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versity by Milton S. Florsheim, a
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J.'OSt the
QUARTERLY JOURNAL
OF
ECONOMICS
Vol. V. JANUARY i89r No. 2
CONTENTS
PAGH
I. THE VALUE OF LABOR IN RELATION TO ECO¬
NOMIC THEORY - James Iionar 137
II. REFORM IN RAILROAD PASSENGER FARES - 165
Edmund J. James.
III. THE TOBACCO TAX - Frank L. Olmsted 193
IV. THE VEREIN FUR SOZIALPOLITIK
Ewjen con Philippovich 220
NOTES AND MEMORANDA 238
The Growth of Capital and the Cause of Interest - 242
The Theory of Emigration -
RECENT PUBLICATIONS UPON ECONOMICS - - - 254
APPENDIX.
RATIO OF THE COST OF LABOR TO THE WHOLE COST
OF THE MANUFACTURED ARTICLE - 261
STATISTICS RELATING TO THE TOBACCO TAX IN
THE UNITED STATES, 1863-90 ----- 262
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tigators and students.
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Among the writers for numbers already issued were: —
Prof. DUNBAR, of Harvard University.
Prof. FOX WELL, of Cambridge, England.
Prof. HADLEY, of Yale University.
S. DANA HORTON, Esq.
Prof. T. L. LAUGHLIN, Cornell University.
Prof. MARSHALL, of Cambridge, England.
Prof. MACVANE, of Harvard University.
Prof. NASSE, of Bonn, Germany.
Prof. R. M. SMITH, of Columbia College.
President ANDREWS, of Brown University.
A. db FOVILLE, Paris, France.
Prof. BASTABLE, University of Dublin.
Prof. GIDDINGS, Bryn Mawr College.
F. J. STIMSON, Esq.
Prof. TAUSSIG, of Harvard University.
President WALKER, of the Mass. Ins
of Technology.
CARROLL D. WRIGHT, of the Nai
Labor Bureau.
JAMES BONAR, London, England.
STUART WOOD. Philadelphia, Pa.
Prop. PATTEN, University of Pennsylv;
SEYMOUR DEXTER, Esq.
N. P. GILMAN, Esq.
Prof. BOEHM-BAWERK, Vienna, Aus
CONTENTS FOR JULY, 1890.
I. CO-OPERATIVE PRODUCTION IN FRANCE AND ENGLAND Edward Cur
II. THE RESIDUAL THEORY OF DISTRIBUTION . Frederick B. I
III. THE SILVER SITUATION Horace
IV. FREDERIC LE PLAY H.
NOTES AND MEMORANDA.
The Conversion of the English Debt. A. C. Miller.
Changes in the Form of Railroad Capital. Thomas L. Greene
RECENT PUBLICATIONS UPON ECONOMICS
APPENDIX.
A FAMILY MONOGRAPH OF LE PLAY'S.
THE RAMPAL LEGACY TO AID CO-OPERATIVE SOCIETIES.
Amos G. \
S. M. M;
Chauncey
Henry h
CONTENTS FOR OCTOBER, 1890.
I SOME EXPERIMENTS ON BEHALF OF THE UNEMPLOYED
II. BOEHM-BAWERK ON VALUE AND WAGES ....
Ill A CENTURY OF PATENT LAW
IV. THE SOUTHERN RAILWAY & STEAMSHIP ASSOCIATION
NOTES AND MEMORANDA
Studies on the Origin of the French Economists. Stephan Bauer.
RECENT PUBLICATIONS UPON ECONOMICS.
APPENDIX.
AGREEMENT OF THE SOUTHERN RAILWAY & STEAMSHIP ASSOCIATION
STATISTICS ON THE GERMAN LABORERS' COLONIES.
Copyright, 1891, by Geo. H. Ellis.
[.Entered as Second-class Mail
THE
QUARTERLY JOURNAL
OF
ECONOMICS
JANUARY, 1891
THE VALUE OF LABOR IN RELATION TO
ECONOMIC THEORY *
In economical inquiries, the term "labor" is confined
to continuous human exertion, for the procuring of wealth,
under social rules. It does not include mere exercise, or
venting of passion, or expression of spiritual wants, or any
(even the most toilsome) form of fraud and violence.
On the side of feeling, it usually begins in pleasure, and
passes gradually into pain. In Fourier's ideal society, the
work was to be so varied that the pleasure should never
pall; but, in things as they are, the pleasure is not the
prominent feature, for the labor is usually prolonged very
far into its painful stages. Especially by those called em¬
phatically " laborers," it is valued not for what it is, but
for what it brings (the toilsomeness being set against the
gains of it), and not as a bringer of pleasure so much as
*This paper was read before Section F of the British Association for the
Advancement of Science, at Leeds, September, 1890.
138 QUARTERLY JOURNAL OF ECONOMICS
a preventer of pain, the pain of privation. Briefly, it is
valued as the means of living; and it may become so in
three different ways : —
(1) Where (as on a Western farm in America) men
literally live on the produce of their own labor;
(2) Where (as frequently in every country) indepen¬
dent workmen live by the mle of the produce of their own
labor; and
(3) (As in most instances) where men live by working
for wui/en. Work for wages is not a universal and neces¬
sary factor of all human economy as practised on this
planet. It is rather one of the relations described by Mill,
in the Preliminary Remarks to his Political Economy, as
not necessarily arising at all, but, if arising, attended (like
any physical causes) by a train of necessary effects. At
present, wages-earning is so general a phenomenon that,
when economists reason purely from the facts of indepen¬
dent labor (in "Robinsonades "), they reason from a type
that is exceptional,* and leave us with a sense of unre¬
ality.
Now, the value of the labor of the wages-earner to him¬
self— as the means of living — cannot be fully considered
apart from its value to the employer as a means of pro¬
duction. The employer values it by what he expects to
get from it. What he buys from the laborer is not the
opux operation, but the operatic,— not the thing made, but
the labor of making it. Professor Sidgwick, indeed, de¬
scribes wages as a case of purchase, u purchase of the result
of a week's labor " (Political Economy, p. 318); but he
himself notes the difference between remuneration for work
of any kind and the gains obtained from mere ownership
(p. 321). Inter alia, we may note that men employed in
profitless work, like the sinking of a shaft for coal in the
wrong place, must get their wages, although their work is
*Even in Adam Smith's time the proportion of independent to hired labor
was only as 1 to 20. Wealth of Nations (McCulloch's ed.), p. 30.
TEE VALUE OF LABOR
139
unsuccessful. The distinction between payment for the
labor and payment for its result is not due merely to
division of labor. It is a difference in the method of
adjusting the joint production and settling the conditions
of collaboration. If a man makes stockings at home for
sale, his labor is called " independent": it is a case of
ordinary purchase and sale, and the returns he gets are
like the returns to any trader. He depends directly
on the price of the article made: the worker for wages
depends only on it indirectly. The first meaning of
"wage" was (as in French gage) pledge or stipulation.
The essence of work for wages is that some one other
than the laborer is oivner of the goods made, and is the
seller of them and gets their price, while he pays the la¬
borer a stated or stipulated sum * for his labors in making
the articles for him. The situation of independent laborers
is no doubt very often much worse than that of earners of
wages; but the difference of the two relations is (I think)
distinctly marked, on whichever side the advantage lies
in regard to well-being. It is the latter of the two that
will be specially considered here.
Keeping to the employer's point of view, we inquire
whether the labor which he hires for wages is simply on
the same footing as any other " commodity" which the
employer uses in his apparatus for production. The an¬
swer is that free labor, though roundly described as a
commodity (by Adam Smith and Burke, for example), is
not a commodity in the same sense as (1) raw materials,
(2) machinery, (3) live stock, or (4) slave labor.
It is like the first (raw materials or consumable goods)
in this particular,— that, when made a means of produc¬
tion, it usually admits of a variety of uses,f and in the
*The essence of wages is that they are stipulated beforehand. Walker,
Wages Question, p. 270.
t Professor Edgeworth has well shown, in criticism of Dr. Bohm-Bawerk
(Positive Theorie, p. 408), that this feature is not peculiar to labor. Academy,
4 May, 1889.
140 QUARTERLY JOURNAL OF ECONOMICS
hands of business men of normal shrewdness is turned at
any given time to the purpose most profitable at that time.
Like consumable goods, "Millions of men can be converted
into wealth by proper management." But, unlike raw
cotton, iron, or wood, the labor of men is one of the
active elements in the process of production, and has
from this point of view more analogy to the work done by
machinery. Both are valued for what they bring; and,
unlike the machine, the laborer, when he ceases to be
profitable, can be dismissed without becoming (to the
employer) a positive loss. If we compare him to a horse,
however, we go a step nearer the reality. The very in-
separableness of the service from the rorjjax of the server
(remarked by Brentano as distinctive of labor) finds
analogy here. The horse working on a farm or a factory
must on business principles make enough to repay his
food and lodging ; and his " wages " are thus in a sense
dependent on the produce of his work, though at first
advauced out of produce already in possession of his em¬
ployer.*
So it is with laborers. The employer will not pay more
wages than he thinks it worth his while to pay, and he
will pay less if he can. The expensiveness of a laborer's
training is nothing to him ; and he pays him out of the
product only in the sense in which he pays his horse out
of it. There is as much reason under this analogy for
speaking of a horse-keeping fund as of a wages fund.
Even slaves are simply a clever and useful live stock.
By American law before the war, they were simply
chattels. They have all the advantages and all the
drawbacks of complete dependence. Their defects, as de¬
tailed, for example, in Cairnes' book on the Slave Power,
are not different in principle from those of any other
* Senior calls working cattle or horses " animated machines": they have
the drawback, he says, of consuming what might have fed men. Rate of
Wages, p. 44.
THE VALUE OF LABOR
141
live stock. The position of free men is, on the contrary,
unique and sui generis. Emancipation is a fact from
which we may not abstract; and it weakens all the pre¬
vious analogies. It involves, among other things, the
possibility of a short service system, where either party
is free to get rid of the other when he thinks their existing
relations unprofitable for him. This is the relation of
wages-earner and employer ; and the implied power of
the wages-earner to mutiny or desert is really the germ
of all improvement in his condition. Of his own free
will he hinds himself to work for another man on terms
fixed before the work is begun. But in this, as in all
other bargains, there may be such weakness on one side
that the freedom of contract is merely nominal, and
there is no alternative but to sell or starve. Such is,
in fact, the lowest form of wages-earning. The laborer
is dependent through his poverty. He has no reserves,
and lives only by what he can get from day to day. W e
have an instance as old as the books of Moses: "The
wages of him that is hired, shall not abide with thee all
night until the morning" (Lev. xix. 13) ; and in our own
time wages in London docks are still paid by the day.
The laborer is dependent through his ignorance, which
would itself prevent him (if his poverty did not) from
taking occasion by the hand and exercising any option*
in regard to his employment. The competition is all on
one side ; and, if his services are a commodity, they are
one which the sellers are known to be anxious to sell at
any price that will save from starvation.
When combination gives the workman a real power of
choice, or at least of holding out and not depending on
this day's earnings for to-morrow's food, then his labor
becomes more really like a commodity sold under effec-
*See Loria, Propriety Capitalista, i. 120. Of course the "option" might
he only between work and workhouse.
142 QUARTERLY JOURNAL OF ECONOMICS
tive two-sided competition, by sellers who are in a posi¬
tion to " higgle," and who can have their word to say
in the fixing of the price.* The power of laborers' com¬
binations may become even greater (especially among
skilled laborers) than the power of employers; f and in
this case we have probably a higher kind of wages-earning
than that of hired managers, whose position is usually
counted the highest. Such managers are paid, say by
a joint stock company, a stated salary, like ordinary
workmen, and (like them) are not owners of the business
they work for or sharers in its profits, or even sharers
in its losses, except in so far as, like the workmen, if
the business fail, they lose their situation. They would
be employers if they could, and want only the capital
and opportunities. When business was simply or mainly
execution of orders given in advance of the work done,
and not, as it largely is now, anticipation and courting
of a market, then it was comparatively easy for workmen
to become managers, employers, and even owners of
the business they worked for. But in our time the
labor of management has to be learned, like any skilled
artisan's trade ; and, if it has not a specific product of
its own,:}: it involves at least a specific faculty, improvable
by training. We think of it in connection with employ¬
ers rather than with workmen, because it is only the
men who have been associated with capitalists that are
likely to be in a position to learn the conduct of a busi¬
ness. Nowadays the farm laborer can hardly hope to
be a farmer. On the other hand, the hired manager may
hope with borrowed capital to become his own manager,
* See Brentano, Arbeiterverhaltnisse im heutigen Recht, pp. 145, 295.
+ The latter are more tempted to make a separate peace. Brentano, 139.
Witness the issue of the coal strike in March, 1S90. Cf. also Samuda's
evidence, Trades Union Commission, 1307-4)9. "The men are, in fact, masters
of the situation," 10712. Cf. ibid., Williams, 9St>0.
{ See Macvane-Walker controversy, Quarterly Journal of Economics, 1387-88.
THE VALUE OF LA1I0B
143
as, contrariwise, most of lis know instances where a man
unsuccessful] in business for himself has subsided into the
position of hired manager for another. When the pro¬
prietor of a business is his own manager, the wages of
superintendence are difficult to distinguish from his prof¬
its. A part of his gains would have been a manager's
salary if he had hired a manager, but we have to allow
for the additional stimulus to efficient labor that acts on
the owner as distinguished from the hireling; and we
can only separate the profits of the business clearly from
the wages of its management when the latter are specified,
as in the case of a bailiff on a farm, or of a railway or
bank manager. We shall then still be dealing with a
case of wages-earning, and keeping to the problem now
before us.
The problem before us is the relation of wages as part
of the employer's cost to the market value of his article.
Is there a discoverable relation between the rate of wages
and the price of goods ?
The problem would be easier if we had been free to
assume that the wages of labor were exactly on the same
footing as the price of materials or live stock. All em¬
ployers, if they are good men of business, will pay nearly
the same price for their materials and stock; and, if the
said price were permanently to rise, they might need to
restrict their business unless the price of their articles rose
too, except in the cases where they were bound by circum¬
stances to force a sale rather than restrict, and where (as
in the case of joint stock companies) they might go on pro¬
ducing for a long time at a loss. But, if we looked at an
employer's accounts, we should find that (1) the wages bill
was often the largest part of the expenses ; * (2) wages on
the whole (so far as rates, though not so far as total
amounts were concerned) varied less in short periods than
* See Appendix.
144 QUARTERLY JOURNAL OF ECONOMICS
materials; * and (3) that in different places, when we
compared the employers of one place with those of an¬
other, the rates of wages very often differed. This last
circumstance points to a fact which supplements the pre¬
vious reasons for refusing to labor the name of commod¬
ity; and that is that there ix no market for lahor in the.
xenxc for which there ix a market for eon)mothtiexf
The price, say, of raw cotton would depend on the
quantity brought to market or expected to come there,
compared with the urgency of the wants of the people
who can afford to buy it. For the last fifty years or so
for large numbers of goods there has been practically one
market, extending in our time by the telegraph over the
civilized world. The state of the supplies is known; and,
as a rule, mistakes of buyers and sellers, due to ignorance
of facts, cannot be far-reaching. The units considered are
identical. The few specified qualities and grades being
known, the number or ticket describes them adequately,
from whatever end of the earth they come. There is a
market for goods, not merely in the sense of a local assem¬
blage of traders, but in the sense of an almost cosmopoli¬
tan community of information and dealing. But there is
no such market for labor. The article " labor" is not,
from the employer's point of view, identical over the world,
but differs with the races of the world. Quite apart from
differences of skilled laborers from unskilled, which there
is no space to consider here, it is clear that men, as such,
are not identical units; nor are wages identical, when fig¬
ures are so. And, even if men were identical units, men
are less easily transportable than goods. Apart from finan¬
cial and physical hindrances, there is an obstacle to move¬
ment of a mental and moral nature. Men do not care to
* E.g., copper in 1887-90 ; iron in 1889-90. Of the increase in the expenses of
the Brighton & South Coast Railway for the half-year ending June, 1890,
£15,000 out of £4*1,000 had been due to the increased price of coal, and £12,000
to increased wages. See Standard (London', 24 July, 1890.
t See Brentano, Arbeiterverhahnisse, pp. 281, 282.
THE VALUE OF LABOR
145
leave their relatives or their friends, their country, or even
their own part of the country. " Of all sorts of luggage,
they are the most difficult to be transported." They are
perishable goods, as cattle are; and they are of slow growth.
And a demand for them, as for cattle and timber, may
need to wait some little time for its supply; and, when
they are in excess they are like a railway made where it
is not wanted,* and still remaining a source of expense for
fixed charges. Of such goods there can seldom be a cos
mopolitan, in fact not always a national, market. How
little even two closely related countries, like India and
England, know of each other's labor and wages may be
seen from the Report and Evidence of the Commission 011
Depression of Trade, 1885-86 (see, e.g., answers 4307, 4311,
6187, 4971). The supply of labor is not adapted to the
demand in proportion to the entire stock available, even
within a single country.f No doubt skilled workmen are
coming more and more to know what their fellows are
earning. But the profits of the employers, except where
they are joint stock companies declaring dividends, are
kept secret; and there is no such openness as in the market
for goods, where the two parties to a bargain are in this
way far more nearly on equal terms. To compare wages
with prices of goods is to compare products that have an
international market with a certain kind of means of pro¬
duction that has only its varying local markets. The bar¬
gain of wages is one in which it might plausibly be con¬
tended that the exceptions are the rule. There is no case
where it seems so difficult for political economy to dis¬
cover general laws. Yet, if there were no general laws
of wages, business would be more a matter of chance and
less of calculation than it is actually known to be. The
question before us need not, therefore, be deemed insol¬
uble at the outset.
*Hadley, Railroad Transportation, pp. 77, 79.
t Hence even theories like Dr. Bohm-Bawerk's are too abstract.
14() QUARTERLY JOURNAL OF ECONOMICS
It is nominal and not real wages that enter into the
calculations of the employer. The value of the labor to
him depends mainly* on the price he expects to get for
the article which the laborer has been helping him to
make; and the wages cannot permanently exceed what
the laborer is calculated to be contributing towards that
final result. IIow far can the laborer's contribution be so
exactly estimated that his retribution can be made to bear
a definite relation to it?
By the theory of the Wages Fund (which may fairly
be described as the orthodox English theory from about
1825 f to about 1870), the relation was supposed to he
determined indirectly by a general law, which fixed the
amount that could and would be advanced out of capital
for payment of wages at a given time and under given
conditions of industry. It was a " predetermined amount,"
and could have been neither more nor less than it actually
was. We may take, as an extreme opposite, the theory
that there is no general rate of wages, J and that the only
law is that particular application of self-interest (specific
and peculiar in its operation to each individual case)
which causes the several workmen employed by a par¬
ticular master to receive that retribution, and 110 more,
which makes it worth the employer's while to employ
them. Between these two extremes of absolute generality
and absolute concreteness there are, of course, middle
courses proposed, not necessarily true because they are
middle.
•Other elements, waste and delay, etc., are noticed by Walker, Wage*
Question, p. 4S.
t The date of McCulloch's article on Political Economy in the Encyclopae¬
dia Britannica.
t " I believe there is 110 such tiling: as a general rate, but every one is paid
according to what he contributes to the general industry." Jevons, Letters
and Journal, p. 271. Cf. Political Economy, iv. It>0 bid editionl, "Labor is
essentially variable," etc. Cf. 2(>7. Cliffe Leslie's denial of general law is
made from quite another point of view.
TIIE VALUE OF LABOR
147
The theory of a wages fund has had scant justice in
recent years. Mr. Francis D. Longe's Refutation of the
Wage-fund Theory of Modern Political Economy (1866),
addressed to Mill and Fawcett, seems to have made little
impression on either, though backed up by Cliffe Leslie in
Frazers Magazine, July, 1868. When Mill in 1869 gave
up to Thornton what he had refused to Mr. Longe, he
seems to have been biassed by a desire to do justice on
himself for his previous persistence in error. In any case,
he hardly states the theory in its best form; * and later
writers have too often been content to abuse the ancestors
whom they could not disown. No doubt, the theory of a
wages fund was open to criticism. The language of its
adherents too often implied that we could treat industry
as an arrested process, as if the " normal rate " were one
that actually existed, and not simply a rate towards which
there is a tendency, and divergences from which cause a
reaction.) The utmost we could have said on the prem¬
ises would have been that at any given time, etc., there is a
tendency that wages should be a certain amount. We
cannot, I think, safely use such a word as "predeter¬
mined " (the phrase of Mill in his apostasy) unless (a)
in the sense of "intended," — intended, namely, by the
employer to be just enough to allow profits to accrue to
him, if his calculations of the market turned out right,—
or else (&) in the sense of " fixed for the employer before¬
hand" by cause beyond his own control, as much as (and
no more than) the amount he pays for his machinery and
materials,— the latter notoriously variable in a large num¬
ber of cases. The meaning of the theorists seems to have
been that an increase in the employer's cost in wages
(and they ought to have added in anything else) at any
given time would have reduced his profits, perhaps to
zero. They held with Ricardo) that the rate of profits
* Contrary to his Logic, VI. vii. 470 (§ 1).
t Of. Loria, Proprietil Capitalista, p. 233.
tE.g., Political Economy and Taxation, p. 37. So Loria, Proprietil Capi¬
talista, i. pp. 147, 150, etc.
148 QUARTERLY JOURNAL OF ECONOMICS
tends to be equal, and by the usual (but somewhat dan¬
gerous) economic abstraction may be said to he equal.
This doctrine, for which Mill substituted bis more care¬
ful one of equal expectationh of profit,* is of very doubtful
truth. A list of the dividends of different companies in
the same line of business (say breweries f) brings out wide
differences in rate of profits. Now, a general increase of
wages would extinguish the profits only of the businesses
that were least profitable, and the profitableness to the
other employers of their worst hands, which is no more
than would be true of a general increase in the price of
any materials (say coal) that are universally used. In our
time it is more likely that the effect of the greater wages
will be to stimulate the surviving producers to economize
elsewhere and extend their sales, than that lessened prof¬
its will reduce production and raise prices.
We must remember, too, that, especially in the skilled
trades, every fresh increase of wages is a bait to invention.
It becomes worth the employer's while to introduce ex¬
pensive machinery. At the same cost as the hand labor,
or at a slightly lower, it gives him the twofold advantage
of securing himself against strikes and of increasing
the number of competitors for employment generally.
An attempt has recently been made to elicit a complete
general theory of wages from this connection between
wages and machinery.J Cheap machinery is to mean low
wages, dear machinery high. And no doubt, wherever
there is machinery, there is a tacit or open competition
with labor. Puddlers' wages are kept up by the compar¬
ative failure of mechanical puddling. On a Northumber¬
land farm, twenty years ago (Mr. Kebbel tells us§),
* Political Economy, II. xv. § 4.
t E.g., in May, 1890, the dividends from English breweries varied from
about 12 per cent, to 37 per cent.
t Mr. Stuart Wood, Quarterly Journal of Economics, October, 18SS,
July, 1889.
§ Agricultural Laborer (1870), p. 7.
THE VALUE OF LABOR
149
shearers were so cheap and abundant that no reaping
machine was needed. Where the labor of women and
children has been restricted, invention has come in* to
help employers to avoid recurrence to dearer labor,—
just as it multiplied windmills in Europe after the dis¬
appearance of slavery. The factory system lengthened
the hours of labor, largely because machinery with its
unwearied powers of endurance was allowed to "set the
pace " for human beings, whose powers are sharply lim¬
ited. The old-fashioned optimistic view that machinery
employed more than it superseded was in conflict with
the intention of the inventors, to dispense with labor;
but the avowed hostility, the action and reaction of inven¬
tion and hand labor, is not enough to explain all the facts.
The old view could appeal to the effects of steam-engine,
power-loom, and printing-press; and it is clear there is a
great body of causes to be taken into account, which may
raise wages in spite of inventions and lower them in spite
of the absence of invention.
But it was for unskilled rather than skilled labor that
the theory of a wages fund was first formulated; and it
seemed to fit the facts of agricultural labor best of all.f
Inasmuch as (and, we should add, so far as~) it was un¬
skilled, the labor seemed most nearly to resemble an ordi¬
nary commodity, identical in type wherever found. The
theory of a wages fund began, as all theoretical economics
must do, with certain assumptions. It assumed that all
labor was unskilled, fluid, and mobile, and that wages are
at a minimum necessary to employ all on the field, the
total offered being divided by the number of recipients.
It does not necessarily assume that the laborers increase
*E.g., the driving-reins in place of plough-children. Kebbel, p. 17. For
the whole subject, see Marx, Das Kapital, p. 449, "Kampf zwischen Arbeiter
und Maschine."
t See, e.g., the remarkable case in Kebbel, p. 211, note, where improved
cultivation led to an exactly proportional increase in employment.
150 QUARTERLY JOURNAL OF ECONOMICS
their numbers till the average wages are at a minimum
necessary for supporting life. John Mill, long before his
adhesion to Thornton, was of opinion that by restricting
their numbers the laborers could get more than this min¬
imum. All employers, again, were supposed to be in per¬
fect competition and making a uniform profit, just enough
to make it worth their while to go on. The theorists would
have been on safer ground if they had confined themselves
to the statement that wages are advanced out of capital.
Even this proposition has no doubt been vigorously at¬
tacked. President Walker says that, though "financially"
wages are advanced out of capital, " industrially" they
are paid out of product. But the payment is more than a
question of finance. It is goods that are advanced, not
a title to future goods. Apart from the exactness of the
limitation, the statement that " wages depend on the pro¬
portion " of the numbers of laborers to the capital devoted
to wages seems to contain some truth. If the "capital
devoted" is not supposed to be rigidly fixed, and if the
statement is made to run in the more general terms of the
older economists ( Adam Smith and Ricardo), " labor is
limited by capital," it represents not a falsehood, but a
truism.
The burning question is not as to the existence, but as
to the extent of the limitation. From the nature of the
relation of wages-earner and employer, waye# are limited
by capital, whether lohor is so or not. A wages-earner is
precisely a " lack-capital" who applies to a capitalist em¬
ployer or an employer with capital. He may be building
a ship that will not bring its price for a year, while he
cannot wait, perhaps, even for a week. Agricultural pro¬
duction will always mean a year's waiting; and the farmer
has to feed not only his laborers, but himself, out of " cap¬
ital," out of last year's produce, not this year's. In coun¬
tries like our own, production tends to be more and more
commonly of the sort that means long waiting. Some-
THE VALUE OF LABOR
151
body's capital must be advanced to the laborer; and, if
the shop-keeper advances his food day by day, his em¬
ployer advances him every week or fortnight his means
of paying the shop-keeper.* Because these advances are
previous product, they are not the less capital: capital is
previous product used to secure future.
The truth in the theory of a wages fund seems to be that
one limit of wages is the capital in the hands of the em¬
ployer. But the amount of the capital expendible in
wages, even supposing it fixed and known in conjunction
with the number of laborers and with the condition and
character of the industry concerned, will not help us to
forecast very clearly what wages will tend to be. The
employer may advance less than is " just worth his while" :
there is a margin within which wages may vary favorably
or unfavorably to the laborer. Is the variation favorable
to him in proportion to the productiveness of his labor?
Is he paid according to his product ?
Now, it is difficult to pronounce (1) what his product
is, (2) what his share in the value of it is,— the employer,
who regards the markets and sells tire goods, having
quite as sound a claim to having secured the value of it as
he. It is not, I think, certain that " under free competi¬
tion every man's wages tend to be equal to the discounted
value of his labor," or (as it is otherwise put) " to the
present value of his future product." I cannot even see
that competition tends to make every man's wages " equal
to the net product of his own labor"; f f-e., to the value
of the product " after deducting all the other expenses of
working." An employer whose capital is borrowed would
on this theory gain nothing at all by the work of his
* So even Walker, Wages Question, p. 133.
t Marshall, Economics of Industry, pp. 133, 134, and Principles of Economics,
Book VII. chap. i. p. 547. So Jevons, Political Economy, viii. 268 (3d edi¬
tion). I regret that this paper was written before the appearance of Pro¬
fessor Marshall's Principles.
15*2 qUAHTKltLY JOURNAL OF ECONOMICS
laborers; and, even if we suppose the theory to apply
only to the last or " marginal" laborer, it is not at least
the employer's intention, and could not be his permanent
policy, to allow even the last employed to be quite un¬
profitable to him. But in any case we should need to
know, more certainly than we do now, what the work¬
man's share in producing the product is, before we could
say that he gets or tends to get its present equivalent. It
is precisely the difficulty of allocating the shares that
helps to make the relation of wages-earner and employer
always unsatisfactory. If coals or steam-engines were to
become rational animals, the same difficult}7 would be felt
in their case. The productiveness of labor assisted by
capital is very different from the productiveness of it un
assisted.*
The difficulty does not disappear, if we try to measure
the services of the laborers by the difference in the prod¬
uct that is caused by the addition of one of them to the
number working. This gives us, no doubt, the total
amount which is the limit of his possible claim. But
how much of that total is his and how much falls to
the instrument, or, "to what is the same thing," the owner
of the instrument? If the hammer and anvil are both
owned by one man who uses them, the question how much
the anvil and how much the hammer contributes to the
product is indifferent; but not so, when the anvil and
hammer have different owners, or are identified with dif¬
ferent persons. And the new increment of production
brought by each new workman involves the same compos-
iteness and difficulty as the first unit of all.
There is no reason for attributing all the increase to the
laborer ; but, in any case, the claim of the workman to the
" full product of the day's labor " (of which, according to
•See Mr. Mavor's paper on Wage Statistics and Theories, British Associa¬
tion, 18HK, as republished (Edinburgh), p. 8. Cf. Komorzinsky, Werthinder
isolirten Wirthschaft (1889), pp. 9, 15, 16.
