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T M K 1' Icl X J E 
 
 ro 7 
 
 Theory of Capital 
 
 oiiMMi'UWE ANii mmx, 
 
 KXFLAINlNCi TUK 
 
 "iro f\\} TTir 
 
 UlJk 
 
 OF THE PiSFI i)IPM8S101\' OF fail) 
 
 AND TIIK 
 
 DKGLINE OF PliOFlTS. 
 
 BY BIOIIARD SULLEY, 
 
 London, Ort'.irio. 
 
 13<*<liojitotl ON|>ec?ially to Wovlciiija: Olsiswes. 
 
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 ADVKHTISKIi ST A.M I'liKSSK-. l;|illMONIi STUKF.T. 
 
 187}). 
 
THE TRUE THEORY 
 
 — OF — 
 
 CAPITAL, COMMERCE AND MONEY. 
 
 -o«o*o- 
 
 It is scmewhat sinsfular that at this advanced stage of general 
 information that the science of poUtical economy should be so little 
 understood, and after the acknowledgement of free trade principles for 
 so many years, by some of the leading statesmen of the world, that we 
 should be going Ijack to the old and exploded system of protection. 
 But in truth, tiie world moves slowly, and referring to history we find 
 that such has been the fate of all new movements and new ideas, 
 however true the principles on which they were founded. This 
 reaction, however, must lead to a more thorough discussion of the 
 science, and finally to the practical adoption of its principles. The 
 present ignorance, no doubt, arises from several causes ; chiefly from 
 the thorough neglect of its study in the public schools, and therefore, 
 the very limited knowledge of the science possessed by our statesmen. 
 Something may be attributed also, to the variety of opinions expressed 
 by the dif*^ rent authors on the subject, and in many cases, their neglect 
 or inability to trace the operation of the principles they propound to 
 their legitimate results under all circumstances. Writers on the 
 science have hitherto been chiefly literary men confined to habits of 
 study, and generally perhaps, without the opportunity of that desultory 
 discussion so necessary for the establishment of truth. Under such 
 circumstances it is not to be wondered at that many errors still exist, 
 and many changes of opinion, on some important points of the science, 
 have already taken place, and with further experience, no doubt other 
 changes may be expected. Mr. Mill, in alluding to one of the changes 
 that has already taken place in the opinions of the world on the subject 
 of money, makes use of the following observation : " It often happens 
 that the universal belief of one age of mankind, a belief from which no 
 one was, nor without an extraordinary eflbrt of genius and courage 
 could at that time be free, becomes to a subsequent age so palpable an 
 absurdity, that the only difficulty then is to imagine how such a thing 
 could ever have appeared credible." A change, no doubt similar to 
 this, will within the next few years take place in reference to what is 
 called the protective system, and some other erroneous opinions and 
 practices, equally subversive of the public interests. The people will 
 then wonder how such absurdities as the protective system, the metalic 
 standard of value, and the continued accumulation of National debts 
 could have been so long tolerated. We must now attend to our more 
 immediate subject. 
 
2 
 
 To attain to the possibility of a correct knowleilge of any 
 science, it is, in our opinion, first necessary to find out its lead- 
 ing or governing principle, and then to trace the influence, or the 
 effect of that principle under all possible circumstances. This, as it 
 appears, has not yet been done in the case of politic d economy ; and 
 the consequence has been that very little progress has been made since 
 its inception as a science by Adam Smith. What we shall designate 
 as real capital is the source of all profit, though it has not yet been 
 treated by the standard writers, as the governing principle of the 
 science. Most of them seem only to have treated it as an incident 
 when they ought to have treated it as the postulate, or self-evident 
 proposition; and few, if any, have given a detailed, or categoiical 
 account of it. The English economists, probably for no better reason 
 than the supposed necessity of escaping the sanction of the opinions of 
 the old French school of economists, have not included land and its 
 natural productions in the category of capital ; though some have gone 
 so far as to include farm buildings, fences, workshops, machinery, and 
 even improvements on the land, which they have called fixed capital ; 
 though apparently for no very good reason, as none of them are 
 thoroughly permanent. The old French economists were no doubt 
 right, when they claimed that all profit originated from, and must be 
 supported by, the land ; though they were wrong when they assumed 
 that all taxes could be collected directly from it. Mr. Mill, partly ac- 
 knowledges the same principle in the first chapter on Production, where 
 he says : — " The requisites for production are two, labour ,and appro- 
 priate natural objects." Though this description is necessarily lame 
 and incomplete, as he ought to have added, " Agents and forces, which 
 would then have included all real capital." Capital, therefore, in 
 the economical sense means original stock ; that is, something to 
 support labour, and furnish materials for the necessities and con- 
 veniences of man. In this sense, the earth and its original productions 
 were the original stock, or capital of mankind. Money is often called 
 capital, but that is a popular error, arising no doubt fiom its constant 
 use as a circulating medium. It is only a contrivance, however, to save 
 time and labour ; but its greater or lesser quantity does not affect 
 profit, and therefore is of no consequence to the community, providing 
 it always bears an equal proportion to the increase of wealth and popu- 
 lation. An increase of money beyond that, is one of the greatest 
 economical evils. 
 
 From the foregoing reasoning, it may be inferred that capital does 
 not increase at the same rate as population. Though it does not de- 
 crease in quantity; relative to the increase of population it does. It is 
 therefore important to note that food, fuel and raw material in general, 
 all of which are capital, do not exist, or cannot be produced in sufficient 
 quantities as population increases, with the same amount of labor ; con- 
 sequently, as the laborer must have the means to live, and to continue 
 his race, his wages, relatively to the amount of production, must be in- 
 creased ; therefore profits decline. 
 
