J Digitized by tine Internet Arciiive in 2007 witii funding from IVIicrosoft Corporation littp://www.arcliive.org/details/elementsofpolitiOOnewmricli ELEMENTS OF POLITICAL ECONOMY, BY SAMUEL P. NEWMAN, II LECTURER ON POLITICAL ECONOMY IN BOVVDOIX COLLEGK. "The best security for a free government, and generally for the public peae« and morals is, that the whole community should be well informed upon its Po- litical, as well as its other interests." — Lord Brougham, ANDOVER: GOULD AND NEWMAN, PUBLISHERS. NEW York: H. GRIFFIN AND COMPANY. 1835. v^^; \(p^ rv^^ Entered according to Act of Congress in the year 1835, by GOULD AND NEWMAN, in the Clerk's Office of the District Court of Massachusetts. PREFACE, It has been a leading object of the author of the follow- ing work, to prepare a text book, in which the more im- portant principles of the science of Political Economy are developed in their application to the usages and institu- tions of our own country. The defect of the text books now in use in this particular, is acknowledged ; and this circumstance has tended, in no small degree, to prevent the general and strong interest in the science, as a branch of education, which it may justly claim. For in a self- governing community, it is especially important, that the constitution of society should be studied, and " the rea- sons of things" well understood. Many unfounded pre- judices are also thus removed, the public mind is enlight- ened, and led to adopt those measures, which are for the public good. The author has not deemed it expedient to embrace the opinions of any school of Political Economists. It will be found, however, that he is more indebted to A. Smith's Inquiry into the Nature and Causes of the Wealth of Nations, than to any other work on this sci- ence. Many sentiments and opinions of this " Father of .EFACE. are judged to be better founded and more ,., than those of modern writers. It is well known, that many principles of this science are yet unsettled. On this account, the author feels that he has a claim on the candor of the public, and he would respectfully request of all who may examine the follow- ing work, especially of those using it as a text book, that its defects, or any erroneous statements which it contains, may be pointed out to his notice. Bowdoin College, July, 1835, CONTENTS. PART I. PRODUCTION AND CIRCULATION OF WEALTH. Introduction. A nation as viewed by the Political Econo- mist, (Page) 12. Objects of the Science and plan of the work, 16. CHAPTER I. Definitions and explanations of terms and phrases used in the Science. Analysis. The earth the great source of the supply of hu- man wants, 18. Labor of man essential to obtain these sup- plies, 19. Agriculture defined, 19. Manufacturing indus- try defined, 20. Commercial industry defined, 20. Ex- planation of the term Production, 20. Superiority of Ag- riculture considered, 22. Distinction between productive and unproductive laborers, 23. How the natural philoso- pher and chemist are ranked, 23. Of natural agency and other natural aids to production, 24. Extent to which man avails himself of these aids in a rude and in a civilized state, 2G. Territorial advantages, 26. Productive Capital, 28. Importance of it, 28. Wealth defined, 30. National Wealth, 31. CHAPTER II. Economical Arrangements for the production of Wealth. Explanation of the phrase "economical arrangements," 32. Right of property supposed to exist and to be respected, 33. First economical arrangement, 33. In what senses a territo- ry belongs to a people, 33. Distribution of lands not equal, 34. Community of goods impracticable, 34. Second eco- nomical arrangement, 35. Division of labor, what is meant by 1* VI CONTENTS it, 35. Examples of it, 36. Adam Smith's views of its ef- fects, 38. Advantages of division of labor, 41. Limits to division of labor, 42. Third economical arrangement, 44. Barter accounted for, 44. In what sense a system of barter exists, 45. Its advantages as seen in a neighborhood, 45. In different sections of a country, 47. In foreign commerce, 48. CHAPTER III. Human Industry. Extent and importance of human industry as seen in its re- sults, 50. The variety of its forms, 51. Personal freedom favorable to it, 52. Slave labor contrasted with free labor, 52. On laws regulating amount of wages, 53. Chartered companies and apprenticeships, 54. Such regulations un- necessary and injurious, 55. Oppressive to individuals, 56. Position to be maintained on this subject, 57. English sys- tem of poor laws, 57. Labor should receive a suitable re- ward, 59. Subject connected with the quiet of society, 61. Other causes which affect human industry, 62. Assistance afforded to the laborer by the government of a country, 64. CHAPTER IV. JVatural aids to Production. Extent to which man avails himself of the aids of nature in savage and civilized life contrasted, 65. Of tools, 67. Ma- chinery, 67. Supposition of the settlement of a colony, 68. Effects of introducing a power loom, 68. Principles infer- red from preceding statements, 71. Objection to machinery considered, 72. Patents rights, 73. Circumstances favora- ble to the developments of natural aids to production, 75. Cultivation of the natural sciences, 75. Minute division of labor, 77. Increased demands for products, 78. To what extent machinery may be carried, 79. CHAPTER V. Productive Capital. Transformations to which capital is subjected in processes of production, 80. Capital directed to different employments by the rate of profits, 82. Modifications of the general CONTENTS. Vn principle, 84. Government should not interfere, 85. Why the amount of productive capital in modern nations is greater than in former ages, 86. How capitalists should be regarded in the community, 90. Practical inferences, 93. Simple habits of life, 93. Pure morals, 95. Intelligence, 9G. CHAPTER VI. Circulation of Wealth. Medium of exchange, 98. Necessity of it, 98. Commodities used for this purpose, 99. Advantages of the precious met- als, 100. Representatives of the precious metals, 102. Bills of exchange, 102. Bank notes, 105. Banks of deposit, 105. Banks of discount, 107. Advantages of them as con- nected with the circulation of wealth, 107. Other advanta- ges, 112. Objection considered, 114. Measure of value, 115. Why objects have value, 115. Upon what exchanger able value depends, 116. Different objects proposed as measures of value, 117. Money not a perfect measure, 118. Its value varies with cost of production and supply and de- mand, 118. Subject to nominal variations of value, 121. Quotation from A. Smith on this subject, 122. CHAPTER VII. Price. How current prices are affixed to objects in the market, 125. Cost of production explained, 126. Supply and demand explained, 129. Price as affected by variations in money, 131. How to estimate the value of objects whose price is mentioned in history,. 134. Price as affected by the fluctua- tions of the market, 135. How the interests of agricultural producers are afTected by variations in the price of their products, 1.35. Consequences to the community, 136. Va- riations in the price of manufactures considered, 139. Price as affected by variations in the cost of produ'ction, 142. Extent to which different kinds of products are subject to variations of price, 143. Importance of uniform prices, 144. CHAPTER VIII. Agriculture. Origin and progress of Agriculture in a nation, 146. Improve- VIII CONTENTS. ments in agriculture, 147. Is a division into Jarge or small farms advantageous to a nation, 149. How the gov- ernment may encourage agriculture, 149. Opinions of the French Economists considered, 150. Impression as to the superiority of agricultural production noticed, 152. CHAPTER IX. Manufactures. Circumstances favorable to the introduction and success of manufactures, 156. Local effects, of manufactories, 160. Advantages derived from this branch of national industry, 163. Developes territorial advantages, 164. Furnishes profitable employment to the capital and industry of a na- tion, 165. Exerts a stimulating effect on other branches of }>roduction, 166. Objections to manufactures, 168. CHAPTER X. Commerce. Nature of commercial production examined, 173. Divisions of commercial industry, 177. Retail trade, 177. Prejudice against retailers considered, 179. Wholesale trade, 180. Advantagesof it shewn, 181. Internal trade, 182. No duties to be laid on internal trade, 183. Convenient and safe cur- rency needed, 183. Facilities for transportation, 184. Sys- tem of credit, 185. Foreign trade, 187. Increases the va- riety of national supplies, 187. Also the amount, 188. Ex- erts a stimulating influence on national production, 189. Developes an important class of territoral advantages, 191. Offers a convenient mode of collecting a public revenue, 191. May assist in the introduction of anew branch of do- mestic production, 192. CHAPTER XI. On the restrictive system. Mercantile and manufacturing systems explained, 195. What is designed to be effected by a restrictive system, 197. How these results are effected, 198. In what instances a restric- tive system is based on erroneous principles, 199. Free trade system described, 200. Objections to free trade sys- tem considered, 203. In what instance the restrictive sys- tem is to be justified, 205. CONTENTS. IX CHAPTER Xlf. On the different classes of Productive laborers. Day laborers, 209. The mechanic, 210. The manufacturer, 212. Objections to this department of labor considered, 213. The farmer, 217. Commercial laborers, 219, The sailor, 220. CHAPTER XIII. On the different classes of unproductive laborers. The Physician, 222. The Lawyer, 224. The moral and re- ligious Teacher, 226. The literary and scientific Teacher, 228. The public Functionary, 229. Domestic servants. 230. PART II. DISTRIBUTION AND CONSUMPTION OF WEALTH. CHAPTER I. Distribution of Wealth. How wealth is distributed in the early stages of society, 232. In a more advanced state, 2-34. Wealth should be left to flow unchecked, 234. Economical arrangement for the dis- tribution of wealth, 235. Illustrations of this arrangement, 238. CHAPTER II. Wages. Labor a commodity, 241. Upon what its price depends, 241. Average rate of wages in England, 244. In Ireland, 245. In the United States, 246. State of a community in which wages are rising, 246. Low wages connected with a re- duced style of living, 247. Variations in the ratio of capital and population as affecting wages, 248. Effects of variations in wages, 250. Circumstances which raise the rate of wages above the average rate, 251. Population as connected with Political Economy, 253. X CONTENTS. CHAPTER III. Interest, or profits of capital. Interest not paid for the loan of money only, 255. Interest includes premium of insurance, 256. Causes upon which the rate of interest depends, 256. How the rate of interest first becomes established in the country, 257. Supply and demand as affecting interest, 258, 259. Rate of interest is no ground on which to judge of the prosperity of nations, 260. Variations in the rate of interest during a long pe- riod will be inconsiderable, 261. Ought the rate of interest to be fixed by law, 264. Stocks and stock jobbing, 268. CHAPTER IV. Rent, or profiis of natural agency. Rent explained, 271. Distinction between natural agency and other aids to nature as connected with rent, 271. How the amount of rent is determined, 274. What lands pay rent, 275. Improvements of the soil, how regarded, 276. Illus- tration of the different causes which affect rent, 278. Prox- imity to a market as it affects rent, 280. Supply and de- mand as affecting rent, 281. CHAPTER V. Profits of the Undertaker. Use of the word profits, 282. Nature of the service rendered by the undertaker, 282. Causes which limit the supply of this kind of service, 283. Responsibility assumed, 284. CHAPTER VI. Fees and Salaries. Legal fees, 285. Customary fees, 286. Extra fees, 287. Impression as to compensation for services of professional men considered, 288. Salary defined, 289. Why compen- sation is made in this form, 289. Advantages which result, 290. Disadvantages, 291. Variations in the value of sala- ries, 291. Objection to salaries considered, 293. Who re- ceive salaries, 294. CONTENTS. XI CHAPTER VII. Consumption of Wealth. Senses in which the word consumption is used, 295. Individ- ual revenue appropriated to the supply of animal wants, 297 — 299. Sumptuary laws, 300. Individual revenue appropria- ted to the payment of taxes, 301. How civil government is regarded by the economist, 301. Principles of taxation, 302. Different kinds of direct taxes, 304. Indirect taxes, 306. Application of A. Smith's principles to taxes in the United States, 307. Individual revenue appropriated to the pay- ment of unproductive laborers, to amusements, and to chari- ties, 310. CHAPTER VIII. J^ational expenditure. Charges of civil and judicial administration, 314. Of wars and military and naval establishments, 316, Of the erection of public buildings and of internal improvements, 318. Of expenditure for the relief of the poor, 319. Of educa- tion, 322. POLITICAL ECONOMY PART I. ON THE PRODUCTION AND CIRCULATION OF WEALTH. INTRODUCTION. A nation as viewed hy the Political Economist. Men are seen in their most improved condition, when associated together in large communities. The excite- ments of competition are then most strongly felt — enter- prise and exertion are called forth and liberally rewarded. It is then that leisure and opportunity are found for the exercise and improvement of the mental powers ; thus knowledge is increased and spread abroad, and the various arts and sciences cultivated and advanced towards perfec- tion. In this state, too, the social affections are freely indulged, and the refined love of country, of family and friends, is awakened and cherished. But what a family is here to be provided for ! and how immense the amount of its daily consumption ! How ma- ny bales of cloth must be furnished for its use ! What toil and skill are required to construct habitations for its shelter ! How many hands must be employed in fabrica- ting the ten thousand little conveniences of life within and about these habitations ! 2 14 POLITICAL ECONOMY. But to supply the constantly returning animal wants of this national family, and to furnish what are esteemed the comforts and conveniences of civilized life, is but a part of what is to be accomplished. Measures must be adopt- ed, which may ensure a defence both against foreign foes and internal aggression. A civil government must be es- tablished and supported ; and, till the principles of peace become prevalent, armies and navies, with fortifications and implements of war, must be provided. This numerous family must also be educated. When the grosser wants of our nature have been met, it is felt, that there are in man wants of a higher and more exalted kind, which ask gratification. Men of cultivated intellect and extended knowledge, must also be reared up to admin- ister the concerns of a great nation. Such minds too are needed to devise and carry through the ten thousand pro- jects and enterprises, and the complicated business trans- actions of a large and thriving community. Here then is a call for instruction, for books and the whole apparatus of learning. Schools, colleges and the different semina- ries of learning, must be founded and endowed, and means used, by which the public mind generally may be enlight* ened and elevated. An intelligent and reflecting people will also be mlnd- . ful, that there are moral and religious relations and duties, in which men need to be instructed. They will come to the knowledge of civil and social rights, and will seek to be made secure in their enjoyment. Aware too of the evils which " flesh is heir to," they will be led to inquire what antidotes and remedies may give relief to the diseas- ed and sufiering body. Thus the calls for professional assistance will arise — the divine, the lawyer and the phy- INTRODUCTION. 15 sician will be found, each rendering important service to the community. A civilized community has also its imaginary wants to be supplied. Under this head is included all that pertains to the gratification of the taste — the refinements and ele- gancies of life. Such are the various productions of the fine arts. Such also are those articles of furniture, dress and equipage, which either are not necessary for the sup- ply of the absolute wants of men, or might be furnished in more simple and less expensive forms. There are two other particulars, in which the resem- blance between a nation, as viewed by the political econ- omist, and a numerous family, might be traced out. Both seek after an improvement of their condition, and both are called upon to make provision for the increase of their numbers. In neither case is it thought sufficient, to re- place what has been consumed — that the close of the year should find the community, or the family, in circumstan- ces equally favourable with those of its commencement. There is in both a constant struggle for advancement, for more enjoyment and greater independence. The numbers of both are also in ordinary circumstances increas- ing, and " for every new comer to the great feast of na- ture, a new cover must be provided." Now for the supply of all these wants, what foresight, what planning, what complicated and extended arrange- ments, what patient, various and unremitted toil, are re- quired ! Happily, there is found in the constitution of man pro- vision for all that is thus demanded of him. He who in goodness formed man a social being, hath in wisdom adapt- ed him to the social state. There is the desire of ad- 16 POLITICAL ECONOMY. vancement, the strong, ever active disposition to improve our condition. There is the reasoning mind, which, in- structed by the past, can extend forward its view to the future, can form plans and put measures in train for their accomplishment. There is the vigorous, enduring body, capable of strenuous and long continued effort, and of adapting itself with wonderful pliability to various circum- stances and pursuits. Now it is by the exercise of what is thus natural to man, that the many and various wants of a large community are supplied. While each individ- ual is following his own inclinations, and planning and la- boring for himself, seeking his own aggrandisement, and obtaining a supply of his own wants, he is at the same time planning and laboring and accumulating for the whole community, and advancing the general welfare. Objects of the science and plan of the work. He who has thus looked upon man in a civilized com- munity, and considered his wants, is prepared to under- stand what is meant by Political Economy. The leading object of this science is, to shew in what way the eco- nomical affairs of a nation may be so conducted, that its wants may be supplied and its prosperity promoted. It tells us, how the industry of a nation may be called forth and successfully directed, and how its resources, of every kind, may be developed and made efficient. It instructs us, how what is thus obtained is distributed among the dif- ferent classes and members of a community, and points out to us the several ways, in which it may be judiciously and profitably consumed. It looks at the different em- ployments and pursuits of men, and considers them in their relation to each other and to the general welfare. OBJECTS OF THE SCIENCE. 17 It looks at the different classes of society, the rich and the poor, the capitalist and the laborer, and shows their con- nexion and mutual dependence. It extends its view to foreign nations, and, in opposition to generally received opinions, instructs men to rejoice in the prosperity of oth- ers. In fine, it inquires into all that pertains to the busi- ness concerns of a community, and investigates those sub- jects, which are in any way connected with the prosperity of the na tion, and of its individual members, when consid- ered as a part of the community. It is not designed in the following text book, to exhibit any connected set of opinions on subjects pertaining to this science. Many of its principles yet remain unset- tled, and while this is the case, error, if not embarrass- ment, may result from following a system. All that is here attempted, is to state and explain those principles of the science, which are of general interest, and admit of application to the business of life, and at the same time to answer some of the inquiries, which naturally arise in the mind of a reflecting man, when looking upon the econo- mical arrangements of society. It is necessary, however, before instituting these inquiries, to give a brief explana- tion of the more common terms and phrases used in the science, and also to state with some minuteness, the ar- rangements of an economical kind, found in a well order- ed community. And here it may be expedient, very briefly to notice a prejudice against the study of this science, which exists in the minds of some. There are those who look upon all inquiries and discussions of this kind, as illiberal and degrading. They are associated in their minds with what pertains to the acquiring and hoarding of money. 2* 18 POLITICAL ECONOMY. But these prejudices arise from a limited and erroneous view of the science. Who would not wish to see all around him enjoying in decent competency, the com- forts and conveniences of life? Who would not have each individual feel, that his own interests are deeply in- volved in the prosperity of others ? Who would not have the different orders of society respect their mutual rights, and feel their mutual dependence ? and what philanthro- pist does not desire, that the nations of the earth may un- derstand and appreciate the advantages of peace and mu- tual intercourse ? These are a part of the lessons taught by this science ; and surely no one can justly pronounce a study low and degrading, whose instructions are thus practical and salutary. CHAPTER I. Definitions and explanations of terms and phrases used in the science. The most important wants of man, in this state of be- ing, are those of his animal nature. He must have food and clothing and shelter convenient for him. Should the inquiry be made, to what source are we to look for a supply of these wants? it is at once answered — to the earth on which we dwell. Its fruits, its herbs, its plants, its forests and its animals, are all made subject to man, and hence he is to find his daily food, the garments that cover him, the fuel that warms him, and the habitation by which he is sheltered. But what is thus spontaneously offered to man, is but a scanty supply, and in forms and TERMS AND PHRASES. 19 under circumstances but ill adapted to his wants. The same power which appointed the earth to be for the use of man, hath also said, "of the sweat of thy brow shall ^ thou eat of the fruit thereof." It is to his own labor, in connexion with the fertility of the soil, and other natural advantages, that man is to look for the supply of his most urgent wants. Human industry, then, is to be employed in the culti- vation of the earth, and in adapting the supplies, thus obtained, to the wants of man. Hence arises the distinc- tion of Agricultural, Manufacturing and Commercial la- bor. And as these terms, when thus used in the science of Political Economy, have a signification somewhat differ- ent from their popular use, a short explanation of them is here given. By Agriculture, in the popular use of the term, is meant the cultivation of the soil — that labor of man which is bestowed upon the earth to render it more fer- tile, and thus to increase the amount obtained from it for the supply of human wants. In its scientific use, the term is extended to all employments, by which these need- ed supplies are obtained from the earth. Thus fisheries, raining operations, the gathering of the wild fruits of the earth, the rearing of domestic animals, and the hunting of game, are all included under the head of agricultural la- bor. From agricultural industry, using the term in this ex- tended sense, are derived, not only food and other neces- saries of life for immediate consumption, but all the materials used in the arts. Without agriculture, there could be neither manufactures, nor commerce. Hence, no doubt, the common impression, that agricultural labor 20 POLITICAL ECONOMY. is of more importance to a community, than manufactur- ing or commercial. Of the correctness of this impression, we may better judge, when definitions of these terms shall have been given. Manufacturing industry is employed in adaptmg what is thus obtained from the earth to the wants of man. The process may consist in the mixture and union of dif- ferent substances, thus forming a new substance, or com- pound, or it may be the altering of the form or texture of objects. In the former instance, it is a process in chemi- cal ; in the latter, in mechanical art. Thus all the arts of life, whether chemical or mechanical, and the common processes of domestic industry — the preparing of food, the making up of garments, are included under the term manufactures. Commercial industry consists in buying and selling — in the transportation of commodities, and in placing them under such circumstances, as may suit the convenience of consumers. It includes navigation and internal transpor- tation in all their different forms. It includes also the labors of the multitudes, who, as clerks, salesmen, porters, draymen, &,c., are employed in large commercial estab- lishments. Production is the adapting of material objects to the wants of man. He by whom a process of production is carried on, is called a producer, and the result of the pro- cess, a product. An analysis of the different forms of human industry which have just been explained, will shew the meaning and test the correctness of this definition. The wheat in the granary of the farmer, is an agricultural product. To obtain it, he prepared his grounds — he scattered his TERMS AND PHRASES. 21 seed, and in due time he gathered in his harvest. And this agricuhural laborer is said to be the producer of a crop of wheat. But what has he done ? He has not brought into existence that which did not before exist. Availing himself of the fertility of the soil — of the warm influences of the sun and of the showers of heaven, by a process lit- tle understood by himself, he has caused these particles of matter, which now constitute the crop of wheat in his granary, to assume their present form, thus in part adapt- ing them to the wants of himself and his fellow men. Trace this same wheat, when by a manufacturing pro- cess it becomes bread. It is ground ; it is mixed with other ingredients ; these are kneaded together and sub- jected to the heat of fire. Thus the particles of matter in the wheat are made to undergo both a chemical and mechanical action. Their properties and their forms are changed. They exist now as a product in manufactures, and in this form are still further adapted to the supply of human wants. These same material particles, now in the form of bread, are next conveyed from the work-shop of the baker to the residence of the consumer, and there given to him in ex- change for money, or any other object of value, which the consumer is ready to give and the baker to receive, in exchange for his bread. Thus that, which, when in the form of wheat, was an agricultural product, and in the form of bread a manufactured product, becomes, as trans- ported and sold by the baker, a commercial product. Its form and its properties remain the same ; its location and its ownership only are changed. But this change of place and of ownership, is the process of commercial production, 22 POLITICAL ECONOMY. and obviously it is another step in adapting the products of agriculture and manufacture to the uses of man. We now look at the product — bread in the hands of the consumer, and we say, that the whole process, to which the particles of matter in this loaf of bread have been sub- jected, from the time they existed in their dispersed state in the earth, or in the air, till thus given over to the con- sumer, is production — the adapting of what is found in the material world to the wants of man. It will be noticed, that this definition of production lim- its its application to material objects. Some writers oa Pohtical Economy extend the meaning of the term, and speak of immaterial products. But it is thought, that the view now given is more simple, and better fitted to devel- ope with clearness the principles of the science. The inquiry respecting the superiority of agricultural over other forms of industry, may now be easily answer- ed. It is true, there is a class of agricultural products — his daily food — which is absolutely essential to the exist- ence of man. It is also true, that the agricultural labor- er furnishes the materials, upon which the other forms of industry are employed. But we have seen, that agricul- tural production is in its nature the same, as the other forms of production. In each case, it is human labor, availing itself of such helps, as it can command. The re- sult is also in each case the same — there is an adaptation of that which previously existed, to the wants of man.. And in some climates, those particularly, where shelter is needed from the severity of cold and the inclemency of the sky, the products of manufacturing industry seem equally essential to existence, with those of agriculture. TERMS AND PHRARES. 23 Populous nations moreover could not long exist without the aids of commercial production. There does not then seem to be a good foundation for the impression, above referred to, of the superior importance of agricultural in- dustry. From the definition that has been given of production, the distinction between a productive and unproductive la- borer may be readily made. The former is a producer, one employed in a productive process, assisting in some way in the adaptation of material objects to the wants of men. The latter, though a laborer, and though his la- bors may be highly profitable to himself, affording him competency and perhaps comparative wealth, is engaged in ministering to a different set of human wants. Profes- sional men, statesmen and instructors, are unproductive laborers. So are those who furnish public amusements, when not employed in the creation of material products. A stage player and a musician, are unproductive laborers ; a painter of portraits and a maker of fireworks are pro- ductive laborers. In the class of unproductive laborers; are also to be placed most of those employed as servants, and all those of every rank who constitute the standing armies and the marine force of a nation. In a wealthy and refined community, the number of unproductive la- borers is great, and it will be inferred from the list of employments stated, that they constitute an important portion of the community. According to the distinction now made, the natural philosopher, and the chemist, who are employed in the investigation of the properties and relations and laws of material objects, are productive laborers ; and such are found in each of the three great departments of human 34 POLITICAL ECONOMY. industry. Sir Humphrey Davy, while employed in ex- amining the nature of soils, that he might determine under what cultivation different tracts of land might be made most fertile, was an agricultural laborer. Watt, when en- gaged in making discoveries and improvements, pertaining to steam and steam engines, and the adaptation of this power to the arts, was a manufacturing laborer. Fulton, too, when investigating this same power and applying it to navigation, was an efficient commercial laborer. And this statement as to the nature of scientific labor, holds true, even though the philosopher himself make no appli- cation of his discoveries to any process of production, but leaves this part of the work to another. He is still to be ranked as a productive laborer. Of natural agency, and other natural aids to production. In the processes of production which have now been explained, human foresight and ingenuity are the guides, and, in most of them, human industry is the principal agent. But in different parts of these processes, much is effected by nature itself. Much also is to be ascribed to the in- creased efficiency of human labor, as aided by the proper- ties of material objects and what are termed the laws of the material creation. To the former of these two clas- ses of aids to production, I propose to apply the phrase natural agency, limiting what is often used to denote all natural aids of production, to those instances, in which the process, or an important part of it, is carried on by nature itself. Such, in raising a crop of wheat, is that process, which, in its several parts, we describe as the springing up, the growth and the ripening of the grain. Man prepares AIDS TO PRODUCTION. 25 the ground, and scatters the seed, but nature makes the plant to germinate and grow. And thus it is, that nature itself becomes active in the work ; and this aid, thus ex- tended to man, is natural agency. So again, in the man- ufacturing of wheat into bread, the process of fermentation is a part of the work of production carried on by nature itself, and affords another example of natural agency. The other class of natural aids to production, includes those instances, in which human labour is the efficient agent, but in doing the work, it avails itself to a greater or less extent in different instances, of the properties of ma- terial objects. In preparing his ground for a crop, the farmer makes use of his plough. But for this important implement in husbandry, man is indebted to certain proper- ties of iron, its malleability and its hardness, and to the toughness and flexibility and strength of wood, of which materials the plough is constructed. So, in that most im- portant aid to manufacturing and commercial production— the steam engine, it is to the properties of different met- als, and of steam, or more properly of fire and water and air, that man is indebted for an assistant most efficient in itself, and admitting of various applications. And thus it is, that under the guidance of human ingenuity, the pro^ perties of material objects and the great laws of nature, such as gravitation, elasticity, galvanism, &c. which in fact are but properties of material objects, become aids to production. And here it may be noticed, that the assistance derived from natural agency, using the phrase in the limited sense now stated, is, for the most part, confined to agricultural production. To some extent it is found in manufactures, chiefly in the chemical arts. In commercial production, 3 26 POLITICAL ECONOMY. it is unknown. The other class of natural aids, though found to the greatest extent in manufactures, is common to the three great divisions of human industry. The im- portance of this distinction will hereafter be seen. Of the aids to production now described, man in a rude state of society, avails himself but to a limited extent. He gathers the spontaneous offerings of the earth, and makes some awkward and inefficient attempts to cultivate the soil ; he has also his implements for securing his game, his canoe, his stone hatchet, and perhaps some rude agricultural tool. But of most of the natural aids to production around him, it may be said, that they are useless to him. He knows not of their existence, or, if he knows of them, he wants the ingenuity and patient toil, necessary to turn them to ac- count. Of what avail to him are a fertile soil — the pro- pelling force of the wind — the strong movement of the descending river, or the expansive power of steam. But in civilized communities, where science and art have taught men the importance of natural agency, and the properties of material objects around them, and further have instructed them in what ways these aids to production may be applied, important advantages are derived from this source. In al- most every department of industry, these labor saving ma- chines are found, and thus the efficiency of human labor is increased a hundred fold. It has been stated, that the earth is the source, to which man is to look for the supply of his wants. And as differ- ent portions of the earth, or territories, offer these supplies, or the aids of nature by which they may be obtained, in varying degrees of amount and perfection, they are said to possess more or less of territorial advantages. In the enumeration of territorial advantages, a fertile soil, AIDS TO PRODUCTION. 27 oiFering in rich'abundance nutritious fruits and plants for food, is of the first importance. Timber and other materials for building — forest trees or coal-mines for fuel — materials for the manufacture of cloth — mill privileges — metals and woods of different kinds, used in the construction of ma- chinery and in the arts — fisheries and mines of the precious metals, may also be specified. In judging of the relative importance of the territorial ad- vantages of different countries, the two following principles should be regarded. 1. Of those commodities which are essential to the sup- ply of a nation's wants, it is desirable, that a territory should furnish such as are with difficulty transported from a dis- tance. 2. Of the territorial advantages which rank under the head of aids to production, those are more important which belong to the class of natural agents, than those which be- long to aids of the second class. From both of these principles, the superior advantages of a territory offering a full supply of agricultural products and facilities for agricultural production, might be inferred. In illustration of the former, I might refer to those ex- tensive tracts of land in the Western States which are des- titute of timber and other materials for building, and also of fuel. It is well known that though the soil of this region is favourable to the raising of grain, the absence of the agricultural products just mentioned, which are with difficulty transported from a distance, much diminishes the value of that portion of our country. 28 POLITICAL ECONOMY. Productive Capital. When men know how to avail themselves of the help of natural agency, and other natural aids to production, and thus to increase the amount of what is obtained by their labor, they find themselves in possession of larger supplies, than their immediate necessities require. Of the surplus thus obtained, the desire of improving their con- dition, leads them to lay aside a portion, as a provision for the future. Thus, by well directed industry and frugality, accumulations are made. A part of what is thus acquired and saved by individual producers, will be vested in such objects as will promote their comfort and enjoyment — in clothing, houses, furniture, &;c. Another portion, and in a wealthy community this portion is large, is employed by its possessors to aid them in obtaining further supplies. It thus becomes an aid to production, and bears the name of productive capital. The forms in which productive capital exists, are va- rious. In agricultural nations, much is expended in the permanent improvements of lands, in cattle, in barns, gra- naries, and in different implements of husbandry. In manufacturing nations, a large amount exists in the form of machinery, in buildings, and in the materials used in different manufactures. So far as a nation is commercial in its habits, there will be investments in ware-houses, ships, and conveniences for internal transportation. And whatever be the prevailing form of industry, especially if it be manufacturing, a large outlay of capital must be made in giving support to laborers, who are engaged in processes of production. The importance of capital as an aid to production, is PRODUCTIVE CAPITAL. 29 learned from the condition of those nations, in which, from any cause, there is a deficiency. Here is the source of many of those embarrassments and hindrances, to which newly settled countries are subjected. Many forms of industry, which are highly profitable, and to which from its territorial advantages the nation is adapted, cannot be pursued, and if they are attempted, it is at great disad- vantage. It is indeed sometimes the case, that the in- dustrious habits of a people — the strength and fertility of their soil, and the superiority of their other territorial ad- vantages, will counterbalance in some good degree this deficiency. But even in such nations, if, from any cause — the coming in of new members of the community, who are men of wealth, or perhaps from prosperous returns to adventures in commerce — important accessions of capital are made, the salutary effects are at once seen. Other instances, teaching the same lesson, are found in those nations, which from wasting wars, or other causes of desolation, are deprived of the capital they possessed. It is but slowly, that such nations recover from the redu- ced state, to which they have been brought. In all their attempts to regain their former wealth and prosperity, they are crippled and impeded from their want of cap- ital, and perhaps are obliged to abandon many profitable forms of labor, in which they had before been engaged. The want of capital becomes the subject of common lamentation ; and all are ready to acknowledge, that the proverb — the poor man's poverty is his ruin, is as appli- cable to communities as to individuals. 3* 30 POLITICAL ECONOMY. Wealth. The word wealth, in our common application of the term to individuals, is used relatively. A man has wealth, who, compared with others around him, possesses a large share of those commodities, which, being adapted to the supply of human wants, whether these wants are real or imaginary, are esteemed of value. A fine painting, or a collection of shells, in a community where those are found who are willing to give for these objects money, or any other article generally esteemed valuable, may constitute wealth, as much so, as wheat, or money itself. Such is the meaning of the term wealth, when applied to individ- uals, and it is used in the same signification in the science of political economy, except that it loses its relative appli- cation. If we further examine the use of the term, as applied to individuals, we find, that it is used to denote material ob- jects only, and such material objects, as from their nature may be appropriated and transferred from one possessor to another. Air and water are essential to human exis- tence, but, in ordinary circumstances, they cannot be- come the property of one individual, to the exclusion of others, and hence they are not objects of wealth. Some- times, in a season of drought, or in a country where wells are few, water may be appropriated, and then it consti- tutes a part of the wealth of its possessor. Knowledge and mechanical skill are also esteemed valuable, but they are not wealth, for they are not material objects, neither can they be transferred from one possessor to another. Now those material objects which may be appropriated and transferred, and which are esteemed generally as val- WEALTH. 31 uable, are said to possess exchangeable value. Hence, wealth may be defined as a term used to denote those material objects, which bear an exchangeable value. National wealth includes whatever material objects, bearing exchangeable value, are possessed by the individ- ual members of a nation, whether in their private capaci- ty, or as members of a corporation, or as members of a civil community. Every material object bearing ex- changeable value, in the possession of the individual mem- bers of a nation, is a part of the wealth of that nation, and the whole amount of a nation's wealth, is the sum total of what is thus possessed by individuals. Here perhaps it may be asked, how securities, both public and private, notes of hand, and other obligations of a like nature, are to be regarded. A large portion of the wealth of individuals, consists in well secured debts. Do these debts make up a part of national wealth ? It may be said in reply, that objects bearing exchangeable value, alone constitute national wealth, and the obligation, which one member of the community is under to another, to con- vey a stated amount of these objects, cannot add to the amount in the nation. . When, however, we look on na- tions in their commercial intercourse with each other, the excess of what is due by foreigners to the members of one nation, above what is due by the members of this nation to foreigners, if well secured, may be counted as a part of national wealth, for it gives a title to a certain amount of those objects, which bear exchangeable Library. J 0/ Onliform^ -;::^ 33 CHAPTER II. Economical Arrangements. In here introducing the phrase " economical arrange- ments," I design to use it in the sense, in which it is ap- plied to a family. If in domestic management, such plans are adopted, as promote the prosperity of the family, turn- ing its resources to good account, supplying its wants at the least expense, and apportioning to each one according to his necessities and his claims, we might speak of these plans as economical arrangements. In the same manner, in the management of the concerns of the great national family, if territorial advantages, and other resources, are turned to the best account, so that the amount of products obtained is large, in proportion to the advantages for pro- duction possessed by the nation, — and if, further, there is a well ordered distribution of what is thus obtained, among the different members of the community, we might speak of the plans and course of things, which lead to these re- sults, as economical arrangements. In the view here ta- ken of this; subject, an individual is supposed to look on a community, in an advanced state of its existence and in a prosperous and thriving condition, and to ask himself, what is the management, or what are the economical arrange- ments, by which these prosperous results have been secur- ed? And in answering this inquiry, the attention is first directed to those arrangements which relate to the pro- duction of wealth. Those connected with its distribution will be found in the second part of the work. ECONOMICAL ARRANGEMENTS. 