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AMERICAN SCIENCE SERIES— ELEMENTABY COURSE 
 
 FIRST LESSONS 
 
 IN 
 
 POLITICAL ECONOMY 
 
 FRANCIS A. WALKEE, Ph.D., LL.D. 
 
 President Massachusetts Institute of Technology 
 
 AUTHOR OF "The Wages Question," "Money," 
 
 "Land and its Rent," etc. 
 
 NEW YORK 
 HENRY HOLT AND COMPANY 
 
H3IH 
 
 "6" 
 
 yv5 
 
 Copyright, 1889, 
 
 BY 
 
 HENRY HOLT & CO. 
 
 BERWAitD mmm 
 
 • • _• -• • 
 
 
 Dbummond & Nku, 
 
 Electrotypers, 
 
 1 to 7 Hague Street, 
 
 New York. 
 
■jS.Cy 
 
 PREFACE. 
 
 This book has been prepared for use in High Schools and 
 Academies. In writing its pages, I have been well aware 
 that the object sought is the most difficult at which an 
 economist can aim. Whether this effort to reach the 
 minds of pupils of fifteen, sixteen or seventeen years has 
 been successful, will only be learned on actual trial. 
 
 In preparing a text-book for students in the period of 
 life indicated, I have not thought it necessary to make the 
 work childish. It is no "Primer of Political Economy" 
 which is here offered ; but a substantial course of study in 
 this vitally important subject. I can only hope that it 
 will be found that those for whom it has been designed 
 will be able to follow that course to their own satisfaction 
 and with good results. 
 
 In adapting the tone of discussion to younger readers 
 than those for whom I have heretofore written, it has not 
 seemed to me desirable to avoid words as long as are 
 necessary fully to carry the meaning intended. In a trea- 
 tise on political economy written in " words of two sylla- 
 bles," the author must avoid questions of prime impor- 
 tance, or else he will be driven to roundabout forms of ex- 
 pression and to highly artificial phrases. It is not the 
 length of words, but obscurity or confusion in the mind 
 of the writer, which will make a treatise on political economy 
 difficult to youthful readers. 
 
 iii 
 
 887304 
 
IV PREFACE. 
 
 What has been attempted in the preparation of this little 
 work is a clear arrangement of topics ; a simple, direct 
 and forcible presentation of the questions successively 
 raised ; the avoidance, as far as possible, of certain meta- 
 physical distinctions which the author has found very per- 
 plexing to students of even a greater age ; a frequent repe- 
 tition of cardinal doctrines ; and, especially, a liberal use of 
 concrete illustrations, drawn from facts of common experi- 
 ence or observation. How far this attempt has been suc- 
 cessful is now to be submitted to the judgment of others, 
 and to the tests of the school-room. 
 
 For one, I am fully persuaded that it is as easy to teach 
 political economy to students of fifteen, sixteen or seven- 
 teen years of age, as it is to teach geometry or quadratic 
 equations, which are actually taught, and with complete 
 success, within that period of life. But this can only be 
 done by the master taking as much pains with his classes 
 as he would take in teaching the latter subjects. There is 
 not one scholar in five, perhaps in ten, who would go satis- 
 factorily through geometry or quadratic equations by 
 himself, using simply the text-book. The great majority 
 of pupils require the active assistance of the teacher, at 
 every stage of their progress. The master must continu- 
 ally search the minds of his pupils to see what they have 
 apprehended, and what they have failed to apprehend. 
 He must go back to fundamental principles just as often 
 as he finds it necessary in order to fix these firmly in the 
 mind. He must do more, much more, than hear recitations : 
 he must positively and actively teach, if his scholars are 
 to learn. He must illustrate, emphasize and enforce every 
 successive lesson. 
 
 If political economy is to be taken up in such a spirit, 
 iu schools of the grade to which reference has been made, 
 it can be successfully taught out of such a book as this was 
 
PMEFACM. V 
 
 intended to be. Take, for example, the principle set forth 
 in Chapter X, and made of such extensive use in later 
 chapters : the principle that normal value is determined by 
 the cost of production "at the greatest disadvantage/' One 
 who has mastered this has already learned the harder half 
 of political economy. Yet there is nothing in it which can- 
 not be made perfectly clear, by proper explanation, due 
 iteration, free illustration, to the mind of a boy of sixteen, 
 or, for that matter, of fourteen. A class might, however, 
 get through that chapter, for the purposes of a routine reci- 
 tation, under a master who was not himself interested in 
 the subject, without thoroughly grasping the principle and 
 giving it such a place in their minds as would enable them 
 to use it in subsequent discussions regarding the distribu- 
 tion of wealth. 
 
 Another thing requires to be noted regarding the plan 
 of the present work. Inasmuch as it is intended for youth- 
 ful students, and is designed quite as much to interest 
 them in the study of political economy as to make them 
 proficient in it, the author has not held himself, as strictly 
 as he has sought in previous works to do, to the treatment 
 of political economy as a science, to be distinguished from 
 the art of political economy. He has allowed himself great 
 freedom in assuming that certain results are desirable in 
 themselves, and certain other results undesirable: and he 
 has sought to show how these may be avoided and those 
 attained. Much, which, in his other works, has been 
 treated as belonging to the Applications of political econo- 
 my, is wrought into the substance of the present treatise. 
 
 It scarcely requires to be said that any one who should 
 undertake to teach political economy, with the aid of this 
 or any other work of an elementary character, should pre- 
 pare himself for the task by studying more advanced text- 
 books. In this connection the present writer would recom- 
 
VI PREFAGR 
 
 mend John Stuart Mill^s Political Economy, and Marshall's 
 brief but excellent Economics of Industry. He trusts he 
 will not be deemed egotistical if he mentions his own fuller 
 treatise on political economy, and, also, his Wages Question. 
 
 The teacher would be greatly assisted in preparing him- 
 self, both generally and for individual recitations, by using 
 Problems in Political Economy, by Prof. W. Gr. Sumner of 
 Yale University; Institutes of Economics, by President E. 
 B. Andrews of Brown University; and Outline of Lectures 
 upon Political Economy, by Prof. Henry 0. Adams of the 
 University of Michigan. 
 
 The habitual reading of the Quarterly Journal of Econo- 
 mics (Harvard University) is strongly recommended. The 
 publications of the American Economic Association will be 
 found highly useful. 
 
 While the chapters of this work are intended to be 
 studied in the order in which they appear, some teachers 
 may find it better to omit paragraphs 106 to 146, inclusive, 
 on first passing through the book, reserving those sections 
 for subsequent study. 
 
 Massachusetts Institute of Technology, 
 Boston, October 14, 1889. 
 
TABLE OP CONTENTS. 
 
 PART I. 
 
 PRODUCTION AND EXCHANGE. 
 
 CHAPTER PAGE 
 
 I. Wealth and Value, 3 
 
 . II. The Cause op Value, 12 
 
 III. The Production of Wealth, 17 
 
 IV. Land, 22 
 
 V. Diminishing Returns in Agriculture, .... 25 
 
 VI. Labor 34 
 
 VII. Labor, Continued. The Organization op In- 
 dustry, ..... 50 
 
 VIII. Capital, 60 
 
 IX. The Relation op Cost op Production to Value, 72 
 
 X. Production at the Greatest Disadvantage, . . 85 
 
 XI. Money, 95 
 
 XII. Primitive Forms op Money, 103 
 
 XIII. Credit : The Standard op Deferred Payments : 
 
 The Tabular Standard : Bimetallism, . . . 109 
 
 XIV. Banks and Bank-money 122 
 
 XV. Political Money : Inflation 143 
 
 XVI. Protection or Free Trade, 164 
 
 PART n. 
 
 DISTRIBUTION AND CONSUMPTION. 
 
 XVII. The Problem op Distribution, 181 
 
 XVIII. Rent, 189 
 
 XIX. Rent, Continued. The Ownership op Land, . . 205 
 
 vii 
 
VIU 
 
 TABLE OF COm'JflNTS. 
 
 CHAPTER PAGE 
 
 XX. Profits, 215 
 
 XXI. Profits, Continued. Co-opekation, 225 
 
 XXII. Interest, 237 
 
 XXIII. Wages 251 
 
 XXIV. The Economic Effects of Imperfect Competi- 
 
 tion, 261 
 
 XXV. What May be Done to Help the Working 
 
 Classes, 272 
 
 XXVI. The Pauper Labor Argument for Protection, . 283 
 
 XXVII. The Consumption of Wealth 291 
 
 XXVIII. False Notions about Consumption, 301 
 
PART I. 
 
 PBODUCTION AND EXCHANGE. 
 
POLITICAL ECONOMY. 
 
 CHAPTER I. 
 WEALTH AND VALUE. 
 
 1. Political Economy is the Science of Wealth. — Political 
 economy, or economics, is the science of wealth. 
 
 Political economy has to do with nothing but wealth. 
 This warning should be carefully heeded. A great part of 
 the confusion which has existed on this subject has arisen 
 from the fact that many writers on political economy have 
 allowed their attention to be diverted, here or there, now 
 or then, to some other social object besides wealth, and 
 have perplexed themselves and misled their readers by dis- 
 cussing questions which do not belong to them, as political 
 economists. 
 
 When we say that the political economist, as such, has 
 to do with nothing else besides wealth, we are not saying 
 that wealth is the most important matter in the world. We 
 simply say that, if wealth is important enough to be inves- 
 tigated, it should be investigated by itself. The best and 
 surest way by which to increase our knowledge of any sub- 
 ject, is to isolate it and study it long and carefully, by itself, 
 from all sides. This is just as true of a social problem as 
 of a chemical problem. The great difference between the 
 two cases is that in the social problem it is not possible to 
 
 3 
 
4 POLITICAL BCONOMT. 
 
 keep out all foreign elements. Henee-we can never expect 
 to reach the same de^^ree (»f astsiU'anDe.'in' political economy 
 as in chemistry. But that con'stitiites 'no 'reason at all for 
 not excluding foreign elements so far as we can, and keep- 
 ing the thing we are studying, namely, wealth, as closely 
 in view, all the time, as the nature of the case will permit. 
 
 2. Relation of Value to Wealth. — I have said that politi- 
 cal economy is the science of wealth. But what is wealth ? 
 I answer. Wealth comprises all articles of value and nothing 
 else. Everything which has value is wealth. Nothing is 
 wealth which has not value. In the language of the phi- 
 losophers: Wealth is the substance , of which value is the 
 attrihute : that is, we always and everywhere attribute 
 value to the substance, wealth. 
 
 If wealth and value are thus indissolubly joined together, 
 the reader may ask. Why, when, should we not call political 
 economy the science of values ? I answer. It would be per- 
 fectly proper to do so. Some writers have done so. One 
 reason, however, for calling political economy the science 
 of wealth, is that many persons who would not be in the 
 least interested on being asked to listen to a lecture, or read 
 a book, on the science of values, would be very much inter- 
 ested on being told that the subject was the science of 
 wealth. Wealth is a word which appeals to all, poor or 
 rich, low or high, ignorant or educated. No one is above, 
 no one is below, an interest in this subject. It is, therefore, 
 a good term to use in describing political economy. 
 
 3. Value Defined. — But what is value ? This is a ques- 
 tion which needs to be carefully answered; and the reader 
 should always keep the definition clearly in view. It will 
 not do to think loosely about value. 
 
 In common speech we use the word in more than one 
 sense. Thus, we might say that the value of a horse is one 
 hundred dollars, or that a certain book contains some valu- 
 
POLITICAL ECONOMY. 5 
 
 able truths. In political economy, however, the word should 
 always mean precisely one thing, and nothing else. 
 
 The definition which I have to give is a long one, and I 
 must ask the reader to commit it carefully to memory. 
 There are few things which it is worth while to commit to 
 memory, word for word; but this is one of them: 
 
 Value is the power which an article con^fers 
 upon its possessor, irrespective of legal authority 
 or personal sentiments, of commanding, in ex- 
 change for itself, the labor, or the products of 
 the labor, of others. 
 
 It is proper, speaking briefly, to say that value is Power 
 in Exchange; but whenever we say this, we must have in 
 mind all that is stated above. 
 
 4. Two Exceptions. — What do we mean by saying, "ir- 
 respective of legal authority or personal sentiments^^? This 
 will be best shown by illustrations, as follows: 
 
 The Emperor of Russia or of Germany can, by a few 
 words, compel two millions of men to come from all parts 
 of his empire, to serve in his army. He can command them 
 to make the greatest exertions, to submit ^ the most pain- 
 ful sacrifices, involving hunger and fatigue, and even 
 wounds and death. At his will, they must march, watch, 
 fight, or die. Political economy has nothing to do with 
 this, because it is done by legal authority. This is not a 
 case where value exists. These services are not economic. 
 
 On the other hand, the soldiers of England and the 
 United States perform services which are economic. They 
 are not compelled to enter the army. The government 
 makes it worth their while to do so. It "goes into the 
 market for labor," and hires men to leave their homes or 
 their farms or their shops, and serve for one year, or three 
 years, or five years, in the army. What they are to do there 
 is not the (question for us to consider here. So long as the 
 
6 POLITICAL ECONOMY. 
 
 government hires them, with clothes and food and money, 
 and so long as they, on their part, freely accept these terms, 
 we have a case of value, just as much as if they were hired 
 to work upon harbor-improvements or in building roads. I 
 do not say that it is just as well for the country to hire men 
 to fight as it would be to hire them to build roads. I only 
 say that, in each case, there is value. The clothing, food, 
 and money of the government confer upon it the power to 
 command, in a fair and free exchange, the labor of the 
 workmen, or of the soldiers. The labor of the workmen, 
 or of the soldiers, confers upon them the power of com- 
 manding, in a fair and free exchange, the clothing, food, 
 and money of the government. 
 
 So much for "legal authority.^' How about "personal 
 sentiments^' ? Again, let us proceed by illustrations. A 
 mother gives her thoughts, her care, her labor, her time, 
 her strength, day by day, without grudging and without 
 reserve, to the rearing of her childern ; while, in their sick- 
 ness, she drains her very life-blood to protect and save 
 them. But this is not a case of value. Political economy 
 has nothing to d#with it. The mother renders these serv- 
 ices to these children, because they are hers. She does it out 
 of affection for them, and not for reward. On the other 
 hand, the services of a hired nurse or of a paid physician 
 are economic : they constitute a case of value. 
 
 6. Value Not a Physical Property. — The reader now sees 
 why I said, " irrespective of legal authority and of personal 
 sentiments." Leaving out these words, for the moment, 
 let us see how our definition of value will read: Value is the 
 power which an article confers upon its possessor of com- 
 manding, in exchange for itself, the labor, or the products 
 of the labor, of others. 
 
 Value is not any material or physical property of an 
 article. In any given place, at any given time, any 
 
POLITICAL ECONOMY. 7 
 
 given article may depend for its value upon certain 
 physical or material properties in itself; but these prop- 
 erties are not the value. Softness is not value; hard- 
 ness is not value. Some articles are more valuable, the 
 softer they are; some are more valuable, the harder they 
 are. Color is not value; absence of color is not value. 
 Some articles are more valuable, the more highly they are 
 colored; others become more valuable, the more perfectly 
 free they are from every tinge of color. Tenacity 
 is not value; ductility is not value. Some articles are 
 more valuable, the greater their tenacity ; others have 
 value in proportion to the ease with which they can be 
 drawn out. Sweetness is not value, acidity is not value. 
 Honey is valuable in proportion to its sweetness, vinegar to 
 its sourness. We see, then, that value is not any material 
 or physical property of an article. 
 
 6. Transferability Essential to Value. — We have seen that 
 value is power in exchange. Now, to an exchange, as to a 
 quarrel, there must be two parties. An exchange requires 
 at least two exchangers. Value, then, is a social phenome- 
 non. 
 
 Again, in order that there shall be an exchange, there 
 must not only be two exchangers, but the article to be ex- 
 changed must be such that it can be detached from one 
 and made over to the other. That is, transferability is es- 
 sential to value. 
 
 This point is of much importance, since it at once settles 
 the relation to political economy of certain properties and 
 qualities, which many persons have written about as if 
 these were wealth, namely, health, intelligence, strength, 
 skill, even personal honesty. If, however, we apply the test 
 of our definition, we find that these properties or qualities are 
 not wealth, since they have not value. They have not value, 
 because they cannot be exchanged. A man cannot detach 
 
8 POLITICAL ECONOMY. 
 
 health, strength, skill, or intelligence from himself, and make 
 them over to another person. They can, indeed, be taken 
 away from the present owner, as by death or sickness; but 
 they do not, in that case, become the property of another. 
 The gouty millionaire cannot, with all that he has, pur- 
 chase the robust health of the laborer by the wayside, or 
 buy for his own empty-headed son the learning or the 
 trained faculties of the humblest scholar. 
 
 7. The Use of Personal dualities May be Sold. — But while 
 these properties and qualities cannot be detached and trans- 
 ferred, and thus cannot be said to be wealth, the present 
 use of them can be made over to another, and hence may 
 become the subject of exchange. The rich invalid may 
 command the services of the robust laborer in waiting on 
 his person; he may hire the poor scholar to be tutor to his 
 son. The use, therefore, of such personal qualities and 
 endowments properly constitutes an item of wealth. By 
 the force of contract, the possessor may even transfer the 
 use of them for a definite period in the future, as when a 
 man is hired by the week, the month or the year. Such 
 a sale, however, of personal qualities or endowments is al- 
 ways a "contingent" one. It is always subject to the 
 chance of death or sickness. 
 
 8. Better than Wealth, but Not Wealth. — If we ask why 
 it is that so many excellent writers in political economy 
 have insisted upon regarding health, strength, intelligence 
 and skill as being wealth, we shall find that it is because 
 these things seemed so good and desirable. But the fact, 
 for example, that health is better than most forms of wealth, 
 or that health may be the means of acquiring wealth, 
 does not make it wealth. There are many things which 
 are better than wealth, but are not wealth. "A good 
 name," says Solomon, '^is rather to be chosen than riches, 
 and loving favor than silver or gold;" yet a good name is not 
 
POLITICAL ECONOMY. 9 
 
 riches, and loving favor is neither silver nor gold. And, 
 at this point, we find that the popular use of the term co- 
 incides with the definition given it for scientific purposes. 
 Plain men do not speak of such qualities or endowments as 
 being wealth. No merchant or manufacturer or laboring 
 man would include any one of these items in an account of 
 his wealth, however precious he might esteem them. 
 
 9. The Desire ofWealth. — We have defined wealth. It 
 will be seen that by this term is not meant great wealth; 
 that the idea of luxury, or softness of living, is not neces- 
 sarily implied in it. In common phrase, when we speak of 
 a man as wealthy, we mean that he has great wealth: that 
 he can, if he pleases, live richly. But the wealth of which 
 the political economist speaks embraces the frugal fare and 
 the small savings of the poor laborer, just as much as it 
 does the sumptuous living and the vast accumulations of 
 the millionaire. 
 
 It will be seen from the foregoing that the desire for 
 wealth which leads men to labor and to exchange the prod- 
 ucts of their labor is not, in all cases, or in most cases, 
 the same as that " love of wealth " which preachers or 
 moral philosophers are wont to condemn. The desire of 
 wealth, on the part of a poor laborer, means no more than 
 his wish to provide decent and comfortable subsistence for 
 those dependent upon him, and to save them from suffer- 
 ing, squalor and filth. On the part of one who is more 
 fortunate, the desire of wealth may mean the wish to have 
 his family respectably housed and decently clothed; the 
 children well educated for the duties of life, and a fair pro- 
 vision made against sickness and old age. This is all 
 which the desire of wealth means, in the case of nearly all 
 human beings. On the part even of those more fortunate 
 still, the desire of wealth may mean, not so much the taste 
 for rich food, sumptuous apparel, gay equipage and social 
 
10 POLITICAL ECONOMY. 
 
 display, as an ambition to undertake great works, for 
 which large resources are necessary; a wish to be esteemed 
 strong, sagacious and masterful; or even the purpose, alto- 
 gether benevolent, to use wealth in charity or for the pro- 
 motion of learning, art and religion. 
 
 It will appear what a varied matter is the love of, or the 
 desire for, wealth, alike in its origin and in its ulterior 
 objects. It is probably because people have commonly 
 thought of the desire for wealth as the greed of gain, as 
 the passion for display, as the craving for luxury, as the 
 miser^s thirst for gold, or as the strong man's love of power 
 and mastery, that political economy has so often borne a 
 bad name. We have shown, above, how partial and how 
 false such a conception is. 
 
 10. Political Economy does not Inculcate Love of Wealth. 
 — Even where the desire of wealth becomes a strong appe- 
 tite or a raging passion, political economy is not to be 
 charged with any part of this. The political economist 
 has not implanted a love of wealth in the human mind; 
 nor, finding it there, does he seek to blow it into a flame. 
 He simply takes it as he finds it ; and, regarding it as a 
 social force, he proceeds to inquire how this passion, or 
 propensity, as it exists among men, influences their actions 
 in respect to the production, the exchange, the distribu- 
 tion, the consumption, of that which we call wealth. His 
 business is that of the professor of a science, viz., to trace 
 effects back to their causes, to project causes forward to 
 their eftects, within the domain of wealth. Hence, we see 
 how unjust is the sneer at political economy, when it is 
 spoken of as the "gospel of mammon.^^ 
 
 11. Political Economy Chastens Greed. — Not only has 
 political economy not implanted a desire for wealth in the 
 human mind ; not only does it not inculcate greed of gain ; 
 but it would be easy to show that the study of political 
 
POLITICAL ECONOMY. 11 
 
 economy has done much, perhaps more than any or all 
 other causes, to repress violence, fraud and rapine, as 
 means towards the attainment of wealth. By showing how 
 wealth is really best gained and kept, it has tended to banish 
 a ravenous, ferocious greed, which seeks to snatch its ob- 
 jects by brutal force, with whatever injury to others ; and 
 has replaced this by an enlightened sense of self-interest, 
 which seeks its ends through services and exchanges mutu- 
 ally beneficial, and which supports social order and national 
 peace, as the conditions of general well-being. 
 
 Before Adam -Smith published his great work, the 
 ^^ Wealth of Nations," in 1776, it was a maxim of public 
 policy that only one party to a trade could profit by it : 
 that all which one might gain the other must lose. Out 
 of this root grew wars and commercial restrictions, which 
 set man against man and nation against nation, making 
 intercourse between even'the most highly civilized states a 
 game of deceit and violence. Adam Smith, by his masterly 
 exposition of the mutual benefits to be derived from ex- 
 change, left the love of wealth in the human mind, not 
 rebuked but enlightened. Men might still seek wealth 
 as earnestly and ardently as ever, but no longer by the 
 old, bad, brutal, heathen methods. Little more than a 
 hundred years have elapsed since the appearance of the 
 " Wealth of Nations"; yet mankind have, within that time, 
 made greater progress toward humane and mutually bene- 
 ficial relations between states and nations, than during all 
 other centuries of human history. 
 
CHAPTEK 11. 
 THE CAUSE OF VALUE. 
 
 12. Utility Essential to Value. — We have defined value 
 as, briefly speaking, power in exchange. We are now to 
 inquire whence comes that power ? Why is it that one 
 article has value and another has not ? Why is it that one 
 article has great value, while another, perhaps more beau- 
 tiful, perhaps more useful, has little value ? These are 
 questions we shall now try to answer. 
 
 We may certainly begin by assuming that no one will 
 give for any article his labor or the product of his labor, 
 unless he has a use for that article, or unless he is buying 
 it for someone who has a use for it. Hence we say that 
 usefulness, or utility, is an essential element of value. We 
 need make no exception to the statement, that, wherever 
 value is, there is utility. 
 
 But we must explain just what we mean by utility, or 
 usefulness. That word, as we use it here, signifies no 
 more than that an article meets a felt human want : that 
 men have a use for it. But this is not the sense which the 
 word always has. By it is sometimes meant that an ar- 
 ticle is beneficial : that it does good to the person who 
 owns or consumes it, in making him stronger, wiser, hap- 
 pier or better ; or, else, that it does good to the community. 
 Now this would not answer, in the present case. An article 
 may have utility, in the sense that men have a use for it, 
 in the sense that it satisfies a want which men feel, and 
 yet be harmful, perhaps in a high degree. Intoxicating 
 
 13 
 
POLITICAL ECONOMY. 13 
 
 drinks are, to most persons who buy them, very injurious : 
 yet, so long as men will give for them their labor or the 
 products of their labor, intoxicatifig drinks possess utility, 
 in the economic sense. Many articles which are always 
 used, or which are often used, in such a way as to injure 
 the mind, or body, or both, are useful in this sense. 
 
 13. Value not Proportioned to Utility. — We have said 
 that there is always utility where there is value. Is it, 
 also, always true that there is value wherever there is 
 utility ? We answer, no. There cannot be value without 
 utility, but there may be utility without value. Nothing 
 is more useful than atmospheric air : there is nothing for 
 which men have a more constant use, nothing of which 
 they have a more intense need. Yet atmospheric air has, 
 as a general thing, no value at all. Every man, even the 
 poorest and meanest, takes of it what he will, without giv- 
 ing anything in exchange. Water, too, has a high degree 
 of utility. Although men have a use for it in widely vary- 
 ing degrees, some water, more or less, every human being 
 craves, with an eagerness which would soon result in 
 delirium and death, were it denied. Yet water is generally 
 to be had without giving anything in exchange for it. 
 Men help themselves to what they want of it. 
 
 Not only is it true that there are some articles which 
 have great utility and no value at all : but among articles 
 which have both utility and value, the value is not always 
 in proportion to the utility. Of two articles, both of which 
 are very useful, both of which men desire and earnestly 
 crave, either of which it would be pain to be deprived of, 
 one may have a high value and the other a low value. 
 
 14. Difficulty of Attainment, the Second Element of 
 Value. — We conclude, then, that there is another element 
 of value. And, on reflection, we find that element to be 
 difficulty of attainment, or, as it is sometimes called, scar- 
 
14 POLITICAL ECONOMY. 
 
 city. If we apply these two tests^ utility and difficulty of 
 attainment, we shall be able to explain every case of value 
 which we meet, or of which we can conceive. We are 
 sure, therefore, that our analysis is correct. 
 
 The reason why men do not, in general, give their labor, 
 or the products of their labor, in exchange for atmospheric 
 air or water, is not that these substances are not useful to 
 them; but that there is, usually, no difficulty in obtaining 
 as much of either as anyone can require. The moment 
 there comes to be any difficulty in obtaining a sufficient 
 amount of atmospheric air, that substance may fairly be- 
 come the subject of exchange: that is, may acquire value. 
 Air maybe delivered to divers under the sea, through pipes 
 or rubber tubes, at a fixed price per cubic foot. A great 
 amount of labor and capital is often employed in supplying 
 atmospheric air to miners under ground, where it is paid 
 for at a high price. While one can always have in his house, 
 for nothing, as much bad air as his family can breathe, 
 pure air in a dwelling is often very costly. It is, indeed, 
 one of the most expensive of all luxuries: so expensive that 
 many persons who devote large sums to display and fashion 
 do not feel themselves rich enough to have their own houses, 
 and the churches, schools, concert halls and theatres which 
 they or their children attend, decently well ventilated. 
 
 In general, as we said, water has no value. Indeed, a 
 great deal is sometimes paid for merely getting rid of it: 
 for pumping it out from cellars and mines and low lands, 
 or for building dikes or levees against it, along the banks 
 of rivers or upon the sea-shore. On the other hand, when, 
 in desert countries or in great cities, water becomes difficult 
 of attainment, in the quantities desired and in the right 
 times and places, it comes to command a price, perhaps a 
 high price. 
 
 Again, iron, although distinctly the most useful of all the 
 
POLITICAL ECONOMY. 16 
 
 metals, in the extent and variety of its applications, has a 
 much lower value than many others, simply because the 
 difficulty of attainment is, in its case, less. The price 
 which a man pays for a knife, for instance, does not measure 
 the usefulness of the knife to him, but only the difficulty 
 of attainment. He pays, in fact, fifty cents for the knife: 
 but he would sooner pay 15, or $10, or even 150, than not 
 have a knife. 
 
 15. Demand and Supply. — We have thus far spoken of 
 the two elements of value, viz., utility and difficulty of 
 attainment; but when we come to investigate the ratios of 
 exchange, and to talk of buying and selling in the market, 
 it will help us very much to substitute for these terms two 
 others, viz.. Demand and Supply. 
 
 The fact that an article is useful gives rise to the demand 
 for it. The difficulty of attainment, in the case of any ar- 
 ticle, governs the supply of it. The value of an article de- 
 pends upon the demand for it and the supply of it. A large 
 demand does not necessarily mean a high price, since the 
 supply may be practically unlimited. A small supply does 
 not necessarily mean a high value, since the demand may, 
 also, be small. But in the case of any article which is de- 
 sired by men, and which can only be obtained through the 
 exertions and sacrifices of economic agents, value is, at any 
 time, fixed by the relation between supply and demand. 
 Other things equal, if demand increases, or supply decreases, 
 value will rise. On the other hand, if demand decreases or 
 sujjply increases, vahiewillfalh Inasmuch as the demand 
 for any article and the supply of it are subject to frequent 
 changes, sometimes great and sometimes small, sometimes 
 one way, sometimes the other, it is not to be expected that 
 its value will long remain the same. But this liability to 
 change of value is very different in the case of different 
 articles. Some move as rapidly and frequently as a weather- 
 
16 POLITICAL ECONOMY. 
 
 vane; others have a certain degree of stability. But it is 
 always to be borne in mind that, whenever any change of 
 value takes place, it must be due to a change in demand, or in 
 supply, or in the two unequally. We say unequally, since, 
 if the change in demand were just equal to the change in 
 supply, value would remain unaffected. 
 
CHAPTER III. 
 THE PRODUCTION OF WEALTH. 
 
 16. Production Defined. — The term, production of wealth, 
 embraces all those acts and courses by which it comes about 
 (1) that an article which before had no value acquires value, 
 or (2) that an article which before had a certain value now 
 bears a higher value. The production of wealth is not the 
 creation of matter, but the creation of value. 
 
 The word, production, is derived from two Latin words 
 which mean drawing forth or bringing forward. The terra 
 is very significant as applied to wealth. Much of the pro- 
 duction of wealth which takes place, as we shall see, con- 
 sists merely in drawing things out from where they have no 
 value and in bringing them forward for human use. 
 
 17. Three Kinds of Value. — A German economist (Prof. 
 Knies) has said that the production of wealth embraces the 
 creation of three kinds of value, time-value, place-value, 
 and form-value. The distinction is not one which we shall 
 need to carry through our study of political economy; but 
 it is interesting at this point, as affording good illustrations 
 of what is meant by the creation of values. 
 
 18. Time-value. — Time- value is created in the case of 
 ice, when it is produced, kept along, carried over, from the 
 winter, when nobody wants it, and when it is, perhaps, an 
 obstruction and a nuisance, into the summer, when many 
 people want it, and want it very much. Keeping the ice 
 over fronv winter to summer, producing, extending it, with 
 all which that requires of labor or of care, is the creation 
 
 17 
 
18 POLITICAL ECONOMY. 
 
 of value: is^ therefore, the production of wealth. Wine 
 and mauy other articles of human use may acquire greatly 
 increased value with age. 
 
 19. Place-value. — This species of value is created when- 
 ever an article is safely transported from a point where it 
 has no value to a point where it has value, or from a point 
 where it has a certain value to a point where it has a greater 
 value. Most of the values created by commerce are of this 
 kind. Many commodities have two or three times the value 
 in the markets of New York or London which they have 
 in the regions from which they were brought. Timber 
 which is worth eight or ten dollars a thousand feet in Georgia 
 or Canada, will bring, without change of form, twenty-five 
 dollars in Boston. 
 
 The addition to the value of articles due to transportation 
 varies very widely. It is, of course, greatest in the case of 
 bulky articles, like lumber and coal, and of perishable ar- 
 ticles, like summer fruits. Some articles will, as the saying 
 is, ^^bear transportation;" that is, their heightened value 
 will repay the cost of transportation, for thousands of miles ; 
 other articles are not worth, in any market, as much as 
 would be required to transport them a hundred miles, even 
 by the easiest route. Of course, a great difference is made 
 in the cost of transportation, according as the carriage is by 
 water or by land ; * according as it is done by carts and 
 wagons, or by trains of cars; or, again, if it be by carts or 
 wagons, according as it is over smooth and level roads, or 
 over rough and steep mountain paths. It is an old saying 
 that '^resistance is distance;" and it is true that two places 
 separated by a thousand miles of navigable water may be 
 
 * In his speech on the tariff, in 1824, Daniel Webster estimated the 
 cost of bringing iron from Sweden, by water, to Philadelphia, to be 
 no greater than the cost of carrying it from that port fifty miles into 
 the interior. 
 
POLITICAL BGONOMT. ID 
 
 nearer, economically speaking, than two places divided 
 merely by the spur of a mountain chain. 
 
 20. Form-value. — The third kind of value which has 
 been spoken of, namely, form-value, is that which is most 
 important of all. By far the greater part of the operations 
 which we call industry, are for the purpose of creating this 
 species of value. Creating value, as we said before, not cre- 
 ating matter, since, generally speaking, the matter involved 
 grows less as the value grows greater. A block of marble, 
 which may be worth twenty dollars, comes under the hands 
 of a sculptor. His whole work consists of chipping-off por- 
 tions of the marble, which are thrown away. When the 
 sculptor has finished his task, there is only one-half or one- 
 third as much marble as at the beginning ; but the statue 
 is worth a hundred, a thousand, or ten thousand dollars, ac- 
 cording to the skill and taste of the sculptor. Cotton has a 
 certain value in the storehouse of the planter, along the Red 
 Eiver or the Yazoo. After the cotton has been ginned, 
 i.e. cleaned by machinery, there is less of it : less, not 
 only by the amount of seed and impurities removed, but 
 less of actual cotton, since the ginning process involves 
 some waste. Notwithstanding this, the cotton is worth 
 more, although there is less of it. When the cotton is 
 taken to the mill, and picked and carded and rolled and 
 spun and woven, there is, at each stage of the manufac- 
 ture, a loss of material, greater or smaller. Yet, in each 
 case, what is left is worth more than the whole was, until 
 we come to the point where the pound of cotton, which was 
 worth eight cents in the planter's hands, is worth fifteen, 
 or twenty-five, or fifty cents, in dress goods, in thread or 
 in lace. When iron ore is made into pig-iron, there is a 
 great loss of iron ; when pig-iron is made into wrought-iron, 
 there is a further loss ; when wrought-iron is worked up 
 into building or carriage hardware, the quantity is still 
 
20 POLITICAL ECONOMY. 
 
 more diminislied ; but at each stage there is an increase of 
 value. 
 
 21. Wealth and Value, Again. — Always and everywhere, 
 the production of wealth means the creation of value ; and 
 always and everywhere, value is power-in-exchange. It is 
 not a question whether men ought to desire the articles 
 produced ; whether those articles make them better or 
 wiser or healthier or happier. If, in fact, a man does de- 
 sire any article sufficiently to give for it his labor or the 
 product of his labor, there we have a case of value. Wher- 
 ever and whenever, by whatever acts, in whatever ways, 
 value is created, there and then wealth is produced. 
 
 22. The Three Primary Agents* of Production. — The 
 three primary agents in the production of wealth are land, 
 labor and capital. In every creation of values, all these 
 agents are engaged, although the proportions in which 
 they severally contribute to the production of wealth vary 
 widely. In the production of a pound of cotton, worth ten 
 cents, there is a large use of land. When that cotton is 
 made into fabrics worth twenty-five cents, the additional 
 use of land is comparatively slight, consisting mainly of 
 the occupation, for a few seconds of time, of a very small 
 part of the ground on which the factory is built, and of a 
 few quarts of water falling through fifteen or twenty feet 
 and helping to turn the great wheel of the mill. When the 
 cloth, thus made, is cut and sewn and formed into a gar- 
 ment, the additional use of the land is probably smaller, 
 
 * When the reader shall reach the close of Chapter VII., it will be 
 seen that we introduce a fourth grand agent in the production of 
 wealth, under modern industrial conditions, viz. business ability; 
 meaning, by that, business ability (both natural and acquired) in an 
 exceptional and high degree, suited to the vast cares and responsi- 
 bilities of production where the division of labor has been carried to 
 a wide extent. This, however, cannot properly be termed fijnnmary 
 agent of production. 
 
POLITICAL ECONOMY. 21 
 
 still, for each cent's worth of value added. Even in the 
 creation of time- value and place-value, a certain use ojf land 
 is required, whether for stores and warehouses, or for roads 
 and the tracks of railroads, stations, wharves, etc. 
 
 In the same way, the proportions in which labor and 
 capital contribute to the production of wealth vary widely. 
 Two articles may be exchanged for each other, one of which 
 has required the use of two times, five times, or ten times 
 as much capital as the other. In that case, the other arti- 
 cle has probably cost more, perhaps very much more, labor. 
 
CHAPTER IV. 
 LAND. 
 
 23. Land Defined. — The term, land, as used by the polit- 
 ical economist, embraces all natural agents, of which use is 
 made in the production of wealth. It has reference, not 
 more to tilled fields than to pasture and meadow, to forest 
 and mine. It embraces the water as well as the " dry land.'* 
 Wherever a stream falling over a ledge gives the force which 
 is used to drive the great wheel of the mill, there we have a 
 case of the use of land, in the production of wealth. The 
 fisheries of the deep sea and of the shallow bays and arms 
 are closely related to such " extractive industries " as the 
 cutting of timber and fuel from the forest, the raising of 
 coal and metallic ores from the depths of the earth, or the 
 gathering of ice from the frozen waters of fresh lakes and 
 rivers. All these operations, even to the boring for petro- 
 leum or natural gas, relate to the land, as the economist 
 uses that word. 
 
 24. The Cliiantity of this Agent of Production is Fixed. 
 — The land — the aggregate of all the natural agents at the 
 disposal of any community — is, unlike the capital that may 
 be placed upon the land, unlike the laborers who may be 
 called to work upon it — a fixed quantity. There is so much 
 of it and there can be no more. It is not in the power of 
 mankind to increase the breadth of the land, or to add any- 
 thing to the sum of the natural agents which are subject to 
 human uses. Men may, indeed, from time to time, dis- 
 cover resources in nature not previously suspected ; they 
 
POLITICAL ECONOMY. 23 
 
 may increase the dry surface at the expense of the water 
 surface, as when a great part of Holland was redeemed 
 from the ocean by dikes, built with prodigious labor ; as 
 when lakes and swamps are tapped and drained, to become 
 the fields of a flourishing agriculture. Again, whereas one 
 generation only scratched the surface, to raise a scanty and 
 precarious crop, succeeding generations may learn to plough 
 and bring up the productive essences of the soil from great 
 depths. Still again, by engineering skill and the invention 
 of powerful machinery, shafts and galleries may be run 
 through solid rock ; and substances, liquid and solid, of 
 great usefulness to men, may be raised through the crust of 
 the earth, to a distance of 1500 or 2000 feet. But in all 
 this there is no addition to the sum of natural agents ; only 
 a larger or a better use of those already existing. Sooner 
 or later, later or sooner, human ingenuity and labor will 
 reach the end; and it will, thereafter, only be a question of 
 the wise or the unwise use of the natural agents placed at 
 the disposal of mankind. 
 
 26. All Use of Land involves a Certain Loss. — Not only 
 do the productive properties and powers of the soil con- 
 stitute a fund, which cannot be increased by human effort ; 
 but there is involved, in all use of the land, a certain loss, 
 which, so far as science enables us to foresee, is permanent 
 and irretrievable. 
 
 That loss may, for any given production of wealth, be 
 very small, under prudent management ; while reckless- 
 ness, greed and ignorance may turn that necessary loss into 
 monstrous and hideous waste. Many of the once fairest 
 lands on earth, which supported large populations in com- 
 fort, are now little better than sterile deserts, owing to 
 man's abuse of nature. 
 
 How, it will be asked, can this be so, if the modern 
 scientific law known as "the conservation of energy ''be 
 
24 POLITICAL ECONOMY. 
 
 true ? How can any force be lost out of nature ? I 
 answer, No force can be lost ; but force may, by purpose or 
 accident, be transmuted from forms in which it has min- 
 istered to human wants, into forms in which it is useless 
 to man, and even into forms which are injurious and de- 
 structive. A cottage, which has long sheltered a family, 
 may, through the snapping of a coal, pass-off in heat 
 and smoke ; and in half an hour nothing will be left but 
 a heap of ashes and blackened stones. There is just as 
 much force in the world ; but there is one cottage less. 
 Almost any article that nourishes the human frame maybe 
 transmuted into more or less virulent poisons. The mere 
 dissipation and scattering of valuable substances may 
 deprive them of their usefulness. Such is the condition 
 under which the human race occupies and enjoys the 
 earth. 
 
CHAPTER V. 
 DIMINISHING RETURNS IN AGRICULTURE. 
 
 26. The Great Law of Agricultural Production.— But, 
 
 aside from the progressive diminution of the productive 
 powers and properties of nature, through human use, we 
 find that the land, at any given time, is cultivated or en- 
 joyed subject to one universal condition, which we express 
 by the term, the law of diminishing returns in agriculture. 
 This law may be stated as follows : 
 
 After a certain^ poikt has been^ reached, in the 
 cultivation of any tract or field, an increase of 
 product cannot be obtained without more than a pro- 
 portional application of labor, or capital, or both. 
 
 Thus, we may suppose that a field in Hampshire, Eng- 
 land, is producing 24 bushels to the acre, under an outlay, 
 by the farmer, in labor and capital, which we may repre- 
 sent by 24r?. Now, inasmuch as this field has long been 
 under cultivation in a community where labor and capital 
 are abundant, and- inasmuch as the farmer knows all about 
 the field, what is best to do with it, how it can be made to 
 yield the largest crop for the least labor, we may fairly as- 
 sume that the point of diminishing returns has been 
 reached. If this be so, then it will be true that the farmer 
 cannot raise the crop to 27 bushels, an acre, by simply ex- 
 pending 21a upon the land ; still less can he raise the crop 
 to 30 bushels, an acre, by expending 30^5; much less, still, 
 can he raise the crop to 33 bushels by expending 33flr. In- 
 stead of this, he might find that 27 bushels would cost ^Sa; 
 
26 POLITICAL ECONOMY. 
 
 30 bushels, Z2a; 33 bushels, 36«. The amounts of labor 
 and capital required to raise the larger crops might even 
 increase more rapidly, perhaps much more rapidly. To 
 raise 33 bushels to the acre might cost, not 36^^, but 40a; 
 while to raise 3G bushels might cost 50rt, and to raise 39 
 bushels might cost 60^1^. But, whether the increase in the 
 amounts of labor and capital required be greater or be 
 smaller, it is true that, whenever a certain point has been 
 reached in the cultivation of any field, for the purposes of 
 any crop, a more than proportional amount of labor, or of 
 capital, or of both, will thereafter be necessary, in order to 
 increase the produce, in any degree, however slight. This 
 is what we mean by the law of diminishing returns in 
 agriculture. 
 
 27. The Universality of this Condition. — The existence of 
 this condition cannot be disputed. There is no acre of 
 land on the face of the globe, on which 60 bushels of wheat 
 can be raised with twice as mucli labor and capital; 90 
 bushels, with three times as much labor and capital; and 
 120 bushels, with four times as much labor and capital, as 
 would be sufficient to raise 30 bushels. Every time a far- 
 mer breaks up a new field, in order to increase his crop, he 
 bears testimony to the existence of this law, for, if that law 
 did not exist, it would be easier for him to increase his crop 
 by applying a larger amount of labor and capital to the old 
 land. Generally speaking, the new land he breaks up is 
 not quite so good as the old ; yet it pays him better to raise 
 the additional produce from poorer land than to " force ^' 
 the cultivation of the older and the richer tracts. Every 
 time a body of population leaves an old country to break 
 up land in a new one, fresh testimony is paid to the exist- 
 ence of this law, which, indeed, has furnished the main 
 motive force of the migrations which make up so large a 
 part of human history. 
 
POLITICAL ECONOMY. 27 
 
 And this law applies universally to all the produce of the 
 land, whether in the form of " crops," or of ore from the 
 mine, or of fish from the sea, or of timber from the forest, 
 or of wool and flesh from the sheep that graze over the un- 
 broken ground : only, in these latter cases, the operation of 
 the law is more apt to be disguised, or hidden from view, 
 by other causes. 
 
 Let us take, for illustration, the ore from the mine. The 
 larger the quantity of ore which it is necessary to raise, the 
 deeper must the miner go into the crust of the earth. The 
 deeper the mine, the greater the labor of pumping out the 
 water which continually tends to flood it ; the greater the 
 labor required for ventilation, to force in fresh air and ex- 
 pel the poisonous gases which are every hour forming in the 
 shafts and galleries ; the greater the labor required to hoist 
 the ore, ton after ton, to the surface. 
 
 28. Importance of this Law. — The law of diminishing re- 
 turns in agriculture must be mastered in all its bearings, if 
 the student is to make progress safely in Political Economy. 
 If this principle is not at the time understood, or is subse- 
 quently lost sight of, the most monstrously false opinions 
 may be formed regarding the production of wealth and 
 the conditions of human existence. But for the law of 
 diminishing returns, thousands of millions of men might 
 live in the Uuited States as comfortably as tens of millions. 
 As it is, all mankind dwell, and must forever dwell, under 
 the shadow of this condition. After a certain point has 
 been reached, land will only yield the material for food, 
 clothing and shelter in continually, and after a while, 
 rapidly, diminishing proportions, in return to man's effort. 
 
 And that '' point" is not merely a theoretical one, or one 
 which, while it might be, is not likely ever to be, attained. 
 The point of diminishing returns has already been reached 
 in most of the countries of the world. In many, it has long 
 
28 POLITICAL ECONOMY. 
 
 since been passed, with the result of misery, squalor and 
 disease to helpless millions. Even the ^^new countries'' 
 of the globe are rapidly approaching that point. 
 
 Of course, when one is reasoning in regard to the opera- 
 tion of any force, he is always understood to mean "other 
 things equal." Now, as other things seldom are equal at 
 any given time, and as they tend to become more and more 
 unequal from time to time, the conclusions one may reach, 
 in writing of the operations of any simple force^ will re- 
 quired to be understood, or to be qualified, or to be modi- 
 fied, or to be corrected, according as other things are un- 
 equal. The fact that other things, which affect the culti- 
 vation or enjoyment of the land, change greatly, from time 
 to time, has obscured the lawof diminishing returns, in the 
 sight of the unthinking, and has even led some generally 
 intelligent persons to deny its existence. 
 
 29. Causes which set back the Point of Diminishing Re- 
 turns. — Thus, when we say that, after a certain point, the 
 produce of the land can only be increased through a more 
 than proportional application of labor and capital, we as- 
 sume, among other things, that the art of agriculture re- 
 mains the same. If improvements take place, these will 
 not change the law, but they will change the point at which 
 the law begins to apply. Let us illustrate. One hundred 
 years, or fewer, ago, it was universally believed that, if a 
 piece of land were to be cultivated every year, through a 
 considerable period, it would become exhausted : that is, 
 the land would lose its fertility and would thereafter be 
 worthless. Consequently, it was held that, for one year 
 out of three, or out of four, land should be allowed to lie 
 *^ fallow," that is, uncultivated, and no demand be, for 
 that year, made upon its productive essences. Now, under 
 this condition, it might have happened that a community, 
 with a certain number of people, cultivating, say, 6000 
 
POLITICAL ECONOMY. 29 
 
 acres, had Just reached and touched the point of diminish- 
 ing returns ; i.e., the number of laborers being what it was, 
 the product, per laborer, was then greater than it would 
 have been with a larger number of laborers. More labor- 
 ers would, indeed, have produced more corn ; but not 
 enough more to make each laborer's share as large as be- 
 fore. Now, in the case of this community, it might have 
 happened that, just at this point, the principle of the 
 "rotation of crops "was discovered. What is that prin- 
 ciple? This: that different crops do, to a considerable 
 extent, draw different elements from the soil. Crop a 
 takes element a; crop h, element h; crop c, element c. 
 Consequently, a piece of land which had been cultivated, 
 one year, in crop a, and the next year in crop J, might 
 really be resting as to elements a and h, while producing 
 crop c, the third year. 
 
 The discovery of this principle would clearly change the 
 point of diminishing returns, in the case of the community 
 we have supposed. Formerl}^ it may have been the custom 
 to let the land lie idle one year out of three : in that case, 
 only 4000 acres could be cultivated in any given year. 
 Now, 6000 acres may be cultivated every year, loliich gives 
 the same result as if the land had been increased to 9000 
 acreSy without the rotation of crops. Consequently, the 
 number of laborers may increase for a considerable time be- 
 fore they reach the new point of diminishing returns. 
 
 30. Effect of Agricultural Improvements. — One hundred 
 years ago, land, in the most highly civilized countries, was 
 cultivated by means of shabby little ploughs with, at best, an 
 iron tip upon the share. Consequently, the soil was brought 
 up by the plough from but a little depth ; and it was almost, 
 though not quite, the same as if the soil itself had been 
 shallow. Our own President Jefferson is said to have been 
 the inventor of the first iron plough. By little and little. 
 
30 POLITICAL ECONOMY. 
 
 the iron plough grew larger and stronger, bringing up the 
 soil from greater and greater depths. 
 
 Now, an acre which is ploughed to the depth of sixteen 
 inches may not, taking ten or fifty years together, produce 
 twice as much as an acre which is ploughed to the depth 
 only of eight inches, but it will certainly produce a great 
 deal more in any year or during a term of years. If we 
 suppose, then, that, in the community we have been talk- 
 ing about, the point of diminishing returns had again been 
 reached, by the increase of laborers, in spite of the rotation 
 of crops, it might happen that this point would be once 
 more changed through the introduction of deep ploughing- 
 The 6000 acres, cultivated to the depth of fourteen or six. 
 teen inches, would be equal to 8, 9 or 10 thousand acres, 
 perhaps, when cultivated to the depth only of six or eight 
 inches. 
 
 Again, we might suppose that the vegetable species, up 
 to this time cultivated, had been such as yielded a very large 
 amount of root and stock, for a small amount of grain and 
 fruit. If this were the case, the introduction of new vegeta- 
 ble species, yielding a large amount of edible matter, to a 
 small amount of stalk and root, would be practically equiva- 
 lent to increasing the amount of land : that is, a larger 
 number of laborers could get from the soil as good a living 
 as the smaller number had, before this change. 
 
 In the same way, in the case of a community raising 
 sheep and cattle, the introduction of improved breeds in- 
 stead of the little, rough, underbred animals which for- 
 merly yielded very little of flesh or of wool or of milk, for a 
 large amount of grass consumed, might have the effect to 
 move the point of diminishing returns much further off. 
 
 31. The Law Holds, None the Less. — As has been said, the 
 introduction of new arts, and the improvement of familiar 
 processes, from age to age, has obscured this great law of 
 
POLITICAL ECONOMY. 31 
 
 agricultural production. So much so that many writers, 
 seeing a large population supported in comfort upon lands 
 which once yielded a scanty subsistence to a small popula- 
 tion, have been disposed to deny the existence of the law 
 altogether. But this is an error. At any given time, the 
 art of agriculture being as it is, the point of diminishing 
 returns is liable to be reached by the increase of population. 
 Nor can it be reasonably expected that improvements and 
 inventions will indefinitely put-oft* that point, in the life of 
 any community. Sooner or later, later or sooner, according 
 to circumstances, that point must be reached ; and if the 
 number of laborers thereafter increases, each laborer must 
 be content with a smaller product : that is, with meaner 
 subsistence. 
 
 32. Effect of Diminishing Returns in Agriculture upon 
 the Products of Manufacture. — The law that has been de- 
 scribed governs all the productions of the land. How does 
 it stand related to the products of manufacture? I answer: 
 Only so far as the materials are concerned. All these are 
 derived, more or less directly, from the land ; and the cost 
 of producing them, or their price in the market, inevitably 
 feels the influence of the law of diminishing returns in 
 agriculture. But all kinds of manufacture do not employ 
 the same amount of materials derived from the soil, for a 
 given amount of labor and capital ; and, as the efficiency 
 of labor and the efficiency of capital are not subject to the 
 same law, it follows that different industries may be differ- 
 ently affected. The influence of this cause may be very 
 great in one branch of industry, while in another it is so 
 slight as to be scarcely worthy of notice. For example, 
 iron ore and coal are products of the land, and conse- 
 quently subject to this law. The greater the quantities 
 required, the deeper into the earth's crust must mining 
 operations be carried, the larger the amount of labor in- 
 
32 POLITICAL ECONOMY. 
 
 volved in getting out a ton of either. Xow, pig-iron is a 
 product of iron and coal, treated by labor, aided by capital, 
 in a way which we shall hereafter be called to note. A 
 large increase in the cost of coal and iron ore will cause a 
 large increase in the cost of pig-iron. That increase, how- 
 ever, will not be so large, proportionally, in the latter as in 
 the former case. The cost of the ore and coal required to 
 make a ton of pig-iron may have been enhanced from |6 to 
 $7 ; but, if the manufacturer of pig-iron can now sell his 
 product for $13, instead of 112, as before, he will make 
 himself good for the additional dollar which the coal and 
 the iron ore have cost. In this case, the increase in the 
 cost of the coal and the iron ore, due to the principle of 
 diminishing returns, has been one-sixth ; while, in the case 
 of pig-iron, it has been only one-twelfth. 
 
 33. Apply More Labor Still. — Again, wrought-iron, in a 
 great variety of forms and for many uses, is a product of 
 pig-iron and coal, treated by human labor, aided by capital, 
 as before. A ton of pig-iron, worth $13, might be worked 
 up into hardware of many kinds, a part being worth 30 
 dollars a ton ; other portions, 50, 75 and 100 dollars ; other 
 portions still, to which more labor and capital had been ap- 
 plied, 200 or 300 dollars ; other portions still, i.e. fine cut- 
 lery, watch springs and surgical and philosophical instru- 
 ments, being worth 500 or 1000 dollars a ton. Now> the 
 reader will observe that, all through this process, it is only 
 the increased cost of the original coal and iron ore, and of 
 the small additional amount of coal or charcoal, for the 
 shaping, welding or tempering heat required, which is due 
 to the principle of diminishing returns. The same cause 
 which would double the cost of pig-iron, might increase the 
 cost of knives and watch-springs very slightly. 
 
 Again, if it became necessary to cultivate poorer fields, or 
 to raise larger crops from the same fields, in order to supply 
 
POLITICAL ECONOMY. S3 
 
 the community with cotton, and the price of cotton were 
 thereby increased from ten cents to twelve, a pound, this 
 would have a great effect upon the cost of coarse cotton 
 cloth, but a comparatively small effect upon the finer pro- 
 ducts, such as thread and lace. If the price of lumber 
 were to be doubled by the necessity of going to distant 
 forests, or by the necessity of resorting to smaller trees, 
 the larger ones having been cut away, this would have an 
 immense effect upon the cost of a rough shed ; a smaller 
 effect upon the cost of a neat cottage, where the boards 
 should be planed and matched and fitted nicely ; a much 
 smaller effect upon the cost of an elegant mansion, where a 
 great deal of labor is expended in carving and turning and 
 polishing the material. 
 
CHAPTER VI. 
 LABOR. 
 
 34. Labor, as an Agent of Production — It was said that 
 the three primary agents of production are land, labor and 
 capital. We have now spoken, so far as is at present neces- 
 sary, of land. ' Let us next speak of labor. 
 
 This term is applied to the efforts and sacrifices of human 
 beings directed towards the production of wealth, i.e., the 
 creation of values. Mere muscular exertion is not labor, in 
 the sense of the political economist, since the muscular 
 power of dumb animals belongs to capital. It is even a 
 question whether the work of slaves should be treated as 
 labor, in the economic sense. Some writers have insisted, not 
 without reason, that, so long as human beings are bred and 
 reared in servitude, made to work without their own con- 
 sent, and not allowed to receive the reward of their own ex- 
 ertions, whatever they do in the production of wealth comes 
 under the law of capital, as we shall hereafter see it. The 
 question is one which is not important to discuss. 
 
 Not even all the muscular exertions of free human beings 
 belong under the head of labor. As severe efforts are often 
 put forth in sport or play or for the admiration of bystanders, 
 as for the production of wealth. The sacrifices to which a 
 boat's crew of young men submit, the exertions which they 
 make during months of training, as well as the tremendous 
 physical struggle to which these lead, are not labor, in the 
 economic sense. On the other hand, the work of the pro- 
 fessional ball-team, whether in practice or in their occa- 
 
 34 
 
POLITICAL ECONOMY. 35 
 
 sional contests, is labor, in the full economic sense, because 
 it is directed towards the creation of values. Those sacri- 
 fices are submitted to, those exertions made, in order to draw 
 to their games hundreds or thousands of spectators, each of 
 whom pays his shilling, or hiB two shillings, for the pleasure 
 of seeing an exhibition of high skill and great physical 
 force. 
 
 35. "What Does " a Day's Labor " Mean?— AVe have, in the 
 last chapter, spoken of the application to land of certain 
 " amounts of labor " for the production of wealth. It is, 
 however, difficult to apply a universal measure to the 
 quantity of labor made use of in any given case. When we 
 speak of a " horse-power," we mean the force necessary to 
 raise 33,000 pounds one foot upward into the air in one 
 minute of time ; and, inasmuch as the downward attrac- 
 tion of gravity is substantially the same on all parts of 
 the surface of the earth inhabited by man, a " horse-power " 
 means the same thing, the world over. But a day's labor * 
 means a very different thing in one of the Pacific Islands 
 from what it does in Bengal. It means a very different 
 thing still, in Russia. It means a very different thing in 
 Russia from what it does in England. 
 
 There is, then, no absohite, single measure by which we 
 can determine and express " amounts of labor." But we can 
 bring into comparison men of the same country, men even 
 of different countries, under conditions, as to land and as 
 to tools and machines, nearly enough alike to enable us to 
 say that very wide differences, as to labor-pow^r, exist 
 between individuals of the same country, and between the 
 men of one country, taken as a whole, and the men of 
 
 * In his history of England, Lord Mahon [Earl Stanhope] states 
 that an English woodsawyer would do as much work in one day as 
 thirty-two Bengalees, at the same business, under precisely the same 
 circumstances. 
 
86 POLITICAL ECONOMY. 
 
 other countries. These differences let us now try to ex- 
 plain. 
 
 Causes of Differe:n"ces i:n" Industrial Efficien-cy. 
 
 These causes are very numerous ; but the chief may be 
 mentioned as follows : 
 
 36. (I) Differences in Inherited Health and Strength. — 
 No matter how it came about, whether as the result of the 
 influences of climate, or as the result of other causes work- 
 ing in the past, it is true that the men living, at any given 
 time, in one country were born with a greater capacity for 
 exertion than those of another country. Even if supplied 
 during infancy and childhood with the same food, and 
 brought up in every respect under similar conditions, the 
 men of the former country would, at 15 or 25 or 40 years 
 of age, have a greater lifting or pulling strength, and would 
 be capable of far more prolonged exertion, than the men of 
 the other country. In every community there is a certain 
 capability of labor inherited from the past ; and that in- 
 heritance varies widely in different countries and in differ- 
 ent races. In this respect compare the South Sea Islander 
 or the Bengalee with the Englishman or the Irishman. 
 
 37. (II) Food. — Between individuals of the same nation 
 and the men of different nations, who have inherited the 
 same capability of labor, great differences as to labor-power 
 would be caused by differences in the food-supply, both 
 during the period of youth and growth, and during the 
 period of active exertion. Take three men of the same 
 natural powers, and feed one of them on the small amounts 
 of rice which make up the diet of an East Indian; the 
 second on the scanty supply of potatoes and buttermilk 
 which is all the Irish peasant at home can hope to receive; 
 the third on the great variety of vegetable and animal food 
 
POLITICAL ECONOMY. 37 
 
 which makes up the subsistence of a North American far- 
 mer, and you will have widely different results, in the three 
 cases, as to the capability of severe and sustained exertions. 
 To a very great extent, what a working man can do, in a 
 given time, depends upon the quantity and the quality of 
 food he has to eat. To neglect this consideration, in speak- 
 ing of the labor of different countries, and often of different 
 classes in the same country, is to make a great blunder. 
 
 38. Food is the Fuel of the Human Engine. — The food 
 which is supplied to the laborer, to enable him to work, 
 bears much the same relation to his efficiency, or work- 
 power, as the fuel put into the furnace, beneath the boiler, 
 bears to the efficiency of the engine. The stomach is, in a 
 high sense, the furnace of the human machine. It is there 
 all the power is generated which is to move the limbs in 
 severe and protracted exertions for the production of 
 wealth, just as the engine derives all the power it has to 
 drive the wheels, which move the machinery of the mill, 
 from the combustion of fuel in the furnace. Up to a cer- 
 tain point, the more fuel is fed to a furnace, the more 
 steam power is created. Likewise, up to a certain point, 
 the more food is given the laborer, the more labor power is 
 developed. 
 
 Not only is it true that, up to a certain point, labor power 
 increases with the increase of food ; but labor power in- 
 creases at a more rapid rate than does the food itself. It is 
 the same with the fuel in the furnace. If we suppose that 
 a furnace, of a certain size and pattern, required, for its 
 best working, 100 pounds of coal, it would by no means 
 follow that 60 pounds would do half as much work ; it 
 might do only one-third as much, or one-quarter as much. 
 This, clearly, would be an uneconomical use of the machin- 
 ery. If, again, the supply of coal were to be reduced to 
 25 pounds, the engine might not do enough work to make 
 
38 POLITICAL ECONOMY. 
 
 it worth while to use it at all. This would be a very un- 
 economical use of the machinery. If we suppose the 
 amount of solid food, of a certain standard, which was re- 
 quired to keep an able-bodied man in condition to do his 
 best work, was 250 oz. a week, it would not be true that 
 with 200 oz. he would do four-fifths as much ; with 150 oz., 
 three-fifths as much ; with 100 oz., two-fifths as much. On 
 the contrary, the first hundred ounces might only suffice 
 to keep him alive, doing no work at all. The next 25 
 oz. might enable him to crawl feebly about, working with 
 little energy and through short periods of time. With 150 
 oz., he might easily do twice as much work as with 125 
 oz. ; with 200 oz. twice as much as with 150. 
 
 Hence it will appear that it is a very uneconomical use of 
 food to give it in such small amounts as 100 or 125 or 150 
 oz. per week. Every additional ounce of food, up to a 
 certain point, creates more work power than any of the 
 ounces which preceded. 
 
 39. Is there any Limit?— There is, of course, a limit to 
 the increase of labor power through increase of food. 
 After a certain point, the advantage resulting from a more 
 liberal supply might be small ; at a still further point, it 
 might cease to be an advantage at all ; a little later, the 
 point might be reached where a still further increase of 
 food might be positively deleterious, leading to physiologi- 
 cal obstruction and disease. These successive points change 
 according to the constitution and habits of individuals, 
 according to climate, according to occupation, according to 
 circumstances innumerable. But for each person, there is, 
 at any time, an economic maximum of food, the consump- 
 tion of which will, in his case, yield the largest amount of 
 working power, for each unit of food. If more food be 
 taken into the system, there may be a still further creation 
 of laboring power; but the gain will be less than pro- 
 
POLITICAL ECONOMY. 39 
 
 portional. If less than this economic maximum of food 
 be given, the amount of working power developed will not 
 only be less, but less for each unit of food. As the supply 
 is reduced, this loss of labor-force goes on at a ratio which 
 is much more rapid than the ratio of the reduction of food. 
 When a certain point has been reached, the amount of 
 labor power generated by each unit of food is so small, 
 that, speaking only with reference to the production of 
 wealth, we may say that the food so given is wasted. Were 
 it not human beings but dumb animals that were concerned, 
 no one would hesitate to say that it would be more profit- 
 able to kill them than to feed them so low. 
 
 40. How Laborers are Underfed in the Old Countries. — 
 It is very difficult for an American, brought up in the 
 midst of plenty, in a land where the point of diminishing 
 returns has not been reached, to realize how mean and poor 
 is the subsistence of a great part of the inhabitants of the 
 world. Except in a few favored countries, nearly all of 
 them, like our own, '' new countries," and except among 
 the most favored classes in a few other countries, the 
 laborers of the world receive far less than the economic 
 maximum of food. In some countries, the amount of food 
 going to the average laborer is so small as to fairly reach the 
 point indicated by the last sentence of the preceding para- 
 graph. As a matter of self-interest, it would not pay to 
 keep horses and cattle at all, unless they were to be better 
 fed than are hundreds of millions of our fellow-creatures. 
 
 The miserably inadequate diet of the people of China 
 and India, keeping them all the time on the very verge of 
 famine, is so familiar, from common report, as not to re- 
 quire to be dwelt upon here. I will quote a few facts from 
 official reports or from the writings of well-known econo- 
 mists, regarding the food of the working classes in some of 
 the more favored countries of Europe. 
 
40 POLITICAL ECONOMY. 
 
 Of the industrial classes of France, Lord Brabazon wrote, 
 in 1872 : '* Many a French factory hand has never anything 
 better for his breakfast than a large slice of common sour 
 bread, rubbed over with an onion so as to give it flavor." At 
 about the same time, Mr. Locock wrote, from the Nether- 
 lands : '^ Meat is rarely tasted by the working classes in 
 Holland. It forms no part of the bill of fare, either for 
 the man or his family." From Belgium Mr. Pakenham 
 wrote: '* Very many have for their entire subsistence but 
 potatoes with a little grease, brown or black bread, often 
 bad, and for their drink a tincture of chiccory." Now, 
 France, Holland and Belgium are not among the worst but 
 among the best countries of Europe, industrially speaking, 
 n we cross over the Channel to England, which is the 
 richest country of Europe, we find, even there, that a large 
 portion of the laboring class are kept below the economic 
 limit of subsistence. ''In the west of England," wrote 
 Prof. Fawcett, about 1864, ''it is impossible for an agri- 
 cultural laborer to eat meat more than once a week." * Of 
 the peasants of Devonshire, Canon Girdlestone wrote, a little 
 later: "The laborer breakfasts on tea-kettle broth — hot 
 water poured on bread and flavored with onion — dines on 
 bread and hard cheese at twopence a pound, with cider 
 very washy and sour ; and sups on potatoes or cabbage 
 greased with a tiny bit of fat bacon. He seldom more than 
 sees or smells butcher's meat." 
 
 Bad as the state of things was when Prof. Fawcett and 
 Canon Girdlestone wrote, it had been even worse in the 
 
 * And yet Prof. Fawcett could Avrite that " it is physically im- 
 possible that any permanent rise in wages should take place without 
 corresponding diminution of profits." If there were any physical 
 impossibility in the case, it would seem to be the impossibility that 
 such wretched peasants could be better fed without adding to the 
 profits of their employers. 
 
POLITICAL ECONOMY. 41 
 
 preceding generation. The poor law commissioners of 1833 
 reported, that at that time, while the British soldier was 
 receiving 168 oz. of food, per week, according to a certain 
 standard, and even the public pauper was receiving 151 
 oz., the agricultural laborer received but 122 oz. Now, it 
 goes without saying that, when the laborer, toiling from 
 morning to night in the field, receives a smaller amount of 
 nourishment than the sense of public decency will allow to 
 be given to paupers, the laborer is underfed, in the sense 
 that he will and must underwork. 
 
 The reader will naturally ask why, if laborers receiving 
 more food would do more and better work, employers do 
 not furnish more ample subsistence. This important ques- 
 tion can only be answered when we reach the chapters on 
 distribution. 
 
 41. (Ill) Sanitary Conditions. — In order to secure the 
 laborer's greatest efficiency, it is not only necessary that he 
 should have an abundance of good food, but that there 
 should be an ample supply of fresh air. After the food, 
 which has been taken into the stomach, has been digested 
 and turned into blood, that blood must pass into the lungs 
 and be there purified. Carbonic acid is to be thrown off, 
 and oxygen taken in from the air. But if the oxygen has 
 been used up and the air is already loaded with carbonic 
 acid, that purification cannot take place. The human 
 being, so situated, becomes heavy and dull, his blood be- 
 comes foul, and the tissues tend to corruption. In such a 
 case, a large amount of food taken into the system may 
 even become a source of weakness and ill-health. 
 
