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" Political Economy is no: a science of speculation, but of fai.t .ind experiment, and the principles on which the production and accumulation of wealth an..l the progress of clvili«a- tlon depend 'ire not the offspriiisr of leK'i^ative enactments. Man's existence depends on hi8 exerting himself to produce » ealth ; and the desire by which he is actuated lo rise in the world and improve his condition, impels him to save and accumulate. The prmciptes which form the basis of this sciente make, therefore, a part of the constitution of ijuin and of the physical world ; l^pri their 'op^ations, like those of the mechanical principle*, may be traced by the aid of.QfJServati'in andtJtj^iysis. "— £»w;!/eJoi>«;i^^sion8 of the Subject ; Explanation of Terms 14 Lbsson III. — Production, and the Accumulation of Wealth . . 16 Lkhson IV.— Capital : Kinds or Forms of Capital 18 Lesson V. — Fixed ami Circulating Capital 20 Lesson VI. — Unproductive and Productive Capital : how Individuals and Nations groM Rich 23 Lesson VII.— Labour : its Objects 31 Lesson VIII— Different Forms of Labour 34 Lesson IX. — Aid which Labour receives from Natural Agents and Machinery 41 Lesson X. — Di\-i8ion of Labour 49 Lesson XI. — Co-operation of Labour 54 — •—- PART II. Lesson XII. — Exchange : Definition of Terms 62 Lesson XIII. — Causes of Exchange 67 Lesson XIV. — Maxims or Principles of Exchange 77 Lesson XV. — Agents of Exchange 82 Lesson XVI, — Instruments and Advantages of Exchange: the Precious Metals 87 Lesson XVII. — Instruments and Advantages of Exchange {continued) : Banks, Paper Money 94 ■ ) f.: ..il vUi CONTENTS. PART in. DISTRIBUTION OF THE PROFITS OF LABOUR AND CAPITAL. PAOI. Lksson XV'TII, — Ot'dnitiona and Explanationa : liabour and Its Price ; Three I'rinciples on which the Value W Labour depends 102 Lesson XIX.- Cost— the First Principle of the Value of Labour 103 LaasoJi XX,— Supply and Demand — the Hecond Principle of the Value of Labour 106 Lesson XXI, — Third Principle of the Value of labour- Special Circumstances by m hich the Principles of Cost and Sujjply and Demand aro modified 110 LiwwoN XXIL— Wages, or Profit of Capital 1 17 Lesmon XXIII.— Stocks 133 LK880N XXIV.-— Land and Rent 137 Lesson XXV.— Taxes: Principloa ot Taxation 143 Lesson XXVI,— Education 150 i PART IV. CONSUMPTION, OR USE OF WEALTH. Lesson XXVII, — Consumption dclined ; Consumption in order to increase Wealth 156 Lesson XXVIII. — Consumption in order to gratify Desire and promote Enjoyment . 162 A.' I POLITICAL ECONOMY. PART I. PRODUCTION. « LESSON I. POMTICA.L KCONOMV DIPIITRD : ITS OBJK(rr8 AMD UTILITT. What I* Economy? — The word economy, as commonlj used, signifies saving money by prudent management ; or that management which expends money to the best advantage witliout waste. But more properly, economy signifies a prudent management of all the means by which property is acquired and saved. What is Bomsttic Economy f — Domestic economy is the management of a family, or the concerns of a household. It includes the rules and art of appreciating the real wants of a family according to its position and circum- stances, and providing for them with wisdom and fore- sight ; of employing money, time, labour and every object of domestic use and consumption, so as to cause the least loss, and most promote the comfort and happiness of the whole family. What is Political Economy? — Political economy is state economy as distinguished from domestic or individual economy : it is the wise and frugal management of public affairs, especially in regard to the revenues of a country, and comprehends all the measures by which the property 10 POLITICAL EOOMOMT. and labour of citizenii are best employed for the luooesa of individual industry and enterprise, and for the public prosperity. Political Economy is therefore called " The Scitnce of Wealth:' Vihat is Wealth ? — Wealth commonly signifies riches, an abundance of worldly possessions ; it is anything which contributes to our benefit or happiness, and which may be made our own. Why is Political Economy caJXed a Science t — Political economy is called a science, l>ecause it teaches that sys- tematic arrangement of the laws which God has estab- lished for the accumulation of the blessings of this life. What is the Object of Political Economy T — llie object of political economy is to teach the true method of a people's prodttcirtg, distributing and consuming wealth. NOTES ON THE LESSON. 1. The words "political economy" are of Greek origin. The word economy is derived from two Greek words, Oikos, a house, and nomot, a law — house-law, or ths roanagement of the house- hold. The word political is also derived from the Greek, poli9f a city. Political economy, therefore, strictly means the admin- istration or government of the political household, so as beat to develop and manage its resources. 2. Political economy has been variously defined. By French olitical economy lia iPOLlTlCAt BCOMOMV. We ' Jid lawi of like character — imperfect and inexplicable whett Viewed separately and alone, but beautiful and complete when connected together, and viewed as a whole ; and thus, though referring to sublunary objects, like physiology, geology and botany, it cannot fail to elevate the mind to a contemplation of the wisdom and beneficence of the Creator. A knowledge of physiology enables its possessor to point out bad ventilation, damp, noxious vapours and impure food, as causes of disease. In the same manner, a knowledge of political economy enables its possessors, especially those who have influence over their fellow-creatures, to remove obstacles to the development of the laws which minister to man's material well-being." "The object of political economy, " remarks Mr. McCuUoch, "is to point out the means by which the industry of man may be rendered most productive of those necessaries, comforts and enjoyments which constitute wealth ; to ascertain the circum- stances most favourable for its accumulation ; the proportions in which it is divided among different classes of the community ; and the mode in which it may be most advantageously consumed. " The intimate connection of such a science with all the best inter- ests of society is abundantly obvious. There is no other, indeed, which comes so directly home to the every-day occupations and business of mankind. The consumption of wealth is indispen* sable to existence ; but the eternal law of Providence has decreed that wealth can only be produced by industry ; that man must earn his bread by the sweat of hia brow. This twofold necessity renders the acquisition of wealth a constant and principal object of the exertions of the vast majority of the "human race; has subdued the natural aversion of man to labour ; given activity to indolence ; and armed the patient hand of industry with zeal to undertake, and perseverance to overcome the most irksome and disagreeable tasks, "But when wealth is thus necessary, and when the desire to acquire it is sufficient to make us submit to the greatest priva- tions, the science which teaches the means l)y which its acquisition may be best promoted, and we may obtain the greatest amount of wealth with the least difficulty, must certainly deserve to be carefully studied and meditated. There is no class of persons wmmmmmmm ITS OBJECTS AND UTILITY. 13 to whom it can be considered as either extrinsic or superfluous. There are lome, doubtless, to whom it may be of more advantage than to others ; but it is of the utmost consequence to every one. The prices of all sorts of commodities ; the profits of the farmer, manufacturer and merchant ; the rent of the landlord ; the employment and wages of the labourer ; the influence of regulations affecting the freedom of industry ; the incidence and operation of taxes and loans — .all depend on principles which it belongs to this science to ascertain and elucidate. " Neither is wealtli necessary only because it affords the means of subsistence : without it we should never be able to cultivate ajn.d improve our nobler faculties. Where wealth has not been amassed, individuals, being constantly occupied in providing fop their immediate wants, have no time left for the culture of their minds, so that their views, sentiments, and feelings become alike contracted and illiberal. The possession of a decent competence, or the power to indulge other pursuits than those which directly tend to satisfy our animal wants and desires, is necessary to Boften the selfish passions ; to improve the moral and intellectual character ; and to insure any considerable proficiency in liberal studies and pursuits. It is impossible, indeed, to name a nation, distinguished in philosophy or the fine arts, that has not been at the same time celebrated for its riches. Pericles and Phidias, Petrarch and Raphael, immortalized the flourishing ages of Grecian and Italian commerce. The influence of wealth is, in this respect, almost omnipotent. It raised Venice from the bosom of the deep ; and made desert and sandy islands on which she is built, and the unhealthy swamps of Holland, the favoured abodes of literature, science, and art. In our own country its effects have been equally striking. The iiuTuber and eminence of our philosopherS| poets, scholars and artists, have increased proportionally to the increase of public wealth, or to the means of rewarding att4 honouring their labours." ' '*V.«'ii*-' il ^^ ''IP !'■*.;"■■ '.■'■^f»a-r5(# • '"W.*. 'fWffc-.-'ttw* j^^rrw^f-j^yvJWd Tivr^*- POLITICAL Economy. LESSON II. DIVISIONS OF THK SUBJECT; BXPLANATION OF TERBIS. ffow may the Subject of Political Economy be divided? — Political economy may be divided into four parts, or con- sidered under four heads ; namely, Production, Excltangef Distribution and Consurnption. What is Production — the First Part of Political Economy? — Production is the act of changing any object so as to adapt it better to satisfy our -wants and desires. ffow m^y we change an Object so as to render it capable qf gratifying our Desires? — We may do so by changing the elements, the form, or place of the substance. In these operations do we create anything ? — No ; we cannot create any more than we can annihilate any sub- stance. The material of everything on which we act^ whether a mineral, vegetable or animal substance, whe- ther water, air or light, is the gift of the all-bountiful Creator. We only work on the materials which Ood has provided for us. What terms are employed in connection with these opero' ti&ns ? — Our modifying a thing so as to render it capable of gratifying a desire which it could not do before is palled production ; the person who effects this change is oalled the producer ; and the substance changed is called a product. The material on which industry is exerted^ together with the instruments and whatevw is necessari/ io tupport that industry, is called capitai. p niiPi! ^•m EXPLANATION OT TKRMt. 15 we .:^A Note. — The same article may be product to one aad capital to mnother. Dry goods are prodvcts of manufaay that the earth is th» source of pictures and statues, because it supplies the materials made use of by painters and statuaries, as to say that it is the source of wealth, because it supplies the mntter of commodities. . . Labour is the tahsman that has raised man from the condition of the savage, that ba» dianged the desert and the forest into cultivated fields, tlvat has covered the earth with citie* and the ocean w^th ships, that has given us plenty, contort aud el,egajice,. iojitead of want, misery and barbarism." m PRODUCTION, AND THE ACCUMULATION OF WEALTH. IT The famous Dr. Isaac Barrow, in his Second Sennon on In- dastry, remarks : "It is industry whereto the public state of the world, and each commonweal therein, is indebted for its being, in all conveniences and embellishments lielonging to life, advanced above rude and sordid barbarism ; yea, whereto mankind doth owe all that good learning, that morality, those improvements of soul which elevate us beyond brutes. All the comely, the stately, the pleasant and useful works which we do view with delight or enjoy with comfort, industry did contrive them, industry did frame them. It hath subjected all creatures to our command and service, enabling us to subdue the fiercest, to catch the wildest, to reiider the gentler sort raoit tractable and useful to us. It taught us from the wool of the sheep, from the hair of the goat, from the labours of the silkworm, to weave us clothes to keep us warm, to make us fine ar.d gay. It helpetb us frorai the inmost bowels of the earth to fetch needful tools and utensils;. It collected mankind into cities, and compacted them into orderly societies, and devised wholesome laws, under shelter whereof we enjoy safety and peace, wealth and plenty, mutual succour and defence, sweet conversation and beautiful commerce. Doth any country flourish in wealth, in grandeur, in pros- perity ? It must be imputed to industry — to the industry of its governors settling good order, to the industry of its people fol~ lowing profitable occupations : so did Cato, in that notable oration of his in 'Sallust,' tell the Roman Senate that it was not by the force of their arms but by the industry of their ancestors, that the commonwealth did arise to such a pitch of greatness. When sloth creepeth in, then all things corrupt and decay ; then thft public state doth sink into disorder and a disgraceful condition. Every active and industrious man or woman is, therefore, a> contributor to public prosperity as well as individual comfort,, while every iiUe and slothful person is a sponge and blowl-sucker of public and private weal. " If, then, labour is the ag(mcy through wliich all the XJkecessaries, oonveniencea and comforts of civilized life are obtained, what is the grand subject of imiuiri/ in respect (0 the ]oroduction of wealth ? — The grand subject of inc^iiir^ A*i iiMigfc 18 rOLITiCAL ECONOMY. in respect to the production of wealth is the means by which labour may be employed to the greatest advantage; or, in other words, the means by which the least expendi- ture of labour will procure the largest amount of the necessaries, conveniences and comforts of human life. What does the Inquiry into the Subject of Production involve ? — Tlie inquiry into the subject of production in- voh^es the consideration of three things : First, capital ; second, industry; third, the principles which should govern the application of industry to capital. ■.«,-.■ |( "^m LESSON IV. CAPITAL : KINDS OR FORMS OF CAP.ITAL. What is Capital? — Capital is everything which is em- ployed in production except the labour ; namely, the material on which the labourer works, the instrumerts with which he works, the means of his support whilsfe thus at work, and the results of his work in its products. The capital of an individual, or of a company, if exam-, ined, will be found to be composed of all these ; and so also the capital of a nation consists of the raw material, of articles ready for consumption, buildings, ships, manu- factories, and of the various substances essential to the existence and comforts of human life. What are the different Kinds or Forms of OapUal? — Th» kinds or forms of capital are as various as the employ- ments of men. The capital of the fa/rmer .consists of the land he cultivates, the buildings, ihe seeds, manure, ani- mals, carts, waggons, ploughs, harrows, and other imple- -'SJi.-i KINDS OR FORMS OF OAPiTAL. 19 ments which he employs on his fann. The capital of the manvfactv/rer consists of buildings, machinery, iron, leather, wood, cotton, wool, flax, and in general all the material he employs in his peculiar branch of industry. The capital of the mechanic consists in his tools, and of the merchant in his goods and >rarehou8es or shops. The matured products of each department of industry are also reckoned as items of capital ; such as the grains and fatted animals of the fanner ; the fabrics, tables, chairs, stoves, (fee., of the manufacturer ; whatever the merchant has received in exchange for his merchandise. But is not Money Capital? — Money is an item of capital ; but a man may have a very large capital and very little money. The capital of another may consist chiefly, if not entirely, of money. But money forms a very small part of the capital of the population of a country, and therefore a very small part of the capital of a country. The use of money is to facilitate exchanges ; it is an instrument of exchange, not of production. What changes does Capital undergo ? — Capital is always undergoing changes in every branch of industry, the object of which is to change it from a form of less value into one of greater value, and thus to augment wealth. Thus the carpenter and cabinet-maker change their wood and other materials of stock into houses and articles of furniture ; the manufacturer of cloth and cottons changes his wool and cotton into the fabrics which he produces; the manufacturer of hardware changes his metals into articles and tools of vaiious use ; the farmer changes his seeds, which mature into harvests of vegetables and grains. The instruments or machinery employed by these several and Other classes of prodiicers, undergo changes by being wom- ■m •• "W «g i y , ji t« < y< *V''^r«*!M^«»'ital, tall of which are indispensable to the successful prosecution of i^ttM^ f"^ n PoLltlOkL BOONOMV. %V'- v' . ■ i most branches of industry. Without circulating capital, at food and clothes, it would plainly be impossible to engage in any sort of undertaking where the return was at all distant ; and without fixed capital, or tools and engines, there are v^ry few sorts of labour that could be carried on at all, or with any advantage." — {PrinciplM of Political Economy, Part I., chap, iii.) On the tendency to convert circulating into fixed capital in the accumulation of wealth. Dr. Wayland observes: "There is an obvious tendency in the nature of things to convert circu- lating into fixed capital. As circulating capital is annually con- sumed it must be annually replaced, or mankind, after the first year, would perish. It is replaced by the annual productions of the earth, either vegetable, animal, or mineral. But if the industry of man be sufficiently exerted, the aixiount of axinnal production will be sufficient, not only to supply the ordinary wants of the producers and to repair the waste and wear of fixed capital, but also to leave a surplus unappropriated. Now, as this kind of capital is annual, and as it is also perishable, if it be not tised in some way this surplus must be a total loss. If it be appropriated to the multiplication of the annual capital, it will only increase that surplus, which is already too great. Hence, it can be usefully employed only in the creation of fixed capital. To accomplish this result, it is offered in the form of wages to mechanics, artizans, and those persons who employ themselves in the manufacture of those articles in which fixed capital consists. Hence the wages of this class of persons will, rise, and a portion of them will be drawn from the production of circulating capital. This might at first be supposed to diminish the amount of circulating capital. Such would be the result, were it not for the fact, that the very object of fixed capital is to enable us to create circulating capital with a less amount of labour. A society in which part of the members are devoted to the making of useful machines, will cause a greater amount of annual products, than one in which all are devoted exclusively to the creation of annual products. Thus, in a short time, the annual surplus ia greater than before, and a greater niunber of persons is employed in creating fixed capital, and that kind of fixed capital which involves in its creation a greater amount of expense. It is thus that a society, age after age, grows rich ; riH UNPEODUCTIVK AND PRODUCTIVE CAPITAL. 23 and each saooessiTe raoe of man learM the world better provided with means of production than it found it. " — {Elements of PoU- UeeU Economy, Book I., chap, i.) "The molt permanent of all kinds of fixed capital," obserTos Mr. J. S. Mill, •' is that employed in giving increased productive- neM to a natural agent, such as land. The draining of marshy or inundated tracts like the Bedford level, the reclaiming of land from the sea, or its protection by embankments, are improve" ments calculated for perpetuity ; but drains and dykes require frequent repairs. The same character of perpetuity belongs to the improvement of land by subsoil draining, which adds so much to the productiveness of clay soils, or by permanent manures ; that is, by the addition to the soil, not oi the mb^ ■tances which enter into the composition of vegetables, and which are therefore consnmed by vegetation, but of those which merely alter the relation of the soil to air and water ; as sand and lime on heavy soils, clay and marl on light." — {PrincipUs of Political Economy, Book I., chap, vi., sec. l.)> LESSON VI. UKPBOIWCTIVB AND PRODUCTIVE CAPITA.L : HOW INDIVlDtTAt* AND NATIONS OROW RICH. What is Unproductive Cajdtal f — Unproductive capital, though consisting of articles of wealth, is capital which is of no practical use to any one ; such as money hoarded, land lying waste, manure in the barn yard unused, goods- lying in warehouses unsold, machinery unemployed, build- ings unoccupied. What sort of Economy is it to allow Capital to remain Unprodttctive ? — It is bad economy, both in an individual or in the state, to allow any part of available capital to- remain unproductive ; for property thus situated is not 24 POLITICAL ECONOMY. 'only uselena to any one, but loses annually itn ordinary Into of interest, and deteriorates in value from the effeoUi of time and of the elementA. What, th^euy is Preduciive Capital f — Productive capital 18 that which, united with industry in one or more of its various foriuH, acquires additional value, or augments the means of subsiHtenco or of comfort. " Every sound «oononn«t," says Dr. Wayland, ** is anxious to have the whole of his capital productively invested. He who acta otherwise is ignoi-aut of the principles of pro ably unimpaired or only partially injured, they have nearly all the requisites for their former amount of production. If there is as much food left to them, or of valuables to buy food, a* enables them by any amount of privation to remain alive and in working condition, they will in a short time have raised as great a produce, and acquired col- lectively as great wealth and as great a capital as before, by the mere continuance of that ordinary amount of exertion which they are accustomed to employ in their occupations. Nor does this evince any strength in the principle of saving in the popular sense of the term, since what takes place is not intentional- abstinence but involuntary privation." — (^Primiplts of Political Economy, Book I., chap, v.) 3. Scientific akd Skilled Labour may be regarded as part of the capital of a country, and the Education of the Pkoplk as an essential agency in the accumulation of national wealth. On this most important subject, Mr. J. R. McCuUoch justly observes: "However extended the sense previously attached to the term capital may at first bight appear, we are inclined to think that it should be interpreted still more comprehensively. Instead of understanding by capital all that portion of the pro- duce of industry which may be applied to supi)ort man and to facilitate production, there does not seem to be any good reason why man himself should not, and very many reasons why he should, be considered as forming a part of the national capital. Man is as much the produce of previous outlays of wealth UNPRODUCTIVE AND PRODUCTIVE CAPITAL. 