33 Economical arrangements for the production of wealth. In all nations in which civil government is established, and in which advances have been made in civilization and wealth, the rights of property are acknowledged and res- pected. However wealth may have been obtained by the members of such communities, whether by industry — by the use of natural aids to production, or of productive cap- ital, or whether it has been received by inheritance, or gift, or in any other manner, in accordance with the prin- ciples of justice and honesty, it is secured to its rightful owner. It belongs not to the science of Political Econo- my, to investigate the principles on which the right of ^ property is founded, or to state the methods, by which it is most fully and effectually secured. In all the reason^ '' ings of this science, it is supposed that this right exists and is respected. One form of property thus secured to individuals, is \y land and other territorial advantages, and this appropria- j tion of land and other natural aids for the production of ' wealth, is the first economical arrangement, which claims our attention. Nations are said to possess the territories which they inhabit. This country once belonged to the aboriginal Indians. It is now the territory of the United States. In this sense of property, it is meant, that the authorities of a country exercise a jurisdiction over it, and have a right to appropriate to national uses whatever is required for public defence, and the administration of civil govern- ment. It is still further meant, that this territory is the portion of the earth's surface, where the members of this nation find a home, and to which they look as the source, whence a supply of their wants is to be obtained, 34 POLITICAL ECONOMY. But there is another sense, in which a territory is the property of the people who inhabit it. The lands pos- sessed by a nation, are divided into portions of different extent, and appropriated to individuals. Those who thus become proprietors of the soil, are permitted to use the tracts of land, which they possess, for their own benefit, being entitled to whatever products are obtained from them ; and further, they may, at pleasure, convey their title in the lands thus owned by them to others. The same ar- rangement exis^ts in respect to all other territorial advan- tages, which from the nature of the case, can be appropria- ted. Such are water privileges, fisheries and mines. It will be noticed, that this division of lands and other natural aids to production, among the inhabitants of a country, is far from being an equal distribution. Some possess extensive tracts pf land — more than they can cul- tivate, and much more than is needed to furnish a supply of their wants. Others have no property in lands. So it is with respect toother territorial advantages; they are unequally distributed. The members of a community, in which the rights of property are recognized, are not per- mitted to look on the bounties of nature, as a common stock, of which all are entitled to share alike ; neither can each one, without interfering with the rights of others, avail himself of the more important natural aids to production. That this distribution and appropriation of land and other territorial advantages, is an economical arrangement, tending to increase the amount of products, may be easi- ly seen. It is in this way, that the selfish principles in man are called into exercise, and thus a more careful and skilful cultivation of the soil, and a better improvement of other aids to production, are secured, than would other- ECONOMICAL ARRANGEMENTS. 35 wise be made. On the same principle, a profuse and wasteful use of the bounties and aids of nature is prevent- ed. Experience has abundantly shewn, that these ben- efits result from the arrangement, we are considering. Men will not labor, unless they are permitted to reap the fruit of their labors ; neither will economy be practised in the use of those supplies or resources, which are not ap- propriated to individuals. Each one in his eagerness to supply his own wants, becomes reckless of the general good. In no instances, except where men have come un- j der the influence of the Christian religion, or some equal- \ ly strong pervading principle, and then only in small so- \ cieties, has a community of goods been found practicable. ) That this economical arrangement is highly important, and also that those who possess aids to production of any kind, should be made secure in what is thus appropriated to them, we may learn by looking at those countries, in which, either from the weakness, or the oppressive exac- tions of the government, this security is not enjoyed. The Ottoman dominions, are often referred to as exam- ples of this kind. Another economical arrangement, which is found in ev- ery prosperous and thriving community, is what, in this science, is called division of labor. The wants of men become more numerous and various, as society advances in wealth and refinement. Hence we should anticipate a corresponding variety in the employ- ments of each member of a community thus advanced. But directly the reverse is witnessed. As the wants of men are multiplied and become more varied, their employments become more limited and single. In the earliest state of society, each one is employed in supplying his own differ- OO POLITICAL ECONOMY. ent wants. A part of his time is spent in obtaining food; another portion in providing clothing, another in supplying himself with a few simple articles of furniture; and so of other urgent wants. We look at a community more ad- vanced, and we find its members engaged, each one in fur- nishing some one of these needed commodities, both for himself and for others, depending on the productive exer- tions of those around him, for the supply of other wants. A further progress is made in the condition of the commu- nity, its wants are increased and a large proportion of its members are employed, each one in contributing some mi- nute fractional part only in the production of the commodi- ties, by which these more numerous wants are supplied. Hardly any one seems to be exerting himself to obtain those commodities, which he himself needs, and many are employed in the production of articles, which they themselves are not accustomed to use. This statement exhibits to us, what is denoted by the phrase division of labor, and shews us, that the degree of minuteness, to which this arrangement is carried, corresponds to the progress of a community in refinement and wealth. To learn more of the nature of this arrangement, it may be traced, as it is found in the three great departments of human industry. Indeed this division is itself the division of labor, and offers an illustration of the arrangement we are examining. But it is here proposed to look at the more minute divisions, or rather subdivisions of labor found in these departments. It is in large manufacturing establishments, that the most striking examples of division of labor are seen. Adam Smith, in his Wealth of Nations, has stated the instance of a pin manufactory, and told us of some, the business of whose ECONOMICAL ARRANGEMENTS. 37 lives it is, to make the eighteenth part of a pin. The cotton manufactories of the present day, offer an example of the same minute division of labor. The process of making a yard of printed cahco is divided into twenty five or thirty distinct parts ; each of these parts requiring one, and some of them two or more laborers. Looking then at the frac- tional part assigned to each laborer, it may be asserted in the same sense as before, that there are those, the business of whose lives it is, to fabricate the thirtieth part of a yard of calico. But it will be noticed, that such instances are more striking than others, because a greater number of the processes directed to the production of a single commodity, are conducted under the same roof, or in the same estab- lishment. This however is not essential. The production of a manufactured commodity may be carried on in differ- ent places, at different times, and by different laborers, and thus offer an example of division of labor as minute, though not so obvious, as some that have been stated. Commercial industry, next to manufacturing, offers ex- amples of minute division of labor. . This arrangement is seen in its fullest extent, in the retail business, as conduct- ed in large commercial cities. Here are found extensive establishments for the sale of a single article of grocery, of tea, for instance, or of vinegar. And connected with each of these establishments, are many individuals, whose em- ployments are entirely distinct from each other. One purchases the article of trade ; others are salesmen — oth- ers, clerks ; others are employed in weighing, measuring, he. Estimating then the labor of an individual in the same manner as before, it may be said to be the business of his hfe, to do the tenth, or perhaps twentieth part of the process of retailing a gallon of vinegar, or a pound of tea. 4 38 POLITICAL ECONOMY. Agricultural labor admits of division, far less than Man- ufactures and Commerce. So important is the aid of na- ture in this department of production ; or rather so large a proportion of the work in agricultural productive pro- cesses, is effected by natural agents, that man is obliged to accommodate his efforts to this agency of nature. Men can employ themselves in planting — in rearing the plants that nature sends forth, and in gathering the harvest, only at particular seasons. Hence the same laborer may conven- iently perform different parts of the work, in furnishing any one agricultural product, and also be engaged at the same time in raising different products. Still, in circum- stances which are favorable, division of labor is found to some extent even in agriculture. In populous countries, some are employed as gardeners, others as shepherds, and others again direct their efforts to the furnishing of some one agricultural product for the market. And if, in the enlarged use of the term agriculture, we include mining operations and fisheries, further illustrations are found in these departments of labor. That the arrangement now exhibited, is to a high de- gree economical, may be inferred from the results, which are witnessed wherever it exists. On this topic, I take the'liberty of introducing the following striking extract from the Wealth of Nations. "It is the great multiplication of the productions of all the different arts in consequence of the division of labor, which occasions, in a well governed society, that univer- sal opulence which extends itself to the lowest ranks of the people. Every workman has a great quantity of his own work to dispose of beyond what he himself has occa- sion for ; and every other workman being exactly in the ECONOMICAL ARRANGEMENTS. 39 same situation, he is enabled to exchange a great quanti- ty of his own goods for a great quantity, or, what comes to the same thing, for the price of a great quantity of theirs. He supphes them abundantly with what they have occasion for, and they accommodate him as amply with what he has occasion for, and a general plenty dif- fuses itself through all the different ranks of the society. Observe the accommodation of the most common artificer or day laborer in a civilized and thriving country, and you will perceive that the number of people of whose industry a part, though but a small part, has been employed in pro- curing him this accommodation, exceeds all computation. The woollen coat for example, which covers the day" laborer, as coarse and rough as it may appear, is the pro- duce of the joint labor of a great multitude of workmen. The shepherd, the sorter of the wool, the wool-comber or carder, the dyer, the scribbler, the spinner, the weav- er, the fuller, the dresser, with many others, must all join their different arts, in order to complete even this homely production. How many merchants and carriers, be- sides, must have been employed in transporting the materials from some of those workmen to others who often live in a very distant part of the country ! how much commerce and navigation in particular, how many ship- builders, sailors, sail-makers, rope-makers, must have been employed in order to bring together the different things made use of by the dyer, which often come from the remotest corners of the world ! What a variety of la- bor too is necessary in order to produce the tools of the meanest of those workmen ! To say nothing of such complicated machines as the ship of the sailor, the mill of the fuller, or even the loom of the weaver, let us consider 40 POLITICAL ECONOMY. only what a variety of labor is requisite in order to form that very simple machine, the shears with which the shep- herd clips the wool. The miner, the builder of the fur- nace for smelting the ore, the feller of the timber, the burner of the charcoal to be made use of in the smelting house, the brick-maker, the brick-layer, the workmen who attend the furnace, the mill-wright, the forger, the smith, must all of them join their different arts in order to pro- duce them. Were we to examine in the same manner, all the different parts of his dress and household furniture, the coarse linen shirt which he wears next his skin, the shoes which cover his feet, the bed which he lies on, and all the different parts which compose it, the kitchen grate at which he prepares his victuals, the coals which he makes use of for that purpose, dug from the bowels of the earth, and brought to him perhaps by a long sea and long land carriage, all the other utensils of his kitchen, all the fur- niture of his table, the knives and forks, the earthen or pewter plates upon which he serves up and divides his victuals, the different hands employed in preparing his bread and his beer, the glass window which lets in the heat and the light and keeps out the wind and the rain, with all the knowledge and art requisite for preparing that beautiful and happy invention, without which these north- ern parts of the world could scarce have afforded a very comfortable habitation, together with the tools of all the dif- ferent work-men employed in producing those different con- veniences ; if we examine, I say, all these things, and con- sider what a variety of labor is employed about each of them, we shall be sensible that without the assistance and co-operation of many thousands, the very meanest person in a civilized cou niCijcouId not be provided, even according ECONOMICAL ARRANGEMENTS. 41 to what we very falsely imagine, the easy and simple man- ner in which he is commonly accommodated. Compar- ed, indeed with the more extravagant luxury of the great, his accommodation must no doubt appear extremely sim- ple and easy ; and yet it may be true, perhaps, that the accommodation of an European prince does not always so much exceed that of an industrious and frugal peasant, as the accommodation of the latter exceeds that of many an African king, the absolute master of the lives and liberties of ten thousand naked savages." It is easy to assign the causes of the economical results brought to view in the preceding extract. Every one knows, that in manual labor a sleight of hand is acquired by the frequent repetition of the same process. Indeed, to all the labors, both of the mind and of the body, the max- im, *' practice makes perfect,"may be applied. Hence, as the employments of laborers become more simple and limited, their skill and dexterity are greater. And as this principle is extended through the various departments of industry, the products which result are larger in amount and superior in their quality. The saving of time, which would otherwise be lost in passing from one employment to another, is a further ad- vantage connected with division of labor. This advan- tage, says A. Smith, " is much greater, than we should at first view be apt to imagine it. It is impossible to pass very quickly from one kind of work to another, which is carried on in a different place, and witk quite different tools. A country weaver, who cultivates a small farm, must lose a great deal of time in passing from his loom to the field, and from the field to his loom. When the two trades can be carried on in the same work-house, the loss 4* 42 POLITICAL ECONOMY. of time is no doubt less. It is even in this case, howev- er, very considerable. A man commonly saunters a little in turning his hand from one sort of employment to another. When he first begins the new work, he is seldom very keen and hearty ; his mind, as they say, does not go to it, and for some time he rather trifles than applies to good purpose." Division of labor, still further, leads to improved and abridged methods of performing different productive ope- rations. When the attention of a laborer is directed to one simple process, he is very likely to hit on some im- provement in the mode of performing it. In this way, important inventions in the arts are made, and the aids of nature variously applied in the different forms of labor-sa- ving machines. The history of inventions tells us, that a large proportion of inventions in the different arts have been thus introduced. In connexion with this arrange- ment of division of labor, are also found classes of labor- ers, whose employment it is, to exert their ingenuity and their skill in contriving and constructing machinery of va- rious kinds. There are those too, who, as natural philo- sophers, are engaged in the investigation of the laws of nature, discovering the properties of material objects, and unfolding to the view of men the mysterious agencies of the natural world. These three causes then, the increased dexterity and skill of laborers — the saving of time and the discovery and invention of improved methods of conducting processes in production, account for the benefits which result from divis- ion of labor. But it may be asked, if there are not limits, to which this system may be carried, as an economical ar- rangement. There are limits, and obvious ones. Division I ECONOMICAL ARRANGEMENTS. 43 of labor is profitable from the increased amount of products which attend it, no further than there is a demand, or vent, for these products. It would be a source of loss to those employed in the manufacture of calico, if by carrying divis- ion of labor to a great degree of minuteness, they should manufacture daily ten thousand yards of calico, when there is a sale for only half, or three fourths, of this amount. And here is one reason, why in the mechanical arts, and in com- mercial employments, division of labor is found to so small an extent in newly settled and thinly inhabited countries. There is not sufficient demand for one kind of labor, to give employment to a single laborer ; — hence the same in- dividual is often obhged to unite two or three kindred arts. Here also is a reason, why division of labor cannot be in- troduced to the same extent in agriculture, as in the other branches of production. Agricultural products are for the most part bulky and perishable. They are with difficul- ty transported to a distance, and can be kept on hand but for a short time ; hence the market for them is limited. Manufactured products, on the contrary, are much more permanent in their existence, and can generally be trans- ported with ease to any part of the world. Another limit to division of labor as an economical ar- rangement, is found in the amount of capital required. In proportion to the degree of minuteness, to which division of labor is carried in any establishment, must the amount of capital be enlarged. This also is seen in manufactures more fully than in the other forms of industry. The greater the number of parts into which the process of man- ufacturing an article is divided, the more machinery must there be ; — a larger amount of materials for manufacture 44 POLITICAL ECONOMY. must also be kept on hand, and more must be paid in the form of wages to laborers. These different items require productive capital for their supply ; and as capital is in its nature limited, here also exists a limit to division of labor. A third economical arrangement connected with produc- tion, remains to be exhibited. It is the system of barter or exchange. Adam Smith says, that there is in man a " natural pro- pensity to truck, barter and exchange one thing for anoth- er." The correctness of this opinion may perhaps be questioned, but it is certain, that men have strong desires to possess objects of value, and that, if they cannot obtain the objects of their desires in a more ready and direct way, they will resort to exchange or barter. " Give me that which I want, and you shall have this which you want," says the same author,'' is the meaning of every of- fer to bargain ; and it is in this way, that we obtain from one another the far greater part of those good offices which we stand in need of. It is not from the benevo- lence of the. butcher, the baker, or the brewer, that we expect our dinner, but from their regard to their own in- terest. We address ourselves, not to their humanity, but to their self-love : and never talk to them of our own ne- cessities, but of their advantages." This is a simple and natural explanation of barter, and if we look at a community in its advanced state, we find, that what may be called a system of barter, is in full operation. Every producer, to a greater or less degree, in determining his employment and pursuits, is looking at the market — he is preparing that which he may offer to ECONOMICAL ARRANGEMENTS. 45 Others, to receive from them in return the commodities which he needs ; and it is in this way that a large propor- tion of the wants of men are suppHed. In thus speaking of a system of barter as existing in a community, it is simply meant, that there exists to all practical purposes an arrangement of this kind — a great extensive plan for the supply of the wants of the national family. To one looking on, it would seem, that one class of men had been appointed to furnish food for this great family — another to manufacture cloth of different textures — another to build houses, and still another to furnish these houses with different articles of convenience and comfort. But in truth no such settled arrangement exists ; all these results follow without any concert upon the subject, from the single principle of selfishness — because each one is seeking his own good. And it is found perfectly safe to calculate and rely on the operation of this principle. Does it ever happen, that on any day there is not found in our large cities what is necessary to feed their nume-- rous inhabitants ? But nobody sees to it, that this supply shall be brought to market. It is thought safe to leave the whole business to individual interest ; and there is nothing lacking. That the arrangement here brought to view, is attended with important consequences, as it promotes production and increases the wealth of a nation, will now be shewn. It is so, as connected with division of labor, the advantages of which have just been stated. Were it not for this extend- ed system of exchange, no vent could be found for the in- creased amount of products which result from that econo- mical arrangement. But on this topic enough has been said, and there are other views, which may here be pre- 46 POLITICAL ECONOMY. sented. By this system of exchange, existing as it does between individual members of the same neighborhood — between the country and the town — between one section of national territory and another, and between different na- tions of the earth, the various powers of production through- out the civilized world, wherever they may exist, or by whomsoever they may be possessed, are brought into ad- vantageous action. And further, each individual mem- ber of the community, is thus enabled to participate in the advantages for production, found, not only in his own vi- cinity and in his own nation, but in any portion of the whole circle of civilized and commercial nations. To il- lustrate these positions, the view may first be limited to a neighborhood. Here are individuals possessing produc- tive capital to a large amount — others are landholders, and many have no capital and no land, but they have strength and intelligence. Now that this neighborhood may thrive, there must be a joint action. The capitalists must bring forward their wealth to the work of production — the land- holder must permit his fertile acres to be cultivated, and these laborers must engage readily in the work. But how is this result to be attained. It is by placing before each class motives addressed to its self interest ; and this is ef- fected by the system of barter we are considering. Give, and I will give you in return, is the language addressed to each class. And it is language which is listened to, — all come forward with the resources at their disposal, to as- sist in the great work of production, being assured, that in proportion to what they contribute, will be the returns, which each shall receive. And when this joint action is thus effected, the laborer participates in the assistance, de- rived from the productive capital of the rich, and from ECONOMICAL ARRANGEMENTS. 47 the lands of the owner of territory ; while both these classes derive important benefits from the laborer in re- turn, and also mutual advantages from each other. Extend now the view to the town and the surround^ ing country. Each has its advantages for production. One possesses a large amount of productive capital, and a commodious harbor, and is connected by commerce with remote countries, thus introducing a supply of various for- eign commodities, at the lowest rates for which they can be furnished. The other has its fertile and highly culti- vated soil, yielding rich returns to agricultural industry. The system of exchange is established, and each thrives, not at the expense of the other, but from the aid mutual- ly given, and the stimulating influence exerted. Thus, too, each member of the crowded city participates in the benefit of the fertile territory around him, and, in return, each inhabitant of this surrounding territory, is enabled to avail himself of the large capital, and of the advantages for commerce, which the city possesses. Look next at different sections of a country. Each has its peculiar advantages. Those of one section are fa- vorable to the production of one kind of products ; those of another section to the production of a different kind. But to develope these sectional advantages, there must be commercial intercourse between these two parts of tlie country. In the United States, for example, the South, from its climate and its soil, is adapted to the raising of cotton— the North, from its water privileges, the charac- ter and number of its laborers, and the large amount of its productive capital, can profitably engage in the manufac- ture of this cotton. Thus the basis for exchange exists, and as the arrangement is introduced, mutual benefits 48 POLITICAL ECONOMY. arise. The inhabitant of the Northern State has about him more comforts, his labor turns to better account, and his condition in hfe is improved, because in the Southern section of his country, facilities are found for the raising of cotton. And so, in return, the Southerner feels the ben- efit of the water privileges, the numerous and skilful la- boring population, and the large productive capital of the North. There remains one other view — the system of barter between different nations, to which the term foreign com- merce is applied. The basis of exchange here, is the same, as is the foundation of commercial intercourse be- tween different sections of the same country ; but the di- versities of soil and climate and of other territorial advan- tages, are still more striking and important. Some pro- ducts, which men are wont to look upon as among the necessaries of civilized life, can be raised only on particu- lar portions of the earth's surface. Or if, by artificial means, a forced growth is attempted in other regions, the supply obtained is scanty in amount and inferior in its quality. This remark applies to the tea and coffee plants, the fruits of which are in so common use. Diversities in other aids to production — in capital and in labor, are also found to a greater extent between different nations, than between different sections of the same nation. Illustra- tions of these statements are familiar to all. The advantages derived from foreign commerce are brought to view in another part of this work. It is unne- cessary therefore to make an enumeration of them here. So far as they are connected with the production of wealth, they are the same in their nature, as those that arise from /^ the intercourse between different sections of the same ECONOMICAL ARRANGEMENTS. 49 country. There is the same stimulating effect exerted upon the productive energies of different nations, and the same widening of the field, from which wealth may be ob- tained. It may here also be further added, that this ar- rangement is highly important to nations, as it supplies any deficiency in their facilities for production, whether this de- ficiency be temporary and accidental, or whether it be of a more permanent nature. A country may have been de- populated by some wasting sickness, or by war, or from the latter of these desolating and impoverishing causes, it may have become destitute to a great extent of productive capital, or its soil may be sterile, or it may to an unusual degree be destitute of water-power, and other advantages for manufactures. Now unless in some way these defi- ciencies can be supplied, such nations, though they may possess other advantages for production to an unusual de- gree, must suffer great inconveniences and privations, and can never attain to wealth and prosperity, until these cau- ses of embarrassment, so far as they are temporary, are re- moved. The system of exchange between nations comes to their relief, and thus tends to equalize the condition of civilized man throughout the world. The three great economical arrangements, that have now been brought to view, existing as they do together, and in joint operation, go far in accounting for the abundant sup- plies and the great amount of wealth, possessed by the civ- ilized nations of the earth. Viewed as a whole, they may be said to constitute the management, under which na- tions grow up to greatness and wealth. There are indeed other minor arrangements ; but these will be found to be parts of the system, which has been exhibited, tending to the same result of national prosperity. 5 50 CHAPTER III. Human Industry. In preceding chapters, the great sources of national wealth, and the economical arrangements, by the aid of which the work of production is most advantageously con- ducted, have been brought to view. It is now proposed to look at human industry — at the aids to production fur- nished by nature, and at productive capital, separately, that we may learn, under what circumstances the highest benefits may be derived from each of these sources of na- tional wealth. In this survey, opportunities will occur for the discussion of many questions of a practical nature, and for the developement of important principles in the science. Few form any just conception of what is effected in a large and industrious community, by human labor. The products of labor are looked upon so much in detail, and as connected with the exertions and rewards of individual laborers, that no strong impression is made upon the mind. It would perhaps be surprising to some, who are wont to at- tach much importance to the aids of nature, and to capi- tal, as they are seen in the imposing forms of large man- ufacturing and commercial establishments, to learn, that it has been estimated, that three fourths of the revenue of even manufacturing and commercial communities, are de- rived from human industry. But though it is difficult to make any just estimate, or to form any distinct conceptions of the results of human industry in a large and populous na- tion, we may make some approximation to a correct esti- HUMAN INDUSTRY. 51 mate, and aid our conception, by looking at a single town or village. Suppose a town to contain 1000 effective la- borers of every kind, and that we allow fifty cents per day, as the average value of labor, computing 280 laboring days in the year. The revenue of these laborers then is $500 per day, and $140,000 per annum. No doubt there are many towns in our country of three or four thousand in- habitants, whose revenue from labor equals or exceeds this amount. It is true, that a large proportion of this revenue is consumed in supplying the daily wants of these laborers and their famihes, but this circumstance does not affect the cor- rectness of our calculations as to the results of human in- dustry. Now extend this view to our nation, in which are found two or three millions of productive laborers. How immense the revenue from all this labor ! and how impor- tant is this source of national wealth 1 Another view of human industry, which tends to im- press the mind with a sense of its importance and extent, relates to the variety of forms, in which it appears. Men- tion has been made of the division of labor generally, and also of the three great branches of human industry, Agri- culture, Manufactures and Commerce. But in each of these departments, especially in the two last, are found di- visions and sub-divisions to an almost endless extent. There is also the labor of the mind, as well as the labor of the body — the thousands employed in planning, ar- ranging and conducting the different processes of produc- tion, and the millions who carry these plans into execu- tion. It is by dwelling on a view like this, that we ob- tain some, though a confused idea, of the variety of forms, which human industry assumes. And when we have followed out the division of labor to these minute divisions 52 POLITICAL ECONOMY. and sub-divisions and ramifications, we find bursting forth and attendant upon them, the unnumbered Httle rills of wealth, which, flowing together, form the larger streams, and empty themselves into the great ocean of national opulence. Such then being the extent and importance of human industry as a source of wealth, whatever affects its devel- opement, increasing or impairing its efficiency and amount, must be closely connected with the prosperity of a na- tion. Some causes thus affecting human industry, will now be stated. 1. Personal freedom, or that every man be permitted to labor for his own benefit, and in that way which he es- teems most advantageous to himself, conduces much to the efficiency of human industry, as one of the sources of national wealth. The only limitation to this personal freedom which should exist, is, that an employment be not detrimental to the public good. So far, restraint is implied in the constitution of civil society. To see the importance of personal freedom as it affects human labor, the industry of a slave population may be compared with that of a community of freemen. It is of- ten said, that more work is done in the same time by ten New England farmers, than by twice that number of Southern slaves. Indeed it is sometimes acknowledged by Southern slave-holders themselves, that it would be for their interest, to hire free white laborers, and pay them liberal wages, rather than be at the expense of support- ing their slaves, including childhood and ago, — few and cheaply supplied as the wants of these slaves are. Now this difference does not arise wholly from a difference in the physical powers of slaves and freemen. The slave, HUMAN INDUSTRY. 53 being compelled to work for the benefit of another, and in that way which another prescribes, has no fondness for his employment, and no motive to exertion. The latter knows, that the amount to be received for his labor will be in direct proportion to his efforts ; or if he is laboring for another, to receive a stipulated reward, he still is con- scious, that his reputation as a laborer, and connected with it, his success in life, are concerned. He puts forth therefore strenuous and unremitted efforts in his chosen employment. Free labor is also ordinarily performed with more skill than slave labor. It is a matter of public policy in free communities to enlighten the free laborer, and in slave communities, to keep the slave in ignorance. The former is generally a man of contrivance and reflec- tion ; the latter is dull and stupid. Now every one knows, that even in the common employments of life — the simple operations of agricultural industry, for example, much advantage arises from skill and ingenuity. One man hoes a hill of corn in less time and in a better manner than another, simply because he has more skill, and labors to better advantage. Much more is this the case in the complicated processes of manufacturing labor. Hence, no doubt, the impression, which is probably correct, that slaves cannot be advantageously employed in manufac- tures. But it is sometimes the case, that other restraints are placed on human industry, little less injurious than those of absolute slavery. In som^ nations, and those too ac- counted free, laws and regulations and institutions exist, which exert a similar influence. In English statute books, are found acts of Parliament, fixing the amount, which la- borers of different trades and employments should receive 5* 54 POLITICAL ECONOMY. for their labor. Especially have measures of this kind been resorted to, both in England and in other European nations, when, from famine or some wasting pestilence, the number of efficient laborers has been reduced, and the consequent demand for laborers has tended to raise the rates of wages. The effects of legislative enactments of this kind were soon seen. Laborers were unwilling to work, unless compelled by the authority of the State, or by absolute necessity. And when engaged in labor, they felt no motive leading them to constant and vigorous ex- ertion, but made the amount of their labor to correspond to the pittance they received. Here then was a check to industry. Men were not permitted to labor for their own benefit without restraint, and as a necessary consequence less work was done — less wealth produced in the nation. English history also tells us of chartered and privileged companies, under whose direction the different arts and trades were practised ; and all persons were forbidden to practise these arts and trades, unless they possessed, what was termed the freedom of the trade. These corpo- rations also made by-laws and regulations, such as they saw fit to make — many of which were in the highest de- gree arbitrary and oppressive. The professed design of these regulations, was to prevent persons from practising a trade, with which they were not sufficiently acquainted. The real purpose was to prevent competition in man- ufacturing the articles of the trade, and thus to secure to the company higher prices. One class of these regulations, which may serve as an example of the whole, are the laws of apprenticeship. No man was permitted to bind his son as an apprentice to any trade, who was not possessed of an income of twenty HUMAN INDUSTRY. 55 shillings a year from land. Masters also were limited as to the number of apprentices they might receive. Large sums were also demanded from parents as fees of appren- ticeship, and a long term of service required. Obstacles were thus thrown in the way of those desirous of learning to practise the different arts, and, as a consequence, the number of useful laborers in the community was less. That all regulations of this nature, with an exception hereafter to be stated, are unnecessary and injurious, be- ing detrimental to the public good, and often oppressive to individuals, may easily be shewn. They are unneces- sary. Their professed design, as already stated, is to se- cure the public against fraud and loss, arising from the want of fidelity and skill in those who practise the differ- ent trades and arts. But the public is not exposed to imposition and loss from this source, to an extent which requires such interference. In respect to those articles of production, which are submitted to the inspection and examination of consumers, and of the quality of which most men are fully capable of determining, it is safe, to leave it to those who purchase, to judge for themselves. If the work is executed in an awkward, bungling manner, the want of skill will at once be detected, and the produ- cer will hilve his product left on his hands, being subjected to the loss, both of his labor and his materials. If there is designed deception, it will of course eventually be discov- ered, and the producer will lose both his character and his business. On the part of the consumer, also, there will be loss, but, in most instances, it will be small, and will lead him to be more cautious and wary. There are however some few instances, and these form the exception before referred to, in which some restraints, of the nature '56 POLITICAL ECONOMY. of those we are considering, may with advantage be impo- sed. Such instances relate to those commodities, of whose quality consumers are not capable of judging, and the test- ing of which might be attended with serious consequences to those making the experiment. The trade of the apoth- ecary, in which it is required to compound and prepare different medicines, is an example of this kind. In such instances, the public may wisely require apprenticeship, or that in some other way, consumers be secured against ' injury and loss. But it is not only the case, that the restraints on indus- try we are considering, are unnecessary and injurious to the public ; they are also oppressive to individuals. It often happens, that from the original constitution of , the mind, or from some early bias, connected with the f r j circumstances in which individuals have been placed, there is a peculiar fondness and aptitude for some employment. Now should these individuals be permitted to engage in their favorite pursuits, they might highly benefit them- selves, and do essential service to the public. But it may be, that the father of such an individual is a poor man, and possesses no land, from which a revenue of twenty shillings is derived, or it may not be convenient to serve a long ap- prenticeship, and to incur the expense required to obtain the freedom of the trade. Another case may be stated. In the extent to which division of labor is carried in some of the arts, it often happens, that a laborer is engaged in performing one of the many parts of some process of production. But from some cause, there ceases to be a demand for the product, in the manufacturing of which he is engaged, and he is thrown out of employment. Now might he be permitted HUMAN INDUSTRY. 57 to engage in some kindred art, he might at once adapt himself to his new pursuit, and thus neither he, nor the public, would suffer loss from the suspension of his labors. But this the laws of trade corporations forbid. In both these instances, certainly, and in others of a sim- ilar nature, the restraints imposed are injurious and oppres- sive. The position to be maintained on this subject is the fol- lowing : That with the exception which has been made, the practice of the different trades, should be open to all, with no other restriction or security for the public, than what a fair, and, as it will generally happen, a close com- petition, will produce. In this way, the interest and the rights, both of the public and of individuals, will best be secured. Such is practically the -course adopted in our own coun- try. We have, it is true, laws pertaining to apprentice- ships, but except in special cases, not requiring them. When engagements of this kind have been made, the law comes in for their regulation, to the mutual security and benefit of the master and apprentice ; and this is all that it does. Any man may offer his services to the public as a cabinet-maker, or as a carpenter, or a watchmaker, or in any of the common employments of life ; but in so doing he must enter the lists as a competitor with others, who are engaged in the same pursuit. If he is ignorant of his pro- fessed business and unskilful, the public will soon know it, and he himself will also learn the folly of his attempt to his cost. The English system of poor laws furnishes another in- stance of restraint on human labor, injurious to the public and oppressive to individuals. As towns are bound to sup- 58 POLITICAL ECONOMY. port their own paupers, each town endeavours to prevent individuals and families, that are not possessed of wealth, from gaining a residence within its limits. Hence many- laws and regulations exist, which are designed to prevent the poor, however honest and industrious, from obtaining a settlement ; and these laws are executed with great strict- ness and rigor. In our own country, if a man cannot find employment and a livehhood in one town, he removes to another, and again, if a more alluring prospect opens be- fore him, he hesitates not to make a second removal. But to the poor in England, this is in effect forbidden. No mat- ter how discouraging may be the circumstances in which a man may find himself, or what obstacles may oppose them- selves to his enterprise and industry, if he is poor, it is not permitted to him to go where he may be surrounded by different circumstances — where his enterprise may be suc- cessful, and his industry meet its reward. He must drag out a miserable existence in the spot, which gave him birth. Such cruel and unjust regulations must be severe checks on human industry. On the subject of personal freedom in connexion with labor, the following short, but sententious extract from the Wealth of Nations, contains a correct and important sentiment. " The property, which every man hath in his own labor, is most sacred and inviolable. The patrimo- ny of a poor man lies in the strength and dexterity of his hands ; and to hinder him from employing that strength and dexterity, in that manner which he thinks proper, without injury to his neighbor, is a plain violation of this most sacred property. The interposition of the lawgiver is impertinent and oppressive," HUMAN INDUSTRY. 