I THE LIBRARY OF THE UNIVERSITY OF CALIFORNIA RIVERSIDE GIFT OF Dr. Gordon Watkins -3*7 (Barfcwt THE ELEMENTS POLITICAL ECONOMY. vr FRANCIS WAYLAND, D.D., LATE PRESIDENT OF BROWN UNIVERSITY, AND PROFESSOR OF MORAL PHILOSOPHY. VOBTIZTH THOUSAND. BOSTON: GOULD AND LINCOLN, (9 WASHINGTON 8TREIT. NEW YORK) SHELDON AND COMPANY. CINCINNATI i OEO. S. BLANCH A HU. 1864. Entered, arcording to Act of Congrtx*, in the year 1837, by FRAN CIS -.WAY LAND, IB the Clerk's Office of the District Court for the District of Rhode Island. PREFACE THE following work contains, in* substance, the lectures on Political Economy which haVe been delivered, for some yeare past, to the Senior Class in Brown University. When the Author's attention was first directed to the Science of Political Economy, he was struck with the simplicity of its principles, the extent of its generalizations, and the readiness with which its facts seemed capable of being brought into natural and methodical arrangement. At the same time, it appeared to him that the works on this subject, in general use, while they presented its doctrines truly, yet did not present them in such order as would be most likely to render them serviceable either to the general student, or to the practical merchant. This defect, for the sake of his pupils, he endeavored to supply. What he thus at first prepared for them, he now offers to the public. In how far he has suc- ceeded, it must be left for others to decide. His object has been to write a book, which any one who chooses may understand. He has, there- fore, labored to express the general principles in the plainest manner possible, and to illustrate them by cases with which every person is familiar. In doing IV . PREFACE. this, he is aware that he may at times have become chargeable with repetition. Sometimes, the same case may have been introduced a second time, for the sake of illustrating a different principle. At oth- er times, the same fart may belong equally to two different divisions of the subject, in this latter case, he has introduced it the second time instead of refer- ring the reader to what has been said before, lecauso he believes that readers rarely take the trouble to make use of a marginal reference. The principles of Political Economy are so closely analogous to those of Moral Philosophy, that almost every question in the one, may be argued on grounds belonging to the other. He has not, however, thought it proper, in general, to intermingle them, but has argued economical questions on merely eco- nominal grounds. For this reason, he has omitted many considerations which are frequently introduced into discussions on this subject. For instance, on the question of protecting duties, it is frequently urged, that, if a contract have been made by the government with the manufacturer, that contract is morally binding. This, it will be perceived, is a question of Ethics, and is simply the question, whether men are or are not morally bound to fulfil their contracts. With this question, Political Econ- omy has nothing to do. Its only business is, to de- cide whether a given contract were or were not wise. This is the only question, therefore, treated of in the discussion of this subject in the following work. It may possibly be urged that the Author, having had no experience in mercantile business, should have left this subject to be treated of, by practical PREFACE V men. To this he has only to rtply, that principles belong to all men ; that there seemed very little hope that this subject would be undertaken by men engaged in active business ; and that he could not perceive why his doing, as well as he was able, a work which seemed to be necessary, should prevent any one else from doing it as much better as he saw fit. It has been to the Author a source of regret, thai the course of discussion in the following pages, has unavoidably led him over ground which has fre- quently been the arena of political controversy. In all such cases, he has endeavored to state what seemed to him to be the truth, without fear, favor, or affection. He is conscious to himself of no bias towards any party whatever, and he thinks that he who will read the whole work, will be convinced that he has been influenced by none. While he cherishes for his fellow citizens, who are engaged in political warfare, every feeling of personal respect, he desires it to be believed that he entertains for party itself, whether political, ecclesiastical, or social, the opinion which "befits him as an American, a Christian, and a gentleman." * It having become necessary to print a third edition of the Elements of Political Economy, the Author lias revised the work with all the attention of which lie was capable. He hopes that it will be found that he has improved it, by omitting in a few cases what was superfluous, by rendering more intelligible what Col. Hutchinaon, when speaking in the iJriiisli Parliament, re pecting tho part which he hnd taken in tin: King's death. n PREFACE. was obscure, and by adding in several places sncli suggestions as have arisen from an observation of the commercial condition of our country within the last two or three years. The Author also hopes that the present edition will appear in a better dress and at a lower price than those which have preceded it ; and thus be more deserving of the attention of those in- Btructors who have used it as a text-book. BROWN UNIVERSITY, May 1, 1840. PREFACE TO THE FOURTH EDITION. THE demand for the Elements of Political Econo- my having been such as to induce the publishers to stereotype it, the Author has given to it" a careful revisal. A few paragraphs have been omitted, a few have been added, and some of its doctrines have been slightly modified. No material alteration has however been made. Grateful for the kindness with which it has been received, and in the hope that i( may conduce, in some small degree, to facilitate the study of the science of which it treats, it is agiin submitted to the judgment of the public. WN UNIVERSITY, Oetooer 1, I84i. CONTENTS AND PLAN OF THE WORK. INTRODUCTION. DEFINITIONS, AND DIVISION OF THE SUBJECT. Pago Political Economy, Wealth, .... lf> Value, Intrinsic, ...... 16 " Exchangeable, . .... IN Cost, ...'.... 24 Production, ....... 24 Exchange, ........ 25 Distribution, ....... 26 Consumption, ....... 26 BOOK FIRST. OF PRODUCTION. CHAPTER FIRST. OF CAPITAL The Nature of Capital, . . . . . .30 The Forms of Capital, . 30 The Changes which Capital undergoea, . . . .31 The Increase of Capital, ..... 33 Productive ana unproductire Capital, ... 35 Fixed and circulating Capital, . J6 Money, ....... 41 CHAPTER SECOND. <>F INDUSTRF. PART I. THE OBJECTS AND FORMS OF HUMAN INDUSTRY. SECTION I. TUB DIFPERRNT OBJECTS OP HITMAN IKDCSTMT. Change of Elementary form, .... 43 Change of Aggregate form, .... 44 " " Place, ...... 44 General Conclusions, ..... 46 1111 CONTENTS. SECTION il TUB D1FFEUBNT KoRMS OF HUMAN LNDOBTRT Industry of Discovery, ..-.. . . 60 " " Invention, . . . . . 60 Operative Jndu3*.ry, .... .62 Of the Products or these various forms of Human InuUbtry 64 The Product of the Operative Laborer, . . . .64 " " Discoverer, ... - 56 PART II. THE MODES BY WHICH THE PRODUCTIVENESS OF HUMAN JNDUSTRN MAY BE INCREASED. SECTION I. THE USE OF NATURAL AGENTS. Of Natural Agents, ....*. 60 Of Tools and Machines, ..... 60 Of Natural Agents which create Momentum. . . 60 Of Animate Agents, ...... 62 Of Inanimate Agents, . . .... 62 Gunpowder, ....... 64 Wind, . 65 Gravitating power of Water, . . . . 6G Steam, ....... 67 The advantages of Inanimate over Animate Agents, . 68 Of the Natural Agents by which Momentum is applied, . 70 Uses of these Agents, ...... 72 SECTION II. OF DIVISION OP LABOR. Principles on which the utility of Division of Labor depends, SECTION III. LIMITATIONS TO THE DIVISION os LABOR. From the Nature of the Process, . ... 83 From other Causes, ..... 83 Capital, ....... 83 Demand, ....... 85 Of National Division of Labor, . . . . .98 SECTION IV. EFFECTS OF THE INCREASED PRODUCTIVENESS OF HUMAN INDUSTRY. ^. Effect upon Producers, . . ... . *J7 Immediate, ....... 97 intimate, ........ 99 'I. Effect upon Consumers, . 103 CONTENTS. IX CHAPTER THIRD. OF THi LAWS WHICH GOVERN THE APPLICATION OF LABOR TO CAPITAL. SECTION I. Tni CONDITIONS OP OUR- BEING, ON WHICH THE LAWS ON THIS S ARE FOJ.SU1D, . 10.) SECTION II. fMOUSTRl WILL BE APPLIED TO CAPITAL, AS EVHRY MAM BNJOfi TBI ADVANTAGES OF BIS LABOR AND CAPITAL. As every man may gain all be can, . 100 Aa every man may use his own as he will, . . . 109 SECTION III. LABOR WILL BE APPLIED TO CAPITAL, AS EVERT MAN BUFFERS THE INCON- VENIENCES OP IDLENESS, .1)8 Poor Laws, ..... .120 SECTION IV. THE OB EATER THE RATIO OF CAPITAL TO LABOR, THE CREATES W'LL BS THE STIMULUS TO LABOR, .... IsiJ SECTION V. INDUSTRY WILL BE APPLIED TO CAPITAL, IN PROPORTION TO TBI INTELLEC- TUAL CONDITION OF A PEOPLE, 1^8 SECTION VI. OF THE KKFECT3 OF DIRECT LEGISLATION, AS A MEANS OF INCREASING PRODUCTION. Production, .... 133 Of Protecting Duties, ... 135 Of Bounties, . ..... 140 Objections Considered, ...... I -JO BOOK SECOND EXCHANGE. CHAPTER FIRST. BARTER, OR KACHAWUE IN KIND. SECTION 1. Or n> PniMrip'.w 7 Insurance, . ... 359 XII CONTENTS. BOOK FOURTH. OF CONSUMPTION. CHAPTER FIRST. OF THE NATURE AND DESIGN OF CONSUMPTION. Nature of Consumption, .... 36'..' Design of Consumption, .' : . . . 3Gf CHAPTER SECOND. OF INDIVIDUAL CONSUMPTION. SECTION I. OF INDIVIDUAL CONSUMPTION, FOR THE SAKS or RE-PRODUCTION. Of Consumption of Capital, . >,' ; .<'.- . . . 370 Of Consumption of Labor. . . ' . . . 373 SECTION II. Op CONSUMPTION FOR THE GRATIFICATION OF DESIRE. Of Consumption for the purpose of self-gratification, simply, 379 Consumption in respect to the relative Objects of Desire, . 382 CHAPTER THIRD. OF PUBLIC CONSUMPTION. SECTION I. OF TAXES, OR THE MANNER IN WHICH THE PUBLIC EXPENDITURE is PROVIDER FOR. Of direct and indirect Taxation, . . ... 391 Of the Principle by which Taxation should be regulated, . 395 SECTION II. OF THE PURPOSES FOR WHICH THE PUBLIC REVENUE IS COMMON! I ExPBKC ED. Of the Expenses of Civil Government, . . 398 Expenses for Public Education, . . . 399 " " Maintaining Religious Worship, . . 403 ** " National Improvement, . 404 " * Paupennn . . .405 War, ?.; rr.v] . . 406 ELEMENTS or POLITICAL ECONOMY. .POLITICAL ECONOMY. INTRODUCTION. DEFINITIONS, AND DIVISION OF THE SUBJECT. 1. POLITICAL ECONOMY is the Science of Wealth. [t is sometimes defined the Science of National Wealth. This definition seems not, however, sufficiently compre- hensive ; inasmuch as, the laws which govern the crea- tion of wealth are essentially the same, whether they are considered in respect to man as an individual, or to man as a society. By Science, as the word is here used, we mean a systematic arrangement of the laws which God has es- tablished, so far as they have been discovered, of any department of human knowledge. It is obvious, upon the slightest reflection, that the Creator has subjected the accumulation of the blessings of this life to some determinate laws. Every one, for instance, knows that no man can grow rich, without industry and frugality. Political Economy, therefore, is a systematic arrange- ment of the laws by which, under our present constitu- tion, the relations of man, whether individual or social, in the objects of his desire, are governed. 2. Wealth. It has been frequently remarked, that the universe around us is composed of objects suited to gratify our desire, and thus minister to our happiness. The capacity to gratify desire, is, therefore, the first element that enters into our notion of wealth. But as 16 OF VALUE. the gratification of our desires, by means of an external object, almost always supposes s me change eflecteo in that object ; and, as we could have no right lo effect that change, unless that object were our own, another element, which enters into the notion of wealth, is tht idea of possession. Hence, wealth may be defined any object, having the power of gratifying human desire, which is capable oi being appropriated. He who pos- sesses many of these objects in abundance, is termed rich. He who possesses few of them, is termed poor. He who possesses a large amount of money, is also called rich ; because, with money^ he can generally procure whatever else of physical convenience he may desire. 3. Of value, intrinsic and exchangeable. The par- ticular quality in any substance, which renders it capable of gratifying human desire, is called its value. Thus, that quality of fuel, which constitutes its value, is its power of generating heat, or of gratifying this desire in man. A particular substance may have the power of gratifying either one or several desires, and thus it may have either one or several values: Thus anthracite coal is at present known to have but one value, namely, that of generating heat. Bituminous coal possesses also an- other, as it is also used in the manufacture of gas for the purposes of illumination. Wood has several values, nasmuch as, besides being used for fuel, it may also be used for building, and for various purposes in the aits. Iron has as many forms of value, as there are uses to which it may be applied, in promoting the convenience of man The degree of the intrinsic value of any substance, depends upon the nature and the number of the desires which it can gratify. If the gratification of that desiie to which it is subservient, be necessary to the existence or to the comfort of man, its value will be great. Such is the case with air, water, clothing, food, and fuel. If the gratification which it affords can be easily dispensed with, its value will be small. Such is the case with ar- Mcles of luxury, or the means of mere amusement- OF VALUE. 17 The inferiority of the value of this latte/ class, is evi- dent from the fact, that, in seasons of scarcity, these are first relinquished. And again, the degree of the value of any substance, depends upon the number of desires uhich it can gratify. India Rubber, or Caoutchouc, a few years since, was used but for one purpose, that of rubbing out pencil marks It is now used in the manu- facture of shoes, and for several other very important purposes. The intensity of its value is, therefore, greatly increased. We have thus far treated only of intrinsic value, or of the power which any particular substance possesses, of gratifying human desire. If, however, we examine the various articles of value around us, we shall observe a very remarkable difference between them. Some of them may be made the means of procuring for us, by exchange, other objects of desire. Such, for instance, are gold, silver, iron, coal, wood, &c. He who possesses a large quantity of either of these, may, ordinarily., procure for himself, by exchange, any thing else that he needs. Others, on the contrary, and those of great intrinsic value, are destitute of this prop- erty. What has greater intrinsic value than air, the light of the sun, or water ? Yet we can get nothing in exchange for air or sun-light, and very rarely for water. And again ; substances having an exchangeable value, do not possess that value, in proportion to their intrinsic value. Iron has a far greater intrinsic value than gold ; yet, an ounce of gold has a far greater exchangeable value than an ounce of iron ; that is, an ounce of gold will procure for us many more articles of convenience, in exchange. This latter property, or the power of pro- curing for us something else in exchange, is called ex- changeable value. If, now, we compare those substances which hav not, with those which have exchangeable value, we shall fi.id them to differ in the following respects r 1. Those which have no exchangeable value, are uvery where abundant and inexhaustible. The supply of the others is limited in quantity or is limited in place. 18 OF KXCHANGKABLE VALUK. Air, and the light of the sun, are inexhaustible e\ n vy where. Coalis in some places inexhaustible, but it is not so in others. Where it lies, for miles together, im- mediately upon the surface, and in beds of unknown thickness, it has no exchangeable value. Where it must be carried to any distance, to be brought to the consumer, it then acquires an exchangeable value. 2. The value of the first class of substances has 10- teived no addition from human labor, but derives what- ever qualities it possesses, directly from the gift of God. The value of the other, has always received some addi- tion, and, frequently, it is derived altogether from human labor. Neither air, nor the light of the sun, can receive any additional power of gratifying human desire, from any effort of man. On the contrary, all the most im- portant values of iron, are derived from human skill. A lump of iron ore is as valueless as granite or sand- stone. The peculiar properties of the metal, are the result of the processes through which it passes. When, however, a substance which ordinarily possesses only intrinsic value, is placed under such circumstances that human labor must be added to it in order to enable it to gratify desire, it then acquires exchangeable valno. Thus water, which ordinarily, has no exchangeable value, is frequently sold by the gallon in cities, because, it can be procured in purity oaly from a distance, ami hence, before it can gratify the desire of particular indi- viduals, it requires the labor of transportation to be added to it. "\Ye see, then, that every substance on earth ma) have, and, doubtless, it actually has, intrinsic value. If we then consider all those qualities which are necessary to prepare a substance for the gratification of human desire to be intrinsic values, these may be divided into two kinds ; first, those which are imparted to the sub- stance by the immediate act of God ; and, secondly, those that are imparted to it through the intermediate agency of man. The former, being the gift of God, are gratuitously received, and gratuitously parted with. The latter have cost human labor, and therefore cannot OF EXCHANGEABLE VALUE. 19 be obtained without an equivalent. Hence it is the latter alone, that enter into computation, in fixing ex- changeable value. Thus the exchangeable value of iron and of gold, respectively, does not depend upon the uses' to which these metals may be put, but upon the labor which, must be employed in preparing them to gratify desire. But it is plain, that if a man expend labor in the creation of a value, this labor gives him a right to the exclusive possession of that value ; that is, supposing the original elements belonged to no one else. Now, as almost all the qualities which gratify human desire, can exist only by the exertion of this labor, it follows, that all such objects must have already become the exclu- sive possession of some human being. Hence, he who wishes to possess such objects, must either himself ex- pend the labor necessary for producing them, or else he must procure them by voluntary concession, from some one who has already expended it. But he who has ex- pended labor upon a substance, will never voluntarily surrender it up, either for nothing, or for that which he can obtain without labor. He who makes knives, will neither give them away, nor exchange them for air, or water, or sun-light. Hence, he who wants knives must either make them himself, or else he must offer the knife-maker, in exchange for them, some value which ho himself has created. Hence, every man who desires the means of happiness, must labor to obtain them. And, as every man has his preference for some particu- lar kind of labor ; and as, moreover, every man can succeed better by confining his labor to one thing, than by devoting it to twenty things, every man is desirous of exchanging some portion of the value created ly himself, for that created by others. So soon as this is the case with any one substance, it then has acquired exchangeable value : that is, just so soon as other men are willing to give me a value which they have cheated, for that which I have created, then the result of my la- bor has exchangeable value, and not before. The degree of the exchangeable value of any OMP 20 OF EXCHANGEABLE VALUE. substance, depends chiefly upon the amount of labor and of skill necessary to create that value. No one would exchange what has cost him two days' labor, for that which has cost another man of the same skill, but one day's labor ; because, rather than make such an ex- change, he would create this second value for himself. Thus, if a hundred pounds of fish could be procured by a day's labor, and only twenty-five pounds of venison , men would exchange, not pound for pound, but labor for labor : that is, at the rate of four pounds of fish for one pound of venison. The amount of labor expended in the creation of a value, is commonly denominated its cost. This is always the standard by which, for long periods, the degree of exchangeable value may be esti- mated. When, however, we here speak of labor, we speak of it as simple labor ; that is, without taking into con- sideration the degree of skill which may be combined with it, or the other circumstances which may conspire to create variation in its value. These are to be con- sidered hereafter. We suppose, in the remarks above, that, in all cases, labor of the same kind is to be com- pared together. I have said above, that cost forms the standard by which the degree of exchangeable value for long periods is to be estimated. Temporary circumstances may cre- ate a variation from this standard ; and may, for a short time, elevate this value above, or depress it below, the cost. These, however, can continue to operate but for a shoit period ; the tendency of exchangeable value is always to gravitate towards cost. The causes of lliia variation, we will now briefly illustrate : 1 . Suppose, that by the use of better tools, or from any other cause, the supply of fish became more abun- dant, so that a man could, by one day's labor, procure two hundred instead of one hundred pounds. The hunter would not then be willing to exchange as before, since he would now rather catch fish for himself. He would demand eight pounds of fish for one pound of veni- son : that is, the exchangeable value of fish would fall ; or. OF EXCHANGEABLE VALUE. 21 in other words, it could not procure as much venison in exchange as it did before. But as, in consequence of this reduction in price, there would be an increased de mand for fish , that is, more persons would want it, and they would also want a larger quantity than before, the fisherman would not be obliged to exchange at half the former rate, but would be able to exchange at a rate somewhat above it ; say, perhaps, six or seven pounds for a pound of venison. Thus, both parties would be gainers. The fisherman would procure more venison ; the hunter more fish, by a day's labor. Thus, a benefit to one, is a benefit to all. And thus we see, that, other things being equal, the greater the supply of any article, the less is its exchangeable value ; that is, the less amount of other things, can it procure in exchange. 2. Supposing the labor necessary for taking fish to be doubled ; so that, by the labor of a day, no more than fifty pounds could be procured. The fisherman, then, would not sell, as at first, four pounds of fish for one pound of venison ; he would rather hunt venison for himself. He would offer but two pounds of fish for a pound of venison. But as, at this rate, the number of his customers would be greatly diminished ; and a? every person would use less fish than before, he would find it difficult thus to dispose of the results of his labor, and would be obliged to offer it on more favorable terms say two and a half, or three pounds, for a pound of veni son ; thus, with a day's labor, he would procure les- venison, and the hunter less fish. That is, the evi would be shared between them ; and thus, an injury t< one, is an injury to all. Thus, other things being equal jllie less the supply, the greater is the exchangeabl- value. 3. Suppose the labor necessary for procuring fish remain the same, but that, from some cause, twice us many persons desired fish as before. Suppose thai every person desired five pounds, but that there was only enough to supply half the population with this quantity. Then there would arise a competition among 'be buyers, and he who obtained this quantity must oh- 22 OF EXCH V\GEABLE VALUE. til in it by overbidding his neignoor. Thus, fish would command a larger amount of venison in exchange than before ; that is, the exchangeable value of fish would ri=o, and it would continue at this point, until the demand decreased, or, until a sufficient number of men devoted themselves to fishing, to furnish enough to reduce it to its mean exchangeable value. Thus, the greater the demand, the greater the exchangeable value. 4. Suppose, that, while the labor of taking fish con- tinued as before, the number of purchasers was from any cause diminished, so that, while there was fish enough caught to supply every person with five pounds, only half the population wanted any. In this case, as a large residue would, at the close of every day, be left on the fisherman's hands, there would be a competition among the sellers ; and each one would be desirous of disposing of his stock at a diminished price, rather than lose it altogether. Hence, he would offer to exchange it for a less amount of venison than before ; that is, the exchangeable value of fish would fall. It would remain at this point, until either the demand arose to its natural rate ; or a sufficient number of persons turned their at- tention to some other occupation, to reduce the supply to a level with the demand. That is, the supply being the same, the less the demand, the less the exchangeable value It is the operation of these principles that keeps the supply of any article throughout the world always equal to the demand ; and, it is surprising to observe, with what accuracy this effect is produced. In the largest cities, there is always just enough butcher's meat and vegetables, and clothing, to supply the wants of the in- habitants, and no more. The moment the price of an article falls below cost, it ceases to be produced, unlil the price rises. As soon as it rises above ordinary profit, capital and labor are directed to it, and it is pro- duced in sufficient quantity to meet the unusual demand. Thus, also, we see why the high price of any article ia commonly followed by a low price of the same article, and the contrary. When the price of any article is OF EXCHANGEABLE VALUE. 23 low, men leave off this kind of production u too great numbers, and hence follows a comparative scarcity of the product which they furnish. When the price is high, men rush, in too great numbers, into this sort of production, and hence arises a temporary glut, arid a depreciation of its exchangeable value. Again : it will be seen that this variation in the ex- changeable value of any article, is dependent greatly on its perishableness. An article which is not liable to be destroyed by keeping, will neither fall so rapidly, nor so low, by either a diminution of demand, or an increase of supply, as one which is, in its nature, rapidly perish- able. Thus, iron may be kept for years, without decay ; and hence, its exchangeable value cannot greatly vary, in consequence of increase of supply or decrease of de- mand : that is, it is an article not liable to great or sud- den fluctuation. On the contrary, fish, fruits, and ar- ticles of this nature, very often, in the course of a few days, vary one or two hundred per cent. Another source of variation in the exchangeable value of products, is the time necessary for their production. When any amount of a commodity may be quickly pro- duced, its rise of price will not keep pace with the in- creased demand ; because, every one will know that, by waiting, he can be provided with it at a reasonable price. Thus, a small rise of price in a manufactured article, when the material is abundant, will cause the quantity produced to be greatly increased ; hence, the rise is never excessive. But when a long time is necessary for the production of an article, and it is an article of prime necessity, the rise of price is frequently great. And again : It will be seen, that, so far as the seller and the buyer are concerned, these variations balance nacli other. When products rise on the merchant's hands, he charges an additional price ; when they fall, he is obliged, frequently, to sell at a reduced profit, ot tsven to sell below cost. The gain, in one case, makes up for the loss in the oilier. Hence, as no one sympa- thizes with the merchant, when he sells at a loss, no one ahould complain, when he sells, for a short time, at more than an ordinary gain- 24 OF EXCHANGEABLE VALUE. If, now, we sum up what has been said, we shall come to the following general conclusions : 1. Cost; that is, labor bestowed, is the foundation of exchangeable value, and from this, it can never, for long periods, materially vary : that is, an article can al- ways be had for what it costs to produce it ; including in this, the ordinary profit to the. producer. Notwith- standing this, there will, however, arise various fluctua- tions, depending upon the following circumstances : Other things, then, being equal 2. The greater the supply, the less the exchangeable value. 3. The less the supply, the greater the exchange- able value. 4. The greater the demand, the greater the ex- changeable value. 5. The less the demand, the less the exchangeable value. 6. And, in general, cost being fixed, exchangeabli value is inversely as the supply, and directly as the de mand. 7. Or, still more generally, at any particular time exchangeable value will be as the eost, plus the effee produced by the variation in supply and demand. Hence, wealth consists of all objects which have a. exchangeable value. Exchangeable value is slightly distinguishable fron price. The first, is the power which any object pos- sesses of procuring for us any object whatever. Th* second, price, is the power that it has to procure for u one particular object ; that is, money. Of Production. From what has been said, it is ea s ) to explain ihe nature of Production. It is the act b) which we confer a particular value upon any cbjeci whatever, or by which we give to any object its adapt- edness to gratify desire. We can neither create noi annihilate any thing. All that we can do, is, to modify what already exists. When we so modify any thing that it is capable of gratifying a desire which before M was not capable of gratifying, our so doing is called pro duction OF PRODUCE EXCHANGE. 25 The modifications which objects need, in order to render them capable of gratifying desire, are various. Sometimes the elements of the substance, sometimes its form, and sometimes its place, require be to changed. Whenever human industry accomplishes any of these results, it is called production ; the person who exerts this agency is called a producer and the substance itself, on which this agency is exerted, is called a prod- uct. In some cases, we find the substance, as, for instance, ore in the mine, or stone in the quarry, in its natural state ; in others, we receive it from those who have im- parted to it one value, and we add to it another. The material which, in either case, we obtain for the purpose of combining it with our own industry, and forming it into a product, is called capital ; and, after the labor has been exerted, and the value created, it is called a prod- vet. Thus, the same article may be product to one, and capital to another. Leather is the product of the currier, and the capital of the shoemaker. The term capital is not merely applied to the material on which industry is to be exerted, but also to all the instruments by which human industry is assisted ; as well as to whatever is necessary to the support of that industry. Of Exchange. I have said, above, that the mode of every man's industry is decided by his individual tastes and circumstances. It is commonly, however, confined to the creation of one kind of product, inasmuch as it is thus vastly more available. His desires, on the other Land, are as innumerable as the objects created to gratify them. He creates but one value and he wants a thou- sand. Hence, he can be gratified by means of no less than nine hundred and ninety-nine exchanges. He thus parts with various portions of the value which he has created, for the sake of obtaining the vabes which others have created. Hence the necessity of universal and ceaseless exchange. Hence also the reason why so large a portion of mankind devote themselves to the business of effecting exchanges. Those who do so. are 3 26 DISTRIBUTION CONSUMPTION called merchants. Those who are employed in the transportation oT wares or merchandise by sea or by land, are also engaged in effecting the same object. Of Distribution. In even the very first stages of society, it is found that the productive result of human power is greatly increased by union of effort and division of labor. Ten men, laboring together, can accomplish much more than ten men laboring separately. Specially is this the case where the various parts of a process are divided, and each one performs that part for which he is best adapted. And, as capital accumulates, it is com- monly the case, that one who owns the capital, unites in ; production with another or others, who perform the labor. When the product is realized, and the gains are to be divided, some equitable law is to be adopted, in the dis- tribution. Different laborers are entitled to dissimilar wages : and there are just proportions to be observed between the wages of labor and the wages of capital. The principles of this adjustment are treated of, by Political Economists, under the head of Distribution. Of Consumption. Suppose, now, the value to be created, and brought within the reach of him who desires it ; he uses it, and, in the very act of use, its value is destroyed. We exchange labor, or money, or wheat, for fuel ; we use the fuel in our fire places, and its value is destroyed. We purchase bread ; we eat it, and its value ceases forever. A baker purchases flour, and makes it into bread ; the flour ceases to be flour : its value, in this respect, is gone forever. This act, by which we annihilate any particular value, is called con- sumption. It is exactly the opposite to production. Sometimes the utility is destroyed, with no other lesull ihan merely the gratification of desire. Such is the case with fire- works, shows, and amusements of almost every sort. At other times, the value or utility is destroyed ; but it re-appears, in another and much more valuable form. Thus, a side of sole leather is cut up into soles, for shoes: its value, as a side of sole leather, is destroyed forever ; but its value re-appears, in another form, and with an increased exchangeable value. The food which DIVISION OF SUBJECT . 27 we eat, disappears; but its value re-appears, in re-animated health and vigor, by which we are prepared for subse- quent labor. The former is termed unproductive, the latter, productive consumption. The whole si bject of Polit-cal Economy, may be therefore divided into four parts. The First Part treats of PRODUCTION, or the laws which govern the application of labor to capital in the creation of value. The Second, or EXCHANGE, treats of the principles which govern men, when they wish, by means of their own labor, to avail themselves of the labor of others. The Third, or DISTRIBUTION, treats of the laws by which those who have united in the creation of a prod- uct, receive, respectively, their portion of the result. The Fourth, or CONSUMPTION, treats of the laws which should govern us in the destruction of value. Each of these subjects will be treated of, in the above order, in the following work. BOOK FIRST. PRODUCTION. IT is obvious that when man was first created, there existed nothing but this earth, with its various substances, their qualities and relations ; and man, with his various physical, intellectual, and moral powers. The difference between the present state of man and of the universe around him, and the original state, consists in this : that the qualities and relations of things have now been dis- covered, and rendered available to the service of man ; and the intellect of man has been cultivated, and his skill improved, so that he is able, more successfully, to avail himself of these qualities and relations. And it is also obvious, that this change in the external world has been produced by the physical and intellectual faculties of man ; that is, by human industry. The whole wealth of the world has been created by the union of human industry with the materials which God had originally spread around us. Hence, all that is necessary to the creation of wealth, is capital and industry. But, it is also obvious, that the application of industry to the ma- terials around us, that is, to capital, has not been at all limes either equally strenuous, or equally successful. 'I here must, therefore, exist some rules, by which this application of industry to capital is governed, and some conditions under which it is more successfully exerted, than under others. The subject of Production is, therefore, naturally di- vided into three parts. 1st. Capital. 2d. Industry 3d. The principles by which the application of industry to capital is governed. CHAPTER FIRST. OP CAPITAL. FIRST. The nature cf Capital. The word is used in two senses. When used in relation to product, it means any sub- stance on which industry is to be exerted. Aftei that industry has been exerted, it then becomes product. Thus, leather is the capital of the shoemaker, and shoes are his product. When used in relation to industry, however, it has a much wider signification. It then signifies the material on which industry is about to confer value, that on which it has conferred value, and the instruments which are used for the conferring of value, as well as the means of sustenance, by which the being is supported whilst he is engaged in performing the operation. The capital of an individual, if it be examined, will be found to be composed of all these. Thus, also, the capital of a nation is composed of raw material, of articles ready to be -consumed, of buildings, ships, manufactories, and also of the various substances, by which human life is prolonged and rendered desirable. SECOND. The forms of Capital. Hence it must be seen that the forms of capital must be as various as the various employments of man. 1. The .Fat ner possesses seed, manure, breeding animals, &c. The ^Manufacturer possesses cotton, wool, flax, iron, leather, wood, and, in general, all the material on which, according to his particular calling, he desires to exerl his industry. The Merchant possesses sugar, tea, coffee, iron, &c. or the various substances to which, by transportation, he has added, or to which he intends to add, value. CHANGES OF CAPITAL. 31 %. But, in order to effect this intended creation of value, it is found that intermediate agents must, in all these cases, be employed. A farmer could not reap with his fingers, nor a miner dig with his hands, nor a manufacturer labo: without tools. All these instruments, the use of which is necessary to the creation of value, ate, therefore, also termed capital. Thus, the ploughs, harrows, spades, carts, and work- ing animals of the farmer, are a part of his capital. To the same class also, perhaps, belongs his land. The axes, planes, hammers, of the mechanic, and the buildings and machinery of the manufacturer, are theii capital. under this division of capital may also be included the ship of the merchant, the wagon of the teamster, and the railroad and locomotive of the proprietor. 3. But, besides all this, these several persons must be fed and clothed, whilst they are exerting the indus- try by which value is given to these various products. Hence, under the head of Capital, must be comprehended all the various kind-; of food, the clothing, and houses, which are necessary, in order to give sustenance to a human being. These are generally the same, in all kinds of indurtry. 4. And, lastly, every individual, in each of these departments of human industry, will retain some portion of the product which he has created, but which he is ready to part with for something else. The farmer has" (rrain, which he has raised ; the manufacturer, cloth, which he has fabricated ; the merchant, commodities, which he has imported or bought for sale. These form another item of capital. THIRD. Of the changes which Capital undergoes,. From what has been already said, it is evident, that capital derives its value from labor, and that the effect of labor exerted, is to produce some change in it Hence, capital, in every industrious country, must be always undergoing changes ; and hence, also, it fre- quentlv re-appears, in forms very different from those in which it at first existed. The form, however, is of no 32 CHANGES 01 CAPITAL. consequence, if a superior value be the result. Political Economy, unmindful of the form, looks only at an aug- mentation, either of the amount, or of the degree of value. 1. The material undergoes changes. The seed and manures of the farmer are changed into vegetables, and these again into the grain of the harvest. The cotton and wool of the manufacturer are changed into the fabrics which he produces. The wood and nails of the carpenter are changed into houses. The commodities of the merchant undergo changes. He exports cotton, rice, wheat, or manufactures ; and imports calicoes, silks, wine, hardware, &c. 2. The instruments, or machinery, employed by these several classes of persons, undergo changes. These several instruments, in the course of production, are gradually destroyed, or consumed. The plough and cart, and animals of the farmer, the tools of the me- chanic, the machinery of the manufacturer, and the ships and vehicles of the merchant, are worn out and rendered worthless. But if they have been profitably used, they have re-appeared, in the increased value, which they have conferred upon the various objects upon which they have been employed. 3. The various kinds of food, clothing, and shelter, necessary for the existence and comfort of the human being, are also changed. They are consumed, from time to time, and their value re-appears, in that new vigor imparted to his body and mind, which forms a fresh capital, to be employed again in the work of pro- duction. 4. And lastly: The mature product of every laborer is constantly changing. As soon as he has created a product, he is anxious to dispose of it to some one else $ that he may invest its increased value in some other ma- terial which he may again, with increased advantage, unite with industry. As soon as the farmer has raised rain or fat cattle, he wishes to dispose of them, that he may inve c ( their value again in seed, or manure, or agn- INCREASE OF CAPITAL. 33 Cultural improvements. As soon as the manufacture! has finished his fabric, he exchanges it for the means of subsistence, materials, or machinery ; and so of the merchant, and of every other* laborer. We see, then, that capital is undergoing perpetual changes, and that the course of these changes is con- stantly from a state of less, to a state of greater value ; that is from a state more remotely adapted to the grati- fication of human desire, to a state less remotely adapted to it ; and that so soon as it has become precisely adapted to this gratification, its change ceases, and it is consumed in some mode or other. And if it be profit- ably consumed it again re-appears in some 'form adapted to create a further increase of the means of enjoyment. And hence we see, that, that country is the most pros- perous which is the most rapidly accumulating, by the results of its labor, the greatest amount of these ultimate products, in proportion to the number of its inhabitants. The greater the share of these products which falls to the lot of each individual, the greater are. the means of physical happiness in his possession. .FOURTH. The increase of Capital. In all these changes which we have considered, it is always to be remarked, that there is, in the very act of change, a destruction of value. He who .changes iron into steel, consumes the iron, destroys that particular value and creates another in its place. He who sows wheat, de- stroys the value of that wheat, for food ; and he who spins cotton, destroys the value of cotton wool as ( otton wool. That is, neither of these substances can ever be used again for the purposes to which they were before adapted. If, however, the industry of the 'aborer have been skilfully directed, the product will have acquired an exchangeable value sufficient to replace the original material in additional quantity, and also to repay him foi bis labor, and pay the interest of his capital. The amount of difference between the exchangeable value of his original material, together with his labor, and the ex- changeable value of his product, is his profit. The annual amount of these profits, is his annual gross rev 34 INCREASE OF CAPITAL. cnue. The annual amount of these profits in a nation, is the gross national revenue. It is obvious, that it matters not in what form capita) re-appears, if it only re-appear in a form bearing a great- er exchangeable value. The smith exchanges geld or silver for coal ; he burns up his coal, and nothing is loft but ashes. But it has produced an invisible substance, called caloric, by means of which he has been able to give such an increased value to iron, as will not only re- place his gold and silver, but also the iron itself, and will also pay him for his labor. The farmer exchanges his gold or silver for manure, but this manure will so increase his harvest, that he will be able to replace his gold and silver, and also be abundantly repaid for his labor. The principle is the same, in all cases of change of capital, it matters not into what we change our capital, nor how valuable the substance may be that is exchanged, if we only receive, in return, a greater amount of exchange- able value, or that which will procure for us a greater amount of objects of desire. We see, hence, in what manner nations and individu- als grow rich. It is by uniting the industry of this year to the capital of last year, and by this process, creating an augmentation of capital. This augmentation will be either greater or less, jn proportion as our industry has been successful in giving additional value to that value which previously existed. If we destroy a value, and produce another only equal to it, we lose our labor. If we destroy a value, and re-produce nothing, we lose both labor and capital. It is only as the value created is superior to the value of labor and capital consumed, that we are enriched. Hence we see, that wealth is acquired by small, but oft repeated accumulations. The gross amount of these accumulations will be decided by our skill and industry. But, as from this amount our vaiious expenditures must be subtracted, our nett reve- nue will depend not only on our skill and industry, but also on our frugality. Though a man earn much, yet, if he spend all, he will grow no richer. Hence, industry and frugality are the great sources of wealth OF PRODUCTIVE ASD UNPRODUCTIVE CAPITAL. .35 Xor is this the less true of nations. Hence it is, thai wars, unnecessarily expensive governments, or high tax- es for whatever purpose, may keep the most enterprising and industrious nation always poor. FIFTH. Of Productive and Unproductive Capital. Productive capital is that, which, being in any man ner united with industry, is in the process of augmenta- tion. Unproductive capital is that, which, not beins united with industry, remains, at the end of the year, just the same as it was at the beginning. Money al interest, capital undergoing the various transformations effected by industry, tilled land, and manufactories in operation, are productive capital. Money lying in cof- fers, materials unsaleable, manufactories unoccupied, and land lying waste, are unproductive capital. When capital is unproductive, it may be considered as losing for us, annually, its ordinary rate of interest ; because it must have been purchased with that which would have yielded that interest. Hence it is, that every sound economist is anxious to have the whole of his capital productively invested. He who acts other- wise, is ignorant of the principles of production, indo- lent, or slovenly. The farmer who allows a heap of manure to lie in his farm yard for a year, instead of spreading it on his land ; the merchant who allows his ships to lie idle, or his goods to be scattered, unsold, over several warehouses ; or the manufacturer who owns twice as much machinery as he is able to employ, are annually losing all the accumulation which this capital, properly invested, would produce. And still more, as we have seen that all gains arise from small and suc- cessive accumulations, and as almost every produci U liable to waste, it is manifest that habitual negligence of this sort must greatly diminish, if it do not entirely consume, all the nett revenue of an establishment. The effort of every man should be, to unite every fraction of his capital with industry, and to keep it so united, con- tinually. Any gain, even the smallest, is better than no ii:ii:i at all. From what has been said, it is evident that the pro- 36 OF FIXED AND CIRCULATING CAPITAL. cess of accumulation, in all branches of production, is the same. Tt will also appear, that where capital is free, that is, where there are no restrictions upon the use of it, there can be no great permanent difference in the rate of accumulation, between the different modes in which it is employed. If the profits of one kind of business are above the average rate, other capital will flow into that channel. If the profit in any branch of production be below the ordinary rate, capital will be withdrawn from it. If commerce be unusually lucrative, men will leave other pursuits, and devote themselves to commerce, until, by competition, they reduce the profits to the ordinary rate. If commerce be depressed, men will leave it, until, by the reduction of the supply of commercial facilities, the rate of 'profit is increased. Rates of profit cannot be rendered permanently unequal in any other manner, than by oppressive legislation. The differences in profit, in the various departments of industry, are, therefore, more apparent than real. When profit is sure, it is of course less than when it is uncer- tain. But, how much soever individual cases may differ, it will be found that the average is, for long periods, very nearly equal. SIXTH. Of Fixed and Circulating Capital. The capital from which the owner derives profit only by exchanging its form or place, is circulating capital. Thus, the wares of the merchant, the products of the manufacturer, the harvest of the farmer, are circu- lating capital. On the other hand, the instruments which each of these producers uses, in performing his various operations, are fixed capital. Such are the ships and warehouses of the one, the machines and buildings of the other, and the tools and land of the third. Circulating capital is, in general, that which is already prepared for the gratification of human desire, or that which is in a course of preparation for this state. Fixed capital, in general, consists of the instruments, or fix- tures, which, in some form or other, assist us in accom- plishing this result. Tools, machinery, houses, ships, OF FIXED AND CIRCULATING CAPITAL 3? roads, canals, and improvements on farms, &c., arc fixed capital. Circulating capital is in general rapidly consumed. It is commonly an annual product, and sub- ject to an annual consumption. Fixed capital is not an annual product, and may last for a year, a lifetime, or indefinitely. It is, however, still liable to gradual decay, which decay must be replaced, or else the possessor would find himself growing poorer, inasmuch as these tools and machinery are the means by which his labor s rendered productive. The amount of fixed capital employed in somo branches of industry, is much greater than that in others. iSorne mechanical trades require no more fixed capita! than a cheap set of tools. Others, as large manufacturing establishments, require a large fixed investment. In pro- portion to the amount which must be thus employed, will be the amount of accumulated property necessary to be possessed by him who wishes to employ himself in that particular department of industry. Sometimes, by far the greater part of the investment is fixed capital, and it is also very great in amount. In this case, it is fre- quently apportioned" among individuals, who each sub- scribe and pay a part of the cost. Such is the case with railroads, canals, and works of public improvement generally. There is an obvious tendency in the nature of things, to convert circulating, into fixed capital. As circulating capital is annually consumed, it must be annually re- placed, or mankind, after the first year, would all perish It is replaced by the annual productions of the earth, either vegetable, animal, or mineral. But, if the indus- try of man has been successfully exerted, the amount of annual production will be sufficient, not only to supply iho ordinary wants of the producers, and to repair the waste and wear of fixed capital, but also to leave a sur- plus unappropriated. Now, as this kind of capital is annual, and as it is also perishable, if it be not used in some way, this" surplus must be a total loss. If it be appropriated to the multiplication of annual capital, it will only increase that surplus, which is already too 38 OF FIXED AND CIRCULATING CAPITAL. 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, artisans, and those persons who employ themselves in the manu facture of thosp 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 tn diminish the amount of circulating capital. Such would be the result, were it not for the fact, that the very ob- ject of fixed capital, is to enable us to create circulating capital, with a less amount of labor. A society, in which a part of the members are devoted to the making of useful machines, will create a greater amount of an- nual products, than one in which all are devoted exclu- sively to the creation of annual products. Thus, in a short time, the annual surplus is greater than before, and a greater number of persons is employed in creating fixed capital, and that kind of fixed capital, which in- volves, in its creation, a greater amount of expense. ft is thus that a society, age after age 4 grows rich, and each successive race of men leaves the world better provided with the means of production, than it found it. This may all be illustrated, by a few very familiar in- stances. A savage, who obtains peltry by his bow and arrows, having provided for the food and clothing of his family, will, if he be industrious, possess a surplus which must now be useless to him. He would naturally ex- change his surplus for a rifle ; a kind of fixed capital, by means of which, his circulating capital would be greatly increased. This increase of capital would en- able him, besides procuring better clothes and more nu morous conveniences, to add to his fixed capital by pur- chasing a horse, or a plough, or by erecting a house. These, in their turn, would augment his circulating capi- tal ; and thus, with every year, his fixed and circulating capital would- steadily increase. Hencej very soon, there would arise a demand for the services of men who employed themselves in creating fixed, instead of circu- lating capital. That is, mechanical arts would be prac- OF FIXED AND CIRCULATING CAPITAL. 39 tised : and the artisans would be, as we find that hi such a state of society they always are, exorbitantly paid for their labor. Again : Suppose a farmer to enter upon new and un- tfHeff land. His first care is to produce the necessities of life$ for himself and his family. When this is ac- complished, he appropriates a part of his labor to the 1 creation of fixed, instead of annual capital : that is, he erects fences, purchases with his produce carts and ani- mal, builds barns and outhouses, and thus renders his farm a much more productive instrument than before. With his increasing surplus he purchases additional land, if he needs it, and brings it all into such a state of culti- vation as he thinks desirable. By all these means, his annual surolus is rendered greater, and he is enabled to extend the amount of his fixed capital, by building a better house, purchasing better ploughs, harrows, carts, and various machines by which his future labor will be rendered more productive. But we see that this could not be done by the farmers of a neighborhood, unless some portion of them abandoned farming, and devoted themselves to the creation of fixed capital. There would, therefore, arise a great demand for mechanical labor. And as there would hence arise the necessity for a great number of exchanges, some portion of the society must devote themselves to effecting them ; that is, must become merchants. In this manner, circulating capital first gives rise to fixed capital, and fixed capital increases again the amount of circulating capital ; and thus they go on, year after year, mutually augmenting each other. Thus also the merchant, whose business it is to aug ment the exchangeable value of a given amount of cir culating capital by transportation and exchange* pro duces, by his operations, an annual surplus. This he adds to his former capital, for a while, but soon pur- chases fixed capita], such as ships, &c., to facilitate his operations. When he has enough of these, and as large an amount of circulating capital as he wishes to employ, he tlien begins to invest his surplus either in some pei- 40 OF FIXED AND CIRCULATING CAPITAL. manenl works of public improvement, as bridges, roads, canals, or in something, which, besides facilitating the productiveness of the society, will also yield him a rev- enue, or else he employs it in manufactures, according, to the condition of the country, and its natural demanas* and facilities. From what has been remarked above, we may easily see the natural course which a nation takes, in the pro- gressive accumulation of wealth. Its first production* are, circulating, or annual capital ; the products of the field, of the forest, or of the ocean. Next follow im- provement in permanent conveniences, and the construc- tion of instruments for agricultural production ; then the exchange of its own products for other circulating capi- tal, or for the annual necessaries of life ; and then the exchange for fixed capital of the most necessary kind. Thus, the Dutch, on their first settlement in this coun- try, used to import their bricks from Holland. Com- merce being thus commenced with an older country, the colonists soon engage in it themselves, and invest a large portion of their annual surplus in ships. Before manu- factures had commenced in this country, previously to the Revolution, the commerce of the colonies had be- come already extensive. All these changes prepare the way for the investment of capital in manufactures, which, in their proper and natural time, must be established ; and when that time arrives, they mil be established, without the aid of legislative enactment, and according to the very laws by which accumulation is governed. From what has been remarked, we also see that the advantages which we enjoy over savage nations result, principally, from the possession of a greater amount of fixed capital ; or, in other words, the permanent results of pre-exerted industry. That advantage consists in this, that this capital, besides affording to its owners the ordinary rate of profit, enables men to produce at a much cheaper rate ; that is, at a less expense of labor. Thus, a cotton factory, besides affording a fair profit to the owner, enables him to do, by one hour's labor, what would otherwise require the labor of days or of weeks OF MONEY. 41 By all this difference, therefore, we have the advantage over savages, or over those who went before us. Hence, a nation, which does, not possess the results of pre- exerted industry, must be poor, unless its natural ad- vantages enable it to avail itself of those of othei countries.* Hence, we also see the reason why the traffic between savage and civilized nations is so greatly in favor of the latter. The latter are enabled to offer in barter thai which is of inestimable value to the savage, but which the civilized man can produce with a very small portion of labor. An axe would cost a savage the labor of weeks or of months, while a smith in New England would make it in a few hours. Hence, it is not wonder- ful that the one should be willing to give for it vastly moie than it costs the other. And, on the other hand, the commodities of the savage are of very little value to Aim, but of high value to the mechanic or artisan. Hence, the gain to him also is great. An Indian who exchanges peltry, which is worth in New York fifty or one hundred dollars, for a rifle, powder, and bullets, has improved his condition, by means of the purchase, really more than the gunsmith, who has made so exor- bitant a profit. SEVENTH. Of Money. It will be observed that, thus far, I have not mentioned money as an item of cap- ital. Although this is not the place in which to treat of die functions of money, yet it may be proper here to add a single remark concerning it. Money forms but a very small part of the capital of any country. Every one may easily judge of this, from his own observation. How very small a portion of any one's possessions is in money. And if^his be true of every individual separately, it must be true of all the in- dividuals collectively. * Or, in other words, as it is well expressed by Mr. Carey, in his lat? work on this subject ; the quality as well as the quantity of labor, enters into the account, whenever we speak of the exchangeable ralue of the products which it has created. The quality of labor i.i always in proportion to the amount of pre-exertcJ industry with which it operates. 4* 42 OF The sole use of money, is to facilitate exchanges. It is an instrument for the saving of labor, and for the performing of labor with greater accuracy. Of this, any one may convince himself in a moment, if he will imagine two cases, in the one of which he was obliged to make several exchanges without money, and the other in which he could make them with it. Money gains nothing by exchange, but rather loses in value, like every other machinery which is worn out while it accomplishes its object. Hence, h belongs to the class of fixed capital. It is subject to slow wear, which must be replaced out of the circulating capital of the country. And, hence, as any country may have a greater amount of any particular kind of fixed capital than it needs, as, for instance, of any particular kind of ma- chinery ; and as, when this is the case, it sends it abroad, or in other words, makes it an article of export, or changes it into circulating capital, so is it with money. If a country has more money than is sufficient to ac- complish its exchanges, it sends it abroad, and receives back something that it needs more. Such is, perma- nently, the case in mining countries ; and such is, at times, the condition of almost every commeicial nation. CHAPTER SECOND. OF INDUSTRY. . HAVING, in the previous chapter, explained the natuie aul changas of Capital, we now proceed to treat of Industry. In doing this, we shall consider : 1st. The different objects of Human Industry ; 2d. The forms of Human Industry ; and, 3d. The modes by which the productive power of Human Industry may be in- creased. PART I. THE OBJECTS AND FORMS OF HUMAN INDUSTRY. SECTION I. THE DIFFERENT OBJECTS OF HUMAN INDUSTRY. It has been seen, in the previous chapter, that the in- crease of capital ; that is, the means of physical happi- ness to man, can be effected only by producing change, of some kind, in capital. But it is evident that this change cannot be produced without labor, since no valu- able change is spontaneous. Hence, the great object of human industry is, to produce some valuable change in capital. Now, the changes, which may be produced in the substances of nature, may all be reduced to three ; change in the elementary /orro, change in the aggregate Jorm, and change in place. To effect one or the other of these, all valuable human labor is directed. I . Man may change the elementary form of matter. The farmer, by means of seed, manure, and cultivation, 44 THE OBJECTS OF HUMAN INDUSTRY. aided by the agencies of the sun and the earth, of rain, and the atmosphere, transforms the elementary forms of carbon, gases, and water, into wheat. ~ The chemist changes the elementary forms of acids and alkalies into salts. The dyei changes the elementary forms of iron and tannin into coloring matter ; and the case is the same with the various other forms of human occupa- tion. 2. Man may change the aggregate form of matter. The cabinet-maker changes the form of a board into that of a desk or a table ; the smith, a piece of iron into a horse-shoe or a nail ; the mason changes a pile of bricks and mortar into a wall ; the cotton spinner, a bale of cotton into thread ; the weaver, this thread into cloth. And, in general, the labor of mechanics and manufac- turers is employed in effecting changes in the aggregate forms of matter. 3. Man may change the place of matter. Thus, the shipmaster transports a cargo of cotton from New York to Liverpool, and brings back a cargo of cotton goods, of crockery, or of hardware. The teamster re- ceives a wagon load of merchandise in one town, and transports it to another. The owner of a canal boat receives manufactured goods in Albany, transports them to Buffalo, and brings back to Albany, in return, a freight of agricultural produce. The agent of a railroad receives a hundred boxes of merchandise in Manchestei, and transports them to Liverpool. And thus, also, a large number of the inhabitants of every populous town derive their subsistence, and frequently grow rich, sim- ply by transporting wares and merchandise from one part of the town to another. The/.e divisions, in general, correspond with the agii- cultural, mechanical, and commercial departments of hu- man industry. I have adopted a different terminology, because it seems to me to form a more generic and bet- ter limited division, and one more conformable to the facts in the case. 1. Concerning these divisions, it is proper to remark, llu t, though these are the varioi s objects of human in- THE OBJECTS OF HUMAN INDUSTRY. 43 dustry. yet it frequently happens that, he who labors in one, is also obliged to labor in one or both of the others Thus, the farmer who raises a crop, is obliged to trans- port the seed to the field, and frequently to transport his harvest to market. The cabinet-maker who manufac- tures a table, may transport his materials from the lunibei yard. The engineer, on the railroad, is obliged lo change the elementary form of wood, in order to produce ihe caloric, necessary to move his locomotive. We designate the class of laborers to which a man belongs, by the ultimate object which he has in view, in exercis- ing his profession. 2. Each one of these forms of industry is equally important in conferring intrinsic value upon substances ; that is, in giving them capacity to gratify human desire. Thus we see that the ore in the mine has no power to gratify desire, until it is made into iron or steel. The steel is valueless for the purpose of cutting, until it is transformed into a knife, an axe, or some cutting instru- ment ; and, if I want to make a pen in New York, a knife is utterly valueless to me for this purpose, while it remains in Sheffield or Liverpool. Unless these several values -are all conferred upon it, it would be of no ser- vice to me. 'Hence, in purchasing a knife, I pay for them all, and as willingly for one as the other. 3. Hence we see how incorrect is the notion some- limes advanced, that all wealth is the production of one or of two, and not of all these forms of human industry. All these changes must be effected in almost every arti- cle which we consume, and if either of them were to be suspended, our desires would not be gratified, and the other two must also be discontinued. He who trans- ports flour, performs an act of as essential importance to the sustentation of the human race, as he who raises wheat. He who brings a knife from Liverpool to me, performs a labor as important to me, as he who nt.-mii- factures the knife ; for, if it were three thousand miles off, it might, for all the purposes for which I want it, as well not be in existence. And yet more, if one of these Forms of labor should cease, the others must soon cease 46 THE OBJECTS OF HUMAN INDUSTRY. with it. Of what value would wheat or wool be to the farmer, if they could not be transported from his farm ? And again : what gain could be derived from either, if there were no means of grinding the one, or of manu- facturing the other ? Hence we see that all the forms of industry mutually support, and are supported by, each other ; and hence, also, we see that any jealousy be- tween different classes of producers, or any desire on the one part, to obtain special advantages over the other, are unwise, and, in the end, self-destructive. The fact is, that if left to themselves, they all flourish, and they all suffer together. Nor can either one be depressed, for any considerable period, without injuriously affecting both the others. These various forms of human industry enter, in different degrees, into the value of different articles of use. For instance, butchers' meat and green vegetables derive almost their whole value from the first kind of labor, as they require very little modification, and will bear but short transportation. On the contrary, salted provisions may derive a large portion of their value from change of place. Clothing, cutlery, and what are com- monly denominated manufactures, derive the greater portion of their value from change in fhe aggregate form. The original material constitutes, in general, but a small part of their price, and, not being of great bulk, their transportation is not very expensive. The steel that would make a pair of razors, and the cost of trans- porting them from Sheffield or Paris to New York, ' would form but a very small portion of their price. On the contrary, bulky articles, such as coal and iron, derive a very large portion of their cost from transpor- tation. Coal, that has scarcely any exchangeable value in the coal mines of Pennsylvania, is sold for eight or ten dollars a ton in Providence. And all the labor em- ployed upon it, is that which is necessary for breaking if in pieces, and removing it from its bed to the house of the consumer. As, however, the human race is scattered over the face of the globe, and as their wants in all latitudes are' THE OBJECTS OF HUMAN INDUMRY. 47 so nearly the same, while no country affords facilities for supplying more than a very small number of these wants, it is evident that the labor employed in change of place must, in civilized countries, be most universal, and must enter essentially into the greatest number jf com- modities. Of this every one will be convinced, who will take any article of dress, of furniture or of food, and consider the amount of transportation that has en- tered into its production ; and, specially, if he take into account the transportation which has entered into the formation of the instruments, by which it had been pro- duced. The same truth is also illustrated by the fact, that whole nations, with very small natural advantages, as Holland and Venice, have, in a short period, become immensely rich, merely by conferring change of place on the merchandise and productions used by other na- tions. Water communication, in the early stages of so- ciety, greatly diminishes the cost of transportation, and, of course, increases the facilities of exchange. It is on this account that the first settlements of nations are al- ways either on the shores of the ocean, or along the banks of navigable rivers. It may also be worthy of remark, that, thus far, in the progress of society, the ingenuity of man has been^ more successful in devising means for increasing the pro- ductiveness of labor in the second and third; than in the first kind of human industry. Improved agricultural utensils, a better knowledge of the nature of soils, and of the different kinds of grain and edible vegetables, and of manures have added considerably to the quantity of product that can be raised by a given amount of la- bor. But this increase bears no sort of proportion to that effected by the use of the machinery in the case of the cotton manufacturer, and by the use of the locomo- tive and many other forces. It is, doubtless, wisely ordered that it should be so. Agricultural labor is the most healthy employment, and is attended by the fewest temptations. It has, therefore, seemed to be the will of the Creator that a large portion of the human race Huvild always be thus employed, and that, wha'tever 48 THE OBJECTS OF HUMAN INDUSTRY. effects may result from social improvement, the propoi lion of men required for tilling the earth should never bo> essentially diminished. It is also to be remarked, that division of labor, which so greatly increases the produc liveness of human industry in the other modes of pro duction, can be applied but in a small degree to agri- culture. No man can devote himself exclusively to ploughing, sowing, or reaping ; because only a small part of the year can be employed in either of these oc cupations: The farmer must, therefore, practise them all, at different times ; and, of course, every farmer must be able to perform not one, but all the several operations required in his trade. This forms another reason why the increase of productiveness of human industry, in this department of labor, has not kept pace with that which has been witnessed in manufactures and commerce. SECTION II. THE DIFFERENT FORMS OF HUMAN INDUSTRY. Industry is any form of human exertion employed in the creation of value. This, of course, includes exer- tion, both of body and of mind. The object of industry, as we have seen, is to pro- duce change of some sort ; since change is necessary, either to the creation or to the increase of intrinsic value, and is always necessary to the existence of ex- changeable value. We have also seen that all the changes which human industry can effect in matter, may be reduced to three, namely : Change in elementary form ; change in aggre- gate form ; and change in place. But when man pnts forth exertion to effect change, it is not any change at random, but some specific change which he has directly in view. Were it otherwise, his labdr would be worse than useless, and, like the efibit THK FORMS OF HUMAN INDUSTRY. 49 of a maniac or an idiot, would, in nine times out of ten, destroy, instead of creating value. It is also evident, that the changes which can be ef- fected in matter, are not produced at random, but in obedience to certain laws. If we wish to kindle a fire, it is not any kind of effort that will do it, but effort ex- orted in obedience to the laws of combustion. If we wish to raise wheat, it is not every kind of labor that ill do it, but labor exerted in obedience to the laws of vegetation. And so, in general, if we wish to effect either of the three kinds of change mentioned above, we must act in obedience to those laws of the Creator, to which this kind of change has been subjected. Again : Supposing the laws of nature, in respect to_ a particular change to be known, it is also necessary to know, the manner in which they may most successfully be applied to the accomplishment of a particular result. The laws of combustion and of gravitation may be known, and yet a very important effort of human ingenuity may be required, before we ascertain the best method of so applying them as to be able to construct a good fire place. The expansive power of steam was known long before a steam engine was invented ; and still longer be- fore any application of it was devised by which it might oe used for propelling vessels through the water. And still further, a man may understand the general laws of physiology, and yet be unable to apply them to the cure of diseases. A man may understand the general prin- ciples of jurisprudence, and yet not know how to avail himself of them, in such a manner as to procure either defence from injury, or redress of grievance. But suppose this also to be known : it still remains for us 1.0 put those means into operation, by which, in obedience to the laws of nature, a given result may be accomplished. He who understands the laws of com- bustion and gravitation, and the mode of their applica lion, may now set himself to work, according to these laws, and build a chimney. He who understands the laws of hydrostatics, and the mode of their application, mnj now sot himself to work to build a boat. It is, howev- ft 50 THE FORMS OF HUMAN INDU3TRY. er, I rue that there would still be required a certa n degree pf skill and dexterity, before he could perform either of these operations well ; although he now could perform them, in some way or other. This skill can be ac- quired only by practice ; and the power of acquiring it is, in general, very universally bestowed upon men. From what has been said, it is evident that the 'n- dustry of which man is capable, may assume three dif- ferent forms, namely : Industry of discovery or invt1 THE PRODUCTS OF HUMAN INDUSTRY. in an hour, in the minds of a thousand persons, and each one of these in the minds of a thousand more. And specially, by means of the press, this power is multi- plied indefinitely. There is therefore no ratio between the labor or skill necessary to create it, and that ne cessary to promulgate it after it has been discovered. Hence, he who first creates knowledge, has no means ol monopolizing it ; nor can the exchangeable value be sus- tained, by the consideration that no one could create it, afterwards, with less. labor. Hence, as the supply of the product can at any moment be inimitably increased, it very soon ceases to have any exchangeable value. From these reasons it will be seen, that the ordinary rules of supply and demand, and cost and labor, do net enter into view, when we speak of intellectual products. They can therefore rarely be adjusted by any fixed rule. Nevertheless as immaterial products are of the greatest importance to the prosperity of a country, the Political Economist may point out the circumstances most favor- able to their production, and the rule by which those who produce them should be remunerated. The above considerations are suggested, in order to explain, why Political Economy, so commonly, treats almost exclu- sively of material products. It may, however, be remarked, that civil society ob- serving that immaterial products are necessary to the well being of a community, and that those w'ho create fhem, are liable to remain altogether unpaid ; has fre- quently devised means by which some remuneration may be reaped from the exercise of this kind of industry. Such are the laws of copy, and of patent right. By I he first of these, an author is allowed, for a limited lirne, the exclusive control over the publication of his work ; and by the other, the inventor is entitled to the exclusive control over the use of his invention. In this manner, both of these classes of laborers are enabled tr derive some portion of benefit from their production?. Were it otherwise, all their reward would consist iu whatever of consideration they might obtnin in the com- ouinity, and in the gratification of benevolence from the THE PltODL'CTS OF HUMAN INDUSTRV. 