Institutes of Economics Andrews UNIVERSITY OF CALIFORNIA AT LOS ANGELES THE GIFT OF MAY TREAT MORRISON IN MEMORY OF ALEXANDER F MORRISON INSTITUTES OF ECONOMICS .-/ SUCCINCT TEXT-JWOK OF POLITICAL ECONOMY FOR THE USE OF CLASSES IN COLLEGES HIGH SCHOOLS AND ACADEMIES BY ELISHA BENJAMIN ANDREWS D.D. LL.D. President of Brown Universitv Late Professor of Political Economy and Finance in Cornell University ^-oJOio^--. ' • " ' " ' BOSTON SILVER, BURDETT & COMPANY 1894 Copyright, 1888 By E. benjamin ANDREWS TvpoGRArHY nv J. S. Gushing & Co., Boston Presswork by Berwick & Smith, Boston ) H N cr I 2 o C C9 MB A 9 K TO Hof-Rath Dr. Joh. A. R. i/on HELFERICH Professor of Economics and Finance in the University of Munich By his former pupil THE AUTHOR o ^l I r I 4344G1 apd yt rj OLKOvojua iTnaTi]firji TU'oi ovo/jm. ecrrti' ojcnrtp r] laTpiKr] KfU T] )^aXKtVTlK1] K(U rj TCKTOVIKT] ; . . . TJ KOJ. fJiCTTrtp TOVTWV TOIV Tt;^'u>»' t)(Oifiev uv ciirelv o.tl Ipyov (.KacrTrfi ovtw koi t^s oiKovofMuis Bvvai/xiff av (lirelv o,Ti ipyov aur^s ccrri; Soxei yovv. Xenophox, Oikonomikos, I, i, 2. PREFACE Two main motives have prompted the composition of this book, one concerning method, tlie other, doctrine. The most excellent manuals of Political Economy now in use seem to the author to involve two serious faults of method. One is that they nearly everywhere say too much, totally ignoring the instructor, and on most points leaving the pupil himself little thinking to do even when they stop short of positively confusing his mind in its efforts to construe the thought in its own way. The other is that they do not mark for the eye, in differences of type, any distinction between substantive and subsidiary material, their pages exhibiting prin- ciple and illustration, statement and amplification, clothed in equal dignity of form. It is believed both on psychological grounds and from much experience, that the best printed presentation of a subject for class-room purposes is the briefest which clearness will allow, leaving indispensable amplifications and illustrations to notes, and all fuller exposition to the teacher's wit or the student's search. This is the aim of the following pages. That the pupil, so soon as master of the essential idea, may be able to at once enlarge and tighten his grasp upon it through reading, most of the paragraphs are introduced by references to the best accessible authorities, more recondite works being at the same time named for the behoof of teachers. On collateral subjects of special importance the ablest convenient discussions are listed in notes. The analysis and ar- rangement of topics are in many particulars new, and it is hoped that some of the changes introduced will prove welcome. As the result of careful reflection, a prominence which may at first seem grotesque has been given to the paragraph-captions. Students will find this not merely a mnemonic convenience for the purposes of review and examination, but a most efficient objective help in grasp- VI PREFACE ing the science. Touching the doctrine of this new class-book there is less to say. As Economics is now in transition many depre- cate all effort at present to summarize it afresh. This logic, strictly taken, presupposes the advent, sooner or later, of a fixedness in the science which we fervently hope will never arise, since it could not but imply stagnation in economic thought. Meantime our best te.xts, with all that is tnie, profound, and well said in them, blend not a few propositions that what may be called the general judg- ment of progressive economists pronounces inadequate, misleading, or erroneous. Such are especially numerous in regard to the nature of Wealth, the scope of Economics, and in the weighty rubrics of Value, Money, Interest, Wages, and Profits. Nearly all our trea- tises, besides, betray from beginning to end a deceptive air, a wry ensemble, springing from writers' too sharp sundering of Economics from general Sociology. Whether the volume now oftered to the public contains in these respects aught of true amendment, those who read and use it must judge. They will at any rate find in it, not always adopted but at least sympathetically mentioned so far as these are sufficiently non-technical to be named in a work of this character, the latest views which can with any propriety pretend to be settled. The book has been written during the odd moments of a very busy year, and it will be a wonder if the critic's keen glance shall not unearth in it some inconsistencies and errors of detail. The author will be happy to be notified of any such. He is indebted to several gentlemen for their kind pains in looking over the proof sheets as they have appeared. In this, Professor J. W. Moncrief, Ph.D., of Franklin College, has rendered a peculiarly grateful service. E. BENJ. A.\ DREWS. July 3, 1889. TABLE OF CONTENTS INTRODUCTION I Economics Dulincd (i)* — § 2 General and Private Wealth (4) — § 3 Economic Evolution (5) — § 4 Economics a Science (7) — § 5 Modern (8) — § 6 Its Origin (9) — § 7 The Mercantile System (10) — §8 Progress (12I — §9 Physiocracy (14) — § 10 Adam Smith (15) — § II The Smithian School (17) — § 12 The Historical or Apos- teriori Tendency (19) — § 13 Professiorial Socialism (20) — § 14 The Socialists Proper (23)— § 15 Our View (25)— § 16 Value of the Study (28) — §17 The Division of Economics (30) PART I PRODUCTION Except as Involving Exchange CHAPTER I THE NATURE OF PRODUCTION § 18 Various Views of Productivity (31) — § 19 Wealth-Increment which is not Production (33) — § 20 Production (34") — § 21 Special Remarks on Prtuiuction (36) — § 22 The Conditions of Production (38) CHAPTER II THE ABSOLUTE CONDITIONS OF PRODUCTION Nature — Labor § 23 The Materials of Nature (40) — § 24 The Forces of Nature (42) — §25 Labor: its Necessity (43) — $ 26 Its Forms (44) — $ 27 Its Relation to Nature (45) * Figures in brackets refer to pages Viii TABLE OF CONTENTS CHAPTP:R III THE RELATIVELY ABSOLUTE CONDITIONS OF PRODUCTION Capital — Social Organization % 28 Capital Defined (47) — § 29 Kinds of Capital (48) — § 30 The Place of Capital in Production (50) — § 31 Society (52) — § 32 The State (53) CHAPTER IV THE RELATIVE CONDITIONS OF PRODUCTION § 33 Cieneral View (55) — § 34 Diminishing Return and Increasing Return (56) — § 35 The Labor-Force: Extent (57) — § 36 The Labor-Force: Quality (59) — § 37 Socialism and Production (62) CHAPTER V THE RELATIVE CONDITIONS, CONTINUED § 38 Extraneous Aids to Labor (64) — § 39 Geography and Topography (64") — §40 Material Capital in General (66) — §41 Machinery (67) — §42 Unembodied Invention (68) — § 43 The Organization of Indus- try (69) —§44 The Same in a Special Aspect (71) — §45 Evils and Limitations (72) — §46 The Form of Undertaking (73) CHAPTER VI COST AND CONSUMPTION IN PRODUCTION §47 Metaphysical Cost (76)— §48 Mercantile Cost (78)— §49 Con- sumption (79) — §50 Waste and Thrift (80) PART II EXCHANGE Except as Involving the Science of Money CHAPTER I THE NATURE OF EXCHANGE § 51 In Rude Societies (83; — §52 Philosophy (85) — § 53 Intrinsic Advantages (86) — § 54 Riadi (,f Innucnce (87) — § 55 The Per- fection of Exchange (90) TABLE OF CONTENTS IX CHAPTER II INTERNATIONAL EXCHANGE §56 Initial View (92) — §57 Common Ground (94) — §58 The Theory of Nutrient Restriction (96) — § 59 Continuation (98) — § 60 Impor- tant Specific Points (99) CHAITER III VALUE: GENERAL § 61 Value and Value (102) — § 62 Value in Use (103) — § 63 Value in Exchange (105) — §64 Price (107) — § 65 Normal Value in Ex- change (107) CHAPTER IV VALUE: PECULIAR PROBLEMS § 66 Competition and Value (no) — § 67 Monopoly Value (112) — § 68 Values lietween Non-Competing Groups (113) — § 69 Complex Cases of Value (114) — § 70 A Measure of Exchange-Value (115) — § 71 The Value of Futures (117) PART III MONEY AND CREDIT CHAPTER I THE NATURAL HISTORY OF MONEY §72 Barter (118) —§ 73 Primitive Money (i 19) — §74 Money Proper (120) — § 75 The Money Metals (121) — § 76 Mode of their Dis- tribution (124) — § 77 Bimetallism (125) CHAPTER II BANKS AND PAPER MONEY § 78 Banks of Deposit (128)— § 79 Developed Banking (129) — § 80 Government Paper (130) — § 81 Historical (131) CHAPTER HI THE THEORY OF MONEY § 82 The First Function of Money (134) — § S3 The Second Function (135) — § 84 Other Offices of Money (136)— § 85 The Value of Money (137) — §86 Paper Money (139) — §87 Ideal Money (14O X TABLE OF CONTENTS CHAPTER IV CREDIT § 88 The Nature of Credit (143) — § 89 Credit and Crises (144) — § 90 F'urther Abuses of Credit (145) — § 91 Free Banking (146) — § 92 The John I jw Theory (147) — § 93 Fiat Money (148) CHAPTER V THE CLEARING SYSTEM § 94 Settlements by Check (151) — § 95 International Payments (153) — §96 Special Modifiers of the Rate of Exchange (156) PART IV DISTRIBUTION CHAPTER I THE NATURE OF DISTRIBUTION §97 General Statement (158) — § 98 Categories and Shares (159) — § 99 Blending (161) — § 100 The Law of Equal Returns to Last Increments (162) — § lOi The Other General Laws of Distribution (162) — § 102 The Fifth Category ('164) CHAPTER II RENT § 103 Rent in General (165) — § 104 Ground Rent (166) — § 105 Rent and Price (167) — § 106 Peculiar and Nominal Rents (168) — § 107 Controversy (169) CHAPTER III INTEREST § 108 The Nature of Interest (171) — § 109 I>oan Interest (172) — § no The Rate on I^ans (173) — § in Inflation and Interest (175) — § n2 Usur.' I^ws (176) TABLE OF CONTENTS XI CHAPTER IV WAGES 5 113 Definition (178) — § 114 Cause and Source (179) — § 115 Devel- oped Wages (180) — § 116 The General Rate of Gross Wages (181) — §117 The Residual Claimant Theory (182)— § 118 The Trutli (183) — §119 Concluding Points (184) CHAPTER V PROFITS § 120 Terminology (186) — § I2i Undertakers' Profits (187) — § 122 I'ndertaker-Talents (188) — § 123 Profits, Prices, Wages (189) PART V CONSUMPTION CHAPTER I NEED §124 To Resume (190) — § 125 Elasticity of Need (191) — § 126 Fashion and Progress (192) — § 127 Legitimacy of Need (193) CHAPTER n ECONOMY IN SUPPLY § 128 Generic Principles (195) — § 129 Specific Principles ('95) — § 130 Prevention of Loss (196) — § 131 Luxury and Idle Wealth (197) PART VI PRACTICAL TOPICS INVOLVING ECONOMIC THEORY CHAPTER I COIN CURRENCY IN THE UNITED STATES § 132 Colonial Times (200) — § 133 Earliest National Coinage (201) — § 134 The Dollar of the Fathers (203) — § 135 Remonetization (204) — §136 The Future (206) XII TABLE OF CONTENTS CIIAITER II PAPER CURRENCY IN THE UNITED STATES § 137 Early (208) — § 138 Thence to the Civil War (208) — § 139 Gov- ernment Taper (209) — § 140 Government Banking (210) — § 141 The National Bank System (212) CHAPTER III OUR PAPER CURRENCY IN FUTURE §142 Present System (213) — §143 Difficulties (214) — §144 Proposed Change of Basis (215) — § 145 Probable Outcome (216) CHAPTER IV TAXATION § 146 General Principles (218) — § 147 Direct and Indirect Taxes (219) — § 148 Norms of Direct Taxation (220) — § 149 Taxation of Income (221) — §150 Emergency Taxation (222) CHAPTER V POVERTY §151 The First Class of Remedies (223)— § 152 The Second Class (224) — § 153 Ultimate Help (225) INSTITUTES OF ECONOMICS -s-oXXoo- INTRODUCTION § I Economics Defined, Cossa, Guide, ch. i. Aft'//, Essays, 1829, on Method in Pol. Ec. Sidgvjick, on do., Formighlly, 1879. Roscher, Grundlagen, Einl., ch. i. Cohn, Crundleg/ing, Einl., chaps, i, ii, iv. Gamier, Trai'U ci'ecoii. po!.,6iz-'$. Ecoiioiuics^ is that branch of learning conversant about general wealth, wealth being the collective name for all those categories ^ of things, powers,^ rela- tions, and influences, which both result from conscious human effort and directly* contribute to human wel- fare in its temporal aspect. Single pieces or elements of wealth may be called * goods '° or 'values.'^ No- tice in this definition (i) that not all wealth is of a material^ nature, and (ii) that the mark 'exchange,' though helpful in forming the conception of Econom- ics, is accidental rather than fundamental " thereto, since a study substantially the same might e.xist if men did not exchange. Economics, in discussing wealth, has of course also to canvass the condi- tions^ of wealth. 2 INTRODUCTION > Originally aiul liy etymology, " house-management," yet not indoot merely or mainly. oIkos meant "estate," "property." Macleod, Ele- ments, vol. i, 132. liacon still useu cconomia in its classical sense. The title " Political Economy " [^^conoinic politique\ first by Montchretien dc Watteville^' in-. 1615... ;It is-still in excellent use, but "Economics" is clearer as well as "briefer. RoSOher, 5 16, folhnving Uhde, who intro- duced the word in 1S49, prefers Ockonomik to name economic science, using Oekonomie to mean economic life. Few if any have followed this distinction, and Cohn, p. 5, explicitly repudiates it, sticking to Oekonomie as appellation for the science. Cf. § 3, below. 2 Isolated articles may be wealth, though costing no labor, as an aerolite of gold falling at your door, or a pasture-weed discovered to be a specific. But the classes of goods in which these examples belong are gotten only by labor. ^ So far as they fall under the definition, i.e., spring from man's effort and make for his welfare, powers, intellectual or physical, 7-elalions, as the good name or the custom of a business house, and injlueuccs, such as a great advocate's reputation gives, are no less truly wealth than houses, garments, or bread. If the definition of wealth as always material is simpler, which is certainly the case in expounding Distribution, it is less deep and truthful. Why, e.g., term medicine wealth, yet deny the name to the skill able to cure without medicine? In crucial analysis, material wealth itself becomes wealth only in and through its immaterial relationships. Wheat is not wealth merely because so and so constituted physically, but because it is here instead of beyond reach, adapted to our constitution, and not repugnant to our taste. Now these relations are not material entities at all. Millions of goods that have length, breadth, and thickness, would be turned to refuse by trifling supposable changes in the psychical side of our sensi- bility. This is a most important consideration; though it is of course quite possible to frame a system of workable economic definitions on the material basis. So doing, we should style these powers etc. [immaterial wealth], (ondilions of wealth [note 8]. Bohm-Bawerk, Kechte und Verhaltnisse. * There are high elements of character, perhaps also physical products, like unsalable keepsakes and family heirlooms, which are the creatures of effort and have a certain bearing upon our well-being, yet in so remote a way that it is unnatural to reckon them as wealth. 6 Most German writers approach the definition of Economics from the notions of " needs" and " need-salisficrs" or "goods." Cutting off non- temporal goods on the one hand and gratuitous ones on the other, they fence out the same economic field which our definition covers. Thus,— INTK(Jl)UCTION CO N non-temporal I S temporal N EED-SA TIS FIcaERS or GOODS gratuitous •• In the sense of " labor-requiring utilities," hut not in any meaning which would involve the idea of exchange. Cf. note 7. Kor the force here assigned to "value," see the Chapter on this topic in Part II. Cf. Roscher, § 5 and notes. ■ Contrary to the " catallactics-theory " of Economics, held by Con- (lillac, Bastiat [Harmonies, ch. iv], Whately, Macleod, and Perry [Ele- ments, ch. iii], which builds the study entirely about the conception of exchange as centre, reducing it to an investigation of exchange-value. This procedure at first attracts by the simplicity it seems to impart, but is gravely unscientiiic. Exchange is not the substance of man's economic life, but an incident, though an important one. We can easily conceive a very complete set of economic phenomena, calling for investigation and offering full basis for a science of Economics, exchange being totally absent. Suppose a number of Robinson Crusoes [cf. Roscher, p. 5], some well off, some ill off. There would h'i. reaions for the difference, inviting study. Pio- neers in new lands exchange little, yet vary greatly in weal. So the Indians before the whites came, and so, still better, the ancient Peruvians. This is the chief objection to the theory named, but far from the only one. Mill, Principles, bk. iii, ch. i, § i. Cf. post, § 3, n. 9. * " Object-phenomena of Economics," that is, is a broader conception than " wealth," including things, circumstances, etc., helpful to wealth, and things, circumstances, etc., unfavorable to the same. Originnl fertility of the soil, with mines, water-powers, and the other " natural " wealth of any country, would illustrate what is meant by conditions of wealth. So would the native endowments of the people which aid thrift and accu- mulation, and also any acfpiired powers having the same tendency, if built up without conscious aim. The state is a prime condition of wealth. .\t this point again, however, imperfect definition need not prevent clear insight. IXTRODUCTIOX >? 2 General .\xn Private We.xlth Stcrck, Zur K-itik d. Begr. von Naticnalreichthum [1827]. Marshall, Economics of Industry, § 7. Hau-ley, Quar. Jour. Econ., vol. ii. 365 sqq. hiatna-Siernegg, V'otn Sational-ReiLhthum, Deutsche Ji tindsch a u, June, iSS;^. Neuniann-Spal- lart, ll'eHwir/scha/t, jahrg. iSSi-4, pp. S sqq. Schmoller, Forschungen,W\. General, national, or co.sniic wealth is not merely the summed possessions^ of individuals and mercantile corporations. Immaterial wealth and public property must be reckoned in, and either titles or the thinirs to which they entitle omitted.^ Valid titles held by per- sons in one land to values in another are, however, part of the first land's wealth ; but all such rights have to be excluded from an inventory of the world's wealth. In estimating general wealth the test of exchange'* value has but very limited application. ' "The wealth of the country being the aggregated wealth of its citi- zens," Gannett, in Int'l Rev., vol. xii. Mulhall computes the world's wealth at about 255 billion dollars: lands and forests 84V billion, cattle 10} billion, railways 20, houses 61, furniture 30J, merchandise 6i, bullion nearly 5, shipping li, other forms of material goods nearly 20. He de- parts from Gannett's loose maxim so far as to reckon in public works, — at 15I billion. As to the rest he probably estimates by exchange value [see n. 4]. Computing as he does, and omitting public works, we may place the whole wealth of the United States in 1888 at 51 billion, the yearly earnings at from 10 to 12, the yearly savings at 900 million, and the daily [week-day] savings at 3 million. Such approaches to fact are valuable for comparison of nation with nation and section with section, still are approaches only. The same is true of the following wealth-statistics from the United States Census Reports. Th^ Nation's Percentage of Percentage of .\verage No. Census of Population Wealth: Millions Increase in Increase in of Dollars of Dollars Population Total Wealth f>er capita 1800. . . 5.305.937 :,072. 35.02 43- 202.13 1810 . . . 7.239.814 1,500. 36-43 39- 207.20 1820 . . . 9,638,191 1,882. 33-13 24.4 •95. 1830 . . . 13,866,020 2.653- 3340 41- 206. 1840 . . . 17,069,453 3.764- 32.67 41-7 220. i8so . . . i860. . . 23,191,876 7,«35-8 35-87 89.6 307.67 31,300,000 16,159. 35-59 126.4 ' 5»4- 1870 . . . z8fe. . . 38,558,000 30,069. 22. 86.1 780. 50,155.783 43.642- 30. 43- 870. IXTRODUCTIOX J 2 The immaterial variety is never referred to in listing wealth. The chief reason for the omission is the indefiniteness of the thought and the difficulty of appraising immaterial riches in dollars and cents. But assuredly it ought not to be ignored. Dollars cannot measure the superiority of health to sickness or of satiety to hunger, yet these differences are as thinkable and important as they are familiar. •■' If a mortgaged farm is put down for its whole worth and the mort- gage too, evidently all the property covered by the mortgage is twice told. So of a railway and its stock or bonds. In case of a great corporation, if we are summing up the nation's wealth, a careful inventory would be a much safer index than the market value of the stock. A given patent or copy- right is no increment to the national wealth, though a good system of such rights might be. Certain credit-instruments are wealth [§ 84, n. 3, § 86, n. 3]. * Even Knics, Geld, 23, takes money-exchange power as practically his criterion of wealth. But there is a vast deal of every land's wealth whose proportion to the whole is not so much as indicated by its power, if it has any, in exchange. How little would roads and streets sell for in compari- son with the contribution they make to the community's welfare? Good sewers are worth all they cost and usually much more, but could not be sold at all. § 3 Economic Evolution Schaejffle, Ban u. Lebeii Except perhaps in personal clothing and each man's kit of utensils for taking and skinnfng animals, etc., and for war. « Hunters could utilize slaves only by giving them arms, which would render them dangerous; but shepherds may employ them for herdsmen. ' That is, though agriculture forms the staple calling, the lower kinds of industry still continue. Besides, many ancillary trades are now demanded, as those of smiths and wood-workers. f Metal money has been found among pastoral nations, gotten probably in the way of exchange with those more advanced. Cattle [so pecunia, from tectu. " Cattle " and " capital " are originally the same word, from capuJ INTRODUCTION / through aipi/alis, c] arc their common medium of exchange. Slaves, too, are so used. In stage i barter prevails. I'or the difterence between barter and money, see in Part 111. Ancient society at this general level (iv) differed from modern. It did not reject slavery, and its cities sprung from commercial not from manufacturing necessities. Greece and Rome had no factories, whence to form cities like Lowell or Patcrson. There were at Athens, indeed, immense workshops, where thousands of slaves wrought, but apparently they did not exist to secure division of labor. Blanqui, vol. i, 31- '■' The stage on whose phenomena all the current English works in Eco- nomics are based, — Adam Smith, Ricardo, Mill, Senior, and the numerous manuals which have been published this side the Atlantic. Only quite recently have economists seen the need of a bioader historical outlook. Cf. §§ II, 12. For a graphic comparison between xivth and xixth century society, see H. C. Adams, Outline of Lectt. upon P. E., 67 sq. § 4 Economics a Science Marshall, Ec. of Ind., § 2. Mill, Logic, bk. vi, ch. iii, cf. ch. vi. Schurman, Eth. Import of Darwinism, ch. i. IVagner, in Quar. Jour. Econ., vol. i, 117 sqq. Cohn, Einl., ch. ii. Rosclier, Einl., ch. ii. Cossa, pt. i., ch. iv, pt. ii, ch. i. Newcomb, Princt. Rev., Nov. 1884. Cairnes, Logic.il Method, i, ii. As Economics canvasses phenomena in classes, and ascertains and expounds their underlying laws, it may, however inexact and as yet incomplete, justly be re- garded a science.^ In this character it is partly de- ductive, partly inductive, the first as applying certain already admitted laws of human nature and of physics, the second, inasmuch as by the aid of observation, ex- perience, statistics, and history, it sets forth the concrete working of these laws and finds out others. ^ See Mill, as above, ch. vi, also chaps, ii, x, xi. It has been objected that Economics cannot be a science because man's will is free. But free- dom and action under law are not incompatible. The notion that there is no science but exact science is as vicious as it is common \^iier iiber den Strang dcr " /■'xatl/teil" schlagenJer iValur/orscher, SchaefFle, Letters, 15]. A science may be called exact when the causes and laws with which it deals arc not only knowable but known. Pure mathematics approaches 8 INTRODUCnON (his character nearest. A potentially exact science, whose causes and laws are in their nature knowable but not yet studied out, as meteorology and tidology at present, might be styled " incomplete." " Inexact " are those sciences where occult causes, whose working the human mind with its present powers is unable to trace, more or less perturb the action of the knowable and known causes. All the social sciences, including Fxono- mics, are of tlie last order, as, in a degree, are all those which have to do with life. Study § 15 [and notes] along with this one. § 5 Modern Ingram, Hist, of Pol. Ec, chaps, i, ii. Ferry, Elements, ch. !. The science i.s of recent origin. In ancient, and even in mediaeval times, while many true notions re- garding it were advanced, as by Plato, Aristotle, Xeno- phon and the Roman lawyers,^ its facts were too little observed and reduced to order to constitute a science. The real springs of public prosperity were either un- perceived or not investigated.^ Slavery was universal, the accumulation of wealth decried.'^ Industry and the mechanic arts were despised, wars continual, and, as to property, far more destructive than now, subju- gated lands laid waste, and no means recognized of enriching one country but plundering others. ' Thus Plato has these worthful apcr(;us : gold and silver not valuable in se ; too much gold possible; the advantage of the division of labor [the last, shared by all the ancients above named]. Aristotle distinguishes utility from value and natural wealth from artificial. Xenophon descries the true nature of wealth, of money, and of prices, Dcmostlienes that of capital [ai^op/x^, ipa.voi\. D. extends the notion to cover incorporeal caji- ital. Ulpian neatly defines property [not wealth] as what can be bouglit and sold : F.a enim RKS est quae e»ii el venire polcsl. But all these writers, to mention no more of their false ideas, believe in slavery and over-value money. Is Horace consciously arguing against the bullion theory [§ 7, n. 3] at Sat. I, i, 40-45, "Unless you reduce your gold-pile it has no beauty"? On the Roman authors of economic ideas, Ingram. 18 sqq. INTRODUCTION 9 - The only wealtliy nations of antiquity wliicli Ijreil minds capable of pursuing such a study were Athens and Rome, precisely the ones whose entire economic development was artilicial. They became rich by exploiting, one the Confederacy of Delos, the other the world. * Cicero, de officii s, i, 42, perfectly sets forth in this matter the spirit of the classical world : Jlliberales autem et sordidi quaestus mercenariorum omnium, quorum operae, uon artes emuntur. Est autem in illis ipsa merces nuctoramentuni servitutis. Sordidi etiam putandi, qui mercantur a mercatorihus quod stalim vendant, nihil enim projiciant, nisi adtnodum mentiantur. Nee vero est quidquam turpius ^ujiiitate. Opificesque omnes in sordida arte versantur ; nee enim quidquam ingeiiuum habere potest officina. . . . Quihus autem artihus aut prudentia major inest, aut non mediocris utilitas quaeritur, ut medicina, ut architectura, tit doctrina rerum honestarum, eae sunt iis, quorum ordini conveniunt, honestae. Mercatura autem, si tenuis est, sordida putanda est; sin magna et copiosa, viulta undique apportans, multaque sine vanitate impertiens, non est admodiim vituperanda. . . . Omnium autem rerum, ex quibtts aliqtiid acquiritur, nihil est a^^ricultura melius, nihil uberius, nihil dulcius, nihil homine libtro dignius. § 6 Its Origin Blanqui, chaps, xiv-xxx. Ingratn, ch. iv. Laughliii, eJ. of Mill, Int. Sketch. The necessary new thought was turned to economic facts mainly through : i Commercial activity during and after the Crusades/ and especially after the period of tliscovery began, ii Rise of prices incident to the in- creased bulk 2 of the precious metals consequent upon opening the American mines, iii Frequent deba.se- ment of monies by monarchs.''^ iv New need of reve- nues and the changed mode of raising these, attend- ing the transition from feudalism to modern states.* V Questions of trade arising in the application of the European col<)nial system.^ vi Enlarged acquaintance with the economic conceptions of the Roman law.*" vii The tlcvclopment and organization of credit. lO INTRODUCTION ^ The greatness of the famous merchant cities, Venice, Genoa, Pisa, and Ainalti, now began. Commerce and business were henceforth reputable, and men engaged in them could be raised to the nobility. The Ilanseatic League dates from about 1260, ten years before the last crusade. On this see Blanqui, ch. xvi. - The general law is, the more money in circulation the less the pur- chasing power of each piece, and the higher the range of prices. See the liiscussions of Part III. 3 Their regular resort for centuries so often as impecunious. The usual mode was, while leaving the face of the coins unchanged, to abstract part of the true metal, putting baser in its place. Not seldom they would force the money so debased into circulation at its face value, and accept it only at its real value. So did Emperor Ferdinand II in Bohemia, 1620. ■• This change involved paid armies, costly ministries and embassies and the expensive pomp and circumstance of great courts. Systematic taxa- tion and fiscal machinery had to be resorted tt), enforcing economic study. ^ See Blanqui's excellent chapter [xxiii] on this. Every nation which had colonies regarded and used them simply as means for enriching the mother state. There were three different plans for accomplishing this : i Spain and Portugal kept colonial trade in the hands of the government, ii Hol- land, Sweden, Denmark, and France till 1720, placed it exclusively in the power of a gigantic stock company, iii England [Lecky, Eur. in xviiith Cent., vol. ii, 8 sqq.], also I-Vance after 1720, effected a national monopoly by navigation laws practically to exclude foreign vessels from visiting their colonies. Here again m as necessity for study. 6 Roman law was at no moment in the middle age disused or unknown, but the discovery, at the sack of Amalfi, 1 135, of the Florentine copy of the Pandects immensely stimulated the study. § 7 The Mercantile System Ingram, ch. iv. Ad. Smith, Weahli of N.T., bk. iv, ch. i. Roscher, Gesch. d. Nat. Oek. in Deutschland, 22^ %(\(\. /Vrry, Klcments, ch. xiv. /*/(7h^«/', chaps, xxvi- xxix. Schoenberg, \o\.\,6-iSi\(\. Cossa, GmAc, iiq sqq. OV/j/, 94-100. While much vigorous economic thinking^ was clone in the middle age, especially by the canon lawyers, the earliest serious efforts to arrange economic data as an orderly whole were made in Franco, resulting, provis- ionally, in the so-called Mercantile System. ^ This, INTRODUCTION II neglecting aprriculture, magnified other businesses, and coninierce in particular, yet, regarding money as the most real form of wealth,'*^ insisted that in order to profit by trading, a nation must have the * balance of trade"* in its favor, work mines, tax imports, subsi- dize exportation, and conduct its whole policy with the view of amassing the greatest possible hoard of the precious metals. To this end ubiquitous governmental regulation of industries was necessary, with privileges and monopolies to all inland business deemed import- ant, also encouragement to domestic shipping, discour- agement to foreign. These notions, while more explicit in France, were common to all Europe, and determined the character of economic and international politics for centuries. Not even yet are they fully overcome.^ 1 Particularly upon money and the problem of a fair price [justum pretium']. The latter was discussed by every great theologian from St. Augustine down. This renowned doctor condemns the man who would vili einere ct caro vendere, and after him the whole mediaeval church taught that such a practice was wrong. By justum pretium was meant cost, including labor and time of the salesman in getting, keeping, and sell- ing his ware. The principle of supply and demand as price-determinant was, so far as recognized at all, denounced as necessarily unrighteous. Far clearer was mediaeval thinking on the subject of money. Nicolas Oresi- mus, bp. of Lisieux, f 1382, has left us a sermon containing a theory of coinage almost exactly modern in its ideas. Yxom. the schoolman, Gabriel Biel, we have another monetary discussion of decided worth. 2 Sometimes styled " Colbertism," after Colbert, the distinguished min- ister of Louis XIV. On Colbert's views, Roscher, as above, 229, and Blanqui, ch. xxvi. The latter will have it that the system was Italian in origin, and brought to honor by Spain, and that in spirit Colbert was not a mercantilist at all. His mercantilist views were certainly more moderate and sensible than most of those advanced by his school. Cromwell was the chief, though far from the only, English ruler to push the mercantilist policy. Frederick the Great, also his father, dihxa.?>c laissezfairc w:^s introduced to scientific literature in 1736, by the Marquis d'Argenson, finance minister to the Duke of Orleans, Regent of France after Louis XIV's death. Dr. Gournay was the earliest physiocrat to utter it, which he did with the addition, " et laissez passer." From him this language became the physiocrats' watchword [not, however, separating "/aire" and "passer" as if they meant respectively "produce " and "ex- change"]. See on this, Pol. Sci. Quarterly, vol. ii, 706. 3 At a good remove, however, from the thought of Henry George, i The physiocrats would tax improvements on land : George not. ii They expected revenue mainly from country sections and from fertility of soil: he has regard to unearned increment from the growth of cities, towns and villages, iii They taxed the product of labor, and because it was such : he sedulously exempts this. ■* "The state of nature was the reign of God." Pope, Essay on Man, Epistle iii, line 149. This essay is a great jnece for the doctrine of a state of nature and for the ethics of the XVIIIth century. The thesis of Ep. iii is that the interest of one is the interest of all. Sir H. Maine, in his Ancient Law, traces the history of the " law of nature " conception. The distinction between man's condition untler the minimum of society's influ- ence and that amid the play of fully developed social forces, is real and importaHt. One may, for lack of nicer descriptives, name these, as the physiocrats did, respectively the state of nature and the state of culture. Only it is senseless to account the latter as of necessity depraved or per- verse. It, too, is in its way a state of nature. This admission should not, however, carry us to the counter error of praising all past acts or states of society as alike good simply because they have had place in history. Into this fallacy fall those [§ 7, n. 5] who attempt to justify Mercantilism. § 10 Adam Smith Ingram, 87 sqq. " Smilh, Adam," in the Cyclopedias. Cossa, pt. ii, ch. v. Cohn, 107-115. Buckle, H. of Civilization, vol. i, 152 sqq., 602 sqq. But Economics can hardly be said to have attained scientific rank till the publication, in 1776, of Adam l6 INTRODUCTION Smith's Inquiry into the Nature and Causes of the Wealth of Nations, — a truly epoch-making^ work, far the most important single treatise ever devoted to the science. The material, so rich and large, which Turgot, Hume, and others had gathered and partially systema- tized, it at the same time utilized, purified, and arranged. Smith's central thought, instead of commerce on the one hand or agriculture on the other, is Industry, which he makes include both. In his system labor is the one source of value and ultimate determinant of prices. Productive labor, which is here, against the physiocrats, extended to include manufactures and commerce, though not * services,' 2 as of teachers, physicians, savaus, etc., is declared to be the real creator of wealth. Smith agrees with the physiocrats that, as a rule,^ industry ought to be unimpeded by governmental action, left to free competition under the benign spur of individual self-interest. Like them, too, he continually appeals to what is natural.