 Moreover, in close and unventilated rooms are likely to 
 be found the germs of active diseases which shorten life or 
 permanently impair physical activity. So great is the effect 
 of this cause that we have here the explanation of no small 
 part of the differences of working force which are found 
 
42 POLITICAL ECONOMY. 
 
 among the laborers in different countries. The first great 
 prison reformer, John Howard, shocked the world with the 
 revelations which he made of the way in which the convict 
 classes were housed ; yet Mr. Edwin Chadwick could say, in 
 1842: ''More filth, worse physical suffering and moral dis- 
 order than Howard describes as affecting the prisoners, are 
 to be found among the cellar population of the working 
 people of Liverpool, Manchester and Leeds, and in large 
 portions of the metropolis/' 
 
 Even the agricultural population was not much better 
 provided for. The following is a description given by the 
 poor law commissioners, of the cottages of the county of 
 Durham: ''The chimneys have lost half their original 
 height, and lean on the roof with fearful gravitation. The 
 rafters are evidently rotten and displaced, and the thatch, 
 yawning to admit the wind and wet in some parts, and in 
 all parts utterly unfit for its original purpose of giving pro- 
 tection from the weather, looks more like the top of a 
 dunghill than a cottage. Such is the exterior ; and when 
 the hind comes to take possession, he finds it no better 
 than a shed. The wet, if it happens to rain, is making a 
 puddle on the earth fioor. . . . They have no byre for 
 their cows, nor sties for their pigs ; no pumps or wells ; 
 nothing to promote cleanliness or comfort. The average 
 size of these sheds is about 24 by 16. They are dark and 
 unwholesome ; the windows do not open, and many of them 
 are not larger than 20 inches by 16 ; and into this place are 
 crowded 8, 10, or even 12 persons.'' 
 
 In Scotland the case was scarcely better. Sir James 
 Caird stated, that, in 1861, one-third of the people lived in 
 houses of one room only ; another third, in houses of two 
 rooms only. Prof. Gardiner, writing of Glasgow, said: 
 "Out of a population of 85,000 householders, 30,000 or 
 35,000 belonged to a class who a-re most dangerous in a 
 
POLITICAL ECONOMY. 43 
 
 sanitary point of view." The dwellings of Ireland were 
 even worse. Mr. Inglis thus describes the city homes of 
 1834: '^Hovels, cellars, mere dark dens: damp, filthy, un- 
 wholesome places, into which we should not, in England, 
 put any domestic animal." 
 
 If it is in homes such as have been described, that chil- 
 dren grow to maturity and get the size and strength which 
 are to determine their quality as workers, what wonder that 
 they become stunted, weazen and deformed! If it is in 
 homes like these that laboring men have to seek repose and 
 refreshment, after the day's work ; that they breathe the 
 air which is to oxidize their blood, and eat and digest the 
 food on which to-morrow's work is to be done, what won- 
 der that the blood of manhood becomes foul and lethargic, 
 the nerves unstrung, the sight weakened or distorted, the 
 whole tone of life and of labor depressed ! 
 
 42. (IV) Intelligence. — The three causes we have thus 
 far adduced, are physical, affecting the muscular power and 
 endurance of the laborer. The cause now mentioned is 
 mental. It is the laborer's intelligence which enables him 
 to apply his bodily force to his work, not only with effect, 
 but with the greatest effect. How great a factor in in- 
 dustrial efficiency the general intelligence of the laborer 
 may be, is only seen when we consider the several elements 
 which make up that efficiency. 
 
 {a) The intelligent laborer requires a much shorter ap- 
 prenticeship ; less of technical instruction. It is said that 
 the recruits in the British army who can read and write 
 learn their drill in one half the time taken by recruits who 
 cannot read and write. 
 
 {h) The intelligent laborer requires far less superintend- 
 ence. Superintendence is always costly. If an overseer is 
 required for every ten men engaged on a piece of work, the 
 product must pay for the time not of ten men, but of 
 
44 POLITICAL ECONOMY. 
 
 eleven. If the overseer, as is most likely, gets twice the 
 wages of a common laborer, then the product must pay for 
 the time and labor of twelve men. The employer could 
 just as well afford to pay his men 20 per cent, more, could 
 he dispense with the overseer. 
 
 {c) The intelligent laborer is far less wasteful of mate- 
 rial. No product can be obtained by labor, even in agri- 
 culture, without the sacrifice of pre-existing wealth. Would 
 you raise a crop of wheat ? a bushel must be sown for every 
 six or eight bushels to be reaped ; and with it, perhaps, 
 large quantities of costly manures. In mechanical indus- 
 tries, the value of materials used in manufacture is often as 
 great as the amount of wages paid. Frequently the value 
 of materials consumed is greater, sometimes much greater, 
 than the amount paid in wages: in some cases, twice as 
 much, in others, five times as much. If, then, an unin- 
 telligent laborer is going to waste, or spoil, or in any degree 
 injure, the materials given him, he will soon do more harm 
 than his labor is worth. 
 
 {d) The intelligent laborer can use delicate and intricate 
 machinery to advantage, and he alone can. In most coun- 
 tries no machines are used in agriculture, but only the 
 simplest and coarsest of hand tools. This is not, mainly, 
 because the people are too poor to have machines, but be- 
 cause they are too ignorant to use them. Were the best 
 peasant out of twenty to be given a mowing machine, or a 
 reaper, he would bring it so quickly to wreck and ruin as 
 to offset the value of his whole summer's work. The 
 United States is, indeed, the only large country in which 
 the ordinary agricultural laborer can be trusted with com- 
 plicated machinery. 
 
 In manufactures, the difference wrought by intelligence 
 or want of intelligence on the part of the working classes is 
 even greater. In some parts of Eastern Europe, even the 
 
POLITICAL ECONOMY. 45 
 
 primary " mechanical powers " are not made use of. If the 
 inhabitants wish to lift a weight, they do it by main force, 
 instead of using the pulley, the windlass or the inclined 
 plane. As to the complicated and expensive machines em- 
 ployed in factories, the ordinary European peasant has no 
 fitness whatever for dealing with them. 
 
 43. (V) Cheerfulness and Hopefulness in Labor. — The 
 cause now adduced is moral, affecting the will, which con- 
 trols alike the physical and the mental powers of the la- 
 borer. Since severe and sustained exertions are naturally 
 irksome,* cheerfulness and hopefulness in labor must grow 
 out of the self-respect and social ambition of the laborer 
 and his personal interest in the result of his work. It is 
 here, that is, in the moral elements of industry, that we 
 find the most potent cause of differences in efficiency. 
 Cheerfulness and hopefulness in the laborer become the 
 spring of exertions, in comparison with which the brute 
 strength of the slave is but weakness. Chattel labor is 
 always and everywhere ineffective and wasteful, because it 
 has not its reward. As Adam Smith said, a person who 
 can acquire no property, and does not even own himself, 
 can have no other interest than to eat as much and work as 
 little as possible. No matter how complete the power of 
 the master over the person and over the life, he cannot 
 command all the faculties of his slave. The slave may be 
 made to work, but he cannot be made to think ; he may be 
 made to work, but he cannot be kept from waste ; to work, 
 indeed, but not with energy. 
 
 * Yet in this respect the races of men differ widely. It is one of 
 the fruits of culture that the operation of the mental and physical 
 powers becomes, every generation, less and less irksome, until, with 
 the men of the best brain endowment, effort becomes actually pleas- 
 urable. But, for the vast majority of mankind, iu their present 
 stage of development, the statement in the text needs but slight 
 qualifications. 
 
46 POLITICAL ECONOMY. 
 
 Energy is uot to be called forth by threats and blows, 
 but by hope, ambition and aspiration. The whip cannot 
 reach the parts of the man where lie the real springs of 
 action. The slave cannot, if he would, work as if he were a 
 freeman. The nervous force is only in a small degree under 
 the control of the conscious will. It is only when some 
 passion of the higher nature, love, gratitude or hope, is 
 awakened, that a man can render his best service. 
 
 44. Unprofitableness of Slave Labor. — Had it not been 
 for the impotence of the lash, the nations would have risen 
 far more slowly from the almost universal condition of 
 slavery. The slave has always been able to make it for his 
 master^s interest to sell him freedom. He could always 
 afford to pay more than any one else could make out of him. 
 Hence, the former slave-states of the American union, 
 building their political and social institutions upon slavery, 
 as the corner-stone, had to forbid or restrict the exercise of 
 manumission. Even with the little the black could appre- 
 hend of the privileges of freedom, even with his feeble hopes 
 and aspirations, condemned by his color to social exclusion, 
 he could always buy himself, if allowed to do so. This un- 
 profitableness of slave or bond labor, it was, which prepared 
 the way for those great changes which transformed whole 
 populations of slaves or serfs into nations of freemen. 
 
 Among free laborers, great differences in industrial effi- 
 ciency are found to exist, according as the reward of labor 
 is near and certain, or distant and doubtful. It is in the 
 case of the proprietor of land, under just and equal laws, 
 that the incentives to industry are found most acute. He 
 knows that every stroke of his arm is creating value, which 
 he, himself, and his children after him*, will enjoy to the 
 full. Neither bell nor whip is needed to drive him afield. 
 He goes gladly to his work, at the first flush of morning ; 
 and the setting of the sun finds him still hoeing the corn. 
 
POLITICAL ECONOMY. 47 
 
 or tying up the vines, or tinkering the sheds, or caring for 
 the cattle. Long as is his work-day, he is not worn out at 
 the close. The waste of muscular force is, in such labor, at 
 its minimum. Nervous exhaustion comes late and cOmes 
 slowly to him who sees his reward manifestly growing 
 under his hands. 
 
 It is not alone active exertion which is called out by the 
 proprietorship of land. Of even more consequence is the 
 care which is taken to prevent injury and waste ; to keep 
 tools and implements in order ; to save the growing vines 
 and plants from their thousand enemies ; to keep the live 
 stock at their best ; to store and house the gathered crops. 
 
 45. Industry and Frugality Awakened by Ownership. — 
 The familiar examples of industry and frugality, are those 
 afforded by the peasants of France, Holland and Switzer- 
 land, in the cultivation and care of their little estates. A 
 hundred years ago an eminent traveller, Arthur Young, 
 wrote, of a certain district in France : '^ An activity has 
 been here that has swept away all difficulties before it and 
 has clothed the very rocks with verdure. It would be a 
 disgrace to common sense to ask the cause : the enjoyment 
 of property must have done it. Give a man the secure 
 possession of a bleak rock and he will turn it into a garden : 
 give him a nine years' lease of a garden, and he will turn it 
 into a desert." Many of the vineyards which greet the eye 
 of the traveller, along the Rhine, have for their entire soil 
 earth which has been carried, in baskets, up the mountain 
 side by the laborious peasantry. '' When I used to open 
 my casement," wrote Mr. Inglis of his stay in Zurich, '^be- 
 tween four and five in the morning, to look out on the lake 
 and the distant Alps, I saw the laborer in the fields; and 
 when I returned from an evening walk, long after sunset, 
 there was the laborer, mowing his grass or tymg up his 
 
48 ■ POLITICAL ECONOMY. 
 
 I said that it was the proprietor of land, under just and 
 equal laws, who exhibited, in the highest degree, industry 
 and care for the preservation of wealth. We have two very 
 striking examples of the impairment of these qualities by 
 unfair conditions or laws. It would certainly make any 
 one laugh, to-day, to hear the Scotch people spoken of as 
 indolent. Their energy and activity has been shown in all 
 the corners of the earth ; yet, a hundred and thirty or forty 
 years ago, '^the lazy Scotch " were a proverb throughout 
 Europe for negligence and indolence. This was because of 
 the system of short leases, then almost universal in Scot- 
 land, which robbed the laborer of a greater part of the 
 proper fruit of his exertions. A single act of wise legisla- 
 tion, providing for long and secure leases, changed all this, 
 and brought out the real energy and spirit which are innate 
 in the Scottish character. 
 
 Only half as long ago, the Irish were known, in their own 
 country, as hopelessly lazy. This was universally believed 
 to be a part of their character. It was, in fact, the creation 
 of unjust laws and a bad system of land tenure. When the 
 Irish, emigrating under the pressure of famine, found 
 themselves upon new lands, under strange suns, having an 
 equal chance with others, they soon showed themselves the 
 equals of any in hard and patient labor. 
 
 46. The Hireling. — We have thus far been speaking of 
 men working for themselves, and entitled to receive all the 
 fruits of their labor. Whenever men take the position of 
 hired laborers, working for wages, some part of this hope- 
 fulness and cheerfulness in labor, which we have seen to be 
 the fruitful source of strenuous exertions, is, by the very 
 nature of the case, lost. If a man working at wages, for 
 another, does not put into his work all the energy he would 
 if working for himself, if he fails to exercise all the care of 
 tools, implements, materials and product which he would 
 
POLITICAL ECONOMY. 49 
 
 were they his own, this is not wholly a matter of blame. 
 We have already seen that not all the springs of activity are 
 under the control of the conscious will ; and it is scarcely 
 possible for any man, no matter how sincere his intentions, 
 to do all for another which he would for himself. At 
 the same time, it must be said that there is a great dif- 
 ference among individuals of the same community, and 
 also among the men of different nations and races, in re- 
 gard to the capability of doing the work of others, as if it 
 were one's own. There are men, there are even nations, 
 that have this capability in a high degree 
 
 It need not be said that tliese are the nobler nations ; 
 and that the spirit of fidelity and devotion to duty, thus 
 carried into hired labor, has also its political reward, mak- 
 ing these nations more strong and peaceful at home and 
 more powerful abroad, than those which have a lower 
 capability, in the direction of which we have been speak- 
 ing. 
 
CHAPTER VII. 
 
 LABOR CONTINUED— THE ORGANIZATION OF 
 INDUSTRY. 
 
 47. The Division of Labor. — We have thus far spoken of 
 the causes which produce differences in working force, or 
 labor power, among individuals. We are now to consider 
 certain causes which give to large bodies of laborers, whether 
 individually weak or individually strong, a greatly increased 
 power of production. These may be embraced under the 
 title, organization of industry, though that term is not 
 altogether satisfactory. Let us first speak of what is called 
 the Division of Labor. 
 
 In a very primitive condition of industrial society, each 
 man does, as a rule, what every other man does. The 
 community is, indeed, divided on the line of sex, the 
 women taking up certain duties which are considered more 
 suitable to their strength and intelligence ; but the men are 
 all herdsmen, or all hunters, or all fishermen, or all tillers 
 of the soil, according to the circumstances in which the 
 tribe is placed. Each man's work is like every other man's, 
 except so far as natural strength, skill, and courage enter 
 to make distinction. After a while, however, in such a 
 community appears the smith, under one name or another, 
 cunning to make or repair the implements of the chase or 
 of husbandry ; to build boats, or to cover-over the humble 
 dwellings of the tribe. The smith, by virtue of his skill, 
 fares better than all the others, except the chiefs, yet the 
 hunters or herdsmen or fishermen have more left to them- 
 
POLITICAL ECONOMY. 51 
 
 selves, after paying for the smith's work, than they had 
 when they tried to do smith's work for themselves and did 
 it very poorly. As the tribe grows in numbers and in 
 knowledge, more and more smiths appear ; and these 
 come, in time, to be divided into classes, such as the 
 blacksmith, working upon metals ; the carpenter, working 
 upon wood, and the mason, working upon stone or brick. 
 As wealth increases and the wants of the community be- 
 come varied, a great number of occupations come to be 
 recognized, until the members of a community are called by 
 a hundred different names, to describe their ways of con- 
 tributing, individually, to the production of wealth. 
 
 48. Advantages of the Division of Labor. — The advan- 
 tages of the division of labor are many. The most impor- 
 tant may be indicated as follows. 
 
 {a) The division of labor not only develops dexterity in 
 general but it gives technical skill. In a primitive com- 
 munity, where each man, by turns, does a great variety of 
 work, there is, commonly, little nicety of touch, agility of 
 movement or accuracy of vision. To use a familiar phrase, 
 it may be said of a member of such a community that his 
 '^ fingers are all thumbs ;" and that his senses are not sub- 
 tle. It is, generally speaking, only when arts and trades 
 become developed and are carried to a high point of per- 
 fection, that the qualities indicated become the common 
 property of the community. 
 
 Not only do a people, among whom the division of labor 
 has proceeded far, come to possess this general dexterity ; 
 but each person acquires a high degree of technical skill by 
 applying himself, day by day and year by year, to his single 
 avocation. Adam Smith stated, that, in his day, a good 
 blacksmith, who had, however, practised but little in mak- 
 ing wrought nails, could, by giving his whole day to the 
 work, make, perhaps, two or three hundred nails, of a 
 
52 POLITICAL ECONOMY. 
 
 rather poor quality. A blacksmith who frequently made 
 nails, but without having this for his sole or principal busi- 
 ness, could perhaps make eight hundred fairly good nails 
 in a day. But a man who gave himself wholly to making 
 nails could turn off twenty-three hundred in a day, all of 
 the best finish. 
 
 {b) The division of labor saves much time in apprentice- 
 ship. A man who had to perform a great variety of duties 
 would never become a really skilled workman, but would 
 die before he had learned any one of these well. Even 
 after the division of labor had appeared and been carried 
 far, it still required a great deal of time to thoroughly learn 
 one trade. Seven years used to be the period of appren- 
 ticeship. When, however, owing to the still greater mul- 
 tiplication of arts and the still greater introduction of 
 machinery, one of these former trades becomes broken up 
 into half a dozen or more, the time required to fit a person 
 to do his work in life is greatly reduced. It does not take 
 nearly one-fourth as much time to learn to do one thing 
 well as to do four things well. Indeed, many people could 
 never learn to do four things well, who will yet learn to do 
 one thing very well. 
 
 (c) The division of labor saves time that would otherwise 
 be occupied in passing from one kind of work to another, 
 and in laying down and in taking up the tools of different 
 trades. This is a consideration, sometimes of great im- 
 portance, sometimes of little importance. 
 
 {(1) The division of labor promotes improvements and 
 discoveries. Many a man, who, if he had been occupied 
 in passing through a long succession of varied duties, would 
 never have made any discovery or invention, has, by being 
 shut up to one single kind of work, and having his attention 
 concentrated upon that alone, come, in time, to devise the 
 means of doing rapidly and easily that which before had 
 
POLITICAL ECONOMY. 63 
 
 been done slowly and painfully. It is true that many of 
 the greatest inventions have been due to those who were 
 not personally engaged in doing the work to which their 
 new machines were intended to apply; but on the other 
 hand, there has been an incalculable number of inventions 
 which have been the result of confining one ingenious 
 mind to a single difficult problem. 
 
 It is worth while to notice here, that, while the division 
 of labor greatly promotes invention, it sometimes happens 
 that, after this has been going on for a long while, inven- 
 tion comes in to change the course of things and actually 
 to diminish the division of labor. Thus, when Adam 
 Smith wrote, there were eighteen different operations in- 
 volved in the making of a common pin ; and this extensive 
 division of labor undoubtedly contributed to the steady 
 improvement of tools and implements used by these differ- 
 ent operatives. Sixty or seventy years later, some ingenious 
 person invented a pin-making machine, by which the wire 
 was drawn out, cut off, sharpened, headed, and all the 
 successive processes of manufacture, down to sticking the 
 pins into the paper, were performed upon the simple con- 
 dition of moving a wheel. 
 
 {e) More important, perhaps, than any of the preceding, 
 is the consideration that the division of labor permits the 
 adaptation of physical powers and personal qualities 
 throughout a great variety of work, and gives to almost 
 every man, woman, or child a place in the industrial order. 
 In a thousand industries of the present time, there is some 
 part which a feeble or crippled person can perform : some- 
 thing which such a person can do just as well as the larg- 
 est and strongest. In primitive states of society, the prac- 
 tice was often resorted to of exposing sickly or deformed 
 children, while infants, to be devoured by wild beasts, or to 
 die of hunger or cold. This seems horrible enough ; yet 
 
54 POLITICAL ECONOMY. 
 
 it is fairly a question whether there was not as much kind- 
 ness as cruelty in it, when it is cousidered that to these 
 unfortunates life only could have been protracted misery, 
 since society had then no place in which they could work 
 and earn their bread. 
 
 Secondary Advantages of the Division of Labor. 
 
 Such are some of the primary advantages of the division 
 of labor. There are others which are, by one stage, 
 more remote, but not less real or perhaps less important. 
 Some of these may be indicated as follows : 
 
 49. (I) Competition. — Where each one of a number of 
 persons is every day performing a variety of miscellaneous 
 duties, now a little of this and then a little of that, it is 
 difficult or impossible to measure the work done by the 
 several persons so employed : to say that this one has done 
 more, or less, than that one ; to assign credit or blame 
 according to real desert. It is, in such a case, moreover, 
 difficult or impossible to say how much of the day's labor 
 has gone to this piece of work or to that ; and it is, by con- 
 sequence, difficult or impossible to compare the labor-cost 
 of things so produced. But when work is so divided and 
 the parts so distributed that each man becomes charged 
 with a certain definite task, it is not only possible to make 
 comparisons between the amounts accomplished by different 
 workmen within the same trade, and to make comparison 
 between the labor-cost of different articles, but every one, 
 at once, naturally, begins to do so. Such comparisons are 
 made with ease and confidence ; and with comparison 
 enters competition. Every man compares himself with 
 his fellow ; every employer makes comparisons among his 
 ■vyorkmen, both as to the amount and as to the quality of 
 the work ; each producer looks carefully about, on every 
 
POLITICAL ECONOMY. 65 
 
 side, to see if there is not some article of equal value that 
 can be made at a smaller cost of labor. 
 
 50 (II) A Standard of Performance. — With the laborers 
 of a community distributed among different occupations, 
 according to their powers and qualifications, and with 
 such opportunities for comparison as we have just nov/ 
 shown to exist, there comes to be a standard for the per- 
 formance of work, in each separate art or trade. Some 
 mason, for instance, who is exceptionally true of eye and 
 hand, one day lays a better wall than he, himself, had ever 
 before done, more straight and even and firm. This im- 
 mediately becomes a standard for the future, not only to 
 him, but to every other mason in the neighborhood, and 
 also to all persons who employ masons. It having been 
 once seen that so good a wall can be made, all hereafter 
 desire that their walls shall be made not less perfectly. 
 After this standard has been reached by the craft, some 
 mason, some day, goes ahead of this and builds an even 
 better wall ; which, in turn, becomes the standard of fu- 
 ture work: and so the thing goes on. What men will do 
 depends very much on what they try to do; what they will 
 try to do depends very much on what they believe possible, 
 or upon examples which they have themselves seen of the 
 best work. 
 
 61. (Ill) Esprit de Corps. — With the formation of large 
 bodies of laborers, devoting themselves to certain arts and 
 trades, there soon arises a sort of public sentiment within 
 the craft, which demands of every member that he shall at 
 least approach the standard of performance which at the 
 time exists, and that he shall not, by his actions, throw dis- 
 credit on his fellow workmen. This public sentiment, 
 within the trade, often exerts more influence on many 
 workmen than competition alone would do. A great many, 
 who would care little about pleasing their employers, will 
 
56 POLITICAL ECONOMY. 
 
 do, or will forbear, a great deal in order to keep the respect 
 and goodwill of their fellows. 
 
 52. (IV) Industrial Environment. — By these somewhat 
 hard words, I mean to express the influence, in addition to 
 all that has been before spoken of, which is exerted upon 
 the laborers of a community, in general, by their being 
 placed in the midst of a great, powerful, and highly organ- 
 ized system of production. In such a community, the child 
 is brought into the world half an artisan. From his pa- 
 rents he has derived handiness, aptness, quickness, and fer- 
 tility of resource. Then, too, he becomes a better work- 
 man simply by being accustomed, through childhood, to 
 see tools used with address, and through watching the 
 alert movements, the prompt co-operation, the precise ma- 
 nipulation, of bodies of skilled workmen. The better part 
 of industrial, as of every other kind of education, is uncon- 
 sciously obtained. And when the boy goes himself to work, 
 he finds examples^ on every side, to imitate; if he encoun- 
 ters an obstacle, he has only to stop, or hardly even to stop, 
 to see some older hand deal with the same; if he needs 
 help, it is at his elbow; and, above all, he comes under 
 impulses and incitements to exertion, and to the exercise 
 of care and pains and ingenuity, which are as strong and 
 constant as the impulses and incitements which a recruit 
 experiences in a crack regiment, from the moment he dons 
 the uniform. 
 
 53. Is there an Offset to this ? — But, it may be asked, is 
 not this increase of production at the expense of health and 
 life ? Does it not mean that the laborer will be the sooner 
 and the more completely worn out? I answer, that, in 
 part, this may be so; but that in part, probably the great- 
 er part, it is not true. It is not necessarily true in any 
 degree. Two things are to be borne in mind. 
 
 {«) Mankind were made for labor, for patient, energetic 
 
POLITICAL ECONOMY. 57 
 
 labor. Keen, persistent activity is, up to a certain point, 
 not injurious. On the contrary, industry has its sanitary, 
 not less than its economic reward. Neither idling nor daw- 
 dling over work is beneficial to health. 
 
 (h) A little of disorderly work is often more trying than 
 a great deal of orderly work. Perhaps some one of my 
 readers will remember a day of travel which was peculiarly 
 tiresome. He may have been called up unnecessarily early, 
 and have been not a little worn out by the suspense of 
 waiting before it was time to start; then, at the last mo- 
 ment, it may have been discovered that something was 
 lacking. This involved a deal of hurrying to and fro, and 
 an anxious and excited search, followed by a sharp run to 
 the railroad station. Here it was learned that the train 
 was late, and the end of a half-hour of uneasy waiting and 
 moving about saw the traveller on his way, already pretty 
 well tired out. Further delay upon the track, by reason 
 of a ''hot-box," and a failure of connection at a railroad 
 junction, completed the misfortunes of the morning; and 
 the traveller arrived at his destination, after a really short 
 journey, more used-up than would have been involved in 
 making a well-ordered and fortunate trip of five times the 
 distance. In the same wa}^, the proper direction of indus- 
 try will enable laborers to accomplish much more, with 
 much less of nervous strain and muscular wear-and-tear. 
 There are some countries where, if you were to enter a fac- 
 tory, you would think a small riot was in progress. Every- 
 body seems excited and hurried, and there is a great deal 
 of shouting and running to and fro; yet, as a matter of 
 fact, the machinery is moving at a much slower rate than 
 is customary in an English factory, and the "output," 
 per hand, is scarcely one half as much. In an establish- 
 ment where each person has his place and perfectly knows 
 his duty; where work never chokes its channels and never 
 
58 POLITICAL ECONOMY. 
 
 runs low; where nothing comes out wrong end foremost; 
 where there is no fretting or chafing; where there are no 
 blunders or catastrophes ; where there is no clamor and no 
 fuss, a pace may be maintained which would soon kill out- 
 right the operatives of a noisy, ill-disciplined, badly-organ- 
 ized shop. 
 
 54. (V) Mastership in Industry. — When the division of 
 labor has been carried a great way, in any community, pro- 
 duction receives a tremendous impulse from the fact that 
 large bodies of labor and capital come under the control of 
 individuals who have exceptional ability for the conduct of 
 business. In a primitive state of society, the man of great 
 brain-power and will-power moves but a single pair of 
 hands. In an advanced industrial state, he may move a 
 thousand. If his choices as to what shall be done, how 
 it shall be done, when it shall be done, are judicious, there 
 cannot fail to be a vast gain in the amount of work done 
 and in the amount of waste saved. 
 
 The division of labor in its first stages does not require 
 the introduction of the master class. When the forms of 
 production are few, and the materials are simple; when 
 only hand-tools are used, and the artisan, working at his 
 bench, makes the whole of an article; when styles are 
 standard and the consumers of a product live close at hand, 
 the need of the employer is not greatly felt. Each artisan 
 may carry on his work, in his own little shop, and keep up 
 with the others. 
 
 But when the hand-loom gives place to the power-loom ; 
 when great numbers of persons, of all degrees of skill and 
 strength, are brought into the giant factory, each perform- 
 ing one simple operation, knowing perhaps nothing about 
 any other; when powerful and delicate machinery is intro- 
 duced; when costly materials have to be brought from the 
 four quarters of the globe, and the product is to be distrib- 
 
POLITICAL ECONOMY. 59 
 
 uted, by the agencies of commerce, throughout distant 
 lands, then the employer becomes not only a necessity of 
 the situation, but the master of the situation. If he have 
 the genius to plan, he can find a thousand helpers, each of 
 whom will do his own part perfectly, yet not one of whom 
 but would have been utterly helpless and amazed in the 
 face of the difficulties and dangers which only bring into 
 keener exercise the powers of the real man of aifairs. 
 
 65. Business Ability as the Fourth Grand Agent in Pro- 
 duction. — ^At the close of Chapter III, we spoke of three 
 great primary agents of production, viz.. Land, Labor, and 
 Capital; and. that statement suffices for a primitive society. 
 But when we undertake to account for either the pro- 
 duction or the distribution of wealth, upon the vast scale 
 of modern industry and trade, in all enlightened and pro- 
 gressive nations, it becomes necessary to introduce a fourth 
 agent of production, viz.. Business Ability; to admit a 
 fourth claimant in distribution, viz., the Employer. 
 
 By Business Ability in this connection, we mean ability 
 in more than the degree which is required to enable a sin- 
 gle laborer or artisan to direct his own production and 
 manage his own small affairs; in more, even, than the de- 
 gree which is required by the employer of labor in that 
 state of industry where the division of labor has proceeded 
 but a little way. 
 
 By Business Ability, as a distinct economic agent, we 
 mean the power, the capacity, the temper required to do 
 business, with at least moderate success, in those later 
 stages of industrial organization, when the division of labor 
 has proceeded far, when production takes place upon the 
 large scale, and with reference mainly to general, rather 
 than to local, markets. 
 
CHAPTEK VIII. 
 CAPITAL. 
 
 56. The First Canoe. — We have thus far spoken of land 
 and labor; we are now to speak of capital. 
 
 The capital of a community is that part of its wealth * 
 which is devoted to the production of wealth. 
 
 A very simple illustration will suffice to show the origin 
 and office of capital. 
 
 Let us take the case of a tribe dwelling along the shore 
 and living upon fish caught from the rocks jutting into 
 the sea. Summer and winter together, good seasons and 
 bad, they dei'ive from this source a scanty and preca-. 
 rious subsistence. When the fish are plentiful, the people 
 live freely, even gluttonously. When their luck is bad, they 
 submit to privations which involve suffering, sometimes 
 famine. Poor as this condition of life is, it is not likely to 
 grow any better. Unless some new force enters into the 
 life of the tribe, their children and grandchildren will be 
 found living just as meanly and precariously. 
 
 But let us suppose that one of these fishermen, moved 
 by a strong desire to better his own condition, undertakes 
 to lay-by a store of fish. Living as closely as will con- 
 sist with health and strength, he denies himself every in- 
 dulgence, even at the height of the season; and, so, by lit- 
 tle and little, accumulates in his hut a considerable store of 
 dried food. As the dull season approaches, he takes all he 
 
 * Excluding land and natural agents, considered as unimproved. 
 60 
 
POLITICAL ECONOMY. 61 
 
 can carry and goes up among the hills, where he finds trees 
 whose bark he detaches by sharp stones. Again and again 
 he returns to his work in the hills, while his neighbors, who 
 ate more freely than he during the fishing season, are pain- 
 fully striving to keep themselves alive. At the end of the 
 dull season, he brings down to the water a canoe, so light 
 that it can be borne upon his shoulders, so buoyant that in 
 it he can paddle out to the "banks," which lie two miles 
 or ten miles from shore, where in a day he can get as many 
 fish as he could catch from off the rocks in a week. 
 
 57. The Canoe-Builder. — The canoe is capital. Its 
 owner is a capitalist. He can now take his choice of three 
 things. (1) lie may go out in his boat and bring home 
 supplies of fish which will allow him to marry and rear 
 a family in comfort and security, while, with the surplus, 
 he hires some of his neighbors to build him a hut, their 
 women to weave him blankets and nets, their children to 
 bring water from the spring and to wait upon his family. 
 (2) He may let out the boat to some one who will be glad to 
 get the use of it by paying for it as much fish as one family 
 could possibly consume; and he may himself stay at home 
 in complete idleness, basking in the sun or on stormy days 
 seeking refuge in his comfortable hut. In other words, he 
 may thereafter " live upon his income." (3) He may let- 
 out the canoe, and himself turn to advantage the knowledge 
 and the experience acquired by its construction, in making 
 more canoes. 
 
 This last is what he is most likely to do. Again and 
 again he comes down from the hills to the shore, bringing 
 a new canoe, for which scores of fishermen clamorously 
 compete. And it is to be noted that the later boats are 
 made at a smaller cost of effort and sacrifice. He has found 
 out the groves where the trees are largest and the trunks 
 most clear of branches. He has acquired a knack which 
 
62 POLITICAL ECONOMT. 
 
 makes it almost a pleasure to strip-off vast rolls of tough, 
 elastic bark. He no longer spoils the half-completed work 
 by a clumsy movement or an ill-directed blow. Moreover, 
 his personal toil and pains are reduced to a minimum, 
 since, for a small part of the price of a canoe, he hires some 
 of his neighbors to carry his burdens and do the heavy 
 work. 
 
 58. The Increase of Canoes. — But soon the canoe-builder's 
 gains are threatened. Thus far, in the possession of ex- 
 ceptional skill and knowledge, he has been a monopolist, 
 and has reaped a monopolist's profits. Now, however, 
 stimulated by the sight of such great wealth (that is, so 
 great a command of other people's labor) acquired by one 
 man, others begin to enter the field. As an essential con- 
 dition, each must first save and accumulate enough food to 
 support him while making his first boat: that is, must 
 accumulate a certain amount of capital. This, however, is 
 much less difficult than it was in the case of the original 
 boat-builder (1) because fish have come, through the mul- 
 tiplication of boats, to be much more easily obtained; (2) 
 because, with good models before him, the new builder 
 has fewer experiments to make, and a far less ingenious 
 man can now make a fair boat ; (3) because certainty and 
 nearness of success will inspire the labors of ten men, where 
 one will be moved to exertion and sacrifice by a prospect 
 that is distant and doubtful. Moreover, some of the 
 shrewdest of the assistants of the old boat-builder, who 
 have watched him at his work and whom he has trusted, 
 more and more, to do even the nicer parts of the task, be- 
 gin to desert him and to set up for themselves. 
 
 With this increase in the number of builders, the rent of 
 boats falls rapidly and the profits of the business are 
 greatly reduced. The first boat repaid its cost in a few 
 weeks or even days. Indeed, the builder might, if he had 
 
POLITICAL ECONOMY. 63 
 
 chosen, have lived thereafter, so long as the boat lasted, 
 in complete idleness, getting as much fish as he could eat 
 simply by letting-out the boat to others. But now a boat 
 only repays its cost in months, perhaps in years. Still the 
 men who make boats get a better livelihood than those 
 who use them ; while those who use boats get a better 
 livelihood, even after paying a high rent, than those who 
 fish off the rocks. 
 
 69. The Parting of the Ways. — Now let us suppose that 
 the manufacture of boats has proceeded so far that there 
 is one serviceable boat for every four adult males of the 
 tribe. At this point, one of two widely divergent courses 
 may be adopted, with very important results to the future 
 of the community. 
 
 1st. The multiplication of boats goes forward till each 
 man is provided with a boat in which he can catch enough 
 fish in an hour or two, a day, to keep himself and his 
 family, summer and winter, good seasons and bad. The 
 creation of capital has at least led to this result : it has 
 put famine out of the question. There is always an abun- 
 dance of cured fish, even in the meanest hut. All the time 
 not occupied by fishing is spent in idleness or sport. 
 
 2d. The manufacture of boats stops at the point where 
 fish for the whole tribe can be provided by one- fourth of 
 its members. These toil early and late upon the banks ; 
 while the remaining members of the tribe work for them, 
 in one capacity or another. Only so many boat-builders 
 remain as are needed to repair and keep up the exist- 
 ing stock of boats. Many of the tribe become house- 
 builders, since no one is now willing to live in the paltry 
 huts which formerly were thought good enough for any- 
 body. Others become domestic servants in the families of 
 the fishermen, of the boat-builders, and of the house- 
 builders. Others occupy themselves in making and fash- 
 
64 POLITICAL ECONOMY. 
 
 ioning trinkets and ornaments, which, in a semi-barbarous 
 tribe, are always in great request. 
 
 Soon new wants emerge. 
 
 First, a taste for a diversified diet begins to appear. 
 Whereas, formerly no man thought of anything better 
 than to have enough of fresh or of dried fish to eat, the 
 members of the tribe now crave other kinds of food ; and 
 many betake themselves to breaking-up the soil and culti- 
 vating vegetables, fruits and grains, which they exchange, 
 on favorable terms, for fish, or for the work of the house- 
 builder, or for menial services on the part of others. Some 
 take to the mountains, and there snare or entrap the 
 wild goats, which they bring down to the shore, feeding 
 and tending and breeding them, and selling their milk, 
 their flesh and their skins for the labor, or the products of 
 the labor, of others. 
 
 Secondly, in addition to the taste for a diversified diet, 
 there soon begins to be felt a desire for better dress. 
 Whereas, formerly no one thought of more than to be 
 covered against the cold, the men of the tribe now wish 
 to have themselves and their wives and children clad in 
 comely and even handsome garments ; and many now 
 betake themselves to preparing and fashioning skins and 
 animal hair into dress, for their own use and for the use 
 of other members of the tribe. 
 
 When we come to speak of the consumption of wealth, 
 we shall see what are the effects of these new economic 
 desires upon the welfare of the tribe which, so short a 
 time ago, lived wholly upon fish caught upon the rocks 
 along the shore. 
 
 60. The Law of Capital. — It is not necessary at present 
 to trace further the increase of capital. At every step of 
 its progress, capital follows one law. It arises solely out of 
 saving. It stands always for self-denial and abstinence. 
 
POLITICAL ECONOMY. 66 
 
 At the first beginning, savings are made slowly and pain- 
 fully ; and the first items of capital have a power in ex- 
 change (a power, that is, to command the labor of those 
 who have not capital) corresponding to the difficulty with 
 which they are secured. The first bow, the first spear, the 
 first canoe, the first spade, much as they cost, pay for 
 themselves in a few days, when once they have been made. 
 Subsequent increments of capital are gained at a constantly 
 diminishing sacrifice, and receive a constantly diminishing 
 remuneration, until, in the most advanced countries, build- 
 ings are erected and machines constructed which only pay 
 for themselves in ten, fifteen, or twenty years. 
 
 At every stage, capital releases labor-power which was 
 formerly occupied in providing for the wants of the com- 
 munity, according to its then prevailing standard of living. 
 At every stage, the members of the community make their 
 choice, whether they will apply the labor-power, thus re- 
 leased, to the production of wealth in other branches, or 
 will content themselves with living as well as before, with 
 less labor, giving up the newly acquired leisure to idleness 
 or sport. 
 
 61. The Three Forms of Capital. — In a rough way, capi- 
 tal may be said to exist in three forms : subsistence, tools, 
 materials. 
 
 Siihsistence. — In the earliest stages, capital consists mainly 
 of the means of subsistence for the producer and his 
 family. It was not easy, at the beginning, to lay-by enough 
 of the game, or the fish, or the fruits, of one season to last 
 until the next. For want of such a store of food many a 
 tribe perished ; many another was kept in a low, miserable 
 condition, unable to shift its seat to more promising locali- 
 ties, and continually depleted by famine and disease. 
 
 But when once a tribe, by exceptional good fortune, or 
 through prudence and self-control, acquired a reserve suf- 
 
66 POLITICAL ECONOMY. 
 
 ficient for a full year's subsistence, it became, in a degree, 
 master of its conditions. It could sliift its seat to better 
 hunting or fishing grounds. It could pursue its >rvoca- 
 tions systematically and economically, not, as before, hur- 
 riedly and wastefully, under the stress of immediate want. 
 Moreover, the physical strength of its members was kept at 
 the highest point by regular and sufficient diet. 
 
 An ample year's subsistence forms the most important 
 advance which a people ever make in their progress towards 
 industrial prosperity. No subsequent step costs one-half, 
 or a tithe, as much. Many peoples never find themselves 
 able quite to accomplish this. The people of British India 
 can hope for no more, in good years, than to be carried 
 through into the next ; while, once in every four or five 
 years, a famine following upon a short crop sweeps away 
 multitudes, through sheer starvation, or through the fevers 
 which feed on half-famished populations. Even in Ire- 
 land, there was known, half a century ago, a period, two 
 or three months long, preceding harvest, which was called 
 by the peasantry ^^the starving season." The early Greek 
 poet, Alkman, calls Spring ^^ the season of short fare." 
 
 Tools. — The next purpose, in logical and generally, also, 
 in historical order, for which capital is accumulated is the 
 acquisition of tools. We use the word here in its largest 
 sense, including all utensils, apparatus and machinery. 
 The knife, the bow, the spear, the canoe, the net, are the 
 tools of a certain stage of industrial society. The spade, 
 the cart, the plough, the distaff, the forge, are the tools of a 
 later stage. The loom, the lathe, the printing-press, the 
 trip-hammer, the railroad and the ship, are the tools of 
 to-day. The buildings which protect machinery from the 
 weather, and the shops in which trade and manufactures 
 are carried on, are, in this sense, tools. 
 
 The increase in productive power which takes place, as a 
 
POLITICAL ECONOMY. fit 
 
 community acquires the capability of using complicated 
 tools and apparatus, and of applying steam and water-power 
 to move machinery, is immense, almost beyond our concep- 
 tion. One man with simple tools may do the work of ten 
 men, equally strong and equally well fed, who have only 
 their hands to work with. Ten men with the wood-work- 
 ing, cotton- and wool-working, or metal-working machinery 
 of to-day, run by steam or water-power, may easily do the 
 work of a thousand, with distaff, chisel, saw and axe. It 
 s exceedingly important that the youthful student of eco- 
 nomics should early be made familiar with some of the 
 applications of tools, apparatus and machinery to manufac- 
 tures, in order that he may come to appreciate how large a 
 factor in the production of wealth, this form of capital is. 
 It would be fortunate if vists to large industrial establish- 
 ments could be made a regular part of the system of in- 
 struction for children. 
 
 Materials. — The third form which capital takes is that 
 of materials. The word, as here used, covers all kinds of 
 wealth which are devoted to the production of wealth in 
 any other way than as subsistence for the laborer, or as tools, 
 to increase his power in production. In a primitive state, 
 materials play a small part. The bait for the hook, among 
 a tribe of fishermen ; the corn saved for seed, in a planting 
 community, are the most prominent materials in early 
 industry. In a later age, a large part of the accumulated 
 wealth of a community exists in this form. 
 
 62. Mutual Relations of the Three Forms of Capital.— We 
 have said that the capital of a community may be classed 
 under three heads : subsistence, tools, materials. In a 
 certain sense, these three may be resolved into one, sub- 
 sistence ; as, indeed, all forms of subsistence itself may be 
 resolved into one, food. Thus, the first simple tools of 
 the barbarous community may be said to be exactly repre- 
 
68 POLITICAL ECONOMY. 
 
 sented by the subsistence required by the laborers engaged 
 in making the tools. The first materials produced by the 
 aid of these tools may be said to be represented by the 
 subsistence of the laborers using the tools, added to that of 
 the laborers who made the tools. And so of the more 
 elaborate tools and machines, and the more various and 
 costly materials, of after ages : all may be said to represent 
 the subsistence of the laborer while engaged in produc- 
 tion. 
 
 Likewise, all the forms of subsistence, viz., food, cloth- 
 ing, shelter and fuel, may be reduced to one, food. The 
 clothing of the laborer, for example, represents the food 
 which he consumed while he was gathering the fibres of the 
 wild grasses and weaving them into a blanket. The hut 
 represents the food consumed during its erection. The 
 fuel represents the food consumed while the laborer was 
 gathering fagots in the forest. 
 
 But, while all the three forms of capital, viz., subsistence, 
 tools and materials, may thus, in theory, be reduced to sub- 
 sistence, and while the four forms of subsistence, itself, 
 viz., food, clothing, shelter and fuel, may likewise be 
 resolved into food, it yet makes a vast difference to the 
 productive power of the community in what proportion its 
 capital is actually divided among these different elements. 
 
 63. Fixed and Circulating Capital. — The economists have 
 been wont to divide capital into two classes, fixed and 
 circulating. The distinction has a certain value, although 
 it is not always easy to say into which class a certain body 
 of capital would fall. 
 
 Mr. Mill gives the following definitions of these classes : 
 " Capital which exists in any durable shape, and the return 
 to which is spread over a period of corresponding duration, 
 is called Fixed Capital.^' 
 
 " Capital which fulfils the whole of its office, in the pro- 
 
POLITICAL ECONOMY. 69 
 
 duction in which it is engaged, by a single use, is called 
 Circulating Capital/' 
 
 This distinction may be illustrated as follows. Here is 
 a quantity of woollen yarn. Is it fixed or circulating 
 capital ? We answer, circulating capital, inasmuch as it 
 does its whole work in production by a single use, that is, 
 when it is woven, once for all, into cloth. On the other 
 hand, the loom on which the yarn was woven, is fixed 
 capital, because it exists to weave many and many a lot of 
 yarn into cloth ; and the return to the capital invested in it 
 is spread over a considerable period of time, several years 
 at least. 
 
 Let us take another illustration. Here is a quantity of 
 " stores'' fitted to support a large body of laborers, viz., 
 clothes, hats and shoes, meat, bread, groceries, and so 
 forth. Do these constitute fixed or circulating capital ? 
 Circulating capital, because they can, as yet, be, so to 
 speak, turned into any industrial direction : that is, they 
 can be used in subsisting laborers who are engaged in 
 making almost any conceivable thing, or class of things. 
 Let us suppose that these goods are actually consumed in 
 subsisting a gang of laborers engaged in building a bridge, 
 or putting up a mill, or making a railroad. Here we 
 should have a body of circulating capital turned into a 
 body of fixed capital, i.e., a bridge, a mill or a railroad, 
 which would continue to perform its industrial purpose 
 throughout many years, perhaps generations, and the 
 return to which would be spread over a corresponding 
 period. On the other hand, we might have supposed 
 these stores to have been consumed by laborers engaged in 
 making shovels or axes, which would be worn out by con- 
 stant use in a few months, perhaps weeks, and which would 
 thus rightly be called circulating capital. 
 
70 POLITICAL ECONOMY. 
 
 64. Too Rapid Conversion of Circulating into Fixed 
 Capital. — It will appear, from the foregoing, that, while it 
 might not always be easy, or even possible, to say in regard 
 to a given thing, whether it belonged to fixed or to circu- 
 lating capital, there is, yet, a general distinction to be 
 drawn between masses of capital, as to the length of time 
 over which their usefulness extends. It is, also, true that, 
 the more capital partakes of the fixed character, the nearer 
 it comes to a single and a specific use ; whereas, on the 
 other hand, circulating capital can generally be turned, at 
 will, to any one of many industrial purposes. When the 
 railroad has been built, it will do nothing but carry goods 
 and passengers, on land, by a certain track, from one fixed 
 point to another. For any other purpose, it is worthless ; 
 whereas the clothes, the hats and shoes, the food, etc., 
 might have been used to build the railroad, as they were, 
 or to build ships which should carry passengers and freight 
 by water, or to put up mills, or to make the looms for the 
 mills, or to raise the wool, the cotton, or the flax to be 
 woven on the looms, or to do any one of a thousand other 
 things. 
 
 If, now, too large a part of the capital of a country 
 should, thoughtlessly or under speculative excitement, be 
 put into railroads, the results might be very injurious. 
 There might not be capital enough left to build the ships 
 to carry away the freight which the lailroads should bring 
 down to the seaports ; there might not be capital enough 
 left to build the mills, and to fill these with machinery and 
 to supply them with materials, and to subsist the weavers 
 and spinners who should make the cloth which should 
 become freight for the railroads. There might not be 
 capital enough left to " improve" and to ^' stock " the farms 
 of the country, which should furnish grain and cattle for 
 transportation. 
 
POLITICAL ECONOMY. 71 
 
 Instances of the too rapid conversion of circulating 
 capital into one or another form of fixed capital have been 
 very frequent. These are especially likely to occur among 
 progressive nations. They are always followed by a great 
 waste of labor-power, sometimes by a partial paralysis of 
 industry; sometimes by what is called a ^*panic/^or a 
 "crisis," when the powerful machinery of production goes 
 wrong, and its force, instead of being employed in creating 
 things useful to men, is turned to its own destruction. 
 This danger is a part of the price which highly civilized 
 communities have to pay for the great advantages of the 
 division of labor, the organization of industry, the in- 
 vention of machinery. 
 
CHAPTEK IX. 
 RELATION OF COST OF PRODUCTION TO VALUE. 
 
 65. Relation of Labor to Value. — We have defined 
 wealth ; and, in the last few chapters, we have shown un- 
 der what conditions, as to the use of land, labor and capi- 
 tal, the production of wealth, that is, the creation of values, 
 takes place. We are now in a position to take up, for fur- 
 ther analysis, the subject of value. 
 
 It is often said that labor is the only efficient cause of 
 value; or, that the values of articles are according to the 
 amounts of labor required for their production, severally. 
 It ought to be evident, at the first thought, that this can- 
 not be strictly true, since, for the production of any arti- 
 cle, there is required, as we saw, the use of capital, as well 
 as of labor. If, then, of two articles embodying equal 
 amounts of labor, one requires the use of a great deal of 
 capital, and the other very little, the difficulty of attain- 
 ment is not equal in the two cases. Now, since difficulty 
 of attainment controls supply, the supply of these two arti- 
 cles would soon become unequal, which, assuming that the 
 demand for both had previously been the same, would give 
 a higher value to the former than to the latter. 
 
 Clearly, if we were to use the term, cost of production, 
 to express, not only the amount of labor, but also the 
 amount of capital-power, going into any article, it would 
 be much nearer the truth to say that cost of production de- 
 termines values, than to say that labor determines values. 
 
 73 
 
POLITICAL ECONOMY. 73 
 
 66. Cost of Production. — But does the cost of production, 
 even as so constituted, determine values ? As a matter of 
 fact, value is so often almost the same as the cost of pro- 
 duction, and value is so apt to change as the cost of pro- 
 duction changes, the one rising and falling with the other, 
 that it is very natural to speak of cost of production as 
 governing value. And, in a general way, this is true; yet it 
 is easy to show that it is not always the case. 
 
 For example, we might suppose that a great improve- 
 ment had taken place in the methods of making cotton or 
 woollen goods of a certain description, or that mines of coal 
 or iron, far richer and more convenient for working than 
 any other before known, had been discovered. In such 
 events, would the cotton cloth or woollen goods, or the coal 
 or iron, now in the market, have their value governed, in 
 any degree, by what it cost to produce them ? Not at all. 
 These articles would at once fall to a new value, corre- 
 sponding to the new cost of producing articles like them. 
 No man would pay four dollars a ton for coal, simply be- 
 cause that coal had cost four dollars a ton, if coal just as 
 good could now be brought in from the mines at three 
 dollars. No man would pay one dollar a yard for a certain 
 kind of woollen cloth, if the new looms could turn out cloth, 
 in every way as good, for eighty cents. 
 
 67. Cost of Reproduction. — Is it not, then, the cost of 
 reproduction, rather than the cost of production which de- 
 termines value ? As between the two, is it not nearer the 
 truth to say that it is not what goods did cost, that deter- 
 mines their value, but what they would cost, at the present 
 time ? Clearly this is so. No man is going to pay any- 
 thing for an article, merely because that article did require 
 for its production a certain amount of labor and capital. 
 Speaking generally, what he will give for it will be closely 
 related to what it now costs to produce this article. 
 
74 POLITICAL ECONOMY. 
 
 But is it, even, the cost of reproduction, i.e. , of keeping 
 up the supply, which determines the vahie of articles ? No. 
 While it is generally true that value is close to cost of re- 
 production, the two are often far apart. Take, for exam- 
 ple, the old looms on which the woollen goods, to which we 
 just now referred, were woven. Let us say that these cost, 
 when they were first made, $300, apiece. That, however, 
 as we saw, is no reason now why they should bring $300. 
 Looms of the same pattern could, perhaps, now be made 
 for $250. Will these looms, therefore, bring $250 ? Not 
 at all. New looms, of a better pattern, having been in- 
 vented, perhaps manufacturers could not afford to use the 
 old looms unless they were to obtain them at a very low 
 price, say $100. Possibly the new looms might be found so 
 much more efficient that no manufacturer could afford to 
 use the old looms, at any price ; and these may therefore 
 bring only their value as old iron. Here we have a case 
 where an article will sell neither for its cost of production 
 nor for the cost of its reproduction. 
 
 Again, here is a house, in a once fashionable street, which, 
 twenty years ago, cost $25,000. Yet the house, in fact, 
 could not be sold for more than $15,000 or $17,000. The 
 foregoing are not strange, single cases. A very large part 
 of all tlie articles in the world, which have value at all, 
 would not sell for what it would cost to produce equally 
 good articles at the present time. 
 
 What, then, is the trouble with the statement so fre- 
 quently made, that cost of production, or, at any rate, the 
 cost of reproduction, governs value? This is the trouble. 
 Cost of production is only another term for difficulty of 
 attainment. Now, we saw (Par. 15) that two elements 
 enter into value : First, difficulty of attainment, which 
 controls supply ; second, utility, which creates demand. 
 To assert, then, that cost of production, or cost of repro- 
 
POLITICAL ECONOMY. 75 
 
 duction, determines value, is to say that value is composed 
 of one of these elements only, and not of both. 
 
 While the distinction we have drawn between the cost 
 of production and the cost of reproduction is one which 
 needs to be kept always in mind by the student of polit- 
 ical economy, it is much more convenient to use the for- 
 mer term ; and this we shall accordingly do, throughout 
 the remainder of this treatise. But the reader is asked 
 to remember that, when we speak of cost of production, in 
 respect to any article in the market, what we have ref- 
 erence to is, not the past cost of j)roducing that identical 
 article, but the present or immediately prospective cost of 
 producing an article so nearly like it that, for commercial 
 purposes, there will be no difference between them. Past 
 labor, labor already spent, has no control over, or influence 
 upon, value. It is only present labor, or prospective labor, 
 which, in any way, governs value. How far it does this, 
 how far it fails in doing this, we shall see under our next 
 title. 
 
 68. Relation of Market Value to Normal Value. — While, 
 for reasons stated in the last paragraph, it is incorrect to 
 say that the cost of production determmes actual value — 
 which we shall hereafter call '^ market value" — we must 
 always keep the idea of the cost of production clearly in 
 mind, when speaking of the exchange of wealth, since it is 
 this which determines '^ normal value," a phrase we are 
 now to explain. 
 
 Market value is, as has been abundantly stated and illus- 
 trated, governed solely by supply and demand. Normal 
 value may be represented by a line [though, by no means, 
 a straight line] which market value always tends to ap- 
 proach, or to which it always tends to return after any de- 
 parture therefrom. If the market value of any article is, 
 at any time, below the cost of its production^ some of those 
 
76 POLITICAL ECONOMY. 
 
 who have been engaged in producing that article will prob- 
 ably soon cease to produce it at all ; others will certainly 
 produce less of it than before. The supply being, by these 
 means, reduced, the market value will, if the demand remains 
 the same, rise toward, or to, the normal value. If, on the 
 other hand, the market value is above the cost of produc- 
 tion, some, perhaps all, who have been producing this article 
 will produce more of it, perhaps much more of it. It is 
 even possible that some persons who have not been pre- 
 viously engaged in producing this article, may now under- 
 take to do so. The supply being, by these means, in- 
 creased, market value will turn downward, toward, or to, 
 the normal value. 
 
 Now, just as changes in demand, due to the tastes or the 
 wants of the community, or changes in supply which can- 
 not be foreseen, due to accidents, to fires, to floods, to short 
 crops and a variety of other causes, are continually drawing 
 market value away from the normal line, so the self-interest 
 of producers is continually working, in the ways above de- 
 scribed, to bring market value back to the normal line. 
 But the tendency of market value to go away and stay 
 away from the normal line is greater in the case of some 
 commodities than in the case of others. With some arti- 
 cles, that tendency is very strong and very persistent. 
 With other articles there are incessant slight fluctuations, 
 now on the under, now on the upper, side of the line which 
 represents the cost of production. It is important that we 
 should dwell here, for a moment, upon the chief causes 
 which tend to bring about and to maintain the divergence 
 of market from normal value. 
 
 69. Causes which affect Demand. — In the first place, 
 we have the causes which affect demand. There are large 
 classes of articles the need of which is very steady and 
 constant. People always want these articles, and gen- 
 
POLITICAL BGONOMT. 1'7 
 
 erally want about so much of them. If, from poverty, a 
 person had to pinch himself at any point, he would give up 
 almost anything sooner than any part of what he has been 
 accustomed to have of these articles. The demand for 
 them, consequently, remains very steady, from week to 
 week and from year to year, perhaps through terms of 
 years. At the other end of the scale, there are many 
 classes of articles, the demand for which is very irregular 
 and uncertain. In respect to some of them, fashion enters, 
 requiring incessant changes in form and style and color. 
 That which was the best, last year, is scarcely worth having, 
 this year. Sometimes the changes of fashion go so far as 
 to throw an article very nearly or altogether out of use. 
 
 There are still other large classes of articles, regarding 
 which the changes of demand are not due to fashion, but 
 to the varying means of those who purchase them. If 
 people at any time do without them, it is not because they 
 no longer desire them, but from what is called " want of 
 money." These are articles which people give up when 
 they have to give up anything. The desire for them re- 
 mains the same ; but the demand, economically speaking, 
 diminishes or disappears altogether. 
 
 Causes which affect Supply. 
 
 Let us now consider the causes which tend to make 
 market value differ from normal value, through affecting 
 the supply of articles. There are many of these ; but we 
 can deal only with the most important. 
 
 70. (I) The Existence of a Stock. — Suppose there were an 
 article which was found in a raw state, near at hand, ready 
 to be cut down, or dug out, or merely brought to market, 
 as required, at one season just as well as at another. In 
 such a case, market value would never go far away, or long 
 
78 POLITICAL ECONOMY. 
 
 stay away, from normal value. If demand fell off, pro- 
 duction would fall off accordingly and promptly. About 
 as much as was wanted would be brought in, day by day ; 
 and every day^s product would have an exchange-power 
 close to its cost. 
 
 The conditions we have just described are realized in the 
 case of few commodities. With most it is necessary to 
 have a stock, larger or smaller, on hand, at all times ; and 
 the work of production cannot go on uniformly throughout 
 the year. In some cases, articles can be grown, or others 
 brought to market, only in a single season of the year. 
 Maple sugar is produced within a few weeks of alternate 
 thawing and freezing, in the spring. Wood for fuel is 
 generally brought out of the forest when the snow is on the 
 ground, as it is easier to haul it on sleds than in carts. 
 On many rivers, logs can only be floated down to the saw- 
 mills, perhaps hundreds of miles below, during a very 
 short season, when the streams are swollen by the melting 
 of the snows. Ice can only be gotten out in the depth of 
 winter. For the production of some articles the heat of 
 mid-summer is required. 
 
 Now, if all the year's supply of any article has to be pro- 
 duced or brought to market in one part of the year, the 
 producers can only guess, and perhaps guess vaguely, what 
 the demand will be five or ten months later. In the case 
 of such industries, the supply cannot be readily checked, if 
 the demand falls off ; or be quickly increased, should the 
 demand prove greater than was anticipated. 
 
 In the case of some important classes of articles, the 
 amount of production must be determined on, not months, 
 but years in advance of the demand. In order that there 
 may be bread, it is only necessary that the baker shall have 
 time to heat his ovens. In order that there may be flour 
 it is only necessary that the miller should have a week's 
 
POLITICAL ECONOMY. 79 
 
 notice. But in order that there should be wheat from 
 which to make the flour, the farmer must have decided, the 
 year before, how much land he would plant in wheat ; the 
 soil must have been broken up^ the seed sown, and the 
 growing grain cultivated through the summer. In order 
 that there may be a sufficient supply of wool, the sheep* 
 raiser must have begun his work two or three years ago. 
 In order that there may be horses fit for draft or for the 
 cavalry, four or five years, at least, are required. 
 
 71. (II) Substitution of One Article for Another in Use. 
 — A second cause which influences the divergence of market 
 value from normal value, is found in the varying degrees in 
 which different articles can be substituted for others, in use, 
 should occasion arise. There are some articles which have 
 almost no substitutes. If the person cannot get the pre- 
 cise thing he wants, he knows of nothing which would take 
 its place. In the case of other articles, there are many pos- 
 sible substitutes, some of which are nearly as good, while 
 some will barely answer the purpose. If, for example, beef 
 is very scarce, people Ccin use other kinds of meat, without 
 any great loss of physical benefit or pleasure. If wheat is 
 scarce, resort will be had increasingly to other kinds of 
 grain. And this substitution will begin at once, and will 
 be made almost unconsciously. People who have been us- 
 ing wheat five days in the week and Indian corn, or rye, 
 two days, will now use Indian corn, or rye, three days in 
 the week, and wheat only four days. In this way the bal- 
 ance will be brought around again, or, at least, wheat will 
 be kept from rising as high as it otherwise would. 
 
 On the other hand, for most of the uses of iron there is 
 nothing that can be substituted for that metal, except at 
 very much greater cost. Copper is worth, say, twelve 
 times as much as iron ; aluminum, twenty times as much as 
 copper. Consequently, if the supply of iron proves defi- 
 
80 POLITICAL ECONOMY. 
 
 cient, the value of it may rise higher and higher, through 
 a term of years, without any considerable substitution of 
 other articles. There will, of course, be less iron used, 
 since people will put stone and brick arches and wooden 
 beams into bridges and houses, where, otherwise, they 
 would have used iron. But, in spite of this, there will still 
 be so much need of iron, for a multitude of purposes, that 
 the value of the stock might be doubled before a new sup- 
 ply could be brought in. 
 
 72. (Ill) Organization of Industry. — We have elsewhere 
 shown how the organization of industry increases the possi- 
 ble production of wealth. The same cause, however, tends to 
 put apart, and to keep apart, market value and normal 
 value. Where a community has been organized into a great 
 number of trades and professions, each person being highly 
 expert in his own particular business, or craft, but knowing 
 little or nothing of others, it is far less easy to increase pro- 
 duction if the supply be deficient, or to check production 
 if the supply be in excess, than in a community where arts 
 and trades are few and simple, and each man is more capa- 
 ble of turning himself, should occasion arise, to some other 
 kind of work. Self-interest will still enter, to check pro- 
 duction or to increase it, according to the " state of the 
 market," i.e., according to demand ; but this will be done 
 much less promptly and effectively, for the reason which 
 has been stated. Men will go on working in the business 
 to which they are accustomed, long after the remuneration 
 they receive has, through a decline in demand, fallen below 
 the remuneration of equal exertions and sacrifices in other 
 branches and industries. 
 
 73. (IV) Investment of Capital — Existence of Plant. — In 
 the same way, the need of extensive buildings, fixtures, ma- 
 chinery and apparatus, for the production of certain classes 
 of commodities, may prevent a rapid increase in the supply 
 
POLITICAL ECOmMT. 81 
 
 of those commodities, to correspond to a rapid increase of 
 demand, should such take place. Thus it happens that 
 market value, in these lines, may remain a long while above 
 normal value, in spite of all which the principle of self- 
 interest can do towards bringing the two kinds of value 
 together. 
 
 On the other hand, the fact that a large body of so- 
 called " plant," i.e., structures, fixtures, etc., suited to the 
 production of certain goods and of no others, is in exist- 
 ence, may retard the movement of market values upward 
 to the normal line, in cases where a great falliug-off in de- 
 mand has lowered the value of such goods below the cost 
 of production. Inasmuch as the plant is there, and can be 
 used for nothing else, manufacturers may go on producing, 
 even though they get almost nothing for the use of the 
 plant, after paying the wages of labor and the cost of mate- 
 rials. 
 
 It may even happen that the existenca of plant, in a 
 large amount, constitutes a sort of necessity to produce. 
 Thus, in the case of work being stopped in a mine, the 
 shafts and galleries might in a few weeks be filled with 
 water, which it would require much time and great expense 
 to pump out when work should be resumed. It might, 
 therefore, happen that a mine owner, rather than allow his 
 mines to fill up, would go on, for a while, producing at a 
 loss, that is, not even getting back all the wages paid and 
 all the materials consumed. In the same way, it not un- 
 frequently happens that an iron manufacturer for a while 
 produces at a loss, rather than allow his furnaces to " go 
 out of blast." 
 
 The degree to which the foregoing cause operates differs 
 widely in different industries. In some, the amount of 
 plant required for a certain product is very small ; in others 
 it is very large. Even among those industries where the 
 
82 POLITICAL ECONOMY. 
 
 plant is large, there is a great difference as to the length of 
 time required to extend it ; as to the amount of " wear and 
 tear " which is involved in its regular daily use ; and as to 
 the injury likely to result from a stoppage of the works. 
 
 74. (V) Liability to Deterioration of Product. — Still an- 
 other cause, which, in the case of many articles, has the effect 
 to exaggerate deviations of market value from the normal 
 line, is found in a liability, greater or less, to deterioration 
 of the product. Thus, in a fish market, the price of a fish 
 might have been a shilling when the market opened, eight- 
 pence at ten o^clock, sixpence by noon, while in the after- 
 noon one could have it almost on his own terms. Straw- 
 berries and peaches are often sold, at night, at one-half or 
 one-third of the morning price. The necessity of storage, 
 in the case of a postponed sale, has often the same influence 
 on the price of a commodity as liability to deterioration. 
 The dealer, not having the facilities for storing his stock, 
 may let it go at a very low price, rather than keep it over. 
 
 75. (VI) Customary Price. — In respect to certain com- 
 modities, public opinion dictates that there shall be a cer- 
 tain, stated, well-known price. Thus, people would not 
 tolerate varying and uncertain prices of admission to places 
 of public amusement ; varying or uncertain tolls over 
 bridges, or fares in public conveyances ; varying and un- 
 certain fees for the performance of necessary services. To 
 have to haggle and bargain at the door of a theatre, over 
 the price of admission ; on the brink of a river, as to the 
 sum to be paid for a cast across the stream ; in the sick- 
 room, about the fee for a prescription, or the cost of the 
 medicine that should save life or relieve pain, these things 
 would be intolerable. Hence, public opinion generally 
 establishes a price, for all such occasions, which is irrespec- 
 tive alike of the service rendered to the individual buyer, 
 and of the cost, to the seller, of rendering that service in 
 
POLITICAL ECONOMY. 83 
 
 the particular case. For instance, a traveller would give a 
 large sum of money, rather than pass the night in a storm 
 on a river bank; yet he gets a cast across, at the customary 
 price, be that twopence or a shilling. On the other hand, 
 the ferryman or boatman makes a much greater sacrifice in 
 taking the passenger over at night, in a storm, than if it 
 were in the afternoon of a pleasant day; yet public opinion 
 requires him to subject himself to the greater sacrifice, 
 without any higher charge. 
 
 Where public opinion cannot be trusted to establish a 
 customary price, in cases like the above, the law generally 
 enters and fixes the rate. Of course, the price paid must 
 be enough, on the whole, to make it worth while to keep 
 up the service, whether of the apothecary, the physician, 
 the ferryman, the actor or the opera singer. But the price 
 to be paid is made independent of the wealth or the pov- 
 erty, the knowledge or the ignorance, the little or the great 
 need, of the individuals purchasing. 
 
 76. (VII) Habit and Mental Inertia.— The last of the 
 causes which we shall mention, as resisting the effort of 
 market value to return to the normal line, is found in the 
 force of habit and in the lack of what is called ^'initiative," 
 on the part of many or most persons. 
 
 No human being ever escapes altogether from the force 
 of habit. It is always easier to do what we have done be- 
 fore, than to do what we have never done ; to do what we 
 have done twice, than to do what we have done only once ; 
 to do what we have done often, than to do what we have 
 done seldom. The degrees, however, in which men are 
 bound by habit, or in which they are indisposed to do 
 what is not familiar to them, differ widely. A capability 
 of taking the initiative in action, mental courage and ac- 
 tivity, freedom from apprehension and superstition, a 
 readiness to meet new conditions, and perhaps even a pleas- 
 
M POLITICAL ECONOMY. 
 
 ure in encountering risks and odds, are among the fruits 
 of education and experience. They become an inheritance 
 in families, and even a characteristic of nations and races. 
 
 The effects of habit upon values are very important. 
 Habit always, in some degree, often in a great degree, 
 resists the economic tendency to a new price. This effect 
 is seen at its height in wages, the price of labor. A day's 
 wages often remain the same through months, sometimes 
 through years, although, in fact, the utility of the service 
 rendered to the employer changes frequently in that time. 
 
 Over the prices of goods habit exerts an influence no less 
 real, though not equally powerful. It often keeps prices 
 steady, against an economic reason for change ; and, even 
 when movement takes place, it begins later and ceases 
 earlier, by means of this constant resistance. 
 
CHAPTER X. 
 PRODUCTION AT THE GREATEST DISADVANTAGE. 
 
 77. Relation of Cost of Production to Value. — In the 
 
 last chapter, we undertook to reach the relation between 
 Value and the Cost of Production. What we found was 
 that Cost of Production determines Normal Value, which 
 actual or Market Value continually tends to approach, 
 though frequently drawn away, and often kept long away, 
 by various causes, affecting supply, or demand, or both. 
 
 We have now to take another step in the theory of value. 
 We have thus far assumed that all parts of the required 
 production take place under conditions of equal advantage 
 as to cost, so that the normal value of any kind of goods 
 would be the cost of producing any part of the supply. 
 But, in fact, of the four grand agents of production, land, 
 labor, capital and business ability (see par. 55), two, the first 
 and the last named, have, by force of nature, a wide range 
 as to productive power, from which it results that different 
 portions of the required supply of a certain kind of goods 
 may differ widely as to their several costs of production. 
 
