>&Aaviian-^^
>&Aavaani^
>-
^i'iiaowsoi^
AV\EUKIVER%
<\MEUNIVER%
*^/ii30wsni=<^
so
>
o
— <
"^A^IMNa-JVW^
<^
^•OF CAllfOfi'^ ^.Of(
^lUBRARYQr
^lUBRARYOC;^
^iOJITVDJO'f^ '^OJIWDJO'^
AWEUNIVERS/a ^lOS
^OFCAUFOff^
9 £-
^<9AHva8in'^
^OFCAIIFOR^
CI
^:10S
O li.
.
.vimAVrFlfr.
O
= ?
-n V
.^V\EUNIVERSy/.
g
-n
o
^i5l30NVS01=^
,^WEUNIVERS/A
o
>
^lUBRARYQ^
'^.tfOJIlVDJO^
^UIBR/
^5
at a loss, or, at any rate, he can recompense himself by
enhanced prices. The retail trader may suffer by the fact
that his customers are likely to be fewer. But the labourer
is sure to suffer ; for, first, he is obliged to offer his labour
for what it will fetch at the moment, and he has generally
no power to wait for the market improving; and, next,
custom determines the price of labour more than it does
that of any other article which is offered for sale. We
shall have occasion hereafter to give abundant proofs of
these positions.
CHAPTER IV.
On the Substihdes for Money.
When a man sells his goods or his work, he really
means to get other useful articles in exchange. If he
takes, as he almost always does, money, he does so,
because, as we have seen, he can always get as much or
nearly as much for money, at some future time, as he
would get for it when he took it. During the time that
he holds his money, it is of no use to him, that is, it
brings him no revenue, no advantage beyond the com-
mand which he has over such articles as he wants, by the
fact of his possessing it.
Everybody however who has property, wishes to get
some use or advantage out of it. He does not want it to
be idle. If he buys land, he expects rent; if he gives
labour, he expects wages ; if he lends, he expects interest.
D 2
35 ON THE SUBSTITUTES FOR MONEY.
No reasonable person would care to have his land untilled,
his labour unemployed, his capital unproductive. And as
he does not wish other parts of his property to be useless,
so he does not wish his money, i.e. such part of his
property as is represented by the precious metals, to be
of no service to him. No rational man now-a-days would
turn all his property into gold and silver, shut it up in a
box, and take it piece by piece out, as he wanted to
purchase what he needs for his daily life. He must, to
be sure, have some ready money, but he only keeps as
much of this as he needs.
Now it is from the confusion between the convenience of
having ready money, and from the fact that money is for
any other purpose than the supply of what one wants, wholly
useless, that people have failed to see the real functions
which money fulfils. If a man were alone on an island,
or indeed if there were few persons on such an island,
and they had no communication with any other country,
the most abundant supply of the precious metals would be
of no earthly use at all as money. It is only when labour
is divided, and men rely on each other for the supply of
the necessaries or conveniences of life, that money has
any use.
A man hoards because he fears for the future. He
knows that he can sell gold and silver more easily than
he can anything else, particularly if he has it in such a
form, as that the least possible trouble is given to those
vv'ho buy it, as far as regards their giving a judgment
on its weight and quality. So if governments arc rapa-
cious, or credit is low, or the future is uncertain, men
hoard money, because they know that what they hoard
gives them a fuller and surer command over the market
ON THE SUBSTITUTES FOR MONEY. ^tl
than anything else can. But if on the other hand govern-
ment is conducted with a view to the public good, and
credit is high, and there is no fear for the future of
society, men do not think of hoarding, because hoarding
money means losing a profit on a part of one's property.
Money, in short, is to an individual that part of his pos-
sessions which gives him the greatest power over other
objects, but which as long as he retains it yields him no
return. To a community it is the machinery of trade,
necessarily expensive, because it must be a great value in
small compass, but is still only machinery.
Now we have seen, in the outset of the inquiry into the
causes which bring about public wealth, that one of the
most powerful of these causes is the disposition which
people have to get the greatest possible results with the
least possible labour. This motive influences societies of
men as well as individuals, and if it be unchecked, it leads
men, first to select that kind of labour which they can do
best, and next to make the work they do as easy and as
little costly as possible. And as they economize to the
fullest possible extent the machinery of production, so
they economize as far as they can the machinery of
exchange.
To effect this result, they ordinarily, though perhaps
without reflecting that they do so, use as little money as
they possibly can. They buy and sell in foreign countries,
but they contrive either direcdy or indirectly to make
what they sell pay for what they buy. Occasionally they
are obliged, for causes which we shall investigate hereafter,
to buy with money ; but in the vast majority of instances
no money is used to liquidate debts on either side. The
foreign trade of this country is not much less than
38 ON THE SUBSTITUTES FOR MONET'.
£500,000,000 annually, taking exports and imports to-
gether ; but the specie which constitutes the machinery of
this enormous trade, cannot be more than the sum which
is retained by the Bank of England as bullion ; and great
part of this is used to support the notes which circulate
within the country. Let us see, then, how this economy
is effected.
In the first place, then, and for many ages, the cost and
risk of transporting money from one country to another
has been obviated by the use of certain instruments called
Bills of Exchange. An Englishman has bought goods
in France ; a Frenchman has bought goods in England.
