THE LIBRARY 
 
 OF 
 
 THE UNIVERSITY 
 
 OF CALIFORNIA 
 
 RIVERSIDE 
 
 GIFT OF 
 
 Dr. Gordon Watkins
 
 CHAPTERS ON 
 PRACTICAL POLITICAL ECONOMY.
 
 BY THE SAME AUTHOR. 
 
 CURRENCY AND BANKING. 
 
 Crown 8vo. , cloth, price 6s. 
 
 " A valuable addition to our scientific literature." Spectator. 
 
 " Will be welcomed by all who are desirous of seeing juster and 
 more scientific views prevalent with reference to mercantile and 
 economical questions." Bulliotust. 
 
 LONDON: 
 
 KEGAN PAUL, TRENCH & Co., i PATERNOSTER SQUARE.
 
 (J ft~* r I V ( / 
 
 CHAPTERS ON 
 
 PRACTICAL POLITICAL ECONOMY 
 
 BEING THE 
 
 SUBSTANCE OF LECTURES DELIVERED IN THE 
 UNIVERSITY OF OXFORD. 
 
 BY 
 
 BONAMY PRICE, 
 
 PROFESSOR OF POLITICAL ECONOMY IN THE UNIVERSITY OF OXFORD. 
 
 SECOND EDITION. 
 
 LONDON: 
 
 KEGAN PAUL, TRENCH & Co., i PATERNOSTER SQUARE. 
 
 1882.
 
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 1102*1 Diflhne00, -prince
 
 CONTENTS. 
 
 CHAPTER I. 
 IS POLITICAL ECONOMY A SCIENCE ? 
 
 VALUE, 
 
 EXCHANGE, 
 
 CAPITAL, 
 
 PROFIT, 
 
 WAGES I., 
 
 WAGES- -II., 
 
 TRADE UNIONS, 
 
 FREE TRADE, 
 
 CHAPTER II. 
 
 CHAPTER III. 
 
 CHAPTER IV. 
 
 CHAPTER V. 
 
 CHAPTER VI. 
 
 CHAPTER VII. 
 
 CHAPTER VIII. 
 
 CHAPTER IX. 
 
 32 
 
 63 
 
 96 
 
 125 
 
 163 
 
 198 
 
 228 
 
 299
 
 viii Contents. 
 
 PAGE 
 
 CHAPTER X. 
 
 THE DOCTRINE OF RENT, . . . 335 
 
 CHAPTER XI. 
 
 MONEY METALLIC, . . . . . . 360 
 
 CHAPTER XII. 
 
 PAPER CURRENCY, ...... 407 
 
 CHAPTER XIII. 
 BANKING, ....... 444 
 
 APPENDIX, . . . -487
 
 CHAPTER I. 
 
 IS POLITICAL ECONONY A SCIENCE ? 
 
 THE following pages speak of Practical Political Eco- 
 nomy. The expression might seem to denote a par- 
 ticular department of what is called Political Economy, 
 or else a special application of its truths. I do not use 
 the term in either of these senses. I mean by it simply 
 Political Economy itself. The word Practical is added 
 solely in contradistinction to what may be called Scien- 
 tific Political Economy. It is intended to indicate a 
 mode of treatment which not only does not claim to 
 be scientific, but which supposes the strictly scientific 
 method to be a mistake. It implies that the body of 
 knowledge, summed up under the title of Political 
 Economy, belongs entirely to the every-day practice 
 of human life. 
 
 Political Economy finds processes applied all the 
 world over to the satisfaction of the wants of human 
 life in the matter of wealth. It does not invent nor 
 discover them. It does not announce them, like the 
 developments of geometry or the generalisations of 
 physical science, as new discoveries previously unknown, 
 but now revealed by the application of systematic 
 reasoning. The ordinary instincts of human nature 
 
 A
 
 2 IS POLITICAL ECONOMY A SCIENCE ? 
 
 have adopted these processes ever since the origin of 
 man with more or less sagacity and intelligence. Poli- 
 tical Economy studies them, discerns intellectually in 
 what their essence and vitality consist, explains them 
 to the understandings of common men, and performs 
 the vast service of clearing them from that admixture of 
 error, both of thought and action, which insinuates itself 
 into every department of human existence. But when 
 these processes have been thus explained, and rescued 
 from that evil and indestructible weed, false theory, 
 they are seen to be practices which multitudes of men 
 of all ages of the world have carried out with a. full 
 perception that they were the right thing to do. They 
 did not owe them to Political Economy, though Political 
 Economy has strengthened the insight into their right- 
 ness, and has saved them from the invasion of arbitrary 
 and erroneous ideas. Indeed it may be almost doubted 
 whether Political Economy ever would have been born, 
 had not the selfishness and folly of men and nations 
 crushed the instinctive impulses of human nature. If 
 the mercantile theory and protection had not weighed 
 heavily on the common sense of mankind, there might 
 have been a Political Economy of the closet or of 
 sociology and for how much would it have counted 
 amongst the nations ? a Political Economy for the 
 people would never, probably, have been constructed. 
 
 If this conception of Political Economy be correct, it 
 will be perceived at once that its value lies in its being 
 understood by the mass of men. Here is its true field 
 of action and influence. Its aim is to make common 
 sense the supreme ruler of industry and trade. The 
 test of a true Political Economy is that its teaching, its
 
 IS POLITICAL ECONOMY A SCIENCE ? 3 
 
 principles, its arguments, and above all its language, 
 shall be intelligible to all. It addresses as its real 
 audience the labourers of the field and of the factories, 
 the manufacturers and the merchants, the shopkeepers 
 and the legislators, in a word the whole community ; 
 and it is bound to use language which they can recognise 
 to be true. If it shoots over their heads, it has missed 
 its vocation. It may amuse speculative thinkers, but 
 it ceases to be a power and to have value of any 
 importance. 
 
 So wild indeed has been this passion for scientific 
 treatment, that Political Economy has been translated 
 into mathematical formulas. Trade and the practice of 
 traders, written out in the language of the differential 
 calculus, is indeed a masterpiece of scientific achieve- 
 ment. But will mathematical figures ever convince a 
 people that they act foolishly in protecting their native 
 industries with high tariffs, or explain why different 
 prices prevail for the same goods in a single town, or 
 teach labourers whether a strike is likely to bring them 
 better wages, or show why two farms of equal fertility 
 pay very different rents ? 
 
 Of this practical kind is the Political Economy of "The 
 Wealth of Nations." Adam Smith placed his discussions 
 in the very heart of the every-day life of men. He 
 dealt with the problems which present themselves to 
 the man of business and the workman. His language 
 every merchant and every trader could understand. His 
 reasonings were of a kind with which all are familiar. 
 The thought that he was founding a science is absent 
 from his economical writings. The questions he took 
 up were the blunderings of great merchants and mighty
 
 4 IS POLITICAL ECONOMY A SCIENCE ? 
 
 states in matters of commerce and finance. His refuta- 
 tions of their ideas were drawn from a common-sense 
 review of their ideas. Every one could follow them. 
 They required no highly-trained minds, no study of 
 elaborate treatises, to be understood. Yet these un- 
 scientific discussions have accomplished almost all the 
 great services which Political Economy has done for 
 mankind. Adam Smith has committed errors in detail, 
 for he was human, but they interfered little with the 
 work and the teaching of one of the greatest benefactors 
 of the human race. 
 
 His followers have not been contented with the low 
 level on which their great master stood. They have 
 fretted against the walls of the narrow space in which 
 his Political Economy, as they thought, had confined 
 them. They conceived it to be a science to be treated 
 by the scientific method. Their ambition was to make 
 Political Economy take the form of a strict science. 
 Their language took a highly scientific character. 
 Political economists were teachers of a great science. 
 They spoke of economical laws as astronomers speak oi 
 the law of gravitation, and chemists of chemical affinity. 
 The doctrines which they developed were held to soar 
 far above the ideas of the exchange, the factory or 
 the workshop. They framed elaborate treatises, oi 
 which they required men to become students. Such 
 were not Adam Smith and his ideas : had they reduced 
 him to a mere beginner ? 
 
 But let us be just. It is not meant here that any 
 conceit or unworthy passion had seized on political 
 economists. What they did was quite natural. The 
 words of Adam Smith had filled them with enthusiasm.
 
 IS POLITICAL ECONOMY A SCIENCE f 5 
 
 They aspired to give them the grandeur of a scientific 
 form, and thereby to increase their authority and their 
 power to do good. They believed that it would 
 strengthen and spread the enriching truths that were 
 to be dug out of Political Economy. But have they 
 been successful, either as to their building or as to its 
 effects on nations ? Is Political Economy in higher 
 honour, more influential over public opinion, more 
 authoritative with Governments and States than it was 
 when " The Wealth of Nations " was almost its sole 
 instrument of teaching ? 
 
 It is possible to appeal on this point to an authority 
 which is incontestable. The Political Economy Club 
 of London met in May 1876 to celebrate the hundredth 
 anniversary of the publication of "The Wealth of 
 Nations." It is unhappily but too clear that a marked 
 feeling of dissatisfaction with the actual position of 
 Political Economy pervaded the whole gathering. One 
 speaker bewailed " the difference of the process by 
 which Adam Smith collected his inferences, and that 
 by which his followers or commentators have arrived at 
 theirs." The result was "a vast number of fallacies 
 which discredit the science, and a great deal of time 
 wasted on what has been written." " The full develop- 
 ment of the principles of Adam Smith has been in 
 some danger for some time past" 
 
 An appendix to the report of the meeting was pub- 
 lished by a committee, and it seems as if it had been 
 their wish to emphasize the dissatisfaction which was 
 felt at the state of economical teaching, and of the 
 influence and authority of Political Economy in the 
 world. They republish an article from the Economist
 
 6 IS POLITICAL ECONOMY A SCIENCE ? 
 
 which was known to be edited by an eminent econo- 
 mical writer, and which speaks of the dulness of modern 
 books of Political Economy, and characterises the 
 teaching of Mr Ricardo a name associated with the 
 glory of having commenced the scientific treatment 
 " as beginning in dry principles, and going with unap- 
 preciated reasoning to conclusions that are as dry." 
 Political Economy is painted as "declining in credit," 
 as speaking in a lower tone of command than "The 
 Wealth of Nations." 
 
 To be accused of contradicting Political Economy is 
 an argument which now carries less weight than it did 
 formerly. The man to whom it is addressed will pro- 
 bably think that what is quoted to him as a law is 
 probably no law at all. He feels that he can obtain 
 what it is important for him to learn in some easier 
 way by the aid of his natural lights. Thus there arises 
 a marked peculiarity in the view taken by the world of 
 ignorance of Political Economy and ignorance of any 
 real science. The mass of men do not study chemistry 
 or astronomy. They know that this lies beyond their 
 power. But they know also that these sciences possess 
 extremely important information which very closely 
 concerns them, and they are thoroughly willing to 
 follow the rules and prescriptions laid down by astro- 
 nomers and chemists, without understanding in any 
 way the proofs on which they rest. The dyer and 
 the intelligent farmer do as chemistry bids them. 
 The mariner takes observations of the sun and moon, 
 compares the figures he obtains from his quadrant 
 with their interpretation in his tables, and shapes his 
 course accordingly with safety. It is wholly otherwise
 
 IS POLITICAL ECONOMY A SCIENCE ? 7 
 
 with ignorance of Political Economy. The common 
 world think that they understand the matters of which 
 it speaks quite as well as the economist, indeed much 
 better. Why should they trouble themselves about 
 advice which has for them no recommendation of 
 superior skill or experience ? The protectionist feels 
 no lack of excellent arguments wherewith to refute the 
 free trader. The trades unionist has no misgiving but 
 that his ideas on wages are unanswerable. What need 
 is there for them to plunge into the jargon of econo- 
 mical writings ? They do not speak as men of the 
 world speak of things which they handle every day. 
 The final result is that the very service which Political 
 Economy has to render to a people and it is of the 
 very highest is lost. 
 
 This is a very grave matter. I do not say that the 
 practical truths of Political Economy are less appre- 
 ciated by the world, have less influence over govern- 
 ments and traders ; on the contrary, they are making 
 steady progress in guiding conduct. But it is certain 
 that in adopting any particular commercial view or 
 practice they give less and less as their reason that Mr 
 Ricardo, or Mr Mill, or Professor Cairnes has advised 
 it. They arrive at their judgments through their own 
 untrained sagacity, and not through the teaching of 
 authorities who must be taken as guides. It is the 
 authority of economical writers which is declining. This 
 diminished weight is the result of their mode of treating 
 the problems of the living world with which Political 
 Economy deals ; men take-a shorter and a far clearer 
 path through their own observations than through the 
 tangled jungle of scientific refinements.
 
 8 IS POLITICAL ECONOMY A SCIENCE ? 
 
 The remedy is to remove the cause of the decaying 
 influence of writers of distinguished ability and of great 
 ardour in the study of this subject. Their error must be 
 dispelled : there must be a change of method. But is 
 there error? they will reply. Political Economy is a 
 science, and if it is a science, the scientific treatment is 
 the true one and must in the end prevail. The question 
 then must be faced Is Political Economy a science ? 
 To obtain an answer a prior inquiry must be met : 
 What is Political Economy ? 
 
 It is scarcely possible to put a more difficult question. 
 An accurate and precise answer to it has never yet 
 been given, and never will be. Adam Smith's great 
 work is entitled " An Inquiry into the Nature and 
 Causes of the Wealth of Nations." This description has 
 led to the definition commonly given of Political 
 Economy, as the science of the production and distribu- 
 tion of wealth. Wealth, then, is its subject, what it 
 speaks of ; but what is wealth ? Here, again, we have 
 a question as hard and puzzling as ever. In his first 
 sentence, Adam Smith seems to explain wealth as " the 
 necessaries and conveniences of life which a nation 
 annually consumes." Vague enough, most assuredly ; 
 but then Adam Smith never attempted to frame a 
 scientific definition of wealth ; he used the word in its 
 popular sense, as a well-known thing. It never occurred 
 to him that he had taken up a science, and must treat 
 it as such. 
 
 Mr Mill feels quite differently. All through his 
 treatise he regards Political Economy as a science : 
 his method always aspires to be scientific ; yet even at 
 starting he gives up all scientific definition of wealth.
 
 IS POLITICAL ECONOMY A SCIENCE ? 9 
 
 He distinctly takes as the foundation of his exposition 
 of the principles of Political Economy the popular, un- 
 explored, current definition of wealth. " Every one has 
 a notion," he remarks, " sufficiently correct, of what is 
 meant by wealth." His reason for this sufficiency is re- 
 markable. Enquiries which relate to wealth are in no 
 danger of being confounded with those relating to any 
 other of the great human interests. All know that it is 
 one thing to be rich, another thing to be enlightened, 
 brave, or humane. Mr Mill does not tell us what 
 wealth the thing he has to explain is ; he bids us 
 ask the first man we meet in the street, what are riches ? 
 that is sufficient Hardly for making a science out of 
 it surely. 
 
 After this we can easily understand the feeling of 
 Professor Perry of Williams College, United States. 
 He flings away the word wealth in anger. In his, in 
 many respects, very able work, " The Elements of Poli- 
 tical Economy," he declares it to have been the " bane 
 of Political Economy. It is the bog whence most of 
 the mists have arisen which have beclouded the whole 
 subject. From its indefiniteness and the variety of 
 associations it carries along with it in different minds, it 
 is totally unfit for any scientific purpose whatever. It 
 is simply impossible on such an indefinite word as this 
 at the foundation to build up a complete science of 
 Political Economy. Men may think, and talk, and 
 write, and dispute to weariness, but until they come to 
 use words with definiteness and mean the same thing 
 by the same word, they reach comparatively few results, 
 and make but little progress." " Hence," he concludes, 
 " happily there is no need to use this word ; " for which
 
 IO IS POLITICAL ECONOMY A SCIENCE ? 
 
 he substitutes service. In this I am unable to agree 
 with him. Wealth is the word which belongs to the 
 world which Political Economy addresses. The remedy 
 of what the Professor complains of is to abandon the 
 idea of science, and to use the expression wealth in its 
 popular and practical signification. Men do not want 
 scientific utterances from Political Economists, and if 
 they did they would never get them but practical ex- 
 planations of every-day operations. 
 
 If we pass on from wealth itself to its production, we 
 shall find that we are getting deeper into vagueness and 
 absence of science. By the unanimous admission of 
 all writers those operations which directly produce 
 wealth are outside of Political Economy altogether. 
 Political Economy does not profess to teach the farmer 
 when to sow his seed, what manure to apply, what rota- 
 tion of crops to adopt, and yet these are the very things 
 which produce, which bring forth, the- crop of wheat, 
 which is the wealth desired. Nor does it explain to the 
 makers of iron, or of woollen or cotton cloths, or of 
 ships, how to manufacture these things. These are all 
 the great processes which create wealth, and bring it 
 into being ; but obviously Political Economy does not 
 embrace all the arts, or attempt to explain the proper 
 way of producing goods. How then is Political Economy 
 to be called the science of the production oi wealth, 
 when that very production of wealth, in its plain and 
 most extensive sense, clearly does not belong to it ? A 
 definition of a science sums up its subject : How is it 
 possible to speak of a science when avowedly by far the 
 largest part of the matter included in its definition does 
 not come under its consideration ? If Political Economy
 
 IS POLITICAL ECONOMY A SCIENCE f I I 
 
 is a science, the question must be answered : Of what is 
 it the science ? Of the production of wealth it certainly 
 is not. 
 
 But Political Economy has found a distinguished 
 champion to vindicate its right to be accounted a 
 science. At the Centennial meeting of the Political 
 Economy Club, of which mention has already been 
 made, the task of explaining the nature of the work of 
 Adam Smith, and enforcing his title to the admiration 
 and gratitude of mankind was entrusted to Mr Lowe, 
 and no one could speak with higher authority. On 
 that occasion Mr Lowe undertook to show that Adam 
 Smith was the founder of a great science, and that that 
 science was Political Economy. He claims for Adam 
 Smith, " the power of having raised Political Economy 
 to the dignity of a true science, the merit, the unique 
 merit among all men who ever lived in the world, of 
 having founded a deductive and demonstrative science 
 of human actions and conduct : the merit in which no 
 man can approach him, that he was able to treat sub- 
 jects of the kind with which Political Economists deal 
 by the deductive method." Beyond doubt a deductive 
 science of human actions is unique amongst men, and 
 wonderful indeed is the discovery that this demonstra- 
 tive science of human conduct should be precisely Poli- 
 tical Economy. One would wish to know what are the 
 axioms and definitions which by syllogistic reasoning 
 were developed into that model of scientific treatment, 
 "The Wealth of Nations." Mr Lowe finds no diffi- 
 culty in telling us. He builds his proof on two 
 grounds. 
 
 i. Adam Smith, the father of this deductive science,
 
 I 2 IS POLITICAL ECONOMY A SCIENCE f 
 
 " was in the habit of saying in the course of his writings 
 men do so and so, which means in his way of writing, 
 men do so and so, and men will do so and so to the end 
 of the chapter." " The test of science," he tells us, " is 
 prevision or prediction. By foretelling human actions 
 and conduct with certainty, Adam Smith created a de- 
 ductive and demonstrative science, now called Political 
 Economy." 
 
 But where is a single certain prediction of human con- 
 duct to be found in his writings which proves him to have 
 been the creator of a science ? Men are presumed to be 
 keen in the pursuit of riches, and to be sure to act 
 always for their interest, but, unhappily, they are found 
 not to do so and so, even here, to the end of the chapter. 
 They rush into ruinous wars from passion. They know 
 that the way to be rich is to labour, and they prefer 
 idleness. Whole nations like better to bask in the sun 
 than to take the trouble to accumulate wealth. They 
 are well aware that the tradesmen with whom they deal 
 oppress them with unjust prices ; they will not be at 
 the pains to seek out the shops where good commodities 
 are to be had at fair rates, thus making the boasted 
 economical principle of competition to be anything but 
 universal. Saving they would confess to be the founda- 
 tion of wealth and the security for old age ; they spend 
 all they can on drink. Governments and peoples have 
 been taught the reasonableness and profitableness of 
 Free Trade : they persist in Protection. " The Wealth 
 of Nations" was written to paint the folly of the 
 Mercantile Theory, and few educated men in England 
 would like to confess their belief in it ; but it lives on 
 nevertheless with indestructible vitality. It reigns
 
 IS POLITICAL ECONOMY A SCIENCE ? I 3 
 
 supreme in all the Stock Exchanges of the world, and 
 every merchant and shopkeeper loves to hear that ex- 
 ports exceed imports. A child can lead a horse to the 
 water, Archbishop Whately was fond of saying ; but 
 twenty men cannot make him drink. Adam Smith 
 laid down clear principles, but he could induce only a 
 few men and governments to act upon them. Were he 
 alive now he would be ruined as a man of science b) 
 the " will do so and so to the end of the chapter ' 
 theory. 
 
 2. But, secondly, we are told that Adam Smith built 
 up not only a demonstrative science of human conduct, 
 but also a deductive science of argued-out and correlated 
 doctrine. But where shall we find such a standard of 
 teaching throughout the whole range of Political Eco- 
 nomy ? Will it be the greatest of the truths of Free 
 Trade ? But Free Trade is not the child of scientific 
 skill upon the deductive method. The doctrine of Free 
 Trade is only the explanation and enforcement against 
 selfish perverseness of a very common practice, known 
 and observed by all men : to the women the needle 
 work, to the men the lifting of weights. Whoever regu- 
 lates his household differently, and compels the needle 
 work and the muscular effort to be distributed equally 
 amongst the men and the women, is a fool. Let Norfolk 
 grow our barley and Sheffield our knives ; what sane 
 man would dream of wishing it otherwise ? Free Trade 
 is nothing but this the widest application of this prac- 
 tice. But is this a revelation won by the intellectual 
 elaboration of a deductive process ? So again with the 
 Mercantile Theory, Money is but a tool, a machine de- 
 vised for a certain definite work ; a tool exchanging pro
 
 14 IS POLITICAL ECONOMY A SCIENCE ? 
 
 perty, as a common cart transfers weights. Who ever 
 preached that a nation could not have too many carts 
 or too many ploughs ? that it was always good to pro- 
 cure carts without end ? Did it require the voice of a 
 grand deductive science to make men perceive the 
 nature and necessary limitation of tools ? There may 
 be, nay are, multitudes of people who are not aware 
 that money is nothing but a tool to make known this 
 fact is all that is really needed to kill the Mercantile 
 Theory. A little intelligent observation is perfectly 
 sufficient without calling in science. 
 
 The Malthusian theory again is often appealed to as 
 a splendid product of deductive science ; but what is 
 the essence of this theory but the well-known fact that 
 human beings, like all other animals, have a power of 
 multiplying faster than their food, and that if they do 
 so multiply very unpleasant consequences must arise ? 
 Again we encounter here only a simple act of intelligent 
 perception. Malthus has only insisted on and illustrated 
 this fact, mainly against a very current theory that God 
 does not send children without providing for them. 
 The fine words about arithmetical and geometrical 
 ratios are merely idle writing. So also is it with one 
 of the most all-prevailing rules of Political Economy 
 the law of supply and demand. As a practical fact, it 
 has been known to all mankind ever since there has 
 been trade. It is no novelty to men and nations who 
 have never heard that there is such a thing as Political 
 Economy, that if more goods are made than are wanted, 
 they will be sold at a lower price, or not sold at all ; 
 and that on the other hand, if bread is scarce from a 
 bad harvest or in a besieged town, it will become exces-
 
 IS POLITICAL ECONOMY A SCIENCE ? 1 5 
 
 sively dear. Equally familiar is the truth to untutored 
 minds that if a man wishes to have a thing he must pay 
 for the making of it. There is little else in the econo- 
 mical discussions of supply and demand but expansions 
 and applications of these very obvious and instinctively 
 observed facts. To call them scientific principles is 
 nothing but inflated language. 
 
 In all these instances the true nature of Political 
 Economy stands out clear. It is the application of 
 common sense to familiar processes. It explains their 
 nature and manner of working. It analyses and 
 thinks out practices which are universal, except when 
 thwarted by artificial theory. The information which 
 it acquires by observation and analysis, it puts together 
 in a systematic form. Its teaching is contained in a 
 body of methodical knowledge, which presents to the 
 inquirer the chief facts and the real essence of these 
 natural processes ; he is made to understand them, each 
 singly for itself, and all of them together as a connected 
 whole. The production and distribution of wealth are 
 operations of the widest range, and are made up of 
 many and often complicated parts, but they are capable 
 of being grouped and viewed as a united whole. But 
 there is no strict science in all this, no deduction, step by 
 step, from a few first principles, nor any construction of 
 economical laws by induction. I can find no true 
 economical law in Political Economy, unless such truths 
 as that a man must labour if he means to keep himself 
 alive, or that he must prepare beforehand seed and 
 tools if he desires to obtain a supply of corn, are to be 
 invested with the dignified title of scientific laws. What 
 are called economic laws by most writers are mere
 
 1 6 IS POLITICAL ECONOMY A SCIENCE ? 
 
 tendencies. They profess no absolute and uniform 
 character. Men are constantly found acting against 
 what they know to be their interest They incessantly 
 refuse to adopt new appliances which they are well 
 aware will diminish their labour in the production of 
 wealth. The less economic laws are quoted as the dicta 
 of authorities that know and have decided, and the 
 more men are invited to apply their own common sense 
 to the understanding and the practice of%the courses of 
 action to be pursued or avoided, the more effectually 
 will Political Economy perform its all-important service 
 for the benefit of mankind. 
 
 The truths proclaimed by Political Economy are 
 ultimately truisms processes which have always been 
 known to all the world ; and when Political Economy 
 has explained them, the hearer is rightly apt to exclaim, 
 that everyone knew that before. It is an excellent test 
 of real economical teaching that it should land the 
 pupil in the perception that it is made up of familiar 
 truisms. A right understanding of them is worth all 
 that scientific treatises have ever constructed. 
 
 This description of Political Economy is virtually the 
 same as that given by Mr M'Culloch. " The object of 
 political economists is to point out the means by which 
 the industry of men may be rendered most productive 
 of all those necessary comforts and enjoyments which 
 constitute wealth, to ascertain the circumstances most 
 favourable for its accumulation, the proportions in which 
 it is divided among the different classes of the com- 
 munity, and the mode in which it may be most 
 advantageously consumed." Upon this Mr Wordsworth 
 Donisthorpe asks " Is this description a fair one ? If
 
 IS POLITICAL ECONOMY A SCIENCE ? I 7 
 
 so, Political Economy is, after all, not a science but an 
 art. It is defined by its end, and consists not of laws 
 but of rules. It falls into one category together with 
 navigation, ethics, legislation, engineering, etc., as 
 opposed to astronomy, morality, jurisprudence, me- 
 chanics, etc., which, unconcerned with practice, merely 
 investigate the uniform relations between phenomena." 
 Yet after so admirable an explanation of the nature of 
 Political Economy Mr Donisthorpe still believes it to 
 be a science which he denominates Plutology. 
 
 But splendid generalisations are claimed as the gift 
 which Adam Smith bestowed on Political Economy. 
 This brings us to inductive science and its methods. 
 It commences with analysis, it examines a certain 
 number of instances or cases, it discovers properties or 
 characteristics existing in them, and infers the exist- 
 ence of these properties in all substances of the same 
 kind. Then it abstracts these properties and sums them 
 up in a generalisation which is termed a law. The 
 truths so generalised are real discoveries of scientific 
 processes. But which is the truth which Political 
 Economy has announced by means of abstraction and 
 generalisation? Assuredly not that all men will always 
 do so and so for they do not Unquestionably Poli- 
 tical Economy employs analysis. It sees what is con- 
 tained in particular actions, but if these actions were 
 habitually performed before the analysis, and for the 
 very reasons indicated by the analysis, what discovery 
 has been made? No generalisation has been con- 
 structed. The reasons for the conduct pursued are 
 simply enumerated, one by one. The great service 
 which the analysis renders is to draw more marked 
 
 B
 
 1 8 IS POLITICAL ECONOMY A SCIENCE ? 
 
 attention to the reason which common sense discerns 
 for doing a thing in a particular way. The resolution 
 to persist in it is strengthened, the insidious attacks of 
 a new and false principle are repelled with more con- 
 scious determination and ease. 
 
 But in truth it is needless to say more. The authority 
 who advanced the claim with so much emphasis that 
 Political Economy is a science, enriched with splendid 
 generalisations by Adam Smith, himself refutes it. Mr 
 Lowe sums up his review of Adam Smith and of his 
 economical writings with the declaration, that " he has 
 enabled us to condense the whole of wealth and 
 poverty into something like four words." He appre- 
 hends that " the result of his investigations amounts to 
 this, that the causes of wealth are two, work and thrift ; 
 and the causes of poverty are two, idleness and waste ; 
 and that these will be found, the longer you reason out 
 from those simple propositions, all that is necessary to 
 be known, and perhaps all that can be known with 
 regard to the production and accumulation of wealth." 
 Here is an end of science for Political Economy. All 
 that Political Economy knows and ever will know is a 
 truth which must have dawned on the minds of Adam 
 and Eve soon after they left Paradise, which the human 
 race has brought down with them through the ages, 
 and which the French people have practised for 
 centuries, and practise now with unexampled vigour 
 and clear-sighted consistency, without having probably 
 read a single line of Political Economy. 
 
 Political Economy, then, is not a science in the strict 
 sense of the term. The question now recurs upon us, 
 What is Political Economy ? and the difficulty of giving
 
 IS POLITICAL ECONOMY A SCIENCE ? 1 9 
 
 a precise answer to it remains as great as ever. All 
 are agreed that it is concerned with wealth. Mr Mill's 
 declaration "that the popular idea of wealth that 
 every one knows what is meant by being rich is a 
 sufficient explanation of wealth," is worthless for a 
 basis of a science, but may be accepted for the general 
 purposes which discussions in Political Economy are 
 intended to subserve. The acquiescence in such a 
 vague description of wealth is fatal to Adam Smith's 
 phrase an inquiry into the nature of wealth. No book 
 on Political Economy devotes many pages to such an 
 inquiry. The remainder of his expression, an inquiry 
 into the causes of wealth, is too limited. Archbishop 
 Whately was as dissatisfied as so many others with 
 the title given to Political Economy, and proposed to 
 call it Catallactics, or the science of exchange. But the 
 word exchange means exchange of wealth, and thus 
 the vague and unsatisfactory term wealth is not got rid 
 of. Moreover there are many legitimate discussions in 
 Political Economy which cannot without violence be 
 brought under exchange. On the whole, therefore, we 
 must be content with the usual phrase, the production 
 and distribution of wealth, though it may be permitted 
 to suggest that the full title should be an "Inquiry 
 into some general processes in the production and dis- 
 tribution of wealth." 
 
 This is not scientific, but neither is Political Economy. 
 The preceding remarks warn us not to wander away 
 from common life in pursuit of the chimsera of a scien- 
 tific structure. This hopeless ambition has led to the 
 great public misfortune of the decay of authority into 
 which Political Economy has fallen. The existence of
 
 2O IS POLITICAL ECONOMY A SCIENCE ? 
 
 the discredit is universally admitted. We now know 
 the cause and may avoid it. The remedy is at hand 
 and easily available. The general truths of Political 
 Economy are not disowned by civilised nations, but 
 they are not reached through the writings and on the 
 authority of political economists. Their words are not 
 quoted as decisive, as those of a great physician or 
 lawyer, or of a chemist or astronomer, but Adam Smith 
 set thoughts and investigations in motion which are in- 
 destructible. But their influence is less than what it 
 might have been. Error and selfishness and folly are still 
 able to thwart them to a most mortifying extent. Great 
 countries are not ashamed to be protectionists : never- 
 theless, free trade is master of the mind of England, the 
 greatest commercial country in the world, and that avow- 
 edly on the authority of Adam Smith. There is not a 
 free trader in England who does not acknowledge Adam 
 Smith to be his leader. Let economical writers retrace 
 their steps back beyond the point where Ricardo 
 diverged into a wrong path. Let them return to the 
 method of " The Wealth of Nations." It may be safely 
 predicted that they will be surprised at the power which 
 they will then acquire over the whole community, and 
 they will gain this inestimable result : They will set 
 Political Economy free to perform its great function, to 
 fight the battle which belongs to it against theory, the 
 theory of the practical man, the interested manufac- 
 turer, the narrow-minded politician, the countless ene- 
 mies of common sense in all matters which relate to 
 wealth and trade. 
 
 It remains only to add a caution respecting the range 
 of Political Economy and the authority to which its
 
 IS POLITICAL ECONOMY A SCIENCE f -21 
 
 counsels are entitled. It gives instruction on wealth ; 
 but wealth is not the highest object, much less the one 
 supreme end of human life. Wealth is only an instru- 
 ment; its value consists in what it effects for its posses- 
 sor. It provides him with satisfactions and enjoyments; 
 the nature and quality of those enjoyments are the 
 criterion of its worth. A far nobler and keener gratifica- 
 tion may be had from the reading of a book, which a 
 little wealth could have procured, than from a multitude 
 of mere luxuries. There are better things than to be 
 rich : there are others, by the side of which riches ought 
 to count as nothing. Men have sacrificed their wealth 
 and their lives rather than perform a false, dishonouring, 
 or irreligious action, and their memory has been hal- 
 lowed with enduring respect. Hence that knowledge 
 respecting wealth which Political Economy proclaims 
 can claim that rank only which 'belongs to one single 
 department of human life. Political Economy must be 
 regarded as making, so to speak, a report on the appro- 
 priate methods for obtaining a single limited object. It 
 gives that report to the mind of a being who receives 
 similar reports from other portions of his nature. It is 
 for him, for the whole man, to judge how far he will put 
 in practice the advice given. By the laws of his mental 
 and moral constitution, he is not only urged but bound 
 to erect a tribunal within himself which shall judge of 
 the relative rights to command attached to different 
 ends. Political Economy may be able to show that 
 a society constructed on Communistic principles will 
 be poorer than one founded on unrestricted individual 
 liberty; the Communist is authorised to reply that 
 this is a question which falls under the jurisdiction
 
 22 IS POLITICAL ECONOMY A SCIENCE ? 
 
 of Political Philosophy, and that the best social 
 condition is higher and more imperative than the 
 best economical. Nor will anything be gained by 
 enlarging the boundary of Political Economy, as so 
 many writers attempt to do, and absorbing into it Poli- 
 tical Philosophy. Political Economy, by its very 
 nature, is not up to such a task ; its range would be un- 
 manageable, and there would always remain the fatal 
 certainty that other objects of human life would carry 
 greater weight and higher authority than the acquisition 
 of wealth. The ultimate result would be that Political 
 Economy would not receive the consideration which is 
 its due. 
 
 So much in the way of introductory observations ; let 
 us now pass on to the teaching of Political Economy. 
 
 It speaks of Wealth. With Mr Mill, we may hold the 
 popular idea of the nature of wealth to be sufficient for 
 the objects of Political Economy. It is as determinate, 
 as Mr Mill remarks, as practical purposes require. 
 But one caution must be laid great stress on. It is 
 inevitable that some nice questions should arise as to 
 the limits up to which this conception of wealth may 
 be pushed, the more especially as it is absolutely neces- 
 sary to examine doctrines which scientific refiners have 
 laid down as to what is, and what is not wealth. Let us 
 clearly remember that whether these questions can be 
 answered only imperfectly or not at all, it matters not ; 
 no injury will be done to the character or ability of 
 Political Economy. If practical purposes are satisfied, 
 all the rest is of little consequence. 
 
 Mr Mill thinks otherwise. He accepts the popular 
 idea, but he soon starts off in keen pursuit of science.
 
 IS POLITICAL ECONOMY A SCIENCE ? 23 
 
 He lays down the principle, on which he is followed by 
 Professor Fawcett, that things for which nothing can be 
 obtained in exchange, however useful or necessary they 
 may be, are not wealth in the sense used in Political 
 Economy. What warrant of fact or reasoning can be 
 alleged for fastening on Political Economy so marvel- 
 lous and so arbitrary an assertion ? Useful things not 
 wealth ! what is wealth but a collection of useful things? 
 What better description can be given of it? Yet these 
 useful things, however much they may minister to exis- 
 tence, to comfort, to enjoyment, if it is found out that no 
 one is desirous of giving something in exchange for 
 them, are instantly dismissed out of the category of 
 wealth. They must be placed, I presume, in a new 
 class, specially constructed for them. They are only 
 useful and delightful things : every one has enough 
 of them without buying them of others ; they are 
 not wealth. But the moment they are deficient and 
 something is offered to procure them, as by the touch of 
 a conjuror they are converted into wealth. A great 
 African chief, whose tribe are his slaves, and who lives 
 in complete isolation from the rest of mankind, has 
 no wealth, upon this definition : he has no Political 
 Economy. His slaves get their necessaries, like his 
 horses ; he has magnificent possessions, luxuries of 
 every kind, but no wealth. There is not a single market 
 in his dominions. Climate sun, air, and water are 
 not wealth ; no one buys them. A country is none the 
 richer for a good climate, though that climate may work 
 wonders for it in producing saleable wealth. The bright 
 rays of the sun raise splendid wines in France, magnifi- 
 cent crops of cotton in India and America but these
 
 24 IS POLITICAL ECONOMY A SCIENCE ? 
 
 wealth-making rays cannot be sold, for they can be had 
 for nothing; they are not wealth. All other matters 
 except climate being the same, Siberia is as rich by 
 nature as India. The tide which carries up the barges 
 on the Thames without cost, which saves the vast ex- 
 pense of railways and horses, which has created London 
 and its gigantic riches, is not wealth at all : there is no 
 market for its waters, they have no market price. Water, 
 which it has cost so much to spread over your land, is 
 precious wealth, so abundant is the crop it raises : that 
 same water, if it would but come down as rain, instantly 
 loses its character of wealth. One has but to ask the 
 wine growers of the Rhine or of France, or the cultiva- 
 tors of rice in India, and they will tell him whether a 
 warm sun or abundant water is or is not riches for a 
 country. Common sense has no doubt in the matter. 
 Political Economists prefer adding a subtle distinction ; 
 but thereby they turn away the world for whose benefit 
 alone they exist. 
 
 But there is a side of this definition of the Economists 
 which works out something far more mischievous yet 
 than absurdity. When it is affirmed that what will com- 
 mand wealth, for which wealth will be given, is itself 
 wealth, the foundation is laid for most grievous harm in 
 particular departments of Political Economy. This 
 fallacy, next to another to be mentioned later, is the 
 most mischievous one to be found in Mr Mill's Econo- 
 mical writings. He speaks of " an important distinction 
 in the meaning of the word wealth, as applied to the 
 possessions of an individual or to those of a nation or 
 of mankind. In the wealth of mankind nothing is in- 
 cluded which does not answer some purpose of utility
 
 IS POLITICAL ECONOMY A SCIENCE ? 25 
 
 or pleasure. To an individual anything is wealth which, 
 though useless in itself, enables him to claim from 
 others a portion of the stock of things useful or plea- 
 sant." On this doctrine, to have a right to a thing and 
 to have it in actual possession is the same thing. Thus 
 a mortgage, though only a piece of parchment, is pro- 
 nounced to be wealth to its owner, to the supposed 
 extent of a thousand pounds. It is wealth and not 
 wealth at the same moment : for the nation, that is, in 
 itself, it is a parchment only ; for its owner it is wealth 
 amounting to a thousand pounds. To grant a mortgage 
 is to give a thousand sovereigns to your borrower, and 
 also to retain as much wealth for yourself. Hence it 
 irresistibly follows that to lend is to double wealth: 
 once in the actual gold lent, and then secondly in the 
 mortgage. It can be counted twice over. In taking 
 stock of the fortunes of the borrower and lender, it 
 figures once, as so many sovereigns or what has been 
 bought with them ; in the lender's case, the mortgage 
 is reckoned as a thousand pounds. Under the passion 
 for refining, Mr Mill was misled by the fact that a man 
 may derive from a mortgage the same income as a land- 
 owner derives from his land : he remained blind to the 
 difference that in addition to the income the landowner 
 had in hand the property which gave the income, whilst 
 the mortgagee has the income indeed, but only a piece 
 of parchment besides. But in laying down definitions 
 and first principles, such oversight may have calamitous 
 results ; they propagate errors wherever the principles 
 are applied. 
 
 From this unhappy source, that a claim to wealth is 
 itself wealth, Political Economy has been flooded with
 
 26 IS POLITICAL ECONOMY A SCIENCE ? 
 
 confusion and error. The palpable absurdity of the 
 assertion is no match, strange to say, against the fas- 
 cination which it exercises on many minds. In currency 
 and banking it produces the greatest disorder. Lank 
 notes, cheques, bills, and similar documents are pieces oi 
 paper with writing on them. These writings record 
 debts due, and debts are claims to wealth, and by the 
 magical action of the principle that a claim to wealth is 
 itself wealth, these pieces of paper are converted into 
 real, literal wealth. Why does not every man in every 
 nation take to borrowing of his neighbour upon ac- 
 knowledgments in writing ? The wealth of mankind 
 would be instantly doubled. This doctrine, so indiges- 
 tible to common sense, is even proclaimed as the 
 unravelling of a mighty secret, as the brilliant illuminator 
 of the benighted region of currency. Mr Macleod has 
 generalised Mr Mill's formula, not wealth for the 
 nation, but wealth for an individual into an ultimate 
 principle which explains all paper currency and all 
 banking. " Incorporeal property is wealth ! " The man 
 who has taken in that truth knows what bank notes and 
 deposits recorded in banking ledgers are ; they are 
 wealth. Mr Macleod borrows the phrase " incorporeal 
 property" from legal writers, and he justifies its use by 
 appeal to the authority of great jurists of the past and 
 the present. The expression is awkward and artificial, 
 but it is not nonsense. It means property without the 
 corpus or substance ; it expresses a right to a thing 
 without the actual possession of the corpus or thing 
 itself. Such a right clearly is a property, a valuable 
 possession, capable of being recognised in a Court of 
 Law, and saleable for money. There is no difficulty in
 
 IS POLITICAL ECONOMY A SCIENCE ? 27 
 
 selling a reversion to an estate, or a chattel of which the 
 possession can be obtained only at a deferred date. 
 Such sales occur every day. A twelve months' bill is a 
 piece of incorporeal property, a right to obtain coin, 
 which cannot be got into the owner's hands before the 
 lapse of a year. The words written on the bill are good 
 at law, and will at the proper time, if necessary, be en- 
 forced by decree of Court. Such written words are very 
 saleable, because complete reliance is placed on their 
 fulfilment at the specified time. The bill is a title-deed, 
 as is a bank note or a cheque ; it is incorporeal property 
 in the sense of the lawyers. But here the lawyers stop ; 
 Mr Mill and Mr Macleod go forward. That incorporeal 
 property they call wealth ; this the lawyers do not say. 
 The two Economists invent the principle that a claim 
 to wealth is wealth ; and the bill fulfils the condition. 
 The piece of paper has a claim for ^1000 written upon 
 it ; it is actually a thousand pounds. Equally are they 
 bound to preach that spoken words are wealth also, for 
 words can give a claim to a thousand pounds, equally 
 good at law as a written deed. These words, on the 
 principle claimed, must be wealth, must be a thousand 
 pounds. " Beware," remarks Mr Donisthorpe, " of con- 
 founding these rights and wealth. A promissory note 
 is merely a promise to pay, and the paper on which 
 such promise is recorded is no more entitled to be 
 called wealth than the sound of an honest man's voice 
 making the same promise. ... So disappear from 
 the scene, it is hoped for ever, Mr Macleod's second 
 and third species of wealth." 
 
 The plain minds of ordinary men are naturally slow 
 to take in the truth of such a wonderful conclusion ; so
 
 28 IS POLITICAL ECONOMY A SCIENCE ? 
 
 a resource of great power is brought up to complete the 
 conversion. A metaphor is fetched up from common 
 life. Incorporeal property is wealth, for it represents 
 wealth. Under the cover of this figure of speech the 
 underlying absurdity is concealed. Does not a trades- 
 man in taking account of stock, set down his shop debts 
 as well as his goods, as representing so much money ? 
 If the debts are good, are they not the same as money ? 
 So in bankruptcy assets are constantly described as re- 
 presenting so much cash. The incorporeal property 
 theorists quote these facts triumphantly, and waive all 
 further discussion. Every science must have terms of 
 its own, and "represent" is the scientific economical 
 term. What more is needed to prove the doctrine? 
 The puzzled hearer may be inclined to think that he 
 is mystified with a second phrase wonderfully like the 
 dictum that " incorporeal property is wealth." A repre- 
 sentative is the thing represented ; a counter or ticket 
 which stands for a sovereign is the sovereign itself. 
 The member who represents a county is the county 
 itself. Can we feel surprised that writings on Political 
 Economy are increasing in discredit, that they wield 
 diminished authority over that practical world for whose 
 good alone Political Economy exists ? 
 
 There is another widely-spread fallacy which has 
 come forth from the same nest Credit is wealth 
 exclaims a multitude of speakers and writers. Nothing 
 can be more untrue. Wealth is a substance. Even 
 skill, which is justly regarded as wealth, is conceived 
 as embodied in a substance, as a part of a working 
 machine, the man that labours. But credit is not a 
 substance at all. It is an abstract term, denoting a
 
 IS POLITICAL ECONOMY A SCIENCE ? 29 
 
 mode of acting. It is a particular way of acquiring 
 property, nothing more. No one has ever called buying 
 or lending wealth ; they are simply different ways of 
 procuring the things termed wealth. Credit is a species 
 of which buying is the genus. Buying is the complete, 
 credit the incomplete transaction. Buying effects the 
 exchange wholly, by giving money for goods. Credit 
 leaves one half undone, takes away the property and 
 gives the equivalent for it, the payment, at a later time. 
 This mode of buying is said to be performed on credit, 
 because it is founded on trust or belief. 
 
 But though credit is not wealth, as an abstraction 
 cannot be a substance, the method of purchasing desig- 
 nated by credit is highly instrumental in the production 
 of wealth. Banking is a mode of employing the process 
 of credit, and few inventions, if indeed any, do so much 
 for the increase of wealth as banking. But banking no 
 one calls wealth, though everyone knows that it is a 
 great creator of riches. It places a large part of the 
 capital of the nation in the hands of those who can 
 work it with the greatest efficiency. The result is a 
 mighty augmentation of the wealth made. Banking is 
 a mode of doing business, and no one astonishes his 
 neighbours by calling banking actual wealth. But in 
 respect of credit, the phrase 'credit is wealth' finds 
 favour with many writers precisely on account of the 
 scientific, or rather, the vague sound of the expression. 
 They forget to how many ears it has the sound of jargon, 
 and how sadly it repels men from Political Economy as 
 dealing in language unintelligible to the every-day 
 world. 
 
 An interesting question has been raised in respect of
 
 30 IS POLITICAL ECONOMY A SCIENCE ? 
 
 the range of the word wealth, on which it is desirable 
 to make a few remarks. Is a skilled labourer a part of 
 the nation's wealth ? Mr Mill is unwilling to permit 
 the people of a country to be accounted a portion of 
 its wealth. They are that for the sake of which its 
 wealth exists. But he allows skill to be wealth. " It 
 has as much right to the title when attached to a man 
 as when attached to a coalpit or a factory." The dis- 
 tinction is fanciful. The skill of the workman helps to 
 make wealth, but so also do his sinews, as the sinews 
 and the man, in this relation, are not distinguishable. 
 A trained horse ranks as wealth, but so also does the 
 young vigorous horse before he is put into training. 
 If skill is acknowledged to be wealth, it cannot be 
 separated from the workman in whom it is embodied, 
 for skill is only knowledge how to use his hands. 
 
 But we must go further still. I hold, against Mr 
 Mill's limitation, that the qualities of a people, their 
 moral, intellectual, and physical natures, are parts of 
 their wealth. What men are is a force of enormous 
 power in determining the amount of the wealth they 
 create. The emancipated negroes of Jamaica and of 
 the United States would not labour for more than mere 
 necessaries. They do not care to be wealthy and are 
 not. The Chinese are a great wealth-producing people 
 as a consequence of their character. Their neighbours 
 and kinsmen, the Tatars, are not. The difference lies 
 in the moral temper of every people. Europe lately 
 exhibited a splendid example of the power of character 
 in the creating of wealth. France astonished the world 
 by a recovery from a devastating war, and a crushing 
 penalty of 220 millions of pounds sterling at its close.
 
 IS POLITICAL ECONOMY A SCIENCE f 3 I 
 
 Her revival astonished and alarmed her conquerors. 
 And to what was this splendid restoration due ? To 
 the temper and character of the French peasant, to his 
 inveterate love of thrift, to his resolute determination 
 to meet losses by curtailed expenditure and by saving. 
 Is not such a quality of soul as truly an economical 
 force, as real a wealth-making machine as a factory 
 or a fertile soil ? 
 
 But then, it will be said, we must give up all hope of 
 a scientific definition of wealth. We must ; and, as 
 shown above, this is no loss to Political Economy. 
 As Mr Mill confesses, the popular notion of wealth 
 suffices.
 
 CHAPTER II. 
 
 VALUE. 
 
 I PROPOSE, thus early, to speak of Value. It is a word 
 of the widest range ; indeed it may be said to pervade 
 the whole of Political Economy. It is met with every- 
 where, in the production and distribution of wealth, in 
 wages and profits, in every form of exchange. Its 
 power is felt all through the economical life of mankind. 
 It is a matter .of supreme importance to obtain a right 
 understanding of its meaning. 
 
 All systematic writers on Political Economy have 
 recognised the great significance of this word, and all, 
 it may be said, have occupied themselves in answering 
 the question, What is value ? There is one word, 
 says Professor Perry, that marks and circum- 
 scribes the field of Political Economy, that word 
 is value. In proportion as an economist is able 
 and eminent does he make vigorous efforts to 
 discover a true and satisfactory answer, but the 
 question has all along been found to be most for- 
 midable." "The question is fundamental," remarks 
 Mr Mill. "Almost every speculation respecting the 
 economical interests of a society thus constituted (that 
 is, constituted on the necessity of exchanging products 
 obtained by the labour of another) implies some theory 
 of value. The smallest error on that subject infects
 
 VALUE. 33 
 
 with corresponding error all our other conclusions, and 
 anything vague or misty in our conception of it creates 
 confusion and uncertainty in everything else. Happily 
 there is nothing in the laws of value which remains for 
 the present or any future writer to clear up." 
 
 But how does Mr Thornton open an article entitled, 
 "Cairnes on Value," in the October, 1876, number of 
 the Contemporary Review: 
 
 " Most members of the Political Economy Club must 
 be familiar with an anecdote of Sydney Smith, who not 
 many months after joining the club announced his 
 intention to retire, and on being asked the reason, 
 replied that his chief motive for joining had been to 
 discover what value is, but that all he had discovered 
 was that the rest of the club knew as little about the 
 matter as he did. That his sarcasm, however severe, 
 was probably not unmerited, may be inferred from the 
 haze with which the object of Sydney Smith's curiosity 
 is still surrounded, and from the, at best, but very 
 partial success of the recent attempt made by so power- 
 ful a thinker as my lamented friend, the late Professor 
 Cairnes, to pierce the cloudy envelope." 
 
 Fortunate would it have been for Political Economy 
 if Mr Mill's happy and confident belief that the mean- 
 ing of the word value had been discovered once and for 
 ever had been warranted by fact, that the sense of a 
 first-rate expression had been ascertained with the pre- 
 cision of a geometrical truth. But alas the history of 
 economical writing, since the days when Mr Mill had 
 this delightful sensation, records only a series of never- 
 ending struggles to catch the ever fugitive meaning of 
 this most baffling of words, till at last Professor Jevons, 
 
 C
 
 34 VALUE. 
 
 one of the latest wanderers in this trackless region, 
 is forced to exclaim that "he will discontinue the 
 use of the word altogether." , Many may feel dis- 
 posed to think that Political Economy has come to a 
 pretty pass when Professor Perry flings away the 
 word wealth, and Professor Jevons the word value, 
 both unquestionably able and eminent economists, 
 as hopeless. What is the vaunted science to speak 
 about ? 
 
 It is now desirable to review the principal explana- 
 tions which have been given of the word value. 
 
 Of Adam Smith it may be affirmed that he has not 
 said, in precise terms, what value is. A dictum which 
 he uttered about it has obtained world-wide celebrity. 
 Every writer feels the duty of drawing the student's 
 attention to it. There is, he affirms, a value in use and 
 a value in exchange. But this formula does not explain 
 what value is. It is often assumed that he declares that 
 there are two kinds of value radically differing in nature, 
 but this interpretation is not necessary to give sense to 
 the expression, and, I am persuaded, misdescribes his 
 meaning. It is troublesome enough to have one word 
 to expound, but to search for two different meanings 
 for the same word would be indeed a hopeless task. 
 What Adam Smith did really affirm is that value is 
 attached to two different objects to things which are 
 used only, and secondly to things which are exchanged. 
 There are valuable things which are saleable, and there 
 are other valuable things which are not. That is the 
 distinction drawn, and it is perfectly sound. Value is 
 one, but the things it is applied to are two. The dictum 
 rnay supply us, we hope, with a hint which will give us
 
 VALUE. 35 
 
 help to discover this oft-attempted, but as yet unreached 
 North Pole. 
 
 Bastiat assures us that exchange gives existence to 
 value. He thus charges Adam Smith with error, for 
 he plainly speaks of a value which exists but which is 
 not connected with exchange. This value Bastiat an- 
 nihilates. No acuter mind ever applied itself to Poli- 
 tical Economy than Bastiat's, but here he ignored the 
 fact that the every-day language of mankind calls many 
 things valuable for which not a single farthing could be 
 had in exchange. Nothing can be more certain than 
 that a definition of value, which either practically 
 stigmatises as senseless the use in ordinary life of so 
 thoroughly natural an expression as valuable attached 
 to an object for which there is no sale, or invents a new 
 sense for it to be specially appropriated to Political 
 Economy, in direct contradiction to popular feeling, 
 amounts to a total failure in solving the problem of its 
 meaning. An economical idea of value which leaves 
 out an ever-recurring sense of the word in common life 
 is little short of an absurdity. 
 
 Mr Macculloch lays down, " By value I shall signify 
 exchangeable worth, value in exchange." This definition 
 first explains a word by itself, for value and worth are 
 the same thought under different words ; and secondly, 
 by confining himself to value in exchange, he neither 
 explains what value is this value in exchange and like 
 Bastiat he gives up Adam Smith's and the common 
 world's value in use as having no place in Political 
 Economy. But Mr Macculloch advances yet further. 
 He declares that spontaneous productions have no 
 value, except for the labour of appropriation. This
 
 36 VALUE. 
 
 strange assertion well illustrates the style of treatment 
 which even distinguished writers have not disdained to 
 apply to Political Economy. Did it never occur to him 
 to ask himself whether an autograph of Shakspeare or 
 of Oliver Cromwell found accidentally in a drawer, or a 
 diamond picked up from the ground in Australia, or 
 the skull of an old Briton or of one of Alaric's Huns 
 stumbled upon by chance, or the bone of some rare 
 geological animal discovered in piercing a railway 
 tunnel, had any value or none, even in exchange ? We 
 must seek help of some other authority. 
 
 Let us appeal to Mr Mill; we shall obtain the defini- 
 tion of whose accuracy he is so confident : " Value is 
 always value in exchange. Value is a relative term. 
 The value of a thing means the quantity of some other 
 thing, or of things in general, which it exchanges for." 
 This definition has one signal merit : it is perfectly 
 clear, with the exception of that unlucky addition of 
 " things in general." Mr Mill intended, no doubt, to 
 signify by these words the universal purchasing power of 
 money, which can buy anything on sale ; but they yield 
 no increase of meaning to the expression value. A 
 valuable thing cannot be exchanged for things in gene- 
 ral, but for one or more selected out of them. However, 
 we are now plainly told what value means. The ques- 
 tion, What is the value of a ton of pig-iron ? has for 
 answer, say, four sovereigns. Four sovereigns and the 
 value of a ton of iron are therefore identical expressions, 
 and vice versa a quarter of a ton of pig-iron and the 
 value of one sovereign are equally identical terms. It 
 must be admitted that there is support, in popular 
 language, for this definition. It is used every day in
 
 VALUE. 37 
 
 ordinary life. The value of that watch is fifty pounds 
 is a perfectly natural expression, and it must not be 
 discarded in an explanation of value. We must accept 
 it in the sense of market-value, the quantity of money 
 for which a thing can be exchanged that is, price. 
 
 But here Professor Jevons, in his "Theory of Ex- 
 change," makes the objection : " If there is any fact 
 certain about value, it is that it means not an object at 
 all, but a quality, attribute, or rather a circumstance of 
 an object." Is this objection well founded ? If it is, 
 then Mr Mill has confounded the measure of an article's 
 value with the value itself. " Price measures value," 
 says Professor Jevons, " the measure of a thing is not 
 the thing itself." Now it must be granted, I conceive, 
 that the objection of Professor Jevons is true in spirit, 
 but not in the precise words in which it is stated. Value 
 is something more and other than the thing which an 
 article can command in exchange ; value and market- 
 value are not identical terms, but that something more 
 comprised in the word value is not a property or attribute 
 of the article itself. Professor Jevons in turn has fallen 
 into a confusion ; he confounds the property or quality of 
 an object which creates value with value itself. That 
 property is always utility, and by utility must be under- 
 stood the power of giving to a man any kind whatever 
 of gratification or satisfaction. Both Mr Mill and Pro- 
 fessor Jevons ignore a multitude of expressions in com- 
 mon language which go to the very core of value. Such 
 phrases as, I value this old manuscript, or this unique 
 specimen, or, my dead friend's last letter to me, or, my 
 dead child's plaything, give utterance to something radi- 
 cally distinct in kind from either the quantity of money or
 
 38 VALUE. 
 
 other articles which they could fetch on exchange, or 
 from any property or quality residing in them. The 
 case is identical with that of the expression, I love that 
 child. Love is not a quality, an object in the child, but 
 a feeling in me called out by a quality in the child. 
 That quality is not love, but something which excites 
 love. The feeling is in my mind, the quality giving 
 rise to it in the object. So it is with value. The 
 phrases just mentioned place value in the I, in the 
 person feeling value. The iron and the sovereigns are 
 objects, precisely because the sentiment of value falls 
 upon them. Neither of these eminent writers has 
 touched the point, which is the core of the question for 
 Political Economy the strength of the feeling, I value. 
 That strength of feeling it is which determines the 
 amount of the commodities which will be required for 
 an exchange or sale. Mr Mill's definition simply re- 
 cords the results which the strength of the feeling value 
 has produced, the result embodied in the quantity of 
 the things which passed in the exchange. He finds a price 
 attached to a thing, an amount of money or other com- 
 modities which must be given to acquire it ; that he 
 calls its value, but he altogether passes over the fact that 
 this price, this market-value, is the consequence of a 
 judgment formed by the sentiment, the feeling, value. 
 
 Professor Jevons* does recognise a property or cir- 
 cumstance which he says "means," but he evidently 
 intended to say, "which confers value, market value, 
 on the object;" but he does not reach the mind of 
 the valuer, and so fails to explain value. Had he 
 gone on to connect this property, this utility of the 
 * " Theory of Political Economy."
 
 VALUE. 39 
 
 object, with its effect on the feelings of him who 
 values, he would have ultimately reached the true mean- 
 ing of the word value. He discerns the useful quality of 
 the thing valued ; but he is conscious that this is not 
 enough to explain the word, or to determine the 
 amount of its price. Accordingly he resents " the inex- 
 tricable confusion with the notion of utility in the sense 
 of the word value," and ends by giving it up in despair, 
 as a word which he can make nothing of. 
 
 But Professor Jevons feels bound to supply a substi- 
 tute. Exchange cannot be explained without a term 
 which performs some of the services which the expres- 
 sion value rendered. So he adopts in its place ratio of 
 exchange, as a term which is unequivocal ; and then 
 adds the explanation : " When we speak of the ratio 
 of exchange of pig-iron and gold, there can be no possible 
 doubt that we mean merely the quantity of one given 
 for the other." This is precisely Mr Mill's definition of 
 value. What the Professor has done is to expel the 
 word value, to put in its place ratio of exchange, and 
 thus to give ratio the exact meaning with which he was 
 dissatisfied in value. The deficiencies of Mr Mill's ex- 
 planation apply equally to the expression ratio of 
 exchange, besides its being an expression utterly foreign 
 to the market, the factory, and the retail shop in which 
 Political Economy dwells. The Professor feels these 
 deficiencies, and in his heart longs to come back to 
 value. After a long discussion on the Theory of Ex- 
 change, he touchingly exclaims : " I have pointed 
 out the excessive ambiguity of the word value, and 
 the apparent impossibility of using it safely. When 
 used to express the mere fact of certain articles ex-
 
 4O VALUE. 
 
 changing in a particular ratio, I have proposed to sub- 
 stitute the unequivocal expression ratio of exchange. 
 But I am inclined to believe that a ratio is not the 
 meaning which most persons attach to the word value. 
 There is a certain sense of esteem, of desirableness, 
 which we may have with regard to a thing apart from 
 any distinct consciousness of the ratio in which it would 
 exchange for other things." It is to be regretted that 
 he did not follow out the clue contained in this thought; 
 he would then have found his way out of the labyrinth. 
 
 Professor Jevons calls the expression, ratio of ex- 
 change, unequivocal. As applied to value, nothing can 
 be less so. Ratio simply means proportion. Ratio is a 
 mathematical expression, and nothing else. Twice, three- 
 quarters, of the size, or number, and so on. But before 
 a ratio can be stated, the things compared must be 
 brought to a common denominator. Gold and pig-iron 
 are not halves or quarters of each other in exchange. 
 
 By value Mr Mill and Professor Jevons mean price. 
 Mr Mill feels the danger, of losing his word value by 
 its being merged into price and tries hard to save it. 
 " The early Political Economists," he tells us, "treated 
 price and value as synonymous, but this was a wasteful 
 expenditure of two good scientific words on a single idea." 
 So he comes to the rescue with a subtle distinction. 
 " By the price of a thing he will understand its value in 
 money ; by the value or exchange value of a thing, the 
 command which it gives over purchaseable commodities 
 in general," but this is manifestly a distinction without 
 a difference, a pure tautology. This very command is 
 the one thing which money possesses. Money com- 
 mands all " purchaseable commodities."
 
 VALUE. 41 
 
 Professor Cairnes walks in the same path as Professor 
 Jevons. He defines value as proportion or ratio in ex- 
 change of commodities. By this definition he must 
 mean one of two things. Either value is the quantity of 
 other things which an article can command that is 
 price or a mathematical relation. It is unnecessary 
 after what precedes to say more about either of them. 
 
 Professor Perry of Williams College, Massachusetts,* 
 an economist of great ability, defines value as the rela- 
 tion of mutual purchase established between two 
 services by their exchange. This is ratio of exchange, 
 but then he has his common denominator. All articles 
 are reduced to services. "The value of a thing," he adds, 
 " is its purchasing power expressed in any other purchas- 
 ing power whatever." This is a repetition of almost the 
 very words of Mr Mill. Value, for the possessor, is the 
 quantity of other services or things which a service or 
 thing can command, which can be got by means of it 
 
 Mr Shadwell,^ a writer of much learning and ability, 
 defines value to be, " the esteem in which commodities 
 are held, as measured by the quantity of labour which 
 will be given in exchange for them." The word esteem 
 gave promise of a new and, as I hold, right conception 
 of value ; indeed, the words, " the esteem in which com- 
 modities are held," are the true explanation of value. 
 But, like Professor Jevons, Mr Shad well does not 
 seem to have followed out the thought contained 
 in esteem. Immediately after the definition, he thus 
 proceeds : "To explain why a given commodity has a 
 given value is to answer the question, Why does its 
 
 * ' ' Elements of Political Economy. " 
 
 t " A System of Political Economy," by John Lancelot Shadwell.
 
 42 VALUE. 
 
 possession enable its owner to command the labour 
 of others so many days ? or which is the same thing, 
 Why is it necessary for the labourer to spend so many 
 days in order to procure the commodity in question ? 
 Thus value and wages are the same phenomenon seen 
 from two different points of view, and the answer which 
 naturally suggests itself to both questions is, Because 
 it has required just so many days' labour to produce 
 the commodity." It is evident that the idea of esteem 
 has here disappeared. In its place we have " so many 
 days' labour ; " or, we may suppose, such an amount of 
 wages. Thus in reality we are brought to Mr Mill's 
 definition, to market value, to command over a given 
 quantity of commodities in exchange. Only for com- 
 modities days' labour is substituted, as being the 
 regulator of the quantity of commodities given in ex- 
 change for the thing possessing value. Feeling has no 
 place in this definition of value. The command of a 
 day's work is made to be value. 
 
 It is unnecessary to say more to show the want of 
 success which has attended the many attempts to 
 answer that very natural, but very unmanageable 
 question, What is value ? The review of the diverse 
 opinions expressed almost seems to justify the remark of 
 one who himself embarked on this sea of troubles in an 
 unpublished and extremely intelligent essay on value, 
 the late Colonel Macdonald. "It cannot be denied 
 that no science was ever buried under such a mass of 
 unintelligible pages and hidden from the light of com- 
 mon sense by words without knowledge than the science 
 of Political Economy; and yet ignorance and error here 
 must be followed by evils more fatal to the comfort and
 
 VALUE. 43 
 
 happiness of the human family than in any other science 
 whatever." His criticism on the recorded definition 
 of value marches on the same line with that here given, 
 the line of esteem. Yet he ultimately landed himself 
 in an identification of value with utility, when he stated 
 "value to be that property which creates in man a 
 desire to possess the article containing it." 
 
 Is it presumptuous to believe that this problem is 
 not insoluble that a satisfactory solution may yet be 
 hoped for ? A word so deeply planted in the every 
 day language of men must surely admit of some 
 acceptable explanation ; whilst its acknowledged im- 
 portance warrants every honest effort to reach the end 
 desired. I must venture on such an attempt, and 
 submit it to public consideration and judgment. 
 
 Adam Smith's declaration, that there is a value in 
 use and a value in exchange, covers the whole ground. 
 There are things which possess value which are not 
 saleable, for which no one will give anything in ex- 
 change ; and there are other valuable things which can 
 be exchanged by a sale for money or by barter. Of 
 the first kind are Robinson Crusoe's gun, which, beyond 
 all doubt, he valued greatly, but not for any purpose 
 of exchange. He had no market. The thought of 
 exchanging the gun could not occur to him. Such also 
 is a flower gathered under circumstances of great 
 interest, the toy of a departed child, the extremely 
 valuable horse of a Turcoman, which he is bound never 
 to sell, the aged stump of a decayed oak, and many 
 other similar things. It cannot be denied that the 
 term value is daily applied to them with complete 
 correctness of language. They are valued, often most
 
 44 VALUE. 
 
 highly. No money could procure them since they are 
 never offered for sale. A Turcoman would rather 
 die than commit the sacrilege of selling his horse. 
 
 In this class figure the oft-quoted instances of unsale- 
 able water and air. The supposition that a thirsty man 
 sets no value on a glass of water which he took up out of 
 a running stream would be preposterous. It would bring 
 down ridicule on him who maintained it. What matters 
 it that such valuable things cost nothing? Such a 
 thought never presents itself to their valuers. Their 
 want of price only means that no effort or labour is 
 needed for their acquisition ; but does it imply that 
 their owners are indifferent to such possessions, because 
 they cannot be sold ? that they would experience no 
 sense of loss if deprived of them ? that the thirsty man 
 does not appreciate the refreshing draught of the water 
 which has cost nothing ? Such things are felt to be valu- 
 able, and some meaning of the word value must be found 
 for them. The presumption is irresistible that this value 
 will be the same in kind and essence with the value 
 which belongs to things capable of being exchanged. 
 
 Value is pronounced to be a relative expression, and 
 the assertion is true. But what is the relation ? between 
 what bodies does it exist ? Professor Perry refuses to 
 admit that value exists independently of exchange. 
 " Ten cents, had the power of purchasing my pencil, 
 and my pencil had the power of purchasing ten cents. 
 A similar transaction first introduced the idea (of value) 
 in the West." But this is palpably untrue of the appli- 
 cation of the term value to the cases just cited. There 
 is no thought of exchange in them. The relation 
 implied in value when such unexchangeable things are
 
 VALUE. 45 
 
 spoken of is therefore not to a commodity, but to one 
 who values, to a feeling of esteem, to a judgment in the 
 human mind. This reveals the secret of that very 
 common word value. It expresses .a feeling, a sense of 
 attachment, of affection for a thing, a caring for it, a 
 desire to possess it, an intention, more or less strong, to 
 retain it in possession. 
 
 It cannot be denied that this sense of the word suits 
 perfectly all the cases of value in use. Every such thing 
 is the object of value, because they all have a hold on 
 the feeling of their owners or would-be owners. They 
 are all consequently valuable. They excite value, 
 attachment, esteem in the minds of their owners. 
 The thirsty man values the glass of water, which costs 
 him nothing, and which he could, if spilled, instantly 
 outeacpla for the brook. He will exclaim how grate- 
 ful it is to him. 
 
 If now we analyse the process of exchanging we shall 
 find this idea of value wielding a decisive influence on 
 its results. Value, as feeling, governs the process. It 
 determines whether there shall be an exchange, and on 
 what terms. Market-value, the quantity of money or 
 things which an article can command, is a consequence 
 an effect. The estimation in valuing has completed its 
 task, and the quantities of the articles exchanged have 
 been settled. Each of these quantities is a market- 
 value, the product of the decisions made by the feelings 
 of the exchangers, their respective feelings of value. 
 
 For instance, a fine sportsman is in want of a good 
 hunter. He is offered such a horse by a dealer at a price of 
 three hundred guineas. The sportsman likes the 
 horse and is eager to purchase him, but he finds the price
 
 46 VALUE. 
 
 uncomfortably high for his means, or in excess of his 
 estimate of the horse's quality. Bargaining takes place, 
 and ultimately the horse changes owners at two 
 hundred and fifty guineas. Professor Perry has 
 admirably pointed out, that in such a transaction, as 
 indeed in every exchange, every sale, two desires and 
 two efforts are at work. To these must be added two 
 satisfactions. The sale is thus the result of six forces 
 three on each side, all of them mental, all occupied in 
 determining the strength of the feeling, I value, in the 
 minds of two persons. The sportsman desires the 
 horse and the dealer money, or which is the reality 
 always underlying money, those commodities or services 
 which the money will be able to purchase for him. 
 Each man has to make an effort ; the one to part with 
 his horse, the other with his money. Lastly, on 
 a comparison of these four feelings, working by 
 pairs on each side, the sportsman comes to the 
 conclusion that he has a higher feeling or esteem 
 for the horse than for two hundred and fifty 
 guineas. The dealer arrives at the opposite sentiment, 
 and the exchange is accomplished. The result is the 
 transfer of two properties, and two satisfactions, one in 
 each of the minds of the buyer and of the seller. Here 
 the nature of value is plainly discerned, the esteem, or 
 caring for, felt for two things in the mind of each of 
 two persons. Both value both the things exchanged. 
 Each values more and prefers to have the thing which 
 the other possesses than that which he himself holds. 
 Each calculates, consciously or not, the severity of the 
 effort he must make to obtain the object of his desire 
 at the loss of what he must give away; and when all is
 
 VALUE. 47 
 
 over each experiences a satisfaction on becoming the 
 possessor of the article he values most. The bargain- 
 ing itself is an antagonism of feelings, the sportsman 
 struggling to buy the horse on such terms as will render 
 the effort, the sacrifice endurable, the dealer striving 
 to obtain money sufficient to reconcile him to the sale 
 of his horse. 
 
 The same holds equally good of an exchange of ser- 
 vices, or of a service against money. Professor Perry 
 lays peculiar stress on the employment of the expres- 
 sion service in the place of commodities, but the differ- 
 ence is only one of detail. He admits that the man 
 who supplies you with a barrel of apples has given in 
 exchange a service equal to that of a physician who 
 attends upon a fever. Quite true. The tailor who 
 makes a coat for another man, or the manufacturer who 
 wove the cloth does him a service, and it is that service 
 that he is paid for. For all but an insignificant portion 
 of purchases, the cost of articles exchanged is made up 
 of payment for services, whether in the form of wages 
 for labour or for the assistance of capital. All this is 
 true, and it is highly important to study and understand 
 this mechanism of trade. But the truth is equally ex- 
 pressed by speaking of the commodity itself. The coat 
 sums up all the services rendered to produce it, and 
 when all are counted up, their name is legion.. From 
 first to last, including the construction of tools and 
 transport by sea and land, the services given to put a 
 coat on a man's back would reckon up in thousands. 
 
 This explanation of the word value differs in essence 
 from the sense attached to it in the expression that the 
 value of a ton of iron is four pounds. The word here
 
 48 VALUE. 
 
 denotes the estimate which the valuing process puts 
 upon iron. Four pounds and a ton of pig-iron measure 
 the strength of the feeling of value in the minds of the 
 buyer and of the seller; and for the purposes of common 
 life it is easier to speak of four pounds as the value of 
 the iron than to use language which refers to the valuing 
 process. Value thus becomes in appearance a property 
 of the article itself ; but that is the very reason why it is 
 found so unmanageable and so unsatisfactory for Political 
 Economy. Mr Mill's definition, and others, like ratio 
 of exchange, only tell what the purchase has resulted in 
 for both commodities, the iron and the money ; but they 
 say absolutely nothing about the causes which deter- 
 mined the quantities of iron and money to be ex- 
 changed. 
 
 Further, they oppose strong obstacles in the way 
 of penetrating to the meaning of the word value as em- 
 ployed not only in the cases of value in use, when no 
 sale for money is dreamt of, but also in the universal 
 use of the verb, I value. The idea of valuing is missing 
 in them. Not that the employment of the noun-substan- 
 tive value, as denoting price, can ever be avoided. 
 Every attempt to do away with it must end in failure ; 
 it is too deeply rooted in popular language. What we 
 have to do is to keep clearly before our minds that 
 value in this common sense means market value, or 
 price ; and that it is the effect and consequence of the 
 valuing process, which has for its force in determining 
 this market-value or price that feeling in the mind, that 
 esteem or caring for a thing, which is true value, and is 
 ever present in every form of the verb, I value. 
 
 Thus there need be no ambiguity of thought or writ-
 
 VALUE. 49 
 
 ing; and we get by the interpretation here given the 
 immense advantage of understanding the process of 
 exchange and the determination of price. Each of the 
 two parties to an exchange makes his own decision in 
 valuing for himself. He determines the strength of his 
 own feeling, his own valuing first of all of the article 
 he desires to obtain, and then secondly of the other 
 article which he is parting with. He determines for 
 himself whether the gratification of the acquisition will 
 equal the pain or effort for what he is sacrificing. 
 
 Of this regulating power of the sentiment, value, in 
 determining price or market value, the method of sale 
 by auction furnishes an excellent illustration. An 
 attractive house, a rare picture, or a fascinating piece of 
 porcelain is put up to auction. The desire to acquire it 
 springs up with great force in many minds. Eager pur- 
 chasers throng the auction-room ; most of them, except 
 dealers who buy to sell again, have not absolutely de- 
 cided on the figure beyond which they will not advance. 
 They have not settled with themselves how strong is 
 their feeling, I value, or what sacrifice they will be pre- 
 pared to encounter in order to gratify their desire for 
 possession. The auctioneer's figure is rising, in har- 
 mony with the strength of value in some bidder. He 
 dilates with persuasive rhetoric on the charming quali- 
 ties of the object. Anxiety begins to burn in many a 
 heart. Price is fast approaching the limit of some 
 bidder, yet he cannot give up all hope of winning the 
 coveted prize. The feeling, value, is too strong for its 
 antagonist, prudence ; and ultimately he wins by a sac- 
 rifice greater than he intended at the outset. Thus 
 
 market value price in the current sense of trade, is estab- 
 
 D
 
 5O VALUE. 
 
 lished ; but it has been determined by the feeling, 
 value, the affection felt for the object. The ratio of ex- 
 change, the quantity of money, or money's worth, has 
 been defined by the action of mind, of will, under the 
 impulse of the feeling, value. 
 
 The force which is so visible at an auction pervades 
 all exchanges. The sentiment that a commodity or 
 service is desirable, compared with the counter feeling 
 of the sacrifice to be endured for its acquisition, governs 
 the very large class of transfers of property effected by 
 bargaining. It rules at fairs, in the purchases of short- 
 horns and southdowns, in the speculative dealings of 
 merchants and traders, in all the bazaars of the East. 
 It matters not whether the motive at work be the desire 
 of profit or that of acquiring an esteemed object ; the 
 governor of the exchange is the feeling called value. It 
 is master of the situation, according as the internal, the 
 mental circumstances of the case may be. It rules and 
 decides amidst the distresses of scarcity, or the agonising 
 surrender of some beloved object to necessity, or the 
 needs of the hour, or the chances of a future market. If 
 purchase is accomplished, the feeling is established that 
 the object obtained, however trifling under other circum- 
 stances, is at the time a more desirable possession than 
 the thing sacrificed with so much pain. A horse excited 
 a stronger sense of value in Richard on the day of battle 
 than his kingdom. 
 
 On the same principle, the fees of the great barrister or 
 the eminent surgeon are regulated by the conflicting 
 ideas of themselves and of their clients. The claim seems 
 excessive ; it is shrunk from as overwhelming ; but on 
 no other terms can the great speech or the skilful opera-
 
 VALUE. 5 1 
 
 tion be obtained, and the esteem felt for such service 
 prevails. Still wider yet is the range which the judgment 
 of the mind exercises in selling. Its decrees un- 
 derlie those prices which are paid so readily and 
 so naturally over all the shops. The signs of the 
 struggle between the two values, the two opinions on 
 the worth of the thing sold, are not plainly visible ; and 
 hence it is easy to be misled here as to their existence. 
 Yet if consumers are struck in a particular part ot 
 their fortunes, if war or a bad harvest has raised ex- 
 penditure, some articles formerly bought have had the 
 regard for them smothered by other feelings ; they are 
 purchased in diminished quantities, or perhaps not at all. 
 If we look at trade-unions we shall see the same spec- 
 tacle. What are strikes but outbreaks of feeling, of 
 ideas ? The Unionist thinks that he can enforce a 
 higher compensation for the sacrifice of his toil. If he 
 conquers in the strike, he must be satisfied by higher 
 wages ; the feeling of value has prevailed, and raised 
 prices proclaim a victory dictated by temper, sentiment, 
 and ideas. 
 
 In the domain of labour, the feeling, value, is as 
 paramount as in every other. In purchases which are 
 guided by fancy, such as rare porcelain or jewels, the 
 supremacy of sentiment is acknowledged ; but for the 
 vast buying and selling of ordinary commodities, the 
 principle of cost of production is held to govern the 
 market-price, and the thought of sentiment and feeling 
 as ruling price occurs to but few minds. Nevertheless 
 in the regulation of ordinary wages, the feeling of the 
 reward which a man will require for placing his labour 
 at the disposal of another plays an extremely important
 
 52 VALUE. 
 
 part. A man will work rather than starve, but there 
 are multitudes who deliberately prefer indifferent wages 
 and a low condition of living to the efforts involved in 
 hard continuous work. We have seen that such a 
 temper is found to prevail in many races. They do not 
 become rich because their regard for wealth, their feeling 
 of value towards it, is inferior to their regard for ease. 
 
 The same mood of mind was formerly seen in the 
 idleness of Irish labourers. A higher feeling is now 
 producing greater exertions accompanied by corre- 
 sponding satisfactions. The energetic Scotchman pre- 
 fers hard work to lounging about. He values more the 
 fruits of toil than the pleasures of idleness. Populations 
 who found that the reward for toil was unequal to 
 its severity have failed to keep up their numbers. 
 Character, as everyone knows, exercises enormous 
 power on the production of wealth, both in nations and 
 in individuals, and the dominant element of character in 
 this region is the quality, strength, and direction which its 
 feelings of value possess. What is the miser, who slaves 
 all his life through, and has accumulated a colossal for- 
 tune, of which he has had no other enjoyment than the 
 gratification imparted by its increasing size, but an ex- 
 hibition of the strength in a particular direction of the 
 feeling, value ? 
 
 The relation of value to utility now becomes evident. 
 Many writers have identified the two as being two 
 words for the same thing. To be useful and to be 
 valuable appeared to them to be two equivalent ex- 
 pressions. The preceding definition of value points out 
 the difference. Value resides in the rnind, utility is a 
 quality of an object. It is fitted by its nature to render
 
 VALUE. 53 
 
 a service which is needed or grateful. That is the result 
 of its material constitution. The perception of this 
 capacity to render a grateful service excites a regard 
 for that object, an appreciation of what it may do for 
 the observer, it becomes cared for and esteemed, it is 
 valued, and a desire to possess it is kindled, if that be 
 practicable. Utility gives birth first to value and then 
 to desire, and all the three qualities are entirely 
 irrespective, as far as their nature is concerned, of 
 the object being capable of being exchanged or 
 sold. 
 
 It is further very important to observe that utility is 
 coextensive with value and desire. Value is the per- 
 sonal feeling of the valuer. When an object is recog- 
 nised to be capable of furnishing a gratification, and 
 has kindled a desire for its possession, the sentiment of 
 value has been created, and the sole essence of all 
 these feelings is the wish to procure a gratification. 
 Be the useful quality what it may, if it is able to excite 
 the desire to obtain it, though that desire be a whim or 
 a folly of any kind, if it generates a willingness to make 
 a sacrifice in order to obtain possession of the object, or 
 to resist the temptation of parting with it, then that 
 utility has succeeded in giving birth to the feeling of 
 value as truly as the noblest object of admiration and 
 respect could have done. The principle is universal. 
 Every utility recognised by any mind, and calling up a 
 desire for its possession, brings value into existence, 
 whatever may be thought of such a desire in respect of 
 morality or rationality. 
 
 The cardinal fact that value is the offspring of utility, 
 and that consequently, as every exchange is the transfer
 
 54 VALUE. 
 
 of two useful things, there are two satisfactions implied 
 in it, shows the absurdity of the widely-spread delusion 
 that one man's gain is another man's loss. Whichever 
 of the two parties to an exchange is considered, his only 
 motive for making the exchange is his belief in gain. 
 The man who sells me a hat does me, in my opinion, a 
 greater service than the sovereign I give him can 
 render. As well might one say that it is a loss to 
 engage a good gardener at liberal wages, as if the 
 flowers and fruits he produces are not, to the rich man's 
 feelings, far more valuable than the money he gives as 
 wages. A seller may make an excellent bargain with 
 a man in imminent danger of starvation, and may reap 
 an excessive profit. Nevertheless life is more valuable 
 to the buyer than his coin, and the food is eagerly pre- 
 ferred to the money which would leave him to perish. 
 Every exchange is manifestly a transaction in which 
 both parties concur in recognising that they realise a 
 gain, whatever be the nature of that gain. Why should 
 either of them buy or sell unless a motive of advantage 
 prompts them ? It seems superfluous to dwell on such 
 a truism, yet upon the ignorance of it, that obstinate ab- 
 surdity, the mercantile theory, is founded. The belief 
 is inveterate that it is good to sell and bad to buy, as if 
 traders and sellers did not come into existence from a 
 desire of buyers to obtain the services of the sellers. 
 
 It is obvious that the influences which act on the 
 feeling called value are numberless. They vary with 
 every impulse, every conception, every motive which 
 acts upon human conduct. The man who was wont 
 to live on the daintiest fare would give much money for 
 a rat during the siege of Paris. He preferred the
 
 VALUE. 55 
 
 saving of his life to the money with which he bought it. 
 He valued the rat highly. For the same reason a bad 
 harvest may send up the price of bread threefold. 
 Many is the man who has preferred to sacrifice 
 his all rather than violate a moral principle. He 
 values duty at a higher rate than riches. The martyr 
 sacrifices his life rather than abandon his religion. A 
 nation submits to the suffering of higher taxation for 
 the sake of preserving the national honour. Two feel- 
 ings, two valuings come into play. The regard for 
 honour is the stronger value. To think one's self rich 
 enough, and to cease accumulating wealth in order to 
 secure leisure and its enjoyments is an every day occur- 
 rence. Wealth sinks in the valuer's regard. Fashion 
 changes its mood, and suddenly innumerable articles 
 become almost unsaleable, which a short time pre- 
 viously commanded extravagant prices. The feeling 
 of the mind is altered. Enthusiasm, passion, hope, 
 despair, revolutionise the aspect which the world around 
 wears to human feeling. Its feeling of value estimates 
 every object in a different manner. All the endless cir- 
 cumstances which operate in every market act on value, 
 tell upon the impressions of buyers and sellers as to the 
 worth of commodities at the moment. Great bargains are 
 constantly the result of altered values not of prices, but 
 of the creators of prices and of market-value the hope- 
 ful or desponding feelings of the dealers. There is not a 
 saleable thing in England which may not be at times 
 the sport of feeling, that feeling which is expressed by 
 the verb, I value. 
 
 It remains to notice a question which has given rise 
 to much discussion. Is there a measure of value ? and
 
 56 VALUE. 
 
 if so, what is it ? The expression measure of value has 
 two very distinct meanings which must not be con- 
 ounded. Money is called a measure of value, and truly 
 so. As all things are sold for money, their prices may 
 be compared with one another, and measured as against 
 each other. Thus if a ton of iron sells for four pounds and 
 a hat for one, the market-value, or price of the ton of iron 
 is four times greater 'than that of a hat. But this measure- 
 ment of comparative values by money, by each value 
 being expressed in money, takes place only after each 
 has been severally determined for itself. The value of 
 the iron is settled for itself, and then compared with the 
 value of the gold of which a sovereign is composed. It 
 is the same with the hat and with all other articles, 
 This measurement of value consists solely in taking one 
 value arbitrarily, that of gold, and translating all other 
 values into it, that is by discovering how much gold 
 each article can command. The process is identical in 
 nature with taking a yard and comparing it with all 
 other lengths. These values, thus compared, are 
 market-values, the quantity of gold or other things 
 which they can command. This process tells us 
 nothing as to how the value of each article, by itself 
 alone, is measured. 
 
 The explanation has been largely sought from labour. 
 Labour is an abstraction. In this place we must under- 
 stand by it the use of man's mental and bodily powers 
 for the making of commodities. It is contended that 
 labour measures value, is its universal measure. Now 
 we must carefully bear in mind that we are here speak- 
 ing of market-value, of price. Labour is thus asserted 
 to be the measure of price. Adam Smith is claimed as
 
 VALUE. 57 
 
 the authority for this assertion. He has pointed out, it 
 is said, the simple and obvious universal measure of 
 value for us to adopt the length of time which a man 
 will labour in order to obtain any given commodity. 
 The description of this measure of value Mr Shadwell 
 finds in these words of Adam Smith : " The real price 
 of everything, what everything really costs to the man 
 who wants to acquire it, is the toil and trouble of 
 acquiring it." That is to say, interprets Mr Shadwell, 
 that everyone has to acquire commodities by means of 
 labour, and that the greater the labour which a person 
 has to expend on the procuring of an article, the greater 
 must be the value he attaches to it. But Adam Smith 
 here does not say a word about value. He speaks of 
 cost to the maker. By price he means the effort and 
 sacrifice in toiling which he gave to produce the article. 
 But the question is, What will he sell it for ? Mr Shad- 
 well replies : For what it has cost in wages paid for 
 the labour of making it. Hence, he thinks he has 
 obtained a universal measure of value for all ages and 
 countries. A coat sells for $, a hat for i. The 
 market value of the coat is five times greater than that 
 of the hat. How were these values determined ? By 
 the coat requiring five days, the hat one only to make. 
 Now this statement is open to the objection, that it is 
 labour which is measured, and not value. Value is 
 made to be the effect of labour. Hence it measures 
 labour like the height of the mercury measures the 
 cause which produced it. Mr Shadwell has not found 
 a measure of a force or cause called value, but of a force 
 called labour which generates the value. 
 
 However this objection need not be pressed. Let us
 
 58 VALUE. 
 
 grant a constant relation between labour and value, 
 such that to diminish or increase the one is to diminish 
 or increase the other in exactly the same proportions. 
 If such a relation exists and is constant, then it may be 
 said that each measures the other. But does it exist ? 
 Is it true, in any sense whatever, that value is exactly 
 proportioned to labour spent in making ? We are seek- 
 ing to discover such a universal measure of value as will 
 explain all prices by the action of a single uniform 
 cause. We are engaged in a hopeless search. One, 
 uniform, sole cause of price is a dream; it has no 
 existence. Look at the agricultural produce of Eng- 
 land. Its market-value, its price, is in excess of its cost 
 of production. That price yields a surplus called rent 
 after the wages of the labourers and the profit of the farmer 
 are paid. Rent, in itself alone, is a perfect refutation 
 of the doctrine that market-value, price, is regulated or 
 measured by labour, or length of time of work given. 
 A man possesses a rare article say, quicksilver. He 
 exacts a selling price far above what it costs him in 
 wages to receive it. Does labour measure the value of 
 quicksilver ? A great man milliner of Paris is made 
 arbiter of fashion by great ladies. To be the first to ob- 
 tain his new dresses vast prices are paid. He builds up a 
 colossal fortune. How large is the part of the wages 
 of the cutters and sewers in this operation ? It may be 
 said that the price is due to skilled labour. By no 
 means. The dresses may be, often are, very ugly. It 
 is the sentiment, the feeling of the ladies, which makes 
 the price. There are often a dozen prices for the same 
 article, of equal quality, in the same town. Could any 
 one apply the universal measure, the number of days'
 
 VALUE. 59 
 
 work, and bring out the value in each case, as a 
 carpenter measures length by the application of his 
 foot-rule ? What has labour to do with the value of 
 beautiful china or old pictures ? Then, again, an im- 
 portant portion of the value of a manufactured com- 
 modity is the reward which must be given to the 
 capitalist for his abstinence in accumulating his capital 
 by saving at the expense of enjoyment. This is 
 measured by no labour. The use of capital must be 
 paid for by interest, and must be rewarded in market- 
 value, in price, else production would cease. Labour 
 measures none of these values. They are values with 
 which labour has nothing to do. They strip labour of 
 all title to being the universal measurer. 
 