 In accordance with these facts, as society progresses, the inequal- 
 
since 
 
 ities of position become niore marked, th'i possession of capital gives 
 greater advantages to those wno possess it ; but it would not on that 
 account, be either just or beneficial to society, to niake a forced or 
 charitable distribution of the su[)pose(l excess, as dearths, famines and 
 other calamities often overtake society, and in such cases there would 
 be nothing left to fall back upon for relief : and the disaster would gen- 
 erally end in murder, rapine and anarchy. And further, it is necessary 
 that all encouragement should be given to industry, so that the increase 
 of circulating capital, may, if possible, precede that of population, or 
 society would be straightened in circumstances. For the encourage- 
 ment of the necessary production and economy, it is also necessary to 
 secure to each individual the products of his own labor, and that which 
 he has rightfully obtained. Were it otherwise industry would be dis- 
 couraged, every man would covet the property of his neighbor, and so- 
 ciety would gradually go back into a state of barbarism. The security 
 of property ii therefore the only foundation for civilized society ; and the 
 only encouragement for industry; and ihe less and more certain, the exac- 
 tions of the government, the greater will he the increase of capital and 
 prosperity of the country. 
 
 Capital and labor are two distinct entities ; and, to some extent, 
 opposing forces, except when both interests are combined in one ])erson. 
 Labor is the consumer, while capital is the supporter of .'abur. 'J'here- 
 fore the less labor consumes of the product, the greater will be the 
 share left for profit. Labor adds nothing to capital, it only modifies 
 and puts it into mure convenient forms for consumption. As a general 
 principle laid down by all economists, as population increases, the land 
 remaining to be cultivated is less fertile, or in less convenient situations; 
 and the natural productions, such as fuel and timber, etc., become 
 scarcer. This process of decreement. no doubt goes on slowly, on ac- 
 count of improvements in science and machinery, and of new methods 
 of production; but it still goes on, and will continue so long as popula- 
 tion continues to increase. Some seventy years ago, when J\lr. Malthus 
 first distinctly ennunciated the principal that population had a tendency 
 to increase faster than the supply of food and other necessaries of life, 
 he was abused and derided by all classes ol people. The assertion of 
 the principle, however, is to be found in Adam Smith, therefore, Mr. 
 Malthus ought not to have been blamed for exemplifying the truth of 
 its operation. It is this natural tendency in population to outrun the 
 supply of necessaries which has propelled mankind from the Far East 
 to the Far West, and that is still forcing them into new regions. 
 
 If the gifts of nature had been uniform, that is to say if there had 
 been uniformity of soils, climates and productions, and all other con- 
 veniencies, minerals, etc., had been equally distributed over the globe, 
 there would have been no travelling from place to place, no foreign 
 trade ; perhaps no division of labor, and cousequently, no trade at all. 
 There could have been little or no intelligence ; no intellectual enjoy- 
 ment ; mankind could hardly have been superior to the lower animals, 
 and must have congregated round a common centre ; and when the 
 population increased beyond the supply of food and other necessaries, 
 
4 
 
 they would have just have spread out a h'ttle wider and cultivated a 
 little more land. It must be plain to all thinking people, that whether 
 "there be a design in nature or not ; it must be for the happiness of 
 mankind that nature's laws should be obeyed. It is the imperious force 
 of these laws which have brought mankind out of a state of barbarism 
 into a state of commerce and civilization. Yet man in utter ignorance 
 of his own interest, and that of his race, has hitherto endeavored, and 
 still endeavors, as far as possible, to thwart their legitimate influence 
 and operation. It is just as possible to stem the torrent of a mighty 
 river, as to destroy trade. Commerce is the law established and stamped 
 on mankind by the fiat of nature, and, although to some extent, it may 
 be curtailed or prevented, it cannot be annihilated. Hence all courses 
 tending to obstruct a free interchange of products between nations is 
 a rebellion against nature's laws. Profits in trade in accordance 
 with these laws, depend on the exchange of difterent kinds of com- 
 modities, produced by different kinds of labor, and diff'erent processes, 
 under entirely different circumstances. The greatest profit in trade will 
 be derived when you can exchange a commodity which your ability and 
 the surrounding conveniences have enabled you to produce with a cer- 
 tain amount of labor, for some other commodity which you could not 
 have produced v.'ith the same amount of labor, on account of the lack 
 of the necessary facilities for such production. This increased produc- 
 tion, caused by the division of labor, is the only source of profit in trade, 
 and with a free exchange of commoditier, profit would h^. augmented to 
 its greatest possible extent. 
 
 Division of labor, barter, or trade, must have been coeval 
 with the first dawn of civilization, and is still extending every day. If 
 the Protectionists deem it unprofitable, why do they not make laws to 
 prevent it ? It might be pertinently asked, why is it, within the memory 
 of the present generation, that the blacksmiths, all the world over, have 
 ceased to make l^iorse-shoe nails ? And why are the shoes and the nails 
 put on the horses feet, hundreds, and perhaps thousands of miles from 
 the places where either the shoes or nails are made ? 
 
 Again, it may be asked, Why are the hubs, the spokes, the felloes,^ 
 and the shafts for carriages made in difterent, and distant establish- 
 ments, to those where the wheels and the other parts of the carriages 
 are made and put together ? And what has supported the building of 
 ships, the digging of canals, the construction of railways, and all other 
 appliances (or the transport of men and things from place to place? 
 The answers to all these queries will be found in the simple word 
 " prof^ " It is simply because greater facilities exist for the production 
 of particular commodities in some places than in others. It is therefore 
 cheaper to manufacture them in such places, and then transport them 
 to where they are required to be consumed, than to make them under 
 less advantageous circumstances. The same principle, to a greater or 
 less extent, runs through all kinds of production, whether agricultural, 
 mechanical, or manufacturing. In the latter, as we have shown, it has 
 been found to be more. profitable to stick to one branch of a manufac- 
 ture, or to the production of one particular part of a machine, than for 
 