59 2. Labor becomes more efficient in the production of wealth, when it receives a suitable reward. Labor implies a sacrifice of ease, and wearisome and sometimes painful eiFort. To lead men to make this sa- crifice, and put forth these efforts, some strong inducement must be placed before them. In the savage state, the ob- taining of food and of shelter, is the motive to exertion, and when these urgent wants are supplied, the savage re- turns to a state of inaction. The same wants are to be supplied, and better supplied, in civilized life. But here other inducements to labor exist. In civihzed communi- ties, are different ranks — the distinctions of wealth and of power are known, and men are continually passing from one class in society to a higher. The hope then of bet- tering his condition, is before the laborer. He is prompt- ed to continued and patient effort, that he may acquire property, and have around him an abundance of the com- forts and conveniences of life, and thus be held in respect by others. It will be seen, when we come to treat of the distribu- tion of wealth, that the reward of the laborer is received by him under the form of wages, and the principles, on which the rate and value of wages depend, will then be brought fo view. In the present connexion, it is enough to say, that the remuneration of the laborer should be am- ple, affording to him and to his family a generous support. This is important, as it tends to increase the efficiency of the laborer. In most employments, the ability to work, must depend on the health and vigor of the body, and these circumstances are connected with a generous diet, and the enjoyment of the comforts and necessaries of life. A hardy, healthy, vigorous, laboring population, is an irar ®) POLITICAL ECONOMY. portant contribution to the wealth of a nation, and such a population will be found in those countries only, where the style of living of this class of the community, is a style of comfort and abundance. A liberal remuneration is still further important, as it tends to make willing laborers. Men usually exert them- selves, in proportion to the reward, they are to receive. The operation of this principle has already been shewn, in the comparison instituted between the labor of slaves and of freemen. But of those accounted free, many are so situated, that the only motive to exertion which they feel, is the strong, compulsive arm of necessity. Some, by their utmost efforts from day to day, are just able to obtain a supply of their daily returning wants. They struggle against a strong current, not daring for a moment to relax their efforts, lest they should be borne downwards to destruction. But the struggle is short, and the labor- ers, whose brief existence is thus a succession of hardships and privations, are soon lost to the community. Others gain a bare subsistence more easily ; but these, seeing no prospect before them of improving their condition, and that the most they can hope to effect by their labors, is to live, conclude that their wisest course is to live with as little labor as possible, and thus they become sluggish and in- dolent. Though members of a civilized community, in their habits of industry, they much resemble the savage, who labors only when roused by necessity to exertion. The contrast to these instances is striking, where laborers have brighter prospects opened before them. Not only is every hour improved, but all the operations of industry are performed with cheerfulness, and with greater skill and fidelity. An illustration of the strength and power V HUMAN INDUSTRY. 61 of this principle, is found in the different manner, in which common day labor and job-work are performed. In the former case, the laborer does just work enough to satisfy his employer, and earn his daily wages ; in the latter, he toils till he is satisfied with himself — that is, generally, till his exhausted powers will enable him to work no longer. Now, when the situation of the whole laboring part of a community is such, that each one feels it for his own im- mediate interest to exert himself, turning every day and hour to some good account, the results will shew them- selves in the increasing wealth and prosperity of the na- tion. And in this connexion it may be remarked, that every nation, from a regard to its internal peace and quietness, is deeply interested in the style of living of its laboring population, and of course in the remuneration received for labor. When the condition of laborers is one of comfort and enjoyment, they are wont to become attached to the existing state of things, and to the institutions of the coun- try — they feel a self respect, and a sense of individual im' portance and responsibility. Being able also to furnish themselves with the means of improvement, tind to allow themselves time for the use of these means, they become intelligent and elevated in the scale of being. Thus they are enabled to form some opinion of the wisdom of public measures ; and being led to see that their own safety and prosperity are connected with the public welfare, they be- come valuable citizens, the friends and supporters of order and good government. But when the condition of laborers is one of hardships and privations, with no bright hopes to cheer and animate them, the reverse of what has been sta-* ted above is witnessed ; scenes of violence and coiDmotion 6 62 POLITICAL ECONOMY. are often witnessed, and the materials for turmoil and rev-* olution are ever found. To what other immediate cause than the degraded state of her laboring population, are we to ascribe the unsettled state of affairs, with which Ireland has been so long visited. In that unhappy country, from the concurrence of unfavorable causes, the rate of wages is low, while there is a scanty supply of the necessaries of life, in proportion to the wants of the community. Hence the style of living is reduced to the lowest point at which life can be sustained, and riot, and commotion, and idleness, and misery prevail. When too we look at England, where the state of the laborer is more elevated, and his wants far better supplied, there is also found in the subject of wages a source of complaint and inquietude. In manufacturing towns, a " strike,"as it is there termed, or a turning out for higher wages, not unfrequently occurs, and such events are scenes of disorder, and sometimes of violence and blood- shed. They are evidence of dissatisfaction on the part of the laborer with the existing state of things, and are trou* blesome, if not dangerous to the public. The reverse of all this is seen in the condition of the la- boring population in our own country. Here the remu- neration of labor is ample, and the style of living which prevails among the laboring classes, is one of comfort and abundance ; and the happy effects are seen in the charac- ter and conduct of this part of the community. 3. The sentiments, habits, institutions, customs and morals of a nation, all exert an influence on labor, as a source of national wealth, A few instances will be speci- 6ed. In some countries, it is thought disreputable to labor. This impression is common in those nations, where a no- HUMAN INDUSTRY. 63 bility, or any privileged orders, are found, or where slave- ry exists, or where, from any cause, the distinctions of rank are strongly marked. Hence in such nations, there are many who spend their days in absolute idleness — the drones of society. In other nations, it is thought honora- ble to labor, and the man who obtains by his own exer- tions a support for himself and his family, is on this ac- count regarded with respect. The influence of these im- pressions will be seen in the gross amount of national pro- ducts. Nations also differ in their habits of industry. Some communities, either from constitutional temperament, or from customs, handed down from generation to genera- tion, are an industrious people. There seems to exist in them a love of labor, and with much assiduity and toil, they carry forward and perfect the different processes of production, in which they engage. There are other na- tions, whose habits are the reverse ; they are indolent and inefficient. The time spent by different nations as holidays — days, when labor is suspended throughout the community, is another circumstance of sufficient importance to be men- tioned here. Without doubt, some seasons of this kind may advantageously be observed by every people, espe- cially when they are of a nature fitted to cherish patriotic feelings, or to promote moral and religous improvement. But when, as in Catholic countries, this observance of hohdays is carried to an extent, that a twelfth, or even a larger portion of the year, is thus spent in idleness and pageantry, the loss of so many days of labor becomes a source of impoverishment and evil. An unwise system of poor laws, as it opens the way to 64 POLITICAL ECONOMY. improvidence and idleness and vice, may also exert an injurious effect on the labor of a nation. And so of all immoral influences and habits, leading to profligacy and dissipation. But on these and other general considera- tions, it is unnecessary to dwell. This view of the causes affecting labor as a source of national wealth, will now be concluded with a brief state- ment of the different ways, in which the government of a country may extend its assistance to this class of its citi- zens, and improve their condition. 1. It may extend to the laboring population full and complete security in the enjoyment of their rights of per- son and of property. 2. It may assist to enlighten and instruct them. These objects, it may effect by the dissemination of useful knowl- edge, and by affording encouragement and aid to educa- tion in its different departments. The common school system, as it exists at the present time in New England, sustained and supported by legislative enactments, is an example of the manner in which assistance of this kind may be given. ^ 3. It can do much towards producing and sustaining a healthy moral condition of laborers. No members of a community suffer more from the prevalence of vicious habits and practices, than laborers ; especially is this the case, where there is a propensity to dissipation in any form, and to wasteful excess. It be- comes then the duty of the public authorities of a nation, as guardians of the public welfare, to exert themselves in every way for the promotion of good morals. Something towards this important object, can be effected by direct legislative enactments for the prevention and suppres-* HUMAN INDUSTRY. 66 sion of vice, in some of its most prevailing forms ; and so far as such acts of government are supported by public opinion, the strong arm of authority should ever be put forth in the cause of virtue. But there are indirect ways, in which the same results may be attained. The govern- ment of a country may give its sanction and aid to all ju- dicious attempts to enlighten and influence the public mind, in what pertains to the moral, and, as intimately connected with it, to the religious welfare of the conmiu- nity. Above all, it should ever exert its commanding in- fluence on the side of good order and sound morals. 1 Ijibrmy. CHAPTER ^ ^^ CuItfOfnV* Natural aids to Pt'oductionf^^^^^^^^::sz.v::::::^^ In connexion with the explanation of natural agency and other natural aids to production, given in the intro- ductory chapter, it was remarked, that man in a civilized community avails himself of these aids to a far greater extent, than when in a savage state. Indeed the difference between these two states of society as to the comforts and enjoyments of life, is in no small degree to be traced to this source. Civilized man, it is true, works more constant- ly ; but this is not all — he works to better advantage. Every one knows, that the returns of the soil under skilful cultivation, are increased many fold. Tracts of land in this country, which once afforded a scanty subsis- tence to a wandering tribe of Indians, now yield a rich harvest for the support of a dense population. But this 6* 66 POLITICAL ECONOMY. increased supply does not arise from any new gifts of na- ture. There existed in this territory the same natural agency when in possession of its former inhabitants, as at present ; but this natural agency needed the assistance and guidance of man to develope it and make it efficient. These untaught Indians, also, had around them mate- rial objects, with the same properties which they now possess — ^the same woods in the forest, the same ores in the earth. But they knew not of the existence of these objects, or, if they knew of their existence, they were ig- norant of their useful properties and how to avail them- selves of their assistance. Hence, so far as they made at- tempts to avail themselves of natural assistants, such at- tempts were rude and inefficient. An Indian would fur- nish himself with that useful implement — an axe. He selects a hard stone, and by long continued and laborious friction, he gives to it a rude form and an imperfect edge. He then selects some sapling tree, cuts off the top of it, cleaves the trunk and inserts his axe. The parts of the divided trunk are then brought together, and after they have again united the tree is cut oiF below, and thus a handle of convenient length and firmly attached to the axe is obtained. How much shorter and more skilful is the process, by which the intelligent mechanic furnishes the same tool 1 and how much better also is the implement adapted to its destined use ! Another striking illustration is found in the aid derived from those properties of water, which adapt it to bear heavy burdens on its bosom and to give them an easy passage along its surface, thus assisting man in the work of transportation. To avail himself of this aid of nature, the savage hollows out with great labor, the trunk of a AIDS TO PRODUCTION. 67 large tree, or constructs his frail canoe of bark, and then with his simple paddle forces it on the water from one bank of the river to its opposite, or along the margin of the sea. Contrast this little canoe, frail in its materials and structure, and limited in its uses, with the stately ship, whose ribs are of oak, and whose sinews are iron, and which, under the guidance of the magnetic needle, dares traverse the pathless ocean, bearing in its bosom rich stores of wealth. On the benefits derived from the improved use of nat- ural agency — especially from the fertility of the soil, it is unnecessary to enlarge. . Every one knows what these advantages are, both as to their extent and importance. Food is thus furnished in greater quantity and of superior quality. Materials are also obtained, which being sub- jected to the fashioning power of art, supply in abundance other wants of the human family. The benefits derived from other natural aids to produc- tion, as this assistance is rendered in the form of tools and implements of industry, are also sufficiently obvious. There is hardly any kind of labor, in which men do not in this way avail themselves of the aids of nature, and where too this assistance is not in the highest degree im- portant. But when we come to see these aids of nature in the .form of machinery, and to trace out the consequences of the introduction of this machinery in a community, where, from the economical arrangements that exist, the pursuits and interests of different classes and individuals are closely interwoven, mutually affecting each other, the advantages derived from the natural aids to production, are not so obvious. And further, to the introduction of the aids of nature in the form of machinery, objec- 68 POLITICAL ECONOMY. tions are made, which require a distinct consideration. I propose therefore to shew, why what are called labor- saving machines are so termed, and also, how the intro- duction and use of them affect the different interests of the community. Suppose a colony of one hundred families, emigrating from a nation in the enjoyment of the comforts and convenien- ces of civilized life, to be located in some remote territory, and compelled in the early years of their existence, to look to their own efforts and resources for a supply of their wants. They carry with them of course a knowledge of the arts and institutions of civilized life, and the most com- mon and important implements of labor. Their first efforts in their new settlement are directed to furnishing them.- selves with habitations and food, and then, as far as is prac- ticable, with other conveniences and comforts, to which they have been accustomed. We look in upon this colo- ny the third or fourth year after its establishment, and we find its members are industriously employed in different ways, supplying the wants of the community. The whole number of laborers we will suppose to be one hundred and fifty. Of this number, seventy five are engaged as agri- cultural laborers, and twenty five are mechanics, twenty five are manufacturers, and twenty five are either professional men or domestic servants. While labor is thus proportion- ed out, the economical concerns of the colony are so arrang- ed and conducted, that the wants of its members are suppli- ed and provision made for its gradual increase. Let us now suppose, that some important machine is invented — a pow- er-loom for example. What are the effects of its introduc- tion. It is soon found, that of manufacturers employed in weaving cloth a less number is needed. It had before re- AIDS TO PRODUCTION. 69 I quired ten laborers to manufacture the cloth used in the community ; but now, by the assistance of the power-loom, two can perform the work before accomplished by ten. But of the eight laborers thus set at liberty, two must be added to the list of mechanics, to be employed in making power-looms and keeping them in repair ; the remaining six are set at liberty, to engage in some other department of labor. Here then is one immediate and direct effect of the introduction of this machine — the same amount of pro- ducts is obtained by less labor ; hence the machine is call- ed a labor-saving machine. But let us look at other con- sequences. The price of cloth, depending principally in this early state of the colony on the cost of its production, was such when ten laborers were enojaged in its manufacture, that all the industrious families in the colony cquld afford to clothe themselves, and for this purpose a certain part of their an- nual revenue was set aside. But now that the use of a la- bor-saving machine has diminished the cost of production, the price of this commodity is diminished ; — cloth of the same quality has become cheaper. It follows, that should the same amount be expended annually in the purchase of cloth, more will be obtained and probably of a better qual- ity. Hence there arises a demand for more cloth, corres- ponding to the diminution of its price. Another pawer- loom therefore must be made and put into operation, and a larger amount of materials used in the manufacture of cloth, must also be provided. Two consequences then re- sult; 1. The colony is better supplied writh the commodi- ty, in the production of which the newly invented machine is employed. 2. Employment is provided, either in fur- nishing an additional amount of materials for the manufac-* 70 POLITICAL ECONOMY. ture of the commodity, or in constructing a new machine and working it, for as many laborers as were before enga- ged in furnishing the same commodity, or for even a larger number. Other more remote effects might be traced out ; but, at present, the attention may be confined to these two. It will now happen, that in consequence of the introduc- tion of another power-loom, the amount of cloth manufac- tured will be greater than before, while its price will be in a corresponding degree still further reduced. But the fam- ilies in the colony are not desirous of obtaining a larger a- raount of cloth. They prefer to expend a smaller propor- tion of their income in the purchase of this article, and to employ the surplus thus left to them, in the gratification of some other desire. Let us first suppose, that this surplus is devoted to ob- taining a larger supply of some home product — ^of wheat, for example. The demand for this agricultural product is at once increased ; more land must be cultivated, more la- bor and more capital employed in this branch of industry. Thus, in consequence of the introduction of a labor-saving machine into a branch of manufactures, a new stimulus is given to another department of industry, additional em- ployment is furnished to laborers, and a further invest- ment of productive capital is made. Thus too the differ- ent classes of society feel the benefit of the aids of nature, as they are brought to their assistance in the form of la- bor-saving machines ; and the prosperity of the whole community is promoted. But now let us suppose, that a different disposal is made of what is saved from the diminished price of cloth. Our colonists, who in their new settlement have been de- prived of some of those articles of comfort and convene AIDS TO PRODUCTION. 71 ience, to which they had been accustomed before their re- moval, having a surplus on hand, are led to think of their former enjoyments. But these desired commodities are not to be obtained within the limits of the colony — they are the products of a foreign soil. Soon however it is as- certained, that in some foreign country, where these desir- ed articles are produced, there is a demand for cloth, and that by the aid of power-looms cloth may be manufactured and sent to this foreign market, for a sum not exceeding the current price in that market. Instead then of expend- ing their surplus income in the purchase of a home pro- duct, they send it abroad in the form of cloth, to be ex- changed for some foreign commodity. Thus, as the re- sult of machinery, foreign commerce is introduced, with all the benefits resulting from it, both as it offers a more abundant and varied supply to the wants of the comftiu- nity, opens a new form of industry, and stimulates to in- creased efforts in every department of production. If now we look back on the statement that has been made, we find, that the following consequences result from the introduction and use of labor-saving machines : 1. From the same labor a greater amount of the com- modity, in the production of which the machine is em- ployed, is obtained ; and as the price falls in proportion to this increased amount, each consumer is enabled to ob- tain by the same expenditure a larger supply. 2. Should the newly invented machine be used to an extent, which increases the supply of the article beyond the demand of the community, its price still further falls ; and as a less expenditure will suffice for obtaining this commodity, a surplus will be saved from the revenue of consumers. This surplus may be expended, either in 72 POLITICAL ECONOMY. the purchase of a larger amount of some home product, or it may be sent abroad in exchange for some commodity of foreign production. In either case, an addition is made to the wealth of the community, and a stimulus given to other departments of production. 3. Laborers thrown out of employment by the intro- duction of machinery, eventually find employment in the same, or some other branch of production, to which a stimulus is given. They will also, as consumers, share in the benefit of a diminished price and an increased sup- ply of the comforts and conveniences of life, resulting from this source. And here, in connexion with this last infer" ence, the principal objection to machinery offers itself to our consideration. It is said, that though it be allowed, that laborers, with others in the community, eventually derive important benefits from the use of machinery, still, its introduction is attended with so great inconvenience and distress to those thrown cut of employment, that these advantages are more than balanced. To shew the ex- tent of these evils and inconveniences, an appeal is made to the history of the past, and to the sufferings and attendant tumults and riots of later times. We are told, that in the last century, the introduction of a machine for wool-comb- ing into England, threw out of employ 30,000 laborers. Similar consequences attended the invention of power- looms and calico-printing. When such multitudes, it is said, are thus deprived of their accustomed labor, the evils suffered by them are great, and much time must elapse before the remedies, which have been referred to, will come to their relief. It is common for laborers, when thus thrown out of em- ployment by the introduction of machinery, to apply to AIDS TO PRODUCTION. 73 the government of the country for relief. Their first petition usually is, that the government would interfere to prevent the use of the newly invented machine. But this petition, it is evidently not the policy of the govern- ment to grant. On the contrary, the puhlic good requires the promotion of whatever tends to increase the amount of products in a country, developing its resources and augmenting its wealth. Besides, it would be prevented from thus interfering, on the principle of competition. The invention, if important, might, and probably would be adopted by some other nation ; and as the effect of its adoption is to diminish the cost of production, the nation thus adopting it, would compete advantageously with oth- er nations in foreign markets. On this account, therefore, the government of the country, w^here the invention is made, would prefer to encourage it, and thus secure to its own citizens the advantage of a lower cost of production. Another way, in which it is asked, that government would give relief, is by providing employment for those thus deprived of their accustomed labor. This is some- times done, when a portion of the public revenue is ex- pended in public works, or internal improvements. Re- lief of this kind, however, is but partial and temporary, and from the difference in the kind of labor, is after all not very acceptable. But there is another measure adopted by most governments, which, by securing the gradual introduction of machinery, gives important relief to the laborer, and at the same time offers encouragement for the invention of labor-saving machines. I refer to what are termed patent rights. The immediate object of patent rights is remuneration for useful discoveries and inventions. This is effected in 7 74 POLITICAL ECONOMY. the following manner : While the use of a newly inven- ted machine is confined to the inventor, and those to whom he may sell the right of using it, the saving made in the cost of production, should the former price of the commodity be continued, goes to increase the profits of the producers. But should the price be lowered in pro- portion to the diminished cost of the commodity, this di- minution of the price gives a command of the market ; and thus from larger sales the same amount of profits is secured. In either case, the inventor receives the bene- fit of his invention. But while the inventor is thus re- munerated, the gradual introduction of the newly inven- ted machine, and, of course, relief to the laborer, is secu- red as effectually, as if a law were enacted and enforced with this specific object in view. Before there is a re- duction in price, and even after that reduction has com- menced, those employed in the old mode of producing will still continue their labors. And as they will gene- rally know of the improvements, they will thus have time to look about them and find some new employment. Besides, it is thus effected, that before laborers are driven from their accustomed pursuits, one of the most efficient remedies for their relief is brought into operation. I refer to the increased demand for the product, arising from the diminution of its price. In what has now been brought forward on the subject of labor-saving machines, particular reference has been had to manufactures. But most of the principles stated, ap- ply to inventions of this kind in the mechanical arts, and in the common occupations of life. In these instances, however, the number of laborers, whose interests are af- fected, is small, and change of employment, so far as it is AIDS TO PRODUCTION. 75 necessary, is attended with little inconvenience. Here too the law of patent rights comes in with important relief; for as the demand for the kind of labor to which the in- vention pertains, is limited, the inventor finds it for his advantage, to keep up the price of the product nearly or quite to its former rate. Of course, the old laborers are very gradually supplanted. Circumstances favorable to the developement of natural aids to production. Natural agents and other aids to production which arise from the properties of material objects and the laws of nature, are said to be developed, when they are made known and turned to the best account. It is the object of this section to state some circumstances, favorable to the developement of the aids of nature, in this use of the term. 1. The cultivation of the natural sciences. It has been stated, that it is the appropriate business of the chymist and natural philosopher, to investigate the properties of material objects and the laws of the natural world. Wherever, then, there is a class of men thus engaged, making inquiries of this kind their study, it may reasonably be expected, that important discoveries and inventions will be made. It is true, that some of the aids of nature are so obvious, and so profusely offered to man, that the most careless cannot but notice them, and the most indolent avail themselves of their use. But even in these instances, much is often effected by the guidance and assistance of science. Thus a fertile soil is a natural agent, of which all may know, and of which also, as it of- fers its spontaneous fruits, all may avail themselves ; yet 76 POLITICAL ECONOMY. this soil becomes far more productive, when its cultivation is directed by the scientific agriculturalist. It also often happens, that important discoveries and inventions seem to be accidental, or they are made by those who are em- ployed as laborers, and who are unacquainted with the principles of science. But most frequently, even in these cases, such discoveries and inventions are not turned to the best account, till the guiding assistance of science has been given. But the history of inventions tells us, that the instances are not few, in which most useful and important discover- ies and inventions have resulted directly from the patient research, the able reasonings, and the often repeated ex- periments of scientific men. The miner's safety-lamp is a striking example. Before this highly important aid to the miner was brought to its present degree of perfection, Sir H. Davy devoted more than a year to laborious inves-». tigations and experiments. It is in this way, also, that, in the manufacture of cloths, the business of colouring has been brought to its present improved state. And in this connexion it may be remarked, that the habits of mind, which are formed by scientific researches and reasonings, are in themselves of great advantage in the developement of the aids of nature. Much that is included under the head of invention, is but the new com- bination and application of the properties of material ob- jects — of natural and mechanical powers ; and for work of this kind, ingenuity, which is but another term for quickness of discernment, combined with skill and strength in reason- ing, is required. Hence all those employments, which tend to sharpen the discerning faculties of the mind, and to quick- en its powers of analysis and combination, are indirect AIDS TO PRODUCTION. il aids to the developement of the productive powers of na- ture. 2. Minute division of labor. In the chapter on economical arrangements, the con- nexion between division of labor and the invention of machinery was brought to view. I add here, that as this division becomes more minute, the probability that such inventions will be made, is in a corresponding degree in- creased. The reasons of this statement are obvious. Just in proportion as division of labor becomes more mi- nute, each single process becomes more simple, and con- sequently more easily admits of the use of machinery. It would be beyond the powers of human invention, to con- trive a machine, which receiving the raw cotton, should turn it out printed calico ; but when the making of this calico is divided into twenty or thirty distinct processes, machinery is with little difficulty introduced into many of these processes. And further, the probability of its be- ing invented is increased from the circumstance, that the whole attention of the laborer is directed to some single process, and he will very naturally be led to inquire, in what way this process may be performed with the least amount of labor to himself. Some highly important im- provements in machinery have in this manner been intro- duced. The same principle is also illustrated in the improve- ments, which are made in some branches of agricultural industry. Individuals, who confine their attention to the raising of some particular vegetable, or any one agricultural product, often obtain an unusual degree of skill, which is seen, both in the largeness of their crops and the superi- or quality of their products. 7* 7B POLITICAL ECONOMY. 3. Whatever causes tend to increase the demand for products, are favorable to the developement of the aids of nature. The stimulating effect of an enlarged demand upon pro- duction, was to some extent brought to view in the chap- ter on economical arrangements ; but it may be looked at in connexion with our present topic of inquiry. It is the ob- ject of labor-saving machines, to increase the amount of pro- ducts obtained from the same or less labor. Hence an en- larged demand for products acts as a stimulus upon study and invention ; and thus, indirectly, whatever causes tend to increase the demand for products, lead to the devel- opement of natural aids to production. These causes are the opening of foreign markets, and the stimulating effects of different branches of production upon each other in a prosperous and thriving community. In England, natu- ral aids to production have been developed to an extent unequalled in any other country, which is without doubt to be ascribed in part to the great amount of her domes- tic consumption, but principally to the stimulating influ- ence of her extensive foreign commerce. It is from these views, that the governments of differ- ent countries are led to the adoption of measures, design- ed for the encouragement of home products. In this way they seek to develope the productive resources of a coun- try of every kind, — those pertaining to labor and capital and natural aids. It is the latter, however, which are more especially had in view. And whatever may be thought of the wisdom of such measures, the principles on which they rest, are a corroboration of the statement that has here been made. It is by enlarging the de- mand, that this encouragement is given. AIDS TO PRODUCTION. 79 The supposition is sometimes made, that machinery is introduced, so as entirely to supersede the labors of man ; and it is asked, whether, in this case, the resulting effects would be advantageous. I answer, that the supposition is an impossibility. The making of machinery must of itself give employment to many. And further, the object of machinery is not so much to supplant human labor, as it is to render that la- bor more efficient and productive. Machinery has in this respect been well compared to a fertile soil. Suppose, that by the exertion of a miraculous power, the fertility of the soil throughout the world should be increased four- fold, so that for the coming year the returns of agricultu- ral industry should be greater in this proportion. There would of course be a great increase of food and of other agricultural products, for the supply of human wants. The price of these products would also fall, but the larger amount obtained by the agriculturalist would make up for this diminution of price, especially as he, in common with others, would, as a consumer, share in the benefits of the greater abundance. It is true, also, that another year some of those, who had been engaged as agricultural pro- ducers, would find it necessary to change their employ- ments, and to engage in some branch of manufacturing, or commercial industry. But now suppose, that a like increase of productive power should take place in manu- factures and commerce, and that thus the amount of labor, required to supply the great family of man, should in a cor- responding degree be diminished. It does not follow, that men need be idle, or that their condition would not be im- proved. Should men be relieved from the necessity of toil to supply the wants of the body, there are other and higher '80 POLITICAL ECONOMY. occupations in which they might engage ; for there is to man the labor of the mind, and the accumulation of stores of knowledge, more valuable than those of material things. Here indeed is one argument in favor of the unlimited in- troduction of machinery ; its introduction is connected with the progress of the human race in knowledge and in- tellectual advancement. For it may be anticipated, that in proportion as men are set free from the necessity of toil in the supply of their animal wants, they will have both leisure and inclination to engage in the labors of the mind. CHAPTER V. Productive Capital. An explanation of the phrase, productive capital, has been given, and its accumulation shewn to be the result of industry and frugality. A general statement has also been made of the different forms it assumes, and of the aid which it gives in the work of production. I propose in the present chapter still further to consider it as a pro- ductive agent, and to bring to view circumstances favora- ble to its accumulation and efficiency. Transformations to which capital is subjected in the work of production. Capital, to become productive, must be consumed. Of the grain of wheat, it is literally true, and figuratively so of productive capital, in whatever form it may be vested, that, except it die, it bringeth forth no fruit. PRODUCTIVE CAPITAL. 81 And here, I propose to trace the transformations, to which capital is subjected in the different processes of production. In agricuhure, at the commencement of the economic cycle,* the capital of the farmer, who is we will suppose the owner of his farm, is in his barns, his grana- ries, his fencing and other permanent improvements of his farm — in his wagons, carts and other implements of hus- bandry, in his cattle, his seed, his dressings, which are to be applied to the land — in his stock of provisions for the support of himself, of his laborers and of his cattle, and in his money for meeting incidental expenses and the pay- ment of the wages of laborers. Now of the capital thus vested, a part is said to be fixed capital, and a part, circu- lating. Of this distinction, the real ground is, that during every economic cycle, a part is partially and another part totally consumed. The improvements on the farm, and what are called the fixtures, will last for a certain number of years — suppose twenty as the average, — one twentieth part of their value is then annually consumed. The aver- age consumption of the implements of husbandry is short- er — perhaps five years. Then comes the capital of which the consumption is total, that vested in seed stuff, in dress- ings, in provisions and in money. This then, so far as capital is concerned, is the process of production ; during the economic cycle all this value — that is, a twentieth part of the improvements of the farm and of the fixtures upon it, a fifth part of the value of the implements of husbandry, * This phrase conveniently expresses the whole course of production, from the time that outlays are made, till returns are received. In agriculture, seed-time is its commencement| and harvesting its ending. 02 POLITICAL ECONOMY. used in the cultivation of the farm, and the whole amount used as circulating capital, disappear. Then again, at the end of the cycle, which in this case is the time of harvest- ing, this same value reappears in the form of the annual proceeds of the farm, and, if the process is a profitable one, it returns with an increase of its amount to the farmer. Similar in all respects are the transformations of capital in manufacturing production. At the commencement of the economical cycle, the capital of the manufacturer is vested in his buildings, his machinery, the raw materials to be manufactured, and the wages of laborers. As the process goes forward, the capital thus vested is in part or wholly consumed, and reappears in the manufactured pro- ducts. Here then, as the result of the process, is the same value under another form, and in connexion with it the profits of the manufacturer. So in commercial production, the capital of the mer- chant is in his ship, in the cargo with which she is freighted, in the wages of seamen and other laborers, as clerks, por- ters, stevedores, &c. So too, when the process is con- cluded, though the principal part of the investment may have been changed in its form many times, its value is retained, and the whole reappears with the profits of the adventure. Thus it is, that capital, to be productive, must be con- sumed — that is, it disappears in one form, to reappear in another. Capital as directed to different employments. Nations differ from each other as to the proportional amount of capital, which is employed in the three great branches of production. Thus from the prevailing mode ^ PRODUCTIVE CAPITAL. CO of investment, some nations are called agricultural nations, some manufacturing, and others, commercial. In the same nation, changes in the mode of investing capital are not unfrequently made, not perhaps general changes, but individuals are withdrawing their capital from one form of production and giving it a new direction. Our inquiry re- lates to the moving cause, by which capital is thus di- rected to different branches of production. The general answer to our inquiry is — the rate of profits. Capitalists are ever asking, from what invest- ments the largest revenues are received, and the varia- tions of profits, that occur in different branches of pro- duction, are followed by corresponding changes in the modes of investing capital. The causes, which thus af- fect the rate of profits, are numerous. The discovery oF some new territorial advantages — the invention, or new application of machinery — the opening of a new market, or the loss of an old one ; or any of those changes in the wants of a community, to which we give the name of fashion, are the most prominent of these causes. Other causes also arise of a more limited nature, affecting the interests of individuals only, or of some one department of production. As soon then as capitalists find out, that the rate of profits obtained by others is greater than their own, they have before them a motive to change the in- vestment of their capital, and this motive will prevail, un- less other considerations of paramount importance come in to prevent. Thus it is, that capital is directed to different employ- ments by the rate of profits. But the considerations which modify this general principle, need to be stated. They are as follows ; 84 POLITICAL ECONOMY. 1 . The difficulties connected with a change of invest- ment. A capitalist, whose property is productively invested, will generally find a change attended with inconvenience and loss. Such changes are usually effected by the aid of a circulating medium. The property now in posses- sion, must be turned into money, and this money must be expended in the purchase of property of a different kind ; and it not unfrequently happens, that this double transfer is attended with loss. He will also take into the account the knowledge and skill, which he is capable of bringing to the management of his property in its new form, com- pared with what he has been accustomed to exercise, and also the personal inconvenience and trouble, to which from a change of business he must be subjected. The man, for instance, who from his early years has been fa- miliar with the management of property as vested in a farm, may know, that the same amount of capital would yield him a larger revenue, if employed in navigation ; but it might not be wise in him, on this account, to sell his farm and vest his property in shipping. 2. The risk, which attends different investments. It is well known, that capital in some employments, is much more exposed to injury and loss, than when differ- ently situated. And since the practice of insurance has be- come common, this difference of exposure is generally esti- mated, and taken into the account, in determining the profits of different investments. Our farmer would without doubt regard this as an important consideration, when inquiring, whether he might advantageously exchange his paternal acres, for the floating, perishing ships of commerce. But there is another kind of risk, which i§ not always so care* PRODUCTIVE CAPITAL. 