 But even supposing that all these prices are paid for 
 work done, in what precise sense is labour their measure? 
 There is nothing which calls for a more rigid descrip- 
 tion than a standard of measurement. The measure 
 must be the same for all the things to which it is 
 applied the pound and the yard are the same for all 
 weights and all lengths. What is this labour which 
 measures all values ? " The length of time during 
 which a man works in making commodities ;" This de- 
 finition assumes that the work is always the same, of the 
 same quality. On that supposition only will five times 
 the length of time consumed be a measure of five 
 times the value of the work done. But do prices, in the 
 hard world of fact, in any market, give the faintest hint 
 of a sameness in the quality of the working which pro- 
 duced the goods, so that the amount of their prices was 
 determined by the quantity of work, so many hours 
 working, so many shillings or pounds. Two barristers
 
 6O VALUE. 
 
 plead in the same court ; they possess the same learning 
 and work the same time, one earns a fee of a hundred 
 guineas, the other of ten. Is labour the valuer here ? or is 
 it not rather a winning manner with judges and juries a 
 more persuasive voice ? An hour of Jenny Lind's singing 
 was worth more had a higher value than many days' 
 labour of a common singer ; did labour determine the 
 value? But even when the labour is confessedly the 
 same, its value in wages may be exceedingly different. 
 The Dorsetshire labourer did the same work as his 
 fellow-workmen in a northern county ; his wages were 
 less by several shillings a week. An observant eye and 
 a quick intelligence raise every day a common artisan 
 into a foreman, and a young soldier into a corporal; their 
 labour remains the same, but the market value they 
 obtain from it is exceedingly different. Labour is no 
 measure of value. If the time standard is applied, the 
 numbers of the hours given to toil are identical. But 
 the measure breaks down, because the values, which, on 
 measurement, ought to be equally identical, prove to be 
 of very different magnitudes indeed. 
 
 The conclusion is clear. In the world of daily life, a 
 universal measure of value does not exist ; and that for the 
 very decisive reason that it cannot. The things to be 
 measured, market-values, are not the effects of a uniform 
 cause, and consequently are not and cannot be uniform. 
 Market-value prices are the results of one cause ; but 
 that cause is most irregular and most wilful in its 
 action. Feeling determines market value ; the feeling 
 expressed in the verb, I value ; the feeling of value or 
 esteem. That feeling acts on the two parties to every 
 sale and exchange. The competition of the two
 
 VALUE. 6 1 
 
 esteems, one on each side, ultimately fixes the market 
 value the price of the articles sold. The feelings of 
 the makers of commodities must, in the long run, be 
 satisfied, else they will not be made ; the feelings of 
 purchasers must equally receive satisfaction, or they 
 will not buy. Feeling rules over all values, but it does 
 not measure them ; for what is so variable as feeling? It 
 is subject to endless and ever-varying influences. 
 Necessity, want, imaginative ideas on supply and 
 demand, taste, fashion, love of idleness, energy, in- 
 difference, speculative ardour, zeal in working, the sense 
 of duty, social ideas, hope and discouragement, and 
 countless other forces sway feeling to and fro, and 
 regulate its strength and its direction. They determine 
 the character and amount of the esteem felt by feeling for 
 a commodity or a service, according to the pervading 
 mood of the hour. Out of this force springs market- 
 value, price in money ; but it is changeable, even for the 
 same thing, under varying circumstances, and therefore 
 cannot measure. The market value itself of money, of 
 gold, varies like all other values, and is itself de- 
 pendent on feeling. It might well be that the gold 
 miners all over the world struck for and succeeded in 
 acquiring permanently higher wages ; the cost of gold 
 would then be directly affected, and a larger quantity 
 of every other commodity would have to be given for 
 the same price of gold. Feeling would have injured 
 money as an accurate measure. There is no other 
 standard for value but feeling, and feeling is by its 
 nature disqualified for being a standard. 
 
 But it is necessary here to guard against a false and mis- 
 leading inference which might easily be drawn from the
 
 62 VALUE. 
 
 preceding explanation of the feeling, value. It might be 
 supposed that it meant to describe that feeling as dwelling 
 in the most variable of climates under constant exposure 
 to the most changeable of winds. This is not true of an 
 enormous amount of human conduct governed by feeling 
 in the exchange of wealth. Feeling is essentially vari- 
 able in nature : that cannot be denied. But, on the other 
 hand, feeling has to deal with powerful material forces, 
 with outward circumstances constantly of the same 
 general nature, with motives generally steady in charac- 
 ter, and other more or less stable influences. Habit is a 
 force of great power over human action. Feeling is 
 pretty nigh absent when a man buys a knife or a cigar, 
 beyond the desire to purchase and possess it ; so also 
 of his sugar and his tea, his bread and his ordinary 
 clothing. Wages have been known to remain long at 
 the same level in many countries. Fluctuations of de- 
 sire, impulses to change or to resist price, to care about 
 shortening the hours of labour, and similar irregular 
 mental movements are less frequent than the moods of 
 mind generated by long habit. Nevertheless, it always 
 remains true that the feeling value is the foundation 
 of all industrial action, but that foundation is liable to 
 oscillatory disturbances, and sometimes even to earth- 
 quakes. What a revolution amongst other feelings does 
 the outburst of a passionate eagerness for war imply. 
 In what different positions does it place men in many 
 markets and towards numberless commodities. The 
 feeling " I value " is always, ultimately, the dictator of 
 all economic action ; it asserts its mastery, even when 
 the barbarian sells his children to be slaves.
 
 CHAPTER III. 
 
 EXCHANGE. 
 
 EXCHANGE is the greatest and most universal function 
 of human life. It is a necessity of man's nature. That 
 man was born to live in society was the profound utter- 
 ance of Aristotle. This great fact he regarded as the 
 dominant principle of human conduct, as the foundation 
 of all political and social relations of men with one 
 another. On it he built up political philosophy. Wild 
 animals can live in flocks and herds ; but they do not 
 live in society. With trifling exceptions they do not 
 minister to each other's wants. Man, on the contrary, 
 feels wants and desires which irresistibly compel him to 
 seek the aid of his fellow-men. He cannot live in isola- 
 tion, nor can he satisfy the conditions of his existence by 
 merely living side by side with others, with no other con- 
 nection with them. He cannot by his single efforts 
 provide for himself those things which his very being 
 forces him to desire and to seek. If men were left to 
 what each of them singly could procure and make, 
 miserable indeed would be their existence. " They must 
 combine," to use the happy phrase of Mr Danson, 
 " and combination means exchange." " Everybody ex- 
 changes," says Professor Perry ; " for, ' do something for 
 me and I will do something for you,' is the fundamen- 
 tal law of society." 
 
 The same thought was very happily expressed by
 
 64 EXCHANGE. 
 
 Prince Albert in an address to " the Society for Improv- 
 ing the Condition of the Labouring Classes."* " God 
 has created man imperfect, and left him with many 
 wants, as it were, to stimulate each to individual exer- 
 tion, and to make all feel that it is only by united exer- 
 tions and combined action that these imperfections can 
 be supplied, and these wants satisfied. This presup- 
 poses self-reliance and confidence in each other." 
 
 But besides this capacity for, and consequent neces- 
 sity of, living in society, a second peculiarity of human 
 nature exercises enormous power over exchange. Man 
 is distinguished from animals by the faculty of "pro- 
 gressive desire." Man's desires increase in number and 
 range ; those of animals do not. Let climate and food 
 remain unchanged, and the buffalo will go down the 
 ages content. He will ever live the same life ; he will 
 wish for nothing more. It is radically different with 
 man. In him the gratification of one desire gives birth 
 to another. He perceives some new thing to enjoy, and 
 straightway the desire is kindled to possess it. He is 
 thus prompted to make the effort to acquire it. Thus 
 bread is followed by the desire to have meat ; skins have 
 to give way to wool and silk. This progressive desire 
 is the cause of civilisation. New and better things are 
 discovered and wished for in succession. By this force 
 the condition of human life is raised ; and it generates 
 the necessary result of bestowing on exchange a magni- 
 tude of which it is impossible to assign the limit. 
 
 Under the action of these two forces, the social in- 
 stinct and ever progressive desire, human life becomes one 
 
 * The "Life of the Prince Consort," by Theodore Martin, Vol. II., 
 . ii.
 
 EXCHANGE. 65 
 
 complicated mass of exchanges. Every one buys, and to 
 buy is to exchange. Every income is, for the most part, 
 applied to procuring things made by others. The wages 
 on which the bulk of mankind live are given in exchange 
 for services, and are in turn spent in obtaining necessaries 
 and conveniences produced by others. A man buys be- 
 cause he can make but very little indeed of what he wants. 
 His brother men are in the same state ; so each works 
 for others and others work for him. Thus the various 
 trades and professions spring up into existence. The 
 farmer and the blacksmith, the cotton-spinner and the 
 tailor, the physician and the barrister, the artist and the 
 singer, the merchant and the clergyman, are gradually 
 developed as civilisation progresses ; every one ex- 
 changing his services for those rendered to him by others. 
 In the earlier stages of society, each man callsin the help 
 of his fellows but for few things ; but even at its origin 
 exchange exhibits its most distinguishing peculiarity, 
 that each man receives many services from the combined 
 action of all the workers and exchangers, rendering 
 back generally only one particular service in turn. 
 
 As a people advances in culture, this character- 
 istic of exchange is developed to a degree that few 
 think of. There is probably not an inhabitant of 
 England who, however simple may be his fare, his 
 clothing, and his shelter, does not partake of services 
 performed for him by the combined labour of many 
 thousands of persons, so gigantic is the machinery of 
 exchange. There are few English men and women who 
 do not drink tea; before the exchange of English goods 
 for tea is completed, and each has been conveyed by 
 railway and steamboat across the globe to their con- 
 
 E
 
 66 EXCHANGE. 
 
 sumers, the labour of many thousands of different men 
 has contributed to bring his tea to the poorest man. 
 To construct the mere machinery of exchange, to make 
 the railway and the steamship, still more to provide the 
 tools employed in their construction as well as the 
 materials, requires labourers whose numbers are incal- 
 culable. The tendency to engage ever-expanding 
 multitudes of combined workers in effecting the sim- 
 plest exchanges, the commonest buying of daily life, is 
 the most marked and the- most wonderful feature of 
 progressive civilisation. 
 
 The mighty instrument which exchange employs in 
 accomplishing these marvellous results is the great 
 economical principle of division of employments. This 
 must be distinguished from division of labour. This 
 latter phrase refers to many distinct operations com- 
 bined to produce a single result, one commodity ; 
 division of employments tells on the simultaneous 
 production of all commodities. Next to actual labour 
 there is no process so prolific in producing wealth 
 for mankind as the division of employments. It 
 brings an enormous power to bear on the efficiency 
 of labour, on the quantity and quality of the work done 
 in proportion to the effort, on the amount of the things 
 made. The secret of this power lies in the advantage 
 which separation of employments takes of the endless 
 variety of faculties and qualities with which nature has 
 endowed individual men and animals, as well as differ- 
 ent countries and climates. To China and India is 
 allotted the production of tea, to America cotton and 
 corn, to France wine and silks, to England clothing and 
 iron. In the same country the several districts divide
 
 EXCHANGE. 67 
 
 amongst themselves the various manufactures. Man- 
 chester undertakes cotton-spinning, Bradford woollen 
 goods, Sheffield cutlery, Birmingham guns and nails. 
 In the same town the distribution gains further expan- 
 sion. Cotton-spinning is made up of many processes 
 each allotted to a special body of labourers. The village 
 follows the same rule ; the blacksmith provides for the 
 local wants for iron, the carpenter for wood. 
 
 The advantage derived from each man or group of men 
 taking up particular work is great all round. Skill is 
 developed rapidly in the workmen. Each group of men 
 learns how to do the thing well, far better than if they 
 tried to make for themselves everything they wanted. If 
 the blacksmith tried to make a table, he would have a 
 worse table, and would spend a vast deal more time upon 
 it than the carpenter. The difficulties which arise in each 
 field of labour are more effectually dealt with when the 
 intelligence of men who do nothing else is brought to bear 
 upon them. Ingenious contrivances for saving labour, 
 improving quality, and cheapening products incessantly 
 occur to the concentrated skill of specialised workmen. 
 All these advantages are immensely increased, as society 
 advances, and the circle supplied by each workshop 
 and factory becomes larger. The tendency to assign 
 the production of commodities of a single kind to par- 
 ticular workmen gathers strength ; and not only so, 
 but the manufacture of each single article is broken 
 up into parts. Division of labour comes into full play. 
 The high skill of the workmen, the number and power 
 of the inventions of machinery, the amount, deli- 
 cacy, and excellence of the products, above all their 
 wonderful cheapness, which Birmingham, Manchester
 
 68 EXCHANGE. 
 
 and Bradford now exhibit, would never have been 
 realised if each English county had supplied its wants 
 within its own limits, instead of England undertaking 
 particular manufactures for the whole world. Thus 
 every superiority of mind and body, every advantage of 
 climate, soil, mineral gifts, and local power, which 
 multiplies the wealth gained by labour, improves its 
 quality and cheapens its cost, is turned to account by 
 exchange for raising the condition of man on earth. 
 Exchange is a contrivance, a particular machinery for 
 getting each commodity made by special men. It enables 
 this process to be carried on, and thereby becomes the 
 greatest benefactor of mankind, the true foundation of 
 all civilisation. 
 
 Exchange is the action of two parties. Each of them 
 finds an advantage in obtaining from the other a service 
 or a thing for which he gives another in return. Both 
 gain. However great may be the pressure weighing 
 on one, however painful the sacrifice he suffers in part- 
 ing with an object he is attached to, still, by the very 
 fact that he is willing to give it away, he makes it plain 
 that he regards what he obtains on the exchange as 
 something which he values more. He acts under the 
 conviction that he gains even if he knows that the 
 other party is taking unfair advantage of his circum- 
 stances, and is extorting from him his article against a 
 return which violates justice and conscience. 
 
 The process of exchanging raises questions of great 
 mportance, some of which involve no small difficulty in 
 determining. 
 
 There are two different methods by which exchange 
 is accomplished. In the division of employments, a
 
 EXCHANGE. 69 
 
 maker ot a commodity may produce it on an order 
 given to him by the man who is in want of it as a pair 
 of shoes or a building, or he may manufacture it for sale 
 in the expectation of a purchaser coming forward to buy 
 it when made. It is thus that articles of all kinds are piled 
 up in warehouses, shops, and other markets waiting for 
 the appearance of buyers. The former is the simpler 
 process. The supply is strictly accommodated to the 
 demand ; it is free from speculation : it is exempt from 
 the risk of loss from want of buyers. In the earlier 
 stages of society this method of exchange predomi- 
 nates ; but as civilisation, with its complications and its 
 range of operations progresses, the second method of 
 making without orders, under the expectation of being 
 able to sell on reasonable terms, to an immense extent 
 takes its place. The tendency of modern commer- 
 cial usage runs powerfully in this direction. A nation 
 like England, which manufactures for countries with- 
 out number, cannot exchange on the principle of pre- 
 vious orders given. Within England itself centres for 
 making particular goods increase every day, so great is 
 the advantage gained, and so large the cheapness 
 realised by the skill, machinery, and gain of time in 
 production developed in particular localities for special 
 kinds of manufactures. A Sheffield knife and a Coventry 
 ribbon are bought all over the nation. Hence the con- 
 jectural supply of goods, by first making them without 
 a previous order and bringing them to market in the 
 expectation of their finding purchasers, has grown to 
 enormous dimensions ; and it generates situations and 
 complications not easy to analyse and reduce to rule. 
 At the dawn of its civilisation every country made the
 
 7O EXCHANGE. 
 
 discovery that the great function of exchanging required 
 a tool wherewith to perform its work. All exchange is 
 barter, and barter was the obvious and earliest method 
 of settling exchanges. But direct barter would have kept 
 society in an infantine state. It lay under the insuperable 
 difficulty that whilst both the exchangers might desire to 
 part with his article in exchange for another, yet neither 
 of them wanted the precise thing offered to be bartered 
 by the other ; the carpenter might be in no want of a 
 sheep, nor the tailor of a pair of shoes. So civilisation 
 burst the bonds of barter and sought help of an inven- 
 tion which is employed in every land. A particular com- 
 modity was selected by agreement, for which all others 
 should be first exchanged before they came into the 
 hands of those who needed them for consumption. The 
 selection of this intermediate commodity settled down 
 into the adoption of one or more of the precious metals, 
 in specified quantities, under the form of coin or money. 
 Money was made the tool of exchange. Thus a sale 
 became half an exchange by means of double barter. 
 The seller of a plough who did not want a bullock, bar- 
 tered it to a farmer for money, and then again in turn 
 bartered this money for iron, wherewith to make fresh 
 ploughs. It is obvious that if all articles have the 
 quantity of money fixed for which they can be bartered, 
 the market value of each is determined, and they can 
 all be measured one against another. They can be 
 compared with one another through their prices, whilst 
 direct barter fails wholly in the measurement of all 
 relative market values. 
 
 And now on what principle are prices affixed ? Ulti- 
 mately by feeling and by feeling alone by that feeling
 
 EXCHANGE. 7 1 
 
 which is called value ; and which is expressed by the 
 verb, I value. No one disputes this fact of articles 
 which are rare from their own nature, or which chance 
 under the circumstances of the hour, to be scarce ; but 
 the principle extends to all prices equally to the 
 prices of that vast mass of things which are wanted and 
 bought in ordinary life, as much as to the exceptional 
 ones just mentioned. The commodities of common 
 use are furnished by services, by the efforts of those who 
 bring them ready-made to consumers. There is hardly 
 a commodity, however common, which, as before re- 
 marked, is not the result of countless services. Take 
 such an ordinary thing as a cotton shirt : the owner of 
 the cotton field, the labourers who grow the cotton, the 
 makers of the tools employed, the furnishers of the 
 materials of which these tools were made, the railway 
 shareholders who transport it to a port of shipment, the 
 miners who dug up the coals for the engine, the con- 
 structors of the ship, of its sails and iron, the merchant 
 who buys and sells the cotton, the Manchester men 
 who spun it, the sewers of the shirt and where shall 
 the list end ? every one of these persons has rendered 
 a service indispensable for the making of the cotton 
 shirt ; and every one of these services must be com- 
 pensated in the price at which the shirt is sold. At 
 what rate must each of these services be compensated ? 
 At that rate, and that only, which shall render each of 
 these co-operators in the making of the shirt willing to 
 give the particular effort and sacrifice needed from him, 
 for reaching the common goal the shirt. The motives 
 and influences, external and internal, which act upon the 
 will oi each, are judged by feeling ; and according to
 
 72 EXCHANGE. 
 
 his judgment the work will or will not be done. If the 
 unionist feels that idleness with its pains is better than 
 the wages offered, he comes out upon strike ; the 
 factory or the mine is closed, and production closes. 
 Feeling is the ultimate king of all exchanging. Every 
 man determines for himself on what terms he shall con- 
 tribute his assistance to creating the desired commodity. 
 If the emancipated slave refuses to work, or the sailor 
 to navigate, the cotton shirt will not be made or worn. 
 
 The judgment formed by the feeling of value as the 
 amount of the compensation to be required for effort 
 becomes embodied in the concrete sense of the word, 
 value ; its market value or price. The feeling value 
 creates the market value, price. The question instantly 
 arises : What influences feeling in valuing its object for 
 market purposes, that is, for the special object ol 
 exchanging ? Under what forces does it arrive at 
 the price which it will give or accept ? 
 
 In the discussion of this question, Mr Mill warns his 
 readers once for all, that he contemplates those prices 
 and values which are determined by competition alone ; 
 only so far can they be reduced to any assignable law. 
 Hence, he declares that " His conclusions apply to 
 mercantile values and prices, to prices in the wholesale 
 markets, in which buying as well as selling is a matter of 
 business." If no law can be discovered except for whole- 
 sale exchanges, then Political Economy has no analysed 
 knowledge of value, nor indeed of its central subject 
 Exchange. Mr Mill distinctly admits that in retail 
 prices, there are often two, nay, many different prices in 
 different shops or even in the same shop; but retail prices 
 are everything the all in all for the consumers of com-
 
 EXCHANGE. 73 
 
 modities, for whose sake alone, all exchanging, all 
 making and producing, all buying and selling, all whole- 
 sale dealers and their proceedings, exist. Of what 
 possible importance can it be that wholesale dealers 
 have one price only determined by competition not 
 that this assumption is true if a man encounters in 
 the same street different prices for the same clothes, or 
 meat, or haberdashery in different shops ? Nay, if one 
 may believe common report, for different customers or 
 customers entering the shop by different doors. Of 
 what use is Political Economy to a man who tells him 
 about some law of wholesale prices, but leaves him at 
 the mercy of the whims or cunning of the shopkeepers 
 of whom he must buy ? He would say, and with 
 justice, that the retail dealers and their ways are real 
 life for him ; and that wholesale dealers with their 
 scientific laws, if they have any, are only part of a 
 distant machinery. He would think that the pursuit 
 after science in such regions would be waste of time ; 
 and such laws pure imagination. 
 
 Many economists have striven to establish com- 
 petition as the scientific law of exchange ; but their 
 efforts as yet have not met with success. Mr Mill's 
 confession, that competition is not the ruler of retail 
 trade, is decisive of the fact that human nature will 
 not and does not take its stand absolutely on competi- 
 tion. Men, in buying and selling, are not uniformly 
 governed by the desire of making as large a gain, 
 or saving as much money as possible, however much 
 this principle is fondly laid down by Economists, as the 
 one foundation of their science. There are indestructible 
 elements in human nature which come into play here
 
 74 EXCHANGE. 
 
 as disturbing forces. Men will not uniformly buy in 
 the cheapest, though they generally strive most 
 vigorously to sell in the dearest market. It is not 
 ignorance of Political Economy which misleads them 
 into error ; it is their own carelessness, indifference or 
 laziness. Fancy acts on the feelings of buyers or a 
 long habit of dealing at a particular shop kindly feel- 
 ings for a tradesman, a strong dislike of the trouble 
 which the pursuit of cheapness imposes. Who has not 
 witnessed the endless cases of wilful determination to 
 persist in buying of some particular dealer, though 
 people know perfectly well that he refuses to come down 
 in his prices when the value of his goods has fallen in 
 the general market. Then on the side of the seller, a 
 feeling of moderation often exercises a powerful sway, 
 or a love of a reputation for fair dealing, or esteem for 
 the good opinion of the neighbourhood, or contentment 
 with reasonable profits. Moral forces have and ought 
 to have power to influence conduct in economical, as 
 well as in every other department of human life. 
 
 The grand idea of constructing a science of Political 
 Economy on a law of human nature, that men will 
 steadily pursue what most promotes their interest through 
 the agency of competition, rests on a foundation of sand. 
 It is no answer to reply that Political Economy con- 
 cerns itself solely with the most efficient methods of 
 accumulating wealth. If such is its vocation, it will 
 never explain the manifold diversities of human con- 
 duct with respect to wealth. It has to deal with beings 
 whose moral nature cannot be separated from any portion 
 of their existence. To reap always the largest harvest 
 of gain, by strict adherence to the most money-making
 
 EXCHANGE. 75 
 
 methods, is not practical human life, and never ought 
 to be. But let there be no misunderstanding here. I 
 do not insinuate that the man who is the keenest trader, 
 the shrewdest observer of the state of supply and 
 demand, who wins every practicable, but yet honestly 
 attainable penny, who has the skill to ascertain the 
 really lowest price, and the will to obtain it, is an 
 offender against morality. What is here intended is 
 that by the side of the motive of self-interest, there are 
 other feelings and forces which do, and ever will, modify 
 human conduct Hence arises the certainty that no 
 scientific laws as to how men will act in determining 
 prices, in buying and selling, in dealing with demand 
 and supply, are possible. Fixed rules cannot be laid 
 down, which upon deductive principles shall teach 
 buyers and sellers what is the state of supply and de- 
 mand, and what ultimate prices will be its consequence, 
 and which will make those ultimate prices to prevail. 
 Economic teaching can give tendencies only, but to ex- 
 plain them clearly is itself knowledge of great importance. 
 
 On the other hand no one can dispute the strong, 
 often violent tendency to competition which prevails in 
 almost every branch of trade. The larger the scale on 
 which business is carried on, the farther removed pro- 
 ducers are from ultimate consumers, the more powerful 
 is this tendency, because personal feeling has a far 
 narrower scope. The competition becomes of the 
 keenest, when the struggle breaks out between nation 
 and nation. What has been recently written on the 
 rivalry between the iron manufacturers of England and 
 America strikingly illustrates its force. 
 
 Of the power of feeling to disturb a scientific
 
 76 EXCHANGE. 
 
 determination of prices, the war between capital and 
 labour for it is nothing less as waged in England 
 and in so many other countries, furnishes a most vivid 
 illustration. Strikes and lock-outs, closed factories and 
 impoverished workmen, profits arrested and machinery 
 injured by want of use, loss and distress attest the 
 energy with which the reasonable and natural process 
 of exchange, in the very teeth of scientific teaching, is 
 resisted. Science has little to say in foretelling the 
 ultimate issue of a particular strike. How helpless is it to 
 guide an employer whether it will be safe for him to en- 
 gage in a long contract. With such volcanic forces 
 rumbling under ground, who can estimate what will be 
 the state of supply and demand, what the conditions of 
 exchange, what will be the cost of production, in what 
 direction prices will move? Economists may deplore the 
 obstinacy with which the claim to science is despised, 
 and grand formulated tables for ascertaining coming 
 commercial weather are disregarded, but the feelings 
 of men's souls, the varying importance attached to 
 reward compared with the sacrifice entailed by effort, 
 and the passions of the human heart will break in like 
 tornadoes, and scatter all scientific determination of 
 market-values to the winds. 
 
 Let us now return to the question, What determines 
 the rates of exchange ? What are the forces which act on 
 feeling to fix its sense of value ? On this great subject we 
 may learn much that is highly useful, but the preceding 
 remarks will prepare us for not expecting scientific laws. 
 
 We have seen that every exchange is the consequence 
 of two desires and two efforts or sacrifices. The object 
 exchanged for money must possess utility for the
 
 EXCHANGE. 77 
 
 purchaser, however trivial or absurd that utility may 
 be, otherwise he will not buy ; there will be no exchange. 
 As Mr Danson remarks, the final decision whether there 
 shall be an exchange rests with the buyer. Secondly, 
 for a purchase effort is required for the acquisition of 
 the useful object. This is called by some writers diffi- 
 culty of attainment. A man who can procure a thing 
 such as water or air, under ordinary circumstances 
 without trouble, will not give money for it. These are 
 the two necessary elements of value in exchange, of 
 market-value or price, utility and difficulty of attain- 
 ment. But as has already been shown, in the meaning 
 of Adam Smith's formula, value in use and value in 
 exchange, value is not destroyed, because no purchaser 
 can be found. There are valuable things, things valued 
 which are not saleable as well as others that are. 
 
 We are thus brought to the conditions and circum- 
 stances which act on value in exchange. The articles 
 which are exchanged, which are bought and sold, divide 
 themselves into two classes. The first class comprises 
 things which are unique or rare, which cannot be 
 multiplied at will, which generally are not consumed 
 at once but endure, commonly with increased value. 
 Belonging to this class are special diamonds, old 
 pictures or statues by great artists, beautiful porcelain, 
 fine sites for building and the like. In the first instance 
 their cost of production had to be defrayed, but once 
 produced, they acquire special values with which their 
 original cost has little connection. 
 
 The second class is composed of the great bulk of 
 commodities which are required for the support of 
 human life in a civilized country. They are made for
 
 78 EXCHANGE. 
 
 immediate consumption. They constitute almost the 
 whole of trade. They are the products of the enormous 
 manufacturing and agricultural industries of modern 
 times, and are under a constant process of continuous 
 production. For these cost of production is the domi- 
 nating element for their value in exchange. 
 
 Both classes fall under the forces involved in supply 
 and demand. The abundance or scarcity in which they 
 appear at market, compared with the demand which is 
 present to purchase them, exercises great influence in 
 determining their values. 
 
 Cost of production implies services rendered and 
 goods manufactured by one class of people, makers, 
 for the benefit of another class, consumers. It is 
 obvious that this cost, however defined, must be com- 
 pensated to the makers, or else the articles will not be 
 produced. Each of the parties must have his satisfac- 
 tion ; the maker has his reward for having worked for 
 you, you the acquisition of a thing to use and enjoy. 
 
 But what is cost of production in its economical 
 sense ? Professor Cairnes has proposed to define the 
 phrase as meaning the pains of labour, the efforts and 
 sacrifices which must be given in making commodities 
 for others. The words of the expression, it must be 
 admitted, suit this explanation, but they give an 
 unusual sense to an expression which has already got 
 a well known and satisfactory meaning. Why load 
 Political Economy with another violation of common 
 usage, and add to its discredit for inventing phrases 
 unfamiliar to common life? Mr Mill also gives a 
 peculiar definition to the expression. He regards it 
 from the point of view of the capitalist. He describes
 
 EXCHANGE. 79 
 
 it as all that the capitalist, or employer, has to pay, ex- 
 clusively of his own profit. But the object of all pro- 
 duction is to do a service to a consumer. On him must 
 fall the cost, the remuneration to be given to others. 
 If he orders a thing to be made, he will probably ask, 
 What will it cost ? and such a question manifestly 
 means, How much am I to pay for having it made ? 
 Why then draw an arbitrary line amidst all these ex- 
 penses? Why leave out one? Why substitute the 
 manufacturer for the buyer ? That expense, the profit, 
 must be paid, like all the others, indeed many profits, 
 for many will be the capitalists engaged before the 
 consumer gets his razor or his hat. Again there are 
 many producers who find the capital, and do the whole 
 work themselves. The price they charge covers both 
 the remuneration for the use of their capital and that 
 for the labour bestowed. Upon Mr Mill's definition it 
 is hard to say what cost of production means for such 
 persons. That definition introduces confusion wantonly. 
 Prices revolving round a cost of production which 
 omitted the profit of the manufacturer would be an 
 expression destitute of definite meaning, for one most 
 essential element in the fluctuation of market-values 
 would be omitted. 
 
 This aggregate price, including every charge for con- 
 struction and transport, is the indispensable condition 
 on which commodities will be permanently produced. 
 It is obtained at once for goods made upon order. 
 For those produced in advance on the expectation 
 of sale, it must be obtained either regularly upon each 
 sale, or when variations of selling value occur, upon 
 an average for a definite period. This price has been
 
 8o EXCHANGE. 
 
 called the natural value or price, by Adam Smith; 
 by Professor Cairnes and others, the normal price. But 
 it would be a mistake to regard this as anything more 
 than a rough and general statement in relation to tem- 
 porary fluctuations. It indicates merely average or 
 medium price that price which a farmer exposed to 
 the influence of the seasons must in the long run obtain, 
 if he is not to be ruined by his business. And one fur- 
 ther feature of this normal or natural price must be 
 carefully noticed. Along with the storms which trouble 
 the surface of the market price, there may be going on 
 at the same time a steady set of the tide, upwards or 
 downwards, altering its permanent level. Thus, com- 
 pared with forty years ago, the natural or average price 
 of wheat has steadily sunk, whilst the winds of good 
 and bad harvests were blowing as usual over the land. 
 What the repeal of the Corn Laws, with the vast area 
 of supply which it won, did for wheat, other influences 
 have done for iron, cotton, and many other commo- 
 dities. Their natural price is changed ; as a rule it 
 stands at a lower figure. 
 
 It is very important to trace out more closely the 
 main elements of cost of production. Adam Smith 
 resolves this cost into labour alone ultimately. He de- 
 scribes labour as the real price of everything, what 
 everything costs to the man who wants to acquire it. 
 Ricardo follows in the same path ; he lays down 
 labour to be the real foundation of value in exchange. 
 Both these statements are incorrect ; they fail in com- 
 pleteness of analysis. Even were the assertion accu^ 
 rate, the word labour is not a well-chosen expression. 
 There are many things which enter into cost of produc-
 
 EXCHANGE. 8 1 
 
 tion which it would be startling to call labour. Labour 
 is a term closely associated with certain classes of 
 society. Workmen of all kinds are called labourers, 
 yet sailors, physicians, barristers, teachers, work very 
 hard, and are never called labourers. The idea, how- 
 ever, contained in the word is accurate ; effort is the 
 thing intended to be described by the word labour, but 
 as it is contributed in producing by persons who are not 
 associated by popular language with the class of 
 labourers, a better expression for it may be found as 
 an element of cost of production. That expression is 
 service ; it furnishes all the meaning that is desired. 
 
 The question has been often asked, Is the skill of the 
 labourer, or rather the expense of his training and edu- 
 cation, an item reckoned in exchanging, a part of the 
 cost of production ? Mr Danson, following many leading 
 writers, considers " that it has been wisely agreed that 
 we shall refrain from putting any pecuniary valuation 
 upon men. We ignore the money cost of rearing a day 
 labourer to maturity. Yet it is considerable, and con- 
 sistency seems to require that we should do the same as 
 to the higher but strictly analogous cost of rearing a 
 lawyer or a physician." * It is always with regret 
 that I differ from so distinguished a master of practical 
 Political Economy as Mr Danson ; but on this subject I 
 feel unable to go along with this statement. It is perfectly 
 true, as Professor Jevons has remarked, that on the day 
 of exchange, when an article is bought, the purchaser 
 puts no question as to the history of its manufacture. 
 He looks only at it as it stands in the market ; he 
 
 * " Lectures on the Political Economy of Daily Life," by J. T. Danson, 
 Liverpool. 
 
 F
 
 82 EXCHANGE. 
 
 thinks only of its market value on that day. But both 
 the Professor and Mr Danson, by taking their stand on 
 this fact, forget that if the skill and training required 
 for the manufacture of the commodity be not compen- 
 sated speaking of its continued production it will 
 cease to be made. If the cost of the education of the 
 great lawyer and physician is not replaced by their fees, 
 then their learning and their skill will disappear from 
 the world. The highly paid training of the chronometer- 
 maker and the painter must be paid for by the buyers, 
 or farewell to accurate chronometers and exquisite pic- 
 tures. These are practical and very real facts, and they 
 govern the situation. The objection to putting a pecuni- 
 ary value on a man is a mere sentiment ; it has no 
 foundation in the actual constitution of society. 
 
 But is service, in the sense of exertion made for 
 another, the whole of what an article costs to a man 
 who wishes to acquire it, all that he has to pay for ? 
 There are other matters undeniably to be paid for, 
 before he can get it made for him. In many countries, a 
 tax will have been levied on the materials of which it is 
 composed. Then there may be a natural monopoly 
 such as a quicksilver mine, or a distinguished vineyard 
 which imposes its charge on a consumer. Unques- 
 tionably the wages given for labour figure most largely 
 in the cost of most articles produced ; but the engineer, 
 manager, clerk, and other officers obtain much larger sala- 
 ries not for mere labour, but for skill and intelligence. 
 Still more yet, the reward claimed by the capitalist for 
 the use of the funds which his abstinence has provided, 
 has no connection with labour, and must be given by 
 the buyer under the name of interest. All these things
 
 EXCHANGE. 83 
 
 enter into cost of production, for it includes every sacri- 
 fice to be compensated, every satisfaction to be given to 
 makers and to sellers. 
 
 Wages and profits manifestly constitute the largest 
 part of the cost of most things made, but it would be a 
 false inference to draw that high wages and high profits 
 generate always a high cost of production. This is a com- 
 plete mistake. High profits and high wages constantly 
 co-exist with cheap goods. In a colony abounding in 
 fertile land, the rates of both profits and wages stand 
 often on a very high level, yet the corn and cattle pro- 
 duced are sold freely at low prices. A pair of scissors 
 made in an undeveloped country, destitute of machinery, 
 would require an enormous time to make, would be 
 badly made, and would sell at an immense price ; and 
 yet probably the wages and profits of the makers would 
 be small. A hundred needles are bought for a shilling 
 in England, a trifle, considering the elaborate character 
 of the little tool; yet probably the manufacturer and his 
 workmen have earned high rates of reward. The labour 
 was very efficient: that is, the work produced very large 
 for the number of workmen and the time bestowed 
 upon the needles. The money realised by the employer 
 and his men was, in the aggregate, small in proportion 
 to the quantity of needles or scissors made ; and thus 
 each packet of needles, or of cotton thread, becomes 
 excessively cheap. A very high daily wage, a hand- 
 some profit, articles of great finish, and a trifle for price 
 such are the fruits gathered up from labour rendered 
 efficient by machinery. Small indeed is the cost of 
 production of each needle under such circumstances. 
 
 The phrase, efficiency of labour, it must be added,
 
 84 EXCHANGE. 
 
 is equally applicable to work which is very small in 
 quantity, but exceedingly high in quality. Machinery 
 multiplies products, executing them well at the same 
 time ; but the skill and the fineness of handling which 
 create a delicate scientific instrument, or a piece of 
 exquisite |lace, though it produces but a single thing, 
 yet is most efficient of excellence. Quality is a great 
 product, a rare and difficult achievement. 
 
 So much then for the fundamental principle, that 
 if commodities are to be permanently provided for 
 human wants, all the services required for making them, 
 and placing them in the hands of the consumers, that 
 is, their cost of production, must be satisfied. In respect 
 of goods made to order, no more need be said. 
 With regard to the bulk of articles which come under 
 trade, and are made on the expectation of being sold, 
 we will now suppose that they have been brought to 
 market, whatever be the form of that market ; they 
 then fall under the principle of supply and demand. 
 They are supplied for sale under the expectation of 
 being demanded by buyers. The relative strength of 
 what may be called these two forces exerts an enor- 
 mous influence on the prices at which they are sold. 
 
 When business, owing to the circumstances of the 
 country, or the nature of the goods, proceeds in an 
 ordinary humdrum way, the quantity of the articles 
 made may closely correspond with the quantity re- 
 quired ; and variations of price may be few and insig- 
 nificant. In such cases, demand easily equals supply, 
 the equation is ordinarily complete. 
 
 But such is not the character of modern trade, 
 especially English trade. The economical principle of
 
 EXCHANGE. 85 
 
 division of employments has become international, and 
 has introduced radically different conditions of market. 
 England makes clothing for almost all the world, and 
 receives most of her raw materials, as well as the goods 
 she receives in exchange for what she sells, from foreign 
 countries. Her markets, both for buying and selling, 
 have thereby become subject to all the changes of 
 fortune and circumstance which may befall these 
 foreign lands. A bad harvest of silk in China, or of 
 corn in America, a famine in India, a civil war in the 
 United States arresting the production of cotton, a war 
 between France and Germany, insolvency of foreign 
 loans, commercial depression over the States and 
 Canada, and Germany, and other territories these, and 
 endless other vicissitudes of commercial position, most 
 powerfully affect the demand and supply of the whole 
 of English trade, and create violent commotions in 
 prices, both for buyers and sellers. It was natural that 
 economists should fasten their attention on these variable 
 winds of the commercial weather, and be eager to discover 
 the existence of laws in supply and demand to guide and 
 protect traders in every market. Much ability and acute- 
 ness have been devoted to this 1 study. Whether an eco- 
 nomical Newton has ever sprung up and proclaimed a law 
 of supply and demand which may rival in authority that 
 of gravity is a matter which must now be considered. 
 
 The interest here, be it observed, is a purely practical 
 one. Is Political Economy able only to record certain 
 facts without giving any rules for determining what 
 these facts shall be? or can it furnish laws, which, if 
 followed, will lead to certain and necessary results ? 
 
 To learn whether demand and supply contain a
 
 86 EXCHANGE. 
 
 scientific law, we must first know what they are. Adam 
 Smith defines demand as a desire to buy on the part 
 of those who are able to pay the price required ; and 
 supply as the quantity of goods brought to market. 
 To this definition Mr Mill makes the objection, that 
 there can be no proportion between two things not of 
 the same denomination, such as a desire and a quantity 
 of goods ; they cannot be compared together as to their 
 action on price. Accordingly he gets over the difficulty 
 by defining demand as the quantity of goods de- 
 manded, and supply as the quantity of goods offered 
 for sale ; and when the goods are bought and paid for, 
 he pronounces that the result is an equation between 
 supply and demand. Professor Perry substantially 
 takes the same view. He calls the money ready to 
 be offered in buying demand, and the quantity of 
 goods present to be sold supply. The sale marks that 
 an equation has been established between the two. But 
 these definitions only state two facts ; they are merely 
 statistics, they tell us nothing about their action on prices, 
 and the forces which make that price what it is. 
 
 Further, Mr Thornton attacks this doctrine of equa- 
 tion, and denies that the market price of a commodity is 
 always such that the demand and supply become equal. 
 He most unanswerably urges that demand often would 
 buy more if the price would remain stationary at a fixed 
 point beyond which it refuses to advance. When an 
 article is absolutely indispensable, such as food to ward 
 off starvation, then a defective supply will be all 
 bought. In the siege of Paris, men preferred to give 
 their all for food rather than die ; but if the article be a 
 luxury, the desire to buy and the means of paying may
 
 EXCHANGE. 8/ 
 
 remain unexhausted, yet the price is unable to rise. 
 There are many who would consent to buy oysters at 
 four shillings a dozen, who would refuse to give six ; 
 they prefer some other luxury to oysters at such a 
 price. The price in that case will not rise beyond four 
 shillings, yet there are many who would give that sum 
 but cannot get the oysters. At four shillings the 
 demand is stationary, yet the supply is insufficient. 
 To say that at that price, demand equals supply because 
 the surplus demand has been extinguished, would not 
 be accurate, for at that market value there are buyers 
 who go empty away ; and if it were accurate, it only 
 expresses that all the oysters were bought. 
 
 Adam Smith's definition, slightly modified, will give 
 us the true relation of supply to demand, and put us in 
 presence of the real forces which act on value in a given 
 state of supply and demand in a given market. Let the 
 first part of his definition stand. He describes demand 
 correctly as a desire to acquire with ability to pay. On 
 a level with this, let supply be described as a desire to sell 
 with the means of at once furnishing the goods. The paral- 
 lel will then be complete ; and we shall have two oppo- 
 site desires, standing, each of them, on a physical fact, the 
 goods actually in existence, and the money wherewith to 
 buy them. Under ordinary circumstances, supply will 
 adapt itself to demand, and natural prices will prevail. 
 The usual compensation for services rendered in produc- 
 tion will be given by purchasers in the shape of profits, 
 wages, and other payments ; when, on the contrary, in a 
 given market, the relation between supply and demand is 
 disturbed, then the feelings of the demanders and their 
 suppliers will come into play. If the article be rare or
 
 88 EXCHANGE. 
 
 unique, the antagonism of contending feelings will be 
 purely personal. The market value will be the result 
 of a struggle to discover the strength of the desire to 
 retain possession and of the temptation offered for ac- 
 quisition. If there be a deficiency in the supply of an 
 indispensable article which must be purchased, the 
 whole supply will be disposed of necessarily. Many 
 wilt be compelled to reduce their other consumption to 
 escape too severe a sacrifice, and the sellers will be able 
 to establish through the competition of purchasers a 
 raised market value. If, on the contrary, supply is 
 excessive, sellers will be forced to tempt buyers to in- 
 creased consumption by diminished price. Goods which 
 have ceased to be fashionable will be sold off at very low 
 terms ; and fish, at last, may have to be given away. 
 
 Then again, the price offered by demand may be 
 unsatisfactory to sellers, and they refuse to sell ; thus, 
 beasts are often withheld at a market and driven back 
 home. They never really become supply; by an act 
 of will they are removed from the class of supply. 
 Still more is this the case with wheat, of which a 
 sample only is brought to market ; it remains at home ; 
 the sample was a mere experiment whether it should 
 pass into supply. There is no intention of taking a 
 lower price than one determined upon beforehand. But 
 these are conditions which are all discovered by actual 
 experiment ; they cannot be grouped under any law, 
 for there is no uniform price to govern the feelings of 
 demanders and suppliers and so determine a scientific 
 market value. The ultimate price can be discovered 
 by trial only : in no other way can the strength of the 
 contending feelings be ascertained.
 
 EXCHANGE. 89 
 
 Professor Cairnes could cite other elaborate efforts 
 only as approximative to the law of market price, and 
 he acknowledged that his statement would be utterly 
 unsatisfactory to some economists, whose views in con- 
 nection with their science were more ambitious than his 
 own. We must come to the same conclusion with Mr 
 Shadwell. We must acknowledge our inability to de- 
 vise a theory which will satisfactorily account for the 
 phenomena of market value, and must leave them 
 unexplained. We must hold that the fluctuations of 
 the value of commodities cannot be predicted. At the 
 same time I am unable to share Mr Shadwell's confi- 
 dence that these phenomena conform to law, though we 
 cannot say what it is. The nature of the regulating 
 force, human feeling, in such matters necessarily, as it 
 seems to me, excludes the dominion of law. 
 
 It remains to notice some important points connected 
 with supply and demand. 
 
 It results from the nature of all trades that all goods 
 on sale are goods offered in exchange for other goods. 
 Every article in every shop or market asks to be ex- 
 changed for some other article in some other market. 
 This cardinal fact is disguised by the use of money in 
 exchanging. Money betrayed even so acute a thinker 
 as Mr Mill into the great error of supposing that goods 
 are a demand for money. If that is so, then this 
 demand is little gratified in modern trade. The Clear- 
 ing House of London alone exchanges goods for goods 
 by the help of pen and paper and figures to an extent 
 enormously greater than all the coin and bank notes in 
 the kingdom. Goods in shops are a demand for other 
 goods. The seller with the money he takes buys other
 
 9O EXCHANGE. 
 
 goods, else his money is useless to him. He would 
 starve on a heap of gold. Thus the important truth 
 comes out that the same goods are at once supply and 
 demand. For the buyer they are the supply of what 
 he wanted ; for the seller, they are the means of his 
 demanding at some other shop those articles that he 
 needs. Through the intermediate agency of money 
 supply becomes demand. 
 
 This analysis leads us up to a truth of the first 
 order that purchasing power resides in the supply of 
 goods. Nominally sales are made for money. Demand 
 is commonly understood to be an offer of money. But, 
 even supposing money to be present, which in England 
 it very seldom is except for small retail purchases, that 
 money had to be itself bought with goods ; so that in 
 very truth all income, all fortune, all power to acquire 
 things necessary, or beautiful, or enjoyable, consists of 
 goods or commodities offered in exchange. The land- 
 owner's rent is his share of the corn and hay produced 
 on his farms. The wages of the labourers reckoned in 
 shillings are the articles which they buy for their main- 
 tenance. The profit of the employer in like manner 
 is the portion of the goods made which accrues to him. 
 Throughout all trade goods are the realities which buy, 
 reckoning themselves up in money, but in actual fact 
 making use but of little of it. 
 
 It follows from these truths that the aggregate 
 demand of any country is the quantity of goods which 
 it has to offer in exchange for others. The power of 
 purchasing extends to the whole amount of commodities 
 seeking to be exchanged, but it cannot exceed that 
 quantity. There may be speculative buyers, who act
 
 EXCHANGE. 9 1 
 
 on market price as demanders, but who on the day of 
 settlement are unable to pay. It is clear that such 
 persons never possessed purchasing power. From this 
 nature of purchasing power an important consequence 
 follows. Whatever quantity of goods is taken away 
 from buying a particular kind of commodity is so much 
 added to the quantity seeking to buy in some other 
 market and vice versd. Whatever amount of goods is 
 added to purchasing and exchanging in one market is 
 so much taken away from another market. There is 
 only one exception to this rule, but it is very important. 
 When an increase of wealth happens in a country 
 that produces more than it consumes, then by such 
 saving it acquires an addition of buying power. 
 It obtains a demand which is not a diminution of some 
 other demand. But the general truth remains unaltered, 
 an increase of demand for particular commodities 
 involves, except in the case of goods saved, a diminu- 
 tion of demand for others. 
 
 This truth, though often forgotten by economical 
 authorities, contains the secret of most commercial 
 depressions. Not to discern its bearing is to neglect to 
 give to trade warnings of the highest moment. If 
 wealth, as loans, for instance which, as a rule, are 
 always taken out in goods had not been sent away to 
 every part of the world, if commodities had not been 
 used up without any other commodities made to replace 
 them, if new railways which could not repay their cost 
 for many years, whatever may have been their dividends, 
 had not been constructed not out of savings but out of 
 capital, demand would not have diminished so fearfully 
 as it has done for some years past. Trade would not
 
 92 EXCHANGE. 
 
 have been stagnant, mills would not have worked at 
 half time, railway traffics and dividends would not have 
 dwindled down, and commercial bills been hard to find 
 in the money market. So simple a truth as this that 
 the trade of a nation is the exchange of all its goods, 
 and depends for magnitude on the quantity of those 
 goods, is the natural and real, but much unthought of 
 explainer of all these collapses. 
 
 Allusion has been made above to the difference of 
 the effects produced on the price of luxuries and of neces- 
 saries by a deficiency of supply. Dearer luxuries are 
 given up by many, and thus the rise of value encounters 
 great and increasing resistance. But bread must be 
 bought; whatever its price. Buyers on a bad supply be- 
 come eager ; sellers hold back. The result is a rise of 
 price greatly out of proportion with the amount of the 
 deficiency. A very interesting table has been drawn up 
 by Dr Davenant, and cited by Professor Jevons, 
 founded on conclusions drawn by George King in 
 1696, in which an estimate is given of the effect on 
 price of different amounts of defect in' the Supply of 
 corn. 
 
 We take it, he remarks, that a defect in the harvest 
 may raise the price of corn in the following propor- 
 tions : 
 
 Defects. Above the common Rate. 
 
 1 tenth raises the price '3 tenths. 
 
 2 > o 
 
 3 i '6 
 
 4 2-8 
 
 5 4'5 
 
 so that when corn rises to treble the common rate, it
 
 EXCHANGE. 93 
 
 may be presumed that we want above one-third of the 
 common produce. If we should want five-tenths or 
 half the common produce, the price would rise to near 
 five times the common rate. 
 
 Whether this estimate is accurate has been a matter 
 of dispute, but the important fact is not doubted that 
 price ascends far faster than supply falls short. 
 
 The sufferings caused by such violent rises of price 
 were fearfully aggravated by the folly of human legisla- 
 tion. The obvious resource against the uncertainties of 
 the seasons was plainly to extend, as widely as possible, 
 the area from which supplies might be regularly drawn. 
 The broader the fields, and the more diverse the 
 climates, from which a people derives its means of 
 existence, incomparably the greater will be their 
 security against starvation, as also against the social 
 and political disorders to which famine so easily leads. 
 But legislators ruled it otherwise. 
 
 Artificial contraction of the supply of food would 
 have been bad enough for a people, who in ordinary 
 seasons could protect themselves from want, but 
 applied to a country which at all times could not 
 raise sufficient food for its inhabitants, was the very 
 climax of perverseness. Duties were imposed on 
 corn, not for the sake of obtaining revenue, but avow- 
 edly with the object of impeding importation. Nor 
 was this all. The method adopted reached the acme of 
 absurdity. A prohibitory duty was laid on corn, but as 
 the consciousness could not be escaped, that a season 
 might come when starvation would be at hand, it was 
 enacted that if the price reached a certain figure, the 
 ports should be opened and all duty removed. Thus
 
 94 EXCHANGE. 
 
 the growth of supplies abroad for England was con- 
 verted into gambling, as were also the operations of 
 merchants. There were traders whose custom it was 
 when harvest time approached, to send inspectors round 
 the country with small square hollow frames within 
 which they enclosed from many fields ears of wheat. 
 The ears were gathered, the grains in each counted, and 
 an estimate made of the probable yield per acre. If 
 the prospect looked gloomy straightway large orders 
 for the purchase of corn were sent abroad. The mer- 
 chant took the chance of a great gain or a great loss. 
 Could an actual desire to keep a people short of bread, 
 and to prevent corn from being grown abroad for its 
 support, have devised a more effectual plan for accom- 
 plishing its object ? How could foreign farmers sow 
 their fields with wheat for England under such a 
 system ? 
 
 One point more remains. In civilised countries pur- 
 chasing in retail shops at the prices asked is substituted 
 for bargaining as in the East, and for the higgling of 
 the market as for cattle at fairs. The principle relied 
 upon for protecting society from lying at the mercy of 
 the shopkeepers is competition, but, as Mr Mill saw, it 
 is a far weaker force in retail than in wholesale business. 
 As we have already seen, there are many prices for the 
 same goods in the same town, often in the same shop 
 through different doors. Either from habit, or fashion, 
 or dislike of trouble, customers persevere in purchasing 
 where they well know the price to be excessive. A 
 still greater defect seems inseparable from retail 
 business. When cost of production rises, shopkeepers 
 are swift to raise prices, and reasonably so, but when
 
 EXCHANGE. 95 
 
 the opposite fact occurs, and they buy their goods on 
 cheaper terms from the wholesale houses, their power 
 in resisting a reduction of their prices to what fair deal- 
 ing demands is wonderful. The lowering process is 
 slow indeed. No shopkeeper likes to be the first to 
 adapt his rates to altered cost of production, and buyers 
 are weak in applying compulsion. The dealers are a 
 combined body, purchasers a mass of single individuals, 
 mostly too busy to carry on a battle for small purchases. 
 Thus the state of supply and demand is set at defiance. 
 It was mainly the strength and success of this one- 
 sided management of the market, this quickness to rise 
 and this slowness to fall, which called co-operative 
 stores into existence, and they may have a greatness 
 in the future which retail dealers would be wise to 
 think upon in time. 
 
 These observations bring us again to the perpetual 
 moral that exchanges and their conditions cannot be 
 reduced to scientific rule. The personal element with 
 all its fitful variations of fairness, intelligence, habit, 
 greed, good nature, dislike of trouble, is ever mighty 
 over prices. Supply and demand is checked by many 
 other forces, though in the main it is the strongest 
 force of all.
 
 CHAPTER IV. 
 
 CAPITAL. 
 
 WE have seen that cost of production is composed of 
 all the compensations given for services rendered to 
 consumers, that is for providing materials and with 
 them making the commodities which they require and 
 purchase. Amongst these elements of cost, wages and 
 profits occupy prominent places. We are thus brought 
 to inquiring into the nature of production and the 
 instruments by which it is accomplished. 
 
 Producing or making is achieved by the use of man's 
 faculties, bodily and mental ; that is by labour. To 
 make or, more broadly, to perform a service, is to 
 labour; and this is an act of exertion of human powers. 
 In every case there must be an effort of body. The 
 thought of the captain who directs the movements of 
 the man at the wheel cannot be communicated without 
 moving his lips or his hands. The inventor who multi- 
 plies wealth by his genius must speak or write. But 
 mind is seldom if, indeed, it is ever absent, even in the 
 performance of mechanical motions ; and it plays an 
 enormous part in the productiveness of the labourer. 
 Man both possesses in himself, and is surrounded by a 
 physical world full of endless capabilities of yielding 
 useful results, that is, results which gratify desire. The 
 intelligence which guides labour, from the knowledge
 
 CAPITAL. 97 
 
 how to make and handle a spade to science over all its 
 vast range, is the mighty power bestowed on man for 
 the creation of the innumerable products which are 
 summed up in the word civilisation. Thought is the 
 commanding force in transforming the physical ele- 
 ments of the world into things fitted to satisfy human 
 desire. One conclusion follows from this truth. As 
 thought takes a share in all labour, to think in produc- 
 ing is to labour. Even when no movement of the body 
 is employed, the thought of the engineer, the chemist, 
 the designer of forms, the inventor of machines, even 
 before word is spoken or written, is labour. Common 
 use has appropriated the term labourers to those who 
 are known as workmen, and this usage must be re- 
 spected by a Political Economy whose sphere is the 
 every-day life of men. But it is essential to recognise 
 that those who contribute thought to labour are as real 
 labourers as those who contribute bodily strength and 
 action. The thought which produced the steam engine, 
 the compass, and the electric telegraph is amongst the 
 greatest of forces that ever laboured to create wealth 
 and satisfactions for mankind. 
 
 Labour, it is obvious, varies prodigiously in severity 
 and productiveness. The hodman who climbs ladders 
 with bricks upon his head performs very hard work, 
 yet the transfer of bricks from the ground to the 
 scaffolding is, though indispensable, in itself a very 
 small service. The great chemist who carries on experi- 
 ments in his laboratory may not be heavily taxed with 
 bodily effort, yet he may make a discovery laden with 
 infinite utility. Economists have pushed the distinc- 
 tions between labourers stilt further ; they have raised 
 
 G
 
 98 CAPITAL. 
 
 the direct production of those things called wealth into 
 a standard, and have divided labourers into productive 
 and unproductive, according as they belong to this 
 standard or not. Mr Fawcett, following Mr Mill, 
 writes : " It will be found, as observed by Mr Mill, that 
 labour creates utilities fixed and embodied in material 
 objects." In Mr Mill's own words: "Labour is creative 
 of utilities as productive labour is labour productive of 
 wealth." Now wealth is nothing else but an instrument, 
 a tool to effect something, a mere machine. Bread is 
 wealth, but it is only an instrument for producing an 
 effect on the body, for sustaining life. So a beautiful 
 garden, a splendid building, or a fine hunter ; they are 
 machines or contrivances for creating effects on the eye 
 or the feelings. They are instruments, not the final re- 
 sults aimed at ; they are, in the strictest sense, utilities. 
 On the other hand, pleasures, gratifications which only 
 exist whilst being enjoyed, and services which give 
 satisfaction only whilst being performed, are not 
 wealth ; they are the ends, the objects, which the 
 wealth was procured to obtain. Mr Mill, therefore, 
 limits the expression productive to a labourer who 
 makes an instrument, a machine which can impart a 
 pleasure or satisfy a desire. It must be material and 
 susceptible of accumulation. The labour which uses the 
 instrument, and accomplishes the end designed, the 
 pleasure or the satisfaction of a want is for him un- 
 productive. 
 
 But he is willing to regard labourers who impart 
 qualities to human beings which render them capable 
 of performing services to others or to themselves as 
 productive. The schoolmaster, the physician, the
 
 CAPITAL. 99 
 
 teachers of bodily exercises, the trainers who develope 
 skill in others, he is willing to regard as productive. The 
 persons whom they instruct are considered to be wealth ; 
 they are tools or instruments possessing utility by 
 virtue of the qualities developed and embodied in them 
 by the teachers. The teachers create tools, those tools 
 being men : the skilled men are reckoned as wealth. 
 But those who render directly the service for which the 
 wealth was made, Mr Mill classes as unproductive. The 
 judge, the policeman, the army and navy, the civil and 
 governmental service, except so far as they improve the 
 national mind, and so create an improved instrument for 
 producing wealth, are consequently unproductive. 
 
 This classification, it must be said, is arbitrary, arti- 
 ficial, and useless. Why the maker of a flute should be 
 called a productive labourer, but the man who plays 
 upon it unproductive, is inconceivable upon any sound 
 principle. They both equally work for the same com- 
 mon purpose to give a pleasure to the ears. They 
 may both labour equally hard, the result is common to 
 both ; and why the use of the lips and fingers in play- 
 ing may not be regarded as instrumental as the making 
 of the flute it is quite impossible to imagine. But why 
 should an instrument, a substance of material wealth, 
 be taken into account at all ? Why is not the beauti- 
 ful singer as truly a productive labourer as the flute- 
 maker ? What has the use or non-use of a piece of 
 wealth called an instrument to do with the matter ? 
 The effect of the sound on the ear is the one and the 
 same end aimed at by both processes. To this Mr Mill 
 replies, that the distinction is important only as classifi- 
 cation ; and that it is desirable to distinguish as a sepa-
 
 I OO CAPITAL. 
 
 rate group those who make material and accumulated 
 wealth, in the common sense of the word, and those who 
 reach the object aimed at directly, but make nothing. 
 
 He supports this assertion by appealing to the 
 popular understanding that producers are makers of 
 wealth. But such a reason furnishes no solid motive 
 for attaching any value to such a classification of 
 labourers and non-labourers. The common world has 
 no need of Political Economists to point out that some 
 people manufacture wealth and others do not ; that a 
 footman in a great house is something very different 
 from a carpenter or a blacksmith. On the other hand 
 such a classification strongly contradicts public feeling 
 in describing a judge who maintains order, an army 
 which enables workmen to labour in peace, a Cabinet 
 Minister who directs the national policy of his country, 
 as unproductive labourers. Mr Mill may protest, but 
 the world will impute a stigma to such an epithet, and 
 it is in the highest degree important to teach mankind 
 the great truth that the hard-working judge, the often- 
 sleepless Minister, the enlisted but idle, and always most 
 efficient when idle, soldier and sailor, are toiling and 
 labouring in conferring inestimable benefits on society. 
 The true view is that of Mr M'Culloch, M. Say, and 
 others: whoever works in conferring a service on 
 others is a productive labourer. He reaches the end of 
 all wealth and all action directly the imparting of a 
 satisfaction or an enjoyment. Whether he does this 
 with or without an instrument called wealth is utterly 
 immaterial. He produces the very object intended : he 
 is a producer and is a productive labourer. 
 
 Mr Mill himself is obliged to admit that " the unpro-
 
 CAPITAL. IOI 
 
 ductive may be as useful as the productive labourer;" 
 but he falls back on the argument of consumption. The 
 pleasure of the beautiful song leaves no trace ; it makes 
 society the poorer by the expense of the singer's main- 
 tenance. Society grows no richer by his service ; his 
 singing is all that is obtained from his toil as a compen- 
 sation for what he consumes. The tailor, on ftie con- 
 trary, may consume as much as the singer, but in the end 
 there is a coat which did not exist before he began to work. 
 But a great fallacy lies in this argument. There are as- 
 suredly two kinds of consumption, and the distinction 
 between them is vast and most important ; but the two 
 labours described by Mr Mill are one and the same in 
 nature. The cost of the singer's maintenance intro- 
 duces no practical distinction. The difference between 
 the coat and the song lies solely in duration. If a 
 guinea is given to hear a song and three for a coat, the 
 song is far dearer, because it is so short-lived ; but rela- 
 tive dearness does not make labour productive or unpro- 
 ductive. A bottle of Tokay may cost a guinea, and perish 
 as rapidly as the song ; but Mr Mill does not refuse to 
 call the maker of the Tokay productive. All wealth is 
 intended to be used, that is to be destroyed. It may be 
 desirable that the destruction should be slow that a 
 singer should sing many songs : but slowness and swift- 
 ness of consumption touch cheapness or dearness only of 
 the thing enjoyed ; they say nothing about the produc- 
 tiveness or unproductiveness of the labourer. In a word, 
 every successive application of labour to the attain- 
 ment of the one desired end is productive, and a classi- 
 fication which does not recognise this truth but stops 
 arbitrarily at the point where the making of the final
 
 IO2 CAPITAL. 
 
 instrument, of the tool which achieves the intended 
 object, is completed, is arbitrary and unreal. 
 
 But in truth, unproductive labour is a scarcely con- 
 ceivable thing. Every man who either himself works 
 or any other man who works on his behalf, to satisfy 
 any desire whatever, is a productive labourer. He toils 
 to get something, and he gets it : and that is to be pro- 
 ductive. But to make an effort without an object is 
 almost unintelligible. It is true that many objects of 
 desire are most frivolous ; but that they are desired and 
 laboured for is the only point in this discussion. Politi- 
 cal Economy possesses no tribunal to judge of ends : 
 it has no authority to prescribe to men what they shall 
 desire. One man has as good a right, so far as Political 
 Economy is concerned, to amuse himself with procuring 
 men to throw stones at a stick, as another has to hunt 
 boars, or to keep a host of idle servants for the purposes 
 of ostentation. If one pursuit is thought to be more 
 unworthy than the other, the issue must be carried to 
 Moral Philosophy, and not to Political Economy. Poli- 
 tical Economy teaches two things : how wealth, that is 
 the means for gratifying desires, is acquired and 
 secondly, how an increase of wealth is to be effected. 
 But when the wealth is obtained, Political Economy 
 leaves it to its owner to dispose of it at his pleasure. It 
 only says to all, whether they be noble or ignoble con- 
 sumers, that if they destroy without replacing, they will 
 inevitably become poorer. 
 
 The subject of consumption is one of the highest 
 interest in Political Economy ; its discussion will come 
 better after capital has been explained.
 
 CAPITAL. IO3 
 
 CAPITAL. 
 
 We have now reached capital a subject which lies 
 at the foundation of Political Economy. It may be said 
 with truth that it has been treated with great ability and 
 success. Nevertheless it is a subject which, in spite of 
 its real clearness, is singularly liable to mischievous 
 confusion, not only in the outside world, but also 
 amongst economical writers. Money is the disturber 
 here, it fastens upon capital as a question specially belong- 
 ing to itself. Thus the conception of the real nature 
 of capital becomes clouded, and much harm results to 
 the right understanding of very serious events in the 
 industrial and commercial life of a nation. 
 
 1. Definition. What is capital ? Wealth used for 
 the purpose of producing fresh wealth, and for that 
 purpose only. To produce wealth requires makers and 
 things wherewith to make it. The makers must be 
 fed, clothed, lodged, and be supplied with necessaries at 
 least. Then they must be provided with materials on 
 which to work, and they must have a supply of tools to 
 carry on the work. All these things must be provided, 
 some beforehand, the others whilst the work continues. 
 Land, factories, engines, railways, cart horses, corn, 
 cattle, hay, groceries, knives, saws every conceiv- 
 able machine, and tool-shops, offices, the grandest and 
 the humblest contrivance for producing work, one and 
 all are capital, and without them, employed as capital, 
 their respective products will not be forthcoming. 
 
 2. The test of a thing being capital. It is to be re- 
 marked of all this capital, these materials, implements, 
 and necessaries for the labourers, that they are consumed 
 and destroyed in the process of creating wealth, some
 
 IO4 CAPITAL. 
 
 rapidly, others more slowly. The food and clothing 
 of the workmen are used up and disappear. The raw 
 materials lose their primitive forms. They pass into new 
 combinations and shapes. The seeds planted in the 
 ground perish as seeds. The tools wear out by use. 
 Buildings and ships must be restored by repairs or by 
 new ones. Thus the very purpose of capital is to be 
 consumed and destroyed ; it is procured for that very 
 end. The longer it will last and go on with its work, 
 the better for the maker and for those for whom he 
 makes ; but to lie by in store is not the vocation of 
 capital. No one procures it with that object ; it is 
 sought in order to be used, that is to be consumed. 
 
 But the same is true of all wealth ; it is sought and 
 acquired for use that is for consumption. Yet some 
 wealth is not capital ; what is the test of that wealth 
 which is capital, and of that which is not ? This, that 
 the wealth consumed in production reappears in another 
 piece of fresh wealth. This is the necessary and uni- 
 versal test of capital. Wealth which is procured solely 
 for final enjoyment is not capital ; when it is consumed, 
 it leaves nothing behind. It has fulfilled its purpose, 
 it has afforded the gratification desired, and nothing 
 beyond that was sought. It is quite otherwise with 
 capital. The chemical manure perishes ; it is restored 
 in the abundant hay. Labourers earn a good livelihood 
 and enjoy it; but there are the calves and the ricks, 
 the yarns and the nails which replace what they have 
 consumed. The country is none the poorer for their 
 consumption. On the contrary it is the richer ; for the 
 articles made were wanted, and are better than the 
 things used up in making them.
 
 CAPITAL. IO5 
 
 It has been largely debated amongst economists 
 whether land and labourers are capital. Mr Donis- 
 thorpe* thus states the issue. 
 
 " Are land and labourers rightly classed under the 
 head of capital ? To this question four answers are 
 logically conceivable and only four. Land, but not 
 labourers ; labourers, but not land ; neither one nor 
 the other : and lastly, both. 
 
 " Is it credible that leading writers can be cited who 
 among them return all four of these answers ? 
 
 "Such is the deplorable state of anarchy reigning in this 
 department of inquiry that there is no difficulty in doing 
 this. Mr Macdonnell accepts land, but not labourers ; 
 Adam Smith labourers, but not land ; M'Culloch 
 accepts both ; and Mill neither." 
 
 As to land, it seems to me impossible not to accept 
 it as capital. It is undeniably pre-existing wealth, 
 necessary as an instrument for production ; it thus falls 
 under the definition of capital. It is as much capital 
 as the plough which prepares it for the seed. But, it 
 may be said, it has not been saved from previous 
 wealth which might have been devoted to enjoyment 
 and not to production. But this is not an essential 
 point ; the fact that it is an instrument indispensable 
 for producing the food of mankind is sufficient by itself 
 alone. And even if it were true that the absence of 
 an origin from saving forfeited its title to capital, that 
 objection could hold good only of the first few years of 
 the cultivation of a virgin soil to which no manure of any 
 kind was applied. It would then lose its fertility and 
 cease to be cultivated. But the existing cultivated land 
 
 * "Principles of Philology," chap. I.
 
 IO6 CAPITAL. 
 
 of the world is not in that state. As fast as any por- 
 tion of its fertility is exhausted it is restored by manure. 
 Hence land has become an instrument, made and 
 constructed for a productive purpose as truly as a 
 steam engine ; it comes incessantly under repairs, and 
 those repairs are additions put into it by saving, and 
 remain embodied in it for productive use. A farm in 
 a high state of cultivation is an eminently elaborated 
 machine, constructed by the application to it of wealth 
 procured by saving. 
 
 Whether labourers are capital is a far more difficult 
 question. That skilled labourers are a part of the 
 wealth of a nation, I cannot doubt, anymore than that 
 a whole population of trained soldiers is a solid part of 
 its warlike strength. Further, a slave is unmistakably 
 as much capital as a farm horse; he is as truly a tool for 
 production as is the horse. Then again, the skill of the 
 labourer has been obtained by an expenditure of wealth 
 upon him ; that cost has been embodied and reappears 
 in the improved worker. Thus the test of an object 
 being capital is fulfilled. Wealth has been consumed in 
 the education of the labourer, and it is restored in a new 
 product ; but that product is not one intended for final 
 consumption, for enjoyment. It is a new and improved 
 tool, to be applied as capital effecting production. In 
 all these respects, and they are the essential character- 
 istics of capital, the labourer is capital. But he 
 possesses one element more, which creates embarrass- 
 ment. He is the owner of his own person ; his body, 
 with its faculties, belongs to him ; it is subject to his 
 will. He thus acquires a two-fold character. He is pro- 
 perty, so far as he is a tool for labour ; and he is an
 
 CAPITAL. IO7 
 
 owner of property, so far as the use of that tool is 
 absolutely at his own command. 
 
 Then arises the awkwardness, that if he is himself 
 capital, he is also a capitalist ; and this explanation 
 of him comes into direct and hopeless contradiction 
 with the language of commoji life. It must never 
 be forgotten for a moment in political economy, that 
 its sphere, its true and sole valuable sphere, is that 
 of common life; and that sphere forbids the calling 
 or treating a labourer as a capitalist. There is 
 then a logical contradiction involved in regarding a 
 labourer as capital or not capital. If he is capital, he 
 is also a capitalist ; if he is not capital, he is denied a 
 title which the very definition of capital confers upon 
 him. Of the two inconsistencies, the worth of political 
 economy to the world demands that the labourer should 
 not be called a capitalist ; he is and ever will be 
 regarded in real life as belonging to a class standing 
 over against the capitalist in direct and specific contra- 
 distinction. It is open to an economical thinker to point 
 out that, in the light of definition and logical classification, 
 the labourer must logically be accounted capital ; but for 
 all practical purposes he is neither capital nor capitalist. 
 
 Not a little discussion has risen amongst economists 
 as to pronouncing whether a given portion of wealth is 
 or is not capital ; yet the answer is plain. An article 
 cannot be declared to be capital or not-capital till the 
 purpose it is applied to is determined. Take sacks of 
 flour, they may or may not be capital. Devote them to 
 making bread for the workmen in a mill and they are 
 capital. Transfer them to the great mansion to feed 
 livery servants and they are not capital ; no wealth
 
 IO8 CAPITAL. 
 
 re-appears from their consumption. Hence the de- 
 cision whether a thing shall be capital or not rests 
 with its owner ; and till he makes up his mind, its 
 character remains entirely open. 
 
 We can now perceive that there are two kinds of 
 consumption, which are called productive and unpro- 
 ductive. This is a distinction of immense significance 
 for the welfare and progress of every society; their 
 results are as wide asunder as the poles. The con- 
 sumption of capital has one object and one only, the 
 production of fresh wealth in the place of that now 
 gone. It seeks to create wealth, an instrument to 
 satisfy a want or an enjoyment, but it does not aim at 
 directly bestowing the satisfaction. Unproductive con- 
 sumption is final, it gratifies and looks for nothing 
 beyond. Productive consumption enriches, it leaves a 
 better thing behind it. Unproductive consumption 
 impoverishes, it uses up the wealth, and there is 
 nothing to fill its place. The two consumptions 
 express radically different things, different processes, 
 different aims and results. Productive labour, on the 
 contrary, always intends a gratification ; unproductive 
 labour is scarcely conceivable. But though the one 
 consumption enriches, and the other impoverishes, it 
 would be a profound mistake to condemn the unpro- 
 ductive, and to try to make it disappear. Man labours 
 mainly for the very sake of consuming unproductively. 
 He toils for something better than what will just keep 
 him alive in full strength, that is, for something more 
 than what he must consume productively as capital, 
 in order to sustain his existence. Take away from 
 him such enjoyments as are not distinctly necessary,
 
 CAPITAL. 109 
 
 and which perish in the using, and he would labour 
 little. Wealth would have no interest for him, and life 
 be hardly worth the living. The one reason for build- 
 ing up capital at so much trouble, beyond what is 
 necessary for bare subsistence, is to multiply those 
 enjoyments which are consumed for the sake of the 
 pleasure they give and for nothing else. An indus- 
 trious and capital-amassing people work hard and make 
 great sacrifices of time and leisure in order to better 
 themselves, to acquire riches ; and riches is only another 
 word for unproductive consumption. 
 
 3. How is capital obtained ? By saving. But what 
 is saving ? To consume less than is produced ; to 
 reserve a portion, away from enjoyment, in order to 
 have increased means for making still more than what 
 was produced previously. Suppose that there is a 
 balance of wealth over, on taking stock, after every 
 purpose of life has been realised. There are goods 
 and substances remaining for appropriation; this 
 surplus becomes, for the most part, capital. It is de- 
 voted to the manufacture of increased wealth. The 
 country is the richer for it afterwards. If, for instance, 
 it is applied to engaging labourers to drain fields, there 
 are heavier crops for ever afterwards. The essential 
 quality of savings is that they are applied, as capital, to 
 increased production. Savings, hoarded in the form of 
 coin, are not true savings, they are suspensions of wealth, 
 as if stored in a lumber room. To erect a stately man- 
 sion, to lay out ornamental gardens, to build magnificent 
 yachts, is not saving. Merely storing up is not saving ; 
 the things saved must be actually applied to enlarge in- 
 dustry and augment its products if they are to be capital.
 
 I 1 c-APITAL. 
 
 But a nation may become poorer as well as richer. 
 If it loses merely what it would have consumed in 
 enjoyment, but, if at the same time, its capital, all its 
 machinery, men and things, for producing, are un- 
 touched, it has lived harder for the time, but is not 
 really poorer. What is called a commercial depression is 
 something different from this ; it is the result of a 
 country having lost a portion of its means of making 
 wealth. This loss has been brought about by a process 
 which is the very opposite of saving ; it has consumed 
 more than it has produced, the balance is on the wrong 
 side, it has less capital, and consequently can make 
 less. 
 
 This is a matter of such supreme importance to the 
 welfare of mankind, it so deeply concerns the happiness 
 of nations and of individuals at all times, their trade 
 and their prosperity, that it will be profitable to dwell 
 a little longer on the mechanism of production. 
 
 Production, we have seen, is effected by the employ- 
 ment of capital, and its essential characteristic is to 
 replace with new wealth what has been destroyed in 
 making. If then, nations are not to grow poorer, they 
 must keep up their ability to produce, they must main- 
 tain the amount of their capital, for capital is their work- 
 ing power. A diminished amount of capital if rendered 
 more efficient, as by the substitution of improved 
 machinery, would, of course, be equivalent to the larger 
 stock previously employed. If, at the year's end, an 
 account of stock is taken, supposing the nation not 
 to have gone back, it will be found that every one has 
 been maintained in the mode of life he adopted, and, 
 which is the essential point that capital, its materials,
 
 CAPITAL. 1 I I 
 
 tools, and support for labourers, is fully as capable of 
 making as before. But capital may have done more. 
 It may have sustained every income, and yielded every 
 wage and profit, and in addition have an increased 
 quantity of wealth to exhibit. Besides keeping up the 
 stock of things at the former level, it may have a 
 number of newly drained fields, coal mines just opened, 
 railways constructed and about to set to work, fresh 
 factories built, a larger stock of food for the coming 
 year in addition. All this machinery for becoming 
 richer and better off will have been provided out of the 
 surplus gained during the year by consuming less than 
 was made. There will be the means of maintaining 
 more people, or of procuring more enjoyments for a 
 stationary population. 
 
 If the opposite state of wealth arises, whether from 
 the action of the season or of war, or interruption of 
 industry, or excess of railway making, or, which is the 
 great point to notice because it is within man's own 
 control, by indulging in enjoyments beyond income, the 
 nation to use a common phrase will have eaten into 
 its capital, impoverishment will have been incurred 
 at the cost of capital. A part of the things destined to 
 keep up the national production will have been destroyed 
 unproductively, and not replaced. There will be fewer 
 things made, because the means for making will have 
 been smaller ; the nation will be poorer. If a people 
 were to set to work to eat and consume everything that 
 is in the country, it might enjoy unparalleled abundance 
 for one or two years, and then it would starve. 
 
 This analysis furnishes much instruction. It were 
 well if public journals, men of business, the Stock Ex-
 
 1 I 2 CAPITAL. 
 
 change, and even economists, would be at the pains to 
 gather it. 
 
 i. We learn, in the first place, what income is. It is 
 most important to understand this clearly. Income is 
 generally supposed to consist of money. It is always 
 expressed in money. Profits, wages, salaries of all 
 kinds are reckoned in money. All purchases are sup- 
 posed to be made with money. Every one lays down 
 that he has so much money to spend. Thus money 
 hides the real facts which occur. Now income is not 
 money. It is a pure delusion to suppose that income is 
 money. Even where income is received in money, or 
 wages, the true income is what the wages buy in the 
 shops ; the real wages, in contradistinction to what 
 economists call nominal wages, that is, money. A 
 labourer gets much or little exactly in proportion to 
 what he can procure with his wages in the shops. In the 
 same way, the great landowner's income is not money, 
 for he may very probably not receive a pound of it in 
 cash, but his share of the cattle, corn, and hay grown 
 on his farms. The tenants sell these things for him, and 
 pay their rents with cheques. He reaches what his 
 income brings him when he completes the exchange by 
 purchasing with these cheques what he desires. 
 
 It is the same with profits. A merchant makes a 
 profit of ;iooo on a cargo of cotton. He lives upon 
 these pounds. Is not the money specifically his 
 income ? No, for very probably he has never touched 
 a shilling from these pounds in money. He received 
 them in cheques or bills, and cheques and bills are not 
 money, but only promises to pay money. These 
 promises, written on paper, perform for him exactly
 
 CAPITAL. 1 I 3 
 
 what coin does for the labourers. They are his 
 nominal profits. His real profits are obtained when he 
 exchanges these promises for the articles which he buys. 
 These articles are his income. Money and paper are 
 mere cartage. The things moved by the cart are what 
 the owner finally receives as income. 
 
 2. We learn what savings are, surplus of things made 
 over things consumed. When the owners of this surplus 
 each man for himself decides that this surplus shall 
 be applied to increased means of production, it becomes 
 capital. 
 
 An interesting question, little thought of, now pre- 
 sents itself, Where are these savings ? Lord Overstone 
 estimated the annual savings of England at 150 
 millions of pounds an exaggerated sum probably 
 but undoubtedly they are excessively large. Where 
 are they ? in what form do they exist ? Not in 
 consols, certainly, or old railway shares, or shares in 
 old companies ; nor in fine houses and gardens freshly 
 made for these last are not capital. Most savers, no 
 doubt, purchase investments shares in companies and 
 railways, or consols, or other stocks, but this does not 
 tell us where the savings of the nation are. These in- 
 vestments were in existence before the saving was made. 
 They remain unchanged. The man who buys such an 
 investment does not determine where the saving he has 
 made shall be. He transfers his money to a seller, and 
 it is what the seller does with this money which deter- 
 mines not only where the saving shall be, but whether 
 there shall be any saving at all. If he sells his railway 
 shares to the saver, and with the money he receives pays 
 for fox-hounds or race-horses, he destroys the saving 
 
 H
 
 114 CAPITAL. 
 
 made by the buyer, and the final result is an unaltered 
 state of the public wealth. But if the seller of the in- 
 vestment employs the proceeds as capital, then it is he who 
 decides what and where the saving shall be. He may 
 drain his farm or build a new mill or ship, or take shares 
 in a new railway to be made, or make roads on his estate. 
 By doing any of these things he creates fresh capital 
 in the country. He saves, and gives a definite shape 
 to the saving. The income of the nation is permanently 
 increased by his act. 
 
 These operations have been effected by the agency 
 of money, but the money is not the thing saved. There 
 is the same money in the country, whether any saving 
 has been made or not. Nor do the savings exist in 
 banks, for a bank has only its buildings, its ledgers, 
 and its reserve in gold, as wealth, and these are un- 
 changed by the savings of the country. Banks play 
 a large part in deciding where the savings shall 
 be, but the savings are not in them. By advances and 
 discounts they decide in multitudes of cases what form 
 the savings shall take. They may help a ship to be 
 built, or a new railway constructed, or draining carried 
 on, or any great trade operation entered into. The 
 men who receive the advances and do these things, 
 they give form and body to the saving, but the banks are 
 only intermediate agents by means of pieces of paper. 
 If on the contrary the banker makes an advance to a man 
 on mortgage who desires to make large ornamental im- 
 provements on his house or park, beyond his means, he 
 helps to destroy capital. When the advance is repaid, 
 the borrower must have sacrificed a portion of his 
 capital.
 
 CAPITAL. 1 1 5 
 
 3. Capital is divided into two classes, founded on a 
 distinction pointed out by Adam Smith. He classed 
 capital into circulating and fixed. Circulating capital 
 is that which is consumed by a single use, and reappears, 
 in full, in the products which it has created. Thus 
 the food of the gardener is restored in the potatoes 
 dug up. The coals burnt in the factory, the iron-ore 
 which has been dissolved, reappear in the pig-iron 
 created. Fixed capital is that which is not entirely 
 consumed by a single use, which is capable of doing its 
 work more than once, and consequently does not 
 require that its produce should, on a single use, restore 
 it in its integrity. 
 
 Circulating capital derives its name from its rapid 
 movement. It is applied, then destroyed, and then 
 recovered. A master carpenter sends his man to make 
 repairs in a house. The work takes a day, and wood 
 and nails are used up. When the man leaves at night, 
 the job is paid for. The wood, nails, and the man's 
 wages destroyed the carpenter's capital. He receives 
 it back again in the money received, or rather in the 
 things which that money purchases. 
 
 Rapid circulation is of great importance. The thread 
 made by a cotton-spinner is not capital for him, though 
 it is capital to his buyer. If the sale is delayed for any 
 reason, the spinner for the time is out of his capital. 
 His production is so far paralysed. Hence it becomes 
 clear that the slower the circulation, the longer time the 
 products take in being made and sold, the larger is the 
 capital required for the same business, the greater is 
 the cost of production. This fact shows how large is 
 the economical gain from ready-money payments, how
 
 Il6 CAPITAL. 
 
 they render the goods cheaper, as in co-operative stores, 
 without any diminution of profit or wages. On the 
 same principle we discover the immense gift which 
 railways bestow on consumers. They largely diminish 
 the stocks lying idle, either on the road or in the re- 
 tailers' shops. They give speed to circulation, that is 
 they enable less capital to do the same work. The 
 ultimate buyer, the consumer, has to pay for the forced 
 idleness of the capital. He is the richer for the time 
 saved, and all the consumers make up the nation. The 
 capital of the country, without being actually aug- 
 mented, is practically larger. The idle stocks in ware- 
 houses and shops exist no longer. They have been 
 transformed into new working capital. Without any 
 increase of means applied to production, the quantity 
 of wealth created is very considerably increased by the 
 railways. 
 
 The second class of capital, the fixed, is not con- 
 sumed by performing its service once. By far the 
 largest part of the machinery of production consists of 
 capital of this nature. A steam-engine lasts years, so 
 does the factory itself. But a distinction of importance 
 must be drawn here. There is no such thing as fixed 
 capital in an absolute sense. A part of what is called 
 by this name is really circulating capital. The wear and 
 tear of the engine and the building, of the merchant 
 ship and the cart-horse, are pure circulating capital, as 
 truly so as the coals which generate the steam. The 
 circulation is completed by repairs, and repairs are only 
 the capital destroyed in a machine by working reappear- 
 ing in its renovated state. These repairs are charged 
 upon the goods made in their price; they enter into cost
 
 CAPITAL. 1 1 7 
 
 of production. In the case of a cart-horse and similar 
 instruments, there are no repairs, but the depreciation in 
 its value is met by an annual item added to the cost of 
 production. A farmer who employs twelve horses, each 
 of which is expected to last twelve years, must be 
 repaid the cost of a horse each year as replacement of 
 capital used up. 
 
 As to the remaining portion which is the only fixed 
 capital it is wealth converted into a lasting instrument 
 of production. It was made to take that form for the 
 sake of the profit resulting from its employment. But 
 the use of it is subject to necessary conditions. That use 
 must, first, pay for repairs ; secondly, it must, out of its 
 products, furnish the fitting rate of interest on the capi- 
 tal which it cost to make that machine, be it building, 
 engine, tool, or horse ; thirdly, in many cases it will be 
 expected to do more. Its construction has destroyed 
 wealth ; in most businesses the careful capitalist will 
 seek to lay by from its profits something in repayment 
 of its original , cost But there are instances of such 
 machines which are treated differently. A railway in- 
 curs an immense cost in its construction ; but its share- 
 holders are satisfied with leaving their wealth perma- 
 nently invested in it, providing only for the maintenance 
 of its efficiency, and then dividing all the surplus as 
 dividend. But the railway does more than this duty. 
 It satisfies the shareholders and keeps their property 
 undiminished ; but over and above this service it confers 
 an enormous benefit on the nation far exceeding its 
 cost. Its indirect effects, in cheapening transport, plac- 
 ing commodities at the doors of consumers at trifling 
 expense, economising time, opening new markets for
 
 I 1 8 CAPITAL. 
 
 districts more or less isolated, dispensing with large 
 accumulations of stock in shops all over the land, giving 
 access to manures, and in a hundred other ways, are so 
 enormous that, many years ago, the great engineer 
 Robert Stephenson declared that the railways had paid 
 off the National Debt. And so they had ; the assertion 
 was perfectly correct. They had established for 
 England, by their existence, a clear additional income, 
 out of the same capital, of some 28 millions a year 
 and the annual charge of 28 millions is, and alone is, the 
 National Debt. 
 
 There remains one most important moral to be drawn 
 from this analysis. If the creation of fixed capital leads 
 to the great enrichment of a country, it not seldom 
 lands it in great impoverishment. There is no cause so 
 common of financial crises and commercial depressions 
 as an excessive construction of fixed capital. Large 
 quantities of wealth are consumed and disappear alto- 
 gether in the opening of great mines, the formation of 
 railways with their tunnels and embankments, or the 
 creation of great iron works. The food, clothing, and 
 materials have been eaten and drunk up and worn out ; 
 they are cleared away, and nothing left except the works 
 which have been made. So far, the consumption is a 
 creator of poverty ; for tunnels and shafts by themselves 
 alone do not restore the food and clothing which have 
 perished. The deficiency is not filled up even if these 
 mines and railways go to work, and produce profits, 
 and yield good dividends. The capital, the wealth 
 consumed in their construction, is still unrestored, and 
 is not replaced until out of the profits, and before divi- 
 dends are distributed, the original cost of making these
 
 CAPITAL. 1 1 9 
 
 works is repaid. The nation is poorer in things to use. 
 The inevitable consequence is that there is less trade, 
 for there is less to buy with, less to exchange, dimin- 
 ished traffics, fewer and reduced profits precisely be- 
 cause there are fewer things, fewer goods in the country. 
 This excess of creation of fixed capital of capital, be 
 it remembered, which is destroyed, and is not, for a long 
 time, practically restored by wealth available for use 
 commonly follows a season of exceptional prosperity. 
 Men are then hopeful, profits are good and abound, ex- 
 tension of business fascinates, trade is active, and 
 demand for goods ever on the rise. At such times, as 
 happened a few years ago, in the iron and coal trades, 
 new works are commenced in profusion. All this while 
 the consumption of the national wealth proceeds rapidly 
 in maintaining many labourers and in the develop- 
 ment of luxurious consumption in the fine weather of 
 large profits ; and it is followed by the consequences 
 just described. Amongst these offenders none are so 
 mischievous as railways ; promoters, desirers of pre- 
 mium, stock-brokers, and many others, eagerly excite 
 one another. The railway works are begun, and often 
 the revulsion overtakes them before they are completed : 
 the nation is stricken with poverty by their con- 
 struction. 
 
 All these events react on the money market. The 
 depositors of banks are unable to meet their calls ; many 
 fail, the others press for loans to save them from ruin. 
 Deposits diminish ; on many mercantile accounts, or 
 bad bills, the banks incur heavy losses. Suspicion 
 spreads in every quarter, as to what house is sound, on 
 what bank a run may take place. Failures multiply
 
 1 2O CAPITAL. 
 
 often amongst those who were the most favoured chiefs 
 of financing. Then finally comes the crisis, which is in 
 substance the settlement of losses, the discovery who are 
 to be the ultimate losers, whether banks or individuals. 
 When the agony has subsided, a long depression 
 ensues ; trade is painfully slack,, from the reduced 
 wealth in movement ; bills are scarce in the banking 
 world, and I per cent, becomes its king. The suffering 
 reaches its height in those very trades which had been 
 stimulated in the day of sunshine to multiply new works 
 for enlarged production. The means of producing are 
 found to be in painful excess above the power of buy- 
 ing, and shut-up mines and closed factories visit wages 
 and profits with annihilation. 
 
 Such are the terrible calamities with which the con- 
 struction of machines which are amongst the most 
 enriching known to man may visit a people when 
 carried to excess. A man with .50,000 a year who 
 does 100,000 worth of draining in one year, must be 
 poor and in difficulty. A single individual may borrow, 
 but a nation which puts itself in that position has no 
 resources beyond itself, and must suffer. Railways and 
 other fixed capital are to a people what draining is to 
 the landlord most powerful instruments for obtaining 
 wealth ; but they cannot be constructed without great 
 destruction of wealth involved in making them. It is 
 long before they come into action to replace what they 
 have consumed ; meanwhile food, clothing, iron, coals, 
 are gone. In this vital matter there is only one way 
 to escape injury : not to make fixed capital beyond 
 the amount of savings. Within that limit there is 
 perfect safety, and such an application of surplus wealth
 
 CAPITAL. I 2 I 
 
 is excellent. Savings may be thrown into the sea, and 
 no poverty will ensue ; if converted into instruments for 
 production they become permanent gains. 
 
