capricious than is commonly supposed, the
goods that were fashionable but are so no longer, are very apt to be
somewhere in excess of the demand for them. Nothing can then hinder a
partial or total loss in their value in the hands of their last
holders. Precautions, however, may well be taken to avoid losses of
this character, through the cultivation of foresight, and by studying
as accurately as possible the nature of human desires and the not
altogether irregular changes that have been observed to take place in
them. This constitutes the art of mercantile sagacity; and the most
successful producers in all the departments of exchange are those who
best develop this attainable sagacity, who adapt their particular
services closest to the existing and to the coming demands; who, to
excellence in the substance of their products, add taste and
attractiveness to their form; and who, as the result of this, tend
rather to lead the fashions of the many than to follow in their wake.
It cannot be wrong to repeat here in substance, what has indeed been
said already in another connection, that Production as a general rule
is no dead level of monotonous exertion,--no going forth and coming
back on precisely the same track,--since its sphere is Life with all
its wants and Man with all his desires; since there is scope and verge
enough for the development of ingenious minds in almost all of its
departments; and since its ultimate goal is beyond the ken of man.

5. We must now study with considerable pains the ultimate facts and
the essential functions of LANDS in connection with the Production of
material commodities. This has always been the most vexed question in
our Science; but it is approaching, even if it has not already
reached, a satisfactory and final solution. The present writer
believes that his own studies and researches have thrown some original
and important light upon the perplexing problem of the Value of lands
and of their produce. His present readers are surely entitled to his
clearest possible presentation of all the facts and principles of this
radical question.

The French "physiocrats" of a hundred years ago, founders of the first
School in Political Economy, excellent men for the most part as well
as good economists in general, thought, that lands were property in a
peculiar and eminent sense, that they were the ultimate source of all
values but their own, and that consequently lands should bear the
weight of the national taxes. English economists, constituting with
their followers in other countries the second School in our Science,
while not going to the length of the physiocrats, still maintained
that the value of lands and of the produce of lands were distinct in
important respects from all other values whatever. In our own time and
country, Henry George, though belonging for the most part to the third
economic School, is a great stickler for a single tax on lands in lieu
of all other taxes. We must, then, concentrate all the lights we can
gather on these points of dispute and difficulty.

(a) _The presumption in science is always against the existence of a
few outlying cases, whenever the induction has been long and carefully
conducted by many persons, and the generalization appears on all other
grounds to be sound and comprehensive._ All induction proceeds upon
the premise, that Nature is _uniform_ in those essential resemblances
that constitute a _class_ of things in science. Nature has so often
justified confidence in her essential resemblances even under the
greatest differences in external circumstance and apparent diversity,
that the presumption becomes immensely strong in her favor, whenever a
generalization patiently gathered from many particulars seems to cover
the whole ground concerned except a few obstinate-looking items, that
have not yet been closely studied. Two to one these items also will
presently fall into their predestined place. We have already seen
abundant grounds for believing, that Values arise from human services
rendered and received: is it at all likely, considering the nature of
scientific generalization and the history of all the more advanced
sciences, that in Political Economy, lands and their produce should be
found to constitute an outlying exception to the law of all other
valuable things?

(b) There is one vital distinction to be made at the outset and held
to throughout the discussion, namely, that, between all lands as a
_physical thing_, which God made and gave to all men in common
without any effort of their own, and some lands now as a _valuable
thing_, in all probability made such through the action of human
desires and human efforts brought to bear upon what _was_ merely
physical but what has now _become_ valuable. The failure to
distinguish between _lands_ as such and _valuable lands_ as such, has
always wrought confusion and mischief in the land problem. The two
things are utterly different and incommensurable. There are vast
stretches of lands on the surface of the earth, to which no _value_
ever attached or ever will attach. They are lands, and that is all.
Political Economy has nothing to say of them, and nothing to do with
them. Because they are never bought or sold, because they never give
birth to "produce," they lie wholly outside the field of Value. Then
there are immense areas of lands now valuable, that were once as
valueless as the first class. With these Political Economy has a great
deal to do, and also with the way in which they passed from valueless
to valuable. Then there is a third class of lands, that have not yet
been studied as they ought and till recently have not been studied at
all, namely, those known to have been valuable at one time, but which
have now lost their value either wholly or in large measure. There are
such lands as these in every State of our Union, and in every
civilized country beneath the sun; and Political Economy has already
learned something, and is destined to learn much more, about the
processes by which lands pass from out the first great class into the
second, and from the second into the third. Valueless, Valuable,
Unvalued,--these three words describe to the economist all the lands
of the world.

(c) If we may trust the simple record in Genesis, the whole earth was
given of God to the whole race, under the direction that they
"_replenish and subdue it_." All the lands were then certainly
valueless, although some of them were doubtless possessed of Utility,
that is, a capacity to gratify human desires through a direct
appropriation, which is a very different thing from Value, which last
is the rendering and receiving of equivalents as between two persons.
It seems very plain, that under this word, "Subdue," and under the
human services implied in that, came in the first idea of ownership in
land. When a family or tribe commenced the work of subjugation upon a
piece of land, when they enclosed it, settled on it, tilled it, in any
way whatever improved it by their own toil, then _could_ first the
idea of ownership dawn upon their minds, then first began that land to
be capable of value, since now that family might reasonably say to
another, If you want this field, you must give us an equivalent for
what we have expended on it to improve it. If the transfer took place,
what was it that was sold? What was it that was paid for by the party
of the second part? It could not be the inherent quality of the soil,
it could not be anything that the first family had gratuitously
entered upon, because similar free land with all its inherent
qualities lay open to occupation on every hand, and the second family
would surely say, For as much effort as you have put upon your land to
better it, we can make other free land as good as yours, consequently
we can give you no more at the most than a fair equivalent for your
efforts already expended. If the parcel were sold, therefore, the
_value_ of it must have been determined, not by the _gratuitous_
elements involved but the _onerous_ elements involved. The physical
thing, land, which cost nothing, has now become the valuable thing,
land, through a series of human efforts expended of such kind as call
out human desires for the results reached, and justify the rendering
of return-services for them; and that which the buyer pays for is
never the free _old_ but always the onerous _new_; new utilities,
that cost something, have been added to and intermixed with old
utilities, that cost nothing; and solely in consequence of this
expenditure of efforts on the part of some men, answering to the
desires and calling out the efforts of other men, do parcels of land
pass out from the first great class into the second great class. So
far as it can be gathered from the nature of the case, and from the
known steps of past experience, this is the simple and rational
process by which valueless lands become valuable, and _less_ valuable
become _more_ valuable lands.

(d) This line of proof, strong in itself, is strengthened by observing
how land-parcels gradually and practically pass out from the second
into the third class of lands,--from the Valuable into the Unvalued.
As it is only human Efforts wisely bestowed upon valueless lands or in
some connection with them, that ever make these valuable, so it is,
that these Efforts intermitted for a time, or less wisely bestowed, or
reckoned less in harmony with the present and prospective desires of
other men, invariably cause a loss of value in valuable lands; and, if
such neglect or unwisdom of effort continue long enough, nothing is
more certain, than that lands so treated will lose their value
altogether, nobody will give anything for them, they will drop out
from the second class into the third by the same path (only in inverse
order), by which they crept at first from valueless to valuable. Under
the writer's own observation in different parts of New England, whole
tiers of farms once valuable and productive have lost that character
either wholly or for the most part, taxes can no longer be collected
from them, nobody will really give anything for them in exchange, they
are abandoned of their former owners, they are left to lie waste or to
grow up into forest again. It follows from all this beyond a doubt,
and the logical issue is one of vast consequence to mankind, that
Value is no attribute of matter, no inherent quality of lands as such
wherever situated, but it comes and goes, it is a relation of mutual
purchase between human services rendered and received.

(e) Land-parcels becoming valuable in the way but just now indicated,
and so long as they continue valuable, that is, salable, are
technically _Commodities_, according to our triple division of all
Valuables. They belong in this grand division, that we are specially
studying in this chapter, for the same reason as a horse does or a
steam-engine does. Men did not originally make the land as a congeries
of matter, neither do men make horses, nor do they make the iron ore
out of which most parts of the steam-engine is made; but men do modify
bits of the land as God made it, they subdue it, they improve it in
manifold ways, they make it _desirable_ in the eyes of other men, and
thus or otherwise they come into possession of it, gain for themselves
a right to sell it, prepare it to be sold and sell it, on the same
principle as men raise and break and train horses and prepare them to
be sold and sell them, and just as men by many processes transform the
iron ore into a steam-engine and sell that. Ricardo, in his famous
doctrine of Rent, says a good deal about "the original and
indestructible powers of the soil"; but as a matter of fact, _there
are no such powers_, since the elements and properties that constitute
land are all the time changing under chemical and other action; and
even if there were such powers, it would still be impossible to
separate what God did for the land from what men have done in order to
fit it to be sold; and what men have ever been authorized to take pay
from other men for what God did in the creation of the world? The
simple truth is, that Value is never of God's creation but only of
men's exertion. There never was any land anywhere fit for cultivation
and sale without more or less expenditure of human labor and reserved
capital upon it; and the "powers" of the land, whatever they are,
instead of being "indestructible," are in a constant process of
wearing out, and require a constant application of labor and capital
to keep up their fertility. Valuable pieces of land, accordingly, like
all other commodities, derive their _utility_ partly from the free
contribution of Nature, and partly from the onerous contribution of
men; but, on the other hand, they derive their _value_, whether the
value be then increasing or diminishing, wholly from human desires and
corresponding efforts.

(f) It is but a step from this impregnable position to another,
namely, that Henry George is wholly wrong in his view, that there is
Value in lands as God made them and gave them to men in common; and
consequently, wholly wrong in his doctrine, that a single tax on land
values would be just and equal to land owners, and might well be made
to take the place of all other taxes on all other persons. He says:
"_If we are all here by the equal permission of the Creator, we are
all here with an equal title to the enjoyments of his bounty._" What
bounty? If he means the original utility which God put into all lands
in common, and which certain men have done nothing to better, there is
nobody to dispute his proposition. But he does not mean that, because
there is nothing of any significance that could come out of that. What
he means is, that it is God and not man who makes lands valuable. He
makes no distinction between Utility and Value in lands. He lumps the
two together in one, and calls the aggregate the Creator's "bounty."
He goes on to say: "_There is on earth no power which can rightfully
make a grant of exclusive ownership in land._" Well! Is there any
power on earth which can rightfully deny to any man or family the
proprietorship of his own exclusive _efforts_, nobody's else rights
being infringed thereby? Or can deny to him or them the _results_ of
such efforts, however embodied? When valueless lands are made valuable
by human efforts expended to that end, does not the "value" belong to
those who made it? When valuable lands have been made more valuable
than they were by the efforts and foresight of their owners, the
rights of others untouched, does not the "increment" belong to those
who have created it? The truth is, if Henry George's powers of radical
analysis had been at all equal to his remarkable power of rhetorical
presentation, the world would never have been treated to his popular
and imposing land-fallacies. Prudhon's "Property is theft," and
George's "Single tax on land," rest on the same basis of socialism.

(g) All valuable land-parcels are material Commodities, made to be
such by onerous human efforts of some sort expended upon or in some
connection with the free Utilities furnished by Nature; the utilities
are one thing in origin and function, and the values are a very
different thing both in origin and function; and the present point is,
that nearly all valuable lands everywhere are Capital also, that is to
say, products reserved to aid in a further and future production.
Capital is a relatively small class under the immensely large class
Values. Capital is by no means coincident with Commodities, since vast
lines of the latter are consumed with no reference to a further
production by means of their use. But capital is always either
commodities or claims, and valuable bits of land are always
commodities and nearly always capital; because all tillage and pasture
lands, all forests grown for wood and timber, and lands of all sorts
rented or held for resale at a higher price, are capital under the
definition, are "_products reserved as an aid to further production_."
The peculiarity of all farming lands is this, they are themselves
commodities, in whose creation God's free gifts and men's onerous
labors have conspired; and they are held in reserve by their owners as
capital, for the sake of producing by their means with the help of
more of God's free gifts further valuable commodities, such as grain,
and fruit and timber. Farms in their highest reach of previous culture
still need for crops the sun and the rain. Indeed the sun is the most
useful and powerful force in the world. Oh! how it warms and lifts and
quickens! Give it and the rain and the dew but a fair chance on lands
properly prepared for them, and endless fields blossom like the rose
and are white to the harvest!

Agriculture always has been and always will be the vocation of the
masses of mankind. Under a fair freedom, and a decent law, and a
reasonable industry, Agriculture is always profitable; because it is
natural, that is, designed by God for the welfare of mankind; because
it lies at the basis of all other industries,--most of the food of
mankind, most of the raw material of all manufactures, most of the
subject-matter of all national and international commerce,--come out
of the farms of the world; because it has been ordered so in the
nature of things, that, under a tolerable freedom, a given amount of
agricultural products tends constantly to buy, that is, to pay for,
more and more of almost all kinds of manufactured products, for a
reason to be explained shortly, thus tending strongly to uplift the
farming masses in a scale of comforts; and because there is no other
main line of human activities so constantly and so prodigiously and so
gratuitously assisted by Natural Agents as is Agriculture. As Milton
has profoundly expressed it in the "Hymn to the Nativity," the Sun is
indeed to Mother Earth "_her lusty paramour_." But at this very time
of writing a wail is coming up in ever deepening tones from Italy and
France and Germany and Russia and especially the United States, that
a colossal blunder in legislation common to all these countries now,
say rather a colossal crime of the powerful few against the humble
many, in the shape of tariff-monopolies, neutralizes in large part
these natural advantages of agriculture, makes farming unprofitable
and farmers unable to pay their taxes, diverts young men in increasing
numbers from the farms to the towns, plasters the lands over with
mortgages, shuts out from their natural markets the products of the
land, thus depressing their price, and shuts off from farmers by
outrageous taxes their natural supplies, thus augmenting their price.
Farmers in all these countries are revolving between the upper and the
nether millstones. Count Giusso, ex-Mayor of Naples, and now a deputy
from that city, has just made a speech in the Italian Parliament,
which sets forth in strong terms the great depression in Agriculture,
and the critical condition of the public finances, brought about by
the new policy of protectionism there. He says: "_The Utopian idea of
creating an industrial Italy on the ruins of an agricultural Italy,
has been a colossal error big with disastrous results. We have
preferred the shop to the land; we have preferred the coal we do not
possess to our Italian sun; we have preferred the motive force of
steam to the most powerful motive force in the universe, the sun; and
we are naturally suffering the sad consequences._" Exports increased
in Italy in 1888 by $24,000,000, and imports by $42,000,000; and the
Count quotes the cry coming up from one end of the Peninsula to the
other: "_Give us the means of selling our products, and we will pay
the taxes._" England is the only considerable country in the world,
whose customs-revenue increased in the fiscal year 1888-89 over the
year before; this English increase was over 5 _per centum_, which
means an increase both in imports and exports, whose movements are
almost absolutely free so far as England is concerned; while in all
the countries mentioned above, which are under a different system in
that respect, there was a _deficit_ of revenue from tariff-taxes as
compared with the year before, and a _decrease_ in both exports and

(h) If nearly all bits of valuable lands be capital, as we have just
seen strong grounds for believing, then it follows of course, _that
the Rent of leased lands whether for buildings or harvests is the same
in nature with the Interest on money loaned, and is the measure of the
service rendered by the owners to the actual users of the Capital_.
This proposition, seen in its radical proofs and in its logical
corollaries, takes the very life out of Henry George's land-theories,
and out of the popular remedies thereto annexed. The writer firmly
believes also, that this proposition in the grounds of it and in the
inferences from it might have been used by Mr. Gladstone and his
followers with telling effect in the animated discussions of the Irish
land-question in the British Parliament during the decade 1880-90. In
the debates on the Irish Land Bill passed in 1881, the representatives
of the land-owners in Ireland held to their right to take all the rent
they could extort by the help of the law; on the other hand the
representatives of the Irish rent-payers held to their right as
cultivators and maintainers to withhold rent in large part or
altogether; and Mr. Gladstone, as representative of the nation, while
insisting on the right of the owners to certain rents, insisted
equally on the right of the cultivators to certain important
privileges in the soil. Our present proposition with those that spring
out of it, though it was not used by Gladstone, as it might well have
been to smooth his pathway through the roughness of that legislation,
yet justifies at one and the same time the discontent of the Irish
rent-payer, the claim of the Irish land-holder to an assured rent of
some sort, and the fundamental principle of the Irish Land Bill of
1881. That bill gives a certain modified ownership and control to the
actual cultivators and maintainers of the soil. That is right.

The principle of land-values herewith enunciated, their uprise and
increase and frequent decay also in all land-parcels, justifies
completely the concessions to tenants in that bill; while the old and
still commonly accepted English principles of land, and the false yet
famous doctrine of Rent promulgated by Ricardo at the beginning of the
century, are wholly against Gladstone and his concessions in that
bill. Let us now see whither simple analysis and logical processes
will quickly bring us in this whole matter. Valuable land was once
valueless, and always remained so, until, by virtue of human efforts
expended upon it or in some direct connection with it, coupled with
the desires of certain other men for that land or its produce,
accompanied with a readiness on the part of these men to render some
equivalent for it or its use, first imparted value to that particular
patch; moreover, it has been found in practice ten thousand times,
just as one would expect, knowing the origin of value in general,
that, unless human efforts are further and constantly expended on or
in connection with that piece, and unless desires of other men
continue to turn towards it in the way of exchange, its value will
silently and inevitably escape from it; therefore, whoever has come
into possession of that valuable piece of land by purchase or
inheritance, and foregoes the use of it in favor of another as a
tenant, is morally and commercially entitled to the stipulated return
for that use, _which is rent_; but also, if that other, aside from the
current use which is always a wearing-out process, contributes in any
way to the continuance and increase of the value and fertility of the
land, then and so far he gains rights in the land and becomes a sort
of joint owner of it, since what he has done in the way of maintenance
and improvement is inextricably mingled with what the other owners or
users have done, and is of the same nature with that; and, therefore,
the modified ownership of certain tenants recognized in Gladstone's
bill is in strict accordance with ultimate justice, as it is also in
strict accord with right, that the legal owner should continue to
receive a return in the shape of rent for all the fertility and
opportunity actually contributed by him, and no more. The discontent
of the Irish peasantry has largely come from an instinct or
intelligence more unerring than the economics of the land-owners,
namely, that they are called on to pay rent for what they themselves
have _contributed_ in addition to the rent for what they have
_received_. The true origin of value in land, and the only way in
which value in land is kept up, seems to have penetrated deeper into
the minds of Irish tenants than into the minds of many British

(i) If the bulk of all valuable land-parcels be capital, as it is,
then one might expect beforehand to find _a law of diminishing
returns_ from such lands, agricultural labor and skill remaining the
same; because, all capital is tools made such by the expenditure of
human efforts on changeable material, and then by the practice of
_abstinence_, and tools from their very nature are always wearing out.
Increase of efforts in connection with any form of capital unimproved
by new inventions and uninvigorated by fresh skill, though they may
indeed increase the aggregate return, cannot, for the reason just
given, _secure an increase proportioned to the increase of the
efforts_. The English writers generally, and Mr. Ricardo in
particular, justly lay much stress on this proposition, although they
have not taken lands to be capital, and have proven the law of
diminishing returns in a different way from ours, and consequently
have not set the propositions of land in their best and most ultimate
relations. Their method of proving the law, however, is short and
conclusive: If by doubling the efforts upon a piece of land, double
the produce could be secured, and by quadrupling it, quadruple, and so
on, there would be no reason why any man should ever cultivate more
than a square acre, or even a square rod. He has a strong motive to
confine his culture to a small space, just so long as the amount of
produce is in the ratio of the efforts expended, because there is less
locomotion of tools and fertilizers and crops. The fact that he
extends his culture from one acre to another, and then to distant
acres, notwithstanding the inconvenience and expense of
transportation, is an irrefragable proof of the proposition in
question. Increase of agricultural efforts and expenditures on a given
space of land will secure a larger amount of produce, but as a general
law, _the increased amount will not be proportioned to the increased

It is through this law of diminishing returns, that the Creator has
secured the gradual occupation, by men, of almost the whole earth.
There is a strong and natural tendency to leave the old acres to
advance upon new, the old countries to emigrate to new, whenever the
returns begin to bear a more unfavorable ratio to the labors bestowed.
The farmer will advance from the first to the second acre as soon as
he thinks that more produce can be obtained from it by a given amount
of efforts than can be gotten by a like expenditure of additional
efforts upon the first acre, allowance being made for the increased
inconvenience; and so, cultivation has gradually extended itself and
men have become dispersed over the whole earth. Other principles
leading to dispersion have undoubtedly co-operated, but this is the
fundamental one, operative at all times, changing the course of
population, and consequently of empire.

(j) It follows from the points already made, _that all permanent
improvements in agriculture retard the operation of the law of
diminishing returns_. The recent introduction of the silo, for
example, upon the long-used and wearing-out farms of New England
promises, if the public law would quit throwing in obstacles, to help
restore the fertility of many of them. The discovery of new and more
available fertilizers, the invention of better agricultural
implements, the light thrown by chemistry upon agriculture, the
consequent adoption of better methods of culture and rotation of
crops, the more perfect adaptation to the various soils of the kinds
of produce sought to be raised from them,--all these and similar
improvements tend to increase the ratio of produce to the labor, and
to disguise the law just established. The lands that are now under
cultivation may be made, under more skilful modes of culture to yield
indefinitely more than at present, and the vast still uncultivated
lands of the world may come to render an incalculable quantity of food
to the world's population; but yet, as improvements are naturally less
continuous in this than in most other departments of production, as
invention has much less play, as there is less opportunity for the
division and co-operation of laborers, _as nothing can materially
shorten the time during which the fruits of the earth must ripen_, it
is certain that possible improvements will never override the law of
diminishing returns; and, consequently, _that the value of
agricultural produce tends constantly to rise relatively to
manufactured products generally_.

(k) The last point to be made under the general topic we are now
discussing, is, _that the best tenure of lands in the interest of the
production of material commodities is the fee simple in the hands of
the actual cultivators_. This is the old Teutonic holding; but special
circumstances in the British Islands have gradually changed these
small holdings once cultivated by the hands of their free owners into
large estates, the parts of which are leased out at will or for a term
of years to tenants or "farmers" as they are there called, who, in
turn, being small capitalists, as the land-owners are large
capitalists, furnish the stock and hire the laborers and thus become
the actual cultivators, and even often sublet parts of their own
leased holdings to tenants of the next degree below, who can furnish
less stock and can hire fewer laborers. The word "farmer" as used in
the United States has a quite different meaning from that it bears in
Great Britain; it means here a man cultivating his own fields with his
own funds in his own way, and it means there a man cultivating
another's fields with his own funds in a way and on terms made a
matter of contract between the two; and these two modes of culture are
so distinct that they are not likely to lie alongside of each other to
any great extent for a very long time in the same country. Since her
great Revolution, and under the action of the law requiring the equal
partition of every man's landed estate among all his children, France
has had for the most part the small holding tilled by the owner's own
hands, instead of the great estates of the old _régime_, the average
being about 14 acres to each owner, and nearly one fourth of the
entire population being proprietors of land either in town or country;
in the United States the plough is guided almost wholly by the man who
owns the soil he tills; while in Great Britain the original peasant
proprietor has almost entirely disappeared. Each system has its
advocates and arguments.

The question at bottom is, whether capital in the form of tillable
land is more _effective_ when held in large masses and loaned out to
men, who possess small capitals in another form than land, and are
willing to apply these for a return upon that land, or when held in
small masses and used as capital by the owners themselves, who also
own some capital in another form than land and are willing to apply
this to their own profit upon their land. We hold, that the latter
method is better than the former, both for the maintenance and
improvement of the land itself as capital and also for the current
production of commodities from it, because, (1) when one owns the farm
he works, from the very nature of permanent ownership he takes a
greater interest in it, perhaps he has inherited it from his fathers,
perhaps he has bought it and paid for it at the hardest, at any rate
it is his own, and as all men work from _motives_ and the energy of
the work is proportioned to the constant press of the motives, then
must the owner of the capital, whose abstinence _makes_ it capital, be
under the strongest possible motive at once to improve his capital and
also to make the current produce from it as great as possible, since
the capital itself and all it yields is his own; moreover, (2)
ownership improves the moral _character_ of the cultivators, it tends
to make them industrious, thrifty, frugal, independent, hopeful of the
future, anxious to give their children better privileges than they
themselves had, and it would seem as if the masses of men are educated
by nothing so much, at least by nothing more, as and than by the
_ownership_ of land, wherever such tenure is possible and easy to the
masses; and (3) the outward testimony is abundant from many lands,
that the peasant proprietor _is_ a happier and more virtuous man, a
more productive and progressive one, than the mere tenant and
farm-laborer, while there is much perhaps less conclusive testimony
that leased lands are inferior in point of improvements and
productiveness to the same lands when cultivated by their owners and
to contiguous or at least similar lands still so cultivated.

It is a cognate point yet worthy of separate mention, that a general
division of lands into farms only moderately large and approximately
equal is most favorable to the largest aggregate production. Such a
division takes place of itself wherever the lands are held in fee
simple, and the cost of land-transfers is slight, and there are no
such obstacles as slavery or primogeniture, as has happened
practically in New England and in the Middle and Western States, and
as is now happening of its own accord more or less at the South. The
Greek writer, Aristotle, quoted some centuries before Christ from "the
African," probably some Carthaginian writer on agriculture, the now
familiar saying, "_the best manure for the land is the foot of the
owner_." This homely word long attributed to Dr. Franklin, who stole
it for his "Poor Richard's Almanack" more than a century ago, is based
on the sound principle, that personal supervision to be most effective
must be limited in its sphere, and that the best agricultural skill
becomes weak when it attempts to exhibit itself on too broad a
surface. Because a man can cultivate 100 acres better than any of his
neighbors, it does not prove that he will cultivate 50 acres
additional to them better than a neighbor of inferior skill, who is
the owner of these 50 and no more. When the freeholds are small and
nearly equal a wide competition among the farmers comes naturally into
play, success is seen to depend upon personal efforts of intelligence
and will, and interest and hope become the motives to the most
productive cultivation. There is a high pleasure in possession and in
self-guided exertion, and an impulse is broadly felt over the whole
region to get as much as possible out of the land and at the same time
to keep good and ever improve its condition. To protect and advance
his own interests, to attend upon the seasons, to watch and wait, to
foresee and plan and labor,--all this develops the farmer, and gives
him energy and independence; and wherever there is a broad basis of
such independent yeomanry to lean back upon, when heavy taxes are to
be raised and strong blows of battle are to be struck, the national
safety and position are assured.

6. We come now in the last place to consider the _Costs of Production_
of material commodities of all sorts. Valuable patches of land, all
prepared for Production in its several kinds, are the most important
Commodities in the world, and the largest also in volume of Value.
What did it cost "_to subdue_" the present tillable lands of this
country? How much did it cost to get ready for grazing the broad
pastures? To make accessible the forests that yield the timber? To
open up the mines also and bring them into "touch" with the
population? These questions are of great consequence, not that the
actual past cost of any class of these more permanent "commodities" in
the commercial world will be any safe guide to their present value,
since cheaper and cheaper means of subduing the rugged forms of Nature
are all the while coming into play, and all things that did cost more
once tend pitilessly to fall to what similar things cost now; and
since also it is never "efforts" alone that determine the value of
anything, but efforts in conjunction with the "desires" of other men.
Still, the _amount_ of efforts expended at any given time upon these
more stable commodities to make them productive, that is, their cost
of production, is always gauged in general by an _estimate_ of what
the "desires" for them will be when completed; and this makes their
cost of production a sort of loose measure of their value at the time.
The main reason, however, why the cost of production of these primal
commodities, namely, valuable land-patches, whatever may be expected
to be produced from them afterwards, is so important, is, that as a
general rule, the less the cost of any commodity meeting a universal
want _the wider and surer is its market_. The larger the circle of the
buyers of anything the more certain its sale; because, the world over,
the men of small incomes are manifold larger in number than the men of
large incomes. Society is like a pyramid: the lowest course of masonry
is the longest and widest,--has the most stones or bricks in it,--and
ever fewer towards the top.

If we reckon valuable lands as the _primary_ commodities, then the
_secondary_ commodities will be of two classes, namely, (1) the
_produce_ of these valuable lands, whether animal or vegetable or
mineral, such as cattle and cereals and coal; and (2) vendible
material products obtained by human efforts from non-valuable land and
sea, such as furs and fish. This division of material commodities into
primary and secondary, and the distinction among secondary commodities
according as their source is costly and costless, has never before
been drawn in Political Economy; and it is fully believed, that the
thoughtful reader and student will pretty soon perceive its advantages
in helping clear up one of the most confused and perplexing sections
of our Science, namely, that which relates to the causes and measures
of _Rent_. We are now to inquire into the elements of the _cost of
production_ of each of these three classes of commodities; and we may
find ourselves surprised at the simplicity and certainty of these

_1._ We will now look into the Cost of Production of valuable
land-patches themselves, the first and most important class of
commodities. Here, as everywhere else in Valuables, we discover
certain free gifts of Nature, without whose presence indeed the value
could never come into being, but which are not _constituents_ of the
value, because they are gratuitous, given of God, and because the
natural competition among buyers and sellers inevitably flings out
from all effect on value of the otherwise possible action of these
free and bountiful gifts, as have been already fully illustrated in
chapter first. No piece of land ever yet had one particle of Value
until human efforts of some sort had been expended on it or in some
connection with it, for two excellent reasons, first, no man would
ever even _think_ of saying to another in reference to such a piece of
land "Give me something for it and I will pass it over to you," and
second, even if he did think of such an absurdity the other would
reply "Why should I give you anything for something to which you have
not the least claim, especially as I can take for nothing just such
pieces all around here?" It must be remembered, not only that God gave
the whole earth to all mankind without distinction, but also that his
bountiful hand scattered all peculiar kinds of patches in great number
upon each of the Continents. There is a plenty of Utility (gratuitous)
in land-parcels just as God made them, but no possibility of Value
(onerous) till other hands than His have touched and benefited them.

What, then, are the onerous elements that enter into the value of
land-parcels and constitute their Cost of Production? There are only
two such elements, namely, _Cost of Labor and Cost of Capital_. To
find out exactly what "Labor" is, and what there is in it entitling
and assuring its reward in "Wages," will be the task and perhaps also
the pleasure of the next chapter; but it will suffice for the present
discussion to say, that Labor is human exertion put forth for the sake
of a commercial return. Lands can by no possibility be brought out of
a state of nature into a state of value without the expenditure of
Labor; and the actual or estimated cost of this labor, accordingly, is
the first constituent of the Cost of Production of valuable lands
considered as Commodities. Labor, however, can not apply itself to
free lands in order to make them valuable without the co-operation of
another onerous element, namely, Capital, in some of its many forms.
For example, if forest lands are to be made tillable, the trees must
first be cut down, and this will require besides the muscular exertion
of the laborer something in the way of an axe, which is capital, the
result of previous labor reserved to assist in further production: if
native prairie is to be subdued to a valuable commodity, something of
the nature of a plough must be employed in the process, and horses or
a steam engine to propel it, and a plough and horses are capital, and
still require fresh labor to make them useful in production. But
capital always costs something; and, therefore, the cost of the
Capital enters in as a second constituent into the cost of production
of Land-Commodities. But these two costs are all. We shall search in
vain for any other onerous element in the cost of producing
commodities. There are two variables only in the Cost of Production,
which itself is the sum of the two subordinate costs.

(a) And now let us analyze first the Cost of Labor in this connection,
and then second the Cost of Capital, and we shall soon reach radical
and unchangeable ground, and find in the sum of these two an aggregate
Cost of Production, and also all of the variables that can ever enter
into such Cost. It is plain to reason, that only by Labor non-valuable
land-pieces ever did or ever can become valuable. Captain John Smith
understood this in 1607 at Jamestown as well as anybody understands it
now: there were 48 gentlemen, and only 12 tillers of the soil, among
the 105 colonists, who originally landed there: "_nothing is to be
expected hence_," he wrote of the new country, _but by_ "_labor_:" new
supplies of laborers, aided by a wise allotment of land-parcels to
each colonist, secured after five years of struggle the lasting
fortunes of Virginia: "_men fell to building houses and planting
corn_": the very streets of Jamestown were sown with tobacco; and in
fifteen years the colony numbered 5000 souls.

Now the cost of Labor is analyzable into three variables only, namely,
(1) the _efficiency_ of the labor; (2) the _rate_ of nominal wages
paid; (3) the cost to the employer of _that valuable_, in which the
wages are paid. Let us see: what an employer wants _is to get things
done_; consequently, if an employer hire two men to work for him at
the same rate of wages, and if one be twice as efficient a laborer as
the other, the _cost_ of the labor of the first is only one half the
cost of the labor of the second: therefore, a _high rate of wages_
does not mean _a high cost of labor_ whenever and wherever the
laborers are very efficient. As a rule, it is found, that the cost of
labor in reference to a given product is _the least_ in those
countries, like the United States and Great Britain, in which the
rates of nominal wages are _the highest_; because, it is found also,
that a high _efficiency_ of laborers accompanies both as a cause and
as an effect high rates of wages.

Secondly, there are striking differences in the rates of nominal wages
paid for a day's work in the same general employment in different
parts of the same country, and especially in different countries. The
agricultural laborer in the west of England, say in Wiltshire, gets
about 10_s._ per week, while in the north of England, say
Nottinghamshire, laborers at the same general work get about 16_s._
per week. Walker in his Wages-Question gathers from the best
authorities many such statements as these: "On the Grand Trunk Railway
in Canada the French-Canadian laborers received 3_s._ 6_d._ a day,
while the Englishmen received from 5_s._ to 6_s._ a day, but it was
found that the English did the greatest amount of work for the
money." "In the quarry at Bonnieres, in which Frenchmen, Irishmen, and
Englishmen were employed side by side, the Frenchmen received 3, the
Irishmen 4, and the Englishmen 6, francs a day; and at those different
rates the Englishman was found to be the most advantageous workman of
the three." "The statistics of the iron industry in France show, that
on the average 42 men are employed to do the same work in smelting pig
iron as is done by 25 men on the Tees." "In India, although the cost
of daily labor ranges from 4-1/2_d._ to 6_d._ a day, mile for mile,
the cost of railway work is about the same as in England." Thus it is
plain, that a _high rate of wages_ does not import a _high cost of
labor_, but rather the reverse. A vast mass of current fallacies are
disposed of in a moment by this truth seen in its grounds. The United
States have shown in the past the highest rates of nominal wages in
the world, and at the same time have shown the lowest costs of labor
to the employers, because as a rule the laborers here have been more
efficient than elsewhere. England has the highest rates of wages and
the lowest costs of labor in Europe for the same reason. The degree of
_efficiency_ shown by different laborers is the second variable in a
cost of labor.

Thirdly, if that valuable, whether money or other, in which wages are
paid, varies in cost to the employer, then the cost of the labor paid
for by that valuable, efficiency of the laborers, and nominal rate of
pay remaining the same, will of course be varied thereby. We shall
learn hereafter in the chapter under that title, that the value of
"Money" is by no means invariable even in one country, just as we have
already learned the variable nature of all other values; and, too,
wages are not always paid in money, though they are commonly reckoned
in the terms of money; and accordingly, the third and last variable
in a cost of labor is the cost to the employer of that valuable,
whatever it be, in which the wages are paid. Assuming, as we may, that
given wages are paid in money, then any country that has for any
reason a more abundant money than another may clearly pay higher rates
of nominal wages than that other without making its costs of labor any
higher than in that. The United States, for example, has usually had a
very abundant money (not always of the best kind), which of course has
tended to make higher the current prices of all commodities, and this
has enabled capitalist-employers to pay higher nominal rates of wages,
without at all enhancing relatively the costs of labor, and also
without really benefiting the laborers.

(b) We will now analyze second the Cost of Capital in this connection,
as the only other element of cost in the Cost of Production of
Commodities in general, and particularly now in the cost of making
worthless land-pieces valuable so as to be used in further production.
Here too we find three variables, no one of which can be safely
neglected any more than the other three in the reckoning that has for
its object a prospective cost of production. These are, first, _the
current rate per centum_; second, _the time for which the capital is
advanced_; and third, _the liability of that form of capital to slow
or rapid wearing out_. For instance, under the first variable, the
rate per centum of capital, if the rate at Amsterdam be 3 and that at
New York be 7, if the cost of labor be equal in the two cities, if the
time of advance be one year, and if there be no liability of the
capital to wear out; then any commodity made at Amsterdam with an
outlay of $100 may be sold at a profit for $103, while a similar
commodity made at New York with the same outlay cannot be sold for
less than $107. All other things being equal, a _low rate per centum_
of capital in any country gives that country an advantage in the
markets of the world for selling its commodities over other countries
offering similar commodities where the rate is higher, because its
cost of their production is less. Of course also such a country can
subjugate its wild lands and make them valuable at less cost than the
other countries.

To illustrate the operation of the second variable, the time for which
the capital is advanced, let the same suppositions be continued,
except that the _time of advance_ at New York be extended to four
years. Then the commodity may be sold at and from Amsterdam, as
before, at $103, but the corresponding commodity at and from New York
for not less than $131, so far as mere cost of production determines
the prices. This point is also well shown up in the case of wine,
which, to reach its perfection, requires to be kept a number of years,
for, if it be genuine and ripe, its cost of production has been by so
much enhanced by its delay in reaching the market. If the time of
advance be long, and the rate _per centum_ high at the same time, the
cost of capital from the two causes combined multiplies the cost of
the product; and consequently, only countries in which the _rates_ are
low can successfully engage in enterprises requiring a large capital
to be invested for _long periods_ before returns are realized. One
million of Dutch capital at 3% a year, expecting to realize returns
only after 20 years, may be remunerated by products selling for
$1,806,111; but American capital under like circumstances, except that
the rate here is 7%, must have a return of $3,869,685, or lose by the

To illustrate the action of the third and last variable, we must
observe, that all forms of capital wear out, but some forms much
faster than others, and that this makes a difference in the
sinking-funds that must be reserved out of the gross profits of the
capital in order to replace the principal whole. This difference will
at once affect the cost of capital, and so of production, and so
indirectly the ultimate value of the product. Suppose there are two
commodities, which we will call A and B, produced in two different
establishments, in each of which is invested a capital of $11,000, in
one of which is used a machine that costs $1000 and is wholly worn out
by one year's use, and in the other a machine costing the same sum,
which will last, however, for ten years. Suppose further, that the
rate _per centum_ of profit be 10, and the time consumed in completing
each of the two products be one year. Now there is a marked difference
in the Cost of Capital in the two establishments, and this difference
will indirectly but immediately appear in the Value of the respective
products. For, to A must be charged not only $1100, the interest on
the whole capital at the current rate, but also another $1000,
wherewith to replace the machine already worn out by a single year's
use. A, accordingly, cannot be sold without loss for less than $2100.
B, however, will cost less and can be sold for less at the usual
profit. Because, to it must be charged, as before, $1100, current rate
of profit on the capital invested, and only $100 (really less than
that for an obvious reason) to replace the durable machine after ten
years' use. The capitalist, therefore, can sell B for $1200, and make
something over the current rate of profit.

Since the cost of capital invariably resolves itself into these three
variables, every capitalist in order to become successful as such must
give strict attention to all three of these points. To any one who
projects the making of valueless into valuable land, or valuable into
more valuable land, by the expenditure of capital upon them for that
purpose, it becomes a matter of prime importance for him to inquire
how long a time the whole process will take, how much he must allow
_per annum_ for the cost of all the implements employed, and
especially how complete in action and duration are these costly
implements. The _durability of machinery_, whatever the name it bear
and whatsoever the work it do, is at once the most significant and the
most neglected point in the actual and prospective Production of our
time and country; and no condemnation can be too severe upon a policy
of public law, such as now prevails, whose whole tendency and actual
effect is to worsen the quality and lessen the durability of all
commercial implements whatsoever, from the needle to the locomotive.
The same abominable public policy increases the cost and decreases the
durability of all agricultural implements, like the axe and the
plough, designed and adapted to transform valueless and non-productive
into valuable and food-producing lands.

_2._ Now, having fully seen the elements of the cost of reducing land
itself from a natural into a valuable and productive form, what next
are the elements of the cost of production of those material
commodities produced for sale _by the aid_ of these subdued and now
productive lands? Commodities so produced constitute the second class
in the law of their Cost of Production. And a vastly important class
it is. The food of the world, so far as that food is purchased as the
product, whether animal or vegetable, of valuable lands; the fuel of
the world, so far as that fuel is bought from owned and accessible
forests and mines; the clothing of the world, so far as the fabrics
come from the cultivated cotton and flax and wool and skins offered
for sale; the shelter of the world, so far as the wood and brick and
stones and lime are drawn from valuable lands and quarries; and the
warehouses and the temples and the theatres of the world, built, as
they are, out of the products of costly and rentful lands: these all,
and many more like these, constitute a class of commodities immense in
their volume, whose cost of production has in it an element peculiar
and additional to that of the first class already analyzed, and to
that of the third class also soon to be considered.

This peculiar and additional element in the cost of production of
these things, class second of commodities, is called RENT.
Interminable have been and still are, especially in the British
Islands, the definitions and discussions upon Rent: they have boxed
the compass of economical nomenclature: they have run up and down the
entire gamut of possible expression on such a theme. David Ricardo,
the Anglo-Jewish Banker, formerly announced, near the beginning of
this century, that "_Rent is that portion of the produce of the earth,
which is paid to the landlord for the use of the original and
indestructible powers of the soil._" Two objections lie with fatal
weight against this definition and all that is involved in it: first,
there _are_ no "indestructible powers of the soil," either "original"
or acquired, since the universal verdict of all agriculture has been
and still is, that the "powers" of all soils are continually wearing
out, and need to be constantly renovated by fertilizers and
manipulations of all sorts; and second, even if there were such
"original and indestructible powers," it would be impossible to
separate them from the additional "powers" acquired by means of the
capital expended to bring that land from the state of nature to its
present state, and the landlord has had nothing to do with any
"powers" of the land except those conferred by his own labor and
capital upon it, and can by no possibility put himself into a position
where he can _enforce_ any claim of his own for a return from any
"original powers" of any land-parcel whatever. The simple truth is,
and it illumines the whole subject of agriculture and its products,
that the value of land-parcels and also the value of the transient use
of them, or _Rent_, hang wholly on the onerous human efforts involved
in them, and not at all on original and gratuitous utilities. Science
has only to unfold the plan of God and its actual and beneficent
workings. "_In the sweat of thy face shalt thou eat bread._" All that
God furnishes to men in order to get a living and in order even to get
rich is Opportunity. The opportunity is ample. The call to a
partnership in Effort as between God and men is loud and constant. The
world with all its powers, free lands with all their utilities, the
change of seasons, the blessed sun and the blessed dew and rain, the
constant disintegration of rocks beneath the soil and the gradual
clothing with lichens and moss and verdure of the rocks above in
preparation for a new soil, and the wonderful chemistry of the vast
laboratory of Nature, all work night and day without fee or reward in
the service of mankind. But men themselves must not intermit their
labor. All values are of _their_ creation and maintenance. If they
cease or relax their labor upon land-pieces so only made valuable and
rentful, then will the value and the rent begin to slip away
inexorably, and no prayers and no regrets will avail to call them

Now, then, since commodities of the second class in the cost of their
production must respond not only to the _current_ cost of Labor and
Capital in bringing them to market, but also something additional in
the way of Rent to the _past_ cost of the implement, the land-parcel,
without whose contributing agency present results could not be gained;
_Rent is the Rendering for the present use of a Valuable made such by
past Labor and Capital._ Land-parcels leased for agriculture; mines
and the access to them leased for the production of metals and
minerals; and forests whose growth has been permitted by the past
_abstinence_ of their owners; all properly yield a rent; because these
forms of capital, whose existence is due to past labor and capital,
are present contributors to products, whose sale must compensate not
only present labor and the use of current capital, but also the use of
these more permanent forms of capital long ago created.

A competent authority estimated in 1881, that the land-parcels of the
United Kingdom of Great Britain were worth £3,000,000,000; and there
were at the same time 6,000,000 of inhabited houses, excluding
factories and business premises and tenements renting for £20 and
under. Most of these lands and houses are rented by their owners to
the actual occupiers on the just principle explained above, inasmuch
as the lease-system is the prevailing one in that country. According
to the Census of 1880, there were 4,008,907 so-called farms in the
United States in that year. Most of these are held in fee simple, and
are tilled by their owners; but just so far as land-patches and
forests and mines are leased in this country, their products must
provide in their price of sale for current rents, as well as current
costs of present production. This is just as it should be, and just as
it must be, if Capital is to take this form of assisting the processes
of future production.

But this form of Capital, as well as all other forms of the same, is
perpetually wearing out, that is to say, is gradually losing its power
to contribute as at first to the present and future processes of
production. This loss is in the very nature of things,--in the very
nature of all Capital. The great Father never intended that His
children should cease from work. He has ordered all things so, that
they cannot cease from work, and continue to live in any comfort and
progress. Value, as we have already thoroughly learned, is not a
quality that can be put into anything _to stay there_: it is a
recurring relation of mutual services between man and man; and each of
these services of the three kinds involves recurring Efforts. Capital
is a form of Value; and, consequently, it cannot possibly take on a
shape not subject to the _law of diminishing returns_. This is
deductive proof. And precisely the same result is reached by
Induction. Men have noticed and recorded the fact at all times, and
have made provision for it in their pecuniary calculations, that tools
and machinery need to be repaired and then replaced, that the current
interest on moneyed capital tends to decline from generation to
generation in all progressive countries, and also that lands and other
forms of real estate so lose their productive and rental power unless
cared for in renovation that men migrate and emigrate in consequence.

How much Rent shall the tenant pay to the landlord for the present use
of the latter's old lands? Or in other words, how much shall be added
to the going price of the product on account of the diminishing return
due for the use of the old landed capital? This is a hard question to
answer: probably the hardest question that is ever asked in practical
Economics. Mr. Gladstone wrestled with it as complicated with a larger
political question in passing the Irish Land Bill of 1881. Another
honest athlete, Mr. Parnell, wrestled with it upon the same
parliamentary arena. Scores of able and practical statesmen in Great
Britain, and elsewhere, have struggled to reach a practical answer to
this question; and scores of able and theoretical economists in all
countries have striven to reach a theoretical answer to it. Most of
these answers have been inharmonious, and many of them contradictory,
with each other. The Land Bill of 1881 created a parliamentary
Commission, whose duty and authority it was, to visit the Irish
counties in person, to gain information in detail, to take sworn
testimony of all the parties concerned, and then to lift or lower
rents according to their discretion. The discontent of the Irish
tenants in general was considerably mollified by the action of this
Commission; while the debates and wrangles of the parliamentary
session of 1889, and the persistent agitations for Home Rule (an
agitation at once political and economical), show that the results of
the work of that Commission were not wholly satisfactory.

(a) It is easy enough to see why the solution of this general problem
is so extremely difficult. The new is mixed in with the old. The
result of the old labor and capital is a productive piece of land; the
current labor and capital is expended upon the same piece to make it
more productive; the same sort of thing is done now that was done
then, and the results of the two are now thoroughly intermixed; there
were original free utilities in soil and growths and deposits, but
these had and have no value and can never yield rent; the old labor
and capital improved the soil by clearing and drainage and
fertilizers, and made the growths and deposits more valuable and
accessible, so that even the old onerous was more or less transformed
into the original gratuitous; and now the new onerous, the fresh
cultivation and fertilization and betterments generally, in soils and
roads and buildings, are inextricably commingled with former
betterments of the same general kind and with the original free gifts
of Nature. No wonder the Commission of 1881 found difficulty in
determining what was what and which was which! No wonder that Irish
tenants on long leases quarrel with their landlords about the
betterments, how much is new, how much is old! It is clear, that when
the lease is ended, the landlord ought to compensate the tenant for
all that portion of the latter's betterments, which is not already
worn out; it is equally clear, that the tenant ought to be willing to
pay a fair rent for the use of the unexpended betterments of the
landlord and his predecessors; while there is room and verge enough
for endless disputes between them as to the respective amounts of
these, and consequently as to the amounts of rent and of its

These difficulties and intricacies do not belong to the _principles_
of the Science of buying and selling, which are in the main clear and
certain in their action, but are incidents of determining in certain
cases _what that is_, which is bought and sold. Parties in interest in
all kinds of buying and selling are sometimes compelled to go to the
courts in order to have the Law decide what their respective rights
are as buyers and sellers; but this is no fault of Political Economy
as a science, or of trading as an art; two men in all cases make their
own bargain, according to their own estimate of the respective
rendering and receiving of each; if the uncertainties of language, the
misconception on the part of one or both of the terms agreed upon, and
the misapprehension of some of the circumstances of the case, breed
confusion and litigation, all this cannot be justly charged to the
science of Political Economy.

Nevertheless, it is into these incidental intricacies and
uncertainties, that Henry George's now famous theory of landed rents
and the taxation of them, strikes its roots. Instead of building his
structure upon firm and open ground, so that thoughtful men can see
that his basis is solid and scientific, Mr. George dashes at once into
a thicket and lays his foundations with quickness and assurance where
all is dark and doubtful, or at best where all is rather incidental
than fundamental and demonstrable, and pretty soon displays a
superstructure that appears attractive both without and within,
through whose airy halls he knows how to conduct to their delight the
credulous and discontented, and on whose walls hang plausible pictures
calculated to invite and hold the attention of the masses. Let the
perfect integrity and rhetorical ability of Mr. George be freely
conceded; let it be freely conceded also, that he teaches in his books
and lectures a great deal of vastly important industrial truth in a
popular way so as to accomplish great good, such, for example, as the
imperative need of greater simplicity in taxation, and the
indisputable right of the people to their liberty in buying and
selling; yet it must at the same time be owned, that he has never yet
found out exactly what _Value_ is in general, consequently what are
the causes of value in lands, and what are the nature and grounds of
Rent. Something more of patient and radical analysis at the outset,
and of logical and scientific unfolding afterwards, would have made
Henry George one of the chief benefactors of his age.

(b) It is also very easy to see, that the current price of produce,
that is, what is gotten in return for the sale of what is gotten out
of the land-parcels, must have a dominant influence upon what can be
paid as rent for the use of the parcels. Unless the return from the
produce be sufficient to reward at current rates the present labor and
capital employed upon the parcel, the parcel will not continue to be
cultivated at all, otherwise men would act without a motive for
action, which they never do; unless, therefore, the price of produce
be more than high enough to repay current wages and profits, there
will be nothing left for Rent; and, consequently, the amount of the
rent that can continue to be paid for lands will be _the difference
between the going price of what is produced from them and the current
expenses of cultivating them_. Here, as everywhere else within the
domain of Exchange, Competition exerts its beneficent action. If one
dealer, or ten, endeavors to put a price upon the produce more than
enough to pay current wages and profits with a fair margin for the
diminishing rate of rent, there are a plenty of others, dealers in the
same grade of produce, who will be content with a fair return for
present and past expenditure of labor and capital; and the action of
these will effectually debar the others from exorbitant rates. The
price of produce, accordingly, under free competition, is the divinely
appointed regulator of landed rents. It regulates also, though more
indirectly, the current rates of wages and profits in agriculture.

Very different from this is Ricardo's doctrine of Rent. He makes
everything turn on the Cost of Production of the Produce, which is
Effort, ignoring the ever-varying demands for the produce, which is
Desire. His doctrine, too famous and too long received for us to pass
by in this connection, though now superannuated, was for substance,
this: there are some lands in every country whose produce just repays
the expenses of cultivation, and consequently yields no margin for
rent; and the cost of production on these rentless and poorest lands
under cultivation, will determine the price of the produce; and as
there can be but one price in the same market, the produce raised on
more fertile land will be sold for the same price, and this price,
besides paying the cost of cultivation, will yield a rent rising
higher according as the land is more fertile; so that the rent paid on
any land is always a measure of the excess of productiveness of that
land over the least productive land under paying cultivation; and
therefore, an increased demand for food in consequence of increased
population, and the higher price resulting, will force cultivation
down upon still poorer soils, or compel a higher culture for less
remunerative returns on the old soils, according to the law of
diminishing returns, which in either case will raise the rents on all
the soils above that grade that just repays the expenses of
cultivation; so that it is the sole interest of landlords, as such,
that population should be dense and food high, their interest being
directly antagonistic to that of the other classes of the community.

(c) Finally, in this connection, it is easy enough to see, what were
the motives on the part of the landlords, and what were the results on
the part of the masses, of Great Britain, in putting on and keeping on
the infamous Corn Laws, so-called, which were repealed forever in
1846. The Corn Laws forbade the importation of foreign cereals under
heavy pecuniary penalties. The simple purpose of the landlords then
governing England was to raise the price of their grain by shutting
off Competition of foreigners by means of these prohibitory
tariff-taxes. It was Protectionism pure and simple. It was designed to
raise the price of bread to the masses of their countrymen, and often
did raise it to the point of their starvation. But we have just seen,
that the higher the price of the produce, the wider the margin for
Rent for the lands that produce it. The Corn Laws of England enriched
the landlords at the expense of all other classes and to the
starvation of many of the poor. As has been well said, this was the
most successful of all the many expedients that have been tried, "_to
fertilize the rich man's land by the sweat of the poor man's brow_."
The words of Daniel O'Connell, spoken Sept. 28, 1843, in his
parliamentary fight against the high-tariff Corn Laws, were surfeited
with truth and righteousness: "_But what is the meaning of
'Protection'? It means an additional sixpence for each loaf; that is
the Irish of it. If the landlord had not the protection, the loaf
would sell for a shilling, but if he has protection, it will sell for
one and sixpence. Protection is the English for sixpence; and what is
more, it is the English for an extorted sixpence. The real meaning of
'Protection,' therefore, is robbery,--robbery of the poor by the

At the present moment and for twenty-five years past, the public laws
of the United States ostensibly relating to Taxes, have had an immense
influence upon the value and rents of the agricultural lands of the
country to depress them; because these laws have put up nearly or
wholly impassable barriers to the coming in of those foreign goods,
against which the farmers would naturally and profitably and
inevitably have sold their surplus agricultural produce; by destroying
the foreign market for farm products, these laws do in effect destroy
a large part of the value of the farms of the country, and of what
would otherwise be the rentals of a part of them; the Constitution of
the country expressly forbids any taxation whatever of Exports, but
these laws have precisely the same effect on the value of farm
products if they were themselves forbidden to be exported, because
those goods for which these would be otherwise exchanged for a profit
are forbidden to be imported. _A market for products is products in
market._ Thus these wretched laws lower the price of farm products,
and consequently the value of farms and of their rents, and impoverish
the farmers who are nearly one-half of the entire population of the

While these paragraphs are being written, comes the intelligence of
the formation of the "North American Salt Company," whose purpose is
in their own language "_to unify and systematize the salt interests of
the United States and Canada_," and to this end "_arrangements have
been completed for the purchase and control of nearly all the existing
salt properties of the North American continent_." As this is a fair
instance out of some thousands, in which a tariff-tax has the designed
effect to lift or lower values which deeply concern the people, let
us look at it for a moment. On the average of the past twenty-five
years the tariff-tax on salt has in general doubled the cost of that
necessary of life to the whole people of the United States. When
Canada had no such tax, American makers of it sold salt sometimes to
the Canadians 40% less than they would sell it to their own
countrymen. On the basis of this United States tariff-tax (it would
never have been dreamed of without it) this new company comes forward
with a scheme of international monopoly to control in their own
interest the price of a prime necessity of life. They propose to issue
stock and bonds to the amount of $15,000,000, with which to buy up
"the existing salt properties"; and they frankly avow in the
prospectus from which we are quoting, that profits of $2,000,000 a
year on their capital are justified by the present outlook. Whence are
these immense profits to come? Out of the pockets of the masses of the
American people bound hand and foot in the meshes of a legal monopoly,
which they themselves allow themselves to be ensnared in! In a similar
but more outrageous way, are bound up at the present moment in the
secret so-called "Trusts" about forty more of the necessaries of life;
each one of which, unless it be the "Standard Oil Trust," has its
footing in a so-called "protective" tariff-tax, and would collapse
instantly on the repeal of that!

It was necessary in order to complete our study of the second class of
material commodities, namely, those produced from valuable and rentful
lands, to glance in passing at the frequently disturbing effect on
these, aside from their cost of production, of sinister laws plausibly
imposed upon an unsuspicious people in the interest and at the
instance of a privileged few.

_3._ It only remains in this chapter, devoted to the discussion of
material Commodities in their three economic classes, to conclude
with a glance at the third class, namely, those material valuables
that are obtained from free and unowned sources, such as masts cut in
the wilds of America on both oceans two and three hundred years ago,
and fish caught on the Banks of Newfoundland, and furs gathered to
such profit in the north by the Hudson's Bay Company, and salt
evaporated in the tropics by a free sun from old ocean's brine.

These, and all such things as these, have a cost of production
determined only by the cost of present labor and capital, and
consequently a grade of value determined only by present Demand and
Supply, unentangled for the most part by questions of rent and prior
claim and taxation and nationality. All these things, accordingly, are
relatively cheap, except as the element of Scarcity, and on that
account of strong Desire, may sometimes come in to enhance the value.
No man can tell the time exactly when French fishermen from the coasts
of Brittany ventured over to the Banks of Newfoundland in their frail
barks for the abundant cod in those waters, and went back home again
at the close of the season freighted with plenty of a free and cheap
food for their families and countrymen; or when it was that rude men
calling themselves English followed these in their western track for
the same general purposes, to become thereby hardy seamen on deeper
seas, such as those who gained long afterwards the naval victories of
Nelson; and we have all read in the fascinating pages of Irving the
ventures and adventures of John Jacob Astor, the attraction of free
furs in the Northwest of America, the hazards and the history incident
to obtaining them, and the immense profits gained by their sale in the
markets of the old world.


[3] Baines' History of the Cotton Manufacture, as condensed and quoted
in Walpole's History of England, Vol. I.

[4] Charles Knight's History of England, III. 292 _et seq._



There are three kinds of things only ever bought and sold in this good
world of ours. In the preceding chapter we have conned carefully the
first kind, material commodities, in their three subdivisions of
land-parcels and products of such parcels and products of free land
and sea. In the present chapter we come to study the second kind of
valuable things, personal services, which we shall also find
subdivisible into three classes. We have treated of Commodities first,
because their value in its grounds and changes is more easily
understood than that of the other two kinds, while in point of _time_
Services might well enough have been considered first, since it is
these that manipulate into value the originally rude forms of Nature.
The main difference between the two is this: in Commodities the
attention is naturally drawn to tangible _things_ offered for sale,
such as lands and wheat and fish; while in Services the attention is
strongly drawn to _persons_ offering them for sale, such as the common
laborer and the skilled artisan and the professional artist. This
distinction, though obvious and useful as between commodities and
services, is not after all radical; because Economics is a science of
Persons from beginning to end; inasmuch as the services precede and
are merged in the commodities, and inasmuch as the Desires (personal)
of some men for the renderings of other men antedate and underlie all
exchanges whatsoever.

Personal Services are technically named _Labor_ in the science of
Political Economy. This nomenclature is old and familiar, and will
probably always persist on that account, but it is not of itself of
the happiest, and it gives birth to some ambiguities and many
fallacies. Let us look at these for a moment, before we pass to the
definition and discussion of what is commonly called Labor, but what
is better described by the term, Personal Services.

Contrast will help us a little here. Commodities can always be
measured by some _Standard_ outside of themselves: for example,
land-parcels are measured into acres and fractions thereof by a
surveyor's compass and chain; metals and cereals are weighed into
centners and parts thereof by scales of some sort; and sugar is not
only weighed at the custom-house, but tested as to other qualities by
the polariscope. Now land, wheat, sugar, and all other commodities,
have an existence separate from the standards that measure them, and
whether they are bought or not they continue for a time essentially
the same. They exist _per se_. They were indeed brought into existence
on purpose to be sold, and if they cannot be sold, similar things
additional will not then and there be brought into the market, but
these things themselves are there separate from the seller and
separate from the buyer. Not so with personal services. They do not
exist _per se_. They are not separate from the seller, and they cannot
come into existence without a buyer. _Skill_ is something the artisan
cannot part with, nor can he sell the service to which the skill gives
rise till the buyer be present with the return-service in his hands.
The Laborer of any class cannot put his "service" on exhibition, and
then wait for a buyer, as the commercial drummer sells goods by
sample. The doctor, for example, must have his _patient_ before he can
show his skill. The buying and selling of personal services,
accordingly, is more intimate and ultimate than the buying and selling
of commodities: it brings people more closely together: it depends
much more on traits of _character_ and on acquired _skill_.

Right here we may see clearly the main objection to the term, "Labor,"
as commonly used, and the bad fallacy to which it gives birth. "Labor"
is indeed in form and origin an _abstract_ term as much as "service"
is, with this difference, that the word "service" radically implies
the person serving and another person served at the same instant; but
the term "Labor" has long been taking on itself in the mouths of men a
_concrete_ meaning, as if it might be something separate from the
laborers, as in the common phrase "Labor and Capital," which has
already done a world of mischief and is likely to do a good deal more,
because it seems to imply, that the two are alike in independent
self-existence, and that they stand over against each other on equal
terms for a fair bargain or for a free fight. This is not the case, as
we shall see more fully later; since capital is something separable
from the capitalist, always a commodity or a claim, always
transferable, always valuable or else it will not be "Capital." Some
of the German economists, and particularly John Conrad of Halle, have
avoided this difficulty by a clean nomenclature. They say
"_Labor-givers_" and "_Labor-takers_," instead of Laborers and
Capitalists, and especially instead of "Labor and Capital," thus
emphasizing the personal element in both terms, and also leaving
themselves free to define and use the term "Capital" as distinct from
any particular capitalist, while the term "Labor" cannot be defined
and used as distinct from any given laborer. This precise point,
though probably new, is of very considerable consequence in the true
doctrine of Wages.

We are compelled by the exigencies of the English language and the
still stronger fetters of economical custom to continue to use the
terms "Labor" and "Laborers" in their technical sense, and in
connection with the scientific terms "Capital" and "Capitalist"; but
we shall always use each of these words in the same meaning, and free
them as far as possible from the fungous accretions that have fastened
upon them in the course of time.

_Personal effort of any kind put forth for another in view of a
return-service and for the sake of it is labor._

_Laborers are persons rendering their peculiar services to other
persons for a commercial reward._

_The valuable received by a laborer for his service rendered is

These definitions exclude from our circle of view all Efforts of
anybody put forth for other than commercial reasons; and they include
all Efforts of everybody, from the President to the scrub, put forth
under the inducement of a return-service or Wages. No good end seems
to be reached by trying to distinguish, as Francis Walker does in his
"Wages-Question," between the "Wages-class" and the "Salary-class,"
because there appears to be no scientific or other economical
difference between Wages and Salary. Each is a return-service for
another service rendered, and that is all there is to it. The whole
class of Laborers, accordingly, in any civilized and progressive
country, is immensely large and becoming constantly larger. Excluding,
of course, from this class all persons in so far as they render
so-called moral services to others, which are in their very nature
_free_, such as those that spring from duty and courtesy and
benevolence, and these happily are also an immense and fast-augmenting
class, though our Science has nothing to do with them directly, the
number of those persons in every community and in every rank of every
community, who sell personal services of some sort in distinction
from commodities and credits, is pretty nearly as large as the _per
capita_ population of adults and competents within that circuit. It
must be borne in mind, that the same persons whose primary business it
may be to sell commodities or credits, often sell services also in
some subordinate or incidental way; and also, that the same persons,
who are dispensing on the one hand their gifts and moral renderings
freely, are frequently of the busiest in selling on the other hand
their personal services for pay. In other words, the sellers of
Services cannot be discriminated _as to their persons_ from other
sellers, or even from downright _givers_; but the _action_ itself, and
the law of it, is quite distinct in the three cases of selling, and
utterly diverse in the one case of giving.

Now, can we sub-classify within this vast class of service-sellers, so
as to help us understand better the class as a whole, and so
especially as to help us understand better the Law of Wages within the
entire class? We have just criticised Walker in a friendly spirit for
attempting to draw lines of demarcation within this wide field: can we
draw any useful ones ourselves less open to criticism than his, and
such as rest back upon fair differences in nature and form? Walker
makes his distinctions turn on certain peculiarities in the
return-services: can we make ours turn better and clearer on certain
peculiarities in the services themselves? We can at least try. Hard
and fast lines cannot be drawn here, we admit. The exterior lines
around Commodities and around Services and around Credits are each
sharp and firm; and so is the deep-fixed circle that includes all
three of these alike as Valuables; but _within_ the smaller circles
the lines of needful division are somewhat more shadowy, though we
leave with confidence to competent Economists the triple lines but
just now drawn within the sphere of material Commodities.

A rude classification among "Laborers," then, yet one useful and
indeed indispensable, may be made into (1) Common Laborers, (2)
Skilled Laborers, and (3) Professional Laborers.

Common Laborers are those, whose services may be acceptably rendered
by an ordinarily competent person after a little patient practice and
instruction, without anything corresponding to an _apprenticeship_ as
a preliminary to their selling their service. Farm hands, teamsters,
porters, waiters, miners, 'longshoremen, railroad laborers, and many
more belong to this first class. Owing to the ease with which this
class can be recruited at any time from growing boys and emigrating
foreigners and from those who may have essayed the class above and
fallen back, the Supply here is kept constantly large relatively to
the Demand for such services, and consequently Wages are always the
lowest and steadiest in this lowest class of Laborers.

Skilled Laborers are those, who have had to pass through something
equivalent to an apprenticeship in order to be able to offer their
services for sale. These, as a class, present some considerable points
of difference from common laborers. Their numbers are fewer, for the
reason, that relatively few parents can afford to give their children
the time and money needful for them to learn a trade, or to become
skilful in any art requiring prolonged education; as a result of this
lessened press of competition among themselves, and because being
intelligent and consequently mobile they are able to insist better on
their claims and distribute themselves to points where their services
are in more demand; and because they are likely to be subject to a
stronger Demand than common laborers, on account of the close
connection of their services with special accumulations of Capital;
the Wages of skilled laborers will infallibly rule higher than those
of common laborers. Artisans in general constitute this second class
of laborers.

Professional Laborers are those, who have received a technical
education,--something more than an apprenticeship,--expressly to fit
them to render difficult and delicate services to their fellow-men for
pay, and who possess besides the requisite character and talents and
genius to enable them to succeed. Clergymen, physicians, lawyers,
literary men, artists, actors, and many more, render professional
services loosely so-called. The obstacles at the entrance of this path
occasioned by the lack (1) of appropriate natural gifts, or (2) of the
requisite industry and character, or (3) of the means of suitable
education and training, practically exclude so many persons, that the
competition in the higher walks of professional life is not such as to
prevent a very large remuneration for services rendered. The demand
for these is often peculiarly intense, as well as the supply
peculiarly limited. When great interests of property, of reputation,
of life, are at stake, it is felt that the best men to secure these
must be had at almost any price. Fees and rewards for services of
great delicacy, of great difficulty, of great danger, are paid by
individuals and corporations and nations without grudging.
Comparatively few men reach the highest points of excellence in their
respective professions, and they have in consequence a natural
monopoly in these fields of effort, and receive for their labor a very
high rate of Wages. For example, Daniel Webster often took a fee of
$1000 for a single plea in court; Paganini, a like sum for an hour's
playing on a violin; and Jenny Lind, at least as much for an evening's
singing in a concert, because there was in each case a strong demand
for a peculiar service and only one person in the world who could
render that service in the circumstances to the same perfection. But
the objections which lie with such force against artificial
monopolies, cannot be urged at all against a natural monopoly; for, if
the road to excellence be open to all, and no artificial obstructions
thrown in the way of any, there is no blame but rather praise for him
who distances all competitors, and asks and receives for services of
peculiar excellence a large remuneration. Exchange rejoices in all
diversities of advantage that are the birth of freedom, but reprobates
with all her force advantage that is gained by artificial
restrictions, because artificial restrictions always infringe on
somebody's right to render services for a return; and the right to
render services for a return is the fundamental conception in the
Right of Property.

Is it open for us, to gain a somewhat deeper and clearer sense of
_what that is exactly_ that is rendered in these three classes of
personal Services, before we pass to the considerations which
determine in all cases their Value? It is plain, that what common
Laborers sell for the most part, if not exclusively, is _muscular
exertion_ of some kind, guided by the mind as trained in habit, and
aided by appropriate implements, all designed to meet the desire and
so call forth the return-service of the purchaser; it is equally
plain, that skilled Laborers with scarcely any more exceptions than
before sell the same sort of physical exertions, or motions, this time
guided by mental action of a higher grade and wider scope, and aided
also by more elaborate tools working towards the desires and
consequent returns of a set of buyers more scrupulous and exacting
than the first set; and it is plain enough, that some of the highest
professional services, for instance the surgeon's, though not by any
means the mass of such services, are essentially of the same kind as
the two former, namely, muscular motions, guided by the most intimate
and exact knowledge of things, and aided too by instruments the most
scientific and expensive. In many of the professional services the
physical element sinks to a minimum, while the intellectual and moral
factors come to the front and take up the chief attention; it will be
found, however, that the physical factor is always present in some
degree, as, for example, in the counsel's plea before the court, and
in the physician's visit on his patient; and in almost all cases, if
not in all, some implement or other plays its part in the process of
professional service before it ends, as Cicero used a pitch-pipe or
tuning-fork to gauge his voice in his great pleas for Roman clients.

Precisely what is rendered, then, in all cases of Personal Services in
each of their three loose kinds, is _muscular motion conjoined with
mental effort and both these assisted by habit and by some form of
what we call Capital_. The Services are therefore _Personal_ in the
highest sense. The Mind and Body of the Laborer conspire to render
them. The most sagacious animal can never be trained to render one of
them. They are wholly _human_. Nevertheless the muscular part in the
rendering--motion and resistance to motion--is just what tools and
machinery can be made to take the place of in large measure but never
in whole measure, because tools may not be taught _to think_. It may
seem sometimes as if machinery were about to take the place of human
hands in some classes of Production; but it will be found in the
ultimate issue, as it has been found in every stage of the process,
that human hands and human minds in action are absolutely essential at
every point of the Exchanges among men. Men are so made and Society is
so organized, that they need increasingly for their comfort and
progress the personal services of their fellow-men, and can render
their own in exchange for these; and consequently, there never can
fail (under freedom) a MARKET for Personal Services of the three

Having now seen as closely as possible what that is which is rendered
in personal services, let us pass to the principles which determine
their remuneration. That is, we will now inquire carefully into the
Value of personal services. We have learned already, that Demand and
Supply in their action and reaction upon each other determine in all
cases the value of Commodities for the time being; and we shall find
it to be equally the dictate of all reason, and the outcome of all
experience, that Demand and Supply decide too in all cases on the
value of all Services and all Credits then and there. Shall we look
first at the considerations that issue in the Demand for personal
services, and then at those other considerations that limit the Supply
of them?