86 fully considered — the risk of success. The revenue of capital vested in some branches of production, often appears to be unusually large, when the attention is confined to the income of some prosperous individuals, and thus many are led to form erroneous conclusions, and in the end are subjected to losses and disappointment. In such instan- ces, a more just estimate is made, by taking the average rate of income of all those thus employing their capital, and when this is done, the result will often be found to differ essentially from individual cases. Some merchants, in the course of a few years, acquire large estates, and in looking at these successful adventurers in commerce, we may be led to the conclusion, that the rate of profits on mercantile capital, is much larger than on agricultural. But should we take into the account the many losses sus- . tained by the community of merchants, the number of failures, as well as the instances of uncommon success, it would be found, that the average rate of profits in com- merce, does not differ from that of capital, when vested in other branches of production. Other considerations of less extent in their influence, and which need only to be mentioned, are the following ; the pleasantness of the business, in which it is proposed to engage, and its reputation in the community — its moral bearings, and the associates with whom it will require in- tercourse, he. We may add also other views of a more private and personal nature. From the princi, le, that the rate of profits determines the manner of investing capital, which is brought to view in this section, the important inference may be drawn, that the government of a country should abstain from in- terfering, directly or indirectly, with the mode of investing 8 86 POLITICAL ECONOMY. productive capital in the possession of individuals. So many are the circumstances to be taken into the account, in determining the question of investment, that neither an individual ruler, nor a public body of legislators, can ad- vantageously judge. It is therefore wiser and safer, to leave the whole subject to those, who are more imme- diately interested. The motive to seek after the most profitable mode of investment, is sufficiently strong in every breast ; and where the minds of men are in some good degree enlightened, and knowledge is generally dif- fused, there will be no want of enterprise, or sagacity. It is true, there will be instances of rash and foolish in- vestment, and losses will be sustained ; still the general welfare will on the whole be promoted by the course here recommended. Why is the amount of productive capital in modern nations, greater than informer periods of the world 1 It will be readily allowed, that the amount of capital in modern nations is much greater, than was possessed by the nations of the world a century ago, and further, that it was greater at that time, than at the commencement of the pre- ceding century — in other words, that, excepting perhaps some powerful nations which became for a time conquer- ors of the world, and by violence and extortion collected together its riches, there has been a regular progress in na- tional wealth. It is true, that, if in the history of most nations, we look at particular periods, we shall find, that causes have been at work to impoverish and weaken them. Such are the exactions and wrong-headed meas- ures of oppressive and unwise governments — the profu- sion and extravagance, both of rulers and of private indi- PRODUCTIVE CAPITAL. 87 viduals, and more than all other causes, the enormous ex- penditures and the ruinous losses of protracted wars. But these causes, though while they last they are highly inju- rious, and their consequences are severely felt, are tempo- rary, and there is in thriving communities, as in the hu- man system, when subjected to the power of disease, a restorative principle, which makes its elastic and healing power to be felt. Hence, if our comparisons are insti- tuted between remote periods, the influence of these tem- porary causes will be lost, and it will be found, that, not- withstanding the hindrances that have arisen, there has been in the community of nations a steady and decided advance in wealth. Now our question looks at this fact, and is designed to call forth an explanation of it. And it will be noticed, that the answer to this inquiry brings to view the circum- stances, which are favorable to the accumulation and in- creased efficiency of productive capital. Whether there is more industry in the world now, than there was a century ago, in proportion to its population, is a question, which it might be difficult to decide. It is certain, however, that in civilized nations the amount of annual products is much increased. As nations have be- come more populous, and the style of living has been raised, there are more wants to be supplied, and not only is a supply to these more numerous wants furnished, but it is more generous in amount and better in quality than at former periods. There must then either be more la- bor in proportion to population) or this labor must be more productive. That the latter is the case, all must see, and w^hat has been said in a preceding chapter on the aids of nature, fully accounts for this enlarged pro- SS POLITICAL ECONOMY. duction. Here then, without doubt, is the principal cause of the larger amount of productive capital found in mod- ern nations. Owing to the more extensive and improved use of natural assistants, human industry has become far more efficient — man, if he does not work more, works to better advantage. Hence the surplus left to producers, after supplying their wants, is greater, and here is one source of those accumulations, which constitute produc- tive capital. To corroborate this statement, we might look at those nations, in which the aids of nature have been thus developed — to England, for example. To every one, the increase of her productive power, arising from the extent, to which she has availed herself of natural aids, especially in the form of machinery, is obvious and striking, and the accumulation of her productive capital has fully corresponded. A second source of this enlarg- ed amount of productive capital in modern nations, is closely connected with the statement just made. From the more extensive and improved use of natural assistants, and the consequent lessened cost of production, the price of most articles in common use has fallen. Hence, though, men do not consume less than in former times, but on the contrary though they consume more, there is still a diminution in the cost of living. Many articles also now in use, are not only cheaper, but in every respect far better, than those formerly used for the same purposes. Modern paper-hangings compared with ancient tapestry, is an example. Thus it is, that the diminished price of commodities, leads to the same result, as would be attained by a greater degree of frugality, — men have around them more of the comforts and conveniences of life, but they spend less. Thus also the two causes — the greater pro- PRODUCTIVE CAPITAL. 89 ductiveness of human industry, and the diminished price of the necessaries of Hfe, conspire to swell the amount of productive capital in modern nations. The habits of modern communities compared with those of ancient times, tend to the same result. Former- ly, rich men kept about them a great multitude of attend- ants. It was in this way that their wealth was displayed, and their pride gratified. But this portion of the com- munity, whose maintenance exhausted the revenues of the rich, was supported in indolence, or if any service was rendered, it was of an unproductive kind. Now, also, the revenues of the rich are distributed for the support of numerous dependents ; but those thus maintained by them are in the workshop and the manufactory, and the fruits of the service which they render, are seen in the comforts and luxuries of life. Thus the crowd of retainers, instead of lounging about the castles of the great and the affluent, has become a crowd of productive laborers ; and the ef- fects of this change of national habits are seen in the in- creased accumulation of capital. The greater security of capital in modern times, is another reason, why more is accumulated. Formerly, in many parts of the world, men were afraid to be known to possess wealth, as it invited to oppression and violence, either from the government of the country, or from rob- bers and plunderers. In most modern nations it is other- wise. Individuals are found, whose capital and revenues are estimated by millions, and who yet hold their immense possessions in perfect security. At the same time that greater security is afforded to cap- italists, the revenue derived from the use of capital and the more liberal views which prevail on the subject of usury, 8* 90 POLITICAL ECONOMY. have placed before men strong motives to exert themselves for its attainment. With many, the end at which they aim in their daily toil, is to acquire, and vest in some profitable manner, a sufficient amount of capital, to make them inde- pendent — that is, to derive a revenue from their capital, suf- ficient to support them in the style of living, to which they have been accustomed. Thus the fact, that the amount of capital is larger among modern nations than at former periods, has been account- ed for, and at the same time some of the circumstances favorable to the accumulation of capital, and its efficiency as an agent in production, have been stated. How ought capitalists to he regarded in the community f Among some classes of society, there not unfrequenl- ly exists a prejudice against men of wealth — a feeling, that such have got more than their share of the common stock, and that on this account, or for some other similar reason, they are just objects of suspicion and disfike. At least, the impression is not uncommon, that the interests of the rich are in some way opposed to those of the less wealthy. Correct views on the subject of capital, both as to the manner in which it is obtained, and the uses which are made of it, are well fitted to shew, that such prejudices are without foundation. If a man acquires wealth by ex- tortion, by oppressing and grinding the poor, or by any unfair and dishonest practices, no matter how strong the prejudices which are felt against him, nor how openly they are manifested. But the fact that there are rich men who are dishonest men, is no good reason, why men of wealth, as a class of the community, should be regard- PRODUCTIVE CAPITAL.. 91 ed with suspicion and dislike. There are poor men who are dishonest, still we are to hold in respect the honest poor. In most instances, the rich man's wealth is the fruit of his own industry and frugality, or a portion of it may have been received by inheritance from others who were indus- trious and frugal. Or it may be, that a part of this accu- mulated wealth is rent, received for lands that have been cultivated and made to yield a supply of agricultural pro- ducts ; another part may be interest for the loan of capi- tal productively vested. In either case, there is no ground for prejudice against the capitalist, whose wealth has been thus acquired. For in a well ordered community, it is permitted to every man, in fair competition with others, to obtain whatever he can acquire by the exertion of bis powers of mind and body, and by the employment of his resources in the work of production. The road to wealth is alike open to all. And neither he who supinely sits down and does nothing, nor he who fails in his attempts to make progress in this path, should murmur and com- plain, because others go on prosperously. Further, he who has thus acquired wealth, and is thus acquiring it, is a public benefactor. A capitalist cannot employ his wealth productively, without benefitting the community in which he lives. He helps to develope the territorial resources of the country — he also gives profitable employ- ment to its laborers, and he assists in bringing into suc- cessful action those productive powers, and sustaining those economical arrangements, with which the public prosperity is closely connected. Do not the same indi- viduals who cherish these prejudices against the rich, complain, and with much more reason too, if capital is 9SJ POLITICAL ECONOMY. hoarded up, or sent abroad to be expended in foreign countries ? Neither is there ground for prejudice against the rich, because a portion of their income is expended in what are called the luxuries of life. It is obviously for the benefit of the whole community, that its members should be per- mitted to gratify their taste, and indulge their imaginary, no less than their real wants. The prospect of this in- dulgence is to most men the exciting motive to enterprise and exertion, and until some higher and purer motive shall be substituted in its place, it is important that the full power of self interest be felt. Inequalities in wealth are found in every nation ; and so long as men differ from each other in habits of industry and frugality — in forethought and skill and prudence, there must be inequalities of this kind, wherever the rights of property are respected. And every reflecting man knows, that it is best that such inequalities should exist. It is not indeed necessary, or desirable, to do any thing to create or increase them. On the contrary, the institu- tions and laws of a civil community, should place every man in this respect, as in others, on a perfect equality. There should be no privileged orders, no favorites of pow- er. So far as inequalities of property exist, they should be those, which arise necessarily from the nature of man and the primary essential principles of civil society. But while the distinctions of rich and poor are found in every civilized nation, it is also the case, that no member of a civil community, is, in the strict sense of the word, independent. If the poor must look to the rich for capi- tal, by whose aid their industry becomes more advanta- geous both to themselves and to the community, the rich PRACTICAL INFERENCES. 93 are no less dependent on the poor that their capital may be employed and be made productive. Of what avail also to the rich man is his wealth, were there no laborers to furnish a supply of those commodities, for the attain- ment of which wealth is desired and expended ? If ther^ {^' is any one truth, taught more clearly than all others in the ^ science of Political Economy, it is the mutual dependence and close connexion of the different members and different classes of a civil community upon each other. " The eye cannot say to the hand, I have no need of thee ; nor again the head to the feet, I have no need of you." ce I njj From the principles stated in this and the two preced- ing chapters, we are led to the conclusion — that the wealth and prosperity of nations are intimately connected with simple habits of life, pure morals and widely-difibsed intelligence. Indeed so far as improvements are made in the condition of nations, they are ultimately to be traced to these causes ; and the highest improvements are witness- ed, where these causes are in combined and joint action. Unfortunately, however, this combination is rarely found. Advances in knowledge are often connected with declen- sion in morals, and with departures from simple habits of life. 1. That a nation may become great and powerful, its members must be simple in their habits of life. The strength of a nation is in its laboring population. Here is the true basis of national greatness. But a laboring population to be efficient, must be healthy ; and health is closely connected with simplicity of diet and of other habits of life. A healthy climate is often enumerated among the ter- ritorial advantages, possessed by a nation. And from its 94 , POLITICAL ECONOMY. connexion with the efficiency of human industry, it de- serves to be thus regarded ; where miasmata, or other causes of disease, prevail, the region is highly unfavorable to labor. But far more injurious and withering to the strength of a nation, is intemperance, or excess in any form. On this point, we are not left to depend on infer- ences made from the principles of Political Economy, or of any other science. The voice of history is loud and full in the testimony which it bears. If we look to the early settlers of most countries, we find them to be men of simple habits of life ; necessity may have first led them into this course, but duty and self interest have confirmed them in it. We find also, that while these simple habits remained, the amount of labor accomplished, was greater, in proportion to the number of laborers, than at any sub- sequent period. In the language of poetry, this portion of a nation's history is sometimes called the iron age — the age, whose most striking features are hardihood and strength and vigor and enterprise. Perhaps the world has rarely exhibited a better example of this iron age, than was seen among the Puritans of New England. But a simple style of living is also connected with na- tional advancement in another way. Frugality, we have, seen, is one source of those accumulations, which consti- tute the productive capital of a nation ; and in proportion as a simple style of living prevails, these savings and ac- cumulations will be greater. For facts illustrative of this statement, I might again refer to the early history of this country, especially as contrasted with what has since been witnessed. It is generally supposed, that the amount of products consumed in the daily support of the laboring population of this country, is greater, in proportion to the PRACTICAL INFERENCES. 95 number of inhabitants, than in any other, and recent in- vestigations have shewn, that the amount annually wasted in ruinous excesses, is immense. There can be no doubt, then, that were the simple habits of the early settlers found among their descendants, and the wasteful excesses of intemperance stayed, the salutary consequences of re- form would soon be seen in the advancing wealth and prosperity of the nation. Indeed, within a few years, much conducive to national welfare has in this way been accomplished ; and those engaged in the promotion of this object, should be regarded as the benefactors of their country. Neither is it improbable, that retrenchment and reform in other habits of life, may yet be made, which shall be attended with like beneficial results to the com- munity. 2. A nation, to become prosperous and great, must be a virtuous nation. This proposition is often laid down, and its truth is more generally allowed than felt. At least, many probably are not careful to trace the connex- ion between pure morals and national welfare. What has just been said on simple habits of living, is one way, in which this connexion is exhibited ; since most departures from simplicity of style in the habits of life, are vicious indulgences. Another way in which this connexion may be traced out, is in the effect of the state of morals pre- vailing in a community, on the habits of industry. A com- mon proverb tells us, that indolence opens the door for vice, and it is equally true, that the same office is in re- turn done by vice for indolence. On the contrary, a mo- ral people will be almost uniformly an industrious peo- ple. Men labor most patiently and strenuously, when the motives to exertion are most strongly and constantly 96 POLITICAL ECONOMY. felt ; and no motives are of stronger and more uniform power, than those of moral obligation. Purity of morals is also closely connected with that security and quiet — that well ordered and peaceful state of society, which in- vites to enterprise and to the accumulation and use of cap- ital. It is true, the strong arm of government must be ex- tended for the protection of the rights of person and of property, but the strength of this protecting arm is in the good morals of the community. There is also found in a healthy moral atmosphere, something that invigorates — that calls forth enterprise and effort. Those who dwell in the midst of the impurities of vice, must feel the ener- vating and destructive influences around them. It would be easy to enlarge on the different statements here made, but their correctness may be inferred from the principles found in the preceding chapters. They are also abundantly illustrated and confirmed by what is seen in different communities. Every reflecting and observing man knows, that the tendencies of virtue are all favorable both to individuals and to nations. 3. A natioh to become great, must be intelligent. I mean by this proposition, that there should be found in every nation men of science, capable of investigating and exhibiting to others, the laws and properties of mate- rial objects around them, and of applying what is thus dis- covered to the practical purposes of life ; and also that In- telligence should be generally diffused among the various classes of society. The importance of scientific attainments to a nation, is directly inferred from the tendency of these attainments, to develope and bring into advantageous action the natu- ral aids to production which exist in a nation. This la CIRCULATION OP WEALTH. 97 one sense, in which knowledge is power. But on this topic enough has already been said. The general diffusion of intelligence among all classes of society, is equally important to national prosperity. Labor under the guidance of intelligence, becomes more efficient and profitable. A reading, reflecting people, ca- pable of understanding the relations of society, and of dis- cerning the different ways in which their own interests may be affected, capable also of arranging and planning their business transactions, in that way, which may turn to the best account the resources at their command, will always be in advance of those, who are characterised by their ignorance and stupidity. The importance of education, both in its higher depart- ments, and in what in this country is termed the common school system, is here seen in a strong light. But it be- longs not to an elementary work, to dwell on the practi- cal bearings of the principles it unfolds. PoHtical Econo- my enjoins it upon every nation, to diffuse the light of knowledge through all classes of society. It leaches, that whatever is thus expended, is capital well employed, yielding a large and highly profitable revenue to the public. CHAPTER VI. Circulation of Wealth. It has been stated, that few members of a community advanced in wealth and civilization, labor directly for the supply of their own wants. Each productive laborer con- fines his efforts to the furnishing of some one product, and 9 98 POLITICAL ECONOMY. looks to the system of exchange, as the method by which he is to obtain a supply of the various commodities which he needs. Of this system of exchange as connected with the business of production, something has already been said in the chapter on economical arrangements. It is here proposed, to take a more extended view of the cir- culation of wealth, and to shew by what methods and upon what principles it is conducted. This will require an explanation of the phrases — a medium of exchange and a measure of value. It will lead also to inquiries connected with the basis and the variations of price. Thus the way will be prepared for further views on the subject of production, and for the statement of those prin- ciples, which are connected with the distribution and con- sumption of wealth, A medium of exchange. In the early stages of society, the few exchanges which are made, are effected by barter — that is, one commodity is exchanged directly for another. But in a more advanc- ed state — when the economical arrangements connected with production are established, this direct exchange of commodities is attended with much embarrassment and difficulty. The farmer may have on hand a surplus amount of the products of his farm, and he may wish to exchange a portion of this surplus with some other pro- ducer — the cabinet maker, for example, for articles of fur- niture. But the cabinet maker has already perhaps a sufficient supply of the produce offered by the farmer, and he himself wishes to exchange his furniture for some arti- cles of grocery in possession of the merchant. And thus- CIRCULATION OP WEALTH. 99 the business of exchange becomes embarrassed. But, in the progress of society, a remedy has been provided for these inconveniences. There is a commodity in common use, which every one is ready to receive in return for what he would exchange, and with which he is enabled to ob- tain from others those articles which he wants, and which others are willing to give away in exchange. Thus, in the case supposed, the farmer exchanges his wheat for this commodity which all are willing to receive. With this commodity he goes to the cabinet maker, and obtains from him the articles of furniture he wants. And then again the cabinet maker, by the aid of the same commodity, ef- fects an exchange for the groceries of the merchant. Tbus it is, that this commodity, which all are willing to receive for what they are disposed to exchange, and by the aid of which all can obtain the supplies which they want, when these supplies are in the market, becomes a medium of exchange or, as it is sometimes called, a circulating me- dium. We learn from history, that many different commodi- ties have been used for this purpose. In some nations, especially those but in part civilized, or which have made but small advances in wealth, whatever commodity con- stitutes the larger share of the wealth of the community, or from any cause becomes more frequently than others an object of exchange, is wont to be used as a circulating medium. Hence, among pastoral tribes, cattle is the com- mon medium of exchange. Thus Homer speaks of the armour of.Diomede, which cost nine oxen, while that o Glaucus cost one hundred oxen. And so, in later times, dried fish in Newfoundland, sugar in the West Indies andf tobacco in Virginia, are said to have been used for the 100 POLITICAL ECONOMY, purposes of exchange. But of all the commodities, that at different periods and in different parts of the world, have been used as a circulating medium, no one has ful- filled this office so extensively and for so long a time, as the precious metals in the form of money. We read of the shekels of silver, as current money with the merchant in the times of Abraham. We know also, that in Greece and Rome, the metals were coined and used for the same purpose. And in later times, this use has become gene- ral among all civilized nations. I propose then to state some reasons, why this preference is given to the precious metals as a medium of exchange. 1 . They have a sameness of quality in all parts of the world. One grain of pure gold is exactly similar to anoth- er, whether brought from the mines of Europe or America, or gathered from the sands of Africa. Neither is its quali- ty liable to be altered by those causes, which affect most other commodities. It is not injured by time — it does not become spoiled or decay. Hence the value of pure gold depends on the quantity alone. We know that two grains are always worth exactly twice as much as one. 2. The precious metals admit of minute division and exact apportionment. This is effected by fusion, and in this process nothing is lost ; the several parts are equal to the whole and have a ratio to each other in exact pro- portion to their weight. The importance of this proper- ty of the precious metals, in adapting them to the pur- poses of exchange, will be readily seen. 3. Another circumstance, which adapts the precious metals to be used as money, is their rarity and the conse- quent difficulty of their attainment. If either salt, as in Abyssinia, or iron, as in Sparta, were in general use at the CIRCULATION OF WEALTH. 101 present time as a circulating medium, we see at once, that the quantity required in a commercial community, would be inconvenient, both from bulk and weight. It would be possible also to increase the amount of these commodi- ties with a suddenness and to a degree, which would at once essentially affect their value, and derange the busi- ness transactions of the whole community. All these in- conveniences are prevented by the rareness of the pre- cious metals and the difficulty of their attainment. On the other hand, the precious metals are not so rare, that the portion of them required in the common transactions of business, are too minute for convenient use. This might to some extent be the case, if gold only were used. It will be readily inferred from this statement, that the continuance of the use of gold and silver as a medium of exchange, must depend in part on their rareness. Should the supply of them become much more abundant than at present, it may be necessary to resort to the use of plati- na, or of some object less common than the precious me- tals. 4. The precious metals admit of coinage. The value of a piece of gold or silver is determined by its fineness and its weight. It is necessary therefore, whenever any portion of the precious metals is used as money, that its purity and its quantity should be deter- mined. But to assay and weigh in every instance, what is given and received in the numerous exchanges con- stantly made in a commercial community, would cause much trouble and delay. To prevent this inconvenience, the coinage of the precious metals has been introduced. At first, this process consisted only in impressing a stamp on a piece of metal to' indicate its fineness, leaving the 9* 102 POLITICAL ECONOMY. quantity in each case to be determined by weight. Af- terwards, the impression was made to cover the whole piece, and indicated not only the purity of the metal, but its amount ; and then payments were made by t-ale. This process of coinage is usually conducted by the na- tional government, or by some body of men, in whom public confidence is placed. In the process of coining, it is usual to mix with the pure gold or silver, some portion of alloy. This increases the hardness of the coins and prevents their injury by wear. This amount of alloy is so small, that in estimat- ing the weight and value of the coins, regard is had only to the pure gold and silver they contain. Such are the properties of the precious metals, by which they become adapted, in the form of money, to the busi- ness of exchange. But in communities where a circulat- ing medium is in constant use, and where too the amount of value thus exchanged is frequently large, and remit- tances are sometimes to be made to distant places, it has been found necessary to resort to another expedient. Representatives of the precious metals and of other ob- jects of value, in the form of bank notes and bills of ex- change, have been introduced, and made to do the same office, as the precious metals themselves. In this way, remittances of large amount may be made to any distance, and since the materials of which these representatives are made, are light and cheap, the transportation of them is attended with little expense or risk, and the wear of them is too inconsiderable to be calculated as a loss. The na- ture of these representatives of coined money will now be explained. 1. Bills of exchange, A bill of exchange is a demand CIRCULATION OF WEALTH. 103 on some individual, or (individuals in) company, for a definite sum of money, and gives to its possessor a claim to receive the specified amount at a future time or a dis- tant place. A., who is a merchant in Boston, sends a cargo of grain to Liverpool, and consigns it to a commercial house in that port. He then draws a bill of exchange on the consignee for the amount of the grain. This bill of exchange, paya- ble at sight, or in a certain number of days after it is pre- sented, is sold to another merchant, or to a banker in Boston, and sent by the purchaser to Liverpool in pay- ment of some debt due in that city. Thus, by the aid of this bill of exchange, the exporter of grain from this coun- try has received payment for his grain, and the foreign merchant, who had exported manufactured products and sent them to this country, has received the amount due him for his manufactures ; and the whole transaction, on both sides, has been conducted without the expense or risk attendant on the transportation of specie. When commercial intercourse is carried on between two countries to a large amount, many of these bills of exchange will be found in both, which will be brought into frequent use, in making remittances from one country to the other ; and the saving of the expense and risk of the transportation of specie, will give to these bills a small additional value. If B., a merchant in Boston, is bound to the payment of a debt of $ 10,000 in Liverpool, and can be saved the trouble and risk of sending specie to this amount from Boston to Liverpool, he can afford to pay a small premium for a bill of exchange. But besides this additional value, which a bill of ex- change acquires from its utility as a convenient mode of 104 i*oliticaL economy. remittance, its value is often affected by other considera- tions. Sometimes the state of the currency in one coun- try is less sound than in another ; the specie part of it may be more worn, or there may be an undue proportion of a depreciated paper currency. A bill of exchange drawn on a country whose currency is thus depreciated, unless other and stronger reasons prevent, will be helow par^ or worth less than the face of it. And when the cir- cumstances are changed, a contrary effect is produced, and the exchange will be above par. But the cause, which more than any other affects the value of bills of exchange, is the relative supply and de- mand of them, or the state of the exchange market. This requires therefore a more particular statement. Suppose the amount of bills drawn on England, during the past year, by merchants in the United Stales, to be twelve millions, while the amount drawn by English mer- chants on this country, does not exceed ten millions. Now, in adjusting accounts, the ten millions drawn on one nation will obviously meet the same amount drawn on the other, leaving a balance of two millions to be paid in specie, or in some other way. The English merchant, then, finding that there is a deficiency of bills of exchange drawn on this country, will be desirous of obtaining a sufficient amount with which to make his own remittances ; and the same being the case in respect to others, competition commences : and thus, on the principle of supply and demand, the value of these bills is increased. But wbile the exchange with England is in favor of this country, the exchange between the United States and France will per- haps be against the former ; and at the same time, in the commercial transactions between France and England, CIRCULATION OF WEALTH. 105 the exchange may be in favor of England. In this case, some of the surplus bills on France in England, might be sent by the English merchant to the United States, in payment of debts due, and then again be remitted, for the same purpose, from the United States to France ; and thus an equilibrium would be restored. From this statement, it is seen, that bills of exchange are highly useful for the circulation of wealth. But this utility is in practice closely connected with the banking system, in the account of which some further views of the nature of bills of exchange will be given. 2. Bank notes, or, as they are usually termed in this country, bank bills, are promissory notes, issued by private bankers, or by banking companies, to pay on demand a sum specified on the face of the note. They are used in the home trade, for making remittances to different sec- tions of the same c-ountry, and in the smaller and more common business transactions of the community. Thus, in many countries, they constitute an important part of the national currency. Rightly to understand the nature of this portion of a circulating medium, some knowledge of banks is required. I shall therefore here introduce a brief account of these institutions, exhibiting the manner in which they are con- stituted, and the advantages resulting from them to the community. The oldest banking institutions of which we have know- ledge, were banJcs of deposit. Of these, especially of that established at Amsterdam, A. Smith has given a de- tailed account.* A shorter statement is here offered. * Wealth of Nations, Book 4, Chap 3, 106 POLITICAL ECONOMY. The principal design, in the establishment of banks of deposit, was to counteract the effects arising from a de- preciated specie currency. The larger nations of Europe were wont to issue from their own mints a large propor- tion of their specie currency, and as any portion of this currency became worn, it was withdrawn and replaced by a new coinage. But in smaller States, especially in those extensively engaged in commerce, a large proportion of the circulating medium was in foreign coins, which, not being subjected to a new coinage, became much worn and depreciated in value. Hence bills of exchange drawn on merchants in these States, and payable in a depreciated currency, were of less value in the exchange market. To meet therefore these bills of exchange with a better cur- rency, the merchants of these States made deposits in a Bank, established under the authority of the State, and which made payment of all demands upon it in a currency of the full standard value. Another advantage more closely connected with the circulation of wealth, was also derived from these banks of deposit. Merchants and capitalists in their business transactions, made and received payments by transfers of stock on the books of the bank, and thus the trouble of weighing or counting specie, and of removing it from one place to another, was prevented. Banks of deposit were founded as early as 1609, and some institutions of this kind continued in operation till near the close of the last century. Their expenses were defrayed by a small per centage on the transfers of stock, and by the higher value of bank currency. But the ad- vantages offered by these banks were of a limited kind, and they have since been supplanted by banks of discount. CIRCULATION OF WEALTH. 107 Banks of Discount. These institutions are so called from the circumstance, that a leading object in their establishment is the loan of capital, for which interest is received under the name of discount. For the establishment of a bank of discount, a large amount of capital is required, which is usually fur- nished by individuals, who being themselves either unable, or from some cause indisposed, to employ their property in a productive manner, prefer to intrust it to the care and management of others. Property thus vested, is bank- stock — those thus contributing and owning it, are stock- holders — those to whom it is intrusted, are directors.* I propose to look at these banks principally as facilitating the circulation of wealth, and in this view I remark, 1 . Banks of discount, by the issue of bills, increase the circulating medium of a country. When a bank is first established, a portion of its capital is paid by stockholders in specie, and the whole of this specie, or such part of it as the business of the bank re- quires, is kept as a deposit in the vaults of the bank. Thus, by the establishment of a bank of discount, a por- tion of the specie currency is withdrawn from circulation. ♦Banks in the United States are private institutions, incorpo- rated for the more convenient conducting of their concerns, in the same manner, and on the same principles, as manufacturing Companies, and other similar establishments receive acts of in- corporation. The right to circulate printed notes, payable to bearer, is incidental, and conferred by express Statute, the Bank paying an equivalent, either in the form of tax, or bonus, to the Government. 108 POLITICAL ECONOMY. To supply the deficiency thus occasioned, notes, or bills, are issued by the bank, and supposing this issue of bills to be limited to the amount of specie withdrawn, the advan- tage gained would be the substitution of representatives of coined money, more convenient in their form for some of the purposes of exchange. But this is far from being the case. The bills issued by a bank of discount, usually ex- ceed the specie in its vaults by many times the amount of this specie. Thus, then, an addition is made to the circu- lating medium of a country. . Here perhaps the inquiry will arise, how this amount of bankbills is introduced into the currency of the nation ?• And to answer this inquiry, it may be necessary to make a brief statement of the manner, in which the business of loaning is conducted in these institutions. This may most conveniently be done by the aid of an example. Suppose a wholesale merchant to sell goods to a retailer, to the amount of $ 2,000, on three months credit, and to receive his note, payable at that time. This note, which is called commercial paper, is then presented to the bank with added securities for its payment, and there discounted — that is, the bank advances to the v/holesale merchant the present w^orth of the note, which is the face of it, deduct- ing the discount. After the time of credit has expired, the full amount of the note is paid by the retailer, or his securities, to the bank. Now it is in connexion with these transactions that the bills of the bank are put into circula- tion ; for of the $ 2,000 advanced by the bank to the wholesale merchant, a large proportion, or the whole amount, is in its own bills, while but a small proportion, and perhaps none, of the return payment, made by the . retail merchant, is in the bills of the bank. And thus as CIRCULATION OF WEALTH. 109 commercial paper is continually received and advances made upon it, opportunity is offered to a bank to put in circulation any amount of its own bills it may deem safe and for its interest. But bank bills have been spoken of as the representa- tives of specie and other objects of intrinsic value. What values then, it may be asked, are represented by that por- tion of these notes, which are in excess of the specie in the vaults of the bank. Suppose, for example, a bank, whose capital is $100,000, has on hand specie to the amount of $20,000, and bills in circulation to twice the amount of its capital. The inquiry is, what values are represented by the $180,000 of excess. I answer, the values, which, in the form of commercial paper, are pledged to the bank in payment of sums advanced by it. These values thus pledged, and thus represented, are the real and personal estates of all those individuals, whose names, as principals, or securities, are found on the com- mercial paper, for the time being, in possession of the bank. Hence, then, should the bills of the bank be re- turned upon it, with a demand of promised payment, every solvent and well regulated institution will be able to meet this demand, if not immediately, within a short period — that is, when its commercial paper becomes due. And it may here be remarked that the basis, on which the operations of a bank of discount are conducted, is a calculation of probabilities. Those conducting its affairs, know the amount of specie on hand. They know also the amount of funds deposited in the bank, and are able to form an opinion as to the continuance of these deposits, and of their probable increase or diminution. They know also the amount of commercial paper, becoming due at 10 110 POLITICAL ECONOMY. different periods, and from their acquaintance with the course of trade, they can judge to what extent demands for the discount of commercial paper will be made. And from these several premises, most of which, it will be no- ticed, are of the nature of probabilities, the directors of a bank are able to determine, what amount of specie it is necessary to keep on hand, and also what amount of bills it is safe to keep in circulation, and generally, in what manner the affairs of the institution should be conducted. 2. Banks of discount offer facilities for the circulation of wealth, in the forms of bank-credits, drafts, checks and other expedients of a similar nature. The remittance of large amounts of specie from one section of a country to another, is attended with expense and risk ; neither is the trouble and labor small, of weigh- ing, or counting, and delivering into the possession of another, large quantities of specie, when not transported to a distant place. Now in communities where a well es- tablished system of banking is found, consisting either of local banks, or a national bank and its branches, or of both, this trouble and expense and risk, are saved. And this is effected, not by bank bills merely, or principally, but by other expedients, more or less connected with the banking system. Such are transfers of credit on the books of a bank, bank-checks, drafts, he. To these we may add notes of hand and bills of exchange, which become part of the circulating, or rather commercial medium of a country principally through the instrumentality of banks. The amount of values, whose ownership is daily transfer- red by these expedients in a large commercial nation, ex- ceeds, many times, the exchanges effected by the circu- lating medium of the nation, both in the form of specie CIRCULATION OF WEALTH. Ill and bills. In this way, then, banks offer further facilities for the circulation of wealth. The question may here arise, how far banks are essen- tial as a part of a system of exchange ? Some have sup- posed them unnecessary, and that transfers of value might be made by notes of hand, bills of exchange, drafts on in- dividuals, &c. without any assistance from banks. And this opinion is probably correct. The basis of the whole system of credit currency is mutual confidence. So long as men put this confidence in notes of hand, bills of ex- change &c. they may form a part of this currency, and no longer. And the same is true of bank bills ; so long as there is confidence reposed in them as the representatives of value, they are current, and when this confidence ceases to .be felt, they will no longer form a part of the circulating me- dium. At least, this will be the case with that part of the bank bill currency, which is in excess of specie in the vaults of the bank. Hence, then, a paper credit curren- cy might exist without banks or bank bills, so long as it has this mutual confidence, on which to rest. But a sys- tem of exchange thus conducted, would be attended with far less convenience to the public. At least the offices now rendered, by banks, in connexion with a commercial medium of the kind stated above, must then be rendered by individuals, or by companies established for these pur- poses. To form a. just estimate of the service rendered to the community by banks, so far as they aid in the circulation of wealth, the necessity of an increasing currency, corres- ponding to the progress of a nation in wealth and com- mercial business, should be taken into the account. Were the circulating medium of a nation restricted to specie, it 112 POLITICAL ECONOMY. would be necessary, that as the amount of wealth to be circulated increases, either the value, or the amount, of this currency should in a corresponding degree become greater. Suppose the amount of specie in this country to be no greater than it was fifty years ago, and no paper currency to be in use. In that case, the value of a dollar would be perhaps tenfold greater, than at the present time, that is, it would exchange for ten times the amount of commodities in the market, and other coins, both of gold and silver, would increase in value in like proportion. This, it is easily seen, would be attended with inconven- ience, especially in the circulation of the smaller denom- inations of coin. Or if, to prevent this increased value of specie currency, it were attempted to furnish a supply, corresponding to the greater demand, the attempt would require a large amount of capital and labor, now product- ively employed in other ways ; and even then the attempt perhaps might prove unsuccessful. Banks then, as they furnish the additional currency needed, with little expense to the community, are of important service. So far I have spoken of banks of discount, as connected with the circulation of wealth. There are other advan- tages arising from them, to some of which J shall now briefly refer. 