 It may be asked, how is a people to learn the extent 
 to which they may create fixed capital without loss ? 
 how are they to discover how much they are saving ? 
 No rule can be given ; it is a matter of actual trial ; it 
 can never be ascertained accurately. But one influence 
 may exercise immense power in guarding against the 
 danger : a thorough understanding of the principle 
 which governs this vital subject by all who take a lead in 
 commencing new enterprises. If every banker, every 
 trader, and every producer grasped firmly the truth that 
 savings must not be exceeded by the nation, and pro- 
 foundly felt the disasters which the neglect of this truth 
 must entail, a spirit of caution and observation and 
 prudent reflection would be engendered which would 
 control extravagance in the costly investments on 
 fixed capital. It is the temper of the industrial and 
 commercial community that must be looked to for 
 safety. 
 
 The depressions here spoken of have often been 
 ascribed to over-production. That this is not unfre- 
 quently a cause of much trouble no one can dispute 
 and it is very desirable to have an accurate conception 
 of what is signified by the term. That it is possible to 
 produce too many goods of a particular and definite 
 kind is undeniable. This was an event which not many 
 years ago was often seen in the Australian trade, and 
 was exceedingly harassing to the merchants engaged in 
 it. The several populations of the Australian States 
 were small, and the markets consequently very limited;
 
 I 2 2 CAPITAL. 
 
 there were no telegraphs to announce prices, and conse- 
 quently mercantile ventures to those countries involved 
 a large element of speculation. Hence at times the 
 markets were over supplied, at others demand fell far 
 short of being satisfied. Prices varied over the widest 
 range. Beer fetched for a while incredible rates ; then 
 it would be almost unsaleable. The tidings of its exag- 
 gerated value led brewers to send from England barrels 
 without number. The first to arrive yielded un- 
 exampled profits ; the last involved the English brewers 
 in the severest losses. Here was plainly over-produc- 
 tion, and its cause manifest. The state of the Australian 
 beer market could not be foretold with certainty ; and 
 the high prices current attracted brewers without num- 
 ber into brewing out of all proportion to the capacity of 
 the market to carry away the supply. The mischievous 
 force here was the ease with which a brewer in any 
 town of England could make beer for Australia. Thk 
 kind of over-production, this glut of a particular com- 
 modity at a given place, has ever been, and ever will be 
 common. 
 
 But some writers have advanced further, and pro- 
 claimed that a general excess of all products was 
 possible. Dr Chalmers believed that but for the 
 luxurious consumption of the rich, and the destruction 
 carried out by war, too many goods of every kind 
 might be made, and their sale might become impossible. 
 The absurdity of this doctrine has been pointed out 
 by Adam Smith, Mr Mill and many others. It is 
 equivalent to saying that there can be too much 
 wealth; that mankind are rich enough already; that they 
 possess as much as they desire. The limitation of trade
 
 CAPITAL. 123 
 
 comes not from men having all that they wish for, but 
 from their having nothing to give in exchange to pro- 
 ducers for the articles they make. A glut of any single 
 commodity may easily happen, either because only a 
 very small quantity of it can be used, or, which is the 
 ordinary case, because the means of purchasing it are 
 limited. A haunch of venison might be sent into 
 London for every one of its families. There would be 
 a prodigious glut, not because there was a deficiency 
 of desire for it, but because there was a great defect 
 of other things to give in exchange for it. Let those 
 other things be made and provided, and all the venison 
 would be readily sold. The trade of the world might 
 be multiplied a thousandfold, if only there were the 
 means of producing and exchanging. Trade is ex- 
 change, and there cannot be general over-production if 
 there are things to be exchanged. 
 
 It is contended, however, that an excess of fixed 
 capital, such as has been described, is in substance a 
 case of over-production, and so it is in reality. But it is 
 very desirable that this name should not be diverted 
 from the specific meaning which has hitherto been 
 appropriated to it; only confusion can arise from using 
 the same word needlessly under very different circum- 
 stances. Over-production properly denotes a specula- 
 tive supply of goods, intentionally made, beyond what 
 it is subsequently found the demand in the market can 
 take off. The makers overdo the thing. In the case 
 of a great commercial depression following a period of 
 excited prosperity, the evil result is that a large amount 
 of fixed capital, of machinery for production, passes into 
 the state of over-construction. Too many mills and
 
 1 24 CAPITAL. 
 
 factories are practically found to have been built, too 
 many coal mines opened, too many iron works erected. 
 The demand is found to fall away from special causes 
 such as overspending, over-destroying, and the poverty 
 ensuingfrom consuming more than is reproduced. Hence 
 there is for a while real over-production, because the new 
 works go on producing till they find themselves in- 
 volved in ruinous loss. In true over-production the fault 
 lies in the supply ; eager producers have carried their 
 operations too far. In over-construction, the fault rests 
 with the demand which sinks below its previous level. 
 These are phenomena of different kinds; they had 
 better not be indicated by the same word.
 
 CHAPTER V. 
 
 PROFIT. 
 
 CAPITAL leads us to Profit. Profit is the reward of the 
 capitalist, whether in the shape of interest, or in the 
 stricter sense, of that portion of the produce which 
 accrues to the man who owns the business. Either 
 with his own means entirely, or with the assistance of a 
 lender, whom he must compensate for the service 
 afforded by the loan, he supplies buildings, tools, 
 machinery, materials, and the necessary maintenance of 
 the labourers. Whether he does the work himself or 
 whether he engages men to work under his direction, 
 wages and profit must be provided. If he is workman 
 and capitalist at the same time, the business must yield 
 him reward for his labour, and further additional reward 
 for the capital used. 
 
 The conditions under which continuous industry 
 maintains itself are, 
 
 i. The capital engaged in the business must be 
 replaced in full by the products ; for no business goes 
 on permanently at a loss. We have seen that capital 
 is consumed in producing ; capital is wealth ; and there 
 must be restoration of such wealth as is destroyed, not 
 by enjoyment, but in creating other wealth. If that new 
 wealth were not forthcoming, there could be no motive 
 to apply any wealth to capital. Profit, which is reward, 
 cannot begin till the replacement of the things con-
 
 I 26 PROFIT. 
 
 sumed has been completed. Every expense, wear and 
 tear of fixed capital included, must first be made good. 
 2. If a man, as in a Colonial back-settlement, works 
 only for his own consumption, he receives wages and 
 profit together, he is under no need to distinguish 
 them. But if he works under the great principle of 
 civilised life, division of employments, he must look 
 forward to selling for compensation. Selling is 
 attended wth risk, especially under the system of pro- 
 ducing goods not upon order, but in the expectation of 
 demand coming forward to purchase them. Prices may 
 alter, buyers may be poorer and fewer, a new fashion may 
 have set in. If the business is carried on with the help of 
 banking, and what large business in England is not ? 
 the rate of discount may have mounted up to a disturbing 
 height. In a word, endless unforeseen causes may convert 
 hope of profit into loss. In some operations, especially 
 in farming, the product may not appear at all, after all 
 the outlay for procuring it has been incurred. Now all 
 such risks for the restoration of the capital consumed 
 must be met by an adequate insurance embodied in an 
 increase of price. By some writers this insurance is 
 regarded as a deduction from profit; but the more 
 correct way of viewing it is to consider it as an item in 
 the cost of production, as an expense included in it. It 
 cannot be doubted that owners of merchant vessels treat 
 insurance as a portion of their cost ; were insurance a 
 diminution of profit, it would seem to follow that the 
 businesses which are exposed to the greatest risks 
 would realise the smallest net profits ; but this is not 
 true. Net profit has a wonderful tendency to stand on 
 the same level in all industries. The hazardous ones
 
 PROFIT. 127 
 
 may show grosser returns of profit, if their accounts are 
 so drawn up ; but allowance for risk being deducted, 
 the net result, it is well-known, tends to be much the 
 same in most trades. 
 
 3. Remuneration must be provided for the labour, 
 the personal services of the capitalist himself, who 
 labours in conducting his own business. If the business 
 of a market-gardener, for instance, gave him only a 
 handsome return on his capital, but not enough to 
 maintain himself and family, he would necessarily 
 abandon it. But here a distinction must be drawn. 
 In large establishments, such as those of great mer- 
 chants or bankers, the feeling that personal wages must 
 be earned for work done in the counting-house seldom 
 arises. The set off to be made on that ground in the 
 results of the balance sheet would be too small to be 
 worth separate notice ; the reward of the business is 
 thought of only as it exists in the general profits. The 
 merchant or banker may think himself very clever, and 
 attribute the success won to that cleverness ; but wages, 
 in the highest form, or reward for skill, are merged in the 
 idea of profit. 
 
 4. It follows, that after all these charges have been 
 allowed for, the surplus product, the residuum, as Mr 
 Danson happily terms it, will be profit ; what is the 
 nature, the principle of this gain ? It is a reward for 
 two things : for the creation and for the employment of 
 capital. Economists have rightly explained the need 
 and justification for such a reward for the creation of 
 capital, that it is a compensation for abstinence. The 
 owner of the wealth might have devoted it to his own 
 enjoyment ; he preferred to save it, to turn it into an
 
 128 PROFIT. 
 
 instrument for creating fresh wealth. It was his own 
 voluntary act, he gave up some luxury, he finds atone- 
 ment in improved income from increased wealth. His 
 aim was profit ; but profit, though it enriched him, was 
 no selfish course ; luxurious expenditure would have 
 been the real selfishness. By going in for profit he 
 benefits society. His savings are an advantage to others 
 as well as to himself : the new wealth made has been 
 acquired by the help of services which he has rewarded 
 out of the capital he set apart Profit is the last thing 
 which should be grudged, for profit is the creator of 
 capital, and capital is the life-blood of civilisation and 
 commercial progress. The man who saves, be he prince or 
 peasant, is the benefactor of his country, for it is capital 
 which bestows all necessaries and all comforts, which res- 
 cues population from poverty, which sustains and in- 
 creases their numbers. Nothing can be more fatal to the 
 happiness of a people than to bring profit into discredit. 
 A very deluded feeling, most hostile to saving 
 derived from profit, is widely spread amongst the shop- 
 keeping class, and tends to propagate itself amongst those 
 who ought to know better. They are not averse to profit, 
 far from it, but they desire profit of a particular kind. 
 They call the buying of luxuries good for trade. In their 
 sense it is so, they do a good business but what is its 
 nature ? It is pure unproductive consumption, leaving 
 nothing behind it. The shopkeeper's part in the affair is 
 to help the buyer to destroy wealth ; this idea is the direct 
 enemy of saving. A young nobleman is said to have 
 ordered twenty waistcoats, for which he had no use, under 
 the belief that he was doing good to trade. It did not 
 occur to him that if he had saved what they cost and
 
 PROFIT. 129 
 
 lent it to a producer, there would have been the same 
 immediate good to trade and as much profit ; but there 
 would also have been ever afterwards, an additional 
 income of wealth for employing labourers and buying at 
 shops ; labourers and shopkeepers would have had in- 
 creased benefit in perpetuity. 
 
 5. The residuum, the profit, will be responsible for a 
 special charge in one of two forms. That charge may 
 be appropriated by the producer, if he works with his 
 own capital, or it may be given to a lender who has 
 assisted him with a loan of capital. This portion of the 
 profit is called interest, and is usually calculated as so 
 many pounds to be paid annually for each hundred 
 lent. It is certain that every man of business 
 who invests capital in it will expect to earn the same 
 interest upon it as if he had lent it to a borrower, else 
 he would not take up the business at all, but assume, 
 without trouble or risk to himself, the position of lender 
 to some other man. 
 
 I am obliged to employ here the language of money ; 
 it cannot be helped. In the preceding pages all refer- 
 ence to money has been avoided as much as possible, 
 nor has it been wanted for explaining the realities dis- 
 cussed. Political Economy, rightly conceived, ought to 
 know nothing about money except its qualities and 
 services as a tool when actually used. But the world is 
 ever backsliding into money as being capital, and 
 wages, and profits, and indeed all wealth ; a kind of 
 hard fate drives them into this feeling. It is impossible 
 to speak of cotton, and sugar, and iron, as being profit, 
 and wages, and loans, through all the details of each 
 separate business ; hence they are necessarily summed 
 
 I
 
 1 30 PROFIT. 
 
 up and generalised in the one common substance which 
 measures, and as it were embodies them all. But the 
 injury thereby done to the mind in its understanding of 
 the real facts is enormous. It is trained to forget that 
 the substances transferred by money are the things 
 of which Political Economy treats. It is, therefore, 
 necessary at the outset of a discussion in which reference 
 must constantly be made to money to call upon the 
 reader to remember that profits and wages are not the 
 money in which they are spoken of, but the substances 
 which are made to satisfy human desires and which 
 money exchanges. A portion of the cotton spun and sold 
 is the true profit ; another portion, the true wages of the 
 workmen at Manchester. Some of the iron made at Bar- 
 row, and some of the woollen cloths woven at Bradford, 
 are the true rewards of the employers and their men in 
 those places. The iron, yarn, and cloth are turned into 
 money by the employer, the money distributed to him- 
 self and his workmen, and then the things bought with 
 these monies ultimately satisfy the wants and desires of 
 all. The money is first bought with the products of the 
 industry, and then reconverted back into commodities. 
 To an amazing extent in England, money, though spoken 
 of and stipulated in these transactions, is never touched 
 at all. The exchange of the things produced for the 
 things bought is effected by a machinery of paper and 
 account 
 
 We now return* to Profit, and bearing in mind the 
 above caution, we shall speak more freely of money. 
 The man who puts money, such is the phrase, into his 
 business, will expect from it something more than the 
 interest which he could have procured by simple lend-
 
 PROFIT. 1 3 I 
 
 ing ; he will look for a larger return than that. In 
 estimating the results of his operations, the interest on 
 his own capital will figure as a charge, precisely as that 
 on his borrowed money. It will not reckon as an item 
 of profit derived from his trading, but as an item of 
 debt due to him or to his creditor. Interest then, is 
 not the true residuum, it is not the profit. Mr Mill 
 pronounces that gross profits provide for three purposes : 
 reward for abstinence in creating the capital ; indemnity 
 for risk ; and remuneration for the labour and skill 
 required for superintendence. Mr Danson follows in 
 the same track, only laying more stress on insurance 
 against risk. This analysis is manifestly not ex- 
 haustive. Insurance is no gain, it only serves to replace 
 loss. The reward of abstinence is interest, which can 
 be obtained without going into business ; reward, there- 
 fore, for superintendence and skill is all which, upon 
 this view, can be regarded as profit. But, as before 
 remarked, this, in essence, is mere wages, it cannot be 
 specifically profit. Profit bears no direct and necessary 
 relation to skill in the same sense as the reward of the 
 philosophical instrument-maker, or of the great surgeon. 
 Many a dull merchant, or not over-intellectual banker, 
 accumulates a vast fortune out of a business which he 
 has inherited, and in whose management he takes very 
 little part, if even any at all ; as far as he is concerned, 
 connection and routine do the work, or a hired man- 
 ager, in whom the skill and care reside. Mr Shadwell 
 very aptly illustrates the difference between the reward of 
 superintendence and profit by a reference to joint-stock 
 companies. "The managers receive regular salaries, 
 like the clerks and artisans who are employed, and the
 
 132 PROFIT. 
 
 owners of the concern form a distinct class who receive 
 the profits for no other reason than that they have 
 provided the capital with which it is carried on. The 
 dividends on the ordinary shares constitute profit, which 
 varies according to the ability and success with which 
 the particular company is managed. The dividends of 
 the debentures and preference shares are interest on loans 
 raised by the companies."* Such companies furnish clear 
 and well-marked examples of the three different kinds of 
 payment: superintendence, interest, and profit. Take, for 
 instance, a railway company which gives a dividend of 10 
 per cent. Superintendence and skill of management have 
 been charged in the account before the dividend was 
 struck ; so also has risk. The losses from accidents and 
 other risks have been placed on the debit side of the 
 account. Further as to this item of risk, additional 
 provision is usually made by not using up the last 
 shilling of the balance as dividend. A sum, often con- 
 siderable, is held back as reserve, distinctly to guard 
 against risks. Then comes the dividend of 10 per cent, 
 to the idle shareholder. Of this he reckons 4 per cent, 
 as interest on the capital he embarked in the railway. 
 The remainder is pure residuum or profit ; and whence 
 was it derived ? From the productiveness of the 
 capital and labour employed, from more wealth being 
 created that was consumed upon every charge. Then 
 again, profits vary enormously, from lucky chances, or a 
 sudden drop in the cost of raw material, or an un- 
 expected new market, or an extension of business 
 through the growth of population. Abstinence, skill, 
 and personal superintendence remain all unchanged, 
 * " Elements of Political Economy, " page 442.
 
 PROFIT. 133 
 
 yet profit raises its head, and swells into larger dimen- 
 sions. Monopolies too, as Mr Mill admits, have the 
 same effect and augment profits. Combination too, 
 amongst dealers, is often equally powerful, especially 
 amongst retailers who conspire not to conform to a 
 fall in the wholesale market. Such gains are wholly out 
 of the region of the three enumerated elements of 
 profit ; indeed, the very idea of a general level of profits 
 indicates that there is something more in them than 
 interest, insurance, and superintendence. 
 
 We are compelled therefore to continue our search 
 to discover in what true profit really consists. We are 
 not obliged to travel far. We find it in the clear surplus 
 gain which the employment of capital creates. It serves 
 all the three purposes, and then there is a remainder, 
 something over and above compensation for every 
 charge. It still does something more. The nett pro- 
 duct is a residuum, and that residuum was the very object 
 for which the business was undertaken, and the capital 
 applied. It is the work of the business itself, which 
 pays for interest, insurance, and superintendence, and 
 yields still something additional. It is a balance re- 
 maining over and above, after the three satisfac- 
 tions have been provided, and it is because there is 
 such a balance that labourers are able to make assaults 
 on profits to the benefit of wages. That balance varies 
 widely in different businesses. It may come from a 
 number of different sources. It is incapable of being 
 analysed further. It is enough to know that it exists. 
 
 Two other points remain to be noticed in respect of 
 profits.
 
 1 34 PROFIT. 
 
 I. Exceptionally high profits exercise a marked 
 power in attracting capital into the business which 
 yields them. The capitalist naturally looks to the 
 quarter from which he will obtain the greatest return. 
 This tendency has been justly regarded by economical 
 writers as a leading principle in Political Economy, but 
 the carrying it out in practice often meets with great 
 impediments. It is attended with much friction, so to 
 speak, and no small uncertainty. The capitalist 
 encounters a considerable difficulty at the outset. How 
 is he to discover what is the real amount of profit in 
 the business which attracts him ? If he seeks informa- 
 tion from individuals, he will get many different 
 answers. This has been well put by Mr Mill : " Gross 
 profit which does not vary much from employment to 
 employment, varies very greatly from individual to 
 individual. It depends on the knowledge, talents, 
 economy and energy of the capitalist himself, or of the 
 agents he employs, on the accidents of personal con- 
 nection, and even on chance. Hardly any two dealers 
 in the same trade, even if their commodities are equally 
 good and equally cheap, carry on their business at the 
 same expense, or turn over their capital in the same 
 time. That equal capitals give equal profits, as a 
 general maxim of trade, would be as false as that equal 
 age or size gives equal bodily strength, or that equal 
 reading or experience gives equal knowledge. The 
 effect depends as much upon twenty things, as upon 
 the single cause specified."* 
 
 The actual position of the capital which the capitalist 
 proposes to invest will have much influence over the 
 
 * Book II., chap. xv.
 
 PROFIT. 135 
 
 decision. If it is fixed capital, he must sell it before it 
 can be at his disposal, and this may involve difficulty. 
 Hence the set of the tide towards employments which 
 are exceptionally profitable will act chiefly on capital 
 which has not been definitely appropriated, such as new 
 wealth acquired by fresh savings or capital which for 
 the time is at the command of bankers. Not that banks 
 actually possess the capital itself, very far from it, but 
 they command it and can place it in such hands as they 
 select, and from the nature of banking, for a limited 
 time only. By discounting a bill a bank enables a 
 spinner to get hold of cotton. The bank never handled 
 the cotton, but it placed the material, or capital, in the 
 spinner's hands. This is commonly called in the city 
 floating capital, but it is a misleading and objectionable 
 phrase. The cotton and the other things bought 
 with advances and discounts from banks do not float at 
 all. They are capital moved by banks, but they are at 
 once fixed in cloths, or yarns or other goods. The 
 thing that floats is the power of buying lodged with 
 banks by depositors, which they leave in their accounts 
 for a limited period, and may recall at any time. This 
 floating power of buying deposited with banks is one of 
 the strongest forces which direct the movements of 
 capital, and lead it to battle against excessive prices 
 and profit. 
 
 2. By the confusion which Mr Mill, followed by 
 others, has introduced into the subject of profit, he 
 has countenanced an idea which is most widely spread 
 in these days, and which produces mischievous results 
 of the very gravest kind. He first tells us that the 
 gains of capitalists depend on two elements alone. First,
 
 1 36 PROFIT. 
 
 on the magnitude of the produce, in other words, the 
 productive power of labour ; and, secondly, on the pro- 
 portion of the produce obtained by the labourers them- 
 selves. Then he adds that the rate of profit, the per 
 centage of gain on the capital invested, depends only 
 on the second element, the proportional share of the 
 produce obtained by labourers. By the help of this 
 statement, he is brought to accept Ricardo's conclusion 
 that the rate of profit depends upon wages, rising as 
 wages fall, and falling as wages rise ; only he draws a 
 distinction between wages and the cost of labour that 
 is, between what labour brings in to the labourer, and 
 what it costs to the capitalist The inevitable con- 
 sequence which flows from a state of facts, such as is 
 here described, is that the production of wealth becomes 
 a battle field, that in making commodities required by 
 society, the services of two forces, two sets of men, are 
 enlisted, that these men are antagonists, fighting over 
 the division of the common fund which is to reward 
 these services, that what one set wins the other loses, 
 and that the unionists are right in pronouncing capital 
 to be the enemy of labour, and is to be dealt with on 
 the footing of combat. Such a conclusion, if true, would 
 indeed be lamentable for the happiness of mankind. 
 
 One fatal fallacy pervades this doctrine. Mr Mill, 
 and before him Ricardo, did not know that profit was a 
 remainder what is left after all charges have been paid. 
 He did not see that wages is one of these charges and 
 one only. Nor did he perceive that the capitalist buys 
 labour, as he buys materials, coals, tools, and all other 
 things required for his operations. He did not under- 
 stand clearly that he bargains for labour as he bargains
 
 PROFIT. 137 
 
 for everything else, and that he runs the whole risk of 
 his investment in these outlays ending in loss or gain. 
 Nor was he conscious that the bargaining for labour 
 may have gone badly for the employer, and the wages 
 exacted have been exceptionally high, and yet that 
 other causes of prosperity wholly unconnected with the 
 labour market may have so come to his help, that with 
 this rise of wages there was not a fall of profit, as he 
 and Ricardo preached, but a rise of profit and very 
 possibly a handsome one. It is not true that profit 
 depends on two elements, gross produce and wages ; or 
 that its rate depends upon one only, wages. Mr Mill 
 assumes that if the produce were doubled, and wages 
 doubled, the capitalists would have double gain also, 
 but upon the same rate of profit, because they would 
 have doubled also the capital invested. But where did 
 he get the fiction that the capital must have been 
 doubled ? From imagination alone. The introduction 
 of better machinery might have doubled produce or 
 wages, and yet might have cost prodigiously less than 
 the value of the capital already invested in the concern. 
 It did not occur to Mr Mill that, all else being the same, 
 a business which used large banking accommodation 
 might have its rate of profit, calculated as a per centage 
 on the same capital, very seriously diminished by the 
 bank rate during the year standing at 7 per cent, 
 instead of 2. A heavy fall it might be, but what would 
 wages have had to do with it ? The coals consumed in 
 the factory may have been much cheaper or much 
 dearer, cotton much less abundant through civil war in 
 America, other materials may have altered in value, 
 and yet wages may have continued substantially un-
 
 1 38 PROFIT. 
 
 changed for a long period. A farmer does not alter 
 the weekly wage of his labourers, because the rain has 
 spoiled his hay, or the foot-rot his sheep ; yet what 
 would he tell about his profits and their rates ? Great 
 merchants buy large cargoes of woollen or cotton cloths 
 for export to India or China. They may gain great 
 fortunes or land themselves in ruin. What have wages 
 to do with these events ? It may be said that they are 
 not engaged in production. True, but they are profit 
 winners and their numbers are legion. Must a separate 
 chapter and a separate definition be provided for these 
 mercantile profits ? So also with banking profits. We 
 know how large and numerous they are ; yet wages 
 and labourers count for nothing there. Mill and Ricardo 
 have given no formula for these profits, as they are 
 omitted from their definition, but a lawful place is 
 found for them in the residuum doctrine. Whatever be 
 the nature of the business, profit always is the same, 
 the surplus remainder after every portion of cost has 
 been paid. That wages tell for much in manufacturing 
 industry on profit no one disputes, but so does the 
 ground rent to be paid for the mill, or the expensive 
 machinery to procure water. 
 
 The efficiency of labour, its worth to the purchaser, 
 what he gets in return for what he pays for the 
 labour, is a great force acting on the success of 
 the business, beyond doubt, but as labour is bought 
 in a market, the purchase rests on the universal prin- 
 ciple of what is obtained for the money. The employer 
 takes the risk of all these outlays. He pays for labour, 
 materials, and other things in advance. Till he has 
 sold his goods and drawn up the balance-sheet he does
 
 1'ROFIT. 1 39 
 
 not know what the profit is. But in that balance- 
 sheet the labourers and their wages will enter as one 
 item a great item but still only one. The payment 
 of wages preceded the sale of the goods, and not till that 
 sale is effected does the capitalist know whether there is 
 any profit, or how much it may be. He is sure about 
 his cost. He is responsible for every item of it, what- 
 ever be its nature. What he does not know, till the 
 final balance-sheet is made out, is the residuum. If it is 
 on the good side it is profit, but it stands in no positive 
 scientific ratio to the amount of wages paid. The 
 labourers are one element, whether of production or of 
 commercial business. That is their true character. 
 Profit or loss is the final figure after all the proceeds of 
 the sales have been added, and all the particulars of 
 cost subtracted. 
 
 The amount of profit realised varies much both be- 
 tween individual traders and between employment and 
 employment. As we have already seen, chance, habit, 
 fashion, a particular street, often serve as a foundation 
 of higher and not natural price, bringing large gains to 
 the fortunate trader. The profits of different employ- 
 ments, on the contrary, tend to equality. When 
 the profits seem exceptionally great, it will be com- 
 monly found that they arise from unusual risks, or 
 from special skill, difficult to obtain and so com- 
 manding a kind of monopoly price. Yet, generally, 
 it will be gross profit which is swollen ; the net re- 
 siduum of clear gain will seldom be permanently 
 greater. 
 
 Capital, too, it is said, tends to increase faster than the 
 means of employing it, and consequently profits to sink to
 
 I4O PROFIT. 
 
 a lower level. However much this may be true of the 
 past world, it does not hold good of the present age. 
 Steam, with the steamboat and the railway, has brought 
 distant nations into close connection with one another. 
 It has reduced distance and the time absorbed in 
 communicating, intercourse has been marvellously de- 
 veloped, and the most distant regions have been 
 brought into nearer relation with England than coun- 
 tries only a little way distant were wont to be in the 
 past. The result has been that English trade ranges 
 over all the countries of the world, almost as if they 
 were only counties ; and whilst enormous wealth is the 
 result, with a corresponding accumulation of capital, 
 profit has escaped the heavy depression which seemed 
 to be almost unavoidable. And so vast are the regions 
 still to be opened out, so immense the developments of 
 every form of industry to be carried forward in each, 
 that the expansion of English trade, with its field for 
 the gathering up of profit may continue for a long 
 period of years, probably for centuries. If such be the 
 course of events, England may be far off from becoming 
 an old country. 
 
 Public opinion and legislation have at times, on the 
 ground of moral judgment, regarded with especial 
 jealousy the profits of dealers, whether merchants or re- 
 tailers, as distinguished from the rewards gathered by 
 producers. It is thought natural that those who make 
 commodities needed by society should be compensated 
 for their efforts, but shopkeepers and merchants do not 
 add a particle to the goods they handle; they sell them 
 in the state in which they were received from the 
 makers. Their gains thus wear the look of addition to
 
 PROFIT. 141 
 
 cost, of taxation, as it were, sometimes even of extor- 
 tion. This feeling is apt to break out with peculiar 
 violence against dealers and speculators in corn. Their 
 action, when the harvest threatens to be bad, excites 
 anger. They raise prices by their purchases ; so they 
 are branded with evil names, and the law has been 
 often summoned to step in to protect the poor against 
 their nefarious practices. " Parliament forbade men to 
 buy and hold large stocks of corn and similar commo- 
 dities (called Engrossers), or to buy them when on their 
 way to market (Forestallers), or to buy and sell a thing 
 on the same day (Regraters)." * 
 
 Such ideas are as unjust as they are mistaken. They 
 strike at the root of all trade. Trade may be described 
 as the putting of commodities in the right place, as the 
 bringing of them to the consumers' doors. No sane man 
 grudges his reward to the merchant who fetches his tea 
 from China, or his tobacco from Virginia, nor the profits 
 of the shipowner, without whose aid this work could not 
 be done. He may, it is true, if he so chooses, order his 
 tea from China direct ; but he would be obliged to pur- 
 chase a large quantity, to keep it long in store, with 
 danger of deterioration, and a heavy prepayment in 
 advance long before it came into consumption. The 
 retail dealer confers on him the enormous advantage of 
 supplying his wants at the moment he feels them, and 
 not before. It may well be that the article supplied has 
 become cheaper, whilst held in stock, and must be sold 
 at a loss. Against such a risk the dealer must be pro- 
 tected by some addition of price, or he would not 
 engage in the business. 
 
 * Danson, "Lectures."
 
 142 PROFIT. 
 
 On the other hand the interest of the public and the 
 consumers demand that these services and their rewards 
 should be reduced to a minimum ; and for effecting this 
 object, competition is the force to be relied upon. 
 These services are mere agency ; they do not produce, 
 although they be desirable and important. Retailers are 
 often blind to this truth. They often conceive that their 
 business exists as a matter of right ; to curtail it is to be 
 guilty of oppression. Thus the appearance of co-opera- 
 tive stores was resented by many shopkeepers as an in- 
 iquitous violation of natural right As well might the 
 broad-wheeled waggoners have denounced the iniquitous 
 railway, with its rapid and cheap transport. Every ser- 
 vice which ceases to be needed is superfluous, and its 
 right to exist has come to an end. 
 
 With respect to Forestallers and Regraters, public 
 opinion, at least in England, has changed. It has been 
 perceived that the merchant who foresees a deficient 
 harvest and an approaching scarcity, and sends out 
 orders for the immediate purchase of corn abroad, in 
 truth summons the foreigner to give help in the hour of 
 need. He reduces the evil and averts the danger in- 
 volved in the distance of foreign supplies. He may 
 indeed raise the price in the market in which he buys 
 abroad ; nay, he may buy at home, and withhold what 
 he has purchased from the market for a period, but this 
 rise of price comes not in truth from the buyer himself 
 but from the scarcity. His action is a direct averter of 
 scarcity, or even possibly of starvation. By anticipating 
 demand, and so acting on prices, he brings a force of 
 great power into play. He checks consumption ; he 
 gives practical warning of the deficiency and its conse-
 
 PROFIT. 143 
 
 quences ; he diminishes waste and extravagance, and 
 thereby enables the stock in store to hold out longer. 
 Mr Danson puts this very happily* : " The world 
 in such a case may be compared to a ship at sea, and 
 (say) twenty days' sail from port, but with provisions 
 for only fifteen days. To let the consumption go on 
 unchecked would be to close the voyage with five days 
 of famine. Put each man at once on three-quarters of 
 his usual supply, and all may eat, as well as it is pos- 
 sible for them to eat, till the end of the voyage. Post- 
 pone your precaution for ten days, and nothing more 
 than half rations can be allowed. A rise in the price of 
 wheat means, for particular localities, a call for further 
 supplies and for the world at large it means a reduction 
 of rations till the next harvest. But the earlier and 
 the more extensive the reduction the less the conse- 
 quent suffering." And it must not be forgotten that 
 the speculator is compelled to give excellent security 
 against extortion. He incurs a heavy risk of loss ; he 
 may have miscalculated the extent of the public need ; 
 he may meet the competition of unexpected supplies 
 pouring from unthought-of quarters. If the service he 
 renders is real and important, he is entitled to insurance 
 against such a risk. Had he waited till starvation 
 stared men in the face, the bound upwards would have 
 been incomparably more violent. A Bengal famine and 
 starving multitudes might have been the inevitable 
 
 results. 
 
 INTEREST. 
 
 That form of profit which consists of interest received 
 for money lent has been exposed to many attacks both 
 
 * " Lectures," p. 73.
 
 1 44 PROFIT. 
 
 in the present and in the past in respect of its morality. 
 It is payment given to a lender for the use of capital 
 which he has transferred to a borrower : in return for 
 the service rendered the borrower pays a certain sum of 
 money calculated according to the duration of the 
 loan. It was long regarded as repugnant to moral 
 feeling. The Jewish law forbade the taking of interest 
 by one Jew from another. It was allowed to be levied 
 on foreigners only. It was looked on as an act which 
 offended against brotherly love. Aristotle condemned 
 it warmly as unnatural and dishonourable. It was 
 not often that the judgment of Aristotle was perverted 
 in practical matters. He felt the same objection to 
 interest as did the Jewish legislator. It was a gain 
 made by one man at the expense of another. It was 
 unnatural, because money was invented solely for the 
 purpose of passing from one hand to another in ex- 
 changing. In itself it produced nothing ; how, then, 
 was it fitting that what itself created no produce should 
 bring back reward, as a kind of offspring, to its original 
 owner? The Roman Catholic Church denounced it 
 as mortal sin. Before the Reformation it was prohibit- 
 ed in England. Limitations of its amount have been 
 made in most countries. The legislation of great States 
 at this very hour forbids a demand of interest beyond a 
 certain rate. To levy interest then seems an oppressing 
 of a poor man by a rich one. 
 
 These feelings utterly misunderstood the real nature 
 of interest. The idea of money was ever present, and 
 none other. By the very act of lending a man seemed 
 to show that he had no use to put his coin to, not even 
 to spending it on himself ; how then could he justi-
 
 PROFIT. 145 
 
 fiably exact a charge for allowing a brother man to 
 employ that which was remaining idle in his own hands ? 
 
 Bastiat puts the objection excellently: "Money, it 
 will be said, does not reproduce like your sack of corn ; 
 it does not assist labour like your plane ; it does not 
 afford an immediate satisfaction like your horse." It is 
 incapable by nature of producing interest, of multiply- 
 ing itself, and the remuneration it demands is a positive 
 extortion. It was not seen that money was only a 
 ticket which could procure goods out of shops, and that 
 what was really lent was materials, tools, provisions, and 
 other things wherewith to carry on labour. Then Aris- 
 totle and others forgot that the money had been pur- 
 chased with commodities that the men who possessed 
 coin had lost goods, property. 
 
 Socialistic ideas helped to propagate the delusion. 
 The right of enjoying property is made subject by them 
 to the obligation of labour. What the rich consume is 
 the product of the toil of the labourers. Such a relation 
 is a violation of natural justice. Still more unseemly is 
 the command over the labour of others transferred by 
 inheritance to men who have never themselves per- 
 formed any service in accumulating property. They 
 have done nothing to benefit society or to increase the 
 welfare of others ; yet they sweep away what others have 
 made. To men animated with such feelings interest 
 paid on borrowed money appears to be a yet grosser 
 form of the same injustice. The rich man pays wages 
 to those who perform his work ; the capitalist lender only 
 receives. He obtains interest year by year and yet he 
 receives back in time all that he lent. Usury is thus 
 pronounced to be indefensible, not only when it takes 
 
 K
 
 1 46 PROFIT. 
 
 advantage of the straits of the needy to extort rapacious 
 terms, but even in its most moderate form : it has no 
 right to exist. 
 
 A fatal misconception, as I have said, pervades these 
 ideas on interest. If, indeed, property is declared to 
 be an immoral and unjustifiable institution, then, of 
 course, interest must be involved in the same condem- 
 nation. But this is communism ; whilst the special 
 objection to interest pre-supposes the existence of pro- 
 perty. The mistake consists in not perceiving that the 
 principle of reciprocal service, as the basis of reward or 
 payment, is fulfilled in a loan granted on interest. The 
 capitalist has an interest in the loan, but so also has 
 the borrower, and almost universally in a higher degree 
 than the lender. The fact that he is willing to pay 
 interest for the loan by itself alone proves that he 
 conceives he is gaining an advantage by it; and if 
 service given to the lender brings him benefit, he is 
 bound to give a benefit in return. Not to render service 
 for service would extinguish all labour for others, and 
 soon destroy civilisation. 
 
 The objection that money generates nothing is 
 futile. In all loans the things lent are what the money 
 buys. The capitalist who lends and takes interest 
 puts useful wealth in the hands of the borrower. 
 The banker who makes an advance to the merchant 
 on discount lends him the cotton which is traversing 
 the ocean. The small capitalist who lends some hun- 
 dred pounds to a small man stocks his shop and 
 sets him up in business. The capital borrowed pro- 
 duces results which more than repay the interest : it 
 creates a profit. That profit the capitalist foregoes
 
 PROFIT. 147 
 
 and gives up to another ; he suffers no wrong, therefore, 
 in being charged with interest Quite the reverse ; 
 without that interest he could not have obtained the 
 use of the capital bought with the money, and the profit 
 never would have existed for him. The fact that men 
 borrow upon interest proves that there is a gain in 
 borrowing great enough to make it worth while to pay 
 the interest : and this is decisive. To forbid interest 
 is to extinguish one of the greatest motives for saving. 
 It would prevent countless wealth from coming into 
 the hands of those who use it as capital, to their own 
 benefit and that of the whole community. 
 
 But at any rate, many affirm, the rate of interest 
 ought to be limited by law. Such a demand betrays a 
 lurking feeling that lenders are by nature oppressors, 
 and borrowers victims of exaction. No one, except 
 socialists, dreams of prescribing prices to producers of 
 goods, yet monopolists can extort quite as easily as 
 lenders. Such limitation took the place at the Refor- 
 mation of abolition of interest, and continued in Eng- 
 land almost down to the present day. But it forgets 
 the true relation between the parties. As a rule, the 
 borrower is far more eager than the lender. There 
 are innumerable men and firms who cry at times, " never 
 mind what you charge, only let me have the accom- 
 modation." That implies weakness, it is replied ; the 
 law is bound to step in to give protection, there may be 
 excess. But how will the borrower feel ? Will the 
 great mercantile house, which, though solvent, is 
 threatened with stoppage in the agony of a crisis, thank 
 the kindness which drives the banker, ready to lend, to 
 say : we are not allowed to charge more than 5 per
 
 148 PROFIT. 
 
 cent, and at that rate we decline to lend ? To suppose 
 that the endangered borrowers who clamour in a crisis 
 for loans at 10 per cent., or even twice that sum, feel 
 themselves to be the victims of the bank, is simply 
 ridiculous. Their only anxiety is that they should not 
 be able to borrow enough. Limitation drives men into 
 conspiracies to evade the law. Interest is paid in ad- 
 vance under the form of discount on a bill given : 
 and judges are brought in to enforce payments which 
 they know to be in direct violation of the law. Similar 
 evasions are practised with like success in France, as Mr 
 Danson well describes. 
 
 And now, what is the consequence ? The breach 
 of the law creates risk ; the stratagem relied on may 
 fail, and the debt may not be recoverable. Insur- 
 ance must be paid against such a danger, and an in- 
 crease of interest, often a heavy one, is imposed 
 upon the borrower, for whose protection the limitation 
 
 
 
 was invented. A useful and necessary service is 
 thus loaded with arbitrary restrictions. Borrowing 
 will go on and ought to go on. Almost the whole 
 trading community of the nation has borrowing from 
 banks and other sources as an integral part of its 
 machinery. Yet the law is asked to step in and to in- 
 flict penalties on lending. For what reason ? to prevent 
 extortion. But what is extortion ? Loanable capital is 
 an article offered in a market; can the law know its 
 value better than those who seek to acquire it? In times 
 of commercial peril to borrow, even if on excessive terms, 
 is often to save a business ; what right has the law to 
 strive to render such an act impossible or to brand it 
 as immoral ? Experience furnishes a decisive answen
 
 PROFIT. 149 
 
 Limitation has been abolished in England ; has the 
 press been flooded with the language of complaint ? 
 Are borrowers full of resentment ? Are they indignant 
 at the rates charged in the City and elsewhere ? 
 
 But there are, no doubt, wicked practices, positive 
 crimes, against which society ought to be protected. 
 Usurers tempt the young and the foolish with loans at 
 high interest, and the consequence is ruin. But is the 
 folly of such persons, who are necessarily few, a suffi- 
 cient reason for punishing the whole community, not of 
 lenders, but of borrowers, who seek a most valuable 
 service ? But indeed, a law of universal limitation of 
 interest is not the proper remedy for the evil. Judges 
 can easily be provided with reasonable powers of revi- 
 sion in special cases. Many contracts, of various kinds, 
 are cancelled by the courts as iniquitous and immoral ; 
 they might be entrusted with the same discretion over 
 interest with the approbation of all. 
 
 And now, what are the causes which regulate the 
 amount of interest ? Lending is a service on sale in a 
 given market ; precisely as the labour of workmen 
 offers itself for hiring. But there is always a special 
 element in lending ; there is always a risk, sometimes 
 an enormous one, that the thing lent, along with its 
 reward, will not be recovered. Wages paid in advance 
 would be a parallel to a loan ; the man may be idle or 
 get drunk, and the stipulated work never be performed. 
 In no market does risk, with the insurance to be given 
 for it, play so large a part as in lending. 
 
 How then is the value of the service of lending deter- 
 mined ? Like every other act of exchange, by the law 
 of supply and demand, plus the insurance against risk.
 
 1 50 PROFIT. 
 
 Few things on a large scale, if any, have their price so 
 powerfully affected by the fluctuation of supply and 
 demand as lending. The demand may spring up like 
 a storm ; so vehement may be the desire to borrow, as 
 is often seen in commercial panics. In the determina- 
 tion of the ultimate price of a loan, the true nature of 
 value, as has been previously explained, receives a 
 remarkable illustration. The character of the de- 
 mander, the opinion framed of the certainty of the 
 exchange being completed by the payment of the 
 interest, and the repayment of the debt, are most 
 governing factors in fixing the rate of interest. It is 
 mind which estimates and judges and gives its form to 
 the feeling called value ; it is this feeling which rules 
 that one loan must pay 5 per cent, another granted at 
 the same time 50. 
 
 The variety of loans in the lending market strikingly 
 resembles that of flowers; so manifold are their forms, 
 and still more the colours which they wear to the lend- 
 ing mind. Sometimes it is the state of the demand and 
 supply, more frequently the quality of the security 
 offered against risk which creates this multiplicity of 
 form. For steadiness and for cheapness combined, the 
 consols of England are unsurpassed. Faith in the safety 
 of the loan is perfect, that faith being the offspring of 
 the opinion held of the character and solvency of the 
 people of England. This opinion is so strong that in- 
 vestors are ever ready to buy an annuity of ^3 a year 
 at a price not far short of ;ioa Next to consols in 
 the possession of these great qualities come mortgages 
 on land ; the rate of interest is somewhat higher, but 
 the steadiness a little stronger than that of the funds.
 
 PROFIT. I 5 I 
 
 It has often excited great surprise that when the money 
 market is agitated by violent storms, and loans are not 
 to be procured, if even at all, except under exorbitant 
 interest, the mortgage-market dwells amidst the serenest 
 calm ; the ruffle on its surface may not exceed \ per 
 cent. On the other hand the bank rate may descend 
 to 2, and advances be freely obtainable at I, and all the 
 while the interest on mortgages retains its dignified 
 repose. The feelings of the lender and the borrower 
 are the creators of this result. They are not the same 
 men as those who dwell in the banking and commercial 
 worlds. The lender desires a safe and permanent in- 
 vestment. Steadiness of interest, next to solidness of 
 security, possesses the greatest importance in his eyes. 
 He looks upon a varying interest with repugnance ; 
 income to be relied on is what he seeks. He repels an 
 interest of 6 per cent., if next year it is to fall to 2. 
 On the side of the borrower, to have the loan undis- 
 turbed for a long time is a main object ; to change or 
 disturb his lender when the value of money lent seems 
 to fluctuate would defeat the end he seeks, and would 
 ultimately land him in having higher interest to 
 pay. 
 
 The force of opinion in the determination of value is 
 singularly shown by the varying prices of Government 
 stocks in relation to the rate of interest which they 
 yield. Here feeling, whether founded on fact or imagi- 
 nation, controls the action of the investing capitalist 
 Mr Shadwell quotes from the "Journal of the Statistical 
 Society," for 1874, a table drawn up by the late Mr 
 Dudley Baxter which places this great principle in the 
 fullest light.
 
 '52 
 
 PROFIT. 
 
 A table from a paper in the " Journal of the Statistical 
 Society," for 1874, showing the different rates prevailing 
 at the time. 
 
 Low INTEREST. 
 
 HIGH INTEREST. 
 
 3 Per Cent. States. 
 
 6% and 7 Per Cent. States. 
 
 Interest 
 
 Interest 
 
 per cent. 
 
 per cent. 
 
 United Kingdom, . . 3X 
 
 Portugal, . . . .67 
 
 Denmark, .... 3^ 
 
 Japan, .... 6'8 
 
 4 Per Cent. States. 
 
 Hungary, .... 7'o 
 Austria, . . . -7*5 
 
 Holland, . . . . 4'o 
 
 Columbia, . . 7'4 
 
 Belgium, .... 4*0 
 
 Roumania, . . 7'8 
 
 German States, . . . 4*0 
 
 
 India, . . . . 4*2 
 
 8 to 10 Per Cent. States. 
 
 Canada, .... 4*6 
 
 Uruguay, . . . 8'o 
 
 Australasia, . . . 4'6 
 
 Italy, . . . 8-2 
 
 Sweden, .... 4^9 
 
 Cuba, . . . . 8'2 
 
 MODERATE INTEREST. 
 
 Egypt, . . . . .9-0 
 
 
 Peru, . . . . 97 
 
 5 to 6% Per Cent. States. 
 
 Ecuador, .... lO'o 
 
 Morocco, . . . S' 
 
 Turkey, . . . .107 
 
 United States, . . .5*1 
 
 
 Brazil, . . . . 5'! 
 
 EXCESSIVE INTEREST. 
 
 Russia, . . . . 53 
 
 Guatemala, . . . 14'$ 
 
 France, . . . . 5'3 
 
 Bolivia, . . . . 15*0 
 
 Natal, Cape of Good Hope, 
 
 Spain, .... i6'5 
 
 Ceylon, and Mauritius, . 57 
 
 Mexico, .... I7'5 
 
 Chili, . . . .57 
 
 Costa Rica, . . . 22-0 
 
 Argentine Republic, . . 6 - 3 
 
 Paraguay, . , . 25*0 
 
 
 Venezuela, . ,. . 25^0 
 
 
 Greece, . . . . 33-0 
 
 
 Honduras, . . . 66 - o 
 
 These figures do not give the nominal rates of interest, 
 covenanted by the legal conditions of the loans, but the 
 interest they would bring to an investor who purchased 
 these stocks at the prices of the day. Accidental cir- 
 cumstances obviously create great variations in such 
 figures. France in 1874 had just emerged from desolat-
 
 PROFIT. 153 
 
 ing war: at the quotations of the present day she would 
 take her place in the list of Low Interest. 
 
 One fact comes clearly forth from this table which de- 
 serves attention for the illustration it gives of the benefit 
 which a colony can derive from a mother country. Aus- 
 tralasia takes rank among the States which borrow on 
 Low Interest, and that great position is due to her con- 
 nection with England. The rate of interest on capital lent 
 is naturally high in those regions not because there is 
 any peculiar risk involved, but because it is scarce, and 
 possesses great productive power in accumulating 
 wealth under the peculiar circumstances of a colony. 
 Industry, which is mainly agricultural, gathers up great 
 results at trifling expense. The yield of corn per 
 acre may be small compared with what it is in old 
 countries, but the virgin fertility of the soil has not been 
 exhausted by long cultivation, manure is not so 
 urgently needed, the climate calls for no expensive 
 farm-buildings, the land can be purchased or hired 
 cheaply, and is exempt from high rent. Cattle, and 
 especially sheep, repay slight care with bountiful 
 returns. A large relative produce against small cost 
 are the very conditions which bring high remuneration 
 to both capital and labour, and yet leave handsome, 
 fortune-making profits to the cultivator. This is what 
 may be called the Colonial State, and it is characterised 
 by the two distinctive features that both interest and 
 wages are naturally and legitimately high, and are paid 
 with as much ease as the low rates of each prevalent in 
 an old country. 
 
 But incomparably the largest amount of the general 
 loan fund of England is contained in that portion of the
 
 1 54 PROFIT. 
 
 moneymarket which deals in discount. It is mainlyunder 
 the control of bankers ; and to say this is to proclaim 
 that the rate of interest, the consideration to be paid for 
 the service of lending, is more subject to violent fluctua- 
 tions in this region than in any other. A full explana- 
 tion of the market for discount cannot be given here ; 
 it must be adjourned to the Chapter in which banking 
 will be considered. The loan fund, with which banking 
 deals, is commonly called floating capital. It is appro- 
 priated to no special and permanent investment. It 
 moves about is lent for short periods ; it is in the 
 hands of one man to-day, of another a month later ; it 
 helps at one time a merchant whose wool is on the sea, 
 at another a speculator on the Stock Exchange. It 
 floats ; its nature is radically different from loans 
 invested in fixed appropriations. 
 
 But the phrase floating capital is a very loose one, 
 and is exceedingly apt to mislead. Where is the capi- 
 tal, which is thus called floating ? This is a question of 
 the highest importance for a clear understanding of 
 banking. The banker lends with pieces of paper, be 
 they bills or cheques cash, that is, coin and bank-notes, 
 constitute but a trifling portion of his machinery. These 
 are the things he handles ; if he has anything to do 
 with capital, where is it ? To call the pounds indicated 
 on these papers, or registered in his ledger, capital, 
 is to contradict the very definition of capital, to 
 destroy its nature, to render the explanation of the real 
 facts impossible. Yet the lender who makes an entry 
 in his books to the credit of a borrower, and authorises 
 him to draw cheques or bills on that account, very 
 really transfers property, and thus truly lends capital to
 
 PROFIT. 155 
 
 a man who without this machinery of paper would not 
 have had the capital. He is able to do this, because the 
 paper is endowed with the power of purchasing com- 
 modities, and these commodities are capital. The mer- 
 chant and the manufacturer by the help of the 
 discounted bill or the drawn cheque obtain materials 
 or machinery for carrying on their business ; they 
 acquire what is very really capital ; they obtain the 
 things necessary for producing wealth. But where and 
 the question is critically important where was all this 
 capital before it was lent and transferred as loans by 
 the action of the banker ? Plainly, in the shops and 
 warehouses and this is a fact which few discern and 
 bring into its necessary prominence. The capital 
 none of it except coin is not in the hands of the 
 bankers. What the bankers possess is purchasing power, 
 the means of buying goods and property, and that pur- 
 chasing power they can and do transfer from one set ot 
 men to another. They thus exercise direct control over 
 ownership of capital ; they enable a borrower of these 
 means of buying to go into a market and procure goods 
 which without the banker's aid he could not have 
 obtained. They are paid for with cheques, which the 
 banker authorises the borrower to draw upon him. This 
 purchasing power which the banker lends is derived from 
 debts, expressed in cheques, bills, and other papers, paid 
 in to him by depositors. He collects them, but not in 
 money, in London at least and other places, but by setting 
 them off against the cheques which he authorised his 
 borrower to draw. The two sets of cheques meet at the 
 Clearing House a balance sheet is drawn up and the 
 banker pays with a cheque on the Bank of England the
 
 1 56 PROFIT. 
 
 small balance, cither for him or against him, as the case 
 may be. 
 
 Such is the banker's action. He begins with a debt 
 to collect, and ends with a debt which he permits his 
 borrower to incur towards him. There is no capital in 
 all this no property touched by the banker no goods, 
 no wealth ; paper only, with a trifling exception of cash. 
 Yet each transaction deals with goods, but not the 
 banker. It is the depositor who deposits cheques re- 
 ceived for wealth which he has sold, and the borrower 
 who buys other goods with the purchasing power he 
 borrowed, who handle wealth and exchange it. To say, 
 then, that bankers have floating capital is an untrue ex- 
 pression ; but they do possess a floating thing, and that 
 is floating purchasing power. That is the true formula 
 which describes what the banker deals in. That buying 
 .power floats, because it is not permanently invested : it 
 is lent to one man for a brief period, returns to the bank, 
 and is again lent to another. The capital that is the 
 property which has passed from one owner to an- 
 other by the help of the bank does not float ; it is 
 as permanently used, by a single action, as any wealth 
 bought without the intermediate agency of a bank. 
 The manufacturer buys cotton with the floating pur- 
 chasing power speedily returnable which he got from 
 the bank ; but the cotton he immediately consumes and 
 converts into yarn. The cotton does not float, but the 
 power to buy does. 
 
 The supply of the means to lend and to purchase 
 presents many interesting features. The growth of 
 civilisation, the multiplication of new fields of industry, 
 the rapidly-expanding intercourse of nations with one
 
 PROFIT. I 5 7 
 
 another, their ever-increasing confidence that a debt 
 due by a man dwelling in a foreign country will be duly 
 paid these and other causes spread the process of bor- 
 rowing over a vast number of localities. The industries 
 and trades worked all over the world with capital not 
 money, but goods exported borrowed from England, 
 are incalculable. Mr Mill has laid great stress on the 
 tendency of profits and interest to descend to a mini- 
 mum, as smaller returns come in from successive appli- 
 cations of capital, especially to land. Theoretically the 
 doctrine is indisputable. In the latter days of the world 
 all land will have been brought under cultivation, and 
 increase of yield will be extremely difficult. But the 
 theory will have little practical value for many ages to 
 come. The movement is distinctly now in the opposite 
 direction. This set of the tide, this marked tendency of 
 the last fifty years to enlarge the field of labour, to 
 place old nations by trade and capital more in the posi- 
 tion of new ones, to convert the development of country 
 after country into, as it were, the acquisition of new 
 lands for mankind, and thus to intensify the motive for 
 saving, Mr -Mill failed to perceive. He was blind to it 
 when he spoke of land. It never occurred to him, as will 
 be shown later, that the fields of England had been in- 
 creased by millions, that America, Russia, India, the 
 Colonies, in a word, innumerable countries, were asking 
 for the products of English industry, were summoning 
 England to save more capital, and invest it in new manu- 
 factures, were offering their own wealth in exchange, 
 and that profits, wages, and interest were set upon the 
 rise. 
 
 In no sphere is this intercommunity of nations more
 
 158 PROFIT. 
 
 visible than in that of interest and loans. The stock 
 exchanges of Europe are full of the stocks of distant 
 countries : the railway, the public press, the telegraph, 
 and the steamship, have bound peoples together as if 
 they were provinces of one universal state. Of this 
 vast state London has become the capital. To be able 
 to borrow in London, to stand in good repute with its 
 capitalists, is a strength coveted by mighty empires. If 
 discount rises or falls in London, the effect vibrates 
 through every other stock exchange. Funds for the 
 money market are rapidly sent to or from the English 
 market. The consequences of this unity of movement 
 are diverse. The supply of the means of investing are 
 enlarged. French, German, Austrian, and other monies, 
 as they are called, appear in London : a change super- 
 venes and the streams pour back to Paris, Vienna, and 
 Berlin. On one side, the tendency of this financial 
 fraternity is to diminish the rate of interest ; there is 
 more to lend in all the markets. In relatively poor 
 countries means are acquired more cheaply for industry. 
 The development of their production is facilitated, 
 English and other loans come to their help, and 
 interest points towards a fall. But how will it be in 
 England and the richer countries ? It might seem as 
 if a market already gorged with resources difficult to 
 employ would be oppressed yet more severely ; this 
 effect, undoubtedly, has been felt in London. The 
 Germans lodged large sums in the London banking 
 world, and told heavily at times on the money market. 
 But it would be to take a narrow view of the facts to 
 suppose that a lowering of interest is the necessary 
 consequence of the appearance of foreign funds in
 
 PROFIT. 159 
 
 London. The increased sense of fraternity and se- 
 curity, which led to the intercommunion of the money 
 markets, generated also a very strong desire in less- 
 developed countries to acquire the fitting machinery for 
 creating wealth, to obtain capital for agriculture, for 
 manufactures, for shipping and harbours, and above all, 
 for railways. They became eager to borrow in England, 
 and Englishmen were willing to lend. The being able to 
 lend was of infinitely greater importance to England than 
 the gain of additional power to borrow. 
 
 This view has been controverted in many quarters. It 
 isadmitted that the purely investing portion of the British 
 public, men who have purchasing power which they 
 cannot themselves make use of, but which they are will- 
 ing to transfer on loan to foreigners, may be largely be- 
 nefited by the appearance of additional borrowers ; but 
 the people of England itself, it is argued, especially the 
 labourers, are injured by the process ; the capital, that 
 is the commodities sent abroad, are a loss to them. 
 They are, as it were, made non-existent, they create no 
 call for English labour, they bring no gain to England 
 save the interest received. How different would the 
 effect have been had these commodities been applied 
 to the extension of English industry ! 
 
 The answer to these objections depends, in no small 
 degree, on a broad and very important principle. 
 Political Economy has not for its aim the enrichment 
 of a particular people. Its subject is the wealth of 
 nations. It knows nothing of the distinction between 
 natives and foreigners, except so far as the distribution 
 of mankind into nationalities tends to create laws in 
 various countries, which oppose freedom of industry
 
 160 PROFIT. 
 
 and trade, and interfere with the more natural and 
 fitter course proclaimed by its teaching. Trade is 
 always an exchange of equal goods, and Political 
 Economy asks no questions about their nationality. 
 This all-important truth has a great voice in this 
 matter of international lendings, and is supreme in the 
 domain of free trade. It follows as a direct conse- 
 quence from this principle, that if the capital sent away 
 from England to a foreign country and it is always 
 sent away, be it remembered, in goods, not in money 
 generates in it a production of wealth, which is ex- 
 ported to England in exchange for English goods, it 
 makes no difference to England whether that capital 
 has been invested in her own territory or in a foreign 
 one ; English labour has been equally benefited in both 
 cases. The consumption of the capital in England 
 would have resulted in the production of a stock of 
 wealth by English labour ; but if that capital had been 
 invested in America, in the creation of an additional 
 quantity of cotton, which was sent to England in 
 exchange for English goods, then those English goods 
 sent to America would have given additional employ- 
 ment to English labour, to an absolutely equal extent 
 with those which would have been made, if the capital 
 had been employed in England instead of in America. 
 English capital lent to Australia has built up the great 
 trade between that country and England, and along 
 with it, the large extension of industry and of the 
 employment of labour in England. 
 
 On the other hand, the loan may be applied abroad 
 to purposes which do not supply goods to send to 
 England, and do not directly increase English trade.
 
 PROFIT. l6l 
 
 It may have been used in the construction of railways, 
 an assistance which England has bestowed on so many 
 foreign states, or China may have employed it in 
 developing purely local industry. Directly, the gain to 
 England is solely the interest which she annually 
 receives, but here we must draw an important dis- 
 tinction. If the loan has been granted by England out 
 of savings, out of surplus wealth won above consump- 
 tion, then England is not made poorer by the loan 
 than she was before it was granted ; but there is a 
 great principle which governs this question, which 
 produces powerful effects. The progress of other 
 countries, their growth in civilisation, generates a sure 
 and constant development of exchange with each other, 
 and especially, under the existing circumstances of 
 mankind, with England ; they increasingly desire Eng- 
 lish products, and England desires theirs. Tea from 
 China, cotton and corn from America, wool from 
 Australia, indigo from India, become the subjects of 
 ever-expanding demand in England, and these coun- 
 tries gladly take English goods the fruit of English 
 labour, in return for what they send. In this great 
 matter, nothing develops a country more than railways. 
 The railways constructed with English money, bring 
 corn to the sea-coast of America and Russia ; lands 
 formerly shut out from the rest of the world, are made 
 part, so to speak, of the common agricultural ma- 
 chinery of collective humanity. Food can now reach 
 England through the help of these railways, and food 
 is what England most needs, and what is most essen- 
 tial for the support of her labourers. The enormous 
 expansion of English trade, its vast exports, the 
 
 L
 
 1 62 PROFIT. 
 
 products of English labour, are due to the progress of 
 other countries beyond all other causes, and if Eng- 
 lish loans have helped that progress by enabling its 
 instruments to be provided, they have multiplied the 
 international exchange of commodities, and thereby 
 fed English industry, and rewarded English labourers 
 with additional wages, and English capital with aug- 
 mented profits. 
 
 We thus reach the conclusion that it is the manner 
 in which the English loan is applied in the foreign 
 country, which determines whether the export of Eng- 
 lish wealth does or does not benefit the industry of 
 England, and those who profit by it. A loan to a 
 spendthrift foreign people, which has consumed its 
 wealth and merely seeks to satisfy its creditors, what- 
 ever may be the security given for ultimate repayment, 
 is merely a gain of interest to England, and in every 
 other respect is as pure a waste, as if it had been 
 hoarded in gold in the Bank of England's cellar. If, on 
 the contrary, it has been absorbed by sending out 
 emigrants to Australia, who produce more wool for the 
 increase of English trade, the effect is precisely the 
 same as if it had been laid out in Lancashire or 
 Yorkshire.
 
 CHAPTER VI. 
 
 WAGES. 
 I. 
 
 WE have now arrived at a subject which in the actual 
 position of society throughout the civilised world is, 
 along with free trade, the most important and at the 
 same time, in some respects, the most difficult in all 
 Political Economy. The prosperity of nations and the 
 welfare of all classes of the community are most closely 
 associated with the direction which public feeling and 
 national legislation may take on these two paramount 
 questions. Yet here precisely, in reference to these very 
 matters, we are driven to re-echo the lamentation which 
 Mr Goschen poured forth in the House of Commons 
 on June 29, 1877. Democratic feeling throughout the 
 world rejects Political Economy. It is held to be 
 hostile to the interests of the mass of the people. It is 
 looked upon with indifference, as something unreal, as 
 ignorant of the ways of human life. It is regarded as 
 the idle talk of a set of doctrinaires, who know nothing 
 of human nature, nor of its position in the actual world. 
 People refuse to listen to what it has to say. Why 
 busy one's self with that which has no claim to be con- 
 sidered ? Even the House of Commons has learned to 
 sympathise with popular feeling. The authority of
 
 1 64 WAGES. 
 
 Political Economy is on the wane there. It has gone 
 into philanthropy. Its legislation has sought to 
 protect the toiling labourers, who produce all the 
 wealth the nation possesses, against the oppression of 
 unfeeling theorists. It passes laws which rescue the 
 poor man from the greedy tyranny of the capitalist. 
 
 This is a grave matter indeed none can well be 
 graver. A very plain and direct issue is raised. Politi- 
 cal Economy is true or false. Let the question be tried 
 with the utmost severity and sternness. But it must 
 be tried at the bar of reason, not of sentiment. Much 
 spurious science, as was shown in the first Chapter, has 
 been thrust upon Political Economy. By all means let 
 it be refuted and cleared away. That is not Political 
 Economy. True Political Economy professes to recognise 
 certain conditions imposed by the Creator on human 
 existence on earth, and to analyse what is implied in 
 them. If it does these two operations badly, if it 
 mistakes error for truth, fond imagination for accurate 
 fact, let it be rejected. Its teaching can then be only 
 mischievous. But let the error be established by proof. 
 If these conditions are the laws of human life in respect 
 of its material well-being, sentiment cannot get rid of 
 them by giving them bad names. Political Economy 
 has exhibited false theory in plenty, but is false theory, 
 theory contradicted by fact and having its root solely 
 in the sense of the agreeable, unknown to philanthropy? 
 Nay, is it not eminently rampant and peremptory in 
 this very region of capital and labour over which demo- 
 cratic feeling claims such commanding authority? 
 Sentiment might insist how nice it would be to forbid 
 the day's work ever to exceed four hours. Would
 
 WAGES. 165 
 
 Political Economy deserve to be reviled, if it declared 
 that in that case multitudes of human beings must go 
 out of existence ? Does sentiment refute the assertion 
 by disliking it? In this most serious matter of the 
 relations of the labouring classes to society, democratic 
 sentiment finds powerful motives for the selfish side of 
 human nature to fling contempt on Political Economy, 
 and to invent doctrine and theory of its own ; but where 
 the very terms of existence are at stake, there can be 
 but one supreme issue between Political Economy and 
 its despisers. Are the assertions made on either side, 
 not generous, or philanthropic, or noble, but true or 
 false, as judged by the realities of man's nature, and of 
 his position in the world ? To err here, and to construct 
 conduct on the error may mean for countless millions, 
 misery, sickness and death. 
 
 Political Economy, however, and philanthropy have 
 each of them their legitimate spheres by the side of one 
 another. Political Economy is a subordinate body of 
 knowledge only. It assumes wealth as its end, but does 
 not compare that end with the other objects of human 
 life. The pursuit of wealth is not the paramount duty 
 of mankind to which everything else must give way. 
 On the contrary philanthropy and morality and social 
 philosophy are authorised to declare that there are 
 states of life and practices which must be avoided at 
 the cost of loss of wealth, or even of poverty. Political 
 Economy can show with the greatest ease that nothing 
 is more antagonistic to the production of wealth than 
 war. Yet every nation at times prefers war to riches, 
 and the voice of humanity does not condemn them. 
 There might be social arrangements enacted for the
 
 1 66 WAGES. 
 
 production of wealth, or particular kinds of wealth-pro- 
 ducing labour, which a people would prefer death rather 
 than submit to. Human nature would be justified to 
 reject wealth rather than endure such practices ; only let 
 the judgment be fairly given on its true grounds. It 
 would imply no condemnation of Political Economy. 
 It would simply affirm that some processes which upon 
 the principles of Political Economy might be shown to 
 be capable of producing wealth are accompanied by 
 evils of such a kind as to forbid the acquisition of such 
 wealth. To pretend that in such cases things recom- 
 mended by Political Economy had been scouted by 
 reason and right feeling would be as grossly unjust as 
 to rail at the science of medicine, because it might point 
 out an effective poison to a murderer. Man is but an 
 imperfect being, both individually and socially. All his 
 organisations are subject to mischievous defects and 
 errors, and those which he has framed for the production 
 of that wealth without which life itself could not subsist 
 can never be withdrawn from the legitimate criticism of 
 those who think that they offend against right senti- 
 ment, or philanthropy or any other natural principle. 
 
 The materials of which wealth is composed are 
 furnished by the earth and its atmosphere. They are 
 transformed into new combinations by human labour, 
 and the results are commodities ministering to the 
 wants and desires of mankind. Labour requires that 
 a previous supply of food and instruments should be 
 provided beforehand. These things are called capital. 
 Capital is obtained by saving and abstinence, and has 
 for its motive a portion of the products which it creates. 
 That portion is called profit. Equally must the labourer
 
 WAGES. 167 
 
 have a motive for the effort that he contributes. If he 
 is in the savage state, he labours for himself and his 
 family alone. He is capitalist and labourer in one. He 
 does not think of a reward as such. He desires a thing, 
 and he wins it or makes it. But another element makes 
 its appearance in the situation when one man labours 
 for another, when the second man is to be the owner of 
 the product of the exertion. He must possess in some 
 way the means of persuading the labourer to work for 
 him. Reward for reciprocal services is the fundamental 
 law of social life. In the case of labourers that reward 
 is called wages. 
 
 Who are to be called labourers is a question which 
 does not admit of an accurate answer. There are many 
 who earn wages under the name of salary or pay who 
 are not termed labourers, though they labour for 
 another, and work under his direction. Ministers 
 serving under the orders of Parliament, civil servants, 
 soldiers and sailors of every grade, clergymen, and 
 judges receive wages, but are not spoken of as labourers. 
 Labourers in contradistinction to capitalists, are persons 
 who commonly own little property, who derive their 
 maintenance from the work of their hands in the 
 mechanical manufacture of wealth, who are hired to 
 perform this service for an employer, and live by the 
 payment which they receive from him. Thus their 
 income is practically derived solely from the service 
 they render in labouring. But wages imply two con- 
 ditions. They are given to free men as an offer made 
 by the employer in return for a service and accepted by 
 the workmen ; and, secondly, they exclude all payments 
 given as charity. The relation between employer and
 
 1 68 WAGES. 
 
 wage-receiver is one of business exclusively. Gifts 
 belong to an absolutely different category. Very mis- 
 chievous consequences would result from confounding 
 any form of charity with wages. They are intrinsically 
 different in nature, as well as in all the ideas and prin- 
 ciples associated with them. 
 
 Under the institution of property adopted by every 
 nation in the world, the fact of the want of property 
 places the labouring class, over against capitalists, as a 
 body of men seeking to earn their livelihood by working 
 for an employer. Without employment from those who 
 possess capital, they would be in danger of starvation. 
 On the other hand, the capitalists are under a correspond- 
 ing necessity of offering reward to persuade men to work 
 for them. Without labourers, unless they cease to be 
 capitalists and become labourers themselves, their 
 capital would perish, and they would be brought 
 within the same danger as unemployed labourers. The 
 need of each other exists on both sides. But the 
 employers are few and the labourers a multitude ; the 
 capitalists have means, the labourers possess fewer 
 resources. If accident, or want of work, or scarcity 
 of food supervene, the danger falls on the workmen far 
 more swiftly than on the capitalist. His wealth inter- 
 poses a delay before starvation can reach him. The 
 labourers in the day of distress are driven to competing 
 with another for employment ; they may beat each 
 other down to a minimum of wage. The capitalist, on 
 the other hand, in most great trades is subject to equally 
 severe competition ; but ruin never appears to be upon 
 him so visibly as upon the labourer. Such is the process 
 by which social life is worked amongst most nations. It
 
 WAGES. 1 69 
 
 is obvious that it must often give rise to situations which 
 cannot fail to excite dissatisfaction as well as sympathy. 
 It cannot be considered a matter for wonder, if the 
 feelings of suffering or jealous men and the thought of 
 educated minds have prompted the inquiry whether this 
 division into employers with and labourers without 
 wealth is the necessary or the desirable form of in- 
 dustrial life on earth. Ideas have been generated, 
 strongly characterised by what has been called the 
 socialistic type, which proclaim that a far wiser and a 
 more human structure can, and consequently ought to be 
 given to these relations of men to each other in meeting 
 the common need they have of one another for sustain- 
 ing life and developing progress. They take their stand 
 on declarations of positive right. Labour, they truly 
 affirm, is the condition on which every want is supplied ; 
 hence they deduce the principle that no man is, or can 
 be, authorised to enjoy without labouring. Inherited 
 wealth is a violation of the rights of others. It confers 
 a power of enjoyment which* can find no justification. 
 Those who make the wealth alone possess the right to 
 have it. Wealth not earned by work is spoliation ; it 
 is taken away by the force of what is called law from 
 its rightful owner. If labourers refused to work for the 
 rich, the rich would be compelled to earn their livelihood 
 by toil like other mortals, and the fundamental law of 
 human nature would be obeyed. If the rich refuse to do 
 justice to the poor, then the law of the State is bound to 
 enforce natural right, and to set up national workshops 
 for the support of the poor out of the public taxes. 
 Others with irresistible logic pursue this line of thought 
 to its necessary consequence. " Property is theft ! " cries
 
 1 70 WAGES. 
 
 M. Proudhon. There can be no such thing as property 
 without violation of a right of which every man 
 carries the unchallengable title in his own heart. Pro- 
 perty belongs to all. Human nature forbids poverty 
 so long as there is anything to divide. Men must work 
 in common, and share its products in common. 
 
 These claims take us out of the domain of Political 
 Economy ; they send us to the higher authority of 
 political philosophy. The answer to them is simple and 
 decisive ; they are founded on pure illusions. Such a 
 thing as an absolute definite right, belonging to a man 
 personally, which cannot be taken from him, even by 
 the law of his nation, except by a deed of force and 
 violence, equivalent in nature to murder, does not exist. 
 " Man was born to live in society," said Aristotle, and 
 that fact is supreme over his whole being. He must 
 live in combination with others. 
 
 Against the supreme control in all things of that 
 society of which he forms a part, a man can plead no 
 absolute title or right which that society must respect, 
 whatever may be his opinion as to its fitness or de- 
 sirableness. No man can say to the State to which he 
 belongs " I claim, on the ground of personal right 
 given to me by the Creator, to do this, and I forbid you 
 to do that in respect of me." Every man is embodied 
 in his own people ; he must share their fortunes and be 
 involved in their acts ; and their acts are finally and 
 necessarily determined by the will of the whole society 
 as expressed by its laws. 
 
 Every man has lived his life on earth under the 
 dominion of these laws ever since the world began. 
 The law of the nation has always, and ever will, dispose
 
 WAGES. 1 7 1 
 
 of everything within it. Even his own body absolutely 
 belongs to no man. In many of the most civilised nations 
 he is taken away from his home, and made to expose 
 himself to wounds and death, whatever may be his own 
 feelings. He can plead no right to prevent such a 
 seizure of his person. He is told Salus popitli suprema 
 lex. This very expression is only a manner of declar- 
 ing that society is supreme over everything. Such 
 language as public policy, the good of the people, 
 public duty, proclaims the same idea. Man is a member 
 of a society and must obey it, not because it wields the 
 power of the sword, but because it is constituted, by the 
 very nature of human life, the final ruler in all things. 
 
 But, it will be said, this is to surrender man's life to 
 the dominion of force. In the last resort it is so. Every 
 people on earth have so acted. But does, then, might 
 make right ? God forbid ! For then human life would 
 not be worth the having. The very question itself 
 reveals a power distinct from force which comes to the 
 protection of human existence, and raises a strength 
 powerful enough to control force. This power reviews 
 and judges, and though lodged in the weakness of each 
 individual human breast, is able to modify and conquer 
 mere might. This force is moral feeling, the sense of 
 right and wrong, the perception and the acknowledg- 
 ment of the supremacy of what is morally and reason- 
 ably fitting and proper. This sense of right exists in every 
 individual human being, and it possesses an authority 
 over the mind and conscience which no mere might 
 can destroy. Every man can judge the law for himself, 
 whether its commands are right or wrong, and the 
 collective judgment of many men becomes public
 
 1 72 WAGES. 
 
 opinion. To that public opinion all civil power is 
 ultimately amenable ; and it may be strong enough to 
 overthrow, by revolution, a form of government which 
 outrages the general feeling. This public opinion 
 which is nothing more than the judgments of a number 
 of individual men becomes the will of society ; and 
 then it is only a question of physical strength whether 
 it can assert itself against the power that rules. As 
 nations advance in moral and intellectual progress, every 
 government is made to feel that it must take into 
 account the public feeling of the people. It cannot 
 escape the danger of being challenged whether the 
 rulers or public opinion express the true will of 
 society. The measures and the action of what is called 
 the State cannot escape the criticism, and possibly 
 the insurrection of those who are subject to it. 
 
 The liberty of uttering these criticisms, and thereby 
 combining many individuals into a collective force, has 
 been the object of incessant assaults from those who 
 wielded civil power : it has been restrained by every 
 form of violence. Nevertheless civilisation progresses, 
 and with it the ability to think and to judge, as also the 
 power of exercising that ability. No institution is, 
 or ought to be, exempt from such revision. Com- 
 munism is entitled to declare that property is a 
 mischievous institution, and to call for its abolition. 
 But it cannot do this on the ground of a simple decla- 
 ration that property is forbidden by nature indepen- 
 dently of all examination of its merits. Communism 
 is bound to persuade society that property is inex- 
 pedient or injurious to the happiness of mankind. A 
 communist cannot say to society that " its will to have
 
 WAGES. 1 73 
 
 the institution of property" cannot stand against his 
 declaration of natural law. 
 
 We now return to Political Economy. Tried at the 
 bar of reason, on its merits, Communism, as a system 
 which rejects property, cannot maintain itself. The 
 universality of the existence of property in every age 
 and every land, throughout the varied history of the 
 human race is by itself alone decisive. The instinct thus 
 revealed is proved to be rooted in the very essence of 
 human nature. The baby clutches the toy as his own. 
 I made it and it is mine, is a sentiment which asserts 
 property in every human soul. Those who demand that 
 those only who make should possess that labour is the 
 sole title to possession stand plainly on the principle 
 of property. Thus pure Communism has arrayed 
 against it an. irresistible weight of natural authority. It 
 is incompatible with the distinctive characteristics of 
 humanity as revealed by universal history. If the sys- 
 tem it inculcates is examined, the grounds for its con- 
 demnation will be apparent. Supposing every man to 
 have been set to labour, how are the products to be dis- 
 tributed ? In a village community, living in indepen- 
 dent isolation, the task would be comparatively easy. 
 When agriculture and the lowest arts only are prac- 
 tised, equality of labouring and sharing might be 
 adjusted. But such a society would obtain necessaries 
 and enjoyments only on the lowest scale. The great 
 results of civilisation would be wanting. Is it credible 
 that men would consent to persist in such a system as 
 bringing them higher happiness than the method of 
 property so natural to their instinct, and, as shown by 
 experience, so full of progress ?
 
 1 74 WAGES. 
 
 But when Communism approached the large groups 
 of human beings called nations, to carry out its doctrines 
 would be hopeless. Under the system of No Property all 
 men become equal. It is impossible to believe that the 
 masses endowed with muscular strength would endure 
 any other mode of division than equal shares of the 
 things produced for equal measured labour. All must 
 work equally hard, and every one must have exactly the 
 same share of the food and other things made. On the 
 basis of equal work done, the bodily strong and they 
 are the multitude would endure no other rule, in a 
 nation constructed on the principle of No Property. 
 But how would it fare, then, with those whose bodies 
 might be incapable of what is understood as hard work, 
 and yet had those qualities of mind which are indispen- 
 sable for giving its highest efficiency to labour. How 
 would work of mind be dealt with ? how measured 
 against the labour of the navvy and the miner ? Upon 
 what principle would mental work be called forth ? 
 
 This difficulty is fatal to Communism without pro- 
 perty ; it could not solve the problem, except by violat- 
 ing its fundamental principle. How is it possible to 
 procure thinking and its results except by reward ? A 
 labourer might be ordered to dig a definite piece of 
 ground on the condition of his receiving his share of the 
 common stock of things at evening ; but how is the 
 quantity of thinking to be specified and measured, 
 which should give brain work its title to the common 
 share ? How is a day's work of thinking to be pre- 
 scribed in the morning, and by what rule is it to be 
 measured at night, to learn whether it has been done? 
 It is impossible to procure thinking and its results ex-
 
 WAGES. 175 
 
 cept by reward if the thinkers got no more in any case 
 than the hodmen, they would think little and think 
 badly, and the cry would arise that they had not 
 earned their share of the common stock. If, on the 
 other hand, good mental work was brought out by re- 
 ward, as the only possible method of procuring it, then 
 the door of Communism has been forced. Property, in 
 the shape of a greater share, has gained an entrance. 
 Those who have peculiar qualities become able to appro- 
 priate to themselves larger shares than those less highly 
 endowed, and Property becomes master of the nation. 
 Pure Communism is an impossibility ; and were it pos- 
 sible, it would end in a distribution of wealth measured 
 by mechanical work done. The navvy with strong 
 muscles would accomplish in an hour what would re- 
 quire five for the man of cultured mind ; he would 
 work two hours a day and have all the remainder of his 
 time for idleness. The man of refinement would be 
 compelled to work ten, and would receive at the end the 
 same necessaries and comforts as the navvy. Upon 
 what principle the disagreeable offices would be allotted 
 to workmen is hard to conceive. 
 
 Nor is this all that would result from pure Commun- 
 ism. Were it ever established, it would be fatal to the 
 growth of civilisation and to the higher interests of the 
 human race. The motive to make the effort to improve 
 would be attacked at its very core. That impulse to 
 exertion for the sake of the reward it brings, which is so 
 deeply implanted in the human soul, and which has 
 made the nations of the world what they are to-day, 
 would be so weighted as to lose its force. Progress 
 would be nipped in the bud, for progress rests on indus-
 
 1 76 WAGES. 
 
 try and effort, and industry on the advantages it gathers 
 up and the sense of the moral and material improve- 
 ment it imparts. To act and make efforts under the 
 impelling force of hope of a higher standard of life and 
 well-being to be achieved is the most powerful, the 
 only main force from which all personal and social ad- 
 vancement springs. A personal motive for exertion to 
 every labourer, of whatever kind he be, is, by the law 
 of man's being, the one necessary condition of human 
 progress. 
 
 But Socialism or, if the expression may be allowed, 
 un-pure Communism stands on quite other ground. It 
 is entitled to make claims on behalf of any class of 
 society to which respectful consideration is due. But 
 this recognition is subject to one imperative condition. 
 The construction of new organisations must be claimed 
 on their merits, and their merits alone. All claims of 
 absolute natural right are inadmissible, as non-existent. 
 Every man is authorised to make comments and 
 suggestions on his relations with his fellow-men, with 
 whom he is grouped in a nation ; but he is not em- 
 powered to demand anything for himself on the 
 authority of his own consciousness. Such language as, 
 I am a man, therefore I have a right to own a piece of 
 land, is purely visionary. A man may explain and 
 urge ; but society alone is the sole arbiter of what is to 
 be instituted. The life, whether of individuals or nations, 
 abounds in imperfections and suffering ; but it is also 
 ever susceptible of improvement. Every class, as well 
 as every single mind, may have ameliorations to 
 suggest, carrying weight from special experience or 
 other grounds. It would be as unjust as it would be
 
 WAGES. 177 
 
 impolitic not to acknowledge that the Socialists often 
 point to undeniable evils, and tender proposals whose 
 aim must be admitted to be legitimate. They have 
 the clearest right to urge their views ; let their advice 
 be calmly refuted or accepted. 
 
 For the most part, the proposals emanating from 
 Socialistic quarters have been more political than econo- 
 mical. When eminent writers urge that the fruits of 
 labour shall belong to the labourer alone, and work shall 
 be imposed upon all that the rich sluggard shall cease 
 to exist, that special taxes shall be placed on land that 
 land shall be the exclusive property of the State, and all 
 rents paid into the Exchequer that interest on money 
 borrowed shall be forbidden that there shall be no 
 such thing as one's country, but that all shall be formed 
 into one universal cosmopolitan community that there 
 shall be no masters and no wages, nothing but proprie- 
 tors that these proprietors .shall be the whole com- 
 munity, who shall regulate the distribution of wealth 
 upon their own ideas and shall appoint officers to judge 
 who are the deserving and who are not, who shall re- 
 ceive more and who less when such things are pro- 
 posed in the name of incontestable principles, it is 
 clear that new constructions of society, new modes 
 of associated life, new positions of human beings 
 towards one another, in a word new political re- 
 volutions, are demanded. Economical truth is not 
 thought of here ; its teaching is held not to deserve 
 notice, much less refutation. If the new ideal organ- 
 isations lead to a diminution of the general wealth 
 of society, what matters it ? The social gain, the 
 raised mode of life for all, the personal dignity 
 
 M
 
 178 WAGES. 
 
 thrown over every human being, will bring ample 
 compensation. 
 
 Other proposals exhibit a totally different character. 
 To demand that work shall be found by the State for 
 all, that national workshops shall be established, and 
 that profits shall be limited in amount by law, is to ask 
 for pure confiscation. 
 
 Abandoning, then, the ground of abstract inalienable 
 right, and taking our stand on the basis of facts, we find 
 that history shows that nations have always consisted of 
 rich and poor. Their relative numbers incessantly 
 vary ; but at all times there has ever been a richer and 
 a poorer class. In the early days of national existence 
 property has included a larger portion of the people ; 
 but population was small, the arts very backward, the 
 products of industry simple in kind, comforts and 
 enjoyments few and of inferior quality. There are 
 communities now existing which exhibit this type. 
 Often they live on the extreme margin of subsistence. 
 When harvests fail, destitution and death ensue. Europe 
 presents a different spectacle under the action of power- 
 ful causes, especially in these more modern times. It 
 long ago emerged from the purely agricultural and pas- 
 toral state. Manufacturing industry sprang up, and its 
 results were felt, and have told powerfully upon human de- 
 sires. As comforts increased, that " progressive desire " 
 \vhich is the characteristic of men, as compared with 
 animals, prompted greater efforts to obtain more. 
 Capital was accumulated by saving ; the means of set- 
 ting more men to work were provided. Inventive 
 genius applied itself to improve the processes of pro- 
 duction, and to multiply and cheapen its results. Thus
 
 WAGES. 1 79 
 
 in the end an enormously large population was enabled 
 to exist with an immeasurably raised standard of living. 
 No feature was more striking in this amazing progress 
 than the wonderful power of machinery. This greatest 
 of industrial forces, the gift of mind to mankind, may 
 be said with truth to be the foundation of modern 
 civilisation. Conceive steam suddenly to lose its 
 power, and who can think of the consequences with- 
 out shuddering ? The extinction of steam would send 
 millions of human beings out of existence and yet the 
 steam engine is an invention but of yesterday. Such 
 has been the march of modern development. It has 
 built up the colossal establishments and the dense 
 populations of Manchester and Lyons, Liverpool and 
 New York, Paris and London ; but it has also showered 
 down refined comforts over the dwellings of all classes 
 of the people. 
 
 But the progress has brought out a tendency 
 amongst industrial nations of the most marked char- 
 acter, and of the highest moment. The proportion 
 which the labourers, who live by wages, bear to the 
 rest of the population, is ever on the increase. More- 
 over, they are congregated together in denser masses. 
 They are not dispersed in small groups like agricultural 
 peasants. Hence they are becoming a more combined 
 and united class, in closer sympathy with each other 
 entertaining the same ideas and governed by the same 
 feelings. They tend to adopt common action, and there- 
 by they acquire social and political power towards 
 their employers and towards the State. These facts 
 impart incalculable importance to the question of 
 wages. Economists have to deal with a body of doc-
 
 1 80 WAGES. 
 
 trine on labour, systematic in theory and generating 
 action of great importance to society. 
 
 In the production of wealth, two classes stand face to 
 face towards each other, the employer and the labourers 
 the men who possess property called capital, and the 
 men who derive their subsistence from working for 
 others. Each stands in need of the other, both acquire 
 wealth by the aid which each gives to the other. 
 Without the services of these two classes, society would 
 speedily relapse into barbarism. The employer gathers 
 profit for his abstinence in accumulating capital, and 
 his skill in applying it ; the labourer receives wages as 
 the reward of the efforts he has placed at the disposal 
 of his employers. What wages are, Mr Danson has 
 happily explained : " When one man labours for 
 another, under the direction of that other, the resulting 
 payment is wages." The true practical position of the 
 man who derives his subsistence from working for 
 another, is that of a seller he gives something in 
 exchange for wages. He sells his labour, he sells the use 
 of his hands and of his skill to another. He does not sell 
 himself, but his service ; he is hired to do a service, to 
 perform work for another. The employer is a man 
 who is in want of that particular article, that service, 
 and buys it. No difference of nature, I conceive, can 
 be assigned between the buying and selling of labour, 
 and the buying and selling of any other commodity or 
 service ; the process is always the same in kind, though 
 each article has its own particular incidents. The 
 labourers are in a market ; they offer their commodity, 
 work the use of their muscles and skill for hire. 
 Equally are 'the employers in a market ; they seek that
 
 WAGES. 1 8 1 
 
 commodity, or which is the same thing, that service, 
 which the labourers offer to supply. In an or- 
 dinary purchase, the value of the article is called 
 its price, in the case of labour it is called wages : but 
 these are, at bottom, distinctions of name only. The 
 essence of the position is that of exchange or sale, and 
 the principle that governs it is the universal law of 
 exchange, that of demand and supply. All the relations 
 between the two classes of men are founded on this 
 principle. 
 
 But this principle, that labour is a commodity offered 
 for sale in a market, is subject to an essential condition 
 freedom of labour. Every consideration which calls 
 for perfect freedom of trade can be urged with still 
 greater force, when man and his command over his 
 own action is the subject of exchanging. If goods are 
 to be free if their production and their sale are now 
 acknowledged to have a natural claim and economical 
 right to be exempt from all interference of external 
 authority, how much stronger is this right in the case of 
 every man's power to dispose of his own toil according 
 to his own pleasure. History records a long series of 
 unjust, impolitic, and often cruel, interferences with 
 freedom of labour. Slavery, serfdom, feudal burdens, 
 corv&s, guilds with their restrictions, restraints of trade 
 invented by law, attest the obstinacy with which ar- 
 bitrary power has struggled to prevent men from being 
 masters of their own persons. No plea can be advanced 
 in behalf of such limitations on free sale, free liberty 
 to work and earn, which is not a violation of justice. 
 
 The workman then has labour to sell the use, that 
 is, of his bodily and mental faculties for what does
 
 1 82 WAGES. 
 
 he exchange it ? what does he receive ? A portion of 
 the goods made. They are sold for him by his em- 
 ployer and he obtains their value in money, and with 
 that money he buys other articles in the shops. These 
 are his real wages, the money are his nominal ones. 
 The substantial reward for his efforts is the goods he 
 buys with his wages ; it was to procure these goods that 
 he sold his labour. It is a vital matter to grasp firmly 
 that the worth of wages is not money, but what the 
 wages can buy. If the articles for sale in the shops are 
 cheap, the labourer's real wages are large ; if, on the 
 contrary, they are dear, then with the same money, his 
 wages will be low. In all the manifold questions surg- 
 ing about wages, it is of supreme importance to 
 remember that wages are the goods purchased by the 
 labourers, by means of the sale of some of those articles 
 which he has produced. 
 