^ The exceeding merit of Smith's per- formance lay in his exhibition of the laws governing economic phenomena, and in his facile and copious presentation of historical proofs. His book also con- tains a number of discussions, masterly and never yet equalled, of certain weighty specific questions, as taxa- tion, the advantages of the division of labor, the causes of the diversity in wages, and the difference between money and other capital. His refutation of the bul- lion theory it would be as hard to improve as to impugn. ' IIo'.v far Smith was a creator will be debated always. He raised few new problems, and the scope of his actually fresh insight was not large. But he saw in every direction somewhat that was new, and saw clearly INTRODUCTION 1 7 what he saw, whether at first or at second hand. Withal he knew how to expound feUcitously, keeping up interest amid the dreariest details. His position as to Economics is much like Plato's touching philosophy. Each had numerous and great forerunners, yet succeeded in making himself for- ever the necessary point of departure for every intelligent student and writer in his line. Whole pages and chapters in the most recent treatises, however remote the writer's standpoint from that of Smith, read as but transcripts from the old master's book. •^ He does not, in naming them unproductive, deny the usefulness of such services. They may be even indispensable. Productive is labor which creates wealth, and it is Smith's habit to restrict wealth to material entities. Useful abilities, however, he designates as capital, and hence, it would seem, must have thought them wealth as well. The two lines of representation appear inconsistent. 5 He approved England's navigation policy [§ 6, n. 5], as a means not to national wealth, but to the naval power so necessary for England in facing other nations. Smith was far from going the physiocrats' length in denouncing all governmental touch of industry. * See preceding §, n. 4. § 1 1 The Smithian School Ingram, 110-195. Breniano .Die klassische Oekonomie [1888]. Lunt, Pres. Cond. o( Pol. Econ. Cohn, 115-123. Sidgivick, Principles, Int. Bagehot, Ec. Studies, iii. The influence of the Wealth of Nations upon eco- nomic thought was very great. Hundreds of keen minds turned to the new science ; minor points of its theory were worked out ; its tenets began to shape legislation.' Ricardo was the next noted general expositor in Eng- land, J. B. Say in France. Ricardo powerfully im- pressed James Mill, Senior, and J. S. Mill, through whose able presentations of the subject he silently be- came for all lands its accepted interpreter. Adam Smith was still praised much, but read less and less. His nar. rowness and errors were perpetuated, and his abstrac- tions, untempcred by his regard for history and concrete fact, taken literally as universal truth. Dogmatism, apri- 1 8 INTRODUCTION orisni, and passion for crisp formulae prevailed. Xo side of man was studied but the economic, and this was assumed to have presented itself always and every- where as in England during the early XlXth century.^ Like defects marked the evolution in France,^ Italy, and America. Such an exhibition of Economics,* dr^', eccen- tric and partial, rather than in the full sense false, con- tinued till yesterday the dominant one. Authors be- longing to this Orthodox School have, however, always differed among themselves not only upon lesser but upon fundamental doctrines. Such have been : i the degree and location of the scientific character attach- ing to Economics, ii the proper limits of laissez faire, iii the theory of Population, Malthus and his critics, iv that of Rent, Ricardo and his, v that of Wages, vi that of 3Iouey. ^ As in England the Factory Laws and the abolition of protective duties. - The misapprehensions, it will be seen, were mainly three, those of i) ' perpetualism,' ignoring the change in human nature and society from age to age, ii) 'cosmopolitism,' ignoring the differences among various peo- ples at the same time, and iii) assuming an ' economic man,' when in fact no man's motives are ever solely economic. [^Riimelin, Red. u. Aufsaetze, I» P- '3-] The first of these errors was the worst. ' Only here with more originality and variety. Bastiat [§ I, n. 7] was the ablest French writer after Say and had wide influence in France and outside. His, especially, is the doctrine of economic optimism, that the highest social weal is attained when each individual follows his own inter- est. English economic masters have never urged this. * One sees how far just and how far unjust it is to call all this 'Smith- ian.' ' Ricardian ' would be a stricter designation. German writers refer indiscriminately to the ' English School,' ' Manchester School,' ' Apriorists,* 'Dogmatists,' 'Cosmopolites,' as holding these notions. J. S. Mill had before his death, in 1873, emancipated himself at many points into a more truthful manner of viewing the science; and the other writers here re- viewed were by no means so absolutely out of the way as has often beea INTRODUCTION IQ represented. No critic has yet succeeded in judging between these and the newest writers with satisfactory impartiahty and insight. Sidgwick, Principles, does best. § 12 The Historical or Aposteriori Tendency Sidgivick, Principles, Int., iii. Ingram, ch. vi. James, Pref. to Ingram. Rotcher, § 26 sqq.; Prelim. Essay, in Eng. Tr. Cohn, 157-180. Smith [R. M.] and others, in " Science Economic Discussions." Inevitable reaction came, taking chiefly two shapes, a Socialistic and an Historical, the former attacking more the laissez-faire doctrine, the latter the apriori character previously ascribed to the science. Hilde- brand,^ Knies, and Roscher^ were the pioneers in the historical path, and their spirit and method have more or less affected nearly every economist in the world. ^ Hence, (i) the greater insistence now on historical and statistical knowledge in interpreting and applying eco- nomic laws, and (ii) the inclination in many quarters to see in Economics iiotliing universal or of the nature of law, but only a pha.se of history,'* a product of times, localities, and national peculiarities, requiring different maxims for different peoples. Man and society, it is urged, essentially alter with centuries and climes. Eco- nomic theory itself as well as economic practice is mat- ter of historical evolution, growing up in 'living con- nection with the entire organism of a period in the life of humanity and of peoples, with and out of the given conditions of time, space, and nationality, in fact con- sisting in these, and passing on with them to new devel- opments. Even the general laws of Political Economy are nothing but an historical explication, an advancing manifestation, of the truth, a mere generalization of the facts recognized up to any given point, and cannot as 20 INTRODUCTION to either sum or formulation be declared unconditionally complete.' ^ 1 Died in 1878. - In the history of Economics and in economic history the most learned man living. lie is commonly referred to as head of the historical school, but Knies is a far more radical opponent of the English method. 3 Cf. § 3, n. 9. * But by no means all aposteriorists go as far as this. Roscher himself does not, his exposition agreeing in the main rather with Adam Smith's. He decidedly alleges Economics to be a science, based on laws. So, indeed, does Knies, but he minimizes more than R. the resemblance of these [social] laws to those of physics. * Knies, Pol. Oek., p. 24. This he opposes to the ' absolutism of theory ' which he charges upon the apriori economists. The quotation goes on : ' The absolutism of theory, whenever it does happen to display validity at a certain stage, is simply a child of that time, and characterizes but a par- ticular period in the development of the science.' This is easily seen to be the development hypothesis of general philosophy applied to Economics. § 13 Professorial Socialism Coisa, Guide, zg6. Z.#, Socialism of To-day, ch. xii. Rae, Contemp. Socialism, ch. V. E/y, French and German Socialism, ch. .w. Held, Grundriss fur Vorle- sungen, 25 sqq. Schntoller, Ueber eittige Grund/ragen, etc., 31-50, also 93 sqq. Meyer, Neuere Nationalokonomie , 227 sqq. This expression names a bold and popular phase which, since 1872, economic theorizing has assumed especially among professors of Economics, and in Ger- many. In that land this is now the ruling school, and an increasing number of the foremost English and American economists are its adherents. The professo- rial socialists,^ like the aposteriori.sts, have little faith in any natural or universally valid laws of Economics, and insist on the relativity of its doctrines to time, place, and hi.story. They indeed differ from writers like Ros- cher,2 less in virtue of any strict principle than through INTRODUCTION 21 peculiar emphasis upon certain points, i They make 'wealth ' (Hstincllv subordinate to *maii' as the central economic conception, refusing to sunder Economics sharply from sociology in general.^ ii They assert a vital relation between ethics and Economics, insisting that human nature is essentially altrnistic, and that, go far from self-interest, in whatever sense,* being the sole economic motive, wealth is always in large part a product of moral antl religious factors, iii They ardently op- pose laissc" faire as presumptive maxim,^ ami deny Bastiat's contention that harmony of interests must accompany free competition. iv Believing that eco- nomic law is very much the creature of legislation, they freely recommend governmental intervention to assuage inequalities of fortune^ and social ills of nearly all sorts. V They rebuke the inclination of the older economists to identify Economics with the mere pro- duction of wealth, and urge attention to questions of distribution as even more important. ^ This name, Kathedersocialisten, or socialists of the [teacher's] chair, was first applied in derision, to ridicule the alleged proposal of the new theorists to settle the social question ' by university lectures.' The move- ment originated in Schaellle's Capilalismns u. Socialismus, 1870, Wagner's Kede ueber die Sociale Frage^ 1 871, and Schoenberg's treatise entitled Arbeitsaemter. October 6 and 7, 1S72, a convention was held at Eisenach, and the next year the Verein fiir Socialpoliiik formed in the interest of the new views. Besides the three writers named, Brentano, Held, Nasse, Schin.oller, and von Scheel, have been prominent as socialists of the chair. The men who share this tendency, by no means agree in details or even in all the doctrines which themselves consider important. See next note. - Some of them, as Schmoller and his pupils, go very much farther than Roscher in denying to EconDiiiios the character of a science. .\ fe\v practically reduce it to the mere empirical knowledge of trade and industry 22 INTKODICTION [Descriptive Economics]. Cf. Wagner, in Ouar. Jour. Keen., vol. i, J13 sqq., anil Xasse, ibid., 503 sqq. ^ There is a cluster of subjects, e.g., the prevention of vice, the manage- ment of criminals, sanitation, divorce, charity, no one of which perhaps is yet worthy to be regardetl a science by itself, and w hich it is customary to group together as departments of the general science of sociology. The latter title is also used gcnerically, as including several branches of knowl- edge recognized as sciences, law, politics, and ethics among them. It is the habit to rank Economics with these last : professorial socialists incline to place it rather in the less differentiated class. They mock at the assump- tion of an " economic man," and see danger in attempting to separate its economic elements from the rest of human nature even for analysis and study. Schmoller makes a point of distinguishing between a tiatural order in the economic life [such as § 15, n. 4, refers to], the reality of which he fully admits, and a moral, social, or psychological order, race-customs, the spirit of times, etc. ; and he complains that the Smithians ignore this realm. lie expects economic reform to come largely from the building up of new customs and social ideas, more favorable to the laboring classes, which shall, when necessary, though by no means all of them, congeal into laws. * I.e., whether as downright selfishness or as a self-regard in accord with general warfare. Adam Smith's most famous followers were wont considerably to overlook or belittle man's natural regard for his kind, and their representations need correction [§ 15, n. i]. Their meaning on the point has, however, been in part misunderstood. Often what they affirm is not so much man's selfishness, whether in a worse or in a better sense, as it is his individualism, his dependence for greatest efficiency in action, upon his own rather than upon society's initiative. ' See § 15. '' Here socialists of the chair approach pure socialism [next §]. Wag- ner goes so far in this direction as to favor the public ownership of land in cities, and the use of taxation as a means of equalizing wealth. Schmoller [Eittige Grundfragen, 97] quotes with delight an expression of Frederic the Great, to the effect that taxes have among other ends that in particular " of establishing a sort of equilibrium between rich and poor." INTRODUCTION 23 § 14 The Socialists Proper Schaejfit, Quintessenz d. Socialismus. Laveleye, Rae, and Ely, tlie works men- lion«d at § 13. Kirkiifi, Inquiry into Socialism. Osgood, Pol. .Sci. Quar., vol. i, 564 sqq. Marx, Cipit.il. Adler, Rodbertiis ; also his Griiudlagen d. Mnrx'schen Kritik. Kozak, Rodbertiis-Jagetzoiv's Ansichtcn. Dietzcl, Karl Rodbertus. Cchn, 133-157. Dawion, Cerinnn Socialism and Lassallc. These are the most pronounced foes of Adam Smith's system, set especially against the principles of private property and free competition in work and trade, re- garding them the roots of all social misery. Scientific socialism pleads for an economic regime wherein all land and material capital ^ shall be public instead of private property, the .state, not the individual capitalist, being the employer of laborers, and production and the distribution of products not left as now, subject to specu- lation and to the law of supply and demand, but regulated justly and by authority, according to the wants of the ■whole body of consumers, so that no one need be idle, uncared for, ignorant or poor. Saint-Simon, Fourier and Owen 2 had each developed a kind of socialistic scheme, but Louis Blanc was the first "^ to expound socialism as a thorough-going new political order. Proudhon, his con- temporary, advanced the thesis that property is theft, though he subsequently retracted this. But no strong scientific grounds for socialism were presented till Rod- bertus and Karl Marx, two able German thinkers, whose reasoning has commanded the attention of the economic world. P'rom one of their favorite premises, Adam Smith's doctrine of labor as the sole source of wealth, they argue that the laboring class deserves far more than it gets ; while from another, viz., Ricardo's ' ir<)u law ' of wages, they conclude that such injustice must iuevi- 24 INIKODUCTION tsi!)ly foiitiiun' so lon<;- as the means of production remain in private hands.** ' Socialists must be distinguished from anarchists, who bf jdiysics, underlie the science of Eco- nomics, viz., tlu)se laws of the physical world and of man's constitution which determine man's temporal weal.^ ii In all economic activity the presumption is in favor of individual liberty and free competition [laissez faire], rightfulness of public intervention in no case admissible save after proof. *" ' Society an organism (i), subject to evolution (ii^ — these are the main insiglits for which we are indebted to the aposteriorists. The ncmi nalistic, individuahstic idea of society, making it a mere chance aggrega- tion of individuals, must be surrendered. Society as such and by itself has aims, tendencies, a life entire, which are more than generalizations from the experiences of John, Richard, and Peter. With this better view of man as member of a social cosmos has naturally come a sounder ethics. Self-regard is seen not to be the whole duty of a moral agent [§ 13, n. 4]. Neither is the self-seeking of A, D, and C that sure way to the general good which Bastiat thought it [§ 13, iii], except in the sense that one best serves self by devotion to others. The second trutii, social evolution, must also Ije recognized. Human nature, unless the notion be made ridiculously meagre, is not the same in ilifferent genera- tions Lut changes from age to age. On the whole matter of this note, cf. Ward, Dynamic Sociology. - This maxim, never authoritatively defined, has been used with great latitude of meaning. See Claniier, " Laissez laire," in Lalor. English writers have meant less by it than French. Sidgwick, Principles, 22. As usually applied it has signified that government should restrict its agency to the protecticjn of men in their " natural riij^lits," to life, liberty, and property. But no government has ever yet been able to proceed upon so narrow lines. Nor ought governments to attem])t this. If legislation is often a hindrance economically, it may be also a gre.it, even an indispen- sable help. Its w..rk in patlivrin;,' s!ntis:ics is invaluable. So r.re its coast and other sutveys and its meteorological reports, l-orests, fisheries, and INTRODUCTION 27 ocean and river dikes, to cire a few obvious cases, government alone can supervise in accord with the economic interest of all. l"or other benefits from the state's positive intervention, see Shaw-Lefevre, opening Addr. bef. the British Social Science Cong., Birmingham, Sept. 17, 1884 [in ans. to II. Spencer's Man and the State]. Cf. Mill, bk. v, ch. i, and Schmoller, Grundfrageii, 95. ^ In England, e.g., where industrial freedom is most complete, but poverty still dire and stubborn. ■* More nearly is it disproved. Tlie immediate interests of different men and classes certainly clash continually. The permanent good of indi- vidual or class is surer to accord with that of society; though it by no means always does so, unless a higher than economic good is meant, or " permanent " taken as reaching beyond time. Thus, riches are acquired in the liquor trade, in gambling, and by selling obscene literature and pic- tures — businesses which curse humanity [§§ 18, n. 5, 21, n. 7]. ^ See Cohn, 69-7S, and Senior, Pol. Kcon.. 26-81. That men must eat to live, and work in order to eat, that they prefer pleasure to pain, and seek to attain their ends [whether selfish or unselfish] by the least onerous processes, are specimens of such laws. The tendency of popula- tion to outrun subsistence [Malthusianism] is another. De Molinari's law that the price of a commodity falls or rises in a geometrical ratio as its amount increases or diminishes in an arithmetical, may be cited as still another example, valid universally so soon as exchange begins, though in a less definite way than his presentation would imply. We name, too, the law by which the precious metals distribute themselves. If they are pecu- liarly plenty high prices [of other things] prevail and the money flows off to effect purchases at remote centres. If they are scarce the counter phe- nomena have place. The law of diminishing returns, however checkeil here and there, is as universal as the industries, agriculture and mining, to which it relates. Knies's scruple [Pol. Oek., 356], to call some of these ' natural ' laws, on the ground that they do not relate to " things corc>oreal and subject to sense-perception " seems fanciful. Whatever objection may lie against regarding as ' natiaal ' the [nirposive movements of society, the unconscious j^lay of psychical and social forces may assuredly be so styled. The idea of a world's text-book on Economics is therefore not absurd, though the principles which such a work could lay down would be few and general. Cairnes, Logical Meth., i. ^ Sidgwick, Principles, ]). 22; Mill, Ijk. v. ch. xi, 7; Schmoller, Griind- fragen, 47. Notice that the maxim is not announced as certainly valid fot all past or possible states of society. 28 introduction § 1 6 Value of the Study Laugkh'tt, The Study of P. E. Ciimmiiig, Value of P. E. :o Mankind, Cobden Club Prize Ess. for 1880. Roscher, Prelim. Ess. to English Tr. Cossa, 23. Buckle, Hist, of Civilization in Eng., vol. i, 150 sqq. Tenne.mann, Cesch. d. Philos., 1, 30. In fitness for place in an educational curriculum,^ Economics perhaps surpasses all other studies, through the remarkable combination which it involves of mental discipline with practical utility.- Each of its proposi- tions requires careful thought, while certain of its rea- sonings challenge the hig-liest powers of mind.-^ On the other hand, though it is a science, not an art,'* its truths touch every human life. Among a great deal else of obvious importance which acquaintance with Economics incidentally makes clear, may be mentioned : (i) the fal- lacy of many prevalent notions about wealth,^ (ii) the failure and even positive cruelty of much intended charity,^ (iii) the sure and widespread effects of Avaste,' (iv) the inevitable interdependence of individuals, classes, and nations, and (v) striking evidence of in- telligence and beneficent law as reigning in the uni- verse. A time comes in the history of every cultivated people, when social comfort, to say nothing of social progress, depends absolutely upon knowledge of eco- nomic principles. Europe is at this point already ; we shall soon be. 1 Whether mors liberal ox more practical. It is perverse to limit science to exact science [§ 4, n. l]. Equally so to suppose the best education attainable by drill in the exact sciences alone. That is important but often carried relatively too far. Not only do action, conduct, life, all lie in the domain of inexact science, making training in this indispensable to every educated person, but even looking from the point ol view of an exclusively liberal education, it is a higher attainment, a finer feat of mind, to be expert in the inexact than in the exact sciences. INTRODUCTION' 29 - The advantage of tl.is, considering the study as a liranch of lil)eral culture, lies in the zest it imparts. It is a help, too, that the pupil is surt to possess beforehand a certain familiarity with the subjects to be consid- ered. This, however, in spite of the best instruction, sometimes Ijreeds slovenly analysis and looseness of view. A kindred ilifliculty arises from the use in l-.conomics of many ordinary words in a technical sense. Stu- dents suppose themselves thinking the correct thought because they attach a more or less definite meaning to the word. From the same cause is also most of the economic sciolism so common among persons not stu- dents at all, who yet discuss rent, profits, wages and whatever other topic is named by a familiar title, w ith all the assurance of an Adam Smith. 2 As those upon money and foreign exchange. Not here alone but throughout the science the data have a peculiar mutual relativity which renders them elusive. The irov o-tw is for many an argument difficult to fix. Premises can often be made definite only by a piece of abstraction which the course of reasoning shows to have been incorrect. We have then to amend them and rethink our work with scrutiny to see whether, and if so where and how far, the change has vitiated it. No other sort of exercise will test and develop the mind like this. * As Adam Smith, in the main, conceived it. We investigate its facts not primarily to use them, but to know them \'et their character lends a special interest to the work. Here at least it is not true, if it is or ever has been anywhere, that science cares, in the strictest sense, only for truth, regardless of truth's worth in life. ^ In reference to its nature [§ i, n. 3], and its importance to happiness and civilization. How many consider wars, fires, and floods as blessings because they ' make work.' Cf. n. 7, belgw. Read Bastiat's bright essay [(Euvres, vol. v, 336 sqq.] on That which is Seen and that which is Unseen. A writer in the Pop. Sci. Monthly for 1S85, estimated the loss by fire in United States during 1S84, at $160,000,000. " Mill, bk. ii, chaps, xii, xiii. By misplaced alms, not only is wealth wasted which might have supported honest productive labor, whose product might in turn have gone to support labor in further production still, and sc on indefinitely; but a vicious, lazy habit is engendered in the object. ' Could we ]irevent the waste from uneconomic housekeeping alone, the fund resulting would far more than suffice to feed all the hungry. " Whoever can teach the masses of the people how to get five cents' worth a day more comfort or force out of the food which each one consumes, will add to their productive power what would equal a thousand million dollars a year." See § 49. 30 INTKonUCTION v^ i; lllK l)l\-ISION OF I^XT)\()MHS Cpssa, pi. i, ch. ii. Garnier, '/'raite, 18-20. Our science i.s most common]} presented under the four general heads of I'roduction, Exchange, Distribu- tion, and Consumption.^ This arrangement is illogical, since all Exchange and an important part of Consump- tion are branches of Production. As, however, Produc- tion, exhibited so in its strict integrity, forms a most bulky topic, overshadowing the others and giving to the parts of the discussion a very unequal size, we may con- sult convenience along with logic, and lay out our matter as follows : Part I, Production, except as involv- ing Exchange. Part II, Excliaiige, except as involving Money. Part III, Money. Part IV, I>istribution. Part V, Consumption. Part VI, Practical Topics touching upon ICconomic Theory. ' So Wayland, F. A. Walker, Mangoldt and Garnier, exactly, also most other French writers [Leroy-P.eaulieu, Levasseur], only placing Distribution before Exchange \^circula/ion']. Roscher, too, has the order given in the text, save that he injects after Production as coordinate with the other four, a Part [ii] on Freedom and Property. Chapin's Wayland strangely alters the order to Production, Consumption, Distribution, and Exchange. ^^Culloch, Principles of Pol. Econ., is exactly logical : Production, Distri- bution, Consumption. Mill and Fawcett both say Production, Distriljution, Exchange. Laughlin and H. C. Adams have these same topics, but reverse the order of the last two. Senior divides into the Nature, Production and Distribution of Wealth. Cherbuliez has Product'.Dn, Circulation, Distribu- tion, treating (.'unsuniption as sub-topic of Production. Except in the last point Held agrees with him \^ProJuction, I'erkehr, Vertheilitug'\. Quite original is Cohn's marshalling, into the Elements, the Foriii-laking \_Ges/al- luvg], and the Processes, of the Economic Eife. With a similar motive, to emphasize the dynamic aspect of the science, F. H. Giddings suggests treating it under the rubrics of Descriptive Economics, and Economic Physics, Politics, Biology, Psychology, and Evolution. The purpose is a good one, Vjut can, we believe, be carried out as logically, and, for the pur- poses of a treatise like the present, more profitably, by handling the mate rial as the text proposes. Part I PRODUCTION EXCEPr AS INVOLVING EXCHANGE ^oJO^oo CHAPTER T the nature of production § 1 8 Various Views of Productivity Roscher,%^ i,%-^i. ^V/V/, bk. i, ch. iii, § 3; ^jmj' iii on Unsettled Questions. Gamier^ Traiie, ch. ii. Ad. Smith, bk. ii, ch. iii. The mercantilists regarded industry productive only in proportion as it tended to swell the nation's stock of money. They deemed manufactures more productive than agriculture, their finer forms more than the coarser, active^ and direct commerce more than passive and indi- rect. The pliysiocrats identified productive toil with the extraction of useful raw material, stigmatizing other occupations^ as 'sterile,* because sustained only by overplus gained through work upon the land. Adam Smith and Mill styled unproductive all exertion, how- ever useful, not taking form in some useful material >l>ject, placing in the unproductive list in fact more call- ings ^ than their own definition required. Their classifi- cation has been followed by most writers of the Enjflish School. Not bv the French,^ who, even when discioles-' ^2 THE NATURE OF PRODUCTION of Adam Smith, have usually reckoned as productive all labor imoarting: economic modifications to the iniiiiate- rial nature of man. Kosclier goes further still, and de- fines every sort of activity as productive which society is willing to pay for.'J This is now the prevalent doctrine. ^ Cf. § 7. "Active" commerce = preponderance of export = favorable balance of trade : " passive " — preponderance of import — unfavorable balance of trade [Roscher, § 48]. - Cf. § 9. They believed manufacturing to do nothing l)ut change the firm of things, whatever value it added being just the sum of the raw ma- terials consumed by the laborers in the process of manufacture. Quesnay indeed saw that not all the new worth added by manufacturing could be so ex- plained, l)ut considered the rest the outcome of natural or legal monopoly. Trade too the physiocrats thought " sterile," merely passing wealth from one hand into tiie other. What merchants won was at cost of the nation. On all this, and the easy refutation of it, Roscher, § 49, and n. 2. These men supposed, as did si clear a head as Locke, that what one party to a trade gained the other must lose — a perfectly patent error [§ 20, n. 4]. Boisguillebert made clear the productiveness of exchange, by supposing three men bound to stakes one hundred paces apart, the first with a stock of victuals but naked, the second with a huge pile of fuel but no food, the thirrl with a superfluity of clothing but no supply besides. Could they ex- change, all three would be happy : as they cannot, all die. 8 Not only the frivolous occupations of opera-singers and ballet-dancers, but the important ones of statesmen, judges, clergy, physicians, army and navy. I.e., violin-miking productive, but violin-playing not, though the sole end in making the violin is that it may be played [Gamier] ! Train- ing of swine productive, educating men unproductive [List] ! The churl who scares crows from cornliclds productive, soldiers who bar out invad- ing armies unproductive [M'CuUuchJ ! Roscher, who cites the objec- tions just given, notes that the Smithians have to own certain industries as productive though affecting material objectsonly indirectly, and that govern- ment officers, physicians and the like, certainly contribute at least indirectly to much material production. ♦ J. B. Say, Dunoyer, (.arnier, Sismondi. The last speaks of govern- ment and army as "guardians, who produce security" [Carnier, p. 34]. Bastiat went so far as in effect to make all production immaterial, calling TFIE NATURE OF PRODUCTION 33 commudities a form of services. J. B. Clark [Pliilos. of Woaltli, ch. ij precisely reverses this, interpreting the essence of a service to be always o( a material nature. The wealth which the orat«, Wealth-Creation. Nosc/ter, § 50. Afang-olJi, as al § li. /I//?/, bk. i, ch. i. Production con.sist.s not in tlie pc'ar.^ vii Food and clotliinj^' for the support of laborers while they labor, viii Stocks of goods for sale. THE ABSOLUTiC CONblTIONS Ol" I'KUlJL Ll ION 49 i.\ Money, x liicorporeal or immaterial capital. To this list \vc have only to add weapons and means of transportation. Capital is often conveniently classi- fied more briefly, as a) materials to work up, b) tools* to work with, and c) subsistenee.'' Very important is the distinction between free and specialized^ capital, and still more so that between flxed and circulating.' 1 An iintrwiicut is passive in nature, a tool [perhaps from same root as ' do 'J active. A saw-huck is an instrument, a saw a tool. When an exira-human force is joined to either or to the two combined we have a machine. Historically such motors have been applied in the order of i brute strength, ii water, iii wind, iv steam, v electricity. For pulverizing grain, hammers were first used, then, in order, hand-mills, ass-power mills [Matthew 18, 6], water-mills [which Roscher dates from Cicero's time], wind-mills [from 9th century] and steam-mills [since 1782]. - As wool, cotton, flax, and coloring matters in cloth, leather in shoes, etc., also all sorts of ornamentation. 3 As co.\l, bleaching material, lubricants. * Here taken in the largest sense, including machinery and buildings. S Clothing and houses as well as food being meant. ^ According as it is not or is so bound up with a given kind of produo tion as to be applied to another only with much difficulty and loss. De struction of the free variety is dollar for dollar more disastrous than that ol the specialized. Cf. 11. C. Adams, Outline, §§ iS, 19. " Capital which, eg., mills, machinery, etc., exists a considerable time in any one relatively permanent form, aiding repeated processes of pro- duction, belongs in the former category; that which fulfils its entire func- tion ai capital of a given kind [changes its nature: is used up] in a single process of production, comes under the latter. Raw material and all goods kept for sale well illustrate circulating capital. A grindstone lying in a hardware store is circulating; revolving in a shop, fixed. So of all ma- chinery. Money is fixed capital for society, circulating for the individual. This distinction is relative, as no capital is absolutely 'fixed.' Even money wears out : nainque in ipso usie adsidua permntaliotie qiwdammodo extin- guilur [Instt. of Justinian, II, 4]. The proportion of fixed to circulating capital in any community increases with the advance of civilization. 50 THE ABSOLUTE CONDITIONS OF TRODUCTIOiN § 30 The Place of Capital in Production .VarjAa//, asat § 2S. il//7/, bk. i, ch. v. Cfor^fr, Prog, and Pov., bk. i, ch. v. Cairttes, Leading Principles, 164 sqij. Senior, Pol. Ec, 58 sqq. The following propositions touching capital are fiinrta- montal and of first importance : i All capital is the re- sult of labor and secondary thereto/ and all material capital the, fruit of al>.stiiience ^ and economy, ii On the other hand all labor is dependent for its efficiency on capital.^ iii The real support of labor consists in the capital which it employs and not in demand for the commodities or services it yields.^ iv Material capital is a good only as it ministers to consumption,"* and it is itself destined to be consunje4l.^ 1 Sir William Hamilton's elucidation of the intimate relations between speech and language, l)y citing the operation of tunnelling through a sand- bank, is to our point here. As the digging must precede the shoring o( plank or l)rick, yet can only just precede, and as thought must exist in ad- vance of speech but only be a little in advance, so labor is the absolute prius of caiiital, and still totally dependent upon capital for any considera- ble development. 