20 m expended on hia subaistence, education, &c., as any of the instruments by his agency ; and it would seem that in those inquiries which regard only liis mechanical operations, and do not involve the consideration of his higher and nobler powers, he should be regarded in the same point of view. Every individual who has arrived at maturity, though he may not be instructed in any particular art or profession, may yet with perfect propriety be viewed, in relation to his natural powers, as a machine which it has cost twenty years of assiduous attention, and the expen- diture of a considerable cajiital, to construct. And if a further •um be expended in qualifying him for the exercise of a business or profession requiring unusual skill, his value will be proi^or- tionably increased, and he will be entitled to a greater reward for his exertions ; as a machine becomes more valuable when it acquires new powers by the expenditure of additional capital or labour in its construction. " Dr. Adjun Smith has fully admitted this principle. "The ac- quired and useful talents of the inhabitants, should," he states, "be considered as making part of the material capital. Tho acquisition of such talents," he justly observes, "during the education, study, or apprenticeship of the acqiiirer, always costs a real expense, which ia a capital fixed and realized, as it were, in his person. These talents, as they make a part of his fortune, 80 do they likewise of that of the society to which he belongs. The improved dexterity of a workman may be considered in the same light as a machine or instrument of trade, which facilitates and abridges labour, and which, though it costs a certain expense, repays that vipense with profit." — ( Wealth of Nations, p. 122.) "Instead, then, of being entirely overlooked, as is most fre- quently the case, the dexterity, skill and intelligence of the mass of its inhabitants should be most particularly attended to in estimating the capital and productive cajjacities of a country. Much stress is uniformly an»yTW!•^H^ r^ l»r■|»^w^^^ y ^,»■ - 30 POLITICAL ECONOMY. are seldom very considerable ; and yet, how vast is the differ- ence, in other points of view, between an Indian in Mexico, and an Englishman or a Frenchman ! The former, ignorant and uninstructed, is poor and miserable, though placed in a country blessed with a soil of exhaustless fertility and genial climate ; the L.ttcr, intelligent and educated, is wealthy, prosperous and happy, though placed under comparatively unfavourable circum- stances. Lord Bacon's aphorism, that ' knowledge is power,' is true in a physical as well as in a moral sense. It gives its pos- sessors an ascendancy over their less instructed neighbours, and makes unmeasurable additions to their productive capaci*' An ignorant and uneducated people, though possessed of all tue materials and powers necessary for the production of wealth, are uniformly sunk in poverty and barbarism ; and until their mental powers begin to expand, and they have learned to exer- cise the empire of mind over matter, the aveuues to improvement are shut against them, and they have neither the power nor the wish to emerge from their degraded condition. "To those who are impressed with a conviction of the truth of the principles thus briefly stated, who are duly sensible of the importance of science to the advancement of nations, nothing can be more gratifying than the progress made of late years in diffusing instruction among the great mass of the community. It is impossible to form any accurate estimate of the influence of this general instruction over the future fortunes of the empire ; but it can hardly fail to be alike great and beneficial." — {Prin- ciples 0/ Political Economy, Part I., chap, ii.) wmmmmmmmmmm l.XBOtrR : ITS OBJBCTS. 31 LESSON YII. LABOUR : ITS OBJECTS, NoTB. — It has been seen from the preceding lessons thaft capital is the child of labour — the result or produce of past labour applied to assist future labour ; and that labour is, there- fore, the foundation or source of wealth and value. "Gold is valuable, because it cannot be procured without labour ; so is coal, wheat, calico and silk. It is true that a person may come into possession of any of these commodities without labour : he may receive a quantity of silk or calico as a present, or he may succeed to it ; but some other person has laboured and given it value. Great labour is spent in bringing gold into existence in a xisable shape, and thus it is that the mere metal itself has so great value. Iron and copper cost little labour to bring them into the mere form of metal, and therefore are of little value in comparison with gold ; but, by the expenditure of labour on them, they may be made more valuable than gold. Thus a little particle of iron, made by labour into the balance spring of a watch, is worth several times its weight in gold." — (Chcunbers' Political Economy, p. 76.) Seeing, therefore, that labour is the source of value, it is important to consider the objects and forms of labour, and its relations to capital and the accumulation of wealth. The present lesson will be devoted to the objects of labour. What is Lahoit/r ? — Labonr is the applicatien of huinsn power to production ; it is any exertion of body or mind, generally of both, for the purpose of producing some use- ful result. /« not Exertion of any kind Labour t — ISTo ; exertien without a purpose, or for an evil purpose, does not deserve the name of labour ; exertions in play or amusement are called exercise^ rather than labour, which means exertion attended with fatigue and for souie useful purpose. 32 POLITICAL ECONOMY. What are the Objects of Labour ? — The objects of labour are threefold — to change the dementarf/ form, the aggre- gate form, and the p/ace of objects ; a dirision which corresponds with the agricultural, nioclianical and com- mercial dejKirtmenta of human industry. Explain tohat is meant by the threefold Object of Labour. — 1. One object of labour is to change the elementary form of matter, which is done when the farmer, by means of seed and cultivation, aided by the natural agencies of the sun, light, earth, rain and the atmosphere, changes the elementary forms of carbon, gases and water (tho elementary substances of plants) into grains, vegetables, and all the pi-ixluctions of the farm.* The chemist changes the elementary forms of acids and alkalies into salts; and the case i& the same with various other forms ©f human occupation. 2. The aggregate form of matter is changed by the labour generally of mechanics and manufacturers; a» 'srhen the carpenter changes various kinds of lumber into a house ;. or the mason a pile of bricks and mortar into a wall ; or the cabinet-maker boards into articles of furni- ture ; or the blacksmith a piece of iron into a horse-shoe; or the cotton- spinner a bale of cotton into thread, and the weaver tliis thread into the cloth. ^. Tlie place of matter is changed when merchandise of * various kinds is transpoi-ted from Eurojie and the United States into Canada, and our various products are trans- ported, in retui*n, to Europe and the United States ; or when a mlroad company or a teamster transports lumber or goods from one town or place to another. * Sea the Author's " Firit Lessons iu Agriculture." LABOUR; ITS OBJECTTB. 33 NOTES. 1. It ia seen that although the physical changes produced in objects of labour are as numerous as the forms and procosses of production and exchange, yet that these mxdtiplied changes must be either visible or afjgregate forms of objects, or a change in their elementary form, or a change of their place. "The mechanic or artiznn, and ordinary manufacturer change only the risible or aggregate forms of objects. They do not attempt to separate their elements ; but by enlarging, reducing, atteniiating, or otherwise mo«lifying them, simply change their shape. The farmer and the chemist, on the contrary, clxange the elementary forms of objects. In the process of cultivation the farmer decom- poses earths, manures, and extracts gases from the air, which are combined again into vegetables and grains. So, too, the chemist disengages elements from one substance and combines them with tiiose of another, and thus forms' new compounds. And by the various modes of transportation employed by the merchant and trader, the place of articles is continually undergoing change. As each man can conveniently produce but a small number of articles, but wants many, and tliese widely scattered over the world, there must always l>e a ceaseless change of place in all articles of use. Hence transportation must always be one of the most extensive branches of business, increasing as the wants of civilized man increase." 2. Though there be these divisions of labour, according to it* objects, it frequently happens that the same person performs more than one of these kinds of labour. Thus the farmer trans- ports his seed to the field, and then, after the chemical processes it undergoes in its growth and ripening, he transports his harvest to market ; and the cabinet-maker, who manufactures tables, chairs, &c., transports his mateiials from the lumber yard, and then his articles of manufacture to his customers. 3. Each of these forms of labour is equally nnportant in con- ferring value upon substances — that is, in fitting thcin to grauify human desire. The ore in the mine has no capacity to do this, until made into iron and steel ; aiid the steel is valueless for the purpose of cutting, until it is made into edge tools ; and steel knives and razors are useless to us, until they are transported mmmmmm wmmmmmm 34 POLITICAL ECONOMY. from Sheffield or Birmingham. Each of these operations confert an additional value upon the object, and therefore contributes to the production of wealth. He who grinds wheat into flour, and ho who transports it to where it is wanted, perform each acts as important to human sustenance and comfort as he who raises the wheat. He who imports a knife from England, performs a labour as important to me as he who manufactures the knife, which, for all practical purposes to me, might as well not exist as be three thousand miles off. 4. It is also worthy of remark, that these different forms of labour are so dependent the one upon the other, that if one should cease, the others would soon cease with it : for of what value would wheat and wool be to a farmer, if they could not be transported from the farm ; or what gain could he derive from either, if there were no means of grinding the one or manufac- turing the other ; or what would they even then avail him, if there were no dealers in them? We thus see that all these forms of labour mutually support, and are supported by, each other, and that no jealousy should exist between different classes of producers, any more than between different members of the human body. But this subject will be treated in following Jessons. LESSON VIIL DIFFERENT FORMS OF LABOUR. The objects of huraan labour being threefold — iiamelj, to change the material form, the aggregate, and the place of objects — What are the different Forms of Labour required for these Purposes f — If we wish to effect either of these three kinds of changes, we must act according to those laws of nature which the Creator has established to pro- duce such change. A man cannot kindle a fire out of stones, or in a pool of water ; nor can ho raise wheat hj DIFFERENT FORMS OF LABOUR. 35 tlie kind of labour he would employ in building a ship. If he would kindle a fire, he must obey nature's laws of combustion; if ho would raise wheat, he must obey nature's laws of vegetation. Man cannot create the lawx of nature any more than he can create the objects of nature ; all ho can do is to change the latter according to the laws of the former. la all Nature then under the Control of Laws? — Yes ; every department of naturn is under the control of laws — laws of the Almighty Creator, who " upholdeth all things, and by whom all things consist." There are the laws of the mineral, vegetable ai;|^d animal kingdoms ; laws of chemical combination and of planetary motion ; laws of vegetable growth, from the creeping ivy to the massive oak ; laws of health for both body and soul. It is man's duty, and man's interest, and man's happiness to obey these laws. To obey these laws constitutes the different forms of human labour or industry. . What then are the Principal Forms of Human Lahour in the Production of Wealth? — The principal forms of human labour for the production of wealth may be in- cluded under three heads, or are of three kinds; namely, discovery, invention, operation. What is meant by Discovery? — Discovery is the finding out that which was before unknown, as Columbus dis- covered America, and Newton discovered the laws of gravitation, of optics, and of the motions of the heavenly bodies. What Classes of Labourers are included in the Works of Discovery? — Discovery compreliends two classes of labourers — those who discover tlui laws of nature, and t^' 36 POLITICAL ECONOMY. those who make them known to mankind. Sometimes the two classes of labour are performed by the same individual, as when a discoverer makes known his dis- covery : thus whon Franklin discovereustion prepared the way for his invention of the safety lamp, and for great improvements in the construction of chimneys, and in the instruments for moving houses ; the invention of the mariner's compass succeeded to the discovery of the load- stone ; Watt's invention of the steam engine was followed by Fulton's invention of the modification of it for pro- pelling vessels, and all the varied applications of the steaiu engine to machinery on land and water ; and what vast improvements have been made in spinning machinery since Arkwright's invention of the spinning jenny. All these inventions are but the application of the laws of nature to human interests and happiness ; and the inven- tors are among the greatest benefactors of mankind. ired leir ng, the NOTES. 1. The connection of inventions with discovoriea, and the jus- tice of ranking inventors wilh producers, is well expressed by Mr. J. S. Mill ui the following remarks : " In a national or universal point of view, the labour of the savaut, or speculative thinker, is as much a part of production in the very narrowest sense, as that of the inventor of a practical art ; many such inventions having been the direct consequence of theoretic discoveries, and every extension of knowledge of the powers of nature being fruitful of applications to the purposes of outward life. The electro-magnetic telegraph was the wonderful and most unexpected consequence of the experiments of (Ersted, and the mathemat'cal Investigations of Ampere; and the modem art" of navigation is tlio unfor'^seen emanation from the purely 38 POLITICAL ECONOMY. ■peculative and apparently merely curious inquiry, by the mathe* maticianH of Alcxane remarked professional labour — the labour of the clergyman, the lawyer, and the physician. "Tlie business of the clergyman m to teach us in what maniier we may avail ourselves of the moral laws of the Creator; the lawyer teaches us how to avail ourselves of the laws of that civil society of which we are members ; the physician teaches us how to obey the physiological laws under which we arc created, so that we may be relieved from sickness, or preserved in health." 4. On the mutual dependence and combination of intellectual, agricultural and mechanical employments, pervading and binding together all classes of society, Dr. Isaac Barrow, in his Second Sermon on Industry, oV>8erve8 with his accustomed elo((uence : " The great Author of order hath so distributed the offices and ranks of men, in order to mutual benefit and comfort, that one man should plough, another thrash, another grind, another labour at the forge, another knit or weave, another sail, another trade, another supervise all these, labouring to keep them all in order auii. peace ; — that one should work with his hands and feet, another with his head and tongue, all conspiring to one common end, the welfare of the whole, and the supply of wliat is useful to each particular member ; — every man so reciprocally obliging and being obliged ; the ruler being obliged to the husbandman for his bread, to the weaver for his clothes, to the mason for his mansion, to the smith for his sword ; these being all obliged to him for his vigilant care in protecting them, for their security in pursuing the work, and enjoying the fruit of their industry," "ITius," says Dr. Wayland, "we see that all the classes of labourers are mutually necessary to each other. Without a knowledge of the laws of nature, we would all be savages ; without the skill and labour of the mechanic, there would neither exist the opportunity riT" 40 POLITICAL ECONOMY. of acquiring knowledge, nor would our kn':>wledge, if acqaired, be of any practical value. Nothing can, therefore, be more un- reasonable than prejudices which sometimes exist between these different classes of labourers, and nothing can be more beautiful than fjheir harmonious co-operation in every eflfort to increase production, and thus add to the conveniences and happiness of man." 6. The foregoing lesson and notes suggest the practical utility of the different branches of science in the accumulation of wealth. On this subject the same author forcibly remarks : "We hence learn the inconceivable importance to a nation of science, and of the labour of those who are devoted to the discovery of the laws of aature, and to the invention of new modes of applying these laws to the service of man. What would be the condition of the world at the present moment, if the knowledge of navigation and magnetism, and of the laws of chemistry were abolished? Undiscovered knowledge is just as rich in the means of human happiness as discovered knowledge. And hence, that nation which is most assiduously cherishing the means for availing itself of the benefit of all the laws of the Creator, will most rapidly provide itself with the comforts and conveniences and luxuries of life, in the greatest abundance, and at the least possible coat. Who can tell the benefit which will result to this country, when geology has revealed to us the riches which at present remain hidden from our view beneath the surface of the soil ?" NATURAL AGENTS AND MACHINBRT. 4i LESSON IX. AID WHICH LABOOR RBCKITSS FROM NATURAL AOKNTS AWD MACHINERY. What do you mean by Natural Agents f — By natural agents I mean the varied powers of nature, or any quality or relation of things in nature which can be used to assist in production. Give some Examples. — The light and heat of the sun are natural agents, without the aid of which we could produce no grains d^ vegetables; wind and steam and gravitating power of ^vater are natural agents, by means of which we create the momentrm necessary to travel by land and sea, and for various operations in the trades and arts ; caloric or artificial heat is a natural agent, so neces- sary to cook our food, to prolong life in cold climates, to give many valuable qualities to metals, to create steam for the purposes of machinery, and for innumemble pur- poses of necessity and comfort ; magnetism is a natural agent, without which oceans could not be navigated, much less could there be telegraphic communications aci*oss continents and oceans ; the instincts and various powers of c/n- mlsi are also natural agents, so necessary for ortk' ♦:anv'enience and the acoomplishment of many purpose*. Whenyj are these Natural Age?.." ^erivedf — These natural ; igents are tho gift of God ; wo create them not ; they coi J us nothing ; man is only a labourer in the great laboratory or workshop of nature, thi Divine Creator and proprietor of which famishes the Lns.ierials and their laws of action. "Man learn v' th» aondltions under which POLITICAL ECONOMT. nature works, and sees that tbege conditions are fulfilled; but nature really does the work. The farmer places the seed in the ground, but it springs up by its own laws and forces ; he moves the soil and manure around the plants but this being done, he can do no more ; the plant extracts its own nutriment from these and other sources without bis aid. Without the natural properties oi wood, iron, and other forms of matter, man could not make use of any one of the mechanical powers — the lever, the inclined plane, the screw, the wheel and axle, the pulley, or the wedge ; and without these there could be no such things as machines, since all machinery is but the conibii^i. ion of one or more of these mechanical powers undv . ^i^ovMi forms." Are not these Natural Agents then of great Vahie to Man f — ^These natural ag^its are of xmspeakable inherent or real value, but they are of no exchangeable value ; for they can neither be bought nor sold. Nothing is of greater intrioiic value or utility to man than air, and th6 light and heat of the sun, but they are the common inheritance of all, and are therefore of no exchangeable value, as they are not articles of sale. How do v>e render the relations and qualities qfl^atural Agents availahle as aids to Lahow in Production f — ^We do so by means of instruments, tools, or machines, cop- structed for the purpose. Can you give some ExampUsf — ^A stone or fire-phcs is an instrument or tool by which we avail ourselves of the calorific or heating qualities of fuel ; a steam engine is » tool or machine by means of which we avail ourselves of the expansive power of water when converted into steam; a tc((itor whed is a tool by means of which we avail our- H ^ MATUBAL AGENTS AND MACHINERY. 