 And now arises a question, which has excited the 
 keenest interest amongst writers on Political Econ- 
 omy : what is the extent of the fund which a nation 
 can dispose of in the purchase of labour that is, 
 in wages ? A vast amount of literature has been 
 expended on the attempt to answer this question. 
 Its history singularly illustrates the mistaken but 
 persevering passion to reduce Political Economy to a 
 strict science to discover in it fixed laws, to obtain 
 accurate and scientific formulas for prophesying the 
 rate of wages. We shall on the contrary find here as 
 elsewhere in Political Economy, not scientific forces, 
 but tendencies, a multitude of divers causes influencing 
 variable results. It is highly desirable to explore these 
 causes, and their range. Practical rules will then be
 
 WAGES. 183 
 
 reached to throw sufficient light on perplexed situations ; 
 but formulated law, endowed with the gift of prophecy 
 through mathematical figures, will be looked for in 
 vain. 
 
 This desire to ascertain with accuracy the amount of 
 wages available for the purchase of labour, has led to a 
 theory of wages, which has been widely appealed to in 
 discussions with the labouring classes : the theory of a 
 wage fund. It cannot be better stated than in the 
 able words of Professor Francis A. Walker, of the 
 United States. 
 
 " The doctrine is, in substance, as follows : There is 
 at any time, for any country, a sum of wealth set apart 
 for the payment of wages ; this sum is a portion of the 
 aggregate capital of the country. The ratio between 
 the aggregate capital and the portion devoted to the 
 payment of wages is not necessarily always the same. It 
 may vary, from time to time, with the condition of 
 industry and the habits of the people, but at any given 
 . time, the amount of the wage fund, under the condi- 
 tions existing, is determined in the amount of capital. 
 The wage fund may therefore be greater or less than at 
 another time, but at the time taken, it is definite. The 
 amount of it cannot be altered by force of law or of 
 public opinion, or through sympathy, or compassion on 
 the part of the employers, or as the result of appeals or 
 efforts on the part of the working classes. 
 
 " The sum so destined to the payment of wages, is 
 distributed by competition. If one obtains more, 
 another must, for that very reason, obtain less, or be 
 kept out of employment altogether ; labourers are paid 
 outof this sum and this alone. The whole of that sum
 
 1 84 WAGES. 
 
 is distributed without loss, and the average amount 
 received by each labourer is therefore precisely deter- 
 mined by the ratio existing between the wage fund and 
 the number of labourers." * 
 
 Is there such a fund ? Is there an amount of wages 
 predetermined at a given moment, more than which 
 the wage-receiving class cannot possibly divide amongst 
 them, and which and no less, they cannot but obtain ? 
 To this question, a categorical answer must be given : 
 there is no such wage fund predetermined in amount, and 
 which, neither law, nor public opinion, nor combination, 
 nor any other force can alter. No one can define it. 
 We are only told that wages are a part of the aggre- 
 gate capital of a country. This every one knows. It is 
 said to be a fixed part ; but how fixed, and how 
 known to be unalterable, is left utterly unexplained. 
 The asserters of a fixed wage fund are imperatively 
 called upon to specify in definite terms, what portion of 
 the productive capital of a country is marked off by a 
 law, dominant at a given time, as wages ; but none of 
 them respond to the call. They give no definite 
 answer to the question what part ? Their answers 
 amount to no more than the tautological proposition, 
 that the wages given are the wage fund. The wage 
 fund becomes only an expression for the sum-total of 
 all wages paid. To add up the wages paid by every 
 employer, and to call them a wage fund, is to give no 
 information ; the point of the question is, why the 
 figures added up are just such and can be no other ? 
 and on it we look in vain for a particle of definition. 
 The wage fund proclaimed by those who hold the doc- 
 
 * " Wages" 138.
 
 WAGES. 185 
 
 trine, is a body without a boundary; it acquires definite 
 form and magnitude only, when . all the wage items, 
 actually given and received, are added up into one sum. 
 It might be said with equal correctness, that there is a 
 tool fund for every country. Add up every shilling paid 
 for tools and machinery by every employer, the result- 
 ing figures give a tool fund of equal worth with a wage 
 fund. 
 
 It might be said that Mr Mill has defined the wage 
 fund and marked out its limits. He tells us that 
 "Wages depend upon the proportion between the 
 labouring population and circulating capital." If this 
 expression means, that these are the two factors, and 
 the two only which determine the rate of wages, the one 
 mounting up as the other goes down, and vice versa, it 
 must be held to assert that the circulating capital of a 
 country constitutes the fund which it has to distribute 
 in wages. If this is so, then the statement is entirely 
 erroneous. It is certain that a considerable portion of 
 the circulating capital of a people is not absorbed by 
 wages. That capital, it is quite true, has to provide all 
 that the labourers consume, their food, clothing, and 
 other necessaries ; but it procures also in addition, raw 
 materials, and coal, and cartage, and repairs of ma- 
 chinery. Mr Mill has not drawn the line which is the 
 boundary of the wage fund. 
 
 Experience testifies that it knows nothing of a wage 
 fund of fixed and unalterable amount. Employers 
 could declare with one voice that the amount of wages 
 which they pay is often severely increased, not because 
 the wealth produced is larger, nor because it sells at 
 higher prices, but simply because in selling their labour
 
 1 86 WAGES. 
 
 the labourers have combined to get more out of the 
 buyers. If they were met with the reply, that if some 
 of them were harassed by higher wages, others would 
 necessarily, upon the fixed wage fund theory, have less 
 to pay to their men the universal answer might be that 
 wages had gone up all round, that profits were lowered 
 for everyone, that goods were not proportionally higher 
 in price, that labourers were better off, and they them- 
 selves worse. They know as a stern reality, that they 
 are constantly engaged in mortal strife against the 
 assaults of wage-demanders. They could tell of their 
 profits forcibly reduced by additions made to wages, till 
 at last they have been driven to shut their mills and 
 their mines in despair by the pressure brought upon 
 them by labourers. Every trades union is built up on 
 the principle, or as they would say, the fact, that 
 labourers by acting in combination can exact higher 
 wages from their employers. To the wage fund theorist, 
 who assured them that they never acquired an additional 
 shilling by such pressure, they would point, not without 
 some ridicule, to the raised rates which they had so often 
 and so triumphantly enforced. A fixed and unchange- 
 able amount of wages capable of being paid is the last 
 thing of which industrial and commercial life dreams. 
 
 The battle of life is fought on the very oppo- 
 site ground, whatever science-making economists may 
 proclaim. Employers know but too well that the 
 profits which they expected to spend on themselves are 
 often appropriated by force to the enjoyment of 
 labourers. That is, the wage fund is enlarged at the 
 expense of profit, for profit is only the residuum after 
 wages have been paid, and that residuum may be inde-
 
 WAGES. i/ 
 
 finitely reduced by the theoretically impossible but 
 practically realised enlargement of the wage fund. It 
 may well happen that in a steady business both the 
 employer and his workmen should consume unproduc- 
 tively, in their ordinary style of living, their respective 
 shares of the profits without making any addition to 
 capital by saving. It is perfectly legitimate to suppose 
 that diverse causes may enable the workmen to increase 
 their share to the diminution of the employer's enjoy- 
 ments. He might still go on with the business, but the 
 wage-fund, the sum expended in wages, will have be- 
 come larger at the expense of the employer's comforts. 
 It will have lost its fixed character. The wage fund oi 
 theory will have been proved to be a fiction. 
 
 To these considerations one more can be added, 
 which by itself alone disproves the existence of a fixed 
 fund for wages. What if a nation deliberately resolved 
 to consume its capital in enjoyment ? Seasons of ex- 
 cited prosperity of trade, when speculation sets in move- 
 ment an excessive conversion of wealth into fixed 
 capital, when mine after mine is wildly opened, factories 
 and mills built on every side, or railways spread over 
 the wilderness, are very familiar occurrences. At such 
 times an eager demand springs up for labour, employers 
 vehemently compete with each other in the search for 
 workmen, and rapid and large additions are made to 
 wages. But from what source do these augmented 
 wages come ? From an excessive destruction of wealth. 
 The fund actually received by the whole body of 
 labourers is greatly increased. They obtain more 
 and spend more. Their collective wage fund is far 
 larger, and the nation in the end is much poorer.
 
 1 88 WAGES. 
 
 A very variable wage fund is plainly to be discerned 
 here. 
 
 We conclude then that there is no fixed and unalter- 
 able fund for the purchase of the article called labour, 
 any more than there is for any other article exposed for 
 sale. We have seen that the labourers stand in a market 
 offering their service for hire. In that market they 
 meet buyers in search of that service. The performers 
 of this service may be conveniently divided into two 
 great subdivisions those who give assistance in pro- 
 ducing wealth, and those who aid in procuring the 
 gratifications of consumption. The two classes are not 
 separated by an impassable line from each other. The 
 supply of the two services is in most cases derived from 
 the same body. The domestic servant and the game- 
 keeper belong to the same general class of manual 
 labourers as the artisan or the ploughman. The action 
 of both classes influences the wages received by each. 
 A large increase or diminution of domestic servants 
 would produce a distinct effect on general wages. 
 
 The law of demand and supply governs all markets, 
 but that law presents great and sometimes perplexing 
 peculiarities in the market of labour. In the first place, 
 what is the article sold and bought ? The action of the 
 labourer in producing. I omit in this place those 
 labourers who are connected with consumption. When 
 a man agrees to work for wages, he contracts, for the 
 sake of a determinate reward, to place his strength and 
 skill at the disposal of another man. It might seem at 
 first sight that as this strength and skill are embodied 
 in a man who needs subsistence in order to make use 
 of them, and who has none which belongs to him, that
 
 WAGES. 
 
 he has little choice but to accept the terms dictated by 
 the hirer. Want of food might seem to exert a pressure 
 which deprives him of all power of bargaining and of 
 obtaining justice in the value assigned to his efforts. 
 But God has not so placed men on earth. The man 
 who possesses means of subsistence exceeding what he 
 can himself consume is as eager to give them away as 
 the other is to receive them. Without labourers riches 
 perish, and in the end life, or at least civilised life also. 
 Except in the savage state, the two classes are in urgent 
 need of each other. Hence the market for labour is a 
 true and necessary market There are always buyers 
 and sellers in it. The poverty of the labourer does not 
 prevent him from having great market value for owners 
 of wealth. The workman and the employer are necessities 
 for each other. The circumstances of the day may, as 
 in every other market, give the one the advantage over 
 the other exchanger. Supply and demand may vary. 
 The employers may be short of orders, and their desire 
 for purchasing weaker. The pressure of the want of 
 wealth may force the labourer to submit to a lower 
 price ; or trade may be exceptionally brisk, and it 
 becomes the labourer's turn to enforce better terms. 
 But such fluctuations do not alter the main fact of the 
 situation. Employers require labourers and procure them, 
 and labourers seek the means of living and obtain them. 
 The article purchased is labour, the action of the 
 labourer, and the capital consideration is clearly the 
 worth of the labour. But here a very remarkable 
 peculiarity presents itself which is not found in ordinary 
 commodities. Bodily strength and skill are required. 
 These are qualities embodied in the physical man before
 
 1 90 WAGES. 
 
 he proceeds to execute his contract. But there is a 
 third which is contained in the manner of his action, 
 and which has an immense effect on the quality of the 
 article purchased. That element is will, temper of mind, 
 a mental and moral force which governs all the work 
 performed and determines to no small extent its value. 
 Something similar is exhibited in a horse. There is 
 the generous and eager horse, and there is the lazy and 
 the shirking horse. There are means which often over- 
 come this temper, but they are inapplicable to free men. 
 But even in a horse, a shirking and lazy temper lowers 
 his price. How to act upon the will is incomparably 
 more difficult in the case of a man than in that of a 
 horse. The laziness of an individual workman may be 
 more easily dealt with. He is the last to be engaged 
 and the first to be discharged. But the temper of able- 
 bodied, well-trained and, if they choose, energetic 
 workmen, associated together in great numbers, who 
 deliberately resolve not to work well, gives a character 
 to the labour market which belongs to none other. It 
 corrupts the nature of the article bought. It introduces 
 uncertainty into the purchase. The employer knows 
 not what he is buying, and a worse and more mis- 
 chievous feature in any purchase cannot easily be 
 conceived. The hirer seeks labour which is efficient 
 He is sure of the strength and intelligence of the men 
 hired, but their perverted will may injure the quality 
 and quantity of their work, and may wrong him severely 
 in the character of the article which he had a right to 
 expect he was buying. This peculiarity of the labour 
 market gives rise to events and dangers which will have 
 to be considered later.
 
 WAGES. 
 
 Another and most embarrassing peculiarity distin- 
 guishes this market of labour. The regulation of the 
 supply presents exceptional difficulties. In the case of 
 ordinary commodities, the supply adjusts itself easily to 
 the expected demand. Production is carried on with a 
 distinct reference to such a calculation. If an error has 
 been committed, and the supply is greater than can be 
 disposed of at the natural price, sellers accept a sacrifice, 
 and the supply is carried away by increased demand at 
 a lower price. The market is cleared and production 
 makes a fresh start upon new computations. It is wholly 
 otherwise with the market for labourers. The providing 
 of the supply has but a remote connection with the 
 state of the market and its demand. Marriages and 
 births occur many years before the young labourers are 
 qualified to be offered for hire. They may have been 
 born under a state of industry and trade entirely differ- 
 ent from that which they find when they offer themselves 
 for employment. If they are in excess they cannot 
 be permanently got rid of by diminution of price ; 
 depressed wages may generate formidable and distress- 
 ing consequences. The lives of human beings may be at 
 stake. The workhouses, the tables of out-door relief, the 
 records of sickness and death, bear witness to the fearful 
 effects which excess of supply can here create. 
 
 Further, the regulation of the supply falls upon the 
 most uneducated as well as the largest class of the 
 population, upon those who are least able to estimate 
 beforehand the course which demand for labour is likely 
 to take. Ordinary producers, men of high and culti- 
 vated intelligence, are guided by the probabilities of 
 the immediate future, yet even they may fall into
 
 WAGES. 
 
 grievous error, and a long commercial depression with 
 over-stocked markets, low profits and shut up works 
 may then be the inevitable punishment. On the other 
 hand the working classes multiply marriages when 
 trade is brisk ; yet fluctuations of trade from countless 
 causes may reduce demand, or even sweep it away 
 altogether. The successful competition of foreign 
 countries in what are called third markets might throw 
 tens of thousands of English labourers out of employ- 
 ment, and ruin the future of innumerable young children 
 lately added to the supply. The vaster and the more 
 complicated the trade of a nation becomes, the more it 
 embraces the whole globe, the greater are the uncer- 
 tainties which overhang it, the more difficult is the 
 adjustment of the supply of labour to demand, a supply 
 which begins with infancy to a demand most hard to 
 estimate for a distant future. 
 
 The problem of regulating the supply of labourers is 
 further encumbered with a difficulty of the most formid- 
 able kind. That problem is closely connected with 
 the fundamental fact of all animal life. All animals, 
 and not man only, have the power of multiplying their 
 numbers beyond the means of subsistence, and their 
 tendency is to exert this power, and thereby to involve 
 themselves in distressing consequences. It cannot be 
 doubted that nature keeps the numbers of animals in 
 harmony with her power of maintaining them by actual 
 destruction of their excess. The locusts and the 
 blighting flies appear in myriads at times, pass through 
 a brief existence, and perish. Violent drought or 
 violent rain are equally fatal to larger animals. The 
 difficulty of procuring food for many of their young
 
 WAGES. 193 
 
 is found insuperable. More are born than can be 
 reared. 
 
 Man falls under this universal law precisely as all other 
 animals. Mr Malthus drew the attention of the world to 
 this cardinal truth in his famous " Essay on Population." 
 He thereby rendered a most valuable service to 
 humanity, and yet encountered in many quarters 
 reproaches of the most virulent kind. He was charged 
 with having brought the ordinances of the Creator into 
 discredit. God never gave children, it was cried, without 
 giving also the means of supporting them ; to discour- 
 age marriage was to dishonour a divine institution and 
 to compromise the happiness of mankind. Yet Mr 
 Malthus had only proclaimed a fact as certain and as 
 common-place as the fact that a man dropped in mid- 
 ocean must infallibly sink and be drowned. 
 
 In the case of man, under the expression subsistence, 
 must be included, besides food, shelter, resource against 
 disease, and other necessaries for living. Malthus 
 showed that in the United States population, in certain 
 parts, doubled itself in twenty-five years; and then he 
 framed a definite law which declared that food grew in 
 arithmetical, and population, in respect of its tendency, 
 in geometrical proportion. At such a rate of increase, 
 human beings might be accumulated in a brief time 
 beyond the ability of the earth to give them standing 
 room. Some forces manifestly interfere with this 
 power of human beings to multiply. Nature opposes 
 to it positive, or actual checks ; man himself others 
 called prevention. Famines, fevers, deaths of children 
 from want and misery, absence of the means of fighting 
 disease, potato-rots, and countless other physical forces 
 
 N
 
 1 94. WAGES. 
 
 fight against and overcome the capacity to increase, and 
 beat down the population into correspondence with the 
 physical conditions of the world. Man himself takes 
 part in the struggle. Ancient nations exposed un- 
 needed infants on the mountain side ; eastern nations 
 drop them into lakes ; and who can tell how many are 
 the contrivances by which even in England superfluous 
 and troublesome children are got rid of? Other 
 resources derived from man's moral nature are brought 
 to bear on the battle against excess of population. 
 The tendency to increase faster than the means 
 of subsistence is discerned, and man does what 
 it is beyond the ability of animals to do. He 
 postpones marriage for a time, until the prospect of 
 being able to support a family fairly dawns upon 
 his mind. This tendency gathers great strength in pro- 
 portion as young men and women belong to classes 
 that are well off for comfort and social position ; fathers 
 counsel prudence, and refuse to help a reckless marriage. 
 In some countries, as in France, the whole population 
 expands slowly, if at all a fact of enormous economical 
 value to that thriftiest of nations, however > it may be 
 explained. In other lands the law interferes with mar- 
 riage by positive regulations ; it forbids marriage until 
 a certain amount of property is exhibited. Habit in 
 others appoints a late age for marriage. 
 
 On the other hand legislation may produce mischie- 
 vous effects on the numbers, and consequently on the 
 well-being of a population. The Poor Law of former 
 days furnishes a striking instance of this misdirected 
 but injurious interference of the law. The Poor Law 
 distributed to every man who was unable to maintain
 
 WAGES. 195 
 
 himself and his family rations of bread according to 
 the numbers of his household. Mr Shadwell holds that 
 objections can be raised against this enactment only on 
 moral, but not upon economic grounds. He says truly 
 that the Poor Law does nothing to increase or diminish 
 the supply of food ; but when he adds that therefore it 
 can have no effect upon population, he misconceives 
 the action of the Poor Law. It did not increase the 
 quantity of food, that is certain ; but it did very really 
 increase the number of bread-eaters, and thereby 
 diminished the quantity of bread available per head 
 to the population. The very fact that the bread was 
 not increased, and yet that the augmented population 
 managed to live, proved irresistibly that the general 
 standard of living must have been lowered. The 
 quantity of food distributed to the remainder of the 
 population must have been smaller by what the 
 mouths called into being by the law consumed. 
 Mr Shadwell does not deny that the preventive 
 force which diminishes imprudent marriages places 
 the population on a better footing as to food 
 and comfort ; but what did the old Poor Law do ? 
 It told a great number of men if you marry young, be 
 not uneasy about the number of children you may 
 have. They shall all be fed by the parish ; a tax shall 
 be imposed on the stock of food in the country for their 
 maintenance. No wonder if we learn that, under such a 
 law, the land of a whole parish went out of cultivation ; 
 the farmers could not support the charge of maintaining 
 alive the numbers imposed upon them by the Poor Law. 
 The opposite cause necessarily produced the opposite 
 effect. Prudence in marrying raises the standard of
 
 196 WAGES. 
 
 living ; imprudence, not least when recommended by 
 law, depresses it. There were more to support, and no 
 additional food. The result was in the highest degree 
 an economical one. 
 
 The effect which such a poor law produced on wages 
 was necessarily very great. Had it remained in force, 
 the improvement which, since its alteration, has taken 
 place in agricultural wages would scarcely have occurred. 
 To relieve the suppliers of labour, already of themselves 
 too prone to be thoughtless, from the consequences of 
 an excess of supply, was to ruin the market, to de- 
 preciate the value of the article sold, and to rear 
 up all over the land multitudes of human beings on a 
 low level of existence. The example of Ireland taught 
 the world to what misery a people would be content to 
 descend that was reckless in the multiplication of its 
 numbers. The loss of a million-and-a-half of its inhabi- 
 tants out of eight by death and emigration was the 
 fearful penalty which Ireland had to pay for her neglect 
 of the most fundamental law of human nature, the 
 terrible cost at which she adjusted the supply of 
 labourers to the demand. 
 
 Against this constant tendency of human beings to 
 over-multiplication of their numbers there is one avail- 
 able resource which can, and often does, exercise great 
 force in counteracting the danger. A determinate 
 standard of living, firmly established upon long habit, is 
 capable of producing a similar effect on the mass of 
 a population to that which is witnessed in the well-to- 
 do classes. It creates a certain amount of reluctance to 
 contract marriage as likely to diminish the comforts to 
 which the parties to it have been accustomed. When the
 
 WAGES. 197 
 
 perception dawns on the minds of the labouring classes 
 that trade tends to become permanently slacker, that 
 their numbers are in excess, and that wages are likely 
 to reach a lower level, many a young man hesitates to 
 enter on a state which can scarcely fail to lower his 
 manner of living. The sense that he has something to 
 lose is awakened, and exerts power over his feelings. 
 He refrains from contributing to keep up a supply of 
 labourers which must entail fewer enjoyments in the 
 future. The opposite result very commonly follows 
 upon the opposite condition of a standard of life so low 
 as to be scarcely able to be made worse. It was strik- 
 ingly seen in the state of Ireland before the appearance 
 of the potato-rot. The population had become reckless. 
 Their dwellings were so habitually wretched, their food 
 so low, and for several weeks in the year so precarious, 
 the presence of disease, especially fever, so constant, 
 their lives so mixed up, even in their own dwellings, 
 with animals, that the feeling that there was something 
 to lose by marriage was extinguished. They married 
 and multiplied without thought ; their supply of food 
 bordered on the lowest margin of subsistence. When 
 the visitation of disease rendered trust in the potato, 
 as the staple of food, impossible, a new state of things 
 came into being. Upwards of a million of the popu- 
 lation had emigrated or perished. Bread necessarily 
 took the place of the inferior root ; a higher standard 
 of living was established, and an excess of numbers 
 disappeared. Since these days Ireland has ceased to 
 exhibit the spectacle of a reckless multiplication of the 
 numbers of her people.
 
 CHAPTER VII. 
 
 WAGES. 
 II. 
 
 THE next point for consideration is the fund from which 
 wages are derived. What is it that enables an employer 
 to purchase the services of labourers in production ? 
 That fund is capital ; and capital, we have seen, is that 
 portion of the existing stock of machinery and commo- 
 dities which is intentionally applied to the creation of 
 fresh wealth. This proposition Professor Walker, in his 
 able work on Wages, denies. He rejects the assumption 
 that wages are paid out of capital, the saved results of 
 the industry of the past. " On the contrary, he holds 
 that in a philosophical view of the subject wages are 
 paid out of the product of present industry." But he 
 refutes his own view by admitting that in almost all 
 cases wages are advanced out of capital. The cases are 
 indeed few in which the fruits of the labour are so 
 rapidly gathered that they actually pay the wages of 
 the labourer. A fisherman may pay a sailor for the 
 day's work by the sale of the fish as soon as the boat 
 reaches the shore. But such events are rare and unim- 
 portant. The farmer's case is that of most industries. 
 He must wait a year before he can replace out of the 
 harvest the capital consumed in feeding his labourers
 
 WAGES. 199 
 
 and his horses. The building of a steamship may take 
 two years before she can be sold. A bad harvest may 
 strip the farmer of a large portion of his capital ; the 
 ship may fetch only a price much smaller than what 
 she cost to build. The cost of production is first pro- 
 vided out of the consumption of pre-existing capital. 
 
 But there is, on the other hand, a real and essential 
 connection between what industry at work produces 
 and wages. The employer must recover from . new 
 wealth made what he had destroyed in keeping up the 
 labour or he will give up the business. He will cease 
 to hire labourers, and wages will disappear. He may 
 for a time go on producing at a loss, relying, like the 
 farmer, on an average of years ; but if the business and 
 its distribution of wages are to continue, the vital con- 
 dition that his capital shall be replaced with a reward 
 for himself, must be fulfilled. In this sense wages 
 clearly depend on the future results of industry. 
 
 From this cardinal fact, that wages are paid out of 
 capital, comes forth the fundamental principle that the 
 sellers of labour have the strongest interest that the 
 means of purchasing what they have to sell should be 
 as large as possible. The greater the number of buyers 
 of labour, the more plentiful the means which they have 
 of buying, the better price, the higher wages will the 
 sellers obtain. Everything which makes the em- 
 ployer eager to give wages is good for the workman. 
 Much the largest portion of existing capital is spent 
 in wages ; that is the labourers eat, drink, and con- 
 sume the greatest part of the stock of wealth in the 
 country. The saying, attributed to Mr Cobden, rightly 
 declares that when two employers are seeking one man
 
 2OO WAGES. 
 
 wages rise ; and the thing which creates the two em- 
 ployers is the existence of increased capital. Every act 
 or policy, therefore, which has the effect of diminishing 
 capital already in existence or of preventing its increase 
 is obviously injurious to the interest of those who live 
 by wages, and if deliberately designed to produce that 
 effect is suicidal irrationality. 
 
 Another consideration carries great weight in this 
 matter, and indeed in all the relations between labour 
 and capital, and that is the manner in which capital is 
 created. Except what nature gives as it were to start 
 with, capital is the result of an act of the human will. 
 It is derived from wealth, from commodities already 
 produced, which their owner deliberately resolves not to 
 consume in luxurious enjoyment, but to apply as instru- 
 ments to the creation of fresh wealth. He saves this 
 wealth by abstaining from the increase of his gratifica- 
 tions, and this is a personal act. It proceeds from a 
 clear motive. The saver wishes to become richer, to 
 be better off. He makes a sacrifice for the sake of the 
 ulterior object, which he prefers. Obviously in propor- 
 tion to the strength of the desire will be the amount of 
 the saving; and that desire will necessarily be influenced 
 by the success it can achieve in obtaining the end de- 
 sired, increase of fortune. 
 
 If profits are large, and the opportunities for extending 
 business multiply, the tendency to save gathers strength, 
 and capital rapidly accumulates. But if profits are low 
 and are likely to become lower still, the effort to save is 
 weakened, and the feeling is apt to arise that it is not 
 worth while to lessen present enjoyment for the 
 sake of a small increase of wealth. What policy,
 
 WAGES. 2O I 
 
 then, can be more mischievous for the earners of wages 
 than to discourage by direct hostility the saving of 
 capital ? They act directly on the feeling and motive 
 to save by proclaiming the capitalist to be the enemy of 
 the labourer. Yet it is by capital that they live. They 
 are sellers of labour, and it is capital alone which buys 
 it. They have no stronger interest than that the buyers 
 of the article from which they obtain subsistence should 
 be many and full of means. To dishearten them and 
 to turn them away from the labour market is the most 
 ruinous of proceedings. If the capital of a nation does 
 not increase, its state must, at the best, be stationary. 
 The labourers cannot raise either their position or their 
 numbers. The desire to save may still survive, but the 
 capital won, and the commodities to give to labourers, 
 will be sent to foreign lands in search of better profit. 
 The mistaken ideas of many unionists may easily drive 
 English buyers of foreign labour to distant countries. 
 They will send out English wealth goods, be it remem- 
 bered, not money to be invested in foreign industry. 
 They will reap a reasonable interest ; but the English 
 sellers of labour will have lost buyers and their 
 wealth. 
 
 We now reach an element of supreme importance, 
 the nature and quality of the article bought with wages. 
 In every market, and in every exchange, the two funda- 
 mental questions always are, what is the kind of thing 
 which is bought, its nature and character; and secondly, 
 how much ought to be given for it ? What is its value ? 
 The article which an employer intends to purchase with 
 wages is efficient labour, that is, so far as depends on 
 the labourer himself. The expression, efficiency of
 
 2O2 WAGES. 
 
 labour, has a much wider meaning than the goodness of 
 the work performed by the labourer, but this will come 
 into consideration later. The man who engages to pay 
 wages to another in return for labour, proceeds on the 
 supposition that he will work well ; and as Mr William 
 Denny justly observes in his excellent pamphlet on 
 " The Worth of Wages," " round this turns the whole 
 question of our manufacturing prosperity." The em- 
 ployer hires the use of the faculties of mind and body 
 of the labourer, his bodily strength, his intelligence 
 and skill, and also a particular manner of using them. 
 This is a capital point in the quality of the article pur- 
 chased ; for on the manner of his work the value of 
 the labourer to the man who contracts to give him 
 wages depends. He is a purchaser of good work, and 
 good work turns on the manner of working. 
 
 It follows from these facts that moral qualities are 
 understood to be bought in engaging a labourer ; care, 
 diligence, honesty of purpose, self-respect, good will, 
 and, what Professor Walker well calls, hopefulness in 
 labour. These qualities are as intentionally purchased in 
 hiring a labourer as beauty of colour is in a silk dress. 
 The presence or absence of these qualities makes the 
 work given in exchange for wages good or indifferent. 
 The goodness and amount of the work performed consti- 
 tute the worth of wages ; and if wages do not obtain 
 their worth, do not receive an equivalent for the 
 money given, the work will at last stop altogether 
 and wages will cease. Happy would it be for the 
 working classes if they grasped the vital truth that 
 labour is bought solely for the sake of what it produces, 
 and that if the man who purchases it does not receive
 
 WAGES. 2O3 
 
 an amount of good work equal in value to what it cost, 
 he will disappear from the labour market, and the work- 
 shop will be closed. This is a truism, no doubt : but 
 truisms are the main-springs of human life and of Poli- 
 tical Economy, and are the very things most apt to be 
 forgotten. 
 
 The market-value of labour, the quantity of money 
 which an employer ought to give and a labourer to re- 
 ceive, is a problem of supreme interest for every country, 
 but it is also one which is incapable of being pre-de- 
 termined by science. In the labour, as in every other 
 market, there are endless causes which act on the settle- 
 ment of the price ultimately reached. Price is fixed 
 experimentally by trial. Each party to the exchange of 
 labour for wages has a desire to satisfy and an effort to 
 make. Each tries to make the satisfaction as large and 
 the effort as small as may be ; each avails himself of the 
 circumstances of the market at the time to effect this 
 double purpose. For the purchaser the capital point is 
 the value of the article he buys with wages, the worth 
 of the labour purchased compared with its cost. But 
 it is very important to distinguish carefully between the 
 cost of labour and the rate of wages paid. High wages 
 may easily co-exist with a low cost of labour and very 
 cheap production. The highest paid workman may be, 
 indeed generally is, the cheapest of labourers. Cost of 
 labour is measured by the value of its product ; it is 
 high or low according as the results, the work, procured 
 from it possess greater or smaller value. Of this fact 
 the ordinary colonial state furnishes an excellent 
 illustration. In Australia wages are very high, the sell- 
 ing price of the crop extremely small ; yet the cost of
 
 2O4 WAGES. 
 
 labour to the farmer is very light, because the virgin 
 powers of the soil enable him to dispense with many 
 expenses which burden the English farmer in addi- 
 tion to what he spends on labour. A little labour in the 
 colony, though it wins but a scanty yield of low-priced 
 corn, nevertheless produces a crop which when sold 
 fetches a sum of money which is large compared with 
 what has been spent on wages. 
 
 In economical writings the general principle laid 
 down as regulating the cost of labour is its efficiency, 
 that is, the quantity and quality of the work given in 
 exchange for the wages ; but this does not quite ex- 
 haust the whole of the matter. The selling price of the 
 goods produced by the labour must also be taken into 
 account. A body of labourers engaged in a particular 
 industry may be all energetic and may all produce a 
 large amount of the best work during the day, and yet 
 the cost of labour may become too heavy for the con- 
 tinuance of the business. From causes quite external 
 to the manufacture the goods may command only a 
 price so low as not to repay the cost. Just as the 
 Australian crop, though sold at a very low price, never- 
 theless yields very high wages for the labourers as well 
 as a handsome profit for the farmer, so on the contrary, 
 the goods produced by a thoroughly efficient body of 
 workmen may realise so small a sum on sale as to 
 annihilate wages altogether. However, it remains a 
 very important truth that as between workman and 
 workman the efficiency of the labour largely affects the 
 expense of it to the giver of wages as well as the cost 
 of production of the commodities produced. The 
 sluggish, weak-bodied, unintelligent workman is incom-
 
 WAGES. 2O5 
 
 parably the dearest. His wages cannot be easily 
 lowered to the standard of the worth of his efforts. 
 Were piece-work universally applicable, and pay mea- 
 sured out strictly by service done, a partial remedy 
 might be found ; but even then there would be a loss on 
 the result accomplished by the machinery and the fixed 
 capital engaged in the business. The wages paid by 
 the piece might be strictly equal to the value of the 
 work made, but there would be fewer goods to meet the 
 same charges for working the engines and machines. 
 
 The good workman, even at an exceptionally high 
 wage, is the man first chosen by an employer. Of his 
 comparative cheapness, Mr Brassey gives some strik- 
 ing illustrations in the construction of the Basingstoke 
 Railway Station. 
 
 " The contract for the Paris and Rouen line included 
 some difficult works. At one time there were five hun- 
 dred Englishmen living in the village of Rollebois, 
 most of whom were employed in the adjacent tunnel. 
 Although these English navvies earned 5s. a day, whilst 
 the Frenchmen employed received only 2s. 6d. a day, 
 yet it was found on comparing the cost of two adjacent 
 cuttings in precisely similar circumstances that the 
 excavation was at a lower cost per cubic yard by the 
 English navvies than by the French labourers." 
 
 Again, " It has been many times stated in the course 
 of this work that from superior skill or greater energy 
 the more highly-paid workman will in many, perhaps in 
 most, cases turn out a greater amount of work in pro- 
 portion to the wages he receives. An opportunity 
 occurred some years ago, during the construction of the 
 refreshment room at Basingstoke for testing this pro-
 
 2O6 WAGES. 
 
 blem with great accuracy. On one side of the station 
 a London bricklayer was employed at 53. 6d. a day and 
 on the other two country bricklayers at 35. 6d. a day. It 
 was found, by measuring the quantity of work per- 
 formed without the knowledge of the men employed, 
 that the one London bricklayer laid, without undue 
 exertion, more bricks in a day than his two less skilful 
 country fellow-labourers." * 
 
 The variations in the efficiency of labour are as strik- 
 ing amongst nations as amongst individuals. Macaulay 
 was wont to declaim on the hard toil and low wages 
 to which the Irish labourer was subjected in many 
 countries. " In cotton spinning we find from the best 
 international statistics available that the number of 
 spindles attended by a single operative to-day in Eng- 
 land ranges from two to four times the corresponding 
 number on the continent. The statistics of the iron 
 industry of France show that on the average forty-two 
 men are employed to do the same work in smelting 
 pig-iron as is done by twenty-five men at the Clarence 
 factory on the Tees." t References to the differences in 
 money wages are not equally conclusive of inferior 
 efficiency ; for excess of numbers, cheapness of food, 
 and other causes, may have led to a lower money wage. 
 But in the above instances, superiority of personal power 
 is shewn in some men compared with others, and ex- 
 perience has abundantly proved how much more is got 
 in return for the money given out of the energetic work- 
 man. And if this is so with equally willing but inferior 
 labourers, how much greater yet is the addition to the cost 
 of labour, when temper or bad will or mistaken policy 
 
 * "Work and Wages." t " Wages Question. " 44
 
 WAGES. 2O7 
 
 acts on the feeling of the working-classes in the applica- 
 tion of their labour, and the fulfilment of their contract. 
 
 One inference becomes very clear. The day's 
 labour is no measure of the work accomplished, is not 
 everywhere the same thing. Even where the industry 
 is the same, and the moral qualities are not supposed to 
 differ, the length of the day's work furnishes no common 
 measure of the labour given. " It would be a great 
 mistake," writes Mr Bagehot, " to put down as equal the 
 day's hire of a Dorsetshire and that of a Lincolnshire 
 labourer. It would be like having a general price for 
 steam engines, not specifying the horse-power." 
 
 The employer has the initiative ; he comes to the 
 market in search of labourers. With what strength of 
 demand does he appear ? Here it is precisely that the 
 character of modern commerce harasses the labour mar- 
 ket with fluctuations of the most distressing kind. 
 There are countries in which the stationary state has 
 prevailed for ages. The round of annual existence 
 varies little. Population is unaltered ; equally so in- 
 dustry. In such countries the amount of capital and 
 the rate of wages may continue unaltered for long 
 periods of time. But that is not the condition of the . 
 world at the present day. Movement abounds on 
 every side. Most countries are being rapidly developed, 
 production multiplies, and the wealth now distributed 
 in wages and profits is enormous. International trade 
 daily receives fresh development; the steamboat and 
 the railway carry goods into every region, and bring 
 back products which, without them, never would have 
 come into existence. But international trade is exposed 
 to immense fluctuations. If England is the supplier of
 
 2C>8 WAGES. 
 
 a particular commodity to all the world, she must share 
 the fortunes of all her customers. If war, or famine, or 
 bad seasons, or other causes diminish their power of 
 buying, the reaction on her manufacturers becomes very 
 grave indeed. How is the proper reward, the right rate 
 of wages, to be discovered for workmen ? 
 
 The monotonous routine of agricultural countries, with 
 unchanging production and unaltering wages, is here in- 
 applicable. Hirers of labour offer different wages at 
 different times; how are the sellers to learn the true 
 state of the market, and the wages which it pre- 
 scribes ? At a fair the stock of goods or cattle is 
 visible to every eye ; some conjecture can be formed 
 of the proportion of demand to supply. But in 
 the broad commerce of such a nation as England, 
 orders come to producers from distant regions, and 
 the purchasers of labour do not show to the sellers, 
 to the workmen, the orders recorded in their books. 
 Bargaining thus becomes the sole process by which 
 the right value of the labourer's services can be 
 ascertained. When business is prosperous and lively, 
 the bargaining is comparatively easy ; both parties to 
 .the hiring are in better humour. The masters are not 
 unwilling to give an advance of wages, and the labourer 
 who has won the advance does not press his employer 
 with demands that he is unable to grant. But the situ- 
 ation is very different when the market droops, and 
 notices of reduction of wages are issued. The workmen 
 are told by the masters that demand has fallen away in 
 distant markets that foreign buyers are poorer and 
 fewer that from various causes they have produced 
 less wealth to give in exchange for English goods that
 
 WAGES. 2Q9 
 
 profits consequently have become smaller, as the em- 
 ployers encounter weaker prices abroad. It is only too 
 natural that men unacquainted with the facts, and 
 unable to test by them the accuracy of such language, 
 should regard it with suspicion. Can such a revolution 
 in demand and price be real ? May it not be that 
 makers are combining to make an attack on wages ? 
 Lower wages must diminish their comforts and perhaps 
 bring them to distress : that loss is certain. May it not 
 be the wiser course to hazard a little suffering for the 
 chance of winning better terms ? 
 
 On the other hand the embarrassments which the 
 diminished purchasing power of foreign customers 
 creates do not fall on one side only. Not only may 
 profits be seriously lessened, but may be even converted 
 into losses. At such times a heavy trouble is apt to 
 fall on the owners of great producing establishments. 
 They have opened out large mines or erected costly 
 machinery which would be greatly injured by the 
 stoppage of the works. Or a suspension of their 
 business might drive away their workpeople, especially 
 the superior hands, into other factories or to different 
 localities. When trade revives, their business might 
 suffer heavily from the want of competent workmen. 
 Under such circumstances many an employer is driven 
 by such feelings to continue his operations at a loss, and 
 to give to the labourers wages which they do not earn. 
 He hopes for better days, but they may be long in 
 coming. Meanwhile his people are living on his capital, 
 are consuming his property, which the fruits of their 
 labour do not replace. Such sacrifices imposed on 
 huge establishments were rare in the narrower trade of a 
 
 O
 
 2 I O WAGES. 
 
 century ago, but they are very common now. Demand 
 presented then fewer difficulties to be solved. 
 
 Whilst these fluctuations were harassing manufacturing 
 profits and wages, till recently agricultural labourers stood 
 on a different footing. A long series of ages had bound 
 them closely to the particular spot in which they had 
 been born. The feudal system and various kinds of 
 serfdom had encroached upon their freedom. They 
 were not free men, free to dispose of themselves at their 
 pleasure. Hence they were not sellers of their own 
 labour in a really open market. They were under many 
 restraints from making their own bargains with their 
 employers. In England they had gradually become 
 emancipated from these restrictions ; yet even in this 
 country unwise and unthoughtful legislation had mis- 
 chievously interfered with their liberty, to their great 
 injury as labourers. A Poor Law which had been 
 enacted for their relief was so constructed as to bring 
 on them grievous harm. It secured them maintenance 
 when out of work, but at a particular spot, in their own 
 parish. The principle of a poor law need not be dis- 
 cussed in this place, but this special enactment practic- 
 ally deprived them of freedom of motion, and of the 
 natural and fitting market for the sale of their labour. 
 A labourer who had wandered into another district, 
 and had through want of success in procuring employ- 
 ment become chargeable on the poor-rate, was im- 
 mediately sent back to his own parish. That was the 
 body which was bound to support him. He was thus 
 planted down in a small narrow locality. He had little 
 spirit or means to migrate on his own account. If he did 
 so, he was in imminent peril of being driven back to his
 
 WAGES. 2 I I 
 
 place of settlement. He learned to feel that his life was 
 sentenced to be spent in his parish, and he comforted 
 himself with the feeling that there he possessed out-door 
 relief with a dole of bread for every child born to him, 
 and ultimately the workhouse in the background for old 
 age. Under such circumstances his wages underwent 
 little change. Whether the farmers were prosperous 
 or the reverse, the labourers carried away home a wage 
 which was settled on no market principle, but was rather 
 a maintenance distributed to a dependant. By the sub- 
 stitution of a large union for a small parish as the basis 
 of relief, thus enlarging the field in which the labourer 
 may work without danger of removal, by the diminution 
 of out-door relief and a more direct appeal to a man's 
 own efforts with a broader sphere of action by the rail- 
 way and cheapness of locomotion, by the rapid increase 
 of the demand for labourers in the manufacturing 
 towns, by these and other causes the position of the 
 agricultural labourer has been radically changed. He 
 migrates freely over the whole country. He can offer 
 his services in many markets. He earns better wages 
 and tempts others at home to follow his example. The 
 labourers are fewer in the parish, and their dependence 
 on the farmers has been largely diminished. The 
 farmers have now to compete for the labour of good 
 men by the offer of higher wages, and those wages are 
 earned by a marked improvement in the quality of 
 agricultural labour. The agricultural labourer has now 
 largely acquired the general position of workmen selling 
 their labour in wide markets. 
 
 The question now presents itself, What security have 
 the sellers of labour that they obtain the price for it
 
 2 I 2 WAGES. 
 
 which is just and fair? Wages are a portion of the 
 produce of labour, and when labour is very productive 
 the labourer possesses in that fact a force which is felt 
 by the employer. When trade is brisk and demand for 
 goods active and prices rule high, the employer comes 
 under very powerful motives for yielding to increased 
 terms demanded by the workmen in bargaining for wages. 
 The more productive the labour and the larger the 
 sums realised on the sale of its products, the more eager 
 is the capitalist to engage workmen on improved wages. 
 Still, even under such circumstances, the labourer may 
 doubt whether profits would not admit of a still larger 
 reward for himself. The master's share of the goods 
 may still be excessive and be capable of diminution. 
 Still stronger would be the doubt when the masters 
 proclaim that profits are sinking, that sales and 
 prices languish ; may it not be that they have been 
 spoiled by excessive profits, and think only of what 
 is quite natural and proper, and will not hear of 
 diminution ? 
 
 The force which battles against the purchasers of 
 labour and furnishes the workmen with a powerful 
 guarantee for the reasonableness of the wages paid is 
 the competition of masters with one another. It is ex- 
 cellently described by Mr Denny. " The master is at 
 struggle and real fight with every other employer in his 
 own country and trade. And this competition between 
 employer and employer has done more for the success 
 of this country than any other force or active struggle 
 in it. The Clyde has fought with the Tyne and the 
 Mersey, and on the Clyde every master has contended 
 with every other for the work to be done. So powerful
 
 WAGES. 2 1 3 
 
 has this contest been that with all the advances in wages 
 and all the obstacles the crotchets of our workmen have 
 thrown in the way, the price of sailing ships has not 
 perceptibly advanced in this generation. This free 
 competition of master against master has been the 
 secret of this country's advance as a manufacturing 
 nation." This is the language of practical experience 
 and is confirmed on every side. The modern world, 
 most of all England, is incessantly accumulating capital. 
 Not to employ it is to lose it. In spite of the tidal 
 fluctuations of trade, the means of investing capital, 
 of applying it to production, are growing with a 
 rapidity unexampled in the history of mankind. The 
 spread of comfort and riches has been incalculable, and 
 riches are only another word for things made by labour. 
 The growth of manufacturing towns and populations 
 has been marvellous. In every corner of the land 
 people are saving, are investing (not money be it never 
 forgotten money is only a machine for transferring 
 ownership), goods rescued from enjoyment, in opening 
 new mines, building fresh factories, constructing fleets 
 of merchant ships, scattering commodities over the 
 planet. Fortunes are made everywhere and brought 
 to England, and fortunes are nothing but fresh savings 
 of commodities by turning them into capital. Now it 
 cannot be too strongly impressed on our working 
 classes that every one of these operations is the result 
 of capital, that capital is useless without labour, and 
 consequently that every fortune made, every profit 
 accumulated and not wasted on pure luxury, is an eager 
 demander of labour, and searches about for workmen to 
 create incomes and further profits. Without labour
 
 214 WAGES. 
 
 there would soon be no income for anyone, for incomes 
 are nothing but things made. 
 
 Capital cannot do otherwise than hunt up labour. 
 It exists for no other purpose whatever. Under 
 such universal pressure capital is driven to com- 
 pete with capital for the possession of labourers. 
 Every capitalist burns with desire to find a business 
 which shall yield him returns, be he land or mill 
 owner, or lender upon interest, or anything else what- 
 ever. Such are the habits of modern life, and so vast 
 are the spaces on the earth which are yet untilled, 
 so large the countries whose powers of yielding wealth 
 are in an infancy of development, that these habits will 
 last for ages. A time indeed may come, a time that 
 Mr Mill was fond of speaking of, when the earth will be 
 filled, and every vacant space cultivated, and the supply 
 of food incapable of further increase. When mankind 
 shall have reached that stage, the competition between 
 employers to procure labour will grow feeble, saving 
 will lose its motive, and either population must contract 
 itself or wages will dwindle down to the minimum of 
 subsistence. But that period is too remote for the 
 Political Economist of our day, and of centuries to come. 
 We must deal with the facts that surround us. One 
 result of these facts, of these movements of capital in 
 search for labour, is that in England alone the annual 
 payment of wages has been estimated at 400 millions 
 of pounds sterling. Wages have risen during recent 
 years in all branches of industry, and barring occasional 
 fluctuations will rise still more. 
 
 But it may be objected that this statement omits to 
 take into account an adverse force which acts very pre-
 
 WAGES. 2 I 5 
 
 judicially on the demand for labour to the consequent 
 injury of wages. The tendency to substitute machinery 
 for work of hand, is, it is argued, the distinguish- 
 ing characteristic of modern industry, and gathers 
 strength every day ; and that means fewer men wanted 
 for the same work done. But the work done is not the 
 same ; it is incomparably larger ; and in that fact lies 
 the answer to the objection. The marvels of machinery, 
 it is true, are greater than what imagination could have 
 conceived. Listen to the words of Professor Leone Levi 
 in his admirable book on " Work and Pay." "A woman 
 habituated to knit can make eighty stitches a minute ; by 
 the use of the circular loom, she can now make four 
 hundred thousand stitches a minute, showing an increase 
 of six thousand times the quantity. To make by hand 
 all the yarn spun in one year, by the use of the self- 
 acting mule, carrying one thousand spindles, viz., a 
 thousand threads acting all at one time, would require one 
 hundred million millions of men. To make a shirt the 
 hand requires at least fourteen hours ; by the sewing 
 machine less than two hours. This is the age of 
 machines ! " And what are their effects ? They enor- 
 mously reduce the cost of labour for making the article. 
 The same labour, purchased by the employer, yields an 
 incredibly greater quantity of produce, goods are cheap- 
 ened to an extent often astonishing. But who wants all 
 this gigantic supply of goods ? who will buy them ? 
 Millions of people, where formerly hundreds could not 
 have afforded the price. But with what do they buy 
 them ? Each buys the cheapened goods of the other man 
 with his own cheapened goods. Thousands of millions 
 of matches are bought, because hooks and eyes, and
 
 2 1 6 WAGES. 
 
 endless other articles are made infinitely cheap. The 
 range of buyers widens from the few who could have 
 purchased at the high prices of labour without machinery 
 to the multitudes who come in to buy at the insignifi- 
 cant cost. 
 
 But what are the effects on population ? Spindles 
 and sewing machines and steam engines scattering half- 
 penny papers and steel pens by the million over the 
 land do not feed men ; how can such inventions enable 
 a larger number of bread-devouring mortals to keep 
 themselves alive ? On the contrary, they seem designed 
 as if to dispense with workmen, requiring only a few 
 machine-makers, and sending away the remainder 
 without wage or work to do in the world. What answer 
 do facts give us ? Listen again to Professor Leone 
 Levi, "One hundred years ago Manchester had only 
 1600 inhabitants, now with Salford she has 500,000. 
 Three hundred years ago Liverpool was only a fishing 
 hamlet, now she has 527,000. Whilst Westmoreland, 
 a purely agricultural county, has 771 acres to one per- 
 son, Lancashire has only '43 acres to one person, less 
 than half an acre. In 1861 the town population of 
 England was in the proportion of 24 per cent of the 
 whole. In 1871 the town population had increased to 
 such an extent that it constituted 56 per cent, of the 
 whole." Here we see the swollen population, it is a real 
 fact, indisputable. The machines did not make food ; 
 how came the people to grow in such numbers ? 
 Machinery is the answer ; machinery instead of dispens- 
 ing with men and labour, has called forth and fed 
 millions more. The land of England has not done the 
 work. It yields more, indeed ; but still vastly less than
 
 WAGES. 2 I 7 
 
 the quantity required. Nor has the increase come in 
 any important degree from the use of agricultural 
 machines. Draining, rotation of crops, and manure, can 
 claim the major part of the enlarged produce of English 
 agriculture. It is the machinery of Manchester and Bir- 
 mingham, of Bradford and Glasgow, which has provided 
 subsistence for this doubled population. Their products 
 are so cheap that they are bought in huge quantities all 
 over the globe ; and they are bought with food grown in 
 foreign lands. Every American or Russian peasant who 
 buys English cloth sends back to England a small portion 
 of corn or meat ; the aggregate of these little purchases, 
 these little exchanges, brings bread or meat, or tea or 
 sugar to the multitudinous homes of English artizans. 
 The process is so productive, so stimulating to energy, so 
 awakening of the desire to become better off, that not only 
 is the standard of living improved for the whole popula 
 tion, but a multitude of additional producers are called into 
 existence, and find wages eagerly offered for their labour. 
 Hosts of men are willing to work on fields in distant lands, 
 because they can with the surplus corn, above what is 
 required for their own wants, obtain from England and 
 other manufacturing countries in abundance those com- 
 forts and enjoyments which are demanded by civilised 
 life. Here too machinery renders invaluable service in the 
 transport of goods ; but for the gifts of the steam engine 
 and the railway, much of this grand contribution to the 
 happiness of mankind could not have been realised. 
 
 But what are we to say of the effect on wages of this 
 extension of machinery ? That an immense increase of 
 the aggregate wages distributed has been established by 
 machinery is certain. The numbers of the population
 
 2l8 WAGES. 
 
 demonstrate this fact. That the introduction of 
 machinery may be injurious for a time to a particular 
 class of labourers cannot be denied ; they may even, 
 though this seldom occurs, be thrown out of occupation 
 altogether. But this is only one of the incidents in- 
 herent in the social, and especially in the industrial life 
 of mankind. Many causes besides the invention of 
 machines such as the failure of raw material, the un- 
 expected invasion of foreign competitors, change of 
 tastes and habits may cause a long continued demand 
 for particular labour to cease. Submission becomes an 
 unavoidable necessity. But the introduction of ma- 
 chinery has one peculiarity which asserts itself in almost 
 every case ; it bestows in the long run compensation 
 more than ample. When railways made their appear- 
 ance, loud was the outcry over the ruin which they would 
 bring on many of the industries of the country. The 
 carrying and travelling establishments of the nation 
 would be reduced to poverty ; the hotels on the great 
 roads would be deserted, post-boys, ostlers, breeders of 
 horses, and makers of coaches ruined, the broad wheel 
 waggoner and his teams banished, and suffering scattered 
 amongst the many labourers connected with these indus- 
 tries. And so it happened to not a few ; yet who would 
 plead that on that ground railways should not have been 
 permitted to exist, or would deny that they have been 
 amongst the greatest creators of wealth known to civilisa- 
 tion ? who would refuse to own that they have given 
 employment, manifold times greater, to the very classes, 
 if not individuals, engaged in those occupations on which 
 ruin was to fall ? They paid off the National Debt years 
 ago, as was pointed out with great acuteness by Robert
 
 WAGES. 219 
 
 Stephenson ; they had provided England with a clear 
 additional income of wealth, of property equal in value 
 to the twenty-eight millions of annuities which are the 
 National Debt of this country. One has but to cast one's 
 eyes around to discern higher wages in every quarter 
 than prevailed half a century ago, not only amongst the 
 agricultural labourers, who encounter the energetic 
 competition of foreign countries in the growth of their 
 particular products, but also in every branch of employ- 
 ment. Machinery is not the enemy of the labourer, but 
 his abiding and enriching friend. 
 
 Let us now turn to the other side the supply in the 
 labour market. As in every market the quantity and 
 quality offered for sale are the vital points in supply. 
 We have spoken of quality : labour given with good 
 will and self-respect, an honest desire to do good work. 
 Skill and intelligence we have seen, are the main elements 
 of quality. A larger production of wealth is thus 
 effected, there is more to divide between master and 
 man and the things made sell at better prices. The 
 employer can afford to allot a larger sum to wages and 
 yet not injure the residuum of profit for himself. There 
 is no law of production more certain than that inferior 
 goods are the dearest. England at the present hour is 
 learning the reality of this truth. Some of the industries 
 of the country have flooded foreign markets with goods 
 which are showy and look well, but wear badly ; thus 
 in many markets English wares have been discredited. 
 Buyers have discovered that these pleasant looking 
 goods are very expensive, and they have betaken 
 themselves to the producers and merchants of other 
 nations. The same selfish and blundering policy, we
 
 22O WAGES. 
 
 shall see, has generated the same mischievous results in 
 the market for the hiring of labourers. 
 
 2. A second element of the supply must be provided 
 by the purchaser of labour, the supply of tools. In 
 many trades the labourers bring their tools with them : 
 the gardener his spade and barrow, the mason his 
 trowel. To that extent the labourer is a capitalist, and 
 the use of his capital, as well as its wear and tear, must 
 be paid for. In the terms on which such labourers are 
 engaged, remuneration for this capital is necessarily, if 
 not expressly included in the bargaining for wages. 
 
 3. Supply presents a third element which exercises a 
 powerful influence over wages, the article actually 
 supplied varies widely in kind. There is as broad a 
 difference in the nature and value of the labour given, 
 even by hard-working and honest labourers, as between 
 a cotton and a silk dress. In the same employment, 
 the dull and the quick-witted man furnish labour of 
 very diverse value ; if they receive the same wage, the 
 intelligent man will be the first to be engaged, the last 
 to be discharged. He will obtain a higher reward than 
 the average of the class to which he belongs : he will 
 be made a foreman, or become the mate in a merchant 
 ship. What the wages are worth to the giver, what he 
 obtains in return for them, must, in the long run, be the 
 principle which governs their quantity. The contrast 
 is more striking when different trades are compared. 
 The wages of the highly-educated and skilful watch- 
 maker far exceed those of the agricultural labourer; 
 the puddler receives more on Saturday evening than 
 the common miner. Where education, long- training, 
 and knowledge are acquired, their cost must be repaid,
 
 WAGES. 2 2 I 
 
 or men with these qualities will not be supplied. 
 Some writers have contended that the expenses of 
 education do not enter into account on the day of 
 bargaining. The men only, just as they are, are thought 
 of and dealt with at the time of hiring. In strictness 
 this principle holds good of every purchase, of every 
 exchange. On the day of sale, goods fetch the price 
 which the state of the market establishes ; long 
 calculations and regrets as to what the horse cost to 
 rear will not persuade the buyer to give more for him 
 than his market value. Nevertheless the other princi- 
 ple, that education, training, in a word cost of 
 production, must be repaid, remains true and is the 
 real ruler of the market. If parents found that the 
 training, so heavy for them, given to their children is 
 not compensated by higher remuneration, they would 
 not encounter the expense of the education. If the 
 skilled labourers are supplied permanently, it can only 
 be because their cost is repaid. 
 
 4. There remains a fourth element in the supply of 
 labourers, and it is the most important, the most 
 difficult to regulate, the most influential over wages, 
 and the most powerful over the happiness or misery of 
 nations : the number of the labourers who must of 
 necessity offer themselves for hiring. Supply varies in 
 reference to demand in all markets ; the irregularity is 
 redressed by a process, which in other markets except 
 that of labour, may involve loss and suffering, but still 
 is comparatively rapid and easy. But the regulation 
 of the supply of labour encounters two difficulties of the 
 most peculiar and formidable kind. First, the labourer is 
 supplied long before he can be brought to market he is
 
 222 WAGES. 
 
 brought into the world many years before he can work. 
 During this long period he must be maintained out of 
 the wages of the supplier, and wages, no doubt, do so 
 provide subsistence for the families of labourers, who 
 live to grow up and to earn their own living for them- 
 selves. But what, if in the meanwhile their parents 
 themselves become an excess of supply from one of the 
 many causes which may diminish the demand for 
 labour ? The grown-up men may not find employers 
 except on very reduced wages ; it wfll be hard then to 
 maintain the children, who will become an additional 
 supply in actual existence, preparing for a market 
 already overloaded. Excess of goods can be got rid of 
 by a sacrifice of price, or may be even given away as 
 often happens with fish. The market then recovers its 
 equilibrium and a new start is acquired. But the living 
 men and the living children cannot be made to dis- 
 appear, except by violence or neglect, or the agency of 
 nature. If no new field of production presents itself 
 and they still remain alive and in excess, they must be 
 fed and clothed out of the stock provided for the 
 remainder of the population ; they lower the standard of 
 living of the whole people. The disaster is all the 
 more trying, in that this very supply of children was 
 created at a time when it was reasonable to marry : 
 when trade had been long prosperous, and production 
 with its reward was increasing. Truly this is an em- 
 barrassing trouble in the lot of the human race on earth. 
 But secondly, a still more powerful force is ever 
 pressing against the equilibrium of the market for 
 labour. As we have already seen, man, like every 
 other animal, is capable of multiplying his numbers
 
 WAGES. 223 
 
 much faster than food increases, and this tendency is 
 ever fighting against the inexorable laws which govern 
 human subsistence on earth. It has been calculated 
 that the human race, with adequate means of living, can 
 easily double its number in twenty-five years. This 
 tendency can be controlled by two forces only : moral 
 restraint acting on marriage, and want, with its various 
 forms of misery, culminating in death. It cannot be 
 doubted that the numbers of every population on the 
 globe are in a certain degree reduced by want, in one 
 or other of its forms. Inadequate food and clothing, 
 want of shelter against climate, the failure of harvests 
 and famine, manifold forms of disease especially in 
 childhood, neglect, lack of medical help, wild habits 
 and war, shorten life more or less largely below its 
 otherwise natural duration. More human beings are 
 born than the necessary means of subsistence can keep 
 alive. 
 
 This excess varies much in different countries, partly 
 in consequence of the effects of climate on the supply of 
 food, but still more from the moral force which civilisa- 
 tion brings to bear on the tendency to over-multiply. 
 Man is not left by the constitution of the world the 
 helpless victim of animal instincts. Moral powers are 
 implanted in his nature, which enable him to control, 
 more or less successfully, the elements of his being. In 
 the matter of population he. is capable of perceiving and 
 reflecting on the consequences of thoughtless marriage. 
 It is a well established fact, that as men increase in com- 
 fort, and have much to lose by recklessness, a strong 
 tendency to prudence in marriage is developed. The 
 rich notoriously hesitate to contract marriage until a
 
 224 WAGES. 
 
 fair prospect of maintaining a family is obtained. They 
 marry later in life, and, as Mr Danson remarks, " they 
 do not on an average leave children enough to replace 
 them in the next generation ; though of the children 
 born to them, they rear, by better care, a larger propor- 
 tion than are reared of the children of the lower classes." 
 But this sentiment prevails in other classes in civilised 
 countries. In England a few years of prosperous trade 
 leads to a considerable increase of marriages among the 
 working classes ; when times are bad, and wages sink, 
 marriages markedly decrease. In France and Switzer- 
 land the whole people pause before engaging in marriage. 
 Irishmen, living on potatoes, and accustomed every year 
 to fight starvation for a month between the old and 
 the new crop, fell into the feeling that marriage 
 could not make them worse off, and multiplied their 
 numbers in utter recklessness. Under such circum- 
 stances the moral force was sadly weakened. The same 
 temper prevails in a yet higher degree amongst the 
 great populations of the East, whose numbers are pushed 
 out to what the barest minimum of food will sustain in 
 ordinary years, and are content to run the risk of dying 
 of hunger under periodical visitations of famine. Moral 
 restraint seems to be wholly wanting. 
 
 In this most grave matter, habit, one of the most 
 powerful forces in human nature, plays an immense part. 
 Habits can reconcile men to multiply down to the lowest 
 margin of subsistence, though they well know that de- 
 ficient harvests and consequent famines are regular 
 events in their lives. They lack strength of character 
 to commence a new habit. On the other hand, habit 
 brings powerful help to communities differently con-
 
 WAGES. ^--^ 225 
 
 stitutcd. It springs up amongst men who are conscious 
 that life possesses for them comforts which thoughtless- 
 ness may destroy. They learn to make efforts to in- 
 crease, or at least to maintain, this standard of comfort ; 
 and if the circumstances of the country admit of material 
 progressand rarely does it happen that they do not 
 the habit establishes itself of pausing before marriage 
 till the prospect of a decent home seems to be secured. 
 Advancing civilisation strengthens and enlarges the 
 process. The desire and the will to work are developed, 
 and bring fresh resources. As comfort expands, prudence 
 unconsciously waxes stronger, and the relations of 
 population to food steadily improve. 
 
 The chief moral to be drawn from these facts is the 
 extreme importance of building up in a people a high, 
 and if possible, an advancing standard of living. No 
 force is comparable to this in combating the danger of 
 over-multiplication of numbers. None calls forth in 
 equal degree the best qualities of human nature, its self- 
 command for a high purpose, its desire and its courage 
 to make resolute efforts to sustain itself, its self-respect, 
 and its progressive appreciation of the gifts of civilisa- 
 tion. Ireland passed through bitter suffering when the 
 failure of the potato sentenced more than a million of 
 her inhabitants to perish ; but she obtained a fresh start 
 in the race of life, and her position is at the present hour 
 far loftier and safer than it was in the past. The vast 
 development of trade has conferred similar benefit on 
 the English people. There is no class but would recoil 
 from the physical and material condition of the country 
 half a century ago. 
 
 Thus in various ways, the supply of labour adjusts 
 
 p
 
 226 WAGES. 
 
 itself to the demand although never without some 
 amount of chronic suffering, even in the most prosperous 
 nations. The quantity of births which the condition of 
 a people will admit of without deterioration never can 
 be known beforehand. It is learnt by experience, and 
 instinct is too strong always to take its stand on 
 prudence. We have also seen that the difficulty of 
 adapting the supply of labourers to the power of 
 rewarding them is severely aggravated for a country 
 which has all the world for its customers. The ups 
 and downs of trade, that is, the varying ability of its 
 customers to purchase, bring great trouble on the 
 labour market, and much suffering both on labourers 
 and capitalists. Happily, however, modern civilisation 
 has provided a relieving force of great power. Fresh 
 lands are taken into cultivation in new or imperfectly 
 Jeveloped countries, and they speedily raise up large re- 
 sources for supporting population. Emigration brings 
 help to an over-loaded supply of labour. Emigration 
 saved many Irish lives in the day of her affliction, and 
 bestowed very efficient relief on England during the 
 long years of the recent commercial depression. 
 
 Such are the general forces which act upon the market 
 for the hire of labour, and its reward, wages. They 
 present numberless varying situations at different times. 
 On each occasion the two parties, the buyers and the 
 sellers must ascertain for themselves, by bargaining or 
 otherwise, what is the value, then and there, of the 
 article demanded, the services of working men. 
 
 But it is contended by large numbers of the labouring 
 class that this is ki incomplete description of the condi- 
 tion of hiring labour. They maintain that there are ir-
 
 WAGES. 227 
 
 regular and disturbing forces which defeat justice and 
 fairness, and give undue advantages to one side of the 
 exchange. They assert that the buyers possess a power 
 of combining which is capable of coercing the sellers of 
 labour, and that consequently they need to organise 
 special protection for themselves in order to attain what 
 is their due. This will form the subject of the next 
 chapter.
 
 CHAPTER VIII. 
 
 TRADE UNIONS. 
 
 IN most industrial and commercial nations powerful 
 associations have been organised for the protection of 
 what they hold to be the rights of labourers in relation 
 to those of capitalists. They are met by counter 
 organisations of employers. The labourers have the 
 command of large funds, contributed by multitudes of 
 workmen. Elaborate machinery and rules for joint 
 action are provided under leaders possessed of ability 
 and energy. In the^market for labour the buyers find 
 that they have to deal with united combinations of 
 labourers. Instead of settling with the men whom he 
 wishes to engage the terms of hiring, the employer is 
 often confronted with the whole body of workmen in 
 his particular trade all over the kingdom. Thus, for 
 the ordinary method of bargaining in the market is 
 substituted a struggle founded upon force. Sometimes 
 negotiation is had recourse to, with occasional success ; 
 but the more usual practice is open war. The 
 labourers are withdrawn from the works of the 
 masters : industry, the workmen themselves, the em- 
 ployers, and the whole community, are all injured 
 together. 
 
 The relations between employers and labourers touch 
 to the quick the welfare of every State. The interests
 
 TRADE UNIONS. 
 
 of civilisation are deeply staked on this great issue. 
 No country is more vitally concerned in the problem 
 than England. She trades with all the world, because 
 all the world buys her products ; but by this very fact 
 she is brought into competition with the industries of 
 every country. Any change in the cost of production 
 of any of her manufactures might strip her of a large 
 trade, and thereby deprive her of the power, not only 
 of maintaining her wealth, but of feeding her people. 
 On no subject, therefore, is the duty of all more clear 
 and more imperative than on the relation between em- 
 ployers and employed to analyse its elements, to discover 
 the truths the facts and principles which underlie it, 
 and to bring them home to the understanding of every 
 man in the nation. The truths thus obtained will often 
 need to be repeated. A truth is not established in 
 universal reception by its first recognition. Every 
 teacher addressing a body of students must repeat; 
 the things taught must often be sounded in their ears 
 before it can penetrate their minds. Many Political 
 Economists of distinguished ability have treated this 
 very question with eminent power ; yet little of what 
 they have shown to be true has sunk into the under- 
 standings of millions. The same teaching must be 
 incessantly repeated for a long time to come. " Nothing 
 is taught well," says Matthew Arnold, " except what is 
 known familiarly and taught often." 
 
 That it is in the highest degree desirable that masters 
 and men should work together in harmony no sane man 
 will dispute. The only question that can arise is, 
 Is it possible ? The answer to it must be found by a 
 careful examination of the points of difference. But
 
 23O TRADE UNIONS. 
 
 here, at the very outset, we encounter the unwelcome 
 fact that the denial of this harmony is laid down by 
 most Trade-Unionists as the very foundation of their 
 position. Their doctrines and their actions are based 
 on the assumption that capitalists and labourers are, by 
 their very nature, necessary and irreconcileable antago- 
 nists. Let us then consider the theory they propound, 
 and the inferences which they draw from it. 
 
 1. Capitalists and labourers are antagonists. They 
 divide a common fund between them. What one man 
 wins of it the other loses. Their respective interests, if 
 not absolutely hostile, are in direct conflict. 
 
 2. Capitalists are able to combine for applying 
 coercion on labourers in determining the price to be 
 given for the hire of their services. They can enforce 
 lower wages than the state of the labour market at the 
 time warrants. 
 
 This being so, labourers must, on their side, also com- 
 bine for mutual help in contending against the coercion 
 of masters ; in no other way can they obtain fair play 
 and justice. Without union every man would be at the 
 mercy of the buyer of labour, and would be compelled 
 to submit to the wages imposed upon him. 
 
 3. Not only must the labourers oppose association to 
 coercion, but further, they must lay down certain 
 economical principles, which would strengthen their 
 position, and would lead to their winning a larger share 
 of the fund to be divided. 
 
 The chief of these principles are 
 
 a. Limitation of the length of the day's work. 
 
 b. Abolition of working by the piece, and the sub- 
 
 stitution of wages by the hour or the day's work.
 
 TRADE UNIONS. 231 
 
 c. All workmen to receive the same wage, whatever 
 
 their quality. 
 
 d. Abolition of payment by the piece and of over- 
 
 time. 
 
 e. Limitation of apprentices. 
 
 f. A minimum wage to be given to all labourers. 
 
 g. Diminution of production to secure higher prices 
 
 for the goods ; and when demand for the things 
 produced is weak, working on short time with 
 no diminution of the existing rate of wages. 
 k. Refusal to work with non-unionists ; monopoly of 
 
 work for members of the unions. 
 I. In considering the first proposition that masters 
 and men are necessarily in direct antagonism, it is very 
 essential to keep two situations thoroughly apart in 
 thought. The mixing of them up together is the main 
 cause which hides the true relation between capital and 
 labour from the public eye. These two situations are, 
 first, a steady trade worked by a sufficiency of labourers 
 and no more ; secondly, fluctuations either in trade, 
 or in the numbers of the labourers, or in both. The 
 two positions are wholly different in kind. The second 
 generates uncertainties which give rise to all the 
 quarrelling and to the doctrines which it calls forth. 
 When the demand which was good last year is bad this, 
 and the workmen who could then find well-paid employ- 
 ment are now too many and are put upon short time 
 and reduced wages, that distrust should often spring up, 
 to the obscuring of the real nature of the relation 
 of the masters to the men, is inevitable. 
 
 The point to grasp and to bear steadily in mind is that 
 these are storms on the surface ; they are not the sub-
 
 232 TRADE UNIONS. 
 
 stance of the position of capitalists and labourers in in- 
 dustry. Not to be sure that the altered wages are just 
 and unavoidable only shows that the true market value 
 of labour is hard to discover under the circumstances of 
 the day. That in an obscure state of the condition of 
 the market a man should doubt whether he has received 
 the true value of his article is no proof that he and the 
 buyer are natural enemies. Both of them may be 
 honestly in search of the right price ; and each of them 
 may be doubtful whether it has been found. The true 
 rate of wages at such times can be discovered only by 
 trial by bargaining by testing the competition of the 
 masters to secure the workmen by trying to get work 
 at one mill, if the wages are unduly low at the other. 
 
 Bargaining, however, on so serious a matter as what a 
 man shall have to live upon easily generates irritation. 
 It strikes deeper into human feeling than bargaining at 
 a cattle fair or in a corn market. It cannot be exactly 
 a matter for wonder if a number of men, in the same 
 identical position, should try, by acting together, to fix 
 wages, unaltered, at a particular point. But these 
 uncertainties, and the feelings they excite, furnish no 
 warrant whatever for inventing new ideas as to the 
 essential positions occupied by masters and men 
 towards one another in production. These positions 
 can be learnt only from the facts of industry in ordinary 
 and normal times. Transitory perplexities reveal 
 nothing but a liability to occasional disturbance. High 
 floods on the Thames are not the phenomena from 
 which to learn the nature and the laws of the tide. 
 
 Taking, then, the even flow of industry, nothing is more 
 certain than that the interests of capitalists and working
 
 TRADE UNIONS. 233 
 
 men are most intimately bound up together. Each is 
 indispensable to the other. Without the capital of the 
 employer the workman starves ; without the workman 
 the employer loses everything for which he accumulated 
 capital ; he loses profit and income, and if no workman 
 can be procured, he too will starve at last. Here, then, 
 is a bond of union of the very firmest. They are abso- 
 lutely necessary co-operators. They are both rewarded 
 out of the same fund the products, the quantity of the 
 things made. They are both deeply interested that that 
 fund, that quantity of goods .made, should be as large as 
 possible. Even on the theory that it is only a fund about 
 whose partition to battle over, it would be infinitely 
 the better for both parties that it should be large. Then 
 it is for the interest of masters and men that the great 
 body of consumers should be benefited by a great pro- 
 duction of goods, to be sold at the lowest necessary price. 
 The consumers are the source from which flow all the re- 
 ward, the profits and the wages ; the cheaper the goods, 
 the more of them will be bought, for the desire to con- 
 sume is practically unlimited. 
 
 Still more, the labourers constitute incomparably 
 the largest "part of the consumers; what the rich buy 
 and consume is but a trifle in comparison with 
 the consumption of the working classes. Thus efficient 
 labour and great results in goods produced benefit 
 these classes most of all in the whole community. To 
 make things dear in every shop, by producing little and 
 destroying much as wages, is simply a suicidal policy, a 
 wanton infliction of poverty on themselves. Further, 
 no employer who understands his business, grudges 
 high wages to his men provided that they are earned by
 
 234 TRADE UNIONS. 
 
 good work done, which can be sold at a good price ; as 
 well might he stint the horse that toils for him. Good 
 work, in a steady trade, always asserts itself in good 
 wages. Able workmen cheapen the cost of production 
 to the employer, and reduce what is called the cost of 
 labour in the calculation of the charges on the business ; 
 and thus by increasing consumption vigorous work 
 comes back to the workmen in the form of steadily 
 sustained, or even raised wages. 
 
 Low wages in the same country almost always 
 mean slack business and low profits for the em- 
 ployers. In a different country the normal rate of 
 wages may be low. It is so in France, compared with 
 England ; but these low wages indicate, either an 
 excess of population which, however, is not the case 
 with France or, far more commonly, labour of com- 
 parative inefficiency, which produces less work in a 
 given time, or else trade of narrower dimensions. Low 
 agricultural wages were the concomitants of poor farm- 
 ing and indifferent profits. As farming improved in 
 character, and work of a better quality was needed, 
 wages rose, and farmers now gather in larger profits 
 Countries in which wages are permanently low are not 
 those in which employers accumulate large fortunes on 
 an extensive scale. 
 
 On the other hand, the United States and the Colonies 
 furnish the most solid instruction on this great subject. 
 Profits and wages, in ordinary times, as has been already 
 explained, are exceedingly and permanently high, the 
 cost of production exceptionally low, and prices excep- 
 tionally moderate. All the parties masters, workmen, 
 and the whole people prosper together. This great
 
 TRADE UNIONS. 235 
 
 fact establishes the real identity of interest of the 
 masters with the men, its great characteristics being 
 two no excess of labourers, and cheapness of the cost 
 of working, through the large return yielded at small 
 expense to the work of producing. The farmer pours 
 large wages into the hands of his labourers, because 
 each man's labour creates so much wealth, produces, 
 compared with the capital and labour employed, so 
 much corn or wool. In proportion as the industry of 
 England walks in the same path, and follows out the 
 same principles, the results gathered will be the same. 
 That nature, by the virgin fertility of the soil, is a 
 powerful agent in reducing the cost of production makes 
 no difference in the principle. She does prevent the 
 English workman from having actually as high reward 
 as the Australian ; but in the same proportion as he by 
 his efforts lessens the cost of producing the goods, he 
 will come under the same law, and reap better remuner- 
 ation. 
 
 The vital matter is to increase the purchasing power 
 of the people to give them more wherewith to buy 
 what industry makes ; and that consists of, and can con- 
 sist of nothing else than, largeness of wealth produced 
 by labour. Increase that, and no master will attempt 
 to screw down his workmen, and no labourer will com- 
 plain of stinted reward. The master will be eager to 
 employ more men, to procure efficient workmen, and to 
 remunerate them handsomely for good work turned 
 out ; he cannot improve his profits in a more effectual 
 way. On the other side, the workman will learn that 
 his employer's prosperity is also his own ; that the pro- 
 fits he earns may not only keep up the business, but
 
 236 TRADE UNIONS. 
 
 also lead to its extension, whereby further means are 
 acquired for seeking out labourers and rewarding them 
 with wages. The labourers, as a class and it would be 
 well if they realised the fact have the strongest interest 
 in the acquisition of fortunes by employers, for those 
 fortunes are fresh capital to be applied to the hiring of 
 labourers. Their one object is income ; and they can- 
 not obtain incomes except by first paying wages. 
 
 And it must not be forgotten that, as an almost uni- 
 versal rule, industrial fortunes are not made out of a high 
 rate of profit, but out of moderate profits earned by 
 large operations, which are carried on by multitudes of 
 labourers. They are conducted in great establishments, 
 which admit of important economies in the cost of 
 superintendence and administration, and by the use of 
 superior machinery. There is no antagonism to wages 
 in businesses thus managed. On the contrary, the 
 masters need superior workmen under such circum- 
 stances, and can afford and are glad to pay them high 
 wages, because a very trifling profit on goods cheapened 
 by great economy of manufacture yields large results in 
 the aggregate, through increase of sales and the great 
 magnitude of the business. What, then, is to be said of 
 the oft-repeated complaint that fortunes abound on 
 every side, and that they have been made out of the 
 toil of the labourers and to their injury ? The answer 
 is easy. Those fortunes are means for giving wages ; 
 there is no income to be obtained out of them to spend 
 on enjoyment but by employing labourers. What can 
 show more conclusively that the interest of masters and 
 men are most intimately allied ? 
 
 History strikingly confirms the truth of these facts.
 
 TRADE UNIONS. 237 
 
 It records in the clearest notes that the prosperity of 
 the working men has kept pace with the prosperity of 
 the employers : that both have gone up together. The 
 vast increase of the wealth of rich men in England 
 during the last sixty years is a fact perceived by every 
 eye. How has it fared with the labouring classes ? Do 
 they receive, would they for an instant accept, the same 
 wages now as they did then ? Their progress in wages, 
 in comfort, in standard of living, and, with sorrow be it 
 said, in costly drink, has been proportionate. The case 
 is admirably put by Mr Danson : " Sixty years ago the 
 number of paupers maintained out of the rates in 
 London was about 106,000. It seems that the number 
 in 1875 is about the same, though the population is 
 about threefold what it was in 1815. This, no doubt, 
 implies much improvement in the management of the 
 pauper class. But the point to which I would invite 
 your attention is this. The pauper does not, as you 
 know, fix for himself the style of his living. It is fixed 
 for him by others ; and the common rule is that he 
 shall not live materially better, nor much worse than he 
 would do if he worked for his living, as a labourer of 
 the lowest class. Now we find that the cost of main- 
 taining the 100,000 paupers of London in 1875 was 
 five times as great as the cost of a similar number in 
 1815. And on examining the accounts it appears that 
 the excess arises almost entirely from the difference 
 between the ideas prevailing at the two periods, 
 as to what is absolutely or humanly necessary for 
 the decent maintenance of even the poorest of the 
 poor."* The labourers have reached a far higher 
 * " Lectures," p. 42.
 
 238 TRADE UNIONS. 
 
 standard of existence. A much more elevated mini- 
 mum of wages has been secured. Their numbers, we 
 know, are much larger, but their welfare has grown in a 
 still much higher ratio. This is a fact, on humanitarian 
 and social grounds, of extreme importance. And the 
 rise is not in nominal wages only, in money, without 
 any corresponding improvement in real wages, in the 
 articles bought with the money ; for the articles pur- 
 chased by the working classes have not increased in 
 price. Bread is cheaper than it was sixty years ago ; 
 so are sugar and tea ; clothing is better and not dearer ; 
 and numerous small comforts and conveniences, which 
 materially smooth and civilize life, may be procured 
 at trifling cost. This is the result of efficient labour, 
 heartily applied with the aid of machinery, producing 
 much work, generating on that very account a low cost 
 of labour, cheapening commodities, enlarging the powers 
 of consumers to buy, and diffusing enlarged prosperity 
 in every class. These results do not breathe a syllable 
 about antagonism between masters and workmen. 
 
 Such are the things which take place when busi- 
 ness is steady ; wages and profit do not then increase 
 or diminish at the expense of each other. But steadiness 
 of demand and supply is not the uniform characteristic 
 of modern trade. Fluctuations in demand and prices 
 abound. Business suddenly becomes slack and this 
 slackness will often last long, as the general commercial 
 depression since 1873 strikingly shows. Buyers are 
 fewer and prices sink away. Employers are less eager 
 to hire in the labour market ; they offer lower wages, 
 and possibly are unable to employ all the workmen 
 who seek employment. Or all these circumstances
 
 TRADE UNIONS. 239 
 
 may be reversed, and the masters may compete eagerly 
 with one another to get the men. 
 
 We have seen that the only process by which the 
 true market-value of labour can be found under such 
 circumstances, save when long prevailing custom 
 makes little alteration in wages, is bargaining; and 
 bargaining can be made to wear the look of ending 
 in an advantage won by one of the parties at the ex- 
 pense of the other. Thus the belief arises in unre- 
 flecting minds that the situation is one of opposition, 
 if not of hostility of interests. But this belief is entirely 
 erroneous. Hostility does not make its appearance 
 because variations present themselves in the demand 
 and supply of labour ; what does arise is uncertainty as 
 to its then true market value. Every reason which binds 
 men and masters together is as strong and as real under 
 fluctuating as under steady trade; but what each in 
 fairness exactly ought to have is hard to find out. It 
 may be that the price, the wage, ultimately reached is 
 not the just apportionment between the parties ; but the 
 principle remains the same that fair play and justice, if 
 only they can be discovered, are the really best things 
 for both parties. 
 
 The perplexity, beyond doubt, warrants counter- 
 calculations, counter-estimations of the forces at work. 
 Human nature is apt to be weak, and not to be as 
 quick-witted in discerning what one ought to give 
 as what one ought to receive. Undue stress may 
 easily be laid on many factors of the situation ; but, 
 still, the great central truth remains unshaken, that the 
 interests of both sides are harmonious, that the just wage 
 is the foundation of the prosperity of both parties.
 
 240 TRADE UNIONS. 
 
 Why should employers and labourers be thought to 
 be enemies, any more than farmers and dealers at 
 a cattle fair ? Does any one maintain that the dealers 
 have a permanent interest to pay less for the beasts 
 than they cost the farmers to rear, or the farmers in 
 overreaching the dealers, merely because before the 
 state of the supply and demand is ascertained prices are 
 uncertain ? The ignorance of the real situation breeds 
 in some a momentary spirit of gambling. The cour- 
 ageous hold on, the timid sell ; when the relation of 
 the demand to the supply is discovered, who have won, 
 who lost, is known. But all this is but a passing com- 
 motion on the surface of the relation of the parties to 
 each other. No one doubts that at bottom a fair re- 
 ward for the producer, and a reasonable profit for the 
 dealer benefit the whole trade : and so it is with 
 employers and labourers. 
 
 2. But it is alleged that the capitalists can combine, 
 and can thereby apply coercion against the labourers. 
 They can ; that is undeniable. They have done so 
 largely in the past. In ancient days they have abused 
 the power of legislation to oppressing the liberty of 
 the labourers. In many countries they were made 
 slaves. They were converted into serfs, restricted to 
 dwell on particular spots, and forbidden to hold pro- 
 perty. A statute of Edward III. fixed for the whole 
 kingdom what wages should be paid in the chief 
 departments of industry, under pain of being placed in 
 the stocks. Richard II. and Elizabeth, passed acts 
 empowering justices in every county at their discretion 
 to proclaim how much every mason, carpenter, tiler, and 
 others after their degree, should take, with or without
 
 TRADE UNIONS. 241 
 
 meat and drink. This power was repealed only so late 
 as the 53 George III. Labourers were forbidden by 
 Edward III. and Richard II. to betake themselves to 
 any other craft or occupation than that which they had 
 chosen at the age of twelve. As Professor Walker 
 points, out " by the statute of apprentices, 5 Elizabeth, 
 the access of unskilled labour to the trades and profes- 
 sions was restricted within the narrowest bounds." Only 
 a few special persons could become a merchant, draper, 
 goldsmith, ironmonger, or clothier. Edward III. for- 
 bade any labourer in agriculture " to go out of the town 
 where he dwelleth in winter to serve in summer." 
 
 The law of parochial settlement imposed similarly 
 oppressive restrictions. Their mischievous and impover- 
 ishing effects have lasted down to our day. In France 
 the oppression of the privileged class, which exacted the 
 gratuitous labour of the peasantry for many days in the 
 year, whilst they imposed taxes from which they were 
 exempt themselves, was so intolerable that the most 
 violent action recorded in history was provoked to 
 avenge the wrongs of the labourers. These sufferings 
 run through English history. The pillory and the stocks 
 were freely administered to the idle and to such as would 
 not work as their masters chose. At a later period, 
 down to our own time, a more subtle appliance stripped 
 free men of their natural rights to refuse conjointly wages 
 which they thought inadequate. They were not masters 
 of their own strength or of the use of their own limbs. 
 They were brought under the highly penal offence ot 
 "restraint of trade." A single man was allowed to 
 bargain for his wages. Two bargainers doing the same 
 act at the same time were guilty of a crime against 
 
 Q
 
 242 TRADE UNIONS. 
 
 trade. In agriculture migration in search of employ- 
 ment was stopped by the law of settlement, while a 
 poor law trained the labourers to give up all thought 
 about the increase of their families. 
 
 In all these matters capitalists acted in the deepest 
 ignorance of their own interests. They were far more 
 guilty of restraint of trade than the labourer. They 
 demoralised and degraded the workman, and inferior 
 work, inefficient labour, great limitations of profit, want 
 of progress in the nation were the avenging penalties 
 which that ignorance, that perverse and blundering 
 folly necessarily had to pay. But all this has passed 
 away, and the workman is in full possession of himself and 
 of his right to labour on his own terms. Nevertheless 
 the power of combined and injurious action is not 
 altogether extinguished. It is certain that in the retail 
 trade, as was before explained, shopkeepers know how 
 to combine against consumers. Consumers are units 
 with small powers of association. The dealers under- 
 stand each other and act in common, and exact unfair 
 prices from the public. The working man is weaker 
 still. He has himself and his family to maintain, and 
 that is an urgent matter. The master can wait more 
 easily. Adam Smith declared that masters were always 
 in tacit combination against workmen. The labourers 
 are apt to fall into a spirit of acquiescence. If left to 
 themselves individually depression easily lays hold on 
 them, especially the women ; and there always remains 
 the fact that it is very difficult for workmen to learn the 
 true state of the market, the prices fetched by the goods, 
 the amount of orders on the employers' books, or the 
 rate of profit, whether reasonable or excessive.
 
 TRADE UNIONS. 243 
 
 These and other considerations of the same kind 
 warrant a joint understanding, and, if thought desirable, 
 joint action on the part of the workmen. They may 
 say with reason that under such circumstances union i? 
 strength. But this principle by no means implies 
 hostility and combat It only goes so far as to furnish 
 valuable help in obtaining that knowledge of the market 
 which is so important for them, and in resisting the 
 temptation into which masters may so naturally fall, of 
 forming a one-sided and inaccurate estimate of what 
 wages the business is likely to warrant. On thi5 
 ground unions are perfectly legitimate. 
 
 But there is another service which union may render 
 to the workmen and to society. History painfully 
 reveals how easy it is for that human nature which is 
 common to masters and to men to establish modes and 
 conditions of working which morality aad civilisation 
 are alike bound to condemn. Excessive labour imposed 
 on women, work carried on under dangers against 
 which reasonable care makes no provision, selfish 
 sacrifice of the health and education of children to an 
 excessive desire of gain, labour kept up for an unjustifi- 
 able number of hours under conditions which debase 
 the moral and material wellbeing of man, such offences 
 against the value of human life are not incapable of 
 being successfully checked by the joint action of men 
 who are alive to the character of such wrongs. But in 
 this grave matter let us be just. We must not lay the 
 blame of such scandals on one only of the parties to the 
 sale of labour. The employer is morally culpable when 
 he pursues profit with cynical indifference to moral and 
 material efiects which his manner of conducting hrs
 
 244 TRADE UNIONS. 
 
 business produces on the labourers. He knows better. 
 He has a greater power of thinking and reflecting than 
 they. He ought to recoil from tempting them to work 
 which renders life hardly worth the living. But on the 
 other hand, the labourers are not altogether innocent. 
 In their eagerness to increase their gains, they sink 
 down to a lower standard of living. Had they but the 
 right feeling they would refuse to keep up their numbers 
 on such terms. But that right feeling is most difficult 
 to create. The very fact that they submit themselves 
 and their children to such labour tends strongly against 
 the growth of such a sentiment. Nevertheless heavier 
 is the blame which falls upon the masters, and conse- 
 quently justifiable is the association of labourers which 
 may generate the feeling that such a life is intolerable 
 and must be brought to an end. 
 