2 A function quite distinct from labor, and very important. See Senior, as above. This subject will emerge again when we discuss Interest, in Part IV. Cf., too, § 46. 3 Mill, bk. i, ch. v, § 9, needlessly obscures this important truth, yet is clearer than Laughlin, who, in his edition, has substituted his own for Mill's exposition. The idea is simply that no matter how great the demand for a commodity, unless it were of an extremely simple order, labor would not be encouraged to attempt the production of it so long as no one willed to supply capital to aid. Any increase to the stock of [non-specialized] capital increases the demand for labor, and [barring increase in number of lal)orers] elevates the level of wages. On the contrary, any such applica- tion of wealth as merely to act on demand and not to swell the stock of capital, robs labor of so much support. Demand alone, however, [efficient demand is of course meant, i.e., ^uisk backed by money] is competent to THE ABSOLUTE CONDITIONS OF PRODUCTION 5 I change the direction, the department, in which labor shall apply itself. It might conceivably, by some jjcculiar concuurse of circumstances, set capital free in such a way as to render it more serviceaijle than in its previous form, thus, without being increased at all, actually fuitlicring the interests of labor. l''resh production of capital will result, but only as a consequence of the encouragement given to labor. Thus, suppose $looo arc spent for liquors, and the money placed by the liquor-dealer in the bank, whence of course it is at once loaned out to aid industry and so lal)or. Mill ignores this possibility. It would confessedly be better still for labor had the money been aiJjilied in the first instance as sujiply instead of as demand, which is all that Mill shows. But if his statement is not valid quite as unqualifiedly as he supposed, this fact detracts not a whit from its impor- tance. The la-.il is as he declares. Nor does this admission bind us to accept his theory of wages [see Wages, in Part IV]. * Not that consumption in sc is a good. It is only a means to a good, viz., the gratification lying beyond. But as it is an indispensable means, men being constituted with needs which only economic consumption can supply, production becomes worthful for consumption's sake. Could the end be reached without consumption, the latter would at once cease. A machine which could do its work and never wear out, would be a prize. Hence the search for perpetual motors. Hence, too, the more fruitful quest for instruments which will do given amounts of work with the least motive power and friction. ^ Why, then, is it so valuable? the pupil might at first ask. If it must return to nothing, why call it into being in the first place? Because capi- tal, though perishable, is still indispensable. If it perished twice as fast, were we forced to spend double the time we now do in replacing it, we should have no choice but to toil for it as at present. Material capital more than pays for itself during its brief life, and besides may be so con- sumed as to reproduce itself, and more. Thus individuals die, but the race lives and spreads. Far the greater part of the capital at any moment exist- ing is less than a year old. .Almost trifling in quantity is that which is over ten. But the entire bulk of capital in man's possession now was aided into being by that long since consumed. Every nail in England can be traced back, directly or indirectly, to savings made before the Nor- man Conquest [Senior]. 52 THE ABSOLUTE CONDITIONS OF PRODUCTION § 31 Society Clark, Philos. of Wealth, ch. iii. H'cftic'ii, Social Law of Labor, Int. Bastiat, Har- monies, ch. i \aLuvres, vol. vi, 24 sqq.]- Spencer, Principles of Sociology, pt. ii, cli. ii. I'illey, Ri'U de Viiat dans I'ordre icon. To be in the least (lei;ree copiou.s, production requires the existence of society. Man is by nature a social beinc:.^ The individual of himself does not form a totality. Society must coiiiplcineiit him. Except as parcel and facet of the social body he can be nothing but a fragment. Now society is an org'anisni, its units so vitally related that, as in a tree^ or in the animal frame, each is both end and means, at once serves and is served by all the rest. Not only are the productive powers of the individual as such incapable of develop- ment without a human environment,-'^ but even if de- veloped they would be useless, having no scope for action.^ Social organization, the interplay of supply and demand, the right mutual relations between pro- ducers and consumers would be needed. ' A " political animal," as Aristotle calls liim. Genesis, II, 18: "not good for man lo he alone," has the same meaning. It does not refer to marriage simply. - "The rootlet of a tree shares with the remote leaf the nutriment which it absorbs from the earth, and the leaf shares with the rootlet that which it gathers from the sunlight and the air. This universal interdependence of parts is a primary characteristic of social organisms; each member ex- ists and labors, not for himself but for the whule, and is dependent un the whole for remuneration. The individual man, like the rootlet, produces something, puts it into the circulating system of the organism, and gets from thence that which his being and growth recjuire." Clark, as above, 38 Sf|. Cf. ante, §§ 12, 13, 15, and notes. ■• This side of the truth Bastiat in his line discussion overlooks, as do all the writers, like Adam Smith and his discii)les, whose notion of society THE ABSOLUTE CONDITIONS OF PRODUCTION 53 came from eighteenth century liberaHsm. They have been too apt to con- ceive the individual man as complete in himself, and society as a mere ^{Jg"^«-*g^''on of such individuals, sustaining to one another, indeed, rela- tions the most complicated, but not organic [§ 15, n. i]. Rousseau's " Social Contract " is the classic for this theory of society. •• Bastiat, as above, computes that through social co-operation and the consequent amassing of wealth, one man may by his own efforts enjoy now more satisfactions than he could earn in ten centuries were he obliged to begin and work without such aid. " If the causes of a man's economic weal or misery once lay in what he himself did, now they are to be found as well in what is done and experienced by those a) for whom he produces, b) whose products he desires, c) who produce for others in the same line as he, and d) desire from others the same product as he " [Knies, Pol. Oek., 164 sq. Cf. Ely, Past and Pres. of P. E., p. 50]. Take an operative in A's cotton factory, earning $1.50 per diem. That wage is conditioned upon the existence of: i The factory, with its owner and his capital. ii Builders of factories and machinery, with their respective plants and groups of workmen, insuring to A the possibility of repairing or replacing his plant were it injured by fire, storm or earthcjuake, — each man in all these groups being bound in the same mesh-work of relationships as the operative in question, iii Men working southern cotton-fields, every one dependent in this same way. iv People similarly circumstanced engaged in the manufacture of implements for cotton-raising, v Still others, so circumstanced, building and running steamboats and railways to transport the various wares mentioned, vi Human beings in all lands who wish cotton fabrics and have means to buy them, vii Morality, customs and laws, making possessions and traffic secure, viii Teachers, writers, legis- lators, judges, police and army, giving sustenance to vii, each enabled to fill his place only by a complex congeries of action and reaction like this which we are tracing. § 32 The State Wagner, Lehrb. d. Pol. Oek., § 161. James, et al., in Science Economic Discussion, 26-43. Schoenberg, vol. i, 197, 255 sqq. Spencer, Prin. of Sociology', pt. v. Every separate permanent human community sponta- iieously 1 assumes more or less authority over its mem- bers, forcing each, within certain limits, to obey the collective will. This is inevitable. Such authority 54 THE ABSOLUTE COKDITIONS OF PRODUCTION always has been exercised, and always will be,^ however high a degree of moral, political or economic advance- ment may be reached. In its character as asserting and exercising this eminent domain society becomes the state. Society is in principle no less indispensable economically in this aspect than in that of an organism merely. Not alone anarchy but the slightest real in- security to life or property will paralyze production. Even among the best-meaning citizens there must be some authoritative tribunal to settle honest disputes. Besides, nearly all peoples have vital interests of a purely economic nature which only the state can administer."^ 1 We see this from what occurs in mining camps and caravans, and among pirates. Government does not originate in contract any more than life does, though a particular y^^rw of polity may thus arise. 2 Contrary to the belief of the anarchists, who expect to take out of government the whole element of authority, reducing it to mere adminis- tration [§ 14, n. i]. This cannot be. It is not the wickedness of men, which may in time abate, but the permanent fmiteness of their knowledge, that renders anarchy impossible of reali/alion. ^ .See § 15, n. 2; § 36, n. 7. Cf. Villey, as at § 31. Thus, England never had an efficient express system till Fawcett, as Post-Master General, introduced the Parcels Post. Then all the railways took up the business and accommodations of this sort became good. CHAPTER IV the relative conditions of production § 33 General View Mill, bk. i, chaps, vii-xiii. Mangoldt, pp. 20-44. Gamier, pt. ii, sec. iii. Caiman, §§ 5 sqq. Hfld, p. 48. Schoenberg, vol. i, 198-262. Roscher, 103-209. Ad. Smith, bk. i, ch. i. Cossa, Eleinenti, sec. ii, ch. iv. Bagehot, Ec. Studies, vi. All four of the preceding conditions being given the production of wealth will ensue, but will be more or less abniulant according to a multitude of furtlier circiiinstances. The chief of these arc now to be dis- cussed. They include whatever increases the amount or the efficiency of either capital or labor, viz., those things^ which somehow (i) promote man's power to save wealth, (ii) quicken his will to do the same, (iii) prompt the determination to labor, (iv) better the qtiality of labor, (v) strengthen the labor-force of the country or countries in question, or (vi) enable men to make the most out of a given amount of labor. The progress will take place through such an application of the free capital and labor available from time to time, as shall not only make good all consumption involved but also create a surplus.^ This may occur in either of three ways : i Increase of product without propor- tional increase of expense. 2 Diminution of expense without proportional diminution of product. 3 Increase of product along with diminution in expense. The result, like the aim, will be a continual I'cduction on 56 THE RELATIVE CONDITIONS OF PRODUCTION the whulo,^ in the amount of human toil necessary for a unit of product. Human needs being expansive, however, and the utmost possible supply to them limited, labor can never become unnecessary, nor decrease in absolute quantity, but only relatively to product. 1 The power to save depends on good government, industrial libert)', thrift, etc.; the will to labor or to save, on nioralily, freedom, private prop- erty, culture, high rate of interest, and the like; the labor force, on num- bers, favorable climate, health, strength; the quality of labor, on such considerations as intelligence, education, and practice. Chief aids to the ability to make most out of a given amount of labor are machinery and the organization of labor. See on all this §§ 35 sqq. - .Sir William Petty, Political Arithmetic, ch. i, names this process of progressive increase to wealth, ' supcrlucration ' — not a bad term. ^ ' On the whole,' because although, as pointed out in § 34, agriculture and mining follow another law, the disadvantage thus arising bids fair to be offset for an indefinite time to come by the greater and greater cheap- ness of manufactured articles. § 34 Diminishing Return and Increasing Return Marshall, bk. i, ch. iv. Sidgwick, 151 sqq. ll^alier, Wages, 89 sqq. Cairties, Log. Melh., 50, 51, n. //. C. Adams, Principles to Control State Interf. in Industries. The general rule of growth in production is : the more effort applied to nature, the more product, effort including capital also, as hoarded labor. If, however, a long period of time is considered, two important varia- tions from this are perceived to hold. In afj;riculture and, with modifications, in niininj;-, the law of dimini.sli- ing return 1 prevails, that, in tlic long run, increase of effort secures a le.ss than proportional increase of product. The operation of this law in agriculture may sometimes be temporarily postponed and even dispro- portionately large returns secured, by (i) increase of poiiulation,'^ (ii) improved macliiues and methods TiiK RELATIVE COX duions OF ['Ronucriox 57 (iii) bringing-, in a new country, more fertile or conven- ient laud under cultivation.^ Manufactures on the other hand are, as a class, subject to a law of increas- ing return, the creation of their products growing steadily less and less costly per unit.-^ Increasing re- turn characterizes in a marked manner all special industries which, while ministering to wide, regular and decided needs, enjoy some sort of a monopoly,^ natural, governmental, or based on vastness of capital. ' This law forms the basis of Malthusianism [§ 15, n. 5]. II. C. Carey supposed that in demonstrating [iii], above, he had refuted the law, and Malthus's doctrine along with it. He did neither. - There i^ a certain point up to which the greater the population on a given territory the greater \\.s per capita yield; and beyond which additions to population will ha\ e the reverse effect. This may be called the point of ' saturation.' « Cf. § y:,, n. 3. * In proportion to the firmness of the monopoly, cost of production f§§ 47, 48] will cease to fix prices, these rising higher and higher till checked by lessened demand. But if the products are necessaries of life prices will go very high before demand will be greatly affected. § 35 The Laror-Force: Extent Ufangoldt, 23-44. ^!'!^< l>k. i, ch. x. Smith [R. M.], Statistics and Economics, pt. i [pubb. of Am. Ec. Ass'n, vol. iii]. Block, Stattsijite, ch. xv. Co/in, I, i-iii. To the point of saturation,^ a country or community is productive, other things being equal,^ according to the extent of its labor-force.^ This is great for any period in proportion as : i Population is large, ii There is excess* of births over deaths, iii Such excess is maintained more by paucity of deaths than by multi- tude of births.^ i\' Eniiiiration is prevented and Im- niis'ration encouraged. \- The people are hardy and 58 THE RELATIVK CONDITIONS OF PRODUCTION toiuperato. vi 3lalt's, )cl not too greatly, outnumber females.'' vii AVorkinj;- hours per day are loug- and holidays int'requeut." viii Idle, hclidcss, and iuefli- oieut persons are few.^ ^ § 34. n. 2. - Bear this condition caiefiilly in mind. ^ Not population alone is meant, nor the number of persons who com- monly, or ever, work; but the tale of hours' works, say, in a year. Quality is treated in § 36. * This, with consideration iv, determines whether population is groici)!^ or not. A decreasing population is abnormal, yet not so rare : the Ameri- can Indians [Andov. Rev., .Vug., 1SS6J, the .South Sea Islanders, the Irish in Ireland, the French in certain districts of France. Smith, as above, p. 45. In Ireland the deficit is from emigration, in France from excess of deaths over births. " Since if by the latter, much sickness is involved, calling from work not only the patients but also their attendants. Take Norway and Bavaria. B. has much the larger birth-rate, 37.3 per 1000 inhabitants yearly, to N.'s 34.7. But it also has very much the more rapid death-rate : 30.4 to N.'s 18.9 [the lowest known] ; so that its yearly increase per 1000 is less than half N.'s, viz., 6.9 to 15.8. France has a very low birth-rate, 26.2; also an exceedingly moderate death-rate, 23.9, only Belgium [23.7] and Norw.iy [18.9] having lower. But Belgium has a considerably better birth-rate, 23.7, so as to increase 7.9 per 1000 each year to France's 2.3. * In the world at large 106 males are born to lOO females, and the pre- ponderance continues till about the age of puberty. After that, the numer- ical relation is reversed, and holds so through life. More work commonly done by women can be done by men, than vice versa. For women to jier- form tasks fit only for men, in time weakens the entire population. I'lit too great excess of men would mean slow, or no, numerical growth. ^ f.i'., the more hours of work the greater the production, provided energy is maift/ained [^ 36]. But as human endurance is limited the per diem task must be, and a holiday now and then works well. The observance of .Sunday is undoubtedly an immenje aid to a people's productive power. \Mierc the Greek or the Catholic religion prevails, on the other hand, holi- days are too numerous for utmost productiveness [Walker, Wages, 20]. * Those who cannot or do not siijiport themselves. Here are usually reckoned all persons under 15 and over 70, the remainder constituting the THE RELATIVE CONDITIONS OF PRODUCTION 59 population uf productive age. In France 68.6 per cent are of this age; in England, 61.2; in Germany, 62.7; in the U. S., 59.6. The more slowly a population increases the larger will be its proportion of adults. Then there are the defectives, constituting, of each 100,000 : IN Blind. Deaf Mutes. Idiots. Insane. Total. Italy Germany .... Great Britain . . . Norway .... Sweden Belgium .... France United States . . . IDS 87 98 136 80 81 83 96 It 57 92 102 tl 66 65 139 129 119 39 50 "4 152 n 178 185 176 146 182 343 410 462 532 ^6^ 405 496 To be added are the idle aristocracy, of Wood or of wealth, monks, nuns, superfluous clergy, soldiers, and various classes of servants. Spain, under Philip III, had 988 nunneries and 32,000 mendicant monks. In 1787 it had 188,625 religious persons, 480,589 nobles, and 280,092 people at service. Beggars certainly increased the number to a million, while the exclusively productive classes then were under 2 J million. Portugal in 1800 had 200,000 religious to 3 or 3.J million inhabitants [Roscher, § 54]. Sir W. Petty, Pol. Arithmetic, ch. iv, argues that P'rance, about 1665, had 250,000 needless clergymen, each consuming 18 pence worth a day, which he says was triple what a laboring man required. In contrast with these cases, by the U. S. census of 1880, of the 17,392,099 persons in gainful callings here [being 34.68 per cent of the entire population], only 4,074,238 were engaged in personal and professional services. The others wrought at agriculture [7,670,493], trade and transportation [1,810,256], and in manufacturing, mechanical and mining operations [3,837,112]. § 36 The Labor-Force: Quality Mangoldi, as at § 35. Mill, bk. i, ch. vii. Roscher, bk. ii. Cherbuliez, bk. i, ch. Y, sec. ii, iii. Walker, Wages, ch. Ui. Brassey, Work and Wages. Marx, Capital, ch. XV. The efficiency of labor may vary greatly between two communities whose hours of work per annum are equal, one excelling the other in the skill, spirit, and vigor with which the work is done. Superiority in these traits will OO THE RELATIVE CONDITION'S OF PRODUCTION turn upon : i The native strong:tli, enterprise, and will- power of the people.^ ii Their habitual diet, iii Their moral development.- iv Their intellij?euce, natural and acquired. Industrial and technical training are here of incalculable importance, yet not more vital, on the whole, than is general education.'^ v Favorable relation of Avorknien to product. The self-employed are usually the most diligent and earnest, co-operators next, then piece-wage-workers, then time-wage.'* High pay begets zeal ; low, apathy. vi Reasonable work-liour.s, daily and weekly, neither too few nor too many,'"* fewer for women than for men, fewest for children, vii Honora- ble political statu.s^ of the laboring population. Serfs will out-toil slaves, free men do better still, those with the electoral franchise best of all. viii Good g-overn- ment," equitable and stable laws, fiscal and other, just and firm administration. ^ In all which prevail differences so great as at first to seem incredible. Thus, the lifting power of a Van Dieman's Land native and that of an Anglo-Australian differ as 50 to 71 [Batbie, cited by Walker]. Peoples near together too are often extraordinarily unlike in tliese qualities. An English laborer is said to do double the work of a French. Some of the peculiarities are inexplicable, lost in the mystery of race-idiosyncrasies at l.irge; others traceable to national experiences and habits, favorable or unfavorable [Mangoldt, § 25]. 2 Conscience favors (i) fidelity to appointed work, (ii) care for mate- rials, (iii) obedience to law. In all these ways expense for oversight and police is obviated. Conscientiousness also implies contentment and hope, industrial qualities of first moment. To all co-operative forms of industry, to all organization of labor, it is absolutely indispensable. * Not only acquired industrial abilities, a form of capital [§§ 28, 29], are needed, but large, diversified, and widely distributed intelligence whatever it^ source. The point is not that this will tell in the level of a people's enjoyment — of course true; but that high productive efficiency itself is THE KELATIVK CONDITIONS OF PRODUCTION 6l concliliimed upon it. On industrial education, sec Monographs of the Industrial Ed. Ass'n., N. V. City. •» Roscher, § 39. Here is a table illustrating this, adapted from H. C. Adams : UNDER Sl.-ivery, The Ordin.iry-Wnges system, The Piece-W.iges system, Profit-Sharing or Co-operation, THE WORKMAN HAS No rights, civil or poli-l No interest in quantity tical; pay determined or qii;ility of work by animal wants. done; no care for material. Civil and perhaps po- htical rights, hut no legal property iu pro- duct; pay dttermined before work is done. Civil and perhaps po- litical rights, but no legal property in pro- duct; pay determined by work done. Civil and perhaps po- litical rights; also property in product; pay determmed by work done. No direct interest iu quantity or quality of work done, or in care for material. Interest iu quantity only; otherwise same as above. Direct interest in both quantity and quality of work done, and iu care for material. CONSEQUENTLY Only low-grade indus- try possible. High technical skill possible, but no guar- antee of continuous orcontented industry. Creater encouragement wliile work lasts; oth- erwise same as above. An ideal system wher- ever applicable. Mar- shall, bk. iii, ch. ix. That they are usually Ijetter paid in America is among the chief reasons why our immigrants achieve more here than in their old homes. Not al- wavs have they this advantage. We cannot infer it from their mere nomi- nal wages. On real as distinguished from nominal \v., see under Wages, in Part IV. 'iCf. §43. n-5- * Cf. note 4. This too is a most powerful cause of their improved pro- ductivity on coming hither from the old world. ''The form of government has much effect. See notes 4 and 5. Nearly or quite as important is its solidity. Witness the industrial backwardness of Mexico, Central America, Peru, Turkey. Laws should be clear, certain, and not changed except for good cause. They should be just to all men and classes, partial to none. Judicious bankruptcy, currency and poor laws are of especially vital consequence. Still more so are those touching taxa- tion. The world is at this moment probably suffering more from bad tax- ation than from all other governmental ills together. And lastly, "The true test of a good government is its aptitude and tendency to produce a good 62 THE RELATIVE CONDITIONS OF PRODUCTION administration" [Alexander Hamilton J. In western continental Europe from the 13th to the 17th century farmers could not keep sheep on account of the unbridled rapacity of noblemen and their retainers. Only in F^ngland was the king's peace firm enough. Hence England became the great wool- raising country, and could collect from the continent an extensive export- duty [Th. Rogers, Ec. Interp. of Hist., 9]. § 37 Socialism and Production Gronlund, Co-operative Commonwealth. Also the works listed at § 14. Cokn, II, ii. Schotnberg, vol. i, 107-124. Hyndmati, Hist. Basis of Soc'm in Eng. Partly a priori, partly from the observed effects of co-operation, socialists argue that land and material capital should be made collective property, private fee simple in them being abolished. It is urged that an indefinitely more copious production would thus result, making it safe heavily to bond the country, if necessary, to pay off present proprietors. The im- provement is expected to come in part from a more perfect organization^ of industry, saving waste of labor and of capital ; but mainly from the fresh hope and couraj^e which would inspire the laboring masses. All wishinjr work might have it. Thirst for inordi- nate wealth would cease. Every commodity or service could be had at precisely its cost 2 in labor. Society would no longer be rohhed by g-ambling in stocks or produce, or industr}' palsied by fluctuations in the value of money. Commercial crises would be un- known, and corporations' passing away would render impossible the frauds of their managers. Henry George and his followers deem that the essence of this benefi- cent reform would follow nationalization of the laiid^ alone. It is likely that the introduction of socialism THE RELATIVE CONDITIONS OK PRODUCTION 63 wouUl to some extent quicken productive energy, though hy no means in the degree alleged. But we see insujv erable obstaeles to the launching of the system as ad- vocated, and insufferable evils sure to spring from it if launched. It would (i) dangerously concentrate power, (ii) abate thrift in some while pronK^ting it in others, and (iii) reprivss tliat marvellous inventiveness, enter- prise, and daring- in industrial undertakings which only the hope of great personal profit will at present induce in men.^ ' This point naturally connects itself with the discussions of Chapter V. Co-operatiun and the George reform also both have this double face : they propose to inspire and hence increase labor, and at the same time to organ- ize or apply it better, so that a given measure of it may amount to more than now. 2 By a system of labor-time money for the payment of wages, and of labor-time labels on commodities to show just how much time in labor each required for its manufacture [§ 14, n. 3]. You worlc, and are paid in cer- tificates of labor-time, having a face value just equal to the numl)er of hours you have wrought if at unskilled labor, or twice, thrice or ten times that number if at skilled. Each hour of face value in these tickets purchases at any of the public bazaars commodity that it has taken an hour's labor to produce. Money and markets disappear. The scheme is ingenious but impracticable. See, further, under Distribution [Part IVJ. »§ 14- n. I. *Cf. §46. CHAPTER V the relative conditions, continued § 38 Extraneous Aids to Labor Roscher, bk. ii. Bagehot, Ec. Studies, vi. Mill, bk. i, chaps, vii-xiii. Cohn, I, i, It, V, II, III, i. M'CuHocli, pt. ii, sec. ii. Another immense and generic class of the conditions to production touches the ways and means of getting the utmost po.ssible out of a given amount of labor.^ The principal circumstances which contribute to this result may be grouped in four clusters : (i) physical and toi>oj2:raphical advantages, (ii) material capital in gen- eral, (iii) labor-helping and labor-saving inventions in particular, and (iv) the organization of labor itself. 1 Those canvassed in §§ 35-37 have to do with labor intrinsically con- sidered, i.e., its quantity and its quality. We now suppose a certain quan- tum of labor, its quality so or so, and notice that it avails more or less abundantly according to the place and manner of its application. § 39 Geography and Topography Cohn, 213-229. Roscher, §§ 30-37. Schoenberg, vol. i, 198 sqq. Knies, § II. A people's habitat is a prime determinant of its eco- nomic welfare. It will be helpful or the reverse accord- ing to : i Its territorial extent.^ ii Its superficial aspect, as mountainous, hilly, or plain. ^ iii The nature of its earth-cru.st, as (a) soil^ well or ill rewarding cul- THE KELATlVli CONDITIONS OF PRODUCTION 65 tivation, (b) a theatre of much or little spoutaiioous production, in lorcsts, wild birds and animals,^ and (c) a magazine of abundant or scanty raw materials, as coal, stone, and metals, iv The plentifulness, location and character of its waters. Are sprinjfs, brooks, pouds, and lakes numerous and well distributed ? Do they furnish sufficient drink, irrigation, and water-power? Arc rivers many and navigable far inland?^ Is sea- coast extensive, offering frequent and commodious har- bors?^ Are fish" in rich supply? v The salubrity of its climate and the favorableness or unfavorableness of this to production. Temperature, rainfall, humidity, and the strength and regularity of winds have here to be taken into account, vi Its location in relation to the territories of other peoples, and the character and resources of those peoples. 1 It may at any given time be too great or too small for the people. ■•2 How important, e.g., to the ease or expense of building railways and canals. ^ FertiHty and good drainage are the main qualities. < Ostrich-feathers, ivory, game [including supplies for menageries and zoological gardens], peltry, and guano are, in places, important sources of wealth. The presence in a country of desirable beasts, birds, insects and plants is of great impoitance, as is the absence of noxious ones. In Russia twenty-Hve miUion squirrels are killed yearly for their skins [Mulhall]. The i:ng. gov't in Cyprus expends $15,000,000 yearly in destroying locusts. Block Island has the great advantage in poultry-raising that no foxes, skunks, or weasels are found there. ''Xor do railroads strip this item of consequence. It is also of much moment whether the land is subject to floods or not. 6 Note England's advantage herein over the Continent. Its harbors are not only thick, but well situated. Tides and the C'.ulf-stream mostly sweep past them instead of straight in, which so fills up those beyond the Chan- nel. The economic influence of the C.u/f-stream on the Atlantic coast of Europe is obvious but immeasurable. 66 THE RELATIVE CONDITIONS OF PRODUCTION "The late Spencer F. Baird regarded an acre of ocean cciual to six of land in ability to produce food for man. Seals and porpoises as well as fish might be mentioned among the valuable gifts to us from the sea. § 40 Material Capital in General Maitgoldt, §§ 30, 31. Mill, bk. i, chaps, v, vi, xi. Ad. S/iiilk, bk. ii. Roscher, §§ 41 sqq. Bagehot, Ec. Studies, vi. Rae, Prin. of P. E. [Bost., 1830], 123 sqq. Speaking broadly, production will be large in pro- portion as material capital is plenty.^ Laborers must have food, clothing, shelter, working-gear and stock. Labor-force not supplied with these becomes a burden, and labor-force can iiiercasc only as these multiply. Mere abundance for present needs is not enough. Healthy production requires an actual or potential sur- plus against emergencies. Capital in the form of roads, canals, dikes, piers, and public buildings may aid pro- duction through hundreds and thousands of years. ^ The proportion, in capital, of kind to kind is hardly less important than bulk. Aside from cases of specific over-production, either fixed or circulating capital may exist in vicious disproportion-'^ to the other. Prepon- derance of circulating is the lesser danj^er, owing to the larger possibility of adapting it to a variety of uses.^ 1 On intellectual capital as a condition of production, see § 36, iv, and D. 3. The richest importation the U. S. ever made came encased in Samuel Slater's head. The present § is to be brought into relation with §§ 29, 30, ante. In those §§ our thought was primarily a static one. Here we have in view the dynamics of production. 2 Though most capital, however ' fixed ' [§ 29, n. 7], is ephemeral. The average life of an English locomotive, costing /'2,ooo, is only 15 years, no subtraction being made for repairs. The average total run is 200,000 miles [Mulhall]. American machines, the term being reduced according to amount of repairs, average to live but 5 07 years. The cost is ,f.8,000. A box car costs $450, lives 9.05 years; a flat lives 8.15 years [W. C. Fisher j THE RKLATIVE CONDITIONS OF PRODUCTION 6/ 3 The main cause of the hartl times in 1857 was probably the locking up of too much capital in the form of new railways. ■• I.e., it is less specialized [§ 29, n. 6]. § 41 Machinery Ad. Smith, bk. i, chaps, i-iii. Cherbuliez, bk. i, ch. vi. Rosc/ier, ' Machinery,' ill I.alor; nlso Ansichtoh etc., vol. ii. Mangotdt, § 36. Senior, 3 Lcctt. on Wages, etc. Schoenberg, vol. i, 2i3 sqq. Marx, Capital, ch. xv. Cossa, Eie- menti, 31. The ability of tools and iii.struments^ to help pro- duction is inlinitely multiplied by harnessing to them some agent with siiiK;rhuiiuiu power, as brutes,^ water, steam, or electricity. Machines then result, which (i) make possible much production not so without them,'^ (ii) in forms of production intrinsically possible without,'* enormously spare the health, strength, and morale '5 of laborens, (iii) in other cases render products better, cheaper, and vastly more plentiful.^ Through these advantages, in spite of temporary misfortunes^ often occasioned by the introduction of it, machinery becomes an inestimably valuable auxiliary to labor in creating wealth. 1 On the difference between tools, instruments, and machines, § 29, n. i. ^ The first cotton mills in America were driven by hi^rses or oxen. ^ P.^rtly by the lineness and regulaiity of their work, as mowers, reapers and steam ploughs; partly by sheer power, as in heavy hauling, lifting and pumping. Sometimes their force is not beyond what united human effort might yield, but has to be applied in a place [a mine, e.g.'\ where not enough men can 'get hold.' But the earth's population were insufficient to do a tithe of the work w hich machinery now performs. The world's horse-power in steam alone aggregated [Midhall] in 1880, 28,952,000. Each horse-power being equal to 12 men's ]iower, we have steam doing the work of 347,424,000 men. But engines, furnishing power alone, repre- sent but a small part of the work of machinery. Competent estimates 68 THE RELATIVE CONDITIONS OF PRODUCTION regard machinery as doing in Great Britain alone the work of 700,000,000 men, a number probably in excess of the entire laboring population of the globe. Cf. n. 4. Notice, further, that machinery, like labor [§§ 43, 44], gains in efficiency by organization, piece standing in rightly complementary relations to piece. < A sewing-machine does the work of 12 women. A Boston 'boot- maker,' with one workman, makes 300 pairs of boots daily. In 1880, 300 of these machines were at work in various countries, and turned out 150 million pairs. Glenn's California reaper will cut, thresh, winnow and bag the wheat of 60 acres in 24 hours. The Hercules ditcher removes 750 cubic vards of clay per hour. The Darlington borer enables one man to do the work of 7 in tunnelling, and reduces the cost by two-thirds [Mul- hall]. One boy with a knitting machine does as much work as 100 per- sons could 100 years ago. ^ It imbrutes as well as kills off men to do work which constantly tasks their physical power to its utmost. Cf. § 35, n. 6. 