ivated a 
 whether 
 iness of 
 us force 
 
 rbarism 
 norance 
 ed, and 
 nfluence 
 
 mighty 
 stamped 
 
 it may 
 
 courses 
 
 tions is 
 
 ordance 
 
 of com- 
 
 ocesses, 
 
 rade will 
 
 ility and 
 
 h a cer- 
 
 )uld not 
 
 he lack 
 
 produc- 
 
 iii trade, 
 
 ented to 
 
 1 coeval 
 day. If 
 laws to 
 memory 
 er, have 
 the nails 
 les from 
 
 : felloes^ 
 stablish- 
 arriages 
 Iding of 
 ill other 
 place ? 
 e word 
 Auction 
 lerefore 
 rt them 
 1 under 
 ;ater or 
 ;ultural, 
 , it has 
 annfac- 
 han for 
 
 one hand to make all parfs in rotation. It is therefore clear that this 
 princii)lc of the division of labor and production, like its co-principle of 
 exchange or commerce, is inherent in the laws cif nature ; both arising 
 from the various conditions, constitutions and tastes of mankind ; and 
 that it will still go on in spite of all efforts to prevent it, as the pressure 
 of competition increases through the decline of the general rate of profit. 
 Instead of increasing profits by producing all kinds of commodities re- 
 quired in any particular country, they would be diminished. The only 
 true policy for nations as well as individuals is a thorough free trade. 
 The (juestion of what is sometimes called one-sided free trade h is often 
 been mooted, both in the Dominion and elsewhere ; that is, as to 
 whether it be beneficial or injurious for a country to open its ports 
 freely, while others tax the commodities it exports ? In answer, it m^y 
 be said thai no trade can be carried on without a profit ; and if a coun- 
 try imports, she must export, and vice versa. If one country imports 
 commodities from another, they must inevitably be paid for by some 
 other commodities produced in the importing country. If not directly, 
 then by some round about trade, such as exporting commodities to some 
 other country to which the first country was indebted. So the only 
 difference would be that the balance would have to be adjusted by two 
 transactions instead of one. If no eciuation of payments could be made 
 directly or indirectly, the tiade would necessarily cease without the 
 imposition of extra import duties. If the trade should continue after 
 the extra duties were levied, it would only prove that the trade was still 
 profitable, and the tax would fall on the consumer, as he must pay all 
 taxes and all profits. It is therefore hardly worth while to run the risk 
 of increasing our own burthens for the sake of curtailing the profits of 
 others. 
 
 P'rom what has been said, it may be inferred that protection must 
 always reduce the rate of profit on capital, and cannot lor any length of 
 time even benefit the parties intended to be protected, as the extra 
 profits caused by the increase of prices must shortly be decreased by 
 competition, and in the end the capitalist may lose more by the loss of 
 capital than he had gained by i)rotectioii. Ihe statistics of exports and 
 imports of different countries taken in money are now lio criterion of 
 the real values, or quantities of goods exported, or imported. No doubt 
 all exchanges must be balanced in /•(?«/ values, whatever money prices may 
 indicate. And it is hardly necessary to say that under ordinaiy circum- 
 stances no one would part with a commodity in trade without receiving 
 its full e([uivalent in some other commodity, or its precise value in 
 money, or in a bill, or note of hand that would at some future time com- 
 mand its full value in money, or in other desirable commodities. It is 
 perhaps now necessary to explain the ditierence between values and 
 prices. I'rices are the nominal or exchange values expressed in money. 
 They may be higher or lower, according to the financial condition, or 
 according to the necessary quantity of money in circulation in each par- 
 ticular country. Real values are the cost in labor and capital consumed 
 in the production of each commodity. Prices may be increased, or de- 
 creasedj by alterations in the value, or the quantity cf money, without 
 

 1m 
 
 i i 
 
 I ?! 
 i 1 
 
 6 
 
 making; any difference in the relative values of commodities. The word 
 value in its economical sense camprehends two distinct principles. 
 First. — The article must be useful, or at least, desirable. Secondly. — It 
 must rerjuire labor or exertion to produce or procure it. The cost ot 
 the labor will generally be its relative or exchangeable value. That is, 
 under all ordinary circumstances. The real value of an article is, there- 
 fore, what it would cost to reproduce it. Nevertheless, in the present 
 condition of trade, commodities are often bought and sold for less than 
 the cost of reproduction. This, ht)\vever, is not a natural state of things, 
 and could not occu»- under a correct economical system. 
 
 It is true, nevertheless, that there are some exce[)tions to the rule; 
 the crops and the harvests may vary, and the values, as well as the 
 ])rices of natural productions may rise and fall from causes over 
 which neither people nor governments have any control ; but this could 
 "not occur to anv serious extent in a state of (ree trade, as prices would 
 be constantly equalized by the operations of commerce. The world 
 would therefore be less liable to depressions in trade which sometimes 
 arise from a severe failure of crops, especially in over-populated couri- 
 tries. It will be of little use being accjuainted w;th the principles of 
 political economy, unless we are accjuainted with their operations in 
 detail. On some points authors have not been sufficiently clear, and 
 others they appear to have omitted to notice altogether. A\\ persons 
 know that society is practically divided into classes ; but few are aware 
 of the different proportions they bear to each other. This, however, 
 has a very important bearing on the conditions of trade. 
 
 It has been shown that in all old and populous countries, nine- 
 tenths of the people live on wages and small fixed incomes. The 
 proportion of mere laborers, may be less in new countries ; but still, 
 the class will always be sufficiently large to materially afifect trade, 
 either under an extraordinary increase of prices, or a decrease of 
 wa ges ; and without taking these facts into consideration, it seerns im- 
 possible to come to correct conclusions as to the causes of depressions 
 in trade. These are constantly attributed to what is called ovtr-fradin^, 
 whatever that may mean ; for it his never yet been explained how such 
 a thing could possibly take place. It has been remarked, however, that 
 throughout the present century a crisis in trade, or a commercial depres- 
 sion, has always been preceded by a period of abnormal high prices. 
 It is therefore fair to assume that whatever causes a general increase of 
 prices must end in bringing on a trade crisis. Accepting this as an 
 axiom, an increase of money, the inauguration of a highly protective 
 tariff, or anything that decreases the general demand for commodities, 
 must in time destroy the demand for labor, and therefore greatly mter- 
 fere with the prosperity of the country. When a country succeeds by 
 prohibitory duties in keeping out of her ports a certain quantity of 
 foreign produce that otherwise would have been imported, it may be 
 said, without fear of contradiction, that she has succeeded in preventing 
 her citizens from receiving the full value of their exports, and to that 
 extent has reduced their profits. Trade is a system if force, and its 
 course cannot be suddenly altered by the imposition of import duties. 
 