 But here it is necessary to point out a principle of 
 great importance. Prohibitions by law to labour 
 beyond a certain number of hours, to earn a cruel gain 
 by children, to employ women in certain occupations, 
 are decrees that less wealth shall be produced, that more 
 labourers shall be engaged for the same work, that the 
 nation shall be less rich. It is not to be denied that 
 Political Economy does make these assertions ; they 
 proclaim stern and real facts. So far, the nation is the 
 poorer for the legislation ; there is only the same 
 quantity of wealth produced, and its cost of production 
 is increased. But to charge Political Economy with 
 teaching that this diminution of wealth is wrong, and 
 that every measure which limits riches must be re- 
 jected, whatever be the moral, personal, and social 
 consequences of the acquisition of such wealth, is an
 
 TRADE UNIONS. 245 
 
 imputation on Political Economy as unjust as it is 
 widely spread. Political Economy, it has been al- 
 ready shown, does not teach that wealth must be 
 acquired at all costs. It nowhere preaches, "Rem, 
 quocumque modo rem" It nowhere denies that there 
 are things better than wealth, and that wealth ought to 
 be sacrificed to obtain more worthy ends, or to avert 
 evils for which wealth can give no atonement. Nothing 
 destroys wealth like war ; has Political Economy ever 
 taught that national honour and self-respect must be 
 flung to the winds if they can be maintained only by 
 an impoverishing war? Political Economy legitimately 
 and consistently declares that the pursuit of wealth by 
 means injurious to the well-being of the people is rightly 
 forbidden by the State, as the guardian of all classes of 
 the community. Such philanthropy a philanthropy 
 based on a deliberate judgment that the highest motives 
 of humanity demand that certain acquisitions of wealth 
 must be abandoned as tending to degrade a people and 
 its civilisation may be insisted on by every Political 
 Economist with perfect consistency. But there is 
 another kind of philanthropy which must now be 
 considered. 
 
 3. Labourers, then, are justified in seeking the aid of 
 one another in the settlement of the true market of labour 
 under the actual circumstances of the day. They need 
 such associated assistance in bargaining that is, in 
 what Adam Smith calls the higgling of the market. 
 This does not mean that all selling of labour is a battle. 
 On the contrary, when trade has been long steady, and 
 kindly feelings have existed between employers and 
 workmen, a just wage is arrived at without calling out
 
 246 TRADE UNIONS. 
 
 any feelings of jealousy. But as the great trade of 
 modern nations partakes less and less of this character, 
 the labourers, without combination, find it hard to be 
 sure of what they may justly claim for their services. 
 To arrive at this knowledge is the main and legitimate 
 object of a Trades Union. In the attainment of this 
 end, the course which modern industry has taken de- 
 prives both parties more and more of a resource of 
 great value. 
 
 The tendency to accumulate thousands of labourers 
 in vast establishments in which machinery performs its 
 wonders is ever on the increase, with much cheapening 
 of the cost of production ; but it entails a grievous loss 
 for the social condition of the people. It weakens, often 
 destroys altogether, the personal relation between 
 master and men. An employer cannot be familiarly 
 acquainted with four or five thousand workmen, many 
 of them constantly changing ; he must, of necessity, 
 interpose between him and them, the manager, and the 
 foremen. He can receive reports on their individual 
 efficiency ; but he cannot keep up with them that 
 friendly interest, that personal intercourse, that attach- 
 ment on both sides, which bind together a society based 
 on moral relations, and which may furnish invaluable 
 aid in smoothing discussions on what is the just rate 
 of wages. Masters are now compelled to negotiate with 
 large bodies of workmen; and the bargaining is thus 
 naturally carried on by representatives on behalf of the 
 labourers. I will not exactly say with Mr Rupert 
 Kettle, at the Church Congress, that the Union was the 
 necessary outcome of such a situation ; for the Union 
 has frequently flourished amongst agricultural labourers,
 
 TRADE UNIONS. 247 
 
 whose scattered position necessarily maintains a personal 
 connection between the farmer and his men. But, 
 undoubtedly, these vast aggregations of similarly placed 
 workmen render the birth of the Union easy ; and then 
 the difficulty of arriving at the just wage by bargaining 
 becomes greatly aggravated. 
 
 But Trades Unions, as they are now worked, pursue 
 objects of a far wider range. They are not con- 
 tent with debating with employers what is the value 
 of labour, according to the state of the demand and 
 supply in the market. They are not satisfied with 
 obtaining for labourers their just rewards according 
 to the condition of the trade, the numbers of the 
 labourers seeking employment, the prices realised 
 by the goods made, and the means of the masters to 
 pay wages. They have far more ambitious aims. They 
 frame a policy of labour to be imposed on the labourers 
 as much as on the masters, as to the manner in which 
 men shall work. 
 
 This policy is founded on a distinct theory of human 
 life in respect of working. They seek to dictate, not 
 only the price of the article to be supplied by the 
 labourers, but also its form and quality, what sort of 
 an article it shall be. They refuse to be limited 
 by ideas which relate to market value, and the fair 
 price to be given for the thing furnished ; they insist on 
 prescribing what kind of a commodity shall be supplied. 
 The employer is not to ask for labour, and the labourer 
 to give it, on terms arranged between themselves. 
 Master and man must cease to be pure buyers and 
 sellers, hirers and hired. Only a certain kind of labour 
 shall be brought to market and sold ; a kind ordered by
 
 248 TRADE UNIONS. 
 
 a few leaders of Unions. It shall not be a simple hiring 
 of a labourer's faculties of mind and body to be applied, 
 in the exercise of his natural liberty, to the work pre- 
 scribed by the hirer in return for a reward mutually 
 agreed upon ; nor shall the order of the Union merely 
 specify the amount of that pay. The labourer's liberty 
 to dispose of his own person, to sell his service on his 
 own terms, is taken away from him. He must impose 
 the condition on the master, that if he engages another 
 but inferior labourer to work by his side, the worse 
 workman shall receive the same wage with himself. 
 All labour shall be regarded as the same. No differ- 
 ence of quality shall be recognised. There shall be no 
 good workmen and bad workmen. The decree of the 
 Unions pronounces them to be all alike, just as if fish- 
 mongers and cattle dealers were to pronounce that 
 there are no large salmon or small salmon, large 
 bullocks or small bullocks ; all shall be bought by the 
 head and paid for at the same price. Nay care shall 
 be taken that there shall be no labour of the best 
 quality. The spirit of the workman shall be to make 
 what he gives for his wages, his work, as small as pos- 
 sible; his aim shall be to produce as few goods as he can. 
 Now, it is obvious that such rules and practices are 
 founded on ideas in which the conception of exchang- 
 ing is totally absent, of giving and receiving in exchange 
 things of equal value. They imply a relation between 
 employers and labourers radically different from that 
 of hirers and givers of services, of buyers and sellers in 
 a market. The spirit they breathe is that of a lawgiver 
 who lays down at his own pleasure what shall be the 
 position of labourers in the world. He frames an
 
 TRADE UNIONS. 249 
 
 arbitrary constitution, devised at will, not for a market, 
 but for a society composed of consumers, employers, 
 and labourers, amongst whom he distributes wealth as 
 he chooses. The Union leader is a Lycurgus, organising 
 a State according to his ideas. The question imme- 
 diately arises, Is this practicable? Does the position 
 in the world of men without property admit of their 
 deciding, just as they may fancy, what wages they shall 
 receive, and what work they shall give in return for 
 them ? Is the policy of the Unions compatible with 
 the actual facts of human life? The answer to this 
 fundamental question admits of no doubt. The Unions 
 go too far, or not far enough. They can carry out 
 their principle but upon one condition, pure Com- 
 munism. If they are able to impose on a nation a 
 social organisation founded on the basis of the aboli- 
 tion of property, in which there shall be no rich and no 
 poor, then the public force will allot and enforce work, 
 and distribute its rewards at the pleasure of the ruling 
 power. But if property, with the legal rights it implies, 
 is the foundation of society, and if a labouring class 
 estimated in England at ninety-six out of every 
 hundred of the population, possesses no property, 
 and is compelled to live on what they are able to obtain 
 from those who have saved capital, and who can dis- 
 pose of it at their will, then it is certain that the relation 
 between the two classes must be that of buyers and 
 sellers of labour in a market, and must be governed by 
 the essential nature of all markets. The rewards pro- 
 cured from employers in the end must be such as they are 
 willing and able to give. There must be a limit to wages 
 beyond which the capitalist will cease to have anything
 
 25O TRADE UNIONS. 
 
 to do with labourers, and will refuse to give wages. 
 He cannot consent, except upon compulsion, to work 
 permanently at a loss, or to allow his capital to be 
 destroyed by men whom he voluntarily chooses to keep 
 alive with it. 
 
 (a) With respect to the objects aimed at by the Unions, 
 we have in the first place the limitation of the hours of 
 labour. They demand that a day's work shall last only 
 eight hours in the place of ten. Now it must be freely 
 granted that the shortening of the time given to labour 
 to the increase of those available for rest and enjoyment 
 is a natural and legitimate object of desire. That it is 
 attainable by the people of England to any such extent 
 as that proposed it is scarcely possible to believe. Such 
 a diminution of labour necessarily means a corresponding 
 diminution of wealth produced. There would be a much 
 smaller stock of things for the nation to live upon and 
 distribute among its population. The labourers, under 
 such a rule, must be worse off, unless they turn out the 
 same quantity of goods in the eight hours as they did in 
 the ten, or unless they can fasten the loss on their em- 
 ployers .That this last is the real meaning of the Union 
 can hardly be doubted. But what does such a policy 
 come to in that case ? To a rise of wages exacted from 
 the employers by compulsion. It demands the same pay 
 for four-fifths of the work done as was previously paid 
 for five-fifths. This brings us back to communism. 
 The employers are no longer free hirers of labour with 
 the capital they have saved. They are subjects at the 
 mercy of dictators. The demand for the same wages with 
 less work, with fewer goods to sell, unless that work be
 
 TRADE UNIONS. 251 
 
 of better quality and can fetch a better price, is undis- 
 guisedly a demand that the master's profits shall be 
 reduced to give two hours' leisure a day to the men. 
 The masters will reply that the state of the business 
 will not admit of such a loss, and the demand for labour 
 must fail. 
 
 There is a second embarrassing difficulty in the way 
 of the reduction of the hours of labour. Machinery 
 plays a very large and increasing part in modern 
 industry. It lies at the foundation of the vast com- 
 merce of England. The expense of using this 
 machinery is a part of the cost of production of the 
 things manufactured, and must be repaid out of their 
 sale. Now this expense would be very little, if at all 
 diminished, by a reduction of the hours of labour. 
 There would be less coal burned in the engine which 
 turns the spindles in the factory, but the engine which 
 pumps or ventilates the mine must continue its opera- 
 tions and its consumption of coal. The workmen resting 
 at their homes would give no respite to its movements. 
 There are other heavy charges which would press with 
 equal weight after the reduction of the hours of labour. The 
 expense of management, the interest due on the capital 
 engaged in the business, the rates and taxes imposed 
 on the buildings, the salaries of many clerks and super- 
 intendents, would be unaltered, whilst the goods pro- 
 duced would be fewer, and the means for making these 
 payments would be lessened. Thus the reduction of the 
 working day by a fifth would tend powerfully to raise 
 the minimum price at which the articles manufactured 
 must be sold. The manufacturer can protect himself 
 in no other wav than bv transferring his capital to some
 
 252 TRADE UNIONS. 
 
 new business or country. In either case the labourers 
 are injured ; there is less capital to support them. A 
 rise of the prices of commodities, no doubt, would be 
 the general result, and then the whole community suffers. 
 Less goods would be made and they would be dearer. 
 The inevitable consequence would be two distinct blows 
 on the labourers. There would be fewer workmen wanted 
 for work, because the reduced wealth of the country 
 would diminish the means of hiring them and giving 
 them wages. And, secondly and this is a point which 
 the working classes would do well to remember in 
 connection with this subject the general dearness of 
 the articles on sale, the higher range of prices would fall 
 most heavily on them, for the labourers constitute the 
 vast majority of the buyers and consumers in a people. 
 Nevertheless, there is one case in which it is legiti- 
 mately open to the labourers to shorten the hours of 
 the day's work. It often happens that a rise of wages, 
 even a permanent one, is warranted by the settled 
 prosperity of a business, and is sure to be realised by 
 the labourers. Under such circumstances they may 
 select to take this advantage in the form of a shorter 
 day's work. They may take the gain in hours and not 
 in money. They may prefer leisure to a higher style 
 of living, and if the alternative should lie between less 
 toil or more drink, great would be the moral and 
 material superiority of less labour over more money. 
 The employers would not be injured under the hypo- 
 thesis that the larger results of the business necessarily 
 bestow a higher reward on the labourers. No doubt 
 ii the workmen made a different choice, and con- 
 tinued full work at improved wages, the business
 
 TRADE UNIONS. 253 
 
 would receive still larger expansion, and profits would 
 tend to increase. But this consideration does not affect 
 the right of the labourers to fix the terms on which they 
 shall render their services to masters, where the state 
 of the trade and of the labour market empowers 
 them to do so. Every man in the community possesses 
 an inherent right to dispose of his time and labour 
 at his own pleasure, and Political Economy does not 
 pretend to assert that every other element of human 
 life must be sacrificed to wealth. For every class of 
 society there is something better than to be ever at 
 work in becoming richer. 
 
 Here, thirdly, a consideration of incalculable weight 
 presents itself one that bears heavily on the general 
 policy of Trade Unions. The immense trade of Eng- 
 land depends mainly for its existence on the purchases of 
 English products by foreign countries. The food itself 
 of half her people is sent over to her shores by foreign 
 buyers of her goods. What if they should cease to buy? 
 Her manufactures are sold abroad in open competition 
 with those of other nations. What if the purchasers 
 should prefer the manufactures of her rivals as being 
 cheaper ? There is no compulsion to force them to buy 
 of England. The products of her competitors are often 
 as good as her own. Superior cheapness is the decid- 
 ing motive which hitherto has brought the customers to 
 the English market. But even now, in this very matter 
 of comparative price, the competition of foreign manu- 
 facturers has proved formidable. American cotton 
 and Belgian iron have been sold freely, even in England 
 herself, in spite of the cost of carriage with which they 
 were loaded A forced and general reduction of the
 
 254 TRADE UNIONS. 
 
 day's work to eight hours, by raising the prices of 
 English goods, would drive them off many markets, and 
 reduce millions of English labourers to destitution. 
 The margin of superior cheapness possessed by English 
 goods is too small to retain the custom of foreign 
 buyers for English wares, if less work is to be given for 
 the same wages in England on a large scale, and if the 
 minimum at which they must be sold, to face the in- 
 creased cost of production, must be necessarily raised. 
 Buyers in every market abroad would find articles of 
 equal goodness with the English offered on lower terms. 
 There could be but one result to such an issue. English 
 goods would be driven off foreign markets, and the 
 means of England to maintain her population fearfully 
 reduced. 
 
 This great feature of English industry that so large 
 a portion of it is occupied in producing goods to be sold 
 abroad in keen competition with those of other nations 
 is a fact of which the Unions are bound to take the 
 most serious notice, but which, unfortunately, is too 
 commonly disregarded. 
 
 (b.) A second principle, adopted by many Unions, de- 
 mands the same payment for all labourers. The daily 
 wage is to be the same for all. It is commonly de- 
 fended on humanitarian grounds ; the Union is bound 
 to protect all its members. It cannot permit a miser- 
 able pittance to be doled out to those of them who are 
 deficient in skill and strength. The labourers are to be 
 regarded as a homogeneous body of men, to be treated 
 all alike, and not to be subjected to the picking and 
 choosing oi masters. 
 
 This policy admits of no defence. In the first place
 
 TRADE UNIONS. 255 
 
 it has been well remarked, it runs counter to a funda- 
 mental principle of human life a principle which even 
 Socialist writers, even when preaching equality, have 
 not ventured to challenge, that differences of merit 
 must be followed by different degrees of wealth as their 
 reward. A social state, which in actual practice, per- 
 manently violated this primary instinct of human feel- 
 ing, is not conceivable. It would be quite as reasonable 
 to demand that every bullock and every sheep shall be 
 paid for at the same price. 
 
 In the next place, this policy ignores the position of 
 labourers in the world. They are men without pro- 
 perty offering their services for hire ; and the hire 
 they earn must necessarily except under compulsory 
 and absolute Communism be proportioned to the 
 quality of the service rendered. The labourers live by 
 what they obtain from the owners of capital in ex- 
 change for the work they perform. As was shown in a 
 previous chapter, the employer must receive the worth 
 of the money he pays. He buys labour, and the labour 
 must be worth the wage or he must give up the busi- 
 ness. He cannot and will not continue to pay for what 
 he does not get. The work performed by the inferior 
 workman is worse and less than that accomplished by 
 the good one ; and it is the work produced which every 
 employer buys in hiring labourers. And is it not 
 obvious that upon such a system the work given by the 
 worst workman would become the standard of all ? 
 Why should the stronger and more skilled man make 
 toilsome efforts, if he is to receive the same wage, 
 whether he makes them or not ? 
 
 Further, it is clear that equality of payment for al-
 
 256 TRADE UNIONS. 
 
 workmen is to enact a compulsory Poor Law on em- 
 ployers and ultimately upon the whole community. 
 The bad workman does not pay for all his living. All 
 that he receives above the worth of his work is mani- 
 festly a tax paid by the employer, if it diminishes his 
 profits, or by the purchaser of the goods, if their cost of 
 production, and consequently their price, is raised. 
 Moreover, this rule, if universally enforced, would make 
 the whole body of labourers themselves its chief 
 victims. The price of every article they bought in 
 every shop would be higher. They would have taxed 
 themselves in order to give to others of their class what 
 they had not earned. Is this what the Unionists 
 intend ? By no means; their idea is that the tax would 
 be paid out of profits. But this lands them in the old 
 fallacy that sellers of labour who must sell to live can 
 make buyers, who are not compelled to buy, pay what 
 they choose. 
 
 Further, the policy of equal wages for good and in- 
 ferior workmen alike is open to a moral objection of 
 the greatest weight. It degrades labour by lowering 
 the tone of mind of the workman. The impulse which 
 throbs in a man's breast to make use of the faculties 
 with which he is endowed under the hope of the reward 
 which such efforts will bring is one of the most char- 
 acteristic and of the noblest instincts which the Creator 
 has implanted in the human race. To place weakness 
 and want of intelligence, much more laziness, absence 
 of self-respect and of the spirit to improve his condition 
 at the cost of effort, in one labourer, on a level with zeal 
 to make the best of himself for his own sake and that 
 of his family, with manly ambition to raise himself by
 
 TRADE UNIONS, 257 
 
 applying his faculties to the purposes for which they 
 were given, in another is to debase the quality of man- 
 hood, and to defeat the great ends for which this 
 superiority of gifts was bestowed. The Unions, by the 
 policy of the same wages for all, humiliate men by 
 training them not to look to their own selves for sup- 
 port, and to condescend to eke it out with what is 
 nothing else than alms. Were such a policy made to 
 prevail, nothing can be more certain than that the 
 energy of labour would be corrupted at the core, and 
 that the men who practised it must sink in vigour of 
 industry and in the wealth and civilisation which it 
 produces. The trade of such a country would be 
 doomed to wane away. 
 
 And then there is the cruel wrong inflicted on the 
 high-spirited and self-respecting labourer. Why should 
 he be restrained by force from obtaining that rise in the 
 world, that advance in his own calling, which he is eager 
 to earn by exertion ? His bodily and mental powers 
 are undeniably his own property ; why is he to be for- 
 bidden to listen to duty and conscience and legitimate 
 desire to turn these faculties to good account because 
 other men who are unlike him are resolved that he shall 
 be the enslaved companion of their idleness or their 
 weakness ? Are his feelings, his happiness and welfare 
 deserving of no regard ? And what would be now the 
 condition of mankind if this policy of the Union had 
 prevailed in the past and had succeeded in making the 
 strength of the feeble, and the moral tone of the lazy 
 and the careless, the measures of progress and its re- 
 wards ? Equality of wages is nothing short of a rebel- 
 lion against the laws of human nature, a revolution against 
 
 R
 
 258 TRADE UNIONS. 
 
 its constitution. It violates the fundamental prin- 
 ciple upon which the very conception of the word 
 wages depends, and upon which alone they can exist 
 liberty. 
 
 (c.) The same policy is often further carried out by 
 the order given to labourers not to exert themselves, 
 not to do their best, but to aim at performing little work. 
 This conduct is justified on two grounds. It will oblige 
 masters to employ more men for obtaining the same 
 amount of production ; and the diminution of goods made 
 will tend to raise prices, and thus secure a rise of wages. 
 A more deluded and mischievous proceeding cannot 
 easily be conceived. To compel masters to employ 
 more workmen than are needed is, as we previously 
 remarked, to enact a poor law for the support of the 
 superfluous workmen. Then it is an attack by force on 
 the profits of employers. If those profits are excessive, 
 it may be successful ; but there are better methods, in 
 the interest of the men themselves, for obtaining a portion 
 of those profits for the men than the degrading of the 
 efficiency of labour, and the lowering of the moral tone 
 of the labourer. But, in truth, it is seldom against 
 excessive profits that this policy is directed. It is 
 nothing less than war, in the expectation of cutting 
 down profits to the lowest minimum. Such conduct 
 forgets the keen competition amongst masters which 
 distinguishes modern industry. It mischievously di- 
 minishes the common fund, the quantity of wealth 
 produced, from which comes the prosperity of both 
 masters and men. It ruins the master's confidence in 
 the soundness of his business ; it impedes the accumu- 
 lation of fresh capital for the hiring of fresh labour ; and
 
 TRADE UNIONS. 259 
 
 it drives away existing capital to other trades and 
 foreign countries. The second reason alleged in favour 
 of this policy proves that it would be practised at the 
 cost of the very men whose interests it professes to 
 serve. If it is a sound principle the Unions are bound 
 to apply it to all trades, and the labourers will be 
 hoisted with their own petard. The wished-for rise in 
 the price of commodities will make everything that the 
 labourers buy dearer; they will lose with one hand what 
 they supposed they gained with the other. No pos- 
 sible advantage can come to them from acting in such 
 a manner, whilst there will always be the fatal results, less 
 wealth, a smaller stock of commodities, a poorer state of 
 the country, and injury to every one of its inhabitants. 
 It is a base and ignoble war aiming at no lofty end 
 killing the impulse to improve and to reach a higher 
 standard of feeling and civilisation and injuring the 
 whole community in the interest of the lazy, the low- 
 minded, and the soulless. 
 
 (d.} A fourth measure demanded by many Unions is 
 the abolition of payment by the piece. They complain 
 that piece-work is apt to be scamped, to be inferior in 
 quality to that produced by the man who is paid by the 
 day. The labourer is too eager to have plenty of surface 
 work to be measured ; he is rendered careless as to its 
 quality. Such language in the lips of men who claim 
 the same wages for the idle and inferior as for the good 
 and conscientious workman, thus treating the quality 
 of the work given as unimportant, is strange indeed. 
 Masters who, of their own choice, adopt this system of 
 wages are fully able to take care that goodness shall 
 not be disregarded. Then it is said that by piece-work
 
 260 TRADE UNIONS. 
 
 labourers are tempted to work overtime and thus to injure 
 their health. It is enough to reply that every labourer is 
 master of his own freedom in this matter, and he is 
 perfectly able, if he chooses, to protect himself against 
 his own cupidity. He does not require a Union for this. 
 No Union has ever been dreamed of to save barristers, 
 physicians, or literary men from an excess of voluntary 
 self-imposed labour. The reason alleged by the Trade 
 Unions is purely artificial. The real ground of their 
 dislike to piecework is that payment upon that system 
 is measured by the results of the labour, by its worth. 
 It leaves a career open to the able and energetic work- 
 man to rise above his fellows, and that is a thing 
 disliked by most leaders of Unions. Such a labourer 
 stands on his own resources, he is eagerly engaged by 
 his employer. He needs no help from others to obtain 
 his fair rights. He is a standing protest against the 
 policy pursued by Unions. 
 
 On this question of piecework Mr Brassey who 
 could speak with the highest authority made a most 
 emphatic declaration which, it is much to be hoped, that 
 his audience at the Trades Union Congress have 
 seriously pondered over. " It is because it is so impor- 
 tant to inspire workmen with the hope of bettering 
 their condition that I have always advocated the 
 principle of payment by results. My father entertained 
 the firmest convictions on this point. I know that many 
 trades' unions object to it on the ground that payment by 
 the piece leads to over-work and bad workmanship. The 
 answer to this is that whatever may be the particular 
 form of payment, whether it be by piecework, contract, 
 gratuities for extra diligence, or per centage upon
 
 TRADE UNIONS. 26 1 
 
 profits, it is essentially necessary to give to the workman 
 a personal motive for exertion." 
 
 Whether piecework is a system generally applicable 
 is a question wholly distinct from its merits when 
 applied. It is a matter which must be left to employers 
 of labour to decide. 
 
 The objection made by Unions to overtime is the same 
 in substance as that raised against piecework. It is the 
 individual workman, acting for himself that is disliked ; 
 and this all the more if he is a non-unionist. Men work- 
 ing overtime are a weapon in the hands of employers 
 wherewith to combat the Union. 
 
 (e.) That the number of apprentices taken by an em- 
 ployer shall be limited is a demand urged with great 
 vehemence and pertinacity by many leaders of Unions. 
 They seek to diminish competition against the labourers 
 already engaged in a trade. But what is this but the 
 institution of a monopoly ? And no truth is more 
 universally recognised, not only in political economy 
 but in all the commercial world, that monopolies are 
 most injurious to the public interest, to the welfare of 
 the whole people. This is an undisguised attempt to 
 raise wages artificially by reducing the number, not of 
 the whole body of labourers, but of a chosen few at the 
 expense of all the others. It creates a close labour 
 corporation very profitable to the men who belong to 
 the Union, but unjust and full of loss to all who do not. 
 They are excluded from the field of labour ; and what 
 they buy for their wants is made dearer. On what 
 principle can a prohibition on the employer not to give 
 teaching and work to as many labourers as his capital 
 will permit, and a deprivation of the labourer's natural
 
 262 TRADE UNIONS. 
 
 rights and liberty to lend his services to any man who 
 wishes to engage them and offers a reward which he is 
 ready to accept, be justified, except that of a cruel desire 
 to gratify personal selfishness by force ? Restriction 
 of apprentices attacks non-union workmen far more 
 seriously than it does the employer. It is a direct de- 
 claration of war against their personal liberty and their 
 right to govern their own conduct for themselves. " By 
 restricting the number of apprentices," The Financial 
 Reformer justly remarks : " Unionists deny to boys, 
 even their own children, the opportunity of learning a 
 trade and earning honest bread." 
 
 (/) A minimum wage, securing comfort and respecta- 
 bility for every labourer, has been the fond and natural 
 wish of many excellent and patriotic men. A fair day's 
 wage for a fair day's work the work and the wages to 
 be provided by an employer has been their cry, not 
 only in behalf of the man who has given the work and 
 ought to be properly rewarded, but also in behalf of the 
 man who can find no employer. No man of right feel- 
 ing could do otherwise than rejoice were such a con- 
 summation realised ; but, unhappily, it is nothing more 
 than a dream. It cannot be accomplished under the 
 laws imposed on human life. The labourer to whom no 
 master has work to give can be kept alive only by 
 charity. If that charity is granted by the State he is 
 supported by a tax levied on the community. He has 
 no connection of any kind with wages : he belongs to 
 the domain of a poor law. 
 
 But a minimum wage is demanded in a different sense 
 by Unions, and by many philanthropic writers. If men 
 are actually hired by an employer, he shall be bound to
 
 TRADE UNIONS. - 263 
 
 conform himself to a standard of payment below which 
 he shall never descend. " Our claim is simple," says " A 
 Striker" in the " North American Review." " We de- 
 mand fair wages. The reward of the workman shall 
 never sink below what a man, and a member of a highly 
 organised society, ought to receive." We may waive 
 here the formidable and endless question what is a fair 
 wage ? The answer would vary with every age, every 
 country, every district, every trade, every kind of ideas, 
 every form of feeling. But supposing the standard to 
 have been settled, who is to provide these necessaries 
 for every workman engaged ? The employer, is the 
 answer in the heart of every utterer of this sentiment, 
 whether from his own sense of propriety, or under com- 
 pulsion of law. But with what is the employer to be- 
 stow these indispensable comforts ? Let him be con- 
 tented with moderate profits, is the reply ; and if his 
 profits are excessive, the solution of the problem is not 
 impossible. If every master in the kingdom is reaping 
 too large profits, fair wages may be obtained by every 
 workman. Masters declare that competition already 
 extinguishes excess of profits, so severe and effective is 
 its action. If these profits are only moderate, and yet 
 every labourer must be brought up to the fitting standard 
 of wages and the proper mode of living, how is it to be 
 effected ? By adding to the price of the goods, when 
 made ; that is the only resource, if the employer's capital 
 is not to be eaten up and consumed. The process seems 
 simple. The consumer must pay more for what he buys; 
 he is the man who shall supply the workman with what 
 is needed for decency and reasonable comfort. But un- 
 luckily dear goods, when made dear by a decree, not of
 
 264 TRADE UNIONS. 
 
 facts or of prosperous trade, but of arbitrary ideas, 
 diminish buyers. Consumption is checked; fewer 
 goods are asked for, and fewer require to be manu- 
 factured, and fewer workmen are wanted. The fund 
 which the employer has now available for paying wages 
 is smaller ; he sells less ; he must discharge some of his 
 people. To those whom he employs he can allot the 
 required standard of living ; but what becomes of the 
 remainder for whom he has no work ? There is nothing 
 for them but the workhouse. 
 
 What was the great strike at Merthyr but an avowed 
 and determined effort to solve the problem of a minimum 
 wage ? The workmen pushed the experiment to its ut- 
 most extremity. They were told by the owners of the 
 great mines and works that the state of the trade would 
 not admit of the minimum wage demanded being 
 granted. They refused to believe the word of the em- 
 ployers. They asked to inspect their books, a demand 
 which was very naturally refused. But the masters gave 
 a distinct warning, that if the strike was pushed home, 
 they would furnish an overwhelming, but for them most 
 ruinous, test of the truth of their assertion that the busi- 
 ness could not endure such a rate of wages. They 
 answered that they would blow out their furnaces, 
 rendering the employment of the labourers for many 
 months thereby impossible. They would thereby inflict 
 enormous and abiding loss on themselves, but they had no 
 alternative. The workmen persevered to the bitter end. 
 The furnaces were put out of blast ; the works could 
 not be set in movement again for a long period of time ; 
 wages were hopelessly extinguished altogether, and an 
 enormous and most calamitous loss was inflicted on the
 
 TRADE UNIONS. 265 
 
 men, on the trade of a large district, on the dealers 
 of every kind who supplied the wants of the workmen, 
 and on their families. Stern, hard fact, the demonstration 
 furnished by the immense injury which the employers 
 felt compelled to bring upon themselves, if their capital 
 was to be saved, shewed that the minimum wage so re- 
 solutely put to the test of crucial experiment was im- 
 possible. 
 
 (g.) The considerations urged above apply with equal 
 force to the policy now proclaimed with so much vehe- 
 mence by Mr Macdonald, Mr George Potter, and other 
 leaders of Unions. There is over-production, they ex- 
 plain ; hence the prices of the goods made sink, and a 
 reduced wage becomes inevitable. Let the diminution 
 of wages be accepted in the form of a day or two taken 
 from work during the week ; but let the days on which 
 the work goes on be paid for at the previous rate of 
 wages, unchanged. The standard of wages will remain 
 intact, the principle of a high rate of remuneration will 
 be uninjured. When better days come round, the old 
 wage will assert itself, as formerly, over the whole 
 week. 
 
 9 
 
 The expression over-production is here misleading. 
 True, over-production occurs when more goods have 
 been actually made and finished than the market can 
 take off without a disastrous reduction of price; but 
 there is no over-production in this case, because the 
 policy advocated relates to goods not yet made. 
 
 There is a second and very grave form of over-pro- 
 duction, which frequently generates very disastrous con- 
 sequences. This over-production has been the main 
 cause Oi the commercial depression which has weighed
 
 266 TRADE UNIONS. 
 
 with so much loss and suffering on the world. It has 
 been the chief parent of the violent fluctuations in trade 
 which have agitated so painfully the market for labour, 
 and brought capitalists and labour into such lamentable 
 collision. This over-production is the excessive creation 
 of fixed capital, an unwarranted consumption of the 
 wealth of the nation in the construction of an amount 
 of machinery for producing, which the real state of trade 
 did not call for or justify. In the years immediately pre- 
 ceding 1873, an immense and unwonted prosperity of 
 trade was developed. Many industries were pushed 
 forward with extraordinary vigour. Large profits were 
 realised ; the demand for labour gathered unexampled 
 intensity ; wages, ever rising, were poured forth in 
 profusion, employers competing eagerly for labourers, 
 and attracting them with rewards gladly and liberally 
 given. It seemed as if trade had won a new and 
 permanent extension, and that the wonderful progress 
 it had exhibited in modern times was developing an 
 expansion still more astonishing. 
 
 The impulse of this movement was felt most strongly 
 in the iron and coal trades, above all in the con- 
 struction of railways. In the colonies, in England, 
 in many countries of the world, but most of all in 
 America, capital was applied, it may be said, with 
 passion to the making of these mighty and most pro- 
 ductive instruments of national wealth. They were 
 pushed into the wilderness, into regions where popu- 
 lation was still scanty, and could not, for a long space 
 of time, replace, from the working of the railways, 
 the destruction of wealth which their construction had 
 cost. Under this excitement, it was natural that
 
 TRADE UNIONS. 267 
 
 capitalists should multiply with energy the means for 
 gathering and increasing the rich harvest of profit. Iron 
 was in vehement demand. This acted powerfully on 
 coals. Fresh mines were opened in every quarter ; new 
 mills rose from the ground ; high prices were realised, 
 and workmen were keenly enlisted by iron masters and 
 owners of coal mines. Many branches of industry, con- 
 nected with the supplying of the wants of masters and 
 men, felt the movement onwards. Again more labourers 
 asked for higher wages from willing givers ; and in the 
 end the erection of machinery for making goods, the 
 investment of wealth in the creation of fixed capital, 
 was carried out on a scale never witnessed before in the 
 history of trade. 
 
 The extent to which inflation of fixed capital was 
 carried is excellently illustrated in Mr Brassy, M.P.'s 
 speech to the Trades Union Congress on September 
 20, 1877: "Sir Henry Barren's report on Belgium 
 in 1872 describes the condition of that country in 
 a period of unexampled prosperity. A great rise in 
 wages having occurred, the people became more reckless 
 with their prosperity, and there was an actual decrease 
 in the deposits in the savings banks. Pig-iron doubled 
 in value in six months ; but the prices of labour and 
 materials rose to such exorbitant heights as to absorb the 
 whole profits of the trade. The zinc, glass, and woollen 
 industries have passed through crises of equal severity. 
 In Germany, during the period of universal inflation, 
 between 1871 and 1872, wages were advanced not less 
 rapidly than in England. It was a period of immense 
 profits all round. The make of iron was increased from 
 1,500,000 tons in 1871 to 2,250,000 tons in 1872. In the
 
 268 TRADE UNIONS. 
 
 prices of coal and pig-iron there was an advance of 100 
 per cent. The rise of wages in all branches of trade was 
 37 per cent, over the average of former years, and the 
 prices of all the raw materials of industry were 50 per 
 cent, higher. Unhappily this great prosperity brought 
 about no permanent improvement in the condition of 
 the industrial classes. High wages and the large 
 profits of manufacturers caused a general rise in prices. 
 The cost of living was increased, and money was most 
 freely expended in intoxicating liquors." 
 
 But what was the process which was going on under- 
 neath the excitement ? The creation of poverty, 
 nothing less ; the destruction of wealth in the construc- 
 tion of the machine for working which was not restored 
 by fresh wealth produced. The nations were poorer, 
 the stock of wealth was diminished, labourers had 
 consumed vast quantities of food, clothing, and other 
 things, whilst raising the factories, and laying-out the 
 railways, and manufacturing their rails ; and there was 
 no fresh supply coming forth from the buildings and 
 the iron lines to replace what was gone. The power of 
 buying was soon largely reduced, for there were fewer 
 goods wherewith to buy. Profits fell or were ex- 
 tinguished, there were largely diminished means to 
 distribute in wages, labourers were in much slacker 
 demand, wages sank, and a whole sea of troubles neces- 
 sarily poured itself forth on paralysed and impoverished 
 industry. 
 
 Now it is most important to remark that this excited 
 and unwarranted destruction of wealth in excessive 
 investments on fixed capital, under a deluded belief that 
 this expansion of industry was solid and full of future
 
 TRADE UNIONS. 269 
 
 profit, was the doing of the capitalists. They never 
 gave a thought to the deep truth, that the pushing of 
 the construction of the instruments and tools of pro- 
 duction, of factories, mines, railways, and buildings, 
 beyond .what the savings of the county warranted, was 
 literally nothing else than destruction of wealth without 
 restoration by fresh wealth. They are, so far, responsible 
 for the terrible fluctuations in trade which have spread 
 so much misery over both masters and men. In this grave 
 matter the errors of the capitalists preceded those of 
 the Unions ; they developed the condition of industry 
 which so troubled the market for labour. Justice 
 demands that this fact should be asserted : whether the 
 Unions have dealt wisely with the positions of capitalists 
 and working-men thus generated is a separate question. 
 What should be clearly seen, in the interest of both 
 parties, is that capitalists can and have acted unintelli- 
 gently and mischievously with the trade which they 
 controlled, and to that extent they are distinctly 
 answerable for many of the sufferings which followed ; 
 and their fault is the heavier in proportion as their 
 higher education gave them greater facilities for dis- 
 cerning the path of prudence and good sense. 
 
 Both these forms of over-production express an 
 excess of goods actually made ; they end in heavy loss 
 on the sales of the goods which do not pay for what they 
 cost to produce. But the over-production of which the 
 Unions speak regards the future. Produce less is the 
 policy proclaimed by their leaders, go upon short time, 
 work one or two days a week less, but insist on being 
 paid for the days on which you work at your old rate of 
 wages unreduced. The expression, diminution of labour
 
 270 TRADE UNIONS. 
 
 would describe the process more correctly. Its aim is 
 to under-supply the market for the goods, to produce 
 less than what buyers will take off if there was a fall in 
 wages and a consequent reduction of the cost of pro- 
 duction and of price. Fewer goods will be made, the 
 purchasers too will be fewer, price still remaining too 
 high ; but the rate of wages will be unaltered, and when 
 better times set in, the full week's work will be obtained 
 at the old undiminished wage. But this policy is open to 
 two fatal objections. In the first place it means a still 
 heavier cost of production above the cost which is 
 already greater than the market can bear. The Union 
 leaders admit that by the advice they give the labourers 
 must receive less pay at the end of the week. The 
 necessity for submitting to this diminution of wages 
 springs from the state of the market, in which the price 
 realised for the goods will not repay the cost of 
 making them. Consumers do not come forward in 
 sufficient numbers to buy at a price which will prevent 
 the business from being a losing concern. The policy 
 recommended to the Unions says : " Then work for a 
 smaller number of purchasers only. There will be less to 
 distribute as wages, but that is inevitable ; but by this 
 system you will keep up the price and the present rate 
 of wages ; as time rolls on you will get full work at the 
 old pay." But this policy forgets the heavy increase of 
 charge which a single day's stoppage of production 
 inflicts on the employer. As was before shown, rent, 
 interest on capital (whether his own or borrowed), 
 superintendence, book-keeping, rates and taxes, the 
 working of the engine to pump up the water, all cost as 
 much as ever. This cost was borne by the full week's
 
 TRADE UNIONS. 271 
 
 work, and yet the business was conducted at a loss, and 
 a reduction of the money paid to the labourers is 
 acknowledged to be inevitable. Upon the proposed 
 system of diminished production, this increase of 
 charge falls on a smaller quantity of goods sold ; it is 
 consequently impossible but that a price which did not 
 cover the expenses of the employer must be further 
 increased. The necessary consequences would follow ; a 
 higher price for the goods, diminished sales, fewer men 
 wanted, a smaller sum divided as wages, and a far 
 heavier loss to the master on the working of the busi- 
 ness. Who can gain by such a process, who can fail 
 to lose ? 
 
 And now what would be the results of the opposite 
 method of proceeding ? The rate of wages would be 
 lowered, and the labourer would, at the week's end, 
 receive less; this diminution of wages is common to 
 both systems. But the price of the goods can be now 
 reduced, for the cost of production is smaller. Fresh 
 buyers come into the market who could not afford the 
 former price. The goods are sold in larger quantities, 
 the cost of production is met, and the business goes on 
 Even if the employer earns no profit, still if he can 
 escape loss, he continues on his operations in the hope 
 of a sounder state of trade. The public is enriched 
 with a larger stock of commodities ; the power of 
 buying is thereby increased. There is more exchange, 
 a real enlargement of trade, and steady progress 
 gained in overcoming the commercial depression. The 
 production of more wealth is the only real cure for the 
 v/aste which has destroyed it, and of the consequent 
 diminution of the ability to buy.
 
 272 TRADE UNIONS. 
 
 Secondly, the policy of diminished production in- 
 volves the false and impossible principle that a 
 minimum of wages can be continuously enforced by an 
 arbitrary decree of the labourers. Such a notion is 
 absolutely inconsistent with the position in the world 
 of labourers without capital. An article whose price is 
 too high for the power of the purchaser to buy it will 
 not be bought, and the employer will cease to produce 
 if the labourer insists on that price being maintained. 
 He will not go on with the business at a permanent 
 loss, he will not ask for labourers to hire. Wages, like 
 profits, are furnished by the buyers of the goods made 
 and by them alone ; if they cannot give the price 
 demanded, there is an end both of profit and wages. 
 A minimum of wages can be established in only one 
 possible way by a reduction of the numbers of the 
 labourers down to that point where there are still 
 purchasers at the price required for providing that mini- 
 mum. If the labourers are in earnest in obtaining any 
 given minimum, they must themselves see to the 
 diminution of their numbers : nothing else will procure 
 for them their end. 
 
 But in truth these feelings and ideas are the outcome 
 of a deeply seated unconsciousness of the nature of 
 wealth and of the source from which it is derived. It 
 is a painful discovery to find that the mass of mankind 
 do not understand the real character of the work from 
 which they derive the means of maintaining their exist- 
 ence. They fail to place before their minds one very 
 obvious yet pregnant truth, that all wealth, with excep- 
 tions too trifling to notice, consists of things made. The 
 income of the wage-receiver and that of the millionaire
 
 TRADE UNIONS. 273 
 
 is alike created by labour. There is nothing else to 
 divide and enjoy but what the labourers have produced. 
 If the labourers work energetically and with good will, 
 there will be many things for distribution and consump- 
 tion amongst the people. If the labourers work lazily, 
 and for unduly shortened periods, the result is as certain 
 as that a dropped stone falls to the ground, that the 
 population must stand on a lower level of living. But 
 there is a second force which works powerfully on 
 labour. What is made is consumed. It was created 
 for that very purpose. There are three relations 
 which consumption may bear towards production. 
 Men may use up and enjoy all that they produce 
 and no more. Their state will be stationary. Or, 
 secondly, they may produce more things than they 
 choose to destroy in enjoyment. They may save that 
 excess and they will grow richer. They may build 
 new factories, open fresh mines, construct additional 
 railways, drain more fields, and bring land into higher 
 cultivation by this creation of capital. They thus 
 ensure a solid increase of wealth in the future. Or, 
 thirdly, they may reverse the process and destroy more 
 than they produce. Their consumption of wealth may 
 be greater than its manufacture. The nation then 
 degrades; it becomes poorer. It will have shorter 
 supplies of all kinds for its people. Discomfort, want, 
 and suffering spread over the country. 
 
 These results and their causes are so obvious that 
 they may be justly called truisms, but Political Economy 
 is a subject in which truisms abound, and are of the 
 highest value. Yet it is this very third process which 
 leaders of Unions avowedly and deliberately pursue.
 
 274 TRADE UNIONS. 
 
 They order as little as possible to be made by the work- 
 men, and they demand that these workmen shall have 
 the same quantity of commodities, and even more, to 
 use up and consume. They command the degradation 
 of labour, and claim the same or even higher remunera- 
 tion for it. Let this policy be applied to every branch 
 of industry, and who can deny that this is a wilful sink- 
 ing into poverty. As Sir Edmund Beckett justly 
 remarks, "It follows as clearly as a result of the 
 multiplication table that if the world resolves to do 
 only half as much work as it can without overtaxing 
 men's strength, there will only be half as much wealth 
 produced as there might be, and therefore only half as 
 much to spend on hiring fresh labour. _And so there is 
 an increasing population wanting food and clothing and 
 houses, and those who can get them are mostly eating 
 and drinking and using as much as they can, and yet 
 doing only half as much as they could do and used 
 to do for man to procure it. It is evident what must 
 be the ultimate and general consequence of that, how- 
 ever it may be postponed or concealed in certain places, 
 or for a time." To insist on high wages for little work, 
 and by their help to empty the shops whose stores are 
 not replenished is to march to national distress and to 
 involve the labourers themselves who practise this 
 policy in ruin. 
 
 The Unionists, it cannot be doubted, are in part 
 blinded by money. They receive their wages in money. 
 They imagine that the richer classes have always plenty 
 of money, and that all they have to do is to make this 
 money converge into their own pockets. They stop in 
 thought at money; they analyse no further. It does
 
 TRADE UNIONS. 275 
 
 not occur to them that whether times are good or bad, 
 wages high or low, the quantity of money in the country 
 is always much the same. Still less do they perceive 
 that money is not the real thing which buys, and that 
 no one can procure money except he first purchases it 
 with goods. The things which buy and give wages are 
 always the articles produced ; nothing else purchases 
 but that. The wage which is placed in the hands of 
 the labourer in the shape of money was obtained in 
 every case by goods made and sold. Hence it is per- 
 fectly certain that if the stock of things made is smaller 
 there will be less wherewith to buy money to be dis- 
 tributed as wages; there will be fewer things to eat, 
 drink, and enjoy for the whole population. Thus the 
 policy which orders workmen to produce little or inferior 
 work and demands the same quantity of things to con- 
 sume for the idle and inferior workman as for the efficient 
 labourer makes the stock of wealth smaller, and 
 directly attacks the well-being of every class in the 
 community. 
 
 (h.} One rule more, laid down by many Unions, 
 remains to be noticed. They refuse to work with non- 
 union men. They claim a monopoly of employment 
 for members of their Union. An independent man, 
 exercising his natural right to freedom in contracting to 
 labour for an employer, and performing his contract in 
 an honest and manly spirit, is unendurable to these 
 Unionists. He takes no heed of the commands of the 
 Union leaders ; he works vigorously by the side of men 
 ordered to dawdle. Such men prevent the factory and 
 the mine from belonging to the Union. They refuse to 
 be dictated to ; they enter the employer's business on
 
 2j6 TRADE UNIONS. 
 
 the natural basis of freedom of contract. The fun- 
 damental principle of Unions is thus violated. Their 
 orders are not obeyed over the works. A man 
 who thus bargains directly with his employer is 
 called a black. Every kind of abuse and intimidation 
 is applied to get rid of him. If he persists in standing 
 on his independence, his Unionist fellow-workmen 
 strike, compulsion being brought upon the employer to 
 send away every workman who will not enrol himself 
 in the Union and obey its commands. Some years ago, 
 the labourers in a coal mine belonging to Lord Fitz- 
 william refused to work with a non-unionist, and came 
 out of the mine to compel the proprietor to expel the 
 free workman. Lord Fitzwilliam resisted the dictation 
 of the Union, and refused to part with the independent 
 labourer. He closed the mine. For this act he was 
 censured in many quarters. He was charged with an 
 arbitrary exercise of the rights of property. The mine 
 was proclaimed to be a source of wealth which the 
 public was entitled to demand should be worked for the 
 general good. Such a judgment was erroneous and 
 unjust. Lord Fitzwilliam, on the contrary, merited 
 admiration for an act of high and intelligent patriotism. 
 He gave up a large income in order to uphold the vital 
 principle of liberty for every man to dispose of his 
 person and his labour. 
 
 Freedom of opinion and judgment is itself the only 
 foundation of the right of Unions to act at all. As 
 Mr Gladstone remarked in the case of the Aston 
 Hall Colliery in 1874, "Lord Fitzwilliam would have 
 committed a mean and dishonourable act if he had 
 turned out that one man. Instead of doing that he
 
 TRADE UNIONS. 277 
 
 performed a noble deed in behalf of the whole nation, 
 and most of all in behalf of the working classes 
 themselves. He repelled a tyranny as cruel as it 
 was irresponsible a tyranny which if successful would 
 have converted the workmen of England into slaves. 
 To subject the labourers of a nation to the absolute and 
 irresponsible rule of leaders of Unions would be the 
 worst and most disastrous form which despotism could 
 assume." With reference to the Aston Hall Colliery 
 case, Mr Gladstone adds: "But these men, though 
 there were only four, had as good a right to form 
 an opinion as to the value of their labour that the 
 majority had, and if we have come in this country 
 to the day when the majority shall endeavour to put 
 down the minority and refuse freedom of opinion to 
 those who are fewer in numbers, in my opinion the 
 country will be one of which I should say the sooner 
 we get out of it the better." * 
 
 (i.) We come now to the machinery by which labourers 
 in combination endeavour to accomplish their ends. 
 
 * The Engineer mentions a case which gives a striking instance of the 
 course which Union leaders will sometimes take. 
 
 "The men were paid off and at a considerable saving to the firm, the 
 Chillington Iron Company, Wolverhampton. A neighbouring boiler- 
 maker undertook to do the work by contract. Unable to get work one 
 set of the discharged men risked the Union and offering themselves for 
 re-engagement on their employers' terms were taken on again. There- 
 upon the district committee informs the delinquents that they are fined 
 2, IDS. each, IDS. ' for using your influence to obtain employment for a 
 non-member, and 2 for going to work against the council's orders, other- 
 wise than on the nine hours system." To this polite intimation the following 
 is annexed : ' And in addition to this you are requested to give in your 
 notice to leave the shop as soon as you resume work. Should you refuse 
 to do so you will be expelled the society.'" 
 
 The men would thus be stripped of all the subscriptions which they had 
 paid, probably for years, to the Union as a benefit society. What 
 tyrannical despot could surpass the spirit of such conduct ?
 
 278 TRADE UNIONS. 
 
 The chief instrument is the organisation called a Trades 
 Union supported by funds contributed by members and 
 led by an executive committee. This committee is the 
 guide of its policy, from which there is an appeal, rarely 
 exercised, to the vote of all the members. The Union 
 is not an association formed for the purpose of control- 
 ling wages, and regulating the relations between em- 
 ployers and workmen. It has an entirely different 
 origin, and this fact endows it with large resources de- 
 rived from subscriptions constantly streaming in for 
 objects unconnected with trade. A Union is in theory a 
 benefit society, instituted to provide help in sickness or 
 under accidents, or in old age, or for burial. The appli- 
 cation of these subscriptions to the support of contests 
 against employers seems a perversion of money given 
 for one purpose to another and wholly different one 
 which admits of no justification. It places a great 
 power of coercion in the hands of Union leaders which 
 is often oppressively used. Labourers who are desirous 
 of remaining at work on the terms offered by employers 
 are often driven into strikes with their attendant suffer- 
 ings against their will, because otherwise they would be 
 expelled from the society, and thereby forfeit those 
 claims for allowances which they had bought with a 
 long course of subscriptions. I am unable to under- 
 stand how the Legislature has abstained from applying 
 a principle to these societies which it has enforced on 
 Joint Stock companies for the protection of their share- 
 holders. It forbids the funds of the company to be 
 applied to any other objects that those covered by the 
 articles of association ; money subscribed for one pur- 
 pose cannot be appropriated to another. Why should
 
 TRADE UNIONS. 279 
 
 not the same just and natural rule be imposed on the 
 application of the funds against principle seized upon 
 by Unions? Why should men be deprived of the 
 liberty of working as they please by the seizure of their 
 own money, which they gave for a distinct and admitted 
 object ? The wrong committed is all the more to be 
 deprecated in that it attacks the one virtue which it is 
 of the highest social and national importance to develop 
 in the working classes thrift and saving. By all means 
 let men be free to subscribe to Trade Unions, and let 
 those funds be placed, if they so choose, at the disposal of 
 their leaders ; but money subscribed for other purposes, 
 so nationally important, should be sacred in the eyes of 
 the law. " Leave your work and come out on strike and 
 idleness, with scanty fare and much misery to your 
 families, or we shall take away from you benefits which 
 you have been paying for during many years," is lan- 
 guage which, as it seems to me, the Legislature is called 
 upon to -forbid peremptorily to be addressed to free 
 men. 
 
 In demanding a rise of wages or resisting those pro- 
 posed by the employers, the Unions occasionally con- 
 sent to refer the dispute to a Board of Conciliation, a 
 kind of friendly body interposed between the disputants, 
 or to a Board of Arbitration, composed of equal num- 
 bers of representatives of both the parties, with an 
 independent umpire, who is the real arbitrator. Unfor- 
 tunately, it often happens that his verdict is repudiated 
 by the men ; hence this preliminary diplomacy has often 
 a strong flavour of unreality. And not only so, but as 
 a writer on the " Three Extreme Ideals " in the " Quar- 
 terly " has remarked, " The artisan classes of this
 
 280 TRADE UNIONS. 
 
 country think that Trade Unions or arbitration can 
 supply the place of the directing mind in some of the 
 most important points connected with the manufactur- 
 ing business : a profound mistake. Trade Unions and 
 arbitration between them are doing very much to 
 destroy that intelligence which ought to direct the com- 
 merce and manufactures of the country." 
 
 What is relied upon is battle, and its great weapon the 
 strike. Yet before having recourse to war, it would be well 
 if labourers would reflect on the extremely moderate rate 
 of reward which capital is proved to obtain in England 
 in the form of interest on English investments. " The 
 fact," Mr Brassey points out, "that debenture stocks 
 bearing only 4 per cent, interest can be issued by our 
 railway companies at the rate of 16,000,000 a year must 
 be a positive proof to the working classes that they are 
 not overcharged for the use of capital. More conclusive 
 evidence yet may be given of this fact. The Bank rate 
 of interest for each year since 1867 has been as follows: 
 2|, 2|, 3|, 3^, 2|, 4, 4f , 3f, 3^, and 2| per cent. If the 
 secure profits of business had been greatly in excess of 
 the Bank-rate, there would have been less money on 
 deposit, and higher rates would have been charged for 
 banking accommodation." Such instructive facts fur- 
 nish a heavy presumption against the justifiableness of 
 so violent a proceeding as a strike. 
 
 Unhappily for England's welfare, the strike always 
 underlies discussions between masters and men. The 
 employers, on their side, require an arm wherewith to 
 fight ; and that arm is the lock-out. The Union leaders 
 order every unionist to cease working; the lock-out closes 
 all the workshops and factories in the district. It is com-
 
 TRADE UNIONS. 281 
 
 monly called forth by a policy frequently adopted by the 
 Union, of withdrawing the workmen from a particular 
 firm, who are then supported by contributions from the 
 Unionists still allowed to work elsewhere. Now war 
 and battle are obviously coarse and violent methods for 
 trying to ascertain what is the true value of labour in 
 the market. There is no investigation or reasoning in 
 such a process ; it is a pure trial of strength. Every 
 labourer undoubtedly is entitled not to work when he 
 so chooses ; but one thing he cannot do, even in com- 
 bination with all his fellow-workmen : they cannot alter 
 their real position in the world. No struggle or strike 
 can leave them other than men who must obtain the 
 means of support from employers who possess the capi- 
 tal which is to feed and clothe them, and who invest 
 that capital in a business with the one, sole, and neces- 
 sary motive of earning an adequate profit from it for 
 themselves. To try to force down profit to a lower 
 level than it will bear can have no other issue for the 
 Unionists than surrender or emigration. No combina- 
 tion of men can alter the essence of all trade or over- 
 ride its inexorable laws. No strike can force up wages 
 when trade is bad and labourers are in excess and not 
 wanted ; nor can a lock-out trample down wages when 
 business is thriving, and labourers are scarce for em- 
 ployers eager to win profits. 
 
 Besides the suffering which a war of strikes inflicts on 
 the combatants, it creates other wrongs of the most 
 grievous kinds. We have seen how it compels many 
 of the Unionists themselves to give up work and wages 
 against their own inclination ; but there is also the 
 further hardship that strikes have a tendency to deprive
 
 282 TRADE UNIONS. 
 
 many innocent labourers, who work in connection with 
 the strikers, of their livelihood. It is one of the most 
 distinguishing characteristics of modern industry that 
 many groups of separate workmen contribute their 
 services to the common result, the article made. 
 A great strike in the coal mines may bring thou- 
 sands of iron-workers, ship-builders, a strike of masons, 
 many hodmen and carpenters, a strike of bolt-makers 
 many platelayers, to destitution. Such a result ought 
 to awaken a deep sense of responsibility in Union 
 leaders who order a strike. The injury propagates 
 itself over the small shopkeepers, who are stripped 
 of customers and are unable to procure payment, of 
 their shop-debts. The ruin spreads itself over the 
 population of a large district, as was recently seen in 
 South Wales. And then there is the loss inflicted on 
 the whole people by the serious diminution of its capi- 
 tal. The strikers and their families are kept alive ; 
 they consume wealth and do not replace it by fresh 
 wealth made ; and this impoverishing process may go 
 on for long periods of time. 
 
 The evil consequences of a strike may take a yet 
 wider range. It may drive away the trade altogether 
 from the locality. The temper of the strikers may be 
 such as to extinguish all hope in the employers of carry- 
 ing on their business with that peace and confidence 
 which are essential to success. A strike not many 
 years ago transferred the business of shipbuilding from 
 the Thames to other quarters; and ominous sounds 
 were heard of a revival of that business in America, 
 created by the war of the shipwrights against the ship- 
 builders of the Clyde. 1 It is not merely the men who
 
 TRADE UNIONS. 283 
 
 struck who were injured by such an event ; the blow 
 falls, with great severity of suffering, on the population 
 of the whole district. 
 
 To these calamitous occurrences must be added 
 refusals to work with Non-Unionists, and such violent 
 deeds as picketing and other outrages committed upon 
 men who do absolutely nothing more than practise that 
 liberty on which the Unionists take their stand the 
 right of free men of affixing their own terms on their 
 own labour. Such acts are the atrocities which are 
 natural to all war, but which make every right-minded 
 man regard war as a terrible evil. Is war the natural, 
 the only way of determining the true value of an article 
 for sale in a market ? Must all these sufferings and 
 wrongs be voluntarily incurred or unfeelingly inflicted 
 on the sole possible plea of procuring for every labourer 
 the wages which are his due in the actual circumstances 
 of the trade to which he belongs ? 
 
 The world has seen, with pain, striking pushed in the 
 United States to civil war, to seizure of railways by 
 armed bodies of workmen, and even to real battle, with 
 guns, fighting, and slaughter. The following remarks 
 from "The Public" of New York of August 2, 1877, 
 express with just severity the moral judgment to be 
 passed on such actions : 
 
 " Thus the whole question narrows itself to this : Are 
 other men able and willing to perform the service at 
 the lower wages offered ? If not, the fireman or the 
 brakesman is warranted in demanding his price. If so, 
 in demanding more money from society than his 
 service is actually worth, he is merely trying to plunder 
 society. And if his demand, thus in excess of the cost
 
 284 TRADE UNIONS. 
 
 at which others are ready to render the same service, is 
 enforced by threats or force, he is no longer a railroad 
 man, but a highwayman, whose mode of living is to 
 present the revolver to surprised travellers, and to cry, 
 ' Stand and deliver.' 
 
 "Now the main question, and, as we see, the only 
 question affecting the justice of the striker has been 
 settled by the strikers themselves, and in the most con- 
 clusive manner. They proved that other men were 
 ready to take their places, and that they knew it when 
 they resorted to force. If there had been any doubt in 
 their minds, they would not have challenged all civilised 
 society by defiance of law. At the outset, they were 
 convinced that others were ready, or they would not 
 have affronted public opinion by declaring in the 
 language of resolutions adopted at several places, ' but 
 we shall not let other men take our places.' Exactly the 
 same fatal admission was made, in deeds more emphatic 
 than any words, when new men were threatened with 
 death, or pulled from trains, or met with stones or 
 bullets. ' Other men shall not have our places ' was 
 the universal language of the strike. But it everywhere 
 implied an absolute consciousness that other men were 
 ready and willing. 
 
 " This question settled beyond dispute by the acts of 
 the strikers themselves, what follows ? They were try- 
 ing to extort wages to which, in the present state of the 
 labour market, they were not entitled. They were try- 
 ing, in short, to take something which did not belong 
 to them from the whole community and from other 
 labourers. Calling the thing fine names did not change 
 its nature. Loud talk about the rights of labour, in this
 
 TRADE UNIONS. 285 
 
 connection is merely impudent and fraudulent. Labour 
 has no right to rob other labour. Nobody has any 
 business to drive another unemployed and starving man 
 from work because he will not take the job himself. 
 Every man who thinks his work worth more than is 
 offered has a right to go elsewhere with it, as a capitalist 
 goes elsewhere when some one will not pay the price 
 demanded for his stock. But the capitalist who lifts 
 his cudgel or levels his revolver to frighten or force 
 somebody to buying his stock is a thief. What are 
 they who try to frighten or force any one to buy their 
 labour at their own price ? " 
 
 To this we may add the vivid exclamation of the 
 " Financial Reformer " as to what takes place in 
 England also. 
 
 "The authority, despotic and irresponsible, of the 
 committees is something astounding, and we must say, 
 simply dreadful. Imagine a man from Northumber- 
 land going down into Glamorganshire, and ordering 
 some sixty thousand well paid and contented workers 
 to strike because further demands are refused, and 
 condemning a whole county to suffer starvation and 
 pauperism, to assert the power and dignity of some 
 Miners' Union in the North, and being obeyed too ! 
 Why, if Queen and Parliament attempted such 
 monstrous tyranny, it would raise a rebellion." 
 
 And now, what is the success recorded of the strike 
 method of bargaining ? Long experience and the stern 
 facts of history reply that the defeats of strikes are 
 incomparably more numerous than their victories, that 
 they fail in most cases to determine the rate of wages 
 which, not the greed of employers, but the state of
 
 286 TRADE UNIONS. 
 
 trade will bear. The judgment of reflecting men, whose 
 good will towards the working class is beyond dispute, 
 declares that strikes do not, for the most part, win the 
 objects for which recourse has been had to them. No 
 other result could have been expected. Strikes are the 
 acts of ignorant, suspicious, and hostile men. Such a 
 mood of mind is not likely to be accompanied by a 
 thoughtful and intelligent examination of the factors 
 of the problem. Such men prefer battle. They know 
 that they lack the information which alone can lead 
 them to the right conclusion. In their distrust of their 
 employers, they refuse to seek from them such know- 
 ledge as they can give, or to believe in it when frankly 
 given. To such a length is this temper of mind carried, 
 that even the clearest proof that the employers are unable 
 to continue the business on the wages demanded makes 
 no impression on their minds or conduct. In the great 
 strike of South Wales, as was remarked above, the work- 
 men were distinctly warned that if they refused to accept 
 the wages offered the furnaces would be thrown out of 
 blast. Such a menace would prevent the works from 
 being resumed for months after the restoration of peace, 
 and would inflict enormous loss on the employers. How 
 could the masters more unmistakeably show that the 
 business must cease if the Unionists persisted in their 
 demand ? They refused to yield even to such evidence, 
 and fearful sufferings fell on a large population. After 
 such an example of the management of the labour 
 market by Unions, who will say that a strike is the 
 proper method for ascertaining the wage which the 
 labourer is entitled to receive, and the master can afford 
 and is bound to give ?
 
 TRADE UNIONS. 287 
 
 If we wish to learn what strikes cost, let us listen to 
 Professor Leone Levi. " In 1834 the workmen in the 
 Staffordshire potteries struck for an advance of wages, 
 and after fifteen weeks the masters yielded. Elated by 
 their success, however, the men thought that they could 
 demand more, and so two years after they struck for a 
 diminution in the hours of labour and a restriction in 
 the number of apprentices. But the masters were not 
 so ready now to make concessions. They united to- 
 gether, and they decided to suspend their manufacture 
 whenever the workmen struck to any master. The 
 strike was an utter failure, though it cost the men 
 180,000. What was gained on the previous occasion 
 was more than lost two years after. In 1853 a great 
 strike took place at Preston for higher wages which were 
 unconditionally demanded. The masters made some 
 concessions, but these were indignantly refused. So the 
 mills were closed, 18,000 hands were rendered inopera- 
 tive, and after a lengthened struggle, in which the men 
 spent 100,000, submission became unavoidable. A 
 few strikes have proved successful, but many more have 
 utterly failed. Not many years ago seven distinct 
 strikes took place in Lancashire ; every one of them 
 was unsuccessful. They involved the loss of employment 
 to 38,000 hands. They lasted a long time, one thirty 
 weeks, another fifty weeks, and together they produced 
 a loss in wages of 757,000, and if you add to that sum 
 the profit on capital and the subscriptions at a fourth of 
 the wages, the total loss exceeded 1,000,000. In the 
 recent unhappy strike in South Wales nearly 12,000 
 workers stood out against a reduction of wages, and 
 upwards of 3,000,000 of wages were actually lost in
 
 288 TRADE UNIONS. 
 
 the contest. Did they succeed ? far from it. They re- 
 fused to accept a reduction of ten per cent, yet eventually 
 they were compelled by the force of events to re-enter 
 work at a reduction of \2\ per cent." 
 
 "Supposing, however, that you do succeed in the 
 contest. Remember that you will have to work a 
 long time at the higher wages before you can recover 
 what you have lost by forfeiting the entire amount 
 week by week. Suppose you strike for five shillings 
 more wages, or for one shilling more in every pound, 
 Dr Watt made a calculation to shew in how long 
 a time you will get back what you had before. A 
 week is two per cent, of a working year, or two per 
 cent, of the wages of one year. Let the strike succeed, 
 and you will require il year, at the increased rate, to 
 make up for a month's wages lost; 35 years to makeup 
 for two months' wages lost ; 4! years to make up for 
 three months' wages lost ; 9! years to make up for six 
 months' wages lost ; and 20 years to make up for twelve 
 months' wages lost." 
 
 Another more recent example of the same fearful 
 loss and consequent suffering to thousands of men 
 and their families is furnished by the late Clyde 
 strike and lock-out. " The chairman of the Greenock 
 Provident Bank stated at a meeting of the share 
 holders that 312,000 had been lost in wages dur- 
 ing the strike and lock-out, while 156,000 had been 
 spent by the Trades Unions to support the men." Yet 
 the strike was an entire failure. In an elaborate judg- 
 ment, the arbitrator, Lord Moncreiff, gave his award 
 against the strikers. 
 
 When a successful strike entails such sacrifices, what
 
 TRADE UNIONS. 289 
 
 must be thought of the many unsuccessful ones, and of 
 the policy of making them the machinery for discovering 
 the right rate of wage ? 
 
 On the other hand it must not be supposed that the 
 masters are always in the right. A lock-out, or a closing 
 of all the works in the district, is a natural and justifiable 
 act, when the employers are attacked in detail, the men 
 at one factory or two striking, and being maintained by 
 subscriptions from the others who remain at work. 
 Such strategy on the part of the Unionists naturally 
 calls forth a counter -move. But the successful strikes, 
 few though they be, and the numerous concessions 
 obtained from masters by the threat of a strike, suffi- 
 ciently establish that at times the men were justified in 
 arguing that the profits of the business would bear a rise 
 of wages. There is moreover a special irritant in the 
 nature of many trades of which farming exhibits the 
 most familiar example. A fine season will bring a 
 plentiful harvest and handsome profit ; excess of rain 
 may make the year's working result in a loss. The far- 
 mer must conduct his business on the basis of an aver- 
 age; so must many a manufacturer. They are not likely 
 to meet their workmen in the best of humours, when the 
 principle is pressed upon them rigorously that a rise 
 of profit must be followed by an immediate rise of wages. 
 This takes away from them the surplus of the good time 
 which is needed to meet the deficiency of the bad ; a 
 fair average profit thus becomes impossible. They 
 are involved in a loss which the labourers in the hour of 
 prosperity fail to perceive and to acknowledge. The 
 employer resists, and the strike follows, and both sides feel 
 that a distinct wrong has been done them by the other. 
 
 T
 
 2QO TRADE UNIONS. 
 
 But if war and strikes are an unsatisfactory method 
 of ascertaining the just rate of wages, what remedy can 
 be devised for dealing with those complications in the 
 sale of labour which affect so deeply the interests of the 
 whole nation ? It has been the hope of many able men 
 that co-operation would provide the much desired solu- 
 tion. I regret sincerely that I am unable to partake in 
 this hope. One form of co-operation has proved 
 eminently successful. In many localities, working men 
 *n large numbers have made small contributions of 
 capital for co-operative stores, at which the contributors 
 supply their wants with commodities of excellent quality 
 at very moderate, or rather at wholesale prices. But 
 such stores merely suppress one intermediate dealer be- 
 tween producers and consumers. They get rid of the 
 shopkeeper and of the profit which he must necessarily 
 charge. The owners of the store are assured purchasers 
 of the goods sold, for the store is nothing but an agency 
 for collecting articles that are wanted and must be 
 bought from the makers direct, or from the great whole- 
 sale dealers. This is a very easy matter, requiring no 
 exceptional skill, and exposed to very small risk ; for 
 the articles dealt in are in daily use by the co- 
 operators. 
 
 Co-operation in production is a radically different 
 thing ; a large capital is required in almost every case. 
 The risks at times are unavoidably large, and the co- 
 operators must be able to bear them. Great skill, 
 judgment, energy, and zeal, are necessary in the man- 
 agement of the business for success, and managers 
 possessed of these qualities and to be relied upon for 
 their constant application to its guidance are most
 
 TRADE UNIONS. 29 1 
 
 difficult to find. Managers cannot be expected to be a 
 match for the incessant vigilance, the ungrudging 
 devotion of thought and time, the eagerness to intro- 
 duce improvements, the willingness to encounter the 
 expense which they will cost, which are every day 
 brought to bear on business by men stimulated by the 
 profound feeling that its responsibilities and its rewards 
 are their own. " The knowledge that he will gain what 
 is gained, and that he will lose what is lost, is essential to 
 the temper of the man of business," most justly remarks 
 Professor Walker. The labouring classes as yet have 
 exhibited no sign of accumulating any important 
 amount of capital by saving ; and when one of them is 
 conscious of ability, and is resolved to exert it, arid rises 
 by his efforts and gradually acquires property, his eyes 
 are directed to becoming himself an employer, to his 
 owning a business and building up a fortune. There 
 are many labouring men in England who yearly 
 achieve this success, but very few of them show any 
 disposition to associate with men still labourers in con- 
 ducting a common enterprise as joint-owners. The 
 experiment of giving labourers a per centage on the 
 profits of the business has been tried with occasional 
 success, but as a general system it is shipwrecked on 
 the fatal difficulty, that employers discover that they 
 cannot afford to grant shares of profit to men who are 
 incapable of bearing their shares of the losses. Viewed 
 as a general system, co-operation does not appear to 
 me to offer any solid promise of becoming the founda- 
 tion of the relations of capital to labour. 
 
 There remains then the one true and reliable resource 
 the establishment of mutual trust and good-will
 
 2Q2 TRADE UNIONS. 
 
 between the buyers and the sellers in the great market 
 of labour. Both need to perceive thoroughly the real 
 harmony of their several interests, and to feel resolved 
 to give effect to that harmony. There are considerable 
 difficulties against the accomplishment of this result, but 
 they are not insuperable. Justice demands that it 
 should be acknowledged that in modern trade employ- 
 ers have made a greater advance in performing the 
 part which belongs to them than workmen. They are 
 better educated, and, as a class, more intelligent. They 
 are steadily falling more and more under the force of 
 severe competition, and this renders them more quick 
 in recognising the value to them of good workmen 
 than the workmen are in prizing a good master. The 
 great reluctance of masters to parting with a body of 
 valuable labourers, even when not only no profit is 
 being earned, but where actual loss is incurred, is 
 notorious. It cannot be said with truth of them gener- 
 ally, that they try to beat down wages, or that they are 
 unwilling to pay well for efficient work when trade is 
 steady ; trouble begins only when fluctuations in the 
 business arise. On the other hand, the admirable 
 manner with which the workmen of the north of 
 England bore the distress of the cotton famine furnishes 
 a striking illustration of the good feeling and good 
 sense of which the British workman is capable, when he 
 thoroughly understands the nature of the situation in 
 which he finds himself. We are thus led to perceive 
 the imperative want of the present hour. Machinery is 
 sorely needed to help the working classes to understand 
 the real character of the work on which they spend 
 their lives. The subject is not above their powers of
 
 TRADE UNIONS. 293 
 
 comprehension, very far indeed from it Industry and 
 trade, their nature and their laws, are matters which 
 require only simple and clear discussion to be under- 
 stood by ordinary workmen. But they must not be 
 told that they must study Political Economy: the 
 scientific jargon with which it has been smothered has 
 ruined its authority for the labouring classes and for 
 many others also. But the natural processes of which 
 it speaks can be explained in language which the 
 intelligence of an uneducated man can be brought 
 readily to understand. From this quarter must resources 
 be sought wherewith to combat the sophistry, the mis- 
 chievous theories of leaders of Unions. 
 
 When such a foundation has been laid, the growth of 
 such instruments for examining the ever-varying condi- 
 tions of trade as boards of conciliation and arbitration, 
 or other similar institutions, may be looked forward to 
 with hope. They are difficult to develope into efficient 
 working at the present day, because the minds of 
 labourers are too unenlightened, and consequently lie 
 at the mercy of the plausible but perverse doctrines of 
 men who feel small inclination to master the really 
 simple matters on which they claim to guide their 
 Unions. A little plain schooling, if only they can be 
 persuaded to take to it, is the greatest want of the 
 working classes. 
 
 An appeal must be made to their intelligence ; they 
 need to be taught to perceive that there is something 
 more salutary for their own abiding interests than 
 perpetual recourse to the weapon of force, the strike. 
 The task is not a hopeless one. The facts of the situa- 
 tion, I repeat, lie in a small compass, and they are
 
 294 TRADE UNIONS. 
 
 capable of being easily understood. To provide a ma- 
 chinery which shall enable both parties to comprehend 
 the realities of their respective positions in the world, 
 and upon such knowledge to build up mutual con- 
 fidence, mutual desire to act honestly, each by the 
 other, as the surest way of promoting their own par- 
 ticular advantage, is the highest and most urgent call 
 upon the civilisation of our age. Such good-will is not 
 altogether unknown in the world. It has frequently 
 been found in many a farmer and his labourers. His 
 men often give a zealous day's work for a fair day's 
 wage, because they have thoroughly perceived that 
 from the crops alone their own reward must come, and 
 the farmer is liberal and acts well by his men. On 
 many a farm at the present hour, under the influence of 
 more skill and capital applied to the industry and 
 ampler wages willingly given for better work, this 
 friendly relation flourishes in full vigour. The enor- 
 mous masses of the artizans oppose greater difficulties 
 to the establishment of such a relation between masters 
 and men. But there dwells in the breast of the English 
 artizan a power of intelligence on which sure reliance 
 may be placed, if only it is brought fairly into action. 
 Frankness and sincerity are the paramount conditions 
 for the substitution of respect and confidence for war. 
 The masters must disclose all practicable information 
 as to the state of the business, and the men be willing 
 to accept the consequences involved in that state. I 
 am unwilling to believe that human nature is incapable 
 of dealing with an inevitable problem of such trans- 
 cendant importance. 
 
 The manner in which the strike of shipbuilders on
 
 TRADE UNIONS. 295 
 
 the Clyde was settled warrants the hope that arbitra- 
 tion may achieve greater progress, as also it furnishes a 
 model of the method to be pursued. An arbitrator 
 capable of inspiring entire confidence on both sides was 
 chosen ; the facts of the situation were distinctly 
 admitted and laid before Lord Moncreiff for judgment 
 On this excellent foundation he pronounced an elabor- 
 ately reasoned and, as to the manner of dealing with 
 the problem, truly admirable award. The verdict went 
 against the strikers ; they accepted it in a most praise- 
 worthy spirit ; and thus, a long and ruinous struggle 
 was brought to a peaceful end. 
 
 It is not an illusion, we may reasonably hope, to be- 
 lieve that in this great sphere of action, it is open to the 
 ministers of religion to render an invaluable service to 
 their country. They can approach the labouring classes 
 more closely than any other body of men can. They 
 can win their confidence; be treated as friendly advisers, 
 sincerely disposed to obtain for the workmen their 
 highest due. Plain and oft-repeated explanations of 
 the nature of all industry, and of the facts on which it 
 reposes, could not fail to tell on the minds of many 
 hearers. None can show with greater effect that 
 employers and labourers are joint, and ought to be 
 harmonious co-operators in one common work. When 
 investigation has furnished the requisite evidence, the 
 clergy may point out to the grasping capitalist that he 
 is injuring himself by injuring his men. Still more, they 
 can proclaim the great name of justice. On the other 
 hand they can make the workmen feel that the business 
 is being conducted at a loss, and that this is a proceed- 
 ing which must come to an end. They can inspire the
 
 296 TRADE UNIONS. 
 
 assurance upon reproducing the requisite proof that 
 the refusal of offered wages will transfer the business to 
 foreign competitors, or drive away capital to more profit- 
 able investment in another region. They can argue out 
 with the men the policy counselled by their Union leaders, 
 and determine together with them where it is sound and 
 where it is unsound. Perseverance in this good work 
 might place society on a new and more solid basis. 
 
 But the clergy need to be cautioned against a temp- 
 tation which would beset their path in the perfor- 
 mance of this high service. They must take care 
 not to be led astray by philanthropy. Charity and 
 philanthropy are amongst the noblest virtues ; let meet 
 honour be rendered them heartily in their proper spheres. 
 But philanthropy is not, and cannot be the basis of 
 industrial life on earth ; for, if made supreme arbiter 
 of the relations of trade, philanthropy would speedily 
 mean a command to employers to maintain labourers 
 out of their own property. In this respect Political 
 Economy is often thought to be cruel, especially by 
 the clergy ; there seems to be a harshness in its teaching 
 which is revolting to the feeling of humanity. But 
 Political Economy does not invent new laws of human 
 nature. It interprets only laws which exist. If the 
 interpretation is mistaken then let Political Economy 
 be refuted and rebuked ; but if it is true to inexorable 
 facts, no remonstrances on the ground of humanity can 
 be of any avail. Philanthropy cannot avert an Indian 
 famine, or a failure of cotton, or foreign competition; nor 
 can it persuade the owners of property to support hosts 
 of labourers upon charity, or to go on with a business 
 which brings nothing but loss.
 
 TRADE UNIONS. 297 
 
 What a field for the healing influence of Christian 
 ministers does Mr Skey lay open in his address to the 
 Church Congress at Croydon : " He did not deny 
 the right of the working men to combine for their 
 mutual benefit and protection, but trade unionism, as it 
 was, and as it might be, were two very different things. 
 He would mention one instance. In May 1874, there 
 was a strike amongst Warwickshire colliers his men 
 among them. He did all in his power to prevent the 
 strike. He called upon his men to meet him and 
 discuss the matter, and convened them by advertise- 
 ment ; but the bellman was sent round to order the 
 men not to attend, and the Union succeeded in keeping 
 every man away. The strike followed and caused the 
 utmost suffering and deprivation among the men and 
 their families." Here was the very opportunity, the 
 call for the mediation and remonstrance of a 
 thoroughly neutral and impartial friend against conduct 
 so irrational and so disastrous to the interests of the 
 very men who practised it. 
 
 As Mr Denny well remarks : " The searching in- 
 quisition into the costs of production ultimately, in 
 masses or individually, sweeps away the unsuitable pro- 
 ducer, manufacturer, or workman. We may fume as we 
 please, and rail against the inflexible action of this kind 
 of power, we are merely beating the air, and beating it 
 uselessly. We may cry out against the barrenness 
 and hardness of Political Economy, we shall cry in vain. 
 We shall awake to find ourselves under the influence of 
 law, and law as irresistible in the long run as the law of 
 physical nature. Indeed Political Economy is valuable 
 only as a recognition of this." The law of human
 
 298 TRADE UNIONS. 
 
 nature cannot be talked away. Philanthropy was no 
 excuse for a poor law which discouraged human beings 
 from relying on their ownselves for protection, and 
 lowered their self-respect and their manliness by plac- 
 ing at the bottom of their minds the feeling that there 
 was always the poor rate to fall back upon. The career 
 here open to ministers of religion is, in the first place, to 
 master firmly for themselves the unalterable laws which 
 God has imposed on human life ; and then, secondly, 
 to teach the working classes clearly to apprehend and 
 recognise these unchangeable truths. They will thus 
 train them so to guide their conduct as to guard against 
 dangers which are imbedded in the constitution of the 
 universe. An intelligent conformity to the laws of 
 nature is a source, not of wrong to particular classes, 
 but of happiness to all. The Christian ministers are 
 capable of performing invaluable services in this region ; 
 and this is a call which, in the words of a great preacher, 
 should make them cry : " Woe is me, for I have seen 
 the God of hosts." They can help to develope and 
 sustain friendly feeling between employer and labourer, 
 and under the fluctuations of trade so to bring them to- 
 gether in kindly counsel, as to convince both sides that 
 justice in the actual state of the business has been at- 
 tained by both parties. To perform this great work is a 
 mission of the greatest value to the moral and material 
 welfare of society, and worthy of the high calling of 
 the Christian clergyman.
 
 CHAPTER IX* 
 
 FREE TRADE. 
 
 THE circumstances of the world around us in Germany, 
 in France, in the United States, in Canada, in most of the 
 British Colonies, countries full of men of high intelligence 
 and ability constitute a strong call for the re-stating 
 and re-arguing of the principles of Free Trade. This is 
 a startling, indeed it may be said, a humiliating fact. 
 Free Trade is the one subject in Political Economy 
 which is susceptible of complete demonstration. The 
 exposition of the argument is one of the chief triumphs 
 of Adam Smith's " Wealth of Nations ; " it is the most 
 pre-eminent glory which distinguishes his immortal 
 work. Intellectual writers of all countries have enforced 
 and illustrated this cardinal truth with an ability which 
 has never been surpassed. The contest passed long 
 ago from the world of ideas to the world of facts. Free 
 Trade has been the battle-field of the fiercest political 
 strife. Every impulse which interest or passion could 
 generate has been brought to bear on its discussion. 
 The most distinguished statesmen of our time have 
 taken the most active part in the struggle. The highest 
 and most enduring political reputations have been won 
 in this arena. Mighty interests, strong in wealth and 
 power, have fought against Free Trade with the peculiar 
 
 * This chapter is largely indebted to an article in the "Contemporary 
 Review" of the year 1870.
 
 3OO FREE TRADE. 
 
 energy which belongs to free countries. Every position 
 has been defended to the utmost; every possible resist- 
 ance offered to the acknowledgment of the new truth ; 
 every statement has been sifted by keen opponents; 
 every argument tested to the utmost ; and then, after 
 a war of many years, victory crowned the struggle in 
 England amidst almost universal acknowledgment of 
 the truth of the principle. 
 
 Yet now, in the latter part of the nineteenth 
 century, whilst so many of the champions who were 
 engaged in this fierce discussion still survive to bear 
 witness to the crushing defeat which error sus- 
 tained, we are again summoned, not by the brilliant 
 fallacies of some clear thinker, but by the renewed 
 vigour and progress of protection in the practical world, 
 to re-argue the first principles of Free Trade. One is 
 tempted to feel something of that mortification which a 
 mathematician would experience if he were compelled to 
 demonstrate anew the principles of the multiplication 
 table. However, the evil is too serious and the duty to 
 guard the welfare of the greatest of practical truths too 
 urgent, to allow us to linger over our feelings. Protection 
 seems to be indestructible a weed that no intellectual 
 or social culture can root up a principle that is a part 
 of human nature itself. The selfishness of individual 
 interests is a force that ever wars on the public good, 
 and can be kept under only by incessant exposure. 
 It compels the truth to be ever re-asserted. This is our 
 task now ; and if it imposes on us the necessity of 
 repeating ancient arguments, let us realise the feeling 
 that the work we are engaged in is not on that account 
 the less' fresh or the less important.
 
 FREE TRADE. 3OI 
 
 It is essential at the outset to define the meaning of 
 the expression, Free Trade. Great mistakes are caused, 
 and many fallacious reasonings pleaded through a want 
 of a careful distinction of the separate and distinct 
 senses in which the phrase may be used. It may, in the 
 first place, denote a principle which has gained great 
 strength in modern times, to the large advantage of the 
 world trade left to itself to conduct its own operations 
 the absence of interference and restriction on the part 
 of governments the individual energies and intelligence 
 of the traders allowed, in free liberty, to carry on the 
 production and distribution of wealth. But this is not 
 the sense in which the words are used here. 
 
 Then, again, the expression Free Trade has been ap- 
 plied to a demand for the abolition of custom-houses as 
 interposing impediments to the free movements of goods. 
 This application of the expression Free Trade to the 
 suppression of customs duties is very objectionable and 
 misleading. It is a fallacious appeal to a great truth 
 belonging to a wholly different subject in order to pro- 
 cure the suppression of a particular form of indirect 
 taxation. Those who write and speak in this manner 
 feel that Free Trade denotes, for most minds, a proved 
 and unchallengeable truth; and they thus acquire an 
 advantage in argument to which they ar not entitled. 
 The abolition of customs may be a proper measure or 
 it may not ; but clearly it has nothing to do with the 
 Free Trade of Adam Smith. 
 
 What, then, is the Free Trade of this great man and 
 of Political Economy ? It is the contradiction of Pro- 
 tection. It came into use as condemning the policy of 
 Protection by the proclamation of its opposite. Its
 
 3O2 FREE TRADE. 
 
 meaning, therefore, must be sought from the sense affixed 
 to Protection. Protection affirms the policy of differ- 
 ences of duties on the same goods. It inquires into the 
 geographical and national origin of these goods ; and 
 then, according as they were produced abroad or at home, 
 it imposes different rates of taxation on them, or ex- 
 empts them from taxation altogether. Free Trade is the 
 direct contradictory of this principle. It asks no ques- 
 tion as to where the goods were made ; the same goods 
 must be treated all alike is its doctrine. If a duty is 
 charged, it levies it alike on those made at home as well 
 as on those made abroad ; if it exempts the domestic, 
 it equally exempts the foreign products. It is with this 
 principle alone that we are here concerned. 
 
 Which, then, is the correct policy, Free Trade or 
 Protection ? In order to reach the true answer to this 
 question, it is very important to discuss it on the hypo- 
 thesis that neither of the two policies has as yet been 
 adopted. Practically and historically it has seldom, 
 if ever, been debated on this basis. In almost every 
 instance, Free Trade has been the assailant of a 
 protection already established ; the rarer but most 
 startlingly increasing procedure is that of Protection 
 assaulting and overthrowing a pre-existing Free 
 Trade. When Protection has previously occupied the 
 ground, Free Trade has had to encounter the formid- 
 able difficulty of interfering with interests, often vast, 
 both of capital and labour, reared up under Protection, 
 and which its success might seriously compromise or 
 even destroy altogether. This very difficulty has often 
 turned aside statesmen, whose convictions were already 
 won to Free Trade, from the political danger of dis-
 
 FREE TRADE. 303 
 
 turbing industries engaging a considerable part of the 
 population. It is most essential, therefore, to understand 
 clearly that the existence of these interests is a matter 
 wholly foreign to the truth or falsehood of Free Trade. 
 There are two questions here which belong to two 
 different provinces, and must be carried to two 
 different tribunals for judgment. The one belongs to 
 the department of the Political Economist, the other to 
 that of the practical statesman. One is a problem of 
 knowledge, the other of politics. The truth or false- 
 hood of the doctrine is in no way affected by the injury 
 which its application might work to particular persons 
 or industries. If true, it has the right to demand the 
 enforcement of its principle, even though the industries 
 reared under the wing of Protection should be doomed 
 thereby to disappear. But, on the other hand, it is 
 within the province of the statesman to declare that he 
 must break the suddenness of the process of applying 
 Free Trade to a country deeply committed to Protec- 
 tion. It is within his right to assert that the present 
 benefit of absolute Free Trade would be overbalanced 
 by the mischief of an immediate and rigorous enforce- 
 ment of its teaching. Knowledge says that the abolition 
 of every protective duty is a policy which promotes the 
 welfare of a people. On the other hand, statesmanship 
 may declare that regard for suffering to ensue may 
 demand that time shall be given for effecting the transi- 
 tion from one kind of occupation to another. 
 
 Let us assume then, for the purposes of this investiga- 
 tion, that there is no transition period ; that the capital 
 and labour employed to-day in a protected industry 
 may without suffering be transferred to another occupa-
 
 304 FREE TRADE. 
 
 tion to-morrow ; and that there is no call to suffer the 
 pain of the change to stand in the way of a great public 
 good. Political Economy has often been charged with 
 inhumanity, as being indifferent to human suffering. 
 No accusation can be more unjust. Have the pro- 
 moters of railways been denounced as monsters because 
 they brought about the ruin of the great coaching and 
 posting interests, and of the many trades which lived by 
 the employment furnished by the coaching business ? 
 Have printers been handed down with dishonour be- 
 cause their art threw the copiers of manuscripts out of 
 employment ? Has it not been clearly seen in these 
 and numberless similar cases that the public good 
 dominated over all regard for individual interests? 
 Why, then, has Political Economy received a different 
 treatment ? Why has it been measured by another 
 standard of morality ? Let Political Economy, when 
 it advocates principles whose adoption may bring dis- 
 tress on large classes, be held to a strict proof of the 
 countervailing advantages which it promises. No Poli- 
 tical Economist will repel such a trial, for to do so 
 would be to expose the truth of its teaching to sus- 
 picion. But if it passes the ordeal successfully, why 
 should accusations of want of feeling be flung against 
 its disciples any more than at the discoverers of any 
 principle which has developed the civilisation of man- 
 kind ? 
 
 Let us now endeavour to demonstrate the truth of 
 Free Trade. It rests on two fundamental principles. 
 
 I. The first is the fact that all trade is an exchange 
 of equivalent values or services. This is the very 
 essence of trade. Trade always exacts as much as it
 
 FREE TRADE. 305 
 
 gives away. A single transaction of trade may involve 
 loss ; but continuous trade necessarily balances itself 
 on the average of its dealings. If it is permanent, then 
 the giving away is met by the receiving ; the two pro- 
 cesses must of necessity balance each other with equal 
 exchanges. Hence the fact of buying is a complete and 
 conclusive proof of the corresponding fact of selling. 
 To buy is to give away your property in exchange for 
 the goods bought ; and to give away property for other 
 property is precisely the act of selling. Every nation, 
 therefore, which buys sells also, and sells to the full 
 value of what it buys. A nation which does not sell 
 cannot buy. This is the first, absolute, incontestable 
 truth on which Free Trade reposes. 
 