55 consciousness of having improved the condition of theii fellows. But, inasmuch as every other man, who is usefully employed, obtains these rewards also, and re- ceives pecuniary advantage in addition, there is no rea- son why the intellectual laborer should recejve only the first, and be excluded altogether from the second. From what has been said, another diffeience between flese two forms of product may be seen. The product o( operative labor, being united with matter, and being limited in quantity and fixed in cost, may be exported to another country, and will command a correspondent amount of exchangeable value in the products of that r.ountry. Hence, a nation may grow rich, either by agriculture, manufactures, or commerce. But this is not the case with immaterial products. We cannot send abroad a given amount of knowledge, and bring back a correspondent amount of material products. The small- est amount of knowledge, is capable of such indefinite multiplication, that the demand may be instantly supplied. Hence, a society composed solely of*philosophers, or inventors, or professional men, would never grow rich, but must, if it performed no other labor, of necessity starve. Laborers of this class add greatly to the value of other labor, though their product, if no other were created, would be valueless in exchange. They may be compared to the steam in an engine, which, when it is combined with proper machinery, produces the most surprising results, but which, when left to itself, is dissi- pnted into air. On the other hand, the separate parts of the machinery, though they might be of some use as raw material, yet, if the steam were withdrawn, would, immediately, become a mere mass of cumbersome and inluoless lumber. Thus, we see that all the classes of laborers are mu- tually necessary to each other. Without a knowledge of the laws of nature, we should all be savages. With- out the skill and labor of the mechanic, there would neither exist the opportunity of acquiring knowledge, nor would our knowledge, if acquired, be of any practi- cal value. Nothing can, (hrefore, be more unreasona- 56 INCREASE OF PRODUCTIVENESS. ble than the prejudices which sometimes exist between these different classes of laborers, and nothing can be more beautiful, than their harmonious co-operation in every effort to increase production, and thus add to the conveniences and happiness of man. PART II. THE MODES BY WHICH THE PRODUCTIVENESS OF HUMAN INDUSTRY MAY BE INCREASED. It is obvious, that if the capital and number of labor- ers be at any one period the same, the annual amount of product created will be as the amount of industry ex- erted. Were the laborers all sickly, so that they could work only for for hours a day, there would be but half as large a product created, as if they all labored for eight hours a day. If, by a palsy, they were all de- prived of the use of one of their arms, a correspondent decrease of production must ensue. On the contrary, if, while the cost of their support remained the same, their ordinary power of labor could be doubled, theie would be twice the usual amount of value created. And hence, in general, we see that, other things being equal, just in proportion as more labor is bestowed, the de- sires of every one are more fully gratified, that is, he ejrows richer ; and, on the contrary, as labor is dimin- ished, the laborer suffers, or grows poorer. This result every one witnesses every day. Sick, aged, and idle people suffer, because they either do not, or cannot, be- stow the labor upon capital necessary to create an amount of product sufficient for their subsistence. But the physical power of man is extremely limited. There is an average amount of fatigue which a human being can undergo, which can rarely, and but for veiy short periods, be exceeded. If he be worked too hard, INCRF.ASE OF PRODI CTIVENESS. f7 Oe sickens and dies ; and dies probably from being over- worked more readily and more commonly than any other animal. When, therefore, the whole physical power of man is employed upon the capital which he possesses, this may be considered the natural limit of human pro- ductiveness. 1 . But it is evident, that if by any means we could inciease this power ten-fold, there would be a ten-fold increase of production. If we could, by sjny means, enable a man, with one day's labor, to execute as much change in capital as he could before execute with ten days' labor, there would be just ten times as many changes effected ; that is, ten times as much value creat- ed, and ten times as much product to be either enjoyed by himself, or to be exchanged for equivalent means of happiness. And, if the power of effecting changes be increased in other men in the san^B ratio, the product of the whole society will be increased in the same propor- tion. This is one of the effects produced by the use of natural agents ; and hence it is, that, j^st in proportion as they are used, the condition of man is annually and rapidly improved. 2. But this is not all. There are many values which are necessary to the happiness and even to the existence of man, which he could not create by his unassisted powers. Thus, he needs shelter, cooked food, and clothing. But he could not, with his teeth and nails, cut down a tree and fashion it into a cabin. He cannot, by his hands, either cook his food, or manufacture a fab- ric suitable for clothing. All these can, however, be done by other agents which hecan command and control. Thus, iion can be made to cut down and fashion a tree, fire to cook his food, and a spinning wheel and loom can l>e made to furnish him with clothing. Thus we discover the second use of natural agents. They enable him to create values necessary to his existence, ir/uc/i, without their airf, could never be produced. In this manner, an additional power for the creation of product is given to human induslry. 3. But this is not all. It is found that a man, by de- 58 MODES BY WHICH THE PRODUCTIVENESS voting himself to one particular pursuit, is able to create a vastly greater amount of product in a given time, than he could create if he devoted himself to several pursuits. Hence, if there are ten products to be created, by ten men, they will in a given time create a vastly greater amount, if each man labors entirely upon one, than if each man labors upon them all. The product of the whole ten, therefore, by such a division of labor, will be greatly augmented. This is the third method by which the productiveness of human industry may be increased. We see, then, the modes in which the productive power of man may be exerted. 1. Man may, unassist- ed, labor to the extent of his physical ability. 2. He may multiply his power, by availing himself of the agents of nature, either to facilitate the creation of products, or to create products which he could not create himself; or, 3d. He may economize his labor, by such arrange- ments as will enable him, in a given time and with a giv- en amount of fatigue, to accomplish a greater amount of production. It is, by adopting these means, that the human race advances from the savage to the civilized state. With nothing but his hands and feet, man could not subsist, except in the most temperate climates. His food would be wild fruits, and the animals which he could run down in the chase. This is the lowest point of human wretch- edness. It is a laborious and incessant struggle to ob- tain the bare means of prolonging existence. He in- vents a bow and arrow ; this is a natural agent, or a tool by which ha avails himself of the elasticity of wood. By this simple tool, his condition is materially improved Still, he is destitute of most of the comlorls, and fre- quently, at times, of the necessaries of life. Hence, in cold climates, great numbers of savages every winier perish from cold and famine. He next becomes a shepherd. Here he avails himself of the use of natural agents. The flocks furnish him with wool, and the herds with milk. He now begins to taste the blessings of a regular and sufficient supply of food and clothing. He next becomes an agriculturist. Here, in addition OF HUMAN INDUSTRY MAY BE INCREASED 59 to the agents formerly employed, he makes use of the earth, manures, and implements, and begins rapidly to accumulate capital. His wants increase, and a division jLf labor is necessary to supply them. He now advances with rapid progress, and at every step employs either new agents, or else old agents more successfully, divides his labor more skilfully, and at length arrives at all the blessings of mature civilization. If it be asked, how far may this increased productive' ness of human industry be carried, we answer, it is im- possible to tell, unless we can ascertain how great are the blessings which God has in reserve for man. Who can estimate the benefits conferred on man by the mag- , net, or by steam, or by the printing press ? And what reason have we to suppose that the gifts of God are exhausted, or that there are not other and more excellent natural agents yet to be discovered, or other modes of using those which we are already acquainted with, that shall produce even more surprising results than any which we have yet witnessed ? Before the discovery of the agents now in use, the most vivid imagination could never have conceived of the benefits which they have already conferred upon society. There is no reason to suppose, that we are now more capable of fathoming the goodness ol God, than our ancestors were three or four hundred years ago. And hence we learn the inconceivable importance to a nation, of science, and of the labors of those who are devoted to the discovery of the laws of nature, and to the invention of new modes of applying these laws to the service of man. What would be the condition ol the world at the present moment, if the knowledge of navigation and magnetism, and of the laws of c"hemiuy were abolished ? Undiscovered knowledge is just as rich in the means of human happiness, as discovered knowl- edge. And hence, that nation which is most assiduously cherishing the means for availing itself of the benefit ol all the laws of the Creator, will most rapidly provide it- solf with the comforts and conveniences and luxuries of life in the greatest abundance and at the least possible 60 THE [JSE OF NATURAL AGENTS. cost. Who can tell the benefit which will result to thi.- country, when Geology has revealed to us the riches which at present remain hidden from our view beneath the surface of the soil ? SECTION I. OP THE USE DF NAT.UR^iL AGENTS We shall now proceed to consider the several means by which the productive power of industry may be in- creased. This section will treat of the use of natural agents. A natural agent, is any quality or relation of things which can be used for the purpose of assisting us in pro- duction. Thus, the light and heat of the sun are natural agents, without the aid of which we could not create vegetable products. Caloric, or artificial heat, is a natural agent, without which we could neither cook our food, prolong our lives in cold climates, give any valuable quality to metals, nor create steam for the purpose of machinery. Magnetism is a natural agent, by which we are enabled, in any part of the earth, to know in what direction we are moving. The various powers and instincts of animals are natu- ral agents, by which we accomplish purposes which could not be accomplished without them. Thus, the farmer sivails himself of the muscular power and docility of the r>x and* the horse; the huntsman, of the fleetness and scent of the hound, &c. Wind, the gravitating power of water, and steam, are natural agents, by means of which we create the momen- tum necessary to various operations in the arts. Jl tool) or a machine, is any combination of matter, by means of which we are enabled to avail ourselves of the qualities or relations of a natural agent. Thus, THE USE OF NATURAL AGENTS. 61 a lens, or burning ^lass, is a tool, by means of whicli we concentrate, for useful purposes, the rays of the sun. ft stove, or a fire place, is an instrument, or tool, by which we avail ourselves of the calorific properties of fuel. A mariner's compass is a tool, by which we avail ourselves of the peculiar quality of the magnetic needle. A water wheel is a tool, by means of which we avail ourselves of the gravitating power of water. A steam engine is a tool, by means of which we avail ourselves of the expansive power of steam. The only difference between a tool and a machine is, that the one is more complicated than the other. A common hammer is a tool, by means of which we avail ourselves of the gravity and density of iron, and of the power of the lever. A trip-hammer, by which large masses of iron are fashioned and wrought, is called a machine, but the principles employed are, in both cases, the same, only the trip-hammer is moved by a natural agent, water, or steam, while the common hammer is moved by the hand. From what has already been said, it will be easily perceived, that the qualities and relations of natural agents are the gift of God, and, being His gift, they cost us nothing. Thus, in order to avail ourselves of the momentum produced by a water-fall, we have only to construct the water-wheel and its necessary appen- dages, and place them in a proper position. We then have the use of the falling water, without further ex- pense. As, therefore, our only outlay is the cost of the instrument by which ihe natural agent is rendered available, this is the only expenditure which demands the attention of the political economist. If we reflect upon the various natural agents em- ployed by man, we shall see that some of them can be used without any tools whatever. Such is the case in agricultural labor, with air, and the light of the sun. Others require only so simple instruments, that their effect upon price is not appreciable. Thus, a mariner's compass, which would last for twenty years, and assist G 62 OF AGENTS WHICH CREATE MOMENTUM. in the transportation of half as mai>y millions' value ot merchandise, would cost but a few dollars. Others arc used by few persons, and for particular and unusual purposes, as the lens, or the microscope. It is only those agents which require for their employment, machinery of which the cost is appreciable, and which are of so general necessity, that their use enters into consideration in estimating the expenses of production, that require to be specially noticed in Political Economy. The means most universally required for creating change, is momentum, or, as it is commonly called, power. Without this, in agriculture, no change in ele- mentary form, and, in mechanics, no change in aggre- gate form, and in transportation, no change in place, can be effected. The instruments necessary to avail ourselves of the natural agents which create momentum, or which enable us to use it in particular methods, are very numerous and very costly, and form a lai^c portion of the fixed capital of man. The natural agents which man uses for this purpose are, therefore, uios which they are liable, a vastly greater amount of human -life would be sacrificed, if the same number of persons were trans- ported by horses. It is also to be remembered, that the use of steam is yet in its infancy, and that greater experience and skill will materially reduce the number of accidents to which this mode of conveyance is at present liable. 5. Inanimate agents can be used without the infliction of pain. Inanimate agents are insensible. Where the labor to be accomplished is either severe, or where it requires great speed, animals must be rapidly destroyed. This exposes them to great suffering. A horse in 8 70 MEANS BY WHICH MOMENTUM IS APPLIED. stage coach can rarely travel, rapidly, more than tea miles a day ; and most horses will endure even this la- bor hut for a short time. From this suffering inanimate power is exempt. It never endures pain from being over driven. 6. Animate power decreases with velocity. Hence, we must soon arrive at a point beyond which it can no further be used to create momentum. If we represent the tractive force of a horse, when moving at two miles an hour, at 100, his force at the rate of three miles, will be 81 ; at the rate of four miles, 64 ; at the rate of five miles, 49 ; at the rate of six miles, 36 ; while at the lop of his speed, he can carry nothing more than his own weight. An engine, on the contrary, may be made to work as powerfully at one degree of velocity as at an- other. In all cases, therefore, in which both great pow- er and great velocity are required, inanimate power must, of necessity, be employed. From these causes, we see that inanimate is rapidly taking the place of animate power, both where stationary and where locomotive force is required. By the addi- tional speed which it is capable of producing, it gives rise to great economy of time. This, to all persons en- gaged in active employments, is a consideration of va^t moment. Being a continuous agent, it is also enabled to act with the greatest certainly. Hence, men may ad- just their transactions, in different places, with entire precision. This is also another source of economy, both of time and of capital. And, besides, notwith- standing the expensiveness of the arrangements for the i-se of locomotive forces, yet the amount of additional travelling to which they give rise, is so great, that the expensiveness of transportation between different places is, in general, materially diminished. II. Of the natural agents by which momentum is AP- PLIED. It is obvious, that a great addition is made to human power, where the agents for creating momentum have been discovered. But this is not all. Several combi- nations of matter may be formed, by which mere hu- MEANS BY WHICH MOMENTUM IS APPLIkD. 71 man force may be greatly assisted, and which, by being united with the agents for creating momentum, may greatly increase, and vary, and give adaptation to, its utility. These are called the mechanical powers, which are treated of at large in works on Mechanics and Nat- ural Philosophy. In their simple form, they are the lever, the wheel and axle, the inclined plane, the screw, the pulley, and the wedge. They are variously combin ed, for producing the different results of mechanics, bu( may be all reduced to these simple elements. B} means of these, the muscular power of man is en- abled greatly to increase its effect ; that is, a man by his own strength can now accomplish labor which he could not accomplish without them. Though these in- struments give no new strength, yet they greatly increase the effectiveness of that which already exists ; and hence, their invention marks an important era in the pro- gress of civilization. It is also to be remarked, thai their origin, in point of time, is |ar in advance of the dis- covery of the creative agents. Archimedes had made great progress in the discovery and application of these modifying powers, when the use of creative agents was almost unknown. The triumph of human skill is, however, achieved, when these two forms of natural agency are combined in a single machine. By the one we generate power, to what extent soever we choose ; and by the other w; modify it in any form, give to it any application, and direct it to any purpose, that our conventenYe may require. It is in this manner, that man renders all the various powers of nature tributary to himself. He can thus create, and use as he pleases, as great a powei as he desires. He devolves the labor on nature, and he has only to fabricate the instruments, and give them their direction. He is successful just in proportion as he does this ; since nsture always works with undcviating accuracy, with unerring skill, with indefatigable perse- verance ; and she always works for nothing. U may be useful to specify some of the results ac- conipl'=hed by the various instruments, which man em 72 MEANS BY WHICH MOMENTUM IS APPLIED. ploys for modifying that momentum which is exerted by the first class of natural agents. 1 . We are thus enabled to change the direction of the power. Thus, in the cylinder of the steam engine, the momentum is created either in perpendicular or hor- izontal strokes. This, being by means of an arm and a crank changed into a circular motion, moves the paddle- wheels of a steamboat. Thus, also, in the machinery for moving a trip-hammer, a circular is changed into a perpendicular motion, by the striking of the cogs of a wheel upon the short arm of a lever, while the hammer is attached to the other arm. 2. We exchange power for velocity. This is done in all spinning machinery. By water or by steam, we cause a large wheel to revolve ten, twenty, or thirty times in a minute, and with a power equal to that which could be produced by fifty or one hundred horses. In spinning, however, we need small power, but great ve- locity. Hence, by the combination of various large and small wheels,. we produce a velocity, in a thousand spin dies, equal to many thousand revolutions in a minute. The whc4e of this fifty .or one hundred horse power, is thus spread over a large manufactory, and adapted, by various contrivances, to every degree of velocity, and every form of motion that may be required. 3. We are thus enabled to exert forces too great for animate power. By water power, or by steam, we can generate as great a force- as we please ; and we have only to combine with it the proper adjustments, in ordei to exert upon any point any momentum which we desire. The power required to roll and hammer iron, or copper, to propel steamboats, to forge anchors, and that used in .several other of the arts, is greater than could be exert- ed by any animate force with which we are acquainted, unless it were exerted by means of some combination of the mechanical forces. 4. We are thus also enabled to execute operations too delicate for human touch. Very delicate operations, soon weary the nervous system by the excessive atten- tion which they of necessity require. Thus, in order MEANS BY WHICH MOMENTUM IS APFi^ED. 73 10 spin the finest thread on a spinning wheel, there must be great accuracy, both in the velocity of the wheel, and in the muscular power exerted in drawing out the thread. This requires an effort of attention, which the human system cannot long maintain, and, of course, the thread will frequently be uneven. But by means of machinery, both of these operations may be adjusted with mathematical accuracy ; and as machines have no nerves, they will be perfectly faithful to that adjustment. Thus we invariably see that the most delicate fabrics are fhose that are wrought by natural agents. Hence ma- chinery is necessarily used in the manufacture of such article? as require for their formation identity of result, such as screws, types, &c. 5. By means of machinery, we are enabled to accu- mulate power. We thus exchange a continuous and small force, for a sudden and violent one. Such is the case with the pile-driver, and the common beetle or mal- let, when used in combination with the wedge. (5. By the same means we are enabled to exchange a short and irregular effort for a continuous and regular movement, or to spread the action of a short, over a long period of time. This is done in clocks, watches, and other similar machinery. Here we spread the action of a minute, over a day, or a week, and with almost math- ematical accuracy. In consequence of the above mentioned application of machinery, various other advantages are realized in production. For instance ; there is frequently a great saving of material, as in the change from making boards with the adze, to that of making them with the saw ; and again the labor of natural agents is so much cheap- er, that many articles, which would otherwise have been worthless, are now deserving of attention, as they may now be profitably endowed with some form of value. I close these remarks, upon the use of natural agents, with an extract, very graphically describing the power of the steam engine, which has commonly been ascribed to Francis Jeffrey, Esquire, now Lord Jeffrey, of Ed- inburgh : 7 7-1 MEANS BY WHICH MOMENTUM IS APPLIED 44 It (the steam engine) has hecome a thing, stupen- dous alike for its force and its flexibility ; for the prodi- gious power which it can exert ; and the ease, precision, and ductility with which it can be varied, distributed, and applied. The trunk of an elephant, that can pick up a piu or rend an oak, is as nothing to it. It can engiave a seal, and crush masses of obdurate metal before it ; draw out, without breaking, a thread as fine as a gossa- mer ; and lift up a ship of war, like a bauble in the air. It can embroider muslin, and forge anchors ; cut steel into ribands, and impel loaded vessels against the fury of the winds and waves. 44 It would be difficult to estimate the value of the benefits which these inventions have conferred upon the country. There is no branch of industry that has not been indebted to them, and in all the most material, they have not only widened most magnificently the field of its exertions, but multiplied, a thousand fold, the amount of its productions. It is our improved steam engine, that nas fought the battles of Europe, and exalted and sus- tained, through the late tremendous contest, 'the political greatness of our land. It is the same great power, which enables us to pay our national debt, and to main- tain the arduous struggle in which we are still engaged, with the skill and capital of countries less oppressed with taxation. 44 But these are poor and narrow views of its impor- tance. It has increased, indefinitely, the mass of human comforts and enjoyments, and rendered cheap and acces- sible, ah 1 over the world, the materials of wealth and prosperity. It has armed the feeble hand of man, in short, with a power to which no limits can be assigned ; completed the dominion of mind over the most refractory qualities of matter ; and laid a sure foundation for all those future miracles of mechanical power, which are to aid and reward the labors of after generations. " SECTION II. OP DIVISION OP LABOR. We have shown that the productiveness of human in- dustry may be greatly increased by the discovery of the qualities and relations of things, and by the invention of instruments, by which those qualities may be applied and modified. In this manner, the power of man receives an almost incalculable augmentation. But this is not all. It is found that the result of human effort may be still further very greatly increased. Thus : supposing the agents of nature, and also their mode of application, to be known, and that a given number of men are about to perform an operation, they may make such arrange- ments among themselves, as will, in a given time, and with a given expenditure of labor, enable them to accom- plish a vastly greater result than could be accomplished without such arrangements. The mode, in which this is effected, is by division of labor. Division of labor is always, to some degree, employed where different individuals are engaged in the different branches of human industry. Thus, labor is divided when different persons employ themselves in the several departments of discovery, application, and operation. Labor is still further divided, when those employed in these great departments, are separated into distinct classes, each class devoting itself to the accomplishment of one particular object. Thus, one man investigates the laws of mechanics ; another, those of astronomy ; and a third, those of vegetation. One man is devoted to the profession ql the law ; and another, to that of medicine ; while each separate trade is employed in the creation of a particular product. By all these divisions, it is manifest that the result of the whole is greatly in- creased. It is only the savage, that combines in his own person, in all their departments, the character of ohilosopher, inventor, and operator. He approxin\ates 76 DIVISION OF LABOR. to the civilized state, only in so far as he begins to con fine himself to some particular calling. And it is always in the most advanced periods of civ'-'ization, that division of labor is carried to its ultimate limits. But, besides this, the different parts of any operation may be analyzed ; and to each part the whole labor of a single individual may be confined. Thus, the la- bor of making a pin may be divided into wire drawing, wire straightening, pointing, heading, tinning, &c. In Political Economy, labor is said to be divided, just in so far as these several processes are assigned to separate operators. It is found, by experience, that such an ar- rangement increases the productiveness of human labor to an extent, which, to a person who had not examined the facts, would appear wholly incredible. The princi- ples on which this increased productiveness of labor depends, are the following : 1. Division of labor shortens the period required for learning an operation. The more complicated the oper- ation, the longer is the time necessary for acquiring the skill requisite to the performing of it successfully. But this time spent in learning, is useless to the operator and to society, only in so far as it is necessary to the crea- tion of the product. The longer the time necessary for learning an operation, the higher must be the wages of the operator, for the remainder of his life ; and also, of course, the greater must be the price of his products, [f this can be lessened, the price of course will fall. Now, that this is lessened, by division of labor, is evi- dent from an obvious example. Suppose that a given process, say the making of nails, consists of seven oper- ations ; and that each of these operations required one year's practice, before it could be successfully perform- ed. Now, if seven men were to learn this occupation, and each one were obliged to learn every operation, the time required would be 7 X 7 = 49 years ; whereas, if each of them were required to learn but one, the time wouM be but 7 X 1 =7, or, the difference would be, 49 7 = 42 years of human labor, or six sevenths of the whole time, v hich would thus be saved There DIVISION OF LABOR. 77 would be six years more of productive labor, in the life of each of these men ; and, as they had spent less time in acquiring their art, they could afford to exercise it for lower wages. Besides, there is, intimately connected with this cause, another, of considerable importance. Every one, in [earning an art, must, by unskilfulness, destroy a consid- erable portion of capital. And this amount of capital will be in proportion to the number of operations which he is obliged to learn. Thus, suppose that a man learns seven operations, and, in learning each, destroys ten dollars' worth of capital, the amount which he will de- stroy, in acquiring his whole trade, will be 7 X 10 = 70. If he have to learn but one, it will be but ten dollars ; and thus, the difference will be 70 10 = 60 dollars, upon every such individual. A difference, so great as these two combined, when spread over the whole face of society, will have no inconsiderable effect upon the annual nett revenue of a community. 2. When one man performs all the operations required in a complicated process, much time is lost in passing from one operation to another. By division of labor, this loss is avoided. The effect of habit is known to every one. It ren- ders any operation easy, which is frequently repeated. The mind and the muscles become adapted to a partic- ular form of labor ; but, if that form of labor be sus- pended, and our attention be directed to another, it requires a considerable time before we can acquire a different habit, and, in the mean time, the good effects of the preceding habit, are, to a considerable degree, lost. Hence, he who is frequently passing from one occupation to another, is in the condition of him who is, during his whole life, forming habits ; and never in the condition of him, who has the advantage of habits already formed. Besides, this long habit produces in the muscles a capacity for continued exertion. He who is in the habit of performing an operation, can perform t, without sensible fatigue, for several hours together. Ktery one who has ever sawed wood, or used a spa.Ie 7* 78 DIVISION OF LABOR. - in a garden, is sensible of this fact. Now, all this ad- vantage is lost, by frequently turning from one operation to another. 3. Whsre complicated tools are to be used, and there is no division of labor, much time is also lost in adjust- ing them to the different kinds of work. By division of labor, this disadvantage is obviated. Suppose that nails, of different sizes, are to be made, and it is neces- sary that the machinery, in order to adapt it to the dif- ferent kinds of work, should be frequently adjusted ; the time so occupied produces nothing, and is lost. If, on the contrary, one machine is permanently used for the manufacture of nails of one particular size, all this loss is avoided. This is also more obvious, when the ad- justment involves expense ; as, for instance, when a fur- nace is used. If a furnace be heated, and then suffered to cool while the operator is performing some other la- bor, the fuel consumed, after he leaves it, and that which is used to bring it again to the requisite temperature, are a total loss, in addition to that of the time and labor re- quired in kindling the fire, and in waiting for the rise of temperature. By dividing the labor, so that one person shall be always employed at the furnace, whilst others are employed at other parts of the process, much capi- tal and labor will be saved. 4. By constantly pursuing the same occupation, a degree of skill and dexterity is acquired, which greatly increases the productiveness of human labor. This ad- vantage is lost, by employing the same individual upon several operations. Adam Smith informs us, that a blacksmith, who occasionally makes nails, but whose whole business is not that of a nail-maker, can make btil from eight hundred to one thousand nails a day ; whilst a lad, who has never exercised any other trade, can nake upwards of twenty-thsee hundred a day. All who have been accustomed to visit manufactories, must have been surprised to observe the dexterity which is ac- quired, even b} children, in performing the operations in which the} are exclusively engaged. It is probable that the performers of jugglery, or sleight-of-hand, de- DIVISION OF LABOR. 79 rive their skill almost entirely from this cause. They seldom perform more than a few operations, but by practising these, and these alone, for a great length of time, they at last attain to a proficiency, which, to a spectator, is incomprehensible. 5. Division of labor suggests the contrivance of tools for the performance of the operation in which it is em- ployed. The more completely any process is analyzed, the simpler must become the individual operations of which it is composed : and the simpler any operation is, the easier is it to contrive a tool, or an adjustment, by which it may be performed. Adam Smith informs us, that, in the first steam engines, boys were constantly employed to open a communication between the boiler and cylin- der, according as the piston ascended or descended. One of these boys observed, that, by uniting the handle of the valve which opened this communication with an- other part of the machine, the valve would open and shut without his assistance, and leave him at liberty to play with his fellows. One of the most important im- provements of this machine was thus, by division of labor, brought within the capacity of a playful boy. It would have been very difficult to invent machinery for the making of nails, when all the processes were, con- sidered as a complicated whole. But after the several operations are divided, and are assigned to individuals separately, it becomes comparatively easy to construct an adjustment, by which any one of them, singly, could be performed. This is the first step in invention. But this is not all. After these several single instruments have been invented, the next step is to combine them together. This is the most finished effort of mechanical genius. This is the principal difference, between a tool and a machine. A tool performs one single operation , a machine combines several tools together, and accom- plishes either the whole, or a considerable part, of a complicated process. G. Every one, at all acquainted with manufacturing employments, must have observed, that some of the op- 80 DIVISION OF LABOR. erations in a given process, require greater muscular power, or greater skill, or greater dexterity than others. Some, for instance, can be performed only by the most experienced workmen, while others can be perfectly well performed by children. Now, by division of labor a manufacturer is enabled to employ, upon each opera- tion, precisely the labor adapted to it, and is obliged to pay for each portion of the labor no more than it is ac- krilly worth. This must greatly diminish the cost of production. Thus, the manufacture of pins is divided into ten different operations, and each operation employs one laborer. But some of those laborers are men ; others are women and children ; and their wages vary from six shillings to four and a half pence sterling a day. If the labor were not divided, one person must under- stand the whole process, and, therefore, must be em- ployed at the highest price of labor ; and hence, he must be paid at the rate of six shillings a day, for that part of the work which is worth only four and a half pence a day. Every one must see that this would greatly increase the price of pins, and also occasion a great deficiency in labor. It is by this means, also, that occupation is provided for the weak and the aged, for females and for children, who would, otherwise, be una- ble to earn any thing. Thus, all the labor of the com- munity is rendered productive, and an immense amount is annually added to the revenue of a country. Nor is the gain to be estimated at simply what is thus earned. The whole community is thus acquiring those habits of industry and self-dependenc*e, which are essential to its happiness and well-being, no less than to the rapid ac- uu lulation of its capital. * * The following 1 facts, respecting the manufacture of watches, illus- '.rate very forcibly the extent to which the division of labor may be carried, and also the amount of value which may be conferred upon the cheapest substance by accumulated and high priced labor.- A watch consists of 992 pieces, and forty-three trades are employed in their construction ; the chain, whose length is eight inches, has l(>5 links, each containing three plates and two pins, in all *25 pieces, and passes through fifteen hands, men. women, and children, of three j-ades, before it is complete : allowing them five hands in each trade, ?15 persons find employment in making a watch. This extensive and DIVISION OF LABOR. 81 Nor are the benefits of the division of labor confined to mechanical processes. The results have been equally interesting, in those cases where this principle has been applied to intellectual labor. The effect of such a di- vision is seen in the following account, which I intro- duce here, not only Because it very happily illustrates this whole subject, but also because it may suggest to scientific men, some other cases in which it may be again applied with similar benefit. ^ During the period of the French revolution, the gov- ernment was desirous of producing a series of mathe- matical tables, in order to facilitate the extension of the decimal system, which had been recently adopted They directed their mathematicians to construct such tables on the most extensive scale. The superintend- ence of the work was confided to M. Prony. It hap- pened that shortly after he had undertaken it, he opened, in a bookstore, Adam Smith's "Wealth of Nations," and, by accident, turned to the chapter on division of labor. The thought immediately suggested itself, that this might be adopted in the work in which he was en- gaged. He immediately followed out the suggestion, and arranged his plan accordingly. He divided the persons whto were to execute the labor into three sections : Tke first section was composed of five or six of the most eminent mathematicians of France. Their duty was to ascertain the analytical expressions which were most readily adapted to simple numerical calculation, and which could be performed by many individuals employed at the same time. The formulae on the use of which it had decided, were to be delivered to the second section. numerous individuality will apply, more or less, to every manufac- tured article in every day use ; but no branch of manufactures will afford such an illustration of the value of labor. The iron of which the balance-spring is formed is valued at something less than a far- thing; this produces an ounce of steel, worth 450 balance-springs, which will realize, at the common pn' of '2s. (./. ea:h, 'J46 ."..--. the effect of la bor alone. 82 DIVISION OF LABOR. Tilt second section consisted of seven or eight per- sons, of considerable acquaintance with mathematics, whose duty it was, to convert into numbers the formulae put into their hands by the first section ; and then to deliver out these numbers to the members of the third section, and to receive from then^ the finished calcula- tions. These they could verify without repeating the work. Tke third section consisted of sixty or eighty nersons. They received the numbers from the second section, and, using nothing more than addition and subtraction, returned to that section the finished tables. Nine- tenths of this class had no knowledge of arithmetic be- yond its first two rules ; and it is remarkable that these were usually found more correct in their calculations, than those who possessed a more extensive knowledge of the subject. The extent of the labor, which was thus executed in a remarkably short space of time, may be estimated, when it is staled that the tables thus formed are computed to occupy seventeen large folio volumes. And yet we see that the greatest part of the labor was actually accomplished by persons who might be employed at very small expense, and who could do the work assigned them, as perfectly as those whose labor was the most expensive.* We thus see the manner in which the productiveness of human labor may be increased. 1st. By discover- ing the various agents of nature which God has created for our benefit; 2d. By applying these agents to the service of man ; 3d. By so arranging and adjusting hu- man industry, that the labor necessary to be employed, may operate with the greatest possible advantage. In one or other of these methods, must every improvement it; the physical condition of mankind operate. And civilization advances just in proportion as all of them combined are brought to bear upon the work of produc- tion ; that is, of creation of objects of desire, in other words, of means for human happiness. * Babbajje on Econoirr of Machinery. LIMITATIONS TO DIVISION OF LABOR. 83 SECTION III. LIMITATIONS TO THE DIVISION OF LABOR, BOTH INDIVIDUAL AND NATIONAL We now proceed to another branch of the subject ; the Limitations of the Divisions of Labor. These may be considered in reference to individuals, and to nations. In so far as the individual is concerned, these limitations arise from three causes. 1st. The Nature of the process ; 2d. Deficiency of Capital ; and 3d. Demand. 1 . From the nature of the Process. Every process can be analyzed into its ultimate elements ; that is, into the various simple processes of which it is composed. Thus in pin-making the straightening of the wire is one operation, the cutting it into equal lengths is another, the sharpening of the points is another, the heading of the pin is another, &c. But when we have reduced the operation to its simple elements, we can proceed no further. Hence, here is our necessary limit ; for it is no division of labor to employ two men to p'erform pre- cisely the same operation. Hence an establishment, which carries division to this limit, will be able, from what has been said, to undersell another which does not carry it to the same degree of perfection. And hence, in establishing a manufactory, it is important so to adjust the number and kind of workmen, that, when the different operations of a process have been assigned to different persons, these persons may be in such pro- portions as exactly and fully to employ each other. The more perfectly this is accomplished, the greater will be the economy. And, this having been once as- certained, it is also evident that the establishment cannot be successfully enlarged, unless it employ multiples of this number of workmen. 2. Division of labor may be limited by deficiency of Capital. Division of labor, in manufactures, cannot 84 LIMITATIONS TO DIVISION OF LABOR. be carried on, unless the proprietor have sufficient cap! tal to employ, at the same time, all the persons neces- sary to such a division, and to keep them so employed, until the proceeds of their work enable him to furnish them again with fresh material. This is, of course, a considerable outlay, and supposes a considerable accum- ulation of the proceeds of pre-exerted industry. Hence, in a poor or in a new country, there can be 'but little division of labor. No one has more than enough capi- tal to employ himself, and, perhaps, one or two labor- ers ; and hence, each individual performs all the opera- tions of each process, and frequently those of several processes. The same individual is the farrier, black- smith, cutler, and, perhaps, wheelwright, for a whole settlement. To illustrate this by a single instance : If a nailer be able to purchase no larger amount of iron and coal than he can use in the manufacture of nails in a day, he must perform all the parts of the process him- self ; and, of course, must labor very disadvantageously. As soon, however, as he is able to double his capital, he may employ another person to work with him, and they may then introduce a division of labor. When he has tripled his capital, he may employ another workman, and carry his division still further. He may thus go on until he has reduced the process to its simplest elements. When he has gone thus far, the accumulation of his annual capital will enable him to invest something in fixed capital. He will thus be able to purchase some of the simpler machines, by which some of the parts oi his process may be executed. To these he will add others, as he advances in wealth, until his accumulated means enable him to combine them into one machine, for completing the whole process. Thus he becomes a manufacturer, and derives the larger part of his rev- enue, from the use of his fixed capital. At every step his gains will be greater, and at the same time the price of his product will become less. It is not pretended that all these changes always, or frequently, take place within the lifetime of a single individual. The pro- gress of society is not generally so rapid. Yet they LIMITATIONS TO DIVISION OF LADOR. 85 sometimes occur in the manner which I have stated. I give the illustration, to show the tendency of things, and the power of accumulated capital. But, whether the results are comprised in the lifetime of one, two, or three individuals, the principle is the same. 3. Division of labor may be limited by the demand for the article produced. . Suppose that, in a given dis- trict, there is a demand for one hundred pounds of nails per day, and that these can be made by two men. If three men could, by division of labor, make two hun- dred pounds per day, there would be but small gain, either to the workmen or to the public ; because these men would, of course, lie idle half of the time, and for this time they must be paid, as well as for the time in which they were employed. Or, if they did not lie absolutely idle, that portion of their time, which was employed on other labor, would be of comparatively small value ; and they, by attending to other business, would lose the skill which complete division of labor confers ; and which is one of its principal benefits. The case is still stronger, if we take into view the facx, that division of labor supposes a large investment of fixed capital, and that those who are educated to any manufac- turing business, can rarely employ themselves upon any thing else. If the laborers at any of our manufactories were employed only half the time, their wages must be doubled ; for their families must be supported, one day as well as another, and thus the interest of the whole investment must be charged upon half the quantity of product. These causes, together with the loss of skill in workmen, would more than double the price of prod- ucts, and would, of necessity, carry back the division of labor to its less perfect state. But this demand must depend upon several circum- stances. The most important of these are the following : 1 . The number of the consumers. When the numbe* of inhabitants is small, as in a newly settled country, or in 'in isolated situation, the demand must, of course, correspond to their number. One hundred men will re- quire but one tenth as many hats or shoes as one thou- 8 86 LIMITATIONS TO DIVISION OF LABOR. sand men. It is on this account that wealth accumulates most rapidly on navigable waters, because the market of the producers is not limited to themselves, but may be easily extended to other places. 2. By the wealth of the inhabitants. Demand does not signify simple desire for an article, but desire for it, combined with the ability and willingness to give for ii what will remunerate the producer. Hence, the greater the ability, in a given population, to remunerate the pro- ducer, the greater will be the demand. The demand for hats, in a population of one thousand men, would be limited to those persons in that population who were able to buy a hat. The larger the proportion of such indi- viduals, the better it would be for the hatter, and for every other producer. Hence we see, that every indi- vidual is interested in the prosperity of every other indi- vidual in the community. 3. By the cost of the article. The greater the cost of the product, the smaller will be the number of per- sons who are able to purchase it. Hence, the less will be the demand ; and hence, also, the less opportunity will there be for division of labor. And, besides, the greater the cost of the article, the greater amount of capital is required in order to produce it by division of labor. Hence, this cause operates in two ways to pre- vent the employment of this means of effecting the re- duction of price. Thus, if a community consist of one thousand men, and of these, one hundred be worth one thousand dollars per year ; four hundred be worth five hundred dollars ; and the remainder be worth but two hundred and fifty dollars per year ; and an article be produced within the reach of only the first of these class- es, it can have but one hundred purchasers ; if it come within the reach of the second class, it will have five hundred ; and if it come within the reach of the third class, it will have one thousand purchasers. Hence it is, that division of labor is but sparingly used in the manufacture of rich jewelry, and in articles of expensive luxury ; while it is so universally used in the production of all articles of common use. Hence we see, that the I LIMITATIONS TO DIVISION OF LABOR. 87 benefits of the use of natural agents and of division of labor, are vastly greater and more important to the mid- dling and lower classes, than to the rich. These means of increased production, reduce the cost of the neces- saries and of the essential conveniences of life to the lowest rate, and, of course, bring them, as far as possi- ble, within the reach of all. 4. By facilities of transportation. This is evident, from what has been said. The cost of an article de- pends not only on the cost of its original production, but also upon the cost necessary to bring it to the con- sumer. Coal may be very cheap at a coal mine, but if it must be borne on the shoulders of men to the consu- mer, it would, at a few miles from the mine, become so dear, that no one would be able to use it. The demand would be so small, that there would be no profit either in investing capital in the machinery, or in employing di- vision of labor to raise it from the mine. But if horses be used to transport it to the consumer, the demand will increase. Again, if, for horses, canals and railroads be substituted, it will become cheap, and the demand will increase still more ; and, with every such improve- ment, that circle of consumption expands, of which the mine is the centre. The same principle applies to man- ufactures, specially those of iron or heavy ware, and it applies just in proportion as transportation forms a large or small part of the cost to the consumer. And thus, in general, we see the principle on which facilities for internal communication improve the condition of both the other branches of industry. For this reason, the price of land and grain, rises in a district through which a canal or a railroad passes ; and, for the same reason, manufactories may at one time be successfully established in situations where they at another time would have been useless, if not ruinous to the proprietor. And, still more generally, we see the manner in which all the branches of labor assist each other. A railroad or a canal can never profitably be constructed in a country where there is nothing to be transported. But where agriculture, manufactures, and commerce are productive, and hence 98 DIVISION OF NATIONAL LABOR. require a large amount of transportation, there, these facilities are immediately in demand. Were Liverpool and Manchester to decline, of what use would be the railroad between them ? And, on the other hand, the railroad between them, by reducing the cost of all arti- cles bought and sold, diminishes the cost of living in both places, enables the producer to come into market with greater advantages, increases the profit in all kinds of industry, facilitates the accumulation of capital, and thus adds greatly to the annual revenue of both cities. II. I have thus far considered the division of labor as it exists among the inhabitants of the same place, and in the same situation. The same principle, however, ap- plies to people of different districts. Here it is not merely a matter of choice, but, in a great measure, of necessity ; that is, it is required by the very conditions of our being. It is manifest, that the different portions of the same country possess different facilities for producing the ob- jects of human desire. No district possesses advantages for producing every thing ; but almost every district possesses peculiar facilities for producing something. Now, natural advantages are clearly nothing more than means of increased productiveness of labor in the crea- tion of any particular product. If one soil will produce forty bushels of wheat to the acre, with the same labor that another will produce twenty, the labor upon the first is twice as productive as that upon the second ; that is, the owner of the one has a machine by which he can, with the same labor, produce twice as much as his neighbor. But perhaps the soil which will produce only twenty bushels of wheat, will produce forty bushels of corn per acre, while the other soil will produce only twenty. This second soil is, therefore, an instrument which gives a double productiveness to labor in the rais- ing of corn. Now, it is manifest, that if each one de- votes himself to the production of that for which nature has given him peculiar facilities, his amount of produc- tion will be greater, he will himself be richer, and the whole community will be supplied at a diminished cost DIVISION OF NATIONAL LABOR. 89 Suppose that each occupied twenty acres, and each pro- duced the crop for which he had the greater advantages ; the result would be 20X40 = 800 of wheat, and the same of corn ; =800 bushels of wheat and 800 of corn. Suppose, again, they divided their crops, and each ap- propriated ten acres to wheat and ten to corn ; the result would be, 10X40 = 400 of wheat, and 10X20 = 200 of corn; and 10X40 = 400 of corn, and 10X20 = 200 ol wheat ; that is 600 of wheat and 600 of coi n ; that is, there would be 600 instead of 800 bushels of each raised, and the loss to both, and to the community, would be 200 bushels of each a year. By so much would they both be poorer than by devoting themselves wholly to that product for which each had the greatest natural advantages. Or, to take another case. Suppose one district rich in soil, and adapted to the production of wheat, but level and far inland, and, therefore, unadapted, by position, and want of the proper natural agents, to the production of manufactures ; and another district, on the sea-board, hilly and sterile, adapted to manufactures, but unadapted to the culture of wheat. On the first, with one day's labor, a man may raise two bushels of wheat, but could produce but four yards of cloth. On the other, by the same labor, a man can produce twelve yards of cloth but can raise but one bushel of wheat. Now, it is man- ifest, that by each district's devoting its labor to that kind of production, for which it has the greatest natural facilities, the production of the whole country will be increased. It is also evident, that a man in the wheat district will provide himself with cloth at a cheaper rate, by raising wheat, and procuring cloth by exchange, than by manufacturing it himself; and on the other hand, that the manufacturer will provide himself with wheat, at a much cheaper rate, by making cloth, than by raising wheat himself. Thus, by this form of division of labor, the productive power of both is increased ; their desires are gratified at the expense of less labor ; and thus, both BI e rendered richer and happier. Ail this seems obvious, if only the several districts 90 DIVISION OF NATIONAL LADOR. of the same country be compared. And it is obvious, because every one perceives that God has bestowed upon different districts, of the same country, different advan- tages, which it is for the interest of that country that each district should improve to the utmost. But every one may see, that the same principles apply to different 'nations inhabiting the different quarters of the globe. The separation of the earth into warring nations, is noth- ing but the arbitrary work of man ; it alters neither the qualities nor the relations which God has given to things, nor the laws under which he has constituted man. If a man own a farm, of which one part is suited only to tillage, and another part only to grazing, and he divide it, and sell the pasture land to his neighbor ; this does not alter the nature of the soil. Will it not be just as profitable to appropriate each part to the purpose for which God designed it, after the purchase, as before ? Every man needs, for the gratification of his innocent desires, nay, for his conveniences and even necessaries, the productions of every part of the globe. To be convinced of this, we have only to enumerate the arti- cles which furnish our houses, the food that covers our tables, and the raiment which clothes our bodies. How greatly would all our means of happiness be diminished, were we deprived of the iron, the furs, and the hemp of the North ; the coffee, teas, sugar, rice, fruits, and spi- ce's of the South ; or the wool, the wheat, and the man ufactures, of temperate climates. Every one must be convinced that the happiness of every man is increased in proportion as he is furnished with the greatest number of these objects of desire ; and furnished with them, in their greatest perfection, and at the cheapest rate. But, it is evidently the will of our Creator, that but few of these objects, every one of which is necessary to the happiness of every individual, should be produced except in particular districts. Others, if they can be produced in several places, can be produced much more cheaply, and in greater perfection, in some places, than in others. Every part of the globe possesses peculiar advantages for the production of something ; but no part DIVISION OF NATIONAL LABOR. 91 possesses advantages for the production of every thing. Hence, we see, on the principle illustrated above, that the annual production of the globe will be greatest ; that is, there will be the largest amount falling annually to the share of every individual ; that is, every individua will be richer and happier, when each portion of the globe devotes itself to the creation of those products for which it has the greatest natural facilities. If a man in New York can produce, by one day's labor, one hun- dred pounds of flour, but could not produce more than one ounce of coffee ; and a man in Cuba can produce twenty-fire pounds of coffee, but cannot produce more than one pound of flour, and they exchange, as we have before seen they must exchange, labor for labor : the one will produce, by a day's labor, twenty-five pounds of coffee, instead of an ounce ; and the other, one hun- dred pounds of flour, instead of a pound. Is not this better than for the New York farmer to raise his coffee in a hot-house, at the expense of a day's labor for an ounce ; and the West Indian to raise his wheat on the mountains, at the expense of a day's labor for a pound. Such are the advantages of that division of labor sug- gested by geographical position. And the final cause of all this is evident. God in- tended that men should live together in friendship and harmony. By thus multiplying indefinitely their wants, and creating only in particular localities, the objects by which those wants can be supplied, he intended to make them all necessary to each other ; and thus to render it no less the interest, than the duty of every one, to live in amity with all the rest. Nor is the application of this principle confined lo geographical localities. The simple fact that a nation possesses facilities, be they either natural or acquired, for creating any product at a cheaper rate than any other nation, is a reason why -hat nation should devote itself to the creation of that product ; and why another nation should, for the same reason, improve its own peculiar advantages. Thus, there are certain states 01" society, and a certain amount of accumulation of cap- 92 DIVISION OF NATIONAL LABOR. ital, most favorable to the creation of certain products A nation in this state, and with this accumulation, can furnish these products cheaper than her neighbors ; and this is a reason they should purchase them of her. Could not one of our old States supply one of the new States with manufactures, cheaper than the new State could produce them itself ? And is not this a reason why the new State should procure them by exchange, ralher than by direct production ? Is it not cheaper for an Indian to buy a rifle of an European, than to attempt to make one for himself ? This is, however, by no means to assert that such arrangements and relations are to be permanent. As a country accumulates fixed capital, it creates jts own facilities for creating almost every kind of manufactured product. One nation will naturally begin to do this at the same point of accumulation at which another began to do it. And the way in which to arrive at this point the soonest, is to become rich as fast as possible ; that is, to buy as cheap as we can, or, in other words, to procure, annually, as many objects of desire as possible, for a given amount of labor. A tribe of Indians would much sooner be able to make rifles for itself, by pur- chasing, at first, rifles of an European, than by deter- mining that it would never use rifles, until it could man- ufacture them for itself. As the use of a rifle would render industry more productive, and thus render the tribe richer, it would bring them one step nearer to that degree of accumulation, at which they might begin to make rifles for themselves. But the resolution not to purchase of others, would have no such tendency, inas- much as it would do nothing whatever towards accum- ulating production ; but would, on the contrary, shut them out from the very means offered them for most rapidly benefiting their condition. To sum up what has been said. It will be seen that production will be increased ; that is, men will be richer, and therefore may be happier, as the following conditions are complied with : 1. As the laws of nature, designed by our Creator "or our benefit, are understood ; EFFECTS OF INCREASED PRODUCT1VLN ESS. 93 2. As the means are devised for availing ourselves, in the most successful manner, of the utility of, these laws ; 3. As the human labor necessary to be expended, is so arranged as, with a given expenditure, to produce the greatest and most perfect result ; and 4. As the inhabitants of the earth, in different locali- ties, devote themselves most exclusively to the produc- tion of those objects of desire, for the production of which they have received, "either directly or indirectly, from their Creator, the greatest facilities. Or, still more generally, production will be abundant ; that is, man will enjoy the means of physical happiness, in proportion to his individual industry, both of body and mind ; and to the degree of harmony and good feeling which exists between the individuals of the same society ; and also between the different societies them- selves. SECTION IV. EFFECTS OF THE INCREASED PRODUCTIVENESS OP HUMAN INDUSTRY. This subject has been already so frequently alluded to, and all the points on which it depends, so distinctly stated, that it will not be necessary to examine it so fully, as might otherwise be required. The result of industry applied to capital is product, value, or the means of gratifying human desire. The result of increased productiveness of human industry, is, with the same labor, increased product, value, or means of gratifying human desire. That is, in general, in- creased productiveness is equivalent to increased means of human happiness. This simple statement would seem sufficient to explain the whole subject. In order, 94 EFFECTS OF INCREASED PRODUCTIVENESS. however, to obviate any objections that may arise, we will proceed to show its practical operation, by several illustrations. Take the case of a single individual. Suppose a man, by the same amount of labor that he spent last year, to be able this year to create twice as much value. Suppose that a fanner has twice as large a harvest ; that is, that his instrument is twice as good this year as it was last year. The result is, he will be able to satisfy the desire which thaf product gratifies, twice as abundantly as he did last year. He will have more to exchange with other producers, and hence he will be able to gratify other desires more abundantly. He will be able to make exchanges which were before out of his power ; hence, he will be able to add to his mode of living, new means of happiness. And, on the other hand, as he is able to make exchanges with others with whom it was before impossible, others, in return, are able to avail themselves of his product or means of hap- piness, who were before unable to do so. Hence, he is not only happier himself; but the very means, by which he becomes so, render him the instrument of greater happiness to others. Hence, it is a benefit to a whole neighborhood, for a single member of it honestly to become rich. In other words, increased productive- ness, in one branch of labor, increases productiveness in every branch of labor. Let us call this first individual A, and suppose that before the productiveness of his labor had been in- creased, he exchanged with another individual, B-, on equal terms. If the labor of A and B were 10 per day, they would exchange with each other at the rate of 10 for 10. But, suppose now, that by some new in- vention, A's labor produced 20 per day. He would offer to exchange on the same terms as before, but he ivould offer 20, and expect from B, *20 in return. But, in consequence of the inferior productiveness of B's labor, he would not be able to purchase so much ; he could afford to buy only 10, as before. A, therefore, iii order to induce him to exchange, that is, to buy EFFECTS OF INCREASED PRODUCTIVENESS. 95 would abate his price ; that is, would offer to exchange on better terms, and would oiler him at the rate of 20 for 15, or in some such proportion. What B would not purchase at the rate of 10 for 10, he might be willing to purchase at the rate of 15 for 20. Thus, we see, they would, in this case, share the benefit between them. But let the labor of B now be increased in productive- ness, so that it shall be equal to that of A ; that is, be also at the rate of 20 per day. They will now exchange at the same rate as before ; that is, ai the rate of 20 for 20, with this difference, that for one day's labor, they will both have twice as many objects of desire as be- fore, or as many objects of desire, with half a day's la- bor ; that is, both will be twice as rich as before. Thus, the increased productiveness of B, is now a benefit to A, inasmuch as he now receives 20 for 20, when, be- fore, he only received 15 for 20. Now it needs but a little reflection to perceive, that the case of A and B, is the case of the whole community. But the case is made still stronger, when the effect of competition is taken into the account. Let the pro- ductiveness of labor in any department be ever so great, where labor and capital are free, competition will always reduce profit in one department to the same average per cent, that it affords in other departments. Hence, let the productiveness of labor and capital, in any one mode of employment, be ever so great ; interest and wages, in that employment, will be no higher than they are, other things being equal, in other employments. That is, while the capitalist and the laborer receive the same interest and wages as the rest of the community ; in other words, while the community pay no more for this capi- tal and labor than they pay for any other, they receive a greater amount of value in exchange, and, as much more, as the productiveness of that labor and capital has been increased. Thus, capital and labor in tin- cot- ton manufacture is not better paid, upon an average, than in other modes of investment and industry. Jf it were, capital and labor would How into it, until the equilibrium was restored. But, while this is tin fact, we obtain a 96 EFFECTS OF INCREASED PRODUCTIVENESS. yard of cotton cloth for one fourth the price, or at one fourth of the labor, at which we formerly obtained it ; that is, we receive four times as much as formerly, in return for what we pay for the cost and labor of making cotton cloth. And thus, over the whole world, every instance of increased productiveness, whether it be from the use of natural agents, or from the division of labor, whether in our own country, or in another country, if we choose to avail ourselves of it, enables every man, by paying the producer the same as before, to procure a larger amount of value ; that is, of objects for the grat- ification of desire ; that is, enables every man to become both richer and happier. The above remarks will, I hope, be sufficient to il- lustrate the general principle. As, however, there are several consequences resulting from increased produc- tiveness of human labor, especially from the use and improvement of natural agents, which seem at first view to be at variance with what we have here advanced, it may be necessary to pursue the results somewhat more minutely, and to consider the objection commonly made, that the use of labor-saving machinery is prejudicial to the interests of the laboring classes. It may, however, be here premised, that the objection made against natural agents, is not to their use, but to their improvement. Men object to the use of a spinning jenny, but not to the use of a spinning icheel. They dislike a rake by horse power, but do not dislike a rake. But every one must see, that this sort of objection, if it be founded in truth, is by no means sufficiently exten- sive. A spinning wheel, or a hand loom, or a hand rake, is a labor saving machine ; and it involves the use of natural agents, just as truly as a spinning jenney, a power loom, or a horse rake. If the use of natural agents be injurious, we should abandon them altogether, and spin, and weave, and rake, with our fingers. But if this would be unwise, and it be conceded that we must use natural agents, in some form or other, why not use the best that we can procure ; that is, the best that God has given us ? If, as all must allow, the use of EFFECTS OF INCREASED PRODUCTIVENESS. 97 them, up to a certain point, has conferred an incalcula- ble benefit, what reason have we -to suppose, that addi- tional improvement in the use of them will not confer still additional benefit. But, passing this, I proceed to consider the effects of increased productiveness of labor, both upon Producers ind Consumers. I. The effects of natural agents upon PRODUCERS. These are either immediate, or ultimate. 1. Immediate. It is said that every improvement in machinery enables the work to be done by fewer labor- ers, and hence many persons are thrown out of employ- ment ; and that every change in the manner of labor, deprives many persons of the use of that skill, which is their whole means of subsistence. So far as change in the manner of labor is concerned, but little need be said, as this is but a temporary incon- venience. If a new kind of work is to be done, some persons must learn to do it, and must be paid for learn- ing. If a man do not choose to learn it, although he would be paid for learning it, and be supported by his labor, after he has learned it, it is his own fault. He may quarrel with his own obstinacy, but he has nothing else to blame. Nor is the simple change of employ- ment a peculiar hardship. Few men pass through life, without, at some time or other, materially modifying their mode of employment, from choice, instead of from necessity. The main difficulty, therefore, which is supposed to result from the use of improved methods of production, is, that they employ a less number of laborers : and, hence, that many laborers are thrown out of employ' incnt. In reply to this it might be asked, what is the testi~ mony of facts, in this case. Improvements in machimv ry have been going on, ever since the creation. H&s the demand for labor diminished ? Improvements have been made in particular districts. Have the laborers been, by these means, driven away ; or, on the contra 9 98 EFFECTS OF INCREASED PRODUCTIVENESS. ry, are not these the very districts, to which laborers inevitably resort for employment ? Hut, aside from this, let us examine the assertion, that some laborers are thrown out of employment. Let us, how jver, first endeavor to ascertain how great the evil is. 1 . Tt is not universal. The improved mode of pro- duction always requires some labor, and, of course, a portion of those formerly employed must still find em- ployment. . To these, there results no other disadvan- tage, than that of a change in the mode of employment ; but with the meliorating circumstances of higher wages and less fatiguing labor. 2. It is, by necessity, gradual. Improvements in machinery are made by slow degrees. Although the total change may show a greatly increased productive- ness of labor, yet no one single change is often, of it- self, great enough to produce a great change in the de- mand for laborers. Again : Let the change be ever so great, it cannot be incroduced at once, over a whole na- tion. Hence, its effects will be, at first, to reduce the wages of those engaged in the former methods of manu- facturing. The consequence will be, that no new la- borers will learn the trade. This will tend to keep up the wages of those who remain in it. And, lastly : If a new instrument is to be employed, there must be an additional number of men employed to manufacture it. This will, of course, require an additional number of laborers, who must be withdrawn from other employ- ments. This will tend to raise the price of labor, and, of course, either to furnish employment for those \\ho wish to leave the former occupation, or else to keep up :he wages of (hose who choose to remain in it. 3. The infelicity here spoken of, is no other than that which belongs to the tenure of all property whatsoever. Skill and labor, as well as capital, are always liable, in the revolutions of society, to depreciate in value, or even to become worthless. " Riches make to themselves wings, and flee away." The wisdom of man, since the creation, has never yet discovered any link strong enough to connect a human being, indissolubly, with any sublu- EFFECTS OF INCREASED PRODUCTIVENESS. 99 nary possession. The laborer, therefore, in this case, holds his property precisely as any other man holds it, and is subject to no peculiar hardship. Let us however proceed to consider the ultimate ef- fects of increased productiveness upon producers. 1. The producer shares with the rest of the commu- nity in ihe benefit derived from increased productiveness ; that is, if he earn the same wages as before, he is richer ; and, if he earn less, he is less poor than he would have been, if no such change had taken place. That is to say, money, or, in other words, a given amount of labor, is capable of procuring for him a greater amount of ob- jects of desire, than before. 2. From this increased productiveness, there must be, throughout the whole community, an increased demand Jor labor. Suppose a community of one hundred men to acquire, by their labor and capital, every year, just enough to support themselves, after defraying the ex- penses of their several establishments. So long as this state of things continued, there would be no increased demand for laborers ; for there would bo no additional capital with which to maintain them. The young must therefore emigrate, or else there will be a competition among laborers for work, and thus wages will fall. But, suppose, that by some new mode of increased produc- tiveness, the capital be increased in a single year, twen- ty-five per cent., there will then be a demand for the in- dustry of a greater number, say twenty-five additional laborers ; since this additional capital can produce noth- ing, unless it be united with labor. If there be not Iwenty-five additional laborers to be immediately pro- cured, wages must rise, because there will be a compc-. tition among capitalists for labor ; and children and per- sons, who with the former prices could earn nothing, w II now be employed. And, if ihe demand for labor, arising from this increase of capital, could not be thug supplied, those engaged in less profitable employment in other districts', and other countries, would come in to supply the deficiency. Such is always seen .o be the ~\ fact. Population follows capital. It goes where capi- ) 100 EFFECTS OF INCREASED PRODUCTIVENESS. tal goes, and it concentrates where capital accumulates, and it retires when capital retires. And hence, in a whole country, where the number of inhabitants is limit- ed, the increase of capital must raise the rate of wages. And hence, by just so much as increased productive- ness of labor increases the amount of capital, it must also tend to raise the price of labor throughout a whole country. That is to say, the obvious tendency of the use of natural agents is, to increase the wages of labor- ers in general. 3. But, the tendency of the use of machinery is to increase the wages of laborers, in that very department of industry, in which they are employed. The reason for this is obvious. Reduction of price produces an additional demand, more than sufficient to compensate for the diminished amount of labor necessary for the creation of the particular product. That this must al- ways be the case, can, I think, be conclusively phovr/i. Suppose that with the present machinery, one hi iiiired men are able to manufacture cotton cloth at fif:y cents per yard, and that the amount which they produce is precisely sufficient to supply the wants of the disurict for which they labor. At this price, no consumers, but those worth one thousand dollars per year, can afford to purchase cotton cloth, and, of course, the de-nand is limited exclusively to them. Suppose now, that im- proved machinery enables fifty men to manufacture ai large an amount of cotton cloth as one hundred men could manufacture before, and the consequence is, that cotton cloth is sold at twenty-five cents per yard. It is evident, that if the demand be precisely doubled, there will be wanted just as many laborers as before ; so that their condition will be in no manner altered, except by change of labor with its correspondent advantages, and the gradual rise of wages, spoken of above. And, it is also evident, that every degree of increase of demand, beyond what is sufficient to produce this equilibrium must be for the benefit of those engaged in this sort of labor. But it is evident for several reasons, that the reduc- EFFECTS OF INCREASED PRODUCTIVENESS. 