 78. Equality of Conditions as to Labor and Capital. — To 
 illustrate this rudely, let us suppose a certain district to be 
 divided into a hundred large farms, each farmer employ- 
 ing fifty men, and having at command $10,000 of capital. 
 Now, we may, for the purposes of reasoning, assume the 
 body of laborers and the body of capital upon any one farm 
 to be the exact equivalents of the corresponding bodies 
 
 85 
 
86 POLITICAL ECONOMY. 
 
 upon any other farm. Of course this might not, probably 
 would not, be literally the case, so far as the bodies of 
 laborers are concerned. One set of laborers might, as it 
 happened, be a little poorer than those employed upon a 
 neighboring farm. But there would be nothing in the 
 nature of the case why an inferior set of workmen should 
 be found upon one farm more than upon another. This 
 would be purely one of those accidents which, for the pur- 
 poses of reasoning, we are bound to set aside. 
 
 As to the capital, we have no need to offer any qualification 
 of our assumption that the several sums of $10,000 are the 
 precise equivalents of each other. There would be just as 
 many ploughs and horses, just as many carts and oxen, 
 just as much food and clothing for the subsistence of la- 
 borers, just as much money for wages, in one $10,000, as in 
 any other. 
 
 79. Inequality of Conditions as to Land. — But if, now, 
 we suppose these equal bodies of labor and capital to be 
 applied to the raising of crops, shall we find that the con- 
 ditions of production continue equal? By no means. We 
 shall find differences, very considerable differences : and 
 these, not occurring through accidents which we may dis- 
 regard, as having nothing to do with the reason of the 
 case ; but differences due to the very nature of the subject ; 
 differences which cause some portions of the supply to be 
 produced at a great advantage, while other portions are 
 produced at a great disadvantage. It is to finding out 
 how these differences in the cost of production affect nor- 
 mal value, that we devote the present chapter. 
 
 What is the cause of the differences which we have indi- 
 cated as certain to arise whenever equal bodies of labor and 
 capital are applied to the raising of crops ? That origin is 
 two-fold. In part, it is found in the varying productive- 
 ness of the soil. Those variations, if we contemplate any 
 
POLITICAL ECONOMY. 87 
 
 wide field of industry, are not small, but large ; they are 
 not accidental, but are in the nature of the case. The 
 fifty laborers working upon, say, farm No. 31, may be as- 
 sumed to be the equivalent of the fifty laborers working 
 upon farm No. 5, or upon farm No. 64 ; but farm No. 31 
 will only yield 15 bushels of wheat, per acre, while No. 5 
 will yield 18 bushels, and farm No. 64 will yield 24 bushels. 
 These differences in product do not come from the laborers ; 
 they come from the soil ; and such differences as we have 
 indicated above are not extreme. There are farms, among 
 the hundred, which will yield less than 15 bushels ; and 
 there are others which will yield more than 24 bushels. 
 
 80. Inequality of Conditions as to Business Ability. — 
 Then, again, were we to suppose that there were certain 
 farms, absolutely equal in their productive power, we might 
 be assured that there would be found differences, very con- 
 siderable differences, among the farmers occupying and cul- 
 tivating them, as to the ability to control and direct bodies 
 of labor and of capital for the production of wealth : dif- 
 ferences as to the degree of care and foresight, of energy and 
 economy, of commercial prudence and administrative skill. 
 Such differences in the farmers would come out in the 
 crops, were the lands the same, the laborers the same, the 
 capital the same. 
 
 It is true that the abler farmers would tend, little by 
 little, to bring into their employment the best laborers ; but 
 it is, also, true that, with the very same laborers, they would 
 get a better, some of them a much better, result than the 
 less efficient farmers. It is true that accidents and mis- 
 fortunes, of one kind or another, would come to all the 
 farmers in the county — floods or droughts or fires or ver- 
 min or rust or mildew, or what not ; but it is, also, true, 
 that, in the first place, fewer of these calamities would, 
 jn the long run, fall upon the far-seeing and painstaking 
 
88 POLITICAL ECONOMY. 
 
 farmer than upon his less diligent and prudent neighbor ; 
 secondly, that those which did come would fall with less 
 force ; and, thirdly, that the resulting mischief would be 
 more quickly repaired and remedied in the former than in 
 the latter case. 
 
 81. Production at the Greatest Disadvantage determines 
 Normal Value. — Now, with differences existing as to the 
 conditions of production, both as regards the fertility of 
 the land and as regards the degree of business ability, what 
 shall determine normal value ? I answer : 
 
 The kormal value of ai^y kind of goods is deter- 
 min^ed by the cost of production^ of that last con- 
 siderable portion of the necessary supply which is 
 produced at the greatest disadvantage. 
 
 Let US proceed in this matter by successive illustrations. 
 Wheat is raised upon some lands, in England, at a cost not 
 exceeding two shillings, a bushel. Is this wheat, there- 
 fore, sold at two shillings ? Does it even tend to be sold 
 at that price? Is there any economic force, whatever, 
 which operates to compel, or to induce, the farmer to sell 
 that wheat at that price, or somewhere near it ? All these 
 questions are to be answered by a simple no. The cost of 
 production in this case has absolutely no connection what- 
 ever with the price. Did anybody ever, in these days, 
 hear of good wheat being sold in Mark Lane, London, at 
 two shillings a bushel ? Yet there are lots of it produced 
 at a cost below two shillings. 
 
 Again, there is a vast extent of lands on which wheat is 
 raised at the cost of three shillings a bushel. Is this wheat 
 sold at three shillings, or does it tend to be ? Again, no. 
 Still further, there are lands on which wheat is raised at 
 the cost of four shillings, and others, still, on which it is 
 raised at the cost of five shillings ; but the product is not 
 sold at a price equal to the cost of production, or in any 
 
POLITICAL ECONOMY. W 
 
 way corresponding to it. What, then, does fix the price of 
 what we may call the two-shilling wheat, the three-shilling 
 wheat, the four-shilling wheat, the five-shilling wheat ? I 
 answer, it is the cost of raising " that last considerable por- 
 tion of the necessary sujyply which is ^jroduced at the great- 
 est disadvantage." Let us suppose that there are ten mil- 
 lion bushels of the two-shilling wheat, twenty million bush- 
 els of the three-shilling wheat, thirty million bushels of the 
 four-shilling wheat, forty million bushels of the five-shilling 
 wheat. We should then have one hundred million bushels 
 produced at the cost of five shillings, or less. But let it be 
 supposed that the demand for wheat exceeds, and tends 
 considerably to exceed, this amount. Just how much the 
 demand shall exceed a hundred million bushels, will, of 
 course, depend upon the price. Let us suppose, for in- 
 stance, that there are enough people who want wheat, 
 and who want enough wheat, and who want wheat badly 
 enough, to make up an effective demand for a hundred and 
 thirty million bushels, at not exceeding six shillings. If 
 then, the next grade of land, that, viz., which will yield 
 wheat at the cost of six shillings, were extensive enough to 
 produce, if required, fifty million bushels, we should have 
 the normal price of wheat, on these conditions, fixed at six 
 shillings, a bushel. This price would just repay the cost of 
 cultivation on the last grade of soils, yielding no profit.* 
 That price would equally be paid for all other portions of 
 the supply of wheat, 3aelding profits which would repre- 
 sent the difference between the cost and the price. To 
 whom this profit shall go, is a question which it would be 
 premature to raise at this point. Only a portion ot the six- 
 
 *I use the word, profit, for the present, in its generic sense. 
 Such profit, in the case of land, will hereafter be specifically called 
 rent. 
 
90 POLITICAL ECONOMY. 
 
 shilling land would be cultivated. No part of the seven- 
 shilling, or the eight-shilling land would be brought into 
 use. 
 
 82. Take Silver Mining as an Illustration. — Silver is pro- 
 duced, in not a few mines, at the cost of twenty-five cents, 
 an ounce, or less ; but it is not, on that account, sold for 
 twenty-five cents. If the demand for silver, for use as 
 money or in the arts, be sufficient to fix the price at one 
 dollar, silver will be produced at what we may call the 
 twenty-five cent mines, the fifty-cent mines, the seventy- 
 five-cent mines and the-one dollar mines ; but it will all be 
 sold at the same price, namely, one dollar. The last class 
 of mines will yield no profit, but only pay for the working; 
 while the other classes of mines will yield a profit on their 
 product of, respectively, seventy-five, fifty and twenty-five 
 cents, an ounce. Nobody thinks of offering Mr. Mackey 
 or Mr. Haggin twenty-five cents, an ounce, for his silver, 
 merely because it cost only that sum. All the silver pro- 
 duced is sold at the same price in the same market. That 
 price is fixed by the cost of production from the mines the 
 least rich in their deposits, or the most expensive to operate, 
 which the existing demand requires to he luorlced in order to 
 secure the necessary supply. The demand being no greater 
 than it is, the dollar-and-a-quarter mines and the dollar- 
 and-a-half mines, of which there are a great number, will not 
 be worked, any more than will be the two-dollar, the three- 
 dollar and the four-dollar mines, which, between them, 
 contain an immense amount of silver, very much scattered. 
 
 In like manner, we might go over the whole ground of 
 the articles known to the market, finding, in every case, 
 that normal price is fixed by the habitual average cost of 
 producing ''that last considerable portion of the supply 
 which is produced at the greatest disadvantage ;" while, in 
 every case, likewise, all other portions of the supply are 
 
POLITICAL ECONOMY. 91 
 
 sold at the same price, whatever their individual cost of 
 production, yielding a profit, the disposition of which we 
 shall have occasion to investigate when we reach the sub- 
 ject of the Distribution of Wealth. 
 
 83. Varying Productiveness as to Business Ability. — We 
 have thus far shown the effect, upon normal value, of vary- 
 ing productiveness in the lands under cultivation for the 
 supply of the market. We are now to consider the effect, 
 upon normal value, of varying productiveness in the per- 
 sons engaged in the direction and control of labor and 
 capital. 
 
 In doing so, let us proceed, as before, by illustration. 
 Let us take the case of the manufacture of cotton goods. 
 
 We may suppose that the present price of the staple is 
 ten cents, which, throwing transportation out of sight, 
 represents the cost of its production at the greatest disad- 
 vantage, that is, on the least fertile lands devoted to this 
 crop. Portions of the cotton may, indeed, have paid a 
 profit (rent) of one cent, or two cents, or three, or four, a 
 pound, to the owners of rich lands ; but of this the 
 manufacturers of cotton goods know nothing, and for this 
 they care nothing. The only fact with which they, as 
 manufacturers, are concerned, is that, the demand for cot- 
 ton being what it is, cultivation has, to satisfy that demand, 
 been carried downward to a certain grade of soils, cost of 
 production upon whicJi has determined the price, ten cents, 
 which they find ruling in the market. This price all manu- 
 facturers, capable or incapable, are equally obliged to pay, 
 so that all start on an equality as regards the cost of their 
 materials. In the cost, to them, of the labor requisite to 
 production, they are also substantially on an equality. We 
 have, also, a right to assume them to stand on the same 
 footing as regards the loan of capital and the price to be 
 paid for its use, namely, interest. 
 
92 POLITICAL ECONOMY. 
 
 If, now, we contemplate a body of manufacturers, fifty, 
 or a hundred, in number, supplying the same market, what 
 is to determine the normal price of that kind of goods ? 
 According to the principle we have already ascertained, it 
 must be the cost of production of that last considerable 
 portion of the necessary supply which is produced at the 
 greatest disadvantage. But how should there be any such 
 thing as advantage or disadvantage, in respect to produc- 
 tion, since all stand on a level as regards the prices of ma- 
 terials, the rate of interest, the wages of labor ? I answer, 
 differences will be developed, from the very earliest begin- 
 nings, in respect to the degree of business ability with 
 which these forces will, by these manufacturers, be applied 
 to these materials, for the production of this kind of 
 wealth ; and those differences will be large, and, except for 
 the operation of accident or fraud, will be measurably con- 
 stant. In any body of twenty, fifty, or one hundred manu- 
 facturers, there will be some who will produce more ; others 
 who will produce much more ; still others who will produce 
 Tery much more, of wealth, in the form of cotton goods, 
 than certain members of that body who employ the same 
 amount of labor and capital. 
 
 84. How one Manufacturer Produces More of Values 
 than Another. — This excess of values produced by certain 
 manufacturers over those produced by others, less success- 
 ful, in the same line of business, may be brought about in 
 many and various ways. It may be through greater care 
 of materials, from the day of purchase, through the time of 
 storage and through all the successive processes of produc- 
 tion, down to the day the goods are sold. It may be, by 
 more of organizing and energizing power, enabling certain 
 manufacturers to select always the right man for the place; 
 to correlate all the parts of the service and subordinate 
 everything to the supreme end in view ; to create and 
 
POLITICAL ECONOMY. 03 
 
 tnaintain throughout their entire force a spirit of earnest, 
 enthusiastic work. It may be, through ingenuity in de- 
 vising expedients and meeting exigencies of a mechanical 
 nature. It may be, through skill and taste in producing 
 better designs or a higher finish of goods. It may be, 
 tlirough a sound Judgment regarding the present and pros- 
 pective demands of the market, and a sort of prescience in 
 anticipating great and sudden changes of condition. It 
 may be through an instinctive sense of character, govern- 
 ing tlie decision, to what persons goods shall be sold, and 
 on what times and terms of credit. By one, or several, or 
 all combined, of these and other ways of reaching the result 
 in view, viz., the largest possible creation of values by the 
 use of a given amount of labor and of capital, it will inevi- 
 tably come about that the members of any considerable 
 body of producers in the same line, under external condi- 
 tions substantially the same, will be stretched out over a 
 very wide scale. 
 
 85. Production by the Least Competent Employers Deter- 
 mines Normal Value. — In such a state of things, what con- 
 stitutes production at the greatest disadvantage ? I answer, 
 it is production by the least competent employers. It is 
 the cost of their production, therefore, which determines 
 the normal value of that kind of goods, at that time, for 
 that market. The demand is such, by the very statement 
 of the case, as to require production by all these manufac- 
 turers : otherwise the least successful of them would already 
 have ceased, or would speedily cease, to produce. Since 
 the demand, however, is sufficient to keep them all pro- 
 ducing, that demand must determine a price for those 
 goods which will repay the cost of production at the great- 
 est disadvantage, that is, by the least competent producers. 
 
 Demand will not, however, under ordinary conditions, 
 that is, normally (which is the state of which we are speak- 
 
94 POLITICAL ECONOMY. 
 
 ing] fix a price wliich will more than repay this cost of pro- 
 duction at the greatest disadvantage. Exceptional circum- 
 stances may indeed, arise, under which demand will be so 
 highly stimulated as to raise the price to a point where all 
 producers, highest and lowest, shall, for the time, obtain, 
 by the sale of their goods, a surplus over the cost of pro- 
 duction, that is, profits. If, however, this state of things 
 lasts long, or promises to become permanent, other persons 
 will be tempted to come into the business, or those already 
 in the business will as quickly as possible enlarge their 
 plant, to take advantage of the situation. There will thus 
 be a constant tendency [which is what we mean when we 
 speak of what is normal, in production or trade], to bring 
 value down to the cost of production at the greatest disad- 
 vantage, that is, production by the least competent pro- 
 ducers actually contributing to the supply of the market. 
 
CHAPTER XL 
 
 MONEY: THE MEDIUM OF EXCHANGE. 
 
 86. Difficulties of Barter. — ^We have thus far spoken of 
 the exchange of wealth, as if the different producers ex- 
 changed their products directly with each other : carpenters, 
 blacksmiths, masons, tailors, now working for each other, 
 now working for fishermen, hunters, or tillers of the soil, 
 and receiving from them, in return, fish, flesh, grain, or 
 fruits. Such a direct exchange of services or of products 
 does, indeed, take place in a primitive community ; and, 
 even in the most advanced communities, it continues to take 
 place to a certain extent. But this direct exchange, which 
 we call barter, or truck, is effected with much difficulty, 
 even in primitive communities ; and that difficulty increases 
 very rapidly as occupations become multiplied and as the 
 services or products to be exchanged increase in variety. 
 
 87. Double Coincidence of Wants and of Possessions. — The 
 difficulty referred to is the difficulty of securing a double 
 coincidence of wants and of possessions. The phrase just 
 used is a long one ; but the thing itself is easily understood. 
 Where the division of labor has gone a great way, a pro- 
 ducer will wish to consume, or personally enjoy, only a 
 part, and that a very small part, of what he himself pro- 
 duces. The rest of his product he expects to see consumed 
 by others, from whom, in turn, he looks to receive the 
 particular things which he desires to consume or en- 
 joy. So far, the conditions of an exchange are met. But 
 
 95 
 
96 POLITICAL ECONOMY. 
 
 when any producer actually goes about to make those ex- 
 changes, he may have to spend a great deal of time and 
 walk a great way, in order to find a person who both has 
 what he wants, and wants what he has. He may find 
 many who have what he wants, but do not want what he 
 has, and many more persons who want what he has, but 
 who have not, also, that which he wants, before he will find 
 one person between whom and himself exists that " double 
 coincidence of wants and of possessions" of which we 
 spoke. This difficulty might often be found so great as to 
 compel a man to expend more time and effort in exchang- 
 ing his product than in making it. 
 
 88. Difficulty of ** Making Change." — Another obstacle 
 which is encountered in direct exchange, or barter, in the 
 case of many articles, arises from the difficulty, or even the 
 impossibility, of so dividing products as to make a fair ex- 
 change. If three hats be worth five bushels of wheat, an 
 exchange will be easy enough, provided the man who has 
 hats wants wheat, and the man who has wheat wants a hat. 
 A hat will be given for one bushel, two pecks and about 
 five quarts of wheat; and both parties will be satisfied. 
 But if three hats are worth four pairs of shoes, an exchange 
 will be impossible, unless one party takes more hats, and 
 the other party more shoes, than he needs. This difficulty, 
 again, would often go so far as to render direct exchange 
 impossible. 
 
 89. Need of a Common Denominator of Values. — A third 
 obstacle to barter would be found in the difficulty which 
 producers would experience in finding out for how much 
 of the various products of others a certain quantity of their 
 own product ought to exchange. 
 
 This obstacle to barter is not a fanciful one. In a com- 
 munity where direct exchange was the rule, each article 
 in the market would have to be quoted in terms of every 
 
POLITICAL tJGONOMY. 07 
 
 other,* or, else, every producer would be obliged to work out 
 a long "rule of three" sum, to tell for how much of his 
 own product a certain amount of any other man's product 
 ought to exchange. 
 
 Let us take a simple case, a very simple case, an almost 
 impossibly simple case. Let it be supposed that a man, 
 who wishes to exchange sugar for tacks, finds out, by in- 
 quiry in the market, that one pound of tobacco has that 
 day been exchanged for four pounds of flour ; one pound 
 of flour for half a pound of tacks ; one pound of sugar for 
 two pounds of rice ; three pounds of rice for one pound of 
 tobacco. At what rate, then, shall he exchange his tacks 
 for sugar? The problem here is a very easy one, almost too 
 easy to occur in practice, since the commodities we have 
 taken are very few, and the numbers are all factors of 
 twenty-four. Let us work it out. If one pound of tobacco 
 is worth four pounds of flour, and a pound of tacks is worth 
 two pounds of flour, tacks are worth half tobacco, by weight. 
 If one pound of sugar is worth two pounds of rice, and a 
 pound of tobacco is worth three pounds of rice, sugar is 
 worth two-thirds tobacco, by weight. If, then, tacks are 
 worth half tobacco, and sugar is worth two-thirds tobacco, 
 tacks are worth three-fourths sugar, by weight ; that is four 
 pounds of tacks should buy three pounds of sug^r.f 
 
 90. Wanted : A Medium of Exchange. — Such are the ob- 
 stacles to direct exchange, or barter. The sense of these 
 difficulties early drove the world to the means of avoiding 
 direct exchange. This was effected by the use of some 
 
 * Using figures to represent different articles, such as wheat, cot- 
 ton, wool, iron, sugar, tobacco, coffee, etc., the teacher might here 
 place upon the blackboard tables which should show the diflBculty 
 of quoting each article in the market in terms of every other. 
 
 f In the illustration given above, it is assumed that tacks are worth 
 6 cents ; sugar, 8 ; tobacco, 12 ; flour, 3 ; rice, 4. 
 
98 POLITICAL ECONOMY. 
 
 article, which, either by law or by general agreement, all 
 producers should receive for anything which they had to 
 sell, being made willing to do so by the assurance that all 
 other producers would receive this article from them, when- 
 ever they, in turn, wished to buy. Any article, so used in 
 any community, becomes the general medium, or means, 
 of exchange ; and to it the people of our race apply the 
 name, money. 
 
 Now, let us see how this instrument, or means, or me- 
 dium, of exchange works in practice. Let it be supposed 
 that, in a given community, wheat has come to be so gen- 
 erally used as money that every producer knows and feels 
 perfectly assured that, with wheat, he can buy, at any time, 
 in any place, from any person, whatever he may desire to 
 consume. This being so, he will himself prefer to sell his 
 own product for wheat rather than for anything else. In 
 such a state of things, the problem of exchange becomes a 
 very simple one. A producer has no longer to find out for 
 how much of this or that, among twenty or fifty or a hun- 
 dred articles, a certain amount of his own kind of goods is 
 selling for. He has only to find out how much wheat that 
 kind of goods is selling for ; and this he can readily do by 
 a single inquiry. Having ascertained this, he is no longer 
 obliged to find the men who want the goods he has and also 
 have the particular goods he wants ; but the moment he 
 finds a man who wants his goods and also has wheat (and 
 every one who has any wealth at all now keeps wheat on 
 hand, for this purpose) he can close the bargain at once. 
 Finally, the great difiiculty about '^ making change" is 
 avoided. If it is an ox he has to sell, he gets for it, say, a 
 wagon-load of wheat ; and of this he gives half a peck for a 
 pound of sugar, a bushel for a keg of nails, two bushels for 
 a hat, four bushels for a gun, six bushels for a roll of cloth, 
 and so on, to the extent of his wants and his means. No 
 
POLITICAL ECONOMY. 99 
 
 matter how small the value of the thing he wishes to buy, 
 he can always take out a quantity of wheat which will be of 
 about the same value. 
 
 91. The Money Function. — Let us now recapitulate the 
 ways in which money performs its great office as a medium 
 of exchange. 
 
 First, it dispenses with the double coincidence of wants 
 and possessions, which is involved in barter. 
 
 Second, it promotes the making of change, as between 
 articles which cannot themselves be divided without de- 
 stroying or impairing their value. 
 
 Third, it furnishes a '* price current" of all the articles 
 in the market, through giving a common denominator for 
 the value of each and every article, by turns. 
 
 92. Definition of Money. — Having described the money 
 function, we are now able to define money. In other 
 words, having seen what money does, we can tell what 
 money is. Everything which does the work which has been 
 indicated above, is money, no matter what it is made of, no 
 matter what its size, weight, shape or color. To parody an 
 old proverb,* money is that money does. The following 
 is our formal definition of money. Like our definition of 
 value (par. 3) it is necessarily long and much involved ; 
 but nothing less than this will convey the whole truth, so 
 that it cannot be misunderstood. 
 
 Money is that which passes freely from hand to hand 
 throughout the community, in final discharge of debts and 
 full payment for commodities, hei7ig accepted equally with- 
 out reference to the character (or credit) of the person ivho 
 offers it, a7id without any intention on the part of the re- 
 ceiver to consume it, or enjoy it, or apply it to any other 
 2ise than, in turn, to tender it to others, in discharge of debts 
 or in payment for commodities. 
 
 * "Handsome is that handsome does." 
 
100 POLITICAL ECONOMY. 
 
 93. An Historical Illustration. — Let us take an illustra- 
 tion from the history of Virginia. Tobacco early became 
 the chief export of that colony. Since tobacco was always 
 in demand for shipment, it was readily taken at the coun- 
 try store. Every planter brought his tobacco thither, 
 knowing that it would be taken, as a matter of course. 
 Every week, or every month, the trader loaded up his teams 
 and sent his stock of tobacco to the sea-shore, where, in 
 the chief towns, it was exchanged for West India goods, 
 dry goods, hardware, etc., imported from abroad. With 
 these the teams returned loaded ; and the planters took the 
 molasses, the cloth, the boots or the tools they wanted, to 
 the value of the tobacco which the trader had received 
 from them. 
 
 Even such an extensive use of tobacco, in exchange, did 
 not, however, make it money. The transactions which 
 have been described were merely instances of barter. But 
 the fact that tobacco was thus freely taken at the country 
 store soon gave an extension to its use in exchange which 
 did make it money. Since tobacco was taken at the store, 
 in exchange for goods of every kind, it came to be taken 
 between man and man, throughout the community. The 
 lawyer and the physician were glad to receive their pay in 
 tobacco, because this was always good for groceries and dry 
 goods; while the fact that tobacco was taken, not only by 
 the store-keeper, but also by the lawyer and the physician, 
 made the farmer who raised corn willing to take it in ex- 
 change for his product. 
 
 And, so, tobacco became money in Virginia. It was not, 
 however, until every one took it, and took it as a matter of 
 course, that it was properly to be called money. So long 
 as men accepted it with any degree of uncertainty as to 
 finding persons who would in turn accept it from them; so 
 long as men took it with the feeling that it was something 
 
POLITICAL ECONOMY. 101 
 
 which they were buying, and whiv?H> fey would hav© to 
 sell over again, something for which they must nefeds hunt 
 up a purchaser, tobacco was not money.. : , ; ' ; ;"; \\ | [ 
 
 94. Universal Acceptability Essential to Money.— Ko 
 article becomes money until it has acceptance so nearly uni- 
 versal that practically every person who has any service or 
 product to dispose of, will freely, gladly take it, in prefer- 
 ence to seeking, at the time, the specific products or ser- 
 vices which he may require from others. He takes it from 
 any man, whenever he has anything to sell, because he 
 knows that any other man will take it from him, whenever 
 he may wish, in his turn, to buy. When an article 
 reaches this degree of acceptability, it becomes money, no 
 matter what it is made of, and no matter why people want it. 
 If, as a matter of fact, people do want it, that suffices for 
 all the purposes of a true money. 
 
 The reader should fix his mind strongly on this central 
 idea of a Medium of Exchange. Money is always a me- 
 dium ; an interrfiediate thing ; Uot an end, but a means 
 to an end. Men take it, not for its own sake, but for 
 what it will bring them. They hold it, not to enjoy it, 
 but to be ready for the moment when they shall part 
 with it, in purchasing those things which they desire to 
 enjoy. 
 
 95. Price. — We have thus far, in this treatise, spoken 
 much of Value, and shall continue to do so; but the time 
 has now come to introduce a new term, viz.. Price. Value 
 is power in exchange : price is power in exchange for 
 money. The price of an article is its money-value. The 
 value of a horse, for example, represents the power which 
 the horse confers upon its owner to command, in exchange 
 for itself, the labor of other persons, or many and various 
 products, at will, corn, cotton, iron, or what not. The 
 price of a horse represents the power which the horse con- 
 
102 POLITICAL ECONOMY. 
 
 fers 'lijDpn its o\^n"fe); ,to; command, in exchange for itself, the 
 money of the counti^y/ 
 
 iMcals] thut<, value in terms of money. Now, value, as 
 we saw, depends always upon the relations of demand and 
 supply. Price, therefore, being a species of value, must 
 depend always upon the relations of demand and supply. 
 Increase the quantity of money in the country, the number 
 of horses and the demand for horses remaining the same, 
 and the price of horses will rise : that is, it will require 
 more money, more coins, say, of gold or silver, to purchase 
 a horse. Increase the number of horses, the demand for 
 horses remaining the same, and the amount of money being 
 unchanged, the price of horses will fall : that is, fewer coins 
 of gold or silver will purchase a horse. 
 
CHAPTER XII. 
 PRIMITIVE FORMS OF MONEY. 
 
 96. The Cereals as Money. — We have told what money 
 does, and what money is; and we have, in illustration, 
 spoken of one article, tobacco, which has actually served as 
 money, through a considerable time and over a considerable 
 extent of territory. Let us now consider other historical 
 forms of money. 
 
 Wheat, corn, and rye have extensively performed this 
 office. It is manifest that the cereals have two important 
 qualifications for use as money. 
 
 First, they are in universal request, for personal consump- 
 tion as food. 
 
 Second, the value of a day's labor, in cereals, comprises 
 many separate grains. Consequently, you can take out of 
 such a mass of wheat, or corn, or rye, the price of the small- 
 est and cheapest article. There is no difficulty in making 
 change with this kind of money. 
 
 On the other hand, the cereals, as money, are subject to 
 two drawbacks: first, in the great weight and bulk of the 
 quantity which represents a day's labor ; and, secondly, in 
 their liability to injury, through rust, insects, damp, over- 
 heating, or from the mere passage of time. 
 
 97. Cattle and Sheep as Money. — Cattle have also exten- 
 sively performed this office. Oxen were used as money 
 
 103 
 
104 POLITICAL ECONOMY. 
 
 among the Greeks of the Homeric period. Sheep served 
 the Italians, at a later period, as the common medium of 
 exchange. Even after the abandonment of Britain by the 
 Romans, we find the inhabitants, in the scarcity of coin, 
 returning to the use of *•' living money," especially in Scot- 
 land and Wales. "It is very possible," says Sir Henry 
 Maine, "that kine were first exclusively valued for their 
 flesh and milk; but it is clear that in very early times a dis- 
 tinct and special importance belonged to them as the in- 
 strument or medium of exchange." 
 
 Cattle or sheep may be either a good money or an incon- 
 venient money, according to the circumstances of the com- 
 munity. In a pastoral state, they present many advantages 
 for this use. They carry themselves ; and thus avoid the 
 principal objection to the use of grain as money. On all 
 sides are fields and plains, over which the animals may 
 graze ; while every member of the society is familiar with 
 the methods of guarding and tending them. 
 
 On the other hand, cattle and sheep have two serious 
 drawbacks to such use. The first is that each animal has 
 too high a value to be used for single, daily purchases. 
 Even the calves and lambs will scarcely answer all the re- 
 quirements of small change. The second drawback to the 
 use of cattle and sheep, as money, is the difference in 
 quality which exists among them. Even in a picked herd 
 or flock, there is great room for choice ; while it is amazing 
 how small and lean cattle can be, if they are to be used for 
 paying debts or taxes. In the early days of the Massachu- 
 setts colony, citizens were allowed to pay their taxes in this 
 way ; and it is related that the cattle which came into the 
 hands of the town treasurers were something wonderful to 
 behold. 
 
 But while cattle and sheep have been found by many 
 tribes and peoples, in a pastoral state, and even when ad- 
 
POLITICAL ECONOMY. 105 
 
 vanced a certain way in agriculture, to be tolerably good 
 money, in spite of these objections, it is evident that the 
 very possibility of answering this requirement fails in all 
 highly civilized states. The cost of feeding animals, and 
 the risk and trouble of keeping them, become so great as 
 absolutely to preclude their use as money. 
 
 In addition to cereals, and to cattle and sheep, a great 
 variety of articles have, at one time or another, in one 
 country or another, been used in this way. Eice was so 
 used along the Coromandel shore ; cocoa, among the abo- 
 riginal Mexicans ; olive-oil, by the inhabitants of the Ionian 
 Islands ; blocks of rock salt, by the Abyssinians ; strings 
 of wampum, with bullets for small change, by the early 
 New-Englanders ; small cubes of compressed tea were used 
 as money in the famous Russian fairs ; dried dates in the 
 African oases ; beaver skins and seal skins, in many coun- 
 tries. 
 
 98. The Metals as Money. — One large class of substances 
 have a great importance in the history of money, having 
 been used as the medium of exchange in the earliest times, 
 and among a wide circle of nations. The metals, es- 
 pecially seven of them, have been found to possess in a 
 very high degree the material properties required for this 
 purpose. 
 
 Iron, lead, tin or copper, one or all, early became the 
 money of almost every country whose history we know. 
 The numerous uses of these metals made them universally 
 acceptable ; while, the art of mining being in those days 
 very rude, a small body of metal represented the labor of 
 days, and thus contained a high purchasing power. 
 
 Metal money was, in certain respects, better than any 
 other form of money known to barbarous communities : 
 
 {a) The metals, though subject in some degree to loss 
 through exposure to the air, suffer almost indefinitely less 
 
106 POLITICAL ECONOMY. 
 
 from fire or other forms of accident than most kinds of 
 wealth that are not metallic. 
 
 ih) Bodies of these metals can, with comparative ease, be 
 divided or reunited, as may be required ; they may be 
 melted down and cast into any shape ; they may be alloyed 
 or purified, with comparatively little labor or loss of sub- 
 stance. 
 
 It is through its failure in the last respect, that still an- 
 other metal, besides those named, has not been used as 
 money. This is platinum : a noble metal ; in some respects 
 the best of all. In 1828, the Emperor of Kussia under- 
 took to use platinum as a money metal, but, after about 
 twenty years, the effort was abandoned, owing to the ex- 
 treme difficulty of rendering platinum from ingots into 
 coin and from coin back again into ingots, as might be 
 needed. 
 
 As the art of mining improved, iron, lead, and tin, one 
 by one, became too cheap to be conveniently used as money. 
 In all other respects, the metals were just as well qualified 
 for this use as ever ; but the great weight of the quantity 
 of any one of them which could be produced by a day's 
 labor, made such coins in an increasing degree inconvenient. 
 Copper longest held its own ; but even this, after a while, 
 ceased to be used as money in highly civilized countries, 
 except as small change. Among barbarous or semi-bar- 
 barous nations, however, copper still remains the chief 
 money. 
 
 99. The Precious Metals. — Two of the metals have en- 
 joyed a preeminence in the history of money which has 
 earned for them the proud title, the Precious Metals. 
 
 Not that gold and silver are the most costly of all. Sev- 
 eral metals are more valuable even than gold ; but these are 
 found in extremely small quantities, far below what would 
 
POLITICAL ECONOMY. 107 
 
 be required to furnish all the coins needed for use in any 
 one considerable country. 
 
 Of the two so-called precious metals, silver first came into 
 use as money. We hear of it in early Hebrew history. It 
 was long coined by the Greeks and Romans, while gold re- 
 mained merely treasure in palaces and temples, or was used 
 for extremely precious ornaments. The great Philip of 
 Macedon, in the early part of his reign, was wont, when he 
 retired to rest, to place under his pillow the small and only 
 cup of gold he possessed. 
 
 The extreme beauty of silver, brightest of all the metals, 
 together with its many uses in the economy of life, make it 
 an object of admiration and desire among all peoples, in 
 every stage of social advancement. Easily fusible, highly 
 ductile, practically imperishable, silver would have filled 
 our highest conception of a money metal, had not the earth 
 yielded one transcendent product, in comparison with which 
 even silver fades from desire. 
 
 So great is the difficulty of obtaining gold, that a vast 
 amount of purchasing power is concentrated, whether for 
 conveyance or for concealment, in very small bulk. Hum- 
 boldt, in one of his memoirs, states that, at then existing 
 prices, one kilogram of gold would purchase 1611 kilo- 
 grams of copper, 9700 of iron, 20,974 of wheat, or 31,717 
 of barley. 
 
 But while gold is thus precious, it is found in many 
 countries, and in sufficient quantity to allow of its con- 
 venient use as an every-day medium of exchange by wealthy 
 nations. Were gold as scarce as vanadium, the piece in 
 which a workman received his day's wages would require to 
 be handled with delicate pincers, like the parts of a watch, 
 and would be liable to be blown away and lost by an unex- 
 pected sneeze. 
 
 The durability of gold, its fusibility, ductility and mal- 
 
108 . POLITICAL ECONOMY. 
 
 leability, form a group of properties of the highest im- 
 portance for the purposes of coinage and circulation; 
 while they add greatly to its uses in the industrial and 
 decorative arts. One cubic inch of gold may be beaten out 
 to cover millions of square inches. Gold may be alloyed 
 and refined, united and divided with the greatest ease, and 
 with absolutely no loss of the pure metal. 
 
CHAPTEE XIII. 
 
 CREDIT : THE STANDARD OF DEFERRED PAYMENTS : 
 THE TABULAR STANDARD : BIMETALLISM. 
 
 100. The Growth, of Credit. — What we have thus far 
 said concerning capital would be nearly all true, were 
 every portion of capital in the hands of its owner, to be 
 used by him in production or trade. And, indeed, in that 
 primitive state of industrial society of which we have 
 spoken so much, capital generally remains in the hands of 
 its proper owner. Of course, even here capital is some- 
 times loaned by its owners to other persons, upon promise 
 of repayment, at a definite time, or upon demand, which 
 promise is generally supported by a pledge or mortgage of 
 lands or of some form of wealth. Frequently, the body 
 or the personal liberty of the borrower is pledged for the 
 repayment of the loan, so that if he fail to pay at the 
 proper time, the lender, the person who has given credit, 
 the creditor, has the right, under the law, to seize his per- 
 son, either to make him work as a slave, or to shut him up 
 in prison. But, in such a state of society, the total 
 amount of capital is very small, and of this only a very 
 small proportion is loaned. The great majority of those 
 who have capital are both desirous and able themselves 
 to employ it in business, in the simple agriculture, or in 
 the small manufactures, or in the petty neighborhood 
 trade, then carried on. 
 
 As, however, communities grow older and advance in the 
 
 109 
 
110 POLITICAL ECONOMY. 
 
 industrial arts, the amount of capital rapidly increases ; 
 and of this larger amount a continually larger share is let 
 out to others than the owners. The reason for this last 
 fact is twofold : 
 
 {a) There is a continually increasing number of per- 
 sons who do not have occasion to employ their own sav- 
 ings in their own business. Take the case of a small 
 farmer. When, perhaps, the grandfather first acquired 
 the farm, he was put to great straits to find capital enough 
 to properly improve it. He was obliged all his life to 
 pinch himself and his family to get the means to pur- 
 chase animals and tools, to build fences and sheds and 
 barns and a poor sort of house. His son, finding much 
 of this done, was not obliged to live quite so meanly : 
 but still he, too, continued, through his life, to put all he 
 could possibly save into various kinds of improvements, 
 including deeper ditches, higher walls, larger barns and, 
 perhaps, a better house. The grandson, coming into pos- 
 session of a well-improved farm, has a much less urgent 
 need for whatever wealth he can save out of his earnings ; 
 and, if he does not choose to enlarge his farm, he has every 
 year something left over which he can lend to any one who 
 desires to build a little mill on a neighboring stream, or to 
 set up a small shop or store in the village. The further the 
 division of labor is carried, the larger will be the number 
 of those who have capital to lend. 
 
 {h) There is another cause which works to the same end. 
 The larger the operations of business and the more com- 
 plicated the organisation of industry, the smaller, relatively, 
 becomes the number of those who can safely and success- 
 fully undertake production and trade. Very many who 
 have capital, in large amounts or in small, fear that, should 
 they undertake to use it in business for themselves, they 
 would lose it in part or in whole, and hence they prefer to 
 
POLITICAL ECONOMY. Ill 
 
 entrust it to others whom they deem more capable, who 
 are already in business and can use this additional capital 
 to do more of the same kind of work. 
 
 101. Modern Credit.— This movement, for the loan of cap- 
 ital, which we have seen beginning in a very early stage of 
 industrial society, goes on at a continually accelerated ratio 
 until, in such communities as those to which we belong, a 
 very large part, sometimes by far the larger part, of all the 
 capital in existence is in the hands of those who do not 
 own it, but borrow it from the owners, upon various con- 
 ditions and terms of repayment. While this is going on, 
 the laws regarding the treatment of the debtor, in case he 
 should fail to make payment according to his contract, are 
 continually growing milder. Those which made the un- 
 fortunate debtor a slave to his creditor are first repealed. 
 Then imprisonment for debt, where no fraud is suspected, 
 is first mitigated and finally abolished. At last, so-called 
 bankruptcy laws are passed, so that a man who has bor- 
 rowed money which he cannot repay, and who can satisfy 
 the judge that he has done his best, in good faith, has his 
 debt wiped out, and is permitted to begin his work in life 
 over again. 
 
 These gradual changes in the law relating to debt are 
 not due wholly to a better sense of justice or to greater hu- 
 manity. They are largely due to policy, for, if production 
 and trade are to be greatly, and even mainly, carried on 
 with borrowed capital, as is absolutely necessary in such a 
 state of society, then the borrowing of capital must be 
 made easy and safe, and the old, cruel laws must be 
 abolished. 
 
 102. The Creditor Class. — I have shown how, in an early 
 stage of society, the cultivator of a well-improved farm 
 may have capital to lend to the man who wishes to set up 
 a mill or a shop. In a long-settled country, like England, 
 
112 POLITICAL ECONOMY. 
 
 the amount so loaned by the agricultural interest, for 
 building up manufactures and extending trade, becomes 
 enormous. Then, as one branch of manufactures becomes 
 rich and strong, it is able to loan capital to those who are 
 starting new branches of manufacture. Moreover, the pro- 
 fessional classes, so called, become lenders to a large amount. 
 A lawyer or physician, who has accumulated twenty or fifty 
 thousand dollars, in the course of his practice, has no occa- 
 sion to use his capital in his own business ; and is there- 
 fore glad to lend it, upon good security, to some one who 
 will employ it in business and give him a part of the profits. 
 Even the laboring classes become lenders; and, though the 
 amount that each has to loan is small, the aggregate amount 
 which hundreds of thousands, or millions, of laborers may 
 have to loan, if they are both industrious and frugal, is 
 very great. Finally, there is an increasing number of those 
 who, having inherited money from their fathers or others, 
 are not disposed to employ it productively themselves, but, 
 either through fear of losing their capital or from a desire 
 to take life easily, prefer to have others manage it for them. 
 This is one of those things of which we say that they ac- 
 quire force by their own motion. The further the "credit 
 system" is carried, the greater the inducements to lend 
 capital to persons who have peculiar opportunities for em- 
 ploying it advantageously, until it may come about, in any 
 country, that but a small part of those who have capital 
 use it in business for themselves. 
 
 The Standard of Deferred Payments. 
 
 103. Money as the Standard of Deferred Payments. — The 
 
 introduction of credit into trade and industry makes a new 
 demand upon money, viz., that it shall act as the standard 
 of deferred payments. If a man parts with the good |lie 
 
POLITICAL ECONOMY. 113 
 
 has produced, upon the condition that he is only to be paid 
 for them at the end of some months, or if the owner of 
 capital lends it to another to be repaid, perhaps, years 
 after, it is evident that a good money must be something 
 more than a convenient medium of exchange. It must 
 also possess a reasonable degree of stability in value, so that 
 the creditor may receive back, at the time of repayment, 
 that which shall be worth as nearli^ as possible what he 
 parted with. 
 
 104. "Wheat as the Standard of Deferred Payments. — The 
 articles which have been historically used as money differ 
 very widely in this last respect. Some, which have been 
 excellent mediums of exchange, have proved to be very 
 poor standards for deferred payments. Wheat, as we have 
 seen, has been used as money in many ages and in many 
 countries, and has served the purposes of a medium of ex- 
 change tolerably well. As a standard for payments de- 
 ferred for a few years, however, wheat may act very badly. 
 It may happen that the crop of one year will be only three- 
 quarters or two-thirds of that of the year preceding; and, 
 wheat being something which everybody wants, and wants 
 very much, its value may, in consequence of such scarcity, 
 rise to double what it was. In such a case, the man who 
 has loaned capital, in the form of wheat, will, on being 
 paid back in wheat, during a year of scarcity, receive back 
 double what he lent. This is a great wrong to the debtor, 
 and may ruin him entirely ; while the creditor, though he 
 receives much more than his due, will derive therefrom no 
 corresponding benefit. All liistory teaches that unearned 
 gains do not help memis much as undeserved losses hurt 
 men. Light come: light go. Industry and frugality, 
 hopefulness and cheerfulness in labor, the feeling of justice 
 between man and man, the willingness to loan capital to 
 others, all these are seriously impaired and sometimes 
 
114 POLITICAL ECONOMY. 
 
 fatally injured by such unearned gains to one party, such 
 undeserved losses to the other. 
 
 105. Gold and Silver as the Standard of Deferred Pay- 
 ments. — On the other hand, the metals have a considerable 
 stability of value, within a short term of years. Especially 
 is this true of gold and silver. Being practically imperish- 
 able, and being mainly used as money, any one year's pro- 
 duction, or any two or five years' production, bears a very 
 small proportion to the total stock in existence. If we 
 ^^] stppose the total amount of gold and silver in the hands 
 01 men to be ten thousand millions of dollars (American 
 money), and the annual average production to be a hun- 
 dred millions, it will be seen that, should the annual pro- 
 duction fall off to fifty millions, for one year, or three, or 
 five, the value of the precious metals would be very little 
 aifected thereby. In the same way, should the annual pro- 
 duction rise to one hundred and fifty millions, for the 
 same time, the value of silver and gold would not be much 
 reduced, in consequence. 
 
 But, while gold and silver have thus a high degree of 
 stability of value, as compared with wheat, within a brief 
 term of years, they tend to change mnch more than wheat 
 during long periods, such as fifty or one hundred years. 
 While one crop of wheat may be large, or may be small, as 
 compared with another, and while we may even have two 
 or three bad years, followed by as many good years, the 
 cost of producing wheat does not vary greatly from age to 
 age. On the other hand, after fifty years of a rapid pro- 
 duction of gold and silver, the principal mines supplying 
 the market may be found almost completely worked out ; 
 and a long period may ensue, during which the value of 
 gold and silver may steadily rise, before new mines or new 
 mining countries shall be discovered, perhaps ages after. 
 This has been the experience of the world many times in 
 
POLITICAL EGONOMT. 115 
 
 human history. Unfortunate as this condition is, nothing 
 has yet been hit upon to remedy the evils resulting. The 
 spasmodic and intermittent production of the precious 
 metals has always constituted a grave obstacle to industrial 
 and social progress, although it was not until recently that 
 the effects of this cause were clearly perceived and fully 
 appreciated by historians and statesmen. 
 
 A Tabular Standard. 
 
 106. A Tabular Standard for Deferred Payments. — A 
 
 strong sense of the inconvenience and the injustice result- 
 ing from the use of any single article, as money, has led 
 certain economists to propose the introduction of a stand- 
 ard for deferred payments which shall be different from 
 the money used in buying and selling where payment is to 
 be made at the time. The standard they propose is to be 
 formed, not of any one article, but of several, even of 
 many, articles, joined together for this purpose. The idea 
 underlying the plan is that, if a number of articles be 
 taken, some will rise, to be sure, but others will fall; and 
 that, if enough articles be selected, nearly as many will 
 rise as will fall, and thus the average value of the whole 
 will not greatly change. 
 
 Those who thus propose what is called a tabular stand- 
 ard of value, i.e., a standard made up from a table, or list, 
 of many different things, do not intend that money shall 
 be dispensed with, in ordinary buying or selling; or even 
 that money shall be dispensed with in making deferred 
 payments. The tabular standard is only to be used to de- 
 termine how much money shall be paid, at the end of a 
 period of credit. 
 
 Let us illustrate the working of such a system. A sells 
 a house to B for $5000. B is to pay for the house at the 
 end of three years. Now, with the use of money, it is 
 
116 POLITICAL ECONOMY. 
 
 probable that B, at the end of three years, will pay to A 
 what will be worth either more or less than what $5000 
 would have bought at the time of the sale. It may be con- 
 siderably less; it may be considerably more. The least 
 likely supposition will be that the $5000 will then be worth 
 just what they are now. Either A or B is almost certain 
 to lose something, without any fault of his, which the other 
 will gain, without having done anything to deserve it. 
 
 But let us suppose that Government had, according to 
 this scheme, established a tabular standard of value. This 
 could have been done by a law, which should declare that 
 certain quantities of coal, of cotton, of iron, of wool and 
 of other articles, twenty or thirty in number, should con- 
 stitute " the standard of deferred payments;" and that cer- 
 tain government officers should every day publish in the 
 newspapers the cost of such a bill of goods, according to 
 the prices of the day before. Now let us suppose, that, on 
 the day when A sold the house to B, the value of the 
 tabular standard was $25 : that is to say, $25 would, the day 
 before, have bought all those goods, in the quantities fixed 
 by the law. A and B, therefore, covenant that B shall, 
 at the end of the three years, pay, not $5000, but (200 X 
 $25 = $5000) 200 units of the tabular standard. At the 
 end of the term of credit, three years, A and B find that 
 the value of the tabular standard, as proclaimed by the 
 commissioners, is only $20; and B, therefore, pays to A 
 $4000, in money. Xow, it is true that A has received 
 only $4000, instead of $5000 which the house was worth at 
 the time of the sale; but, with the $4000 he thus receives, 
 A can go into the market, and buy just as many goods as 
 he could have done, with the price of the house, three 
 years before. B is thus saved from losing $1000. Credit 
 has been given and taken, without either party gaining or 
 
POLITICAL ECONOMY. 117 
 
 losing through the change in the value of money in the 
 mean time. 
 
 That the use of a tabular standard would prevent a great 
 deal of injustice and industrial injury cannot be questioned. 
 It is, however, a serious question, whether people will ever 
 take the trouble to establish this system and maintain it. 
 That trouble would not be very great; but most people are 
 averse to taking the least trouble in the matter of buying 
 and selling. So far, mankind have put up with all the 
 evils attendant upon the use of money, which rises and 
 falls in value from time to time. It is probable that they 
 will continue to do so, although the scheme we have stated 
 is perfectly practicable, should people care enough about 
 it to take a little pains for the sake of the good it would do. 
 
 Bl-METALLISM. 
 
 107. Fluctuations in the Relative Value of Gold and 
 Silver. — Eeference has been made, in the last few para- 
 graphs, to the fact that the production of the precious 
 metals has, through long periods of time, been highly 
 spasmodic and intermittent, vast amounts of these metals 
 being produced in one period, while, in another, produc- 
 tion has greatly fallen off. While this is true of the two 
 metals taken together, it is true in a much higher degree 
 when either metal is taken alone. At times, silver has 
 been produced in large quantities, while the production of 
 gold has almost ceased. Then, again, the production of 
 gold would spring up rapidly, while the amount of silver 
 taken from the mines fell off. It has seldom happened 
 that periods of great gold-production have coincided with 
 periods of great silver-production. 
 
 Looking at this fact, many economists and statesmen 
 have thought that, if gold and silver could somehow be 
 joined together, in their use as money, there would be far 
 
118 POLITICAL ECONOMY. 
 
 less tendency to a violent rise or fall in the value of the 
 compound mass, than in either, taken alone. One method, 
 which has been proposed for.effecting this object, has been 
 to make each coin contain a certain amount of gold and a 
 certain amount of silver, so that every person who uses 
 coins should have to use both gold and silver. A scheme, 
 more highly thought of, and one which has actually been 
 put in operation, by many governments, at different times, 
 is that to which the name, Bi-metallism, is usually 
 applied. 
 
 108. French Bi-metallism. — We shall perhaps get the 
 best idea of what might possibly be done in this way, by 
 referring to the law which was enacted m France, in 
 1803. At that time, the value of gold was assumed to 
 be 15^ times that of silver. The law of 1803 decreed 
 that every debtor should have the right to pay his 
 obligations in coins containing the stipulated amount of 
 gold, or in coins containing 15J times that amount of 
 silver, at his own choice. The idea underlying this law 
 was that, should gold thereafter tend to become more 
 than 15J times as valuable as silver, all debtors would 
 naturally prefer to pay their debts in coins of silver, the 
 cheaper metal. This would make silver more sought for: 
 i.e., it would increase the demand for silver. Now, to 
 increase the demand for an article, other things equal, is 
 to raise its price. Thus, a force would be set at work to 
 counteract the force which was tending to lower the value 
 of silver, as compared with gold. On the other hand, 
 since no debtor desired coins of gold, the demand for thjs 
 metal would at once be reduced. Now, to reduce the 
 demand for any article is, other things being equal, to 
 lower its price ; and thus, in the instance given, a force 
 would be set at work to counteract the force tending to 
 yaise the price of gold, as compared with silver, 
 
POLITICAL ECONOMY. 119 
 
 In the opposite case, that is, should silver become more 
 scarce, and hence tend to rise in comparison with gold, the 
 same principle would apply; but the forces would work in 
 an exactly opposite direction. Since every debtor would 
 seek to pay his obligations in coins of the cheaper metal, 
 i.e., gold, the demand for this metal would, by that fact, 
 be enhanced, while the demand for silver, to pay debts 
 with, would fall off. Thus, again, forces would be set at 
 work to counteract those which were tending to make 15J 
 ounces of silver worth more than an ounce of gold. 
 
 109. The Latin Union. — Such was the French scheme. 
 At dates subsequent to 1803, other countries, viz., Italy, 
 Belgium, and Switzerland, joined with France in this 
 measure, forming the league known as the Latin Union. 
 The operation of the French law proved extraordinarily 
 favorable to the stability of " the ratio" between the two 
 metals, viz. 15J to 1, fixed in 1803. Shortly after that 
 date, occurred a series of fierce revolts and revolutions 
 in the Spanish states of South America, then the prin- 
 cipal seat of silver mining; mining machinery was de- 
 stroyed; milling populations were scattered; the mines 
 themselves filled up or fell in. There was, thus, a very 
 strong tendency to raise the price of silver, relatively to 
 gold. But the force which the French law had set in 
 operation was found sufficient to counteract this cause. 
 About 1830, important gold mines were discovered in 
 Russia, and again the two metals tended to fall apart from 
 the fixed ratio; but again the operation of the French 
 law served to keep gold and silver close to the established 
 ratio, not only in France, but all over Europe and in 
 America, as well. In 1848, gold mines of extraordinary 
 richness were discovered in California, and, only three 
 years later, in Australia, also. Then came the great strain 
 on the bi-metallic system. 
 
120 POLITICAL ECONOMY. 
 
 It really seemed as though the force which the French 
 law brought into operation could not possibly counteract 
 the force with which the floods of new gold were seeking 
 to tear the two money-metals apart from each other. 
 Within twelve or fifteen years, as much gold was produced 
 in California and Australia as had existed in 1848 through 
 all the world. The wisest and bravest of the French 
 statesmen and financiers were alarmed. Apparently, noth- 
 ing could prevent gold from falling, under the enormous 
 increase of supply, until it should be worth only ten, or 
 even only seven, times as much as silver. But France, 
 although everything seemed so black and threatening, 
 held firmly on to the principle of the law of 1803; and 
 sure enough, the storm passed over, and the bi-metallic 
 system was not uprooted. Although the ablest financiers 
 had predicted that gold would fall fifty per cent., it, in 
 fact, fell only one or two per cent., and very soon recovered 
 from even that loss. 
 
 It would be too long a story to tell, here, how France, in 
 1873, suspended, although she did not repeal, the law of 
 1803, which had done so much to preserve the stability of 
 value between silver and gold. The writer believes that 
 this measure was unnecessary; and that, had the statesmen 
 of that period possessed as much moral courage as those of 
 1850-57, the French system would again have weathered 
 the gale, and the world would now be in the enjoyment of 
 all its advantages. AYhether the Latin Union, with or 
 without the co-operation of other nations, like England, 
 Germany, and the United States, will ever again put the 
 law of 1803 in operation, is a question which it would be 
 idle to discuss here. 
 
 The reader should understand that the subject of which 
 we have been speaking is one regarding which there is a 
 great difference of opinion among economists, some hold- 
 
POLITICAL ECONOMY. 121 
 
 ing that the bi-metallic system can never be made to work 
 successfully and permanently. The writers who entertain 
 this opinion are entitled to great respect; but it is per- 
 fectly fair to say that many, very many, who once held this 
 view have, within the past few years, come over to the side 
 of bi-metallism, and that this movement is still in active 
 operation. 
 
CHAPTER XIV. 
 BANKS AND BANK-MONEY. 
 
 110. The Origin of Banks. — We have spoken of the 
 growth of the credit system. We are now to speak of the 
 most important agency for carrying on and extending that 
 system, viz., the Bank. 
 
 Bnt, while the management of credit is the great and the 
 true function of the Bank, banks have, in fact, had their 
 origin in many different sources. In Italy, where the first 
 banks of modern times appeared, the banks were finance 
 companies, which negotiated loans for the king or prince ; 
 but came afterwards to exercise the true banking function. 
 In Amsterdam, in 1609, a very important bank was 
 formed, which had for its principal purpose the melting 
 down and assaying of the vast and varied mass of coins 
 from many countries, of every degree of impurity,* often 
 much worn and clipped, which the trade of that great com- 
 mercial city brought into the hands of its merchants. 
 After these coins had been melted down and assayed, each 
 merchant was given credit on the books of the Bank, to 
 the amount of pure gold, or silver, found in the mass of 
 coins received from him. These bank credits soon became 
 a kind of money, merchants paying for goods by orders, or 
 checks, upon the Bank. It will be seen that this Bank 
 was really a kind of mint. It did a vast deal for the trade 
 of Amsterdam, in competition with commercial cities which 
 
 * That is, containing very different proportions of "base metal," 
 or alloy, such as copper or lead. 
 
 132 
 
POLITICAL ECONOMY. 123 
 
 had no such means of ascertaining the real value of the 
 coins received by their merchants from other countries. 
 
 111. Origin of English Banks. — In England, banks had 
 two different origins. The country banks grew out of the 
 business of the shop-keepers and local traders. As these 
 had occasion to send money frequently to London and the 
 chief sea-ports, in payment for merchandise, they got into 
 the way of taking money from the people around them who 
 had to pay debts or make purchases in the city or in the 
 coast towns, doing this either as a favor or for a small com- 
 mission. Those traders who did this work most promptly 
 and satisfactorily, and in whom people had the most con- 
 fidence, finally became known as bankers, and had this for 
 their principal or their sole business, out of which they 
 made a profit, besides rendering a public service. 
 
 In London, on the other hand, it was the goldsmiths and 
 silversmiths who became bankers. These, having large 
 amounts of the precious metals always on hand, for the 
 purpose of making "plate" or ornaments, had their shops 
 strongly fortified, with armed men on guard, to beat off 
 robbers. As other people had no such means of security, 
 and as the streets were ill lighted, or not lighted at all, at 
 night, and as there were few policemen in those days, while 
 there were many bold and ruffianly persons abroad, people 
 got in the way of leaving their money and other valuables 
 with the goldsmiths, who gave notes, or receipts, for the 
 amounts deposited. These notes, or receipts, were finally 
 made transferable by indorsement. It was in this way 
 that Lombard Street, on which the London goldsmiths had 
 their shops in the sixteenth and seventeenth centuries, came 
 to be the greatest banking street in the world. 
 
 112. Origin of American Banks. — In the United States, 
 again, banks had still another origin. They were generally 
 first set up as shops, or factories, for making paper-money. 
 
124 POLITICAL ECONOMY. 
 
 of the kind which we know as bank-money. The process 
 was as follows: A bank was chartered by the State to do 
 business in each city or smart town : that is to say, the leg- 
 islature passed a law, authorizing certain persons, named 
 therein, to establish a bank at such or such a place. The 
 persons named, with others whom they chose to associate 
 with themselves, met together, paid in a little money, 
 generally very little; chose directors, who, in turn, chose 
 a president ; and at once began to issue notes, each bearing 
 the signature of the bank officers and promising to pay a 
 certain sum of money, one dollar or two dollars, or five 
 dollars, upon demand, in specie, that is, in gold or silver 
 coins made by the United States government. 
 
 113. Bank-money. — The idea underlying this issue of 
 bank-notes was as follows: Merchants, manufacturers, 
 farmers or others, who desired to purchase supplies or 
 labor, would come to the bank with their notes of hand, 
 which the bank would discount : that is, the banks would 
 accept the notes-of-hand, paying the face value in their own 
 bills, first taking out the interest for the three months, the 
 six months, or the year, for which these notes-of-hand were 
 to "run." The persons whose notes-of-hand had thus been 
 discounted, paid the bank-notes, or " bank-bills," out to 
 their laborers or to others from whom they had purchased 
 supplies or materials, expecting that, at the maturity of 
 their notes-of-hand, they would be able, out of the proceeds 
 of their business, to pay the bank in full, either in its own 
 notes, or in the notes of other banks, near by. Meanwhile 
 the issuing bank was to receive interest on the paper-money 
 it had thus manufactured and put into circulation. 
 
 This interest, however, was not all clear profit to the 
 bank. There was the cost of making the paper-money, 
 which, to be sure, was not very great, involving the engrav- 
 ing of a plate and the printing of the notes therefrom. 
 
POLITICAL ECONOMY. 125 
 
 Then there were the current expenses of the business, in- 
 cluding the rental of an office, the salary of a cashier and 
 of a clerk or clerks, stationery, postage, etc. Then, again, 
 there was the cost of the '^ specie-reserve." 
 
 114. The Specie-reserve. — This last term requires to be 
 explained. It was always possible that some persons, hold- 
 ing the notes of the bank, should come in and demand the 
 specie which the notes promised. They might do this, 
 either because they actually wanted the gold or silver for 
 some purpose ; or from enmity to the bank, hoping to 
 "break" it, by an unexpected demand; or because the 
 banks had issued so many notes as to create a " premium 
 on gold," a phrase for the explanation of which we must 
 refer the reader to the next chapter (par. 143). Now, in 
 order to meet such a possible demand, the bank must be 
 actually in possession of some specie. 
 
 How large this "reserve" should be, depends much upon 
 circumstances. If the notes of a bank are scattered over a 
 territory of ten thousand square miles, it is plain that a 
 much smaller number are liable to be presented for pay- 
 ment, at any one time, than if the notes were nearly all 
 held in the city where the bank has its office. A great 
 many other things, on which there is not time to dwell, 
 enter to affect the question, how large the specie reserve of 
 any given bank should be. 
 
 The profit of the bank, through the manufacture and 
 issue of paper-money, is, then, the interest on its circulat- 
 ing notes, after deduction of the following items, viz. : 
 
 1st. The cost of manufacturing the notes. 
 
 2d. The current expenses of the business, that is, the 
 cost of putting the notes out and keeping them out. 
 
 3d. The loss of interest on the amount held as a reserve, 
 in specie. 
 
126 POLITICAL ECONOMY. 
 
 115. Wildcat Banking. — It was the profit on '"'the cir- 
 culation" which constituted the main, and often the sole, 
 motive force, in the establishment of banks, in the early 
 history of the United States. And so urgent was the de- 
 sire for increasing that profit, that the specie-reserve was 
 often cut down in the most reckless manner. In some of 
 the new States, the phrase '^Wildcat Banks" was not in- 
 appropriately applied to many of the institutions brought 
 into existence at this time. The amount of specie held by 
 them was often so small as to have been ludicrous, were it 
 not for the constant peril to the business interests and to 
 the private happiness of the community, which this crimi- 
 nal recklessness involved. A reservoir with an unsafe dam 
 is hardly a greater danger to the village situated upon the 
 stream below, than is a bank with an inadequate reserve. 
 The amount of suffering inflicted upon the innocent and 
 helpless, the destruction of accumulated wealth, the paraly- 
 sis of productive energies, caused by the breaking of rot- 
 ten banks, could never be expressed in words. If the State 
 has any duties, at all, beyond merely keeping people from 
 picking each other^s pockets and cutting each other's 
 throats, the first of those duties is to provide adequate 
 securities against the abuse of paper-money banking. 
 Indeed, as a means of picking other people's pockets, bad 
 banking can scarcely be surpassed by any other human 
 agency. 
 
 116. The Banking Functions. — We have seen in what 
 various ways banks have actually grown up in different 
 countries and in different times. But, however any indi- 
 vidual bank, or the banks of any country as a whole, may 
 have originated, banks all tend to come, in time, to do 
 about the same things. Nearly all of them act more or less 
 as places of "safe deposit." Nearly all of them, at one 
 time or another, take-on the character of finance compa- 
 
POLITICAL ECONOMY. 127 
 
 nies, helping to " place" government loans, or selling the 
 bonds of great industrial corporations. Very largely, also, 
 banks make and issue paper-money, although in some 
 countries this privilege is restricted to certain favored 
 banks, or to a single bank which is largely controlled by, 
 and perhaps partly owned by, the State. 
 
 But, however banks originate, and whatever they do, in 
 one or another of the foregoing ways, one thing they all 
 come to have in common. This is the management of 
 commercial credit (par. 110). Commerce may be carried on 
 to a considerable extent without banks, at least without any 
 institutions known by that name ; but, wherever banks 
 have been, for one purpose or another, established, they 
 immediately begin to draw-in to themselves nearly the 
 whole business of conducting and managing the credit 
 system of the community in which they are placed. 
 
 To illustrate the operation of this principle, let us take 
 the case of a bank founded in one of the small Western 
 cities of the United States, say about 1850. The only 
 force which caused this bank to be established was the an- 
 ticipated profit of the issue of bank-notes (pars. 112-114). 
 But no sooner was it established than people who had 
 money to lend, and people who desired to borrow money, 
 alike began to resort to its counter. Those who did not 
 feel themselves shrewd enough to loan their savings to ad- 
 vantage, that is, at once profitably and safely, brought 
 them to the bank. The officers of the bank, making this 
 their principal business, giving their minds to it, and hav- 
 ing ample means for ascertaining the "standing" of the 
 various persons in the community who might wish to bor- 
 row, could loan the capital so placed at their disposal on 
 the very best terms, viz., at the highest rate of interest con- 
 sistent with good security. 
 
 The means which the bank officers had for obtaining in- 
 
128 POLITICAL ECONOMY. 
 
 formation were not always such as were open to others. 
 Reputable merchants, who knew their business to be in a 
 sound state, and wished to borrow capital to increase that 
 business, would lay their account-books open, in confidence, 
 to the officers of the bank ; while, on the other hand, in the 
 case of would-be borrowers who were of a more doubtful 
 character, the bank-officers would institute private inquiries 
 as to their personal habits, their mode of living, their 
 punctuality in dealings. 
 
 By such and other means, the officers of the bank we are 
 describing were enabled to loan all the capital which the 
 members of the community desired to entrust to them, at 
 the very highest rate of interest which was consistent with 
 good security. Of this interest, the larger part went to the 
 owners of the capital ; while the bank made a handsome 
 profit through a small commission on a very large amount 
 loaned. There were, however, a few long-headed, shrewd, 
 able men of wealth in the community who did not feel that 
 they had any occasion for the services of the bank in this 
 respect, deeming themselves perfectly competent to make 
 their own loans ; and in some cases these men were emi- 
 nently successful, looking after their loans with a careful- 
 ness and intentness born of the thought that it was their 
 own hard-earned savings which were at stake. 
 
 The vast majority, however, welcomed this means of 
 giving and taking credit; and, in general, the capital loaned 
 under this system was both more profitably and more safely 
 employed than it would have been had each one of its 
 thousand owners undertaken to conduct the loan of his 
 share for himself. While the amount of wealth which 
 many of these persons actually had to lend was very small, 
 the aggregate amount thus brought into the bank was very 
 large; and from this great reservoir of capital streams were 
 made to flow, in proper times and in proper amounts, to 
 
POLITICAL ECONOMY. 129 
 
 water the whole field of industry. Whatever of good a 
 merchant or a manufacturer may claim to do for the com- 
 munity in which he lives and conducts his business, it is 
 certainly true that a banker, who is both able and honora- 
 ble, performs an even more useful work. The fields of 
 industry which, but for him, would now be baking from 
 drought, and now be flooded and devastated by tempestu- 
 ous torrents, are, through the judicious operations of bank- 
 ing, kept evenly and equably irrigated by a steady flow of 
 commercial credit. 
 
 117. How Capital Comes into a Bank, — We have spoken of 
 a bank as the intermediary between those who wish to lend 
 and those who wish to borrow. It must not, however, be 
 supposed that men bring carts and oxen and tools and food 
 and clothing into the bank, and that those who wish to use 
 such things in production or trade go to the bank for them. 
 Capital comes into the possession of a bank always in the 
 form of " riglits," or credits. Thus, a man who has sold 
 his crops or his manufactured goods, and received therefor 
 notes-of-hand, promising payment, either upon demand or 
 at some future, fixed, date, takes these notes-of-hand to 
 the bank and there " indorses them :" that is, by a writing 
 upon the back he makes them payable to the bank itself. 
 For this the bank becomes a debtor to him, while it be- 
 comes the creditor of the persons who gave these notes. 
 These persons, tlierefore, it can order to pay money, in the 
 amounts and at the times stated on the face of the notes, 
 severally. This power it makes use of in lending capital 
 to those who wish to borrow and who can satisfy the officers 
 of the bank of their financial soundness. 
 
 Sometimes the amount of rights, or credits, which the 
 bank has thus had placed at its disposal, for the purpose of 
 discounting notes, is many times its own capital. It is the 
 certain reward of prudence and integrity in the management 
 
130 POLITICAL ECONOMY. 
 
 of a bank, that people continually increase tlie amount they 
 have on deposit, until, in time, a good old bank comes to 
 have a really enormous body of wealth at its disposal. This 
 includes, not only the sums which are brought to the bank 
 for the specific purpose of being loaned out, but also the 
 " reserves" of merchants, on which no interest is expected. 
 Some merchants have, almost habitually, five, ten, or 
 twenty thousand dollars deposited in the banks in which 
 they do business. This is because it is both more con- 
 venient and more safe for the merchant that the bank, 
 with its vaults and its barred windows and its armed 
 watchmen, should take care of this property, than that it 
 should remain in his own hands. 
 