 " Not so," many thoughtlessly reply, " The foreigner 
 is ready enough to sell us his corn or his iron, and to be 
 paid for them ; all the world is willing to do that. He 
 will gladly take our money, but he will have nothing 
 to say to our goods. England, then, loses her wealth, 
 her money ; she carries on a losing trade to the great 
 injury of her people." Those who use such language 
 are profoundly ignorant of what money is and does, nor 
 do they perceive that their argument involves a very 
 palpable absurdity. England certainly can buy abroad 
 so long as she has gold and silver to send away, but as she 
 does not herself produce these metals largely, it is obvious 
 that such a trade must soon come to an end. When the 
 stock of gold is gone, all purchasing abroad must cease, 
 till she has acquired a fresh supply of gold. But how 
 is she to procure it, except by persuading foreign coun- 
 tries to send it in exchange for her goods ? The fact 
 
 always remains the same, that England buys abroad 
 
 U
 
 306 FREE TRADE. 
 
 with the products of her industry, for she has nothing 
 else to buy with. If the nation from which she obtains 
 cotton or sugar will not take her own goods, then, sup- 
 posing the trade in cotton to continue, it becomes 
 three-cornered, in a manner, instead of a direct ex- 
 change of cotton and sugar for English iron and cloth. 
 The process is identical with that of money. The 
 hatter buys a sovereign with a hat, and then with the 
 sovereign buys a pair of shoes : shoes are bought with 
 a hat. If the Americans will not take English yarns or 
 iron, England with her goods buys bills due by Ameri- 
 cans to Frenchmen for silks and pays for the cotton 
 with these bills. England buys bills of the Frenchmen, 
 and with these bills purchases cotton. In every case 
 absolutely, no country can purchase anything of foreign 
 countries except with her own products. 
 
 A corollary of much practical value may be drawn 
 from this reasoning. We see in many quarters great 
 pains taken in tracing out the statistics of international 
 commerce for the purpose of showing that the country 
 which buys of the foreigner is not compensated by a 
 corresponding amount of sales. This is idle and unpro- 
 fitable work. It is enough to know that the trade goes 
 on. This fact, by itself alone, upon the grounds ex- 
 plained above, demonstrates that the foreigner has 
 bought as much as he has sold. No statistics are 
 needed for the proof of this fact, nor if the statistics 
 failed to point out how the equivalent has been received, 
 would the demonstration be in any way weakened. 
 Assuredly no Economist, nor, indeed, any thinking per- 
 son, need give himself a thought, so far as this point is 
 concerned, as to what the statistics may or may not
 
 FREE TRADE. 307 
 
 bring out. The trade goes on ; therefore selling is tak- 
 ing place to the same extent as buying abroad. 
 
 The truth stands out in clear sunshine. Free Trade 
 cannot and does not injure domestic industry. Under 
 Free Trade, foreign countries give in every case as 
 much employment to English workmen and capitalists 
 as if nothing had been bought abroad. English goods 
 of the same value must be purchased by the foreigner, 
 or the trade comes to an end. There must be an 
 equal amount of English goods made and sent away, or 
 England will never obtain the foreign commodities. 
 Free Trade never does harm to the country which 
 practises it; and that mighty fact alone kills Protection. 
 Let those who are backsliding into Protection be asked 
 for a categorical answer to the question Can and will 
 the foreigner give away his goods to any country with- 
 out insisting on receiving back, directly or indirectly, an 
 equal quantity of that country's goods? let the question 
 be pushed home and all talk about injury to domestic 
 industry must cease. 
 
 II. We come now to the second principle on which 
 the doctrine of Free Trade rests. It is this. All are 
 gainers when each man and nation betakes himself to 
 the making of those articles for which his labour is the 
 most productive. The popular saying that it is wise to 
 buy in the cheapest market expresses the same truth. 
 This principle is identical with that of division or sepa- 
 ration of employments. It is supreme over all labour; it is 
 instinctively practised by all that work. Let the women 
 do the sewing and the cooking of the meals, and let the 
 men lift the weights and do the digging is a universal 
 practice adopted by instinct without reflection, and it is
 
 308 FREE TRADE. 
 
 the essence of Free Trade. If each man were to supply 
 all his wants by his own labour he would obtain miser- 
 ably few of the conveniences and comforts of life, civili- 
 sation would be impossible, and very few inhabitants 
 could maintain themselves in any land. In civilised 
 nations no man ventures to deny that every one is the 
 richer, every one the better off, by the shoemaker mak- 
 ing nothing but shoes, the brewer nothing but beer, and 
 so on. But few care to analyse how this universal in- 
 crease is brought about, yet the process is not difficult 
 to understand. The cotton-spinner produces an in- 
 credibly greater quantity of yarn in his mill than he and 
 his workpeople, with the same expense of food and 
 clothing, could produce, if each took to making cotton 
 yarns singly for himself. 
 
 It is the same with every trade. By dividing 
 employments and assigning a single occupation to 
 each workman or set of workmen, there is an enor- 
 mously larger quantity of commodities, of wealth, 
 created at the end of the day. The labourers must 
 have their maintenance in each case alike ; but if each 
 does everything very little indeed would be produced. 
 By each confining himself to one article very much 
 more is made. The mass of things to be divided is 
 immensely larger, and each gets a greater share of com- 
 modities for his own enjoyment, as the fruit of his own 
 labour. Put countries in the place of individual men 
 and the result is precisely the same. Each country, by 
 taking a single commodity for its work to perform, 
 makes it better and more cheaply, by the very fact that 
 it concentrates its energy and directs its skill on one 
 single operation. In every country the same principle
 
 FREE TRADE. 3OQ 
 
 is carried out, as if by natural instinct. Particular in- 
 dustries develop themselves in particular towns and dis- 
 ticts, although at their origin no special reason probably 
 guided the selection of that particular business by the 
 locality. 
 
 But the principle has a still wider application. Not 
 only is there vast gain by each labourer limiting himself 
 to one single employment, through the skill he acquires, 
 the saving of time, and the having ready at hand the 
 tools he requires, but this gain is further increased by him 
 and his fellow-workmen selecting that kind of produc- 
 tion for which they possess special advantages, whether 
 it be that coals are abundant on the spot, or a more 
 fertile soil to plough, or a more beneficent climate to 
 rear up and ripen. The rich pastures of Leicestershire 
 and Ireland are devoted to cattle. The splendid 
 collieries of the Midland Counties send their inhabitants 
 to the iron trade or other businesses dependent on steam 
 engines. No Sussex sheep-breeder complains that he is 
 left unprotected against the woollen manufacturers of 
 Yorkshire, no Devonshire farmer is indignant that his 
 apples have to compete with the barleys of Norfolk. 
 The fruitful fecundity of the principle that each should 
 buy of the other, and those should be allowed freely to 
 develope trade who can obtain the most abundant 
 returns for the capital and labour expended on its 
 processes, is never contested within the limits of a single 
 people ; but the magic is dispelled the instant that the 
 hateful foreigner is in sight. Was Sir Dudley North 
 mistaken when he proclaimed nearly two hundred years 
 ago " that the world, as to trade, is but as one nation or 
 people, and therein nations are as persons"? Does the
 
 3IO FREE TRADE. 
 
 principle lose its value when it reaches the margin 
 of the Channel or the Atlantic ? Does the accident that 
 a man is called an Englishman or a Frenchman interfere 
 in any manner with the nature of trade as an exchange of 
 equal commodities ? Does the Sheffield cutler buy bread 
 of the Yorkshire farmer because he is an Englishman ? 
 See in what an absurdity such a notion of the patriotic 
 duty of protection lands us. If a nation enacts protec- 
 tive duties against a neighbouring territory, it is true 
 science and wise policy to prevent native industry from 
 being ruined by foreign competition. But if the nation 
 annexes that territory and makes it part of itself, then 
 it is equally true science and wise policy that the indus- 
 try should be destroyed, because the destroyers are now 
 fellow-citizens. Is this Political Economy? Is this a 
 description of the nature and laws of trade ? Nay, is 
 this a doctrine which protectionists can accept ? Yet 
 accept it they must, if they build their protectionist 
 doctrine on the distinction between fellow-countrymen 
 and aliens. 
 
 These considerations establish the cardinal truth that 
 trade knows nothing of politics, or governments, or 
 brotherhoods, or nations, or patriotism, or any other 
 feelings and policies. It is the exchange of goods of 
 equal value, because each exchanger reciprocally wants 
 the things which the other has to offer. International 
 trade is by nature, and ought never to be regarded as 
 anything else than a trade between town and town, county 
 and county in the same country. Political Economists 
 themselves, however, have done no little mischief in this 
 matter. Mr Mill and others have discussed interna- 
 tional trade as something distinct in kind from ordinary
 
 FREE TRADE. 3 I I 
 
 trade ; they have refined about it, and spoken about it as 
 to when it was more, and when less advantageous. Trade 
 being always, and at all times, the giving of onecommodity 
 in return for another, such speculation on the interna- 
 tional branch of it is superfluous and misleading work. 
 The very word international lets in the narrow end of 
 the confusion. What does trade know of nations, 
 except that tea is produced on a spot called China, and 
 shorthorns in another spot called England ? If it is 
 only let alone, and not interfered with by governments, 
 it will take care that equal value shall go across the 
 frontiers, as it does that Manchester shall pay for its 
 meat, and the farmers for their clothes. On the average 
 neither man nor nation does or can win anything at the 
 expense of the other. Who ever inquires whether Bir- 
 mingham is gaining at the cost of Warwickshire or the 
 reverse ? Why ask whether international values are 
 equal between England and America ? 
 
 But let us consider a little more in detail the principle 
 that every one gains by each nation, precisely as each 
 man, producing those commodities for the use of the 
 world for which it possesses some peculiar aptitude. 
 Even the most violent protectionist would not counten- 
 ance the attempt to manufacture sugar or wine in Eng- 
 land. The folly of such a proceeding is too transparent. 
 The outcry begins only when goods may be produced 
 equally in both countries, and when the difference of 
 cost would not be enormous. Yet the loss is just as 
 certain in the case of the small waste as in the case of 
 the large ; it varies only in degree. Free Trade, on 
 the contrary, enriches all. Let us take the instance of 
 ribbons, and let us examine it minutely; for an
 
 3 1 2 FREE TRADE. 
 
 example taken to pieces is as much needed for many 
 people as general reasoning. Under the shelter of 
 protective duty against French rivals, a Coventry 
 workman may make a ribbon in a day of twelve 
 hours and sell it for four shillings. He then receives 
 from the buyer of the ribbon commodities (we must 
 think not of the money, but of what the money buys) 
 which in their turn cost equally twelve hours to 
 produce. Let the duty be now repealed, and Free Trade 
 grant the facility to every one to buy a ribbon where he 
 pleases. The buyer now finds a French ribbon which 
 he can purchase with commodities that cost only ten 
 hours' labour, and he buys it. He has still two hours at 
 his disposal ; the fruit of his labours during these two 
 hours is pure gain or he may spend them in leisure 
 and enjoyment. If he works on as before, there is an 
 increase of wealth in the world by the results of the 
 two hours' labour ; and what takes place with one pro- 
 tected trade takes place with all, as soon as Free 
 Trade has set its beneficent action to work. The 
 gain, the increase of things produced with the same 
 labour and cost, may be vast. 
 
 But how fares it with Coventry under this revolution ? 
 Its workmen must starve, we shall be told. Not so. The 
 French ribbon makers and that is the pinch of the ques- 
 tion must buy the products of ten hours of English 
 labour ; they must take that amount of English goods 
 and the Coventry men instead of making ribbons will 
 make these goods. They will produce them with the 
 labour of ten hours, and if they work twelve hours as for- 
 merly, they will be better off without any increase of 
 toil ; they will have made more things, and will get more
 
 FREE TRADE. 313 
 
 in exchange for them. This is an addition to the wealth 
 of the country, and as we are now assuming the ribbon 
 maker as the representative of all the workmen, 
 and the ribbon buyer of the whole community, it is a 
 prosperity shared by all. The fruit of the two hours 
 constitutes an increase of the demand for labour, and 
 the Coventry men come in for their share of the benefit. 
 The loss entailed by Protection must not be measured 
 solely by the difference of price of the article protected 
 and that of the article procured from the foreigner. 
 The state of the shipping interest in the United States 
 of America furnishes an excellent illustration of the 
 expansive character of this loss. The protective duties 
 in America on iron and other articles render shipbuild- 
 ing so expensive as to give a great advantage to English 
 and other shipbuilders, and to reduce the American 
 trade in ships to very low dimensions. That ship- 
 ping trade had been wont to bring large profits to 
 the American people. They have been immensely 
 diminished by the action, be it observed, of laws which 
 had no wish to interfere with that business but were aimed 
 merely at protecting American against English iron. 
 The ironmasters in America thus acquire a special 
 profit, the profit of monopoly, or, at any rate, the power 
 of living by the iron business in manufacturing iron 
 used in their country. But they not only injure those 
 who buy their iron of them, but actually destroy a large 
 use of iron and the thriving trade connected with it. 
 The American people are twice injured ; first, by the 
 additional quantity of the fruits of their labour which 
 they must give to procure iron ; and, secondly, by the 
 injury done to a flourishing business in the building of
 
 3 1 4 FREE TRADE. 
 
 ships which brought gain to the traders and employment 
 to the people. 
 
 This second injury, in most cases, is far more damaging 
 than the first. Protection cripples industry on every side 
 for the sake of the small advantage which it confers on 
 the protected trades. It renders many operations of 
 industry, with their attendant profits, impossible. The 
 crippling effect of protection must never be left out of 
 view in this most national question. Mr Cobden and 
 his associates in the mighty battle against protection 
 never ceased to point out the indirect consequences of 
 protective duties. In what state would now be the 
 colossal manufactures of England, if the duties on 
 foreign corn had kept bread dear over the whole land ? 
 To measure the calamity by the additional penny which 
 each loaf of bread would have cost would be futile. 
 How many of those who now buy bread, and plenty of 
 bread, must have gone without it altogether? How 
 many an artisan whose energies are kept alive through 
 the moderate price oi provisions at home, would never 
 have found the mill that now employs him ? How much 
 of the bustling prosperity of our ports would have failed 
 to bear witness to the prosperity of commerce ? 
 
 The demonstration is complete, yet conspicuous as 
 is its truth, it is resisted nevertheless. There is a force 
 at work amongst mankind ever driving men into back- 
 sliding. The personal and private gains of monopoly 
 created by law, gains wholly extracted from the pockets 
 of the community which enacts such a law, are ever 
 throwing the public interest into the background. These 
 interests never sleep. They are ever watchful of oppor- 
 tunities. They grow up imperceptibly, and when of
 
 FREE TRADE. 315 
 
 sufficient size declare themselves to be the representa- 
 tives of the true interest of the nation. They seldom 
 venture on a direct argument with Free Trade, but they 
 are clever at suggesting reasons for thrusting aside a 
 doctrine which they dare not pronounce to be false. 
 Let us examine some of these devices. 
 
 There is one which has found favour with even superior 
 minds in this country, and which, through their influence, 
 enjoys greater repute in America and elsewhere. No 
 name of high celebrity is put forward so incessantly as 
 the shield of their doctrine by the advocates of protec- 
 tion as that of Mr Mill, and so great is the support 
 which it gives to a policy so profoundly injurious 
 to the happiness of mankind that it may almost be 
 questioned whether Mr Mill has not done more 
 harm to the welfare of the human race by the 
 countenance he has given, though limited, to protec- 
 tion, than he has done good by all his other 
 writings on Political Economy. " Free trade is true," 
 this subtle refinement declares, "but its application 
 requires care, and times occur in the history of many 
 countries, when its teaching ought to be suspended for 
 a season. A country may be capable of sustaining the 
 freshest breezes of competition ultimately, but its 
 inhabitants may be too poor, too ignorant, and too un- 
 enlightened to make a beginning. They are incapable 
 of making an effort sufficiently energetic to face the 
 competition of more advanced nations. They must for 
 a time be assured of the possession of the home-market, 
 and then when they have grown out of leading strings, 
 they may be fairly trusted to run the race against the 
 whole world."
 
 316 FREE TRADE. 
 
 But what is this but a cry for paternal government ? 
 The people are children ; they cannot take care of 
 themselves ; they are too backward to seize on the 
 natural advantages of their country. The Govern- 
 ment must keep them in the nursery, must do every- 
 thing for them, must teach them the arts, or at least 
 must give them bribes to perform things which of 
 themselves can reward them handsomely. It is too late 
 in the history of the world to preach the virtues of 
 nursery government. The natural energy and in- 
 telligence with which Providence has endowed the 
 human race have been found by experience to be more 
 successful instruments of progress than the artificial 
 care of rulers. In political matters paternal govern- 
 ment is exploded, except where despotism deliberately 
 aims at keeping its subjects children. A hankering for 
 it still lingers in commercial circles, because a clear 
 profit can be got out of it by a few persons at the 
 expense of the people. 
 
 And even if it could be shown to be expedient 
 that a Government should try to show the way to its 
 subjects how to begin and carry on a trade, it would 
 be cheaper and safer for the Government to under- 
 take the business itself than to rear up a body of men 
 whose interests are directly hostile to those of the 
 community, and who, when established, command an 
 influence and a power very difficult to dislodge when 
 the period of education ought to be declared completed. 
 The Government indeed would be exceedingly likely to 
 lose, but the loss inflicted by protection would be far 
 heavier. Let the Government perform its appointed 
 task of educating the people. Here its action is legiti-
 
 FREE TRADE. 3 1 7 
 
 mate, and thus it may bestow valuable aid on commer- 
 cial progress. But it must not attempt to supersede 
 the natural qualities of the population by its own con- 
 trivances. The intercourse which different nations now 
 hold with one another is so free and so easy that there 
 is no danger of any available source of wealth being 
 long neglected through the ignorance and indifference 
 of the people. Nations in our day educate each other 
 rapidly. There is no need for their being taught by 
 their Governments which trades are likely to be 
 profitable. 
 
 Another objection to Free Trade is the complaint 
 already investigated, that foreigners will sell but not 
 buy. Foreigners, then, give away their goods for 
 nothing. 
 
 The commonest, the most insisted on, the most 
 touching reply to Free Trade, is the injury which its 
 adoption has been found to inflict on great industries, 
 in which large masses of the national capital have been 
 invested, and which give support to vast numbers of the 
 population. It has been known to kill such industries ; 
 how can it be for the good of the people to be thrown 
 out of employment and reduced to misery ? .The most 
 ordinary feeling of patriotism recoils from the infliction 
 of such suffering ; and severe may be the dangers and 
 the embarrassments to the statesman. How can the poor 
 German, cries a member of the German Parliament, 
 make iron in his country which shall compete with the 
 English ? Must not the oppressive superiority of the 
 foreigner be repressed by law ? But what does such 
 language shew but the mischievous consequences of
 
 318 FREE TRADE. 
 
 these unnatural industries having been allowed to grow 
 up ? The heavier the blow which they sustain when ex- 
 posed to the bracing air of free trade, the more clearly 
 is it demonstrated that their goods ought not to have 
 been produced at home, but ought to have been bought 
 from foreigners with other goods which the country 
 could make with advantage. We have seen that if such 
 industries disappeared under free trade, others must 
 necessarily spring up to manufacture the articles which 
 the foreigner wants, and for which he will readily give 
 the goods which it was foolishly desired to make at home. 
 The more it is perceived that the protected trades cannot 
 face free competition but disappear, the clearer does it 
 become how heavy a tax was levied on the community. 
 
 It is truly amusing to observe how protected traders 
 invariably proceed on the cool assumption that their 
 business must be kept alive for them, must continue 
 to exist. It never occurs to them to ask themselves 
 why it should exist. That is assumed as a thing of 
 course. They are willing to have treaties of commerce 
 and repeal of protective duties, provided they are able 
 to continue their business as heretofore; but if Free Trade 
 threatens its extinction, and forces them to betake them- 
 selves to some other occupation, no limit is set to their 
 indignation, as if they were suffering a wrong which the 
 nation was bound to redress. The same men who think 
 it quite natural that the coaching business and the posting 
 inns should be extinguished by railways hold it to be a law 
 enacted by Providence itself that woollen cloths should 
 be made at Melbourne and cotton yarns in America. 
 
 The outcry against the invasion of France by Eng- 
 lish cotton is not nearly so rational as would be a de-
 
 FREE TRADE. 319 
 
 mand for a comfortable maintenance by the French State 
 of every Frenchman. Every protective duty throughout 
 the world is nothing but a living upon charity. It is a 
 requisition made upon the public to grant a livelihood 
 which the protected industries cannot provide if left to 
 themselves. It is right that every protected trader 
 should be precisely told that he is living upon charity, 
 upon a tax imposed, not on the foreigner, but on his 
 fellow citizens. What they have to pay him beyond 
 the price demanded by the foreigner is charity money, 
 is a tax levied under the disguise of patriotism, on the 
 plea that the poor fellows must be kept alive. Kept 
 alive ; by whom ? Not by their industry, for that does 
 not pay ; if unhelped by the duty, its products would 
 fetch only the same price as those of the foreigner, and 
 the business could not go on upon such prices. 
 
 It really becomes a matter of the utmost importance 
 that in the conduct of the argument with protectionists 
 it shall always be laid down that it is an inevitable, and 
 still more, a desirable consequence, that every trade 
 which cannot exist without protection ought, in the 
 name oi justice, as well as of the national welfare, to 
 disappear. Protection takes from others what belongs 
 to them, and takes it by force, by the force of law. If 
 the cry is raised, would you then ruin these busy 
 capitalists, and drive all these poor people into starva- 
 tion ? the answer is what has already been stated. The 
 mode oi effecting the transition to some other employ- 
 ments is the function of the statesman ; the nation which 
 has allowed this false industry to establish itself must 
 pay the oenalty of a public loss, more or less severe, 
 during the process of its abolition. But it must cease ;
 
 320 FREE TRADE. 
 
 that is the one vital, necessary, irresistible position to 
 take up. There is no other conclusion possible for any 
 rational man. It is the solemn duty of every ruler of 
 every country to accept this great central economical 
 truth, and to deal avowedly with protective duties as 
 things which have been condemned and must depart. 
 The manner of their death must be left to his judgment, 
 and, be it added, to his tenderness. 
 
 Experience has revealed a fact which may mitigate 
 the natural hesitation of a statesman to make changes in 
 legislation which may involve distress for many. Pro- 
 tection is now known to breed carelessness and ineffi- 
 ciency. Protected producers rely on the monopoly given 
 them by the law. They are comparatively indifferent 
 about improvements; they settle down in mediocrity. But 
 when the danger presses upon them that the prop they 
 lean on may be removed, a new temper of mind comes 
 over them. The thought of competition without shelter 
 braces their muscles ; vigour succeeds to apathy ; im- 
 proved processes render labour more efficient. The 
 grand discovery is thus acquired that the protection 
 was not needed, that the trade had a genuine vitality of 
 its own. Thus it happened with the farming trade after 
 the repeal of the Corn Laws. The whole agricultural 
 hierarchy, with few exceptions, landlord, farmer, and 
 labourer believed that the wheat lands of England 
 would go out of cultivation. Parliament was not de- 
 terred by this alarm ; it persevered with the abolition of 
 the duties on foreign corn. And what has been the final 
 issue ? An improvement in the efficiency and productive- 
 ness of agricultural labour unparalleled in the kingdom, 
 a growth of wheat per acre unknown to former ages, a
 
 FREE TRADE. 32 I 
 
 rise of rents for the landlord and better wages for the 
 labourer. Thus it has been found that agriculture in 
 England needed no protection to secure either its ex- 
 istence or its prosperity, that the Corn Laws had been 
 a clog on its improvement, and that the keen air of 
 competition has generated energy and success. The 
 agricultural population now possesses a confidence in the 
 soundness and permanence of their business which was 
 never felt by their predecessors. 
 
 It is sometimes urged that Free Trade deprives capital 
 and labour of employment, they being supplanted by 
 the capital and labour of the foreigner. It has been 
 shown that this is a mistake. The capital and labour 
 of England are equally employed as previously in mak- 
 ing the articles required for the purchase of the foreign 
 ribbon, whilst by each country making what it has 
 special facilities to produce, a gain, say of two hours, is 
 won in both. But here, we shall be told, is the very 
 pinch of the question. The workman, it is said, will 
 have no motive for working during these two hours 
 which he has gained. The buyer of the ribbon wants 
 one only ; he will give nothing for a second, for he will 
 have no use for it. But even were this so, there would be 
 a clear gain of time for rest and for the enjoyment of life. 
 
 But it is not so ; those who speak thus miscon- 
 ceive the means by which wealth is produced. A man 
 works and produces because he can get other things in 
 exchange for those he makes. If every labourer in the 
 country had two more hours to work in, upon the same 
 amount of food and clothing, a multitude of additional 
 articles would be created, and they would all find a sale. 
 Why ? because everyone of us would use and consume 
 
 X
 
 322 FREE TRADE. 
 
 an endless quantity of additional commodities beyond 
 those we now enjoy, if only we had the means of buy- 
 ing them ; and those means would be furnished by 
 those additional articles produced in the two hours 
 supposed. A farmer would buy more furniture if the 
 upholsterer would buy more mutton ; and the uphol- 
 sterer would buy more mutton, would live more 
 generously, if the farmer would purchase more chairs 
 and tables. Trade is merely an exchange of goods, 
 and it is practically unlimited if there are more goods 
 to be exchanged on both sides. 
 
 What is true of the labourer is equally true of the 
 capitalist. They are both joint performers of the same 
 operation. The limit to the employment of capital 
 consists in the physical difficulty of obtaining returns 
 for its use. Capital may be applied to a field in such 
 quantity that at last the field yields no return for 
 it that can compensate for the effort of saving capital ; 
 but the world has many ages yet to run ere capital 
 encounters the insuperable limit to its further accu- 
 mulation. The vast productiveness which steam has 
 bestowed on capital has not resulted in the cre- 
 ation of wealth for which there is no demand, which 
 cannot be sold. The precise reverse of this has 
 occurred. Clothing, furniture, food, numberless con- 
 veniences and comforts have been poured into the 
 shops in unbounded profusion, and have all found 
 buyers. The effect of Free Trade is to render labour 
 and capital more productive by applying them to those 
 industries in each locality which yield the largest 
 returns in the same time of working consequently 
 tnere is more to excnange : and everyone better off,
 
 FREE TRADE. 323 
 
 because each one having produced more goods himself 
 has increased means for obtaining from others articles 
 which he desires to consume. A larger stock of goods 
 produced necessarily implies augmented trade. 
 
 Another argument in partial support of Protection 
 has reappeared in these days, and much stress is laid 
 upon its validity, even in Free Trade quarters. Good 
 policy demands, it is alleged, that a nation should 
 maintain its independence in economical as well as in 
 political matters. It should guard against dependence 
 on the foreigner for the supply of articles necessary for 
 its existence, or even for its strength. An enemy 
 would be able to apply irresistible coercion on a country 
 with which he was at war, if he could cut off all access 
 to some commodity the want of which would place that 
 country at his feet. This is the old argument which 
 was urged with so much vehemence and so much obsti- 
 nacy against the repeal of the Corn Laws in England. 
 But this was an opposition which could not prevail 
 against the urgent cry for cheap food wherewith to sus- 
 tain the development of industries which were making 
 their way into every market of the world. So the ob- 
 stacle which the law interposed to the full ingress of 
 foreign corn into England was swept away and the 
 consequences were, cheap food, a vast expansion of the 
 exports of British merchandise wherewith to pay for it, 
 a rapid and enormous increase of the population, and 
 the English nation dependent on foreign nations for the 
 supply of one half of its food. Has this state of things, 
 in a matter so vital as the means of supporting life, led 
 to any danger or any alarm ? Does a single man in 
 England ever become frightened, lest, as in Ireland, a
 
 324 FREE TRADE. 
 
 multitude of the English people should fall into starva- 
 tion ? Does a man ask for a restriction on foreign corn, 
 and compulsory extension of the growth of corn in 
 English fields on this ground of dependence ? Not one. 
 But, it is replied, even by some who are really the 
 friends of Free Trade on economical grounds, England 
 adopted Free Trade as a necessity she had no choice; 
 all that was open to her alarmists was to reconcile them- 
 selves to a condition of life which is inevitable. But 
 this is no answer to the fact that no one feels any fear 
 that the only anxiety ever felt is lest the foreign fields 
 which supply us may not be encountering bad harvests. 
 But, in truth, this desire for economical independence 
 is in direct collision with the course which modern life 
 is steadily and increasingly taking all over the earth. 
 Men are more and more interlaced with one another 
 their lives are becoming more and more parts of one 
 great whole, members of one common household. To 
 aim at industrial independence is to aim at combating 
 the set of a resistless tide, is to seek an impossibility. 
 The teas of China and India are daily entering new 
 countries, the iron railways and engines of lands 
 rich in minerals are penetrating further into vast agri- 
 cultural areas ; the wines of France and other favoured 
 regions are bought and drunk in more remote territories ; 
 the goods manufactured in special localities are con- 
 sumed by all mankind. Such interdependence in truth 
 brings security, not danger ; the interests now involved in 
 the unbroken stream of the supply of human wants are 
 so vast, that they may be trusted against every effort of 
 war or violence to overcome them. Economical depen- 
 dence will progress whatever the powers of the world
 
 FREE TRADE. 325 
 
 may say or do to the contrary ; it lies in the very 
 constitution of human nature, such as man is found to 
 be to-day. That Protection is practised at the cost, not 
 of the foreigner, but of the protected nation, has been 
 shown above. To seek to tax a people, to put upon it 
 a heavy expense which it can easily avoid, in search of 
 economical independence, is to pursue a dream which, 
 we may be sure, will never have any actual existence 
 for any men who clearly understand that they are dis- 
 tinctly and avowedly giving it reality with money out of 
 their own pockets. 
 
 We reach, lastly, one of the most favourite defences 
 employed by the advocates of Protection. It was once 
 largely put forward in England. " England," it was 
 said, "is a heavily taxed country. Her industry is 
 weighed down by burdens imposed on it by the Govern- 
 ment. All her people are forced to incur additional 
 expense through the taxes laid on the food of the 
 labourer, and the profits of business ; how, then, can 
 it be expected that her manufacturers and her traders 
 should be able to compete on even terms with the lightly 
 taxed foreigner ? How is a trade to maintain itself in 
 an open struggle under such disadvantages ? Fair play, 
 a fair start all round, can be obtained only by balancing 
 the advantage of the foreigner in the market, by impos- 
 ing on his goods a duty which will be equal to what the 
 Englishman is estimated to have paid in excess of taxa- 
 tion." There is a sound of fairness in this statement, 
 but it is sound only without substance. It assumes the 
 very point that Free Trade denies. It takes for granted 
 that the particular trade which is unfavourably situated 
 must be made to live in England. But how made ? at
 
 326 FREE TRADE. 
 
 whose cost ? at the cost of the people amongst whom it 
 is desired to force the continuance of this industry by 
 additional taxation levied by the protected traders on 
 the already over-taxed public. 
 
 Free Trade makes the counter assertion that this 
 trade ought to cease because the over-taxed country 
 will be able to supply its wants more cheaply, and 
 because it will escape the charge of giving charity 
 to makers of goods who cannot support themselves. 
 The Frenchman will accept from a Birmingham 
 buyer a chisel worth half-a-crown for his ribbon ; the 
 Coventry workman requires a packet of nails in ad- 
 dition to the chisel. The question then becomes 
 whether it is for the interest of the nation to compel 
 the Birmingham iron-maker to buy of the Coven- 
 try ribbon-maker at the extra cost of a packet 01 
 nails. All the goods, the ribbon, the chisel, and the 
 nails, are produced under the same weight of taxation. 
 Taxation affects all equally. By purchasing of the 
 Frenchman the Birmingham buyer obtains the same 
 article as from the Coventry man, a ribbon in exchange 
 for a chisel. He, that is England of which he is the 
 representative in this discussion, saves the extra packet 
 of nails which must have been given for the Coventry 
 ribbon. England is the richer by the value of the 
 nails; and this is true, whether all the articles are 
 manufactured under much or little taxation. 
 
 The question to be decided must always be whether it 
 is good policy to compel the purchase of the ribbon from 
 the Coventry maker with a chisel and nails manufac- 
 tured under taxation, or to buy it from the French with 
 a chisel only, equally born under the load of taxation.
 
 FREE TRADE. 327 
 
 When the issue is thus stated, it becomes manifest at 
 once that the amount of English taxation can have 
 nothing to do with the decision. The consideration of 
 what the manufacturer has to pay for taxes can have 
 no weight except upon one hypothesis that a previous 
 decree has been passed that the trade under discussion 
 must be kept, at all hazards, alive in the country, whether 
 by its own self-supporting energy, or at the expense of 
 the public through the instrumentality of Protection. 
 There are, indeed, some special trades which are entitled 
 to such a decree. No one would consent, if ships of war 
 could be bought more cheaply from foreign countries, to 
 render the existence of the English navy dependent on 
 purchases made from foreigners. But such trades are 
 extreme cases, and are governed by motives wholly 
 distinct from mere considerations of commercial or 
 economical profit. 
 
 A strong attempt was made during the contest on 
 the repeal of the Corn Laws, to defend agricultural 
 protection on the ground of the extreme import- 
 ance of not suffering the nation to be dependent 
 on foreigners for food ; but it could not live through 
 the debate. It was seen that England must have sunk 
 to a third-rate power if she had fallen under the doom 
 of feeding herself. And what is the feeling now when, 
 for a large portion of the year, her people would perish 
 of famine, if foreign supplies failed to arrive at her 
 ports ? At no former period of her history, probably, 
 have the people of England felt such confidence in the 
 unfailing supply of abundant food. The fields of the 
 foreigner are felt to be her fields as truly as those which 
 are spread over her counties. She commands the
 
 328 FREE TRADE. 
 
 agricultural energy of the whole world ; Free Trade is 
 the guarantee of her safety. 
 
 And now what shall we say of the language which 
 speaks of foreigners as rivals or competitors whose 
 success is our loss ? If such words are used of what 
 are called third markets, in which English and foreign 
 producers meet to offer goods to the inhabitants of 
 those countries, then no doubt the foreigners are rivals, 
 and their success is English loss. If English and Belgian 
 iron masters send rails to Australia, and the Belgian 
 rails are found to be the cheaper of the two and are 
 bought, then England will have lost her customer and 
 with him an important trade. But in this place our busi- 
 ness is with free trade over against protection, and with 
 the cry to keep out the foreigner by legislation as a mis- 
 chievous competitor in one's own country. In such a case, 
 it is a new aspect of trade to regard the man of whom you 
 buy as a rival, for trade was wont to be described as a 
 friendly and social act These modern days are fertile 
 in new discoveries. Has the intelligence of the country 
 been enlightened with the revelation that the American 
 who buys cotton cloth of an Englishman commits an 
 act of hostility against his fellow-countrymen ? Is it not 
 plain that these ideas issue from the lips of interested 
 traders of men who manufacture the same goods as 
 those bought from the foreigner, and for whom, no 
 doubt, he is a real and possibly a destructive rival ? 
 
 There exists a real and undeniable hostility in this 
 matter the hostility of the protected workmen against 
 their country. They know that in an open market the 
 goods of the foreigners and not theirs will be bought, 
 and their object is to compel their fellow-countrymen
 
 FREE TRADE. 329 
 
 to support them by giving them an extra price for 
 their merchandise. It is a natural feeling, and let us 
 not be angry with these men. Who is there that can 
 bear easily to see a flourishing business irrevocably 
 decaying away, and himself obliged to exchange 
 assured maintenance and comfort for a livelihood 
 which, till he betakes himself to something else, may be 
 precarious. It is our duty to feel sympathy for this 
 suffering, as one might and ought to have sympathised 
 with the troubles of the manuscript-writers on the 
 invasion of printing ; but the law of human life and of 
 national association forbids that any class of men 
 should be permanently supported at the expense of the 
 community. What is given to them is taken from 
 others who can ill afford the gift. If once the principle 
 were established, that] in any form whatever, even as 
 carrying on a large industry which employs many 
 workmen, any portion of the population has a right to 
 be maintained at the public cost, how is it possible to 
 stop short of communism ? Protection is only a con- 
 tribution in disguise from the public for the support of 
 some particular persons. 
 
 It remains to speak of reciprocity ; it need not occupy 
 us long. The doctrine of reciprocity admits the prin- 
 ciple and the practice of Free Trade to be right 
 generally, but it annexes a condition to free trade in a 
 particular case. If the foreigner refuses to meet our 
 adoption of free trade by a similar action on his own 
 part, if he places protective duties on our goods and 
 thus prevents the products of our own industry from 
 freely competing with him in his own country, then the 
 proper course is to meet him with the same measure on
 
 33O FREE TRADE. 
 
 our side. Protection is admitted by the doctrine of 
 reciprocity to be wrong in principle, but when it 
 becomes counter-protection and retaliation, it is then 
 the correct policy to pursue ; it is right to give blow for 
 blow. If the Frenchman injures the English makers 
 of iron by a protective duty on English iron on its 
 entrance into France, it is fitting to punish him by 
 crippling his trade in silks with England. This lan- 
 guage is the offspring of pure confusion of thought ; it 
 utterly misconceives the nature of all trade. It refuses to 
 regard an act of trade, by itself alone, as a single trans- 
 action ; it insists on coupling it with another with which 
 it has no connection whatever. A purchase of silk is 
 one thing, separate and distinct, a sale of iron is 
 another, equally separate and distinct. 
 
 If iron is the only article which England has to sell 
 and to give in exchange for foreign goods, then of 
 course, if the Frenchman refuses to buy English iron, 
 England cannot buy French silks, and all trade between 
 the two countries simply comes to an end altogether. 
 But this is not what the advocate of reciprocity means 
 or intends. He always supposes that trade will go on 
 between England and France, but there must be none 
 in French silks simply because there is none in English 
 iron. He demands only that an injury shall be inflicted 
 on the French manufacturers of silks in retaliation for 
 that inflicted on the English manufacturers of iron. 
 But there is a fatal flaw in this reasoning of the preacher 
 of uniformity. He leaves out of consideration the 
 English buyer of silk in other words, the people of 
 England. To take the case of the ribbon makers of 
 Coventry, in whose behalf this doctrine of reciprocity
 
 FREE TRADE. 331 
 
 was most warmly pleaded. Why, solely because the 
 French do not choose to buy the better and cheaper 
 iron of England, is a tax to be imposed on every con- 
 sumer of silks in England a gratuitous tax, one of 
 pure passion and temper ? That the men of Coventry 
 ought not to make ribbons if cheaper ones and more of 
 them can be obtained from France with the same 
 amount of English labour has been already shown, and 
 is not denied by him who takes his stand on reciprocity. 
 Why then should free trade be forbidden to say to the 
 people of England buy your ribbons of France, and 
 let France or some other country buy in return those 
 goods which England will have to make to exchange 
 for the ribbons ? The Coventry men, when the transi- 
 tion state is over, will themselves be gainers also, for 
 larger and more profitable trade will be created. For 
 the English people to spite themselves because these 
 perverse Frenchmen will not buy English iron would 
 be simply to commit folly in England because folly is 
 committed in France. 
 
 Free Trade is right for its own sake, for the sake of 
 the nation that produces it, independently of all regard 
 for what the foreigner may or may not do. If the 
 foreigner sells he must buy to an equal amount. That 
 is absolutely certain, and the whole question between 
 Free Trade and Protection is always and fully raised and 
 decided in the purchase of each single article without 
 reference to any other buying and selling. Protection 
 is bad in itself bad for the country which embodies it 
 in its statutes, harmful and impoverishing to the nation 
 which forbids its people to employ themselves in those 
 industries for which they possess the greatest aptitude,
 
 33 2 FREE TRADE. 
 
 and in which their labour is most profitable. Every 
 protective duty is a mischievous and injurious thing, 
 calling for abolition out of pure regard for Eng- 
 lish interests. On what possible ground can it be 
 pretended that the removal of a disease which is prey- 
 ing upon English trade should be made to depend on 
 what Frenchmen or any other foreigners may do within 
 their own territories ? The notion evidently is that in 
 giving up a protective duty we are making a sacrifice 
 to the foreigner. We have seen that this is a mistake. 
 There is a sacrifice in a protective duty, but not in its 
 repeal, but in its retention, the sacrifice of the good of 
 the people to the personal advantage of a few. In 
 establishing free trade, in allowing Englishmen to buy 
 the foreigner's goods freely, to do him a service is in 
 no sense whatever the motive of the act. He will profit 
 because there will be an increase of trade, but the 
 object which prompts the abolition of protection is to 
 relieve the home country of a legislation which works 
 it commercial harm. 
 
 But there is another and very different case, when 
 the question of reciprocally abolishing duties in two 
 countries simultaneously assumes a radically different 
 character from the ordinary doctrine of reciprocity, the 
 case when duties not protective but merely financial 
 come under discussion. The motives which regulate 
 the imposition of taxes for purposes of revenue are 
 extremely complex and variable. A Chancellor of the 
 Exchequer who either imposes or remits taxes must 
 unavoidably be swayed by many diverse and often con- 
 flicting considerations. It may easily happen that in a 
 deliberation which must frequently be perplexed, the
 
 FREE TRADE. 333 
 
 possible effects which may be produced in foreign 
 countries by the remission of a particular tax may 
 assume great importance. A minister who has taxes 
 to remit is brought face to face with motives of very 
 different kinds. He has to weigh the inconveniences 
 which belong to each separate tax, and further he must 
 take into account the collective benefits which the 
 abolition of a particular tax may bring. He may be 
 justified in selecting for remission that tax which is 
 perhaps less directly noxious than the other, but which 
 may stand in the way of the acquisition of a great gain 
 from an independent source. It would be open in prin- 
 ciple and reason to the minister to apply his surplus to 
 the abolition of one tax rather than of another, if there- 
 by he can persuade a foreign country to reduce a tariff 
 which impeded and injured English trade. Here 
 the doctrine of reciprocal action has a perfectly legiti- 
 mate application. No economical principle forbids the 
 deed. 
 
 But though international treaties founded on joint 
 remission of duties are free from any objection on the 
 score of principle, it may be permitted to question their 
 policy. At the best they are only a contrivance for 
 combating the prejudices and the ignorance of foreign 
 countries. They are devices for entrapping others under 
 the appearance of a profitable gain into what they 
 should do because it is right and beneficial. They aim 
 at overcoming by a side-wind false notions about trade 
 in foreign lands, but on that very account they have a 
 manifest tendency to perpetuate the errors. So long as 
 foreign Governments look out for equivalents before 
 they consent to reduce duties, so long will they be dis-
 
 334 FREE TRADE. 
 
 inclined to study the natures of free trade and protec- 
 tion. There is an appearance of gain, of advantages 
 won by the diplomatic art, of benefit extorted from 
 foreigners, which turns the minds of statesmen away 
 from the study of economical truth. It is the wiser 
 and in the long run the more successful course, to 
 preach the truth by reasoning and example.
 
 CHAPTER X * 
 
 THE DOCTRINE OF RENT. 
 
 RENT has long been a favourite field of economica 
 investigation. The success which political economists 
 are said to have achieved in determining the nature and 
 laws of rent is commonly regarded as one of the most 
 brilliant triumphs of the science. The doctrine of rent 
 which has resulted from their researches is pointed to 
 by many as one of the grandest proofs of the scientific 
 character of political economy. Indeed some have gone 
 so far as to assert that the established theory of rent 
 inevitably demonstrates that political economy is a true 
 deductive science, as rigorous in its method, as genuine 
 a development of strictly reasoned inferences from first 
 principles as even the constructions of geometry. A 
 position thus splendid, won for a doctrine by the genius 
 of so many men of distinguished ability, might seem 
 to have lifted it up for ever above the reach of criticism. 
 It might be thought as presumptuous to challenge its 
 accuracy as to dispute the validity of the first propo- 
 sitions in Euclid. Nevertheless, I venture to submit, 
 that this very pretension to convert the doctrine of rent 
 into a foundation for claiming for political economy the 
 character of a deductive science furnishes ample warrant 
 for a re-examination of that doctrine. 
 
 * Read before the Manchester Statistical Society, March 13, 1872.
 
 336 THE DOCTRINE OF RENT. 
 
 The theory of rent, whatever else it may be, most 
 assuredly is not a product of deductive reasoning. Rent 
 is a complex fact of the outward, concrete, material 
 world ; it must be studied in its objective and actually 
 existing form before its nature can be ascertained. Its 
 elements have to be discovered before they can be put 
 together in a theory. Its phenomena must be sifted, what 
 is accidental separated from what is permanent, before 
 we can reach its laws; in a word, it must be first subjected 
 to analysis before its elements can be handled by 
 synthesis. All these processes are those which dis- 
 tinguish analytical sciences. They are not expansions 
 of a first principle or of a definition ; they are searches 
 after facts, inquiries after laws which are not emanations 
 of the pure reason, but only combinations of discerned 
 relations. Thus the science of rent, if there be one, 
 stands on the same identical ground with chemistry, or 
 any other acknowledged analytical science. Now it is a 
 peculiarity of all analytical science that it is perpetually 
 open to re-examination. It can allege no necessary 
 inherent unalterable nature of its laws. Still more, it can 
 give no absolute, even certain, guarantee of the com- 
 pleteness and accuracy of the investigation, on which 
 the formulas which are called its laws repose. The 
 noblest product of analytical reasoning, the great law 
 of gravitation, is at this hour the object of incessant 
 inquiry. Few astronomers, if any, will now venture to 
 affirm that the law of the inverse square of the distance 
 is anything more than a fact, and a fact moreover which 
 no one can assure us holds good at all times and in all 
 regions. And if the generalisations of astronomy may 
 be perpetually questioned, it is no act of extravagant 
 
 f
 
 THE DOCTRINE OF RENT. 337 
 
 presumption to submit the utterances of the doctrine of 
 rent to revision. 
 
 What then is rent ? What is the subject-matter of 
 this discussion ? It is a fact of the every day world, an 
 event of incessant occurrence in the actual material life 
 of mankind. We will not say with Professor Cairns that 
 " Rent is a complex phenomenon arising from the play 
 of human interest, when brought in contact with the 
 actual physical conditions of the soil, in relation to the 
 physiological character of vegetable productions." That 
 is too scientific for us, supposing it even to be intelli- 
 gible. We will say rather that it is the consideration 
 paid for the loan of land, the price stipulated for the 
 lending of a particular machine. Rent, in legal phrase 
 and common language, includes the payment annually 
 given for borrowing every kind of land ; but in political 
 economy the expression is usually limited to the hire of 
 agricultural land, that is, of land borrowed as a machine 
 for the production of such wealth as is obtained from its 
 cultivation. Land borrowed in towns, whether to serve 
 as sites for ordinary houses, or as instruments for 
 purposes of business and profit, such as wharfs, ground 
 for the erection of factories and workshops, and the like, 
 falls into a separate category. The considerations 
 which govern the conditions of the hiring are 
 essentially different, if not entirely in principle, at least 
 in form and manner of operation, from those which 
 prevail with agricultural land, and consequently do not 
 admit of being examined in a common investigation, nor 
 of yielding common results and identical rules of action. 
 Our concern here is with the rent of agricultural land 
 as discussed in treatises of political economy, and with 
 
 Y
 
 338 THE DOCTRINE OF RENT. 
 
 the doctrine which is understood to be generally accep- 
 ted respecting its nature and principle. 
 
 Let us begin from the beginning ; let us commence 
 with the fact of real life in its most concrete form. All 
 true philosophical investigation takes its starting point 
 in the complex phenomenon to be analysed. We will 
 not, with Mr Mill, commence with a declaration about 
 monopoly, for this is a doctrine to be established, a 
 conception to be made good, an element to be dis- 
 covered by analysis, and not the obvious and admitted 
 condition of the transaction under examination. The 
 thought occurs to few farmers in debating their rent 
 with their landlord, that he enjoys a monopoly and is ex- 
 acting a monopoly of price for the commodity he lends. 
 As well might one begin with the idea of monopoly 
 in considering what the price of a hunter is composed 
 of when hired from a good stable. Nor will we, with 
 Mr James Mill and Mr M'Culloch, speak at first about 
 successive doses of capital, and diminished returns to 
 increased outlay, nor about any similar assertions of a 
 scientific character. The facts thus alleged are true; but 
 to take them as our origin, or as primary elements, till 
 they have presented themselves to our analysis as such, 
 would be an offence against the laws of analytical 
 method, and would be sure to involve us at the end in 
 partial and consequently untrustworthy deductions. 
 Let us follow rather the only trustworthy process; 
 let us begin by laying hold of the concrete fact, 
 and then placing it under the analytical microscope. 
 
 A tenant proposes to take a farm from a landlord, and 
 the amount of the rent is debated between them. What 
 are the conditions which crovern the calculations on
 
 THE DOCTRINE OF RENT. 339 
 
 both sides ? What are the things which ultimately 
 decide, whether there shall be any rent at all, and if 
 there is rent, what shall be its amount ? Plainly, unde- 
 niably, the one sole calculation which the farmer makes 
 is, to use his language, on what terms he will be able to 
 get a living out of the farm, that is in economical lan- 
 guage, on what terms he will be able to realise the 
 ordinary profits of trade and a fair remuneration for his 
 labour and skill. Now, how does he make the calcula- 
 tion ? for this is the vital matter. Most assuredly he 
 will not compute how much the landlord has expended 
 on the farm he will not enter into fine reasonings 
 about successive doses of capital, or about the ratio of 
 returns which they have generated. He will not trouble 
 himself with the financial history of the farm, so far as 
 it records the outlays which have flowed from the land- 
 lord's pocket. He will not give a thought to the ques- 
 tion whether the landlord has made a wise purchase of 
 the land, or judiciously invested capital on its improve- 
 ment. Nor will the landlord be in a position to enforce 
 such considerations upon him. The determination of 
 rent does not belong to the landlord, but to the tenant. 
 The landlord must take what the general market for the 
 loan of land will give. The attempt to exact more would 
 break down by the refusal of tenants to engage in the 
 business. In letting farms, the landlords are sellers 
 of goods, but whether the goods shall be sold or not 
 is a question to be settled, as in all markets, by the 
 buyers. 
 
 The feelings then of the landlord have nothing to do 
 with the problem to be solved in fixing the rent ; the 
 feelings, I mean, generated by his notions as to what
 
 34O THE DOCTRINE OF RENT. 
 
 the financial past of the farm has been. The practical 
 problem is always what the tenant conceives he can 
 afford to give for the farm. The cost of making the 
 farm, whether it was made by nature or by the land- 
 lord's capital, is no part of the calculation. The tenant 
 who is weighing whether he can take the land, and on 
 what terms, is utterly indifferent to the landlord's posi- 
 tion as a capitalist His mind is set on one thing only, 
 his thought is absorbed by one single computation 
 what the land will yield on cultivation, what the 
 nett profit will be, all expenses paid, at the prices 
 prevalent in the market. This is the problem, the 
 only problem. The question may present itself to 
 the tenant's mind, as being, how many shillings he can 
 afford to give as rent for each acre of the land ; but that 
 is only a different form of the same real inquiry, how 
 much the acre will produce upon cultivation, and how 
 much of that produce he must insist on keeping for 
 himself. The items, therefore, which enter into the 
 estimate constitute the whole problem ; and what are 
 they ? 
 
 The fertility of the soil is one chief element of the 
 arithmetic employed, but it is not the sole element, and 
 very often, indeed, not the dominant one. The over- 
 whelming importance assigned to the relative produc- 
 tiveness of the land is the capital mistake which I am 
 compelled to lay to the charge of most political econo- 
 mists in their exposition of the theory of rent. The 
 temptation to fall into this error was almost irresistible ; 
 fertility was so manifestly a great ingredient in the 
 manufacture of agricultural produce. Then it ran so 
 easily and so delightfully into a scientific and theoreti-
 
 THE DOCTRINE OF RENT. 341 
 
 cal form. First, the land which would only repay the 
 cost of cultivation, without any surplus above ordinary 
 profits, figured at the basis of the scale as No. I. Then, 
 a little more quality, a touch of superior productive 
 power ushered in No. 2, with a rising rent, and a 
 charming series was constituted with a fine air of 
 mathematical precision. If ever political economy was 
 to be made out to be a strict science, here was the 
 chance. But the ways of science are rigorous, it is apt to 
 call for all the facts ; it will recognise nothing to be 
 theory which does not embrace them all. Is it true, 
 then, as the fact which is to serve as the foundation of 
 the theory of rent, that rent always rises and falls with the 
 relative fertility and productiveness of the soil? we must 
 appeal to our deliberating tenant ; it is the thoughts in 
 his mind which furnish all our data. What would his 
 reply be? If every other circumstance is the same, 
 then he will proportionate the rent he will pay to the 
 exact variations of the fertility of the land ; if the con- 
 dition does not hold good, he will not. 
 
 Upon this supposition, the doctrine of rent laid down 
 by Ricardo and most Political Economists, would be 
 true. If every expense of cultivation were the same for 
 two farms ; if every charge borne by each of the farmers 
 were precisely of the same amount, and if the sale of 
 the produce of each farm realised the same prices, then 
 the scale for measuring the amount of rent by the com- 
 parative fertility of the soil would be true and accurate. 
 Then land No. i the poorest cultivated would yield 
 no rent ; it would repay the cost of cultivation and 
 nothing more. Land No. 2, by virtue of a better quality 
 of soil, would produce a larger crop ; it would bring
 
 342 THE DOCTRINE OF RENT. 
 
 back a larger quantity of money from the markets, 
 whilst its cost of cultivation would be identical with 
 that of No. i. No. 3 would render a larger rent by 
 means of higher fertility, and so on all through the 
 series. 
 
 On a single farm most of the circumstances of the 
 farming are generally the same ; hence the farmer will 
 estimate the rent which each acre will bear by the 
 goodness or badness of the land. But even here some 
 disturbing forces will occasionally make their appear- 
 ance. There may be fields particularly well suited for 
 accommodating animals in the neighbourhood of fairs 
 and markets. A tenant would take account of this cir- 
 cumstance in his mind, but so also will the landlord ; 
 and then, as an actual fact, a portion of the farm will be 
 let for a rent not proportionate to relative fertility alone. 
 A new element has come into play, a new considera- 
 tion asserts itself, which puts a different rent on two 
 fields which produce the same identical amount of grass 
 each year. The grass of the one field sells for more 
 than the grass of the other ; and the difference of the 
 selling price at once makes itself felt in the estimation 
 of the rent. 
 
 If we now pass beyond the boundary of the single 
 farm, the contrast created by the accessory circum- 
 stances will become more striking ; the relative 
 fertility recedes into the background as the determiner of 
 rent. One farmer may wish to occupy two farms, one 
 on the light lands of Surrey, another on the adjoining 
 strong clays of Sussex. The crops of corn raised on 
 each may be identical in amount ; but Surrey will re- 
 quire but few horses, and Sussex will demand many.
 
 THE DOCTRINE OF RENT. 343 
 
 He will treat with the landlord for each of these farms 
 on separate bases ; he will consent to a higher rent for 
 the Surrey than for the Sussex lands. The expense of 
 tillage would be much smaller in the one case than in 
 the other, and the difference immediately attacks the 
 amount of the rent. 
 
 If we travel on to the neighbourhood of London, 
 the facts will become still more startling. Land of 
 the same quality as much land in the counties will 
 be found yielding ten or even fifteen pounds an acre; 
 to what must such an astonishing difference be 
 ascribed ? To better markets, to ample supplies of 
 manure, to cultivation by the spade, and to high prices 
 readily realised. 
 
 We may take a still wider range of observation, we 
 may pass on to the most distant corn fields which 
 England possesses, the broad regions of Western 
 America. There lands of the most wonderful fertility 
 are brought under cultivation to feed the people of 
 England, and I call them emphatically English fields, 
 because political economy knows nothing about 
 political divisions. It asks no questions about the 
 origin of the bread which stands on English tables. 
 The Australian and American corn is as much English 
 corn as that grown in Lincolnshire or Sussex. Of these 
 superlatively rich lands many pay no rent, and the rea- 
 son presents itself at once. The cost of carriage eats up all 
 that part of the produce which could generate rent. And 
 it is not only against these distant regions that the 
 element of carriage operates ; we feel its power at our 
 own doors. It cannot be disputed that railways and 
 other improvements of locomotion have added consider-
 
 344 THE DOCTRINE OF RENT. 
 
 ably to the general rent of estates. The fertility of the 
 soil, as distinct from the manure applied to it, has 
 remained the same, but cheap transport has given 
 access to fresh markets, and rendered even the distant 
 guano of Peru available for British tillage, has cheapened 
 many an agricultural process, and rendered high farm- 
 ing possible in localities in which it was formerly 
 unknown. And more still, be it observed, it has often 
 improved rent on inferior soils relatively to those of 
 high quality ; it has raised them in the general scale, 
 precisely because relative expensiveness of cultivation 
 and inaccessibleness to markets had depressed them. 
 
 Again, what shall we say in our own country of the 
 action of parochial rates on rent ? Do they not certainly 
 counteract the power of fertility to bestow an improved 
 position on the landlord? The institution of Unions 
 has equalised these burdens in comparison with the 
 local pressure which existed some score of years ago ; 
 but the experience of our earlier recollections serves 
 perfectly for illustrating the disturbances which parochial 
 taxes can create in the calculation of rent. We have 
 known parishes whose peculiar situation enabled neigh- 
 bouring landholders to throw their labourers into the 
 cottages of these parishes to the relief of their own ; and 
 the consequence was an unfair excess of population in 
 such parishes, an undue number of legal settlements, 
 and consequently a marked increase of the local rates. 
 Indeed, it was said, that the cultivation of one parish in 
 England was abandoned before the enactment of the 
 new Poor Law, owing to the overwhelming pressure of 
 rates levied for the maintenance of the poor. All the 
 rent-generating fertilities of that parish were annihilated
 
 THE DOCTRINE OF RENT. 345 
 
 in one common extinction. It is the same with tithes. 
 Lands tithe-free always yield a larger rent, under equal 
 circumstances, than those subject to tithe. Tithe, it is 
 now well known, is a clear deduction from rent. That 
 single fact of itself is a complete demonstration that a 
 doctrine which makes the relative fertility of the soil 
 the essence of rent is only a partial summary of the 
 elements of the problem, and therefore an inadequate 
 and unscientific theory. 
 
 We thus reach the conclusion established by this 
 evidence. Relative fertility is not the exclusive basis 
 of rent, but only one of its elements, and in many 
 important cases not its dominant element. When the 
 other forces which act on rent are equal, then, no doubt, 
 it is the regulator of rent ; but these forces vary without 
 limit, and by varying they modify, enlarge, diminish, or 
 not unfrequently extinguish rent altogether. Fertility, 
 by itself alone, will not furnish the theory of rent. If 
 we wish to understand its nature and the causes which 
 increase or diminish its amount, we must go back to our 
 tenant-farmer who is examining the farm which is 
 offered him ; we must enter into his mind, and accom- 
 pany him in his calculations. We have seen that he will 
 judge the capability of the land to yield produce. He 
 will form an estimate of the quantity of that produce 
 under the tillage which he proposes to apply. Here it 
 is that fertility plays its proper part ; it will determine 
 what yield the skilful farmer may reasonably expect to 
 obtain. But when this first point is ascertained, another 
 immediately comes into view ; what will be the expense 
 of cultivation at that particular spot ? A multitude of 
 considerations now burst on the farmer's attention.
 
 34-6 THE DOCTRINE OF RENT. 
 
 How many horses will he require? How many 
 labourers, and at what wages ? Then again, what is the 
 amount of the tithe, the burden of the parochial rates, 
 their probable increase or diminution ? Manures next 
 call for consideration : is the farm near a town ? has it 
 facilities for procuring guano ? is it near to a railway 
 station, and will the cost of carriage be large or small ? 
 Then, how far must he send his corn to market ? 
 Must he encounter a long transport by sea or land, as 
 the fine wheat which is grown near Inverness and is sent 
 up for the supply of Mark Lane ? These and many 
 similar items under the great head of expense of culti- 
 vation will occur to his thoughts, and will have to be 
 calculated before he can satisfactorily determine the 
 rent which he can afford to pay, and they are wholly 
 irrespective of the relative fertility of the soil. He may, 
 and if he is a skilful farmer he will, combine the two 
 elements together, and come to an opinion as to the 
 capacity of the land to be grateful for the capital laid 
 out in its culture ; and, assuredly, on that very ground 
 he will prefer to pay a high rent for good land rather 
 than a low rent for poor land. Still, the two considera- 
 tions are distinct in themselves, and in the estimate he 
 makes of the power of the land to repay high farming 
 the cost of the improved cultivation in that particular 
 locality will carry great weight in his ultimate judgment. 
 The proximity, for instance, of coal and lime may 
 largely influence the conclusion adopted. 
 
 The yield of the farm and the cost of cultivation 
 having been estimated, the farmer now reaches the 
 third stage of the analysis. At what price will the pro- 
 duce be reasonably expected to sell? What are the
 
 THE DOCTRINE OF RENT. 347 
 
 average prices of the several kinds of agricultural 
 products which rule in the markets ? He cannot deal 
 satisfactorily with his landlord unless this vital condi- 
 tion be as far as is practicable ascertained. 
 
 At this point the peculiar nature of rent discloses itself. 
 A farm is a machine let out on hire, but its remuneration 
 is calculated on a peculiar principle. When a ship is 
 hired on freight, or a horse and cart are procured for a 
 day's work, the price of the loan follows the general rule 
 of most markets ; it is regulated by the cost of produc- 
 tion, by the expense incurred in making and maintain- 
 ing these instruments, with reasonable profit for the 
 lender. It is not so with the letting of land. The rent 
 which the landlord receives bears no direct or necessary 
 relation to the cost of purchasing and preparing the 
 soil for tillage. Whether the landowner has spent 
 much or little on the land matters nothing in itself; 
 the sole question is, what is the capacity for producing 
 which the farm possesses whether that capacity has 
 been acquired from nature, or from the personal outlay 
 of the owner? what is its work as a machine? The 
 arithmetic between the landowner and the tenant runs 
 in a totally different groove from the cost of making the 
 machine ; it is an inquiry whether there is a surplus of 
 receipts after the cost of cultivation has been repaid and 
 the farmer has obtained the ordinary profits of his trade. 
 If there is such a surplus, it belongs to the landlord, on 
 the simple principle that if this tenant will not take the 
 farm on the terms of handing over this surplus some 
 other tenant will. 
 
 But is there such a surplus? The universal fact 
 that land pays rent replies that there is. Then
 
 THE DOCTRINE OF RENT. 
 
 how is it that such a surplus exists ? In ordinary 
 trades the prices at which goods are sold yield no 
 such surplus ; they furnish cost of materials and tools, 
 wages, and profit, and nothing more ; how comes 
 land to exhibit so remarkable an exception ? Political 
 economists have answered this question, and they have 
 done a great service to knowledge and also to public feel- 
 ing on so important a matter by the accuracy of their 
 reply. The cause of rent is found in the price of agri- 
 cultural produce, which is not lowered down to the point 
 of simply replacing cost of production and profit, but is 
 high enough to give an excess, and that excess is naturally 
 claimed by the owner of the wealth-producing instru- 
 ment as his own. The cotton-spinner of Manchester 
 sells his yarns and the gunmaker of Birmingham his 
 rifles at prices which repay the cost of making them 
 with a legitimate profit for themselves. The farmer 
 does precisely the same. He holds the same identical 
 position with these manufacturers. Like them, he is 
 content with prices which repay all his expenses, and 
 bring him the natural reward for carrying on his 
 business. But on selling his corn and his cattle he 
 gathers up more money than is required for these two 
 purposes. The excess he is quite willing to hand over 
 to his landlord. He is satisfied with doing business on 
 the same terms as the Manchester and Birmingham 
 millowners. But the millowners find no surplus in their 
 hands, after receiving cost of making and profit: the 
 farmer does find such a surplus. Thus the great fact 
 comes to light that rent does not raise price, but price, 
 by being high, creates rent. This is the cardinal truth 
 respecting rent.
 
 THE DOCTRINE OF RENT. 349 
 
 This fact is capable of being described as the effect 
 of the arbitrary demands of the landowner, as the result 
 of a monopoly enjoyed by him in the production of 
 certain commodities indispensable to the community, as 
 more or less an exaction depending on his pleasure and 
 regulated solely by his ideas, so as to raise the largest 
 possible sum out of purchasers. Such a conception is 
 entirely erroneous. A time may come after the revolu- 
 tion of many ages, and such a time occurs often now in 
 blockaded towns, when the owners of food and of the 
 means of producing it will be able to extort monopoly 
 prices from the community ; but such a condition of 
 human life has no existence as yet in the world. The 
 price of food which governs rent is not an arbitrary 
 requisition made by those who can dictate terms of 
 purchase to men who must either buy or starve. It is 
 founded on a natural fact over which the landowner has 
 no control. In England the price of wheat is determined 
 by the price which the man who produces under the 
 most unfavourable circumstances must obtain, if he is to 
 send his supplies to the English market. England can- 
 not produce bread enough for her wants; she must make 
 up her deficiency by supplies sought in every quarter of 
 the world. 
 
 Let us suppose that the corn of the American farmer 
 in the far West is indispensable for the maintenance 
 of the lives of the population of England, and that 
 the loaf made with his wheat cannot be set on any 
 English table at a lower price than fourpence. A 
 standard of price is instantly obtained, founded on the 
 general, though not universal law, mentioned by Pro- 
 fessor Jevons and others, that there is only one price
 
 350 THE DOCTRINE OF RENT. 
 
 for the same commodity in the same market. Every 
 English farmer will then demand fourpence for each of 
 his loaves, for he is not under the slightest compulsion 
 to undersell the American, and if the consumers refuse 
 to give him the American price, he has only to withhold 
 his corn to reduce them to submission. 
 
 Thus the price of the corn is established by causes over 
 which the landowner has no influence. The cost of plac- 
 ing an American loaf on an English table fixes the sell- 
 ing price of all the loaves in the English market. Then 
 comes the process of computation between the landlord 
 and the tenants. To one he says : " You can produce 
 loaves at threepence halfpenny each, I shall require a 
 halfpenny of rent on every loaf your land is estimated 
 to produce." To another he lays down that with the 
 help of superior fertility and other advantages, whether 
 of carriage, manure, or the like he can produce loaves 
 which will give him just remuneration at threepence, 
 and he will demand a penny of rent per loaf, and the 
 demand will be complied with. The only question with 
 the tenant will be whether at the price of threepence he 
 will acquire the reasonable profits of his business. He 
 may debate the accuracy of the landowner's estimation 
 of the yield of the land and of the cost of cultivation ; 
 but when these are ascertained to be correct, he will 
 not, from any motives extraneous to the pure arithmetic 
 of the transaction, refuse to accept a farm which another 
 will be eager to take. 
 
 One fact more, however, must be noticed. A portion 
 of the rent of a farm, in most cases relatively small, 
 clearly partakes of the nature of interest on capital 
 expended by the landlord. If he has spent money on
 
 THE DOCTRINE OF RENT. 351 
 
 draining, repairing gates and farm buildings, and on 
 other matters necessary for cultivation, he cannot but 
 consider that a part of what he receives is compensa- 
 tion, as interest, for this outlay. In the calculation 
 which the incoming tenant makes of the rent which he 
 can afford to pay, this expenditure of the landlord's 
 capital will figure as a diminution of the cost of pro- 
 duction or as an increase of the produce which will be 
 realized. The process will always be that described 
 above, only in the one case the tenant will set down 
 the estimated cost as smaller, in the other he will make 
 a larger estimate of the yield of the farm. In both 
 alike, the landlord's application of capital will bring 
 him more money, and consequently he will be able to 
 afford a higher rent, and the landlord will be able to 
 enforce it. 
 
 This theory of rent is accurate, because it takes ac- 
 count of all the facts and places them in their proper 
 relation to each other. But it is scientific in a very 
 different manner from the much vaunted theory, 
 which has been so groundlessly made the pride of 
 political economy. Rent is the result of many forces 
 and not of one. The boasted doctrine of rent was 
 merely the brilliant statement of the action of one force 
 only. It thus could be constructed symmetrically ; the 
 varying rents paid for land could be co-ordinated upon 
 a single principle, and by its simplicity and beauty it 
 charmed the imagination like the formulas of gravitation 
 or chemistry. But unfortunately it did not quit the 
 region of the imagination. The rents assessed on lands 
 refused to obey a single principle. The first farmer who 
 heard it would ridicule the notion of all the land of a
 
 35 2 THfi DOCTRINE OF RENT. 
 
 county, much more of all England or of all the world, 
 being settled by the question what is the degree of 
 fertility ? It is No. 5 land in fertility, it must pay No. 
 5 rent. One has only to take that rule into the land 
 market to be laughed out of it as a dreamer. 
 
 The eminent men who have treated of rent have not 
 been ignorant of these facts. They have spoken of 
 situation and other influences ; nevertheless, they have 
 struggled to leave the impression of a graduation of rent 
 upon one principle, and though they have protected them- 
 selves against the charge of actually ignoring facts, they 
 have taught the world to believe that political economy 
 had discovered a beautiful theory of science, which 
 could shed illumination over each and every settlement 
 of the complicated inquiry, what the rent of a farm shall 
 be. The mischief resulting from such an erroneous 
 suggestion is always considerable, for it brings discredit 
 on political economy as a science fit for theorists but 
 as little corresponding with the facts of the living 
 world. 
 
 The accurate statement of the doctrine of rent is a 
 valuable and useful explanation of the many elements 
 of an intricate practical phenomenon, but it furnishes no 
 rule which can be made to govern all its complications. 
 It tells us what the facts are, and in what connection 
 they stand with one another ; but it leaves the landlord 
 and the tenant to their practical sagacity and to arith- 
 metic alone, for determining the actual rent which shall 
 be paid for the farm. The relative importance to be 
 assigned in this calculation at a given place to fertility, 
 the number of horses and labourers to be employed, the 
 rate 01 agricultural wages, access to markets, manure,
 
 THE DOCTRINE OF RENT. 353 
 
 and coals, the burden of tithes and poor rates, is utterly 
 beyond the power of political economy to prescribe, yet, 
 they are the very facts which determine the ultimate 
 figures. 
 
 The preceding explanation of the nature of rent shews 
 the relation which it bears to tithes. Some few years 
 ago, at the time when the disestablishment of the Irish 
 Church was under debate, much discussion arose as to the 
 incidence of tithe. On whom did it fall ? Who was the 
 person who really paid the tithe due upon the farm, 
 the farmer or the landowner ? The question can be de- 
 cisively answered by the help of the analysis here given 
 of rent. Tithe is a charge which must be met by the 
 tenant who occupies the land. In the calculation 
 above described, it will figure in the cost of the farming ; 
 it swells the expense at which the crop is raised. It 
 will take its place by the side of poor-rate, or any other 
 payment which must be encountered. It will be set off 
 against the amount of money realised by the cultiva- 
 tion, and will diminish the final surplus which constitutes 
 rent. Hence it necessarily follows that if the tenant 
 was relieved from this charge, the surplus, which ex- 
 ceeds his proper profit, will be increased, and the whole 
 of that surplus so increased will be claimed by the land- 
 lord. It could make no difference to the farmer whether 
 he paid the same sum as tithe to the clergyman, or as 
 additional rent to the landlord. His estimated profit, 
 in either case, would be identically the same. 
 
 It remains to notice one point which has not been 
 spoken of in the preceding discussion. Writers on rent 
 have for the most part assumed that there is agricultural 
 land which yields no rent, and they have assigned great 
 
 z
 
 354 THE DOCTRINE OF RENT. 
 
 importance to this kind of land as furnishing the standard 
 with which the rents of all lands is compared. This 
 land, they allege, does nothing more than repay the ex- 
 penses of cultivation ; it generates no surplus which the 
 landlord can claim as rent. Its bearing on the rents of 
 other lands consists in its fixing the price of agricultural 
 produce. Its products are required and will be bought ; 
 and consequently the selling price must be sufficiently 
 high to maintain and repay its tillage. It thus deter- 
 mines the minimum of agricultural prices ; they must 
 be at the least high enough to bring the produce of this 
 land to market. 
 
 This assumption is correct. But the question imme- 
 diately arises, where is this non-rent paying land to be 
 found ? Not in England, certainly. It is open to very 
 serious doubt whether a single acre of cultivated land 
 exists in England which yields no rent whatever to its 
 owner; which he must either cultivate himself, obtaining 
 from it only the ordinary profits of business, or else give 
 it over to a tenant for nothing. I have never heard of 
 the existence of such land, its position has never been 
 pointed out, and even if a few acres of barren moor 
 could be found which were tilled and yet gave no rent 
 this would be utterly destitute of all importance, of all, 
 influence over the rents of other lands ; their quantity 
 would be too insignificant to have any such effect. The 
 lands which pay no rent, and yet fix the price of Eng- 
 lish rents, exist in America, and possibly in Russia, on 
 the extremities of the outer ring of that tillage which 
 supplies England with any considerable amount of food. 
 They may be lands endowed with great fertility. Indeed 
 it can be scarcely questioned that fields situated at such
 
 THE DOCTRINE OF RENT. 355 
 
 vast distances from the market, compelled to encounter 
 such enormous cost of carriage, and owing to the scanti- 
 ness of the population which cultivates them deprived 
 of the resources of powerful agricultural machinery, 
 must possess a high power of producing, if they over- 
 come such formidable disadvantages. These are the 
 regulators of English prices, the governors of general 
 English rents. We may possibly add the names of 
 Australia, the Pampas, and even India to the list, if 
 ever chemical science succeeds in placing the meat and 
 corn produced by these remote countries on a level 
 with those of England. 
 
 The high fertility of the distant lands from which 
 England now procures a large proportion of her corn 
 illustrates in a striking manner the fallacy of the 
 Ricardo doctrine of rent. By founding rent on fertility, 
 he necessarily implied that a rise of rent followed on the 
 taking of inferior soils into cultivation. Land A, which 
 previously repaid only cost of cultivation, and yielded 
 no rent, now resigns its place to an inferior soil. Its 
 produce is somewhat larger than this newly introduced 
 land ; the excess is rent. Land A now becomes land 
 B, and every degree of fertility changes its letter. There 
 is a rise of rent throughout the whole series. Hence 
 the repeal of the corn laws was bound to lead to a fall 
 of rents, for the land A of England could not be cultivated 
 in competition with the better soils of foreign countries 
 and their lower prices. So the landowners believed, 
 and accordingly they resisted the abolition of protection. 
 But what are the facts exhibited under the action of 
 repeal ? The lands which send corn to England possess, 
 for the most part, very elevated degrees of fertility ; but
 
 356 THE DOCTRINE OF RENT. 
 
 English rents are higher, and not as they were supposed 
 to be upon the theory, lower. Repeal has raised rents. 
 The cost of the American loaf is higher than the English 
 loaf, but not from inferiority of fertility, but from 
 expense of carriage. On the other hand, the English 
 landowner has to deal with a population wielding a 
 broader and more profitable trade ; and he gathers ur> 
 increased rent by supplying many wants, such as milk, 
 butter, meal, and other articles, which a larger and 
 richer population demands and can afford to pay for. 
 
 Much has been made in treatises of political economy 
 of the successive applications of capital to the same 
 land, the diminished return for the outlays, and the con- 
 sequent effect of this law upon rent. The principle is 
 true, and the law is certain ; but I cannot hold them to 
 have any serious importance in the present state of the 
 world. If the supply of food for the population of Eng- 
 land were restricted to the fields of this island, it is be- 
 yond doubt that this law would instantly acquire tre- 
 mendous significance. It would be hard to predict 
 what height agricultural rents would reach under such 
 circumstances. But thanks to steam and free trade, the 
 fields of all the world are the fields of England ; and 
 many centuries will pass away before the diminished 
 returns to successive doses of capital can have any 
 practical importance. 
 
 The doctrine of the diminishing returns, obtained by 
 successive applications of capital to land, entered for 
 much into Mr Mill's view of the rise of rent ; and it is 
 open, generally, to the remarks just made on Ricardo's 
 principles of relative fertility. Rents rose in England 
 upon the repeal of the Corn Laws, though the grain
 
 THE DOCTRINE OF RENT. 357 
 
 on which the country feeds is grown on lands on whose 
 cultivation but little capital is bestowed. Mill com- 
 mitted a kindred error with Ricardo. He thought only 
 of the expense of tillage, as Ricardo thought of the 
 quality of the land ; they both forgot that the determin- 
 ing force here was cost of carriage. 
 
 I cannot conclude these remarks without saying a few 
 words on the term "monopoly," which has been so freely 
 and, I may add, so passionately applied by some political 
 economists to the possession of land. I must protest 
 against the use of so invidious an epithet in respect of pro- 
 perty in land. The word "monopoly" suggests a wrongful 
 and odious usurpation. It is associated with feelings of in- 
 justice and dislike. It carries with it the idea that a wrong 
 is enacted at the expense of the community, a wrong 
 deserving reprobation and to be abated. The associations 
 connected with the epithet have a well-known and 
 legitimate origin. A monopoly is a restriction created 
 by the law on the carrying on of a particular trade in 
 favour of individual citizens to the exclusion of the rest 
 of the community. Such a preference is by its very 
 nature unjust, and it works immense mischief by the 
 inferiority of the goods thus produced and their dear- 
 ness. Monopolies existed in past times, and we all 
 know how the spirited resistance of the House of 
 Commons against the great Queen extinguished them 
 in England. The memory of them has remained 
 hateful in this country ; but I hold it to be most 
 unfair to insinuate by the use of the word monopoly, 
 that the possession of land has any affinity whatever 
 with those artificial and justly-condemned preferences 
 and restrictions.
 
 358 THE DOCTRINE OF RENT. 
 
 Mr Mill qualifies the expression by adding to it 
 the word natural ; but the sting which is inseparable 
 from the word monopoly remains all the same. 
 The arbitrariness with which it is applied in the 
 case of land will be seen, if we think of how many 
 natural advantages there are of the same general 
 character with that belonging to land, to which no one 
 ever thinks of attaching the word monopoly. The 
 skill and eloquence of a great barrister, the art of an 
 eminent brewer, the talent of a distinguished writer, 
 and endless other personal gifts, are natural monopolies 
 in precisely the same sense as land ; but who ever 
 thinks of fixing such an invidious name upon them ? 
 Yet, they resemble the possession of land in the 
 distinctive quality that they enable their possessors to 
 raise considerable sums of money out of the com- 
 munity. Oh ! but they are subject to competition ; 
 anyone may rival or surpass them, if he pleases. I 
 should rather say, if he can ; and he cannot, because 
 we are supposing these monopolists, to apply Mr Mill's 
 words, to possess the highest existing advantages. 
 
 But equally subject to competition are the owners of 
 rent. The repeal of the corn laws might have reduced 
 their incomes ; and if ever Australia and America 
 contrive to send cheaper meat that will be accounted the 
 equal of English meat, assuredly the effect on rents 
 will be real. And further, let it be well observed, the 
 possession of agricultural land is distinctly free from the 
 vices of a genuine monopoly ; it neither raises price, nor 
 deteriorates the goods produced. If private property 
 in land were abolished, the price of the loaf would not 
 be a fraction lower, nor would the wheat grown and the 

 
 THE DOCTRINE OF RENT. 359 
 
 cattle reared be better or cheaper than those we now 
 obtain. The only difference would be one of ownership ; 
 the State, and not private persons, would own and 
 receive the rents. 
 
 It is perfectly open to Mr Mill and those who 
 share his feelings, to propose that the present land- 
 owners should be paid off, and that the State should 
 be the one sole landowner in the nation. Whether 
 that would be a wise or mischievous policy is fairly 
 open to argument. So is communism. Communists 
 may rationally discuss whether it would not be expe- 
 dient that Mr Mill should devote his great talents to 
 the service of the commonwealth, and accept equal 
 remuneration with the citizen who carries bricks for 
 building. But in neither discussion could the idea of 
 monopoly enter. It may be determined that the 
 nation would reap large benefit from great abilities 
 being allowed to exert themselves for the benefit of 
 their possessors, and that private property in land 
 would be more advantageous than public. If such 
 be the decision, the private owner, who, either through 
 his predecessor or through his own efforts, has de- 
 veloped the wealth-producing powers of the machine 
 paid for or inherited, is no more to be branded with 
 monopoly than the great author who has so cultivated 
 the gifts with which nature endowed his mind as to 
 realise large pecuniary results from the sale of his 
 writings.
 
 CHAPTER XI. 
 
 MONEY METALLIC. 
 
 MONEY is a matter which deeply affects the welfare of 
 mankind. It is an instrument which has been found 
 indispensable by every nation which has passed beyond 
 the savage state. It is a tool of man's own invention, 
 devised to accomplish very important public purposes. 
 Unsound money, ill-constructed for performing its work, 
 may, and does at this hour, inflict enormous losses on 
 great countries, often with severe injury to every one of 
 their inhabitants. It seriously concerns therefore all men 
 to understand correctly the nature of this tool, the ends 
 which it is required to serve, and the principles on which 
 it must be made. Yet, in spite of the immense interests 
 involved in the employment of good money, it is a 
 machine on which the most deplorable confusion of 
 ideas prevails. It may almost be said that every man 
 contradicts every other man about money, about what 
 money is and what it is not, what it can and what it 
 cannot do. In no other subject which occupies the 
 thoughts of men does anything approaching the same 
 disorder exist. 
 
 The cause of this wonderful phenomenon is the 
 fatal facility with which men think themselves au- 
 thorised to pronounce about money, without any feeling 
 of responsibility for previously discovering by examina- 
 tion and analysis what are its nature and functions.
 
 MONEY METALLIC. 361 
 
 Every ordinary maker, before giving orders for the con- 
 struction of a machine, places distinctly before his mind 
 the precise work which it is intended to perform, and 
 the particular contrivances by which the machine will 
 effect it. The makers of money, the legislators who 
 bestow a particular kind of money on their people, and 
 the men who supply them with doctrines and views, act 
 on the vaguest and most irresponsible ideas as to the 
 exact work which the money shall perform and give 
 themselves no strict account of the precise contrivances 
 by which the money shall fulfil its ends. Thus money 
 becomes a subject on which men permit themselves the 
 most unbridled licence of thought and doctrine, and 
 thus also in the case of an instrument of universal use, 
 the question, What is money ? is found to be one of the 
 hardest which one human being can put to another. A 
 plain, intelligible, consistent answer seems to lie beyond 
 the reach of hope. 
 
 We must endeavour to pursue a different course. 
 We must employ the method which is the one source of 
 true knowledge, and if we apply it with strictness, if we 
 are faithful to it with unbroken loyalty, we may con- 
 fidently hope to arrive at certainty and clearness. We 
 must take up the facts of money and analyse them. 
 Analysis will 'remove the confusion and reveal the truth 
 which it smothers. 
 
 Let us then take a coin, a sovereign. All the world 
 is agreed to call it money. It is a positive concrete 
 substance. Its very derivation discloses its origin, how 
 it came to be born into the world. This sovereign is a 
 piece of metal which has been weighed, shaped and 
 stamped, as coins were of old in the Roman mint, the
 
 362 MONEY METALLIC. 
 
 temple of Juno Moneta. For what purpose was this 
 coin, this sovereign, thus made ? For one only : to 
 buy with it. It has no other raison cTttre, no other 
 object or utility, but this one single motive to be em- 
 ployed in buying. But what is buying? how does it 
 buy ? By being given away to an owner of some other 
 article, who is willing to take it in exchange for the 
 article he sells. It will be said, and quite truly, that- 
 this money is used also in paying debts, or it is kept in 
 reserve, but this fact makes no change in the truth that 
 the sole reason for making the sovereign was to buy 
 with it. The sovereign which discharges a debt pays 
 for an article which was previously bought and not paid 
 for at the time of purchase, and a sovereign stored up 
 in reserve lies waiting in idleness for the moment when 
 it will be summoned to buy or to cancel a debt. 
 
 Further, it is plain that the man who sells goods for 
 money, for the sovereign, intends to use that sovereign 
 precisely in the same way as the man who bought of 
 him did, when he gave him the sovereign for his com- 
 modities. He means to buy with it in turn. The 
 money is useless to him so long as he retains it. He 
 took it solely with the intention of buying again in turn 
 something else for himself. Thus money constantly 
 passes on from hand to hand. In economical language, 
 it circulates, and the more it is in movement, the more 
 hands it passes through, the greater is the work it per- 
 forms. Hence the expression currency, from curro, I 
 run. Money runs, moves up and down the town. Its 
 duty is to circulate, not to be buried in hoards, by what- 
 ever name that may be called. 
 
 These statements are so simple and obvious that they
 
 MONEY METALLIC. 363 
 
 might be called truisms, but truisms, it must be repeated, 
 are some of the most powerful intellectual forces known 
 to man. Those here stated are full of instruction. 
 Moreover they kill off at once half the mischievous 
 delusions and absurdities with which the world is 
 deluged on money. 
 
 They tell us, in the first place, that a coin, money, 
 does its work by being given away. That is the one 
 characteristic of the machine. It has one function to 
 perform and one only to leave the hand of its owner 
 and to send back to him something else in its place. 
 When it does not perform this work, it is for the time 
 useless, an unemployed tool. The process of buying 
 with money is an exchange: an exchange of a commodity 
 for a coin. Hence money is in reality the tool of 
 exchange, and nothing else. It is not a thing sought 
 for its own sake, to be used or enjoyed by its possessor. 
 It is a means, not an end ; a tool procured for rendering 
 a service, and valued, like all other tools, solely for the 
 sake of the useful service which it renders. This con- 
 ception of money as a tool is radical ; it governs every 
 thought, every word to be employed about it. No one 
 has any other conception of a chisel than that it is a 
 tool ; consequently no nonsense is ever uttered about 
 chisels. If money was never thought of but as a tool, 
 the world would be rid of heaps of foolish speaking and 
 writing poured forth by acute and subtle theorists. 
 
 In the next place, the sovereign reveals to us that the 
 tool of exchange is made of an extremely valuable 
 metal, far more costly than the iron of the chisel. A 
 large quantity of property must have been given 
 to miners in order to procure the metal of which
 
 364 MONEY METALLIC. 
 
 sovereigns are composed ; on no other terms could 
 the gold have been obtained. Gold is found in small 
 quantities compared with the expense of mining for it ; 
 hence gold is dear ; iron under the opposite condition is 
 cheap. The man, then, who has acquired possession of 
 a sovereign has necessarily bought it with a substantial 
 amount of other property. Whether he got it direct 
 from the miner and caused it to be stamped in the 
 mint, or whether he procured it in any other way 
 (excepting always, of course, by gift) he has had to pay 
 for it, he has given other things in exchange for it. 
 This is the universal law of all tools. They cost some 
 expense to make ; they must be bought and paid for, 
 whether obtained from the maker or through shop- 
 keepers. The bearing of this truth on the common idea 
 that money is in a peculiar sense riches that the object 
 of all trade should be to obtain money that conse- 
 quently the trade which exports more goods than it 
 imports and brings in the difference in gold is the 
 truly beneficial trade that gold is a possession more to 
 be rejoiced over than any other by every nation, is 
 obvious ; so full of instruction, and so destructive of 
 these widely-spread doctrines is the simple fact that 
 money can be had only by purchasing it with an equal 
 value of wealth given for it in exchange. 
 
 And now the question presents itself Why is such a 
 tool as money needed for exchanging ? Why is buying 
 with money so absolutely necessary a proceeding that 
 every nation in the past and the present has employed 
 money in some form ? Why cannot goods be ex- 
 changed for goods without the intervention of money ? 
 The usual answer given to these questions in economical
 
 MONEY METALLIC. 365 
 
 writings is that a measure of value was needed, but 
 it is impossible to suppose that the use of money owes 
 its origin to the perception of so remote a want. Money 
 must have been in existence long before so abstract an 
 idea can have been entertained. The savages who first 
 took to cowrie shells were hardly up to such a thought 
 as comparing goods with one another. A common 
 measure was the consequence, not the motive, of the 
 use of money. The need of money was one of the first 
 wants of the social life itself of mankind. Without its 
 help the development of society would have been 
 brought to a stand-still. Money was invented to sur- 
 mount the otherwise most formidable of difficulties, that 
 the man who wished -to acquire from another some 
 article that he wanted might not have anything to give 
 in exchange which the other desired or would be willing 
 to accept. The tailor might starve before he could 
 find a baker that was in want of a coat. 
 
 Division of employments is the fundamental law of 
 society. The providing of the multitudinous things 
 which human life consumes is distributed naturally and 
 necessarily amongst special makers. No one above a 
 savage supplies all his own wants ; he must have many 
 things made for him by others. By what method then 
 can he obtain these things produced by others ? 
 By exchanging only ; by giving to others what 
 he made for them in exchange for what they made 
 for him. But, for exchanging, each party to it 
 must desire the article which the other offers, or he 
 will refuse to exchange. This dilemma might 
 arise with every article needed. To overcome this 
 difficulty, a difficulty which would have been fatal to
 
 366 MONEY METALLIC. 
 
 civilisation, money was invented, and it removes the 
 obstacle perfectly. The action of money substitutes 
 double for single barter, and the difficulty is instantly 
 conquered. The impediment to exchanging was that 
 one of the exchangers might not want the article 
 offered by the other; the solution consisted in inter- 
 posing a third article for which each of the other two 
 articles might be separately bartered. " Go and barter 
 your sheep for money ! " cries the grocer who did 
 not want a sheep and would not have known what 
 to do with it ; " then bring me that money, and the 
 groceries shall be yours." In other words a sale for 
 money enables the seller to select for himself in any 
 shop any article that he desires. That is the action 
 and the essence of the use of money. A sale for money 
 is thus half a transaction ; the exchange is completed 
 only when the grocer has obtained with the farmer's 
 money at his own choice one of those commodities 
 which was his motive for engaging in the sale of groceries. 
 We now see the mode of action of the tool, money. By 
 its help a sheep was exchanged for groceries, and the 
 money travelled, circulated, through the hands of four 
 men, the man to whom the sheep was sold, the farmer, the 
 grocer, and the man of whom the grocer bought some- 
 thing. The point to notice is that all four felt persuaded 
 that other people would be as willing to sell, to ex- 
 change for money, as each of them was. Without such 
 a confidence, they would not have given away their 
 substances for what was useless to them except for 
 exchanging. This confidence rests on voluntary con- 
 sent, for no one is obliged to sell for money ; and that 
 consent proves to be universal.
 