THE VALUE OF LABOR 153
some theorists, lie is at present defrauded, when profit is
made at all) is really a claim that he should cease to be a
wages-earner and become proprietor and owner. It is well
that we should clearly recognize this, in order inter alia
that we may consider whether a simple change of proprie¬
tors would remedy the defects of the present industrial ar¬
rangements. But the claim would not be so often put
forward unless, as a matter of fact, increased wages did not
seem to follow increased productiveness without stren¬
uous endeavor on the part of the workman. In the days
before the repeal of the Combination Acts the movement
was even tardier than it is now.* The relation of con¬
tract or bargain between employer and hired workman is,
I think, inconsistent with anything like a self-acting cor¬
respondence between productiveness and wages.f "In
the original state of things " the reward of labor may have
been identical with the produce of labor; but it is not so
now, when everything has an owner.
Again, under division of labor, unless an increase in
productiveness extended to all branches of production, it
might lead to a fall in value, and real wages would be in¬
creased only in so far as the article produced by the work¬
man was also consumed by the workman, which it can
seldom be. If it extended to all, real wages would be in¬
creased only if workmen were strong enough (as they
have on the whole been, in this country) to prevent them
from falling. Wages remained high for some time in the
United States, because the laborer had still in some true
sense " free land " open to him, and could choose between
*See Appendix to Senior's Letters on Factory Acts (1837), p. 31; P. Gas-
kell, Manufacturing Population of England (1833), p. 53. Profits were extrava¬
gantly high in the early years of the cotton trade.
t By Walker's principles, the correspondence should be automatic.
"Wages are paid out of the product of present industry." Walker, Wages
Question, p. 128. Threft out of the four factors are fixed. Wages are not fixed,
and are the only factor increasable. Walker, Quarterly Journal of Eco¬
nomics, April, 1888, pp. 284, 285.
154 QUARTERLY JOURNAL OF ECONOMICS
working for the wages and working on the land.* The
same option exists in the country districts near manu¬
facturing towns f and near great centres of fishery. But,
while production is greater in England and in the United
States now than it ever was, it is doubtful whether even
in the latter country profits and wages have kept pace
with one another. President Walker's theory has sufficient
presumptions against it to prevent any one using it (as
the theory of a wages fund was once used %) to deter work¬
men from taking action for themselves. Something be¬
sides productiveness is necessary to secure them the high¬
est wages their employers can bear. On the other
hand, this disability is not peculiar to President Walker's
theory. No general theory could be an absolute rule in a
particular case. It is only where national or international
combined action is in question that a general theory would
be applicable, for such combined action has the same gen¬
erality as the theory. It may be idle to tell one particular-
group of workmen that their wages depend 011 their effi¬
ciency, but not at all idle to address the same exhortation
to the whole body of workmen acting together. The
special difficulty of Walker's theory is rather its apparent
inversion of the relationship of employer and employed,
and the contention that wages are the leavings of profits,
111 face of the fact that wages are stipulated and advanced,
and are, like interest on borrowed capital, set down among
the expenses to be met before any profits are made. The
existence of piece-work and of the sliding scale would of
itself show that ordinary wage-earning is not supposed to
be in accord with the productiveness of work. They are
* As well as making something out of it hv speculation. See J. B. Clark,
Scientific Law nf M'ai/ts, p. )'J.
t Dorset laborers were imported into Lancashire some years ago by a land¬
owner who found local laborers too dear.
tSee the IVarkingman's Ctiiiijiiuiiini ; Results of Machinery, etc. Published
for the Society for the Diffusion of Useful Knowledge tlKill, p. l'JT.
THE VALUE OF LABOR
155
intended to create a correspondence between the two, the
former chiefly in the employer's interests, the latter chiefly
in the workman's. Piece-workers may seem to be hardly
wages-earners at all, by the above definition of wages-
earners: they are paid by results, not by their labor in
producing them. But piece-work usually runs side by
side with time-work, and is regulated by a regard to its
rates;* the price of what is made is fixed beforehand, as
with ordinary wages; the material and machinery are
usually the employer's; the laborer is not free to choose
his own time for working; and it is the employer who
profits by the final sale of the article. The lowest form
of piece-work, usually called sweating, need not here be
considered, nor the higher, such as is involved in profit-
sharing. The allocation of the workman's contribution
to the product is in all these cases as difficult to make as
it ever was, and the actual allocation as arbitrary. The
sliding scale,! which makes the rate of wages to vary with
the price of the article made, suffers under a difficulty
common to it with piece-work, which, of course, it may in¬
clude : we should need to know in advance what is the
real contribution of the workman to the product. Other¬
wise, though variation may be right, the unit of it may be
wrong.
The leading part which wages (in spite of inventions)
still plays among the items of Cost, in leading industries,J
makes it the more desirable to strive after a settlement of
such difficulties. If workmen shared in the ownership
and direction of a business instead of simply "laboring,"
in the narrow sense of the term, there would be better
*See the Worth of Wages, by William Denny (1876), an able plea for piece¬
work by one of the great Clyde ship-builders. But compare also Life of
William Denny (London, 1888), pp. 113-129, which records the change of bis
opinion on this question.
tSee L. L. Price, Statistical Journal, March, 1887.
1 See Appendix.
15G QUARTERLY JOURNAL OF ECONOMICS
hope. But our workmen are not ripe for tliis; and, in
things as they are, it seems to be true that wages, though
limited by the productiveness of labor, do not vary in any
strict proportion with it.
Even sucli a view as that of Jevons does not seem to be
true of things as they are, or as they seem tending to be.
The theory of final utility (associated in England with
Jevons) is not applied in quite the same way to labor as
to goods. We have to invert the relations of employer
and employed, and to suppose the workman calling in the
help of capital* and rewarding it in proportion to its final
increment, or the portion which it is just worth his while
to use. We may suppose that the laborer, if highly skilled,
is one of a comparatively small class, and by his compara¬
tive rarity is less dependent on the capitalist: and there¬
fore to him the successive increments of capital become
speedily less valuable or indispensable, whereas to the less
skilled workman they are more so. and to the unskilled
almost the whole would be indispensable. To put this
otherwise, the skilled workman will reach the point where
lie thinks his exertions greater than his gains much sooner
than the unskilled, and his reward must he proportionally
greater if he is to he induced to work as hard and long as
the latter. But introduce the employer, with whom, and
not with the capitalist, wages-earners have really to deal.
The employer wishes to employ as many as will profit
him: he goes 011 adding to his list in proportion to hi*
need of the workmen. The wages of the skilled and good
men will be high, because he can make much of them and
they are not in such keen need of him: the wages of the
unskilled and worse workmen will be low for a like rea¬
son. But, as all admit, the point at which he will stop is
relative to the total of his payments, and determined by
* E.g., Jevons (3d ed.\ pp, 219, 220 ; Sidgwick (1st ed.l, p. 322. It is as much
an inversion as to speak of the capitalist hiring a borrower; and it requires us to
abstract from the interposition of the employer.
THE VALUE OF LABOR
157
what he has to give to the men at the top as well as to the
men at the bottom; and what he has to give to either will
depend partly on their strength of resistance to him. The
final utility of his. borrowed capital will thus depend partly
on the wages he needs to pay, as a total, for the completion
of his total product. It is thus partly a result of the
general causes already considered; and it is the formula
of "supply and demand" that helps us here. The several
resources of the various parties in conjunction with their
desires will determine the final utility of the borrowed
capital and of the services of the laborers.
It is peculiarly difficult to apply the principle of final
utility in this case, because labor, under present conditions,
is not, and is not tending to become, a minutely divisible
quantity, and the employment of workmen cannot be ex¬
tended or diminished by minute increments. Trades soci¬
eties prescribe rules as to the minimum as well as the
maximum time of employment and the amount of wages.
In the skilled trades (and even, as we have been lately
finding, in some unskilled) an employer, in face of these
rules, dares not employ the worst hands at a low rate for a
short time, according to the final utility of their services
to him. He will leave them unemployed, to be supported
by their societies or by the public. Similarly, a strike may
often be described as a demand that the workmen shall be
rated as a whole, and not by the services of the marginal
laborer.* The good workmen will be employed where the
bad will not be so; but the employer cannot measure out
the degrees of employment and remuneration as if he were
buying coals or cotton, or borrowing capital, and could
stop or begin just where he chose. Of course, this does
not mean that a regard to final utility is less operative
here than elsewhere, but simply that the quantities of the
useful article (not, of course, the laborer, but the laborer's
services') do not vary by infinitesimal increments and dec-
* Wieser, Her naturliche Werth, p. 206.
15S QUARTERLY JOURNAL OF ECONOMICS
rements, but by leaps and bounds. It is one of the cases
treated by Jevons, where lie deals with goods indivisible
exchanged for goods divisible,— for example, ink that is
exchanged not drop by drop, but by the bottle, for money,
that is indefinitely divisible ; * or it is like the case of the
horses, the favorite Austrian illustration of value in ex¬
change. Whether the divisible or the indivisible goods
should be taken as typical for the general theory of value
in exchange need not be discussed here ; but in the pres¬
ent case indivisibility has always prevailed more or less
by custom, and seems likely to prevail more and more
in the future, as the power of trades-unions will grow
greater. Our economic theories must take account of this
probability, for combined action is essential to the work¬
men's independence. Exceptionally gifted men will always
be able to stand alone, but the great majority will always
be helpless when not united. It is, however, only by
individual treatment that anything approaching the fine
adjustment of quantity to utility could be secured by the
employer; and it is only in unorganized trades that he
would now have so free a hand. Elsewhere, the bargain
is between employers and groups of workmen: we might
even say (since companies and trusts are displacing private
employers) that it would soon be between groups of em¬
ployers and groups of workmen.f
These diilieulties, which were clearly recognized by
Jevons | in his book 011 the State in Relation to Labor
(1882), p. 153 xeq., seem to modify the normal appli¬
cation, though they do not overthrow the essential prin¬
ciple of what we may call the Final Utilitarian Theory of
Wages. Generally speaking, it is to be ranked with the
* Political Economy (Sd ed.j, iv. 122 sty., especially 125.
tSee Standard (Loudon), 25 August, Is!H>.
t As well as by Professor Edgeworth, Mathematical Psychics (lSsl), pp.
4b, 9ti,
THE VALUE OF LABOR
159
theories that wages depend 011 productiveness; and it
should be tried by the same tests.
There is another aspect of the case to be considered.
Since production involves a value within a value, goods
used to produce other goods, is the value of the produced
article determined by the value of the means of produc¬
tion, including labor? Does value depend upon cost?
The old theory of Ricardo and his immediate follow¬
ers was that the value does depend upon cost; and along
with this has sometimes gone the view that the wages
of labor itself depend upon the cost of labor,— the cost
of its production. Normal wages would then depend on
the cost price of labor, as normal prices of goods would
depend on their cost prices. This is what Ricardo meant
when he spoke of the " natural rate " of wages, and the
followers of Lassalle and Marx when they spoke of a
law of brazen necessity fixing the rate of wages at what
is just enough to support and continue the race of labor¬
ers. There is more flexibility here than would appear
on the surface, for the minimum is described as what
will support and continue the race of laborers at the
standard of living usual to them. If that standard rises,
as the theorists admit that it can do, the cost of labor
increases, the wages of labor rise. Hence a recent
writer * in almost so many words describes the raising of
the standard as the only way of raising wages. We are
led at once to ask how the standard is to be raised if
the wages themselves are not raised first, and next how
the standard can be kept up if the supply of laborers is
not kept back. There is, I think, no justification for
treating this one element in the problem as if it were
the only one, even if we do not say with Senior f that,
where the laborer is paid, not according to his value,
but according to his wants, he is no free man. But,
*Mr. Gunton.
1' Bate of Wages, Preface, x.
1(!0 QUARTERLY JOURNAL OF ECONOMICS
apart from the particular case, the general theory that
value depends upon cost is of very doubtful accuracy.
Iu the first place (1) it has never from the first professed
to be exhaustively true of all that is exchanged in the
market. No one, of course, can complain that it was
never exactly true of any particular article at any partic¬
ular moment. It was a doctrine of feWe/tc/V#, and as
such must be judged. But, even as a doctrine of tenden¬
cies, it was admitted by Ricardo himself to have no ap¬
plication ( a) to articles savouring of monopoly, nor even
(ft) to all articles freely produced, the exceptions there
being all those large classes of goods that involve much
investment of capital in other forms than in wages.
Later writers have pointed out, too, that, as the Ricardian
supposition of uniform profits was unfounded, the sup¬
position of uniform cost was equally so.* The tendency,
therefore, of goods freely produced must be to conform in
value, not to any and every cost, but to the cost of pro¬
duction on the part of that particular body of producers
whose supply is (a) wanted, but (ft) furnished with
greatest difficulty and needing largest return to induce
production at all. This would be a restatement f of the
old doctrine of cost that would bring it into close analogy
with the old theory of rent. But the cause of value
appears even from the foregoing statement to be not
that the wanted supply is costly, but that the costly
supply is wanted. If the deciding feature in all other
cases of value is the relation of demamlers and suppliers,
why should we create an exceptional rule for freely pro¬
ducible goods?
We should expect to find this resistance to a dual
* Ricardo, in his additional assnmption that demand may be taken for
granted, is building on the dogma that human desires (for material goods)
are as a totality unlimited, which is not at all a certainty.
t One sometimes adopted by Mill himself ; e.g., Dissertations and Discus¬
sions, iv. 20.
THE VALUE OF LABOR
161
explanation in the chief of the English school of what
may be called Final Utilitarians. Jevons seems to settle
the question when he lays down somewhat absolutely
that "labor once spent has no influence upon the future
value of any article."* But, immediately after this, he
lands us, by means of an inexorable sorites, in the conclu¬
sion that cost of production (which the context shows
him to identify with labor) does determine value ; for it
determines supply, and supply determines final degree of
utility, and final utility determines value.) It would
seem, then, that labor has an influence on value, after all.
We may save Jevons's consistency by supposing that by
" spent labor" (which is said never to enter into value) he
meant the labor of a process of production so completely
over that the article has passed from the maker's hands
and is now a consumable article with a new career before
it, whereas the labor that has an influence on value is the
labor in a process of production contemplated, but not yet
ended. It is the wages the employer is going to pay that
influence his power to contribute to the total supply of
articles in the market, and thereby influence his contribu¬
tion to the value of the articles in question. This
seems to me the only sense in which cost in wages has
an influence on value. The amount of wages the em¬
ployer will have to pay will be among the factors of
his calculation which make it possible or impossible for
him to see profit in the production, as prices then are.
As an employer, he can or cannot face the cost in wages,
as in anything else, according as the value of the product
makes it possible or impossible for him to do so without
loss. As a producer, he contributes to the supply, and
thereby affects future value. If the present value were
to rise, he would be able to increase his cost in wages;
* Political Economy (3d ed., 1888), p. 164.
t Ibid, p. 165. He would himself allow that supply alone does not deter¬
mine final utility. What of demand ?
lfi'J QUARTERLY JOURNAL OF ECONOMICS
and the present value of the lahor must therefore he deter¬
mined by the present value of the produce, or rather by
the employer's prexcnt anticipation of the value of the prod¬
uce. But the value affected by his own production, and
therefore indirectly by his cost (in wages and otherwise),
is this/MfM/v value itself, which may or may not prove to
he what he anticipated. If his products added to the rest
lower this value, the lowered value becomes a new start¬
ing-point for his calculations.*
The calculations of an employer were supposed by
Senior f to be so finely drawn that to shorten the working
day by one hour would just extinguish his profits. But
even English employers are not infallible judges of the
point where labor ceases to be productive, and where the
laborers in their exhaustion waste more than they make.J
There is a "law" of decreasing returns even for a work¬
ing day ; and the last work of a man may not only be more
exhausting, but less productive to his employer, than his
first. Within what number of hours the maximum of
profitable intensity can be secured is not discoverable,
except by actual experiment. The value of the article
produced will, in any case, not depend on the calculations.
Cost, whether in wages or otherwise, is not properly a
cause, or at least a direct cause, of price at all. It is an
element in the producer's power and will to produce and
bring to market; but in the market the labor spent is of
no concern to the buyers : their only question is. ]\h>it xap-
* Compare the calculations of a parent about the best career for his chil¬
dren,— calculations based on the rates of wages prevailing in his own time and
sometimes falsified by the future. Marshall, Principles of Economics, p. 601.
The principle is not peculiar to labor. The ground-rents of a landlord depend
on the amount of the rack-rents I for houses) as estimated by the builders who
will have to pay the said ground-rents. (C. H. Sargant, Urban Eating, Lon¬
don, 1MK), p. IU.)
t Letters on the Factory Act.
1 See Commission on Depression of Trade (1«S.S(J), evidence of Mr. Scott, ship¬
builder, who reduced his French workers1 hours from 12 to 10, 41 and found it
was advantageous, so far as I was concerned,11 111KC).
THE VALUE OF LABOR
163
ply °f goods is there? If too many for the demand, there
results overproduction, which is itself a sad proof that
market values at least are not determined by cost. If
too few for the demand, the price will rise; and, unless it
rises permanently, it will not, as a rule, bring a larger sup¬
ply, for the producer cannot calculate that he may incur
greater cost without loss. Cost is thus a remote cause
of value, as affecting supply; but in the same sense edu¬
cation is a cause of value, as affecting demand. Both of
them are particular and peculiar circumstances, which can¬
not be co-ordinated with the most general and invariable
causes.
When it is said that " disutility," in the sense of cost, is
as real and important an element in value as utility itself,
I think the statement true, if it means only that value
always implies not only a desire, but a limit to the power
of satisfaction. If there were no limit, no difficulty in
attaining any useful article, it could have no value. In
this sense, it seems certainly true that cost and utility are
co-ordinate and complementary elements in value. But
cost is not usually understood in so wide a sense; and, if
the meaning is that not merely the limit, but the need of
removing it by effort is essential to value, this is not uni¬
versally true. The inability to multiply a desired article
may be quite irremovable by any effort or agency what¬
ever. Even in the case of things "freely produced," it is
not literally true of market values or directly true of the
normal values,— that is, those to which the market values
are tending, when time is given for action and reaction to
have their perfect work.
The laborers who had borne the burden and heat of the
day in the vineyard thought that their greater labor should
have won them a greater recompense than the penny paid
to them equally with him who was hired at the last hour.
But, to get the work over, it was worth the employer's
while to pay " unto this last" even as unto them; and the
1G4 QUARTERLY JOURNAL OF ECONOMICS
hiring was a matter of pure contract on both sides. The
early workmen considered that the value of labor should
be strictly in proportion to the pain of it. But to the em¬
ployer labor has a value that is not concerned with the
workman's pleasure and pain, except in so far as either
may affect the quality of the work that is done for him.
If it were all pleasure to the laborers, he would, notwith¬
standing, have to pay them for their services, if these were
as difficult for him to get as before. Something like this
is true, mutati* mutant!!*, even of goods freely produced.
The relation between cost and value through supply is
indeed so familiar that it would be pedantry to give up all
phrases that do not give the necessary qualifications, just
as it would be pedantry to give up speaking of the sun's
rising and setting. But it is the earth that moves, for all
that.
The conclusions that seem to follow as a result of the
whole discussion are that by general principles we can do
no more than lay down certain limits, physical and moral,
within which wages will be fixed, (u) The employer's
power to pay wages is limited physically by the capital,
owned or borrowed, at his disposal for that purpose.
(A) His will to pay them is limited by his calculations of
the value of the product: wages must not be more than
the anticipated value, or even be equal to it. On their
part, the employed cannot (u) take less than will secure
the physical minimum necessary to bare life, and (b') will
not take less than will secure the conventional standard of
necessaries among workmen in their particular country;
and (c) their power to secure more than this will depend
on their resources and power of waiting (whether due to
combination, savings, free land, or any other form of
option), in comparison with the resources of the em¬
ployers.
•Tames Boxab.
REFORM IN RAILROAD PASSENGER FARES.
In the last four or five years a strong agitation has
been going on in Germany and Austria for a change in
the system of making up railroad passenger tariffs. It
has resulted in a radical departure from the old methods
in the case of two great systems of railways, those in
Hungary and Austria. As the movement seems destined
to spread, it may be worth while to examine certain
aspects of it which may prove of interest to Americans as
well as Europeans.
The agitation was begun in Germany by F. Perrot, a
practical railroad man of long experience, more than
twenty years ago. In a pamphlet published in 1869,
Perrot attempted to show by statistics that the then pre¬
vailing system of making up railroad tariffs (which is
the one still in force in nearly all countries) rests upon
false assumptions, and that, in the railway as in the postal
service, distance and weight have not the importance
usually attributed to them. He proposed to abolish all
existing tariffs, and to substitute in their place a simple
system, very similar to that in force in the post-office.
For the passenger service he suggested a uniform rate of
five groschen for the third class, ten for the second, and
sixty for the first. For the freight service he proposed
a simple method, based on the amount of space occupied
in the car and on the number of packages. All freights
were to be placed in one of three classes.
The brochure attracted much attention, and was fol¬
lowed by a series of articles in various magazines and
papers. It had doubtless some effect in shaping the rail¬
road policy in Alsace-Lorraine at the time the roads
passed from French to German control. In 1872, Perrot
1(36
QUARTERLY JOURNAL OF ECONOMICS
collected his various essays and papers, together with one
by Professor Wagner, and published them in book form,
under the title of The Applicntittn of the Penny-poxtai/e
Principle to Rail rood Traffic and the Pachvjc Service.*
The principle was adopted about the same time in the
express service conducted by the German post-office.
Perrot, it may be said, was not by any means the first
to propose a reform in the passenger tariff. The agitation
had begun in England as early as 18-40. William Gait
urged in 1848 a radical reduction of railway fares, claim¬
ing that one-eighth penny per mile was an amply sufficient
charge for trains going at the rate of fifteen miles per
hour, and one-third penny sufficient for trains making
twenty-five miles per hour, lie insisted that the railroads
would make more at this rate than at any higher one.f
The same writer published another work in I860 on Kail-
way Reform, in which he returned to the idea of a great
reduction in fares.J Raphael Brandon had already ad¬
dressed a public letter to Gladstone in 1864 on the sub¬
ject of railway fares, and followed this up in 1868 with
a small pamphlet, in which he demanded the introduction
of a uniform rate of threepence for third class and six¬
pence for second class throughout the kingdom.§ This
was possibly the occasion of Perrot's pamphlet of the
following year. It attracted much attention in England,
but produced no direct results.
It should also he said in this connection that a similar
plan, though with important modifications, had been pro¬
posed by Professor William Scharling, of Copenhagen, in
* Die Anictrulung des Penny-Pnrto-Systems auf den Eisenbahntarif und das
Packet-Porto. F. Perrot: Rostock, 187li.
t Railway Reform, its Expediency and Practicability considered. London.
1843. [Quoted in Colin's Enylische Eisenbahnpolitik. vol. i. p. y.t.J
t William Gait, Railway Reform, its Importance and Practicability considered
as affecting the Nation, the Shareholders, and the Government. London, 18(1.7.
§ Railway and the Public: How to make Railways Remunerative to the Public
and Profitable to the State. London, 18(18. [Compare Colin, vol. ii. p. ,7.78.]
REFORM IN RAILROAD PASSENGER FARES 167
a pamphlet in 1867, before he knew of Brandon's scheme.*
Various articles also appeared upon the subject from time
to time, but without producing any further apparent
result than helping to keep alive and stimulate a scien¬
tific interest in the matter.
Julius Lelir, in his work on Railroad Tariffs and Rail¬
road Monopoly published in 1879, devotes some twenty
pages to a discussion of the u zone-system," as applied to
passenger traffic.f He is a decided opponent of any sys¬
tem resembling it in any way. J. F. Sclireiber, an Aus¬
trian railroad inspector, in his book on Railroad Tariffs
published in 1884, mentions Perrot's scheme to condemn
it, and disposes of the whole subject by saying that rail¬
way passenger rates in Austria were at that time low
enough, though it might be well to arrange rates so that
the average distance traversed by each passenger might
be lengthened.^ Franz Ulrich, a Prussian railroad man¬
ager, in his great work on Railway Tariffs published in
1886, gives a brief discussion of Perrot's ideas; but it is
plain that they do not strike him very favorably, though
one can also see from his remarks that there has been
a great development in the theories of railroad managers
since 1872.§
A new era was opened in the whole subject by the
agitation begun in 1883-85 by Theodore Hertzka, the
well-known Austrian economist. Mr. Hertzka undertook
by a systematic effort to convince railroad managers in
Austria that the time had come for a decided reduction in
passenger rates, and proposed a zone-tariff system as the
* Frimarkesystemet og Jeernbaneine. Forslag til en lav, ensformig Jeernbane-
taxt. Kopenhagen, 1807.
t Eisenbahntarifwesen und Eisenbalinmonopol. Dr. Julius Lelir: Berlin,
1879. p. 198 and following.
tJ. F. Sehreiber, Das Tarifwesen der Eisenbahnen. Wien, Pestli, Leipzig,
p. 251.
§Das Eisenbahntarifwesen im Allgemeinen. By Franz Ulrich. Berlin and
Leipzig. 1880. pp. 504.
1G8 QUARTERLY JOURNAL OF ECONOMICS
best method of inaugurating the reform, although he called
his plan a uniform, and not a zone-tariff, system. In nu¬
merous articles in the Wiener Allgemeine Zeitung and in
various addresses in the " Club Oesterreichischer Eisen-
bahnbeamten " he urged bis views, with an energy and
persistency which augured well fur his ultimate success.
In 1885, he published with a brief introduction an address
delivered in the club under the title of "• Passenger
Charges." He appended to this a number of the speeches
made in reply to his address, with a further reply of his
own to his opponents.* This work excited much atten¬
tion, and was the occasion of a valuable article in Conrad's
Jahrbiieher by Professor Scharling, of Copenhagen, in
which he expressed his general agreement with the views
advanced by Ilertzka.f He gave in the article the his¬
tory of an experiment in Denmark in the direction of uni¬
form low rates, on a short railroad running from Copen¬
hagen to certain seacoast towns. The experience on this
line bore out fully the idea of Professor Scharling as ex¬
pressed in the pamphlet already mentioned, that the rail¬
roads would make greater profits at lower rates. The
discussion started by Hertzka was kept up more or less
actively for a year or two, when the ranks of the agitators
for cheaper fares were again increased by the accession of
Eduard Engel, who in 1888 published a little work on
railway reform.J As this book was written in a pleasing
style, it reached a comparatively wide public, and greatly
strengthened the effect of Hertzka's book, though the
author disagreed at many points with the proposals of the
latter.
* Das Personenporto. Ein Yorschlag zur Durchfuhrung eines biUigen Ein-
heitstarif im 1'ersonenverkehr der Eisenbahnen und die Discussion dariiber im
Club Oesterreichischer Eisenbahnbeamten. Yon Dr. Theodor Hertzka. Wien,
1885. pp. 178.
tDas Personenporto der Eisenbahnen. Von Dr. William Scharling; in
Jahrb'ucherfur Nationalbkonomie, 1886. p. 289.
J Eisenbahnreform. Eduard Engel. Jena, 1888. pp. 218.
REFORM IN RAILROAD PASSENGER FARES 109
In the mean time, the leaven was evidently working in
the minds of railway managers. More and more atten¬
tion had been given in the leading railway offices of Ger¬
many and Austria to these scientific investigations of rail¬
way tarification, and the popular agitation in favor of
lower fares had begun to influence the thought of railway
managers. The first management to take a positive step
in the direction of a change was the State Railway Office
of Hungary. I have not been able to learn the whole
history of the movement within railway circles in Hun¬
gary which ultimately led to such a radical experiment as
that finally determined upon. It is probable that the
course of popular and scientific discussion had consider¬
able to do with it. The chief cause, however, is un¬
doubtedly to be sought in that circumstance which has
been the occasion of nearly all great experiments in rail¬
way matters ; namely, necessity. The condition of the
State roads was far from satisfactory, and the condition
of the passenger traffic was the least satisfactory element
in the case. The total traffic was small, the cost of ser¬
vice, consequently, very high, and the rates charged enor¬
mous, considering all the circumstances. The lowest rate
for a single ticket was over one cent per kilometre for a
long-distance through ticket, third class; i.e., nearly two
cents per mile. The rate for first class was nearly four
cents per mile.
At such prohibitive rates it is plain that no very large
traffic could be developed in a country like Hungary,
where the great middle class is by no means well-to-do
and the poorer class is very poor, and where, moreover,
the population is not dense, comparatively speaking, and
large cities are few in number.* To how small an extent
the railroads were utilized by the people is shown by the
* The population of Hungary, including Transylvania, is 137 per square
mile, the total population being about 15,000,000. England had in 1881 440
inhabitants per square mile ; Scotland, 125 ; Ireland, 159; France in 1886, 187 ;
Germany in 1885, 222 ; Italy in 1888, 267.
170 QUARTERLY JOURNAL OF ECONOMICS
fact that, while Germany had five passengers per head
of the population, Hungary had only one. The average
length of trip in Hungary was 01 kilometres, while in
Germany it was only 28 kilometres,—a fact which shows
that the local traffic in Hungary was unusually small,
prevented of course in its growth by the prohibitive rates
in force.* Various attempts had been made to encourage
the growth of passenger traffic by the introduction of
reduced rates in the form of return, excursion, commuta¬
tion, and mileage tickets, and the like ; but, although the
traffic responded immediately, the rate of increase was not
such as to show that the hoped for growth in revenue
would result at any near date. The government, there¬
fore, determined upon a radical change in working out
the details of the system, and laid down certain broad
principles to be observed.