 Of course, if only one merchant should thus leave a sum 
 on deposit at the bank, the officers could not safely loan 
 any part of it, since the owner might, any day or any hour, 
 call for the whole. But, if one hundred merchants, say, 
 should leave on deposit an average of ten thousand dollars 
 each, the bank could safely loan a considerable part of the 
 million dollars, since it would be practically impossible that 
 all the merchants should call for their money at the same 
 time. The bank might safely lend four hundred thousand 
 dollars on mortgage of real estate; lend three hundred 
 thousand on " short time" business paper, that is, on notes- 
 of-hand, given by merchants or manufacturers, payable in 
 a few weeks, or a few days, or even ^'on call;" and hold 
 two hundred thousand, more, in "governments," or other 
 stocks or bonds, which could be sold almost at a moment's 
 notice. The remaining one hundred thousand dollars, out 
 of the million, it might keep in the form of specie or bank- 
 notes, ready for any call which might be made upon it. 
 It will thus appear that, out of a million of dollars of com- 
 mercial deposits, the owners of which expect no interest. 
 
POLITICAL ECONOMY. ISI 
 
 the bank might properly and safely use nine hundred 
 thousand dollars, receiving a handsome income therefrom. 
 
 118. Banking Economizes the Use of Money. — Besides 
 economizing the use of capital, in the way we have just 
 shown, banks greatly economize the use of actual money. 
 If there were no banks^. each merchant, each private citizen 
 of means, would have to keep by him, in his pockets or in 
 a chest, a considerable amount of " ready money," for daily 
 uses or to meet sudden demands. If, however, the mem- 
 bers of the community, alike the very rich and the merely 
 well-to-do, form a habit of keeping their money in bank, 
 there will be a great saving in the amount of money re- 
 quired, on the whole. Twenty thousand dollars, perhaps 
 only ten thousand dollars, in bank, will go as far towards 
 meeting the needs of the community, as fifty thousand 
 dollars in private hands. The days on which one man 
 wants to use money will not be the same as the days on 
 which his neighbor has occasion to use it ; and the bank, 
 holding the money for all, will be able to make a much* 
 smaller amount do a much larger work in effecting ex- 
 changes. Hence it follows that countries where the bank- 
 ing system is highly developed, as in England and the 
 United States, require very much less of actual money 
 than countries like France and Germany, where there are 
 comparatively few banks, and where the great majority of 
 the people keep their funds in their own shops or houses. 
 
 119. Banks Economize Time, Labor and Risk, in Paying 
 Debts. — Besides economizing the use of money, banks effect 
 an enormous saving in the time, the labor and the risk, in- 
 volved in the daily payment of the debts incurred in the 
 ordinary course of business. In every large city, there are 
 every day to be paid, and to be received, hundreds of thou- 
 sands, or even millions, of dollars; and this great work is 
 performed by the bank with infinitely less of effort than 
 
132. POLITICAL ECONOMY. 
 
 would be required if the same work were to be done by 
 individuals, each for himself. Let us suppose that in a 
 certain city there are one thousand merchants or traders, 
 and that each one of these has, on the average, to make 
 twenty payments a day. Think of the amount of time and 
 labor that would be expended in sending trusty clerks or 
 messengers all over tliat city, at the end of the day, to 
 make those twenty thousand payments ! Think also of the 
 risk involved in sending such sums of money through the 
 streets: risk arising both from the danger of robbery* and 
 also from the possible dishonesty of clerks and messengers! 
 But when these payments are to be made into the bank, 
 and that generally by checks, drawn upon deposits already 
 in the bank, the time, labor and risk involved become re- 
 duced to a minimum. 
 
 120. The Cancellation of Indebtedness.— The foregoing 
 would hold true, were the times in which merchants have 
 to make payments not generally the same as those in which 
 they have to receive payments. But, since merchants are 
 all the while both buying and selling, tlie payments to be 
 made, and to be received, on the same day, largely cancel 
 each other. One day a merchant may have two thousand 
 dollars to pay, and twenty-five hundred to receive. In 
 this case, the bank '^ sets off" the one sum against the other, 
 so that the merchant's debtors have only to provide five 
 hundred dollars to meet the difference. On the next day, 
 perhaps, he has fifteen hundred dollars to receive, and two 
 thousand dollars to pay. In this case, he sends his bank a 
 
 * At one time there was known in New York a class of men called 
 Butcher cart Thieves, who lay in wait for messengers carrying bags 
 of specie or parcels of bank-bills. After snatching a bag, the 
 thief, or highwayman, would jump into a butcher's cart, drawn by 
 a fleet horse, with a confederate at the reins, and, in the surprise and 
 confusion^ would often escape pursuit. 
 
POLITICAL ECONOMY. 133 
 
 check for five hundred dollars, drawn on his own deposit 
 in the bank, or, else, some one else's check, which he had 
 purchased for the purpose; and, again, all accounts, so far 
 as he is concerned, are balanced. 
 
 The cancellation of indebtedness, of which we are here 
 speaking, is carried to an inconceivable extent in modern 
 commerce. The bank, through the almost universal prac- 
 tice of " depositing" commercial paper, becomes, by turns, 
 creditor to all debtors, in the community, and debtor to 
 all creditors; and, having thus in its hands nearly all notes 
 and bills maturing, day by day, it is able to offset one by 
 another, so that only a very small fraction requires to be 
 paid in money. 
 
 121. The Clearing-house. — We have thus far written as 
 if there were but one bank in any community, however 
 large. In a great city, however, many banks may be re- 
 quired to do all the business of all the merchants. In the 
 city of Boston there are more than forty banks in opera- 
 tion. Each bank carries on the cancellation of indebted- 
 ness within itself, so far as possible; and, at the end of 
 each business day, sends a clerk to a Clearing-house, or 
 bankers' bank, with a statement of the amount due from 
 it to every other bank in the city, and of the amount due 
 to it from every other bank, together with the money 
 necessary to make up the difference, if the balance be 
 against the bank in question. If, on the other hand, the 
 balance be in favor of the bank in question, the clerk is 
 authorized to receive the difference. 
 
 122. Banking Promotes Punctuality in Payments. — Be- 
 sides effecting a great economy in the use of capital; a 
 great economy in the use of money; a great economy in 
 the time, labor and risk involved in making payments, 
 banks bring into commercial life a principle of much im- 
 portance to industry and trade. This is the principle of 
 
134 POLITICAL ECONOMY. 
 
 punctuality in making payments. This may be said to be 
 almost wholly a product of the banking system. Wherever 
 payments are due from one person to another, even when 
 the debtor is well-to-do, there is always great uncertainty, 
 and generally not a little delay, as to the time of payment. 
 If rents are due on the first of the month, a few tenants 
 pay on that day; others, on the second; some, on the third, 
 fourth and fifth; others, not until the tenth; others, still, 
 only after being ''^ dunned^' again and again. If payments 
 are due on account of groceries or meats or clothes pur- 
 chased, those payments generally dribble along, over weeks 
 and even months. Such is the uniform experience of all 
 communities in the matter of paying debts, whenever the 
 transactions are ^^ between man and man." 
 
 In respect, however, to all payments which are to be 
 made into a bank, the rule of absolute punctuality is uni- 
 versally enforced, without fear or favor. If a note is due 
 on a certain day, and the payment is not made before the 
 close of banking hours, say three o^clock in the afternoon, 
 the note '^goes to protest:" that is, an officer of the bank 
 goes before a notary public and makes oath that payment 
 has been demanded and has not been made. The delin- 
 quent is notified of this, and is informed that, unless he 
 immediately makes payment, together with "costs,"* he 
 will be proceeded against at law. It does not matter who 
 the man is or how rich he is. It is needless to say that a 
 protest is always a source of intense mortification to a mer- 
 chant or a banker. Indeed, it is, except to a man of great 
 wealth and high credit, almost fatal. The announcement, 
 in the newspapers, that such or such a firm has allowed a 
 note to go to protest, is generally accepted as meaning that 
 the firm is bankrupt. Consequently, every business man 
 or business house takes every precaution; and, in case of 
 
 * That is, the cost of protest, including the notary's fee. 
 
POLITICAL ECONOMY. 135 
 
 financial embarrassment, strains every nerve and makes 
 every sacrifice, to avoid such a calamity. 
 
 Now, this punctuality in payments which the bank de- 
 mands and enforces, is of the highest advantage to produc- 
 tion and trade. Indeed, it may be said to be absolutely 
 essential to the vast operations of modern industry. Eetail 
 trade has necessarily to submit to all the inconveniences 
 and losses that are involved in the lack of punctuality 
 which we have noted; but the great production, the great 
 trade, could not be carried on unless the manufacturer or 
 the wholesale merchant knew how much he could rely 
 upon certainly receiving each day, to meet the obligations 
 due from him on that day. It is, therefore, a service of 
 inestimable importance which banks render to society by 
 enforcing the rule of absolute punctuality in payments. 
 
 But, it will be asked, is not this advantage to society, as 
 a whole, obtained at the cost of much hardship and suffer- 
 ing on the part of individuals? I answer that, here and 
 there, now and then, inconvenience and even injury may 
 result to persons from the severe and unrelenting enforce- 
 ment of this rule; but that, in the vast majority of cases, 
 the requirement of punctuality not only does no injustice, 
 but is of actual benefit, even to the debtors themselves. 
 Speaking broadly, procrastination always and greatly in- 
 creases the burden of debt. If railroad trains, instead of 
 leaving the station on the minute, so far as possible, as they 
 now undertake to do, were to adopt the policy of waiting 
 for people, it is probable that a great many more persons 
 would lose their trains than do where the rule of punctual- 
 ity is enforced. To hold men sharply and sternly up to 
 their duty, may require measures which seem harsh; but 
 there can be no doubt that it is, on the whole, a great 
 kindness. Duties are never so easy to perform as on the 
 
136 POLITICAL ECONOMY. 
 
 very day when they ought to be performed. Debts are 
 never so light as on the day when they first come due. 
 
 123. Banking Promotes Commercial Integrity. — But 
 there is more to be said on this point. The banking sys- 
 tem, by its requirement of punctuality in payments, has 
 done more to promote commercial integrity than any other 
 cause, perhaps than all other causes put together. Pro- 
 crastination not only increases the burden of debts ; it in- 
 sensibly but surely generates dishonest feelings regarding 
 them. A man who has again and again put off the pay- 
 ment of a debt at last comes to feel that that debt is 
 somehow a great wrong to him, and is only too ready to 
 take advantage of any means of escaping payment, how- 
 ever shabby or shameful. Delay of payment always means 
 doubt regarding payment; doubt regarding payment always 
 sets evil thoughts at work in the brain, to find the way of 
 avoiding payment altogether. 
 
 That kind, or that degree, of honesty which keeps men 
 from actual robbery or theft, comes at a much earlier stage 
 of society than that kind, or that degree, of honesty which 
 makes men cheerfully willing to pay the debts they have 
 fairly and openly contracted. For one man, in our present 
 social state, who would steal, twenty will do that which is 
 no better than stealing, in order to escape the payment of 
 honest debts. 
 
 When banks have long existed in any community, the 
 instincts of commercial honesty become developed in a 
 really remarkable degree. Men, knowing that they have 
 got to pay their debts, and to pay them on the very day 
 they are due, take it as a matter of course. What men 
 take as a matter of course they take easily. In such a 
 community, the mind of the merchant does not begin to 
 dwell on the dangerous thought of first postponing and 
 then escaping payment. The way to evasion is almost 
 
POLITICAL ECONOMY. 137 
 
 always through procrastination. If the door to procrasti- 
 nation be barred, evasion will be less and less resorted to, 
 less and less thought of. 
 
 124. Foreign Exchange. — We have spoken of the cancel- 
 lation of indebtedness among the merchants of a city. 
 The same principle is largely carried out to cities, states 
 and nations. For example, there are a great many mer- 
 chants in New York who, every month or every day, have 
 sums to pay to merchants in Chicago, for corn and wheat, 
 beef and pork. There are, also, a great many merchants 
 in Chicago who have sums to pay, in the same times, to 
 merchants in New York, for dry-goods, groceries, and 
 hardware. If, now, the debtor merchants in New York 
 had to send to Chicago all the money necessary to dis- 
 charge their obligations, and the debtor merchants in 
 Chicago had to do the same thing towards New York, there 
 would be an enormous amount of money always going 
 backward and forward between the two cities, at great 
 cost, great risk and much loss of time. Instead of this, 
 there is a mutual cancellation of indebtedness, just as far 
 as this can be carried. A dry-goods merchant of Chicago, 
 who has to pay a hundred thousand dollars in New York, 
 goes to a wheat merchant, on the next street, and buys 
 from him a draft, or order, upon a New York wheat ex- 
 porter, for that sum. This he sends, by mail, to his own 
 creditor in New York, who calls upon the wheat exporter 
 for the money. Thus two large debts have been paid, 
 without any money whatever passing between Chicago and 
 New York. Of course, it will not always happen that the 
 amount of debts due to a city, in a certain time, is equal to 
 the amounts of debts due from that city in that time. 
 Where there is a failure of coincidence as to the amount of 
 indebtedness between two cities, money must be sent, by 
 one of them, to make up the difference. 
 
138 POLITICAL ECONOMY. 
 
 Whenever the principle of the cancellation of indebted- 
 ness is carried out to cities and states and nations, we use 
 the term Exchange, or Foreign Exchange. The term, 
 foreign exchange, is only properly used where different 
 nations are concerned. 
 
 125. Par of Exchange. — We have assumed the case of a 
 merchant in Chicago who has one hundred thousand dol- 
 lars to pay in New York, and who, instead of sending the 
 money to New York, purchases the right of another Chi- 
 cago merchant, probably in another branch of business, to 
 receive that amount of money in New York ; and in this 
 way pays his debt. But at what rate shall the first mer- 
 chant purchase this right ? Shall he pay for it a hundred 
 thousand dollars, or more, or less ? That will depend on 
 whether ^^ exchange on New York" is "at par," or "above 
 par," or "below par." Let us illustrate the meaning of 
 these terms. 
 
 Suppose that, at the time in question, Chicago merchants 
 had twenty-five millions of dollars to pay in New York, 
 while New York merchants had only twenty million dol- 
 lars to pay in Chicago. It is evident that all the Chicago 
 merchants who had money to pay in New York could not 
 find merchants in their own city who had the right to 
 receive money in New York. Competition would then 
 begin for the rights which were to be purchased. The 
 Chicago merchants would be obliged to pay something 
 more than a thousand dollars for the right to receive a 
 thousand dollars in New York. If, on the other hand, the 
 amount to be paid by New York to Chicago exceeded the 
 amount to be paid, in the same time, by Chicago to New 
 York, competition would set in among the "sellers of ex- 
 change" in Chicago. Each of these would be willing to 
 let his right to receive a thousand dollars in New York go 
 for something less than a thousand dollars, since, other- 
 
POLITICAL ECONOMY, 139 
 
 wise, lie would be obliged either to bring the money actu- 
 ally to Chicago, at some expense, or else to leave the money 
 idle in New York. 
 
 Exchange is said to be '^ at par" between two places, 
 when a man, by paying in a certain sum of money in one 
 of these places, can purchase the right to receive an equal 
 amount of money in the other place. Exchange is said to 
 be "above par," when a man is obliged to pay in more 
 money in the place where he does business than the 
 amount that he can thereby purchase the amount to 
 receive in the other place. Exchange is said to be **' below 
 par," when a man can purchase the right to receive money 
 in the other place by paying in a smaller amount in his 
 own town or city. 
 
 126. The Limits of Exchange. — What are the limits of 
 exchange : that is, how far may exchange rise above par ; 
 how far may it fall below par? I answer, that the limits 
 of exchange between two places are fixed by the cost of 
 transporting money between those places. If "exchange 
 on New York" rises above par in Chicago, it can go no 
 higher than the cost of sending money on from Chicago to 
 New York, because, rather than pay more than this, Chicago 
 merchants will actually send the money. For a similar 
 reason, exchange cannot fall below par by more than the 
 cost of bringing-on the money. 
 
 Of course, the reader will see that the fact of exchange 
 being above par, or being below par, constitutes a certain, 
 small, disadvantage, or advantage, as the case may be, to 
 the trade of a city or a country. If I, as a merchant in 
 New York, sell certain goods to a merchant in Liverpool 
 for one thousand dollars, but have to sell my right to 
 receive that sum for nine hundred and seventy-five dollars, 
 it is, to me, the same as if I had sold the goods for nine 
 hundred and seventy-five dollars. If, on the other hand. 
 
140 POLITICAL ECONOMY. 
 
 I could have sold my right to receive the money, at a 
 premium of twenty-five dollars, it would have been the 
 same to me as if I had sold the goods for one thousand and 
 twenty-five dollars. 
 
 127. Three-cornered Exchange. — We have thus far 
 spoken as if the cancellation of indebtedness, by means of 
 so-called exchange, were carried on between two cities or 
 two countries only. As a matter of fact, three cities or 
 three countries may take part in effecting this cancellation 
 of indebtedness. The United States, for example, sells to 
 England much more than it buys from England; and, there- 
 fore, so far as these two countries are concerned, there 
 would be a great stream of money constantly fiowing from 
 England to the United States. But the United States 
 buys much more from China than it sells to China ; while, 
 on the contrary, England sells much more to Cliina than 
 she buys from that country. The merchants of the United 
 States, consequently, pay their debts to China by "ex- 
 change on London." Having the right to receive large 
 sums in London, they sell these rights to Chinese mer- 
 chants, who are glad to obtain them in order to pay the 
 indebtedness of China to England. In this way, it will 
 be seen, the amount of indebtedness which is cancelled 
 through the operations of " exchange" is greatly increased, 
 and the amount of money to be actually sent from country 
 to country is correspondingly diminished. 
 
 We have spoken of three-cornered exchange ; but, in 
 reality, foreign exchange is a many-sided figure. What we 
 have represented the United States, England and China 
 as doing, all nations do, so far as they can, each using 
 every favorable balance with another nation to offset some 
 portion of their indebtedness to still other countries. 
 
 The operations of exchange are largely carried on 
 through banks, although a special class of *' dealers in 
 
POLIITCAL ECONOMY. 141 
 
 exchange" arises in all cities where this business is espe- 
 cially important. The chief centre of exchange-operations 
 is London. To this great clearing-house are sent "bills of 
 exchange " from every quarter of the globe. No matter in 
 what city, upon what continent, a man may wish to pay a 
 debt, he can almost always find in London some one who 
 has a "credit" on that city, that is, a right to receive 
 money there. By purchasing this right, or credit, and 
 sending it to that city, he can pay his debt there without 
 sending the money. 
 
 128. The Banking Agencies. — Such, as clearly as I can 
 describe them in this short space, are the Banking Func- 
 tions. The banking agencies may be classed as four : 
 
 1st. State, or government, banks. 
 
 2d. Joint-stock banks. 
 
 3d. Private banks. 
 
 4th. Bill-brokers and individual dealers in exchange. 
 
 The banking agency which has been chiefly employed in 
 the United States, is the joint-stock bank. The vast 
 majority of. all the banking work in the history of this 
 country has been performed by banks of this character, 
 although private banks are not unknown, and the profes- 
 sion of bill-broker has always been extensively followed. 
 In the early part of this century a very large proportion of 
 the banking work of England was done by private banks ; 
 but during the last fifty years the proportion of private 
 banks has been constantly diminishing, and their work has 
 been more and more taken up by joint-stock banks. 
 
 In the United States down to 1865, joint-stock banks 
 were generally created, or '^chartered," by general or 
 special acts of the legislatures of the several States. Since 
 that date, however, most of the banks of this country have 
 been brought under the National Banking Law ; and their 
 issues of bank-notes are regulated by the Treasury Depart- 
 
142 POLITICAL ECONOMY. 
 
 tnent at Washington. Formerly the bank-money of the 
 tJnited States was of the most heterogeneous character. 
 The banks of some States made very bad money, while the 
 banks of other States made very good money, and the 
 banks of other States made money neither very bad nor 
 very good. Now, all the bank issues of the United States 
 are homogeneous; and no man cares whether the bank- 
 notes he has in his pocket come from Massachusetts, from 
 Michigan, or from Missouri. 
 
CHAPTER XV. 
 POLITICAL MONEY : INFLATIOK^. 
 
 129. The Essence of Political Money. — We have thus faf 
 spoken of two kinds of money. The first might perhaps 
 be called natural money. It is sometimes, though not 
 quite correctly, called "value-money/^ In the United 
 States, it is often called "hard money." This is money of 
 which it may be said that, no matter what it is made of, 
 the supply is naturally limited by the cost of production. 
 Take metal money, for instance, whether of copper, of 
 silver, or of gold. The reason why the supply is no greater 
 than it is, is because the cost of production is no less than 
 it is. Diminish the cost of production, and the supply 
 might and probably would be correspondingly increased ; 
 but, so long as the cost of production remains the same, 
 the supply cannot be greatly or rapidly increased. To 
 raise two hundred thousand ounces of gold from the crust 
 of the earth requires twice as much labor as to raise one 
 hundred thousand ounces. 
 
 The second kind of money, viz., bank-money, is not sub- 
 ject to natural limitations of supply. The cost of the ma- 
 terials out of which such money is made, viz., paper, an 
 engraver^s plate and printer's ink, bears a very small pro- 
 portion to the value for which the notes are expected to 
 pass in circulation. The cost of making a one-dollar bank- 
 bill may perhaps be one cent. The cost of making a ten- 
 dollar bank-bill is no greater : hence, the additional nine 
 dollars of this money cost nothing. We may, therefore, 
 
 143 
 
144 POLITICAL ECONOMY. 
 
 say that bank-money has no natural limitation of supply. 
 It is as easy to make ten millions of it as to make one 
 million. 
 
 But, while bank-money has no natural limitation of 
 supply, there is a more or less stringent commercial limi- 
 tation, found in the fact that the bank is by law obliged to 
 give specie, dollar for dollar, for all its own bills which may 
 be presented to it. If, then, bank-money be put out in 
 excess, there will (for reasons which will be shown in 
 pars. 140-1), at once or at an early date, begin a movement 
 which will bring the bills back to the bank, for redemption 
 in coin. The bank, therefore, in order to avoid " suspen- 
 sion of specie payments," which is failure, or bankruptcy, is 
 bound to be careful not to put out its notes in excess, and 
 to be always provided with ample reserves of specie. This 
 necessity constitutes what I have called the commercial 
 limitation upon the supply of this kind of money.* 
 
 The movement of bank-notes back to the bank, for re- 
 demption in coin, is called the Keflux. Most economists 
 hold that the reflux takes place so promptly that bank- 
 money can never be issued in excess, to any degree or for 
 any period of time. There are some economists who hold 
 that the reflux does not begin so promptly but that excess 
 may occur, in some degree, and be continued for some time. 
 All, however, are agreed that, if the laws punishing banks 
 
 * I am here speaking of bank-money, in communities where the 
 principles of sound banking are known and respected. In the early- 
 history of the United States, much of the paper put out by the banks 
 (see par. 115) was strictly inconvertible paper-money — just as much so 
 as if redemption had never been promised, for redemption was never 
 intended and was not provided for. Neither law nor public opinion 
 enforced the obligation of the bank to pay specie on demand. Banks 
 were allowed to continue in business after they had failed to redeem 
 their notes ; and even declared dividends out of the profits of money 
 which they withheld from their lawful creditors. 
 
POLITICAL ECONOMY. 146 
 
 for insolvency are severe and are strictly enforced, excess 
 can never be carried to a great extent, or be continued 
 through long periods of time, owing to the reflux. We 
 may, therefore, safely say that this kind of money is sub- 
 ject, in a very high degree if not altogether, to a commer- 
 cial limitation of supply. 
 
 Of the third kind of money, that of which we are about 
 to speak, it may be said that it is subject to neither natural 
 nor commercial limitations of supply. Like bank-money, 
 it has no appreciable cost of production, since it is as easy, 
 or almost as easy, to make twenty millions of it as to make 
 ten millions, or one. Unlike bank-money, it is not sub- 
 ject to reflux, because the government which issues it is not 
 bound to redeem it, dollar for dollar, in coin. 
 
 130. Political Money Described. — What we here call po- 
 litical money is. sometimes called government paper-money, 
 or "Fiat" money. It consists of bills, or notes, or scrip, 
 issued from the treasury of the government itself. Pay- 
 ment in coin may or may not be promised upon the face of 
 the notes ; but, inasmuch as the government cannot be 
 sued by its subjects, or citizens, and inasmuch as the gov- 
 ernment can never, by its own courts, be declared bankrupt 
 and sent into insolvency, such money must be considered 
 as all practically irredeemable, or 'inconvertible," as it is 
 more commonly called. If government chooses to redeem 
 its notes, it can do so ; if it does not choose to redeem its 
 notes, it cannot be compelled to do it. One month the 
 treasury may redeem in gold all its own notes brought to 
 it ; another month it may refuse to redeem any. All the 
 time the money is inconvertible, because redemption is at 
 the pleasure of the government, not a matter of right on 
 the part of the holder of the notes. 
 
 131. Is it Good Money or Bad Money? — The question 
 whether political money acts well or ill, for the trade and in- 
 
146 POLITICAL ECONOMY. 
 
 dustry of the country, has been mnch discussed, and widely 
 different opinions are entertained regarding it. It may, 
 however, fairly be said that the most learned economists, the 
 soundest financiers, the greatest statesmen, in all countries, 
 are nearly unanimous in their opposition to it. I believe 
 that the reason why many generally intelligent persons 
 favor this kind of money is because they see only a part of 
 the case. Let us inquire what is to be said for and against 
 political money. 
 
 132. Is Political Money Cheap ? — In the first place, it is 
 alleged that political money has the great advantage of su- 
 perior cheapness, over either of the two kinds of money 
 previously described. Let us suppose that a country has 
 used bank-money, to the amount of four hundred millions 
 of dollars, the banks all the while holding a hundred and 
 fifty millions, in coin or bullion, as a basis for their circula- 
 tion. If, now, the bank-notes were all to be withdrawn, 
 and the government were to issue, in their stead, four hun- 
 dred millions of its own notes, or bills, the hundred and 
 fifty millions of specie could be sent abroad, to other coun- 
 tries, which still used gold or silver, and one hundred and 
 fifty million dollars' worth of iron for railroads, of ma- 
 chinery for mills, of wool for making cloth, or of silk goods 
 or wines, could be brought back. It is a perfectly proper in- 
 stinct of mankind to choose the shorter of two equally good 
 ways of reaching an object; the cheaper of two equally good 
 instruments for doing a piece of work. Money is nothing 
 but an instrument of exchange; and, if political money does 
 its work as well as any other kind of money, and is also 
 cheaper, it is altogether to be preferred. On the other 
 hand, the work which money performs, in any state of in- 
 dustrial society, is so vastly, so vitally, important, that no 
 money can be said to be really cheap which does that work 
 poorly. A rotten bridge, a leaky dam, may possibly be 
 
POLITICAL ECONOMY. 147 
 
 cheap, but bad money cannot be. Let us then inquire how 
 political money does its work, whether well or ill. 
 
 133. Political Money as the Medium of Exchange. — 
 We saw (par. 91) that money performs its great office, as a 
 medium of exchange, 
 
 1st. By dispensing with the double coincidence of wants 
 and of possessions which is involved in barter ; 
 
 2d. By promoting the making of " change" ; 
 
 3d. By acting as the common denominator of values, for 
 all the articles in the market. 
 
 All of these things political money can do just as well 
 as any other kind of money. History abundantly shows 
 that, if a strong and well-ordered government undertakes to 
 furnish its own people with money, by issuing notes from 
 its treasury, in amounts no greater, or not much greater, 
 than the amount of gold, or silver, or bank-notes, previously 
 circulating, and if the government, in so doing, makes its 
 notes (1st) receivable for taxes or public dues, and (2d) 
 "legal tender" for debts due from one citizen, or subject, to 
 another, such notes will pass easily into circulation through- 
 out the community, without objection or distrust, and will 
 thereafter act as the common medium of exchange, as a 
 matter of course. Every person, in his place in the indus- 
 trial order, be that high or low, will be just as eager to 
 obtain these government notes as he formerly was to obtain 
 bank-notes, or gold and silver. No one will resort to barter, 
 or curtail or modify his production of wealth, as a means 
 of escaping the use of such money. Such money, being 
 thus used as a general medium of exchange, becomes, by 
 virtue of that fact alone, the common denominator of 
 values. If three articles exchange severally for eight, 
 four and two pieces of paper, of a certain color and bear- 
 ing certain words and figures, we learn the relative values 
 of these three articles just as readily and just as exactly as if 
 
148 POLITICAL ECONOMY. 
 
 they exchanged, severally, for eight, four and two coins, 
 of a certain size and bearing certain devices. 
 
 134. Political Money as the Standard of Deferred Pay- 
 ments. — Now, since political money will do all this, why is 
 it not a good money ? I answer, because, as we saw in para- 
 graph 103, the money of a highly organized industrial state 
 has to act, not only as a medium of exchange, but, also, as 
 a standard for deferred payments. Now, since political 
 money is subject to neither a natural nor a commercial 
 limitation of supply, having itself no cost of production, it 
 is possible, it is always, socially speaking, highly probable, 
 that the amount of such money may be made to vary so 
 greatly as to make it a very unsatisfactory standard. Those 
 variations of amount may easily be carried to such extremes 
 as to work the grossest injustice, as between debtor and 
 creditor, and inflict the greatest injury upon production 
 and trade. 
 
 We have seen (par. 105) that even metallic money is sub- 
 ject to considerable variations of amount, from age to age ; 
 but here the injury that may be done is not of man's de- 
 vising, and hence is without that sting of injustice which 
 accompanies injuries that are done of a purpose. More- 
 over, it would be a very extraordinary condition of things 
 (although such a condition of things has existed) which 
 should allow the amount of precious metals to be doubled 
 in twenty-five years, or to be diminished one-half in a hun- 
 dred years. The amount of government paper-money, how- 
 ever, may readily be doubled or quadrupled in a few months. 
 Not only is this physically possible, but as much as this, 
 and even a great deal more, has actually occurred. Con- 
 gress, during our Eevolutionary war, issued twenty times 
 as much money, of this character, as there had been of 
 metallic money (silver) in the Colonies. The French 
 revolutionary government, a few years later, issued prob- 
 
POLITICAL ECONOMY. 149 
 
 ably fifty times as much paper-money as there had been of 
 metallic money in France, when they began. 
 
 135. The Inherent Tendencies of Political Money. — But 
 it is not a sufficient reason for rejecting any instrument, 
 which might be of use to society, that it may conceivably be 
 gi'ossly abused, or even that it has actually been so abused, 
 under circumstances not favorable to its proper working. 
 To reject a social instrument, or agency, on such an account, 
 would be as foolish as to accept it merely because it might 
 conceivably be used to advantage. The question is, always, 
 of the tendencies of social agencies and instruments. Hu- 
 man nature being what it is, are they likely to do more 
 harm than good ? If they are, it would be inexpressibly 
 foolish to adopt them, even though it could be shown that, 
 if properly used, they might effect a great saving of labor, 
 or yield a great gain of power. 
 
 Now, regarding political money, it can, without any 
 prejudice, be said that it is subject to two evil tendencies, 
 both of which are very strong ; both of which operate con- 
 tinuously ; both of which are liable, at special times, to 
 become aggravated to such a degree that they can scarcely 
 be resisted. 
 
 136. The Fiscal Motive to Excessive Issues. — The needs 
 of the public treasury constitute the most formidable of 
 the two dangers which beset government paper-money. 
 Any government, no matter how strong and prosperous the 
 people, is liable, now and then, to find its revenues, even in 
 time of peace, fall short of its necessary expenses. If a 
 government, in such a strait, has already large amounts of 
 paper-money outstanding, the pressure upon the treasury, 
 or upon the parliament or the congress, to increase those 
 issues of paper, to meet the exigency, will be very strong. 
 History abundantly shows the weakness of governments 
 under such a temptation, even where solemn public prom- 
 
160 POLITICAL ECONOMY. 
 
 ises had been given that no such increase of issues should 
 be made. Political virtue is seldom sufficient to resist this 
 temptation, provided the government and the people have 
 once become accustomed to the idea of government paper- 
 money. Time is no safeguard in this respect. The liabil- 
 ity to over-issue does not diminish with the lapse of years. 
 Moderation in the use of such money does not form a 
 political habit, which becomes a security against abuse. On 
 the contrary, the more familiar a people become with such 
 money, the less strenuous will be their opposition to over- 
 ssues. I deem it perfectly fair to say this. 
 
 137. Paper-money in War. — But it is on the occurrence 
 of war, that the greatest dangers from that source arise. 
 A government which already has this kind of money in 
 circulation is almost certain to resort to its excessive and 
 destructive use, should war break out. The needs of the 
 treasury, for the means to raise and equip armies and 
 navies, become at once enormously increased. It is so 
 much more easy to supply these needs by pouring out a 
 great volume of paper-money, in payment for goods and 
 services, than to do this by enhanced taxation or by govern- 
 ment loans, that it would be unreasonable to expect the 
 government not to resort to that means. The moral courage, 
 the political wisdom, which would be required to restrain 
 rulers and legislators from such a course, are seldom found. 
 
 Yet the resort to issues of paper-money, at the outbreak 
 of war, is always delusive and often destructive. The 
 reason is as follows : The treasury issues the paper-money 
 mainly for the purchase of military stores and supplies, in- 
 cluding provisions and clothing for troops. Yet the prices 
 of these articles are at once raised by such issues. The 
 prices of all things do not rise equally. When the volume 
 of money is increased, houses and lands, perhaps, do not 
 rise at all, at the beginning ; but articles immediately mer- 
 
POLITICAL ECONOMY. 161 
 
 charitable, i.e., goods in shops and warehouses, rise in 
 price very rapidly. Now, it is these articles, especially, 
 which the government goes into the market to purchase. 
 Consequently, the treasury, with a larger nominal amount 
 of money, finds its purchasing power diminished, and feels 
 itself poorer than ever. 
 
 The next step is a fatally easy one. The poorer the gov- 
 ernment becomes, the more paper-money it emits ; the more 
 paper-money it emits, the poorer it becomes. The most 
 probable end is a weltering chaos, involving the utter 
 bankruptcy of the treasury and the prostration of industry 
 and trade, with untold injury to the community, and the 
 highest injustice as between man and man. This was the 
 end actually reached in the American Revolution and in the 
 French Revolution, during the last century. In the war of 
 Secession, Congress had the unusual courage to stop, when 
 the " greenbacks " had reached four hundred million dol- 
 lars, and thereafter to raise all the means required, by 
 loans or taxes. Enormous evils, however, had already been 
 incurred, and the cost of the war vastly increased. 
 
 It is one of the cowardly maxims of current politics, that 
 a great war cannot be successfully carried on, by a free 
 people, without the issue of government paper-money, to 
 ''make the war popular,'^ to "raise prices,'^ to ''float 
 loans/' etc. Such a maxim is as false as it is cowardly. 
 Paper-money adds nothing to the real resources of a nation; 
 while the political virtue of any generous people will, if 
 properly appealed to, be found sufficient to command all 
 their energies in. any war which is waged for national inde- 
 pendence or nmonal honor or in defence of important 
 rights. The effect of paper-money upon the public body 
 is much like the effect of alcohol upon the individual : it 
 stimulates, it excites, it too often bewilders and crazes; it 
 can never add anything to the strength available for a 
 
152 POLITICAL ECONOMY. 
 
 severe and protracted contest. If there is ever a time when 
 a nation needs its full, collected, vigor, with a steady 
 pulse, a calm outlook, a firm hand, a brain undisturbed by 
 the fumes of this alcohol of commerce — paper-money — it 
 is when called to do battle for its life against superior 
 force. 
 
 138. Scaling Down Debts. — In all free governments, or 
 governments much subject to popular impulses, a second 
 danger of over-issue arises from the appetite which is en- 
 gendered for further emissions, to "scale down debts," or 
 to "make trade good." After a people have once felt the 
 intoxicating effects of excessive paper-issues, in enabling 
 them to pay their debts in money which is worth less, per- 
 haps much less, than that in which the debts were con- 
 tracted, there is aroused a strong and urgent appetite, 
 sometimes a ferocious passion, for new emissions, which 
 shall still further reduce the value of money and still further 
 rob the creditor class. Beneath the smooth and respect- 
 able surface of human society, in its ordinary moods, lie 
 passions of the most violent and destructive nature. It 
 is the task of the statesman to keep these from breaking 
 forth and devastating society, while he trusts to the insen- 
 sible operation of moral forces gradually to impair their 
 strength and ultimately to supplant them by virtuous and 
 beneficent motives. Scarcely any cause so breaks-up the 
 restraints under which the bad impulses of human nature 
 are held in check, and lets loose upon society such a horde 
 of villainous passions, as does the issue of paper-money, 
 when it has once passed the bounds of prudence. 
 
 Few communities known to history pAessed more of 
 sterling virtue than the early colonies of New England ; yet 
 these people, once infatuated and intoxicated by bad 
 money, fairly rioted in dishonesty, in the treatment of 
 public and private creditors. It required an immense effort 
 
POLITICAL ECONOMY. 163 
 
 of public virtue to finally turn the scale in favor of honesty; 
 but this was accomplished, and, by an act of wise states- 
 manship, the very roots of this poisonous plant were dug 
 out.* Ever since that time, the commercial credit and th^ 
 financial honor of New England have been nobly main- 
 tained; and the reward has been found in flourishing trade 
 and expanding manufactures. If it is the true task of 
 statesmanship to so order society, to so dispose its forces, 
 to so organize its forms, as to hold the bad impulses of 
 human nature in check, while giving full scope and free 
 play to those motives which seek at once individual happi- 
 ness and the public welfare, then it may boldly be said 
 that there is no act so unstatesmanlike as to institute the 
 regime of government paper-money. 
 
 139. Political Money at its Best. — We have shown two 
 grave dangers which beset political money, and from 
 which it cannot hope to escape. We have seen that the 
 danger of over-issue never ceases to threaten such a money. 
 Its path winds all the way along the edge of a precipice. 
 
 Let us now inquire what could be claimed for political 
 money, at its best. Would it be a good money, even were 
 the danger of over-issue, arising from the two causes indi- 
 cated, to be altogether removed ? I answer, such a money 
 could never be a good money, because it has no automatic 
 regulation of its amount, to keep it on a level, as to value, 
 with the money of other countries. It has been said that 
 government paper-money has no cost of production. We 
 are now to note that its circulation is limited to the country 
 in which it is issued. In common phrase, it is non-export- 
 
 * The period of New England history above referred to, is com- 
 prised between the second disastrous expedition against Canada, 
 1710, and the Revolutionary war. Massachusetts rid itself of paper- 
 money in 1747, under the enlightened leadership of Governor 
 Hutchinson. 
 
154 POLITICAL ECONOMY. 
 
 able. To see the full bearings of. this fact, we need to go 
 back to metal-money, and inquire how its total volume is 
 distributed among the several countries which take part 
 in the commerce of the world. 
 
 140. The Geographical Distribution of Metal-money. — It 
 would be a very difficult question to answer, how much 
 money a given nation requires. Even were the amount 
 of its annual production known, and the amount of its 
 annual trade, we should not have the means of answering 
 this question. The amount of money required to do a 
 certain amount of trade depends upon the extent to which 
 the banking system is organized (par. 118); upon the 
 degree to which cancellation of indebtedness (par. 120) is 
 carried ; and also upon the *^' rapidity of circulation." The 
 last point is of great importance. In some communities, a 
 dollar will be used to pay debts or make purchases, as 
 many times in the course of one week, as in the course of a 
 month in other communities. ''The nimble sixpence 
 does the work of the slow shilling." To say that a country 
 needs so much money because it has so much trade, would 
 be like saying that a railroad needs so many cars to trans- 
 port ten millions of bushels of grain from one place to 
 another, without knowing how often the cars will be able 
 to make the round-trip. 
 
 Fortunately, it is not necessary that any one should know 
 how much metal money any particular country requires. 
 If one country has a larger share of the metal money of the 
 world than is for its own good and for the good of others, 
 the excess will be drained away insensibly, and without any 
 one taking care concerning it. A country should, for its 
 own good and for the good of others, have in circulation 
 money enough to keep its prices on a level (cost of trans- 
 portation being taken into account) with prices in other 
 countries. Any excess above this amount is called Infla- 
 
POLITICAL ECONOMY. 155 
 
 tion. Now, if the money of a country be inflated, prices 
 must rise. If prices rise, that country becomes a bad coun- 
 try to buy from, since all persons naturally desire to buy in 
 the cheapest market. For the same reason, that country 
 will be a good country to sell to, since all persons are moved 
 to send their goods to the dearest market. Since, there- 
 fore, the country is both a bad country to buy from and 
 a good country to sell to, its imports will increase and 
 its exports diminish. As the immediate consequence of 
 this, metal-money will have to be sent out of the country, 
 to pay the difference between the value of the goods it has 
 sold and the value of the goods it has bought. 
 
 This process will begin even before the shrewdest banker, 
 or financier, or statistician, could have told that the money 
 of that country was in excess. You have seen a carpenter 
 or mason lay a spirit-level upon a beam, or upon a wall. If 
 the surface is not exactly horizontal, the little bubble under 
 the glass runs out of sight, although the departure from the 
 horizontal be so slight that no eye, however trained, could 
 detect it. So, in the case of a country having metallic 
 money in excess, the exportation of gold, or silver, begins 
 before the wisest man in the land could have told that there 
 was inflation. This process continues just as long as the 
 excess remains ; and it ceases, of itself, just as soon as the 
 excess is removed. 
 
 It is by such a process that metal-money preserves its level, 
 the world over. No man has occasion to take care for it. 
 There is no need of setting up machinery to do this work. 
 There is no danger of any mistake about it, either in 
 doing too much or in doing too little, either in beginning 
 too early or too late. The highest good of each country re- 
 quires that it should have just that amount of money which 
 will be brought to it, and kept in it, by the operation which 
 we have described. To have more money, would make 
 
166 POLITICAL ECONOMY. 
 
 that country a bad market to buy in. To have less money, 
 would retard and embarrass the exchanges which the people 
 of that country have need to make. And what is thus for 
 the good of each country, by turns, is for the advantage of 
 all countries, as a whole, enabling the required exchanges 
 to be made with the greatest ease and confidence. 
 
 141. The Regulation of Bank-money. — We have shown, 
 in the preceding paragraph, that the geographical distribu- 
 tion of metal-money, among the several countries of the 
 world, is affected insensibly, automatically and surely. But 
 how is it with countries having bank-money ? Can bank- 
 money be exported, in case of excess ? I answer, no. 
 Bank-money is not subject to export. It is true that a 
 few Bank of England notes are occasionally carried to the 
 continent of Europe. This, however, is not because such 
 notes are in excess at home; but because a few travellers 
 choose to take a portion of their funds with them in that 
 shape, knowing that the bankers in the largest cities of the 
 Continent are always glad to have some Bank of England 
 notes on hand. Such an exception we may safely disre- 
 gard; and say that bank-notes are non-exportable. How, 
 then, it will be asked, can bank-money be subject to auto- 
 matic regulation of amount ? 
 
 The process is as follows : If bank-notes be issued in ex- 
 cess, prices will rise, and that country will consequently 
 become a bad country to buy from and a good country to 
 sell to. Exports being, by this cause, diminished, while 
 imports are increased, money will have to be sent out of the 
 country, to pay the balance. Since the bank-notes cannot 
 go, a draft will be made upon the specie in the '* reserves'* 
 of the banks. In other words, there will be a ^^ drain'' of 
 gold, or silver. If the law, as is sometimes the case, for- 
 bids a bank to keep-out more than a certain proportion of 
 notes, or bills, to the gold, or silver, in its vaults, the loss 
 
POLITICAL ECONOMY, l57 
 
 of the specie will require the banks to ^' contract their cir- 
 culation/' accordingly^ and thus the excess of notes will 
 be removed. If, on the other hand, the law makes no such 
 requirement, the bank-officers will be obliged, in the exer- 
 cise of ordinary prudence, not to send back into circulation 
 the notes that are first paid into the bank, in the course of 
 business. These notes the bank-officers will prefer to lay 
 away in their vaults, until the specie they have lost shall 
 come back again. 
 
 Of course, it will be seen that this action requires the 
 exercise of ordinary prudence on the part of the bank-offi- 
 cers. If these are reckless, they may wait until they get 
 a second warning, in the form of still another ^^ drain'' 
 upon their reserves. Speaking broadly, however, we may 
 say that, if the banking system of the country is in good 
 hands, the amount of bank-money is almost as surely and 
 quickly subject to regulation as is money of gold or silver. 
 
 142. Political Money not Subject to Automatic Regula- 
 tion of Amount. — On the other hand, political money is not 
 subject, in any degree, to automatic regulation of supply. 
 Such money, it is true, is never likely to be deficient in 
 amount. The needs of the treasury aud the clamors of the 
 trading, and especially of the speculative, class, may be 
 trusted to prevent that result. The danger is all on the 
 other side, viz., that such money will be issued and main- 
 tained in excess, since, if, from any cause, at any time, too 
 much of such money be put out from the treasury, there is 
 no natural or commercial drainage, by which the excess shall 
 be removed. A country which has such : money is like an 
 interior district which has no outlet through the rivers and 
 thence to the ocean. If too much water falls upon such a 
 district, it turns to swamps or quicksands, according to the 
 nature of the soil. A country where an excess of govern- 
 ment paper-money has been issued becomes a swamp or a 
 
158 POLITICAL EGONOMT. 
 
 quicksand, commercially and industrially speaking. It be- 
 comes at once a bad country to buy from, a good country to 
 sell to, because prices are high there; but this fact does not 
 tend to remove the excess, because such money is not avail- 
 able for export, to pay balances. 
 
 How, then, can such a country pay the balances due to 
 its unfavorable trade ? Why, by gold, which it purchases, 
 for this purpose, from other nations. As soon as any 
 paper-money country is driv(3n into this strait, we have the 
 phenomenon of a Premium on Gold.* This is an almost 
 inevitable accompaniment of government paper-money. 
 Since some gold must be had, for the purpose of paying 
 foreign balances or for use in the arts, gold, which in that 
 country has ceased to be money, is bought and sold, like 
 any other commodity ; and its price (in paper-money) rises 
 and falls like the prices of other commodities. The pre- 
 mium on gold may be high or it may be low; but some 
 premium, greater or less, is almost certain to exist wher- 
 ever government paper-money is the sole money of the 
 people. 
 
 143. The Present Situation in the United States. — The 
 last phrase of the preceding paragraph intimates a qualifi- 
 cation that must be made, whenever government paper- 
 money is spoken of. At the present time we have, in the 
 United States, government paper-money, popularly known 
 as " greenbacks. '' Why, then, is there not a Premium on 
 Gold? I answer, because the amount of such money has 
 been fixed bylaw at a point far below the amount of money 
 which the people of the United States require. In addition 
 to the greenbacks, we have 
 
 1st. Bank money, in large amount ; 
 
 * Or on silver, if that be the money in which foreign balances are 
 paid, as, for instance, in the East Indian or Chinese trade. For con- 
 venience, we speak, here, only of gold. 
 
POLITICAL ECONOMY. 159 
 
 2d. Gold and silver, coined and uncoined, in the hands 
 of brokers and dealers in bullion; 
 
 3d. ^^Gold certificates" and '"^ silver certificates," in vast 
 amount, which the Treasury has issued, and for which it 
 holds the actual gold and silver, dollar for dollar, in the 
 '* sub-treasuries" at New York, Boston, Baltimore, New 
 Orleans, San Francisco, and other places, ready to be paid 
 out to whoever may present the " certificates." 
 
 If, now, the aggregate amount of all these kinds of 
 money should come, at any time, to be in excess, the 
 " drain" would come either upon the gold and silver in the 
 hands of brokers and bullion dealers, or else upon the gold 
 and silver held by the government for the redemption of 
 the ^^certificates." Long before the drain should get down 
 to the government paper-money, any excess in the aggre- 
 gate amount of money within the United States would have 
 been corrected. 
 
 What, then, it may be asked, can be the objection to 
 government issuing a certain, limited, amount of this politi- 
 cal money? I answer, that, if the amount to be so issued 
 is fixed far below the lowest point to which the money of 
 the country could ever be reduced, even at its lowest ebb, 
 the only objection to its issue is found in the possible dan- 
 ger that, when both government and people have become 
 thoroughly accustomed to this kind of money, its amount 
 will readily be increased, in case of financial disaster or 
 upon the occurrence of war. A country which has such a 
 money is very likely to be drawn into the abuse of it. A 
 country which has not such a money is not likely to resort 
 to it, except in a great exigency. 
 
 144. Eflfects of a Gold Premium upon Trade. — Let us 
 now return to the case of a country, the government of 
 which has undertaken to furnish its people with all the 
 money they require, in the form of inconvertible paper. 
 
160 POLXTIGAL EGOmMT. 
 
 Let it, for the sake of argument, be assumed that war will 
 not occur, to drive the government to over-issues ; and that, 
 in time of peace, both government and people are so wise, 
 so honest, and so brave, that they will not purposely inflate 
 this paper-money under any temptation. Upon this series 
 of favorable assumptions, what would be the effect of such 
 money upon trade ? 
 
 It has been said that such a money is not likely to be de- 
 ficient in supply. Both the needs of the Treasury and the 
 demands of the trading, and especially of the speculating, 
 class, will be certain to prevent this. But why should such 
 a money become excessive, if neither the government nor 
 the people desire over-issue? I answer, because there is 
 no man, and no body of men, wise enough to tell just how 
 much money, no more and no less, the trade of a nation 
 requires, at any given time. Metal money is in a continual 
 state of flux, now flowing in this direction, now in that, ac- 
 cording to the needs of trade. One time, the West requires 
 a larger share of the nation's money ; at another time, it is 
 the East. For weeks, every steamer which leaves New 
 York takes more or less gold to Liverpool ; then, again, it 
 is the incoming steamers which carry gold. It is by the 
 incessant movements of money, that trade remains steady. 
 If money is to become stagnant, trade must take up the 
 fluctuation ; and, by the inevitable influence of specula- 
 tion, that fluctuation becomes excessive, extravagant, per- 
 nicious. 
 
 If we were to suppose that, upon any given day, the 
 amount of inconvertible paper-money in the country were 
 exactly what the good of trade required, that is, exactly 
 the amount of metal-money which would be in circu- 
 lation, it would be, in the highest degree, probable that, in 
 a very shdrt time, a few weeks, perhaps a few days, that 
 amount would become excessive. If it were metal-money. 
 
POLITICAL ECONOMY. . 161 
 
 the excess would be insensibly and automatically drained 
 away, as we have seen. Since paper-money cannot be regu- 
 lated in this way, a premium on gold will at once appear. 
 The Dioment a premium on gold appears, gold hecomes the 
 subject of speculative dealing. That speculative dealing early 
 becomes intense and furious. The whole amount of gold 
 in the country is perhaps sold over and over again* during a 
 single week, or a single day. Under the influence of this 
 cause, the premium on gold soon ceases to afford any meas- 
 ure of the excess of paper-money. The premium goes up 
 and down, like a small boat on a tempestuous sea. Now 
 the " bulls'' have it ; now the *^ bears.'' f 
 
 What effects upon trade are produced by the fluctuations 
 of the gold premium ? We shall best show this by illustra- 
 tion. A merchant in New York sells goods to Liverpool, 
 on sixty days' credit. Those goods the merchant has 
 bought with paper-money : he is to be paid in gold. 
 Perhaps at the time the sale takes place the premium on 
 gold is twenty per cent. When the sixty days have ex- 
 pired, the premium on gold may be thirty per cent, or it 
 may be only ten. In the one case, the merchant has real- 
 ized a great gain, which he has done nothing to deserve; in 
 the other case, he suffers a large loss, through no fault of his 
 own. It has already been stated (par. 104) that unearned 
 gains do not help men as much as undeserved losses hurt 
 
 * Not sold and delimred; but sold speculatively, perhaps by men 
 who have no gold, to men who want no gold. Such buying and 
 selling is called speculative. Those who buy and sell in this way, 
 being neither producers, traders, nor consumers, are simply engaged 
 in gambling. They bet upon the future price of the article in which 
 they deal. 
 
 fin the phrase of the market, the "bulls" are those dealers who 
 are working for a rise in prices, so that they can sell to advantage ; 
 the " bears," those who are working for a fall of prices, so that they 
 can buy to advantage. 
 
16S POLITICAL ECONOMY, 
 
 them. If human history teaches anything, it teaches this, 
 unmistakably. 
 
 Moreover, in such a state of things, not only is trade 
 subject to unearned gains and undeserved losses, but the 
 whole trading community becomes animated by a highly 
 speculative spirit. Merchants, instead of confining them- 
 selves to prudent, careful dealings, trying to save a little 
 here, and make a little there, buying judiciously and sell- 
 ing judiciously, remaining content with a reasonable profit, 
 and studying patiently the real demands of consumers, 
 launch out into enterprises of a grand and startling charac- 
 ter ; become indifferent to little savings, contemptuous of 
 small gains ; and operate rather with reference to the antici- 
 pated fluctuations of the gold premium, than with reference 
 to supplying the actual, current wants of consumers. Soon, 
 *' combines" and " corners" come in to produce great waves 
 in the markets for produce, which swallow up the frail barks 
 of petty dealers, and wreck the small fortunes which have 
 been accumulated through years of patient toil. All trade, 
 is in its nature, more or less speculative, even with a good 
 money; but bad money and a fluctuating gold premium 
 make trade little better than gambling. 
 
 145. The Effects upon Industry. — A nation might per- 
 haps put up with the unfavorable effects of paper-money 
 upon the trading class, were it not for the inevitable effects 
 which are produced upon industry. Manufacturing, under 
 such impulses from trade, also becomes highly speculative; 
 production gathers itself into great waves; producers become 
 dissatisfied with the proper fruits of care and pains and 
 labor, and fix their eyes upon the glittering prizes which 
 are awarded to lucky ^Hiits" and momentary successes. 
 
 146. The Effects upon the Consumption of Wealth. — 
 Light come : light go. Those who, in such a state of in- 
 dustry and trade, reap large gains, too often spend them 
 
POLITICAL ECONOMY. 163 
 
 foolishly, recklessly, perhaps wantonly; while those who 
 have suffered from the injustice which the regime of paper- 
 money always causes, in so great a degree, eat their scanty 
 bread, made bitter by the sense of wrong and undeserved 
 hardship. A period of paper-money inflation always sees 
 great changes in the consumption of a people ; and those 
 changes are almost all away from what is wholesome, mod- 
 erate, and temperate, toward what is extravagant, foolish, 
 or pernicious. 
 
 In such a state of industrial society, it is always the 
 poorest and the humblest, those who have least to spare, 
 those who are farthest away from the sources of power, 
 who suffer most, and who have least the opportunity for 
 repairing the wrongs done to them. Rightly did Daniel 
 Webster call such money 'Hhe most effectual of inventions 
 to fertilize the rich man's field by the sweat of the poor 
 man's brow." 
 
CHAPTEE XVI. 
 PROTECTION OR FREE TRADE. 
 
 147. The Territorial Division of Labor. — In Chapter 
 VII, we showed how the division of labor comes about, 
 and indicated some of its more important advantages. 
 The same principle which divides the population of a vil- 
 lage or a small district into hunters and herdsmen, sailors 
 and fishermen, grain growers and fruit growers, carpenters 
 and blacksmiths, butchers and bakers, peddlers and shop- 
 keepers, lawyers and doctors, is carried out, in greater or 
 less degree, to large districts, states and nations. Some 
 districts, some states, give themselves mainly to agricul- 
 ture, in one or another branch; some resort chiefly to fish- 
 ing, shipbuilding and navigation ; some, to mining and to 
 the manufacture of metals from the ores ; some, to textile 
 manufactures or to the production of pottery or porcelain 
 from clays. 
 
 148. Soil and Climate. — There are three principal sets of 
 forces in the territorial division of labor. These are 
 
 (1) Soil and climate. 
 
 (2) The industrial adaptations of the people. 
 
 (3) The accumulation of capital. 
 
 The chief controlling force is found in soil and cli- 
 mate, including all those elements which may be called 
 geographical. 
 
 Soil and climate have always a powerful influence upon 
 the occupations of any community, although that influ- 
 ence is much greater in respect to certain classes of occu- 
 
 164 
 
POLITICAL ECONOMY. 166 
 
 pations than in respect to others. It is in the mining in- 
 dustries that the force of this cause reaches its maximum. 
 Nature here fixes the limits within which alone industry 
 can be prosecuted ; although men may or may not take 
 advantage of the opportunities offered. Generally speak- 
 ing, also, it may be said that in mining districts there^ is 
 seldom any considerable variety of occupations. Neither 
 manufactures nor agriculture are likely to grow up, on any 
 considerable scale, in connection with mining, on account 
 of the rugged and inaccessible, and often sterile, nature of 
 the regions concerned. 
 
 Agriculture comes next to mining, in the degree to 
 which the constraints of nature are felt. In regard to 
 some crops the lines are drawn so strictly that man has 
 little choice given him, except only the choice of not pro- 
 ducing at all. In certain narrow districts along our south- 
 ern coast, rice is raised, and nowhere else in the United 
 States. This crop can only be cultivated on lands which 
 are periodically flooded by water, either naturally or by 
 artificial means. The temperature of the growing season 
 must, also, be high. In New Jersey and in certain other 
 Northern States, are small districts which are almost wholly' 
 given up to the raising of cranberries for the market. 
 The crop is a profitable one ; but it can only be raised 
 under peculiar conditions as to soil and water. There is 
 a well-defined honey-producing district in California. 
 
 Hops are raised to a great extent in certain districts of 
 New York and Wisconsin. Cotton is raised almost wholly 
 south of a certain parallel of latitude, because this plant re- 
 quires both heat and moisture, in an exceptional degree, for 
 its cultivation. Yet the human will and the progress of the 
 agricultural art have something to do with determining 
 the seats of cotton cultivation. Cotton is now largely 
 raised on high lands in South Carolina and Georgia, 
 
166 POLITICAL ECONOMY. 
 
 where, before the War of Secession, no one thought of 
 planting it, except in small patches. Tobacco can be 
 raised either at the North or at the South, in Connecticut 
 as in Kentucky, and this plant has no very clear relations 
 to the amount of moisture ; yet certain districts are found, 
 upon extensive trial, to be so much better suited than 
 others to the production of a proper quality and quantity 
 of this plant, that the tobacco region of the United States 
 may be said to be fairly well defined. Here, as in the case 
 of hops, we have a crop which fluctuates greatly in price 
 from year to year. Such a crop is likely to be less widely 
 spread, for the same quantity of product, than a crop which 
 is steadier in price. Wheat is grown almost wholly north 
 of the thirty-sixth degree of latitude ; while Indian corn, 
 or maize, can be cultivated through a much wider range of 
 country, giving the inhabitants, therefore, a larger choice 
 as to the fields which shall be sown for this crop. 
 
 When we come to manufactures we reach a department of 
 production where, it might be supposed, the human will was 
 almost supreme, as regards the points of location; yet, even 
 here, the influence of geographical conditions is very strong. 
 For example, it is to the remarkable groups of water-powers 
 afforded by its rivers, that New England owes much of its 
 development in manufactures. Those rivers, falling down 
 from the mountains at the north, make their way to the sea 
 over a succession of irregular terraces. Whenever a stream 
 plunges from one terrace to another, it places an enormous 
 force at the disposal of men, for manufacturing purposes ; 
 and, inasmuch as the rocks of this region are very hard, 
 the water-fall is subject to but little change from age to 
 age. Sometimes, the river takes its last plunge straight 
 down into tide-water, so that vessels can load the grain or 
 the lumber or the cotton cloth almost from the mills. 
 
 On the other hand, there are extensive parts of the 
 
POLITICAL ECONOMY. 167 
 
 United States which are so generally level that the rivers 
 flowing to the sea create almost no water-powers ; while, 
 even in some elevated regions, the underlying rock is so 
 soft as to be speedily worn away by the action of the water, 
 producing, instead of a few sharp falls, a succession of rap- 
 ids and shoals. Some of these rivers, too, take their last 
 plunge at a distance of one hundred, two hundred or even 
 three hundred miles from the shore, so that, if mills were 
 to be erected there, the vessels which were to bring away 
 the produce, or carry up the materials, would have a long 
 and tedious voyage to make. 
 
 Climate, moreover, has not a little to do with success in 
 certain branches of manufactures. There are parts of 
 France which are supposed to have a great superiority in 
 the production of silk goods of brilliant colors and delicate 
 shades, by reason of their prevailing climate. Some dis- 
 tricts, as in England, have just about that degree of moist- 
 ure in the air, throughout the year, which is most favora- 
 ble to the spinning of cotton. In still other regions, the 
 highly electrical condition of the atmosphere is unfavorable 
 to mill-work. 
 
 Upon all out-door mechanical employments, the com- 
 parative severity or mildness of the weather has a great in- 
 fluence. In some countiieSj a stone or brick mason can 
 perform his task, with but little interruption, through the 
 entire year; in other countries, the building season is prac- 
 tically limited to eight months ; in others, to six months or 
 even five. 
 
 While the soil has little direct influence upon manufac- 
 tures, it has yet an important secondary influence, as pro- 
 ducing, or not producing, the materials of manufacture. 
 A region in which cotton is grown has a certain advantage, 
 other things equal, in the production of cotton goods. The 
 manufacture of porcelain and pottery is usually carried on 
 
168 POLITICAL ECONOMY. 
 
 where the clays suitable for this industry are found most 
 freely and of the best quality. Ores are generally smelted 
 at or near the mine. The existence of coal in any district 
 is an enormous aid to manufacturing industry. 
 
 The foregoing conditions, however, are subject, in a high 
 degree, to the will of man and to the progress of the indus- 
 trial arts. England imports cotton from America, from 
 Egypt and from India, and makes it into cloth which she 
 sends back to the very countries from which the staple 
 came. In many instances, ores of iron are carried hundreds, 
 and ores of copper even thousands, of miles, to be smelted. 
 Districts which are destitute alike of natural water-power 
 and of coal, have, notwithstanding, achieved great success 
 in manufactures. 
 
 149. Industrial Adaptations of the People. — Far less 
 conspicuous to the sight, but, in the case of many industries, 
 of greater influence, are industrial adaptations, either inher- 
 ited or acquired by education. Strong as are the con- 
 straints of geographical conditions, there is that in the 
 spirit and mind of man which can make the wilderness 
 blossom like the rose, which can redeem a land from the 
 sea, which can cut paths for commerce where nature has 
 interposed the mightiest barriers, which can build up man- 
 ufactures in remote and desolate places. Some of the 
 greatest achievements of industry have been made under 
 circumstances the most forbidding and with means the most 
 inadequate. Any land, however sterile, which possesses 
 an energetic, skilful and enterprising people, will, in the 
 course of a few generations, be richer than any other coun- 
 try, however bounteously endowed by nature, whose people 
 are thriftless, ignorant and inert. 
 
 But it is something more than this which we mean when 
 we speak of the industrial adaptations of a nation. Of two 
 highly enterprising, intelligent and skilful peoples, each 
 
POLITICAL ECONOMY. 169 
 
 will have, by reason of something in its past, certain special 
 adaptations, of an industrial character, which the other 
 has not. One nation, like France, will easily achieve a 
 remarkable success in the production of goods which have 
 grace of form, beauty of color and elegance of finish. 
 Another nation, like England, will be unsurpassed in the 
 production of goods where durability and substantial ser- 
 vice are prime requisites. Another nation, still, like the 
 United States, will instinctively turn itself to the produc- 
 tion of articles demanding great ingenuity, mechanical 
 insight, and a ready comprehension of the relation of parts 
 to a whole. The agricultural machines, the locks and safes, 
 the musical instruments, the sewing-machines, the rifles 
 and pistols, the scales and balances, of such a nation, will 
 be sent to the ends of the earth. Some peoples, again, 
 have, in a high degree, the patience, the foresight, the care- 
 fulness and the delight in animal life, which give them a 
 remarkable success in breeding, raising and tending cattle 
 and sheep, swine and poultry, and, consequently, in pro- 
 ducing those forms of wealth which are derived from such 
 sources. 
 
 The industrial adaptations of a people sometimes become 
 very special, indeed. Partly from inherited instincts, 
 partly through secret processes handed down by their fore- 
 fathers, the people of a certain city may have a marvellous 
 skill and taste in producing a certain, single kind of goods, 
 be it sword-blades that can be bent double without break- 
 ing, or toys of infinite delicacy and variety, or carpets 
 and shawls whose patterns and dyes are the admiration of 
 the world. 
 
 150. The Accumulation of Capital. — In addition to the 
 foregoing forces, which control or influence the distribution 
 of industries, an important force is found in the accumu- 
 lation of capital. Given, two peoples exactly alike in all 
 
170 POLITICAL ECONOMY. 
 
 their qualities and characteristics, occupying countries 
 similarly endowed by nature, but one of them older in 
 settlement, and richer in accumulated wealth than the 
 other, there will inevitably be important differences in the 
 ^vocations of those peoples. They will have much in 
 common; there will be much that is peculiar to each. 
 The greater capital of the older country will not merely 
 enable its people to produce more of the same kind of 
 things ; it will enable and almost require its people to pro- 
 duce things of a different kind. There are certain indus- 
 tries which almost wholly belong to long-settled countiies. 
 Moreover, the accumulation of capital tends strongly to 
 the local concentration of certain kinds of manufactures. 
 The rule, " to him that h:ith shall be given,'^ applies greatly 
 to manufacturing industry. There is a curious tendency, 
 in some branches of business, for producers to herd to- 
 gether. This is even seen in trade. If you go to a large 
 city, you will find the leather dealers, the wool merchants, 
 the sellers of sewing-machines, or musical instruments, 
 close together. One might suppose that the contrary 
 would be the case : that a merchant would prefer not to 
 have his competitors and rivals near him, and would place 
 himself at a distance from them. This is so, to a large 
 extent, in retail trade ; but in wholesale trade the rule is 
 the other way. So it is with the great manufactures : long 
 experience has shown that one derives a benefit from the 
 presence of others. This is partly due (1) to the fact that 
 individual manufacturers can, in this way, acquire an earlier 
 and more exact knowledge of what is going on in their 
 lines of production; in part, (2) to the concentration, 
 within a limited area, of the laborers skilled in that kind 
 of work, so that any manufacturer can readily increase his 
 laboring force ; in part, (3) to the fact that the shops which 
 supply the materials for that kind of manufacture, and the 
 
POLITICAL ECONOMY. 171 
 
 works which make its peculiar machinery, come to be lo- 
 cated near by ; in part, and perhaps the greater part, (4) 
 to the fact, that when a region contains many factories of 
 a certain kind, it comes to be known as the centre, or '' head- 
 quarters," of that manufacture ; merchants and agents 
 visit it in large numbers ; and the goods produced there 
 acquire a special name and reputation. 
 
 The force of the foregoing cause is very great : so much 
 so that, with regard to certain manufactures, it may be 
 said, it is not worth while for a country or a region to pro- 
 duce at all, unless it is to produce a great deal : to have 
 any factories of that sort, unless it is to have many. 
 
 161. Neighborhood Industries. — Precisely the opposite is 
 true of certain industries which we call ''neighborhood 
 industries." It is of the very nature of these, that they 
 should be scattered widely over the country. 
 
 Among these industries may be reckoned most of the 
 ordinary mechanical trades. The carpenter, the black- 
 smith, the plumber, the house painter, the paperer, the 
 glazier, the brick and stone mason, must do their work on 
 the spot where the product is to be used or consumed; and 
 these trades, taken together, comprise a large part of the 
 mechanical labor of even the greatest industrial nations. 
 There are more carpenters in the United States than per- 
 sons engaged in the iron manufacture, or in the cotton 
 manufacture, or in the woollen manufacture. Again, the 
 building of roads, canals, and railroads, and largely, also, 
 the construction of bridges, must be performed on the 
 spot. A railroad cannot be built in one country and ex- 
 ported to another for use. The skilled and unskilled labor 
 required for the operation of a railroad, has to be employed 
 in the place where the service is to be enjoyed. Locomo- 
 tives and cars may, indeed, be built at a distance; but a 
 vast amount of repairs is constantly to be done near to the 
 
172 POLITICAL ECONOMY. 
 
 track upon which the locomotives and cars are used. 
 There are, also, some branches of manufactures, proper, 
 which strongly tend to be scattered over the face of the 
 country, such as the making of heavy wagons, coarse fur- 
 niture, and plain brick. 
 
 Such industries as those we have enumerated, constitute 
 an important exception to the rule that manufacturing in- 
 dustries tend to local concentration. When, for example, 
 we say that a country or a large region, possessing a rich 
 soil and favorable climate, is mainly agricultural, we must 
 bear in mind that this country or region will still have, in 
 the forms above mentioned, a great deal of mechanical in- 
 dustry. 
 