6 Capital suffers, as each new piece renders more or less old property worthless — a process continually going on. Usually, of course, the new gear soon more than recoups this loss. Much sadder is the displacement of labor which an important novelty in machinery always effects. Laborers no longer young are ruined for life, their hard-earned skill going for noth- ing. Even the young suffer painfully. No state has ever yet, as Sir James Steuart advocated, sought to make good these losses. Yet after all, how mad to prohibit machinery I Nor does it on the whole advantage the capitalist more than it does the poor. § 42 Unembodied Invention M'Culloch, pt. ii, sec. iv. By no means all special ideas, helpful economically, thus take form in tools, instruments or machines.^ An immense proportion of the most valuable applied science does not. We instance: i Chemical information and skill in washing, dyeing, tanning and the like.^ ii Geo- lo},Mcal knowledge of leads, layers, etc., used to guide mining operations, iii Nearly the whole science of engiiieerliif? in its various departments^ and branches. THE RELATIVE CONDITIONS OF PRODUCTION 69 iv Science as utilized in ajfriculturc, stock-breediiifjT, and the projiaj^ation of fishes, v That A-ast body of practical maxims, the growth of its whole past, which exists in every department of human industry, touching the most efficient conduct thereof. 1 A weighty truth, which economic writers have too much overlooked. Connaissaftccs of this kind really form one of the main departments of capital. Observe that what we here iliscuss is not the same as the intelli- gence mentioned in § 36, iv, though the two are closely related. - " Mr. Walter Weldon, chevalier of the Legion of Honor, who died in England, Sept. 20, 18S5, was one of the five men, and the only foreigner, whom the French Societe d'Encouragement has deemed worthy of its grand medal. To him we are indebted for the process by which alone bleaching powder is now made. The peroxide of manganese employed to liberate chlorine from the hydrochloric acid obtained in the first step of the soda manufacture was formerly thrown away. By a very simple process, Mr. Weldon recovered from 90 to 95 per cent of the manganese in a form available for renewed use, and thus saved nearly £(i on every ton of bleacli- ing powder made, quadrupled the total manufacture, made the industrial world the richer by some three-quarters of a million sterling per annum, and as the French chemist, J. R. Dumas, publicly observed, cheapened every sheet of pajier and every yard of calico made in the world." ' Civil, mechanical, electrical, marine, mining. Each has its numerous Ijranches. Cf. Annalcs des Fonts et Chanssees, 1887, 2, p. 389 [on org'n of railway train movement in U. S.]; and p. 522 [on use of certain waste salts for clearing streets from ice]. § 43 The Organization of Industry tfarshall, bk. i, chaps, vii, viii. Mangoldt, §§ 28, 29. Roscher, § 56; Ansichten, vol. ii. Mt'll, bk. i, ch. viii. George, Soc. Problems, ch. i. Schoenberg, vol. i, 203 sqq. System is imparted to labor in two ways : I Compo- sition, whereby several persons, uniting either contem- poraneously^ or successively- in the same acts, accom- plisli more than they could singly. II Division, which yo thp: relative cuxuitions of production secures the same advantage by assigning to different parties different portions of one and the same greater or smaller task. This distribution is partly sponta- neous,^ partly the result of conscious i)urpose. It has three phases : i Ijocal,^ each nation or vi<'inity engaging in the industry giving it the greatest relative advan- tage as to climate, raw material, markets, etc. ii Gen- eric, every several body of producers busied with the sort of work best adapted to its i)0wers.^ iii Personal, the division of labor in the narrower sense, each individ- ual doing the particular tiling which he can do most easily and perfectly." 1 As in lifting a heavy weight, loading logs, jiulling stumps, and other jobs for which farmers " change works." In many such cases — we add proof-reading to the number — the work could not he done at all except co-operatively. In any kind of toil the union of several persons lends a peculiar inspiration, which is usually worth taking into account. - As where two or three men hammer the same hot rivet, the better to head it ere it cools. Where three [even five may so combine] pound on the same drill, division of labor also comes in. The drill goes no faster than with the same number of blows from one man, but the holder of it is worked to better advantage. .See next §. *The local phase, at least so far as it pertains to nations, is mostly spon- taneous. It is only minor and specific businesses which they formally adopt by legal encouragement. The establishment of quinine production in India through the agency of the British government, and of beet-sugar production in France, Germany and Austria, are examples. Subordinate districts adopt industries much more easily, and often, — now at a loss, now to their great benefit. In agriculture, experiment with this in view has yet to go much farther. It is not at all to be assumed that the crops grown from time immemorial in a given locality, are the only ones suited to it. * Thus London, Manchester, Liverjxjol, and the wheat section of Amer- ica supplement each other, forming an industrial group, much as do foreman, cutters, crimpers, lasters, heelers, etc., in a shoe factory. Cf. Roscher, § 57. Europe and Asia co-operate in the same way. More still THE RELATIVE CONDITIONS OF PRODUCTION 7 1 the Tonid and Temperate Zones. The importance of this international division in labor will l)c shown under Exchange. Tarit'fville, Conn., was found to be superior to Thompsonville as a site for carpet manufacturing, because the water there made faster dyes. The special e.xcellence of West English cassimeres is said to be due to a peculiar humidity of the air, ren- dering the fibre tractable while wrought. '' Heredity of industrial tact and taste is as valuable as it is striking. English woollen spinners and weavers inherit a pronounced adaptability for their trade. So the silk workers of France, and the fishermen of Nova Scotia. " This is the form discussed in next §. § 44 The Same in a Special Aspect Plato, Rep., bk. ii. Ad. Smith, bk. i, chaps, i, it [cf. in Playfair's Ed., supp. ch. iii]. Roscher, § 58, and the other authh. cited at last §. The economic benelits^ springing from the personal division of labor are extraordinary, and have been well discussed in nearly all the books since Adam Smith. They consist in : i Laborers' improved dexterity.^ ii A better distribution of abilities*'^ among the various de- partments of the work, iii Inventiveness and inven- tions.^ iv Economy of time, employing the least pos- sible in changing tools and j^lace. v Prevention of waste in stock,^ whether raw material or fixed capital, vi Having- of interest*^ and insurance. ^ Ad. Smith's favorite illustration [bk. i, ch. i] is pin-making. It involved in his time about iS distinct operations, each, in the best works, performed by distinct hands. He estimated that the product by this dis- tribution was from 240 to 4S00 times as great as if each workman had wrought separately and with no special education for the trade. Cf. Perry, Elements, 129. - A blacksmith not specially used to nail-making turns out 200-300 a day; one used to it, yet with his hand out through other work, 800-IOOO; a boy, even, who has never done anything else, 2,300 [Ad. Smith]. Each pupil can multiply instances. ^2 THE RELATIVE CONDITIONS OF PRODUCTION " Skilled laborers need be had only for work which they alone can do, simpler parts being left to apprentices or green hands. In making needle- points chiKlren beat adults. •• Though Arkwright began as a barber, and Cartwright, the inventor of the power-loom, was a clerg)man, far the larger part of the inventions which have blessed the world, were worked out by mechanics. To the cunning stored in the steam-engine of to-day. Watt is hardly the thousandth part contributor. The rest is mainly from unknown men. 5 As a rule, waste of material will be small in proportion to the rapidity with which it is turned into product. Buildings, machinery, tools, and all fixed capital would of course better be worn out in productive use than by decay. A mill with never so few hands must have a full complement of gear. This is a strong argument for long work hours, and for night work, provided orders are heavy enough. ^ This, as a consideration separate from the preceding, relates to the materials used in production. The shorter this process the less time is money invested in them and the less time have they to carry insurance. § 45 Evils and Limitations Roscher, §§ 59 sqq. Mill, bk. i, ch. viii. Ad. Stnith, bk. i, ch. iii. The division of labor, carried to such an extreme in the monster undertakings of recent decades, has its dark .side. The workman's life lack.s its old divcr.sity.^ Narrow, it cannot but be nionotonou.s and irksome. The man is more dependent on his single art, possess- ing at once less ready knowledge and less ability to acquire. In two ways the system favors strikes. By making laborers clannish it fosters union among them, while it gives a few power to stop the work of all. For- tunately there are activities which only to a limited extent allow labor to be divided, the check lying for some in the nature of the business,^ for others in a eontracted market.^ In all trades whatever, organi- zation is repressed by lack of capital,^ and ceases to be THE KKLATIVE CON'DITIONS OF PKODUCTIOX 73 profitable^ when in compass and complexity it tran- scends available supcrintility. ^ All have heard the proverb that in Lynn, Mass., centre of the ladies' shoes industry for this country, not a shoemaker is to be found. - In agriculture, e.g., the work manifestly cannot be parcelled out among ploughmen, herdsmen, reapers, mowers, choppers, etc., but each h.intl has commonly to do more or less at all these. House-building and painting in cold latitudes present the same difficulty. Roscher lays down the principle that the possibility of dividing labor bears exact proportion to the degree in which, in the different kinds of industry, labor contributes to production. ^ Read, best. Ad. Smith, as above. Cabinet-making is intrinsically sus- ceplit)le of great division, yet in a country place no one can live In' this craft alone. The cabinet-worker must here be carpenter, joiner and wood- carver, too. Every country blacksmith is also copper-smith and lock- smith. Notice how cheap transportation, by turning many little markets into one of large si/.e, makes possible much new division of labor. For- merly the furniture, coffins and wagons for every village had to be made there, usually by the same man, so meagre was the demand for each. Now those wares are carried thousands of miles, and even coffins can be gotten up in such numbers under one roof as to admit of the most perfect division of abilities. Frontier settlements still show the old order of things. * For plant and stock. So far as thorough oversight can be secured, there is advantage in large undertakings, even in the industries referred to in n. 2, above ; but if this condition fails, smaller establishments, though missing many of the advantages which fuller organization would give, will lead [Cherbuliez, vol. i, 120 sqq.J. '' I.e., ceases to be truly productive. But a trust or ring which has a monopoly may, though far too large to be economically managed, and hence not a help to general production, still, by raising prices, be verj' profitable for those interested. Cf. § 21, iv, (2). § 46 The Form of Undertaking Cossa, Elementi, H, vi. Mill, bk. i, ch. ix. Weeden, Soc. Law of Labor, 30. Walker, P. E., 244. Matigoldt, §§ 33-35. Schoenberg, vol. i, 220 sqq. Cohn, 447-87. Very many goods are produced by the identical per- sons or families who are to consume them : numerous 74 THE RELATIVE COXDITIONS OF PRODUCTION others for exchange, but in petty ways. Respecting the remainder, intended for exchange on a large scale, it is important where, for any given Hne or centre of production, the sovereign directorship and risk ^ are located. Their seat may be: i In the state — pubhc co-operation.^ ii In isolated grroups or partnerships ^ of men, working unitedly and on a level one witli another — private co-operation, iii In individual un- dertakers or contractors — the single entrepreneur sys- tem, iv In joint stock companies as undertakers — the collective entrepreneur system. Each of these is useful in special fields ; neither will do for the whole range of industry. There are species of production which the state must assume, and its function in this way enlarg-es with the growth of civilization.* Co- operation works excellently where keenest oversight and large, intricate combinations are not indispensable.^ Single undertakers secure to the superintendence the maximum of diligence and energy, but lack capital for colossal works. For these, stock associations are best fitted, and the mammoth enterprises of the age fall more and more to them. With their endless capital they can command the first quality of superintending talent, while utilizing to the utmost the division of labor. But to this Titan form of undertaking attach certain evils : i Irresponsibility of managers to stock holders. 2 Baneful political inlluence. 3 Tendency to monopoly, making their own, and denying to the public, the benefits of cheapened production.^ 1 These being the chief elements in the function of " undertalV. i, ch. ix, § i. But a vast proportion of consumption is destructive in nature, pure, unremunerative waste,^ the annihilation of so much precious wealth, which men must dispense with, thus remaining poorer, or re-create with toil and pain. Such deficit mainly occurs through cither (i) care- lessness, or (ii) thriftlcssness. To the first cause is due much deterioration of animals by overwork, ill food, and inattention, much decay of buildings and machinery, and fully half of the enormous lo.sses each year by fire.^ The second cause, too, contributes to the above, yet is chiefly influential in other ways. Lazi- ness, intemperance,'^ ill choice of dress, food,* and modes of eookinff, slovenly tillag-e, neglect of accounts'^ and of little sum.s,^ may illustrate. The ill results do COST AND CONSUMPTION IN PRODUCTION 8 1 not end with the owners of the wealth that perishes. All destructive consumption tends to injure, and nearly always does actually injure, the entire imlilie. In the aggregate, it is an incalculable detriment to mankind. Thrift is promoted less by a high rate of interest than by (i) morality, (ii) g:o()(l {»:overnnient, rendering sav- ings safe, (iii) strong family ties, prompting parerts to plan for their children's best, and (iv) a proper distri- bution of wealth. Very poor persons cannot save, the very rich lack powerful motive for so doing. People of middle rank are the great builders of wealth, the more when gentle gradation.s among them stimulate the desire to rise. 1 § 30, n. 3. Let no one suppose this to be waste any the less because it may invoke particular new applications of industry. E.g., " the broken pane," in Bastiat's illustration, Ess. on P. E. [Putnam's Ed., 72 sq.]. The glazier has more work: is not the accident a blessing? Not at all. Sup- pose the pane had remained whole. The money which the glazier has received would have gone [say] to the shoemaker, whose prosperity is no less important to the community than the glazier's, while he who had to pay for the pane would be richer by a pair of shoes. Study this till per- fectly clear. - Estimated to reach in the entire United States over §100,000,000 per annum, and in New York state alone $15,000,000, — the latter sum exceed- ing by $6,000,000 the whole burden of taxation for state purposes, and being considerably over one-seventh of the annual increase in the state's taxable property. It is thought feasible, through increase of precaution, to reduce this destruction, national and state, by fully one-half. Fire losses to factory property have already been cut down much more than this, viz., 75 per cent, mainly in ways pointed out by the late Zachariah Allen, of Rhode Island, and Edward Atkinson, of Boston. Insurance rates have fallen accordingly. It is uncertain whether insurance decreases or increases fire losses, but it very helpfully distributes the burden which they entail. •■' § 21, n. 7. ^ § 16, n. 7. 82 COST AND CONSUMPTION IX PRODUCTION ^A very prevalent ami unfortunate fault of farmers — worse among them than among other industrial classes of like intelligence. 5 In the savings banks of the United States are, in 1889, $1,200,000,000 or ? 1 ,400,000,000, almost or quite as much as all the other banking insti- tutions of the country contain. A great part of the sum has been deposited by persons of quite moderate means. Suppose the whole laboring popu- lace to save as these have! Thrift should be enjoined as a duty. The introduction of school savings banks is a worthful reform, and promises much. Part II EXCHANGE EXCEPT AS INVOLVING THE SCIENCE OF MONEY -»oi»io<>- CHAPTER I the nature of exchange § 51 In Rude Societies I.aveleye, Primitive Property. Maine, Anc. Law, ch. viii. Schoenberg, vol. i, 27 sqq. Hyndman, Hist. Basis of Socialism in Eng., 104, 109. Morgan, ' Montezuma's Dinner," N. A. Rev., .^pr., 1876; Ancient Society, pt. ii, ch. vii. We have already often had occasion to advert to the phenomenon of excliaugc: it now demands detailed study. I"2xchangc is not, as is sometimes taught, a strictly necessary feature of economic life.^ Among I)riiiiitive men the distinction of vienin and tiium hardly arises. Their property is mostly coninion,- their pro- duction wholly for their own immediate consumption. In the village communities of India, in Polynesia, Aus- tralia, and over large parts of Africa may even now be seen families and groups of families producing all that they consume, and consuming- all that they produce, f^4 THE XATUKK OF EXCHANGE exchange practit-ally unknown/^ Society in ancient Mexico and Peru is believed to have been comiiiuuis- tically orjianized, no exchange being had save trifling trade of tribe Avitli tribe and village with village. In lOnjrlaiul, so late as the fifteenth century, exchange was, outside of towns and cities, not indeed absent but entirely insijiiiifieaiit * as an economic resource, fam- ilies producing for the most part what they themselves consumed and no more. It was much the same in the Aineriean colonies, and so continued in the remoter portions of the states till the railway era opened. There remain to this day isolated sections^ in the "West and South where the play of exchange is ex- tremely limited. 1 See § I, n. 7. Mill, bk. iii, cli. i, § i, shows that it will not do to take exchange as the exact correlate of ivealth. It is hence both illogical and confusing to place an exposition of exchange at the threshold of w course in Economics. 2 See § 3. Maine, Laveleye, ClifTe Leslie and others have proved that private property, in land at least, originated in comparatively recent times. .So far as can be traced, land was among all peoples, at first and for long, common property. When severalty-holdings arose they reached only to house lots and gardens. Nor was community-property confined to land, but extended to all movables as well, with such exceptions as each family's clothing and kit of utensils for hunting, fishing and the like. Even in these cases property-right was not then regarded absolute. " Contrary to frcrjuent representations, simple division of labor does not of necessity involve or imply exchange. Division of labor presents itself in every family, exchange rarely. So in Shaker communities. * This, too, in an age of prosperity for the common people as great, on the whole, as was ever known in England. " Our communistic societies might also be mentioned. I5ut, though no exchange goes on within each, they do traffic with the world outside, and get gain. the nature of exchange 85 § 52 Philosophy Ad. Smith, bk. i, ch. ii. Mangoldt, bk. iii, ch. i. Cherbuliez, bk. ii, ch. i. Yet exchange is natural, in the same sense as are development and civilization. i Different human ^ beings possess tastes and aptitudes for different pur- suits, nearly every individual having a peculiar fitness for some one line of production, his efforts most avail- ing if confined to that single line. The talent may be original, acquired, or partly either, ii The environ- ments of men are about equally various,^ fixed so in the very constitution of the earth, and these affect their nroducing power much as their unlike abilities do. iii At the same time each man has the capacity and desire to enjoy all or nearly all sorts of products, and will enjoy them if he can obtain them.^ iv From these multitudinous needs of men, coupled with the extreme diversity in the advantages which they possess rela- tively to each other, springs exchange, whereby one, with his special product or kind of products, purchases for the satisfaction of his own numerous desires, the various products of his fellows. The process extends its scope '^ according as wealth, culture, needs, the division of labor, and man's mastery of the earth increase. ^ Adam Smith, as above, places exchange among the marks which especially differentiate man from the brute. He and others have raised the question whether or not there is innate in man a specific propensity to exchange. None pertains to the race as such. The tendency is acquired — a growth consequent upon the great good which exchange confers on society. /.<'., people would not long exchange did they not iiiid lliuir account m it. 86 THE NATURE OF EXCHANGE - One man lives near a prolific gold mine, a second where cattle are fattened for the tending, a third where valuable game is easily taken, a fourth by fine waterfalls or rich coal beds, tempting to manufacture, a fifth on the seashore, catching fish enough in a day to feed a hundred people, a sixth owns a fertile farm, and so on. 8 The tendency is: specialty in production, universality in consumption. But for exchange, here would be a fatal fracture in the frame of society. * Cf. § 54. § 53 Tntrtnstc Advantage? Mangoldt, bk. iii, chaps, i, ii. CherbuUez, bk. ii, ch. vii. Perry, ch. iv. Suppose that a tailor can make a coat in one day, a hat only in six clays, and that a hatter can make a hat in one day, a coat only in six. Without exchanging, each must work seven days for a hat and a coat. By exchanging, each can obtain both articles for two days' work, and wealth will gain five coats and five hats. Such saving is the tendency of all spontaneous ex- change. This illustration teaches that : i There is no nec- essary reason why, in any exchange, both parties should not gain. If the contract is intelligently and freely made, both do gain.^ ii The greater the diversity of relative advantage between the parties, the greater the profit of exchanging. Thus every man's special for- tune, skill, talent, or felicity of situation is through exchange a benefit to the public^ in spite of him. iii Any abridgment to liberty of exchange, whether between persons, sections or nations, must, at least in the first instance, inevitably produce loss. Whether the hindrance can in this or that case prevent greater loss, or set in train compensating causes, is often an important question.'^ THE NATURE OF EXCHANGE 8/ > Take the men supposed at § 52, n. 2. Confine each to the direct fruit of his own toil, and, however diligent they are, all suffer from poverty. Let them exchange, and every one of them will better his condition a hundred fold vvitiiout an additior.al stroke of labor. They can well afford to pay the merchant and tlie teamster who mediate the transfer. Even if you are unfortunate, and in this sense compelled to buy or sell, your act is best for you under the circitinstances. Mow is it in stock gambling? Here, too, the law holds, since, in a very true sense, the con- tract is blindly made. 2 A fine illustration of the benevolence wrought by Nature into our very constitution. Cases are meant, of course, where the advantage has not been won at any one's expense. We may mention here the super-economic bles.sings : religious, moral, resthetic, intellectual, which attend exchange — the broadening of men's lioii/.on, aid to Christian missions, prevention of war, national and international charity in famines and pestilences. Com- merce is the prince of civilizers. 8 In some instances to be answered affirmatively, in others negatively. § 54 Reach of Influence Uangoldt, as at last §. Roscher, §89; Naiionalok. d. Ackerbaues, Einl. Cher- bulifz, bk. ii, ch. v. With the progress of exchange the entire face of the economic world becomes transformed, while civ- ilization 1 attains a loftier level and a richer diversity. i A special class of merchants or middlemen arises, whose contribution ^ to social weal consists exclusively in furthering the necessary exchanges between original proc proved beforehand that this will result, or afterwards that it has resulted.^ iv Itaisinjif wag-es. This can occur, if at all, only as an incident of general industrial prosperity, and will not attend even this if immigration is free.^ v Keeping- at home exchange-pro fits which else would go abroad. But the existence of a desire to exchange abroad makes it certain that legal restraint could not but lessen the number or the profit of the total exchanges, or both.^ vi Making foreigners pay part of our taxes. This would be unjust were it pos- sible, but it is not. To impose or raise duties certainly decreases foreigners' profits from trade with you, but does not force from them the slightest positive tribute.^ 1 This may be i) turnporary, a consequence of ruinous competition, involving depletion of aggregate wealth, or ii) pertnanent. The latter might arise through protection to young industries [§ 57, iii]. Or strug- gling manufactories some time in existence might lie enabled to cheapen their line of product by a laiger market [al)ove, ii]. In any case loss would have to be incurred, which no one could ever so measure as to certify that it was less than the gain, though it might possibly be. Of INTERNATIONAL i.XCHANGE 99 course cheapness may acccipany ox follow restriction without l)einR causeti thereby. 2 In new countries population may be too thin for the utmost efficiency of its total labor [Mill, bk. i, ch. viii, § 3]. The thought is that it can, by legal measures, costly at first, which nurse manufacturing, be thickened from abroad, or, without this, assembled in towns and villages, so as to produce more per capita, and presently, casting aside protection, to defy foreign competition even in the articles at first imported. Free-traders too much ignore the possibility of this, restrictionists its uncertainty, costliness and practical difficulties. ^ Many chances for loss would be about certain to be overlooked, among them the impoverishment of customer-nations and the limitation of market for unprotected industries. Lalor, vol. ii, 303. ■» See § 60, 3. If immigration is unhindered, foreign laborers are in competition with domestic, forcing wages down toward the lowest level abroad. If it is prevented, the wages question depends for answer on the propriety of the restrictive policy at large. 6 If you forbid a man who wishes to do so to trade across the line, it is conceivable that he may effect the desired exchange with equal profit at home, his home customer's gain being a clear increment to the nation's wealth in consequence of the hindrance. But it is perfectly certain that this would not be the case once in a hundred times [Ad. Smith, bk. iv, ch. iii]. In arguing from such mere possibilities, restrictionists are often worse doctrinaires than their opponents. 6 Sumner, [London] Economist, Dec. I, '83; Protectionism, 149; Sidg- wick, 491 sqq. Full canvass of the proposition is too long for this place. Only transitory and highly improbable conditions can be conceived in which the nation would get in revenue as much as its citizens lost in advanced prices. § 60 Important Specific Points i Wayland, P. E., 140. Perry, 460 sqq. Taussig, Prot. to Young Indtistries, 60, 64; Pres. Tariff, 90. Fawceit, F. Trade and Prot., chap, ii, pp. 9, 28. ii Fawcett, Manual, 390. Farrer, Free T. vs. Fair ['85]. Giffen, Contemp. Rev., June, '85. Westm. Rev., Feb.,'88. Ad. SmUh,\>V.\\,z\\.\\. iii i^rtwc*'//, Man., 386. Walker, Wages, 44; P. E., 470. iv Andrews, Quar. Jour. Econ., Jan., '89. i Bounties 1 offer a more economical means of en- couraging industry than duties, as by them i) prices are not advanced, 2) smugrgHug is not induced, 3) the lOO INTERNATIONAL EXCHANGE country is burdened only for the actual production secured, and 4) all the cost is borne at home, ii * Fair trade' is the cry of a party ^ in England, who spe- ciously plead that, while they would be quite willing to forego restriction if other nations would, free trade is ruinous save on this condition of reciprocity. But for a nation to lay tariff upon imports does not remedy, it aggravates instead, the loss suffered in the taxation of its exports by other nations. Offending peoples are punished, but the chief penalty takes effect at home. iii Though lowering of wages may not spring from the mere fact of using foreign labor, since free importation does not employ that to the exclusion of domestic,^ may it not ensue if wages abroad are lower tlian at home ? Never, wages in general,* and not necessarily wages in the trades in question, since lower nominal, or even lower real, wages abroad do not imply smaller cost of labor there. And even in industries where whole cost of labor is less abroad, home laborers have nothing to fear from foreign competition, provided this disadvan- tage is offset, as is often the case, by advantages.'^ iv Contrary to free-traders' usual statement, it is in certain cases possible for a trade combination in one country to crush competitors in another so as then to put up prices, or for an international trust so to con- trol prices as to render the customs laws of all coun- tries nugatory. Such results bid fair to be henceforth more and more common, perhaps the rule, that regu- lation of trade hitherto accomplished by nations sepa- rately, through tariffs, necessarily becoming matter for international compacts. Meantime, while free inter- national competition is commonly one valuable safe- INTERNATIONAL KXCTIANGK lOl j;uarrcsH«s a fo^-eitjii land, the latter may well defend its&lf-by-a tariff. ' Alex. Hamilton in his famous Repnf( on Miiii'/'a('.tdr4s< tc ihc Ilnd Congress, Dec. 25, 1791, favored bounties as against customs duties. .Schouler's U. S., vol. i, 1S7. In 18S5, some 270,000,000 lbs. of sugar were produced in the U. S., about 10 per cent of the consunii)lion. Average cost price not far from 2.] cts., average duty [encouragement] nearly the same. I.e., we paid 2] cents on each of the entire 2,700,000,000 lbs., conferring a protection equally well secured by a l)ounty of the same height on one-tenth that number of lbs. — a loss, so far as protection was concerned, of $60,750,000. It might, of course, have been needed for revenue, but as a matter of fact was not. ■^ ' Keciprocitarians,' Giffen calls them. Even when retorsion [§ 57, i, 3)] is desirable, it is a costly process. 3 See § 56, V. * Save in the barely conceivable ways allowed in § 59. ^ Cf. § 48, and n. 4. Roscher [Eng. tr.], vol. i, 218, n. Distinguish the 2 cases, i) high efficiency to labor, keeping pace with high wages, so that cost of labor is as low as with smaller wages, or lower; and ii) high labor cost, compensated by specially favorable conditions of production in other respects, so that whole cost of production is no greater. Agricul- tural wages are higher in Australia and the U. S. than in Europe, owing to the advantages of rich and low-priced lands. Through cheapness of grain, whiskey is manufactured in the U. S. so as to undersell foreign distillers all over the world, though labor here, no more efficient, is paid 50 per cent higher. Eng. factory hands, with their greater skill, better climate and machinery, defy competition from the protected ' pauper labor ' of the continent. " India, where the cotton spinner gets only 20 pence a week, is flooded by the cottons of England, where the spinner receives 20 shillings" [Walker]. Thomas' Hist, of Pennsylvania, 1698, p. 9, says, " Poor people, both men and women, will get near 3 times more wages for their labor in this country than they can earn in either England or Wales." Of course America had no protection then. Hamilton's Report [n. I, above], giving a long list of industries already established in America, notes the then exceedingly high rate of .American wages, and well argues that that need be no bar to successful competition with Europe. CHAPTER III VALUE: GENERAL § 6 1 Value and Value Rpscher, §§ 4, 5. Clark, Philos. of Wealth, ch. v. Dubos, Theo. de Valeur, your, des Ecoit., Mch., 1888 [cf. ib., Sep. and Nov., '82, Ap., '83]. Mill, bk. iii, ch. vi. fCnies, Geld, i. Rae, Contemp. Socialism, 156. Sharliug, in Conrad's Jahi-b., Mch., '88. Martello, La Moneta, App. \Volf,'\w Zeiisck./. gcsa?H. Siaatsiu., ^2, Heft 3. .Mars/iall, in Quar. Jour. Econ., vol. i, 227, 359. Cairnes, Contemp. Rev., '76; Leading Prin.. pt. i. Courcelle-Senenil, Jour, des Econ., Ap., 1883. The term value bears both in popular and in eco- nomic speech tliroc incanini?s, which must be carefully distinguished : i Utility in g-eneral, the power, what- ever its origin, of satisfying human needs.^ ii Value in use, economic value proper, the useful character ^ of things which are actually utilized, however this is estimated, and whether they are destined for exchange or not : in still other phrase, the immediate significance which things possess for men's economic life, iii Value in exfliange, the ratio at which commodities and ser- vices pass for one another in open market. The second kind of value is nearly identical with the Avealth-char- acter (jf things ; usually, therefore, not originating gra- tuitously, though it may also attach to entities, like land proper, which are not wealth. The third form of value is closely related to the second, being the resultant of more or less numerous estimates placed by human minds on the relative use-values of things. Values of varieties ii and iii hence correspond in a general way, though by VALUE 103 no means exactly. In practical exchaiiffo, we obviously have to do mainly with value in the tliirortance, and over against each, its satisfactions, in a regular scale of I04 VALUE degrees, always gratifying first the hijjfhest degrees of his foremost wants, though probably not all the lower degrees of these till the upper degrees of less important wants are met. Ketreiu'liiueiit, on the other hand, begins with the lowest degrees of the least pressing wants, working upward and backward, reaching last the things absolutely needful for life itself. The value which a man attaches to any article is seen from the grade and degree of the lowest want which he uses it to satisfy.