4S selves of the gravitating power of water to grind wheat, or move other machinery for manufacturing purposes ; the inariner^8 compass is a tool by which we avail our- selves of the peculiar qualities of the magnetic needle for transporting passengers and merchandise over oceans and seas ; and a ship itself is an instrument or machine by means of which we apply the principles of hydrostatics to purposes of navigation. As all agricultural and manufacturing processes consist in changing in some manner the materials of nature, What Means is most universally required in these Changes? — The means most universally required in such oj^erations is momentum, or, as it is commonly called, power; with- out which, in agriculture, no change can be produced in the elem,entary form ; in mechanics, no change in the aggregate form ; and, in transportation, no change in the plOfCt of objects. How are the Natural Agents wJdch a/re used to create and apply this Momentum or Power classijied ? — Tliese natural agents ai-e divided into two kinds — animate and inanimate. What are Animate Natural Agents ? — They are for the most part beasts of drjiught and burden ; such as the ox, the horse, the mule, and in some parts of the world the camel, the elephant, the dog and the reindeer. Some of these animals have vastly greater physical power than man — all of them are more easily siistaLied ; and by a law of Divine appointment and goodness, they are made subject to man's authority and will for his use anr^ happiness. What are InanimcUe Natural Agents 1 — The inanimate natural agents most used are — the vsind^ the gravitating <*T»e* 44 POLITICAL ECONOMY. power of water, the expansive power of steam, the ex- plosive force of gunpowder. The various uses of these agents are almost endless ; and the extent to which they add to the productiveness of human labour, and to the convenience, comfort and happiness of man, cannot be computed. What are the advant'cgea of Inanimate over Animate Katural Agents! — Among the many advantages of in- animate over animate natural agents are the following : » ~ limate natural agents are of little weight and occuj^ .v^tle space in comparison of animate natural age^ts. A steam engine of two hundred horse power would occupy but a small space, and form but a small part of the cargo of a boat on which two hundred horses could not stand, much less work. 2. Inanimate natural agents work contiiiuously with- out fatigue or pain, while animals must have intervals of rest, and seldom work without saffering pain. 3. The power of an inanimate natural agent Is not decreased, any more than fatigued, by its velocity; a steam engine works as powerfully at one velocity as at another ; but a horse cannot carry or draw one-tenth the weight at six miles an hour as he can at one. 4. Inanimate natural agents cost less, work with more force, more speed, more certainty, uniformity and pre- cision, and are more under control than animate natural agents. In wluit other ways do these Inanimate Natural Agents 90 greatly increase and midtlply the Productive Power of flumcm Labour? — These inanimate natural agents in- NATURAL AGENTS AND MACHINERT. 45 crease and multiply the productive power of human labour by enabling the producer or labourer to modify, combine and adopt the wondrous momentum or power they create, so as to accomplish all the results of mechani- cal operations with comparative ease and the greatest accuracy, and on an enlarged scale. By the combination of the power created by these natural agents with the muscular power of man, and directed by his intellectual skill, the most marvellous results are produced. Thus whole buildings of stone and brick, anr" 50 POLITICAL ECONOMY. different circumstances : first, the increase of dexterity in every particular workman ; secondly, to the saving of time which is commonly lost in passing from one species of work to another; and lastly, to the invention of a great number of machines which facilitate and abridge labour, and enable one man to do the work of many." (Book I., chap, i.) How does the Division of Labour increase the Dexterity of Workmen f — If a workman has any intelligence, and if his mind works with his hands, what he does frequently he comes to do easily ; and what he does easily he is likely to do well ; and what he at first does slowly and accu- rately, he comes to do quickly and with equal accuracy. This is true of the operations of both mind and body. Give some Examples. — I may mention as examples the rapidity with which a pupil, after much practice, can sum up a column of figures, fluency of reading, speaking a language, easy and brilliant execution on a musical instrument ; and in manual operations the effect of prac- tice at one thing is still sooner produced. Adam Smith mentions the case of a blacksmith of all work, who, though axicustomed to handle the hammer, could not makS above three hundred nails in a day, and these hard ones, while several boys under twenty years of age, who had never exercised any other trade than that of making nails, could make, each of them, upwards of two thousand three hundred nails in a day. This was of course before nails were made by machinery. Adam Smith also men- tions the examples of making pins and metal buttons, and adds : " The rapidity w^ith which some of the operations of these manufaotures are performed exceeds what the human hand could, by those who had never seen them, be supposed capable of acquiring." DIVISION OF LABOUR 61 What is the Second Advantage mentioTied by Adam Smith a/rising from the Division of Labour? — The second advan- tage is, " the saving of the time which is commonly lost in passing from one species of work to another" By division of labour this loss is avoided, and the advantages secured arising from the habitual training of both the muscles and the mind to particular operations of labour. Wh(U is the Third Advantage ascribed by Adam Smith to the Division of Labour? — The thii*d advantage is " the invention of a great number of machines which facilitate and abridge labour, and enable one man to do the work of many." As labour is thus divided, the whole attention of each operative is directed to a single operation, and his whole study is to see how it can be most easily and rapidly performed. By the repeated performance of, and long attention to the same operation, improved methods and tools for performing it naturally suggest themselves to an active and intelligent mind. It is in this way most of the tools for saving labour in different parts of manufacturing operations have been firat invented by common operatives, and have afterwards been combined into more or less complicated machines by head workmen or other persons of scientific knowledge and mechanical genius, who have been able to comprehend and apply the principles by which the detached parts could be com- bined together, moved by a single power, and the whole process performed with little aid of man. Thus tool» become combined into machines ; and ^-nowledge and practice go hand in hand in multiplyiiij^ !.e productive- Xi^ss and cheapening the productions of human labour. NoTK. — Adam Smith informs us how a most important improve- ment iu the steam engine was first devised by a clever playful wm 09 POLITICAL ECONOMY. boy. Ho Dftys that " in the first stoam cnglnea a boy wa« con- stantly erny'loyod toopon ami shut alternately the communication between the boiler and the cyluulor, according as the piHton either ascended or descended, (')ae of these boya, who l(>ve«l to play with his companions, observe*! that by tying a string from the handle of the valve which opened this communication to another part of the machi? o, the valve would open ' phut without his assistance, and leave him at liberty to divt .imself with his playfellows. One of the greatest improvements that has been made upon th*^ machine since it was first invented was, in this manner, the discovery of a boy who wanted to savo his own labour." ( Wealth of Nations, Book I., chap, i.) But this illustrious author adds : " All the improvements in machinery, however, have by no means btjen the inventions of those who had occasion to rse the machines. Many improvements have been made by the ingenuity-of the makers of the machines, when to make them became the business of a peculiar trade, and some by that of those who are called philosophers or men of speculation, whose trade is not to do anything but to observe everything, and who, upon that account, are often co ' le of combining together the powers of the most distant and ^ilar objects" — [as Newton the falling of an apple with the Ut^..er8al law of gravitation, from which discovery has resulted amazing improvements and advantages ; and Franklin the lightning with electricity, from which discovery many benefits have resulted, and all the inventions and advantages of telegraphic communica- tions.] "In the progress of society, philosophy or speculation becomes, like every other employ:jieut, the principal or sole trade and occupation of a particular class of citizens. Like every other employment, too, it la subdivieusive or moro economical, from the classification of labourers according to their capacity. DilForent parts of the same serioa of openitiona in the process of manufacture require unequal degrees of skill and bodily strength for their performance. Some parts of these oj)eration8 can be performed by women and children, while other parts require thr strfingth of manhood and the skill of a trained workman. Production is most effi- cient when no more than the needful quantity of strength and skill is employed in each part of it. But if there were no division of labour, a skilled workman of the highest rate of wages would have to perform the whole process ; whereas, by division of labour, parts of the pro- cess could be jx^rfornied by inferior workmen, or women and children, at much lower wages. It also requires less time to learn a single operation than a number or com- plication of operations, and therefore less wages to the operator. Thus, by the divisitjn of labour, the greatest part of it can be accomplished by persons at comparatively small expense, and as perfectly as if performed by those whose labour is most expensive. ""» B ^>i'i ii fe.) 3. But to labour as the source of value, and the division of labour as increasing its productiveness, may be presented the CO OPRRATION OF LABOUR. 57 following facts from Mr. Babbage's remarkable book, Economy of Machinery and Manufactures, in addition to what has been stated in the preceding lessons ; The iron of which the balance spring of a watch is formovl is valued at something less than a farthing, not quite half a cent ; this produces an ounce of steel, worth 4^d., or about 8 cent?, which is drawn into 2,250 yards of spring wire, and represents in the market £13 4s. sterling, or about $60 ; but still another process of hardening this original farthing's worth of iron renders it workable into 7,650 balance springs, which will realize, at the common price of 28. 6d, each, £946 5s., or upwards of $4,500 — the effect of labour alone. Then as to the division of labour in the mannfacture of watcheft, A watch consists of 992 pieces ; and Mr. Babbage says: " It "^ras )|tated in evidence before a committee of the House of CommonSi that there are a hundred and two distinct branches in the art of watchmaking, to each of which a boy may be put apprentice ; *nd that he only learns his master's department, and is unable, after his apprenticeship has expired, without subsequent instmc- tion, to work at any other branch. The watch-finisher, whose business it is to put together all the scattered parts, is the only one, out of the hundred and two persons, who can work in any other department than his own." (Economy of Machinenj and Manufactures, 3rd edit., pp. 201, 202.) 4. It is, however, only as capital increases in a country that division and combination of labour can be extended. Mr. J. B. McCulloch observes : "As capital must Yive preceded any very extensive division and combination of employments, so their sub- sequent division and combination can only be perfected as capital is more and more accumulated. Accumulation and division acA and react on each other. The greater the amount of their cai>ital, the better, speakmg generally, can employers of labour distribute the work to be done among the individuals in their employment, who consequently have, as already explained, & greater cliance of discovering machines and processes for facilitating their various tasks. The industry, therefore, of every country ni>t only directly increases with the increase of the stock or capital which sets it in motion, but by means of this increase the division of labour is extended, and new and more powerful implttmouts and iua4ihin«i 5 ' 66 POLITICAL ECONOMY. are invented, and the same quantity of labour is made to produce a much greater quantity of commodities. " (Principles of Political Ecotwmy, Part I., chap, ii, pp, 103, 104.) The same writer observes in another place : * ' But it is a mis- take to suppose, as has been sometimes done, that the inventive genius of workmen and artificers only is whetted and improved by the division of labour. As society advances, the study of particular branches of science and philosophy becomes the prin- cipal or sole occupation of the most ingenious men. Chemistry becomes a distinct science from natural philosophy ; the physical astronomer separates himself from the astronomical observer, the political economist from the politician ; and each, meditating exclusively or principally on his peculiar department of science, attains a degree of proliciency and expertness in it which the general scholar seldom or never reaches." (Ibid. pp. 95, 96). 6. The more the industries of a country are multiplied and extended, the more will its demand in all the necessaries and conveniences of life ; and while the division of labour in each industry adds so much to its productiveness, it is the combination or co-operation of those industries that promote the aggregate wealth of a country. They are inter-dependent, and mutual contributors to each other's success. "Nothing," says Mr. McCulloch, "can be more silly and childish than the estimates, gO frequently put forth, of the comparative advantageousness of agricultural, manufacturing, and commercial industry. They are inseparably connected, and deptmd upon and grow out of each other. The agriculturists raise raw produce for the manufac- turers and merchants, while the latter manufacture and import necessary, convenient, and ornamental articles for the use of the former. Whatever, conse« eonuuand which its possession gives over p aasable commuly and demand. If the demand ia greater than the sujjply, the value of the article will ri.se, and there will be competi- tion among buyers ; but if the supply is greater than the demand, the value of the article will fall, and there will be competition between sellers. NoTit. — The variation in the value of anything arising from the relation of supply and demand, is affected by three circum- stanced {-— 1. If the commodity be durable, so that its intrinsic value will not be affected by lapse of time, gucl) as hardware and other durable commodities, the excess of supply over the demand will not cause much vaiiation in its price ; but if the article be perish* able, as strawberries, peachea, and several other fruits, the tall of price from an increase of supply ia very great. 2. The variation in the price of commodities arising from the relation of supfdy and demand, will also be affected by the facility or difficulty with which the supply may be increased.- In manu^ factured articles, especially in a large city or town, or where there ftre great facilities of communication, the supply of them can be renewed or increased in a very short time, and therefore the limited supply of them will not cause much variation in their |)rice; but in agricultural products, whether in our own or in foreign countries on which we are depending for supplies, such fts wheat, tea, coffee, sugir, cotton, if a crop f^il thia year, the MAXrMS AND PRINCIPLES OF EXCHAXOE. 79 •upply must be (iiniiuisJieil for at least a year, and therefore the price of tlieae articles will he greatly iucreased. 3. The variatioi; iii the j)rico of articles arising from the relation of supply and deniand, will, in the third place, be much affected by the nature of the demand for them. If the demand bo for an article of universal necessity -a commodity that all must have— the abundant supply of it would not cause a rapid reduction in the price, as the holder knows the ordinary consumption will Boon reduc*! the supply in the market, and therefore prefers keep- ing it longer than sell it at a hiss, or at a reduced price ; but ii Bcarcity of it would cause a rapid rise in the price, as erery one hastens to purchase at almost any price, for fear of sufferiug th« want of it. 3. The exchangeable value of anything will be deter- mined by the /requenr// of exchanges. The more rapidly they are made the better. If a mercliant purchase a hundred dollars' worth of tea or iron to-l.^ru'Ah economt. •cikIh l»i3 oajtital to the Ka«t Iiidios and rP'^-ivt-R in n'tum a oaigo of tana, nmst charge interest ftn('l rittk for tho whole timv con- mimr I. from tlie day that ho parts with liis jvroperty until the ration are much less than those of the wholesale merchant. The same principle applies to proiluction. The greater the time consumed in an operation the larger is tho profit of each article, which justly belongs to the producer." 4. The exohangenblo valiio of anything is influoncod by the facilities of exchange. For exani2)le, l»*ifore the building of railroads iu this country, tlie price of the farmer's produce was low, and the price of goods bought by the farmer was high ; and the reason is obvious — it was difficult and expensive to carry the farntier's produce to market, and it was diflicult and expensive to biing the merchant's goods witliin roach of tho farmer. But since the creation of facilities of exchange by railroads, the farmer finds a ready sale and gots a higher price for his produce, and the merchant can bring and sell his goods at lower prices to the farmer. Tho increased facilities of exchange also stimulate both agricultural and mercantile industry. When the farmer had access to no market by which he could transform his products into other objects of desire, he had little inducement to labour for more than the necessaries of life ; but as soon as he was able, by exchanging the products of his labour, to procure other objects of dosii-e anerou8 conditions of a country ; or, as every one knows, mercantile business i» most prosperous, that is, the exchanges arc most abundant, when manufacturing, agricultural, and all other kinds of industry are most productive." It has Ix^en asked, "What would be the amount of exchange etit^'tod between (Jreat Britain, France and the United Statt^s, either among themselves or with each other, if the productiveness of those several countries were no greater than it was in the time of Julius Oa'sar I" Wo may ask, what would be the amount of exchange of Canadians, Ixith among them- selves and with other countries, if the jiroductivoness of their country Avere no greater than it was fifty or even twenty-tive years ago 1 « 6. Exchanges depend much upon the intelligence of tho' people. A savage wants little, for he knows little ; but aa his knowledge increases his desire for exchange increases ; for it is " by knowledge that the desires of man are brought into relation with the objects intended by his Creator for their gratification." A family or neighbourhood that never goes from home, or never opens the door of know- letlge, will make but few exchanges, and remain stationary, and relatively retrogi*ade from year to year, if not fron\ generation to generation ; but every one knows how tho I «2 P01.1TtCAL "ECONOMY, vho sells fruit at the street corners, to the importer of goods from foreign countries. Kow are the Persons who conduct the Exchangee of a Communiti/ designated and classified f — They arc called 7nerchant8, and are divided into two classes — retail mer- idiauts und wUolesa-le merchaijitfi. I AGENTS OF EXCIIANOE. 83 • k What is a Retail Merchant ? — A retail merchant is cue who trades with, or conducts exchanges between the inhabitants of the saine country. He buys from the manufacturer or importer in large quantities, and sellg in small quantities. For example, he buys cloths and cottons by the piece, teas by the box, and sugars by the hogshead, and sells them by the yard or the pound, as each consumer may require them. What advnviage is a K'j'iil Merchant to a Commiunity ? — The retail merchant is advantageous to a community in several respects. He brings to the knowledge of a com- munity many articles of utility and convenience of which they would otherwise ha v^e not been aware ; he saves the community much time and expense in pi-ocuring such articles as they do not produce but require. The loss of time and the expense to each consumer would be enor- mous, if he hal to go to the original manufacturer or importer for each spade, or hoe, or knife, or each yard of cloth or cotton, or each pound of tea or sugar, that he might requir'> ; and if each manufacturer were obliged to leave his labour to sell each tool or article of furniture or use, the price of it would bo doubled or trebled, as wouiu I ach pound of sugar or each pound of tea, were fchii in^porter obliged to open his hogshead to sell a pound of sugar, or a box to sell a pound of tea. NoTB. — " Besides, as each importer or manufacturer is Buppoged to coufme himself to one particular product, the purchaser would be obliged 'requently to go great (liatauceB, and transact with a great number of persons business vvliich he may now be able to accomplish witli a single individual. Every one must thus per- ceive that a consumer saves much time by purchasing his sugar, tea, coffee, peppcjr, salt, ^m iittENfs o^ eXcuancie. 