One of the prime objects was the encouragement of long¬
distance traffic, and more especially the traffic to and from
the capital city, Buda-Pest. In this point, the govern¬
ment was actuated not merely by railroad considerations,—
though these, too, were in favor of such a policy,—but also
by social and industrial motives, Buda-Pest is not only
the capital city, but it is the metropolis in wealth, indus¬
try, population, and political influence of the whole State.
A policy which would secure the actual visiting of this
centre by large numbers of the i>eople from the most dis¬
tant parts of the kingdom could not but result in securing
a greater homogeneity in the population, and hasten that
fusion of the various elements which is in the interest of
all higher development in Hungary.
To attain this end, it was necessary to adopt a system of
tarification which would eliminate as far as possible the
* Le Tarif per Zones en Hongrie. Buda-Pest : Imprimerie Victor Horn-
ansky. 1MJ0. This document, prepared by the Hungarian government, and
containing many details relative to the new system, was recently issued in an
English translation in the Annals of the American Academy of Political and
Social Scieine, July, ISiKI, p. 107 and following.
REFORM IN RAILROAD PASSENGER FARES 171
element of distance. This would be achieved by making
a long-distance rate relatively so low as to encourage this
class of traffic. To secure a large traffic, it would also be
necessary to make a rate which should be, not only rela¬
tively, but absolutely low,— a rate so low .as to be within
the reach of large classes of the population. To prevent
an undue burdening of local traffic, it would also be neces¬
sary to reduce local rates to a point far below what they
had been before,— to make a rate which should be within
the reach of everybody. Under the old system the
peasant who had ten miles to go could far better afford to
walk than to pay the rate demanded. Under the new
system the rates must be so low that even the day-laborer
would use the trains from station to station. The new
system must also be a very simple one, in which a great
saving in administrative supervision and in manipulation
of tickets and the like could be made.
As a result of all these considerations, the authorities
worked out a new system of tarification, which seemed to
them likely to incorporate these features. The general
plan adopted had already received the name of zone-
method in the discussions which had occurred, from the
time of 1870 if not earlier. As this name was also
adopted by the government of Hungary, the system has
become known throughout the world as the zone-tariff
system.
The zone-tariff system is not, philosophically speaking,
fundamentally different from the mileage system in use in
this country, except so far as a difference of degree may
constitute a difference in kind. The system in use in this
country is that under which the mile is adopted as the
unit of distance. For this unit a normal rate is fixed, and
the price of a ticket is ascertained by multiplying the rate
per mile by the number of miles travelled, fractions of a
mile being disregarded or cousidered as a mile in fixing
the price of a ticket. On the continent the kilometre is
17-2 QUARTERLY JOURNAL OF ECONOMICS
usually adopted as the unit of calculation. A foot might
be taken as the normal unit, or two miles, or ten miles, or
any other number. It is evident that the exact unit taken
will depend ordinarily, or has at least ordinarily depended,
on the unit of distance most commonly used in describing
journeys of hours or days.
Now, the zone-tariff system is simply a system in which
the unit of distance is a much larger unit than the kilo¬
metre or the mile. This will appear more clearly when
the Austrian zone-tariff is considered. It is plain, how¬
ever, in the Hungarian system also, though it is there
subject to important modifications. For each unit of dis¬
tance (or zone), or fraction thereof, from any station a fare
of ten cents is exacted.* Thus the fare for one unit and a
fraction of another is twenty cents; for two units and a
fraction of another, thirty cents ; for three units and a frac¬
tion of another, forty cents; and so on up to the eleventh
unit, when a sum of twenty cents is charged for each
unit or fraction thereof: with this important modification,
that the thirteenth unit includes all stations beyond the
completed twelfth unit. Now, the unit of distance which is
taken as the basis of all tariffs is, generally speaking. 15
kilometres, or 9.3 English miles. As the fare charged,
therefore, is ten cents, the fare for nine times that distance
and any fraction thereof would be one dollar; that is, one
could ride 93 miles for one dollar, but would also have to
pay the same sum if he rode only 84 miles. Just so under
a strict mileage system one would pay, at three cents a
mile, only six cents if he rode 10,560 feet, but would also
have to pay the same sum if he rode only 5,281 feet.
This simple system is modified in several ways in the
Hungarian method. Thus the first unit of distance is 25
kilometres (15.525 miles) ; i.e., the fare from any given
* Wherever the price of a ticket is quoted without further description, it is
for third-class accommodations on ordinary passenger trains, with no free bag¬
gage.
REFORM IN RAILROAD PASSENGER FARES 173
point to any station not more than 15J miles distant is ten
cents, but all units after the first up to the eleventh are
15 kilometres, or 9.3 miles. The eleventh and twelfth
are each 25 kilometres, and the thirteenth unit includes
all stations beyond the close of the twelfth. For the
eleventh, twelfth, and thirteenth units twenty cents each is
charged, making the maximum fare to any station within
the kingdom from any other one $1.60.*
This last provision, however, is subject to one very im¬
portant modification; namely, if the traveller's route lies
through Buda-Pest, he must buy a ticket first to that
place and then another from there to the station he wishes
to reach. This may under some circumstances double the
fare which he would otherwise have to pay for a journey
of equal distance. Buda-Pest is practically a limit, there¬
fore, for the application of the system, having the same
effect as a boundary line of Hungary itself.
The zone-tariff of Hungary, then, differs in its effect for
those people desiring to go less than 16 miles, for those
desiring to go any distance more than 16 and less than
140 miles, and for those who wish to go more than 140
miles. Any distance beyond 140 miles is practically
thrown in for nothing to him who buys a ticket for that
distance. The rate per mile varies of course within each
zone according as the point to be reached is near the one
limit, or the other of the zone. For example, a station 16
miles distant would just fall within the second zone, and
the rate would be li cents per mile; while one could ride
to a station 24 miles distant for the same money, in which
case the rate would be f cent per mile, the former rate
being 50% higher than the latter. If we take the middle
point of the zone as representing the average trip, we shall
find that the fare is, on the average, one cent per mile,
varying from f to li within the zone. Of course, after
reaching the thirteenth zone, the rate per mile decreases
rapidly, as the distance travelled for the one fare increases.
*See note on p. 172.
174 QUARTERLY .JOURNAL OF ECONOMICS
The first zone is treated also in an exceptional manner,
since it is longer than any of the following until one
reaches the eleventh, and since it is modified by the estab¬
lishment of two local rates, one of four cents from any
one station to the next station, and of six cents from any
station to the second station. The rate per mile for a
station just at the limit of the first zone—say 15 miles —
is only jj cent.
It is plain from what precedes that the rates of fare are
much lower under the new system than they were under
the old. In no case beyond the first zone do they exceed
li cents per mile, anil for the immensely greater number
of cases they are less than one cent per mile, averaging
probably for the great majority of stations not more than
I of a cent per mile. For the stations beyond 140 miles
the rate per mile decreases with the distance, falling, on
the longest trip which can be made for 81.00. to of a
cent. This last is the rate to Kronstadt, distant from
Buda-Pest 454 miles.
The great reductions are best seen by comparing abso¬
lute rates under the old and new systems. The old rate
to Kronstadt was 88.80: the new rate is 81.60.— a reduc¬
tion of 82 per cent. This is, of course, the extreme
reduction. But the reduction to a station 248 miles away
is 66 per cent., to a station 168 miles away over 50 per
cent., and to one 60 miles away still nearly 50 per cent.
The average reduction on local rates is about 40 per cent,
on the basis of the railway estimates. Besides these rates
which represent the price paid for a single-trip ticket by
any one who chooses to buy, there are also commutation
tickets which afford still cheaper rates. Thus from Buda-
Pest to Maglod, 14 miles, one can get a ticket book con¬
taining sixty tickets for 83.24, a little less than oi cents
per trip. These books are transferable, and the owner may
use them for persons accompanying him. To Aszod. 33
miles distant, a similar book can be obtained for 89.60, or
16 cents a trip.
REFORM IN RAILROAD PASSENGER FARES ] 75
We have quoted these rates,— which, as said before, are
for third-class ordinary passenger trains, with no free bag¬
gage,— because it is believed that the effect of any general
reduction of rates can be best seen in the cheapest rate at
which railroad service is offered. Wherever the railroads
have attempted to develop a mass traffic, they have natu¬
rally appealed to local patronage, and have almost uni¬
formly abolished the privilege of free baggage, as in the
case of commutation tickets on our American railways.
The rates fixed for baggage charges in Hungary are also
very low. The charge for 120 pounds or less is ten cents
for the first 34 miles or fraction thereof, 20 cents for
distances up to 62 miles, and 40 cents for all distances
beyond that. For 240 pounds or less, provided it exceed
120 pounds, the rates are double those just given; for
more than 240 pounds, they are doubled again. One may
travel, therefore, from Buda-Pest to Kronstadt for $1.60,
and take 500 pounds of baggage along with him for $1.60
more; or, if he be satisfied with the moderate amount of
120 pounds, he can take it along with him for 40 cents
additional, making his ticket and trunk cost $2.00 for 457
miles of travel. Those articles which the traveller can
take with him into the car are free, such as ordinary hand¬
bags and valises.
The tickets for first class cost just double as much as
those for third class. Those for second class are four-
fifths the price of first class, except for the last two zones,
in which they are a trifle less. Speaking generally,
therefore, the rates for first class are about 2 cents per
mile; those for second class, 1.6 cents per mile, except in
the last zone, where they decrease with the distance.
The rates for express trains are 20 per cent, higher in
each case than those just given, making 2.4, 1.9, 1.2 cents
per mile for the three classes, respectively, except for the
thirteenth zone again. The rates to Kronstadt would be
'70, 51, and 35 hundredths of a cent respectively, and for
176
QUARTERLY JOURNAL OF ECONOMICS
express trains 84, 61, and 42 hundredths per mile. The
price of a ticket to Kronstadt, lirst class, on an express
train, with a trunk weighing 150 pounds, would be $4.64,
or a cent a mile. The price for a distance of 140 miles
would be the same, and the rate, therefore, 31 cents per
mile.
To present the matter clearly, it is best to make a
comparison with actual prices charged in this country.
From Philadelphia to New York, a distance of ninety
miles, the fare is $2.50, whether one goes by express
train or by ordinary passenger, except that for one train
an extra fare of $1 is charged. For the parlor car, in
case one is attached to the train, a charge of 50 cents
extra is made, except for the one train just mentioned,
in which case it is included in the 81. Free baggage to
the amount of 150 pounds is allowed.
In Hungary, the charge for 150 pounds of baggage
would be 80 cents; the tickets by ordinary trains, .90,
$1.44, and $1.80; by express trains, $1.08, $1.80, and
$2.16. The fares, then, in Hungary for that distance,
with 150 pounds of baggage, would range between $1.70
and $2.96; while between New York and Philadelphia
they range between $2.50 and $3.50. If the traveller
were content with 120 pounds of baggage (more than the
average travelling trunk weighs), the Hungarian rates
would range from $1.30 to $2.40. If the rates were
taken for shorter distances or for much longer distances,
the comparison would be much more favorable to Hun¬
gary.
A great simplification in management has been the
result of the new system in Hungary. The kinds of
tickets have been greatly reduced in number. Where
an office, like that in Buda-Pest, had to keep 700 differ¬
ent tickets in stock, 92 are now found sufficient. The
tickets are now sold, like postage-stamps, in the post-
offices. hotels, and cigar-shops, making it unnecessary to-
REFORM IN RAILROAD PASSENGER FARES 177
keep sucli a large number of employees in the railroad
stations themselves, and enormously increasing the con¬
venience of obtaining tickets. Owing to this and other
features, the costs of railroad administration have been
largely reduced.
The expectations of the railway office in regard to
increased traffic have not been disappointed. The num¬
ber of passengers rose steadily from month to month, the
increase for the first five months being over 133 per cent,
of the average number for the corresponding five months
of preceding years. The returns for the first eight
months — i.e., to April 1, 1890 — show an increase of
169 per cent., with the tendency steadily upward. The
most remarkable fact is the enormous growth of local
traffic. Under the old sj'stem, only 255,000 persons used
the railway in going from station to station; while the
number rose for the eight months ending March 31, 1890,
to 4,367,586,— an increase of 1,600 per cent.*
In turning from the Hungarian to the Austrian ex¬
periment, one is struck both by the similarity, and differ¬
ences. They are both zone-systems, both involve a
great reduction in rates over the old systems, and both
are very simple in the general plan as well as in the
details. The differences will appear more clearly after a
discussion of the Austrian system.
There is a sort of permanent rivalry between the Aus¬
trian provinces and Hungary in all matters pertaining to
industry as well as i>olitics. When the Hungarian man¬
agement adopted the zone-system, the public in Austria
criticised the Austrian railroads for their slowness and
seeming neglect of public interest. The management of
the Austrian roads has been, therefore, somewhat on the
defensive.
* The above are the official figures ; hut it is not plain from the report
exactly what is meant by " local traffic," whether it includes only the travel
from one station to another or from one station to the second, or from one
station to any station within the first zone.
178
QUARTERLY JOURNAL OF ECONOMICS
In a communication addressed to the American Acad¬
emy of Political and Social Science, dated September 24,
1890,* the General Traffic Manager of the Austrian State
Railroads, Dr. C. Wessely, calls attention to the fact
that the railroad office had long been proposing a radical
change in the tariff system ; and, although Hungary got
ahead of them, it was merely because the obstacles in the
way of a change were, relatively speaking, few and unim¬
portant in Hungary, while they were many and serious
in Austria. In Hungary the bulk of the mileage is in
the absolute ownership and control of the State. The
system is well organized and fairly well developed, having
reached its greatest linear extension,— i.e., from one
boundary of the kingdom to the other. On the other
side of the Leitha, on the contrary, railroad conditions are
still in a complicated condition. The State manages over
forty different roads, for each of which separate accounts
must be kept. The Austrian system is, moreover, in a
continual state of expansion : and the possibility of ac¬
quiring new roads and the necessity of fitting such addi¬
tions into the general scheme complicate very much the
problem to be solved. The rates, moreover, on the
Austrian roads were much lower than those on the Hun¬
garian roads; and consequently the possible reductions
are confined to much narrower limits. Moreover, the
car-space is, as a whole, better utilized, so that increased
traffic would necessitate extensive outlays of capital at a
much earlier period than in the case of Hungary.
The new system went into operation in Austria on the
16th of June, lb9U. The basis of rates is very simple.
The lowest monetary unit of the country (the kreutzer)
combined with the shortest long-distance unit of measure¬
ment (the kilometre) is made the unit of calculation.
The fundamental rate of calculation is one kreutzer per
kilometre, the kreutzer being four mills and the kilo-
* Printed in the Annals of the Academy, October, 1S00, p. :U4.
REFORM IN RAILROAD PASSENGER FARES 179
metre .621 mile. This is equal to a rate of about 6§-
mills per mile. The price for second class is double and
for first class treble this sum. These rates are increased
50 per cent, for express trains. The privilege of free
baggage is abolished.
If the kilometre were made the basis of computing the
price of tickets, this system would not differ essentially
from the old system in use. But in determining the fare
the unit of distance is not 1, but 10 kilometres for all
distances under 50 kilometres, 15 kilometres for all dis¬
tances between 50 and 80 kilometres, 20 kilometres from
80 to 100, and 50 kilometres for all distances over 100
kilometres. Thus the fare for the first unit of distance —
i.e., 10 kilometres—is 10 kreutzers; i.e., ten times the
normal rate fixed upon as the unit of calculation. For the
second unit the fare is 10 kreutzers additional, and so on
up to the sixth, where for the sixth and seventh the unit
is 15 kilometres and the additional price is 15 kreutzers.
The eighth unit has 20 kilometres, and the additional price
is 20 kreutzers. The ninth, tenth, eleventh, and twelfth
units have each 25 kilometres, and the additional price is
25 kreutzers ; while after that each unit has 50 kilometres,
and the additional price is 50 kreutzers.
The distance up to 200 kilometres is thus divided into
twelve units, or zones; and there are as many zones after
that as there are stretches of 50 kilometres each or frac¬
tions thereof. Tickets are sold by zones at the rate of
I. II. III. IV. V. VI. VII. VIII. IX. X. XI. XII. XIII. XIV. xv-
10, 20, 30, 40, BO, 65, 80, 100, 125, 150, 175, 200, 250, 300, 350,
4oJ' etc., kreutzers for the corresponding zones,— the
number of kreutzers representing also the number of
kilometres included up to the end of the respective zone.
It will be seen that the system is very simple. The
tickets contain the number of the zone, the name of the
station of departure, and also the name of the last station,
on all the lines of the system, in the particular zone to
which the ticket entitles the holder to transportation. In
180 QUARTERLY JOURNAL OF ECONOMICS
arranging the zones, the whole group of railroads in Aus¬
tria to which this method applies is considered as one sys¬
tem or road. Tables showing the actual distribution of
stations among the zones are posted in all the stations,
so that the traveller can see at a glance for what zone he
must take a ticket. The variety of tickets is very small
compared with the old plan. The system is still further
simplified by the fact that two third-class tickets may be
presented in lieu of one second-class, and three third-class
in lieu of one first-class. This enables small stations to
get along with one kind of ticket,— a great advantage from
the point of administration.
A curious feature of the system is that, owing to the
fact that the unit of distance adopted for local traffic is so
much smaller than the one for distance traffic, a traveller
finds it under certain circumstances cheaper to take a dis¬
tance ticket and a local ticket rather than one distance
ticket. Thus, suppose he wishes to go to a station just
within the sixth zone. The ticket would cost tin kreut-
zers; but by taking a ticket to a station near the close
of the fifth zone, which would cost 50 kreutzers. and then
another to the station he wishes to reach for 10 kreutzers,
he would save 5 kreutzers. He could save 40 kreutzers
in the same way if he wished to reach a point just within
the thirteenth zone.— say 20:1 kilometres from the start¬
ing-point. The regulations, however, forbid travellers to
avail themselves of this device.
It is plain from the above statement that the Austrian
system differs in some important respects from the Hunga¬
rian. In the first place, it does not favor long-distance
traffic to such an extent as the latter. As seen above,
one may ride in Hungary 731 kilometres for 400 kreut¬
zers. It costs 750 kreutzers to ride that distance in Aus¬
tria. On the other hand, it never costs more than that in
Austria: while in Hungary, if half the route lie on one
side of Buda-Pest and the other half on the other, it
REFORM IN RAILROAD PASSENGER FARES 181
would cost 800 kreutzers for the same distance. The reg-
ular rates in Austria for distances up to 225 kilometres
are cheaper than in Hungary. A ticket for 210 kilo¬
metres in Austria costs 250 kreutzers; in Hungary, 350:
for 110 kilometres in Austria, 125; in Hungary, 175: for
75 kilometres in Austria, 80; in Hungary, 125. The dif¬
ferences between the prices for the first zone are slightly
in favor of Hungary. If one wishes to go, say 24 kilo¬
metres, the cost in Austria would be 30, and in Hungary 25
kreutzers. The local-traffic tickets in Hungary and the
general commutation tickets in Austria reduce the rates
for short trips very considerably below the zone rates.
The smaller units adopted by Austria in the new zones
are a favor to local traffic, which is, perhaps, not exceeded
by the excellent local-traffic tickets in Hungary.
The charge for baggage in Austria is also determined
according to a different principle from that in Hungary.
A uniform charge of t2,j kreutzer per kilometre is made for
each 10 kilograms of baggage. This makes small trunks
for short distances cheaper than in Hungary, and large
trunks for long distances dearer. Thus a trunk weighing
20 kilograms would cost in Hungary 50 kreutzers for 75
kilometres: in Austria it would cost only 30 kreutzers.
On the other hand, a trunk weighing 150 kilograms would
cost 400 kreutzers in Hungary for 731 kilometres; while
in Austria it would cost 2,193 kreutzers, or over five
times as much. If we take the average length of a trip in
Hungary under the old system, 61 kilometres, as a basis
of comparison, and 50 kilograms as the average amount of
baggage carried, the difference would appear to be as
follows: In Hungary the fare for ticket, including the
charge for baggage, would be 150 kreutzers: in Austria
it would be 126. Taking the average trip in Austria, 37
kilometres, as the basis, the rates would be: in Hungary,
75 kreutzers; in Austria, 77.
The Austrian roads permit tickets to be sold at reduced
1X2
QUARTERLY JOURNAL OF ECONOMICS
rates far more generally than the Hungarian roads. Pu¬
pils travelling to and from school every day a distance
not exceeding 50 kilometres are carried for half-fare tick-
r>
ets. Workmen's tickets are sold good for third-class pas¬
sage at one-half the regular rates for distances not exceed¬
ing 50 kilometres. Laborers travelling in companies of
not less than ten persons can get half-fare rates for dis¬
tances not less than 300 kilometres.
To get a clear idea of how low these rates are, we must
convert them into miles and cents. The fundamental
rate adopted for calculation is, as stated above, 6.436 mills
per mile. No ticket is sold for less than 10 kreutzers, or
say 4 cents. Put this ticket is good to any station not
more than 6.2 miles distant. The next ticket costs 8
cents, good for any station not more than 12.4 miles dis¬
tant. And thus, disregarding fractions of a mile, the
tickets run 12 cents for any distance up to 18 miles,
16 cts. up to 21 miles 70 ets. up to 108 miles
20 44 " 44 SO 44 44 124 44
26 " " 10 " 100 " " 155 "
32 " " 50 " 120 " " 186 "
40 « " 62 " 110 » " 217 "
49 " 77 " 160 " " 248 "
60 " " 93 "
and so on, the price of the ticket increasing after the
twelfth zone by twenty cents for every additional 31
miles or fraction thereof. The rate per mile actually
charged varies with the position of the station within the
zone. Thus, if a station is just beyond the limit of the
fourth zone, say 25 miles distant, the rate per mile, since
the fare is 20 cents, is .8 cent; while, if it fall just short of
the sixth zone, say 30 miles distant, the rate would be .66
cent per mile. To a station 156 miles distant, the rate
would be .64 cent per mile; while to one 185 miles away
the rate would be only .54 cent, the absolute fare being
the same.
The variations in the rates are not so great under
REFORM IN RAILROAD PASSENGER FARES 188
the Austrian system as under the Hungarian, owing to
the fact that the zone increases regularly by 81 miles
after the twelfth, whereas in the Hungarian there is no
further division after the thirteenth is reached, and no
further increase of fares.
If we compare the Austrian rates again with the rates
from New York to Philadelphia, it will appear that, while
60 cents is the minimum for ninety miles in Austria,
62.50 is the minimum with us. If we add the price of
150 pounds of baggage for 90 miles, the price of the Aus¬
trian ticket would be 61.40. If we add the rate for ex¬
press train, the price of the ticket would be $1.70. The
rates for second and first class express trains, with 150
pounds of baggage, would be 62.60 and 68.50 respectively,
— very close to the rates charged here for ordinary first-
class and parlor-car service respectively.
If we except the specially low rates offered to travellers
in Hungary who desire to go 200 miles and upwards, the
zone-tariff revolution in rates would seem to affect those
who content themselves with inferior accommodations, or
do not care to travel with much baggage, or do not travel
over 25 to 50 miles; i.e., it concerns chiefly local traffic,
and those classes who would travel at a low rate, but
either cannot or will not travel at a high rate. But these
are also the very people who must be readied if the prin¬
ciple of low rate of profit and great amount of business to
make up for it is to be applied in the railway as in other
service.
The experiment has not, of course, been tried long
enough to enable us to express a final judgment as to
its probable success. In the communication from the
Austrian Ministry of Commerce above mentioned, it is
stated that the experience of the first three months satis¬
fied the railway managers that they are on the right road,
and made such an impression on the managers of several
private roads that four of the latter had already agreed to
184 QUARTERLY .JOURNAL OF ECONOMICS
adopt the new system on the 1st of October. A recent
statement which ran the rounds of the newspapers is to
the effect that the Hungarian State Railway Office pro¬
poses to adopt a zone-tariff system in the freight service
also, in which it will probably be followed by the Aus¬
trian Office.* It should he said that in the book of rail¬
way regulations for the Austrian roads, bearing date of
June 16, 1890,f the statement is made that the rates
therein given are valid, except so far as considerations of
competition may necessitate a departure from them. To
what extent this reservation naturally interferes with the
application of the system I have no means of knowing.
The reform introduced into the Hungarian and Aus¬
trian railway system, while it is a radical departure from
the old system in vogue, is very far from corresponding
to the proposals made by the writers most prominent in
the agitation for change. It may be interesting to note
some of the arguments advanced by Hertzka and the re¬
plies to them in the Club of Austrian Railway Officials.
In the introduction to the book above referred to.|
Hertzka makes Brandon's plan the starting-point of his
discussion. Brandon demanded a uniform rate, good for
the entire kingdom and varying only with the class: 3d.
for third class, 6d. for second, Is. for the first. This plan
is exactly similar to that in use in the postal service. It
was objected to this that the two things are so different
that they cannot be compared, and no argument can be
drawn from the experience with the letter post which
would apply to the transportation of passengers. The
* The increase in traffic on the Austrian roads during- the first three months
was 176% as compared with the same period of the preceding year. Annals of
the American Academy, vol. i., No. 2, p. 349.
f Tarife und Tarifbestimmungen fur den Transport von Personen und Peise-
gepack. Vienna. 1890. A translation of this book will appear in the Annals
of the American Academy, vol. i., No. 3, January, 1891.
f Das Personenporto, p. 2.
REFORM IN RAILROAD PASSENGER *FARES 185
dragging of a letter weighing one ounce has little simi¬
larity to the carrying of a person weighing 150 pounds.
This would be true enough, provided that the cost of
transportation of a person must in the nature of things
be so high that it would be impossible to cover it by a
uniform rate. Little attempt was made to investigate
the question as to the real facts in the case; but people
were content in the first instance to leave it to "sound
common sense" to settle the issue. If one, here and
there, did take the matter up more in detail, the calcula¬
tion was made upon the basis of two false suppositions.
It was taken for granted that the cost of transporting a
person a kilometre would remain the same, no matter how
great the number of passengers should become; and also
that, if any one could ride from one boundary of the em¬
pire to another for a small sum, everybody would do this
as a matter of fact. If one looks at the fact, it appears
that the average cost of transportation per passenger on
the Austrian Southern Railroad is 28 kreutzers (11.2
cents), and that this is also true of the other better pas¬
senger roads of Austria. The cars are only about one-
quarter filled. Now, a well-filled train costs the railroad
no more than an empty one, so that the cost of transporta¬
tion per person would not be more than 7 or 8 kreutzers
(2.8 or 3.8 cents) if the trains could run full. On the
average, moreover, travellers only ride a short distance.
The average trip on the Austrian Southern is only 46 kil¬
ometres (28.6 miles), on the Western only 40 kilometres
(24.8 miles), etc. The question then arises, What would
be the state of affairs if a single cheap ticket entitled the
holder to a ride across the empire, say from the Russian
border to Trieste ? A moment's reflection will show that
this is an absurd question, so far as it is supposed to have
any pertinence to the point at issue. The fare might be¬
come ever so cheap, might be abolished altogether, and
yet with a few exceptions people would travel only to
186 QUARTERLY JOURNAL OF ECONOMICS
those points where pleasure or business might lead them.
It is impossible to answer the question a priori whether
under sueh a system the average length of trip would in¬
crease or not. In the post-office business it has not been
so. The number of letters transmitted for short distances
has increased far more rapidly than that of those for
long distances, and it would probably be so in the case
of passenger traffic.* Certainly, the average length of
trip could probably not exceed 100 kilometres (62 miles)
under a low uniform fare system. Now, if it cost twice
as much to transport 100 kilometres as 50 (which is far
from being the case), the cost of moving the average trip
passenger would be only 15 kreutzers (6 cents).
This price does not include interest on capital invested
in the railway, but simply operating expenses. Many
railroads claim that the present passenger traffic does not
pay anything more than operating expenses. This is not,
however, borne out by a fair computation of cost. In
any case, in the reform proposed, we must make sure that
the rate will not only pay interest on a fair share of pres¬
ent capital, but also on the new capital which will have
to be expended in enlarging the capacities of the railway
to enable it to meet the new conditions. The capitaliza¬
tion of the Austrian-Hungarian roads is about 3.4 billion
gulden ($1,360,000,006), the yearly interest 170 million
gulden ($08,000,000).f At present the passenger traffic
does not cover over 15 per cent, of this sum. Let us sup¬
pose that after the introduction of a uniform fare of a few
kreutzers the traffic should increase fivefold: then each
one of the 250,000,000 passengers who would then use
* In a little pamphlet entitled TT ie soil tarxjirt werdttn ? published anony¬
mously in November, 1880, at Vienna and Leipzig, the author labors to show
that under a uniform rate local traffic would increase to such an extent as to
swamp the railroads. He prefers a system under which long-distance traffic
should be distinctly encouraged, on the ground that it is just this traffic which
the railroads can take in immensely greater quantities without necessitating
any great increase in equipment.
t Counting the gulden at 40 cents.
REFORM IN RAILROAD PASSENGER FARES 187
the railroads would have to pay an addition of 10 kreutzers
(4 cents), in order to secure the management from any
loss of revenue. If the traffic increased tenfold, the rail¬
roads would have a surplus of 25 million gulden; if
twenty-fold, then 75 million. And that such an increase
is perfectly possible the experience of the postal service
shows. "We claim, then," says Ilertzka, "that it is not
only possible, but that it is in the interest of the railroads
themselves, properly understood, to introduce a uniform
rate of 25 kreutzers (10 cents) for the whole extent of
the monarchy. It would be advisable to introduce a local
rate for stations not more than 30 kilometres distant (18.6
miles) of 10 kreutzers (4 cents)."