^ 1 Coal has heating power; food, nutrient power, etc. It need not mislead to style objective value in use tn/rittsic, though it, as well as every other form of value, is, strictly speaking, an aftair of relation [§ 6i, n. 3]. - This may be easily understood by the aid of the following diagram, adapted from Bohm-Bawerk and Menger : — Degree I, Food II, Clothing III, Lodging IV, Luxuries First Second Third Fourth Necessary for life do for health Agreeable Still less keenly so First suit, necessary Second suit, convenient Third, desirable Abed A room A plate of Fifth Still less Fourth, not unacceptable A suite of two cream Two plates of Sixth Satiety Fifth, satiety or three A suite of four Satiety cream Three plates Satiety The supply of wants proceeds [irregularly, and this in different ways with different persons] downward and to the right; retrenchment upward and to the left. "The difference in degree of importance between one meal when it is the only accessible one, and one meal when it is any one of five, is not as 5 to i, but as infinity to i. When wc draw near to absolute necessity, the increase in importance is geometrical rather than arithmeti- cal " [Bonar, as above]. Even when a thing is made necessary only by some pet view or preference of the individual, its importance " often increases with decrease in its quantity, in far greater than arithmetical proportion " [ibid.]. ^ A western farmer may use corn to eat and to burn. Then its fuel value is to him the value of the corn. Subjective value is thus disclosed, VALUE 105 not by its utility at large, but by its Imvest [often called final] utility. Let the farmer run short of supplies in both kinds, the fuel-use of his corn will be foregone the earlier. Notice that the value of a given -uhole is not told by the lowest use to which any of its parts arc put, but by the lowest use made of it as a whole. Each of several interchangeable and equally worthful parts reveals the estimate its owner places on it by the lowest use he makes of any. The value of an article to you is also revealed by the utility to you of what you are willing to give for it. § 63 Value in Exchange The authh. at §§ 61, 62. Also, /'^rry, ch. iii. jl/ai-/^<7rf, Elements, ch. ii. Bagehoi,'Ec. Studies, loi sqq. liliU, bk. iii, r,h. ii. Cide, La Nption de la I'aleur dans Bastiai, Rev. d. Econ. poL, Mai-Juin, '87. Marx, pt. i, ch. ii. Sidgwick, bk. ii, ch. ii. From these variatiou.s of value in use according: to persons, places, and times, spring the phenomena of exchange ^ and value in exchange. To be valuable in exchange, a ware or a service must of course have sus- ceptibility ^ to exchange, as well as utility. A single case of value in exchange always presupposes two persons and two fourfold estimates, each party sub- jectively valuing what he offers, and the suggested return, at the same time surmising how both are val- ued by the other. These estimates are determined by a great variety of circumstances : knowledge or beliefs touching the conditions of production, the number of would-be buyers or of would-be sellers, or the value in use of the article in question to any or all. When many potential exchangers come into vicinity, forminj? a market,^ the market rate of exchange at that given time is fixed by the estimates of the weakest actual buyers and the weakest actual sellers. ^ But for the different scales and degrees of value [§ 62, n. 2] put by different parties upon one and the same thing, exchange would be un- known. See § 52. io6 VALUE - Our intellectual capital cannot be exchanged, though many of its products may be. It is capital, and wealth, and has value [in use], none the less [§ i, n. 6]. ^ This is the most interesting case. On what forms a ' market,' Bagehot, Ec. Studies, iii [Ad. Smith]; Cairnes, Leading Prin., 17-40; Thornton, Labour, bk. ii, ch. i; Mill, bk. iii, ch. ii; Bonar, Quar. Jour. Econ., vol. iii, 15. Bonar has this diagram: Would-be Sellers (subjectively) B' values his horse at £,-zo Wot- LD-BE Buyers (subjcc ively) A' values a horse at £jbo A= " 56 A» " 52 A« " 48 A- " " 44 Ao " 42 A- " 40 A» " 36 A» " 34 A'o " 30 B^ ' 22 B^ 30 B* 34 B'- ' 40 B» 43 B' SO B8 52 The horses are supposed to be of the same quality. The As and the Bs are ' strong ' in proportion to their eagerness to buy or to sell : i.e., those willing to give the highest prices are the strongest buyers, those willing to take the lowest, the strongest sellers. Assuming, what is likely to happen, that the parties on both sides effect exchanges something in the order of their strength, 5 trades and only 5 will be made, viz., between the As^"" and the Bs*"*. A** will give but 42, which is under the figure demanded for any of the three horses remaining. B*"' asks 43, too high for any would-be buyers who are left. A^ is willing to give 44 or less, B-* to take 40 or more : the market value, till the conditions change, rests at one or the other of these figures, or between. A'' is in this case the weakest buyer, B'' the weakest seller, the two constituting the * terminal pair.' On the worst day of the snow blockade in N. Y. City, Mch. 13, 1888, Tiffany sold only 80 cents' worth of goods; a certain retail grocer, $10,000 worth. Tiffany could not that day have raised his prices at all ; the grocer could probably have doubled. VALUE 107 § 64 Price Marx, Capital, pt. i, ch. i, sec. 3. Mangohit, §§ 63-74. Gamier, Traiii, 667 sqq. iJ/ariAa//, Conlenip. Rev., Mch., 1887. Lf.iir, I'ierteljahrsch. /. i'olkswirisch., xxvi, i, 2. Roscher, §§ 100, loi. Bohm-lia'jie rk , Kapilal, etc., bk. iii, sec. ii. When of any article the value is expressed in terms of some other, that other may be called the ' value- form ' of such article.^ The most common value-form attached to goods is money, and the money value-form is price. It will be seen that while general rises and falls of prices frequently occur,^ such an event mean- ing only a change in the purchasing power of money, to speak of a general rise or fall in exchange-values would be a contradiction in terms. ^ When, e.g., it is said that ' a bushel of wheat is worth a dollar,' the expression is by no means an equation, though involving the idea of one. The terms could indeed Ije reversed without falsehood, but not without altering the meaning. - Greatly infringing justice and discouraging trade. See, later, § 87, on Ideal Money. § 65 Normal Value in Exchange Cairnes, Leading Principles, pt. i, chaps, iii, iv. Ad. Smith, bk. i, ch. xi. Mill, bk. iii, chaps, ii-iv. Maine, Village Communities, vi. Senior, Pol. Econ., 101, 102. Of the commodities producible at will in indefinite amounts, much the larger part of all, market values and prices^ are not fixed ultimately by the influences mentioned at § 63, but by cost of production, or, more strictly, that of reproduction,- This cost may be styled the normal value of commodities. Around it market values and prices will hover, sometimes higher, some- times lower, according to circumstances, but never for lOS VALUE any considerable period^ very far away. If, in the case of a given article, different portions of the necessary supply offered in one and the same market have unlike costs of production, normal value coincides with the dearest cost involved.* Things like heirlooms, paintings of old masters,^ etc., which cannot be duplicated, are subject to no law of normal value, but command a higher price or a lower purely according to the relations between supply and demand.'' ^ Why mention ' market values ' ? Why is not 'prices' sufficient? Be- cause the law would hold equally if money had never been invented [§64]. 2 See §§ 47, 48. If classes of goods be taken, cost of reproduction and of production will not vary much. The strictly ultimate determinant is the metaphysical cost [§ 47]. Cf. Hyndman, Hist. Basis of Socialism, 105. The discussion contemplates primary sales, viz., by growers or manufact- urers themselves. Cost of production at the retail stage of the process includes allowances for handling, tare and tret, interest, storage, etc. Cf. § 69, ii- 2 Though temporarily perhaps a good deal above or below [scarcity prices]. During the snow blockade, Mch. 15, 1888, milk sold in N. Y. City for $5 and $6 per can of 40 qts. The next day it had fallen to ^l. Henry George found flour at the Frazer River gold diggings, in 1858, worth #1.50 a lb.; bacon, $3. To Purchas's 'Pilgrimes' [vol. i, 118, 133, 275, 417: sec Tylor's Early H. of Mankind, 223] the natives of Madagascar were glad to pay a sheep for is. silver; a cow for 35. 61/. At Saldanha Bay, on the west coast of Africa, in 1598, the natives, ignorant how to work iron, offered John Davis fat sheep and bullocks for nails or bits of old iron. In 1604 a huge bullock was to be bought there for a piece of iron hoop. If com- petition is free [Senior, 102], variation from cost of production, in an article whose price is determined by this, always lends to annihilate itself. If prices exceed this cost, production will be the more profitable, and hence copious; if they are below it, production falls off. * An important principle. See on Rent, in Part IV. All the wheat of a given fjuality for sale in Chicago bears the same price, whether from poor land or rich, raised with good machinery or none. Block Island poultry, though produced at less than normal expense, brings in Providence as high VALUE 109 prices as any. When demand diminishes, the costlier parts of the supply are dispensed with first, and the normal value falls [cf. § 27, n. 3]. "* And some others. See § 6S and § 69, i. Cf. below, n. 6. On prices of monopolized wealth, § 66. The famous sermon preached by John Knox at Edinburgh, in Auj^ust, 1565, "for the whiche he was inhil)itc preaching for a season," was sold recently for $2,075. ^^ ^^'•'^ years ago a Madonna by Murillo brought in Taris 615,300 francs. One Banks, in N. V. City, sold from his arm, for transfusion into the veins of an asphyxiatcil patient, 8 ounces of blood, containing 240 drops each, for lO cents a drop : — $192. Gen. K. B. Marcy has seen, in camp on the plains, $10 offered for a quid of tobacco. Consul L. Mummius, having conquered Corinth, 148 or 147 B.C., on sending the pictures and statues to Rome, told the sailors that if they lost or injured any, they must furnish others of equal value. r)ne of the choicest works of the painter Aristides he let them use as a draught- board [Liddell, Rome, 479]. •^ Mangoldt, §§ 64-66. Demand differs from mere desire. It is this coupled w ith the necessary goods or credit. Supply, too, is more than the simple existence of commodities. Their owner must be willing, at some rate, to exchange them. Cf. § 63, also Cairnes, pt. i, ch. ii. The market value of all things at times and, to an extent, of all ordinary commodities at all times, is regulated by the equation between supply and demand. Inequality at any moment between these is equalized by readjustment of value. Demand increasing, value rises; diminishing, it falls. Supply diminishing, value rises; increasing, it falls. The rise or the fall con- tinues until demand and supply are again equal, "and the value which a commodity will bring in any market, is no other than the value which, in that market, gives a demand just suftkient to carry off the existing or expected supply." Mill, bk. iii, ch. ii, §§ 2, 3, 4. On de Molinari's law respecting the ratio at which change in supjjly acts on price, § 15, n. 5. The law is as follows : " \Vhen the relation of the quantiiies of two prod- ucts or services offered in exchange, varies in an arithmetical ratio, the relation of the values of those two products or services varies in a geo- metrical ratio " IJour. des Aeon., Feb., 1SS9, iSS]. When the N. Y. Trib- une reduced the price of its copies from 4 to 3 cents, 25 per cent, its circulation increased 30 per cent, though income therefrom fell off [as stated] 19 per cent. The Times reduced from 4 to 2 cents, 50 per cent, gaining 130 per cent in circulation and 15 per cent in income. CHAPTER IV value: peculiar problems § 66 Competition a\d Value Cairnes, Leading Principles, Harper's ed., 87 sqq. Sidgwick, bk. ii, cli. ii. Ingram, Hist, of P. E., 158. Clark iS*" GiddingSy Mod. Distrib. Process, chaps, i, ii. liage- hot. Postulates of P. E. That market value should absolutely conform to cost of production, in the way just described, would pre- suppose (i) general information touching all cases of profits,^ (ii) equality of advanta!;e among competitors, and (iii) perfect mobility of labor and capital.^ Such conditions are rarely if ever realized^ save in a very imperfect way. As to labor, not only do poverty, ignorance, their distance apart and differences of speech keep people from full competition, but not all those of a given vicinity compete for all positions. In- stead, we everywhere find an arrangement of groups^ and stib-gronps, according to occupation, ability, and training, Avithin each of which there is competition, be- tween which, little or none. The tendency of trades- unions is to check competition still more. Capital, too, crowds capital only in proportion as (i) it remains free or non-specialized,^ (ii) profits are known, and (iii) mo- nopoly is prevented. A monopoly may be kept up either by the action of government, or by the sheer mass (A wealth behind it •* VALUE : PECULIAR PROBLEMS II I 1 As sucn knowledge is rarely direct or exact, and always incomplete, statements about the proportion of national income taking the form of profits are little Ijut guesses. Rate of interest is no guide. Thus, ignorant of each other's prosperity, businesses will not uniformly so compete as to keep selling prices the closest possible to cost. Absence of (ii) and (iii) would also help prevent this. •^ The fundamental postulate of English Economics, which, however, Bagehot correctly declared only hypothetically true for much of modern Eu- rope, and not true at all for primitive society. He was mistaken in sup- posing that it would ever accord with facts in other than a general way. 8 Usually, therefore, all that can be said is that products tend to sell at cost of production [§ 65, n. 2]. The law is, however, little less valuable because inexact. .2 3 - y o. 3 ? 2 " a « 3 5 (O ? *- C »* responsible brain workers automatic brain workers responsible manual labor automatic manual labor T ! i i 1 ; 1 — 1 1 ' j iroi 1 and s teel ore This diagram, modified from Giddings, as above, shows by way of ex- ample the non-competitive grouping in the iron and steel industry. Ob- serve that competition is more widely possible the lower the grade of labor. Ore-diggers [imskilled] and smelters may compete with the lowest iron and steel workers, and both with the automatists engaged upon final products. Higher up, work is mostly more specialized. Notwithstand- ing all the above, a degree of competition, defying the lines of classes and industries, still persists through the supply of youthful laljorers con- tinually coming on to the stage, choosing this calling or that, as oflfers best remuneration. Machinery and education extend the scope of this process. * Cf. § 29, notes 6, 7. 8 Those who deny the possibility of maintaining a monopoly in the last way named, overlook (i) the extent to which profits are concealed, (ii) the progressive immunity from competition which comes with innncn- 112 value: peculiar problems sity of resources and specialization of plant, and (iii) the temptation of formal competitors not to become real ones, they sharing all the advan- tages from the elevation of prices [next §, and its n. 4]. § 6"] Monopoly Value Sidgwick, bk. ii, ch. x. Marshall, Ec. of Industry, i8o sqq. Senior, Pol. Econ., 103- 114. Sumner, Essays, 46. Quar. Jour. Econ., vol. iii, 143. Monopolies may be natural or artificial,^ exclusive ^ oi* partial. A monopoly, again, whether complete or not, may be in an article whose production can be swollen (i) not at all, (ii) indefinitely, but at increasing cost, or (iii) indefinitely at the same or lessening cost.^ The monopolist's power will vary accordingly, but it is important to mark that he need never, in order to dic- tate sale prices, control the entire production.* In case of a product so monopolized, the price is fixed not by cost but by men's necessity. It goes higher and higher till demand, and hence profit, begins to fall off, and then plays about the line of vebat the market will bear, just as in other cases about that of cost. The monopolist can be more or less exacting according to the nature of the product. If it is a luxury, he extorts little ; if a necessity, he may bleed consumers to death.^ ^ Government is a monopoly, natural and exclusive. A railroad, once created, has a natural, though incomplete, monopoly of its strictly way traffic — natural in that, power once given it to be a railroad, monopoly arises without further legislation; incomplete, since means of possible competition remain. Land-holding, be it private or communal, naturally involves monopoly. So the ownership of mines, water-power, and the like. The legislation granting the titles in such cases does not create, it merely assigns, the monopolies. But when, as so often under Eli/.aljeth anfl James I, public power grants the exclusive right to manufacture or value: peculiar problems 113 sell, the monopoly originates in the grant [artificially], not in the nature of the case. 2 " Conslanlia (wine) owes its peculiar flavor to the agency of a few acres of ground, and would be destroyed if high cultivation were employed to force from that ground a larger quantity of wine. No person but the proprietor of the Constantia farm can be a producer" [Senior, P. E., 104]. Not so a railway. If it is too extortionate, some people will use wagons. '^ The owner of Constantia [n. 2] illustrates (i) ; the proprietor of a rare mine, (ii) : see § 34; the patentee of a manufacturing machine or pro- cess, (iii). * Immediate mastery of a decided majority is, as regards dominating the price, the mastery of all. That i.s, competition with a partial monopoly is formal only, and it does not become real until competitors attain power to supply the entire market. The law of dearest cost [§ 65 and n. 4] has here one of its applications. For illustrations, Quar. Jour. Econ., vol. iii, 142 sq. Cf. above, § 66, n. 6. ^ "The price cannot, of course, fall below the cost of production, but may indetinitely e.xceed it. . . . If fashion were to make it an object of intense desire among the opulent, a pipe of Constantia [n. 2], costing perhaps /^20, might sell for ;[{^20,oc)0 " [Senior]. Imagine a monopoly over quinine in a typhoid epidemic. The parlor and sleeping-car service is a monopoly in a luxury. Rates must be moderate, else people will take the ordinary coaches. § 68 Values between Non-Competing Groups AfM, bk. iii, ch. xviii; Essay i, on Unsettled Questions. Cairnes, Leading Principles, pt. i, ch. iii, § 7. Sidgwick, bk. ii, cli. iii. Cherbidiez, bk. ii, ch. viii. Nichol- son, Money and Mon. Problems, ch. vii. Fawcett, Manual, 390 sqq. Products whose creators do not compete, exchange not in proportion to their costs of production but purely according to the conditions of reciprocal de- mand. International commerce ^ best illustrates this. At the opening of a trade between two countries there is usually a 8:rcater demand in one direction than in the other, at the prices first asked. Then the com- modity, or line of commodities, least in demand must 114 value: peculiar problems be sold lower, or the trade cease, and this every time demand becomes slack for any commodity at the old price. If the demanded reduction still leaves a profit, the exchange will go on ; if not, not ; but so long as it does go on, there is always a tendency toward an equa- tion of international demand. The cost of ocean freig-htag-e rarely falls with equal weight on both coun- tries. It is the heavier on that one the demand for whose commodity is the more diminished by it from what such demand would be were there no charge for freightage, and in proportion to that diminution. The same principles govern among domestic groups not in competition. Whatever increases the demand of any one for outside products, or its supply of things available for the purchase of them, renders less favorable the terms on which it will have to exchange, and vice versa; while all that swells outside demand for its products, or lessens its supply, meliorates for it the conditions of exchange, and vice versa. 1 The principle of this section has ramifications difficult to follow, whose explication would be too lengthy. Mill's treatment [as above] is the best, to be read with Cairnes's reminder that the essential subject is broader than Mill saw, covering much domestic traffic, as well as tliat which crosses national boundaries. The main point to observe is that an exchange in such cases may profit the two parties very unequally. § 69 Complex Cases of Value Mill, bk. iii, ch. xvi. i Wastes utilized for purposes other than gain, also the products of labor incidental to main callings, usually sell at prices which are independent of tl]eir costs, ii When, as often, there is for any commodity or service value: peculiar problems 115 a small, tlioujfli iMTiuanent dcinainl, that cost of pro- duction which determines prices, must be construed to include such items as insurance, risk, interest, storage, lessened economy in labor force, and the like, iii Many a single process of production yields a main and a by- product, as gas and coke, or a cluster of joint products, as chickens and eggs, or beef, hides, and tallow. Cost of production will then, supposing: competition, deter- mine the value of the total product in relation to other Vhinss, but not of one of its elements in relation to another or others. Their relative values will be such as to keep the relative demand for them proportionate to the relative natural supply^ of them, iv Soil which can grow either of two grains is often the better suited to one. In such cases, (i) if demand forces both on to intermediate soil equally good for both, their general costs here will fix their general values, and their rela- tive costs their relative values; (ii) if either has to be grown on the soil best fitted for the other, this other will become cheaper, and the alien crop dearer, in propor- tion to the stress so created. 1 By cheapening the one less in demand, or raising the other, or doing both. Suppose a special demand for coke. It can only be met by pro- ducing more gas. To market this its price must be lowered, though the cost of production of it, by itself, has not altered. Make other suppositions and carry through the analysis. § 70 A Measure or Exchaxge-Value^ Mill, bk. iii, ch. xv. Marshall, Contemp. Rev., vol. 51, 354 sqq. Jevons, Money and the Mcch. of Exchange, ch. xxv. Yves Gnyot, Sci. Economique, bk. iii, ch. ii. Mangoldt, §§ 75 sqq. While labor, corn, money, or any other service or commodity, will servo as a measure of the relative val- ii6 value: peculiar problems ucs^ of particular things at a given time and place, or of the eliaiiji:os in these between different times and places,^ no even approximate gauge of exchang-e- value in gen- eral is furnished by nature. Art itself could not make such a measure perfectly accurate ; but a compound standard,^ formed by adding the values, ascertained from period to period, of fixed amounts and qualities of the world's staple commodities, each allowed weight accord- ing to the quantity of it consumed, would closely meet the requirement/'' Then, by carefully expanding and contracting the currency, money could be kept in con- formity with such composite standard, thus realizing a measure of general value in one single commodity.^ ^ The problem concerning a measure of value in use [§ 62] is very dif- ferent. See Clark, Philus. of Wealtli, 89. He thinks even that not in- soluble. So Friedlander, Theorie d. Werthes [1852]. Ad. Smith's idea, bk. i, ch. V, where he argues for labor as a measure, is not exclusively tliat of exchange value. This theory of Smith, Franklin had stated and avowed so early as 1752. To-day the socialists are its great champions. Rae, Contemp. Socialism, 94 sq., 152 sq. Value, says Marx, is neither v. in use nor V. in exchange, but labor-quality. - If one thing is worth 2 bushels of wheat and another 3, the first is obviously worth 'i as much as the second. The same if iron, coal, or money had served as measure. But after any lapse of time you could not reckon from mere equality in value between the first and 2 bushels of wheat, that it was still worth 3 the second. The value of wheat itself might have altered. See next n. 3 If a bushel of wheat would buy a day's farm labor in 1850, and only § of this in 1870, we know that wages, in terms of wheat, went up during that double decade in the ratio of 2 : 3, or 50 per cent. But whether wages rose in general purchasing power, neither wheat, gold, nor any other com- modity, left to natural fluctuations, would reveal. * See Jevons, as above. He has wrought out the general idea more fully in his Investigations in Currency and Finance, section ii. '•' In denying that we "can even suppose any state of circumstances in which this would be true," Mill does not take account of the possibility value: peculiar ri«ji5Li:MS 117 here set forth. Mis is the common idea. See Fix, jfour. des Aeon., 1844, IX, 12. So Ricardo wrote, in Proposals for an Economic and Secure Currency, sections i, iii, " against such variation there is no possible remedy." ^ See later, § 85. Mill, as above, well charges us to distinguish between a measure of value and a regulator or determitiant of value, such as cost of production is. To conceive a measure of cost of production Mill [ibid.] thinks not difficult, though no such is forthcoming in nature. § 71 The Value of Futures Bohm-Bawerk, Kapital u. Kap.-zins, vol. ii, bk. iii, sec. iii. Gross, ' Zeit in d. I'olks- ivirisch.,' m Zeitsch. /. die gesant. Staatsw., 1883, 126 sqq. Jevons, Theo. of P. E. Mill, bk. i, ch. xi. Menger, as at § 62, 127 sqq. Sax, GrundUfciing, 178 sqq., 313 sqq. i Owing to (i) the productive power of present goods meantime, (ii) *bur uncertainty about future demand and supply, and (iii) our undervaluation of future pleasures and pains, future goods, per unit of quan- tity and quality, have for most men a lower subjective value in use than present goods, ii From these sub- jective valuations arise corresponding objective values and market prices, which, reacting upon present goods, raise the subjective exchange valuations of these even for the few in whose mere personal estimation futures might have seemed superior, iii The levelling ten- dencies of the market then bring it about that, barring special causes of disturbance, futures will in the market bear prices less than those of similar spot articles, by a figure proportioned to the degree of their futurity.^ 1 This is the very valuable pith of what is strictly original in Bcilim- Bawerk's book. The thought is wrought out with great thoroughness in his section cited above, and must henceforth be regarded as an integral principle of Economics. For his application of it to the problem of inter- est, see § 109. Part III MONEY AND CREDIT CHAPTER I THE NATURAL HISTORY OF MONEY § 72 Barter Knies, Geld, i. Jevons, Mo. and the Mech. of Exchange, ch. i. Aristotle, Politics bk. i, ch. ix. Nicholson, Mo. and Mon. Problems, 17. Macleod, Elements, 120. Barter is a form of traffic in which commodity passes for commodity without any use of money or other tool of exchange. The infeHcities of barter-exchange con- fine it in the main to the societies that are the least civilized and productive.^ The chief drawbacks are i Necessity of setting a price to every commodity in terms of every other.^ ii Want of suhdivisibility in most articles.*^ iii Limited correspondence between needs and commodities or services. A special degree of this evil exists in the case of the laborer, who can work only for such as have, and will spare, the things needed for his support. When money of account is used to reckon in, yet no money ever passes hands, we may call the practice quasi-barter.* 1 Although it has nowhere ceased entirely. Swapping horses or knives, changing works or teams [among farmers], taking cows or work animals for their keep, commonly involve no thought of money. Macleod con- THE NATURAL HISTORY OF MONEY I I9 sidcrs the society described by Homer still in a state of barter. Iliad, ii, 448, vi, 234, vii, 468, xxiii, 703. It was primitive money [next §] rather, but the passages usefully illustrate the evil phases of barter. 2 Between 100 articles no less than 4950 possible ratios of exchange exist, all which a retailer on the truck system would constantly have to keep run of. With money, the number reduces to too. 3 Many could not be divided at all, others not without impairing or destroying their value. * The line between barter and money is passed when, in trading, men accept this or that as pay, with the idea of recourse : i.e., intending not to use what they get, but to fass it off for the thing wanted. This transition, when general, is a decisive step in the onward march of civilization. § 73 Primitive Money yeiwns, ch. iv. Chapin's li^ay/and, 289. Ad. Smith, bk. i, ch. iv. Roscher, § 118. Lubbock, 'Early H. of Mo.,' Contemp. Rev., 1879. In the evolution of society upward through succeed- ing stages, very various commodities have served as media of exchange. Of these may be mentioned espe- cially : (i) peltry in the hunting state,^ (ii) cattle ^ and slaves in the pastoral, (iii) corn^ and other cereals, with beaus, olive oil, tobacco, etc., in the agricultural, (iv) mats, pieces of cloth, nails * and various other manu- factured articles, in a more civilized state, (v) cowrie shells,"^ wainpuni'^ and other articles of beauty, in every state previous to the invention of regular money. Gold and silver probably first obtained currency through use for personal adornment." ^ According to the Bismarck Tribune, 1885, gopher tails were then currency in parts of Dakota. - Cattle were the main money of Homeric times [§ 72, n. i]. Also among the Hindoos in the age to which the earliest Rig-Vedic hymns relate, 3000-4000 B.C. ' India,' in Encyc. Brit. Our word ' fee' originally meant 'cattle' [so the \.z.\.\x\ pecunia, money, and /ooo,ooo [Del Mar.], $3,400,000,000 [Burchard], or $3,270,000,000 [Soetbeer]. The silver of the civilized nations in 1884, money and hoards, was estimated at $2,185,000,000, and the increase that year, not quite $130,000,000. Of silver the western nations use in manufactures some $22,000,000, and send to Asia about $72,000,000, hoarding or coining not over $35,000,000. * Greater for silver than for gold, liecause of its wider and more equable distribution in the earth. Suess, Zukunft des Goldes. ^ See § 76. Here gold, value for value, has enormous advantage over silver: $1,000,000 in gold weighing only about i|| tons, in silver 26iJ tons. For subsidiary silver, about 6.4 per cent lighter than the dollars, the figure would be 25 tons; for nickel half dimes, 100 tons. ^ If gold, e.g., ever becomes abnormally dear, mining it pays better, the output increases, and the e.xira preciousness disappears, or tends to. Also vice Vfisa. Notice, however, that, with the growth of fixed capital in mining the influence described acts less promptly. Hadley, Railroad Transportation, 72. ' In general, as money increases in value, more credit transactions take place, so far dispensing with money, and hence cheapening the same again. If it decreases in value, the reverse results appear. ^ That $1 will now pay for as much as $1.10 would a month ago, means that so much more exchanging can now be effected with a given amount of money. This possibility has little effect in practice, because, though the dearer unit could exchange more, it would not do so, owing to tendency of dear money [low prices] to retard circulation. This is why the text does not, as is common, name ' swifter or slower circulation ' as an element in the automatism of money's value. Dear money, working as a brake on circulation, tends to grow dearer still: cheap money [high prices], accel- erating circulation, grows ever cheaper. But should extraneous causes give quick movement to dear money, rise in its value would be checked ; or a slow pace to cheap money, it would tend to be less cheap. ^ A metal not so already, might, however, become more valuable by being made legal currency, and it is believed that several powerful govern- ments could by coining upon a common ratio maintain the relative values of gold and silver free from essential change [next §]. Certain writers exaggerate, others underrate, the character of money as product of state action. See Ilorton's note, Rep. of Intl. Monetary Conf. of 1878, p. 741, 124 THE NATURAL HISTORY OF MONEY ^^ This, i.e., constitutes the political essence of coining. The embossing, milling and other artistic work are of great service against counterfeiting, and may also embellish. The alloy imparts hardness. The ' fine bars ' of silver made by the U. S. mints and assay offices run 998-999 fine, usually 999. The U. S. and most of Europe, coin from metal 900 fine, and bars of this fineness are in these lands called ' standard ' bars. Great Britain coins gold 9165 fine, silver from her 'standard' silver bars, 925 fine. The silver quotations in London refer to such bars. There is thus no univer- sally recognized ' standard ' for bars of either metal, but iVo^a ^^^^ probably come in time to be recognized as such. Russian coins are \\ fine, like English gold. § 76 Mode of their Distribution Mill, bk. iii, chaps, viii, ix, xix, xxi. Ad. Smith, bk. iv, ch. i. Gold and silver find their way over the earth partly as commodities, partly as coin. If gold is plentiful in any country, whether dug there or brought there, it is cheap, prices are liigh, and foreign commodities throng in, to be paid for by sending gold to the countries whence they come. On the other hand, every country where gold is scarce will have low prices, and gold will be tempted in to purchase commodities for exportation.^ ^ A fine example of the play of natural law in the social world [§ 15, n. 5]. During the potato famine of 1847 Great Britain had to import enormous quantities of grain from America, sending hither therefor the sum of ^16,000,000 in bullion. Prices at once rose here and fell in England. Eng. merchants bought less in America, while Americans bought largely in England, so that, the next year, all the gold returned to Great Britain. Toynbee, Industrial Revolution, 82 sq. The processes described are of course more or less obstructed by tariffs, and by whatever hinders trade [§§ 54, 55]. THE NATURAL lUSToKV OF MONEY I25 § J'J JilMETALLISM Nicholson, Mo. and Mon. Problems, pt. ii. Walker, P. E., 406 sqq.; Money, chaps, xii. xiii; Mo. Trade, and Ind., chaps, vi, vii. Laitghlht, ed. of Mill, 633 [good bibliog.J. Jevons,<:.\\. \\\. Schaejflf, Fur internal. Doppehv'dhrung. Arendl, Vertragsmassige Doppelwahriing. Wagner, in Zeitsch. /. gesam. Staatsw., 1880, IV, i83i, I. Sitess, y.iikun/t d. Goldes. Lexis, in Conrad's Jahrb., 1877, 11; 1880,1; 1882,1. Soeibeer, ibid., iS&o, i; Vierteljahrsch.f. Volkswirtsch.,y.