1 . They present a profitable and safe opportunity for investing capital. Men of large capital often wish to be relieved in whole, or in part, from the -trouble and care of employing this capital, or of loaning to others. There is also in every community, a class of capitalists, who need the assistance of others in making their property productive. Such are those, who from age, or any disability, have retired from CIRCULATION OF WEALTH. 113 business — minors, whose support is to be derived from funded property, and eleemosynary institutions. To all such, a bank investment is the most favorable that can be found. If the institution is properly managed, property, thus vested, is safe, and yields a revenue, equal to the usual interest of money, and sometimes exceeding it. It is also easily transferable. Bank-stock is generally at 'par, and often above. 2. They increase the amount of productive capital in a nation. This result, to some extent, follows from the preceding. From the opportunity offered by banks for the convenient and safe investment of capital, a much larger amount of individual revenues is saved, and becomes a part of the national productive capital, than would otherwise have been the case. Especially is this amount large, where Savings Banks are established, whose funds are usually placed under the management of banks of discount. Many millions of dollars have in this way been added to the cap- ital of the United States within a few years, which other- wise would probably have been unproductively spent. 3. Banks render the capital of a nation more pro- ductive. This results from the circumstance, that Banks are a medium of communication between the wealthy classes of society and the industrious and enterprising, enabling those who can offer good securities, to avail themselves of cap- ital for processes of production. The capital of a nation is also rendered more productive, by the quick returns ob- tained for products through their instrumentality. The manufacturer, for example, who disposes of his wares on a credit of sixty or ninety days, might find himself erabar- 10* 114 POLITICAL ECONOMY. rassed, if obliged to wait this time for the return of his capital. He might even find it necessary to suspend the operations of his manufactory and to dismiss his workmen. Or to prevent this, he might be obliged to apportion his capital differently, and to conduct his business on a smal- ler scale. To free himself from these inconveniences, he offers his notes to the Bank, and receives at once their present worth, and thus is enabled to make all necessary advances for conducting his business. It may be further added, in this connexion, that the prompt and punctual habits of business, which are found wherever banks are in operation, are highly favorable to the productive powers of a community. At least, where these institutions exist, payments are more promptly made, and the productive capital of the community is turned to better account. These statements, shewing the different ways, in which banks of discount aid in economising capital, should be ac- companied with the remark, that though they may econo- mise, they cannot create capital, where it does not already ^xist. Neither is it wise to attempt the establishment of a bank in a part of the country, where the amount of business is not sufficient to give employment to the capi- tal thus funded ; for it should ever be remembered, that capital, to yield a revenue, must be productively employed. The unsuccessful attempts sometimes made, to establish banks in sections of the country where they are not need- ed, shew that these considerations do not always receive the attention they merit. It will be noticed, that the view here taken of banks of discount relates to their direct influence on the econom- ical interests of the community. The objection is some- CIRCULATION OF WEALTH. 115 times brought against these institutions, that they are dan- gerous to the liberties of a nation, especially as they are found in free States. Money, it is said, is power ; and if this power be in the hands of a banking company distinct from the government of the country, it may, for sinister ends, oppose and thwart those measures, which are requir- ed by the public good. If, on the contrary, this power is exercised by the government itself, it may be used to op- press and injure its subjects. In either case then it is lia- ble to be abused. In reply it may be said, that it is ob- vious that these abuses of the power conferred by money, are not in their nature necessarily connected with banking companies ; money might still be accumulated and these abuses exist, where banks are not found. Still, if there is connected with banking institutions a peculiar liability to abuses of this nature, so far there is an objection to their establishment in a free state. At least, this consideration should lead to peculiar watchfulness and care. Measure of value. Objects have value attached to them, either because they are adapted to the supply of human wants, or be- cause they may be used in obtaining a supply of these wants. A distinction is made between value in use and value in exchange. Whatever a man possesses which is useful to him, may be said to have a value in use, but of the objects thus possessed, those only have a value in exchange, for which others are willing to give objects which are ac- counted valuable, in return. Water is highly useful ; it has therefore a value in use. But where, as is the case in most parts of the world, an unlimited supply of it may be 116 POLITICAL ECONOMY. obtained with little or no trouble, it has no value in ex- change — no one will give any thing in return for it. But change the circumstances in which it is found, — let the supply of water become limited, or let its attainment be attended with difficulty, or require labor, and it begins at once to have a value in exchange. Now it is with those commodities only which have exchangeable value, that our inquiries are concerned. And here the different cir- cumstances which are requisite, that objects may have ex- changeable value, may be noticed. 1. There must be a limitation in the supply of them ; nobody will give value in exchange for that of which there is an unlimited sup- ply. 2. Their attainment must be attended with some sacrifice, or labor ; otherwise, no one will be willing to give in exchange for them commodities, which have cost labor or some sacrifice. 3. There must be a demand for them ; a commodity, of which there is a limited sup- ply, may have been acquired by its possessor with much labor, and he may value it as highly useful to himself, but if there is no demand for it — if no one else wants it, or is willing to give that which is valuable in exchange for it, this commodity will have no value in exchange. Another point may here be noticed — that the ex- changeable value attached to any object, will depend on the amount of other objects, for which it may be exchang- ed — in other words, that this exchangeable value is alto- gether a relative value. B. has a piece of broadcloth. This broadcloth has to its owner a value in use — but the amount of this value in use no one can estimate. The broadcloth has also a value in exchange. It may be exchanged for thirty bushels of wheat, — for forty yards of flannel, — for six hats, &c. And should it be CIRCULATION OF WEALTH. 117 asked, what is the exchangeable value of this piece of broadcloth ? the only way to answer this inquiry, is thus to make an enumeration of the different objects, with the amount of each, for which the broadcloth might be exchanged. This to be sure is attended with some trouble, and might not give any very definite view of the exchangeable value of the article, but it is the only way in which this value is to be determined. When however we come to make frequent exchanges of commodities, the necessity of something more definite, and which may ena- ble us to institute a comparison between different commo- dities,, as to their exchangeable value, is felt. We want a measure of value — something, which in respect to the comparative value of objects, shall answer the same pur- pose, that a yard-stick, or a foot-rule, does in comparing the length of bodies. To meet this want — that is, to find some commodity, which shall be a perfect measure of value, has ever been a perplexing problem to political economists. Adam Smith proposes, that human labor should be taken as a measure of value. Others have proposed wheat ; others, money. It is unnecessary to examine in detail the state- ments and arguments of writers, in support of their differ- ent proposed measures of value. One insuperable ob- jection exists to these objects, and to all that have ever been proposed. They are in themselves variable, and this can never be true of any accurate measure of value. The exchangeable value of wheat is not only liable to be affected annually, as the season is more or less favorable to its production ; but improved methods of cultivation and many other causes may affect it. Human labor, also, is worth more or less, according to the circurpstances under 118 POLITICAL ECONOMY. which it is performed, or the skill which is put forth. It feels too all the modifying influences of relative supply and demand. Money is perhaps less subject to these va- riations of value than the other objects proposed, and being, from several circumstances, which will hereafter be stated, better fitted to become a measure of value, is practically in use for this purpose. But that money in the form of the precious metals, or of their representatives — bank-notes or bills of exchange, is not a perfect measure of value, may be learnt from the following statements, which, though they anticipate in part what is afterwards said on the subject of price, are here introduced, as showing more fully the nature and uses of money. 1. The value of money will vary with the labor and expense required to obtain it, that is, with the cost of its production. As this remark relates to the material of money, it can apply only to a specie currency. 2. The value of money will vary with variations in the proportion of the amount found at any time in a na- tion to the amount required for the purposes of a circu- lating medium, or, as it is more commonly expressed, with the relative variations of supply and demand. 3. Money is subject to nominal variations. It might be sufficient, in support of the first and second proposition, to say, that money is subject to the same in- fluences as affect the value of other commodities, and to refer to what is afterwards said upon the subject of price. But I prefer to improve the opportunity, to offer some historical illustrations, with which it is important to be- come acquainted. When the mines of South America were first known to the inhabitants of Europe, and large amounts of gold and CIRCULATION OF WEALTH. 119 silver were received from them, there was an immediate depreciation in the value of these metals. The cost of their production was less, and the supply in proportion to the demand, became more abundant ; from both these causes therefore their value became less. This depre- ciation, in the case of silver, has been usually estimated as tenfold, so that an ounce of silver, after the discovery of these mines, would exchange for only one tenth of the com- modities, for which it had been previously exchanged. But while this increased supply at a diminished cost, tend- ed to diminish in the proportion above stated, the value of silver, another cause came into operation, which tend- ed to raise its value. This cause was a demand for a larger circulating medium. The discovery of America and of the passage around the Cape of Good Hope, made about the same time, by exciting the enterprise of the na- tions of Europe, and opening new and advantageous fields for the employment of their capital and labor, increased to an important extent, the business transactions of the old world. The wealth of the different European nations became greater, and as there was more value to be trans- ferred from one individual to another, and transfers were more frequently made, it became necessary, that the cir- culating medium of these nations should be enlarged. And thus a portion of the larger supply, furnished by the new mines, was absorbed by the demand for a larger cir- culating medium. Hence it is, that the depreciation in the value of silver, which occurred at this period, instead of being tenfold, as before stated, was only threefold, that is, an ounce of silver, instead of being estimated at one tenth of its former value, was reckoned at one third of this value ; and this allowance is usually made, in esti- 120 POLITICAL ECONOMY. mating the value of sums stated in silver currency before the year 1520. When the currency is gold, the depre- ciation is estimated at one fourth. The state of the circulating medium in England, from the year 1797 till 1819, during which interval the bills of the bank of England were not redeemed in specie, but were made a legal tender by act of Parliament, offers further illustration and proof of these propositions. At the period to which I refer, the circulating medium of England consisted of a small proportion of gold and silver, of the notes of the country banks, which were redeemable, and of the notes of the bank of England, which were not re- deemable. But so great was the demand for a circulating medium arising from the immense amount of the business transactions of that country, that so long as the bank of England restricted itself to a moderate issue of its notes, the value of the whole currency was sustained, and this too, even when the subsidising of foreign troops had drain- ed the country of its gold and silver coins. In this case, then, the notes of the bank of England had a value, not as the representatives of specie, nor as the representatives of other values, pledged for their redemption. They had an intrinsic value of their own, arising from their utility, and dependent, as to its intenseness, on demand and sup- ply. From these statemei^s, the inference is made, that the value of money depends on the same causes, as the value - of other commodities, and of course is fluctuating. The same inference is also to be drawn from the fact, that money is imported and exported by merchants, on the same principlesj and in the same manner, as other ar- ticles of merchandise. When the precious metals are CIRCULATION OF WEALTH. 121 more abundant, and on that account cheaper, in a foreign country, than in his own, the exporter, who has carried abroad a cargo of the staple commodities of his own coun- try, brings back in return gold and silver, either coined, or in bullion. He does so, because it is the most profita- ble importation he can make. And so, if specie is more abundant in his own country, in proportion to the demand for it, than in foreign countries, and on this account cheap- er, he sends it abroad, just as he would any other commod- ity, of which there is a surplus in the market. I now proceed to consider my third proposition, that money is subject to nominal variations of value. By nominal variations, I mean those variations, which result from changes in the denominations of coined money. The governments of different countries, supposing that the credit and currency of the circulating medium are depen- dent on their acts of authority, and not upon its own intrinsic value, have taken it upon themselves at differ- ent times, to alter, or as they were wont to term it, to raise this standard of value. In doing this, they have some- times diminished the size and weight of coins, causing them still to retain the same name. In other instances, they have introduced a larger portion of alloy ; and then again they have altered the denomination of the coin, calling that a dollar, for example, which before had been denominated a half dollar. In these several cases,, it is at once seen, the result was the same — a less amount of gold or silver was found under the same denomination. The object to be attained by making these changes, has also, in most instances, been the same. The governments by whom they have been made, have in this w^ay paid their debts at reduced rates, thus defrauding their creditora of a 122 POLITICAL ECONOMY. their just dues. Such variations in the nominal value of coins, which are evidently acts of fraud and injustice, are soon known, and the discovery is followed by corres- ponding changes in the price of all commodities in the cominunhy. In a short time, the depreciated coins are found passing only for their real worth, which is de- termined by the amount of gold and silver which they contain. Unless, however, these variations are known, and a due allowance made for them, the reader of history, or whoever may attempt to compare values at different periods, will be liable to mistake. On this point I take the liberty to introduce the following instructive paragraph from Smith's Wealth of Nations. " The denominations of coins seem originally to have ex- pressed the weight or quantity of metal contained in them. In the time of Servius Tullius, who first coined money at Rome, the Roman As or Pondo contained a Roman pound of good copper. It was divided in the same manner as our Troyes pound, into twelve ounces, each of which con- tained a real ounce of good copper. The English pound sterling in the time of Edward I. contained a pound Tow- er weight, of silver of a known fineness. The Tower pound seems to have been something more than the Ro- man pound, and something less than the Troyes pound. This last was not introduced into the Mint of England till the 18th of Henry VIII. The French livre contained in the time of Charlemagne a pound, Troyes weight, of sil- ver of a known fineness. The fair of Troyes in Cham-' paign was at that time frequented by all the nations* of Europe, and the weights and measures of so famous a market were generally known and esteemed. The Scots money pound contained from the time of Ale^^ander the CIRCULATION OF WEALTH. 123 First to that of Robert Bruce, a pound of silver of the same weight and fineness with the English pound sterling. English, French, and Scots pennies too, contained all of them originally a real pennyweight of silver, the twentieth part of an ounce, and the two hundred-and-fortieth part of a pound. The shilling too, seems originally to have been the denomination of a weight. When wheat is at twelve shil- lings the quarter, says an ancient statute of Henry III. then wastel bread of a farthing shall weigh eleven shil- lings and four pence. The proportion, however, between the shilling and either the penny on the one hand, or the pound on the other, seems not to have been so constant and uniform as that between the penny and the pound. During the first race of the kings of France, the French sou or shilling appears upon different occasions to have contained five, twelve, twenty, and forty pennies. Among the ancient Saxons a shilling appears at one time to have contained only five pennies, and it is not improbable that it may have been as variable among them as among their neighbours the ancient Franks. From the time of Charle- magne among the French, and from that of William the conqueror among the English, the proportion between the pound, the shilling, and the penny, seems to have been uniformly the same as at present, though the value of each has been very different. For in every country of the world, I believe, the avarice and injustice of princes and sovereign states, abusing the confidence of their subjects, have by degrees diminished the real quantity of metal, which had been originally contained in their coins. The Roman As, in the latter ages of the Republic, was reduc- ed to the twenty-fourth part of its original value ; and, in- stead of weighing a pound, came to weigh only liaif aa 12^ POLITICAL ECONOMY. ounce. The English pound and penny contain at present about a third only ; the Scots pound and penny about a thirty-sixth ; and the French pound and penny about a sixty-sixth part of their original value. By means of those operations the princes and sovereign states which performed them, were enabled, in appearance, to pay their debts and fulfil their engagements with a smaller quantity of silver than would otherwise have been requi- site. It was indeed in appearance only ; for their credit- ors were really defrauded of a part of what was due to them. All other debtors in the state were allowed the same privilege, and might pay with the same nominal sum of the new and debased coin whatever they had borrowed in the old. Such operations, therefore, have always proved favourable to the debtor, and ruinous to the cred- itor ; and have sometimes produced a greater and more universal revolution in the fortunes of private persons, than could have been occasioned by a very great public calamity." It has now been fully shewn, that money, being itself fluctuating as to its own value, can never become an inva- riable standard of value. Still, as before intimated, it an- swers this purpose in the common transactions of business. If at the same time and place, I wish to institute a com- parison between two different commodities, I am enabled to do this, by stating the price of each. And since we are accustomed to express the value of commodities in money, this is easily and readily done. But if I knew the price of a commodity in England five hundred years ago, and also its |>resent price, or if, at the present time, I knew the value of one commodity in this country, and of another in China, I should not thus be enabled, iq ei^ PRICE. 125 iher case, without other data, and other calculations, to form a comparison of the value of these commodities. In these instances, money is not a measure of value. CHAPTER VIL Price. Having thus explained what is meant by a circulating medium, and by a measure of value, and having also stat- ed the expedients in use for these purposes, our next in- quiry relates to price, or the current value of objects as rated in money. It has been said, that exchangeable val- ue is relative in its nature — in respect to a particular com- modity, it is determined from comparisons instituted be- tween this commodity and many others in the market. But in making these comparisons, we resort to the use of money as a measure of value ; hence it is common to ex- press exchangeable value in money. We say that an arti- cle is worth so many dollars, or so many shillings, according to the currency in use. But here the inquiry arises ; In af- fixing current prices to objects, what is to be our guide ? We say that a bushel of wheat is worth $2,00 ; a yard of broadcloth of certain quality .f 7,00 ; a cwt. of sugar ,f 10, 00. What leads us to these results in respect to the price of these different commodities ? To obtain an an- swer to these inquiries, suppose that we go into the mar- ket, and see what are the views which there prevail upon this subject. We ask the price of some article, — a hat, for example. We are told, that it is $7,00. We object to this price perhaps, as too high. But the manufacturer assures us, that a hat of this quality cannot be afforded for 136 POLITICAL ECONOMY. a less sum. It costs that to make it. Perhaps he then goes into particulars. He tells us that furs are high, and that the materials of which the hat is composed cost him a certain amount. He then tells us how long a time, or the amount of labor, it takes to make a hat. Perhaps he has something to say about shop-rent, or the other ex- penses of his establishment ; and then he adds, " A man must live," by which he means, that a manufacturer of hats, as well as other producers, must obtain the usual profits on his business. But perhaps the purchaser re- plies, I bought last year a hat of the same quality for five dollars. True, you did so, says the other, but that was because the market was overstocked with hats. Too many were engaged in this branch of business, and it be- came a losing concern to us all. We could not sell our hats for what it cost us to make them. Hence many hat manufacturers failed, and others were compelled to leave the business for want of employment. The result has been that the supply has become proportioned to the de- mand, and hats now bring a fair price. Now here, as I conceive, stated in the common lan- guage of the market, is the whole theory of price. The basis of it is the cost of production. Its temporary varia- tions, or rather its oscillations about the same point — now higher and now lower, are the relative influences of sup- ply and demand. There are it is true other causes of variation — the value of the different items which make up the cost of production varies, or the measure of value va- ries. In either case, there is a correspondent variation in price. But here it is necessary to look more narrowly into the subject of the cost of production. In the case just sup- PRICE. 127 posed, which is that of a product in manufactures, these items are, 1. The amount paid for materials — this comes under the head of productive capital. 2. The labor em- ployed in manufacturing the article. 3. The expenses of the establisment — buildings, tools &:c. This also is in- cluded under the head of productive capital. To these items we must add the profits of the manufacturer, or what is paid him as the undertaker and conducter of the business, distinct from the wages of his labor as a manu- facturer. Capital, labor and profits, then, make up the cost of production of this, as they do of most manufactur- ed articles. Suppose next, that the commodity, into the cost of whose production we inquire, is an agricultural product — a load of hay. This is sold perhaps for $12,00 per ton, and the prodiicer who brings it to market, tells us that it cannot be afforded for a less sum. What items make up the cost of production of this commodity ? One portion, as before, is labor. A second is capital, including what is expended in improvements on the farm — in farming utensils — cattle Stc. A third is rent, or an equivalent for the use of the natural agency employed — that is for xhe use of land. A fourth item is profits, as before. Suppose the cost of production of a commercial prod- uct is next to be determined — a cwt. of coffee, whose price is $12,00. The items which here make up the cost of production, are, 1. The interest on the capital vested in the coffee offered for sale — also of that expended in the establishments for commercial production — shipping, ware- houses, both for the wholesale and retail trade &c. 2, The wages of those employed as laborers in transpor- 128 , POLITICAL ECONOMY. tation, and in buying and selling the commodity. 3. The profits of business. It will be noticed, that in these statements, I look at the cost of production to the manufacturer, to the agricul- turist, and to the merchant, severally, without going into an analysis of the original cost of the product in each in- stance. We learn from them, that the cost of produc- / tion is made up of the interest on capital, of wages, of / ^ profits, and in some instances of rent, for the use of natu- ^' ral agency. Whatever then affects one of these items, either as to its amount, or its value, will cause a variation in the cost of production. If from the invention of a la- bor-saving machine, or from any cause, the amount of la- bor required in the manufacture of hats is diminished, there will be a diminution in the cost of production. The same result will follow, if from any cause the exchangea- ble value of labor, or the rate of wages, becomes less. So too of capital ; if some method of production is invent- ed, which requires a less amount of capital, or if the rate of interest paid for the use of capital become less, in either case, the cost of production is affected. The same holds true of natural agency. And in respect to profits, if, from any cause, there is a variation in the general rate of prof- its, or if the rate of profits in any particular branch of pro- duction should be affected in any way, there will be a correspondent variation in the cost of production. It will indeed often happen, that these influences on the cost of production, thus arising from different sources, will coun- teract each other. Thus the application of a larger amount of machinery in the raising of a commodity, will diminish the charge for labor, and increase that for capi- \ PRICE. 129 tal. In other instances, there may be a diminution of the amount of capital required, but this may be balanced by a rise in the interest paid for the use of capital. Thus, without taking into the account the variations re-= suiting from relative supply and demand, we see that im- portant and frequent variations may arise, in connexion with the cost of production itself. I do not here stop to state the causes, which at different times affect the value of the different items in the cost of production. These are brought to view in another place, and the statement of them is not necessary to the investigation of the subject of price. On supply and demand. We come now to the examination of what is justly re- garded as the great disturbing cause of price, — the influ- ence of supply and demand. And here an explanation of these terms, as used in the science, is required. De- mand, in its widest sense, is another expression for the wants of men. To the extent of these wants, there may be said to be a demand for that which will supply them. But as the term is here used, another important cir- cumstance comes into the account. It implies both the willingness and the ability to give, in return for what is thus wanted, an equivalent in value. In respect then to any commodity, so far as there is in a community an abil- ity and a willingness to give for it that which has ex- changeable value, to the same extent there may be said to be in this community a demand for this commodity. Supply, on the other hand, means, not only that an ob- ject is in existence, but that it is in the market — that is. 130 POLITICAL ECONOBIY. those possessing it are willing to part with it upon receiv- ing an equivalent, as determined by the same principles, which determine the price of other commodities of a like', nature. And here, incidentally, in connexion with this explana- tion of the terms supply and demand, we may see what constitutes a market. It is production itself, which opens a vent, or creates a demand for products. He who is suc- cessfully engaged as a producer of that which has ex- changeable value, is acquiring the ability to supply his own wants, which, it has just been said, is essential to consti- tute demand. Hence the greater the number of such pro- ducers in a community, and the greater the variety of pro- ducts, the greater will be the demand for different products, or, in other words, the belter the market. And thus it is, that every one becomes interested in the prosperity of those around him. Hence also it is more desirable to be the citizen of a thriving, advancing community, than of one which is stationary, or whose movement is retro- grade. But to return to the subject of supply and demand as affecting price. When the current price of an article is the same as its cost price, by which I mean the cost of its production, it is an indication, that the supply of this arti- cle corresponds to the demand for it. In this case, then, supply and demand exert no influence upon price. But if from any cause the demand exceeds the supply, there follows at once a rise of the exchangeable price above the cost price. It is so, since there are more who wish to ob- tain the article than can be supplied with it, and this pro- duces a competition among purchasers. On the contrary, if, from any cause, the supply exceeds the demand, the PRICE. 131 exchangeable price falls below the cost price. Here the competition is on the part of those who have the article to dispose of; for since there is a larger amount in the mar- ket tlian can find purchasers, each seller is desirous of sus- taining as little loss as possible. He endeavors therefore to undersell others, and is willing to sell at a rate below cost. Thus it is that the relative variations of demand and supply are continually affecting the exchangeable price of commodities, at one time raising it above, and at another sinking it below, the cost of production. From the statements which have now been made, it may be inferred, that the causes which affect the current prices of commodities, may be traced to three different sources ; 1 . To variations in the measure of value. 2. To an increase or diminution of the cost of production. 3. To the state of the market, or the relative influence of supply and demand. I propose to consider, separately, each class of these disturbing causes of current price. Price as affected by variations in money or the measure of value. We have seen that the precious metals, the materials of coined money, are subject to variations in their value. In this respect, they differ not from other commodities. The cost of their production varies, and they feel, in its full power, the influence of supply and demand. It has also been stated, that money varies in its ex- changeable value from alterations, made by the govern- ments of different countries, in the coins and denomina- tions of the standard currency. The gold, or silver, in the same coin, is greater in amount and purer in its qua^ I 132 POLITICAL ECONOMY. ity at one time, than at another ; or by some act of au- thority, the relative value of different denominations of coined money is changed. Now whatever be the nature of the cause thus affecting the measure of value, whether connected with the cost of production of the materials of this measure, or with authoritative alterations of the stan- dard currency, no sooner is this variation in the measure of value known to exist, than its disturbing influence on the current prices of all objects in the market, will be felt. If there are more dollars in the country than are needed as a circulating medium, or if the amount of silver in a dollar is less, or the proportion of alloy greater, in each case, the exchangeable value of a dollar becomes less. And since money is used as a measure of value, the cur- rent price of all commodities in the market, will be affec- ted by this variation in the value of money. The article of furniture, which before was estimated at $20, is now valued at $22 ; and so of other commodities. In modern times, since the monetary systems of differ- ent countries have become well established, the influence of this disturbing cause on current price is slight, and gradual in its operation. Hence the business classes of the community suffer but little inconvenience from this source. The same man is both buyer and seller, and usu- ally about to the same amount ; so that he gains as much on one score, as he loses on another. When however it produces a depreciation in the value of the currency, the effect will at once be felt by those, whose income is a fix- ed or a stipulated amount. They will find, that though their revenue be nominally the same, its value is dimin- ished. This will be the case with all those, whose in^ come is derived from rents, or from money at interest. PBICE. 133 The same is true of those whose support is received in the form of salary. Thus it has often happened in this country, that the salary of an office, which a half-century ago was considered a good living, has ceased to furnish a support to the incumbent ; and the depreciation in the exchangeable value of money, is a principal cause of this difference. So too, and from the same cause, it is found, that the revenues of some ancient eleemosynary institu- tions, which are paid in money, have depreciated in val- ue, while those paid in wheat, or other agricultural prod- ucts, have from the same and other causes become far more valuable. And here may be mentioned another disturbing cause of price, the effects of which are often great loss and in- convenience to all classes of the community. I refer to the partial and sometimes total depreciation in the value of bank notes — the representatives of coined money. Bank- ing institutions often have a large amount of their notes, or, as they are usually called, bills, in circulation, in the hands of many different individuals, when, from some cause, they become unable to redeem their bills, and thus those holding them suffer a partial or total loss. For the notes of a broken bank, if current at all, are circulated at a large discount, perhaps for half or one third, of their nominal value. But the evils which result from occurren- ces of this kind, are not confined to the actual losses of the holders of notes, or the embarrassments of business transactions from a depreciation of a part of the currency. A shock is given to confidence in the representative part of the circulating medium generally, which is often at- tended with much inconvenience and loss. Hence the breaking of one bank often leads to the insolvency of others. 12 134 POLITICAL ECONOMY. The inference to be made from this statement is, that the government of a country, as the guardian of the public welfare, ought to exercise much caution and wisdom in the establishment of banking institutions, and to watch narrowly over the manner in which their concerns are conducted. In connexion with the subject of variations in the measure of value, the inquiry may arise, In what way may the reader of history be enabled to form a correct es- timate of the value of objects, whose price is stated in an- cient histories ? This cannot be done with perfect accu- racy, but an approximation to this result may be made in the following manner. ^ Suppose we read that some commodity was worth in Athens, at the time of Pericles, a certain number of tal- ents of silver, and we wish to know the value of this com- modity in our own currency. We first ascertain what was the amount of pure silver at Athens in the talent, at that time. For this information, we must rely upon his- torical statements. We then, from the same source, find out the value of silver in some staple commodities of that time, particularly in the commodities used as bread stuff. Having thus ascertained how much wbeat, or other staple commodities, an ounce, or any amount of silver was ex- changed for at that time, we in the same manner institute a comparison between the same amount of silver and the same, or like commodities, in our own times. We thus obtain what is needed for determining the value of silver in the two periods compared, It only remains for us, to express this amount of silver in our own currency. It will be noticed, that the larger the number of articles, of which a comparison between their value and that of sil^ PRICE. 136 ver is instituted, the more accurate will be the conclusion which is drawn. Price as affected hy the fluctuations of the market. So great is the influence of supply and demand upon the price of commodities, that it may be likened to the pendulum of the clock. It is the regulator — that which secures the steady movement of the whole machine. I design in this section, to bring forward some instances, in which its power is felt, and thus to shew both the causes and the consequences of variations of price, so far as they arise from this source. It sometimes happens, that the crops of wheat are less than in other years, by one third, or one half, of their usu- al amount. And though it may not be an unfavorable season in every part of the world, the transportation of so bulky a commodity from one country to another, is at- tended with so much labor and expense, that little relief can be expected from this source. Such a deficiency oc- curred in this country in 1816. Now it is usually the case, that the amount of wheat raised in a country, as of all annual products, is nearly proportioned to the usual demand. When, therefore, there is a deficiency in the crop to the extent stated, the supply in the market must fall far short of the demand. The cause is obvious ; — that natural agent, which assists man in the production of wheat, has been less efficient than usual. What then are the consequences, when, in respect to so important a com- modity, the supply falls far short of the demand ? And first, how are the interests of the producers affect- ed ? The farmer, who has usually raised five hundred 186 POLITICAL ECONOMY. bushels of wheat, this year, from the same land, and the same outlay of capital and labor, has obtained but half that amount. But in former years, the price of wheat was $1,00 per bushel ; it is now $2,00. He may now, then, should he sell the whole crop, receive as much money in exchange for it, as in former years ; and even save something, since the expense of harvesting and of transportation to the market may be less. But the farmer is himself a consumer of wheat, and it is only the surplus part of his crop that he sells. And though in a year of scarcity lie may consume much less wheat in his family^ his profits from his wheat crop, will probably fall far short of what he is accustomed to obtain. Even then, if we suppose that, counting what is consumed in his family at the rate of $2,00 per bushel, he receives a sufficient amount to meet the expenses of production, — that is, if the exchangeable price of the whole crop equals the cost price, still he makes no larger profits than usual, and as a consumer of wheat, he suffers loss, in the same manner as other members of the community. Thus it appears, that the usual impression, that the gains of the farmer are greater in years of scarcity, is incorrect. He may obtain a higher price for his wheat, but he has less to sell, and in common with others, he may be considered as paying a higher price for what he consumes in his own family. We look next at the consequences which result to the community. It is evident, that as there is less wheat to be consumed by one half, than in common years, economy must be practised by consumers generally. A part of the crop in years of plenty, may have been used perhaps in making whiskey, or for some other purposes, than bread stuff for man. It must no longer be used for these pur- PRICE. 137 poses. Some portion also may have been sent abroad in exchange for foreign commodities. This portion must now be kept for home consumption. And further, more wheat may have been consumed in families generally, through the country, than is necessary. Domestic re- trenchment must then be put in practice — less wheat must be used, and some other agricultural products, as potatoes, or garden vegetables, must be substituted in its " place. Should the government of a country undertake, in a year of scarcity, to pass laws, regulating the consump- tion of wheat, so that the deficient crop might hold out till ar.other harvest comes round, it would probably enact, that in these several ways, the consumption of wheat should be lessened. But the same result is effected, and without any act of authority, by the rise of price, conse- quent on the diminished supply. As wheat has become dearer, those possessing it find it for their interest to use it only for bread-stuff; they will for the same reason keep it at home, rather than send it abroad. And each family wilKuse it with as little waste as possible, substituting for it, so far as is practicable, some other and cheaper com- modity. And here we may incidentally notice the importance of having the style of living of the mass of the community sufficiently high to allow of its being reduced. In Ire- land, where the prevailing food is potatoes, if a failure of the potatoe crop occurs, there is no cheaper commodi- ty, which can be substituted in its place, and great suffer- ing and tumioil are the consequences which ensue. But where, as in England, wheat, and, in this country, meats, are in general use, there is an important resource to the nation against seasons of scarcity. 