Hertzka insists further that the system of first, second,
and third class cars should be abolished, and that the
American system of a single class should be introduced.
He is willing to allow individuals or corporations formed
for this purpose to provide better cars, with the right of
charging additional fares, as is done by our Pullman Com¬
pany. And the author then goes on to show that with
this increase of traffic it would be possible to utilize the
equipment of the railroads to so much better advantage, as
to provide ample means for paying the interest on the
large additional capital which would be necessary. Thus
he instances a case of a short railroad, which, by lowering
its fare from 20 to 10 kreutzers, increased its traffic from
1,819 persons in August to 8,383 in September, and 20,865
in December of the same year, while it reached an average
monthly traffic of 26,000 for the following year. The
daily income rose from 14 to 95 gulden, and a road which
up to September had been run at a loss showed a profit
of 21.000 gulden for the first year of the new experiment,
— a sum equal to the interest at 5 per cent, of 420,000
gulden. He quotes in this connection the celebrated
objection of Thiers to the building of a road from Paris
to Versailles. " Why," said the illustrious statesman,
188 QUARTERLY JOURNAL OF ECONOMICS
" there are not more than twenty or thirty persons who
go from Paris to Versailles each day; and, even if this
traffic should be increased five or six fold, it would not pay
the expense of running a railroad train."
Hertzka also urges the social and industrial importance
of such a revolution as this. It would make labor im¬
mensely more mobile, and thus increase its efficiency by
enabling it to go where it is most wanted. The advantage
of this ease of movement to the intellectual development
of the country would be no slight one, since nothing
breaks up the deadening effects of custom and uniformity
so much as a little travel. The industrial efficiency of
the agricultural laborer is greatly improved by bringing
him into contact with new conditions.
In the address before the Club of Austrian Railroad
Officials, Hertzka emphasizes the different treatment of
the two classes of traffic by the railroads. In the reports
of various railroads one may find a calculation as to the
" cost of carrying a passenger one kilometre," which is
found by dividing the whole expenditure for passenger
service by the number of passengers multiplied into the
average number of miles travelled. This is a valuable
fact from several points of view; but to make this result
a decisive factor in determining the rate to be charged, or
to appeal to this result as a proof that fares cannot be
lowered, is unreasonable. Railroad managers themselves
would object to applying any such principle to the freight
traffic. They usually insist that the theoretical " costs of
transportation," which should be made the basis of com¬
puting rates, are the amount it would cost per ton-mile
if the road had all the business it could get by a reason¬
ably low rate of charges. We must be careful, of course,
not to indulge in impracticable generalizations: we must
admit that the costs of transportation in a thinly populated
region or through a rough country are much higher than
in a densely populated district or in a level plain where
REFORM IN T{ AIL ROAD PASSENGER FARES 189
all conditions are most favorable to cheap operating. On
the other hand, it cannot be admitted that the " costs of
transportation " should be set at a high figure because the
road keeps away business by prohibitive rates. We must
beware of the vicious reasoning in a circle contained in
the proposition that high rates are justifiable because the
amount of business remains small on account of high rates.
Let the railroads make a fair attempt to apply the princi¬
ple to passenger traffic which they have admitted to be
justifiable in freight traffic, and they would soon find that
it would bring them in greater returns than the freight
traffic has done.
The debate which took place in the club, after this ad¬
dress was delivered, was a keen and spirited one. Hertzka
held his own well, and succeeded in the course of it in
converting several prominent railroad men to his view.
I cannot, of course, go into any detailed review of it.
But one point was so fully considered that a sort of con¬
sensus was reached, and it was generally admitted that
distance should not play that role in making up railway
tariffs which is at present assigned to it. It was agreed
that the rates demanded by the railroads were too high,
and that some kind of a reform was necessary. About
five years later the present system was adopted.
Before closing, it may be worth while to consider
briefly what bearing all this movement in Europe has on
our own railway problems. As said above, our system of
railway fares is constructed on the same principle as that of
most European States. It is based on the mileage method.
A rate is fixed per mile, and the fare is determined by
multiplying the number of miles to be travelled into the
rate per mile. The system is modified in many ways.by
the application of limited, commutation, excursion, pack¬
age, return, company, servant, thousand-mile tickets, and
so on; but the principle remains the same.
This method can certainly not be justified from the
190 QUARTERLY JOURNAL OF ECONOMICS
standpoint of " cost of service," since the costs of trans¬
portation do not increase in proportion to the mileage.
It does not cost a railroad twice as much to carry a pas¬
senger two miles as one. It cannot be justified on ac¬
count of the value of service to the traveller. The value
of a trip to him who has to make it depends on the person
to be seen, the business to be done, the place to be visited,
and not on the number of miles to be covered in getting
there. Indeed, one may say that the longer the journey,
the less valuable the service, since it wastes the time of the
one who must make it. Certainly, thousands of journeys
are made nowadays which would not be made if we had
not the railroad; and equally certain is it that thousands
and thousands of journeys which it does not now pay to
make would be made if the railway were faster and the
fare lower.
The present system has not given us cheap fares as
shown above. It has not led to what may be called a
general use of the railway. The United States can show
only about six passengers per head of the population.
When one considers that in this return are included all
the commutation ticket passengers, one sees how little
use the great mass of the people make of the railway.*
* The Chicago & North-western Railway, one of the great railways of the
world, operates over 4,000 miles of road under conditions which may fairly rep¬
resent the average conditions of railroading in this country. It charged for
passenger service in 1871 a rate of 3.31 cents per mile. It reduced this to 2.17
in 1890,— a reduction of 34 per cent. The traffic rose from one hundred mill¬
ions to two hundred and ninety millions,— an increase of nearly 200 per cent.
The mileage increased, however, from 1,223 to 4,250,— an increase of nearly
250 per cent; i.e., the number of passenger miles per mile of road decreased in
the twenty years from 1871-1890 by a very considerable sum. The rates for
freight were reduced from 2.87 cents per ton-mile to .98 in the same period,
— a reduction of 05 per cent. The traffic increased from two hundred and
sixty-eight million to two thousand million ton-miles, so that more than two-
and one-half times as much revenue was derived from the traffic at a little
more than one-third the price.
The reports show, also, that the average number of passengers carried in
a car in 181K) was 12.30; i.e., less than 21 per cent, of the capacity. The
average number per train was 42.31, showing that the North-western has a
passenger traffic slightly in excess of the general average for the country.
REFORM IN RAILROAD PASSENGER FARES 191
It has not led to a reasonable utilization of train facili¬
ties. According to the last report of the Interstate Com¬
merce Commission, the average number of passengers
per train in this country during the last year was only 42.
The average number of passenger cars per train is three
and one-half; i.e., for two hundred seats there are only
42 passengers. The railroad could carry three times as
many passengers on the average, without any increase in
investment or operating expenses. The three cents a
mile demanded of the occasional passenger is an exorbi¬
tant price, considering the means at the disposal of the
average person for railroad riding. Mr. Atkinson states
that the average product of the people of the United
States is only 40 cents per day; i.e., it would take the
whole average daily product of a family of five to travel
thirteen miles on the railway. With two dollars per day
as the average product of such a family, there is evi¬
dently little left for railroad riding at three cents a mile,
after all the necessary expenses are paid.
There are two points in the development of every busi¬
ness where the profits of the business would be the same ;
— namely, the point of relatively small business and high
profits on each transaction, and that of large business and
small profits on each transaction. There is no reason in
the nature of business why a man having reached the
former should go to the latter. But there is a great
reason, from the point of view of public interest, why he
should do so. Our general economic theory takes for
granted that competition will force business along this
line. Even if this be true, generally, every one would
acknowledge certain exceptions to it. All would agree
that it would not be true in the absence of competition.
The railroads are, of course, for nine-tenths of their traffic
absolutely without competitors. It is necessary, then, for
the public to interfere, and compel the railroads to advance
along the line whither they would be driven by competi-
192 QUARTERLY JOURNAL OF ECONOMICS
tors. Speaking generally, one may say of American as of
European roads, They give slow service and costly service
when they ought to give fast service and cheap service.
What system should be adopted to reach this end rail¬
road engineers may determine. The public should insist
that the end be reached.
Edmund J. James.
University of Pennsylvania.
THE TOBACCO TAX.
New systems of taxation and the extension of old ones
are the invariable accompaniments of great wars. By the
Civil War in America an enormous strain was put on a
fiscal system that for nearly half a century had been on
a peace footing. The tariff was quickly increased, but
a disturbed foreign trade proved to be a poor source from
which to draw the sinews of war. Early in 1862, Con¬
gress entered upon the subject of laying internal taxes,
but found itself in dangerous and unknown fields. Such
taxes had always been unpopular. They had been a
prime cause of the Revolution; and the memory of them
gave only a short life to Hamilton's effort for an excise,
and even a shorter life to the internal revenue of the war
of 1812. Thus there were no guides to the problem, what
taxes were best adapted to American conditions of scat¬
tered population and aversion to restrictions, or what were
most likely to meet public favor.
The internal revenue act of July 1, 1862,* was dis¬
tinctly a war measure, drafted under the pressure of
needs almost overwhelming. Everything was taxed,—
raw materials as well as finished products; labor and the
tools of labor; the mediums of exchange, the processes of
the manufacturer, and the returns of the professional man.
In European governments, tobacco was already among the
chief sources of revenue, being taxed both in the leaf and
in the manufactured forms. Owing, however, to the wide
area of its growth in America, the leaf was necessarily ex¬
empted from taxation until it reached the market in a
manufactured form. Accordingly, in the first internal
*12 Statutes at Large, 432-4K9.
104 QUARTERLY JOURNAL OF ECONOMICS
revenue act, manufacturers and dealers were taxed,* and
low rates levied 011 cigars, chewing and smoking tobacco,
and 011 snuff.f
The internal revenue system then organized was placed
in the hands of a Commissioner of Internal Revenue. He
was aided in each revenue district by an assessor and a
collector, to whom fell the preparation of the tax lists and
the collecting of the taxes.$ Errors of valuation and
similar questions came before the assessor; but an appeal
to the commissioner at Washington was allowed in impor¬
tant cases. Every person liable under the law was re¬
quired to deliver to the assessor a detailed statement of
the quantity and quality of bis taxable property, and to
pay the taxes computed from these lists. The regulations
of the act applied alike to all articles taxed, and contained
no special rules for tobacco. Every tobacco manufacturer
paid his license fee, like any other manufacturer. At
regular intervals he made returns of the number of pounds
of tobacco sold and of its value, and was assessed accord¬
ingly. The tax varied with the value, being fifteen cents
a pound 011 tobacco valued at more than thirty cents, and
ten cents on that valued at thirty cents or less. The tax,
of course, was really present in the total amount of the
sales returned.§
It is evident that no price could be placed on tobacco
until its removal and sale; and with its removal and sale
it usually passed beyond the reach of the officers who were
to verif}r and detect its value. Thus a waj- was opened
* See § 04, clauses 29, 10, of the internal revenue act of 1S02. Manufacturers
of tobacco and cigars were not distinguished from other manufacturers,
t Ibid., § 75.
t All subordinates were at this time appointed by the commissioner; but
this right in recent years has been claimed, and at times exercised by the
Secretary of the Treasury, with whom it technically rests.
§ If the ledger of the manufacturer showed a sale of one hundred pounds
of tobacco for $50, it is plain that the real price of the tobacco was 35 cents
per pound, the remaining 15 cents being the tax which he expected, if honest,
to pay to the government.
THE TOBACCO TAX
195
for fraud and undervaluation. As the practice of brand¬
ing was not yet in use, there was no evidence upon a pack¬
age that it had or had not been properly taxed. The
inevitable result was that great quantities escaped taxation
entirely, especially through a practice of removing goods
from the district where they were made to another where
they were treated as if the tax had been paid. This was
the simplest way open to those who wished to avoid pay¬
ing the tax; while even to the honest manufacturers and
honest assessors the mixed specific and ad valorem rates
were difficult to determine.
In his report for 1863, the commissioner represented
that a larger tax on tobacco would be cheerfully borne,*
and could be collected easily, without diminishing the
production; and he accordingly recommended a tax on
tobacco in the leaf, believing that, with proper regulations
for inspection, it would tend to defeat fraudulent prac¬
tices. This proposal recurred in several succeeding re¬
ports, and was based on the ease with which a correspond¬
ing hop tax was levied in England. It never met the
approval of Congress, and was dropped when other means
of checking fraud were adopted.
The proceeds of the tobacco tax were three millions and
eight millions for the years 1863 and 1864 respectively.
" Even that result," said the commissioner in his report
of December, 1864, "did not represent the power of the
then existing laws to produce revenue ": —
A system of national taxation so complicated in its details, and so
unwieldy in its proportions, could not be made immediately produc¬
tive throughout a continent. . . . [But now] the officers have become
more expert, the taxes more strictly assessed, and the flow of revenue
has steadily increased.
While the commissioner was still busy organizing his
forces, Congress early in 1863 took occasion to amend the
* England at this time (1863) was taxing tobacco in the leaf at 77 cents per
pound, snuff at $1.54, and manufactured tobacco at $2.33 per pound.
19(> QUARTERLY JOURNAL OF ECONOMICS
earlier act.* One change was the substitution of a
specific tax of fifteen cents per pound for the earlier
mixed rate on manufactured tobacco. But more impor¬
tant, in some respects, was the power given to the com¬
missioner to appoint inspectors of tobacco whenever
needed. This was the first step towards a separate or¬
ganization of the machinery and methods for collecting
the tax. The inspector branded each package of tobacco,
snuff, or cigars with the quality and weight, together
with his own name and the date; and this expedient
served to remedy the most glaring evils of the moment.
The inspector's salary was paid by fees from manufact¬
urers,— a practice continued until the office was abol¬
ished in 1886.f
The great financial burdens of the closing year of the
war led to the second important act of this first period,—
the internal revenue act of June 30, 1864.$ This act
attempted to double the returns from tobacco by doubling,
in some cases tripling, the tax on it. Cigarettes were for
the first time added to the tax list; but. in other respects,
the classification remained unaltered. The act elaborated
the machinery of collection, and added to it the new rule
that the tax on tobacco and cigars should be collected in
the district and place of manufacture. It was required
that every manufacturer of tobacco, snuff, and cigars
should furnish to the assessor, immediately, a sworn state¬
ment of the street and number of his factory, and of the
proposed market for the product, and a general descrip¬
tion of the kind and quality. On receipt of this, the as¬
sessor issued a " permit " in addition to the regular u li¬
cense." In addition to this report, every manufacturer
was compelled, on the first day of the year, to send in an
* March 3, 1M>3, 12 Statutes at Large, 717.
fThe number of inspectors varied. In 180S there were 200. Congressional
Globe, July 15, 180.S (p. 40S9I.
113 Statutes at Large, 21S.
THE TOBACCO TAX
197
inventory of his tobacco, snuff, cigars, tin-foil, licorice,
and stems, stating what part he had made and what part
he had bought from others. From the moment of taking
the inventory he must keep an accurate account of all
purchases and sales of these articles, and send to the as¬
sessor 011 every Wednesday a true copy of the entries,
whereupon he was assessed according to the returns he
had made, and was required to paj- his tax to the col¬
lector within five days.*
Even these regulations were not thought sufficient. At
the end of every month, the manufacturer must sign a
declaration that no taxable form of tobacco had been re¬
moved from his factory other than that duly returned and
assessed. And, still further to increase his responsibility,
it was provided by amendment that he should give heavy
bonds for every machine and for every workman in his
employ."}"
Still other checks were devised in this act of 1864.
Makers of tin-foil also were to render statements, on de¬
mand, of the quantity of their product sold to tobacco
and cigar manufacturers. Inspectors were given the right
to enter the premises of tobacco factories, and besides
were to attach a stamp indicating inspection, in such a
way that it should be broken when the package was
opened.£ Together with these restrictive regulations, so
necessary in dealing with a highly taxed commodity,
the privilege of bonded warehouses was extended to the
manufacturer of tobacco. Thus he could delay paying
his tax until he withdrew his goods for sale. If sold for
export, no tax was required.
Such were the provisions of the act of 1864. They
were slightly modified by amendments in the three sue-
* This was amended later by requiring: the payment once a month.
114 Statutes at Large, 98, July 13, 1866.
X The stamps used were the ordinary adhesive stamps, already widely in
use in the internal revenue.
198 QUARTERLY JOURNAL OF ECONOMICS
ceeding years. Thus the inspector was to examine im¬
ported as well as domestic goods, and later was given
power to question a manufacturer under oath in any case
of suspected false valuation.* But no important changes
were made.
The act seemed at the time strong enough to hold to¬
bacco manufacturers strictly to their duty. But the in¬
crease in revenue from year to year was hardly more than
that naturally to be expected under the old rates,— cer¬
tainly in no proportion to the doubling of the rates.f
This was in part due to the frequent changes in the tax,
and the consequent great irregularity in the quantities
manufactured. Whenever discussion pointed to a prob¬
able advance in the tax, manufacturers became correspond¬
ingly active in their efforts to make up a large stock
under the existing rates. Consequently, the tobacco
market and the revenues from tobacco could hardly
reach a normal condition within a year after any new act
went into effect. So frequently were these earlier rates
modified or raised that it is impossible to form an opinion
of their true worth as revenue-producing means.
A curious conilict arose under the act of 1864 in assess¬
ing the taxes on cigars. The act specified that cigars
valued by the maker at less than 85 per thousand should
pay $3 tax ; if valued between 85 and 815, the tax should
be 88. It will be recalled that the sales value returned by
the maker to the assessor was the only basis on which to
*13 Statutes at Large, -Hi!) (March 3, 18351 ; 14 ibid., 98, July 13, 1833.
T The receipts from tobacco, cigars, and snuff were
In the fiscal year 1833, 3 millions.
1834, 8.5
1835, 11.4
1833 13.5
1837 19
1838 18.7
The full effect of the act of July 30, 1834, was not seen in the year 1834-35.
For statistics relating to the revenue from tobacco, see the Appendix to
this issue.
THE TOBACCO TAX
199
reckon the value of the cigars, and the selling price of
necessity included the tax. If now a man returned a sale
of a thousand cigars at $12 per thousand, what tax should
he pay ? If $8, then the actual value of the cigars was
$4; but cigars valued below $5 were taxed at only §8.
If he paid the tax of $3, then the actual value of the
cigars was $9 ; but the law taxed cigars valued between
$5 and $15 at $8 per thousand.* Plainly, there had been
an error in framing the schedule of rates, in leaving too
great a gap between the lowest tax and the next higher ;
for the reasoning applied to the example cited was true of
any sale of cigars at rates between $8 and $18 per thou¬
sand. Since Congress took no action when attention was
called to the difficulty, it was left to the commissioner for
two years to levy such a tax as could be agreed upon with
the manufacturers.!
With the amendments and minor acts of 1865, 1866,
and 1867, the end was reached of the first and what
' may rightly be called the experimental stage of the effort
to make tobacco contribute to the support of government.
By the end of the fiscal year 1868 it had yielded a total
of seventy-eight millions. Its importance was growing,
and it stood second only to distilled spirits as the largest
single source of internal revenue.
The more noticeable features of these first six years
were: first, the few objects that were taxed; second, the
combination of specific and ad valorem tax; and, third,
the rapid growth of a series of strict rules in regard to the
manufacture of tobacco and cigars, apart from the more
general laws which touched nearly all industries.
The first of these points is made plain by the fact that
only four separate items appear in the detailed reports
down to 1868,— cigars, snuff, manufactured tobacco, and
* Report of the Commissioner of Internal Revenue, December, 1864.
f This anomaly was remedied by the act of July 13, I860, 14 Statutes at
Large, 98.
'200 QUARTERLY JOURNAL OF ECONOMICS
thu tax on dealers in manufactured tobacco. Of these
four sources, cigars and manufactured tobacco yielded
seventy-six millions out of the total of seventy-eight mill¬
ions. Nearly this proportion has been maintained to the
present time, although since 1868 ten new phases * of the
trade have been placed under contribution. The reasons
for [this can be briefly stated. In spite of the small scale
on which the bulk of the tobacco was manufactured, cigar
and tobacco factories had a permanence not found in
dealers in leaf, in pedlers, or in other retail dealers. This
was well illustrated by the tax on retail dealers in man¬
ufactured tobacco, which even in the most successful years,
1867 and 1868, indicated the existence of no more than
three or four thousand such in the United States. Be¬
sides, the comparative ease of inspecting factories enabled
the government to watch the products, and made more
certain that tobacco or cigars, once within its cognizance,
could not escape taxation.!
Second, the combined specific and ad valorem rate was
early found too cumbersome for manufactured tobacco,
and was done away with as early as March, 1863; but it
clung to cigars until 1868. There is always present in
such a system the temptation to undervalue goods, so as
to bring them into a class less heavily taxed : and the
difficulty in this case amounted to a serious disease.
Third and last, the rapid growth of the tobacco tax as
a separate branch of revenue, and the prominence it speed¬
ily attained, were perhaps the most important features of
the period. Nevertheless, the returns for the first few
years were disappointing. Direct fraud and evasion do
not seem to have been so much to blame as the inertia
of so great a system. The rates under the first act were
low, were slightly increased in 1868, more than doubled
* Pedlers, dealers in leaf, large and small, wholesale and retail, and all
the manufactures of tobacco not otherwise specified.
t Report of the Commissioner of Internal Revenue, November, 1886.
THE TOBACCO TAX
201
in 1864, and retained at nearly that point until 1868.
With the increase in the rates the dangers from fraud
increased in greater proportion,— a fact to which the restric¬
tive laws bear sufficient witness.
In his report of 1868,* Mr. Wells dwelt at some length
upon the various methods of dishonest manufacturers.
The chief mode of defrauding the revenue was from the
connivance or incompetency of officials. When honesty
was lacking, the check of inspection was worthless. An¬
other evil was the use of counterfeit inspection brands, or
of brands belonging to inspectors no longer in the service,
which was complicated by the fact that each inspector
furnished his own die, with whatever design he preferred.
Other forms of fraud were the use for a second time of
inspected packages; for example, the removal of smoking
tobacco from an inspected package, and the substitution
of chewing tobacco, which in the course of time had come
to be taxed at a higher rate. A more brazen method of
avoiding the tax grew out of the long credit (sixty days)
which could then be had from the government. A factory
equipped with old machines would be started, the proprie¬
tor selling his product as fast as made, all properly
branded by the inspector. Just before the sixty days'
limit was reached, the proprietor quietly slipped away,
leaving to the government a valueless plant and a more
or less valuable bond, in return for tax credits to the
amount of perhaps 125,000.
Under the act of 1864 it can safely be said that the
twenty millions of yearly revenue did not represent more
than half the amount really due to the government. Mr.
Wells stated that " the books of some of the largest manu¬
facturers in this country show that their aggregate sales of
smoking tobacco for the whole of the last year have not
been in excess of the average of sales which, before the
imposition of the tax, were effected in a single week."
* Report of the Special Commissioner of Revenue, January, 1868, pp. 35-38.
202 QUARTERLY JOURNAL OF ECONOMICS
Mr. Wells further thought that the cause of the trouble
lay in the method of appointing inspectors; but it is
doubtful if any amount of strictness could have made the
system effective so long as the goods, when they reached
the consumer, did not bear about them the evidence of
a tax paid. The fault evidently was in the system ; for
at that time in France tobacco was taxed much higher
without affecting its use, while England was deriving a
revenue of thirty-five millions from a total use of less than
forty million pounds. Meanwhile, the United States was
getting a revenue of but nineteen millions from sixty
million pounds. With these facts in view, it was obvious
that a much larger revenue could be collected by the gov¬
ernment; but the method was a matter of doubt. The
discovery of great frauds, and especially the unearthing of
the "• Tobacco Ring,"' brought matters to a crisis.*
The tobacco manufacturers themselves were the first to
move for reform. In a convention held at Cleveland,
Ohio, in September, 1867, they framed some seventeen
" proposed laws," which were sent to Mr. Wells, and by
him submitted to Congress. This draft was important,
for it contained the changes which afterwards formed the
main features of the new system. It was proposed that
tobacco be put up in packages of fixed weight; that fac¬
tories be numbered; and, most important of all, that the
taxes should be collected by stamps, and that all tobacco
found on the market without proper stamps should be
liable to seizure by the government. These proposals are
the origin of the tohacco sections of the act of July 20.
1868, for imposing taxes on distilled spirits and to¬
bacco, f Congress was disposed to try the stamp system,
* This ring seems to have been strong, especially in the Western centres of
tobacco manufacture, St. Louis and Cincinnati, See the Cinumriati Crazette,
November 5, 1S13S.
115 Statutes at Large, 125.
THE TOBACCO TAX
203
and enacted the bill practically in the form submitted by
Mr. Wells and the manufacturers.*
By the provisions of the new act all taxes became spe¬
cific, and the rates were slightly lowered. The higher
rate on chewing than on smoking tobacco—a distinction
begun in 1804 — was unfortunately retained, and proved a
cause of further mischief.f Dealers in leaf, retail dealers
in cigars and tobacco, and cigar-makers (including work¬
men) were added to the tax list. This was an essential
link in the new system, for tobacco stamps were sold only
to those who had filed the required bonds and had paid
the special tax. The stamps were sold by the collector,
and were attached by the inspector at the place of manu¬
facture. So strictly was this rule construed that it was
held to be broken when cigars were removed unstamped
from the back part of a room where they were made to
the front part where they were sold. The absence of the
stamp from a package was proof that the tax had not been
paid. Thus the illicit manufacturer was attacked both in
front and rear. He could not get the stamps, and his
goods were confiscated in the market for lack of them.
The collector kept a record of the purchasers of stamps:
* The tobacco schedule was passed, with little discussion, in the form in
which it came from the Committee of Ways and Means. Before the com¬
mittee there had been a fierce struggle between the Eastern and Western manu¬
facturers. The Eastern men wanted chewing tobacco to be packed in parcels
of one pound or less: the Western wanted large packages, because they used
wooden boxes instead of tin-foil, the production of which was monopolized by
certain New York firms. See the Congressional Globe, 1867-68, pp. .'1495-3499.
The committee, naturally, reported in favor of a compromise system. The
contest was renewed in the House, where it gave rise to a lively tilt between
Messrs. Garfield and Logan.
t The rates of the act of 1868 were as follows: snuff, 32 cents per pound ;
chewing tobacco, 32 cents per pound; smoking tobacco, 16 cents per pound;
cigars, $5 per thousand.
Smoking and chewing tobacco (fine cut) were made from the same tobacco
by the same processes, except that chewing was sweetened. Though identical
in all but one particular, and that not a prominent one, chewing tobacco was
taxed at double the rate of the other. This opened an easy road to fraud,
which was not closed until the two were combined at the same rate (20 cents)
by an act of June 6, 1872.
204 QUARTERLY JOURNAL OF ECONOMICS
and the manufacturer, on his part, still made his monthly
report and annual inventory. This double check held
both manufacturer and official closely to duty, for a dis¬
crepancy anywhere would be quickly revealed; while the
public evidence of the stamp forbade evasion.
It was at this time, too, that the familiar legend was
first attached to packages of tobacco and cigars,—
"Notice! the manufacturer of this tobacco has complied
with all requirements of law. Every person is cautioned
under penalties of law not to use this package for tobacco
again." Factories were numbered; and. as a necessary
condition for the success of the stamp system, tobacco and
snuff were to be packed in packages of fixed weight, and
cigars in boxes containing the numbers determined by
law. Imported goods were to conform to the same rules,
but were provided with a separate stamp.*
Such were the important changes made by the act of
1868. Their effect upon the revenue was immediate.
The receipts for 1870 were 31.3 millions against 18.7 mill¬
ions in 1868,— a gain of nearly 80 per cent, in spite of
the reduction in the rates. As cigars showed a much
greater increase (95 per cent.) than any other item, it
may naturally be inferred that a greater proportion of
them had previously escaped taxation. No better indica¬
tion could be formed of the greater efficiency of the stamp
system or of the amount of evasion in the years just before
1868.
The new system seemed to reach nearly its full effect in
the first complete year of its trial; for the changes in the
returns from it after 1870 were merely the results of nat¬
ural growth and of the fluctuations of general trade.
* Cigar-makers find it a cause for complaint that in the case of cigars alone
the government volunteers the information to the consumer that the article is
actually imported. No other form of merchandise is so guaranteed. See the
complaints in the Tariff Commission Report of 18S2, p. 1S44. It is a violation
of law to use these stamps on domestic cigars.
THE TOBACCO TAX
205
The steady and uniform increase [said the commissioner in 1871] *
in the revenues derived from tobacco, cigars, etc., since the present
law went into effect, by which the mode of collection was changed
from an assessment after removal from the factory and sale, to a pre¬
payment by means of suitable stamps, has fully demonstrated the
superiority of this system. Fewer frauds are possible where the taxes
are required to be paid at the manufactory and before the goods are
allowed to go upon the market, and where every package is required
to bear upon it the evidence that the tax has been paid.
1
With the exception of some slight frauds through coun¬
terfeiting the stamps,! the measure passed quietly into
operation, to the benefit of the government and of the
honest manufacturers and dealers. Peaceful as was. the
installation of the stamp system, it wrought a revolution.
Instead of being harsh and inquisitorial in execution, it
was equitable, and even popular. Above all, it trans¬
ferred the burden of proof from the department to the
manufacturers. In fact, the Internal Revenue Office
became merely a medium for supplying that which en¬
abled the manufacturers to meet the keen scrutiny of
the purchasing public,— a police force far more effective
and exacting than any government could hope to be.
Meantime, the increasing resources of the government
pointed to a reduction in the excessive taxation that then
prevailed both in the customs and in the internal revenue.