1G1 ijon of price one half, must more than double the de- mand for cotton cloth. Thus, when the price was fifty cents per yard, only those consumers who were worth one thousand dollars per year, could purchase cotton cloth ; and the sale was, of course, limited to them. But now that it is at twenty-five cents, the class worth only five hundred dollars per year is just as able to pur- chase it, as those worth one thousand were formerly. Now, if this class were only of the same number as that worth one thousand, the demand would be doubled, and, of course, the laborer would suffer no injury. But the fact is, that the class worth five hundred dollars, is three or four times as large as that worth one thousand. Hence, by all this difference, the laborer is the gainer, and a larger number of laborers is required. But this is not all. There are various classes, between those worth one thousand dollars and those worth five hundred dol- lars, who are now able to purchase the article, as, those of nine hundred, eight hundred, seven hundred, and six hundred, each one of them being larger than the class of first purchasers. All these unite to increase the de- mand for this kind of labor. And again : The class worth one thousand dollars will now use a much largei amount of cotton cloth than formerly ; and cotton cloth will now be used for purposes to which it could never before have been appropriated, and it will supersede the use of many articles, with which it could never before have eome into competition. All this is to be added to the benefits conferred, by the Introduction of machinery, or by increasing the productiveness of labor, upon the laborers in this particular department. Every one must see that this benefit, thus resulting from increase of de- mand, which is the thing now under consideration, is ab- solutely incalculable. It may be said, that this is an exaggerated case. I answer : The case is not given for the sake of accuracy in numbers, but for the sake of illustrating a manifest tendency. And, that, in this respect it is accurate, the whole history of manufactures bears ample testimony. Compare those states of society m which machinery is. 9* J02 EFFECTS OF INCREASED PRODUCTIVENESS. not used, with those in which it is used, and inquire m which of them the wages of the laborer are higher, and in which his habitation displays the greater number of comforts, and in which his shelf is covered with the greater number of books. Examine the statistics of a particular branch of manufacture, and inquire in what period there has been, in proportion to the whole population, the greatest number of laborers required in that particular manufacture. Has this demand for this pariicular kind of labor been greater in the period when natural agents and machinery have been used, or in that in which they have not been used ? The answer to these questions is given in the history of the progress of the cotton manufacture, the manufacture of books, of nails, of pins, and every other article of common use : and such articles alone are of any consequence in such an estimate. This shows that the above illustration is true, so far as it teaches the tendency, which is all that is necessary in the present case. But this is not all. Suppose the demand for cotton cloth to be doubled, there must be twice the amount of cotton produced ; twice as many vessels built, to trans- port it ; twice as many men to navigate them ; besides the number of men required to construct the machinery necessary to fabricate it. Suppose the number of books to be doubled ; there must be twice as much paper made, twice as many rags purchased, twice as many types made, and twice as much transportation required for the supply of the market. All this must add to the demand for labor, and must tend, by just so much, to increase the wages of the operative. And hence, if these con- siderations be compared, it will be seen : 1. That the introduction of machinery reduces the price of articles of consumption ; that is, renders the tcao-fs, whatever they may be, of the operative, of more value, 2. That, by the more rapid multiplication of capital, it produces a greater demand for labor in general, that is, it makes the wages of all labor greater ; and 3. That its tendency is to create an increased demand EFFECTS OF INCREASED PRODUCTIVENESS. 103 for laboi ; that is, to produce a rise of wages in that de- partment of industry, into which natural agents are specially introduced ; and it does this according to the degree in which they are introduced. That is, in gen- eral, the introduction of machinery renders the wages of the laborer more valuable ; it raises the wages of labor in general, and raises the wages of labor specially, in that department in which natural agents are employed. What any man can reasonably ask for, more than this, I do not distinctly perceive. II. The effects of increased productiveness upon consumers may be easily explained, on the principles al- ready illustrated. I need not, therefore, enlarge upon this subject, as it has already been so frequently alluded to. 1. By increased productiveness, every consumer is richer ; that is, he is able, by the same amount of labor, to procure a greater amount of the objects of desire. This is evidently the same thing to him, as though his income were increased. If I am able, this year, with two hundred dollars, to purchase as much as I could purchase last year for four hundred dollars, and I can earn two hundred dollars, as easily as before, it is pre- cisely the same thing, as if, at the former prices, my wages had risen from two hundred to four hundred dollars. 2. Production is more perfect. This has already been illustrated, as one of the effects of the use of ma- chinery ; that is, the consumer not only obtains more of the same article for the same sum of money, but he also obtains a better article. Every one must have observed, that calicoes, crockery, and many other articles of ordi- nary consumption, are not only much cheaper, but also much more beautiful, than they were a few years since. 3. A vast number of articles is thus added to the moans of happiness of the human race, 01 which, other, wise, they must, from necessity, have been deprived- All that we possess, above the comforts of the naked savage, is the result of the use of natural agents, and of division of labor ; that is, of the increased productive- ness of human lal or. 104 EFFECTS OF INCREASED PRODUCTIVENESS. 4. Nor is this all. While all the labor of man is necessary to support mere physical existence, there can be no opportunity for intellectual cultivation. As soon, however, as he arrives at that condition of productive ness of labor, in which he is able to provide for his phys- ical wants, with less than all his time and effort, oppor- tunity is afforded for intellectual development. At this point, commences the dawn of intellectual improvement. As increased productiveness affords more abundant lei- sure, improvement advances. As soon again, as, by improved intellectual power, man begins to discover and apply the laws of nature, a vast accession is made to the power of human productiveness. Henceforth, these two forces conspire to assist each other. Increased pro- ductiveness allows of increased time for investigation, discovery, and invention ; and discovery and invention inciease the power of productiveness. The more ac- tively these act and re-act upon each other, the more rapid is the progress of society, and the more rapidly accelerated is the movement of civilization. If this be so, we see how puerile is the prejudice which frequently exists against the use of labor-saving machinery since the introduction of such machinery, more than any thing else, tends permanently to improve the condition of the laborer. We see, also, how groundless is the opinion, that education and science are without practical benefit, and that philosophers and stu- dents are merely a useless burden upon the commu- nity ; since it is knowledge which has given to us all the advantages which we possess over savages, and it is the application of that knowledge, which furnishes employ- ment for nine tenths of the whole community. We see, also, how short-sighted is that national selfishness, which desires to limit and restrict the intercourse between na- tions ; since it is for the interest of each nation to im- prove, to the utmost, its own advantages, and to pro- cure, by exchange with other nations, those production? for the creation of which it possesses, by nature, inferior facilities. CHAPTER THIRD. OP THE LAWS WHICH GOVERN THE APPLICATION OV LABOR TO CAPITAL. WE have thus far, considered capital and labor, sep- arately, and have endeavored to analyze the nature and functions of each. It is manifest, however, that we have not yet exhausted the subject. In many countries, a vast amount of capital and of labor has never yet been employed. In other countries, capital and labor have been united at different periods, with different degrees of success. Hence, while some nations have rapidly accumulated wealth, the wealth of others has remained, for ages, stationary ; and in others, it has diminished. The most fertile soils of Europe and Asia, once the garden of the world, now under the despotism of Tur- key, scarcely maintain their sparsely settled inhabitants. It remains for us, therefore, to proceed with our inves- tigation, in order, if possible, to ascertain the laws which influence the application of labor to capital. SECTION I. THE CONDITIONS OF OUR BEING, ON WHICH THE LAWS ON THIS SUBJECT ARE FOUNDED. In order to arrive at the truth with the greater cer- tainty, it will be proper to consider the circumstances under which man is placed, with reference to the uni verse around him, so far as this subject is considered. 1. God has created man with physical and intellectu a) faculties, adapted to labor. He has given us a mind, adapted to investigate the laws of the universe, and a body adapted to perform all those operations by which, 100 COIsJITlONS OF PRODUCTION. in obedience to those laws, the objects of desire may be produced. 2. Labor has been made necessary to the attainment of the means of happiness. No valuable object of de- sire can be procured without it. Intellectual power cannot be attained without intellectual discipline ; nor a knowledge of the laws of nature, without study. Nei- ther physical comforts, nor even physical necessaries, can be obtained, unless labor be first expended to pro- cure them. The universal law of our existence is, " In the sweat of thy face shall thou eat thy bread." 3. Labor is necessary to the healthful condition of our powers, both physical and intellectual. Without intellectual labor, the mind becomes enfeebled ; and, were this labor wholly intermitted, it would sink into idiocy or madness. Without physical labor, the body, feeble and enervated, becomes a prey to pain and dis- ease. 4. Thai labor, per se, is pleasant, it is not necessa- ry to assert. It is sufficient to our purpose, that it is less painful than idleness and the results of idleness. The laborer complains of his toil, but deprive him of his opportunity for toil, and he becomes miserable. When men are, in our penitentiaries, condemned to solitary confinement, and labor or idleness are left pure- ly to their own choice, they have never been known to continue longer than a few days, without beseeching, importunately, for work. The veterans who are sup- ported at Greenwich Hospital, England, at the public expense, wholly without labor, are said to be, in gen- eral, very unhappy. The uncontrollable desire of chil- dren for some sort of employment, illustrates the same truth. Those persons who consider labor as degrading, obey the same law of our nature in another form. The gymnastic exercises of the Greeks and Romans, and the hunting, riding, shooting, and travelling of the mod- erns, are nothing more than expensive modes of exer- cise or labor. The poor man exercises himself, the rich man employs a horse to exercise him. The one does expensively and unproductively, what the other CONDITIONS OF PRODUCTION. 107 does without expense and productively. Both equally yield obedience to the law of our creation ; and, in what manner soever it is obeyed, both reap advantages, 'from the mere fact of obeying it. 5. On the contrary, the Creator has affixed several penalties, which those who disobey this law of their be- ing, can never expect to escape. He who refuses to labor with his mind, suffers the penalty of ignorance. The amount of this penalty may be estimated, by con- sidering the blessings, both physical and intellectual, of which ignorance deprives us ; and by contrasting the comforts of savage with those of civilized nations, where the physical effort, made by both, is the same. He who refuses to labor with his hands, suffers, besides the pains of disease, all the evils of poverty, cold, hunger, and nakedness. The results which our Creator has at- tached to idleness, are all to be considered as punish- ments, which he inflicts for the neglect of this establish- ed law of our being. 0. And, on the other hand, God has assigned to in- dustry, rich and abundant rewards. " The hand of the diligent maketh rich." " Seest thou a man diligent in his business, he shall stand before kings ; he shall not stand before mean men." The pleasure, the indepen- dence, and the power arising from knowledge, are the rewards of intellectual industry. " A wise man is strong, yea, a man of understanding increase th strength." And it is only by physical labor, that the riches of the earth are appropriated, and the laws of nature made avail- able to the happiness of man. At the first there existed nothing in our world but the earth, with its spontaneous productions, and capabilities, and helpless and defence- less man. All that now exists of capital, of conven- ience, of comfort, and of intelligence, is the work of industry, and is the reward which God has bestrwed upon us for obedience to the law of our being. 7. If such be the facts ; if God have given to all men faculties for labor ; if he have made labor necessary tw our happiness ; if he have attached the severest penal- ties to idleness, and have proffered the richest rewards 108 FREEDOM OF LABOR AND CAPITAL. to industry ; it would seem reasonable to conclude, thai all that was required of us, was, so to construct the ar- rangements of society, as to give free scope to the laws of Divine Providence. If he have excited us to labor by sufficient rewards, t and deterred us from indolence by sufficient penalties, it would seem that our business must be, to give to these rewards and penalties their free and their intended operation. These, at any rate, should be the means first tried, in order to facilitate production ; nor should any others be resorted to, until these have been tried and found ineffectual. The effects of this constitution, under which we are placed, will, 1 think, be fully exerted, in proportion as the following conditions are observed : 1. As every man is permitted to enjoy, in the mqst unlimited manner, the advantages ot labor. 2. As every man, suffers the consequences of idleness. And, these being equal, 3. Labor will be applied to capital, according to the ratio which subsists between the whole amount of capi- tal and the whole number of laborers ; that is, the great- er the ratio of capital to the number of laborers, the more active will be their industry, and vice versa. And, 4. Labor will be applied to capital, in proportion to the knowledge which men possess of the advantages which they shall obtain by labor ; that is, the greater the intelligence, the greater the industry. To these several topics, the four following sections of this chapter will be devoted. SECTION II. INDUSTRY WILL BE APPLIED TO CAPITAL, AS EVERT MAN ENJOYS THE ADVANTAGES OF HIS LABOR AND HIS CAPITAL. Although God has designed men to labor, yet he has not designed them to labor without reward. Hence, when Tien devise some form of labor, even for exercise, DIVISION J)F PROPERTY. 100 they always connect with it some result, as the game of the huntsman, or the watering place of the traveller or tourist. Thus, also, as it is unnatural to labor without receiving benefit from labor, men will not labor continu- ously nor productively, unless they receive such bene- fit. And, hence, the greater this benefit, the more active and spontaneous will be their exertion." In order that every man may enjoy, in the greatest degree, the advantages of his labor, it is necessary, provided always he do not violate the rights of his neigh- bor, 1st, That ke be allowed to gain all that he can ; and, 2d. T/iaf, having gained all that he can, he be al- lowed to use it as he will. I. It is necessary that every man be allowed to gain all that he can ; that is, that the arrangements of socie- ty be so constructed, that every man be able to render his labor, in the highest degree, available to himself. This will require, I . That property be divided. When property is held in common, every individual of the society to which it belongs, has an equal, but an undivided and indeter- mined right to his portion of the revenue. Hence, every one is at liberty to take what he will, and as much as he will, and to labor as much or as little as he pleases. There is, therefore, under such an arrange- ment, no connexion between labor and the rewards of labor. There is rather a premium for indolence than for industry. In such a case, there will be no regular labor, if indeed there be any labor at all ; and, what is still worse, even the scanty and spontaneous produc- tions of the earth will frequently be gathered before they are ripe, since every one fears, that, if he do not seize them now, he will never enjoy them at all The forest of an Indian tribe is held in common, and a few hundred families barely subsist upon a territory which, were it divided and tilled, would support a mil- lion of civilized men. The little that it produces to him. is the result of division of properly. His bow and arrows, his wigwam, and his clothing are acknowl- edged to he, in the .fullest sense, his own. Were these 10 110 DIVISION OF PROPERTY to be held, like his land, in common, the whole race would very soon perish, from want of the necessaries of life. On the contrary, as soon as land with all other prop- erty is divided, a motive exists for regular and voluntary labor, inasmuch as the individual knows that he, and noi his indolent neighbor, will reap the fruit of his toil. Henceforth he begins to create a regular supply of an- nual product. With increased skill, this annual product increases, and he begins to convert it into fixed capi- tal, a form of wealth which could scarcely exist without division of property. Every accession to his fixed cap- ital renders his labor more productive, and hence it cre- ates a stronger stimulus to increased exer'ion. With increased exertion, his annual capital is increased, and a greater surplus remains to be changed into fixed capital. Thus, increased production stimulates industry, and in- creased industry results in more abundant production. Thus, division of property, or the appropriation, to each, of his particular portion of that which God has given to all, lays at the foundation of all accumulation of wealth, and of all progress in civilization. It is for this reason that property held in common, is so generalJy prejudicial to the best interests of a socie- ty. A common, where every one, at will, may pasture his cattle, and a forest, from which every inhabitant may procure his fuel, are encouragements to indolence, and serve to keep a community poor. Thus, also, funds left at large for the support of the poor, on which every one is supposed to have an equal right to draw, have generally been found to foster indolence. Poor laws, in ao far as they are to be considered a fund for this pur- pose, have the same sort of injurious tendency. 2. But the division of property would be of no avail unless the right of property were enforced ; that is, un- less every one be protected in the undisturbed possession of whatever he has rightfully acquired. As no one will labor, unless he knows that he shall reap the fruit of his toil, so no one will take the pains to reap the fruit of his toil, unless he also know that he will be able to hold it, and THE RIGHT OF PROPERTY. Ill appropriate it to the purposes of his own gratification. And, hence, we see that human labor is exerted in dif- ferent countries, very much in proportion as the right of property is both understood and enforced. The right of property may be violated by the indi- vidual or by society. It is violated by the individual, by cheating, stealing, robbery, and violation of con- tracts. And, universally, just as these crimes prevail, production languishes, industry diminishes, and the rich- est s'oil fails to support its few and impoverished inhabi- tants. Such was the case in Europe, during the era of feudal oppression. TlTere was then no encouragement to labor, because no one knew whether he, or a baronial tyrant, would reap the fruit of his industry. Hence, we see the economical importance of all means which shall prevent the individual violation of the riglft of property. These means are two. The first is, the inculcation of those moral and reli- gious principles, which teach men to respect the rights of others as their own, that is, to obey the law of reciproci- ty ; and which present the strongest conceivable reas- ons for so doing. This io the most certain method of preventing the violation of the right of property, inas- much as it aims to eradicate those dispositions of mind, from which all violation proceeds. It is also the cheap est, as it aims at prevention, which is always more econ ornical than cure. It is also necessary, inasmuch as good laws will never be enacted, or if enacted, will nev- er be obeyed, only in so far as there exists a moral char- acter in the community sufficiently pure to sustain them. In proportion as these are efficacious, all other means are needless. Hence, we see the reason why moral and religious nations grow wealthy so much more rapidly than vicious and irreligious nations. The feeling of per- fect tranquillity and security, which a high social morali- ty diffuses over a whole community, is one of the most beneficial, as well as one of the strongest stimulants to universal industry. This is one of the temporal reward^ which God bestows upon social virtue. And, inasmuch as no one can enjoy this reward, simply by being virtu- 112 THE RIGHT OF PROPERTY. ous himself, but only as his fellow citizens also are virtu ous, we see the indication in our constitution, that it is the duty, as well as the interest, of every man, to labor to render other men more virtuous. 3. But inasmuch as all men are not influenced in their conduct by moral and religious principles, it is necessary that aggression be somehow prevented, and violations of property, in so far as possible, redressed. Hence, the importance of wholesome and equitable laws, of an in- dependent and firm judiciary, and an executive, which shall carry the decisions of law faithfully into effect. Hence the expense, necessary for the most perfect ad- ministration of justice, is among the most productive of all the expenditures of society. Good law, and the faithful administration of it, are always the cheapest law, and the cheapest administration of it. The interests of man require that law should be invariably executed, ^nd that its sovereignty should, under all circumstances, be inviolably maintained. But the right of property may be violated by society. It sometimes happens, that society, or government, which is its agent, though it may prevent the infliction of wrong by individuals upon each other, is by no means averse to inflicting wrong or violating the right of indi- viduals itself. This is done, where governments seize upon the property of individuals by mere arbitrary act. a form of tyranny, with which all the nations of Europd were, of old, too well acquainted. It is also done, by unjust legislation ; that is, when legislators, how well so- ever chosen, enact unjust laws, by which the property of a part, or of the whole, is unjustly taken away, or what is the same thing subjected to oppressive taxation. Of all the destructive agencies which can be brought lo bear upon production, by far the most fatal, is public oppression. It drinks up the spirit of a people, by in- flicting wrong through means of an agency which was creaied for the sole purpose of preventing wrong ; and which was intended to be the ultimate and faithful refuge of the friendless. When the antidote to evil, becomes '.he source of evil, what hope for man is left ? When FREEDOM OF INDUSTRY AND CAPITAL. lid society itself sets the example of peculation, what shall prevent the individuals of the society from imitating that example ? Hence, public injustice is always the prolific parent of private violence. The result is, that capita, emigrates, production ceases, and a nation either sinks down in hopeless despondence ; or else the people, harassed beyond endurance, and believing that their condi- tion cannot be made worse by any change, rush into all the horrors of civil war ; the social elements are dissolved ; the/ sword enters every house ; the holiest ties which bind men together are severed ; and no prophet can predict, at the beginning, what will be the end. Hence we see the importance to the industry of a country, of a constitution which guarantees, to the indi- vidual, immunity not only from private, but also from public oppression. Wherever this immunity is wanting, the progress of a nation in wealth will be slow. It is owing rather to the freedom of her institutions and the equity of her laws, than to her physical advantages, that Great Britain has so far outstripped all other European nations in the accumulation of wealth, and in every thing that confers social power. It is almost superflu- ous, however, to add, that a free constitution is of no value, unless the moral and intellectual character of a people be sufficiently elevated to avail itself of the ad- vantages which it offers. It is merely an instrument of good, which will accomplish nothing, unless there exist the moral disposition to use it aright. To sum up what has been said : Labor will be ap- plied to capital, in proportion as every man is allowed to gain all that he can ; that is, as property is most per- leetby divided ; and as this division is most strictly en- forced ; that is, as the right of property is guarded by the -most equitable laws ; and as there exist the strong- est guarantees that these laws will be inviolate, whethei they relate to individuals or to society. II. The second part of the condition mentioned in the beginning of this section is, that the individual be illowed to use his own as he will. To this, is of course 10* I 14 FREEDOM OF INDUSTRY AND CAPITAL. to be added the condition, that he use it in sucn manner, us not to interfere with the rights of his neighbor. A man's possessions are his talents, faculties, skill, and the wealth and reputation which these have enabled him to acquire ; in other words, his industry and his capital. In order that industry be applied to capital with the greatest energy, it is necessary that every man be at liberty to use them both as he will ; that is, that loth of them be free. And first, of industry. The aptitudes of men for different employments are very dissimilar. The choice of every man naturally leads him to that employment for which he is best adapted. By allowing every man, therefore, to employ his industry as he choose 5 -, every man will be employed about that for which he is best adapted ; and hence, the production of all will be great- ly increased, because we thus avail ourselves of the pe culiar productiveness of every individual. Nor is this all. By allowing evc*y man to labor as he chooses, we very greatly increase the happiness of every individual. And every one knows that a man will labor with better success when his labor is pleasant, than when it is irk- some. The case is the same with respect to capital. Every man is more interested in his own success, than any other man can be interested in it. Hence, every man is likely to ascertain more accurately in what manner he can best employ his capital, than any other man can as- certain it for him. If every man, therefore, be allowed to invest his capital as he will, the whole capital of a country will be more profitably invested, than under any other circumstances whatever. And, since, when he is left thus at liberty, there will be the greatest gain to the capitalist, there will also be the greatest stimulus tohis industry ; for the stimulus to labor is always in propor- tion to the rewards of labor. And, on the contrary, in just so far as, by anv means, this productiveness is di- minished, the stimulus to labor is also diminished with it. It may be said that men, if left to themselves, will be liable to invest their capital unwisely. Granted. Man FREEDOM OF INDUSTRY AND CAPITAL. 115 is not omniscient, and therefore this liability cannot bo avoided. The question, therefore, is, how shall il be rendered as small as possible. Will a man, who reaps the benefit of success and suffers the evils of failure, be less likely to judge correctly, than he whose faculties are quickened by no such responsibility ? Nor is this all. Not only are legislators, who generally assume the labor of directing the manner in which labor or capital shall be employed, in no manner peculiarly qualified for this task ; they are, in many respects, peculiarly disqualified for it. The individual is liable to no peculiar biases, in making up his mind in respect to the profitableness of an investment. If he err, it is because the indications deceive him. The legislator, besides being liable to err by mistaking the indications, is liable to be misled by party zeal, by political intrigue, and by sectional preju- dice. What individual would succeed in his business, if he allowed himself to be influenced in the manner of conducting it, by such considerations ? And must not like causes always produce like results ? Besides, every man feels, instinctively, that he has a right to use his capital and his industry as he pleases, provided he interfere not with the rights of another ; and that, to restrict him in this use, is injustice. We have before said, that nothing paralyzes industry like op- pression, and it is as true in this case, as in any other. If this sort of interference be violent or frequently re- peated, capital and labor, whose motto, like that of Dr. Franklin, is, " Where liberty dwells, there is my coun- try," will emigrate to some more congenial social atmo- sphere. And if the interference be not so intolerable as to produce these results, yet, in just so far as it has any effect, it is all of this kind, and, by its whole opera- lion, must diminish the incitements to industry. And, on the contrary, just in proportion as every in dividual is free to employ his industry and capital as he rhooses, and thus both to receive a larger compensation for his labor, and also to laoor more happily, will be the inducements to industry and to the investment of capital. 116 FREEDOM OF INDUSTRY. If this be so, we see the impolicy of several forms of legislative interference, in relation to this subject. 1. We see what must be the effects of monopolies. A. monopoly is an exclusive right granted to a man, or to a company of men, to employ their labor or capital in some particular manner. Sucfe was the exclusive right granted to the East India Company, to import into the poits of Great Britain, or her territories, the produc- tions of all countries east of the Cape of Good Hope. Such were the privileges granted formerly by Spain, to particular individuals or companies, of importing foreign commodities into the ports of her colonies in bouth America. The result of this exclusion was to prevent all other persons, except those thus favored, from in- vesting their capital in this manner ; and hence, to re- duce the value of that capital, by precisely the amount of this effect. Nor is this all. Those who hold this exclusive privilege, being liable to no competition, may charge for their commodities whatever they choose Here is, therefore, a two-fold injustice ; first, the means of the consumer are diminished ; and secondly, the price which he must pay, is enhanced at the mere will of his oppressor. 2. Hence we see the impolicy of obliging an indi- vidual, or a class of individuals, to engage in any labor, or to make any investment, contrary to their wishes. Thus, we are told that during the French revolution, some individuals were punished capitally, for raising cat- tle instead of wheat. Men may call this legislation, but the true name for it is robbery. To oblige a man to raise a crop worth fifteen dollars per acre, when he would otherwise have raised one worth twenty dollars per acre, is just the same thing as to let him do as he pleases, and then rob him of five dollars an acre after- wards. The wrong is the more intense, in the former ^ase, inasmuch as it is done under the semblance of jus- tice, and by men who claim, as the robber does not, that they have the right to do it. Such legislation as this will, in any country, soon produce a famine. 3 Another form of injury under this class, is seen in FREEDOM OF INDUSTRY. 117 the restrictions upon industry, formerly, if not now, ex- isting in many of the countries of Europe. By these regulations, artisans were prohibited the exercise of more than one trade ; they were not allowed to exercise that trade, unless they had served a prescribed appren- ticeship ; nor unless they joined a particular trade-soci- ety, and bound themselves to comply with certain restric- tions, as, for instance, to sell at particular prices, and never to employ beyond a certain number of appren- tices. The result of all this oppression is most iniqui- tous. It reduces the value of skill and industry, the sole estate of the laborer ; and places him in the power of those whose interest it is to reduce the supply as much as possible, in order to secure to themselves the most exorbitant profit. In such cases, a large amount of available industry must be kept out of employment ; and, of course, production is, to this whole amount, di- minished. The tyranny of trades-unions, though ema- lating from the people instead of the government, pro- duces precisely the same effect. 4. The same effect is partially produced by any mode of legislation, by which, in consequence of favor shown to one party, which of course another party must pay for, men are obliged to exchange an employment, for which they have peculiar facilities, for another which they do not prefer, and for which they have not the same facilities. The manner in which this would lessen the stimulus to industry, has already been illustrated. Thus, should our government, believing that commerce was more valuable to this country than manufactures, lay a tax, sufficient to meet the expenses of the govern rnent, upon all American manufactures, in order to in- crease the amount of foreign ii iportation, this would drive manufacturers out of business and oblige them to become merchants and agriculturists. I think that every one must see that this would diminish the stimulus to industry throughout the whole country. Men would not voluntarily engage in manufactures in preference to com- merce, unless they found manufactures to be more profit- able ; and to oblige them to exchange the one for the 118 PREVENTION OF IDLENESS. other, is, therefore, to oblige them to leave a moie pro- ductive for a less productive mode of employment. By all this difference is the country the loser, and the incite- ment to industry diminished. 5. Hence, we also see the impolicy of laws regulating consumption. Such are sumptuary laws ; or those which limit the degree of expensiveness in our dress, clothing, or equipage. These were formerly common in Europe. Such also are laws which forbid or restrict the expenditure of money for the purposes of benevo- lence, religion, or any thing of this sort. Every one must see that one of the incitements to industry, is the pleasure which men expect to derive from expenditure. Now, if this expenditure be - innocent, it matters not what sort of expenditure it is. Society has nothing to do with it ; and it can in no manner interfere with it, without doing injustice, and taking away one of the strongest inducements to industry. SECTION III. LABOR WILL BE APPLIED TO CAPITAL IN PROPOR- TION AS EVERY MAN SUFFERS THE INCONVEN- IENCES OF IDLENESS. If God have made labor necessary to our well being, in our present state ; if he have set before us sufficient rewards to stimulate us to labor ; and if he have attach- ed to idleness correspondent punishments, it is manifest that the intention of this constitution will not be accom- plished, unless both of these classes of motives are al- lowed to operate upon man. We shall, therefore, co- operate with Him, in just so far as we allow his designs to take effect in the manner he intended. Now this result will be accomplished, 1. By the division of property. When property is perfectly divided, and every thing is owned by some PREVENTION OF IDLENESS. 119 one, and every one knows what is his own, nothing is left in common. Of course, no man can then obtain any thing more than he now possesses, unless he obtain it by labor. And as every man has faculties capable of labor, and as these are exclusively his own ; and as every one, who possesses capital, desires to employ la- bor with which to combine it, every man who possesses his natural faculties, has the means by which he may ob- tain something for his subsistence. The division of property is thus favorable to the laborer ; inasmuch as, in consequence of it, every one needs his labor, and also has something to give him in exchange for it. 2. But suppose property to be universally divided. A man may possess himself, either dishonestly or by begging, of the property for which he has not labored. The dishonest acquisition of property, as by cheating, stealing, or robbery, will be prevented by the strict and impartial administration of just and equitable laws. Hence, we see that the benefit of such laws- is two-fold. They encourage industry, first, by securing to the indus- trious the righteous reward of their labor ; and, second- ly, by inflicting upon the indolent the just punishment of their idleness ; or, rather, by leaving them to the conse- quences which God has attached to their conduct. Be- ing thus thrown upon their own resources, they must obey the law of their nature, and labor, or else suffer the penalty and starve. If any man complain that this is a hardship, he must mean that this hardship has reference to our relations either to man or to God. So far as our relations to man are concerned, there can certainly be no hardship ; for everything that we see 'is the result of labor, and is either the result of the labor of him that holds it, or nf him who voluntarily parted with it for an equivalent in labor. Now, as every thing we see is the result of la- bor, the question is, who shall enjoy this result of labor, he who has labored, or he who has not. If it be a hardship for a man not to enjoy that for which he has not labored ; it would certainly be a much greater hard- *hip for a man not to enjoy that for which he has la- 120 POOR LAWS. bored. So that, the hardship would be greater if tilt system were arranged to suit the complainant, than it is now, under the system of which he complains. If the hardship turn upon our relations to God ; that is, if a man complain because God made him to labor, it is a difficulty which the complainant must settle with his Maker. We have nothing to do with it. But since God has ordained it, we cannot help it, and an indolent man has no just cause of grief with his fellow men, if they see fit to act according to it. II. But men may be relieved from the necessity of labor, by charity. It will be understood that I here speak of men as poor from indolence, and not by visita- tion of God. I do not here refer to the sick, the infirm, the aged, the helpless, the widow, the fatherless, and ihe orphan. When God has seen fit to take away the power to labor, he then calls upon us to bestow liberally, and he always teaches us, that this mode of expenditure of our property is more pleasing to him than any other. With this mode of charity I have now nothing to do. I speak only of provisions for the support of the poor, simply because he is poor ; and of provisions to supply his wants, without requiring the previous exertion of his labor. Of this kind are poor laws, as they are estab- lished in England, and in some parts of our own country, and permanent endowments left to particular corpora- tions for the maintenance of the simply indigent. Now such provisions we suppose to be injurious, for several reasons. 1 . They are at variance with the fundamental law of government, that he who is able to labor, shall enjoy only that for which he has labored. If such be the law _of God for us all, it is best for all, that all should be subjected to it. If labor be a curse, it is unjust that one part, and that the industrious part, should suffer it all. If, as is the fact, it be a blessing, there is no rea- son why all should not equally enjoy its advantages. 2. They remove from men the fear of want, one of the most natural and universal stimulants to labor. Hence, in just so far as this stimulus is removed, there PCCR LAWS. 121 will be, in a given community, less labor done ; that is, less product created. 3. By teaching a man to depend upon others, rather than upon himself, they destroy the healthful feeling of independence. When this has once been impaired, and the confidence of man in the connexion between labor and reward is destroyed, he becomes a pauper for life. It is in evidence, before the committee of the British House of Commons, that, after a family has once appli- eJ for assistance from the parish, it rarely ceases to ap- ply regularly, and most frequently, in progress of time, for a larger and larger measure of assistance 4. Hence, such a system must tend greatly to increase the number of paupers. It is a discouragement to in- dustry, and a bounty upon indolence. With what spirit will a poor man labor, and retrench, to the utmost, his expenses, when he knows that he shall be taxed to sup- port his next-door neighbor, who is as able to work as himself ; but who is relieved from the necessity of a portion of labor, merely by applying to the overseer of tho poor for aid. 5. They are, in principle, destructive to the right of property, because they must proceed upon the conces- sion, that the rich are under obligation to support the poor. If this be so ; if he who labors be under obliga- tion to support him that labors not ; then the division of property and the right of property are at an end : for, he who labors has no better right to the result of his labor, than any one else. 6. Hence, they tend to insubordination. For, if tho rich are under obligation to support the poor, why not to support them better ? nay, why not to si-pport them as well as themselves ? Hence the larger provision there is of '.his kind, the greater will be the liability to collis ion between the two classes. If this be so, we see, that in order to accomplish the designs of our Creator in this respect, and thus present the strongest inducement to industry, I. Property should be universally appropriated, so that nothing is left in common. II POOR LAW?. '2. The right of property should be perfectly proteu ed, both against individual and social spoliation. 3. There should be no funds in common provided for the support of those who are not willing to labor. 4. That if a man be reduced, by indolence or prodi gality, to such extreme penury that he is in danger o( perishing, he should be relieved, through the medium of labor ; that is, he should be furnished with work, and bo remunerated with the proceeds. 5. That those who are enabled only in part to earn their subsistence, be provided for, to the amount of that deficiency only. And hence, that all our provisions for the relief of the poor, be so devised as not to interfere with this law of our nature. By so directing our benevolent energies, the poor are better provided for ; they are happier them- selves ; and a great and constantly increasing burden is removed from the community. It has been found that alms-houses, conducted on this plan, will support them- selves ; and sometimes even yield a small surplus rev- enue. This surplus, however, should always be given to the paupers, and should never be received by the public. The principle should be carried out, that the laborer is to enjoy the result of his industry. For the same reason, penitentiaries and State prisons should always be places of assiduous and productive la- bor. Idleness is a most prolific parent of crime. If the vicious could be accustomed to labor, one half of their reformation would be effected. Besides, by this means, a great diminution would be effected in the expense to the community. There can be no reason why a hundred able-bodied men, and such are generally the tenants of our prisons, should not both support themselves, and pay for the superintendence necessary to their labor. In a well regulated prison, they will always do this. There must always be some- thing deeply culpable in the arrangements of such an institution, where this is not the result. And thus where a society is so organized, that ever) man is left to suffer the results of idleness ; that is, RATIO OF CAPITAL TO LABOR 123 where labor is made necessary to the acquisition 01 every thing desirable, and where the results of that labor are most perfectly secured to the laborer, there will exist the greatest stimulus to labor, and, of course, production will be most rapidly augmented. SECTION IV. THE GREATER THE RATIO OF CAPITAL TO LABOR, THE GREATER WILL BE THE STIMULUS TO LABOR. The principle to be considered in this section may be thus illustrated. Capital is useless, that is, will yield no revenue, unless it be united with labor. A farm will yield nothing, unless it be tilled, and the grain harvested ; raw cotton and a manufactory will produce nothing, un- less there be workmen to labor in it. Hence, every man who holds capital, is desirous of uniting it with in- dustry, that he may share, with the laborers, the profits of the resultir.g product. On the contrary, he who has industry, is desirous of uniting it with capital, because, unless he can so unite it, it will yield nothing in return. A man can earn nothing by spending his whole time in beating the air. Hence, when the number of laborers is great ; that is, where labor 'is abundant, and the amount of capital small, there will be a competition of laborers for work, and the price of labor will fall ; that is, the laborer will receive a less compensation for his work. On the contrary, when the number of laborers is small, and the amount of capital great, there will be competition among capitalists for labor ; that is, the price of labor will rise ; and the laborer will receive a greater compensation for his work. Thus, we see, the greater the amount of capital, in proportion to the num- ber of laborers, the greater will be the rate of wages, and, of course, the stronger the stimulus to industry. It deserves, however, to be remarked, that this prin- ciple is liable to some important modifications. Thus, it 124 RATIO OK CAPITAL TO LABOR. is practically true, only in so far as men contii.ue to be operated upon by the hope of reward. When this ceas- es to operate, and wages are so low as to render the utmost amount of labor necessary to avoid starvation, men will work more assiduously, the lower the wages ; that is, the nearer they are to actual starvation. But, to this, there is also a limit. Human beings cannot long endure great toil, under the depressing influences of de- spair. Many very soon die, and thus a diminished pop- ulation again raises the price of labor. Another com- mon result of such a condition of laborers, is domestic insurrection. Men who have long stood on the borders of starvation, become desperate. They know, that by no change could their condition be made worse ; hence cupidi rerum norarum, they unite under any agitator who promises them bread ; the whole fabric of society is prostrated ; and civil war and anarchy succeed. Another modification of this principle, is the follow- ing : I have said above, that the stimulus to labor is in proportion to the wages of labor. This will be true, only of those cases where the facilities of gratifying desire are equal. Although wages be high, yet if only few objects of desire can be procured in exchange for them, there will be wanting one important element in stimulating the human being to labor. Hence^ the stim- ulus to labor will be the most effective, when the wages are highest, and when, by means of wages, the greatest number of desires can be gratified. Thus, in a newly settled country of great fertility, wages are high, because a vast amount of land is open to cultivation, and a proprietor can afford to give a high price for labor. Still, industry is not active in propor- tion to the rate of wages, because, the desires which can be gratified in a new country are few, and a man can procure aJl that is attainable with a less amount of labor than he i? able to exert. Hence, the reason why men labor so intensely in piosperous seasons, in large cities. The remuneration at such times is high, and the desires which wealth can gratify are innumerable. A merchant in New York, during the season of business, when prof- RATIO OK CAPITAL TO LABOR. 125 its are high, will cheerfully impose upon himself, lahor, which he knows will, in all probability, ruin his constitu- tion ; labor, which, he would not, on any account, im- pose upon a slave. Hence, we see that the accumulation of capital is more for the advantage of the laborer than of the capi- talist. The greater the ratio of capital to labor, the greater will be the share of the product that falls to the laborer. The greater the ratio of labor to capital, the greater will be the share of the product that falls to the capitalist. Hence, the laboring classes are really more interested in the increase of the capital of a country, than the wealthy classes. Hence, when one class of the community repine at the prosperity of another class, they repine at their own mercies, and the means of in- creasing their own rate of compensation. It is, however, evident, that the accumulation of capi- tal, in any nation, does not depend simply upon its annual production, but upon the proportion that its annual pro- duction bears to its annual expenditure. A country that annually expends all its production, let it produce ever so much, will never increase its capital. A country that produces ever so little, if it annually expend somewhat (ess than its revenue, will be accumulating something ; and must, in progress of time, become richer than its more highly favored neighbor. This explains the fact, that the countries blessed with the richest soils, and the greatest natural advantages, have not generally become the richest. The result has, within moderate limits, been almost the reverse. Hence, we see, that every mode of unnecessary ex penditure, whether individual or national, by diminbhing (he annual accumulation of capital, tends directly to lower the rate of wages, and thus injure the condition of the laboring' classes. The millions which are wasted and destroyed by intemperance, if saved, would add to the capital of a country, and thus increase the demand for labor. All unnecessary expenditure, for the main- tenance of civil government, has, of course, the same tendency. Hence arises, also, one of the most afflicting 11* 126 INTELLECTUAL IMPROVE*! EIS'T. consequences of war. Had the almost incalculable sums which Great Britain has expended in wars, for the last hundred years, been added to her operative capital, and, but for these wars, it would have been so added, all her inhabitants would have found, at all times, abundant em- ployment, and, at a rate of wages, which would, by this time, have banished almost the recollection of poverty from her shores. SECTION V. INDUSTRY WILL BE APPLIED TO CAPITAL, IN PROPOR- TION TO THE INTELLECTUAL IMPROVEMENT OP A PEOPLE. Intellectual cultivation tends to increase the industry of a people, in two ways. 1st. By exciting a people to exertion ; and, 2d. By directing that exertion. 1. Intellectual cultivation excites a people to exertion. Ignorant men are indolent, because they know neither the results that may be accomplished, nor the benefits that may be secured, by industry. This is one of the most common causes of the great indolence of savage nations. An Indian, who knows of no condition better than his own, of no covering better than a skin, of no habitation better than his wigwam, and of no weapon better than his bow and arrow, has no motive to industry, beyond what may be adequate to procure these simple necessaries. Let him know that, by additional effort, he can provide himself with a blanket, and, by a still additional effort, that he can exchange his bow and ar- row for a rifle, and his wigwam for a comfortable house, and you present motives to additional labor. His indus- try will thus expand with the occasion. The case is ihe same with a nation, at a more advanced period of its history. Hence, the impulse which is always given to industry, by any important improvement in the Intel- INTKLLF.CrU.VL t.M FRO VKMENT. 127 i lectual character of a people. It was a knowledge of the conveniences and luxuries of the East, which the crusaders brought back to western Europe, that was the precursor and the cause of that dawning of improvement which succeeded the night of the dark ages. 2. Intellectual cultivation directs to a profitable enrf, the industry which it has previously excited. Agriculture will be successfully prosecuted, only in proportion as men are acquainted with the best modes and seasons of culture, the laws of vegetable and ani- mal physiology, and the probable existence of that, de- mand which it will be most profitable to supply. Manufacturing labor will be successful, in proportion as the manufacturer is able, by his knowledge, to avail himself of the improvements of other countries, to un- derstand the laws of nature, and invent means of apply- ing them to his own advantage, and as he is able, by his intelligence, to modify his occupation in any manner that may be for his interest. Tke Merchant will be successful in proportion as he is able to select the most profitable places and times for exchange, to foresee the probable alternations of the mar- ket, and to avail himself of the fluctuations of capital which are always taking place, in various parts of the civilized world. And, in general, it is evident that, \\ith a given amount of labor and of capital, production will be exactly in proportion to the knowledge which the operator pos- sesses of the laws which govern that department in which he labors, and to the degree in which his labor conforms to his knowledge. If, then, labor will be in propoitinn to the benefits which it confers ; and if, by knowledge, 'hese benefits are increased, we see in what manner labor musrbe stimulated by intellectual cultivation. Thus wo see how it is, that an intelligent people is always indus- trious, and an ignorant people always indolent. Hence, one of the surest means of banishing indolence, is to banish ignorance from a country. But, it is evident, that improvement in knowledge, in nrdf r to be in any signal depree beneficial, must be tint- 128 INTELLECTUAL IMPROVEMENT. versal. A single individual can derive but little advan tage from his knowledge and industry if he be surround ed by a community both ignorant and indolent. In jusi so far as other men improve their condition, and become useful to themselves, they become useful to him ; anu both parties thus become useful to each other. This is specially the case, where a government is, in its charac- ter, popular ; that is, where laws emanate from the more numerous classes. In such a case, not only is an intel Jigent man not benefited, but he is positively injured, by ihe ignorance and indolence of his neighbors. Hence, the reason why every man has a personal interest in the intellectual improvement of every one of his fellow citi- zens ; and why the education of the whole population, should be the care of the government ; that is, of the whole country. The efforts of a government maybe usefully directed, in this respect, to two objects. 1st. The increase ; and 2d. The dissemination of knowledge. First. The increase of knowledge. This may be promoted in several ways. 1. By the establishment of colleges, universities, and other seminaries of learning. These, I suppose, should be furnished by the public, with libraries, apparatus, and all the means for instruction, investigation, and discovery. They should be so governed, and the remuneration so adjusted, that teachers should be placed under the strongest stimulus to labor for the promotion of science, and to communicate, most successfully, knowledge to their pupils. Colleges and universities should, at all times, be places of strenuous effort, and vigorous men* tal discipline, on the part of both instructors and pupils. As soon as they become the places of literary leisure, ana intellectual indolence, they are not only useless, but hurtful ; inasmuch as they retard, rather than advance, the progress of science. For this reason, I doubt whether endowments, for the support of professorships, are useful ; at least, whenever they render a teacher's support independent of his own exertions. For the same reason, a teacher should no! INTELLECTUAL IMPROVEMENT. be remunerated by a fixed salary, but by the sale of tickets of admission to his lectures, or by a salary, vary- ing with his ability and success. Large foundations for the support of students in colleges, if under the control of the college itself, so far as they render the number of students in no way dependent upon the ability and faithfulness of the instructor, will have a tendency to remove from him one of the most valuable stimulants lo industry. 2. By rewarding those who have been successful in ihe advancement of science. 1. This may be done, first, Directly, as by bestowing premiums, rewards, grants of money, &c., to those who have made discoveries of pre-eminent utility. This is frequently done by the British government ; a 'id, for aught I see, it is done wisely. In this country, however, it is, I believe, never practiced. The only rewards which we ever confer, are for military or naval service. The propriety of those, I by no means, in this place, dispute ; yet, I think it would be difficult to show, that warriors are the only benefactors of mankind, or that Whitney or Fulton did not deserve as well of their coun- try, for the invention of the cotton gin and the applica- tion of steam to navigation, as they would have done, had they captured a fleet on the ocean, or routed a tribe of Indians in the forest. 2. Indirectly, by granting to those who labor in sci- ence or invention, the right to derive advantage from their discoveries or inventions. This is done by laws of copy and patent right. The justice of this provision we have elsewhere shown. We here see the manner, in which, by stimulating intellectual labor, by hope of reward, it tends to increase knowledge, and hence, fa- cilitate production. Secondly. A government may improve the intellect- ual character of a people, by the dissemination of knowl- edge. This will be done, so far as provision is made for the universal instruction of a people in the elements of a common education. The interest of every man demands that ah his fellow citizens should be able to I 130 BENEFITS OF RELIGION. read and write, to keep accounts, to understand geogra- phy, and thus possess the means of self-improvement, to whatever degree they may be disposed to carry it. The effect of such a diffusion of knowledge, has al- read) been illustrated at sufficient length. It will be necessary here only to allude to the means, by which this result may be best attained. 1 . As a stimulus to intellectual improvement, proba- bly, the right of suffrage should be restricted to those who are able to read and write. 2. Provision should be made, in every neighborhood, for the education of all children under a certain age. 3. The expenses of this provision may be borne, partly, by a general fund. This fund should, however, never defray more than a portion of the expense ; for no man values, highly, what he gets for nothing. If a fund be raised for this purpose, great care must be taken that it be not abused. 4. Without a fund, the same result will probably be better accomplished by obliging every district, contain ing a given number of inhabitants, to provide itself with a school, on penalty of a fine to be paid to the school districts in its neighborhood, for the purposes of in- struction. 5. To complete this arrangement, it might, probably, be desirable that seminaries be provided for the purpose of educating teachers for the primary schools. This would ensure a supply of instructors, of assured qualifi- cations, without which, such a system might not so read- ily go into successful operation. And now, to sum up what has been said : It will be seen that the inducements to labor, and, hence, of course, the wealth and means of happiness, in any given country, must depend, principally, upon two conditions 1st. The degree of its intelligence ; and, 2d. The pu- rity of its moral character. 1 . On its intelligence will depend its knowledge of its own advantages, of the laws of nature, and of the means by which it may avail itself of those laws, for the promo- tion of its own happiness. '} A nation without knowledge, BENEFITS OF RELIGION. l'J\ like a blind man in the garden of Eden, might be sur- rounded with every thing lovely to the eye or delightful to the taste, without ever being able to ascertain, either where a single object of desire was to be found, or how the possession of it might be secured. 2. On the moral character of a nation depends the justice of its laws, its respect for individual right, secu- rity of propertv. individual and social virtue, together with the industry and frugality which are their invariable attendants. Of these two, the latter is the more important to national prosperity. For, where virtue, frugality, and respect for right exist, riches will, by natural conse- quence, accumulate ; and intellectual cultivation will, of necessity, succeed. But, intellectual cultivation may easily exist, without the existence of virtue or love of right. In this case, its only effect is, to stimulate desire, and this, unrestrained by the love of right, must eventu- ally overturn the social fabric which it at first erected. Hence, the surest means of promoting the welfare of a country is, to cultivate its intellectual, but especially its moral character. Until this have been done, no perma- nent foundation for a nation's prosperity has yet been laid. And, if anj one wil 1 take the pains to examine, he will find, that, other things being equal, the wealth, and happiness, and power of every nation, are in exact proportion to its intellectual and moral character. And, here, it may not be amiss to add, that all true benevolence may be defended, no less upon principles of political economy, than of philanthropy. The circu- lation of the Scriptures, the inculcation of moral and religious truth upon the minds of men, by means of Sabbath schools, and the preaching of the Gospel, are of the very greatest importance to the productive ener- gies of a country. The argument is very short, but it seems very conclusive. No nation can rapidly accumu- late or long enjoy the means of happiness, except as it is pervaded by the love of individual and social right ; but the love of individuaTand social right will never pre- vail without the practical influence of the motives and 132 BENEFITS OF RELIGION. sanctions of religion ; and these motives and sanr.tioiis will never influence men, unless they are, by human ef- fort, brought to bear upon the conscience. The same principles will defend, upon economical grounds, the efforts of benevolence on behalf of foreign nations. Intelligence, virtue, and equitable laws, will have the same effect upon other men, that they have upon us. They will render men industrious, frugal, ai.-.i consequently rich, and raise them from a savage to a civilized state. Just in proportion as a ration is thus transformed, are its products increased ; the riches of the whole world are augmented ; the portion of wealth, which falls to the share of each man, is rendered great- er ; and the ratio of capital to labor is higher. Just as a nation becomes intelligent and rich, its wants are mu'- tiplied, ana the means for supplying them are provided. Hence, it becomes a better customer to other nations ; it gives an additional impulse to their industry ; and it repays them for their products, with whatever God has bestowed upon it, which will add to the happiness of others. Can any one doubt that Great Britain and France reap incomparably greater advantages from each other, in their present condition of advanced civilization, than either of them would, if the other were in the con- dition in which it was found by Julius Caesar ? What demand would Great Britain make upon the productions of France, if she were, at this moment, inhabited by half-naked savages ? Or again : How much greater ben- efits does North America confer upon the world, than it would if it were peopled by its aboriginal inhabitants ? How great a stimulus would be given to the industry of the world, at this time ; and how greatly would the comforts and luxuries of men be increased, if Africa were peopled by civilized and christianized men ? Now, if these thing? be so ; and that they are so, I see not that any one can dispute : it seems to me, that civilized nations could in no way so successfully promote their "own interests, as by the universal dissemination of the means of education and the principles of religion PROTECTING DUTIES. 133 SECTION VI. ON THE EFFECTS OF DIRECT LEGISLATION AS A MEANS OF INCREASING PRODUCTION. I have thus far said nothing upon the effect of legisla- tive enactments, by means of bounties and protecting duties, as a means of increasing production. The rea- son is, that I have not yet been able to discover in what manner they produce this effect. Nevertheless, since many persons suppose them to be of great importance, it might seem that a discussion of this subject was in- complete, if they were passed over in silence. I shall devote this section to a consideration of their effects. 1 . Duties of this sort are to be considered apart from those levied for the support of government, because they are either not necessary for this purpose, or else they are levied for a different object. Thus, if five per cent, on an import be necessary to the support of govern- ment, and ten per cent, be levied, in order to favor, or. as it is said, to protect one branch of industry, the addi- tional five per cent, is levied for a distinct object, aside from that of the support of government. It is only this latter part of the duty which we propose to consider ; that is, so much of the duty as is levied for the purpose of favoring one particular product. 2. Now, if such a duty have any effect upon the pro .ductiveness of a nation, it must be in one of these ways It must either first increase the capital of a country ; or, secondly, increase its number of laborers; or, third, create a greater stimulus to labor. I think it evident, from what has already been shown, that every condition which affects production, must exert its influence in one of these three methods. 3. I think it evident, that legislation of this sort can- not increase the capital of a country. The capital of a country, at any moment, is its present amount of annual and fixe'd capital. Now, a law cannot create capital ; 12 !34 PROTECTING DUTIES. since, if it could, there would be no necessity for an) oilier labor than that of legislation ; and, in order to grow rich, a nation would have nothing to do but meet in public assembly, and spend its whole time in making and hearing speeches, and enacting laws. 1 believe, however, that this mode of growing rich, has never beer, found remarkably successful. If it be said that, in this manner, we shall attract foreign capital to our own country, I answer : this depends not upon legislation, but upon the rate of interest, and the security of property. If these conditions be more fa- vorable here than in another country, capital will flow hither. If they be more favorable in another country than here, it will flow thither. The system of Great Britain has been exclusive, but capital does not go from this country to be invested there. 4. Legislation of this kind cannot increase the actu- al number of laborers. The number of laborers is as the number of inhabitants. Legislation has never been supposed to have any power to create men. It is true, population is found always to increase with the increase of the means of living ; that is, with the increase of the productiveness of labor. Population will increase or diminish, just in proportion as a laborer is able to pro- cure greater or less wages for a day's labor ; that is, as every thing is cheaper or dearer. Whether the tenden- cy of duties is to render productions cheap, remains to be considered. It must, however, be evident to all, that laws do not create human beings ; of course, they add nothing to the number of laborers, that is, of human beings in a country. It may be said, we may thus induce laborers to come from other countries. To this it may be answered ; th'.s will depend upon the wages of labor. If laborers be better paid here than elsewhere, they will come here, and not otherwise. Besides, what is called protection changes only the mode of labor ; that is, it takes men from one mode of labor, to employ then upon another. Suppose, then, that it attracts foreign laborers to one branch of industry ; it deters those in another branch of industry from inlmigrating. If, for instance, manufactur- PROTECTING DUTIES. 135 ers are protected, this will tend to encourage manufac- turers to immigrate ; but it will, in a correspondent pro- portion, discourage agriculturists. 5. If, then, discriminating duties produce any effect upon production, it must be by stimulating industry ; that is, while the amount of capital and the number of laborers remain the same, by stimulating men to labor more industriously, and thus to create a greater amount of production than ihey would under other circumstan- ces. This, I believe, is supposed to be the way in which the system produces its effect. This is the point of view in which we shall now proceed to consider it. The manner in which this is done is the following: Sup- pose a country to be under a free system, and that every one is devoting himself to agriculture, commerce, or manufactures, as he finds it the most for his interest ; un- der these circumstances, there will be a certain average of productiveness, both of labor and of capital. Wool- len cloth can be procured, by exchange, for five dollars a yard ; but it cannot, in the present state of the coun- try, be manufactured for less than ten dollars a yard ; that is, capital and labor are, in every thing else, so pro- ductive, that they could not be abstracted from other employments at the same rate of profit, unless the man- ufacturer could receive ten dollars a yard for his cloth. Now suppose, that, in order to enable him to do this, a duty of five dollars a yard is levied on imported cloth, by which the price of all cloth is raised to ten dollars a yard, that it may be in the power of the manufacturer, to employ his capital and labor in this manner. There is no doubt that thus the manufacture of cloth might be established. Now I think it evident, upon inspection, that the pro- ductiveness of labor is not, by this operation, increased. The reason why cloth was not manufactured before, was, that the productiveness of labor and capital, in this mode of investment, was lower than the average produc- tiveness of labor and capital in other modes of invest- ment. All that has been effected is, to raise the pro- ductiveness here to ihe genera) average elsewhere. 136 PROTECTING DUTIES. There has been nothing done to render it any greatei, either in this or in any other employment ; for 1 presume that no one will contend, that one kind of industry should be really more highly paid than another ; nor that, if it were desired, it could be effected without the aid of a direct monopoly. But the manufacturer now gets ten dollars for that which before would bring only five. Let us inquire whence this additional five dollars comes. It is evident that government possesses nothing. All that it possesses is precisely so much taken from the an- nual revenue of individuals. In this case, therefore, it really bestows nothing, but only causes a transfer of an- nual revenues, from one party to another. The case is, therefore, the same as it would be if, while there had been no duty imposed, every man had been allowed to buy cloth for five dollars a yard, but had been obliged, for every yard that he bought, to pay five dollars to the manufacturer. It would be the same thing to both par- ties as at present. The consumer would then, as now, pay ten dollars a yard for cloth, and the manufacturer might sell it for five, if he received five more as a gra- tuity. The five dollars that have been added to the revenue of the one, are precisely five dollars taken from the revenue of the other. Now if this be the fact, inasmuch as what is added to the productiveness of the industry of the one class, is taken from the productiveness of the industry of the other class, it would seem that what the one has gained the other has lost ; and hence, that there can be no in- creased stimulus to industry on the whole, since, by as much as the one is stimulated, the other is depressed. But this is not all. What you have given to the one class has only raised his mode of labor to the point of productiveness at which that of all the other classes ex- isted before ; while the means by which this has been effected, has, to the whole amount of its effect, reduced the productiveness of all the other classes lower than it was before. By just as much as this productiveness has been diminished, by so much has the stimulus to indus- try been, upon the whole, decreased PROTECTING DUTIES. 137 But secondly ; As the price of the article is increas- ed, the demand for the article is diminished. This has been before illustrated. There will, therefore, be less of ihe article produced, because less of it is wanted. By all this diminution is the demand for labor diminish- ed ; the price of labor must, therefore, fall, and the stim- u'us to labor be, by so much, decreased. This effect will take place, in what manner soever the discriminating duty may operate. Suppose, that from scarcity of wool, the price of imported cloth had, with- out any duty, been doubled ? The result would have been, that the demand would so have fallen off', that mul- titudes would have been thrown out of employment, and whole establishments would have been ruined. Sup- pose that, by a duty, we exclude the foreign cloth, and make it ourselves, but at double the price. There will be a less quantity made, than before. But the imported cloth was not to be had for nothing. Some of our own population were obliged to raise the products which we sent in exchange for it. As we do not take their cloth, they cannot take our produce. Of course, all those who labored in the products which were exchanged for cloth, are out of employment. There was a demand for a sufficient amount of their labor to purchase one thou- sand bales of cloth ; suppose, now, there is a demand for labor sufficient to make only five hundred bales of cloth. By all the difference, therefore, between the la bor necessary to procure one thousand bales by ex- change, and that necessary to manufacture, or procure by exchange, five hundred bales, is the demand for in- dustry diminished, and, of course, the stimulus to in- dustry weakened. We see, then, w r hat is the tendency of a system of (his kind. First, so far as the manufacturer is con- cerned, it cannot increase his profit beyond the average profits of every other employment ; for, if competition be allowed, capital and labor will flow into it, whatever may be its advantages, until its profits fall to the general level. Secondly, the demand for other labor is dimin- ished by the reduced consumption created by a rise of 12* 138 I'KOTblCTING DUTIES. price, and also, as this rise of price increases the ex- penses of living, it makes even these reduced wages ol less value than they were before. Hence the tendency is, to reduce the profit of capital and of labor in the whole community lower than they were before such duty was imposed. To this reduced average, manufacturers must themselves conform ; and hence, by this very op- eration, they themselves must suffer. Hence we see the reason why. when once a duty is imposed for the pro- tection of a particular branch of manufactures, it is not long before a larger protective duty is demanded ; and also why a protective duty, which at first is followed by great manufacturing enterprise and success, is so com- monly afterwards followed by so universal a depression of manufacturing industry. This is the result, so far as the effect upon our own country is concerned. But this is not all. A rise of prices must, of necessity, follow a protecting duty ; for this is its very object. Its object is, to raise the price of some particular product, so that it may be created where it could not be created before. If it produce no rise of prices it is useless. Now, a rise of prices raises the cost of production, and, by its whele effect, must raise the price of every product which we create. By this whole effect, therefore, is our foreign market in- jured. If we can raise cotton at ten cents a pound, and bring it into market as cheap as other nations, we have as good an opportunity as they for selling it. If we can raise it at nine cents, we can undersell them, and supply the whole market ; or, if we sell it at the same price as before, we gain one cent more on the pound. If, by in- crease of the expenses of living, we cannot raise it for less than eleven cents a pound, they will undersell w, and we shall be obliged to give up the raising of cotton, either partially or altogether ; and the industry engaged in raising and transporting the cotton, and what we re- ceive in exchange for it, must be either partially or wholly thrown out of employment. Every one must see, that the manufactures of England could be afforded much lower mat is, would be able much better to PROTiiCTINu DUTIES. 139 compete with those of other nations, if, by abolishing, her duties on corn, her manufactures could be supplied with the necessaries of life at half the present cost. At the same profit to the laborer and capitalist, her prod- ucts could be afforded at a price less than at present, by the whole amount of the difference in the expenses of living. By this difference, she would both undersell other nations and increase the demand for her manufac- tures, thus reaping, at once, a double advantage. But once more : It is seen that, by such a system, the course of industry and of capital in a nation, must be greatly changed. Thus, when an article is imported, one class of producers must labor to create the article which we exchange for it ; another class must build ships to transport it ; and another class must carry on the transportation. By a discriminating duty, all these classes must, either in whole or in part, be thrown out of employment, and this capital be either reduced in value, or rendered wholly useless. Now this is an in- jury, both to the capitalist and the laborer. The prop- erty of the one and the skill of the other are rendered useless, and by so much is it a total loss to the country. It may be said, let them seek other employments. True ; they must do this ; but this renders it not the less true, that there has been so much loss. If a man's house be burned down, it is easy to say to him, move into another house ; but this does not alter the fact, that his house has been burned down, and that he has suf- fered loss to precisely this amount. But, suppose he turn to the other employment. It has been shown that the average of profit, in this em- ployment, cannot be higher than the average of profit was, in the employment which he left. He is then no better off than he was before, and, in the meantime, he has lost the skill and capital which he spent many years to acquire ; and he has lost them, not as in the case mentioned p. 97, by the progress of civilization, and with the prospect of bettering his condition, but by an ct of arbitrary legislation. By all this amount of de- preciation, therefore, is he and of course, the whole country , poorer by the change. 140 BOUNTIES. Of Bounties. The principle of bounties is the same as thai of discriminating duties. The manner in which they are bestowed, is the following : If a manufacturer cannot produce cloth for less than ten dollars a yard, and the imported cloth can be produced at five dollars, a bounty of five dollars a yard is given him, for every yard he manufactures, or for every yard he exports. The cloth, then, is sold, either at home or abroad, at five dollars, and ho also receives five dollars as a gra- tuity. The principal reasons urged above, apply to boun- ties. They are, however, less objectionable, for several reasons : 1. The price of the article is not visibly raised, and the consumption, therefore, on this account, is not so much diminished. 