1. Demand is never the mere desire for anything, but desire coupled
with the ability to pay for it at rates satisfactory to the present
holder. The Demand for Services, therefore, is made by the prospective
purchasers of them; and the purchasers, of course, are those who
desire them and are willing to pay for them at current rates. It will
be easiest and surest for us to study the Demand for Services in each
of the three classes of them in succession.

(1) The Demand for Common Laborers has several points of difference
from that for Skilled, and from that for Professional, Laborers. It is
scarcely ever intense. It is mostly disconnected from large
accumulations of Capital. The desire is usually for immediate
gratification, without any other end in view. It is frequently for
such a service, as, if a renderer may not be conveniently and cheaply
found, one is inclined to do for himself. For instances: if the barber
be not accessible and reasonable and tolerably skilful, a man will
certainly shave himself, provided he have not yet attained the
independence and the luxury of wearing a full beard; and the ordinary
housewife, if the cleanly and tractable domestic does not come into
sight, will do her own work with casual assistance. It is this
important fact, that common services among men and women in common
life may in many cases be dispensed with altogether, and in many other
cases substitutes be found for them, in connection with the other
important fact, that common laborers learn their art quickly and
easily, and consequently are present everywhere in large numbers, that
makes the Wages of such laborers uniformly low. The Demand is moderate
and the Supply is large.

(2) The Demand for Skilled Laborers is steadier and stronger than for
Common, because in general the desire for these is not for immediate
gratification, but for an ultimate satisfaction to arise from the
commercial coöperation of these laborers with their employers, who are
capitalists, in connection with accumulations of capital, the end in
view being the production of commodities for sale at a profit. Here
comes in a new motive on the part of capitalists to buy the personal
services of laborers. The motive is simple and intelligible and
commendable, but its nature and operation is popularly and grossly

Capital is the result of Abstinence from the present use of a Valuable
in gratification, for the sake of a future increase of it through
Production. But Abstinence is always irksome in itself. It must have
its prospective reward in an increase, a profit, or it will never
transform itself from a mere valuable into a capitalized product. Now,
the owner of the valuable, having transformed it into capital from
this motive, is under a commercial necessity to hire laborers, in
order by their help to make his capital yield a profit. Capital lying
idle decreases in _value_ even, to say nothing of its yielding no
increase to itself; and the motive of the capital-owner, accordingly,
is strong and constant to buy the services of laborers, to marry
these services with his own capitalized products, and thus to produce
commodities for sale, whose value shall be greater than the present
value of the capital and the services combined. Here we reach in the
minds and motives of a large class of men an ultimate Demand for
laborers, and specially for skilled laborers, which is as true and
constant to its legitimate end of Profit as the needle is true and
constant to the pole.

At this point it is very evident, that, if the fair expectation of the
capitalists be realized in a steady profit, and the larger the circle
of capitalists and the more of capitalized products to each the better
for all concerned, the Demand for laborers will become steady, and
will be likely to steadily increase, because there will then be a
constant motive on the part of all capitalists as such to put back a
part or all of their yearly profits into capitalized products, and
thus the Demand for laborers will become more intense, and the rates
of Wages so far forth must be enhanced. The steady Demand for the
services of the laborers hinges upon the steady Profits of the
capitalists, and there is no antagonism between the interests of these
two classes of buyers and sellers, but rather a complete identity of
interest between them.

We are looking now solely at what constitutes the Demand for laborers
of the second class. As always, so here, there is Desire first and
then a ready Return-service. The Desire of employers of this class is
for a Profit on their capital, and the return-service for the laborers
is present as a part of these capitalized products. This part of the
capital we call Wages-Portion. It is already in hand or provided to be
in hand when the wages fall due. Of course it is expected, that the
current wages will ultimately come out of the current joint-production
of the laborers upon the capitalized products set apart for that
purpose by the capitalist. But if the profits fail to the capitalists
at the end of that industrial-cycle, whether it be two months or
twenty-four, then Desire will fail or be weakened to hire laborers for
the next cycle, and the return-services or Wages-Portion with which to
pay them for another cycle will be lessened of necessity. Both
elements in Demand are curtailed by the falling-off of Profits. There
is at the same instant less desire to buy services and less ability to
pay for them. It is of the very nature of capitalized products to wear
out in the process of production; if there be not net profits at the
end of the cycle for the capitalists, it shall go hard but there will
be less wages for the laborers during the next cycle. This is not a
matter of sentiment or of philanthropy, but of eternal law, which God
has ordained and the devices of men cannot frustrate. Capitalists and
laborers are joint partners in the same concern. Under industrial and
commercial freedom their interests are identical. Both are buyers and
sellers to each other at the same instant; and, as always when both
parties are alike benefited and satisfied with a trade, both will
cheerfully and profitably continue the connection. The Demand of each
class for the product of the other will continue unabated. Profits and
wages reciprocally beget each other.

But still it is not altogether true, what has sometimes been stated by
economists, that capitalists are under the same sort of pressure to
buy their services as the laborers are to sell them. Capital is a
Valuable already created by the mutual desires and efforts of two
persons, and is now the exclusive property of one of them, and has
also been set apart by him through an act of will to be thereafter an
aid to some future production under the motive of a new value to
accrue thereby. The capital has now become secondary to and separated
from the person who owns it. He very seldom understands the real
nature and operation of it. He commonly imparts to it in his
imagination a more substantive and persistent existence than it
actually possesses. He is frequently more or less stuck up as towards
his neighbors and employees in consequence of his possession of it.
The very fact that he has capitalized it for future operations shows
that he is independent of it as a means of present livelihood. The
personal services of the laborers, on the other hand, stand in very
different relations to _them_. Their personal services may indeed be
_valuable_, but they cannot be _capitalized_. As laborers they have
nothing else to sell. Unless they sell their services now, these have
no existence even, still less can they have any value. It is only by a
mischievous figure of speech, that the skill of laborers is sometimes
spoken of as their "Capital." Therefore, the laborers are under a
certain remote yet inherent disadvantage as sellers of their personal
services, when compared with the capitalists as buyers of them. This
disadvantage, however, though apparent in the nature of things, and
under certain circumstances disastrous to the laborers, may disappear
practically under another and natural state of things; and it is every
way to be desired by both classes alike that it should disappear in

Whenever there is a broad and constant and profitable market for all
the commodities the capitalists and the laborers can jointly
produce,--that is to say, whenever profits are steady and remunerative
and wages are high and growing in their purchasing-power,--the Demand
for skilled laborers must always be such as puts the laborers on a
footing of equality as over against the capitalists, because under
such circumstances the purchasers of services are many and eager, two
bosses will be likely to be bidding for one skilled laborer, and then
wages are always growing in dollars and each dollar growing in
effective purchasing-power.

It is of the last importance in this connection to notice, that
everything in Profits and Wages turns in the last resort upon the
breadth and freedom of MARKETS. It is out of the return-service
received from the _sale_ of the commodities produced jointly by the
capitalists and laborers, that both wages and profits must ultimately
be paid. There is no other possible source of them. When the Market
fails, everything fails that leads up to a market. Particularly fails
the Demand for laborers for the next industrial cycle, and of course
drops also the prospective wages for that cycle. The public folly and
universal loss of shutting off foreign markets for our own commodities
by lofty tariff-barriers, as has been conspicuously done by the United
States for thirty years past, follows of course from this radical
truth; and the Wages of laborers, instead of being lifted by
tariff-taxes, as has been so often falsely and wickedly asserted, are
inevitably _depressed_ by them, because they effectually forbid to
capitalists and laborers their best and freely chosen _markets_ for
the sale of their joint products.

Another vastly important matter, constantly affecting the Demand for
laborers of the second class, is the Competency or otherwise of the
practical managers of the Capital invested in industrial enterprises.
Capital cannot manage itself. It is of itself wholly inert. It is
always either a Commodity or a Credit. Conscious of their inability to
handle wisely their own bits of Capital, or else taught it through a
bitter experience, by far the larger number of individual owners of it
loan it to others to manage; they invest it in some industrial
corporation, in a bank or a mill or a railroad. Some one person, or at
least a small body of persons, must practically manage now all
specific accumulations of capital. It is they in their capacity of
manipulating-capitalists, who constitute in large measure the Demand
for laborers. But such managers, who are at once skilful and
long-headed and honest, do not grow upon a chance bush. They are rare.
Most of them in this country at least have been those, who started in
a small way in the control of their own earned or small-inherited
properties, and rose through practice and knowledge and conscience to
the ability to handle profitably to all concerned large masses of
Capital. In the hands of such men, given a tolerable chance by public
law and private circumstances, both Profits and Wages are sure to come
in satisfactorily. They are Captains of Industry. They are an honor to
human nature. They are a blessing to the whole community. They have no
need and no will to ask to be bolstered up in their business by unjust
taxes enforced upon a whole people.

Such men sometimes have sons or _protégés_, who possess similar
capacities and similar integrity, and these by experience become able
to carry on the business to similar successful issues. This is happy,
but it is unusual. More commonly, in the second, and pretty certainly
in the third, generation, the line of royal succession fails. There
comes in a lieutenant rather than a captain of Industry. Likely enough
he mistakes the nature of capital, and thinks that it will go along of
itself without that eternal vigilance that is the one price of its
maintenance and increase; likely enough he lacks the touch and rule of
men, and his laborers become demoralized and refractory; more likely
still he thinks he sees other operators around him getting quicker
rich by speculating in enterprises outside the legitimate business,
and takes some of his own and of what is not his own and throws it out
of its proper channels; and, as the result of one or all of these,
things soon go wrong, profits and wages fall off, poor work is done
and finds slow sale, and Demand for laborers (which is their
life-blood) slackens or goes out in that establishment. No wonder the
Paper-makers in their annual gathering at Saratoga of 1889, resolved
as the main outcome of their meeting, that they would bring up their
sons (or somebody's sons) to succeed them in their business by a
thorough practical training in the paper-mill itself, beginning early
and continuing long. Industrial higher education in this or some other
form is the secondary hope of manufacturing business in the United
States, the primary hope being in a decent commercial liberty to buy
their supplies and to sell their products in the best markets wherever
these are to be found.

There is one other important item that bears directly upon the Demand
for laborers of the second class, and consequently upon their Wages,
namely, the constant introduction of more and better Machinery. At
first blush it would seem, and it has often been stated so, that the
use of machinery takes just so much work from human hands, reduces by
so much the Demand for laborers, and tends to lessen by so much their
wages. All this is the opposite of the truth; but before we explain
_why_ it is the opposite of the truth, let us attend carefully to the
truth itself, as stated in 1889 by the highest living authority on
these special points, Sir Edwin Chadwick, the octogenarian pioneer in
sanitary and economic reforms. Fifty-six years ago Chadwick joined
with his colleagues of the English Factory Inspection Board in
recommending reduced hours of labor and other improvements which have
now become general in England. In a paper recently read before the
Political Economy Club, he calls attention to the greatly increased
production which follows improved machinery and shortened hours.

He says: "_Spinning machines which formerly turned 8000 in a minute,
now turn 11,000; and in Lancashire not more than half the hands are
now employed to produce the same amount with new machinery as were
employed on the machinery of 1833. As an example of the extent of
the reduction of hands by these improvements, it may be mentioned that
one large family of cotton spinners in Manchester, which 40 years
ago employed 11,000 hands, could not now muster one half that
_At the beginning of the century the cost of spinning a pound of yarn
was a shilling. The pound of that same yarn is now spun for a
half-penny by hands earning double wages for their increased energetic
attention and skill. It is now found, however, that the strain of the
increased responsible attention cannot be so long sustained as the
slow, semi-automatic pace by the old working of the old mills with the
long hours. Hence there is a tendency to a further voluntary reduction
of the working hours in the best mills, first to nine hours. In one
mill, in which 2000 men are employed a voluntary reduction has been
effected to about eight hours with a more equable production; and I
have heard of other examples. As showing the cost of working with
inferior hands and loose regulations, a recent report from the
Manchester Chamber of Commerce states that 20s. worth of bundled
yarn may be produced at a cost of from 2d. to 3d. per pound less
in Manchester than in Bombay, notwithstanding the hours of working
are 80 hours per week, while in Manchester they are only 50. At
the present time Lancashire, with its short hours, will meet Germany
or any other country, in neutral markets, in the world. In Germany the
spinners and weavers still work 13 hours a day as they once did in
England; France has only come down to 12 hours; whereas the English
rate has long been 10 hours, and may soon be 9 or even 8. And
this reduction improves the health of the wage-workers, while the
reduced cost of production allows them higher wages; yet Germany with
its long hours and high tariff maintains a system_ OF LOW PAY, DEAR

The accuracy of these important statements of fact is confirmed on
every hand. Committees of British spinners and weavers have repeatedly
visited the United States, and then reported to their fellows at home,
that wages, all things considered, were equal for spinners and weavers
in Great Britain and the United States, and in some cases and respects
higher in the former. Many times before his late lamented death,
John Bright publicly testified that wages in England during his
parliamentary life had risen in general 50%, and in some of the
manufacturing lines 100%. A few months before these statements of
Chadwick were made, Sir Richard Temple reported to his section of the
British Association, "_That the average earnings per head in the United
Kingdom, taking the whole population without division into classes, is
£35, 4s., and exceeds the average of the United States, which is £27,
4s., and of Canada, which is £26, 18s., and of the Continent, which is
£18, 1s.; while it falls below that of Australia, which is £43, 4s. per

According to this, the average earnings in Great Britain per head of
the population are 30% higher than in the United States, and 81%
higher than on the Continent of Europe. Truly, Britain is a prosperous
and profitable country so far as average earnings of the whole people
by the year is concerned. Sir Richard goes on in the same statistical
paper to show, that the average annual profit on British Capital is
14%, and that Capital yields about the same rate for the United

Now, can we easily give the grounds on which the introduction of more
and better machinery, instead of displacing laborers, tends to lift
and actually does lift the wages of those concerned, who continue to
work with their hands and heads? We will try it.

(a) It takes the hands and heads of laborers to invent and construct
and keep in repair the machinery itself, that is often supposed to
displace laborers, and so far forth opens a vent for the more
profitable employment of some of the laborers, who before performed
the cruder and more repetitive and automatic parts of the processes,
which parts alone machinery can be made to perform.

(b) Machinery always lessens the cost of a given amount of production,
otherwise there would be no motive for its introduction. But, other
things being equal, the lessened cost of a commodity broadens the
market for its sale. The cheaper a useful commodity is offered, the
more the buyers of it the world over. The more and the better the
machinery brought in, the more and the cheaper the commodities
produced and the broader and better the markets to be supplied; and,
therefore, the more and the more skilful the hands needed to tend the
machinery and to market the products.

(c) The more commodities thus created by men and machines, and the
wider the markets found for them over the earth, the more laborers are
required to extract and prepare and transport the raw materials for
the now augmenting commodities, and also to ship and distribute the
finished products. As Chadwick says, notwithstanding the strictly
_factory_ hands have diminished one half in one place, "yet the _mill_
population has increased, as well as the general population, the hands
discharged being absorbed in other employments."

(d) These improvements in machinery, and the consequent refinements in
the skill of the laborers, cheapen also of course the commodities
consumed by the laborers themselves, and therefore a given rate of
wages, to say nothing of a rate sure to enlarge under these
circumstances, now secures for the laborers a higher grade of

More and better and more durable machinery, consequently, so far
forth, tends at once to enhance the rate of laborers' wages and
increase the purchasing power of the unit in which wages are paid.

To return now to the main line of discussion under the present head,
we have shown by proof positive that there is nothing either in new
machinery introduced, or in higher wages paid in connection with such
machinery, or in shortened hours made possible by these two, to lessen
the Demand of Capitalists for the personal services of Laborers;
because, there is nothing in all these, commercial and industrial
freedom being presupposed, to lessen the Profits of the Capitalists,
which profits are the sole motive actuating them as such. That high
wages and short hours are rather an advantage to Profits in connection
with skilled laborers and fine machinery, than a disadvantage when
compared with long hours and low pay and poor implements, is clearly
shown by Chadwick in the passage quoted comparing England with English
Bombay, where the working hours are 60% more and the wages greatly
less and the cost of the machinery very little; "twenty shillings'
worth of bundled yarn may be produced at a cost of from 2_d._ to 3_d._
less in Manchester than in Bombay"; call it 2-1/2_d._ less; that is,
it costs the Bombay spinner more than 1% per pound of yarn more to
spin it than it costs the Manchester spinner! For truth and decency's
sake, then, let us have done with the gabble in this country about the
advantages of "pauper labor" over skilled, of low wages over high, of
cheap machinery over dear!

The penetrating reader will perceive, that the root of this whole
matter lies in the breadth and quickness of the _Markets_, in which
the commodities produced by the laborers and capitalists may be sold
against other commodities, and against Services and Credits; if the
markets of the world are free to all to buy in and to sell in, which
seemingly two things are precisely one and the same thing, then the
Demand of Capitalists for the services of laborers to create and
market salable commodities wherever these may be wanted, can
apparently never slacken on the whole; because, the desires of men
which the efforts of other men may satisfy commercially, are
indefinite in number and unlimited in degree; and, therefore, the
Wages of the skilled laborers, the commercial freedom of the nations
being presupposed, are likely to be on the whole on a steady rise
throughout the world; and the amount and excellence of the machinery
on a similar rise, since Capitalists can always under these
circumstances see their Profits looming up ahead of them,--the profits
of an endlessly diversified and marketable Production.

The chief reason at any rate, and almost the only reason in common
sight, why little England has surpassed in commercial prosperity of
every sort every other nation on the globe during the past forty
years, as evidenced by these statistics of Sir Richard Temple and
other abounding proofs on sea and land, is in the fact, that her
statesmen of the last generation came to perceive clearly, and then
helped the people to see, that a market for products is products in
market; that her traditional tariff-barriers to keep foreign goods out
kept in equally domestic goods that wanted to get out for a profit,
and so down went the tariff-barriers little by little, accursed alike
by God and Englishmen, never to be set up again around the shores of
the land of Cobden and Bright and Elliott; and to-day we read, that
the average annual Earnings per head of the entire population of the
United Kingdom, men and women and children, English and Irish and
Scotch, are $176, while the annual average Profits of Capital within
the three kingdoms is 14%.

(3) In the last place here, we must now look at the Demand for the
personal services of Professional laborers. These are persons, who
have done something more with reference to their life-work than serve
an apprenticeship to a trade, or acquire some mechanical skill in
connection with some kind of machinery. An Education rather than an
Apprenticeship is implied in Professional laborers. Knowledge of the
bodies and of the minds of men; acquaintance with some one section at
least of the general laws that pervade the universe; some confidence
(the more the better) in God, who created and governs the world; are
all requisite to a reasonable success on the part of Professional
laborers. The Demand for their services, and of course also the Return
made to them for such services, will largely depend on such superior
knowledge and confidence acquired by such persons, and involved in
their services. Clergymen, physicians, lawyers, statesmen, literators,
actors, teachers, and scientific experts, may serve as our chief
examples of Professional laborers.

(a) "All that a man hath will he give for his life." When men fall
sick, or those fall sick who are dear to them, they send for the
doctor. Scarcely any trait of human nature is more universal than
this. And the trait puts honor on human nature, because it implies a
relatively high estimate of the worth of life in the mind of the
patient, and also a relatively high confidence in a certain class of
one's fellow-men. As Society progresses, and as Christianity deepens
the sense of the worth of the individual life, and knits a stronger
tie of confidence between man and man, a change is slowly coming over
the relations between physicians and their patients; people do not
wait to fall sick before they send for the doctor, so much as they
formerly did; some individuals and families are establishing
connections with a medical adviser, who studies their constitutions
and habits of life beforehand, guides them in general sanitation, and
thus both he and they are better ready for curatives in times of
illness. Gladstone has long had such an attendant, with the best of
results as he thinks, and strongly commended such action to John
Bright, but too late to save the latter from what was thought to be
premature death in consequence of imprudent and ill-advised handling
of his health. In a few cases in England and the United States an
annual salary is paid a physician for general care of the family's
health, whether sickness befall or not, instead of the more usual fees
on consultation and attendance. Dr. Munn of New York receives such an
annual salary from Mr. Jay Gould. But in whatever way medical services
are paid for, the Demand for them is constant and intense. The motive
to buy them is immediate and personal, not mediate and remote, as in
the case of capitalists and laborers of the second class.

It is to be noticed further in respect to physicians, and indeed in
respect to all professional laborers much more than in respect to
other laborers, that much knowledge has been gained by them for its
own sake, out of pure love for it, rather than for the sake of merely
selling their services as laborers; while this does not diminish in
the least the commercial character of their services, it tends to
beget on the part of the buyers of them a stronger confidence in the
men who render them, so that the Demand for such services and
consequently the pay for them is enhanced by the trust reposed in the
laborers on the ground of something acquired by them for other than
selling purposes, and which indeed _cannot be sold_; and superior
_character_ also, as well as superior knowledge, which is wholly
_moral_ in its basis and not mercantile at all, affects the Demand for
the services of the possessor of it to increase it, on the ground of a
naturally stronger trust in him as a professional laborer, and at the
same time tends to increase his Wages by limiting the circle of those
who can offer in competition such services on the background of such
superior knowledge and character.

(b) Lawyers do not meet such a universal Demand in the nature of
things as do physicians. Said Jonathan Smith of Lanesborough in the
Massachusetts Convention of 1788: "We have no lawyer in our town, and
we do well enough without." Still, one hundred years after that time
there were about 70,000 lawyers in the United States, and Lanesborough
itself had had in the meantime at least three distinguished ones. The
interests of property and of reputation, and the constitutional rights
of individuals as over against the claims of Government, so far as
these may be conserved through the agency of lawyers, are by no means
so constant and imperative as are the interests of life and health.
Yet lawyers are in legitimate request in all civilized countries. A
Latin legal maxim announces the obvious truth: _It is the interest of
the Commonwealth that there should be an end of disputes and
litigations._ Beyond question courts and counsel are wholesome on the
whole for the individual and for the commonwealth. But the extremely
complicated and unsatisfactory condition of American Law at present,
owing to the fact that we have a none too simple United States Law
with its three grades of courts and judges, and considerably divergent
bodies of Law in each of 42 States, and owing also to the fact that
our law in general is drawn almost at random from two pretty distinct
Sources, the Common Law of England and the Civil Law of Rome,
multiplies the number of lawyers relatively to the population out of
all proportion to such ratio in other countries, and tends to make the
lawyers as a class too conservative of old and drawn-out processes to
the extent of opposing obvious betterments and simplifications. Said
David Dudley Field, President of the American Bar Association, in
August, 1889, at Chicago: "_So far as I am aware, there is no other
country calling itself civilized where it takes so long to punish a
criminal, and so many years to get a final decision between man and
man. Truly we may say, that Justice passes through the land on leaden
sandals. One of our most trustworthy journalists asserts that more
murderers are hung by mobs every year than are executed in course of
law. And yet we have, it is computed, nearly 70,000 lawyers in the
country. The proportion of the legal element is, in France, 1:4762; in
Germany, 1:6423; in the United States, 1:909. Now turn from the
performers to the performance. It appears that the average length of a
lawsuit varies very much in the different States; the greatest being
about 6 years, and the least 1-1/2. Very few States finish a litigation
in this shorter period. Taking all these figures together, is it any
wonder that a cynic should say that we American lawyers talk more and
speed less than any other equal number of men known to history?_"

Mr. Field then repeated his well-known argument for Codification,
ascribing the law's delays to the chaotic condition of the law, and
maintaining that it is the first duty of a government to bring the
laws to the knowledge of the People. "_You must, of course, be true to
your clients and the courts, but you must also give speedy justice to
your fellow-citizens, more speedy than you have yet given, and you
must give them a chance to know their laws._"

Owing to the immense difficulties in the way of any one person
mastering the various branches of the law in this country, it is
falling more and more into specialties, and lawyers are devoting
themselves to some one of its many branches, the main division line
being between "Law" and "Equity" technically so-called; and whenever
one becomes eminent along any line, his compensation is apt to be very
large owing at once to a large Demand and to a small Supply at that
point, while the average compensation of the lawyers as a whole class
is meagre enough, because there are too many of them, and the people
have become very suspicious of the law's meshes and delays.

(c) The grounds for the unabating Demand in Christian countries for
religious teachers and preachers, let us rather say, for spiritual
guides, lie deep down in the nature of man. If there be one
proposition about men more incontestable than another, it may be this,
that men are made in the image of God, and that there is among men in
general an irrepressible striving to maintain and deepen this image.
The touch between man and man and between man and God is such at this
point, that men can help each other in this striving, and that they
_feel_ that they can help each other. This is the chief reason why
some men are constantly consecrating themselves to the Christian
ministry, and other men as constantly soliciting these to become their
pastors and teachers. Those more enlightened in divine things and more
spiritually minded offer themselves, as it were, not commercially but
morally, to the unenlightened and less advanced as guides and helpers.
It is, as it was with Wolfe and his men at the Heights of Abraham:
those who got first to the top tarried a little to help those up who
came after. And the most striking thing about it is, that the masses
of men at bottom are as desirous to be uplifted as the choicer spirits
among them are desirous to help the work forward. Ministers are still,
and always will be (human nature is unchangeable), eagerly called;
chapels and churches and cathedrals are still going up all over the
earth; worship and petition and aspiration are ever ascending on the
great world's altar stairs towards heaven, guided and inflamed by the
chosen and choosing men of God,--"_when priests on grand cathedral
altars praise_!"[5]

It is a monstrous perversion of language to maintain, that a clergyman
in rendering such services as these is selling his religion. It is
true, that he is selling under Demand services to the appropriate
rendering of which his own personal piety contributes one large
element, and thorough confidence in him on the part of his people as a
good and earnest man contributes another large element; but the piety
and the spiritual power and the worthy example are not nourished for
the sake of selling the services, but for their own sake in personal
worth and worthiness, and these things must not be confounded with the
services that are sold. Accordingly, while the clergyman's vocation is
sacred, and belongs to the sphere of religion, his salary belongs to
the sphere of exchange, and its determination, in harmony of course
with the higher impulses, is a business transaction. This distinction
ought to be better understood than it is; and both clergymen and
people need to be reminded that the spiritual things belong to one
sphere, and the temporal things to another. The amount of a minister's
salary, and the time and mode of its payment, are matters of pure
business; and the minister himself is to be blamed if he does not
attend to them, and insist on them, on business principles.

In the professions generally, and particularly in the ministerial
profession, while, if we confine our attention to those persons who
both have the requisite gifts of Nature and have been also thoroughly
trained, we shall find a high rate of compensation on the two grounds
of a strong Demand and a limited Supply, we must bear in mind too the
counter-working influences which tend to increase the competition and
thus decrease the compensation, namely, the respectability which
attends them, the desire of knowledge for its own sake which is gained
in connection with them, the instruction wholly or in part
gratuitously offered to those in course of preparation for them, and
the desire to do good without regard to pecuniary reward which
actuates many who enter upon them.

(d) Physicians and lawyers and clergymen serve primarily individuals,
or at most relatively small groups of individuals, and of course look
for their pay to those whom they have served. It is different with
Statesmen, the fourth class of professional laborers that we need to
look at in an economic view. Statesmen worthy of the name serve at
least a whole nation, and to the nation as such must they turn for
their pecuniary rewards. And such men have never turned in vain to
those whom they have benefited as a whole. Bismarck is the best modern
instance of a Statesman, who has received from a grateful country
immense money-measured remunerations for immense political services
rendered. The Demand for the services of Statesmen rests in the deep
consciousness of men organized politically into a Nation, that they
need, especially in trying times, a Man of the highest natural gifts,
and of the broadest attainments and of the loftiest political
integrity to plan and act for them in emergencies, as they are
conscious that they cannot plan and act for themselves organically.
This does not mean, that the one ever knows essentials better than the
many: he does not. This does not mean, that the true objective of a
nation's march is ever discerned more clearly, or rather _felt after_
more eagerly, by one man than by the many men concerned: it is not.
Still less does it mean "_a man on horseback_." But it does mean this:
a Nation (as the very name implies) is made up of the thoughts and
hopes and throbbings and dim forecastings and half-formed purposes of
multitudes constituting a unit (born together for one destiny on
earth); and the true Statesman is one of themselves, sharing with them
at once the traditions of the past and the perspectives of the future;
one, with the instinct and the intellect to gather up and embody the
general feeling and the general will; one, who has gained in some way
the confidence of the masses who are willing for the time being to
entrust to him the guidance of their affairs, and to empower him to
plan and act for them as their champion and deliverer; and one, who
(because he _is_ one) can better seize the propitious moments for
declaration and negotiation and public action, yet who never forgets
that he is nothing but an _agent_ for others, and is as ready to lay
down responsibility at the public will as to assume it at the public

Washington was such a statesman, and Lincoln. Even Bismarck, under
monarchical and later imperial environment, disclaims anything
substantive and original in his own action: he did what he could not
help doing: he followed the instincts of Prussia, and his own; and
became the means of fulfilling as they gradually ripened the longings
of the other German people for unity and order. Such a statesman was
Chatham in England, and Cavour in Italy. Now, such services as these,
done for a whole people, always deserve and usually receive, though
not expressly bargained for beforehand, yet implied in the public
devotion of one party and the general _consensus_ of the other,
extraordinary honors and emoluments. This is right, even on purely
Economic principles. The services of great statesmen to their country
in great epochs and emergencies are at once a gift and a sale, they
are both patriotic and economic, there is equally a national Demand
for them and a grateful recognition of them, the Supply is always
exceedingly rare and the reward often exceedingly great; and it is to
be put down to the lasting credit of the science of Economics, that
its peculiar motives and results may mingle in and harmonize with the
motives and results of the higher moral impulses, such as those of
Patriotism and Religion, as in the cases of the Soldier and Statesman
and Clergyman. There was no rational ground for the hesitation of
Garibaldi to receive from the Parliament of Italy in 1875 an annual
pension of 50,000 lire.

(e) There is a single class more of Professional laborers, loosely
so-named, which should be noted before we dismiss the subject of
Demand for laborers to pass to consider the Supply of them, namely,
Literators and Artists and Actors of the highest rank. Statesmen
primarily serve the individual nation that selects and rewards them,
though their influence may indirectly uplift other nations also; but
the great Writers and Painters and Actors, whatever may be their local
habitation and name at first, soon come to belong to the world at
large and to derive their revenue from many lands, because the highest
Art is cosmopolitan in its own nature, and the best characterization
of men as such cannot but be the property of Mankind. Shakspeare is no
longer English, nor Angelo Italian, nor Mozart German, nor even
Bernhardt French. Deep as are the scars and the sea that separate
nation from nation, there is something deeper still in the innate
recognition by man of man as depicted by the great Masters in immortal
lines. There is, accordingly, a sort of Demand in the inmost soul of
Humanity as such for these living and lofty touches and delineations
of itself, whencesoever they may come. There is not indeed nor can
there be, as in most other cases of sale, a bargain made beforehand
between these preordained sellers of the rarest services and their
silent yet waiting purchasers, yet there is after all an antecedent
and an assured understanding between them. They are in touch even
across the sea. The master strikes his chord, and the audience, fit,
though few and scattered, listens and applauds _and makes return_.

Is the principle of "International Copyright," so-called, correct? Let
us look narrowly before we pronounce. At present this good country of
ours makes itself a mocking and a by-word even to its own intelligent
and art-loving citizens by putting a tariff-tax of 30% on paintings
and statuary by foreign artists, not at all to get revenue thereby,
but to "protect" domestic artists in their inferior work by
artificially lifting the price of their wares. So far is carried this
jealousy of foreign works of art, that when the artists generously
loan them for exhibition on our national occasions, they are put under
bonds _not to sell them on this side_ without previously paying the
tariff-tax, which is graciously intermitted during the Exposition.
This is Restriction. This is Protectionism pure and simple. This is
legally excluding the Better in order to give a forced currency to the
Worse. Now, domestic Copyright restricts the sale of any book to one
publisher in his interest and in that of the author. The book now in
the reader's hand is thus copyrighted. This legal arrangement between
authors and publishers and their public may be perhaps logically
defended, it may even be for the public weal on the whole, though in
many cases it doubtless raises the price of good books, which would
have been published without any such artificial encouragement. The
copyright, however, like all patent-rights also, soon expires by
limitation of time, and the public thereafter have the unrestricted
use of what is really their own.

For what is sometimes called "literary property" is not property in
the strict sense of the word. A book is not like a plough or a house.
Its contents even when most original have been but colored, as it
were, and rearranged and reinforced by the author's individual mind.
Its substance always comes out of the common stock. It cannot be the
author's own, as the bushel of wheat is the farmer's, who sowed the
seed on his own land and threshed it in his own barn and carried it to
market in his own wagon. The rights of the individual and the rights
of the Community commingle more or less in private property of every
kind, at least to the extent that the latter may tax the property if
needful for the common wellbeing, as it is bound also legally to
secure it to the owner when threatened by others; it is no part of the
purpose of the present book to draw the wavering line in general
between the rights of individuals and the rights of their Government
as towards them; but the distinction between common property and
copyrighted property is plain enough to everybody, and the Law puts
emphasis on the distinction by making the one quickly terminable and
the other continual. So then, when the Government under which the
author resides, has given him a limited copyright within its own
jurisdiction, it would seem as if the individual right in the premises
had been sufficiently recognized alongside of the undoubted right of
the Whole to the ultimate use of the labors of their own citizen.

When, however, it comes to International Copyright, which is an
attempt to secure to authors of one country artificial privileges
under restriction in selling their wares in all other countries, the
argument breaks down. Even for the one country, in which the author
lives and is taxable, the argument is not very strong, and hardly
binds advanced public opinion either as to the grounds of it or even
the practical benefits of it on the whole. By the attempted extension
of it to all countries, its reasonableness disappears. Taxation cannot
extend beyond the jurisdiction of the country taxing; and it certainly
seems as if a legal privilege, beyond common law privileges, ought not
by extension through the formal action of other countries to exempt
from taxation (in case it were needful) the results of the original
privilege. The purpose of International Copyright is not the blessed
one as announced to the world by James Smithson, "_the increase and
diffusion of knowledge among mankind_," but directly and artificially
by means of legal restrictions the "increase" of the prices of books
and of other "knowledge" to the masses of "mankind," and the
"diffusion" of these extra prices as between authors and publishers.
Protectionism does not seem to be one whit more respectable in this
form than in the form of tariff-taxes on foreign works of art.

2. We have already seen in our first chapter the proofs of the
proposition, that the Value of anything whatsoever bought and sold is
determined by the Demand for it and the Supply of it then and there
present. Also we have now seen at considerable length the main phases
and grounds of the Demand for each of the three classes of Personal
services bought and sold among men. The next topic in order is the
Supply of personal services in the various markets. Here it will not
be necessary to distinguish particularly the three classes of
Services, inasmuch as the circumstances governing the Supply in each
are substantially similar.

In Economics generally we have to deal chiefly with Persons, and only
subordinately with Things; when we come to the Supply of personal
services, answering to the Demand for them on the part of other
persons, this point becomes conspicuous; and it is here, if anywhere,
within the realm of our science, that we need to devote a word to a
singular doctrine, that has been famous for nearly a century under the
term of _Malthusianism_. Thomas Robert Malthus, 1766-1836, was an
English clergyman and teacher, a wide traveller and keen observer of
men, one who divided his time during a long life between cure and
chair and the libraries of the Universities, published in 1798 his
"_Essay on the Principles of Population as it affects the Future
Improvement of Society_"; in this and in subsequent editions enlarged
and enriched, he brought out with its proofs the core of his startling
pronouncement, that the human race is found to increase in numbers in
something like geometrical progression, while the means of subsistence
for them on any given area of agriculture can only increase in
something like arithmetical proportion; the United States was then
doubling its population in 25 years, and he calculated that, at this
rate, the inhabitants of any country in five centuries would increase
to above a million times their present number, which would give
England in that time more than twenty million millions of people, or
more than could even get standing-room there; for this natural
tendency of the law of human fecundity to outstrip the results of the
law of returns from land, he saw no remedy except in checks to
population, which he divided into _the positive_ and _the preventive_,
the first of which, such as war and famine and disease, increase the
annual number of deaths; and the second of which, such as prudence in
contracting marriage and temperance after marriage, diminish the
number of births; and Malthus and his followers, among whom the famous
Thomas Chalmers was prominent, were at great pains to inculcate upon
the laboring classes the duty of later marriages and fewer children,
as an indispensable condition of their rise in comforts, and of "the
future improvement of Society."

These discussions have attracted great attention almost to the present
day, and have been supposed to be very pertinent to the subject of
wages, and thus to be an important part of Political Economy; but when
one looks more closely, the force of that spring of population which
the Creator has coiled up in the nature of man, as contrasted with the
weakness of that power by which the earth brings forth sustenance for
man, is seen to be a topic in Physiology and not in Political Economy
at all. Political Economy presupposes the existence of Persons able
and willing to make exchanges with each other, before it even begins
its inquiries and generalizations. How they come into existence, the
rate of their natural increase, and the ratio of this increase to the
increase of food, however interesting as physiological questions, have
clearly nothing to do with our Science. Each adult human being is as
much constituted by Nature to receive personal services as to render
them, in Economics each without exception receives when and because he
renders, and all alike are naturally able to become capitalists also;
economical laws present no obstacles, that we can see, to all men
becoming _rich_, as we use that term; the town or city in which many
people are growing rich simultaneously, is the best place in the world
for other people to go to get rich in, and not at all towns in which
other people are getting poorer; most men are unwilling, some perhaps
may be unable, to fulfil the moral conditions of growing rich; while,
we may depend upon it, the famines of the world have been caused more
by the indolence and want of foresight of individuals, and especially
by the monstrous maladministrations of Governments, than by any law of
the increase of population.

Experience too has shown, that the strong impulse in mankind towards
procreation is not too strong for the purpose intended by the Creator;
that HE who is the author of the impulses is author also of natural
counterworkings of them; that, as men under moral and religious
training come more and more under the influence of reason and
affection, the preventive checks to population come silently and
effectually into operation; and that, taking the world at large, food
and comforts have more than kept pace with the stride of population,
since its inhabitants as a whole were plainly never so well fed and
clothed and housed as now. The abstract antagonism of the law of the
increase of population with the law of the increase of food, or what
we prefer to call the law of diminishing returns from Land, may be
admitted, if one chooses to insist on it; but any practical _tendency_
of these to come into collision, as the world is and is to be, is
confidently denied. When Malthus wrote, and long afterwards, England
was under the dominance of Protectionism; the wretched Corn-laws
forbidding the importations of foreign grain, in order that the
domestic growers might sell to their countrymen at artificial prices,
and thus grow the richer as bread became the dearer, were only
repealed in 1846; and the demonstrated ability of Great Britain under
free trade to draw on the fertility of the whole world for the
steadily and increasingly cheap maintenance of her people,
demonstrates the irrelevancy of Malthusianism to the Science of

The Supply of personal services at any time or place in answer to the
Demand for them, is affected by several important circumstances, which
we shall now proceed to consider in their order.

(a) The _agreeableness_ or disagreeableness of rendering a given set
of services will affect the Supply of laborers at that point, and help
to determine the rate of Wages paid to them; because the more
agreeable employment will attract the larger number of laborers, will
experience in consequence the press of competition, and the rate of
wages then and there will be lessened thereby. The more disagreeable
employment will feel less the pressure of numbers, and will secure,
other things being equal, a higher rate of remuneration in
consequence. Among the elements which, in spite of diversity of
tastes, make any employment agreeable or disagreeable to the laborers,
are (1) the less or greater exertion of physical strength required,
(2) the healthfulness or unhealthfulness of the service, (3) its
cleanliness or dirtiness, (4) the degree of liberty or confinement in
it, (5) the safety or hazard of the employment, (6) the esteem or
disrepute of it in public opinion. To illustrate each of these in
order, the stone-mason, the glass-blower, the scavenger, the factory
operative, the worker in a powder-mill, the smuggler, will each
receive a larger compensation owing to the peculiar element of
disagreeableness involved in his own personal service; and he will be
able to demand and secure the higher rate through the action of this
disagreeableness upon the Supply of such laborers. Of all these
elements, public opinion is perhaps the most operative; and if this be
favorable to an employment, and some social consideration be attached
to it, and only common qualifications be required for it, the wages in
it will infallibly be low. This is doubtless the main reason why so
many young women prefer to teach, rather than be employed in mills or
shops or offices, and why the wages of female teachers have been so
remarkably low; although each of the elements of agreeableness
specified above may also contribute something towards the same result.
If a business be decidedly opposed to public opinion, it must hold out
the inducement of a large reward, or nobody will engage in it. This
explains the abnormal gains of the slave-trade, the liquor-business,
of gambling-houses, and of lotteries.

(b) The _easiness_ or difficulty of learning to render acceptably a
given set of personal services, will have a quick and constant
influence on the Supply of these services, and of course also on the
rate of the return paid for them. The elements of this Difficulty in
general are time, expense, lack of natural gifts, want of foresight on
the part of those concerned, and lack of push and persistency on the
part of the learner himself. To put a boy apprentice to a trade, for
example, requires on the part of the parents a foresight, an ability
to get on without his immediate help, and sometimes also an amount of
money for his board and clothes which all parents do not possess; many
boys too, who must acquire their skill to sell personal services when
they are young, if at all, find on trial that they do not like the
trade, or have not the requisite gifts, or fail in the appropriate
patience and propulsion; and the consequence is, that the Supply of
laborers along that particular line is lessened, and the right to
demand and the ability to secure a higher rate of wages than is
accorded to common laborers accompany the small supply, through the
reduction of numbers which these obstacles at the entrance occasion
and the consequent weakness of competition. This is one principal
ground of the difference in the wages of skilled and unskilled
laborers; the other being, as we have seen, the stronger and more
constant Demand for the former, owing to the impulse imparted by
Capital. All these points of difficulty at the outset apply still more
strongly in the case of professional laborers, serving more
effectually to thin out the ranks of these, and pushing upward still
higher the gauge of compensation for the successful competitors.

(c) The _constancy_ or inconstancy of prospective employment in a
given business, is a consideration that affects the Supply within it,
and then the wages. If the services be of such a character, that they
can only be carried on during nine months of the year, the wages of
the renderers will be greater by the day or the month than they would
be, provided the services were in order during all the twelve months.
The laborer is apt to look at the aggregate earnings of the year, and
will hardly take up a trade which affords employment but a part of the
time, unless some compensation can be found in the higher wages for
that time. This is the chief reason why the wages of the mason and
house-painter, in this climate at least, are higher than those of the
blacksmith and carpenter. The coachman, also, may stand by his horses
half the day or night with no call for his services, and must have,
therefore, a proportionably higher fare from those whom he does
transport. In general, it is found that men prefer a constant
rendering with a lower rate of pay, than an inconstant one with a
prospect of larger wages for the particular jobs actually done; and
because the many prefer that, those who take up with the other are
able to secure a higher relative rate of pay in their less eligible
vocation. It must be noticed, however, as counterworking this, that
some men have desire for intervals of leisure in their business, and
for opportunity to make these intervals subservient to some avocation
or other means of livelihood.

(d) The _probability of success_ or the opposite in any line of
personal services, is a circumstance that has some influence on the
rate of wages paid in it, through the action of this probability on
the numbers of those who enter upon it. If ultimate success be
doubtful, fewer persons will naturally engage in such a business, and
those who dare in it and succeed, will probably reap a very high
reward. So, also, those who take jobs by the contract, and therein
assume more or less of risk, are commonly paid at a higher rate for
their services than those who do similar work by the day. It is true,
that this is owing partly to the fact that the contractor usually puts
in his own capital more or less, and must therefore be paid profits as
well as wages, and also that the wages of superintendence are due to
him in addition to ordinary wages; still, there is a residuum of
difference, which can only be accounted for by the risk he runs of a
successful issue of his contract. The general variation in Supply and
wages from this fourth cause, would certainly be greater than it is,
were it not for the overweening confidence which men in all
generations seem to have in their own good luck. This excess of
worldly faith is always seen in the rush which is made for newly
discovered mining regions. It was seen to perfection in 1889 in the
uncontrollable advance of thousands _into_, and their almost immediate
exit _out of_, the then just opened territory of Oklahoma. The
facility with which lottery tickets are sold even yet in many
countries proves the prevalence of this over-confidence. It is
demonstrable beforehand on the doctrine of Chances, that no person can
rationally buy _any_ lottery ticket at its advertised price, because
if that person should buy all the tickets advertised he would
certainly lose money, since the sum of the prizes is always less than
the sum of the prices. Otherwise the projectors of the lottery would
always lose money.

(e) The _mobility_ or immobility of laborers as a class acts powerfully
upon the Supply of them at any one time and place, and consequently
upon the rates of wages then and there. In some countries, notably in
the United States, laborers as a class move from place to place with
considerable facility under the action of Demand for personal services.
According to the Census of 1870, 7,500,000 of the native population
dwelt in other States than those in which they were born. Many of
these, doubtless, had left their native region to obtain more fertile
land, and many also to obtain more remunerative employment as laborers.
The native American, more than most other persons, is not only willing
to move from place to place in the hope of bettering his condition, but
is also willing to change his occupation from time to time in the same
hope. There is more freedom of movement locally, and less fixedness of
occupation on the part of laborers and others, in this country than in
any other industrial country. Even foreign immigrants here,--factory
operatives, miners, and other laborers,--seem to catch after a while
the spirit of the country in both these respects. There is one
considerable advantage in all this, namely, competition becomes more
uniform in all places, an unusual demand for laborers at any one point
is easily met, and wages neither rise so high nor fall so low at
special points as they otherwise would. But there are considerable
disadvantages in all this too, chiefly these, the services of laborers
floating locally or changing the kind of their labor can never become
so excellent as service more _steady_ in place and time; and,
especially, thorough apprenticeships, or whatever may be equivalent to
these, are held in too little esteem by public opinion, and are too
little requisite in order to obtain transient employment. To meet the
obvious pressure of these disadvantages, an admirable device is now
being hit on, namely, to introduce into our public schools something in
the way of "manual training" for the various trades. Public
institutions also, some of them on a great scale, as the Cooper Union
in New York and a more recent munificent foundation in Philadelphia,
have been established on purpose to train boys and girls both in eye
and hand to render skilfully those artisan services of the various
kinds which will always be in demand among men, and which have
certainly deteriorated among us owing in part to the disuse of the old

In Europe, on the other hand, the laborers as a class are far less
mobile than here; and in Asia still less so. There is said to be no
country in Europe in which the proportion of foreigners to the native
population exceeds _three per centum_. In England, which is a small
country, the difference in Wages between the northern and southern
counties is very remarkable. Professor Fawcett is authority for the
statement, that an ordinary agricultural laborer in Yorkshire during
the winter months earns 13 shillings a week, while a Wiltshire or
Dorsetshire laborer doing similar work during the same number of hours
earns but 9 shillings. The contrast in general between the Wages of
English agricultural laborers and those paid in mills and mines and
furnaces is still more striking. And so more or less, in respect to
the Value of Commodities: competition is yet by no means perfect in
distributing these so as to make their price uniform in the same
country or even in the same county; but the immobility of laborers for
an obvious reason is much greater than the immobility of goods. While
laborers should certainly be free to go wherever their services may be
in greater Demand, the natural reluctance of most men to leave their
native haunts, enables each of the nations to work out its freely
chosen ends without wholesale interference from abroad. If China
should precipitate itself upon the United States, or India upon
England, as the mere _economical_ impulse might indicate, it would be
disastrous to the western nations; but men are everywhere under other
influences besides the economical one, although this is strong and
distinct and pervasive; Political Economy deals with men as they _are_
all things considered, and with Buying and Selling as this actually
takes place over the world, or rather as it would take place if
factitious economical restraints were removed; and Providence has
other great ends in view besides commercial prosperity, vital as that
is to all other progress, and often holds one impulse in check by a
stronger one.

(f) _Custom_, with its cognates Prejudice and Fashion, has still a
good deal to do with the Supply of laborers in certain departments of
effort, and of course with the rates of wages in them. In former times
in this country and in the older countries particularly, Custom and
decree were dominant in determining, for example, the current fees of
lawyers and doctors, competition coming in to decide how many such
fees a professional laborer should get, rather than the amount of each
particular fee. The shares of the produce going respectively to the
agricultural tenant and to the landowner, were specially under the
dominion of Custom; as the mode (now decadent) of taking farms "_at
the halves_," once universally prevalent in New England, sufficiently
shows. In certain other matters relating to land and trade, Custom has
long been gradually hardening into express law, as, for instance, the
famous "Ulster Right" in Ireland. Prejudice, which is only another
name for Custom, has some voice still in adjusting rates of wages, as
may be seen in women's wages crowded down apparently to a point
unreasonably low as compared with the wages of men; and also in the
rate of John Chinaman's wages in those parts of the United States
where he ventures to offer his services in the teeth of public opinion
and hostile legislation. It may be spoken with general truth and
satisfaction, that competition seems now to be breaking down mere
custom and prejudice in all directions, and may perhaps in the good
time coming reign supreme over the economic field; while Fashion,
which bears indeed on one side of its shield the motto "custom,"
carries too on the other the bold word "competition," and this second
side is likely to be presented to the public mostly in the future,
because, they who lead the styles in any department whatsoever will
always offer their services to Society at an advantage to themselves,
that being one form of competition, and their rate of compensation
will be legitimately higher than the average rate of their fellows, of
which a good instance was the marked worldly prosperity during the
decade of the Eighties of Worth, the man-dressmaker of Paris.

(g) _Legal Restrictions_ are another cause acting on wages, by acting
directly on the Supply of laborers. Laws inhibiting or promoting
immigration; laws appointing the fees and salaries of officials;
tariff-taxes, whether prohibitory or only restrictive; laws creating
privileged classes of any kind, which is only another designation for
laws restricting the rights of the masses; unequal modes of taxation,
whether adopted in ignorance or by design; all have a direct and
powerful agency upon the distribution of laborers, upon the supply of
them at given points, and upon the rates of their wages. Governments
are coming, however, much more freely than formerly, but never through
their natural choice and drift as governments, only by the gradual and
oft-disappointed compulsion of their citizens, to leave all these
matters Economical except the wages of their own servants and those
commodities which they choose to tax, to the simple and safe action of
Supply and Demand.

(h) _Voluntary Associations_ for that avowed purpose were a mediæval,
and have come to be again a modern, agency in adjusting the Supply of
laborers to their respective markets, and in regulating the wages of
various classes of them. The Guilds of the Middle Ages, and
particularly the old guilds of London, had a remarkable history, upon
which we can not here even touch. Their local importance is
sufficiently attested by the fact, that the City Hall of London is to
this day the "Guildhall." King Edward III. humored the civic feeling
of his time by becoming himself a member of the Guild of Armorers. "A
seven years' apprenticeship formed the necessary prelude to full
membership of any trade-guild. Their regulations were of the minutest
character; the quality and value of work was rigidly prescribed, the
hours of toil fixed from daybreak to curfew, and strict provision made
against competition in labor. At each meeting of these guilds their
members gathered round the Craft-box, which contained the rules of
their Society, and stood with bared heads as it was opened. The warden
and a quorum of guild-brothers formed a court which enforced the
ordinances of the guild, inspected all work done by its members,
confiscated unlawful tools or unworthy goods; and disobedience to
their orders was punished by fines, or in the last resort by
expulsion, which involved the loss of right to trade. A common fund
was raised by contributions among the members, which not only provided
for the trade objects of the guild, but sufficed to found chantries
and masses, and set up painted windows in the church of their patron
saint. Even at the present day the arms of the craft-guild may often
be seen blazoned in cathedrals, side by side with those of prelates
and kings."[6]

The Trades-Unions and Brotherhoods of the present day cannot plead the
provocations and justifications of their mediæval predecessors. It
cannot be denied, however, that they have some provocations and
justifications in the bad example set before them by the various
combinations (implied or explicit) of the Wages-payers as a class. If
the Wages-payers combine, then the Wages-takers would seem to have no
resource but in combination. Both alike are wrong in this. Both alike
oppose in this the spirit of Political Economy, which is ever the
spirit of Freedom, and is ever against such factitious associations
for such purposes, because they tend to destroy the independence of
personal action on the part of both payers and takers of wages, and
tend also to bring all the workmen of any one general grade down to
one level of effort and reward.

(i) Lastly, we must note the influence of _Casual Events_ upon wages,
as these events affect the Supply of laborers. For example, in 1348, a
terrible plague, called the Black Death, invaded England and swept
away more than one-half of its population. "Even when the first burst
of panic was over, the sudden rise of wages consequent on the enormous
diminution in the supply of free labor, though accompanied by a
corresponding rise in the price of food, rudely disturbed the course
of industrial employments; harvests rotted on the ground, and fields
were left untilled, not merely from scarcity of hands, but from the
strife which now for the first time revealed itself between Capital
and Labor" (Green). The landowners of the country districts, and the
craftsmen of the towns, not understanding the law of Wages as an
invariable resultant of the Demand and Supply of laborers, were
scandalized by what seemed to them the extravagant demands of the new
labor-class. Parliament equally ignorant with the People of the
natural economic law, enacted as follows: "_Every man or woman of
whatsoever condition, free or bond, able in body, and within the age
of threescore years, and not having of his own whereof he may live,
nor land of his own about the tillage of which he may occupy himself,
and not serving any other, shall be bound to serve the employer who
shall require him to do so, and shall take only the wages which were
accustomed to be taken in the neighborhood where he is bound to serve
two years before the plague began._" Afterwards, the runaway laborer
was ordered by Parliamentary enactment to be branded in the forehead
by a hot iron, and the harboring of the country serfs in the towns, in
which under their civic rules a serf keeping himself a year and a day
was thereafter free, was rigorously forbidden. These acts of
Parliament, and many more of the same kind, were powerless to keep
down wages to the old standard, but were powerful to keep up ill-blood
and social discontent. They prepared the way for agitators like John
Ball, for the poet-agitator Piers Ploughman, and for the great Peasant
Revolt of 1381. John Ball's famous rhyme condensed the scorn for the
nobles, the longing for just rule, and the resentment at oppression,
of the peasants of that time and of all times:--

    "When Adam delved and Eve span,
    Who was then the gentleman?"

A hundred years after the Black Death the wages of a common English
laborer--we have the highest authority for the statement--commanded
twice the amount of the necessaries of life which could have been
obtained for the wages paid under Edward III.

3. Having now seen fully the varied action of Supply and Demand upon
the Value of personal services in their three kinds, we come at length
to the most important general point in this chapter, namely, that in
the second class of Services, those purchased in connection with the
PROFITS. We have seen clearly already, that Cost of Labor and Cost of
Capital are the only onerous elements in the cost of Commodities;
because, while Natural Agents are all the time assisting and assisting
more and more effectively in such production, they work without
weariness or decay and without fee or reward. The reward of laborers
is Wages, and the reward of capitalists is Profits; and we are now to
demonstrate, that the part of their joint products falling to laborers
as wages is all the while increasing as compared with the remaining
part falling to capitalists as profits. This truth is of the deepest
significance, and of the most cheering character; because men are more
important in the universe than things; and because the number of men
who sell their services as laborers is vastly greater than the number
of men who sell their services as capitalists.

It is another indisputable and exhilarating truth for the masses of
mankind, that the Value of each item or article of those products
created by the joint action of laborers and capitalists is ever
becoming less and less as measured by any relatively fixed standard as
Money; so that, while wages as thus measured becomes a larger and
larger aggregate as compared with the aggregate of profits, and is
shared of course by a much larger number of people, those commodities
looked at as a collection of items for which the wages of these many
is usually expended for their own comforts, are becoming all the time
cheaper and cheaper to everybody, owing to the ever-enlarging and
wholly gratuitous action of natural forces.

For the sake of simplicity in the argument on this great point, we
will first look at what the facts are through recent illustrations
gathered by other parties for a wholly different purpose, and then
give in detail the economical grounds for these patent and universal
facts. Take for example, from Poor's Railroad Manual for 1889 a table
showing in a graphic way the steady reduction in freight charges per
ton per mile from 1865 to 1888 of seven representative Eastern trunk
railroad lines, namely, the Pennsylvania, Fort Wayne and Chicago, New
York Central, Michigan Central, Lake Shore, Boston and Albany, and
Lake Erie and Western; and of six leading Western roads, namely, the
Illinois Central, St. Paul, Burlington and Quincy, Chicago and
Northwestern, Rock Island, and Chicago and Alton. The following are
the figures:--


  | Year.| Eastern. | Western. || Year.| Eastern. | Western. |
  | 1865 |   2.900  |   3.642  || 1877 |    .971  |   1.664  |
  | 1866 |   2.503  |   3.459  || 1878 |    .898  |   1.476  |
  | 1867 |   2.305  |   3.175  || 1879 |    .764  |   1.279  |
  | 1868 |   2.132  |   3.151  || 1880 |    .869  |   1.389  |
  | 1869 |   1.860  |   3.026  || 1881 |    .763  |   1.405  |
  | 1870 |   1.593  |   2.423  || 1882 |    .756  |   1.364  |
  | 1871 |   1.478  |   2.509  || 1883 |    .829  |   1.310  |
  | 1872 |   1.504  |   2.324  || 1884 |    .740  |   1.220  |
  | 1873 |   1.476  |   2.188  || 1885 |    .636  |   1.158  |
  | 1874 |   1.332  |   2.160  || 1886 |    .711  |   1.111  |
  | 1875 |   1.161  |   1.979  || 1887 |    .718  |   1.014  |
  | 1876 |    .985  |   1.877  || 1888 |    .609  |    .934  |

This reduction of rates in the case of the group of Eastern roads has
amounted to 79 _per centum_, and in the Western group to 73 _per
centum_, in the twenty-four years. Not less remarkable than the extent
of this decline in freight charges per mile is its uniformity. Both
groups show a wonderful steadiness in the progress of rate reductions.
Starting at quite different points as to territorial development, they
have yet travelled at a nearly equal pace in the same direction. This
shows the operation of causes at once steady and universal. Statistics
can never of themselves yield us _causes_; but they guide the way to
them; at any rate, they prevent any radical misinterpretation of them.
The great and overshadowing cause here of the cheaper freights per
ton, as everywhere else of cheaper rates at the junction of efforts
by capitalists and laborers, is of course the perpetual and augmenting
and ever-gratuitous assistance of natural forces at every point.

While the rates of freight per ton have decreased more than
three-quarters in less than one-quarter of a century in the case of
these 13 railroads on the whole average, the entire cost of the
operation of these roads in this interval of time has not been
diminished to any appreciable extent, as also stated by the same
Manual. The main item in all the operation-expenses of railroads is
the wages paid to the laborers of all grades; and the laborers are
quite as well paid now on these 13 roads as they were in 1865, proper
allowances being made for the changed and changing standards in the
national Money. If, on a broad view, railroad employees of all grades
have lost nothing as such in their wages in this interval; and the
general public, including these laborers and also the capitalists
concerned, have greatly gained, how can we account for the immensely
lessened freight-charges while the whole operation-expenses continue
substantially as before?

There is only one rational account to be given of this. And it is
trustworthy. All known facts jump with it, and nothing substantial can
be urged against it. The gains to the masses including the capitalists
and the laborers _have come out of the capitalists as such_. This is
apparent as well as real. Cost of Labor and Cost of Capital is the
whole cost. If the whole cost of moving one ton of freight from Boston
to Chicago is 3/4 less than it was 1/4 of a century ago, the cost of
the labor being the same at the two points of time, then the
conclusion is inevitable, that the _cost of the capital_ at the second
point is less than it was at the first point. With this conclusion all
facts agree. All the laborers connected with a railroad from highest
to lowest must be paid at any rate, or else the trains will certainly
cease to move, whether the stockholders receive any dividend or not on
their capital invested. The original _stock_--the capital that built
the roads--of many if not of most the railroads in the country, has
been annihilated, a new indebtedness in another form called _bonds_
having taken the place of it. Even the nominal dividends of
dividend-paying roads have declined in the interval from 10 or 8 to 5
or 4 _per centum_ in the general, that is, 50 _per centum_. It is
perfectly evident on every hand, that there is something in the nature
and progress of things, that makes for wages as contrasted with
profits: wages hold on and relatively enlarge, profits decline or go
out altogether.

Fortunately we are not left to generalities here, however plain and
certain these may be. One of the 13 railroads specified above, the
Illinois Central, made a remarkable exhibit in its own annual Report
of 1887, showing the cost of its locomotive service for each year of
the thirty years preceding. This cost per mile run had fallen from
26.52 cents in 1857 to 13.93 cents in 1886. This reduction had been
effected wholly on the _Capital_ side of the account, by inventions
and improvements of all sorts in the _machinery_ of locomotion; while
the wages of the engineers and firemen had risen in the period from
4.51 cents to 5.52 cents per mile run. The cost of the labor had risen
both relatively and absolutely while the cost of the capital had
declined both absolutely and relatively. In 1857 the engineers and
firemen had received as wages 17% of the entire cost of the locomotive
service, but in 1886 they had received 39% of that total cost. The
table is as follows:--

  I. C. R. R. CO.


        | Cost of wages  | Total cost||      |  Cost of wages  |Total cost
  Years.|  of engineers  |    per    ||Years.|   of engineers  |   per
        |and firemen per | mile run. ||      | and firemen per |mile run.
        |   mile run.    |           ||      |    mile run.    |
        |         Cents. |   Cents.  ||      |          Cents. | Cents.
  1857  |Gold.    { 4.51 |    26.22  || 1872 |Currency. { 5.77 |  21.76
  1858  |         { 3.97 |    19.81  || 1873 |          { 5.84 |  21.10
  1859  |         { 3.81 |    20.78  || 1874 |          { 6.02 |  19.57
  1860  |         { 3.96 |    20.17  || 1875 |          { 6.03 |  19.57
  1861  |         { 3.84 |    18.92  || 1876 |          { 5.79 |  18.81
  1862  |Currency.{ 3.85 |    17.42  || 1877 |          { 5.54 |  17.21
  1863  |         { 3.93 |    22.28  || 1878 |          { 5.46 |  15.29
  1864  |         { 5.56 |    33.52  || 1879 |Gold.     { 5.41 |  14.15
  1865  |         { 5.65 |    37.44  || 1880 |          { 5.41 |  14.95
  1866  |         { 5.78 |    32.67  || 1881 |          { 5.54 |  16.58
  1867  |         { 6.18 |    29.62  || 1882 |          { 5.09 |  15.82
  1868  |         { 6.11 |    27.57  || 1883 |          { 5.35 |  15.57
  1869  |         { 5.88 |    25.49  || 1884 |          { 5.28 |  14.45
  1870  |         { 5.95 |    25.15  || 1885 |          { 5.49 |  15.02
  1871  |         { 5.72 |    21.50  || 1886 |          { 5.52 |  13.93

    In 1857 the engineers and firemen received 17-201/1000 per cent. of
    total cost.

    In 1865 the engineers and firemen received 15-91/1000 per cent. of
    total cost.

    In 1867 the engineers and firemen received 20-865/1000 per cent. of
    total cost.

    In 1886 the engineers and firemen received 39-627/1000 per cent. of
    total cost.

These illustrations from the railroads are plainly indicative of a
general truth of the utmost importance in Political Economy, namely,
_that all increase of Capital and all inventions and improvements in
its practical application, while it redounds to the benefit of
capitalists as a class, redounds in a still higher degree to the
benefit of laborers as a class_. Let us now attend for a moment to the
convincing Proof of this truth in two phases of such proof, and also
to a cheering conclusion that follows it.

(a) As any country grows older in time and richer through abstinence,
and as the whole world thus grows older and richer, the tendency
there and everywhere towards a general decline in the rate _per
centum_ for the use of capital becomes patent and universal. The rate
of interest on money loaned, and the rate of profits on capital used,
tend all the while to go down as and because capital accumulates. No
one will dispute this as a simple fact of history. And no economist
will dispute, that this is just what we might expect beforehand as a
corollary from the admitted proposition, that, other things being
equal, an increased Supply of anything means a lessened Value for any
specific part of it. Three centuries ago in England the legal rate of
interest was 10%, while now the current rate is about 4% in that
country, and has been considerably lower than that in Holland,
although in both countries and everywhere else there are temporary
interruptions and reactions in the constant tendency now being
considered. During the first years of mining operations in California,
from 8% to 15% per month with security of real estate was paid for the
use of money, which enormous rates long ago declined to rates not much
higher than those paid in the States along the Mississippi River, and
in these also the rates are all the while approximating those current
in the older Eastern States, whose own rates too are slowly declining.
But, while there is a less rate of profit or interest on each 100
invested, there are many more hundreds capitalized; consequently,
there is an absolute gain to capitalists as a class, at once in the
aggregate amount of the capital and in the aggregate sum of the
profits from it, since no capitalist would have a motive to capitalize
further under the smaller rates of profit, unless the aggregate of
profits under the new conditions were greater than under the old
condition of higher rates; and, as much of this accumulating capital
in order to become productive must now be offered to laborers in the
form of wages, we might almost pronounce beforehand, that it would
prove both an absolute and also a _relative_ gain to laborers as a
class. And so it is.

(b) Let us take to figures. An hypothesis or supposed case, whenever
it may easily become an overt fact, may be reasoned from just as
logically and securely as the overt fact itself. Let $100,000,000,
while the rate of profit is 6%, and $500,000,000, when the rate has
fallen to 4%, be expended in payment of simple wages. So far forth as
that one element of cost goes, the value of the products to be divided
yearly between capitalists and laborers will become respectively
$106,000,000 and $520,000,000. In the first case, $6,000,000 is
profits and $100,000,000 is wages; in the second case, $20,000,000 is
profits and $500,000,000 is wages. Here is an absolute gain to the
capitalists, since profits have gone up from $6,000,000 to
$20,000,000, and so are more than _three_ times as great as before.
But wages have gone up both absolutely and relatively to the rise of
profits. They have risen from $100,000,000 to $500,000,000, and are
_five_ times as great as before. Profits have risen as in the ratio
1:3+, but wages in the ratio of 1:5. This arithmetical example is put
for the sake of illustration merely, but the principle of it holds
good in every case, in which the rate _per centum_ goes down in
consequence of the increase of capital in business; and, therefore,
the advantages of ever-enlarging Capital are even greater to laborers
as a class than to the capitalists themselves. Most assuredly, if the
capitalists take less out of each hundred of the swelling hundreds now
than before, the laborers must take more out of each hundred than
before. Profits and Wages are reciprocally the _leavings_ of each
other, because the aggregate products created by the joint agency of
Capitalist and Laborer are wholly to be divided between the two. There
can be no other _claimant_ even.

(c) This demonstration is extremely important in Political Economy,
and consequently in Social Life; for it proves beyond the possibility
of a cavil, the Value of personal services tends constantly to rise,
not only as compared with the Value of the material commodities which
by the aid of capital they help to create (a truth we have seen
before), but also as compared with the Value of the use of its
co-partner capital itself; and therefore, that there is inwrought into
the very substance of things in this world a tendency towards an
equality of economical condition among men. God has ordered it, and
men cannot radically alter it. Self-interest is indeed the mainspring
of movement in the economic world; but the beauty of it and the wonder
of it is, that no man can labor intelligently and productively under
the influence of self-interest without at the same time benefiting the
masses of men. His fair exchanges benefit the parties of the other
part as much as they benefit himself. His very savings productively
employed are poor men's livings. Only under the blessed freedom of
universal Buying and Selling, subject only to the taxation of a good
Government for public purposes purely, can these broad benefits
designed by a wise Providence be fully realized in action; and the
power of individual greed and corporate privilege and governmental
perversion to thwart the beneficent though complicated workings of
these laws of Capital and Labor towards the common weal and universal
progress of mankind is shortlived and soon punished.

4. How comes it about, then, if these laws of mutual inter-dependence
between capitalists and laborers are so well-placed and Providentially
balanced, that there always have been and are still so many
misunderstandings and ill-feelings and actual collisions between
employers and skilled laborers, whose interests are at bottom one and
whose relations ought to be so cordial? This is the last topic in our
Chapter on Personal Services. Here we must look around narrowly and
tread carefully. But there is a path. We can find it if we will. It
leads through many short-comings in men's characters and through much
ignorance of plain economical truths and past unreasoning jealousies
and aggregated action on the part of both classes, and over the
needful distinctions between impulsive selfishness and a true
self-interest back to the same old laws of God laid down at once in
the constitution of things and in the constitution of men.

Labor-troubles are almost as old as Civilization. The Greek poet
Euripides in his play of the "Supplicants" both indicates facts as
they were then, and points out a future hope in which we may share,
that these middle classes by a better harmony preordained and mutually
beneficial may yet "save the State":--

                                  "In each State
    Are marked three classes: of the public good
    The rich are listless, all their thoughts to more
    Aspiring; they that struggle with their wants,
    Short of the means of life, are clamorous, rude,
    To envy much addicted, 'gainst the rich
    Aiming their bitter shafts, and led away
    By the false glosses of their wily leaders.
    'Twixt these extremes there are who save the State,
    Guardians of order, and their country's laws."

At Rome and in the Roman Empire, instead of the usual voluntary union
of capitalists and laborers for the mutual advantage of each other,
the laborer was owned by the capitalist, and the true relations
between the two were thoroughly disguised and wretchedly distorted.
Business in all its branches came to be carried on by means of slaves;
the lands were tilled by slaves; slaves became the artisans of the
country; the money-lenders and bankers of the centre scattered
branch-banks in the towns under the direction of their slaves and
freedmen; the Company that leased on speculation the Customs-Taxes
from the State had their slaves and freedmen levy these taxes at each
custom-house; the contractor for buildings bought architect-slaves;
and the merchant imported his goods in ships of his own manned by his
slaves or freedmen, and then sold the same at wholesale or retail by
the same means. In this way a gigantic system of unnatural traffic was
built up and extended. In this way the very name "laborer" became
tainted by the vile system of slavery of which he was a part, and the
distinction itself between capitalist and laborer was obliterated.
"Roman mercantile transactions fully kept pace with the contemporary
development of political power, and were no less grand of their kind."
"The Roman _denarius_ followed up closely the Roman legions." "It is
very possible that, compared with the suffering of the Roman slaves,
the sum of all negro suffering is but a drop" (Mommsen).

We want now to examine critically the CAUSES of these constantly
recurring labor-troubles, the true economical REMEDIES for them, and
in connection with these the futility of the remedies popularly
recommended for low Wages and the disputes between employers and
employed of the second class.