12* 138 POLITICAL ECONOMY. Thus it is, that in a year of scarcity, the deficient crop is husbanded by means of the increased price, with the least possible inconvenience and loss, both to producers and consumers. And now, if we continue our view, we find, that when the season for a new crop has come round, the advanced price of wheat will lead more to engage in its production, — more land will be cultivated, and the out- lay of labor and capital in this branch of production will be larger. And perhaps, as it often happens, the next season is one of unusual plenty-^the supply exceeds that of common years, as much as it had fallen short of it the year before. Now, then, the supply exceeds the demand, and if we look at the consequences, both to producers and consumers, we find, that they are the reverse of those be- fore staled. The price immediately falls, even below what is wont to be obtained in common years ; but as the surplus of the farmer is larger than usual, in proportion to his outlay of capital and labor, he obtains his average prof- its on the whole crop. It is not then as a producer, but as a consumer of wheat, that the farmer himself is bene- fitted by a year of plenty, in common with other members of the community. And it is here to be noticed, that in respect to a product of prime necessity, as wheat, just in proportion as the price is diminished, the demand will in- crease. In common years, many families might consume more wheat, than they do, could they afford to purchase it. And the diminution of the price, consequent upon the excess of supply, puts it within the power of such families, to enlarge their consumption. Hence, through the whole community, the increase of demand from this source, will be considerable. Further, as the price of wheat is reduced, it is used for other purposes than bread- PRICE. 139 stuff, and exporters will perhaps find it for their advantage to purchase it and send it to foreign markets. Thus, in respect to agricultural products of prime ne- cessity, and of general consumption, the variations of price, consequent upon the fluctuations of the market, tend to prevent the inconveniences and losses, vvhicTi would otherwise be felt both by consumers and producers. When the supply falls short of the demand, the high price which results, enables the producer to obtain from a less amount of wheat, which he has to dispose of, what repays him for the cost of production ; and at the same time hus- bands the crop, so that less inconvenience is felt from the scarcity by consumers generally. On the other hand, when the supply exceeds the demand, the reduction of price brings the commodity within the ability of greater numbers to purchase it, and enables those before using it, to use it in larger quantities. Thus again the community is benefitted, and the exchangeable price is kept from falling below the cost of production. I will now state a different case. England, before the late war with this country, was accustomed to supply our markets with various manufactured products ; and to fur- nish this supply, many laborers and a large amount of capital were employed. When the war broke out, this vent for her manufactures ceased. And as her home con- sumption, and that of other foreign markets, could not furnish a demand, in proportion to the supply of these commodities, there was a glut of them, which was attend- ed with a great reduction of their price. This case differs from that which has been stated, both as to its cause and the nature of the commodities concern- ed. In the former case, the excess of supply arose from 140 POLITICAL ECONOMY. the uncommon fruitfulness of the season, added to an over effort in production, which had been caused by the scarci- ty of the preceding year. In this case it resuhed from the loss of a foreign market by war. The product too, in the former case, was one of prime necessity, the de- mand for which always keeps pace, in some good degree, with the increased supply and consequent diminution of price. In the latter, the products, though in general use, are of a class, not absolutely essential to human subsist- ence, and though their consumption may be enlarged by a reduction of their price, still this enlargement of demand is limited, and by no means in proportion to the excess of supply. To those then engaged as producers of manufactured products, a glut of the market, such as that referred to, must be attended with great loss and embarrassment. No enlargement of demand comes in, of sufficient extent to take off their excess of products, even at reduced prices. Neither, as in the case of agricultural products, is a larger amount received from the same outlay, so that, though the price for any definite quantity falls, the increased amount of products sold, makes up the deficiency of prof- its. And besides the loss on products sold for less than the cost of production, the investments of capital in build- ings and machinery, must either be permitted to remain inactive, or be sold at an immense sacrifice. But let us now see in what manner the interests of the community in this case are affected. From the reduction in the price of manufactures, those who wish to obtain a supply of articles of this kind, can purchase them at a much lower rate, than usual — a rate below the cost of their production. But few families can afford to expend PRICE. 141 a larger proportion of their income in the purchase of man- ufactures, than they are accustomed to devote to this pur- pose. They will then generally rest satisfied with obtain- ing from the same expenditure, a larger supply. Besides, the home consumers of these commodities, are themselves producers, and they soon find their own prosperity affect- ed by the depression of other productive classes around them. Their own revenues fall short of the usual amount, and they find, that they have less to expend in the pur- chase of manufactures, than in seasons of more general prosperity. And then, too, if remote consequences are taken into the account, it is found, that the reduction of prices, which results from an excess of supply, is followed by an advance, to the same, or a greater amount. For no sooner do those engaged in this business find that it is a losing concern, than they cease to manufacture, and en- deavor, so far as they can, to withdraw their capital from this mode of investment, and to direct it to some other branch of production. At least, they will permit it to re- main unemployed, until better times open to them the prospect of receiving their usual profits. In the mean time, the products in the market are consumed, and a de- mand arises, to meet which, no adequate supply exists. Perhaps, too, the war is at an end, and the old markets, and, it may be, new ones are opened. Now then, the demand greatly exceeds the supply, and those who would obtain these products, must pay a price, as much beyond the cost of production, as before it had fallen short of it. Thus too, for a while, producers make large profits, and on the principles stated in the chapter on capital, a larger amount of productive capital is directed to this branch of production. 142 POLITICAL ECONOMY. There are numerous other causes, in addition to those now mentioned, which produce fluctuations in the market and other attendant consequences. Such fluctuations are indeed, to some degree, continually occurring in most branches of production ; and it conduces much to the prosperity of a nation, that they should be slight. In pro- portion to their importance, their disturbing influence is felt by all classes of the community, and though for a time some few may be benefitted, the general results are embarrassment and loss. Price as affected by variations in the cost of production. The falling of prices from a diminished cost of produc- tion, is the only variation, which can occur with profit both to producers and consumers. It is also permanent. When the cost of production of any commodity in general use is reduced, and its price in the market falls, every member of the community, ever afterwards, finds it neces- sary to appropriate a smaller portion of his revenue to the obtaining of that commodity, or, if he continue to appro- priate the same sum, he receives in return a larger amount of the same commodity and perhaps of improved quality. Others too, who have been unable to obtain this commod- ity, because of its high price, can now afford to purchase it ; and thus the comforts and conveniences of life are ex- tended to a larger number of individuals. Among many instances of this kind, which have occurred within the last century, the invention of the stocking loom may be refer- red to, as affording a striking illustration. Since the in- vention and general use of this machine, the price of a pair of stockings has fallen to one third of its for me PRICE. 14$ amount. He then, who was accustomed to spend ten or twelve dollars annually for this article, supplies himself for one third of this sum, and many, who at the former price could not afford to wear stockings, can now furnish themselves with this article of comfort. It is unnecessary here to trace out the effects of varia- tions in price, resulting from this source. This has al- ready been done in the chapter on machinery. I will here only add, that the consequences, there ascribed to the introduction of labor-saving machines, are applicable, so far as price is concerned, to a diminution in either of the items, which make up the cost of production, from whatever source it may arise. In applying the principles that have been brought to view in this chapter, to different classes of commodities, it will be found, that these classes will essentially differ in the extent to which they are subject to variations of price. Agricultural products which are in general use and of prime necessity, such as the common articles of food, though their price may vary from year to year as affected by the fertility of the season, will be found less subject to permanent alterations of price than other commodities. The reason is obvious ; — there is always a tendency to equalization between the supply and demand of this class of products, that is, between population and the means of subsistence. It is also the case, that labor-saving inven- tions, and other improvements, which affect the cost of production, are less frequently made in agriculture than in other branches of production. Hence it is, that in our at- tempts to ascertain the value of the precious metals at former periods of the world, we refer to wheat as a com- 144 POLITICAL ECONOMY. modity, whose price has been more uniform than that o( any other. Manufactured products in general use, next to agricultural products, will be less subject to variations of price. I refer here to the common articles of clothing and of furniture in our domestic establishments. Such commodities, though their price may be affected by chang- es in the cost of their production, are less subject to fluc- tuations of the market, the demand generally equalling the supply. The class of commodities, which more than all others feels the effect of the different causes which lead to variations of price, consists of those manufactured pro- ducts which are articles of luxury. It is here especially, that the influences of fashion are felt, as they affect sup- ply and demand, thus leading to variations of price. Hence it is, that the profits made on the more common products of manufactures in domestic use, are more sure, and in the end usually much greater, than what are re- ceived on the more expensive articles of luxury. Another remark, which is also here suggested, relates to the importance of uniformity of price. Variations in the prices of the common articles of consumption, are ever sources of inconvenience and not unfrequently of positive injury to the public, especially to the less wealthy por- tions of the community. If the prices of such commodi- ties fall below the average rate, the poorer classes are thus enabled to enlarge their consumption, and raise their style of living, but in a short time, perhaps, the cause which had led to a reduction of prices, ceases to operate, — the former prices are restored, or perhaps there is an advance upon them. It then becomes necessary that the style of living should also be reduced, which is usually attended with mortification and painful privations. And this mor- PRICE. 145 tification and want of customary enjoyments must also be endured to some extent, where depression of price occurs without any previous elevation. Other classes of the com- munity, also, when variations of price are often occurring, become less enterprising, and less ready to engage in the processes of production ; since they know not, but some unexpected change of price may defeat all their plans and calculations. It will be noticed, that I here refer to those variations of price, which arise either from alterations in the medium of circulation, or from the fluctuations of the market as connected with supply and demand. Those variations which result from a diminished cost of produc- tion, are permanent, and as they are gradually introduced, no injurious consequences result. The different economical arrangements, and the several agents, concerned in the production of wealth, have now been brought to view, and the principles stated, by which its circulation is regulated. It now remains, to look at these arrangements and agents as they exist together, and are brought into joint and combined action in the different departments of Kuman industry. Opportunity will thus be presented, to state the circumstances favorable to the introduction and advancement of the different branches of production, and to shew the influence of measures, adopt- ed by the governments of different countries, and of other adventitious causes, on the economical interests of commu* nities. 13 I 146 POLITICAL ECONOMY. CHAPTER VIII. Agriculture. Of the three great branches of industry, Agricuhure is that, to which, in the progress of nations, their productive powers are first directed. It is so, since it meets the most urgent of human wants — it furnishes the daily food of man. The common labors of agriculture are also simple in their nature, requiring no lengthened apprenticeship to become familiar with their performance. Neither, in its early state, is a large amount of capital needed to conduct suc- cessfully its simple processes. And further, it is in its na- ture antecedent to Manufactures and Commerce, since it furnishes the materials and objects, on which these branch- es of industry are employed. But agriculture, even in its early and most simple state, cannot exist to any extent without the aid of manufac- tures. It must look to this source for its ploughs and carts and the various implements of husbandry. So abun- dant also are the returns of agricultural industry, that it soon leads to commerce in its more common forms. The agricultural producer soon finds, that he has a large sur- plus, which it is for his advantage to exchange for other products. He finds also, that he has wants which his farm cannot supply. As nations become more populous, and make progress in wealth, and otlier branches of industry are introduced, the demand for agricultural products increases, and conse- quently more labor and a larger amount of capital, are di- rected to this branch of human industry. The farmer AGRICULTURE. 147 finds it necessary to enlarge his establishment. He must be able to avail himself of the improvements made in hus- bandry ; — division of labor to some extent must be intro- duced, and his whole business conducted on a larger and more extensive scale. It is not necessary, however, to trace the progress of agriculture, or to state its different divisions. The statements and inquiries here made are simply designed to bring to view those circumstances, which are favorable to its advancement and prosperity. How may agriculture he improved and advanced ? Most of our farmers cultivate their farms as their fa- thers have done before them. The same crops are rais- ed — the same tools used and the same methods of cultiva- tion are practised, year after year. Compared with other branches of industry, few innovations are made, and little enterprise is manifested. Still, if we compare the state of agriculture a half-century ago and at the present lime, we find, that in most countries some progress has been wit- nessed. Though the common farmer has been content to go on in the old way, others have been studying and contriving and trying experiments and making improve- ments of which he has availed himself. To this work of improvement, the different sciences, especially the science of chemistry, have contributed. Men of wealth have also amused themselves, and done good service to the country, in the experiments, which they have made on what may be called model forms. And further, agricultural societies, and in some instances the governments of different countries, have adopted meas- 148 POLITICAL ECONOMY. ures, leading to the same results. The improvements, thus introduced, may be classified as follows ; 1. New modes of cultivation are discovered, resulting from a better knowledge of the properties of different soils, and of their adaptation to the raising of different fruits and grains and other agricultural products. 2. Improvements are made in the breeds of domestic animals used upon a farm — horses, oxen, sheep, he, 3. New tools and implements of husbandry, — or those of an improved form, are introduced. In some depart- ments of agricultural industry, labor-saving machines are invented. It is unnecessary to enlarge on these different heads. Something has already been said on the first, when treat- ing on the developement of natural aids to production. Of the second, the introduction of the merino breed of sheep into this country is an example. Of the third, the patent office at Washington shews many striking instan- ces. More probably has been done in this way for the improvement of agriculture, in the United States, than in all other countries. Another class of improvements, in which the farmer is much interested, relates to facilities for transportation. Such are railways, canals and well made common roads. Agricultural products are bulky. Much of their vnlue therefore, must depend on their proximity to a market. A bushel of corn, which in the cities on our sea-board is sold readily for one dollar, in the remote interior of the country, will command only one half or even one fourth of that sum. Now should a railway or canal be opened to this remote interior, so as to connect it with a market, AGRICULTURE. 149 the price of corn is immediately affected ; — it is doubled, or perhaps tripled ; and so of other agricultural products. The inquiry is sometimes made, whether it be more ad- vantageous to a nation, that its territory should be divi- ded into small farms, of five or ten acres, in possession of numerous proprietors, or into larger tracts of two or three hundred acres ? In this connexion, we are led to answer this inquiry in favor of large farms. Every farmer must be provided to some extent, with an apparatus for his business. He must have his tools, wagons, working cattle, barns, granaries, he. Now, if a territory be divided into small farms, either the amount of capital vested in this manner, will be much greater than is required where farms are lar- ger, or agricultural business will not be well conducted for the want of this capital. Besides, the progress of sci- ence is pointing out new methods of cultivation, and the inventions of art are offering new implements of husband- ry to the farmer. Of these, he, who has a large capital and a farm of some extent, can afford to avail himself, and it is important to the interests of agriculture in the country, that this should be done. The government of a country may cherish and encour- age agricultural industry in various ways. It may aid and excite scientific men, to make those discoveries, which lead to improvements in agricultural in- dustry. Discoveries of this kind/are sometimes made at great expense, and it seems reasonable, that as the public generally are to derive benefit from them, this expense should be paid from the public purse. It may grant patent rights to those who make inven- tions in agricultural tools and implements. It may either directly, or through the medium of agri- 13* 150 POLITICAL ECONOMY. cultural societies, offer bounties, or rewards, to those farm- ers who excel in the management of their farms, and in raising superior products from the soil. It may assist in diffusing information on subjects, which relate to improvements in agriculture, whether the result of scientific investigations and reasonings, or of practical farming. By a system of internal improvements, it may do much to facilitate the transportation of agricultural products, and thus open new markets to the farmer. At present, much is done in our own country for the last mentioned object, by joint stock companies, who re- ceive an act of incorporation, and look to collections in the form of tolls, for a remuneration of what is advanced by them. But such tolls are a tax, which is burdensome to the agricultural part of the community ; and hence, whatever aid the government may afford in lessening or preventing this tax, is an encouragement to agriculture. Opinions of the French Economists considered. It has been stated, that agriculture is a branch of indus- try, peculiarly adapted to the early stages of national ex- istence, and that it is the employment, in whicii most na- tions at that period in their history are found engaged. The inquiry may arise, — How far it is expedient that commu- nities advanced in wealth and engaged in other depart- ments of industry, should still continue their agricultural pursuits ? In other words, it may be asked, whether it should be left to capital and industry, to follow the rate of profits, and to be directed to different branches of pro- duction, just so far as is most advantageous to producers, AGRICULTURE. 151 or whether the public welfare is so much more concerned in the products of Agriculture, than in those of Manufac- tures and Commerce, that special efforts should be made to direct capital into the former channel. It is known, that a sect of Political Economists former- ly existed in France, and individuals in modern times hold nearly the same doctrines, which maintained, that Agri- culture is the only source of national wealth. These Economists, for so by way of eminence they w^ere called, allowed indeed that other departments of labor were ad- vantageous to those engaged in them, that is, they gave them a support. And this, these writers maintained, was all the benefit derived from them, the same amount of val- ue being consumed in the support of these laborers, as was produced by their labor. A more extended view of the system of the Economists, maybe found in Chapter 9, Book IV, of Smith's Wealth of Nations. Two statements fully disprove the leading proposition, on which this system is founded. 1. It is well known, that nations engaged extensively in manufactures and commerce, have made rapid and great advances in wealth ; more so indeed, than some other na- tions, which have confined their industry to agriculture. England is an example of the former kind, and Poland of the latter. Now how is this fact consistent with the posi- tion, that no additions can be made to-individual, or nation- al wealth, from the labors of those engaged in manufactures and commerce ? 2. Taking the Economists on their own grounds, their leading proposition may be shewn to be erroneous. They allow, that producers in manufactures and commerce are supported out of the gross amount of products, which are 1^2 POLITICAL ECONOMY. the result of their labors. Now if this be the case, these branches of production are important sources of national wealth ; for in determining the amount of national wealth at any time, we do not look at the net products but at the gross products. Indeed agricultural products, more than others, are immediately consumed in the support of produ- cers. And there is evidently no reason for considering the accumulations and additions made to national capital, as resulting more from agricultural, than from other branches of production. In modern times, there have been those, who though not fully adopting the doctrines of the Economists, have still maintained, that agricultural producers are to be ranked in the first class, and that those engaged in other branches of production are secondaries, and in some way dependent upon and sustained by, agricultural industry ; and many, no doubt, have some general impressions of this kind, without any very definite opinions upon the subject. In the introductory chapter, it was shown, that produc- tion is in its nature the same in agriculture, as in other de- partments of human industry. It must also be the case, that the average profits of capital and labor cannot be high; er, when employed in agriculture, than when employed in manufactures and commerce. If it were so, the latter branches would be. deserted for the former. How then are we to account for the impression, so general, of the superiority of agriculture ? This question has in part been answered, in the statement made as to the nature of the wants supplied by agricultural products, which are of the most urgent class, and also of the fact, that the mate- rials, about which other branches of production are em- ployed, are derived from agriculture. AGRICULTURE. 153 But there is also another circumstance, which tends to give rise to and cherish the same impression. Nations in their early stale, and as they grow up to greatness, owe a large share of their increasing wealth to agricultural pro- duction. Here are the beginnings — the foundation, to a great degree, both of individual and national wealth. And this is to be accounted for in the following manner ; in agriculture, more than in other branches of production, natural agency comes to the assistance of man — it does a larger share of the work. And here I must ask the read- er to call to mind the distinction between natural agency, and other natural aids in the form of machinery, where man is the agent, and the natural aid the instrument by which he acts. It results then from the superiority of the assistance, rendered by nature in the first mentioned form, that the returns of capital and labor are greater in agricul- tural, than in manufacturing or commercial production ; and at this period of a nation's existence, there is nothing to balance this superiority of agriculture. But as the nation advances, and other branches of production are more fully introduced, the circumstances of the case become differ- ent. Division of labor and machinery come to the aid of production, and so much greater is the extent to which they are carried in Manufactures and Commerce, than in Agriculture, that they compensate, and more than com- pensate, for the superior advantages derived from natural agency in the latter branch. And here another circumstance, tending to the same result, comes into operation. As nations become more populous, and it is necessary, that a larger amount of ag- ricultural products should be furnished for the supply of the wants of the great national family, inferior soils must 154 POLITICAL ECONOMY. be cultivated, — those which yield a less abundant return to the capital and labor, employed in their cultivation. Thus the natural agency connected with agricultural pro- duction, becomes less efficient, and this cause, conspiring with the other causes just mentioned, brings about the re- sult, that in a nation, in which the different branches of production are in combined and joint action, no larger amount of wealth is derived from Agriculture, than from Manufactures and Commerce. And hence, the impres- sion we are considering, is without just foundation, though the circumstances, which have been mentioned, may ac- count for its origin and prevalence. Before leaving the subject of Agriculture, it may be mentioned, that the pleasantness of the employment in this branch of production, is such, as often leads individu- als to prefer it, even when the profits it affords, are less than in other departments of industry. There is also a sense of security and independence, felt by the farmer, who supplies directly by his own labor a large proportion of his own wants, and who looks around upon his fields, yielding to him in rich abundance the necessaries of life. Especially does the landholder feel a higher sense of indi- vidual importance, and a deeper stake in the national wel- fare. But these, and other like considerations, are brought to view in another connexion. Library^ MANUFACTURES. 155 CHAPTER IX. Manuf cultures. It has been stated, that the introduction of the mechan- ic arts in their more simple forms, must be of the same date with the first advances made in the cultivation of the earth ; for these advances cannot be made till the more common implements of husbandry are furnished. So too, when the products of agriculture become various and mul- tiplied, the processes of manufactures are needed to adapt these products to the use of man. But when we speak of a manufacturing nation, or of Manufactures, as one of the great departments of national industry, we have in view a more advanced state of the manufacturing arts. We think of a community in which a large amount of in- dustry and capital are thus employed, and which furnish- es products of this class, not only for the supply of its own wants, but for foreign markets, and where too machinery is in extensive use, and large manufacturing establishments are scattered over the surface of the country. Looking at manufactures in this light, I propose to state some circumstances favorable to the introduction and suc- cess of this department of national industry, and also to shew the effects of manufacturing establishments on the prosperity of the immediate neighborhood where they are located, and of this department of production on the wel- fare of the country generally. Some general views will in another chapter be taken of the expediency of measures, designed for the encouragement of manufactures. 156 POLITICAL ECONOMY. Circumstances favorable to the introduction and success of Manufactures. 1. Territorial advantages. Some countries seem pe- culiarly adapted to become the abode of a manufacturing people. In return to agricultural labor, employed either in the cultivation of the soil, or in the working of mines, they furnish in rich abundance the raw materials, used in the most important branches of manufacturing production. They offer also to an uncommon extent, facilities for the construction of machinery and the employment of the aids of nature. Wood and metals of different kinds used in the mechanic arts, extensive forests and coal mines, to which has been added increased importance from the ge- neral use of steam power in manufactures, and more es- pecially water power in the form of mill privileges, are to be ranked in this class. And further, so essential to suc- cess in manufactures is an extensive market, that we may place among territorial advantages favorable to this branch of production, navigable rivers, commodious harbors and other facilities for transportation. Of these different classes of territorial advantages, the first merrtioned is least essential, since the materials of most manufactured products may without difficulty be supplied from abroad. One of the staple manufactures of England is cotton cloth, yet her own territory does not furnish to any amount the materials of this texture. For this she is dependent on foreign nations, but the extent and enterprise of her commercial industry amply compen- sate for this deficiency. 2. Large amount of capital. A poor nation cannot be- MANDFACTURES. 157 come to an extensive degree a manufacturing nation. A leading object in manufactures is to produce the largest amount at the least cost of production ; and to effect this result, large and expensive establishments are needed. Much must be expended in the erection of buildings and in the construction of machinery. Large expenditures are also needed to put these establishments in successful operation. Great quantities of materials to be wrought up into manufactured products, must be kept on hand, and the wages of numerous laborers must be paid. And since, in some instances, a considerable time must elapse before returns from the sale of products are received, a proportionally large supply of capital must be provided. In the United States, where individuals possessed of great wealth are rarely found, these expensive establish- ments are supported by joint-stock companies. By this arrangement, the necessary capital is provided, and our country is enabled to enter the lists as a successful com- petitor with older and richer nations. It is obvious, how- ever, that it would not be practicable to effect an accumu- lation of capital in this way, in a country where there is a deficiency of capital, and where the price of it, or the rate of interest, is high. This unfavorable circumstance would so essentially affect the cost ot production, that un- less balanced by peculiar advantages in other respects, it would effectually prevent a nation from competing in for- eign markets with other nations, in which the price of capital is less. 3. Low price of labor. After all that has been effected by labor-saving machines, labor still remains an important item in the cost of manufactured products. Hence a na- tion in which the price of labor is high, may on this ac- 14 158 POLITICAL ECONOMY. count find it disadvantageous to engage extensively in manufactures. But it should be remembered, that the average price of manufacturing labor is far less, than of other kinds. This results from the simplicity and ease of many of its processes, which allow of their being perform- ed by females and children. Were the average wages of manufacturers in the United States as high as that of me- chanics, or even day laborers, it is not probable that our manufacturing establishments could be sustained. But instead of this, we find connected with these establish- ments a class of laborers, who otherwise would probably be without employment, and whose average wages, com- pared with the wages of other laborers, is low. And here some importance may be attached to the cir- cumstance, which is often noticed and mentioned, that there are found in nations certain characteristic traits, which seem to adapt them to manufacturing labor. Thus the inhabitants of some countries are more patient of toil and confinement ; some have more ingenuity ; some have the imitative principle more fully developed. However these national diversities may be accounted for, there is reason to think, that, to a greater or less degree, they ex- ist and offer facilities for the successful introduction of manufactures into some countries, which are not found in others. From the known connexion between population and wages, the inference will here readily be drawn, that for a nation to become a manufacturing nation, its population must be large. And this will generally be found to be the case. But the principles, which are concerned both> in the proposition and in the exceptions to it, will be more MANUFACTURES. 159 fully brought to view, when treating on the influence of machinery on wages. Three circumstances have now been mentioned as fa- vorable to the introduction and success of manufactures, — territorial advantages, large national capital, and a low price of labor. Sometimes these favoring circumstances are found existing together, and then, especially if there be added the advantage of extensive fl^reign commerce, opening many and profitable markets for manufactured products, we may expect a nation to become to a great extent a manufacturing people. Such is the case with England. In other instances, some one or two of these favoring circumstances are found to an extent, which counterbalances deficiencies in the others. And such na- tions may engage advantageously in manufactures, espe- cially, if this deficiency is one which may easily be sup- plied from abroad. But should a nation be agitating the question, whether it be expedient to engage in manufactures in competition with other nations, there are other circumstances to be taken into the account, in addition to those now mention- ed. I refer particularly to the skill of operatives and the possession of the market, or the course of trade. A na- tion which for many years has been engaged in manufac- tures, has those among its inhabitants, who are possessed of great skill and tact in this department of labor. Hence, not only more work will probably be done in the same time, but it will be executed in a superior mar.ner. On the other hand, where manufactures have been lately in- troduced, some time must elapse, before those unaccus- tomed to manufacturing labor will execute with equal ra- 160 POLITICAL ECONOMY. pidity and perfection. And further, the manufactures of a nation frequently bear a character in foreign markets, arising from their superior quality, which gives them, and for some time will continue to give them, an advantage over the same class of products of another nation, even should those of the latter become equally good. Add to this, that where the course of trade has become establish- ed, those who conduct it, are always averse to changes, unless attended with important benefits. Local effects of Manufactories. The suddenness, with which manufacturing establish- ments spring up, and become imposing from their extent and influence on the surrounding country, causing what was before a quiet and obscure agricultural village to be- come the site of a thriving and populous town, or city, is often the subject of remark. We are almost ready to think, that the tales of ancient fables have become reali- ties, and that other powers, than those of human industry, have been called into exercise. But on examination, we find, that these striking results are but the quickening in- fluences of a great and sudden, and, as it may be termed, an unnatural outlay of capital. It may be useful, then, as developing the principles of our science, briefly to trace out some of the consequences, both immediate and remote, which are thus witnessed. 1 . Labor of every kind is in requisition. A great work is to be done, and all are called upon to come and assist in its accomplishment. Full and profitable employment is given to common laborers and to mechanics of every class, not only to those previously located in the neigh- VIANUFACTURES. 161 borhood, but to those who in crowds rush in from abroad. With the increase of business and of population, profes- sional labor comes more into demand. Physicians and lawyers find their services in more constant requisition, and the number of these unproductive laborers is increas- ed. Indeed every member of the community who is dis- posed to work, finds a ready anc profitable employment in which to engage. And it is in this constant and well paid demand for labor, more than in an advance of wages, that the genial effects of this new outlay of capital are felt by the laboring part of the population. It is true, that in some branches of labor there will often be an advance of wages, but this effect is prevented from being generally the case by the coming in of large numbers from abroad. 2. There is a sudden rise in the price of agricultural products. Provision must be made for the supply of the wants of the multitude thus collected together. Hence all the products of the farm are in demand, and as the na- ture of agricultural products is such, that they cannot be brought from a distance without having their price much increased by the cost of transportation, the products of this class raised in the neighborhood, will be sold at the same advance. Thus there will be a sudden rise in the price of agricultural products. And this advance of price will continue, till new land is brought under cultivation, and a supply is furnished, which shall meet the increased de- mand. 3. A sudden and great rise in the value of houses, lands, and whatever is included under the phrase — real estate. This effect is felt most strongly in the immediate vicinity of the manufactories. The great increase of the popula- tion creates a demand for houses, and leads to the erec- 14* 162 POLITICAL ECONOMY. tion of many new habitations, and as each one is desirous of a site for his buildings near the centre of business, land thus situated, is sold at a high price. A few months trans- form the waste and comparatively valueless pasture into the site of a populous city, and more is obtained for a sin- gle square rod, than was paid before for many acres. To the fortunate proprietors of these lands, there comes a sud- den flow of wealth, like a lottery prize ; and they exchange the toils and the simple style of the farmer, for the anxie- ties and the luxuries of the wealthy capitalist. But this rise in the value of land is not confined to the immediate vicinity of the new establishment. The effects of the increased demand for agricultural products and of their advanced price, is felt for miles around, and, as the lands of the farmer are brought nearer to a market for the products which he raises, he finds their value increased. I have now stated the immediate results to a neighbor- hood, or village, of a large outlay of capital in the estab- lishment of manufactories. But these hot-bed influences are of short continuance. Should we look in upon the same manufacturing town, or city, after five or ten years have elapsed, we might still find a thriving and industrious community ; but the demand for labor in the different oc- cupations of life, and of the various kinds of agricultural products, is not greater perhaps, in proportion to the sup- ply, than in other prosperous villages, in which no manu- factories have been located. Some permanent salutary effects of the stimulus given to agricultural production, are indeed seen in the highly cultivated farms and rich fields of the surrounding country, and the high value of land in the immediate neighborhood still continues, though to the present proprietors there is little advance, perhaps none, MANUFACTURES. 163 on the prices they have paid. Business has returned to its usual channels, and except that there is a fuller and a quicker flow, the current of affairs goes onwards as be- fore. The statement which has been made, is where the con- sequences which follow from the establishment of manu- factories, are of a salutary kind. In other instances, the stimulus given is far greater than is justified by the outlay of capital, or conducive to the interests of the community. There is a species of insanity, or wild adventure, which characterises every business transaction. The prices of real estate and of commodities generally are exorbitantly high, and laborers crowd in from every quarter. But after a few months have elapsed, the mania is over — those who have made purchases of land and other ob- jects of the nature of real estate, sell at a loss, and many individuals, both professional men and others, who had crowded to the new centre of business, expecting to. find full and profitable employment, retire with disappointment and loss. And thus again, though their sudden rise has not been equally harmless and fertilizing, the swollen wa- ters subside. Advantages derived from Mamifactures as a branch of na- tional industry. It is now proposed to extend the view, and to look at the benefits which arise to a nation from this branch of production. It is supposed in the statement here made, that in connexion with Agriculture and Commerce, Manu- factures are in full and successful operation, and it is de- 164 POLITICAL ECONOMY. signed to point out the advantages derived from this mode of employing capital and industry. 1. Manufactures lead to the developement of the terri- torial advantages of a nation. I have already, in this chapter, made mention of the territorial advantages favorable to the introduction of manu- factures. Of one class of them — such as water-privileges and metals and woods used in the construction of machine- ry, no use, or a very limited one, will be made, where manufactures are not found. Indeed the existence of many of these natural aids to production within the limits of the nation, will be unknown ; or if they are known to exist, no sufficiently strong motive will lead to their de- velopement. Here and there, as the wants of the country require, a fine water-privilege will become the site of a common grist-mill, but in such instances there is perhaps a waste of water-power to ten times the amount of that which is improved. So, to a limited extent, metals and woods used in the arts; may be employed by mechanics and in rude manufactories, but no well directed, systemat- ic efforts are made, to bring into use the mineral treasures of the country, or its other natural aids to production, used in manufactures. But now let different branches of manu- facturing industry be introduced, and the influence in de- veloping this class of territorial advantages is at once felt by the nation. Its water-privileges become valuable and are turned to good account ; — its coal-mines and beds of iron and other ores are discovered, and made to yield their treasures as aids in the great work of production. Other materials used in the construction cf machinery, are also sought after and made useful. MANUFACTURES. 165 On the other class of territorial advantages — those which adapt the country to furnish the materials of which manufactures are composed, a similar effect is exerted. Some developement may have been made in furnishing supplies to other nations, but the existence of manufac- tures at home, leads to the production of a much larger amount of this class of agricultural products. At the same time perhaps that supplies continue to be furnished to for- eign nations, an equal, or even larger amount, is required to meet the demands of home consumption. The present state of England as to the developement of its territorial advantages, especially if contrasted with what in this respect is witnessed in other European nations, of- fers an illustration of the statements here made. Or we might even contrast what is seen at the present time in the United States, with the condition of the country thir- ty years ago. Either instance teaches an instructive les- son, as to the effects of manufactures on the developement of territorial advantages. 