Naturally enough, the branches of the internal revenue
were lopped off first; for there was no one interested in
their preservation. From a tax on almost everything, the
internal revenue system was quickly narrowed down to
an excise on whiskey, beer, and tobacco, which, from the
first, formed the backbone of this part of the fiscal system.
With the decrease in the needs of the service, there came
a corresponding change in its organization. As early as
1872 the office of assessor was abolished, his functions
* Beport of Commissioner of Internal Revenue, November, 1871.
t In 1872 the designs were made more intricate, and were printed in two
colors.
•2U6
QUARTERLY JOURNAL OF ECONOMICS
being transferred to the commissioner at Washington,
who thenceforth assessed such taxes as were not paid by
stamps. The saving in salaries was an important item;
but more beneficial was the direct contact of the dej^art-
ment with the manufacturers and dealers, together with
an increased celerity in the despatch of business.
There were, however, some dangers attending the use
of the final and absolute power which the act placed in
the hands of the Commissioner of Internal Revenue.
His position certainly was strong, for the act expressly
provided that no suit could be begun in the courts to
hinder the collection of a tax once assessed. An appeal
might be made to the courts for an abatement, and ille¬
gal taxes might be recovered from the collector. Rut,
when disputed cases reached the commissioner, his deci¬
sion was held to be in the nature of an award, which could
be impeached only for fraud or want of jurisdiction, not
for lack of discretion or judgment. Hence, his decision
was practically final. There was, and still is, a justifica¬
tion of such autocratic power in the fact that without it
the government would be hampered at every turn by
legal delays, until the case would finally wear itself out in
the courts.
Centralization in taxation insures uniformity of meth¬
ods and equality of rates,— two objects of the utmost
value at all times. The change to the stamp system in
1868 involved a change from a method almost local in its
leading features to that of a highly centralized adminis¬
tration. The logical outcome of this movement was the
removal of the assessors, who embodied the old local prin¬
ciple, and the increased importance of the collectors.
Rut the collector retained none of the discretionary
power that had rested with the assessor. The stamps,
printed by the government, were furnished to the col¬
lector, who in turn sold them to such manufacturers and
importers as had given the required bonds. The proceeds
THE TOBACCO TAX
207
of the sales were covered into the Treasury at regular in¬
tervals. Thus was completed the simple machinery of an
effective, straightforward tax. This branch of the Inter¬
nal Revenue Office was no longer a huge police force,
but a stamp agency.
From the point of view of a government, the greatest
desideratum in any system of taxation is the certainty of
a calculable return. To this may be added the power to
increase or decrease that return, within reasonable limits,
by an increase or decrease in the rate of the tax. How
closely the tobacco tax has conformed to this ideal, a
brief survey of its working since 18G8 will show.
The decade following the changes of 1868 is the most
interesting in the history of this tax, both as testing
the stamp system and also, in a larger sense, the general
value of the tax as a source of revenue. As already
noted, the revenue from tobacco increased at an unprece¬
dented rate with the adoption of the stamp system,
reaching thirty-one millions for 1870, the first full year of
its operation. This amount may fairly be taken as the
normal revenue from the rates then in force. Almost all
evidence of fraud had disappeared, and the system met
general approval. Under these favorable circumstances,
the revenue from tobacco increased steadily, in spite of
the financial stress of the years immediately following
1870. The customs revenue, on the other hand, fell
rapidly from 216 millions in 1872 to 163 millions in
1874. Congress attempted to check the decline by rais¬
ing the import duties (1875) ; but the revenue kept its
downward course until, in 1878, only 180 millions were
raised by the tariff. The tobacco tax showed a striking
contrast with this. In 1874 it yielded thirty-three mill¬
ions to the Treasury, a gain of two millions over 1870.
Its rates, increased twenty per cent, at the time of the
tariff changes of 1875, quickly brought the returns from
208 QUARTERLY JOURNAL OF ECONOMICS
tobacco to forty millions in 187G, and maintained tliem
there, while a decreasing foreign trade was cutting down
the customs revenue. With the government pledged to
resume specie payments, the revenue from customs stood
at the lowest notch since I860; and even alcoholic and
malt liquors fell below their usual level of productiveness.
At this really critical time, the single item of tobacco
yielded nearly one-third as much as the customs, and
somewhat more than one-sixth of the total revenue re¬
ceived by the government. It is easy, of course, by se¬
lecting some one branch of a government's resources, to
exaggerate its importance. Still, the working of the to¬
bacco tax from 1872 to 1878 brings out strikingly what is
true of it for the whole period since the war,— that the
revenue from tobacco is a constant and growing quantity,
little affected by the fluctuations of trade, which have
such a marked influence on most other sources of income,
and that, within reasonable limits, a considerable increase
of revenue can easily be obtained by an increase in rates.
With 1879 there came a marked revival in trade, a
precursor of the prosperity of 1880-81; and the turn in
the tide suggested a reduction in taxation. Congress
determined to reduce the internal revenue rates, the to¬
bacco rates included. A strong minority was bent on
radical measures. The proposals ranged from the rate
finally adopted all the way to the abolition of the in¬
ternal revenue system on the ground that it was a u war
measure."
In his report of November, 1878, the commissioner,
General Raum, endeavored to anticipate Congressional
action by pleading for the existing rates, and showing
that a reduction meant a corresponding loss of revenue
without benefiting consumers ; for the tax reached them
so thoroughly subdivided that the relief would be in¬
appreciable. The debate was long drawn out, with the
result that by the act of 1879 manufactured tobacco and
THE TOBACCO TAX
209
snuff were taxed 16 cents per pound instead of 24 cents,
while the rate on cigars and cigarettes remained unal¬
tered. This measure, however, proved to be of only tem¬
porary importance. Prosperity brought with it larger
revenues from every source than the government could
well use, and greater changes became necessary.
The tariff and internal revenue act of 1883,* framed
ostensibly to correct and reduce the tariff rates, and in¬
cidentally to revise what little was left of the internal
revenue system, provided tersely in its first paragraph that
manufactured tobacco and snuff should pay eight cents
per pound, and cigars three dollars per thousand,— ex¬
actly one-lialf the previous rates. The license fees of
dealers and manufacturers were reduced in nearly the
same proportion.! Farmers were permitted to sell small
quantities of the leaf direct to consumers, and other re¬
strictions were softened. The result of all these changes
could have been foretold from the previous experiences.
The revenue from tobacco fell from forty-seven millions
in 1882 to twenty-six millions in 1884, while the in¬
creased amount reached by taxation (about fifteen million
pounds) exceeded but little the regular annual growth.
As a sacrifice of revenue, the measure was successful.
As a relief from the so-called burdens of taxation, it
was of doubtful effect; for the lower tax has caused no
increase in use beyond the normal rate, which certainly
is progressive enough to satisfy the advocates of the poor
man's pipe.
The years since 1883 have been uneventful, so far as
*22 Statutes at Large, 488.
The rates fixed were : —
For dealers in leaf tobacco, $12.00
Dealers in manufactured tobacco, 2.40
All manufacturers of tobacco, 6.00
Pedlers of tobacco, 3.60 @ 30.
Retail dealers in leaf tobacco, $250, and 30 cents for
every dollar in excess of $500 annual sales.
•210
QUARTERLY JOURNAL OF ECONOMICS
the government and the internal revenue have been con¬
cerned. The tobacco tax began in 1884, at the new
starting-point fixed by the average rate of ten cents per
pound; * and the revenue increased by regular steps from
twenty-six millions for 1884 to thirty-two millions for
1889. The tax cannot be said to be oppressive ; for it has
not roused determined opposition, and evasions have been
rare. Nevertheless, year after year bills have been intro¬
duced in Congress by members from tobacco-growing dis¬
tricts for the abolition of the tax, partly from the feeling
that it is a burden on the grower : partly on the ground
that this industry should not be taxed, while all others,
except liquor, have been freed from internal taxation;
but in great part from the promptings of practical poli¬
tics, and the desire to exhibit proper solicitude for the
poor man's only joy.
The McKinley Act contributes nothing new or inter¬
esting to this part of the discussion. The opposition to
the tax, so far as it existed, was for the abolition of it.
On the other hand, the supporters of the tax were content
with the rates of 1883; and those rates were low enough
to make their retention or the entire abolition of the tax
appear to be the natural alternatives. Congress preferred,
however, to adopt a middle course, and to reduce the rates
on all kinds except cigars f bv one-fourth (from eight
cents to six cents per pound), and to abolish all special
and license taxes. This last change was, however, a step
in the right direction. When the stamp system was
adopted, it did not require for its success the rigid sur¬
veillance of every factory and shop. Yet the special taxes
had no other object than to give the government oppor-
* Cigars taxed at per thousand represent a tax of 12 cents to 14 cents
per pound on the tobacco used.
t Cigars and cigarettes are retained at the present rate. The changes take
place January 1, 18! H.
THE TOBACCO TAX
211
tunity to secure information.* With the assured success
of the stamp s}-stem in 1872, the office of the assessor
went by the board. Whether the licenses and special
taxes should have shared the same fate earlier may be a
question for debate; but, at all events, as one of the
relics of the older system, they can be spared now.
The relation of the tobacco-grower to the tax will be
discussed presently. But it may be noted here that the
government exercises no supervision over him. He plants
and cures as much tobacco as he pleases. He may keep
what he pleases for his own use, and may supply it to his
employees. He sells his crop without let or hindrance in
what is practically a free market; for, until recent years,
far more than half the total product of leaf tobacco was
sold to foreign buyers, who competed not only with the
home buyers, but with each other. It seems obvious,
then, that the prices obtained for this exported surplus
must largely govern the domestic market in those partic¬
ular grades, without regard to the national government
or the internal revenue laws. Consequently, the tax is
not important in determining the market price of the leaf.
But, even if it were, the rapidly increasing use of tobacco
would indicate an industry not appreciably injured by
the tax.
The increase in the consumption of tobacco, not only in
the United States, but throughout the world, has been one
of the striking phenomena of recent years. In England
the growth in the use has been slower than here, but still
very marked, the increase during the sixty years, 1821-
1881, being from | of a pound to li pounds per person.
In the United States the quantity used has increased rap¬
idly from pounds per head in 1870 to 3| pounds in
1880 and to 4£ pounds in 1889.f In short, the use of
* The revenue from all [the special taxes,— manufacturers, dealers of all
kinds, and pedlers,— for the whole period (1863-1889), has been only 35.2
millions out of a total revenue from tobacco of 810 millions.
f Mr. Wells, in his Recent Economic Changes, p. 338, has reached prac-
212 QUARTERLY JOURNAL OF ECONOMICS
tobacco has far outstripped the growth of population,
rapid as that has been, and is now gaining at a greater
rate than ever. In this fact lies the great strength of the
tax. It has never been high enough to check the increase
in use, so that, if left alone, even at the low rates fixed
by the recent law, it must remain one of the important
sources of revenue. There is the further consideration
that the government might better be supported from the
luxuries than from the necessities of the people. But, in
deference to the recent political opinion that tobacco is as
necessary to life as bread and meat, this argument may be
passed with the suggestion that, if twenty-five pounds of
tobacco a year is necessary to a man's existence, the point
must soon be reached beyond which tobacco will be a
luxury.
It is held by some that the tobacco tax, as an indirect
tax, requires of dealers and manufacturers an increased
outlay, for which they must recoup themselves by a sell¬
ing price increased by enough more than the tax to meet
the additional risk and interest. Obviously, however, the
amount of this insurance (if it may be so called) varies
greatly with the nature of the commodity, the time neces¬
sary to insure its sale, and the number of hands it passes
through to reach its market. But tobacco, unlike most
other commodities, deteriorates rapidly in quality the
longer it is kept in a manufactured state. Manufacturers
of tobacco and cigars are therefore in close touch with
the demands of their market, carrying over stocks from
tically the same result, but divides the total use as follows. The figures for
1868 are probably too low.
18(58. 1.8 pounds manf. tobacco, 16.7 cigars per person.
1878. 2.8 44 44 4 4 40.5 4 4 8.5 cigarettes per person.
1888. 8.28 44 44 44 61.4 44 20.7
It may be presumed that not more than one person in five of the popula¬
tion uses tobacco. Thus the quantity consumed by the actual users is some¬
thing startling, being not far from 25 pounds of manufactured tobacco to each
user. This quantity represents 82 pounds of leaf, since the loss in manufactur¬
ing is not far from one-fifth.
THE TOBACCO TAX
213
year to year only at a considerable loss. Thus, from the
very nature of the article, the time from the payment of
the tax to the refunding of it by the consumer is reduced
to a minimum, and with it that extra amount, the so-
called insurance, is reduced to the lowest point. Con¬
sequently, the objection that the tax takes more from the
consumer than reaches the government may be set aside
in this instance as without weight.
That the tobacco tax has fostered monopolies is a more
serious objection, and one that carries seeming truth upon
its face. In the days before the war, the cigar industry
was largely carried on in tenement-houses,— a system
broken up by the severe regulations in force before 1868.
To that extent the tobacco tax may have brought hard¬
ship, hurrying in a few years before its time the more
effective organization of labor. But it is by no means
clear that the tobacco tax can be held responsible for the
growth of the factory system. The tendency in that
direction has marked every industry the world over.
Government supervision, if it has had any effect whatever,
seems to have favored the growth of the smaller establish¬
ments. According to the census of 1860 there were 1,478
cigar factories in the country. This number had increased
to 15,992 in 1878, and to 22,055 in 1889. Of the cigar
factories in 1878 (15,992), as many as 12,551 employed
fewer than six hands in each. The business of cigar
manufacturing, then, is carried on in small establish¬
ments, the number of which is rapidly increasing. Yet
the product of cigar factories has been taxed higher than
other forms of tobacco. Every individual worker was for
years taxed by a special license fee; and the proprietors
to this day are tax-bonded, and specially restricted by
rules and regulations. But cigar factories are more
numerous than ever, and the business of making and
selling cigars most thoroughly divided. With tobacco
factories the case has been quite different. Machinery
214 QUARTERLY JOURNAL OF ECONOMICS
plays so large a part in the processes that the number
of factories cannot he increased or decreased at will,—
a state of affairs that tends, apart from any question of
tax, to draw new business to the factories already estab¬
lished. Curiously enough, the number of tobacco facto¬
ries, greatest when the tax happened to be the highest
(1875-1880), has really declined under the low-tax regime
of recent years."* With a use of chewing and smoking
tobacco twice as great as that of any year before 1880,
with a tax rate one quarter of what then prevailed, we
now have absolutely fewer factories in operation than at
any time since the war.
The tobacco tax from the grower's point of view, al¬
ready briefly referred to, involves some consideration of
the nature of the industry, the amount and character of
the exports and imports, and the working of the internal
taxes and the import duties. A sufficient discussion of
this part of the subject need not carry us far afield, and at
the same time will bring to light some interesting facts.
The growing crop of tobacco requires nine months of
constant attention and labor, every moment of which is
full of uncertainties. Aside from the frost, the worms,
and the weather, which affect both quality and quantity,
the leaf at last reaches the market to find its worst foe in
itself,— overproduction. Unfortunately, the conditions of
growth favor a chronic state of overproduction, or, at
least, of poor adjustment to the demand. This is princi¬
pally due to the large yield of tobacco per acre (600 to
1,000 pounds), and to the comparative ease with which
the area planted can be increased. The acreage, and with
it the crop, might be doubled a good many times without
*In 1875 there were 983 tobacco factories.
1879 " " 11194
1882 " " 847
1885 " " 92S
1889 " " 914
THE TOBACCO TAX 215
reaching any natural limit, provided only the market price
offered some encouragement. Nor is there anything about
the common grades of the leaf to prevent them from being
grown in almost any part of the country. The enormous
annual crop of the United States, 600 million pounds, re¬
quires the small area of 1,500 square miles. The large
profits of occasional years draw farmers into the business,
and induce old growers to increase their acreage; yet an
increase of one acre each among the thousands of tobacco-
growers is often enough to carry the total product far
beyond any hope of profit.* Growers have sought to
regulate the amount of the product, abstaining, " by mu¬
tual understanding," from planting the usual area; but
increasing competition, especially from the new fields
of the West, has usually prevented much increase in
price. Thus, on the one hand, growers contend with con¬
ditions of unlimited production, and, on the other, with
limited though increasing consumption. From repeated
discouragement and failure in reconciling two such con¬
flicting tendencies, they have turned against the tax as
the prime cause of all their losses, seeing in its abolition
their relief and profit. Relief can come only through an ,
increased demand for tobacco. That demand has not de¬
veloped in the measure required in the years since 1883,
when one-half the tax was removed. Is it likely to follow
the removal of the other half? f
The most noticeable feature of the tobacco market is
the enormous export trade in qualities fit for making
smoking and chewing tobacco and strong cigars, f Until
* Tobacco loses weight rapidly, and also is less easily worked when old
For that reason leaf from a previous season is less valuable.
t The price of exported leaf since 1883 has been the lowest in our history,
except in the years 1879 and 1880. This presumably indicates really low prices
at home, but may be due to the export of cheaper grades. Averages of local
prices are not easy to get, and are unsatisfactory.
i The bulk of the exported leaf comes from the cheap tobacco of the South¬
ern and Western States.
21(3 QUARTERLY JOURNAL OF ECONOMICS
1880 much more leaf tobacco was exported than was used
at home. Hut that trade has not increased so rapidly as
the home use, and consequently it is now of secondary
though of great importance. It continues in great vol¬
ume, not because the countries of Europe cannot raise
tobacco, but because the manufacture is a public monopoly
in several of them, and its cultivation is forbidden, or else
permitted only under close supervision.* France, Austria.
Italy, and Spain conduct the purchase, manufacture, and
wholesale delivery of tobacco, securing thereby a greater
revenue than ordinary methods of taxation would yield.
Our exports to England, twice what they are to France,
are met by an import duty, while the cultivation of to¬
bacco is forbidden by a tax of £1,600 per acre.f It is
curious to find Spain using so much of our crop, when she
has access to the choicest growths of Cuba and the Philip¬
pine Islands. The Netherlands,— whence come the four
million pounds of Sumatra tobacco J that are supposed to
wreck the domestic market, and that certainly disturb the
halls of Congress,— the Netherlands retaliate by taking
nearly twenty million pounds of our annual crop.
Our imports of tobacco, never large, have been eutirely
of grades suitable for the finest cigars. Our area of pro¬
duction of the fine grade is limited to small portions of
Connecticut and Pennsylvania, and our domestic supply
of satisfactory quality has never been large enough.
* In 1X87, we exported to Germany 71 million pounds ; to England, 63 mill¬
ion pounds; to Italy, 32 million pounds; to France, 31 million pounds ; to
Spain, 30 million pounds ; to the Netherlands, 19 million pounds ; to Belgium,
16 million pounds.
t England derived £9,294,990 in 1XSG from an estimated use of 55 million
pounds. This comes almost entirely from the customs, as the excise is merely
for administrative purposes. Beginning with 1886, experimental patches of
tobacco have been permitted, looking to its introduction with the hope of
relieving the agricultural depression.
1 The Dutch government sells by auction, at stated intervals, the Sumatra
and other tobaccoes which it receives from its East Indian possessions. Am¬
sterdam is the market of all of them.
THE TOBACCO TAX
217
Until 1880 the imports came from Cuba, and, as the relic
of an older and larger trade, had not roused serious oppo¬
sition.* With 1880, Sumatra tobacco entered the market
as a new and disturbing element, imports of which quickly
rose to four million pounds, where they have since re¬
mained.
This interchange of tobacco between different countries,
which repeats itself between our own States, is due to
differences in the quality and adaptability of the local
growths. Particular grades of tobacco are lit only for
particular purposes. Thus the heavier and stronger to¬
bacco of Virginia, Carolina, and the States to the west,
is famous for its smoking and chewing qualities. Virginia
tobacco also possesses the qualities prized in the best
snuff. The so-called "Havana seed leaf" of Connecticut,
Pennsylvania, and Ohio, supplies the best material for
domestic cigars. In this way, the various States share the
home trade; but the lines are not sharply drawn, for each
encroaches on the other's field.f
Cigars may be grouped for convenience as of cheap,
medium, and fine quality. Into the first of these grades
the poorest of native tobacco finds its way,— such as
comes from many Southern and Western States. For
the medium grade the "seed leaf" is used, with a wrapper
of the same from Pennsylvania or Connecticut; $ or, in the
*The imports were from 10 to 12 million pounds annually; and before
1860 the imports of leaf were much larger, and that of cigars more than double
the present quantity. The high duty on cigars resulted in the transfer of
Spanish workmen to American soil. The city of Key West and the Spanish
colony in New York City are examples in point.
tit may be noted here that tobacco from Cuba and the islands of the
Pacific may roughly be classed as most suitable for cigars, owing to its delicate
flavor and quick burning. This grade is successfully grown in America and
Europe from imported seed, disproving the still prevalent notion that Cuban
fields possess peculiar virtues; but American growers are unwilling to devote
the care and time necessary to produce the best results.
X There are usually present on all plants grown for cigar tobacco some
leaves suitable for 41 wrappers" ; but most are good only for 41 binders " and
44 fillers." The refuse from the sorting and the trimmings from cigars is
■218
QUARTERLY JOURNAL OF ECONOMICS
better ones of this grade, a mixture of native and Havana
leaf is wrapped in a Cuban or Sumutran cover. In the
line grade of cigars, however, almost pure Havana and
Sumatra is used, with which only the finest grades of
domestic leaf compete.*
It is evident, then, that the tariff can be of no direct
benefit to the growers of the lower grades of cigar tobacco ;
for neither Havana nor Sumatra competes with thern.f
But to the growers of the medium and fine grades of do¬
mestic leaf the tariff undoubtedly gives an advantage,
limiting to some extent the profitable use of the imported
leaf. Nevertheless, the Sumatra tobacco has qualities
which, apart from the price, commend it to the fancy and
favor of consumers,— especially its rich color and silky
texture. At the same time, the manufacturers like to use
it because of its better appearance, the ease with which
it is worked, and the fact that a given weight covers twice
as many cigars as the home-grown leaf,— advantages that
easily explain its higher price.J On the whole, from the
data at hand, we may say that nearly eight million pounds
of American wrappers are displaced by it; and to that
extent the American grower may feel aggrieved. In a
matter so largely of fancy, it remains to be seen to what
worked into smoking tobacco. Some Western States notably Wisconsin —
are producing- excellent qualities of cigar tobacco. The competition from that
quarter is rapidly increasing.
* We import 10 million pounds of Havana tobacco annually. This would
make 400 million cigars. In addition, we import annually about 155 million
cigars, giving a total consumption of 4^15 million cigars of Cuban origin,— about
ten per cent, of the number made in the United States 14,000 million .
t The average price of the tobacco used in cheap cigars is not far from
15 cents per pound. Sumatra tobacco in Amsterdam is worth about Si per
pound. The duty on it is now £2 per pound ; and, as nearly live pounds of
wrapper is the usual quantity for a thousand cigars, the increase of duty from
75 cents to $2 per pound is equivalent to about Mi.25 per thousand. The
duty on tobacco for fillers and binders remains at the former rate, X) cents per
pound.
t The ease in working is due to the presence of a large amount of "gum."
The thinness of the leaf increases its value as a wrapper.
THE TOBACCO TAX
219
extent the increased price will affect the use of imported
tobacco, and especially of Sumatra tobacco ; for it is this
tobacco that is directly aimed at by the excessive rate now
levied on wrappers. The rate is as high as any one
could ask, being $2 per pound, or four times the price
of any but the most exceptional qualities of domestic
wrappers; and the result will supply an interesting test of
the efficacy of a very high protective duty in keeping out
the foreign article.
Thus, briefly, we have traced some phases of the growth
of tobacco, with the purpose chiefly of showing how little
connection there is or can be between an internal tax on
cigars or smoking tobacco and the net return from a
crop of leaf. A good crop is plainly the result of condi¬
tions over which the tax has no influence or control. If,
however, as some contend, the tax on the manufactured
article weighs oppressively on the farmer, the tax which/
causes the trouble must be that levied by foreign govern/
ments on the half of our crop which is exported. In every
important European country the rate on manufactured
tobacco is at least twelve times greater than that levied
in the United States,* and must be proportionately harm¬
ful if tobacco is not able to endure taxation. But, if there
is any one point in taxation on which the experience of
modern nations is agreed, that point is the fitness of to¬
bacco to be taxed, and to be taxed at a high rate, if there
be need. As an object of taxation, it is obviously a stable
source of revenue, and the surest in times of great neces¬
sity. It has met high taxation without apparent injury to
the growers or to the manufacturers; while, so far as the
consumers are concerned, its use in steadily increasing
quantities indicates that the burden is easily borne.
Frank L. Olmsted.
* The present rate is 8 cents, as the new rate (6 cents) does not go into effect
until May 1, 1891. For 1886 Great Britain derived a revenue of £9,000,000
from an estimated use of 51 million pounds, being at the rate of over 90
cents per pound. The rate in England is the lowest, I believe, in Europe.
TIIE VEREIN FUR SOZIALPOLITIK.
On the 13th of November of the year just passed, the Chan¬
cellor of the German Empire and President of the Prussian
Ministry, llerr von Caprivi, laid before the Prussian legislat¬
ure five important bills, relating to the income tax, the taxa¬
tion of legacies and inheritances, the elementary public schools,
the communal finances, and communal administration in the
seven eastern provinces of Prussia. In the address presenting
these bills, which was received with cordial applause by all
parties, he explained the general principles which the govern¬
ment had had in mind in preparing them, and added the
following significant words: "These being the principles of
the proposed legislation, I am of the opinion that, in a time
when the social question takes so prominent a position, when
we are confronted with such difficult problems relating to the
social order, every step of the government and of the legislat¬
ure must be tested by asking, How will it work in relation
to social reform?" In these words the leading statesman of
Germany admitted that in our day no policy is conceivable
in Germany which is not also a social policy. Public finance
or public education, the organization of local self-government
or the attitude of Church to State,— there is no field in our
public life, be it ever so remote, which does not come into
touch with the dominant question, IIow does it bear on social
reform ?
This social reform, which confronts us at every step, is not
a clearly defined thing. It has a thousand forms, varying
with the particular phase with which we happen for the mo¬
ment to be concerned. In economic legislation and adminis¬
tration it takes different shape from that which appears in
questions of education and of public welfare. It is not the
same when we undertake to remodel local government as it
is when we regulate the religious orders; but it is present
everywhere. It is not the programme of a single political
party: it is the principle underlying an historical develop¬
ment which includes the whole social body.
THE VEREIN FUR SOZIALPOLITIK
221
The historical development may be described, in general
terms, as the movement of the lower strata of the population
upward to a higher stage of culture. The movement is social
reform, if it rests on the foundations of the present organiza¬
tion of society, individual freedom and private property, and
if it is carried on by measures of the State or of individuals
working consciously with the intent of promoting it. In so
far as it shakes the foundations of present society, and so the
entire civilization of our day, it is social revolution. Inevi¬
tably, so wide a movement takes different shapes in different
hands, and therefore finds very different expression in the
programmes of the various political parties. But, on the
whole, the parties are already divided into two great groups,
according to their choice of one or the other of the two
directions just designated. And the important question in
Germany now is, not whether the voters are liberal or con¬
servative, free-minded or ultramontane, but whether they
vote for the party of social reform or for that of social
revolution; that is, for the Social Democracy.
Let it be said at once, to prevent possible misunderstanding,
that we must not confound the Social Democracy with a party
of violent revolutionists, although doubtless the movement
does bring some danger of a bloody uprising. The Social
Democracy receives its distinctive revolutionary character
from its outspoken intention of bringing about a complete
overturn of the existing social order; or, better, from its
fundamental principle that nothing less than a complete over¬
turn of all existing laws and of all existing economic forms
can make the condition of the laboring classes satisfactory.
The great danger from Social Democracy is in its dissemina¬
tion of this conviction, to which it clings as to a religion ; for
thereby hundreds of thousands are brought to believe that a
gulf exists between them and the property-owning classes of
our day, which can be bridged by no other measures, however
well meant. Head and heart are thus turned away from the
efforts at social reforms. But such reforms can be effective
only so far as they are taken up and promoted by their bene¬
ficiaries. Their success therefore must be rendered doubtful
by the attitude of the Social Democrats. This state of things,
2*22 QUARTERLY JOURNAL OF ECONOMICS
however, brings the greater pressure to bear on those who
would maintain the present foundations of society. It spurs
them, on the one hand, to prevent the growth of Social Democ¬
racy, on the other hand, to deprive the revolutionary move¬
ment of its chief weapon of attack. Both results can be
obtained from the introduction and execution by society and
State of measures which shall secure to the propertyless classes
a consciousness that their elevation can continue within the
present organization. The problem is not merely to recognize
the kernel of truth in the demands of Social Democracy, but
also to carry this truth into practical operation, and to do so
with the aid of the Social Democrats themselves, in order to
bring them to a common political and ethical faith.
The social policy of Germany is, therefore, of the utmost
importance,— not only for itself, but because in the issue of the
conflict here there is some indication of the outcome of the
struggle between social reform and social revolution in every
advanced industrial community. It may therefore be per¬
mitted me to call attention to a society in which the men of
science and the men of practical affairs in Germany have been
united for nearly two decades for the dissemination of earnest
thought upon social policy. The "Yerein fur Sozialpolitik"
proves by an admirable example that science, without aban¬
doning its high position above all parties, without descending
to the level of the conflicts of every-day life, can yet exert
its influence on them. The consciousness of the necessity of
social reforms existed in the Verein long before any policy in
this direction could be thought of. Opinions which twenty years
ago were condemned as heretical, and brought upon the founders
of the association no small degree of odium, are now publicly
expressed by the Chancellor of the Empire with the approbation
of all parties,— a striking proof that even in politics, the art
in which above all others it is supposed that nothing can be
taught, science makes possible a wise prevision of the future.