2. The encouragement given, in this manner, is cheaper ; that is, we pay only for what is made, while, by discriminating duties, we pay the same, whether any thing be made or not. We pay a very heavy duty on cutlery in this country, while not a thousandth part of the cutlery used., is made here. It would be vastly cheaper to pay a bounty sufficient to raise all the cutlery made in this country to its present prices, and it would be, for aught I see, just as good for the cutler. The whole effect of this mode of encouragement is, to pay one man as much more as the bounty amounts to, for producing an article, than we should pay another man that is, one man will do it for five dollars, and we en- gage another to do it for five dollars, and give him five dollars besides, for the sake of economy. I have, thus far, considered this subject solely in re- spect to its connexion with economy ; that is, as it is favorable or unfavorable to production. It is, however, obvious, that an entirely distinct argument might be con- structed on another, that is, a moral ground. It might be asked, by what right does society thus interfere with the property of the individual ? when did the individual surrender this right ? and how wise would it be for him to surrender it ? It is in vain here to urge, that society OBJECTIONS CONSIDERED. 141 has the right to destroy individual property, in cases of extieme necessity ; because, in order to render this plea available, it must be shown that this is a case of extreme necessity. And besides, if society destroy individual property in case of extreme necessity, it is always bound to make good the loss to the individual. I think that, if the protected interests were obliged to make good the loss which the system inflicts upon all other interests, the demand for protection would be less urgent than at present ; and protection would be considerably less in- jurious. But, as these are questions of right, and belong rather to Moral Philosophy than to Political Economy, we shall not, in this place, discuss them any further. But, in opposition to what has been offered, several objections have been urged. It may be proper to notice here, some of those which are most commonly ad- vanced. I. The above argument is made to turn upon produc- tion alone, and proceeds upon the supposition, that the prosperity of a nation depends upon the productiveness of its industry, more than upon any thing else. In or- der to meet this view of the case, it has been said, that production is a matter of no consequence to a nation's prosperity, and that, in order to make a nation rich, happy, and powerful, all that is necessary is, to encour- age and stimulate consumption. 1. To this it may be answered, that this assertion leaves the above argument untouched, so far as produc- tion is concerned ; that is, it does not deny that the ef fects of discriminating duties upon production, are such as we have shown. 2. But secondly : If a man assert that the weelih of a nation is the result of its consumption, and not of ils production, he must also assert that the hand of the prodigal, and not that of the diligent, maketh rich ; that industry and frugality are the sources not of wealth, but of poverty ; that fire and sword, devastation and murder, are national blessings ; that we ought to pay other natioi.s. instead of their paying us, for spoliation? 142 OBJECTIONS CONSIDERED. of property ; that incendiaries should be rewarded, in- stead of being hanged ; and that the way to render a. ty rich, happy, and prosperous, is to reduce it to ashes. It" a man really believe this ; I do not say if he assert it ; his case is beyond the reach of ratiocination. II. It has also been urged, that the only method of rendering products cheap, is to encourage competition ; that competition is the great source of increased produc- tiveness of labor, and that to excite competition among our own manufacturers, by means of higher duties, is the only sure method by which to cause any article of ne- cessity to be produced at the lowest possible rate. To this objection we reply, that the principle assum- ed is erroneous ; and that the reasoning in support of it is self-destructive. 1. The principle assumed is erroneous. Although free competition is necessary, to reduce prices to their natural rate ; yet beyond this, competition, within long periods, can have no effect whatever. - The price of every article is determined by the cost of its production ; chat is, by the labor and capital necessary to produce it. Us price can be reduced in no other manner than by reducing this cost. If the materials can be furnished cheaper, and it can be produced by less labor, its price will fall ; but it can fall from no other cause. If it be a monopolized article, the producer may, over and above a fair remuneration for his expenses, demand an exces- sive profit. If there be a free competition, his profits will be reduced to the general average of other capital and labor. A competition which obliged a producer to sell for less than cost, would of course, ruin him, and would be a loss to the community. Such is the case in times of manufacturing depression, when the producer is obliged to sell at a loss. These are surely not times of prosperity. The result of such competition is, to drive a portion of the produ&ers out of employment ; a less amount of the product is created., competition is diminished, prices rise to their natural level, and the whole effect of competition is at an end. If, then, when there is no monopoly, competition, be it ever so OBJECTIONS CONSIDERED 143 great, can reduce the price of no article permanently below the cost of its production ; and that, by this cost its price will always be determined, be the competition whatever it may ; it is evident, that the only way in which the price of any thing can be really reduced, must be by diminishing the price of the material and la- bor employed in creating it ; that is, by rendering every thing as cheap as possible. And it is also evident, dial by raising the price of articles of consumption ; that is, of the articles of living, we shall also raise the price of whatever is produced, let the competition be ever so great. But, secondly, the argument drawn from the assertion is self-destructive. If it be the fact that competition is the great and proper cause of reduction of price, then, the wider the competition, the greater will be the reduc- tion of price. If this be so, we should not only open our ports to every other nation, but should abolish im- port duties altogether, even for the sake of raising a rev- enue, and sustain the expenses of civil government al- together by direct taxation. It would, however, be a new mode of encouraging competition, if the citizens of New York should forbid every one, not a native of that city, to exercise the trade of a carpenter or joiner, within the limits of their jurisdiction. In what manner /such an act would reduce the prices of house-building, I confess myself unable to discover. I think, therefore, that the system of discriminating duties cannot be defended on the ground that they, b) competition, tend to reduce prices. III. Again : It is asked, is it not better to laboi foi ourselves, than to have others labor for us ? I answer, undoubtedly. We must labor for our- selves, unless we mean to live either by begging or by stealing. And this is really the only alternative which the Creator has left us. On this point, therefore, there is no dispute. It is agreed on both hands, that it is better to labor for ourselves, than to have others to labor for us Whatever either a man or a nation possesses, except by robbery or begging, must be the pioduction of its 141 OBJECTIONS CONSIDERED. own labor. The question then, is, whether it is bettei for us to receive a greater, or to receive a less result from our labor. Every man must labor for a coat. But is it better for. him to procure it by labor, for five dollars a yard, or for ten dollars ? Is it better that he should, by exchange, earn it by five days' labor, or make it for himself, by fifteen days' labor ? He pro- cures it as much by labor in the one case, as in the oth- er. I do not see that there can be any question, in which way his labor can be most profitably expended. If a manufacturer wish for oranges, he can procure them in no other way than by labor. The question is, whether he shall procure them by labor in manufactures, or by labor in raising them. In the first case, a day's labor will produce, by exchange, a hundred oranges ; in the second case, it will cost several days' labor tc produce one. The question is, in which way, by la- bor, can a manufacturer, most easily, supply himself with oranges ? Upon this point, really hinges the whole matter in dis- pute. It is clear, as has been stated, that every thing which we possess, either as nations or as individuals, must be the result of labor. It is granted, however, in every other case but this, that the greater the amount of product which we can create by a given amount of la- bor, the better it is for the producer. Suppose the labor of a particular community to be valued at a million of days' work? annually, it is certainly wise in this commu- nity to procure, by this amount of labor, as large an amount of product as it can. Suppose, that by laboring in those modes of production for which it has the great- est facilities, and then by exchanging a part of its prod- ucts for those of another country, it can realize two millions of dollars' worth of products ; but, by producing every thing for itself, it can only realize a million and a half dollars' worth. In which case, I ask, is labor more amply rewarded ? Which is the wiser method of appor- tioning its labor ? In which way will capital accumulate most rapidly, and the nation soonest be capable of man- ifacturing profitably for itself ? OBJECTIONS CONSIDERED. M6 TV. But it is said, although we may be obliged, at first, to procure manufactures at a higher price, yet, having once introduced them, they will, in the end, be- come cheaper than before ; and thus, our ultimate ben- efit will more than repay our temporary loss. In order to consider this objection, it will be necessa- ry to refer to what we have already remarked on the nature of &nnual and fixed capital. It is evident, that, in the first stage of any society, ihere exists nothing but the earth with its capabilitie?, and man to labor upon it. The labor of man produces an annual capital. If he have been industrious and fru- gal, there will have arisen an annual surplus, which must, of necessity, be transformed into fixed capital ; and it is so transformed, for the purpose of increasing the annual capital. Thus, every addition to the fixed capital for this year, lays the foundation for the investment of a larger amount in fixed capital for the next year ; and thus nations grow rich, and the demand for fixed capital is annually increasing. It is evident that the investment in fixed capital will be, first, in those instruments themselves, necessary for the direct increase of annual production, as ploughs fences, houses, barns, &c. , and, secondly, in the rna chinery necessary to the creation of these, and of the productions for annual consumption ; that is, it will be in manufacturing establishments. But, inasmuch as the capital of a country is at first small, a nation will, of necessity, at first invest its annual surplus in those man- ufactures which require the least capital, and of which tlir price is most enhanced by transportation. As capi- tal increased, it would become able to make larger in- vestments of fixed capital. Manufactures, which it would have been impossible for it to conduct profitably in its tenth year, it may conduct profitably in its fifti- eth year; and what it could not conduct profitably in its fiftieth year, it may very profitably conduct in its one hundredth year. And the reason of this variation is two-fold. In the one case, it did not, and in the other case it did, possess the capital necessary for the 13 146 OBJECTIONS CONSIDERED. investment in this particular branch of manufar'nrtys , and, in the second place, though it possessed (he requi- site copitaJ, that capital could not be taken from the em- ployments in which it was at present engaged, and in- vested in any thing else, without a loss, that is, a dimi- nution of profit. As soon, however, as the most neces- sary investments have been made, their annual product tvill enable the nation to commence something else. Hy. the multiplication of capital, the rate of interest is di- minished and a nation is gradually enabled to produce for itself every thing for which it has the natural facili- ties. And hence, the time when any manufacture can be profitably established, in a country which possesses nat- ural advantages for it, is decided by the amount of the capital of that country ; the amount of agnual invest- ment which it is able to make in fixed capital ; and on the rate of interest at the period in question. Now, suppose that the system of discriminating duties left the means of accumulation unaffected. In this case, the period of profitably producing the article in question would arive, at the same time as if no such system had been adopted. Previously, therefore, to this Hme, the article must have been purchased by the whole commu- nity, at an additional and unnecessary expense ; since, when this time arrived, in the natural course of things, the manufacture in question would commence, just as though nothing had been done, and just as every other manufacture had previously commenced. In this case, then, I see not that there would be any gain. All that has been paid, therefore, is so much unnecessary ex- pense, without rendering this kind of investment profit able to the whole community, any sooner than it would have been, had no such expense been incurred. That, however, a discriminating duty does not in- crease productiveness, that is, the means of accumula- tion, but that, on the contrary, it diminishes it, ha?, 1 think, been already shown. Now, by just so much as it diminishes productiveness, and of course diminishes annual capital, by so much it postpones the period, a! which the manufacture in' question can be profitably es OBJECTIONS CONSIDERED. 147 tablished. Hence, the state of the case is this : In the present condition of capital and labor, the manufacture of a particular produce is unprofitable. In order to produce it now, instead of producing it at a later period, wo diminish the productiveness of all other labor. And th: only effect of this imposition which we have laid upon ourselves, is, instead of hastening the period of its . profitable establishment, to postpone it to a still more distant period. But this is not all. We see that all this is done, and all this expenditure is incurred, without any certain knowledge of the result. It cannot be certainly known when the period will arrive, at which the manufacture, in favor of which we have laid the discriminating duty, ..may be profitably commenced, or whether, indeed, it can ever be commenced at all. If it can never be commenced, we have thus imposed a duty by which we are all made so much the poorer, without the prospect of any benefit. And if it may profitably be established at some future time, but we know not when that time will arrive, we are paying out our money at random ; that is, we know not whether we shall gain or lose by the exchange. Supposing a benefit in fact to result, it is worth a given sum, and no more ; but we have no means of knowing whether the sum which we pay is only equal to the benefit, or whether it is ten times greater. Now, that it is very possible for a nation thus to pay for an advantage, supposing an advantage to be gained, vastly more than it is worth, is manifest. To illustrate the amount which has been frequently expended to gain this supposed advantage, I subjoin the following instances from the Edinburgh Review, for Oc- In her 1829: " The French duties on iron, from 1814 to 1822, have directed much capital to the iron trade. In 1818, 1,140,000 quintals of unwrought iron were produced in Fraire ; in 1825, 1,976,000; in 1829. 2,269,000. Thus far the system has succeeded. On the contrary, as foreign iron is imported at a duty averaging twenty francs, the price ol the whole 1J8 OBJECTIONS CO.VSIDURED. 2,269,000, above what it could have been imported for, is, 40,538,800 francs, the direct cost for protection. This is about 20 sterling a-piece to every person en- gaged in the iron trade. The effect of these measures is, to add fifty francs to the price of a plough, and to render cotton machinery one third dearer than it would be if imported. The price of charcoal has been doubled or trebled, and from twenty-five to fifty per cent, has been added to the price of iron and wood. So great is the injury to other branches of production. And yet the iron trade is depressed. This is owing to (he fact, that too great a portion of capital has been di- rected to the iron trade ; and also to the increased price of charcoal. It must also necessarily follow, from what has been said above, that this pressure, which has been brought upon other branches of production, must reduce the average ratio of profit ; and to this average the iron trade must sink, as well as every thing else. Here there is an injury done to every other branch of business, and yet the iron business is not at the average rate of profit ; that is, it is depressed. There is a great annual loss ; but where do we see the prospect of a subsequent benefit ? Tke sugar trade. To encourage her colonies, France lays a duty of fifty francs per quintal, on all foreign sugars. This has increased the quantity made at home and at her islands. So far it has succeeded ; but, 2. The difference between the duty on foreign and the duty on her own sugars, amounts to 32,945,000 francs. This is the bounty paid to the sugar growers of Martinique and at home. 3. The quantity of sugar consumed is probably less by one third, than it would otherwise be. England, with half the number of inhabitants, consumes two and a half times as much sugar as France. 4 But it is said, that, by this means, beet-root sugai will yet supply France at the ordinary price. It must, however, take twenty years, under the present system, in order to do this. The present protection cost. 1,400,000 per annum. Suppose this to continue for twenty years, it will amount to 28,000,000 sterling," OBJECTIONS CONSIDERED. 149 the interest of which, at five per cent., will buy, at two tnd a half pence per pound, 126,000,000 pounds of sugar per annum ; or nearly the whole annual amount of sugar now consumed in France. The Cotton Manufacture. By pushing forward those products for which she has no capabilities, she has di- minished those to which she is adapted. Countries which formerly bought of her, now that she refuses to receive their products, refuse to receive hers. Hence, the exports of wine, her natural product, have fallen off. Before the Revolution, her export of wine averaged 100,000 tons per annum. Since 1820, it has varied from 39,000 to 63,000 tons. The result upon her silk trade has been the same. She has obliged other na- tions to raise silk for themselves." * Such are some of the certain evils of such a system. These surely ought not to be voluntarily imposed upon * ourselves, without equal certainty of future benefit, and a benefit so much superior to that which we should oth- erwise have reaped, as to compensate us for all the evils and expenses which we impose upon ourselves. And if it do no more than this, we are the losers, by all the cost of the agency for doing that which would as well have been done without us. But, if the system itself do nothing towards hastening the time of profitable in- vestment in manufactures, then it is an immediate and a very great and wide-spreading evil at present, and it tends to nothing but evil for the future. V. It is said, that it is frequently expedient to impose a duty as a measure of retaliation. The case is this. A nation will not receive our products, and we, in order to punish her, and thus oblige her to change her policy, refuse to receive hers. Let us proceed dispassionately, but briefly, to consider .this argument. 1. Is retaliation a virtus or an honorable motive to action ? Do we not consider it vicious and mean in an individual ? Can it be otherwise in a nation ? The pre Hiinpiion must surely be adverse to a course of conduct, 1 hare marked the above passage as a quotation, although I have the extract, without giving the exact wards. 13* <.")0 OBJECTIONS CONSIDERED. which is u manifest departure from elevated moral prin ciple. 2. Is retaliation, in the intercourse between man and man, generally wise ? Do we not commonly ooserve, that it leads men to headlong vindictiveness, which is as likely to injure themselves as their opponent ? 3. Our object is to distress the other country until we oblige her to alter her policy and receive our products. But will this appeal to her fears be as likely to produce the change which we desire as setting her the example of manly generosity ? Of all means that can be con- ceived, a threat is the least likely to produce effect upon large masses of men. 4. But if we resolve to injure our neighbor, let us see that we do not too much injure ourselves, and thus render her enmity still more effective. She refuses our products, and we retaliate by refusing hers. Now we can, by exchange with other nations, procure her products at a cheaper rate than we can manufacture them ourselves, or we cannot. If we can- no/, then a duty is unnecessary, since we shall, in that case, of course, produce them ourselves. If, in conse- quence of the obstacles which Great Britain opposed to the reception of our raw material, her cottons were raised in price as high as those manufactured here, we should exclude them immediately by our own products. If, on the other hand, by means of a double exchange, we can procure them cheaper than we could procure them in any other manner, it would be for our interest thus to procure them. Because another nation wishes to injure us, there is no reason why we should injure our- selves. We surely injure ourselves when we pay a dollar for an article when we could get it just as well for seventy-five cents. \nd besides, it is said, w^wish to become indepen- dent of the other nation. True ; but how shall we be- come independent of her. Clearly by becoming wealthy and powerful. But the way to wealth and power is, surely, to buy uhere we can buy on the best terms, and sell where we can sell on the best terms. We thus OBJECTIONS CONSIDERED. 151 shall the most rapidly accumulate wealth, and increase our population, and thus most readily shall we be able to compete with the manufactures of any other nation. The question, then, seems to be simply this. Shall we diminish our own happiness for the sake of diminishing the happiness of another ? or shall we, deaf to the insti- gations of vindictiveness, and irrespective of the effect upon others; promote our own happiness by every means in our power ? Or still further, if we resolve to punish our neighbor, would it not be worth while to ask what it will cost ; and whether we are willing, for the sake of retaliation, to pay several millions of dollars annually. To all this, it is, finally, objected, that a government having adopted a restrictive system, and having thus obliged persons formerly engaged in other branches of industry to embark in manufactures, is under moral obli- gation to continue that protection ; at least so long as to enable the manufacturer to change his mode of employ- ment without injury. To this objection I have no de- sire to make any reply. It is a question of morals, and not of political economy. Whatever the government has directly or indirectly pledged itself to do, it is bound to do. But this has nothing to do with the question of the expediency, or inexpediency, of its having, in the first instance, thus bound itself; nor with the question whether it be not expedient to change its system as fast as it may be able to do so, consistently with its moral obligations. For these reasons, I do not believe that the direct efforts of government are to be numbered among the means for encouraging the application of labor to capita! Their good effect, if it exist, must, therefore, be sought for, not in their effect upon production, but upon some- thing else. But it may be asked, can a government do nothing to promote the industry of a people, and to increase the amount of their production ? I answer ; they can do much. 1. They can enact wise, wholesome, and equitable laws, and thus protect the individual in the exercise of his right cf person and property. 152 OBJECTIONS CONSIDERED. 2. They can do much to accomplish the universal diffusion of the means of knowledge, by the promotion of education among all classes of the people. 3. They can do much for the prorhotion and exten- sion of science, by fostering seminaries of learning. 4. They can originate that knowledge, which must otherwise be obtained at great individual expense. As, 1 . By experimental farms, of which the results should be accurately registered, and published to the whole community. 2. By experimental manufactures, which might show, from time to time, what branches of manufacture could profitably be introduced into a country, and how they might be most successfully conducted. . In this manner, much might be done, and at small ex- pense. When these means have been tried, and have failed, it will be time enough to make other and more expensive experiments. 5. They can do much, by confining themselves to their own appropriate duties, and leaving every thing else alone. The interference of society with the concerns of the individual, even when arising from the most inno- cent motives, will always tend to crush the spirit of en- terprise, and cripple the productive energies of a coun- try. What shall we say, then, when the capital and the labor of a nation are made the sport of party politics ; and when the power over them, which a government possesses, is abused, for the base purpose of ministering to schemes of political intrigue ? So far as T am able to discover, such are the most important conditions on which the productiveness of any society depends. They are briefly these : Industry and Frugality, Virtue and Intelligence. Possessed of these, no nation, with the ordinary blessing of God, can long be poor. Destitute of either of them, whatever be its natural advantages, no nation can ever long be rich. Patriotism, no less than religion, would, therefore, teach as to cultivate these habits in ourselves and in others ; and he is the purest patriot who cultivates them most assiduously BOOK SECOND. EXCHANGE. EXCHANGE, is a transaction, in which two individu- als mutually and voluntarily transfer to each other the right of property, to a given amount, either in capital or labor. This transfer must be both mutual and voluntary by both parties, or else it is robbery by one party. If property, without the right of possession, be given in exchange, it is fraud. If I give a horse in exchange, which does not belong to me, I confer no right of prop- erty ; for I have none to confer ; since the real owner may reclaim him, at any moment. The exchange may be either of capital by both parties, as if A and B ex- change wheat for corn ; or of capital for labor, as when A gives B a bushel of wheat for a day's labor ; or of labor for labor, as when A agrees to work for B to-day, on condition that B shall work for him to-morrow. EK- change is of three kinds, viz : I. Barter in general, or exchange in kind. II. Exchange by means of a metallic currency. Ill Exchange by means of a paper currency. CHAPTER FIRST. Or BARTER OR EXCHANGE IN KIND. SECTION I. OP THE PRINCIPLES IN THE PRESENT CONSTITUTION, WHICH GIVE RISE TO EXCHANGE. 1. IT has been already shown, that human labor, of some kind, is necessary to produc. f 'on ; that is, to the creation of whatever has the powei of gratifying human desire. Hence, without labor, no desire would be grat- ified ; that is, the race would speedily perish. As we have said before, the law of our being, imposed upon every individual, enacts that, by the sweat of our face we shall eat our bread. 2. But by labor exerted upon any substance, in such nanner as to give it value, we establish over that value, either in whole or in part, the right of property. If the original capital were our own, we possess that original capital, together with all the additional value, which the change that we have effected has created. If, by labor upon the capital of another, we have increased its value, we establish a right to a portion of it, to be estimated by the respective values of the labor and capital em- ployed. Nay, this capital is nothing but the result of pre-exerted labor. So that the capitalist contributes his past, and the laborer his present labor, and they shaie the product between them. 3. Hence, from the very conditions of our being, the act of creating a value appropriates it. to a possessor This holds true of every thing not the spontaneous gift of God. Hence, every thing created by man, belongs to some man that is, he possesses over it the right of property. And this right of property is exclusive ; that PRINCIPLES WHICH GIVE RISE TO EXCHANGE. ll>5 is, he has the right to use it as he will, to the exclusion of every man and of all men. And, provided he do not interfere with the rights of others, no man can inter fere with his use of whatever product he has created, without a violation of moral law. 4. Different men are constituted by the Creator with different aptitudes for different pursuits, .and with differ- ent dispositions towards those pursuits. One man is adapted to investigate, and another to apply to practice, the laws of nature, and another to perform the operation by which those laws are made to create value. And these aptitudes are still further subdivided. One man is better adapted to investigate physical, another intellec- tual, and another moral laws. Thus, also, in the various pursuits of operative industry, one man prefers agricul- ture, another manufactures, and another navigation. And it is found, as might be expected, that the disposition towards a particular operation, severally corresponds with a man's aptitude for it ; that is, that, in general, a man is most strongly disposed to devote himself to that particular occupation, for which God has given him the greatest aptitude. Indeed, the disposition, in most cases, will do very much to create the aptitude. A man al- ways labors more successfully in an occupation which he likes, than in one which he dislikes. 5. Hence, a great public, as well as private advantage, arises from every one's devoting himself to that occu- pation which he prefers, and for which he is specially fitted. Inasmuch as he likes it best, he is thus happier than he would be in the pursuit of any other. Every one thus being able to do that which he likes best, every one will derive from this source, all the happiness. which it is able to confer. And, inasmuch as he is idler fitted for ?/, he will, with the same labor, create a greater amount of value than he will by labor in any other em- ployment. He will also create the value much more perfectly. The annual amount of value, created in a com nunity, will thus be greatly increased, with the same amount of labor, and, with a much greater amount of happiness. If every man labored at that employment ID 150 PRINCIPLES WHICH GIVE RISE TO EXCHANGE. which he could create an amount of value equal to twen- ty, there would be, by the whole society, just twice as much created, as if, by changing occupations, each one labored at that for which he could create a value equal only to ten. If all the different classes of laborers were, for a year, to be obliged to exchange work with each other, every one can perceive that, for that year, pro- duction would almost absolutely cease. 6. Were this all, though every man created his own particular value with the greatest possible success, yet each man would, manifestly, possess but one value. The wheat grower would have nothing but granaries full of wheat ; the carpenter, nothing but ranges of houses ; the stone cutter, nothing but piles of stone ; and the shoe- maker, nothing but thousands of shoes. But while there exists in every man, both the aptitude and the disposition for the creation of a particular value, there exists equally in every man, a desire to enjoy every value that can be created. A man may like to create a value of which he desires to use but very little himself ; nay, for which, in itself, he perhaps has even less desire than most other men. The man who is the fondest of fishing, may be, l)y no means, a great lover of fish. He who is the fond- est of hunting, may be, by no means, the fondest of game. No man supposes, because a man is fond of fox- hunting, that he is fond of fox-eating. Thus, we see, that the desire for the creation of value, is one thing, and the desire for using the value created, is another The one is limited to single objects, and the other is as widely extended as the objects to which it can be direct- ed. And it is evident, that the one form of desiie is as much intended to be gratified as the other. He who created the desire, and also created the object which would gratify it, intended the one for the other, restrict- ing man only to the modes and degree of gratification which he has appointed. Civilization and social happi- ness advance, just in proportion as the greatest number of the desires of man are gratified, in conformity with the 10 .ts of the Creator. 7. We see, then, that man is created with the aptitude NATIONAL EXCHANGE. I Ut and the desire for the creation of one product, but with the desire for the enjoyment of a thousand products, and, that the gratification of one of these forms of desire is as much the intention of his Creator, as the gratification of the other. He is intended to produce one thing, and to hold this thing produced, by the right of property, while at the same time, every man is intended to require, J'or the gratification of his desires, a thousand things. Now, it is the existence of these contrary indications in his nature, that creates the necessity for exchange The right to use his product as he pleases, is also the right to transfer it to whomsoever, that is, to exchange it with whomsoever he pleases, and for whatever he pleases. By doing this, all the indications of his nature are ful- filled. The right of property is preserved inviolate. Every one may employ his own capital and industry as ho pleases, that is, as will best promote his own happi- ness, and also as will add the most abundantly to the wealth of the whole community ; and, at the same time, by means of the products of his single branch of indus- try, he may procure every object of desire that every other man has created. And, inasmuch, as by division of labor, on the principle of which we have spoken, a larger amount will be created, and in greater perfection, he will procure every object at less labor, and in more perfect condition, than would be possible in any other manner. The necessity of exchange, therefore, as truly enters into the conditions of our being, as that of production. Without exchange, there could be no division of labor, and, of course, only the smallest possible amount of production. Without exchange, there would rarely be any stimulus to labor ; for labor could add but little to our means of gratification, beyond the mosrabsolute ne- cessaries of life. There would be no stimulus to form societies, since, as man depended solely upon himself, he might as well be solitary as social. Hence, all pro- gress in civilization would be hopeless, and each genera- tion would tread precisely in the footsteps of that which had preceded it. 14 '.53 NATIONAL EXCHANGE. 8. 1 have, thus far, spoken merely of exchange be- tween the individuals of the same society. I think it evident, however, that the same principles apply with equal force to the exchanges between different societies. The aptitudes of different nations for the creation of different products, has, in many cases, been fixed by unchangeable, geographical, and physiological law. Cot- ton, coffee, spices, dye-stuffs, sugar, rice, and many of the most valuable fruits and medicines, can be cultivated only in southern latitudes. Wool, wheat, and bread- stuffs generally, flax, and the most valuable animals, arc found only in temperate climates. Iron is found in north- ern latitudes ; and furs, hemp, and feathers are brought from climates still further north. One country is better adapted to commerce, another to agriculture, and another to manufactures. Besides, as we have already shown, a society, at one period of its history, is better adapted to one sort of production than to another. When capital is* scarce and land is cheap and fertile, a nation is better adapted to agriculture ; when capital becomes abundant and land dear, it becomes gradually better adapted to manufac- tures ; that is to say, nations, as well as individuals, both by original endowment and accidental circumstances, have their special adaptations to the creation of particu- lar products. I suppose it unnecessary to state, that nations, that is, people, if left to themselves, are like individuals, disposed to avail themselves of the peculiar advantages bestowed upon them by their Creator. Self- interest teaches them this lesson with sufficient clearness, and they willingly practise it, if left to their own natural instincts. It is also evident that, by each nation's devoting itself to that branch of production for which it has the greatest facilities, either original or acquited, its own happiness will be better promoted, and a greater amount of pro- duction created, than in any other manner. And while all nations thus appropriate their industry, a much greater amount of annual value will be created for the whole human race, than by any change that could possibly be NATIONAL EXCHANGE. 159 made. If Cuba should relinquish the raising of coffee and sugar, and devote herself to the raising of wheat ; and New York, relinquishing the culture of wheat, should betake herself to the raising of coffee and sugar, would not both communities be poorer, and would not the price of coffee, sugar, and wheat be increased over the whole world ; that is, would not all the world, and these coun- tries especially, be poorer than they are now ? But, whilst it is thus evident that every nation is in- tended by the Creator to improve its own advantages, that is, to create that product for the creation of which it has the greatest facilities ; it is also the fact, that every nation, and every individual of that nation, desires the productions of every other nation ; and is happy in pro- portion as he enjoys them. What nation could be happy without the cotton of the South, the hemp and iron of the North, or the wool, wheat, and manufactures of tem- perate climates ? Nay, let any individual look at the clothes which he wears, the furniture of his room, or the food and utensils of his table, and he will be imme- diately convinced, that every latitude of both hemis- pheres, and almost every country on the globe are tribu- tary to his happiness. His own country has peculiar adaptations, but they are adaptations for but few prod ucts, while every citizen of that country requires for his convenience, nay, almost for his existence, the pro- duction of every other country. These desires can be gratified only by national exchanges. Hence we see, that national exchanges enter into the constitution of things under which we are created, as much as individual exchanges. And the final cause of this constitution is, in both < ases, equally evident. Individuals are made thus dependent upon each other, in order to render harmony, peace, and mutual assist nnce, their interest as well as their duty. Where men are mutually dependent upon each other, the prosperity of one, is the prosperity of all ; and the adversity of one, is the adversity of all. No one can enjoy many of the blessings which God has intended for him, only 160 NATIONAL EXCHANGE. in so far as others enjoy them also ; and no one can b deprived of them, unless others are deprived of then/ to a considerable degree also. Thus, we see that th individual progress of man, is, by the constitution ol things, indissolubly connected with, ,f not absolutely de- pendent on, his social progress. And, for the same reason, nations are dependem upon each other. From this universal dependence, wo 'earn that God intends nations, as well as individuals, to live in peace, and to conduct themselves towards each other upon the principles of benevolence. Where all are mutually dependent, as in the former case, no one can prosper without increasing the prosperity of all, nor suffer without bringing suffering upon all. Hence, it is as truly our interest to seek the happiness, peace, and prosperity of other nations, as it is to seek the happiness, peace, and prosperity of our own nation. 9. From the above constitution it is evident, that uni- versal exchange is as necessary to the welfare, and even to the existence of the human race, as universal pro- duction. We have already seen, that in all the depart- ments of human industry, a great saving, both of time and expense, is effected by division of labor. This is as true of labor in exchange, as in any other case. Since, then, exchanges must be made, it will be better for the whole, if a part of a society devote themselves exclusively to the business of making them. Thus ; suppose that, in a given society, the labor is divided, so that each individual devotes himself to the creation of a given product. One man raises wheat, another rye, another wool ; one labors upon iron, anoth- er upon wood, another upon leather, &c. Now, theso persons can procure the productions of each other only by exchange. But if every one, every time he needs any thing, is obliged to leave his labor to find a pur- chaser for his product, he will lose much time himself, and will consume a large portion of the time of all his neighbors It would frequently take as much time to exchange a pair of shoes, as it would take to make them. This additional time must enter into the price of NATIONAL EXCHANGE. 161 the shoes ; and hence, these, and every other article of consumption, would rise in price accordingly. In such a case as this, it would clearly be a great oenefit to the whole society, if some one should de- vote himself exclusively to the business of making ex- changes. Every producer might then deposit with him whatever he had to exchange, instead of going in search of a purchaser. When this was done, every one, by going ttf him, might ascertain immediately, what was to be exchanged, throughout the whole community, and at what price ; and also, what was required in exchange. He would thus be able, at once, to procure, by his own product, whatever was procurable for it ; and to knou what he must produce, in order that he may procure what he may need. Thus, the labor of a whole day, or of several days, might be accomplished in a few min- utes, in a much more perfect manner, than by any other method. Hence, as all the time unnecessarily consumed in the other method would be saved, much more time might be appropriated to production. As, in a given time, and with given labor, there would be greater pro- duction, every thing would be cheaper, that is, every one would be richer ; and, at the same time, a reasona- ble profit would remain for him who devoted his time to the labor of exchange. Hence, we see that exchangers are as necessary to the cheapness of production as producers themselves. Hence, we also see how absurd is the outcry sometimes raised against them, because it is said they produce noth- ing. Did not a large class of the community devote themselves to this employment, it is impossible to con- ceive what would be the price of the most common and necessary utensil. Were the farmer obliged to carry his wheat or his cattle to Sheffield, to exchange for nee- dles for his wife, or for a sickle for himself, who could estimate what these utensils would cost ? If the laborer were obliged to go to Birmingham for a spade, which he must use in New York, what would be the price of a spade, and how would he ever be able to gain a subsis tunce . The laborer may sometimes complain that the 14* 162 RETAIL MLRCIIANTS. merchant is rich, and that he is poor ; that the merchant stands at his desk, while he labors in the street ; that the merchant rides in his carriage, while he travels on foot. But it may be to him some consolation to remem- ber, that were not the merchant rich, the laborer would be still poorer, for every article would be dearer ; and, besides, there would be no one to pay for the labor with which alone he is able to purchase it. Were not the merchant to be at his desk, the poor man would have no labor to do in the street ; and were not the merchant able to ride in his carriage, the laborer would be obliged to go barefoot. Arid accordingly, we see that when- ever mercantile business, that is, the business of ex- changes, is the most successful, then are the means of living cheaper in proportion ; and then are the operative classes richer ; and the avenues to riches the most widely open to all. The persons who conduct the exchanges of a com- munity are called merchants. They are of two classes, viz : Retail Merchants and Wholesale Merchants. The retail merchant carries on exchanges between the inhabitants of the same country. He purchases of the man- ufacturer or the importer, in quantities too large for the means of the individual consumer, and sells again in any quantities that the consumer may desire. This produces a great saving of time, and of course of expense, to the whole community. Were the manufacturer obliged to leave his labor, to sell a yard of calico, the price of cal- ico would be trebled. Were the importer obliged to open his hogsheads, to sell a pound of sugar, he must charge a price accordingly. And, besides, as each im- porter and manufacturer is supposed to confine himself lo one particular product, the purchaser would be oblig- ed, frequently, to go great distances, and transact with a great number of persons, business which he may now be able to accomplish with a single individual. Every one must thus perceive, that a consumer saves much time by purchasing his sugar, tea, coflee, pepper, salt, &c., at one shop, instead of going to the wholesale im- porters of these articles individually ; specially if, as is WHOLESALE MERCHANTS. ItiS frequently the case, they lived some hundreds of miles asunder. It is much more economical to buy needles, tape, cotton, calico, and silk, at one shop, than to go to the several individuals, in different places, who ha\e im- ported or made these articles in large quantities. In consequence of this advantage to the community, the retail dealer is able to charge a profit on all the articles which he sells, and, at the same time, to furnish them at a much lower price than that at which the purchase/ could procure them, in any other manner. The pur- chaser not only procures them cheaper, but he procures them of a better quality. It is the business of the re- tail dealer to understand the quality of every article in which he traffics, and it is for his interest to purchase it cheaply, and of as good quality as it can be purchased in the market ; since it is on the goodness and cheapness of his articles, that his custom depends. The consumer is thus enabled to employ for his benefit, a skill vastly greater than his own ; and at a much less cost, than thai at which he could accomplish the business himself. Hence retail dealers are as necessary to the prosperity of a country, and to the cheapness of productions, as any other class of persons. And it will be found very universally, that it is much more economical to employ their services, than for a man to undertake to do theii business for himself. The wholesale merchant, conducts the exchanges be tween the individuals of different nations. He exports, in bulk, the commodities of his own country, and im- ports, in return, the commodities of another country. His own interest induces him to export whatever is at the lowest price in his own country ; that is, of what may be there in the greatest abundance ; and bring lack, in return, whatever will command the highest price al liome ; tha.. is, of which there is the greatest need And his own interest will, of course, teach him to pro cure what he brings home, at the place where it can be had at the cheapest rate ; so that he may be able to fur- nish it at the hightest profit to himself, and at the lowest price to others. Hence liis interest, and that of the community, are the same. It is for the interest of the 164 WHOLESALE MERCHANTS. community that those commodities, of which we have a superfluity, should be exported ; and the fact of this su- perfluity is known by the reduction of their price, in comparison with the price of other commodities at home, or of the same commodity in other countries. It is for the interest of the merchant to export the same commo- dity, because the lower the price at which he purchases it at home, on the better terms he can exchange it abroad. It is for the interest of the community, that those objects of desire which are most wanted should be brought back in return ; and the rise in their exchange- able value is the proof that they are eo wanted. It is for the merchant's inte 3st, 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 procures them on the most favorable terms ; that is, as he procures them where they are the cheapest and most abundant. Hence, his gain will be in proportion as he can transfer the productions of the earth from those regions where they are least wanted, to those regions where they are most wanted. And this is precisely what the interests of society require should be done. To the merchant, it is, of course, a matter of no con- sequence, what he exports and what he imports. Un- less a commodity were more wanted at home than that for which he would exchange it, he could have no mo- tive to make the transfer. And that it is so wanted, is evident from the fact, that the community is willing to give a higher price for it than for that which is exported. If he desired it, he could not make any profit, except by consulting the wants of the community ; and thai profit will be the greater, in proportion as he is able to consult those wants with the greatest possible nicety. His gains are the gains of the community, and his losses are the losses of the community. Hence, there is no reason why he should, in any manner, be restricted in the nature or the quantity of the articles which he exports or imports. The constitution of things, and his own self-interest, provide all the regulating forces which the nature of the case requires. EXCHANGEABLE VALUE OF PRODUCTS. I6ft SECTION II. THE GENERAL DOCTRINES OF EXCHANGE. I. Of the rate of Exchange, or the exchangeable calut of Products. If two men have created their respective products and are prepared to exchange them, it is manifest thai they will not commonly exchange them, quantity for quantity ; because a given amount of labor will procure a much larger amount of some products than of others. The same laboi which will procure an ounce of gold, will procure an hundred pounds of iron. Hence, the gold miner will offer to exchange labor for labor ; that is, an ounce- of gold for an hundred weight of iron. And, if the miner of iron will not exchange on these terms, the miner of gold will procure his iron for him- self. Since, if he can thus procure it for himself, by a less amount of labor, than by exchange, he will do so. Hence it is, that the general rate, at which every thing is exchanged, is the amount of labor which it costs to produce it. But we have previously seen, that labor appears in two forms, that of annual capital, and of fixed capital. Both of these enter into consideration, when we speak of labor as determining the exchangeable value of products. For instance : Suppose I purchase wheat, and grind it by hand ; I sell it again at an additional price, pio- portioned to the labor which I have bestowed upon it. Suppose I thus earn money enough to erect a wind- mill ; I shall then be entitled to the same amount of wages per day for my labor, and also to an additional sum sufficient to pay the interest of what was expended in my wind-mill, and also to pay for its wear and tear, in performing the operation. The price of grinding was, at first, only that of immediate labor ; it is now the price of immediate labor, together with the interest on 166 EXCHANGEABLE VALUE OP PRODUCTS. the amount of the pre-exerted labor It is however to be observed, that notwithstanding I am receiving emolu- ment from two sources, and am growing rich faster than before, it is on terms vastly more favorable to the com- munity, inasmuch as I can, for the same remuneration, give ten times as much in return as I could before. The case is the same, if two separate individuals are employed in the operation, the one owning the capita or stock, and the other performing the labor. In this case, the cost consists of the wages of labor, and of the interest on, and the wear and tear of, the capital. Here, however, as before, the community is the gainer ; be- cause, for the wages of labor and interest on capital, it receives a much larger product than it received before, for the wages of labor alone. Thus, if a machine cost one thousand dollars, and there were paid for the use of it one hundred dollars a year, this, added to the wages of labor, at a dollar a day, would be four hundred dol- lars, allowing three hundred working days a year. This would be but one hundred dollars more than would be paid for the labor of the man alone. But a man, with such an instrument, would, probably, in a year, accom- plish ten times as much work as he could accomplish without it. All the gain of the change is, therefore, for the benefit of the public. We see, therefore, that labor and the interest of capital, must, necessarily and justly, enter into the price of every product which is offered in 'exchange. The producer can never, for a long pe- riod, charge more than a fair remuneration for his labor and capital ; because, then, it would be cheaper for the other party to produce it for himself. He cannot, for a long period, charge less ; because, in this case, he will be ruined, and must leave the employment ; and thus the number of producers will be diminished, and the value of the product will rise to the average rate of profit. Nevertheless, for short periods, the exchangertble value of any product may be raised above the reason- able rate of proftt If the demand exceed the supply, there will be a competition among the buyers ; the more wealthy will overbid the less wealthy, and the price will EXCHANGEABLE VALUE OF PRODUCTS. 16? rise. This rise of price will induce others to devote themselves to supplying the demand, and thus the price will fall. If the supply be greater than the demand, there will arise a competition among the sellers, and the price will fall, and will remain depressed, until either the demand increase, or else until so many leave th** employment, as shall reduce the supply to the average demand. It is evident that it makes no difference as to tne result, whether the ratio between -supply an'd demand be disturbed by a change in supply or in demand. If the demand continue the same, a diminished supply pro- duces the same effect as would be produced by an in- creased demand, while the supply remained the same. And, on the other hand, demand being the same, ar increased supply produces the same^result as when, sup- ply being the same, the demand is increased ; that is, in* the one case, the exchangeable value of the product will rise ; in the other case, it will fall. It deserves, however, to be remarked, that this effect, produced by the disturbance of the ratio between supply and demand, will be greater or less, according to sev- eral circumstances. These are : 1. The durability of the commodity. If it be one which, unless it be consumed immediately, will become worthless, the fall of price, from increased supply, is great. Such is the case with oranges, lemons, figs, fresh fish, &c. If, on the contrary, it be a commodity which will endure for years, without loss of intrinsic value, the effect will be less. Thus, an increased sup- ply of iron, produces in the market a comparat vel) small variation in the price. 2. Variation of price, from this cause, depends, also, upon the ease or difficulty with which the supply may be increased. Thus, manufactured articles can gener- ally be produced in a short time, and, if necessary, in a much more than usual quantity. Agricultural products, DH the contrary, require a year, in order to be brought to perfection. Hence, if a crop fail this year, we know that there must be a diminished supply in the whole 168 EXCHANGEABLE VALUE OF PRODUCTS. country, for the remainder of the year ; and hence, an there must be a scarcity, every one is prepared to give as much as he is able. But, if cotton cloth be high, unless the rise of price be owing to a diminished pro- duction of the material, this high price will cause more cloth to be made, and hence, before long, the price will fall. We therefore purchase only as much as we abso- lutely need, and wait for the favorable change. 3. It will be affected by the. nature of the demand "for the article. If ii be an article of universal neces- sity, it will rise more rapidly by scarcity, and sink less rapidly by increased supply ; while, if it be an article of mere luxury, it will rise less rapidly by scarcity, and sink more rapidly by increased supply. When every one must have a commodity, the demand is constant, and every one is alarmed at the prospect of suffering ; hence, he purchases it at any price. And, on the other hand, if the supply be abundant, the holder knows that the ordinary consumption will soon reduce the quantity in market, and rather than sell at a reduced profit, he will wait for the change of price. On the contrary, if an article of luxury be scarce, men begin to abandon it, and thus the demand is quickly reduced. If it be abun- dant, the number of purchasers does not increase with the supply, because men have not yet learned to use it ; hence, its fall in price is rapid, being not sustained by a correspondent increase of demand. These, I think, are the principal circumstances which enter into the exchangeable value of products. They are variously combined and modified, so that they may some- times counteract, and sometimes exaggerate each other. But, I think, that, by applying them to the actual occur- rences of life, we may generally be able to explain the fluctuations of price, which are daily taking place in the market II. When an article of produce is offered for ex- change, the producer has conferred upon it his last value, and it is now ready for the consumer. By the consumer, here, I do not mean him only who gratifies his desire by the ultimate destruction of the RAPIDITY OF EXCHANGES. 169 product, but also him who receives it for the purpose of giving to it some other modification. The exchanger confers upon it no new value. It is the same when it passes out of his hands to the consumer, as when if came into his hands from the producer : that is, in gen- eral, exchange confers no value at all upon products ; since they receive no modification by passing from the hands of one person to those of another. 1. Hence, it will be seen, that the more rapidly ex- changes are made, the better The more rapidly they are made, the less is the loss of interest, and the smaller the advance which the exchanger must charge for his labor. If a merchant purchase to-day a thousand dol- lars' worth of iron, which he sells to-morrow, he charges us for his labor and skill, and adds only the interest for one day upon his capital. If he must keep the iron u whole year before he sell it, he must charge the interest of a whole year, or else he will be the loser by his operation. Nor is this all. If he sell his iron to-morrow, he may invest thf same sum in iron, and seil it again fifty times in the course of the year ; and thus receive a profit fifty times a year, upon the use of his skill and labor, while, in the other case, he receives this profit but once. Hence, when exchanges are rapid, he can afford to exchange at a less rate for his labor and skill, ihan when they are slow. And hence, brisk exchanges are for the benefit of both buyer and seller ; and a ben- efit to one, is a benefit to all. It is for this reason, among others, that we can frequently purchase at a cheaper rate in a large city, than in a country town. 2. And hence we see a reason, why the profit upon one operation in some kinds of exchange, is greater than that in others. The profits of the wholesale merchant on a pound of tea, are, for instance, greater than those of the retail merchant. He who sends his capital to the Hast Indies, and receives in return a cargo of teas, must charge interest and risk, for. the whole time con- sumed, from the day that he parts with his property, until the day that he receives it again. This may be 15 170 DIFFERENCES OF PflOFlT. nearly two years. The retail merchant who purchases one of those chests of tea, may sell it all in a week, and thus invest it fifty times in the course of a year. Now, if the profit on an exchange were as great in the one case as in the other, the annual gains of the retail merchant would be exorbitant. These are reduced, by competition, to the average level ; and hence, his gains on any single operation are much less than those of the wholesale merchant. The same principle applies to production. The greater the time consumed in an op- eration, the larger is the profit on each article which justly belongs to the producer. 3. But, though the act of exchange add nothing to the absolute value of the commodity, it adds greatly to its relative value, that is, to the convenience both of the buyer and the seller ; inasmuch as it enables both to gratify a desire, which, otherwise, would have been un- satisfied. If I want a pen-knife more than I want a dollar, and a hardware merchant wants a dollar more than he wants a pen-knife, we make the exchange with each other. The dollar is the same as before ; it will buy no more in his hands than it will in mine. The pen-knife is the same as before ; it has neither gained nor lost ; and I might, if I chose, exchange it with the next man I met, for a dollar. But, both the merchant and myself are benefited by the exchange. I can use the knife for purposes for which T could not use the dollar ; and thus render my labor per day much more valuable. The merchant has received a full remunera- tion for his labor, capital, and skill, and is, by so much, richer than he was before. That both of us have been benefited by the exchange, is evident from the fact, that neither of us would make the exchange back again. If a hungry man have a piece of silver, and a bakei have a loaf of bread, they will readily exchange with each other. The silver is the same, and the loaf is the same, as before ; but still, both parties are richer and happier ; and neither would the hungry man take back the same piece of silver for his loaf ; nor the baker take the loaf for the silver. DIFFERENCES OF PROFIT 171 The case is the same with nations. If a nation ex- change iron, of which it has more than it can consume, for wheat, which it cannot produce, with a nation which has more wheat than it can consume, but produces no iron, the wheat and the iron are the same as before ; but each nation is richer and happier : each has one more desire gratified than before, and is. able the next year to increase, more largely, its stock of production. That both are happier than before, is evident ; because neither would reverse the exchange, if it were in its power. -And thus, in general, whenever two nations mutually wish to exchange their productions with each other, and are mutually gratified when the exchange is made, it is evident that both are made happier, and that the exchange has been advantageous to both parties. Hence we see, how fallacious is the notion formerly entertained, that, by exchange, only one party is bene- fited ; and consequently, that what one party gains, the other party loses. Were this the case, no country could grow rich by exchange, unless by impoverishing every other coyntry ; and the gain of one nation, would be nothing else than a transfer of the wealth of other coun- tries to itself. On the contrary, precisely the reverse is the case. The most favorable commerce to any one country, is, that by which the riches of both countries are the most rapidly increased. A merchant, whose gains were all derived from the impoverishment of his customers, would very soon have none but paupers foi neighbors. A nation, whose traffic caused the impov (irishment of another nation, would very soon be ob'iged to discontinue comrnerce The only traffic of this sort, irf the African slave-trade, and the result has been the almost entire depopulation of the slave coast. And thus, we see, in political economy, as in morals, every benefii is mutual ; and we cannot, in the one case, any more lhan in the other, really do good to ourselves, without doing good to others ; nor do good to others, without also doing good to ourselves. In what I have said of exchange, it is to be observed that I have spoken of exchange simply, and not as com- 172 CONDITIONS OF EXCHANGE. bined with the labor of transportatior . The labor of transportation gives an additional value to an article ; that is, it confers upon it change of place. This has been already spoken of. It is true, a merchant frequent- ly pei forms this labor, or causes it to be performed, In this case, he is entitled to a double profit ; first, for the labor of transportation, and secondly, for the labor and skill of exchange. He who labors in either of these employments, is entitled to the profit derived from that in which he labors ; and, he who labors in both, is enti- tled to the profit of both. In speaking of the- profit of exchange , it is always to be observed, that the profit of the merchant is derived, partly, from his labor and skill, and partly from his capital. He who exports to France one hundred thousand dollars' worth of cotton, must first buy the cotton ; that is, he must Jiave one hundred thou- sand dollars to invest in this exchange. He exchanges the cotton for silks or for calicos, and replaces his first investment. He is entitled to interest and risk on that capital, for all the time that it is out of his hands, besides the remuneration for his labor and skill. * III. Of the conditions on which the frequency or in- frequency of exchanges depends. It is manifest that the more numerous are the ex- changes, the better must it be for a community. As no one exchanges, except to gratify his desires, and to im- prove his condition, the more numerous ihe exchanges, the greater the number of desires which will be gratified, and the more universally will the condition of a peoj!r> be improved. It is also evident, that facility of ex- change is one of the greatest stimulants to production. ff a man cannot transform his products into what he de- sires, he will labor for nothing but the mere necessaries of life. But in just so far as he is able, by exchanging the products of his labor, to procure objects of desire, his motives to industry will be quickened. And the same is true of nations. Every one, whether poet, or philosopher, or traveller, in setting forth the prosperity of a country, has described its harboi;s thronged with ships, its roads covered with merchandise, and its sails CONDITIONS OF EXCHANGE. J73 whitening every ocean. But all these are only so many forms of expressing the general fact, that a nation's ex- changes, both internal and external, are abundant and prosperous ; that is, that its producers are able, by their own labor, easily to avail themselves of every other pro- duction which they may desire. We have said that exchange is a voluntary and mutual tiausfer of the right of property. If this be the case, there must exist, in aach party, 1. A mutual desire for the property of the other, greater than the desire for his own. 2. Mutual ability ; that is, each party must be atle to offer to the other, such a consideration as will induce him to make the exchange. Where both of these exist, exchanges will, of course, take place. If A have a dollar which he wishes to part with for B's knife, and B has a knife which he wishes to part with for A's dollar ; as soon as each knows the wish of the other, they will mutually gratify each other, and the exchange will take place. 3. As, however, the right of property alone is fre- quently transferred, while the property itself is not de- livered at the time of the exchange, there is always, in such an act of exchange, a liability to fraud. Besides, a commodity may not prove to be as good as it was rep- resented, or the owner's title may not be satisfactory. In all such cases, there is an opportunity for the practice of dishonesty ; and the risk of suffering from such dis- honesty, would, of course, diminish the frequency of exchanges. Hence, frequency of exchanges will also depend upon security of the right of property, and tho existence of the means for enforcing that right. If we now reflect upon these facts, I think we must perceive, that the desires of a people for exchange, will depend, principally, upon their intelligence. Their abil- ity will depend upon the productiveness of their labor and capita. , and the security of property will depend upon their indttidual and social morality. That is, exchanges will be frequent in proportion to the intelligence, and moral character of a people.* 15* 174 COlSDITiONS OF EXCHANGE.. 1 . Exchanges will be frequent or unfrequent, in pro- portion to the intelligence or ignorance of a people. It is only by the diffusion of knowledge that men asceitain how their desires may be gratified. It is by knowledge that the desires of man are brought into relation with the objects intended by his Creator for their gratification. F.very one knows how the dormant desire for exchange is awakened in the bosom of a child, the moment he enters a toy shop. I suppose that strangers rarely pass ihrough the streets of a large city, without being strong- ly, if not successfully tempted to lighten their pockets, before the termination of their journey. Every reader knows, how quickly his desire for books is enkindled, by passing a few minutes in a book store. And thus we seo, how instantaneously a desire for exchange arises in the breasts of savages, as soon as they are brought into contact with civilized man. A multitude of objecis for the gratification of desire, of which they were previously ignorant, is set before them ; and they are frequently stimulated to exchange, to their own disadvantage. The early voyagers give us striking illustrations of this fact. They represent themselves as overwhelmed with these rude people, who were incessantly offering every thing which they supposed their visitors would desire, for nails, beads, pieces of looking-glass, iron hoops, and almost every thing on which they could lay their hands. * When, however, I speak of intellectual cultivation in this connexion, it is to be understood that I by no means refer exclusively to the knowledge and mental discipline which is acquired by the reading of books. Books, though important to the intellectual progress of a country, are only one means of introducing and circu- lating knowledge. Knowledge is gained by observation, and by conversation ; and it is, if I may say so. absorb- ed from the intellectual atmosphere which we breathe ; it is derived from the general spirit of the community in which we live. Thus, a man rarely goes from home in- to another country, or into another section of the same country, without obtaining a knowledge of various con- veniences of which he* was before ignorant. Familiar CONDITIONS OF EXCHANGE. 175 intercourse between men of different pursuits, conduces to the same result. Newspapers, filled with advertise- ments, circulated over every district- of a country, have, in this respect, a powerful effect. All these causes combine to show every individual what he can produce which other men want, and how he may, by exchange, procure from them what he wants himself. We see all this illustrated, in every district separated oy nature from the surrounding country, as a valley in- closed by mountains difficult of access, or an island which has but rare communication with the main land. The progress of such a population in the arts, and in possessing themselves of the conveniences of life, is al- ways much less rapid than that of their more highly favored neighbors. They know but little of what is go- ing on around them, and their desires are but feebly stimulated to improve their condition. The state of such a population is always suddenly and rapidly improv- ed, by any means of easy communication with their neighbors. They are stimulated at once to develope their own resources, and thus to share in the benefits enjoyed by those around them. Thus, the Pastor Oberlin, a truly great and good man, when he wished to improve the condition of the Ban de la Roche, com- menced by inducing his people to repair their roads. Hence we see, how important, in this respect, to a nation, are all means of internal communication, and the facilities for the universal circulation of the commonest forms of knowledge. 2. Exchanges will be numerous, in proportion to the productiveness of a country. We have already seen, lhat simple desire, in both parties, is not sufficient to effect exchanges. Each party must both possess, and be willing to part with, so large a portion of the product desired by the other party, that the other is willing to make the desired exchange. Every man desires a horse and carriage, and every man who either raises horses or manufactures carriages, is willing to part with them for an equivalent, lint until every man have something to offer for a horse and car- 176 cojxnmoNs OF EXCHANGE. riage, which will induce the other parties to make the exchange, every one cannot be so accommodated. Jf A have wheat which he is willing to exchange for rye, but if B either have no rye which he is able to of- ler in exchange, or have it not in sufficient quantity tc remunerate the labor of A, no exchange can take place. But if both have been successful, and each have enough of his own product for his own use, and is also able tc offer, on fair terms, a portion in exchange, they may then exchange with advantage, and, of course, they will do so. Or, again : If A and B have only so much surplus product as will enable them to make this one exchange with each other, much as they may desire the product of C and D, these last desires must be ungratih'ed ; since no further exchange can take place. Or, on the contra- ry, if A and B have abundance, but C and D have been unfortunate, and have nothing which they can part with, the same result will take place. But let A, B, C and D be all blessed with abundance, and all have surplus prod- ucts which they are willing to exchange with each other, and in such proportions as will reward each other's indus- try, and they will all exchange accordingly. Thus, ex- changes must always be most numerous, in the most pros- perous condition of a country ; or, as every one knows, mercantile business is most prosperous, that is, exchanges are most abundant, when manufacturing, agricultural, and all" other kinds of industry are most productive. And we see, moreover, that this principle is of uni- versal application. A good harvest in one country, is a benefit to every other country ; because the favored country desires a larger amount of the productions of her neighbors, and has a larger fund wherewith to pay for them. Hence, the exchanges between such a coun try and every other country, are increased. On the contrary, a famine, or a war, or any other calamity in one country, is a calamity to every other country, be- cause the unfortunate country wants fewer of the pro- ductions of its neighbors ; since it has less wherewith to pay for them. Its exchanges, therefore, are of necessi- CONDITIONS OF EXCHANGE. 177 ly diminished. Hence, that merchant is short sighted, as well as morally thoughtless, who expects to grow rich by short crops, civil dissensions, calamity, or war, in the country with which he'traffics. A wiser and fur- ther-sighted reflection, would teach him that it is very difficult to grow rich by trading with beggars, and that the benefit of one is always the benefit of all. To illustrate all this by a single case, let us ask what would be the amount of exchange effected by the inhabitants of Gieat Britain, France, and the United States, either among themselves or with each other, if the productiveness of these several countries were no greater than it was in the time of Julius Caesar ? 3. Exchanges will be numerous in proportion to the moral character of a people. 1. Individual morality is highly favorable to exchange, inasmuch as it lessens the liability to fraud, and, of course, the risk to which exchanges are exposed. No one will, if he can avoid it, trade with a knave. In proportion to the prevalence of knavery, will be the dis- inclination to exchange. 2. On the general moral character of a people depend the equity of their laws, and, of course, the full enjoy- ment of the right of properly. As has before been re- marked, exchanges are not always completed at the in- stant. One party frequently parts with his property to- day, on condition of receiving the property of his neigh- bor a month hence. Here is a liability to fraud. Un- less the one party have, by means of just and equitable law, the power of enforcing contracts, exchanges will be gieaily restricted. 3. On the morality and intelligence of a people, will greatly depend the freedom of its civil constitution ; that is, the accuracy with which it limits the power of society, over the person and property of the individual When these are improperly understood, or insufficiently guarded, the property of the citizen is liable to suflei from the avarice or the oppression of rulers. To this evil, property, undergoing exchange, is specially liable. Exchange exposes to the view of the public, the posses- 178 STAGNATION OF BUSINESS. sion of the parties, and, of course, enables a lyrant to seize upon them with greater certainty. For this reason, exchanges are frequently, under bad governments, made in secret ; and, for this reason, under such a govern- ment, the) are always as few as possible, and at great expense to the consumer. Thus, in general, the frequency of exchanges will be in proportion to the wealth, and to the intellectual and moral character, of a people. And since, as the pro- gress of a nation, in these respects, will promote her mercantile prosperity, we may easily see what will de- press it. The frequency of exchanges will diminish, as a nation decreases in intelligence and virtue. Of the tiuth of this remark, all history is filled with illustra- tions. After what has already been said, it will not be necessary to enlarge upon this topic. These effects, moreover, are principally to be observed, by comparing the condition of a country at long periods ; and tracing the effects of measures and events in those directions which are not always obvious to every observer. While, however, the government and laws of a coun- try remain the same, there frequently occurs a tempo- rary diminution of exchanges, which is denominated a stagnation of business. This deserves to be noticed. As the business of a merchant is to execute exchanges ; that is, to perform the labor of exchanging, for those who wish to exchange their products, a stagnation of mercantile business must occur, when there is less of this operation to be performed ; that is, the merchant is leady to perform the exchange, but a less number of persons desire it to be performed. The reason why the merchant feels this more serious- ly than any other man, is obvious. All his capital is invested in this kind of operation. He buys of one party, that is, invests his capital in one kind of product, and sells to another, that is, receives his product in ex- change, and he supports himself by the profit of these two operations. The moment exchanges cease, his means of support are dried up ; for he is supported only !>v making them. He can buy, but he cannot sell STAGNATION OF BUSINESS. 