2. Manufactures offer profitable employment to the in- dustry and capital of a country. In the early periods of a nation's existence, full and prof- itable employment to its industry and capital will be found in agricultural labors, but as advances are made in wealth and population, its prosperity requires, that new modes of employing its productive resources should be opened. The diflferent branches of manufactures offer these new kinds of employment, and that they are highly profitable to a nation, may be inferred from the following statements. Manufactures allow of division of labor to a greater extent than other branches of industry. This was shewn to be the case in the preceding chapter on economical ar- 166 POLITICAL ECONOMY. rangements. It was also there stated, that division of labor tends, for different reasons there assigned, to render human industry more efficient, and to increase the amount of pro- ducts. Hence then the inference is easily drawn, that manufactures offer profitable modes of employing industry and capital. Labor saving machinery is used far more extensively in manufactures, than in other branches of production. This proposition is closely connected with the preceding, for it is division of labor, which, by dividing and render- ing more simple the processes of production, leads to the invention and more extensive use of machinery. But em- ployments which allow of the extensive use of machine- ry, are highly profitable. Here then is a second argu- ment in support of our leading proposition. Manufactures are profitable as a branch of national- in- dustry, since they caJl forth a larger amount of productive labor, than would otherwise exist. I refer particularly to the labor of women and children, who are seldom produc- tively employed, except in some branch of rtianufactures. In every community also some are found in the class of laborers, who from the constitution of their minds, or their general habits, both of mind and body, seem particularly fitted to engage in manufacturing labor, and whose industry would otherwise be probably lost to the community. Both these circumstances have before been referred to, and they are of importance in the view now taken of them. 3. Manufactures exert a highly stimulating effect on other branches of national industry. The stimulating effects of manufactories on agricultural production, was brought to view, when treating on the MANUFACTURES. ' 167 local influences of these establishments. Now what is true of a village or neighborhood, will to some extent hold true of a whole country, when manufactories are scattered over its surface, so far as its territorial advantages will al- low of their establishment. The extension of manufac- tures, connected as it is with an increased demand for ag- ricultural products and a consequent advance of their price, brings many tracts of land, which have before been: left unimproved, into the proximity of a market, and caus- es them to be cultivated. It also leads those employed in agricultural pursuits to be more industrious and enter- prising, and thus the stimulating effect of manufactures is felt in this branch of production. Agricultural production will still further be stimulated by the demand for those products, which are the materi- als of manufactures. This, if it does not open a new field of agricultural industry, greatly extends those which be- fore existed, and is an important source of revenue to the farmer. Such is the effect of woollen manufactures on the raising of sheep, and of cotton manufactures on the culture of cotton. It is true, as has been stated, that for products of this class a market may be found in foreign countries ; and this may still continue to be the case, the domestic demand being superadded to the foreign. And here it may be remarked, that for agricultural products, a domestic market is generally preferred to a foreign one ; but of this more will be said hereafter. The stimulating effects of manufactures on commercial production are also obvious. Materials for manufactures are to be brought from abroad, or from different sections of the same country, or collected from the immediate neighborhood. Manufactured articles must also either be 168 POLITICAL ECONOMY. conveyed to foreign markets, or scattered about for home consumption. Thus, in different ways, new employment will be afforded to commercial industry and capital. In- deed, the general principle which relates to commercial production, might here be applied — that in proportion to the variety of products furnished by a nation, will be the extent of its commerce ; since this variety both holds out an additional inducement to foreign customers, and in- creases the objects of home production for exportation to foreign markets. Objections to Manufactures. Of the objections made to manufactures, a part relate » to the condition and interests of laborers in this depart- ment of industry ; others are more closely connected with the general welfare and prosperity of the country. It is to the latter that I now propose to direct the attention. There is a prevailing impression, that the prosperity of nations extensively engaged in manufactures is less sure and stable, than that of nations devoted to other branches of production. This impression, when the reasons of it are sought after, may be traced to the following sources : 1. It is supposed, that there is a strong tendency to excess, in the extent to which industry and capital are di- rected to this branch of production. This tendency is ac- counted for by the statement respecting the local effects of manufacturing establishments, which was made in a preced- ing part of this chapter. The sudden and striking pros- perity of villages, in which manufactories are located, is known to all, and wherever, through the country, territo- rial advantages of a similar nature are found, it is natural, MANUFACTURES. 169 that the desire of turning them to good account should be felt. Hence, in the connmon language of the country, the business is overdone. More manufactories are estab- lished, than the amount of capital in the nation, or the demand for products of this kind, will sustain, and thus losses and embarrassment follow. It must be acknowledged, that what is here stated is sometimes witnessed and seen to be true. But it will be noticed, that these embarrassments and losses are connect- ed with the first establishment of manufactures in a coun- try, or, as it sometimes happens, with special encourage- ment given to this branch of national industry by the government of the country. Where manufactures have been fully introduced, and a regular course of business as to markets and amount of products is established, no in- conveniences of this kind will attend them. So far then, there is ground for objection, not against the branch of production itself, but against some circumstances which attend its establishment in a country. 2. But it is said, that after manufactures have been introduced, and a regular course of business is established, there is a tendency to over-production and its consequent evils. And perhaps facts are appealed to in support of this assertion. Our attention is directed to the gluts, which not unfrequently occur in manufacturing nations, with the consequent depression of prices and other evils that follow in the same train. In reply to this objection, it may be said, that over- production is not peculiar to Manufactures. It is seen both in Agriculture and Commerce. A year of scarcity as to the staple commodities of agriculture, is almost sure to be followed by a year of over-production of the same 15 170 POLITICAL ECONOMY. commodities. It is so in commerce ; here it is called over-trading, and the eJfFects which follow, are often more extensive and disastrous than in manufactures. But while over-production is found in other departments of national industry, there are two reasons, why the effects which at- tend it are especially noticed in manufactures. 1 . From the extent to which competition is carried in some branches of manufactures, those who undertake and conduct these processes of production, are compelled to content them- selves with a low rate of profits. A slight reduction of price on any article produced, is therefore soon felt. It falls at once below the cost of production, and as the amount concerned is large, important consequences follow to the producers. In other instances of over-production, as in agriculture, where the rate of interest is higher, the effects of a small reduction of price on any commodity, are not so soon felt, neither is the amount concerned so large. Hence the loss is easily sustained, and is balanc- ed by the larger profits of another year. In commerce, also, the average rate of profits is higher, and calculations are made to meet those losses which may arise from vari- ations of price. 2, Another reason, why over-produc- tion in manufactures attracts more attention, than in agri- culture or commerce, is, that the number of those whose interests are immediately affected, is much larger. It is obvious, that when large numbers of those dependent on the fruits of their labor for daily support, are deprived of employment, the consequences must be severely felt and extensively known. 3. It is further objected to manufactures, that products of this kind are peculiarly liable to feel the influence of fashion, and that on this account their value will be sub- MANUFACTURES. 171 ject to variation. Some kind of cloth, for example, at one time is fashionable. The demand for it is great, and the price high. The manufacturer adapts his outlay to meet this increased demand, but before the new and lar- ger supply of cloth is in the market, the fashion changes — the price falls, and a consequent loss is sustained. And not only is there a loss on the products themselves, but perhaps to some extent on the machinery used in making them. In reply to this statement, it is said, that the influence of fashion is felt but little on those products, which are of general consumption, and which are produced in large quantities. Fashion has more to do with luxuries, than with the common every day articles of hfe ; hence the rate of profits on the former class of products is higher, and thus provision is made for whatever losses may arise from this source. And further, when losses of this kind occur, they fall on commercial producers, no less than on manufacturers. Those employed in manufacturing, do not usually keep their products on hand a long time. They are compelled to make arrangements for quick re- turns of capital, and hence they lose perhaps only on what is in the process of production, when the change of fash- ion occurs. And in respect to losses on machinery, it is said, that what is thus thrown out of use, generally, with some modification, admits of being adapted to some other form of production ; and thus the loss arising from this source is small. 4. One other objection to manufactures, which is sup- posed to give support to the prevailing impression of the instability of this kind of property, remains to be consid- ered. It is said, that a manufacturing nation is depend- 172 POLITICAL ECONOMY. ent on foreign markets for the sale of its products, and that hence, in addition to the disturbing causes of price, which are found at home, and which apply in some meas- ure to all branches of production, there is opened a new source of uncertainty and variation in the value of manu- factured products. War may break out and hinder the operations of foreign commerce. The policy of nations abroad may change, and they may forbid the importation of manufactures. Other nations may enter the lists as competitors for these foreign markets, and become suc- cessful rivals. From either of these causes, or from others of a like nature, the sale of manufactured products may be prevented and their value affected. A very general answer is all that can here be given to this objection. The influence of foreign markets here brought to view, is not confined to manufactures. An ag- ricultural nation may be wont to look to foreign markets as a vent for its surplus products, and may therefore feel the effects of a war — of a change of foreign policy, or of the success of a rival competitor in the market. It is true, that in the case of agricultural products, other mar- kets may perhaps be found with less difficulty, and the loss sustained on invested capital will also be less. A new direction is given to the productive energies of the country with less inconvenience and loss. After all however it must be allowed, that nations ex- tensively engaged in manufactures and dependent on for- eign markets for the sale of their products, are peculiarly exposed to the disturbing influences which have been mentioned ; and on this account capital thus vested, ought in some way to be indemnified for the risk that is incurred. COMMERCE. 173 The question, how far the government of a country should assist in the introduction and support of manufac- tures, or, as it is usually stated, what encouragement should be given to domestic industry, has been much agi- tated, and is a leading inquiry in the science of Political Economy. This question here presents itself for our consideration, but since the manner of giving encourage- ment is connected with commerce, forming what is called the restrictive system, I have thought it best to defer the whole subject, until the nature of this remaining branch of national industry has been explained. CHAPTER X. Commerce. Commercial industry includes two operations, which, though generally connected, are in themselves distinct. One is the buying and selling of commodities ; the other their transportation. I speak of them as distinct opera- tions, since one may be performed when the other is not. Commodities may have their value increased by the pur- chase and sale of them, while they remain undisturbed in the ware-house or granary. Their value may also be af- fected by transportation, when they are neither purchas- ed nor sold. Usually however the two operations are uni- ted, and together constitute commercial production. Some writers in Political Economy have been disposed to limit commercial production to transportation. They have maintained, that the only way in which value is ad- 15* 174 POLITICAL ECONOMY. ded to products by commercial industry, is in conveying them from one place to another, and offering them to con- sumers under such circumstances as may suit their conve- nience. Such is the opinion of Say. But it is thought, that this is too limited a view of the nature of commercial production, and that it should be extended so as to in- clude the purchase and sale of commodities. It is not meant by this assertion, that commodities increase in value from the simple act of passing from the possession of one man into that of another. Neither is it supposed, as some seem to have thought, that in all transactions of a commercial nature, what one gains another loses. But it . is meant, that in the existing economical arrangements of society, the very act, which is performed by the mer- chant, of standing between the producer "and consumer, advancing to the former capital and receiving products in return, and then handing over these products to the latter, receiving back capital in return, is a transaction, which both facilitates the economical processes of the communi- ty, and adds value to the products in relation to which it is performed. To establish this point, let us analyse the operation of buying and selling. Suppose a certain amount of manu- factured products to be in a finished state and ready for delivery to the consumers. But the manufacturer is not able to find a market for them, and they remain on his hands for one month, during which time he is endeavor- ing to effect a sale. In this instance then, there is inter- est to be paid on capital, and also remuneration for over- sight and labor, both of which are to be set down to the account of selling the commodities concerned. Again, here is a numerous family, whose daily consumption re- COMMERCE. 175 quires a supply of many products, both agricultural and manufactured, or a large manufacturing establishment, for which a supply of the raw material must be furnished. Suppose, now, that to furnish these supplies, various as they are in one case and large in the other, it were neces- sary in each instance to collect them from those by whom they are produced. How much time and labor and cap- ital would thus be consumed ! Now it is for the performance of what in these suppos- ed cases is done by the producer and the provider, that the merchant comes in with his capital and personal ser- vices, and takes upon himself the management and re- sponsibility of the whole transaction. To the manufac- turing producer, he advances payment for his products when ready for delivery, thus saving to hirn further inter- est on his capital and the labor and care of finding a pur- chaser. To the provider, either for the family or the manufactory, he comes, bringing into his neighborhood the very articles, both as to variety and amount, which are needed. Thus then an important service is rendered — a service that requires an outlay of capital and labor, and which, since it adds value to products, for the same products in the hands of consumers are worth more than in the hands of producers, may strictly be considered an act of production. In respect to the other part of the process of commer- cial production, its nature is more easily understood. Every one is aware, that a commodity receives an acces- sion of value by being brought to a market, or into the neighborhood of consumers. Indeed in respect to many commodities, a large proportion of their value results from transportation. It is also obvious, that in the work of 170 POLITICAL ECONOMY. transportation J human industry, capital in various forms, and the aids of nature, are called into exercise. Here too is division of labor. There is retail, wholesale, do- mestic and foreign commerce, each of which in its subdi- visions and different operations, gives employment to nu- merous laborers. This part of commercial production ad- mits also of the improved use of the aids of nature. Every year is offering labor-saving inventions of this kind in the form of railroads, railroad cars, steamboats, carriages &c. We are then to understand by commerce both the pur- chase and sale of commodities, and their transportation, thus calling into action the different agents of production, and adding new value to the products of agriculture and manufactures. Those circumstances in the nature and condition of man, which give rise to exchange and barter, were brought to view in a preceding chapter. Commerce, as a distinct form of industry, giving employment to capital and requiring a separate class of laborers, is of gradual growth, increasing with the advancement and enlargement of society. At first, perhaps, it is restricted to the ex- change of the surplus products of the farm, but as new branches of industry, both agricultural and manufacturing, are introduced, and a greater variety and amount of pro- ducts exist in the nation, it enlarges itself, and becomes established as a distinct system of production with its di- visions and subdivisions. There are also, as in manufac- tures, territorial advantages, which conduce to the success and prosperity of this branch of production. Such are navigable rivers extending far into the interior of a coun- try, commodious bays and harbors, and materials used in the construction of ships, and of other vehicles employed COMMERCE. 177 both in land and water carriage of commodities. A na- tion extensively engaged in commerce, must also possess a large productive capital. This is necessary, not only as capital is required for the conducting of commercial production itself, but as its existence is implied in the am- ple supply of agricultural and manufactured products which is the basis of commerce. Divisions of Commercial Industry. Commerce has been divided into retail and wholesale, and also into domestic and foreign trade. With the mean- ing of these terms all are familiar ; and though the same leading principles apply to every branch of commercial production — to the pedlar with his merchandise upon his back, and to the opulent merchant whose warehouses are filled with the products of different climes, there are pe- culiar circumstances, which affect their application to these several divisions. I design therefore to consider separate- ly, each of these leading branches of commercial produc- tion. Retail Trade. It is the business of the retailer, to bring the commodi- ties in which he deals, into the immediate vicinity of con- sumers, and to offer them in such quantities and under such circumstances, as may suit their convenience. In a newly settled country, where the inhabitants are few and scattered over a wide extent of territory, the merchant with his wares upon his back, or in his travelling cart, visits every family. In other instances, fairs are held — ► 178 POLITICAL ECONOMY. that is, on appointed days the merchants of the country congregate together in one place, and there expose their merchandise for sale ; and to this market the whole neigh- boring population resort for a supply of their wants. When a country has become more densely settled, the retailer locates himself in some village, or neighborhood. He there erects his storehouse, and supplying it with mer- chandise suited to the market, devotes himself to the busi- ness of buying and selling. That important service is rendered to society by the retail merchant, may easily be shewn. *' Unless," says Smith, " a capital was employed in breaking and dividing certain portions either of the rude or manufactured pro- duce, into such small parcels as suit the occasional de- mands of those who want them, every man would be obliged to purchase a greater quantity of the goods he wanted, than his immediate occasions required. If there was no such trade as a butcher, for example, every man would be obliged to purchase a whole ox or a whole sheep at a time. This would generally be inconvenient to the rich, and much more so to the poor. If a poor workman was obliged to purchase a month's or six months' provi- sions at a time, a great part of the stock which he employs as a capital in the instruments of his trade, or in the fur- niture of his shop, and vvhich yields him a revenue, he would be forced to place jn that part of his stock which is reserved for immediate consumption, and which yields him no revenue. Nothing can be more convenient for such a person than to be able to purchase his subsistence from day to day, or even from hour to hour, as he wants it. He is thereby enabled to employ almost his whole stock as a capital. He is thus enabled to furnish work to a COMMERCE. 179 greater value, and the profit which he makes by it in this way, much more than compensates the additional price which the profit of the retailer imposes upon the goods." A prejudice against retailers, which exists in the minds of some portions of the community, may here be noticed.' It is often thought, that the profits of this branch of trade are exorbitantly high, and that in some way, retailers get the advantage of the common classes of consumers. But it is obvious, that there never can be any just ground for these impressions, except in those cases where a monopo- ly exists — that is, unless where some one engrosses the trade to himself to the exclusion of all others. Competi- tion will ever place reasonable limits on commercial prof- its. No matter whether it respects the retail trade, or the wholesale, so long as nothing hinders any one who pleases from engaging in the business, the profits made cannot be exorbitantly high. If a dealer in any commo- dity asks an unreasonably high price for his merchandise, others engaged in the business will undersell him, and thus he will find himself obliged to lower his prices. And if he has monopolized the trade, no others in the commu- nity being employed as dealers in the same commodities, this will soon be known, and the lure of higher profits will lead others to engage in the same business. But it is to be remembered, that this statement is made on the sup- position, that there is no interference on the part of the authorities of the country, or from any source — no privi- leged companies, no oppressive restrictions. Free, fair, open competition will always secure fair prices. But there are other considerations, which relate more particularly to the retail trade. In this branch of com- merce, much that is ordinarily looked upon as profits, is 180 POLITICAL ECONOMY. in fact a remuneration for labor. This is obvious in the case of the travelling retailer. In other instances, where a shop and other conveniences for retailing merchandise are provided, the expenses of the establishment, if not large compared with what is thus expended in other branches of production, are large in proportion to the amount of sales effected. Unless then the rate of profits be higher in proportion to the amount of business done, the expenses of conducting the business and the usual rate of profits, will not be obtained. It is right also, that con- sumers situated unfavorably to a market, should pay for the labor and expense incurred by those, who bring the commodities they need into their immediate neighbor- hood-. Wholesale trade. The wholesale merchant, who is usually found in sea- ports and large cities, stands between the importer and producer on the one side, and the retailer on the other. His dealings are usually large in amount, requiring a large outlay of capital to be vested in the commodities bought and sold, and in accommodations for conducting his busi- ness. Much responsibility and constant attention are also required ; the state of the market must be narrowly watch- ed and those supplies furnished which it requires. The rate of profits in this branch of commercial production is less than in the retail trade ; but the lower rate is com- pensated by the greater amount of business transacted, on which profits are received. Some may be disposed to ask, whether therfe be econo- my in this part of the commercial arrangements of a coun" COMMERCE. fm try ?— whether the retailer should not rather look directly to the producer and the importer for his supplies ? This in part is done by the retailer ; and there is nothing to prevent his obtaining merchandise in this way to any ex- tent he may find advantageous. Such however is the va- riety of commodities needed to meet the demands of his customers, that he often finds it for his interest to pay a small advance on their price to the wholesale merchant, rather than subject himself to the trouble and expense of collecting his supplies from different sources. Besides, by the wholesale trade, the importer and the home pro- ducer, especially the large manufacturer, having quick re- turns for their products, are relieved from the embarrass- ment and delay, which might otherwise attend their dis- posal, and thus assistance is given to different branches of production. Another important service is also rendered by the wholesale trader to the community. When from over- trading, or from over-production, or from any cause, there is an excess of a commodity in the market, so that its price becomes reduced to the cost of its production, or be- low this cost, the wholesale merchant comes forward and buys up this excess at the reduced price, and thus pre- vents greater loss on the part of the producers and import- ers. What is thus purchased in a time of plenty at a re- duced price, is kept on hand, till the price rises to its usu- al rate, or, as is sometimes the case, exceeds it. Thus the merchant is indemnified for the use of his capital, and for the trouble and risk of the transaction. At the same time consumers are benefited ; for the price of the article as thus furnished, is lower than it otherwise would havei been, since a deficiency of supply and a high price are al- 16 182 POLITICAL ECONOMY. most sure to follow a glut of the market. This Is calle the trade of speculation, and though well founded preju- dices sometimes exist against such as are called specula- tors, as the term is used to denote those who are unwisely adventurous and who often involve themselves and others in ruin, there is no ground for these prejudices, when the service that has been described is rendered to the commu- nity. It is thus, that the wholesale merchant stands between the fluctuations of the market and the manufacturing and commercial interests of a country. He receives the first shock produced by these fluctuations, and if the impulse, though sudden and violent, soon ceases to be felt, its dis- turbing effects do not extend themselves to the agricul- turist and manufacturer. These important branches of production are permitted to go on undisturbed, except irij extraordinary cases. Internal or domestic trade. Internal trade, in distinction from foreign commerce, in- cludes all commercial transactions of every kind carried on between the difl?erent members and the different seen tions of the same country, whether wholesale or retail. This is the most extended meaning of the term and the sense in which 1 here use it. Internal trade, as thus defined, is absolutely essential to the prosperity of a community. It opens a vent for products, without which production cannot be conducted in the most, profitable and successful manner, and is inti- mately connected with the economical arrangements of a nation. Corresponding to the utility of domestic trade is COMMERCE. 183 ihe amount of its extent in every country, far exceeding in most instances, as it is supposed, that of foreign com- merce. Hence the importance, that every hindrance to its operations should be removed, and those measures adopted which may promote its advancement. In this view I remark, 1. No duties, imposts, or taxes in any form, should be laid on the operations of domestic trade. In some countries a tax, or per centage, is paid to the civil or ecclesiastical authorities on all transfers of real es- tate. In other instances, large sums are collected under the name of licenses. Some European nations collect du- ties on merchandise passing from one province or depart- ment to another, and sometimes duties are levied by city governments. It is true, in all these cases the amount paid as duties, or taxes, is ultimately paid by the consum- ers, since it is added to the cost of production as the com- modity enters the market. Still, as prices are thus raised, the demand for commodities decreases ; and thus wher- ever taxes of the form specified are laid, they are hindran- ces to the operations of internal trade, and weights resting upon the productive energies of a country. They ought therefore to be removed. Buonaparte is said to have rendered important aid to internal trade during his reign, by abolishing the system of frontier duties, which previous- ly existed among the European nations, and which has since been restored. 2. There should exist in every nation a convenient and safe currency as a medium of exchange. The interests of internal trade require, that the circulat- ing medium of a country should admit of the safe and easy transmission of values in the form of money from one sec- 184 POLITI€AL ECONOMY. tion to another, however remote. It is also important, with reference to the same object, that the currency, so far as is practicable, sliould be of uniform value ; but when the national territory is extensive, and many local banks are established, this desirable object cannot perhaps be fully effected. But it is of still higher importance, that the currency should be sound. Whatever precautionary or supervisa- tory measures can be taken by the government of a coun- try to secure this result^ should be adopted. The break- ing of a bank whose notes are in extensive circulation, causes much embarrassment and many vexatious losses through the community. It does much also to impair confidence in this part of the national currency, especially among the more numerous and less intelligent portion of the community, and thus often a check is given to its busi- ness transactions. The counterfeiting of money, when practised to a great extent, produces similar results. But as money is the subject of a distinct chapter, it is not ne- cessary further to enlarge upon this topic. 3. Facilities should be furnished for the transportation of commodities. Facilities for the transportation of commodities, which is an important part of commercial production, may bear- ranged in the two following classes; 1. The means of transportation, as ships, steamboats, wagons, horses and other beasts of burden. 2. Improvements of natural ad- vantages for transportation. Such are harbors, break- waters, docks, roads, railways, canals he. In a country where such facilities are found, a highly favorable influ- ence will be exerted on the interests of internal trade. Commodities in common use are brought into the vicinity COMMERCE. 185 of consumers, and are offered at such prices that most are able to purchase them, and thus the market is extended and the demand enlarged. For improvements in the means of transportation, a community is generally indebted to the ingenuity of indi- viduals. The present century furnishes many striking ex- amples. Fulton's application of steam-power to naviga- tion, has already been mentioned. Others have exercis- ed their inventive powers in the modelling of ships and in the construction of carriages and railway cars. Improve- ments of this kind are of the same nature as labor-saving machines, and the same encouragement and protection should be extended to them, as to inventions in other de- partments of production. Improvements of the other class are generally made under the direction and at the expense of the public au- thorities, excepting those instances, which from their na- ture allow of remuneration to individuals, or joint-stock companies, in the form of tolls, or duties of some kind. And since many of these works of internal improvement are attended with a large expenditure, and the benefits arising from them are not limited to any single portion of the community, it seems right, that a part of the public revenues should be directed into this channel. 4. A well sustained system of credit should be estab- lished. In a large proportion of the commercial transactions constantly occurring in every trading community, some time intervenes between the purchase of an article and the payment for it. The individual consumer who re- ceives from the retailer a supply of groceries and other ar- ticles consumed in his family, makes payments at stated 16* 186 POLITICAL ECONOMY. limes, every three or six months, as may be the custom, or as may have been agreed upon. So again the retailer receives his goods from the wholesale merchant on a like term of credit, as it is called. And perhaps, though this is not so commonly the case, the wholesale merchant has himself obtained his supplies from the producer, or im- porter, on credit ; and thus the system of credit extends itself through every class of a trading community. In- deed the existence of this system in one class, to some degree creates a necessity for its introduction into others. This system of credit is to be looked upon as simply a loan of capital. The seller consents to wait three or six months for payment of the price of a commodity, which he delivers over to the buyer. He thus advances to him for the time specified, capital to the value of the article sold, taking care to indemnify himself by a higher price, in which form he receives interest on his capital thus advanced. The conveniences and advantages of this system of cred- it are the following ; 1 . It saves the necessity of keeping on hand an amount of funds required to meet the daily expenses of a family, or of a productive establishment of any kind, and thus it economises capital. 2. It is a con- venient mode of loaning. What is thus loaned is in quan- tity and kind adapted to the wants of the borrower, and is in that form, in which it can be most easily furnished by the lender. To balance these advantages, it is said, that by means of this system of credit, many are tempted to injudicious expenditures and enterprises, thus exposing themselves and others to losses and embarrassment. Indeed to this source are traced much of the over-trading and over-pro- COMMERCE. I8t duction, which result in the derangement of the market, and not unfrequently lead to failures and bankruptcies and their attendant evils. Upon the whole, however, the sys- tem of credit must be regarded as highly advantageous to domestic trade ; especially is this the case, when it is ju- diciously employed, and the debts thus contracted are en- gagements entered into in good faith. Whatever then tends to establish and secure a system of credit, is favora- ble to the interests of domestic trade. And there are two ways, in which this end may be promoted. 1. By legal enactments which assist in the collection of debts. 2. By supporting a high standard of moral obligation in the com- munity. When the aid of law and of conscience are thus both brought in support of commercial credit, few instan- ces of loss will occur, and those from providential and un- avoidable causes. Foreign trade. A brief statement of the nature of Foreign Trade and of the basis on which it rests, was made in the chapter on Economical iVrrangements. Further views on the same topics are found in connexion with the following exhibi- tion of the advantages resulting from this source. 1. Foreign trade increases the variety of national sup- plies. As the result of the economical arrangements and pro- ductive enterprise and effort which are found in nations of civilization and wealth, a large amount of commodities is produced, to be distributed among the individual pro^ ducers and other members of the community. Of this gross amount of products, foreign commerce takes a 188 POLITICAL ECONOMY. portion and carries it abroad to other nations, receiving for it in exchange the products of foreign soils and climes. And then, when this substitution of these foreign com- modities for domestic ones has been made, the gross amount of supplies is distributed to the different classes of the community. Thus the variety of commodities found in the nation becomes greater, and each individual is ena- bled to obtain on the most favorable terms and with little trouble, whatever his convenience and comfort and even his fancy may ask. Look at the table, the dress, and the furniture of even the common laborer, and how many articles are found, which are the products of foreign and distant countries ! And when we enter the mansions of the rich, how much greater still is the proportion of these foreign products ! For all this variety in the comforts and conveniences and luxuries of life, a nation is indebted to foreign commerce. 2. It increases the amount of national supplies. This consequence results from foreign commerce as an important branch of national production, giving employ- ment to a large amount of labor and capital. The out- lay is in this case in the amount vested in merchandise exported, and in the expenses of transportation of home products to foreign markets, and then again in the pur- chase of foreign commodities and the expenses of the re- turn voyage. And it is at the conclusion of the whole adventure, that we are to find its results in the excess of importations over exportations. This excess, in whatever form it may appear, constitutes the avails of commercial production — the returns of the labor and capital employed in this branch of national industry, and is an important addition to the amount of national supplies. COMMERCE. 189 But perhaps these returns of commercial production are in the form of money, and it may be asked, whether in this case the preceding statement will hold correct? I answer, that if the merchant brings back the profits of his adventure in the form of money, it is because he finds it for his advantage so to do, that is, because this commodi- ty is in higher demand at home, than other commodities found in the foreign market. Money as an article of trade, does not differ from other commodities. There is then in this case an addition made to the amount of na- tional supplies, and in the form most needed by the na- tion. Perhaps it will be said again, that the expenses of commercial production are an offset to all the increase of value effected by it, and that no addition is made to the amount of national supplies. Suppose this statement to be correct, and that importation returns to the country no more than had been sent abroad. Still as support is giv- en to the large number employed in this branch of national industry, and interest paid on the capital thus invested, it is by no means unproductive. The same argument ap- plies here, as was used when considering the system of the Economists. It is allowed that the gross amount of na- tional products is increased, and it is to this gross amount, and not to the net products, that we look. But it is evi- dent, that more than this is effected. If it be not so, why are capital and labor directed to commerce, when by em- ploying them in agriculture, or manufactures, a return is not only received for the outlay, but the profits of the undertaking are added. 3. Foreign commerce exerts a highly stimulating influ- ence on national production. 190 POLITICAL ECONOMY. In support of this statement, a reference might be made to what was witnessed in Europe during the fifteenth and sixteenth centuries — especially to the effects which fol- lowed the discovery of America, and of the passage round the Cape of Good Hope. But historical facts on this subject are well known and have been often adduced. I shall therefore only offer a brief explanation of them. It has been stated, that foreign commerce increases both the variety and amount of national products. It brings within the reach of every industrious individual, a liberal supply of those commodities, which, but for their com- monness, would be ranked among the luxuries of life. In this way the style of living is raised and the number of human wants increased, and then to gratify this higher sense of enjoyment and these enlarged desires, more ex- ertion must be made. Every consumer, who is at the same time a producer, feels a new stimulus to increase the amount of his own products, and thus, without doubt, large additions are made to the gross amount of national supplies. But there is another way, in which this stimulating in- fluence of foreign commerce is exerted. The facilities for transportation, and for effecting exchanges, thus afford- ed, bring the different nations of the earth into neighbor- hood with each other ; and hence producers both in agricul- ture and manufactures, especially in the latter, make their calculations and arrangements, not only for the supply of their own country, but of other communities. Large in- vestments are made in fixtures of various kinds, in ma- chinery and other productive forms, and in many depart- ments division of labor is carried to a minute extent. The consequences which follow, have been already stated. COMMERCE. 191 The amount of products is increased — their price is dimin- ished, and the effects of this diminution are seen in the enlarged demand, both for home consumption and for for- eign markets. And by tracing still further the results which follow, which has been done in another place, it is seen, that the stimulating effects of foreign commerce ex- tend themselves to every department of production. 4. Foreign commerce leads to the full developement of an important class of territorial advantages. The territorial advantages here referred to, are materials used in the building of ships — timber, iron, hemp &c. but more especially an extended sea coast with commodious bays and harbors. Some use will be made of these ad- vantages in domestic trade, but the more full develope- ment of them is seen only in those countries, which are extensively engaged in foreign commerce. The com- mercial policy of the Chinese Empire at the present time, contrasted with that of most European nations, es- pecially of England, is an example of the loss sustained by the neglect of this class of territorial advantages. 5. Foreign commerce offers a convenient mode of col- lecting a public revenue. Many expenditures of the national government in com- mercial countries, are made for the support and protection of foreign commerce. In this list may be enumerated the building and outfits of national vessels — the erecting and support of light-houses on the coast — the salaries of those sent as ambassadors to foreign countries and other inci- dental expenses. Hence, there seems to be a propriety in collecting the revenue, out of which these expenses are to be met, from the same department of production. But it is here more particularly designed to bring to view 192 POLITICAL ECaNOMY. the facilities offered in connexion with foreign commerce, for the apportionment and collection of a national reve- nue. By a wisely adjusted tariff system, high duties are laid on foreign luxuries brought into the country, while on commodities which constitute the more necessary arti- cles of life, no duties are imposed, or those which are light. Hence, since in all cases duties are added to the price of the articles consumed, and of course paid by the consumers, the rich who make use of foreign luxuries, will be made to contribute largely in defraying the national expenses, leaving but a small part of the burden to be borne by the poorer classes of society. In this way, then, without the trouble of an apprisal, a tax is laid on proper- ty, and it may also be collected with less expense and trouble, than attend other forms of taxation. Perhaps the same results might be attained by some other meth- od, but the facilities thus offered for apportioning and col- lecting a national revenue, are highly important. 