85 ftnd which our owr country does not produce. No indi- vidual producer could afford to carry his surphis products to foreign countries and dispose of them there, and pur- chase there the articles of foreitjii countries whicii he might re(}uiro"for his own use and consumption. Thus there could be no exports from our own country to other countries, nor imports from other countries into our own country, without the wholesale merchant, wliose agency almost creates the exchangeable value of the surplu.s pro- ducts of our own country, while it cheapens the price of articles imported from other countries. Note. — It has been shown that the interebta c' the retail mer- chant ate so much identified with those of the community with whom he deals, that whou they are pro.speioua he proapers, and when they are depressed he is depressed also. The same remark applies with still greater force to the wholesale morchaut. Ilia interests advance and decline with those of his country. No producer suffers more from the failure of crops tJian does the wholesale merchant. It leaves him without a market in the country, and vrithout the means to go to market in another country ; but when the products of our country are abundant, then the exports of the surplus to other countries will provide ine.'vns there to purchase the commodities of those countries required in our own country, where the proceeds of the salis of its surplus protbicts will provide means to purchase the articles imported, as well as those of domestic manufacture. " Ifence his interest and that of the community arc the same. It is for the interest of the community that those commodities of which we have a suportJuity should be exported; it is for the interest of the mei'cliant to export these same commodities. It is for the interest of the community that those objects of desire which are most wanted should be brought back in return ; it is for the mer- chant's interest, also, to bring back these very commodities ; for from these alone can he expect gain, and that gain will be the greater in proportion as he ]>rocures them on tlie most favouralde terms, that is, as he jtrocures them where tlioy a:\t the cheapest and most abundant. Hence his gain will be in proportion an 86 PoLltlcAL ECONOMY. he can transfer the productions of the earth from those regiolii where they are least wanted, to those regions where they are most wanted. And this is precisely what the interests of society tQqiiire should be done." Mr. J. R. McCuUoch justly obsetves on this subject: "A com" mercial intercourse ])etween the inhabitants of different countries and districts, anrocurable only by great labour, and then, only in limited quantities. NOTK ON THE N^ICESSITY OF MoNEY, OE OF A CiRCULATINO Medium.— Thci first and most obvious reason for a circulating tatulium is tlic want of a standard or common lueasure for values of ditferent sorts. Mr. J. S. Mill remarks : " If a tailor had only icoats, and wanted to buy bread or a horse, it would be very troublesome t<> ascertain how much bi'ead he ouglit to obtain for a coat, or how many coats he slioukl gi'.e for a horsa The calculation must be commenced on difleront data every time he bartered his coats for a different kind of article ; and there could be no current ymcG, or regular quotations of value. Whereas How each has a current price in money, and he gets over all difficulties by reckoning his coat at ,£4 or £5, and a four-pound loaf at 6d, or 7d, As it is much easier to compare different lengths by expressing them in a common language called feet and inches, so it is much easier to compare values by means of a com- mon language called pounds, ehillings, and pence [or dollars and cents.] In no other way can values be arranged one above another in a scale ; in no other way can a person calculate the sum of his possessions ; and it is easier to ascertain and remember the relations of many things to one thing, than their inniimerable cross relations with one another." — [Principles of Political Economy, Vol. II., chap, vii,, sec. 1.) 2. A second reason for the necessity of a circulating medium is ihe inconvenience oi barter, that is, "exchange of commodity for coimnodity, as when a farmer exchanges wheat for sugar, or pork for iron," &c. The inconvenience of barter I have pointed out to some extent in lesson xiv. ; but I notice it hco to illustrate more fully the necessity of a circulating medium. "Suppose," says Dr. Wayland, "a producer to have ]>repareil his ]>roduct for consumption If he be obliged to exchange in kind, it may hQ a long time before he finds auotlu;i- person who desires tl e INSTRUMENTS AND ADVANTAGES OF EXCIIANOE. 89 mm iity , or ted ■ate net i:iy tie article which he has created. If he he obliged to wait long, his product, if perishable, will be destroyed or deteriorated. He must go in search of a purchaser; and if he at length find one, he may nave consumed in the search as much time as the article originally cost. This must be added to the cost of the article, or else he vrill be a lo&er. But by this additional cost the product is no better ; it is only dearer. This must of course decrease the demand, and hence, by all this additional cost, both parties ara poorer. " But it is to be remembered that the producer not only wants to part with his product, but also to part with it for some par- ticular object of desire. He who has raised wheat does not want simplj'' to part with hia wl\eat, but also to receive in exchange for it tea, or coffee, or iron, or salt, or clothing. He must therefore, in order to effect the exchange which he desires, not only find some one who wishes for wheat, but also some one who ia able to give him in return the precise product he desires. If he desire clothing in return, it will not be sufficient to find some one who offers him bread, or shoes, or butcher's meat. This also increases the difficulty of exchange, and of course the labour and tie cost necessary to effect it. But this is not all. Men who wish to exchange do not always wish to exchange in ec^ual amounts. A grazier who brings a fatted ox to market may find persons enough who want a few pounds of beef, but very few who want a whole ox. He cannot divide his ox, and give part of it for a few pounds of coffee or tea ; nor does he probably require one-fourth of the value of the ox in any article which may be purchased in the town where it may be sold. Thus exchanges would be arrested, or must be made rarely and at great cost, and under every pos- sible disadvantage." — ( Waylarui't liliements of Political Economy ^ pp. 189, 190.) Mr. Mill further illustrates the necessity of a circulating medium as follows: "By tacit concurrence, almost all nations, at a very early period, fixed upon certain metals, and especially gold and silver, to serve this purpose. No other substances possess the necessary qualities in so great a degi-ee, with so many subordinate advantages. Gold and silver are eminently divisible, and when pure, always of the same quality ; and their purity may be ascer- 7 imm'itm ti tk i immi t ni^m f mA i 'i ■ "fc r 90 POLITICAL ECONO»rr. tained and certified ]>y a public authority. "- of Political EctMomy, Vol. II., p. 4.) -(MilVa Principtf Several other rca-sous ma^ l)e awsigncd in illustration of the inconvoniencos of exchange in kiud, and tho necessity of a circu- lating medium. I will give but one more, which should nut be omitted. Exchange in kind applies only to material products ; but those include a very suAall part of the exchaiiges which our nocoHsities require to bo made. One great article to be exchanged is labour, whether mental or bodily ' ' This every man protluces, and must produce, by the law of his nature; and this every man in able to otfer in exchange for the objects of desire. Now, were exchange only in kind, a man who had nothing but labour or skill to offer, would not be able to labour for those who dv^sired his labour, and who would give him the greatest wages for it ; but he must labour for those who were willing to give him, in over bo small quantity, the articles which he needed for his support. Tho labourer in an iron foundry would be obliged to take bis pay in iron ; but aa he could not exchange his iron with the baker, the butcher, or the clothier, he must go and work for these prfxlucers for any compensation by which he might obtain for himself the necessaries of life. The workman of the baker must take his pay in bread ; but he would want only a small portion of bread for himself, and he must spend his time in exchanging it for whatever else he needed. If he could not thus prcjoure tea, coffee, clothing, and other necessaries, he must Itave his occupation and work for those who wished to exchange them for his labour. The physician must take his foe iu iron, or bread, or butcher's meat ; and if any of his patients produced what he did not want, he must either atteud them gratuitously, or they must die without assistance.. Besides, there are many products incapable of division. If a number of men were engaged in building a ship or a house, how could they take their i^ay in kind, without taking the ship or house to pieces, and thus render th.ur -vork wholly useless ? Hence, were exchange only in kind, there would be no divi'iion of labour, except in its most imi>orfoct form. No man could perfect himself in any one art ; because by the exercise of that alone he could not possibly procure the means of sustenance. " — (Dr. Wayland^» Elemienta of Political Economy, pp. 190, 191.) IMSTUUMENTS AND ADVANTAOES OF EXCIIANOK. 91 Were Gold and Silver used in very early timet^ aa Money ? — O-old and silver were lirat used as oruarnonts of dress and furniture, as appears from many allusions in tlio earliest books of the Biblo ; but from priiuitivo ages they seem to have been used as money. Gold and silver are both mentioned as money as early as the times of the patriarch Abraham — nearly two thousand years before the Chris- tian era. When Abraham sent his trusty servant Eleazar to his native country, to seek a wife among his kinsmen for his oniy son Isaac, and when the servant found the maiden whom ho regarded as divinely designated to be the wife of his master Isaac, it is said (Genesis xxiv. 22), ** the man took a golden earring of lialf a shekel weight, and two bracelets for her hands of ten shekels weight of gold." And when Abraham bought a piece of ground as a bui'ying-place for his deceased wife Sarah, he paid for it in silver, as it is said (Genesis xxiii. 16), "Abra- ham hearkened unto Ephron ; and Abraham weighed to Ephi'on the silver, which he had named in the audi- ence of the sons of Heth, four hundred shekels of silver, current money with the merchant." Ill what form were Gold and Silver first used aa Money? — Gold and silver were lii'st used as money in the form of bars or ingots, which were weighed or valued by weight ; but they were soon afterwards fashioned into coin, the stamp attesting the quality and value of the piece by weight. Have Gold and Silver alone been used as a Ciroulating Medium ? — No; the natives of the African coast formerly used small white sea-shells, which they called cowries, as money. The North A.merican Indians formerly used skins of animals, small shells or Iteads, and wampum, aa VPI 92 POLITICAL ECONOMY. monoy. Tn early pastoral natioiiH, cattlo were frequently used as a ciroulating inediiuu. Homor says that the armour of Diomede cost only nine oxen, whilst that of Glaucus cost a hundred.* tSheep appear to have been used for the same purpose, as the wealth of individuals ■was estimated by the number of their flocks and herds. At a much later period, the Greeks and Romans used the baser metals as money. Lycurgus established iron as a circulating medium among the Lacedemonians ; and the Romans used copper and brass in the early periods of their history. But these have, in all places, long since given place to gold and silver, which are now known everywhere as **the precious metala." Bui doea not coining Gold and ^Silver add to their Money Value? — No; the coining of gold and silver merely attests their quality and value by weight, and saves the trouble of weighing them, and prevents imposture by alloys. NOTES. 1. The first instance on record of metala being used oa a medium of excliange, is that recorded of Abraham, in Genesis xxiii. 16, buying a burial-ground of Ephron, and weighing '•four hundred shekels of silver, current money with the merchant." Mr. Mill remarks : " When gold and silver had become virtually a medium of exchange, by becoming the thing for which people gener- ally sold and with which they generally bought whatever they had to sell or buy, the contrivance of coining obviously suggested itself. By this process the metal was divided into convenient portions, of any degree of smallness, and bearing a recognized proportion to one another ; and the trouble was saved of weighing and assaying it at every change of possessors, an inconvenience which on the occasion of smiii! purchases would soon become insupportable. Governments found it to be their interest to take the oi>eration into their own hands, and to interdict all coining by private per- ♦Iliftd. Lib. VL, line 235. INSTRUMENTS AND ADVANTAGKB OF KXCHANQK. U3 •ons; indeed thoir gimrantee was often the only one which could be relied on." — [Princlpkn of Political Economy, Vol. II., pp. 5, 6.) 2. "The fabrication of coins," says Mr. McCulloch, "or the practice of impressing pieces of the precious metals with a public stamp indicating their weight and jnirity, belongs to tlie remotest antiquity, and it may safely be affirmed, that there have been few inventions of greater utility, or that have done more to i)ro- mote improvement. "It is material, liowever, to observe that the introduction and use of coin;; does not affect the j>rinciple on which exchanges were previously conducted. The coinage saves the trouble of weighing and assaying gold and silver, but it does nothing more. It declares the weiglit and purity of a metal in a coin ; but the value of tliat metal or coin depends, in all cases, on the same principles that determine the value of other commodities, and would be aa little afTccted by being re-coined with a new denom- ination, as the burden of a ship by the change of her name." — {Principles of Political Economy, p. 134.) 3. Dr. Wayland remarks on the same subject: "Inasmuch as gold and silver possess all the essential qualities which are required in a circulating medium, and as the condition of man BO manifestly points to the necessity of some such in.strument, it ii not remarkable that they have so long and so universally been adopted for that purpose. But it ia always to be remembered, that we use tliem as a circulating medium because we want a circulating medium, and because they accomjilish the purpose. We do not use them as a circulating medium becaiise we see a stamp upon them, nor because government has made them a legal tender, but because we know they rejiresent a given amount of value, and we therefore know that we can exchange them for the same amount of value whenever w^e please." — {Elements of Political Economy, p. 199.) 4. In the United States both gold and silver are made a legal tender in payment of debts. In Great Britain, gold is the only legal tender for all sums over forty ahillings sterling ; silver for all sums less than forty shillings ; and copper only in payment of sums leas than a shilling. i^aj ^. .^> -^^' .0. s>^\%^ IMAGE EVALUATION TEST TARGET (MT-3) 1.0 I.I !M|||M 111112.5 IM m m M 1.8 1.25 1.4 1.6 < 6" — ► V] ^ e: ^W rf /. /^ ?'*.'^ ? Photographic Sciences Corporation 23 WEST MAIN STREET WEBSTER, NY. 14SB0 (716) 872-4503 v '^^ '^ ^ SJ \ \ €? ^ 6^ ^% &. 94 POLITICAL ECONOMY. it:- LESSON XVII. INaXRUMBNTS AWD ADVANTAGES OP KXCHAHGC (continued) : BANKS, PAPKTl MOKKY. What is a Bank in Political Economy, or in Commerce f — A bank is an establishment for keeping money secure, and for dealing in money by discounting bills and other- wise. JJov) are Banks constituted and managed ? — Banks are sometimes established and managed by individuals ; but for the most part they consist of a voluntary association of stockholders, who elect a certain number of directors, by whom a president and cashier are annually chosen, through whom, with the counsel of the directors, the affairs of the bank are managed. What gitarantee have Depositors and the Public at large /or the safety of the Money deposited in the Banks, and for the payment of the Bills issued by them ? — In different countries the provisions of law differ greatly, and some of them have proved very defective ; but in Ca,nada, by recent Acts of Parliament, the banks are not only incor- porated institution.s, but are required to have such an amount of bullion in their vaults, and such an amount of Dominion stock deposited with the Dominion treasurer in proportion to their paid-up stock and circulation, as best to secure the public against loss in case of any mismanage- ment on the part of any bank, or in case of failure on the part of any number of its debtora. But still the* success of every bunk depends chiefly on the prudence, wisdom and trustworthiness of its u.anagers. ■-—TW*^ liraTRCHENTS ANI> ADVANTAGES OF EXCHANGE. 95 Whence the necessity of Banks ? — Banks are necessary for the better security of money ; for the greater facility of payment and exchanges, both domestic and foreign ; and for the more advantageous use of capital. (See vMtes ^ tk$ end of this lesson.) What are the principal kinds of Banks f — The principal kinds of banks are banks of deposit and exchange, banks of discount or loan, banks of circulation or issue. Our banks perform all three of these functions. " They re- ceive and pay out money on deposit, and keep all the Accounts necessary in these transactions ; they loan money at interest, and collect money so loaned ; and they also issue their own promissory notes, payable in specie ou demand." There are also savings banks, established to encourage economy among labourers and persons of slender means, by receiving small sums to be placed at compound interest, and returned on demand or at certain specified periods. There are likewise other institutions partaking partly of the character of banks, such as build- ing societies, land credit companies, &c. .SOTES ON BANKING INSTITUTIONS— THEIE NECESSITY AND UTILITY. 1. The term bank is derived from the Italian word banco, k bench or table, on which the Venetian money-changers displayed and trafficked in their money. When one of these money-lenders failed, his bench was broken; and hence the origin of the word bankrupt. 2. "The ancient bankers were called by the Romans argentarti and numularii, money-changers; and by the Greeks trapezitei, kollubistai, and arguramoiboi, money-changers, or money-brokers. Their chief business was to put the money of private persons Id interest. They had their boards and benches for this purpose in all the markets and public places, where they took the money from some to lend to others." — (Encyclopcedia BrUanaica). r ^mmtmmm^^r^ d6 POLITICAL EC050MT. s*" 3. The establishment of banks arises from the necessities of cfril- ized society, a large portion of whose labour consists in exchange*, ■Vfithout the agency of banks exchanges could be effected only to » very limited extent, and at great riek and expense. Every mdividual would have to be his own banker ; keep cm his premises the whole amount in the precious metals necessary to effect hia •xchanges or transact his business ; and guard his property both by day and by night. In making his exchanges or payments, he would hare to transport his gold and silver from one pl&ce to another. A large amount of labour vroald be expended, and a hu'ge number of persons employed, in carrying gold and silver from one merchant to another in the same place, and between the merchants of different places. Besides, the money must be counted by both parties, which, in large transactions, would con- Mune much tinae, require many additional agents, and cause great wear and tear to the coin, the effect of which "would be to increase very greatly the cost of exchanges, that is, the price of products. " ■>f> 4. But the inconveniences and difficulties of this cumbrous i^stem of exchange are obviated by the agency of a bank, with which the merchants and traders in the town or neighbourhood lodge their money for safe keeping ; the bank opening an account with each depositor, crediting him with whatever he deposited, and debiting to him all he withdrew. In such case, "if A owed B one thousand dollars, he would not send to the bank and with- draw the money for B to replace it again, but would give to B' an order for one thousand dollars, which order B would present to the banker, and the one thousand dollars would be withdrawn from A's account by being charged to him, and would be added to the account or credit of B. If B owed C, he would do the tame ; C would do the same to D ; and' perhaps D would owe A, and would pay him in the same manner. At the close of the day ibeir accountd at ths bank would, stand j,ust as they were in the beginning; and yet there have beeji four payments made and received of one thousand dollars each. Yet not one cent of speciet laas been touched, not a dollar of it has been counted. It has b«Bn all done by a few entries made in the books of the bank^ and done in a few minutes. In this manner the writing of a few limes saves all the labour of repeated transportaUons, of as f requAsik .,.- . .%---<(■■ itKi'l*''-.*'*''"'*' ■ INSTRUMENTS AND ADVANTAGES OF EXCHANGE. 97 eoanting of coin, and also all the coat of wear which must arise from every such operation. Besides, inasmuch as no more vigi- lance is necessary to secure from depredation the whole sum of •pecie than any part of it, it is evident that great additional labour is saved in this respect also." — {Dr. Wayland'» Elements of Political Economy, p. 227.) 5. Tiie establishment of two or more banks, or bank agencies^ in the same town does not alter the mode of exchange. Suppos- ing that parties dealing with each other transact their business «t different banks, and A pays B in check on the first bank, and B deposits the check in the second bank ; and 6 pays C in a check on the second bank, which C deposits in the first bank. "At the close of the day these banks exchange checka; and thus, without any labour, or counting, or transportation, by merely writing a few words in a bank ledger, the whole transaction is completed. It is hardly possible to find a case in which, by tho division of labour, a greater increase of productiveness is given to Numan industry. " — (Dr. WaylancTt ElemenUof Political Economy, p. 228.) 