(1) There is an extremely common misapprehension on the part of both
labor-givers and labor-takers as to the real _nature_ of the
transaction between them. Both parties forget, or rather neither party
is ever fully instructed, that it is a case of pure Buying and
Selling. There is never any _obligation_ of the moral sort between
buyers and sellers. The relation itself is purely economical. Moral
considerations indeed cover this relation from above, just as they
cover all other relations between man and man in human Society; and
any two individuals standing over against one another as buyer and
seller, also stand over against each other in higher and broader
relations as man and man; but it works confusion and mischief as
between both, whenever relations differing in their nature and
operation and reward are not separated from each other in the mind of
each relator, and whenever each does not act in the particular
relation according to the nature and rules of that relation alone.
When A hires B to work in his factory, this new relation is economical
not moral; there were moral relations between the two before this
relation was knit, and will be again after this has been broken, and
indeed are while this continues; but the economical relation is one
thing, and the others a very different thing; they are so different,
that they cannot be blended in mind or motive to any advantage to
either individual or to either set of relations; and any degree of
confusion as between the relations has always wrought mischief as
between the individuals, because instead of seeing either set of
relations in its own clear light, they now see both in a commingled

What is the economical relation? This. A desires the personal service
of B in his factory purely for his pecuniary benefit, and assumes his
own ability to make all the calculations requisite for determining how
much he can (profitably to himself) offer B for his service; and B,
who knows all about his own skill, how it was acquired and how much it
has cost, wants to sell his service to A for the sake of the pecuniary
return or wages. There is no obligation resting upon either. Man to
man, each in his own right. There is no benevolence in the heart of
either, so far as this matter goes. Benevolence is now an
impertinence. It is a question of honest gain in broad daylight.
Benevolence is blessed in its own sphere, but there is no call for it
here and now. If it comes in an unbidden guest, it comes in to mar and
to distort. It is an incongruity. "_I never knew a Jew converted but
it spoilt him_," was the word of one deeply versed in human nature and
in Christian experience. Conversion is good, and its field is broad;
but the Jew _as such_ is incongruous with it. Good is benevolence and
wide its field, but Buying and Selling does not need it. Its own
motives are independent of it, and sufficient without it.

A clouded understanding of this vital distinction has always played
its part in Labor-troubles. Buyers and Sellers of personal services
are always on a plane of perfect equality as such exchangers, and no
one can be more independent than either of them except the hermit in
his cell. Which must look out for the interest of the other beyond the
terms implied in the trade itself? Which is the superior party? Which
should take off his hat, the other remaining covered? The truth is,
and all experience and all analysis brings us up abreast of it, that
the two parties to a trade of any kind stand on a footing of absolute
equality towards each other then and there in the economical relation
about to be knit, and any conception in the mind of either that he has
the other "at his mercy" in either the good or bad sense of that
phrase, disturbs and destroys the proper conditions and balances of
the exchange in hand; and, what is more to the point, it implies that
each party has _not_ all he can do to fulfil in the letter and in the
spirit what is always implied in the terms of a trade deliberately
entered upon by two parties. When B agrees to work for A at skilled
labor in his factory for a year at $15 per week, he makes a good deal
of a contract; and virtually pledges to A not only the motions of his
hands for that period of time, but also the vigorous attention of his
mind to that service and to the general interests of his employer so
far as these come under his own eye and supervision. Nor is this all:
he virtually pledges himself to B to coöperate with the least possible
friction in all plans for betterment in his division of the work, and
to cordially coalesce with all other employees for the general ends of
the business without too much of self-assertion and without too little
of courtesy to others. To fulfil this contract in all its spirit
rounds up the circle of B's economical obligations to A. He will
practically have all he can do, so far as A is concerned, and in
consistency with all his various duties to others, to make good to him
at all points his simple business pledges. Benevolence, the interests
of a common citizenship, and the reciprocal ties of religion, lie
wholly outside.

A will practically have all he can do, so far as B is concerned, to
fulfil in the letter and in the spirit his economical obligations to
him, without troubling himself to see whether B is going to vote the
same party ticket that he himself votes, and without confounding
either B's poverty or prosperity with his own obligation to be polite
to him at all times and to pay him promptly his weekly stipend. So
long as B renders in letter and in spirit what he has agreed to
render, and A returns in the same way what he has promised to return,
the less either thinks and talks and acts about the other in all the
other relations of life, the better hope of good success to both in
this relation. Church relations and social relations and political
relations are all of consequence in themselves; but when any of these
begin to get mixed up with labor-relations, there is soon a muss and a
mess. Incongruous things, things no way vitally connected with that,
often come in to disturb and destroy a simple matter of mutual

(a) The first practical remedy for difficulties arising under this
first head, is a clearer separation in the mind of both parties to a
trade of what really belongs to Buying and Selling from what belongs
to all other departments of activity. More common sense is needed at
this point, more simple analysis, more daylight, more personal
independence, more introspection as to motives, more power in making
distinctions, and a more practical separation of what is clear and
fixed from what is complex and obscure in human relations. Metaphysics
may yet lie in cloud-land, Ethics may not yet have drawn its outer and
interior lines so strong and deep as it will, Sociology also is a vast
field of complexities, but truth to tell Economics has no mysteries to
speak of. I buy and sell for my own advantage, which proves in the
nature of things to be for the equal advantage of my compeer. It is my
business and my compeer's business and every other man's business who
buys and sells, to pick that action out in its motive and result from
the great mass of dubious actions, and to set it up in its own light,
to rejoice in it as the clearest thing in social action, to claim it
as God's own plan so far forth for our comfort and progress, and then
to see to it that no preposterous hand mixes it up with perplexities
or theologies or other abominations--muddying with a tentative pole
the stream of our clear brook! In this country at least, in its
ignorance of common things and common science, the pulpit often
fulminates against the gains of exchange as "materialism," and mixes
up buying and selling with "worldliness," and only half permits its
deluded hearers the privileges of the market, and illustrates again in
modern times such teaching as is denounced to St. Timothy,--"_some
swerving turned aside to vain babbling, desiring to be teachers of the
Law, understanding neither what they say, nor whereof they affirm_."
"Let every shoemaker stick to his last." Those who have looked into
it with any care have found, that Exchange in all its natural
outgoings is not answerable to these pulpit charges, nor is contrary
to the letter or spirit of the biblical precepts, but on the other
hand is in full harmony with the claims of Conscience and with all the
inbreathings and aspirations of Christianity.

(b) The second practical remedy for the labor-difficulties arising
from the want of thorough understanding by both parties of the real
nature of hired renderings of the second class, is fair _common
honesty_. More of an easily accessible intelligence, more of
penetration and separation as to social relations in general, meets
the first point; but quite as needful as this simple intellectual
process, is the still simpler moral habit of doing just what one has
agreed to do, without evasions and without diminutions. Labor
difficulties take their origin more often, perhaps, in some clouded
moral action of one of the parties, than in a clouded mental
apprehension. Men are too conscious as men of their own temptations,
to be lax in their pledged renderings and of their own shortcomings at
this point, not to be suspicious of each other as buyers and sellers,
for fear the party of the other part is about to withdraw something
either in quantity or quality of what he has promised to render; there
is almost always something or other to give color to such a suspicion,
and it grows by what it feeds on; frank explanations are not had at
the outset, and a good understanding is not come to, as it doubtless
might be in nine cases out of ten; and the little cloud, at first no
bigger than a man's hand, by and by becomes black and threatening, and
bursts at last in a strike or lock-out of large proportions. An open
honesty that is such and seems such, that is not beyond the aim and
reach of common men, that is taught in scores of forms in "Poor
Richard's Almanack," and that each man ever likes to meet with and so
ought ever to put forth, is in fact a preventive of conflicts between
laborers and employers, and would if properly manifested have
prevented multitudes of such actual conflicts. Here is the main,
almost the sole, point of contact between strict Ethics and the
Economics. What buyers and sellers, that is to say, the whole
practical world, needs, is not disquisitions on Morals from Press or
Pulpit, but an inner ear to hear the true click of Conscience, and the
quick and open answer in honest action.

(2) A second general cause of the Labor-troubles of the past and
present has been a strong tendency to neglect the special
_preparation_ for their peculiar functions by both capitalists and
laborers. A successful employer of laborers year in and year out to
their advantage and his own is always one who has been _trained_ to
that function by special preparations. He is a living man with all the
limitations of living men: he has to deal with many living men with
all their imperfections: he has to deal also, and constantly, with
what is in its own nature dead, namely, Capital, always either a
commodity or a claim: to animate and invigorate these dead forms of
value, to put them into vital connection with living men who shall
enhance their value, and thus to become a leader to living men as
towards swelling interests, demands unusual native gifts and a special
long-continued training. When one looks from without upon such an
establishment as this in full action, it seems automatic, it seems as
if almost anybody with a clear head could continue to direct it; and
when this "captain of industry" departs this life, perhaps his son or
some previous subordinate, without the proper gifts and at least
without the peculiar training, assumes the post of direction. For a
little everything seems to go on as before. As sure as fate, however,
a friction will soon develop here, and a misunderstanding there,
there will be whisperings among the men, some breath of suspicion will
be likely to cloud the borrowing-power, opening difficulties of any
kind such as loss of credit or a weakening of the usual markets are
apt to throw a new operator more or less off his base, and gathering
labor-troubles of any sort commonly find such a man unprepared for
lack of suitable training and experience to ward them off or to make
timely concessions to the men or to minimize the evil results when
these become inevitable.

Also labor-troubles are quite as likely to arise from the want of
character and training and considerateness of the employees towards
the capitalists. The relations are reciprocal and they are also in
their very nature delicate. One poor workman however good his
disposition, one unfaithful overseer no matter how great his possible
skill, may mar the current product in such a way as to lose it the
market and cost the establishment the present profit. The strength of
a chain is the strength of its weakest link. It is a matter of immense
difficulty at any time, and emphatically so at the present time to
organize a working force in factory from top to bottom so as to have
it go forward as a unit as towards the marketing of the product,
without bad workmanship at some point and unskilful supervision at
another; because the laborers as a rule have not given themselves time
to learn thoroughly their special parts, because they are not content
to remain steady at one thing and at one place, and because they do
not practically recognize even if they perceive it that their own
permanent interests are exactly coincident with the permanent
interests of their employers. Just now in this country the public Law
robs the manufacturers (at their own behest) of their best markets at
home and abroad, makes it difficult or impossible for them through
wanton taxation of their raw materials to create a good quality of
goods for any market, and so multiplies frictions and failures and
losses along the whole line of production. The lack of what may be
called Apprenticeship on the part of skilled laborers, the consequent
difficulty of rising from one gradation of effort to a higher and
better-paid one, the restlessness of native laborers under such
disabilities, the rapid admixture of foreigners, the lack of coherence
throughout in point of intelligence and apparent identity of
interests, together with the instability and haphazardness of the
resources and personal training of the employers as a class, gives
birth to Labor-troubles which are at the same time Capital-troubles,
to read the daily record of which makes one sick at heart.

(a) The only possible and practicable remedy for this state of things,
so far as the employers are concerned, is in a more conservative
attitude of capitalists as a class about passing over their resources
to the hands of men who have not proven their ability to handle them
wisely by a full course of training in the management of practical
affairs. By a wretched policy in this country at present Capital is
prohibited from building and from buying ships, with which to navigate
the oceans; from selling domestic manufactures in foreign markets; and
also from a profitable agriculture, which may sell its products abroad
and take its pay back. Consequently Capital, eager in its own nature
to be invested to a profit somehow somewhere, has rushed without due
circumspection into the hands of domestic operators, who have not been
half fitted for their task, who have knitted relations with laborers
without being able to secure their permanent respect or to control
their services, and who have lost to their owners in multitudes of
cases the entire capital intrusted to them. If capitalists had had
during the last quarter of a century one-half of their natural and
proper chance to invest their money to a profit, there would not have
been such a reckless investment through incompetent hands in building
mills and foundries in this interval of time, and such wholesale
losses in connection with them. When capital comes to be at liberty to
turn right or left according to its own will in view of a prospective
profit, factory companies and projectors cannot draw resources from
the public for their operations, without demonstrating to the owners
the trained and tried capacity of the practical operators, who will
buy the materials and hire the laborers and market the products.

(b) The practical remedy for the inexperience and instability and
unskilfulness of laborers as tending towards labor-troubles of all
kinds and degrees, is only to be found in a want of market for such
services. In a natural and wholesome state of things, such as would
exist in the United States were it not for national laws tampering
with Trade and with Money, the questions asked an applicant for
skilled work by any labor-taker would be, "_What have you learned to
do? How long and for what pay do you want to do it? What do you want
to reach next, when the present job is done?_" When employment turns
on good answers to such questions as these, and when the questions
themselves are put in good faith, there will be an end of Strikes and
Lockouts. Untrained and restless hands will get nothing to do in mills
and factories. Apprenticeship in its various forms will come back into
vogue, and will probably be made a part of the course in public
schools. The division and gradation of laborers will be carried out
further than it ever yet has been. Laborers will then be _organized_
in the best sense of that word, and to the best advantage of
capitalists. The permanent Supply of skilled laborers will be
constantly adjusting itself to a permanent and increasing Demand for
them. And it requires no millennium for such a state of things to
come in. It requires nothing but an ordinary and enlightened and
beneficent selfishness on the part of capitalists to adjust itself to
the ordinary selfishness of laborers sure to become enlightened and
beneficent to the best and ever-growing interests of both parties.
This is not the spoken word of Morality, still less is it the divine
word of Religion, it is only the common programme of a common-sense
Political Economy.

(3) The third and last general cause of misunderstandings and
embittered disputes as between laborers and capitalists is partly
economical and partly moral, and consequently the remedy for it is
partly moral and partly economical. The Past projects itself down into
the Present partly with blessings and partly with curses. In the old
times under Slavery and Feudalism the laborer always came forward to
his task with a taint upon him. Sometimes the taint attached to his
birth, and at all times it attached to his calling. Slavery in all its
forms always makes manual labor degrading. The courtly Cicero
_apologizes_ in a letter to his friend for his open sorrow over the
death of his favorite slave; and in several passages of his treatise
on Morals he follows his Greek teachers, Plato and Aristotle, and
declaims in a pitiful way against the noble rights of laborers. "_All
artisans are engaged in a degrading profession._" Again, "_there can
be nothing ingenuous in a workshop_." When trade and commerce are
carried on on a small scale, "_they are to be regarded as
disgraceful_"; when on a large scale, "_they must not be greatly
condemned--non admodum vituperanda_!" (I, 42.)

Serfdom once existed in England, and threw its shade over free
laborers there long after itself had disappeared. A class of indented
servants pervaded all the New England Colonies, and a clause of the
New England Confederation of 1643 provided for their forced rendition
from Colony to Colony, and passed over almost verbally into the
Constitution of the United States of 1787 as applicable to the slaves
of the South. In this way in all parts of this country manual laborers
came to be more or less off color, and this has continued in a
continually lessened degree till this time. When those who work with
their hands are looked down upon by those who do not, two sets of
feelings are apt to be engendered equally unfortunate to the two
classes that entertain them. The non-manual workers, the employers,
are more or less puffed up with pride and a sense of superiority
(there are beautiful exceptions) as towards their laborers, and the
latter in their turn are apt to develop alongside an unmanly servility
and an apparent deference, a sort of secret breasting up of hostility
and defiance, which is sure to manifest itself when labor troubles
come on even when it has not helped to brood these troubles into life.
The parties then are not well placed as towards each other to
negotiate and to compromise and to coalesce in a future harmony. The
party of the first part is too proud to yield to their inferiors, and
the party of the second part is too bitter to be sweetened. Who is
sufficient for these things? And what is the remedy for them?

(a) So far as employers are concerned, their natural though
unreasonable and provoking arrogance may well be reduced by the
economical reflection, that the laborers are exactly as necessary to
production as the capitalists are, that the two stand on a precise
level so far as the product goes, that each is one blade of the shears
and the other the other and that it takes both blades to cut anything,
that while the laborers are sellers in the open market the capitalists
are likewise sellers and that the same ultimate purchaser furnishes
the market for both sets of sellers, that as sellers they are only
equal in position, that buying and selling is a levelling as well as
an uplifting process the world over, and that as such co-equal
partners in one indivisible operation all haughtiness on one side and
all undue humility on the other is nothing but obstacle as towards the
common end; and also by the moral and social reflection, that their
laborers are just such men as themselves in motive and action, that
the two are very likely to exchange places with each other before very
long, that riches are extremely liable to take to themselves wings and
fly away, that Christianity is no respecter of persons, that humanity
deems nothing human alien from itself, that morality puts the golden
rule upon the fore-front of its precepts, and that whatever may unite
any body of men in a legitimate purpose of achievement along any line
of human action multiplies the power of each individual and exalts his
standing and responsibility as such individual and thus reduplicates
the reward of his individual action.

(b) So far as the employees are concerned, in any temporary sense of
dependence or even of injustice, there is open to them the economical
reflection (and it will do them good to bring it home) that their best
route to the respect and favor and feeling of equality of their
employers is through the excellence of the service they render them
and the courtesy (not servility) with which they render it, that as
every capitalist becomes such by means of abstinence they may
themselves by saving become capitalists, that there is nothing in the
nature of their work or its relations to capital to cause them to hang
down their heads, that handsome is that handsome does, that the
opportune offer of the present capital to work on gives them a chance
to exhibit their skill and to earn a living, that the capitalists are
just as dependent on them as they upon those, and that as single
sellers of a valuable personal service they daily confront on a
footing of equality the sellers of a valuable product so created; and
there is open to them also the moral and social reflection fortified
by constant observation and experience, that no matter where a man
begins it is the end that crowns his work, that life to all is a
series of stepping-stones, that manly qualities are appreciated
everywhere, that character tells in the lowest position however high
and low are reckoned, that the poor gain and hold friends quite as
well as the rich, that there was a certain poor wise man that saved
the city by his wisdom and gained a lasting record in consequence,
that the poor and the rich are constantly changing places in this
world, and that there is no respect of persons with God.

We may see now what we are to think of some popular remedies
constantly recommended for low Wages. A brief discussion of what is
false will give us a stronger hold of what is true. The chapter will
close with relevant reference to three current remedies.

1. It is being dinned into the ears of the present generation, that
Government has large functions in the ongoings of business, that it
ought sometimes to interfere to better the rate of Wages, at least to
designate a minimum below which they shall not go, and that Government
should hold itself ready to undertake directly to carry on certain
branches of business under certain circumstances. This scheme goes
under the high-sounding name of _Nationalism_. Richard T. Ely,
Professor of Political Economy in Johns Hopkins University, is one of
the most prominent representatives at present of this school of
thought. In his Introduction to Political Economy just published
(1889), he lays down this principle: "_When for any class of business
it becomes necessary to abandon the principle of freedom in the
establishment of enterprises, this business should be entirely turned
over to Government, either local, state, or federal, according to the
nature of the undertaking._" He begins his book by attempting to
hammer in the "lesson" that as Civilization improves, coöperation
takes the place of individualism. The golden age of individualism, he
says, is among the wild tribes of Australia. They never coöperate with
each other in their economic efforts, or in anything else. No one
expects anything from his neighbor, and every one does unto others as
he thinks they would do to him. The life there is one prolonged scene
of selfishness and fear. But as civilization comes in, he says,
individualism goes out, and coöperation takes its place. The fine old
Bentham principle of _laissez faire_, which most English thinkers for
a century past have regarded as established forever in the nature of
man and in God's plans of providence and government, is gently tossed
by Dr. Ely into the wilds of Australian barbarism.

There are some propositions that are _certainly_ true, and one of them
is, that no man can write like that, who ever analyzed into their
elements either Economics or Politics, who ever gained a clear
conception of the sphere of either science in its relation to the
other, or who ever saw distinctly the relations of either to the
nature of Man. The sole motive in Buying and Selling is the gain of
the individual, each for and by himself. That always was the motive,
is now, and always will be. No complications of modern business, no
complexities of credit, no combinations of capitalists or laborers,
ever altered or ever can alter one particle the motives of men in
buying and selling. In a natural and progressive state of things,
Individualism, instead of going out, comes more and more into play,
through the Division of Labor and the falling of all sorts of services
more and more into specialties. To talk glibly, as Professor Ely does,
about Government taking up easily and carrying on in a better way and
to better ends branches of pure business as they are dropped or
forced from the hands of Individuals, is ignorance at once and alike
of the real nature of Government and of Business. Let us look at a few
of the native incongruities and logical fallacies of this
nationalistic position.

(1) What is human Government? Is there anything substantive and
continuous in its _personnel_ and purposes, as there is in the
government of God? Is government anything more, can it be anything
more, than a transient Committee of the citizens charged and changed
to do in certain few particulars the changing will of a Majority?
Government is indeed a necessity, as men are, to restrain the lawless,
and to shape the ends of the law-abiding; but it has to be
administered, if at all, by precisely the same kind of men as the rest
are, chosen for brief periods, their duties sharply prescribed by
constitution or custom, and impeachments or other punishments provided
for them when they transgress. One President of the United States and
one Judge of its Supreme Court have already been solemnly impeached by
the sovereign people themselves.

Government, then, is an _Agent_, and nothing more. Even nationalists
will not contend for the divine right of kings. And the duties of
every decent government on earth are _political_ in their character.
The agents are chosen and dismissed with a direct reference to that
kind of action. Politics has a sphere wholly distinct from Economics.
The true and only end of politics is the greatest good of the greatest
number, so far as that end can be mediated by governmental agents of
the people. Individualism as such does indeed sink out of sight under
a true Politics, and the inalienable rights of one are maintained for
the sake of and in consistency with the greater rights of all. But
Economics is all individuals from beginning to end. "_It takes two to
make a bargain._" Only two. Each of the two has his own motive,
estimates for himself, gives and takes for himself, and enjoys alone
his own gain. All this is involved in the very idea of _Property_,
which is derived from _proprius_, and which means _one's own_. How
illogical, then, and incongruous, to suppose, that a set of limited
human agents briefly trained to purely _political_ action, and liable
to be turned out of office by every change in party administration,
can be competent at the same time and in addition to perform
_economical_ functions for the people!

Notice, too, that governmental agents in all good countries are
already _overburdened_ with their mere political duties. Work is
behindhand in every portfolio, on every court calendar, and in every
legislative body, in Christendom. How absurd it is, therefore, to talk
about throwing upon shoulders, already overburdened, additional loads
of a different kind, for which shoulders and heads are wholly

Why not, then, inquires our nationalist innovator, organize new
bureaus to undertake in their behalf the buying and selling of the
people? Ah! Who pays the taxes needful for the support of the present
_political_ bureaus? And who would have to pay the taxes needful for
the support of the new _economical_ bureaus? Besides not having any
substantive existence of its own Government has not one cent of money,
except what the people voluntarily pay in taxes out of their own
personal gains, in order to maintain their own agents to do certain
political things for them, which they cannot do as well for themselves
directly; and when it comes to the cold question for the people
themselves to answer, whether they will organize a new set of hired
men to do their trading for them, and pay them for doing this out of
aggregate gains certainly to be vastly diminished by the process, our
nationalistic leaders will perhaps find out that the people have
common sense, whether the said leaders have it or not.

But the damning difficulty with this governmental business association
is, after all, in the inevitable _lack of motive_ on the part of the
hired men doing the buying and selling. It is an honor to human
nature, that hired men never have and never can have the zeal and
enterprise of principals and owners to forecast and to perform and to
lay up; because it shows that man is a rational animal, made in the
image of his Maker, always acting under the pressure of personal
motives, and always estimating what is his own more highly than what
belongs to another. Business motives act in their fulness only on the
individual, whose is the effort and whose is the return. Any policy
whatever on the part of Government, which lessens the number and the
eagerness of individual operators in favor of great artificial
combinations resting in the shadow of the Law, lessens of necessity
the gains of exchanges, and the progress of the nation, because it
lessens of necessity the press of motive on the many to work and save.

Government, accordingly, is quite too far off in every respect from
the business, that is to say, from the buying and selling of the
people, to undertake any branch of it when "it becomes necessary to
abandon the principle of freedom in the establishment of enterprises."
It will then be high time to "abandon" the "enterprises" themselves.
If the "principle of freedom" cannot compass the "establishment of
enterprises," is it likely that the "principle" of secondary and
irresponsible agents can do it? To show the people how to make their
bargains, how to buy and sell and save and spend, is a function
government is not fitted for, was not established to perform, and
never undertook without making a botch of it.

In the Preamble of the Constitution of the United States there is a
careful and complete and elegant enumeration of the purposes, which
the body of the instrument was designed to attain. These purposes are
six. No one of them contains even a hint of any purpose to enter upon
the "establishment of enterprises," still less of any necessity "to
abandon the principle of freedom." The last of these six purposes is
POSTERITY." The liberty to buy and sell freely was precisely that
"liberty" of the Colonies which was most threatened and infringed by
the British Government, to vindicate that special "liberty" was the
chief cause of the American Revolution, and "to secure the blessings"
of that and other forms of similar "liberty" was the final purpose of
the Constitution of the United States.

It is true indeed that the Constitution empowers Congress, a creature
of the People, "_to establish Post Offices and Post Roads_"; but the
purpose of this was _political_, and not pecuniary; it was to bind all
the States together in one Union of intelligence and intercourse; it
was to keep the outlying and distant parts in touch with the central
and seaboard; it is not in any sense a "business" enterprise; the
department of the mails is not now and never has been, for any length
of time, self-supporting; and it illustrates through and through in
its "Star route frauds" and other contracts, in its appointment and
removal of postmasters, and in the sickening dependence of primal
Service of the people on partisan and corrupting impulses, many of
them inherent evils of the much-vaunted Nationalism.

But besides all these vital and political objections to the assumption
on the part of government of any direct industrial functions whatever,
there remains two other fundamental objections, of which the first is,
that our national government has received no powers to any such end,
and is emphatically prohibited in the Constitution itself from

(2) The second remaining objection is, that such proposed action of
government could have no tendency at all either to enlarge the
Wages-portion, or to increase the industrial efficiency of the
laborers, or to diminish the number of competitors at any one point of
the wages-scale. As a matter of fact, such governmental action would
have precisely the opposite effect at each of these three vital points
of wages: employers would have less motive to swell the wages-portion,
laborers less motive to improve their capacity, and more motive to
congregate locally. Suppose, that at some given point in the scale of
wages, free and intelligent competition has been had on both sides,
and that the average rate of wages as thus determined proves one
dollar per day for each laborer. Suppose further, that everybody
outside the employers thinks this is quite too little, and that
government accordingly issues a decree that wages at that point must
be thereafter one dollar and a half per day. That decree can have no
tendency at all to enlarge the _wages-portion_ of those particular
employers, because _that_ has already been determined for the next
industrial cycle by the general productiveness of the cycle last past,
and by the last division under free competition between wages and
profits; if, therefore, the decree were carried out, as it never
practically could be, the result would be that only two-thirds of the
laborers previously employed could be employed then at all, and the
remaining third would certainly be worse off than before; and besides
the Division of Labor being necessarily lessened, production would be
less profitable to the employers, and the next wages-portion would
certainly be less than the one before, and thus the outcome of the
_remedy_ would be worse than the _disease_. Now let alone the
artificial interference of government, and all natural accessions to
Capital at that point, all investment of profits in an enlarged
business, all saving from expenditure for the sake of further
production, tend strongly of their own accord to enlarge the
wages-portion, and thus, the number and intelligence of the laborers
continuing as before, are sure to raise the rate of wages. Or, if
there be no accessions to Capital, or other influence swelling the
wages-portion, and the number of laborers be diminished at that point,
as by migration to new fields of effort or enlistment in armies, the
competition of wages-givers for laborers will be quickened, and the
rate of wages will rise. Reversed conditions will of course give
reversed results.

2. A second popular remedy for low Wages, not only proposed, but also
for a long time brought into practical action, is Labor-Unions in
their various forms and with their manifold methods of operation upon
employers. It is important to note here and to remember, that the
Guilds of the mediæval times, from which the modern Trades-Unions have
borrowed something of form and much of nomenclature, were in substance
extremely different from their modern imitators. Those were
combinations of Masters with their journeymen and apprentices and
dependents in order to control the entire manufacture and sale of a
certain class of products, from the name of which the Guild usually
took its own name, as "Cloth-workers' guild," "Shoemakers' guild," and
so on. Whittier, himself a shoemaker in his boyhood, apostrophizes the
latter guild in words which more or less describe them all:--

    "Ho! workers of the old time styled
      The gentle Craft of Leather!
    Young brothers of the ancient guild,
      Stand forth once more together!
    Call out again your long array,
      In the olden merry manner!
    Once more on gay St. Crispin's day,
      Fling out your blazoned banner!"

These masters thus organized with their laborers were the capitalists
of their time, and in this vital matter differed from the Unions of
to-day, which are made up of laborers as such organized to confront,
and if need be, to antagonize, capitalists. A royal charter was
indispensable to the legal existence of those craftsmen. It took money
for them to start their guilds, and in progress of time most of them
became very rich. "A common fund was raised by contributions among the
members, which not only provided for the trade objects of the guild;
but sufficed to found chantries and masses, and set up painted windows
in the church of their patron saint. Even at the present day the arms
of the craft-guild may often be seen blazoned in cathedrals side by
side with those of prelates and kings." This radical difference
between the two must always be borne in mind in all arguments and
inferences drawn over from the mediæval "unions" to those of the
present day.

Two points may be freely conceded to these labor-organizations before
we pass to the economic objections to them. In the first place, the
employers _set the example_ for the employees in a tacit if not open
combination as against the employees in their own interest and
emolument. The so-called "protective" tariff, for instance, is nothing
in the world but a strongly-linked combination of certain rich
capitalists to extort from the masses (their own laborers included)
artificially lifted prices for the necessaries of life; and the
certain result of shutting out imports by tariff-taxes is the
shutting in of would-be exports, to the certain lowering of general
wages in a country, because there is a lessened demand for laborers in
consequence. For a second good instance of combinations as against
employees on the part of employers, take the well-known understanding
among manufacturers of the same sort of goods in the same general
locality, that laborers discharged from one establishment shall not be
hired in any of the rest; and that if the general voice call for a
"shut down," or for three-fourths time or less, all in that line of
goods shall comply. How can laborers be blamed for organizations in
their own behalf when they find themselves confronted as individuals
with an organization of employers?

Then, too, it must be acknowledged, that, had it not been for united
action of some sort on the part of the laborers, the unreasonable
hours of fifty years ago in mills and factories would probably not
have been shortened to this day. Capitalists as a class are
conservative of methods, as well as of ends. The cotton and woollen
manufacturers of Berkshire County, for example, who may doubtless be
taken as a fair sample of the manufacturers of New England, stiffly
refused the demands of their work-people that the hours might be
reduced from an average of 14 throughout the year to an average of 11.
When the late Civil War was going on, and the manufacturing became
extremely profitable, and the mills were more or less depleted by
enlistment, and the remaining hands felt more independent from the
consequent rise of wages, the combined demand in one mill for fewer
hours was reinforced by simultaneous demands for the same in other
mills in the neighborhood (the time and manner having been agreed upon
beforehand), and visits in force by the work-people from mill to mill
completed the desired reform. The mill-owners were sullen and
indignant, and submitted of necessity. The work-men were right. The
reform was imperative. Credit must be given to them for the good they
have done acting as a body on this and other occasions.

On the other hand, all this is not _business_. All this is contrary to
the very old, and the very good adage, that it takes _two_ to make a
bargain. If we express this adage in the language of our science, it
will take some such form as this: When two men have mutual services to
exchange, let them come to a fair agreement as to the terms on which
they will exchange. Certainly, let each make the best terms he can,
but let the bargain always be free. If one party, who happens to have
the power to do it, uses anything like compulsion upon the other, it
ceases so far forth to be a bargain at all, and becomes a sort of
robbery, of which in some cases courts will take cognizance. Now,
workmen bring a certain valuable service to the market, just such a
service as the capitalist wants, and he has to offer just such a
service as they want, namely, wages: let the two parties come to a
free and fair agreement on the terms of their exchange; let each
workman by all means make the very best terms he can, insisting to the
last penny on all he can get elsewhere, for the value of his service
is determined, as other values are determined, by what it will bring:
let the employer do just the same on his side, and so let a fair
bargain for the time present be struck. This is a very good kind of
_striking_, and the more intelligence and skill and self-respect a
workman has, the better prepared he is to strike the bargain and
secure his just due by and for himself alone; and this gives a good
chance for every man who has any peculiar gift, who may have surpassed
his fellows in diligence and skill, to secure a proportionate reward
now and to go on higher in future; all this gives opportunity for
_diversity of relative advantage_, which, as we have seen, lies at the
basis of all exchange, which itself starts in individualism and
naturally proceeds in a still higher individualism to the end. This is
the only way for a laborer of talent and diligence to secure fully
what belongs to _him_ as a man and a workman. If he cannot get from a
given employer what he thinks he ought to get, what he thinks the
service is worth in another market, let him exercise his perfect right
to quit and go elsewhere. All this is fair and aboveboard and
individual and progressive.

Everybody knows that there is a kind of _striking_ now in vogue wholly
different from this, in that it brings a sort of compulsion into play.
_A fair bargain should be broken, if at all, just as it was made, with
the two parties face to face, and everybody else aloof; and a new
bargain should be made, just as the old one was, with the two parties
face to face, and everybody else aloof._ But a combination among
workmen to leave an employer in the lurch, and especially a
combination which forces into its ranks by cajoling or menaces those
who are unwilling to join it, as is so commonly the case in Strikes,
is not only contrary to the inmost nature of a bargain, but is also of
itself a sort of confession of the injustice of the claim. If the
claim be just so far as _all_ the individuals are concerned, there is
no occasion to extort it. If the value of the service rendered by each
be equal to the sum demanded, and especially if this can be obtained
elsewhere, which is the only gauge of the value of any service
anywhere, there is no need of conference and combination and
conspiracy. Of course, this radical argument against Strikes implies
that employers of that grade have not entered into a combination not
to hire dissatisfied laborers from other establishments; if they have,
then the agreement can be turned with equal force against the
employers themselves, for _they_ are resorting to means outside the
nature of a bargain, means of the same nature as a Strike. Let, then,
each workman tell his employer the present facts just as they are, and
if this appeal prove ineffective to secure his commercial right, let
him go quickly where he can get the most for his service. That this is
not done, that means of the nature of a threat are brought to bear
upon the employer, that the justice of the claim is not relied on in a
case where more than anywhere else justice can enforce itself, that
free and full explanations are not had, that no notice is given, that
great damage is expected by their action to accrue to the
employer,--all this seems to forget that the transaction between
employers and employed is a case of pure exchange, a simple bargain of
one service against another service.

The above is the universal and fundamental objection to Strikes. _The
remedy for economical evils, real or supposed, must ever be found in
economical considerations._ The strong but foolish tendency of the
times is to mix up things that are quite distinct; to try to apply to
the evils of Trade the rules of Morals, which is a useless task; to
appeal to Politics in matters of pure Bargain; and to resort to Force
to cure the evils that flow from the wholly voluntary action of
individuals. This is like the doctor who would cure bodily ailments by
mental and spiritual recipes. It has all the absurdities of the late
famous "Mind-cure." The mind is indeed higher than the body, but
bodily maladies must be treated as such, or the patient will die; the
imperatives of Ethics are certainly superior to the profitables of
Economics, but the latter are well able to take care of themselves on
their own ground; Religion is loftier than Morals, but it becomes a
very poor substitute for morals in the daily routine of life.
_Similia similibus curantur._ Economical evils can only be removed by
a better Economics better applied. Strikes are an outside and
irrelevant remedy for low Wages.

A bad principle works badly in practice of course; the principle that
underlies strikes is so opposed to the fundamental nature of exchange,
that we might know beforehand that it would work badly; and as a
matter of fact, it does work badly enough both upon employers and
employed, because strikes are certain to embitter the relations
between the two classes, which ought always to be cordial and free,
and especially, because strikes must work on the minds of the
capitalist to lessen the Wages-Portion for the next industrial cycle.
Fortunately, we possess authentic statistics gathered about Strikes by
the Massachusetts Bureau of Statistics of Labor, and published in
detail in the Report of December, 1888. The information given is exact
in relation to five principal States, and approximate in relation to
the other parts of the United States. We will copy first the table
exhibiting the Losses in six years on account of Strikes of both
Employers and Employees, and the outside assistance received by the

  LOCK-OUTS FOR 1881-1886.

  |        STATES.         | Employees'  | Employees' | Employers'  |
  |                        |   Loss.     |Assistance. |   Loss.     |
  |       _Strikes._       |             |            |             |
  | Illinois,              |  $6,636,208 |   $238,452 |  $5,251,829 |
  | Massachusetts,         |   4,200,489 |    266,708 |   1,970,881 |
  | New York,              |   8,581,784 |    726,696 |   5,966,421 |
  | Ohio,                  |   6,378,757 |    415,568 |   2,793,427 |
  | Pennsylvania,          |  12,890,346 |    781,338 |   3,897,757 |
  | Other parts of the     |             |            |             |
  |     United States,     |  13,127,139 |    895,795 |  10,821,238 |
  |                        +-------------+------------+-------------+
  |  THE UNITED STATES,    | $51,814,723 | $3,324,557 | $30,701,553 |

The large percentage of establishments represented in this table, in
which the strikes were ordered by labor-organizations, is particularly
noticeable. In New York 94.26% of the establishments had strikes which
were ordered, in Illinois 83.96%, in Massachusetts 81.91%, and in the
United States 82.24%. The "walking-delegate" so-called became the
principal personage in all these strikes; he brought the orders to the
men from the "central-union" of their special organization, and became
in most cases the sole means of communication between the two. "_You
are the strike_," exclaimed the Lord Mayor of London the other day to
Mr. Burns, the walking delegate of the dock-laborers now on strike in
that city. That the daily bread and home comforts of tens of thousands
of men depend on the secret and irresponsible decision of a little
knot of agitators, sending out their verbal and often ambiguous
written orders by a walking-delegate or two, is one of the
monstrosities of Strikes often witnessed in the United States. The
laborers sometimes do not know even the causes of the strike. There
has been great want and suffering for three months past among the
striking coal-miners in the State of Illinois; and a brief editorial
in the "Springfield Republican" of Aug. 24, 1889, describes the state
of things so justly, that we quote it:--

"Ex-Congressman William L. Scott, who owns coal mines at Spring
Valley, Ill., has offered to pay 75 cents a ton for mining to the
strikers who in their destitution have been subsisting for some time
on public charity. This is 2-1/2 cents a ton more than the miners have
asked for, but it is coupled with the condition that each man must
seek work individually and not through some outside union committee.
Although the men have been reduced to a state of abject want it is
said the conditions imposed will prevent a settlement. In that case we
may conclude that a few well-fed walking delegates are acting for the
men and not they for themselves. It is a strange time to quibble over
such a matter. The worst and most oppressive enemy of labor is the
parasite who lives upon its distresses."

A strike is a state of war, and like war, there are two parties to it,
and it cannot be expected that the party of the other part should not
strike back. The "_lock-out_" is the counter-stroke of the capitalist
to the "_strike_" of the laborer. Lock-outs, however, are
comparatively infrequent. Capitalists, as a rule, are conservative and
forbearing. Massachusetts took the statistics of lock-outs as
carefully as those of strikes, and the following is the table:--

  |        STATES.         | Employees' | Employees' | Employers' |
  |                        |   Loss.    |Assistance. |   Loss.    |
  |      _Lock-outs._      |            |            |            |
  | Illinois,              |   $533,497 |     $5,374 |   $347,065 |
  | Massachusetts,         |    952,310 |    136,626 |    550,675 |
  | New York,              |  3,150,123 |    392,316 |    845,262 |
  | Ohio,                  |    848,829 |    231,870 |    493,100 |
  | Pennsylvania,          |    712,956 |     77,038 |    237,735 |
  | Other parts of the     |            |            |            |
  |     United States,     |  1,960,002 |    262,814 |    988,424 |
  |                        +------------+------------+------------+
  |  THE UNITED STATES,    | $8,157,717 | $1,106,038 | $3,462,261 |

Like war too, strikes and lock-outs are wasteful and demoralizing to
both parties. Why should there be a resort to force to settle an
industrial dispute any more than to settle any other private dispute?
Will such a resort be long tolerated by public opinion in civilized
countries? The Legislature of Massachusetts in 1886 provided for a
State Board of Arbitration for the settlement of differences between
employers and employees. The statute was crude in some respects, and
the basis of it not very firmly fixed in the nature of things, but the
Bureau of Labor reports that it has been justified by the results in
its practical application during the short time of its operation. The
broad truth is, that the value of Commodities and the value of Credits
is now left to the safe action of Demand and Supply under free
competition in every country in Christendom: why should not the value
of Services be left to the same safe and inexorable action?
Governments gave up long ago all idea of regulating directly or
indirectly the prices of merchandise and the prices of commercial
claims of all kinds: will they not shortly give up also all idea of
regulating directly or indirectly the rates of Wages? They will. The
three kinds of things bought and sold are on an exact level in the
nature of things, so far as Government is concerned. Wages are
abundantly able to take care of themselves in the ordinary way, as
goods do, and stocks and bonds; and an enlightened Public Opinion is
fast coming to see, that a man's personal service rendered needs no
more the oversight of the State in its sale than his horse, or note of
hand at interest. Strikes, and lock-outs, and all extraordinary courts
or boards to settle quarrels between a labor-giver and a labor-taker
as such, since it is a case of ordinary buying and selling, are
foredoomed to pass out in the good time coming.

Towards this good end works strongly the common _futility_ of strikes
and lock-outs. Carroll D. Wright, chief of the Bureau of Labor in
Massachusetts, now the head of the National Bureau of Labor, in his
State Report for 1880, gave a succinct account of all strikes in that
State from their beginning in 1830. They were 159 in all, of which 109
were unsuccessful, 18 apparently successful, 16 compromised, 6 partly
successful, and 10 "result unknown." In Great Britain during the year
1878, there occurred 277 strikes, of which 256 were failures, 17 were
compromised, and only 4 were successful. The following table taken
from the Massachusetts Report of 1888, gives on a broad scale the
results of Strikes in the United States for six years:--



  |  CLASSIFI-   | Illi- |Massa-   | New   |Ohio.|Pennsyl-|Other  |THE    |
  |  CATIONS.    | nois. |chusetts.| York. |     |vania.  |Parts  |UNITED |
  |              |       |         |       |     |        |of the |STATES.|
  |              |       |         |       |     |        |United |       |
  |              |       |         |       |     |        |States.|       |
  |  _Strikes._  |       |         |       |     |        |       |       |
  |Ordered by    |       |         |       |     |        |       |       |
  | labor organ- |       |         |       |     |        |       |       |
  | izations,    | 83.96 |  81.91  | 94.26 |71.21|  61.59 | 73.06 | 82.24 |
  |Establish-    |       |         |       |     |        |       |       |
  | ments closed | 70.70 |  79.10  | 51.01 |81.21|  70.11 | 57.57 | 60.13 |
  |              |       |         |       |     |        |       |       |
  |Causes:       |       |         |       |     |        |       |       |
  |Against       |       |         |       |     |        |       |       |
  | reduction of |       |         |       |     |        |       |       |
  | wages,       |  5.35 |   6.23  |  2.50 |20.73|  22.65 |  8.61 |  7.77 |
  |For change of |       |         |       |     |        |       |       |
  | hour of      |       |         |       |     |        |       |       |
  | beginning    |       |         |       |     |        |       |       |
  | work,        |   -   |    -    |  3.86 |  -  |   -    |  0.05 |  1.61 |
  |For increase  |       |         |       |     |        |       |       |
  | of wages,    | 41.54 |  35.28  | 39.09 |52.42|  46.97 | 45.01 | 42.32 |
  |For increase  |       |         |       |     |        |       |       |
  | of wages and |       |         |       |     |        |       |       |
  | reduction of |       |         |       |     |        |       |       |
  | hours,       | 17.85 |   0.50  |  9.37 | 1.85|   1.06 |  4.96 |  7.59 |
  |For reduction |       |         |       |     |        |       |       |
  | of hours,    | 18.35 |  42.71  | 24.31 | 5.32|   5.32 | 17.23 | 19.48 |
  |For reduction |       |         |       |     |        |       |       |
  | of hours and |       |         |       |     |        |       |       |
  | against being|       |         |       |     |        |       |       |
  | compelled to |       |         |       |     |        |       |       |
  | board with   |       |         |       |     |        |       |       |
  | employer,    |   -   |    -    |  7.32 |  -  |   -    |  2.19 |  3.59 |
  |Other causes, | 16.91 |  15.28  | 13.55 |19.68|  24.00 | 21.95 | 17.64 |
  |              |       |         |       |     |        |       |       |
  |Results:      |       |         |       |     |        |       |       |
  |Succeeded,    | 54.16 |  35.28  | *51.05|49.44|  32.60 | 42.69 | *46.52|
  |Succeeded     |       |         |       |     |        |       |       |
  | partly,      | 10.33 |  45.93  |  *8.14| 8.87|  17.57 | 17.27 | *13.47|
  |Failed,       | 35.51 |  18.79  | *40.65|41.69|  49.83 | 40.04 | *39.95|

    * In 15 establishments the results were not ascertained.

3. The third popular remedy for low Wages, which has at least the
merit of being in the line of economical considerations, as the other
two are not, is "Co-operation." The interest in this proposed remedy
is much less both in Europe and in the United States than formerly,
owing to the failures that have mostly attended the attempts to put
the scheme into practice, although there have been some remarkable
successes also, particularly in England. The idea of Co-operation is
this, namely, that certain laborers within given classes combine of
their own accord, (1) _either to purchase their necessaries in common
and at wholesale, hence at cheaper rates because avoiding all profits
of the middlemen_; or (2), _more especially to engage in the joint
production of the commodities they are familiar with, the laborers
furnishing the capital also from their little hoards or borrowing it
on the strength of their individual or associated credit, managing the
business themselves, all being co-partners, and of course all sharing
pro rata the entire profits of the concern_.

All this is well; and in countries where laborers have been under
traditional disabilities, it may be in some cases very promotive of
their self-respect, activity, frugality, and general welfare; but any
one can see that no new economic principle is involved in the plan. As
in all other production, so here, there must be (1) capital from some
source, (2) steady and skilful labor, and (3) superintendence or
management of the business. It is at the third point that schemes of
co-operation have mostly broken down. The faculty of good management
is rare; the organizing and executive ability needful to carry through
any scheme of co-operation will not come upon call; if any of the
co-operators chance to possess it, the scheme may succeed, although he
who is conscious of having it will prefer to use it for his own gain
in his own way, to say nothing of the practical impossibility of any
man's working with the same spirit when the gain or loss is to be
largely another's as when it is to be wholly his own; moreover, it has
been well said, "it is impossible _to hire_ commercial genius or the
instincts of a skilful trader"; so that, while there is no trouble
about the workmen uniting the character of capitalist and laborer in
their own persons, and no doubt that they will work harder and more
skilfully while sharing profits as well as receiving wages, it is
still true, that the difficulty of securing a real "captain of
industry," and thus a perfect organization and management of the
whole business, puts the scheme of co-operation out of the question
as a means of raising wages, or promoting the general welfare of

In this country, where there is nothing to hinder any laborer from
becoming a capitalist, where the savings-banks are open to the
smallest gains, where nothing is more common than for two or more
workmen to organize a firm to carry on some branch of business, where
most of the present capitalists proper were formerly laborers proper,
and where the shares of most of the joint-stock companies are open to
everybody who has the means to buy them, there is only one
consideration that seems to justify any special jealousy of laborers
as such towards capitalists as such; and that is the fact, that
Legislation, every now and then, sometimes on a small scale and then
on a gigantic one, now by means of corporate charters and then by
other means more indirect and effective, _does confer certain
extraordinary privileges upon capitalists_. So long as capitalists and
laborers rest upon their natural rights and positions, neither can get
any undue advantage of the other; and just so far as each recognizes
their identity of economic interest and the consequent reciprocity of
obligation and effort, the prosperity of each will help build up the
other; but, on the other hand, so far forth as any advantages are
given to capitalists by special laws, either of State or Nation, these
become necessarily unjust to laborers, and ultimately also injurious
to capitalists; and in this case, the laborers, seeing just what it is
that hurts them, _ought to combine together and to strike, not capital
(their best friend), but a piece of perverted legislation (their worst


[5] O'Reilly's Poem, at Plymouth, 1889.

[6] Green's Short History of the English People, p. 144.



Political Economy is the Science of Sales; and because it _is_ the
science of sales, its definitions and principles must cover equally
all cases of sales actually occurring or possible to occur. We have
seen repeatedly, that only three kinds of things are ever bought and
sold, or ever will be, and these are Commodities and Services and
Claims. The first two kinds have been fully elucidated already in the
two preceding chapters, and it belongs to the present chapter to
explain and illustrate clearly the peculiarities of the third kind of
things salable. Ours is the only science that has to do with the
motives and facts and economic results of all sales as such.

The discussions of the present chapter will proceed orderly through
the following topics:--

    _The Nature of Credit._
    _The Forms of Credit._
    _The Advantages of Credit._
    _The Disadvantages of Credit._

1. Certain things are essential in every sale of anything, and of
course are common to all sales of everything, such as two persons and
two desires and two estimates and two renderings; while there are
certain _peculiarities_ in the sale of things belonging to each of the
three special classes of things salable; for example, in the sale of a
commodity there is a rendering of a tangible object that has been
prepared for sale in past time, and in the sale of a service a
rendering of an intangible something wholly in the present time; while
in the sale of a credit there are likewise two peculiarities, one of
them relating to future time and the other to a special trust felt in
a person by some other person. We must now study these two
peculiarities with care; and, mastering these, we shall be master of
the Nature of Credit.

a. Some sales are consummated at once, the things exchanged and the
ownership in them are mutually passed over then and there, the
reciprocal satisfactions are entered upon immediately, and there is at
once an economical end.

For example, one neighbor sells another a peck of green peas and takes
in pay a peck of new potatoes, both vegetables may be cooked for
dinner in the respective families the same day, and the commercial
transaction is all over. But there are other exchanges, an immense
class of them, different from these in this respect, that though the
transaction considered as a mere case of value created and measured is
then and there ended, yet considered as to the nature of that
preliminary exchange which implies and requires another future
exchange to consummate it, it is not then and there ultimately closed,
but one (or both) of the parties then exchanging relies on the good
faith of some one else to fulfil in the future a pledge expressly or
impliedly made in the prior exchange. Commonly some external evidence
of the pledge is created and passed at the time, but this is not
essential to the validity of the pledge itself. For example, A buys 50
bushels of wheat of B, and B takes in pay for it A's note of hand at
six months for $75. The note is not the pledge, but it is a legal and
convenient proof of it. As a case in Value, the wheat is sold for the
pledge and the pledge is the equivalent of the wheat. Each party
rendered the other then and there satisfactory equivalents. All our
definitions apply here perfectly.

Still a further and future exchange was contemplated by both parties
at the time of making this exchange, and as a silent part of it. A
takes what is now his own wheat, and B takes as an equivalent for what
was his wheat a right to demand of A in six months an equivalent for
the present equivalent (the pledge) for the sake of which B rendered
the wheat. The note of hand is the evidence of this pledge, and it
belongs absolutely to B. It is his property. He may keep it till
maturity and then sell it to A for its face, or he may sell it at once
to a bank for its face less the discount for six months. Discount is
the difference between the face and the present price of a note of
hand. The first peculiarity, then, of Credit is, that it always
involves the element of future time. But it involves this secondarily,
and not primarily. In other words, a present equivalent is always
rendered by both parties in every commercial transaction; but the
present equivalent in the case of a credit transaction is the right to
demand something of somebody sometime in the future. This distinction
is very important, as we shall see clearly when we come to treat of
Banking, though it is generally ill-understood at present. Valuables,
when they exchange at all, exchange once for all. But there is one
kind of valuables, namely, claims, which, when subject to exchange,
imply and require another and a future exchange, not necessarily
between the parties to the first exchange, but between _some_ two
parties; and not, speaking strictly, to _consummate_ the first
exchange, because that took and gave its own satisfactory equivalents;
but, as involving both time and trust, the credit sale must in the
nature of things be followed by another sale of one of the three

We see, accordingly, that in Credit our science of Economics takes
partial possession of future time for certain purposes of its own.
Exchange sets its throne and reigns pre-eminently in present time; but
its sceptre extends also over past time, so far as all capital is
concerned, and so far as all material commodities (the result of past
work) are exposed for sale in the present; and its right hand of rule
goes forth also to grasp the future, under limitations indeed both as
to the stretch of time covered and as to the character of the persons
concerned, but still there is there a fair domain and a broad domain,
and a realm on the whole winning a wider and wider circuit. It is one
of the proud boasts of Political Economy as a science, as it is too
one of the exalted traits of human nature, that the lordly impulse to
buy and sell does not confine itself to what the Past offers in all
its accumulated valuables, nor to what the Present unfolds in the
unlimited desires and efforts of congregated men, but reaches out also
into the Future, and makes that pay tribute more and more into the
vast treasury of its Gains. And this too is legitimate. Man is at once
and all the time actor and historian and prophet. The future is not
wholly unknown. Given the one assumption, that Earth and Men go on as
heretofore, Exchange knows well enough, and better and better, whom of
the coming men to trust and for how long a time. The doctrine of
averages and of probabilities comes along to guide and to enhearten
the investor. Any thoroughly established government of to-day can
borrow all the money that it wants on its public pledge to repay the
principal fifty years hence. England has borrowed millions of pounds
sterling, giving no day certain in the future for its repayment. These
funds are called "Consolidated Annuities": the interest on them is
paid on a day nominated in the bond: the principal is to be paid when
the borrower chooses, or never.

b. The other and final peculiarity of Credit is, that it always
involves on the part of one person a commercial confidence in some
person _as such_. The term, Credit, is derived from the Latin CREDO,
_I believe_, and the corresponding term, Debt, from DEBEO, _I owe_.
Thus the personal element and the future element are wrapt up in the
very origin of the words. There is no credit without debt, and no debt
without credit. The very words imply a _belief_ of one of the two
parties in a commercial promise made by the other, and also an
_obligation_ acknowledged by this party as due to the first. There is
a basis for credit in human nature. Faith in each other to a certain
extent is natural to men. Whatever enlarges the intellectual
foresight, and especially the moral character of men, opens a broader
and surer field for Credits. Civilization, so-called, and Christianity
certainly, deepens and broadens the natural trust of man in man.
Despite all the instances of broken faith, and they are too many;
despite the shocks and cautions that come every now and then to every
man who trusts much in his fellow-men; experience itself justifies and
rewards an ever-growing commercial trust. It is one of the noble
things in international commerce, as we shall see, that men trust each
other across the oceans, and lay millions of value upon the faith of a
single firm. As the core of the Christian religion is confidence in a
_Person_, so the very substance of credits is a natural and in general
well-grounded faith in _persons as such_.

A Credit, then, may be defined to be _a Right to demand something of
somebody_; and a Debt to be _an Obligation to pay something to
somebody_. What always lies, accordingly, between creditors and
debtors, are Rights coupled with Obligations; and these are
_Property_, just as much as anything is and for the same reason, since
they always may be, and usually are, bought and sold by other parties
as well as the original parties. In these Rights or Claims,
therefore, arises a commerce, domestic and foreign, immense in extent
and amount, and the Rights themselves take their undisputed place on
an equality with tangible Commodities and personal Services.

Having thus reached an ultimate and satisfactory definition of Credit,
we must still pursue a little further our present object, namely, to
obtain a clear conception of the _nature_ of this great class of
Valuables, by drawing two or three distinctions between Credit-Rights
and some other rights very apt to be confounded with them.

(1) The distinction between credit-rights and other rights is well
rooted in the Latin language and in the Roman law, while the
corresponding English terms are quite ambiguous and need to be used
with great caution. In Latin, a true debt is called a _Mutuum_,
because it lies between two persons, a creditor, and a debtor, and is
a credit-right independent of the question of fact whether the debtor
has now the thing rendered to him or not, indeed whether he has
anything at all to pay with or not; on the other hand, a thing merely
lent, when the very thing lent is to be returned to its owner, who has
not in the meantime parted with his property to the other, is called
in Latin a _Commodatum_. The English tongue has but the one word,
_Loan_, for the two very distinct operations: for the loan of a book,
for instance, which is to be returned after use, and which may be
legally reclaimed by the owner if he chance to find it anywhere, that
is, the Latin _commodatum_; and for the loan of money, or other such
measurable thing, which is to be returned _in kind_ only, and which
may _not_ legally be reclaimed except through some action of the
borrower, since the ownership of that thing rendered has passed over
to him completely, that is, the Latin _mutuum_. The same ambiguity of
course inheres in the corresponding English word, _Borrow_. The
English language is relatively poor in words expressing nice legal

Now, as a true debt is a claim on a _person_ and never on a _thing_,
the Roman Law is true to the nature of things and to the vital
distinctions of our science, when it names the right to which a
_mutuum_ gives birth as a _jus in personam_, that is to say, a right
against the person; while it names the legal obligation arising out of
a _commodatum_ as a _jus in re_, that is to say, a right to the very
thing. So strongly is this doctrine, namely, that the security of a
true debt lies against persons and not against things, intrenched in
the Roman Law, that debts or credits are even termed "_nomina_,"
_names_, in that law, as when Ulpian says, "_Nomina eorum qui sub
conditione vel in diem debent et emere et vendere solemus_": We are
accustomed to buy and sell DEBTS payable on a certain day and at a
certain event. The fundamental law of the present national banks of
the United States explicitly recognizes this old and good distinction
by requiring the banks to loan money on _personal_ security only, that
is to say, no tangible things, not even real estate, may be taken as
_original_ security for any loan.

(2) Henry Dunning Macleod, who has cast fresh light on the nature of
Credit, draws another distinction that lies on the threshold of the
subject, namely, that between paper documents conveying titles to
_specific things_, such as a bill of lading, for example, and those
conveying _credit-rights_, such as a bank-note, for example. Bills of
lading describe the goods, go out with the goods, are a title to the
goods, and have no value separate from the goods; bank-notes have
nothing to do with any specific pieces of property anywhere, are in no
proper sense a title to anything whatever, but a general _claim_ for
something upon some person somewhere that awaits his action for its
validity and realization. For instance, a grain-dealer in Chicago
sells 1,000 bushels of No. 2 wheat to a party in New York, and ships
the grain to that point by rail: two kinds of paper documents arise in
connection with this transaction, which are quite diverse in their
nature and course of operation: one is a _bill of lading_, that goes
along with the wheat, and gives the person named in the bill a
complete title to 1,000 bushels of wheat of a certain description, and
the holder of the bill takes the wheat and asks no favors of anybody;
and the other is a _bill of exchange_, drawn by the grain-dealer in
Chicago on the consignee of the wheat in New York, which bill of
exchange is sold at once by the creditor in Chicago to a banker there,
provided the banker has commercial confidence in the two names on the
bill and a sufficient motive in the shape of a discount for buying it:
thus the bill of lading has in it neither element of Credit, neither
Time nor Trust, while the bill of exchange has both of these elements
in it.

(3) Attention should be called to a third distinction of the same
general nature, as between relations very different in themselves and
yet extremely liable to be confounded with each other. Let us take a
common instance: a customer of a bank takes a package of valuables of
any kind to his banker, such as bonds and bills payable and jewels and
plate, and asks him to take care of it for the present in his vault,
subject of course to a return to him or any one else to his order at
any time: no property in these valuables passes over to the banker, it
is not a deposit in the ordinary banking sense, the relation of debtor
and creditor does not arise as between banker and depositor, the
banker becomes Trustee or Bailee of the package, and is bound to
exercise common vigilance in the care of it, but if it be burned or
stolen extraordinarily the loss is the customer's and not the
banker's. But now, on the other hand, when a customer deposits in the
banking sense money or bills payable with his banker, the property in
the money and bills passes over to the banker instantly, the relation
of debtor and creditor arises, the depositor receives a credit on the
banker's books in return for the money and bills rendered, the
exchange as a mere case of value is consummated to the profit of both
parties, but the return-service to the depositor is _the right to
demand equivalents of the banker at some future time_. In other words,
it is a case in Credit.

(4) As this general distinction is vital, we shall lose nothing in the
end if we make even a fourth exemplification of it. The United States
Treasury receives silver dollars of its own minting from any person
who chooses to place them there, and gives out in token what are
called "Silver certificates" to the same amount, entitling the bearer
to take out the dollars again at will, and thus the certificates being
more convenient than the dollars and just as valuable become a part of
the money of the country. The Treasury is bound to exercise due care
in the keeping of these silver coins, and to return them to the
holders of certificates on demand, just as the elevator and railroad
companies are under legal obligations to show diligence in keeping and
transporting the wheat of our former example; but the United States is
not _debtor_ to the holders of these certificates any more than the
elevator company is _debtor_ to the wheat shipper, and consequently
there is no element of Credit in these certificates. Just so of the
later gold certificate. On the other hand, the so-called greenbacks
issued by the United States are also a part of the money of the
country, but they are _credit_-money, inasmuch as they are a _promise_
to pay to the bearer some time in the future so many dollars. The
Treasury has never kept up any special fund of gold and silver, with
which to redeem the greenbacks. They rest back for their value on the
good faith of the country. The United States is _debtor_ to the
bearers, and these in turn are _creditors_, and the legal-tender
quality of the greenbacks does not alter their character as a form of
pure credit. Both the elements of good faith and future time inhere in
the greenbacks, as they do also in the bonds of the United States,
while in the certificates neither of these elements appears.

However, circumstances easily conceivable and which were actually
realized in the case of the famous Bank of Amsterdam, founded in 1609,
might make the United States a debtor and the holders of the silver
certificates creditors in the commercial sense of those terms. The
Directors of the Bank of Amsterdam, towards the close of the second
century of its beneficent existence, loaned out to the Dutch East
India Company and to the City of Amsterdam large parts of the bullion,
on which its certificates ("bank money") were based, unknown to the
public, which felt unlimited confidence in the bank, and the result
was in 1795, when the French invaded Holland and the facts became
known, that bank money which had previously borne a premium of 5% fell
at once to a discount of 16%, although the bullion that remained and
the debts due the Bank were fully equal to redeem the certificates and
were used for that purpose. So, if the United States should use,
clandestinely or otherwise, the silver dollars for other purposes than
to redeem the certificates on demand, the latter would undoubtedly
both in law and fact be transformed from mere token-money (as now)
into credit-money valid as against the United States as debtor, like
the greenbacks at present.

Have we now compassed our first object? Do we fully understand, from
the foregoing descriptions and distinctions, the _Nature_ of Credit?
If so, we are prepared to look narrowly into its _Forms_.

2. Credit-rights are commonly, but not always, recorded upon paper;
but it is important to observe, that the paper-document is the mere
evidence of the right, and not the right itself, which lies back of
the paper as substance to shadow, and persists intact even were the
paper lost or destroyed. These paper instruments of Credit are
commonly contemplated as of two kinds, Promises to pay and Orders to
pay, but there is not at bottom any radical difference between these,
the Right as between two persons is not affected by this superficial
difference, as we shall see, and the present enumeration of
credit-forms will proceed independently of it.

_a._ Book Accounts. A charge in a trader's books is both a current and
a legal evidence that the person charged has received a certain
service, and has virtually promised to render the sum charged as a
return-service. Book accounts are the most common of the forms of
credit; and if the person charged fails of his own accord to complete
the exchange thus commenced, the law, in the absence of any proof to
make the charge suspicious, collects it, if possible, and forcibly
completes the exchange. The convenience of this form of credit is so
great, that it is not likely ever to be disused; and as between people
who deal much with each other is very useful, inasmuch as their
respective book accounts are set against each other in settlement, and
only balances are required to be cancelled in money. It is for the
benefit of both creditors and debtors, however, even when the same
parties are both creditor and debtor, that such credits should be
short in time and such settlements frequent, since in book accounts
there is no interest on charges however long they run, and since in
this way only can the creditor realize the full gain of the exchange,
and the debtor keep fair his mercantile name. If it be difficult or
impossible to follow strictly the excellent financial maxim, "Pay as
you go," the next best thing to that is, "Go and pay." The gains of an
exchange are lessened, or its terms become more onerous, just in
proportion as delay in its completion is experienced or expected. Book
accounts are subject also to this disadvantage as compared with other
forms of credit, that their number and amount as against any person
are less likely to become publicly known, and therefore he is more
likely to be trusted in this form by others beyond the point of his
solvency and their safety.

_b._ Promissory Notes. These differ from Book accounts in that they
are always either expressly or virtually on interest, and are
consequently negotiable. They are issued by individuals, corporations,
and Nations. If the principal be deemed secure, that is, if there be a
thorough trust on the part of the holder in the maker of the note, the
time of the payment of the principal becomes a matter of comparative
indifference, because the interest is compensation for delay, and is
often the motive on the part of the holder for rendering that service
of which the note is evidence. Indeed a long obligation, other things
being equal, is commonly preferred to a short one, and bears a higher
price. When a note is sold (negotiated) by the original holder it
becomes payable to the purchaser, or to each subsequent purchaser in
turn, and thus may run a devious round, may play a part in many
commercial transactions, may be set off by the transient holder
against a debt owed by him and thus cancel that, and when itself is
cancelled by ultimate set-off or by any other mode of payment the last
holder takes the return for the service originally rendered by the
first holder. The promissory notes of individuals are frequently
discounted by Banks in a manner to be presently explained. These are
always for short times, and are debts bought by banks on the personal
security of the names upon the notes. The notes are founded on the
relation of debtor and creditor, which is always a personal relation,
and so differ in their nature from a _mortgage_, which is a qualified
_title_ to a specific piece of property, usually real estate. A note
secured by a mortgage is, as it were, absorbed into the mortgage, and
becomes another thing from a common promissory note, or _commercial
paper_, as it is called. A mortgage rests therefore on other grounds
than a commercial trust in the good faith of a _person_.

Corporations also issue promissory notes, and as such issuers become
in a sense _moral persons_ entitled to confidence according to the
character and purposes of the individual corporators and the financial
means and methods of the corporation itself. It is an old saying, that
"corporations have no souls"; economists as such have no need to
pronounce on that proposition; the fact is enough for them, that the
short notes of corporations are often discounted by bankers on the
same ground as the notes of individuals are discounted; and that their
long-time obligations, commonly called _Bonds_, are all the time
bought and sold in the market like commodities. Many of the Railroad
bonds, of which immense quantities are in the markets of the world,
rest back also for their security upon _Mortgages_ of the real estate
of the corporations made over to Trustees to hold for the assurance of
the holders of the bonds. The personal obligation of the corporators
is thus reinforced, much as a common mortgage reinforces the note or
bond, to secure which the mortgage is executed. Whenever _all_ the
real estate of a railroad company becomes subject to a mortgage, when
there are previous partial mortgages or liens, these latter take
precedence in due order of any subsequent pledges or bonds secured by
what is properly called the _consolidated mortgage_. Such a mortgage
has recently been executed by the Northern Pacific Railroad Company
for $160,000,000. Railroad Bonds so fortified in proper and legal
terms possess the highest possible credit-security to their holders.
When no such consolidated or "blanket" mortgage has been put on the
property, first and second and third mortgages sometimes support bonds
of primary and secondary and tertiary validity; and sometimes
so-called _Income-bonds_ are issued, with or without mortgages behind
them, for the payment of the interest on which bonds the net earnings
of the corporations are specifically pledged. Frequently also simple
long-time bonds resting on corporation security only are negotiated
without difficulty.

It must be constantly borne in mind, that certificates of Stock in
railroad and all other similar corporations are not credit-documents
at all, but are mere evidences of so much proportional _ownership_ in
the corporate property. They are not interest-bearing documents at
all, although they may draw interest or rather dividends, if the
property be prosperous. They are somewhat like deeds to land, in which
no element of credit inheres.

Nations too are moral persons in the same loose though binding sense
as corporations, and as such often issue promissory notes on interest,
commonly called in this country Bonds, in Great Britain Funds, and in
some countries Stocks. These are always pure credit. Nations give no
mortgages. Yet they often borrow at a less rate of interest than the
most solvent individuals or corporations can, as is seen by the fact,
that British consols carry but 3%, and yet bear a premium in the
present market. The term, "consols," is a popular contraction of
"consolidated annuities," the Act to create which at 3%, out of a then
confused mass of public debts at various rates of interest passed
Parliament in 1757. The maximum of the British debt was
$4,500,000,000 in 1815, and has now decreased to $3,467,787,960.

The United States also sold its bonds at 3% for a small premium in
1882. It had borrowed of its own citizens in 1862-65, both inclusive,
about $2,500,000,000 on its bonds at different rates of interest and
at different times of repayment: some of these bore gold interest at
6% annually, Government reserving the right to pay the principal in
five years and pledging itself to pay it twenty years from date, and
so these bonds were called "Five-twenties"; others bore gold interest
at 5%, becoming payable at ten and demandable at forty years, and so
were called "Ten-forties"; and still others bore greenback interest at
7-30/100%, the principal payable in greenbacks at three years, or
fundable in gold sixes, at the option of the holders, and these were
named "Seven-thirties." Over $90,000,000 of this last kind of bonds
were subscribed for by the American people in the course of a single
week in the spring of 1865. The whole of our national debt issued
prior to 1865 was made payable on a day certain; the so-called
"consols" of 1865 and 1867 and 1868 were payable _not more_ than forty
years from date; while all the bonds authorized from 1870 to 1882 were
Consols proper, whose peculiarity is, that they never fall due so as
to become a claim for the principal against the Government, but after
a day fixed or on a condition fixed are payable "at the pleasure of
the United States."[7]

The separate States of our Union, as sovereign in their own sphere
quite as much as the national Government is sovereign in its sphere,
have unlimited power to contract debts for State purposes through
their regularly constituted authorities; and consequently to issue
promissory notes or bonds to liquidate such debts. New York commenced
in this way in 1817 the magnificent enterprise of the Erie Canal, to
connect the great Lakes with the city of New York by an inland
water-way for commerce, and the completion of this in 1825 made the
State the "Empire State," and the city the undisputed commercial
metropolis of the Union. In a similar way Massachusetts undertook in
1862 the completion of the Hoosac Tunnel for a railway lengthwise of
the State; and although the process became unduly expensive, and great
abuses sprang up in connection with it, no one now questions that the
pecuniary and moral resources of the State have been augmented, on the
whole, by contracting the debt and providing by taxation for the
liquidation of both interest and principal. The credit of
Massachusetts, that is, the ability to borrow money at low rates of
interest, has been at times greater than that of the United States;
mainly because the State in 1862 and onwards refused to avail itself
of a depreciated national paper-money (greenbacks) made legal tender
for all debts, with which to pay the interest on its then existing
State debt, but persisted throughout (alone of the States) to pay that
interest so soon as due in gold coin. On the other hand, several of
the States of the Union at different times, and under more or less of
provocation and justification, have made a partial or entire
repudiation of certain portions of their public debts, justly damaging
to their individual credit, and even to the good name abroad of the
whole people of the United States.

Counties and cities and towns may also issue interest-bearing bonds
for public improvements, which have a _quasi_ governmental character,
but only under conditions and to a maximum amount prescribed by a law
of the State.

_c._ Bank Bills. These are a form of promissory notes not on interest,
and thus differ from the notes of ordinary corporations, and from the
bonds of nations and states and municipalities; but the issuing Bank
offers, as a sort of compensation for the privilege of circulating
notes not on interest, to convert them into coin, that is, to pay them
instantly on the demand of any holder. It is this proffered and
immediate convertibility into coin that enables the promissory notes
of a bank to circulate as money, while the notes of other corporations
and individuals equally solid and solvent do not circulate as money.
It must be borne in mind, however, that this offer to convert them
into the legal and ultimate coin-money does not essentially alter the
nature of Bank Bills; they are a form of commercial credit; and
although they are commonly issued against another form of such credit,
namely, against the interest-bearing promissory notes of individuals
and corporations who resort to the bank for discount, this only
complicates the exchange without changing its nature. It is a common
instance of exchanging one form of credit for another form which
happens to have a greater currency or validity than the first, and for
this superiority of the bank credit the individual credit pays an
interest, in other words, is discounted; and such exchanges of one
form of paper credit for another, with or without a premium, may go on
indefinitely; especially as _credit-money_ in the form of bank bills,
such paper may serve as a medium in many exchanges; but ultimately,
and before the entire series of transactions is closed, such bank
bills are to be redeemed in coin, or taken in by the banker in payment
of some debt due to him, in both which cases they are extinguished as
an instrument of Credit.