 And it is also to be noted, as a most important considera- 
 tion, that, out of these primitive mechanical industries, the 
 higher, the finer, the more complicated branches of manu- 
 facture tend to grow up, just as fast as the necessary skill 
 and capital are attained. I'he machine shop follows 
 the blacksmith's shop, in natural order; the factory that 
 has been turning out rude farmers' and pioneers' wagons 
 and carts, comes, in time, to make the coach and the gen- 
 tleman's drag; shops which were built only to repair arti- 
 cles brought from a distance, at last undertake, slowly and 
 cautiously, to make those articles themselves. In these 
 and similar ways, the '^neighborhood industries" become 
 ''plantations" of the great manufactures, just as single 
 trees, set down here and there over a region, tend to form, 
 first, groups of trees, of their own kind, then groves, then 
 forests. 
 
 152. Advantages of the Territorial Divison of Labor. — 
 We have, thus far in the present chapter, undertaken to 
 describe, of course very rudely, the process by which the 
 territorial division of labor takes place. The economic 
 advantages resulting therefrom are so clear that they scarce- 
 
POLITICAL BOONOMT. 173 
 
 ly need to be mentioned. Each country, devoting its ener- 
 gies to those forms of production for which it is best fitted, 
 alike by its geographical endowment and by the skill, tastes, 
 and habits of its people, at once does that which is best for 
 itself and best for mankind. The good of each serves the 
 good of all. "While each nation develops its industry along 
 the line of its own peculiar powers and adaptations, inter- 
 national trade brings all the nations together, in exchanges 
 which are mutually beneficial. Each, doing that which it 
 can do best, thereby contributes in the highest degree to 
 the welfare of others ; and in its turn, through a fair ex- 
 change, receives back articles of necessity, of comfort, or of 
 luxury, which it could not have produced except through 
 a greater, perhaps a vastly greater, outlay of labor and 
 capital. Freedom of production within the nations, and 
 freedom of trade between the nations, is the proper general 
 condition of human industry. 
 
 163. "The Encouragement of Manufactures." — It has, 
 however, been strongly held, by many persons, that, in a 
 new country, having as yet but small capital, something 
 may properly be done by law, to encourage the growth of 
 manufactures, instead of leaving this altogether to the 
 interest and the '' initiative " of individual producers. It 
 has been held, that, by imposing '^ customs duties " upon 
 foreign articles, in certain lines, '' a start " might be given 
 to the production of these articles, which, after a brief 
 term of such "protection," would be produced to advan- 
 tage. It is alleged, in support of this opinion, that, in 
 such a country as has been described, conditions might, in 
 general, be favorable to the production of certain articles, 
 and yet, on account of timidity or want of foresight on 
 the part of capitalists and manufacturers, their production 
 might be long delayed; whereas, a little impulse from the 
 government, a brief term of protection, might suflBce to 
 
174 POLITICAL ECONOMT. 
 
 bring such industries into being and to support them 
 through the time of trial, experiment, and large, initial, 
 outlay for plant and machinery. 
 
 Such an opinion is perfectly rational. Capitalists and 
 manufacturers are often timid, often mistaken, often blind 
 to their own true interests. It is conceivable that a coun- 
 try, in which capital was at the best scarce,* might be on 
 the verge of a successful career in a certain line of pro- 
 duction, and yet not enter upon it, for the reasons indi- 
 cated. A law which imposed duties upon articles, in this 
 line, might furnish the impulse needed. While many of 
 the results of so-called protection are subject to doubt and 
 dispute, I believe that instances of the successful applica- 
 tion of this policy are to be found in our own history and 
 in that of other countries. 
 
 164. The Possible Disadvantages of the Protective Sys- 
 tem. — Against whatever advantages may be deemed likely to 
 result from the successful introduction of certain branches 
 of manufacture, at a date earlier than that at which they 
 would have appeared, but for protection, are to be set two 
 things. 
 
 {a) The instances of failure. If capitalists and manu- 
 facturers are fallible, so also are governors and legislators. 
 If capitalists and manufacturers are selfish, governors and 
 legislators are likely to be moved strongly by sectional or 
 partisan interests. The history of protection abounds in 
 gross mistakes and grave misadventures, in the attempt 
 to set-up industries artificially by force of law. The 
 silk duties in England and the hemp duties in the 
 United States are striking examples of such failures. It 
 is, of course, impossible to put into figures the mischief 
 done, whenever the policy of encouraging manufactures is 
 
 * This is an essential point. When capital is abundant, capitalists 
 are almost too ready to try new things. 
 
POLITICAL ECOmMT. 175^ 
 
 Wrongly applied. Even where the failure is not total and 
 final, i.e., where at last the industry becomes established, 
 it may still be true that its premature establishment has 
 cost more, in waste of labor and capital, than the industry 
 will ever be worth to the people of the country. 
 
 (h) The undue continuance of protective duties. Per- 
 haps the greatest objection to the putting-on of protective 
 duties is the difficulty of taking them off. At the outset, 
 whenever protection is asked for an " infant industry,^' it is 
 invariably asserted that this will be required for but a short 
 time. Such has been the theory upon which almost every one 
 of the protected industries of the United States has been 
 started. As a matter of fact, however, the time seldom comes 
 when those who represent a protected industry are willing 
 to admit that governmental assistance is no longer needed. 
 On the contrary, it has been the experience of the United 
 States, with but few exceptions, that the protected indus- 
 tries have from time to time demanded higher and still 
 higher protection, and that with increasing urgency; while 
 against any proposed reduction of duties, all concerned 
 struggle with the utmost vehemence, filling the public press 
 with their outcries, arousing sectional prejudice and 
 passion, and producing apprehensions and alarms which are 
 exceedingly injurious to production and trade. 
 
 155. The Balance of Advantage and Disadvantage. — We 
 have seen what is the possible advantage of a protective 
 policy, at its best, in promoting the introduction of certain 
 branches of manufacture into countries which are ripe for 
 them, at an earlier date than that at which they would other- 
 wise have appeared. We have noted, also, the possible dis- 
 advantages of a protective system, first, through the mistakes 
 of legislators and governors in making choice of the indus- 
 tries to be protected; secondly, through the passionate re- 
 sistance offered by the protected industries to a removal 
 
176 POLITICAL economy: 
 
 or reduction of duties. The question, on which side the 
 balance of advantage and disadvantage lies, is one which 
 every citizen must decide for himself. It is not a matter 
 for either mathematical or moral proof. One man will, 
 according to his way of thinking, his education, his busi- 
 ness interests, or the section of country in which lie lives, 
 take a very large view of the benefits of protection, and 
 treat its possible disadvantages slightingly. Another man 
 will, according to his cast of mind and various conditions, 
 think it of small importance whether certain branches of 
 industry come a little earlier or a little later, but deem it 
 an enormous evil that industries should be forced into 
 being for which a country is not fitted, or that protective 
 duties should be continued upon industries which have 
 passed the time when they ought to ''go alone.'' 
 
 The question is one which, as I have said, each one must 
 decide for himself ; and, in doing so, it is inevitable that 
 he will be profoundly influenced by local and personal con- 
 siderations, as well as by inherited opinions and the force 
 of education. If he is a wool manufacturer, he will be 
 likely to think that wool ought to be free, so that he may 
 get his material at a low price. If he is a wool grower, he 
 will be likely to think that foreign wool ought to be taxed, 
 so that he may sell his crop at a high price. If, on the 
 other hand, he is a cotton planter, he will be likely to 
 think that both raw cotton and cotton goods should be 
 free of duty ; first, because most of his crop is going to 
 Europe, anyhow, and hence its price will not be affected 
 by any duties which the United States Government can im- 
 pose *; secondly, because he and his family and his " hands" 
 will have to use a great deal of cotton cloth, which he 
 naturally desires should be as cheap as possible. 
 
 * By the Constitution, Congress is prohibited from imposing any 
 duties on exports. 
 
POLITICAL EGOmMT. 177 
 
 If a man is engaged in iron mining, he is likely to think 
 that foreign ore should be heavily taxed. The pig-iron 
 manufacturer, on the other hand, is likely to think that 
 foreign ores should be free, but that English, Scotch, and 
 Swedish iron should be taxed. The manufacturer of bar 
 iron and boiler plate, on the other hand, desires to buy his 
 pig-iron at the lowest price, no matter where made ; but 
 would be glad to be relieved from foreign competition as 
 to his own product. 
 
 The formation of a tariff thus becomes a struggle of con- 
 flicting interests. How bitter that struggle may be, how 
 disgraceful the methods which may be resorted to by the 
 contestants, how ready men of good repute may be to 
 sacrifice general to sectional or local interests, can only be 
 learned by a careful study of the tariff history of the 
 United States.* The American Congress is, alike by its 
 membership, its organization, and its traditional opinions 
 and sentiments, peculiarly ill-fitted to deal with so difficult 
 and delicate a matter as the decision, what industries shall 
 be protected ; how much protection each of these shall re- 
 ceive ; how long that protection shall be continued. 
 
 (a) By its membership, because it is composed of men, 
 chiefly lawyers, who have had little training in political 
 economy and finance, and, on the other hand, know little, 
 practically, of industry and trade. 
 
 {h) By its organization, because its committees are too 
 small in numbers and command too little respect for their 
 work, so that the most carefully digested bill, when brought 
 upon the floor of the House, is at once torn to pieces, in a 
 furious rush of all the parties interested. 
 
 {c) By its traditional opinions and sentiments, because 
 
 * The history of the tariff of 1828 is peculiarly instructive in this 
 respect. 
 
178 POLITICAL EGONOMt. 
 
 " log-rolling," * instead of being considered a grave politi- 
 cal crime, is too often regarded as a proper legislative 
 method : many members holding themselves justified in 
 voting for items in which other members are interested, 
 upon condition of receiving the votes of those members for 
 the items in which they or their constituents are concerned. 
 156. The "Pauper Labor" Argument for Protection. — 
 In addition to the argument in favor of so-called protective 
 duties, for the promotion of manufacturing industry, as a 
 temporary policy, there is known to our political literature 
 an argument in favor of a protective system, as a perma- 
 nent policy, by which a prosperous country, in which wages 
 are high and in which laborers are skilful and intelligent, 
 shall be cut off from trade with countries in which wages 
 are low and in which the body of laborers are ignorant, 
 degraded, and spiritless, with a low standard of living and 
 without industrial ambitions. Those who advocate this 
 permanent system of protection, and support it by what is 
 called 'Hhe pauper-labor argument," hold, in effect, that, 
 in trade, a sort of economic virus passes from the less fortu- 
 nate to the more fortunate country, poisoning the indus- 
 trial system of that country. In this view, low wages con- 
 stitute a disease which is communicated through the goods 
 produced by the laborers who receive such wages, just as 
 the plague or the cholera is sometimes imported into Euro- 
 pean countries in rags from Smyrna or Alexandria. This 
 " pauper-labor" argument for protection, as a permanent 
 policy, is one which we shall not be prepared to discuss 
 until we have discovered the principles which govern the 
 distribution of wealth, to which we now pass. 
 
 * You help me roll my log, and I will help you roll yours. There 
 are frequent instances of several "interests," in a legislative body, 
 uniting their forces and carrying through each measure by turns. 
 
PART II. 
 
 DISTRIBUTION AND CONSUMPTION. 
 
CHAPTER XVII. 
 THE PROBLEM OF DISTRIBUTION. 
 
 157. Distribution Defined. — We have defined wealth ; 
 have seen in what its Production consists ; have considered 
 the natural conditions as to land, labor and capital, under 
 which that production takes place; and have sought for 
 the laws which govern the Exchange of the wealth thus 
 produced. We are now to speak of the Distribution of 
 wealth. This term we must carefully define, because it is 
 often subject to misapprehension. 
 
 In private conversation, and even by some intelligent 
 writers, the distribution of wealth has been spoken of as if 
 it were a geographical distribution : the sending of com- 
 modities, over land and over sea, from producers to con- 
 sumers. It is not in this sense that we use the term. The 
 distribution of wealth means the division of tcealth among 
 those persons and classes of persons tvho have taken part in 
 its production. The geographical element has nothing to 
 do with this. It does not matter whether the persons 
 among whom a body of wealth is to be distributed, live 
 closely together or are widely separated. What we inquire 
 about, is the nature of the forces, and the mode of the 
 operation of those forces, by which the product is divided 
 among those who have taken part in its production. 
 
 158. Distribution in Primitive Society. — The complexity 
 and the difficulty of the problem of distribution vary 
 according to the stage which industrial society has reached. 
 When four hunters go out in company, thinking that 
 
 181 
 
182 POLITICAL ECONOMY. 
 
 thereby they can best surround and capture their game, 
 the question of the division of the spoils is an easy one. 
 Probably they agree to take each a fourth share. If, how- 
 ever, there is among them one hunter so experienced and 
 so skilled that the others know their chances of great 
 game will be vastly better by reason of his being of the 
 party, it is likely that this man will claim, and the others 
 will readily concede, a larger share. But if, again, there 
 is of the party one who is young and inexperienced, he 
 must be content to receive the small share which the others 
 are willing to allow him. In this case there would be three 
 grades of remuneration : a large share, for the chief ; mod- 
 erate shares, for the two trained hunters ; a small, perhaps 
 a very small, share for the novice. 
 
 The determination of these several shares would, how- 
 ever, not be a matter of much difficulty. Prone as men 
 are to quarrel, it is remarkable how readily, with how 
 little of jealousy, of friction or of complaint, working men, 
 of all races, in all ages, in all occupations, have accepted 
 differences of remuneration, based upon manifest differ- 
 ences of strength, skill, experience or general intelligence. 
 Whatever difficulties, whatever perplexities, attend the 
 distribution of the product of industry, very little of this is 
 due to those who furnish the labor power. 
 
 If, again, we were to suppose a number of fishermen to 
 unite in a venture, we should have the same question raised 
 concerning the share of each, according to the degree in 
 which he deemed himself, and was by his comrades deemed, 
 capable of contributing to a successful result. We should, 
 moreover, have the additional difficulty of deciding how 
 much of the catch should go to the owner of the boat : 
 that is, the question would arise as to the amount to be 
 paid, as interest, for the use of certain body of capital (par. 
 57). But, even so, the problem of distribution would not 
 
POLITICAL ECONOMY. 183 
 
 be a very diflBcult one, in an industry so primitive as fishing 
 out of a sea which nobody owns. 
 
 If, however, these fishermen were to go into a bay, which 
 some other person, not even of their tribe, controlled, the 
 question would become not a little complicated. The 
 demand for rent, for the right of fishing in the bay, would 
 probably arouse more envy and anger than any demand 
 previously made. If that demand could not be resisted, it 
 would probably be sought to be evaded, in every way pos- 
 sible. Perhaps not one of the fishermen would think of 
 stealing a boat from a neighbor at night, to do the fishing 
 in ; while every one of them, perhaps, would be ready to 
 go secretly into the bay, under cover of darkness, in order 
 to escape the payment of the required rent. 
 
 Moreover, if there were some great chief, at a distance, 
 who claimed a part of the fish taken upon that shore, it is 
 probable that all the fishermen would agree to smuggle the 
 fish back into their huts, if they could manage to do so, 
 without paying this tithe or tax. I mention these last two 
 elements of the case, because it needs to be borne in mind, 
 not only that the problem of distribution increases in dif- 
 ficulty and perplexity, as more and more parties are intro- 
 duced ; but also that there are certain shares respecting 
 which the great majority of uninstructed men entertain 
 feelings very different from those with which they regard 
 other shares. We have said that there is seldom any dif- 
 ficulty among the laboring class as to the division, between 
 themselves, of the total amount which is to go to them as 
 a body. There are, however, other shares of the product, 
 regarding which a great deal of prejudice exists, and some- 
 times a great deal of passion is aroused. 
 
 159. Distribution in Modern Industrial Society. — The 
 most complicated case which we could conceive in regard 
 to a primitive community, whether of fishermen or of 
 
184 POLITICAL ECONOMY. 
 
 huntsmen or of agriculturists, would be plain and simple, 
 as compared with those which habitually arise in communi- 
 ties like our own. Take the case of a cotton factory, pro- 
 ducing, in a given time, a million yards of cloth. Here we 
 have the following claimants for shares of the product : 
 
 First, those who furnish the labor power required for 
 this production ; 
 
 Second, the owner of the land on which the mill stands ; 
 
 Third, the owner of the water power ; 
 
 Fourth, the owner of the mill ; 
 
 Fifth, the owner of the machinery, of the stock of ma- 
 terials, and of the working capital used in these operations ; 
 
 Sixth, the employer, who furnishes the business ability to 
 carry on production successfully ; who takes the risk of 
 making nothing and the chance of making much for him- 
 self ; who conducts the negotiations with the various par- 
 ties, and organizes all these persons and agents into a pro- 
 ductive body ; with whom, finally, it rests to say, what 
 shall be produced and how it shall be produced ; of what 
 materials, in what forms and styles, to what amount ; to 
 whom, at what prices, on what terms of credit, the pro- 
 duct shall be sold. 
 
 It is true that more than one of the parts enumerated 
 above may be found in the same person. The owner of 
 the mill may be also the owner of the water-power ; but then, 
 again, he may not be. Very commonly the owners of mills 
 do not own the water-power they employ ; but lease it, at 
 a certain price, from others. AVhat determines that price ? 
 The owner of the land may also be the owner of the mill; 
 but this is not necessarily so. Indeed, it is in some coun- 
 tries usual to erect buildings upon leased land. The em- 
 ployer, again, may or may not be the owner of the mill 
 and the machinery; but even if he be, the share he re- 
 ceives, as owner of the mill and the machinery, is just as 
 
POLITICAL ECONOMY. 186 
 
 truly distinct from the share he receives as employer, as it 
 would be were these different persons. 
 
 We have enumerated six claimants upon the product 
 of the mill; but, in fact, one of these is not a person but 
 a class, composed of the most heterogeneous subjects, who 
 will be, among themselves, in very different positions as to 
 the claims they can individually make and enforce for por- 
 tions of the cotton cloth. There are the superintendent, 
 the overseers or foremen, and the clerks and cashiers in 
 the office of the mill, all of whom are just as truly laborers 
 as the spinners and weavers ; there are machinists and 
 highly skilled operatives ; there are porters, doing mere 
 heavy work, and operatives of little skill and experience ; 
 there are men and there are women ; there are adults and 
 there are children. 
 
 From the foregoing statements, it will appear that the 
 problem, how this great web of a million yards of cloth 
 shall be cut up and distributed among these hundreds of 
 persons, of such different degrees of skill, strength, and 
 intelligence, performing parts so various in the general 
 work, is not likely to be a simple and easy one. Yet he 
 who would write on the distribution of wealth must under- 
 take to show at least the general principles which govern 
 the remuneration of each one of these hundreds of persons, 
 in turn : how much the employer shall receive, and why 
 he shall receive no more and no less ; how much the owner 
 of the water-power is to receive, and why he is to receive 
 no more or no less ; how much the owner of the land, the 
 able bodied and skilled operatives, the ^' heavy porter,^' the 
 woman spinner, the nine-year-old "half timer," is each to 
 receive ; and why that remuneration neither will nor can 
 be either greater or smaller. 
 
 160. Price as Affecting Distribution. — But we have not 
 yet got to the bottom of the difficulties and perplexities 
 
186 POLITICAL ECONOMY. 
 
 which attend the problem of distribution. We have thus 
 far spoken as if there were only one factory producing 
 cotton cloth, or, else, as if, of several or many factories pro- 
 ducing such goods, all were on a perfect equality as regards 
 the conditions of production. But since no two fac- 
 tories are really on an equality as regards certain conditions 
 of production, and since any inequality in these respects 
 must, as we shall show, importantly affect the distribution 
 of the product, it becomes necessary to introduce the 
 notion of price (par. 95). Instead, therefore, of supposing 
 the great web of cloth to be cut into pieces, corresponding 
 to the shares of the several persons who have taken part 
 in its production, we must suppose the cloth to be sold, at 
 such a price as shall be fixed by the competition of other 
 factories, differently situated in some respects ; and the 
 proceeds of the sale to be divided among the claimants. 
 
 161. Production at the Greatest Disadvantage. — This 
 way of approaching the question of distribution, viz., 
 through Price, requires us to review the principle which 
 governs Normal Price. In Chapter X we saw that the 
 Normal Price of any kind of goods is determined by the 
 cost of "that last considerable portion of supply which is 
 produced at the greatest disadvantage." This principle is of 
 vital importance to the theory of the distribution of wealth. 
 The reader should, at this point, carefully review that chap- 
 ter, until he is sure that he holds its subject-matter strongly 
 and clearly in his mind. 
 
 162. The Assumption of Perfect Competition. — Through- 
 out the next few chapters, we shall speak of the parties to 
 the distribution of wealth and of their several shares, as if 
 competition were perfect. We shall assume that every pro- 
 ducer of wealth, in every capacity, every claimant upon the 
 product, on whatever ground he bases that claim, thoroughly 
 understands his own true, permanent, economic interest; 
 
POLITICAL ECONOMY. 187 
 
 that he clearly sees whatever is necessary to secure for him 
 the largest practicable share of the product to which he 
 has contributed ; and that he will not fail at any point or 
 at any time to pursue those means, peacefully and honestly, 
 to be sure, but also firmly, consistently, and courageously, 
 allowing nothing to turn him aside from his purpose. 
 
 Of course, this assumption will not correspond to the facts 
 in any human community. Men are always something less 
 than perfectly wise, perfectly brave, perfectly consistent 
 and true to themselves. They are, alas ! generally found 
 far, very far, below the standard we have set up. They 
 often mistake their interests ; they as often neglect their 
 interests, even when they rightly discern them. Notwith- 
 standing this, it will be profitable and expedient for us to 
 go over the whole ground of the distribution of wealth, 
 upon the assumption which I have made ; and thus to see 
 what would happen if all men clearly understood their true 
 economic interests and unfalteringly pursued them. We 
 shall, then, in subsequent chapters, inquire into the effects 
 of imperfect competition : who will lose and who gain ; why 
 one should lose and another gain, in case men do, in any 
 considerable degree, fail to see and to seek their true 
 economic interests. 
 
 163. The Main Parties to the Distribution of Wealth.— 
 In par. 159 we saw that, in the case of a cotton mill, there 
 were six claimants (persons or classes of persons), who 
 were to receive shares, greater or smaller, of the mighty 
 web of cloth, woven in the mill. It is not, however, 
 necessary that, in proceeding to consider the general 
 principles regulating the distribution of wealth, we should 
 carry all these along with us. The main parties to the 
 distribution of wealth are four in number. 
 
 Thus, to recur to the instance of the cotton-mill, it is 
 true that the share received by the owner of the water- 
 
188 POLITICAL ECONOMT, 
 
 power, as such, is distinguishable in theory, and may also 
 be distinct in fact, from the share received by the owner of 
 the land on which the factory is built. Nevertheless, both 
 cases come under a certain general law, which we shall call 
 the Law of Rent; and, for all the purposes of an elemen- 
 tary treatise, it will suffice to show the general law, leaving 
 special cases under it to be worked out by the scholar, or 
 explained by the teacher. 
 
 In the same way, the share received by the owner of the 
 mill, as such, is distinguishable in theory, and may be also 
 distinct in fact, from the share received by the owner of 
 the machinery, the materials and the working capital. 
 Different persons may actually receive these two shares. 
 And yet, although the mill is fixed capital, and the ma- 
 chinery and materials are circulating capital (par. 63), one 
 general law, which we call the Law of Interest, governs 
 both species. It will answer all our purposes to ascertain 
 what this law is. 
 
 The four main parties to the distribution of wealth are, 
 then, the following: 
 
 1. The Landlord, — furnishing land power, and receiv- 
 ing Eent. 
 
 2. The Employer, — furnishing business ability, and re- 
 ceiving Profits. 
 
 3. The Capitalist, — furnishing capital, and receiving 
 Interest. 
 
 4. The Laborer, — furnishing labor power, and receiving 
 Wages. 
 
CHAPTER XVIII. 
 RENT. 
 
 164. The Surplus above Cost of Production.— In Chap- 
 ter X we showed that ^' the normal price of any kind of 
 goods is determined by the cost of that last (considerable) 
 portion of the necessary supply which is produced at the 
 greatest disadvantage." 
 
 Further inquiring how there could be any such thing as 
 advantage or disadvantage, in regard to different portions 
 of the supply, we saw that, in regard to two of the four prin- 
 cipal agents of production, there is not, necessarily, any 
 such thing as advantage or disadvantage between different 
 portions of the supply; but that, in regard to the two remain- 
 ing agents, there is, in the nature of the case, certain to be 
 differences of productive power, which will cause portions 
 of the supply to be produced at an advantage, relatively to 
 other portions. 
 
 The two productive agents which do not necessarily vary 
 in their efficiency, as between different portions of the sup- 
 ply, are capital and labor power (par. 78). The two ele- 
 ments which, in the nature of the case, do vary with differ- 
 ent portions of the supply, are land power and business 
 ability (pars. 79 and 80). 
 
 We further saw that, while different portions of the sup- 
 ply are produced at different, perhaps very different, costs, 
 all parts of the supply are sold at the same price, in the 
 same market. If the price of silver be a dollar, an ounce, 
 that price is received by the owner of the mine at which 
 
 189 
 
190 POLITICAL ECONOMY. 
 
 silver is produced at twenty- five cents, an ounce, just as surely 
 as by the owner of the mines at which silver is produced at a 
 dollar. If the price of wheat be six shillings, a bushel, the 
 farmer whose wheat has cost but three shillings receives the 
 full price. An able and skilful manufacturer does not sell 
 his goods for what they cost him, but at the price which 
 has been fixed for that kind of goods,* by the cost of pro- 
 ducing them on the part of the least competent and efficient 
 manufacturers contributing to the supply of the market, in 
 this line. 
 
 It thus appears that, upon a large part of the wealth pro- 
 duced (upon all, indeed, except *^ that last considerable 
 portion of the supply which is produced at the greatest dis- 
 advantage"), there is a sukplus above the cost of produc- 
 tion. This is a fact of tremendous consequence in the dis- 
 tribution of wealth. It is the fact with which we must 
 begin our inquiry, for we cannot with advantage take a 
 step forward, before we have found out to whom this sur- 
 plus is to go. 
 
 165. To Whom shall the Surplus Go? — We have seen 
 that, while different portions of the supply are produced 
 at different costs, all are yet sold at the same price. This 
 price, we have further seen, must be high enough to main- 
 tain production in the places and under the conditions 
 where it is actually carried on ''at the greatest disadvan- 
 tage." That disadvantage, we saw, relates to the land 
 
 * It will be remembered that we are here speaking of normal price. 
 Market price may, for a time, by the operation of supply and demand, 
 fall below normal price; and thus the less successful manufacturers 
 may realize a certain loss upon their goods. This state of things, 
 however, cannot continue indefinitely. It is not normal; and the 
 operation of the principle of self-interest tends steadily and strongly 
 to bring the market back to the point where the least successful pro- 
 ducers will sell their goods for the cost of their production, but for 
 no more. 
 
POLtlTCAL ECONOMY. 191 
 
 power and the business ability employed in production, 
 not at all to the labor power or the capital, so employed. 
 It is, then, those who oivn the more productive land and 
 toho possess the higher business ability, who will carry off 
 the entire surplus over the cost of productio7i. No part of 
 this will go to reward labor or capital. Labor and capital 
 will only get what they can produce "at the greatest dis- 
 advantage." All that is produced in excess of this will go 
 either to the landlord, as rent, or to the employer, as profits. 
 
 We see, then, that all the wealth produced annually, or 
 in any given time, is divided into two great parts. One of 
 these is equal to that amount of wealth which would have 
 been produced, had all the labor and the capital been em- 
 ployed under conditions (as to land power and business 
 ability) as disadvantageous as those under which any (con- 
 siderable) amount of labor and of capital was actually em- 
 ployed. All this wealth is divided, clear, between the 
 laborer and the capitalist. The landlord and the employer 
 get none of it; but they do get all of the product which is 
 over and above this. 
 
 Which, then, of these two great parts of the wealth-pro- 
 duct shall we take up first for consideration ? Shall we take 
 up that part which represents the cost of production (labor 
 and capital), or shall we take up that part which consists 
 of the surplus above the cost of production? I answer, 
 clearly, the latter. Rent and Profits should be treated be- 
 fore Wages and Interest. Many economists have, by re- 
 versing this order, fallen into serious confusion, which we 
 may hope to avoid. 
 
 166. Rent. — I have said that the entire excess of price 
 over cost is divided between the landlord and the employer. 
 We shall first take up the landlord's share, to which we 
 have already, by anticipation, applied the term Rent. For 
 the purpose of greater clearness and simplicity, we shall. 
 
192 
 
 POLITICAL ECOnOMT 
 
 throughout this and the next succeeding chapter, write as 
 if there were no profits. We shall see, when we come to 
 Chapter XIX, that there would be no profits, were there no 
 ^' production at disadvantage," in respect to business abil- 
 ity,* i.e., were all employers equally able and competent to 
 conduct business. Such a state of things we now, for the 
 purposes of argument, assume to exist, leaving it to a later 
 period to consider how profits actually arise, and by what 
 forces they are limited. 
 
 167. The Origin of Rent.— To get a fair start, let us go 
 back to the case which we assumed in paragraph 81. We 
 there supposed that the people of a certain district or 
 country wanted enough wheat, and wanted wheat badly 
 enough, to make up an effective demand for a hundred and 
 thirty million bushels, at the price of six shillings, a bushel. 
 We further assumed that portions of this supply were pro- 
 duced at different costs, as follows, only a part of tract 
 No. 5 being cultivated : 
 
 Tract. 
 
 Amount pro- 
 duced, in bushels. 
 
 Cost, per 
 bushel. 
 
 Surplus of 
 
 price over 
 
 cost, per 
 
 bushel. 
 
 Surplus of price over 
 
 cost, for the whole 
 
 crop. 
 
 Ko. 1 
 
 " 2 
 •' 3 
 " 4 
 " 5 
 
 10,000,000 
 20,000,000 
 30,000,000 
 40,000,000 
 30,000,000 
 
 2 shillings 
 
 3 " 
 4 
 
 5 
 6 
 
 4 shillings 
 
 3 
 
 2 
 
 1 
 
 
 
 40,000,000 shillings 
 60,000,000 
 60,000,000 
 40,000,000 
 
 
 130,000,000 
 
 
 
 200,000,000 shillings 
 
 Now, since the whole crop is sold at six shillings, it will 
 bring 780,000,000 shillings. How much of this total 
 amount will go to Kent, on the one hand; how much to 
 
 * Indeed, in pars. 54 and 55, it has been stated that, in a primitive 
 condition of industrial society, there are no profits, or at least none 
 worth bringing into account. 
 
POLITICAL ECONOMY. 193 
 
 Labor and to Capital, on the other ? The answer is given 
 above. The total surplus over cost of production, on the 
 entire crop, will be two hundred million shillings. This 
 amount, then, will go, entire, to the owners of the land, as 
 rent. The remainder, five hundred and eighty million 
 shillings, will go to the laborers and the capitalists who 
 took part in the production of the wheat. How that 
 amount will be divided between these: how much will be- 
 come AVages, and how much will become Interest, is a ques- 
 tion which we shall be called to discuss in subsequent 
 chapters. Eor the present, it is sufficient to note that 
 the laborers and capitalists have a common interest as 
 against the land-owning class. They can only divide be- 
 tween themselves what the latter do not claim and receive, 
 as the surplus above cost of production. 
 
 168. The Margin of Cultivation. — To bring out this last 
 point clearly, let us make another series of assumptions re- 
 garding the community in question. We will suppose that 
 each of the four better kinds of land is half as large again 
 as we first assumed it, so that fifteen million bushels can 
 be raised on the two-shilling tract; thirty million bushels 
 on the three-shilling tract; forty-five million bushels on the 
 four-shilling tract; sixty million bushels on the five-shilling 
 tract. The four tracts taken together are, thus, capable of 
 producing one hundred and fifty million bushels, none of 
 it at a cost above five shillings. We will, further, assume 
 that, at this lower price for wheat, the community are able 
 and glad to consume a hundred and fifty million bushels. 
 The entire crop will then sell for seven hundred and fifty 
 million shillings. The community will have the pleasure 
 and the physiological benefit of consuming twenty million 
 more bushels of wheat, while paying thirty million shillings 
 less for wheat than they formerly did. It is not needful to 
 say that this would be a great advantage to the community. 
 
 ik^ 
 
194 
 
 POLITIC AL EGONOMt. 
 
 But let us see how the account now stands between the 
 land-owning class, on the one side, and the capitalists and 
 laborers, on the other : 
 
 Tract, 
 
 Amount pro- 
 duced, in bushels. 
 
 Cost, per 
 bushel. 
 
 Surplus of 
 
 price over 
 
 cost, per 
 
 bushel. 
 
 Surplus of cost over 
 
 price, for the whole 
 
 crop. 
 
 No.l 
 " 2 
 " 3 
 
 " 4 
 
 15,000.000 
 30,000,000 
 45,000,000 
 60,000,000 
 
 2 shillings 
 
 3 
 
 4 
 
 5 
 
 3 shillings 
 
 2 
 
 1 
 
 
 
 45,000,000 shillings 
 
 60,000,000 
 
 45,000,000 
 
 
 
 
 150,000,000 
 
 
 
 150,000,000 shillings 
 
 We see that, in this case, the land-owning class will re- 
 ceive but one hundred and fifty million shillings, as rent, 
 or just one-fifth of the price of the crop, whereas, formerly, 
 they received more than one-fourth. Dividing the aggre- 
 gate rent by the aggregate crop, we find that the landlord 
 class now receive only one shilling, rent, to each bushel of 
 the crop ; whereas, in the previous case (par. 167), they 
 received a shilling and a half. 
 
 To still further illustrate the operation of this force, let 
 ns make a new series of assumptions. Let us suppose that 
 the several better tracts of land are so large that the two- 
 shilling tract can produce thirty million bushels; the three- 
 shilling tract, sixty millions; the four-shilling tract, ninety 
 millions. The three tracts, taken together, then, will be 
 capable of producing one hundred and eighty million 
 bushels, none of it at a cost above four shillings, which, 
 consequently, will become the price of wheat. Let it 
 further be supposed that, at this price, the members of the 
 community are glad to extend their consumption to one 
 hundred and eighty million bushels, enjoying, thus, both 
 the pleasure and the physiological benefit of being better 
 nourished than ever before, while paying less for the larger 
 
POLITICAL ECONOMY. 
 
 IDS 
 
 than they formerly did for the smaller amount. Let us 
 again see how the account stands between the land-owning 
 class, on the one hand, and the laborers and the capitalists, 
 on the other. 
 
 Tract. 
 
 Amount pro- 
 duced, in 
 bushels. 
 
 Cost, per 
 bushel. 
 
 Surplus of 
 
 price over cost, 
 
 per bushel 
 
 Surplus of price over 
 cost, for the whole crop. 
 
 No. 1 
 " 3 
 " 3 
 
 30,000,000 
 60,000,000 
 90,000,000 
 
 2 shillings 
 
 3 " 
 4 
 
 2 shillings 
 
 1 
 
 
 
 60,000,000 shillings. 
 60,000,000 
 
 
 180,000,000 
 
 
 
 120,000,000 shillings. 
 
 The reader sees that, in this case, the land-owning class 
 will receive, as rent, only one hundred and twenty million 
 shillings, which is but one-sixth the price of the crop. Di- 
 viding, again, the aggregate rent by the aggregate crop, we 
 find that the landlord class now receive, as rent, but two- 
 thirds of a shilling for each bushel of the crop, instead of a 
 shilling, as by the last supposition. 
 
 The moral of this is clear, and is of immense and almost 
 illimitable consequence to mankind. Of course, the com- 
 munity, as a whole, is interested in having its labor and 
 its capital applied to good instead of to poor lands: there 
 is no need to say that. But wc, also, see, from the above 
 illustrations, that, wholly in addition to their interest as 
 members of the community, laborers and capitalists have 
 a special interest (opposed to the interest of the land- 
 owning class) in not having the "^ margin of cultivation " 
 lowered, i.e., in not having cultivation forced down to 
 poorer soils. Every time the necessity of meeting the de- 
 mand for vegetable or animal produce, for food or for 
 clothing, forces cultivation to descend to a poorer grade of 
 land, the land-owning class will receive, not only a larger 
 
196 POLITICAL EGOmMY. . 
 
 absolute amount of the produce, but also a larger share of 
 the jproduce. 
 
 169. The Increase of Population. — We see, then, at 
 what a cost population increases, after the point of Dimin- 
 ishing Returns has been reached. Not only is there, as 
 we showed in Chapter V, a smaller proportional return to 
 cultivation, but, of that return, a diminishing share goes to 
 those who perform the labor or furnish the capital. As was 
 said (par. 28), all mankind dwell, and must forever dwell, 
 under the shadow of this condition. If a community is 
 led to take up an inferior grade of soils because its labor 
 power and capital power have been enormously increased 
 by the invention of machinery and the introduction of use- 
 ful arts, the disadvantage of resorting to poorer soils may 
 be more than compensated by the opportunity to apply 
 that increased power to some soils, even if poorer. But', 
 wherever the reason for a resort to inferior land is found, 
 not in greater skill and larger capital and improved arts, 
 but in the primary wants of an ignorant and helpless pop- 
 ulation, increasing in numbers without advancing in indus- 
 trial power or in social ambition, the results are miserable, 
 indeed. A large part of all the wretchedness of mankind 
 can clearly be traced to this source. 
 
 170. Transportation. — We have thus far compared dif- 
 ferent parcels of land, as to their productive powers, just 
 as if they lay side by side, equally near to the market 
 where the produce was to be sold. Of course, the reader 
 will see for himself that, if two tracts lie at unequal dis- 
 tances from the market, the several costs of transporting 
 produce must be taken into account, in making out their 
 comparative costs of production. If the price of wheat, 
 in a certain market, is five shillings, a tract of land upon 
 which wheat can be raised at a cost, upon the ground, of 
 two shillings, but which is at such a distance that the 
 
POLITICAL ECONOMY. 197 
 
 transportation to the market costs a shilling, a bushel, will 
 bring a rent not of three shillings, a bushel, but of two. 
 The cost of production of that wheat is three shillings : 
 two shillings for the labor and capital employed on the 
 land; one shilling for the labor and capital engaged in 
 transportation. 
 
 Wheat may be raised in parts of Dakota, at a cost of, say, 
 fifty cents, a bushel ; but if it costs fifty cents additional to 
 get that wheat to London, and if wheat be selling there 
 at a dollar and twenty-five cents, the Dakota land will only 
 yield a rent of twenty-five cents, per bushel, although that 
 land is just as good as land in Kent which pays seventy- 
 five cents, a bushel, rent. 
 
 During the last ten or twenty years, there has been a 
 marvellous reduction in the cost of transporting grain and 
 other agricultural produce from the United States to 
 England. Cheaper steel rails and more powerful locomo- 
 tives have enabled the crops of the Great West to be hauled 
 to the sea-board at a much less expenditure of labor and 
 capital ; at the ports, steam '^ elevators '^ have taken the 
 grain from the cars and discharged it into the hold of the 
 vessels, at a tenth part of the cost formerly involved in 
 handling the grain in baskets or bags ; while gigantic 
 steamships, with '^compound engines," which carry the 
 grain across the sea in ten or twelve days, have replaced 
 the small and slow sailing-vessels, which in the old days 
 did this service. 
 
 As a consequence, rents have fallen sharply in England 
 and in Ireland ; the lands on which wheat was formerly 
 produced for the British market '^at the greatest disad- 
 vantage " have been thrown out of cultivation, their place 
 being taken by the wheat-fields of Minnesota and Dakota. 
 This ''raising of the margin of cultivation" has acted upon 
 British rents in the way illustrated in par. 168. In the 
 
198 POLITICAL ECONOMY. 
 
 first place, the British public have had the benefit of a 
 lower price for wheat, and hence of a freer consumption of 
 that necessary of life. In the second place, the British 
 labor and British capital still applied to the cultivation of 
 British lands receive a larger share of the total product, 
 while the land-owning class receive a smaller share, than 
 formerly. 
 
 171. Land Improvements. — In speaking of rent, the 
 political economist finds it necessary to make a distinction, 
 which the reader must carefully observe, between that por- 
 tion of the yield of land which is due to the natural powers 
 of the soil, and that portion which is due to so-called im- 
 provements. Those improvements embrace everything 
 which is done upon the land, or for its benefit, above what 
 is involved in the mere cultivation of the soil for the 
 annual crop, such as the erection of barns and sheds, fenc- 
 ing, ditching, clearing the ground of brush and timber, or 
 opening roads through it. All such improvements consti- 
 tute Investments of Capital ; and the return which is made 
 to them, through increased crops or diminished cost of 
 production, is a return to capital, and is, therefore, Interest, 
 of which we shall have to speak hereafter. Eent only em- 
 braces the return which is made to the owners of land, 
 considered as unimproved. 
 
 The foregoing distinction is an exceedingly important 
 one. It is the less likely to be duly observed because, in 
 common speech, the whole return, on the one account as 
 well as on the other, is called Eent. Thus, I might take a 
 lease of an estate, at a rental of three thousand dollars a 
 year. Of that sum, two thousand dollars might really be 
 on account of the native powers of the soil, and one thou- 
 sand, on account of useful improvements upon it, either 
 enabling the land to produce a greater crop with the same 
 expenditure of labor and capital, or enabling it to produce 
 
POLITICAL ECONOMY. 199 
 
 the same crop with a smaller expenditure of labor and 
 capital. But, neither in the written lease of the estate, 
 nor in the talk of the landlord or myself or my neighbors 
 about it, is this distinction observed. The whole three 
 thousand dollars is called rent. The political economist, 
 however, is bound to observe this distinction, since, as we 
 shall see, the Law of Interest differs very widely from the 
 Law of Rent. 
 
 The proportion, in which what is popularly called rent 
 is divided between real rent and interest, varies in the case 
 of different farms, and varies, often very widely, in the 
 case of different regions or countries. A farm in Illinois, 
 which produces, with a certain application of labor and 
 capital, sixteen bushels of wheat to the acre, may be just 
 as good land, naturally, as a farm in England which pro- 
 duces twenty-four bushels to the acre. The farm in Illinois 
 has had comparatively little capital expended upon it; the 
 farm in England has had a great deal of capital expended 
 upon it, of which the additional eight bushels, per acre, is 
 the reward; and is, therefore, interest. 
 
 In some parts of the United States, through considerable 
 portions of their history, very little capital has been so ap- 
 plied. Occupiers have been so eager to take as much as 
 possible from the land, each year, that they have applied 
 all the labor and capital they could command to increasing 
 the immediate crop, without doing anything for the per- 
 manent improvement of the soil. At the South, indeed, 
 the cultivation of cotton and of tobacco was formerly pur- 
 sued so eagerly that the lands declined in fertility. 
 
 Generally speaking, it is impossible to say how much of 
 the crop of any field is due to the native properties of the 
 soil, and how much to investments of capital. Most of the 
 improvements made in agriculture are made little by little; 
 and no account is kept of them. Moreover, many of these 
 
200 POLITICAL ECONOMY. 
 
 improvements are mad« in seasons of the year, or in hours 
 of the day, when the labor of the farmer and his sons and 
 his hands would not otherwise have been employed at all; 
 and it is difficult to say how much that labor was worth. 
 
 172. The "Cost" of Producing Farms.— Some statisti- 
 cians and economists have even undertaken to prove that 
 all the value of even the best land is due entirely to im- 
 provements, and not at all to the native properties of the 
 soil. These efforts have failed, first, because, as shown 
 above, it is impossible to ascertain what the improvements 
 made upon the land have actually cost, and, secondly, be- 
 cause that proposition is so clearly contrary to reason. We 
 know that some land, in its native state, will yield a hand- 
 some crop, on its first year's cultivation ; while other land 
 would not return to its cultivators enough to keep them 
 alive. Then, the former lands must have a higher value, 
 as compared with the latter. 
 
 We know, moreover, that some land has a larger capability 
 of responding to investments of capital than other land. 
 Very well, then, the former land must have a higher value, 
 as compared with the latter. Suppose two entire Counties 
 were to-day to be "discovered," in Illinois : would that 
 land have no value ? On the contrary, it would at once be 
 worth from twenty to thirty dollars an acre, although not 
 a dollar's worth of capital had ever been applied to it. 
 The furious rush made by tens of thousands of persons, 
 from every part of the United States, to Oklahoma, during 
 the present year, when that territory was first declared 
 *^open to settlement," is testimony, that cannot be misun- 
 derstood, to the fact that land, in its native state, may 
 have value, even a very high value. 
 
 All through the history of the United States, men have 
 been seen by thousands, and by hundreds of thousands, 
 exiling themselves from home and taking up their march 
 
POLITICAL ECONOMY. 201 
 
 across the continent, to occupy new lands at the West. If 
 the value of land is entirely due to improvements, why was 
 not all this labor and capital expended upon the lands at 
 home, near to the seats of manufacture, and upon the 
 rivers which flow to the Atlantic ? That it was not, but 
 that, on the contrary, large tracts of land were here left 
 altogether uncultivated, while population poured westward, 
 over ten, twenty and thirty degrees of longitude, is evi- 
 dence, which surely no one ought to mistake, that lands, as 
 they are found in a state of nature, differ widely as to their 
 immediate productiveness, and widely, also, as to their 
 capability of responding to improvements. 
 
 173. The No-Eent Lands. — It will have been observed 
 that, in speaking of the origin of rent, in par. 167, we as- 
 sumed that the lowest grade of lands under cultivation, at 
 any given time, pay no rent. This is a point on which the 
 reader should fix his attention. The whole theory of Kent 
 depends upon the existence of No-Rent lands. Of course, 
 in speaking of certain lands as bearing no-rent, we mean, 
 either, literally no rent at all, or else a rent so small that, 
 with reference to the magnitude of the other interests 
 involved, it may properly, in economic reasoning, be called 
 no rent.* One of the first lessons which the social or the 
 economic philosopher has to learn is that there is a point 
 beyond which he must cease to regard an element or a fac- 
 tor. Even the mathematician carries his computations out 
 only to a certain decimal place. 
 
 * Until recently, any citizen of the United States could, by law, 
 freely take up excellent land, of a hii^h degree of fertility, at the 
 government price of $1.25 per acre. Now, the interest upon the pur- 
 chase-price of this land, would, at seven per cent, be nine cents, an 
 acre, per year. Yet, in raising a crop from the land, from eight to 
 twelve dollars' worth of labor and capital would be applied to each 
 acre. Clearly, where rent falls to one per cent upon the cost of 
 cultivation, we ma.j speak of it as no-rent. 
 
202 POLITICAL ECONOMY. 
 
 Even were it true that no piece of land was ever cul- 
 tivated without paying some rent, in some degree, however 
 small, this would not in the least affect the validity of our 
 principle. Whenever the rent of land becomes so small 
 that it is less than the value of the hay or the grain which 
 the farmer leaves upon the field, neglecting to glean it, this 
 may certainly be called no rent, for all the purposes of 
 economic reasoning ; and rent no larger than this is paid, 
 to-day, for large bodies of grazing and even of cultivated 
 land. 
 
 174. The Law of Rent. — We are now in a position to 
 formulate the law of Rent. We have seen what is the 
 origin of Eent. Rent arises out of the differences which 
 exist in the productiveness of the different soils which are 
 under cultivation, at the same time, for the supply of the 
 same market. 
 
 Such is the origin of Rent. What is the measure of 
 Rent? I answer, the amount of Rent is determined by the 
 degree of the differences which has just been referred to. 
 The normal rent of any piece of land is fixed by the dif- 
 ference between its annual yield and that of the least 
 productive land actually cultivated for the supply of the 
 same market. To recur to the illustration previously 
 given, if the six-shilling land is on ^^the margin of cultiva- 
 tion," and thus, itself, bears no rent, the two-shilling land 
 will bear rent of four shillings, per bushel. Any man may 
 just as well pay such a rent for the privilege of cultivating 
 this land, as cultivate a tract of the six-shilling land, for 
 nothing. But if the margin of cultivation should rise, so 
 that the five-shilling land should be the poorest cultivated, 
 then the rent of the two-shilling land would sink to three 
 shillings, a bushel. In every case, rents are measured up- 
 wards from the no-rent line. 
 
POLITICAL ECONOMY. 203 
 
 175. Rent Does Not Form a Part of the Price of Agri- 
 cultural Produce. — From the principles we have already 
 established, we are able to deduce a conclusion which may, 
 at first, be startling to the reader, viz., that rent forms no 
 part of the price of agricultural produce. This surely is a 
 " hard saying '" but it can be demonstrated as strictly as 
 any theorem in geometry. We know that rent forms no 
 part of the price of agricultural produce because that price 
 is determined by the cost of raising it upon lands which 
 pay no rent. How, then, can rent be an element in that 
 price? If the price of wheat is six shillings, this is because, 
 in order to raise the required amount of wheat, cultivation 
 has to be carried down to the six-shilling land. In a word, 
 the price of produce is not high because rent is paid ; hut 
 rent is paid because the price of produce is high. If there 
 were enougli of the two-shilling land to raise all the wheat 
 required, and more, the price of wheat would then be twp 
 shillings, and no wheat-land would pay any rent. 
 
 176. Rent Is Not Obtained by Deduction from Wages. — 
 We are now to announce another proposition, which may 
 prove not less startling than the last. It is that rent is not 
 obtained by deduction from wages. If wages are low, this 
 is not because rents are paid for the better lands, but 
 because the cultivators of the poorer lands can pay no more 
 wages with any hope of getting them back in the price of 
 their produce. 
 
 Only a certain amount of labor could be profitably em- 
 ployed on the two-shilling land. This would leave a large 
 amount of labor unemployed. Even the added cultivation 
 of the three-shilling land would not take up all the labor 
 *'in the market." It will, perhaps, not be until the four- 
 shilling, the five-shilling, and the six-shilling land have all 
 been brought under cultivation, that the entire amount of 
 labgr will find employment. Now, the last tract of land 
 
204 POLITICAL ECONOMY. 
 
 being as poor as it is, and the pricje of wheat being only six 
 shillings, the cultivator of that tract can only pay a certain 
 rate of wages. Were he to undertake to pay more, he 
 could not get it back in the price of his produce ; and 
 would, therefore, soon be obliged to suspend production. 
 
 The rate of wages being thus fixed by the capabilities of 
 the six-shilling land, this rate will be paid for labor on all 
 the higher grades of land. There will be no economic 
 force to compel the cultivators of the better lands to pay 
 higher wages; nor would it do any good to the laborers, 
 were they to undertake to do so. For, in that case, the 
 laborers would abandon the poorer lands and all rush to 
 get employment on the better lands. Since, however, these 
 lands could only profitably employ a certain amount of 
 labor, this would leave a portion of the laborers unemployed, 
 and a portion of the fields actually required for suppljdng 
 the community with wheat, uncultivated. 
 
CHAPTER XIX. 
 RENT, CONTINUED. THE OWNERSHIP OP LAND. 
 
 177. The Tenure of Land. — We have now, so far as 
 seems practicable in an elementary treatise, laid down the 
 general principles which govern the rent of land. We 
 have seen where rent originates, and what is its measure, 
 or limit. We have seen that, by the operation of purely 
 economic forces, all the excess of price over cost must go 
 to the owner of the land. 
 
 But, it may be asked, luho is this owner of the land? and 
 why should he be in a position to demand and obtain this 
 large share of the annual produce of industry ? Why 
 should not some one else have the whole or a part of the 
 wealth thus appropriated ? These are questions which it 
 is perfectly fair to ask; which many people, in many 
 countries, are now asking with great earnestness. 
 
 178. How about the Consumer of Agricultural Produce ? 
 — In the first place, as a step towards answering these 
 questions, let us ask what other person or persons could 
 reasonably make claim to that portion of the produce 
 which the land-owner receives, as rent ? Is it the con- 
 sumer of agricultural produce ? Does he suffer any wrong 
 by the present system ? Nay, would it even be possible to 
 confer any benefit upon him by a change of system ? 
 
 Of course, the consumer desires to obtain his produce at 
 the lowest price possible. Of course, it would be better for 
 him if the price were lower than it is. But we have seen 
 that the price of produce is not higher by reason of rent 
 
 205 
 
206 POLITICAL ECONOMY, 
 
 being paid. The price of wheat is what it is because the 
 cost of producing wheat on the poorest lands under cultiva- 
 tion is what it is. Somebody has got to eat the wheat 
 grown on the six-shilling land ; and consequently has got 
 to pay six shillings for it. Who is the man that has the 
 right, in preference to all others, to eat the wheat grown 
 on the two-shilling land and pay only two shillings for it ? 
 What gives him that right ? How is he any better than 
 the men who are to eat the wheat grown on the poorer 
 lands and are to pay the cost of raising it ? 
 
 No ! Not the faintest claim can be set up, on behalf of 
 the consumers of agricultural produce, that they should 
 receive any part of that which now goes to the landlord, as 
 rent. It is perfectly right and just that what one man pays 
 in the market for wheat, every other man should pay. 
 
 179. How about the Agricultural Laborer? — Is it the 
 laborer, who can put forward a claim to this share of 
 the produce ? I answer, no. The laborer who works 
 upon the six-shilling land, which pays no rent, is just 
 as deserving as the laborer who works upon the two- 
 shilling land, and is entitled to just as high remuneration. 
 To allow the laborers upon the better grades of land to 
 divide among themselves the whole or any part of that 
 which the land-owners receive, as rent, would be the 
 grossest injustice. We have already seen that it would be 
 socially impracticable, since such a scheme would lead to a 
 mad rush of all the laborers to the best lands ; to the 
 abandonment of tracts required to supply the community 
 with food; to turmoil, violence and bloodshed, in the 
 struggle for employment upon the highest grade of land, 
 upon which, alone, any laborer would consent to work. 
 
 180. How about the Capitalist ?— We have, remaining, 
 only one person, or class of persons, whom we can conceive 
 as making a demand for rent, or for any part of it. This 
 
POLITICAL BGONdMt. 207 
 
 is the capitalist. Could he reasonably put forward such 
 a claim ? I answer, such a claim would be just as 
 sound on his part as on the part of the laborer, and no 
 more. The capitalist who lends horses and carts and im* 
 plements and food and clothing, to be used in the cul* 
 tivation of the two-shilling tract, is entitled to no higher 
 remuneration than the capitalist who lends similar things 
 to be used in the cultivation of the six-shilling tract. Jus- 
 tice, as between capitalist and capitalist, will only be real- 
 ized when each receives for an equal service an equal re- 
 turn. 
 
 181. How about the Community? — I have said that 
 there is no other person, or class of persons, regarding 
 whom we could raise a question in this connection. 
 Is, then, the right of the land-owner, to receive rent, 
 beyond any challenge ? I answer, no. While no person 
 and no class of persons, other than the land-owner, can 
 put forward a reasonable claim to rent, or to any part of 
 it, there is, yet, a claim to be considered. It is the claim 
 of THE COMMUKITY, to which the land-owner belongs, to 
 which the laborer belongs, to which the capitalist belongs, 
 and in which they all have rights and interests. 
 
 182. The Nationalization of the Land. — The claim that 
 the community, or the State, should receive all the excess 
 of price above cost, has been put forward, at various times, 
 without attracting much public interest. Within the last 
 ten years, however, this claim has again been put forward, 
 and has, this time, been urged with so much enthusiasm 
 and eloquence as to attract public attention very widely 
 ^d to arouse an intense interest in many minds. The 
 agitation of the subject is not unlikely to proceed even 
 further ; and those who are now in school will probably be 
 called upon to express their views and to take their posi- 
 tions, as members of the public body, with reference 
 
208 POLITICAL ECONOMY. 
 
 thereto. I, therefore, proceed to speak of the project to 
 which the term, Nationalization of the Land, is applied. 
 
 There can be no question, I think, that if^the community 
 chooses to claim rent, it has a clear and a full right to it. 
 Of course, when I speak of rent, in this way, I mean true 
 economic rent. That part of rent, popularly so called, 
 which is due to improvements made in the land (par. 170), 
 is not embraced in the foregoing statement. Moreover, 
 the statement made above assumes that the community, or 
 State, will respect and save all those rights which have been 
 vested in individuals by its own acts and laws. No matter 
 how strong the claim of the State upon rent may be deemed 
 to be, if the State has allowed and encouraged me to pur- 
 chase with my own earnings a piece of land, in the reason- 
 able expectation and the then legal assurance that I am to 
 receive the rent of that land, the State becomes simply a 
 robber, neither more nor less, if it proceeds to take that 
 land away from me, or to take from me the right to receive 
 its full proper rental, without compensation.* The State 
 has the right, however, at any time to give public notice 
 that thereafter it will claim and collect for itself all future 
 increase in the rental or the selling price of all lands within 
 its jurisdiction. 
 
 183. The Equities of Rent. — Subject to the foregoing 
 
 * It is greatly to be regretted that just that which in the text 
 is denounced, in terms which I have not been careful to meas 
 ure, is proposed by Mr. Henry George, in his famous work, 
 "Progress and Poverty," and in his subsequent writings and ad- 
 dresses. Mr. George distinctly repudiates the idea of giving com- 
 pensation to the owners of land which the State may take away 
 from them, notwithstanding that they have acquired their properties 
 under the sanction and encouragement of the State, itself, and even 
 though the State itself may have sold the land and put its price 
 into the treasury. Such a proposition is simply infamous, and does 
 not deserve discussion by any honest person. 
 
POLITICAL ECONOMY. 209 
 
 qualifications, viz., (1st) that the right of the owner of the 
 land to the full value of his '^ improvements " be recognized, 
 and (2d) that compensation be given for the full value of 
 the land, at the time the system of land nationalization 
 should go into effect, there could be no objection, on the 
 ground of public justice, to the adoption of such a system. 
 It certainly is true, as claimed by the advocates of this 
 policy, that any increase in the rental value or selling value 
 of land (aside from investments of capital, already spoken 
 of), is due, not to the exertions and sacrifices of the owners 
 of the land, but to the exertions and sacrifices of the com- 
 munity. It is certainly true, as claimed by the advocates 
 of land nationalization, that economic rent tends to increase 
 witli the growth of wealth and population; and that, thus, 
 a larger and still larger share of the product of industry 
 tends to pass into the hands of the owners of land, not be- 
 cause they have done more for society, but because society 
 has a greater need of that which they control. 
 
 184. The Primitive Tenure of the Land. — It has only 
 been of late years that the careful and painstaking scholars 
 of Germany, aided by two or three eminent historical 
 students in England, have been able at last to uncover 
 enough of the old ^' metes and bounds" to show how the 
 soil was divided, and how it was cultivated, in most of the 
 countries occupied by tribes and nations of the Aryan race. 
 It thus appears plain that our ancestors did, to a very great 
 extent, deal with the soil just as the advocates of land- 
 nationalization wish us now to do. The territory of a 
 tribe, or smaller band, was held in common ; the arable 
 land was periodically divided up among the members of the 
 tribe, for individual cultivation ; the undivided pasture 
 and the undivided wood-land were subject to use by all the 
 members of the tribe, either at pleasure, or according to 
 some scale adopted by the tribe, regulating the amount of 
 
^10 POLITICAL EGOnoUt. 
 
 wood which any member might take out of the forest, or 
 the number of animals which he miglit turn out to graze 
 upon " the common." AVhile this system of tribal owner- 
 ship has almost universally disappeared, slight vestiges of 
 it are still found here and there, in Europe, India and 
 America. Many of the communes of Switzerland, for ex- 
 ample, still hold their forests after the old fashion ; while 
 common rights of pasturage still exist in many communi- 
 ties of Aryan stock. 
 
 So far, therefore, as antiquity can furnish an argument, 
 the advantage is with the advocates of land-nationalization. 
 
 186. Why was Commoii Ownership Abandoned ?— If such 
 was once a very common, if not the general or universal, 
 land-policy of our ancestors, why was it abandoned? Why 
 has it been replaced everywhere by the system of private 
 ownership, which gives to the individual, instead of the 
 community, the power and the right to exact economic 
 rent? 
 
 The answer to this question is not a simple one ; and 
 here, again, the advocates of land-nationalization possess a 
 certain advantage, from the historical point of view. It is 
 incontestable, that the gradual passage from the condition 
 of common ownership to that of private ownership, was 
 promoted by chiefs and great lords, with a view to their 
 own personal advantage ; and that power joined hands with 
 cunning to despoil the community for individual aggran- 
 dizement. Even after the chiefs and great lords had re- 
 ceived lands, as their own, subject to public charges and 
 to public duties, they continued at work still further to 
 benefit themselves, until, by their power, as legislators or 
 governors, they succeeded in ridding themselves of those 
 public charges and public duties. 
 
 But, while the passage of the land from public to private 
 ownership was thus, in a large degree, wrongful, I believe 
 
POLITIOAL EGOJ^OMT 2il 
 
 that candid inquiry will satisfy every historical student 
 that what made it possible for the chiefs and great lords 
 thus to acquire the soil, in their own names, was the fact 
 that cultivation-in-common was exceedingly and increas- 
 ingly unproductive and unprofitable. I deem it not unfair 
 to say that this unproductiveness, this unprofitableness, of 
 cultivation-in -common is so much in the nature of the 
 case, is so far unavoidable, that the community fares 
 vastly better under the private ownership of land, allow- 
 ing the land-owning class to take out their rents, than it 
 possibly could under a system of public ownership, where 
 the whole product should go to the community. 
 
 186. The Public Advantage of Private Ownership. — The 
 justification of the private ownership of land, if it is to be 
 justified at all, is to be found in the public benefits it con- 
 fers. Its private benefits, i.e., the interests of the land- 
 lord class, form no part of that justification. But, if it 
 can reasonably be proved that the community is distinctly 
 better-off by reason of private ownership, then, no matter 
 how much individuals may selfishly profit thereby, a public 
 benefit is shown, and the system is justified. 
 
 Now, this is exactly what the great majority of intelli- 
 gent, experienced and disinterested men, in all countries, 
 firmly believe. And, moreover, all those who hold this 
 view also believe, without exception and without qualifica- 
 tion, that this public benefit is not small but great ; is not 
 transient but permanent, and is, even, of increasing im- 
 portance. They believe, indeed, that public benefit to be, 
 not great merely, but enormous, inexpressible : so much 
 so, that no calamity more dire could befall the community 
 than a return to common ownership. 
 
 On the other hand, there is a comparatively small, 
 though increasing, number of learned and able men, 
 scattered through many countries, who hold that the abuses 
 
212 POLITICAL ECONOMY. 
 
 of "landlordism" outweigh its benefits. Admitting the 
 evils which have attended common ownership, in the past, 
 and the difficulties to which it will always necessarily be 
 subject, they yet believe, that., as nations become more and 
 more enlightened, and as political forms and institutions 
 become more and more democratic, common ownership 
 will become an altogether good thing. Especially do they 
 urge that the acquisition, by the State, of that economic 
 rent which now goes entire to the landlord class, will not 
 only relieve the people from the present burden of taxation, 
 but will afford ample means for vast public improvements, 
 in parks and hospitals, picture-galleries and museums, 
 libraries and schools. 
 
 The fact that those educated and experienced men who 
 believe in the nationalization of the land are few, in com- 
 parison with those who believe that such a policy would be 
 baleful and pernicious, by no means settles the question. 
 Many times in human history has public opinion been on 
 the side of public abuses and antiquated systems. Yet, not- 
 withstanding this, the settled preponderance of intelligent 
 opinion constitutes a powerful presumption in favor of any 
 policy. That presumption may be overcome by argument 
 or by experience ; but until this has been done, every pru- 
 dent man will hold himself strongly bound by it. 
 
 187. The Objections to the Common Ownership of Land. 
 — Fully to discuss such a question would require more ■ 
 space than could be given to it in an elementary treatise 
 like the present. The two main objections to the common, 
 or national, ownership of land are as follows. 
 
 1st. The amount of political machinery that would be 
 required to administer all lands, under such a system ; the 
 great number of office-holders to be appointed for the pur- 
 pose ; and the immense amount of corruption and favor- 
 itism which would inevitably be involved. When one con- 
 
POLITICAL ECONOMY. 213 
 
 siders how much evil results from the comparatively small 
 operations of existing governments, which have to do only 
 with a few of the concerns of the people, he cannot but be 
 shocked and revolted at the thought of governments which 
 should own the soil of every farm within their respective 
 territories, which should own the road-bed of every rail- 
 way and the ground upon which every man's house, shop 
 or store was built. The periodical leasing and re-leasing of 
 all these properties, the fixing of their respective rentals, 
 the estimation of improvements made by outgoing tenants, 
 would necessarily so increase the work of government, 
 would involve such an army of officials, and would afford 
 such enormous opportunities for corruption and favoritism, 
 as to threaten the very existence of human society. 
 
 2d. Perhaps an even stronger objection to the common 
 ownership of land is found in the liability to abuse of the 
 soil, whenever it is cultivated by those who are not directly 
 and deeply interested in preserving its fertility. It is always 
 possible so to abuse the land, as, within a short term of 
 years, nearly or wholly to destroy its value. Many of the once 
 fairest tracts on earth, which formerly supported large popu- 
 lations in abundance, are now little better than sterile deserts, 
 all through man's reckless, or wanton, treatment of nature. 
 
 The productiveness of the soil can only be preserved 
 through the greatest care and pains on the part of the cul- 
 tivating class. In countries, like England, where land is 
 generally leased, owners are obliged to protect themselves 
 against abusive or destructive cultivation, by the most 
 stringent and minute provisions inserted in their leases ; 
 and these are not always sufficient to save the soil from in- 
 jury. In countries, like France, on the other hand, where 
 the land is cultivated mainly by those who own it, in small 
 parcels, the soil improves from age to age on account of the 
 deep, direct and personal interest which every cultivator 
 
214 POLITICAL ECONOMY. 
 
 feels in keeping up the value of his little estate, which 
 was his father's before him and which shall be his chil- 
 dren's after him. 
 
 Now, were the owner of all lands to be the State, who 
 can believe that the government would be able to protect 
 its landed property, spread over thousands, or hundreds 
 of thousands, of square miles, from the most monstrous 
 abuse : abuse which might, in no long time, permanently 
 impair and even destroy much of that property? A single 
 generation of abusive cultivation might cost a nation far 
 more than the value of all the rents that would be reaped 
 by the landlord class, under the system of private owner- 
 ship, to the end of time. 
 
 It is the force of considerations like the foregoing which 
 causes nearly all men who have wide knowledge of public 
 affairs and who are well read in human history, to accept 
 the system of the private ownership of land, as inexpressibly 
 superior to collective ownership. Fully as they may recog- 
 nize the injustice of the social arrangements by which 
 economic rent goes to private individuals, and increases, 
 not according to the exertions and sacrifices of those indi- 
 viduals, but according to the needs, the exertions and the 
 sacrifices of the community, they yet see no escape from 
 this result, except in a system which would turn govern- 
 ment into an intolerable despotism, and would, at the same 
 time, put in peril the permanent productiveness of the soil.* 
 
 * The objection to collective ownership, arising from liability to 
 abuse of the soil, does not apply with equal force, if at all, to land 
 upon which houses are erected and cities built. There is, here, little 
 or no danger of permanent injury. Consequently, some economists 
 who strenuously oppose the ownership of agricultural lands, favor 
 the acquisition by the State of all "urban " real estate, i.e., the sites 
 of all towns and cities. The political objection, however, remains 
 in full force in this case, if, indeed, it is not here in greater strength 
 than in the case of agricultural lauds, 
 
CHAPTER XX. 
 PROFITS. 
 
 188. The Point we have Reached. — Let us pause to note 
 just where we are, in the theory of the distribution of 
 wealth. 
 
 We have seen (par. 55) that foar grand productive 
 agents, viz.. Land-power, Business Ability, Capital and 
 Labor, are applied to the production of wealth, in its vari- 
 ous forms. We hdvc seen (par. 165) that the aggregate 
 body of wealth, thus produced, is, in economic theory, first 
 divided into two great shares. 
 
 Of these shares, one is equivalent to the volume of 
 wealth that would have been produced had all the labor 
 and capital been employed " at the greatest disadvantage^': 
 that is, had all the labor and capital been applied to lands 
 no better than the poorest actually cultivated for the sup- 
 ply of the market ; and been so applied by employers no 
 more efficient than the least competent employers actually 
 controlling any considerable part of that labor and capital. 
 All the body of wealth thus constituted is, as we saw, to 
 go, entire and without deduction, to capitalists and labor- 
 ers, though we are not yet prepared to show how that 
 amount is to be divided between capitalists and laborers. 
 
 The other great share of the product of industry consists 
 of all THE EXCESS OF PRICE OVER COST. This is to go, 
 entire and without deduction, to landlords and employers. 
 None of it can go to either the laborer or the capitalist, aa 
 guch. Of this great share of the product of industry, we 
 
 315 
 
216 POLITICAL ECONOMY. 
 
 have already taken into consideration one part, viz., Rent, 
 going to the landlord, as remuneration for the use of the 
 native powers of the soil. Normal price being fixed by the 
 cost of production (capital and labor) upon the poorest 
 soils actually under cultivation for the supply of the mar- 
 ket (which lands themselves pay no rent, see par. 173), the 
 owners of all the more productive lands realize a surplus 
 of price over cost. We have seen, in the last chapter, that 
 such a surplus must, in the nature of things, exist; and 
 that it can only go to the owner of the soil, be that an in- 
 dividual or the State. 
 