6. Foreign commerce offers a convenient mode of as-^ sisting in the introduction of a new branch of domestic production. There are two ways in which this assistance is given, — by the imposition of restrictive duties, and by the granting of bounties. When the duty laid upon any commodity of foreign production, is so high, that the im- porter cannot afford to pay it and offer the commodity for the price, at which it is furnished by the domestic produ- cer, the duty thus imposed becomes restrictive. Or in- stead of imposing a restrictive duty on the foreign com-; modity, an allowance, or premium, is paid by the govern- ment of the country to the home producer, thus enabling him to sell his products, both in the domestic market and COMMERCE. 193 in foreign markets, at a lower price, than that of the for- eign commodity. In this case, a bounty is said to be paid, and it is at once seen, that the effect on domestic production is the same, whether resti'ictive duties are im- posed, or bounties given. The commercial policy which is usually called the re- strictive system, is made the subject of a distinct chapter. I shall therefore strictly limit the view here given, to the proposition which has been stated ; and in relation to this, two inquiries arise ; 1. What is the nature of the as- sistance thus given? 2. What is the nature of the in- stances, in which it may with propriety be extended ? The attempt to introduce a new branch of production into a country, is an experiment, which, if successful, will be a source of benefits to the community at large. It is reasonable then, that the expense and risk of the experiment should be borne by the community. And this is the result, which is effected by the imposition of restrictive duties and by bounties. If a bounty is paid, it is paid from the public revenue, which in some form of taxation has been collected from the individual members of the community. H restrictive duties are imposed, the amount of this duty is added to the price of the article, advancing its price beyond the rate at which it could oth- erwise have been afforded. These duties then are a tax on all consumers of the commodities on which they are laid, and as the commodities on which duties are thus paid, are usually articles of general consumption, the bur- den, as before, comes upon the community at large. It will also be the case, that the benefits of the experiment, if successful, will eventually accrue to those, by whom bounties and restrictive duties have been paid. For when 17 194 POLITICAL ECONOMY. the new branch of production, thus introduced, become^ estabHshed, it may be expected, that the products suppli- ed will be furnished at a lower price, than that, at which foreign products of the same kind had previously been sold. From this statement, then, we learn the nature of restrictive duties and bounties. Let us now direct our attention to the other inquiry proposed — the nature of the instances, in which this as- sistance may be extended. And here, I would refer to what has already been said on the order, in which the dif- ferent branches of production naturally spring up in a coun- try, first those of an agricultural kind, and afterwards of a manufacturing and commercial. We have seen, that the time will arrive in the progress of every nation, when the developement of its territorial advantages, and the profita- ble employment of its capital and industry, with other fa- voring circumstances, may require the introduction of new branches of production. Whenever, then, in respect to any branch of production not existing in the country, it is supposed, that this time has arrived, the attempt to in- troduce it should be made. And if, as will generally be the case when competition with other nations is to be met, this attempt may be attended with much expense, and be doubtful in its issue, but of general benefit to the community if successful, it is manifestly incumbent on the government of the country, to defray in some form from the public revenues, the charges of the experiment. And unless the attempt be prematurely and unwisely made, the branch of production thus introduced, will soon be able to sustain itself and prove advantageous to the pub- lic. Here then, it may be added, that if, after an experi- ment of this kind has been fairly made, it is found, that ON THE RESTRICTIVE SYSTEM. 195 foreign products, burdened as they are with the cost of transportation and other incidental charges, can be afford- ed at a lower price, than those of home production, there is no reason, why the public should continue to be sub- jected to duties or bounties, for the support of this branch of domestic production. That a branch of production may be introduced in the manner that has been stated, and in the end prove highly advantageous, is seen in the history of the manufacture of cotton fabrics in this country. CHAPTER XI. On the restrictive system. In the history of Political Economy, different schools are found, attaching undue importance to each of the three great divisions of human industry. The doctrines of the Economists, who advocated the superiority of Agriculture, have been stated. A theory of earlier date, was that which bore the name of the Mercantile System. The basis of this system was the now exploded doctrine, that national wealth consists in money ; and the leading object which it proposed, was by commercial regulations to se- cure an increase of wealth, as thus defined. Hence, for many years the struggle among nations adopting this theo- ry, was to secure what, by the supporters of this system, was denominated a favorable balance of trade. The meaning of this phrase and the reasoning on which this policy rests, may be learnt from the following statement ; 196 POLITICAL ECONOMY. When the exports of a country exceed its imports, the balance will be received in money ; and as money con- stitutes the wealth of a nation, the balance of trade will in this case be favorable. On the contrary, if the imports exceed the exports, this excess can have been obtained only in exchange for money sent abroad ; in this case then, it was supposed that the national wealth was dimin- ished, and the balance of trade was said to be unfavorable. It is not a little singular, that this theory, once so ge- nerally adopted, and forming the basis of the commercial policy of the most powerful nations of the earth, is in di- rect opposition to facts and correct principles. The other system to which reference has been made, was called the Manufacturing System. It had its origin in the state of society, and in the institutions of the feudal governments of Europe. In those troubled times, when the power of princes was often unsuccessfully resisted by the greater barons, the former, with the design of strength- ening their cause, endeavored to conciliate the favor of the towns and cities which had sprung up in the country, and which were engaged in manufactures. Hence spe- cial privileges were granted to those towns and cities, per- taining to the branches of industry in which they were em- ployed. The exportation of raw materials used in the manufactures established in the country, and also of bread- stuff needed for the support of those thus employed, was forbidden on heavy penalties, and at the same time abso- lute prohibitions, or heavy duties, were laid on foreign manufactured products, to prevent their importation from abroad. This was called encouraging domestic industry, and other regulations relating to the same object, were adopted. ON THE RESTRICTIVE SYSTEM. 197 Such was the origin of the Manufacturing System, which was found to accord well, in the measures adopted for its support and furtherance, with the Mercantile. The same regulations, — the same restrictions and prohibitions, which were supposed to be advantageous in securing a favorable balance of trade, were also thought to afford the desired protection to domestic industry. Hence the two systems became blended together, and for many years the correct- ness of the principles on which they were founded, was unquestioned.* The remains of these once celebrated systems of Polit- ical Economy, have come down to us in these later times under the form of tariff regulations, constituting what is usually called the restrictive system. And here we ap- proach the much agitated question, how far it is expedient that a system of this kind should form the basis of nation- al policy. On this question, which has divided public opinion in this country, a few simple propositions will now be advanced. This, it is conceived, is all that is requir- ed in an Elementary work on the science of Political Economy. A restrictive system when fully adopted by any nation, is designed to effect the following results ; 1. To prevent the importation of foreign manufactures into the country. 2. To secure for its own manufactures a command of foreign markets. 3. ' To prevent the exportation of raw materials, used in those branches of manufacture which have become es- tablished. *For a more full account of these systems I refer to Smith's Wealth of Nations, Book 4. I9S POLITICAL ECONOMY. 4. To encourage the importation of the same raw ma- terials from abroad. These results it seeks to effect in the following ways ; 1. By direct prohibitions. By direct prohibitions, are .meant laws relating to exports and imports, with heavy penalties attached to their violation. 2. By prohibitory duties. Suppose that broadcloth of a certain quality can be manufactured in England and sold in this country for five dollars per yard, while cloth of the same quality manufactured here, cannot be afforded under 6ve dollars and a half. But to prevent the importation of this cloth, and thus give encouragement to domestic in- dustry, a duty of seventy five cents per yard is imposed. In this way, then, the duty becomes prohibitory in its na- ture ; for foreign manufacturers, when compelled to pay this duty, can no longer compete with our own manufac- turers of the same class, — they cannot pay this duty, and sell their broadcloth for what it can be furnished in this country. 3. By pecuniary bounties. Suppose this same broad- cloth to be sent to the markets of South America. Cloth of the same quahty manufactured in England, is sold there for five dollars, but the manufacturer in this country can- not afford it under five dollars and a half. To counter- balance this advantage on the part of the English produc- er, the Government of the United States pays a bounty of seventy five cents per yard on broadcloths of this quali- ty exported from the country. Thus, then, the Ameri- can manufacturer is enabled to undersell the English, and obtain command of the foreign markets. This is an in- stance of a pecuniary bounty. 4. By drawbaclcs. A drawback is a tariff regulation, ON THE RESTRICTIVE SYSTEM. 199 by which the duties paid on any article are under certain circumstances paid back, or excepted. Suppose a duty of two and a half cents a pound to be laid on common brown sugar, to be repaid, or not required, on the sugar subject- ed to the refining process of manufacturing into loaf sugar. This would be an example of a drawback. From this concise statement, the objects of a restrictive system and the methods adapted to effect these objects, may be learnt. I remark then, 1. That so far as a restrictive system is designed to ef- fect a favorable balance of trade, it is based on erroneous principles. It can hardly be necessary to offer any arguments in support of this proposition. The notion of a favorable balance of trade, is fully refuted by the generally received doctrines on the nature of money and of the operations of foreign commerce, found in works on the science of Political Economy at the present day. Still, it is unques- tionably the case, that some nations are partially acting upon this doctrine, either from long established prejudices upon the subject, or from the difficulty of effecting altera- tions in what has become a part of a settled national pol- icy. 2. So far as a restrictive system is designed to give special encouragement and support to any branch of pro- duction, as more profitable or more necessary to a country, than other branches, it rests on erroneous principles. It is a favorite opinion with some, that certain modes of employing capital and labor are more profitable than others, or, at least, that there are some branches of pro- duction, which give more full and constant employment to capital and labor than others. Hence they are jealous 200 POLITICAL ECONOMY. of a course of trade, or any policy, which may give sup- port to these branches of production in foreign countries, and are desirous, that the government of their own coun- try may adopt such measures, as shall secure to its own citizens a monopoly of these more profitable modes of pro- duction. Perhaps also, these opinions are strengthened by the impression, that the products of these same branch^ es are specially important, because of the urgent wants which they supply, or as they render a nation less de- pendent on other nations. It will readily occur, that these opinions are in direct opposition to the explanation given of the nature of pro- duction in the first chapter of this work, — to the princi- ples laid down on the subject of exchange in the chapter on Economical Arrangements, and also to what has been said on the manner, in which capital and labor are direct- ed to different employments. Indeed they are opposed, to most of the doctrines which have been advanced, an(F it might be sufficient to make some general references of this kind, to shew that they are regarded as erroneous. But besides this general reference, I shall endeavor to shew, by a brief statement of the opposite policy, that the course thus recommended, is not only unwise, but illiberal and narrow-minded. Let us then first suppose a nation to be insulated — cut off from all intercourse with foreign nations, and depend- ent entirely on its own resources for the supply of its wants. The order in which the different branches of pro- duction would be introduced, and become established and enlarge themselves, has already been stated. The first efforts would no doubt be of an agricultural nature, accom- panied with rude and simple attempts of a manufacturing ON THE RESTRICTIVE SYSTEM. 201 kind. At a later period, domestic commerce, and manu- factures with its extended division of labor and its various forms of machinery, would be found, each advancing with the increase in the abundance and variety of national pro- ducts. In some instances, where experiments relating to the introduction of a new branch of production might be attended with risk as to success, or with unusual expense, and in which the advantages resulting would be of general benefit to the community, aid in some form might be ex- tended from the public revenues, under the direction of the national government. But with these few exceptions, the productive energies of the country would be permitted to develope themselves, unaided, and in those forms, which the wants of the community might require. Each section would adapt itself to particular branches of industry, to an extent, and in a manner, most conducive to its own wel- fare and to the general good, free from all animosities and jealousies. Those portions, which from the superior fer- tility of their soil, or other favoring circumstances, might be best adapted to agricultural production, would thus em- ploy the larger portion of their capital and labor. Other parts of the country, would for the same reason, and in like manner, become manufacturing sections, and others again, commercial. Such would be a brief outline of the economical arrangements and progress of a community, in- sulated and dependent entirely on its own resources ; and the happy results would be seen in the harmony of action, and the general prosperity of the whole nation ; each sec- tion contributing that aid, which it might be best fitted to furnish, and participating by mutual intercourse, in the pe- culiar advantages for production possessed by others. And now, why may not the same principles and the 202 POLITICAL ECONOMY. same policy, be applied with equally salutary results to the community of nations ? The diversities as to territo- rial advantages and other productive resources, which ex- ist in different sections of the same country, are found in different nations, and to a more marked extent. One na- tion possesses peculiar advantages for agricultural produc- tion, another for manufacturing, and a third for commer- cial. Why then should not these peculiar advantages be turned to the best account by each ? It is not here meant, that a nation should limit its productive efforts to one branch, entirely excluding or neglecting others. This would be impracticable, or attended with much inconvenience in respect to different sections of the same country, and much more so, if attempted by different nations. All that is meant, is, that the larger share of the capital and labor of a nation, should be directed to those branches of production, in which, from territorial advantages, or other favoring circumstances, it is fitted to excel. Neither in this, case, any more than in the former, ought the attempt, which may be made to introduce a new branch of produc- tion, to be regarded with jealous feelings and opposed. If in the progress of a nation, the time has arrived, when its resources and circumstances require, and justify, the introduction of any branch of production, not before exist- ing, the attempt to introduce it, should be made. In this case, there will be competition between different nations, as there will between different sections of the same coun- try, but it should be open, fair, and generous. The policy now described, will at once be recognised, as that which has received the name of the free trade system, as opposed to the restrictive system, which forms the sub- ject of our present enquiries. And there can be no doubt, ON THE RESTRICTIVE SYSTEM. 203 that were this system fully adopted by the nations of the earth, the peace and happiness and prosperity of the human race would be promoted. Many jealousies and animosi- ties, which now exist, would cease to be felt, and a fruit- ful source of wars and contentions would be removed. It would seem too that the very object, which the support- ers of the opposite system propose to attain, would be se- cured, since the most profitable modes of employing cap- ital and labor would be found. For what more advanta- geous course can be adopted, than that each nation should engage largely in those branches of production, to which its territorial advantages and other circumstances are best adapted. Some perhaps will object to the system of free trade, that a nation thus becomes too dependent upon others, — that in the case of the breaking out of a war, or of any event, which might hinder or prevent the intercourse between nations, serious inconveniences and evils would arise. In answer, it may be said, that the exclusive at- tention of any nation is not supposed to be given to any one branch of production to the neglect of others. It must always and necessarily be the case, that a large pro- portion of the products consumed by a nation, must be fur- nished within its own limits. Especially is this true of most products of general consumption and primary impor- tance. Hence, then, though in the case supposed incon- veniences might arise, the consequences would not be so serious as is feared. There is also another view to be taken of this subject. Were the free trade system gener- ally adopted by nations, as the basis of their commercial / intercourse, it would present one of the most effectual ^ checks to wars, that could be desired. For it would then 204 POLITICAL ECONOMY. be seen and felt, that no nation can engage in war, with- out cutting the sinews of its own strength, and bringing up- on itself, as well as upon its enemy, the most serious losses and privations. Instead then of an objection to the free trade system, there is here found a strong argument in its favor. (M- C^H^A^ I- But others object to the free trade system, that it is opposed to the generally received maxims of state policy, and that its adoption would require an entire revolution in the principles and modes of intercourse among nations. Allowing the correctness of this inference, it is evidently no argument against the system itself. A statement of this kind may shew, that a change of commercial policy might be attended with many difficulties, and should be made gradually, and with great caution, and this is all that it proves. To bring it forward against the system it- self, would be to beg the question, for the very point at issue is, whether the generally received maxims of state policy, and the course of measures based upon them, be not selfish, narrowminded and injurious to the general good — such as should be discarded. But it may be the case, that the free trade system is not opposed to the soundest maxims of state policy, as is sometimes supposed. It may be but another, and a more distinct and sure way, of securing the most important of those results, which are the aim of those who oppose it. Indeed, the two systems difier from each other, not in respect to the end which is to be attained, but in the measures proposed for its attain- ment. The restrictive system is based on the doctrine, that the prosperity of a nation is to be promoted, by se- curing for it special privileges and advantages to the dis- paragement of other nations. On the contrary, the free ON THE RESTRICTIVE SYSTEM. 205 trade system maintains, that all nations may advance to- gether prosperously, and that the welfare of each will be promoted by that of others. Thus, while the former ad- dresses itself to the selfish principles of our nature only, the latter makes its appeals both to the benevolent feelings, and to the desire felt by every nation for its own advance- ment. But perhaps it may here be said, that the propriety of restrictive measures when designed to assist in the intro- duction of a new branch of production, has been admit- ted, and that the same measures should be continued, to give support and encouragement to the branches of pro- duction thus established, or to others equally important. To meet this statement, and make prominent the distinc- tion in the two cases, I offer a third proposition. 3. So far as a restrictive system is designed to assist in the introduction and establishment of new branches of production, which, when thus introduced and established, are advantageous to the community, — or so far as it affords protection to any important branch of production ex- isting in the country, against the attempts of foreign coun- tries to break it down and destroy it, — or so far as it gives support to a branch of production necessary for the de- fence of a nation, it rests on sound principles, and should be adopted. This proposition, it will be noticed, consists of three distinct parts, which are exceptions to the preceding propo' sition. These exceptions, one of which has already been considered, are stated together in this manner, because they rest on the same general principle which has before been partially exhibited. It is the following ; All re- strictive duties, bounties, prohibitions &c. that is, all the 18 aOS POLITICAL ECONOMr^ measures of the restrictive system, are to be looked upon in the same hght as taxes — burdens imposed upon the in- habitants of a country for the pubhc good. That such is the nature of these measures is inferred from the fact, that they are attended by an advance in the price of com- modities, and this advance is an indirect tax on all consum- ers. Here then it is proposed to apply to this particular form of taxation, the same inquiries, as arise in relation to other taxes. Is the benefit to be secured such as to jus- tify the imposition of the burden ? And it is the answer to this inquiry, which leads to the distinction between the case stated in the second proposition and the excep- tions which make up the third. The distinction is as fol- lows : A tax, or burden in the form of restrictive meas- ures, may be imposed upon the public, to meet the ex- pense of an experiment for the introduction of a new branch of production, or of affording protection to a branch already existing against an attempt to break it down, — or to support a branch essential to the public defence, because in each of these cases, the public will derive a benefit as an offset to the burden imposed. But a tax, or burden thus imposed, merely to give sup- port or encouragement to a branch of production afford- ing more profitable employment to capital and labor, or to secure for it undue advantages in foreign markets, is not to be justified from any advantages which are thus con- ferred upon the public. It may prove advantageous to those immediately concerned in the production of the fa- vored commodities, but the consumers — the nation gen- erally, instead of deriving any ultimate benefit, will be subjected to continued losses. Let us now look more particularly, at the excep- THE RESTRICTIVE SYSTEM. 207 dons to the free trade system, which make up the third proposition. Of the first, enough has already been said in the preceding chapter. In respect to the second ex- ception, which relates to protection against foreign aggres- sions, it may also be shown, that the interference of gov- ernment is needed, and that aid thus extended will in the end prove advantageous to the whole community. To justify restrictive measures on this ground however, it is important, that the case should clearly be made out, to be one of aggression. If it be merely an attempt on the part of the foreign nation to introduce a branch of produc- tion, w^hose introduction is deemed to be required by the circumstances of the country, it should, as before stated, be met only by fair and generous competition. Any thing more than this, is itself of the nature of aggression. But that there are instances, in which it is the settled pur- pose of one country to break down a branch of production in another, and in which great sacrifices and many unfair practices are resorted to, for the accomplishment of this purpose, cannot be doubted. And it is to such cases, that the second part of the proposition is designed to apply. It is true, indeed, that the losses which follow successful attempts of this nature, will fall primarily and principally on producers. But since the breaking down of any established branch of production, which is furnishing its products at the lowest rate for which they can be afforded, will in the end, when foreign producers have obtained command of the market, be followed by an advance in the price of the same products, the public generally are interested in pre- venting this result. Instances of this kind then come un- is all the capital the day laborer is expected to possess, and even these are sometimes furnished by his employers. The work performed by him, is also usually such as re- quires no uncommon skill, or knowledge, to execute it successfully. No preparatory training is required. Even the boy is enabled to turn his labor to account, and those whose necessities require immediate relief, at once find occupation and remuneration for their services, Of the Mechanic, It is often enjoined upon parents, whose children are to be dependent on their own labor for support, that they *' put their sons to a trade." And those parents who have forethought, and whose circumstances will allow of it, are usually ready to follow this advice. A statement of some of the reasons, on which this advice is founded, will bring to view the comparative advantages of this species of la- bor« PRODUCTIVE LABORERS. 211 1. In this way the years of boyhood and of minority ^ are turned to the best account. The apprentice to some mechanical employment, that of a house carpenter for ex- ample, is necessarily, while learning his trade, making a(> quisitions, which in after years are sources of profit to him. For when as a journeyman, or a masterworkman, he comes to the practice of his art, he will receive a remuneration for the knowledge and skill which he possesses. Thus the acquisitions of his early years become to him of the nature of capital, and he enters upon active Hfe under more favorable circumstances, than he whose youth has been spent, either in idleness, or in the employments of common day labor. 2. He who practises a trade, usually finds constant employment and receives high wages. A skilful mechan- ic in a thriving community, rarely wants work ; if he can- not find occupation in his own particular department of labor, he may engage in some kindred art, or in the com- mon employments of day labor. Competition will also generally secure to him high wages, for inversely in pro- portion to the difficulty and expense of acquiring any art, or trade, will be the number of those practising it. 3. He who learns a trade will probably acquire habits of industry. Constancy of employment, especially in youth, may lead to this result. The mechanic also feels a peculiar interest in his work, — there is a call for inge- nuity and a sense of reputation, which are favorable to the formation of habits of industry. 5. The prospect of advancement is before the mechan- ic. The apprentice becomes a journeyman, and if he is industrious, skilful, frugal and enterprising, he accumulates capital, and is enabled himself to undertake and conduct 218 POLITICAL ECONOMY. work in his own department. He becomes a master workman, has others to assist him as apprentices and journeymen, and thus the way to competency, if not to wealth, is open to him. Of the Manufacturer. When we speak of the manufacturing laborer, we have in view those employed in large manufacturing establish- ments, in which division of labor and the free use of ma- chinery have been extensively introduced. This branch of labor recommends itself principally by its simplicity, and by the ease with which it is performed. As remarked in another place, it is often the mere watch- ing and waiting upon machinery, which itself does all the work. Hence in this branch of industry employment is afforded to those of immature age, and to females, and thus the manufacturer not only receives a remuneration for hia own labor, but for that of the different members of his family, for whose support he is bound to provide. Full and constant employment is also usually furnished to the manufacturer. The outlay of capital in manufac- turing establishments is generally large, and it is the in- terest of those on whose account the business is conduct- ed, that the different processes should be rapidly execu- ted, and succeed each other without delay. Hence, in these establishments, the laborer is employed as many hours and as constantly, as he can endure to labor. ' The rewards of manufacturing labor are also generally higher, than are received by the same laborers in other departments of industry. The child earns a small amount, who would not probably in any other way earn any thing. PRODUCTIVE LABORERS. 213 The female earns much more, than she could otherwise obtain, and as the remuneration of the manufacturer is generally dependent on the amount of work done, the skilful and industrious often acc^uire more than the average rate of wages. But while some advantages are found in this depart- ment of labor, there is no one, against which stronger ob- jections have been urged ; hence these objections require a distinct consideration. 1. It is said, that the manufacturer is more dependent on his employers, than other laborers. In the minute ex- tent of division to which manufacturing labor is carried, the individual laborer is limited to the fractional part of a process of production. All the skill and knowledge which he possesses, extend to this single process, and his efforts are of avail only in connexion with others. When sepa- rated from his fellow laborers, " he is a mere adjective, without individual capacity, independence, or substantive importance." Thus, it is said, the manufacturer is com- pletely in the power of his employers. They may reduce his wages, or require him to work more hours in the day, or impose upon him in any manner they see fit, and he has before him the alternative of submitting to these im- positions or of being deprived of that employment, to which alone from his previous habits and acquirements he is fitted. It must be acknowledged, that in those countries, where the laboring population is large, and where employment is found with difficulty, especially where injurious regulations exist pertaining to freedom of trades and apprenticeships, there will be some ground for this objection to manufac- turing labor. Even here, however, the power of th^ 214 POLITICAL ECONOMY. master-manufacturer, or undertaker, over those employed by him, is not so great as it is often supposed to be. So excessive is the extent to which competition is carried in tlie manufacturing establishments of these countries, and so important is it from the large amount of capital employ- ed, that the operations of these establishments should go forward without interruption, that employers are almost as much dependent on laborers, as the latter upon the for- mer. In our own country, or in any country where there is a demand for labor in its different departments, and where a laborer is permitted to change his occupation, as may suit his convenience or pleasure, this objection to manufactur- ing labor is little felt. 2. A second objection brought against manufacturing labor, is, that it is injurious in its effects on the mental habits and capabilities. It is said, that when a laborer is thus confined to one operation, which is repeated inces- santly and with no variation, he becomes a mere machine, or rather the part of a machine. His mental powers, be- ing left unoccupied, become torpid and enfeebled by inac- tion. Being also employed in this manner from early childhood, and enjoying no opportunities for acquiring knowledge, he becomes profoundly ignorant, and sinks low on the scale of intellectual being. To the objection as thus stated, it is replied, that the evil effects enumerated, are not necessary consequences of being employed in manufacturing labor. They result rather from the extent, to which competition is carried in this department of production. Every master- manufac- turer is endeavoring to bring his products to the market at a lower cost of production than others. It is for this t PRODUCTIVE LABORERS. 215 end, that children of an immature age are kept employ- ed many hours in the day, to the injury both of their health and of their education. It is on this account, also, that, through his whole life, the manufacturing laborer is pushed to a degree of effort and a constancy of employ- ment, which leave him no time for the cultivation of his mind, and which are in other respects injurious to him. The objection then, that has been stated, is to be urged against the extent, to which competition is carried in man- ufacturing production, and not against the department of labor itself. And further, in respect to the mind's being narrowed and enfeebled by being engaged in one simple manufac- turing operation, it is said, that it can make no difference as to the mental culture and habits of the laborer, wheth- er the part of the work performed by him consist of one simple act, incessantly repeated, or of two, or even three, simple acts thus repeated. In neither case is there a ten- dency to enlarge and strengthen the mind. It may also be added, that the more simple the task to be performed, and the more mechanical the manner in which it is exe- cuted, the greater will be the amount of leisure afforded, and the better the opportunity for profitable and improv- ing reflection. 3. Another objection brought against the situation of the manufacturing laborer, is, that it is unfavorable to health and to morals. It is said, that the labor performed by the manufacturer is in many cases injurious, cramping the body, and not giving ft free and healthy exercise to its different powers. Sometimes there is exposure to noxious gasses, to wet, and to unwholesome degrees of tempera- ture. The state of the atmosphere in these establish- 216 POLITICAL ECONOMY. ments is also not unfrequently unhealthy, the apartments of the laborers being crowded and badly ventilated. It is also said, that where large numbers are thus collected to- gether, some of whom are corrupt in principle and in con- duct, a bad moral influence is exerted. To support both these positions, appeals are made to facts. It is asserted, that of manufacturing laborers, a large proportion are sick- ly and short-lived, and that many are immoral. That there is some validity in these objections to man- ufacturing labor, is generally allowed. At the same time however, it is maintained, that they exist in respect to other employments, besides manufactures. All kinds of labor requiring sedentary habits, are injurious to most con- stitutions, especially if pursued with great constancy and effort. There are also in other employments exposures to noxious gasses, to unfavorable temperatures and atmos- pheres, but in all instances of this kind, the risk incurred, is to be recompensed by a higher rate of wages. As to the frequent instances of sickness and mortality referred to, it should be remembered, that where population is condensed, such cases are more generally known and re- marked upon. To the other part of the objection we are considering, which relates to the immoral influences connected with manufacturing establishments, it is replied, that such influ- ences are by no means necessarily attendant on the con- dition of the manufacturer. And if he is so situated as to be peculiarly exposed to temptations, which may lead liim astray, influences of an opposite nature may also be brought to bear upon him with much effect ; for where a popula- tion is condensed, they are in favorable circumstances to receive moral and religious instruction. As to the fre- PRODUCTIVE LABORERS. 217 quency, with which instances of immorality occur, in a crowded manufacturing population, the same remark may be made, as was suggested respecting cases of sickness and death. We have the impression, that they are fre- quent, because they occur within a very limited extent, and all come under our immediate observation. In considering the replies, which have now been made to the objections brought against manufacturing labor, it will be noticed, that though they in some measure obviate these objections, they do not fully remove them. It may be true, that many of the unfavorable influences, both moral and physical, to which the manufacturing laborer is exposed, are not necessarily and in their nature connected with this form of human industry, yet if they are wont to attend upon it — if there is a strong tendency to that ex- cessive competition, from which it is allowed many of the evils, which have been referred to, result, there is reason, why those who engage as laborers in this branch of indus- try, should guard against the temptations to which they are exposed, and why those appointed to watch over the welfare of the community, should adopt such measures on this subject as the public safety requires. Of the Farmer. In this country, the farmer is usually the owner of the soil which he cultivates, at least of the capital used in con- ducting his farm, and often of both. He works himself, employing others to assist him who are hired by the day, the week, or the month, as circumstances may render convenient. I propose then, in considering the interests of the agricultural laborer, to look at the farmer himself, 19 218 POLITICAL ECONOMY. viewing him not so much in his capacity of landholder, or capitalist, as in that of laborer. And here, as this topic is one of common remark, it is unnecessary to do more, than make a simple enumeration of the advantages and disadvantages, pertaining to this branch of industry. 1. It is a healthy employment. The labors of the farm, which are performed for the most part in the open air, seem well adapted to the human frame and the hu- man constitution, and there is generally more of health and of hardiness in this class of laborers, than in any other. 2. It is a pleasant employment. There is variety in its labors, and variety is always grateful. It is pleasant also to watch the progress of the fruits of the earth, and to assist in rearing and maturing them. It is permitted to the husbandman, says Cowley, '^ to see all his gar- dens and fields covered with the beauteous creations of his own industry ; and to see, like God, that all his works are good." 3. It is a moral employment. The temptations to vi- cious indulgences, which offer themselves to the farmer, are far less numerous and urgent, than those which assail laborers in most other occupations of life. It would seem also, that he whose daily labors are in the midst of the works of God, and who receives the gifts of Providence direct from the hands of the Great Giver of every bles- sing, must be a religious, and of course a moral man. 4. It is an employment, ivith ivhich respect and influ- ence are associated. Though from the economical ar- rangements of society, the farmer is no less dependent on other classes of the community than these classes are upon him, it is apparently otherwise. He furnishes the PRODUCTIVE LABORERS. 219 food, with which himself and other laborers are sustain- ed. He furnishes also the materials of manufacturing and commercial labor. Thus every thing seems to ori- ginate with the farmer, and hence he regards his employ- ment as one of great importance, and others accord to him the same estimation. Of the objections made to agricultural labor, none are deserving of much consideration. It is sometimes said, that the labor of the farmer is hard work, and that there is much drudgery attending it. Others object to the lonesomeness of his situation — that there is little oppor- tunity for the indulgence of the social feelings. Others again think that the gains of the farmer, though sure, are too slowly made ; they would have more of adventure and excitement. Of these and similar objections, it may be said, that they will arise, and the force of them will be felt, according to the characters and habits — the modes of thinking and feeling, which pertain to different individ- uals. Hence they do not here require a distinct and separate notice. Of Commercial Laborers. A division may be made of those in this department of production, including under one head such as are directly engaged in the purchase and sale of commodities, and under the other, those employed in the subordinate parts of commercial labor. In the former class, are to be rank* ed the retailer, the wholesale merchant, the exporter and importer. In the latter, are included clerks and those employed in the transportation of goods, as porters, dray- men, sailors &c. 230 POLITICAL ECONOMY. There is much in commercial pursuits to invite the at- tention of those who are entering on the business of life. In this department of production, the love of adventure, which is so deeply fixed in the human breast, is gratified. Instances are not unfrequently occurring, in which those who have started in life with small beginnings, become men of large possessions ; and in the anticipations of youth, many are ready to mark out for themselves a course of life equally successful. The employments of the merchant are also exciting, especially as connected with the rise and fall of prices and the various fluctuations of the market. But while many considerations allure the young and enterprising to commercial pursuits, the amount of capital which is needed, tends to limit the number of those who thus employ themselves. Skill and tact for business of this kind, and in some cases much knowledge, are also re- quired. Add still further, the risk and responsibility in- curred, for while some who engage in commercial pur- suits make fortunes, others become bankrupts. Of those who perform subordinate offices in the work of commercial production, many are job or day laborers, and the principles before stated apply to them. But there is one class of these subordinate laborers — the sailor — which requires a distinct consideration. There are other inducements besides those of an eco- nomical kind, which lead many to encounter the hardships and toils of a sea-faring life. Curiosity is gratified in the opportunity presented of visiting different countries ; and perhaps the dangers of the sea, as they call for a degree of hardihood and daring, are for these reasons more sought for by the young and adventurous. Economically PRODUCTIVE LABORERS. 221 considered, there is little to recommend this kind of em- ployment. The remuneration of the sailor is apparently liberal, should all that he receives be looked upon in the light of wages ; but if a fair deduction be made for the risks that he runs, and also for the injury sustained by his constitution from the fatigues and hardships, to which in times of peril and difficulty he is exposed, the amount left as wages becomes much reduced. Some time also must be spent, and many risks run, in acquiring the knowledge and skill of the accomplished sailor. On the other hand, it may be said, that though the labor of the sailor is at times difficult and severe, it is not so unremit- ted, as that of the farmer and manufacturer. There is also a prospect of advancement to the active and enter- prising seaman, who obtains knowledge and skill in his employment, and whose character gives a title to confi- dence and trust. But of the thousands who enter on this pursuit, how few are there whose course is successful ! How large a proportion are either swallowed up in the deep, or fall victims to the temptations that assail them ! The efforts, which the humane and benevolent are now making to improve the condition of the sailor, leading him to become more provident, and rescuing him from the vices to which he is peculiarly exposed, are effecting much in making the situation of this portion of the community more elisible. ^ 19* ^ibrarif. _i JUN 9 - t9Sg 2 5 3 5m- 12, '24 YB 6^/^02 C0M5M717HH y UNIVERSITY OF CAIvlFORNIA UBRARY