 MONEY METALLIC. 367 
 
 But what is the foundation of this voluntary consent 
 to take money ? The guarantee furnished by the coin 
 that the seller shall be able with it to purchase other 
 things of equal value with those which are being given 
 away for the coin. And here comes the critical, the 
 vital point of all the use of money. That guarantee 
 consists in the value of the metal, as metal, of which the 
 coin is composed. The gold in the sovereign is itself, as 
 a commodity, worth the sheep, and worth the groceries. 
 This is the essence of all true money, of all sound 
 currency. Money is inexplicable, is senseless, on any 
 other supposition. The action of money as a tool is to 
 give value for value ; that is its work as truly as to cut 
 is the work of a chisel. And it is because value is given 
 for value that every tradesman in the town will part 
 with his goods for coin. It is the value of the metal, 
 gold, in the metal market which makes the sovereign a 
 tool that can work. And thus the exchange of a sheep 
 for groceries is accomplished by double barter, by the 
 agency of two half-transactions the incomplete opera- 
 tions of giving the sheep for money, and the money for 
 the groceries. To effect an exchange by two half- 
 operations that is the function of money. 
 
 A strange delusion is widely prevalent on this matter. 
 It is the stamp impressed on the coin, men say, which 
 gives it its value as money. It then becomes a pound ; 
 and a pound derives its power to buy from the fact that 
 an ounce of gold is coined at the Mint into $, 175. 
 io|d. The magical value resides in the word pound ; 
 and it is the Mint by stamping the gold which converts 
 it into pounds. The absurdity of these assertions is 
 almost too great to require refutation. If the stamp
 
 368 MONEY METALLIC. 
 
 gives its value in purchasing to the sovereign, then why 
 should not the sovereign be made of copper, and be pro- 
 nounced a pound, and be declared to be entitled to buy 
 the same quantity of goods in the shops as the golden 
 one ? How would the shopkeepers treat the copper 
 sovereign of the Mint ? For the copper sovereign one 
 apple, for the golden one four or five hundreds. It is as 
 a commodity that a coin buys, and it is its value as a 
 commodity in its own market that settles how much it 
 can buy. This great truth was seen by Aristotle, who 
 wrote, that "men for exchanging agreed to give and 
 take one of the useful things." The whole truth of 
 currency lies in that assertion. A commodity has 
 ever been the instrument of buying, the tool of 
 exchange. In one country furs, in ancient times 
 cattle, sometimes rock-salt, at this day amongst the 
 Tartars small cubes of compressed tea, in the West 
 of the United States corn, in lonely places, is accepted 
 as money for the stores of all kinds sold by a 
 merchant. That it is the metal which buys in a 
 sovereign is demonstrated at this hour by the fact, that 
 sovereigns for which foreigners have parted with their 
 goods are melted down constantly into ingots. It is 
 the intrinsic value of the metal, its cost as a commodity, 
 which does all the work of a coin. When asked what 
 is a pound, the Mint replies, that given that twenty 
 shillings make a pound, and twelve pence a shilling a 
 pound is that part of an ounce of gold which will pro- 
 duce 3, l/s. lojd. for the whole ounce. In other words* 
 a pound is so many carats' weight of gold. The 
 sovereign, then, is made to contain that number of 
 carats, and the law holds that a sovereign and a pound
 
 MONEY METALLIC. 369 
 
 are the same thing, and that when a debtor is sum- 
 moned before it, he shall be required to pay as many 
 sovereigns as there are pounds due. The law pronounces 
 a sovereign to be the legal tender for a pound ; and this 
 amounts to a declaration that a pound and a sovereign 
 are two words for the same thing. 
 
 All Mints impose a stamp on the coins ; for what 
 purpose ? To give information ; to make known, on the 
 word of the government, that the sovereign, dollar, or 
 franc, is made of standard gold or silver and possesses 
 the requisite weight. In the words of Aristotle, a stamp 
 is impressed on the money to relieve men of the trouble 
 of measuring it ; or, as Mr Adams has well phrased it, 
 " to save every man the trouble of carrying about with 
 him a bottle of acid and a pair of scales." Ingots are 
 tested before they are received in payments; a stamped 
 sovereign or dollar tells every one what it is. Nothing 
 can be more obvious than this fact ; yet, strange to say, 
 many intelligent men are puzzled to say what the stamp 
 it bears does for the sovereign. 
 
 Although any commodity, in principle, may serve as 
 the tool of exchange, practically every nation that 
 could obtain the precious metals has employed them 
 as money. They had excellent reasons for the choice. 
 Gold and silver are very portable, that is, they are 
 light compared with their great value, clean to handle, 
 beautiful to look at, go into small compass, are hard and 
 therefore enduring, retain the marking stamp easily and 
 long, and are extremely divisible. They bear being 
 cut into coins of different size with values proportional 
 to their weights. When much worn they retain a real 
 value up to what remains of metal in the coins. If no 
 
 2 A
 
 37O MONEY METALLIC. 
 
 longer required for money, they are readily convertible 
 into pure metals, retaining the full value of their 
 weight as commodities for use. Lastly, the precious 
 metals retain in an eminent degree the greatest of all 
 the requisites of good money, steadiness of value. The 
 essence of the action of money lies, we have seen, in 
 the guarantee it gives for being able to purchase other 
 goods of equal value with those sold ; a changeable 
 guarantee breaks down in its most vital quality. Every 
 contract, every debt, supposes that the value understood 
 at the time shall be paid when due. Absolute certainty 
 on this point unhappily is not obtainable ; because 
 there is not a single commodity which is not exposed 
 to some fluctuation of value. Gold and silver ex- 
 perienced an immense change upon the discovery of 
 America. Gold is believed by economists to have lost 
 value in consequence of the mines of California and 
 Australia ; but that has not yet been proved. Silver 
 undoubtedly has recently fallen to a lower level, and 
 the world has perceived the gravity of the danger and 
 of the loss to India and other countries. Still, the 
 truth remains that the money which is made of the 
 steadiest commodity, if really available, is the best ; 
 and the formidable task of seeking some other money 
 than gold and silver has not yet pressed upon the minds 
 of men. And it must be remembered that the sudden- 
 ness of the change is the chief aggravation of the danger 
 and loss. A metal which altered largely but very slowly in 
 value, would affect few persons except permanent holders 
 of public stocks and other perpetual debts. For ordinary 
 sales and debts, a metal which drooped a little, say 
 every ten years, would injure few persons seriously.
 
 MONEY METALLIC. 371 
 
 These weighty considerations combined have pre- 
 vailed in establishing metallic coin as the universal 
 money of civilised nations, whether as the currency in 
 actual use, or as the basis of paper currency which pro- 
 fesses to give a right to claim coin. 
 
 The right of coining was long regarded as a preroga- 
 tive which exclusively belonged to the State ; but 
 here, as in many other departments of the political 
 life of the nation, public opinion has undergone 
 a great change. Every institution and every right 
 derive their authority ultimately and solely from the 
 will of society ; and may be modified or abolished 
 by its decree. However, the exclusive right of coining 
 is in no danger of ever being taken away from the 
 National Mint ; the assignment of this function to the 
 State is founded on a principle far stronger than prero- 
 gative. The State can execute the work best ; and that 
 reason is decisive. The free circulation of money rests 
 on faith, on the belief that the money is good, that the 
 coins are made of pure metal and of the right weight. 
 The State can furnish the most authoritative attestation 
 of this fact, at least in these modern days, when kings 
 are no longer able to adulterate the coin of the realm. 
 Ingots, indeed, are used as a kind of money, and the 
 State gives no warranty for their purity ; but then they 
 are put into movement by mercantile firms of great re- 
 pute, have a very limited range of circulation, and are 
 incessantly tested for purity and weight 
 
 That the circulation of coin depends upon belief in its 
 good quality receives a singular illustration from the 
 common fact, that a bad sovereign circulates and does 
 the work of money as well as a good one, till it is found
 
 372 MONEY METALLIC. 
 
 out. Coin works, not by means of its physical qualities, 
 but by faith in its value. A seller who takes a sovereign 
 believes that he is receiving a piece of pure gold of 
 ascertained value. He relies on that belief; and he 
 finds in it the assurance that he will be able, in turn, 
 with it to procure other articles worth those which he 
 has sold. The bad sovereign, so long as it is undis- 
 covered, supplies this belief; and it may perform the 
 function of currency perfectly well till the absence of 
 the gold, of the metal which inspired the confidence, is 
 discovered. The last holder then finds that he has lost 
 a pound. The supposed gold is not present ; the value 
 is non-existent. There is no guarantee furnished by 
 the counterfeit ; it cannot perform the work of money, 
 which previously it had done so well. 
 
 We now reach the second great benefit conferred by 
 money ; it furnishes a common measure of value. It was 
 invented to get over the perplexity of exchanging and 
 distributing the products of industry which direct barter 
 presented, that one of the exchangers did not want the 
 article offered for what he had to barter away. So all 
 things were first bartered for money; and the money re- 
 bartered for other goods. Hence, as a necessary conse- 
 quence, every article acquired its price. The seller cal- 
 culated its value in money, and that value, so estimated 
 and realised, is price. Since every article has its price, 
 their prices can be compared together, and their values, 
 as against one another, can be ascertained. Thus money 
 is the standard of measurement of values, as a yard is of 
 length, and a pound of weight. We know how long a 
 distance is by measuring it in yards ; in the same way
 
 MONEY METALLIC. 373 
 
 we know how valuable commodities are by measuring 
 them in money. 
 
 But we must be very careful not to fall into a confu- 
 sion here, which is only too common, and of which we 
 have seen an instance in connection with the word 
 pound. Money does not determine value ; it only ex- 
 presses it when determined, when it has become market 
 value. Value, as was shewn in a former chapter, at its 
 origin is a feeling, as expressed in the words, I value ; 
 that is, I esteem and care for a thing ; I will make a 
 certain sacrifice to obtain it, or I will retain possession of 
 it, unless tempted by the offer of something for which I 
 feel a little greater regard. The maker or owner on 
 the one side (and the motives which act on his feeling 
 may be most numerous and varied) decides how much 
 he must receive in exchange before he consents to part 
 with his property. When he proceeds to sell, he meets 
 a counter feeling, a counter estimation of the values of 
 the property and of the money in the buyer. The re- 
 sultant of these two forces is the market-value of the 
 commodity at the time. In the exchange, the gold and 
 the commodity are valued on identically the same prin- 
 ciples ; the money is as much bought as the coat it 
 purchases. The tailor prefers the money, and what it 
 can buy, to the coat ; the purchaser prefers the coat to 
 the money. The values of the coat and of the money 
 are estimated separately by each of the parties, with a 
 difference of preference, a difference of feeling and of 
 esteem. 
 
 This equality of the buyer and seller leads up to the 
 question What is the market value or price, so to 
 speak, of gold ? Put in this form, the question admits
 
 374 MONEY METALLIC. 
 
 of no single answer. The market-value of a sovereign 
 is a hat for the hatter, a pair of shoes for the shoemaker, 
 and so throughout all things sold. But the answer we 
 are in search of will be found in the analysis of what is 
 implied in an act of barter. The value of gold to the 
 hatter is its cost of production, every charge included. 
 The value of the metal of a sovereign is its cost of pro- 
 duction to the miner. The two costs of production be- 
 ing supposed to be the same, the market-values of both 
 become identical. The market-value of the sovereign is 
 what it cost to produce, which cost, if not paid, there 
 will be no sovereign made. 
 
 We come now to a question of which it is scarcely 
 possible to exaggerate the importance. The question 
 is thoroughly natural and simple ; no one can possibly 
 deny that it is one most proper to ask and most de- 
 serving of an answer. Nevertheless there seems to be 
 on every side an universal impossibility of understand- 
 ing, nay, a wilful determination not to face, its 
 meaning, and not to insist with one's self to give it 
 a clear and thought-out answer. The man who can 
 answer it rightly is master of the true nature of cur- 
 rency ; he who gives the wrong answer does not know 
 what currency is. How much money, how many 
 sovereigns or dollars, does a country want ? The ques- 
 tion is absurd, cries the multitude ; how can man or 
 nation have too much money? Money is riches; money 
 can buy everything. What can be better than an export 
 trade, exclaims the merchant, which sends back solid 
 profit in the shape of gold ? When there is plenty of 
 money, cry the shopkeepers, trade is brisk ; customers 
 come in and buy. Every arrival of gold in England
 
 MONEY METALLIC. 375 
 
 is carefully noted by all the city articles of all the 
 journals ; the banks are stronger, and the rate of dis- 
 count is sure to fall. 
 
 Thus the rejoicing runs round the world ; but this 
 language is eminently loose and untrue. It absolutely 
 forgets that money is a tool and nothing else. By that 
 truth it must be judged. What would be thought of men 
 shouting with delight over never-ending importations 
 of carts ? They would be regarded as insane, if Eng- 
 land had already carts enough for her wants ; in what 
 respect would she be the richer or the better by more 
 carts than she could find employment for ? But one can 
 buy with money, it is replied; one cannot buy with carts: 
 the more money, then, that a country has, the better. 
 But if there is enough money to buy with, what good is 
 obtained by purchasing more money ? It is ever forgotten 
 that money has always to be paid for, just as much as a 
 cart. There is the same practical, common-sense rule 
 for money as for carts. It is highly desirable that there 
 should be money and carts enough for the work which 
 each of them has to do. To be short of carts to transfer 
 weights would be very inconvenient, and might be very 
 harmful and unpleasant ; to be short of the machines 
 which transfer the ownership of property might also be 
 embarrassing, but not nearly so much as a deficiency of 
 carts. In the old days, the want of silver coins where- 
 with to pay wages on Saturday nights often brought 
 great trouble ; and premiums were readily given for bags 
 of silver coin. But banks and other financial machinery 
 would quickly come to the help of a scarcity of 
 gold. Few instances could be cited of England suffer- 
 ing from a mere deficiency of gold, as distinct from
 
 376 MONEY METALLIC. 
 
 the loss of wealth by trading, bad harvests, or other 
 causes. 
 
 The law of supply and demand is supreme over money, 
 and gold used as money, as over all other tools. They 
 are useful to the extent that they are needed for the 
 special work they have to do ; all above that is excess 
 and useless. Unneeded gold brings no wealth; the 
 glorious ingots which have reached London have not 
 made England one pound the richer. They have been 
 paid for with English property of equal value ; there has 
 been an exchange of English goods for gold ; is one 
 side the richer for the operation, and the other the 
 poorer ? That would be a strange trade indeed, in open 
 contradiction with every other. Spare money, no doubt, 
 is desirable, just as spare hats and spare shoes, to guard 
 against the inconvenience of being left without any ; 
 but these spare supplies are performing work as truly as 
 those which are actually in use. And what becomes of 
 excess of supply beyond what is wanted for actual use 
 and for a spare stock ? The carts go under sheds till 
 those employed are worn out ; the unneeded gold and 
 sovereigns go into the cellars of banks, to the tune of 
 70 millions of pounds in the Bank of France, and 1 5 
 millions in the Bank of England. Till more transac- 
 tions come forward which are carried out with these 
 tools, there is nothing left for them but to lie idle in 
 store. The nation is the poorer for what has been paid 
 in goods for this gold. 
 
 We are now able to judge the mercantile theory, which 
 it was the glory of Adam Smith to have triumphantly 
 refuted. We know what to think of the pleasure of 
 merchants with which they learn that exports are ex-
 
 MONEY METALLIC. 377 
 
 ceeding imports and bringing a balance of gold into the 
 country, gold that no one wants except he can get it 
 as a gift. Nevertheless the mercantile theory lives on un- 
 blushingly, with a vitality absolutely indestructible ; so 
 difficult is it for shopkeepers and merchants to get rid of 
 the feeling that trade is to sell for money, even though in 
 London alone there is business transacted to the extent 
 of one hundred millions of pounds a week, without a 
 single piece of money being touched ; it is all carried on by 
 small pieces of paper called cheques. When the shop- 
 keepers cry out that trade is very bad, and that there 
 is no money, they only show their ignorance. The fact 
 that what their customers really buy with is not 
 sovereigns and shillings or bank-notes either, but the 
 means of procuring these coins and notes is unperceived. 
 The power of buying resides in the incomes of purchasers, 
 and those incomes consist of goods, of corn and iron and 
 other wealth. Trade may be very brisk or very slack 
 with identically the same quantity of gold and silver 
 and bank-notes existing in the country. But in bad 
 times, the shopkeepers do not find these coins and 
 notes making their way into their shops, so they 
 exclaim that there is no money. In America and 
 other nations that love inconvertible notes, a loud call 
 arises for the issue of more money, more notes. As 
 well might the owners of mines, who cannot sell their 
 coal or iron, cry out that there are no buyers for lack 
 of carts. 
 
 The same mode of thought has given rise to expres- 
 sions of constant recurrence in speaking and writing 
 which are greatly to be regretted. Great discussions 
 are at this moment going fonvard on the excess of im-
 
 378 MONEY METALLIC. 
 
 ports over exports in the trade of England. England 
 receives more goods than she sells to foreign countries; 
 the difference of value, it is assumed, is paid for in gold; 
 and then the universal language affirms that the balance 
 is against England. If this is so, must we then declare 
 that every purchase creates a balance against the 
 buyer? The man who procures bread from a baker 
 must pay the bill ; has he been acting against himself? 
 Is it not as clear as the sun at noonday that every pur- 
 chaser prefers what he buys to the money he gives for 
 it ? Still more and the question is most pertinent 
 what conceivable service does money do for anyone but 
 to leave him in order to pay a balance in exchange for 
 a service or for goods ? When England has an excess 
 of imports, it is undeniable that she has obtained that 
 for which money was procured ; so far the balance is in 
 her favour, because she has got the things which alone 
 can give any value to her money. This way of speak- 
 ing has the mercantile theory itself for its essence. 
 
 Doubtless, on an excess of trade imports, England must 
 have sent away, or owes, money. But to buy on credit, 
 to obtain meat to be paid for at Christmas, is not to do 
 an act against one's self, or to be in the position of hav- 
 ing a balance against one. The balance is in his 
 favour till he pays, for he has acquired wealth and given 
 nothing for it. When he pays, he only restores equili- 
 brium ; there is neither for nor against in the com- 
 pleted exchange. When imports exceed exports 
 not by receiving payments of interest and dividends due 
 by foreign countries, but in regular trade, the real ques- 
 tion to be asked, if we wish to learn whether England 
 as a balance really against her, is, can she afford to pay
 
 MONEY METALLIC. 379 
 
 for the wealth which she has obtained, whether on 
 payment with gold or on credit ? If she can, there 
 is no against in the matter, except as a misleading 
 expression to indicate that she has not yet paid for 
 what she has got. If she cannot afford to pay, then 
 the word against starts up into real life, for she has con- 
 sumed and she has enjoyed what belonged to others 
 and has taken up the position of an insolvent debtor. 
 
 We may be asked in reply, Does not this view land 
 us in the absurd inference that a country which has 
 nothing else wherewith to make purchases of England 
 but the produce of its gold mines has no economical value 
 for, can confer no commercial advantage on, England? 
 The answer to this retort is easy : such gold comes in 
 as merchandise, and does not come in as money. It is 
 money as coin which is useless, when there is enough of it 
 in a country for the work it has to do ; but gold, as a 
 metal, may be applied to many useful purposes, and, 
 further, may enable England to carry on additional 
 trade with a third country. It may largely extend her 
 commerce, if Australian miners bought her manufactures 
 with bullion, and she in her turn purchased French or 
 American commodities with that bullion. It practically 
 becomes international money, except that a very large 
 portion of it is ultimately arrested and made use of in 
 many arts. Much of the Californian and Australian 
 supplies of gold, it cannot be doubted, has been absorbed 
 in this manner ; otherwise, if it had been devoted 
 exclusively to the manufacture of coin, an enormous 
 depreciation of its value must have ensued. 
 
 What may be the consequences of a large influx of 
 gold suddenly poured into a country, let Germany
 
 380 MONEY METALLIC. 
 
 teach us. I hope I may again venture on the liberty of 
 quoting from the " Contemporary Review" :* 
 
 " Germany became engaged in a gigantic war with 
 France. In these modern days the cost of armies and of 
 their armaments is enormous, far exceeding that of pre- 
 ceding ages. Immense numbers of troops took to the 
 field, and their maintenance alone created a vast con- 
 sumption of wealth, without any return for it in the 
 shape of fresh wealth. Men were taken away from their 
 labour in the fields and factories in huge hosts, paralyz- 
 ing domestic industry and devouring the existing stock 
 of the national wealth. No more rapidly impoverishing 
 process can be conceived than such a war. That com- 
 mercial distress should follow such destruction can 
 create no surprise. Suffering and impoverishment are 
 the natural offspring of war. But did not the indemnity 
 make all right for Germany ? Two hundred and twenty 
 millions of English pounds might seem enough to lift 
 any people to the summit of prosperity. But it is not 
 sums of money which enrich and bestow welfare and 
 happiness, but what is done with them. A large portion 
 of this money was applied to the making of fortifica- 
 tions and to other military works. No improvement of 
 their condition, no relief to their distress was got out of 
 that by the nation. On the contrary, such an applica- 
 tion of the French gold made matters distinctly worse 
 for Germany. German labour, and German food and 
 clothing were taken away from that production of 
 wealth which would have brought better times, and were 
 applied to the filling up of military stores in a very 
 unproductive way. 
 
 * April 1877.
 
 MONEY METALLIC. 381 
 
 "But gold is riches and riches supply every kind 
 of necessaries and of comforts. Gold, we answer, is not 
 riches till it is made use of by being parted with ; that 
 is all the good which can be obtained from it, unless it 
 is applied in the arts to gold ornaments. Gold ex- 
 changes commodities enables a manufacturer to pro- 
 cure coals in return for his cloth. But the gold itseli 
 and by itself confers no other benefit whatever than its 
 services as tool. Germany would have been most truly 
 and permanently the richer for the French gold had she 
 given it away to foreign countries in the purchase of 
 their wealth ; it would have brought into the country 
 what her people wanted. But Germany could get no 
 gain by obtaining gold solely to move German things 
 about. 
 
 " Then it is believed that a considerable portion of this 
 French gold has been hoarded as a reserve against 
 future war. That gold does nothing to clear the com- 
 mercial depression. It sets no mills to work, gives 
 employment to no labourers, imports no supplies of 
 corn, meat, coffee, and clothing for the people, or raw 
 materials for their industry ; it is idle, and absolutely 
 no better than if it were non-existent. 
 
 " But there is another portion of this French gold, of 
 which there is yet worse to tell. Its action is full of 
 instruction, especially for the city, if the city were only 
 willing to gather it up. The German Governments 
 were embarrassed with the excess of this metallic stock, 
 and lent much of it to traders and speculators. To 
 what better purpose could they have applied it ? it will 
 be asked. To none, but upon one condition that it 
 should be sent out of Germany. Its export would have
 
 382 MONEY METALLIC. 
 
 placed in Germany useful things in the place of useless 
 tools for exchanging of which there were already 
 enough. But by being retained in Germany and lent 
 to borrowers it not only was unproductive of all good, 
 but it really engendered mischief peculiarly its own. 
 The borrowers took to buying German goods ; prices 
 rose in the shops and warehouses all over the country ; 
 profits were realised, and wages gained advances ; and 
 then the evil consequences soon appeared upon the 
 scene. An increase of spending broke out all round ; 
 there was money in hand ; it was applied to buying 
 things pleasant and enjoyable A nigher style of living 
 was adopted : in other words, a larger and more rapid 
 consumption of wealth prevailed. And what was 
 obtained in exchange ? The gold, which did not restore 
 the wealth consumed, but only transferred existing things 
 from one set of hands to another. Did not the German 
 humourist stand on the ground of solid sense when he 
 exclaimed, 'Let us have another war, and let the 
 Germans have to pay the indemnity?' Had he not 
 the acuteness to perceive that if much harm is to be 
 averted, the sooner an excess of gold is sent out of the 
 country the better ? Let those who bewail exports of 
 gold, and record its imports with delight, ponder over 
 his words and the facts that elicited them." 
 
 The worth of a gold coin, its power to buy, we have 
 seen, consists in the value of the metal of which it is 
 made. This is proved, independently of general con- 
 siderations, by two facts. Sovereigns are constantly 
 melted abroad and converted back into bullion. This 
 would not be done if the coin was not worth the metal. 
 It would be sent back to its home where the additional
 
 MONEY METALLIC. 383 
 
 value would be realised in the payment of commodities 
 purchased there. Secondly, international balances of 
 trade are regularly paid by bullion. That bullion is 
 valued according to its weight, its standard of fineness 
 being of the required quality. It reckons for as many 
 sovereigns as its weight would furnish, whilst the value, 
 consequently, of that weight of sovereigns is the price 
 or market value of the commodity for which it is 
 exchanged. But the value of the metal may fluctuate. 
 Like other metals, it is subject to the law of demand 
 and supply. If the mines yield a larger quantity of 
 gold for the same amount of labour, the supply is 
 increased, and the metal becomes cheaper. More of it 
 must be given for other commodities which have not 
 changed ; general prices rise. Or again, if the demand 
 for it were diminished, if a large quantity of it was 
 thrown on the market, the same result would follow ; it 
 would suffer depreciation, the supply being in excess. 
 Such has been the fate which has overtaken silver by 
 its demonetiation in Germany and the augmented pro- 
 ductiveness of the mines. The point to observe is that 
 this loss of value is in no way occasioned by fluctua- 
 tions in the circulation. Prices are not governed by the 
 greater or smaller quantity of sovereigns circulating, 
 but by the changes which occur in the value of the 
 precious metal. If the circulation is superabundant, 
 the excess returns into store ; in France, to the tune 
 of some seventy millions of pounds. But, stored-up 
 coins do not tell on the prices of the shops ; French 
 goods are not made dearer, in gold coin, by them. But 
 if the supply over the whole world is made larger by 
 the causes named above, then gold stands at a lower
 
 384 MONEY METALLIC. 
 
 value ; and in every country it counts for less in being 
 exchanged for commodities. 
 
 But this principle has been pushed too far by many 
 economists of an older school, and by some even of the 
 present day. The changes in the value of the circula- 
 ting coin of a people were extended to what occurred 
 within its own territory. It was laid down, and is still, 
 as a fundamental principle, that the quantity of money 
 in a country regulates the aggregate prices of all com- 
 modities. This is perfectly true of all the world. If 
 the whole stock of the precious metals varies largely, 
 either in the way of excess or deficiency of supply re- 
 latively to the wants of all mankind, then these variations 
 of the market tell on the worth of the precious metals, 
 and alter prices proportionately. But when this truth 
 was supposed to hold equally good of a single nation, 
 such as England, and when it became a favourite idea 
 to regulate speculation, to control the rate of discount, 
 to guard against crises, or to raise trade from depres- 
 sion by adding to or diminishing the money of a 
 country, by acting on the exchanges, as it was called, 
 the relative position in which nations stand towards 
 each other in modern commerce was forgotten, and the 
 prescribed rule thus became nothing but a fallacy. 
 
 The civilised nations of the world are not single and 
 isolated markets. Their intercourse with one another 
 is easy, rapid, and most extensive. Under such circum- 
 stances it is quite impossible that such a commodity as 
 gold should have different values in different countries. 
 Gold has small bulk and weight compared with its 
 worth. It can be easily made to travel, and a very small 
 difference of relative value would speedily send it on its
 
 MONEY^ METALLIC. 385 
 
 journey to the locality where its purchasing power was 
 greatest. A Frenchman or Hollander who discovered 
 that a deficient supply of gold had made gold dearer 
 and lowered general prices in England would instantly 
 order purchases of these cheapened articles and would 
 pay for them with gold. Or if the opposite effect had 
 been produced, if a superabundance of gold in England 
 had raised the prices of commodites within her border, he 
 would reverse his operation and send over goods to be sold 
 at these higher rates, bringing away gold in exchange, 
 and reaping a profit by the transaction. These forces 
 keep the value of gold at the same level amongst great 
 trading communities. There is not a particle of proof 
 of any variation in value. The Bank of France accumu- 
 lated some seventy millions of pounds of the precious 
 metal ; did anyone ever hear that prices had gone up 
 in consequence in the shops and warehouses of France ? 
 So again, in England, there is a much larger quantity 
 circulating in summer than in winter ; has anyone spoken 
 of a change of prices, or of buyers waiting till winter to 
 make their purchases when the reduced circulation, upon 
 this theory, lowers prices throughout the land ? This 
 mistaken idea was one of the dreams which led the 
 authors of the Bank Charter Act to imagine that they 
 were controlling the money market of England and 
 acting on the movements of trade by the management 
 of bank-note issues. 
 
 An important distinction must be drawn in reference 
 to the amount of the circulation. The same aggregate 
 amount of cash transactions will not always require the 
 same quantity of money. The same coin may effect 
 few or many transactions according to the circum- 
 
 2 B
 
 386 MONEY METALLIC. 
 
 stances of the locality. In a gambling-house the same 
 sovereign may settle twenty affairs in a quarter of an 
 hour. In a great colony it may remain weeks or months 
 in a farmer's pocket before it can be used. In a nation 
 in which life moves slowly, or buyers and sellers live 
 wide asunder, or where no credit is given, a much 
 larger number of coins will be required to settle trans- 
 actions which could be accomplished by much fewer but 
 more rapidly moving coins under opposite circumstances. 
 Hence rapidity of circulation will diminish the quantity 
 of money required. The rule, however, remains ever the 
 same. Enough money to carry out the cash business, be 
 it much or little, must be provided, and no more ; for 
 more cannot be used (omitting here spare stocks and 
 change of metallic value) all merchants, shopkeepers, 
 inflationists, bankers, stock exchanges, and newspapers 
 notwithstanding. We thus make a deduction of much 
 economical value, that the question of the distribution 
 of the precious metals is at bottom only a question of 
 the commercial habits of different localities. A nation is 
 not the poorer for having little gold coin, nor the richer 
 for having much, if only it has enough. The precious 
 metals flow to countries of low civilization, of political 
 insecurity, where the law is weak and justice uncertain, 
 also to nations using large banking reserves, of which 
 more hereafter. But they find scant resting places in 
 lands of high commercial development, where property 
 is safe and the recovery of debts easy and to be relied 
 upon, and where the owners of goods are willing to 
 part with them for cheques and bills and similar pro- 
 cesses of deferred payment. There is probably no 
 country in the world which in comparison with the
 
 MONEY METALLIC. 387 
 
 extent of its wealth and its trade uses so little money, 
 metallic money, as England. 
 
 The quantity of gold money, whether as coin or 
 ingots, existing in a country must be viewed under two 
 aspects ; first, as circulation doing the work of buying 
 and selling all over the land ; secondly, as reserves 
 stored up in banks. A reserve is a special element of a 
 particular business ; its discussion must be postponed 
 till we reach the subject of banking. But as regards the 
 circulating wants of a nation the export and import of 
 gold have no significance. If gold coin became scarce, 
 there would be no difficulty in quickly filling up the de- 
 ficiency from the Continent. But gold moves too freely 
 from place to place to make it scarce in such a trading 
 country as England, except possibly in -banking. This, 
 however, is the affair of persons who have incurred 
 debts and have pledged themselves to pay them in gold 
 on demand ; and no bank ever stopped payment because 
 there was a deficient stock of gold in all England, how- 
 ever little there might be in its own till. 
 
 Adam Smith truly pointed out that there never was 
 any difficulty in England replenishing itself with gold 
 from abroad, if only there was the wherewithal to pay 
 for it. In former days such importance was attached 
 to the maintaining the stock of that metal which 
 was pre-eminently held to be wealth, so anxious were 
 traders and governments for keeping up the supply, 
 that strict laws were enacted forbidding the exportation 
 of gold. But an article, so small in size and so great in 
 value, could not be stopped from wandering as it 
 chose by the decrees of Parliament. Smuggling was 
 more than a match for the law and the Custom-house,
 
 388 MONEY METALLIC. 
 
 and at last the idle statutes were repealed. The supply 
 of gold now stands on the same basis as that of every 
 other article. It comes and goes at its will, according as 
 the balance of trade for the day requires it to be sent 
 abroad to pay for foreign goods, or to be received in 
 England in payment for exported English merchandise. 
 
 Except with reference to banking, no one gives the 
 stock of gold a thought. There are, indeed, occa- 
 sions when a large export of gold is called for in 
 the liquidation of international trade, as when a 
 bad harvest or famine creates sudden and urgent 
 purchases of food abroad. The foreign countries of 
 whom the food is purchased do not buy English goods 
 in return with equal rapidity, and the balance to be 
 sent out at once may be large and difficult at the 
 moment to procure. But the machinery of modern 
 commerce here comes in aid. Bills which are only 
 deferred payments are brought into play, and the 
 balance is frequently corrected, before it is due, by 
 an export of English goods. Trade is perfectly com- 
 petent of itself, without artificial help, to deal with the 
 supply of every article, gold included. 
 
 Countries which have relations of buying and selling 
 with another require their respective currencies to be 
 compared with each other, so as to discover what a sum 
 expressed in the language of one country has for its 
 equivalent when transferred into the language of the 
 other. Each country sells, whether to its own people or 
 to foreigners, at the local prices attached to the goods. 
 At the end of each day, purchases have probably been 
 made in both countries. Each purchase is not paid for 
 by sending the money due across the border ; the
 
 MONEY METALLIC. 389 
 
 clumsiness and cost of such remittances render them 
 impracticable. The payment of the balance of debt alone, 
 to whichever side it inclines, is remitted in money. But 
 how is the exact figure of that balance to be discovered ? 
 Englishmen, for instance, owe francs to France for silks 
 and wine ; Frenchmen similarly owe pounds to England 
 for iron and woollen manufactures ; to ascertain the 
 balance between the two nations, each pound due must 
 be calculated as equal to so many francs, and the francs 
 due in the same way must have their equivalent in 
 pounds. 
 
 How then are the payments respectively due by France 
 to England and by England to France to be calculated ? 
 The currencies must be reduced to a common measure ; 
 in this case to gold. French napoleons and francs must 
 be converted into weights of gold ; so must the English 
 pounds and shillings. The weight of gold in an English 
 sovereign is compared with the weight of the same metal 
 in the French napoleon of twenty francs. The dis- 
 covery is then made that the English sovereign contains 
 rather less than i| napoleon, that is, rather more than 
 twenty-five francs would be equal to it, if the napoleon 
 were melted and then sold for francs. The exact 
 weight is what would be exchanged at a bullion 
 dealer's for 25-215 francs. This is called the par of ex- 
 change between England and France, and when the 
 exchange is at par a man who has a sovereign can 
 obtain these francs, and vice versa with these francs he 
 can get a sovereign. A bullion dealer who bought two 
 equal heaps of sovereigns and napoleons on this basis, 
 and melted them into ingots, would obtain exactly the 
 same weight of gold from each heap.
 
 390 MONEY METALLIC. 
 
 But exchange seldom is at par between two countries, 
 because the buying and selling is seldom equal on each 
 side on the same day. The difference, as explained, is 
 liquidated in gold. Now to send gold across the water 
 involves a charge for carriage and insurance ; this the man 
 who must remit payment will avoid if he can. Goods 
 purchased in foreign countries are, for the most part, 
 liquidated by bills, the buyer undertaking to pay on a 
 deferred day the sum due to the seller in his own cur- 
 rency. An English debtor, let us suppose, has bought 
 wine in France and signed a bill payable, say at three 
 months, for some thousands of francs, how is he to 
 place these francs in the hands of the French wine 
 merchant ? He seeks out a bill, which a French buyer 
 of English iron has signed to pay in pounds and given 
 to an English iron merchant. The buyer of the wine 
 purchases with pounds in England those pounds which 
 the iron merchant is to receive of the Frenchman. He 
 then sends the bill to his French creditor, who obtains these 
 pounds turned into francs from the purchaser of a bar of 
 iron. Thus one Frenchman is paid by another French- 
 man the seller of wine by the buyer of iron in France; 
 in England the English exporter of iron receives his 
 payment in pounds from the English purchaser of wine. 
 When the buying and selling in both countries are 
 exactly equal, all goes on smoothly, there are bills in 
 existence to pay the debts exactly ; but when more 
 has been bought in one country than in the other, a 
 difficulty springs up. 
 
 France, we will suppose, has bought more iron 
 than she has sold of wine ; bills due by England to 
 France are fewer than those due by France to England
 
 MONEY METALLIC. 39 I 
 
 Some French debtors cannot find bills to purchase, 
 they must remit gold, but that is expensive. So they go 
 to a Rothschild and ask him to pay their debts for 
 them in England. For this service he will require a re- 
 muneration, and he will not sell an English pound to be 
 paid in London for perhaps less than 25^ francs. The 
 buyer will give that excess above par, 25 - 2 15, on one 
 condition, that it would cost him more to send a 
 sovereign's weight of gold to England. If Rothschild 
 demands 26 francs, he will not be employed to make 
 the payment; the French debtor will insure and send 
 over gold. Thus, the limit beyond which the excess 
 over par in the exchange will not rise is the cost of the 
 transmission of the metal. 
 
 An exchange established at 25^ francs is called 
 favourable for England. An Englishman landing at 
 Calais will obtain nearly one-half franc more than the 
 worth of his sovereign in French gold. At 24^ he 
 encounters an adverse exchange ; he gives more 
 gold than he gets back. So far and in distinct re- 
 lation to exchanging sovereigns for napoleons, the 
 terms favourable and adverse are correct. But this 
 is not the sense in which bankers and merchants 
 speak of favourable exchanges with delight. They 
 attach a very different meaning to this much-loved 
 phrase, a meaning than which nothing can be more 
 false or misleading. It still survives the memorable 
 refutation of its untruth by Adam Smith. It involves 
 ignorance of the very nature of trade ; it effaces the 
 living fact, that men buy of foreign countries to procure 
 goods for use and consumption, that all trade is only 
 an exchange of goods. This language is profoundly
 
 392 MONEY METALLIC. 
 
 unconscious that gold is a mere tool. It teaches that 
 gold, that is money, is an end, a good thing for its own sake. 
 We can buy with it, reply the merchants. So you can, 
 and you can also buy with the goods you might have 
 imported for English enjoyment and consumption ; but 
 your buying only moves about the wealth already exist- 
 ing in England, it makes no addition to it whatever. 
 
 Favourable exchanges, as understood by the city, is 
 an expression saturated with the mercantile theory. 
 These words express satisfaction at the proof that 
 England has bought more than she has sold, spreading 
 the delusion mentioned in a preceding page, that an 
 excess of exports over imports is an excellent state of 
 trade, that it is a good thing to spend labour and 
 wealth in making iron and yarns and to get gold in the 
 place of them, for what object they do not say. They 
 perpetuate the absurdity of the merchant and the shop- 
 keeper, that there is nothing like selling ; unconscious 
 that to sell goods without buying others is to convert a 
 man into a Midas, and so make him perish amidst 
 heaps of gold. The value set on favourable exchanges 
 is one of the great intellectual blunders of our age. 
 
 We must now speak of secondary or subsidiary coins. 
 So far, we have had before us only one kind of coin 
 existing in a country, its tool of exchange, and its 
 measure of value. This coin is called at one time the 
 standard of money, at another the legal tender. Legal 
 tender is easily explained. It denotes a payment which 
 the law declares to be a complete satisfaction of a 
 creditor's claim, which if offered, he must accept, and 
 which if he rejects, the law will give him no further 
 protection, his debt will be gone at law. The words
 
 MONEY METALLIC. 393 
 
 always imply a debt already existing, a contract made 
 to pay money ; the legal tender is the law's interpreta- 
 tion of the word money. The expression, standard, is 
 ambiguous, and not always easy to define. In countries, 
 such as the United States, which have inconvertible 
 bank notes for their currency and pronounce them legal 
 tender, it is hard to say what is their standard. A note 
 is only a promise, a set of words, an acknowledgment 
 of debt, but not a payment of it ; to call such a note 
 the standard of currency conveys no clear and 
 exact meaning. In countries which use coins, the word 
 standard denotes the metal of which the chief coin 
 that which passes or is referred to in all great trans- 
 actions of business, is composed. It is not the law 
 which determines the standard but usage. The law 
 interprets the word pound if it is set down to a man's 
 account in buying ; but the seller might have stipulated 
 that he shall be paid in rupees or dollars, and the law 
 would have enforced such a contract. In America, an 
 immense amount of business is carried on under the 
 stipulation that payments shall be made in gold. 
 
 In England gold is the standard but silvefr and 
 copper are also used as coins. The sovereign is always 
 a legal tender ; so are shillings up to the extent of two 
 pounds. So also are pence, up, I believe, to a shilling. 
 What now is the precise nature of these coins ? Do 
 they come under that description of money which has 
 been already given? They fail in the capital point that 
 they do not, as tools of exchange, do their work by 
 giving an equal value of silver or copper, as metals, 
 for the things which they buy. They give a part of 
 the value only, not all. Then upon what principle are
 
 394 MONEY METALLIC. 
 
 they accepted by sellers ? Has this partial value 
 any effect on the prices charged by sellers of goods, 
 leading to more shillings or pence being asked for the 
 articles, up to the point, when the quantity of silver or 
 copper equals exactly the value of the goods sold ? No 
 such effect is produced the shillings purchase just as 
 much, as if they had contained the necessary amount of 
 silver. Hence it is evident that shillings are counters 
 or tickets wielding a purchasing power equal to the 
 twentieth part of a sovereign. They obtain this power 
 from the fact that twenty shillings are freely taken 
 in change for a sovereign ; and thus every seller knows 
 that with twenty of them he can get a sovereign, and 
 he fixes his prices in shillings upon this basis. 
 
 Still there remains the question to be asked Why is 
 it that a sovereign is thus readily given for twenty 
 shillings when the gold in the one is of more value than 
 the silver in the others ? Because, practically and 
 really, they pass as tickets for sovereigns. But this 
 freedom of circulation is grounded on the fact that the 
 shillings cannot be multiplied at pleasure for then 
 their 'value would immediately be depressed. The 
 security against such multiplication lies in the quantity 
 of silver they contain. There is not silver enough 
 for the shilling to be truly worth the twentieth part of 
 a sovereign : but there is too much to leave a profit to 
 a man who manufactured a good shilling to put it into 
 circulation. Were the silver less in quantity it cannot 
 be doubted but that multitudes of new good shillings 
 would be issued from other manufactories than the 
 mint, and then no one would give a sovereign for twenty 
 shillings. The same danger, however, at this hour
 
 MONEY METALLIC. 395 
 
 hangs over shillings from another quarter. If the 
 threatened depreciation of silver were to take place, 
 then the effect on the shilling would be the same as if, 
 at its present value, a portion of its silver were taken 
 away. The temptation to manufacture, not adulterated, 
 but excellent shillings of full weight, and to change 
 them for sovereigns would be found irresistible ; shil- 
 lings would pour in upon the circulation in crowds, and 
 the sovereigns would be bought off with them and 
 melted down into gold. The world would have no 
 other possible, remedy than to coin shillings with more 
 silver in them, or to assign more shillings to the 
 pound. 
 
 The violent oscillations in the value of silver have 
 created an alarm and agitation in all persons connected 
 with India, which, at one time, were intense. There 
 was only too much reason for fearing calamitous conse- 
 quences. The state of the silver market, more especially 
 in relation to India, was investigated by a committee 
 of the House of Commons with very great care and 
 minuteness, and as far as existing facts are concerned 
 that committee put forth a very valuable and instructive 
 report. Between January and July 1876, the value of 
 silver fell from 56d to 48d an ounce. The production of 
 silver had risen from 9,000,000 in 1862 to 1 5,000,000 
 in 1875. The discovery of new mines of marvellous 
 richness was announced in Nevada. Then, on the other 
 side, the German Government had substituted a gold for 
 a silver currency ; and an enormous quantity of silver 
 had become useless for the purpose to which it had been 
 applied, and was likely to be thrown on the general 
 market of the world for sale. 6,000,000 worth had
 
 396 MONEY METALLIC. 
 
 already been sold, and there remained a sum still to 
 be disposed of, variously computed from 10,000,000 to 
 30,000,000. Sweden had followed the same course 
 in demonetising silver, and metal to the amount of 
 ^"2,000,000 had been added to an already excessively 
 over-supplied market. The Latin Monetary Union 
 followed step, but more feebly. 
 
 In addition to these gigantic quantities thus rendered 
 useless, these countries ceased to buy silver for their 
 monetary wants as they had largely done previously. 
 India too marched on the same lines. The demand for 
 silver which for several years, ending in 1875, had been 
 above 15, 000,000 a year fell off to a quarter of the quan- 
 tity annually produced, i 5,000,000. The Committee of 
 the House of Commons reported that the chief cause 
 of this great decline in the export of silver to India was 
 to be found in the fact that " a different form of re- 
 mittance, namely, Government Bills, had superseded of 
 a great extent the necessity of remitting bullion." Mer- 
 chants who buy Indian goods instead of sending silver 
 over the sea to India now buy in England bills which the 
 English Government had drawn on India for payments 
 due by India. The Government receives in London the 
 money due to India for the products which she had 
 exported to England, but India receives no silver to the 
 extent of these bills. She merely orders that the silver 
 which would have been sent to her for the payment of 
 her exports shall remain in Europe, and that the debt due 
 to her for her exports shall be appropriated to the pay- 
 ment of what she owes to the Home Government for its 
 disbursement on her account. In other words, she pays 
 with her own produce as every other nation. These dis-
 
 MONEY METALLIC. 397 
 
 bursements thus repaid to the Home Government " had 
 arisen since the Indian mutinies from .5,000,000 to 
 1 5,000,000; a difference of which the magnitude will 
 be appreciated when it is remembered that it is con- 
 siderably more than half the total amount of silver an- 
 nually produced." Thus the vast sum of ^"10,000,000 
 of silver which formerly was sent annually to India 
 remains as an excess of supply to burden the over- 
 stocked silver market of the world. India herself largely 
 contributed to that fall in the value of silver which 
 threatened to involve her in great distress. 
 
 These powerful causes, then, continuing together, 
 generated a depreciation in the market-value of silver, 
 as we have seen, from 56d. to 48d., a fall of nearly 1 5 per 
 cent. ; what would have been the effect on India had 
 such a low value of silver been permanently established ? 
 The standard of her currency is silver. Silver coins are 
 her tools of exchange ; the things bought and sold in 
 that great country are calculated in silver. In exchange 
 for silver coins of diminished value, the prices of every- 
 thing sold, whether goods or services, must have risen. 
 A sudden and serious drop in the value of the money 
 of a nation is always accompanied by severe suffering 
 to innumerable persons. Every creditor is injured ; 
 the worth of the debt due to him is diminished. He is 
 paid with the quantity of money due ; but he encounters 
 raised prices in every shop. With the same coin in hand 
 his income is lower ; for he gets fewer things for his 
 money. For the middle and higher classes of a country, 
 supposing the lower value of the coin to become stable, 
 and fluctuation to cease, the evil adjusts itself with 
 comparative rapidity. The suffering is inflicted and
 
 39$ MONEY METALLIC. 
 
 endured. Creditors are poorer men, debtors have 
 made a proportional gain, and then a new start, so to 
 speak, is made with the altered incomes. 
 
 But the case is very different with the poorer 
 classes, and in India their numbers are enormous. 
 Custom wields great power over the wages they receive. 
 The makers and sellers of commodities quickly adapt 
 their prices to the worth of the coin for which they sell 
 them ; but it generally takes a long time before the 
 wages for which labourers sell their services are made 
 to correspond to the lowered value of money. Nominal 
 wages in money move slowly under the mere influence 
 of an altered currency ; real wages, the power of buying 
 food and clothing, sink long before the fitting correction 
 is applied. So long as this state of things lasts, the 
 labourers, as a class, receive lower remuneration from 
 the rest of the community ; they surfer an unintended 
 indeed, but very real, hardship. In India the distress 
 over so immense a body might be most formidable on 
 many sides. 
 
 Then, again, many a large body of civil servants, 
 military men, merchants, and others, who have returned 
 home, receive great sums every year, which are due to 
 them in silver in India, and are remitted to them in 
 bills payable in gold in London. With an important 
 depreciation of silver, the quantity of gold into which 
 remittances would be converted would be seriously 
 reduced. The suffering would often be severely felt, 
 and in such a body much agitation would most cer- 
 tainly spring up. 
 
 Further, the Indian Government has to pay every 
 year in England very heavy sums due for interest on
 
 MONEY METALLIC. 399 
 
 Indian stocks payable in gold, and for other charges. 
 It would have to purchase that gold for remittance 
 with an increased quantity of silver rupees. Its natural 
 resource would be the same as that of traders, who raise 
 the nominal prices of their goods to meet a depreciation 
 of the worth of the coin. It would be obliged to increase 
 the nominal taxation of the country by demanding more 
 rupees, whilst in reality it only levied the same amount 
 of real value, the same quantity of property given to 
 purchase the sum due for taxes. But there are always 
 embarrassing difficulties for a government in adopting 
 such a measure, most of all in a great dependency in- 
 habited by an alien population. The multitude would 
 certainly regard the additional rupees as a pure increase 
 of taxation. The currency reason, that silver being de- 
 preciated, no greater charge was imposed upon them, 
 because they were obtaining better prices for what they 
 sold, would not be understood, or if understood, would 
 be looked upon as a mere pretence. Then, as before 
 remarked, the poorer classes would not yet have secured 
 the rise of nominal wages which was their due. Such 
 a position would be extremely delicate for foreign rulers. 
 But there is more yet. A large part of the territory 
 of India is subject to what is called the Permanent 
 Settlement : the government has covenanted to let that 
 land for ever at a fixed rent, calculated in rupees. The 
 amount of rent thus permanently settled is estimated at 
 some 5,000,000 a-year. This is a sum which the 
 Government cannot alter ; be the rupees worth more or 
 less, the government gets the stipulated number and no 
 more. On the other hand, under a depreciated currency, 
 the Government would necessarily be compelled to raise
 
 4OO MONEY METALLIC. 
 
 the salaries of all its servants, and the pay of the army, 
 and in addition would be charged more rupees for all 
 the supplies which it purchased. To the extent of this 
 permanent rent, the government would lose all the 
 addition it was forced to make to its payments ; its 
 income would be stationary, its out-goings greatly 
 enlarged. The position of the Government would be 
 grave indeed. 
 
 Is it possible to discover any remedies or alleviations 
 for such a situation ? Two have been advocated with 
 great force. 
 
 1. A limitation in the coinage of silver rupees in 
 India, accompanied by a prohibition to import rupees 
 into that country. 
 
 2. The substitution of a gold for a silver standard, by 
 making gold the legal tender. 
 
 3. A third might be added, which has not received 
 the attention which it seems to deserve, the issue of 
 bank-notes of small denominations. 
 
 One or two suppositions must be made in examining 
 these propositions. Either a considerable fall in silver 
 to a value more or less steady may have been perma- 
 nently established. Or the oscillation in the value of 
 silver may still be violent and of wide range. This last 
 consideration has an important bearing on the adoption 
 of a gold standard. 
 
 The first plan proposes to rescue India from the 
 embarrassments and sufferings above described by 
 giving to the currency of that country, the silver rupee, 
 a special and artificial value wholly distinct from the 
 value of the metal it contains. The legal tender, 
 the coined rupee, shall be made so scarce that it shall
 
 MONEY METALLIC. 40 1 
 
 command a premium, so that ten rupees shall be ex- 
 changeable for a sovereign, whilst twelve times the rupee 
 weight of uncoined metal would be required. Suppos- 
 ing such a measure to be practicable, some serious diffi- 
 culties would vanish. The Government would receive 
 the coined rupees from the rent under the permanent 
 settlement, and they would command the same purchas- 
 ing now as ever. They would be taken by sellers of 
 goods as worth ten rupees to the pound sterling. 
 Similarly every creditor in India would receive the same 
 tale of coined rupees, and he would lose nothing in buy- 
 ing Indian goods. 
 
 But is such a scheme practicable ? In the first 
 place, how is the actual premium at which the coined 
 rupee stands to be learnt under such circumstances ? 
 The rupee's value no longer bears any reference to 
 the value of the metal of which it is made. No one 
 out of India will give a sovereign for the ten rupees ; 
 and if the sovereign is taken to India by a merchant, 
 how is he to find out whether he can obtain goods with 
 the ten rupees worth his sovereign ? The exchange 
 will not remain stationary at ten rupees to the pound. 
 
 But, secondly, the direct result of such a proceeding 
 would be that there would be two prices of silver in the 
 same market one for silver ingots, another for the same 
 quantity of silver when coined. It would be a strange 
 thing, indeed, if the giving in the shops two different 
 quantities of produce for the same weight of silver were 
 capable of being worked. It has been acutely remarked 
 that this would be a reproduction of the contrivance of 
 the mediaeval kings, a false coin to reckon for as much 
 as an honest one. A profit of two rupees on twelve 
 
 2 C
 
 4O2 MONEY METALLIC. 
 
 would be an irresistible temptation to coin-makers 
 other than the Mint, for which all the policemen of 
 India would be no match. Rupees of the finest quality, 
 which the Mint could not surpass, would be coined in 
 and out of India. Interdiction at the' Custom-House 
 would be as efficacious as the ancient prohibitions to 
 export the precious metals. The case has been excel- 
 lently stated by Mr H. Hucks Gibbs. It has been asked, 
 "How is itthat this coinage does not take place inFrance? 
 The answer is What evidence is there that it does not ? 
 And India is not France, but has a very different frontier. 
 Further, we have an example in the Brazils, where the 
 coinage was below its nominal value ; the illicit coin 
 grew in the country, and poured in from abroad in 
 myriads." No law can perform the impossible ; and to 
 maintain two widely different prices for a metal in money 
 and the same metal in ingots is impossible. A shilling 
 we have shown to be but a counter, a ticket for the 
 twentieth part of a sovereign, realisable as such at any 
 time. But for the danger of adulteration or forgery, 
 the shilling might be made of copper, lead, or paper. 
 The shilling is not valued as silver ; hence the English 
 currency does not exhibit two prices for silver in the 
 same market 
 
 Another remedy has naturally occurred to many 
 minds. It proposes to substitute in India a gold for a 
 silver currency, and to make gold the standard of value, 
 and the legal tender for all debts. A subsidiary 
 currency of small denominations would have to be 
 added on of necessity for the small purchases of the 
 country. This in substance would be to give to India 
 the same currency as England possesses. In principle,
 
 MONEY METALLIC. 403 
 
 it is perfectly sound. It obeys the necessary laws 
 involved in the nature of money; and when once 
 established it would work with ease and with universal 
 satisfaction to all classes. But the change would be one 
 of great difficulty, and would create, during the state of 
 transition, some' additional losses and sufferings of its 
 own making. The demonetisation of silver unless 
 some plan could be devised which would retain the 
 present silver rupee as small coin would throw an 
 immense quantity of silver on the markets of the world, 
 and lead to a further considerable depreciation, as 
 happened when Germany gave up its silver currency. 
 During the process every trouble would be aggravated. 
 Further, to supply India with the required stock of 
 gold would be far from easy, and certainly would be an 
 operation requiring much time. And thirdly, it can 
 scarcely be doubted that the measure would, by increas- 
 ing the demand for gold, be likely to lead to a serious in- 
 crease of the value of that metal. Such an appreciation 
 of gold would create an immense disturbance in every 
 country of the world in which gold was the standard of 
 value. The prices of all articles would sink, and, which 
 is far worse, a false, unjust, and irritating payment of all 
 debts would be established. The national debts in 
 every land, which paid the interest in gold, would be 
 heavily increased in practical severity. Every tax-payer 
 would have to pay the sum which he owes to the 
 national creditor with more property. This would be 
 practically a proportionate increase of taxation, simply 
 because gold had become more valuable. The opposite 
 consequences would result in England from those which 
 the depreciation of silver had generated in India. Every
 
 404 MONEY METALLIC. 
 
 debtor would be injured, every creditor would become 
 the winner, by mere chance, of an unexpected and 
 undesired gain, at the expense of another man. Such 
 wrongs are the inevitable accompaniments of any 
 important change in a national currency. They are 
 contained in the very nature of currency, in the very 
 method by which the tool of exchange performs its 
 work. It works by value, the value of the commodity 
 of which it is composed ; it gives value for value. A 
 debt was contracted on the understanding that the 
 money to be paid would replace the worth of the things 
 sold. If the coin is worth less, the payment ot the same 
 quantity of it as was stipulated overthrows the justice 
 of the payment. A wrong, more or less severe, is 
 committed. 
 
 It is impossible, therefore, to consider a change in the 
 standard of value to be desirable, unless it is forced on 
 by overwhelming reason. But it must be clearly 
 admitted that such reasons may exist. The German 
 Government held that the substitution of a gold for a 
 silver currency was called for by such motives, and 
 carried out the measure. The movements in the value 
 of silver produced such grievous effects on India, that it 
 was very natural that a similar substitute should come 
 under serious discussion. The recoil upwards in theValue 
 of silver to 54d. and more has adjourned, if it has not 
 extinguished, the intention of adopting such a measure. 
 But the future of silver is uncertain. No one can feel 
 sure what the amount of its future production will be, 
 what new mines may be discovered, how great will be the 
 amount of their yield, and above all, its cost. Further, 
 this very recoil upwards suggests the possibility that
 
 MONEY METALLIC. 405 
 
 other great and sudden fluctuations in its value may 
 occur. Should there be such movements, of wide range 
 and great frequency, then I cannot feel any doubt 
 whatever that a change to a gold currency will become 
 necessary and inevitable. A tool false to its nature 
 and the specific work it has to perform cannot be 
 permanently retained in any department of human life. 
 A currency of largely shifting value would render 
 credit impossible, except for very brief terms. No 
 Government or other loans could be contracted on such 
 a basis ; clauses virtually substituting a gold or other 
 currency would always be inserted. Bequests, pensions, 
 permanent gifts and settlements would all be expressed 
 in gold. The practice, now so common in America, of 
 selling for a gold price would become general. Society 
 would thus be harassed by numberless injurious and mis- 
 chievous vexations ; the remedy, though a very painful 
 one, would certainly be enforced. No civilised nation 
 could endure to go on with a currency, measuring all 
 property and the instrument for the acquisition of all 
 necessaries and enjoyments, whose worth no man could 
 pronounce upon, much less predict, with any certainty. 
 It is not beyond the limit of possibility that the fluctua- 
 tions in the value of silver might exceed in swiftness 
 and magnitude any known to even inconvertible bank- 
 notes. 
 
 It is a matter for some surprise that in the frequent 
 discussions of a gold standard for India so little allusion 
 has been made to the assistance which might be derived 
 from the issue of bank-notes of very low denominations. 
 Mr Wilson, when Financial Member of Council for 
 India, advocated a ten shilling note. The Austrian
 
 406 MONEY METALLIC. 
 
 Government long employed notes of a value below 
 threepence. The Minister of Finance of that day has 
 been heard to declare that no really serious objection, 
 founded on experience, could be urged against their 
 use except the danger of forgery. Better protection on 
 that side might be hoped for from modern science. A 
 two shilling note works well in Austria at the present 
 time, as also a one franc note in Italy. A rupee note, 
 if successfully put into circulation, would immensely 
 facilitate the introduction of a gold currency ; but 
 routine is slow to regard with favour such a diminu- 
 tive instrument. It finds an enemy in every banker. 
 He instinctively recoils from the trouble of counting 
 and registering such small and, generally, such dirty 
 paper. But that the small notes should be available 
 at banks is not the vital condition of their existence 
 in India ; it is amply sufficient if they supply the small 
 wants of a vast agricultural population.
 
 CHAPTER XIII. 
 
 PAPER CURRENCY. 
 
 WE have now reached the great auxiliary of metallic 
 currency or coin, the bank-note. 
 
 In no civilised country can all the exchanges of pro- 
 perty, all purchases in shops or warehouses, be carried 
 on by the agency of coin alone. Other tools of ex- 
 change are needed. Property is bought and sold by 
 instruments made of paper, by bills, cheques, and most 
 of all by book credit, that is, items of debt entered in 
 the books of traders. These are not actual payments, 
 real exchanges of one commodity for another. They 
 do not give value for value. They are mere promises to 
 pay, pledges for payment, or rather evidence of debt, 
 which the law will enforce against those who will not 
 make the promise good. It is found that men are 
 willing to give away their goods in return for such pro- 
 mises on paper. Experience establishes the fact, it is 
 founded on experience alone. Some of these tools of 
 exchange possess a certain amount of currency ; they 
 circulate to some small extent. Bills, by the help of 
 endorsements, run from hand to hand; that is, like 
 sovereigns, they are used for making a certain number 
 of purchases or paying a certain number of debts in suc- 
 cession, before they are presented for final payment and 
 extinction. 
 
 It is obvious that these instruments, in the aggregate,
 
 408 PAPER CURRENCY. 
 
 supersede to an enormous extent the otherwise inevitable 
 use of coin ; and on the other, they confer an immense ser- 
 vice on a nation. They create the transcendant economy, 
 that the bits of paper they are written on cost the 
 merest trifles only, whilst the coins they supersede 
 must have been necessarily purchased from the miners at 
 a heavy cost of English products and capital. In 
 addition, they escape the loss, which is by no means 
 inconsiderable, of the wear and tear of the metal which 
 it suffers in daily circulation. 
 
 The paper note possesses some further advantages 
 over coin. It is lighter to carry ; the want of weight is 
 a real superiority in endless cases. Then it is easier to 
 keep in safety than coin. It is a dangerous thing to 
 steal, for it cannot be melted down like a coin ; and by 
 the numbers printed upon it, it furnishes an important 
 security against robbery. These advantages, combined 
 with that of cheapness, explain how it comes to pass 
 that in some countries, as in Scotland, the one pound 
 paper note is preferred by sellers to the sovereign. 
 
 One distinguishing characteristic of these mere pro- 
 mises to pay is that the acceptance of them is voluntary 
 (unless made legal tender by positive law) on the 
 part of the seller or creditor. No man is obliged to take 
 a cheque, or bill, or non-legal tender bank-note in dis- 
 charge of a debt. But the bank-note which in essence 
 is only a variety of the cheque occupies a partially 
 distinctive position. It is a cheque which the banker 
 draws upon himself, and promises to pay in coin on 
 demand. But it is also invested with a sort of semi- 
 public, or rather, anonymous character. The private 
 cheque, as a rule, does not circulate ; it effects a pur-
 
 PAPER CURRENCY. 409 
 
 chase or discharges a debt, and is at once sent in for 
 payment. The reason of this fact is plain. The value 
 of a cheque depends on the solvency of a private person 
 or a commercial firm, and the state of his account with 
 his banker ; and for the mass of men this is too frail a 
 protection against non-payment to allow of the cheque 
 being long kept in circulation. It is otherwise with the 
 bank-note. The bank is a kind of public institution ; its 
 note, bestowing the advantages just mentioned, esta- 
 blishes itself as a public currency. It circulates in town 
 and market. The acceptance of it is scarcely voluntary ; 
 for a tradesman who should refuse to take the notes 
 current in his locality would expose himself not only to 
 ill-will and diminution of custom, but often to positive 
 inability to sell his goods. 
 
 It is obvious that the worth of a bank-note consists in 
 the certainty of payment, of the delivery of the thing 
 promised when demanded. As the law compels no 
 one to accept a private cheque, it is the business of the 
 man who gives property in exchange for it to con- 
 sider for himself the prospect of payment. It is his 
 affair and he knows it to weigh the value of the 
 signature, and the chances of there being money in the 
 signer's account at his bank. But the public cannot 
 easily act thus with a bank-note. They take it more or 
 less on semi-compulsion ; and the most disastrous and 
 most extensive losses have been inflicted on the public, 
 notably in the year 1825, by the insolvency of bankers 
 and their inability to give the pledged payment in coin. 
 The need of some legal provision to protect society and 
 to give it worth to its paper currency becomes immedi- 
 ately obvious.
 
 4 1 PAPER CURRENCY. 
 
 Are bank-notes money ? The facility and character- 
 istics of its circulation seem to establish its claim to 
 that title. It is certainly universally called money. 
 Coin and notes seem to differ only as a chisel differs 
 from a saw in a carpenter's basket ; they look like two 
 varieties of cutlery, or rather, current tools. Neverthe- 
 less the bank-note, in its real nature, is not money, and 
 it is unfortunate on many accounts that it is impossible 
 to prevent it from being called money. Let any one read 
 what is written on the face of the note. It promises to 
 pay five pounds, five sovereigns, on demand. It under- 
 takes to procure for its holder this amount of real 
 money ; but he must ask for the money in order to 
 obtain it. A promise to give is not, and cannot be, the 
 thing itself. Neither a bank-note, nor a cheque, nor a bill, 
 nor a credit, nor a power of drawing is money, is pay- 
 ment ; it does not put property into a man's hand, till 
 the coin distinctly mentioned is given. The thing pro- 
 mised may never be paid at all; and the thing promised 
 is money, coin, sovereigns till that is forthcoming 
 money has never made its appearance. 
 
 But if this is so if a bank-note is only an acknowledg- 
 ment of debt, and if a seller of goods gives them away 
 merely upon taking a creditor's claim on the bank which 
 is transferred to him how comes it to pass that such an 
 unreality can buy as well as the real substance, the pre- 
 cious metal of the coin ? Because coin does not act or 
 work by means of its physical properties, but by means of 
 its value. That value is a complete guarantee to a seller 
 or a creditor that he shall be able with it to procure 
 other commodities worth those which he has sold. Ex- 
 perience shows that men are willing to take a debt as
 
 PAPER CURRENCY. 411 
 
 payment, because it is found that what one man does 
 every one else is willing to do also. A grocer gives tea 
 for a claim on the Bank of England, because he finds 
 that his butcher will do the same ; and they all do it, 
 because none wants the sovereigns pledged as such, but 
 only the assurance that they can, on the instant, obtain 
 the sovereigns if they choose to ask for them. 
 
 It plainly follows, from these facts, that the promise 
 does its work as well as the coin promised on one con- 
 dition, and one only that there shall be a peremptory 
 obligation on the issuer of the promise to pay it on de- 
 mand. Without complete convertibility, the promise to 
 pay is insecure, and immediately becomes exposed to a 
 peculiar and formidable danger. The utmost harm of 
 superfluous sovereigns is that they are compelled to lie 
 idle ; they are expelled like drones from the circulation, 
 and sent to sleep, either in hoards or in banking cellars. 
 But inconvertible notes, green-backed promises to pay 
 for which no payment can be demanded, may be sent 
 forth in unlimited numbers, and, which is the point of 
 the matter, may be compelled to stay out in unlimited 
 numbers. If a tradesman finds that twenty sovereigns 
 will do the day's work of his shop, and that he has thirty, 
 he will send off ten to his banker, who will forward them 
 to the cellar in Threadneedle Street. No more sover- 
 eigns will remain out than there is work for. But if 
 notes are issued as they now are by the American Go- 
 vernment, and, the valve opening one way only, cannot 
 be sent back again, they quickly expand into excessive 
 numbers, far beyond what the exchanges of property to 
 be effected require. Hence every holder is anxious to 
 part with them, and finding no outlet, consents to give
 
 412 PAPER CURRENCY. 
 
 them away at a loss. They submit to a discount, and 
 there is no limit to that discount, if the inconvertible 
 issues are continued. 
 
 Our next inquiry asks, How does this paper currency 
 make its appearance in the world ? By two processes. 
 They are issued by a bank or by a government. A 
 bank's object in issuing notes is to pay a portion of its 
 debt with pieces of paper which cost little. If its de- 
 positors ask for payment, it presents to them this 
 paper, and it is accepted : thus the bank meets its 
 claims, and is able to keep its profitable loans to debtors 
 undisturbed. But how comes it that the depositors are 
 so graciously ready to accept payment in such a form ? 
 Because they find that the public will repeat the pro- 
 cess, and be ready to take them in turn, in discharge of 
 what is due by the depositors. But what makes the 
 public so disposed to take a promise instead of the 
 reality due ? The reason given above, the transfer of 
 a debt performs the work as successfully as coin, sup- 
 posing always that the confidence in the bank remains 
 unshaken. 
 
 Notes issued by a Government have a different 
 origin. They are instruments for obtaining supplies 
 for its wants without paying for them. But a govern- 
 ment would encounter much difficulty in carrying 
 out this operation on an extensive scale : the security 
 it can offer for payment, strange to say, is far inferior 
 to that furnished by a bank. A bank must pay its 
 debts, the sum promised on its note, or become liable 
 to all the pains of insolvency : its business is arrested, 
 and its property seized by the decree of a court of law. 
 In the case of a Government note, there is no one to go
 
 PAPER CURRENCY. 4 1 3 
 
 to prison, or to have his property sequestrated, if it fails to 
 meet its engagements. And this fact leads to a second. 
 By the very nature of his business, a banker's great object 
 is to retain the command of the means which he ac- 
 quires with his notes. His one desire is to make a profit 
 out of them, but not to lose or waste them. A Govern- 
 ment lies under no such feeling. The notes are issued 
 to pay for consumption the commodities purchased 
 with them are at once taken into use for destruction. 
 Those who took Government notes would know that of a 
 certainty there were no funds in existence that could be 
 produced to cash notes presented. A Government bank- 
 note, therefore, standing on its own merits, could not 
 compete with notes issued bybankers. It would be swept 
 off the market. Hence Governments have invented 
 machinery for procuring circulation for their paper, 
 They invest it with the character of legal tender. Legal 
 tender does not mean, as many absurdly suppose, that 
 a shopkeeper is obliged to sell for a legal tender note : 
 but the legal tender law compels him to take the note on 
 presentation for a debt recorded in his books. The word 
 legal tender denotes that the law will regard it as a dis- 
 charge of the debt. By the help of legal tender a Govern- 
 ment can get its notes into circulation. It pays its 
 liabilities with them, and suppliers of goods will enter 
 into contracts on the basis of such a payment, be- 
 cause the contractor knows that he can pay his own 
 debts with the paper which he receives from the Govern- 
 ment. Thus the Government obtains what it seeks 
 supplies of what it wants without paying for them in 
 ready money. It acknowledges a debt due for the 
 amount which they cost, for the notes issued ; but that
 
 41 4 PAPER CURRENCY. 
 
 debt remains like Consols, a debt only, with the addi- 
 tional advantage of having to pay no interest upon 
 it. But how fares it, 'then, with the public ? Have 
 they lost the stores thus bought by the Government with 
 pieces of paper ? are they harmed in any way ? The 
 answer to this question depends upon the character of 
 these notes. If the Government makes their notes con- 
 vertible, by giving money for as many notes as are pre- 
 sented for payment, then the nation suffers no loss. 
 The notes remaining out in circulation have indeed 
 been paid for with goods supplied, but they are currency 
 wanted and at work ; and they cost the public no more 
 than what must have been otherwise given to miners 
 for the gold currency whose place the notes have taken. 
 But the case is entirely different if the notes are incon- 
 vertible, and are issued in excess beyond the wants of 
 the public. That excess depreciates their value. The 
 one-pound note may go down to fifteen shillings. 
 Thus it becomes plain that the successive issues which 
 lowered their value were made at the cost of the holders 
 of the previous issues. They find that the notes in their 
 hands now buy no more than fifteen shillings worth of 
 goods : the Government has obtained the supplies pur- 
 chased with these issues in excess at the expense of the 
 holders of the previously issued notes. 
 
 These considerations establish the conclusion that the 
 Government is a bad direct issuer of notes. It never 
 could maintain a trustworthy machinery for converti- 
 bility, for paying in money, every note presented, and 
 every nation would do well not to fall into the snare of 
 setting up such machinery. 
 
 But it is open to a Government to issue notes in.-
 
 PAPER CURRENCY. 415 
 
 directly, through the agency of a bank ; and the 
 question has been often debated, whether a Government 
 is reasonably entitled to engage in such an operation. It 
 is condemned by many as an unjustifiable interference 
 with private trade. Upon such a principle, why should 
 not a Government become a manufacturer ? In reply 
 to this question, it may be contended with truth that a 
 real distinction exists between currency and ordinary 
 trade. The supply of the commodities which society 
 requires is rightly left to private action ; the work is 
 accomplished with entire efficiency and success. It 
 is otherwise with currency. The issuing of fiotes up 
 to 1844 was open to any banker, and then experience 
 disclosed serious evils. Banks paid their debts with pro- 
 mises, then lost the funds they acquired in exchange for 
 the notes, and the unhappy note-holders were stripped 
 of their property. Further, the currency affects the people 
 as a whole; it is a public instrument, performing a public 
 function. The people at large are under the necessity of 
 accepting the currency actually in circulation ; and when 
 an issuing bank stops payment, the calamity ranges over 
 a large portion of the community. The State is thus 
 called upon to interfere, and the true intervention is 
 that which will be discussed presently the setting up 
 of a machinery of a public character which protects 
 every interest, and which yields a portion of its profits 
 to the State under whose authority it acts. 
 
 Convertibility raises another question of extreme im- 
 portance. Is it sufficient to impose the obligation on a 
 bank which issues notes to pay its notes in coin on de- 
 mand under pain of legal insolvency or is it necessary 
 to add the further protection that not only shall the
 
 416 PAPER CURRENCY. 
 
 money be so due, but provision shall be made to insure 
 that it shall actually be in hand to be given when 
 demanded ? In the case of bills, cheques, and common 
 debts registered in shop accounts, no enactment re- 
 quires that a security shall be lodged by the debtor for 
 payment ; the care to avoid loss is left to the judgment 
 and feeling of the creditor. The law will compel the 
 debt to be paid, if there is property belonging to the 
 debtor which the law can seize for payment ; but 
 debtors are often penniless, and the unhappy creditor 
 is left with an empty and useless right at law. Here, 
 again, experience lifts her voice, and declares that the 
 loss to the community is too general and too severe to 
 allow perfect freedom of issue to banks on the sole con- 
 dition of bankruptcy if the demanded coin is not given. 
 Banks have failed in multitudes, and it is seen that the 
 public cannot adequately protect itself in the matter of 
 paper currency. Thus the great political principle comes 
 into play, that in those matters in which the public is un- 
 able to protect itself the intervention of the State is not 
 merely justifiable but called for. In the manufacture of 
 gun barrels, in the moving and storing of gunpowder, in 
 the management of passenger vessels and cabs, the 
 minting of coin, the loading of ships, the law steps in 
 with restrictions, sometimes with prohibitions, and no 
 one contests the legitimacy of its action. This principle 
 is summoned to exercise its supremacy in securing not 
 only the legal, but the actual, positive convertibility of 
 the public bank-note, 
 
 A guarantee for the perfect solvency of the paper 
 circulation may be obtained by various methods ; one 
 has been adopted in the Bank Charter Act of 1844, a
 
 PAPER CURRENCY. 417 
 
 second is found in the United States. The latter re- 
 quires an issuing bank to deposit in an office of the 
 State Government securities to the amount of its issues. 
 By this provision, the public receives full protection, and 
 the banker reaps his legitimate profit in the interest 
 accruing on the stock which he deposits. Had the pri- 
 vate bankers in 1844 been willing to accept this condition, 
 and demanded thereupon full liberty of issue, the Bank 
 Charter might very possibly never have been enacted. 
 
 And now there presents itself the question so criti- 
 cal for the understanding of all currency, whatever 
 be its form : How many bank-notes will circu- 
 late ? Mr Tooke discerned the true answer, and 
 so also does Mr H. Hucks Gibbs, ex-governor 
 of the Bank of England. Mr Mill, with some 
 wavering, saw the light ; but the general literature on 
 money matters for a long time was profoundly ignorant 
 of the truth. Few troubled themselves with the inquiry 
 how many guineas or sovereigns could circulate. It had 
 no interest for them to make them dwell upon it. 
 Sovereigns, it was perceived, had to be bought and paid 
 for with other property. Far otherwise was it with 
 bank-notes ; they were made of paper, and cost but a 
 trifle. They could buy everything in every market. 
 They commanded the wealth of the country, and they 
 were issued and taken so easily ; borrowers were so 
 eager to obtain them from banks. Every tradesman, 
 every merchant fondly believed that with plenty of 
 money, there would be plenty of buying and profitable 
 selling ; so why should not money be manufactured at 
 will ? A theory for so pleasant and popular an opera- 
 tion could be manufactured with ease. 
 
 2 D
 
 41 8 PAPER CURRENCY. 
 
 The result of these feelings was an outburst of circu- 
 lation theories for the regulation of the currency. The 
 mercantile theory had preached that the good trade was 
 that which brought in gold, which gave away the pro- 
 ducts of England in exchange for the precious metal, 
 which sent out an excess of exports over imports ; but its 
 absurdities stopped short of the claim to regulate the 
 currency. But bankers, it was held, could put forth 
 their paper notes or recall them at pleasure, they could 
 inflate or contract the circulation, as the jargon of the 
 day expressed it ; and all sorts of ideas were propounded 
 as the grand rules for managing these two great ope- 
 rations. 
 
 But a vast change has come over the literature of 
 England in this matter. The words of the Economist 
 of July I4th, 1877, we have seen, bear witness to this 
 fact. In no small degree is it due to the enactment of 
 the Bank Act of 1 844. It is increasingly perceived that, 
 by the very nature itself of currency, it is a tool, con- 
 structed to do a particular work. Hence so many con- 
 vertible bank-notes will the public use, as it has a posi- 
 tive need for in paying with bank-notes, and no more. 
 This is the universal law of all tools, the law of supply 
 and demand. Neither bankers, nor Parliament, nor sus- 
 pensions of the Bank Act, nor the need of borrowers, 
 but the wants of the public, its willingness to keep 
 notes in its possession, the number and amount of 
 specific payments which it desires to effect with these 
 tools, along with a certain spare stock, can determine 
 how many convertible notes can be kept in circulation, 
 and will not be returned upon the bankers for payment. 
 The bankers, if they choose, may offer these on loan, and
 
 PAPER CURRENCY. 419 
 
 borrowers will accept them readily; but it will be all in 
 vain. The borrowers make purchases with them, the 
 sellers of the goods do not want the notes for use ; they 
 come back upon the bank, which then finds that it has 
 not acquired a single pound of lending power by means 
 of these notes issued beyond the want of the public 
 for notes. 
 
 THE BANK CHARTER ACT OF 1844. 
 
 It now becomes necessary to explain the Statute which 
 is the foundation of the issue of bank-notes in England. 
 Up to the time when this law was passed, any banker 
 might issue notes to the public under the sole obliga- 
 tion of paying them in gold, when presented, under pain 
 of committing an act of bankruptcy. 
 
 No measure, probably, has ever had so much good 
 and evil said of it without any real understanding of its 
 true character as this famous Statute. Committees of 
 the Houses of Parliament have sat in judgment upon it, 
 hosts of witnesses have recorded their opinions of its 
 presumed effects, and yet what it does, and what it does 
 not* do, is, to this hour, a matter of never-ending 
 controversy. 
 
 This fact is surprisingly strange, yet it has an easy 
 explanation. The Bank Act of 1 844 was the child of 
 theory, whilst in fact its enactments are peculiarly 
 practical, and scarcely tainted with any colour of theory. 
 Angry combatants have fought over it in support of 
 conflicting views ; the last thing they have thought 
 of has been to study its true nature by the help of what 
 it enacts, instead of the doctrines which it was supposed 
 to contain. And thus its real character has remained
 
 42O PAPER CURRENCY. 
 
 obscured and buried under the weight of irrelevant 
 controversy. 
 
 Let us then endeavour to explain the true character 
 of this law. To this end let us see what the positive 
 enactments of the Act are, such as they are in them- 
 selves, independently of all theory, whether of friends or 
 opponents. When we have thus obtained a clear view 
 of the Statute, we shall be in a position to judge some 
 of the extravagant utterances which have been made 
 as to its contents. 
 
 i. First of all, the Act separates the function of the 
 issue of bank-notes from the banking business of the 
 Bank of England. The notes issued bear the old name 
 of Bank of England notes ; in reality that Bank is made 
 by the Act a purely private bank, unconnected with the 
 issues. Its directors have no more authority or right to 
 speak within the issue department, save only as clerks 
 performing the mechanical work, than any other person 
 in the kingdom. The Bank of England becomes only 
 the largest private bank in England, with a special and 
 very big customer, the Government, and also with a cer- 
 tain advantage from the issues, in consideration of the 
 services rendered to the State by the Bank and the 
 debt due to it by the nation. The issue department is a 
 pure automaton, working mechanically under fixed rules ; 
 the Bank supplies it with rooms, clerks, paper, vaults, 
 and other necessaries. It cannot give a single order to 
 the automaton. All it can do is to get notes for gold, or 
 gold for notes, in that department; any other Englishman 
 can do the same. The name of issue department was 
 ill-chosen, for it is very apt to mislead. It tends to
 
 PAPER CURRENCY. 42 I 
 
 keep up the notion, destitute of all reality, that it is an 
 integral part of the Bank of England. 
 
 2. It ordains that the private Bank of England may 
 take 14 millions of Government securities to the issue 
 department, and receive in exchange from it 14 millions 
 of notes. Further, it orders that department to issue to the 
 public notes in exchange for any quantity of gold bullion 
 which may be lodged with it for the purchase of such 
 notes, and to repay sovereigns on demand for any notes 
 presented to it by the public. 
 
 By this enactment the Bank of England obtains as 
 profit the interest accruing on the securities lodged in 
 the issue department. As every note issued confers a 
 right on its holder to be paid in gold on demand, it 
 might happen, as for instance in the case of invasion, 
 that the Bank of England might be called upon to sell 
 its securities in order to obtain the gold pledged on its 
 14 millions. But that is an event which has never 
 happened, and is never, as the nation and its need of 
 currency expand, likely to happen. The probability is 
 infinitely small that the circulation of bank notes will 
 ever fall so low as to reach the notes uncovered by 
 actual gold. 
 
 Further, it is plain what the bank-note is. It is 
 a ticket for an article lying in a store, precisely 
 like a ticket for luggage left in a cloak-room. The 
 ticket can procure gold at once down to 14 millions, 
 and below that figure an order on the Bank of Eng- 
 land to sell securities and buy gold. And it is mani- 
 fest also that the whole circulation is actually covered, 
 and made sure of payment at once. The only defi- 
 ciency possible would be that the Bank's securities, when
 
 422 PAPER CURRENCY. 
 
 sold, did not quite cover the 14 millions ; but the 
 difference could only be a trifle, and all the Bank's pro- 
 perty is pledged to make it good. 
 
 Then again, and this is a point of extreme import- 
 ance for theoretical discussion, it is manifest that no 
 restriction is placed on the issue of bank-notes by the 
 Act of 1844 no limitation of their numbers. If the 
 public chooses it may have 100,000,000 of these notes ; 
 only it must buy them with gold. It may be said, no 
 doubt, that the expense of these notes, the gold 
 required to obtain them, constitutes a very real 
 limitation of their numbers. This may be so, but we 
 shall see presently what the suspensions of the Act 
 have to tell us on this point. 
 
 3. The Act limits the issues of notes by country 
 banks down to the average of their circulation at a 
 certain period after the passing of the statute. It also 
 prohibits the creation of new country banks of issue ; 
 and it provides that if any of the country banks should, 
 from whatever cause, cease to issue notes, the Bank 
 of England shall issue notes, in addition to the 
 14,000,000, to the extent of two- thirds of the lapsed 
 issues of such country bank. By virtue of this enact- 
 ment, the line of issue uncovered by actual gold, stands 
 at 15,000,000. 
 
 This provision is virtually a decree for the extinction 
 of private issues. Country banks of issue, like every- 
 thing human, come in course of time to an end ; all 
 sorts of motives lead to a bank discontinuing business. 
 Not long ago the National Provincial Bank of England, 
 whose business was carried on exclusively in the 
 country, found that it lost more by not carrying on
 
 PAPER CURRENCY. 423 
 
 banking in London than it gained by the profit reaped 
 upon its issues of notes. It resolved consequently to 
 abandon the issuing of notes, so as to acquire the legal 
 right of banking in London. It possessed a large cir- 
 culation ; two-thirds of its amount consequently passed 
 over as an addition to the 14,000,000 of the Bank of 
 England. 
 
 Such are the facts presented by the law ; what is 
 their interpretation? What principles do they 
 embody ? 
 
 i. The first feature exhibited by the Act is the very 
 marked characteristic, that it is purely and exclusively 
 a currency law. Its first deed is to cut currency and 
 banking clean asunder. It creates an establishment of 
 currency, taking away from the Bank of England all 
 control over the management of the paper currency, 
 and erecting in its place a manufactory of currency and 
 a shop for the sale of certain tools. There is not 
 a trace of banking from the first to the last line of the 
 statute. For all above the 15,000,000, the Issue Depart- 
 ment is a pure receiving house, taking in gold and giving 
 r or it receipts, tickets, vouchers, for which it undertakes to 
 give back the gold on demand. There is no banking 
 in that. It does not make the gold much or little, the 
 notes few or many. It simply takes the gold against 
 receipts ; what is done with the notes, it knows not, and 
 can in no way whatever influence. With respect to the 
 15,000,000, it gives out the notes no longer as tickets or 
 receipts for gold, but for securities, Government stocks. 
 Here, it may be said, there is interference with banking. 
 It compels the Bank to take away from its banking 
 operations the funds with which it was obliged to
 
 424 PAPER CURRENCY. 
 
 purchase the securities. Not so, the Bank gets notes in 
 exchange which do precisely the same service for the 
 Bank's banking that those funds would have done. 
 But it might be replied, the law needed not to have 
 required those securities ; it might have authorised the 
 Bank to issue the 15,000,000, as before the passing of 
 the statute, on its own liability, whereby the Bank 
 would have had that clear addition to its banking means. 
 Had it done this, then the issue department would 
 have been an institution connected with banking ; it 
 would have increased banking resources by 15,000,000 
 of pounds sterling. It is precisely because the law 
 did not do this, but required securities or gold for its 
 notes, that it created a pure receiving house or house of 
 exchange utterly unconnected with banking. What 
 the owners of the gold and securities do with the 
 tickets is their affair, not that of the issue department. 
 Is it not then marvellous that the belief in its 
 banking influence is so obstinate and so incurable ? Is 
 it not astonishing, that before committees of the House 
 of Commons specially appointed to examine into the 
 nature and effects of this Act, members and 
 witnesses came to the investigation with an invincible 
 belief, that somehow it had influence on the supplies 
 of capital to the money market, that it had peculiar 
 effects on trade, and that in some way it told on the rate 
 of discount charged by the bankers of England. To 
 this hour, it is the fond and firm belief of the City 
 that to suspend the Act is to bring a magical force to 
 bear on the putting down of crises. City articles every
 
 PAPER CURRENCY. 425 
 
 week still quote the figures which record the amount of 
 the circulation of bank-notes as furnishing a weather 
 signal to bankers, totally ignorant of the truth so well 
 expressed in the words of an eminent Ex-governor of the 
 Bank of England : " The Bank Act is the regulator of 
 the currency, by which is meant not that it prescribes 
 what notes could be in the hands of the public that 
 the need of the public prescribes but how they are to 
 get into those hands, and of what sort they are to 
 be of." 
 
 2. Secondly, a note perfectly sound and safe is pro- 
 vided for the nation. Convertibility is absolutely 
 secured for every note first, by gold actually in hand, 
 after fifteen millions ; secondly, by English Government 
 securities saleable at once in the open market for cash. 
 This paper currency is as good as gold ; the guarantee 
 which it gives to the man who takes it is thorough. 
 This is a merit of the very highest order ; it is, as to 
 safety and solidity, a perfect paper currency. 
 
 3. But was the line at which the deposit of actual 
 gold in exchange for notes drawn at the right place ? 
 But what is a right place ? it may be asked ; on what 
 principle was it to be determined ? The witnesses 
 before the Committee of the House of Commons con- 
 curred in asserting that the limit of fourteen millions 
 the original figure sprang from the observation of the 
 circumstance that up to 1844 that sum was about the 
 lowest point to which the circulation of bank-notes had 
 descended. Hence it was argued that there was no 
 likelihood of gold being asked for notes below that 
 figure, and that a stock co-extensive with the largest 
 amount of notes that had circulated would supply gold
 
 426 PAPER CURRENCY. 
 
 for every pound that could be practically demanded. 
 An empirical process truly. If such was the motive, 
 it indicates but too truly how ignorant the men of that 
 day were of the forces which regulated the numbers of 
 the bank-notes ; how little they perceived that the con- 
 venience of the public, or the quantity of other instru- 
 ments of currency, determined the number of notes 
 needed by the public. The establishment of a score of 
 clearing houses throughout the land might easily have 
 deranged the calculation, and lowered the line to seven 
 instead of fourteen millions. 
 
 It has been explained above, that except to the 
 extent of the fourteen millions required, once for all, to 
 be covered by a deposit of Government securities, the 
 banking market is unconcerned in the determination of 
 the line. But it must be remembered that the gold 
 lodged has to be purchased with English wealth sent 
 abroad ; the capital of the nation for production is 
 diminished to that extent. The drawing of the line, 
 therefore, does effect the productive power of English 
 industry. If the Bank of England were allowed, as 
 before 1844, to issue notes as a banker on its own 
 private liability, then, supposing safety not to be 
 endangered, the wealth of England would be larger, 
 not only by the stock of goods retained in the country, 
 but by the increase of that wealth which would be 
 generated by their employment in production. Upon 
 that basis, it could hardly be argued that fifteen millions 
 was the place to draw the line at. On May 23, in 
 the great crisis of 1866, the notes issued amounted to 
 about twenty-six and a quarter millions. The bullion 
 in the issue department stood at eleven and a quarter
 
 PAPER CURRENCY. 427 
 
 millions, the Bank having fifteen millions of notes on 
 securities deposited. Even in such days of agony and 
 distrust, there were upwards of eleven millions of metal 
 not needed by the public. Is it possible to affirm in 
 the face of such a fact, that if the Bank had been 
 allowed to have six of those millions of notes, on its 
 own responsibility alone, that there would have been 
 any real danger of a bank-note being presented for 
 payment, and the answer given to it, No gold ? Even 
 if, in the very worst of times, the gold in hand sunk to 
 one million, what could the country want more ? The 
 Bank of England never suffered the slightest deprecia- 
 tion, even when no provision was made by law for a 
 supply of gold ; a million to the good in the worst of 
 weather would seem to show that convertibility had 
 taken its passage in a good sea-boat. 
 