\.\\, ii, 2. Laveleye, La tnon. bimetalliqiie. F'litz, Graph. Darst. d. Metallpreise. Nasse, in Schoenberg, vol. i, VII, xi, 3. U. S. Consular Rep., Dec, 1887. Bimetallic money is money formed by opening gold and silver both to free coiuag-e,^ and making each an unlimited legral tender at a certain permanent legal value-ratio - to the other. Its superiority, supposing the scheme feasible, arises from tw^o facts : i It w^ill add steadiness to the value of the dollar or other unit of value, since this, as we have seen,^ is complete in pro- portion to the size of the whole volume of unwrought * money-metal. Gold and silver together of course form a far vaster reservoir than either by itself. But a bimetallic money-unit will be less changeful than a monometallic, even if the whole money-metal volume is the same in the two cases, as fluctuations^ in both metals at one and the same time are less probable than in one alone, ii Such a system would furnish a common measure of value between its members and gold monometallist or silver monometallist states,*^ and between these latter also. The serious question is whether the two metals can be made a single stan- dard of value. We pronounce this possible." Sufficient nations may unite upon a given value-ratio to render both metals, in those nations, current together at that ratio, all natural tendencies to alter the ratio, as by extensive losses or new discoveries of either metal, being instantly checked by the new demand thus originated 126 THE NATURAL HISTORY OF MONEY tor the cheaper metal wherewith to make payments.^ This bimetaUic scheme, never yet tried, entirely differs in principle from a imigovcruiueutal one.^ 1 Coinage is technically known as 'free,' even when a 'seigniorage' is charged for coining [§ 85, n. 4]. Full legal tender quality in both metals as in U. S. since 1878, does not alone constitute bimetallism. - Either 15 parts of silver to i of gold [U. S., 1792-1834], or 15.I : i [the Latin Union, viz., France, Belgium, Switzerland, and Italy], or 16: i [U. S., 1 834-1 874, and 1878]. A ratio differing from any of these might of course be chosen. A grain of gold bullion is now [1889] worth nearly 20 of silver. 8 See § 75, ii. * Taking, as yet, no account of paper money. If considerable labor has been bestowed upon gold or silver, as in case of most wares, the por- tions affected no longer aid stability. They are only so much commodity. ' Thiough extraordinary discoveries or losses, exportation, or new uses or disuses in the arts. ^ About }, of the world's population uses gold only as full money [gold monometallists], between 1 and J are bimetallists, and nearly 5 silver nionometalHsts. On advantage ii, Bonamy Price, Contemp. Rev., Mch., 1884, Walker, P. E., 409, 411. '' On the basis of such considerations as, with the other writers named above, Walker [P. E., 406 sqq.] and Nicholson [228 sqq.] adduce. About ^ the precious metal is coin or bullion accessory to coin. This part, so far as present in their borders, the league of nations would monopolize, which would go far toy7jr the relative demand of the 2 metals, a political cause determining the action of nature. 'J'o drive either sort of money to a premium, not only must enough of the other be supplied to displace it in the circulation, but .i market must be found for what is displaced. Were the league small, Ijoth infelicities might occur : should the U. S., Gr. Britain and Germany join the Latin Union [n. 2] and all coin both metals freely, neither would be possible. Significant, too, are (i) the monetary hist, of France, which from the beginning of the century till 1874, unaided by other nations, and amid the greatest changes in the relative values of the 2 metals, welcomed Ijoth to its mint; and (ii) the fact that variations in the relative values of g. and s. have never imitated variations in relative supply and output, save very slowly anrl slightly. The fairest plea for gold monometallism is Nasse's, in Schocnljcrg. His main arguments are the political difficulties of a bimetallic league, and people's dislike of silver THK NATUKAF. IIISTOKV OF MONEV 12/ because of its weight. The political difficulty is great, perhaps decisive : the other would mostly disappear with use of certificates. * Reference here is to ordinary and local variations, radical and wide ones being prevented l)y the agencies specified in n. 7. Units of one coin, being cheaper yet e(|ual]y good for the purpose, would be sought [by carrying bullion to the mint] for use in payments [Walker, Mo., 253]. " Hence to show, as I.aughlin, II. of Bimetallism in U. S., does, the ill working of bimetallism in one land, in no wise disproves the scientific bimetallist argument. CHAPTER II banks and paper money § 78 Banks of Deposit Juglar, Bangues, in Say's Diet, des Finances. Courtney, ' Banking,' in Encyc. BHt Horn, ' Hanks,' in Lalor's Cyc. li^agtier, in Schoenberg, vol. i, VIII, II. yevuni ch. xvi. Ad. Smith, bk. ii, ch. ii. Bowen, American Pol. Econ., 316. Walker, Money, 409 sqq. The use of metallic currency is attended with certain disadvantages, as (i) labor and expense of counting, (ii) labor, expense and risk of transportation, (iii) lia- bility to robbery, (iv) difficulty of identillcation, (v) dearness. All these are lessened by substituting paper for coin.^ As trade multiplied, therefore, it naturally occurred to merchants to deposit their specie with some responsible party and traffic with his certificates of deposit, the specie for each certificate being obtain- able by the holder on call,^ and, at the outset, a slight premium allowed for the care of the money. Hence arose banks of deposit, serving to facilitate exchanges not only between individuals but also between cities and nations. ' Touching most of the items this is obvious. As to (iii), compare in ease of concealment, $1,000,000 in gold and the same in thousand-dollar notes. As to (iv), notes can be numbered and marked, which would damage coins. Ad. Smith compares gold and silver mo. to a hjjjhway on the ground, paper to a wagon way through the air. In the matter of dearness, the use of subsidiary paper effects no saving. The necessary expense of keeping up our subsidiary paper circulation during and after the war was 5 per cent of its face value yearly, Ixing equal to interest on bonds enough to purchase the silver which supplanted it. I'he coining of HANKS AND PAPER MONEY 1 29 this cost, indeed, i.]-2 per cent, but the part of such expense belonging to a single year would be slight, as few if any of the coins would show wear in less than 50 years. And in paper money at large the saving occurs in interest rather than in wear. It costs Gt. Britain 3io,cxx) to coin a mil- lion sovereigns. In 15 years they need recoining, and have lost $25,000 in value. Total expense for manufacturing and wear in 15 years, $35,000. The paper and printing for a million i pd. notes would cost $40,000, and they would have to be replaced three times at least, probably 4-6 times, in the 15 years. The cost for larger notes would of course be much less, and for the largest, under that of gold. On present condition of the Brit, coinage, Quarterly Rev., April, 1883, and Quar. Jour. Econ., vol. i, 225. The British gold coin taken together loses 4.16 per cent in loo years, or a trifle over i per cent in 25 years. Sovereigns naturally wear better than half sovereigns. - The identical coins deposited, that is, were at first to be given back, the loan being a cotnmodatum [Roman law] as distinguished from a mtituum, in which the lender can demand again only equivalence, not identity. It was a ' surrogate ' [dollar-for-dollar reserve] note system. § 79 Developed Banking Quar. Jour. Econ., vol. ii, 482 sqq., 251 sqq. MacUod, Theo. and Prac. of Banking, vol. i, ch. ix. ' Banks,' and ' Banks of Issue,' in Lalor. yevons, chaps, xvi sqq. Juglar, as at § 78. Yves Guyot, Set. Economique, bk. v, ch. iv. Such an institution, once established, could not but have the effect of bringing- together borrowers and lenders. All persons having surplus money would deposit, and no objection would be raised against the banker's lending, so long as lie promptly honoi'ed his paper. Hence arose banks of discount and loan,^ serv- ing to render capital more efficient. But it proved a very rare occurrence for more than one-third of the average amount on deposit ever to be called out of bank, two-thirds the average being always on hand. Bankers, therefore, ran no appreciable risk in issuing promises to pay far beyond the aggregate of their deposits, and, as they could discount with these surplus 130 BANKS AND PAPER MONEY promises no less readily than with money, the issue of them became a great source of income.^ Hence arose banks of circulation, furnishing the public with a cheaper and more convenient circulating medium. * Discount, subtracting the interest beforehand, is now the sole form of regular bank loaning, except in cases of over-drafts. - To explain : instead of using 'i the average deposit wherewith to discount notes, holding J as reserve, the entire average deposit might be made a reserve, and double its amount in notes used in discounting, thus multiplying the bank's gainful resources by 3. No fixed rule is observed touching the proportion of reserve, and it is rarely so much as ^. Before the rise of the German empire Leipzig banks used to keep §, those of Bavaria only J [Walker, P. E., 176]. The banks of issue in the German empire have at present almost exactly $3 in reserve to every 4 in circula- tion, i.e., only \ the circulation is uncovered. § 80 Government Paper ' Banking,' in Lalor. Perry, ch. xi. Walker, Money, chaps, xvi, xxi. Knox, United Slates Notes. Promises to pay issued directly by a sovereign power differ essentially from bank notes, (i) not representing ^ values in the same way, (ii) basing no legal claims,^ and (iii) lacking elasticity ^ at best in the direction of expansion, and, unless convertible, also in that of con- traction. Midway between the two kinds of paper is that of the United States national banks. On failure of one of these, the nation undertakes to insure the payment of its notes, yet always from the bank's own assets placed beforehand in the national treasury for that purpose.* ' Bank notes, though not covered dollar for dollar, are still thought of as ' representing ' the reserve. The nation's promises [greenbacks] l^ear no exactly similar relation to any monies in the treasury or other property. See next n., also § 86, n. 6. BANKS AND PAPER MONEY Ijl 2 Greenbacks are not a legal lien on any part of the nation's wealth, whether in the treasury or out, not even when a reserve is by law kept for their liquidation on presentation [§ 86, n. 6]. ■' Contraction anil exjiansion occur more or less arbitrarily, by legislative fiat, not likely to accord at all exactly with shifting monetary needs. Tiiis might, it is true, be remedied in part. We return to the subject in Part VI. * The system is described somewhat fully in Part VI. § 8i Hlstorical Juglar, and other authh., as at § 77. Gamier, Traiti, 727 sqq. Macleod, Theo. and Prac. of Banking, vol. i, ch. ix. Quar. Jour. Econ., vol. ii, 251 sqq. Jevons, ch. xvi. Aii. Smith, bk. iv, ch. iii. Lenormant, La RIonnaie dans V Antiquite. Sitnonin, ' Florentine ]?ankers,' Rev. d. d. Mondes, Feb., 1873. Pieces of leather, each probably intended to represent a whole skin, were current money in ancient Russia. The Chinese,^ Tartars and Persians, had leather and paper money as early as the fourteenth century. Bills of exchang-e^ were known to Assyrians, Phoenicians, Carthaginians, Greeks and Romans. They seem to have been first used in modern times to pay papal revenues in the crusades, many being now known dated in 1200^ and on till 1250. The first bank of deposit was erected in Venice,"^ 117 1. The Banks of Genoa ^ and Barcelona rose in 1407. The Bank of Amsterdam dates from 1609, '^'^^ ^t\\\ exists, though radically reor- pranized in 18 14. It, like the Bank of Venice, was controlled by the state, and had origin in trouble from depreciation of coins.^ The Bank of Hamburg was founded in 16 19, on the same principles with that of Amsterdam, only not controlled by the state." As yet there were no banks in England, but, during the civil wars of the seventeenth century, jyoldsmitlis received deposits of the precious metals, either holding them subject to check,^ or giving transferriblc receipts. The 13^ BANKS AND PAPER MONEY Bank of England,^ established in 1694, was the first to combine the three functions of deposit, discount and circulation. It is at present the most powerful bank on the globe. Next stands the Bank of France, founded in 1800. ^ Ruge, Gesch. d. Zeitalters d. Entdeckttngen, beautifully reproduces the oldest piece of paper money in the world. The original is Chinese. - Lenormant, as above, 117, translates an Assyrian bill of exchange belonging to the 6th century B.C. On Gr. and Roman bankers, Courtney, as at § 7S, also Macleod, Elements, vol. i, 279 sqq.; Banking, vol. i, ch. iv, sec. I ; Blanqui, Hist, of P. E., ch. xv. [On the technique of the foreign exchanges, see § 95.] At Josephus, Antiqq., XII, iv, 7, end, one Joseph farms Egypt's revenues in Palestine. He keeps money with Arion, in Alexandria, and when the taxes are due, writes an order on Arion for their payment. This amounts to a bill of exchange, an international check or draft. •* Blancard, Letire de change h Marseille an /j" Sihcle. Saladin, famous in the 3d crusade, ii89-'92, used bills of exchange. Is it not possible that this institution [like so many others] came from the Arabs, not from the Jews, as commonly supposed? * Lalor, vol. i, 227 sq., N. A. Rev., Sept., 1885, 205 sq., Gamier, 727. This bank perished with the Venetian republic, 1797. * This, the Bank of St. George, was perhaps the oldest bank of issue. ^ Perr)', 276, well tells the story. See, more fully. Ad. Smith, in ch. iii, of bk. iv. The latter thinks all the continental banks named, and that of Nuremberg also, to have sprung from this motive. Amsterdam's current money having through clipping lost 9 per cent of its face value, so that bills of exchange on the city, destined to be paid in that money, were per- sistently so much below par, a bank was established under the city's guaranty, to receive coin upon deposit according to weight, and give credit therefor. This credit was known as 'bank money.' All bills of exchange on Amsterdam, above a certain sum, were ordered to be paid in it, whereupon [par] Amsterdam exchange speedily rose to par, and even above. ^ It still remains, and under its original organization. Soetbeer, in Vierteljahrsch. fiir Volkswirtsch., Jahi-g. V, vol. ii. ' See Macleod, as above. Ibid., vol. i, 281 sqq. [4th ed.] are several of these primitive checks, varying somewhat in form. One reads : BANKS AND PAPER MONKY I 33 1 6th Nov., 1689 Mr. Jackson, — Pray pay to the bearer hereof, Mr. Daniel Croker, five pounds, and place it to the accompt of Your loving friend, John Wynyarde To Mr. Roger Jackson, At Sir Francis Child's, Goldsmith, just within Temple Barr These drafts were sometimes payable ' to bearer ' simply, sometimes ' to payee or bearer,' sometimes ' to payee or order.' At first they were written out fully with the pen, aner- feet, permitting the most unhappy fluctuation.s in the purchase-power of their units, discouragring enterpri.se and robbing now debtors, now creditors.^ Bimetallism would rcHeve, yet only temporarily. The time must come when governments will be authorized (i) to watch, through competent commissions, for each rise or fall in the value of money (fall or rise of general prices), and (ii) to correct the same by expanding or contracting the circulation. Operation (i) is feasible by the critical summation, at intervals, of the prices of definite quan- tities and qualities of numerous staples,^ each having prominence in the result according to the amount of it consumed. If the sum as reckoned to-day exceeds the last one, prices have risen, the power of money fallen. A lessened sum will mean falling prices, dearer money. Operation (ii), the necessary contraction or expansion, may be effected in either of several ways, the best ^ of which, it is believed, would be to inject into or withdraw from a gold or a gold-and-paper circulation, the proper amounts of full legal tender silver tokens."* The gold and the silver should both be represented by certifi- cates. Such a system would invite if not necessitate international ag-reement, and might easily extend to all nations and ages. An international coinage would follow it, and cosmic money be at ]:ist realized. 142 THE THEORY OF MONEY ^ Nasse, in Schoenherg, vol. i, VII, v, § 9. Tlie precious inetals vary enormously in value. [§ 83, i, n. 2.] Accordinfj to Jevons, gold fell 46 per cent between 17S9 and 1809, rose 145 per cent between 1809 and 1S49, and fell again at least 20 per cent between 1849 and 1874. Since 1S74 it has risen once more, about 30 per cent. When money falls in purchasing power [prices rise], debtors on outstanding contracts are wronged, receiving in the stipulated number uf dollars less value than was covenanted. If money value rises [prices fall], creditors are wronged in the same way. Worse, economically, than this injustice is the disorder imported into business by such changes in the power of money [viz., in general prices]. Rising prices are wont to breed speculation: falling prices asphyxiate industry by making it profitable to hold on to, rather than employ, money and titles to money. - The practical difficulty in making and using such a value-measure would be considerable. What are staples? How ascertain the consump- tion of any one? In averaging, shall we employ the arithmetical or the geometrical mean? No one of these questions has yet received final answer. But the simple addition, from time to lime, of a carefully made and kept price list, disregarding variations of volume between the com- modities consumed, would disclose the rise, fall or stationariness of money with a close approach to accuracy. ^ See Marshall, as above. The equity of a composite value-standard [Jevons, Mo. and the Mech. of Ex., ch. xxv] would be, by the plan sug- gested, incorporated ijt the money system itself, the only way it can ever be utilized. * Pieces [dollars, e.g."] worth less than face value, yet passing at that value, viz., at the value of gold, because limited in amount [§ 85, v]. They should never be permitted on the one hand to become of full face value, nor on the other to be too cheap. The superiority of such subordi- nate money over paper would lie in its labor-cost value. In a panic, the metal tokens, nearly as worth ful as gold, could be paid out on presentation of their certificates, when holders of mere uncovered paper would be helpless. Why our system would excel Ricardo's, see § 93, n. i. CHAPTER IV CREDIT § 88 The Nature of Credit Mill, bk. iii, chaps, xi, xii. Knies, Krtdit. Schraut, Organization des Kredits. Mangoldt, §§ 53 sqq. Papa d'A/nico, Titoli di Credito, pts. i, ii. i Credit in r^conomics is the power to command wealth or service now in exchange for some assurance of a return in future. It is, in general, the same as a power to market titles or to put in use any of the instrumentalities ^ of credit. It may be utilized or not. ii The main instrumentalities of credit are, (i) pronii.ses, as book-accounts, deposits, stock certificates, bonds, promissory notes, bank-notes, and (ii) orders, as post- office orders, bills of exchange, checks, circular letters and mobilizing certificates ^ of all kinds, iii Credit has value,^ and may also become capital, being among the most active producers of value,* (i) utilizing small sums and savings,'' (ii) transferring capital from less to more productive hands, (iii) supplying a powerful motive for the accumulation of capital, (iv) making possible enterprises too great for individual resources. 1 ' Instrumentalities ' rather than ' instruments,' to cover cases of orders and promises by telegram and telephone. ' Titles ' or ' instruments ' would cover only paper documents. According to one's purpose, credit may be classified as public or private, as personal or real, as mobilier [based on personal property] ox foncit-r [on real estate]. - Pipe line [petroleum] certificates well illustrate these. Each is an order upon given holders of oil to deliver such or such an amount to the 144 CREDIT bearer on demand. Pig iron, whiskey, ami other bulky wares are in the same way ' mobilized,' viz., put upon the speculative market. The certifi- cates are like dock warrants, except that the latter are not intended to be negotiable [cf. § 55, n. 8, § 78, n. 2]. 3 This does not mean either (i) that rights, embodied in titles, are the essence of wealth [Macleod, followed by Minton, in Capital and Wages], or (ii) that property and titles to the same property are both to be reckoned into the coninuinity's wealth [§ 2]; but that the fact or system of credit is an economic advantage. As such it is valuable [§ 61], however it originates, and it is u 36] in 20. Wages will fall, till population increases less rapidly than capital, that which is lost to wages, along with all gains from im- provements, going to capitalists through rise in the rate of interest. So, 164 THE NATURE OF DISTRIBUTION if land facilities are multiplying slower than either labor or capital, land rent will be swollen at the expense of both, most, however, to the loss of the one getting on the faster. Cf. carefully the follo%ving Chapters : also Patten. § 102 The Fifth Category It^agyter, Lehrbuch, vol. i, §§ 300 sqq. George, Prog, and Poverty, bk. iii, ch. iv. Walker, P. E., pt. iv, ch. vi. Hertzka, Gesetze d. soc. Eniwickelung. Rent, interest, wages and profits by no means ex- liniist the product of industry. Xon-producers may share therein, or producers get an undue share, in almost innumerable ways, chief among which are the following : i Gifts otlier than charitable, as to one's family or friends, ii Charity in its endless variety of forms, iii Gambling,' in which stock and exchange gambling must be included, iv Fraud, theft, and rob- bery, of all sorts, v Casual monoiioly,^ whether nat- ural, accidental or based on legislation or on immensity of financial power, vi Unfair legislation or adminis- tration in other things, vii Changes in the value of money.'^ 1 See § 21, n. 7. 2 See §§ 66, 67. A good illustration is the fortune amassed in London one day in June, 181 5, by Baron Rothschild and Moses Montefiore, as sole possessors of the secret that Napoleon had left Elba and landed in France [§ 95, n. -5]. They bought, low, credits which appreciated immensely soon as the tidings became known. Permanent monopoly gains from any sort of material possession we reckon as rent [§ 103]. « See § 87. CHAPTER II RENT § 103 Rent in General Maiigoldi, ^^ 120 t,c[(\. Schaeffle, Pol. Oek.,^ -^00; Thco. d. ausschl. Absatzverhalt- nisse, iii-vii. IVagner, Lehybuch-, vol. i, § 301. George, Prog, and Poverty, bk. iii, ch. ii. Cherbuliez, bk. iii, ch. vi. Kent, in the broadest sense, is any kind of gain arising from niouoi>oly, whether in land, capital,^ or talent — income which falls to the possessor of any productive agency simply because of its rarity. Rent forms no part of the cost of procluction,^ and is pay- ment for no service. It swells individual fortunes only at the expense of society as a whole. To the total revenue of the world, or of a nation or an industrial group not exchanging with any other, it therefore adds nothing-, nor does it subtract, except as dissuading from industry. On the other hand, rent docs not cause high prices, but is caused by them.^ It is usual and well to restrict the term ' rent ' to winnings from somewhat permanent monopolies, though the idea does not neces- sarily presuppose such limitation. 1 Such cases as are mentioned at § 65, notes 4 and 5, are really cases of rent [on capital]. For land rent, or ground rent, see § 104. Profits and special wages [see Chapters III and IV] also involve the rent prin- ciple. English writers have usually confined the term to ground rent [§ 104]. (hir use of the word, which seems to us to have very much in its favor, is that of Mangoldt and Schaelllo. " See § 105. I 66 RENT § 104 Ground Rent Ricardo, Prin. of P. E. and Taxation, chaps, ii, xxiv. Mill, bk. ii, ch. xvi. Rofiher, bk. iv, ch. ii. Maine, Village Communities, vi. Walker, Land and its Rent; P. E. [cither cd.], ' Rent.' Cf. Int'l Rev., vol. xii. Rossi, in Coiirs d'Econ. pol. H. George, Progress and Poverty. Cairnes, Log. Meth., 29, n., 50 sqq. IVachenhtt- seti, U titer sue hi4ngen ueber Griindrente. Hertzka, Sociale Eniwickelung, ch. vii. Patten, Premises of P. E., i. Ground rent is the advantage accruing^ to land- owners from the u.se of certain uncreated or socially created - powers and utilities connected with land, including", besides mere fertility of soil, also mineral wealth, water-privileges, location, etc. Return from the occupation of land, as the most common form of ground rent, furnishes the most obvious and useful matter wherewith to illustrate the doctrine. ^ The definition must be thus wide because the essence of rent is present whether land is owned privately or by the community. Of the spots which at any time have to be occupied, some are better than others. Both socialism and the mere policy of nationalizing the land would try to distribute this advantage, but nothing could abolish it. For varying and loose uses of the word rent, note 3, below, and § 106. Cf. Mill, bk. ii, chaps, viii-x. 2 Capital inwrought into land will bear rent if the land does. This is strictly not ground rent, though inseparable therefrom. It differs from the normal return on such capital, which is interest [§ 106, iv, and n. i]. Cf. § 19, i, n. 2. Let a considerable number of human beings settle in a new country : special value instantly attaches to particular localities, and this with no act of creation save the act of the people in coming there. But much land value is socially created. The Dutch purchased all Manhattan Island for 60 guilders, about $24. On the main street fronts in N.Y. City that sum would to-day not purchase a single foot. Store sites on Pifth Ave. cost in 1886 $65 per sq. ft.; $85 have been paid on Broad St., and Sioo and $115 on Broadway. Shares of a land company at Birmingham, Ala., costing 51,100, recently paid a yearly dividend of $24,000. In Lon- don land has often sold for 3240 per foot, and select spots, it is said, for as much as it would cost to pave them with English sovereigns laid upon edge. Such dcarness, springing though it does from a sort of human agency, is not the product of conscious doing on the part of any one per- RENT 167 son. In bringing it into l)eing, A, R, and C were instruments, not agents. .See 'Giojnd-rents in Philad.,' Quar. Jour. Econ., Ap. i{ § 105 Rent and Price Mill, bU. ii, ch. xvi, sec. 3 sqq. Ricurdo, Principles, ch. xxiv. Walker, P. E., § 243. Since, as a rule, all land will be cultivated just so fast and far as it pays the cost of cultivation, the rent of land always tends to represent the surplus of gain arising from cultivating better land over the gain of cultivat- ing the poorest that is cultivated at all,^ 'better' and 'poorest' here referring to location as well as to quality. It follows that so long as unused land is still accessible ^ and freely resorted to, rent can never become factor in the price of agricultural produce, for this price, as always where the law of diminishing- return has begun to work, is fixed by the dearest cost of production, which falls precisely upon the no-rent tracts. Capital rents, in like manner, never enter into the prices of products. 1 Compare with this, § 34. The margin of cultivation tends to move outward with the increase of population, land to-day bearing rent which did not do so years ago, etc. But new fertilizers, and new agricultural machinery and methods may hinder this. A particular new need for food might be thus entirely satisfied without extending cultivation at all. We may therefore speak of an ' intensive margin of cultivation,' as well as an extensive. Variety of appetites is a further element of irregularity in the taking up of land. Soil ill fitted for one crop may grow another; poor arable may be good pasture, etc. [Patten, as at § 104; also in Stability of Prices, Am. Ec. Ass'n Papers, vol. iii.J - Suppose no more land to be obtainable. At once begins a com- petition, which did not exist before, for the poorest lands, which, under private ownership, owners will promptly utilize by charging rent. To pay this, the produce from these tracts too must lie sold higher. Under tlicse circumstances, therefore, rent will appear in price. The statement in the I 68 RENT first part of this §, as to the measure of rent, will, however, still hold true. That, normally, rent does not appear in price, Hume saw, though Ad. Smith did not [cf. Bagehot, Ec. Studies, iii]. § io6 Peculiar and Nominal Rents IValker, P. E., pt. iv, ch. ii. Rents of mines, water-privileges, building-lots, etc., are determined by the same general law with agricul- tural rents. Yet notice here that : i The location of a lot, not its fertility, usually settles its rent, though, ii Lowest town-rents coincide with the value of the lots for tillage, iii The so-called rent of buildings themselves is usually not rent proper but interest of capital, iv The normal return for improvements^ on land is also not rent, though often practically insepara- ble from it.2 V With increase of the ground rent on a spot of land, capital rent often attaches to the build- ings situated thereon, as well as to the improvements incorporated therein, vi The tendency of long work- ing is, in mines toward, in lands away from, the no- rent condition.'^ 1 Hedges, ditches, grading, roadways, artificial fertility, etc. Cf. § 104, n. 2. 2 This fact seems to a considerable extent the occasion of the erroneous view referred to in § 107. 3 Mines often become so deep that it no longer pays to use them. Any given piece of land, on the other hand, despite the law of diminishing return [§ 34], is likely, with the growth of population, to bear higher and higher rent. There is no necessity that a piece of land should be worn out by cultivation, though extended through centuries. RENT 169 § 107 Controversy Mill, as at § 104. Schaeffle, Ban iind Leben des soctalen KSrpers, vol. iii, 433 [also as at § 103J. Wirth, in I'ierieljahrsch. f'tir Vclkswirtsch., 1863, vol. ii. H. C. Carey, Priii. of P. K. Yves Guyot, Set. Econ., bk. v, ch. i. I'atten, Premises of P. E., i. 'This is the theory of rent first propounded at the end of the la.st century ^ by Dr. Anderson, and which, neglected at the time, was almost simultaneously redi.s- covered twenty years later, by Sir Edward West, 3Ir. Malthus, and Mr. Ricardo.'- Most of the leading econonii.sts'^ still approve it. First challenged by Hoff- man,'* in 183 1, it has since been earnestly opposed by three eminent writers, Carey, Bastiat, and Max Wirtli, who reduce rent to interest and maintain that no mere power of nature can be made to yield a price. Their appeal to facts is unsuccessful: differences of rent do not at all coincide with differences in the amounts of capital applied to different lands. Nor is their doc- trine a whit better than Ricardo's as weapon against socialism.'' 1 The pamjihlet really appeared in 1777. 2 Mill, as above, lie adds: "It is one of the cardinal doctrines of P. E., and, until it was understood, no consistent explanation could be given of many of the more complicated industrial phenomena." 3 Besides Walker, we mention Wagner, SchaefTle, de I.aveleye, Roscher, and MangoUlt. Mill and Hermann argued for it stoutly. SchaeRle de- clares that its critics have not shaken it " in the slightest." Patten's criti- cisms do not touch the substance of the doctrine, and are not always just even to the Ricardian exposition. * Chief of the Prussian statistical bureau, in an address delivered in 1 83 1. Next came Carey, in 1837, probably ignorant of Hoffman's con- tention. Bastiat wrote in 1848, merely repeating Carey \_IIarinonies £iOit., xiii]. Carey's view is discussed by Wirth, as above, and by Mill, bk. ii, ch. xvi, § 5. It boots nothing to allege with Carey that improvements on I70 RENT land [in U.S., r.^.] have cost more than tlic land would bring. Many of them have been foolislily inailc, and, what is mnrc to the point, for par- ticular lots and localities, the statctiteiit is not true. Equally vain is Hoff- man's plea that land value always originates in labor [see above, § 104, n. 2]. Specially weak is it, with Yves Guyot, to think Ricardo all wrong because of his error in assuming that tlic richest land is always occupied first. But if these w riters mean (which can hardly be the case) only that the product which mankind as a icJiolc gets from the land is measured and determined by its toil, are they correct [§ 103] ? The same is true of a nation having no foreign commerce, also of one which has, unless it pos- sesses net advantage over those with which it trades [§ 68 and n.]. But this is no contradiction to the fact of rent. ^ Wirth urges that the Ricardian theory makes rent-taking unjust, a winning which is not an earning, while his own view considers rent nothing but a form of interest. But in fact the title of the great British landlords [in question] to their income is ethically no clearer on the one assumption than on the other. It was the fact of rent [as privately monopolized] that led Proudhon to his famous thesis, "property is robbery" \la propriiie, c'est levol^ CHAPTER III INTEREST § io8 The Nature of Interest IVebb, as at § lOo. H. George, Prog, and Poverty, bk. iii, cli. iii. Clark, ' Capital and its Earnings,' Am. V.c. Ass'n Papers, vol. iii. Bohm-Baiverk, Kapital it. Kapital- zins, bk. iii. Knies, Der Credit, viii. Sidgwick, bk. ii, ch. vi. Economic interest is that portion of the proceeds of industry which arises in consequence of the employ- ment of capital: in other words, the wealth which, by the aid of capital, men with given native skill, given energy and felicity of situation, create over and above what they could create using those same helps but without capital. Interest varies according to the un- like advantages supplied to labor by the different forms, locations, and applications of capital, some pieces of capital assisting labor little, perhaps, temporarily, not at all, while others are absolutely indispensable. Econo- mic interest differs more or less from loan interest,^ whether (i) at the current rate for short loans or for long,2 or (ii) at the normal rate,^ to which variations in current rates tend, in any community, to conform for considerable periods of time. 1 It will be seen that the essential fact of interest does not presuppose a loan, interest upon loans being a subsidiary and incidental phenomenon, growing out of the division of lalior and the diversities of human ability and circumstance. Intellectual capital of course cannot be loaned, though its services may be hired [§ 113]. ' 2 Rates, i.e., always being, if other things are equal, the higher the 172 INTEREST shorter the term — higher at banks of discount, discounting only for days, weeks and months, than at savings banks, which loan for years. 