6. The case is the same in payments and receipts between dealers resident in different towns of the same country and in different countries. This is done chiefly through the agency of banks, which have great facilities for such transactions, as they have large capital at command, have direct intercourse with each other, have agencies or connections in the principal towns of the country, and agencies or ccH'respondents in New York, and in London, England, and some of them in other foreign cities. If a dealer in the country wishes to make a payment to his creditor m Toronto, he goes to the nearest banker, and buys what is called a draft, or bill of exchange, which is a written order or request addressed by the manager of the bank where the bill ii purchased to the manager of the corresponding bank in Toronto to pay to the order of the person named in it the sum of money mentioned. The Toronto dealer either transfers the draft or bill of exchange to some creditor of his own, or presents it to the bank or hich it was drawn, and receives the amount of it in the bills of the bank, or has it credited to him in his account with the bank. In the same manner are the mutual debts paid between dealers iia 98 POLITICAL ECONOMY. Toronto and Montreal ; and in the same manner do Canadian im- porters of European and American manufactured goods pay the manufacturers and merchants from whom they make their pur- chases. The sums reahzed by the sale of the lumber, wheat) flour, (fee., exported from Canada to England are deposited in the English banks, and made available to pay Canadian bills of ex- change in behalf of English merchants and manufacturers. If the exports from Canada to England equal in value the exports from England to Canada, the accounts are balanced without any money being sent from one country to the other by letters and orders, or bills of exchange, transmitted at little risk or expense. *' The banks exchange these drafts or bills of exchange with each other, and collect the proceeds, receiving a percentage for their trouble. Thus these debts mutually cancel each other without removing the specie from one place to another, and with only the labour of mating a few entries in the ledger. In this manner the amount of mf ney necessary to perform the exchanges of a country is greatly dinunished, and all the loss to which money in tranni* U exposed is avoided."— (Z)r. Way land' » EkmtnUt of Political Xconomy, p. 229.) 7. "Bills of exchange," says Mr. Mill, "having been found convenient as means of paying debts at distant places without the expense of exporting the precious metals, their use was afterwards greatly extended from another motive. It is usual in every trade to give a certain length of credit for goods bought — three months, six months, a year — according to the convenience or custom of a particular trade. A dealer who has sold goods for which he is to be paid in six months, but who desires to receive the amount sooner, draws a bill on his debtor payable in six months, and gets the bill discounted by the banker, that is, transfers the bill to him, receiving the amount minus interest for the time it has still to run. It has become one of the chief func- tions of bills of exchange to serve as a means by which the debt due from one person can thus be made available for obtaining credit from another. " — (Principles of Political Economy, Vol. II., Book III., chap, xi., sec. 4.) 8. In all these transactions the functions of the banks arc chiefly those of deposit and exchange. But in the functions of diacouni or •^ \ IC- I., fly or tNSTUUMENTH AND ADVANTAGES OF EXCUANGE. 09 han banks are no less important to the community. Ix)rd Over- itoue, in his evidence before a committee of the Houbc of Com- mons, remarked: "Thewholu principle of banking is to aflford capital — to transfer it from the inactive accumulator to the active and energetic person who wants the capital. The banker is the go-between, who receives deposits on the one side, and on the other applies those deposits, entrusting them in the form of '^apital to the hands of active, energetic persons, who he thinks will make a good use of it ; to persons of character who, in some cases, have no security to give, but who, in all cases, have no security to give equal to the amount advanced to them, except that best form of security, their character, their energy, and their prudence. "* But Chambers observes, ' ' The safest kind of credit is that which is given on property, not on the faith of the debtor." — (Chnmbera^ Political Economy, p. 135.) Banks greatly serve the interests of material progress by their bringing together the lenders and borrowers; by bringing the wants of both partiti4|pb act upon each other ; by saving of time, trouble and expense in effecting loans, accomplishing in a few minutes what would otherwise require hours, if not days ; and contributing to the punctuality of the whole community in financial transactions. Those who devote themselves to the one business of loaning and dealing in money, keep themselves at all times acquainted with the state of the money market, acquire skill in ascertaining the character and responsibility of individuals who desire loans, and the first indications of failure, either in skill or in fidelity, and to act accordingly. 9. But all our banks are not only banks of deposit, exchange, and discount or loan, but are also banks of insue — adding thereby» as well as by their exchanges, largely to the circulating medium of the country. The introduction of paper money, in the form of bank-notes, has rendered the jjTeatest service to the public while it has largely promoted the interest of individuals. The Encyclopcedia Britaimica remarks: "Its employment, and the various devices for the economising of currency to which it has led, enable the business of a commercial country like England to be carried on with a fourth ^Kirt, perhaps, of the gold and silver • Quoted in the EncycloTpa^dia Britannica,, article ' Money," Vol. XV., eighth editiun, p. 450. 100 POLITICAL KCONOMy. onrrency that would otherwise be necessary. The cheapest instruments by which exchanges can be effected are substituted for the dearest ; and besides doing their work better, this sub- stitution enables the various sums which must otherwise have been in use as money, to be employed as capital in industrial undertakings. Of the various means, whether by the introduc- tion of machinery or otherwise, that have been devised for pro- moting the progress of wealth and civilization, it would not be easy to point out one better calculated to attain its end than the introduction of a properly organized paper money. . Though only the representatives of money, these notes possess so many of its qualities, and are so easily converted into coin, that they may, with little impropriety, be held to be money. Being most commonly issued by bankers, they are usually called bank- notes."* "A bank-jiote," says Chambers, "is simply an obligation to pay so mucl^rfoney to the bearer on demand ; it does not profess to be actual money — merely a promise to pay money. Yet some- times bank-notes are preferred to all other kinds of money, even to gold. They are more convenient for being packed up and carried about ; for a note for £100 may be a small bit of paper, not weighing so much as a fourpenny piece. Bank-notes, too, when lost or stolen, are more likely to be traced than gold, as each one is peculiar, and they are of no use when defaced. For these, and many other reasons, paper money is often more con- venient than bullion." — (Chambers' Political Economy, p. 121.) If the use of paper money has increased the productive capital of Great Britain fourfold for the purposes of business, it has probably increased that of Canada in a much larger proportion, with corresponding advantages to all branches of business and to all classes of the community. There are of course drawbacks, from the mismanagement of individual banks and the imprudence or dishonesty of individual borrowers ; but altogether, the general benefits of the banks cannot be easily over-estimated. 10. I have not thought it needfui, in these first lessons, to discuss the large question of currency and banking, but simply 'f Article "Money," Part II. Paper Money, Vol. XV., eighth edition, p. 44«. m ii k tifm^tf* " '' * ' ''" * " ' 1" "■ INSTRUMENTS AND ADVANTAGES OF EXCHANGE. 101 to ei.plaiu the relations of currency and banks to commerce and society at large, and to show that these institutions, while profit- able to their projectors, are of the highest importance to the various material and social interests of the whole country. 11. Nor do I deem it necessary to discuss the duty of the Oovemment and liOgislature, in respect to banking institutions, currency and exchange, so as to protect the public against injus- tice and loss. The provisions of recent Acts of the Dominion Parliament in regard to the constitution, restrictions, and respon- sibility of banks, and the fre4a«.nt publicity of their affairs, are the results of the experience of other countries both in Europe and America, as well as that of our own country, and amply secure the public, without being unjust to the banks, in respect to bank-notes, now so universally preferred in business transac- tions to gold and silver. 103 POLITICAL ECONOMY. PART in, « DISTRIBUTION OF THE PROFITS OF LABOUR AND CAPITAL. — • — LESSON XVIII. DEFINITIONS AND KXPLANATIOKS : LABOUR AND ITS PRICK ; THRU PRINCIPLES ON WHICH TUB VALUE OF LABOUR DEPEND8. NoTB. — In lesson xii. I have shown that value is tho creation of labour united to capital. W/uit is Distribution in Political Economy ? — Distii- bution in political economy ia the etjuitablo division of the profits of labour and capital. When tlio same person owns tho cai)ital and performs the labour, the whole in- crease of value b comes his exclusive property; but when one person owns the capital and another person performs the labour, tho increased value belongs to both of them, that is, a share of it is the portion of each. The object of this Third Part of Political Economy is to ascertain tlio principles on which tlie division or distHhution of this profit or increased value shall be eflfected. But when a variety of Labourers is employed in an Operation, and tvherime Capital employed varies in Value y how are the Profits then to be Distributed ? — The distribu- tion of profit will belong to each labourer according to his skill and talents, and bo assigned to a given amount of capital. Is not the Remnneration in these cases arranged by the Mutual Consent of the parties concerned ? — Yes ; but it is I.AnCUR AKD ITS PRTm. 103 important to asoortaiii the itrincijues on which this mutual const'. iL in founded. How shouUl this Sul>jei't he %nve»li(jatf.d ? — We should consider first the price of labour, called wages ; secondly, the price of capital or nion(jy, called Interest ; and if tho capital is in the form of land, the price of it is called rent. Bow many kinds of Labour are there f — " Labour may be divided into two kinds : first, Simple labour, or that which is unconnected with previously acquired skill ; and second, Edv/iated labour, or that in which industry is com- bined with tho results of previous education." On what Principles does the valtie of Labour rest f — The value of labour depends on three things : firat, Cost ; Siecond, Supply and deniand ; third. Special circumstances, by which the principles of cost and supply and demand are modified. IS LESSOfr XIX, COST — THB FIRST PRINCIPLE OF THB VALUE OF LABOUR. What Elements enter into the Cost of Simple or Unskilled Labour ? — The chief elements in the cost of simple or un- skilled labour are the following : — 1. Health and muscular strength — strength of arm, leg and back — for the work required, as also food, clothing, shelter, fuel, at all times, and occasionally medicine and meort of old age ; and hie wages should be sufficient for these purposes, "This, however, presupposes the labourer to be industrious, virtuous and frugal. If he be improvident, indolent, intemperate, profligate, and thus either does not earn a competency, or else, havinjp earned it, squanders it in vice, the fault lies not in his wages but in himself. Of coui"se, the correction must como not from a change in wages, but from a change in habits." What Elements enter into the Cost of Skilled or Educated Labour ? — All the elements which enter into the cost of unskilled or simple labour, enter equally into the cost of skilled or educated labour ; but, in addition, there must be added to the latter the cost of the special training and education for its efficient performance. The tradesman or mechanic must acquire a certain amount of education, and pass through a pertain apprenticeship, before he can perform his labour. During the process of his education FIRST PRiy<'lPLE or THE VALUE OF LABOUR. 105 he eaniH nothing, not even food or clothing, hut Hpen«Ii much time aud mtnins in acquirin^^ his preliminary educa- tion ; and (hiring his apjrrentlreshij) at leadt during a part of it-he earns littlu or nothing, but ciotiieH and ■upportH him»olf wliile learning his tmde. Honietiines the apprenticeship itself extends over a period of several years. The lowest coat, therefore, of the educat?}d labour, is that v>hich, in addition to the cost of simple labour, is ■ufEcient to remunerate the outlay of time and money in acquiring the requisite .skill for such laltour, whether that of a clerk in a shop or warehouse, a bookkeeper, a jeweller, a cabinet-maker, blackt. 'th, car|>enter, tkc; and the wages of educated labour should, of course, be a^s much higher than the wages of i educated )p\ jur as its cost Is greater. But the cost of ed'K ted labour preparatory for the learned prqfeaaiorut ia inend also fou/ years in col- lege, and finally three year.s in profe.S8ioual studies, before they are admitted to practice. During the whole of these long years of preparation the student earns nothing, but must be fed, clothed, furnished with books, aad must puy considerable sums for his tuition. Now, had the sums thus expended on his preparatory education been carefully invested at interest from time to time, they would have amounted to a considerable annuity. The means to meet all these expenses must be provided from some scarce before he commences his profession ; and he is fairly^ entitled to such wages, or remuneration for his labour^ in addition to the price of simple labour, as will com})en- sate for the time and money expended in his preparatory education. 8 mmm wmmm 106 POLITICAL ECONOBIT. LESSON XX. SVrPLT Attn XXKl^AWD— THB SBCOHD riUNOIPLl OF TQI TALUB or LABOUR, 0/wfmt kincl of Labour i$ the Demand and the Supply^ most general and constant f — The kind of labour for which thei*e is the most general and constant demand is that which is required to produce the necessaries of life — food, cloth- ing, fuel and shelter. Every human being needs these, and unless they C9.n be procured for him he must di*; and aai these are all consumed or {lerish by use, the demand for them is imperative and constant. The labour needet) to produce these necessaries of life is, for the most pitrt, simple laly>ur — a labour which requires no apprenticeship, only healthy human beings, with little or no preliminary training. The supply of this kind of labour is more abunT ^bles an article for sale : the workman is the seller of ^ho ai'ticle, ai\d the employer is the buyer. The cost of the article, therefore, as in buying all other articles, must necessarily depend on the quantity for sale and the number of parties wanting to purchase. If two employers want only one workman each, and there be as many as three workmen for each, that is, six instead of two men wishing work, then there is plentifulness of labour in the market, and wages fall \ because the six men, who must find a livelihood, ■ IStffR^^ -*'"•>■ ■^y SECOND PRINCIPLE OP THE VALUE OP LABOUR. 107 compete against each otlier. If, on the contrary, there be only two workmen offering themselves for liire, while there are six employers wanting them [and therefore competing against each other], then the wages will rise." — {Chambers' Political Economy, p. 03.) But are not Employers and Workmen mutually depend- ent upon each other f — Yes; and so are buyers and sellers. If thei-e be no seller, the buyer must Htarve or be desti- tute ; and if there be no buyer, the seller cannot subsist. '* Both these parties are equally necessary to each other. If the labourer could not procure work, or could not exchange his labour for some value which he created, he must starve. If the capitalist could not create value from the em[)loyment of his capital, he must starve also. He could neither eat, drink nor wear his looms, spinning- jennies, ships, iron, or cotton. Both, therefore, come into the market on equal terms ; each needs the product of the other ; and under these circumstances, they will each receive less or more, in consequence of the conditions under which the exchange is made." — {Dr. Wayland's Elements of Political Ecorwmy, p. 301.) And does not the Value or Wages of Labour depend upon the ratio of Capital to Labour^ as well as upon the relations of Demand and Supply "i- — Certainly. As the same author expresses it : " Every capitalist wishes to have all his capital united with labour, since that which is not thus united will be useless to him ; nay, it would gener- ally diminish in actual value. On the other hand, in a given state of the arts, the labour of a single man can be applied to, but a given amount of capital. Hence, the num- ber of labourers whom any single capitalist wil^ require will be in proportion to th^ aipoi^n^ of tlis ^jamta^. ^^f ^ ir^^ 108 POLITICAL ECONOMY. ^\ f. capitalist of ten thousand dollars require ten labourers, one of one hundred thousand dollars will require one hundred labourers. And so, in general, the greater the amount of capital employed in a country, the greater of course will bo the number of labourera employed. As now every capitalist will wish to employ all his capital, if the number of labourers be insufficient to supply the demand, there will be a competition among capitalists for labourers, and they will offer higher w^ages. And the revei*se will take place in the opposite case. Suppose the numl)er of labourers be too gi'eat to be employed by the existing amount of capital. A capitalist whose capital will occupy but one hundred, cannot employ one hundred and fifty labourers ; hence there will be a competition among labourera for work. Hence we see that at any given time and place, the demand for labour and the wages of labour will be in the proportion to the ratio that the active capital of a country bears to the number of labourers in that country." — (Br. Wayland'» Elements of Political Econotny, pp. 301-302.) Is not free Competition then the true Regulator of Wages ifU a Free Country ? — Yes. *' The laws regulating wages dopend upon circumstances beyond the power of capitalists (xr laboui'ors. The rich cannot refuse to employ labourers Yfithout loss, and the workmen cannot refuse to work without loss ] and the competition which naturally exists ^11 a free country is all that is necessary to bring wages \q, their piroper level, that is, to all that can be reasonably paid ioji; them. Hence combinations among capitalists or labourers at« not only useless, but expensive and unjust. I^liey attempt to change the laws by which remuneration ifi governed, and they must by consequence thus be useles*; they expose capital and labour to long pei'iods of idle- SeCOND PRINCIPLE OP THE VALUE Of LABOUR. 109 ness, and thua are expensive ; they assume the power of depriving the capitalist of his right to employ labourers, and the labourer of his right to dispose of his labour to whomsoever and on whatsoever terms he pleases, and hence they are unjust. And combinations of this kind are as unjust when undertaken by the rich as by the poor." — {Dr. Wayland^8 Elements of Political Ecmiomyy p. 303.) NoTB. — Chambers, of Edinburgh, forcibly remarks on the same subject as follows: "Occasionally it has been represented that employers, in paying workmen, should raise their wages when provisions and other articles become dear. Undoulitedly the employer, as & matter of humanity and duty, ought not to pinch or screw down the wages of his workmen ; on the contrary, he should pay them the fair market value of their labour, and in a way as agreeable to their feelings as possible. Beyond this th(t employer cannot with safety go. The manufacturer is competed against by other manufacturers ; he requires much skill, with every species of economizing, to obtain the reward of his exertions, and even to avoid loss ; and he must, consequently, pay no higher wages than others. If he pay high wages and reject the applica> tions of those who M'ill work for -less, then others will employ these cheaper workmen, and he will be undersold in the com' modities which he produces. This, however, could not go on, long, and he would be speedily ruined. If there were not others who would employ these cheaper workmen, their fate would be still worse — they would get no employment, and must starve. " Wages, therefore, are not determined by matter of feeling or chance, but by certain conditions of the labour market. Some- times a select body of workmen combine to enforce a higher rate of wages than the market value allows. This is clearly an in- justice to those who are willing to give their services at a lower rate. The consumers of the article are also treated with injustice, because they are forcibly compelled to take dear labour when oherp labour is to be had. Such unjust attempts frequently end in the ruin of those who make them, and it happens in this way: their occupations are generally easily learned, otherwise they T 110 POLITICAL ECONOMY. would not require to combine to keep up their wages ; where much talent and exertion are embarked, their owners secure high wages without combining. ^Vllen there is a combination to keep the price of a simple species of labour unreasonably high, the men are turned off, and others are employed in their stead who may at first be ignorant of the trade, but soon become acquainted with it ; then when the combiners come to their senses, they see the number of the trade is doubled, and that they must be content with less wages than ever, or go without work. Some large classes of workmen have been greatly damaged in this way. " In some situations there is shown a disposition on the part of workmen to ask favours of employers — as, for example, seek* ing to absent themselves on holidays without a corresponding abridgment in the amount of wages. This seems to be as wrong as it would be for the employer to ask his workmen to labour certain days for nothing. The rights and obligations are dis* tinctly mutual. One has no right to encroach on the other ; and indeed there can be no encroachment, no favour on either side, without a certain loss of independence. This feeling of inde- pendence should be carefully cultivated and preserved, along with those habits of courtesy which soften the general intercourse of society." LESSON XXI. ■ THIRD PRINCIPLE OF THE VALUE OF LABOUR — SPECIAL CIRCUM- STANCES BV WHICH THE PRINCIPLES OF COST AND SUPPLY AND DEMAND ARE MODIFIED. W/iat are the Five Reasons given hy Adam Smith, in his " Wealth of Nations" to account for the different Prices or Gains of different Employments or different kinds of Labour ? — They are as follows : " First, The agi-eeable- ness or disagreeableness of the employments themselves ; Second, The easiness and cheapness, or the difficulty and es uid tUIRD PRINCIPLE OF THE VALUE OP LABOUR. Ill expense of learning them ; Third, The constancy or incon- stancy of employment in them ; Fourth, The small or great trust which must be reposed in those who exercise them ; and Fifth, The probability or improbability of suc- cess in them." — ( Wealth of N'ationt, Book I., chap, x.) lUuttrate by Examples each oftheie Propontions ?