 189. The Origin of Profits. — We now pass to consider the 
 second of the two parts into which that great body of wealth 
 which consists of the excess of price over cost, is divided. 
 To this part we assign the name. Profits. It is the remu- 
 neration of Business Ability,* engaged in the production of 
 wealth. What is the origin of profits ? Why should any 
 part of the product of industry go to the Employer ? To 
 this question every one of my readers will have an answer 
 ready. He will say that the employer must receive some 
 share of the product of industry, in order that he may re- 
 main an employer, at all. Whether he is to receive more, 
 or is to receive less, he must, at the least, receive enough 
 to keep him alive and in condition to do his work. But 
 why should he receive any more than that ? To this ques- 
 tion, again, every one of my readers will have an answer 
 ready. The employer must receive as much as the laborer 
 receives. When I speak of the laborer, in this connection, 
 I do not mean the day-laborer, or the unskilled laborer; 
 but have reference to laborers of the higher grades, viz., 
 superintendents, overseers, foremen, clerks, cashiers, ac- 
 countants. Unless the employer is to receive, on the aver- 
 
 * For Uie defimtion of this industrial agent, see par. 55. 
 
POLITICAL ECONOMY. 217 
 
 age, taking one year with another, as much, or about as 
 much,* as laborers of this class, he will naturally prefer to 
 become a laborer himself. In order, therefore, that there 
 may be employers (pars. 54-55), the remuneration of this 
 industrial agent must, at the least, be as great as the re- 
 muneration of the laborer: that is, profits must be equal to 
 wages. Here, then, we take our start, in dealing with 
 profits. We have, in wages, the minimum of profits. 
 What we are to inquire about, in the present chapter, is 
 this : how does it come about that employers, all or any of 
 them, receive more than this minimum ? 
 
 190. The No-Profits Class of Employers.— To the re- 
 muneration of the employing class, so far as it does not 
 exceed the minimum spoken of above, we do not apply 
 the term, profits. Profits, not in excess of wages, are not 
 profits at all. Although received by employers, they are still 
 nothing but wages. They are governed by the same law as 
 wages, and should be considered as wages, and nothing else. 
 
 Now, what we have first to note is the all-important fact 
 that there is a grade of employers who receive no profits: 
 that is, whose remuneration does, on the whole and in 
 the long-run, not exceed the amount which these persons 
 could individually have expected to receive, as wages, if 
 employed by others. In every large body of employers, 
 there are always some no-profits employers, just as, in the 
 lands cultivated for the supply of any considerable market 
 there are always some no-rent lands. This is the fact with 
 which we start, in ascertaining the law of profits. 
 
 * I say, "about as much," because there is a class of men to 
 whom the exercise of authority and the opportunity to exert marked 
 executive ability might be, in some measure, a recompense for under- 
 taking the duty of an employer. The number of such men un- 
 doubtedly tends to increase with the progress of civilization and the 
 diffusion of intelligence. 
 
218 POLITICAL ECONOMY. 
 
 If the prices of goods were so high that all employers 
 made profits (that is, something in excess of wages), then 
 it would inevitably happen, either that more persons would 
 go into business and become employers, in order to secure 
 these profits, or, else, that the existing employers would 
 try to increase their business, so as to get more of these 
 profits. By the operation of this simple force it comes 
 about that competition among employers, for the profits of 
 employment, constantly tends to bring prices down to the 
 point where the least efficient employers make no profits 
 
 191. The More Efficient Employers.— Starting, thus, 
 with a class of employers whom we call the no-profits em- 
 ployers, we have to note the indisputable fact that above 
 these rise, rank on rank, employers of higher and still 
 higher degrees of efficiency in the employment of labor and 
 the conduct of business. These are men who have, by the 
 force of education or of experience, exceptional abilities or 
 adaptations for commercial or industrial success. They 
 are not always better men or better citizens than their less 
 successful brethren ; but, from whatever source they derive 
 it, they possess peculiar power in the production of wealth. 
 Using the same amounts of labor and of capital, they are 
 able to produce more of wealth thereby. 
 
 I say, more of wealth : that is, a larger amount of value. 
 This may mean more goods of the same kind; or it may 
 mean the same amount of goods, but of a better kind. 
 Sometimes the peculiar industrial efficiency of an employer 
 may be exhibited in the prevention of waste in his mate- 
 rials, sometimes in the saving of wear-and-tear to ma- 
 chinery and injury to tools. Sometimes it may take the 
 form of ability to get much more out of his body of work- 
 men, within the usual number of hours. We have shown, 
 in paragraph 53, that this does not necessarily mean a 
 greater physical and nervous strain upon the laborers. 
 
POLITICAL ECONOMY. -219 
 
 Sometimes the peculiar industrial efficiency of an employer 
 may result in the production of a body of goods no greater, 
 but of a finer finish, or of more durable quality, or of a 
 more attractive shape, commanding, thus, a higher price in 
 the market. Sometimes the advantage which one em- 
 ployer possesses over another, consists in a wider knowl- 
 edge of men and a deeper insight into character, enabling 
 him to avoid grave mistakes in entrusting his interests to 
 incapable and unfaithful persons, or in selling his goods to 
 irresponsible or dishonest parties. Sometimes the higher 
 efficiency of employers may come from a rare commer- 
 cial instinct, which enables them to tell, almost without 
 knowing why, that prices are going to rise or to fall. 
 
 It is not necessary to extend the description of the va- 
 rious ways in which certain employers come to produce 
 more of wealth than others are able to do, with the same 
 amount of labor and capital. Those ways are not few, but 
 many, very many. The resulting differences are not small, 
 but great, very great. 
 
 192. The Law of Profits. — If we have correctly discerned 
 and stated the facts of industrial society, so far as they 
 bear on this subject, we are now in a position to lay down 
 the law of profits. 
 
 Profits arise out of the differences iit produc- 
 tive EFFICIENCY AMONG THE EMPLOYERS ACTUALLY EN- 
 gaged in "business, for the supply of any market. 
 Profits consist of the entire excess of price over 
 
 COST OF PRODUCTION, AFTER ReNT HAS BEEN PAID. 
 
 We shall illustrate this principle sufficiently for the pres- 
 ent purpose, if we suppose that the required supply of 
 goods, of a certain kind, at the existing price, would yield 
 fifty millions of dollars; and that this aggregate has been 
 produced, in equal amounts, by fifty employers. Now, in 
 such a case, it is certain that some of these employers will 
 
220 POLITICAL ECONOMY. 
 
 barely be able to make themselves good for their outlay in 
 wages, in materials, in machinery and in other ways. 
 They will have little or nothing left to themselves, after 
 all the care and the pains they have taken ; after all the 
 risks they have run ; after all the anxieties they have en- 
 dured. In the same body of employers, there will be 
 others who have made ten thousand dollars, in producing 
 the same amount of goods ; others who have made twenty 
 thousand dollars ; others, still, who have forty, sixty, or 
 eighty thousand dollars left in their hands, after paying 
 all bills which are properly chargeable to that production, 
 including deterioration of plant, wear-and-tear of machin- 
 ery, interest on capital, bad debts, etc. 
 
 193. The Effects of Accident and Fraud. — It is true that, 
 in some cases, and more or less in most cases, the force 
 of fraud, or the effect of accidents, like fires and floods, 
 will have had something to do with the failure of an 
 employer to realize a larger profit, or to realize any profit 
 at all, on his month's or his year's business. But this fact 
 does not impair the truth or the importance of what has 
 been stated. Were no frauds perpetrated, did no accidents 
 take place, there would still be employers who would 
 realize no profits out of any given amount of business ; 
 while other employers were making profits ; others, 
 large profits; others, still, monstrous profits, under the 
 same conditions, and with the use of the same amounts 
 of labor and capital. 
 
 Generally speaking, too, the men who make large prof- 
 its, in spite of accidents and frauds, are the men who 
 would make large profits in the absence of accidents and 
 frauds ; while the men who make small profits, or none, 
 in the actual case, are the men who would make small 
 profits, or none, in the hypothetical case. The ability to 
 guard against fraud, the ability to foresee impending evil. 
 
POLITIOAL EClONOMT. Q21 
 
 to break its force and to repair its effects, are among the 
 qualifications for the successful conduct of business. 
 
 194. The Analogy Between Rent and Profits. — It will be 
 seen that there is a very close analogy between rent and 
 profits. In dealing with rent, we begin with the no-rent 
 lands (par. 173), and measure rent upwards from that line. 
 In dealing with profits, we begin with the no-profits em- 
 ployers, and measure profits upwards from that line. In 
 each case, we find that differences in productive efficiency 
 (labor and capital being assumed equal) create a surplus, 
 which consists of the excess of price over cost, price being 
 fixed by the cost of '^ production at the greatest disadvan- 
 tage." 
 
 That analogy we may carry on to the end. Kent, we saw, 
 (par. 175) does not enter into the price of produce. In 
 the same way, we see that profits do not enter into the 
 price of produce, or of products, since the price of these is 
 determined by the cost of their production at the hands of 
 employers ivlio themselves receive no profits. Prices must 
 be high enough to enable this class of employers to keep up 
 their business: otherwise, the required supply would fall 
 short in the market. Prices being fixed so high, by this 
 cause, those employers who are able to produce at a less 
 cost realize a surplus. Prices, then, are not high because 
 profits are made ; hut profits are made because prices are 
 high. 
 
 No more is it true that profits are obtained by deduction 
 from wages. The employers who make profits pay as 
 high wages* as the employers who make no profits. The 
 reason why wages are no higher than they are, is because 
 
 * In a certain sense, they pay somewhat higher wages, since the 
 greater continuity of employment and certainty of payment, which 
 belong to the laborers who work for the more successful employers, 
 are really as good as a small addition to their wages. 
 
222 POLITICAL ECONOMY. 
 
 the least competent employers (whose demand is essential 
 to taking up the whole supply of labor in the market), can- 
 not pay any higher wages and get them back in the price 
 of their products. The existence of profits, then, consti- 
 tutes no wrong to the laborer. They represent, from first 
 to last, the creation of an additional amount of wealth, by 
 the skill, energy and prudence of the successful employer. 
 Wages would be no greater, were profits to be prohibited. 
 
 195. Lowering the Margin of Production. — The last 
 point we shall note, in the analogy between rent and profits, 
 is that, in both cases, it is for the interest of the laboring 
 class that the '^margin of production^' should not be low- 
 ered. In treating of rent, we showed (par. 168) that, if 
 cultivation be driven down to inferior soils, not only a larger 
 actual amount, but a larger share, of the produce necessarily 
 goes to the land-owning class, as rent. Likewise in the 
 case of profits, it is for the interest of the laborers, as well 
 as of the entire community, that employers of a lower 
 grade of industrial efficiency should not be brought into 
 the conduct of business. If the margin of production is 
 to be lowered, in this respect, not only a larger actual 
 amount, but a larger share, of the product will necessarily 
 go to the employing class, as profits. Prices are deter- 
 mined by the productive capability of the lowest class of 
 employers who are actually producing for the supply of 
 the market ; and all excess of those prices, over the cost of 
 production in the hands of the more capable men of busi- 
 ness, goes to these latter, individually, as profits. 
 
 We see, by this, how mistaken are the views and feelings 
 commonly entertained by laborers regarding profits. Gen- 
 erally speaki ig, the laboring class have not a little jealousy 
 and envy toward the large profits of successful employers. 
 But, if we have correctly discerned and stated the origin of 
 profits, the only real injury done to the laboring class is 
 
POLITICAL ECONOMY. 2123 
 
 through the comparative incompetence of those employers 
 who realize no profits from the conduct of business. When 
 we come to speak of the effects of imperfect competition 
 (Chap. XXIV), we shall have occasion to refer to certain 
 causes which tend to bring incompetent men into the con- 
 duct of business, and to keep them there, at the expense 
 of the community, in general, and of the laboring class 
 in particular. 
 
 196. To Whom do Profits Belong ?— In treating of rent, 
 it was shown (par. 177 to 181) that, under the private 
 ownership of land, rents must necessarily go, entire, to the 
 owners of land, as such ; and that no economic force could 
 be invoked which would have the tendency to carry rents, 
 or any part of them, to any other class in the community. 
 But it was also shown that the community, the State, 
 might, if this were thought wise, lay claim to rents, on 
 grounds of political equity. 
 
 Could any such claim be made to profits, on behalf of 
 the community, the State ? In such a case, the commun- 
 ity, the State, would, in effect, say to the men of superior 
 ability: ^' You shall continue to carry on business, to em- 
 ploy labor and capital, to direct the production of wealth ; 
 but the profits you may realize belong to the State and 
 must be paid into the public treasury. We will, perhaps, 
 allow you some small part thereof, as an encouragement to 
 you to do your best ; but we cannot admit that you have a 
 right to the wealth which you create by your skill, energy 
 and prudence, over and above the wealth which other em- 
 ployers, of less ability, can produce with the same amount 
 of labor and capital. '' We can, indeed, conceive an Asiatic 
 government making this demand ; but such a view would 
 be so foreign and so hostile to the ideas and sentiments 
 of our people, that it need not be discussed here. 
 
 It may, however, be said that, should any government 
 
224 POLITICAL ECONOMY. 
 
 undertake thus to confiscate profits, it would surely find 
 that, while it could easily prevent individuals from realiz- 
 ing profits, it would not bring any wealth thereby into the 
 public treasury. The act of the man who killed the goose 
 that laid the golden eggs, would be wisdom itself, in com- 
 parison with the folly of such a course. The fact that the 
 employer is to realize, for his own benefit, all that is to be 
 saved, and all that is to be gained, by his prudence, en- 
 ergy and skill, is of the very essence of that prudence, 
 energy and skill. Were the reward of his exertions to be 
 taken from him, the mainspring of those exertions would 
 be broken. 
 
 197. The Socialist View of the Employer. — I have 
 spoken in this chapter, and frequently throughout this 
 book, of the part which the employer performs, in the pro- 
 duction of wealth, as I understand it. I do not believe 
 that I have one whit exaggerated the importance of that 
 industrial function. Those writers, however, called Social- 
 ists, who desire to have the State do everything in the 
 production of wealth, and who would abolish at once the 
 private ownership of land and private enterprise in produc- 
 tion, are naturally disposed to take a low view of the im- 
 portance of the employer's work. This is, partly, because 
 a higher view of that work would go against their own 
 scheme ; partly, because many of these writers entertain a 
 deep prejudice and even an intense hostility towards the 
 body of employers, whom they regard as engaged in rob- 
 bing the laboring class. Few of these writers have had 
 either the kind of education or the opportunities for ob- 
 servation which would qualify them to form valuable opin- 
 ions on such a question. 
 
CHAPTER XXI. 
 PROFITS, CONTINUED : CO-OPERATION. 
 
 198. What is Industrial Co-operation ? — The contempla- 
 tion of large profits realized by the employers has given 
 rise to many movements, in this and in other countries, 
 which have had for their object to secure to the 
 laborers, themselves, the gains which otherwise the 
 employer would reap. These movements may all be em- 
 braced under the general term. Co-operation. We shall de- 
 vote the present chapter to considering the objects of in- 
 dustrial co-operation; the advantages which it would se- 
 cure, if successful; the liabilities to loss and failure which 
 co-operation encounters; the conditions under which co- 
 operation would have the largest chances of success. 
 
 The main purpose which a body of laborers have in view 
 in initiating co-operation is to get rid of the employer, by 
 doing his work themselves, and thus reaping his gains. 
 Seeing that a large amount of wealth is realized by the em- 
 ploying class, they, not unnaturally, say, why should we 
 not employ ourselves? Why should we not get together 
 freely, instead of being brought together and hired by some 
 one else? Why should we not decide, for ourselves, in 
 what line we shall work; buy our own materials; apply to 
 these our own labor; sell the goods ourselves; and put into 
 our own pockets the entire value of the product? 
 
 I have said that in co-operation the object is to get rid 
 of the employer. Unfortunately the more usual, indeed, 
 the general, way of putting it is that the object of co-oper- 
 
^26 POLITICAL ^GONOMT. 
 
 ation is to get rid of the capitalist. This form of statement 
 is not only erroneous; it is grossly misleading. 
 
 Co-operation is not going to get rid of the capitalist. Co- 
 operatiou has no tendency to get rid of the capitalist. A 
 body of co-operative laborers must have as much capital to 
 use as a body of laborers working under an employer. If 
 they have not, their failure will be assured from the start. 
 They must have just as many and just as good tools; just 
 as much and just as good material; just as ample and 
 commodious rooms or buildings; just as much water-power 
 or steam-power, for a given product. The essence of co- 
 operation, I repeat, is that the laborers are to employ them- 
 selves. Doing, thus, the employer's work, they hope to 
 reap his gains. 
 
 199. The Advantages Sought in Co-operation. — We have 
 already indicated the first of the advantages sought for in 
 co-operation, viz., to secure for the laboring class that large 
 amount of wealth which goes annually, in profits, to em- 
 ployers. But there is a second advantage which the more 
 thoughtful members of the laboring class see would result 
 from the success of co-operation, viz., it would secure to 
 the laborer the opportunity to produce wealth independent- 
 ly of the will of an employer. Under the present system, 
 it remains with the employer to decide, not only what shall 
 be produced, and how and when it shall be produced, and 
 in what amounts, but, also, whether any production, at all, 
 shall take place. The employer's motive in production is 
 the profit he expects to realize for himself. Generally 
 speaking, he will only produce as he sees an opportunity to 
 make a profit. 
 
 It is true that the employer may carry on production for 
 a while, out of sympathy for his workmen, even though 
 the state of the market is so unfavorable that he does not 
 anticipate making much or any profit for himself. It is 
 
POLITICAL EGOmMT. 227 
 
 true that he may even, at times, consent to carry on pro- 
 duction at a slight loss, rather than let his customers go to 
 others, or close his works. But these considerations cannot 
 be relied upon to any great extent or for any long period; 
 nor can they be relied upon at all, as against the apprehen- 
 sion of considerable loss. In a state of the market which 
 causes the employer to doubt, wliether, after paying out 
 large sums for materials and labor, he will get his money 
 back in the price of the products, the most natural course 
 for him to adopt is to curtail production, to the extent of 
 one-third or of one-half. 
 
 The laborers who are thus allowed to work only on two- 
 thirds or half time; cannot rightly complain that the em- 
 ployer should protect his own interests. But, if they should 
 choose, through co-operation, to take the risks and the re- 
 sponsibilities upon themselves, it would be in their power 
 to keep up production continuously. No matter what the 
 state of the market, they could remain at work, producing 
 their goods and selling them for what they were worth, or 
 holding them over until a better time. This might be 
 much better for them than not working at all. On the 
 other hand, it might be much worse for them. Whether it 
 should be better or be worse would somewhat depend upon 
 the nature of the business;* more, upon the judgment and 
 good sense displayed by the co-operators. In any case, it 
 would no longer be the interest of the one employer, but 
 the interest of the many workmen, which should decide 
 whether production were to proceed or not. 
 
 200. Co-operation, in the View of the General Eco- 
 nomic Interest. — I have mentioned the two chief benefits 
 
 * For example, in a business where the value of the materials used 
 was small, and the value of the product depended mainly on the 
 amount and quality of the labor expended, such a plan would work 
 much better than in a business where there was a large outlay. 
 
^28 POLITIGAL EGOnoMt, 
 
 which the laboring class look to secure for themselves by 
 means of co-operation. In addition to these, the political 
 economist sees in such a system three possible sources of 
 advantage. 
 
 1st. Co-operation would, by the very terms of the case, 
 do away with strikes. There would no longer be any one 
 to strike against. The employer having disappeared, the 
 workmen having become self-employed, those destructive 
 contests, in which prejudice, passion and greed take so 
 large a part, would disappear, as a matter of course. 
 
 2d. The workman would be incited to greater industry 
 and to greater carefulness in dealing with materials, tools 
 and machinery. It was stated, in paragraph 46, that when- 
 ever men take the position of hired laborers, working for 
 wages, some part o*f that hopefulness and cheerfulness in 
 labor, which are the most fruitful source of strenuous ex- 
 ertions, is, by the nature of the case, lost. A body of co- 
 operative workmen, on the other hand, would have the ad- 
 vantage of all these inspirations and incitements which we 
 sought to describe in paragraphs 43, 44 and 45. 
 
 3d. Frugality would be greatly encouraged. It cannot 
 be doubted that a body of laborers, having an opportunity 
 to invest their savings, at once and on the spot, in their 
 own business, and, indeed, feeling strongly the need of ad- 
 ditional capital to carry-on that business, would come un- 
 der more powerful inducements to frugality than a body of 
 wage-laborers. 
 
 201. Co-operation from a Still Higher Point of View. — 
 In addition to the foregoing advantages which might result 
 from co-operation, as viewed by the political economist, the 
 moralist and the statesman can discern in this system the 
 possibilities of still greater benefits. Co-operation, if it 
 could be introduced and maintained, would greatly tend to 
 educate and elevate the working classes, in all the elements 
 
POLITICAL ECONOMY. 229 
 
 of character and citizenship. It would give them a more 
 palpable stake in the community; and thus promote peace 
 and social order. It would train them to the discussion 
 and decision of important questions; and thus at once in- 
 crease their general intelligence and teach them moderation, 
 prudence and respect for the opinions of others. It would 
 strengthen the bonds of society, and would do away with 
 many of those feelings of envy, jealousy and distrust which 
 keep apart the members of a community. 
 
 202. The Difficulties of Co-operation. — The advantages 
 of co-operation being so many and so great, it will natural- 
 ly be asked why this scheme, proposed so long ago, sanc- 
 tioned by the highest economic authority, appealing direct- 
 ly to the self-interest of the laboring classes, advertised ex- 
 tensively in discussions relating to labor and wages, has 
 not been immediately successful, upon a large scale? How 
 is it, that, on the contrary, of the great number of enter- 
 prises, of this character, which have been started in Eng- 
 land, France, the United States* and other countries, 
 only a few have achieved a decided or even a moderate suc- 
 cess; while more have failed or been abandoned? 
 
 I answer: the difficulties of co-operation are directly as 
 its advantages. The power wielded and profits enjoyed by 
 employers make the working classes desire, naturally 
 enough, to bring about a different industrial order. Yet, 
 when a body of laborers set up for themselves, the result 
 very soon shows that the reason why the employer wields 
 such arbitrary power and enjoys such large revenues, is that 
 he performs a part in modern industrial society (pars. 54 
 and 55) which is of supreme importance: in which any- 
 
 * The publications of the American Economic Association contain 
 the most recent and refiable accounts of the many and various co- 
 operative enterprises which have been undertaken in the United 
 States. 
 
POLITICAL ECONOMY. 
 
 thing less than the highest abilities of administration and 
 organization involves comparative, if not absolute, failure. 
 
 203. Is Co-operation Practicable, in a Near Future? — 
 The time may come, when a body of laborers, joined to- 
 gether for the purposes of co-operative production, will give 
 as intelligent a direction, as close a supervision, as rigid a 
 discipline, as energetic an impulse, to the work in which 
 they are engaged, as the present successful man of business 
 gives to the enterprises on which his fortunes and his repu- 
 tation are staked. This may come about, in time; but, for 
 one, though believing thoroughly, so far as politics are 
 concerned, in a ''^ government of the people, by the people, 
 for the people,"! I see nothing which indicates that, with- 
 in the near future, industry is to become less despotic than 
 it now is. The power of the Master, " the captain of in- 
 dustry," has steadily grown throughout the present century, 
 with the increasing complexity of commercial relations, 
 with the greater concentration of capital, with continual 
 improvements of apparatus and machinery, with the multi- 
 plication of styles and patterns, with the localization and 
 specialization of manufactures. 
 
 No one would rejoice more heartily than the writer to 
 see the working classes rise to the height of the occasion, 
 and vindicate their right to rule in industry by showing 
 their power to do it. But meanwhile it should be under- 
 stood that nothing costs the working classes so much as the 
 bad or weak or commonplace conduct of business. Indus- 
 try must be energetically, economically and wisely managed, 
 no matter who is to do it. Co-operation will only be suc- 
 cessful as it results in the production of equally good 
 articles, at equally low prices, with those produced in estab- 
 lishments controlled by individual employers. 
 
 f President Lincoln. 
 
POLITICAL ECONOMY. 231 
 
 204. A Possible Field for Industrial Co-operation. — I 
 
 have spoken thus strongly of the difficulties of co-opera- 
 tion, because I believe that only harm can come to the 
 working classes from slurring-over those difficulties, as has, 
 with the best intentions, been done by many writers. Not 
 a few economists have spoken on this subject as if co-oper- 
 ation were the easiest thing in the world to bring about, 
 the only difficulty being to get the working classes inter- 
 ested in it. It ought, on the contrary, to be clearly un- 
 derstood that the difficulties of the scheme are great in 
 proportion to its advantages; that co-operation can only 
 succeed when undertaken by intelligent and high-minded 
 men, who will carefully study their business; who will 
 put all envyings and jealousies and mean suspicions under 
 their feet; who are prepared to do, to endure and to for- 
 bear much, for the good they seek; who have magnanimity 
 enough to give a cordial support to the managers they shall 
 choose, to trust them thoroughly, and to pay them hand- 
 somely. 
 
 In speaking thus, I have reference to industry as a 
 whole, and especially to its larger branches, which supply 
 general markets, and which are subject to competition at 
 once searching and far-reaching. There are, however, 
 portions of the field of industry where the difficulties are 
 less formidable. 
 
 Where (1) a branch of industry is of such a nature that 
 it can best be carried on by a small group of workmen, 
 rather than in large establishments; where (2) the work- 
 men so engaged are substantially on a level, as regards 
 strength and skill; where (3) the initial expenditure for 
 tools and the running expenditures for materials are small; 
 and, especially, where (4) the goods are to be produced 
 wholly or mainly for the local market, the difficulties of 
 the co-operative system sink to a minimum, while its ad- 
 
232 POLITICAL ECONOMY. 
 
 vantages rise to a maximum. It is, therefore, in such 
 branches that the experiment of productive co-operation 
 should first be tried. Success can be achieved here, if 
 anywhere. Should success be here achieved, advantage 
 may be taken of the experience thus accumulated and of 
 the training thus acquired, to undertake larger and still 
 larger enterprises. 
 
 205. Profit-sharing. — The obstacles which beset indus- 
 trial co-operation are not encountered by the scheme of 
 Profit-sharing, which has been highly recommended by 
 many writers and which has been undertaken of late years, 
 not, indeed, on a large scale, but in numerous instances. 
 The advantages of this scheme, illustrated by many suc- 
 cessful examples, have recently been stated in an excellent 
 book by Mr. N. P. Oilman. The matter is one of eco- 
 nomic and administrative detail, too minute to be treated 
 fully in an elementary work of this character. 
 
 The object sought is to interest workmen in increasing 
 production and reducing waste and breakage, by paying to 
 them a portion of the employer's profits. It is, also, held 
 that this system would have the effect to promote good 
 feeling between the laborer and the employer, and to di- 
 minish the resort to strikes and labor contests. 
 
 The difficulties of profit-sharing are found (1) in the 
 smallness of the amount which can thus be distributed 
 among the workmen,* without unduly diminishing the em- 
 ployer's interest in production; (2) in the suspicions likely 
 to arise regarding the employer's good faith, in declaring 
 
 * Suppose, for example, that an employer pays in wages $200,000 
 a year, and realizes, on his production, a profit of $15,000. Were he 
 to distribute one-third of his profits, this would amount to but 2^ 
 per cent on his "pay-roll." A workman who earned $500 a year, 
 would receive $12.50 bonus. Would he do or forbear much, for 
 such a consideration ? (See par. 209.) 
 
POLITICAL ECONOMY. 233 
 
 the amount thus subject to distribution, unless the work- 
 men, or a committee of them, are to be allowed such ac- 
 cess to the books and accounts as few business men would 
 willingly concede; (3) in the perplexing question, what 
 should be done in the, not infrequent, cases where the 
 employer realizes a loss. 
 
 The last of these difficulties is, perhaps, the greatest. 
 The employer is, not unnaturally, disposed to hold that, if 
 the workmen share his gains in good years, they should, 
 also share his losses in bad years. 
 
 206. Consumptive Co-operation. — I have, thus far, for 
 simplicity of treatment, directed my remarks toward co- 
 operative enterprises which undertake to produce goods for 
 the market. To these we may, perhaps, apply the term. 
 Productive Co-operation. There is, however, a very large 
 department of business to whicK the co-operative principle 
 can be applied with almost indefinitely less difficulty and 
 risk. This department of business relates to supplying 
 consumers, at retail, with the necessaries, comforts and 
 luxuries of life. This kind of co-operation may properly 
 be called Consumptive Co-operation. 
 
 The distinction between productive and consumptive co- 
 operation may be expressed as follows. In productive co- 
 operation the laborer seeks to make for himself an income. 
 In consumptive co-operation, the laborer seeks to expend 
 or to consume that income to the best advantage: to make 
 each dollar of his earnings go as far as possible in provid- 
 ing subsistence for himself and family. The two things 
 do not necessarily go together. A man might (1) earn 
 his income by working for an employer, and expend that 
 income through a co-operative society; or (2) he might 
 earn his income in a co-operative factory, yet expend it in 
 purchases from grocers, butchers, and shoe-dealers, here 
 or there, according to his fancy or convenience; or (3) he 
 
234 POLITICAL ECONOMY, 
 
 might both earn his income as a member of one (produc- 
 tive) co-operative society and expend it as a member of 
 another (consumptive) co-operative society. 
 
 207. The Advantages of Consumptive Co-operation. — 
 Among the advantages of consumptive co-operation may 
 be mentioned the following. 
 
 1st. The certainty of business. The managers know 
 that all the members will purchase their supplies at that 
 store or shop. It is, therefore, possible to estimate closely 
 the amount of trade to be done, and the quantities of the 
 several kinds of goods which will be required. 
 
 2d. The saving of advertising -expenses. It follows 
 from the above that the managers of a co-operative store 
 or shop are relieved from all expenditures for the purpose 
 of attracting trade. They not only do not need to adver- 
 tise in the newspapers or on the " dead walls;^' they are not 
 obliged to spend money for plate-glass windows or for rose- 
 wood counters or for electric lights. They can have their 
 place of business on a back street, in plain quarters, at a 
 low rent; yet their customers will come to them, all the 
 same. 
 
 3d. Avoidance of book-keeping and losses by bad debts. 
 In Europe, nearly all co-operative stores do business purely 
 on the cash principle. No one is allowed to take goods 
 out of the shop without paying for them, at the time. All 
 the expense of recording and "posting" small purchases, 
 and of sending -out and collecting small bills, is thus 
 avoided. An even greater advantage is found in escaping 
 losses by bad debts. In ordinary retail trade, under the 
 credit system, so common in the United States, those losses 
 are simply enormous. 
 
 208. Practical Experience with Consumptive Co-opera- 
 tion. — This species of co-operation has had no incousider- 
 jible degree of success in England, in the way of shops fof 
 
POLITICAL ECONOMY. 235 
 
 the sale of flour, meats, groceries, dry-goods and other 
 articles of domestic consumption. At these shops, annual 
 subscribers or members of the association buy goods, gen- 
 erally at the ruling prices of retail trade, always for cash. 
 At the end of the year or the season, the profits, after de- 
 ducting the expenses of supervision and management, are 
 divided among the members, either equally or in propor- 
 tion to their purchases. The latter is the usual rule. At 
 the time of each purchase, a member receives a check, 
 showing the amount paid. At the end of the year or sea- 
 son, he brings in his checks; and, upon the aggregate 
 amount, he receives a dividend, corresponding to the profit 
 upon the entire business done. In comparison with ordi- 
 nary retail trading, under the credit system, a co-operator 
 ought, with good management, to save twenty per cent of 
 his income. Moreover, he ought, in this way, to secure a 
 better quality of goods, as no one has any interest in cheat- 
 ing him. 
 
 209. American Experience. — Here, on the other hand, the 
 scheme of consumptive co-operation has not been very 
 widely applied ; and, in most cases, has either failed or 
 been abandoned. The causes of this small success have 
 been the following : 
 
 1st. The indifference of our people, even of the poorest 
 classes, towards small savings. The average American will 
 work harder than the man of any other nation to make an 
 income ; but, in expending incomes, we are the most care- 
 less and wasteful people in the world. This is equally true 
 whether we are buying domestic goods at the store or using 
 them in the household. 
 
 2d. The national passion for taking credit. An Amer- 
 ican feels himself insulted if he is informed that he can- 
 not carry goods out of a shop without paying for them. No 
 matter how easy it would be to bring the money with him, 
 or how thoroughly he understands the disadvantages of 
 
236 POLITICAL ECONOMY. 
 
 the credit system, he yet resents any application of the cash 
 principle in his own case. 
 
 3d. The popular unwillingness to take pains, steadily and 
 persistently, to secure a proper administration of trusts. 
 The same defects of character which have allowed our 
 municipal affairs to fall so largely into the hands of incom- 
 petent or unworthy persons, have wrecked many of the 
 most promising co-operative enterprises undertaken in this 
 country. Such an enterprise starts off with a great deal of 
 zeal on the part of the members ; the best men are put in 
 charge ; accounts are carefully supervised ; the buying and 
 selling are well looked after. In the course of time, the 
 interest wanes ; poorer men get in power ; the administra- 
 tion becomes lax. The usual result is either that, after a 
 few years or months, the store or shop is shut up ; or else, 
 the last manager makes an offer for the goods and fixtures, 
 and sets up business for himself. Such has been the his- 
 tory of thousands of "union," ''granger" or "sovereigns 
 of industry " stores, in the United States. 
 
 There is no essential difficulty regarding consumptive co- 
 operation. Like most good things, however, it is only to 
 be had with labor and pains. Whenever any considerable 
 number of people care enough about the advantages of this 
 system to give it thought, effort and a reasonable portion 
 of time, they can, in this way, secure for themselves an im- 
 portant economic advantage. 
 
CHAPTER XXII. 
 INTEREST. 
 
 210. The Point we have Reached. — Let us again stop to 
 note the point we have reached, in the distribution of wealth. 
 We. have now disposed of all that body of wealth which 
 constitutes the excess of price over the cost of production. 
 We have seen (Chapter XVIII) that the differences in pro- 
 ductiveness existing among the several grades of soil, 
 actually contributing to the supply of the market, give rise 
 to a surplus, in the case of the crops raised upon all the 
 better grades of land, which surplus goes, under the name 
 of rent, to the owners of the soil. Secondly, we have seen 
 (Chapter XX) that the differences in productive power 
 existing among the several grades of employers, actually en- 
 gaged in conducting the business of the community, give 
 rise to a surplus, in the case of all goods produced by the 
 more efficient employers, which surplus goes, under the 
 name of profits, to those employers. The wealth, whose 
 distribution we are now to consider, is that which remains 
 after the Surplus, arising from the two causes just men- 
 tioned, has been disposed of. 
 
 The body of wealth thus to be distributed is, as we have 
 previously stated (par. 165), equivalent to that which luould 
 have been produced , had all the labor and capital engaged 
 in production been applied to soils of the lowest grade 
 actually cultivated (or to the produce of such soils ) ; and 
 been so applied under the direction and control of em- 
 ployers of the lowest grade of industrial efficiency. The 
 
 237 
 
238 POLITICAL ECONOMY. 
 
 body of wealth, thus made up, is to be distributed among 
 two classes of industrial agents, viz., capitalists and 
 laborers. To no part of this has either the landlord or the 
 employer any economic claim. Both these parties received 
 all they were entitled to, when they carried away the sur- 
 plus which represents the excess of price over cost. All 
 that enters into the cost of production consists of the exer- 
 tions and sacrifices of capitalists and laborers ; and these 
 two classes are entitled to divide among themselves, in one 
 proportion or another, all that part of price which rep- 
 resents the cost of production. 
 
 211. Capital. — In Chapter VIII, we sought to describe 
 the origin and the industrial office of capital. It was there 
 shown that capital arises wholly out of savings. In this 
 fact is found an abundant justification for the claim of the 
 individual to the full use and enjoyment of his capital. 
 If a man^s wealth is his to spend, it is equally his to save. 
 If there be any difference between the right of a man to 
 the wealth he is to spend and the right of another man 
 to the wealth he is to save, that difference is in the favor of 
 the latter, since the saving and accumulation of capital 
 is, by general admission, greatly for the advantage of the 
 community, affording the means for carrying-on and en- 
 larging production. 
 
 212. Interest. — The economist applies the term, interest, 
 to that part of the product of industry which constitutes 
 the proper economic return to the capital employed in pro- 
 duction. That term is equally used, whether the owner of 
 capital himself employs it in production, or loans it to 
 another, to be by him employed. In the latter case, there 
 is an actual payment, by the debtor to the creditor, of a 
 certain amount, under the name of interest, as the con- 
 sideration for the loan. In the former case, the amount 
 which the economist considers as interest is not distinctly 
 
POLITICAL ECONOMY. 230 
 
 separated and paid over under that name. But it is there, 
 all the same ; and should always be so distinguished in 
 economic reasoning. 
 
 213. The Right to Interest.— The right to interest is 
 found in the right to capital. We have said that if a man 
 has a right to wealth in order to spend it, he has equally a 
 right to wealth in order to save it. Likewise, if a man has a 
 right to wealth which he has, by self-denial and sacrifice, 
 saved, he has the right either to use it, himself, in further 
 production, or to receive the proper fruits of it from another, 
 who may wish to use it in production. Strangely enough, 
 this right was for many centuries denied among Christian 
 nations. The grounds for this denial will be given in the 
 next paragraph. 
 
 214. Objections to Usury. — Until within two or three 
 centuries, "usury," or the taking of interest upon loans, 
 was forbidden in many countries, of which we may take 
 England as an example. One reason for this was doubt- 
 less found in the prohibition, in the Old Testament, of the 
 taking of usury by one Hebrew from another. But this 
 prohibition of usury among the members of 'Hhe peculiar 
 people " was clearly one of the means resorted to for keep- 
 ing them apart from their idolatrous neighbors ; and was 
 in no sense intended as a moral precept of universal 
 application. 
 
 Another, and perhaps more influential, reason for the pro- 
 hibition of usury was found in a mistaken notion regarding 
 the nature of the transaction involved. This mistaken 
 notion was embodied in a dictum of Aristotle, the great Greek 
 philosopher, that, inasmuch as money does not produce 
 money, nothing ought to be exacted for the use of money.* 
 
 * The honor of having first exposed the fallacy lying in Aristotle's 
 dictum is attributed to John Calvin. 
 
940 POLITICAL ECONOMY. 
 
 The error liere lies in the assumption that interest is paid 
 for the use of money ; whereas, in fact, interest is paid for 
 the use, not of money, but of capital. Now, though 
 money itself does not produce ''after its kind," most of 
 the things which a man can buy with money do produce 
 after their kind. If a man borrows money and with it buys 
 a hundred sheep, those hundred sheep may, in a few years, 
 become five hundred. If a man borrows money and with 
 it buys grain, that grain will, if duly sown and cultivated, 
 bring forth " some thirty, some sixty, and some an hundred 
 fold." If a man borrows money and with it buys mer- 
 chandise, he may, by shrewd selling, make twenty or thirty 
 per cent upon his stock. So, we see, that, if, in the case of 
 every loan, money were actually borrowed, all tlie things 
 which should be Judiciously bought with that money might 
 be made to produce " after their kind. " 
 
 In the vast majority of cases, however, where interest 
 is paid, no money, at all, is used in the original transaction. 
 A man buys a house, and promises to pay the price, at some 
 future time, ''with interest," meanwhile. Interest upon 
 what ? Interest upon money ? He has had no money. The 
 interest promised is upon capital, invested in the house. A 
 merchant or a manufacturer buys a stock of goods, and 
 gives his note promising to pay the price, "with interest." 
 Not interest upon money, for money was not used in the 
 transaction ; but interest upon capital, in the form of mer- 
 chandise or materials, which have been entrusted to him 
 and out of which he expects to make a profit, which he is 
 to share with the owner of the capital. 
 
 In spite of all the objections of the schoolmen and the 
 churchmen, the philosophers and the common people, the 
 taking of interest was, about the middle of the sixteenth cen- 
 tury, made lawful in England, although public opinion and 
 the views of the clergy were still deeply hostile to it. But, 
 
POLITICAL ECONOMY. S4l 
 
 while the law allowed interest to be paid, it undertook 
 to fix a rate above which interest should not go; and simi- 
 lar enactments have been made in nearly all countries, and 
 still remain the rule to the present time. Of the expediency 
 of such restrictions upon the rate of interest we shall speak 
 in a subsequent paragraph. 
 
 216. How Much Shall the Capitalist Receive?— We 
 have seen that there is an abundant justification of interest 
 in the fact that production is increased by the use of capi- 
 tal. How much of this increase shall go to the owner of 
 the capital ? Shall he receive the whole amount by which 
 production is so increased? I answer: (1) This will not be 
 so as a matter of course ; (2) that, in fact, the amount go- 
 ing to the owner of capital, as interest, is only a part of 
 that increase ; (3) that, in general, the amount received as 
 interest is but a small part of the amount by which wealth 
 is enhanced through the use of additional capital. 
 
 What, then, determines the amount which shall be paid as 
 interest ? Properly to answer this question, we must again 
 ask, what is interest? Interest is the price paid for the 
 use of capital. What determines price, in any and in all 
 cases? There can be but one answer to this question. 
 Price (par. 95) is always, only and wholly controlled by 
 demand and supply. The price paid for the use of money, 
 interest, is, therefore, entirely a matter of the supply of, and 
 the demand for, capital. Now, the supply of any article 
 being determined, price must fall and continue to fall un- 
 til the demand has been found which loill take up the last 
 portion of that supply. This is what happens in regard to 
 the price paid for the use of capital, that is, interest. 
 
 216. The Process Illustrated. — Let us illustrate this by 
 reference to a community which has been some time estab- 
 lished in its present 6eats, and in which large amounts of 
 capital have already been applied -to production. Farms 
 
249 POLITICAL tJGONOMT. 
 
 have been opened and cultivated ; but there is atill much 
 good land which might be cleared of timber, and there is 
 a large area of swamps, rich with the vegetable mould of 
 centuries, which might, by the application of labor and 
 capital, be drained. Mines have been opened and worked ; 
 but there are still richer mineral deposits, deeper down in 
 the crust of the earth, or higher up among the mountains, 
 which there has not yet been capital enough to reach. 
 Wood and timber have been cut from the neighboring for- 
 ests ; but there are tracts of better timber which could only 
 profitably be brought to market through the construction 
 of a tramway or railway. Vegetable and animal fibres have 
 been spun and woven for clothing ; but it has been by the 
 spinning-wheel and the hand-loom, there not having been 
 capital enough to build dams upon the rivers, to put up 
 mills and to fill them with machinery. 
 
 217. The Last Portion of the Supply. — Now, suppose that 
 capital, to the value of ten millions of dollars, were to be 
 made available for the use of the community, constituting 
 the present supply of capital for loan. Some of this capital 
 would be so much needed, would have the capability of so 
 greatly increasing production, that, rather than not have 
 it, the borrowers could afford to pay 18^ per annum. If 
 the amount which was needed in this degree was ten mil- 
 lions, then 18^ would be the rate of interest. But if only 
 three millions were needed in this degree, 18^ would not 
 be the rate of interest, for such a demand would not take 
 up the whole supply. There might be other enterprises, 
 agricultural, commercial, manufacturing, which could put 
 additional capital to so good a use that, rather than not 
 have it, the persons concerned would pay 12^. If, however, 
 only two millions more were needed in this degree, neither 
 18^ nor 12^ would be the rate of interest, but something 
 less. We might suppose that there were other enterprises 
 
POLITICAL ECONOMT. ^43 
 
 which could afford to pay 10^, and others, still, which 
 could afford to pay 8^ ; but neither 10^ nor 8^ would be 
 the rate of interest unless the whole supply was taken up 
 by these successive demands. That result might not be 
 reached without applying the last million of dollars to 
 enterprises which could only afford to pay 6^. This being 
 so, 6^ would become the rate of interest, not for that mil- 
 lion alone, hut for the whole ten millions. Those who could 
 have afforded to pay 18^ for the use of capital, rather than 
 not have had it, will still get the use of it for 6^. 
 
 218. The Law of Interest. — The bate of interest 
 IS determined by the productiveness of that last 
 (considerable) part of the supply, which is ap- 
 plied TO INDUSTRY "AT THE GREATEST DISADVANTAGE." 
 
 The productiveness of this portion determines the price 
 to be paid for the whole. If, in the instance above given, 
 the supply had been so great that the last portion of the 
 demand (necessary to take up the whole supply) had to 
 come from enterprises which could only afford to pay 4^ 
 then 4^ would have been the rate of interest on the entire 
 body of capital. 
 
 It will be seen that the capitalist does . not receive 
 the whole amount by which production is increased through 
 the use of capital. He receives that whole amount only in 
 the case of those industrial enterprises from which proceed 
 the last (considerable) portion of the demand which is 
 necessary to take up the supply. In all other cases, the 
 industrial enterprises concerned derive a benefit from the 
 employment of the additional capital, for which they pay 
 only in part. 
 
 219. The Inexpediency of Usury Laws. — We have, I 
 think, gone far enough in our subject to be in a position 
 to see the inexpediency of laws, such as exist in most coun- 
 tries and in most states of the American union, prescribing 
 
544 POLITICAL ECONOMY. 
 
 a rate of interest which it shall not be lawful to exceed. 
 The reason for these laws is found in the feeling that it is 
 very hard that persons who wish to use capital productively 
 should be obliged to pay a high price for its use. And so 
 it is. But what is the real cause of this hardship ? It is 
 that capital is scarce in that community. The rate of 
 interest will only be high when capital is scarce, in com- 
 parison with the demand for its productive use. 
 
 But, if the scarcity of capital is the trouble, is this to be 
 cured, or is it to be made worse, by laws which prevent the 
 owners of capital from getting the full price for it ? Clear- 
 ly, the latter. If the scarcity of capital creates a high price 
 for its use, the true way to cure the evil is to let that price 
 be freely paid and received. Then, every one who is in a 
 position to accumulate capital will set himself to do so with 
 double eagerness, in order to get the benefit of that high 
 price. Moreover, men in other communities, where capital 
 is more plentiful, will send their capital thither, to get the 
 higher rate. In this way, the painful need of capital, 
 which is indicated by excessive interest, will be supplied 
 as rapidly as, in the nature of the case, is possible. 
 A high rate of interest, freely allowed, is the best and 
 speediest cure for the evil of a scarcity of capital. 
 
 220. Evasions of Usury Laws. — I have spoken, above, of 
 the importance of allowing interest to be freely and openly 
 paid, whatever the rate which existing economic conditions 
 may determine. As a matter of fact, usury laws can al- 
 ways be evaded, in any one of many ways. This may be 
 done by a tonus, or premium, upon the loan ; by a com- 
 mission to an agent, who turMS over the greater part of it 
 to the lender, as extra interest ; by selling goods at a 
 fictitious price, the excess over the real price being in the 
 nature of extra interest; by *^dry exchange," as when a 
 note is made payable in another city, and "exchange" 
 
POLITICAL ECONOMY. 245 
 
 (pars. 124-126) is charged for bringing the money home, 
 although in fact the note has not left the city where the 
 loan was made. 
 
 The effect of these and many other modes of evading 
 usury laws is simply to make it harder for the man who 
 already finds it hard enough to borrow. They really enhance 
 the price to be paid for the use of the capital which belongs 
 within the community; and they serve as a great obstacle 
 to bringing in capital from communities on the outside. 
 In a high degree, therefore, usury laws defeat their own 
 object. 
 
 221. False Interest: Insurance of the Principal. — We 
 have thus far spoken as if, in the same market, there could 
 be but one rate of interest at a given time. Yet we know 
 that, in any market, notes are discounted every day, at 
 varying rates of interest. How is this ? I answer, a gi*eat deal 
 which goes under the name of interest is not true interest, 
 but is in the nature of Insurance upon the capital, or principal 
 sum lent. 
 
 For example, a capitalist has thirty thousand dollars 
 which he intends to loan. Ten thousand of this he 
 "places" upon a "bottom mortgage," at b</o. Here he has 
 for his security improved real-estate, which is worth at least 
 twice as much as the sum lent. This 5^, then, is the true rate 
 of interest, at that time and place. With another ten thou- 
 sand dollars, the capitalist buys first-class business-paper, 
 bearing 6^ interest. The security here is good ; yet all mer- 
 chants are liable to fail, through the bankruptcy of others, 
 through embezzlement by their clerks or cashiers, or through 
 some tremendous fall of prices. Consequently, an insurance 
 of one per-cent is here demanded, over and above the true 
 rate of interest. On the same day, the capitalist buys ten 
 thousand dollars in the bonds of a new railroad company, 
 which promise 7^ interest. Here the investor takes the 
 
246 POLITICAL ECONOMY. 
 
 risk that the railroad may not prove a success, either 
 through being badly located or being badly managed ; and 
 for this risk he demands an insurance of two per-cent, per 
 annum, upon the principal. 
 
 The total amount of this false interest or real insurance, 
 in case of loans, is very great. On the very day when Brit- 
 ish "three per-cents" are selling at par, Russian "five per- 
 cents" and Turkish ^' ten per-cents" may be at a discount. 
 The man who lends to the British government runs 
 no risk worth thinking of. The man who lends to 
 the Russian government runs a considerable risk. The 
 man who lends to the Turkish government runs a 
 frightful risk. On the very day when first-class business- 
 paper is discounted at 5^, the notes of doubtful firms are 
 being ''^ shaved^' at all the way from ten to twenty-five 
 per-cent. 
 
 222. Extra-hazardous Loans. — Speaking generally, the 
 amount promised as extra interest on very hazardous loans 
 and investments, is less than the proper premium of in- 
 surance for the risk taken. The losses through such loans 
 and investments, in any considerable term of years, are 
 enormous, far exceeding the value of the extra interest re- 
 ceived. The people who make such loans and investments 
 are gambling ; and, like most gamblers, they lose. 
 
 Persons who, in a community where the proper rate of 
 interest is 5^, buy bonds which promise to pay ten or fifteen, 
 do not commonly act upon anything like a real judgment 
 as to the probabilities that the bonds will be paid when 
 due. They are simply tempted beyond what they are able 
 to bear. The offer of an extravagant rate of interest over- 
 comes their prudence. They buy a very poor thing be- 
 cause they can buy it at a very low price; and almost 
 invariably find they have been cheated, at that. They re- 
 ceive one or two payments of interest^ which the managers 
 
POLITICAL ECONOMY. 247 
 
 make in order to hook the last gudgeon in the pool ; and, 
 after that, their bonds are mere waste-paper. No prudent 
 person will ever invest any money which he cannot easily 
 afford to lose, in any enterprise which promises a rate of 
 interest greatly above that which is paid by well-established 
 business houses. 
 
 223. Diflfering Rates of Interest in Different Markets. — 
 We have said that, in the same market, at the same time, 
 there is but one rate of true interest, the apparent differ- 
 ences being due, either to payments in the nature of insur- 
 ance upon the principal, or else to the effects of ignorance, 
 misrepresentation, etc. Broadly speaking, this is true. 
 In different markets, however, at the same time there may 
 be widely differing rates of interest. Thus, twenty years 
 ago, the loan of capital could be obtained, upon what was 
 locally regarded as good security, for 4^ in London, as 
 freely as for 6^ in New York ; or 8^ in Chicago ; or 12^ 
 in Iowa or Kansas. 
 
 Whence these differences ? In some degree, doubtless, 
 these successive additions of interest, as capital passed west- 
 ward, were in the nature of insurance. In each case, the 
 security might be as good as could ordinarily be obtained 
 in that community. Security, however, is a relative term : 
 what would be deemed ample security in one place might 
 not pass the scrutiny of lenders, without question, in an- 
 other. Generally speaking, the older a country is, the 
 greater the permanence of economic relations ; the more 
 does industry settle down within traditional limits; the 
 higher is the value assigned to commercial reputation ; the 
 more carefully are the men selected who are to control the 
 agencies of production and trade ; the fewer are the 
 chances of revolutionary changes in business. 
 
 224. Disinclination of Capital to Emigrate. — But not 
 all, or even the greater part, of the differences which have 
 
248 POLITICAL ECONOMY. 
 
 been noted, are due to this cause. It is the disinclination 
 of capital to emigrate, which allows such wide differences 
 in local rates of interest. In part, this disinclination is 
 due to a suspicion that strangers may not be fairly dealt 
 with by courts and by officers of the law, in case of seiz- 
 ures or foreclosures. In part, it is due to a fear of war, 
 which would necessarily cause a suspension of interest-pay- 
 ments, if not forfeiture of the principal. In part, it is 
 due to the fact that investments made at a distance must 
 generally be made ■ through an agent, whose bad faith or 
 weak judgment may cause the loss of the whole sum in- 
 vested. 
 
 The main cause, however, of the disinclination of capital 
 to emigrate is found in (1) the inertia of capitalists, mak- 
 ing them ready to accept lower rates upon the spot than 
 could be obtained through effort and inquiry at a distance; 
 and in (2) the ignorance of capitalists, from the necessary 
 lack of information as to the rates of interest prevailing 
 elsewhere. 
 
 The disinclination of capital to emigrate is something 
 which changes greatly, with changing moods of the public 
 mind. At times, the owners of capital are buoyant and con- 
 fident, and feel little hesitation in investing their capital at 
 a distance. At times, the owners of capital are even cred- 
 ulous ; and are readily " taken in" by plausible promises 
 and prospectuses from abroad. 
 
 The disinclination of capital to emigrate, moreover, 
 tends to diminish from age to age, as the communication 
 of news, by post and telegraph, becomes easier ; as the peo- 
 ples of different cities and different countries know more 
 about each other ; and as nations learn to treat foreigners 
 with greater fairness. Consequently, there is a constant 
 tendency to reduce local differences in the rates of interest. 
 
POLITICAL ECONOMY. 249 
 
 225. Contrasts between Eent and Interest. — We are now 
 in a position to contrast rent and interest with each other, 
 in certain important respects. 
 
 First, we have seen (par. 173) that the whole theory of 
 rent rests on the assumption that there is a body of no-rent 
 lands. These serve as The Base, from which to measure 
 upwards the successive degrees of productiveness of lands 
 which bear a rent. 
 
 In the theory of capital, there is nothing corresponding 
 to this. The economist does not find any no-interest capi- 
 tal. In theory, all capital bears an interest ; and all por- 
 tions of capital bear an equal interest. If one portion, in 
 fact, brings its owner no interest, or brings an interest be- 
 low that obtained by other portions, this is because of ig- 
 norance or accident or fraud or mistaken calculations. It 
 is not due to the nature of the capital itself. 
 
 226. The Rate of Interest Tends to a Decline.— The 
 second marked difference between interest and rent 
 may be expressed as follows: Rent tends to increase 
 with the increase of population and with the prog- 
 ress of wealth. On the contrary, interest tends to de- 
 cline. This is because the amount of capital which can 
 be created, in any country, is not, like the amount of land, 
 a fixed quantity. There is no natural limit to the wealth 
 which can be saved and accumulated, within any district, 
 by the industry and frugality of an intelligent, skilful and 
 enterprising people. Even within a single generation, we 
 have seen the rate of interest decline in New England from 
 six per-cent to four and a half, and even four ; while, in 
 many parts of the West, the decline, during the same pe- 
 riod, has been greater. In England, interest upon the best 
 security does not now exceed three per-cent ; while addi- 
 tional capital applied to the land hardly returns as much 
 as two per-cent. 
 
250 POLITICAL ECONOMY. 
 
 227. A Popular Fallacy.— We close this chapter with a 
 reference to an erroneous notion which is always likely to 
 be widely spread in certain stages of industrial society. 
 This is the notion that the rate of interest can be artifi- 
 cially lowered by the manufacture of large amounts of 
 paper-money. What we have seen regarding the nature 
 of interest ought to show the fallacy of this opinion. 
 
 A scarcity of capital means a deficient supply of tools, 
 implements and machines ; of live-stock ; of materials for 
 manufacture; of food and clothing, to support men while 
 laboring on public works, or otherwise engaged in pro- 
 ductive industry. It means that much-needed roads and 
 bridges, wharves and warehouses, dwellings and barns, 
 mills and factories have yet to be constructed, with scanty 
 means for doing it. A more bountiful supply of paper- 
 money is not going to bring these things into existence ; 
 and, consequently, can do nothing to meet the real wants 
 of the community. On the contrary, by unduly exciting 
 speculation and causing great and rapid fluctuations in 
 prices (par. 144) an excess of paper-money is certain to 
 disturb and impair production, and to divert consumption 
 from more to less useful objects. 
 
CHAPTER XXIII. 
 WAGES. 
 
 228. The Residual Share of the Product of Industry. — 
 
 We have now reached that slmre of the product of industry 
 to which I venture to apply the term Residual. I call 
 wages the residual share, not because it is the last in order 
 of treatment, but because, in my view, wages comprise the 
 residue (or all which is left) of the product of industry after 
 the three other shares have been taken out, the amount of 
 those three shares being determined by economic laws 
 which I have sought to state. 
 
 We have seen (par. 165) that the landlord and the em- 
 ployer divide between them all that part of the product of 
 industry which we call the Surplus. That is, rent and 
 profits together take all of price which is in excess of the 
 cost of production. This leaves the capitalist and the la- 
 borer to divide between themselves all of price which repre- 
 sents cost of production. 
 
 Starting from this point in the last chapter, we inquired 
 what part of this total amount the capitalist should receive. 
 We found that the sum which should go to capital, as in- 
 terest, is determined by the productiveness of the last (con- 
 siderable) portion of the supply of capital which finds a 
 borrower. The rate of interest, thus determined, is paid 
 upon all the capital in the market, and no more, except so 
 far as risks to the principal sum lent require additional 
 payments, in the nature of Insurance. Interest having 
 
 251 
 
252 POLITICAL ECONOMY. 
 
 been thus taken out of the product of industry, all that re- 
 mains belongs to the laboring class, as wages. 
 
 229. A Position of Vantage. — If the laborer's position, 
 in the distribution of wealth, is really that of the residual 
 claimant, that position is clearly one of vantage. If I, 
 with three others, own the whole of a thing, and if the 
 shares of my fellows are fixed, by agreement or by law, any- 
 thing which makes that thing more valuable, as a whole, 
 inures entirely to my benefit. Now, we shall see in what 
 follows (taken in connection with what was said in Chapters 
 VI and VII, regarding the efficiency of labor), that it is 
 always within the power of the laboring class, by greater 
 energy, carefulness and skill, to increase the product of 
 industry. It is, therefore, always in their power to improve 
 their own condition; and, if they duly look after their own 
 interests in distribution, they will reap the entire fruit of 
 whatever additional exertions and sacrifices they may make 
 in production. This certainly is the most hopeful view 
 that can possibly be taken of the economic position of the 
 laborer. 
 
 230. The Productiveness of Labor is the Source of Wages. 
 — When an employer hires labor, it is wholly with a view to 
 the product of that labor. He hopes that the product will 
 be large enough to leave a profit to himself. We have seen 
 (par. 190) that there are always some employers who are 
 destined to be disappointed in this expectation : employers, 
 who, after all their care, pains and anxiety, will realize no 
 profits, properly so called. Competition will surely bring 
 this about. It will inevitably bring prices down to the 
 point where the least efficient employers supplying the 
 market can only get back what they have expended, with a 
 bare living for themselves: a living no better than that ob- 
 tained by the more fortunate members of the laboring class. 
 
 But whether any individual employer does or does not 
 
POLITICAL ECONOMY. ^53 
 
 realize a profit, it is only in this expectation that he employs 
 labor at all; and it is only out of the product of labor that 
 he can hope to realize a profit. All employers in the 
 market, then, competing among themselves for the profits 
 of employment, the price of labor, i.e. wages, will, if the 
 laborers properly look after their own interests, rise to the 
 point which is determined by the productiveness of labor 
 at the hands of the least competent employers. All which 
 these employers can produce by means of labor, they will 
 be obliged to pay over in wages, subject only to the deduc- 
 tion of rent and interest. If, then, the productiveness of 
 that labor be, by any cause, increased, the employers can 
 afford to pay correspondingly higher wages; and this they 
 will be compelled to do, if, as we said, the laborers properly 
 assert their own interests. 
 
 The rate of wages, determined by the productiveness of 
 labor at the hands of the least competent employers, will 
 become the rate of wages for all labor. The more efficient 
 employers will pay the same wages for labor; and will make 
 a profit corresponding to the productiveness of labor under 
 their superior management. This, then, is the law of wages. 
 
 231. How the Productiveness of Labor may be Increased. 
 — It is not necessary to repeat here what has been said at 
 so much length in Chapters VI and VII. We have there 
 enumerated the principal elements which make up the 
 efficiency of labor. Most of those elements, it is clear, are 
 largely within the control of the laborers themselves. If 
 they will put more zeal into their work; if they will be 
 more careful of materials and machinery; if they will study 
 their trades and make themselves thorough masters of their 
 business, they can greatly increase their productive power. 
 
 Doubtless the chief reason why the laboring classes, as a 
 whole, have not been more anxious and earnest to increase 
 their industrial efficiency, is because they have failed fully to 
 
254 POLITICAL ECONOMY. 
 
 appreciate, in many cases have failed at all to apprehend, 
 the true relation between the productiveness of labor and 
 the rate of wages. For this failure there are two causes. 
 
 First. They have been taught, and they have generally 
 believed, that their wages came out of a fund * which the 
 employing class held for their benefit, instead of their 
 wages being their own creation. 
 
 Secondly. Because they worked for wages stipulated in 
 advance they have thought that all they had to do was to 
 earn their wages for that piece of work. 
 
 But ivhy were the stipulated wages no liigherf Because 
 the productiveness of their labor, as understood by their 
 employers, was no greater. An increase of their productive- 
 ness would, of course, not give them higher wages under 
 their present contract; but it would constitute a sufficient 
 economic reason for higher wages under their next contract, 
 and under all succeeding contracts. Employers, I repeat, 
 will always be obliged to pay wages corresponding to the 
 (known or anticipated) productiveness of labor at the hands 
 of the least competent employers; and laborers have only 
 to cause it to be known, or reasonably anticipated, that 
 their labor will be more productive, in order to secure higher 
 
 All the foregoing reasoning assumes, as we gave notice in 
 par. 162, that perfect competition exists throughout indus- 
 trial society. We shall see, in the next chapter, what is 
 required for perfect competition; and what are the con- 
 sequences of a failure to meet those requirements. 
 
 232. Particular Wages. — What we have thus far said, 
 concerning wages, has all borne upon the question, what 
 part of the total product of industry shall go to the labor- 
 ing class as a whole. To this subject we might apply the 
 
 * Called by most English and American economists The Wages 
 Fund. 
 
POLITICAL ECONOMY. 255 
 
 term. General Wages. There remains to be briefly con- 
 sidered the subject which we may call Particular Wages, 
 under which we discuss the question why wages in one em- 
 ployment are higher or lower than in other employments; 
 and attempt to account for such differences. 
 
 The range of wages, between highest and lowest, in any 
 community, even among able-bodied men, is very great. 
 The theoretical minimum of wages is, of course, the amount 
 necessary to keep the laborer alive and in strength to work, 
 and also to rear children to take his own place in the in- 
 dustrial order. At least as much as this the employing 
 class must pay for any kind of labor, because, otherwise, 
 they could not long have labor at all. 
 
 This minimum of wages, viz., necessary subsistence, is 
 hardly known at all in this country. There are few Ameri- 
 can families, which have not lost the '^bread-winner," but 
 could actually support life upon from one-half to one-third 
 of the amount which they have to spend. Of this any one 
 can readily satisfy himself by observing how the Italians 
 and people from other foreign countries, where a low stand- 
 ard of living prevails^ eat, dress and house themselves, when 
 they first come among us. It is not, then, necessary that 
 the actual minimum of wages shall be equal only to the cost 
 of bare subsistence. Whether it shall be so, or not, depends 
 upon causes which are mainly within the control of the 
 working classes themselves. 
 
 In the distribution, among the several classes of laborers, 
 of that total amount of wealth which the whole body of 
 laborers are to receive, demand and supply are the all-ef- 
 fective agents. Generally speaking, the lowest wages, as 
 among able-bodied men, are received by those who have 
 nothing but muscular strength to offer ; who are able to 
 lift and carry heavy loads, to strike powerful blows or to 
 wield the shovel for hours without tiring ; but who have 
 
256 POLITICAL ECONOMY. 
 
 little general intelligence and no technical skill. Such 
 persons, who are commonly spoken of as day-laborers 
 (whether actually employed by the day or not), generally 
 receive the lowest wages paid. This is simply because the 
 supply of such labor is very abundant. The great major- 
 ity of all who grow to manhood can do this sort of work. 
 It is only as a man is able to do some kind of work which 
 the great majority of laborers cannot do, that he lifts him- 
 self out of this class, and his wages rise above those of a 
 common laborer. 
 
 How high they shall rise, will depend (1) upon the de- 
 mand for the special service which he is qualified to render, 
 and (2) upon the number of persons who compete with 
 him for the privilege of rendering that service. A dis- 
 tinguished economist once told me that he had seen, in 
 the books of a brass-manufacturing concern of this country, 
 entries which established the fact that a certain brass- 
 moulder had for a long time received wages averaging 
 eighteen dollars a day. All around this man, were other 
 moulders, men of great skill, who were glad to earn four 
 or five dollars a day. This man was able to do something 
 which they, with all their trying, could not effect. Every- 
 thing which he touched took on a grace, which was worth 
 money in the market. The ordinary brass-moulders, again, 
 were receiving wages two or three times as large as those 
 received by the day laborers and heavy porters of the 
 same factories. This was because, and only because, with 
 a given demand for such work, the supply, i.e. the num- 
 ber, of persons capable of doing it, was closely limited. 
 That work requires great nicety of touch, accuracy of per- 
 ception, sound judgment and executive force. The man 
 who is to do it well, must not only have a good hand and a 
 good eye ; but he must also have a good head. A stupid, 
 unobservant person, is not fit to undertake it ; and no em- 
 
POLITICAL ECONOMY. 257 
 
 ployer could afford to allow such a person to do the work, 
 were he willing to do it for nothing. 
 
 Had we such a system of public education as we ought 
 to have, by which all the powers and faculties of the child 
 were called into exercise and taught to work together har- 
 moniously and enthusiastically, much of the difference that 
 now exists among the wages of the laboring class would 
 disappear; the number of those who were capable of per- 
 forming the higher parts in production would be vastly 
 increased. 
 
 We must put altogether aside the notion that labor is 
 compensated according to some scale of dignity or moral 
 worth. Some kinds of work, which peculiarly require the 
 use of the noblest of the human faculties, such as taste and 
 imagination, or which bring into special exercise the great- 
 est of the human virtues, such as patience, fidelity and the 
 spirit of self-sacrifice, are more meanly compensated than 
 others which make no such requirement. It is all a question 
 of demand and supply. Some occupations which are pe- 
 culiarly loathsome and revolting in their character bring 
 very high wages, because the nature of the work to be done 
 diminishes the number of those who will offer themselves 
 for the service. 
 
 Dangerous employments sometimes yield very high wages. 
 This should always be so; but the multitude of '* broken 
 men" in every community, that is, men who have been 
 made desperate or reckless by misfortunes or by bad habits, 
 constitute a reservoir from which, at any time, may be 
 drawn those who will render the most dangerous services 
 at wages which afford no adequate compensation for the 
 risk to life and limb.* Just so far as the moral and intel- 
 
 * The reader may be interested to glance over the figures which 
 show the comparative hardships and exposure to accidents and disease 
 in different kinds of labor and professional service. Doctor Neison, an 
 
SS8 POLITICAL ECONOMY. 
 
 lectual condition of the laboring class is improved, and, 
 especially, as the vice of drunkenness is banished, will those 
 laborers who are required, for the benefit of society, to per- 
 form work which is dangerous, painful, or exceptionally 
 disagreeable, receive additional compensation therefor. 
 
 233. The Wages of Women.— A great deal of attention 
 has been directed, in these late days, to the wages received 
 by women who are obliged to leave their homes and go into 
 ''the market for labor," to earn their bread; and a great 
 deal of very bad reasoning has been indulged in upon this 
 subject. On the one side, philanthropists and sentimental- 
 ists have talked of what working women ought to receive, 
 as if the question of wages were an ethical instead of an 
 economic one; and have railed at employers because they 
 paid women at the rates current in the market, as if it were 
 the business of employers to do anything else. On the other 
 hand, economists have been too apt to sneer at efforts to ad- 
 vance the condition of working women ; and have talked of 
 ''demand and supply," as settling the whole question of 
 women's wages, without recognizing the fact that there are 
 moral and intellectual elements in supply and in demand, 
 which are subject to man's volition and conscious activity. 
 
 eminent actuary, states that the mean annual mortality in England, 
 between twenty -five and sixty-five years, is, in the clerical profession, 
 1.13 per cent; in the legal, 1.57; in the medical, 1.81. In domestic 
 service, the mortality among gardeners is only .93 per cent; among 
 grooms, 1.26; among coachmen, 1.84. Of the several branches of 
 manufacture, paper shows a mean mortality of 1.45; tin, 1.61; iron, 
 1.75; glass, 1.83; lead, 2.24; earthen-ware, 2.57. Among the dif- 
 ferent kinds of mining, iron shows a mean mortality of 1.80; tin, 
 1.99; lead, 2.50; copper, 3.17. 
 