Public opinion in Germany on economic questions was con¬
trolled until the close of the sixties by an association of liberal
economists and statesmen, formed in the year 1858, the
THE VEH EIX FUR S0ZIALP0L1TIK
" Yolkswirthschaftlicher Kongress." This association deserves
no small praise for its aid in bringing about economic legisla¬
tion fitted to the conditions of modern times. Its leaders
were national statesmen and enthusiastic free traders, who
longed for nothing so earnestly as that Germany should follow
the brilliant example of England, and should lay the founda¬
tions for its material prosperity by establishing one single and
united economic territory, having free trade within and with¬
out. When they formed their association, the need of the
time was on their side. At that date free movement from
place to place [Freizugigkeit] was restricted in Germany. In
many states decayed guild associations, remnants of the feudal
dues from land, ill-regulated concession of corporate franchises,
bureaucratic regulation of prices and wages, checked the growth
of industry. Free trade within Germany had to be extorted
slowly from the particularist interests, and the danger of a
victory by the extreme protectionists made necessary a con¬
stant watch on the Zollverein. The opinions which were
expressed at the yearly meetings of the association had, until
the end of the sixties, few enlightened opponents. Such oppo¬
nents as there were stood apart from the real life of the nation.
The association did not concern itself with the labor question
and the dangers that lay in it; but, then, this question played
no part in public opinion at large. Even Lassalle's brilliant
agitation brought no change in this regard, especially as he
left behind him at his death, in August, 1804, an organized
workingmen's party, numbering but a few thousand members.
In the course of the decade from 1860 to 1870, and especially
after the foundation of the North German Federation, the
aims of the Congress were rapidly attained. Free movement
within Germany was granted. The policy of the Zollverein
was distinctly in the direction of free trade. Usury laws and
imprisonment for debt disappeared. Weights and measures
were put upon a uniform basis, the post-office policy was made
more liberal, limitations upon marriage were removed, tolls on
the rivers were abolished. The code of legislation on industry
[Gewerbeordnung] rested on the principle of freedom. The
practice of granting concessions to corporations fell into dis¬
use. The result was that the party of economic individualism
224
QUARTERLY JOURNAL OF ECONOMICS
took a different attitude. Of necessity, it had to content itself
with holding fast to what had been gained, with bringing
about some minor extensions, and preventing any reaction tcr
the old system of paternalism and class legislation. Several
well-known members of the association were members of the
government of the new German Empire, and thereby the rule
of the individualistic system was practically assured.
For some time, however, an opposition had existed. Cer¬
tain younger professors of political economy had begun to de¬
velop various germs, already present in the thought of the older
generation of German economists.
The first step was to establish a different attitude in the
conception of the science and in the proof of its fundamental
propositions. For the individualistic policy, the scientific
foundation had remained as it was left by Adam Smith. To
this they assumed, in many ways, a hostile attitude. One of
the founders of the new school, Adolf Held, stated the diver¬
gence from the prevailing opinions in the following words : * —
The new school demands a complete abandonment of the endeavor to
set up natural laws of universal application, and with it an abandonment,
as far as possible, of that mode of investigation which reasons by deduc¬
tion from more or less rigid premises. It demands realistic political
economy,— that economic investigation shall rest, as far as possible,
upon historical and statistical material. It demands, above all, the aban¬
donment of the premise that man in his economic action is influenced
only by egoism : it denies the proposition that man should be influenced
only by selfish motives in all his opinions, and that thereby the general
good would be most effectively promoted. On the contrary.it asserts
that public spirit always is active, side by side with the egoistic motives,
and always should be so active ; it demands ethical political economy.
It demands that the economic man shall be considered as member of
an organized society. It rejects the assumption of any natural laws
of universal validity, and asserts that the existing system of law. as a
whole and in its details, must he considered as a factor of the highest
importance in the explanation of economic phenomena. In other words,
it demands a conception of the science which includes social policy, and
pays due regard to the historical and legal factors.
These differences with regard to method would not of them¬
selves have caused any opposition to the Economic Congress,
since the latter was concerned only with practical questions.
In the Juhrbuch f i r Cesctzgebung, 1ST7, p. 164.
THE VEREIN FUR SOZIALPOLITIK
225
But the new school went further, and began to draw its con¬
clusions as to economic policy. A greater degree of govern¬
ment interference was called for,— not indeed a return to the
older forms of interference, yet interference in many cases in
which it was supposed to have disappeared for good. To
come to particulars, public intervention was called for to pro¬
mote the closer organization of industry, by trade corporations,
trades-unions, boards of mediation and arbitration. Above all,
it was demanded that the State should give more attention
to the neglected interests of the laborers, to which the new
school gave its full sympathy. In this general movement the
opinions of individuals were by no means harmonious; and a
strong need was therefore felt for an assembly where a free
exchange of thought might take place, in which practical ques¬
tions might be considered from the point of view held in
common by all, and by which some influence might be exerted
on public opinion, such as the Congress had exerted in its time.
Meanwhile, the march of events had prepared the public for
the spread of reformatory ideas. The feverish development
of industry in the years immediately following 1871, with its
many evil effects, made it clear to impartial minds that free¬
dom in industry alone would not bring the advantages of a
real equilibrium in material prosperity. Notwithstanding the
national enthusiasm, which permeated all classes and might be
expected to bring them nearer together, the agitation among
the workmen was growing. Wide-spread strikes, and an open
attitude of hostility by firmly organized groups of workmen,
frightened the timid and aroused among the more clear-headed
an even deeper anxiety. In 1867, at the elections of the
North German Federation, the Social Democrats had polled
only forty thousand votes. In 1871, at the election for the
Reichstag which was to frame the new constitution, they
polled one hundred and fifty thousand. So little had the feel¬
ing of national greatness and unity affected this party that in
October, 1871, hardly a year after the intoxicating victories,
unexampled in the history of the world, by which the German
people had met a war criminally forced upon it, Liebkneclit
was able to say : * —
•In an address delivered Ootober 22, 1871, at the inaugural meeting of the
Volksverein at Crimmltzsckau.
226
QUARTERLY JOURNAL OF ECONOMICS
Murder remains murder, even if the murderer and his vietim speak
different tongues and wear gay uniforms. Murder is a erime, and does
not cease to bo a erime when committed on a gigantic scale. . . . The
word Fatherland, which you repeat to us so often, speaks from a point
of view which we have left behind, one that looks backward and not
forward, and is hostile to civilization. Humanity cannot he imprisoned
within national boundaries. What you call the Fatherland is for us but
a site of misery, a prison, a hunting-ground in which we are the hunted
game, and in which many a one of us knows not where he can lay his
head.
Liebknecht was right — right, to be sure, in a different sense
from that which he had in mind —when lie said, in another pas¬
sage of the same address, "Two worlds stand opposed to each
other, two worlds with opposite ends and aims, with opposite
opinions, nay, with different languages." In the edifice of the
new German Empire there was a great rent from the very
beginning. It was not so clearly visible as had been the gaps
which the old petty-state system made in the Empire of former
days; but it went to the very foundations of the nation,
lake the old cleft between the Protestants and Catholics, it
was not geographical: it cut a section through the community,
and threatened dangers not to be foreseen.
To meet these dangers, to unite once more the separated
parts, was the task which confronted State and society. By
far the most important of the measures needed were those in
the economic field. The position of the laboring classes must
be scanned, the facts clearly ascertained, legislation in many
directions amended. The principle of letting things take
their own course must be abandoned almost as soon as adopted.
In such a task the old Economic Congress would take no part.
Legislation for protecting the workman was as odious to it
as legislation for protecting industry. There was no prospect
that the representatives of the new social policy would get
a hearing in the old association. A new union was therefore
formed. The first step for bringing together the professors,
government officials, publicists, journalists, of all shades of
opinion, but united in their opposition to the Manchester
school, was taken at a meeting held in the middle of June,
1872, at the house of Gustav Schmoller, then professor in
Halle, Among professors of political economy, besides
THE UEREIX FUR SOZIALPOLITIK
227
Schraoller, there were present Roscher of Leipzig, Bruno
Hildebrand of Jena, Adolf Wagner of Berlin, Knapp, then of
Leipzig, Brentano, then of Breslau, Mithoff of Gottingen, Con¬
rad of Halle; in addition, the head of the Prussian Statistical
Bureau, Engel, and Julius Eckardt, editor of the Hamburg
Korrespondent. It was agreed to call a meeting in the follow¬
ing October, for the discussion of the social question, to which
about a hundred persons of the most varied positions in so¬
ciety were invited. In the call, it was said that the future of
the German Empire — nav, the very future of our civilization —
could not but be influenced by the development of the social
situation in the years immediately before us; while the direc¬
tion of this development must inevitably be affected by the
attitude of the men of education and property, of the public,
the press, and the government. It was hoped that the coming
meeting would lead to some union of opinions now diverging,
and to some common understanding at least in regard to the
most burning among the social questions. That there might
be specific purpose and point to the debates, certain of the
more important current questions were selected, and a discus¬
sion promised on factory legislation by Brentano, on strikes
and trades-unions by Schmoller, and on the housing of work¬
men by Engel.
The meeting, accordingly, was held on the Gth and 7th of
October, 1872, at Eisenach. The opening address was given
by Professor Schmoller. It was not an easy task to find some
fundamental principle which should be accepted by all the
various elements represented at the meeting, from the mod¬
erate socialists to the extreme conservatives. But a common
basis was found by emphasizing the need that the State, and
society as a whole, and every individual who would take part
in solving the problems of the time, must be actuated by some
high ideal. "And the ideal can be no other than that a con¬
stantly increasing portion of our people shall share in the
great possessions of civilization, in culture and material wel¬
fare. This must be, in the best sense of the word, the demo¬
cratic aim of our development,— nay, we may call it the great
aim and end of the history of the world." But such an end
cannot be attained by the uncontrolled struggle of class
228 QUARTERLY JOURNAL OF ECONOMICS
against class and individual against individual, nor by the
power of an all-embracing and all-controlling State. The State
must be the regulator and moderator of the contending in¬
dustrial classes, "the greatest moral institution for the educa¬
tion of human kind." Therefore, the State must have strength
and power. Standing above the selfish interests of classes,
it must enact laws, direct the community with a just hand,
[irotect the weak, raise the humble. No abolition of freedom
in industry, no discarding of the relation of employer to em¬
ployed, could be expected; but as little the silent endurance,
for consistency with any doctrinaire principle, of crying evils.
From this point of view, the existing situation called impera¬
tively for such steps as a careful but firm system of factory
legislation, complete freedom for the workman in his contract
with his employer, factory inspection, supervision of banking
and of insurance, better dwellings for the poor, public inves¬
tigations on the social question. The spirit of this address
pervaded the discussions and the conclusions which were finally
reached. Among the measures the need of which was ad¬
mitted by all were public enquStes on factory legislation, ex¬
tension of such legislation for the further protection of children
and minors, complete recognition of the right of combination
among workmen, legal recognition of trades-unions and of
their benefit funds, and the establishment of courts of concilia¬
tion and arbitration.
The meeting at once attracted no small amount of attention
throughout Germany. Moderate in form and tone, but with
a firm spirit, the young scholars insisted upon the necessity of
a new departure in domestic policy. And they did this, not
by entering into the political arena and forming a party of
their own, but by considering soberly and impartially a series
of important practical questions, and calling attention to the
great moral ideal by which the reform must be directed. The
socialists of the chair, as they have been called (a name which,
as Held remarked, implied that lack of courage alone pre¬
vented them from becoming radicals like Bebel and Lieb-
knecht), had urged conclusions which paved the way to a new
mode of considering the labor movement. Public opinion,
in so far as it was prepared at all for the consideration of
social reforms, could not but be strengthened.
THE VEREIN FUR S0/JALP0LIT1K
229
There was a natural desire to continue these reunions, and
to find, if possible, some more permanent mode of bringing
together those who agreed in their views on social policy.
A committee was appointed to prepare for another meeting in
the following year, and was instructed also to frame a constitu¬
tion for a "Verein fur Sozialpolitik." The constitution pre¬
pared by them was accepted at the next meeting, and in its
essential features stands at present. Membership is open to
any one on payment of the yearly sum of ten marks, or of three
hundred marks for life membership. The conduct of affairs
is in the hands of a committee elected at the general meeting.
The committee consists of twenty-four members, who remain
in office until replaced by others annually elected. Every
year one-third of the number retire, but are eligible for re¬
election,— an arrangement which secures unity and continuity
in policy. As the Verein is concerned, above all, with the
constantly shifting questions of the day, it was considered
desirable, notwithstanding the considerable numbers of the
executive committee, to leave a wide discretion ; and the com¬
mittee is therefore empowered to add to its number other
members, who remain in office until the following general
meeting. Provision is thus made for a constant freshening of
the active forces, and any one-sidedness in prosecuting the aims
of.the Verein is avoided. Current business is attended to by a
chairman, a secretary, and a treasurer, elected by the executive
committee. It need hardly be said that all the offices are
honorary and are without pay. The payments of the mem¬
bers are a low charge for the very valuable publications which
they receive from the Verein.
The most important business of the executive committee is
the preparation for the annual meeting. It must determine
the time, place, and topics. It must secure a thorough discus¬
sion of the various questions which are to come before the
meeting, by appointing writers to report upon special topics,
and securing, if possible, the preparation of printed reports.
These duties often call for much time and labor, and usually
begin long before the meeting itself. The meetings are
held, as a rule, once in two years. It is not always possible to
determine in advance what questions will prove to be of real
2:;o
(QUARTERLY JOURNAL OF ECONOMICS
importance. The principle is firmly maintained that discus¬
sion shall be confined to topics for which the members are
prepared by a previous exposition of the facts or critical and
scientific investigation. It is therefore the duty of the com¬
mittee to make sure that material of scientific quality shall be
presented to the Verein on a variety of questions. When
the time for the meeting comes, those questions are selected
which for the moment are of the greatest importance. As
the Verein is in no sense a party, great stress is laid on the
need of hearing well-grounded opinions from every possible
source. The only principle insisted on is that of scientific
method, and the object is to attain, not practical conclusions,
but enlightenment.
In this way, the Verein has undoubtedly contributed much
towards bringing about a change in our economic policy.
The debates at its meetings are prepared in advance, and are
therefore thorough, the members having had for several months
in advance abundant scientific materials on the questions
which appear on the programme. This mode of procedure
does not promote any brilliant public display. Moreover, in
the absence of a special vote, only members can take part in
the debates. The meetings have therefore missed some advan¬
tages, such as are enjoyed by associations with a freer and
lighter method, which meet every year at a different place,
consider a great variety of questions without being burdened
by the need of voluminous preparatory reports, permit changes
in their programme at the last moment, and give the privilege
of membership to any one who may choose to take part in the
meeting of the year. The meetings of the old Economic Con¬
gress were of this latter sort, which undoubtedly have advan¬
tages of their own. They are more lively, larger numbers take
part in them, and their immediate effeet on public opinion is
greater. On the other hand, the Verein, in its volumes of
reports and in its printed proceedings, offers material which
permanently enriches science, and exercises an influence which,
though slow, is permanent.
The organization of the Verein obviously brings the schol¬
arly element to the front; and the chairmanship has always
been in the hands of professors,— first, Gneist of Berlin, then
TIIE VEREIN FUR S0ZIALP0LIT1K
231
Nasse of Bonn, now Schrnoller of Berlin. But it would be
a mistake to regard it as a meeting of scholars only, who dis¬
cuss in academic fashion the questions of the da)'. As I have
already said, importance has always been attached to a repre¬
sentation of varied interests; and the Verein has always been
fortunate in securing the membership and attendance of man¬
ufacturers, land proprietors, officials of the State and of the
local bodies. They have equal representation with the pro¬
fessors in the executive committee, and therefore bring their
influence to bear 011 the selection and preparation of the topics
for discussion.
Until 1879, when the tariff question came up, it had been
the custom to take a vote expressing the sense of the meetings,
not, indeed, on questions of detail, but on general principles.
The practice had advantages. It stimulated members, in view
of the coming vote, to listen with attention to the debates.
It made possible a sharper expression of the wishes of the
Verein, and contributed effectively to its influence upon public
opinion, which cannot follow long discourses as readily as
brief and pregnant propositions. But in 1879 the practice of
voting was given up, its place being taken by a resume on the
part of the chairman, which presents in outline the course of
the discussions. The value of votes taken by an irresponsible
assembly, the composition of which is not a little influenced
by accident, is certainly doubtful. The conclusion reached by
the majority goes to the public as an expression of the opinion
of the association as a whole, and is paraded and utilized by
the party which it favors. Such a result is natural, indeed
inevitable, with any association whose avowed object it is to
further some special interest. But in a scientific meeting the
weight of reason rather than the number of votes is important.
As the questions considered by the Verein lost their academic
character and assumed the form of specific proposals for leg¬
islation, important practical interests came to be concerned
with them. The danger then arose that these interests would
take an active part in the Verein in order to secure votes fa¬
vorable to themselves, and that votes so influenced would be
presented to the public as the deliberate conclusions of science.
This danger appeared for the first time in practical form when
232
QUARTERLY JOURNAL OF ECONOMICS
the tariff question came up. For the future it lias been
avoided by putting an end to voting. Thereby the Yerein has
become still further removed from the political life and imme¬
diate interests of the day; but it has gained in the greater
certainty of maintaining its character as an impartial and un¬
biassed body.
At the beginning, an attempt was made to keep the Yerein
somewhat in touch with the older Congress. Individual mem¬
bers of the latter have always taken part in its deliberations,
and there was a time when invitations for joint meetings were
extended; but gradually it appeared, for various reasons, that
joint action was impossible. The Congress lost its importance.
Public opinion turned away from it at the close of the seven¬
ties, and the government followed public opinion. That the
ideas of the Yerein had begun to have their effect in government
circles appeared as early as 1875, when Prince Bismarck said,
half in joke, to Professor Schmoller, "The fact is, I am a
socialist of the chair myself, only I have no time for that sort
of thing."* As time went on, the change became noticeable in
practical affairs. In 1878, a beginning was made, in modifying
the industrial code. In 1879, a change of tariff policy followed.
Although many members of the Yerein stood on the side of
free trade, there can be no doubt that the protective policy
was adopted by the imperial government as a means for pro¬
moting social measures. The steady development of govern¬
ment ownership of railways in Prussia, the attention given to
improving the condition of the peasantry and especially to
creating inalienable peasant proprietorship, were further indi¬
cations of the drift away from individualistic policy. On the
17th of November, 1881, came the message of the Emperor
promising universal compulsory insurance against accident,
infirmity, and old age. In the years following, the entire
strength of the legislative body was devoted to carrying out
the plans there outlined.
These measures for a time put aside others to which the
Yerein had first given attention,— the enquetes on the social
question, and measures for giving to the workman complete
* Schmoller's Zar Sozial und QeiL-crbepolitik di r Gegenuart (1890 , p. 465.
THE VEREIX FUR SOZIALPOLITIK
233
freedom in the arrangement of his contract with the employer.
Nevertheless, much good was accomplished in the direction
which legislation actually took. Shortly after the elaboration
of the last step in it, by the bill for insurance against infirmity,
Emperor William I. died, his successor soon followed him to
the grave, and William II. succeeded. However expectations
might differ in regard to the new ruler, no one doubted that
he would carry out and extend the social legislation of his
venerable grandfather. But what means would he adopt? It
was possible that in the excess of youthful force and of impe¬
rial will he should put upon himself and upon the State bur¬
dens impossible to bear. The answer came in the imperial
address of the 27th of November, 1888: "I do not flatter
myself with any hope that legislation can do away entirely
with the troubles of the day, or remove misery from the world;
but I believe it to be the duty of government to work its best
for the amelioration of pressing evils." The advocates of a
social policy found in this language the certainty that their
proposals would receive mighty support from the young
Emperor. A more direct impulse to the active prosecution of
social reforms was given by the Emperor's rescripts of the
4th of June, 1890.
The first effects of these rescripts have been seen in the
international conference, and in the presentation of a bill in the
Reichstag for the protection of workmen. We ai-e now fairly
launched in the full current of a social policy. Some tell us
that we are drifting to a shoreless ocean; others, that we are
sailing to the land of social ]:>eace. Whatever be the dif¬
ferences of opinion, the fact is there ; and the " Verein fur Sozial-
politik " is justified in regarding it with satisfaction. In the ten
meetings which have been held since its first discussion of the
social questions, every reform which has since moved Germany
has been considered by it, and not a few have been brought to
the stage of specific proposals for legislation. In the meeting
immediately following the first, in 1873, factory legislation and
courts of arbitration and legislation were discussed. The
demand for inquiries on the condition of the working classes,
and for measures protecting them, was repeated. Some mem¬
bers of the Verein, in anticipation of a future which then
234
QUARTERLY JOURNAL OF ECONOMICS
seemed far distant, went so far as to say that these inquiries-
should be extended to the household industries and to the
condition of the agricultural laborers. Under the influence of
Brentano and of Max Hirsch/the well-known promoter of the
German trades-unions, an act was demanded by which courts
of arbitration, with voluntary membership, should be given the
power of enforcing their decisions by law. To secure the
adhesion of the workmen to this measure, it was suggested
that the legal recognition of the trades-unions should be sub-
ject to the condition that they joined these courts of arbitra¬
tion. The Verein has not succeeded in bringing its recom¬
mendations to fruition on these matters; but in another point,
the reform of the law relating to corporations, it achieved
marked success. On the one hand, the field for the activity of
corporations was restricted by the extension of the functions
of the State and of municipalities to the management of rail¬
ways, gas-works, and water-works. On the other hand, the
regulation of corporations was made more strict by the act of
the 18th of July, 1884.
In 1874, breach of contract by workmen was among the
topics discussed, and its criminal punishment was successfully
opposed. Another topic was that of insurance in case of infirm¬
ity and old age, and, indeed, the whole subject of benefit
societies. The debates of the Reichstag, in the decade fol¬
lowing, as to the relative merits of compulsory insurance on
the one hand, and of voluntary insurance under conditions
imposed by the State on the other hand, were here antici¬
pated. The Verein rejected the principle of compulsory
insurance; and in the two years following its discussion laws
were enacted on the principle approved by it,— regulation of
insurance by the State. In 1875, the Verein discussed the
income tax, and the problem of apprenticeship in trade and
manufactories. On the former question, the movement has
been towards a system of progressive income taxes, suiqde¬
mented by taxes on property; and the changes in taxation
during the ten years following, in the various German states,
have followed these lines. The discussion of apprenticeship
led back to the whole question of the reform of the legislative
code on trade and manufactures, which was fully discussed in
THE VEEEIN FUR SOZIALPOLITIE 235
1877. The demands here made were for the organization both
of workmen and of employers in unions and in boards of
arbitration, the regulation and inspection of factories, and
technical education for apprentices. But upon the most im¬
portant point, that relating to the trades-unions and the re¬
vision of the labor contract, the efforts of the Verein encoun¬
tered the unconquerable opposition of Prince Bismarck. The
industrial code was repeatedly amended in 1878 and the years
following, and a great system of compulsory insurance was
set up; but, on the other hand, a tendency toward strict and
unbending regulation of industry by the State became more
and more prominent, to which a majority of the members of
the Verein were by no means prepared to give their approval.
Other questions also discussed in 1877 were the reform of
local taxation, and the commercial treaty between Germany
and Austria. In 1879, another question, connected with the
last mentioned, came up,— the new tariff policy, on the principle
of which, as has already been noted, the Verein came to no
expression of opinion. As Nasse pointed out, in his opening
address of that year, no one denied that the State had the
right, by means of customs duties, to take from one man and
to give to another, and so to exercise a distinct influence upon
the distribution of the national income; but the measure could
be justified only by a clear preponderance of advantage for
the general welfare. Held, Nasse, Miaskowski, Schonberg,
men who favored far-reaching measures of social reform, then
expressed themselves as opposed to the sudden change to a
protective system.
In the years following, the Verein brought out further pub¬
lications on the question of trades-unions, and then turned,
with greater energy than ever, to the question of land reform.
In 1882, the distribution of landed property and the taxation
of inheritances were considered: with them, international
factory legislation, and the bearing of compulsory insurance
on the organization of the poor law. In 1884, measures for
maintaining peasant proprietorship were discussed; in 1886,
the housing of the poor in great cities; in 1888, usury in the
agricultural districts, mortgages on land, and the organization
of agricultural credit.
QUARTERLY JOURNAL OF ECONOMICS
In 1890, the Verein once more entered on the discussion of
current questions by taking up local government in the agri¬
cultural districts of Prussia, and the questions connected with
strikes and the labor contract. In regard to the first subject,
the recent speech of the Prussian minister makes it probable
that a reform will be brought about at an early date. The
second subject had already been touched by the imperial re¬
script of the 4th of February, 1*90, and by the bill, already
referred to, for the protection of workmen, which mark a dis¬
tinctly new phase in the reform of the social position of the
factory workmen. In discussing this topic, the Verein may
be said to have returned to its point of departure. In 1890,
as in 1872, the great strikes, affecting as they did the entire
country, and the endeavors of the workmen to organize in
trades-unions, formed the somewhat sombre background to
these deliberations. Many of the reforms which had been
demanded by the Verein, or had had their origin in its discus¬
sions, had been accomplished by legislation ; but in one impor¬
tant point, to which attention has already been called, the legis¬
lature had been backward, or had entered on measures which
many members could not approve. The essential cause of the
movement among the workmen does not lie in those of their
troubles which arise from sickness, from accident, from old age,
from infirmity. The legislation which tries to help them in
these cases is helpful, and will prove more helpful as time goes
on ; but it does not touch the kernel of the labor question, the
character of the labor contract. The laborer strives for the
practical realization of that position of equality with his em¬
ployer which the law holds out to him. He strives to secure
a distinct influence in determining the conditions under which
he puts his life, his body, his health, at the disposal of his
employers. He strives to improve his position during the
time when he is still in health and tit to work. The means to
bring these ends within the grasp of the workmen are either
their organization in trades-unions, with laborers' committees
for each particular establishment, or else an immediate inter¬
vention by the State in the details of his contract with the
employer. Opposed to both these methods stands the patri¬
archal system of complete rule by the individual employer,
THE VEREIN FUR SOZIALPOLITIK
237
managing his business with unhampered authority. The
patriarchal system may work well where the employer has a
strong feeling of moral responsibility and of duty toward
those whom he employs, and it was defended on the part of
the employers with warmth and energy at the last meeting of
the Yerein. But the employers forgot that such a system is
tenable only so long as the workmen have not become con¬
scious of interests of their own, opposed to the interests of
their employers. Against the employers, Brentano advocated
with great warmth the proposal which had appeared at the
very first meeting of the Yerein, the re-establishment of labor¬
ers' organizations, recognized by the State on condition of their
taking part in courts of arbitration. Others, however, espe¬
cially Schmoller, were disposed to admit the truth of the
charge of tyranny and terrorism which the employers made
against the unions, and urged more moderate measures, sug¬
gesting as first steps the formation of workmen's committees,
and a greater degree of interference by the State. The bill for
protecting workmen which now lies before the Reichstag gives
occasion for the practical application of the discussions which
took place in the Yerein, and so its latest proceedings again
come in touch with the questions of the day. The position
taken by the Emperor, the expressions of the ministers, make
it clear that this will not be the last time that the exchange of
opinions which takes place in the Yerein will have its influence
on social legislation. Its influence on social policy will be a
growing one.
Eugen von Philippovich.
Fkeibubg (Baden).
NOTES AND MEMORANDA.
Professor Beetolini, by invitation of the managers of the
Giornale deyli Economisti, has undertaken a bibliography of
Italian publications upon economics from 1870 to 1890. It is
proposed to include in this list everything that saw the light
in the period covered, whether books, monographs, articles in
reviews and journals, reports, or speeches made in Parliament
or elsewhere. The great activity of the Italian economists,
the importance of the questions to which they have been re¬
quired to address themselves, and the thoroughness with which
the ground has been gone over, will give a peculiar value to
the comprehensive record now proposed.
The well-known desire of many of the English economists,
for a more effective organization than any hitherto existing
among them and for the establishment of a journal, took effect
in the formation of the British Economic Association at a
meeting held in London, November 20, 1890. The meeting
was large, and the movement clearly had the hearty support of
the great body of English economists. Mr. Goschen, who was
chairman, was elected President of the Association, Mr. L. H.
Courtney Vice-President, and Professor Edgeworth Secretary;
and a council was formed, including most of the names best
known in English economics to-day. The Association is a
strong one, and announces as its object the advancement of
economic knowledge by the issue of a journal and other pub¬
lications, and by such other means as may be adopted from
time to time.
The journal, however, is likely to be the chief agency em¬
ployed by the Association at the start. This is to be edited
by Professor Edgeworth, the first number appearing in March
next, and is to be conducted on the broad principle of repre¬
senting all shades of economic opinion, and to " be the organ,
not of one school of English economists, but of all schools."
NOTES AND MEMORANDA
239
Professor Marshall, who moved the leading resolution at the
meeting, well remarked that the only way to reach the truth
is " to welcome all criticisms written by persons who know
what they are talking about." With the vigorous interest in
economic discussion now shown by a rapidly increasing class
of English writers, it is certain that a journal conducted upon
this catholic plan will not only give to English economists a
greatly needed medium, but will be a welcome accession of
strength for economic^science in the world at large.
A movement which has been going on in a somewhat differ¬
ent quarter is also to give us in the present month a new Eng¬
lish quarterly, to be called the Economic Review. This is to
be published by the Oxford University branch of the Christian
Social Union, and is to be concerned chiefly with the moral
and social bearings of economic problems, although it will also
deal with special aspects of our industrial system and with the
historical development of particular periods. It is to be con-
'ducted by Rev. J. Carter of Exeter College, Rev. W. .T. II.