8 • Rate ' is not a happy form in which to conceive economic interest. ' Portion of product ' is better. Yet to think of it as a percentage need not mislead if we bear in mind that its ' rate ' may vary widely from the rate of loans, and is in fact a very different thing. § 109 Loan Interest H. George, as at § 108. Atkinson, ' What makes the Rate of Int.?', Intl. Rev., vol. xi. Bchm-Bau-erk, vol. i. Kni'es, Credit, vii. Nearly all theories of interest err in narrowing the problem to loan interest instead of viewing this as incidental to the larger one of interest in general. But of loan interest itself most accounts are very defective. i One set of writers mistakenly call interest robbery,^ ignoring its natural source in capital and production. ii Others fail in merely referring it to the productivity of capital,^ overlooking the elements of ab.stinence, time, and ri.sk. iii Certain authors seem to conceive ab.stinence not only correctly as indispcn.sable to in- terest, but incorrectly, as its efficient cause.-^ To the elements of truth contained in these three views needs to be added the one first put in its true light by Bohm- Bawerk,* that 'a loan is in fact an exchang-e of present affainst future goods,' so that, as 'present commodities normally command a premium over future ones of like kind and quantity, a definite sum of present wealth is to be had only at the price of a greater in futures.' This premium is the pure loan interest. Gro.ss loan interest contains the further clement of insurance against risk. ' Marx, and, in part, Rodbertus. See Marx, Capital, vol. i, pt. iii. Bohm-Bawerk criticises the view in his vol. i, ch. xi. INTEREST 173 2 Closely allied with this theory are 3 variants : i) the notion of James Mill and M'Culloch, that interest is nothing but the wages of the labor stored up in capital; ii) the 'fructification' theory, advanced by Turgot and in a modified form favored by II. George, that capital at large draws interest because some of it, as land [Turgut], animals, bees, wine [George], is actually or in effect live capital, bringing forth value without concur- rent labor; and iii) the 'usufruct' theory, of J. B. Say, Hermann, and Mcnger, v.hich derives interest from a supposed peculiarly profitable em- ployment of it, yielding gain over and above its natural productivity, Bohm-Bawerk [vol. i] keenly and at length reviews all these. " Senior and Bastiat are referred to, but one cannot agree with Bohm- Bawerk in supposing them to have meant all that many of their utterances would imply. Rees, in From Poverty to Plenty, also wrongly considers the truth of the abstinence theory to involve the falsehood of all productivity theories. * Vol. i, 308; vol. ii, sec. iv. We must emphasize the truth that 'cap- ital,' not ' money,' is the true correlative of interest. Contrary to Bilgram's thought [Iron Law of Wages], money is rarely, if ever, really the form of capital for the use of which interest is paid. Money usually only aids to mediate the transfer of capital to the borrower's hands. It may (i) be the full and sole agent of this transfer, or (ii), the more frequent case, only give denomination to credit-instruments serving the same purpose. § 1 10 The Rate on Loans Walker, P. E., pt. iv, ch. iii. Mangoldt, §§ 102 sqq. Sidgwick, bk. ii, ch. vi. The rate of loan interest is determined by the ordi- nary law of supply and rteinand, except in this, that inasmuch as desire and reluctance to borrow and to lend are influenced by every circumstauee that affects business,^ supply and demand of loans, and hence the rate of interest, vary and fluctuate more than other prices do. The chief modifiers are (i) the state of business, (ii) the abundance ^ or scarcity of capital, (iii) the risk^ or security of loans, and (iv) the strength or weakness of men's motives to accumulation. Rate of interest and amount of saving are not, however, in 174 INTEREST exact correlation.* Owing to the strong conservatism of certain money-lending classes, the actual market minimum, as in case of consols, government bonds, and bottom mortgages, is lower than either the gross or the pure loan interest of capital.^ ^ The slightest panic or insecurity, caused, i?.^., by the rumor of a war, though not affecting in the least men's wish to sell meat, I)read, corn, or iron, will make many unwilling to sell the services of capital. Every finan- cial crisis reveals how coy capital is at such times, and also how stupid, care- less, and bold it is at others. - It is the growth of capital which causes the rate of interest continually to fall in all prosperous industrial lands. Till 1868 12 per cent, or, better, I per cent a month, was the lowest rate of interest paid in San Francisco. In many districts on the Pacific slope, i] and 2 per cent per month were not considered excessive, and througliout the Mississip[)i valley, except in a few of the great business centres, the rates of interest did not run much below these figures. At present, on the average, interest west of the Alleghany mountains costs about one-half what it cost in 1868. The security is probably no Ijctter now than then. The likelihood of an ad- vance in the value of the security upon a mortgage loan was even better then than now. The change has come simply because, in proportion to the demand, there is now a much larger amount of available capital. In London, while the official rates of discount have, in the last fifty years, sometimes averaged in twelve months considerably over 6 per cent, for fifteen years past the yearly average lias Ijcen but once over 4 per cent. During 1888 a large part of the British debt was refunded at 2] and 2] per cent. Early in the 20th century the normal rate on loans in the richer countries will very likely not be over 2 per cent, the lowest point to which Bank of England discounts have ever yet gone. On the rate of int. in Germany since 1815, Zeitsch. f. Vol/cszoirtsch, XXII, iii, 233. It is evident that high interest may or may not betoken financial prosperity, according to cause. Rise of the rate in consequence of increase in jiroduction is a favorable symptom; if resulting from greater risk, the o])posite. Con- versely, reduction of the rate may be a bad sign, of stagnation in business, or a good, indicating lessened risk. Save in panic, abundance of capital usually works low interest; paucity, high. ' A very influential condition. The low rate at which Gt. Britain and the U. S. can market bonds, while in part due to plcntifulness of capital. INTEREST 175 is largely owing also to the perfect credit of these governments. The Athenians at one time allowed 60 per cent upon marine interest, while on land the rate was hut 1 2. * The rate will gu down in proportion as accumulation increases, but accumulation will not go down in proportion as the rate falls. Many would save were there no [loan] interest at all. Among the poor, in par ticular, the precise rate has but the slightest effect upon economy. '' " Any large lender, placing his risks judiciously, and spreading them somewhat widely, is mathematically certain to realize a larger return from his capital through a term of years, after deducting losses, than if he had invested in the most approved securities" [Walker]. The long time of these investments is part cause of this : also the peculiar ease of collection. We may say that in return for these advantages lenders give back to bor- rowers a part of the real loan interest. Elimination of the risk element through multitude of loans is the principle of the English Investment Trusts. What is lost in one investment is made up in another. § 1 1 1 Inflation and Interest Rate of interest bears no necessary relation to the quantity or the value per unit of the money in circu- lation. Hence an increase of currency does not, in and of itself, affect the rate of interest.^ It diminishes the power of a dollar to buy commodities, but not to hire its old multiple in money of the same kind with itself. Since, however, an expansion or contraction of paper currency is always an expansion or contraction of credit, the effects of the two are easily confounded. But the effect of paper issues on interest is not from their character as an enlargement of the currency, but from their character as loans.^ ^ Unless indirectly, by quickening business [§ no (i)]. ^ In a state of tense credit the rate rules high because you are not absolutely safe in loaning to any one, the monetary unit being so likely to fluctuate in value while the indebtedness is outstanding. Thus during the civil war all stocks rose and fell with the premium on gold. 176 INTEREST § 112 Usury Laws Knies, Der Credit, vii. Bohm-Iia-.verk, Kapital-, etc., vol. i, i-iii. Perry, ch. x. Bentham, On Usury. Gamier, Traite, 722 sqq. The rate of interest determining itself naturally, usury laws, as distinct from leg^al rates ^ for the settle- ment of old debts when no rates were agreed upon, are pernicious. Aiming especially to protect the borrower, which is unjust, they in fact burden him instead, rais- ing the rate by narrowing supply ^ and by compelling borrowers to resort to indirect methods.^ Such legisla- tion is relic of a departed social state or of exploded economic ideas. The Mosaic code^ forbade interest because in its time only those in distress sought loans. Partly the same fact, partly tradition, led the Church fathers^ without exception to retain the Mosaic scruple. The Greeks and Romans were set against interest ^ by the further thoughts of all wealth as consisting in gold and silver, and of these as 'barren.'" 1 These are of course appropriate and necessary. 2 The legal maximum is sure to be too low. Hence many try to use their capital rather than lend. This narrows the loan market immediately. It does the same also mediately, by keej)ing capital in hands not the most productive possible. Both effects raise the rate. ^ One device often resorted to to evade usury legislation is this : A wishes to loan, and B to borrow, $1,000 at 10 per cent for a year — amount at the end of the year, $1,100. B deeds to A a piece of land or a building for Sl.ooo, at the same time signing an agreement to buy it back at the end of a year for $1,100. The necessity of all this, and of breaking the law, will make such as resort to these means charge and pay high. * Leviticus, ch. xxv, Deuteronomy, ch. xv. But the parable of the tal- ents, Matthew, ch. xxv, shows that Jesus did not share this prejudice. * See Gibbon, Decline and Fall of the Rom. Empire [ed. Milman], vol. V, 314, where reference is made to Barbeyrac, Moral dcs pcres. The medj.'cval theologians were fond of using against the legitimacy of interest INTEREST 177 the words of Jesus, Luke vi, 35, which read in the Vulgate, mulutim date nihil inde sperantes. ^ Yet the theoretical opposition did not keep the institution from being legalized. The legal rate at Athens when the Roman conquest began was 18 per cent. Cf. § no, n. 3. The Twelve Tables of Roman law made it 10 per cent for twelve months, viz., 8 J per cent, or an uncia to every as, per year of 10 months. The latter was then the fiscal year, though the Romans were already beginning to employ the 12 months year along with the 10 months or lunar year. At Babylon, in the 6th century B.C., interest ranged from 13 to 20 per cent, paid monthly. Here only the lunar year was used. ' Shakespeare, too, calls interest the posterity of a sterile metal. CHAPTER IV WAGES § 1 13 Definition H'a/Jter, Wages [cf. his P. E., pt. iv, ch. v]. Sidg^uick, bk. ii, ch. viii; also in Fort- nightly Rev., Sept. I, 1879. dark, ' Possib. of a Sci. Law of Wages,' Am. Ec. Ass'n Papers, vol. iv. lyood, ' Theo. of Wages,' ibid.; also in Quar. Jour. Econ., vol. iii, 60 sqq. l^ebb, as at § 100. Mangoldt, §§ 109 sqq. Thornton, in XlXth Cent., Aug., 1879. •Wages' means here (i) pure wages as distinguished from gross, viz., the mere reward for common labor, excluding all high salaries ami fees, and also all forms of remuneration under the name of wages so far as earned by special talent, education or training,^ (ii) real wages, which may in any case vary greatly from nominal through differences in the value of money and in the regularity, safety, and healthfulness of work, also through extras given or allowed to be earned.^ We seek, chiefly, the laws of general wages, deferring the reasons for the different levels of wages within any group of competitors, to the end of the Chapter. 1 Though we may stop short of Leroy-Beaulieu's avowal that " the whole theory of wages must be rebuilt," little, certainly of the older teaching on the subject can be accepted without sifting. New definitions are especially needed. Rewards earned by peculiar talent are profits [sec next Chapter] ; those bestowed in consequence of education and training are interest on intellectual capital [§ 98. Cf. Crehore, Quar. Jour. Econ., vol. ii, 361]. That the several elements all go by the name of wages is unfortunate, yet no nomenclature could avert the necessity for care in the mental analysis of the case, as the elements of gross wages are themselves to a great extent inseparable in fact. But gross and nominal wages do not usually so vary WAGES 1 79 from pure and real as Id rtmlcr reasonings about the one kind wholly misleading in respect to tlie otiier. 2 Walker, P. K., 260 sq. A common instance is the custom in stores, of letting the clerks have goods at wholesale prices. § 114 Cause and Source IValker, as at § 113 [his ' Wages' is devoted to the demonstration of the view we present on this point]. H. George, Prog, and Poverty, bk. iii, ch. vi. Fawcett, Manual, bk. ii, ch. iv. Cairiies, Leading Principles, pt. ii, ch. i. Sumner, in Princeton Rev., Nov., 1887 [also in his Essays, in Pol. and Soc. Sci.]. Beauregard, Theo. du Salaire. Levasseur, do., Jour, des Econ., Jan., 1888. Sic Doiinell., Hist, and Criticism of Theories of W.iges [prize essay, Dublin, 1887]. Marx, Capital. Mar- shall, Econ. of Industry, bk. ii, chaps, vi, vii, viii, xi [cf. Quar. Jour. Econ., vol. ii, 218 sqq.]. Roscher, bk. iii, ch. iii. Jevons, Theo. of P. E., ist ed., 256 sqq.; 2d ed., 289 sqq. Thornton., Labour. The efficient cause ^ of wages is the labor from which they spring, a truth clearly apparent from a glance at primitive industry, and in no wise altered by the com- plex conditions which arise later. P^qually manifest is it that the source ^ of wages is the product created by the same labor. This theory, now well-nigh universally accepted, opposes that of Fawcett and Cairnes, which speaks of a fast and rigid * wage-fund,' ^ existing at any given moment, made up of capital already produced, from which fund wages for the next ensuing period must be paid, so that, until there has been, through new production, a new accession to capital and the wage-fund, wages must depend absolutely and only upon the greater or less competition among the laborers, arising from their numbers. 1 Bearing in mind the definitions of §§ 98 and 113. 2 On this, H. George, as above, is best. Cf. Rae, Contemp. Socialism, 332. Cairnes, too, forgetting himself, well says. Leading Prin., 58, that " industrial rewards consist for each i^roducer, or, more properly, for each group of producers, employed on a given work, in the value of the com- modities which result from their exertions." " Freight the mother of l80 WAGES wages" [i.e., no freight, no wages for sailors] is an old maxim of admiralty law [Prog, and Pov., 50]. 8 See Laughlin, ed. of Mill, 178 sqq., Cairnes, as above [the ablest presentation of the old view]. Walker, "Wage-fund," in Lalor, vol. iii, Mill, bk. ii, chaps, xi-xiii. Fortnightly, May, i86y [where Mill repudiates the old doctrine, taught in his Principles], Mill was led to this by Longe's pamphlet, 1866, A Refutation of the Wage-fund Theo. of Modern P. E. Cliffe Leslie wrote, agreeing with Longe, in Fraser's Mag., July, 1868. Endless has been the discussion since, not all of it sober. If the wage- periods be considered very brief, and the reckoning carried over con- siderable time, the two theories would not differ in practical effect, since by both product would avail for the sustenance of lal^or at once after it was amassed. The wage-fund belief has wrought mischief in disseminating the false impressions that contract wages are the only wages, and that wage- earners are totally dependent on capitalists. But the new and better doc- trine, while correcting these errors, leads many to the equally great mistake of supposing the portion of the proceeds of industry which can issue in wages to be naturally unlimited, so that, if wages are low, capitalists or the state must be to blame [cf. 119]. Further, (i) so far as wages are advanced, which is not common, they must he taken from capital, not from product, (ii) the amount of wages promised in any given bargain is according to prospect of production, and (iii) the total of wages realized on the whole and in the long run is as the amount of production. § 1 1 5 Developed Wages Ad. Smith, bk. i, ch. vi; bk. ii, ch. i. //. George, as at § 114. Clark, Pol. Sci. Quar., vol. ii, 605. Sax, Theoretische Staatswirtsch., 230, n., §§ 39, 40. As industry advances it leans more and more on capital, which not all possess. Moreover, not only are the preci.se .sliares due to each man often no longer discoverable, but the product is usually not divisible ^ so early or often as the needs of workmen require. Those lacking capital therefore covenant with capitalists to .sell them their wages, in the proper sense, for certain supplies to be paid at convenient intervals, so origi- nating the wage system as now familiar. The wages WAGES 1 81 proper we may term ' iiouineiial - wages,' as distin- guished from the 'visible wages' actually received. Observe that modern wages are as natural in their time as primitive wages were earlier. ' In a cotton factory, for instance, each weaver's true wage for a given day's work is at the end of that day stored up in the web of cloth woven during the day. To save breaking bulk, the owner of the establishment liitvs the weaver's true wage, giving him money down. With many writers this transaction seems to be the beginning and the end of the wages- phenomenon. But wages take other forms than that of contract wages. Work in mills is not the sole kind of industry. 2 The word is borrowed from Kant's philosophy, and means that which is real to thought though not to our senses. § 116 The General Rate of Gross Wages Ricardo, Prin. of P. E. and Taxation, ch. v. Clark, as at § 113. Webb, as at § 100. Cherbuliez, bk. iii, ch. iii, sec. 2. Competition pervades the entire wage-earning world, yet not at all equably, but in tracts or groups of high pressure, separated by ridges of low.^ Why, in the world, a nation, or a group, does the wages class as a whole divide the joint social income on such and such terms with landlords, capitalists and undertakers? To this most difficult question different writers give the following several answers : i That the winnings of the laboring population tend to conform to the returns secured by such un.skilled workmen as employ no-rent lands or no-interest capital.- ii That 'the natural price of labor is that price which is necessary to enable the laborers one w-ith another to subsist and to per- petuate their race without increase or diminution,' according to the standard of comfort prevalent among them at the given place and time.^ 1 82 WAGES 1 Cf. § 66 and notes. 2 Tend to conform, that is, to bare -wages, in the strict sense [§ 113]. The view counts all gains, in any cases, beyond those gotten by such unassisted labor, as interest or profits [§§ loi, 113, n. i]. 3 Ricardo, as above. This is what Lassalle named Ricardo's ' iron law.' In fact it is neither iron, as the modifications show, nor Ricardo's. It originated with Turgot. He said: "In each species of labor it must come to this, that wages limit themselves to what is necessary for the sup- port and reproduction of the laborer." But he insisted that this natural price of labor is in no wise fixed but varies greatly at different times in one country and more greatly still in different lands. The principle is that if the ignorant poor find themselves at any time unusually prosperous, they multiply till competition has destroyed the advantage. P^awcett, Manual, 234, declares that in the English agricultural districts wages fluctuate regularlv with the price of wheat. This phenomenon Ricardo generalized somewhat too hastily, as if, which he after all denies rather than asserts, extra prosperity on the part of the poor absolutely could not be permanent. Cf. § 118. For H. George's interp. of Ricardo on wages, Social Problems, 201. § 117 The Residual Claimant Theory U^alker, Wages, pt. ii; P. E., pi. iv, ch. v. Atkinson, The Distribution of Products; The Margin of Profit. Chevallier, Les Salaires an XlXieme Steele. Gtffen, Progress of the Working Classes. iii That the laws of rent, interest, and profits are at the same time laws of wages, wages consisting always in the total product of industry, minus what the opera- tion of these laws apportions to landlord, capitalist and undertaker. According to this view, among the three divisions of social income which arise through economic merit, pure profits and interest constantly decrease, while wages increase, the wages class, not landlords, undertakers, or capitalists, being the residual claimant.^ That this advantage shows so slight effect upon actual wage rates, is laid to (i) the increase of laborers in numbers, and (ii) the anomalous and partly illicit gains concealed in gross profits. WAGES 183 1 We do not accept this view. Kven the considerations at the end of the § do not bring it into accord with facts. Wages, both per capita and as a total [the one does nut necessarily involve the other], are indeed increasing, as Chevallier and Giffen show, though the advance cannot be shown to keep pace with that in the means of production. The cause of the increase, however, we believe not to lie in any laws naturally limiting the other shares, but in such elevation, new self-respect, and new demands on the part of laborers, and such higher regard for them on the part of the public, as recent decades have developed [§ 118, and n. i]. In proclaim^ mg a natural limitation to the shares other than wages, writers are too apt to reckon interest by the mere rates of loans, and profits l)y mere statistics, forgetting, meanwhile, both monopoly gains and the steady growth of rents. On this, Hertzka, Soc. Entwickelung, bk. i, chaps, xi, xii. § 1 18 The Truth Giddings, ' Natural Rate of Wages,' in Mod. Dist. Process. Gunton, Wealth and Progress. Patten, in Am. Ec. Ass'n Papers, vol. iii, 406 sqq. We take Kicardo's law, rightly understood and de- veloped, as true, special emphasis being laid on the last part of it, which is usually ignored. In one direction, wages must sustain life, or work ceases. In the other, whatever the competition between employers, the figure will, up to the point where higher wages would begin to discourage undertakings, be fixed by the laborers' standard of life, their sense of what they must have. If too high wages are demanded, undertakers will quit business : if too low are allowed, laborers will die. Enforced poverty, or any other cause breaking wage- winners' spirit, lowers wages ; all that gives them pride, ambition, and courage, elevates wages. ^ Two things are to be carefully noted, however, i After all, contrary to common opinion, the portion of the pro- ceeds of industry which can during any limited period issue in Avages is, to a great extent, not arbitrary but 184 WAGES fixed,- and fixed by the amount of capital available for supporting labor, ii No automatic action, prompted by motives of self-interest, will heal the evil of degrada- tion in the laboring population.^ Hence the value (i) of a imblic opinion in sympathy with labor, (ii) of labor agitation, if at once well planned, temperate, and reso- lute, and (iii) of education wisely to devise, and moral character to make possible, united action.* ^ Nor need this impoverish any one. Employers, to meet the demand, are forced to new economies and invention, which may even have the effect of increasing the total production. Gunton, as above, has well wrought out the idea. Touching the possibility of a sweeping benefit to wage-earners in this way he is probably too sanguine, but within con- siderably large limits his thought is correct [§ 117, n. i]. - So Walker, Wages, 410. Wages are in some sense fixed, though not in the manner supposed by the wage-fund conception [§ 114]. The sup- ply of capital influences them, but through its effect upon the productive- ness of the labor. Many who here agree with Walker too nearly overlook this. H. George does, yet see Prog, and Pov., 62. ' See the noble discussion in Walker, Wages, chaps, xvi-xix. See also W.'s Address, in Am. Ec. Ass'n Papers, vol. iii, 157 sqq. Upon this point many earlier writers of repute held notions that experience has j^roved wholly false. Walker fiuotes some of these. * We agree with Patten, as above, that a general advance in the incomes of laborers is not the necessary consequence of enlarged social production. It presupposes moral elevation, and must be a slow process at best. The ready optimism which studies the vast industrial progress of our time, assuming it " as an axiom that all the lienefits of this j)rogress pass quickly into the possession of the laboring masses," seems to us as mistaken as it certainly is honorable to the impulses of its subjects. § 119 Concluding Points Ad. Smith, \>V. i, ch. x. Yves Guyot, Set. Econontique, bk. iii, ch. iv. I In spite of their tendency to equality through the action of supply and demand, wages within any tract WAGES 185 of competition differ in the different employments, accordinj; as these are or are not (i) ajfrecable, (ii) always deinaiidiii^ labor, (iii) dependent on high orig'- iiial gifts, (iv) easy to learn, (v) reputable, (vi) respon- sible, (vii) trammelled by restrictive laws or customs.^ II The amount paid for wages varies greatly, according to the nature of the business, in the proportion it bears to the value of fixed capital and in the proportion it bears to that of circulating. Fixed capital increases with the advance of civilization, out of proportion to both wages and circulating capital. Ill Popular errors, total or partial, are (i) that good trade makes high wages, (ii) that bigb prices have the same effect, and (iii) that wages must needs vary with the price of food. ^ This influence sometimes raises wages above their proper level, some- times has the reverse effect. The latter is many times the case with women's wages, which are often, though less and less so at present, lower than men's fur the same amount and quality of work. Stated fees, too, tend to go unchanged through long periods, being fixed by custom. CHAPTER V PROFITS § I 20 Terminology Clark and Giddings, Modern Distrib. Process. Mataja, Unternehmergenvitin. Wirntinghaus, Das Unternehmen. Gross, Lehre voin Unterttehiiiergewinn. Schroeder, Unternehvien Jtnd Unternehmergetvinn. All economic writers now agree in distinguishing profits from iiiterest,^ but another question still divides them, viz., whether, of the two elements making up gro.ss profits, the essence of profits consists in (i) re- ward for the exercise of some peculiar natural ability, or rather in (ii) risk^ and the accompanying haphazard and anomalous g-ains,"^ analogous with those of specula- tion. We prefer nomenclature (i), taking pure profits, or profits proper, as the remuneration of special origi- nal * talent exercised in any industrial direction. Profits manifest themselves most obtrusively in connection with the managrement of business, yet form an immense ele- ment in the sums nominally paid as salaries, fees, and wages. ^ Ad. Smith, Ricardo, Mill, and Fawcett treat lioth under the one name of ' profits,' hopelessly confusing many imptjrtant questions. See, for this, Mill's 4th Essay on Some Unsettled Problems in P. E. On Graziani's theory of profits, see in your, ties Econ., Oct., 1887. 2 Risk cannot, as is so often thought, be the reason of profits. The risk of a business by no means falls, as a rule, entirely upon its manager. When authors so represent, they must have in mind the legal responsi- bility — a very different thing. The latter often protects the lai)orers, more often it docs not, according to the manager's resources. PROFITS 187 ' Monopoly profits, ^conjuncture winnings [as the German economists express it], mere good luclc in business, etc. Cf. Progress and Poverty, 172 sqt]. J. B. Clark cuts the uiulcrtaker function into" two parts, the industrial and the mercantile. The returns for management he likens to wages, the rest, gain which arises from selling the product at more than its ingredients — ordinary wages, wages of direction, capital, ta.\es, etc. — have cost, he calls pure profits. But, as a rule, it is precisely the manage- ment which enables the gain t(; be made on sales. This gain, unless in case of some monopoly or peculiar feature removing the operation from the sphere of profits anyway, is brought about solely by better management than the poorest which still continues. It is reward to management. How else can such reward appear? Does not the gain of merchants come by managing wisely? * Acquired business ability is of course capital, and its remuneration interest [§§ 98, 108]. This, in the case of a prolit-taker, would form a second element in gross profits, along with that suggested under (ii) in the text, above. § 121 Undertakers' Profits lyaiker. Wages, ch. xiv; P. E., pt. iv, ch. iv. Cherbitliez, bk. iii, ch. iv. Mangoldt, §§ 96 sqq. The undertaker,^ as capitalizer or ii.ser of capital, ful- filling an entirely different office from that of the mere lender of capital, prolit.s, the undertaker's share in the product, are governed by a law analogous with rent.^ Power to organize industry and apply it to capital varies with different undertakers, as fertility of land with districts. By the law of dearest cost of produc- tion, the prices of manufactures, for instance, are fixed by the cost of the poorest undertaker-talent which de- mand forces into employment. This is no-profit under- taking. The returns of all superior undertakers are their profits, varying mainly with ability, partly with opportunity.^ 1 On the use and meaning of this term, § 46, n. i. In the economic writings of Franklin and Alexander Hamilton it frequently occurs in just 1 88 PROFITS this sense. An early minute of the trustees of Brown University authorizes the faculty to negotiate with some ' undertaker ' for gowns to lie worn by speakers at commencement. The real undertaker is often a composite body [§§ 46, iv; 99, n. 3]. • But beware of following the analog)' too far. There is a scarcity of land relatively to need, and there is a scarcity of undertaker-ability rela- tively to need. But while competition for pieces of land can never so increase the productiveness of the best as to throw the jjoorer out of use, but rather poorer and poorer have to be occupied with the lapse of gen- erations, competition cultivates undertaker-talent to an ever more and more perfect condition, so that jioorer undertakers are thrust from the field. Degrees oi fertility in the land used go on multiplying : degrees of talent in management go on decreasing. [Cf. Clark, Pol. Sci. Quar., vol. ii, 610.] 8 Of course, so far as the fortunate opportunity is thing of chance, of fraud, or of partial legislation, the profit is gross, not pure. Cf. § 117. Income of this sort might be rent, or belong in the fifth category [§§ 102, 103]. Hugo Bilgram finds the essence of profits to consist simply in the unfair advantage afforded by the ownership of money, the moneyless man being at 'the margin of opportunity,' etc. [for liilgram too carries out the rent analogy]. But the gainful chance in trade may be created by natural ability functioning in purely economic ways, in which case the gain is pure profits. The theory of profits here set forth was first sketched by Piagehot, and then elaborated by Walker. It is now, in essence, the prevalent one. Ingram, Hist, of P. E., however, conceives it to be yet on trial. For good remarks on it, Hadley, 1st Rep. of Conn. Bureau of Lab. Stat., esp. p. 21. § 122 Undertaker-Talents Clark, ' Profits under Modern Conditions'; Pol. Sci. Quar., vol. ii. The reason.s for certain undertakers' superiority over others are many in both number and kind. Force of will and strength of mind are naturally the main determinants. All turns sometimes upon a cool, phleg- matic temperament, sometimes upon courage or cheer- fulness. A gift for administration in general may tell the story, or, in particular, the power to manage PROFITS 189 men. So may eoonoiuy, thrift, attention to business, memory, quickness at lij;ures, accuracy, the ability to hold in mind many details at once. In not a few cases good healtli ^ or a rugged constitution will be the decisive characteristic. ' M. de Lesseps is able, it is said, to go days without sleep, and then, when opportunity offers, to make up by sleeping all day long, in a railway carriage if need be. Let pupils suggest as many other causes of profits as they can besides the above. § 123 Profits, Prices, Wages Theauthh. at §§117, 118. Pure profits, consisting wholly of wealth created by the powers of given undertakers over and above what would have been produced by the same application of labor and capital under less efficient leadership or man- agement, neither (i) enter into the prices of products, nor (ii) lower or anywise antagonize wages.^ On the contrary, wise and energetic undertaking is absolutely vital to the increase of wealth. ^ Anger at the great captains of industry on account of the pure profits which they acquire is not only groundless but insane. Rather is it the stupid and unsuccessful undertakers who deserve blame, sinking capital, starving laborers. The signal importance and unicjue character of the undertaker-function account for the present and proba- ble limitation of co-operation. 1 Gross profits may of course include illegal and immoral gains, to the injury of laborers as well as of others. 2 As well, remarks Hagehot, speak of the compositors as 'making' the London Times as of laborers in the ordinary sense being the sole creators of wealtli. Part V CONSUMPTION -<«J>»io°- CHAPTER I NEED § 124 To Resume Mangoldt, bk. v. Chapin's Wayland, ch. x. Gamier, Traite, ch. xxxiv. Patten, 'The Consumption of Wealth' [Univ. of Pa. Pubb., P. E. and Pub. Law Ser., No. 4]. Lexis, in Schoenberg, vol. i, XII. The general nature of consumption was presented in §49, where the subject received consideration so far as we found it to be a phase of production. Unpro- ductive consumption, or consumption as an indepen- dent department of Economics, is now to be studied. Since man produces to live instead of Hving to pro- duce, unproductive consumption is the ultimate end^ of all wealth and hence of all production. Our economic efforts have their entire occasion and their essential explanation in the needs ^ of human beings. These may be (i) corporeal or mental, (ii) original or acquired, (iii) legitimate or illegitimate. 