 In some of these cases, the extraordinarily high mortality is due to 
 the poisonous fumes which are given out; in others, to the fact that 
 the air is filled with fine particles, which penetrate the bronchial 
 tubes and lungs, causing early death; in others, to the intense heat 
 in which the work has to be done. 
 
POLITICAL ECONOMY. 259 
 
 The supply of women's labor is, unfortunately, not greatly 
 within control. That depends chiefly upon the needs of 
 women. Generally speaking, women will, if they are free 
 to choose, prefer to remain within the household, devoting 
 themselves to making the home comfortable and beautiful, 
 rearing and training the young, and enjoying social pleas- 
 ures. If women are driven out into the market for labor, 
 it will generally be because of misfortunes, the sickness or 
 death of '* the bread-winner," or the scantiness of the wages 
 which the father or brother is able to earn. 
 
 But while the supply of women's labor is, thus, not greatly 
 subject to control, the demand for that labor can be very 
 much influenced by human choices. We have, in our day, 
 seen an enormous extension of the field open to women, 
 which has been due to a better understanding of the sub- 
 ject ; to the improved education of women themselves ; and 
 to a more generous consideration of the wants of those, 
 of this sex, who are obliged to earn their own bread. This 
 good work can go on almost indefinitely. Many an em- 
 ployer could, if he saw a little more clearly on the subject, 
 and felt a little more deeply concerning it, readily find a 
 place for women in his works ; and every such instance 
 would make it more easy for women to find room in other 
 establishments. 
 
 Nor is it alone the employers of labor who can contribute 
 to this result. The greater the respect and sympathy for 
 working women, on the part of the general community, the 
 easier will it be for the young and unprotected to find em- 
 ployment and maintain themselves in it. It is hard enough, 
 at the best, for a woman to go about and solicit work, per- 
 haps in strange places, certainly from &trangers ; and to go 
 and come, at early and at late hours, through quarters not 
 free from disorderly elements. The more public interest 
 
S60 POLITICAL ECONOMY. 
 
 is aroused in working women, the more man's instinctive 
 chivalry is appealed to on their behalf, the larger will be 
 the opportunities of work open to them, the better their 
 chances of obtaining the employment they need. This is 
 what I mean by ^^the moral and intellectual elements of 
 demand and supply." 
 
CHAPTER XXIV. 
 
 THE ECONOMIC EFFECTS OF IMPERFECT COM- 
 PETITION. 
 
 234. The Assumption of Perfect Competition. — In para- 
 graph 162 it was said that, in the chapters immediately 
 following, a state of perfect competition would be assumed. 
 We should, thus, seek to show what would be the distribu- 
 tion of wealth, did each man, in his place in the industrial 
 order, high or low, fully understand his economic interests, 
 and unfalteringly pursue those interests, as thus discerned. 
 We have now seen what I believe to be a complete and con- 
 sistent theory of distribution, constructed upon this basis. 
 
 The assumption that competition is always and every- 
 where perfect, implies a great deal. How much it implies, 
 let us, for a moment, stop to see. It implies, not only 
 that a man has the general intelligence and the special in- 
 formation to enable him to know, at any time, just what 
 would be for his own true, permanent, economic advantage; 
 but, also, that he will not be hindered by law or force or 
 custom or public opinion, or by his own ignorance, in- 
 dolence, fear or poverty, from seeking that object, steadily 
 and firmly, until he reaches it. Should his interest require 
 him to leave home, country and friends, he will not hesi- 
 tate to do so. Should better opportunities offer themselves 
 in other avocations, he will change his work, not less than 
 his place, in order to secure those advantages. 
 
 235. The United States as an Example. — It will be seen 
 that perfect competition requires a great deal: more, in- 
 
 261 
 
262 POLITICAL ECONOMY. 
 
 deed, than was ever found among any people. But, while 
 nothing less than this will answer all the requirements of 
 competition, something much less than this will yet answer 
 those requirements so far as to secure a reasonably har- 
 monious and beneficent distribution of wealth. 
 
 Let us take the Free States of the American Union be- 
 fore the War of Secession, as an illustration. Here a system 
 of public education had bred a population in which the 
 elements of knowledge were every man's possession. Not 
 only was the ability to read, write and cipher universal; 
 but the genius of the people was singularly alert, active 
 and inquisitive. What the American of those days did not 
 know about his own business, he was sure to know about 
 that of his neighbor. Political suffrage being universal, 
 the whole population had become accustomed to public dis- 
 cussion; and all had learned freely to communicate their 
 own views, quickly to gather the opinions of othei-s, and to 
 take part, with confidence, in the decision of important 
 questions. 
 
 This people, moreover, had an instinctive aptitude for 
 tools and a remarkable readiness for turning themselves to 
 any work which offered. The American farmer was a good 
 all-round mechanic; while the professional mechanics could, 
 if necessary, change their trade, almost over-night. The 
 habits of the population favored the freest movement. 
 From the first settlement of the country, men had made 
 less of going from the seaboard to the frontier than the 
 men of some countries make of going from one village to 
 the next. At the time of which we are speaking, not less 
 than one-fourth of the population were living in States 
 other than those in which they were born; another fourth, 
 probably, in Counties other than those in which they were 
 born. 
 
 We have only to add that, in a new country, as yet only 
 
POLITICAL ECONOMY. 263 
 
 half settled, the " margin of living*' had been so large as 
 to admit of almost universal saving: no man was too poor 
 to migrate, if he learned of superior advantages elsewhere, 
 and of these he was almost certain to learn, through news- 
 papers that went into nearly every house and cabin. 
 
 Tinder conditions such as the foregoing, every economic 
 advantage was quickly discerned and keenly pursued, and, 
 so, the actual distribution of wealth came very near to the 
 theoretical distribution which has been outlined in the pre- 
 ceding chapters. 
 
 236. An Illustration of Defective Competition. — In con- 
 trast with the Americans of that period, let us take, as an 
 illustration of how far competition might fail, among a 
 people of the same race, the England of 1824. Here no 
 system of public education had made the elements of 
 knowledge free to all. The heavily taxed newspapers were 
 for "gentlemen's reading," alone. The great body of the 
 working classes were excluded from the suffrage; and had 
 never been invited to the deliberations and decisions of 
 public policy. Twenty years of war, combined with heavy 
 duties laid on foreign breadstuffs, had forced cultivation, 
 within the island, down to almost the poorest soils, and had, 
 thus (par. 168), largely increased the share of the produce 
 going to the landlord class; while enormous taxes, due to 
 war and to war-debts, raised the price of the necessaries of 
 life to an intolerable pitch. The " margin of living" had 
 long been so small that savings were few; and the great 
 majority of working men were too poor to migrate, even 
 within the kingdom, had they been disposed. 
 
 In fact, however, their ignorance was so great that good op- 
 portunities, existing elsewhere, were most unlikely to come 
 to their notice. It only needs to be added that, for hun- 
 dreds of years, it had, by law, been a crime in England for 
 laborers to combine together to raise the rate of wages, or 
 
264 POLITICAL ECONOMY. 
 
 to shorten the day of labor, while masters had been, all the 
 time, free to combine to lower the rate of wages and to 
 lengthen the day of labor. The laborers, thus, unaccus- 
 tomed to act in concert, were without mutual intelligence 
 and without mutual support, if not jealous and suspicious 
 of each other, as rivals for employment. The masters, 
 strong in their position, their wealth and their knowledge, 
 formed a resolute and compact force, whether for defence 
 or for offence. 
 
 237. The Consequences of Defective Competition. — Such 
 was industrial England, in 1824. The lamentable defects 
 of so extensive a failure of competition could only be ade- 
 quately depicted in a volume. Wages had gone down and 
 down, and with them had gone, to an inconceivable depth, 
 the moral character and even the physical vigor of the 
 population. The laborers in the fields obtained a meaner 
 and scantier subsistence than the paupers in the alms- 
 houses.* Pauperism was, indeed, the best refuge for the 
 able-bodied. Even when opportunities for employment 
 existed in more favored localities, the peasants were too ig- 
 norant to learn of it, and too poor to migrate, had the in- 
 telligence been brought to them.f Within the districts 
 where labor was in excess, wages were whatever the masters 
 chose to offer. The power to resist had utterly departed 
 from the laborer. With every successive reduction of wages, 
 physical vigor declined; self-respect and social ambition re- 
 ceived heavier and still heavier blows; disease came in with 
 
 * The Poor Law Commissioners of 1833 reported that, while able- 
 bodied paupers received 151 oz. of food per week, the agricultural 
 laborer consumed but 132 oz. 
 
 f Even at a later period, a well-known statistician says: " A labor- 
 er's wages in Dorset or Devon are barely half the sum given for 
 similar services in the North of England. " And this state of things 
 continued for a generation, without a movement of labor sufficient to 
 correct the inequality. 
 
POLITICAL ECONOMY. 265 
 
 deadlier power; intemperance grew with misery; shameful 
 vice * became ever more obtrusive. 
 
 It is no hostile picture which I have drawn. More griev- 
 ous statements could be borne out by hundreds of volumes 
 written by Englishmen: many of them, official "blue 
 books." What has been described is simply the natural 
 effects of one-sided competition. On their part, the mas- 
 ters, actuated by no ill-feeling toward their laborers, but ear- 
 nestly seeking their own interests, and often sorely crowded 
 by each other, kept pushing, pushing, pushing against their 
 laborers, who, on their part, were utterly unable to resist 
 the fatal pressure. Had the men been alert, active, aggres- 
 sive, with equal rights of combination, thoroughly "posted" 
 as to the conditions of industry, confident in themselves 
 and trusting each other, the harder the masters pressed 
 against them, the better for all. What was wanted was, 
 not that the masters should be mild and yielding, but that 
 the workmen, too, should be resolute and firm. 
 
 238. A Loss which No Man Gains. — It is not, even, for 
 the interest of the employing class that their workmen 
 should easily give way, under pressure from them. If the 
 employers, themselves under a painful strain from competi- 
 tion (and it is always to be borne in mind that many em- 
 ployers can, at the best, only hope to make both ends meet), 
 crowd hard upon their laborers, in the matter of work and 
 wages, and the latter give way, immediate relief is, indeed, 
 afforded, but that relief is only temporary, while, in the 
 end, the effects are destructive. 
 
 Wages having, under pressure, fallen, prices follow them 
 down to the point where the least competent employers can, 
 again, only just get back their outlay in the sale of their 
 
 * "In many districts," says Miss Martineau, in her History of the 
 Peace, " it was scarcely possible to meet a young woman who was 
 respectable," 
 
266 POLITICAL ECONOMY. 
 
 goods. This having been brought about, these employers 
 are no better off than before. But how is it with the 
 laborers concerned ? Upon them the loss of wages, which 
 means scantier subsistence and meaner conditions, operates 
 to reduce at once their physical strength and their social 
 and industrial ambition (pars. 37-41 and 43-45); and they 
 are soon woi-th their lower wages no more than they were 
 formerly worth their higher wages. Here, then, is a loss 
 which no man gains. The employer is no better-off because 
 the laborer has been driven to lower wages and meaner con- 
 ditions, and deprived of much of his physical vigor and self- 
 respect. The laborer is infinitely worse-offo The State, 
 too, has sustained a painful and irreparable loss, in the 
 character of its citizenship. 
 
 239. Self-Assertion on the Part of the Laboring Class is 
 Essential to General Well-Being. — Nothing, economically 
 speaking, can save industrial society from progressive deg- 
 radation, except the spirit and the power in the working 
 classes to resist being crowded- down. The crowding must 
 take place. It is in the nature of trade and production. 
 If the workmen are active, alert, aggressive ; strong in 
 their self-respect and confident of their cause, that pres- 
 sure will do them no permanent harm. 
 
 Suppose you strike with a hammer into a bin of barley. 
 You bury the hammer up to your wrist in the barley: yet 
 you do not crush a single grain. Why not ? Because the 
 whole mass was free to move ; and no single grain had to 
 receive any considerable part of the blow. Lay one of 
 those grains upon a plank, and strike a blow a tenth part 
 as hard : you will smash it into a paste. Why? Because 
 the grain was not free to move ; and consequently had to 
 suffer the blow without escape. Let the stoutest ship 
 which ever rode-out a hundred gales, be lodged in the 
 s^nds, or caught between rocks ; and the waves whiqh 
 
POLITICAL ECONOMY. 267 
 
 smite her, as she is held fast in position, will, in a few 
 days or hours, break her up, and scatter mast and plank, 
 crew and cargo, in wreck along the shore. 
 
 A laboring population which is alive to its own interests 
 and prompt and strong in maintaining them, cannot be 
 crushed by any sudden calamity, or even by unremitting 
 pressure from the master class. If employment fails at 
 one point, hundreds or thousands will go to the places 
 where business is flourishing. If industry is prostrate all 
 over the land, such a population will be found to have re- 
 serves, in savings banks or in real estate, which will carry 
 them through to better times. If the conditions of indus- 
 try grow harder and harder, from year to year, such a pop- 
 ulation will withhold their increase, and thus gradually re- 
 duce the supply of labor. 
 
 But a population such as we have described, in the Eng- 
 land of 1824, only breed the faster, the more miserable they 
 become; only cling the closer to their place, the harder their 
 lot. Upon such a population industrial blows are sure to 
 fall, thick and fast ; and each blow does a damage never to 
 be repaired. There is almost no limit to the industrial and 
 social degradation which may come in this way. 
 
 240. Lowering the Industrial Character of the Employ- 
 ing Class. — I have said that it was of no permanent advan- 
 tage to the employer to reduce wages by economic pressure; 
 while it was of great and lasting injury to the laboring 
 class. There is another effect of imperfect competition, as 
 between laborer and employer, which deserves to be noted. 
 The inevitable result is to bring into business a poorer class 
 of employers; and thus to reduce the margin of produc- 
 tion, in this respect ; and thus (par. 195) to still further 
 injure the laboring class and the whole community. 
 
 If the laboring class are active, alert and aggressive in 
 the pursuit of their interests, the employing class will be 
 
268 POLITICAL ECONOMY. 
 
 continually sifted ; its weakest members will be thrown- 
 out ; and the whole class will undergo an unceasing educa- 
 tion, in all that relates to their business. If, on the other 
 hand, the laborers are ignorant, stupid, inert, great num- 
 bers of incompetent men will get into the control of in- 
 dustry, and sustain themselves there, at the expense of the 
 community, and of the laboring class in particular. The 
 poorer the man, the poorer the master. The unprofitable- 
 ness of slave labor was not due more to the inefficiency of 
 the slave than to the shiftlessness of the management. 
 Men will become the employers of poor labor who would 
 never become the employers of good labor, and who ought 
 not to be the employers of any kind of labor. 
 
 241. The Repeal of the Corn Laws. — An excellent illus- 
 tration of the effects of increased competition, in improv- 
 ing the character of the employing class, is to be found in 
 the history of English agriculture, before and after the re- 
 peal of the Corn Laws, in 1846. While Parliament was 
 discussing that measure, there were numberless farmers 
 who could appear before committees, or write letters to 
 the newspapers, showing that they were only just able to 
 make both ends meet, at existing prices for produce. If, 
 then, prices were to be lowered, by allowing foreign bread- 
 stuffs to come in free, it was as clear as the nose on your 
 face that English agriculture would be ruined. 
 
 As to the facts, there could be no question. These 
 farmers were perfectly honest in their statements. Never- 
 theless, Parliament repealed the Corn Laws. Was Eng- 
 lish agriculture ruined ? Far from it. Many of the old 
 ignorant, hard-drinking, horse-racing, fox-hunting farmers 
 were, indeed, driven out ; but their places were more than 
 taken by a new race, who studied their business, worked 
 hard, bought superior machinery; introduced improved 
 breeds of cattle ; frequented the agricultural fairs, not for 
 
POLITICAL tlGONOMt. ^6D 
 
 a "good time/' but to get hints for the management of 
 their farms. As a result, English agriculture gained more 
 during the twent3^-five years which followed 1850, than 
 during the seventy-five years which preceded it. 
 
 242. Other Causes which Help to Swell the Proportion of 
 Incompetent Employers. — There are many other causes 
 which help swell the proportion of incompetent employers. 
 Shilly-shally laws relating to insolvency do this ; bad 
 money does this, in a high degree ; truck (that is the pay- 
 ment of workmen in goods, at the employer's store, instead 
 of in money) does this ; protection, also, in my opinion, 
 does this. Each of these causes enables employers to es- 
 cape the consequences of incompetency, and to hang miser- 
 ably on to business, where they are an obstruction and a 
 nuisance. 
 
 243. The Influence of Defective Competition upon Rents. 
 — We have seen that the normal rent of any piece of land 
 is determined by the excess of its productiveness over that 
 of the least fertile lands contributing to the supply of the 
 same market, at the same time. In theory, rents cannot 
 exceed the amounts thus determined. Should the landlord 
 attempt to exact a higher rate, tenants will move to the 
 no-rent land (whether found at home or in some distant 
 country) ; and thus protect themselves against such exac- 
 tions. Under perfect competition, rent can only carry 
 away the proper Surplus, as we have defined it. But how 
 if competition be imperfect ? 
 
 244. Rents in Ireland. — We have illustrated the effects 
 of imperfect competition upon wages, by a reference to the 
 condition of the working classes in England, prior to 1825. 
 Let us illustrate the effects of imperfect competition upon 
 rents by a brief reference to the condition of the tenant 
 class in Ireland, prior to 1850. Unfortunate as were the 
 relations between laborer and employer in England, at the 
 
270 POLITICAL ECONOMY. 
 
 time spoken of, the relations between landlord and tenant 
 in Ireland were even worse. 
 
 In the first place, the Irish peasant was peculiarly ill 
 fitted for a close competition with his landlord. He was, 
 by nature, sanguine, impulsive, careless in expenditure, 
 perhaps it is not too much to say, improvident. He was 
 not much given to looking far ahead; while, in the present, 
 he was sociable and generous to a fault. Had, however, 
 the landlord class been of his own race and bound to him 
 by common sympathies, the peculiarities of the Irish tem- 
 perament might not have resulted in serious harm. Most 
 unfortunately, the landlords of Ireland, at this time, were 
 largely of a different race and a different religion. The 
 two classes were not only, thus, alien to each other ; they 
 had been made hostile by mutual injuries. 
 
 Even this was not the worst of the case. A large part of 
 the Irish landowners were '^absentees," expending in 
 foreign lands the rents which were wrung from the peas- 
 antry by middle-men, or agents resident on the soil. 
 Generally speaking, these middle-men and agents were a 
 peculiarly hard sort of men. They had been selected for 
 their skill in searching-out every possible means of exac- 
 tion, and for their unflinching resolution in exacting the 
 last penny, even by '^ distraint" or eviction. The hatred 
 with which they were regarded by the peasantry only made 
 them the harder. The dangers to which they were exposed, 
 in their cruel work, destroyed every feeling of compassion 
 in their hearts. 
 
 245. Over-Population. — We have said that the Irish peas- 
 antry were peculiarly ill qualified for such a competition 
 by their national characteristics. But that which put 
 them at the greatest disadvantage was the recklessness with 
 which they increased their numbers. The more miserable 
 they were, the earlier they married, the more freely they 
 
POLITICAL tICONOMT. 271 
 
 brought forth children. By this it came about that popu- 
 lation soon came to be greatly in excess ; and the wretched 
 peasantry were driven to compete with each other, with 
 ever increasing eagerness, for the poor privilege of cultivat- 
 ing each small parcel of ground. 
 
 It was through such a state of unequal competition, that 
 the Irish peasantry were reduced to that condition of uni- 
 versal and hopeless poverty which the great famine of 
 1846-7 brought so vividly to public attention, filling the 
 world with horror. Eents had been increased, step by 
 step, until, in a large proportion of instances, the sums 
 which the peasants had promised to pay were, incredible 
 as it may seem, actually in excess of the whole produce of 
 the soil ! Of course, such rents could not be paid. The 
 peasant had to live ; and consequently the landlord had 
 to allow him something on which to live. But his food 
 was of the most scanty and miserable character ; rags were 
 his clothing ; his bed, a heap of straw ; his hovel, a pen 
 only fit for swine. Even so, the peasant was always in 
 arrears to his landlord, which fact gave the agent still 
 greater power over him, and made it still harder for him 
 to improve his lot. 
 
CHAPTER XXV. 
 
 WHAT MAY BE DONE TO HELP THE WORKIKG 
 
 CLASSES. 
 
 246. "What was Done in England. — If such are the evil 
 consequences of an economic pressure to which the labor- 
 ing classes are unable adequately to respond, the question 
 arises, what, if anything, can be done, in such a state, to 
 help them ? We shall, perhaps, best answer this question 
 by telling, very briefly, what actually was done in England. 
 
 247. Trade-Unions. — In 1824-5, Parliament, under the 
 enlightened leadership of William Huskisson, repealed the 
 laws which had forbidden workmen to combine to raise 
 wages or shorten the day of labor, or alter the terms or con- 
 ditions of employment. Of this the working classes at once 
 took advantage, to form Trade-Unions, in which men of the 
 same trade joined together to promote their common in- 
 terest. These Unions collected money from their mem- 
 bers, through weekly or monthly fees ; kept up correspond- 
 ence with other unions, in other places ; assisted the sick 
 and disabled of their own number ; and, when they deemed 
 the occasion propitious, made demands upon the employing 
 class, which demands they stood ready to enforce, if neces- 
 sary, by Strikes, that is, by concerted refusal to work at the 
 old terms. 
 
 In the' miserable condition to which they had been re- 
 duced by the causes indicated in paragraph 236, ignorant, 
 poor, unfamiliar with affairs, the laborers, in their new 
 efforts, for awhile made many and great mistakes. Noisy 
 
 272 
 
POLITICAL ECONOMY. 273 
 
 and turbulent, or sly and plausible, men got the leadership, 
 as is always the case at first. These misled the well-meaning 
 and excited the bad. Demands were made upon employ- 
 ers which could not properly be granted ; and those de- 
 mands it was sometimes sought to enforce, not only by 
 strikes, which were lawful and right, but also by violence, 
 which was unlawful and wrong. In many of the contests 
 which ensued, the laborers were beaten; and, after suffer- 
 ing untold losses, were obliged to go back to work, at the 
 old wages and for the old hours. Still they persisted, with 
 wonderful courage and admirable fidelity to each other. 
 Beaten again and again, they again and again returned to 
 the attack. Even when they were beaten outright and 
 completely, the masters were yet learning to fear and to 
 respect them, as they had never done in the times when it 
 was the theory, alike of the law, and of the master, and of 
 the economist, that laborers had nothing whatever to do 
 with fixing their own wages, but should take whatever was 
 offered them, in silence and thankfulness. 
 
 248. Education of the Working Classes. — Meanwhile, the 
 working classes were learning both their own power and 
 the limitations of that power ; were coming to have confi- 
 dence in themselves and in each other ; were beginning to 
 see the difference between noisy demagogues and true 
 leaders. Better men were comi-ng to the front among them. 
 The times taken for making demands were more wisely 
 chosen. The demands themselves were more reasonable. 
 The tone and manner in which these demands were made 
 were more conciliatory and respectful. More and more, 
 demands thus made were conceded without a contest, or 
 won after a hard fight. But, whether the working men 
 won or lost the particular thing they were struggling for, 
 they were, all the while, gaining knowledge of themselves 
 and commanding the respect of the employing class. 
 
974 POLITICAL SlCONOMY. 
 
 249. Factory-Acts Passed. — While this series of indus- 
 trial insurrections was going on. Parliament, moved by 
 many enlightened and philanthropic men, was doing what 
 it could to raise the condition of the people. Factory-Acts, 
 so-called, were passed, which limited the hours of labor to 
 what was consistent with health and strength ; which re- 
 stricted the employment of young children ; which forbade 
 women to work underground in mines, or in othcjr avoca- 
 tions unsuited to their sex ; which required dangerous 
 machinery to be fenced or guarded, so as to protect life 
 and limb ; which provided for the sanitary regulation and 
 inspection of factory buildings. 
 
 250. Other Remedial Legislation. — Acts were also passed 
 which established banks to protect the first small savings 
 of the very poor; the suffrage was extended; taxes which 
 pressed with peculiar hardship on the masses were repealed; 
 the stamp duties were removed from the newspapers. 
 Measure after measure, conceived in the true spirit of 
 statesmanship, to help the people to help themselves, 
 became laws, in quick succession. Aided, thus, by judi- 
 cious legislation, but striving ever more and more to aid 
 themselves, the British laboring class climbed upward, out 
 of " the horrible pit and miry clay" in which they had 
 been left by the abuse and neglect of centuries ; and began 
 to take their true place in society. 
 
 There was still a great deal of drunkenness, riot and coarse 
 vice, a great deal of wastefulness and foolish expenditure 
 of means hardly earned. But, in spite of all, the long his- 
 tory of mankind has no other chapter which is so full of 
 promise, as that which tells of the rise of the working 
 classes of England from 1 825 to the present time. The 
 British laborer of to-day differs as widely from the British 
 laborer of the early time, as if he were, in the phrase of 
 Edmund Burke, " a different species of animal." 
 
POLITICAL EGOmMY. ^iH 
 
 251. Factory- Acts Considered. — The present Duke of 
 Argyle, in his Re'gn of Law, declares that the necessity 
 and economic benefit of factory legislation, like that of 
 England to which we have referred, constitutes one of the 
 greatest discoveries of the nineteenth century, in the sci- 
 ence of government. Certainly, although these acts were 
 at first opposed by many statesmen and by most econ- 
 omists, they have been, in the result, approved by experi- 
 ence, and have been copied, with more or less of change, 
 by nearly all civilized governments. It has now passed be- 
 yond question, that it is desirable that mill-owners and 
 large employers of labor, should be, by law, restrained from 
 doing (whether under the impulse of avarice, or under 
 painful pressure from competition) certain things which 
 are clearly prejudicial to their operatives, and which can, 
 in the long run, do no good to themselves. Such acts, if 
 wisely conceived and sensibly administered, are a protection 
 not less to the employer than to the laborer. They do no 
 harm to any, but only good to all. The master class them- 
 selves ought to be glad that it is forever put out of their 
 power to do the things* which are prohibited by these 
 measures. Within the limits where the law still leaves 
 them free to act, the ablest of employers will find abun- 
 dant scope for the exercise of all his energy, enterprise and 
 skill. 
 
 To the laboring class, on the other hand, seeking their 
 
 * The beginning of the present century found children of five, 
 and even of three, years of age, in England, working in factories 
 and brickyards; found women working underground in mines, har- 
 nessed with mules to carts, drawing heavy loads; found the hours 
 of labor whatever the avarice of individual mill-owners might exact, 
 were it thirteen, or fourteen or fifteen ; found no guards about ma- 
 chinery, to protect life and limb; found the air of the factories fouler 
 than language could describe, even could human ears endure to hear 
 the story. 
 
^6 POLITICAL ECOmMY. 
 
 own interests through much perplexity and against many 
 obstacles, factory legislation gives a certain definite, solid, 
 unshakable ground, on which they can securely build, in 
 their further efforts. Below this, the force of competition, 
 the effects of shocks and catastrophes cannot come. This 
 much, at least, is secure. 
 
 252. How about Freedom of Contract ? — The objection 
 made to factory legislation has been that it interferes with 
 the freedom of contract. But what is freedom,* so far as 
 practical men are concerned with it ? Is it an empty right 
 to do something which you cannot possibly do ? or is it a 
 real power to do that one, out of many things, which you 
 shall choose ? If one course gives a man a legal right to 
 do anything, but results in his being so helpless, and brings 
 him into such miserable straits, that he can, in fact, do but 
 one thing, and that, a thing which is most distressing; 
 while another course, though it keeps a man from going 
 hither and thither, actually conducts him to a position 
 where he has a real choice, among many and good things — 
 which course affords the largei* liberty ? 
 
 In the case of a poor and ignorant population, the ab- 
 sence of factory-acts, while it nominally leaves the opera- 
 tive free to go anywhere and do whatever he likes, really 
 results in his staying where he is, and doing what he par- 
 ticularly dislikes. He becomes the slave of the mill, bound 
 fast to the great wheel which turns and turns below. 
 Theoretically, he will not work in any factory in which the 
 sanitary arrangements do not suit the most fastidious tastes; 
 in which machinery is not fenced, to prevent murder and 
 
 * "The modern English citizen, who lives under the burden of 
 the revised edition of the Statutes, not to speak of innumerable muni- 
 cipal, railroad, sanitary and other by-laws, is, after all, an infinitely 
 FREER, as well as nobler, creature than the savage who is always 
 under the despotism of physical want." — Prof. Jevons. 
 
POLITICAL ECONOMY. 277 
 
 mutilation; and in which the hours are not agreeably 
 short. Theoretically, too, he will place himself with refer- 
 ence to the comfort of his family, and to the education of 
 his children for a career better than his own. 
 
 Practically, he will have no choice but to work as long as 
 the great wheel turns, be that twelve hours or fourteen, or 
 else go out to starve ; he will every week see some of his 
 companions bruised and mangled by unguarded machinery; 
 he will breathe air which is deeply laden with poisonous 
 particles or gases. Practically, too, he will, under the pres- 
 sure of dire necessity, put his children into the mill just as 
 soon as he can get them there ; and in the mill they will 
 stay until they die. This is what will come to most labor- 
 ing populations, without factory-acts. Are such popula- 
 tions really freer than populations which are protected 
 by laws like those which we have described ? 
 
 A crutch acts only by restraint; and, to a perfectly 
 sound man, would be only a hindrance and a nuisance. 
 But is a cripple without a crutch a freer man than a 
 cripple with a crutch ? In his case, does not the crutch 
 correspond to an existing infirmity, in such a way that he 
 has a much greater liberty and power of action and of 
 movement, through its help : that is, through the restraint 
 it exercises ? 
 
 253. Trade-Unions Considered. — In the elevation of a 
 laboring population, long abused and deeply abased, trade- 
 unions may perform a part of much importance, although 
 always at the risk of doing harm rather than good. That 
 risk, however, men have frequently to take in the pursuit 
 of a desirable social object ; and the history of industry 
 shows that, on the whole, the good has predominated over 
 the evil, in the work of trade-unions. 
 
 Trade-unions, as means for advancing the condition of 
 the working classes, are subject to drawbacks which do not 
 
278 POLITICAL ECONOMY. 
 
 attend factory-acts. There is no reason why the effects of 
 the latter should not be altogether for good. The things 
 which are to be prohibited are things which, in any broad 
 view, are seen to be injurious to all. Tlie things which are 
 required are things which really benefit both parties to the 
 contract for labor. Within the lines drawn by factory leg- 
 islation, the laborer and the employer are left free to seek 
 their several interests, and to exercise each his own powers 
 in his own way. But in the case of trade-unions, there is 
 a real and a great danger that mischief will be done. 
 There is a strong and a constant liability to begin courses 
 which can only result in injury to the general community, 
 and to both parties to the contract for labor : most of all, 
 to the laborer himself. The trade-union is not only an 
 edged but a two-edged tool, which is highly dangerous to 
 those who wield it carelessly or wantonly. 
 
 254. Abuse of Trade-Unions. — Trade-unions, viewed 
 merely as Friendly Societies, insuring their members 
 against the effects of sickness or accident, promoting good 
 fellowship and exerting a certain social influence through- 
 out the craft, are, of course, beyond objection. But trade- 
 unions, as bodies seeking to legislate concerning the ways 
 in which industry shall be carried on, and to enforce that 
 legislation by industrial war, are subject to many evil lia- 
 bilities. 
 
 It would greatly surprise one who had not studied the 
 subject to read the foolish and mischievous rules which 
 many trade-unions have established for the government of 
 their own members, and have attempted to enforce upon 
 employers. It would be difficult to say, in regard to some 
 of these codes, whether gross ignorance as to the primary 
 conditions of production, or a spirit which delighted in 
 humiliating and harassing employers, had played the 
 greater part. In not a few instances such regulations have 
 
POLITICAL ECONOMY. 279 
 
 led to bitter contests, in which the interests of both parties 
 have been sacrificed. 
 
 I prefer to say the worst that is to be said regarding 
 trade-unions, at the beginning, rather than at the end. 
 In addition to extreme instances of folly or mischief-mak- 
 ing, there is a great deal in the regulations which trade- 
 unions, in America, in England and elsewhere, have under- 
 taken to enforce, which has borne with unnecessary 
 severity upon the employing class ; has been unfair to the 
 outside mass of labor, waiting to be employed, and has 
 been, perhaps in no sudden and violent way, prejudicial to 
 industry and to the well-being of the community. 
 
 255. Education through Experience. — Whenever a body 
 of men have suddenly come into the possession of power, 
 they are apt to deem that power irresistible, and to pre- 
 sume greatly upon it. They are likely to fall under the 
 influence of the less moderate and fair-minded of their 
 own number. Only experience in affairs, with both good 
 and evil fortune, can teach men to use power without 
 abusing it. That experience is expensive; but it is the 
 price of industrial, as of political, freedom. 
 
 In England, where trade-unions, in their modern form, 
 first arose, there has been a steady progress towards mod- 
 eration, sound judgment and fairness, in dealing with 
 questions arising between laborer and employer. The char- 
 acter of the men chosen as leaders has continually improved; 
 their constituencies have grown in knowledge, in prudence 
 and in the respect paid to good advice. Strikes have 
 diminished from decade to decade; the proportion of dis- 
 putes adjusted by arbitration has increased. 
 
 Whether there is, or has ever been, any real industrial 
 occasion for trade-unions in the United States, is fairly a 
 matter of question. There certainly was none before the 
 War of Secession. If such an occasion has since arisen; 
 
280 POLITICAL ECONOMY. 
 
 if the welfare of the laboring classes now requires the ex- 
 istence of such associations, this is wholly on account of 
 the vast numbers of persons, not born upon our soil, not 
 bred under our laws, not educated in our schools, whom 
 the great prosperity of the country and the force of our 
 tariff-laws have drawn across the ocean, to make their home 
 here. 
 
 256. Strikes Considered. — The possible utility of strikes 
 has long been the subject of dispute. There was a time 
 when most educated men held that strikes were only and 
 always of evil. A somewhat different view has recently 
 come to prevail. 
 
 Strikes are the insurrections of labor. Like insurrec- 
 tions in the political body, they are justifiable on the part 
 of men whose rights or whose interests are threatened with 
 the gravest injury. In such a case, no one should, merely 
 for the sake of peace, wish to have any body of men too 
 weak or too cowardly to resist. For myself, I believe that 
 the fierce series of industrial revolts which, in England, 
 followed the repeal of the Combinations Acts were absolute- 
 ly necessary in order to break up the power of fear, of tra- 
 dition and of poverty, by which the minds of the working 
 classes of the kingdom had been so long held in bondage ; 
 absolutely necessary, in order to create among the laborers 
 the self-confidence, the social ambition and the sense of 
 mutual interest, which were needed for their development 
 into industrial and political manhood; absolutely neces- 
 sary, in order to teach the master class to respect their 
 workmen; absolutely necessary, in order to secure a fair 
 competition, equal on the two sides. 
 
 But, while strikes are, thus, under certain circumstances, 
 useful, it is only in the earlier stages of industrial progress. 
 Strikes have no positive virtue. They do not create wealth, 
 but only destroy it or impede its production. As soon as 
 
POLITICAL ECONOMY. 281 
 
 a body of workmen have fairly '^ pulled themselves to- 
 gether;" have taken the first steps in their own advance- 
 ment ; have got a little ahead in the world, they ought to 
 find better means than strikes, for securing their further 
 progress. They can generally, by active, energetic com- 
 petition, take a shorter and a surer way to economic pros- 
 perity, than through industrial warfare. 
 
 257. Strikes, the Last Resort. — Yet, behind all friendly 
 negotiations, all arbitrations and compromises, the strike 
 will always remain as the last resort, to give seriousness and 
 earnestness to the efforts of both parties to reach satisfac- 
 tory results, by mutual agreement. Perhaps the state of 
 things which at the present time exists in England repre- 
 sents, as fairly as could be expected, the true use of this 
 agency. Strikes now seldom take place in that country. 
 Both parties have reason to dread them and to shrink from 
 them. Long and bitter experience has made each party 
 painfully anxious to avoid that resort. In consequence, 
 the claims of laborers for advance of wages in good times, 
 the propositions of masters for reductions of wages made 
 necessary by bad times, are considered with an earnest de- 
 sire to find a solution satisfactory to both parties. 
 
 In such a state of the public mind, lightness, arrogance 
 and wantonness, disappear from the debate. The working 
 men are careful not to put forward demands which they can- 
 not make good, for that would injure their cause. Masters 
 are anxious to concede whatever can be fairly shown, to im- 
 partial judges, to be reasonable and right. 
 
 Such has been the improvement of the laborer's condi- 
 tion, through the causes already recited, that the two par- 
 ties are now not unevenly matched, in point of power. 
 Either party is strong enough to win the fight, if its cause 
 commands the sympathy, the respect, and, if needed, the 
 
282 POLITICAL ECONOMY. 
 
 pecuniary support of the outside community.* On the 
 other hand, neither party can expect to win if it is mani- 
 festly seeking to crowd the other "into a corner," or car- 
 ries on the conflict by unfair means. This is what should 
 be. Such an equilibrium between the two parties in inter- 
 est, with the general sense of all disinterested people and 
 all lovers of fair-play coming-in to turn the scale, is, per- 
 haps, the best result we can hope to attain, while the or- 
 ganization of industry remains substantially as at present. 
 
 * The effect of this has been shown, to a most remarkable degree, 
 in the great London strike of the present year— 1889 — when nearly 
 all the men of high position, in society, in business, and in the 
 church, gave open approval and support to the laborers, as against 
 the dock-companies ; and when large contributions of money flowed 
 in from all parts of the kingdom, and even from foreign countries. 
 
CHAPTER XXVI. 
 
 THE "PAUPER-LABOR" ARGUMENT FOR 
 "PROTECTION." 
 
 258. Are Low Wages Infectious ? — It was said, in para- 
 graph 156, that, not until we had passed through the whole 
 theory of the distribution of wealth, should we be in a 
 position to take up, to advantage, the argument for Pro- 
 tection which is known as the Pauper-Labor argument. 
 We may now briefly consider this subject. 
 
 The plea made, from this point of view, in favor of the 
 policy of protection, is that populations among which 
 wages are high and a respectable standard of living is main- 
 tained, cannot freely import the products of countries 
 where wages are low and the laboring classes are deeply 
 degraded, without, in time, losing their own economic 
 position of vantage, and becoming reduced to the same low 
 level as the least fortunate peoples with whom they trade. 
 
 259. Not between Non-Competing Countries. — It is, in 
 the first place, to be noted that any such lamentable result 
 need only be apprehended in case the more fortunate and 
 the less fortunate peoples are engaged in producing the 
 same kind of goods, or, else, goods which can largely be sub- 
 stituted for each other in use. 
 
 For example, the United States produce no tea. It can- 
 not, therefore, matter to us, except on grounds of hu- 
 manity, how miserably the peoples of the tea-producing 
 countries live. If wages in those countries are low, in 
 proportion to the work done, the people of the United 
 
 283 
 
284 POLITICAL ECONOMY. 
 
 States only get their tea the cheaper thereby. In the 
 same way, the tropical fruits which come hither will only 
 cost us less, the more miserably those who, in distant 
 lands, produce them, are compensated for their labor. 
 
 The evil effects which are anticipated can only occur 
 when the two peoples concerned are competing with each 
 other in selling the same kind of goods, or goods so nearly 
 alike in their uses that one kind can be substituted for 
 another. Manifestly this is so; and it is to this state of 
 things, only, that the Pauper-Labor argument applies. 
 
 260. How about Competing Countries? — But, if two 
 peoples are thus competing; is there danger that the low 
 wages and the miserable standard of living in one will 
 tend, through the course of trade, to infect the other? On 
 this point two things are to be said. 
 
 First, we must recur to the principle which governs 
 Normal Price. In Chapter X, we saw that the normal 
 price of any kind of goods is fixed, not by the cost of pro- 
 ducing this or that portion of the supply, but solely by the 
 cost of producing the last (considerable) portion of the 
 supply which is produced ^^at the greatest disadvantage." 
 
 If, then, a foreign nation produces a portion of the sup- 
 ply at greater advantage (let us, for argument's sake, say, 
 through employers being able to hire labor at lower wages), 
 this will not necessarily affect the price of those goods. 
 So long as the full supply of that kind of goods requires 
 that any considerable portion should be produced at a com- 
 parative disadvantage (due, let us say, to the payment of 
 higher wages) in other countries, the price will be deter- 
 mined by the cost of production in these countries, and not 
 in the former country.* It would not, then, be until the 
 
 * Here we have a sufficient reply to the objection which is made 
 to allowing " convict labor," in prisons and reformatories, to be em- 
 ployed in making goods for the market. It is said that, as this labor 
 
POLITICAL ECONOMY. S86 
 
 former country could so increase its production as to bring 
 forward the whole supply required, that prices would fall 
 to a point corresponding to the low wages there paid. 
 
 Secondly. But do low wages necessarily, or generally, 
 constitute an advantage in production, which would allow 
 the countries where sucli wages prevail to undersell those 
 in which high wages prevail ? On this point we refer to 
 considerations pointed out in Chapter VI. 
 
 261. High Wages: Low Cost of Production. — There is 
 apt to be a great deal of confusion in the public mind re- 
 garding the difference between high or low ivages, and a 
 high or low cost of production. The cost of production 
 may be low when wages are high, because the laborers may 
 be so energetic and efficient, so skilful and so careful, tliat 
 the employer may get back even those high wages in the 
 price of his product. 
 
 The cost of production may be high when wages are low, 
 because the labor purchased thereby may be so unintelli- 
 gent, shiftless and wasteful, so lacking in energy and in- 
 spiration, that the employer may find it difficult, perhaps 
 impossible, to get back those wages, mean as they are, in 
 the price of the product. Not only may this be so; but it 
 often, and, indeed, generally, is so. High wages are com- 
 monly, habitually, found associated with a low cost of pro- 
 duction. Low wages are, quite as generally, found asso- 
 ciated with a high cost of production. 
 
 262. Practical Illustrations. — The English cotton-spinner 
 receives as many shillings, a week, as the East India cotton- 
 costs little (the State being obliged, for the public safety, to subsist 
 the convicts, whether employed or not), the wages of honest, free 
 labor will be reduced by such competition. But the goods produced 
 by convict labor, in general, constitute a small, often an incon- 
 siderably small, part of the supply. Their cost of production, at a 
 relative advantage (through a low cost for labor), does not, therefore, 
 fix the price. 
 
286 POLITICAL ECONOMY. 
 
 Bpinnei' receives pence; yet English cottons undersell Indian 
 cottons in Indian markets. The German iron-maker re- 
 ceives two or three times as much wages as the Eussian; 
 yet German iron has to be kept out of Eussia by heavy 
 duties. On the other hand, the English iron-maker re- 
 ceives two or three times the wages of the German; yet 
 Germany feels under a terrible necessity to keep out the 
 iron of England. 
 
 Illustrations might be multiplied; but one more will suf- 
 fice. In a report made by Mr. Blaine, as Secretary of State, 
 June 25, 1881, occurs the following statement regarding 
 the cotton manufacture of England and the United States: 
 
 " It thus appears that each American operative works-up 
 as much raw material as two British operatives ; turns out 
 nearly 11.50 worth of manufactures to the British opera- 
 tive's %1 worth; and, even in piece-goods, where the superior 
 quality and weight of the American goods are so marked, 
 the American operative turns out 2.75 yards, to 2.50 yards 
 by the British operative." 
 
 263. The Reason for the Rule. — The reason for this 
 association of high wages with low cost of production is 
 perfectly plain. As shown in Chapter VI, the laborer's 
 efficiency is, in great part, the immediate product of his 
 wages. So far as the laborer's efficiency is the immediate 
 product of his wages, that efficiency should increase at least 
 proportionally with his wages. In fact, it will, within wide 
 limits, increase more than proportionally, very much more. 
 An underfed and ill-clothed laborer (and most of the 
 laborers of the world are underfed and ill-clothed) does not 
 develop labor-power in proportion to the meagre subsist- 
 ence allowed him. A laborer receiving 150 ounces of solid 
 food a week, can perform not merely one-half more of 
 effective work than a laborer receiving 100 ounces: he 
 can probably do twice as much. So far as food, alone, is 
 
POLITICAL ECONOMY. 287 
 
 concerned, it is unquestionably true that, until the economic 
 maximum has been reached (and that maximum is very 
 unlikely to be reached), productive power is developed at 
 a continually increasing ratio. So far, therefore, as wages 
 go to food, there is the best possible reason why high wages 
 should be associated with a Jow cost of production. 
 
 How is it with the other elements of personal consump- 
 tion, to which wages are applied ? That the same principle 
 operates in respect to that portion of wages which is ap- 
 plied to clothing and to securing comfortable and whole- 
 some lodging is, I believe, abundantly established. But 
 how about those parts of wages which go to what we may 
 call the decencies and luxuries of life ? Do these constitute 
 a force, of which efficiency in labor is the direct and 
 necessary product ? 
 
 Generally speaking, it has been shown, on the widest scale, 
 that the self-respect, the domestic and social ambition, the 
 hopefulness and cheerfulness, which arise out of such en- 
 joyments and the further prospect of such enjoyments, on 
 the part of the laboring classes, generate an industrial force 
 (pars. 4S-5) which as fully repays its cost (that is, the 
 price of such enjoyments) as does any equal expenditure 
 upon the necessaries of life. I should regard any person 
 as very unfortunate in his opportunities for the observation 
 of human life, or still more unfortunate in the spirit he 
 brought to that observation, who should deny that the 
 foregoing statements are largely, and even generally, true. 
 
 264. Does this Rule hold Universally ? — But is this prin- 
 ciple, that industrial efficiency (within reasonable limits, of 
 course) increases at least proportionally, and tends to in- 
 crease more than proportionally, to increase of wages, 
 temperately and virtuously applied, a principle of universal 
 applicability ? Is it equally true, when the increase is large 
 and sudden, coming to men who have previously lived in 
 
^88 POLITICAL tICONOMT. 
 
 squalor and who have comparatively little susceptibility to 
 moral and intellectual motives, as when the increase of 
 wages is moderate and gradual, coming to men who have 
 heretofore been accustomed to decent and comfortable 
 habits of living ? 
 
 Is it equally true, when the increase of wages occurs 
 within a branch of industry where the work is such as gives 
 little opportunity for the exercise of intelUgence, of care in 
 the use of tools and machines, of ingenuity and prudence 
 in the prevention of waste, and where the rate of the 
 laborer's motions is practically determined by the movements 
 of machinery, as it would be, were the increase of wages to 
 occur within a branch of industry offering large possibili- 
 ties to the physical, moral and intellectual activity of the 
 laborer ? 
 
 265. To Come Down to Particular Cases. — Is it equally 
 true that an increase of wages would produce a correspond- 
 ing increase of working power, in the case of Hungarians, 
 or of Poles, or of South Italians, as in the case of native 
 Americans or of Scotchmen or of Saxons ? Is it equally 
 true in case of men employed in a cotton mill, as in the 
 case of men working in a shoe shop, or a watch factory, or 
 a machine shop ? If this be not so, I am not sure that the 
 answer which the free trader has habitually made to the 
 protectionist, at this point, is quite as conclusive as people 
 of my own general way of thinking have been accustomed 
 to regard it. 
 
 As to the universality of the principle, that high wages 
 mean a low cost of production, I confess I am not confident. 
 That among a generous and well-bred people, socially ambi- 
 tious, self-respectful and intelligent, successive advances of 
 wages, by moderate degrees, would, up to a certain, high, 
 point, generate increments of productive force propor- 
 
POLITICAL ECONOMY. 289 
 
 tional, or even more than proportional, I entertain no 
 doubt whatsoever. 
 
 266. Conclusion.— If the proposition of the free trader, 
 that industrial efficiency, increases correspondingly to in- 
 crease of wages, is universally true, then the protectionist 
 has no ground to stand upon. No case exists such as he 
 assumes. If American wages, for example, are exception- 
 ally high, then it must be true that the foreign manufac- 
 turer pays as much, and probably more, for the same 
 
 AMOUNT OF WORK, OF THE SAME KIJ^fD AND QUALITY. 
 
 If, on the other hand, the principle laid down be not 
 universally true, then the case which the protectionist has in 
 mind may arise, viz., where the American manufacturer, in 
 branches of industry peculiarly unresponsive to the physical, 
 intellectual and moral invigoration of their operatives, does, 
 in fact, pay higher wages, for a given amount and kind of 
 work, than is paid abroad. In this case, there would be a 
 real, no longer a merely nominal, disadvantage in the cost 
 of production, on the part of American manufacturers. 
 That disadvantage the protectionist would seek to counter- 
 balance, by weighting down the corresponding foreign 
 products by means of customs-duties. 
 
 But, in such a case, the question would arise as to the 
 wisdom of the legislation which brought such industries 
 into being, in a country whose people were fitted for higher 
 work, and which invited, and, in a sense, compelled, to 
 come to our shores such large numbers of persons whose 
 descent, education and early experiences only fit them to 
 take part in industries which are, as we said, '^ peculiarly 
 unresponsive to the physical, intellectual and moral invig- 
 oration of their operatives/' If government lets industry 
 alone, in a country having an intelligent, spirited and 
 frugal population, only those branches of manufacture will 
 arise which are of a nature to allow relatively high wages 
 
^OO POLITICAL EGOlfOMT. 
 
 to be paid without increasing the actual cost of produc- 
 tion. 
 
 It will be seen that, in the view taken above, protection 
 is, at the best, only a means of defending the woi*king 
 classes against the effects of a competition to which they 
 are unequal, by reason of their ignorance, or indolence, or 
 lack of self-respect and social ambition, or by reason of 
 abuses and wrongs to which they have been subjected in 
 the past. This chapter, then, is really a part of Chapter 
 XXV. Among a generous, self-respectful, well-bred and 
 well-educated people, applying themselves to the higher 
 departments of industry, no such artificial protection, or 
 support, will be required. 
 
CHAPTER XXVII. 
 THE CONSUMPTION OF WEALTH. 
 
 267. The Meaning of the Term.— By the term, Con- 
 sumption, in political economy, we signify the use made 
 of wealth. We have seen how wealth is produced and ex- 
 changed. We have inquired respecting the forces which 
 distribute the product of industry. We are now to ask, 
 what men shall do with the shares they receive in that 
 distribution. 
 
 The consumption of wealth is not identical with its 
 destruction. To be sure, most forms of wealth that are 
 put to use do, sooner or later, disappear ; but to most of 
 them this would happen, in time, whether they were used 
 or not. We do not wait until an item of wealth has been 
 destroyed by use, before we speak of it as consumed. It 
 is, in the economic sense, consumed when it is put to its 
 destined use, although the material of it may last for a 
 long time thereafter. Cloth is consumed, as cloth, when 
 it is made into garments. The garments are consumed, in 
 the economic sense, when they pass to their destined 
 wearer, although they may still be good for years. Iron 
 beams and bars and rods are, in the economic sense, con- 
 sumed when they are built into the frame of a bridge. 
 The bridge, however, remains to carry passengers and 
 freight for generations. 
 
 268. The Importance of Consumption. — Many, indeed 
 most, economists have left consumption altogether out of 
 
 291 
 
292 POLITICAL ECONOMY. 
 
 their treatises, holding that it was not their business, to go 
 into that subject. But, surely, if we are studying political 
 economy because of the importance of wealth to human 
 welfare, or to the strength and stability of the State, we 
 cannot afford to pass-by the questions of consumption. In 
 the case of any people, the ways in which they are con- 
 suming their wealth — that is, the uses to which they are 
 putting it — are of far more consequence than the present 
 amount of that wealth. In the case of a nation, as of an 
 individual, very large accumulations, with foolish or vi- 
 cious modes of expenditure, may intimate a less prosperous 
 future than a moderate stock, which is being used temper- 
 ately and wisely. 
 
 Existing wealth may be applied to ends which inspire 
 social ambition, which restrict population within limits 
 consistent with the general welfare, which increase the 
 efficiency of the laborer and supply instruments for mak- 
 ing his labor still more productive ; or it may be used in 
 ways which encourage the undue increase of population, 
 bringing-in poverty, squalor and disease ; in ways which 
 debauch the laborer, morally and physically, striking at 
 both his power and his disposition to work hard and con- 
 tinuously. The completeness with which the French peo- 
 ple, through their temperance, frugality and industry, 
 made up in a few years the terrific fines and losses of the 
 German war (1870-1), affords a very striking illustration 
 of the virtue there is in the labor-power of a country rap- 
 idly to replace its capital, provided only a right consump- 
 tion of wealth be assured. 
 
 The secret of a nation's rise or decline in prosperity is 
 not to be found chiefly in its situation and natural advan- 
 tages for commerce ; not in its soil and climate ; not in its 
 good or evil fortune ; not in the malice of its enemies or in 
 the help of its allies. That secret lies in the use which 
 
POLITICAL ECONOMY. 293 
 
 the nation makes of the wealth, be that ample or scanty, 
 which its powers and resources enable it to produce. 
 
 '* What will he do with it T' is the question which is 
 asked (not spoken) of every man, at every turn of life : 
 what will he do with the new opportunity : how will he 
 meet the new danger : to what use will he put the treasure 
 that has fallen at his feet ? Eminently, in regard to the 
 wealth of nations, " What will they do with it '^" is the 
 question of questions. 
 
 269. Population. — The use which, in a primitive com- 
 munity, is most likely to be made of existing wealth is to 
 support an increasing population. Let us take the case of 
 a tribe, occupying a district of moderate extent, cultivat- 
 ing the soil of the fertile valley of their native stream, 
 pasturing their cattle and sheep on the mountain sides, 
 and practising certain rude mechanic arts. Now, in such 
 a state, the instincts and appetites which lead to the 
 multiplication of numhe^'s will be those which are earliest 
 and most strongly felt, after the appetites which crave 
 food and warmth. The food may be coarse, all of one 
 kind, prepared without skill, eaten on the ground. The 
 desired warmth may be obtained in close hovels, or possi- 
 bly in caves, amid the foulest of air and the grossest of 
 filth. These things matter not. As soon as food and 
 warmth have been obtained, even in such a miserable way, 
 the appetites which lead men to marry and to breed after 
 their kind will make themselves felt ; and will thereafter 
 practically take possession of all the remaining wealth of 
 the community, to use it for their own purposes. 
 
 Now, the capabilities of human increase are vastly in 
 excess of the capability of supporting life, within any defined 
 field. Mankind have, over and over again, shown that, 
 under favorable conditions, population can be doubled in 
 twenty-five, in twenty-two, and, perhaps, even in twenty 
 
294 POLITICAL ECONOMY. 
 
 years, in spite of sickness, accidents and premature deaths. 
 If, then, the tribe we are speaking of numbers one thou- 
 sand, it may, at the end of one century (assuming that 
 population doubles itself in twenty-five years) contain six- 
 teen thousand souls. Had the valley and the mountain 
 sides been but sparsely settled at the beginning of the cen- 
 tury, the sixteen thousand, who would occupy these seats 
 at the end of the century, might be no more than a com- 
 fortable population. Indeed, the sixteen thousand might, 
 owing to the advantages of the division of labor, live bet- 
 ter than the one thousand did. 
 
 But, even if so, the quarter of a million of persons (256,- 
 000), who, at the end of another century, would take their 
 place, should increase go on in a geometrical ratio, would 
 probably be reduced to the last stages of human misery, 
 through the operation of the principle of Diminishing Ke- 
 turns in agriculture (Chap. V). Did famine, fever or inter- 
 necine war not come in to check the growth of population, 
 the quarter of a million would, at the end of still another 
 century, have grown to (4,096,000) more than four millions! 
 That population would, of course, be impossible. To pre- 
 vent such a result, famine and the fevers which feed on 
 the half-famished, would, every year or every few years, 
 sweep through the valley, cutting-off thousands at a time; 
 or, else, the unhappy inhabitants, driven to despair through 
 lack of food, would prey upon each other, or, under some 
 bold leader, would pour out of their valley, ^ great devas- 
 tating horde, to fight with neighboring tribes for the pos- 
 session of their land. 
 
 Such are the capabilities of human increase.* . If, then. 
 
 * The law of population, thus briefly set forth, bears the name of 
 Mr. Malthus, an English clergyman. The doctrine is called Mal- 
 tliusianisni, Mr. Malthus was, at the time, roundly abused for his 
 
POLITICAL ECONOMY. 295 
 
 the instincts and appetites which lead to the multiplication 
 of numbers are to remain (as they always are at the be- 
 ginning) the appetites which come next, in order and in 
 strength, after the desire for food and warmth, the history 
 of every tribe of men will be what we have described, and 
 no other. All the wealth which is left-over, after feeding, 
 clothing and housing, in the meanest manner, the existing 
 population, will be continually used-up in the attempt to 
 support an increasing population. There is, speaking 
 broadlj, no other consumption of wealth known to the 
 savage or the barbarous man. Even so, as we saw, all the 
 wealth available will not suffice to carry-on the natural 
 process for more than a century or two, without giving rise 
 to the most hideous physical evils. 
 
 270. Higher Economic Desires. — The question, then, 
 whether there is to be any other consumption of wealth — 
 whether, in fact, the beginnings of civilization are to be- 
 come possible — is the question, whether other economic de- 
 sires shall come to force themselves in front of the appetites 
 which lead to the multiplication of numbers. If this is not 
 to take place, no economic improvement will be possible ; 
 and all religious and social influences for the better, which 
 may be exerted from the outside upon any such tribe, will 
 be feeble and transient, like marks made upon the sands 
 which have been uncovered by the tide. 
 
 Observe : there are two reasons why it is to be desired 
 that other economic desires should come in, and, in some 
 degree, crowd-out the appetites which lead to the multi- 
 plication of numbers. 
 
 plain speaking. But people have now learned that the whole truth 
 should be spoken on this subject. If men will breed like vermin, 
 they must die like vermin. If men will be "lords of the universe," 
 they first must be lords of themselves. If they would be masters 
 of their conditions, they must be masters of their appetites. 
 
296 POLITICAL ECONOMY. 
 
 First, simply because only in this way is the frightful 
 round of over-population, famine, disease and internecine 
 war, with all its chaos of horrors, to be prevented. From 
 this point of view, it does not matter whether the new 
 economic desires are higher in their moral and social char- 
 acter, or not. Almost anything is better than that the 
 increase of population should not be, by some cause, 
 restrained. Secondly, because such other economic desires 
 are likely to be, or in time to become, higher and more 
 beneficent than those which they replace. 
 
 And, yet, those new desires are not likely to be, at 
 first, much higher. Mankind do not make progress by 
 leaps, but, at the best, by slow and painful steps, which 
 often slip, and often lead to falls. No great advancement 
 is to be expected, in the beginning, from people in the 
 stage of life which we have been considering. 
 
 The early economic desires of different communities vary 
 greatly. In one, the first want felt, after the absolute 
 necessaries of life are obtained, is of ornament and decora- 
 tion. Even when men are hardly covered from the cold 
 and scantily nourished, the passion for display makes its 
 appearance. In another community, the first want felt, 
 after the claims of bare subsistence are met, is of a 
 store for the future, as a provision against the caprices 
 of the seasons and the casualties of life. The first want 
 emerging in the life of another community may be of 
 wealth to be expended in worship and in honor of the 
 national or local deity. Millions of men may consent to 
 live squalidly, in order that a few temples may shine like 
 the sun, their altars sm^oke with unending sacrifices, their 
 priests walk resplendent with embroidered and jewelled 
 vestments. In still other communities, the new want may 
 take the form of a desire for a diversified diet, or for leis- 
 ure, or for some costly drug or drink, like the opium of 
 
POLITICAL ECONOMY. 297 
 
 the East Indian or the Chinaman, or the "fire-water" of 
 the North American Indian. 
 
 271. A Diversified Diet. — Doubtless, the want which has 
 been efficient on the largest scale, at once in promoting 
 labor and in restraining population, is the craving for a 
 diversified diet. Once let the sole diet of the barbarian, 
 be it fish, or flesh, or grain, be crossed by other species of 
 food, exciting the pleasure which resides in variety; and 
 an economic force has been introduced into the life of the 
 community which is capable of producing mighty results. 
 Probably this has been the lever by which more tribes and 
 races of men have been raised and kept, one degree at 
 least, above the condition of a population pressing all the 
 time upon the limits of subsistence, than by any other. 
 
 Although a diversified diet doubtless contributes, in some 
 degree, to health and vigor, it is yet a pure luxury, in the 
 sense that it is not sought upon that account, but wholly 
 for the gratification of appetite. It will seem strange to 
 the reader that a desire for objects of luxury should be 
 spoken of as having greater power to promote effort and to 
 check population than the fear of privation and actual 
 misery. Yet so it is ; and, as we go up the scale of human 
 wants and desires, we shall find that, in general, the higher 
 the want or desire, morally considered, the stronger it 
 proves to be. In an advanced civilization, mere senti- 
 ments and tastes, which involve the gratification of no 
 physical sense, impel men to the most painful and pro- 
 tracted exertions, and hold in check the strongest passions 
 of the lower nature. 
 
 272. A Rising Scale of Expenditure. — Contemplating a 
 community which has grown above the low desires which 
 control and completely master the barbarian; and which 
 has, by the force of higher personal wants, attained the 
 power of checking population, otherwise than through dis- 
 
298 POLITICAL ECONOMY. 
 
 ease and famine, we say that the entire future of such a 
 community depends upon the further growth of economic 
 wants among its members. If they are to remain content 
 with a low scale of personal expenditure, they will waste in 
 idleness or sport all the time which is gained for them by 
 improvements in the arts and by the discovery of new re- 
 sources in nature. 
 
 There have, indeed, been tribes of men who could remain 
 on such a low scale of living, and yet cultivate arts, letters 
 and philosophy, and apply their leisure to social and intel- 
 lectual improvement. Even so, however, such a civiliza- 
 tion is highly transient ; liable to be swept away by every 
 wave of foreign force, or broken-up by a single outburst of 
 domestic sedition. Generally speaking, it is only the na- 
 tions that are eager to improve their material condition 
 which cultivate the arts and increase in knowledge and in 
 refinement. It is such nations, alone, that can found a 
 permanent civilization. The reason for this is threefold. 
 
 First, the physical and mental activity to which men are 
 incited by the desire for greater wealth, with which to 
 purchase more of the comforts, decencies and luxuries of 
 life, constitutes, itself, the greatest of all means of intel- 
 lectual and moral education. By it, the faculties of the 
 barbarian are awakened from a torpor which is akin to 
 death; are stimulated to the highest pitch; are trained by 
 appropriate exercises, through which they continually gain 
 in strength, in suppleness, in persistency. By it, the low 
 desires, the brutal cravings, the gross vices of the barba- 
 rian are repressed; while nobler motives and higher tastes 
 come into consciousness and become, increasingly, the law 
 of life. It is in this way that the small-brained have grown 
 into the large-brained races. It is in this way that timid 
 and indolent peoples have developed into peoples that de- 
 light in encountering danger, in overcoming difficulties, in 
 
POLITICAL ECONOMY. 299 
 
 enduring hardships ; and whose spirit mounts with oppo- 
 sition. 
 
 273. Civilization. — Secondly, wealth, in its various forms, 
 furnishes the tools and the materials for the finer arts and 
 the higher studies ; furnishes, also, the means by which the 
 results of those arts and studies are extended and brought 
 to the knowledge and enjoyment of all. 
 
 Thirdl)^, every civilization which is not embodied in in- 
 stitutions, in permanent structures, in accumulated re- 
 sources, is always liable to fall rapidly away, under the 
 influence of physical disaster, or foreign hostility, or 
 through the mere force of weariness and disgust. It is 
 institutions, permanent structures, accumulated resources, 
 which enable each successive generation to hold firmly on 
 to the past, to go strongly through its own difficulties and 
 dangers, and to transmit the arts, tastes and powers which 
 it has inherited, unimpaired to its natural successors. 
 
 Man is distinguished from the other orders of animals 
 by his susceptibility to new desires. Those desires may, by 
 appropriate influences and by the course of experience, be 
 made to increase almost indefinitely, both in number and 
 in variety; and it is generally true that the latest desire 
 becomes the most urgent and persistent of the series. The 
 man of the modern state toils, night and day, to procure 
 for his children articles which do not minister to any bod- 
 ily sense, but are required by the existing standard of social 
 decency. The man of the primitive state will run the risk 
 of suffering and famine, to him and his, rather than make 
 the most moderate exertions and sacrifices to provide a 
 store for the future. 
 
 In this matter, as in everything else, " it is the first step 
 which costs." The greatest difficulty is in introducing 
 into the life of a people any tastes or desires, whatever, 
 beyond those fundamental wants of which we have spoken. 
 
300 POLITICAL ECONOMY. 
 
 Once let a community be lifted out of the mire of exist- 
 ence, by this lever, and new wants will come, thick and 
 fast, upon them. As soon as any new want is felt, their con- 
 dition will seem to them intolerable, unless that want can 
 be supplied ; and, so, the elevating and ennobling process 
 will go on, without a stop, unless some great catastrophe, 
 or some great debasing cause, shall enter to throw them 
 back into hopeless misery and social degradation. 
 
CHAPTER XXVIII. 
 SOME MISTAKEN NOTIONS ABOUT CONSUMPTION. 
 
 274. Prevalence of False Notions. — There is probably no 
 subject in political economy which is so much beset with 
 false notions as is the consumption of wealth. Persons 
 who have never thought much about the production, the 
 exchange or the distribution of wealth, are almost certain 
 to have their own ideas about its consumption ; and these 
 ideas are very apt to be erroneous. There would seem to 
 be something in the nature of the subject which makes it 
 difficult for men to see more than one side of any question 
 which concerns consumption. 
 
 275. The Destruction of Wealth. — We have seen that 
 most forms of wealth are necessarily destroyed, sooner or 
 later, by being used. Such a destruction of wealth is, of 
 course, neither to be rejoiced over nor to be regretted, 
 since these forms of wealth are produced with this very 
 result in view. But there is, among very large numbers 
 of persons in every community, a disposition to look at the 
 premature destruction of wealth by any cause, as something 
 either good in itself or, at any rate, having advantages to 
 counterbalance the loss sustained. In the common phrase, 
 it is supposed to *' create a demand for labor;" to *' en- 
 courage industry," etc. 
 
 The notion mentioned above is seldom found among 
 agriculturists. Men who have taken part in raising crops 
 are not much disposed to look at the destruction of those 
 
 301 
 
302 POLITICAL ECONOMY. 
 
 crops, or of the barns which shelter them, or of farm- 
 ing implements or machines, as bringing good to any one. 
 Among commercial and manufacturing populations, how- 
 ever, this belief is very prevalent. Working men are 
 apt to hold it ; domestic servants are perfectly sure that 
 their breakage " makes trade good '" even many highly 
 educated people cannot free themselves from the instinctive 
 feeling that the abrupt removal of existing wealth quickens 
 industry and promotes the general welfare. 
 
 276. Destruction Sometimes Means the Removal of Ob- 
 struction. — There are, of course, situations, where the de- 
 struction of wealth may have the effect to secure a larger 
 production, in the future. Thus, a man may occupy a 
 *' water privilege" with an old-fashioned badly-built mill, 
 which he cannot find it in his heart to tear down. He may 
 know that it would be better to do so ; but he puts it off 
 from year to year, doing what he can with the old mill and 
 its old machinery. Every year he gets further and further 
 behind, as new and better mills are built all around him. 
 One night a fire breaks out ; and a year later, a fine, large, 
 new mill occupies the site, in which a great deal more and 
 a great deal better work can be done. It is not unlikely 
 that, in five or ten years, the manufacturer, himself, will 
 be richer than he ever could have been with the old mill ; 
 while a larger number of operatives are engaged, at higher 
 wages, producing goods which are required for the clothing 
 of the community. 
 
 Again, two towns, on opposite sides of a river, may long 
 have put-up with a mean, narrow, unsafe and inconvenient 
 bridge, which has always been an obstruction to traffic. A 
 flood comes and carries the bridge down the river : where- 
 upon the towns unite in building one fully suited to their 
 needs, broad and firm, with ample approaches from both 
 sides. This may give such an expansion to the industrial 
 
POLITICAL ECONOMY. 303 
 
 activity of both towns as, in a short time, to more than 
 repay the cost of the new bridge. 
 