Campion of Keble, and Rev. L. R. Phelps of Oriel; and a large
proportion of the list of promised contributors is clerical, al¬
though the list also gives the names of Messrs. Sidney Buxton,
T. Kirkup, and Sidney Webb. Among the promised Amer¬
ican contributors are Professors Ashley of Toronto, and Ely
of Baltimore, and Rev. Dr. Huntington, Bishop of Central
New York.
The financial disturbances of the latter part of 189(1 have
not failed to bring the usual demand for more currency, al¬
though there is ample evidence that the country now has a
supply of currency, both metallic and credit, altogether with¬
out precedent. Except for the special effort made for an in¬
crease of silver coinage,—in urging which, the desire for
general expansion, the belief in a double standard, and the
strong interest of the silver-producing States, all fall into line
together,— it is probable that the call for more currency would
be directed entirely to credit inflation in some form or other.
The inevitable lack of elasticity in any system which rests
12411
QUARTERLY JOURNAL OF ECONOMICS
upon government issues is generally recognized; but it may
fairly be doubted whether many who call for greater elasticity
do not, in fact, mean simply an increase of total quantity, in¬
stead of a provision whereby contraction as well as expansion
may be expected, when contraction is the normal result of
financial conditions.
The increase of elasticity by the natural method of a con¬
vertible bank-note currency appears to be out of the question,
in the present temper of Congress and of the country. In the
mean time the banks are supplying, in another form, an elastic
element of great importance, as is shown by the following
table: —
NOTES.
DEPOSITS.
Figures given in millions and
tenths of millions of dollars.
Nat.
Nat.
State
Trust
Aggre¬
Banks.
Banks.
Banks.
Co8.
gate.
Average for 1880
319
871
209
90
1,489
1881
313
1,033
261
112
1,719
1882
316
1,059
282
145
1,802
1883
311
1,054
335
165
1,865
1884
292
1,010
325
189
1,816
1886
271
1,071
344
188
1,874
1886
234
1,151
343
214
1,942
1887
172
1,252
447
240
2,111
1888
154
1,307
410
258
2,129
1889
130
1,426
507
300
2,363
1890 (9 mos.)
125
1,512
553
336
2,526
In Mr. Henry George's Progress and Porertg (Book VIII.
chap, iv.) there is a noteworthy passage in which the writer
refers to the French Economists as a school who clearly dis¬
cerned "that the revenues of the common property, land,
ought to be appropriated to the common service." Mr.
George adds candidly that, as he only knows the writings of
the Economists at second hand, he is unable to say how far
NOTES AND MEMORANDA
241
their ideas that agriculture is the only productive avocation
and the like are erroneous apprehensions or mere peculiarities
of terminology; but he is clear, from their practical proposition
that taxation should rest on land alone, that they saw "the
fundamental relation between land and labor" presented by
him, and now familiar to the public.
Attention is recalled to this passage by M. Charles Gide, in
an article in the Political Science Quarterly for December, in
which he remarks (p. 606) that " the famous system of Henry
George which has caused such commotion was taught word for
word by the Physiocrats," and in a note cites in confirmation
a passage from Mercier de la RiviMe's JJ Ordre Naturel des
Societes Politiques expounding the doctrine of the tax on the
net produce of land. But is this teaching Mr. George's " sys¬
tem," in any sense which either he or Mercier de la Riviere
could recognize'? The essence of that system is that private
property in land is unjust, the cause of most economic evils,
and therefore to be practically abolished by the agency of tax- ■
ation. But the Economists treated private ownership of land
as a part of the natural order of society, and notoriously made
it the direct object of taxation because they thought it the
only source of wealth, and therefore destined inevitably to
bear the weight even of taxes laid elsewhere. To say, then,
that, since Mr. George and the Economists both propose to tax
land alone, they teach the same " system," is as if one should
say that the protectionists and the advocates of a tariff for
revenue only also teach the same system, because they agree
upon taxing imports.
What Mercier de la Riviere would have thought, had he
found himself classed as a forerunner of Mr. George, may be
gathered from a remark which he makes, also in his Ordre
Naturel (p. 449 of Daire's edition), when speaking of the ne¬
cessity of establishing the proportion in which private reve¬
nues must contribute for public objects,— "la seule verite que
nous ayons a saisir ic-i, c'est que, eette institution d'un revenu
public etant faite en faveur de la propriete, elle n'a pu ni dft
etre destructive de la propriete."
242
QUARTERLY JOURNAL OF ECONOMICS
THE GROWTH OF CAPITAL AND THE CAUSE OF
INTEREST.
The criticism of my theory of capital and interest by Pro¬
fessor Bohm-Bawerk and Mr. Bonar* showed me that I ought
to make some positive addition to ray argument, or at least
restate it in some new way that might prove to be clearer or
more simple than the one first chosen. Such addition and
restatement I now offer.
Let us put aside for a moment the problem of interest, and
look first at the problem of the growth of capital.
Mill's familiar statement of this problem is as follows: —
" Since all capital is the product of saving,— that is, of ab¬
stinence from present consumption for the sake of a future
good,— the increase of capital must depend upon two things,
— the amount of the fund from which saving can be made
and the strength of the dispositions which prompt to it. The
fund from which saving can be made is the surplus of the
produce of labor, after supplying the necessaries of life to all
concerned in the production (including those employed in re¬
placing the materials and keeping the fixed capital in repair).
More than this surplus cannot be saved under any circum¬
stances. As much as this, though it never is saved, always
might be."t
The last proposition, in the meaning usually attributed to it,
I deny. As a mere physical fact, the entire surplus might be
saved. But saving is chiefly a psychical fact. Tt is a result of
conscious motives. As a psychical fact, the saving of the entire
surplus of their produce is a possibility for some individuals
in an exchanging society, but not for all, nor for any normal
individual, if he lives in isolation. If the whole surplus were
always saved, there would be absolutely no motive for saving.
Wealth is saved as a means of production of more wealth or
* Quarterly Journal of Economics, vol. iv. pp. 346-349. Cf. also vol. iii. pp.
503-507 and vol. iv. pp. 172-206.
t Principles of Political Economy, Book I. chap. xt. § 1.
NOTES AND MEMORANDA
243
as a provision against future want. But, if accumulations were
never used in satisfying the foreseen want, and if increasing
wealth were never enjoyed, no sane man could have the slight¬
est desire to see his possessions multiplied. The will or de¬
termination to save can exist only as a consequence of actual
experiences of enjoyments of a higher rank than those of a
merely animal existence. In the language of psychology,
unless an individual or a community has some presentative
knowledge of comforts, decencies, luxuries, leisure, and so
on, it cannot have that representative knowledge of future
comforts, luxuries, leisure, etc., that is subjectively the motive
of saving. A more liberal consumption in some form — in
material pleasures, or the spiritual growth made possible by
material resources —- must be developing, that any motive to
saving may exist. A portion of the surplus must be consumed
in the higher enjoyments somewhere, at some time, by some¬
body, that the remaining portion may be capitalized.
The growth of capital is limited, therefore, psychologically,
not merely by that moral development that is seen in the will
to save, but by the concurrent development of that will and the
desire to expend. Such a development is an exceedingly com¬
plex thing, and is found only in communities in which evolu¬
tion takes that predominantly psychical form which, sooner or
later, acts, through delay of marriage and in other ways, as a
check on the increase of population,— as a limitation, conse¬
quently, of the supply of labor. It is found, therefore, only
in communities in which labor-aiding capital must be in ever
increasing disproportion to capital-using labor. In such com¬
munities accumulating capital must take chiefly the auxiliary
rather than the remuneratory form. This is always physi¬
cally possible in an exchanging society that has division of
labor. In fact, in such a society, the whole surplus wealth
can be quickly and readily converted, so far as mere physical
possibility goes, into either luxuries, auxiliary capital, or re¬
muneratory capital, since a large part of the total wealth will
consist of things whose final disposition has not been deter¬
mined, but may be determined at any instant,— such concrete
things, for example, as grain, that can be used for food, for
seed, for various delicacies, or for distilled spirits; cattle,
244
QUARTERLY JOURNAL OF ECONOMICS
that can be used for food, for draft, or for breeding; lum¬
ber, iron, leather, etc., that can be converted into tools, ma¬
chinery, and workshops, or into carriages, harnesses, fine
houses and furniture; and so on, through a long list.
Because the relative importance of auxiliary capital has not
been perceived, another fundamental and persistent limitation
of the growth of capital has been overlooked.
Capitalization is something more than abstinence from pleas¬
urable consumption. It is the productive employment of sav¬
ings. If, then, a part of the surplus wealth of society is at
any time to be converted into capital, three facts must be
remembered : — First, population remaining the same, the new
capital must be auxiliary capital chiefly, since the hypothesis
of surplus wealth implies that the community already has sub¬
sistence. Second, a community that is steadily adding to its
capital is necessarily one in which population is not increas¬
ing in proportion to economic progress. Therefore, even
though population does not remain the same, new capital must
be auxiliary capital chiefly. Third, the new auxiliary capital
must be actually used in wealth production, or it is not capital
at all.
But the use of auxiliary capital involves labor, and an in¬
crease of auxiliary capital, beyond a certain point, involves
more labor to utilize it, except when the new capital takes
the form of labor-saving instruments not previously in use.
The concrete forms of capital remaining precisely the same,
additional capital, beyond a certain quantity per man, cannot
release labor. It requires more labor, but affords more prod¬
uct. For example, if auxiliary capital has consisted of seed-
corn and spades, and new capital consists of nothing else than
more seed-corn and more spades, the new capitalization in¬
volves additional labor of planting and cultivation. A spin¬
ner can perhaps watch 500 spindles as easily as 200, but
attention to 1,000 would greatly intensify the strain. A crew
of 5 or 6 men will work little, if any, harder in handling a
freight train of 30 cars than in handling one of 15 ; but, if the
number be increased to 50, their labor becomes much more
severe. In general, in any kind of work there is a point in
the application of successive increments of capital beyond
NOTES AND MEMORANDA
245
which only the adoption of an entirely new instrumental form
of capital could make possible the increase of capital without
additional labor. In a progressive society that point is sure
to be reached and passed. Therefore, in any case, in such a
society the growth of auxiliary capital involves either addi¬
tional invention or additional labor.
Where is the extra effort of invention or labor to be ob¬
tained? Population remaining the same or increasing more
slowly than savings, it can be obtained in one of two ways
only. The men hitherto engaged in labor and invention may
work more intensely or longer. But harder or longer work
is relatively costly work. It is a labor of diminishing returns.
The alternative is to employ those persons that have been
hitherto unoccupied. But the unemployed are, for the most
part, the relatively inefficient. Their labor is relatively costly.
To employ them is like extending the margin of cultivation
from good to poorer land. In either case, the capitalization of
a portion of the surplus or net produce of society involves an
increase of the cost of labor to society, and this increasing
cost will necessarily limit capitalization. It will limit the
amount of capital that society can have at any given time.
If, to escape these difficulties, society converts the whole of
its surplus produce into luxuries, what will be the result?
Simply, that the necessity of resorting to extra costly effort
will arise in another way.
The want of a product a caused the community to use x
units of auxiliary capital. The product proved to be in fact
a -\-b. Consuming the surplus in various enjoyments, the
community experiences a development of its tastes and de¬
sires. Its standard of life is raised. It discovers that it
wants a product greater even than a-\-b. The total want
is now for a -)- b -f- b'. Therefore, there will be a need for
more auxiliary capital than before,— for x -f- x units. But,
by hypothesis, additional capital is not to be created out
of any stock now existing. It must therefore be created by
additional labor; and the only sources of additional labor,
population remaining the same, or increasing more slowly
than savings, are, as before, the longer or more arduous ex-
ex-tion of the efficient members of industrial society or the
extension of the margin of employment to the inefficient.
240 qUARTEltLY JOURNAL OF ECONOMICS
In brief, the conditions that create a need or desire for capi¬
tal are conditions that forbid its growth, either by abstinence
from luxuries or in any other way, without an increase in the
costliness of labor. Capitalization, or growth of capital, is
therefore, in all cases, limited by an increasing costliness of
labor, or, as it may be otherwise expressed, by a law of dimin¬
ishing returns of labor.
Is the same true of luxuries ? Professor Marshall says : —
Professor (biddings argues that goods of the second order have a
higher cost of production per unit of quantity than luxuries, because
their production necessitates working overtime; but to this it may be
answered that so does also the production of extra luxuries.*
Mere prolongation of labor does not necessarily increase the
cost of labor per hour. Costliness increases only if the pro¬
longation is to and into the hours of diminishing return.
Labor-aiding capital may enable us in the hours of maximum
return to create present necessaries and that quantity of pres¬
ent comforts and present luxuries to which consumption is for
the time being adjusted. If so, luxuries have no higher cost
than necessaries, so far. But, if we add to our list those cap¬
ital goods that are the present equivalents of future neces¬
saries, future comforts, and future luxuries, we find that there
is 110 assignable limit to the number and quantity of them
that we desire except the limit imposed by the diminishing
returns of labor; for consumption is ready to readjust itself
to any greater future supply of comforts and luxuries that
can be obtained. It is the expanding desire for the future
that spurs labor to its utmost tension and holds it to its tasks
into the hours of diminishing return. Therefore, capital, and
capital only, lias the abnormal costliness inherent in pro¬
tracted or intensified labor.
The relation of this conclusion to the theory of interest
may be now very briefly indicated.
Let it be true that men value future goods less highly than
present goods of like kind and number, and let this be the ex¬
planation of interest.
Do those who offer this explanation go back of the mere
fact that men do thus overvalue the present product? Do
* Principles of Economics, vol. i. p. 612, note.
NOTES AND MEMORANDA 247
they make any assumption as to why men discount the future
product?
An examination of their writings will show that they do
make two assumptions of the utmost consequence. They as¬
sume : (1) that mankind generally esteem present pleasures
above future pleasures, including those derived from the con¬
sumption of goods; (2) that different estimations of present
and future pleasures derivable from goods are the same thing
as different estimations of the present and future goods them¬
selves, and not only so, but that they are the same thing as
different estimations of goods obtained, and to be obtained,
through the process of capitalization.
If these assumptions are valid, it will follow that, in a com¬
munity of persons so intelligent that a future pleasure, in and
of itself, apart from conditioning circumstances, is regarded
as exactly as important as a present pleasure of the same kind,
interest must disappear.
But between the first of these assumptions and the last
there is a logical leap, which those who make it may be called
upon to justify. I for one deny its validity. I deny that, if
men should esteem present pleasures and future pleasures in
exactly equal measure, they would therefore esteem in equal
measure pleasure-producing goods now present and pleasure-
producing goods to be made actual at some future time,
through an intervening capitalization of wealth.
Because, if there is no possible way of capitalizing wealth
or creating capital without for the time being increasing the
arduousness or the duration of labor, though men should value
present and future pleasures as such in exactly equal measure,
they will always discount something from the subjective value
of future products of capitalistic production as compared with
present products of like kind and number, on account of the
extra effort involved in capitalizing the present products.
Therefore, while I fully believe that economists will accept
the positive results of Professor Bohm-Bawerk's study of capi¬
tal and interest, and that the importance of the work that he
has accomplished will be more and more apparent as time goes
on, I also think, as I said in my first article on this subject,
•J48 QUARTERLY .JOURNAL OF ECONOMICS
that he has not carried his analysis far enough. Unequal esti¬
mations of present and future goods are, indeed, as he main¬
tains, a proximate cause of interest. But this psychical phe¬
nomenon is resolvable into at least two factors. Of these the
unequal estimation of present and future pleasures tends to
disappear with intellectual and moral progress. A community
that accumulates capital is necessarily one that is undergoing
a psychological development that results in a higher valuation
of future satisfactions. But a growing regard for future
pleasures impels men to work increasingly for the future; and
working increasingly for the future, by intensifying the strain
of labor, increases what Jevons has called the negative utility
of labor. That negative utility must be allowed for in esti¬
mating the present worth of the positive utility of the future
satisfaction. It causes a discounting of the future satisfaction.
Thus the very conditions that tend to diminish one item of
discount from future satisfactions tend to increase, though
perhaps not proportionally, another item. These are the sub¬
jective aspects of the phenomena of interest. The objective
aspects are : (1) That limitation of the supply of capital that
I have affirmed in previous articles. For, let it be remem¬
bered, the supply of capital is not the stock of auxiliary cap¬
ital, or producers' goods, but the ojf'er of remuneratory cap¬
ital * or consumers' goods. (2) A limitation of the demand
for producers' goods, since this demand is measured by the
amount of working for the future that is going on, and work¬
ing for the future is conditioned by the diminishing returns of
overtime labor. The value of means of production, there¬
fore, normally lags behind the value of finished products.
Franklix H. Giddixgs,
Bryn Mawr College.
* The text book definitions of 44 auxiliary " and 44 remuneratory " capital need
amendment. We cannot sort out all the concrete forms of capital and say that
these are auxiliary and these remuneratory. Great quantities of capital goods
are at once remuneratory capital to some extent and auxiliary capital to some
extent. To the extent that they are completed or partially completed products
and rewards of past labor, they are consumers' goods and remuneratory capital.
To the extent that they have yet to be completed, and are yet to cooperate with
labor in working for the future, they are producers' good> and auxiliary capital.
NOTES AND MEMORANDA
249
THE THEORY OF EMIGRATION.
Professor Philippovich, of the University of Freiburg in
Baden, is the author of the article on " Auswanderung" in
Conrad's Handworterbuck der Staatswissenschaften, and also
of an article on " L'Emigration Europeenne" in the llevue
<?'Eeonomie Politique. Both articles contain the usual histor¬
ical and statistical information on the subject, while the latter
is noteworthy for some very clever and suggestive remarks on
the economic effects of emigration. Recent continental
writers (as, for example, Rumelin, Herzog, and Becker) have
been inclined to deplore modern emigration as draining Eu¬
rope of the most productive and strongest elements in its
population. They have tried to express the economic loss in
terms of money, not, indeed, on Engel's old basis of the cost
of rearing the emigrant from childhood to manhood, but by
the method long ago pointed out by Farr (Philippovich wrongly
gives the credit of it to Becker) of capitalizing the value of
the laborer's future earnings, diminished by his future expenses
of living. It has been generally conceded that, if we care to
estimate the economic value of human beings without reference
to their moral character and their social environment, this
is the correct method. Of course, the " if" is very important,
and in the question of emigration compels us to consider not
merely the loss of the emigrants, but also whether those who
remain behind are not better off, owing to diminished eco¬
nomic pressure. Professor Philippovich not only states this
question theoretically, but seems inclined to answer it affirma¬
tively for the countries of Europe. He says (on page 369) : —
II y a en Europe des territotres oil une augmentation des forces du
travail correspondant k l'augmentation natureile de la population equi-
vaudrait k une diminution du bien-etre dconomique de ia totalite de leurs
habitants. La Sufede et la Norwkge, qui ont un excddant de naissances
de 12 a 13 0/00,—alors que l'Allemagne n'en a que de 10 a 11 0/00, et,
la France de 2 0/00,— ne pourraient nourrir une telle augmentation de
population. La repartition des terres en Irlande a jusqu'k present
rendu impossible l'extension de la classe des paysans. La diminution
des progrfes industriels de l'Angleterre rend impossible l'emploi des bras
250 QUARTERLY JOURNAL OF ECONOMICS
dont le nombre va toujours croissant. En Suisse, oil Immigration so
recrute surtout dans la classe agrieole, i) pourrait se faire que ceux que
ne peut plus occuper l'agriculture se tournassent vers l'industrie; car ie
cliiffre des Strangers qui s'en occupent croit de jour en jour. Mais
peut-on faire un reproche aux paysans de ce qu'ils prefferent l'inddpen-
dance du cultivateur & lmtranger au dur travail des fabriques ? Dans
l'Allemagne orientale l'extcnsion de la grande proprit-td empeche l'aug-
mentation de la classe agrieole. Les individus prives de terre doivent-ils
augmenter le nombre de ceux qui demandent du travail dans les villes !
Les progrfes de la technique ne sont-ils pas en lutte continuelle avec
ceux qui en sont rdduits & travailler de leurs mains, et l'industrie ne
rdduit-elle le nombre de ceux qu'elle occupe ? C'est ainsi que certains
faits nous indiquent qu'k considdrer la chose en grand, on ne peut parler
de la perte qu'occasionne immigration.
The outcome of these observations is that, although emigra¬
tion may cause temporary inconvenience to particular local¬
ities, yet, taking it all in all and for the whole community, it
responds to a permanent economic necessity. As the author
says, it has become " un phenomine normal du dtveloppement
de la vie en Europe." What are commonly alleged as imme¬
diate causes of emigration — political and religious oppression,
economic misfortune, and even social misery—produce but
greater or less fluctuations, and in countries where the migra¬
tory tendency has firmly established itself they do not even
perceptibly disturb the average from decade to decade. The
real cause of emigration in our time is the temptation to better
one's economic position ; and this cause works not only in times
of depression at home, but also in times of prosperity. The
improved means of communication and the intimate relations
established between the New World and even the smallest
villages in Europe bring this temptation to the door of each
individual. He may succeed in the New World; at the
worst, he can return.
If, now, emigration rests on such a permanent and enduring
influence, when will it come to an end 'I The answer of the
author is as follows (page 371) : —
Si des obstacles imprevus ne viennent pas le ralentir, il ne cessera pas
avant qu'il n'ait reussi iletablir le mime niveau dconomique. Le double
contraste qu'il tend il aplanir sont, lil-bas, bas prix des terres et hauts
salaires; ici, baut prix des terres et bas salaires. Le mouvement tend
a etablir le niveau par la liausse. II pourrait se faire aussi qu'il fut
NOTES AND MEMORANDA
251
Etabli par la baisse <les salaires UVbas, par celle du prix des terres ici.
Mais de nombreux obstacles s'opposent a la realisation mathematique
de cette possibility, de sorte que nous ne pouvons attendre legalisation
que de la colonisation successive des territoires de notre terre qui ne sont
pas encore occupEs. Le Canada, les fitats-Unis, l'Amerique du Sud,
l'Australie, 1' Afrique meridionale, territoires qui sont quatre ou cinq fois
plus grands que toute 1'Europe, inais qui ne comptent que 160 millions
d'habitants, tandis qu'elle en compte 316, permettent l'extension des
races europeennes pour un temps illimitd. Mais jusqu'a quand leurs
inhabitants consentiront-ils & recevoir 1'emigration europeenne ? II
semble deja maintenant que la puissance d'expansion des jeunes nations
qui occupent ces territoires commence a s'opposer a l'expansion de
l'Europe. . . . Comment cela finira-t-il ? Une seule chose nous apparait
au bout de cette longue perspective, c'est que l'Europe finira par occuper
une place plus modeste. La civilisation avance irresistiblement, et
jusqu'a present elle a constamnient marche de l'Orient vers l'Occident.
Pendant des sihcles, l'Europe a fait parvenir it une magnifique floraison
les semences qu'elle avait revues de l'Orient. Elle ne peut pas esperer
qu'il en sera toujours ainsi. Lorsque l'Amerique fut decouverte,
"l'Occident europeen," pour parler comme Karl Ritter, " devint un
Orient," et c'est au deli de la mer que semble devoir btre le theatre oh
le genre humain atteindra sa plus haute maturite, mais un theatre que
l'Europe aura peuple par son Emigration.
This theory (as I have ventured to call it) of emigration
seems to me worthy of notice, not only on account of its finish
and completeness, and the general spirit of cosmopolitanism
which breathes through it, but more particularly on account
of its bearing on the present tendency in the United States to
restrict immigration. The author notices this tendency, but
only in passing, and does not pretend to criticise it. If, how¬
ever, his theory be true, then the restriction of immigration
will have two very important consequences to answer for,
namely, (1) of disturbing the normal conditions of life in
Europe and throwing whole populations into economic dis¬
tress, and (2) of interrupting the expansion of European civ¬
ilization and the progress of the world. It is true that we can
defend our present immigration laws on the ground that they
are merely of a police nature, intended to prevent the influx
of criminals and paupers. The number actually kept out is so
small, also, that the legislation has no economic significance.
But I think we ought to go further, and consider the possible
results of the policy which we are initiating. We do not need
252 QUARTERLY JOURNAL OF ECONOMICS
to bo chauvinistic in this matter, and we do not want to pre¬
cipitate economic evils from which the whole world will suffer.
I venture to throw out the following suggestions as to the way
in which we should view the matter from our side of the
water.
The connection between population and emigration seems to
me too uncertain for us to found thereon any theory of the
economic effect of emigration. It is true that, as a rule, those
nations which have a large emigration have also a large birth¬
rate, so that emigration does not depopulate the country. But
which is the cause and which the effect ? Is emigration caused
by the pressure of population? or does emigration simply
make room for the increase of population ? In France we
have very slight emigration and a very slow increase of popu¬
lation. Why is not that the normal condition of things? and,
if emigration were to stop (not suddenly, of course, but grad¬
ually), why would not other countries regulate their popula¬
tion according to the new conditions ? It seems to me just
as logical to take hold of the question from the other end, and
to formulate the rule that emigration is no remedy for over¬
population. Such a theory might be supported by the fact
that the population of Germany, for instance, continues to in¬
crease in spite of emigration ; that Ireland is still miserable,
notwithstanding the fact that millions of her citizens have
expatriated themselves; that even the most sanguine English¬
men hope to relieve the congestion of East London only by
state-aided emigration on a large scale, with the prospect that
even then the void will probably be filled by the influx of
provincials and foreigners. I do not desire to dilate on the
further difficulty that voluntary emigration drains the com¬
munity of the cream of its working classes, while assisted emi¬
gration will always shatter 011 the perfectly justifiable unwill¬
ingness of the countries of the New World to receive the
refuse of the Old. Any country whose prosperity depends on
the constant expatriation of a portion of its citizens stands in
an equivocal position; and it seems to me impossible to regard
emigration as a permanent and normal function of European
life.
NOTES AND MEMORANDA
253
The proposition that emigration will continue until equilib¬
rium is reached by decreasing the price of land and increasing
the rate of wages in Europe, and increasing the price of land
and decreasing wages here, has a very dubious sound to Amer¬
ican ears. It seems to imply that i-ent and wages are depend¬
ent merely on population. It is possible, however, that Amer¬
ican wages are high on account of the efficiency of labor, and
remain high in accordance with the standard of living. All
the influences, moreover, which Professor Philippovich men¬
tions as making emigration necessary for Europe, such as the
natural increase of population, the accumulation of land in
great estates, the undesirability of driving the tiller of the soil
from the country into the city and factory, the progress of
science in inventing substitutes for manual labor,— all these
are present in greater or less degree here, and would seem to
make immigration unnecessary for us. Neither is it chauvin¬
istic to inquire what will be the ultimate result of this process
of levelling on our economic condition ; that is, on the comfort
of the mass of the people. It has not been shown conclusively
that emigration is improving the condition of Europe. We
can demand at least so much, before we run any risk of lower¬
ing our own. Even then our cosmopolitan duty does not
appear altogether plain. We cannot solve the problem by
using general expressions about the " expansion of European
civilization " or the " star of empire " taking its way westward.
The expansion of European civilization no longer needs the
transmigration of millions of Europeans, any more than medi¬
aeval Europe needed renewed migrations from Asia. The seed
has been planted; it needs but care and cultivation. The
energizing influence which we now get from Europe, and
which it is to be hoped we shall always get, and be able more
and more to give back, is the spiritual and intellectual influ¬
ence, not the mere transplanting of the raw material of labor.
And here cannot we broaden Professor Philippovich's own
proposition, that we must study concrete relations before we
can judge whether emigration is a loss, into the general one
that each nation is obliged of necessity to regard emigration
or immigration, and allow or restrict the same, from the stand¬
point of the effect on its own civilization ?
Richmond Mayo Smith.
RECENT PUBLICATIONS UPON ECONOMICS.
[Chiefly published or announced since October, 1890.]
I. GENERAL WORKS, THEORY AND ITS HISTORY.
Alessio (G.). Studi sulla Teorica
del Valore nel Carabio Interno.
[Vol. X. of Biblioteca di Scienze
Soeiali.] Torino: Fratelli Ilocca.
Svo. pp. 220. 5 fr.
Cope (R.). The Distribution of
Wealth; or, The Economic Laws
by which Wages and Proiits are
determined. Philadelphia: J. B.
Lippincott Co. Svo. pp. 304.
$2.00.
Dullo (G.). Gesetzeskunde und
Volkswirthschaftslehre in gemein-
verstiindlicher Darstellung. Ber¬
lin: Heine. Svo. pp. 403. 2.50 in.
Mackenzie (J. S.). An Introduc¬
tion to Social Philosophy. Glas¬
gow: Maelehouse; New York:
Macmillan. Svo. pp. 300. $2.00.
Say (L.) and Ciiailley (J.). Nou-
veau Dictionnaire d'Economie
Politique. [Vol. I. from A to I.]
Paris: Guillaumin. Svo. 25 fr.
Valenti (G.). La Teoria del Va¬
lore: Saggio. Rome: Loesclier A
Cia. Svo. pp. 242.
In Periodicals.
Aijsspitz (II.). Die klassisclie Wert-
theorie und die Lelire vom Grenz-
nutzen. Jahrb. f. Nat. Oek., 21,
Heft 3.
Boehm-Bawerk (E. von). The His¬
torical f». the Deductive Method
in Political Economy. [Translated
from .Tahrb. f. Nat. Oek.] An¬
nals of Am. Acad, of Polit. and
Soc. Sci., Oct.
Gide (C.). The Economic Schools
and the Teaching of Pi ditical Econ¬
omy in France. Pol. isci. Quar¬
terly, Dec.