 4. The gold stored in the State office, called the issue 
 department, in no sense whatever belongs to the Bank 
 of England ; yet it is an all-pervading notion in com- 
 mercial circles that the gold is an increase of reserve 
 for the Bank, and consequently is a security and accom- 
 modation for trade. This is a complete delusion. It 
 might as well be supposed that the sovereigns scattered 
 all over England were a part of the Bank's reserve. 
 The notes given out for the gold lodged travel all 
 over the land ; some find themselves in Thread- 
 needle Street in addition to the fifteen millions, but 
 the bulk of them are hard at work in doing the duty 
 of currency in the country. It is a great misfortune 
 that the framers of the Act should have made the un- 
 intelligent blunder of mixing up together in the weekly 
 reports of the bullion at the Bank two absolutely dis-
 
 428 PAPER CURRENCY. 
 
 similar and distinct things the gold stored away at 
 one office to face the bank-notes, and the gold belong- 
 ing to the Bank of England as its private reserve as 
 banker. The fluctuations of the notes denote that the 
 public is buying fewer or more notes with gold, nothing 
 more. Fluctuations, on the contrary, in the gold (under 
 the form of notes) held by the banking department, are 
 genuine changes in a banking reserve, and alone should 
 be subject to discussions on the state of the Bank, the 
 rate of interest, and other kindred matters. 
 
 There are good grounds for regretting the enforced 
 publication of these weekly reports of the Bank's state. 
 One consequence is extremely mischievous. These 
 reports give figures only nothing else. They do not 
 say one word about the view taken of these figures by 
 the directors of the Bank. They reveal nothing as to 
 their principles of action, nor as to the relations which 
 they place between the several items. They are silent 
 as to the nature of the deposits recorded as to the 
 quality of these accounts in the judgment of the 
 directors as to what they conceive to be the probabili- 
 ties of their increasing or being drawn out in a word, 
 as to the significance of these figures in the administra- 
 tion of' the Bank's business. On the other hand, the 
 public reads these figures, and interprets them after its 
 own fashion, with no knowledge of the ideas which are 
 governing the action which the directors found on 
 these statements. They supply positive facts, the 
 figures are true and real, and this tempts the com- 
 mercial community to fall into the attractive snare of 
 possessing a rule of thumb. A world of mistaken 
 opinion, of heavy consequent losses, of unprofitable and
 
 PAPER CURRENCY. 429 
 
 misleading discussions, of false theory and practice, 
 would be avoided if these reports were confined to their 
 proper places, the bank parlour. 
 
 4. By means of the Act of 1844 tne great principle 
 is carried out that the profit of the issues shall be at 
 least shared by the State, and not be the exclusive gain 
 of a private banker. The bank, we are informed by 
 Mr Thomson Hankey, pays nearly 200,000 a year to 
 government for the 1 5,000,000 of notes which are 
 alloted to it Its own profit from this source, after de- 
 ducting expenses of management, amount to about 
 100,000. Thus the State reaps from the issue double 
 the profit of that earned by the bank. 
 
 It remains to notice briefly some of the remarkable 
 doctrines associated with the Bank Act of 1844. One 
 of these regards its action as most injurious in crises. It 
 restricts, it is urged, the supply of that assistance which 
 agonised traders cry for in the day of alarm. But for this 
 fatal necessity of buying notes with gold, the Bank of 
 England, as well as other banks, would prop up the 
 credit of solvent, but for the moment distressed, houses 
 and thus extinguish distrust by advances of a kind of 
 money which costs nothing to the distributor but is the 
 saviour of commerce. Let the Bank lend freely on its 
 own liability ; every creditor will be delighted to accept 
 its paper from a trader who otherwise could not face 
 his engagements. Both creditor and debtor would 
 enjoy the sense of inexpressible relief, and business and 
 markets would be speedily restored to a healthy con- 
 dition. Let the Act be suspended, exclaims the city. 
 Its fathers, after a night spent in wakeful agony, besiege 
 the dwelling of the minister for an order authorising the
 
 430 PAPER CURRENCY. 
 
 law to be broken. If this feeling is well founded, then 
 the cry should not be for suspension but for repeal. A 
 law which thus crippled in the hour of distress does not 
 admit of justification. However, a monetary storm in 
 the city is a convulsion which makes even a chancellor 
 of the exchequer tremble. On three occasions the 
 suspending order has been granted, and the bank has 
 been replaced in the position it occupied before 1844. 
 It was permitted to issue any number of notes that 
 it chose. Thus we get the means of testing the action 
 of the law in those years. It can be tried by facts. 
 In 1847, l %57> an d 1866 the Act was suspended; 
 with what results, as bearing upon restriction ? Be 
 it carefully remembered that in this matter the Act 
 has only one single enactment : 1 5,000,000 issued 
 without gold for every note beyond that number 
 so many sovereigns lodged in the vault. That is 
 its only command. The question then becomes, did the 
 suspension lead to what the law forbade ? The answer 
 is No in 1847 anc ^ 1866, and with a trifling exception 
 of 800,000, No, also, in 1857. Had the line of limit of 
 uncovered issues stood in 1857 where it does now, at 
 .15,000,000 the answer would be a complete "No" for 
 all the three suspensions. This is absolutely decisive. 
 In 1847 an d 1866 there was all the gold in the issue de- 
 partment for the notes issued which the law commanded ; 
 there would have been 800,000 less notes in 1857. The 
 law was obeyed completely in two of the years. In 
 the third the restriction was trifling and if the sus- 
 pension had been granted now, the charge of restriction 
 would have fallen to the ground. The law was obeyed 
 as a fact ; the suspension made no difference. Hence
 
 PAPER CURRENCY. 43! 
 
 incontestably, suspension was proved to be a nullity. 
 It did not give a particle of banknote relief to trade ; it 
 did not add a pound to the resources of bankers to 
 grant help to traders. The demonstration for the two 
 years is as perfect as any in Euclid. But this mone- 
 tary Euclid notwithstanding, the city will clamour 
 for suspension if any new crisis should bring upon it the 
 requisite alarm. 
 
 Another merit is claimed for the law of 1844, and, 
 indeed, there are strong grounds for believing that it 
 was the chief motive which prompted the enacting of 
 that statute. It regulates the circulation, we are told, 
 and thereby makes money that is, the lending of 
 money cheaper or dearer, according as the circulation 
 expands or is contracted. Thus it steadies prices, 
 controls speculation, regulates discount, and supplies a 
 solid foundation for trade. Sovereigns and banknotes 
 alone form " the circulation," and accordingly, upon this 
 theory that the circulation determines the price of goods, 
 alone deserve to be studied as the regulators of prices. 
 But this is to lift us into the world of fiction and unreality. 
 What is the idea of currency in the minds of these 
 teachers ? Plainly currency is something other and more 
 than certain instruments for effecting some few ex- 
 changes of goods, some small buyings and sellings. 
 Such a definition forgets that cheques, bills, and book 
 credit perform the same identical work with sovereigns 
 and notes. This being so, the diminution of one kind 
 of these instruments only leads to an increase of the 
 others. If bank notes were made fewer, or were all 
 extinguished by the exportation of the issue depart-
 
 432 PAPER CURRENCY. 
 
 ment's gold, the effect would be to force the public to 
 use more cheques, bills, and book-credit. 
 
 But this view does not suit the authorities. They 
 assign a specific and additional effect to coin and notes, 
 and they pride themselves on the Act of 1844, not only 
 as furnishing a safe bank-note which is perfectly true 
 but also as an agent which peculiarly acts on prices. 
 When notes and sovereigns are abundant, prices, we are 
 assured, are inclined to rise; when they are deficient, 
 the value of all commodities begins to droop, and then 
 the doctor has provided a remedy for controlling the 
 speculation by lowering the markets through a diminu- 
 tion of the circulation. This is a gratuitous and un- 
 founded theory. The issue department does not con- 
 trol the circulation at all, but is itself controlled by the 
 public, whether speculators or others, who take as many 
 or as few notes as they please, according as they chance 
 to have more or less gold to lodge in its vault. That 
 vault is the inevitable destination of all imports of gold 
 which exceed the business wants of the country. In the 
 same manner, the tickets or notes given in exchange for 
 this surplus gold find their way through banks to the 
 common reservoir, the Bank of England. They may 
 increase its reserve ; but that is not done by any action 
 of the law of 1 844 for all that the issue department does, 
 as we have already explained, is to take in gold, like a 
 cloak-room, and to give tickets for it. It is purely pas- 
 sive. It is perfectly incapable of acting on speculators. 
 They do as they choose in importing or exporting gold. 
 The issue department is nothing but a warehouse, keep- 
 ing the gold till it is wanted. 
 
 Nor can convertible notes produce any effect on prices
 
 PAPER CURRENCY. 433 
 
 They never can be in excess. Whatever quantity the 
 public has no use for, it either gets cashed for gold, or 
 if in no want of gold, it passes through the banks to the 
 common depot, the Bank of England. In the latter case, 
 the reserve of the Bank is increased, but increased by 
 what ? By a stock of gold for the moment imported into 
 England for which no employment can be found. It is 
 lying in store. 
 
 One doctrine more there remains to notice. It is 
 perhaps the most extraordinary in the imaginative 
 region of currency. It was the proud boast of the re- 
 puted authors of the Act of 1844, that this doctrine 
 was the soul of that Act, the one principle which per- 
 vaded all its enactments. " By this means," said Lord 
 Overstone on the /th of July 1857, to the Select Com 
 mittee of the House of Commons " by means of the 
 Act of 1844, effectual security is obtained that the 
 amount of paper money in the country shall at all times 
 conform to what would be the amount of a metallic cir- 
 culation. Of this there can be no doubt. The paper 
 money of the country under the Act of 1 844 conforms 
 strictly in amount and consequently in value to a metal- 
 lic circulation. Those fluctuations in amount, and those 
 only, which would occur under a purely metallic circula- 
 tion, can and will occur under our present mixed circula- 
 tion of gold and paper, as regulated by the Act of 1844." 
 
 A paper currency identical, not in value only but 
 in amount, in the numbers circulating, with a circulation 
 exclusively of coin, as a primary principle of currency, is 
 indeed a truly astonishing assertion. Suppose the cir- 
 culation to be made purely metallic, let any one imagine 
 the stir in a banking house when in the mornings the 
 
 2 E
 
 434 PAPER CURRENCY. 
 
 clerks had to be sent out to collect the sums due to the 
 firm from banks or others who did not work through 
 the clearing house. A small portfolio and a trustworthy 
 clerk used to gather and bring home thousands, 
 possibly a hundred thousand pounds ; but what was to be 
 done with those dreadful sovereigns now that there were 
 no bank-notes ? Who was to carry them ? a porter, or a 
 cab ? If a cab, two clerks must go, for one must stay in 
 the cab on guard whilst the other stepped into a house 
 to receive payment. And then the weighings across the 
 counter, the time lost, the risk of robbery, the sight of 
 the bullion bags as they were shot into the cab. Is it 
 supposed that any banking-house could endure this ? 
 Is it not obvious that fresh appeals would be made to ad- 
 ditional clearing-houses, and to the mightiest of instru- 
 ments, the cheque that sovereigns would be eschewed 
 by every man of business that the disappearance of 
 the note would scarcely have enlarged the use of coin, 
 but that the cheque, the unprotected cheque, which no 
 Act of Parliament renders safe by a pre-required stock 
 of bullion, would dominate sole and all-powerful in the 
 City ? 
 
 And then the confusion and perplexity in every 
 household ! The gentleman who loved to carry a score 
 or two of pounds in his pocket, what was he to do with 
 all this weight ? Could he despise the laws of gravity ? 
 The gambler, too, who staked hundreds or thousands 
 every night, and from whom instantaneous ready money 
 payment was demanded, his perplexity would be great 
 indeed. Would the winner be content with his cheque ? 
 would he like his banker to find such cheques coming 
 in every morning ? The fine lady also, on her shopping
 
 PAPER CURRENCY. 435 
 
 rounds, what was she to do ? She might be buying 
 where she was unknown what must be done with that 
 dreadful bag of sovereigns ? More buyers on credit, 
 fewer purchasers with ready money, more banking 
 and more cheques, would be the only escape from such 
 embarrassment. 
 
 No doubt, the covered notes from the issue depart- 
 ment vary as a purely metallic circulation, for they are 
 themselves metal ; the notes out are only their tickets. 
 But what of the uncovered fifteen millions ? Suppose 
 them to be suppressed ; can any one imagine that fifteen 
 fresh millions of sovereigns would be bought from the 
 miners to do the work previously performed by the 
 notes ? If he does, he must have peculiar ideas on the 
 effects produced by weight and exposure to robbery on 
 the human brain. 
 
 One omission the Bank Act has committed ; it is 
 silent on the denomination of the bank notes. It does 
 not raise the one pound notes from their graves. Of this 
 the ill-will of the bankers, there can be little doubt, was 
 the cause. Their objection was a mechanical one. 
 They hated the countings and, if need be, the taking 
 the numbers of these paper-heaps. It meant more 
 trouble, more clerks, and more expense. The question 
 was mooted in the Select Committee, but the bankers 
 refused to turn their eyes to the long established success 
 which these notes had established in Scotland and 
 Ireland how useful they had proved themselves to be, 
 how they were actually and daily preferred by sellers to 
 sovereigns. They were so much lighter and so much 
 easier to guard. What was the saving which the nation 
 would gain by using a very cheap instead of a very ex-
 
 436 PAPER CURRENCY. 
 
 pensive tool for performing the same work in comparison 
 with the worry inflicted on cashiers ? 
 
 Small notes have proved successful over a wide range 
 of countries. In some the two shillings note is found 
 to work exceedingly well. Mr James Wilson, when 
 Financial Member of Council, proposed a ten shillings 
 note for India. One pound notes were put down in 
 England mainly on account of the losses incurred by 
 many comparatively poor persons in the great break- 
 down of 1825. But those losses came from the bad 
 quality of the issuers. The issuing bank took people's 
 money, repaid them with paper, then did bad business 
 and lost their capital, and serious misfortune overtook 
 the note-holders. The argument of a bad issuer applies 
 quite as much to a .5 or a 100 note, as to the i. 
 There is, it must be admitted, greater danger of 
 forgery. The persons who take a $ note and above 
 are more careful in examining the paper than the mass 
 of those who would take a five or ten shillings note. 
 But the admitted good working, on that score, of small 
 notes in America, Austria, Italy, and elsewhere is a 
 complete reply to the objection. With so perfect a 
 convertibility as that guaranteed by the Act of 1844, 
 why not restore the old one pound note? But pre- 
 judice and ignorance are not likely to be soon overcome. 
 
 INCONVERTIBLE NOTES. 
 
 We have now reached the plague spot of paper 
 currency the inconvertible bank-note. Fortunately in 
 England its true character has long been understood. 
 It lingered awhile in theory after the nation had
 
 PAPER CURRENCY. 437 
 
 acquired a thoroughly sound currency ; so fond, so 
 irrepressible are the dreams of relieving distresses of 
 trade by experiments in currency. It is a most satis- 
 factory proof of how thoroughly the people of England 
 have discerned the nature of a currency built up of 
 promises to pay without payment that during the severe 
 commercial depression, which still weighs on the country 
 with unexampled duration, no quack doctor has pro- 
 posed in any quarter either the repeal of the Bank 
 Charter Act, and still less remedies drawn from the 
 inconvertible note. 
 
 A long statement is not needed to make known its 
 qualities, though volumes would be required to answer 
 in detail the ever streaming and irrepressible pleas 
 advanced in support of proposals for its adoption. The 
 marvel is that so many ingenious and acute things can 
 be urged in behalf of such a client. 
 
 The inconvertible note is a bad .tool. It does bad 
 work, but yet not always. It is capable, under par- 
 ticular circumstances, of doing good work, but then that 
 is not the object of which its advocates are in search. 
 We know that the work of money, of every tool of ex- 
 change, is to effect buying and selling by means of an 
 intermediate instrument which gives to the seller a sure 
 guarantee that he will be able, by means of it, to acquire 
 other goods, at his own choice, of equal value with those 
 which he has sold. We have seen that the guarantee 
 furnished by coin is the value of the metal of which 
 it is made. Further, we know that men will give 
 away their goods on credit, relying on payment on 
 a future day; in fact, they take a debt as a guarantee 
 of future payment. The same motive persuades them
 
 438 PAPER CURRENCY. 
 
 to accept the debt expressed on a bank-note. That 
 motive acts on all other sellers, and thus the bank-note 
 circulates as currency, and is not presented for payment, 
 if wanted for circulating use. Then we have seen that 
 the public makes no other use of the metal of coin than 
 as a guarantee of value. Similarly it employs the debt 
 pledged in the note for the same identical purpose of 
 guarantee. It does not seek to sell the gold of the coin 
 to a jeweller, nor to ask payment for the debt, so long 
 as it thinks that debt trustworthy. 
 
 This explanation is necessary in order to arrive at a 
 right understanding of the fact, that the inconvertible 
 note, in spite of the hollow principle on which it stands, 
 can, under a special condition, do good work as currency. 
 When the debt is thoroughly trusted, and when no more 
 of these inconvertible notes are issued than the public 
 requires for actual use, and consequently which it feels 
 no desire to send in for payment, they remain in cir- 
 culation on a full level of value with coin. Thus it 
 happened that after the passing of the Act of Parlia- 
 ment which forbade the Bank of England to pay its 
 notes in coin, those notes suffered no depreciation. The 
 Bank was perfectly trusted as a debtor, there was no 
 excess of issue, and the notes retained their full value of 
 twenty shillings undiminished. 
 
 But the situation became vitiated at its very core 
 when too many notes were issued. Their fall of value 
 went on to the extent that a sovereign became worth 
 twenty-seven shillings in notes. Thus one hundred 
 guineas were worth one hundred and thirty-five one 
 pound notes. 
 
 That the inconvertible notes should be limited to the
 
 PAPER CURRENCY. 439 
 
 number which the public will always retain without 
 sending in for payment, even if convertible, is precisely 
 what the advocates of such notes do not desire or prac- 
 tise. The temptation to obtain supplies of goods is irre- 
 sistible to governments who once take their stand on 
 the slippery ground of promises which need not be paid. 
 The theorists too of all kinds who preach up "soft 
 money " who think that there cannot be too much 
 money that money gives the means of buying, and so 
 is good for trade and that when prices are low, and 
 goods even unsaleable, the fault lies with there being too 
 little money, and that a fresh supply will set everything 
 right such persons have for their very object indefinite 
 issues of inconvertible paper. 
 
 In considering such notes, therefore, we proceed on 
 the supposition that they are sure to be issued in excess, 
 and that that excess is always susceptible of increase. 
 
 Such a note is a bad tool. It does its work badly 
 and that bad work is attended with most mischievous 
 and loss-inflicting results for a country. It is not merely 
 that it is inefficient, that it resembles an old-fashioned 
 machine, which produces smaller effects than one of an 
 improved shape. The inconvertible note's work is evil 
 work ; it distinctly produces harm. 
 
 That harm is the consequence of the badness of the 
 guarantee it furnishes to the man who is obliged by the 
 law of legal tender to accept it for payment and to 
 give a guarantee is the one sole function of currency. 
 
 The guarantee is bad because it is exposed to incessant 
 change of value. All nations require different amounts 
 of currency for use at different times. In England, 
 more sovereigns and notes are needed in summer than
 
 44-O PAPER CURRENCY. 
 
 in winter. When winter comes, the sovereigns and 
 notes in excess flow back into store, and there is no 
 alteration of value for those which remain out. But in- 
 convertible notes cannot relieve themselves in this 
 manner. They must stay out in circulation ; they must 
 be in excess at such seasons, and down sinks their 
 value, and the worth of the guarantee they give. But 
 much more yet ; the issues cannot be prevented from 
 causing them to be always in excess, and which is yet 
 worse, increasing excess, whether actually or prospec- 
 tively. 
 
 And now for the consequences. The law of supply 
 and demand asserts itself here, as everywhere else, in 
 Political Economy. Too great a supply means fall of 
 value. People find that they have more notes than they 
 want. To get rid of them, they make a sacrifice of 
 value ; they consent to reckon them for less than their 
 nominal worth when making purchases of commodities. 
 
 But what does such a depreciation mean ? That 
 every creditor is injured who is compelled to take 
 them at par, and every debtor unjustly benefited at 
 the creditor's expense. The prices of goods in every 
 shop are raised to meet the defective value of the notes. 
 The shopkeeper is charged twenty-seven shillings in notes 
 for what he would procure for a guinea in metal. Thus 
 the creditor who had a debt estimated in guineas and re- 
 ceived a one pound note and a shilling was nothing less 
 than plundered. The magnitude of this injustice and 
 wrong may be conceived if one thinks of what the holders 
 of consols and other public securities would suffer if the 
 pound received as interest stood in the same proportion 
 to the sovereign as the note to the twenty-seven
 
 PAPER CURRENCY. 441 
 
 shillings guinea. Their buying income would be 
 reduced by nearly a-third. And what temptation is 
 thus created for governments to pay off their national 
 debts with heavy discounts, and all on the plea of 
 legality and the use of an enlightened currency. Thus, 
 the one single function which currency was invented to 
 discharge is radically corrupted. Instead of effecting the 
 exchange of equal goods in two purchases by the inter- 
 vention of money, the bad note exchanges goods in un- 
 equal quantities ; the seller, when he buys in turn, gets 
 less than the worth of the goods he sold. 
 
 But the evil does not stop here. The undulations of 
 the disastrous fall of the stone in the water spread in 
 ever-widening circles. Gambling is introduced into every 
 act of trade an element most hostile to the nature 
 of true trade and full of ruinous consequences. The 
 shopkeeper who sells in January to be paid at Christmas 
 does not know what will be the value of the note which 
 he will receive then ; he protects himself by adding an 
 increased figure to his prices by way of insurance, and 
 by this process a heavy tax is imposed on consumers, 
 that is, on the whole community. So also on the 
 foreign merchant. He imports goods into a country to 
 be paid in bills but what will be the worth of those 
 bills in metallic money, which is always the only interna- 
 tional money, when the bills become due ? Again the 
 dealer protects himself by adding an item of currency 
 insurance to his cost of production and that cost of 
 production all his customers, if the trade is continuous, 
 must pay. 
 
 And all this disorder, this taxation on all buyers, 
 this most unjust and cruel wrong and loss inflicted on
 
 44 2 PAPER CURRENCY. 
 
 all creditors, this tainting of all trading with gambling 
 by the use of a tool which refuses to do the one work it 
 was invented for performing, what assignable motive 
 can it have ? 
 
 One motive it has in almost every case what Mr 
 M'Culloch calls " the enrichment of one part of society 
 at the expense of another." We cannot do better than 
 listen to his description of the process adopted to effect 
 this object. " Directly to alter the terms of contracts 
 between individuals would be too barefaced and 
 tyrannical an interference with the rights of modesty to 
 be tolerated. Those, therefore, who endeavour to 
 enrich one part of society at the expense of another 
 find it necessary to act with caution and reserve. 
 Instead of changing the stipulations in contracts, they 
 have resorted to the ingenious device of changing the 
 standard by which these stipulations are adjusted. 
 They have not said, in so many words, that 10 or 20 
 per cent, should be added to or deducted from the 
 debts and obligations of society, but they have, never- 
 theless, effected this by making a proportional change 
 in the value of money." * 
 
 One plea most commonly urged in defence of incon- 
 vertible bank-notes appeals to necessity, the political 
 distress of the hour. The State is in sore want of 
 means, and the limit of taxation has been reached ; 
 what else can a Government do at such a time but pro- 
 vide what is indispensable for the safety of the nation, 
 but pay with promises to be made good at some future 
 day ? With these inconvertible notes it pays no interest 
 on what it borrows ; by an increase of the ordinary 
 * "Metallic and Paper Money and Banks," J. M'Culloch.
 
 PAPER CURRENCY. 443 
 
 National Debt an increased taxation would have been 
 unavoidable. This may be so ; at a moment of danger 
 such a proceeding may admit of some excuse. But it 
 should never be forgotten that the harm inflicted by 
 such a currency goes on uninterruptedly year after 
 year ; it never stops ; it is always working fresh injury. 
 It goes on persecuting society at every turn. It poisons 
 every sale as time rolls on, every exchange. Over- 
 whelming necessity may extenuate the imposition of so 
 easy but so vicious a tax. But the pressure once over 
 not a day should be lost by any Legislature which has 
 any knowledge of the nature and working of money, to 
 arrest the plague and sweep away the inconvertible 
 paper, which it felt forced to have recourse to in the 
 hour of danger.
 
 CHAPTER XIV. 
 
 BANKING. 
 
 WE have now reached the great financial institution of 
 modern times banking. It is an agency for performing 
 the all-important service on which civilisation depends 
 the exchange of commodities produced by different 
 makers on the fundamental principle of division of 
 employments. Thus it does the same work as money 
 or currency ; banking and currency are two different 
 machines for performing the same function. They both 
 transfer goods and property from the hands of one per- 
 son to those of another. That is their one and only 
 task. They do nothing else, and this is a truth sadly 
 unperceived, and yet one which cannot be too firmly 
 grasped, if light is ever to penetrate into this region. 
 They each employ two operations to complete one 
 transaction. The farmer buys three sovereigns with 
 a sheep, and then with those sovereigns he purchases 
 guano ; a sheep has been exchanged for guano through 
 the intermediate agency of money. In precisely the 
 same manner the farmer again sells a rick of wheat for 
 a cheque or bill, and his banker with that cheque 
 enables a merchant to buy tea. Wheat has been 
 exchanged for tea by the help of certain writing within 
 banks. There is no difference whatever in the essence 
 of the process, though, of course, the mechanical 
 machinery actually employed in each case varies in
 
 BANKING. 445 
 
 detail. Banking and money are purely tools of ex- 
 change, and nothing else. 
 
 But banking is not money nor currency of any kind. 
 Endless confusion is generated on every side by this fatal 
 misconception. Money does its work by means of a valu- 
 able metal ; banking employs for its tools words written 
 on pieces of paper called bills and cheques, which give 
 legal claim to the metal called coin, and for which the 
 courts of law will, if need be, compel that coin to be 
 given. Thus debts expressed on paper are the tools 
 with which banking works. Some little money it 
 touches, as every business must ; but both for banking 
 and for the collective trade of a highly commercial 
 country, coin, money, is absolutely nothing but its small 
 change. Many regard the cheque and the bill as 
 money, equally so credits opened in banking accounts ; 
 but if they are money, then farewell to all possibility 
 of understanding what money is. Upon such ideas, a 
 letter must often be regarded as money ; for many are 
 the payments which a banker effects without a bill or 
 cheque, in compliance with the instructions of a letter. 
 To jumble up into one heap coin, notes, money, bank- 
 ing, currency, cheques and bills, is to refuse to under- 
 stand what are their natures and manners of working. 
 
 We have asked and answered the question, What is 
 money ? let us do the same for a bank. What is a 
 bank ? A banker is an intermediate agent between 
 two principals ; that is the very essence of his action. 
 He is as truly a broker as a tea-broker in Mincing Lane 
 or a cotton broker in Liverpool. Like them he brings 
 a seller and a buyer together, or rather, which is the 
 same thing in substance, a lender and a borrower ; and
 
 44-6 BANKING. 
 
 as the cotton broker transfers the cotton of the Ameri- 
 can merchant to the hands of a Manchester manufac- 
 turer, so the banking broker transfers the property of a 
 lender to the disposal of a borrower. What the banker 
 has to transfer, his power to act, comes from his deposi- 
 tor ; he passes it on to his second principal, the bor- 
 rower, to whom he decides to entrust it. The conduct 
 of this operation constitutes a business, a trade ; and 
 the question immediately arises, What is the article in 
 which a banker deals ? what is it that is deposited at 
 his bank ? what is it that is lent by him and 
 borrowed ? 
 
 A banker deals in money, all the world -replies. 
 People take money to a bank, and procure money from 
 it ; what can be plainer ? Nothing can be more untrue. 
 A bank does not deal in money. It touches per cent, 
 ten shillings only in coin, in true money, of all that it 
 handles. If notes are included in money, 3 per cent, Sir 
 John Lubbock tells us, is all the cash that it receives. 
 Every week in London alone, banking operations are 
 accomplished at the ClearingHouse that is, buying and 
 selling of goods through banks to the gigantic amount 
 of one hundred millions sterling ; and yet not one far- 
 thing of money has been passed or handled. If we take 
 banks in places in which there is no Clearing Houses, a 
 little more cash will be used ; but all over the country the 
 great buying and selling of the people is carried on by 
 cheques. Debts of every kind are paid with cheques ; 
 these cheques are placed to the accounts of the re- 
 ceivers ; they in turn draw upon these accounts; and so 
 the transfer of commodities, the purchase of merchan- 
 dise, as of domestic wants, is effected for all but trifling
 
 BANKING. 447 
 
 ready money payments, without setting a shilling in 
 motion. 
 
 This is banking ; and the vital question re- 
 mains What are these ninety-seven things which a 
 banker receives, and with which he does all his work ? 
 In direct words, What are deposits ? Debts to receive ; 
 and this is an answer which goes down to the very root 
 of banking. They are orders to receive money, which 
 the debtor is bound by law to pay at the time specified. 
 But they are not money ; an order to pay money, a 
 written request to pay coin, is not the coin itself. To 
 call it coin or cash is a pure absurdity. A man who de- 
 posits a cheque with his banker asks him to collect for 
 him a debt due by another banker. A cheque on a 
 bank implies that it owes money ; and it is an instruc- 
 tion from its creditor to pay it to the holder of the 
 order. We thus discern what the ninety-seven parts of 
 a bank's receipts are composed of; they are debts to 
 collect on behalf of its depositors. How, then, are 
 these debts paid ? In money which the banker can 
 demand ? By no means. These debts are paid by 
 reckonings in account. If the bank is in London, they 
 are sent to the Clearing House, and figure as items to 
 the credit of the sending banker. If in the country, the 
 banker who is to receive them from the bank drawn 
 upon probably has counter claims to pay, and the 
 balance alone passes. Otherwise they are paid in notes 
 but these notes move about with marvellous rapidity, 
 and at the end of the day, there are many changes in 
 many accounts, but the cash in the town remains the 
 same. 
 
 The next question, and it is a most critical one, is
 
 44-8 BANKING. 
 
 how came the depositor to have a debt to give to the 
 banker to collect ? In answering this question, it must 
 be carefully observed that we are speaking of the first 
 appearance of the deposit in the banking community. 
 We must not introduce here mere movements between 
 banker and banker, shiftings of deposits from one por- 
 tion of the money-market to another. The deposit, 
 then, at its origin, arises from the sale of property, from 
 nothing else. The man who gives a cheque to a banker 
 has previously sold something. If he be a receiver of 
 rent or an owner of dividends or consols, the fact equally 
 holds good. The farmer has sold for the owner of rent 
 his share of the wheat and hay which comes to him as 
 landlord, or the public has sold goods wherewith to pay 
 the taxes imposed for the National Debt. There is no ex- 
 ception whatever ; the resources of banks, at their origin, 
 come from goods sold. On the other side the counter 
 cheques at the Clearing House denote goods bought. 
 
 The course which the operation takes is now 
 clear. A manufacturer has sold 1000 tons of iron, and 
 has been paid with a cheque, which he, by lodging it 
 with his banker, requests him to collect and to place the 
 amount to his credit. Now, if the iron-master draws 
 out the sum due on this debt as soon as paid, the banker 
 becomes a mere collecting clerk, and true banking, as it 
 actually exists, would not come into being. But another 
 fact makes its appearance. The manufacturer will not 
 want for three months, say, the proceeds of 600 tons of 
 the iron sold. He will draw for the present one cheque 
 only on the bank for the purchase of coals up to the 
 value of 400 tons, and this the banker knows. Now 
 commences his specific action. He knows that he has
 
 BANKING. 449 
 
 at his disposal the proceeds of 600 tons of iron sold ; he 
 resolves to lend them for three months to a sugar 
 merchant who had brought him a bill for discount, and 
 seeks to obtain the means of buying. Give me your 
 bill, says the banker , I will place the amount to your 
 credit, and draw upon me to that extent. The result is 
 a purchase of sugar. This simple statement unfolds 
 the real nature of banking. The banker appears here as 
 an intermediate agent, as a broker, who finds for his 
 principal, the iron-master, another principal who will 
 employ his means in buying sugar. Not a shilling of 
 money or cash passes in the transaction. The sales of 
 the iron and of the coals and sugar meet at the Clearing 
 House and settle each other there. The iron is paid for 
 with coals and sugar ; in economical language, iron is 
 exchanged for coals and sugar. The banker is a mere 
 go-between a broker ; it is the iron manufacturer who 
 is the real lender of sugar to the merchant. 
 
 This analysis tells us what it is that a banker deals 
 in. What tea and sugar are to the grocer, purchasing 
 power is to him. That is his staple ; the commodity 
 which constitutes his business. This power consists in 
 the fact that the man who has sold can, by that very 
 act, buy also ; the goods he has parted with give him, 
 directly or indirectly, the power of obtaining others in 
 exchange. The power is transferred by the depositor 
 to his banker ; the banker passes it on to his borrower. 
 The sugar merchant can buy because the iron-master 
 has sold. It is the possession and sale of goods by his 
 depositors which enable a banker to carry On any bank- 
 ing. Banking is an affair of goods, of goods transferred 
 and not of coin or cash, except as machinery, and that 
 
 2 F
 
 45O BANKING. 
 
 to only an insignificant amount. Further, we see what 
 deposits really are, debts due by a banker for a power 
 of collecting money which has been lodged with him, 
 and which exists for him in the debts due to him by his 
 borrowers. Iron, coals, and sugar are the whole sub- 
 stance of the banking in this transaction. They are 
 the whole of the money-market also, for this transaction 
 is the exact type of all the others, saving only the 
 shuffling about of these debts amongst the bankers 
 themselves. 
 
 The broker character of the banker is very visible in 
 these transactions. He is a medium between the iron- 
 master and the sugar merchant, and a medium only. 
 The banker is the link between the two, who, so to 
 speak, introduces the one to the other. What can be 
 more obvious ? it will be said ; a mere truism. If it is 
 a truism, then it is Political Economy of the right sort ; 
 only unfortunately it is a truism hourly forgotten in 
 every banking community in the world. The great 
 value of recognising that the banker is in reality a broker 
 only consists in this, that it keeps before the mind the 
 great central fact, a fact of incalculable importance for 
 its consequences, that it is the two principals of the 
 banker, his depositor and his borrower, who possess 
 all the forces of banking, and are the doers of all that 
 occurs in the banking world. The great events of bank- 
 ing, the abundance or scarcity of its resources, its ability 
 to assist trade, high or low rate of discount, panics and 
 crises, depend not on banks and bankers, but on the 
 state of the wealth of the country, and the effects which 
 it produces on the two principals whom the banker has 
 brought together. The banker's one sole function is to
 
 BANKING. 45 1 
 
 select the borrower. There is no truth in banking more 
 cardinal than this, none that requires to be more deeply 
 impressed on the mind of every trader and every 
 banker. 
 
 Yet the part which the banker plays is very import- 
 ant. He neither created that wealth which his depositor 
 sold, nor does he touch that other wealth which he 
 enabled his borrowers to purchase ; but it signifies 
 immensely to what kind of borrowers he transfers the 
 power of buying, by authorising them to draw cheques 
 upon his bank. On him and his brethren it mainly 
 depends whether the men who acquire the wealth of 
 the nation, its stock of commodities which they reach 
 by the banker's agency, will employ it wisely, by 
 applying it to processes which reproduce its consump- 
 tion, or will waste and destroy it in prodigal expendi- 
 ture, or unskilful trade, or reckless speculation, or in 
 creating an excess of fixed capital which will not for 
 many years replace its cost of production. This is the 
 sole range of the banker's action. Omitting the capital 
 which a joint-stock company puts into a bank, the 
 banker possesses no capital, except his premises and 
 any coin which may be in them, however much com- 
 mercial and monetary literature may ascribe capital 
 to banks. Lines and names in ledgers, cheques at 
 the Clearing House, debts due to depositors, debts 
 due upon bills by borrowers, are neither wealth 
 nor capital. They are words and nothing more. 
 Incorporeal property, under which these kinds of 
 written words have been summed up, is not wealth ; 
 it is merely a collection of title-deeds, but from 
 which the reality is absent. The corpus is not in those
 
 45 2 BANKING. 
 
 deeds, but the right to acquire that property, even 
 before possession is obtained, is itself a property. 
 If a title-deed or a mortgage is declared to be actual 
 wealth by Political Economy, then the sooner it is 
 consigned to the waste-basket the better. 
 
 But it will be said, when bankers' balances not 
 composed of gold are described as loanable capital, 
 all that is meant is that there is unemployed capital in 
 the nation seeking employment. Then why use false 
 and misleading expressions which call away the mind 
 from the real truth of facts ? The capital with which a 
 bank is connected independently of its metallic 
 reserve is the corn which the farmer sold, and the tea 
 on the ocean on its road from China which was bought 
 with the merchant's bill that the bank discounted. 
 " Commodities in transit," as Mr Bowlby Wilson justly 
 remarks, "between the producers and the ultimate 
 consumers, represented by their title-deeds, such as 
 bills, drafts, and cheques, make up the bulk of the 
 floating capital supplied to the loan market." The 
 capital of which bankers possess the command lies in 
 shops and warehouses, in docks, ships, and stores. 
 
 The enormous service which banking renders to a 
 people consists in its providing machinery whereby these 
 stocks of commodities are brought out into use, and are 
 placed in hands which can apply them to both produc- 
 tion and consumption. Loanable capital is abundant 
 when the farmers and their brother depositors have sold 
 much, and borrowers seeking the means to buy with are 
 few and shy. " Bills are scarce " is a cry often heard 
 in the city ; what does it mean ? That there is com- 
 mercial depression that markets are flat, and little busi-
 
 BANKING. 453 
 
 ness stirring that production is diminished, and that 
 purchasers eager to borrow materials or wages to give 
 to workmen fail to come forward. Or again, " Bankers' 
 balances are small, and loanable money is scarce " pro- 
 claims that the farmers have had a bad harvest, and have 
 little corn to sell, and so have no surplus above their 
 expenses to deposit, or profits are low, and merchants 
 have little to place at banks. Or else it may be that 
 profits are very high and speculation very brisk, and 
 promoters of new and costly enterprises, openers of new 
 mines, builders of fresh factories, greedily take up 
 every pound that the banks can spare for lending. 
 These are not facts created by banks, but they are the 
 essence of the banking business. 
 
 In one respect, however, the banker is distinguished 
 from the ordinary broker. The latter usually confines 
 himself to finding a buyer or seller for his principal. He 
 seldom undertakes any responsibility for the man he in- 
 troduces, and he is rewarded by a simple commission on 
 the transaction. The banker, on the contrary, guarantees 
 the solvency of his borrower, for he is answerable to his 
 depositor for the repayment of the deposit. He selects 
 a borrower at his own discretion and risk ; the depositor 
 trusts him, and him alone. The depositor knows per- 
 fectly that the banker must and will lend his deposit, 
 that to be lent was the sole purpose for which the 
 deposit was accepted ; but the only part that he takes 
 in the matter is to trust his banker, and to rely on his 
 liability to repay the deposit when demanded. 
 
 The banker's reward is derived from the terms on 
 which he grants loans to borrowers. It is obvious, more- 
 over, that banking necessarily implies an understanding
 
 454 BANKING. 
 
 that the depositors shall, as a rule, leave a balance in the 
 banker's hands. If the deposits were withdrawn as fast 
 as they were lodged, the banker would have nothing to 
 lend. His only way, then, of earning a profit would be 
 either to turn common broker and to charge a commis- 
 sion on every transaction, without making himself 
 responsible for the solvency of the borrower ; or else to 
 invest the purchasing power he receives in buying 
 Government bonds or other securities capable of being 
 realised at any time without any probable loss. But 
 experience teaches him that he lies under no such 
 necessity. He discovers that in ordinary times, with a 
 large number of depositors, demands for immediate 
 repayment of deposits are subject to a general law of 
 average, on which he may as safely rely as life assurance 
 companies rely on a similar average in the death-rate. 
 
 A banker obviously cannot lend the whole of his 
 deposits. He does not know when his customers will 
 draw cheques against their accounts. On any day he 
 may be called upon to pay more than he receives, and 
 he must have a stock of cash in hand to face such con- 
 tingencies. That stock in hand is called a reserve. It 
 is procured by the banker granting smaller loans than the 
 sums which he obtains on the collection of the debts in 
 which his purchasing power reaches him. This reserve 
 protects him against sudden and unforeseen demands ; it 
 rescues him from the danger of having no money when 
 he is called upon to pay. From the nature of banking 
 which discounts the bills of manufacturers and mer- 
 chants, the banker is obliged to lend for periods more or 
 less long. The bills he has discounted may be perfectly 
 sound, but they are not yet due. He may possess much
 
 BANKING. 455 
 
 wealth, but it cannot be reached at the moment. 
 Security against this danger is a necessity inherent in 
 modern banking. It is the one specific object of a 
 reserve. 
 
 How large ought this reserve to be ? No more criti- 
 cal question can be raised in the practice of banking, 
 and there is none which is the subject of more incessant 
 discussion. One principle, and one principle only, 
 governs the decision on the fitting magnitude of a 
 reserve safety. A reserve has no other reason for 
 existence than safety. A flood of excited and never 
 settled discussion is at once swept away by the recog- 
 nition of this determining principle. Be it Bank of 
 England, or the smallest bank in the country, the rule 
 is always one and the same what reserve ought it to 
 keep in order to be safe, safe against having no money 
 when asked to pay its liabilities. Every other con- 
 sideration is irrelevant ought not to be listened to in 
 this matter. Each bank has its own particular position. 
 The measure of safety varies with the circumstances of 
 each. A country bank fed by rich depositors, of steady 
 habits, and carrying on a business of pure routine, can 
 find an exceedingly small reserve sufficient. A bank 
 dealing with a highly speculative community, exposed 
 to great fluctuations of fortune, is summoned to keep 
 a much larger margin of reserve. But in every case the 
 possible demands of depositors is the one thing to be 
 thought of. 
 
 In a nation trading with all the world, and subject to 
 the changing fortunes of each country with which it has 
 commercial dealings, great fluctuations in the reserve of 
 its banks will necessarily occur. But the important
 
 456 BANKING. 
 
 matter for a banker to study is not the movements up 
 and down of his reserve regarded as isolated facts, but 
 the forces which are acting upon it. If he desires to learn 
 the present state and the future prospects of the bank- 
 ing community, it is not the actual figure at which 
 the reserve stands which will instruct him. The real 
 things to learn are the state of his depositors and the 
 state of his borrowers. What is happening to them ? are 
 they going on as usual, or are they under exceptional 
 circumstances ? and if so, what are those circumstances ? 
 Are they likely to increase deposits, or to incur losses 
 which render it difficult, if not impossible, for borrowers, 
 on bills or other securities, to meet their engagements to 
 the bank ? These are the vital things to study, and 
 these are the considerations which ought to determine 
 the course which the banker ought to pursue. To the 
 full extent of providing against a run on the bank, the 
 policy of a reserve, however great, is perfectly right and 
 justifiable. But an accumulation of reserve upon a 
 general idea that it is well to have a good stock of gold 
 is a policy destitute of reason.* A very small stock of 
 gold has been found perfectly compatible with safety, as 
 in 1866 ; at other times, a large reserve has not pre- 
 vented convulsions in the money market, and even 
 much danger to banks. The gold by itself alone tells 
 little to a banker. In what state is the banking the 
 deposits and the loans made by the banker is the 
 master question of the situation. 
 
 Nor does the amount of the circulation of gold and 
 notes moving about the country deserve any notice from 
 the banker in determining the magnitude of his reserve. 
 
 * See Appendix, p. 4^7.
 
 BANKING. 457 
 
 A strange delusion set in with the Act of 1844 though 
 not countenanced by a single word in the Act itself 
 that the circulation possessed a power of controlling the 
 movements of banking, and that, if properly handled, it 
 could steady the vicissitudes of the banking market 
 and regulate its rate of discount. There is reason to 
 believe, as has been already remarked, that this idea 
 gave birth to the enactment of that statute. But this 
 idea was a dream of the imagination a principle built 
 on the sand. The variations in the circulation are a 
 petty trifle by the side of the gigantic operations of 
 banking. A greater or less quantity of small change 
 of the instrument required for petty transactions of 
 ready money payment what influence could it have on 
 the events happening daily at the Clearing House? 
 What banker required a stronger reserve to be locked 
 up in his chest, because farmers needed more sovereigns 
 in summer, or travellers were roaming over the land 
 with a supply of notes in their pockets ? Or did the 
 Bank of England, or any other bank, ever lower, as a 
 rule, its rate of discount in winter, because a reduced 
 circulation brought cash back to their reserve ? The 
 notion is too absurd to need discussion, yet there are 
 thousands who look at the weekly reports of the notes 
 issued in order to learn what events are about to happen 
 in the banking market. 
 
 The City world, and those who write on banking, set 
 up the theory if that can be called theory which is 
 composed of affirmations only that the amount of the 
 reserve of the Bank of England, taken in the ratio it bears 
 to the Bank's liabilities, scientifically ought, and practi- 
 cally does, govern the rate of its own. discount, and indi-
 
 458 BANKING. 
 
 rectly of that of the whole money market. Now, in the 
 first place, it is necessary to bear in mind that the Bank 
 of England is absolutely nothing more than a single pri- 
 vate bank a bank justly commanding great power 
 from the magnitude of its operations, and the excellent 
 character of its mode of banking, but still a bank acting 
 for itself and in its own interest, and not unfrequently 
 in direct variance, as to its rate of discount, with that 
 upon which loans and advances may be procured at the 
 other banks in the City. 
 
 Secondly, it is undeniable that in fixing the size of 
 his reserve, every banker must necessarily compare 
 his money ready in hand with the amount of liabilities 
 which may be sent in for payment. This is very 
 plain ; but it is very far short of furnishing a scien- 
 tific rule, capable of being expressed in definite figures. 
 There is nothing scientific in it of any kind. It is little 
 better than a rule of thumb, and for this reason that it 
 leaves out of account the nature and quality of those 
 liabilities, the position and probable feelings of the de- 
 positors on a given day, the character of the influences 
 which may be taking away or bringing in gold, the 
 aspect of the commercial and even of the political hori- 
 zon, the state of men's minds, whether agitated or calm, 
 and other similar elements of the situation. All these 
 circumstances, according to their character on a given 
 day, may act with great force in overthrowing a fixed 
 and definite so-called scientific ratio.* 
 
 For instance, would the propounders of this doctrine 
 of a determinate ratio of reserves to liabilities, maintain 
 that if out of a reserve of ten millions times being 
 
 * See Appendix, p. 487.
 
 BANKING. 459 
 
 quiet, no commotion or alarm in the money market, 
 business running in its accustomed groove and deposits 
 standing much at the same figure a bad harvest sud- 
 denly prompted extensive purchases of corn abroad, 
 whereby five millions were lost to the Bank out of the 
 ten would, I ask, the ratio theorists affirm that the 
 Bank would be bound by an immutable law of banking 
 to make spasmodic efforts to restore by a violent rate of 
 discount the prescribed size to the reserve ? It is im- 
 possible to conceive upon what arguments, what facts 
 furnished by an analysis of banking, the existence of such 
 a law and the rationality of such a practice, can be estab- 
 lished. That the directors of the Bank of England should 
 deliberately determine at what point the Bank may be 
 in danger of not being able to meet the demands of its 
 depositors is very conceivable indeed, though I do not 
 believe that for many long years they ever did anything 
 of the kind. If they ever did, the quality of the deposits 
 and the circumstances of the hour most assuredly will 
 have entered largely into their judgment. An arbitrary 
 and unalterable ratio between deposits and reserve has 
 no knowledge or science at its foundation. 
 
 It might well be, that in the instance here supposed, 
 sudden and large purchases of corn should be accom- 
 panied by a considerable rise in the Bank rate of dis- 
 count, but the propagators of the ratio theory would be 
 grossly in error if they imputed it to an effort to call 
 back gold to the reserve. It would have a very different 
 cause. These purchases would be effected to a very 
 large extent with means borrowed from banks ; thus the 
 number of borrowers would be notably increased, and 
 the demand for accommodation in the money market
 
 460 BANKING. 
 
 strengthened. On the other hand, the means for lend- 
 ing would be greatly diminished by the deficiency of the 
 harvest. The expense of tillage would have been in- 
 curred without replacement" by crops, and the corn 
 bought would practically have been procured with two 
 successive outlays of cultivation. Raised terms for 
 lending would thus be inevitable and natural, while the 
 export of gold would enable the country to obtain its 
 necessary supplies with capital which had been dormant 
 and whose loss would not be felt. 
 
 That the Bank of England does not act upon any such 
 doctrine of a fixed ratio of reserve to liabilities is certain. 
 This is incontestably proved by the following record of 
 the policy its directors adopted in the crisis of 1866. It 
 gives the state of the Bank at two periods separated by 
 an interval of about a month- 
 Liabilities, Loans, Reserve, Rate of 
 Millions. Millions. Millions. Discount. 
 
 April 25, i3i i8i 61 6 
 
 May 30, 2oJ 33^ f 10 
 
 In April the ratio of reserve to liabilities was not far 
 short of 50 per cent. in May, it had dwindled down to 
 less than 5. But what course had the directors been 
 pursuing ? They had voluntarily, by their own free will 
 and with open hand, run out their loans from i8| millions 
 to 33^. What could their reserve do but fall away under 
 such a process ? and what could such voluntary action 
 mean but that the idea of a fixed ratio between reserve 
 and liabilities was totally absent from their minds ? 
 
 But this table makes a second revelation as to the 
 feeling of the Bank Directors. They resolutely poured 
 forth these profuse loans upon a convulsed and
 
 BANKING. 461 
 
 frightened money market, lowering away their reserve 
 against the possible demands of depositors to less than 
 one million. Would it have been possible for men at 
 the helm of such a national institution to have acted in 
 such a manner, had the thought been present to them, 
 that by such conduct they were seriously endangering 
 the solvency of the Bank, its power to meet the de- 
 mands of its creditors to be paid in cash ? That feeling 
 was absent from their minds, and that absence is 
 most significant as to any real conviction having esta- 
 blished itself in their thoughts that a paltry reserve was 
 inconsistent with the safety of the bank. Nay, this very 
 contempt for gold, this resolute determination to lend 
 away, was carried out under the loud exhortations and 
 amidst the vehement applause of the most ardent 
 preachers of salvation by gold. What sort of faith had 
 they in their own theory ? 
 
 Thirdly, the records of the same memorable year 
 1866, compared with those of 1856 (as given in 
 "Currency and Banking," p. 124) demonstrate that 
 the doctrine which makes the rate of discount depend 
 on the quantity of the reserve is an absolute untruth. 
 The real indisputable fact revealed by the bank's 
 weekly reports is that all sorts of reserves accompany 
 all sorts of lendings. 
 
 And then again, what must we think of the consoling 
 announcements poured out upon depressed traders that 
 better times are coming, for gold is on its road to Eng- 
 land ? What, but that they betray a profound ignorance 
 of the great truth, that coin and gold are useless except 
 when they are parted with, that they produce nothing 
 themselves, that they must be bought with equal value of
 
 462 BANKING. 
 
 wealth given which they do nothing to replace? If 
 they are needed as tools, as carts for putting wealth in 
 different places, then they render useful service. But if 
 there is already enough of such carts, and consequently 
 if the new arrivals must go into the cellar, trade is the 
 poorer, there is less to produce with and to exchange, 
 by the amount of the capital which has been lost by 
 the purchase of such gold. The way to cheapen dis- 
 count is to increase goods ; for as no one borrows of a 
 bank but to buy goods, and no one deposits at a bank 
 but in consequence of his having directly or indirectly 
 more goods than he can use and of having sold them, 
 a larger stock of goods is an increased supply of the 
 things demanded through banking, and necessarily 
 leads to easier terms for lending them. 
 
 But what then is the power which governs the rate of 
 interest ? Not the desires nor the will of the banker. 
 He is a seller in a market and he falls under the law 
 which rules all markets, the universal law of supply and 
 demand. The banker is a seller of loans for hire ; their 
 price depends on the relative strength of the lenders 
 and the borrowers. Nay, he is more dependent than 
 other sellers ; for the amount of what he has to lend is 
 regulated for him by others. He lends what comes 
 from others ; their power to supply him with the means 
 of lending is the measure of his resources. The respec- 
 tive conditions of his depositors and his borrowers, the 
 state of their several fortunes, are the true regulators of 
 the terms of lending. 
 
 The banking market sad experience has shown to be 
 subject to violent convulsions. No ordinary trade is 
 shaken by similar storms. Their consequences are fear-
 
 BANKING. 463 
 
 ful. Panic, nay terror, often break out on every side. 
 Even the strongest tremble with a feeling of fear. 
 Firms enjoying the highest reputation are suddenly and 
 unexpectedly brought to the ground. The whole city 
 is agitated with excitement as to the stability of even 
 the best names. Bankers are goaded by alarm to recall 
 their loans or where that is impossible for a time look 
 with uneasy pangs over the solvency of the bills they hold. 
 Distrust arrests their hands. They are slow to grant 
 accommodation, even to those to whom a few days previ- 
 ously they would have cheerfully granted profuse advances. 
 This strikes a deadly blow at the heart of trade. Traders 
 of every kind rely on discounts and loans to be obtained 
 from banks ; the stoppage of discount smites houses 
 which have done nothing to mcirit discredit. The agony 
 spreads over the whole country; where the evil is to 
 stop, what houses, speculative or not, must succumb, no 
 one can tell. The fathers of the city spend the long 
 night in council ; panic seizes upon well nigh every 
 soul. 
 
 Such were the agitations, the agonies, and the ruin 
 seen in 1847, ^S/, and 1866, and such were the events 
 which Mr Mill summed up under law, and to which he 
 assigned an orbit that would bring them round every 
 tenth year. They did not reappear in the prophesied 
 form in 1876 or 1877 ; but the commercial depression of 
 the last three years prevents the prediction from being 
 regarded as absolutely vain. To understand the nature 
 of these commotions, to discover their causes, and if 
 possible to forewarn and to prevent them, becomes a 
 matter of supreme importance to the whole nation. 
 
 In the first place, it must be observed that an ac-
 
 464 BANKING. 
 
 cumulation of losses, however severe they may be, does 
 not constitute a crisis. The disasters created by the 
 cotton famine in Lancashire, and spreading from that 
 centre, all over the kingdom, were fearful. One of the 
 greatest industries of the nation was paralysed. Mills 
 without number were thrown out of work. Capitalists, 
 not a few, were brought to ruin. The workmen could 
 find no employment, and were deprived of all means of 
 supporting themselves. The banks did little business ; 
 neither depositors nor borrowers, in any number, were 
 to be found. The great supply of cotton had been cut 
 off what was to be had became excessively dear. The 
 consumption and purchase of cotton goods dwindled 
 away amongst the widely spread customers of England. 
 Yet that was no crisis. The alarm of vague terror was 
 absent. Commercial houses reduced their business 
 gradually the banks had not to encounter sudden 
 failures and subsequent suspicions. They gathered up 
 payment of their debts ; but depositors and manufac- 
 turers seeking discount faded away. The suffering was 
 beyond all measure severe ; but there was no panic. 
 
 So again is it now. At no former period of com- 
 mercial history has commercial depression weighed, not 
 only upon England, but upon every great trading 
 nation, with severity so sharp, and duration so long ; 
 yet here again a true crisis is wanting. There has been 
 no convulsion in the money-market of England. Yet 
 many industries, with their machinery of banking loans, 
 their capital and their wages, have been sorely cut 
 down, and in many cases stopped altogether. The 
 middle classes, the merchants, and the manufacturers 
 have been involved in the same common disaster with the
 
 BANKING. 465 
 
 operatives. Nevertheless there has been no disturbance 
 in the city no paroxysm of blind terror fell on bankers, 
 bill-brokers, depositors, and the monetary community. 
 Business is flat, bills scarce, profits low ; in some regions 
 mercantile houses have died away from inanition, and 
 losses have abounded, but crisis, panic, spasms, there 
 have been none. 
 
 A true crisis is an event of banking. Banking has 
 trust for its foundation. The depositor trusts the banker, 
 the banker in turn trusts his borrower. He takes secu- 
 rity, it is true ; but banking securities are not absolute 
 property. They are seldom substantial wealth, but 
 liabilities undertaken and expressed in writing by trusted 
 names. The mercantile and the manufacturing bill, 
 on which names of good repute are written, are the in- 
 struments as well as the guarantees of safety on which 
 banking relies ; but what, if on a sudden, in " a season 
 of calm weather," the terrible suspicion bursts upon the 
 men who are bankers, or rely on bankers, that these 
 trusted documents have become empty words ? Bank- 
 ing is a net-work of trust; let confidence be shaken at 
 the core, and the earthquake at once begins to tremble. 
 Demands for payment converge on the suspected houses ; 
 each creditor, at first in silence, struggles to be the first 
 to make himself safe. Difficulties in meeting demands 
 for payments next make their appearance. The firms, 
 so strong in the respect of bankers, apply for help, and 
 find it sparingly given, or perhaps refused. The sense 
 of danger spreads ; what is so contagious or travels so 
 fast as fear? Houses which could have faced every 
 claim, if the usual conditions of time were unchanged, 
 are unable to find money on a sudden. Some great 
 
 2 G
 
 466 BANKING. 
 
 firm thus stops payment, and then springs up the burn- 
 ing feeling, who is safe ? who can be relied upon for 
 paying his debts ? The banks press upon their debtors ; 
 but the banks are themselves in peril. The frightened 
 depositor asks himself What business has my bank 
 been supporting ? how many of its borrowers may fail ? 
 He hurries to withdraw his deposit, and we have seen 
 that from the nature of banking, no bank can repay all 
 its depositors in an instant. The city becomes paralysed, 
 and for days the sounds of crumbling houses fill every 
 ear. Even perfectly solid establishments become en- 
 dangered, for their operations are largely built on bank- 
 ing accommodation, and in a moment that every-day 
 resource is taken away from them. Frantic demands 
 for assistance pour in on the banks from every side, and 
 interest on loans rises up to fearful heights. 
 
 It is a common habit with traders and many writers 
 to regard these panics as mere monetary events. They 
 are treated as purely banking occurrences as Stock 
 Exchange phenomena as ordinary results of specula- 
 tion or gambling as the products of errors about gold 
 and currency. But such a view is radically mistaken. 
 Such a crash of falling houses could never occur were 
 not the ground beneath them undermined. We must 
 seek for the cause of the storm in the field of action of 
 the banker. Banking, it must never be forgotten, 
 transfers goods from the hands of one man to those of 
 another : what has the borrower done with them ? is the 
 vital question. This is no affair of money, though the 
 loans are calculated in money. Has the trader, the 
 merchant, the manufacturer preserved the wealth, the 
 goods which the banker has placed at his disposal ?
 
 BANKING. 46 7 
 
 Or has he destroyed and lost them ? The whole 
 issue lies here. If the wealth is consumed, with- 
 out being reproduced in another form, the banker 
 must lose his loan ; and if this has happened to 
 many banks and banking accounts the crisis is inevi- 
 table. If the property is not destroyed, if the wealth 
 exists, and has only changed owners, then there may be 
 losses to individuals, but a general panic is impossible. 
 One man loses, another will have won. 
 
 Hence to discover the cause of a crisis, what the second 
 principal of the banker, the buyer of goods with the 
 banker's advance, has done, contains the cause and origin 
 of a crisis in the money market. In every case a destruc- 
 tion of wealth precedes the panic as its cause. The losses 
 have been made before the crisis begins. It is the bor- 
 rowers who have caused the wealth to perish ; the 
 convulsion in the city is the agony of the lenders. The 
 essence of banking is to lend; when repayment has be- 
 come hopeless, it is easy to conceive the alarm which 
 springs up in every lender, whether he is to be a 
 loser. Hence a commercial crisis is the discovery and 
 settlement of losses. Who is to lose ? is the one 
 universal agonising feeling which pervades the whole 
 banking community the depositors as well as the 
 bankers. The violence of the convulsions is due to the 
 suddenness of the discovery of the vastness of the loss 
 and the painful uncertainty of the solvency of debtors, 
 even those with the highest commercial names. The 
 cause of a banking crisis is identical with that of a 
 commercial depression; only the one comes on gradually, 
 its movement is seen and understood, and the ruin it 
 brings is accompanied by no uncertainty as to who is
 
 468 BANKING. 
 
 the real loser. The spasms of lenders who have sud- 
 denly discovered that a multitude of borrowers cannot 
 pay, and the fearful uncertainty who is solvent and who 
 is not, constitute the agonies of the panic, and the violent 
 paralysis of banking business which succeeds. 
 
 It is a common practice with many writers to ascribe 
 a long period of subsequent badness of trade to a mone- 
 tary crisis ; but this is to put the cart before the horse, 
 to mistake effect for cause. The bad trade is the con- 
 sequence of the destruction of wealth which preceded 
 and caused the crisis. If the wealth of the country had 
 not been seriously diminished after the losses had been 
 settled and the losers determined, business would have 
 quickly resumed its usual course. It is because the 
 means of the nation are reduced and the quantity of 
 capital to be exchanged and to be applied to production 
 diminished, that markets are sluggish, business flat, 
 profits low, and industry moving at a slackened pace. It 
 takes a long time to restore extravagant consumption of 
 wealth a very powerful truth, but one which is clearly 
 apprehended by few only. And it matters not how 
 that consumption is effected, whether by prodigal waste 
 and luxurious enjoyment, or by the still more fatal, 
 because more continuous and more excessive, expendi- 
 ture of capital on machinery for future production. 
 Excess of creation of fixed capital is one of the most 
 dangerous and often most disastrous temptations which 
 can assail a commercial people. It may be lawful to 
 repeat here what was said in the article : " One Per 
 Cent." in the Contemporary Review of April 1877 
 
 " Here it is that the present depression indicates an 
 amount of disaster, paralysis, and injury to the public
 
 BANKING. 469 
 
 wealth with which no city convulsion can compare. If 
 three banks out of four in the city, or as many 
 mercantile houses were to fail, the injury would be 
 slight by the side of the effects of these years of suffer- 
 ing, so far as these failures were not the direct conse- 
 quences of wealth distinctly destroyed and unrepro- 
 duced. The urgent need, the extreme importance of 
 investigating to the bottom the character and causes of 
 which so many nations have been now suffering for so 
 long a period becomes abundantly clear. 
 
 " We are now brought to the root of the question, 
 What then is that cause ? Why is it that for some three 
 years or more, so many countries are suffering under 
 stagnation of trade, are complaining of reduction in 
 business, are buying less and selling less, have only 
 diminished profits to reckon up, are abounding with 
 labourers out of employment, have steadily distributed 
 ever scantier wages to their people, are reducing their 
 comforts and enjoyments, are sending back emigrant 
 labourers to their old homes from lack of employment, 
 even amidst new lands and fertile, uncultivated fields ? 
 The explanation will certainly not be found in gold or 
 in its movements from one vault to another, nor in 
 pieces of paper, by whatever name they may be called, 
 nor in any form of currency whatever. One per cent, 
 has nothing to do with gold, nor has any one said any- 
 thing so ridiculous. Nations are not made poor, nor 
 their business stagnant, nor their mines and their 
 factories shut up, nor their people thrown out of employ- 
 ment because the tools of buying and selling are in one 
 place rather than in another. Such bright ideas may 
 crowd in upon the minds of a frightened city when
 
 47 BANKING. 
 
 seven per cent, threatens to become ten but all talk 
 about the reserve, and the circulation, and bank-notes, 
 has sunk under one. Such a rate throws them at once 
 upon the realities of commercial life, upon the state of 
 industry, upon the substances to be bought and sold, 
 not upon the machinery of exchanging. The cause lies 
 elsewhere, it is not to be found in exceptional circum- 
 stances of an uncommon kind. No series of bad 
 harvests had destroyed the population. No innovations 
 in legislation, no change in our laws or in tariffs, had 
 disturbed the habits and the confidence of traders. No 
 Napoleon had poured forth Berlin decrees, or pounced 
 on the goods of a great commercial people wherever 
 he could find them, or cut off from large populations 
 their supplies of articles of the highest importance, or 
 had isolated mankind into untrading groups. The 
 cause is simpler and deeper than any of these. 
 
 " That cause is one, and one only : over-spending, 
 over-consuming, destroying more wealth than is repro- 
 duced, and its necessary consequence, poverty. This is 
 the realfons mali, the root of all the disorder and the 
 suffering ; the creator of the inevitable sequence of 
 cause and effect. Men have acted as a man who 
 farmed his own land, and had consumed not only the 
 portion of the crops which were his true income, and 
 were a surplus remaining over after he had fully pro- 
 vided for all the agricultural operations of the next 
 year but had himself, and his dependents, devoured a 
 portion of the seed corn and the breeding stock, had 
 exchanged a portion of the produce, which was required 
 for wages in the coming year, for foreign luxuries, or 
 had consumed these necessary reserves on an excess of
 
 BANKING. 471 
 
 drainage, however valuable in itself and ultimately 
 enriching. Every one perceives the necessary conse- 
 quences of such conduct in individual life ; but when 
 the general condition of a whole people is spoken of, 
 the complications are so many and so great, the simple, 
 universal process is so sunk under a multitude of 
 intricacies, that few retain their hold on the ultimate 
 elements which underlie all conduct, whether of a single 
 individual or of a complex population. But a nation is 
 only an aggregate of individuals. Whether cloth is 
 made by a weaver or by the agency of a machinery 
 which fills large factories, and employs the most diverse 
 and the most numerous agents, the methods always 
 remain the same in principle. 
 
 " If we bear this governing truth in mind, that analysis 
 will always resolve the action of the single man, and 
 the combined co-operation of a host of workmen under 
 employers, managers, clerks, foremen, merchants and 
 others into the same constituent parts, we shall be able 
 to arrive at a clear understanding of one per cent. The 
 first offender against the law that to consume more 
 than one makes must land man or nation in difficulties 
 and impoverish was America. She constructed an 
 enormous length of railways, which she carried out 
 into the wilderness. In no country, ever before or 
 since, has such a rush into railway making been ever 
 witnessed. Nor did the passion fall on railways only ; 
 docks and canals, elevators and warehouses, wharves 
 and gigantic stores, were impelled forward by the same 
 whirlwind. Under these impulses she consumed a vast 
 quantity of food and clothing for labourers. She 
 destroyed coals and machinery in making iron. She
 
 47 2 BANKING, 
 
 fed and rewarded with the contents of her shops and 
 stores a large army of promoters, engineers, managers, 
 book-keepers, brokers, bankers, and other functionaries 
 of every kind. What had she at the end of the opera- 
 tion ? Long lines of iron carried over an universe of 
 country, holes made in the ground and called tunnels, 
 embankments, and buildings. What all these labourers 
 and functionaries had eaten, drunken, worn, or used up 
 as materials was gone for ever : the rails that replaced 
 this consumption could bring no means of living till 
 after they were in operation for a long period. The 
 nation was plunged into poverty to the extent of what 
 the railways had devoured in constructing. In the 
 wilderness there was no traffic : and even if the lines 
 had been made in a populous district many years must 
 have elapsed before the shops, warehouses, and factories 
 could contain the same identical wealth as the rails had 
 destroyed. 
 
 " But railroads enrich ; quite true : but so does drain- 
 age. If a man spent all his income in draining, what 
 would become of him and his family? They must 
 starve, unless supported by the loans or charity of 
 others. So with the railways. If what had been con- 
 sumed in constructing them had been applied to restore 
 the food, clothing, and other things used up by their 
 makers, no one would have been poorer, no one would 
 have had to betake himself to short commons. America 
 acted as the landlord who spent more than he could 
 afford in draining ; there was a far smaller quantity of 
 other wealth in the country to support life and to carry 
 on business ; there were long lines of rails, and poverty. 
 
 " But railways are constantly made without inflicting
 
 BANKING. 473 
 
 any injury on trade or on the public wealth : where 
 then is the limit where their construction becomes 
 mischievous, and brings down suffering on a people ? 
 This is the very kernel of the question. The explana- 
 tion is very simple and very obvious ; but it is most 
 difficult to be remembered as a practical truth to 
 govern conduct. Up to the extent of the savings of 
 the nation, expenditure on railways can do no econ- 
 omical or financial harm ; and these invaluable de- 
 velopers of wealth may be rationally acquired for the 
 public good. Any outlay made out of savings, be it 
 what it may, is innocent of mischief; it may do no 
 good, but it does not impoverish. But what are 
 savings ? The surplus of wealth made over wealth 
 consumed. If it is turned into capital and applied to 
 increased production, the nation becomes richer ; if it 
 is expended on any luxury or any folly, the nation is 
 where it was. But if the outlay, however wise and 
 ultimately profitable, once passes the limits of saving, 
 harm instantly begins ; there is a loss of wealth which 
 is taken from capital ; the means of producing are 
 diminished ; fewer goods are made. There is less for 
 merchants with their ships and their railway-waggons 
 to exchange; there is less to divide amongst the 
 people, poverty has actually set in, and it may easily 
 advance to stagnation and distress. A rich man with 
 50,000 a year may spend 10,000 on foxhounds, or 
 gamekeepers, or racehorses, or on servants, without 
 lessening the national wealth ; but, if he applies 
 .100,000 to the improvement of his estate, with the 
 certainty of great benefit to the whole neighbourhood 
 later, if he cannot borrow, he inevitably falls into trouble
 
 474 BANKING. 
 
 and real poverty. What such a man might do, America 
 has done with railways for others ; and she has not 
 recovered from the consequent prostration to this hour. 
 The departing emigrants, the depressed wages, the 
 lowered profits, the smaller trains, all proclaim that 
 there is less wealth in the country, less to divide 
 amongst its inhabitants. 
 
 " That particular kind of over-consumption of wealth 
 which consists in excessive investments in fixed capital 
 generates effects which greatly aggravate the com- 
 mercial disorder and the subsequent distress. The 
 construction of railways or docks beyond what the 
 savings of the country can afford creates consequences 
 of an infinitely wider range and deeper mischief than 
 would result from a loan to a foreign country of the 
 same amount as the cost of these works. A nation 
 living beyond its means, even when a useful end and 
 not mere enjoyment is the object, exhibits many of the 
 qualities of a spendthrift. It bubbles up with excite- 
 ment. The large number of orders given for coals 
 and iron raises prices, sends up wages, and enlarges 
 profits. Imaginative estimates are spread about of the 
 expanding prosperity of these trades, as well as of the 
 many others which are associated with them. Iron 
 mines are opened at heavier expense than what the 
 actual demand for coal and iron justifies, thus increasing 
 the destruction of capital. The retail, the shipping, 
 and other trades feel the stimulus ; buildings are raised, 
 steamers and shops constructed, costly establishments 
 formed, each in its turn setting other businesses in 
 motion. Every one prospers ; and every one makes 
 arrangements, at further expense of capital for still
 
 BANKING. 475 
 
 greater prosperity. Thus new railways, costing ten 
 millions generate an excitement which may easily raise 
 the outlay to twenty. So stimulating are high prices 
 and high profits, so creative of more factories and 
 workshops to swell them further. The collapse becomes 
 all the severer with the special disaster that this 
 increase of outlay is a pure waste, a child of wild 
 hopes. 
 
 " Nor does the mischief stop even here. Along with 
 these cheery feelings" and high prices personal consump- 
 tion rapidly expands. Employers and workmen alike 
 indulge in more expensive living ; and this impulse 
 acting on numbers, swells the waste to a still more 
 formidable amount." 
 
 But what is to be done when the crisis is on ? 
 How is it to be alleviated ? The settlement of losses 
 cannot be avoided ; they have been incurred, they must 
 be endured by those on whom they fall. But that 
 which is the specific calamity of a crisis, the panic, the 
 suspicion, the alarm with its wild consequences, may 
 undoubtedly be lessened. The great object is to pre- 
 vent frightened people from rushing to demand 
 payment of their debts from banks and commercial 
 houses, to build up rational confidence where no special 
 cause for distrust can be shown, so as to leave banks in 
 command of their all-important resources for affording 
 discount to commerce. The greatest force which can 
 be brought to bear at such a moment is an institution 
 like the Bank of England, whose excellent banking 
 bestows on it unassailable credit. Men of practical 
 experience urge the Bank to lend freely at such times. 
 That it can carry out this policy the enormous loans,
 
 476 BANKING. 
 
 thirty-three millions, of 1866 amply testify. It is 
 remarkable too that there is always a well-defined 
 tendency for deposits to increase at the Bank of Eng- 
 land in crises. They are removed from suspected 
 banks, whilst the suspension of mercantile operations 
 leads traders to place their funds in its keeping for a 
 while, thus enabling it to afford invaluable help to 
 solvent yet momentarily embarrassed borrowers. 
 
 It would seem natural to suppose that in seasons of 
 such pressure for borrowing, the Bank would gain a re- 
 source of great power from the suspension of the Bank 
 Charter Act of 1844, whereby it becomes enabled to 
 issue, at its own discretion, any number of Bank of 
 England notes that it choses. Many a trustworthy 
 trader, it would seem, might be saved by an advance of 
 such notes. But, as was shown in the preceding chap- 
 ter, the suspensions of 1 847 and 1 866 gave the Bank not 
 a single additional bank-note beyond what it would have 
 had under the Statute, and though in 1857 ft acquired 
 the command of lending ^"800,000 beyond what the law 
 allowed, nevertheless, if the line of uncovered issues 
 had stood at fifteen millions, as it does now, the suspen- 
 sion of that year would have been as great a nullity as it 
 was in the two others. 
 
 But what shall be said of gold ? Is not that the re- 
 source on which a panic-struck money market must 
 ultimately rest for salvation ? The sole motive for a 
 reserve of gold in banking is the danger of deposits 
 being drawn out faster than the loans granted by the 
 bank return to its till, and thus it might come to a 
 stoppage though perfectly sound and solvent. Under 
 this law the Bank of England falls, like every other
 
 BANKING. 477 
 
 bank ; but does it appear that the Bank in any crisis 
 ever ran a true and real risk of stoppage from the want 
 of a sufficient reserve ? The nearest approach to such 
 a danger occurred in 1825. There was a run upon the 
 Bank by depositors. For gold ? In no way. The run 
 was to procure the notes of the Bank itself. Deposi- 
 tors preferred to have their own funds in their own chests 
 in notes rather than to leave them in the Bank. They 
 felt they were safe if only they had the notes in their 
 own houses. That was all. Were the notes gold ? 
 Nothing of the kind. They were tickets authorising 
 claims for gold ; but there was no security beyond the 
 Bank itself whether any gold could ever be had. They 
 were legal titles against the Bank ; but those who 
 hoarded them cared nothing of what reserve the Bank 
 held. The run was so sharp and sudden that the Bank 
 was saved from being compelled to declare that all its 
 cash was gone by the discovery of a million of unburnt 
 one pound notes. They were short of printed paper; that 
 was the danger, and that only. Evidently their paper 
 without gold sufficed as a reserve in a very serious 
 crises ; the credit of the Bank itself was perfect, and 
 that was enough. Never, in this century, was the Bank 
 so near stoppage as then. Mr Bagehot, the advocate of 
 a huge gold reserve, distinctly admits that the panic of 
 1825 was stopped by notes. This admission, by itself 
 alone, disposes of the alleged necessity of a large per- 
 manent reserve in gold. The same inference results 
 from the suspensions. Had they been realities, they 
 would have been saviours by paper and not by 
 metal. 
 
 That the Bank of England was not saved by a
 
 BANKING. 
 
 reserve of gold in 1866, at least in the opinion of its 
 directors, we have already seen ; for they lowered away 
 their reserve resolutely in the face of a deliberate and 
 unexampled expansion of their lendings. The poor gold 
 was so neglected as to sink below a million. But there 
 is a second fact of extreme significance which weighs 
 with crushing force on the city theory, that the rate of 
 discount is governed by the movements of gold in the 
 reserve. I do not say that the Directors of the Bank 
 of England are guided simply by the amount of their 
 reserve or by its arithmetical ratio to their liabilities in 
 fixing the minimum terms on which they will make ad- 
 vances. On the contrary, we are assured by Mr Gibbs, 
 that this is not their principle or their practice.* 
 They simply announce the figure every week ; they 
 publish no explanation of their views and motives. 
 It is the outside world which imputes to them the 
 movements of the gold, its flow and outflow, as the basis 
 of their action. The Bank of England is a purely pri- 
 vate bank ; it conducts its affairs as it thinks proper ; it 
 lays down such rules for their management as it thinks 
 will best promote its interests. But its rate of discount 
 has long been held by the whole country as the com- 
 manding authority in the banking world. Other banks 
 have been wont to raise or lower their terms of lending 
 in conformity with its action. 
 
 But a new fact has been increasingly revealing 
 itself in these later days, a fact pregnant with in- 
 struction. The Bank rate is becoming less and less 
 the supreme governor of the banking market. 
 Other banks often discount freely and largely on lower 
 * See Appendix, p. 487.
 
 BANKING. 479 
 
 terms than those demanded by the Bank of Eng- 
 land. Hence a remarkable spectacle has come to light 
 two money markets, so to speak, in the great city 
 which is held up as the financial centre of the whole 
 world, the money market of the Bank of England, the 
 private and personal one of that bank ; the second, the 
 market of the remainder of the banking community. The 
 rates of interest charged on loans and discounts in these 
 two markets are often radically different. At the latter 
 end of 1875 the Bank rate sprang up in a week or two 
 from two per cent, to four. Gold had left for Germany 
 no other movement was visible in the market. The 
 resources of the banks were overflowing ; borrowers 
 were few, bills scarce, and the difficulty of placing out 
 their funds very embarrassing for bankers. An excess 
 of supply of purchasing power over demand was the 
 unmistakeable feature of the situation. But, from what- 
 ever motives, the Bank demanded at least four per cent, 
 interest on its loans. 
 
 But a counter force had come into play. The other 
 banks of England found that there was great difficulty 
 in finding customers for their supplies. They had to 
 deal with the stern realities of fact, with the actual con- 
 dition of the banking business. To tempt borrowers to 
 come in, they acted as all dealers do in over-stocked 
 markets, they lowered the price of their wares, they con- 
 sented to lend at one per cent, or more below the Bank 
 of England. And then what was the issue of the 
 battle of the markets? The natural market came 
 off victorious. The real rate of discount paid no heed 
 to the departure of the gold, but the Bank of England 
 was compelled soon to submit to the law of the market.
 
 480 BANKING. 
 
 It lowered back its rate, for its discount office was 
 probably deserted. 
 
 So it happened again in July 1877. The Bank refused 
 long to lend at a lower charge than 2 per cent., but the 
 greatest bankers in London discounted at one. A little 
 later, on September 10, the Daily News a journal accus- 
 tomed to insist on the doctrine of a rate regulated by the 
 Bank of England's reserve of gold was forced to write : 
 " The position in which the financial world is placed at 
 the present time causes attention to be again drawn to the 
 anomaly of a fixed minimum official rate of discount. 
 There was nothing whatever in the ordinary course of 
 trade to justify the advance to 3 per cent, a fortnight 
 since, and so far as the present outlook is concerned a 
 further rise to 4 per cent, which appears possible within 
 the next few days, will also be caused by circumstances 
 entirely apart from commercial demand." Here the 
 existence of the two money markets is distinctly pro- 
 claimed, and the very obvious and legitimate inference 
 is drawn, that " the total abolition of the fixed minimum 
 that is, a minimum determined by the amount of the 
 gold reserve of a single bank, would be a great improve- 
 ment. Why, it may be demanded by a merchant, 
 should he pay an enhanced rate of discount on his bills 
 solely because Germany or the United States draws on 
 the stock of bullion in the Bank of England." A most 
 pertinent question. Why, indeed ? 
 
 The Times repeats the same tale on October 20, a 
 week after the Bank had raised its rate to 5 per 
 cent. : " Borrowers are now as disinclined to take 
 money as they were a week ago eager to supply 
 themselves in anticipation of their wants." Here
 
 BANKING. 48 1 
 
 ~we see the vague alarm with which the withdrawal 
 of gold from the Bank filled the hearts of men 
 who looked only at gold, and never gave a thought 
 to the facts of banking, to the state of the two principal.; 
 of all the banks, their depositors and their borrowers. But 
 the real forces at work soon asserted themselves. "The 
 consequence is a large excess of unemployed funds avail- 
 able for short loans at rates nominally of about 3 per 
 cent." Within a few days, the Times adds, "the question 
 of the reduction of the rate at an early date was under 
 discussion," and yet the difference effected in the reserve 
 was but trifling. Nevertheless the very journal which 
 makes these comments on October 22, whilst it declares 
 " that there are hardly any notable rates for short loans, 
 so difficult is it to employ money," adds that the " general 
 position is not one whit altered, and we are almost 
 certain to see the Bank of England forced to go higher 
 before we can see the tide turn. The utmost the 5 per 
 cent, rate can be said to have done is to produce a short 
 pause in the export of bullion. It has not perceptibly 
 turned the exchanges in our favour." 
 
 It is not a little extraordinary that a writer who 
 had just pointed out that the money market was 
 gorged with supplies which it could with difficulty 
 lend, should notwithstanding think it natural that 
 the Bank of England should raise its rate still higher 
 because gold was leaving its vaults, and the exchanges 
 were still against England. And by what machinery 
 is the Bank to prevent the export of gold by fixing 
 a rate of interest on advances which no one will 
 pay ? The rate of 5 per cent, becomes a dead letter 
 it acts, it would seem, upon nothing, for it never 
 
 2 H
 
 482 BANKING. 
 
 comes into living existence by the side of another 
 market, filled with supplies working at 3. It can attract 
 no capital abroad to the discount market, for that 
 capital would have to go into the 3 per cent, market,, 
 an interest no better, probably, than what the foreigner 
 could obtain in his own country. Why not say at once 
 that the Bank of England has no connection at such 
 times with the discount market, that its policy regards 
 its own private interests alone ? 
 
 The motives which influence the Bank of England's- 
 terms of lending are not identical with those which 
 induce bankers to lend on totally different terms in the 
 money market of trade. Why then should these per- 
 sonal motives of the Bank of England be proclaimed in 
 very organ of the press, and, strange to say, by almost 
 every man who lives on discount, as the rulers of those 
 loans from banks on which every great commercial 
 business in so large a measure depends ? The ratio of 
 its gold reserve to its liabilities is the Bank of Eng- 
 land's individual affair : why should a change in that 
 ratio be hoisted up as a signal of what rate of discount 
 ought to be charged by bankers under different con- 
 ditions of business ? 
 
 But it is said by many that the Bank of England has 
 charge of the bullion of the nation, and that it is its 
 duty to take care that the country shall always be pro- 
 vided with an ample stock of that indispensable metal. 
 But who or what has imposed this duty on a private 
 company? How came it to be involved in this obli- 
 gation to patriotic self-sacrifice ? Did ever votes of its 
 shareholders pass the resolution " Think not of our in- 
 terests, think only of our country's good ? " They must
 
 BANKING. 483 
 
 have been wonderful shareholders, indeed, had they done 
 so. It may be that the directors of the Bank believe in 
 the theory of a strong reserve in quiet times, though 
 they despise it in a money market crisis, and act upon 
 this belief when gold is leaving the country, to the ex- 
 tent of giving up the profits of discount for the sake of 
 winning back the treasure to their vaults ; in that case, 
 no business at their discount office at 5 per cent., and 
 their rivals working at 3 per cent, are the natural pro- 
 ducts of such a policy. 
 
 At the same time, I beg distinctly to remark that it 
 is not intended by these observations to pass any 
 judgment whatever on the policy adopted by the Bank 
 of England of demanding a different rate of discount 
 from that which prevailed in the general banking 
 market The management of the Bank's loans naturally 
 and necessarily rests entirely in their own discretion. 
 There are endless considerations of vast moment 
 involved in the administration of so vast an institution 
 which are unknown to the outer world, but which must 
 powerfully influence the line of action pursued by its 
 Directors. All that is here intended is to indicate that 
 the Bank frequently carries out a policy of its own, no 
 doubt called for by its particular position, and to point 
 out some of the consequences which follow exceptional 
 action. 
 
 In this matter of gold exported from England, it is 
 always forgotten that gold, or currency, is utterly use- 
 less for every other purpose than for serving as a tool 
 of exchange, and that " if one nation for the time takes 
 away an unusual quantity, because it chanced to have sold 
 more to England than it has bought, it will soon find that
 
 484 BANKING. 
 
 at has acquired a quantity of costly machinery lying; 
 idle, and will put it to its proper work of buying. Gold 
 comes and goes, ebbs and flows internationally, precisely 
 as sovereigns move up and down a single country. The 
 want for a larger or smaller quantity of these tools of 
 exchange varies in particular localities at different times;, 
 but that any people ought to part with their wealth to buy 
 a metal in order to keep it locked up for ever is to coun- 
 sel folly. It is impossible to acquit the French adminis- 
 tration of the Bank of France of inexplicable conduct in 
 massing up a gigantic heap of metal of sixty or seventy 
 millions sterling unless it is influenced by some special 
 motive undiscoverable by the outer world. That gold,, 
 exchanged for foreign goods, to be employed as capital, 
 would enrich France, enlarge the income of the nation, 
 and provide augmented necessaries and enjoyments for 
 the people. The gold in the Bank's vaults is metal 
 practically restored to the mine ; only it has cost enor- 
 mous expense to purchase it, in order to reduce it back 
 to an unproductive nullity. 
 
 Another excuse often pleaded for raising the Bank rate 
 as the stock of gold diminishes asserts that it is the duty 
 of the Bank directors to protect the perfect solvency of 
 the bank-note which circulates under its name ; but 
 this plea misconceives the position given to the Bank of 
 England by the Bank Charter Act of 1844. For every 
 note above fifteen millions there are sovereigns stored 
 in the issue department. The directors are not called 
 upon for a moment's thought about notes until the 
 circulation is reduced to fifteen millions ; below that 
 point, the Bank would be obliged to pay out of its own 
 resources gold demanded upon notes presented for pay-
 
 BANKING. 485 
 
 ment. But the circulation never descends to so low a 
 figure, and in all probability never will, so expanding is 
 the business of the nation, and so increasing, in conse- 
 quence, is its want for a supply of these particular tools 
 of exchange. Any argument, therefore, drawn from the 
 bank-note for strengthening the reserve of the Bank of 
 England is completely irrelevant and idle. 
 
 The issue whether the movements of the gold, or the 
 ratio of its Reserve to its liabilities rules the rate of 
 discount admits of being decided by a test which can- 
 not be contradicted. It is the rate of the Bank of 
 England and its Reserve which are spoken of. Further, 
 it is the directors of that Bank who fix that rate at their 
 pure discretion. Can we learn on what ideas or what 
 principles they act in fixing that rate ? 
 
 Mr Hucks Gibbs, an ex-Governor of the Bank, tells 
 us plainly, " The Directors of the Bank of England (as 
 a body, I know, one and all, I believe) do not hold the 
 principle of a rate governed by mere fluctuations of 
 gold, and do not act upon it' 
 
 " That they do not govern the rate is as plain as the 
 sun at noon. The gold comes and goes and the rate 
 very often stays unmoved." 
 
 " The amount of the Reserve and its ratio to our 
 liabilities cannot be fixed by any hard and fast line 
 but are capable of very wide variations." 
 
 After such information has been given authoritatively 
 to the world, whoever henceforth speaks of the move- 
 ments of the gold as ruling the rate of discount, asserts 
 a fact which is untrue, and distinctly contradicted by 
 those who make the rate.
 
 APPENDIX. 
 
 BANK OF ENGLAND, 
 Febntary 7, 1878. 
 
 MY DEAR PRICE, I think I may sum up our long correspond- 
 ence of the last three months in the following way : 
 
 You are now satisfied that you were in error in supposing that 
 the Directors of the Bank of England in regulating their rate of 
 Discount were guided merely and solely by the fluctuations of the 
 amount of Bullion in the Issue Department. 
 
 Gold may, and does frequently, leave their bank, and that in 
 considerable quantities, without its occurring to them that an 
 advance of the rate is necessary. It frequently flows into their 
 vaults without bringing with it as a necessary consequence a fall 
 in the rate. 
 
 The sole principle which actuates us in fixing the rate of Dis- 
 count that is to say, the price of our loans is the state of our 
 Reserve, the amount which we have in our coffers wherewith to 
 pay our debts and to meet demands upon us. 
 
 And in judging of the amount so disposable we have of course 
 to take into account the probability of these demands, and the 
 character of our deposits, and many other circumstances present 
 or foreseen, that is to say, the mood of our depositors, the condi- 
 tion of our borrowers, their strength or weakness, the state of 
 trade, of the harvest, of home and foreign politics, of the markets 
 for produce, of the exchanges, everything, in short, which can 
 affect the case. 
 
 Thus the amount of the Reserve, and .its ratio to our liabilities, 
 cannot be fixed by any hard and fast rule, but are capable of very 
 wide variations in perfect consistency with the laws of good and 
 safe banking. 
 
 But it is to be observed that that which in normal times has 
 the most direct, immediate, and important action on the Reserve 
 is the movement of bullion. 
 
 It does not, as I have told you, of necessity affect the rate of
 
 488 APPENDIX. 
 
 Discount, but as the efflux necessarily diminishes, and the influx 
 necessarily increases, pro tanto, our Reserve, those movements 
 must be most carefully watched by those who have the manage- 
 ment of the Bank of England. I remain, sincerely yours, 
 
 HENRY H. GIBBS. 
 
 2 NORHAM GARDENS, OXFORD, 4 
 February 13, 1878. 
 
 Mv DEAR GIBBS, Your letter of the 7th gives me great satis- 
 faction and pleasure. 
 
 We are entirely agreed as to the nature of the forces which 
 ought to, and, as you testify, do govern the rate of discount of 
 the Bank of England. They are those which you enumerate, taken 
 in conjunction with the amount of your Reserve. I sum them 
 up in the expression, the state of the banking market, and the 
 character, at the time, of its supply and demand. 
 
 Your statement that "the movement of the bullion must be 
 closely watched," combined with the declaration that " it does not 
 necessarily affect the rate of discount," I most readily adopt. 
 
 It is a very agreeable fact to me to learn that the Bank of 
 England's action in determining the rate of discount is founded 
 on so accurate and so rational a principle. It conforms to the 
 state of the banking market of which its Reserve forms a part. 
 
 I regret that I fell [into the error of supposing that the Bank of 
 England held the views of the Reserve and of the rate of discount 
 which prevail in city articles and in commercial literature gener- 
 ally. My gratification is all the greater now in learning that it 
 acts on the principle for which I have so long contended. Yours 
 very sincerely, jj$^ B. PRICE.
 
 
 Date Due 
 
 Library Bureau Cat. No. 1137 
 
 UC SOUTHERN REGIONAL LIBRARY FACILITY 
 
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