 Still again, it is an undoubted fact that the destruction, 
 by fire, of the old and crooked parts of certain cities, filled 
 with '^rookeries^^ and tumble-down houses, repulsive in 
 aspect and almost impassable to traffic, has led to a large 
 increase of wealth. It had long been known that that 
 "quarter^' was a nuisance and an obstruction to the growth 
 of the city and to the development of its trade. But each 
 property-holder felt that it was of no use for him to pull- 
 down his own miserable houses and to build better, so long 
 as his neighbors were not ready to do the same. Thus, one 
 man waited for another ; while all were disposed to put-off 
 the day of making improvements at so great an expense. 
 A conflagration comes; burns down the rickety houses, foul 
 with the accumulated filth of generations ; and in a few 
 years that wretched quarter has been replaced by broad 
 streets and convenient and wholesome houses. The city is 
 wealthier and healthier for the change; and even the indi- 
 vidual property-holders may be richer than before. 
 
 277. What We See and What We Don't See.— But the 
 disposition to rejoice in the destruction of wealth is not con- 
 fined to instances like the foregoing, where nuisances and 
 obstructions are removed. It extends to cases where the 
 existing forms of wealth were well answering the purposes 
 for which they were created. That disposition is due to the 
 fact that those who rejoice see only one side of the effect. 
 They see that, where wealth is destroyed, other wealth gen- 
 erally flows-in, to take its place ; and labor and capital are 
 soon actively, perhaps hurriedly, employed in repairing 
 the waste. What they do not see is that this labor and 
 capital are drawn from other avocations and from other 
 places, where, but for the fire or the flood, they would be 
 engaged, though without making so much stir, in produc- 
 
804 POLITICAL ECONOMY. 
 
 ing new forms of wealth, wholly in addition to those which 
 have been destroyed, thus increasing the total sum of 
 wealth to be enjoyed by the community. 
 
 278. Luxurious Consumption. — Regarding the consump- 
 tion of wealth in what we may call, without attempting 
 closely to define it, Luxury, two popular notions are preva- 
 lent. These two notions are largely opposed to each other ; 
 yet they may both be equally erroneous. Both are often 
 held by the same persons, at different times, according to 
 the mood in which their minds are, at the moment. 
 
 One false notion concerning the consumption of wealth 
 is that which regards all personal expenditure which is very 
 greatly above what the mass of people can indulge in, as 
 an injury to the community and as a wrong to the laboring 
 classes in particular. Now, in order to get a plain view 
 of this matter, let us take the case of a manufacturer who 
 produces goods to the value of five hundred thousand dollars 
 annually, out of which he realizes a profit of twenty-five 
 thousand dollars. Let it be conceded that five thousand 
 dollars would furnish decent and comfortable subsistence 
 for the manufacturer's family, including proper education 
 for his children. But he is not satisfied with so moderate a 
 scale of personal expenditure. He spends another five 
 thousand dollars upon things which, while they are not es- 
 sential to comfort and decency, are yet not so far out of 
 the common as to attract public attention and to make him 
 and his family conspicuous. In addition to all the fore- 
 going, he expends ten thousand dollars in display and self- 
 glorification, in luxuries of the most extravagant cost, 
 upon pleasures of the most ephemeral nature. This leaves 
 him but five thousand dollars to put into his business, or 
 to lay up in bank. 
 
 Now, it does not need to be said that it would be better 
 were the manufacturer in question wise enough to save a 
 
POLITICAL ECONOMY. 305 
 
 larger portion of his profits, either as a means of increas- 
 ing his business, or as a reserve against the future. Again, 
 it does not need to be said that it would be better, in case he 
 is to expend twenty thousand dollars of his income, were he 
 wise and generous enough to spend that sum in ways which 
 would bring more good to his fellow men, do more credit 
 to himself, and afford a better training for his children. 
 But the question is not, whether something much better 
 might not have been done with this amount of wealth, but 
 whether such a use of it constitutes a positive injury to the 
 community, or is, in any sense whatsoever, a wrong to the 
 laboring classes. 
 
 The point which is overlooked in the popular view of this 
 question, is that, this manufacturer's tastes, habits, ideals, 
 ambitions being (by force of nature and of education) what 
 they are, the power of indulging in such expenditures is a 
 great part of the motive which leads him to carry on busi- 
 ness and to apply perhaps great abilities, with untiring 
 energy and unflinching courage, to the production of 
 wealth. It is, of course, a pity that the man has not 
 simpler tastes and higher ambitions ; but we have to take 
 the man as we find him. Deny him the opportunity to 
 indulge his own impulses in the expenditure of his wealth, 
 and you destroy or largely impair the energy which he 
 would otherwise bring to the conduct of business. As it is, 
 he pays out several hundred thousand dollars a year for labor 
 and for materials which are mainly the product of labor. 
 The fact that he has realized twenty-five thousand dollars 
 in profits is proof that he has conducted his business with 
 great energy, skill and prudence. Other men have had 
 control of equal amounts of labor and of capital, and have 
 realized no profits. 
 
 We conclude, then, that luxurious expenditure, even 
 though its objects are not altogether well and wisely chosen. 
 
306 POLITICAL MCONOMT. 
 
 may be far from injuring the community or wronging the 
 laboring class, since it may furnish the motive required for 
 securing the most intense and unremitting application of 
 Business Ability to the work of production. 
 
 On the other hand, there is a disposition very frequently 
 manifested, to applaud luxurious expenditure, even in its 
 most extravagant forms, as a good thing in itself, because 
 it '^ makes trade good," "puts money in circulation,^* 
 *' gives employment to labor," etc. Whenever any great 
 exhibition of extravagance is given, there are always found 
 those who approve it for such reasons. 
 
 Again we say, those who take this view of the expendi- 
 ture of wealth, see only one side of the case. While most 
 forms of extreme luxury do, at the time, give employment 
 to labor and give " a fillip" to trade, there is almost always 
 some use to which that wealth might have been applied 
 which would have proved, in the long run, much more 
 beneficial to the community at large and to the laboring 
 class in particular. 
 
 Let us suppose that a well-to-do manufacturer, who 
 might have provided a decent, comfortable and even hand- 
 some home for his family, at a cost of twenty-five thousand 
 dollars, is moved by vanity and love of display to put one- 
 hundred thousand dollars into his dwelling, with green- 
 houses and stables. It is true that the additional seventy- 
 five thousand dollars is expended for labor, or for materials 
 which are mainly the product of labor. It is true, also, 
 that, so long as the estate is properly kept-up, a few addi- 
 tional servants, gardeners and grooms will be employed. 
 But, had the seventy-five thousand dollars been applied to 
 the building of a new factory or to the improvement of a 
 large tract of agricultural land, an equal amount of em- 
 ployment would have been given to labor, in the first in- 
 stance ; while, through all succeeding time, employment 
 
POLITICAL EGONOMt. 307 
 
 would be afforded to a number of laborers ten, twenty or 
 perhaps thirty times as many as those who would be em- 
 ployed in keeping-up the fine house and grounds. 
 
 279. Government Expenditures. — Another subject, in 
 regard to which public opinion is very apt to go wrong, is 
 the expenditure of wealth by government. In approach- 
 ing this subject, it needs to be said, in the first place, that 
 there are many and large occasions, in every highly civil- 
 ized community, for government to consume wealth for the 
 general welfare. Not only must the State preserve the 
 public peace and protect person and property, at a great cost 
 forjudges and jails, for policemen and soldiers, but there 
 are many things which nearly all citizens are now agreed 
 should be done by the State, which are not so much of a 
 protective, as of a productive, character. 
 
 The streets of cities and the highways which cross the 
 country should, for the best effect, be laid out by the govern- 
 ment. The bridges, by which the public roads are to cross 
 streams and rivers, should be built by the State ; and it is 
 by some made a question whether the docks and wharves, 
 at which vessels are to load and to unload, should not be 
 provided in the same way. Whether this would be wise or 
 not, it is certain that the improvement of rivers and har- 
 bors, at enormous cost, the maintenance of a lighthouse 
 system and the construction of breakwaters, are the proper 
 work of government. The water supply of cities is largely 
 provided by public authority, out of public revenues, and 
 in some cases, also, the gas supply. In nearly all countries, 
 the telegraphs and in many countries the railroads, also, 
 are owned and operated by the government. In addition 
 to these and similar works which government undertakes, 
 the State has vast expenditures to make for elementary 
 schools and, perhaps, also, higher institutions of learning ; 
 for museums and libraries; for parks and pleasure grounds. 
 
308 POLITICAL ECOnOMt. 
 
 The popular error regarding governmental expenditures 
 is not in approving the consumption of wealth which is 
 actually required for carrying on useful works; but in 
 looking at government expenditures as good in themselves, 
 as '^ putting money into circulation," and as having a kind 
 of virtue to "promote trade and industry." There are 
 found, in every community, many persons, otherwise intel- 
 ligent, who are ready to applaud "liberal" expenditures 
 on the part of the government, not as the necessary price 
 of things which actually require to be done, but as being 
 beneficial in themselves. 
 
 The trouble with these people, also, is that they see only 
 one side of the matter. They see that, at whatever point 
 government disburses its revenues, there is a distinct in- 
 crease of activity in production and in trade. They fail to 
 note the less intense but much wider effects which are pro- 
 duced upon production and trade, all over the land, by the 
 taxes through which the government collects those reve- 
 nues. Every dollar which the government expends with 
 one hand, it must take away from somebody with the other 
 hand. Indeed, that the Treasury may have one dollar to 
 spend, it has to take from the people a dollar and ten cents, 
 or a dollar and twenty cents, because of the expenses of 
 assessment, collection, disbursement and public account- 
 ing. In order, therefore, to encourage one person or set of 
 persons by its expenditures, to the extent of one dollar, 
 government has to discourage another person or set of per- 
 sons, by its taxes, to the extent of a dollar and ten, or 
 twenty, cents. This constitutes no sufficient reason why 
 government should not collect money for great public 
 works which individuals could not construct at all, or 
 could not maintain to advantage; but it does constitute a 
 very strong reason why government expenditures should 
 
POLITI GAL ECONOM Y. 309 
 
 not be made any larger than is necessary, from any vague 
 notion of encouraging trade and industry thereby. 
 
 280. Over-Production. — All the erroneous notions re- 
 garding the consumption of wealth, which we have pointed 
 out in this chapter, spring largely out of one fundamental 
 error, which is very widely spread in the public mind, and 
 which finds its expression in the familiar phrase, Over-Pro- 
 duction. There is a very common tendency to think of 
 wealth, after it has once been produced, as somehow getting 
 in the way, so that other wealth cannot be produced until 
 this has been consumed. The fact is, physically speaking, 
 men might go on producing wealth to the end of time, 
 and not consume any of it, without encumbering the earth 
 thereby, or blocking the way to further production. Of 
 course, morally speaking, men will produce wealth only as 
 they expect it to be consumed, or used. It is our business, 
 then, to inquire whether there is any natural limit to the 
 amount of wealth that can be consumed. If there is not, 
 then such a thing as true over-production cannot take 
 place. 
 
 Let us look around. We see, in the community in which 
 we live, men who earn three hundred dollars a year, on 
 which to support their families ; others, four hundred ; 
 others, five or six hundred ; others, still, one thousand, 
 two thousand, or three thousand ; still others, perhaps, 
 five thousand, ten thousand, or twenty thousand. Is there 
 any family, now expending three hundred, or four hundred, 
 or five hundred dollars, which could not, and would not 
 gladly, expend twice or three times as much, if they had 
 it ? Do not the members of those families know the very 
 things they would like to purchase, with added means : 
 things, probably, which would be not only harmless, but 
 actually, and perhaps highly, beneficial ? Is there any 
 man, now expending one thousand or three thousand or 
 
310 POLITICAL ECONOMY. 
 
 five thousand or ten thousand dollars, who could not, and 
 would not gladly, expend twice or three times as much, if 
 he had it for the purpose ? Let the reader try to put 
 himself in the place of persons of these different classes, in 
 succession; and he will soon be satisfied that it is idle to 
 suppose that more wealth is likely to be produced than 
 men would be ready and glad to consume. Yet just this 
 is what is meant by over-production. 
 
 But, while universal over-production is thus seen to be 
 practically impossible, it not infrequently happens that 
 over-production takes place in certain lines. This we 
 should call Partial Over- Production. For example, we 
 might suppose the production of woollen goods to be 
 enormously increased. Let us say that it is doubled within 
 a year. Even so, it is not probable that there would be 
 more woollen goods in existence than people would like to 
 use, for no community was ever so well clothed but that a 
 great many more garments would be welcome. But, when 
 a poor family have bought a certain quantity of woollen 
 goods, they do not want to buy any more of these until 
 they have a certain amount of cotton goods and of linen 
 goods. In the case supposed, therefore, there would be a 
 relative over-production of woollen goods : an over-pro- 
 duction, that is, in comparison with the amount of cot- 
 ton and linen goods produced. Hence, there might be no 
 '^ market " for a portion of the stock of woollen goods ; and, 
 consequently, some of the woollen mills might have to re- 
 main idle for months. 
 
 We might suppose, again, that the increase of produc- 
 tion had taken place through all the branches of the textile 
 manufacture, in silk, linen, and cotton, as well as in woollen 
 goods. There would, perhaps, be no more textile fabrics 
 in existence than people would be glad to use ; but, after 
 people have bought a certain anion nt of textile goods, they 
 
POLITICAL ECONOMY. 311 
 
 do not want to buy any more until they have a certain 
 amount of glass ware, of china, of wooden ware, of iron 
 ware, oh carriages, of pictures, etc. There might, then, 
 in the case supposed, be an over-production of textile fab- 
 rics, in general: an over-production, that is, in comparison 
 with other kinds of manufactured goods. 
 
 Over-production might even be extended to all kinds of 
 what we call manufactured goods. Not that there would 
 probably be more of manufactured goods than people would 
 be glad to consume, if they had them ; but that there 
 would be more of manufactured goods than people would 
 be willing to purchase until they had bought more of agri- 
 cultural produce, or until they had built themselves better 
 houses, or until they had been able to construct more roads 
 and bridges. 
 
 It will thus appear that partial over-production may be 
 carried a great way. The history of industry also shows 
 that over-production is very likely to take place, in one 
 line, or in several lines, sometimes in many lines together. 
 If the price of a certain article, or of several articles, has for 
 some time been high, owing either to a falling-off from the 
 usual supply or to a sudden and large increase of demand, 
 employers of labor and owners oi capital are very likely to 
 rush-in, almost tumultuously, and build many more mills 
 or works, in order to take advantage of the high price. 
 Soon it is found that the '^ plant" is much greater than is 
 needed; yet each mill-owner for a while tries to keep his 
 machinery and his hands employed. The result is over- 
 production, followed by a long period of stagnation, per- 
 haps by many failures in business. 
 
 The reader will be prepared for the remark that, the 
 further the division of labor is carried, the more widely 
 trade is extended, the greater the localization and diver- 
 sification of industry, the more numerous become th§ 
 
312 POLITICAL ECONOMY. 
 
 opportunities for this misukderstan"ding between pro- 
 DUCEES AND CONSUMERS. That misunderstanding is the 
 price which the world has to pay for the great advantages 
 of industrial civilization. That price is, indeed, yery high. 
 It implies, at times, a frightful waste of capital and great 
 suffering to the laboring class, from the failure of employ- 
 ment in those lines where production has been over-done. 
 Whether, in the further progress of industrial society, 
 means will be found for preserving all the advantages re- 
 sulting from the widest division of labor and the largest 
 use of the machinery of production, and at the same time 
 reducing the great loss which men now have to suffer 
 through partial over-production, is a question which no 
 one is wise enough to answer. 
 
 THE END. 
 
INDEX. 
 
 The references are to numbered sections, not to pages. 
 
 Absentee landlords of Ireland, 
 244. 
 
 Abstinence, the creator of value, 
 60; interest, the reward of ab- 
 stinence, 213-6. 
 
 Accident and fraud: influence 
 upon profits, 193. 
 
 Accumulation, how influenced 
 by the rate of interest, 219-20. 
 
 Adams, Henry C, Prof.: Out- 
 lines of Lectures upon Political 
 Economy, preface, page vi. 
 
 Adaptations, Industrial, of dif- 
 ferent peoples, 42, 149. 
 
 Advertising expenses, saved in 
 Co-operation, 207. 
 
 Agriculture, subject to the law 
 of Diminishing Returns, Chap. 
 V; chiefly controlled by soil 
 and climate, 148. (See Land 
 and, also. Rent.) 
 
 Agriculturists not prone to re- 
 gard the destruction of wealth 
 as a good, 275. 
 
 American economists, erroneous 
 views regarding the relation of 
 capital to wages. 231. 
 
 Americans, their industrial apti- 
 tudes, 42, 209, 235, 262. 
 
 Amsterdam, bank of, 110. 
 
 Andrews. E. B., his Institutes of 
 Economics: preface, page vi. 
 
 Apprenticeship, time saved by 
 division of labor, 48. 
 
 Argyle, Duke of: restrictions on 
 the contract for labor, 251. 
 
 Aristotle on usury, 214. 
 
 Art: political economy as an art 
 
 (a branch of statesmanship) 
 
 distinguished from political 
 
 economy as a science: preface, 
 
 page V. 
 Assertion by the laboring classes 
 
 of their own interests, essential 
 
 to general well-being, 239, 247, 
 
 205, 257. 
 Australia, gold discoveries, 109. 
 Authority, legal, excluded from 
 
 our definition of value, 3. 4. 
 Automatic regulation of metallic 
 
 money, 140; political money 
 
 not so regulated, 142. 
 
 Balance of trade, 124-7. 
 
 Banks, Chap. XIV. 
 
 Banking functions, the, 116-24; 
 the banking agencies, 128. 
 
 Bank-money, 113-5, 129-141; its 
 volume, how regulated, 141. 
 
 Bankruptcy laws: in early times, 
 very severe, 101-2; if ill-con- 
 sidered, may increase the pro- 
 portion of incompetent em- 
 ployers, 242. 
 
 Barter, the primitive form of 
 exchange, 86-93, 133. 
 
 Belgium, underfed laborers, 40. 
 
 Bill brokers, 128. 
 
 Bi-Metallism, 107-9. 
 
 Birth-rate, its possibilities, 269; 
 diminished by increase of 
 economic desires, 270-2. 
 
 313 
 
314 
 
 INDEX. 
 
 Blaine, Secretary: report on the 
 cotton manufactures of the 
 United States, 262. 
 
 Brabazon, Lord: inadequate food 
 of French factory-hands, 40. 
 
 Burke, Edmund, quoted, 250. 
 
 Business Ability, one of the four 
 agents of production, 22, 55, 
 80, 188. 278; its remuneration 
 (profits), 163, 189, Chap. XX. 
 
 Business-paper (see Commercial 
 paper). 
 
 Caird, Sir James: houses in 
 Scotland, 41. 
 
 California, gold discoveries, 109. 
 
 Calvin, Johu, on Usury, 214. 
 
 Cancellation of indebtedness by 
 banks and clearinghouses, 120. 
 
 Capital, one of the four agents in 
 production, Chap. VIII, pars 
 22, 78, 163, 188; Capital in 
 vested inland, 171-2; circulat- 
 ing versus fixed capital, 63-4 
 remuneration for the use of 
 capital (interest). Chap. XXII 
 relation of capital to the 
 scheme of co-operation, 198 
 relation of capital to wages, 
 231; the use of capital enters 
 into the cost of production, 77, 
 79; how capital comes into a 
 bank, 117; accumulation of 
 capital as influencing the dis- 
 tribution of industries,148,150. 
 
 Capitalist, the (see Capital), a 
 claimant in the distribution of 
 the product of industry, 163; 
 has no right to any part of 
 Rent, 180; his share of the pro- 
 duct, Chap. XXII; not to be 
 gotten rid of by co-operation, 
 198. 
 
 Cash Principle, in retail trade, 
 207. 
 
 Cattle, as money, 96. 
 
 Cereals, as money, 96, 104. 
 
 Chadwick, Edwin: the cellar 
 populations of English cities, 
 41. 
 
 Cheap money — is inconvertible 
 paper money cheap? 131-46, 
 cheap money does not make a 
 low rate of interest, 227. 
 
 Cheerfulness, as contributing to 
 labor power, 43, 263-5. 
 
 China, underfed laborers, 40. 
 
 Circulating versus fixed capital, 
 63-4. 
 
 City Real Estate, differs in an 
 important particular from 
 agricultural land, 187. 
 
 Civilization tends to diminish the 
 sum of values, 60; how civi- 
 lization is made permanent, 
 272. 
 
 Clearing house, the banker's 
 bank, 121. 
 
 Climate: influence on the distri- 
 bution of industries, 148. 
 
 Clothing, its relation to subsist- 
 ence, 62, 263. 
 
 Coin basis of bank monej"^ (see 
 Reserve). 
 
 Coincidence, double, of wants 
 and of possessions, 87, 133. 
 
 Comfort, ideas of, developed in 
 the progress of society, 9, 59, 
 270-2. 
 
 Commerce: old-time theory that 
 it could be beneficial to but 
 one party, 11. 
 
 Commercial paper, its discount, 
 221. 
 
 Common Ownership of Land (see 
 Nationalization, etc.). 
 
 Competing countries: influence 
 upon each other in the matter 
 of wages, and of the standard 
 of living, Chap. XXVI. 
 
 Competition, 49; what is involv- 
 ed in perfect competition, 162, 
 234-5; effects of imperfect 
 competition. Chap. XXIV; 
 what can be done to remedy 
 the effects of imperfect com- 
 petition. Chaps. XXV and 
 XXVI. 
 
 Concentration of manufacturing 
 industries, tendency to, 150-1. 
 
INDEX. 
 
 316 
 
 Congress of the United States, 
 its unfitness for tariff legisla- 
 tion, 155. _ 
 
 Consumers of agricultural pro- 
 duce have no right to any part 
 of Rent, 178. 
 
 Consumers and producers, pos- 
 sible misunderstandings be- 
 tween, 280. 
 
 Consumption of wealth, 59, Chap. 
 XXVII; consumption, how 
 influenced by bad money, 146; 
 mistaken uolions regarding 
 consumption. Chap. XXVIII. 
 
 Consumptive mrsus productive 
 co-operation, 206; advantages 
 of, 207; practical experience, 
 208-9. 
 
 Contract for labor: interference 
 by law with, 75, 249, 2.-)l-2. 
 
 Contract for labor: what deter- 
 mines the price at which this 
 is made, i.e., wages? 231. 
 
 Convertibility of paper money 
 (see Redeemability). 
 
 Convict labor, 260. 
 
 Co-operation, Chap. XXI; an 
 effort to get rid of the em- 
 ployer, 198; erroneous concep- 
 tions of many economists, 198; 
 anticipated benefits, 199-201; 
 practical difficulties, 202-4; 
 consumptive mrsus productive 
 co-operation, 206; special ad- 
 vantages of consumptive co- 
 operation, 207; practical ex- 
 perience, 208-9. 
 
 Corn-rents, 104. 
 
 Corn-laws (English), 241. 
 
 Cost of production, its relation to 
 normal value. Chap. IX; rent 
 does not enter into the cost of 
 production, 164, 175; profits do 
 not enter into the cost of pro- 
 duction, 194; wages and inter- 
 est alone constitute the cost of 
 production, 165; relation of 
 cost of production to the dis- 
 tribution of wealth, 165, 188, 
 210, 215-7; low cost of produc- 
 
 Cost of production — continued. 
 tion compatible with high 
 wages, 261-5. ^ 
 
 Credit, commercial, largely man- 
 aged by banks, 116. 
 
 Credit sales, their great impor- 
 tance in modern industry, 
 100-2; make necessary a stand- 
 ard for Deferred Payments, 
 103; the Multiple or Tabular 
 Standard, 106. 
 
 Creditor class, 100-2. 
 
 Custom, effect on price, 75. 
 
 Dangerous employments, how 
 compensated, 232. 
 
 Debtors, laws regarding, 100-2. 
 
 Debtor class, their demand for 
 paper-money issues, 138. 
 
 Debts, Bad, losrj by, 207. 
 
 Debts, scaling down, 138. 
 
 Decency, Ideas of, developed in 
 the progress of society, 9, 59, 
 270-2; power to check popula- 
 tion, 270-2; desire for decencies 
 promote efficiency in labor, 
 263-5. 
 
 Deferred Payments. Standard 
 for, 103-5; political money as 
 the standard, 134-42 (see Tabu- 
 lar Standard). 
 
 Degradation of the laboring class, 
 through unequal competition, 
 236-8, 263. 
 
 Demand and supply, 15, 215, 
 232; intellectual and moral 
 elements of, 233. 
 
 Demand, Causes which affect, 
 69. 
 
 Denominator of Values, 89. 
 
 Deposit and discount, the great 
 banking function, 116-7. 
 
 Depreciation, not a necessary re 
 suit of the inconvertibility of 
 paper money, 133, 143. 
 
 Desires, economic : their devel- 
 opment in the progress of 
 mankind, 9, 59; their influence 
 in retarding the growth of 
 population, 270-2. 
 
316 
 
 INDEX. 
 
 Destruction of wealth : popular 
 notion that it stimulates pro- 
 duction, 275-7. 
 
 Deterioration, liability to, as af- 
 fecting price, 74. 
 
 Diet, diversified, taste for, as an- 
 tagonizing the procreative 
 force, 271. 
 
 Diminishing Returns in Agricul- 
 ture, Chap. V. 
 
 Disadvantage, production at : 
 preface, page v. Chapter X, 
 pars. 160, 188, 215-18; influence 
 on the distribution of wealth, 
 165, 188, 194, 210, 215-18, 230. 
 
 Discount and deposit, the great 
 banking function, 116-7. 
 
 Distribution, the Problem of. 
 Chap. XVII; the several shares 
 in distribution. Chaps. XVII 
 and XVIII. 
 
 Distribution, geographical, of 
 money, how effected, 140. 
 
 Division of Labor (see, also. Terri- 
 torial Division of Labor) : how 
 it arises, 47; how it, becomes a 
 source of productive power, 
 48-54; evil possibilities attend- 
 ant upon, 280. 
 
 East India, inefficiency of its la- 
 boring population, 35, 262. 
 
 Economic Association, American: 
 preface, page vi, also par. 202. 
 
 Economics (see Political Econ- 
 omy). 
 
 Economics, Quarterly Journal of: 
 preface, page vi. 
 
 Education of the working classes, 
 through their own efforts to im- 
 prove their condition, 201, 248. 
 
 Education, popular, effects upon 
 industrial aptitudes, 42, 232, 235. 
 
 Efficiency of the individual labor- 
 er, dependent upon several 
 causes, 36-46, 263; relation to 
 wages, 230-1, 263-5; efficiency 
 of bodies of labor, promoted by 
 the organization of industry, 
 47-54. 
 
 Emigration of capital, 224; of 
 labor, 235-7, 239 - 
 
 Employer, the: his industrial 
 function, 55, 197, 203; his re- 
 muneration, 163,189 (see Chaps. 
 XX and XXI. 
 
 Employer, the least competent: 
 the productiveness of labor, at 
 his hands, determines wages, 
 85, 190, 192. 
 
 Employers, incompetent, how 
 their control of business affects 
 the distribution of wealth, 195; 
 causes which tend to increase 
 the proportion of such employ- 
 ers, 241-2. 
 
 Employed Laborer (see Laborer). 
 
 Encouragement of Manufactures, 
 the, 153. 
 
 England: insufficient food and 
 shelter of agricultural laborers, 
 39-40; contrasted with India 
 and Russia as to the efficiency 
 of its laboring population, 35, 
 262-5; banking agencies. 111; 
 aristocratic holding of the soil, 
 187; co-operative enterprises, 
 202, 203; usury laws. 214; gov- 
 ernment securities, 222; mortal- 
 ity in certain avocations, 232; 
 defective competition, 236, 
 237 ; corn-laws, 241; remedial 
 labor legislation, 246-50; strikes, 
 257. 
 
 English economists: their erro- 
 neous views regarding the rela- 
 tion of wages to the product of 
 industry, 231 : they oppose Fac- 
 tory Acts, 251. 
 
 Environment, Industrial, influ- 
 ence of, 52. 
 
 Esprit de Corps in industry, 51. 
 
 Exchangeability, the test of value, 
 3-8. 
 
 Exchange, the old-time theory 
 that it could be beneficial but 
 to one party, 11. 
 
 Exchange, as a department of po- 
 litical economy. Part I. 
 
 Exchanges, foreign, 134-7, 
 
INt)EX. 
 
 317 
 
 Factory laws, 249, 251-S. 
 
 Fashion, Changes of, as affecting 
 demand, 69. 
 
 Fawcett, H. : insufficient food of 
 West of England laborers, 40. 
 
 Fiat money (see Inconvertible 
 Paper Money). 
 
 Financiering, as a banking func- 
 tion, 110. 
 
 Fiscal motives to excessive issues 
 of paper money, 136. 
 
 Fixed ««. Circulating Capital, 63-4. 
 
 Food (see, also, Subsistence): its 
 relation to labor-power 37-40, 
 237-8, 263; the primary form 
 of capital, 62; its relation to 
 population, 269. 
 
 Force, Productive, cannot be lost 
 out of nature, but may be lost 
 out of man's reach, 2o. 
 
 Forced circulation, generally a 
 characteristic of government 
 paper money, 133. 
 
 Form value, 20. 
 
 France: underfed factory hands, 
 40; bimetallic system, 108-9; 
 rapid recovery from effects of 
 German war, 268; popular ten- 
 ure of the land, 187; co-opera- 
 tive enterprises, 202. 
 
 Fraud and accident: influence on 
 Profits, 193. 
 
 Free Trade m. Protection, Chap. 
 XVI; the Pauper Labor argu- 
 ment against free trade, Chap. 
 XXVI. 
 
 Freedom, real vs. nominal, 252. 
 
 Frugality, awakened by owner- 
 ship of land, 45; the creator of 
 capital, 60; encouraged by Co- 
 operation, 200. 
 
 Gains which no man loses, 238, 
 263. 
 
 Gains, Unearned, do little good 
 to any, 104, 144-6. 
 
 Geometrical progression in popu- 
 lation, 269. 
 
 George, Henry, his "Progress 
 and Poverty," 182. 
 
 Germany: has to protect itself 
 against England, while Russia 
 protects itself against Ger- 
 many, 262. 
 
 Gilman, N. P., Profit Sharing, 
 205. 
 
 Girdlestone, Canon: diet of the 
 laborers of Devonshire, 40. 
 
 Glut (see Over-production). 
 
 Gold (see Precious Metals. See, 
 also, for its relations to silver, 
 Bi-Metallism). 
 
 Government, as producer and 
 consumer, 279; restraining 
 greed and imposing conditions 
 upon industry, 251-2 (see The 
 State). 
 
 Government expenditure, how 
 far to be encouraged, 279. 
 
 Grain, as money, 96. 
 
 Gratuity, its relation to value, 60. 
 
 Greed, often antagonistic to the 
 enlightened pursuit of wealth, 
 11, 251-2. 
 
 Greenbacks, so-called, of the 
 United States, 137, 143. 
 
 Ground-rents, 159, 163, 187. 
 
 Habit, influence on price, 76. 
 
 Hazardous risks of capital, how 
 compensated, 221-3. 
 
 Health is not wealth, 6-8; effect 
 upon health of certain avoca- 
 tions, 232. 
 
 Hebrews, ancient, usury forbid- 
 den, 214. 
 
 Hireling, the, lack of interest in 
 production and in care of 
 wealth, 46 (see Co-operation). 
 
 Holland, underfed laborers, 40. 
 
 Honesty: its relation to punctu- 
 ality, 123. 
 
 Hopefulness in labor, as an ele- 
 ment of productive power, 43, 
 263-5. 
 
 Huskisson, "William: repeal of 
 the English laws against Com- 
 binations, 247. 
 
 Immobility of Capital and Labor 
 (see Emigration, etc.). 
 
318 
 
 iNDBX, 
 
 Improvements made upon the 
 Land; the returns to them 
 should be distinguished from 
 Rent, 171-2. 
 
 Inconvertible paper money, 
 Chap. XV; its multiplication 
 does not reduce the rate of in- 
 terest, 237; increases the pro- 
 portion of incompetent em- 
 plo3''ers, 242. 
 
 Increment, the Unearned, of 
 land (see Rent). 
 
 Indebtedness, Cancellation of, 
 120. 
 
 India: the etSciency of its labor- 
 ing population contrasted with 
 that of England, 35; underfed 
 laborers, 40. 
 
 Inertia, Mental, influence on 
 price, 76; on rate of interest, 
 224. 
 
 Inflation (money). Chap. XV; 
 effects of Inflation, 142-6. 
 
 Inglis, H. : the city houses of Ire- 
 laud, 41; industry of peasant 
 proprietors, 45. 
 
 Institutions, essential to civiliza- 
 tion, 272. 
 
 Insurance of the principal, an 
 important element of interest, 
 221-3, 228. 
 
 Intellectual elements of supply 
 and demand, 233. 
 
 Intelligence is not wealth, 6-8; a 
 source of productive power, 42. 
 
 Interest, as a share of the pro- 
 duct of industry, 163, Chap. 
 XXII; what determines the 
 rate of interest, 215-6; justifi- 
 cation of interest, 213--4; in- 
 terest is not paid, generally 
 speaking, for the use of money, 
 but of capital, 214, 227. 
 
 Interest contrasted with Rent, 
 225; rate of interest tends to 
 decline, 226. 
 
 International Distribution of 
 Money, 140. 
 
 International Division of Labor 
 (see Territorial, etc.). 
 
 Invention facilitated by the di- 
 vision of labor, 48. 
 
 Investment of Capital, 63-4; as 
 afliecting the supply of com- 
 modities, 73. 
 
 Ireland, peasants' houses, 41; 
 rents in, 244-5. 
 
 Irish, their industrial aptitudes, 
 45, 244-5. 
 
 Jevons, W. S., Prof., quoted, 
 
 252. 
 Joint stock banks, 128. 
 
 Knies, Prof.: his classification 
 of values, 17. 
 
 Labor: how related to value, 14; 
 employed in agriculture sub- 
 ject to the condition of Dimin- 
 ishing Returns, 26-31; not so 
 when employed in mechanical 
 industries, 32-3; one of the 
 four agents of production, 22, 
 188; varying efllciency of 
 labor, 35-46; division of, 47- 
 54; relation of labor to value, 
 67; to cost of production, 77-8, 
 165. 
 
 Laborer, the, as laying claim to 
 a share of the product of 
 industry, 163; the residual 
 claimant upon the product of 
 industry, Chap. XXIV. 
 
 Laborers, their mistaken notions 
 regarding Profits, 195; their 
 efl:orts to improve their own 
 condition. Chap. XXV. 
 
 Laborers, agricultural, have no 
 right to any part of Rent, 179. 
 
 Land, one of the four agents of 
 production, 22, 79, 188, Chap. 
 IV; land a fixed quantity, 24; 
 liable to grave abuse, 187; its 
 capability of increased produc- 
 tion, Chap. V; remuneration 
 for the use of land (see Rent); 
 the Tenure of Land, Chap. 
 XIX (see, also, Nationaliza- 
 tion of the Land). 
 
INDEX. 
 
 319 
 
 Landlord, the, as laying claim to 
 a share of the product of indus- 
 try, 163; Chaps. XVIII and 
 XIX. 
 
 Latin union, so called, its mone- 
 tary league, 109. 
 
 Laws, regulating the contract for 
 labor, 75, 249, 351-2. 
 
 Legal Tender, 133. 
 
 Lincoln, President, quoted, 203. 
 
 Loans (see Interest and Usury 
 Laws), Interest, in the econom- 
 ic sense, is received by capi- 
 tal, whether actually loaned or 
 not, 212; interest on extra-haz- 
 ardous loans, 222. 
 
 Loss, which no man gains, 238, 
 263. 
 
 Losses, undeserved, work great 
 injury to industry, 104, 144. 
 
 Locock, Mr., quoted, 40. 
 
 "Log-rolling" in legislation, 155. 
 
 Lombard Street Banks, 111. 
 
 London Banks, 111; London the 
 centre of exchange- operations 
 for the world, 127. 
 
 Luxurious consumption: its 
 economic character, 278. 
 
 Luxury, ideas of: their influence 
 in retarding the increase of 
 population, 270-2. 
 
 Machinery: great differences 
 among different peoples in 
 the capacity for using it, 42, 
 149; its introduction renders 
 necessary the employer, 54; 
 tends to set producers and con- 
 sumers apart, 280. 
 
 Mahon, Lord, quoted, 35. 
 
 Maine, Sir H. S.: use of "living 
 money," 96. 
 
 Mai thus, T. R. : the law of popu- 
 lation, 269. 
 
 Manufactures: not subject to the 
 condition of diminishing re- 
 turns, 32-3; how far affected 
 by soil, climate, etc., 148-50. 
 
 Margin of Production: as to land, 
 168; as to Business Ability, 195. 
 
 Market value, its relations to nor- 
 mal value, 68. 
 
 Marriage: discouraged by eco- 
 nomic desires, 270-2. 
 
 Marshall, Alfred, and Mary 
 Paley, the "Economics of In- 
 dustry," preface, page vi. 
 
 Martineau, Harriet: Female 
 chastity in England, how af- 
 fected by the degradation of 
 labor, 237. 
 
 Massachusetts, its colonial paper 
 money, 138. 
 
 Mastership in production, 54 (see 
 chap, on Profits; also, chap, 
 on Co-operation). 
 
 Materials, the third form of capi- 
 tal, 61; waste of, an important 
 element in production, 42, 191, 
 200, 231; materials m. pro- 
 ducts, in tariff legislation, 155; 
 value of, as affecting the suc- 
 cess of co-operative enter- 
 prises, 199, 204. 
 
 Measure of Value, so called (see 
 Denominator of Values). 
 
 Mechanical industry, not subject 
 to the condition of diminish- 
 ing returns, 32-3. 
 
 Medium of exchange, money 
 serves as the. Chapter XI; 
 how about paper money? 133. 
 
 Metals, as money, 98. 
 
 Metals, the Precious, as money, 
 99; the irregularity of their 
 production, 105, 107 (see, also, 
 Bi-Metallism and Tabular 
 Standard). 
 
 Middlemen in Ireland, 244. 
 
 Mill, John Stuart, his Political 
 Economy. Preface, page vi; 
 distinction between fixed and 
 circulating capital, 63. 
 
 Mining industry, nature fixes the 
 limits within which they may 
 be pursued, 148. 
 
 Mobility of capital and labor 
 (see Emigration, etc.). 
 
 Money, defined, 92; discussed, in 
 its various forms. Chapters XI- 
 
INDEX. 
 
 Money — Continued. 
 
 XV ; banking economizes the 
 use of money, 118; interest 
 paid, in general, not for the 
 use of money, but of other 
 forms of capital, 214; to in- 
 crease the amount of money is 
 not to lower the rate of inter- 
 est, 227 (see, also, Bank Money, 
 Inconvertible Paper Money, 
 Political Money, Bi-Metallism). 
 
 Monometallism (see Bi-Metal- 
 lism). 
 
 Monopoly: land a monopoly, 24; 
 not so, capital, 225-6. 
 
 Moral elements of supply and 
 demand, 233. 
 
 Mosaical code prohibits usury, 
 214. 
 
 Multiple standard for Deferred 
 Payments (see Tabular Stand- 
 ard). 
 
 National Banks of the United 
 States, 128. 
 
 Nationalization of the land, 182-7. 
 
 Neighborhood Industries, 151. 
 
 Neison, Doctor, varying mortality 
 of the several trades and pro- 
 fessions, 232. 
 
 New countries, 40, 235 ; their 
 characteristic industries, 150. 
 
 New England, its paper money, 
 138. 
 
 No-Profits Employers, 190, 230. 
 
 No-Rent Lands, 167, 173, 175. 
 
 Nominal versus real cost of labor, 
 261-5. 
 
 Normal value : its relation to 
 market value, 68, 260; deter- 
 mined by cost of production at 
 the greatest disadvantage, 81, 
 160. 
 
 Occupation, change of, as a means 
 of relieving the labor market, 
 235-6. 
 
 Occupations of the people, how 
 affected by soil, climate, etc., 
 148-50; wages in different occu- 
 pations, 232. 
 
 Opinion, public : influence on 
 
 wages, 233. 
 Organization of industry, Chap. 
 
 VII; affecting price, 72. 
 Over-Production: how far it is 
 
 possible, 280. 
 Over- population: industrial and 
 
 social effects of, 239, 245, 269. 
 
 Pakenham, Mr., quoted, 40. 
 
 Paper money (see Bank money 
 and Inconvertiblepaper money). 
 
 Par of exchange, 125. 
 
 Particular Wages, 232. 
 
 Pauperism, 237. 
 
 Pauper Labor argument for Pro- 
 tection, 156, Chap. XXVI. 
 
 Place value, 19. 
 
 Plant, so called, its existence as 
 affecting price, 73. 
 
 Political economy, the Science of 
 Wealth, 1. 
 
 Political money. Chap. XV (see 
 Inconvertible Paper Money). 
 
 Politics and economics, 235-6. 
 
 Population: effect of the increase 
 of population in driving culti- 
 vation down to inferior soils, 
 169 (see Subsistence); effects of 
 over population, 269. 
 
 Possessions, double coincidence 
 of wants and, 87. 
 
 Precious Metals (see Metals, Pre- 
 cious). 
 
 Premium on Gold, its cause and 
 effects, 142-4. 
 
 Price, its relation to value, 95; 
 price, the agent in the inter- 
 national distribution of money, 
 140 ; price, as affecting distri- 
 bution, 160 ; relation of rent to 
 the price of agricultural prod- 
 uce, 175; relation of profits to the 
 price of manufactured goods, 
 194; the price to be paid for the 
 use of capital, 215, 218, 221. 
 
 Price current, need of, 89, 91. ^ 
 
 Procreative Force, the: capabili- 
 ties of, 269 ; antagonized by eco- 
 nomic desires, 270-2. 
 
INDEX. 
 
 321 
 
 Produce, its price not affected by 
 Rent or Profits, 175, 194. 
 
 Product of Industry, divided into 
 shares, 163, 165, 188-92, 228. 
 
 Production of wealth, defined, 16; 
 modes of production, 17-20; 
 agents of production, 22; rela 
 tion of cost of production to 
 value. Chap. IX; production 
 at the greatest disadvantage, 
 Chap. X, 161, 188, 215-8. 
 
 Producers and consumers, mis- 
 understandings between them, 
 280. 
 
 Productive co operation (see Co- 
 operation). 
 
 Production, cost of, of what made 
 up, 165, 188. 
 
 Productiveness, of Labor, the 
 Source of Wages, 230; how 
 that productiveness may be in- 
 creased, 231 (see also Chapters 
 VI and VII). 
 
 Profit-Sharing, 205. 
 
 Profits, the employer's share of 
 the product of industry. Chap. 
 XX; how profits are gained, 
 189-191; the Law of, 192; prof- 
 its and rent are species of the 
 same genus, 194-5; profits do 
 not form a part of the price of 
 manufactured products, 194; 
 are not obtained from deduction 
 from wages, 194; economic jus 
 tification, 196; in Co operation, 
 laborers aim to secure the em- 
 ployer's profits, 198. 
 
 Protection mrsus free trade, 
 Chap. XVI; protection tends 
 to increase the proportion of in- 
 competent employers, 242; the 
 " pauper-labor " argument for 
 protection, Chap. XXVI. 
 
 " Protest" of commercial paper, 
 123. 
 
 Punctuality in payments, pro- 
 moted by banking, 122. 
 
 Real versus nominal cost of la- 
 bor, 261-3. 
 
 Redeemability of paper money, 
 what it implies, 114-5, 118, 
 129, 141. 
 
 Reflux, the (Bank Money), 129, 
 141. 
 
 Rent, a share in the distribution 
 of the product of industry, 163; 
 the law of rent, its source and 
 its measure, 166-70, 174; to be 
 distinguished from the return 
 to capital invested in improve- 
 ments of land, 171-2; No-Rent 
 lands, 173; rent does not form 
 a part of the price of agricul- 
 tural produce, 175; is not ob- 
 tained by deduction from wages. 
 176; does rent belong in equity 
 to the community? 177-83 (see, 
 also, Nationalization of the 
 Land); analogy between Rent 
 and Profits, 194; contrasts be- 
 tween Rent and Interest, 225-6; 
 rents, how affected by imperfect 
 competition, 243-5. 
 
 Reproduction, of wealth, cost of, 
 67. 
 
 Reserve, specie, of bank money, 
 114-5, 141. 
 
 Residual Share of the Product of 
 Industry = Wages, 228. 
 
 Retail trade, the friction of, 75-6. 
 
 Revolutionary paper money,U. S. 
 and France, 137. 
 
 Russia, the efficiency of its labor- 
 ing population contrasted with 
 that of England, 262; its Gov- 
 ernment Securities, 221. 
 
 Safe deposit, as a banking func- 
 tion, 111. 
 
 Sanitary conditions, as affecting 
 the efficiency of labor, 41. 
 
 Saving (see Abstinence). 
 
 Savings Banks, 250. 
 
 Science, distinction between po- 
 litical economy as a science and 
 as an art, preface, page v. 
 
 Scotch, once an idle people, 45. 
 
 Scotland, inadequate shelter of 
 the laboring population, 41. 
 
322 
 
 WDEX. 
 
 Sentiments, personal, excluded 
 from definition of value, 3-4; 
 sentiment as modifying the in- 
 fluence of competition, 233, 244. 
 
 Services of the possessors of 
 health, skill and intelligence 
 may be the subjects of ex- 
 change, though those qualities 
 cannot be, 6, 7. 
 
 Shelter, its relation to subsistence, 
 41, 62, 269. 
 
 Sheep as Money, 96. 
 
 Silver (see Precious Metals; see, 
 also, for its relation to gold, Bi- 
 Metallism). 
 
 Skill is not wealth, though it 
 may become the means of 
 acquiring wealth, 6-8. 
 
 Slave labor, the cause of its in- 
 efficiency, 44. 
 
 Smith, Adam: his Wealth of 
 Nations, effect upon the rela- 
 tions of States, 11; unprofit- 
 ableness of slave labor, 43; 
 division of labor, 48. 
 
 Socialist writers, their disparag- 
 ing view of the employer's 
 function, 197. 
 
 Soil, the, a fund for the endow- 
 ment of the human race, 24-5; 
 influence upon the distribution 
 of industries, 148; subject to 
 abuse, 25, 187. 
 
 Soldiers, their services economic 
 in England, non-economic in 
 Germany, 4. 
 
 Speculation, aggravated by bad 
 money, 144-6. 
 
 Specie Reserve of Banks, 114-5. 
 
 Standard of Deferred Payments, 
 usually called standard of 
 value, 103-5; how about paper 
 money ? 134-42; how about bi- 
 metallic money ? 107-9 (see, 
 also. Tabular Standard). 
 
 State, the, its obligation to con- 
 trol the issue of bank money, 
 115; its right to Rent, 181; its 
 intervention in the contract for 
 labor, 76, 249. 251-2. 
 
 Stock, influence of a stock of a 
 commodity upon its price, 70 
 
 Storage, necessity of, as affecting 
 price, 74. 
 
 Strength is "not wealth, 6-8. 
 
 Strikes, 247; justification of, 
 256-7; co-operation would 
 abolish strikes, 200. 
 
 Subsistence, one form of capital, 
 61; its relation to wages, 232, 
 238; its relation to population, 
 269. 
 
 Substitution of one commodity 
 for another in use, as affecting 
 price, 71. 
 
 Suffrage, political, its influence 
 upon the distribution of 
 wealth, 285-6, 250. 
 
 Sumner, W. G., Prof., his Prob- 
 lems of political economy; 
 preface, -page vi. 
 
 Supply and -demand, 15. 215, 
 232; intellectual and moral 
 elements of, 233. 
 
 Supply, causes which affect, 
 69-76; supply of money, 129, 
 134-42. 
 
 Surplus, the, above cost of pro- 
 duction, of what made up, 
 and how distributed. Chap. X, 
 pars. 164-5, 188-192, 194, 228. 
 
 Sympathy with labor (see 
 Opinion, Public). 
 
 Tabular Standard for Deferred 
 Payments. 106. 
 
 Tariff, Protective (see Protec- 
 tion). 
 
 Taxation (see Government Ex- 
 penditure). 
 
 Tenure of the Soil, Chap. XIX. 
 
 Tender, Legal (see Legal Ten- 
 der). 
 
 Territorial division of labor, 
 147-51, 
 
 Three Cornered Exchange, 127. 
 
 Time value, 18. 
 
 Tobacco, as money, 93. 
 
 Tools, the second form of capital, 
 61. 
 
INDEX. 
 
 323 
 
 Trades unions, their formation 
 in England, 247; tlieir eco- 
 nomic influence, 253-4. 
 
 Transferability, essential to 
 value, 6. 
 
 Transportation, its relation to 
 value, 19; to prices, 140; to 
 rent, 170; as afliecting the dis 
 tribution of industries, 151. 
 
 Truck, 242. 
 
 Turkey, its government securi- 
 ties, 221. 
 
 Unearned increment of land (see 
 Increment, etc.). 
 
 XTnited States: the laboring pop- 
 ulation well fed, 37, 40; capable 
 of using delicate and intricate 
 machinery, 42, 149; Banks and 
 Bank money, 112-t), 128-9; its 
 government paper money, 137, 
 143 (see, also, Greenbacks); 
 agriculture, 148, 171-2; co- 
 operative enterprises, 202, 209; 
 competition in the U. S. before 
 the War of Secession, 235; 
 trades unions, 255. 
 
 Usury and usury laws, 213-4, 
 219-20. 
 
 Utility, how related to value; 
 useful, in economics, does not 
 mean beneficial, 12. 
 
 Value: related to wealth as attri- 
 bute to substance, 2, 21; de- 
 fined, 3; relation to utility, 
 12-13; to labor, 14; is governed 
 by the relation of demand and 
 supply, 15; ho«' cost of pro- 
 duction stands related to value; 
 Chap. IX; value of money, 
 Chap. XV. 
 
 Virginia, the Colony of, tobacco 
 as money, 93. 
 
 Wage fund theory, 231. 
 
 Wages: a share in the product of 
 industry, 163; are not dimin- 
 ished by the sums received by 
 the landlord class as rent, 176; 
 or by the sums received by the 
 employing class as profits, 194; 
 w^ages constitute the residual 
 share of the product, Chap. 
 XXIII; effect upon wages of 
 Imperfect Competition, 236- 
 242; what may be done to 
 remedy the evil. Chaps. XXV- 
 XXVI. 
 
 Wants and Possessions, double 
 coincidence required in Barter, 
 87. 
 
 War, paper money in. 137. 
 
 Waste of materials (avoidable), 
 an important element in pro- 
 duction. 42, 191. 200, 231. 
 
 Waste of soil, 25. 187. 
 
 Water privileges, rent of, 159, 
 163. 
 
 Water powers, effect upon the 
 growth of manufactures. 148. 
 
 Wealth: the subject-matter of 
 political economy, 1; relation 
 to value, 2, 21 (see, also, 
 throughout. Capital) 
 
 Webster, Daniel, quoted, 19, 
 146. 
 
 " Wildcat " Banking. 115. 
 
 Women: the causes which deter 
 mine their wages, 233. 
 
 Young. Arthur: ownership awa 
 kens industry, 45. 
 
THE AMERICAN SCIENCE SERIES. 
 
 The principal objects of the series are to supply the lack — in 
 some subjects very great — of authoritative books whose princi- 
 ples are, so far as practicable, illustrated by familiar American 
 facts, and also to supply the other lack that the advance of Sci- 
 'ence perennially creates, of text-books which at least do not 
 contradict the latest generalizations. The scheme systemati- 
 cally outlines the field of Science, as the term is usually em- 
 ployed with reference to general education, and includes 
 Advanced Courses for maturer college students, Briefer 
 Courses for beginners in school or college, and Elementary 
 Courses for the youngest classes. The Briefer Courses are not 
 mere abridgments of the larger works, but, with perhaps a 
 single exception, are much less technical in style and more 
 elementary in method. While somewhat narrower in range 
 of topics, they give equal emphasis to controlling principles. 
 The following books in this series are already published ; 
 
 THE HUMAN BODY. By H. Newell Martin, Professor in 
 
 the Johns Hopkins University. 
 Advanced Course. 8vo, 655 pp. 
 
 Designed to impart the kind and amount of knowledge every 
 educated person should possess of the structure and activities 
 and the conditions of healthy working of the human body. 
 While intelligible to the general reader, it is accurate and suflfi- 
 cienily minute in details to meet the requirements of students 
 who are not making human anatomy and physiology subjects of 
 special advanced study. The regular editions of the book contain 
 an appetidix on Reproduction and Development, Copies without 
 this will be sent when specially ordered. 
 
 From the Chicago Tribune: '* The reader who follows him through 
 to the end of the book will be better informed on the subject of 
 modern physiology in its general features than most of the medical 
 practitioners who rest on the knowledge gained in comparatively an- 
 tiquated text books, and will, if possessed of average good judgment 
 and powers of discrimination, not be in any way confused by state- 
 ments of dubious questions or conflicting views." 
 
2 THE AMERICAN SCIENCE SERIES, 
 
 THE HUMAN SODX .—ConimueiL 
 
 Briefer Course* i2mo. 364 pp. 
 
 Aims to make the study of this branch of Natural Science a 
 source of discipline to the observing and reasoning faculties, 
 and not merely to present a set of facts, useful to know, which 
 the pupil is to learn by heart, like the multiplication-table. 
 With this in view, the author attempts to exhibit, so far as is 
 practicable in an elementary treatise, the ascertained facts of 
 Physiology as illustrations of, or deductions from, the two car- 
 dinal principles by which it, as a department of modern science, 
 is controlled, — namely, the doctrine of the " Conservation of 
 Energy" and that of the " Physiological Division of Labor." To 
 the same end he also gives simple, practical directions to assist 
 the teacher in demonstrating to the class the fundamental facts 
 of the science. The book includes a chapter on the action upon 
 the body of stiinulants and narcotics. 
 
 From Henry S'ev^mjl, Pivfessor of Physiology, University of Michi- 
 gan : "The number of poor books meant to serve the purpose of 
 text-books of physiology for schools is so great that it is well to 
 define clearly the needs of such a work: i. That it shall contain ac- 
 curate statements of fact. 2. That its facts shall not be too numer- 
 ous, but chosen so that the important truths are recognized in their 
 true relations. 3. That the language shall be so lucid as to give no 
 excuse for misunderstanding. 4. That the value of the study as a 
 discipline to the reasoning faculties shall be continually kept in view. 
 I know of no elementary text-book which is the superior, if the 
 equal, of Prof. Martin's, as judged by these conditions." 
 
 Elementary Course. i2mo. 261 pp. 
 
 A very earnest attempt to present the subject so that children 
 may easily understand it, and, whenever possible, to start with 
 familiar facts and gradually to lead up to less obvious ones. 
 The action on the body of stimulants and narcotics is fully treated. 
 
 From W. S. Perry, Supetintendent of Schools, Ann Arbor, Mich.: 
 *• I find in it the same accuracy of statement and scholarly strength 
 that characterize both the larger editions. The large relative space 
 given to hygiene is fully in accord with the latest educational opinion 
 and practice; while the amount of anatomy and physiology comprised 
 in the compact treatment of these divisions is quite enough for the 
 most practical knowledge of the subject. The handling of alcohol 
 and narcotics is, in my opinion, especially good. The most admira- 
 ble feature of the book is its fine adaptation to the capacity of younger 
 pupils. The diction is simple and pure, the style clear and direct, and 
 the manner of presentation bright and attractive." 
 
THE AMERICAN- SCIENCE SERIES. % 
 
 ASTRONOMY. By SiMON Newcomb, Professor in the Johns 
 Hopkins University, and EDWARD S. Holden, Director of 
 the Lick Observatory. 
 
 Advanced Course. 8vo. 512 pp. 
 
 To facilitate its use by students of different grades, the sub- 
 ject-matter is divided into two classes, distinguished by the size 
 of the type. The portions in large type form a complete course 
 for the use of those who desire only such a general knowledge 
 of the subject as can be acquired without the application of ad- 
 vanced mathematics. The portions in small type comprise ad- 
 ditions for the use of those students who either desire a more 
 detailed and precise knowledge of the subject, or who intend to 
 make astronomy a special study. 
 
 From C. A. Young, Professor in Princeton College : ** I conclude 
 that it is decidedly superior to anything else in the market on the 
 same subject and designed for the same purpose." 
 
 Briefer Course. i2mo. 352 pp. 
 
 Aims to furnish a tolerably complete outline of the as- 
 tronomy of to-day, in as elementary a shape as will yield satis- 
 factory returns for the learner's time and labor. It has been 
 abridged from the larger work, not by compressing the same 
 matter into less space, but by omitting the details of practical 
 astronomy, thus giving to the descriptive portions a greater 
 relative prominence. 
 
 From The Critic: " The book is in refreshing contrast to the 
 productions of the professional schoolbook-makers, who, having only 
 a superficial knowledge of the matter in hand, gather their material, 
 without sense or discrimination, from all sorts of authorities, and 
 present as the result an indigesta moles, a mass of crudities, not un- 
 mixed with errors. The student of this book may feel secure as to 
 the correctness of whatever he finds in it. Facts appear as facts, and 
 theories and speculations stand for what they are, and are worth." 
 
 From W. B. Graves, Master Scientific Department of Phillips 
 Academy : " I have used the Briefer Course of Astronomy during the 
 past year. It is up to the times, the points are put in a way to inter- 
 est the student, and the size of the book makes it easy to go over the 
 subject in the time allotted by our schedule." 
 
 From Henry Lefavour, /«/<? Teacher of Astronomy, Williston Semi* 
 nary : ** The impression which I formed upon first examination, that 
 it was in very many respects the best elementary text-book on the 
 subject, has been confirmed by my experience with it in the class* 
 room." 
 
4 THE AMERICAN SCIENCE SERIES, 
 
 ZOOLOGY, By A. S. Packard, Professor in Brown Univer- 
 sity. 
 Advanced Coursei 8vo. 719 pp. 
 
 Designed to be used either in the recitation-room or in the 
 laboratory. It will serve as a guide to the student who, with a 
 desire to get at first-hand a general knowledge of the structure 
 of leading types of life, examines living animals, watches their 
 movements and habits, and finally dissects them. He is pre- 
 sented first with the facts, and led to a thorough knowledge 
 of a few typical forms, then taught to compare these with 
 others, and finally led to the principles or inductions growing 
 out of the facts. 
 
 From A. E. Verrill, Professor oj Zoology in Yale College: •* The 
 general treatment of the subject is good, and the descriptions of 
 structure and the definitions of groups are, for the most part, clear, 
 concise, and not so much overburdened by technical terms as in sev- 
 eral other n.anuals of structural zoology now in use." 
 
 Briefer Course. i2mo. 334 pp. 
 
 The distinctive characteristic of this book is its use of the 
 object method. The author would have the pupils first examine 
 and roughly dissect a fish, in order to attain some notion of 
 vertebrate structure as a basis of comparison. Beginning then 
 with the lowest forms, he leads the pupil through the whole 
 animal kingdom until man is reached. As each of its great 
 divisions comes under observation, he gives detailed instruc- 
 tions for dissecting some one animal as a type of the class, and 
 bases the study of other forms on the knowledge thus obtained. 
 
 From Herbert Csborn, Professor of Zoology, Iowa Agricultural 
 College : *' I can gladly recommend it to any one desiring a work of 
 such character. While I strongly insist that students should study 
 animals from the animals themselves, — a point strongly urged by 
 Prof. Packard in his preface, — I also recognize the necessity of a 
 reliable text-book as a guide. As such a guide, and covering the 
 g'-ound it does, I know of nothing better than Packard's." 
 
 First Lessons in Zoology. i2mo. 290 pp. 
 
 In method this book differs considerably from those men- 
 tioned above. Since it is meant for young beginners, it de- 
 scribes but few types, mostly those of the higher orders, and dis- 
 cusses their relations to one another and to their surroundings. 
 The aim, however, is the same with that of the others ; namely, 
 to make clear the general principles of the science, rather than 
 to fill the pupil's mind with a mass of what may appear to hiro 
 unrelated facts. 
 
THE AMERICAN SCIENCE SERIES. 5 
 
 ZOO\S^Qi^— Continued. 
 
 From Science : — The style is clear, and the subjects made interest- 
 ing. The student's mind is not confused by a mass of details, or by 
 unsatisfactory descriptions of a large number of specimens which he 
 can never expect to see, much less examine; but the brief sketches of 
 a few of the most important forms will awaken in him a desire for 
 wider knowledge. The figures are numerous, averaging almost one 
 to each page ; yet they are so well selected that, while one grudges so 
 much space, he finds few which he would omit. 
 
 BOTANY. By Charles E. Bessey, Professor in the Univer- 
 sity of Nebraska. 
 Advanced Course. 8vo. 6ii pp. 
 
 Aims to lead the student to obtain at first-hand his knowl- 
 edge of the anatomy and physiology of plants. Accordingly, 
 the presentation of matter is such as to fit the book for con- 
 stant use in the laboratory, the text supplying the outline sketch 
 which the student is to fill in by the aid of scalpel and micro* 
 scope. 
 
 From J. C. Arthur, Editor of The Botanical Gazette: "The first 
 botanical text-book issued in America which treats the most important 
 departments of the science with anything like due consideration. 
 This is especially true in reference to the physiology and histology of 
 plants, and also to special morphology. Structural Botany and clas- 
 sification have up to the present time monopolized the field, greatly 
 retarding the diffusion of a more complete knowledge of the science." 
 
 Essentials of Botany. i2mo. 292 pp. 
 
 A guide to beginners. Its principles are, that the true aim of 
 botanical study is not so much to seek the family and proper 
 names of specimens as to ascertain the laws of plant structure 
 and plant life; that this can be done only by examining and 
 dissecting the plants themselves; and that it is best to confine 
 the attention to a few leading types, and to take up first the 
 simpler and more easily understood forms, and afterwards those 
 whose structure and functions are more complex. The latest 
 editions of the work contain a chapter on the Gross Anatomy 
 of Flowering Plants. 
 
 From J. T. Roth rock. Professor in the University of Pennsylva- 
 nia .• •• There is nothing superficial in it, nothing needless introduced, 
 nothing essential left out. The language is lucid ; and, as the crown- 
 ing merit of the book, the author has mtroduced throughout the vol- 
 ume ' Practical Studies,' which direct the student in his effort to see 
 for himself all that the text-book teaches," 
 
6 THE AMERICAN SCIENCE SERIES. 
 
 CHEMISTRY. By Ira Remsen, Professor in the Johns Hop- 
 kins University. 
 Advanced Course. 8vo. 828 pp. 
 
 The general plan of this work will be the same with that of 
 the Briefer Course, already published. But the part in which 
 the members of the different families are treated will be con- 
 siderably enlarged. Some attention will be given to the lines 
 of investigation regarding chemical affinity, dissociation, speed 
 of chemical action, mass action, chemical equilibrium, thermo- 
 chemistry, etc. The periodic law, and the numerous relations 
 which have been traced between the chemical and ph5'^sical 
 properties of the elements and their positions in the periodic 
 system will be specially emphasized. Reference will also be 
 made to the subject of the chemical constitution of compounds, 
 and the methods used in determining constitution. 
 
 Introduction to the Study of Chemistry. i2mo. 389 pp. 
 
 The one comprehensive truth which the author aims to make 
 clear to the student is the essential nature of chemical action. 
 With this in view, he devotes the first 208 pages of the book to 
 a carefully selected and arranged series of simple experiments, 
 in which are gradually developed the main principles of the sub- 
 ject. His method is purely inductive ; and, wherever experience 
 has shown it to. be practicable, the truths are drawn out by 
 pointed questions, rather than fully stated. Next, when the 
 student is in a position to appreciate it, comes a simple account 
 of the theory of the science. The last 150 pages of the book 
 are given to a survey, fully illustrated by experiments, of the 
 leading families of inorganic compounds. 
 
 From Arthur W. Wright, Professor inY ale College : — The student 
 is not merely made acquainted with the phenomena of chemistry, bu* 
 is constantly led to reason upon them, to draw conclusions from ihem 
 and to study their significance with reference to the processes oi 
 chemical action — a course which makes the book in a high degree dis- 
 ciplinary as well as instructive. 
 
 From Thos. C. Van Nuys, Professor of Chemistry in the Indiana 
 University: — It seems to me that Remsen's "Introduction to the 
 Study of Chemistry" meets every requirement as a text or class book. 
 
 From C. Les Mees, Professor of Chemistry in the Ohio University : 
 — I unhesitatingly recommend it as the best work as yet published for 
 the use of beginners in the study. Having used it, I feel justified io 
 saying this much. 
 
THE AMERICAN SCIENCE SERIES. 7 
 
 CHE mSlKT—Contznued. 
 
 Elements of Chemistry, i2mo. 272 pp. 
 
 Utilizes the facts of every-day experience to show what chem- 
 istry is and how things are studied chemically. The language 
 is untechnical, and the subject is fully illustrated by simple ex- 
 periments, in which the pupil is led by questions to make his 
 own inferences. The author has written under the belief that 
 "a rational course in chemistry, whether for younger or older 
 pupils, is something more than a lot of statements of facts of 
 more or less importance ; a lot of experiments of more or less 
 beauty; or a lot of rules devised for the purpose of enabling 
 the pupil to tell what things are made of. If the course does 
 not to some extent help the pupil to think as well as to see it 
 does not deserve to be called rational." 
 
 Chase Palmer, Professorin the State Normal School, Salem, Mass.: 
 — It is the best introduction to chemistry that I know, and I intend to 
 put it into the hands of my pupils next Fall. 
 
 A. D. Gray, Instructor in Springfield (Mass.) High School : — Neat, 
 attractive, clear, and accurate, it leaves little to be desired or sought 
 for by one who would find the best book for an elementary course in 
 our High Schools and Academies. 
 
 GENERAL BIOLOGY. By William T. Sedgwick, Professor 
 in the Mass. Institute of Technology, and Edmund B. Wil- 
 son, Professor in Bryn Mawr College. Part I. 8vo. 193 pp. 
 This work is intended for college and university students as 
 an introduction to the theoretical and practical study of bi- 
 ology. It is not zoology, botany, or physiology, and is intended 
 not as a substitute, but as a foundation, for these more special 
 studies. In accordance with the present obvious tendency of 
 the best elementary biological teaching, it discusses broadly 
 some of the leading principles of the science on the substantial 
 basis of a thorough examination of a limited number of typical 
 forms, including both plants and animals. Part First, now 
 published, is a general introduction to the subject illustrated 
 by the study of a few types. Part Second will contain a de- 
 tailed survey of various plants and animals. 
 
 W. G. Farlow, Professor in Harvard University, Cambridge, Mass.: 
 — An introduction is always difficult to write, and I know no work in 
 which the general relations of plants and animals and the cell-struc- 
 ture have been so well stated in a condensed form. 
 
8, THE AMERICAN SCIENCE SERIES. 
 
 POLITICAL ECONOMY. By Francis A. Walker, President 
 
 of the Massachusetts Institute of Technology. 
 Advanced Course. 8vo. 537 pp. 
 
 "The peculiar merit of this book is its reality. The reader is 
 brought to see the application of the laws of political economy 
 to real facts. He learns the extent to which those laws hold 
 good, and the manner in which they are applied. The subject 
 is divided, as usual, into the three great branches of production, 
 exchange, and distribution. An interesting and suggestive 
 book on consumption is added, which serves to bring in con- 
 veniently the principles of population. The last part of the 
 volume is given to the consideration of various practical appli- 
 cations of economic principles to such questions as those of 
 Banking, Cooperation, Trades' unions, Strikes* Bimetallism, and 
 Protection." — The Boston Advertiser, 
 
 Briefer Course. i2mo. 402 pp. 
 
 The demand for a briefer manual by the same author for the 
 use of schools in which only a short time can be given to the 
 subject has led to the publication of the present volume. The 
 work of abridgment has been efifected mainly through excision, 
 although some structural changes have been made, notably in 
 the parts relating to distribution and consumption. 
 
 From Richard T. Ely, Professor in the Johns Hopkins University: 
 — " Let one who proposes to teach political economy master, first of 
 all, F. A. Walker's Political Economy." 
 
 From the Christian Union: — "Professor Walker is not only an 
 authority in his department, but he is an admirable teacher. His de- 
 finitions are remarkably clear; and though he throws out of his cal- 
 culations all other than merely economic considerations, he does so 
 avowedly, and continuedly reminds the student that other considera- 
 tions do exist — a respect for ethics not always paid by preceding 
 writers in the same field. He is also more modern, and shows a 
 more lively appreciation of the living facts of to-day, than most 
 writers of text-books on the subject " 
 
 From The Academy, London: — " With the merits of brevity and 
 clearness, it combines those of forcible statement and original 
 thought. In a condensed, yet readable shape, it presents all the 
 chief doctrines hitherto ascertained in political economy; and sum- 
 marizes with great fairness the arguments on both sides, on those 
 facts which are matters of debate rather than doctrine." 
 
 HENRY HOLT & CO., PUBLISHERS. N. Y. 
 

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