The Bank of England keeps out in circulation on the average
£25,000,000 in bank bills. It has been computed, that the average
length of life of a Bank of England bill between its issue and
redemption is about three days; and no bill once redeemed or received
back over the counters of the Bank is ever issued again. It is then
placed on file for record only. The joint-stock and private banks of
England and Wales circulate on the average rather more than £4,000,000
of bank bills of their own; and no bank bill of any kind is legal in
England and Wales of a less denomination than £5. The ten Scotch banks
and their branches keep out in bills about £5,000,000; six out of the
nine Irish banks and their branches issue on the average not far from
£10,000,000; but both the Scotch and Irish banks are allowed to put
out £1 bills.

Bank bills, as a form of paper credit not on interest, but ostensibly
redeemable in coin on demand of the holder, have been issued in the
United States by more parties and to a larger extent and with more
recklessness as to redemption than in any other country. Omitting all
reference to Colonial issues, and confining the outlook to the first
century under the Constitution, let us note, that when the present
national government went into operation in 1789, the "Bank of North
America" in Philadelphia and the "Bank of New York" in New York and
the "Bank of Massachusetts" in Boston had been opened for business,
and all three were State banks issuing bills convertible into coin,
though each confined its business mostly to the city in which it was
located. Two years later under the auspices of Alexander Hamilton,
then Secretary of the Treasury, the first "United States Bank" went
into operation at Philadelphia under a charter from Congress that was
to run twenty years with a capital stock of $10,000,000. At first no
bills were issued by this bank of a less denomination than $10; the
money was popular and was converted on demand; the Bank was
prosperous, and paid dividends to stockholders never falling below 8%
and frequently rising to 10% annually; as the time approached for the
charter to expire, the stockholders were anxious for a renewal of
their privileges; but the opposition to them in Congress was now
strong, owing mainly to the increase in the number of State banks from
3 to 88; and accordingly the recharter was defeated in the House by
one vote, and in the Senate also, by the casting vote of the
Vice-President, and the Bank was obliged to wind up its affairs in

Then came in a sort of mania for the creation of new State banks,
under the hope that these, now there was no National Bank, might
obtain the Custody and temporary use of the national funds, and
especially might furnish the country with paper money in the shape of
State bank bills. The number of banks went up to 246 in 1816. So many
bank bills were put out, and became so much distrusted, and so many
were presented for redemption, that the banks could not respond in
coin, and in the fall of 1814, there was a general stoppage of specie
payment in all the banks of the Country excepting those in New
England. General resumption of specie payment by the banks did not
take place till 1819. New York bank bills went down to 90%, those of
Philadelphia to 82%, those of Baltimore to 80%, and those of Pittsburg
to 75%.

Under these circumstances the Second Bank of the United States went
into operation in January, 1817, also with a charter to run twenty
years, with a capital stock of $35,000,000, of which the national
Government subscribed one-fifth. The new Bank helped indeed the State
banks to resume specie payments, as was a part of the purpose, but it
pushed its own bills into circulation with such eagerness, that it is
thought $100,000,000 of them were in the hands of the people, before
the first year was out. In this way the Bank fell into difficulties.
Its bills were distrusted. Coin came to bear a premium over them of
10%. President Jackson began his famous contest with the Bank seven
years before its charter was to expire, and took care that it went out
of being the same year that he went out of office, in 1837, namely.

The next year the State banks increased in number to 675, and
continued to increase till 1862, when there were over 1500 of them,
and when the issue of the "Greenbacks" by the national Government
interfered with what had been their exclusive issuing of the paper
money after 1837. In 1857, before the commercial panic of that year,
the aggregate of their bills stood at $214,000,000, the largest it
ever reached. These bills were nominally convertible into coin at the
will of the holders, but they were never actually so convertible for
any great length of time. The ratio of their volume to the specie
reserved to redeem it was always a very high ratio. For instance, the
average for the whole country in January, 1863, was 4:1; in Rhode
Island 12:1; and in Vermont 28:1. Such a paper money can be called
convertible only by a stretch of courtesy.

It was wisely determined by the People to abandon this loose form of
paper money, and in 1863 went into operation the present national
banking system, under which originally $300,000,000 of bank bills were
authorized to be issued in the aggregate, but this limit was extended
in 1870 to $354,000,000, and the Act of 1875 removed all restrictions
on the total amount, while there have always been restrictions on the
amount that can be issued by any _one_ bank in the system. By the law
of 1882, national banks may withdraw their bills by depositing lawful
money in the Treasury to take them up, and then take back the
proportionate amount of the bonds held for the security of the bills.
There were outstanding Dec. 26, 1883, $341,320,256 of these national
bank bills, but their volume declined under the law of 1882 to
$151,702,809 on Oct. 4, 1888. These bills were from the first
redeemable in greenbacks, which were themselves, however,
irredeemable in gold and silver till New Year's, 1879, since which
time till the present all the paper money of the United States of both
kinds has been convertible into coin at the will of the holder.

_d._ Bank Deposits. We are studying in order the forms of commercial
Credits, and we have now come to that one which is central in the
operations of Banking, and accordingly this is the place for us to
understand clearly what a Bank is, who a Banker is, and what are the
motives actuating at once the Banker and his Customers. A BANK IS AN
Money of any kind plays a very subordinate part in the general
operations of banks, which live and move and have their being in the
sphere of pure Credits. _Bankers are buyers and sellers of credits._
As merchants are dealers in commodities, so bankers are dealers in
credits, buying (1) some credits with other credits, (2) some credits
with money, and (3) money also with credits. Before unfolding these
three operations of bankers in their motives and profits, a glance
backward to the origin of banks would be a help to us in grasping
their nature and benefits.

The word "bank" meant originally a mass or pile or ridge of earth, as
we still say, a _sand-bank_, and the _banks_ of a river. When first
applied to commercial transactions, the word had a different meaning
from what it has at present, although the idea of _credit_ has inhered
in it from the first: in 1171, the Republic of Venice, being at war,
ordered a forced loan from its citizens, and promised to pay interest
on it at 5%; and certificates were issued for the sums paid in, and
public commissioners were appointed to manage the payment of the
interest and the transfers of the certificates, which were made
negotiable. The Italian word applied to such a public loan is _monte_,
but as the Germans were then strong in Italy, the German equivalent
word, _bank_, came to be used alongside of it and instead of it. It
meant this common contribution of the citizens to the wants of the
State, represented by the mass of the certificates, and came to be
applied also to the _place_ where the commissioners paid the interest
and transferred the shares. Two other such loans were contracted there
afterwards, and an English writer, in 1646, quoted by Macleod, speaks
of the "_three bankes of Venice_," meaning these three public debts,
including the evidences of them and the place where they were managed.

The Bank of England also was in its origin in 1694 an incorporation of
those persons willing to subscribe to a public loan in time of stress,
as "The Governer and Company of the Bank of England." The subscribers
to a loan of £1,200,000 became an association, or bank, on the
condition that the Government should pay interest to the lenders at 8%
annually, and also £4000 a year in addition for the management of the
bank, that is, of this debt of £1,200,000 which was the sole capital
stock of the new Company, which was authorized to issue an equivalent
amount of bank bills to circulate as money. The capital stock was of
no use, so far as redeeming these bills was concerned, the
stockholders must furnish other money for that purpose besides what
they have loaned to the State, but the ownership of so much of the
public debt divided among the shareholders, made the Bank respectable,
and tended to give public credit to its bills, which at first were
paid promptly in coin on demand, and thus the Bank, by increasing the
volume of money and by showing confidence in the stability of the
State, strengthened the revolutionary position of William and Mary,
and consequently the Whigs were the friends and the Jacobites the
enemies of the Bank. This function of issuing bills or promissory
notes designed to circulate as money, thus begun and still continued
by the Bank of England, is much less important in modern banking than
the other two functions of receiving Deposits and making Discounts,
but it was the function on which the turn began to be made from the
older to the newer modes of Banking. All that is needful to be said on
this tertiary or money-issuing function of Banks has been already
urged under the last head.

The two Banks of the United States in succession, as they were more or
less modelled after the Bank of England, gave the same prominence to
the function of issuing paper money, under the belief that government
bonds afford the best security for the redemption of bank bills, an
idea that underlies our present system of National Banks also; and,
moreover, those two great banks began to teach the people of the
United States something of the mysteries of _Deposit-banking_, the
point that we have now in hand. One-fifth of the capital stock of the
first Bank, $2,000,000 out of $10,000,000, was subscribed by the
national Government; and besides, the proceeds of the national taxes
as they were paid in were passed over to the Bank as _Deposits_, that
is to say, the Bank bought this money of the Government, paying for it
with a Credit; and then properly used the money as its own in paying
expenses and in discounting paper. Bank deposits do not belong to the
depositors, but to the bank; which has thus bought money with credit;
and when Andrew Jackson suddenly removed from the second Bank of the
United States the national moneys deposited there, and placed them "in
the custody," as he expressed it, of certain selected State banks,
these amounted at the moment to $10,000,000, and the discount line
resting in part on these deposits was at the time over $60,000,000, he
removed them under a strong misapprehension _of the nature of such
deposits_; and their _removal_ affected credit, and disarranged
business to a remarkable degree, and caused intense excitement all
over the Union. Depositing those national moneys with the Bank was a
_trade_ between the Government and the Bank for the time being. The
Government took in return for the moneys a Right to demand of the Bank
in future by cheque or otherwise sums at its convenience to the
aggregate of the sums deposited; the moneys became the property of the
Bank to be used at its discretion in its ordinary business; the
Government took its return-service for the moneys in a Credit, that
is, a right to draw out at its convenience in the future corresponding
sums; there was a commercial understanding in that case between the
Government and the Bank underlying the buying and selling involved in
the Deposit, as there always is between depositors and their banks;
the banks are always bound to order their business in such a way as to
be able to respond to every depositor's call for money, when it comes;
but banks in general find practically that a cash reserve of one-third
of their Deposits is ample to answer the current demands of their
depositors, and the remaining two-thirds may be safely used in
discounting short-time commercial paper to their own profit; Deposits,
accordingly, are not placed "in the custody" of the banks receiving
them; they are really bought by the banks of their customers, who
receive in return certain privileges and credits that they prefer to
the "custody" of their own moneys; and under these general motives on
both sides, there has grown up in all commercial countries an immense
line of Bank Deposits so-called, and perhaps we may say that the
principal function of banks at present is to buy these deposits with
their Credit, and then to handle them in further operations to the
convenience of their customers and to their own gain.

Under our present national banking system the Government is still a
depositor of public moneys in some of the banks designated as
"depositaries." At the close of the fiscal year, 1888, there were 290
of such depositary national banks, and the Treasurer held United
States bonds of the face value of $56,128,000 and the market value of
$68,668,182 in trust for these banks to secure public moneys lodged
with them. This system of national deposit with the banks began in
1864. The total held by the banks June 30, 1888, was $58,712,511, an
increase during the year of $35,395,633.

But our concern is especially with the Bank Deposits of individuals,
with their motives in making these, and with the motives and the
methods of the bankers in handling them. In order to draw the
confidence of the people in its locality, a bank must not only be, but
also _seem_ to be, well-to-do and prosperous. Most bankers find it to
their account to become known owners of public stocks; and in many
cases, as in the present national banks of this country, are required
by law to own such stocks, and this gives them a kind of credit and
public standing scarcely to be reached by the ownership of ordinary
property. Thus the Bank of England held at the outset £1,200,000, and
now holds £15,000,000 of securities, mostly of the public debt of
England. As merchants begin by laying in stocks of goods of the kinds
they purpose to deal in and offering them for sale, so bankers begin
by bringing together money and credits of their own in order to
attract to themselves in the way of buying and selling the money and
credits of other people. In order to deal successfully in credits the
banker must have _credit_, that is, he must have the reputation of
having property of his own, and of being an honest and careful manager
of his own affairs and of the affairs of others so far as they are
intrusted to him. Each of our present national banks, now (1890) 3150
in number, must have by law a paid-up capital of not less than
$100,000, and in cities of 50,000 people their capital must not be
less than $200,000 each, except that in places having less than 6000
inhabitants banks with not less than $50,000 capital _may be_
organized at the discretion of the Secretary of the Treasury. The main
purpose of all this is to secure strong financial organizations fitted
to draw the confidence of the communities in which they are placed,
and in this manner and by means also of constant national supervision
to attract the Deposits of the people to the banks.

Now, as was said a little while ago, perhaps the central function in
banking is for the banker to receive his customer's money and also his
credits falling due, and to render to him in return for these _a
credit_, that is, a right to demand from himself an equal sum at a
future time or times. The evidence of this right is entered on the
banker's books, and usually too on the customer's passbook, and thus
becomes what is called a DEPOSIT. The ownership of the money and of
the credits deposited passes over completely from the customer to the
banker. It is a complete case of buying and selling to the mutual
profit of the parties. The banker has the right to do just what he
pleases with his deposits, and the customer has a right to draw
cheques on his credit as and when he pleases; only the banker's entry
of the transaction on his books is a virtual and a legal _promise_ to
pay that amount to his customer, and therefore he must be ready to
respond to his customer's call, whenever the latter demands, not his
own money, but so much of his banker's money. _A deposit, accordingly,
is not the very thing deposited, but a credit._ It is the banker's
promise and the depositor's property. It is in this way that a banker
buys ready money with a credit.

The motive, then, that leads the depositor to intrust his money to the
banker is the desire, not to have that specific money kept safely for
him, for he lost possession of it absolutely when it passed the
counter, he _sold_ it and took his pay in something else, but rather
to have the unquestioned right to call on the banker for such sums
(not to exceed the deposit in the aggregate) and at such times as may
suit his own convenience. He has such confidence in the integrity and
solvency of the banker, finds it so practically convenient to have
dealings with him, and comes to have certain minor privileges at the
bank in other relations over non-depositors, that he quite prefers a
credit on the banker to the possession of the money itself.

The corresponding motive of the banker to receive his customer's funds
on these terms is that he finds by experience (his own and others'),
that he can safely use a large portion of these moneys deposited in
other operations in credit profitable to himself, and at the same time
be practically sure of meeting all his customer's calls for money as
they are made. Every good banker finds out, that many of his customers
wish always to leave a balance in his hands; that while some of them
are constantly drawing cheques on him for cash, others of them are as
constantly depositing with him in cash; and that consequently he can
properly and safely use a large part of the money he has purchased
with his credit to purchase other credits with. Deposit-banking,
therefore, is not only convenient and profitable for the depositor,
but also excellent and profitable for the banker.

Besides these two parties benefited, there is a gain, too, for the
community at large in deposit-banking; inasmuch as a new capital as
such has been thereby created, a series of new values, which would not
otherwise have existed at all. Were there no deposit-bank in that
locality, every man now a customer of it would of course keep his own
reserves for himself for prospective contingencies: now, all these
little reserves are aggregated in the bank, the convenience of them
for each customer's contingencies is just as great as if he kept his
own in his own safe or wallet, but the banker finds that he can use,
say two-thirds of the whole, and still answer each customer's call.
Here is a new capital. Here are scattered valuables brought together
to be loaned out to a profit, which were otherwise barren and useless
for the time being. Industry is quickened in a wide circle, products
are created and brought to market, wages are paid and profits are
gained, in direct consequence of bringing together under favorable
auspices for safe loaning the little hoards and driblets of many
individuals, which were practically useless in isolated hands.

It may easily be objected at this point, that it is entirely possible
that any banker might be called upon to pay off all his
deposit-liabilities at once in money, which, if it happened, would
break him of course; so it is abstractly possible that all the lives
insured in a Life Insurance Company might terminate in one day, in
which case no Company in the world could meet its obligations; and so
it is abstractly possible that all the houses insured in a Fire
Insurance Company might be burned up in a single night, which, if it
happened, would cause the collapse of the soundest company; but in all
these cases of possibility there is a _certainty_ that the possibility
will not become a fact. _Ex nihilo nihil fit._ A supposition
practically impossible to become a fact can yield no logical inference
whatever. The Greek language has a special grammatical form for a
hypothesis impossible to be realized in fact: would that the English
had also such a form of speech! It would save us a mess of bad
reasoning. If, however, any banker may have misjudged for his locality
at any time the proper ratio of reserves kept to deposits received,
and be crowded in consequence, he must sell some of the securities
bought with the excess, or borrow money on them.

Surprisingly large is the amount of bank deposits in all the leading
commercial nations of the world. The average public and private
deposits of the Bank of England, on which no current interest is paid
by the Bank, amounts to about £40,000,000 all the time. The ten
joint-stock banks of London carry about £80,000,000 in private
deposits, of which those to remain some time _draw_ an interest, but
those lodged on current accounts and on call _draw_ none. Scotland has
carried deposit-banking further and to greater advantage than any
other country in the world. There are now no private banks in
Scotland, but the ten joint-stock banks with their numerous branches
scattered to every village in the land hold constantly about
£70,000,000 as individual deposits, on which current interest is
allowed, and so the habit of keeping one's account with a banker has
become universal with the people. No one thinks of keeping money to
any amount in his house or about his person, and consequently
house-breaking and highway robbery have almost ceased. Bankers even
attend all the great fairs in the country to receive deposits and to
pay off cheques. Credit in this form and in another form soon to be
described treads its utmost verge in Scotland. Although in the United
States the custom of keeping deposits with bankers and drawing cheques
against them has not gone nearly so far as in Scotland, and not nearly
so far as it will go in the immediate future, yet the aggregate of
individual deposits in the national banks alone, Oct. 4, 1888, was
$1,350,320,861, an increase in just seven years of 26%.

_e._ Bank Discounts. The credits that are discounted by bankers may be
either the promissory notes of individuals and corporations already
characterized, or the Bills of Exchange soon to be characterized, but
the entire function of discount is so peculiar, that the paper
subjected to it ought to be enumerated in a classification of the
instruments of Credit. The discounting of commercial paper is the
second essential function of banking, as the buying and handling of
deposits is the first; and it is more in accordance with genuine
_banking_ to pass the price of the paper discounted to the seller's
credit in the form of a deposit, that is, to buy one credit by
creating another, than to pay the money over the counter at once, and
thus to buy credits with money. Those who do the latter are called
_bill-discounters_ rather than bankers, but most of our bankers do
both, though there is a tendency towards the separation of the two in
this country also.

Manufacturers and wholesale merchants usually sell their goods _on
time_, as it is called, say three or six months. Debts are thus
created, or to say the same thing in other words, Credits are thus
given. The manufacturer or wholesaler is creditor and the jobber or
retailer is debtor. But a debt is property; and the creditor in this
case wishes to avail himself of his property at once for further
production; so he either takes a Promissory Note from his debtor, or
draws a Bill of Exchange upon him, and this piece of property is ready
for sale. Neither piece mentions _interest_ expressly, but the face
sum virtually covers it as contemplating discount. Banks have been
organized for the express purpose of buying for their own profit and
for the convenience of business such pieces of property; some banker,
accordingly, buys this particular piece, that is to say, this creditor
passes over to this banker the commercial right to demand payment from
this debtor at the end of three months, and receives in return from
the banker either money direct or so much of the banker's credit, that
is, a deposit in favor of the creditor on the banker's books. For
furnishing this creditor either with ready money or a more available
credit in lieu of his mercantile paper, the banker charges of course
_a percentage_. This is _Discount_. _Discount is the difference
between the face and the price of the paper._ This percentage called
discount is the chief source of profit in ordinary banking. It is
virtually compound interest on the sum advanced till the maturity of
the paper, when the banker realizes from the debtor its full face.

The following is a common form of a bankable note:--

    $1,000               WILLIAMSTOWN, Mass., Nov. 10, 1889.

     Three months after date I promise to pay to the order of
     JOSHUA SWAN, one thousand dollars, payable at the
     Williamstown National Bank, value received.

     Due Feb. 10/13.                          LEANDER ALLEN.

When Swan has put his name on the back of this note, that is in bank
phrase, has _indorsed_ it, in token that he thereby at once sells and
guarantees it to the bank, it is then discounted on the strength of
the two _names_, Allen and Swan. As Allen technically takes the
advance from the bank for his own benefit, he is technically expected
to take up the note when it matures, and if he do not, the bank falls
back on Swan, who is equally bound with Allen to see that it is paid
at the proper time. Two names are nearly always, not always, requisite
to a note acceptable for discount at a bank; and more names merely
strengthen the note, since it is discounted on the combined validity
of all the names upon it.

One obvious advantage of discount is, that it tends to make all
capital active and thus productive. It enables the banks to sell their
credit and make a gain, to use a part of their money deposits to buy
mercantile paper with, and so get a bank interest on them; it enables
dealers in commodities to realize in cash _minus_ the discount the
sum of what they have sold _on time_; and by means of _accommodation_
notes or bills, which only differ from the others in that there is no
_actual_ debt between the parties, business men may swell the volume
of their business temporarily, and non-business people may borrow
small sums for convenience or emergencies. Bankers have not always
credit enough or money enough from their depositors to buy in either
mode all the good paper that is offered to them, in which case, they
raise the rate of discount unless the law forbids, or by easy evasions
even when the law forbids; or else accommodate regular customers and
large depositors first, or buy of all that are "good" a certain
proportion only.

The discount line of 3140 national banks reporting Oct. 4, 1888, was

It is thus through the purchase of discountable notes for money, that
banks derive their partial character as money-lenders. Also, such
reserve sums as they do not wish to invest in negotiable paper, on
account of the time involved before such paper matures, banks
frequently loan _on call_ to those customers who have good collateral
securities to pledge for the repayment of such loans. The terms of
such a contract give the bank full authority to sell such collateral
"_at the Brokers' Board or at public or private sale, or otherwise at
said bank's option, on the non-performance of this promise, and
without notice_." So far forth banks become direct money-lenders. It
ought also to be added, that promissory notes with a single name (or
more) are often discounted by banks partly on the strength of
collateral securities deposited to fortify the names upon the notes.

_f._ Bills of Exchange. A Bill of Exchange is a written instrument
designed to secure the payment of a distant debt without the
transmission of money, being in effect a setting-off or exchange of
one debt against another. It is in form and in several technicalities
different from a promissory note, inasmuch as it is an _order to pay_
instead of a _promise to pay_, and inasmuch as the maker of a note is
always _debtor_ and the drawer of a bill of exchange is always
_creditor_; but all this makes practically very little difference
between the two as instruments of Credit, since nearly all bills of
exchange come into banks in the way of ordinary business, either for
discount or collection, and as the banks care nothing except for
_names_, the _form_ of the purchasable paper is a matter of
indifference to them. The following is the essential form of an inland
bill of exchange:--

    $3,000                 PITTSFIELD, Mass., Oct. 16, 1889.

     Four months after date pay to the order of JOHN KENT three
     thousand dollars, value received, and charge the same to
     account of

     To ELI TRIPP, Boston, Mass.                 DAN STORRS.

In the case of this bill, which may serve as a sample of thousands,
Storrs is the _drawer_, who is creditor in relation to Tripp, and
Tripp is _drawee_, but Storrs is debtor in relation to Kent, who is
the _payee_. A bill of exchange is the sale of a debt, in such a way
that two debts are so far forth set off against each other, and both
transactions are closed without sending any money at all. Tripp owes
Storrs, and Storrs owes Kent, and so Storrs pays Kent by an order on
Tripp. As this is a bill at four months, Kent will doubtless send it
to Tripp for his _acceptance_, as it is called, that is, his
acknowledgment that he owes Storrs to that amount, and that he will
pay the sum to the holder of the bill when it becomes due. An
acceptance is written on the _face_ of a bill, and an indorsement upon
the _back_ of the note: the initials are sufficient for the name of
an acceptor, but the full business name is usual for an indorser.

Thus a bill of exchange is the formal sale of a debt, in order to
liquidate thereby another debt, when the parties to the transaction
live in different and distant places. Storrs does business in
Pittsfield, and Tripp in Boston, and it is a matter of comparative
indifference where Kent lives, unless there is trouble at the time of
collection, for he will perhaps negotiate this bill again, that is,
make use of it to pay some debt that he himself owes. It is not often
that the same person, as Tripp, happens to owe another person in a
distant town, as Storrs, the same amount as Storrs owes another person
somewhere, as Kent; but by two bills of exchange, one drawn by each
creditor on his own debtor, and then each set off against the other,
through the simple and beautiful expedient of bank balances,
substantially the same advantages are reached as if it always happened
so. Many bills of exchange are drawn _at sight_, as it is called, in
which case the payee presents it for payment to the drawee, there is
no acceptance and no discount, and a bill of this kind becomes the
same as a cheque.

Time bills, however, are usually discounted: the payee indorses his
claim over to a fourth party by name, or, by what is called an
indorsement _in blank_, that is, by merely writing his own name on the
back of the bill, makes it payable to bearer: when banks buy these
bills for discount, it is on the joint credit of acceptor and drawer
and payee, and in that order of validity and precedence: a promissory
note may be protested by a bank without notice to the maker, but a
bill of exchange cannot be without notice to the drawer: a promissory
note has two parties to it, a debtor and a creditor; while a bill of
exchange has three parties to it, two creditors and a debtor.

Inland bills of exchange, both time bills and sight bills, are very
convenient in settling debts between distant places without the
costly, and more or less hazardous, transmission of money back and
forth; besides this, time bills possess the very useful function of
enabling a debt due from one person to avail the creditor as a means
of obtaining credit from a third party in discount; and in addition to
these two points of benefit, it is plain, that the common use of bills
of exchange in all their forms releases from use large amounts of
money that would else be needful in trade. The less money in use in
any country beyond a certain point, the better, because, if coin, it
costs much to mint and maintain it, and if paper, it is difficult to
make and sustain it of full value.

Bankers sometimes change what they call "exchange" for settling debts
between distant places in the same country; in some cases there may be
a sound reason for this, in other cases there is none, but in all
cases it adds a little to the profits of the banks for handling the
bills of exchange; the principle of charging an "exchange" is
this,--when one place as Chicago draws more bills on another place as
New York than suffice to cancel the bills drawn at that time by New
York on Chicago, the point _at_ which the larger indebtedness lies is
the point for sending drafts _to_ which banks naturally charge a
percentage; perhaps the idea, which is actually realized in foreign
exchange, that money may have to be sent to liquidate such a balance,
may have brought in the custom of charging "exchange" in such cases;
and there are instances aside from such a supposed balance, in which
there may be an extra cost of collection in some form to the bank,
that may justify an "exchange" charge; but there is another principle
counterworking and often neutralizing entirely this alleged doctrine
of a "balance" of debt as between two distant places, namely, that the
chief settling place and commercial centre of a country, such as New
York is, draws towards itself from the whole circuit with such force,
everybody wanting a balance there and having occasion to send funds
thither, that drafts on such a place are apt to bear a premium without
any reference to its comparative indebtedness at the time.

Very similar to these inland bills in their nature and course and
usefulness are Foreign Bills of Exchange, which, as a vastly important
topic, especially in its relations with Foreign Trade, we must now
study minutely and completely. Commercial relations between two
countries, let us say, for instance, France and England, always give
rise to a mutual indebtedness of their merchants; if these reciprocal
debts were all to be paid by the actual sending of money to and from,
there would have to be a constant and expensive and more or less
hazardous outward and inward flow of the precious metals in respect to
each country; all which necessity is neatly obviated by the use of
reciprocal bills of exchange, and coin is only transmitted to settle
the balances on whichever side there may happen an excess of debt at
the time. French dealers are always sending goods to England, and
English dealers goods to France; and for what they send to England the
French merchants draw bills of exchange on the parties to whom the
goods are consigned, and the English merchants draw similar bills on
their debtors in France; then these bills are bought up by bankers or
brokers in either country, and virtually exposed again for sale
through new bills drawn against them to any parties who may have debts
to pay in the other country. Thus bills on London, in other words, on
English debtors, are always for sale in France; and bills on France,
that is, on French debtors, are always for sale in London; the
reciprocal debtors of the two countries, therefore, instead of sending
coin to cancel their debts, buy and transmit these bills.

Let us take a sample instance. Pierre & Co. of Paris send a cargo of
wine worth £1000 in English money to John Barclay of London. Barclay
thus becomes indebted to the Paris firm to that amount, and Pierre &
Co. draw at once, so soon as the cargo is despatched, a bill in francs
to the equivalent of £1000. If they themselves have no debt to pay in
London, they will sell this bill immediately to a Paris banker or
broker (if the exchange be then at par) for its full face _minus_
interest for the time it has to run, say two months; this broker is
now ready to sell this bill again, or what is the same, his own bill
drawn on the strength of it, to anybody in Paris who may have a debt
to pay in London; and the party in London who receives it in
liquidation of a French debt to him, presents it at maturity to John
Barclay for payment. Thus one bill of exchange serves the ends of two
creditors and one debtor: Pierre & Co. get their pay for the wine, the
London party gets his pay for goods, and Barclay pays his debt, by
means of it. A bill drawn in London for a cargo of hardware sent to
Paris is similarly negotiated with a London broker or banker, and
finds its way similarly to France in payment of some English debt owed
there, and ends its course when it reaches the French firm on which it
was originally drawn.

We are now in position to understand clearly what is meant by the _par
of Exchange_ in its commercial (not coinage) import. The merchants in
Paris, who have debts due to them from London, draw bills of exchange
for the amount of these debts; and, through the agency of middlemen,
go into the market to sell these bills to other Paris dealers who have
debts to pay in London. If the former class have a larger amount to
sell than the latter have occasion to buy, in other words, if there be
a larger amount of debts due from London to Paris than from Paris to
London, then the natural competition of the sellers in Paris of the
bills on London will lower their price somewhat in that market
(Paris), in order, as usual, that the Supply and Demand may be
equalized there. In this case the par of exchange is disturbed, a bill
on London for £100 in francs may not sell for over £99, and the
exchange is then said to be 1% _against_ London, or, which is the same
thing, 1% _in favor_ of Paris.

The _par of Exchange_, accordingly, between two countries, depends on
the substantial equality of their commercial debts. In the above
example, if the exchange as against London in favor of Paris continue
long, and especially if the premium of 1% on bills drawn in London on
Paris be sufficient to cover the expense of the transmission of specie
from London to Paris, gold will begin to flow from London to Paris,
because the debtors there may find it cheaper for themselves to buy
and send gold than to pay the high premium on bills; and thus the
equilibrium of payments and the commercial par may be restored. Also,
this par tends to restore itself, without any sending of specie, in
this other perfectly natural and effectual way: if bills on Paris are
at a premium in London, for the same reason that they are so will
bills on London be at a discount in Paris; therefore, there will be a
direct encouragement to the extent of the premium for _exportation_ of
goods from England to France, because on every cargo thus sent bills
can be drawn and sold in London for a premium; while the more bills on
Paris thus offered in London, the more the premium disappears of
course, and the par will be restored so soon as the bills on Paris
substantially equal the bills on London offered in Paris; and at the
same time, so long as the discount on London bills continues in Paris,
there is a direct _discouragement_ to further exportations from France
to England, because the bills drawn in virtue of such cargoes can
only be sold below par, and this too tends to _restore_ the par in the
commercial sense of the term.

Here is another instance of a magnificently comprehensive law, by
which Nature vindicates her right to reign in the domain of Exchange.
It is through this natural and beneficent law of automatic
compensations, stimulating exportations on the one side and slackening
them on the other, that most of the casual disturbances of the
commercial par as between two countries are easily and perfectly

While this great law is in full possession of our minds, let us note
in passing how artificial restrictions by one country on the
importation of goods from another, commonly called "Protectionism,"
affects this commercial par as between those two countries. Besides
stopping absolutely a mass of otherwise profitable exportations and
importations for both countries, it makes less profitable to the
country imposing the restrictions whatever foreign trade _does take
place_ between them in spite of the restrictions. Suppose England, as
is the fact, opens her ports freely to the commodities of France,
while France puts restrictions in the shape of heavy taxes upon
importations from England; more French goods are likely under these
circumstances to seek English ports than English goods to seek French
ports, because they are more welcome; consequently, more bills of
exchange drawn on London will naturally be offered in Paris than bills
on Paris in London, and will so far forth be sold at a discount, while
the London bills drawn on Paris will be sold at a premium; in other
words, the comparatively few goods that do get out of a "protected"
country, realize less to their owners than the natural value, because
the bills drawn on them are extremely apt to be sold below par! With
this course of things all known facts agree. Since the United States
became conspicuously a "protected" country a quarter of a century ago,
it has been at rare intervals and for short periods that bills drawn
here on London have been at par. They have been usually much below
par. The equivalent of £1 sterling in United States money is $4.8665;
and when bills on London sell for less per pound sterling than $4.86,
they are at a discount in New York or Boston; and exporters here are
direct losers to the extent of the discount.

If, however, notwithstanding the beautiful action of this great law of
commerce, the disturbance in the commercial par as between two
countries continues obstinate, it indicates one of several things as
true of the country, whose bills of exchange drawn on another persist
in a considerable discount; (1) it has come to be a pretty steady
debtor country as towards the other, by sending thither its national
or State or corporation bonds, whose interest and ultimately principal
also must sooner or later be remitted in exports _extra_ to the
exports needed to pay for the current imports of goods; (2) it has
either naturally or by persistence in a bad public policy little or no
shipping of its own, so that freights both ways have to be paid to
foreigners in the form of exported goods _extra_ to those exported to
pay for those imported in transient trade, which of course increases
the number and face of the bills drawn _in_ the luckless country _on_
the lucky country or countries; (3) it has made the vast and fatal
mistake of excluding by legal barriers of taxes put on for that
purpose the goods of foreigners, whose only motive in coming is to
take off corresponding goods of the deluded country's own to the
profit of both, and so these last-mentioned goods must seek a foreign
market (if at all) at reduced rates, their natural market having been
destroyed by national law; and (4) it may have made the national money
in which the bills drawn on it are liable to be paid an inferior
money, either transiently by mere abundance or permanently by worsened
quality, which is well illustrated in the instance of Amsterdam as
cited in a preceding chapter, and which can only be remedied by
raising the standard of the money to the level of the best.

Very little, if anything, can be inferred as to the prosperity of a
country or even as to the real condition of its "exchanges" in this
technical sense of the term, by the transient movements of gold to and
from the commercial countries, in their present complex relations as
gold-producing and non-gold-producing countries and as debt-settling
and non-debt-settling centres. Gold moves back and forth in obedience
to several other impulses than to settle the balances in an
international trade of Commodities. Gold-producing countries of course
export gold just as they would any other native product. If for any
reason gold becomes relatively more abundant in one country than in
other commercial countries around it, general prices will rise in that
country in consequence; which means, that gold is then and there the
cheapest article that the people of that country can export to pay
their commercial debts with. Also, the imports which a nation pays for
in gold, or in bills of exchange bought above par, are often bought
with a high profit. Creditor nations, nations that have managed to
make themselves settling-places for the world's commercial debts, and
nations that welcome imports without impediment from every quarter of
the earth (and England may serve as a sample for all these three),
will largely pay for imports in gold or in bills bearing a premium.

It is a thousand pities, that technical terms which are quite
misleading unless one remembers their origin and exact significance,
have come to be intrenched in commercial language too strongly to be
dislodged at this late day, as the common terms to express the state
of the "exchanges" as between two countries. These terms are
"_against_" and "_in favor of_." The old Mercantile system, which has
left other unsavory progeny behind it besides this, in order to keep
and heap gold and silver in a country, encouraged exports in every way
and discouraged imports, in order that the "_balance of trade_," as
the phrase ran, that is, the difference in volume between exports and
imports, might come back to the country in gold and silver; and this
foolish and now thoroughly exploded notion gave rise to the terms in
question; exchanges were then said to be "against" a country when the
record seemed to show more imports than exports, as if that implied
that the imports were too great for a "balance" in gold and silver;
and were said to be "in favor of" a country when its export-line was
greater than the line of imports, as implying a favorable balance to
be met by a specie-import in future. The false "System" is gone
forever, but the "terms" still abide in commercial language, and
confuse the minds more or less (more rather than less) of everybody
who tries to make these terms a vehicle of thought. We have now
described the causes and courses of international bills of exchange
without resorting to these technicalities, which imply movements of
gold and silver which do not actually take place under the conditions
supposed; for example, the exchanges were "in favor" of the United
States in 1874-77, there being an apparent trade balance of
$164,000,000 in 1877 and a still larger in 1876 and a larger one in
the two years preceding, but the import of specie was small in all
those years, averaging about $25,000,000 a year, and the rest of the
excess of exports went to pay interest due to foreigners, freights on
the cargoes both ways, and so on. It is difficult to use without
abusing the terms "against" and "in favor of" in this connection, and
the reader is cautioned not to employ them; although "discount" and
"premium" on international bills of exchange are matters extremely
important to observe and to know the grounds of. Were there no
counterworking principle, bills of exchange drawn _on_ capitalist and
creditor countries, like Great Britain, whose imports are apt to be
strongly in excess of the exports, and whose public policy is wise
enough to put no obstacles in the way of the free receipt of imports,
would be at a _discount_ in countries sending exports thither.

This counterworking principle, already illustrated as to inland
exchange in the case of New York, is best seen internationally in
connection with London, which is the settling-place of the world's
commerce. When the Romans dredged the Thames and made "the pool" just
below London Bridge, they took the first steps towards making that
town a commercial centre; since a market for products is products in
market, the busy exchange of commodities there has quickened in every
age the accumulation of capital and the increase of population;
previous to the Dock Laborers' Strike in 1889, about 100 vessels
entered the port of London every day, which received about one-half of
the total customs revenue of the United Kingdom, and sent out about
one-fourth of its exports; the business of out-of-the-way and
semi-civilized countries has somehow (and it would not be hard to tell
why) centered in London, as well as the business of originally British
Colonies everywhere and of all other commercial countries;
accordingly, debtors and creditors abound there, bills of exchange
concentre there, and debts due from everywhere are payable _there_;
and therefore, because bills on London are good all over the world,
the Demand for them counterworks the natural cheapness of the bills
drawn on exports _thither_ as compared with the natural dearness of
the bills drawn there on exports _thence_.

Another thing must be borne in mind in comparing the merchandise
accounts of any country, namely, that whenever the "exchange" is
sufficient to cover the cost and risk of the transmission of gold,
gold itself is likely to go freely from the country, in which bills
drawn on exports are at a premium, or to use for once the old
hazardous phrase, "_against_" which the exchanges have turned, and
bills will be drawn on that gold, as upon common merchandise, and sold
of course for the sake of the premium; or, if a decidedly higher rate
of discount prevail in a neighboring country, gold will naturally go
thither from the lower-rate lands, because lenders in the latter will
desire to realize the higher rate of current interest on money, and
bills will be drawn on this gold as well, which will tend to lower the
premium on bills there; unless, then, the premium _and_ the difference
in interest abroad will justify the speculation, the gold will not
stir; although, if the difference in interest abroad were very
considerable and promised to continue for some time, the bills on the
gold might sell at a discount and still leave a profit to the senders;
but the home bankers can always stop a drain of gold of this kind by
raising their own rates of discount.

This casual mention of bankers leads on to the weighty point, that the
whole business of foreign exchange is falling more and more into the
hands of the bankers, because bills drawn _by_ and _upon_ well-known
bankers naturally have a better credit than ordinary commercial bills,
the names upon which are less widely and favorably known. Accordingly,
persons sending cargoes of cotton, say, or of any other valuables,
from New York to Liverpool, arrange with their bankers in New York to
have the proceeds of the cargoes put to the _bankers'_ credit in
London, and then these bankers draw bills on the London bankers, which
will bring a higher price in New York than a common commercial bill,
because many remitters and most travellers prefer bankers' bills,
which, though they cost more, pay better and buy better abroad.
Commercial bills are still bought and sold in every commercial town,
but bankers' bills are more and more taking their place; and the
quotations usually give the current price of each.

London is so prominent as the settling-place of the world's
transactions by means of bills drawn on and by London bankers, partly
on account of the commercial predominance of England, partly from
excellent banking customs there, and mainly because an immense mass of
cheap loanable capital exists there, which even foreigners may borrow
at London rates, provided only that they can get credit there, that
is, leave to draw on a London banker, to whom of course remittances
must be made as fast as he accepts their bills. Besides, the Bank of
England, as the principal bank in Great Britain, and as closely
connected with the Government, acts as a bank of support to the public
and private Credit of that country. It does a regular business as a
bank of deposits and discounts, but it means to keep its rate of
discount somewhat above the rate demanded by the other bankers in
London, so as not to come into competition with them much in their
ordinary business, and be able to act as a bank of support to them and
all others in times of pressure. All banks have about so much credit
to sell, _and no more_; most banks sell in ordinary times about all
the credit they have, because their profits depend on that; but if the
Bank of England did this, it would become useless in periods of panic.
In point of fact, that Bank just begins to sell its reserve credit,
when the credit of the bankers below is exhausted. When they are at
the _end_ of their rope, there is generally an abundance of slack rope
still in the great Institution above.

Now, as gold can be drawn out of the Bank of England by the cheques of
depositors as well as by the presentation of its own notes for
redemption, the Rate of Discount becomes a matter of prime importance
in the management of the Bank. The whole line of deposits is a line of
liabilities to pay out gold, if the depositors demand it; and, as
deposits come largely through discounts, whenever there is a strong
tendency to draw out gold so as to weaken the reserves of the Bank,
the directors have an effectual remedy by raising the rate of
discount. The higher the _price_ the Bank charges for its credit, the
fewer, so far forth, will be its customers, and the smaller its line
of deposits, and the less likely a continuous drain of gold from its
vaults. The Bank of England is managed throughout by so simple a
manner as the turning back and forth of this magic screw of Discount.

Besides the use of the term "Par of Exchange" in the broad commercial
sense in which we have now been examining it, as indicating the
substantial equality of international debts as between two countries
by the current prices of bills of exchange, there is another and
subordinate sense in which the phrase is employed, namely, as denoting
the _relative value_ of the coins of one nation in the coins of
another. Thus, our present gold dollar contains 23.22 grains of pure
gold; the English pound sterling contains 113.001 grains;
consequently, there are $4.8665 to the English pound; and this is the
"par of exchange" (in the secondary sense) between the United States
and Great Britain. Between the United States and France the "par" is
$1 to 5.18 francs, since the franc is 19.29 of our cents. An English
shilling equals 24.33 of our cents, the new German "mark" is 23.82
cents, and the new Scandinavian "crown" equals 26.78 cents.

_g._ Bank Cheques. In substance indeed and even in form, Cheques are
Bills of Exchange, but the two have such differing legal incidents,
and run so different a course towards extinguishment, that for our
purposes in this treatise they should be put under a separate
discussion. Bills of exchange are expressly drawn "at sight" or for a
day certain, when they become payable by the drawee: cheques _say_
nothing about "sight" or any future date, though they are _really_
drawn at sight, and are payable to bearer on demand: they must,
therefore, be presented for payment within the shortest reasonable
time (all things considered), in order that the holder may legally
claim against the drawer should the banker fail meantime: a cheque is
held as the payment of a debt until it be dishonored on presentation:
the banker bears the risk of the forgery of the drawer's name, unless
his mistake be made easier by the drawer's carelessness in drawing: a
cheque is not payable after the drawer's death. The parties to cheques
are the Drawer, who is a depositor with some banker; that banker thus
becomes the Drawee; and the person named in the cheque is the Payee,
who can indorse his own right over to another person by name or in
blank to bearer. When a cheque is drawn in this way by one _banker_
upon another, it is usually called in this country a _Draft_.

Formerly in England, and in other countries as well, each considerable
dealer kept his own strong box, and when he had occasion to make
payments, told down the solid cash upon his own counter. Afterwards,
the goldsmiths of London solicited the honor of keeping in their
vaults the spare cash of the merchants, and these in their payments
among each other came to employ orders or cheques drawn on the
goldsmiths, and at the shops of the latter the principal payments in
coin were effected. The later introduction of Banks brought along with
it the custom, now continually widening in commercial countries among
all classes of the people, of keeping one's funds with some banker,
and making payments by written orders or cheques upon him. When the
person making the payment and the person receiving it keep their money
with the same banker, there is no need of any money at all passing in
the premises, the sum being merely transferred in the banker's books
from the credit of the payer to the credit of the receiver. The banker
is quite willing usually to do this business for nothing, and even
sometimes to allow the depositors a low rate of interest on all
balances remaining in his hands, in consideration of the privilege
involved of loaning such proportion of the aggregate of these sums as
he deems safe to other parties at a higher rate of interest.

In the larger cities, by an arrangement called the "Clearing-house,"
substantially the same benefits are secured as if all the depositors
of the city kept their cash at the same bank; inasmuch as all the
cheques drawn on each of the different banks, and passing in the
course of the business day into other banks, are assorted before
evening at all the banks, and adjusted the next morning through the
clearing-house, and the credits and debits of each bank are set off as
far as possible against each other, leaving only small balances to be
settled in money.

The London Bankers' Clearing-house was established in 1775; in 1864,
the Bank of England was admitted to it; and since then, the
Clearing-house itself, and all the bankers and firms using it, keep
accounts with the Bank of England, and the balances, formerly settled
by money, are now adjusted by simple transfers of account on the
books of that great Bank. This carries out the grand principle of the
Clearing further than it has yet been carried in this Country,
although the United States Sub-Treasury not very long ago joined the
New York Clearing-house, while the practical details of the Clearing
are simpler and better in New York than in London. The average
clearings in the London house (and there are besides many other
clearing-houses in the United Kingdom) were £5,218,000,000 a year for
1875-80, and the amounts cleared frequently rose to £20,000,000 a day;
which, if paid in gold coin, would weigh about 157 tons and require
about 80 horses to carry it; and if paid in silver coin would weigh
more than 2500 tons and require 1275 horses. This is stated on the
excellent authority of the late Professor Jevons.

The total business of the 23 clearing-houses of the United States in
1880 was over $50,000,000,000; the New York Clearing-house did 65% of
that business for that year; and the average daily clearings there for
the fiscal year 1879 were $76,167,983.

We will now describe mainly from personal observation the New York
Clearing-house, which was established in 1853, premising that the
principle is the same, though the details may be different, in all
other clearing-houses wherever located. Business men in New York, as
elsewhere, usually pass in to their bankers as a deposit all the
cheques and current credits received in the course of a business day.
It is the custom for everybody to draw his own cheque _on_ his banker
to make payments with, and to pass in _to_ his banker the cheques he
receives from others. Say there are sixty clearing-banks in New York
City. Each of these banks sorts out after business hours every day all
the cheques it has received that day drawn on each of the other banks
into separate parcels ready for the clearing the next morning. Each
bank has, then, fifty-nine parcels _to deliver_, which represent the
property of that bank, and are a _claim_ upon the other banks; and
also _to receive_ fifty-nine parcels, which represent the property of
the other banks, and are a claim upon _itself_.

Before ten o'clock in the morning sixty messengers, each having
fifty-nine parcels to deliver, appear at the clearing-house, each
reporting to the manager at once for record the amount of "exchange"
he has brought, which is entered of course as _credit_ to his bank;
and then all take their positions in order in front of the sixty
desks, which occupy the floor of the house, behind which sit sixty
clerks, each representing one of the banks. Each messenger stands
opposite the desk of his own bank, with his fifty-nine parcels already
arranged in the exact order of the bank-desks before him. Of course no
messenger has anything to deliver to the clerk of his own bank. Each
clerk inside his desk has a sheet of paper containing the names of all
the other banks arranged in the same order as the desks, with the
amounts carried out upon it which his messenger has just brought to
each. All these are entered in his credit column. Each messenger
carries also a slip of paper ready to be delivered with each parcel to
each clerk, on which is entered the amount of the cheques he now
brings to each bank. Of course the amount delivered _to_ each bank is
_debit_ to that bank, just as the amount brought _by_ each is _credit_
to that bank.

A signal from the manager, who stands on a raised platform at one end
of the room with his two or more clerks before him, and each messenger
steps forward to the next desk in front of him, delivers his parcel
and also the slip that goes with it, which latter the clerk signs with
his initials and hands back to the messenger as his voucher for the
delivery; and then each messenger advances to the next desk,--the
whole _cue_ moving in order,--at which precisely the same things take
place as before, and so on, until the circuit of the room is made, and
each comes opposite again the desk of his own bank, having passed to
each its "exchange" and taken a receipt for each delivery. This
process takes about ten minutes; when each clerk, who had on his sheet
to start with the _credit_ due to his bank, has now the _data_
(fifty-nine items) by which to calculate the _debit_ of his bank. The
difference between the aggregate of cheques _received_ and _brought_
by his bank is the balance due _to_ or _from_ the clearing-house as to
that bank.

All the clerks report to the manager the amounts _received_ by each,
and as his proof-sheets hold already the amounts _brought_, if the two
columns add up alike, no mistake has been made, and the general
clearing is over. Thirty-five minutes are allowed the clerks to enter,
report, and prove their work. Fines are imposed for errors discovered
after that time. The Clearing-house gives tickets of debit or credit
to all the banks, and the debit ones must pay in lawful money before
half-past one, and the credit ones will get their due from the manager
immediately after. The largest sum ever cleared in New York in one day
was $206,034,920.51 on Nov. 17, 1868, and the smallest $8,357,394.82
on Oct. 30 of the panic year, 1857.

_h._ Crossed Cheques. About twenty years ago there was instituted in
London what is called the Cheque-Bank, which is designed to bring the
benefits of the credit-system in the form of cheques more easily to
all classes of the people. The cheques issued by this institution are
so different in character and in course from common bank-cheques, and
are in some respects so new in principle, that we must give to them a
separate heading and a full explanation.

The Cheque-Bank is a stock company in London under that style, which
has entered into relations with nearly all the banks and bankers of
the United Kingdom, and with many Colonial and foreign banks also, by
which Cheque-Books are furnished for sale by the Cheque-Bank through
these associated banks, which also agree to cash the cheques, every
cheque in which books indicates by printed and indelible perforated
notices upon the forms what the utmost sum is against which that
cheque can be drawn; the aggregate of these perforated sums is the
price for which each book is sold less 1-1/5 penny for each cheque in
it, of which the penny is for the Government stamp required and the
one-fifth for the profits of the Cheque-Bank; and all these cheques in
books of different sizes and amounts are drawn in form _on_ the
Cheque-Bank, and _Crossed_, that is, _only made payable through a
banker_. It is one security against fraud that each cheque bears on
its face the utmost sum for which it can be used, and another is that
it can only be taken up by a banker and thus settled ultimately
through the clearing-house. The Crossed Cheques Act of Parliament in
1876 makes any obliteration of the crossing or essential alteration of
a cheque _felony_ at law.

Cheque-crossing is of two kinds, _special_ and _general_; when any
particular banker's name is written between two transverse lines, in
which form alone crossed cheques differ from ordinary ones, that makes
that cheque payable by him only; when the words "_and Company_" or
"_and Co._" are written between these lines, that makes the cheque
payable only through _some_ banker, that is, the cheque is crossed
_generally_; and when two parallel transverse lines simply are drawn
across the face of a cheque, with or without the words "not
negotiable," that cheque is legally deemed to be _crossed_ and crossed
_generally_. When a cheque is uncrossed, the lawful holder may cross
it either generally or specially; when it is crossed generally, he
may at his option cross it specially; and whether crossed generally or
specially he may add the words "not negotiable." All this facilitates
greatly the _collection_ of cheques by set-off through the clearing;
and has a direct bearing on the fortunes of the Cheque-Bank.

The Cheque-Bank publicly guarantees the payment of all the cheques in
all its cheque-books to the maximum amount for which each cheque may
be drawn; and it may well do this, for no cheque-book is sold except
for money, and the money is ready in the hands of some banker to pay
every cheque when presented; any banker or other person will give cash
for them, or take them in payment for goods or other services, or if
they are drawn for a sum larger than the debt due will give back the
charge to the bearer; and if the cheques be actually drawn for less
than the maximum perforated on them, the Bank itself will give
additional cheques for the balance. The ultimate payment, then, of
these cheques is as sure as anything in the future can be; the buyer
of a cheque-book knows, that the money is already in deposit to pay
them, and that the government-stamps on them have already been paid
for, while the receiver of an ordinary cheque cannot know beforehand
that the drawer has money in deposit against it. Moreover, the holder
of an ordinary cheque must use due diligence in presenting it for
payment as soon as possible, or delay it at his own risk, while the
holder of these has no motive whatever for haste,--time does not
deteriorate them. All money received for cheque-books is left in the
hands of the bankers who sell them, or transferred to other bankers in
order to meet the cheques presented elsewhere, and accordingly an
interest is paid by the bankers to the Cheque-Bank, on the balance of
deposits thus held, and this interest, together with the one-fifth of
a penny for each cheque, is the only source of profit to the
Cheque-Bank. Of course, the longer these cheques remain out before
presentation, the more profitable to the Cheque-Bank; and their
average length of life has been heretofore not far from ten days.

Since these cheques are crossed _generally_ (not specially) with the
words "and Co.," that is to say, since they can ultimately be taken up
only by some banker, they have a more _generalized_ character than
common bank-cheques, they are safer to carry and keep than so much
money would be, there is no difficulty in shopping or paying wages by
means of them, they are very much the same in their nature as bank
bills are, and might easily in certain circumstances become _money_
just as bank bills in some circumstances are money. Each of the
associated banks keeps an account of course with the Cheque-Bank, but
is not obliged to keep a separate account with the purchasers of
cheque-books, which is a great relief to the banks. In this way the
Cheque-Bank extends the use of cheques in the lieu of money to a great
multitude of small transactions, and relieves the other banks from
what would otherwise be a great deal of troublesome accounting and
collection. The ingenuity and the utility of this comparatively new
form of Credit cannot be questioned for one moment; the promoters of
the Bank intended that their cheques should be received by the people
as a substitute for cash and for Post Office orders, and such has been
the effect, many railway and other companies having long ago agreed to
receive them as cash, and the people generally regard them as cheaper
and more convenient than postal orders and even for many purposes than

_i._ Cash Credits. As the Cheque-Bank in the sense as just explained
has been thus far in the history of Credit peculiar to England, so we
have now to look to Scotland only for an exemplification of a form of
Credit hitherto confined to that country. It is a national
characteristic of the Scotch to be "canny," that is, they _can_, a
word from the old Teutonic _können, to be able_; and, as a
consequence, Scotch Banking has long been famous the world over; and
the one peculiarity of it, with which we are now concerned, goes back
certainly to 1729, as we happen to know from a minute of the Directors
of the Bank of Scotland under that date. That bank was chartered by
the old Scotch Parliament in 1695, one year after the chartering by
the English Parliament of the Bank of England, and under substantially
the same title as that, namely, "The Governor and Company of the Bank
of Scotland." It began to establish branches in different towns of the
realm in 1696, and began to issue bank notes for £1 (a privilege
denied to the Bank of England) in 1704; and it began also at a very
early period to exhibit the two main peculiarities of Scotch banking,
namely, (1) to receive deposits _on interest_ and (2) _to grant credit
on cash accounts_, or, as they have come to be called less properly,
Cash Credits.

This second peculiarity, which has proved extremely beneficial to
Scotland, is for substance this, to create a drawing account in favor
of a deserving customer, who has made as yet no deposits in the bank,
but who draws out money and pays it in from time to time just like an
ordinary depositor, and instead of receiving interest on the daily
balance to his _credit_ (old Scotch fashion), he pays interest on the
daily balance to his _debit_. These accounts are called Cash Credits.
They are not intended to be dead loans, but quick accounts; and they
are not granted except to persons in business, or to those who are
frequently drawing out and paying in money. The individual who has
obtained such a credit is enabled to draw the whole sum, or any part
of it, when he pleases, replacing it, or portions of it, when he
pleases, according as he finds it convenient, interest being charged
only upon such part as he draws out.

David Hume in his Essay of the Balance of Trade, published in 1752,
makes this nice point in favor of Cash Credits: "If a man borrows
£5000 from a private hand, besides that it is not always to be found
when required, he pays interest for it whether he be using it or not.
On the other hand, his Cash Credit costs him nothing, except during
the moment it is of service to him; and this circumstance is of equal
advantage as if he had borrowed money at a much lower rate of
interest." The Cash Credit is always for a limited sum, seldom under
£100, given upon the customer's own security, and that in addition of
two or three individuals approved by the bank, who become sureties for
its payment. Of course, only those banks can furnish such credits
which possess a surplus of credit more than they can sell in the
ordinary way, and these credits are safe and useful only in small
communities, in which men are well known to each other. Some friends
of the parties thus accommodated always guarantee the bank against
loss; but the losses have proved to be insignificant, the gains to be
marvellous; and this form of credit issued on the basis of no previous
transaction in the way of deposits illustrates better than any other
the radical principle, that Credit is Capital.

The Report of a Committee of the House of Lords made in 1826 on Scotch
and Irish banking describes very clearly and fully the system of Cash
Credits: "There is also one part of their system, which is stated by
all the witnesses to have had the best effects upon the people of
Scotland, and particularly upon the middling and poorer classes of
society, in producing and encouraging habits of frugality and
industry. The practice referred to is that of Cash Credits. Any person
who applies to a bank for a Cash Credit is called upon to produce two
or more competent sureties, who are jointly bound; and after a full
inquiry into the character of the applicant, the nature of his
business, and the sufficiency of his securities, he is allowed to open
a credit, and to draw upon the bank for the whole of its amount, or
for such part of it as his daily transactions may require. To the
credit of the account he pays in such sums as he may not have occasion
to use, and interest is charged or credited upon the daily balance, as
the case may be. From the facility which these Cash Credits give to
all the small transactions of the country, and from the opportunities
which they afford to persons who begin business with little or no
capital but their character to employ profitably the minutest products
of their industry, it cannot be doubted that the most important
advantages are derived to the whole community. The advantage to the
banks that give these Cash Credits arises from the call which they
continually produce for the issue of their paper, and from the
opportunity which they afford for the profitable employment of part of
their deposits. The banks are indeed so sensible that, in order to
make this part of their business advantageous and secure, it is
necessary that their Cash Credits should be operated upon, that they
refuse to continue them unless this implied condition be fulfilled.
The total amount of their Cash Credits is stated by one witness to be
£5,000,000, of which the average amount advanced by the banks may be

There are only ten Banks doing business in Scotland, and the Bank of
Scotland, the oldest of these, had 86 branches in 1875, and the
average number of branches of the other nine is very nearly the same
with that.

_j._ Circular Credits. These are a device of bankers to enable
travellers and merchants of one country to obtain credit and cash in
foreign countries in sums to suit their convenience, not to exceed in
the aggregate the limit mentioned in the credits drawn. These credits
assume different forms and are called by different names, but they are
all at bottom foreign Bills of Exchange. They are Orders to pay. They
are drawn by Bankers at home upon Bankers abroad. They are bought by
travellers and others, because they are safer to carry than so much
money would be, and much more convenient. In nearly all of those forms
the credits are available for no one else than the payee, whose name
is upon the form as well as the names of the bankers who are the
drawees, and so the credits are not liable to be stolen, although they
may be temporarily (not ultimately) lost. Purchasers of such credits
can obtain money on them in all of the principal cities of the world
in just such sums as they need. They have ultimately to pay for no
more credit than they actually use, because the drawer will pay back
to the payee, in case he has bought and paid for the entire credit
drawn, the cash difference; while on the other hand, arrangements can
always be made beforehand, by which money need not be deposited with
the banker at home any faster than it is actually called for abroad;
and while also a good customer of the bank drawing the credit, one who
keeps ordinarily a good line of deposits, may pay for whatever credit
he has used when he returns from his trip.

There is one kind of these foreign credits that deserves separate
mention, since it has come of late years into quite general use,
namely, "Circular Notes," as they are called. These are sight bills of
exchange, each drawn for a relatively small amount, say £10, and
multiplied in number to the requirements of the buyer, and drawn by
one domestic banking-house, say Kountze Brothers of New York, on one
foreign banking-house, say Union Bank of London, the names of drawer
and drawee only being upon the "notes," the payee or buyer being
expected to indorse each note in the presence of the Correspondent
making the payment. The notes, therefore, are not negotiable except by
the signature of the payee himself from time to time as he needs the
proceeds. This makes them safer than so much money to carry: if
stolen, they could do the thief no possible good. At the same time the
drawer of the notes furnishes the payee a circular letter addressed to
his banking correspondents all over the world, just as in an ordinary
Letter of Credit, containing the name and also the personal signature
of the payee, but unlike the ordinary Letter making no reference to
the amounts of credit furnished, and there are no indorsements of any
kind by the correspondents on this circular letter, which the payee is
cautioned in print on the back _to keep separate_ from the Circular
Notes covered by it. One of these letters runs as follows, the name of
the payee being entered in manuscript and also in autograph:--




These Circular Notes approximate in certain respects in kind towards
the cheques of the Cheque-Bank of London: both are bought at the
outset and paid for in full on the spot; and both are drawn _upon one
Bank_, which is the ultimate Drawee and Payer. In two essential
respects, however, the notes differ from the cheques: the cheques are
payable to Bearer without any indorsement by anybody, and so have a
much more _generalized_ purchasing-power than the notes, which have to
be indorsed by the payee (not named indeed in the notes but in the
letter accompanying them), as they are negotiated in a way preliminary
to their ultimate payment by the single bank on which they are drawn;
and also the notes, like all other foreign bills of exchange, are
subject in their value to the fluctuations of International Exchange,
while the cheques in their value are independent of commercial
exchanges "in favor" or "against" any country, and entitle the bearer
to so many pounds sterling in value according to English coinage
without any possible discount or premium. These London Cheques,
accordingly, approach much nearer to the character of Money than any
other form of Credit yet devised, except Bank bills undoubtedly
convertible; and already take their place as one of the _media_ in the
international trade, and are sold in New York by authorized agents of
the Cheque-Bank, as they have long been by such agents in all English
and Colonial and in many foreign cities.

These _Ten_ are the principle instruments in Credit-Exchanges
throughout the world; and we pass now, as proposed, to the next
section of our subject, namely, the Advantages of Credit.

3. As introducing these advantages and also as illustrating them, we
call attention first to the antiquity of many of the forms of Credit,
a point upon which much fresh light has been cast by recent
discoveries in, and ability to decipher the cuneiform writing of, the
ancient Assyria and Babylonia. It is to the credit of Credit, that the
earliest of civilized men seem to have perceived its nature, to have
seized upon its powers, and to have realized for themselves some of
its advantages. Credit is natural and legitimate. The moderns have
invented new forms of it, and have tested its capacities to the
utmost, but the ancients know it well in several of its instruments,
and vindicate their own insight into the recesses of Exchanges by
tablets and documents now known and read of all men.

In an earthenware jar found some years ago in the neighborhood of
Hillah, a few miles from Babylon, were discovered many clay tablets
inscribed with records relating to banking, and, what is more, to
banking as carried on for generations by a single family or firm,
which the cuneiform archæologists have translated as "Egibi & Co."
These tablets are now deposited in the British Museum. Those who can
read them say, that the founder of this banking-house, Egibi, probably
lived in the reign of Sennacherib, about 700 B.C. This family has been
traced in banking transactions during a century and a half, and
through five generations down to the reign of Darius. They were the
Rothschilds in the region of the Euphrates: they acted in a sort as
the national bank of Babylon.

The Tigris is always associated with the Euphrates and forever will
be. Nineveh on the former river, like Babylon on the latter, has
yielded from its tablet-records information as to the use of credit in
the more northern capital of Assyria. "Within the palace of
Asshur-bani-pal, the Sardanapalus of the Greeks, who reigned at
Nineveh from 668 B.C., Layard discovered what is known as the Royal
Library. There were two chambers, the floors of which were heaped with
books, like the Chaldean tablets already described. The number of
books in the collection has been estimated at ten thousand. The
writing upon some of the tablets is so minute that it cannot be read
without the aid of a magnifying-glass. We learn from the inscriptions
that a librarian had charge of the collection. Catalogues of the
books have been found, made out on clay tablets. The library was open
to the public, for an inscription of Asshur-bani-pal says, "_I wrote
upon the tablets_; _I place them in my palace for the instruction of
my people._" The Assyrian tablets embrace a great variety of subjects;
the larger part, however, are lexicons and treatises on grammar, and
various other works intended as text-books for scholars. Perhaps the
most curious of the tablets yet found are notes issued by the
Government, and made redeemable in gold and silver on presentation at
the King's treasury. Tablets of this character have been found bearing
date as early as 625 B.C. It would seem from this that the Assyrians
had very correct notions of the promise-character of paper (tablet)
money" (Myers).

In the Metropolitan Museum of Art in New York are Babylonian tablets
bearing distinct records of credit transactions that took place in the
reign of Nebuchadnezzar. The earliest tablet is of the year 601 B.C.
On it are memoranda of loans of silver made by Kurdurru as follows: "1
mina of silver to Suta, 1 mina to Balludh, 1/2 mina to Buluepus, 5
shekels to Nabu-basa-napsate, and 5 shekels to Nergal-dann;--total, 3
minas, 5 shekels of silver." There are more than 50 similar tablets in
this collection; the latest dated, "Babylon, 18th day of 14th year of
Darius," that is, B.C. 505. M. Lenormant, who can read them, divides
these credit documents into five principal types. 1. Simple
obligations; 2. Obligations with a penal clause in case of
non-fulfilment; 3. Obligations with the guarantee to a third party; 4.
Obligations payable to a third person; and 5. Drafts drawn upon one
place, payable in another. These last are letters of Credit. They
contain the names of several witnesses. They are evidently negotiable,
but from the nature of things could not pass by indorsement, because
when the clay was once baked nothing new could be added, and under
these circumstances the name of the payee was often omitted. It seems
to follow from this peculiarity, that the drawee must have been
regularly advised by the drawer. One of the credits in this most
interesting collection had 79 days to run.

The main elements of their civilization came to the Greeks, and
especially to the Greek cities in Asia Minor demonstrably from the
Eastward; the Greek West proved itself quick to catch up the thoughts
and the modes of the East; accordingly, Isocrates in his plea against
the banker, Pasion, describes a formal bill of Exchange bought by
Stratocles in Athens, payable in Pontus, and guaranteed principal and
interest by Pasion; the practical Romans were pupils of the Greeks in
all such matters, and so it came about in course of time, that Cicero
wrote as follows in a letter to Atticus,--"Let me know, if the money
my son needs at Athens can be sent him _by way of exchange_, or if it
be necessary for it to be taken to him,--_permutarine possit an ipsi
ferendum sit_"; and after that the Jews and the Lombards carried the
Letter of Credit all over the world.

It goes without saying, when the most civilized and advanced people of
the world were the first to adopt and have been since the quickest to
expand the use of Credit, that there must be pretty obvious and very
solid advantages from such use and expansion; and we must now note and
weigh a few of these advantages.

(1) There are young men in every advanced community in the world who
have integrity and industry and skill, but little or no _Capital_; and
when such men are enabled to borrow money, as by the Scotch system of
"cash accounts" or otherwise, to start themselves in business or to
enlarge a business already in successful operation, the general
interests of Production as well as their own personal interests, are
greatly subserved by such credit; because in all probability much
capital thus passes out of hands which are _less_ into hands which are
_more_ able to use it _productively_. Those who are best able to make
capital _tell_ by increase are generally those who are most desirous
to obtain it, and frequently those who can offer the best security for
its replacement. Nothing, therefore, is to be said against, but
everything in favor of, such a loaning of capital as shall bring it
under safe conditions from the hands of the idle and the aged, from
those indisposed or incompetent to use it productively, into other
hands at once competent and honest. Such credits as these are a
benefit and only a benefit to all the parties concerned, and to
Society at large. The active operators retain something of profit
after replacing the capital with current interest upon it; the lenders
receive more than if their capital remained idle, or they employed it
themselves; and Society is benefited by a more complete development,
and rapid circulation, of Services. Despite all the instances of
broken faith, it is still an honor to human nature, that men do so
gain by good character the confidence of their fellows, that they are
and ought to be trusted with capital on their simple word or note; and
it is the glory of free political institutions, that under their
influence more than elsewhere, young men do rise by the help of so
slight a stepping-stone as this, in crowds, to the high places of

In the important point of view, that thus all of the available capital
of a community is brought out into productive activity, too much can
scarcely be said of Savings-Banks, which take the surplus earnings of
the poor, and not only keep them safely, but pay a fair interest on
each deposit, and loan the aggregate at a higher rate on choice
securities, thus stimulating frugality in a wide circle of depositors,
and at the same time aiding Production by opportune loans to the best
class of borrowers. In the year 1881, there were $443,000,000 invested
in savings-banks in the State of New York, and $230,000,000 in the
small State of Massachusetts.

In this first category of the advantages of Credit, come also the
ordinary bank discounts, made for short periods only, holding the
debtor to the strictest rules of payment, only professing and only
enabled to help customers over the transient hard places in their
business, and _not_ to furnish the funds on which the business is
mainly conducted. Loans drawn from the banks on interest should never
be put into the form of fixed capital, and should only be a _part_ of
the quick or circulating capital, since only the passing necessities
of a business having an independent basis and movement of its own, can
safely be met by bank discounts. The cash credits of Scotland are
quite different both in what they are and in what they imply from the
short and sharp discounts of the banks of our own country.

So far as the capital stock of banks is made up, as it usually is, of
a large number of comparatively small subscriptions, there is the
great advantage just spoken of, of calling a multitude of otherwise
idle sums into activity in production; and so far as no undue
privileges, unjust to other corporations and individuals, are accorded
to banks by law, there is no branch of industry more legitimate and
beneficial than banking. It is no essential part of the functions of a
bank, that it manufacture and issue paper money; that feature is
always rather a source of weakness than a ground of strength; the
money the bank circulates should always be the national money; and if
that too, unfortunately, should be credit-money, the element of credit
in the _money_ should be sharply discriminated in the public mind from
that other and quite different element of credit by which the bank
_loans_ it to its customers.

(2) There is another class of advantages in Credit, which do not
depend so much on the transfer of Capital from less to more productive
hands, as on the facilities which credit affords in economizing the
general operations of Exchange. Here the advantages are derived from
the convenience of _settling accounts_ arising out of exchanges,
rather than from the _character_ of the exchanges themselves. Look a
moment, for example, at foreign Bills of Exchange. They serve to
settle up the accounts arising from the Commerce of two or six
Continents, with but little transmission of money from any, and with
but very little loss of time. Commercial bills drawn in New York on
London have been usually payable at sixty days' sight; the New York
merchant despatching a ship is able to realize at once the value of
her cargo, minus interest for the time his bill has to run; since
bankers' bills have so largely taken the place of "commercial" bills,
the time is much shortened thereby, and this is one reason why
bankers' bills bear a higher price in the market; the merchant or
sender is indeed still liable in part to see that his bill is
ultimately paid by the drawee; but the commercial integrity of the
leading houses and leading banks in all countries is with justice so
firmly believed in and acted on, that on the whole but little anxiety
springs from this source. It is one of the noble things in
international commerce, that men trust each other across the oceans,
and lay millions of value on the faith of a single firm.