word 
 ciples. 
 ly.— It 
 :ost ol 
 'hat is, 
 there- 
 )re.sent 
 
 than 
 tilings, 
 
 If it be desired to prevent trade altogether, which seems to be the pur- 
 port of protection, duties should be levied on the exports as well as the 
 imports. If the protectionists are not willing to adopt such measures, 
 it seems impossible to consider them in earnest. Of course, in support 
 of the assumption that trade is a system of force, it seems hardly neces- 
 sary to say that all communities are composed of individuals, and that 
 each individual is supposed to pursue his own interest ; the consequence 
 would be that the usual amount of all kinds of production would go on, 
 and would only cease with the absolute decline of profit. The exports 
 would therefore continue, and if the imports v/ere kept out by prohibi- 
 tory duties, the balance must either be paid in the precious metals, or 
 in some kind of securities from the debtor countries ; or it would be lost 
 by the exporter in the discount on his bills. In either case, the coun- 
 try must suffer the loss of the value of the reduced imports, though the 
 individual merchants might not ; nevertheless the expense of the remit- 
 tance must be paid out of the price of the exports. Therelore the im- 
 port duties must inevitably, in the first instance, foil on the producer of 
 exports. We must now consider the subject of money. As belore in- 
 timated, money is not capital, neither with respect to the community 
 is it wealth. If imported as balances in trade, it may possibly benefit 
 individuals; but their gains, like those of the gambler, would be taken 
 out of the pockets of others. The oi)erations of money hare never yet 
 been clearly explained. Ricardo was the clearest writer on the subject, 
 and nothing has been added of any consequence within the last half 
 century. He went so far as to say, " That a currency would be in the 
 most perfect state consisting wholly of paper." Yet he adopted the 
 common error from Adam Smith, that the gold could be exported in 
 purchasing extra commodities, and added to the capital of the exporting 
 country ; an assumption that contradicts the whole theory of money. 
 
 The circulating medium of almost all countries at present .^ pro- 
 bably composed of ninety-nine and a hah per cent of paper and credit, 
 and the rest specie. Yet the world still clings to the delusion of the metalic 
 standard of value ; and supposes it could not be done without. Eng- 
 land appears likely to work out her own financial ruin, by clinging to 
 the fallacy of keeping her currency convertable into gold. No doubt 
 the present depression in trade .s been chiefly caused by her injudi- 
 cious system of currency. It n, st always keep the prices of English 
 commodities higher than those of other countries. The Bank of Eng- 
 land is the common sewer into whish most of ihe newly produced gold, 
 from all parts of the world is poured. By one provision of her charter, 
 the Issue Department is obliged to purchase all the geld bullion that is 
 offered to her at ^^3 17s. gd. an ounce ; for which it pays in Bank of 
 England notes. By this foolish regulation, England is forced to supply 
 the rest of the commercial world with gold, gratis. This must cause a 
 constant redundancy in the currency, and as there is no other method 
 of getting rid of such redundancy, except through depreciation in value, 
 it is constantly given away in the price of imports ; which sometimes 
 nearly doubles that of the exports. But there are other causes that 
 have contributed to the present high prices of England. 
 
8 
 
 
 m 
 
 Through the constant increa'se of gold within the last thirty years^. 
 for which En^^^land has been the chief mart, the trading classes have been 
 enabled to accumulate and to loan out, vast sums to foreign countries. 
 Consequently many countries are now tributary to her citizens, on ac- 
 count of interest on loans, which also tends to increase the circulation 
 of money in England, and to keep up prices. And besides the incubus 
 of her own National debt, she has the head offices of innumerable 
 Bank'ng and other Joint Stock Companies, extending their operations 
 all over the world, located in London. These circumstances in connec- 
 tion with the very injudicions system of limited liabili«"y, are sufficient to 
 destroy the prosperity of the nlost industrious and favoured country. 
 Mere non-productive exchanges and high prices do not produce profits. 
 
 All political economists from Adam Smith downwards have assumed 
 that the production of the precious metals is regulated by the same law 
 as the production of other commodities. That is to say, that when 
 they became cheaper, or of less exchangeable value, than the result of 
 the same aniount of labor applied to other callings, then their produc- 
 tion would cease. Their use as money, however, at a fixed weight in 
 a)' countries, has caused such a continued demand for them as currency, 
 Kiat their exchangeable value has not yet been sufficiently reduced to 
 prevent their production. Yet it might have been expected, that the 
 immense additions of paper to the currencies of the world within the 
 last two hundred years, such as bank notes, government notes, discount- 
 ing on bank deposits, checks, bills of exchange, notes of hand clearing 
 houses, etc., etc., would have brought the exchangeable value of thg 
 metals below the producing point. That however apparently, has not 
 yet been reached. 
 
 According to common report, within the last thirty yearc, some 
 thousands o^ millions of dolL'-s in gold have been added to the cur- 
 rencies of the wo: Id, representing the unnecessary loss of so much labor, 
 beside the other evils produced by a constantly increasing currency. 
 No doubt a standard ol value as well as a circulating medium is nec- 
 essaiy for the purpose of facilitating trade ; and experience has suffi- 
 ciently demonstrated that the only method for keeping the standard cor- 
 rect, or unvarying, is to limit the circul :ing medium, as neai as possible, 
 to the necessary quantity. The metals under the present system of 
 money have proved but a very imperfect standard; and, with the present 
 amount of trade, their circulation in all transactions would be quite 
 impossible. Most writers agiee, that a steady standard of value is a 
 matter of great importance, and that such standard cannot be made of 
 a commodity ; simply, because there is no commodity in existence, 
 which can at all times be produced with the same amount of labour, 
 and can as constantly be consumed at the same rate at which it is pro- 
 duced ; both of which contingencies would be essential qualifications 
 for such a standard. The subject of producing a permanent unvarying 
 standard of value has often been discussed ; but hitherto without arriv- 
 ing at any satisfactory conclusion. In the year 1832 a oamphlet of 
 nearly one hundred pages was published to prove that whea*- was the 
 only commodity that could possibly furnish a standard of value ; 
 