170 Hence there arises, as it is called, a stagnation of busi- ness ; that is, a cessation or diminution of exchanges. The principal causes of this, are the following : 1. It may arise from a diminished desire for a partic- ular product. Thus the decrease of the Catholic reli- gion, during the wars of the French revolution, dimin- ished the desire for fish, which the Catholics eat in Lent, and on fast days. This produced a stagnation of business in the fish trade. It may arise from change of fashion. Thus, when shoe-strings were substituted for shoe-buckles, the de- mand for shoe-buckles ceased ; the manufacturers of shoe-buckles were thrown out of employment ; and there was a stagnation of business in this kind of trade. It may arise from the fact, that on3 particular product has been supplanted by another. Thus the increasing cheapness of cotton cloth, has materially diminished the demand for linen. Whenever, from any cause, the desires of men change, then the traffic in the article neglected, must be dimin- ished ; since it is very difficult to sell to a man a com- modity which he knows he does not want. To this disadvantage, all articles which derive their value from fashion and caprice are exposed ; and, on this account, they are always sold at a higher profit, in order to com- pensate for the additional risk. 2. Stagnation in business may arise from a temporary failure in production. This must, uf necessity, produce it; since, as we have already seen, two men cannot ex- change, unless they both have something to part with ; . and the amount and number of every man's exchanges will be in proportion to the amount which he is able lo part with, and the amount which others are able to oflbi him in exchange. Thus, if the crop of sUgar should bo reduced one half, there would be a stagnation in the sugai business ; that is, there would be but half the quantity of sugar to be exchanged, and half the quantity of other things could be exchanged for it; in other words, half I he number or amount of exchanges would be made. And, in general, the failure of any crop, or the dimimi 180 STAGNATION OF BUSINESS. tion of any kind of production, must cause a stagnaticr. of business in that article itself, and also in whatever is usually exchanged for it. Thus, also, if production lan- guish from civil war, or from insecurity of property, ex- changes of all kinds diminish, towns are depopulated, harhors are deserted, and the accumulated treasure of past generations insensibly melts away. 3. A glut, or stagnation of business, may also arise from comparative poverty in one of the parties making the exchange. If a nation is able to produce but one hundred thousand dollars 1 worth of exports, it can pur- chase but one hundred thousand dollars' worth of im- ports. This, then, will generally be the annual amount that will be brought to its market. But if, from any cause, a larger amount, say one hundred and fifty thou- sand dollars' worth, is 'brought thither, there will arise a glut, or temporary stagnation of business. There will be fifty thousand dollars' worth more than can be ex- changed. The reason is not, that they do not want the additional fifty thousand dollars' worth of the productions of other countries, but that they have nothing with which to purchase it. Hence, after one hundred thousand dol- lars' worth have been purchased, there will be sellers, but no buyers. It will be seen, however, that such a case can generally exist only in new, small, or in very, unproductive countries, or for short periods ; or else in respect to articles of which the consumption of the whole community is but small. 4. A stagnation of business may be the effect of leg- islation. Suppose the importation of coffee into this country be a million pounds per annum. This must be paid for, in some way, by the productions of our own industry ; and the demand for those productions to this extent, is for the sole purpose of paying for this coffee There must, of course, be a great variety of exchanges required to collect these products, to bring them to the seaports, to exchange them for coffee, and again to circu- late this coffee throughout the country. Now, let a duty be laid upon coffee, which shall double its price, and thus diminish its consumption one half. The demand LEGISLATIVE ENACTMENTS. 181 Tor one half of the products by which it was paid for, reases, the demand for coffee, -to this extent, also ceas es ; and the labor of transportation on both articles i- reduced one half. Here must be a stagnation of busi ness, in both of these articles ; and half the shipping thus employed, will, for a time, be useless. Hence, there must, of course, arise a stagnation of business ; that is, a permanent diminution of exchanges, in all the departments of industry affected by this arrangement. The same effect will be produced by any act of legisla- tion by which public confidence is shaken, the currency disordered, or the facilities of exchange diminished. IV. Of the effects of legislative enactments on Ex- change. I think it too obvious to need remark, that duties on imports crm have no favorable effect on exchange. Their only effect must be, to raise the price of the products, and, of course, to diminish the ability in both parties to exchange. Every one knows that the ex- changes between two places are diminished by any nat- ural obstacle to communication. If a road were so bad that it cost five dollars per hundred weight to transport merchandise between two places, every one knows that exchanges between these places would be fewer than they would be if the road were improved, so that trans- portation could be effected for twenty-five cents per hun- dred weight. Now, it makes no difference whether this additional four dollars and seventy-five cents be the re- sult of the badness of the road, or of a transit duty be- tween the two places. The diminution of exchange which it causes, will be precisely the same. In a severe winter, our northern harbors are closed, for weeks or months, by the ice. This is a natural tariff, and imposes a large protecting duty, inasmuch as exchanges must be ef- fected, if they be effected at all, at a vastly greater price than in summer. It is not generally believed, that this in- creases the number of exchanges ; nor have I ever heard it mentioned, as favorable to domestic industry. I therefore think it evident, that government cap do nothing to facilitate exchanges by means of discrimi- 182 LEGISLATIVE ENACTMENTS. nating duties. They have, however, attempted to ac complish this result, by means of bounties on particular exports. The manner in which this is accomplished, is this. Suppose we were not able, profitably, to produce anil offer to other nations in exchange, some particular arti- cle, say, for instance, iron. To encourage this export, a bounty is granted on every ton of iron exported, equal to the difference between our cost of producing it, and that at which other nations produce it. Our producer can then sell it in a foreign port, as cheap as the pro- ducer from another nation. But where does this bounty come from ? Why, it is from a duty laid on some othei import, or else from a tax laid on some other product. The iron worker is no better off than any other man, and all the other exchangers or producers, or both, are just so much worse off ; and the value of capital and labor is, by the whole operation, diminished, as we have shown in the article on the effect of legislative enact- ments upon production. Did any merchant ever grow rich by selling under cost, for the sake of competition with his neighbor ? It would be very difficult to show how a nation can grow rich in the same way. But, as the principles, on which this discussion depends, have been already treated of in the article above alluded to. I need not here repeat them. If, then, governments can do nothing in this manner to promote the business of exchanges, in what manner may exchange be effected by legislation ? We have said that exchanges are the natural result of mutual desire and mutual ability. In what manner may these be influenced by legislative enactments ? 1. Of Desire. If by desire be meant the original impulses implanted in the bosom of man, it is evident that these can be neither increased nor diminished. These are a fixed quantity, with which we cannot inter- fere. These desires, however, generally remain dor- mam, until they are awakened into exercise by the pres- encQ, or by the knowledge, of their appropriate objects. It is by a knowledge of the existence of these objects, INTERNAL IMPROVEMENTS. 183 *, therefore, and of the modes by which they may be ob- tained, that the desire for exchange is excited. Hence, it is plain, that the desire for exchange may be in- creased ; 1. By the general diffusion of knowledge, especiall) of that sort of knowledge by which man is taught how he may benefit his condition. This will be accom- plished, generally, by a universal diffusion of the means of common education. 2. By removing all impediments to the diffusion of knowledge. In this respect, a duty on imported books, which is really a tax on knowledge, is, in a free govern- ment, exceedingly injudicious. 3. By increasing the physical means for the dissemi- nation of knowledge and intelligence. This will be done by allowing every facility for internal improve- ment ; by an efficient and cheap post-office system, per- vading every portion of the country, and bringing to every man's door the information circulating throughout the civilized world. I do not know that a government can do more thar this to excite in a people the desire to exchange. 2. Of Ability. The ability to exchange depends, as we have shown, upon productiveness. Hence, every means by which the productiveness of industry is in- creased, will also benefit exchange. These have al- ready been alluded to, in the former book, and need not here to be repeated. There is, however, one branch of productive industry which is more immediately connected with exchange lhan any other, and which deserves, on that account, in (his place, a more minute consideration. I refer tc in- ternal improvements. On this, I shall offer a few :e- niarks. An internal improvement, is any means by which the operation of change in place may be performed at a less expense than formerly. It is, in fact, a labor-saving machine, peculiar to this branch of industry. Of those at present in use, the most common are roads, railways, and canals. 184 INTERNAL IMPROVEMENTS^ What is peculiar to these machines, is, First, they are very costly, and hence, in general, require more capital than can be commanded by a single individual ; and, therefore, must be owned by a number of persons asso- ciated together. Secondly : they must pass through the lands of various individuals who have no special interest in them, and are thus liable to interfere with the right of property. This interference can be allowed only by the whole community ; and, hence, there arises a neces- sity for legislative enactment, granting permission to this effect. Now, inasmuch as such machines, if properly con- structed and skilfully managed, are greatly for the ben- efit of the whole society, it is manifestly the duty of society to grant all suitable facilities for constructing them. Inasmuch, however, as they, like any other privileges, are liable to be abused, and may, in the end, injure the interests which they were intended to benefit, it becomes a legislature, on all such occasions, to re- serve, at the outset, the right of visitation ; the power to modify or amend, on equitable terms, the privileges granted, in such manner, as the exigencies of the public may require. Whether a government should itself undertake the work of internal improvement, is, however, not so clear. On this subject, it may be suggested : 1 . If it will not be profitable ; that is, if capital thus invested will not be as productive as that invested in other employments, it ought not to be undertaken by the public, because the capital thus invested must be taken from other employments ; that is, it must be taken from a more productive, to be invested in a less productive employment. If it be said, though it be not itself pro- ductive, it may enrich the district in which it is con- structed ; the answer to this is, then let that district pay for it, unless it can be shown to be either wise or just, to impoverish one district, for the purpose of enriching another. 2. If it will be productive, private associations, in an mtelligent community, will, with proper encouragement, INTERNAL IMPROVEMENTS. 185 be ready to undertake it. And of the question uf prof- itableness, private individuals will judge much more ac- curately than a government, because the facts are equal- ly known to both ; the degree of intelligence is likely to be as great in the one case as in the other ; and the one party can be influenced by no motive but self-interest, which is here also the interest of the public ; while the other party may be influenced by party politics, section- al jealousy, love of power, and a thousand disturbing causes. 3. A work of this sort will be executed at much less expense by private individuals, than by a government. The costliness of all public works is everywhere pro- verbial. The greater the number of intermediate agen- cies by which any work is performed, the more imper- fectly is the work done, and the greater is the unneces- sary expenditure. Now, government is itself an agent. It must perform the work by means of another set of agents. Under these may be half a dozen others, in the form of contractors, and sub-co'ntractors. All these un- necessary agencies must be paid out of the public purse, and their accounts adjusted by those who have no spe- cial motive to encourage economy. All this is reversed, when those, who conduct the work, pay for it them- selves, and whose profits, in the end, must depend upon the goodness of the work, and the cheapness of its ex- ecution. 4. A work of this kind, when completed, will be more faithfully superintended by private, than by pub- lic owners. The private owner knows that he mu-t conduct his operation economically, and maintain the favor of the public, or else he will gain nothing by his investment. A government is under no such salutary check. 5. But a still stronger objection to the confiding of such works to the public, is, the amount of patronage which it must, of necessity, place in the hands of a gov- ernment. The power to make roads and canals when- ever it pleased, and to employ upon them whomsoever it pleased, once placed in the hands of a party, would 16* 186 INTERJS'-AL IMPROVEMENTS. perpetuate it in office forever, in spite of any violation of right which it might perpetrate, or any corruption of which it migli* be guilty. There is too much reason to fear, that a large portion of the investment in internal improvement made by our State authorities will prove an almost total loss. For these reasons, it seems to me that the safer rule would be to leave works of this kind to be executed by private corporations. This, however, is a general, and not an universal rule. Works may be of such magni- tude, or tney may be of so great national importance, that the} must be executed and controlled by the public at large. These cases are, however, I apprehend, the exceptions. The rule I suppose to be as above stat.ed. There are, however, other improvements, of very great importance, the superintendence of which belongs, of necessity, to a government ; it is that class of improve- ments which reduce the expense, and lessen the risk of external commerce. Among these, the most importani ire the removal of obstructions from harbors ; the loca- tion of buoys and the erection of light-houses ; the ex- ecution of accurate surveys ; and the publication of ac- curate charts of the whole coast of a country. The more perfect these become, the less is the risk of ship- wreck, in leaving and approaching a coast ; of course, the less is the cost of insurance, and the less the prict of every thing imported and exported. Hence, a nation, offering these advantages, becomes a better market fot all other nations, and they will the more readily resort to her for exchanges. Improvements of this sort are one of the most economical forms of national investment ; they frequently save, in a single year, the whole cost of their erection. The loss of property and life, by ship- wreck, on almost every coast, is enormous. The great- er par of this loss might probably be saved, by judicious expenditure upon improvements on the coast, and proper regulations for the government of pilots. 3. I have said, above, that exchanges wm\be effected by the security or insecurity of the right of property. Hence, legislators can do much to promote the prosper- TREATMENT OF FOREIGNERS 187 ity of a country, by the enactment of wholesome laws, by which contracts shall be enforced, wrongs redressed, and injuries prevented. And tb^y sho-iM be specially careful that they are not guilty, in their social character, of what they forbid to others in their individual charac- ter. They should be scrupulous in the observance oj individual right, and should remember, that a single in- dividual is as important as a nation, when the question of justice is concerned. And the same principles apply to the treatment of foreigners. No foreigner can traffic with another coun- try, without placing his property in the power of the cit- izens of that country. If his rights be respected, and he be assured of the benefit of equal laws, he will invest his property abroad as freely as at home ; and will, with confidence, and on the most moderate terms, effect ex- changes to as great an extent as he is able. Hence, under these circumstances, exchanges will be effected to the greatest advantage of both countries, and they will naturally flow from other countries to such an one as this. And the reverse will be the case, if the rights of foreigners are disregarded. Other nations will desire their custom, if we do not. Commerce will leave our shores, and we shall be left in the well-known condition of the dog in the manger. The fable, I believe, informs us thai he was starved to death. CHAPTER SECOND. OP EXCHANGE BY MEANS OF A METALLIC CURRENCV SECTION I. OF THE USE OF A CIRCULATING MEDIUM. IN the preceding chapter, I have endeavored to illus- trate the general principles of exchange, and the condi- tu>ns by which it is regulated. Exchange, however, l ! ke every other benefit which we enjoy in this life, can only be accomplished by labor. But in this, as in ev- ery other case, it holds true, that a great advantage is gained by increasing the productiveness of labor ; that is, by enabling the same individuals, by the same labor, to accomplish a greater amount of exchange. And it holds true in this, as in other cases, that the result of labor is more perfect, "just in proportion as the produc tiveness of labor is increased. But in order to accomplish this, an intermediate in- strument or tool must be used. A man who cannot split a log by the direct use of" his hands, will find no difficulty in splitting it with a beetle and wedges. So, also, he who would find it impossible to effect a dozen exchanges in a day, if he insisted on exchanging the products themselves, will find no difficulty in doing it in a few minutes, by means of the instrument which lias been invented for this purpose, and he will not only thus do it in a shorter time, but also on better terms, and with much greater exactitude. This instrument, of so much importance in exchange, is money ; to a consideration of the nature and uses of which, we shall devote this and the succeeding chapters The present chapter will be confined to the conoidera DIFFICULTIES OF EXCHANGE IN KIND. 189 lion of a metcMic currency. We commence with the use of a circulating medium. In treating of this subject, we shall first consider the difficulties which must necessarily embarrass exchange in kind; and, secondly, the manner in which these diffi- culties are removed by means of a circulating medium. I. The difficulties which attend vpcn exchange in kind By exchange in kind, I mean exchange of commodity for commodity, as when a farmer exchanges wheat for sugar, or pork for iron, &c. 1. Suppose a producer to have prepared his product for consumption. If he be obliged to exchange in kind, it may be a long time before he finds another, person who desires the article which he has created, ft" he be obliged to wait long, his product, if perishable, will be either destroyed or deteriorated. He must go in search of a purchaser ; and if he at length find one, he may have consumed, in the search, as much time as the arti- cle originally cost. This must be added to the cost of the article, or else he will be a loser. But, by this additional cost, the product is no better ; it is only dear- er. This must, of course, decrease the demand ; and hence, by all this additional cost, both parties are poorer. 2. 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 definite object of desire. He who has rais- ed wheat, does not wish simply to part with his wheat, but also to receive in exchange for it, lea, or coflee, 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 is 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 .".hoes, or butcher's meat This, also, increases the dif- ficulty of exchange, and, of course, the labor and the cost necessary to effect it. 3. But this is not aH. Men who wish to exchange, do not always wish to exchange in equal amounts. A 190 DIFFICULTIES OF EXCHANGE IN KIND. grazier who brings a fatted ox to market, may find per sons enough who want a few pounds of beef, but very few who want a whole ox. The grazier cannot divide his ox, and give a part of it for a few pounds of coffee or tea ; nor, probably, does he require one fourth of the value of the ox, in any article which can be purchased in the town where it may be sold. He wishes to obtain, by the sale of the ox, additional provender for the sup- port of his remaining herd. This he cannot, perhaps, procure, except in the country ; or if he could procure it, the merchant who owns the provender, would not want a whole ox for butcher's meat. Thus, exchanges would be arrested ; or must be made very rarely, and at great cost, and under every possible disadvantage. 4. Such are the difficulties which attend upon the exchange of material products. But it will be manifest, at once, that material products give rise to but a small part of the exchanges which are, by necessity, made among men. One great article to be exchanged is labor. This every man produces, and must produce, by the law of his nature ; and this, every man is able to offer in exchange for the objects of desire. Now, were ex- change only in kind, a man who had nothing but labor or skill to offer, would not be able to labor for those who desired his labor and who would give him the great- est wages for it ; but he must labor for those who were willing to give, in ever so small quantity, the articles which he needed for his support. The laborer in an iron-foundry would be obliged to take his pay in iron. But, as he could not exchange his iron with the baker, I he butcher, or the clothier, he must go and work for these producers, 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 -what- ever else he needed. If he could not thus procure tea, coffee, clothing, and other necessaries, he must leave bis occupation, and work for th'ose who wished to ex- Change them for his labor. The physician must take his UTILITY OF A CIRCULATING MEDIUM. !91 fee in iron, or bread, or butcher's meat ; and if any of his patients produced what he did not want, he must ei- ther attend them gratuitously, or they must die without assistance. Besides this, there are many products in- capable of division. If a hundred men engaged in building a ship or a house, how would they take thoir pay in kind, without taking the ship in pieces, and thus rendering their work wholly useless ? 5. Hence, were exchange only in kind, there woul I be no division of labor, except in its most imperfect 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. I have al- ready shown, how impossible it would be for him to do this by the practice of any one of the ordinary mechan- ical trades. How much more, when these trades are minutely subdivided. I have elsewhere stated the ad- vantages of this subdivision. But how could this be effected, if exchange were made only in kind ? Sup- pose a man employs his time in the single process of heading pins, or in forming the rivets for the handles 01 pen-knives ; how could he subsist by exchange in kind Who would give him what he needed for subsistence for his pin-heads, or for his knife-handle rivets ? Hence, division of labor, so essential to the productiveness of human industry, to the progress of society, and to the use of natural agents, could exist only in its most ele- mentary forms, were exchange limited in the manner we have supposed. And, if it be said that this inconvenience corld be avoided by establishments for barter, it will at once ap pear that these could remedy it only in part. They could assist in the exchange of nothing but material prod- ucts, and of those which weie not rapidly perishable. They could present no relief for exchanges of labor. Hence, they would do almost nothing to facilitate divis- ion of labor, and could carry forward the progress of so- ciety if) no respect beyond its most rude beginnings. From such causes as these, arises the necessity of a circulating medium ; and it will be easily seen, in what 192 UTILITY OF A CIRCULATING MEDIUM. manner, by means of a circulating medium, they art remedied. 1. Suppose that the producer can always exchange his product, not for the article which he immediately wants, but for some other article which is universally wanted, and wanted at all times, and in all quantities. As soon as the producer has, by exchange, possessed himself of this commodity, he may then, on account of its universal desirableness, easily procure, by another exchange, whatever he may need. In this .manner, by means of two exchanges made at the same instant, the labor of days or of weeks may be accomplished. Thus, if salt were this commodity, and every one wanted salt in all quantities, at all times, and at a fixed value ; by exchanging every thing for salt, and then exchanging salt for whatever we might desire, the labor of exchanges would be vastly diminished. 2. This convenience, however, will be much increas- ed, if the article of universal desire be small in bulk ; because, in this case, much of the labor of transporta- tion will be avoided. Were the lace-maker obliged to exchange his lace for salt, he would be obliged to fur- nish himself with a cart, in which to receive his pay- ment. And thus, in general, instead of a purse, in which to carry our money, we should require, for this purpose, the use of a wagon and horses. 3. If this circulating medium be also minutely divisi- ble, it will possess still greater conveniences. The producer may then part with all, or with a part o his product ; and he can procure, with a circulating me- dium, as small a portion of that which he wishes in ex change, as he may choose. The farmer, instead o( exchanging one part of his wheat for tea, another pait for coffee, and another part for clothing ; or else, ex- changing it all for tea, and then endeavoring to find cus- tomers for his tea, may exchange it all for the circulat- ing medium, procure as much of each as he pleases, or, if he choose, make no further exchange whatever. 4. The case is still stronger, when labor is one of the articles 10 be exchanged. The laborer will now nc UTILITY OF A CIRCULATING I.IEUIUM. 193 longer be obliged to labor at any price, for him who is able to give him in exchange what he immediately wants ; but he may labor for any one who will give him, in return, this object of general desire. Hence, he is now at liberty to labor for him who will give him the beit wages ; that is, where his industry and skill will be f)ruployed most advantageously to himself. With this he can procure whatever he wants, in such portions as lie may desire. 5. The practicability of the division of labor now becomes immediately apparent. If the laborer be paid in the article of universal desire, it makes no difference whether the person who produces what he wants, needs or does not need, his particular product. He wants the object of universal desire, and this is enough ; for, by this, the laborer can effect exchanges with him or with any one else. If he can procure this circulating' me- dium by means of pin-heads, or knife-handle rivets, this is all that he wants. He is now as independent as though he produced that which every one wants ; since, by means of what he produces, he can procure that which every one wants. Thus, we see. that every man is, in this manner, able to devote himself to that in which his skill will be most productive to himself. And all men thus making the first exchange in this object of universal desire, all are equally independent ; and all are able, in the most successful manner, to avail themselves of the fruits of their own industry. Now, whatever jt is that performs the office of thus facilitating exchanges, is called a circulating medium. So great has been the necessity of some such instru- ment, that 'even the rudest nations have always been found adopting some such contrivance with advantage. Thus, the natives of the African codst were formerly in the habit of using, as money, small white sea-shells, denominated cowries. In pastoral nations, cattle were frequently used as 8 circulating medium. Thus we are told, by Homer, that fh armor of Piomode cost nine oxen. Sheep, proba- bly, \v^re also used for the same purpose. The ordi- 194 UTILITY OF A CIRCULATING .MEDIUM nary mode, among such nations, of estimating the wealth of an individual, was by the number of his flocks and herds. Hence, probably, arose the custom, among the Greeks and Romans, of stamping their earliest coin with the figure of an ox or a sheep. Hence, also, the Latin word pecwnia, money, is supposed to be derived from pfciw, a sheep. From reasons which will easily suggest themselves, all other substances soon gave place to the metab, as a circulating medium. Different metals were, however, used at first by different nations. The first instance on record, of the use of metals, as a medium of exchange, is found in Genesis 23 : 16. " And Abraham heark- ened unto Ephron. And Abraham weighed to Ephron the silver which he had named, in the audience of the sons of Heth, four hundred shekels of silver, current money with the merchant." We see that at this time the money was weighed ; that is, was not paid by tale. I presume that the metals were used as a circulating medium 'for a long period before they were fashioned into coin. At a much later period, the baser metals were used as money by the Greeks and Romans. Thus the Lacedemonians, under Lycurgus, established iron as the circulating medium. The Romans used copper or brass in the early ages of their history. Hence, as signifies, in Latin, both brass and money. These, how- ever, in all places, have long since given place to gold and silver, which are hence denominated the precious metals. These are now used fqr the purposes of money, throughout the known world, except among the rudest and most barbarous tribes. Copper is used only in the payment of sums less in value than the lowest denomination of silver coin. In some countries, both gold and silver are made a legal tender in paymenl of debts ; in other countries, only one of these rnetals is used. In this country, both are thus established by law. In Great Britain, gold is the only legal tender foi all sums greater than twenty shillings, and silver for aft sums of less amount. Copper is used onl\ in payine.il of sums less than sixpence. QUALITIES OF A CIRCULATING MEDIUM. 195 SECTION II. OF THE QUALITIES NECESSARY TO THAT WHICH CONSTITUTES THE CIRCULATING MEDIUM. In order to render any substance available as a circu- lating medium, the essential quality required is, that it be universally desired as such. Its object is to facili- tate exchanges, but it can accomplish this object, only by means of the willingness of the whole community to exchange for it every thing which they are willing to part with. If one individual of a community prefer one substance, and another individual another, exchanges will be embarrassed, by unnecessary multiplication, and by the useless consumption of time. And if, on the other hand, any substance be thus universally desired ; on account of the great facilities which it offers, and the great saving of labor which it effects, it will be immedi- ately used for this purpose. And it will be so used, without any agency of government ; and even although a government did not exist ; just as a man will use any other instrument for increasing the productiveness of his labor as soon as he can procure it ; simply for the rea- son that it is for his advantage. If the exchanges of a country were wholly internal, it would be sufficient that such a circulating medium were universally acceptable in that country alone. But, inas- much as every nation has important and extensive ex- changes with other nations, it is an additional advantage to have the same substance used 3s a circulating medium by all. We have already seen, that that exchange is the most profitable for a country, in which it exports what is relatively most abundant at home, and imports that which is relatively most wanted at home ; and im- ports it from that country in which, what it exports *s most wanted, and what it imports is most abundant. Now, it is evident, that the circulating medium may b. accumulated in any country, so that it shall be relatively lower in price than other commodities. Thus, 'he pre- 195 QUALITIES OF A CIRCULATING MEDIUM. ciotis metals may be so abundant in this country, that a merchant can procure more iron in Russia by sending a given amount of silver, than by sending the flour which would here be equal in value to the silver. Tt is, there- fore, for his advantage to send the silver, and it is equally for the advantage of his country? And, for the same reason, if in this country there be a relative scar- city, it will be for the advantage of other nations, as well as for our advantage, that they should send silver in exchange for our products. In this manner, exchanges are made, of that which is least wanted by both parties, for that which is most wanted by both. This enables both parties to supply themselves at the lowest rates. Besides, it is very desirable that the value of the circulating medium, be as little as possible liable to fluc- tuation. Now if the same substances be used in all the civilized world, this fluctuation, if not absolutely pre- vented, will be so restricted, as to produce the least possible amount of evil. When exchanges between countries are frequent and numerous, and the prices of all commodities are universally known by the merchants of both, as specie may be sent abroad with very little cost of transportation, a very slight advance in its rela- tive value will cause it to flow in from other countries, and a very slight surplus will cause it to flow to other countries, until the common equilibrium be restored. Tn this, we see in what manner the universal employment of the same substances, by all nations holding intercourse w ith each other, will be an advantage to all ; inasmuch as it will prevent any great fluctuation in their relative value in any particular country. While, however, it is the fact, that any thing which is thus universally acceptable will be used as money, there are various circumstances on which this acceptableness depends. Some of these are the following : '1. Its cost, or, in other words, the amount of labor necessary to its production, must be as invariable as pos- sible. Hence, it could not be a vegetable product, be- cause the variations in the productiveness of labor thus employed are very great. An abundant harvest pro- QUALITIES OF A CIRCULATING MEDIUM. 197 duces a rapid fall, and a famine produces a rapid rise, in the price of wheat. On this account, a metal is prefer- able ; because, here the amount produced is directly and immediately dependent on the labor employed in produc- ing it, and is less liable to be influenced by disturbing forces. 2. It should be an article of high price ; that is, with- in a small bulk, it should concentrate a large amount of value, or represent a large amount of labor. This is. of course, a great advantage, by saving the labor of transportation. Every one sees that the commerce of the world, at its present state, must instantly cease, if we were obliged to exchange our gold and silver for the iron money of Lycurgus. Yet, to this remark there is a limit. As a substance may not be" of a price sufficiently high, so it may also be of a price too high for the purposes of money. Pre- cious stones are minerals, and they cost all the price at which they are sold ; but they are too dear to be used for this purpose ; that is, though they might answer for the exchange of great values, yet, for all common ex- changes, they would be utterly unsuitable, because they would be of so small bulk, as to be very easily lost. 3. The substance must be capable of division, with out loss of value. As it is desirable that provision be made for facilitating all sorts of exchanges, the substance used as money, should be capable of division into such portions as may suit the convenience of every one, with- out itself suffering, by this division, any diminution of \alue. On this account, also, the precious stones would be unsuitable for this purpose, because their value is not proportional to their size. A large diamond is worth several times its weight of small diamonds. If it bo divided, its value is very greatly diminished ; and hav- ing been once divided, its value can never be restored. On the contrary, a lump of gold may be divided into one hundred pieces, and the value of all the pieces together, s equal to the original value of the whole. They may, if occasion require, be again united into one lump, an 1 the value of the whole is the same as before. 17* 198 QUALITIES OF A CIRCULATING MEDIUM. 4. The substance should be of such a nature, thai a can be easily verified ; that is, it should be susceptible of such preparation, that every one can readily assure himself of its purity and weight ; that is, of its value. Unless this can be done, at every exchange, every one must examine and try every piece by itself. This would consume much time, would require the possession of great skill in every individual, and would, by its frequent repetition, soon wear away the substance itself. Hence, it is of advantage that the metals used for money should be peculiar in their weight and color, and that their ap- pearance should attract attention, so that their peculiari- ties may be easily learned and distinguished. The bril- liant lustre of silver and gold, therefore, adds very much to their fitness for coin. Their weight, also, presents a ready means for the detection of adulteration. Platina, which is used in Russia for the purpose of money, has the advantage of both of them in weight ; but it has no lustre, and, in appearance, it very much resembles the baser metals. This will be an objection to its universal acceptableness. 5. It should be as little as possible liable to decay. Were it easily destructible, great losses would constantly occur ; as the loss must fall upon the individual in whose hands it happened at the time to be. And besides, it would be from this cause liable to so great fluctuation in value, that it could never be used as a circulating medi- um. Were fish or wheat the circulating medium, since both are liable to rapid decay, a change of weather might frequently ruin a man. No one would exchange, at such hazards, for the circulating medium, and all exchange would be made in kind. Could the circulating medium always bear the same relative price to other commodities, it would probably be advantageous. But as this is im- possible, it is manifest, that that commodity which i= liable to the least fluctuation, is, by this circumstance, the best adapted to this purpose. 6. As we sometimes desire to make small and some- times large exchanges ; and, as the substance best adapt- ed to the one is not always best adapted to the other, QUALITIES OF A CIRCULATING MEDIUM. 199 there is an advantage in employing two metals for this purpose. For this reason, both silver and gold are com- monly employed in most civilized countries. For ex- changes of less value than the smallest silver coin, copper is also generally used. And, if silver should ever be- come so abundant and cheap as to be too bulky to be used for effecting small exchanges, it would take the place of copper, and its place would be supplied by gold. Should gold become as abundant as silver, it woulJ take the place of silver and some dearer metal, as platina would be used in its stead. Inasmuch as gold and silver possess all the essential qualities which are required in a circulating medium ; and as the condition of man so manifestly points to the necessity of some such instrument, it is not remarkable that they have so long and so universally been adopted for this purpose. But it is always to be remembered, that we use them as a circulating medium, because we want a circulating medium, and because they accomplish the purpose. We do not use them as a circulating me- dium, because we see a stamp upon them, nor because government has made them a legal tender ; but b.ecause we know that they represent a given amount of value, and we therefore know, that we can exchange them for the same amount of value, whenever we please. If a bushel of wheat sell for a dollar, we k'now that it costs as much labor to produce a dollar at the mine and bring it to us, as to produce a bushel of wheat and bring it to us. Hence, we know that, until some new and vastly more productive mines are discovered, this dollar cannot be produced for less labor, nor represent a less amount of value. Aod, as every body wams a dollar, and no one can furnish it at a less cost, we know that it will bring, in exchange, the same as we have given for it. We remarked, when speaking of exchangeable value, that the demand for any product, and, of course, its exchangeable value, was affected by the number of de- sires it would gratify. The greater the number of de- sires which it will gratify, the greater the number of persons who will want it ; hence, they will overbid each 200 OF THE 1'UNCTIONS OF MONEY. other ; and, unless there be some improved, (hat is. cheaper method of producing it, its exchangeable value will rise. This principle applies to whatever is used as money. The precious metals are used for ornament, for domestic utensils, and for coin. If the use of them fo r one of these purposes should be discontinued, the de- mand would be less ; and, as they are not liable to do- cay, their relative price would fall. Hence it is, that the amount of plate and utensils formed of the precious metals, in a country, is no crite- rion of its wealth, but frequently an indication of the reverse. Should commerce be unproductive, and ex- changes diminish, and our intercourse with other nations be cut off, and we be reduced to the condition of Europe in the dark ages, there would be but little need of the precious metals as an instrument of exchange, and their price would fall. Hence they would be. melted down by the rich, into plate. And, on the other hand, when they have been used for plate, and the demand for them, and their consequent price, have from any cause subsequently increased, the temptation to use them productively, is too great to allow them to be employed in this manner ; and the plate is melted into coin, and its place supplied with porcelain, or plated ware, or glass, or any ether material of equal beauty, but of inferior costliness. SECTION III. OP THE FUNCTIONS OF MONEY. Let us now suppose metals to have been selected ly the whole community as the circulating medium, and that ihey have been so divided and verified as to be fitted to accomplish this purpose. We shall proceed to consider some of the functions which these metals would discharge. Money is the instrument for facilitating exchanges This, when considered as money, is its only office. By OF THE FUNCTIONS OF MONEY. 201 accomplishing this purpose in the least time, and at the least expense of labor, and transportation, and wear, it reduces the cost of every product, and thus adds im- mensely to the productiveness of human industry. The principles on which it accomplishes this result, have been already alluded to. They are briefly as fol- lows . 1. The cost or price of the money employed in every exchange, is equal to the cost or price of the article which is exchanged for it. If a barrel of flour in Lima be exchanged for ten ounces of silver, the cost of pro- ducing the flour, j/nd of transporting it to Lima, is equal to the cost of producing the silver and transporting it to the same place. If a barrel of flour in New York, be exchanged for seven ounces of silver, the cost and transportation of the one at the place of exchange, is equal to that of the other. If the flour merchant wishes for a thousand ounces of silver, he can procure it more cheaply by producing flour than he can by going to the mines of Mexico, and working it out from the ore. And, if the miner wishes for flour, he can procure it more cheaply by working in the mine, than by attempt- ing to raise wheat and manufacture flour on the moun- tains of Potosi. That this is so, is evident from the fact, that if the cost of the precious metals change, their exchangeable value varies, like that of any other product. Thus, if new and richer mines are opened, so that the cost of producing the precious metals is reduced, or, in other words, so that mining labor is more productive, the price of ihe precious metals falls. In such a case, we receive more silvei for a day's work, for a bushel of wheat, for a pound of wool, or for any other product. Money is thus rendered cheaper, on the same principle that when a wheat harvest is abundant, we receive a larger amount of wheat for a day's work, or for a pound of wool, than at other times. This is exemplified, in the great change of prices which occurred throughout the world after the discovery of the mines of South America. And, on the other hand, when the price of producing the precious 202 OF THE FUNCTIONS OF MONEY. metals is increased, their exchangeable value rises. This has been the case, for some time past, in consequence of the civil wars of South America. Hence, there ha? been for some time past, a gradual rise in the price of the precious metals ; that is, the price of other things has fallen ; or, in general, if the cost of the production of the precious metals diminishes, while that of the pro- duction of wheat remains the same, we shall receive more silver in exchange for a bushel of wheat. If the cost of producing an ounce of silver is increased while that of producing a bushel of wheat remains the same, we shall receive less silver, in exchange for a bushel of wheat. That is, in exchanging products for the precious metals, as for any thing else, we exchange on the prin- ciple of labor for labor. Besides, the price of the precious metals, like that of any other commodity, is influenced, in short periods, by the fluctuations of supply and demand. There is, in any country, the course of whose industry is not distort- ed by legislation, a supply of money, equal to the ordi- nary wants of the community, for the purposes of ex- change. The price of both articles, is, in such a case, based upon the cost of the production of specie, com- pared with the cost of the production of the several ar- ticles for which it is exchanged. But, suppose that rt'hile this amount of specie remains the same, there should happen a year of universal productiveness in all the departments of agricultural, manufacturing, and com- mercial industry. In this case, the number of exchang- es, and the amounts exchanged, would be proportionally increased. The instrument with which exchanges were to be made, would be relatively scarce ; the demand for H would risu ; and there would be competition among the bidders for it. Hence, its exchangeable value would rise ; that is, we should give more wool, and wheat, and cotton, for an ounce of silver ; every thing would be cheap ; or, in other words, for an ounce of silver, we should procure a larger amount of other products ; as we always do, in a season of universal productiveness. \ivl. on the contrary, if, while the ordinary amount K GOVERNMENT. same right to exchange it icilk any one, and for any thing, as he may think for his advantage. 2. A government has no right, arbitrarily, to alter the value of money ; that is, to say that a dollar shall contain either more or less silver than it now contains. To do so, is, of necessity, to interfere with private con- tracts ; and thus to expose one half of the community, a prey to the dishonesty of the other half. If A have promised to pay B one thousand dollars ; meaning, by this, one thousand ounces of silver; and the govern- ment enact that the dollar shall hereafter contain only half an ounce of silver, and oblige B to receive hall ounces, instead of ounces ; they defraud him of pre- cisely half his due. This will be the case, not only with B, but with all the creditors in the whole commu- nity. It is just the same interference, as though they should enact, that a debt of one thousand bushels of wheat should be paid with five hundred bushels ; or, that a debt of a yard of broadcloth should be paid with half a yard. If, however, the coin, by common consent, is found f.o need a change of any kind, and the public conven- ience actually require it, it is to be done by common consent, after sufficient notice of the change has been given, and be so done, that all contracts existing at the time, be left inviolate. If the amount of silver in a dol- lar, in this country, should ever be changed, it should he effected by exchanging, at the mint, the present dol- lar, at its value in silver, for a new dollar, at its value in silver ; so that all contracts now in existence, should be fulfilled according to the terms of the agreement. A still better method would probably be, to issue a new c.oin, with another name. This, 1 believe, has lately been done in Great Britain. Instead of the guinea, of twenty-one shillings, a gold coin, of twenty shillings, has been introduced, called a sovereign. 3. A government, I think, has no right to fix the rel- ative value between the precious metals. This cannot he done, in fact, because the relative value is liable to continual fluctuation. If both are a legal tender, the AGENCY OF GOVERNMENT. 223 debtor has the right of paying in that which he prefers , and, as he may be always expected to choose to pay in the cheaper, he may thus frequently defraud his creditor to the amount of the fluctuation. It is better to havo but one a legal tender, and leave the other, as any other matter of merchandise, to be exchanged by special con- tract between the parties. In this respect, I think the system of Great Britain preferable to our own. Gold, as has been remarked, is there the only legal tender, for all sums above twenty shillings ; and silver, for all sums below that amount. Hence, whenever contracts are made, their amount determines the metal, in which the payment is to be made. Mr. Condy Raguet, in his last treatise on currency and banking, has, we think, conclusively shown, that the present law fixing the relative values of silver and gold in this country, is, in every respect, injurious. Its tendency, clearly, is, ft) drive the one or the other metal out of the country, and thus to diminish, instead of in- creasing, the amount of specie in circulation. And, besides, inasmuch as the legal tender in Great Britain is gold, it would be much better that ours should be silver. A scarcity of specie in one country, would thus be less felt in the other. This is a consideration of great nio- ment where two nations are so closely connected as this and Great Britain. As we are at present situated, the least variation in one country is immediately felt in the other. CHAPTER THIRD. OF A CIRCULATION BY MEANS OF A PAPER CURRENCY. SECTION I. OP THE NATURE OF BANKS IN GENERAL. BANKS OF DEPOSIT AND EXCHANGE. WE have already treated somewhat at large upon the subject of division of labor ; the circumstances in our constitution by which it is introduced ; and the benefits which result to every class of the community from its introduction. We have also seen, that division of labor is always carried on most successfully, when it is united with the use of some natural agent. Thus, in the man- ufacture of cotton, by the union of steam or water power and machinery, with division of labor, production is greatly increased ; and every class of society is en- riched. And we have also seen, that the one could not be carried to great perfection, without the employment of the other ; and also that, in the nature of things, the one actually suggests and renders necessary the employ- ment of the other. Now, all these remarks apply, with the same force, to the labor of exchange, as to any other labor. From tho necessities of society, it is evident that a very large por- tion of its labor must be the labor of exchange. The increase of this labor would naturally lead to the discov- ery of some natural agent, by which it might be exe- cuted at less expense of time and industry. At first, BANKS OF TEPOSIT AND EXCHANGE. 22f the rudest instruments, such as cattle, and the baser metals, were employed. These gradually gave place to the more perfect instruments, gold and silver. As the use of this more productive instrument increased very greatly the number of exchanges, and thus requited more laborers, instead of fewer, in this department of industry, it was natural, in the next place, that divisions of labor should be introduced, in order to use the instru- ment, or natural agent, with the greatest degree of suc- cess ; and also to accomplish, with a given amount of industry, the greatest amount of exchanges. Division of labor, in this department of industry, as in every other, has proceeded from rude beginnings, to greater and greater perfection. At first, its benefits were but imperfectly appreciated. By experiment, they were more and more unfolded ; and now, although its principles may not be generally understood, yet, it is coming into very general use throughout the civilized world. Instead of banks in none but the great marts of trade, as was the case a century or two ago, we find them, in free states, employed in towns and villages, over the whole community ; and, when judiciously ad- ministered, their effects are the same upon the small, as upon the great sections of the community. The word bank, is said to be of Italian origin. " In the infancy of European commerce, the Jews in Italy were wont to assemble in the market places of the prin- cipal towns, seated on benches, ready to leid money ; and the term bank, is derived from the Italian woid banco, a bench." When any of these money-lenders failed, his bench was broken. Hence, the origin of the word bankrupt. 1. We have shown how very great, in a chilized country, must be the amount of exchanges. We have also shown that these exchanges are greatly facilitated by means of the uie of a metallic currency. But it will be evident, that, were the labor of exchange divided no more perfectly than we have thus far supposed, a variety of inconveniences would unavoidably occur. Among these are the follou ing : 226 BANKS OF DEPOSIT AND EXCHANGE. 1. Were men thus to keep on hand so large an amount of the precious metals, and actually to make their exchanges by means of metallic transfer, much time would be consumed in transportation. A large number of persons must be employed constantly, in no other business than in carrying silver and gold from one mer- chant to another, in the same place, and between the merchants in different places. 2. Were exchanges to be made directly, through the medium of money, it is evident that every payment must, of necessity, be counted by both parties. This, in large payments, would consume much time, and cause great wear and tear of the coin. Were a large mercan- tile house, which transacts exchanges to the amount of from ten, to one hundred thousand dollars' worth in a day, obliged to count all the money paid and received, every one must see that more than thrice, the present number of agents must be employed ; and thus, the ex- penses of the establishment would be greatly increased. The effect of this additional expense of labor, would be very greatly to increase the cost of exchanges ; that: is, the price of products. 3. The precious metals are small in bulk, and there- fore, are very liable to be stolen. The pieces of the same denomination being of precisely the same form and impression ; if stolen they cannot be identified. Hence, more than usual care is necessary, in order to secure them against robbery. Were every individual, there- fore, to keep on his premises, the whole amount of the precious metals necessary to effect his exchanges, every one would be obliged to guard his property with increas- ed vigilance, both by day and by night.* He would be his own banker, and must add to his present expenses, all those expenses necessary to the security of a bank. But let us now see by how simple an arrangement all these difficulties might be obviated. Suppose this labor * It is appropriate here to remark, that the establishment of banlu has, on this account, greatly diminished the frequency of the crimes of house-bre.ikinif and highway robbery. BANKS OF DEPOSIT AND EXCHANGE. 22? were divided, and that all the merchants in a town, in- stead of being every one his own banker, agreed togeth- er to employ a single person to become the banker for ah of them. Let us suppose this person to procure a safe repository for all the specie in the neighborhood, and to become responsible for its safe keeping. Suppose, also, that these merchants, instead of keeping their money themselves, all lodged it with him, and that he opened an account with each one, crediting him with whatevei he deposited, and debiting him to all that he withdrew ; and that every one was at liberty to withdraw, at any moment he chose. It is manifest, that in such a case, if A owed B one thousand dollars, he would not send to the bank and withdraw the money for B to replace it again, but would give to B an order for one thousand dollars, which B would present to the banker, and the one thousand dol- lars would be withdrawn from A's account, and added to that of B. If B owed C, he would do the same. 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, their bank accounts would stand just as they were at the beginning ; and yet there have been four pay- ments made and received, of one thousand dollars each. Yet, not one cent of the specie has been touched. Not a dollar of it has been counted. It has been all done by a few entries made on the books of the bank, and done in a very few minutes. In this manner the writing of a few lines saves all the labor of repeated transporta- tion, of as frequent counting of coin, and also all the cost of wear which must arise from every such opera- tion. Besides, inasmuch as no more vigilance is neces- sary to secure from depredation the whole sum of specie than any one part of it, it is evident that great additional labor is saved in this respect also. Suppose, now, the business of this society to become so extensive, that one banker is unable to transact the operation of all of these transfers, and another is also employed, who opens another banking-house on the same principles. If we bear in mind the fact, that the pur- 228 BANftS OF DEPOSIT AND EXCHANGE. chases and sales must, in the end, be equal to each oth er ; that is, that every man receives as much money as he pays au-ay, the transactions of the day must, as before, equalize each other. If both parties transact their busi- ness at the same bank, this, as it has been just shown, will be the case. If they transact their business at different banks, it will but slightly differ. A pays B in a draft on the first bank, which B deposits in. the second bank. B pays in a draft on the second bank, which C deposits in the first bank. At the close of the day, these banks ex- change drafts, and thus, without any labor or counting, or transportation, by merely writing a few words in a bank leg- er, the whoJe transaction is completed. It is hardly possi- ble to find a case, in which, by the division of labor, a great- er increase of productiveness is given to human industry. Now the case will be' the same, if we consider the in- tercourse between different cities and different countries, or in different countries. It is to be borne in mind, that the sales and purchases of every society, as well as of every individual, must be, substantially, equal. The reason is obvious ; for a man can buy only as much as he can pay for ; and, as much as he can pay for, he will gen- erally buy ; and, if he buy skilfully, he will lose nothing by the exchange. In other words, all exchange is ulti- mately and substantially exchange in kind. And, as the things exchanged are, at the place of exchange, of equal value, the purchases and sales must be equal to each other. If Boston buy ten million dollars' worth of New York, it must send ten million dollars' worth with which to pay for it. If both parties made these exchanges by means of money, not only the goods, but also the money, must r>e transported to and fro, at every exchange. By a very simple arrangement all this trouble may be avoided Thus, for instance, suppose A, in Boston, sells to B, in New York, ten thousand dollars' worth of domestic cottons ; he is entitled to draw on B for that amc .int ; tl.at is, to order him to pay it, to whomsoever he will. Again : Suppose C, in New Y'ork, sells to D, in Bos- ton, ten thousand dollars' worth of French silks ; he, in like manner, is authorized to draw on D. for that sum. * BANKS OF DEPOSIT AND EXCHANGE. 229 A sells his draft on B, to a bank in Boston, that is, he receives in Boston the money due to him in New York. C sells to a bank in New York the draft on Boston, that is, he receives in New York, the money due to him i.i Boston. The banks exchange these drafts 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 the other ; and with only the labor of making a few entries in a leger. In this manner the amount of money necessary to perform the exchanges of a country is greatly diminished, and all the loss to which money in transitu is exposed, is avoided. We see, therefore, that if the exchanges between two places were equal, the whole business, of payment might be made without the transfer of any specie whatever. But suppose the business between two places were not equal; that is, suppose that Boston purchased of New York more than it sold to that place ; suppose, for in- stance, that Boston purchased of New York ten million dollars' worth, and sold to that place only five million dollars' worth. In this case, one half the payments would be made in productions, in the manner we have already suggested. The remaining five millions must, however, be provided for, in some other way. One ob- vious way would be, to send this remainder in specie. But, it will be asked, how is this five millions of specie to be provided ? We answer, by sending the five mil- lions of products which would otherwise have been sent to New .York, to some other place, where specie can be had at the cheapest rate ; and thus paying for whal we have purchased at New York, by two exchanges in- stead of one. This is one method. Another method would be, for Boston to send five millions of her do- mestic products to some other market, say to the West Indies, and exchange it for some other product, say cof- fee, or sugar ; and remit these to New York, to pay the balance of her debt. This would be sold, the proceeds deposited in New York, and he who owed the New York merchant would purchase a draft in Boston, of him who 20 BANKS OF DEPOSIT ANE EXCHANGE. had in:ported the coffee or sugar ; and thus the debt would be liquidated. Now, it is manifest, that it is, to Boston, of no con- sequence in which way she pays this debt ; wheihei by sending directly to New York ten millions of her piotl- ucts ; by sending five millions to New York and five millions to South America in exchange for specie ; or by sending five millions to New York and five millions to Cuba in exchange for coffee and sugar. In either case, she pays but ten millions ; and the way in which it is paid is a matter of indifference. And it is, also, obvious in which manner Boston will choose to pay her debt. Every one who has a debt to pay, will pay it in that which will liquidate it at the least expense to himself. If five millions of specie can be procured by four and a half millions of other products, it will be best to pay the debt in specie. If sugar and coffee worth five millions in New York, can be purchased by four and a half mil- lions' worth in Boston, she will choose to import coffee and sugar in payment. And thus, the account will be adjusted, in every case, according to the interests and conveniences of the respective parties ; that is, of the whole community. This is the case, if we take into consideration two trading places in the same country. But the case is the same with the trading cities, over the whole world. And by thus allowing every thing to regulate itself, the whole business of exchange is adjusted. Suppose, for instance, that Great Britain has pur- chased of us more than we receive in return. There will then be a portion of her debt unpaid ; and there will then be a demand for something wherewith to o;:y it. In this case, drafts on America will rise ; that is, those who have payments to make will overbid earn i'iher, and drafts will increase in price. In this case, a French merchant, who has sent a cargo of silks to Amer- ica, will find that he can get more for it, by selling in London, drafts on his correspondent in New York, than by importing American produce. In this case, he will soil to the London merchant drafts to the whole amount BANKS OF DEF3SIT AND EXCHANGE. 231 ol his cargo ; that is, England pays France, for sending to America sufficient produce to pay the deficiency which she is unable, profitably, to supply from her own productions. In this manner, the deficiency of the ex- ports of the first country to the second, is made up by the excesses of a third ; and, as every one receives as ir.uch as he pays out, and imports, on the whole, as much as he exports, by free communication among them- selves, the balance is speedily adjusted. Hence, bills of exchange, or orders of payment for goods already delivered at any particular place, become an article of merchandise, as much as any thing else. This being the case, it is of importance that some per- sons should devote themselves to this branch of labor. By these means, both parties know how they can be best accommodated. The sellers know where to sell, and the buyers where to purchase. For the transaction of this business, banks have great facilities, on account of the capital which they can command, and the commu- nication, which, for other reasons, they of necessity hold with each other, and hence they are most commonly thus employed. Almost all our domestic, and much of oui foreign exchange is negotiated at present by means of banks. They act as brokers, by bringing buyers and sellers together, and, by reason of their communication with each other, they are enabled to transact the busi- ness of exchange of drafts with great security and at lit- tle expense. Such, I suppose to be some of the principal functions of banks, as offices of deposit. They, by means of di- vision of labor, diminish the amount of the circulating medium necessary to carry on the exchanges of a coun- try ; they greatly diminish the labor of transpoi tation and of counting money in the same place, and almost remove the necessity of transporting it between different places. The Bank of Amsterdam was purely a bank of de- posit. It received the specie of the merchants of the city, ^md gave them acknowledgments, which were transferable, like specie ; and, by the transfer of these. 232 BANKS OF DISCOUNT OR LOAN. on the books of the bank, all large payments were uni- versally made. And so great was the confidence in the management of the bank, that certificates of these de- posites were current throughout Europe. Adam Smith attributes the origin of this bank, to the desire of the Dutch to prevent their coin from migrating into the sur- rounding states, and being replaced by the inferior and debased coin, with which they were liable to be inun- dated. That this might have been the idea, from which the first conception of such a bank originated, is very possible. But, whoever will observe the advantages of such an institution, as they have been stated above, must be aware, that when the transactions of a commercial city became numerous, and the exchanges became ac- live, merchants could not long fail of falling upon some instrument which their necessities so imperatively re- quired, and which all their habits of thought would be so likely to suggest. From what has been said, it is obvious, that when all other methods fail of adjusting the differences of ex- change between two places, specie must be procured, and remitted from the one to the other. This will al- ways pay the debt, and equalize the exchange. Hence, the highest rate of exchange, which, under natural con- ditions, is possible between two countries, is that which is sufficient to procure the specie, and to remit it to the place of payment. OP BANKS OF DISCOUNT, OR LOAN. We have already seen, that all production is the re suit of the application of industry to capital. But we also see, that the capital and the industry are frequently in the hands of different persons. One has capital, but does not wish to labor with it himself. Another has in- dustry and skill, but has no capital, with which to create products. It will be at once seen, that it xvill be ^1 great advantage to both parties, if the capitalist can loan his BANKS OF DISCOUNT OR LOAN. 233 capital to the laborer, and receive from him a fair com- pensation ; while the laborer, by uniting capital with his industry, will be able, after paying this compensation, to retain a handsome remuneration for himself. For the accomplishment of this result, the introduc- tion of a circulating medium presents great facilities. A flour merchant might have more flour than he wanted, and would be willing to loan it to another person, who wished to establish himself in business; but, perhaps, the person who applies to him for the loan, understands noth- ing but the trade in iron. The capital of the one, there- fore, in this case, could be of no service to the other. But let the flour merchant convert his flour into money, and then he can loan it to any one who needs it, no matter what may be the occupation in which he hopes to be the most successful. As men accumulate capital, they are enabled thus to loan. There are always multitudes of persons who wish to borrow. But he who is willing to loan, is also fre- quently engaged in active business, and can rarely take pains to ascertain the character of the borrower ; neither may he have any means of so observing his affairs, as to secure himself, in season, against the results of dishones- ty. Hence, his risk of loss would be great ; the rate of interest high ; the time requisite to effect and to watch over loans, great ; and there would be, on the- part of the capitalist, but little disposition to part with the im- mediate control of his means. Thus, also, if a mechanic or merchant wished to bor- row of a private capitalist, he would not know to whom to apply ; much time would be lost in finding a capi- talist ; and, if the capitalist were timid and suspicions, it might be utterly impossible to satisfy him that the je- ctiritj was sufficient, unless it were in property with which he was acquainted ; or, unless the money were to he employed in operations with which he happened to be conversant. Thus, a great inconvenience would be suffered, both by those who were willing to lend, and by those who wished to borrow money ; that is, capital. Now, it is obvious, that these inconveniences would 20* 234 BAM:* OF DISCOUNT OR LOAN. De greatly relieved, if, by a division of labor, some per- sons were set ajjart for the express purpose of loaning money. In this case, those who had more capital than they wished to employ, would exchange it for money, and place it in the hands of the money lender ; and those who wished to borrow would go to him foi such accommodations as they needed. He would attend to the whole business of loaning, and collecting both the principal and the interest, thus acting as the agent of the capitalist, and receiving for himself a fair compensation for his expenses, labor, and skill. In this manner, banks perform the service of bringing together the lenders and borrowers, so that he who has any thing to lend, can lend it, if there be any one who wishes to borrow ; and, so that he who wishes to bor- row, can borrow, provided there be any one who wishes to lend. And thus, by bringing the wants of both parties to act upon each other, each has the advantage of loan- ing or of borrowing, on the most favorable terms. Nor is this all. When this is once accomplished, the whole may be done in the shortest possible time ; be- cause, the greatest part of the time, without such an arrangement, would be spent in bringing together two individuals who could agree upon the loan in question. Hence, a negotiation, which might otherwise have taken half a day from the labor of both parties, may now be perfected, in a very few minutes. This is a great sav- ing of time and labor, and contributes greatly to the punctuality of the whole community, which is a still fur- ther saving of time and capital. Besides, we have already shown, that when a man de- votes himself to any occupation, and to nothing else, he will acquire i skill which can never be attained by him who only practises it occasionally. This principle ap- plies with full force to the present case. He whose only business it is to loan money, will keep himself, at all times, acquainted with the state of the money market ; he will ascertain the character and responsibility of the individuals who are desirous of loans ; he will be the first to ascertain the indications of their failure, either in skill BANKS OF CIRCULATION. 235 or in fidelity ; and will, therefore, be the best prepared to decide, whether it be necessary to withdraw capital from a debtor. This will be especially the case, if there be interested in the management of the funds thus collect- ed, severa! men engaged in general monetary operations, and who, therefore, are likely to collect all the informa- tion on these subjects, that may at any time be afloat in the mercantile community. Such is the nature of banks, as offices of discount. Some of the private banks of Great Britain are of this character. They issue no notes of their own, but mere- ly negotiate the bills of other banks, or of the Bank of England. "Of the same nature, to some degree, are Savings Banks, of which the object is, to collect the capital from small owners, and loan it out at interest for their benefit. OF BANKS OF CIRCULATION OR ISSUE. If banks were established on the principles which wo have suggested, and if the depositors and contributors placed in the hands of the banker, metallic currency, it is evident, that the bankers or bank would soon collect a great part of the metallic currency in the country. Were this the case, it is evident that they might do a very considerable service to the community, by furnish- ing the depositor with a certificate of deposit, which ho might use instead of the money which he had deposited. Thus, if I had deposited one thousand dollars in a bank in Providence, and wished to use it in New York, if thoir obligation to pay so much money to my order weie in New York as good as specie, I could pay a debt in the lattei place by making over this obligation to my creditor there, as well as by transmitting the specie. If a mer- chant in New York, who owed the same sum in Provi dence, pursued the same course, one draft would bal- ance the other, and both debts would be paid. Again The bunk, upon sufficient security, might loan to me iu- 236 BANKS OF CIRCULATION. obligation to pay on demand, and allow me to use this obligation in any place where it might be for my interest to do so. And still more readily might this be done, if a number of individuals had deposited in the bank spe- cie, for the purpose of having it loaned, at stated rates, to any persons who could offer a reasonable guaranty that whatever was borrowed would be, at an appointed time, refunded. It is always *o be understood, that the bank obliges itself in all cases, to pay these obligations to the bearer on demand, in the precious metals ; and that hence, these notes represent invariably the value in the precious metals, which their obligation designates. And thus, from the nature of the case, a large amount of the money in circulation, would soon become specie certificates, or notes of obligation of the bank. And they would get rapidly into circulation, because .of their greater convenience for transportation ; their diminished liability to robbery ; and the greater ease with which '.hey could be identified in case they were stolen. But still further. It is manifest, that many of these hills thus issued by banks, in this condition, would never need to be repaid in specie, but would be cancelled by . The same principles apply to all persons employed in 'abor or trade. And hence we see, in general, that it is by means of credit, that those who possess more capital than they wish personally to employ, may, without labor, derive from it an equitable revenue ; and tnat those who have less capital than they can profitably employ, may procure the use of such capital as they wish, and may thus be enabled to enjoy the full benefit of their skill and industry. It is thus that a poor man, with industry and skill, is enabled, at once, to reap all the advantages of riches ; and a rich man, whose power of labor is past, to reap, to a considerable degree, the advantages of in- dustry and skill. The benefit, to both parties, is great and mutual. And, it is manifest, that any institution, which contributes to accomplish such a result, must be of material service to the community. Now, banks are such institutions. They stand in an intermediate place, between capitalists and laborers ; and enable both to derive advantage from each other. They do this, in the following ways : I. They collect together capital, which would, other- wise, be scattered and useless. 1. This has been in part illustrated before. The greater the difficulties of loaning, the less will always be the amount loaned. If he who has a few hundred dol- lars to loan, is obliged to wait until some one calls for it, it will lie for the greater part of the time idle. And if he be obliged to observe the circumstances of a debtor, of whom he may know very little, the time and labor thus spent will frequently be as valuable as the interest he is to receive. Hence, a large amount of capital will always remain unproductive ; and, consequently, a large amount of industry, which might have been rendered productive by means of it, will languish. 2. But this is not all. A large amount of capital is always in the possession of widows, minors r and aged persons, who are unable to unite with it, that labor which is necessary for its productiveness. These persons can neither labor with it themselves, nor are they capable of superintending the loaning of it, either safely or profits- 252 UTILITY OF BANKS OF DISCOUNT bly. Hence, the fear of losing all will deter them frorr. loaning, and they will hoard it, and live upon the princi- pal, until it is all spent, and they are reduced to poverty. Thus, the property which might have been useful to others, and might have supported themselves without any diminution of its amount, is in a few years dissipated : and the gains of a previous life, instead of being added jo the capital of a succeeding generation, are abstracted from it forever. ' 3. There is always in every community, a large num- ber of persons engaged in active industry, whose gains cannot at present, and sometimes cannot at all be invest- ed in their employment. Such are laborers, whose gains cannot be of service to them, until they have accumu- lated a considerable sum. A laboring farmer who saves from fifty to one hundred dollars a year, cannot with this buy a farm, until he have accumulated the earnings of several years. If he can invest these gains as they ac- crue, and receive interest for them, they will annually &dd to his stock. If he cannot thus invest them, they niust lie idle, doing good neither to himself nor to any one else. The same is the case with mechanics, and various other laborers. Besides these, there is a very large class of the com- munity whose means of accumulation cannot be increased by the addition of capital. The merchant can, by in- vesting his annual gains in his stock in trade, increase his sales, and, of course, his profits. But how can the physician, or the lawyer, or the clergyman, or any per- son who is paid by salary do this ? Hence, if there be not some means by which these annual gains can be con- veniently collected and invested, they will be either fool- ishly squandered as fast as they arise, or they will be hoarded without any annual profit, either to their owner or to the community. For these evils, a bank provides the remedy. The stock of a bank is all divided into shares, of such amounts that they are within the purchase of most persons who may wish to invest their capital. These shares are al- ways for sale, at a price regulated by the interest which UTILITY OF BANKS OF DISCOUNT. 