Inland bills of exchange equally facilitate settlements within the
country itself; and cheques, which are of the same essential nature as
inland bills, contribute to the same end even more simply and surely,
passing readily in payments wherever the parties are known, and
through credit and set-off doing the work of money more conveniently
and economically than, and within certain limits just as safely as,
money itself could do it. The face of a cheque drawn to the amount of
his deposit in favor of another depositor in the same bank is
transferred in the banker's books from the credit of the drawer to
that of the payee by the stroke of a pen, no money at all passes in
the premises, while the banker is released from one debt by creating
another of equal amount, the drawer is released from one debt by
another to be transferred to the payee, and the payee is paid by the
drawer by the former's receipt of another debt more acceptable to him.

(3) Besides the two essential functions of all banks, namely, the
receiving of deposits and the discounting of bills, most of them
perform a variety of other legitimate operations in Credit, which must
be classed among the advantages of Credit. They buy and sell debts of
all sorts. They make collection of debts for their customers. They
sell their own drafts on distant places. Since 1863, our national
banks have done an immense business in handling the debt of the United
States: they were instrumental in diffusing the national bonds among
all classes of the people: they collect for their customers the
coupons at maturity: they have been and still are the factors of the
government in exchanging, for those who desire it, one species of bond
for another; and the entire debt of the United States has been several
times changed, mainly through the agency of the banks, from bonds at
high rates of interest and for short times of maturity to bonds at
lower rates and for longer times.

(4) The fourth, and probably the chief, advantage of Credit is the
fact, that a new purchasing-power is created by means of it, a new
Valuable, something additional to all existing before in the world of
Values. One can buy other things with Credit, as well as with material
Commodities and personal Services. Credit, therefore, becomes a
Salable under the two peculiar limitations already explained, those of
future Time and personal Confidence, just as Commodities become a
Salable under the peculiar limitations belonging to _them_; and, what
is more to the present purpose, just as some Commodities (all of them
salable) become Capital under the action of the abstinence of their
owners, so some Credits (all of them salable) become Capital under the
action of the Abstinence of their owners. Some commodities and some
credits are expended, that is, sold, for the immediate gratification
of their owners, without ever a thought of a future increase to
accrue; but also, some commodities and credits are reserved by their
owners for use in further production, that is, for future buying and
selling; and the motive in all such cases is the same that creates all
Capital everywhere, namely, the increase to accrue as the result of
such abstinence; and, consequently, we lay down the postulate with all
confidence, and enumerate it as one of the main advantages of Credit,
that some Credits are CAPITAL, with all the powers in production of
that potent agent already exemplified.

It is only fair to apprise the reader right here, that almost all
Economists deny that any new capital is created through Credit. These
deny _in toto_ that the relation of debtor and creditor involves
anything more than the exchange between the two parties of certain
_titles to tangible goods_. Let the reader now hear, and then judge
for himself. Bonamy Price of Oxford University, a professed Economist
and a teacher of acknowledged ability, writes as follows:[8]
"_Omitting the capital which a joint stock company puts into a bank,
the banker possesses no capital, except his premises and any coin that
may be in them, however much commercial and monetary literature may
ascribe capital to banks. Lines and names in ledgers, cheques at the
Clearing-house, debts due to depositors, debts due upon bills by
borrowers, are neither wealth nor capital. They are words and nothing
more. Incorporeal property, under which these kinds of written words
are summed up, is not wealth; it is merely a collection of
title-deeds, but from which the reality is absent. The corpus is not
in those deeds, but the right to acquire that property, even before
possession is obtained, is itself a property. If a title-deed or a
mortgage is declared to be actual wealth by Political Economy, then
the sooner it is consigned to the waste-basket, the better._"

This passage shows how the word, "wealth," tangles men up
inextricably, who, by discarding it utterly, might have become clear
thinkers and useful expositors. It also shows, that Professor Price
never analyzed Valuables into their three kinds, never thoroughly
mastered in a preliminary way the Idea that underlies Economics, never
precisely understood what Money is, and certainly never found out the
radical nature of Credit. Nevertheless, the passage just quoted really
concedes the whole matter in the present dispute,--"the right to
acquire that property, even before possession is obtained, is itself a
property,"--that is all that we claim, namely, that rights are
property, and that new rights (which are property) are created by
Credit, and that some of these new property-rights thus created may
become and do become a new Capital. These new rights, however, this
new and acknowledged "property," are not "_titles_" to any specific
valuables whatever, as Price supposed; "_a title-deed or a mortgage_"
is a totally different thing from a Credit, since the one always
describes and gives a qualified title to _some specific and tangible
thing_, while a credit-right is always a claim against _a person_; the
Roman law drew this distinction perfectly, a credit-right was a _jus
in personam_, while a title-right was a _jus in re_; the common Latin
language as spoken and written marked the difference by separate
words, a credit-right or true debt was a _Mutuum_, while a title-right
or thing loaned was a _Commodatum_; and the Law of our present
national banks explicitly recognizes this universal and fundamental
distinction, by requiring the banks to loan money _on personal
security only_, that is to say, no tangible things whatever, not even
real estate, are allowed to be taken as _original_ security for any
loan. Banks deal only in true debts,--_mutua_,--and when they keep
custody of concrete valuables--_commodata_--for their customers, it is
as trustees or bailees and not at all as debtors.

Our late Oxford friend was far too well informed in general to
contend, that a cheque, for example, is "the right to acquire
possession" of any _specific_ property anywhere; the drawer has indeed
deposited money with the banker on whom the cheque is drawn, but that
money became the banker's money the moment it was deposited and no
longer his own; the cheque, accordingly, is a general claim on the
banker, and not at all on any special fund in the banker's hands; it
follows, therefore, that the excess of the banker's average deposits
over his average reserves to secure them, is a new creation of Credit,
a new resource of Production, a new Purchasing-power now available to
the banker not previously and practically available to anybody, a new
Valuable which he proposes to use and does use for the sake of profits
accruing, consequently a new Capital.

Now let us listen to the objections to this view by a practical
banker, J. H. Walker, of Worcester, Mass., in a little book of his on
Banking published in 1882: "_A man always borrows something of
intrinsic value. What he borrows is not a piece of paper, whatever may
be on it, but a farm, a house, a factory, or a part of them; a store,
a mine, or goods. No man can borrow or lend anything else. The
borrower gets from the lender what puts him in possession of the
things he seeks, and it must be some one of these things. So of all
money (except coin). It has no value in itself. It adds nothing to the
capital of the world. It purports to be and is only a title to
property, a convenient device for transferring the ownership of

This author is led astray by the worse than useless adjective
"intrinsic," having never yet learned that there is only one kind of
value in the world of Economics, namely, purchasing-power; he sees men
as trees walking through the haze cast over paper-money by John Law in
the last century, as if paper-money must be "_based_" on something
tangible and specific; he makes a narrow and false assumption that the
only objects ever bought or borrowed are corporeal "things," denying
that the debts in which alone he deals as a banker are _realities_ as
much as any "thing" can be; and it all comes in his case, as in the
case of hundreds of others, from a totally inadequate analysis of
Valuables into their three separate and virtually independent kinds,
namely, Commodities and Services and Promises. Mr. Walker, although he
writes a book on purpose to do this, can not explain at all under his
view the Deposits and Discounts of his own bank, and would be as dumb
as an oyster when confronted with the "Cash Credits" of Scotland.

(5) The fifth advantage of the use of Credit, and the last one to be
mentioned in this connection, is, that it dispenses with the use and
wear of large amounts of expensive Money. It is perfectly certain that
Credit answers many of the purposes of Money. Suppose A has bought of
B $100 worth of goods, and B has bought of A $125 worth of goods.
Three ways are open to close up these transactions. A may pay B and B
may pay A _in money_. This would take $225. A may pay B in money, and
B may send that back with $25 more. This would take $125. Or A and B
may mutually balance their credit-books, and B pay the difference in
account. This would take but $25. It is clear then, that, as one or
other of these general methods prevails in practice, the quantity of
expensive money required to do the business of a country is very
different. Just so in international trade. Foreign bills of exchange
lessen enormously the quantity of metallic money that would otherwise
have to be transported.

It is not strange that some thinkers and writers, seeing these
unquestionable benefits of Credit even within the peculiar sphere of
Money itself, have come, like Herbert Spencer and many more, to think
and teach that Credit might answer _all_ the purposes of money. Credit
_does_ take the place of money in part. Can it take the place of money
entirely? Let us see. We have defined Credit as _a right to demand
something of somebody_, and Debt as _an obligation to render something
to somebody_; the denominations of Money are certainly needful in
order _to measure_ this right or obligation; and how can the
denominations of money be established or maintained at all separate
from the use of _some_ money itself as a circulating medium? Moreover,
great as is the undoubted power of Credit, vast as are these five
advantages from its current use, still, each particular piece or form
of Credit waits for something beyond itself; it waits for its own
_extinction_ in future time; which can only come about in one of three
ways, (a) by _set-off_ against another debt with or without a balance,
(b) by _renewal_ which creates a new debt and extinguishes the old,
(c) by its _payment_ in money; and now how can these extinctions come
about without the current use of some money, at least to settle the
balances at the clearing-house?

Furthermore, there have always been heretofore in all commercial
countries longer or shorter periods, called "crises" or "panics,"
during which there was a popular reluctance to accept in exchange the
ordinary instruments of Credit. Money, and much of it, was then found
to be indispensable. Indeed the very advantages of Credit itself,
which have now been explained at length, are dependent on this, that
there be alongside of it to sustain and limit it, _a current and legal
measure of Services in metallic form_, in whose denominations Values
may be reckoned, in whose coins the balances of Credit may be struck,
and whose presence secured everywhere by natural laws alone may enable
_fulfilment_ to join hand in hand with _promise_. If ever Credit
should try to usurp the whole domain of Money, a tolerable standard of
Value or measure of Services would be no longer possible, Credit
itself would lose its foothold, and the vast balloon of Promise,
sailing for awhile through the blue, the joy of projectors and the
wonder of credulous spectators, would of a sudden descend to the earth
collapsed and ruined.

4. There are too some disadvantages inhering in Credit. This admitted
fact makes no valid argument against the use and extension of it;
because there are disadvantages connected with all human devices
whatever,--with all means contrived to reach earthly ends--and even a
child may discover many of these; some objections lie against
everything, and against everybody, and the practical question always
is, Which preponderates, the good or the evil? In respect to Credit
there can be no doubt, that the good outweighs the evil many fold;
still, in accordance with the purpose in this book of both writer and
readers to look on both sides of each significant point in Economics,
we will now give attention to the chief disadvantages inhering in the
nature of Credit.

(1) In the first place, when credit is much given by dealers to
ordinary retail buyers, the reverse results take place from those but
just now characterized as happening under bank credits, namely,
capital passes out from the hands of productive operators into hands
less able and less willing to use it in further production. Indeed, in
most such cases it ceases to be capital, and is expended in immediate
gratification. It is much easier for the average man of fair character
within the present customs of Society to "get trusted" than to pay "as
he goes." Such a man is even called "easy-going." He almost always
over-estimates his resources for the future, and under-estimates his
obligations at the present. It is always a disadvantage in the long
outlook for both parties when such men easily and largely "get
trusted." Let us take a sample case: when an industrious artisan or
efficient merchant has given credit for six months or a year to
dilatory customers, it is so much withdrawn for so long a time from
his active capital; and in order to make up his consequent loss of
profit to the average and expected rate, there must be an addition to
the prices of his wares sold to other parties; and, besides, some bad
debts belong to such a system, and there must be additional prices
somewhere to compensate for this; and thus the customers who pay
promptly bear a part of the burden of the delinquents, who at least do
not wholly escape, inasmuch as they ultimately (if they pay at all)
pay a price enhanced by their own delay. Thus, if the current and
expected profit on his capital be 12%, and the artisan or merchant
sells and gets returns four times a year on the average, something
less than 3% profit may be charged to each article on the average;
while if he only gets returns at the end of the year, at best 12% must
be put on everything at the average, and in reality considerably more,
because of the bad debts that stick like a burr to that way of doing
business. Hence the excellent maxim, "Quick sales and small profits."

(2) There is a greater inherent _uncertainty_ in values connected with
credits than in those connected with commodities, or than with those
connected with personal services. We have already seen repeatedly that
Value has its sphere of operations in the Past, in the Present, and in
the Future. There is some uncertainty connected with what _has been
done_ in reference to value, since the market may prove to have been
miscalculated, and the commodities to have become unsuitable; there is
perhaps more uncertainty connected with what _is now being done_ in
reference to value, because the services bargained and being paid for
may prove to be less steady and skilful than was supposed; but in the
very nature of the case there is still greater uncertainty connected
with what _is to be done_ in relation to its value, because in the
first two cases some at least of the conditions are already fixed,
while in the last one all of them are at least open to hazard. There
is sufficient certainty in all three of the grand divisions of Time to
justify, and probably to reward, operations in each in reference to
value under the peculiar limitations and conditions of each, but
credits are naturally more sensitive in the law of their value than
either commodities or services.

(3) Largely in consequence of what has just been expressed under the
last head, credit-exchanges are more likely than commodities-exchanges
or than services-exchanges to become unduly multiplied and
consequently to fail of ultimate realization. The majority of men are
sanguine in relation to the future. Unless they are in actual contact
with their limitations, they are apt to belittle the rigidity and
inevitableness of such limitations. As the outcome of this, promises
are apt to overpass the powers of fulfilment. No more bales of cotton
of any one year's crop can be actually delivered to buyers, than have
been actually grown and marketed; the services of no more men in any
capacity can be contracted for and rendered, than there are men able
and willing to work; here are impassable limits; but the field of the
future is buoyant with possibilities; and hence credits, whose sphere
is the future, though legitimate and potent under the proper
conditions, lie in a field whose limits are invisible, and within
which _Hope_ is ever a tempter to overdoing.

Is speculation proper? Certainly; if by the word "speculation" is
meant the buying of anything with an expectation based on rational
probabilities of being able to sell it again under different
conditions at a higher price. Speculation in this sense is both proper
and beneficial to the immediate parties to it, and to the general
public as well, because the values of things thus bought and sold
neither fall so low nor rise so high as they otherwise would do, which
is a public gain. Speculators as a rule buy on a falling market,
_which tends to lift it_, and sell on a rising market, _which tends to
lower it_. It is better for all concerned, that the necessaries and
conveniencies of life should bear as steady a market as is possible in
the nature of things, summer and winter, year in and year out; and the
ports of every nation should be open with the slightest possible
hindrance in the way of tax to the corresponding necessaries and
conveniencies from abroad, whenever combinations and "corners" attempt
to lift their prices beyond the level determined by a natural and free
Supply in contact with the current Demand.

Credits occupy the field of Probabilities; that is to say,
probabilities seeming to be such to men of sharp insight and
cultivated forecast. When such men _on such grounds_ buy and sell
"futures" in cotton or corn; when they buy and sell stocks either
"short" or "long"; when they seem to themselves to perceive a sound
reason for lurching over from the "bulls" to the "bears," or _vice
versa_; and when they really think that what they are wont to deal in
has touched bottom in price, and they buy now in view of a rise,
Economics has nothing to say in blame of any or all of these
operations, for they are the same in substance and motive as all other
buying and selling; but nevertheless, it has this to say, that all
these operations in credit-futures lie adjoining to and in dangerous
proximity with another field, for operations within which it has
nothing _but_ blame to utter. Gambling occupies the field of Chance.
There is a great difference between chances and probabilities.
Political Economy has no trouble in drawing a fast and hard line
between them.

But practically the operators in credit-futures experience an immense
difficulty in keeping within this line of rational probabilities. The
coolest heads are apt to become heated, and to lose sight of
distinctions, in the close air of the Stock Exchange and the offices
circumjacent. Some operators openly confess they know nothing which
way the index of reason points, by buying "straddles," as they are
significantly called. A friend and old-time pupil, who has for years
been accustomed to these excitements in New York, said recently to the
writer,--"_The Stock Exchange is a great gambling hell, and that's all
there is of it!_" In buying and selling of all kinds, both sides gain:
in gambling of all kinds, what one side gains the other side loses:
therefore, under a sound money, healthful public opinion, and good
law, gambling never can become formidable. In every lottery scheme, no
matter how honestly managed, the sum of the _prices_ of the tickets is
greater than the sum of the _prizes_ offered, otherwise nothing would
be left for the profits of the managers; therefore, he would be a very
foolish man, who should buy all the tickets of a given lottery with
the certainty of drawing all the prizes; and _he_ is a still more
foolish man, who should take his _chance_ of drawing all the prizes by
buying two or ten tickets.

(4) Another and a principal Disadvantage of Credit is seen in its
usual action on _prices_ through increased Demand, and its consequent
tendency to bring about Commercial Crises. Any man's whole
purchasing-power is made up of three items: first, the property in his
possession; secondly, the values that are owed to him; and thirdly,
his credit. He can buy services of the three kinds with these three
valuables; and the sum of his power to buy is exactly measured by the
aggregate of these three valuables under his control. But while the
first two, his property and debts due, are limited and ascertainable,
the third (his credit) is indefinite and undeterminable beforehand.
Being based upon _confidence_, which is itself sensitive and variable,
a man's credit at one time may be vastly greater than at another,
compared with his other two means of purchase; and if he have the
reputation of doing a safe and regular business, and is favored by
circumstances, he will find himself able sometimes to buy on credit to
an extent out of all expected proportion to his other capital. When,
therefore, credit is offered and received for commodities, it has the
same influence upon their prices as when money is offered and received
for them. It follows, consequently, that there is likely to be a
general rise of prices whenever there is an extension of credit for
the purpose of purchasing; indeed, when money only is used to buy
with, there can not be a _general_ rise of prices, because while more
money may be spent on some things, and they rise in price, there would
be less money for other things, and _they_ would rather fall in price;
but when credit is used freely in addition, and increased purchases go
on in all departments at once, there is apt to be a rise of prices as
to all commodities and a universal spirit of speculation.

At such times, and while prices are still rising, men _seem_ to be
making great gains; everybody wishes to extend his operations by
means of all his money and all his credit; and forms of indebtedness
are multiplied on every hand. By and by it begins to be perceived in
certain quarters that the matter has been overdone; speculative
purchases cease; banks become particular whose paper they discount;
men find it difficult to sell their debts due in order to provide for
their debts owed; they fall back on the sale of their commodities, but
when holders are anxious to sell, prices always fall; a panic now sets
in, more irrational, if possible, than the previous overconfidence;
their inflated credits and commodities collapse in the hands of their
holders; sales at great sacrifices are inadequate to meet the mass of
maturing debts contracted when confidence was high; men fail, and must
fail; the banks cannot help them, or think they cannot; and so
wide-spread commercial disaster comes in.

Such commercial crises swept over the United States in 1837, 1857, and
1873; and will doubtless recur in the time to come. They always arise
from disordered credits, and though not necessarily connected with
credit-money, are much more likely to come in connection with that.
The more strong and conservative the Banks maintain their ordinary
condition, the more powerfully can they operate to prevent or abate a
panic. They ought always to be on the shore and never in the stream.
From the very nature of banks and of the motives that create and
operate them, they are apt to sell for a profit in ordinary times
about all of the credit they safely can; unless, then, they foresee a
stringency some time ahead, and curtail their loans, and otherwise
keep their position strong in reserves and deposits, they will be
powerless to help even their most deserving customers when the panic
sets in; even then by a special association with other banks in the
same city for reciprocal support during a crisis, as was happily
brought about in New York some years ago, something may be done for
their common constituency and good customers to help them out of
trouble by discounts continued to them; especially as it is not money
so much that is needed to allay a panic, nor even credit actually
given, as it is a general knowledge that abundant credit can and will
be given either by some pre-eminent bank, like the Bank of England in
London, or by an association of banks for that special purpose, like
the agreement just referred to as entered into temporarily by the
banks of New York city. As a panic becomes imminent anywhere, some
Bank or banks there ought to be in a position to extend their
discounts freely, at a high rate of interest indeed, so as to
discriminate between customers urgent for and deserving of discounts,
and another class whose need of accommodation is not so sore, and a
third class who are sure to fail if the Panic stalks forward.

A permission given of the Government to the Bank of England to
overpass under these circumstances the Discount-limits laid down by
the Bank Act of 1844, has on three several occasions acted like a
charm to still the ragings of a commercial storm. On each of these
occasions, 1847, 1857, and 1866, the Bank was forbidden by the Privy
Council to discount for less than 10%.

As the inclined plane of rising prices is slowly ascended before a
Crisis, so the fall of general prices afterwards seems to be rather
gradual also till the lowest point of them is reached, from which
another ascent is apt to commence. The following table taken from the
_New York Public_ of the first week of November, 1881, is instructive
on both these points. Taking the prices in 1860 of 43 articles of
prime necessity, which constituted then and afterwards about 3/4 of
the commerce of the country, as the normal standard or 100, the table
gives the comparative gold prices of the same for four years previous
to 1873 and for seven years subsequent, as follows:--

    1869      116
    1870      118
    1871      120
    1872      122
    1873      113
    1874      115
    1875      107
    1876      100
    1878       81
    1879       98
    1880      103
    1881      111

(5) A penultimate Disadvantage of Credit may be noted in the facility
which it offers for contracting great national Debts. There are
certain aspects, under which a Nation may be properly regarded as a
moral person, and as such person may pledge the public faith for the
present and the future, becoming a debtor to its own people or to
foreigners, and thus a public debt may be made a sort of mortgage on
the national property and income. Now, it cannot be fairly denied,
that incidental advantages may spring up in connection with such a
national debt: for example, the bonds, which are its evidences, may
open up to the people a convenient form of investment for presently
inactive capital, and for trust funds of all kinds; there can be
little doubt that certain classes of persons holding these national
obligations are won thereby to a stronger patriotism and become better
friends to stability in government, although this consideration
applies mainly to new governments and to those temporarily endangered;
both England and the United States now make a portion of their public
debt the basis of a national system of Banking, but it is perhaps
questionable whether this can be justly put among the incidental
benefits of the Debts; and again "a moderate debt adds to the credit
of a Nation, and its ability to raise money in an emergency, for
bankers and capitalists are more ready to take such securities as they
are in the habit of dealing in" (Sidney Homer).

On the other hand, the burdens of a National Debt are very apparent:
for example, the annual _interest_ charge to the Union at the close of
our late civil war was $150,000,000, which gradually declined by the
lowering of the interest-rate and by the paying off of principal to
$61,368,912 for the fiscal year ending June 30, 1881; between March,
1869, and August, 1873, the United States paid $378,015,065 on the
principal of its public debt; the collection of the Internal Revenue
alone of the national government cost for the fiscal year 1867,
$7,712,089; and in each of the two years, 1870 and 1881, a little over
$101,500,000 was paid out to reduce the principal of the Debt. All
those vast sums came out of the industry and income of individuals;
and taxation to any degree as all this implies is a mighty disturbance
to industry, and gives rise to an army of officials who eat out a
considerable percentage of all they collect. Moreover, the various
expedients of taxation, which are always practically unequal in their
operation, are apt to give rise to irritation and political agitation,
and even sometimes to threats of repudiation, especially when the
occasion has gone by under which the debt was contracted, and another
generation is called upon to pay off a debt it had no agency in

Here the vexed question arises, how far has one generation _the right_
to throw upon succeeding ones the burdens of a National Debt? The true
answer to this question is, _it has a very limited right indeed_. The
opposite doctrine implies tacitly when not openly, that the succeeding
generations will have no occasion for extraordinary expenses of their
own, and, therefore, may rightfully be made to contribute to the
extraordinary expenditures of this generation. But it is pure
assumption to take for granted, that the next generations will not
have, of some kind or other, as much occasion for an extraordinary
effort in the way of defence or of improvement as the present
generation has had. It is a common but harmful illusion to estimate
what has now to be done as of much more importance than what will have
to be done. Therefore, to throw the present burden forward on another
generation of men, who are likely to have to make their own special
exertion, just as great and just as imperatively called for, is a
procedure unwarranted by past experience. The view that has long
prevailed in practice, that a great War-debt, for example, might be
easily and justly cast upon posterity, has again and again given rise
to needless and expensive wars; _those_ have been called upon to pay
the piper, who perceived the utter inutility of the expenditure; and
thus bitterness has been added to burden.

Besides, the men to fight the battles, and the capital by which to
feed, clothe, and furnish them the munitions of war, _must come from
that generation_; and there is always great injustice in the
manipulations of a great debt ostensibly incurred to obtain this
capital, and the debt itself is usually in large part rather a
memorial of the war than of the means by which its expenses were
actually defrayed.

The generation of American citizens not yet wholly passed off the
stage was called on in the Providence of God to suppress a Civil War
of enormous proportions, and to eradicate a social institution that
was thoroughly bad; the expense of doing this was many fold enhanced
by timorous counsels in the field, by class legislation in Congress,
and by wretched financiering in the Cabinet; but the Debt, vast as it
was, and needlessly incurred as a large portion of it was, has already
in good part been paid off and must be entirely paid off by the
generation that incurred it. That this great task may be thus
completed, will require (1) an economical administration of the
national Government; (2) an avoidance of intervention in the affairs
of our Neighbors, and of entangling alliances with Foreigners; (3) a
free Commercial System, under which the taxes shall be adjusted only
towards the most productive revenue; and (4) a constant and onerous
home Taxation.

(6) The final Disadvantage of Credit is this, that it is apt to
confuse the minds of men as to its own nature, from its apparent
resemblance to something else, which is at bottom wholly unlike it.
The people of the United States have suffered greatly from this
confusion, and are likely to suffer from it still more in the time to
come, both in their property and progress at home and in their good
name abroad; and it becomes all good citizens, and especially all
those called upon to pronounce on the Law of the Land, to know
thoroughly the radical difference between a _Credit_ and a
_Quittance_, and so to escape the contagious confusion that has
entered and stirred up the popular, and even the judicial, mind of
this country. All through the present chapter has been insisted on and
illustrated the point, perhaps to the weariness of the reader, that
Credit is always essentially the _Promise_ of one person to another,
and that whatever is thus _Promised_ is necessarily and fundamentally
different from the Promise itself. To confound those two things as if
they were or could be made one and the same thing, is in thought
illogical and in practice execrable.

And yet it must be allowed, that there is somewhat in the nature of
Credit, that makes this confusion plausible, or else it never would
prevail; and also that there is something more still to make it
plausible in the nature of Money, which last point can only be cleared
up in the next following chapter under that title.

Mr. E. G. Spaulding of Buffalo, in his copious and excellent History
of the Legal Tender Act, "all of which he saw and part of which he
was," as the chairman of the subcommittee of the Ways and Means at
the time the Act was passed, demonstrates the extreme reluctance of
everybody concerned to give a forced circulation, that is, a
compulsory legal-tender quality, to the first batch of Treasury Notes
to the amount of $150,000,000 in February, 1862. We have already noted
in another place in this chapter, that two successive batches of
similar Notes, each to the same amount as the first, were issued
within less than a year. These Notes then and since called Greenbacks,
bore at the time four essential features: first, they were both in
terms and in reality _national Promises_ to pay to the bearer gold
dollars of the then and present standard of weight and fineness,
because there is no other possible meaning to the words "THE UNITED
their being a forced loan from the people to the amount of notes
authorized, they were given a _forced circulation_ as money by means
of the clause, "_and shall also be lawful money and a legal tender in
payment of all debts public and private within the United States
except duties on imports and interest on the national bonds_," which
clause still recognizes gold dollars as the only universal and
standard money; third, the notes were made _fundable_ in sums of fifty
dollars, "or some multiple of fifty dollars," in six-per-centum gold
bearing bonds of the United States, then called 5-20's, again in this
clause recognizing the radical difference between the legal-tender
paper promises as money and the gold dollars promised in them, in
which gold money the interest and principal of the bonded debt must
still be paid; and fourth, these notes were publicly known and
acknowledged by the Issuer and the receivers to be presently
_irredeemable_, since the Government did not have, and did not pretend
to have, any coin with which to redeem them, and everybody knew that
they were made a legal-tender _because_ they were irredeemable.

These prompt recognitions of the impassable gulf between a Promise and
what is Promised, were confirmed by all that happened afterwards. The
notes, notwithstanding they were legal tender and all bonds of the
United States could at first be bought with them at par, almost
immediately began to droop as compared with gold. The daily quotations
showed a pretty steady decline for two years. On Jan. 15, '64, gold in
greenbacks was 100:155; April 15, 100:178; June 15, 100:197; June 29,
100:250, that is, 40 cents to the dollar; and July 11, 100:285, or 35
cents to the dollar in gold, their lowest point. From this depth they
slowly rose with many fluctuations back and forth from many causes for
14 years. Jan. 1, 1879, they became redeemable in gold, and have so
continued till the present time.

When the Civil War was all over, and these startling vicissitudes of
the paper money were measurably forgotten; though no prominent man,
when they were passed, thought the Legal-Tender Acts constitutional;
the paper money began to be popular; the distinction between a promise
and its fulfilment began to fade out of the minds of the people; there
had always been bank bills circulating as money in the country; these
had been called "dollars" equally with the coin; and in December,
1869, a test case, Hepburn _versus_ Griswold, was decided by the
Supreme Court on the question, whether Congress had the constitutional
authority to make anything but gold and silver lawful money in
satisfaction of _contracts entered into before the first legal-tender
Act was passed_. The question, Can Congress make such notes a legal
tender for contracts made _after_ the passage of the Act? was not
involved in this case; but it was very clear from the Opinion of the
court delivered by Chief Justice Chase, that the majority of the
justices regarded the Act as being unconstitutional in its
application to contracts made _after_ as well as _before_ the Act was
passed. Upon the special question before the Court, the justices were
divided in opinion; five, including the Chief Justice, agreed that the
Act was invalid so far as it made the notes a legal tender on
_contracts executed prior to its enactment_; and the three other
judges were of the opinion that it was valid. Of course, the Decision
of the Court was rendered by a majority of two, that the Act was
unconstitutional. Chase, Nelson, Grier, Clifford, and Field
constituted the majority; Miller, Swayne, and Davis, the minority.

Salmon P. Chase was one of the greatest men of the great period of the
Civil War. He was Secretary of the Treasury at the time the greenbacks
were issued, and they were issued at his instance and advice, but he
was opposed to the clause that made the notes a legal tender. He never
expressed the opinion that the Legal-Tender Acts were constitutional,
nor did he expect that the notes, of which these authorized the issue,
would ever become a permanent national money. This is evident from the
fact that the notes were made _fundable_ at his instance, not so much
with the view of keeping up the value of the notes by giving them a
present market in bonds, as with the view that they would help the
sale of the bonds and would be absorbed by them as soon as the price
of the bonds was above par in greenbacks. Afterwards Mr. Chase thought
that this _fundability_ of the notes into bonds would so far take up
the notes as to stand in the way of the negotiation of further
necessary loans to the Government, and at his instance this provision
of the law was repealed. Consequently, there was nothing inconsistent
between his position as Secretary and his later position as Chief
Justice. He was undoubtedly right in both of these positions. The
making the greenbacks legal tender did not probably add one particle
to their purchasing-power, but rather the reverse, because that
feature implied a doubt on the part of Congress itself as to the
validity and currency of such national promises-to-pay. That he was
also right in his judicial opinion and decision, however subsequently
overruled in his own Court, may be safely left to the inevitable
future appeal to common sense and to the common principles of
constitutional interpretation.

This judgment in Hepburn _versus_ Griswold was favorably received by
the country at large, as being just in the line of the great decisions
of Chief Justice Marshall, and as being exactly in accordance with
Amendment X of the Constitution, namely, "THE POWERS NOT DELEGATED TO
The State of Massachusetts particularly, which has always maintained
and still maintains a strong doctrine of State Rights as over against,
though in harmony with, the Rights of the United States under the
Constitution, applauded this judgment as sound in law and politics,
and as righteous altogether. But the then administration of General
Grant, inexperienced alike in law and politics, and linked in
entangling alliances with the great corporations of the country,
received the Decision with marked dissatisfaction; and it was
especially offensive to the huge railroad companies, whose bonds had
been executed prior to Feb. 25, 1862, inasmuch as it made the
principal and interest of these bonds payable in coin, which they had
hoped to pay off in the depreciated greenbacks, made legal tender for
all debts.

The Administration lost no time in trying to bring about by fair means
or foul, a reversal of this unwelcome decision. E. R. Hoar of
Massachusetts, at that time attorney-general in Grant's Cabinet, was
the principal agent in accomplishing this end by means so
discreditable that he lost in consequence his popularity in
Massachusetts and all chance of further political preferment. The
means chosen and put into effect was the appointment by the President
of two new judges, Strong and Bradley, the first to take the place of
Grier, resigned, and the second appointed under a law increasing the
number of judges to nine, whose opinions on the point at issue were
known beforehand, and who were selected to serve on that very account.
"_It was no secret, indeed it was a matter of public notoriety, that
these justices were appointed in order that the decision of 1869
might be reversed. Their opinions in regard to the constitutionality
of the Legal-Tender Acts had been clearly and publicly expressed. It
was therefore pretty well known what the decision would be when the
question was again presented._" (Hugh McCulloch.)

The second Legal-Tender case, accordingly, that of Knox _versus_ Lee,
decided in December, 1870, reversed the judgment of a year before, _no
new points therefor being raised either by the new judges or by
counsel in the new trial_, the Chief Justice and his three former
associates still adhering to their original opinions. It was then five
judges to four, the special question being, Is it constitutional to
make promises-to-pay a legal tender on contracts executed before the
promises were issued? The judicial answer was in this case, Yes;
provided Congress regarded such action as a necessary means of
preserving the Government in time of War, or any other period of
extraordinary emergency. That is to say, _bona fide_ creditors were
constitutionally bound to receive depreciated notes as legal tender in
satisfaction of contracts entered into when no notes were in
existence; to receive on contracts specifically calling for
"_dollars_" the depreciated notes of the Government merely promising
to pay "_dollars_," but on which the "_dollars_" could not be
obtained! What is that, but the monstrous incongruity that _a promise_
is the same thing legally as its _fulfilment_? What is that but
judicial blindness as to the _nature_ of Credit? What is it but the
old confusion between _names_ and _things_? What is it, finally, but
the dazed and hazy vision, pardonable perhaps in the popular mind but
half-opened to radical distinctions, but unpardonable in learned men
professing to lay down the law in a civilized country?

It is scarcely needful to add, that the Supreme Court of the United
States suffered in the judgment of good citizens by that transaction;
that the best legal and financial opinion of the country yielded
little respect to a decision _thus secured_; and that intelligent
people do not believe that constitutional law _can_ sanction what
contravenes at once common sense and common morality.

Judge Field (and his memory the country will not willingly let die),
one of the majority in the first decision, and writing the opinion of
the dissenting minority in the second, used this strong but just
language, "_It follows, then, logically, from the doctrine advanced by
the majority of the Court as to the power of Congress over the subject
of legal tender, that Congress may borrow gold coin upon a pledge to
repay gold at the maturity of its obligations, and yet in direct
disregard of its pledge, in open violation of faith, may compel the
lender to take, in place of the gold stipulated, its own promises; and
that legislation of this character would not be in violation of the
Constitution, but in harmony with its letter and spirit. What is this
but declaring that repudiation by the Government of the United States
of its solemn obligations would be Constitutional?_"


[7] John Jay Knox's United States Notes.

[8] Practical Political Economy, 1877, p. 452.



The subject of Money presents few difficulties, or rather none of any
depth, to one who has thoroughly mastered the subject of Value. To all
others the difficulties are insuperable. Essay after essay and volume
after volume has been written in this country upon Money, by men who
would have become good economists and good monetaries, if they had
only begun their inquiries at the right place and followed them in the
right direction. As we saw in the last chapter that it is impossible
for anybody to understand the subject of Credit without first
comprehending the matter of Value, so we shall see in this chapter
that in the order of Nature Value precedes Money, and that the latter
can only be learned in the light of the former. The logical reason for
this in general is, that Money itself is always a Valuable, and comes
to its function as money only through a comparison of itself with
other Valuables.

The thin difficulties that confront the student of Money, who has
reached the topic along the proper highway cast up for economical
inquiries, arise apparently from two sources; and we will begin our
present discussion by first looking at these in their order.

In the first place, Money is the only Valuable that may belong to two
out of the three possible categories into which Valuables may be
scientifically thrown. All Valuables are either Commodities, or
Services, or Credits. These categories never change places. Once a
Commodity always a commodity, so long as value can be predicate of it;
a personal Service can never take on any other valuable form; and a
Credit is ever a credit, and nothing else, until it is annihilated by
Fulfilment. Now Money is the only Valuable that ever appears in two of
these forms. The same Dollar indeed cannot be both a Commodity and a
Credit; but some Dollars are a Commodity cut out from gold and silver,
and some other Dollars (so-called) are a Credit issued by Government
or parties responsible to government; while Money as a general term
properly enough covers both kinds of Dollars, the Commodity-Dollar and
the Credit-Dollar. In other words, Money is of two kinds, and only two
kinds, either a Piece of valuable metal stamped as to weight and
fineness by the image and inscription of Cæsar,--a Commodity; or a
Promise to pay to somebody some of these pieces,--a Credit. This
unique peculiarity of Money, by which, always a Valuable, it may
appear and does appear in two out of three possible predicaments of
Valuables, makes a little difficulty at the outset of its discussion,
and requires continued care in formulating its scientific

In the second place, a more considerable difficulty, and yet a slight
one still, is found in the fact that the choices and the legislations
of men have more to do in shaping the propositions of Money than in
most other economical propositions. It is true, that Nature and men
coöperate in the determination of every case of Value whatsoever;
while there is a difference in the cases, though perhaps not a
distinction, in respect to the fixedness and universality of the
natural laws involved, in contrariety to the purely human impulses
concerned. The Providential elements in Economics, both the social and
the physical, are of course relatively fixed and unchangeable,
otherwise Science could not grapple with and classify them; and so
also are those principles of Human Nature related to exchanges, which
may be said to be _universal_ in their character,--such as, for
example, the preference to receive a larger rather than a less
return-service, and to render a smaller rather than a larger effort;
and at the same time there are other principles of human nature
related to exchanges much more _variable_ in their character than
these, such, for instance, as the nation's choice of the kind of Money
it will use, or the kind of Taxation it will impose. It certainly
follows from this, that some Economical laws must be more _general_
than others, owing to a less variation in the human impulses concerned
in them: it follows, for example, that the law of landed rents, or the
law of the approach of the price of raw materials to that of the
finished products, is more universal in its terms of generalization
than most of the propositions of Money and Taxation can be.

It seems like a paradox, that those parts of Economics in which the
human elements of variable choice may predominate over the relatively
fixed laws of nature and of mind, should be just the parts hardest for
men to catch clearly and hold firmly; because, we naturally think,
that difficulty and mystery are rather to be found in those
departments in which an Infinite Mind has been at work upon an
infinite plan, and that there is no such profundity in the works of
men; but after all, even those natural laws like Gravitation, which
are clear and universal as laws, if they be such as the devices of men
have to do with, such as may be modified and in a certain sense
controlled by human actions, become from that very circumstance liable
to some difficulty and perhaps to some mystery. Now all the truths of
Money, and as we shall see in the final chapter all the truths of
Taxation also, belong to this class of less general generalizations;
still, it is scarcely less than foolish to say, that Money is such an
elusive and ideal agent that nobody can understand it. That is the
language of indolence and lack of penetration. Money is wholly a
matter of man's device, though it comes into constant contact with
something greater and more fixed than itself; it was invented, just as
any other instrument is invented, to accomplish a certain economical
purpose; and it would be strange indeed if men by taking pains could
not perfectly comprehend what men themselves have wholly devised. We
hope, accordingly, in the following paragraphs to clear up completely
to all intelligent readers the whole doctrine of Money. The key to
unlock all the superficial difficulties (and there are no others) is
this: Money is always a Valuable before it becomes money, and
continues a valuable independently of the fact that it _is_ money;
and, it is always one or other of two kinds, either itself a Commodity
or a Promise to pay a commodity. In this chapter, we will not begin
with definitions and justify them afterwards, but will come up to them
step by step, and, as it were, justify them beforehand.

1. Economical Exchanges may begin, be profitable to both parties, and
go forward to a certain extent, without the use of any money at all.
As a matter of fact and probably for a long time, while the
Civilizations were gathering their inchoate forces for a further
progress, men exchanged one Service directly for another without the
intervention of any medium. This form of trade is called Barter. King
Hiram of Tyre furnished to King Solomon of Judea a certain quantity of
cedars from Mt. Lebanon for the building of the new Temple at
Jerusalem, and Solomon in return furnished to the Tyrians a certain
quantity of wheat and oil, Judea being a fertile agricultural country
with no forests, and Tyre a wooded country with no farms. This may
well serve us as an instance of Barter, although Money had been in
current use in those regions a thousand years before, as is seen in
the purchase by Abraham of the cave and field of Machpelah, for which
he weighed out "_four hundred shekels of silver, current money with
the merchants_."

It is obvious, however, that while Barter is a good deal better than
no exchanges at all, there are inherent and immense difficulties in
that form of trade.

(a) Under Barter trade is extremely limited in its _personnel_. Only
those parties can engage in it, each of whom is in position to render
to the other just such a Service as the other is in direct and
immediate need of, and each of whom also wants another Service in kind
and quantity exactly what the second man has to render. It is not
enough under these conditions, that a man should have some Service to
sell, but he must also find some other man, who not only wants that
specific service but who also has some service to render in return
just such as the first man wants. If A has wheat which he wishes to
exchange for a coat, he must first find a party desiring wheat and
also having a coat to sell, and moreover who wants just as much wheat
as will pay for a coat, no more and no less; if he wants more, he may
have nothing to render for the excess which A is willing to accept; if
less, A may have nothing besides wheat with which to help pay for the
coat. Even in the simpler states of Society the inconveniences of thus
hunting up a specific market for each specific service are very great,
and in more advanced states of civilization would become intolerable,
if it were possible (as it is not) for Society to become advanced
under such conditions.

(b) Barter presents insuperable obstacles to trade in point of
_place_. While men still exchanged in kind, as it is called, and knew
no other mode, the purchasing-power of any Service was necessarily
confined to that locality, and would not be parted with except in view
of a return service actually there present in the same place. There
could be no commercial contact without a local contact. The ultimate
parties to every exchange must come together face to face. There could
be no middle-men or distributors. The market was circumscribed to the

(c) Buying and selling under the scheme of Barter is also wretchedly
limited in point of _time_. The fruit-dealer, for example, must
dispose of his product quickly, or it perishes on his hands. So of
many other commodities. If they are to be sold at all, they must be
sold quick. The ultimate buyer must be on hand in time. As the result
of these three concomitants of Barter, ten thousand things that are
now bought and sold to profit never came to a market or thought of a
market, exchanges were so limited in time and place and variety, human
associations were so hampered, and the development of all peculiar
talents so impeded, that one of the initial steps in the progress of
all Civilization has been to hit upon some expedient to lessen these
intrinsic difficulties, and so to facilitate Exchanges.

2. The Invention of Money was nothing in the world but the tentative
selection by certain people in a certain locality of some Commodity
then and there _valuable_, that is, capable of buying _some_ things
then and there, and gradually giving to that commodity by general
consent the capacity of buying _all_ things then and there salable.
The commodity thus slowly becoming money, whatever it was, had and
must have had a _limited_ purchasing-power to start with, because no
instance to the contrary has ever been shown, and still more because
that peculiar comparison between _two_ things that lies at the bottom
in each single case of Value is exactly the same kind of comparison
that holds between money and the _many_ things which money purchases;
given a _valuable_ in common use as a starting-point, and the
transition is easy and natural to a _generalized_ valuable, that is,
to a recognized money; the relation of mutual purchase between the
commodity and _some_ other things was a common fact to begin with, the
making it money was merely the common consent that thereafter it
should have a general purchasing-power within the circuit; so that as
a simple result, whenever anybody had anything to exchange, he might
first exchange it for this selected product, which was valuable before
but is now generally valuable, and then with this money-product in
hand he could buy whatever he might want at any time or place within
the circuit.

It is impossible from the very nature of Value, impossible from that
comparison of two distinct Services, that precedes every Exchange, as
well under Money as under Barter, that anything except a valuable
anterior to and independent of its becoming money, could ever have
become money at all. Money makes no alteration in any law of Value,
but only substitutes for convenience' sake in every transaction in
which it plays a part, a general for a specific purchasing-power; a
book, for example, has a specific purchasing-power, since there is
somebody who wants it, and is willing to give a sum of money for it;
and the owner of the book by the sale of it parts with a product which
has only the power to purchase something from a few persons, and
receives a product in return which has the power to purchase something
from all persons; it is not true to say that the money is worth more
than the book, because they are just worth each other, as is
demonstrated by the sale; but it _is_ true to say that the seller of
the book has substituted in the place of a limited purchasing-power,
of which he was proprietor, a general purchasing-power, of which he
has now become proprietor; that is, that the command of the money,
which has no larger value than the book had, does carry along with it
a superior command over purchasable articles generally. In one word,
Value in the form of money is in a more available shape for general
buying and selling than value in any other form. This is the exact and
ultimate expression for all the truth there is in the common vague
remark, namely, that Money is something different from all other
Valuables; it _is_ different from them in just one respect, namely,
while they have the power of buying some things from some persons, it
has the power derived from the _consensus_ of Society to buy all sorts
of things from all sorts of persons.

This simple change or substitution, which seems in itself so little
and easy and natural, has changed in its ever-enlarging results the
face of the world! It makes the valuable now selected to be money seem
to the minds of men to be a very different thing from what it was
before, although the change in itself is slight indeed. It removes
most of the inconveniences of Barter as by a stroke of the hand. So
soon as a commodity selected to become money by one people comes to be
acceptable as such to all other peoples, as is the case with gold, the
advantages of its use are vastly multiplied to all. Experience has
shown many times over, and reflection will explain to any one, how
that there is no other machine that has economized labor like money;
no other instrument that plays so deep and broad a part in Production;
no invention whatever, unless it be the invention of letters, which
has contributed more to the civilization of mankind. Money makes vast
distances relatively indifferent; for it is sufficient to constitute a
market for any valuable that it is practically wanted anywhere on the
round globe, the middle-man paying the seller for it in money
transports it thither, and receives back his investment with a profit
from the ultimate buyer. So, also, money generalizes any
purchasing-power in point of time. The dealer, exchanging his
perishable products for money, may keep its power of purchase locked
in this form as long as he lists, putting an interval at his own
pleasure between selling and buying, and with this generalized power
in his pocket he may buy when he will and what he will and where he
will. Money, too, makes any purchasing-power portable, divisible, and
loanable. A man may carry the value of his farm in his purse, and may
divide it up for a thousand different purchases, and especially is
able to loan it in this form in order to receive it back again with
interest at a future day.

3. It is important to notice in the next place, that, whatever made
the commodity selected as money originally desirable and valuable, it
has now become desirable and valuable for other and wider reasons. The
tobacco of Virginia, for example, in the early days of that Colony,
became valuable at first on account of the demand for it as a narcotic
both there and in England; but as soon as it was made a legal money in
the Colony by the general consent already described, its value
depended in part upon another set of causes. Of course Demand and
Supply still controlled its value just as before, only certain parties
who had not desired it before as a mere _commodity_ thereafter desired
it as a current _money_. Its convenience and necessity as money
widened the circle of those parties willing to receive it and glad to
render a return for it. It is true, that many now received it only
because they could pay it out again to buy something else with; but
that made no difference so far as Value is concerned; it was valuable
before under a certain limited demand, and continued valuable under an
additional and broader demand; we cannot certainly say, that it became
_more_ valuable under this new and wider demand, because we do not
know how the then combined demand affected the Supply. We may probably
say, that the value became _steadier_ if not _larger_, under the
double demand than under the previous single one; and the vital point
to mark and remember is, that the _value of money_, previously
valuable as a commodity only, is still maintained under the law of
Demand and Supply, just as all other values are, the only peculiarity
being this, namely, as a generalized valuable and consequently a
potent social agent money is in demand by everybody who has anything
else to sell.

It follows from this in necessary sequence, that Money as such,
whatever may have been the ground of its original value as a
commodity, _is always received as money in order to be parted with_.
It is not bought for its own sake to be used and enjoyed, as most
other things are, but is only bought to be sold again. Men will sell
everything to buy it, with the sole intent to sell it again to buy
something else; and the odd thing about it is, that everybody buys it
to sell again, not at all as the speculator buys grain to sell it
again at a higher price by the bushel or centner, but, the money
remaining constant in their minds, they sell for it something they
care less about in order to buy with it something they care more
about. Money, therefore, becomes a _medium_ in men's exchanges. The
word "medium" in this proposition is to be taken in its etymological
and strict sense, as something that comes between two extremes and
serves also to relate them to each other. This is not the ultimate
characteristic of Money, as we shall see, nor can a final definition
be founded here, but it is a good step towards ultimates to see that
money is exchanged for other things as a means and not as an end, that
it is a great help in exchanging all other valuables but is never
exchanged for itself in an ultimate transaction.

Small boys, indeed, sometimes swop cents; but men, the miser excepted,
who is under a deplorable fallacy of the senses, use and estimate
money mainly as the _medium_ that facilitates the real exchanges of
Society. What is actually and ultimately exchanged is the wheat, the
cloth, the lumber, the furniture, the commercial service of every
kind, and Money is but the instrument making those exchanges easy,
which might perhaps go on in part without it, though with difficulty
and loss. In short, money is somewhat like a railroad ticket.
Transportation to a given place is what is really bought when one pays
for a railroad ticket. The proof of the purchase is the bit of paper
exhibited. That comes in as a _medium_ between the traveller and the
railroad company; and while it facilitates the real exchange, it also
partly disguises it. This comparison holds good in the main feature,
but in two respects the resemblance fails: Money is not a specific
ticket for a single purpose, as the pasteboard is, but is a general
ticket (so far as it goes), for all purposes of purchase; and
secondly, Money really stands as a value in its own right (so far as
any single thing can so stand) at the same time it is serving as a
_medium_, while the railroad ticket does not. Still, we are all
desirous to get money, not for the sake of the money itself, but for
the sake of those things which the money will buy. We part with money
freely and constantly for those things which we care more about. What
we exactly care for is what our money will buy, is the conscious
command over all services and commodities which the possession of
money insures to us. If we could give our own commodity or service or
claim, whatever it may be, and receive directly in return the claim or
commodity or service which we want, whatever that might be, there
would be no need of money at all; but this is always inconvenient, and
generally impossible; and, therefore, we introduce a middle term, and
money is found to be a good mean to help exchange the two extremes.

4. We are now getting on towards a just conception and a true
definition of Money, though two or three more points must still be
noted as preparatory to that consummation. As a result of the fact
already reached, that money serves as a _medium_ in men's exchanges,
it follows of course that the power of money as such a medium is
multiplied by what has been called _rapidity of circulation_, that is,
a brisker use of the volume already in circulation will reach the same
end as the increase of its volume. As in mechanics, so in money, the
whole power is the product of mass and velocity. Money also is like
any other tool, the more constant its use the more profitable its
agency. The quick movement of a small mass, accordingly, is better
than the torpid movement of a large mass, both in what it saves of
expense, and in what it presupposes of the general conditions of
exchange. The value of the money-volume of any country is a small
fraction of the aggregate value of those products which the money
helps directly to exchange; and a very small fraction indeed of the
aggregate value of all the products which it helps indirectly to
exchange through Credit by means of its _denominations_. We shall see
better a little farther on, that Money works not only as a medium
direct, itself exchanged against other Services, but also as
furnishing those denominations of Value, like the _dollar_, which are
always used in bargaining; and also used in all cases of Credit, in
which settlement is not made by money but by offsetting one piece of
indebtedness against another, and these denominations can arise only
from the use of money as a direct medium. Therefore, we may say that
the hub and the spokes and the rim of the wheel of exchange consist of
personal services and commercial credits and all material commodities
except money, while, to borrow the famous comparison of Hume, "Money
is but the grease which makes the wheel turn easier." It would be a
vast mistake to suppose, as some of the ancients did, that the grease
is really the wheel.

While Money thus facilitates the revolution of the wheel of Exchange,
it follows too from its nature as a medium, that the dimensions of the
wheel as a whole are vastly greater than they would have been but for
the Money. Money indeed helped to exchange the products that already
existed and were coming into existence at its first invention, but by
far the largest part of products since have come into existence
largely through the agency of Money. We get quite too low a view of
the functions of this potent agent, if we think of it merely as an aid
in circulating products, that would have existed whether or no; some
products would certainly have existed whether or no, and money would
surely be of great use and convenience in helping bring these to the
ultimate consumers; but this is a partial and wholly inadequate view
of the function of Money as a medium of exchange. The fact that such a
medium is in universal circulation, and that the present holders of it
are ready to exchange it against any sort of Services adapted to
gratify their desires, exercises a kind of creative power, and brings
a thousand products to the market which would otherwise never have
come into existence. Since money will buy anything, men are on the
alert to bring forward something which will buy money; and since
Money is divisible into small pieces, an incredible number and variety
of small services are brought forward to be exchanged against these
pieces, for example, into railroad cars and fares of all sorts, which
services we have no reason to suppose would ever be brought forward at
all were it not for the strong attraction of the money.

5. From this last point of view we may gain another closely connected
with it, namely, that Money must be a very important part of the
_Capital_ of the world. We have already thoroughly learned that
Capital is any product outside of man himself from whose use springs a
pecuniary increase. Now any one may see that the monetary medium of
any country is the most active and the most essential and the most
profitable of all those instruments reserved in aid of further
production. The axe, the plough, the spindle, the loom, the wheel, the
engine, are all instruments, are all Capital, and they each aid
respectively some part or parts of the processes of Production; but
Money is a form of Capital which stimulates and facilitates all the
processes of Production without exception. Just as we have seen that
Money is a form of Value generalized, so is it also a form of
generalized Capital, that is to say, it is an instrument capable of
aiding all processes of Production in every department, while every
other capitalized instrument is capable of aiding but few processes in
one department. Without Money, for instance, there could be no
thorough Division of Labor, because there would be no adequate means
of estimating or rewarding each one's share in a complicated process.
By means of Money all services small or great contributing towards a
common product are neatly measured, and may be paid for by some one,
who thereby becomes proprietor of the whole product; or, if the
contributors choose, they may wait till the product itself is sold,
and then the money received is divisible without loss to each
contributor, according to the service rendered. Thus the influence of
Money as Capital pervades the whole field of Exchange from centre to
circumference, facilitating every transfer and stimulating new

Now then, if Money be, as it is, a peculiar kind of Capital, since it
is a Medium in all Exchanges, the question becomes pertinent, How much
of it is wanted? Clearly, only _so much_ as will serve the _purposes_
which such a medium is fitted to subserve; there should be enough
fairly to mediate between the Services actually ready to be exchanged
then and there, and also enough fairly to call out other Services
proper and profitable in the then circumstances of Society, and whose
only obstacle to a profitable exchange then and there _is a lack of a
facilitating medium_. All increase of the volume of money beyond this
point, which the very nature of Money itself marks out as the
boundary, leads to a diminution of Value of every part of it, to a
consequent disturbance of all existing monetary contracts, to a
universal rise of prices which are illusory and gainless, to
unsteadiness and derangement in all legitimate business, and to a
spirit of restless enterprise and speculation which seeks to draw off
the excess of money in untried and reckless experiments. The only real
subjects of Exchange are mutual efforts, mutual services, as these are
expressed in Commodities and Services and Credits, and money is the
instrument merely that comes in between the real exchanges to
facilitate them; and, therefore, it seems to be perfectly conclusive
on this point to remark that the quantity of money needed in any
country or the whole world is limited by the number of the services
ready to be exchanged, to make easy the exchange of which is the good
purpose and sole end of Money.

The physical and mental powers of man, which alone can give birth to
commercial services, when considered as they must be in this
connection as belonging to a given number of men at a given time and
place, are strictly limited of course; and although the presence of
money then and there is both a stimulus and an aid to all these men to
bring forward services of all sorts to the market, there are obvious
restrictions both in their powers and in their circumstances; and the
quantity of money needed among them is just that quantity which will
fairly act as a medium in exchanging the services which they are able
and willing to render to each other. All increase in the quantity of
money beyond that point would have, and could have, the only effect of
increasing the nominal Prices of Services, without making the services
themselves any greater in number or better in quality.

It is with Money exactly as it is with any other form of Capital,
allowance being made for the fact that Money is a kind of generalized
capital. To illustrate, How many ships does a commercial nation need
to employ? As many as will fairly take off its exports and bring in
its imports. Ships are wanted for one definite purpose; and when
enough are secured to answer that purpose, all additions will lessen
the Value, that is, the purchasing-power, of ships generally. So of
all instruments whatever. Enough is as good as a feast. Enough is
better than more. In regard to every form of Capital, and consequently
in regard to Money as such, the point of sufficiency is determined by
the quantity of work to be done. And as no law of Congress is required
to determine how many ships are best to do the transportation for the
people of the United States, so no legislation is needed to fix the
amount of Money that is best for the same people, or for any people.
As the people find out for themselves how many steam-engines they want
to do their work of the year, so they find out without any aid from
their legislators how much money they want to make their exchanges of
the year. The less Law and the more Liberty on all such points the
better for all concerned.

Let the reader notice in passing, as a corollary from what has just
been shown, that when forms of Credit like bank cheques come into
growing use to make payments with and settle balances, they displace
to a large extent commodity-moneys, like gold and silver, which would
otherwise have to be employed. Speculations, and even scientific
discussions, over the needful amounts of gold and silver for money in
the United States, have usually overlooked this essential
consideration of displacement; and one result of this has doubtless
been too large a coinage of the precious metals, to the hazard of
their stable value, and especially to the hazard of the permanent
maintenance of the gold standard. Men forget in their zeal for Money
that it is nothing but a Tool, and that the multiplication of tools
beyond the amount of work to be done by means of them always makes the
tools a drug; and they are apt to forget also that the cheaper and
more convenient substitutes for metallic moneys, namely, forms of
Credit, are all the time and more and more taking the place of the
older moneys, which, nevertheless, must still be kept at the
foundation, though a lessened quantity of them be needful for

6. We must now carefully sink our analysis one grade deeper, in order
to reach the bottom characteristic of Money, and so to formulate an
ultimate definition of it.

The only quality common to all valuable things is the fact that they
are all _salable_; and if these various and multitudinous valuables
are ever to be made in any way commensurable with each other, it must
be by means of one of their number assumed as a _standard of
comparison_ with the rest. Comparisons can only turn on points of
_likeness._ The single respect in which all valuables whatsoever
resemble each other is their common possession of purchasing-power, be
it more or less. Therefore, as a yardstick, itself possessed of
length, _and because it is possessed of length_, if assumed as a
standard of comparison with other objects that have length, may be
used to measure all such objects whatsoever, and may accurately
express in units or fractions of itself the simple length of anything
and everything; so, any valuable may be selected as a _standard_ with
which to compare all other valuables, and by means of the terms of
which to express numerically the reciprocal relations between all
valuables whatsoever. This is just what is done whenever any valuable
is selected as Money; and this is the exact and single purpose of such

What is the precise change, then, in the valuable chosen as Money when
it becomes money? This: it was a valuable before, else it could not by
any possibility serve the present purpose, but now it has become a
_standard_ valuable, with which other valuable things may be compared
in the single point of their _value_. Valuables are now commensurable.
That is all. But that is a great deal. As we have already learned to
the nail, Valuables are all Services; and now some one Service has
been selected from the rest, capable in its very nature of _measuring_
all the rest, and so capable of becoming immensely _useful_ to

What, accordingly, is the bottom characteristic of Money? And where
shall we find the terms for an immutable definition of it? _The core
of Money is this quality of being a Measure of Services, taken on in
addition to the usual and universal qualities constituting anything a
Valuable._ This additional quality arises under the choices and action
of men, just as the ordinary qualities constituting anything a
valuable arise under the choices and action of men. But it is an
_additional_ quality, distinctly conferred, and vastly important. The
valuable chosen as Money was a Service to start with, was constantly
rendered as such then and there, and was consequently fitted by
qualities already possessed to assume a further and a _unique_
quality, namely, the capacity to measure and express relatively to
itself all other valuable Services whatever.

As each and every Valuable is the outcome of a _comparison_ instituted
by two persons as between two things, as is thoroughly unfolded in the
first Chapter, it is not at all strange, rather it is natural and
inevitable, that there should arise in connection with Valuables as a
whole class some such further _comparative_ measure, as Money is now
shown to be; because, without some such common measure of Services in
general, itself a Service of the same kind, it would be inconvenient,
not to say impossible, to carry on any considerable traffic anywhere.
For instance: a baker has only loaves of bread, and wishes to buy a
hat, a horse, a house. How many loaves shall he give for each? Unless
there be some common Service, in the terms of which these differing
Valuables can be expressed, and by means of which they can be brought
into commercial relations with each other, it would be an awkward
piece of business to effect even the _three_ exchanges; and every time
the baker wished to buy another article, there must be a rude and slow
calculation from independent data, in order to decide upon the terms
of the exchange. Let now some Common Service be introduced, in the
terms of which each of these values can express itself independently,
and the difficulty disappears in an instant. "My loaves are worth ten
cents each," says the baker. "My hat is worth ten dollars," says the
hatter. Their saying so does not indeed _make_ it so; that matter is a
preliminary; but each has come to that approximate conclusion by a
relatively easy comparison of two Services, his own and another common
one; and if the loaves will duly bring ten cents and the hat ten
dollars, the terms of their own exchange are one hundred for one, and
there is no need of parleying. So of the rest; so of everything that
is ever bought and sold. Money becomes by common consent a Measure of
them; because it measures them, it makes the interchange of them a
very facile matter; because it measures them, it easily becomes a
medium between them; and, accordingly, because the money rendered is
itself a Service, it is a natural and universal measure of all other

definition of "Money" the writer is more than willing to take all the
risks. It was new when propounded many years ago in one of the
editions of his earlier book. All subsequent testings of it in form
and substance have but confirmed the original confidence in it. The
word "legal" in this definition is not always to be pressed to its
utmost signification, but denotes anything sanctioned by law or usage
_equivalent to law_. The other words are to be taken in their full and
technical meaning. It is believed that, while this definition is short
and simple, it just covers the whole ground and no more. It is not
enough that a certain valuable be "legal" as Money; it must also be
"current" in order to be a true money. In the United States between
1862 and 1879, to take an example, gold coins, though legal tender all
the time for all debts public and private, were not "current" in the
full sense of that term, and hence were _not_ the Money of the
country. Till the last-mentioned date, the gold dollar of 25-4/5
grains standard fine was required by law to pay customs-taxes with and
the interest on the public debt, and was used to a small extent in a
few branches of private business, and was not otherwise in the hands
of the people. These dollars, accordingly, were not strictly money,
but bore a premium over the "current" money of the country. To be
Money, then, a Valuable must be recognized as money by law or custom
as strong as law, and also circulate among all classes of the people
as a medium in their exchanges.

But we are bound to observe that Money becomes a _medium_ in men's
exchanges, because it first became a _measure_ in their Services. Some
economists think that these two functions are separate, and are of
equal rank; but it is easy to see that one only is original, and that
the other is derived from that. Even Aristotle perceived that Money is
a Measure, inasmuch as he defined property "_anything that can be
measured by money_." We may be pretty sure, in opposition to Professor
Jevons, in his Money and the Mechanism of Exchange at page 13, who
thinks there are _four_ characteristics of Money, that Money as such
has but _one_ primary characteristic difference from other forms of
Value, namely, this _measure_-quality, this _standard_-quality, this
publicly recognized function as a _common measure_ to which all other
valuables are constantly referred. This additional attribute put upon
a money-valuable by law or custom is not what _makes_ it valuable,
since an ounce of uncoined gold standard fine is worth within a very
small fraction as much as an ounce of gold coins, but it makes the
money a far more convenient instrument to purchase with, inasmuch as
money, having now the attribute of making all other valuables easily
commensurable with itself, becomes at once something which everybody
is ready to receive, because everybody knows in general what its power
will be to purchase all other things. In other words, Money becomes a
_medium_ in exchanges just because it has already become a _measure_
of Services in general; and there are not consequently two prime
functions of Money, still less four, but only one. This view seems to
simplify the whole subject of Money very much; and we may be sure that
it will be found to be scientifically correct, and that we shall find
many means of testing its accuracy as we go on.

To maintain, as we do, that "Money is a measure of Services," is much
better than to say, in connection with many economists, that "Money is
a Measure of Value." That phrase is objectionable because Value is
always relative to two Services exchanged for each other; and to say
that money is a measure of that _relation_ is neither so simple nor so
ultimate as to say that it is a measure of each of the Services
entering _into_ that relation. The Services may be conceived of and
spoken of separate from the Value into which they merge, although they
come into existence solely for the sake of that resultant Value, and
it is more exact and final to propound that Money, itself a Service,
is a measure of all other Services considered as constituent elements
of the Values into which they fall. We are not without strong hopes,
accordingly, that competent economists will concede, that here is a
radical improvement in the nomenclature of our Science.

In the place of our expression and definition, and the foregoing
explanation consequent upon its use, President Walker in his Money,
pages 280 _et seq._, prefers the mathematical and excellent phrase,
"_the common denominator in exchange_"; Professor Bonamy Price, in his
Practical Political Economy, page 363, shows his fondness for the
formula (and it is a good one), "_the tool of exchange_"; and Henry
Dunning Macleod, in his Elements of Banking, page 17, insists with
much less reason, that "_Money is the representative of Debt_." He
says: "The quantity of money in any country represents the amount of
Debt which there would be if there was no money; and consequently
when there is no debt there can be no money." The unfortunate use by
some countries of a paper money, which is indeed a form of debt, gives
some plausibility to the notion that Money is a representative of
Debt; and perhaps the fact that Money is often used to pay debts
previously contracted, and that debts are almost always contracted in
the terms of Money, may give some additional plausibility to this
view; but as Macleod himself goes on to say that "no substance
possesses so many advantages as a metal for money," and that "all
civilized nations therefore have agreed to adopt a metal as money, and
of metals, gold, silver, and copper have been chiefly used," we do not
see how he can logically hold that a gold dollar, or a gold sovereign,
whose value is as substantive and independent as that of any Valuable
in the world can be, becomes through coinage and circulation "a
representative of Debt." Instead of saying as he does, "where there is
no debt there can be no money," it may be confidently asserted on the
other hand, where all transactions are settled at once in solid money
there can be no debt.

7. Having thus looked into the nature of Money, and seen what is its
one essential characteristic, and its one obvious and universal
function as the result of that, it will help us now in our further
discussion, to examine some of the material commodities that have
served as Money at different times and places.

_Cattle_ appear to have been the earliest money of which there remains
any record. Homer, near the middle of the sixth book of the Iliad,
indicates in the following lines that oxen were an incipient money in
the Heroic age:--

    "Then did the son of Saturn take away
    The judging mind of Glaucus, when he gave
    His arms of gold away for arms of brass
    Worn by Tydides Diomed,--the worth
    Of fivescore oxen for the worth of nine."

We cannot certainly infer, when it is said in Genesis that "Abraham
departed out of Egypt very rich in _cattle_ and silver and gold," that
any of these were anything more than articles of valuable merchandise;
but on the other hand it is certain from the Latin name of Money,
_Pecunia_, which is derived from the root _pecus_, which means
"_cattle_," that Cattle were the Money of the early Romans; and Pliny
writes expressly that King Servius Tullius stamped the first bronze
money of Rome with the _image of cattle_, undoubtedly indicating by
that some equivalence in current value between the two. At any rate
cattle have been used as Money among pastoral peoples very widely in
place and in time, and are still so used in various parts of Africa.

In the region of the Euphrates and Tigris the precious metals became
money in very remote antiquity; for the art of coining, and all other
arts, came thence westward to the Greek cities of Asia Minor, and to
Greece itself, and we learn that Pheidon, King of Argos, coined silver
money on a scale derived from the East in 869 B.C.; and a better proof
still is the fact that burnt clay tablets are found in the Royal
Library at Nineveh, discovered by Layard, which are really
credit-money, notes issued by the Government, and made redeemable in
gold and silver money on presentation at the king's treasury. Tablets
of this character are extant bearing date as early as 625 B.C. But the
gold and silver money must have been circulating a long time in their
own right as valuables, before such a credit-money, such a
promise-money, as those tablets are, could have originated in
connection with them. Abraham, who himself migrated from "Ur of the
Chaldees" about 2000 years B.C., not long after reaching the
Mediterranean, "weighed unto Ephron the silver which he had named in
the audience of the sons of Heth, four hundred shekels of silver,
current money with the merchant." This is expressly said to be "money"
and "current money." Perhaps it was coined money. At any rate, it was
cut and piece money. It was indeed weighed out, and not counted out.
This is still the more accurate and speedy manner, when the facilities
for the weighing are present. The Bank of England at this day weighs,
and not counts, the coins received and paid out. The Romans first
coined silver money in 269 B.C., and gold money in 207 B.C., and gold
coins were stamped in Greece about the time of Alexander the Great,
say 333 B.C.

Other metals than those called precious were also early used as money.
Long before Pheidon's silver coinage in Greece, _copper skewers_ were
used as money in that country, of which six made up a _drachm_, which
was afterwards both a coin and a unit of weight, the coin being worth
about 17 cents of our money, and the weight being about 66 grains
avoirdupois. The word drachm is derived from ~dragma~, _a handful_;
and the sixth part of it, called an _obol_, from the Greek word
meaning a _spit_, became also both a coin and a weight, all which
makes it evident that these were used in connection with roasting
meat, and that one skewer or obol was originally a unit both of value
and of weight. In Adam Smith's day, in certain districts in Scotland,
_nails_ were still used as small money, which is a forcible reminder
of these old Greek skewers. Iron became money in Sparta; money of lead
was known to the ancients, and is still current in the Burman empire;
the earliest Roman coins were of copper, which were cast rather than
stamped, for no die would have sufficed for pieces so large and heavy,
and the _denarius_ was the unit divided into ten _asses_, the
_denarius_ being nearly the equivalent of the Greek _drachma_ whether
of copper or silver, because the Romans reckoned from the first the
ratio of copper to silver as 250:1; bronze is a mixture of copper and
tin, and brass of copper and zinc, and copper coins with both these
admixtures--used for the purpose of hardening the copper, it being a
general law of metals that a mixture of two is harder than
either--have been very common in ancient and modern times; Sicilian,
Roman, and old British coins of tin alone are known to have been
struck; and Herodotus makes the statement that the Lydians of Asia
Minor were the first to make a coinage of _electrum_, which, as some
claim, was a mixture of gold and silver, and of which ancient
specimens are still existing.

Cowry _shells_ are still used in the East Indies, and also in Africa
in the place of small coins, and have sometimes been imported into
England from India to be exported in trade to the coast of Africa,
being reckoned in Bengal at about 3200 to a silver rupee, which is
about 46 of our cents. The New England Indians also used beads or
shells of periwinkles (white) and of clams (black), of which 360 made
up a belt of _wampum_, as they called it, the black being counted
worth twice as much as the white; and the English colonists accepted
the wampum in their exchanges with the Indians, regarding a string of
white as equal to five shillings, and a string of black to ten
shillings, and afterwards made it legal tender among themselves for
small sums, and even counterfeited it. Cakes of _tea_ have passed as
money in India, and elsewhere; and it is said, that at the great
annual fair at Novgorod, in Russia, the price of tea has first to be
determined before the prices of other things can be settled upon,
since that is a kind of standard of Values in that great mart. _Salt_
has been current money in Abyssinia; _cod-fish_ in Ireland and
Newfoundland; and _beaver-skins_ in New Netherlands, New England, and
the western parts of America.