 
9 
 
 because, as the writer alledged, that, althong'i its value might vary from 
 season to season, it did not greatly vary from century to century. Ilis 
 scheme, however, divided the standard from the measure of value, 
 which was not very easy to comprehend, and according to the writer, it 
 would have required two kinds of money: exchequer bills foi the treasury 
 to pay out and to receive in taxes : and commercia' money, such as 
 bank notes, gold and silver coin, etc. And if the metals increased in 
 quantity, so as to reduce their exchangeable value, the coins were to be 
 increased in weight. On the other hand, if the metals became scarcer, 
 and dearer, the coins were to be reduced in weight. 
 
 This system, if it had been adopted, might to some extent have 
 obviated some of the hardships qonstantly arising from the depreciation 
 of the standard of value, in the case of reserved rents, deferred pay- 
 ments, mortgages, fixed annuities, &c., but it was too complicated, and 
 might at longer or shorter periods have required adjustment, which 
 would have been inconvenient and exptiiisive. The idea, no doubt, 
 arose out of the numerous and severe fluctuations in the value of money 
 in England in the earlier part of the century, caused by the extended 
 issues of the banks, and the many failures during the war with the first 
 Napoleon, and the adjustment of the currency afterwards. The Bank 
 of England had gained enormous profits during the restriction of cash 
 payments. Great complaints were made of its management, and its 
 monopoly, and several alterations were made in the law to curtail its 
 privileges, finally ending in the enactment of the banking law of 1844. 
 This law, however, instead of ending the currency ditticuUies, appears 
 only to have f:rought them to a climax. Discounts at present are only 
 about one per cent., as they were throughout the year 1876. The whole 
 scheme of the present law, complicated as it appears, was intended to 
 produce a steady currency, and therefore to prevent bank panics, the 
 great desideratum ever since the system was instituted. In all that lime 
 the endeavor appears to have been to make the impossible possible. 
 That is, to create, and to keep in circulation an unlimited quantity of 
 money, and prevent it from depreciation. In this impossible achieve- 
 ment certain parties on this side of the Atlantic appear to be as infatu- 
 ^atedasever. For this purpose a new scheme has just been broached, 
 both in the United States and the Dominion. Unlimited quantities of 
 Government notes aiC in both cases to be issued, and to be kept at par 
 by making them receivable for Government bonds, bearing a low rate of 
 interest. The scheme may be tried, but it will no more save the notes 
 from depreciation than did the inteicliangeability ot the French As- 
 signats, for the ecclesiastical estates, from the same fate. The assignals 
 became utterly worthless, notvithstandin'g they bore the rate of three 
 per cent, interest. Besides, if such a scheme were put in practice it 
 would have just the same eft'ect as borrowing the money, and would pile 
 up an immense national debt which would some day have to be reduced, 
 or repudiated, and in the meanti; \e would demoralize the people, as did 
 John Law's scheme in Fiance, by inducing all kinds ot stock gambling, 
 and other kindred evils. Money when once in circulation, as the world 
 has had ample proof, will continue to circulate so long as any value is 
 
10 
 
 attached to it, and is a legal tender for debts, and would not be ex- 
 changed for bonds until it was worthless for any other purpose ; and 
 then it would be bought up by speculators, each receiver of the paper 
 having been cheated out of a part of its vakie through depreciation. 
 
 Such a scheme might enrich Government contractors, and the deal- 
 ers in, and the producers of the material the Government might require, 
 but would not benefit either Government or people. And such v^ould 
 be the case with every increase of money issued by the Government. 
 This was the experience under the issue of every new loan by the British 
 Government during the French war, at the beginning of the century. 
 
 A Government currency, although experience has shotvn that, like a 
 bank currency, it may be abused, is nevertheless now a greater neces- 
 sity than at any previous period. It is therefore important to epquire 
 how it can be made thoroughly subservient to the public interests with- 
 out the drawbacks hitherto experienced in its use There can be no 
 reasonable objection on principle to a Government currency : the diffi- 
 culty is only with its management. The chief objection brought for- 
 ward by its opponents is, that Governments have always abused the 
 power of issue. Such an objection, however, ought to have very little 
 weight at present, unless we have come to the conclusion that all Gov- 
 ernments, as it was said of the Old Bourbons, " learn nothing and forget 
 nothing," and therefore, that reasoning and experience would be alike 
 useless. Both Chalmers and Mill declared that Governments gained 
 nothing by an increase of money, and that raising money by loans had 
 the effect of doubling the necessary tax on the people, and was no 
 benefit whatever to the Government. Therefore, if this be the effect of 
 an increase of money, applied to consumption through Government 
 loans, the same effect would be produced by an over-issue of Govern- 
 ment money. Knowing this, however, there would be neither induce- 
 ment nor excuse for such conduct on the part of the Government. 
 Then, apparently, all we have to do is to demonstrate these facts to the 
 people. In the first place, as before stated, an increase of money adds 
 neither to the wealth nor to the capital of the community. It only 
 abstracts from the pockets of the consumer, through the process of high 
 prices, a portion of his wages or income, and transfers the amount of 
 the Government loan, or the over-issue of money, as the case may be, 
 into the pockets of the classes previously mentioned. The Govern- 
 ment would therefore gain nothing in either case, and the necessary tax 
 • would still have to be paid by the people out of some other source, and 
 in the case of a loan, the debt also would have to be paid, or a perpetual 
 interest. Therefore borrowing is one degree worse than the over issue 
 of Government money, as it would treble the expense of the necessary 
 tax, supposing it to have been collected directly from the people. But 
 if neither Governments nor people can be made to understand the evils 
 of the present practice, so as to insure the alteration of the whole fiscal 
 system, then there will be no help for it. We shall, in company with 
 other nations, still go on to utter ruin and d<»moralization as fast as the 
 most vicious system of currency and finance can carry us. The value of 
 a currency, as we have endeavored to show, depends entirely on its 
 