253 they annually pay. He who has one hundred dollars to invest, purchases one hundred dollars' worth of bank stock. He receives interest on this one hundred dollar-, from the day he purchases it, until the day on which he sells it again. When he has accumulated any thing more, he purchases in like manner. And thus he has a safe place of investment for all his gains, where they are both held securely and without any trouble to him, and where they also pay him an annual revenue. When he wishes to withdraw these funds, and to appropriate them to some other use, he sells his stock ; that is, some one becomes one of the stockholders instead of him- self; and he thus receives back the money which he formerly paid in These shares are every day to be bought and sold u. the market ; and hence, he can gen- erally invest or Withdraw his money, any day in the year at an hour's warning. On this account, it will at once be evident, that the shares of banks should be of such amount as will best accommodate the communities for whose benefit they are specially designed. When they are intended for capitalists, they may as well be large as small. But when they are for the benefit of those who have but small amounts to invest at one time, they should be small. They will, in this manner, enable persons of small means, the more easily to invest ; and, on account of this increased convenience, as their stock will be more eagerly sought for, it will bear a higher price in the market. The utility of banks would be still further increased, if, besides this mode of investment, they were in the habit of receiving small deposits on interest, which might remain with them, to be drawn for at the pleasure of the owner. Many persons, having small amounts of property to invest, are unacquainted with the process of buying and selling bank shares, and thus, either spend their money thoughtlessly, or allow it to lie idle. Were banks to receive all such sums on deposit, and allow for them a lower interest than they charge their customers, they might thus conduct a profitable business 22 254 UTILITY OF BANKS OF DISCOUNT. as the loaners of money for the pubhc, and redeem if large amount of capital from unproductiveness. Tins is the practice of the banks in Scotland. It is true, that this is accomplished, to a considerable degree, by savings banks. But these might still \>e very usef jl by receiving money in smaller sums than those re- ceived by the bank, and it might remain with them, unti) it became large enough to invest in a bank of discount. Thus both institutions might assist each other ; and the bank of discount would have this additional advantage;, that it could allow of the withdrawal of money on de mand, which a savings bank cannot always readily do. In this manner, banks collect together the scattered and useless portions of capital, and place it in a form in which it may be conveniently used ; and they also col- lect together that which would, perhaps, be used, but which, without their assistance, would be used in a much less convenient manner, both to the borrower and the lender. II. Let us now see in what manner, after this capital has been thus collected, banks enable the industrious classes to enjoy the benefit of it. The most obvious method in which, without bar/ks, the capitalist would assist the laboier, \vould be to sell nim goods on credit. Thus, suppose a mechanic wished io establish himself in a village where his services would command a high remuneration ; he might purchase of the dealer in the material which he wanted, as much stock as he wished, at three or six months, or a yeai's credit ; and, with this capital, he could commence his business. By converting this material into product, and selling it, he would be able to liquidate the debt ; and all the surplus would be his own. Or, take the case of ;i wholesale merchant. Suppose such a merchant to im- port into a large city, two hundred thousand dollais worth of goods. If he shall wait for the individual. who may need his wares, to come and purchase them it may be a year or two before his sales are completed There may, however, be fifty retail merchants, of small capital, in the surrounding towns, who are not able tn UTILITY OF BANKS OF DISCOUNT. 255 pay in cash for his commodities, but who, if they can obtain them on credit, will be able, both to sell them to good advantage to themselves, and also to refund the money in three or six months. It will be of advantage to both parties, the one to sell, and the other to buy on c.jedit. And this is the manner in which very much of ihis business is commonly transacted. The natural limit to this accommodation is, however, ihe pecuniary ability of the merchant. Were there no means of borrowing, he could grant but little facility in this manner. Just in proportion as he were enabled to use the capital of others, could he grant the use of cap- ital to those, whose only possession was their labor and skill. Thus, goods could be purchased to but a small amount on credit, were not the wholesale merchant able to avail himself of the capital, which, from the various sources that we have mentioned, is accumulated in banks. Under these circumstances, in times of ordinary caution, there would be a large class of industrious men whose enterprise would be greatly crippled from the want of capital. But again, suppose that a retail merchant or mechanic can purchase on credit, it is frequently better for him to borrow of a bank in his own neighborhood, than to pur- chase on credit at a distance from home. 1. If his character be good, the bank, in the neigh- borhood where he is known, will lend to him at a lower rate than the merchant in the city where he is not known. I speak of the merchant's lending to him, because, to furnish him capital on credit, is to lend to him that amount of capital. The merchant always so considers it, and hence he always has his cash and his credit prices. 2. To borrow in this manner is clearly of advantage to the town in which he resides. He in this manner brings into profitable use capital which would otherwise have been idle ; and the very manner in which he uses it enables him to sell at a cheaper rate to those of whom he has borrowed it. It Is in this manner, therefore, that banks quicken the inlusfv of a people. They first collect together, and 256 UTILITY OF BANKS OF DISCOUNT. render available, all the capital of a country ; and they so use it, that every one who needs it, and can give the requisite assurance that it will be well used, can obtain it. They thus, by giving facilities to the extension of credit, enable every individual to reap all the benefits which can arise from his industry, his skill, and his moral character. Without credit, if he possessed no capital, he would be left to the resources of his simple industry, or simple manual labor. In just so far, there- fore, as banks tend to the extension of this kind of credit, they confer a benefit upon the industrious. Thus, every one may have the opportunity, so far as the capital of the country will allow, to unite his industry with capital, and reap the resulting advantage ; and, on the other hand, all the capital of the country is enabled to be united with industry, and thus it is all employed, in some way, in the business of production. The nearer any community approaches to such a state of things as this, the more intense will be its industry, and the greater its productiveness. So far as banks confine themselves within these limits, they are advantages to the community. It is, however, but too manifest, that they may be greatly perverted from these their legitimate objects. Thus, instead of lending to the industrious producer of small means, they may lend to the wealthy capitalist at the ordinary rate of interest, that he may loan to the producer at exorbi- tant interest. Instead of benefiting the producer, they thus allow themselves to be used as the instruments for fleecing him. Or again, they may lend to capitalists for the purposes of speculation ; thus enabling them to raise to whatever amount they please, the price of the mo.st important necessaries of life. Or still further, the banks lliemselves may become purchasers, and may buy up, on their own account, the most valuable staple of a country, for the sake, as in the preceding case, of deriv- ing enormous profits by the monopoly. When banks in consequence of such transactions become embar- rassed, their resort is to a suspension of specie pay- ments. The\ are thus enabled to keep up the price of UTILITY OF BANKS OF DISCOUNT. 257 whatever they have to sell, and to pay off their debts in depreciated currency. And what is strange, they, not (infrequently, persuade the community, that this course rs taken entirely for the public good. Such conduct should always without fail work the forfeiture of the shatter of a bank, whatever might be the consequences. When banks transact their business in this manner, they become a nuisance. By sudden expansions and contrac- tions of the currency, they embarrass and empoverisli the industrious dealer and enrich the money lender, the bonds of duty in the meantime are sadly relaxed, and the moral principles of the mercantile community suffer a frightful deterioration. And still more. As banks are permanent corpora- tions, of which the laws and resources are known, they present an inducement for the investment of foreign capital. This is always an advantage to any country, provided the capital be profitably employed and net squandered in useless investments. Capital will never be invested, in any country, unless the rate of interest in the country where it is invested, is higher than in that from which it is sent. In this case, the former country derives the advantage from the difference. If money can be borrowed in London, at four pei cent., and be used here, at ten per cent., we have the benefit of the use of the money, and of six per cent., in addition. In this manner, money is constantly borrowed by a new country from an old, with great advantage to both, but specially to the new country. If such be the utility of banks, in this point of view, it is of importance that their arrangements should be so made, as to loan, on the most convenient terms, to those who are able to gPve proper security. The mode, in this country, is by receiving a note of baud, with approv- ed endorsers, and made payable at a specified time, saj at sixty or ninety days. The bank, however, allows no interest on deposits made by the drawer of the note. This mode of transacting business, answers a very val- uable purpose ; but, it may be questioned, whether its convenience might not be very considerably increased. 22 258 UTILITY OF BANKS OF DISCOUNT. Judging by these principles, it would seem thai th^ Scottish banks were conducted more correctly, as well as more beneficially to the public, than any institutions of the kind at present known. 1. As offices of deposit, they receive all sums, not less than flO sterling; and, for such deposits, allow inter- est. Less sums than this are placed in the savings banks, until they become sufficiently large to be deposit- ed in a bank. These deposits are, generally, made by persons who labor in agriculture or manufactures. The whole amount thus deposited, is equal to about twenty- four million pounds sterling, or not far short of one hundred and twenty million dollars. This large sum^s thus redeemed from idleness, and added to the produc- tive capital of the country. 2. They discount notes, as our banks do, but they have another mode of loaning, which is called cask credits. When a man wishes a cash credit, he finds a bonds- man, who promises to indemnify the bank for all that it may lose, by loaning to him within a certain sum ; or else he places real estate in the power of the bank, to a sufficient amount to render it secure within the sum which he wishes to borrow. The bank then opens with him a cash account, or allows him to draw for any sum within the specified amount. He is charged interest only for the amount which he borrows. As fast as he is in funds, he deposits all he can spare, in the bank, and for every thing thus deposited, he is allowed interest ; so that his interest on deposits always diminishes the inter- est on his debt. Thus he borrows and pays, succes- sively ; and, at stated seasons, the accounts are ad- justed The advantages of this system, are : 1st. That it enables an industrious man to procure credit to the amount of his real es-tate, and, hence, to do more busi- ness with the same capital, than anywhere else. 2d. That by rendering every deposit valuable, it stimulates him to frugality. 3d. It enables the bank to understand, more correctly, the state of his affairs, and, hence, to UTILITY OF BANKS OF CIRCULATION. 259 know how deserving he is of confidence. 4th. That this may be done with greater safety, than in any other mode, is evident from the facrt, that while the Scottish banks have been liberal in their accommodations, and have, by the acknowledgment of all, been of the most important service to that country, only one of them has ever been known to fail. These are, surely, the best evidences of the wisdom of any practical system. Such, I suppose, to be the advantages of banks, as in- stitutions of discount or loan. III. On the utility of Banks, as institutions of CIR- CULATION. I have already shown, in what manner it is possible for banks to issue notes for a larger amount than they at any moment actually possess in specie, and that they may do so, to a certain extent, with entire safety to the community. Should banks be generally established, and all of them adopt this system, as they would natu- rally do, it is evident that there would be in circulation, more paper than specie ; that is, that the actual circula- tion would, to a great extent, become paper, instead of the precious metals. But I have already shown, that a community, in any given condition of exchanges, requires no more than a given value of the circulating medium, for its exchanges. If the amount be increased, its value will diminish, and vice rersa. If it need an amount equal to a million bush- els of wheat, no more than this can be employed, and if more be introduced, its value will fall, till it become equal to a million bushels of wheat. Now, by issuing paper money, the whole amount of money is increased, and, hence, its price falls. But, as ever) paper dollar is redeemable in silver, its value is still equal to that of a silver dollar. Hence, the whole amount of currency, silver and paper together, falls in price, so that money becomes cheap, and you can buy more abroad with a silver dollar, than you can buy with a silver dollar, at home. Now, in this state of things, if the paper and coin were equally valuable in foreign countries, either would be exported, at pleasure. But. 260 UTILITY OF BANKS OF CIRCULATION. inasmuch as only the metal is valuable abroad, this, ex- clusively, is sent out of the country, in the purchase of other articles. And, it will be sent out, until the price of the circulating medium at home, is reduced to its or- dinary price in other countries. Suppose that two thirds could be thus sent away with- out impairing the soundness of the currency at home. Business would then go on as securely, and as well, as it d ; d before. But, these two thirds would procure in exchange an equal amount of other capital, by which the wealth of the country is by so much increased. In the mean time, al the exchanges of the country are carried on by means of the remaining one third, plus the ex- pense of the manufacture and management of the cheaper commodity, paper ; that is, the given operation, ex- change, is carried on by means of an instrument, which costs only about one third of the expense, which the former instrument cost. This, then, is the advantage of banks of circulation. They furnish to the community a cheaper article of ex- change. And the extent of the benefit is easily estimat- ed. If the whole of the metallic circulating medium were exchanged for paper, we should have the benefit of the interest of this wkole amount. If twenty millions of specie were wanted to carry on the exchanges of this country, and the whole were exchanged for paper, we should be benefited to the amount of the annual interest of twenty millions, or, at six per cent., of one million two hundred thousand dollars per annum. If three fourths of it were sent away, our benefit would be equal to nine hundred thousand dollars per annum. This is . the whole pecuniary advantage of a paper currency, over a metallic. It consists in substituting a cheaper for a dearer circulating medium. And, our annual advantage, supposing the cheaper to be equally good, is precisely i>qual to the interest of the difference. This deserves to be seriously considered. Banks do not create capital. The issuing of paper money, does not render money abundant. If it be issued to such an extent, that its soundness is doubted, it produces an ef PAPER AND SPECIE CIRCULATION. 261 feet precisely the reverse. If, while it is perfectly sound, it be issued to an amount beyond the wants of the community, specie will be exported, until the equilibrium is restored. If but twenty millions of value be needed in exchange, you can employ but the value of twenty millions. The only benefit of a paper currency, sup- posing it to be perfectly sound, over a metallic currency, is first, its greater convenience in exchange ; and, sec- ondly^ that it enables us to use a cheaper instrument in- stead of a dearer, and to employ the amount of the dif- ference in the various operations of human industry. SECTION III. ADVANTAGES AND DISADVANTAGES OP A PAPER CIRCULATION. Having thus endeavored to illustrate the nature of a paper circulation, it may be of some importance to ex- plain, in as simple a form as possible, the advantages and disadvantages which appertain to it. 1. The advantages of a paper circulation. These are two, economy and convenience I. Economy. 1. The material in use, in a paper circulation, as we have shown, is of much less value than that in a specie circulation. A bill worth one thousand ounces of silver, may not cost more than two or three cents. Now, in just so far as a paper circulation accomplishes the same result as specie, and accomplishes it at a less price, ilio corrununity is the gainer by the difference. 2. The wear and tear of paper money, as well as the original cost, is less expensive than that of silver .nd gold. Were silver and gold transported, as paper mon- ey now is, the friction would reduce the weight of coin so rapidly, that new emission; would be much more frequency necessary. 262 PAPER A.ND SPECIE CIRCULATION. 3. But, specially, as the introduction of paper money renders a considerable part of the specie formerly em- ployed, useless, it may be exchanged for other capital. Specie is, in itself, incapable of production. If a part of it will answer the purposes of exciiange, all the re- mainder may be changed for productive capital. Hence, the gain, as has been shown in the preceding section, is equal to the amount of this difference employed in pro- ductive, and the same amount employed in unproductive capital. If five millions can be, without injury, dis- pensed with, the benefit is equal to the difference be- tween five millions in productive and five millions in un- productive capital. II. Convenience. 1. Paper money is much more easily transported. To travellers, and men in the ordinary affairs of life, this is a matter of considerable consequence. Specie is heavy and burdensome. Any amount of paper money which a man needs, may be comprised in as small a bulk as he chooses. When large transfers of money are to be made between distant places, the additional conven- ience and security are still more evident. 2. Paper money is less liable to robbery. As we can render its bulk whatever we please, it can be more readily concealed, if we doubt the honesty of our asso- ciates. Specie is heavy, bulky, and noisy, and, hence, its presence is unavoidably discovered. 3. Paper money, if stolen, is more easily identified, and, hence, more easily recovered. A man, by noting the number and marks of a bank bill, may safely swear to its identity ; but, inasmuch as coin is intentionally all alike, this would be impossible in the case of specie.* These are the principal advantages, so far as I can see, of a paper currency. If there be any others, I have not been able to discover them. On the other hand, its disadvantages are three, viz : Its liability to forgery, to fraud, and to fluctuation. * The inconveniences here spoken of, apply chiefly to silver. Gold represents so large a value that in any moderate amount it may be, without difficulty, transported. PAPER AND SPECIE CIRCULATION. 263 I. It is liable to forgery. The risk, in this respec t, from the use of bank paper, is considerable. The se- curity from signatures is small, since good penmen, by practice, can easily learn to imitate any signature. The principal security arises from the quality of the engraving and of the paper. But, as any one, who can engrave sufficiently well, can so engrave a false bill, that no ordi- nary examiner can distinguish it from a true one ; every man is liable to be imposed upon, and to suffer a total loss, to the exact amount of the imposition. It is true, that coin is also liable to be falsified ; but, the process is much more difficult and expensive than that of engrav- ing. False coin, being liable to detection from its color, weight, and sonorousness, is more readily detected. In- asmuch, therefore, as the liability to counterfeiting, is greater in paper money than in specie, this difference is to be set down in the list of the disadvantages with which it is chargeable.* On this account, banks which issue paper money, are under obligations to take every precaution to render their bills as little liable to be counterfeited, as possible. The greatest security, as we have remarked, is in the excel- lence of the engraving, and in the peculiarity of the pa- per. Hence, they should employ, for the engraving of, their bills, none but the best artists ; and thus employ talent, which would be under no temptation to engage in counterfeiting. They should never use plates which have been so much worn, as to render the impression coarse, indistinct, and easily imitated. A bank which, to save expense, uses a worn-out plate, enriches itself, at the expense of the public. I see no reason why a bank, which issues bills of this description, and thus takes no pains to secure the public against fraud, should not be liable to pay the false, as well as the true bills. Were this d'xie, more care would be used, and counterfeiting would become far less common. II. Fraud. I have elsewhere shown, that if the capital of a bank be all paid in, and the notes which it holds against individuals, and which it has received in exchange for its bills, be all good, the 'holder of its bills 264 PAPER AND SPECIE CIRCULATION. has iwo perfectly good securities. Were all the capital stolen, he would be safe ; and, were all the notes bad, the capital remaining, he would still be safe. We have also shown, that he would always be safe, so long as the capiial actually paid in, was sufficient to cover any defi- ciency which might arise from a failure of the debtors of the bank. And in the worst event, supposing no loans to be made for a longer period than 60 days, the holder of the bill could not be obliged to wait at furthest longer than that time. And, with ordinary skill and fidel- ity, it is manifest, that the issues of a bank may always be kept within this limit, and thus the holder of its bills incur no risk. But neither the skill nor the fidelity of man is always to be trusted. Hence, banks frequently fail, and in- flict either a partial or a total loss upon the community. 1. Banks may fraudulently commence issues, when only a part> or when not even any part, of their capital has been paid in. Suppose that only a part of their cap- ital be paid in; then the public, instead of having a guar- antee equal to the whole amount of its capital, over and above the notes of individuals held by the bank, has a guarantee equal only to the amount of the part paid in. If the capital of a bank be one hundred thousand dollars, and only ten thousand dollars be paid in, and the bank issue one hundred and fifty thousand dollars in bills, it possesses only a guarantee of ten thousand dollars, to ensure the payment of one hundred and fifty thousand dollars by the debtors of the bank. Upon the least commercial pressure, r in case of loss by accident or jobbery, such a bank must fail, and the holders of the bills must suffer a loss equal to the deficiency by the failure of the debtors of the bank, the costs of closing its concerns, and the loss of interest until its bills have been paid. Again : Suppose that none of the capital stock were paid in, but that the stockholders simply gave their notes for their shares. The security would then be precisely equal to the average goodness of the notes of individuals received by the bank, in exchange for it* PAPER AND SPECIE CIRCULATION. bills. It would have no capital on hand to redeem these bills, and, on the least pressure for speoie pay- ments, it must fail. The notes of individuals in a time of scarcity of money would be worth much less than par; und, as the stockholders would pay for their notes which ihey gave for shares, by surrendering up the shares for which they gave them, the whole loss would fall on the Holders of the bills. Ag?in : Suppose that, as in the last case, no stock were paid in ; that the stockholders were the directors themselves, and that they accommodated themselves with money without ever requiring notes of each other. Here, there would be no security whatever, either in bank capital, or in the notes of individuals. In such case, the bank must speedily stop payment, j.nd the whole loss of its issues would fall upon the holders of its bills. This, as well as the last case, is nothing more than a fraudulent arrangement for picking the pockets of the public, on an extensive scale. It is nothing more nor less, than downright swindling, and should expose a man to the same punishment as house breaking. Nor is this danger merely imaginary. The amount lost by the public from the failure of banks is actually enormous. Mr. Gallatin, a most able and competent authority on this subject, in his pamphlet on the curren- cy, has made the following statement, which, from the character and accuracy of the author, is entitled to full credit. " We^have an account of one hundred and sixty-five banks which have failed ^between the first of January. 1811, and the first of July, 1830. The capital of one hundred and twenty-nine of them, amounted to moie than twenty-four millions of dollars, stated as having been paid in. The whole amount may be estimated at nearly thirty millions, and our list may not be complete. The capital of the State banks now existing, amounts to about one hundred and ten millions. On a total capital of one hundred and forty millions, the failures have amounted to thirty, or more than one fifth of the whole. Of the actual loss incurred, we can give no account. 266 PAPER AND SPECIE CIRCULATION. There are instances in which the stockholders, by paying for their shares in their own notes, and afterwards re- deeming their notes with the stock in their name, suffered no loss, and this loss fell exclusively on the holders of notes, and the depositors. In many cases, when the whole stock has been lost, the holders of notes, never- theless, suffered a partial loss. In the most favorable cases, the stockholders lost a considerable portion of the stock, and all the debts will be ultimately paid. But even here, there has been a heavy loss to the communi- ty, the notes baring been generally sold by the holders at depreciated rates, when the failure took place. Wo believe that the pecuniary loss sustained by government, on loans raised during the suspension of specie pay- ments, and from bank failures, exceeded four millions of dollars."* Now, when a currency is liable to such results, from Hand or folly, that is, when skill and integrity must enter as an element into its goodness, the risk which a commu- nity sustains in the use of it, must certainly be placed in the list of its disadvantages. Nor are these evils peculiar to this country. In Eng- land, in the year 1793, as we are informed by McCul- loch, one third of the country banks stopped payment And we learn by the daily newspapers, that the failures of private bankers are matters of very frequent occur- rence. Between the years 1809 and 1830, the number of commissions of bankruptcy, issued against country bankers in England, was three hundred and eleven. * Since the above was written, the " United States Bank of Penn- sylvania" has failed, and its shares, of the par value of 100 dollars, and which cost the present holders, in many cases, 120 dollars, are soiling at the nominal price of 5 or 6 dollars. They are, in fact, con- sidered worthless, and the bills of the bank are selling at 60 cents f >r the dollar. Thus, the whole capital of this institution, 85 millions of dollars, has in two or three years vanished, and I fear that neither eeer, nor prophet, nor jury will ever tell us where it has gone And th/s mismanagement or fraud was committed by men who were eel- ebiated as models of finance, ability, and disinterested patriotism, and in a city proud of its mercantile faith. It is surely not remarka- ble if, with such facts recent in their recollection, there ahould aiip n the minds of the people, a serious distrust of banks. PAPER AND SPECIE CIRCULA1 ION. 267 " Exclusive of the above, many banks stopped payment, to the great injury of their creditors and the public, which afterwards resumed them; while the affairs of some bankrupt .concerns were arranged without a com- mission." Yet, it would seem, there are means which may be devised to remedy this evil; for he informs us that, "during this whole period, not a single Scottish bank gave icay." III. Fluctuation. In speaking of a metallic curren- cy, we had occasion to remark, that it was essential to the character of whatever was used as money, that it be liable, as little as possible, to fluctuation. Hence, vegetable products, of which the amount created was liable to vary under the same amount of labor, with the different productiveness of seasons, could never be em ployed as money. The reason is obvious. He who contracted debts, when money bore one ratio to prod- ucts, would pay them when it bore another ratio; and hence, though he might pay the same nominal amount, yet he might pay twice as much in value as he had promised. So, also, he who had loaned money while it bore one ratio, and received his payments while it was at another, though he might receive the same nominal amount, might not receive half the amount in value which he loaned. And hence, all civilized communi- ties have denied to governments the right of altering, or in any manner interfering with, the value of coin ; for the reason that this cannot be effected without causing a variation in the value of money, and thus interfering with private contracts. Were this allowable, is is evi- dent that credit must be at an end ; because, whatever a contract might mean to-day, no one could possibly predict what it would mean to-morrow. Hence, all fluctuation in the value of any substance, renders it, by the amount of this fluctuation, unfit for the purposes of a circulating medium. If gold and silver were as fluc- tuating in value as cotton or wheat, they would, their bulk only excepted, be as unfit for the purposes of mon- ey, as these substances themselves. Now, these remarks apply, not only to gold and ?il- PAPER AND SPECIE CIRCULATION. ver, but to any thing which may be used as mjuey They apply to silver, as much as to gold, and to gold as much as to silver. If either of these substances were liable to great fluctuations in value, we should be oblig- ed to abandon it, and to take the other. If both of them were so liable, we should relinquish them both, and find a better substance. And, if paper be .used as the circu- lating medium, the' case is the same. By as much as it is liable to sudden or to great fluctuation, by so much i* it unfit for the purposes of money. And, when onc.n paper has supplied the place of gold and silver,' >t bo- comes the circulating medium as truly as gold au^ silver were, when, they supplied the place of copper, or sheep, or cattle. Now, the disadvantage to which, as we have said, paper money is exposed, is, that it is liable to sudden and great fluctuations in value. The manner in which this occurs, is easily explained. We have already shown that, in order to accomplish a given amount of exchanges in a community, a certain amount of value is necessary ; and that no more than this amount of value can be employed for this purpose. If, to accomplish the exchanges of a community at a given time, one thousand ounces of silver, equal to one thousand bushels of wheat, are necessary, and twice this quantity be introduced, the Mwlue will remain the same, though the quantity varies ; and the result will be, that the price of money, in relation to other products, will fall one half; that-is, if we gave five dollars for a hat before, we shall give ten dollars now, and for other things in proportion. And, if half the quantity were removed, the reverse would be the case ; that is, the price of money would be doubled ; in other words, if we gave five dollars for a hat, formerly, we should give two dollars and fifty cents for it now ; and so of other productions. If we bear this principle in mind, we shall easily sec the nature of the fluctuations to which paper money is liable. Metallic money has a natural price, which is jot liable to any fluctuation within short periods. This PAPER AND SPECIE CIRCULATION. 269 price depends upon the cost of mining, which is liable to very little variation. He who exchanges a thousand bushels of wheat for a thousand ounces of silver, knows that it will cost as much to bring an ounce of silver into the market, sx months hence, as it does now, and hence, its cost being the same, it will bring for him as much of other products, six months hence, as it does now ; that is, if this be the sole medium of exchange, and its value be not interfered with by the use of some othei substance. Now, paper money has no such natural price ; but the quantity of it in circulation depends,- con sidei ably, upon the hopes, wishes, and anticipations of men. Hence, the quantity may vary in almost any amount, and, as the -value of the whole is not altered by the quantity in use, as the quantity increases, the value of each portion must decrease ; and, hence, a paper dollar may be worth twenty-five per cent, more or less to-day, than it was a month ago, or than it will be a month to come. Though there may be the same words written upon the paper, and it be called by the same name, yet it means, to him who pays it, and to him who receives it, a very different thing from what it did a month ago. He bought, three months ago, a thousand barrels of flour, at ten dollars a barrel, at three months credit. Without any change in the supply or demand for flour, he is not now able to sell it for more than seven dollars a barrel, while his notes for ten thousand dollars must be paid in full. This fluctuation may arise, on the part of the bank innocently or viciously ; from want of skill and fore- thought, or from want of integrity. I. Innocently. Suppose that, at a given period, the i iiculating medium in a community is properly proper* tioned to the necessities of exchange, and that this me- dium, though paper, is perfectly sound ; that is, that there exists, in all the banks, sufficient specie to pay all delts of the bank, on demand, in the precious metuls. Let, now, from any cause whatever, the productive- ness of labor be greatly increased, so that a much larger amount of annual products is brought into market. If the 23* 270 PAPER A1ND SPECIE CIRCULATION. amount of money remain the feme, while the amount oi products is increased, the price of money will rise ; thai is, every thing will be cheap. As soon as products hecome cheap, every one is anxious to buy. Merchants will be desirous to borrow money, with which to buy, because, when products are cheap, it may be reasonably expected that the price will rise ; and, if the rise in price be greater than the interest paid for money, the purchaser may reasonably hope to be able to repay what he borrowed, with interest, and yet realize a handsome profit. Besides, when an article is low in any country, then is the time to export it with advantage ; and this prospect of increased advantage will induce men to bor- row, in order to export, in the expectation that the usual profit will enable them to realize far more than the inter- est they have paid for borrowed capital. In such u sea- son, every one is desirous of borrowing, and banks can most profitably employ their capital. They are called upon to loan, to the utmost extent of their power, both by their own interest, and by the universal wish of the public. Now, in such a state of things, it is not to be sup- posed that the directors of the banks are endowed with greater prudence than other men, or that they are not as likely to be influenced by the hope of large dividends. The example of one stimulates the others. The risk that one institution runs, another will be willing to run. A bank will scarcely be willing to make a dividend of six per cent., while its neighbor is making eight. And when disconnected banks, all over a nation, are animated by these principles, it is evident that a very large amount of loans must be effected ; that is, a very large amount of paper money must be issued. For the same reason, at such a time, a great number of additional banks will be incorporated, and all will be watched over with less than usual vigilance. But just so fast as, beyond the necessary amount, the quantity is increased, the value of each portion of it diminishes, and thus prices rise ; lhat is, money becomes abundant, and a dollar will pur- PAPER AND SPECIE CIRCULATION. 271 chase no more than it would in a time of scarcity Thus, the amount of the circulating medium becomes too great for the amount of exchanges, and money is cheaper than any other article in the market. But, we have before seen, that the cheapest article in the market will always be exported. As this is now money, money will be exported. But, as the bills ar redeemable in specie, specie is worth no more than bank bills ; and, as the bills are worth nothing abroad, the whole exportation will be in coin. In a short time, a large portion of it has left the country. The banks then find themselves liable to pay in specie, a vastly greater amount than they were liable to pay, a month or two since, and they find that they have much less specie wherewith to pay it ; and the demand for specie still continues. They are, of course, in danger of stopping payment, and their only means of safety is, in diminish- ing their loans ; that is, loaning no more, and requiring payment of those who owe them. Hence, those who had borrowed, with the hope of paying by means of their sales, are called upon topay, before these sales are effected, and, as the banks refuse to loan, very few are disposed to buy. Thus, the debtors of the bank are required to pay their debts sooner than they ex- pected, and the means of making those payments are curtailed. The money goes back into the bank, and does not come out of it. Thus, with every day, the quantity of the circulating medium is diminished. The scarcity of money increases. The price of goods falls, as men will sell for lower and lower prices, rather than lose their credit. Every man, from necessity, presses his neighbor, and the bank, from the same necessity, presses them all. And thus, in a few months, the amount of circulating medium is greatly diminished ; and money is worth twenty-five or fifty per cent, more than it was a short time ago. He who agreed to pay one thousand ounces of silver, when one ounce of silver was worth a bushel of wheat, pays it now, when it is wrth % bushei and a half of wheat ; that is, though he pay .he 272 PAPER AND SPECIE CIRCULATION. same nominal amount, he pays fifty per cent, more m value.* The result of such a state of things depends, of course, upon the degree of the excess of these issues. If this excess have not been great, by means of mutua. forbearance, the scarcity passes away ; that is, holders of produce, being obliged to sell or to fail, sell at re- duced prices. Thus, the price of money rises, and it becomes profitable to import it. It is then imported ; the banks are thus enabled to discount ; and things go on again, as usual ; with, however, a severe loss if not total ruin to those who have purchased when goods were nt high prices. But, it is not always thus. Sometimes the pressure for money is so great, that those who have purchased products with borrowed capital, cannot sell them fast enough to make their payments. These are obliged to stop payments, or become bankrupts, and assign their effects to their creditors. But these were debtors to many others, who were depending on the payment to be received from them, to* pay their own debts. These, being disappointed in this expectation, also fail. Their failure leads again to the failure of others, and the panic becomes general. No one dares to trust his neighbor, and the banks dare not trust any one. An universal crash of mercantile credit succeeds, and none are able to withstand the shock, save those of the heaviest capi- tal, and of the greatest financial ability. This, however, at length 'works its own cure. When a debtor fails, he assigns his property to his creditors ; that is, he pays them in fcinrf, instead of in money Hence, this being done, his need of money is over, and, by so much, diminishes the demand. His property is sold, at any price it will' bring. This depresses, still more rapidly, the price of goods ; that is, raises the comparative value of money ; and hence, it will be the more readily imported. As soon as these causes have * The banks in the city of New York alone, within a few months lately, reduced their circulation to the amount of more than twelve uillions of dollars. PAPER AND SPECIE CIRCULATION. 27ll bad time to operate ; that is, diminished demand and increased supply ; the equilibrium is restored, and credit is established on its orlinary basis. The method which has been sometimes resorted to, when banks have either viciously or innocently become unable to pay their bills, is to suspend specie payments, and then prevail upon the State legislatures to pass laws exempting them from the consequences of their failure. This expedient has been resorted to, for the second time within two years, by a great part of the banks in tho United States. Although excuses may be rendered for such a course, under a universal and unexpected calam- ity, there can be no doubt that the bank suspensions must work the direst mischief to the community. With- out going into the subject in detail, the following consid erations are sufficient to show the nature and tendencies of such a measure. 1. The obligations of a bank are as binding as those of an individual. There is no reason why it should be exonerated from them more than an individual. If a merchant fail lo pay his note to the bank, his credit is dishonored and he is expected to pay interest from the time of his failure. There can be no reason why a bank should not abide by the rule which it enforces upon others. 2. The only circumstance which gives any value to the bills of a bank is the assurance that they will be paid in specie. But if the bank is allowed, at will, to al> solve itself from this obligation, what is this assurance worth. This very power conceded to banks would tender a paper currency worthless. 3. The only restriction upon unlimited issues pf pa- per money is the obligation imposed upon banks to re- deem their bills at sight in specie. So long as this is enforced, the currency could not readily become inju- riously expanded. If it be not enforced, or if the bank may be easily sheltered from the results of its impru- dence, a paper currency may be expanded inimitably. In tiiis manner, as in the case of the continental money, the circulating medium may be rendered good foi nothing 274 PAPER AND SPECIE CIRCULATION. 4. The tendemy of frequent suspensions must be to drive all the specie out of the country. In consequence of over issues, prices will be kept so much above those of other countries, that products cannot be profitably exported, and specie will immediately take its place. Thus, as soon as banks resume the payment of their debts, prices being high, they will be again compelled tc suspend, and thus a few such examples would end in a small number of spasmodic contractions and suspensions, to be followed by a perpetual insolvency. 5. As banks are at present managed, in too many instances, the officers of the banks themselves are the principal borrowers. By combination with each other, they may easily procure loans sufficient to control the price of any of the necessaries of life, within a largo district. If, when their loans become due, the borrow- ers were obliged to make payment, they must relinquish their monopoly, and sell at the natural prices. But, if, as soon as they were called upon to make payment to the bank, they could suspend specie payments, it is evi- dent that they could prolong their loans, and keep up prices at their will. The tendency of such a course is manifestly to set the poor against the rich for cause, a most barefaced oppression. These are a few of the most obvious reasons why banks should always be obliged to redeem their bills, in specie, and at sight. If they fail to do so, the legisla- tures should not shield them, but should expose them to the natural action of law. A few examples of this kind would do much to place the currency upon a sound basis. In this manner, fluctuation may arise innocently. And every, one knows that such fluctuations are constantly occurring in the mercantile world. But what occurs thus innocently, is liable to occur viciously. II. Viciously. A bank, established in a town remote from the ordinary channels of business, or the banks in any one place, if combined together, as they furnish the paper money which is used for all the common purposes of exchange, have, to a considerable degree, the mo- lopoly of the article in the market. Hence, by loaning PA.PER AND SPECIE CIRCULATION. 275 very freel) at one time, they may bring the whole district into their debt. When this is the case, if the} see fit to curtail their discounts, they may reduce the amount of circulating medium, and raise the price of money as much as they will. They may thus, by enforcing pay- ment, render half the population bankrupt, and possess themselves of their estates, at half price ; or else oblige them to pay double or treble the usual percentage of interest. That such events have occurred, is, I fe-ir, too much a matter of history. And it has given rise to a frequent and unwarrantable prejudice against banks in general. While, however, all this is admitted, it deserves to be remarked : 1. That these disadvantages of fluctuation, both from unskilfulness and from fraud, do not belong exclusively to 6anfcs, but are liable to exist under any circumstances, in which money 'is loaned and borrowed. Were there no banks, and were money to be loaned by private capi- talists, and even to be loaned in specie, the same incon- veniences though in a less degree would be liable to re- sult ; for men are always tempted to borrow to-day, more than they will be able to pay to-morrow. And it is evident that collusion, for the. sake of raising the rate of interest, may be as liable to occur between individua money lenders, as between banks. 2. The blame, when such a state of things as ha been described, exists, is always laid upon the bank; This is manifestly unjust. It belongs to the borrowo just as much as it does to the lender. Men are verj willing to borrow, but they very commonly call upon the community for great commiseration, when they are obliged to pay. I by no means object to the extension of any commiseration which may be convenient, but it would be a very inconvenient extension of it, if it reload- ed a nan from the obligation to refund what he had bor rowed, and, by the use of which, he has already, per- haps, realized a handsome revenue. The bank, by en- forcing payments in a time of pressure, is really doing a great service to the community. This is evident. If 276 PAPER AND SPECIE CIRCULATION. the debts due to the banks were not paid, the banka would fail, and the whole circulating medium become worthless. So that, if, by their exacting punctuality, some persons fail, it is still better that a few persons than that the whole community should be ruined. 3. Again : In a time of scarcity, banks are sadly abused, because they will not loan more money. A bank, if it be honest, and mean to pay its debts, has its limit, which it cannot safely pass, as truly as an individ- ual. When it has arrived at this limit, its loans roust cease. A merchant who has involved himself in large transactions, expecting that he could borrow as mucn as he chose, is now disappointed, because his expectations are not realized. But what reasori has he to complain : The bank never promised to lend him, when it had noth- ing to lend ; nor to ruin itself, for thS sake of saving him from the consequences of his own headlong improv- idence ; specially, when by doing this", it must involve not only itself, but him also in ruin. The bank was nc party to his engagements ; it derives no benefit from them, and it is under no obligation to enable him to fulfil them. The only remedy for these evils manifestly is, for both parties to be willing to grow rich more slowly, and thus to assume less formidable risks. When a ( whole community has run into transactions beyond its means, and has become embarrassed, there is very little gained by the abuse of banks and of bank directors. If these remarks be just, there will follow several very obvious conclusions. 1. That to lend money is just as necessary to the good of the community, and is, therefore, as innoceni and as honorable as to borrow it. 2. That an institution, organized for the purpose of lending money, is, so far as its object is concerned, as beneficial to the community, as innocent, and as honora- ble as any other institution. 3. That a lender of money is liable to be dishonest and unskilful ; but that of a borrower of money is also liable to be dishonest and unskilful. 4. And hence, that the one, as much as the other, is AGENCY OF GOVERNMENT. 277 entitled to all the benefits of equal laws, and the fair and unbiased execution of them. If a bank conduct itself dishonestly, this is a reason why it should be dealt with according to just and equitable law ; but it is not a reason why all the capital of the country should be op- pressed, and every capitalist insulted. A carpenter may be dishonest ; and this is a reason why he should be dealt with according to just and equitable law ; but it is no reason why every carpenter should be oppressed, and his calling made a cause of opprobrium. The princi- ple which applies to the one case, applies equally to the other. SECTION IV. OP THE AGENCY OF SOCIETY, THAT IS, OF GOVERN- MENT, IN RESPECT TO A PAPER CIRCULATION. I have already remarked, when treating of specie cir- culation, that coin was employed as a circulating medi- um, not in consequence of the act of a government, or of the stamp which it bore, but simply in consequence of its adaptedness to be employed for this purpose, and of the universal desire of the community so to employ it ; and also, that the whole agency of the government is properly limited to the making of those arrangements which would enable it to accomplish this purpose the most successfully ; that what substance a community should employ, is none of the concern of a government , its only concern being, so to prepare the substance em- ployed, that it may be used with the greatest common advantage. Now, the same remarks manifestly apply to whatever may be used as a circulating medium, whether it be gold and silver, or paper. Hence, 1 . A government has no right to interfere with the original question, what shall the currency be ; this may be safely left to the decision of the public itself. If the 24 278 AGENCY OF GOVERNMENT people choose to use a mixed, instead of a metallic cur- rency, they have a right to use it ; and no one, either in- dividual or associated, has any right to forbid that use. If 1 present a check to a bank, and they offer me in payment either specie or bills, and I choose to take I heir bills, it is a matter wholly of my own concern. 1 ask permission to make this choice, of no one on earth. If I have a thousand dollars to pay in New Orleans, and I choose to take the bill or the draft of a bank, and send ibis in payment instead of the thousand dollars in silver, and my creditor receive it in payment, if both he and 1 are satisfied, I see not that any one has a right to in- terfere. 2. But, although a community may choose a mixed, instead of a metallic currency, and although they have a right to choose it ; neither any community, nor any in- dividual of a community, chooses either a worthless or a fluctuating currency. While, therefore, a government has no right to enact, that a currency shall be any thing else than the people wish it to be, they have a right to take all proper means to make it such as the people wish it to be. Hence, 1 . They have a right to take such means as will give all reasonable security to a mixed currency. These means .have respect, in general, to the liability of direc- tors and stockholders to redeem their bills. In what manner this security can be best effected, it must be left to practical men to decide. In some cases, all the property of a]l the stockholders is rendered liable for the debts of the bank. This would commonly be a per- fect guarantee. In other cases, I believe, the property only of the directors is held liable. In what way soever security can be best and most equitably effected, I thir k a government has an undoubted right to effect it. 2. A government has a right to take all reasonable means to diminish the fluctuation of a paper currency. We have seen that, inasmuch as the banks promise to redeem their bills in specie, the amount of paper which they may safely issue must always depend upon the amount of specie in a country. Fluctuations in the AGENCY OF GOVERNMLNT. 2 ^ v amount of paper must follow fluctuation in the amount of specie. This fluctuation will always be less, when the proportion of specie to paper is great, and vice versa. One method, therefore, of preventing this evil, is, so to construct the currency, that the proportion of specie to paper shall be too great to be affected by any thing but large and long continued exportations of the precious metals. This result may be in part effected by the pro- hibition of the issue of small bills. This will, by ne- ressity, place in the hands of every individual, specie lor every amount which he may hold of less value than the lowest note issued. Were no bank in this country to issue notes of a less denomination than five or ten dollars, most of the sums held by individuals, in notes of one, two, and three dollars, would be in silver. If every individual of the twelve millions in the United States, possessed two dollars more in specie than at present, this would amount to twenty-four millions more of specie than we now possess. This would, of itself, be sufficient to prevent the evil arising from any ordinary fluctuation. In addition to this, I suppose that an exact account should be kept, and at short periods made public, of the amount of specie imported and exported. This would give to the banks, timely notice of the danger, and, at the first intimation of excessive issues, they might cur- tail their discounts, in season to avert the evil befoie it became excessive and remediless. 3. While we deny the authority of legislative inter- ference to oppress banks, we equally deny its authority to protect them against the consequences of their own misconduct. A bank promises to redeem its notes in specie ; a legislature has no more right to invalidate this obligation than to invalidate any other. If an individual fail to discharge his debts, all his property is liable to satisfy the demands of his creditor. If a joint stock hank fail, only the amount of its contributed capital is liable. The reason is, therefore, stronger why the latter should be amenable to the common law of debtor and creditor than the former.* 280 AGENCY OF GOVERNMENT. So far as I can discover, the power of a government over a paper currency, is conferred solely for the ac- complishment of these two objects ; and, of course, ;t is restricted to the accomplishment of these two objects. A government has no right to interfere with it for any othei purpose. It has, for instance, no right to interfere with the currency, because the people import too much, or because they import too little ; because they buy too much land, or because they buy too little land ; because 'hey over-trade, or because they under-trade. Its pow- er was conferred for no such purpose, and to use it for such purpose is usurpation. But other grounds for legislative interference with Nanking institutions are assumed, which, if correctly as- sumed, are of a very extraordinary tendency. Some of 'hese, it may be proper for us briefly to consider. For instance, it is said, that banks are the creatures of the legislature; and that bank directors are the agents of the legislature ; and, therefore, that a legislature may right- fully exercise over them any authority which it chooses ; and may impose upon them such laws as it sees fit. Such an assumption as 'his, deserves at least a passing notice. 1. It is asserted, that a bank is the creature of the legislature ; and, therefore, that a legislature may right- fully impose upon its creature such laws, and subject it to such jurisdiction, as it pleases. The assertion is somewhat figurative. What is meant, when it is said that a bank is a creature of the legisla- ture ? In what does a banking company differ from a banking individual 1 ? The only difference, that I can recover, is, that one it incorporated by a legislative act ; I lie other is not. What, then, is an act of incorporation ? It is merely a power granted by a legislature, to several individuals, to do, as a society, some innocent act, which they rn:iy thus do more conveniently, but which any one of them might, if he saw fit, do without any act of the legisla- ture I say, some innocent act, for what is not innocent, should be allowed neither to individuals nor to societies The necessity of such a provision is manifest. Many LEGISLATIVE POWER OVER BANKS. 281 innocent purposes can be accomplished, only by many persons associated together. Such are purposes oi charity, of science, of internal improvement, and many othtrs. Without corporate powers, persons so associ ated could neither hold property, nor enforce any regu lations upon each other ; and, besides, without them, they could not be known in law, nar could a creditoi have any claim upon the property which they might hold Hence, when individuals wish to be associated for an) innocent purpose, they may claim an act of incorpora lion as a right; and it is necessary, for the protection o! the community, that it should be granted. And hence, from both of these considerations, it is incumbent upon a legislature to grant it. The simple principle involved is this : Is this an innocent means of promoting my own happiness ? If it be, society is under obligation to afford it to me. Sometimes, the corporate power is conferred by a separate, act, in every individual case ; at other times, a general law is passed, empowering any individuals to become a corporate body, by conforming to specified conditions. Under the latter case, come the laws of partnerships in general ; or, more particularly, the law of limited partnerships, of the State of New York. By this last act, any number of individuals may unite in business, and be liable in no greater amount than they have contributed ; that is, to all intents and purposes may become a corporation, by complying with certain conditions. Such is also the case with ecclesiastical corporations in that State. Now, in what manner soever this is done, its effect is simply this : It gives to certain persons associated to- gether, under certain circumstances, the power to let, in the same manner as an individual might act, and places thorn under the same responsibilities as those under which an individual is placed. This is the meanir.g of an act of incorporation. And to make heavy charges, and exact bonuses for the passing oT such an act, js un- just and oppressive. A man might as well be charged for the right of trial by jury. 24* 282 LEGISLATIVE POWER OVER BANKS. This, then, is the meaning of an act of incorporation, and this is what is really meant by the figurative and mys- terious terms, " a creature of the legislature." If, then, a legislature possess unlimited power over a 6an/c, be- cause it has received an act of incorporation, it possess- es the same unlimited power over all its creatures ; that is, over every thing that is incorporated. If the power exist, and exist for this reason, it exists in every case to which the reason applies. Thus, he who owns a manu- factory a/one, may conduct it as he pleases, and buy and sell when he chooses ; subject only to the ordinary laws of the land. But, if ten men become incorporated, as a manufacturing company, they are under the unlimited power of the legislature ; and the legislature has an un- controlled right to say when, and where, and of whom they must buy ; and when, where, and to whom they must sell ; or whether they may buy or sell at all. Or, again ; An individual has the right to worship God a"s he pleases. But, if several individuals wish to unite.togeih- er in the worship of God, and, for their own conven- ience, desire to be incorporated for the promotion of this object, their rights of conscience cease ; and, after they have erected their house of worship, a legislature may shut it up, command them to worship when and how it pleases, or may command them to worship Mahomet or Juggernaut ; and all this is no oppression, but is a matter of simple, honest, common-sense^ justice ; be- cause these individuals have, for their own convenience, and for the security of others, become in law a corpo- rate body ! But even this is not all. Legislation never confers ny right whatever ; it only confirms those rights which previously existed. A legislative act can confirm me in the possession of a house which is my own property ; but it can give me no right to take possession of a house which is the property of my neighbor. In the case of corporations, the same principle holds. A legislative act. only defines and* establishes for several individuals, a right which they prev'ously possessed. But the case is the same with almost, all the rest of our possessions. LEGISLATIVE fo.VER OVER BANKS. 283 We hold them under laws by which our right is defined and established. So that, upon this principle, every man is the creature of the legislature ; that is, a legislature is the/ounfain of all power, the creator of all right, and deals out to its creatures and vassals, whatever of liberty or of possession it sees fit to confer. This is, surely, a novel doctrine to advance in the audience of a free peo- ple ; and whenever it is advanced, the time has mani- festly arrived, for a people which intends to continue free, to turn their attention to the consideration of fiist principles. The simple truth in the case must be at once appa- rent. An act of incorporation, has no other effect, per se, than to place a society under the same protection as individuals, and subject it to the same responsibilities as individuals ; that is, to place it under the common and universal laws of the land. If, together with this, a corporation enters into a contract with the legislature to do certain acts, this is another affair, and is subsequent to, and different from, the act of incorporation. By such contracts, both parties are equally holden. But this makes the corporation no more a creature of the legislature, than it makes the legislature a creature of the corporation. A legislature may agree with a contractor to build a wall ; but this makes the builder in no respect a creature of the legislature ; nor does it give them pow- er over him in any other respect, than to oblige him to fulfil his contract, according to the laws of the land. The only valid objection that, so far as I perceive, can be urged against these considerations is this. An act of incorporation changes the responsibility of the incorpo- raiors. Without such act all their property would be liable for the debts of the incorporation ; with it the por- tion which they have contributed alone is liable. Thai (here is weight in the objection I readily grant. Il would, however, prevail no further than this. It would show, either that no such incorporations should be estab lished ; or, that the legislature establishing them was bound to enforce such regulations, thut the safety of the public should be exposed to no additional jeopardy, in 264 LEGISLATIVE POWER OVER BAKKS. this conclusion I heartily concur. After this is done, il does not follow from the objection that a legislature has ai/y more right to oppress or to favor a bank, than to op- press or favor an individual. But it is also asserted, that bank directors are the agents of the government, or of the legislature, and hence, that they are under the unlimited control of the government, which is the principal. The reason for this assertion is, that the government has the right to control the circulating medium ; that paper money is the circulating medium ; that bank directors issue paper money ; and that, therefore, they are under the control of the government. To this, it may be replied : 1. The control of the government over the circulat- ing medium, is limited in degree ; and even within thif degree, it is limited by the object for which it may be exerted. A government has a right to enact such laws as may ensure the payment of the debts of a bank, as well as of all other debts, and as may prevent excessive fluctuation in the circulating medium ; that is, they have a right to take care that the circulating medium be sound and convenient, but, I see not that they have any other right over it. And this right is equally limited, whether the circulating medium be paper or money. 2. Suppose bank directors to issue this circulating medium, and that, on that ground, they are under the control of a legislature ; they are thjen under its control only within the limits, and for the purposes above speci- fied ; that is, they are to be placed under the general laws for the regulation of the circulating medium. To exert any other power, or to exert a power for any other purpose, is tyranny. 3. But let us inquire in what sense bank directors are agents of government. The government, in their case, as in many others, requires, and has a right to require, that, in the conduct of their business, they shall conform to certain principles, made necessary for the good of the whole. But does this render them agents of the gov- ernment ? He who sells gunpowder, is obliged to sell LEGISLATIVE POWER OVER BANKS. 285 it under special regulations ; but is he, on this account, an agent of government ? Every man, who buys or sells at all, buys or sells under some regulations of a leg islature ; but is he, on this account, their agent, over whom they have the right of unlimited control ? But, take a still more analogous case. Suppose an individual, or a mining company, to obtain from their mines, one hundred thousand dollars a year. This they appropriate to the business of loans. They have, how ever no right to coin it themselves, but must have it coined at the mint ; that is, if they be a company, they must be incorporated, in order to carry their purposes into effect ; and they must carry them into effect, sub- ject to such rules as the good of the whole may demand. But does this render them, or their directors, the agents of government ? or does this give to the government any other power, than that which it exercises over any other individual ? Suppose, now, several individuals have obtained one hundred thousand dollars, in any other way than by mining, and that they wish to employ it in the business of loaning. They are under obligations to conform to the general laws made for the regulation of the cin ulat- ing medium, but this is all. They do not, in this man- ner, become the agents of government, any more by loaning, than by doing any thing else. And suppose that their customers prefer to borrow paper, instead of metallic money. If they issue paper, they are under obligation to issue it in obedience to the laws enacted for the purpose of' insuring its goodness and^ stability ; bti tney are not, on this account, the agents of govern- ment, nor has the government any more power over them than it has over any other individuals. It seems to me, therefore, that the second assertion, namely, that bank directors are the agents of the government, is wholly gratuitous. But it is said, that the banks have a monopoly of this article money ; and that, therefore, they are, of right, subject to particular legislation. To this, I reply ; who creates this monopoly ? Certainly not the banks, 286 LEGISLATIVE POWER OVER BANKS. but the legislature themselves. If the legislature refust banking privileges to those who deserve them, or grant them under such terms, that but few persons can accept of them, and thus diminish the amount of banking capi- tal, and render it inadequate to the wants of the commu- nity, they are the authors of the monopoly ; and they may not plead their own wrong, as an excuse for injus- tice.* Were they to oblige a shoe-maker to pay ten thousand dollars for the privilege of exercising his profes- sion, and then, because there were but one or two shoe- makers in a city, undertake to regulate his business, interfere with his concerns, and fleece him over again, on the ground that he possessed a monopoly, we should speak very mildly of such legislation, when we called it oppression and tyranny. He would very naturally say : " I do not ask you for your monopoly. It is all of your own imposing. It is a creature of the legislature. Let * The fact, no less notorious than disgraceful, is, that, in many of our States, bank charters are granted or denied for purely political reasons. They are reserved as the reward for services done to the dominant party. Hence, one halfofihe community at once is, by thig policy, excluded from the privilege of employing their capital in this manner. The charters thus granted, are frequently granted not to those who are possessed of the necessary capital, but to those who have promoted an election. It is manifest that neither activity nor skill, in political intrigue, will add any thing to the value of a bill, or afford any guaranty for the honest management of a bank. If, how- ever, as is frequently the case, the applicants do not wish to hold the shares themselves, they sell them at an advance, before any of the capital has been paid, to persons of the other party. These last, therefore, are obliged to pay this advance, as a bonus to those who have obtained the charter ; and thus, their property is taxed at the outset, to reward the industrious partisan. This advance, by its whole amount, reduces the value of banking capital, and prevent* men from so investing their property. In this manner, the monopoly is created ; and thus, very commonly, are spurious banks liroughl into existence. It will be found, I believe, in the greater number of instances in which fraud has been detected in the management of banks, that they have been banks which have been decidedly parti- san in their character. The evils resulting from this system are, however, all charged upon banks and bank directors. No one thinks of arraigning the legislature, from which all these evils truly eman- ate. In some of the States, banking capital is taxed so heavily, that it will not yield a fair profit if honestly conducted. Men of charac- ter and capital, therefore, abandon banking, and the stock falls into the hands of the less scrupulous. , LEGISLATIVE POWER OVLR BANKS. 287 every one who chooses, make shoes, subject only to th* 306 POPULATION AND WAGES. made to the number of the human race. If the whole revenue of the nation were barely sufficient to employ and support the annual increase of its inhabitants, those who would have been supported by these additional 6fty millions, must perish. Such is the natural and necessa- ry result of national prodigality. I do not, however, by any means intend to assert, i hat taxes are unnecessary. A government necessarily involves expense. And, if the government be well ad- ministered, no mode of expenditure yields a richer or more valuable product than taxes. What I have to say, is merely this ; that while all the expense necessary to good government should be met, and met cheerfully and liberally, yet expense beyond this is a benefit to no one ; it diminishes the comforts of all, and destroys the lives of multitudes. Hence, we see the evil of any form of government, which, by necessity, involves great and un- necessary expenditure. Hence, also, the evil of laws of entail, and of all other arrangements by which im- mense amounts of capital are accumulated in the hands of single individuals, or of families, in perpetuity. In this manner, the annual productiveness of a country is greatly decreased, and, in consequence, the annual reve- nue of the whole, is by the difference lessened. 3., Of all the modes of national expenditure, the most enormous is that of war. In the first place, the ex- pense of the munitions of war is overwhelming. In the next place, the most athletic and vigorous laborers must be selected for slaughter. Of these the time and labor are wholly unproductive. The operations of industry, in both belligerent nations, are thus greatly paralyzed. The destruction of property, in the district through which an army passes, is generally very great. All this must be taken from the earnings of a people ; and is so much capital absolutely destroyed, from which multi- tudes might have been reared, and have lived in pros- perity. * * To illustrate the vast expenditure of war, 1 nere insert an esti- mate of the expenses of some of the latest war. I do not vouch fol its entire accuracy, but, I presume, it will be found, in general, cor POPULATION AND WAGES. 307 If the considerations which have been adduced above be c Direct, there is no need of seeking any further foi the cause of that distress among the lower classes, of which we hear so frequently in Europe. If the capital which a bountiful Creator has provided for the suste- nance of man, be dissipated in wars, his creatures must perish for the want of it. Nor do we need any abstruse theories of population, to enable us to ascertain in what manner this excess of population may be prevented. Let nations cultivate the arts of peace. Let them re- duce the unnecessary expenses of governments. Let them abolish those restrictions which fetter and dispirit industry, by diminishing the inducements to labor. Let rect. It is from one of the publications of the Fence Society, and seems to be made up from authentic documents. GREAT BRITAIN War expenses, for the year 1815, . . . 54,317,767 Interest on debt, for that year, .... 6,200,000 60,51 7,767 Military and naval expenses, for 1818, . . . 15,155,000 Difference of the two years, 45,362,76? Equal to . . . . $201,362,898 Military expenses for 1809, . . . francs 656,500,000 Contributions on foreign nations, .... 330,000,000 Total, 986,500,000 In 1HI7, the military expense was, .... 228.000,000 Expense of one year's war 758,500,000 Equal tr .... $ 142,218,750 The estimated cost to Great Britain, of twenty-two years' war, 720,000000 Equal to . - $ 3,200,000,000 War expense for France, for same period, . . . 3,130,000,000 Austria, about . . . 2,000,000,000 Three years war of the United States, . . 120,000,000 8,450,000,000 kxpense ifothet European powers, . . . 4,559,000,000 13,000,000,000 This is nothing but the national expense, without estimating the prodigious and incalculable losses to individuals. 308 POPULATION AND WAGES. them foster the means by which the productiveness of labor may be increased, and the annual gifts of the Cre- ator will so accumulate, that the means will be provided for the support of all the human beings that are annually brought into the world. As soon as this accumulation bears a suitable ratio to the number of inhabitants, we shall hear no more of the ev'ls of excess of population. [t is vain to throw away the food of a million of people in a single day, and then be astonished that a million of people are starving for the want of it. Hence we learn the economical evils of every form of vice *, as, for instance, of intemperance. The money spent in intemperance, is so much absolute waste of capital. This is, of itself, in most civilized coun- tries, enormous. But, besides this, it unfits the individ- ual for labor ; it is the author of numerous diseases, both in parents and in children. It is the cause of al- most all the crime and pauperism in the community. All these together, if they could be correctly estimated, would form a total amount which would seem almost in- credible ; and they are altogether exclusive of that loss of social, intellectual, and moral happiness, which re- sults from this vice. To sum up what has been said. We see that the demand for the labor employed in the production of the necessaries of life ; and, of course, the wages of labor, must be in proportion to the ratio which the amount of capital in any given community, holds to the number of laborers ; and to the ratio which the accumulation of capital bears to the increase of the human race. And these being at any time fixed, wages will rise or fall, as this ratio varies If capital be increasing more rapid)) lhan human beings, wages will rise. If it be not in- creasing so fast, wages will fall. And if, from any sud- den change in the affairs of a country, this ratio be sud- denly affected, wages will be affected accordingly. II. I now come to consider that sort of labor, which requires special and expensive education, and some pe- culiar natural endowment ; such, for instance, is the Uibor which is bestowed upon the fine arts, and which is employed in some of the professions. LABOR IN THE Fi>K ARTS. 09 1. Tht desire for this labor varies with the age of a society. In the beginnings of a nation, when every one 6 interested in providing the means of subsistence, there is little time or capital to spare for the cultivation of a taste for the fine arts. And, at a yet more advanced period, when wages for labor are universally high, and every one may reasonably cherish the hope of attaining to independence, the love of gain is too absorbing a pas- sion to allow of the development of any habit that does not conduce to pecuniary acquisition. It is only in the later and more advanced stages of society, where hered- itary fortunes have been built up, and where accumulated property gives opportunity for leisure and refinement, that much desire is manifested for those productions of the fine arts, which are considered the offspring of the rarest and most highly gifted talent. 2. The ability to gratify this desire, depends also upon the form of social organization. The productions of the fine arts are generally very costly. Hence, where property is nearly equally divided, where no one is poor, though no one may be exorbitantly rich, such productions could have but few purchasers. Whether wages were high or low, whether there were no beggars or whether there were ten thousand beggars, would have no effect upon the probability of the sale of a statue, which cost one hundred thousand dollars. The demand, is of necessity, limited to the wealthy ; and that form of social organization which is most favorable to the accu- mulation of large estates, and to the retaining of them in the hands of single individuals, will always be most favorable to the cultivation of the fine arts. In this country, where we have few beggars, and where, but for intemperance and vice, we should have none, a first-rate sculptor or painter would starve. In many of the coun- tries of Europe, where the poor are j-equently famish- ing, and where a large proportion of the population are beggars, you may frequently find, in the gallery of a single gentleman, a finer collection of paintings, than could be made from all the pictures in the whole United States. Hence, I think that the prospect for the arts, in this country, is by no means encouraging. 