~FirHtf The wages of labour vary with the ease or difficulty, the pleasure or pain of the employment. The labour of the tailor is lighter and cleaner than that of the blacksmith, and his wages are less. The labour of the workers under ground — miners and colliers — is more serere and dis- agreeable than that of f j,rm labourers and other workers on the surface of the g'round, and therefor© the wages of the former are much higher than those of the latter. There is a similar variation in the Wages of Various other employments, according to their ease or hardship, their agreeableness or disagreeableness. Second, The wages of labour vary according to the facility or difficulty, cheapness or expensiveness, of learn- ing the particular businesses. Thet« are several sorts of labour which a man may perform with little or no pre- vious instruction; while there are many employments which can be carried on by those only who are instructed in them by education and practice, and in many instances by those only who, in addition to education and practice, possess special endowments or talents. " Suppose," says Mr. McCuIloch, " that the education of a skilled labourer and his maintenance down to the period when he begins to support himself, cost £300 niore than Was required for the maintenance of an unskilled labourer down to the same period ; it is plain that, to place these individuals in the same situation, the skilled labourer should earn ■■'•i mm 112 POLITICAL EcoNosnr. M» much over and above the wages earned by the one tliat is unskilled, as may be sufficient not only to yield the usual rate of profit on the extra sum of £300 expended in his education, but also to replace the sum itself pre- viously to the proliable termination of his life." — {Prin- ciples of Political Eccfnwny^ Part III., chap, i.) Adam Smith quaintly but forcibly illustrates the same principle as follows;: — "When an expensive machine i» wected, the extraonlinary work to be [performed by it before it is woi'n out, it must be expected, will replace the capital laid out upon it, with at least the onlinary profits. A man educated at the expense of much labour and time to any of those employments which requii'o extraordinary dexterity and skill, may be conij»ared to one of these expensive macbiiics. Tlio work which he learns to perform, it njust l>e expected, over and above the usual wages of common labour, will replace to hira the whole expense of his education, with at least the . ordinary profits of an equally valuable capital. It must do this in a reasonable time, regard being had to the very uncertain duration of human life, in the same mamier a» to the more certain duration of tlie machine. The differ- ence between the wages of skilled labour and tliose of common labour, is founded upon this principle. The policy of Europe considers the labour of all mechanics, artificers and manufacturers, as skilled labour ; and that of all countiy labourers as common labour. ... It \& reasonable, therefore, that in Europe the wages of mechanics, artificers and manufacturers should be higher than those of common labourers. . . Education in the ingenious arts and in the liberal prefcssions is still more tedious and exjiensire. The pecuniary recoiui>ense, there^ lore, of painter& and sculptoi's^ of lawyers and physicians. ^ i THIRD PRINCIPLE OF THE VALUE OF LABOUR. 113 •I enght to be much more liberal." — ( Wealth of Kationg, Book I., chap, x.) Third, The wages of laboui*, in different occupations, vary with the constancy or inconstancy of employment. " Employment is much more constant in some employ- ments than in others. In tho greater part of manufac- tures, a journeyman may be pretty sure of employment e\'ery day in the year that he is able to work. A mason or bricklayer, on the contrary, can work neither in hard frost nor foul weather, and his employment at all other times depends upon the occasional calls of his customei-s. He is liable, in consequence, to be frequently without any. What he earns, therefore, while he is employed must be sufficient to supj)ort him while he is idle. No species of skilled labour, however, seems more easy to learn than that of masons and bricklayers. Tlie high wages of those workmen, therefore, are not so much the recompense of their skill, as the compensation for the inconstancy of their employment. A house carpenter [or cabinet-maker] seems to exercise rather a nicer and more ingenious trade than the mason. In most place.5, however, for it is not universally so, his day wages are somewhat lower. His employment, though it depends much, does not depend so entirely upon the occasional calls of his customers ; and it is not liable to be inter- rupted by the weatlier." — {Wealth of Nations, Book I,, chap. X., p. 47.) It is upon the same principle we pay more for riding a mile in a cab than in the stage coach. The cabman may stand half a day before he gets a customer. I once called a cabman towards evening to convey me a mile or so, and when I paid him, he told mc it wa& the iir^t shilling h& MIm 114 POtilTlCAt ECONOl«V. had received duiing the day. When the opportunities of employment are thus rare, the wages for each particular operation must 1)6 greater, since we must pay not only for the time iu:tiially employed, but also for the time that is lost by the labourer while waiting for employment. Fourth, The wages of labour vary according to the small or great trust which must be reposed in the work- man. An employee entrusted with money, or the care of an establishment, or the management of a piece of work, is entitled to higher wages than one entrusted with no such charge and responsibility. On this subject Dr. Wayland remarks: "If the manager be careless, he may destroy by negligence what is entrusted to him ; and if he be dishonest, he may convert it to his own emolument. Now this union of judgment with incorruptible integrity is absolutely necessary in many operations of production. On this account, though the wages of such peraons are high, it is generally found more economical to employ them at any price, than to entrust important affairs to the incompetent and the vicious. This is one of the rewards which, in the course of human events, God bestows upon wisdom and virtue." — {Elements of Political Economy^ Book III., chap, ii., sec. 2, p. 312). On the same subject Adam Smith thus expresses him- self : " The wages of goldsmiths and jewell'^rs are every- where superior to those of many other workmen not only of equal, but of much superior ingenuity, on account of the precious materials with which they are entrusted. " We trust our health to the physician ; our fortune, and sometimes our life and reputation, to the lawyer and attorney. Such confidence could not safely be rejxwsed in people of a very low condition. Their reward must ■. . »«tu^ ut^ifiiM ViUc THIRD PRINCIPLE OP THE VALUE OF LABOUR. 115 be such, therefore, as may give them that rank in society which 80 important a trilst requires* The long time niul the great expense which must be laid out in their educa- tion, when combined with this circumstance, necessarily enliance still further the price of their labour." — ( Wealth of Nations, Book I., chap, x., p. 47). Fifth, The wages of labour in different employments vary according to the probability or improbability of success in them. This cause of variation affects chiefly the wages of the higher class of labourers, or of those who practise what are called the liberal professions. " In the greater part of the mechanical trades," says Adam Smith, " success is almost certain, but very uncertain in the liberal professions. Put your son apprentice to a shoe- maker, there is little doubt of his learning to make a pair of shoes ; but send him to study the law, it is at least twenty to one if ever he makes suql^roficiency as will enable him to live by the business. Ir^ profession where twenty fail for one that succeeds, that one ought to gain all that should have been gained by the unsuccessful twenty. The counsellor-at-law who, perhaps, at nearly forty years of age, begins to make something of his pro- fession, ought to receive the retribution not only of his own so tedious and expensive education, but of that of more than twenty others who are never likely to make anything by it. How extravagant soever the fees of a counsellor may sometimes api)ear, their real retribution is never equal to this. Compute in any particular place what is likely to be annually gained, and what is likely to be ann\ially spent, by all the different workmen in a common trade [such as the trade of the shoemaker or tailor], and you will find that the former sum will gener- ally exceed the latter. But make the same computation 116 POLITICAL ECONOMY. with regard to all the counsellors and students of law in all the different inns of court, and you will find that their annual gains bear but a very small proportion to their annual expense, even though you rate the former as high, and the latter as low, as can be done. The lottery of the law, therefore, is very far from being a perfectly fair lottery ; and that, as well as many other liberal pro- fessions [as philosophy, literature, poetry, painting, music, &c.], is, in point of j^ecuniary gain, under-recompensed. "These professions keep their level, however, with other occupations, and notwithstanding their discouragements, all the most generous and liberal spirits are eager to crowd into them. Two different causes contribute to recommend them : first, the desire of the reputation that attends upon superior excellence in any of them ; and second, the natural confidence which every man has, more or less, not only iSliis own abilities, but in his own good fortune." — ( Wealth of Nations, Book I., chap, x., p. 48.) NoTK. — Practical Obaerfiations. — Mr. J. R. McCulloch has the following suggestive remarks on the principles defined and illus- trated in the foregoing lesson : "It has been sufficiently proved that the permanent differences that obtain in the wages paid to those engaged in different employments in countries where industry is perfectly unfettered, are rarely more than sufficient to balance the favourable or unfavourable circumstances attending them. When the cost of their education, the chances of their success, and the various disadvantages incident to their profes- sions, are taken into account, those who receive the highest wages are not really better paid than those who receive the lowest. The wages earned by the different classes of workmen are equal, not when each individual earns the same number of shillings or of pence in a given space of time, but when each is paid in propor- tion to the severity of the labour he has to perform, to the degree of education and skill that it requires, and to the other causes of variation already specified. So long, indeed, as the ' WAQES OF CAPITAL. 117 principle of competition is alloweerly to their ends, and to select the parties that are, all things considered, the moat suitable for tlieir purposes. In a society like this, integrity, skill, and industry are sure to be duly prized and appreciated. And yet there have been, and still are, persons calling themselves social reformers and friends of the poor, who propose that this admirable system should be sub- verted, and a meddling despotism substituted in its stead ; that the rewards of industry should no longer be apportioned accord- ing to the fair aud equitable arrangement of the parties concerned, but that the employment and wages of every man should be determined by agents nominated by government for that purpose! We should show but little respect for our readers were we to waste their time in refuting such palpable absurdities, The abuses to which the adoption of such a scheme would infallibly lead, would be such that it could not be maintainetl for any considerable period j if it were, it would fill the land with robbery, injustice and ruin.'* — (Principle of Political Economy, ^jp. 394, 395.) not of iher the LESSON XXII. WAOSS, OR PROFIT OF CAPITAL. Note. — In the four preceding lessons 1 have treated of labour and its wages ; the different kinds of labour or employments ; the principles and circumstances by which the wages of different kinds of labour or employments are determined; and how, by free competition, the value of labour is, in all cases and under all circumstances, voluntarily and equitably adjusted by the parties ...,„J 116 I'OLITICAL ECONOMY. conoomeil. I now prfX5eeital is the life-blood of labour as labour is the hands of capital ; and the workman, whether skilleil or unskilled, is entitled to remuneration for his labour acuonling to the principles explained and illustrated in the preceiling lessons. The value of capital is reckoned in the form of money, and is often furnished in that form. In the case abtwe supposed, it i« not likely that a blacksmith would borrow the shop, tools and materials, but would borrow the money with which to procure them ; but there could be no money-borrowers unless there were money'lenders or money-lending institutions ; and were there no money-lenders, the industrious artizan who would bo a money- borrower would be the greatest sufferer. One money-lender may be exacting and avaricious, while another is honourable and just ; so one money-borrower may be fraudulent and profligate, while another is honest and prudent. If the money-lender lends for his own interest, so does the money-borrower borrow for his own interest. It is not a matter of benevolence on either side, but it is a matter of husinea on both sides ; and the business is as honour- able on one aide as on the other, the same as the letting and renting of a house, or the selling and buying of goods. There is another way in which capital is beneficial to labour and to labourers. In a village without capital there would be opportunity for only sin^ple labour and at the lowest wages, and tl^e inhabitants would be poor and would have little means or prospect of being otherwise ; but if a man of capital establish a manufactory sufficient to employ the villagers and their neigh- bours who might be disposed to work, every one knows that there, wages wot\ld thus be doubled, and the comforts of living proporr tionably increased. Since, then, all pixxiucts are the I'eswlts of the co-opera- tion of labour and capital, and as we have considered in the preceding lessons the share of the results or profits, or wages, to which the labourer is entitled, What U the ReinutieroUion to which the Capitalist is entitled; or, On mmmmmm. 120 POLITICAL ECONOMY. what Principles should the Wages of Capital be regulated f — The wages of capital should be regulated upon the same principles as those of labour : according to cost, and skill, and risk. «. How may tJiese Principles be ascertained ? — These prin- ciples may be ascertained by the nature of the capital employed and the mode of employing it ; whether the capital consists of money, or of manufactures, buildings, ships, lands, «feo., let or hired, or whether it be employed by and under the superintendence of the capitalist. Suppose, then, the Capital to consist of Money lent for the purposes of Production. — Then the price or wages of the money lent, called interest, must depend upon the following circumstances : — 1. The ratio between supply and demand. The greater the supply of capital in relation to the demand, the lower its price or rate of interest ; and the greater the demand in relation to the amount of capital, the higher the rate of interest. This is the principle which regulates the price of all kinds of products and property. 2. The productiveness of industry enhances the price of capital, as when the productiveness of a given amount of capital in the use of natural agents or in a machine ia very great, a man will give more for money thus to invest, and the price of capital will be kept up or increased. The same will happen when a man in mercantile business can sell his stock at good profit several times in the course of a year; he can aiford to pay higher interest than when he must keep his goods on haild a year or two. The same is the case when a man wishes to borrow money to invest in agriculture where the land is fertile, easily cultivated, -■'^'^■■-^-- i^a^tStMi WAGES OF CAPITAL. 121 and the prices of products good. Such cases suppose men to be carrying on business partly or altogether on borrowed capital. 3. The price) of money is also affected by the risk oj investment. When a capitalist lends money there i» always some risk that he may not be repaid, and the greater the risk the higher the interest which he may justly demmd. This risk depends upon several circum- stances, of which three raav be mentioned : — First, The character of the bo'-rower ; his industry, skill, knowledge of business, pecuniary ability, integrity* honesty ; whether he has conducted business successfully or failed in it ; his punctuality in making his payments and fulfilling all his engagements. Second, The nature of the business for which the money is borrowed, and the security for its repayment. " Pro- perty at sea is more liable to destruction than property on land. Property in raercbartdise is more liable to be destroyed than property irt houses ; property in housep than property in farnis. A house in the country is safer than a house in town ; and a stone or brick house is safer than a wooden house. Property employed in the manu- facture of cotton [or woollen, or hardware, tools or furni ture,] is less liable to be destroyed than property employed in the manufacture of gunpowder. Now, when a capitalist loans money to be invested in some one of the above forms of capital, and his only security for payment consists in his hold upon the property in which it is invested, it is evident that his risk, other things being erjual, will depend upon the safety of that property. Hence, it is rea,sonable that his remuneration for risk should coiYespoud with the 9 mmm tmm 122 POUTICAL ECONOMY. greatness of the risk." — (Dr. Wai/laruTs Elements of Poli- tical Economy^ p. 320). It ia upon the same principle that insurances are made and undertaken on different kinds of property, and even upon life itself. Thirdly The risk incurred in lending money depends «pon the stability of the government, the provisions of the laws, and the administration of justice. When the stability of government has been doubtful, as at times in different kingdoms on the continent of Europe, and during the late civil commotions in tlie United States, and on some past occasions in Canada, the interest of money was high, while the value of other property wa.s depreciated, and loans were obtained with difficulty ; and many capi- talists made large investments in the English funds at a low rate of interest, from the belief that the British Gov- ernment was more stable, and property more safe under it than in any of the countries where the capital thus invested hatl been accumulated. Even where the stability of the government is not considered doubtful, but where the laws affecting property and debts are defective and the administration of justice doubtful, as in some of the neighbouring states, the interest on money is very high, as the risk of it is so great. " Hence," says Dr. Wayland, " we see the economy of good legislation, and of a wise, just, and incorruptible judiciary. The additional interest on capital, incurred in consequence of a bad administration of justice in a country, would anniially pay the expenses of all the courts of law, ten times over." But when capital is invested in business by the capi- talist himself and under his superintendence, then Upon what Principles is his Remuneration or Share of tJie Profits to he Regulated ? — His share of the profits from invest- Wages of capital. 123 hienis tlius made is regulated upon the same principles as those already explained in respe"+ to the wages of labour and the loaning of money. K The capitalist supplies the requisite buildings, mate- rials, tools or machinery, and pays the wages of the labourers. For all thi& outlay, the risk, and the wear and tear, he should not only be indemnified for actual expenditure, but should have a reasonable profit ; other- wise he would rather simply lend his money on good Security at ordinary interest, than invest and risk it in manufactories or merchandise. As the wages of the labourer are the remutieration of his labour, so the profits of the capitalist are the remuneration of his self-denial in not otherwise using and enjoying his money, and of his €5nterprise in thus employing it for the purpose of pro- duction. Mr. Mill observes: ** By lending his capital on unexceptional security he runs little or no risk ; but if he embarks in business on his own adcount, he always exposes his capital to some, and in many cases to very great danger or partial loss. For this danger he must be compensated, otherwise he will not incur it." — (Prin- ciples of Political Economy, Book I., chap, xv., sec. 1.) 2. When a person not only invests capital in business but superintends the employment of it, then, as Mr. Mill says, " He must likewise be remunerated for the devotion of his time and labour. The control of the operations of industry usually belongs to the person who supplies the whole or the greatest part of the funds by which they are carried on, and who, according to the ordinary arrange- ment, is either alone interested, or is the person most interested (at least directly) in the res\ilt. To x>xercise this control with efficiency, if the concern is large and com- ir ■IRBSKBM BHSK 124 POLITICAL UCONOMY. plicated, requires great assiduity, and often no ordinary skill. This assiduity and skill must be remunci-ated."— (Principles of Political Economy, Book I., chap, xv., sec. 1.) 3. Again, "Sometimes the capital or a pai-t of it is supplied by what is called a sleeping partner, who shares the risks of the employment but not the trouble, and who, in consideration of those risks, receives not a mere interest, but a stipulated share of the gross profits. Or, finally, the same person may own the capital and cod ' ; the business, adding, if he will and can, to the management of his own capital that of as much more as the owners may be willing to trust him with. But under any or all of these arrangements the same three things require their rem\ineration, and must obtain it from the gross profit — abstinence, risk, exertion. And the three parts into which profit may be considered as resolving itself, may be described respectively as interest, insurance, and wages of superintendence," — {Pri'nciples of Political Economy, Book I., chap, xv., sec. 1.) NOTES. RemarkH on Capital, its Profit*, and Relations to Labour. — I have not thought it expedient in these first leasons to dwell upon wiiat has been more than once alluded tu in preceding lessons — the various employments and risks of capital, or the various kinds of capitalists, as corporations, companies, manufacturers, coti- tractors, builders, tradesmen, and others who keep establishments of their own, and carry on business upon their own responsi- bility. I have confined myself to the brief explanation of prin- ciples applicable to capital invested or employed by all or any of them. But T think it proper to add some general and practical remarks made by writers of authority on capital, its profits, and relations to labour. Much of what has been written on this i)art of political economy ia more especially applicable to the condi* WAGES OF CAPITAL. 