1] 
 
 relative quantity. It should therefore be limited to the exact increase 
 of wealth and population ; and no doubt this might easily be accom- 
 plished. All fluctuations derange the standard of value, and conse- 
 quently affect the value of all the debts and monetary engagements of 
 the whole community, and are therefore beneficial to some and injurious 
 to otherb. The great changes, and especially the almost constant in- 
 crease of the currencies of the different nations of the world within the 
 present century, have no doubt been the chief cause of the growing 
 demoralization and anarchy which appears to be spreading to a greater or 
 less extent over all the older countries. This circumstance ought to be 
 a warning both to statesmen and peopla of a still young and prosperous 
 country like Canada, that they do not follow in the same track, and 
 consequently fall into the same pit. In the earli'^r ages of the world 
 money was necessarily composed of the precious metals ; therefore it 
 could not increase so rapidly on account of its being produced by the 
 slow process of hand labor, and so long as its production did not ^utrun 
 that of other commodities, the loss of the labor consumed was the only 
 inconvenience to society, as the standard of value would remain steady. 
 But, as most people are aware, in the latter end of the seventeenth century 
 a new system of money was engrafted on the standard of the metals by 
 the issue of bank notes to represent the value of coins. If the possibility 
 of abuse is to be taken as a valid objection to a new monetary system, 
 the present one ought never to have been adopted, as it has never ceased 
 to be abused from the beginning, as witness the vast nuuiber of bank 
 panics, and the hundreds of thousands of mercantile failures that have 
 taken place since its establishment. The system originally gave an 
 irresponsible power to all banks to create money, but that power is now- 
 restricted in most countries, and is rendered more difficult in the United 
 States. So far as it still exists in the Dominion, it is a power to tax the 
 people for the benefit of private individuals — a power that ought to be 
 exercised only by the Government under the control of Parliament. Of 
 course, as it has been stated, that money is neither wealth nor capital ; 
 an increase will neither increase wages nor profits, but it will make the 
 necessity to labor on the part of the wc'':ing classes more intense on 
 account of the increase of prices, which will cause a lack in the usual 
 consumption of commodities, especially of the second necessaries of life. 
 Finally the stores and the warehouses become full of goods that would 
 in the usual course have been consumed had it not been for the increase 
 of prices. Then comes the crisis, the fall of prices, the bankruptcies, 
 the depressions in trade, and the lack in the demand for labor, with all 
 its attendant evils. The advocates of the present monetary system 
 always pretend that bank notes have a guaranteed value because they 
 are demandable in gold at the option of the holder, and this is supposed 
 to suflficientlv limit their circulation. This, however, has never proved 
 effective until a run on the banks for gold had commenced. Under such 
 experience for one hundred and fifty years, it was deemed necessary by 
 the British Parliament in i8 14 to limit by low the issues of all the banks 
 in the United Kingdom. The Bank of England had recently been so 
 hard pressed to keep its paper convertible, especially after the Joint 
 
12 
 
 Stock Banks had succeeded in establishing themselves in London under 
 the new law of 1833. In 1839 the Bank of England, to save herself 
 from the necessity of suspending specie payment, had to accept a favor 
 from the Bank of France by the exchange ot two millions of gold for 
 two millions of silver. The limitation of the issues of the banks by the 
 Act of 1844 did not, however, accomplish the pur^^ose designed, as the 
 Joint Stock Banks continued to increase and to crowd into London, 
 until their deposits amounted to something near one hundred millions 
 sterling, supported only by ten or twelve millions of capital. The 
 toleration ot the increase of Joint Stock Banks in London was certainly 
 one of the weak points of the lav/ of 1S44, though an act was passed 
 in 1845 ^'^ limit their increase, and afterwards repeated, on account, it 
 must be assumed, of its apparent unequal operation. This Act, as has 
 been previously intimated, also adn)itied the free coinage of bullion, so 
 that really, there has been no efitective check to the increase of money 
 in England through the limitation of bank issues. Now, with respect 
 to the limitation of bank issues in the Dominion, the law appears 
 hitherto to have been a dead letter — the issues never having reached to 
 halt the amount of the limitation, and seldom to a third of the sum of 
 the capital. This state of things must of course limit the profits of the 
 banks. It no doubt aiises chiefly from the practice of discounting on 
 deposits, and ffom the credits and transfers on the books of the banks, 
 all of which practices limit the active demand for money, and have the 
 same effect as an increased circulation. According to the Banking Re- 
 port for January, 1879, although the paid-up capital was 58 millions, the 
 circulation was only nineteen, and tlie specie something under five mil- 
 lions, ($4,872,056). The debts and credits of the banks each amount- 
 ing to 160 millions of dollars, inclusive of nil debts, good and bad, real 
 estate, <S:c. \Vhat is called available assets, inclusive of specie and 
 Dominion notes, amounting to less than twenty-five per cent, of the 
 whole <jf the indebtedness. So that in the event of a suddtn panic or 
 demand for cash they could only pay about that percentage on the 
 dollar ; the gold only covering one-fourth of the notes, leaving nothing 
 for the rest and the depositors but what might be gleaned from the 
 general liquidation. A more unsafe and unsound system of cuirtncy 
 could hardly have been invented, as the constant disasterous failures of 
 the banks sufficiently testify. To assume that the present system of 
 money is superior to a well-regulated Ciovtrnmcnt currency is ^o assume 
 that which both reason and experience denies. Every one knows who 
 has happened to live in a country where a Government currency and 
 a bank currency have cn-culated side by side that the former has always 
 been preferred, as is the case at present with our Dominion notes. 
 Within iht five years ending in 1874 the banking capital oftlie Dominion 
 was nearly doubled, and the deposits and the circulation was increased 
 accordingly. The conS';;quence was exactly that routine we have just 
 described, an increased price of imports, a lark of the usual consump- 
 tion, an era of bankruptcy, and a depression in trade, &:c. It is im- 
 possible to have a better guarantee for the v.due of paper money than 
 its being a legal tender in payment ot debts and taxes. Sj long as any 
 
under 
 erself 
 favor 
 d for 
 ty the 
 IS the 
 ndon, 
 hons 
 The 
 tainly 
 assed 
 