310 CAUSES OF DIFFERENCE OF WAGES. SECTION II. OF THE SPECIAL CIRCUMSTANCES BY WHICH, IRRE- SPECTIVELY OF THE INFLUENCE OF CAPITAL, THE WAGES OF LABOR ARE AFFECTED. In the preceding section, I have endeavored to show in what manner wages, or the price of labor, are affected by capital. The general principle there illustrated, is, that wages will be high, when the proportion of capital to labor is great ; and low, when the proportion of cap- ital to labor is small : and that wages will be rising or falling, as this proportion of capital to labor is increasing or diminishing. On this principle, I suppose that the difference of wages, in different countries, under the same physical conditions, may be explained. The same principle may be carried a step further. Whenever, in any country, capital is removed from one kind of employment to another, the wages, in that form of labor to which capital is transferred, will be raised. Thus, if a people find it for their interest to employ their capital in manufactures, instead of navigation, the wages of manufacturers will rise, and those of sailors will fall. This will continue, until the demand for manufacturing labor is supplied. But, when the current is once set in any direction, it frequently continues to move, after the force which was originally applied, has ceased. Hence, it will frequently happen, that a change of this sort wil' abstract from navigation too large a number of labor ers, so that there will not be a sufficient supply to meet even the diminished demand. In this case, the wages of seamen will rise again, somewhat above the proper average. But, supposing all these circumstances to be adjusted, .here will yet remain others of a different kind, to affecl the wages of labor. We do not find that the wages of ill laborers are the same, whether labor be high or low, and whether the productiveness of labor be great or CAUSES OF DIFFERENCE OF WAGES. 311 small. A captain receives higher wages than a sailor , a master manufacturer, higher wages than his journey- man ; and a merchant, higher wages than his clerk. The circumstances which cause these differences, re- main now briefly to be noticed. 1. The price of labor is affected by the ease or diffi- culty, the pleasure or pain, of the employment. When the employment, for instance, requires great muscular effort, the number of persons who can accom- plish it, is comparatively small. This diminishes the supply, and, of course, increases the price. When this is the case, as men are not usually attracted by the prospect of hard labor, a smaller number apply for this kind of employment. This still further diminishes the supply. Hence, the price will rise, as the wages must be increased sufficiently to overcome this repugnance. On the contrary, when the labor is easy, the number of persons, both able and willing to perform it, is in- creased ; thus, the supply is large, and wages fall in proportion. The same effect is produced by the general estima- tion of the pleasantness or unpleasantness of the em ployment. Any kind of industry, which, from necessity, is uncleanly, commands higher wages than one which can be performed without interfering with personal neat- ness. One which is considered disgraceful, can be supplied with laborers, only by paying an unusual price. The business of a public executioner, though not diffi- cult, is disagreeable, and generally considered disgrace- ful ; and hence, in countries where it is made a distinct profession, it commands high wages. The labor in the learned professions, is considered honorable ; and, there- fore, it is less highly recompensed than the same degree of labor and skill in other employments. 2. Wages are affected by the skill required 5n pur- forming the operation. This arises from two circum- stances : First, skill ran be acquired only by practice and education. This, as has been explained, is in itseli costly, and is an investment, for which the possessor j'istly receives an emolument. And, secondly, unusua 1 312 CAUSES OF DIFFERENCE OF LABOR. skill, generally supposes some unusual endowment. But in proportion to the rarity of the endowment, must be the smallness of the supply, and, of course, the rise of price which must be paid for the product. 3. The confidence reposed. Wherever a great arflount of capital is employed, it must, to a very considerable degree, be placed in the power of some one or more agents. Hence, if this power be abused, or used un- wisely, the whole is liable to be lost. If the manager be careless, he may destroy it by negligence ; 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 of the operations of pro- duction. But, such a union is rarely to be found. Hence, while the demand is imperative, the supply is small. On this account, though the wages of such per- sons are high, it is generally found more economical to employ them, at any price, than to intrust important af- fairs 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. 4. Certainty or uncertainty, constancy or inconstancy of employment. Division of labor requires that a man devote himself exclusively to a single employment, and, therefore, that his whole emolument be derived from thai employment. Hence, when the opportunities of em ployment are rare, the wages for each particular opera- tion must be greater ; since we must pay, not only for the time actually employed, but also for that time which is lost to the laborer, w r hile waiting for employment. We pay more money for riding a mile in a hackney- coach, than for riding the same distance in a stage- coach ; because the hackney-coachman may stand half a "flay in waiting, before he finds another customer. For the same reason, although horse keeping is higher in the city than in a country town, you pay less money for coach hire in the former case, than in the latter, because of the greater steadiness of the employment. Thus, also, when a trade can be exercised for only a part of the year, as in the case of a brick-layer, you pay to the CAUSES OF DIFFERENCE OF LABOR. 313 laborer higher wage's ; because he must receive enough to compensate him for the time in which he is obliged tc lie idle. 5. Another circumstance which affects the price of wages, is the certainty or uncertainty of success. In most of the ordinary avocations of life, if a man acquire the requisite skill, he will invariably find employment. Ju the professions, it is not so. Those who have pre- pared themselves at great expense for the practice of a profession, unable to find employment, sometimes relin- quish it for another pursuit. When such a risk exists, the wages of labor should be greater ; for the laborer is entitled to a remuneration for the risk of this loss of time and of capital. These, I believe, are the principal circumstances on which, irrespectively of the influence of capital, the price of labor depends. It will be at once seen, that they are susceptible of very great variety of modifica- tion, and combination ; and that, frequently, several of them must be taken into the account, in order to explain the reason of the high or low price of any particular form of labor. I think, however, that by such combi- nation, the various phenomena of wages may be gener- ally explained. The preceding remarks are intended to apply to those cases, in which the individual is supported icholly by his own labor. When an individual, or a class of in- dividuals, have any other means of support, the price of labor, of course, falls, and can be subjected to no general rule. Thus, a large portion of the laboring class of females are supported, in part, by their rela- tives ; some of them receiving house-rent, others, both house-rent and food, for nothing. Hence, they are en- abled to labor for a price, far less than the actual cost. This is one reason why the price of female labor, espe- cially of that labor which requires but little skill, and which can be done at home, is so low. Another rea- son is, that the customs of society restrict the modes of production in which female labor may be employed Hence, in these modes of production, the supply of la 27 3i4 CAUSES OF DIFFERENCE OF LABOR bor L> greater than the demand. Hence, also, the es tablishment of a manufactory, or the introduction of any kind of labor, which furnishes a new mode of female employment, advances the price of female labor. This, also, is the reason why the labor performed in nunneries, monasteries, and state prisons, is sold below the markel price. The fact is, that the laborers are supported, ei- ther in whole or in part, by a separate fund ; and hence, there is no natural price for their products, ?ince it is not regulated by the cost. CHAPTER SECOND. THE PRICE OF MONET, OR INTEREST. SECTION I. OP THE BENEFIT OF CAPITAL TO THE LABORER. HAVING, in the preceding chapter, endeavored to il- lustrate the principles which regalate the rate of wages, we now proceed to illustrate those which regulate the rate of interest, or the price of capital. We have already stated, that when two persons were engaged in creating a product, a part of the profit be- longed to the labor, and a part to the capital. Let us first consider the benefit of capital to the laborer. Suppose a laborer to be endowed with health, and also with skill sufficient 1o perform an operation in any mode of production. His power is made up of two things ; first, mere muscular force ; and, secondly, skill. By the one, he is enabled to exert mere brute force, as in lifting, carrying, or drawing. By the second, he is enabled Jo avail himself of the use of natural agents ; for skill in production is little else than this ability. But it is evident that his labor of the first kind, is vastly less productive than that of the second kind, as the simple labor of a man's hands is less productive than that labor which is employed in directing the agents of nature. Suppose, now, a man entirely deprived oi the use ot capital ; his labor must be wholly of the first kind ; of course, it must be of the least productive quality, and il must earn the lowest rate of wages. Suppose a black- smith, of ever so great skill, destitute of forge, hammer, anvil, and of all his tools, -"id also of iron upon which tc 316 BENEFIT OF CAPITAL TO THE LABORER. employ them ; he can, in no manner, avail himself of his skill, or of the use of the natural agents with which he is acquainted, and he must either perish or else earn his livelihood by simple labor ; that is, by the putting forth of mere brute force, without any benefit from his skill, though it be ever so great. But, let some one loan him a shop and tools, with iron and coal sufficient 10 cairy on his business, and he can, at once, avail himself of his skill ; that is, of the use of those natural agents, with which he is acquainted. His labor will now be- come vastly more productive ; that is, he can, in a given time, create a vastly greater amount of value than be- fore, and will, of course, receive a much larger recom- pense. If his simple labor were worth one dollar per day, his labor and skill will now probably be worth at least two dollars ; that is, the capital which he uses, has at least doubled his wages. This, at the rate of three hundred working days in a year, would be equal to three hundred dollars, which he receives for the use of the capital which was loaned to him. Suppose that this capital were worth, originally, five hundred dollars ; and that he paid for the use and wear and tear of it, ten per cent, per year; he might then pay fifty dollars for the use of it, and have two hundred and fifty dollars nett profit, over and above the wages which his simple labor could earn. In two years, he might, besides paying the inter- est, pay for the whole capital, and thus own it himself. He would then be entitled to all the profit derived from the three several sources : first, his labor > second- ly, his skill; and, thirdly, the use of the capital, upon which his labor was employed. I have, in the above case, supposed the laborer to borrow the shop, tools, and materials. This is not the ordinary way in which capital is borrowed. It is much more common, and much more convenient for him, who wishes to borrow the capital with which to employ his skill, to brrrow it in the form of inoney, which he im- mediately transforms into that kind of capital, which his occupation requires. Hence, contracts of this kind are always estimated in money. And hence, interest is BENEFIT OF CAPITAL TO THE LABORER. 317 commonly called the price of money. It is e\iclent, however, that it is not the money, but the capital, which is wanted ; because, as soon as the man obtains the money, he at once exchanges it for capital. This, therefore, should always be borne in mind, that when we speak of the price of money, we mean the price of cap- ital, for which the money is always exchanged. Hence we see, that the laborer may derive very great oenefit from the loan of money ; that is, of capital. He is thus enabled to employ, advantageously, all his skill . and thus, a loan for a few years is very frequently the commencement of a fortune. And hence we see, as we have said before, how very absurd is the prejudice so commonly excited against money-lenders, and money- lending institutions. Were there no money-lenders, there could be no money-borrowers ; and were there no money-borrowers, the industrious artisan would surely be ihe greatest sufferer. It is not denied that the money- lender, loans for his own advantage. But, I do not see why it is any more odious for one man to lend for his own advantage, than for another man to borrow for his own advantage. It is not pleaded, that the one, any more than the other, is benevolent. This is quite anoth- er question. All that is pleaded is, that both, in so far as the ihings themselves are concerned, are equally hon- est and honorable. In both cases, the man benefits himself while he benefits others ; and this is all that can be said in favor of any other exchange. It is not, of course, denied, that the lender may be oppressive, ty- rannical, and avaricious ; nor that the borrower may be fraudulent, indolent, and profligate. But this affects not llie nature of the transaction per se. We here speak of ihe thing itself, and not of the manner in which either parly may act, in consequence of or in connexion with it. I have stated but one form in which the laborer is benefited by the use of capital. Another foim of sim- ilar advantage is equally common. Suppose that a village were destitute of capital, and that its inhabitants were therefore obliged to be employ- e'l in simple labor, or in that which required the least 27* 318 BENEFIT OF CAPITAL TO THE LAP.ORER. skill, and, therefore, produced the lowest wages. They would, consequently, be poor, and would be able to ac- cumulate very little ; since, their whole earnings would be scarcely more than sufficient to provide them witb the necessaries of life. Let, now, an opulent man come among them, and establish a manufactory which should employ every inhabitant capable of labor. Every one knows, that, by this means, the wages of labor would be doubled, and all the comforts of living would be in- comparably increased. The reason is the same, in prin- ciple, as in the other case. The capitalist furnishes the materials and the tools, by which the laborer is now en- abled to use his skill, in addition to the simple labor, which he used formerly ; that is, by which he is enabled to labor, not with his hands, but also with the agent? of nature. The result is, a great increase of the pro ductiveness of industry ; and, of course, a much large) amount than before, becomes the portion of the laborer In the division of the profits the owner receives pay- ment for the use, wear and tear, and risk of his instru- ments, for the use and risk of his material, and for his own labor and skill in supervision, if he superintend ; or for the labor and skill of another, if he does it by a deputy. The workman receives payment for his labor and for his skill, according to the principles illustrated in the preceding chapter. We see, that, in this case, the laborer is as truly benefited by the use of,capital, as in the former. The only difference is, that here he receives payment only for labor and skill ; and there he received payment for the use of capital, deducting the rate of in- terest and the risk of loss. It will be easy to apply the principle here illustrated to other cases. When a mer- chant borrows capital, he is thus enabled to use his skill in exchange. Hence, the use of capital, makes the dif- ference between his wages as a merchant, and what his wages would be, were he a common laborer. And so of any other case. Hence, we see how incorrect is the notion frequently advanced, that when property is destroyed by fire or flood, qr in any other manner, it is of no consequence OF RISK OK INVE^TMKNT^ 319 to the community ; since it was nothing but the posses- sions of the rich. The rich may, or may not, suffer in their comforts and conveniences, by such a loss ; but the poor always must suffer. The very means by which their wages, are raised from those of simple to those of skilful labor, from the wages of labor with their hands alone to the wages of labor with the agents of nature, is thus taken away. Remove capital, and they have noth- ing to offer in exchange, but mere physfcal force. Hence, it is always to be remembered, that, in the de- struction of property, the poor are always the greatest sufferers. It is evident, then, that capital loaned, should be paid for. Interest is no extortion, and no unreasonable de- mand. Jt is for the advantage of the skilful laborei to borrowjt, at a reasonable interest, as much as it is for the advantage of the capitalist to loan it ; and it is as much for the advantage of the laborer as the capitalist, to enter into that partnership, by which they share the profits of the operation between them. It is by reason of this partnership, as I have said, that the laborer re- ceives the wages of skill, instead of the wages of mere physical force ; and the capitalist is able to employ all his capital in production, instead of employing only that portion of it, which he could employ with simply his own personal industry and skill. Wo next proceed to consider the circumstances which vary the rate of interest at which capital may be borrow- ed. These, I suppose to be three, viz: 1st. Risk , iJd. Convenience of Investment ; and, 3d. Productive- ness of Capital. SECTION II. OF RISK AND CONVENIENCE OF INVESTMENT. I. Of Risk. When a man loans his property to another, there is always a risk of his never being repaid 320 <^F RISK^OF IIS VESTMENT. Now, the greater this risk, the greater will be the intei est which a capitalist may justly demand. He who would loan to one man, at six per cent., when he was sure of being repaid, would not, surely, loan to another man, at the same rate, when there were fifty, chances in a hundred, that he would lose both principal and inter- est. At any rate, he who did so, would very soon cease loaning altogether. This risk depends upon several circumstances. Of these, the principal are : the nature of the employment , the character of the borrower ; and the character of the government. .1. There is a difference in risk, arising from the dif- ferent modes of employing capital. For instance, prop- erty at sea, is more liable to destruction than property on land. Hence, the ancient Athenians made a differ- ence between land and marine interest. The formei was at twelve, and the latter as high as sixty per cent, per annum. Property in merchandise is more liable to be destroyed, than property in houses ; property in houses, than property in farms. A house in the country, is safer than a house in town ; and a stone house is safer than a wooden house. Property employed in the man- ufacture of cotton, is less liable to be destroyed than property employed in the manufacture of gunpowder Now, when a capitalist loans property to be invested in some one of the above forms of capital, and his only se- curity for payment consists in his hold upon the property in which it is invested, it is evident that his risk, other things being equal, will depend upon the safety of that property. Hence, it is reasonable that his remuneration for risk, should correspond with the greatness of that risk. 2. The second circumstance which enters into risk, is the personal character of the borrower. This is made up of industry, skill, knowledge of business, pe- cuniary ability, and moral character. When these have not been tested, or where, having been tested, they have been found insufficien' to the safe conduct of business, there will be a correspondent indisposition in his neigh- bors to loan ; because, every one feels that there is, in OF RISK OF INVESTMENT. 321 such a case, more than a usual risk. Hence, such an individual cannot borrow, unless at an advanced pre- mium, or at a higher rate of interest. On the contrary, if a man have conducted an extensive business, for a long period, with undeviating success, he attains to a high mercantile credit, and is enabled to borrow money at the lowest rates. But, if a merchant be known ic be frequently embarrassed ; if he have ever, or specially have more than once, failed ; mercantile confidence in him is destroyed. No one will lend him, except on the most unfavorable terms ; hence, he can do business with nothing but his own capital, and, of this, he is generally destitute. Hence, a failure, and specially a second fail-. ure, is commonly fatal to mercantile success. Firm credit is rarely afterwards established. I am aware that these two causes of variation of risk, are apparently modified, by the practice of endorsing private notes. If 1 want money for the most hazardous investment, or am of 'the most doubtful credit, if I can offer my note, endorsed by persons of established mer- cantile character, it is raised, at once, to par ; that is, the extra risk is immediately removed. But this modifi- cation is only apparent. The endorser will rarely do tins for nothing. He either himself receives a premium for it, directly ; that is, he is paid for taking the risk of default of payment ; or else, two persons mutually en dorse for each other, and thus, the risk which A assumes for B, is paid for, by B's assuming a similar risk for A It is singular, that anyone should ever ask another to en dorse his note merely as a matter of comity. It should always be a matter of business, and liable to be paid for, like any other business transaction. A merchant should no more ask another to endorse his note gratuitously than he should ask him to insure his house gratuitously. The nature of the transaction is precisely the same The risk in the one case, is frequently as great as in the other ; Jind it should always, as much in the one case as in the other, be a matter of compensation. Such, at least, seems to me to be the nature of the case. 3. The risk incurred in Ic'iuling cnpital, is affected 322 CF RISK OF INVESTMENT. by the character of the government. This affects bott private and public contracts. If justice be well administered, and every man have all reasonable security that he will have the whole power of the society at his disposal, in order to enforce a just contract ; of course, the risk is less, and the rate of in- terest lower, than when experience has shown, that no such security exists. Hence, we see the economy of cood legislation, and of a wise, just, and incorruptible Judiciary. The additional interest on capital, incurred in consequence of the bad administration of justice in a country, would annually pay the expenses of all the courts of law, ten times over. The same results flow from confidence, or the want of confidence, in the stability of a government. A rev- olution not unfrequently dissolves contracts, dissipates security, and renders obligations valueless, bc-th by de- stroying the evidence of their existence, and annihilating the means of enforcing them. Hence, when such an event is feared, men will not loan, except at an exorbi- tant premium ; and they generally prefer removing their property to some other country, to subjecting it, for any premium whatever, to the risks of a revolution. The same may be said of public contracts. Govern- ments, in whose stability undoubted confidence is repos- ed, borrow the most enormous sums, at the lowest rates of interest. Those, which are in daily danger of being overthrown, can scarcely borrow at all, or, if they do borrow, it is at the most ruinous premium. The South American governments can scarcely borrow at any in- terest. Great Britain, notwithstanding her present enor myiis debt, borrows at three or four per cent., to an) amount she pleases. Nay, so great is the public confi- dence in her permanency and integrity, that, probably, there is scarcely a civilized nation on earth, which does not at present own some share of her national dobt. The greater the civil commotions of other countries, the nore easily can she borrow ; because, capitalists natu- rally invest their property where they are confident of its security ; and confident that its interest will, under alJ circumstances, be regularly paid. CONVENIENCE OF INVESTMENT . 323 II. The rate of interest is varied by the convenience of the investment. The convenience of an investment, depends upon several circumstances. 1. Facility of transfer. When a man loans capital he is, of course, ignorant of the future, and does nol know how much he may need it, at some subsequent time. If he loan at six per cent., for two years, he may, in six months, find some investment in which it would yield him eight per cent. ; but, having loaned it for two years, he cannot now withdraw it. Hence, it is a great advantage, if it can be so invested, that he may, without loss, recall it at any moment. 2. Permanency of investment. If a man does not wish to withdraw a loan, it is an advantage to him to have it continue for a long period ; because, he is thus saved the loss of interest which would occur during the time of transfer, and the trouble and inconvenience of finding another borrower. This is of special benefit to widows, orphans, persons retired from business, and all those persons who wish not to labor with their own cap- ital themselves, but only to live upon the interest of it. 3. Punctuality in the payment of interest. It is a great convenience to those who invest capital, to be able to calculate with certainty on the payment of interest. They can thus, with ease, adjust their expenses, both to the amount of their income, and to the time of their re- ceipt of it. If they wish to re-invest the interest, they can make their arrangements with certainty ; and thus in- vest it with the greatest advantage. They are also saved the trouble of looking after their debtor, and they avoid the inconvenience of that personal altercation, which i? liable to arise respecting pecuniary transactions. When any form of investment combines these advan tnges, men are found to prefer it to one which is desti- tute of them ; and hence, they will loan their money on these terms, at a lower rate of interest than on any oth- er. When a debt is in this form, it is said to be fund- ed ; and the creditors are said to hold stock. Hence, oublic debts are generally thus arranged. The various companies, formed for banking purposes, and purposes 324 INTEREST DEPENDING ON PROFIT of internal improvement, are constructed on the samt principles. Every one who contributes a certain arnouni towards the capital of such a company, receives a certifi- cate that he cwns such a share of that capital. He is entitled to his portion of the profits at stated times. He tna^ retain this certificate himself, as long as he pleases ; or he may sell it, at any moment, to any purchaser who may want it. Hence, money may always be borrowed, under these circumstances, at the lowest rates. SECTION IIT. OF THE RATE OF INTEREST, AS AFFECTED BY THE USE OF CAPITAL. When, however, the risk is the same, we find interest higher in some countries than in others ; and higher in the same country at one time than at another. Thus, when. the security is equally good, interest is higher in this country .than in Great Britain ; and, in this country, it is higher in the new, than in the older states. And, we also find, that it is lower now, in Great Britain, than formerly ; and that it generally becomes less, as a com- munity grows older. This shows that there must be causes of variation in interest, aside from that of risk. A few of these re- main to be considered. I. The average Profit of Capital. The profit ol capital is that annual value which it yields to the possess or, after he has deducted the principal, and paid the ex penses incident to his actual operation. Thus, if, by the use of one thousand dollars for a year, I am, after replacing the principal and all the cost of my operation, one hundred dollars richer, this one hundred dollars is the profit of my capital. Now, the greater this is at any time, the greater will be the sum which T shall be willing to pay for the use of one thousand dollars. If, SUPPLY A?O DEMAND. 325 by the use of capital, I can, after paying all expenses, realize twenty per cent., I can afford to pay more for the use of it, than if, after paying all expenses, I could re- alize only five per cent. To specify the various causes on which the difference of nrofit of capital depends, perhaps would be impossi- ble. Those which seem to me of the most general im- portance, are : 1 Fertility of Land. He who wished to borrow money to invest in agriculture, could afford to pay higher interest, when the land produced fifty bushels to the acre, than when it produced only twenty-five bushels to the acre, provided he could procure the land for the same purchase money. 2. Productiveness of Industry. The use of natural agents adds greatly to the value annually produced from a given amount of capital. This will tend to raise the price of capital ; since a man will give more for money to invest in a machine which will produce one thousand dollars a year, than in one which will produce only five hundred dollars. It is true that the influx of capital will tend to bring any one branch of industry, in process of time, to the general level. But that progressive in-. crease of productiveness, which belongs to the progress of civilization, tends to keep up the price of capital, which would, otherwise, fall unreasonably low. 3. The Demand for Exchange. The greater the de- mand for exchange, the more profitable must be that capital which is invested in exchange. In a town v/here mercantile business is brisk, and a man can sell all his stock at a good profit, two or three times in the course of a year, money will bear a higher interest than in a town A here exchanges are slow, and he must keep his goods on hand for a year or two. II. The Ratio between Supply and Demand. This produces the same effect upon the rate of interest, as upon every thing else. Whatever be the profit of cap- ital, if the supply be very small, the price will rise ir. proportion ; since he, who by employing it at a high price, can make a small profit, will rather -so employ t v 28 326 SUPPLY AND DEMAND. than, by doing without it, make no profit at all. Thus, if, by the use of one thousand dollars for a year, J could realize five hundred dollars, I might be willing to pay two hundred for the use of it, rather than not to have it; for, in the latter case, I should gain nothing. If, then, there were but little capital in the market, and many persons were as willing to give this rate of interest a? myself, I should be obliged to give it. But if, on tbf con- trary, there were many persons desirous of lending, and there was much capital in the market, and I were the on- ly person who would be willing to give this interest, they would underbid each other, and I should be able to procure it of him who would loan it to me at the lowest rate. I might then be able to borrow it for one hundred and fifty, one hundred, or sixty dollars per annum. Hence, the rate of money will vary in any country, according to the effect of these two circumstances. In a new and prosperous country, interest is always high. This results from several reasons. 1 . Land is very cheap, and at first is all of very near- ly the same market price. In many cases it can be had for almost nothing. 2. Land is very fertile. The produce of a soil when new is generally greater than ever. afterwards. 3. The soil, never needing manure, requires but small investments of capital, and these are very richly repaid. 4. The inhabitants of a new country can carry with them but few of the conveniences of life. These must be purchased after they arrive there, and must either be made on the spot, or be imported. Neither of these can be done without capital. And, as the demand for ihese conveniences is imperative, and as the income of land is abundant, the settlers are willing to pay a high price for them. Hence, the profit, both of mechanical and of commercial labor, is very great ; and the price which is paid for capital is very high. 5. The inhabitants of a new country have generally very numerous exchanges with the aborigines. Such exchanges ace exceedingly profitable. But these can SUPPLY AND DEMAND. 527 not be carried on without capital ; and, of course, capi- tal, on this account, always bears a very high price. On the contrary, the supply of capital, in a new coun- try, is generally small. 1. Emigrants are, by no means, the most wealthy classes of a community. Those who are living in peace and prosperity at home, are not generally those who are most willing to brave the perils and hardships of the wil- derness. 2. Those who are not inclined to expose their persons to the hardships of a new country, are not inclined to send their capital where they are not present to watch over it themselves. Hence, it is difficult for a while, for a new people to borrow ; and they can overcome this difficulty only by the payment of a high interest. These are, as I suppose, the causes of the high rate of interest in new countries, on the borders of civilization, and, generally, wherever savage and civilized nations intermingle. As a country becomes settled, however, these causes begin to operate less powerfully ; and thus, the rate of interest gradually diminishes. 1. The annual produce of the earth is, year after year, changed into fixed capital : and thus, the demand for capital is supplied from themselves. 2. The fertility of the soil diminishes, so that it will afford 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. 5. A more perfect knowledge of the country, and more perfect confidence in its prosperity, diminish the unwillingness of persons in older countries to loan ; jiud hence, capital from abroad, may be procured with greater facility. Hence, the gradual operation of these causes, must tern 1 to reduce the rate of interest in different countries to tne same average. 328 FREEDOM OF CAPITAL. Hence, the constant tendency of civilization, is to the reduction of the rate of interest. As capital becomes more abundant, in proportion to the uses that are to be made of it, it commands a less price ; that is, a man can gain less than formerly with a capital of one thou- sand dollars; and hence,, he is willing to pay a less inter- est for it. But it is also to be remembered, that a much larger proportion of men are worth one thousand dollars than formerly, and that for one that was worth o\i( thousand dollars, fifty years ago, there are fifteen 01 twenty who are worth ten thousand dollars now ; that is, men, with the same labor, are able to secure as many or more comforts than formerly ; but they are obliged to do it by the use of a larger amount of capital. They are obliged to labor with a larger capital, but that large amount is as easily procured as a less amount was for- merly. Hence, the complaint so frequently heard of the increasing difficulty of accumulating property, is really unfounded ; and, taking the difficulty or ease of procuring capital into the account, the more advanced periods of society are as favorable as any to the industri- ous classes. III. The rate of interest is affected by the freedom of capital. By freedom of capital, I mean the unfetter ed liberty of the individual to employ his capital in any innocent way that he pleases. When this liberty is en- joyed, every one chooses that way in which he supposes that he shall be most successful ; that is, in which he will reap the largest profit. The larger the profit he realizes, the larger will be the interest which he will be willing to pay. When he is obliged to withhold it from a mode of investment which he prefers, and to employ it in one which he does not prefer ; he must, therefore di/ett it from a more to a less profitable mode of invest- ment. Hence, as he is obliged to employ it in a less profitable instead of a more profitable investment, he can afford to pay less interest ; and the price of interest, by the effect of this interference, must fall. Such must be the effect of all monopolies, and of all means by which the active power of capital is diminished INTEREST AFFECTED BY TAXATION. 321* IV. The rate of interest is affected by taxation. A tax, abstracts its whole amount realized, besides the cost of collecting it, from the annual profits of capital. If a mechanic realize, from a capital of one thousand dollars, a nett saving of one hundred and fifty dollars, and is obliged to pay fifty dollars of this sum in taxes, he is in the condition of one who, without being obliged to pay taxes, realized a saving of only one hundred dol- lars. Hence, he would be able, if he conducted his business upon a hired capital, to pay only a diminished rate of interest. And, if it be said that he may raise the price of his labor, and thus repay himself* it may be answered : 1st. By raising the price of his labor, he diminishes the demand, and his profits are thereby re- duced, so that he will be no better able to pay the inter- est in question. And, 2dly, as other men being taxed, will raise tl eir prices, he is obliged to pay more for every thing that he consumes ; and thus, again, his abil- ity is lessened. Every one must see, that the immense sum which Great Britain annually pays, as the interest of her national debt, is so much abstracted from the profits of her capital ; and that the amount of profit to the indi- viduals must be greater, just in proportion as that is diminished ; and that the profits of the capitalist and the producer would rise accordingly. From what has been said above, we come to the fol- lowing general conclusions : 1. That, other things being equal, interest will be high when the risk is great ; and low, when the risk is small. 2. Thai interest wjll be high, when the profit of capi- lal is great; and low, when the profit of capital is small. 3 That both of these affect each other, within cer- tain limits ; that is, when profit is great, if the risk be nlso great, interest will be very high ; because the in- crease of risk diminishes the supply. 4. But, when profit is low, and risk is great, there will be no loaning whatever ; because, what is paid for risk, will be more than can be gained by use, and, hence, men could not profit by borrowing. 28* 330 OF LEGAL RATE OF INTEREST. 5. And, hence, we see that the rate of interest will be always affected by every circumstance, which affects either risk or profit of capital. War, or the rumor of war, by increasing the risk, raises the rate of interest in property affected by it. In property not affected by it, the same cause depresses the rate of interest ; because it diminishes the means and opportunity for produc- lion, and, of course, diminishes the profit of capital. On the other hand, the discovery of any new mode of profitably employing capital, raises the rate of interest, 'jy creating an increased demand for capital. 6. Andihence, again, we see that the rate of interest, at any particular time or place, is not of itself any indi cation of the prosperity, or of the decline of a country. The indication is to be sought for, not in the rale of in- terest, but in the cause by which that rate is affected. 1. Whenever the rate of interest is raised by in- crease of risk, this is an indication of adversity. Rise of interest, from such a source, benefits no one. It is of no service to the lender , because he derives no profit from that part of the premium which insures him against loss. It is as profitable for him to loan for five per cent, without risk, as to loan for ten per cent., when five per cent, is for risk, and five per cent, for use. It is an injury to the borrower, because, one hundred dol- lars are worth no more to him when he pays five per cent, for risk, than when he pays nothing for it. What- ever, therefore, is paid for risk, is always a loss to both parties ; and the more that is thus paid, the worse it is for both. Hence, the rise of interest caused by bad government, civil commotion, revolutions, wars, and gen- eral immorality, is always an indication of national de- rline ; and the fall of interest, produced by the contrary causes., is an indication of national prosperity. 2. On the other hand, the temporary rise of interest caused by increased productiveness, and the devel- opment of new national resources, is an indication of national prosperity. It shows that more than ordinary valuable modes of employing capital have been discov- ered, and, that men can afford *o pay a larger price foi OF LEGAL RATE OF INTEREST. 331 the use of capital. I have, however, called this a tem- porary rise ; because, a rise from such a cause, will soon equalize itself. Increased productiveness will soon sup- ply capital, or it will be imported from less favored countries. Thus, iu new countries, the rate of interest is high ; but this is by no means an indication of adver- sity, for such countries, while paying so high a rate for capital, yet grow rich faster than those from which they borrow. 3. Again : The gradual fall of the rate of interest caused by the diminution of risk, and the greater abun- dance of capital, is an evidence of prosperity. Ii shows that a larger proportion of the means of subsis- tence is falling to the share of every individual ; that every man can more easily procure capital ; and that every man, in order to support himself, produces a larger amount than formerly, of whatever will contribute to the comfort and convenience of his neighbor. 4. On the other hand, the fall of the rate of interest, caused by a suspension of the means of production, is an evidence of national adversity. Suppose a war to occur between this country and France. The capital now employed in transportation,, must be almost wholly unproductive. The capital employed in producing our exports to that country, must also be useless. Hence, the rate of interest would fall ; for, many men would have iio business in which to employ their capital. The case would be the same, were a fall in the pric.e of capital to proceed from civil commotion, or any similar causd. And, the adversity would remain, until the cause were removed. For, if capital were removed out of the country, until, from reduction in the supply, the rate of interest rose, the industry of the country would still be depressed, until, by peace, order, and good gov- ernment, it regained its natural advantages. Hunce, we see that, in order to form any correct opinion respecting the condition of the country, from (he present rato of interest, we must always seek for the causes of that rate, instead of deciding from the mere rate itself. 332 OF LEGAL RATE OF INTEREST It is almost unnecessary, after what has been already advanced, to state that, in the view of the Political Economist, laws regulating the rate of interest arc in- jurious to the prosperity of a country. Some of the reasons for this opinion, are the following : 1. Such laws violate the right of property. A man has the same right to the market price of his capital, in money, as he has to the market price of his house, his horse, his ship, or any other of his possessions. 2. The real price of capital cannot be fixed by law, any more than the real price of flour, or iron, or any other commodity. There is, therefore, no more reason for assigning to it a fixed value, than there is of assigning a fixed value to any other commodity. 3. The price of capital, or money, is really more va- riable than that of any other commodity. Most other commodities have but one source of variation, namely, use or profit. But capital, in the form of money, is li- able to two sources of variation, risfc, and use. These vary, at different times, in different investments, and with different individuals. There is, therefore, less reason why the price of money should be fixed by law, than why the price of any thing else should be so fixed. 4. These laws, instead of preventing, give rise to great and disastrous fluctuations in the price of money. Suppose that, to-day, money is worth, in the ordinary operations of business, ten per cent., and it is worth six per cent, in loan. A man will as soon loan as employ it in business, if he possess mere than he wishes to use. There will then be a fair supply of money in the market. Bu, let the profits of capital rise, so that, in the ordi- nary operations of business, capital is worth twenty per cent. If, now, the rate of interest rose with this in- creased rate of profit, the same individuals would be as willing to loan, as before ; and thus, the supply follow- ing the demand, there would arise no peculiar scarcity. The high rate of interest would also attract capital from abroad ; and thus, in a very short time, it would, in this particular place, be brought to the geneial level. But suppose that six per cent, were the highest legal OF LEGAL RATE OF IMEREST. rate of interest, and that he who loaned at a higher rate, was liahle to lose both his principal and interest, and also his mercantile character. In this case, as soon as the profit of capital in business rose to fifteen or twenty per cent., no one, who could thus employ it, would loan it at six per cent. Hence, as soon as it thus rose, the supply would be immediately diminished ; and this would, of course, cause a greater rise of interest. Those who, from honor or conscience, obeyed the laws, woulJ withdraw from the market, and employ their capital in some other way ; and no one would loan, but those who were willing to risk the consequences of detection. These, having the money market in their own hands, will, of course, charge for the use, and for the risk of detection ; and, hence, the price, in a few days, may become doubled or trebled. And, at the same time, although the real value of money may be fifteen or twenty per cent. ; yet, because the legal price is six per cent., there is no inducement for capital to come in from abroad, to supply the demand. Hence, the change in the money market has, by reason of this law, no ten- dency whatever to regulate itself. It is, I presume, needless to add, that such laws can never be enforced. Men in want of money, will pay what they please for it, and those who choose to pay enough for it, can generally borrow. The effect, then, of the usury laws, is merely to drive the best and most conscientious lenders out of the market, or else oblige them to lend by means of subordinate and less scrupu- lous agents. For this agency the borrower must pay, and hence the additional rate of interest. To this it is objected, that money is not like other things, mas.nuch as it is a necessary of life to the merchant, and therefore society must step in to deliver him from the effects of extortion. To th ; s it may be answered as follows : 1. It is manifest that this interference does not render the merchant's condition the better, but rather the worse. Though the assistance, therefore, be well intended, he may very well dispense with it. 2. The greater the necessity of money, the more "5J4 NATURE AND PRICE OF STOCKS urgent s the necessity of leaving it undisturbed by Jecis lativ.e nterference. It makes small difference to the commun'ty, whether the price of jewelry be fixed by law or not. But, suppose that when flour would bring ten dollars a barrel, the government forbade it to be sold for more than seven dollars. Who does not see that the flour would be all driven away and the people starved ? The same principle, for aught 1 see, applies to the rate of interest. Hence, I believe all enactments establishing a legal rate of interest, are injurious and unwise. The only enactment of any value would be one which should de- fine the usual rate, when nothing was said on the sub- ject in the contract. The use of this would be to pre- vent disputes. This is always an advantage to both parties. I shall conclude this chapter, with a few remarks on the nature and price of stocks. I have already remarked, that, when a company is formed for any purpose requiring capital, and yielding interest, the capital is divided into portions called shares, and, that any one has a right to subscribe for as many of these as he pleases. If the shares, for instance, are one hundred dollars each, he who takes one share, pays one hundred dollars, and so of any other number. For every share he receives a certificate of ownership, and, so long as he owns this certificate, he is a member of the company ; he is entitled to the same rights as the rest ; and receives his portion of the profit. These certificates are called stocks. They are transferable, like any other property, and the owner, as in any other case, sells them, if he wishes to do so, for whatever they will bring. The owner, for the time being, is the stock- holder ; is amenable, in his proportion, to all the rules of the company ; and is entitled to his proportion of all the benefits accruing from the use of the capital. Such is the nature of bank, insurance, railroad, canal, and other stocks The same principle is frequently applied to loans Suppose a government wishes to borrow five millions of NATURE AND PRICE Ot STOCKS. dollars, at five per cent., for twenty years, the interest to be paid quarterly. The conditions of the loan are specified, and subscription books opened, in different places throughout the nation. The whole sum is divided into shares, of which every one may subscribe for as many as he will. Every subscriber, thus, in fact, loans to the government, on the terms proposed, as much as he subscribes for. When his subscription is paid, he receives his certificate, which contains an obligation of the government to pay the money at the appointed time, and which entitles him to receive the interest for the sum which he has loaned, at the rate and times specified. These certificates are also called stocks, and are trans- ferable, like any other property. Hence, they are an article of merchandise, like any thing else ; and, as per- sons are wishing both to buy and sell, every day, the) are every day bought and sold, in great numbers, in all commercial capitals. Now, suppose money to be loaned in this way ; it is so much capital a^ interest, and it is affected by the same circumstances as other capital at loan. As the convenience of investment is, however, generally the same, the rate at which such stocks sell, will be affected wholly by profit and risk. 1 . Supposing the risk to be the same ; these stocks are affected by the profit annually paid on the invest- ment. Thus, suppose the risk to be nothing, and the common rate 01 interest in a community to be six per cent. If I own a share equal to one hundred dollars, and it pay six per cent, interest, this share will always sell for one hundred dollars. Suppose that the ordinary rate of interest being the same, this share pays twelve per cent, interest. I can then sell it for two hundred dollars ; because, he who pays two hundred dollars for it, will receive interest at the rate of^six per cent., which is as much as he would receive from any other investment. On the contrary, if this share paid but three per cent, interest, I could get but fifty dollars for it ; since three dollars is the interest of no more than fifty dollars. Thus, oilier things being equal, the price of 336 NATURE AND PRICE OF STOCKS stocks will always depend upon the interest which the} pay ; and they will always sell for that sum, of which the dividend which they pay is the regular interest. This, however, is sometimes affected by the anticipa- tions of men. A stock which pays very little now, may be expected to pay largely at some future time. Its price may, therefore, be kept tip by this circumstance. On the other hand, a stock may pay largely now*, but there may be a fear that it will soon become worthless ; this will, of course, depreciate it in value. So, also, of risk. The profit of stocks being the same, their price is inversely as the risk. If a stock pay the usual interest, but is in danger of sinking the principal, it will be depreciated acordingly. If a gov- ernment pay good interest for a loan, but there be dan- ger that it will be overturned by a revolution, the stock will, of course, fall. Thus, insurance stock never rises to the value of bank stock, when it pays the same interest, on account of the greater risk. Thus, also, steamboat stock may pay twenty or thirty per pent., and yet sell at no advance ; that is, it will be at par, because of the danger from fire and other accidents, and from the rapid wear of the principal. It b by circumstances like these, that the prices of stocks are determined. When a stock sells for what it cost ; that is, when a hundred dollars' worth of the orig- inal capital sells for one hundred dollars, that stock is si'id to be at par. When it sells for more than this, it is said to be above, par ; and when it sells for less, it is said to be below par. Thus, if stock be sold for thirty- seven per cent, above par, a share that cost one hundred dollars, sells for one hundred and thirty-seven dollars ; that is, one hundred dollars receives an interest, which, at the ordinary rate of money, is as much as one hun- dred and thirt)-seven dollars would receive. And so of any other case. Now, it must at once be perceived, that the opinion of the value of stocks is made up very much from ex- pectations of profit or loss, or anticipations of increase or diminutior. of risk. Hence, the rumor of a war ; o f NATURE AND PRICE cF STOCKS. 337 the failure of a company, or of a bank ; of the probable insolvency of a government ; or the news of the gain or loss of a battle, may make a very considerable difference in the price of those stocks which would be affected by such information. Hence, the great liability to fraud, in all the operations of the stock market. If a capitalist can get up a rumor which will depress any stock two per cent., and buy one hundred thousand dollars' worth, during this depression, he may sell it again the next day, for its original value, and thus, in the course of twenty- four hours, realize two thousand dollars, without either risk or trouble ; while the unfortunate seller is cheated out of this amount, without reason and without remedy. I do not say that all rumors affecting the price of stocks, are thus fabricated. I only say, that such is the liabil- ity ; and it is not very unlikely, that what can so readily be done, has actually happened. And when such ru- mors actually arise without collusion, it requires great sagacity to judge of the probability of their truth, and thus to buy or sell, according to the true judgment to be formed from the facts actually in possession of the com- munity. And, besides this, another method may frequently be resorted to, for the sake of transferring money from the pockets of one class of citizens, into those of another class. Suppose a particular stock to be worth no more than fifty per cent. ; that is, to be capable of yielding no more than three per cent, on the original interest. Sup- pose there be only two or three hundred thousand dol- lars' worth of this stock in the market. If, now, a few ind victuals of large wealth combine together, they may easily buy up the whole of it, at this reduced pnce. The scarcity will at once excite inquiry, and will ^ei;d lo create some demand. If, now, by means of other agents, they put small quantities of it into the market, and buy it in themselves, at gradually increasing prices, every one will become desirous of buying this stock, which, for a succession of days, has been rapidly rising in value. By careful management, it may thus be raised, in a few days, to seventy-five or one hundred 29 338 NATURE AND PRICE OF STOCKS. dollai-s per share. If, then, these present owners care fully keep up the price, by buying little and. selling much, until they have disposed of the whole of their purchase, they will, in a few weeks, find themselves to have doubled their money. In the mean time, the cause of this rise having been removed, the effect ceases, and the present holders, who have purchased at seventy-five or one hundred dollars a share, find that their stock is worth no more than fifty per cent. Thus, fifty dollars per share, is, with great adroitness, transferred from the pockets of the many, into those of the few, and many ar*5 ruined, while a few are rendered enormously rich. I again say, that the rise and fail of stocks, are not always to be attributed to such causes. But, every one soon sees that such events are liable to happen. Of tho honor or the honesty of such a transaction, it is not ne- cessary here to speak. We will only take occasion to remark, that it behooves the uninitiated, who wish to escape these dangers, to be somewhat careful how they speculate in stocks. CHAPTER THIRD. OF THE PRICE OF LAND, OR RENT. As the principal demand for land, is for the purposes of agriculture, we shall first consider Rent, specially with reference to this form of utility. Land is the instrument, by which the farmer produces the various vegetable and animal substances which he offers in exchange. Like any other valuable instrument, it, of course, commands a price according to its productiveness. He who hired a loom, would pay more for a loom with which he could weave twenty yards a day, than for one, with which he could weave but ten yards a day. The case is the same with land. Now, the productiveness of land is made up of two things : 1st. Fertility ; and, 2dly, Situation. 1. Fertility. We all know that the productiveness of different soils is very diverse. Some soils will pro- duce thirty, or forty, or fifty bushels of wheat to the here, while others will produce, at the cost of more labor, not more than ten or fifteen bushels to the acre. Some soils will produce the most valuable vegetables ; and others, only the most common, and comparatively worthless. Some soils will produce no wheat whatever ; and others will, without manuring, produce a luxuriant crop, every year. Some, wholly unfit for tillage, can be used only for grazing ; and, even when thus em- ployed, yield to their stinted flocks, bu a meagre sub- sistence. Hence, we see a reason for a great diversity in the price of land. And we see, at once, that a farmer might more profitably pay a rent for one farm, than oc- cupy another farm for nothing. 2. Situation. The products of the farmer are all bulky, and, of course, acquire a very considerable addi- 340 PRICE OF LAND, OR RENT. tion to their cost, by transportation. Hence, if A, raise wheat, within a mile of a market town, and sell it for one dollar a bushel, and B, live one hundred miles off, and bring his wheat to the same market, he must sell it at the same price. The merchant who buys wheat can give no more than the market price for wheat, whether it have been raised near or far off. It is no more valua- ble to him, for having been brought one hundred miles If, now, the price of bringing a bushel of wheat one him dred miles be fifty cents, B, actually receives but fifty cents a bushel for his wheat, while A, receives a dollar. If the farms of both were of equal fertility, that is, if both produced twenty bushels to the acre, the farm of B, would be only half as productive as that of A ; that is, he would receive only ten dollars per acre, while A, received twenty dollars. This amount of difference in situation, would be the same as a difference of one half in fertility, or actual productiveness. Hence, fertility being the same, productiveness will be as situation ; and, situation being the same, produc- tiveness will be as fertility. And we see, that these circumstances \vill always, when opposed, counterbalance each other ; that is, land at such a distance from the market that it cost one half the price of products to transport them, will be of the same value, or actual pro- ductiveness, as land of half its fertility, -contiguous to a nnrket. And, bence, in estimating the productiveness oi land, these circumstances are always to be considered together. And, .we see, that land of the greatest fertil- ity may be so far from a market, that the cost of trans- portation will leave a profit insufficient to repay the cost of cultivation. In such a case, such land will be worth nothing. With these principles in mind, we can easily see i.i what manner rent will be paid, for the different lands in a country. 1. In the first settlement of a country, land is of no exchangeable value ; for every one may have as much as he pleases. Every one, therefore, being at liberty to choose for himself wil) select such a portion as he sup- PRICE OF LAND, OR RENT. 341 poses most productive. Under these circumstances, land would bring no rent ; since no one would pay anoth- er for the use of that which he could have for nothing. This would continue to be the case, until all the land of the first quality was occupied. Let us suppose, for the sake of illustration, that this first quality of land were capable of producing one hundred bushels to the acre, and were all contiguous to the place of settlement, and that the second quality of land were capable of produc ing but eighty bushels to the acre. 2. Suppose, now, this settlement to increase so rap- idly that the inhabitants could no longer be supplied with products from the land of the first class ; or, that these products were in such demand, for the purpose of ex- change with other countries, that these lands could no longer yield the requisite supply. The price of grain would rise, so that a farmer could support himself by lands of the second quality ; and, as those of the first quality were all taken up, and he could obtain those of the second quality for nothing, he will proceed to occupy these. Although this quality of land would bear no rent ; for it will barely support him ; vet, it is better than starvation, and he will proceed to till it. But, as soon as this is the case, the lands of the first quality will begin to command a rent ; because, it is as well for a farmer to pay twenty bushels a year, for land yielding one hundred bushels an acre, as to have land producing only eighty bushels, for nothing. And, yet more : As soon as land will pay a rent, it will at once command a price ; because, if a man wish to invest capital, he will be as willing to pay for land as for stocks, or any thing else, that sum, of which, at the ordinary rate of profits, I he rent would be the interest. Thus, if land pay six dollars a year rent, per acre, if money be at six per cent interest, it is worth one hundred dollars an acre ; since six dollars is the interest of one hundred dollars. And so, if the occupier have the capital, it is as cheap for him to buy the land, and receive the interest himself, a* to hold the money himself, and pay the interest to another. 3. Suppose, now, the price of grain either for home, 29* 342 PRICE OF LA>D, OR RENT. or for foreign consumption, to have risen so much, thai the lands of the third quality, or producing sixty busnels per acre, could now be tilled, and support the agricul- turist. As soon as this became the case, lands of the second quality would yield a rent and would bear a price ; because, it would be as profitable for a farmer to pay twenty bushels a year for land of eighty bushels, as to cultivate land of sixty bushels for nothing. And, as soon as land of the second quality brought a rent, the rent of land of the first quality would also sustain a cor- responding rise. It would be as cheap for a farmer to pay forty bushsls a year for land of one hundred bushels as twenty for land of eighty bushels, or as to have land of sixty bushels for nothing. 4. It is evident, that as the settlement of the country advanced, rent and the price of land would go on aug- menting, according to these principles. Land, which will merely support the cultivator, will bear no rent. But, all land of a greater productiveness than this, will yield some rent ; and, this rent will be precisely as its productiveness exceeds that of the poorest soil which is worthy of cultivation. And, so soon as any soil is tilled of a poorer quartty than any which was tilled previously, all the soils of a better quality will rise in rent, and in price accordingly. 5. Suppose the land of any nation to be limited by situation, or by territorial lines ; it is evident that the demand for food, increasing with the increase of the number of inhabitants, the land would, in time, be all occupied. As soon as the poorest land was capable of yielding something, besides supporting its inhabitants, it would also pay rent. And thus, as before, the price and the rent of land would go on increasing, until it was arrested by some counteracting cause. Such causes are the following : If the grain were exported, its rise of price would gradually limit the foreign consumption ; since other nations would begin either to raise it them- selves, or to procure it elsewhere. Or, if trade were free, as soon as its price rose so high that the nation itself could procure its supplies cheaper abroad than at PRICE OF LAND, OR RENT. 343 home, it would import instead of raising it. As soon as this became the case, the price of grain would rise no higher ; and, at whatever rate of rent this kind of land may have been when this change took place, from this time it would, at that rate, remain stationary. 6. It is, however, to be observed, that this elFect upon the occupation of land, would be rather a cl ange in the manner of use, than in the utility of the land itself. It is evident that it could affect the demand for land, only for the production of those commodities that are capable of distant transportation, such as bread stuffs in general. But a very large part of the productions of the earth are not capable of such transportation ; such are butcher's meat, which forms so large a portion of the food of man ; green vegetables ; milk and butter ; and the food of animals, both for slaughter and labor. Just in proportion as a population increases, the demand for all these will increase likewise. Hence, it is reasonable, to suppose, that although the importation of foreign grain checked the growth of domestic grain, the increased de- mand for these other domestic products, would keep the orices of land in a state of progressive increase. Besides. It is evident that the demand for these re- cent and untransportable productions of the earth, must be in proportion to the number and the wealth of the population. We have already shown, that the number of the population must be as the means of subsistence. Hence the cheaper grain and bread stuffs are, the more rapid will be the increase of population, and the greater will be the demand for those products, of which the agriculturist at home must, from his locality, enjoy the monopoly. Hence it may reasonably be doubted whether the corn laws of Great Britain, of which tha object is, to keep up the price of land, and to sustain thy agricultural interest, have really had this* effect ; and. whether they have not, in reality, had the contrary effect. Had the price of corn been as low as it might have been, for the last fifty years, but for the duties on imported grain, the populat/on of Great Britain would have been probably doubled both from the greater cheapness of 344 PRICE OF LAND, OR RENT. living, and also from the stimulus given to her manufac- tures, by the diminished price of all her products, and the demand for her manufactures to pay for the corn that she imported. In this case, the increased demand for all the recent productions of the earth, would have been more than equal to all the benefit which even the agri- culturist is supposed to have reaped, from the exclusio- of foreign bread stuffs. If this be so, it is another illus- tration of the universal law, that a selfish policy always in the end defeats itself; and reaps its full share of the gratuitous misery which it inflicts upon others. 7. From the view which has been taken, it would at first seem, that the point of earliest settlement- of a coun- try, or at least its maritime frontier, would be its centre, where land would be of the highest price ; while all the lands of the interior, in proportion as they receded from it, would gradually decrease in value, until the cost of transportation of products, at last reduced their value to nothing. Such would be the case, were it not for vari- ous circumstances, which greatly modified this result. Some of these modifying circumstances, it is important to notice. 1. As a people are thus spread over a large territory, and are devoted to agriculture, it becomes necessary that other persons should devote themselves to manufactures, and to barter and sale. Those who are thus employed, by necessity collect together, into towns and villages. Thus a large population is collected, which raises noth- ing from the earth ; and hence, their wants must be sup- plied by the agriculturists in their neighborhood. Hence, immediate markets for produce, are created in every district ; that is, although the farmer cannot remove hi? farm nearer to the market, the market has removed near- er to him ; and the diminution of distance has increased the productiveness of his farm, as much as though its fertility had been increased, or it had been removed to the sea-board. It is not fifty years, since land in the vicinity of Utica, New York, was valuable only for rais- ing produce, which was sent to the city of New York, by the \vay of Albany ; and the rent, and consequent PRICE OF LAND, OR RENT. 345 price of land, depended on what could be made by a harvest, after deducting from the market price of wheat, in New York, the cost of transportation between the two places. But, while the land has remained unmoved, population has moved toward it ; and Utica itself is a populous city, demanding, for its supplies, the produc- tions of all the surrounding country ; so that land, in its vicinity, bears, I presume, a very considerable propor tion to the price of land in the vicinity of the city of New York itself. 2. I have mentioned abo\te, that productiveness of land, depended not only on fertility, but also on situa- tion, or facility of a communication with a market. Fer- tility being given, productiveness will be as situation ; that is, the greater the ease of transportation, the greater the actual productiveness ; and, of course, the higher the value of land. Thus, if land produce one hundred bushels per acre, and it costs half its market price to convey it to the place of sale, it is only as valuable as land of half its fertility, contiguous to the market. If, then, the cost of transportation can be, by any means, reduced, the productiveness of lands, affected by this reduction, will rise in proportion. If, when the price of wheat is a dollar, it cost fifty cents to transport it, and the cost of transportation can be reduced to twenty- five cents, it is as good to me, as if the price had been raised twenty-five cents, or my land had increased fifty per cent, in fertility. Now, in the progress of a coun- try, great improvements are generally effected in roads, and the ordinary modes of transportation, by which the value of the lands at a distance is generally enhanced. This result is, however, signally effected by canals and railroads. The effect of these means of transportation is, to raise the prices of products in the interior, and, of course, the price of land in general, in the manner above stated. A very intelligent gentleman of Geneva, New York, informed me, that in the year 1821, the price of wheat in that town was thirty-one cents per bushel. In 1822, the price was thirty-seven and a half cents. The canal was opened during the next year, and it rose 10 346 PRICE OF LAND, OR REXT. sixty-two and a half -cents. It has never since fallen be low this latter price, and at the time of the conversation, 1835, it was selling at one dollar and thirty-one cents per bushel. The price of land, of course, has arisen iii proportion. And this change has been for the benefit of all parties. The farmer is greatly enriched, the la- borer is better paid, a greater number of persons are very profitably employed and supported by labor on the canal, and wheat has been sold at a lower price to the consumer, than ever before. So far as we have treafed of this subject, we have considered the fertility of land, as, on an average, equal ; and the facility of communication gradually diminishing, with the increase of the distance. Under these circum- stances, it is manifest, that the price of land, in the inte- rior, could not rise, unless the price of land on the sea- board had first risen. And, as land came into market, further and further from the old settlements, it would al- ways indicate a rise of price in the land which had first been cultivated ; or in the most favorable localities. But it is manifest that the case may be far otherwise. 1. The land in the interior may be the most fertile, and may enjoy the most favorable climate. The in- creased fertility, will, of course, counterbalance within a certain limit, the inconvenience of situation ; and mild- ness of climate, will render a less exertion necessary to procure the npcessary provisions for the sustentation of animal life. Hence, the profit of labor will be greater, and the difference, in these respects, may be such, as to counterbalance entirely, within a given distance, the dis- advantages of position. In this case, the interior will be settled without advancing the price of land on the sea- board. The advantages of both, though dissimilar, are, so far as productiveness is considered, equal ; and, of course, there is no reason why any one should pay any thing for a choice. And, secondly, as I have shown before, the difficulty of transportation may be so reduced, that it forms but a small part of the cost of whatever is raised in the inte- rior. When it costs but a few cents more a bushel, to PRICE OF LAND, OR RENT. 347 transport wheat three hundred miles, than fifty miles, ami ihe fertility of land three hundred miles from tile market, is twice as great as that in the vicinity, it is evident, that I he productiveness of land three hundred miles off, will be greater than of that only fifty miles from the market Hence, the price of the one might rise, without produc ing a rise in the price of the other. Nay, it is evident, that it might produce a contrary effect. If a farmer in the interior could raise wheat at a fair profit, and bring it to market for one dollar a bushel, and the farmer in the neighborhood of the market could not, at a fair profit, sell it for less than one dollar and twenty-five cents, as the latter must sell his wheat at the current price, of course, he could not raise it at all. Hence, as a source of profit is cut off, the annual produce is less, and the price of land will fall. Such has been, to some extent, the course of events in this country. The lands on the sea-board were first settled, and cultivation gradually extended to the west. At first, the average fertility of the lands newly occupied, was no greater than that of those first cultivated ; and the price of the old lands rose, as the new lands were occupied. By degrees, cultivation passed over the Al- leghany mountains, and entered the Valley of the Missis- sippi. Here the soil is exuberantly fertile, and the cli- mate mild ; but, the difficulty of communication with the interior, operated as a severe check upon the growth of the new States, and the price of lands in the old States was not materially affected. As soon, however, as the use of steam opened the navigation of the Mississippi, the whole scene was changed. The inland States be- came, in position, almost sea-board States. Their .ei tility was relieved from the inconveniences of position, under which it had formerly labored ; and the produc- tions of a new and rich soil could be brought to market, with as little cost for transportation, as that of land:* within one or two hundred miles from tfie sea-board The result has been, that the western farmers have un- dersold the farmers of the north and east ; and now, but little wheat is raised in any part of New England 348 PRICE OF LAND, OR RENT. This result has been increased, by the .vast emigration to the west, which has diminished the number of labo- rers ; and by demand for laborers at the east for man- ufactures and internal improvements, which has with- drawn men from agriculture, and raised the wages of ag- ricultural labor in the New England States. Hence, b) ihe increased wages of labor, and the reduced price of grain, the profit of agriculture has been reduced, and the price of land has fallen. I suppose that land, at present, in New England, for the ordinary purposes of agricul- ture is not generally as dear as it was twenty or th'rly years since. Yet, it by no means follows, that this depreciation will increase. The settlement of the Western States creates a vast market for manufactures, and a vast demand for mercantile exchanges. These require capital, which is more abundant in the older States. The older States, also, have, by nature, greater facilities for such employ- ments. Hence, the Western States will become their customers, and the older States will become thickly peopled with a manufacturing and mercantile population. Land will be in demand, for supplying the immediate wants of such a population, and it will probably again soon rise. Each manufacturing establishment will be- come a centre, which will confer a high value on land in its immediate vicinity. By the multiplication of such centres, the price of the whole will be augmented. I have thus far considered the price of land, only in so far as its mere productiveness is concerned. This will, of course, be the most ordinary and general cause of the variation in its price, and in its rent. There are, however, other circumstances, which have a material eflect upon its value, even in the same country, and un- der substantially the same laws. 1 . Beauty of situation. Of two farms equally pro- ductive, many men would give a decided preference to that which commanded a view of the richest and most beautiful prospect, or of which the trees and shrubbery were so arranged, as to give the greatest pleasure to the beholder. For this preference, most men would^ be PRICE OF LAND, OR RENT. 349 tilling to pay a considerably additional price. This ad- ilitional price will increase with the wealth and the im- proving tastes of the community. This is a circum- stance which should always be borne in mind by the occupiers and owners of land. It costs but little more labor to lay out an orchard regularly and beautifully, than to lay it out irregularly and clumsily. It costs nothing to let a tree stand, where it adds beauty to a nmspect, and it costs very little to plant one, where it will have the same effect. A neat and convenient house, consumes neither more lumber, nor nails, nor labor, than a slovenly and inconvenient one. And yet, on these differences, very much of the exchangeable value of 9 farm depends. 