126 tionB and relations of capital, manufactures, labour, land and rent, as existing in Great Britain and other European countries, and scarcely applies to a new country like Canada, where nociety, its capital and employraenta, are more simple and less complicated than in the old countries of Europe. I have condensed from them what seemed appropriate to my purpose, and I further select from them the following suggestive paragraphs :— 1. Tlie Interest of Money Loaned and the Profitu of Trade com- pared. — "All persons in business are occasionally, and most of them constantly, borrowers ; while all persons not in business, who }K>ssess moneyed property, are lenders. Between these two great bodies there arc a numerous, keen and intelligent class of middle-men, composed of bankers, stock brokers, discount brokers and others, alive to the slightest breath of probable gain. The smallest circumstance, or the most transient impression on the public mind, which tends to an increase or diminution of the demand lor loans either at the time or prospectively, operates immediately on the rate of interest ; and circumstances in the general state of trade, readily tending to cause this difference of demand, are continually occurring, sometimes to such an extent that the best mercantile bills have been known to vary within a year from two to three per cent. But at the same time and place the rate of interest is the same to all who can give equally good security. The market rate of interest is at all times a known and definite thing, *' It is far otherwise with gross profit, which, though it does not vary muiat it will atford to pay less interest. 3. Land is sold at different prices, according to its fertility, and as it rises in price the degree of profit to the purchaser is diminished. 4. The wants of the natives are supplied, and hence one source of gain is dried up. 6. A more perfect knowledge of the country, and moT% perfect con6dence in its prosperity, diminish the unwillingness of persons in older conntries to loan ; and hence capital from abroad may be procured with greater facility. Hence the gradual opera- tion of these causes must tend to reduce the rate of interest in different countries to the same average. — {Dr. Wavland'a Elements of Political Economy, pp. 326, 327.) 3. The Adoantagea of Capital ami its Relation* to Labour.-^ " There can be no doubt that the possession of capital in a country is a great blessing to the people, whoever may possess i ;. People sometimes speak of it as if it were a means of tyraimy and injus- tice, but the laws of a free country will not allow it to be used for such purposes. It is said the capitalist enriches himself with- out caring for others. This may be true ; but in the very process of enriching himself, his capital does good to others, if they act industriously and wisely. People own this sadly enough, when by their conduct they drive capital away, as they sometimes do. The owner of a cotton-mill may be conducting it with great advantage to himself ; but if he is compelled suddenly to stop, the loss will fall on many others. Many families will be deprived of bread until capital provides some other work for them. "Thus it is the interest of all that capital should be well pro- tected and saved from disturbance. Wherever there is danger of its being confiscated or destroyed, it takes alarm and passes away ; hence in wretched eastern states (in Asia), where every rich maa is liable to be pillaged by the government, capital will not remain. Revolutions and civil convulsions are very much against it, as the poor French have felt to their cost. After the Revolution of 1848 most of the great woilrs were shut up, and the workmen went about starving or rioting. "The workman sometimes grumbles because he works hard and is poor, while the owner of capital works little and is rich ; he is sometimes mistaken about the working, as the management of capital is often a very hard task. But that the capitalist kHHMilliUiiil mm 128 POLITICAL ECONOMY. shotild be rich can do him no harm, since it does not make the workman poorer ; on the contrary, it makes him all the better oflf that he has good and constant employment. Perhaps the capitalist has made his money by his own hard labour — perhaps his father or his grandfather has made it and left it to him. At all events it is his property, and the workman is no more entitled to take it from him than any other person. There is, however, sometimes a lingering idea in the workman that he contributes greatly to swell the wealth of the capitalist, and that his poor wages are not a sufficient share of the produce. It is, however, beyond the power^of the capitalist to make an unfair division. If there were only one in a country employing all the people, he might dictate his own terms ; but there are, especially in this eountry, a great number of capitalists, all competing with each other. If one wants to have too much profit, then another will be content with less, and offer more wages. It is not in the power of the capitalist to keep wages below their market value. " It is sometimes thought the employer is an utterly idle man, who obtains his wealth by the labour of others. But a well-man- aged establishment is a \ ery difficult thing to keep up ; and the more money embarked ii^ it the more trouble and anxiety will it occasion. The workman paid from day to day is sometimes much more comfortable than his employer, who, apparently roll- ing in wealth, may be on the brink of ruin. "There are sometimes conflicts between capital and labour, in ■which neither gains the victory, and they only succeed in doing each other great mischief. The capitalist cannot reduce the wages of labour, however much he may desire it; and on the other hand, the workman cannot participate in the profits of the capitalist. Sometimes workmen have thought it a wise policy to increase their demands at a time when they knew that their employer must produce goods at any cost to enable him to pay the debts he had incuired. In such circumstances the result of their efforts has generally been to make him a bankrupt, and then the establishment is broken up and they are driven out of employment. "As capital does not derive its strength from artificial institu- tiioio bivt from nature, so its operations cannot be limited by law. WAGES OP CAPITAL. 12f) Any attempt to dictate what shore shoiUd beltnig to the capitalist and what to the h*bouror, would make it disappear as snow before the sun. It is its nature to abide where it obtains tlie natural rate of profit ; but if this is artificially reduced, it will disappear and be invested elsewhere. At the first French Revolution the tyrannical authorities undertook to lay down rules for profits and wages; but the capital of the country disappeared under their han tomed to reflect on such luatters will appear perfectly aatoniahiiig. It will appear that it is no exaggeration to lay, as an eminent writer has said, that ' it is not without the co-operation of many thousand hands that the very meanest person in a civilized com- munity is provided, even according to what wo falsely imagine to be the simple and easy manner in which he is commonly accom* modated.' ' ' Now let us recollect that the same law of competition which cheapens the farmer's uorii has cheapened likewise the labour, and out down the profits of those many thousand persons, capitalists and workmen, all over the world, whg have toiled or spent for his benefit ; that each one of those commodities that conduce to his enjoyment has undergone the same corrective influence of competition which has placed within his reach comforts and luxuries unknown to the rude chiefs and nobles of former times. If, indeed, competition operated partially, or in an unequal manner, there would be some reason to complain of its injustice. But nothing can be more equal and uniform than its operation ; in all caaes at least in which human legislation does not interfere and create some exception in favour of a privileged class. If its opera- tion is to cut down prices, it also lowers wages, reduces rent, diminishes tho profits of capital, and lessens the value of property. If it presses on the farmer, it also puts a check on the demands of the manufacturer If it compels the mechanic to sell hia labour at a lower rate than he would otherwise get for it, the shopkeeper with whom ho deals is subject to the same necessity. If it seems occasionally to bear with peculiar harshness on the most helpless class of the population, as at those seasons when their nuHibtrs happen to exceed the means of employment ; on the o*-Kt»i' haiMl, it is the agency which produces and maintains that che.''j)r- «han they gave for it a few weeks before. In the mecintime the cause of this rise in the stock having been removed, the effect ceases, and the new purchasers find their stock falling from twenty-five to fifty per cent. By these fraudulent methods of operating upon the ■"'cock Exchange in various cities, especially in New Yot'a , -nx:^^ thousands of persons are ruined every year, while dip\^ v «wiudlers have realized wealth. This should bt a warning to the uninitiated how they speculate in stcicks. At the same time it may be observed that variations in the market value of stocks are not always caused by fraud, but are often, perhaps generally, the result of some one or more of the first of the causes above mei.tio^ed. wenty- dollars rouble, I out of ig is by Sup- ifty per ,nd buy scorning 1 quan- of these I pieces. Eiised "ji [lar, by \g httle ; wQole i>. uhan jiintime moved, stock e ijOCk e B iraming riations iF,ed by f some Tried. LAND AND RENT. LESSON XXIV. LAND AND RENT. 137 W^iat do you mean by Land? — By land I mean real estate, or the instrument by which the farmer produces the various vegetable and animal substances which he otFers in exchange. What is the Difference between Land and Capital i — Land is one form of capital ] but in ordinary intercourse and in political economy, capital signifies the money or stock which a merchant, or banker, or manufacturer employs in his business ; while land signifies that portion of the soil or ground which any one possesses, and especially that which is cultivated for agricultural purposes. We call the wages of land rent, and the wages of money interest, and the wages of merchandise or manufactiu'es profits. Hoto is the Price of Land Regulated ? — The price of land is regulated the same as that of any machine, accord- ing to its productiveness. On what does the Productiveness of Land depend ? — Assuming the climate to be the same, the productiveness of land depends upon two things — namely, its fertility and its nearness to market. \. Some farms, with the! same amount of labour, will pro the consumer, who pays it in the increased price of the various articles which he purchases and consumes. He may tJiiuk his groceries, clothe, cot- tons, silks, ikc, are rather dear, but may console himself with the refleciion that they are no do \an they have been heretofore. It is frequently said, the people do nop feel indirect taxes, as they do not know when they pay, bow much they pay, or w^hether they pay at all or not. On what Principle shoidi I TaxfUion be Be(jnlated? — The fundamental principle of just taxation is, that individuals «,9 far as possible should pay taxes in proportion to their property ; that is, in proportion to the amount of protec- tion which they I'eceive from the government. In giving effect to this principle in indirect taxation, a discrimination must be made in the duties imposed on different kinds of goods ; that is, articles of necessity, v • are consumed i in nearly equal quantities by the rich .... ^oor, should bo father exempt from taxation or taxed lightly; while articles of luxury, or those used chiefly by the rich, should be made to bear the greater pai't ot the burden. NOTES. 1. Indirect Taxation preferable. — *• It is a real advantage on the side of indirect taxes, that what they exact from the contributor ia taken at a time and in a manner likely to be convenient to him. It is paid at a time when he has at any rate a payment to make ; it causes, therefore, no additional trouble, nor any inconvenience but what ia inseparable from the pajntnent of the account. He can also, except in the case of very perishable articles, select his own time for laying in a stock of the commodity, and consequently for the payment of the tax. The producer or dealer who advances the tax is, indeed, sometimes subjected to inconvenience ; but in the case of imported goods this inconvenience is reduced to a minimum by what 09 called the warehousing system, under whigh, ipstead TAX KM. 117 i of paying the »luty at the timt* of itnportAtion, he i«i only reiiuired to do eo when ho takes out hirt goods for consumption, which in BeKloni done until he has actually found, or has the prospect of immediately finding, a purrha.sop." (Mill's /^riticiftl*'/! of Political Economy, Vol. II., Rook V.. chap. vi. , sec, 2.) 2. Trxie Reform involi'iug an Increaae rather than Ifeducfion of Expenditure.. — "There is hardly any reform or improvement of the first rank, proposed of late years and atill remaining to bo effected, which wotild not probably re(|uire, at least for a time, an increased instead of a diminished appropriation of public money. Whether the tibjoct be popular education, emigration and coloni- zation, a more efiicient and accessible administration of justice, a more judicious treatment of criminals, improvement in the con- dition of soldiers and sailors, a more effective police, refonns of »ny kind which, like the slave emancipation, require compensa- tion to individual interests ; or, finally, what is as important as any of these, the enti ainment of a sufficient staflf of able and highly educated public servants to conduct in a better than the present awkward manner the business of legislation and adminis* tration — every one of these things implies consideraltle expense, and many of them have again and again been prevented by the reluctance which exists t'» apply to parliament for an increased grant of public money, though the cost would be repaid often a hundred-fold in mere pecuniary advantage to the community generally. I fear we would have to wait long for most of these things, if taxation were as odious as it probably would be if it were exclusively direct."— (J/tWs Principles of Political Economy, Vol. II., Book v., chap, vi., sec. 2.) 3. On the duty of supporting Civil Government, and the impolicy and evil of creating and hoarding a Surplus lievaniie. — No prudent man who would wish to employ his capital to the best advantage of either profit or usefulness, would hoard his money up in a bank or in an iron ch^est, but he would expend and empU)y it in business or works of utility ; still more would it be at variance with every sound maxim of political economy not to apply every farthing of the public revenue to advance the education of the people and various works of general usefulness. But the first duty and interest of every citizen, and the first claim on. the public revenue, wmmmm msm cf 148 POLITICAL ECONOMY. is the support of the civil government itself. The late excellent Dr. Way land thus writes on the subject : "The expenses of civil society have been spoken of as a public burden. It ought, how- ever, to be remarked that it is one of the burdens which every good citizen should be most willing to sustain ; as it is a mode of expense for which we receive a most abundant equivalent. If any one doubt this, let him ask himself what expense would be necessary to secure for him and his property that protection which he now receives for the trifling sum which he pays in taxes. The sum paid for the necessary expenses of 'civil government is very trifling when compared with that which is annually expended in journeys of pleasure, in luxuries of the table, in ornaments of dress, nay, in profligate amusements and vicious indulgences. Every good citizen, while he is under obligation vigilantly to watch over the manner in which public money is appropriated, is bound to contribute, cheerfully and liberally, for every purpose required for the public good. "It will scarcely be necessary for me to add, after what has been said, that (X surplus reocnue is a public nuisance. It gives to the gdvernment a coutrol over the monetary affairs of the country at the best dangerous, and a control which is very liable to be exerted for the promotion of party pui-poses. It hence gives aa ad each man, both by knowledge and principle, to understand and value the laws and government of his country, and to perform his duties and exercise his rights as an intelligent, Christian citizen. But a man who can neither read nor write cannot do this, but is often a weak- nes;3 and danger to civil government, and therefore to the security of life and property. It is therefore wise economy and foresight, as well as humane duty, on the part of go\'ernment, to provide for the universal and sound educa- tion of the poo[)le. u td our I our dis- 'emment ibtfarevo, nt ; only istead of 'Political ry^— By n of each r him to hristian oloyment connected [e people 1 economy ^wing principle, Int of his lis rights who can a weak- Ire to the [economy part of lid educa- EDUCATION. 151 2. The productive power of each citizen is greatly in- creased by education. The fact that a propi-ietor or manufacturer, or manager of any producing establishment will give twice the wages to a skilled or educated labourer that he would give to an uneducated one, shows that the productive power of the fonner is twice that of the latter ; that is, that education has doubled the value of his labour j and this is the conclusion established by the most exten- sive inquiries into the value of educated and uneducated labour by legislative committees and commissioners and public writers in both Europe and America. Were pro- visicH) made and effectually carried into effect for such general education as is common to all classes, and makes each citizen a man, and then for such special education a» specially qualifies the citizen for fulfilling the narrower round of duties which the " subdivision of labour imposes on the individual as his special contribution to the com- monwealth," there would be no definable limits to the productiveness and progress of the countiy. Such is the dictate of sound political economy, and such should be the policy of government, as it is the impulse of patriotism not only to educate every man as a citizen, but to form a people well educated in what will prepare them for the several employments essential to the progress and grandeur of a nation, " where each workman shall tlioroughly know his work ; where each foreman shall thoroughly understand the right principles and best methods of executing that work ; and where each master of a manufactory and each member of a profession shall have received the highest education in the philosophical principles and modern methods of his art, science or profession." An eloquent writer, in a work published in 1871 and dedicated to the Queen, say.s, as every right-hwartod Canadian should say. ,— -., ^sSrz. ^^•mvT^i-^ ■« .,^,. '^Kji,'^. 15S POLITICAL ECONOMY. ** The greatest nation is not, in my opinion, that which has, like the Dutch, the largest amount of gold and silver buried in its cellars ; nor that which, like the French, has the largest store of bullion in the state bank ; but that to tfiy mind is the greatest nation which counts the largest number of well -trained, virtuous, well-doing citizens, patriotic, frugal and religious." — (Systematic Technical Education fci' the English Peoph^ by J. Scott Russell, Esq., M.A., p. 6.) NOTES. 1. Education the best Means of improving the Coivdition of the Poor. — "Of all the obstacles to improvement, ignorance ia the moat formidable ; because the only true secret of assisting the poor is to make tliem agents in bettering their own condition, and to sup- ply them, not with a temporary stimulus but with a permanent energj'. As fast as the standard of intelligence is raised, the poor become more and more able to co-operate in any plan proposed for their advantage, more likely to listen to any reasonable suggestion, more able to understand, and therefore more wiUing to pursue it. Hence it follows that when gross ignorance is once removed and right principles are introduced, a great advantage has been already gained against squalid poverty. Many avenues to an improved "condition are opened to one whose faculties are enlarged and exer- cised : he sees his own interest more clearly, he pursues it more steadily, he does not study immediate gratification at the expense of bitter and late repentance, or mortgage the labour of his future life without adequate return. Indigence, therefore, will rarely be found in company with good education." — {Sumner's Records of the Creation, Vol. II., p. 296.) 2. Kimh of Public Education and Means of Providing it. — "Education," says Dr. Wayland, "is of two kinds, common and scientific. Common education is limited to the teaching of those branches of which a knowledge is necessary in the pursuit of the 'ordinary occupations of life. This is a proper object of national 'expenditure, because it is for the interest of every man that every other man sliould be acquainted with the elements of learning. •Specially ia this the case iii a representative government. • vS«Mi«>%'-'« «^«i>C*>^>^. EDUCATION. 