1 But we do not agree with the authors who regard this fact a sufficient reason for treating Consumption licforc Production. A canvass of man's NEED 191 needs would certainly not be inappropriate in an introduction to Economics, hut consumption is not confined to a study of needs. - It is a remark of the Italian economist, Fuoco, that man, " however great he may he, is nothing hut a living nee J, a sum of needs" \_tulto quanto i piio chiamarsi un bisogno vivente, una somma di bisogni\ § 125 Elasticity of Need Mangoldt, 197 sq. Patten, as at § 124. Cf., above, § 62 and the authli. there named. Clark, I'hilos. of Wealth, ch. iii. Lexis [as at § 124], § 4. F. A. Lange, Arieiter- /rage [4th ed.], 164 sqq. Consumption increases and decreases with plenty, but very unsyninietrically. Although each depart- ment of tlie things which we desire is susceptible of great expansion, the food requirement has less latitude than that for clothing, this less than that for shelter. Kinds of food vary in the same respect. Any man's use of salt nothing could much extend, but new cheapness would greatly multiply veg-etable dishes, and meats, spices, and drinks more still. In dress, each season, each change of temperature, and almost every occa- sion demands of such as can afford it some modifica- tion. Dwelling accommodations vary from wigwam to palace, while our demand for immaterial goods has a truly infin-ite range. Liking for variety develops most rapidly in food, next in dress, next in the appur- tenances of home, last in the intellectual and spiritual realm. Retrenchment follows in general an order the reverse of the above, but with modifications largely determined by pride ^ and habit. 1 The limitation of outlay is nearly sure to begin at points where it will be least noticed, since people do not love to advertise their poverty. Usually, therefore, economy will strike food before lodging, bringing one 192 NEED to dispense with meat, e.^., in favor of vegetables, and so on. This, in fact, when sucli partial luxuries as tea, cotYec, aiul tobacco have not yet been given up, since habit powerfully co-operates with pride for the retention of these. Retrenchment in clothing comes last, — in the outer garments last of all. The possible .cu'dV/ of retrenchment is greatest in housing, the whole of which may be surrendered, next most complete in clothing, a part of which, in temperate climates, must be retained, least complete in food [§ 62, u. 2, also Mangoldt, as above]. § 126 Fashion and Progress Roscher, § 89, n. i. ratten, as at § 124. Presupposing considerable resources on the part of consumers, the direction assumed by consumption varies enormously with class and station in Hfe, cus- tom, whim, and accident.^ As a rule, the poorer a family is, the greater the proportion of its total in- come which it expends for food.^ Changes in taste render millions' worth of goods unmerchantable each year. In food the prime delicacies of one season may have no sale the next. The office cf sugar at present was once fulfilled by honey. The middle age used enormous stores of wax, the head church of Witten- berg requiring, just before the Reformation, 35,000 pounds a year. In Catholic lands the consumption of fish noticeably varies with diligence in the observance of fasts. The growth of civilization and culture brings with it increasing refinement of needs, and a steady advance from coarser to nicer in the things which men con.sume. ' There are three ways in which wealth may cease to be such [cf § 19], viz., change in (i) the objects constituting it, (ii) the subjects possessing it, or (iii) the relations between subjects and objects. Consumi)ti<)n in tlie NEED 193 narrowest sense comes under (i^. We liave a case of (ii) whenever change in need leads to tlie casting aside of articles previously valuable, and of (iii) when war, revolution, or other cause renders possessions insecure [Mangoldt, § 134]. 2 The so-called 'l^ngel's law,' On this, and the numerous studies besides Engel's of the same pnililem. Lexis [as in § 124], §§ 21 sq<]., and notes — very valuable. It may be regarded as a counterpart of this law that a man pays for house rent a smaller proportion of his income the larger his income is. It has been ascertained that in Breslau, Germany, a family with a yearly income of from ^300 to $iocx) pays about l of it for dwelling accom- modations, one getting from $1000 to $1500, about J, one with from $1500 to $3000, al)out |, one with from $3000 to $7500, about j'^, one witli a higher income than this about ^'j. Probably 90 per cent of the families in that city pay i. In the U. S. the proportion is doubtless somewhat smaller for the poor and much larger for the rich. § 127 Legitimacy of Need Seneca, Epistle xxxix [moderate riches the best: useless wants]. Hume, Essay, Of Re- finement in the Arts. The authh. at § 131. Needs are not to be recklessly multiplied, but lim- ited to those whose existence and supply are neces- sary to our best protlucing power and largest life.^ Very often, however, the creation of new need will bring with it a more than proportional productive ability. This may occur directly, as when the ignorant and degraded acquire culture and the accompanying enlargement of manhood, or indirectly, by the limita- tion of population, rendering the laboring class more productive in proportion to its total need. There are also needs, religious, moral, a'sthetic, whose existence is a good though they may not enhance productive ability at all. 1 What this is Economics must iind out from Ethics. In proportion as needs are fictitious and abnormal the gratification of them becomes destruc- 194 NEED live consumption. Economic law liorc agrees with ethical. Pre-eminently in the department of Consumption does Economics abut upon Ethics [§ 131, n. 2]. At many points the question whether an act or a process is productive or the reverse is absolutely unanswerable by Economics alone. Hume, as above, has good thoughts on the sorts of want-creation which ought to be encouraged. CHAPTER II economy in supply § 128 Generic Principles It is possible to use up wealth (i) in placating leg-iti- mate and proper needs, ^ (ii) as dead loss, answering no requirement at all, (iii) disproportionately to the neces- sities satisfied, or (iv) to meet cravings that, as base and deleterious, ought to be repressed. Obviously, with given resources, society will be prosperous eco- nomically in proportion as (i) expenditure is had only for legitimate needs, and (ii) all needs, these or other, which are ministered to at all, are supplied with the smallest outlay adequate to the end. 1 See § 127. § 129 Specific Principles Mangoldt, § 139. Chapiit's U^ayland, ch. x. i In satisfying needs,^ our own or those of other people, we should prefer if equally efflcient,^ (i) repro- ductive^ to unproductive^ consumption, (ii) less unpro- ductive to more, and (iii) hig-h and lasting- gratifications to low and fleeting ones, ii It is important that (i) every utility connected with the consumed wealth should be entirely consumed, and that (ii) they should all be applied in the most advantageous manner, iii In case of any proposed doubtful expenditure, we should ask, (i) Will it on the whole and in the long run tend to production or i)r<>ductivcness ? If not, (ii) will it 196 ECONOMY IN sri'ri.Y inure to the elevation or to the degradation of charac- ter? If it will elevate, (iii) will the wliole ffoocl attained by the consumption exceed that to be expected if the wealth remains uneonsuined ? In replying to (iii), re- member that the moral effort of foregoing a benefit is likely to be itself a benefit. 1 J. Tucker [Two Sermons, 29 sqq. : cited by Roschcr, § 102, n. 2], lays it down tliat a man ought (i) not to spend beyond his income, (ii) to pro- vide for hinaself and family, (iiij to lay l)y something for a rainy day, (iv) to be able to aid the poor, (v) to indulge in no pleasure injurious to body or mind, and (vi) to set in his expenditure no bad example. - If the reproductive form is less efficient in the given case, then the question must turn upon the character of the proposed unproductive form. See iii, in this §, also §§ 127, 131, n. 2. 3 A new coat to a feast or a concert, for instance. It is true that the need addressed would not be the same in the two cases, yet to a person with limited resources precisely such an alternative is often presented. * A good coat to a fine one of poorer quality, for instance. Cf. n. 2. § 130 Prevention of Loss Mangoldt, § 135. Thomson, 'Waste by Fire,' Forum, Sept., 1886. While the vices specified at § 50,^ causing waste, are responsible for enormous destruction of wealth, it is to be observed that much useless consumption is in- evitable,^ due to the very nature of thinj^s. Of this loss the volume can be reduced only by the progres- sive mastery of matter by mind, displayed in new arts and inventions. Our resources are : i Improved means for preserving perishable goods.-^ ii Wider knowledge, through more general education and in- telligence, f)f such means as at any time exist, iii A more durabl<; construction of buildings and other objects exposed to the destructive elements, iv Better- ECONOMY IN SUPPLY I 97 mcnts in police,^ veterinary, and sanitary science, legislation, and administration, v A firmer grasp and wider observance of the laws of lif(; in all its spheres, social and moral as well as physical, intensifying men's productive i)owcr, lengthening their average productive period, and diniiaisiiiiiy: the size of the unproductive and dependent class. 1 See that §, and notes. In point is the incident related by J. B. Say, P. E., bk. ii, ch. V. A small latch was gone from a farmyard gate. One day a pig escaped into the woods, " and the whole family, gardener, cook, milkmaid, etc., turned out in search. The gardener, in leaping a ditch, got a sprain that confined him to his Ijed for a fortnight. The cook found the linen burnt that she had left at the fire to dry. The milkmaid forgot, in her haste, to tie up the cattle in the cowhouse, and one of the loose cows broke the leg of a colt that was kept in the same shed." Say figures at 20 crowns the loss of these minutes, all for want of a bit of iron which would have cost but a few sous. 2 Professor Chandler Roberts, says the Engineering and Mining Jour- nal, estimates the weight of the smoke cloud which daily hangs over London at about fifty tons of solid carbon, and 250 tons of carbon in the form of hydrocarbon and carbonic-oxide gases. Calculated from the average result of tests made by the smoke abatement committees, the value of coal wasted in smoke from domestic grates amounts, upon the annual consump- tion of 5,000,000 people, to $12,287,500. ^ See § 54, n. 6. * It was sheer neglect, nothing else, which caused the fearful Conemaugh disaster in and about Johnstown, Pennsylvania, May 31, 1889, when the bursting of an ill-made dam caused the loss of perhaps 10,000 lives and $10,000,000 worth of property [figures very uncertain]. § 131 Luxury and Idle Wealth Roscher, ' Ueber den Liixtts ' [in Ansichteti, vol i]. Goldwin Smith, ' UTiat is Cul- pable Luxury' [in Lectt. and Essays]. I'ii-rteljahrsch. f. Volkswirtsch., XXII, i, 24 sqq. Periii, Richesse dans Us socieiis chretiennes. Bandrillart, Histoire dii luxe. Lexis [as at § 124], §§ 11 sqq. Consumption beyond the actual requirements of life may be termed luxury, 'luxuries,' of course, vary- 198 ECONOMY IN SUPPLY ing in their definition as the standard of living ad- vances, and the luxury of one generation becoming a necessity of the next. It is clear from the principles already laid down that while certain species of con- sumption are always reprehensible, the use of luxuries is in itself never so. What luxury then is culpable? The foregoing paragraphs enable us to reply, i Con- sumption for luxuries is to be condemned from the point of view of one's own personal life, (i) when addressed to no rational necessity, or out of propor- tion to such necessity provided it exists, (ii) when addressed to less pressing or important needs to the neglect of those more so, and (iii) when it transcends one's means, ii It is an evil from the social point of view, (i) unless it stimulates rather than discourages labor, and (ii) unless it elevates instead of degrading the characters of men.^ The same principles- hold in cases where wealth is not immediately consumed, but invested in idle forms, as needlessly costly dress, houses, equipage, jewelry or plate, works of art to feed vanity or to please the taste of a select few, etc. In all such expenditures so much capital is lost^ to the support of labor, as truly as by fire or hurricane. 1 Baudrillart, as above, vol. i, § 98. 2 The view characterized in n. 10, of § 20, is set forth by Bayle, Dic- tionary, vol. iv, 520. Arguing on the notion of the Stoics that evil is necessary as a foil or fender over against good to make it appear as good, he says: "Nevertheless it must be acknowledged that they were in the right in some respects, for, to give an instance of it, can anything be ?)iore useful than luxury for the maintenance of many families that would starve if the great men and ladies spent but little." On this specious but wholly untenable theory, study § 50, n. i, and the references there made. Cf. also Lexis [as at § 124], § 19, and Mill, bk. i, ch. v. For the Cleopatra who drinks pearls, the Heliogabalus who feasts on nightingales' tongues, or the ECONOMY IN SUPPLY I 99 niudern speiKlthiiU wliu j^ives an all-ni^'lil entertainment costing thousands and leaving only " withered flowers, rumpled vanities, deranged stomachs, and overtaxed nerves," Economics finds no more justification than for the Nero who burns Rcjnie [Hrown, Studies in Sot ialism, xii]. It will be said that all these things furnish work. So does a cunllagration. An uncle of I. H. Say, the French economist, broke his wineglass after dining, remark- ing, " the world must live." Say wondered " why he did not break the rest of his furniture for the benefit of the world's workmen." That a product wears out prematurely, and must be replaced is no industrial benefit, and no more is extravagant expenditure. It furnishes immediate employment, but it stops there [ibid.]. On needless wealth causing poverty at Rome, lilanqui. Hist, of P. E., ch. vii. The consideration raised in the text and dwelt upon in this note should be regarded in many cases of unproductive consumption which arc in themselves wholly legitimate, as building a church, sending money to tlie heathen, investment in fine art though for public behoof. Outlays of this kind certainly withdraw capital from the support of labor. The man who loves his kind will in proposing an ex- penditure of this order raise the [ethical] cjuestion whether his capital is likely to effect more good on the whole and in the long run laid out as proposed, or productively. More imperative still is the query if I meditate gratifying a merely personal need, however noble. So far as this life is concerned, there may lie an absolute conflict between my highest interest and that of the laboring class [§ 15, n. 4]. Part VI PRACTICAL TOPICS INVOLVING ECONOMIC THEOR V -<>Oj©:JOO- CHAPTER I COIN CURRENCY IN THE UNITED STATES § 132 Colonial Times Suntuer, H. of Am. Currency. ' Dollar,' ' Cent,' and ' Coin,' in Am. Encyc. Bryant and Gay, Hist, of U. S., vol. iii, 131 sqq. The earliest colonial coin is believed to have been one struck in 1G12, on the Bermudas, for the Virginia Company. The first coinage upon the main land issued from the 'mint how.sc' at Boston, under act of the Massachusetts general court, 1652. There were twelve pence, si.\ pence, and three pence pieces. The plain- ness of these exposing them to wa.shins' and clipping, the *pine tree coinage '^ was the same year ordered struck from a new die. This Massachusetts mint stood about thirty-four years, and a new one went into opera- tion in 1788. Coins for America were made in Eng- land, at first for Maryland alone, later for the colonies at large. The execrable 'Wood'.s money,'^ of pinch- beck, was among these. From 1778 to 1787, not only COIN CURRENCY IN THE UNITED STATES 201 Congress but several states as well issued copper coins,^ Connecticut and Vermont in 1785, New Jersey in 1786 and 1787. 1 This designation, the usual one, does not in strictness apply to the whole coinage, as part of the pieces bore the liiiencsses of other trees. The assumption by Mass. of the right to coin was one of the things which at this period so incensed Charles II against the colony. 2 In 1 722 George I commissioned one William Wood to coin pinchbeck money for the colonies. A pound of the material [3 oz. zinc to 16 of copper], which somewhat resembled gold, was coined into 13 shillings. Little of the money circulated. ^ These are now rare. The Jersey copper wore on the obverse the inscription Nova Censer ea, a horse's head, and under it a plough; the reverse, a shield and the legend, e pluribus unum. The continental copper of 17S7 had 13 rings on one side, representing the 13 original states. Each ring had the initial letter of a state. " Tempus Fugit," sun dial with rays, and " Mind Your Business " were the other insignia. On the continental copper of 1793 was a head of Liberty, with full, streaming hair. § 133 Earliest National Coinage McMaster, U. S., vol. i, 189 sqq. Bancroft [author's last rev.], vol. vi, 119. Laugh- lin. Bimetallism in U. S., pt. i, ch. ii. A plan for a national decimal coinage, which Robert and Gouverneur 3rorris and Jefferson^ had devised, was approved by Congress in 1785-6, its unit a dollar, virtually the same as the Spanish, in which the Conti- nental Congress kept its account-s.^ Jefferson's dollar contained 375tVf grains of fine silver. Half-dollars, double dimes, dimes, cents and half-cents were to be coined in proportion, also gold eagles and half eagles, but no value-relation between gold and silver was fixed. These gold coins, with the addition of double and quarter eagles and three dollar pieces, all reduced to someAvhat less than the original amount of gold to 202 COIN CURREN'CY IN THE UNITED STATES the dollar,^ still remain, mechanically and artistically among the best in the world. ^ According to McMaster, vol. i, 195, the real work was done by Gou- verneur Morris. '^ Because in Pa. and N.J., where the old Congress sat, this had come to be the most common money. The .Spanish milled dollar, 'pillar' dollar, or ' piece of 8 ' [' Reals,' ' Ryalls,' or ' Royals '], is one of the most interesting pieces ever coined. It began to be used in our southern colonies by 1650, and gradually worked its way l:)efore the Revolution to the extreme north. None of our histories have any adequate account of colonial metal money or colonial money of account. The colonists at first used not only English money denominations but English money itself. By 1650, however, the colonial pounds, shillings, and pence had become depreciated in compari- son with sterling, so that from this time on the colonial pound was at no time or place the equal of the pound sterling. Moreover, the depreciation was different in different groups of colonies. If, about 1760, we call the pd. sterling 100, the Ga. pd. would equal 90; the N.E. and Va. pd., 75; the pd. of the middle colonies [N.J., Pa., Del., and Md.], 60; and the N.Y. and N.C. pd., 56]. Corresponding to these various degrees of depreciation, the Spanish dollar, which was the equal of 4?. 6(/. sterling, passed for 55. in Ga., for 6s. in N.E. and Va., for ys. Gd. in the middle colonies, and for 2>s. in N.Y. and N.C. Colonial pds., sh. and pence were nothing but money of account, there being under these names no corresponding coins. Very vari- ous coins, Phiglish, German, Dutch, French, Portuguese, and Spanish, circu- lated, but far the most common by 1750 was the Spanish dollar with its halves, quarters and eighths. It was common and for legal purposes neces- sary to name each of these in terms of the shillings, pence, etc., of each group of colonies. The eighth part of the dollar [the i Real piece— \2\ cents], e.g., happened in N.Y. exactly to equal the shilling. In N.E. it was very nearly 9 pence, and was so called. In the middle colonies, where the dollar contained 90 pence [75. 6(/.], it was il pence and a fraction, and was hence called the ' levy.' Correspondingly, the half Real, or 6\ cent piece, was known in N.'N'. as ' sixpence,' in N.E. as ' fourpence ' or ' fopence,' and in Pa. and N.J. as the ' fippenny bit ' or ' fip.' When nine- penccs and levies became much worn they passed for dimes, whence the dime came to be sometimes called, in N.E. a ninepence, in I'a. and N.J. a levy, names heard in country parts so late as i860. " For the variations in the weight of our gold money, sec next §, ii, and ' Dollar,' in Am. Encyc. As noted at § 85, n. 4, the U. S. now takes COIN CURRF.XCV IN THE UNITED STATES 203 no seigniorage fur coining gold, tlie change having been introduced by the act of Jan. 14, 1875 C^^*^- 2]. ft>r resuming specie payments [Revised Stat., §3524]- § 134 The Dollar of the Fathers Laughlin, as at preceding §, pts. i, ii. ' Money,' in Am. Encyc. BoUes, as at § 139, bk. ii, ch. V. i By the mini law of 171)2, framed under the sur- veillance of Hamilton, the silver dollar was made to contain 371.25 grains of fine silver, 416 of standard,^ the alloy constituting ^VVf parts of entire weight. The amount of pure silver in this dollar has remained un- changed ever since, but, in 1837, by the reduction of the alloy-fraction to the more convenient one of yV, the coin assumed the weight which it now has, 41 2 J- grains, y\ fine.2 ii The law of 1792 had fixed the value-rela- tion between silver and gold at 15:1, which proportion of silver being too small,-'^ gold retired. The gold bill of 1834 changed the proportion to 16: i, over-valuing' gold in turn and retiring silver, iii In 1853, on account of the still further appreciation of silver through the discovery of gold in California'^ and Australia, not only had the silver dollar totally passed from circulation, but, to retain in the country the subordinate silver, it was necessary to render this a token coinage by extract- ing a seigniorage of 6]-f per cent ^ the face-value of each coin, token silver being after this legal tender only to $5.00. The silver dollar, however, remained full legal tender till 1873, when, having in relation to gold greatly depreciated*^ again through large increase in silver pro- duction, lessened exportation to Asia, and the assump- tion by the German Empire of the gold standard, it was silently demonetized." 204 COIN CURRENCY IN THE UNITED STATES 1 Or, as figured by Perr)', 330, it was S924 fine. - Our gold coins have, also since 1837, ^^is same fineness. They are intended to contain y^gj of copper, and x5o?r °'^ ^^^^ °f silver. If less than this silver, the lack is made up in copj>er, such margin being known as the ' tolerance ' [see Lalor, vol. i, 509]. On fineness of Eng. coins, § 75, n. 10, The Canadian coins agree in this respect with the English. ^ It was at the time exactly correct, but silver was already growing cheaper relatively to gold, so that in the London market almost immediately over 15 parts of silver were required to equal i of gold. Less and less gold of course came to our mints [Gresham's law, § 85, n. 5], some years hardly any. After 1S34, precisely the reverse conditions prevailed, the silver which had circulated gradually hiding itself away. A lively business was done at buying up the dollars from ignorant holders and selling them as bullion. * Cf. von Hoist, Const, and Pol. Hist, of U. .S., vol. iii, 405. '' Our subordinate silver coins [tokens] were somewhat enriched again in 1873. Before that, the weight of 2 halves, 4 quarters, or 10 dimes was 3S5.8 grains, or 25 grams, and their value .93,'f that of the full weight dollar. Now the value is .93I}!! of full weight, giving a seigniorage of about 6)*^ per cent. Our present half dol. exactly equals in weight and value half of a Erench silver 5 franc piece. There are now 66 P^ng. shil- lings in a Troy pound of silver. Eng. silver money consists of tokens, legal tender only to the sum of 40 shillings, each piece having a bullion value 6/.J per cent less than its face value. ^ This phenomenon is more truthfully characterized as an appreciation of gold. The power of silver to purchase general commodities did not sen- sibly, if at all, decrease, but that of gold increased. General prices, i.e. [the only sure test, see §§ 70, 87], fell in gold countries, remained stationary in silver countries. " The act was popularly but with little doubt erroneously believed at the time to have been carried through Congress in guile, that knowing parties might realize from the rise of gold. § 135 Remonetization Laugklin, Bimetallism in U. S., pt. iii. ' Bullion,' in Encyc. Brit. Crier, The Silver Dollar. Voiles, as at § 139, bk. ii, ch. v. On the ground that the government boiid.s issued during the war had been made payable in *coiii'^ and that the demonetization of silver, if persisted in, would COIN CURRENCY IX THE UNITED STATES 20$ work hardship to taxpayers in liquidating the national debt, Congress, in i87;ic time favored the acceptance of foreign securities for this office. * Drawn up Iw Hon. A. S. Hewitt. The essence of it was adopted by President John Thompson of the Chase Nat. Dank, X. V. City, in his cir- cular of Jan., 18S5, intended to influence public opinion and so Congress. § 145 Probable Outcome Adams, Pub. Debts, pt. ii, ch. ii. Sylvester, as at § 136. This plan is inj^enious, but has the defects of intri- cacy and of giving government too little real control over bank assets to assure redemption in all cases. Preferable to it, people more and more believe, would be some scheme for the issue of notes directly by pTovernment as greenbacks are issued now, only mod- elled more after the issue-department of the Bank of England.^ The great merits of such an arrangement would be eflficiency, simplicity, and profitableness to government both ncgati\'.' - and positive. Objections: It would be unconstitutional. But the Supreme Court has decided otherwise.'^ Inelastic. Somewhat, but could easily be made less so than our present paper system. Facile means to inflation. It could add noth- ing to the power or to the inducement which Congress had to create the present treasury notes. Such a paper circulation could readily be made tributary to a plan for ideal moncy.^ 1 Without, of course, the inelasticity of the Bank of Kiigland issues. There we find, (i) the circulation restricted to 15 milliun jwunds above specie in vaults, otherwise free, (ii) every bill legal tender save from the bank itself, and instantly convertible. It would be advisable to have no absolute maximum or minimum of circulation. The business should be regulated by an able and impartial commission, a majority of them not liankers, empowered to suit the volume of notes to the needs of the country OUR PAPER CURRENCY IN FUTURE 2iy according to the principle of § 87. This idea is as old as Ricardo [Pro- posals for a Secure Currency], who moved to vest the power of issuing paper money in commissioners appointed by the ministry but removable only on address by one or both houses of Parliament. - The negative advantage would consist in relief from the expense and risk of supervising the present complicated system. For the positive, see § 78 and n. i, § 86 and notes. ' Virtually, in JuUiard ts. Greenman. See Knox, U. S. Notes, chaps, iii, iv, xi; James, in I'ubb. of Am. Kc. Ass'n, vol. iii, 49 sqq.; BoUes, as at § 139, bk. ii, ch. i; McCuUoch, as at § 141, ch. xv. This case to be sure related directly to the legal tender (juality of notes redeemed and paid out again under the act of 1878. It pronounced that act constitutional. More certainly so would be the notes we prc- accounts with the nation. 2 To yield much revenue they must be placed on goods that are some- what popularly consumed. Specific duties aggravate the evil because, being ti.xed at about so much on the value of the medium ciuality of the article, they are of course unduly high on the poorer qualities, which alone poor people can buy. 220 taxation § 148 Norms of Direct Taxation Urt/zt^r, ' Principles of Taxation,' Princeton Rev.. July, 1880. //. George, Prog, and Poverty, bks. vii sqq. Ely, Taxation in Am. States and Cities. ' Taxation in U. S.' [4 artt.], New Englandcr, 1884. Ford, ' Reform in Taxation,' Int'l Rev., vol. xiii. Five specilic principles easily suggest themselves as possible bases for direct taxation, (i) property in general, (ii) expenditure, (iii) productive ability, (iv) income, (v) non-capital projierty. Taxation upon any of the first four is cither unjust, or impracticable, or both.^ The main category of non-capital property is land proper, viz., land aside from improvements — an emi- nently fit bearer of heavy taxation. ^ However, (i) to keep taxation perceptible by the people,^ (ii) to avoid the inevitable injustice of any single tax,* (iii) to com- pass the requisite elasticity of revenue,^ and (iv) to insure disciplinary power over refractory or extortion- ate businesses, other taxes besides a tax on land are needed : customs duties, excises, and taxes on general income. 1 Not to mention the injustice in principle of a general property tax, which would in effect involve a penalty on thrift, such a tax absolutely cannot be equitably assessed or collected, such is the proportion of per- sonal property which can easily be, and will be, concealed. See Ely, as above, also in Rep. of the Md. Tax Commission, 1887. See, too, the 1872 Rep. of the N. V. State Tax Commissioners. The exact expenditure of fami- lies is rarely known even to themselves. A tax on productive ability, «ere it only feasible, would certainly involve much justice. But suppose, as is too often the case, the ability has been unused? Much is to be said for an income tax, and it is the favorite of all the great writers on finance, some of whom advocate it to the exclusion of every other form. 15ut experience in Gt. Britain shows that even this tax cannot be fairly collected, so easy is the falsification of income returns. 2 T-s, 200 shovellers employed by the X. ^'.. N. H. & H. R. R. at Meriden struck for an advance of from 21 \ to 50 cent> pay an hour. It is needless to say that they were retained. How modern POVERTY 225 systems of industry favor the success of strikes, slc § 45. To IIil- eonsidera- tioiis there menlioneil we may add this tliat nearly all manufacturers now work on orders, which they are under contract to fill at such and such times. A greater proportion of strikes [38 per cent] and strikers [50 per cent] succeeded in 18.SS tlian in any preceding year [Bradstreet's, Feb. 2, 1889], due, however, in large measure to greater moderation in striking, and the consequent greater justice of demands. From 1881 to 1886, inclu- sive, strikes occurreil in 22,304 establisliments in the U. S., and 1,323,203 employees were engaged in them. At the same time 160,823 employees were locked out. Of all these strikes 9,439, or 42 per cent, were for increase of wages, 4,344, or 19.48, for reduction of hours, 1,734, or 7.77 per cent, against reduction of wages, 1,692, ov 7.59 per cent, for increase of wages and reduction of hours. Wages or hours had most to do with more than 77 per cent of the strikes, and nearly 4 per cent more were influenced by the same causes coupled with others. Of the strikes for higher wages 66 per cent were successful and 8.43 per cent were partly successful. Of the strikes to secure a reduction of the hours of labor about 47 per cent were entirely or partly successful. On the responsibility of both employers and employees to the pul:)lic, Carl Schurz, in N. A. Rev., Jan. and Feb., 1884. \Vhy laborers cannot compete with landowners in a strike. Prog, and Pov- erty, 282 S(jq. 2 The aggregate losses caused by the stoppage of work during the three weeks of struggle in the southwestern strike of 1866, were placed at S30,- 300,000 : ^3,000,000 in wages which 250,000 strikers threw away, $2,500,- 000 sacrificed through interruption to the business of employers, $4,400,000 lost in deferred industrial contracts, and $20,400,000 in building contracts. ^ Advantaging their members at the expense of the laboring population in general. § 153 Ultimate Help Patten, The Consumption of Wealth [see, .ibove, § 124]. Bilgram, Iron Law of Wages. Fawcett, Manual of P. E. The capitalizingr of idle wealth ^ promises much, and would promise far more but for a sadly convincins: induc- tion which teaches that when material betterment does chance to come to the igrnorant poor, as through a rise of wages or the cheapening of bread, it is instantly checked by increased population. However great rela- 226 POVERTY tive relief- may be hoped from the measures named above, or from co-operation'^ in its various fo'.ins, private and public, and zealously as all should strive to multiply and promote such helps, the economic elsvution of the poor will prove to be ultimately an ethical and an educational work.* Their great wants are, (i) a moral one, the will to restrict population where necessary,-^ check vicious appetites, and act uiiitedly,^ (ii) an intel- lectual one, knowledge of economic and social laws, that they may assert claims wisely. Aids to these, the only final relief of indigence, are, (i) the Chris- tian rolif^ion, which, rightly understood, includes all true morality, (ii) sympathizing public opinion, and (iii) compulsory education. This last is equally called for by the logic of free schools. iSee§ 131. -a. § 118, n. 4. 8 On co-operation, Somers, 'Co-operation,' in Encyc. Brit.; Block, do. in Lalor; Holvoake, H. of Co-op. in Eng.; Marshall, Ec. of Ind., bk. iii, ch. ix; Giddings, in McNeill's 'Labor Muvenient'; P'awcett, Man., bk. ii, ch. x; Cairnes, Leading Prin., 289 sqq.; Co-op. in U. S., Johns Hop. Univ. Stud., Vlth ser. Very much more has been written. A great deal may be expected from the co-operative movement, though probably less than many think [§ 123, end]. Profit sharing is the most promising phase of co-op- eration [best treated in Oilman, Profit Sharing l)etween Employer and Employe; cf. Quar. Jour. Econ., vol. i, 232, 367] except perhaps co-opera- tive banking and [virtually the same thing] co-operation in building and loaning [Dexter, Co-operative Building and Loan Associations]. On the excellent working of the various sorts of [-"riendly .Societies, as the Odd Fellows, etc., a sort of co-operation, see Quarterly Rev., April, 1888. * The more necessary to emphasize this because the fact is so commonly ignored in favor of nostrums or at best partial measures. Indefinite credit utilized as money is Hugo Bilgram's remedy [§ 92, n. i]. * The general question of Malthusianism [' Population,' in Lalor] wc do not here touch. All ajjart from this, it is perfectly obvious that very many POVERTY 227 families would he in every way better off with fewer members. For the intclli};cnt atul wc-ll-to-do not to he celibates is, even by the principles of Malthus, a duty. 8 How many strikes and promising labor movements fail through selfish ambition and treachery ! While lliese prevail the employer will have lai)orers at his mercy. UNIVHRSITV OF CALIFORNIA. LOS ANGELES THE UNIVERSITY LIBRARY This book is DUE on the last date stamped below HOY 2 7 1962 Form L-a Km-W/4»(JIM) AT LOS ANGELES TJRRAnV / HB 171,5 ;mdre-ws - ^-A566i— Institutes of- 1888 economics. iyyif' .. p» ■ - HB 171.5 A566i 1888 HB UC SOUTHERN REGIONAL LIBRARY FACILITY AA 000 549 959 5