 . it 
 has 
 , so 
 ley 
 aspect 
 jpears 
 led to 
 urn of 
 )f the 
 
 13 
 
 Government exists, and the currency is limited to its proper quantity, 
 its value must remain intact ; and even in a state of anarchy and revolu- 
 tion it would continue to circulat,i and no one would be injured. A 
 steady, well-regulated currency would be the greatest possible boon to 
 society, as it would produce a regularity and confidence in trade little 
 dreamed of at present ; and that boon will become more imperative the 
 longer it is withheld, if social order is to be maintained in large and 
 populous communities. 
 
 There can be very Utile doubt in the minds of those acquainted 
 with the subject, that a vast percentage of the misery and demoralization 
 at present existing in all populous communities, has been caused by the 
 ignorance of the true principles of money. The redundancy of any 
 commodity, induces a state of things called cheapness, which reduces 
 its exchangeable value in relation to other commodities. This is an 
 inexorable law of trade, and money is no exception to the rule, whether 
 it be of gold or paper ; but the cheapness of money is called high prices. 
 If money is so redundant or cheap, as to be exported to pay balances 
 in trade, no value has been received for it. It is a gratituous offering 
 or gift, to the countries to which it is exported ; although it will be of 
 no benefit to them, as it will again be exported on the same terms ; 
 until each country receives its equal share according to the proportionate 
 quantity of its currency. If this view be correct, and it cannot be success - 
 fully controverted, the United States and other gold producing countries, 
 so far as they have coined the gold and put into cireulati . previously to 
 exporting it to pay balances in trade, have been furnishing it to the 
 world gratis for the last thirty years ; and England by importing bullion 
 and exporting coins is doing the same thing. Towards the end of the 
 last century, when, for some time, there had been a partial cessation in 
 the production of the precious metals, the exports and imports of all 
 nations balanced in money values ; except as a general feature of the 
 case, the exports to a small extent, exceeded the value of the imports. 
 This, however, was a natural state of things, as it is a notorious fact that 
 there was at all times a considerable amount of smuggling going on, 
 which made up the balance on the side of the imports. This condition 
 of the exchanges remains much the same up to the present time, with 
 all countries excepting Great Britain. 
 
 For the fifteen years just previous to the late German and French 
 war, the exports of France on the average exceeded the imports some 
 millions of francs ; and those of Russia for the ten years previous to the 
 period, exceeded the imports on the average one hundred and 
 
 same 
 
 fifteen millions of roubles annually. And it is only since the passing 
 of the Banking Act of 1844, and the production of gold in California 
 and Australia, that the price of English imports have so far exceeded 
 those of her exports. One thing, therefore, appears sufficiently certain, 
 that all trade must be balanced by the exchange of commodities pro- 
 duced by an equal amount of labor, all appearances to the contrary 
 notwithstanding. 
 
 Money, of whatever it may consist, so long as it is money, it is only a 
 medium of exchange, a mere representative of vdlue previously contributed 
 
14 
 
 or produced; but not the value itself. No one wants money to consume; 
 it is preferred only because it will command any commodity required. 
 Its value, therefore which depends upon its quantity, should neither be 
 increased nor diminished. If the public measures of length or capacity 
 were continually varied, they could be no standard by which the people 
 could buy or sell. Money in addition to its character as a representa- 
 tive oi value, is also a measure by which commodities are exchanged; 
 and it can only be a just or correct measure, so long as its relative 
 quantity remains equal to that of commodities to be exchanged. For 
 any other purpose, as far as the community is concerned, thau as a mere 
 medium of exchange, and a measure, or scale, by which the difference 
 of values is ascertained, money is perfectly useless. Mr. Mill, speaking 
 on this subject, makes use of the following language : " There cannot, 
 in short, be intrinsically a more insignificent thing in the economy of 
 society than money, except in tho character of a contrivance for spar- 
 ing time and labor. It is a machine for doing quickly what would have 
 been done, though less quickly and commodiously than without it, and 
 like many other kinds of machinery, it only exerts a distinct and inde- 
 pendent influence of its own when it gets out of order." These deduc- 
 tions of Mr. Mill are, no doubt, perfectly correct ; all that society is 
 interested in, so far as money is concerned, is that it should cost as 
 little expense as possible, and that its value should be steadfast and 
 unchangeable. 
 
 Notwithstandmg the writings of Ricardo, Chalmers and Mill have 
 been extant for so many years on this important subject ; even states- 
 men appear still lo be as ignorant of it as ever. Governments still go 
 on borrowing, creating debt, and an excess of money ; and licensing 
 others to do so as though the practice were beneficial, and its equity 
 and utility had never been questioned. The only difference between 
 borrowing and creating an excess of money, is, that in the first case is, 
 that in addition to its utter folly as a financial measure, there is a per- 
 petual interest to pay, unless at some future time the debt should hap- 
 pen to be discharged through the creation of another twice as large. 
 In the second instance, the same burthen of high prices would have to 
 be borne by the consumer, but in neither case, as we have explained 
 before, would the government gain anything by the operation, as the 
 high prices, or the cheapness of money would have reduced the value 
 of the already existing income, so that what was gained in one way, 
 would be lost in another. A notorious case in point of the injurious 
 operation of an excess of money has lately occurred, which ought to be 
 sufficient to convince all unprejudiced persons of the truth of our 
 reasoning. 
 