2. The price of land depends much on the intellectu- al and moral character of a neighborhood. Of two farms of equal productiveness, but in very dis- similar moral and intellectual communities, almost every* one would prefer tha^ which, in these respects, possess ed the greater advantages. A man who has in any de- gree cultivated his own intellect, prefers the society of those whose intellects are also cultivated. A parent would always prefer a neighborhood in which his children would receive the advantages of education. A man who ant whose store is in the centre of business, can easily sell ten times as much in a day as one who is half a mile off from the centre. Hence, he is able, from the mere fact of difference in situation, to realize a much greater annual profit in the one place than in the other. Foi this difference of productiveness, he will be willing to pay a price ; and, hence, in large cities, the most cen- tral situations, or, as they are called, the best stands for business, command a very high rent ; and a correspon dent price. A few square feet of land in the centre of the city of New York, will sell for more than many acres of the most productive soil in any part of the Union And, as the price of land, in such cases, is owing entirely to the demand for the purposes of facilitating trade, it can only rise with the increasing prosperity of the place. Hence, the rise or fall of real estate, in any town, if it be truly a rise in value, and not a rise from speculation, is one of the surest indications of its mercantile prosper- ity, or of the reverse. And, moreover, the rise of rents, in any given place, proceeds upon the same principles as those which we have already illustrated. Suppose the places of business, in a town, to be all occupied, with- in a given circle, and that they are sufficient for the ac- commodation of all the merchants who need them. If the town be prosperous, in five years, these accommo- dations will be insufficient, and buildings without this circle will come into demand for this purpose. Their rent, in consequence of this additional value, will rise. But this rise will be accompanied by a rise in the rent of the more favored situations. Those persons, whose employment requires a central situation, will occupy the centre, at a price which will exclude those to whom such a situation is less essential, and this process will go on, until those who are the least able to come into com- petition, pass out of the original circle, and thus create & new demand, and raise the price of rent as it has been before suggested. 2. Land frequently possesses an additional value, n consequence of its proximity to waterfalls. A water- fall provides for the manufacturer, a constant supply o r 35-2 RENT OF MINES. momentum, which he can u, but he can never have it again. If it be invested in reproduction this yeai , it may, by the next year, amount to one hundred and fifty dollars, and the year after, to two hundred dol- lars, and in twenty years it may become five thousand dollars. If it be spent on an entertainment, or a jour- ney of pleasure, it is lost, and all that it might have sub- sequently become, is lost forever. This should ba borne in mind by every man who wishes to rise to inde- pendence. Every dollar which is spent in self-gratifica- tion, is so much capital placed forever out of his power. And, on the contrary, every dollar which he invests in reproductive employment, may at any future time minis- ter to gratification, or it may provide the means of much more valuable gratification in subsequent life. Consumption is either of capital, or of labor. I. Consumption of Capital. The principles which we have already endeavored to illustrate, would suggest the following rules, respecting this part of consumption : 1 . Our consumption oj capital, in order to produce a given result, should be as small as possible. The ordi- nar) maxim is as true as it is common, a penny saved if a penny earned. In estimating the profits oT any oper ation, it is manifest, that he who Has produced a value worth one hundred dollars, at an expense of sixty dol- lars, reaps a profit of twenty dollars more than he who has produced the same value at an expense of eighty CONSUMPTION OF CAPITAL. 371 dollars. Thus, the farmer should economize to the ut- most all his materials. He who saves half a bushel of seed, in sowing an acre, enriches himself as much as though he had reaped half a bushel more per acre, h "s said that in China, sowing is always done by drilling. One of Lord Macartney's suite estimated that the saving, throughout the whole empire, from this improvement, is sufficient to feed the whole population of Great Britain. The same principle applies to mechanics, manufacturers; and all consumers whatever. It is, unfortunately, the case, that, from want of care and ingenuity, a much large/ portion of value is commonly consumed, than is neces- sary for the production required. This is specially ili6 case with fuel. Probably not more than one tenth of the heat giyen off by wood, is rendered serviceable by the common fire place. 2. We should employ capital, of no greater value than is necessary to effect the production intended. Hence, every producer should make it an object of in- quiry, to ascertain, so far as the present state of knowl- edge may enable him, in what manner he may effect his purposes, by the least costly materials The merchant, on this principle, should, before making an exchange, ascertain what is the cheapest product at home, with which he will be able to procure a given amount of a product from abroad. Very much of the success of a producer, must, of course, depend upon his skill in this, respect. The discovery of a cheaper dye stuff, of equal goodness, or the exchange of one export for another, may frequently, of itself, be sufficient to render a man independent. I do not, of course, suppose that any man will be so simple as knowingly to expend morn in production than he supposes necessary. To guaid him against this folly is not my object. . It is rather to incite every man to a more thorough and intimate knowledge of the principles, on which the operation which he con- ducts, depends. It is only by such knowledge, that improvements in the various departments of industry are to be effected. And hence we see the importance of knowledge, to every man in the community. 372 CONSUMPTION OF CAPITAL 3. It is important that every utility possessed by any substance, be entirely consumed. In order to secure this result, attention must be paid to two circumstances. First. All the fragments and remnants should be, so far as possible, employed to some valuable purpose. This principle is well illus- trated in the various uses to which the horns of cattle are applied. The horn consists of two parts, an out- ward horny case, and an inward conical shaped sub- stance. The first process consists in separating these two parts, by means of a blow against a block of wood. The horny exterior is then cut into three portions, by means of a frame saw. 1. The lowest of them, next to the root of the horn, after undergoing several processes by which it is ren- dered flat, is made into combs. 2. The middle of the horn, after being flattened by heat, and its transparency improved by oil, is split into thin layers, and forms a substitute for glass, in lanterns. 3. The tip of the horn, is used by the makers of knife handles, and of the tops of whips. 4. The interior or core of the horn, is boiled down in water. A large quantity of fat rises to the surface This is sold to the makers of yellow soap. 5. The liquid itself? is used as a kind of glue, and is purchased by the cloth dressers for stiffening. 6. The bony substance which remains behind, is sent to the mill, and, being ground down, is sold to the far- mers for manure. 7. The clippings and shavings, are also sold to the farmers for manure, or are used, in small quantities, for the manufacture of toys.* Now, it is evident, that if any part of this material were wasted, the cost of the manufactured articles would be higher, and the gain of the producer less. And, we also see that he who first discovered the mode of ren- dering any one of these portions of a horn useful, must, bj thib single discovery, have made himself rich. * Babbage on Manufactures. ECONOMY OF LABOR. 373 And, Secondly. Ml the values must be consumed in the mosl profitable manner. It frequently happens, that fi producer wants but one value from a substance for his particular purpose, while another and an important value remains unappropriated. It is always a matter of im- portance to employ, in the best manner, every value which a substance is known to possess. Thus, after we have derived from wood, all the heat which it can evolve, it leaves ashes, which possess an important value. After the oil has been expressed from flax seed, the residuum is valuable food for cattle. The employment of this utility, of course, lessens the price of oil, and increases the demand for it. Hence, we see the superiority of the economy of large establishments to that of smaller ones. A large manufacturing establishment, can carry on several distinct operations, for the sake of using these secondary utilities. In a small one, this would be im- possible, and much must in consequence be wasted Thus, in connexion with a large slaughter-house, I have seen a soap and candle manufactory, a manufactory of glue, and one of neat's foot oil ; while a large number of hogs was fattened with the refuse of these several estab- lishments. In this manner, every part of the slaugh- tered animal was profitably consumed. In small estab- lishment?, a large portion of these fragments would be wasted. II. Consumption of labor. The principles above illustrated would teach us : 1. To employ precisely as much labor as is necessary to accomplish the intended result. We should never employ more than is wanted. This generates idleness and negligence. One supernumerary laborer, is not only useless himself, but he generally re- quires the lime of two or three others, to bear him com- pany in idleness. We ahould never employ less labor than is wanted. This produces confusion, and destroys the advantages of correct division of labor. It saves nothing to em- ploy one person less than is necessary in an establish- ment, and to suspend the labor of others several t r mcs 32 374 ECONOMY OF LABOR. in a day, in order to do the work which that one shouU; have accomplished. In general, provided, of course, the work be well done, the less the consumption of labor the better for the producer. Hence, the economy of labor-saving ma- chinery. He who, by an ingenious contrivance, is able to save the hire of one laborer, will find himself, at the end of the year, richer by precisely this amount saved. 2. We should employ labor at no higher price, than is necessary to accomplish our object. Every important operation consists of several subor- dinate operations, requiring very different degrees of skill in their execution. According to these degrees oi skill, the wages of labor are adjusted. Now, economy demands, that labor of no higher price should DC em- ployed on each several operation, than the importance of the operation requires. He who Is able so to arrange his laborers, as to execute, by labor worth fifty cents, what was formerly executed by labor worth one dollar, makes a gain of fifty cents a day. Thus, in the power- press, the labor of press-work, which formerly employed two able-bodied men, is executed, in part, by animal force, or by steam power ; and the remainder by women. The reduction in price, thus effected, is very consider- able. But while this is the fact, it is also the fact, that it is never profitable to employ laborers incapable of accom- plishing the result. If a particular part of an operation require skill and labor worth five dollars per day, it is better to give this price than to confide it to an incom- petent person, who^s willing to work for two dollars per day Thus, a good painter of calico patterns, a good calico engraver, or dyer, may be cheaper at five dollars per day, than an inferior artist, even if the tatter would perform the labor for nothing. We hence see, again, the importance of an accurate knowledge of principles, to every one engaged in exten- sive production. Tt is by deep and thorough reflection upon every part of the process which he conducts, that a manufacturer is able to keep up with, and specially to . ECONOMY OF LABOR. 375 add to, the improvements of the age, and .o prevent himself from being undersold by his more enterprising and intelligent neighbors. 3. The labo paid for, should all be performed. Time, as it is frequently said, is money. It is surely money to him who pays money for it. And, of course, every hour for which he pays, that is spent in idleness or uselessness, is so much useless consumption ; or so much absolute loss. The causes of the waste of labor are various. Some of the more common are : 1 Want of superintendence. It cannot be supposed that laborers, if left alone, and if paid by the day, will labor as faithfully as if laboring for themselves. Hence, the necessity and the economy of efficient superinten- dence. He who employs twenty men by the day, to perform a particular piece of work, will find that an ef- ficient superintendent will, by preventing idleness, saun- tering, and story-telling, save much ropre than his wages. And, hence, I suppose that commonly, where the labor is of such a nature as to allow of it, it is cheaper to pay by the piece, than the day. In the one case, if a la- borer be idle, he wastes his own time ; in the other case, (he time of his employer. It is easy to perceive which case is the more favorable to industry 2. Irregularity. This is a great source of waste of labor. Where tools are allowed to get out of place, materials to be deficient or unsuitable ; or wh'ere several laborers are obliged to stand idle, to wait for the com- pletion of an operation which is done out of season, much time must, of necessity, be lost. In a shop con- in ining a dozen workmen, if each one spend, on an av- ( rage, half an hour a day in looking for misplaced tools, or in waiting for materials not at hand, this is a loss of more than half the wages of one laborer a day. This, in a year, woul'd be sufficient to purchase the clothes of ti small family. 3. Defective tools. In order that the economy of la- bor may be as great as possible, the tools by which labor s saved, should be as perfect as possible ; otherwise, . 376 ECONOMY OF LABOR. we derive only a partial benefit from the invention. Hf who employs a man to chop wood, would certainly see the importance of furnishing him with a sharp axe. He who erects a fence, to save the labor of guarding his cattle, will certainly do wisely to keep his fence in good order. It is surely less labor to mend a gap in a fence, than to be obliged to plant a field a second time, be- cause the grain has been destroyed by cattle, which that gap permitted to enter. It takes less labor to mend a leakage in a mill dam, than to rebuild the dam after it has been, by means of that leakage, carried away. Hence, we see the importance, of keeping every part of an establishment in perfect order, and of allowing nothing to be out of repair, if it be possible to repair it. " I remember," says Say, "being once a witness of the numberless misfortunes which a neglectful house- keeping entails. For the want of a small latch, the gate of the poultry yard was forever open, there being no means of closing it externally, and many of the poultry were lost in consequence. One day, a fine young pork- er made his escape into the woods, and the whole fam- ily, gardener, cook, milk-maid, &c., presently turned out in quest of the fugitive. The gardener, in leaping a ditch, got a sprain that confined him to his bed for a fortnight. The cook found {he. linen burnt that she had left at the fire to dry. The milk-maid forgot, in her haste, to tie up the cattle in the cow house, and one of the loose cows broke the leg of a colt, that was kept in the same shed. The linen burnt, and the gaiden- er's work lost, were worth twenty crowns, and the colt as much more, so that forty crowns were, in a few minutes, lost, for want of a latch that would not hav.T cost more than a few sous. 1 ' [Pol. Economy, Book 3d, chap. 5.] . Illustrations of the importance of having every instru- ment in order, and in place, are occurring in most es- tablishments every day. They teach us, that economy of capital, as well as of labor, requires, that every thing should be done in time, and in season ; that if a thing ECONOMY OF LABOR. 377 neec to be done lo-day, we have no means wlich shall enable us TO estimate the loss that may ensue, by put- ling it off until to-morrow ; and, that negligence is as much at variance with the laws of our Creator, as abso- lute wastefulness, inasmuch as it exposes us to equally severe punishments. It would be well, if men would remember this, not only in the affairs of this life, but si ill more, in the affairs of another. Supposing now that both labor and capital have been invested upon the most economical principles. The object for which they have been thus invested, is the creation of products. Hence, the greater this product is, the more successful the investment, the better is it for the individual, and the better is it for the Commu- nity. The object of the farmer is, with a given soil, a given expenditure of labor, of seed and of manure, to raise the greatest amount of value, in a harvest. This will generally, though not always, be as the quan tity. Fifty bushels of common apples will not sell for so much^is forty bushels of good ones. One hundred pounds of coarse wool, will sell for much less than one hundred pounds of fine wool. Hence, his object should be, from a given expenditure, to derive the greatest amount of profit. It is, by thus adjusting his expenditure, and thus calculating the results, that an intelligent and thoughtful farmer will grow rich ; while all around him are remaining stationary or are growing poor. So, it is the business of the manufacturer to create, with a given expenditure, the greatest amount of value. If he can succeed in giving to his cloth a better dye, 01 m produce a more durable or a more tasteful fabnc, or can adapt it better to the satisfying of any human want, its value is, by so much, increased, and he and the community are the better for the increased value of his production. It is evident, that, in order to do this, a systematic knowledge of the principles of any employment is ned?s- sary to the individual by whom it is carried on. A man, n order to be a skilful producer, must be acquainted 32* 378 ECONOMY or LABOR. with the laws of production that is, those laws of na- ture and of society, which govern the transaction in which he is engaged. Hence, we see the importance of accurate knowledge, and sound mental discipline, to all the classes of society. We see, in the above remarks, another illustration of ihe truth, that the benefit of one is the benefit of all, and the injury of one is the injury of all. If a man economize labor and capital, he increases his own wealth, and he also rescues as much as he saves, from actual destruction. The whole of this amount may go to the further increase of production, or to the satisfying of human wants. The more he produces, the greater is his wealth ; and the greater is the value which is created for the good of the whole community. Hence, we see, that he who is honestly promoting his own welfare, is also promoting the welfare of the whole society of which he is a member. And as it is manifestly for the interest of the individ- ual, so is it for the interest of the society, that every producer should consume as little value, and produce as great value, as possible. Hence, we see the impolicy of those restrictions, which will not allow the individual to purchase and to sell where he pleases. If he must give a higher price than is necessary for his material, this is, by the difference, unprofitable consumption. If he cannot dispose of it where he pleases, this is, by so much, unprofitable production, because he is unable to realize from his production as much as he would be able to realize, were he left to himself. OF PERSONAL EXPENSES. 37'J SECTION II. Or CONSUMPTION FOR THE GRATIFICATION OF DESIRE. By means of the productive consumption above treat- ed of, a man procures the means for this second kind of consumption This means, however, it is always to be remembered, does not consist of his whole production, but only of the excess of production over consumption If he live on capital loaned at interest, the case is the same. The money loaned is, for the time, consumed. The interest paid, is the excess of the production over the consumption, and this, of course, is all that he can appropriate to the gratification of his desires. Consumption for the gratification of our desires, may be considered from two points of view. First. Without reference to the circumstances of the individual, or lp the relative value of the various modes of gratification : and, secondly, with reference to these circumstances. I. Of consumption without reference to the circum- stances of the individual, or the relative value of the mode of gratification. These purposes have been already alluded to. They are generally comprehended under the following partic- ulars : Expenditures for the necessaries and conveniences of living, as food, clothing, and shelter ; lor the gratification of the senses and the tastes ; for the pleasures of intel- lect ; for the pleasures of society ; and for moral pleas ures. Under one or other of these simply, or under 'seveial of them combined, I believe almost all of our expenditures may be classed. Now if these be considered, irrespective of our cir- cumstances, or of the intrinsic value of the gratifications themselves, the principles of expenditure, will be, essen- tially, th<: same as those which have been already illus- trated. That if- to say, if a particular mode of living 380 OF PERSONAL EXPENSES. or the enjoyment of a particular gratification be determin- ed upon, whether that determination be wise or unwise, economy teaches us to obtain it most perfectly, and at ihe least possible expense. The question of its wisdom or folly, belongs to another part of the subject. A par- licular mode of living having been resolved upon, econ- omy will teach us to sustain it, at the least possible expense. Hence, in regard to capital, the rules will be 1. That the consumption of values be as small as \i consistent with the accomplishment of our purpose. This is opposed to several* errors. To purchasing more of any value than is wanted. The articles ordinarily consumed in a family, are rapidly destructible. If more be purchased than is wanted, it is liable to become useless, and, in this case, the loss of this excess is total. By having a superabundance of any thing consumable, it becomes, in the eyes of those who use it, less valuable, and is used less carefully. And, if neither of these results be experienced, if an article be purchased a year before it is wanted, the pur- chaser loses the interest, for a year, of the money expend- ed. Hence, it is generally as economical to purchase at retail, as at wholesale. Hence, it is commonly wasteful to purchase any thing because it is cheap. If a man need any thing, its cheap- ness is a reason why he should buy it, but if he do not want it, its cheapness is no reason at all. A man may buy stones very cheap, but it is doubtful whether he would be either enriched or made happier by the pur- chase. Many a garret is filled with great bargains ; which ware purchased because they were cheap, and then laid away to rot. 2. The consumption should be as perfect as possible. When we have possessed ourselves of a substance, it should not be thrown away, until every utility which it possesses, has teen exhausted. Thus, an aiticle -of clothing which will not answer any longer for one purpose, may answer very well for another. An article of food, which may not be used in one form, may be used in some other form. And OF PERSONAL EXPENSES. oSJ hence, in general, nothing should come into a house, un- less it be wanted, nor in a larger amount than it is want- ed ; and nothing should leave it, until ah 1 its utility is exhausted. 3. All the means should be provided for the most perfect production and consumption of values. Hence, every useful utensil should be furnished, and should he the most perfect of its kind. It is cheaper to buy a coal-hod, than to carry coal in a basket, and, by saving a dollar in a utensil, ruin a carpet worth fifty dollars. If is cheaper to have every description of culinary vessel that may be needed, than to have food spoiled by being cooked in an unsuitable instrument. It is cheaper to have a bad fire place altered, at an expense of fifteen dollars, than to consume annually ten dollars more worth of wood than is necessary. Hence, it is also important, that every article pur- chased be of such a nature as will admit of the most profitable consumption. If a man buy fuel which gives off" very little heat, because it is at a low price, it is by no means certain that he has made a successful pur- chase. It should always be remembered that we want a given amount of utility, and not the mere form in which it seems to reside. It is cheaper to purchase a dollar's worth of utility for a dollar, than half a dollar's worth for seventy-five cents. Hence, the lowest priced products are by no means always the cheapest. The same principles apply to labor. Economy directs, that in a household, we should pur- chase as much labor as we x need, and of the kind that we need, but no more than we need. When we pay for useless labor, we throw money away ourselves. When we employ incompstent labor, we pay others to throw it away for us. These, I suppose to be the principal circumstances, which should govern our expenditures. And, it will be seen, that they apply to all the conditions of men. Whether our expenditure be large or small, it should be conducted with economy. The object to be- attained ; s, to secure as large an amount of gratification, at aa 382 OF PERSONAL EXPENSES. small an expenditure as possible. To the man who has but two hundred dollars per year to spend, it is cer- tainly important to spend it economically. To the man who has ten thousand dollars per year, it will generally be found convenient. Hence, it will be seen, that, in order to enjoy the comforts or the luxuries of life, at the least expense, care and superintendence, and knowledge of the various operations performed in a household, are absolutely ne- cessary. And as this department of consumption in gen- eral, devolves upon the mistress of a family, we see how important to the execution of it with success, must be vigilance, care, intelligence, and industry. The husband, by the employment of capital, labor, and skill, in pro- ductive consumption, secures an annual revenue, for the purpose of consumption in the various means of gratifi- cation, whether necessary or superfluous. The expen- diture of this annual revenue, or the making of those arrangements which govern the expenditure, generally devolves upon the wife. If that expenditure be made without economy, either the gratifications which it might procure, are never enjoyed ; and, by all the consumption, neither comfort nor pleasure is, obtained ; or else, if the gratification sought for be obtained, it is obtained at an expense absolutely ruinous. Hence, it will be seen, that the physical comfort, as well as the means of hap- piness of both parties, depends more on the domestic education of the female sex than is ordinarily supposed. Affection will rarely exist in the atmosphere of self- iinflicted poverty. No man can respect a woman, by whose caprice, and ignorance of her appropriate duties, he is plunged into disgraceful bankruptcy, and wedded to hopeless penury. Nor let it be supposed that no tal- ent is requisite skilfully to superintend a household. If requires, at least, as much ability to direct, with skill, and on principle, the affairs of a domestic establishment, as to select a ribbon or dance a minuet, to finger a piano or to embroider a fire screen. II. Consumption considered in respect to the relative value of the desire. OF DIFFERENT MODES OF CONSUMPTION, 383 The various objects of desire, by the possession of which our happiness may be promoted, may, with suffi- cient accuracy for our present purpose, be divided into moral, intellectual, social, and sensual. The attainment of happiness from either of these, commonly involves some expenditure of time, or of property, or of both. Thus, we cannot by reflection, improve our own hearts, without the consumption of '.ime, nor cultivate our benevolent sentiments without the consumption of property. The improvement of om minds by reading and study, demands both time and books. We cannot enjoy the society of our friends, without the consumption of both time and property. And every one knows that the gratification of our sens- es, whether intellectual or corporeal, consumes a large portion of the income of every individual. It belongs to the teacher of ethics, to show in which mode of expenditure a man may best secure his future happiness, and act most worthily of the moral nature with which he is endowed. The political economist looks upon the various modes of expenditure, simply as they affect the wealth of the individual, and of the pub- lic. Yet, even in this view, it may not be inappropriate to offer a single suggestion. Inasmuch as we have been created with aptitudes for all these different modes of happiness, it is manifestly the intention of the Creator, that we should enjoy, not merely one but all of them. As we are not merely sensual, but also moral and intel- lectual beings, it is as reasonable tbat we should expend a part of our time and property, in the pursuit of moral and intellectual, as that we should spend a part of it, in the pursuit of sensual gratifications. He who argued from the superior dignity of our nature over that of brutes, might perhaps urge that the former was tne more reasonable mode of expenditure. But the dignity of the rm e not belonging to the province of the political econ- omist, we shall not consider the subject in this point of view. The principles upon which political economy would tar.h us to select our modes of gratification, are, I sup 384 OF DIFFERENT MODES OF CONSUMPTION. pose, the following. First. Where the amount ol gratification in two cases is equal, it is wise to choose that which is the least expensive. The reason for ihij is loo obvious to need much illustration. If a particular gratification can be procured for one hundred dollars, and another, which will afford an equal amount of happi- ness, can "be procured for ten dollars, the cheaper is to be preferred ; because, while, in this case, we obtain an equal gratification, we have ninety dollars remaining with which to purchase other objects of desire. Secondly. When two modes of gratification are, in themselves, equally productive of happiness, but of which, one tends to the wealth, and the' other to the poverty, both of the individual and of society, the former is to be preferred. Thus, if it cost the same sum to spend an evening in in- tellectual improvement, that it would cost to spend it in a drunken frolic, and the pleasure in the two cases were the same ; inasmuch as intellectual cultivation tends to knowledge, which is a valuable consideration to every producer, and a drunken frolic has no such tendency, economy would teach us to spend the evening in intellec- tual cultivation. 9 If, now, we compare the various modes of expendi- ture most common among men, I think that we shall find, that the economy of the moral and intellectual pleasures is somewhat overlooked. The expenditures for all the real wants and conven- iences of a human being, may, by industry and frugality, without great difficulty, be supplied. It does not cost much, to provide all that we need for wholesome and palatable food, for comfortable clothing and shelter, and for all the furniture demanded for convenient domestic arrangements. Our greatest expenses are for those ob- jects, which yield no other utility than the mere gratifi- cation of the senses, or, which are rendered necessary, by command of fashion, or the love of ostentation. Thus, in the purchase of a garment, or of an article of furniture, a part of the price is paid for the real utility which it possesses, and the remainder for that particular form, or color, or workmanship, which is designated b_y OP DIFFERENT MODES OF CONSUMPTION. 385 fashion. Now, it frequently happens, that this lattei portion of the price is far greater than the former. The same may be said of many of our expenses of the table, and of various others. Now, that men should not, if they have the ability, in any manner gratify their senses, and yield obedience to fashion, it is not necessary here to affirm ; nor is it ne- cessary that political economy should prescribe the limit, within which these gratifications shall be confined. A few considerations, for the sake of illustrating the com- pletive economical advantages of other modes of grati- fication, is all that will be here attempted. 1. Moral and intellectual pleasures are by no means expensive. To spend time in moral cultivation, is uo more expensive than to spend it thoughtlessly and frivo- lously. The time consumed in thoughtless dissipation, if employed in moral culture, would be sufficient to effect great changes in our habits and tastes. The pleasures of benevolence, so far as pecuniary consumption is concerned, are less expensive than those of the senses. Were the sums lavished in thoughtless caprice, in obedience to fashion, or in the gratification of appetite, to be reserved for charity, how great an amount of happiness might be created both in the bene- factor and the recipient. The same may be said of intellectual pleasures Books, and all the means for intellectual gratification, may be had at an expense within the reach of a very large class of the community. The useless ornaments of a drawing room, would frequently purchase a consid- erable library. The sums of money annually paid, by most families, to satisfy the demands of fashion, would piovide them with as much reading as they would desire. Now, when these two kinds of pleasure are equally set before us, and when the one may be procured at so much less expenditure than the other, it surely is worth the attention of every man, deliberately to inquire by which mode of investment he will best secure his own happiness. There seems something ill-adjusted, when the habitation of a moral and intellectual being, remind? 33 396 OF DIFFERENT MODES OF CONSUMPTION. us of every thing else than, lhat he is either moral or in tellectual. 2. Moral and iniellectual pleasures tend to the wealth both of the individual and of society. The exercise of benevolence has several important economical tendencies. For instance, it tends directly to cultivate the habits of self-denial and self-government, which are so essential both to industry and frugality. Sensual self-indulgence tends directly to produce both indolence and capricious and reckless expenditure. Again. The habit of benevolence tends to moderate and correct that intense love of gain, which is so fre- quently the cause of ruin to enterprising men. In the management of any hazardous business, he will be the most likely to succeed, who looks with entire coolness on the chances of loss and gain. The too eager, gov- erned by their imagination, rush into needless danger. The too cautious allow a fair prospect of advantage to pass by unimproved. The one is as liable to fail as the other. He who, by the practice of benevolence, has learned a more accurate estimate of the blessings of wealth, will more probably than either, judge correctly. The miser and the sensualist will fall into opposite ex- tremes, one upon each side of him. Besides, the social benefits of benevolence are incal culable. It unites together the various classes of men by the strong ties of affection and gratitude. By bring ing all classes of men more directly under the view of the whole mass of society, social responsibility is in creased, and the encouragements to virtue and the re- straints upon vice are strengthened. When the rich are hard-hearted and luxurious, the poor are disaffected, anti-social, and destructive. In so far as benevolence, therefore, tends to the improvement of the social dispo- sitions of men, it may lay claim to great economical ad- vantages. And the same is true of intellectual pleasures. A man cannot enjoy these without improving his mind, and rendering it a more valuable instrument both for the pro- duction of his future happiness, and the accumulation of OP DIFFERENT MODES OF CONSUMPTION. 387 wealth. Knowledge is power, in what sphere of life soever it be exerted. The gratification of the senses enervates the body, enfeebles the mind, and tends to render intellectual exercise unpleasant, and to unfif us for any importan r>i highly responsible exertion. CHAPTER THIRD OF PUBLIC CONSUMPTION SECTION I. OP TAXES, OR THE MANNER IN WHICH PUBLIC EXPENDITURE IS PROVIDED FOR. WE have thus far treated of individual consumption, or of that destruction of values effected by the individ- ual, in the accomplishment of his own purposes ; and for the gratification of his own desires. But, all the capital produced by a society, is not expended in this manner A part of the annual revenue of every individual, is con- tributed in some manner to the public, and is expended by the agents of the public, that is, by the government. This part remains to be treated of, under the head of public consumption. This expenditure is provided for by means of taxation. When a given sum is to be raised for the accomplish- ment of any object, it is, by some mode of assessment, distributed among the various individuals of the commu- nity, and every one is obliged to pay the proportion with which he is charged. The sum thus collected is then, for the accomplishment of particular purposes, consumed by the agents into whose hands it is delivered. The consumption itself is of precisely the same nature as that effected by individuals, that is, the value is destroyed ; and the utility consumed, is annihilated. If an individual burn gunpowder, the value in time and material by which it was produced is destroyed ; if a hundred or a thousand men do it, the result is the same. If a man in the dig- ging of a ditch consume the labor of a thousand work- OF PUBLIC EXPENDITURE. 389 men, and use the provisions necessary for their susten- lation, the whole value, thus expended, is annihilated. And if a thousand men unite in the undertaking, the an- nihilation is the same. This is really so evident, that to illustrate it at length seems almost childish. Does any one doubt when a house is burnt down, whether the value of a house is or is not consumed, because the owner did not set fire to it himself. Does any merchant doubt, whether his property is diminished or not, when it has been wasted by a profligate clerk ? In a word, govern- ment is nothing but a system of agencies ; and property consumed, by the government, is as really consumed, and its value as really destroyed, as though the individual citizens consumed it themselves. Now, this being the fact, the rule by which consump- tion is to be judged of, is precisely the same, whether it be public or private. If the product created by the consumption, whether that product be material or imma- terial, be of greater value than the product consumed, it is profitable consumption ; that is, the public receive in return a greater value than they parted with. If a less valuable product be created, than is consumed, it is un- profitable consumption, and the value might better have remained in the hands of individuals. If no product whatever be realized, it is a total loss ; and the value taken from the individual might as well have been thrown into the sea. Nay, had they themselves thrown the val- ue consumed into the sea, there would have been a gain, in the amount of the expense of collecting and consuming it. And still more, if the value consumed produce no valuable result, but, on the contrary, be employed to promote the purposes of oppression and misrule, iho evil is enormous. The possessions of the individual aro taken away, not only without rendering him an equiva- lent, but for the sake of employing other men to torment liiin, and deprive him of his dearest rights. It is very frequently asserted, that public expenditure enriches a country, or that, at least, it is wholly inno- cent, since it quickens the circulation of money, and does no harm, inasmuch as all the money always remains 33* 390 CK PUBLIC EXPENDITURE. in tne country. To obviate such an objection, let u> trace, from first to last, the passage of a product towarda ultimate consumption, on the public account. The gov- ernment exacts from the tax payer, the payment of a given sum in the shape of money. To meet this de- mand, the tax payer exchanges part of the products at his disposal, for coin, which he pays to the tax gatherer. A second set of government agents is busied, in buying, with that coin, clothing and other necessaries for sol- diery Up to this point, there is no value either lost or consumed ; there has only been a gratuitous transfer of value and a subsequent act of barter, but, the value con- tributed by the citizen, still exists in the shape of stores and supplies in the military depot. In the end, how ever, this value is consumed, and then the portion of wealth which passes from the hands of the tax payer, into those of the tax gatherer, is destroyed and annihilated " Yet, it is not the sum of money, that is destroyed ; that has only passed from one hand to another, either with or without any return, as, when it passed from the tax payer, to the tax gatherer ; or in exchange for an equivalent, as when it passed from the government agent to the contractor, for clothing and supplies. The value of the money survives the whole operation, and goes through three or four, or a dozen hands, without any sen- sible alteration. It is the value of the clothing and ne- cessaries that disappears, with precisely the same effect, as if the tax payer had, with the same money, purchased clothing and necessaries for his own private consump- tion." * The consumption, then, is of the same nature, wheth- er it be public or private. It is a destruction of value ; and the rule, by which we are to determine whether it be profitable or unprofitable, is the same in both cases. It is, by inquiring, whether the benefit created by the consumplion, is greater than, equal to, or less than, the ralue of the product consumed. While, however, this rule is always to be adopted, it is. as in the case of individual consumption, to be inter- Say OF PUBLIC EXPENDITURE. 391 preted with a liberal and intelligent forecast. It must not, of course, always be expected, that the product created by consumption, will be a visible, tangible, ma- terial substance. Thus, we see no physical, tangible product, as the result of taxes for the support of civil government. But, we receive the benefit in security of persons, property, and reputation ; or in that condition of society, which, though it be incapable of being weighed and measured, is absolutely essential both to in- dividual happiness, and individual accumulation. The same may be said, in substance, concerning the taxes paid for general education. Here, whether the tax pay- er receive his remuneration in instruction given to his own children, or not, he yet receives it, in the improve- ment of the intellectual and social character of his neigh- bors, by which his property is rendered more secure, the labor for which he pays is better performed, and the demand for whatever he produces, is more universal and more constant. The same may be said of that public expenditure, by which the moral and social character of a community is elevated, the taste of a nation refined, and an impulse given to efforts for the benefit of man. iVitli this view, no one could oppose the expense incur- red in bestowing upon public edifices elegance, or even, in some cases, magnificence of structure ; in the public celebration of remarkable eras ; and ii> the rewards be- stowed upon those who have by their discoveries enlarged the boundaries of human knowledge, or, by their inven- tions, signally improved the useful arts. Political Econ- omy is opposed to none of these forms of expenditure ; all that she requires is, that a valuable consideration be received in return for the consumption ; and that the consumption be rot disproportionate to that considera- tion. Of Ike different modes by which the public expendi- ture is provide'd for. Taxes are of two kinds, direct and indirect. A direct tax, is a certain amount assessed upon every individual, in proportion to the property which he is known to poster. In many of the towns of New Kng- 392 OF PUBLIC EXPENDITURE. land, an annual tax list is made out, in which the portion which every taxable inhabitant must pay, towards sup- porting the expenses of the district, is specified. The apporiionment is made out by persons appointed for thn purpose, .called assessors. If any individual consider himself as taxed too highly, he is at liberty to appear, and declare up_on oath, the amount of property of which he is possessed. His assessment is then graduated, ac- cording to the amount to which he has sworn. An indirect tax, is levied upon articles of production, at some period during their passage from one possessor to another. Thus a tax, or as it is called a duty, is laid by this country on various goods imported from abroad, immediately on their arrival. This duty is paid by the merchant who receives them ; and he adds this duty to the cost of the goods, when he sells them to the next purchaser. Thus, the price of the product is raised, by this amount, when it comes into the hands of the con- sumer. If broadcloth pay a duty of two dollars a yard, he who buys a yard of broadcloth pays two dollars a yard more for it than he would pay if there were no du- ly to be paid. If coal be taxed two dollars a ton, as it is at present, every consumer of foreign coal pays t\\% dollars a ton more than he would pay if no such tax were exacted. The effect of this tax is also to keep the price of all ether coal two dollars a ton higher than it would otherwise be. Now, supposing the same sum were to be demanded for the service of the public, it may be asked, which mode of raising it is to be preferred. In favor of an indirect tax it may be urged, that it is taised with more convenience, and less liability to per- sonal collision, between the tax payer and the tax gatherer. The imports of a country are all received at a comparatively small number of places; denominated ports of entry. Goods arriving at these places are all charged with the duty on their arrival ; and thus, the co.- lection may all be accomplished in a short time, and with very little trouble. Besides, as the importer, who OF PUBLIC EXPENDITURE. 393 pays the duty, receives it back again from the purchaser of the goods, it seems to him a matter of small impor- tance whether it be high or low, and he is disposed to make but little trouble about it. The case is the same with every succeeding purchaser, until it comes at lasl to the consumer. The consumer may feel that the prod- uct is dear, but, if it be no dearer than it has been be- fore, he thinks but little about it ; and, if it*be some- what dearer than formerly, the rise and fall in the price of goods is so common a thing, that he imputes the dif- ference to any other cause, as soon as to the additional duty paid to the government. Hence, it is frequently said, that people do not feel an indirect tax, which means, I suppose, that they do not know, either how much they pay, or when they pay, or whether they pay or not. On the contrary, it is, doubtless, the fact, that men feel direct taxes more sensibly, that is, they know when they pay them, and how much they pay. Here, then, is liability to ill feeling, and sometimes to resistance ; and, moreover, there is a possibility, that an excessive parsimony may restrict the public means in such a man- ner, as to prevent the execution of works of real utility, if not of imperative necessity. There is, however, a greater liability of injustice in indirect than in direct taxation. As, when duties are laid upon goods, the tax payer knows very J'ttle of the amount paid, and is hence less careful to inquire on what principles the revenue is raised ; there is a greater opportunity, afforded, in this manner, of imposing the public burdens unequally, and of imposing them for purposes at variance with the principles of the social fompact. Hence, a majority may impose taxes for the benefit of a part, and not far the benefit of the whole ; and the matter can easily be so mystified, that the suf- ferer can excite but little sympathy. I do not deny that direct taxation is liable, in some cases, to the same abuse, as, for instance, when the city and country inter- ests strive M shift the burden of taxation upon each oth- er. I onl) say, that the evil is not so liable to happen 394 OF PUBLIC EXPENDITURE. in the one case as in the other, and when it does hap- pen, it is more readily exposed. Aside from the irregularity in the assessment of indi- rect taxes, it may be observed, that, in their very nature, they are liable to objection, because they do not im- pose the public burden in any manner in proportion to the share which the individual receives of public pro- tection. The indirect tax is paid by the consumer. Hence, he pays, not according to the benefit which he receives from the existence of civil government, but ac- cording to the amount of production which he consumes. Hence, he who possesses a million dollars' worth of property, if he consume no more than he who lives by his daily labor, will pay no larger share of the public bur- den. Hence, a manifest inequality is involved in the original conception of an indirect tax. The same remark may, however, be applied in part to direct taxation. It may be said, that the tax payer here raises his price, in such a manner that he only pays a part of the tax assessed upon him, and that the remain- der is paid by the consumer. This is, in part, true, but I fchink not by any means to the extent that it is true of indirect taxation He whose actual property is taxed, cannot raise the price of his commodities, with such ac- curacy as the merchant, but must bear his proportion without the ability of so readily shifting it upon another. Hence, direct taxes, if equally imposed, are commonly more just ; that is, they derive the support of govern- ment from the individuals, more in proportion to the degree of benefit which each derives from the govern- ment. In favor of direct taxation, it may also be added, thai it is decidedly more in harmony with the genius of a re- publican or representative government. Such a govern- ment, proceed* upon the principle that the people are the fountain of power, and are competent to govern them- selves. Now, such a government ought not, surely, to act upon the directly opposite principle, that the people oughf no/ to know what they pay, or when or how they pay. They are the party, from which, especially, noth- PRINCIPLES OF TAXATION. 895 ing of this sort should be concealed. They should enow what, and how much, they contribute ; and, also, in what manner whatever they contribute is expended, it is in this knowledge, and in the judicious use of it, that their safety consists. To me, therefore, the consid- eration, so frequently urged in favor of indirect taxation, that the people do not feel it, is one of the strongest arguments against it. The more a people feel taxation, and the more jealously they watch over the public ex penditure, the better it is for them dnd for their rulers. Of the principle by which taxation should be regu- lated. I have already stated that the several members of a society, should be taxed in proportion to the benefit which they receive from a government. Thus, if a government protects for one man, one hunared thousand dollars' worth of property, and for anotner only one thousand dollars' worth, the former should pay one hun- dred times as much towards the public expenses, as the latter. So far as this is evidently just. But it may be questioned whether justice might not go somewhat fur- ther, inasmuch as, a percentage of his income, which would not abridge even the luxuries of the rich, might materially curtail even the necessaries of the poor. But whether the rich ought to be taxed more than a pro rata proportion or not, I think it evident that taxes should be so arranged, that individuals should, in so far as possible, pay in proportion to their properly ; that is, in prc por- tion to the amount of protection which they receive of the government. Now, inasmuch as indirect taxation, if laid indiscriminately, would apportion the public bur- den on no such principle, it is evident that such taxa- tion should be made discriminately ; that is, that article* of necessity should be either exempt from taxation, or taxed very lightly ; and articles of luxury, or those used chiefly by the rich, should bear the greater part of the burden. This would lead us to the following conclusions : I Property below a certain amount, might very properly be exempt from taxation. 396 PRINCIPLES OF TAXATION The poor man's clothes and bedding, his cow and Ins pig, should never be enumerated among taxable prop- erty. 2. The necessaries of life, if taxed at all, should be taxed at the lowest rates. Of these, the rich and poor must consume nearly equal quantities. But they con- sumt only a fraction of the rich man's income, while they consume almost the whole of the poor man's earn- ings. A tax on bread stuffs, fuel, coarse clothing, or iron, diminishes, essentially, the comforts and even the necessaries of life, of a very large proportion of every community. 3. Taxation should be the heaviest upon articles of luxury and ostentation ; not for the sake of interfering with these modes of pursuing happiness, but because those who are able to expend in this manner, are able to bear, with the least inconvenience, the expenses of gov- ernment. The conveniences of living, and the means of accumulation, should bear the next portion of the bur- den. He who is able to furnish himself with the con- veniences of living, is always able to pay a portion of the expenses of government ; and he who possesses means of accumulation, can always devote some part of that which is annually accumulated, to pay for the protection which he receives. Thus, carpeting, is a more 6t sub- ject for taxation than bread stuffs or fuel. Thus, also, a farmer's wagon, or a merchant's ship, may justly be taxed, but they ought not to be taxed in the same pro- portion as a gentleman's coach. I have spoken of the expenses of civil society, as a public burden. It ought, however, to be remarked, that this is one of the burdens which a good citizen should be the most willing to sus- t:;in ; as it is a mode of expense, for which he receives a mosi 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 in return 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 lhat v hich is annually expended in journeys of pleasure, EXPENSES OF CIVIL GOVERNMENT. 39? in luxuries of the table, in ornaments of dress, nay, in profligate amusements, and vicious indulgences. Every g,ood citizen, while he is under obligation vigilantly to watch over the manner in which public money is appro- priated, is bound to contribute, cheerfully and liberally for every purpose required by the public good. ft will scarcely be necessary to add, after what has been said, that a surplus revenue is a public nuisance It gives to the government a control over the monetary affairs of the country, at the best, dangerous ; and a con- trol which is very liable to be exerted for the promotion of party purposes. It hence gives an additional, an un- necessary, and a dangerous power to a majority, and gives them the means of perpetuating that power, indefi- nitely. It is taking productive capital from the hands of the owners, and vesting it in hands where there is every temptation to spend it uselessly, if not viciously. The world has never yet seen a government so pure, that it would not become corrupt, if a surplus revenue were permanently placed at its disposal.* SECTION II. OF THE PURPOSES FOR WHICH THE PUBLIC REVENUE IS COMMONLY EXPENDED. The funds of the public, after they have been col- lected, are most commonly expended for some or foi all of the following purposes. The support of Civil * Of that portion of the late surplus revenue which has bten dis- tributed among the States, the greater part has already been appropri ated to intornal improvements of very doubtful utility. No man can look upon such a waste of property without pain, especially when h* remember*, that those millions were raised by obliging the poor man to pay a higher price for his coat, his axe, his loaf of bread, his salt, and Ilia fuel 34 398 EXPENSES OF CIVIL GOVERNMENT. Government ; Education of ihe people ; The mainten- ance of the institutions of Religion ; National improve- ments ; Pauperism ; and War. Of these, we shall now proceed to treat in their order. The principles which we have already illustrated, will, however, render it un- necessary to consider them at great length. A few re- marks upon each, will be all that we shall here attempt I . Of expenses for the support of civil government. This is by far the most necessary of any of the objects of public expense. Without government there could be no society ; and without society, there could neither be redress of wrong, nor security of property. But government cannot be administered without officers, and no one will devote himself to the discharge of the duties of civil office, unless he be paid for it. The principles which should govern this branch of ex- penditure, are therefore few and simple. 1. Economy requires, that precisely such talent should be employed, in the various offices of civil government, as may be necessary to insure the discharge of the duties of each office, in the best possible manner. Many of these offices, can only be discharged successfully, by the first order of human talent, cultivated by learning and dis- cipline, and directed by incorruptible integrity. Now it is certainly bad economy, to employ inferior talent to do badly, that which can only be of any service when it is done well. 2. Hence, the salaries of judicial, legislative, and ex- ecuti"e officers should be such as will command the ser- vices of such talent as the duties of each office require. It is most unwise parsimony, to give to a judge such a salary as will command the services of nothing more than a third rate lawyer ; and it is mean to ask an indi- vidual to do a service for the community, at a lower rate than that at which he would do it for an individual. In answer to this, it may be said, that, by bestowing large salaries upon the officers of government, we pre- sent temptations to avarice. But, I reply, the reduction of salaries, by no means diminishes the evil. Were emolument to be reduced, there would always be a con- EXPEN&Eb FOR EDUCATION. 399 test for office. The only question then is, whether we shall have the contest between men of high or between men of low character ; between those who are capable of serving us to our advantage, or those who are only capable of serving us to our disadvantage. Were the most important trusts in the government to command no higher salaries than the wages of day laborers, there would be as great competition for them as at present ; only, then, the contest would bit between day laborers, instead of being between men of professional ability. Here, however, I am willing to allow that the princi- ples of wages formerly illustrated, should have their full effect. For instance, where an office confers rank, or dignity, or indicates professional eminence, the emolu- ment should be less than would otherwise be paid for the same amount of service. Again : when an office is per- manent, the emolument should be less than when it is temporary. But, on the other hand, if it be insisted upon, that neither rank nor consideration shall be allowed to the public officer, but that all men are and must show themselves to be, on a level ; the remuneration of office should be higher. And also, when an office is tempo- rary, and the having held it, disenables the incumbent for subsequent professional employment, the remunera- tion should rise accordingly. In such cases, a pension should be attached to the office, if its duties, for a ^,iven time, have been faithfully discharged. II. Of expenses for the purpose of education. I . Education 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 pur- suit of the ordinary occupations of life. This is a proper object for national expenditure, because it is for the interest of every man, that every other man should be acquainted with the elements of learning. Specially is this the case in a representative government. A question, however, occurs, both as to the manner in which such a revenue should be raised, and the man ner in which it should be distributed. It may, for in stance, be raised like any other tax, and paid into the 400 EXPENSES FOR EDUCATION. public chest, and the teachers be paid as officers of the government. Or, it may be raised in the different dis- tricts in which the schools are to be supported, and pid 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 lively interest maintained in behalf of the schools, the appropriation of money will be more vigi- lantly 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 se- lection 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 obliged 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 each district itself, in the belief, 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 estab- lished for the special purpose of educating them. This will give uniformity to the system of instruction, and enable the science of education, throughout a whole community, the more easily to keep pace with the pro- gress of science, in other departments of knowledge. 2. Of scientific education. That the cultivation and the diffusion of science is greatly advantageous to a whole community, does not, I trust, require proof. Nations are, at present, princi- pally enriched by the result of discovery and invention ; and in consequence of the general diffusion of knowledge and intelligence. That a portion of the national revenue EXPENSES FOR EDUCATION. 401 should fce directed to the promotion of these objects, seems both equitable and wise. As both the cultivation and the diffusion of science may be performed by the same individuals, and, as the same instruments are needful for both purposes, these two objects have been commonly united. The design of an establishment for scientific education is two fold. 1st. To diffuse abtoad the knowledge already existing; and 2dly, to add to the amount of knowledge that now actually exists. Seminaries of learning have rarely been successful in accomplishing either one of these objects, when they were not also successful in accomplishing the other. The only question to be considered here, K this ; in what manner, at the least expense, may a gov- ernment promote the cultivation and diffusion of science, by means of seminaries of higher education. 1. I have remarked, when treating of production, tl.at the instruments, the books, and the buildings necessary for the accomplishment of these objects, are very ex- pensive, and can rarely be possessed by individuals Or, if they were possessed by individuals, the cost of the investment would render education so expensive, as to restrict it entirely to the rich. Hence, we see tha public provision for scientific education, instead of ben- efiting the wealthy, is, specially, a benefit to the poor. The furnishing of these means, is the most important duty of a government, in so far as scientific education is concerned. 2. Whether teachers should pay for the use of such means, may be easily decided. If they pay for such use, they must charge a proportionally higher price for tuition. If they have the use for nothing, their charges for tuition will fall in proportion. 3. The emolument of the teacher should be made to depend upon his professional skill and ability. In no other manner will the necessary stimulants be presented to professional industry ; and in no other way will it be rendered impossible for a man to support himself in thi? profession, without performing its duties with skill and 6delit) . 1 have no doubt that the mode, in this conn- 34 402 EXPENSES FOR EDUCATION. try, of remunerating all college officers by a fixed salary, is exceedingly unfavorable to the progress of education. If, for the sake of promoting the study of a particular science, funds be provided for the partial support of an instructor, they should always be so managed, as not in any manner to conflict with the principle here advanced. 4. If, in addition to this, funds be provided for the education of a certain number of those who are indigent, I think this should be done upon the following piin- piples : 1. The provision should be so made, as to benefit merely the indigent, and not reduce the price of tuition to the whole. If tuition be so expensive that A cannot procure it, and it be desirable to educate him, it may be well to make provision for him. But this is no reason why the price of tuition should be reduced, in an equal degree, for B, C, D, and the rest of the community, who are able to pay for it at its natural cost. 2. The provision should be so made as not to inter- fere with the principle above advanced, that teachers be rewarded according to their skill and fidelity. If it be so made that a college, on account of its cheapness, will always be full, and its officers be paid, whether they perform their duties or not, it will retard, instead of promoting, the cause of education. 3. It might be of advantage, supposing a series of schools were established, if gratuitous admission to the higher seminaries were the reward of talent, diligence, and good conduct in the lower. This would be a strong stimulant to effort in the lower schools, and would be more likely than any other mode, to limit the bounty of the public to those who are the most deserving of it. It may not be amiss here to add, that the success of public efforts for the purpose of promoting scientific education, will depend very greatly upon the mode in which those efforts are exerted. If they be directed to the single object of reducing the cost of educaticn, nothing but this object will be effected. Pupils will pay the smallest possible sum for tuition, and the instructors will receive the smallest possible remuneration for their RELIGIOUS ESTABLISHMENTS. 403 sei vices, and their services will be of the smallest possi ble value. A man would be considered very simple, who flattered himself that he could purchase twenty-five dollars' worth of broadcloth, or flour, or coffee, for five dollars. Let him please himself with his own fancies as he may, it will be found in the end, that for five dollars, he has received no more than five dollars' worth. The case is the same with education. Men may have teach- ers worth five hundred, or one thousand, or two thousand, or three thousand dollars per annum. But they will greatly mistake, if they suppose, that, by any process yet discovered, services worth three thousand dollars can be procured for five hundred dollars. By merely reducing the cost, education will decrease in quality as it increases in quantity. As the article is found to be less valuable, it will, in the end, be less in demand ; and thus, at last, not merely will the quality have deteriorated, but the quantity produced will also have diminished. On the Other hand, if -the efforts of the public be di- rected to improvement of education, the increased value of an education will induce a greater number to avail themselves of its advantages. The literary taste of the community will be elevated; the demand for education will increase, and thus, not only will the quality of the product be improved, but the amount disposed of will be greatly augmented. If these views be correct, it will follow, that the efforts in behalf of a collegiate edu- cation in this country, have not always been wisely di- rected, and that, if much that has been done to render education cheap, had been done to render education good, it would have been far better for the cause of science and of professional learning ^rnong us. III. Of expenses for maintaining religious worship These expenses need to be borne by men in somt rnanne* associated together. It, however, by no means follows, that they are to be borne by men as members )f civil society. It cannot be proved that the Christian religion needs the support of civil government, since it has existed and flourished when entirely deprived of this 404 OF NATIONAL IMPROVEMENT. support. And, if it be said, that every m^n derives benefit from religious services, inasmuch as these ser- vices improve the moral and intellectual character of hi? neighbors ; and hence, that every man ought to pay for their maintenance ; the argument may be easily mat as follows. It is granted, that every man is benefited by the regular administration of the ordinances of religion, but this is not the reason for which these ordinances are established. Men unite with their neighbors to procure religious instruction, for their own benefit, and not for the benefit of others. If it happen, accidentally, that others are benefited, it does not follow that they are obliged to pay for this benefit. If my neighbor erect a building for his own profit, on his own land, and thus improve my property, I am not obliged to unite in de- fraying the expenses of his building. I am entitled gra- tuitously to this accidental advantage. I think the same principle applies to the case in question. The only ground on which the support of religion by public taxation, can be defended, is, that its existence is necessary to the support of civil government, and that it can be sustained in no other manner than by compulsion. The first assertion we grant to be true. The second, we utterly deny. Hence, we do not believe that any taxation for this purpose is necessary. All that religious societies have a right to ask of the civil government, is, the same privileges for transacting their own affairs, which societies of every other sort possess. This, they have a right to demand, not because they are religious societies, but, because the exercise of religion is an in- nocent mode of pursuing happiness. If these be nol granted, religious men are oppressed, and the country where such oppression prevails, let it call itself what it :iiay, is not in this matter free. IV. Of national improvement. Another purpose, for which the public funds are fre- quently expended, is national imprc/vement. The prin- ciples which seern to apply to this case, have been al- ready stated. They are briefly these. Improvements of coasts, and harbors, and all that is necessary for the OF THE EXPENSES OF PAUPERISM. 405 security of external commerce, must be done by the> public. Internal improvements, such as roads, canals, railroads, &c., may, in general, be safely left to individ- ual enterprise. If they would be a profitable investment of capital, individuals would be willing to undertake them. If they would be an unprofitable investment, both parties had better let them alone. The only ca-e in which a government should assume such woiks, is that in which their magnitude is too great for individual enterprise, or that in which the power which they con- fer, is too great to be entrusted to private corporations. Whenever they are undertaken, the principles on which the expenditure should be made, are the same as those which govern the expenditure of individuals. V. Of the expenses of pauperism. To relieve the sick, the destitute, and the helpless, is a religious duty, and therefore should, like every other religious duty, be a voluntary service. Hence, charity in a moral and religious community, should generally be dispensed by individuals from their own resources, or from the resources of voluntary associations. Nevertheless, as cases frequently occur which could not, with sufficient promptness, be relieved by the aid of individuals, or in which the burden would press too heavily on the most charitable, it may be proper that some public provision should be made for the relief of those whom old age, or infancy, or sickness, has de- prived of the power of providing the means necessary for sustenance. By far the greater number of persons requiring such aid, are, however, capable of some labor, and are also possessed of some skill. They are also far happier, when engaged in suitable labor, than when idle. It is, therefore, the dictate of benevolence, as well as of econ omy, to provide them with means of profitable occu- pation. This labor and skill, if judiciously employed upon capital, will commonly defray the expenses of the support of paupers. Hence, the best method of reliev- ing the poor, is to provide some establishment furnished with sufficient capital, in which, all the poor who need v 406 OF WAR. assistance, may be employed and supported. In many cases in New. England and New Yoik, farms have been purchased by towns or by counMes, for this purpose It has generally been found, that the only expense ne- cessary to be incurred, is the purchase of the farm, or the first investment of the capital -The establishment, after this, under judicious management, has generally paid ts own expenses, and, in some cases, as I have been informed, has even yielded a revenue to the public. The expenses of pauperism, if they be defrayed in this manner, must, of necessity, be very moderate ; while a competent and convenient provision may be made, for every individual who actually deserves assistance. _VI. Of War. The cheapest defence of nations, I suppose to be the exercise of justice and benevolence. If, however, a nation resolve upon the employment of military force, economy would direct that both its plans and means of defence, should be extensive, scientific, and complete. Its territory and its coasts should be accurately sur- veyed with reference to this objec^. Its assailable posi- tions should all be strongly fortified. Munitions of war should be provided in abundance. Schools for instruc- tion in the art of war, should be supported at the public expense, and the persons so educated should be main- tained, either in whole or in part, at the public expense, so that their services may be commanded, whenever they may be required. In this, as in every other case, economy teaches us, that if a given object is to be ef- fected, no expense is unreasonable, which is necessary to effect it in the most perfect manner. The manner of expenditure is to be learned from the teachers of mil- itary science. Economy, therefore, directs that the most valuable talent should be employed, at whatever expense, for providing the plans of defence, that these plans should be fully and perfectly carried into effect, and that all should be done at no greater cost than is necessary to the accomplishment of the object. THE END. VALUABLE LITEEAEY AND' SCIENTIFIC WOKKS. PUBLISHED BT GOULD AND LINCOLN, 69 WASHINGTON STREET, BOSTON. ANNUAL OF SCIENTIFIC DISCOVERT FOB 1860 ; or, Year- Book of Facts in Science and Art, exhibiting the most important Discoveries and Improve- ments in Mechanics, Useful Arts, Natural Philosophy, Chemistry, Astronomy, Meteorol- ogy, Zoology, Botany, Mineralogy, Geology, Geography, Antiquities, &c., together with a list of recent Scientific Publications ; a classified list of Patents ; Obituaries of eminent Scientific Men ; an Index of Important Papers in Scientific Journals, Reports, &c. Ed ited by DAVID A. WKLLS, A. M. With a Portrait of Prof. 0. M. Mitchell. 12mo, cloth. $1.25. YOLPMBS OK THB SAME WORK for years 1859 to 1858 Inclusive. Wfth Portraits of Profess ors Agasslz, SUliman, Henry, Bache, Maury, Hitchcock, Richard M. Hoe, Profs. Jef- fries Wyman, and II. D. Rogers. Nine volumes, 12mo, cloth, $1.26 per voL Thii work, issued annually, contains all important facts diicovercd or announced during the fear. 9* Each volume is dUtinct in itaelC and contain! entirely new matter. INFLUENCE OF THE HISTOBY OF SCIENCE UPON IN' TELLECTUAL EDUCATION. By WILLIAM WHBWKLL, D. D., of Trinitj College, Eng., and the alleged author of " Plurality of Worlds." 12mo, cloth, 26 cts. THE NATURAL HISTORY OF THE HUMAN SPECIES; Its Typical Forms and Primeval Distribution. By CHARLES UAMILTOM SMITH. With an Introduction containing an Abstract of the views of Blumenbach, Prichafd, Bachman, Agassiz, and other writers of repute. By SAMUEL KNBKLASD, Jr., M. D. With elegant Illustrations. 12mo, cloth, $1.26. " The mark* of practical good tcnie, careful observation, and deep research, an displayed in every pace. The introductory essay of tome seventy or eighty pones forms a valuable addition to the work. It comprises an abstract of the opinions advocated by the most eminent writers on this subject. The statements are made with strict impartiality, and, without a comment, left to tha judgment of the reader." Sartain't llayntiix. KNOWLEDGE IS POWEB. A View of the Productive Forces of Modern Society, and the Results of Labor, Capital, and Skill. By CHAMJH KNIGHT. With numerous Illustrations. American Edition. Revised, with Additions), by DAVID A. WLL, Editor of the " Annual of Scientific Discovery." 12mo, cloth, $1.26. Of This Is emphatically a loot fur the profit. It contains an immense amount of Important Information, which everybody ought to t>e In possession of r and the volume should be placed in every family, and In every School and Public Library In the land. The facts and Illustrations arc drawn from almost eveiy branch of skilful industry, and it Is a work which UK mechanic snu arti- san of tvtry description will be sure to read with a RELISH. (26) VALUABLE SCHOOL BOOKS. ROMAN ANTIQUITIES AND ANCIENT MYTHOLOGY. By C. K. DILI. AWAY. Illustrated by elegant Engravings. 12mo. half mor., 67 cts. THE YOUNQ LADIES' CLASS BOOK: a Selection of Lessons for Reading, in Prose and Verse. By EBENEZER BAILEY, A. M. Cloth embossed, 84 cts. " I have examined, with much Interest, the Young Ladies' Class Book, by Mr. Bailey, and have been very highly pleased with its contents. I regard it as not only remarkably well fitted to answer its particular object as a book of exercise in the art of elocution, but as calculated to have an influ- ence upon the character and conduct which will be in every respect favorable." JACOB ABBOTT. EASY LESSONS IN ENGLISH GRAMMAR, for Young Beginners. By W. 8. BARTON, A. M. 12mo, half mor. 50 cts. A NEW INTERMEDIATE SYSTEM OF ENGLISH GRAM- MAR. By W. S. BARTOS, A. M. 12mo, half mor., 75_cts. Designed as a Text-book for the use of schools and academies. It Is the result of long experi- ence, and will be found to possess many and peculiar merits. PRACTICAL EXERCISES IN ENGLISH COMPOSITION; OR, THB YOUNG COMPOSER'S GUIDE. By W. S. BARTON, A. M. 12mo, half mor., 75 cts. Designed as a SEQUEL TO THB AUTHOR'S NEW SYSTEM or F.XOLISH GRAMMAR, which formi a gradual introduction to the first principles of composition. The plan pursued in these exercises, sa in the Grammar, is founded on the application of the principle of imitation. The pupil is con- ducted progressively from the simplest expression of thought to the practice of connected compo- sition. BLAKE'S NATURAL PHILOSOPHY; being Conversations on Philosophy, with Explanatory Notes, Questions for Examination, and a Dictionary of Philosophical Terms. With twenty-eight Steel Engravings. By J. L. BLAKB, D. D. Sheep, 67 cts. Perhaps no work has contributed so much as this to excite a fondness for the study of Natural Philosophy in youthful minds. The familiar comparisons with which it abounds awaken interest and rivet the attention of the pupil. BLAKE'S FIRST BOOK IN ASTRONOMY; designea for the use of Common Schools. Illust. with steel-plate Engravings. By J. L. BLAKB, D. D. Cloth back, 50 cts. " I know of no other work so well calculated to interest and instruct young learners in this sublime science." BARNUM FIELD, Boston. THE CICERONIAN ; or, the Prussian method of teaching the elements of the Latin Language. Adapted to the "use of American Schools. By Prof. BARNAS SEARS, President of Brown University. ISmo, half mor., 60 cts. MEMORIA TECHNICA ; or, the Art of Abbreviating those Studies which giro the greatest labor to the memory. By L. D. JOHNSON. Half bound, 50 cto. "WRITING COPIES, Plain and Ornamental, from the "Progressive Penman ship," bound in one Book, 16| cts. PROGRESSIVE PENMANSHIP, Plain and Ornamental, for the nse of Schools. By N. D. GOULD, Author of "Beauties of Writing," " Writing Master's Assist- ant," &c. In five parts, each 12i cts. The copies are arranged in progressive series, and are likewise so diversified by the Introduction of variations in style as to command the constant attention and exercise the ingenuity of the learner. Tliey are divided into five series, intended for the like number of books, and are so arranged and., folded that a copy always comes over the top of the page on which it is to be written 1 . There are ninety-six copies, presenting a regular inductive system of Penmanship for ordinary business purposes, followed by examples of every variety of Ornamental Writing. This work is introduced into many of the Boston .Public and Private Schools, and gives univer- sal satisfaction. (21) University of California SOUTHERN REGIONAL LIBRARY FACILITY 405 Hilgard Avenue, Los Angeles, CA 90024-1388 Return this material to the library from which it was borrowed. MUl 7 1394 QLOCT1 7 1994 UC SOUTHERN REGIONAL LIBRARY FACILITY A 001 209472 8 ran