We do not here try at all to give a full list of the things that are
known to have been used in the early states of society as money; and
there would be no ground for surprise in any list, however large and
varied, when we remember how great is the need of some such form of
value generalized in order that exchanges may grow to any considerable
size and vigor. Two points only need now to be noted, (1) that the
tendency everywhere has been sooner or later to come to the metals as
the best form of money, and among the metals to reach gold and silver
as the only ultimately satisfactory materials for Money; and (2) that
no instance has ever been found in the whole stretch of inquiry over
all the earth, of anything becoming a Money that had not been
previously a Valuable. We might be perfectly sure of this beforehand,
without any search at all among the moneys of primitive times and
states of civilization, because, from the _very nature of the case_
nothing could ever serve the purpose of Money except what was already
a valuable to make the comparison with,--nothing could ever possibly
serve as a measure of services except a service. It has several times
been claimed, that actual exceptions to this law have been
historically discovered, but when the alleged exceptions have been
closely scrutinized they have been found to be apparent only. To take
two or three of the most plausible examples: the Carthaginians had a
kind of leather money, which originally enclosed bits of the precious
metals, and circulated in virtue of them, though they afterwards came
to circulate as bits of leather only, as counters and pledges, in a
way that will be explained later. According to the Venetian traveller,
Polo, China had in the thirteenth century a money made of the bark of
the mulberry tree, cut into round pieces and stamped with the name of
the sovereign, which money it was death to counterfeit or to refuse to
take in any part of the empire. If we had the whole history of this
money, it would surely ally itself either with the other
commodity-moneys now being treated, or with the modern credit-moneys
made legal tender to be treated hereafter. It is just as certain as
anything can be, that these circles of stamped bark did not start out
as money in their own right. The French writer, Montesquieu, asserted
that there was in use in the last century among the people of the
coast of Africa, what he called "an ideal money," "a sign of value
without money," the unit of which was called a _macoute_, which was
subdivided in ideal tenths, called _pieces_. This statement was
startling, as implying a denomination without the thing denominated,
as implying a standard of value which had no basis in a valuable
thing. It was afterwards discovered, however, that this money of
account had its origin, just as we should suppose it must have had, in
an actual _macoute_, a piece of stuff, a fabric, which they had used
first as a commodity-money, and afterwards its _name_ as a money of
account. A valuable thing may become money, and then its name may
become a _denomination_ of value, and still later a bit of leather or
a bit of paper may be called by the same name, and in a certain sense
take the place of the same thing. All this will be as clear as day
pretty soon.

8. Contrary to what has often been affirmed by Economists, the real
measure of Services is the service itself, the _thing_-dollar and not
the _denomination_-dollar. The denominations are used in bargainings
and calculations as representatives of the money itself, and thus
indeed in a secondary sense serve as _measures_; but the subtle
connection between the thing and its name, between money and its
denominations, and the differences between the two, need to be clearly
unfolded, because most of the current fallacies about money take their
rise just at this point. An illustration will best serve us here. The
original measure of Services in France and England and Scotland was
the pound weight of silver. No coin of that weight was ever struck;
but the pound of silver was cut into 240 coins called pence. Twelve of
these pence were called a _solidus_ or shilling. Thus, as applied to
silver, the symbols lb. and £ denoted equivalent weights, the former
of uncoined metal, the latter of metal coined. But in course of time,
more "pence" than 240, and at last in Elizabeth's reign 744 "pence
were coined out of a lb. of silver." Yet all the while 240 of these
pence were called a £. £ and lb., both a contraction of the Latin
_libra_, were no longer equivalent. The lb. of weight continued
stable; the £ of money had dwindled to less than one-third. Yet the
_name_ pound continued to attach to 240 pence, although the pence
embodied a less and less quantity of silver. Each actual penny had
less silver in it, and though it was still called a penny as before,
the _denomination_, though spelled and sounded as before, represented
less silver, and therefore less _value_, than before. The
denominations, then, always follow the fortunes of the coins, whose
names they are, to the frequent loss and shame of the unthinking, who
suppose the same _name_ must represent the same _thing_. Unfortunately
it does not.

Take another illustration. In 1834 the gold eagle of the United States
was reduced in weight from 270 to 258 grains troy, and the alloy
increased from one part in 12 to one part in 10. These changes took
out more than 6 parts of gold from every 100 parts in all the gold
coins of the country. Yet all these coins bore the same names as
before. The things denominated changed, but the denominations changed
not. Other things remaining equal, the coins lost six _per centum_ of
their purchasing-power, or in other words, general prices rose in that
proportion; the _measure_ became so much smaller; and the names,
_eagle_, _dollar_, outwardly unchanged, varied simultaneously and
equally with the change in the coins.

Also, coins are liable to change in their function as a measure of
general Services from unavoidable changes in the general
purchasing-power of the precious metals themselves. If for any reason
an ounce of gold will buy less of general Services than formerly, of
course the coins cut from that gold will buy less than formerly; and
this change in the _measure_ is followed instantly and inevitably by a
corresponding change in the meaning, though not in the spelling, of
the _denomination_. Not so with all other tables of denominations.
These have a _basis_ independent of the things which they help to
measure. The French _metre_, for example, is not variable by the
lengths or breadths or heights of the things it measures, but is an
invariable unit of length the world over; so is one of Troughton's
inches; but this feature does not hold at all of the denominations of
Money; because _sovereigns_, _dollars_, _marks_, _francs_, are
denominations of _Value_, which is itself a variable relation. Such
denominations, consequently, are _not_ an independent standard to
which values themselves can be referred, as lengths are referred to
metres and inches, but vary with the varying purchasing-power of the
coins themselves. The "_dollar_," as a denomination, means more or
less, just according as the "DOLLAR," as a coin, buys, that is,
measures, more or less.

Still, essential as is the point now made to any just understanding of
the subject of Money, it is vastly important for all the interests of
Exchange that the accepted measure of Services be as little liable to
fluctuations as possible, especially in all cases in which lapse of
time is involved before the exchange is fully consummated. An
inflexible standard there cannot be from the very nature of the
measuring, but also from the very nature of all measuring, the
money-standard should be and should be kept as nearly inflexible as it
possibly can be. For the same reason in kind, only multiplied a
thousand-fold in force, that the bushel-measure should be of the same
capacity in sowing-time and in harvest-time, to sell and buy by,
always a bushel, no more and no less; and the yard-stick an inflexible
measure of length, always 36 of Troughton's inches, no more and no
less; so, as far as it is possible in the nature of Values, ought the
current measure of Services, and hence its denominations, to
represent, year in and year out, a uniform degree of purchasing-power.

9. This brings us logically to the historical fact, that, no matter
what measure of services any people may have adopted in their
primitive times, there has always been a steady force at work tending
to displace these in favor of gold and silver. This has become the
universal result the world over among all advanced peoples. Governor
Bradford in his History of Plymouth Colony gives a quaint account of
the origin of money among the Pilgrims, and in connection with that of
the fee-simple in lands: "_The Pilgrims began now highly to prize corn
as more precious than silver, and those that had some to spare began
to trade one with another for small things, by the quart bottle and
peck; for money they had none, and if any had, corn was preferred
before it. That they might, therefore, increase their tillage to
better advantage, they made suit to the governor to have some portion
of land given them for continuance and not by yearly lot, for by that
means that which the more industrious had brought into good culture
(by such pains) one year came to leave it the next and often another
might enjoy it; so as the dressing of their lands were the more
sleighted over and to less profit; which, being well considered, their
request was granted._"

The neighboring Colony of Massachusetts, settled about ten years
later, used Bullets for small change, reckoning them at a farthing
apiece, and made them legal tender for debts of less than one
shilling; for larger exchanges Wampum and Beaver-skins were long used;
but the steady force just spoken of induced Massachusetts in 1652 to
supplant these with a silver coinage of her own, called the Pine-tree
shillings and sixpences and threepences and twopences. This mint
existed (sometimes idle) for over 30 years, but all the pieces coined
bore the dates of 1652 or 1662. In 1691, the two Colonies were forced
into one government through a new charter granted by William and Mary;
and after lengthened trials of inferior moneys, not needful to be
described now, Massachusetts determined in 1749 to have no other than
silver money circulate in the Colony, and became thereafter till the
Revolution the so-called "Silver Colony," and business rapidly and
steadily revived and enlarged in consequence of the change, and in
contrast with the rest of New England.

Gold and silver, thus ever urging their way in to take the place of
tentative and transient standards, and ever coming back again to stay
if displaced for a time by cheaper and changeable moneys, have never
been anywhere of equal value, weight for weight. An ounce of gold has
always been more valuable than an ounce of silver. Probably in the
Euphrates country where coinage began, and certainly in Asia Minor
deriving thence its weights and measures, gold was strictly the
standard with silver as subsidiary to that; in Greece, when Philip's
victories established a double standard there, gold was reckoned
relatively to silver as 1:12-1/2; in the Roman world, where silver had
been the standard after 217 B.C., Augustus Cæsar legalized gold as a
co-standard in the ratio of 1:12; in 1717 a double standard was
established in Great Britain, gold being rated in the coinage as
1:15-1/5 of silver, but in 1816 by a law still in force, gold was made
the sole standard for the United Kingdom, the legal use of silver
being limited to 40s. in any one payment; in France the legal relation
of gold to silver was fixed in 1803 as 1:15-1/2, and so continued till
1876; in the United States the ratio first established, in accordance
with the recommendation of Alexander Hamilton as Secretary of the
Treasury, was 1:15, but in 1834 this was changed to the relation of
1:15.98, and so it remains to this day; in 1871, the new German Empire
adopted the sole gold standard, and limited silver to the amount of 20
_marks_ in any one forced payment, still allowing the old silver
_thaler_ to circulate at the rate of three marks to a thaler; and
since 1875, the Scandinavian Union permits gold alone to be coined for
private persons, and limits the debt-paying power of silver to 20
_crowns_. A crown is 26.78, and a mark 23.82, of our standard cents.

Moreover, the relative value of gold in silver never continues the
same for any great length of time, even after the law has sought to
ascertain and fix it. Indeed, any law fixing the ratio between the two
has very little, if any, effect towards maintaining the ratio. Demand
and Supply determine the value of the precious metals each in each at
any one time as absolutely as they decree the value of Hindoo rice in
silver. France managed to maintain her legal ratio at 1:15-1/2 for 73
years, because all the conditions were on the whole favorable; but
when the Germans threw a portion of their silver on the world's market
in hopes to reach the single gold standard, and the mines of Nevada
poured forth on the same market their millions of silver, the ratio
could no longer stand, the right of private individuals to have silver
coined for them was taken away in behalf of the government, and only
the five-franc silver pieces continued to be legal-tender to all
amounts, the other silver coins becoming then (1876) only legal to pay
debts to the amount of fifty francs. A franc is 19.29 of our standard

And this brings us to notice what are called _subsidiary coins_.
France, England, Germany, and the United States have debased their
smaller silver coins in weight, so that the _nominal_ value of these
coins is from 7 to 15% above their _bullion_ value. For example, two
halves, four quarters, ten dimes, of our silver since 1875 weigh 385.8
grains, which is also the exact weight of the French five-franc piece,
while our standard silver dollar weighs 412-1/2 grains, both 9/10
fine, so that our "subsidiary" silver is debased in weight 6.48%.
There are three advantages in thus treating the smaller silver: (1)
there is so much clear profit to the Government minting them, thus
lessening taxation; (2) a security to the peoples that they shall not
lose their convenient small change by export to neighboring countries;
and (3) this scheme allows a very considerable rise in the market
value of silver without tending to throw the subsidiaries out of
circulation. As these are never legal-tender except to very small
amounts in domestic trade, there are no serious objections to their
use in limited quantities. The English can pay debts in their silver
to the amount of £2, and we in ours to the extent of $5. Coins of
copper and of other inferior metals are also _subsidiary_ in principle
and motive. Our 5-cent and 3-cent nickel pieces are 75 parts copper
and 25 parts nickel, and the 1-cent piece is 95 parts copper and 5
parts tin-zinc; and debts of 4 cents can be paid in 1-cent pieces, of
60 cents in 3-cent pieces, and of 100 cents in 5-cent pieces.

10. The steady experience of civilized men for two milleniums and a
half seems to demonstrate, that gold and silver constitute the best
Money; and we must now investigate the reasons, one by one, _why_
they are the best money. The reasons appear to be three. Of these the
first is by much the most important.

(1) The first and main reason why gold and silver make the best money
is to be found _in their comparatively steady general Value_. Since
Money is a Measure of all other valuables, its success as a measure
must depend on its own _steadiness_ of value, and gold and silver meet
this test better than anything else. Money is a valuable, and not in
any sense a _representative_ of value; except as to the subsidiaries,
a coin does not owe its value at all to the _stamp_ impressed upon it
or to the _law_ authorizing it, since the metal in it is worth as much
out of the coinage as in it; coin-values arise under the same
conditions as all other values, and are variable by any change in any
one of the four elements which alone can vary the value of anything;
and it would seem that nothing more is needed in order to remove the
last vestiges of the dark cloud which has so long overhung this
subject of Money, than to familiarize ourselves first of all, as we
have already done, with the true doctrine of Value in general, and
then to hold fast the truth exemplified on every hand, that the value
of Money is just like every other value. Let us examine then, first,
why the value of gold and silver is so steady.

(a) On account of the comparatively steady Demand for these metals.
Gold and silver are wanted for two general purposes: first, to be used
as money, and second, to be used in the arts; and the usual estimate
is, that about 2/5 of the aggregate quantity in the world is in the
form of money, and the other 3/5 in the form of plate and utensils and
ornaments. Now, so far as the element of Desire controls Value, the
purpose for which any article is desired is a matter of indifference.
The aggregate desire for it for all purposes, accompanied with the
offer of something with which to buy it, constitutes the Demand; and
the more universal the desire, no matter for what use, the steadier
the Demand and so far forth the steadier the Value. It is a point
still too little noticed, that the combined demand for the precious
metals for all uses is what helps determine their general value, and
not the demand for them as coin alone; just as the value of barley is
regulated partly by the demand for it for food, and partly by the
demand for it for malting purposes. Hence an ounce of bullion of the
standard fineness destined for the smelting-pot of the artisan is
worth within a very trifle as much as an ounce of coined money.

For example, by the law of the Bank of England an ounce of standard
gold (11/12 fine) is coined into £3 17s. 10-1/2d., and the Bank is
obliged to buy all bullion and foreign coins of the standard fineness
offered to it at £3 17s. 9d. per ounce,--a difference of only three
half-pennies. Now, gold and silver are so indispensable in the form of
money, so beautiful in the form of ornaments, so well adapted to serve
the purposes of luxury and love of distinction, and so really useful
in the arts, that the Demand for them is constant and well-nigh
universal; and should there be in the progress of civilization a
lessened demand for them for purposes of personal ornamentation and
luxury, and a less quantity be required for coins on account of the
multiplied use of cheques and other credit-forms, as seems likely in
both cases, a greater quantity will doubtless be required for all the
other uses old and new, and so, as the Demand in the past has been
steady, and probably steadily increasing, there is every reason to
expect the same course of things for the time to come. Moreover, it
contributes to the steadiness in value of the gold and silver coin,
that there is at hand at all times, in the form of plate, a reservoir
from which a chance chasm in the coin may be replenished, or an extra
demand for it answered.

(b) On account of their tolerably uniform Cost of Production. Not
Desires only but Efforts as well determine Value. Supply is the
correlative of Demand; and when to a steady demand there answers a
steady supply realized under conditions of pretty uniform difficulty,
there will be as a matter of course a pretty steady Value. Nature
herself, that is to say, God himself, has indicated in a manner not to
be mistaken the intention, that these precious metals should be the
Money of the nations. They are scattered all over the earth, and so
scattered that the cost of their production has been on the whole
pretty steady ever since civilization and commerce began in earnest.
God is a God of order throughout all His works. Corresponding to the
nature and necessities of men is the whole structure of the outward
world. Science builds only on these predetermined lines of Order.
Induction is only possible where original Resemblances run through
great departments of phenomena. To be enabled to buy and sell to any
considerable extent in order to meet their subjective wants, men must
have an objective measure of mutual Services, and this measure must be
a valuable steady in its purchasing-power: very well; such a possible
measure was all provided for beforehand, when the foundations of the
earth were laid.

The precious metals have always been obtained in one or other of two
ways: by surface diggings and washings, and by rock-mining. Both were
employed in the very beginnings of Civilization. There is a
description in the book of Job (chapter xxviii) of the way in which
the ancient mines were wrought, and of the worth of the ores:

    "Truly there is a vein for silver,
    And a place for gold, which men refine.
    Iron is obtained from earth,
    And stone is melted into copper.
    Man putteth an end to darkness;
    He searcheth to the lowest depths
    For the stone of darkness and the shadow of death,
    From the place where they dwell they open a shaft.
    Forgotten by the feet
    They hang down, they swing away from men.
    The earth, out of which cometh bread,
    Is torn up underneath, as it were by fire.
    Her stones are the place of sapphires,
    And she hath clods of gold for man.
    The path thereto no bird knoweth,
    And the vulture's eye hath not seen it;
    The fierce wild beast hath not trodden it;
    The lion hath not passed over it.
    Man layeth his hand upon the rock;
    He upturneth mountains from their roots;
    He cleaveth out streams in the rocks,
    And his eye seeth every precious thing;
    He bindeth up the streams, that they trickle not,
    And bringeth hidden things to light."

These methods and difficulties in rock-mining, thus poetically and
beautifully delineated, have been substantially the same from that
early day to the present time; and, consequently, there have been but
two or three striking changes in the general value of gold and silver
in the commercial world during the last 500 years, at least changes
owing to easier and larger Supply. The discovery of the mines of
Potosi in 1545, and the large influx of silver into Europe from those
and other American sources, together with the irrational stimulus
thereby given to the working of European mines under the false
impression not even yet wholly dissipated that Value can be clutched
bodily in mining, so increased the stock of silver, that its value as
measured in grain or other commodities declined in Europe in 70 years
after 1570 to about 25% of its previous purchasing-power. Adam Smith
expresses the opinion in his Wealth of Nations, that silver did not
perceptibly fall before 1570, nor continue to fall further after 1640.
The discovery of gold deposits on the Pacific coast of the United
States in 1848, and a similar discovery in Australia in 1851, enlarged
the annual supply of gold for the world from $40,000,000 in 1848
(_Chevalier_), to an average of $136,000,000 for the five years ending
in 1859 (_Jevons_); and the latter writer estimated the fall of gold
in general commodities from 1845 to 1862 at about 15%. But with
exceptions like these, and similar ones are perhaps not likely to
recur, the precious metals have always maintained and seem likely to
maintain in the future a considerable uniformity of Value, as
estimated by their power to purchase other valuables, so far forth as
Cost of Production goes to determine their value. Even the great
changes just noted in the cost of the metals issued only gradually in
a rise of Prices, which many were able to foresee and thus to provide
for, but by which many more were caught and brought into distress and
even pauperism. The two classes that suffer the most under a fall in
the Value of Money are the wages-receivers and the holders of long
annuities and other similar obligations.

(c) On account of their Quantity. The amount of gold and silver in
circulation in the commercial world, to say nothing of the quantity so
easily brought into circulation from the reservoir of plate, is so
vast, that it receives the annual contributions from the mines much as
the ocean receives the waters of the rivers, without sensible increase
of its volume, and parts with the annual loss by detrition and
shipwreck, as the sea yields its waters to evaporation, without
sensible diminution of volume. The yearly supply and the yearly waste
are small in comparison with the accumulations of ages; and,
therefore, the relation of the whole mass to the uses of the world,
and the purchasing-power of any given portion, remain comparatively
steady. It is probable, that production at the mines might cease
altogether for a considerable interval without very sensibly enhancing
throughout the commercial world the value of gold, as it is certain,
from experience, that a production very largely augmented only very
gradually and after a considerable interval of time diminishes its
value. The mass of the precious metals has been aptly compared with
the heavy balance-wheel in mechanics, which preserves an equable and
working condition of the machinery under any sudden increase of the
power, and even when the power is for a moment withdrawn.

Just at this point a caution is needful. Because it is affirmed that
the great amount of the precious metals is a ground of their firm
value, it must not be supposed that we are going beyond our general
doctrine, and introducing another element, namely, Quantity, besides
the four elements, which, as we have so often alleged, can alone vary
the value of any Service. Quantity, in itself, is not an element
capable of varying the value of anything, but taken in connection with
durability, it is an element of what might, perhaps, be called with
propriety the _Inertia_ of Value, and tends to keep the
purchasing-power of gold and silver where it is. _Value and Steadiness
of Value are two distinct ideas._ The present value of an ounce of
gold is decided by four things alone, two Desires and two Efforts; but
other elements besides these may help determine that that ounce of
gold shall have ten years from now a purchasing-power approximately
the same as now. It will depend of course in the last analysis upon
the relation of the then Demand to the then Supply; yet the vast
quantity of the precious metals in existence, combined with their
durability, prevents those fluctuations in the Supply which are so
destructive to a steady value. It is not with them as with the fruits
and the cereals, whose value varies perpetually with the seasons, and
which are so perishable that they must be sold quick or never. Gold
and silver are almost indestructible, and the existing mass is not
liable to be lessened except by wear and accident, and in so far as
the annual production from the mines exceeds the yearly waste there is
a natural provision made for the natural increase of Demand to supply
the wants of the world for money and for the arts without much
disturbing the relation of the Demand and the Supply; and so Quantity
in connection with durability helps preserve to them a tolerably
steady value from generation to generation.

(d) On account of their Fluency. Gold and silver are in demand the
world over. Having great value in comparatively small bulk, they are
easily transported from Continent to Continent; and whenever from any
cause they become relatively in excess in any country, and so lose
there a portion of their previous purchasing-power, there is an
immediate motive in profits to export them to other countries, in
which their power in exchange is greater, and thus the equilibrium
tends to restore itself. The proposition is, The value of gold and
silver is kept pretty steady throughout the commercial world by the
facility with which they are carried from points where they are
relatively in excess to points where they are relatively in
deficiency. In any country or place where the precious metals are
temporarily in excess, the prices of general commodities as measured
in them will rise of necessity, because the unit of measure is smaller
than it was; and for the same general reason, the country temporarily
lacking in these will experience in consequence a fall of general
prices. There is, therefore, a private gain in carrying these metals
to those countries in which their power of purchase is the greatest
owing to the lack of them, because more commodities can be obtained
in exchange for them than at home; and private motives here coincide,
as indeed they generally do, with public welfare, since what the
traders do in carrying gold and silver abroad with an eye to their own
interest only, helps maintain at home and abroad the steady value of
these commodities.

This law of the distribution of the precious metals by Commerce, and
the equilibrium of their general value resulting therefrom, is as
natural and beautiful as the law which preserves the level of the
ocean, or that which balances the bodies of the planetary system. This
has come at length to be recognized by the nations, and the laws which
used to forbid by heavy penalties the exportation of gold and silver
are all swept away, and these metals are now free to go and do
actually go wherever they can obtain the most in exchange. It is
absurd to suppose that their owners would carry them out of a country
unless they were worth more abroad than at home; and, therefore, the
prejudice which still exists in this country (the relics of itself) is
a senseless prejudice. The gold is not given away, it is _sold_, and
sold for more than it will buy at home; otherwise nothing in the world
could start on its foreign travels. There is the same kind of gain in
this as in all other exchanges of commodities, with this great
incidental advantage in addition, that its general value is by this
means kept pretty uniform throughout the commercial world.

Unluckily for the darker and middle Ages, so far as they took their
cue and thought from the Romans, the latter, in the teeth of the sound
view of Aristotle, looked upon Money as something quite different from
other forms of salable things, looked upon it in short as an _end_ in
itself, as something to be gained and not readily to be parted with.
If this were the right view of Money, as it is not, then the policy to
spring from it might well be,--Get all the money possible into the
country, and let as little as possible out! Just this came to be the
policy of the Romans. In one of his Orations, Cicero says, "_The
Senate solemnly decreed both many times previously, and again when I
was consul, that gold and silver ought not to be exported._" The other
and the true opinion, that money is bought and sold like any other
valuable, and that its sole peculiar function is as a _means_ to
further sales, was indeed held and argued at Rome, as we learn
incidentally from a passage in the Institutes of Justinian; but the
false though plausible opinion, that money is _ultimate_, and not
_mediate_, is said in the same passage "to _have prevailed_"; and
accordingly this superficial view of money, and that it "_ought not to
be exported_," constitute what may be called the Bullion Theory, and
it is the first general theory of Sales ever promulgated. The Romans
brought it forth, and other nations took it from them. It could never
stand in the light of Reason, and still less amid the exigencies of
practical Commerce.

It is an illustration of the continuity of human thinking as well in
wrong as in right directions, that the second main theory of Sales,
which has long been styled the Mercantile Theory, is a prolongation
and expansion of the first. _That_ gave an undue weight to gold and
silver over other goods in trade, and forbade their export: _this_ did
the same thing too, but also tried to swell the exports of other goods
beyond the worth of current imports, _so as to get back a balance in
gold and silver_: both alike interfered with the international fluency
of the precious metals, to the constant detriment of all parties to
the restrictions. The common principles of both Theories may be thus
expressed: _Gold and silver are the things to get; they are worth
more than what they will buy; therefore let us get all of these in
that we can, and let as little of them out as we can; and let us work
all our trade so, that others shall have to give us a balance back in
gold and silver._ These false postulates and inferences wrought
centuries of woe in the world of commerce, because all the leading
nations became devotees simultaneously to this scheme of each shrewdly
plundering the rest. The germs of this Mercantile Theory appear first
in France, when Phillippe le Bel, in ordinances of 1303 and 1304, put
his hand in as king to mend the movement of trade, to forbid the
export of gold and silver, to fix the price of wheat and to forbid its
export, and to lessen imports by prohibitions of them. "_Considering
that our enemies might profit by our provisions, and that it is
important to leave them their merchandise, we have ordered that the
former should not be exported nor the latter imported._" The famous
Colbert, who laid down many financial maxims that are good, thought
nevertheless, that he could so manage the foreign trade of France that
she should get the better of her neighbors, and embodied his plan in
the tariff of 1664. We will let him state his plan in his own words:
"_To reduce export duties on provisions and manufactures of the
Kingdom; to diminish import duties on everything which is of use in
manufactures; and to repel the products of foreign manufactures by
raising the duties._" The principle of the Mercantile Theory was never
better or briefer expressed than by Ustariz, a Spaniard, in 1740: "_It
is necessary rigorously to employ all the means that can lead us to
sell to foreigners more of our productions than they will sell us of
theirs, as that is the whole secret and the sole advantage of trade._"
Too many nations knew the "whole secret" at the same time, and
accordingly the "sole advantage" to any became exceedingly small.
England was as deep in the sloughs and wars and losses of this false
system as any of the rest.

It may be laid down as an axiom, that no country will ever export for
the sake of buying other things those things which are more needful
for its own welfare at home. So long as human nature continues what it
is, what it always was, what it always will be, no persons in any
nation will ever export gold and silver except to buy therewith other
valuables then and there more important to them and consequently to
their country. There need not be the slightest fear that any nation
which cultivates its own commercial advantages under freedom will ever
lack for a day a sufficient _quantum_ of the precious metals; because
under freedom these metals will always go, and go in just the right
proportions, to and from those countries which produce and offer in
exchange those desirable Services which other countries want. The
greater the enterprise and skill, the keener the development of all
peculiar and presently available resources, the more honorable and
free the commercial system, so much the surer is any nation whether it
be a gold-bearing country or not, of securing all the gold and silver
which it needs. This is so, because _there_ will be a good market to
buy in, an abundance of good and cheap goods will be there, and they
who have gold will resort thither to buy. But such a free and
enterprising nation will also want to buy other things besides gold
and silver, and other things than those itself can make or grow to
advantage, and when enough of the precious metals is secured for money
and the arts, the residue will be exported, perhaps to the very
countries from which it originally came, in payment for some products
which _those_ countries have an advantage in producing.

The United States, for example, is a gold- and silver-bearing country,
and exported in the years 1850-60, both inclusive, $502,789,759 in
coin and bullion, according to the official Report on the Finances,
1863; and during the same period imported from other countries
$81,270,571 in coin and bullion. Where was the famous and fallacious
"balance of trade" in that case? The United Kingdom, on the other
hand, is not a gold- and silver-producing country at all, but it is
the central market of the world for the precious metals all the same,
its imports and exports of them are immense in all directions, because
it is an enterprising country within the lines of Nature in
agriculture and manufactures and commerce, and is not afraid to allow
its people to buy and sell freely with all the world. Where lies in
the technical sense the "balance of trade" between Great Britain and
the rest of the world? Who can tell? All that is known, and all that
is worth knowing, is, that all that trade is immensely profitable to
all the parties to it wherever situated.

Now, there is always a double advantage in these free movements of
coin and bullion in exportation and importation. In the first place,
more and better commodities are secured to the countries exporting,
whether they be gold-bearing or not, than the gold could have bought
in those countries, otherwise it would not have been carried abroad,
that being the sole motive that stirs it from its present haunts; and
in the second place, the benefit to the countries importing is the
market for their own commodities created by the gold brought in, for
we must never forget that a market for products is products in market,
is a benefit also in naturally and easily filling up a chance
deficiency in the quantum of coin there, and incidentally too a
benefit to the world as tending to keep _in equilibrio_ the
purchasing-power of the metals everywhere. This last is especially
seen when new and pregnant sources of supply are opened in any
country. For example, in the United States about the middle of the
century the stock of gold was more than doubled in ten years' time;
unless by much the larger part of this had been carried abroad in
commerce, it would have inevitably depreciated the whole mass and
disturbed the prices of everything; but by causing the new gold to
impinge on the whole world's stock, the shock of the new production on
the measure of Services, though perceptible, was reduced and deadened.
The world's mass of the precious metals is comparatively torpid
beneath the action of an accretion which would break down by its
weight the metals of a single nation. Therefore, in conclusion on this
topic, the Fluency of gold and silver, by which they pass easily in
commerce to those places where their present value in exchange is
greatest, or to such countries as India and China which have shown for
centuries a wonderful power to absorb the metals of the West, and
return as easily when the conditions are reversed, or when a larger
use of paper-credits releases some portion of the coin, tends
powerfully to make their general value uniform throughout the world,
and consequently to make them the best medium of Exchange and the best
measure of Services.

(e) On account of this Circumstance, that every general rise or fall
in the value of gold and silver tends quickly to check itself. This
principle, indeed, is applicable more or less to the value of all
commodities, but owing to their quantity and durability and fluency
pre-eminently applicable to the value of the precious metals. The
check is double in either direction. First, let us suppose that the
purchasing-power of an ounce of gold or silver be rising: then,
production will be stimulated at all the mines, and the more
stimulated as the rise is more; and this new and enlarged Supply will
tend to check a farther rise, and unless the permanent Demand has been
in the meantime intensified, to bring back the value to the old point;
moreover, when there is a rise in the value of the coin, a less
quantity is required to do the same amount of business; and the demand
for gold which causes the rise tends to be checked by the rise itself,
because a lessened quantity is needed for money-use in consequence of
the rise. If the exchanges mediated by money have become permanently
greater than before, then of course the Demand will continue greater
than before, and the rise in value may be maintained.

And just so, _mutatis mutandis_, of a fall in the purchasing-power of
the coin. The production of the metals is thereby slackened at the
mines, and the lessened Supply tends naturally to enhance the value;
and if the same amount of business is to be done as before, there is a
stronger demand for money while the fall continues, and this new
Demand helps also to bring back the old value. All this is in the
interest of a steady value.

(f) On account, lastly, of this Circumstance, that a stronger Demand
for Money is met in either one of two ways, by increasing the stock of
coin, or by an increased rapidity of circulation of that on hand. It
is exceedingly fortunate that a brisker demand for money, especially
if it be but temporary, does not necessarily enlarge the Supply or
alter the value, but only hurries round the existing money.
Oscillations in the Demand are responded to by a slower or a more
rapid circulation. This tends admirably to keep the value of the
existing-stock of money steady within certain limits. Ignorance of
this principle, or indifference to it, has caused mighty mischiefs in
the United States. In General Grant's administration, for instance,
the cry that a larger _volume_ of money was needed "_to move the
crops_" was disastrous in its results. The truth is, that the volume
of Money in the United States was then, and has been ever since, by
much too great, considering its character, as we shall see by and by.
The multiplying and fructifying nature of Rapidity of Circulation has
never been understood by our national financiers. When, however,
enterprises are multiplying and Exchanges are being permanently
increased in number and variety, then there must be a larger volume of
money, and this larger amount is secured in the ways already
indicated, with perhaps slight disturbances of value, but the
temporary ebbs and flows of business should have no effect at all on
the mass of money, but only on its movement, and its value
consequently would scarcely be disturbed.

These Six grounds appear to be satisfactory and sufficient to account
for the superior steadiness of the value of gold and silver, so far as
their value is determined by considerations relating to these metals
themselves. We now proceed to the two reasons additional to this why
gold and silver constitute the best Money.

(2) The second general reason why gold and silver make the best money
is found in the fact _that Governments have little to say or do about
the Value and Quantity and Mode of Circulation of such Money_. In
respect to Credit-Moneys, like our own Greenbacks and national
Bank-Bills, the Government has everything to say. When we remember how
governments are constituted, that they are only a transient Committee
of the citizens for special purposes; of what sort of persons they
commonly consist; the variety of subjects they are obliged to consider
during short periods of office; the absence for the most part of
expert knowledge among them; the enormous blunders they have made in
the past in all financial measures; and that those who know the most
about their action in the past and present in such matters have the
least confidence in their ability to act wisely; the better we shall
see the strength of the grounds of this second reason. In all
essential respects money of gold and silver regulates itself. These
metals came to be money and continue to be money in the main sense
independent of the enactments of any Government. The people chose
them: they choose them still. As we have seen, coins do not owe their
value to the stamp of the Government, since the metal in them is worth
within a trifle as much before coinage as after. Coinage publicly
attests the quantity and quality of the metal in the coin, and that is
all. Of the value of their coins governments say nothing. They can say
nothing. That depends on men's judgments, and not on edicts at all. No
law of the United States can add directly an appreciable fraction to
the value of a gold dollar. The law makes it consist of 25-4/5 grains
troy of gold 9/10 fine, the mint so stamps and attests it, and
thereafter it takes its own chance as to value.

Some Governments charge a little something for coining for their
People, and some do not. What is charged is called _seignorage_.
England coins gold for all comers at a seignorage of .032%, which is
practically a free coinage. France charges for gold .216%; and by the
law of 1874, the United States charge nothing for coining gold. It is
left to the People to say _how much_ money they will have coined; and,
having received it back from the mint, they may do just what they
please with it; they may hoard it, they may melt it, they may sell it
at home in purchase, and they may export it in foreign trade, at will.
Now, it is a great gain, an immense relief, to have a Money with which
the Government has nothing to do except to mint it; a money that asks
no favors, needs no puffing, never deceives anybody, knows how to take
care of itself, is always respectable and everywhere respected.

(3) The last general reason why gold and silver make the best Money is
to be found in their physical peculiarities, in accordance with which
they are (a) _uniform in quality_, (b) _conveniently portable_, (c)
_divisible without loss_, (d) _easily impressible_, and (e) _always

Pure gold and pure silver, no matter where they are mined, are exactly
of the same _quality_ all over the earth. Not so with iron and coal
and copper. Gold is gold, and silver is silver. The gold mined to-day
in California differs in no essential respect from the gold used by
Solomon in the construction of the Temple, and the silver out of the
Nevada mines is the same thing as the silver paid by Abraham for the
cave of Machpelah. Nature with her wise finger has thus stamped them
for the universal money; and a universal coinage, that is, coins of
the same degree of fineness, and brought into easy numerical relations
with each other in respect to weight, and current everywhere by virtue
of universal confidence in them, though bearing the symbols preferred
by the nation that mints them, is one of the dreams and hopes of
economists, that will be realized in some

                "Fair future day
    Which Fate shall brightly gild."

Gold and silver are sufficiently _portable_ for all the purposes of
modern Money. Their weight is little relatively to their value. A
thousand dollars in gold are not indeed carried so easily as a Bill of
Exchange or a Bank-note; and expedients are easily adopted, and have
been in use since the days of the Romans (really since the later days
of the Assyrians), by which the transfer in place of large masses of
coin is for the most part obviated; and these expedients have all been
explained at length in the foregoing chapter on Commercial Credits.
But for the ordinary exchanges for which they are designed, gold and
silver coins are portable enough. The writer has carried across the
ocean, incased in a glove-finger and borne in a vest-pocket, a troy
pound of English sovereigns, worth about $230, scarcely conscious of
their weight though easily reassured of their presence by a touch of
the hand. The experience of those countries, like France and Germany,
in which the Money has been and is still mostly metallic, has not
pronounced it onerous on account of its weight; and, at any rate, it
is better to accept all the other immense advantages of gold and
silver money, together with some inconvenience as to weight, if one
chooses to insist on that, than to adopt substitutes every way
inferior as money, except that they are lighter in our purses. They
are unfortunately "lighter" in other respects also.

Moreover, gold and silver differ from jewels and most other precious
things, in that they are _divisible_ without any loss of value into
pieces of any required size. The aggregate of pieces is worth as much
as the mass and the mass as much as the pieces. This is a great
advantage in Money, because for the convenience of business a
considerable variety of coins is required, and the proper proportion
of each kind to the rest is a matter of trial, and if any kind be
minted in excess of the demand nothing more is required than to remint
in other denominations, and the whole value is thus saved to the
country in the most convenient form.

Then, gold and silver are easily _impressible_ by any stamp which the
Government chooses to put upon them. Indeed in their natural state
they are too soft to retain long the impress of the die. Accordingly
for coinage purposes they are always alloyed with another metal,
chiefly copper, since by a chemical law whenever two such metals are
mixed together the compound is harder than either of the two
ingredients. Most of the Nations now use in their gold and silver
coins 1/10 alloy, but England still adheres to her ancient rule of
1/12 only. So compounded coins receive readily and retain for a long
time with sharp distinctness the legend and other devices chosen for
them to bear. In monarchical countries the head of the reigning
sovereign is usually stamped upon the current coins; in all countries
national emblems of some sort; quite recently some of the coins of the
United States have been made to bear the appropriate legend "In God we
trust"; so that patriotic and even religious associations are
connected with the national Money. Although the alloys harden the
coins, yet after long usage they will lose a part of their weight by
abrasion, and Governments usually indicate a short weight, after
coming to which the coins are no longer a legal tender for debts. Thus
an English sovereign weighs 5 pennyweights 3-171/623 grains,
containing 113-1/623 grains of fine gold, and when it falls below 5
pennyweights 2-3/4 grains, it loses its legal-tender character.

Lastly, gold and silver when coined into Money are objects of great
_beauty_. This is no slight recommendation of these metals for the
money of the world. They are clean. They are beautiful. People like to
see them, and to handle them, and to have them. Their perfectly
circular form, the device covering the whole piece, the milled and
fluted edges, the patriotic emblem, whatever it be, the religious or
other legend, and their bright color, are all elements in their
beauty. The educating power over the young of a good coinage well kept
up, æsthetically, historically, and commercially, is a matter of
consequence to any country. A whole people handling constantly such
money cannot fail to receive a wholesome development thereby. The new
German coinage, for example, in contrast with the old moneys of the
German States, furnishes a good illustration of all this. The new
German coins from highest to lowest are very beautiful, and have
already tended and will tend more and more, other things being equal,
to a true German nationality.

11. Silver is much inferior to gold as a metal for Money, for this
main reason, that it has proved itself much less steady in its general
_value_; and its value is less steady, because it is subject to
greater changes in its Supply and greater variations in its Demand. As
an example touching Supply, we cite the fact, that the annual silver
product of the world _doubled_ in the third quarter of this Century,
rising from an average of $40,000,000 yearly, 1851-61, to $80,000,000
in 1875; and that Nevada alone yielded in 1876 as much as the whole
world yielded twenty years before. Then, too, Demand, that is,
effective public opinion, does not hold to silver as it does to gold
for a standard of Values. The action of England in 1816, of the United
States in 1853, of Germany in 1871, of Scandinavia in 1874, and of the
Latin Union in 1876, _in legally making gold the sole standard of
Services and silver subsidiary to that_, of course affected more or
less the Demand for silver as Money, and thus varied its value. We
have at hand the data to demonstrate the effect of these two causes
combined: the average price of silver in gold from 1833 to 1874, in
the London market, which is the bullion market of the world, was for
the 40 years just about 60 pence per ounce, never falling below 58-1/2
and never rising to 63. At 60 pence per ounce (444 grains of pure
silver, standard English silver being .925 fine) the ratio of gold to
silver is 1:15.716. But between May, 1875, and July, 1876, when both
the above causes had come into full action, silver dropped in the
London market to 47 pence per ounce, a fall of 21%, and a ratio of
gold to silver of 1:20. The price gradually rose again to about 53
pence per ounce, and remained in that general neighborhood till 1882,
between which date and 1890 the _sagging_ process went on to the
general result of 25% discount as compared with the old average of 60
pence in gold per ounce of silver.

These facts settle the question adversely to the fitness of silver to
become an independent Measure of Values. When, however, it is designed
that gold and silver shall circulate together in some numerical
relation to each other as Money, it becomes needful that Government
shall fix as well as it can, not the general value of either but the
relative value each in each for the time being. But this specific
value, too, goes on to regulate itself independently of government
edicts. No matter how well the work is done at first by ascertaining
the actual ratio in which they are exchanging in a free market, it
will certainly require revision from time to time. This is what is
called _Bimetallism_. The reader will now perceive the fundamental and
ineradicable difficulty with the bimetallic system, which has led by
bitter experience nearly all the European nations to abandon it. It
especially becomes us to understand how the United States have fared
in a century's attempt to keep _in equilibrio_ as a conjoint and legal
Measure of Services both gold and silver in a fixed numerical

Alexander Hamilton as the first Secretary of the National Treasury,
entering upon excellent preparatory work done both by Robert Morris
and Thomas Jefferson, guided the action of Congress in establishing
the Mint in 1792, and really determined the weight and fineness of the
first federal coins and their relative value each in each, the silver
coins being struck in 1794 and the gold ones in 1795. The silver
dollar was copied from the Spanish milled dollar of commerce, which
contained 371.25 grains of pure silver, and that has been the exact
content of our national silver dollar from that day to this. The
halves and quarters and dimes were exactly proportioned in weight and
fineness to their units. Hamilton supposed that gold was then worth in
Europe 15 times as much as silver, and advised consequently that the
gold dollar should contain 24.75 grains pure, and that both dollars
should be alloyed at the English rate of 1/12, thus making the silver
dollar weigh 405 grains and the gold dollar 27 grains; but Congress,
while enacting the gold dollar just as the Secretary recommended,
preferred to _alloy_ the silver dollar by 44.75 grains instead of
33.75, thus making its weight 416 grains. Alloy is of no account in

From the ratio of 1:15 fixed by the act of Congress in accord with
Hamilton's opinion as to the relative value of gold in silver to be
maintained in the coins, unforeseen and important consequences
followed, since that was not the true ratio of their value at the time
in the markets of the world; an ounce of gold was worth more at that
time than 15 ounces of silver, and, accordingly, was worth more out of
the coinage than in it, and was therefore exported in preference to
silver in payment of foreign balances, especially after France had
changed the relative legal value to 1:15-1/2, which happened in 1803;
and of course the gold refused to circulate here under those
circumstances, being _undervalued_ in the coinage, thus giving a neat
illustration of the economical law to be unfolded under the next
numerical heading, namely, that the cheaper money will always push the
dearer out of the circulation. Not till 1834 was the attention of
Congress so strongly drawn to this fact and consequence, as to secure
an enactment to remedy it; and this coinage law of 1834 rated gold to
silver as 1:15.98. The weight of the gold dollar was at the same time
reduced from 27 to 25.8 grains, and the alloy increased from 1/12 to
1/10. These changes of 1834 increased the relative legal valuation of
gold in silver 6.53%. But this in turn was going too far in the
opposite direction; gold was not worth 1:15.98 in the bullion markets
of Europe; France was holding steady her ratio of 1:15.50; and,
consequently, the commercial current of the metals was now reversed,
silver passing in preference to Europe to liquidate the balances of
trade, and gold beginning to come to the United States, where it would
buy more than 3% more silver than in Europe.

Three years after the above changes, that is, in 1837, the standard of
9/10 fine instead of 11/12 was applied by law to silver also, and this
altered fineness made a change in the weight of the silver coins
necessary, if the ratio of 1:15.98 was to be maintained between the
gold and silver. Accordingly, the weight of the silver dollar, and of
two halves, four quarters, and so on, was reduced from 416 grains to
412-1/2, that is to say, less alloy was put into the silver coins, but
the fine silver to the dollar was kept just as it was, namely, 371.25
grains. Since 1834 there has been no change in the gold dollar and its
multiples, and since 1837 there has been no change in the silver
_dollar-piece_, and the legal ratio of value between gold and silver
in our coins is still 1:15.98, since the silver dollar of 1878 and
onwards to 1890 corresponds in weight and fineness with the dollar of

Still, notwithstanding the pains taken and the changes made from time
to time to keep the two metals in legal _equilibrio_, there never has
been any considerable period in the century now drawing to a close,
during which gold dollars and silver dollars have circulated freely
and indifferently in the United States. Sometimes it has been the one
kind, and sometimes the other kind, but never both kinds at the same
time. The present writing is in the spring-time of 1890: both kinds of
dollars are legal tender for all debts public and private in the
old-time ratio; the national Government professes to be indifferent
whether it pay out gold or silver in redemption of its paper-moneys,
but after all, with the exception of the Pacific States and a few
special branches of business in the cities of the East and of the
Middle, gold coins are not now in common circulation, the bank drawers
crowded with silver dollars feel little of the weight and see little
of the shine of the gold coins, and if any of these chance to be paid
out to ordinary bank-customers they are pretty certain to return in
speedy deposit. The theoretical bimetallism of the United States has
been a practical though alternate monometallism with various
incidental and concurrent disadvantages and losses.

By 1853 these disadvantages of a long-attempted double Measure of
Services made legal tender for all debts had become plain enough to
everybody, for experience had demonstrated that the Value of gold and
silver each in each was not constant but constantly variable; and
Congress then wisely determined to make Gold alone the legal tender,
except in sums below $5. In connection with this great change in the
coinage, a lesser one was introduced at the same time, namely, to
reduce the weight of the silver half-dollar and its subdivisions, so
that their nominal value in the coinage should be considerably above
their metallic value, and their exportations be thus prevented.
Accordingly, the half-dollar was reduced in weight from 206-1/4 to 192
grains, and the smaller coins proportionally. This was in imitation of
the English legislation of 1816, and brought into this country a
_subsidiary_ silver coinage, which still continues, and of which a
nominal dollar's worth weighed 6.91% less than the Silver Dollar,
which was not mentioned one way or the other in the law of 1853, but
which was then worth about three cents more than the gold dollar, and
was of course wholly out of circulation.

Through the influence of the late Samuel B. Ruggles, these subsidiary
silver coins were brought in 1875 into harmony with the silver-system
of France and the Latin Union. Their five-franc silver piece which is
also 9/10 fine, weighs just 25 _grams_ or 385.8 _grains_; a dollar's
worth of our subsidiary silver, as we have just seen, weighed 384
grains; and it was, therefore, needful to add only a slight fraction
of weight to our smaller silver coins in order to knit a real
connection between them and much of the European silver. Two halves,
four quarters, ten dimes of our silver since 1875, are debased in
weight (not in fineness) 6.47% as compared with the standard silver
dollar. A more important coinage connection with Europe was knit
through our first five-cent nickel pieces, each of which weighs just
five _grams_, and five of which laid along in order measure exactly a
_decimetre_ in length. These were the first official applications of
the Metric System on the part of the United States. The nickel pieces,
both the five-cent and the three-cent, are 75 parts copper and 25
parts nickel; and the one-cent piece is 95 parts copper and 5 parts
tin-zinc. Debts of 4 cents can be legally paid in one-cent pieces, of
60 cents in three-cent pieces, of 100 cents in five-cent pieces, of
500 cents in _subsidiary_ silver, and of any amount in gold coins or
in silver _dollars_.

12. _A money inferior in general value will, so long as it circulates
locally, drive a superior money out of the circulation._ This
proposition is a fundamental and universal one in monetary Science.
The only exception to it is found in _token-coins_, and in subsidiary
silver so far as that has the _token_-quality, that is, so far as its
_nominal_ is above its _bullion_ Value. The main motive in coining
tokens is to make sure for its own local uses of a nation's small
change. Token-money is worthless for export, is only designed for the
smaller exchanges, is legal tender only for very small sums, and is
acceptable only on local and conventional grounds. The exception
aside, the above proposition is a pervading and controlling Law of
Finance and has been illustrated over and over again in every Age and
Nation. It is as solid as the substance of truth can make it, although
it looks at first sight like a paradox. We naturally think that what
is excellent all round tends rather to displace what is inferior in
spots, but with Money the exact reverse is the law; and the perfect
coin of full weight, instead of driving out the light and the debased
pieces, is always itself driven out of the circulation by them.

The reason for this becomes obvious the moment we ponder the nature of
Money. Money is always a Valuable, taking on in addition under Law or
Custom the function of serving as an instrument of Exchange. As money,
nobody wants it except to buy with, and so long as the Government and
the community treat light coin and full coin as of equal value,
receiving them indifferently in payment of debts and of taxes, it is
clear that nobody will give in payment of debts and of taxes that
which is really worth more so long as that which is really worth less
will go just as far. The inferior pieces will abide in a market where
they will fetch just as much as the superior pieces, while the
superior pieces will take on a form or migrate to a place in which
some advantage can be gained from their superiority. Thrown into the
crucible, or exported in commerce, this superiority immediately
manifests itself; and therefore into the crucible or into the channels
of foreign trade it might be confidently predicted beforehand that
such money would be thrown, and all experience testifies with one
voice that exactly those are the destinations of such money.

Aristophanes, the Greek comic poet, in the 5th century before Christ,
seems to have been the first writer who noticed that good coins of
full weight are apt to be crowded out of the circulation by the
lighter and poorer pieces, and he, mistaking the cause of this,
satirized his countrymen unmercifully for preferring bad coins to
good, and demagogues, like Cleon, to honorable citizens for rulers.
The following are the verses:--

    "Oftentimes have we reflected on a similar abuse,
    In the choice of men for office, and of coins for common use;
    For your old and standard pieces, valued and approved and tried,
    Here among the Grecian nations, and in all the world beside,
    Recognised in every realm for trusty stamp and pure assay,
    Are rejected and abandoned for the trash of yesterday;
    For a vile, adulterate issue, drossy, counterfeit, and base,
    Which the traffic of the city passes current in their place!
    And the men that stood for office, noted for acknowledged worth,
    And for manly deeds of honor, and for honorable birth;
    Trained in exercise and art, in sacred dances and in song,
    All are ousted and supplanted by a base, ignoble throng;
    Paltry stamp and vulgar metal raise them to command and place,
    Brazen counterfeit pretenders, scoundrels of a scoundrel race,
    Whom the State in former ages scarce would have allowed to stand
    At the sacrifice of outcasts, as the scapegoats of the land."

Sir Thomas Gresham, financier of Queen Elizabeth and founder of the
Royal Exchange and of Gresham College in London, was the first thinker
to understand fully and explain scientifically what Aristophanes and
others had noticed as a fact, and what in its explanation may hence
properly be called "_Gresham's Law_." We will append a few historical
illustrations of the fact and the law as instructive in many ways.

(a) The City of Amsterdam founded its famous Bank in 1609, because no
other way seemed to open of preventing the clipped and worn foreign
coins then and for a long time circulating in that great Mart of Trade
from driving out completely the good money of full weight, which the
Mint of the City had been constantly pouring in. The Bank was devised
as a municipal Institution with this intent; it was a Bank of Deposit
only; it took in all the old coins at their _bullion_ value only; and
then had them reminted at full weight; it gave the depositors credit
on its books in the terms of the _new_ money for all of the _old_ they
chose to bring in; it then adjusted accounts between merchants and all
other of its customers by mere transfers on its books; the City
required all debts falling due in Amsterdam to be paid in the new
"bank-money," which took away all uncertainty from Bills of Exchange
drawn on Amsterdam, which were previously liable to be paid in the
clipped and worn coin, and were therefore sometimes at as much as 10%
discount in other cities; this simple requirement brought these
foreign bills to par, and kept them there; the full-weighted money now
stamped by the city Mint abode in the circulation, being now the sole
Measure of Services there; and thus it became the interest and
convenience of every business man in Amsterdam to have these simple
dealings with the Bank, which in turn enjoyed unlimited credit in the
commercial world for almost two hundred years.

(b) The great English Recoinage of 1696 was completed under the
imperatives of Gresham's Law. Graphically does Macaulay describe the
causes and the effects of this in his 21st Chapter. The old silver
coins had been stamped under the hammer; few of them were perfectly
circular; the edges were neither milled nor fluted; the legend was not
so near the edge as that the letters were impaired by a little
clipping; it was easy to pare off a pennyworth or two, and then pass
the coins along; it was profitable to do it, and in vain that
Elizabeth enacted that the clipper must suffer the penalties of high
treason; nearly all the coin of the realm became mutilated, and about
1660 a new process of coinage was brought in. A mill worked by horses
fabricated the new coins on better principles. They were exactly
round, and the edges were inscribed with a legend, and they were all
of just and equal weight. They were thrown out to pass current with
the hammered money, and it seems to have been expected that they would
soon come to displace it. But they did not. Both were received at
first without distinction by the individual traders and by the public
tax-gatherers. But the milled money soon came to be scarce, and the
old money grew constantly worse. The lighter the old coins became, the
scarcer became the new ones; for who would pay two ounces of silver
when one ounce was legal tender? The new money was melted, was
exported, was hoarded, but circulate it would not. At length the
lightest pieces began to be refused by some people, and other people
demanded that their silver should be paid to them by weight and not by
tale, and there was wrangling over every counter, and a dispute at
every settlement, and the coin was really so diverse in its value that
there was no longer any measure of value in the kingdom; business was
in utmost confusion, society was by the ears, poor people were
unmercifully fleeced, and shrewd ones grew enormously rich; and the
Jacobites secretly exulted in the hope of being able to avail
themselves of the prevailing discontent to overthrow the scarcely
established revolutionary government of William and Mary; when, by the
joint counsels of two such philosophers as Locke and Newton, and two
such statesmen as Somers and Montague, the government took the bold
resolution of recoining all the silver of the kingdom. An early day
was fixed by Parliament after which no clipped money could pass except
in payments to Government, and a later day after which it could not
pass at all.

(c) Gresham's Law has had beautiful illustrations in the monetary
history of the United States. We have already seen the reason why the
first silver dollars of 1794 could not compete in currency with the
gold coins of 1795,--the silver was under-valued in the legal ratio
1:15,--it would have been much nearer the European market at 1:15.5.
There was another reason operative in the same direction from the
beginning, which did not, however, come to the notice of the
Government till ten years later. Only 321 silver dollar-pieces were
coined in the year 1805; and May 1, 1806, there stands an order from
President Jefferson to the Director of the Mint,--"_that all the
silver to be coined at the Mint shall be of small denominations, so
that the value of the largest pieces shall not exceed half a dollar_."
The presidential reason given for this order is,--"_that considerable
purchases have been made of dollars coined at the Mint for the purpose
of exporting them, and that it is probable that further purchases and
exportations will be made_." The coinage of silver dollars thus
suspended was not resumed for 30 years. What was the matter with these
dollars? Nothing, only they were too valuable. Hamilton had adopted
for his new dollar the exact weight in fine silver of the normal
Spanish-Mexican dollar, then and for a long time the unit of the
thriving West India commerce; clipped and worn coins of this popular
stamp had slipped into circulation in large numbers throughout the
United States, and driven out the new and good pieces in accordance
with a principle much better understood now than then; the President's
order itself was not very intelligent, inasmuch as two halves, four
quarters, or ten dimes, were then equal in weight and purity with the
dollar-pieces, and as a matter of fact were almost (if not quite)
equally driven out by the smaller Spanish-Mexican coins. The
"four-pences" and "nine-pences" ("York shilling") of that coinage were
almost exclusively the small change of New York and New England during
the first half of this century. The "dimes" and "half-dimes" of our
own mintage, though long legalized, were but slowly naturalized. The
coin-changes of 1853, already described, gave a fair chance for the
first time to our smaller silver coins.

The last native illustration of Gresham's Law will force us to
anticipate here the discussion under the next numerical heading, so
far as to assume that there is such a thing as paper money, and that
the Law now in hand works in connection with that as well as with
diverse forms of metallic money. In 1862, Treasury notes, commonly
called Greenbacks, made a legal tender for debts though not bearing
interest, were issued by the national Government to the amount of
$450,000,000. Of course, under these circumstances they depreciated in
value as compared with the gold dollars, which gold dollars _they were
unfulfilled promises to pay_. Just so soon as the greenback dollars
fell fairly below the gold dollars in value, the latter left the
channels of trade in a very few days' time. Down sank the greenbacks
gradually below the _subsidiary_ silver coins in value, and the latter
obediently and utterly abandoned the commercial field. At last the
greenbacks went down even below the level of the copper cents, which
at that time cost the government about half a cent each, and this
invariable law of money swept the circulation bare of coppers, and the
people had to resort for their smallest change to postage-stamps and
shin-plasters and other abominations. Happily, the country survived to
see these processes exactly reversed, and the old law confirmed on its
other side. When, after a considerable interval, the paper dollar
appreciated to the proper height, it was interesting to watch the
copper cents put in a prompt re-appearance; after a still larger
appreciation of the paper, back came in abundance the subsidiary
silver; and as the day of the redemption of the paper drew near,
silver dollars and gold dollars greeted smilingly their old
acquaintances of the street.

13. So far we have treated only of Coin-Money in its two forms,
_substantive_ and _subsidiary_. The latter may now be dismissed as of
little consequence in itself, and as already elucidated fully: the
latter is the only Money that stands in its own right as a
_commodity_, and the only Money that can give birth to the
_Denominations_ of Value, such as sovereigns, dollars, marks, and
francs. _What is a Dollar?_ A dollar is 25-4/5 grains of a metal
compound coined, of which nine parts are pure gold and one part a
hardening alloy. It is a definite _quantity_ of a thing definitely and
legally described. It is a visible and tangible and well-known
_commodity_. Government is competent, if it pleases, to alter the
quantity of gold that shall constitute a dollar, although the People
will quickly and roughly readjust the prices of Services to a changed
measure of them; it is competent even to make a dollar out of silver,
as our Government has tried to do (for the most part vainly) for a
century, though it is _not_ competent to cause both dollars to
circulate as such at the same time; but civilized and advanced
Governments are not practically competent to make a Dollar out of
anything else than gold and silver.

Money is a current and legal Measure of Services; for the end and in
the way in which Money alone originates and becomes current its
material must be a valuable commodity; and after centuries of
experiments and exclusions no civilized People now tolerate any other
commodity in this relation than gold or silver. Such a selected
commodity becoming in the manner already explained an actual medium
passing from hand to hand in Exchanges, impresses its _name_ on the
minds of men as an ideal _measure_ of services, which measure they can
use, and do constantly use, without handling at the time the commodity
itself. But these ideal-dollars, these denomination-dollars, need to
be kept in check by a constant recurrence to actual, palpable
thing-dollars. The denomination only comes into existence in
connection with the use of the thing, cannot possibly exist
independently of it, and needs constantly to be reduced to it (as it
were by actual contact) in order to be useful as a measure. Just as
men talk about inches, and calculate by inches, in thousands of cases
in which no actual inch is used as a measure, and in every case of
doubt, dispute, or difficulty have recourse to the actual inch, and
thus the ideal inch is kept steady in the minds of men by frequent
reference to the outward standard; so the mental measure of services,
which men insensibly acquire from the use of the objective measure,
needs to be kept true by actual and frequent contact with that

But besides this Thing-Dollar and its Denomination, which always go
together like a man and his shadow, there is one other kind of Money,
namely, the Promise-Dollar. We must now attend to this. What is a
Dollar-Bill? How does it read? It is always a Promise of some Issuer
to pay to bearer One Dollar, that is to say, this legal and definite
quantity of a precious metal. There is no mystery here. There can be
none. A Dollar is a tangible and weighable commodity. A Dollar-Bill is
a Promise to render this commodity to bearer on demand. The difference
is the same in kind as that between a bushel of corn and a man's
promise to his poor neighbor to give him a bushel if he will come for
it. It depends on the _man_, on his ability and character, how much
the corn-promise is worth; and so it depends on the _issuer_, on his
ability and character, how much the coin-promise is worth. The Issuer
may be of such standing as to be able to secure for his promises that
they become "a current and legal measure of Services"; and if so, they
become Money under the definition.

There is, then, such a thing as Paper-Money, though many high
authorities are reluctant to concede, that any mere promises can be
money at all. For ourselves we cannot refuse the courtesy of the term
"money" to paper-promises-to-pay-coin, which our Country makes a legal
tender for all debts, public and private. The making them legal
tender, however, does not alter their nature one particle. They are
still promises,--and nothing more. Their _Value_ depends in all cases
upon the character and resources of the Issuer; their _Currency_ may
be quickened (at some rate of value) by their being made a legal
tender. Nothing can by any possibility become a Money unless it first
be a Valuable. The essential characteristic of Money is its possession
of a _generalized_ purchasing-power. The Value of a promise depends on
one set of causes, with which we are now very familiar,--the same
causes on which the value of everything depends; the Generalization of
any purchasing-power into money depends upon another set of causes, of
which the action of a Government in legislation may be one.

Paper-Money, as now defined, may be issued by Banks with or without an
indirect government sanction, or through the direct action of
Government. The Bank of England has been issuing since 1694
paper-money under a series of Charters granted by the Government,
which becomes thereby in a manner responsible to the bearers for the
redemption, that is, the fulfilment, of the direct promises of "The
Governor and Company of the Bank of England"; since 1863 the so-called
National Banks of the United States have issued promises-to-pay,
designed to circulate as money, under the direct authority and
quasi-endorsement of the national Government; and since 1862 that
Government has been putting out directly its own promises commonly
called "greenbacks." These last have rested and now rest for their
value solely on the good faith of the People as between themselves.
By a separate and additional act of legislation, which it is
mischievous as well as unscientific to confound with the original
promise-legislation, this particular paper-money was and is legal
tender for debts, which collateral circumstance whether wise or unwise
neither changes the nature nor lessens the obligation of the original
promise to pay coin. No so-called Decision of the Supreme Court can
abolish or abridge a natural and scientific distinction. Money is at
bottom of two kinds only: the first kind is an intermediate and
equivalent merchandise, COIN; and the second kind is Promises to pay
this to a bearer on demand, PAPER MONEY.

The only way to make any promise respectable is to fulfil it in due
time. The only way to make Paper Money a decency is to hold sacred in
action the promise that distends it. The United States undertook in
1862 and onwards to make its own plain promises respectable by a
different method, namely, by legally asserting in substance that the
_promise_ is its own _fulfilment_, and needs no other; and in this
persistent undertaking encountered a miserable failure throughout;
because the People also persisted in _estimating_ the promise solely
in the light of the _prospect_ of its literal fulfilment. The
greenbacks at one time lost two-thirds of their normal value under the
working of such estimation. This question of the relation of two kinds
of Money to each other is a question of Economics, and not of
Constitutional Law; or rather, it is a question of common sense and
common honesty, and the judgment upon it of nine men learned in the
Law is no whit better than the judgment of nine other intelligent men.

As Money is analyzable into two varieties only, Coin and Paper, so
Paper Money falls into two classes, Convertible and Inconvertible. A
convertible paper money consists of promises that are always _kept_
by the issuer according to their terms, that is to say, that are paid
in specie at the will of the holder. An inconvertible paper money is
only another name for unfulfilled promises. Is it any wonder that
unfulfilled promises to pay invariably become less valuable than
_that_ which they promise to pay? They are valuable to start with,
else they could not become money, and they are valuable because men
suppose the promise will be kept: they are commonly valueless to end
with, because men lose faith in the fulfilment of a promise long
delayed. This is the simple secret of the depreciation of
inconvertible money so soon as the amount of it passes a certain
limit, and so soon as a certain time has elapsed after its issue and
the issuer shows no signs of keeping his word. As money is only a
measure of Services, and as possible Services are limited at any one
time and place, and consequently as the amount of money needed for
healthful business is limited also, a steadily convertible paper
money, provided the limit of quantity be not overpassed, will
constitute a tolerable money. But this limit of quantity is apt to be
overpassed, whether the paper money be convertible or inconvertible,
and especially in the latter case, because the temptation to issue
promises to pay in excess of the means of promptly redeeming them
always besets the issuer on account of the _gain_ to him in such issue
at least for a time. This temptation has been yielded to first or last
by every nation, and probably by every corporation, that has ever
issued paper money. The Bank of England has been on the whole the best
managed Bank of Issue in the world, and its Bills (Promises) have
gained the most confidence and the widest circulation. This is because
they have been kept by the Issuers _convertible_ from the beginning,
with the exception of two comparatively brief intervals of time. As
already related under the last general proposition, the silver coins
of the realm were much worn and clipped when the Bank was established
in 1694, the Bank, however, had received them on deposit of customers
at their full nominal value; but after the Recoinage began in 1696, it
was obliged under the law to redeem its Bills in new coin of full
weight, that is, for perhaps 9 ounces of silver received, it was now
bound to pay 12. Consequently its enemies, the Jacobites, made a "run"
upon the Bank by collecting up its Bills to a large amount and
presenting them for payment. The Bank was obliged to suspend payment,
at first partially, and then generally. In February, 1697, the Bills
were 24% below par. The Promises could not be kept, and therefore they
drooped in value according to man's estimation of the probability of
their becoming again _convertible_, which happened in the course of
that year under a new charter and privileges from Government to the

Just 100 years after the first suspension of specie payments, in 1797,
when the War of the French Revolution made such demands upon the
English for money, the Bank broke its solemn promises the second time,
and did not formally resume payments until 1821. Government and the
business men of London did their best to hold up the credit of the
notes during the suspension, _but they were not made a legal tender
for debts_. Government received them at par for taxes, and provided
that business payments in notes would be held as payments in cash if
offered and accepted as such. Debtors, having tendered bank notes,
which the creditor refused, had certain privileges before the law
which other debtors had not. The notes therefore had a _quasi_
legalization, but not a forced circulation. The bank was also
authorized at this time to issue £5, £2, and £1 notes. Cautiously
issued at first, bank paper continued at par for several years after
the suspension, which proves that when government possesses the
monopoly of issuing paper money, and carefully limits its quantity,
and both receives and pays it out at par, it may keep an inconvertible
paper at par, or even by sufficiently limiting its quantity carry it
above par. But this truth does not make an inconvertible paper a good
money, because it does not make it a self-regulating money, and
because government is not wise and firm enough to fix and maintain a
proper limit. Though Parliament intended in successive acts to confirm
to the Bank of England the monopoly of banking by enacting that no
partnership of more than six persons should take up money on its own
bills, yet the common law assured to private persons and smaller
partnerships the right to do this; and private bankers multiplied
after the suspension, since they were allowed to pay their notes in
Bank of England notes. Thus the quantity of paper money gradually
increased till in August, 1813, the Bank of England notes were at 30%
discount in gold.

The United States, both as Colonies and as a Country, have had varied
and instructive experience with inconvertible paper Money. We will
glance at two or three specimens only. The first issue of Treasury
Notes, commonly called Greenbacks, given by Congress the quality of
legal tender for all debts, public and private, except duties on
imports and interest and principal of the national bonds, was made in
April, 1862, and was justified in Congress and out solely as a war
measure. An aggregate of $450,000,000 was put out in all, of which
$87,000,000 were afterwards taken in, and the balance was still
circulating in 1890. In one month after the first issue of
$150,000,000, these greenbacks began to droop in value as compared
with gold; in four months, when the second batch of $150,000,000 was
authorized, their depreciation was already marked and firm; and in
nine months, when President Lincoln reluctantly gave his approval to
the third issue of the same amount in order to pay off the soldiers
and sailors, he uttered a solemn protest against the policy of thus
inflating the current money, which, he said, "_has already become so
redundant as to increase prices beyond real values, thereby augmenting
the cost of living to the injury of labor, and the cost of supplies to
the injury of the whole country_." In March, 1863, $50,000,000 of
paper promises for fractions of a dollar were authorized, redeemable
in sums of not less than three dollars in greenbacks, and receivable
for all dues to the United States less than five dollars, except for
duties on imports. Subsidiary silver coins have since taken the place
of these fractionals. In July, 1863, the greenback dollar had lost
one-quarter of its nominal value; in July, 1864, it had lost almost
two-thirds of its nominal value, as its lowest point was reached in
that month, namely, 35 cents as compared with the gold dollar; in
July, 1865, it had risen to 70 cents; in July, 1866, it stood at 66
cents, just two-thirds of a dollar proper; and from that time it
slowly rose, with many fluctuations, till New Year's, 1879, when it
became legally and actually redeemable in gold and silver. Its
variations for the sixteen years, however, cannot be counted by the
number of years, nor even by the number of days; for they were
numerous on each business day, and, as Comptroller Knox says, "_can
only be numbered by tens of thousands_." What a Measure of Services
that was!

Between 1863 and 1879 the Bills of the new national Banks were
redeemable in the greenbacks only, that is to say, one species of
national promises-to-pay were paid on demand by another species of
similar promises, both alike inconvertible into coin; and, as a
natural consequence, the bank-bills bobbed up and down in value in
servile obedience to the inconvertible legal tenders.

Massachusetts Colony was the first constituent of the present United
States both to mint silver, and to issue irredeemable promises to pay
it. Under the false impression that only Money made inferior to
Sterling would stay in the Colony, Massachusetts began to mint in 1652
silver shillings and sixpences and threepences purposely debased in
weight (including seigniorage) 22% below sterling. The silver for
these coins came in mostly from the trade with the West Indies, to
which were now shipped peltry, fish, various forms of lumber, beef,
pork, pease, cattle, and horses, for which they took mainly sugar,
molasses, rum, and silver. "_They would have brought more silver and
less rum and other merchandise, had the first been in greater request
at home._" (Bronson.) John Hull, the mint-master took out 15 pence out
of every £ for his own pay, and grew rich by the process. That was
over 6%. In 1662, a twopenny piece was added to the series, and the
mint existed (sometimes idle) for over 30 years, but all the pieces
coined bore the dates of 1652 or 1662. This paucity of dates is
commonly and perhaps properly accounted for on the ground that coining
in the colony was contrary to the prerogative of the Crown; but it is
to be added that John Hull was not a man to get new dies so long as
the old ones would answer his purpose. The law forbade the exportation
of these pieces under the penalty of thereby forfeiting one's whole
visible estate; because, though this money was much worse than
sterling, there was a worse money than this circulating in the colony,
and Gresham's law began to crowd it from the first, and to some extent
it was both smuggled out and clipped down. But it furnished a sort of
standard, nevertheless, and tended to keep the later money within
distant sight of the silver, and became the reason why in New England
there were six shillings to the dollar. The Spanish pillar dollar,
which was the standard in the West Indies, was worth 4_s._ 6_d._
sterling; and in 1672 a law was passed in Massachusetts allowing these
dollars to circulate at 6_s._ provincial, which was a discount on the
home pieces of 25%. Ever after there were six shillings in a dollar in
New England. Hull's money is called the "pine-tree" coinage, and was
the only coin money minted in the country till after Independence.