 Immediately after the close of the late German and French war, 
 the Germans received an indemnity of one thousand iTiillions of dollars, 
 or two hundred and twenty millions of pounds sterling. And what was 
 the result ? Let us turn to a speech in which the subject was incident- 
 ally mentioned some time after by Ur. Julius Faucher, Editor of the 
 Quartet ly Review of Political Economy at Berlin, speaking at the 
 Cobden Club, July, 1875, said : *' This influx of specie caused a general 
 
15 
 
 rise in prices ; the imports have largely exceeded the exports, and the 
 gold has returned to France by a thousand channels." Now it might 
 be inferred from this passage in Dr. Faucher's speech that it was the 
 bulk or quantity of imports that was increased, and not merely the 
 prices. This inference, however, was shortly corrected by another gen- 
 tleman from Berlin, a M. Meitzen, Director of Statistics in that city. 
 He said, being i.i charge of the statistics of internal commerce, he well 
 understood the facts, and he could affirm that the French milliards 
 counted for next to nothing in the excess of imports mentioned by 
 Dr. Faucher. This shows pretty plainly that the prices only of the im- 
 ports were increased, and not the quantities. There can be no 
 doubt that this enormous quantity of gold was very shortly again scat- 
 tered over the surface from which it had been withdrawn, leaving nothing 
 but ruin and desolation behind it. It does not, however, come within 
 the scope of our subject to describe all the social evils consecjuent on 
 this vast increase of gold money in Germany ; the pauperism, the misery, 
 the sudden transitions from wealth and affluence to abject poverty ; nor 
 to cite the laws that were suddenly passed to prevent the people from 
 Heeing by thousands from their once comfortable and prosperous homes. 
 All of which demoralization and misery was caused by this foolish trans- 
 gression of the laws of political economy ; and it may yet end in anarchy 
 and revolution. With these facts before the world it appears singular 
 that the delusion as to the beneficial effects of an increase of money 
 should still be so universal. Referring again to the Untied States on this 
 subject, it may be said on a rough cr.iculcvtion that she has produced and 
 exported within the last thirty years at least one thousand five hundred 
 millions of dollars in gold, which hcis no doubt chiefly been exported to 
 pay balances in trade, and of couise, so far, has been a dead loss to the 
 country. The production of all this gold could have been dispensed 
 with not only without loss, but with positive gain to the people, as 
 whether it were kept at home or sent abroad it could be no profit to any 
 one but those engaged in som*' way in its production. The evil, how- 
 ever, has not yet ceased. According to statistics which lately appeared 
 in the New York Times, the United States has within the last five years 
 exported one hundred and seventy-five millions of dollars in gold more 
 than she has imported. So that the present lov/ness of profits and the 
 depression in trade may easily be accounted for. It is manifest that 
 there must be some sufficient cause for this notorious and general decline 
 of profits in all countries which has taken place within the last few years. 
 As previously stated, it is a principle of political economy accepted 
 by all writers on the subject that as the world becomes more populous 
 there will be an inevitable tendency in profits to decline. In the earlier 
 ages of civilization no doubt this decUne moved slowly, but within the 
 last half century, through the vast accumulation of wealth in a few 
 hands, greatly accellerated by the factitious creation of money and the 
 consequent accumulation of public and private debts, the interest of 
 which must be paid out of revenue, and therefore will decrease profits. 
 In the beginning of the century it was a well-known fact that the prices 
 of the necessaries of life were much lower on the Continent of Europe 
 
16 
 
 ft 
 
 than they were in England. So much so that the Continent was the 
 common refuge of people of small incomes and broken down fortunes. 
 This circumstance puzzled both Senior and Mill. They could neither 
 of ihem account for it satisfactorily. Mr. Mill, after canvassing the 
 opinion of Senior on the subject, and endeavoring to account for it in 
 his own way, makes the following observation . " I am, however, strongly 
 of opinion that the high prices of commodities, or the low purchasing 
 power of money in England are more apparent than real." It is no 
 doubt impossible to guess how Mr. Mill could have come to such a con- 
 clusion unless we fill back on a previously-expressed opinion that he did 
 not really understand the operations of money under all circumstances. 
 He was therefore inclined to question the existence of facts which ap- 
 peared to contradict his previously-expressed opinions. 
 
 It must now be called to mind that at the time spoken of the national 
 debt of England was larger than all the other national debts of Europe 
 pur together. Therefore, if our deductions be correct, the prices of all 
 commodities in England would be higher than those of other countries. 
 This would necessarily be caused by the increased number of non-pro- 
 ducers, supported by the interest of the debt, and the large addition of 
 currency to pay the extra taxes and to circulate the debt. These cir- 
 cumstances would be quite sufficient to account for the relative high 
 prices of commodities in England, or, as Mr. Mill termed it, " the low 
 purchasing power of money." This will also account for the compara- 
 tive low rate of profit on capital existing in P^ngland since the earlier 
 part of the century. We have now endeavored to establish the truth of 
 several important propositions. 
 
 First. — That capital does not consist of money, nor in mere accumu- 
 lations of commodities ; but in the forces, the powers, and the products 
 of nature, assisted to some extent by the acquired skill and conveniences 
 used in reproduction. And, further, that an addition of money neither 
 increases the capital nor wealth of a community, but if abnormal, is a 
 great injury. 
 
 Secondly. — That capital does not necessarily increase with the 
 increase of population, but has relatively a tendency in the opposite 
 direction. 
 
 Thirdly. — That the natural division of labor, both territorial and 
 individual, req'ires a free exchange of commodities to reach the highest 
 rate of profit, as lab jr would then necessarily be applied to the most 
 productive sources. 
 
 Fourthly. — That all Government, or national debts, permanently re- 
 duce the rate of profit, as much as a permanent dearth on the land ; and 
 in their inception press hardest on the wages classes and those who live 
 on fixed incomes. 
 
 Now, assuming our facts and theories to be correct, it is high time 
 that statesmen should learn that the only true remedies for financial and 
 economical evils will be found in a steady and properly limited currency ; 
 the constant employment of the people ; a free exchange of commodi- 
 ties, and a total cessation from government extravagance, and the increase 
 of public debt. Or, in other words, by adopting and practising the true 
 principles of political economy. R. S. 
 
 11 
 
IS a