Jubisch (K. W.). Mathematische
Diskussion des Entwickelungsge-
setzes der Werterzeugung durch
industrielle Produktionsgruppen.
[Second paper.] Viertelj. f.
Volksw., 27, Band 3, 2.
Richmond (W.). The Moral Factor
in Economic Law. Econ. Review,
Jan.
Ritchie (D. G.). Locke's Theory
of Property. Econ. Review, Jan.
Warm hauek (().). Geschichtlieli-
kritischer Ueberblick iiber die
Systeme des Commimismus und
Sozialismus. [second paper.]
Zeitschr. f. Ges. Staatsw., t>4,
Heft 3.
Zuckerkandl (R.). Die klassische
Werttlieorie und die Theorie vom
Grenznutzen. [Reply to Dietzel.]
Jahrb. f. Nat. Oek., 21, Heft 5.
II. PRODUCTION, EXCHANGE, AND TRANSPORTATION.
IIi'mbert (G.). Traite Complet des tion. materiel, exploitation, tram-
Chemins de Fer. [Ilistorique, ways.] Paris: Lib. Baudry. 2
organisation financifere, construe- vols. Svo. pp. 40S, 403.
liECENT PUBLICATIONS UPON ECONOMICS
In Periodicals. Noblemaire (G.). La Tarification
Jeans (J. S.). American Railways f* de ?,er e\les T?lif"
and British Farmers. Nineteenth Jll ff ® ®S D®UX
Cent., Sept. Mondes, Nov. 1.
III. SOCIAL QUESTIONS, LABOR AND CAPITAL.
Barre (E.). Der liindliche Wuelier.
Ein Beitrag zur Wueli erf rage bez.
der Vorschlage des deutsch. Volks-
wirthschaftsraths. Berlin: Decker.
Svo. pp. 5(5. 1.20 m.
Bebel (A.). Zur Lage der Arbeiter
in den Biickereien. Stuttgart:
Dietz. 8vo. pp. 188. 1 m.
Busch (E.). Die soziale Frage und
deren Losung. Berlin: Pfeil-
stiicker. 8vo. pp. 230. 2 m.
Dehx (P.). Nationale und inter-
nationale Fabrikgesetzgebung.
Mainz: Diemer. 8vo. pp. (36.
1 m.
Gronlund (L.). Our Destiny: The
Influence of Socialism on Morals
and Religion. London: Sonnen-
schein. 8vo. pp. 168. 2s. 6d.
Jaeger (E.). Der Normalarbeits-
tag, mit besonderer Riicksicht auf
Deutschland. Stuttgart: Liesch-
ing. 8vo. pp. 32. 1 m.
Juergensohn (W.). Schutz dem
Mittelstande! Ein Wort . . . im
Geiste Raiifeisens. Vienna:
Kirsch. 8vo. pp. 240. 2.40 m.
Kulemann (W.). Die Sozialdemo-
kratie und deren Bekiimpfung.
Eine Studie zur Reform des Sozial-
istengesetzes. Berlin: Ueymann.
8vo. pp. 426.
Mas±-Dari (F.). II Socialismo.
Torino: Roux. pp.86. .50 fr.
Reicher (H.). Heimathrecht und
Landesarmenpflege, mit Beriick-
sichtigung der Naturalyerpfleg-
ungsstationen in Steiermark.
Gratz: Lensclmer. 8vo. 1.80 m.
Rns (J. A.). How the Other Half
Lives: Studies among the Tene¬
ments of New York. New York:
Charles Scribner's Sons. 8vo.
pp. 304. $2.50.
Schmoller (G.). Zur deutschen
Social- und Gewerbepolitik der Ge-
genwart [collected essays and ad¬
dresses]. Leipzig: Duncker A-
Humblot. 8vo. 9 m.
Shaw (G. B.) [Editor]. Fabian Es¬
says in Socialism. London: W.
Scott. 8vo. pp. 230. 2s.
Unsigned. Die Ilintermanner der
Sozialdemokratie. Von einem
Eingeweihten. Berlin: Conitzer.
8vo. pp. 142. 1 m.
. Die IVohnungsfrage vom
Standpunkt der Armenpflege.—
Der liauswirthschaftliche Unter-
riclit armer Miidchen in Deutsch¬
land. [Reports of committees of
the Verein fur Armenpflege und
Wohlthatigkeit.] Leipzig: Dunck-
er&IIumblot. 8vo. pp. 126,13(1.
5.80 m.
. Was kann die Spraclie zur
Losung der sozialen Frage bei-
tragen ? Ein Tropfclien Selbster-
kenntniss. Breslau: Preuss. 8vo.
pp. 106. 1.50 m.
. Zwolf Jalire Socialistenge-
setz. Ein Beitrag zur Geschiehte
des Socialistengesetzes und der
sozialdemokratisclien Bewegung
in Deutschland. Berlin: Germa-
nia Co. 8vo. pp. 100. 1 m.
Verein fur Sozialpoi.itik, Pub¬
lications of. Leipzig: Duncker &
Humblot: —
No. 43. Keie (F.). Die Landge-
meinde in den ostlichen Provin-
zen Preussens, und die Versuche
eine Landgemeindeordnung zu
schaffen. pp. 345. 7.20 m.
No. 44. Bericlite iiber die Zu-
stiinde und die Reform des
landlichen Gemeindewesens in
Preussen. pp. 343. 7.20 m.
No. 45. Bkentano [Editor]. Ar-
beitseinstellungen und Fortbild-
ung des Arbeitsvertrags. Be-
richte von E. Auerbach, W.
25(5
QUARTERLY JOURNAL OF ECONOMICS
Lotz, und F. Zahn. pp. 5.1,H.
11 m.
No. 46. Sering (M.) [Editor].
Arbeiteraussehiisse in dor
deutsclien Industrie: Gutaohten,
Beriebte, Statuten. pp. 1*2.
I!.SO m.
Winter (A.). Die New-Yorker
staatliehe Besserungsanstalt zu
Elmira. Berlin: Keiiner. Svo.-
pp. 14ti. 2.40 in.
In Periodicalx.
Adler (G.). Die Sozialreform und
der Kaufmaunstand. Ann. des
Deutseb. Keiclis, No. 1 [for lSillj.
Albrkcht (II.). Wobnungen fiir
die Armen [iirst article]. Deutsche
Rundschau, Nov.
Bexoist (C.). Le Congi-hs de Liege
et le Catholicisme Social. Journ.
des Hcon., Oct.
Coux (G.). Die internationale Con-
ferenz zur Besprecliung der Ar-
beiterscliutzgesetzgebung. Jabrb.
f. Nat. Oek., 21, Heft :!.
Decrais (J.). Un Parlement Ou-
vrier: Le Dernier Congres des
Trades-unions. Rev. des Deux
Mondes, Nov. 15.
Doriiam (Bishop of). The Educa¬
tional Value of Co-operation.
Econ. Review, Jan.
Estrey (M. de). Le Socialisme en
Chine. Journ des ficon.. Oct.
Gruner(E.). La Cooperation, son
Doniaine et ses Limites. [Report.]
La Reforme Sociale, Nov. 10,
Hughes (II. P.). Irresponsible
Wealth. Nineteenth Cent., Dec.
Kaufmann (m.). The Progress of
Socialism in the United States.
Econ. Review, Jan.
Kirchiierg (E.). Die Organisation
der Arbeiter-Unfallversiclierung.
.Jabrb. f. Nat. Oek., 21, Heft 4.
Lotz (W.). L'Arbitrage et la Con¬
ciliation dans ^Industrie des fers
lamines et de l'acier du Nord de
l'Angleterre. Rev. d'£con. Pol.,
Oct.
Manning (Cardinal). Irresponsible
Wealth. Nineteenth Cent., Dec.
Phii.H'Pson (F. C.). Das englische
Handelsamt und die Arbeiteraus-
stiinde. Viertelj. f. Yolksw., 27,
Band 4, 1.
Price (L. L.). The Position and
Prospects of Industrial Concilia¬
tion. Journ. of Stat. Soc., Sept.
Rae (J.). State Socialism and Popu¬
lar Right. Contemp.. Dec.
Schoenlank (B.). Die Kartelle:
Beitnige zu einer Morphologie der
Unternehmerverbande. Archiv f.
Soz. Gesetzg. und Statistik. Band
3, Heft 4.
Symes (J. E. 1. Some Economic
Aspects of the Eight-hour Move¬
ment. Econ. Review, Jan.
Threlfali, (T. F.). The New
Departure in Trades-unionism.
Nineteenth Cent., Oct.
Unsigned. Die internationalen
Arbeiter Kongrcsse des letzten
Jahrzehnts und ilire Iledeutung
fiir die Arbeiterschutzreform.
Jahrb. f. Gesetzg., 14, Heft 4.
IV. LAND.
Duenkelbero (F. W.). Die land-
wirtschaftliche Betriebslehre in
ihren naturgesetzlichen, volks-
wirthschaftlichen. und eulturtech-
nisclien Grundlagen. Theil 2: Das
Landgut. Braunschweig: Yieweg.
Svo. 6 m.
Goltz (Th.) [Editor]. Die land-
wirthschaftliche Tliierhaltung und
die landwirthschaftlichen Neben-
gewerbe. [Band 3 of Ilandbuch
der Gesammten Landwirtlischaft.]
Tubingen: Laupp. Svo. is m.
Gi:aefe (H.). Die Entwickelung
der englischen Landwirthschaft
nach Aufhebung der Kornzblle,
und ihre Bedeutung fiir landwirth-
schaftliche Betriebslehre und
Agrarpolitik. Bautzen: Ruhl.
Svo. pp. 71. l..">u m.
Hecht (F.). Die Organisation des
Bodenkredits in Deutscliland. I.
Abtheilung: Die staatlichen und
provinziellen Bodenkreditinstitute
in Deutsohland. [To be completed
in three parts.] Leipzig: Duncker
BECENT PUBLICATIONS UPON ECONOMICS 257
& Humblot. 2 vols. Svo. pp.
051, 497. 24 in.
Hirai (Masao). Ueber die land*
wirthschaftlichen Verhaltnisse Ja¬
pans, mit Beriicksichtigung der
Grnndsteuer und des landwirth-
schaftlichenKredits. Jena: Pohle.
Svo. pp. 87. 1.50 m.
Sanborn (F. B.) [Editor], The
Single Tax Discussion held at Sar¬
atoga, Sept. 5, 1890. Reported for
the Amer. Soc. Sci. Assoc., Con¬
cord (Mass.). Svo. pp. 127.
Seelhorst (C.). Die Belastung der
Grundrente durch das Gebiiude-
kapital in der Landwirtliscliaft.
Jena: Fischer. Svo. pp.78. 2m.
Settegast (II.). Die deutsche
Viehzueht, ihr Werden, Wachsen,
und gegenwiirtiger Standpunkt.
Berlin: Parey. Svo. 5 m.
In Periodicals.
Bernard (F.). Cadastre on Livre
Foncier. Journ. des ficon., Nov.
Clark (J. B.). The Ethics of Land
Tenure. Internat. Journ. of Eth¬
ics, Oct.
Eheberg (K. T.). Die Landwirth-
schaft in Bayern [summary of offi¬
cial report]. Jalirb. f. Gesetzg.,
14, Heft 4.
Herkner (H.). Die irische Agrar-
frage. Jalirb. f. Nat. Oek., 21,
Heft 5.
Ruhland (G.). Zur Yerschuld-
ungs-statistik des Griuidbesitzes
in Nordamerika. Zeitsclir. f. Ges.
Staatsw., 64, Heft 3.
Sombart-Ermsleben. Das preus-
sisclie Gesetz iiber Rentengiiter.
Jalirb. f. Gesetzg., 14. Heft 4.
Unsigned. La Propriete batie a
Paris. Bull, de Stat, et de Ltig.
Comp., Sept.
Y. POPULATION, EMIGRATION, AND COLONIES.
Erieg (G.). Bewegung der Bevolk-
erung Bayerns im Jahresdurch-
schnitt der Periode 1879-88. [Com¬
pared with 1839-78. From the
Konigl. Statist. Bureau Bayerns.]
Munich: Lindauer. Svo. pp.
14S. 3 m.
Rubin (M.) and Westergaajrd
(H.). Statistik der Ehen [in Den¬
mark] auf Grand der sozialen
Gliederung der Bevolkerung.
Jena: Fischer. 8vo. pp. 132.
3 m.
Stoecklin (J.). Les Colonies et
Immigration Allemande. Paris:
Lib. Westliausser. 18mo. pp.
275. 3.50 fr.
In Periodicals.
Leroy-Beaulieu (P.). De l'lnflu-
ence du Degre de Civilisation sur
le Mouvement de la Population.
L'Fcon. Frangais, Sept. 20, 27.
White (A.). Recent Experiments
in Colonization. Contemp., Nov.
YI. INTERNATIONAL TRADE AND CUSTOMS TARIFFS.
Unsigned. The New Tariff of
LTnited States Customs Duties,
with the Customs Administrative
Act. New York: R. F. Down¬
ing & Co. 12mo. pp. 348.
81.00.
In Periodicals.
Hake (A. E.) and Wesslau (O. E.).
The American Tariff War. Fort¬
nightly, Oct.
Jennings (L. J.). The Trade
League against England. Nine¬
teenth Cent., Dec.
Leroy-Beaulieu (P.). Les Lois
Douanibres Amdricaines. [The
need of a treaty of commerce.]
L'ficon. Frangais, Oct. 18.
Schreiber (R.). Die Ilandelsver-
triige der europiiischen Staaten.
Ann. des Deutsch. Reichs, No. 10.
Stringher (B.). Lo Zucchero
nella legislazione internazionale.
Giorn. degli Eeon., Oct.
25S
QUARTERLY JOURNAL OF ECONOMICS
VII. FINANCE AND TAXATION.
Cucheval-Olarigny (P. A.). Les
Finances de la France, <1e 1S7<» a
181(1. Paris: Perrin & Cie. Svo.
7.50 fr.
Mknsi (F.). Die Finanzen Oester-
reichs von 1701-1740. Nach archi-
valisclien Qucllen. Vienna: Manz.
8vo. pp. 7!"). 12 m.
Planteau (F. E.). Da Reforme
dcs Impots. Paris: Libr. Vercel-
lone. INmo. pp. 287. 3.50 fr.
Schwab (,). c.). History of tlie
New York Property 'l ax. [Pub.
of Amer. Eeon. Assoc.] Balti¬
more: Amer. Econ. Assoc. Svo.
pp. 10S. $1.00.
Stourm (R.). Le Budget. son Ilis-
toire et son Mecanisme. Paris:
Guillaumin. Svo. 0 fr.
In Periodicals.
Farrar (T. H.). Local and Impe¬
rial Finance of the Last Four
Years. Contemp., Oct., Nov.
Frick. Das preussische Staats-
schuldbuch. Jahrb. f. Nat. Oek.,
21, Heft 4.
IIaushalter ( ). Die Brannt-
weinbesteueruna Deutsclilands mit
besonderer Beriicksichtigung Bay-
erns. Ann. des Deutsch. lteichs,
1MH), No. 10.
Jamais (E.). L'lmpot Foneier et
les Droits de Mutation .7 Titre One-
reux sur les Immeubles. Journ.
des Econ., Oct.
Mathieu (A.). La Famille devant
les Droits de Mutation: Les Fa¬
milies fecondes surtaxees. La
Rdforme Sociale, Nov. 16.
Mueller (W.). Zur Weinbesteuer-
ung mit besonderer Riicksicht auf
Wiirteinberg. Zeitschr. f. Oes.
Staatsw., 04, Heft 3.
Raffalovich (A.). L'lmpot sur
le Revenu en Prusse. Econ. Fran-
yais, Sept. 20, 27.
Seligman (E. R. A.). The Taxa¬
tion of Corporations. III. Pol.
Sri. Quarterly, Dec.
Stourm (If.). Bibliographic des
Finances [franyaises] du XVIII
Sieole. [Third article.] Ann. de
l'Ec. Libre des Sci. Pol., Oct.
Strutz. Die Ileranziehung der
Aktiengesellschaften zur Einkom-
mensteuer. Preuss. .Jahrb., Nov.
Troeltsch (IV.). Beitrace zur Fi-
nanzge-cliichte Munchens in der
zweiten Halfte des is Jahrlmn-
derts Ider stiidtliche sogenannte
Bierpfennig.) Finanz-Archiv, 7,
Band 1.
Vocke (W.). Die Idee der Steuer
in der Ge-cliichte. Finanz-Archiv,
7, Band 1.
Wolf (J.). Die Branntweinsteuer
in den europuisehen Liindern und
der nordamerikanischen Union
von lss7 bis lsso. Finanz-Archiv,
7, Band 1.
Zei.ler ( ). Die Erbschaftsbe-
steuerung im Verhaltniss zum
Heimathstaate und zu anderen
Staaten. Bestimmungen iiber
Reciproeitat. Finanz-Archiv, 7,
Band 1.
VIII. BANKING, CURRENCY, CREDIT, AND PRICES.
Anonymous. Silver in the 51st
Congress: preceded by a Summary
of the Coinage Laws of the
United States to 1870. and a His¬
tory of the Acts of 1873 and 1878.
Issued by the National Silver Ex¬
ecutive Committee. Washington:
printed by G. R. Gray. Svo. pp.
157.
Bailey (D. P.). The Clearing
House System. [Reprinted from
Bankers' Mag.] New York:
Homans Publishing Co. Svo. pp.
57.
Gleisberg (E.). Kateehismus des
Bankwesens. Leipzig: J. J.
Weber. Svo. 2 m.
Kussaka (J. T.). Das japanisehe
RECENT PUBLICATIONS UPON ECONOMICS 259
Geldwesen, geschichtlich und
kritisch dargestellt. Berlin: Pra-
ger. 8vo. pp. 10". 2.80 m.
Unsigned. Proceedings of the
Convention of the American
Bankers' Association, Sept. 3-5,
1890. New York: W. B. Greene,
Secretary. 8vo. pp. 166.
In Periodicals.
Baker (G. B.). The Crisis on the
Stock Exchange. Contemp., Nov.
Juglar (C.). La Beprise des Af¬
faires, la Periode prospfere, son
Ltendue, sa Duree. L'ficon. Fran-
yais, Aug. 9, Sept. 20., Oct. 4.
Lawson (W. R.). An Averted
Crash in the City. Fortnightly,
Dec.
Lexis (W.). Zur Geld und Wiihr-
ungsfrage [review of literature on
the subject]. Jahrb. f. Nat. Oek.,
21, Heft 3.
Loria (A.). Studii sul Valore della
Moneta, Oct. [continued]. Giorn.
degli Econ., Oct., Nov.
Millet (A.). Les Dangers de
l'Lpargne. Rev. d'Econ. Pol.,
Oct.
Reichsbank. Yerwaltungsbericlit
fiir das Jalir 1889. Ann. des
Deutsch. Reichs, No. 12.
Shilcock (J.). Causes and Influ¬
ences which determine the Move¬
ment of the Precious Metals from
one Country to another. [Prize
Essay.] Journ. of Inst, of Bankers,
Oct.
Soetbeer (A.). Veriinderungen
im Niveau der allgemeinen
Waarenpreise in dem Jahren 1881-
1889. Jahrb. f. Nat. Oek., 21,
Heft 4.
Struck (E.). Der internationale
Geldmarkt im Jahre 1889. Jahrb.
f. Gesetzg., 14, Heft 4.
Unsigned. The Liquidation of the
Barings. Economist, Nov. 22.
Wilson (A. J.). English Bankers
and the Bank of England Reserve.
Fortnightly, Dec.
IX. LEGISLATION.
Dehn (P.). Nationale und inter¬
nationale Fabrikgesetzgebung.
Mainz: C. Wallau. 8vo. pp. 66.
1 m.
Koenigs (G.). Die Durchfiihrung
des schweizerischen Fabrikge-
setzes. Berlin: Springer. Svo.
1.20 m.
In Periodicals.
Jacoby (S.) Der Entwurf eines
biirgerlichen Gesetzhuches fiir das
deutsche Reich, auf volkswirth-
scliaftlicher Grundlage besprochen
[continued]. Ann. des Deutsch.
Reichs, No. 11.
Unsigned. Arbeiterschutz, Con-
currenzfahigkeit, und Unternehm-
ergewinn [on proposed legislation
in Germany]. Preuss. Jahrb.,
Nov.
Zeller (W.). Das Reichsgesetz
betreffend die Invaliditiits- und
Altersversicherung. Ann. des
Deutsch. Reichs, No. 10.
X. ECONOMIC HISTORY AND DESCRIPTION.
Gross (C.). The Gild Merchant, a
Contribution to British Munici¬
pal History. Oxford: Clarendon
Press. 2 vols. Svo. pp. 356,459,
24s.
Heyne (J.). Die Entwickelung der
Schafzucht in Sachsen von der
Einfiihrung des spanischen Meri¬
nos bis auf die Gegenwart. Dres¬
den : Friese & Puttkammer. 8vo.
pp. 80. 2 m.
Wilckens (M.). Nordamerika-
nische Landwirthschaft. Erfahr-
ungen und Anschauungen, ge-
260 QUARTERLY JOURNAL OF ECONOMICS
sammelt auf einor Studienreise in
1880. Tubingen: Laupp. Svo.
pp. 209. Illustrated. 5 in.
Wirth (M.). Geschichte der Han-
delskrisen. 4 vermehrte und ver-
besserte Auflage. Frankfurt: Lau-
erliinder. Svo. pp. 713. 0 m.
In Periodicalh.
Achard (A.). Une Distribution
Municipale de Force Motrice.
Kev. d'Econ. Pol., Oct.
Geffcken (F. II.). The Economic
Condition of Italy. Contemp.,
Oct.
Law son (W. II.). The Argentine
Crisis: Its Financial Significance.
Fortnightly, Sept.
Meter (C.). Die iiltesten deutschen
Ansiedlungen als Grundlagen des
heutigen deutschen Bauernstand-
es. Viertelj. f. Volksw., 27, Band
4, 1.
Sch.moller (G.). Die geschioht-
liche Entwickelung der Lnter-
nehmung. III.-V . Handel, Hand-
vverk, und Ilausindustrie. Jahrb.
f. Gesetzg., 14, Heft 4.
XI. STATISTICS.
Annuaire Statistique de la France,
1890. 1H* annee. [Ministhre du
Commerce.] Paris: Impr. Natio-
nale. Svo. pp. 570. 5 fr.
Block (M.). Annuaire de l'Econo-
mie Politique et de la Statistique,
1S90. 47' annee. Paris: Guillau-
min. 18mo. pp. 1082. 9 fr.
Ferrara (F.). Memorie di Statis-
tica. [Collected essays and me¬
moirs.] llome: Tip. Botta. Svo.
pp. 329. 3 fr.
Greece. Commerce de la Grfeee
avec les Pays Etrangers, 1889.
Athfenes: Imp. Nationale. 4to.
pp. 451.
In Periodicals.
Borght (R. van der). Statistik der
entschiidigungspflichtigen Cnfalle
im deutschen Reich fur 1887.
Archiv f. Soz. Gesetzg. und Statis¬
tik, Band 3, Heft 4.
Mulhall (M. G.). The Study of
Statistics. Contemp., Oct.
Virgilii (F.). La Statistica Teorica
negli Scrittori Italiani piu Recenti.
Giorn. degli Econ., Oct.
XII. NOT CLASSIFIED.
Jaeger ( N. ). Geschichte der
deutschen Viehversicherung, von
ihrem Anfange bis zur Gegenwart.
Leipzig: Gracklauer. Svo. pp.
78. 1 m.
Nolte (L.). Die Reform des
deutschen Patentreehts. Tu¬
bingen : Laupp. 3 m.
Putnam (J. P.). Architecture under
Nationalism. Boston: Nationalist
Educ. Assoc. Svo. pp. 04.
Rodbertus-Jagetzow (C.). Kleine
Schriften. Mit einem Anhang:
Aufruf an die Deutschen von
Josef Mazzini. Herausgegeben
von M. Wirth. Berlin: Putt-
kammer & Miililbreeht. Svo. pp.
385. 0 m.
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siclierung in Deutschland: ein
Beitrag zur Kritik mid Reform des
Hagelversicherungswesens. [From
Abhandlungen des Staatsw. Semi¬
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177. 3 m.
In Periodicals.
Cunningham (W). The Ethics of
Money Investments. Econ. Re¬
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Levermore (C. H.). Henry C.
Carey and his Social System.
Pol. Sci. Quarterly, Dec.
Varagnac (B.). Un ficonomiste
d'Etat sous Louis XIII. [A. de
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der engliwhe Arbeiter. Preuss.
Jalirb., Oct.
APPENDIX.
RATIO OF THE COST OF LABOR TO THE WHOLE COST
OF THE MANUFACTURED ARTICLE.
A. [From Report and Evidence, Trades-union Commission, 1867-89.]*
BAR IRON.
80 to 90 per cent. (Roden of Stafford, 10775).
(Heath of Stafford, 10962).
The selling price is ascertained at first, and then the price is fixed ;
the wages are fixed by the price of iron, not the price of iron by the
rate of wages (Roden, 10736).
COAL.
70 per cent. (Briggs, 12772).
50 or less (Hood of Edinburgh, 13997).
(Profit from 5 to 30 per cent, ibid.)
60 per cent. (Cooper, Holmes Colliery, 14230).
60 per cent. (Hewlett, Wigan, 15063).
SHIP-BUILDING.
20 to 35 per cent. (Samuda, London, 16731).
50 per cent. (Dudgeon, 16942).
But superintendence not included, ibid.
33 per cent. (Steele, Greenock, 17369).
ENGINE-BUILDING.
About 62 (Dudgeon, ships, 16943).
20 per cent. (Robinson, Manchester, 19020).
JUTE SPINNING.
20 per cent. (Briggs of Dundee, 12773).
GLASS.
66 per cent, (including superintendence) (Lloyd, Birmingham, 18347).
HOSIERY.
£ SS S: & SEE} *»»>•
PAINTERS.
(If London wages to ship painters be taken as 100
Birkenhead would be 92
Newcastle, 82
Glasgow, 76
Samuda, 16727).
B. [From a Californian Correspondent, 1890.]
California implement-maker, 50 per cent.
Harness-maker, 25 " "
Potato-farmer, 30 " "
Wheat-farmer, 22 " "
Beet-sugar farmer, 55 " "
Beet-sugar manufacturer, 15 to 20 per cent.
Straw-paper maker, 80 per cent.
* These references have been kindly furnished by Miss C. E. Collet.
202
QUARTERLY JOURNAL OF ECONOMICS
STATISTICS RELATING TO THE TOBACCO TAX IN THE UNITED STATES, 1863-90.
[Figures in millions and tenths of millions.]
REVENUE FROM
1863
18G4
1865
1866
1867
1868
1869
1870
1871
1872
1873
1874
1875
1876
Cigars,
.5
1.3
3.1
3.5
3.7
3.0
5.0
5.7
6.6
7.5
8.9
9.4
10.2
11.1
Manufactured Tobacco, .
2.6
7.3
8.3
13.0
16.0
15.6
17.3
24.3
26.0
24.5
23.4
22.0
»25 2
26.8
Licenses and Spec. Taxes,
.1
1.1
1.4
1.0
1.7
2.1
1.9
1.9
1.9
Total Revenue, . . .
3.1
8.6
11.4
16.5
19.7
18.7
23.4
31.4
33.6
33.7
34.4
33.3
37.3
39.8
Average tax per lb., . .
10c
lie
22C
34c
33c
33c
27 C
26c
26C
25c
20c
20C
21c
24c
Exports of Leaf, lbs., . .
191.
185.
206.
181.
186.
216.
235.
214.
318.
224.
218.
Domestic Consumption of
Leaf, lbs.,
151.
159.
187.
180.
200.
180.
Aver. Price of Exp. Leaf,
15.4-
10.6c
11.1C
11.3c
11.4C
9.2C
10.3c
10.1c
9.6c
11.2c
10.4c
REVENUE FROM
1877
1878
1879
1880
1881
1882
1883
1884
1885
1886
1887
1888
1889
Cigars.
11.1
11.7
12.5
14.9
17.1
19 3
17.8
10.8
10.6
11.2
12.2
12.5
12.7
Manufactured Tobacco.
28.1
26.4
25.6
21.8
23.5
25.8
22.9
13.9
14.5
15.3
16.5
16.8
17.8
Licenses and Spec. Taxes.
1.9
2.0
2.0
2 2
2.2
2.3
1.4
1.4
1.3
1.4
1.4
1.4
1.4
Total Revenue.
41.1
40.1
40.1
38.9
42 8
47.4
42.1
26.1
26.4
27.9
30.1
30.7
31.9
Average tax per lb.
24c
24c
23c
19c
19c
20c
17c
IOC
10c
10c
10c
10c
10c
Exports of Leaf, lbs.
282.
284.
322.
216.
227.
224
236.
192.
219.
282.
294.
249.
211.
Domestic Consumption of
Leaf, lbs.
187.
181.
192.
225.
251.
277.
286.
297.
308
326.
352.
359.
375.
Aver. Price of Exp. Leaf. 10.2c
8.7c
7.8c
7.6c
8.3c
8.5c
8.3c
8.5c
9.9c
9 2c
8.7c
8.6c
8.7c
The statements of revenue in the above table are from the Annual Reports of the Com¬
missioner of Internal Revenue. The exports of leaf tobacco and the average price thereof
are from Evans's Report on Imports and Export* Cong. Doc., 1^34, House Misc. No. 491. The
domestic consumption of leaf is computed from the amounts of manufactured tobacco and
cigars annually taxed, taking the equivalents in leaf tobacco as used by the commissioners
tor purposes of calculation.