153 that which i and silver French, has but that to the largest ag citizens, c Technical 3tt Russell, >)uiUion of the Lorance ia the sting the poor 111, and to 8up- a permanent ised, the poor a proposed for le suggestion, to pursue it. removed and been already an improved and exer- ues it more the expense of his future , will rarely 'a Records of yoviding it. — [common and |iing of those irsuit of the of national that every )f learning, lent. ** A qaettion, however, occnrB both ai to the manner in whidi a revenue should be raised and the manner in which it should be distributed. It may, for instance, be raised hke any other tax, and paid into the public chest, and the teachers be paid as officen of government. Or it may be raised in different districts in which the schools are to be supported, and paid into the hands of district officers, who both oversee the schools and employ the teachers. The latter seems to be the preferable method. In this manner there will be by far the most Uvely interest maintained in behalf of the schools, the appropriation of money will be more vigilantly guarded, and the teachers will more probably be appointed on account of their skill and ability. The appointment of so many teachers could rarely be effected by a central government with either skill or fidelity ; and the community having no interest either in the selection or the remuneration of the teacher, would rarely take that interest in the subject of education which the good of the pupils requires. " On this subject, the principles to be kept in view seem to be ''^ simple. It seems necessary that every district sufficiently large to maintain a school should be obhged to maintain one, and that for this purpose the necessary funds be raised by the authority of the public. When, however, these funds have been raised, they may safely be left in the power of eacli district itself, in the behef that those who have themselves earned and contributed the money will be more likely than any other persons to disburse it skilfully and economically. Besides this, as upon such a system teachers will be wanted in large numbers, it may be desirable that seminaries be estabUshed for the special purpose of educating them. This will give uniformity to the system oi iustruction, and enable the science of education throughout a whole community the more easily to keep pace with the progress of science in the other departments of knowledge. 3. "Of Scientific Education. —That the cultivation and diffusion of science is greatly advantageous to the whole community, does not, I trust, require ^roof. Nations are at present principally enriched by the result of discovery and invention ; and in conse- quence of the general diffusion of knowledge and intelligence, that a portion of the national revenue should be directed to the n ijJftV^WSlf f:'V'i!»Tfe^««^.''" -"■^ mmm 154 POLITICA^L ECONOMY. promotion of these objects seems both equitable and wiw.'* — (Eleinenta of Political Ecoriomy, pp. 399-401.) 4. ExpensM of Education no Loss to a Country. — It is worthy of remark, and it should always be remembt,.-ed, that the money raised and expended in education is not money sent out of the country, but money distributed in the country, the same as money expended in farming, manufactures, railroads, &c., and is a pro« fitable investment. The erection of an educational establish* ment or a good school-house increases the value of property in a neighbourhood, as does education the intelligence and moraUty of the people. After the expenditure of milUons of money in educational and other pubUc improvements, there is as much money in the country as there was before, with the added value of all the improvements, which proportionably increase the capital C^ a country. Sir Dudley North remarks : " The growth of wealth in a nation never thrives hetter than when riches are tossed fro^ hand to hand." — (Discourus (m Trade, p. 15.) CONSUMPiION DEFINED. 155 PART lY. CONSUMPTION, OR USE OF WEALTH. LESSON XXVII. COKSUMPTTON DBIIKKD : CONSUMI'TIOK IH ORDXR TO INCREASB WEALTH. Note. — Having treated of production or accumulation of wealth, of exchange, of distribution or division of the profits of production and exchange, I come now to consider, in the laat place, the consumption or use of wealth. What is Consumption in Political Economy ? — Mr. J. R. McCulloch remarks : " Consumption, in the sense in which the word is used in this science, is synonymous with use ; and is in fact the great end of industry. The various products of art and industry are produced only that they may be employed to satisfy our immediate wants or add to our enjoyments, or that they may be employed as capital, and made to assist in producing others." — {Principles of Political Economy^ p, 570.) Note. — Consumption in its nature is the destruction of value ; not indeed annihilation, for as we camiot create, so we cannot annihilate anything ; but consumption signifies the destmction of that form of value or utility which the article possessed before its consumption. For example, wood or coal consumed by fire loses its utihty as 'such, whether used as fuel or destroyed in a conflagration. Bread- loses its utility, or its value as bread is destroyed, whether eaten or thrown into tne boa, though in the one case its consumption creates vigour for labour, and in t\\^ othdr it is a loss. 156 POLITICAL ECONOMY. How many kinds of Consumption are there ? — There are two kinds of consumption ; namely, that which takes place in order to increase wealth, and that which takes place in order to gratify desire and promote enjoyment. What is tlie Consumption which takes place in order to increase Wealth t — It is the destruction of the value of an article in one form resulting in the increase of its value in another form. Thus, the farmer consumes labour, food, wages of labourer, utensils, manure, seeds, in the expectation that the crop will repay him for his various outlays, and yield him a recompense for his industry and skill. The manufacturer consumes raw cotton, wool, iron, wood, s, or Manufactures, or Trades in order to get Rich f * * I. A fundamental rule in any kind of pursuit is thiit a man should imdei*stand his business ; that he should not undertake what he does not understand; that he 158 POLITICAL ECONOMY. should know what to do and how to do what he takes in hand. Many a man wastes his capital by undertaking a business that he knows little or nothing about. 2. In order to produce a given result, the consumption of capital should be as small as possible. " A penny saved is a penny earned" is a maxim as true as it is common. The farmer should in every possible way economize his materials, as should the manufacturer, the mechanic, the trader, and every kind of consumer and producer. If A expends sixty dollars and B expends eighty dollars to produce one hundred dollars, it is clear that the profits of A will be twice as large as those of B by the operation. If A makes his house tight in the autumn so as to keep out the cold, he will consume during the winter little more than half as much fuel as B, who leaves openings in doois, windows, tkc.,- through which the cold air enters. If a farmer wishes to keep his cattle in good condition during winter, he can do so with little more than half the food by housing them in a warm stable than by keeping them in a cold stable, or leaving them exposed to the cold without any covering.* It is said that " not more than one-tenth of the heat given off by wood is rendered ser- viceable by the common fire-place." The principle of this rule applies to the economy of every step and branch in the process of every pursuit or business, whether agri- cultural, manufacturing, mechanical or commercial. 3. Another rule in the consumption of capital, in order to increase its value, is that the consumption should be as complete and profitable as possible. If any part of the materials employed in manufacture be not consumed, • The agricultural reader may see much more on this subject in my First LessoM in Agriculture. CONSUMPTION DEFINED. 159 that is, be wasted, the cost of the manufactured articles will be higher, and the profit of the producer will be le i. For example, in the consumption of wood for fuel, after ail the heat which it can evolve is derived from it, there remain the ashes, which possess an important value In several respects, but which are often thrown away and wasted. After the consumption of fodder by cattle their excretions are of groat value as manure, in increasing the productiveness of the farm, but are often left unused and wasted. An article of food which may not be used in one form may be used in another form; an article of clothing which will not answer any longer for one pur- pose may be used in some other form. After ^ linen garment is worn its value is not exhausted, as it still possesses an important utility as a material for the manu- facture of paper. Even India rubber shoes when worn out possess a valuable utility in the manuf^.'^ture of India rubber cloth. The late Mr. Babbage, in his remarkable book, On the Economy of Machinery and Manu/actu/rts, gives numerous examples in illustration of this rule. One example may be quoted to show to what purposes the horns of cattle may be applied before their value is exhausted : — "1. The lowest pai-t, next to the root of the horn, after uiider- going processes by which it is rendered fiat, is made itito combs. *' 2. The middle of the horn, after being flattened by heat and having its transparency improved by oil, Is dplit into thin layerg, and forms a substitute for glass in lanterns of the commonest kind. *' 3. The tip of the horn is used by the makers of knife handles and the topa of whips, and for other similar purposes. "4. The interior, or core of the horn, is boiled down in water. A large quantity of fat rises to the surface ; this is put aside and sold to the makers of yellow soap. '"JiUJNllH 160 POLITICAL ECONOMY. " 6. The liquid ittelf is used as a kind of glue, and it is pur* ohased by cloth dressers for stiffening. "6. The insoluble or bony substance which remains behind, is then sent to the mill, and being ground down, is sold to the farmers for naanure." — (Pp. 217, 218 : "On the Causes and Con- nquences of Large Factories.") In another chapter (pp. 88, 89), "Of Copying by Moulding," Mr. Babbage remarks: "The property which horn possesses of becoming soft by the action of water and of heat, fits it for many useful purposes. It ia pressed into moulds, and becomes em* bossed with figures in relief, adapted to the objects to which it is applied. If curved, it may be straightened ; or if straight, it may be bent into any forms which ornament or utility may require ; and by the use of the mould, these forms may be multiplied in endless rariety. The commoner sorts of knives, the crooked handles of mnbrellas, and a multitude of other articles to which horn is applied, attest the cheapness which the art of copying gives to the things formed of this material. " Dr. Wayland remarks: "Hence we see the importance, in all cases, of entirely exhausting all the values contained in any pro- duct before we surrender it up an worthless. For the want of this care, millions of property are annually wasted. The difference between the cost of two establishments — in the one %\ here every utility of every substance is consumed, and in the other in which only the first utility is consumed — is frequently as great as the net profits realized in the ordinary employments of industry." — {Elements of Political Econdmy, pp. 363, 364.) In another place (p. 373) Dr. Wayland remarks on the same subject : "Hence we see the superiority of the economy of large establishments to that of smaller ones. ^ i inuiacturing wtablishment oan carry on several r! '<'t >peratlou^' for the sakd of using these secondary utilitit . waall one '"^is would be impossible, and much must in cc Lience be was. Thus, in connection with a large slaughtei ' se J ave seen a soap and candle manufactory, a manufactory ot ghi md one of neat's foot oil; while a large number of hogs wei*e fattened with tho relw^i of these several establishments. In this manner every part of tke slaughtered animal was proAtaDly consumed " CONSUMPTION DEFINED. IGl 4. Economy in the consumption of labour is no less important than economy in the consumption of matenal. Neither more nor /«*# labour should ])e employed than is necessary to accomplish what is pi-oposed und required. " One suponumierary labourer is not only ustiloss in him- self, but he generally reqtiires tiie time of two or three others to keep him company in idleness. To employ / pUed ; but if what has been above suggested be observed, the most essential conditions of success in various kinds of business will be fulfilled. But it can hardly have escaped notice, that what was remarked at the commencement of the lesson has been illustrated throughout, namely, that "a man, in order to be a akilful producer, must be acquainted with the laws of produc- tion ; that is. those laws of uature and of society which govern the transactions in which he is engaged. Hence we see the importance of accurate knowledge and sound mental discipUna to all classes of society." LESSON XXYIII. COWStTMPTION IN ORDER TO GRATIFY DESIRK AND PROMOTK ENJOYMENT. Note. — It has been shown that in all the operations of industry for the accumulation of wealth, there is going on a constant pro- cess of consumption, or, in other words, a destruction of particular values in order to produce other and greater values ; and certain rules have been suggested to promote economy in those operations. But it is only the miser that S' oks the accumulation of wealth for CONSUMPTION IN ORDER TO GRATIFY DESIRE. 163 its own sake ; it is usually pursued as a means to an end, and that end is the gratification of human desires of one kind or another, and in the gratification of those desires it is consumed or employed. What are the Desires to gratify which the Productiont of Industry are Consumed ? — Among the desires subject to be gratified by the productions of industry are the following : — 1. Desires, the gratification of which is necessary for the preservation of life and health, such as those for food, clothing and shelter. 2. Desires to gratify the senses and tastes, such as those . for luxuries of the table and of dress, and for the more refined pleasures of taste, in painting, music, statuary, architecture, &c. 3. Desires to gratify the intellect in the study and pur- suit of knowledge, in the purchase and use of books, charts, philosophical instiniments and apparatus, attendance at lectures, «fec.; in short, any intellectual exercise or pursuit to acquire knowledge and skill that may afford pleasure, and better qualify to enjoy the blessings and perform the duties of life. 4. The desires for social pleasures, such as the exercise and enjoyment of hospitalities, which create and strengthen ties of good-will, friendship and happiness between the different classes and nationalities of the human race. 5. The desires for moral pleasures, such as those con- nected with religious worshij), and the exercise and activi- ties of the religious affections. 6. The desires of benevolence, humanity and patriotism, such as those for the diffusion of religion and knowledge, 164 POLITICAL ECONOMY. thiB relief of want and distress, the promotion of our coun- try's civilization, prosperity and happiness. Some of these desires are more elevated and noble than others ; but the gratification of any of them involves the consumption of capital, and in some oases, not its repro- duction in any form, much less in a form of increased Talue. What Rules of Economy tnay he laid down for the Con- sumption of Capital in the Gratification of these Desires 9 — Most of the rules recommended in the preceding lessons in relation to consumption of capital in order to increase it, as the question does not relate to the wisdom or folly of any of these desires, but simply to the rules of economy to be observed in providing for their gratification. But two or three suggestions may be added to the rules or appli- cation of the rules already mentioned in reference to the domestic economy of the subject. A particular mode of living having been resolved upon to gratify one or more of the desires mentioned, economy will suggest that^- 1. The consumption should be as small as may be neces- sary to accomplish the intended purpose. The principle of this rule applied to purchase articles for domestic use, requires that no more should be purchased than is wanted, as such articles ordinarily soon become tainted or other- wise unfit for use, and therefore become a total loss ; as a superabundance of anything consumable is liable to be used with less economy than if the sup;dy were only what was necessary ; as the purchaser loses lor several months or a year the interest on the money expended on articles pur- chased several months or a year before they are wanted. An old householder has said, that "it is generally as itf i«iMi|uM|i« I bii «».■ ^ as CONSUMPTION IN ORDER TO ORATIPy DESIRE. 165 economical to purchase at retail as at wholesale." It follows also that it is bad economy to buy a thing merely because it is cheap. Cheapness is no reason for buying a thing, unless one wants it. To buy things merely because they are cheap may fill a closet, or garret, or room, with practically useless and perhaps rotting articles. 2. The consumption of each article used should be complete ; every part of its utility should be exhausted before it is thrown away. Thus, in general, " nothing should come into a house unless 'it is wanted, nor in a larger amount than is wanted ; and nothing should leave it until all its utility is exhausted." 3. There is as much economy in procuring suitable articles for use, as in exhausting their utility before throw- ing them away. It is cheaper to buy a good axe at a higher price and keep it sharp, than to buy an inferior axe at a low price, or to use a dull axe in order to save the expense of keeping it sharp. It is cheaper to have every description of cooking vessels that may be needed, than to have food spoiled for want of them. It is cheaper to buy good fuel at a fair price, than to buy at a low price fuel that gives off little heat. Good cloth and good shoes at a good price are cheaper than poor cloth and poor shoes at a low price. The utility of the thing, and not the mere form of it, is what gives value to it. The lowest priced products, like the lowest priced labour, are often the dearest in the end. Note, — The enjojrment of the comforts of life consists largely if not chiefly in the various operations of the household, the care and management of which depends almost entirely upon the mistress. The husband, by the productive employment of capital, labour and skill, procures the income for the purpose of ■* 166 POLITICAL ECONOMY. consumption in the various moans of gratification, necessary or BuporlluouB ; but the expenditure of that income in the house* hold arrangements and economy devolves generally on the wife. " Hence," says Dr. Wayland, " it will be seen that the physical comfort, as well as the means of happiness of both parties, de- pends more on the domestic qualities of the female sex than is ordinarily supposed. Affection will rarely exist in the atmos- phere of self-inflicted jwverty. No man can respect a woman by whose caprice and ignorance of her appropriate duties he is plunged into disgracefnl bankruptcy, and wedded to hopeless penury. Nor let it be Supposed that no talent is requisite skil- fully to superintend a household. It requires at least as much ability to direct, with skill and on principle, the affairs of a domestic establishment, aa to select a ribbon, or dance a minuet, to finger a piano, or to embroider a firo-screen." What may be said as to the Economy in Providing for the Gratification of our various Desires ? — Assuming that tliose desires are sucii as have been stated — namely, moral, intellectual, social, sensual, or for health and life — the attainment of l^appine^:s from any of them involves expen- diture of time, or of property, or both ; but moral and intellectual pleasures are far less expensive than are the pleasures of the senses. The expense of an evening's fashionable amusement, or of a night's dissipation, in articles of dress, luxury, &c., far exceeds what would be required for moral and intellectual pleasures for weeks or months, including the social hospitalities connected with them. It costs no more to spend time in moral and intel- lectual cultivation, than to spend it idly and frivolously ; and if the time consumed in thoughtless dissipation were employed in intellectual and moral culture, great changes and improvements in habits and tastes would be effected. Nor .are the pleasures of benevolence (apart from any con- siderations as to their objects) so expensive as those of the senses ; and were the sums lavished for the gratification of CONSUMPTION IN ORDER TO GRATIFY DESIRE. 167 igea 3ted. Icon- the bnof the latter expended in charity, how large an amount of liappiness might be created both for the benefactor and recipient ; or were a part of such sums expended upon intellectual pleasures — for books and other means of intel- lectual gratification — how much would be added to the treasures of intellectual enjoyment and intelligence. But while moml and intellectual pleasures are less expensive and more rational than those of the senses, they tend also to promote both individual and public wealth. For example, the exercise of benevolence tends to cultivate habits of self-denial and self-government, so essential both to industry and frugality, the sources of wealth and pros- perity ; whilst sensual self-indulgence tends directly to pro- duce both indolence and reckless expenditure, the parents of vice and poverty. In regard to intellectual pleasures, a man cannot enjoy these without improving his mind and I'endering it a more efiective instrument for the accumula- tion of wealth and the promotion of his future happiness ; while the gratification of the senses indisposes to any vigorous mental or bodily exercise, enervates the body, enfeebles the mind and depraves tlie heart. What is true of individuals is also true of a nation. The industry, the self-denial, the enterprise, the intelligence, the virtues which promote individual prosperity and hap- piness, contribute also to national advancement and pros- perity ; for the aggregate of individual accumulation and enjoyment is the sum of national wealth and happiness. Mr.' J. R. McCuUoch has well remarked : "It is by the spontaneous and unconstrained but well-protected efforts of individuals to improve their condition and to rise in the world, that nations become rich and powerful. Their labour and their savings are at once the source and the 168 POLITICAL ECONOMY. measure of national opulence and public prosperity. They may be compared to the drops of dew which invigoi*ate and mature all vegetable nature : none of them ha« singly any perceptible influence ; but we owe the foliage of sum- mer and fruits of autumn to their combined action ,*' — {Prineiplet of Politicai Economy, p. 5S5.) riKls. COPP, CLARK ,« 00., PBINTBRa, COLBOKMK MTRftlT, TOBOMTO. •ity. Th&j invigoi-ate haa singly ige of sum- action ,*' — ;OMTO.