Also in 1690 Massachusetts set the first example, which was imitated
20 years later by the other New England Colonies and by New York and
New Jersey, of issuing "Bills of Credit" to meet the expenses of the
two disastrous Expeditions against the French in Canada. Those Bills
were not made legal tender in private payments, and pains were taken
to keep up their credit, but they were depreciated from the first, and
came to be very much depreciated. Massachusetts and Connecticut made
their bills receivable for taxes at a premium of 5%, laid special
taxes for their redemption, and from time to time called in portions
of the issues. In 1718 Connecticut enacted that a debtor tendering
these bills should not be liable to legal execution on his estate or
person for the payment of that debt, an expedient, as we have seen,
resorted to by England in the great Bank restriction of 1797-1821.
These early New England bills bore no interest, were not loaned out by
the colony, and were a convenient though dangerous means of
anticipating the income of future taxes; but after 1712 a paper money
scheme originating in South Carolina came into favor in the colonies,
which was, to open loan-offices for the issue of colony bills on the
mortgage of land, the interest on which helped to pay the colony
expenses, the principal of which at first, and on being paid back and
re-loaned, furnished a capital to borrowers, while the bills
themselves furnished a money for the people. Pennsylvania had the best
luck with this scheme of all the colonies which tried it: as early as
1729 Benjamin Franklin became thoroughly possessed of John Law's
notion, that paper money may be "based" on land or other valuables,
saying in a pamphlet of that year that "_bills issued upon land are in
effect coined land_": Pennsylvania bills nevertheless were at 46%
discount in 1748. Some of the later colony bills bore interest, some
were of a "new-tenor," so-called, designed to take up the old
ones,--Virginia in 1755 made hers a legal tender for debts,--some were
issued in bounties for Indian scalps and for various manufactures and
fisheries, but all ran one road of depreciation and gave birth to one
set of results. Connecticut managed her issues the best of the
colonies, and yet Bronson says of the state of things in that colony
in 1749, "_Trade was embarrassed and the utmost confusion prevailed:
no safe estimate could be made as to the future, and credit was almost
at an end: no man could safely enter into a contract which was to be
discharged in money at a subsequent date: prudence and sagacity in the
management of business were without their customary reward._"

John Law, a shrewd Scotchman, born in Edinburgh in 1671, son of a
goldsmith, with an innate talent for finance and well educated, was
the first to give scientific form and color to the false theory that
paper money _represents_ commodities of some sort, and may be issued
to an amount equal to the value of these. "_Any goods that have the
qualities necessary in money may be made money equal to their value.
Five ounces of gold is equal in value to £20, and may be made money
to that value; an acre of land is equal to £20, and may be made
money equal to that value, for it has all the qualities necessary in
money._" The fallacy in these words of Law is patent enough to any one
who will stop to think a moment about the _nature of Money_. Because
land, for example, has value, it does not follow that it has "_all
the qualities necessary in money_"; and, as a matter of fact, it lacks
the precise quality necessary in money, because, though it has
purchasing-power, it cannot from its very form and nature become _a
generalized and current_ purchasing-power. Money is indeed a valuable
thing, but that does not prove that all valuable things can be money.
With this radical vice of Law's view was wrapped up another, namely,
that there may be in any country as much paper money as the sum of the
values of all its valuable things. Now, we have learned perfectly,
what escaped the acute intellect of John Law, that Money is only a
valuable _measure_ of all other salable Services; and therefore, that
the amount of it that can be made useful at any one time and place is
strictly limited, and bears very little relation to the sum of the
values present at that time and place.

Scotland fought shy of Law's idea when he published it there in 1705,
and so did Paris the first time he visited that city, in which and in
other cities he gambled successfully and talked finance to princes and
statesmen fascinatingly; but when he returned to Paris in 1715 with
his ill-gotten fortune, he gained the ear of the Regent Duke of
Orleans, who permitted him to found a bank there, in which were
incorporated some sound principles of monetary science as well as the
prime fallacy of his system. The bank bought a portion of the State
Debt, just as the Bank of England had done, and laid in also a fair
stock of coin, and thereupon issued a paper money. For a couple of
years, or so, the bank surpassed all hopes, for Law had touched a
spring till then but little known in France, the potent spring of
Credit. But his whole thought, meditated on for years, could not be
expressed through a private bank. The State should be a banker; it
should collect all its revenues into a central bank, and attract the
money of individuals to it as deposits; besides, the State has public
property of vast value, on the strength of which paper money can be
emitted and made legal tender; and thus the State, instead of
borrowing, should lend to all on easy terms and the profits thus
accruing would lessen or abolish taxes. Nor was this all. The State
should also be a merchant; the whole nation should form a commercial
company, a body of traders, whose common treasury should be the State
bank. Commerce by individuals creates great wealth; why should not the
organized commerce of a State make everybody rich? The discounts of
the bank, and the profits of the trade, would surely provide for the
public service without taxation. These vast ideas were actually
carried out. Law's bank became the Royal Bank, issuing a paper money
guaranteed by the State and resting back upon the value of all
national property. The money was receivable in taxes, nominally
redeemable in coin, and made a legal tender. It actually bore at one
time 5 and 10% premium over gold and silver. People were anxious to
exchange their coin for notes. Meanwhile a commercial company was
formed in connection with the bank, to which the State ceded at first
the monopoly of the commerce of Louisiana and of the Canada beaver
trade for twenty-five years, and the soil of Louisiana forever; under
the auspices of which NEW ORLEANS was founded, and named from the
Regent, the patron of the grand system; and in succession, the
monopoly of tobaccos, the rights of the Senegal Company, of the East
India Company, of the China Company, and of the Barbary Company;
until, having almost all the commerce of France outside of Europe in
its hands, it entitled itself the COMPANY OF THE INDIES. Its shares
rose from a par value of 500 francs to 10,000 francs, more than forty
times their value in specie at their first emission. To support such
speculations, which completely turned the heads of all classes of the
people, the amount of paper money reached at last the sum of
3,071,000,000 francs, 833,000,000 more than had been legally
authorized to be emitted. The collapse of this most gigantic bubble of
history was terrific. Before the close of 1720, the shares of the
Company could be bought for a louis d'or, or twenty shillings
sterling, and the paper money of course became worthless.

The ghost of John Law reappears gibbering and chattering in some human
shape once in a generation or two in all civilized countries. In
March, 1890, Senator Stanford of California, himself reputed to be
worth $30,000,000, propounded the question in the Senate of the United
States, whether it were not advisable for the Government to issue
legal-tender notes on the basis of the real estate of the country. His
interrogative argumentation implied, (1) that there was a scarcity of
Money causing great hardship to individuals and depression to
business, (2) that if national bank bills are properly issued on
government bonds it is equally proper to base legal tenders on real
property, (3) that there is no natural and strict limitation to the
amount of Money in a country at any one time, and (4) that as far as
he knows there may well enough be as much money in amount as the
estimated value of the real estate. All this is John Lawism pure and
simple. All this utterly ignores the nature of Money as a valuable
measure of all other Services. It also ignores the truth, that an
advancing country needs less rather than more Money in amount as it
advances, because cheques and other forms of non-money Credits are
constantly increasing both absolutely and relatively. It is because
this Senator's monetary notions seemed to correspond with those of a
majority of the Senate, that it is perhaps proper to give them here a
moment's attention.

These supposed legal-tender notes would be secured by a government
lien on land and buildings, and by the direct credit of the Government
as well; just as the national bank bills are secured by the bonds of
the nation held in reserve for that purpose, and also by the direct
image and superscription of Cæsar upon every bill. People holding
mortgaged real estate could accept a non-interest bearing government
lien instead of a 6% or 8% private mortgage, that is, could pay off
their mortgages with the legal tenders given them by the Government,
the latter taking the lien or new mortgage; and people owning real
estate clear could, if they chose, execute a perpetual mortgage to the
Government, that is, give up the fee simple to their lands, and
receive legal-tender notes to the full amount in return. This would at
least relieve the "scarcity" of Money! The volume of national Money at
that moment was in round numbers $1,400,000,000; the assessed
valuation of the real property of the country was at the same moment
at least $15,000,000,000; so that, on this scheme, perhaps
$10,000,000,000 of additional legal-tender Money could be issued! Here
is paternalism and socialism and John Lawism all combined. Here is a
Government of strictly limited and carefully enumerated powers, under
a written Constitution as precise as language can make it, containing
the solemn declaration that all "powers not delegated to the United
States are reserved to the States respectively or to the People,"
owning or soon to own not only the railroads and the telegraphs but
also the major part of the lands of a free country, and going into the
mortgage business on the heroic scale!

If this honorable Senator and his like-minded colleagues were
tolerably familiar with the financial history of their country, and
perhaps they were, they would have known that this precise scheme had
had a practical trial in Rhode Island, just before the adoption of
the national Constitution. The Legislature authorized the issue of
$500,000 in scrip-money based upon the value of the real estate of the
farmers of the Colony. The law required a mortgage for twice the
amount of scrip-money based upon it, and it was therefore supposed the
money would be as good as gold or better. But somehow or other the
merchants of the towns could not see the matter in that light. The
depreciation of the scrip-money began at once, and the prices of wares
ran up in a way that should have set business in active motion,
according to all the views of the "scarcity" school. It was therefore
enacted by the Legislature, that anybody who refused to accept the
scrip at its face value should be fined $500 and lose the right of
suffrage! They made it a legal tender! But business refused to boom.
The merchants shut up their stores, the farmers could not market their
crops, and idleness and rioting set in all over the State. Then the
farmers organized a boycott against the towns, and food became scarce.
Meanwhile the mortgage legal tenders would not pass at the best for
over 16 cents to the dollar! There was more of "enforcing"
legislation, and appeal to the courts, but nothing could boost the
mortgage-money. The chief result of the experiment was, that Rhode
Island gained in this way the title of "Rogues' Island."

No matter how good the cause, how patriotic the People, an
inconvertible paper money is sure to run down at the heel. In June,
1775, one week after Bunker Hill, the Continental Congress voted to
emit $2,000,000 in "Bills of Credit" issued on the faith of the
"Continent." Eleven separate Colonies, New Hampshire and Georgia
issuing none, began about the same time their revolutionary issues of
the same sort, amounting in all during 1775-83 to $209,524,776. The
vice of such irredeemable scrip is, there is no economical limitation
of the Supply. The middle of 1777, when Burgoyne was prosperously
advancing from Canada towards New York, saw a general fall of the
notes both Continental and Colonial, and of course and in consequence
a universal rise of the prices of other products. At the close of that
year, the average depreciation from silver was not far from 3 to 1; at
the close of 1778, it was not far from 6 to 1; at the end of 1779, it
was about 28 to 1; the Continental press then rested, after
$200,000,000 nominally had been put out, but actually about
$40,000,000 more than that, a usual if not universal accompaniment of
such issues. When the stuff dropped out altogether in the spring of
1781, the country found no more lack of silver for Money than
Massachusetts had found in 1749, when and after she redeemed her
outstanding bills of credit at 11 for 1 in sterling silver, £138,649
of which, the share falling to her from the capture of Louisburg, was
shipped to the Colony in coin, and she became for the next 25 years
the "Silver Colony." Assuming that only $200,000,000 Continental had
been issued, Thomas Jefferson carefully estimated that the Nation
realized from them $36,367,720 in specie value, or 18% of the nominal

14. Whether the Money of any Nation be coin or paper or both, when
once it is in the hands of the People, Government has properly nothing
to say _about the rate of interest at which one person loans this
money to another_. Usury Laws so-called, prohibiting the lender from
taking more than a prescribed rate % for the use of money loaned,
under penalties sometimes of the entire interest and sometimes of the
entire debt have disfigured the statute-books of all Nations and of
all the States of this Union. Such laws cannot justify themselves for
a moment in the light of sound principles of Political Economy. Their
origin may be explained by a reference to two false views, now
happily exploded.

(a) The laws of Moses forbade to the Israelites the taking from one
another any _interest_ on money loaned, but at the same time it
allowed them to take such interest freely of strangers; the permission
in the one case going to show that there is nothing in the taking of
interest that is unjust or sinful, and the prohibition in the other
being readily explainable from the general purpose of the municipal
regulations of Moses, which was to found an agricultural and not a
trading commonwealth, in which every family was to possess land that
could not be permanently alienated or sold, in which it was a great
object to maintain the personal independence and equality of these
families, in which the law for the recovery of debts was very summary
and effective, lessening the risk of losing the principal, and which
was to be and was sedulously separated in its usages from the
surrounding nations. It has been well understood for a long time that
the municipal code of Moses was local and peculiar, not necessarily
applicable at all to the circumstances of other States, and in no
sense binding on the conscience of legislators; and yet there
doubtless sprang from the prohibition referred to a prejudice against
interest, and this prejudice was perhaps deepened in the Middle Ages
and onwards by the conduct of the Jews themselves, who, in addition to
their sin of persistently growing rich in spite of the endless
disabilities laid on them by the people of Europe, always demanded, in
accordance with the permission of their great lawgiver, a good rate
_per centum_ of interest from those strangers to whom they became
money-lenders. The Jews were everywhere hated, and consequently the
usury which they practised was hated also. The fundamental absurdity
of forbidding in trading communities the taking of interest on sums
loaned to a borrower which he was at liberty to use for his own
profit, deterred the nations from going to the length of prohibition,
unless it might be in the case of the hated Jews. There is a clause of
Magna Charta, interesting as showing how early the children of Abraham
became the money-lenders of Europe, to the effect that, during the
minority of any baron, while his lands are in wardship, no debt which
he owes to the Jews shall bear any interest.

(b) Governments formerly deemed themselves competent to determine and
fix the _general_ purchasing-power of their own money. Even the
Constitution of the United States uses this language: "to coin money,
_regulate the value thereof, and of foreign coins_." There was
formerly, and there is still to some extent, a curious and harmful
confusion in the public mind in respect to this term, "the value of
money." In the only proper sense of the term the _value of money_
means its power of purchasing services in general, and the value of
money is _high_ when a given sum of it will purchase much of general
services, and _low_ in the contrary case; and a high or low value of
money in this true sense depends on a very distinct set of causes from
those which determine the high or low rate of interest on money
loaned; nevertheless, so long as governments supposed that they could
regulate the former, it is very natural that they should also suppose
that they could regulate the latter; and although all intelligent
governments have given over the idea of being able to regulate the
general value of the money they furnish to the people, many of them
still adhere to the notion, equally false with the other, that they
_are_ able to regulate the loanable value, or the rate of interest, at
least to prevent any more than their prescribed maximum rate from
being taken. A few simple considerations will sufficiently condemn all
usury laws.

(1) It is at once needless and invidious to deny by law to
money-lenders, who offer just as honorable and useful services to
society as any other class of men, the privilege of selling _their_
service for what it will bring in the market, while other men in every
department of business are allowed to exchange their services on the
best terms they can make without interference or control. Let us see
precisely the nature of the transaction when one man loans money to
another. It is a clear case of value. The lender does a service to the
borrower, and for this service justly demands a compensation. The
service is this: The lender might himself use the money to gratify his
own desires. It is his money; he may use it, as he pleases, for his
own gratification. Or he may himself employ it productively, and, at
the end of the period, receive back his principal with the customary
rate of profit. If he surrenders this advantage to the borrower, if he
passes over to him the right to use this money, say, for a year, he
practises what we call in Political Economy _abstinence_. For this
abstinence he has a right to claim a reward, precisely as the man has
a right to claim a reward who foregoes working for himself in order to
work for another. This reward of abstinence is _interest_. The
money-lender foregoes an advantage. He performs a service for the
borrower; and, therefore, the right to interest stands on just as
unassailable ground as the right to wages. Moreover, the loanable
value of money varies under Supply and Demand just like other values;
there are always those who want to borrow, and always those who want
to lend; both parties must be assumed to know their own minds, and to
be equally competent to make their own bargains; it is a case of
mutual exchange for a mutual benefit, like all other trade; and the
current rate of interest is determined at any one time by the actual
free exchanges between borrowers and lenders. Now for any government
to try to compel a lender by law to take only 6% when his money is
worth 8, is a direct violation of the rights of property. It is a
forcible and pernicious interference with the freedom of contracts. It
is based on the false premise that the loanable value of money is
uniform, and that government is competent to determine what it is. No
value is uniform. And no government is competent to determine even the
maximum price of money loaned, any more than the maximum price of

(2) Usury laws are almost uniformly _disregarded_, both by the
governments which make them and by the people for whom they are made.
Indeed, such laws cannot be enforced in a commercial community. Common
sense is outraged by a law which requires a man to part with his
property at less than the actual value; and when common sense is
against a law, it stands a slim chance of observance. If the legal
rate be six, and the actual worth be eight, who lends at six? Not the
banks. They require deposits of their customers, the use of whose
money shall make up to them the difference between the legal and the
actual rate. The modes of evasion are various, but they are adequate
and universal. Besides, governments themselves have shown a noteworthy
inconsistency in this matter, which incidentally proves the
unsoundness of their whole action. While announcing pains and
penalties to those who take more than a given rate, they are careful
never to bind themselves down to any given rate. Governments are
always more or less borrowers, and if usury laws are necessary in
order to help borrowers in a pinch, there ought to be a clause in the
organic law of every country, forbidding the government to pay and its
lenders to take any more than a certain rate per cent. There is no
such clause in any organic law. Governments wisely follow the natural
market, and borrow low when they can, and pay high when they must. In
the last months of Mr. Buchanan's administration, the United States
paid 12% on a public loan, and could get but little at that. Sauce for
the goose is sauce for the gander, and if usury laws are good for the
citizens, some solid reason ought to be rendered why they are not good
for the government. The truth is, they are not good for either, since
natural laws are perfectly competent to regulate the rate of interest,
and do regulate it substantially in spite of a factitious,
impertinent, and mischief-making interference.

(3) If Usury laws were _not_ disregarded, they would be even worse in
their effects than they are now. We must suppose that their aim is to
aid borrowers, and make it easier for them to contract loans. But are
borrowers, as a class, any more deserving of the fostering care of
government than are lenders? Even if it could make its interference
effective, as it cannot, is there any reason why government, leaving
these borrowers to make all other bargains, sales, and transfers
according to their best skill and judgment, should rush to their
rescue only when they propose to borrow money? If they are competent
to do their other business for themselves, government pays their
capacity a poor compliment in undertaking to help them in the single
matter of making loans; and the borrowers in turn have reason to pray
to be delivered from their friends, since they, of all others, would
be the men especially injured if all the lenders obeyed the usury
laws. Suppose that a borrower is in great need of a loan, and that for
some reason his credit is now a little weak. Many men would be willing
to loan him at 9%, which affords a margin for the extra risk, but at
6, which we will suppose the maximum allowed by the law, he cannot
borrow a dollar, because his credit is not quite equal to the best.
If, therefore, the lenders obey the law, he, and such as he, must
fail. And because it is unlawful to take over 6% he will be obliged to
pay those who are willing to violate the law 10 or 12, to compensate
them for the risk and odium of such violation, while, under freedom,
he could borrow at 8. Moreover, if the loanable value of money at the
time be actually 9, while the law only allows 6, many men will attempt
to use their own capital productively, who would otherwise loan it, in
order to realize the high rate; and this action of theirs still
further restricts the loan-market and makes it more difficult to
borrow. If, then, the purpose of government be to aid borrowers, no
means could be more unskilfully chosen for that end than to pass usury
laws, since such laws, so far as they are obeyed, have necessarily the
opposite tendency; and even when violated redound to the disadvantage
of borrowers, so long as the laws themselves are popularly regarded as
of any legal or moral force.

In 1716, the Bank of England, as a great loaning institution, was
exempted from the operation of all usury laws: why the bank only, and
not other people as well, the Act of Parliament does not state. In
1867, the State of Massachusetts repealed all its usury laws, though
6% is to be understood in the absence of special agreement, and the
result has been entirely satisfactory to all classes of the people.
Rhode Island had done this previously, and Connecticut did it
subsequently, and both have experienced equal satisfaction in the
result. Other States will soon follow in their lead; and this relic of
ignorance and prejudice will pass away. Adam Smith left the Wealth of
Nations disfigured by the concession that governments might properly
enough pass usury laws; but it is gratifying to be able to add that he
was convinced of his error in that by Bentham's book on Usury, and
fully acknowledged his conviction in the spirit of a genuine lover of
truth. We conclude, then, that usury laws are needless, since
interest, like all other prices, will perfectly adjust itself. They
are disregarded, since lenders will loan or withhold their money
according to their own keen sense of interest. They are pernicious,
since they infringe the rights of property, and tend to prevent weak
borrowers from having a fair chance in the market.

The present writing is at midsummer, 1890; and, in order to complete
the entire discussion so far as this country is concerned, it is
needful to add, that, between 1878 (when specie payments were resumed)
and 1890, the circulating medium of all kinds is proven by official
statistics of the highest authority to have increased from
$805,793,807 to $1,405,018,000, or more than 57 _per centum_. This
circulating medium consists of six formal kinds; namely, gold, silver,
greenbanks, bank-bills, gold-certificates, and silver-certificates.
Each of these differs in important respects from each of the rest, but
all come alike under our fundamental classification of Moneys, as
either an intermediate merchandise or promises to render it. This
increase is way beyond any increase in the population of the country,
and way beyond any apparent or proven increase in the national
business; while at the same time the banking facilities of the
country, which always spare the use of Money by substituting cheques
therefor in the wholesale business and in a large share of the retail
business also, have been increasing in equal measure. The number of
national banks, especially in the West and South, has been
multiplying. The use of cheques has been enlarging in every commercial
community in the land. Yet up to the present time all of this vast
volume of Money has been kept at par with gold, and consequently at
the highest state of efficiency for commercial purposes.

What about the immediate future? Science is not prophecy except in a
quite subordinate sense. Congress is loudly threatening at this very
moment to more than double the enforced monthly coinage of silver
dollars at the public expense for the sole benefit of a comparatively
few miners of silver. If this threat be executed upon a long-suffering
people of tax-payers, who will have no one to blame but themselves if
they tolerate the outrage, Science is willing to venture the
prediction, that the monetary standard here will drop from gold to
silver within a twelvemonth or two; that general prices will rise much
beyond the appreciation of money implied in that drop, though they
will be illusory and gainless; that prudent debtors will hold high
carnival for a time at the expense of their creditors; that the
country will become as empty of gold as a contribution-box is of other
money between Sundays; that foreign trade (soon to be explained),
already in a sickening decline, under restrictions and prohibitions,
will hasten to a practical demise; and that the United States, at once
the laughing-stock and the victim to the superior intelligence of
other nations, will come through alternate fever and chills to a
position of common sense and ultimate recovery.



Wonderful is the continuity in the growth of any great Science, and
equally so the persistency of any radical error that once gets fairly
imbedded within it. As we saw fully in the last chapter Money is
nothing in the world but a convenient, intermediate, equivalent, and
easily measurable merchandise; but almost as soon as men began to
analyze Sales and to generalize from their data, a notion nestled way
down in their work, that Sales against Money were somehow or other
different from Sales against other merchandise; and thence sprang up,
particularly among the Romans, what we have called the Bullion Theory.
The broad and the true view was held indeed from the beginning, and
was maintained even among the Romans, as we learn from an interesting
passage in the Roman Law,--"_Sabinus and Cassius think Value can dwell
in another thing than money too, whence is that which was commonly
said, Buying and Selling is carried on in the exchange of goods, and
that view of purchase and sale is very old; but the opinion of
Procullus has deservedly prevailed, who says, Exchange is a particular
kind of transaction different from Selling._"

Science has indeed sloughed off this old and vital error, and most of
its sequels; but Public Opinion in many countries is full of it still;
and Legislation, in our own country at least, is all the time trying
or threatening to transmute merchandise (say silver) into money, as
if that could raise its value or change its nature.

It was but a single step from the Bullion Theory to the Mercantile
System. If money be somehow different from and better than
merchandise, then each nation should strive to handle its foreign
trade so as to get back from other nations more money than it renders
to them in exchange: in other words, each nation must try to sell to
the rest more goods than it takes goods back in pay, so as to have a
"_balance_" come in of gold and silver. How natural the transition
from Bullionism to Mercantileism! And it was a step of genuine
progress too. Goods are good, and there is profit in their exchange;
but gold is somehow better than goods, and we must manage somehow to
get a "balance" in that! If this position had only been sound, and one
nation only been in possession of the precious secret, how nicely it
might have worked for that nation! But all the leading Nations of
Europe made the transition from Bullionism to Mercantileism at one and
the same time, and they vexed and impoverished each other for three
half-centuries, and went to war with each other besides, under the
double illusion, (1) that gold could be practically gotten in that
way, and (2) that if gotten it were one whit better than the goods for
which it would have been at once spent.

Economics as a Science is now free from every taint of Mercantileism
also, but it lingers on more or less in half-informed minds, and in
the less-experienced nations; and the system itself merged itself
three half-centuries ago into another, which is not another, namely,
into Protectionism. If nation A must sell more goods to nation B than
it takes back in goods, so as to get the coveted "balance" in gold
from B, would it not help that cause along to put obstacles in the way
of restrictions or prohibitions against the introduction of goods
from B to A? Less goods, more gold, argues A. A forgets that the same
mental processes are going forward in B's mind towards the same
conclusion in relation to A. Now, cogitates A, what kind of goods from
B had we better restrict or prohibit? A, by the way, consists of some
millions of individuals, some of whom are always on the watch to get
their axes ground at the government grindstone. What kind of goods
shall we prohibit from B? Why, of course, those kinds which we are now
making or growing. We can supply these for ourselves. It does not
escape the notice of these makers and growers, that the restriction or
prohibition of similar goods from B will raise the price at home of
their own goods. Scarce is ever costly. On go the restrictions,
ostensibly at first in behalf of an imaginary "balance" in gold, which
fragile reason soon passes out of mind in the presence of a very real
reason for such restrictions, namely, artificial high prices for
certain domestic goods, paid indeed by the entire home community to
the comparatively few makers or growers of the goods now "protected,"
as the current phrase is. Mercantileism has passed over into
protectionism. The feeble friends of a "balance" have now become the
strong friends of a "monopoly." Personal greed to grow rich at the
expense of one's own countrymen thus becomes the single or combined
force that puts on and keeps on and piles up the so-called
"protective" restrictions and prohibitions.

Scientifically Protectionism is as dead as Mercantileism and
Bullionism. There is not an Economist in Christendom, of any
international or even national reputation, who now undertakes fairly
and squarely by means of analysis and induction, to propound or defend
a scheme so contrary to common sense and common honesty as this is,
and which, universally applied, would annihilate the commerce of the
world. But many of the nations are still tinctured more or less by the
old subtlety, and powerful classes within them and specially within
the United States, classes grown rich and powerful by what is nothing
else than public plunder, are strenuous and successful advocates, not
in open discussion and fair debate but by clandestine and corrupting
methods and combinations, to maintain in the light of the nineteenth
century an outworn and decrepit "something" worthy only of the dark
ages. The old and foolish cry for a "balance of trade" is merged now
in the United States into the insane and hateful clamor for the
destruction of public trade in the behalf of private gain.

This is the sole reason why we must now undertake a careful chapter on
Foreign Trade. There is no reason in the nature of things, or in the
nature of trade, why Foreign Commerce should be treated of separately
from Domestic Commerce. The two are precisely alike in all their
principles and in all their results. In one as in the other, in every
case and everywhere, there are (1) two persons, each of whom has a
Service in his hands to sell against a Service in the hands of the
other; (2) two reciprocal estimates, by which each owner concludes
that he prefers the Service of the other to his own; (3) two mutual
renderings, by which each Service comes into the possession, present
or prospective, of the new owner; and (4) two personal satisfactions
as the result of all, constituting the ultimate motive and the sole
reward of Buying and Selling.

There are two possible differences in certain cases between Domestic
and Foreign trade, both superficial and but barely worth the mention
here. Foreign countries engaged in trade _may_ be more remote from
each other than places exchanging products within the same country.
The distances, however, between Bangor selling ice to New Orleans for
sugar, and Boston selling boots and shoes to San Francisco for fruits
and wine, are much greater than those between Liverpool and St.
Petersburg, or those between Stockholm and Palermo; so that, it may be
said in general, that the trade between all the European countries
confronts less distances, and presumably less costs of transportation,
than the trade within the United States. And another thing is to be
said in this connection: Foreign trade as a general rule is conducted
by water-routes, and domestic trade under the same rule is carried on
by land-routes; and, therefore, the costs of transportation by the
latter are much more expensive.

The other possible difference is more considerable, and considerably
more in favor of Foreign as compared with Domestic trade. We have
learned perfectly already, and the point is fundamental, that all
trade proceeds on the sole basis of a relative Diversity of Advantage
as between the two parties exchanging. This relative superiority of
each exchanger over the other at different points depends in domestic
trade partly upon divergent natural gifts to individuals, partly upon
their concentration of mind or muscle or both on a single class of
efforts each, and partly upon the use and familiarity in the use of
the gratuitous helps of Nature aiding that class of efforts. But in
foreign trade there are commonly some additional grounds of Diversity,
since the various countries of the earth have received from the hands
of God a diversity of original gifts, in climate, soil, natural
productions, position, and opportunity. And besides these original
international differences, there has been developed of course in the
history of the inhabitants of these countries a diversity of tastes,
aptitudes, habits, strength, intelligence, and skill to avail
themselves of the forces of Nature around them. International trade,
accordingly, is somewhat more broadly and firmly based than the home
trade can be, inasmuch as these international differences are apt to
be more inherent and less flexible than domestic differences between
individuals; it is on these diversities, original, traditional and
acquired, that international commerce hangs; it could never have come
into existence without them; and it would cease instantly and
completely were they to fade out. Men engage in foreign trade,--not
for the pleasure of it,--but for the sake of the mutual gain derivable
to both parties; they desist from it so soon as that mutual gain
disappears; and there is no gain in any series of exchanges, unless
each party has a superior power in producing that which is rendered,
compared with his power in producing that which is received.

With these few preliminaries, we pass now, in the first place, to
For the sake of illustrating these, we will now take a simple supposed
case, a trade between England and France in cottons and silks, and
follow it through clearly to the end.

1. When will it be mutually profitable for England, that is, for
certain English merchants, to send cottons to France to buy silks
with, and for France, that is, for certain French traders, to send
silks to England to buy cottons with? Money and all other commodities
except these two, silks and cottons, are wholly out of the question
now and should be wholly out of our minds the while, though for
simplicity's sake we shall use the _denominations_ of money for
comparing the respective efforts, translating pounds and francs into
dollars. The answer is easy: the trade will be mutually profitable,
when efforts bestowed in France upon silks will procure through
exchange with England more of cottons than the same amount of efforts
bestowed in France upon cottons will produce of cottons directly;
_and_ then, when efforts bestowed upon cottons in England will
procure more of silks through exchange with France than the same
amount of efforts bestowed in England upon silks will produce of silks
directly. It is not a question of the absolute cost of either
commodity to the parties producing it, or of a comparison of those
absolute costs at all, but a question of the relative cost of that
produced in either country compared with what would be the cost of the
other commodity were it to be produced in that country. So long as
there is a difference of relative efficiency in the production of the
two commodities in the two countries, so long, setting aside the costs
of carriage, may there be a profitable exchange of the two. A demand
in each country for the product of the other is of course presupposed
in the illustration.

Suppose now, that Efforts in England on certain cottons be gauged at
$100, and that Efforts in France on certain silks be gauged at $80,
and that these finished commodities then exchange even-handed against
each other: is that a losing trade for England and a gainful trade for
France? That is more than we can tell yet. That depends upon the
further decisive question, whether the Efforts gauged at $100 if
expended in England in the manufacture of silks will procure as many
and as good silks as the same obtain in exchange with France; and
whether the Efforts gauged at $80 if expended in France on cottons
directly will secure as many of them as if expended on silks directly
and then traded off for cottons. In effect the Frenchmen ask, Can we
get more and better cottons by working on silks and then trading them
off for English cottons than we can get by equivalent Efforts in
working on cottons at home? Likewise the Englishmen ask, Can we get
more and better silks by working on cottons at home and then trading
with France for silks than we can get by trying to make silks
directly? France by climate and soil and habitudes is better adapted
to silks than cottons: England by virtue of the same is better adapted
to cottons than silks.

2. How does the Diversity of relative Advantage practically work in
foreign trade? Let us suppose that while the cottons cost $100 in
England, it would cost $120 to manufacture there as good silks as can
be made in France for $80; and that while the silks cost but $80 in
France, it would cost $96 to make cottons there as good as the English
can make for $100. On this supposition France can make both the silks
and the cottons at a cheaper absolute cost than England can. What of
it? Does that destroy the motive and the gain of an exchange between
the countries in these two articles? Let us see. By an exchange with
England, France gets for $80 in silks, cottons which would otherwise
cost her $96, which is a handsome gain of 20%; while England gets for
cottons costing her $100 silks which would otherwise have cost her
$120, which is another handsome gain of 20%. Although France can make
each commodity for less absolute money than England can make either of
them, there is a Diversity of relative Advantage; and, therefore,
there might be in this case, as there is actually in many such cases,
a very profitable trade. The efficiency of France in making silks
relatively to the efficiency of England in making silks is in the
ratio of 80 to 120, namely, a difference of 50%; while the aptitudes
of France in making cottons relatively to that of England in making
the same is only in the ratio of 96 to 100, namely, a difference of
4-1/6%. So long as England offers in cottons a good market for French
silks, how utter the folly and large the loss of France in going to
work to make cottons!

In the majority of cases, doubtless, foreign trade takes place in
articles, in the production of one of which each of the respective
countries has an absolute advantage over the other; but an every way
advantageous trade may be carried on in commodities, in the production
of _both_ of which one nation shall have an absolute superiority over
the other, provided only that this superiority be _relatively diverse_
in the two commodities, as has just been shown. This is an effectual
answer to the ignorant clamor of some, we take it, who make objection
to importing articles which might be made at home for the same sum of
money as foreigners expend in making them; admitted, that they might
be so made, does it follow that the country importing them would get
them as cheaply by making them itself? _By no means does that follow._
Let no nation, then, be in haste to drop a trade, because it thinks it
can make the goods received in exchange as cheaply as the other nation
makes them, so long as it has an advantage absolute or relative over
the other in making the goods rendered in exchange; and when that
advantage ceases, it may be sure, that the trade will drop of itself;
because it always takes _motives_ to make the mare go.

3. What are the extreme limits of the Value of cottons and silks in
the case supposed, and when will a third nation be able to undersell
either in the ports of the other? This is the answer: the extreme
value of French silks in English cottons will be 80 and 96; they
cannot fall below 80 because they cost the French that to manufacture
them; they cannot rise above 96, because at that rate the French can
make cottons, and there would be no motive, that is, no _gain_, in
their exchanging for cottons. Nations, that is to say, individuals,
will never get themselves served at a greater effort than that at
which they can serve themselves. If a given effort does not realize
more through exchange than it would do directly, then that exchange
ceases of necessity, as fire goes out for lack of fuel. The extreme
limits of the value of English cottons in French silks will be 100
(lowest) and 120 (highest) for reasons precisely similar in the case
of the English. Therefore, the highest profits possible to both
nations under the conditions of the trade are 20% each. France would
be glad to take the cottons at a return of 80 in silks, at which rate
her gain would be 20%, and she cannot under any circumstances offer
quite 96, at which rate her gain would disappear.

No third nation, accordingly, in a trade of silks for cottons can
expel the French from the English ports, until it is prepared to offer
nearly 96 (or more) in silks in return for English cottons; that is to
say, until its efficiency in making silks relatively to that of
England in making them presents a greater difference than the
difference of efficiency between France and England in making silks,
which is a difference of 50%. England would be glad to take the silks
from France at a return of 100 in cottons, at which rate her gain also
is 20%, and she cannot possibly offer quite 120 in cottons, because at
that rate her gain would wholly vanish. England could be undersold in
the French ports, when somebody is ready to offer nearly 120 (or more)
in cottons against the French silks, whose _quantum_ in the exchange
may vary from 80 towards 96. Here is the whole doctrine of one nation
underselling another in the ports of a third nation. Silks stand here
for sample of all French commodities of whatever name and cottons for
all English goods whatsoever; and England and France stand in the
illustration for any and all nationalities. Any nation obtains any
share or a greater share in the commerce of the world solely in virtue
of a greater relative efficiency in producing _something_ valuable, as
compared with some other nation's power in producing something _else_
that is valuable.

4. How does the varying play of International Demand affect the value
of articles in foreign trade? The answer is clear and easy: if the
demand for French silks in England just answers to the demand for
English cottons in France, so that the silks offered by France just
pay for the cottons offered by England, then, cost of carriage aside,
the gains of the trade will be equally divided between the two sets of
merchants, and each will realize 20% profits, because neither will
have any motive to lower the value of its commodity below its highest
value. The Frenchmen from their point of view will offer 80 in silks
and take 96 in cottons: the Englishmen from their standpoint will
offer 100 in cottons and get 120 in silks. Demand and Supply are
equalized at a point of value most favorable to both parties, and one
really determined by the relative cost of production.

This case of equalization, though possible, is likely rarely to occur
in practice. On any terms of exchange first offered, there is likely
to be a stronger demand in one country for the product of the other
than in this country for the product of that. This will of course lead
to a change of Value, and a new division of Profits. The product for
which the demand is less will find its market sluggish, and in order
to tempt further and brisker exchanges will be compelled to offer more
favorable conditions. He who enters a market in quest of what is
_more_ in demand with a service which is _less_ in demand, will have
to lower his terms, or not trade. The equalization of Supply and
Demand will only be reached in this case, by quickening the demand for
the commodity now less in demand through an offer of better terms in
trade. Thus, if the demand for French silks in the English ports be
slack, in comparison with the demand for English cottons in France, at
the rate of exchange first established, say, 80 for 96, the French
merchant has no resource, if he wishes to continue the trade, but to
agree to give more silks, for the same amount of cottons, say, 85 for
96. If this actual reduction prove sufficient to cancel the account
in cottons with the account in silks, then the trade will proceed on
this new basis for a while, because the equalization of demand and
supply has been reached through a new valuation of the two
commodities, and there is now consequently a new division of the
profits. France gains less than 13% by her trade with England, while
England gains 27% in her trade with France.

Under these new terms of exchange, it is quite possible that silks may
again become heavy in reference to cottons, and a new decline take
place in their relative value. If the French are obliged in
consequence to offer 90 for 96, in order to obtain the cottons they
want, their own profits will sink to 6%, while the same causes will
lift the English profits to 35%. If, in any contingency, the French
were driven by the state of the market to concede something near to 96
in silks for 96 in cottons, the trade would cease in that case, just
as every transaction ceases when the motive for it ceases. We must
remember of course, that the cottons of England are just as likely to
become slack in reference to silks, as the silks are relative to the
cottons; and when this happens, the English dealers will have to lower
their terms, and thus surrender a larger share of the profits to the
French. By this ceaseless play of Supply and Demand, within the
outermost limits drawn by the relative Cost of Production at the time,
is the Value of commodities determined in Foreign Trade; and no degree
of complication in the variety of articles, or in circuitous
exchanges, affects, for substance, these fundamental principles.

5. What are the causes deciding the exportable articles of any nation,
and their order of precedence in Export? Watch a little at this point,
and the true answer will loom up steady and certain. If, instead of
one article, say cottons, England sends two or ten kinds of goods to
France in payment for silks or wines or whatnot, she will of course
send in preference that commodity in which her own commercial efforts
are relatively most efficient, so long as the French demand will
receive it, because her own profits will be the greatest on that;
then, when obliged to lower terms on that down to the point of
relative advantage at which her next available article stands, she
will send that next in quantities regulated by the demand for that;
and so on down to the end of the list of possible exportables to
France. France is guided as to her exportables to England by precisely
the same principles and prospects of profit. So of all commercial
nations whatsoever. No matter whether the articles be one or many; no
matter whether the trade be a direct or indirect trade; the profits in
international commerce depend in all cases, first, upon the ratio of
the cost of what is rendered to what would otherwise be the cost of
what is received, secondly, upon the relative intensity of the two

It follows logically and necessarily from all this, that what a nation
purchases by its exports, it purchases by its own most efficient
Production, and consequently at the cheapest possible rate to itself,
and at the highest possible profit to its merchants. Under a decent
freedom of international choice and action, of sale and delivery, only
_those things_ are ever exported, for the procuring of which a nation
possesses decided advantages relatively to other nations, and
relatively to its own advantages in producing directly what is
received in return; and hence, the return cargoes, no matter what they
have cost their original producers, are purchased by this nation as
cheaply as if they had been produced by its own most advantageously
expended Effort. This is a wholly impregnable position; and the
advocates of restricting and prohibiting Foreign Trade are challenged
to try their hand a little or a good deal (as best suits them) at its
bristling defences.

It follows also from the discussion under this head, what shallow
thinkers are they, who deem it needful that each nation should be able
"_to compete_" with other nations in every branch of production. Why
are they not consistent enough to apply their favorite catchword,
"_compete_," to domestic exchanges also, and require that the
clergyman shall have artificial and governmental facilities for
"_competing_" with the lawyer, the tailor with the blacksmith, the
farmer with the manufacturer, the publisher with the author? Will
folks never learn that _all_ Exchanges, domestic as well as foreign,
hang on relative superiority at different points, and that any Nation
trying to make its success in production equal at all points would be
just as stupid as an artisan trying to learn and practice all the
trades at once? Suppose the said nation to succeed, what then? It
would supply its wants at a certain low average efficiency of effort;
whereas, by a thorough development of all its own peculiar resources,
it could command by exchange the products of the whole world at a cost
not exceeding that of its own most productive and efficient Exertion.
The precious metals, whether produced at home or obtained from other
nations by another series of exchanges, whether coined or in the form
of bullion, stand here in the same relations as other commodities, and
are frequently the most profitable articles that a nation can export.
In one word, whatever justifies individuals in selecting diverse paths
of production according to their capacities and opportunity, the same
(and even more) justifies the Nations in fully drawing out their own
best capabilities under the conditions in which God has placed them;
and then, exchanging what costs them little for what would otherwise
cost them much, in enjoying all that the world offers at the least
possible expenditure of irksome effort. Such wise and wide action
promotes the common good of all the nations, and makes the best of all
accessible to all, and arms each with the power of all; while the
narrow and senseless policy of drawing into one's own shell after
putting up barricades against one's neighbors, by lessening everywhere
the Diversities of relative Advantage, so far forth incapacitates all
for profitable and progressive Exchanges.

6. How do new improvements in machinery and other enhanced facilities
of Production in one country affect its foreign trade? A cheering
response will be drawn out, if we now apply this question to the
conditions of our old trade in silks and cottons. Suppose France by
new methods of silk culture to become able to make the silk which
before cost $80 for $50, cottons in France and silk and cottons in
England remaining in natural cost as before, does France alone gain
the entire advantage of the increased cheapness of silk? Wait a
minute, and we will see. The production of silk in France is greatly
quickened by the cheaper methods, more is produced, more is carried to
England to buy cottons with, but at the old rate of 80 for 96, the
English will not take any more silks, and the French who can now
abundantly afford it, since their nominal 80 is really 50, will offer
more silks for 96 in cottons, in order to tempt a brisker and broader
sale. They offer, say, 96 in silks for 96 in cottons, and if that
reduction of Value of silks in cottons be enough for the equalization
of the respective Demands, the trade will proceed on that basis, at
least for a time; and as there is now a larger difference of relative
advantage than before, there will be, as always in such cases, larger
profits to be divided between the two parties. The 96 now in silks to
the English is really only 60 in cost to the French, so that the
French gain in the trade is largely increased; because they now get
for what costs them 60 what would otherwise cost them 96, a clear gain
of 60%. Before the new methods of silk culture were introduced they
could gain but 20% at the utmost.

But the English have also reaped largely from the ingenuity and
diligence of their neighbors. Before, they gained only 20% in the
exchange at best; but now they get for what cost them $100 that which
would otherwise cost them $144, a handsome profit of 44%. Indeed, it
might easily happen, through the incessant changes in International
Demand, that even a larger share of the benefit of the French
improvements should accrue to the English than to the French
themselves; the share of the French all the while being large, and
much larger, than if, greedily endeavoring to keep all the benefit,
they should refuse to trade at all. Thus we reach again from another
outlook, a grand and universal doctrine of Exchange, _that each party
is benefited by the progress and prosperity of the other_. Indeed, the
only possible way in which all nations can share in the thrift and
enterprise and improvements of each other, is through mutual
international exchanges; and when each nation sees to it that it have
a few commodities at least for which there is a strong demand among
foreigners, and in the production of which themselves have a strong
superiority, it may rest assured that it buys all it buys from abroad,
gold included, at the cheapest rate to itself, and shares a part of
the prosperity of every nation with which it trades.

7. Which party in foreign trade pays the Costs of Carriage, or do each
pay them in equal proportion? It is plain, that the aggregate cost of
transportation to the foreign markets is just so much added to the
Cost of Production, and is a deduction of so much from what would
otherwise be the whole gain of the Commerce; but it is plainly not
true, that each party necessarily pays the whole of his own freights;
and, therefore, that the party carrying bulky articles is at a
disadvantage compared with the other. He may or may not be at a
disadvantage on that account. That will depend on the effect of the
new expense for freight, however divided, on the Demand in each
country for the product of the other. We will suppose, that in the
outset England pays the whole cost of carrying cottons to France, and
France the whole cost of sending silks to England; but as cottons are
many times more bulky than silks proportionably to value, a larger
bill of freights would fall of course to England; and cottons would
therefore fall in value relatively to silks; but cottons and silks
have both risen absolutely, that is, with reference to any given
effort, or with reference to a money standard.

Suppose now that France, instead of 80 for 96, has to render 82 for
96; and England, instead of 100 for 120, now has to give 105 for 120.
The French gain in the trade is reduced from 20 to nearly 17%, and the
English gain from 20 to nearly 14%; but it is by no means certain,
that the commerce would go on precisely on these terms; the enhanced
value of silks might well deaden the demand for them in England, more
than the relatively less enhanced value of cottons in France would
affect the demand for them. Silks have risen in England 5%, but
cottons have risen in France only 2-1/2%; it is therefore very likely
that thereafter the demand for cottons will be stronger than the
demand for silks, and if so, the French will have to offer better
terms, or, what is the same thing, to be obliged to pay a part of the
English freights; so that there is nothing in the true state of the
case to justify the conclusion jumped at by some people, that they
who carry heavy goods are at a disadvantage compared with those who
carry light goods. That will depend wholly upon the Equation of
International Demand as between the two kinds of goods. Nothing in the
nature of things hinders, that each party shall in effect pay the
freights of the other, or one even really pay the freights of both.

8. Lastly, what is the effect upon international commerce of the
constant play of the Par of Foreign Exchange. This is a point of great
importance, that has been but little discussed in this connection,
because it has not been popularly understood or scarcely even
popularly explained. In the light of the full unfolding of "Credits"
in our Fourth Chapter, and in the light of these simple principles now
under discussion, there will be no great difficulty to any intelligent
reader in fully understanding this matter of Foreign Exchange,--a
matter never before so vital to the commercial interests of the United
States as now. For the sake of general illustration we will take the
"Exchange" as between the United States and Great Britain, since the
same fundamental principles apply as between all commercial countries.

When merchants export goods, say from New York to London, or _vice
versa_, they do not wait for their pay till the goods be actually
marketed abroad, but draw at once Bills of Exchange to the amount of
the home value of the goods on the parties to whom the goods are sent,
and then put these bills on present sale with brokers or middlemen at
home. There thus becomes a market or prices current in New York for
commercial bills drawn on London, and similarly a market in London for
bills drawn on New York. The New York exporter, accordingly, is not
certain of getting in money the full face of his bill _minus_ interest
for the time it has to run, because a great many such exporters may
have thrown their similar bills upon the market the same day, which
always tends so far forth to depress the price of the bills in
accordance with an universal law of Economics. Scarce is ever costly:
plenty is ever cheap.

Who buys these bills when exposed for sale in New York? Who wants
them? Clearly, only those who have commercial debts to pay in London.
A bill of exchange drawn in New York on London is nothing but a debt
due from somebody in London to anybody whom the drawer in New York
chooses to make the payee. The debtor lives in London, and it is every
way cheap and convenient for all parties, that he settle his debt with
a creditor living in London. So it happens, that parties in London who
have sold goods in New York and drawn bills on them for present
payment, expose those bills for sale in London to the parties who have
debts to pay in New York. If now, London or those whom London
represents in these transactions, have sold but few goods to New York
or to those whose business is settled in New York relatively to the
amounts sold by New York to London, then London bills will be
relatively scarce as compared with the New York bills drawn on London.
In other words, New York has more debts to pay in London than London
has in New York, and, consequently, the parties in London who want
bills to pay New York debts with, have to buy them in a relatively
scarce market. They have to _bid_ for them, as it were. The effect of
this is always to carry up the price of that, for which the buyers are
many and the sellers relatively few. So, under perfectly natural
causes, London bills on New York come to a premium; that is to say,
the London sellers get more than the face of their bills drawn, and
the trade with New York becomes _extra_ profitable to them.

Suppose London bills of Exchange on New York are selling for 101,
thus giving 1% extra profit to English exporters; for precisely the
same reasons that they are so selling, New York bills on London are
selling in New York for 99, thus subtracting 1% from what would
otherwise be the gains of the New York exporters to England under the
common principles of Foreign Trade. It is evident, therefore, that the
causes of the course of the international Par of Exchange are an
essential part of the principles of foreign Commerce; and whatever
tends to derange or upset the natural course of the Par, as a constant
or constantly recurring cause, must receive careful attention in a
book like the present. We have begun at the very beginning of this
matter, and we are now going to follow it up to the very end.

The Diversity of relative advantage in the Production of the two
commodities exchanged, is the first and chief ground of mutual Profit
in foreign trade; the varying Intensity of relative Desire on the part
of each exchanger for the product of the other, is the second and
secondary ground on which foreign trade must go on; and the third and
final difference as between the two parties, which goes to make or mar
the profit of each of them in the trade, is the current Price of the
Bill of Exchange drawn by each creditor on his debtor abroad. It is
plain that these three things must always be taken into account
simultaneously by prudent exporters and importers, in order to
estimate the prospect of a profitable trade then and there; and it is
plain also, that one or even two of these three differences of
relative advantage might fade out for a time, and a profitable trade
still proceed, provided the other two or one of these differences were
sufficiently pronounced. For example, to take an extreme case, silks
from France might still go to England for cottons to the advantage of
both countries for a time, though "exchange" were exactly at "par"
between them and the "demand" for silks were precisely met by the
"demand" for cottons, on the strength of a marked and persistent
diversity in relative cost of production of the two textiles.

Here is another of the trinities of Political Economy. Here is
complication indeed, but a complication regulated and beautified by
inflexible laws of Nature and the scarcely less inflexible laws of
human Motives.

So far the argument has proceeded on the supposition of a common
standard of Value, say gold, between England and France, London and
New York, and by implication all other commercial countries. Commerce
rejoices in, and progresses by, a common measure of Values. By an
experience of 2000 years the world has proven gold to be the best
international Measure. From a simple comparison of the weights of pure
metal in the standard coins of the nations is established a fixed
monetary "par" as between them. Thus the dollar of the United States
contains 23.22 grains of pure gold, and the English pound sterling
contains 113.001 grains of the same; consequently, there are $4.8665
to the £ sterling, and this is and has been since 1834 the monetary
"par" between the United States and Great Britain. Similarly, the par
between France and the United States is $1 to 5 fr. 18 centimes, since
the franc is 19.29 cents gold for gold. The monetary par, accordingly,
as between any two nations using the gold standard, is a matter easily
ascertained and kept in mind; while the constantly variable prices
current of Bills of Exchange are reckoned in and from this monetary
par. Thus, if a commercial bill drawn in New York on London sells for
$4.8665 _minus_ current interest for the time it has to run, English
"exchange" with us is said to be at "par"; if it sell for more than
that, exchange is technically said to be "_against_" us, although the
excess in price is just so much additional profit to the American
exporter; and if it sell for less than that, exchange is said to be in
our "_favor_," although the difference is just so much subtracted from
the gains of the American exporter.

The close of the second week in July, 1890, found in New York
"Sterling exchange dull but firm, with actual business at $4.84-3/4
for 60-day bills and $4.89 for demand bills: the posted rates were
$4.85-1/2 and $4.89-1/2 respectively." Exchange, accordingly, had
turned "against" the United States, that is to say, American exporters
could get a little more for their bills on London than the monetary
par. Under such circumstances it may be cheaper to send the gold to
liquidate a British debt than to buy bills and send _them_. Just this
happened last week: $2,000,000 in gold went (mainly under this
impulse) from New York to London. There is a limit, therefore, to any
further rise in the price of "exchange," when it reaches in an upward
direction the then present cost of sending gold to foreign creditors.
The limit in the downward direction to the price of exchange is the
last margin of profit to the exporter as such. Thus, when the New York
exporter can only get, say, $4.83 for his sight bill of exchange on
London, his loss in the trade so far forth is 1%; and it may be
doubtful, whether his possible gains at the other two points, namely,
relative cost of production and relative intensity of demand, will
overbalance this certain loss and leave a sufficient margin of profit.

This chance of profit or loss from casual turns in the commercial
"exchanges" is a very small matter in foreign trade in comparison with
the other two grounds of possible profit or loss. The main thing for
every commercial nation to see to is, that it have at least a few (the
more the better) commodities in general use throughout the world, _in
the cost of the production of which it has a relative advantage over
all competitors, and the demand for which by foreigners is relatively
intense and constant_. And it will never come amiss for any nation
with these two crucial advantages to keep a sharp watch over a class
of its own citizens, lest they, shrewdly and greedily, for special
reasons of their own, get laws passed the result of which can only be
_to increase the costs of production of these few exportables, and at
the same time lessen the foreign demand for them_. ETERNAL VIGILANCE

As a general rule for the last half century commercial "exchanges"
have been "against" Great Britain, that is, her exporters have been
able to get more than "par" for goods sent abroad in the price of the
bills drawn on them, and her commerce has been _profitable_ to her so
far as this cause is concerned; which during the same interval of time
the "exchanges" have been "in favor" of the United States, that is,
her exporters have been obliged to sell their bills drawn for less
than "par," and her commerce so far forth has been _unprofitable_ to
her. We may only briefly indicate here the causes of this state of

(a) Great Britain has been during this period a vast loaner of Capital
to other countries, and particularly to the United States; while the
United States has been a vast borrower of Capital, particularly from
Great Britain. The interest on these loans from Britain, and the
principal also so far as it has been repaid, has been constantly
remitted thither in goods for the most part, and bills of exchange
drawn on these goods have been sold at all ports, and particularly at
New York; the abundance of these bills has tended of course to lower
their price at the place of sale, and so far forth to heighten in
effect the relatively less abundant British bills drawn on exports
thence; and the _creditor_ country for this reason is apt to sell its
bills above "par," and the _debtor_ country its bills below par. It
makes no difference at this point how the borrowed funds have been
invested by the borrowing country, since the interest and the
principal must be repaid at some time chiefly in the manner just

(b) With the exception of a dozen or two articles customs-taxed for
simple revenue, Great Britain in this period has kept her ports
absolutely open to imports from all the world, and of course to all
imports from the United States, which has tended to swell the volume
of imports into that country, and the volume of foreign bills drawn on
them, particularly of United States bills; while the United States
during the same time has excluded imports by customs-taxes designed
for that very purpose, to the number of over 4000, and in many cases
to a height of tax involving prohibition of import. The Constitution
of the United States expressly forbids customs-taxes upon exports, so
that goods may indeed go out freely, so far as tariff-barriers are
concerned; but as the only impulse that ever carries goods _out_ is to
get _back_ more desirable goods in pay, and as these return-goods are
greatly restricted or virtually prohibited by the United States, the
Constitutionally-free exports are not large enough to help much in
keeping down below "par" the price of bills of exchange drawn here. It
should also be said that Great Britain is restrained in her exports to
the United States by the latter's legal unwillingness to receive them,
which tends of course to keep the price of bills drawn on the exports
she can and does send still more above "par."

(c) The enormous customs-taxes in the United States on ship-building
materials and on almost everything else have practically destroyed the
ocean merchant-marine of the country. The bulk of the Freights,
therefore, on what foreign commerce there is left to us under the
Chinese-wall policy of our Government,--the bulk of the freights both
ways,--has to be paid to foreigners, mostly to the British, and these
payments too are made in exportable goods, which wretched fact (looked
at in its causes) increases exports hence relatively to imports
hither, and of course diminishes _pro tanto_ the current price of
mercantile bills drawn here. So far as these _extra_ exports to meet
freight charges are carried to England, they tend to lift there in the
usual way the price of bills drawn on British exports. It is a million
pities, no matter from what point of view one looks at it, that the
present governing classes of this country totally misapprehend the
Nature of foreign trade, and by short-sighted legislation minimize its
Benefits to the people.

So far we have been unfolding the causes and courses of foreign
exchange on the hypothesis, that both the nations exchanging employ
the same standard in measuring Values. While the present paragraphs
were in process of composition, the President of the United States
signed (July 14, 1890) the so-called "Compromise Silver Bill," which
is to go into operation after thirty days, and the effect of which in
the judgment of some of the best economists and financiers of the
country _may be_ to bring down the national measure of Values from the
gold dollar to the silver dollar. We are bound at this point,
therefore, to explain the action and reaction on the course of the
"exchanges," of a monetary standard lower in general value than the
standard prevailing in the commercial world. We have all the data
needful for clearing up this matter completely, at once in the
inflexible laws of Money and in the actual experience of several of
the Nations. For example, England has the gold standard, and India the
silver standard; there is an immense commerce between the two
countries; silver is merchandise and not money in London, and gold is
merchandise and not money in India; every cargo, accordingly, to and
from either has to have its value "changed" through the price of
current bills into the current money of the other country; the price
of silver in gold in London (average) between 1852 and 1867 was 61-1/3
pence per ounce; at 60 pence per ounce the ratio of gold to silver is
1:15.716; between 1875 and 1882 silver drooped (with many
fluctuations) in the London market, bearing about the average of
52-1/3 pence per ounce, which is a ratio with gold of 1:18; during the
first half of 1890 the price of silver in London was as nearly as
possible 43 pence per ounce, which is a ratio with gold of 1:21.93; so
that, the prices of India bills in London and of London bills in
Bombay have yielded up to the careful observer all the secrets of the
"exchanges" between high-standard and low-standard countries.

But we have no need to go out of our own country for illustrations of
all this. Between May, 1862, and January, 1879, the "Greenback Dollar"
was the measure of current Values. It was depreciated every day of
that interval as compared with the gold dollar, and it fluctuated in
the comparison more or less nearly every business day. The New York
importer bought his foreign goods for gold, paid the customs-taxes on
them in gold, and then sold them against greenbacks. How much must he
charge for his goods in order to make himself whole? The current
premium in gold over greenbacks was posted every day, and perhaps
every hour, but was that a safe guide to greenback prices for our
importer? Wholesales are rarely for immediate realization in money,
and even if they were, the money would have to be rechanged into gold
in the future for repurchases abroad. In the uncertainty of greenback
values, the importer must _insure himself_ in his prices to-day
against a possible further depreciation next week, or next month. In
other words, _he must speculate in the prospective gold premium_.
Suppose his industrial cycle to be one month. If he sell his foreign
goods in greenbacks to-day as these stand in comparison with gold, and
greenbacks fall still lower before the month is out, he will lose
money in those transactions; if greenbacks should rise in the
interval, he would gain money, because he could get more gold for them
in the next turn. To the credit of human nature be it said, that in 9
cases out of 10 a merchant will raise the present prices of his goods
in order to make himself as sure as possible in a case where all is
uncertain. There can be no reasonable doubt that in the fifteen years
of depreciated greenback units, retail prices to ultimate consumers
were lifted 10% above the average reckoning of goods in greenbacks
from this cause alone.

In regard to exports at that time the facts and principles are still
clearer. These exports were sold in Europe for gold. But the bills of
exchange drawn on them were sold in New York for greenbacks. Take
wheat, for example, of which there was a large export in all those
years. The New York broker or banker in buying these bills was obliged
to make the conversion from greenbacks to gold. He had to estimate as
well as he could what the value of greenbacks would be when the
gold-bill became payable in London. In other words, he had to
speculate in greenbacks, because he had to take the risk of their
declining or advancing value for an interval of time, say, one month.
He would not take this risk without virtually making a charge
sufficient in his judgment to cover it, and leave him a good profit in
any case. This charge came out of the price of the wheat ultimately
paid to the growers thereof. The bill of exchange was sold in New York
or Chicago in order to get present pay for the farmers who furnished
the wheat, and present profit for the commission-merchants or
middlemen. But the bill brought less greenbacks than the quoted
premium on gold would warrant for that day, on account of the risk,
the uncertainty, the speculation. Therefore, less went to the farmers
for their wheat per bushel or centner. _The masses of the people lose
the immense losses of that depreciated money._ And during these very
years also the Government put customs-taxes to a then unheard-of
height on imports from abroad, not primarily for the sake of the
revenue to come from the taxes, but chiefly with a view to keep
certain foreign goods out of the country altogether, in order that
_some_ citizens might be able to sell their own product _to the rest_
at artificially enhanced prices. Thus the natural market abroad for
wheat and pork and petroleum and other provisions was enormously
lessened by the prohibition of imports,--a market for products is
products in market,--at the same moment when the actual prices for
products exported were still further diminished by the action of
depreciated money on the par of commercial exchange.

Our neighboring Republic of Mexico has had for a long time the
so-called bi-metallic standard of Money, the same as the United States
have had.[9] When the great fall of silver in gold took place in the
London market as indicated above, gold was rapidly exported from
Mexico, and soon disappeared from circulation, in accordance with
Gresham's Law. For many years now the simple silver standard has
prevailed in Mexico. Its entire working in foreign trade through the
"exchanges" has been sufficiently demonstrated; and as there is more
than a possibility, more even than a bare probability, that the United
States under the law of 1890, and other and earlier extremely
complicated laws of Money, may drop from bi-metallism to silver
monometallism in the near future, in the way of premonition and
warning to our own people we may fitly close our discussion of foreign
"Exchanges" by briefly stating what of hazard and disaster under the
silver standard is now going forward among our neighbors to the

The effect of estimating Mexican transactions in silver money, while
all the nations with which they trade estimate theirs in gold, is seen
in an artificial enhancement of prices to the Mexicans on all their
imports, and an artificial depression of prices to them on their
exports. Look first at imports. There is of course a current discount
on Mexican silver as compared with the gold in which the imported
goods are bought. This discount is now over 20% throughout the
commercial world, the London price of silver in gold giving the key to
that song. But this is not all by any means; the discount is variable
from day to day and from month to month; in changing his gold prices
present into silver prices future, the Mexican importers must insure
themselves. This necessitates a speculation in the future of silver.
What the risk may be will depend somewhat on the activity of the
silver market: if silver be rapidly fluctuating in price, the importer
will add more to his silver prices additional to the current premium
on gold, than if silver be comparatively stable; but in all cases he
will add enough to cover all prospective risks. It is quite likely
that five _per centum_ is added on the average to wholesale prices by
Mexican importers on this ground alone, which addition with all the
usual increments must be borne by retail and ultimate prices.

Now look at Mexican exports. The larger part in value of these exports
is silver in some form, mostly in the form of silver dollars. But
these silver dollars are merchandise in London, and quite variable in
price there, as has already been shown; and bills of exchange drawn on
this silver in any form, and sold in Mexico to parties remitting gold
values to London, are subject to constant depression on account of the
uncertainty as to the value of silver in gold when the bills reach
London. It follows from this, that the use of the silver standard in
Mexico actually depresses the value of silver there. By means of the
"exchanges" both ways, silver tends to be still further depreciated in
comparison with gold, retail prices of all importables enhanced in
silver, and the chief exportable (silver) depressed in value all the
while! Truly, the Mexicans are between the upper and nether
millstones. Poor Money never pays.

In confirmation of this fact that Mexico has not lifted the relative
value of silver by making it the sole Measure of Value, we have the
corresponding fact that the herculean efforts of the United States
since 1878 to advance the value of silver to a parity with that of
gold in the legal ratio of 1:15.98, have issued in the constant
relative decline of silver here; and, what is more surprising, in an
almost constant increase of the yearly production of silver here. The
following table tells the whole instructive story: the figures are
official: commercial "fine ounces" are .915 of technically "fine"

  | Year.|  Production  |Average|| Year.|  Production  |Average|
  |      |(fine ounces).|Price. ||      |(fine ounces).|Price. |
  | 1878 |  34,960,000  | $1.15 || 1884 |  37,800,000  | $1.11 |
  | 1879 |  31,550,000  |  1.12 || 1885 |  39,910,000  |  1.06 |
  | 1880 |  30,320,000  |  1.14 || 1886 |  39,440,000  |   .99 |
  | 1881 |  33,260,000  |  1.13 || 1887 |  41,260,000  |   .97 |
  | 1882 |  36,200,000  |  1.13 || 1888 |  45,780,000  |   .93 |
  | 1883 |  35,730,000  |  1.11 ||      |              |       |

These Seven, then, are the essential Principles of Foreign Trade,
brought out, it is hoped, as clearly and consecutively as the relative
and complicated nature of the transactions will allow; in the light
of these Principles it is very clear, that Foreign Trade is just as
legitimate as, and may be more profitable than, Domestic Trade; that
it rests on the same ultimate and unchangeable grounds in the
constitution of Man, and in the Providential arrangements of Nature;
that the Profit of it is mutual to both parties, or it would never
come into being, or, coming into being, would cease of itself; that to
prohibit it, or restrict it, otherwise than in the interest of Morals,
Health, or Revenue, must find its justification, if any at all, wholly
outside the pale of Political Economy; and that for any Government to
say to its citizens (of whom Government itself is only a Committee),
who may wish to render commercial services to foreigners in order to
receive back similar services in return, that such services shall
neither be rendered nor received, is not only to destroy a Gain to
both parties, but also to interfere losingly with a natural and
inalienable Right belonging to both.

If the reader pleases, we will turn now, in the second place, to the
The instrument for this purpose is called a _Tariff_. The origin of
the word Tariff, its nature and kinds, will throw much light upon what
has been a vexed question, but is one easily solvable, and indeed long
ago resolved.

1. Origin.--When the Moors from Africa conquered Spain in the year of
our Lord 711, they fortified the southernmost point of the peninsula
where it juts down into the Straits of Gibraltar, and by means of
their castle and town, called in their Barbary language _Tarifa_,
compelled all vessels passing through the Straits to stop and to pay
to these Moorish lords of the castle a certain part (determined by
themselves) of the value of the cargoes. This payment appears to have
been blackmail pure and simple; it was certainly extorted by force;
and whether there were any pretence of a return-service in the form of
promised exemption from further pillage or not, that made no real
difference in the nature of the transaction. Eleven centuries later,
the United States demonstrated what they thought about similar
extortions on American commerce practised in the same waters by the
descendants of these same Moors, by despatching Commodore Decatur with
a strong fleet to Algiers and Tunis and Tripoli; to which piratical
states they had already paid in twenty-five years two millions of
dollars in "tribute" or "presents" for exemptions of their
Mediterranean commerce from plunder; who captured the pirate ships and
compelled the terrified Dey of Algiers (and the rest) to renounce all
claim thereafter to American "tribute" or "presents" of any kind. The
word _Tarifa_, accordingly, in English and other modern languages, a
word which seems to be very dear to some men's hearts, does not appear
to have had a very respectable origin, though that is not sufficient
of itself to condemn the thing described by the word. That will depend
upon its nature and purposes.

2. Its nature.--There never was one particle of doubt on the part of
those compelled to pay the Moorish demands at Tarifa, or on the part
of the United States compelled to pay "tribute" to the Algerines for a
quarter of a century, about the _nature_ of the transaction. The sign
at Tarifa was _minus_, and not _plus_. To the credit of those pirates
let it be said, that they never pretended to take what they took for
the _benefit_ of those from whom they took it. They took it for their
own benefit. The action was abominable, but it was aboveboard. There
was no deceit and no pretence about it. Both parties knew perfectly
what was going on. What was delivered was just so much _out_ from what
would otherwise have been the _gains_ of the voyage. And the truth
is, the thing, tariff, is always true to the origin of the word,
tariff, so far as this, that a tariff always _takes_, and never
_gives_. The only phrase a tariff speaks, or can speak, is, _Thou
shalt pay_! There is lying open on the table of the writer at this
moment a stout volume of 417 pages, printed, with nearly as many more
interleaved, entitled Tariff Compilation, published by the United
States Senate in 1884, containing every item of all the tariffs passed
by Congress from 1789 to the present time. One may read this volume
from beginning to the end, or he may read it from the end backwards to
the beginning, or he may begin in the middle and read both ways, and
all he will find between the covers is a series of _Demands_ made upon
somebody to _pay_ something. These demands, of course, are made upon,
and realized from, the citizens of the United States, who are the only
people under the authority and jurisdiction of the Congress. A tariff,
then, may be correctly defined as _a body of takings or taxings levied
upon the people of any country by their own government on their
exchanges with foreigners_. How anybody can intelligently suppose that
a body of _taxes_, which their own countrymen will have _to pay_, can
be so cunningly adjusted as to become to them a positively productive
agent, a blessing and enrichment to the payers, a spur to the progress
of their Society, _they_ may be properly called upon to explain who
pretend to believe such an absurdity in the nature of things.

3. Its kinds.--There are two kinds of Tariffs under our general
definition, very diverse from each other in their respective purposes,
principles, incidence, and results.

(1) There is a tariff for Revenue. The sole purpose of a revenue
tariff as such is to get money by this mode of indirect taxation out
of the pockets of the People for the coffers of the Government, in
order to be then expended, governmentally, for the general benefit of
those who have paid the money in for that single end. The underlying
thought of this kind of tariff, a tariff for revenue only, is, that
the Government itself shall get all the money which the people are
obliged to pay under these taxes, except the bare cost of collecting
them; that only _such_ taxes shall be levied at all as will come
bodily and readily into the general Treasury for public uses; and no
intelligent and justice-loving people will long tolerate tariff-taxes
laid with any other intent than the economical support of their
government, or laid in any other way than shall bring into the
Treasury all that is taken out of the People. A Revenue Tariff,
therefore, may be properly defined as _a schedule of taxes levied on
certain imported goods with an eye only to just and general taxation_.

There are three vital principles on which a revenue tariff as such
must always be levied. (a) As the sole object is to get money for the
national treasury, and as money can only be gotten as the foreign
goods taxed are allowed _to come in_, such taxes must be levied at _a
low rate_ on each article taxed, so as not to interfere essentially
with the bringing in of that class of goods with a profit to the
importers, and not at all to encourage the smuggling of them in. (b) A
varied experience of all the commercial nations has shown, that it is
not needful in order to derive a large and growing revenue to lay even
low rates on _all_ goods imported, but only on certain classes of
them, so as to burden at as few points as possible the successful
ongoing of international exchanges; since the prosperity ever induced
by commercial freedom enables a country to import and to pay for in
its own quickened products vast quantities of the articles subjected
to the tax, so that large revenues come from low rates levied at few
points. Here we lay bare the ground of a great income in the
exemption of the bulk of imports from any tax at all. (c) Custom-taxes
should be laid wholly or at least mainly on articles procured from
abroad, and not also produced at home; for otherwise the incidence of
the tax on the portion imported will necessarily raise the price also
of that portion made or grown at home; and thus the people will pay
_more_ money in consequence of the tax than the Government _gets_ from
the tax in revenue. Three points, then, in a revenue tariff, namely,
_low duties on few articles, and these wholly foreign_.

The best modern example of a purely revenue tariff is that of Great
Britain since 1860. All duties are on one or other of the following
sixteen items, namely, Beer, Cards, Chiccory, Chocolate, Cocoa,
Coffee, Fruit, Malt, Pickles, Plate, Spirits, Spruce, Tea, Tobacco,
Vinegar, and Wine. Of these, Spruce yielded no revenue in 1880; Cards,
Malt, Pickles, and Vinegar, yielded in the aggregate that year only
£1.491; leaving the other eleven items to furnish practically all the
customs revenue; but of these Coffee and its three substitutes with
Beer and Plate, furnished only £337.258, so that, the remaining five
articles yielded £18.915.489, or 98% of the whole income in 1880. In
other words, Fruit, Spirits, Tea, Tobacco, and Wine, brought in all
but 2% of the customs-taxes of Great Britain in 1880. In 1890, the
duties on certain Wines and Spirits having been lifted, there was a
large surplus of revenue over the Estimates, which has just been
devoted to the enlargement of the Navy. Every other European
commercial country had a deficit that year as compared with its
Estimates of the year preceding. The figures are not now at hand for
an exact statement, but there can be little reasonable doubt that the
"Five Articles" rendered at least 98-1/2% of the tariff-taxes of
England last year. If there be also some domestic production of any
article taxed by the British tariff, a corresponding excise-tax on
that part produced at home, which part would otherwise be raised in
price by the tariff-tax to no advantage of the Revenue, enables that
Government to get easily all that the people are made to pay in
consequence of the tariff-tax on the imported part.

(2) There is a tariff under Protectionism so-called. The ruling aim in
this second kind of tariff is not at all to obtain income for
Government in order to promote the general good, but on the contrary
by means of heavy taxes on _foreign_ articles to raise the prices of
corresponding _domestic_ ones for the exclusive benefit of a few
producers of these home goods at the expense of all home buyers of
them. If these special tariff-taxes be so high and complicated as to
keep out altogether the foreign articles, and so the Treasury realize
nothing at all from the taxes on them, so much the more
"protectionist" do they become, and so much the better pleased are the
special domestic producers with the entire monopoly of the home market
at their own prices. Such taxes are prohibitory and protectionist at
the same time. Prohibition is the perfection of Protectionism. A
Protectionist Tariff, accordingly, may be justly defined as _a body of
taxes laid on specified imported goods with a single eye to raise
thereby the prices of certain home commodities_.

The vital points of a protectionist tariff are also three, but these
are the exact opposites and antipodes of the three points of a revenue
tariff, so that it is self-contradictory and impossible to combine in
one tariff-bill the two sets of contrary elements. A revenue tariff
with incidental protectionism is a solecism. (a) If a tariff-rate is
to be protectionist in character, that is, competent to raise the
price of home products, it must be _high_, so as either to exclude
altogether the corresponding foreign products, in which case there is
no revenue at all, or else to make their price by means of the duty
added reach the point at which the home producers plan to sell their
own, in which case there will be very little revenue. For instance,
when the Bessemer steel companies asked in 1870 for two cents a pound
tariff-tax on foreign steel rails, they called it in terms in their
"confidential" statement to the Ways and Means "_exceptional
protection_," and admitted in so many words that they expected to
supply the home market entirely, and so the Government would get
_nothing_ in revenue and the people be compelled to pay $44.80 _extra_
for their home steel rails per ton. It is a little bit of comfort to
think, that they only obtained $28 per ton, or 1-1/4 cents per pound,
which was not quite prohibitory, so that the Government got a little
revenue on steel rails, and the people paid for some years only about
_double_ for their rails what they were worth in a free market! To
reach its end a protectionist tariff-tax must be _high_ of necessity.

(b) No system of protectionist tariff-taxes can be entered upon or
continued in any country except by means of many persons who all alike
want their special products artificially lifted in price by
legislation, and who are obliged _to combine_ in order to get and keep
what they want, so that protectionist taxes on a few things only were
rarely or never found in a tariff; so contrary are such taxes to the
common sense and common interests of man, that only strong
combinations of many special interests can begin or maintain them,
whence there must be _many_ taxes if any under this strongly selfish
scheme; and by an actual count of them by the writer in 1868 there
were found to be 2317 distinct rates of tax assessed on different
foreign articles in the Tariff of the United States, which was
strikingly in contrast with the Revenue Tariff of Britain in point of
the number of things taxed. So needful is log-rolling to the
maintenance of protectionism, that the passage of the "knit-goods
bill" in the summer of 1882, for example, was contingent on the
contemporaneous passage of the famous "River and Harbor bill" of that

(c) While Revenue Taxes select by preference things wholly imported,
Protectionist Taxes are placed of course on such foreign goods as are
also and especially made or grown at home, otherwise their plain and
sole purpose would be thwarted, which completes the contrast between
the two kinds of tariffs. For illustration, Tea and Coffee are the
best things possible to tax in a tariff for revenue, because (1) they
are in universal consumption, and (2) they are wholly imported, and
taxes upon them do not raise the price of anything else, and so the
Government gets all that the people pay under them; for this very
reason the taxes upon Tea and Coffee, which had yielded for years some
$20,000,000 of revenue yearly, were thrown off in 1872 under
protectionist leadership, by the deceptive cry of "_a free breakfast
table_," in the subtle interest of commercial bondage; seeking to give
the impression on the one hand that everything on the breakfast table
was to be free, whereas nothing on it or around was to be free except
the two beverages mentioned, and on the other hand that the removal of
these two taxes was a great boon to the people, whereas the motive for
the removal of these was _to continue_ on the people burdens tenfold
heavier. Eighteen years have rolled away since then, and Tea and
Coffee are still upon the free list; the incompatibility of the two
kinds of tariff-taxes is demonstrated in the fact, that there has not
been for years a single tax primarily for revenue in the United States
tariff,[10] the opposite protectionist idea having logically wrought
itself out there; and the same incompatibility is shown in the
British tariff, in which there has been no protectionist tax since
1860. Each aim logically carried out completely excludes the other

The best and worst specimen of a protectionist tariff that the world
has ever seen, has been in operation in the United States for thirty
years, 1861-1890. Its inner history is not yet fully known by the
public, but enough is known to expose the motives and to condemn the
action of all those, whether constituents or congressmen, who knowing
what they were doing, contributed to build up gradually that mass of
incongruities and iniquities, under which the entire agricultural
class of the country (nearly one-half of the people) has become
impoverished, by much the larger part of the farming lands of the
Union covered by heavy mortgages, and the ocean-marine of a naturally
nautical people almost totally destroyed. Attempts more or less
successful have been made at various times and at different points to
conceal from the Public the impulses really behind the provisions of
this tariff, and even the amount and the mode of the incidence of its
taxes; many of the most protectionist taxes have been complex,
combining upon the same article _specific_ and _advalorem_ rates, as
for instance, upon blankets "_50 cents per pound and 35% advalorem_,"
so that it was difficult or rather impossible for the common reader or
buyer to ascertain how much the tariff-tax really was; much of the
language of the tariff-bills has been to the last degree involved and
uncertain, often leading to perplexing disputes and costly litigations,
and sometimes covering up a half-hidden purpose; importers have been
bribed, as it were, in cases of doubtful legality, to pay the maximum
rates demanded, by the prospect and promise that the extra sums if
ultimately found by the courts illegal should be repaid bodily _to
them_ and not to the people who in the mean time had bought and paid
for the goods thus enormously enhanced in price, and millions of the
people's money have gone back in that way to importers and to spies and
informers; a careless wording in tariff-descriptions has again and
again covered goods not designed to be touched, as the lastings and
rubber webbings of the shoemakers to the consternation of that great
interest, which asked for no protectionist privilege for itself, but
wanted its raw materials at their natural price; and the iron industry
of Pennsylvania was bitterly angry at Secretary Sherman, who construed
a line of the tariff relating to cotton ties used at the South more
favorably to the planters than to the iron-workers, although the latter
were strongly privileged at every point of the tariff (even at this) in
the teeth of the interests of the consumers of iron, and the later
honorable ambition of the Secretary to become a candidate for the
Presidency of the United States was largely thwarted in consequence by
the hostility of these miserable and revengeful monopolists.

There were fifty descriptions of iron and steel taxed by the tariff in
1879, and the average rate of tax on these at that time was 77%
_advalorem_, and this was about the average rate for the thirty years
under the consideration. On special articles of prime necessity and
universal consumption, as steel rails, the tax varied under the rate
of $28 per ton put on in 1870 from 85% to 100% _advalorem_; and the
purpose of this particular tax was plainly seen in an average price of
domestic steel rails in this country $24.44 a ton higher than in
England for better rails under a longer guarantee for the eleven
years, 1870-80; in other words, 87% of the tax paid on the smaller and
better part imported was added to the average price of the larger and
worser part produced at home during those eleven years. That the
English rails were better and even regarded as cheaper under their
guarantee with the $28 a ton added to their price, is proven by the
fact that the N. Y. Central railroad company relaid their tracks with
the English rails, and were putting them down in Detroit in plain
sight of simultaneous track-laying across the river in Canada, where
the same kind of English rails were costing $28 a ton less. Every
passenger and ton of freight carried by steel-track roads in the
United States in this interval contributed his and its share to make
up to the roads this _extra_ price paid for steel rails. In 1883 the
tariff-tax on steel rails was reduced to $17 per ton. That this
enormous artificial price of iron and steel products under
tariff-taxes redounded wholly to the profit of the capitalists
concerned, and not at all to the benefit of the laborers concerned, is
shown by the Census of 1880, which gives $393 as the average pay for
that year of the persons employed in the iron and steel industries of
the country; and the late Senator Beck of Kentucky demonstrated on the
floor of the Senate, _nemine contradicente_, that only 8.8% of the
value of the products of the Bessemer steel industry in 1881 went to
the laborers employed in it, while 66.9% of the same went to the
capitalists as profits. Let the thoughtful reader remember at this
point, that iron and steel products are only one of an indefinite
number coddled and privileged by the tariff at the expense of the
masses of consumers.

It is impossible to tell exactly _how much_ more the people of the
United States were compelled to pay for their commodities under
tariff-taxes, whose ground-thought was to compel them to pay more and
the more the better, than the Treasury received as the direct product
of these taxes during 1861-90, but an approximation can be made within
the truth whose results are fitted to startle the minds of all good
citizens. For convenience' sake only, and because the official
figures are complete for the shorter period, let us take for
comparison the twenty years, 1863-82. The annual average tariff-income
for those 20 years was in round numbers $158,000,000; but the
ground-thought of the tariff-scheme in all those years was not to get
an income for Government, but factitious prices for capitalists
privileged by law; and during the last half of the time there were no
tariff-taxes on Tea and Coffee, which had been before the principal
revenue taxes. If, now, we may fairly suppose, that for each _one_
foreign article paying a tax into the Treasury there were _four_
domestic articles raised each in price as much as the foreign article
paid in customs-tax, then it follows, that the People paid in each of
those 20 years under customs chiefly protectionist, $632,000,000, or
$12,640,000,000 in all, no penny of which went into the Treasury of
the United States. That this supposition of 4:1 is wholly reasonable,
appears partly from the known proportion (officially reported) between
Domestic and Imported as to several leading articles, for example, of
steel rails in 1880 the Domestic was 20 times the Imported, and the
People paid 19 times more under the tax than the Treasury got; and on
woollen blankets in 1881 the Treasury took in less than $2000, while
the People paid in the _extra_ price of blankets more than 1000 times
that sum that year; and on iron and steel goods of all kinds the
average tariff-taxes were about 77% in that interval of time and the
vast bulk of the iron and steel goods consumed was boasted to be of
domestic production.

Let us confirm these striking results by another more than reasonable
supposition taken from the opposite quarter. The census of 1870 gave
$4,232,000,000 as the value of home manufactures for that year, which
we may fairly take as the average of the 20 years under consideration;
now, if we throw off one-third of those home products as not affected
by the tariff at all, and reckon that the rest were only raised in
price 22%, which was only one-half of the average rate of tax on
dutiable goods,--the average rate on these was officially pronounced
in 1880 at 44%,--then almost precisely the same results will follow as
before: two-thirds of $4,232,000,000 is $2,880,000,000, and 22% on
that sum is $633,600,000. An acknowledged statistical expert of
national reputation, Mr. J. S. Moore, calculated from data quite
diverse from our own, that the People paid $1,000,000,000 in the one
year, 1882, _extra_ to the sum reaching the Treasury that year, under
protectionist tariff-taxes. We see, then, clearly the _methods_, by
which Protectionism reaches its ends, and we cannot but conclude, that
these methods issue in monstrously unjust burdens on the masses of the

It remains, under this second general head, to examine the _motives_
of those men, who have gotten the protectionist tariff-taxes put upon
the different classes of imported goods in this country. Fortunately
we have data of unquestionable authority, covering the entire first
century of our national existence, which prove these two propositions:
first, _that no protectionist tax has ever been_ PUT ON _by our
Congress from the first day until this day except at the instance and
under the pressure of the very men personally and pecuniarily
interested to secure thereby an artificial rise of price for their own
domestic wares_; and second, _that these very men have been almost, if
not quite, as active and determined_ TO KEEP OFF _protectionist taxes
on other goods used by them in their processes of production, whether
raw material, machinery, or accessories_. These two propositions,
taken together, demonstrate beyond a cavil the motives of the
protectionists as a class. Of course, they have had their dupes and
tools. Out of their own mouths and out of their own actions are they
to be judged. One hundred years is long enough of time in order to
display perfectly the motives of a prominent and persistent class of
men, under that Government of the world, whose key-note is Exposure,
and under that maxim of the world, Actions speak louder than words.

Thomas H. Benton, a United States Senator from Missouri for 30 years,
1820-50, himself in all that time a prominent leader and debater, and
always an indefatigable investigator, published an _Abridgment of the
Debates in Congress from 1789 to 1856_ in 15 large volumes. Each
important tariff Debate for the first 70 years of our national history
is distinctly brought out in these volumes, and the impulses and
motives behind each leading speaker may be discerned as clear as day.
The present writer has been over these debates with great care, and
has mastered them in their substance and motives on both sides; and he
has been besides a deeply interested reader and excerptor of all
Congressional tariff-debates for more than 30 years just past; and now
invites his present readers to take a cursory glance over this broad
field, and satisfy themselves as to the motives personal and associate
of the protectionist debaters from the first to the present time.

Because the new Constitution prescribed that "_all bills for raising
revenue shall originate in the House of Representatives_," the main
debates on the first tariff-act of 1789 were in that branch of the
national Legislature. Nothing could be simpler or sounder than the
basis of the new tariff as proposed by Madison, the acknowledged
leader in the debates, namely, the so-called Revenue System of 1783,
as adopted by the old Congress, and ratified by all the States in
succession, excepting New York. That was, small specific taxes on
eight articles, namely, Wines, Spirits, Tea, Coffee, Cocoa, Molasses,
Sugar, and Pepper. In the earlier part of the discussion no other end
than revenue was mentioned in connection with the taxes. Madison
said: "_I own myself the friend of a very free system of commerce: if
industry and labor are left to take their own course they will
generally be directed to those objects which are most productive, and
that in a manner more certain and direct than the wisdom of the most
enlightened legislature could point out; nor do I believe that the
national interest is more promoted by such legislative directions than
the interests of the individuals concerned._" It is significant of
after times that the first word in this debate respecting any other
word than revenue through the tariff-taxes came from Pennsylvania; and
equally significant, that the next and strongest words for something
else than revenue came from Massachusetts; and more significant than
either was the junction of the two States in influence and votes when
it came to the final adjustment of the actual tariff-rates.
Pennsylvania had already gotten well forward in the manufacture of
iron and steel products, particularly of nails, and wanted
"_encouragement_," that is, protectionist taxes upon the foreign
products corresponding. Said Hartley of Pennsylvania: "_I am therefore
sorry that gentlemen seem to fix their mind to so early a period as
1783; for we very well know our circumstances are much changed since
that time: we had then but few manufactures among us, and the vast
quantities of goods that flowed in upon us from Europe at the
conclusion of the war rendered those few almost useless; since then we
have been forced by necessity, and various other causes, to increase
our domestic manufactures to such a degree as to be able to furnish
some in sufficient quantity to answer the consumption of the whole
Union, while others are daily growing into importance. Our stock of
materials is, in many instances, equal to the greatest demand, and our
artisans sufficient to work them up even for exportation. In these
cases, I take it to be the policy of every enlightened nation to give
their manufactures that degree of encouragement necessary to perfect
them, without oppressing other parts of the community._"

Massachusetts was not a whit behind Pennsylvania in asking for
discriminations in her own favor at the obvious expense of the rest of
the country. New England rum was made out of molasses, and Jamaica rum
was its competitor in public favor; distillers in the neighborhood of
Boston and Salem wanted therefore a _high tax_ on Jamaica rum, and a
_low one_ on the imported molasses used in the home manufacture.
Madison was willing to discourage rum-making and rum-selling both in
the interest of temperance, and proposed a tax of eight cents a gallon
on molasses and fifteen cents on Jamaica rum, which called out this
indignant burst from Goodhue of Massachusetts: "_Molasses is a raw
material, essentially requisite for the well-being of a very extensive
and valuable manufacture. It ought likewise to be considered a
necessary of life. In the Eastern States it enters into the diet of
the poorer classes of people, who are, from the decay of trade and
other adventitious circumstances, totally unable to bear such a weight
as a tax of eight cents would be upon them. I cannot consent to allow
more than two cents. Massachusetts imports from 30,000 to 40,000
hogsheads annually, more than all the other States together. Fifteen
cents, the sum laid on Jamaica spirits, is about one-third part of its
value: now eight cents on molasses is considerably more: the former is
an article of luxury, therefore that duty may not be improper; but the
latter cannot be said to partake of that quality in the substance, and
when manufactured into rum is no more a luxury than Jamaica spirits._"

The Senate in the First Congress sat with closed doors, and was thus
more open than the House to the influence of interested petitions
which soon began to pour in upon it, asking for amendments to the
House bill in the line of protectionism; and through such amendments
the Massachusetts and Pennsylvania members, with a few other members
similarly inclined, partially carried their points into the first
Tariff. The tax on molasses was fixed at 2-1/2 cents a gallon, and on
Jamaica rum at ten cents a gallon; nails were taxed one cent per pound
imported; and an accepted Senate amendment classed Hemp and Cotton
together as two products of the soil worth "encouraging," hemp at 3/5
of a cent per pound and cotton at three cents a pound; yet hemp
constantly "encouraged" to this day at the cost of ship building and
other industries has never risen to the rank of a staple. Coal was
also taxed protectionistly, at the instance of Virginia, then the
coal-producing State. Note the three universal features of
Protectionism in the original application of it to the United States;
(1) the purely selfish call to tax one's neighbor in order to lift the
price of one's own wares (nails), (2) the equally selfish resistance
to such a tax as falls on one's raw materials (molasses), and (3) the
final log-rolling among those legally privileged at different points
(Massachusetts and Pennsylvania and Virginia).

Take a second instance of the same general point from our second
Tariff, passed in 1816. Two Massachusetts young men, Lowell and
Jackson, brothers-in-law, had started a modern cotton-mill in Waltham,
near Boston, in 1813, and constructed in it, with the help of an
ingenious mechanic named Moody, a power-loom; as soon as the war with
England was over, and Congress in consequence began to talk about a
new Tariff, Lowell went to Washington, and by personal influence with
Mr. Calhoun, then the leading man in the House, with Mr. Lowndes his
colleague from South Carolina, who afterwards reported the new bill,
and with other members of Congress, contributed largely to the
introduction into this Tariff of protectionist features towards
_cottons_. Lowell struck strong at the start. He represented
(doubtless with entire honesty) to Calhoun and Lowndes, both from a
cotton-planting State, that a domestic market for raw cotton _in
addition_ to the foreign market would raise the price of that
agricultural staple. Both were easily convinced that such would be the
case, although both found ample reasons afterwards for altering their
opinion in that regard. Lowell, the "cotton city" on the Merrimack,
founded in 1821, was named from the successful lobbyist of 1816.
Lowndes reported a tax on cottons of 33-1/3% _advalorem_, with a
proviso _that all cottons should be assumed at the custom-house to
have cost at least 25 cents to the square yard_. This was the famous
principle of the "_minimum_," a device to increase the protectionism
without _seeming_ to do so.

The debate on this feature of the bill was a marvel in many ways. The
penetrating reader will not be at a loss for the reason of this. John
Randolph moved to strike out from the bill the proviso for the cotton
_minimum_, and argued at some length "_against the propriety of
promoting the manufacturing establishments to the extent and in the
manner proposed by the bill, and against laying up 8000 tons of
shipping now employed in the East India trade, and levying an immense
tax on one portion of the community to put money into the pockets of
another_." Calhoun rejoined: "_Until the debate assumed this new form,
he had determined to be silent; participating, as he largely did, in
that general anxiety which is felt, after so long and laborious a
session, to return to the bosom of our families. It has been objected
to that bill, that it will injure our marine, and consequently impair
our naval strength. How far it is fairly liable to this charge, he was
not prepared to say. He hoped and believed it would not, at least to
any alarming extent, have that effect immediately; and he firmly
believed that its lasting operation would be highly beneficial to our
commerce. The trade to the East Indies would certainly be much
affected; but it was stated in debate that the whole of that trade
employed but six hundred sailors. The cotton and woollen manufactures
are not to be introduced: they are already introduced to a great
extent; freeing us entirely from the hazards, and in a great measure,
the sacrifices experienced in giving the capital of the country a new
direction. The restrictive measures and the war, though not intended
for that purpose, have by the necessary operation of things turned a
large amount of capital to these new branches of industry. But it will
no doubt be said, if they are so far established, and if the situation
of the country be so favorable to their growth, where is the necessity
of affording them protection? It is to put them beyond the reach of

Thus Calhoun goes on, making the greatest mistake of his life which he
regretted to his dying day, to give plausible reasons for his
insistence and his vote, but he does not even touch upon the _real
reason_. If he had detailed his conversations with Lowell, it would
have been far more to the point. His motive, like that of every other
man in Congress who has urged protectionist schemes, was the special
benefit of some of his constituents at the more or less concealed
expense of their countrymen. But, as always happens when men really
act from unavowed motives, he was suspected of having them; and he
guarded himself: "_He was no manufacturer; he was not from that
portion of the country supposed to be peculiarly interested. Coming as
he did from the South, and having in common with his immediate
constituents, no interest but in the cultivation of the soil, in
selling its products high, and buying cheap the wants and conveniences
of life, no motives could be attributed to him but such as were
disinterested._" But Randolph still charged, that the discussion
showed "_a strange and mysterious connection_" between this measure
and the National Bank bill which had just passed. This was a loophole
of escape for Calhoun: "_he wished merely to reply to the insinuation
of a mysterious connection between this bill and that to establish the
Bank. He denied any improper or unfair understanding, and could
challenge the House to support the charge._"

A beautiful instance of the _confession_, which all protectionists
make in action when it comes to the pinch, that a rise of price is at
once the object and the result of protectionist tariff-taxes, is found
in the awkward attempt of Congress to relieve indirectly the burnt-out
citizens of Chicago in 1871. The great fire occurred in October of
that year. In the winter following a bit of legislation took place in
Congress in consequence, which is too instructive to be passed by
without notice, because in all the parts of it taken together we have
in epitome the motives and the processes and the prompt confessions of
Protectionism. Contributions were taken up all over the country, and
even in Europe, for the relief of the people of Chicago. As Whittier
puts it:

    "From East, from West, from South and North,
    The messages of love shot forth,
    And, underneath the severing wave,
    The world, full-handed, reached to save."

But cannot Congress do something to help rebuild the ruined city?
April 5, 1872, President Grant set his signature to a congressional
bill enacted to last one year only, and for the express benefit of
Chicago alone, _to exempt all building materials except lumber from
the operation of tariff-taxes_. As a public and emphatic confession on
the part of Congress, that tariff-taxes raise the prices of
protectionist goods, and that the remission of such taxes lowers the
prices of such goods and becomes a boon to the buyers, all this is
refreshing and satisfactory; but why was _lumber_, by much the most
important of the building materials needed, _excepted_ from the bounty
of the legislators to the unfortunates of Chicago? The bill applied to
Chicago only, and was to last but one year at best! The bill as drawn
and debated included _all_ building materials. Why was lumber
excepted? Because, while the bill was still pending, a special car
filled with the lumber-lords of Michigan and Wisconsin was rolled to
Washington in haste, and the potent influence of these men was
sufficient to cause the express exemption of their product from the
intended cheapening (for one year) of the building materials for
desolated Chicago. The brief official record of this curious
transaction will be found in U.S. Statutes for 1872, page 33. It needs
no comment but the obvious one, that here is the whole matter of
protectionism in a nutshell;--the motive, the open confession, the
greedy lobby determined to thrive on their neighbors' misfortunes, the
inhumanity, the spirit of monopoly, the infernalism,--a game of grab
from beginning to end!

Shameless as the protectionist debates in Congress have been from the
start, in letting it be plainly seen, that the sole motive of their
efforts is an artificial rise of price in certain goods which their
fellow-citizens would be compelled under the law to pay, the debate in
the House of Representatives in the spring of 1883 was by far the most
shameless and avowed in this respect of any that ever transpired
there. In the last days of that debate all pretence of any action for
the good of the country at large dropped utterly out of the discourse:
the old fallacies and disguises and subterfuges of "home markets" and
"higher wages" and "commercial independence" were no longer put
forward even in word under the clash of selfish interests, and in the
eagerness to secure for their wares a factitious price to be paid by
their countrymen; proposed reductions in tariff-taxes were fought off
by these men, and in many instances still higher taxes were urged on,
under their unabashed avowal that, unless home prices were thus
stiffened and uplifted, they could not make and sell their wares at a
profit; one honorable member from New Jersey brought his pottery wares
upon the floor of the House, and tried to demonstrate to his
fellow-members that, unless these very goods were hoisted in price, by
taxes on his foreign competitors, he could no longer tread his clay
and work his wheels with profit to himself: in other words, he and
others like-circumstanced, by lobbying and log-rolling, persuaded
Congress to pass so-called laws to compel their countrymen _to hire
them to carry on what they publicly alleged were unprofitable branches
of business_. By their own confession, the only trouble with their
goods was, that they were inferior in quality and superior in price to
otherwise similar goods in the open market of the world.

One more, and the latest instance, out of hundreds equally accessible
and equally conclusive, will suffice for a demonstration of the point
in hand. In the early summer of 1890, a Massachusetts member of the
House of Representatives, an avowed protectionist from an alleged
protectionist district of that State, waxed so warm in arguing against
a protectionist tax upon a certain raw material useful in tanning
leather, that he took off his coat and proceeded in his shirt-sleeves!
One would suppose, both from his zeal and the tenor of his speech,
that he was a veritable free-trader! But no! He had argued a hundred
times that protectionist taxes (to be paid by other people) were a
good thing for the payers, and enriched the whole country; but lo! it
turned out in this case that he himself was a buyer of this particular
material, and lo! he did not relish the tax-lifted prices caused by
the tariff. They were all wrong. They must be fought off at all
hazards, even in the hottest weather! This is a very respectable
gentleman, well thought of by his neighbors in Worcester County, but
his protectionism is _not_ respectable. It is chameleon-colored. It is
one thing in one light, and an opposite thing in another light.
Indeed, the protectionist congressman has never yet been discovered in
this country, who was fond of paying protectionist taxes himself, or
willing that his immediate and powerful constituents should pay them!
It has been proven many times over, that the very strongest friends of
a Free List in this broad land have been certain so-called
protectionist Senators and Representatives.

From these few sample-examples, the reader of penetration will
perceive, that there is no element of logical coherence or moral
decency or even outward respectability in Protectionism. There is no
_principle_ in it or of it. It does not hang together. It walks in
darkness and not in light. It is full of deceit. It is fond of
disguises. It is contrary to common sense. It offends justice.
Morality frowns at it. It has no basis in any Science, least of all in
the Science of Buying and Selling, whose best impulses it feebly tries
to deny, and whose largest and most innocent gains it fain would

Next in order we will examine, in the third place, a few of the chief
FALLACIES AND FALSEHOODS, by which Protectionism has striven to give
itself a standing in the commercial world. In our day at least, these
are, without exception, afterthoughts and subterfuges. We have just
seen under the last head the real impulses, plain as a mountain peak,
which put on and keep on and pile up these taxes on the masses of the
people; but these real motives will not bear inspection and public
criticism, and so plausible reasons must be found or at least
propounded, which shall do the double duty of covering the real
reasons, and of seeming to convince while they only perplex the
victims of the scheme. These plausibilities we propose now to analyze
and to expose. The test of any alleged truth is its harmony with
acknowledged truths: the test of any propounded error is its
incongruity with and contradiction of acknowledged truths. On a
logical comparison, therefore, of any false proposition with any known
truth, the latter will be sure to fling out its flat contradiction and
floor the falsehood forever. Protectionism contradicts economic truths
at practically innumerable points, but we will now watch the
collisions at the principal points only.

Fallacy A: _that a nation may still sell to foreign nations while
prohibiting the buying from them_. Protectionism is multiplied
prohibitions on the buying of goods from foreigners. Between four and
five thousand of such prohibitions deface our national Statute-book at
the present moment. All the while, however, the assumption underlies
this policy, and the express proposition is often heard in different
forms along the lines, that our citizens may still sell their products
to foreigners, nevertheless. England has _got to buy_ our cotton or
starve: the Continent _is compelled_ to take our pork products, for
they are the cheapest food in the world: how can China or India _help_
taking the silver from our mines? Softly. Buying and selling from the
very nature of it is never compulsory, but always voluntary. A
commercial service is never rendered but in plain view of a
return-service to be received. The mental estimation of each buyer is
couched in the very terms of what is offered in return by each seller.
Buying and selling from its inmost nature is always one act of two
persons acting conjointly and inseparably to the advantage of each.
How, then, can the individuals of one country _sell_ anything to
individuals of another country without at the same instant _buying_ of
these in return? The act of selling is just as much buying as it is
selling, and the act of buying is just as much selling as it is
buying. As we have abundantly seen already, the introduction of Money
as a _medium_ in the transaction makes no difference in the _nature_
of the exchange of commodities internationally. The postulate,
therefore, that the people of one country can continue to sell
products to the people of another while refusing to take their
products of some kind in return, is an _absurdity_ in the nature of
things and an _impossibility_ in the world of facts. _A market for
products is products in market._

All known facts confirm this irrefragable reasoning, and discredit
utterly the fallacy in hand. When France and Germany a few years ago
gave back to our protectionists a dose of their own medicine, and
prohibited American pork-products, ostensibly because they feared the
trichinæ but really to cajole their own farmers under the plea of
protectionism, their brethren in the faith have made up all sorts of
faces ever since, have wound up the respective diplomatic clocks to
strike twelve against the too presumptuous countries which ventured to
restrict American products in their ports, have protested and
proclaimed. What is the matter? Is not sauce for the goose sauce for
the gander also? Have not American protectionists shut out French and
German products 100:1 under the same plea now used on the Continent?
"_But we cannot sell our products abroad_," cry the angered Western
farmers. Of course they cannot, because restrictions on buying _are_
restrictions on selling; and additional restrictions of the same kind
put on French and German buying are of course still further
restrictions on American selling. And the farmers are, as usual, the
victims both ways.

To hear an ordinary American protectionist talk, one would think that
Great Britain is the enemy of mankind for admitting into her ports
practically without let or hindrance the goods of all the world. _Free
Trade England!_ Let us look a moment. England has to pay for all these
goods received from all quarters. In what does she pay? In her own
goods, of course. What is her market? The whole world. Is that market
ever slack on the whole? Never. Is she ever flooded with cheap goods?
The more she buys the more she sells of necessity. How much does she
sell _per capita_ of her people? More than twice as much as the United
States sells _per capita_. How can she sell so much of her own stuff?
Because she buys freely other stuff from all the world. What are the
limits to her capacity to sell her own goods to foreigners? Precisely
the limits of her willingness to take in pay other goods from
foreigners. Cannot these limits be overpassed in either direction? By
no possibility: when people can no longer pay for what they buy, the
buying ceases; and when they are not permitted to take their pay for
what they sell, the selling ceases. Is this free trade profitable to
Great Britain? Immensely so in every way. Whither has it carried up
her ocean-marine? To the topmost notch. Is capital abundant in England
in bulk, and are its loanable rates low? England is the richest
country in the world, and all nations resort thither to buy. What is
the source of this vast volume of Capital? The only source of Capital
is savings from the natural gains of Buying and Selling.

Is Great Britain willing to take in goods from the United States?
Certainly, under the universal conditions of taking in foreign goods
at all. Is the United States willing to take in British goods in pay
for her own goods exported thither? She is not, except over
protectionist barriers averaging 47%. Is it a good thing for the
United States, that Great Britain takes in her goods freely? We should
suppose so! Does the former already sell to the latter and through the
latter more goods than to all the world besides? Much more. Could this
profitable trade be easily increased? It could be quadrupled in a very
short time. How? By simply according to our citizens a decent liberty,
which is their inalienable right. Would the United States like it to
be commercially treated by Britain exactly as the former treats the
latter? It would bankrupt the United States in six months. Would our
protectionists like it? It would make them howl. Is it the commercial
salvation of the United States that Britain is immovably for free
trade with her and the rest of the world? Nothing else saves her from
commercial ruin. Can the ghost of a reason be given, commercial or
other, why the United States should continue to fling double fists
into the face of British goods seeking a market and so making one? Not
a shadow of a shade of a good reason was ever given for such folly, or
ever can be.

It is more than a pleasure to acknowledge at this point the great
service done by James G. Blaine, Secretary of State, during the summer
of 1890, to Country and Commerce, by his courageous avowal contrary to
his own personal record and to the vehement behest of his party, that
the economic principle just enunciated is sound, and should be at once
applied by the United States in connection with all the countries of
Latin America. In a letter to the Senate on the results of the recent
Pan-American Conference, he said: "_The Conference believed that while
great profit would come to all the countries, if reciprocity treaties
could be adopted, the United States would be by far the greatest
gainer._" The principle of reciprocity is the principle of free trade
applied by both parties to the trade. It is the sound principle, that
goods buy goods and pay for goods at the same instant to a mutual
profit. Manifold reiterations of this principle came from the
Secretary that summer, especially in vigorous protestations against
the McKinley tariff-bill then pending, alleging with truth that
"_there is not a line or a section in the bill which opens a market
for another bushel of wheat or another barrel of pork_." The
unequivocal statements of a favorite statesman have roused the
somewhat indifference of thousands of citizens, and make certain the
speedy prevalence in the United States of the unassailable doctrine,
that any People must buy freely if they would sell broadly.

Fallacy B: _that tariff-taxes are needful in order to start infant
industries_. There is no analogy whatever between Child-bearing and
Child-growing and any form of Buying and Selling at any time, but the
deceit in the wretched simile has cost the world billions of dollars
of pure loss. To bring up infants from birth to maturity is indeed a
good deal of a task for the parents, but it is not in any sense an
economical task: the parents neither ask for nor receive a
return-service in kind: the transaction is wholly moral in its
character, and not economical at all: there is no party of the second
part in the premises: there is a free giving, and that is all. Buying
and Selling, on the contrary, has no infancy, and no maturity and no
old age. This particular Minerva springs at once full-grown and
full-armed from the brain of Jove. The conditions of Trading are
forever the same; with no reference to the age of the parties, the
antiquity of the industry, or any other such irrelevant thing. If any
person anywhere (old or young) has got something to sell, and finds
(directly or indirectly) any other person anywhere who wants his
wares and can pay for them,--all the conditions of mutual profit are
present, and everything else is an impertinence.

Much more than this. Tariff-taxes have to be paid by somebody. Their
payment is inexorable at the custom-house, and interest and other
charges are added before the sum reaches the ultimate payer. But the
ultimate sum however made up is exactly so much _out_ of the
commercial gains of the payer. The sign is every time _minus_ and
_not_ plus. When egregiously high tariff-taxes are multiplied in
number, and all the additions are made to them, they become an
incalculably large sum, every cent of which _has to be paid_ out of
the gains of current Industry. Now, what a queer way that is to foster
industries! What a queer way to help start them! It takes Capital to
start new industries, and to carry on old ones; but tariff-taxes (with
all their accretions) take just so much _out_ from what would
otherwise naturally become Capital. That is to say, all Capital is
savings from the gains of Exchanges; and these gains are _reduced_ by
every tariff-tax that touches them directly or indirectly. Taxes from
their very nature can help nobody. They hurt everybody. What a device
this is to start new industries with, namely, to pick the pockets of
the very men, who are to start the industries, if they ever are to
start at all! Lower your reservoir to begin with, in order to give
head and force to your faucet flow!

But this is not half of it. On what industries do the protectionist
taxes fall at first to weaken and discourage them? Of course on the
natural and profitable ones, which only ask to be let alone in order
to maintain a healthful life and growth. If, under natural conditions,
any industry is in existence, one may be perfectly sure it is
profitable, since Profit is the only thing in the world that can
start and build up an industry: when the profit ceases, the trade
ceases of necessity: the motive to it is _gone_. In behalf of what
sort of industries are these taxes ostensibly and plausibly levied?
Only, if we are to believe the protectionists, the weak and presently
unprofitable ones. _It is the infant industries that need the
nursing-bottle!_ That is to say, tax down and perhaps destroy the
_profitable_ industries, the industries that _pay_, that can paddle
their own canoe and no thanks to anybody, in order to bring forward
certain other industries, which by confession and open proclamation
are _unprofitable_, and can only _start_ by taxing their neighbors! Of
course, there is a cat in this meal, and we shall let her out of the
bag in plain sight presently; but we are taking now our friends, the
protectionists, at their own word, and exhibiting their marvellous
wisdom under the terms of their own choosing. What a blessed way for a
nation to grow rich, to smite down with high taxes the active and
enterprising and independent and therefore profitable industries with
one hand, and grope around with the other to find some poor and
inactive and unfrugal and naturally unprofitable industries, in order
to fetch forward these by means of the plunder filched from the

To go back for historical illustration to Washington's first
administration, when the first (extremely mild) protectionist taxes
were levied in this country, we have the highest authority for knowing
that many of the leading branches of manufactures were prosperous and
profitable. They had no artificial help in order to start, but on the
contrary had had continual discouragement for a century under the
miserable protectionist policy of the mother country. Washington
himself was inaugurated in a dark brown suit of woollen cloth of
American manufacture: so was John Adams inaugurated first
Vice-President of the United States about the same time in a garb of
wholly native manufacture.[11] This was in April, 1789. In November of
the same year, Washington returned to New York from his first tour in
New England "_astonished both at the marvellous growth of commerce and
manufactures in New England and the general contentment of its
inhabitants with the new government_" (Schouler, p. 117). Alexander
Hamilton, the first Secretary of the Treasury, in his famous Report to
Congress on Manufactures, in 1791, enumerated seventeen branches as
then thriving so as to fairly supply the home market, and settle into
regular trades. These were, skins and leather, flax and hemp, iron and
steel, brick and pottery, starch, brass and copper, tinware,
carriages, painter's colors, refined sugars, oils, soaps, candles,
hats, gunpowder, chocolate, snuff and chewing tobacco. It is plain
enough from the debates of the time as well as from the nature of the
case, that the protectionist taxes in our first two Tariffs, already
considered here in detail, although they were comparatively slight in
number and amount, fell in the way of discouragement on these
incipient yet independent manufactures as well as upon all the farmers
of the land. There can be but little rational question, that the
woollen industry was sounder at the core in 1789, when Washington was
inaugurated in native woollens, than in 1889, when Harrison was
inaugurated in the same, the ostentatious gift of a firm of
protectionist woollen manufacturers shortly afterwards adjudged to be
bankrupt and fraudulently so.

The best point, after all, to make against this hollow fallacy, is the
practical one, that no industry whatever, whether "infant" or other,
has ever come in this country into an acknowledged self-sustaining
position under a whole century's tariff-taxes. Salt, hemp, coal,
cottons, woollens, nails, and iron and steel products generally, were
the chief articles protectionized at first, and have been
protectionized ever since, but no one of them all has ever come into a
condition of self-support according to the view of the privileged
beneficiaries. Each one of them was an old industry, and a relatively
rich industry, when it was taken under the "fostering care" of the
tariff-taxes, levied for their further enrichment on the masses of the
people; and it was only greedy and secret combinations among these for
that purpose, which put them at first and has kept them ever since in
the rank of public beneficiaries. The simple truth is, that diversity
of employments is rooted in human nature and in the circumstances amid
which God has placed men, and so far is it from being true that taxes
and restrictions are needful in order to foster manufactures, taxes
and prohibitions cannot prevent them from springing into life! They
are just as natural to men and to colonies as agriculture is. Indeed,
agriculture can scarcely take a step without them. The farmer must
have ploughs and carts and other implements; and, depend upon it,
there are some natural mechanics in that colony. Clothes are as
needful as food, and spinning and weaving in some form will begin at
once, and prohibitions will be powerless to stop them.

Deadly to the fallacy in hand is the word of unquestionable History.
Any one may read in Palfrey and Bancroft and Hildreth such facts as
these, scattered all along through the noble volumes. The manufacture
of linen and woollen and cotton cloth was begun in Massachusetts in
1638, in Rowley, by some families from Yorkshire; and became so
remunerative in a couple of years that some acts of the General Court
designed to stimulate it were repealed. Brick-making and glass-works
and the manufacture of salt were all begun in Massachusetts before
1640. In 1643, the younger Winthrop established iron-works in
Braintree and Lynn, which after some losses were successfully
prosecuted. Within less than twenty years thereafter, tannery and
shoemaking had made such strides, that boots and shoes became articles
of export. That these were no fancy beginnings in manufactures, we may
strikingly learn from an Act of Parliament passed in 1698. Notice the
date. This law is a sample of many more:--"_After the first day of
December, 1699, no wool, or manufacture made or mixed with wool, being
the produce or manufacture of any of the English plantations in
America, shall be loaden in any ship or vessel, upon any pretence
whatsoever,--nor loaden upon any horse, cart, or other carriage,--to
be carried out of the English plantations to any other of the said
plantations, or to any other place whatsoever._" Thus the fabrics of
Massachusetts were forbidden to find a market in Connecticut, or to be
carried to Albany to traffic with the Five Nations. "That the country
which was the home of the beaver might not manufacture its own hats,
no man in the colonies could be a hatter or a journeyman at that
trade, unless he had served an apprenticeship of seven years. No
hatter might employ more than two apprentices. No American hat might
be sent from one plantation to another." In 1701 the three charter
colonies are reproached by the lords of trade "_with promoting and
propagating woollen and other manufactures proper to England_." In
1721 New England alone had six furnaces and nineteen forges, and there
were many others in Pennsylvania and Virginia. Parliament enacted in
1750 that no more mills should be erected in America for slitting or
rolling iron, or forges for hammering it, or furnaces for making
steel; and in certain cases, agents of the crown were authorized to
tear down such establishments as "_nuisances_." How far all the arts
of navigation had been carried in the Colonies before the Revolution,
every one may read in Burke's famous speech on Conciliation with
America. How far the products of the loom, the forge, and the anvil,
were already being exported, in spite of British legislation, to other
countries, any one may see in Lord North's last proposals and
concessions to ward off Independence.

Protectionism having once fed its petted beneficiaries from the public
crib, that is to say, from taxes wrenched from the many to enrich the
few, invariably clamors for more and more rations for its pets from
the same public source. Not only does no industry become
self-supporting by its bite and its sup, but each becomes according to
its own facile representations and representatives, more and more
helpless in itself, more and more shameless in its demands, more and
more _entitled_ to public charity, and less and less inclined to
surrender one iota of past or present privilege. The daughters of the
horse-leech cry continually, Give! Give! The following schedule
relates to woollens mainly, but it is a fair sample of many other
protectionized classes of goods under the successive tariffs in this
country, in point of increased taxes on the people in their behoof.
While these lines are being written, the McKinley tariff-bill,
so-called, having passed the House, is pending in the Senate. It is
significant, that this piece of legislation, whether it be finally
enacted or not, proposes to open the second century of the United
States Protectionism by largely hoisting the tariff-taxes along the
main line. Infant industries indeed!

                        |       RATE OF DUTIES UNDER THE TARIFF OF
   ARTICLES.            +-----+-----+--------+--------+--------+--------
                        |1791.|1859.|  1861. |  1864. |  1883. |  1890.
                        | Per | Per |        |        |        |
                        |cent.|cent.|        |        |        |
  Dress goods of cotton |  5  |  19 | 30 per | 55 per | 68 per | 88 per
    and worsted,        |     |     |   cent.|   cent.|   cent.|   cent.
    costing 15 cts.     |     |     |        |        |        |
    the sq. yd.         |     |     |        |        |        |
                        |     |     |        |        |        |
  Same, costing 20      |  5  |  19 | 30  "  | 50  "  | 60  "  | 90  "
    cents sq. yd.       |     |     |        |        |        |
                        |     |     |        |        |        |
  Same, all wool or     |  5  |  24 | 30  "  | 47  "  | 77  "  |100  "
    of mixed materials, |     |     |        |        |        |
    costing 24 cents    |     |     |        |        |        |
    sq. yd.             |     |     |        |        |        |
                        |     |     |        |        |        |
  Same, costing 30      |  5  |  24 | 30  "  | 55  "  | 70  "  | 90  "
    cents sq. yd.       |     |     |        |        |        |
                        |     |     |        |        |        |
  Same, costing 60      |  5  |  24 | 30  "  | 45  "  | 55  "  | 70  "
    cents sq. yd.       |     |     |        |        |        |
                        |     |     |        |        |        |
  Same, weighing over   |  5  |  24 |25% and |40% and |40% and |50% and
    4 oz. sq. yd.       |     |     | 12 cts.| 24 cts.| 23 cts.| 44 cts.
                        |     |     | per lb.| per lb.| per lb.| per lb.
                        |     |     |        |        |        |
  Ready-made clothing   |7-1/2|  24 |25% and |40% and |35% and |60% and
                        |     |     | 12 cts.| 24 cts.| 40 cts.| 50 cts.
                        |     |     | per lb.| per lb.| per lb.| per lb.
                        |     |     |        |        |        |
  Tapestry Brussels     |7-1/2|  24 |30 cts. |50 cts. |20 cts. |28 cts.
    carpets             |     |     | sq. yd.| sq. yd.| sq. yd.| sq. yd.
                        |     |     |        |        | and 30%| and 30%
                        |     |     |        |        |        |
  Tapestry velvet       |7-1/2|  24 |50 cts. |80 cts. |25 cts. |40 cts.
    carpets             |     |     | sq. yd.| sq. yd.| sq. yd.| sq. yd.
                        |     |     |        |        | and 30%| and 30%
                        |     |     |        |        |        |
  Brussels carpets      |7-1/2|  24 |40 cts. |70 cts. |30 cts. |40 cts.
                        |     |     | sq. yd.| sq. yd.| sq. yd.| sq. yd.
                        |     |     |        |        | and 30%| and 30%
                        |     |     |        |        |        |
  Druggets and bockings |  5  |  24 |20 cts. |25 cts. |15 cts. |20 cts.
                        |     |     | sq. yd.| sq. yd.| sq. yd.| sq. yd.
                        |     |     |        |        | and 30%| and 30%
                        |     |     |        |        |        |
  Silk goods, including |7-1/2|  19 | 30 per | 60 per | 50 per |Average
    velvets and plushes |     |     |   cent.|   cent.|   cent.|probably
                        |     |     |        |        |        |   90%
                        |     |     |        |        |        |
  Woollen hosiery and   |     |     |        |        |        |
    underwear:          |     |     |        |        |        |
      Costing 32 cents  |  5  |  24 | 30  "  | 90  "  | 77  "  |214 per
        per lb.         |     |     |        |        |        |   cent.
      Costing 42 cents  |  5  |  24 | 30  "  | 79  "  | 79  "  |175  "
        per lb.         |     |     |        |        |        |
      Costing 62 cents  |  5  |  24 | 30  "  | 62  "  | 74  "  |135  "
        per lb.         |     |     |        |        |        |
      Costing 82 cents  |  5  |  24 | 30  "  | 54  "  | 82  "  |120  "
        per lb.         |     |     |        |        |        |
                        |     |     |        |        |        |
  Linen goods           |  5  |  15 | 30  "  |Average | 35  "  | 50  "
                        |     |     |        |37-1/2% |        |
  Cotton hosiery:       |     |     |        |        |        |
    Costing 62-1/2 cents|7-1/2|  24 | 30  "  | 35 per | 40  "  |110  "
      per doz.          |     |     |        |   cent.|        |
    Costing 2.10 cents  |7-1/2|  24 | 30  "  | 35  "  | 40  "  | 76  "
      per doz.          |     |     |        |        |        |
    Costing 4.10 cents  |7-1/2|  24 | 30  "  | 35  "  | 40  "  | 64  "
      per doz.          |     |     |        |        |        |

It is also significant in this connection to read an extract from the
Report of Mr. William Whitman, President of the National Association
of Wool Manufacturers, dated March 29, 1890, to the Stockholders of
the Arlington Mills, Massachusetts. "_I have been your Treasurer for a
consecutive period of twenty years. During this period the average
earnings have been_ 20-8/10 _per centum upon the capital. The earnings
of the last year were nearly three and a half times those of the year
previous, and there is every indication that the current year will be
the most profitable one in the company's history._"

Fallacy C: _that a home market is better and broader than a foreign
market_. Professor Thompson of Pennsylvania has publicly and
repeatedly stated, that, by a persistent policy of Protectionism a
"home market" would be created for all the bread-stuffs that this
great country produces; and John Roach, the shipbuilder, expatiated at
length before the Tariff Commission of 1882 on the advantages the
farmer derives from the better "home market" already created by
Protectionism. To come nearer home in place and further down in time,
there was organized in Eastern Massachusetts with headquarters at
Boston in some connection with the national election of 1888, a
so-called "Home Market Club" of large proportions. It is generally
understood in the State, that a large minority, if not a majority, of
the members, are displeased with the McKinley Bill of 1890, declaring
that the mustard is carried to fanaticism in this bill, that neither
the "home market" nor any other can profit by such a series of

However this last may be, it is plain, that a ridiculous and most
harmful fallacy underlies all references to a "home market" in any
connection with foreign trade. It is simple Gospel charity to believe,
that Thompson and Roach and the founders of the Home Market Club and
all others, who repeat this wretched stuff, never stopped in their
thoughts long enough to inquire what a "market" really is, never
analyzed into its simple elements that composite thing called a
"market," but each and all in turn have taken up a catch-word
carelessly which seems on the surface to have some significance though
in reality it has none.

All will agree, if they will stop to think, that a "market" is always
made up of _buyers_ with return-services in their hands. A bigger home
market than before consists only in more domestic buyers than before,
all ready with acceptable pay in all their hands. More persons than
before, more services-in-return than before. Now, if Protectionism
_can enlarge the home market_, it must be (1) either by increasing the
number of births or diminishing the number of deaths in a given time
in a given country. Precisely how big bundles of big taxes, which the
whole population must pay in one form or another and over and over
again, may be made to stimulate births or prolong lives, no reasonable
man can see, and it is not unreasonable to deny that a protectionist
can see it. But conceding that he can see and show this, his task is
then but half done, for he must proceed to see and show how these same
onerous taxes are able (2) to multiply the return-services in the
hands of this increased population!

If he think at all, the protectionist is compelled to remember, that
his system is always and everywhere a series of prohibitions on
profitable trade. A profitable trade always gives birth to gains. It
always gives birth to Capital. It always gives birth to Plenty. That
is the nature of it, and the Divinely ordained blessing on it. But
when the greater part of these gains are artificially cut off, when
the possible capital is reduced in volume, when the scarcity comes in
which is the primary _purpose_ of Protectionism to create, it shall
go hard if there be even as many return-services as when the process
began. Not a better "home market," but a more meagre one, is the
inevitable issue of restrictions and prohibitions.

If our protectionist try to get out of this snug place, in which he
now finds himself, provided he is able to feel the force of any logic
whatever, by claiming that his broader "home market" is to be made by
new immigrants with old-world values in their hands to buy with, he
certainly cannot escape by this route, because (1) he must in order to
do this see and show what there is in big taxes enormously multiplied
to invite immigrants here at all; and (2) our typical protectionist is
scared to death by the _handiwork_ of foreign "pauper labor" wherever
exposed for sale, and of course he is not prepared to welcome the
pauper laborers themselves, of which class as described by him the
immigrants would mostly consist; and besides, the tariff would not
admit to our shores the old-world values, which would be the
immigrants' sole _return-services_ to help make up the new market!

Within a week of the present writing, Senator Morrill of Vermont has
broached from his place the idea in debate, that the industries of the
United States can be so stimulated by protectionism as to cause the
consumption of all the agricultural products of the United States.
Well, when? The stimulus has been applied now just thirty years under
Mr. Morrill's own eye, and by a tariff called by Mr. Morrill's own
name, increasing its rates every little while, even in 1883, when the
public pretence was to diminish them; and agricultural products of all
kinds, including lard and pork and wool, have never been so "deadly
dull" as in this interval of high protectionism. Scores of thousands
of bushels of well-ripened Indian corn were burned for fuel in the
more western States and Territories the very last winter, because the
market for it was too poor to pay for its transportation to Chicago
over protectionized rails, and in cars built of tariff-cursed lumber,
every nail and bolt and screw in which doubled in price from the same
general causes. If Mr. Morrill were not in his dotage, or if in his
prime he had ever closely analyzed a single case of trade, foreign or
domestic, he would see that the abandoned farms of his own State
reckoned to be about one-third of the cultivated land on the eastern
slope of the Green Mountains to the Connecticut River,--Mr. Morrill's
own native region and residence,--abandoned farms for two years past
assiduously sought by State officials to be filled in if possible by
immigrants from Sweden virtually giving them the lands and
farm-buildings,--fling out their flat contradictions to this
senatorial drivel; that the constant decline for a quarter of a
century of the farming population in every State in New England gives
the lie to this miserable proposition; and that the constantly
increasing area of mortgaged farms in every agricultural State in this
Union is an overwhelming proof that the "home market" for farm staples
has been growing constantly worse for years under this boasted

The year 1890 is likely to prove the pivotal point of time in the
swing of this whole proposition of Deceit, for two reasons, namely,
(1) it is the year of the decennial Census, in which at least a
half-hearted attempt is being made to bring out the aggregate area in
each State of the mortgaged farming lands, and nothing can prevent the
appearance in which of the lessening volumes of population in the
purely agricultural communities; and (2) the year has already been
marked by the political revolt from the party of protectionism of the
masses of the farmers in the Mississippi Valley, and their
organization into "Farmers' Alliances," naturally and demonstrably
hostile to all Restrictions on the sale of farmers' produce.

Fallacy D: _that protectionism tends to raise the wages of general
laborers_. In our third chapter, the whole doctrine of Wages was
clearly and carefully laid down, and it is only needful now to remind
the reader of two or three of those fundamental principles. The
Labor-giver and the Labor-taker only touch each other at the old
points of reciprocal Desires and Renderings. There are two persons
standing in that relation each to each. A rate of Wages is always a
result of a Comparison. If the Labor-takers, whoever they may be, more
strongly desire the services of the Labor-givers, whoever they may be,
other things remaining as before, there will be a rise in the rates of
Wages, because Effects always follow the operation of Causes in
Economics, as in all other scientific spheres; and if the
Labor-takers, for any reason, desire less than before the services of
Laborers, other things being equal, the general rates of Wages will
decline of necessity.

Now, what is the necessary effect of Protectionism upon the general
Demand for Laborers? How is the whole class of Labor-takers affected
by prohibitory tariff-taxes? Note every time, that it is the presently
and independently _profitable_ industries, the industries that ask for
nothing except to be let alone, that are struck and restrained by
these tariff-taxes; the fact that any industry is successfully going
forward under its own motives is sufficient proof of its own
profitableness; these are the industries, in every case, which are
curtailed by restrictive tariff-taxes, their former gains are lessened
of course and by design, and their _motives_ consequently to hire
Laborers to carry on these branches of business now taxed and
tormented are _lessened_; less Desire for Labor-givers gives laborers
less every time round; the so-called argument of Protectionists is, to
introduce alleged _unprofitable_ industries by means of taxing down
_profitable_ ones; and pray, what effect must that have upon the
general Desire to employ Labor-givers, and consequently what effect
upon general rates of Wages?

Take one look further along this same line. Tariff-taxes of this
character are designed to keep out, and do keep out, foreign wares,
which are the natural and profitable market for domestic wares: how
will this forced exclusion affect the Demand for laborers to make or
grow the domestic wares whose market is now lost? And what is the
influence on the Wages of those whose services are now in lessened
Desire along the whole line? Causes produce their Effects everywhere
and every time.

Dissatisfaction among, and actual disaster to, Labor-givers as a
class, have always followed the imposition of protectionist
tariff-taxes in this country, as a matter of plain observation and
record; have followed increasingly and more disastrously increased
restrictions and prohibitions on profitable trade; "Strikes" on the
one hand to resist a lowering or secure a lifting of Wages, "Lockouts"
on the other to bring laborers to terms, "Shut-downs" for pretended
repairs in order to gain time to tide over the gluts that always
accompany artificially restricted markets, semi-hostile relations
between Employers and Employed, interruptions to travel and
transportation, timidities of Capital fatal to new and enlarged
enterprises, have never characterized this country so strikingly as
during the quarter-century of Protectionism culminating in 1890.

The following table accurately compiled by Editor Philpott of Iowa,
from the National Census, shows in remarkable figures the relatively
slow rate of progress of the Nation in thirteen essential items of
growth under the Morrill Tariff, as compared with the rapid rates of
progress in the leading lines under the Walker Tariff. _The comparison
lies in the per centum of increase over the previous decade of the
period_ 1850-60 _relatively to each of the two periods_ 1860-70 _and
_1870-80_: the average of the last two periods is taken for the sake of
an easier comparison of the progress of the one decade (Walker) with
the average of the two later ones (Morrill)._

  |        Lines of Progress.        | 1850-1860. | Average each Ten  |
  |                                  |            | years--1860-1880. |
  | Population                       |     35.5   |        26.2       |
  | Wealth                           |    126.6   |        61.0       |
  | Foreign commerce, aggregate      |    131.0   |        45.6       |
  | Foreign commerce, per capita     |     70.3   |        15.2       |
  | Railroads, aggregate             |    240.0   |        69.0       |
  | Railroads, per capita            |    150.0   |        34.0       |
  | Capital in manufactures          |     90.0   |        66.0       |
  | Wages in manufactures, aggregate |     60.3   |        58.2       |
  | Wages in manufactures, per hand  |     17.3   |         9.4       |
  | Products                         |     85.0   |        69.6       |
  | Value of farms                   |    103.0   |        23.6       |
  | Farm tools and machinery         |     62.0   |        27.7       |
  | Live stock on farms              |    100.0   |        17.3       |

The State of Massachusetts has been diligently and scientifically
taking the Statistics of everything relating to Laborers as such for
many years; and we take now by way of confirmation of what has just
been written a few statements of fact from the official Reports.
_One-third of Massachusetts wage-earners were out of work one-third of
the time under the benign influence of Protectionism [1887]. Wages
went down in Massachusetts on the whole average 5 per centum 1872-83,
while in the same interval of time they went up 9 per centum in Great
Britain [1885]. Wages in Massachusetts advanced in 1830-60 (Walker) 52
per centum and in 1860-83 only 28 per centum (Morrill). What is called
the needful cost of living increased in Massachusetts between 1860 and
1878 (Morrill) 14-1/2 per centum in spite of immense cheapenings in
costs of production and transportation [1885]._

The U. S. Government has been gathering for a long time important
Statistics relating to Laborers and their Wages and their Costs of
Living, not only in the decennial Censuses but also in Consular
Reports and in the Reports of a national Commission established for
that purpose. We excerpt a few relevant statements from these almost
at random. _Wages in free-trade England are from 50 to 100 per centum
higher than they are in any protectionized country on the Continent of
Europe. The aggregate Values of this country increased 1850-60
(Walker) 126 per centum, and in 1870-80 (Morrill) only 80 per centum,
after reducing the census values of 1870 to a gold basis. Vessels
American-owned and American-built controlled three-fourths of our
foreign carrying trade in 1856, and less than one-sixth of it in

The Census of 1880 gives the total number of persons employed in the
great subdivisions of industry in the United States as follows:--

    Trade and transportation                 1,810,256
    Manufactures, mechanical and mining      3,837,112
    Professional and personal services       4,074,238
    Agriculture                              7,670,493

The following table compiled from the censuses of the last four
decades will be found to yield food for thought in the light of the
present paragraphs. _It relates solely to manufactured goods at the
four successive epochs._

  |           |     1850.    |     1860.    |     1870.    |     1880.    |
  |Value of   |              |              |              |              |
  | products  |$1,019,109,616|$1,885,861,676|$4,232,325,442|$5,369,579,191|
  |Value of   |              |              |              |              |
  | materials |   555,174,320| 1,031,605,092| 2,488,427,242| 3,395,823,547|
  |Wages paid |              |              |              |              |
  | out       |   236,759,464|   378,878,966|   775,584,343|   947,953,795|
  |Materials  |              |              |              |              |
  | to        |              |              |              |              |
  | products, |              |              |              |              |
  | per cent  |            54|            54|            58|            63|
  |Wages to   |              |              |              |              |
  | products, |              |              |              |              |
  | per cent  |            22|            21|            18|            17|
  |Average    |              |              |              |              |
  | wages     |              |              |              |              |
  | earned    |          $247|          $289|          $377|          $346|
  |Capital to |              |              |              |              |
  | products, |              |              |              |              |
  | per cent  |            52|            53|            50|            50|
  |Number of  |              |              |              |              |
  | establish-|              |              |              |              |
  | ments     |       123,029|       140,433|       252,148|       253,852|
  |Average    |              |              |              |              |
  | hands     |              |              |              |              |
  | each      |          7.79|          9.34|          8.16|         10.79|

Our manufactures were put down in the Census of 1880 as in value
$5,369,579,191. But this sum contains $1,670,000,000 that does not
strictly belong to manufactures, such as flouring, lumbering,
blacksmithing, sugar-refining, coffee-roasting, slaughtering, and a
few others. This sum being taken out, there is left in round numbers
but $3,700,000,000. This is not a great amount for 50,000,000 of
people, and for a land with such natural advantages for manufacturing
as our own.

Fallacy E: _that the costs of Wages to employers and of Materials to
manufacturers somehow justify Protectionism_. The harmful confusion is
constantly made here between Rates of Wages and Costs of Labor--two
very diverse matters. Rates of Wages depend on a very different set of
circumstances from Costs of Labor. Failure to draw this distinction,
and a desperate desire to clutch even at a straw with which to bolster
up absurd Restrictions, have made a hotch-potch and a caricature of
attempted argument at this point. Rates of Wages have always been
relatively high in this country as compared with the countries of
Europe for two general reasons: (1) the country is new, with enormous
natural advantages of every sort, with comparatively few laborers
competing steadily with each other for work, large numbers of persons
passing constantly out of the employed into the employing classes; and
(2) there has almost always been from the first, and there is likely to
be again in the immediate future even if there be not at the present
moment, a Money in this country depreciated below the gold standards of
Europe, in which the rates of current wages are always reckoned, and
which makes them _seem_ to be higher than they actually are in
purchasing-power. On the other hand, Costs of Labor have always been,
and are now, low in this country as compared with Europe, for two
general reasons also: (1) all classes of laborers are more efficient
and skilled in this country than in Europe, working with more energy
more hours in the week, under less cost of superintendence, being as a
rule more temperate and healthful and educated persons, so that
employers _get more for what they give_ than do employers abroad; and
(2) the cost of that to the employers in which the laborers are paid,
whether money or other valuables, is always less here than abroad,
because the money usually is depreciated money which costs less in
commodities, and even if it be not, the current prices of general
commodities are higher here than there, so that the cost of wages paid
directly or indirectly in commodities is less here to employers.

A second and distinct and wholly convincing proof, that the Cost of
Labor to employers has been less here than abroad during the first
century of our national existence, has been the unquestioned fact,
that the Rate of Profits has been higher. A constant stream of foreign
Capital has come hither for investment, drawn solely by the higher
rates of Profit. But if the rates of Profit have proven to be higher,
the costs of Labor must have been lower, because laborers and
capitalists divide the whole returns between them. Nobody else has any
claim upon the conjoint proceeds. _Profits are the Leavings of the
Costs of Labor._ If, therefore, these Leavings are larger in one
country than another, then of necessity the Costs of Labor are lower
in the first country.

Now, Protectionists have had the effrontery (largely the result of
ignorance) to contend, that they are at a disadvantage as employers of
laborers on account of the rates of Wages they are obliged to pay to
them! _Exactly the reverse is the truth._ Instead of being at any
disadvantage at this point, it is a matter of absolute demonstration,
that American employers pay the smallest costs of Labor in the world!
Employers as such have no interest in the rates of Wages as such, but
only in the costs of Labor to themselves as capitalists. High rates of
Wages not only usually accompany low costs of Labor, but also are a
proof of them! The patient (not to say stupid) American People have
consented for thirty years past to be abominably taxed for the
exclusive benefit of a set of brazen mendicants, on the ostensible
ground, that the said public beggars were unfortunately placed in
comparison with European competitors, when the simple truth has been,
that they had a constant advantage in the best, and cheapest (in cost
to themselves), and steadiest and most intelligent (on the whole),
laborers in the world.

What is the truth about raw materials in this country? Especially raw
materials in those branches of industry, which have been most steadily
protectionized from the first, like iron and copper, and cottons and
woollens? Can any reason be found for legislatively excluding foreign
products of these classes on the ground of any disadvantage of our
producers on the score of raw materials? Look at iron ore, for
example, now protectionized to the extent of 75 cents per ton. No
country in the world possesses such deposits in quantity and quality
and accessibility of iron ore as the United States of America. Vast
beds of the best ore in the world, especially in wide regions along
the whole course of the Tennessee River, lie directly upon the surface
of the ground; and the so-called "Iron Mountain" in Missouri is said
to have ore enough above the general surface of the country round to
supply the wants of the entire United States for two centuries! Yet
every ton of this ore is artificially lifted in price to the very
People to whom God gave it in exceeding abundance. The average cost of
mining, washing, screening, and loading upon steam freight-cars for
transportation to market, of brown-hematite ore at one of the Mines
in Tennessee during the summer and autumn of 1890, was 33 cents per
ton, with a constant downward tendency in cost as machinery was
multiplied and methods improved. This included the rent paid to the
owners of the land holding the ore-beds, and every other item of cost
carefully computed by the owner of the capital and manager at the
mines. This statement is made on the authority of the said owner and
manager over his own sign manual, with his consent given that it be
printed as at present in the interest at once of Science and

It has often been publicly stated by experts, that there is more coal
in deposit in the United States than in all the rest of the world put
together. Nevertheless, bituminous coal has been protectionized since
1874 to the extent of 75 cents per ton, and slack or culm (another
form of coal) 40 and 30 cents per ton. The bounty of God to the people
of this country has been so far forth thwarted by the greed of
mine-owners acting on the subservience of members of Congress to the
few rich combined for that purpose to the impoverishment of the
unorganized masses. Especially has every interest of New England both
popular and manufacturing been sacrificed to the short-sighted
selfishness of the mine-owners, because the British Provinces, just to
the northward, are full of bituminous coal waiting for a market
against New England goods.

Limestone is a second indispensable requisite for the reduction of
iron ores. God has put the ore and the coal and the lime in unfailing
quantities in close proximity with each other throughout the entire
valley of the Tennessee. So small is the natural cost of making iron
in that favored region, that it has been transported this summer to
Savannah by rail (freights heightened by tariff-taxes on steel rails
and lumber), and then exported 3000 miles to Liverpool with good
profits to the makers by their own confession.

Steel rails are protectionized at present to the extent of $17 per
ton, formerly $28 per ton. Fortunately, we have at present a competent
National Labor-Commissioner, heretofore in the service of
Massachusetts in the same capacity, Carroll D. Wright, who has just
made a Report to Congress on the comparative cost of producing steel
rails here and abroad. The following table is national and official
and indisputable. It shows the Element of Cost in one ton of steel
rails in Eleven distinct establishments, the first Two being located
in the United States, the next Seven in countries on the Continent of
Europe, and the last Two in Great Britain. The first column gives the
Cost of the Material in the several districts, the second the Cost of
Labor, and the third the total cost of the rails.

  |    Distinct     |  Materials. |   Labor.    | Total Cost. |
  | Establishments. |             |             |             |
  |  1              |   $21.10    |    $1.54    |   $24.79    |
  |  2              |    25.11    |     1.38    |    27.68    |
  |  3              |    17.67    |     1.04    |    19.57    |
  |  4              |    18.06    |     2.51    |    22.18    |
  |  5              |    18.06    |     4.64    |    25.65    |
  |  6              |    18.23    |     2.58    |    23.12    |
  |  7              |    18.10    |     2.68    |    23.19    |
  |  8              |    18.66    |     2.97    |    23.74    |
  |  9              |    23.42    |     2.01    |    27.02    |
  | 10              |    18.05    |     2.54    |    21.90    |
  | 11              |    16.39    |     1.36    |    18.58    |

The reader who knows how to read between the lines will observe the
strong confirmation of this table to the point already made in these
pages, namely, that the "pauper labor of Europe" costs much more at a
given point than the more highly paid labor of England and the United
States. Thus: the average Cost of Labor in a ton of rails in the two
latter countries is $1.70; the average in the seven Continental
countries is $2.63. The average total cost per ton in the nine foreign
countries is $22.77; the average in the two establishments here is
$26.23. It must be remembered, that the cost of the material and of
all the processes of manufacture here is greatly enhanced by the
device of the tariff-taxes: still the difference in cost is even then
only $3.46 per ton greater than the foreigners' cost: consi