If the transactions were single and independent, the
Englishman would need to transport money to France,
the Frenchman to transport money to England, and each
must incur the cost of carriage and the risks of the
transit, to say nothing of the loss of any use in the
money during the process of transfer. Now it is clear
that in these cases, it is possible to adopt some mechanism,
by which these risks and losses may be obviated, and that
persons will be found who will take upon themselves the
office of intermediaries between these merchants. And the
machinery for effecting this result is very simple : the
Frenchman calls on the Englishman to acknowledge his
debt by accepting a demand which the Frenchman makes
on him for goods sold; and similarly the Englishman
makes his claim on the Frenchman. If, thereupon, some
one can be found who will undertake to exchange the
acknowledgment of the first debt against the acknowledg-
ment of the second, the debts may be made to act as a
set-off against each other; and provided all the bills on
England equal all the bills on France, the debts may
ON THE SUBSTITUTES FOR MONEY. 39
be balanced without the transmission of any money at all.
Even if they do not balance between two countries, there
is sure to be found some third country whose transactions
will supply the means for bringing about this reciprocal
extinguishment of obligations ; for no country can, by the
very conditions of trade, import that which its exports
will not pay for.
This negotiation of bills of exchange is one of the
earliest functions of a bank, and one which is always a
principal aim in the establishment of a bank. But a bank
has also other functions hardly less important in the
economy of the precious metals. Gold and silver wear,
and are liable to loss. The property which, as we have
seen, gives a peculiar fitness to these articles as money,
that of easy division and reunion, has its disadvantages.
For example, it is difficult to identify money which has
been stolen or fraudulently kept from its owner ; and if
the money has been melted, it becomes impossible to
identify it at all. Now if some person can be found who
may be trusted, and this person will take money and give
in place of it either a power to withdraw the money at
discretion by orders on him, or will give such a docu-
ment to the depositor as entitles him to demand his
money, the loss and risk will be obviated.
But this is not all. When the possessor of a sum of
money puts that money into the hands of a banker, he
does not stipulate to receive again the very coins which
he had deposited, but their equivalents. In other words,
he makes over his money to the banker, and takes in its
place a security, which is worth all his money, and has
some conveniences which his money has not. The banker
lends this money, for he knows that all the money that he
40 ON THE SUBSTITUTES FOR MONEY.
keeps is of no profit to him. He sells his obligations
for money ; he buys obligations with money ; and an
enormous mass of obligations is built up on a very
small foundation of actual money. It is probable that
the London banks do not possess altogether as much as
.£30,000,000 in gold ; but by means of this machinery of
banking, nearly double the amount of all this gold passes
hands under the form of drafts on bankers every week
in one particular room in the city of London. No
mechanism can be apparently more perfect ; for the ex-
cellence of mechanism consists in the number and exact-
ness of the operations it performs, in the ease ^\ith which
these operations are effected, and, to use a metaphor from
mechanics, in the reduction of the necessary friction to
the least possible quantity.
A small sum of money can therefore be made to repre-
sent an enormous amount of property, and by means of
these substitutions to effect a prodigious number of ex-
changes; and unless there were a universal panic, and
thereupon those facts recurred, which induce individuals
to hoard gold or silver, the creation of these obligations
on paper will be developed to the fullest extent, since no
one, as we have seen, ordinarily retains more gold or
silver than he finds necessary or convenient, a single day
longer than he can possibly help.
There are yet other economies. Bankers who receive
deposits from persons wishing to put their money in a
safe place, gave, from the earliest times in which the
trade of a banker has been carried on, acknowledgments
of receipt. These acknowledgments can be transferred
from hand to hand, and such an obligation may have
passed through the hands of a very large number of per-
ON THE SUBSTITUTES FOR MONEY. 41
sons, between the time at which it was first given to the
depositor, and at last presented in the form of a demand
on the banker. ' But why should I not,' the banker begins
to argue, ' issue these pieces of paper, which may be so
profitable to me, and are so convenient to the public,
upon the security of my own property, as well as issue
them in acknowledgment of money received ? Why should
I not, instead of declaring in such an instrument my
indebtedness to A. B., declare my indebtedness to any
person who presents the piece of paper?' This easy
change from a note of receipt to be paid on demand to
the depositor or his assignee, to a general note addressed
to the bearer, is the origin of the bank-note.
Now if the banker kept exactly as much metallic
money in his possession as he had acknowledged in the
notes which he has issued, he would get no profit on his
business, except in one way — that of making a charge for
supplying a great convenience. A bank-note is a great
convenience : with proper precautions, its use involves no
risk of violence or fraud. If it be lost or stolen, it can be
traced. Intrinsically valueless, its practical utility consists
in the power which its possessor has of obtaining that
which it represents whenever he thinks proper to make a
demand. If persons know that they have the power over
a sum of money, and that they can exercise this power at
their discretion, the power is as effectual as the posses-
sion. A large sum of money can therefore be, to all in-
tents and purposes, conveniently carried, counted, and
secured, by means of notes issued by a thoroughly trust-
worthy bank. So great therefore are the conveniences
implied in the use of notes, that if the banker reaped no
profit by their issue, and therefore could not afford to
42 ON THE SUBSTITUTES FOR MONEY.
offer them to exactly the same amount as the precious
metals which they represent, the public would be willing
to pay a premium for them. And this, in fact, was the
practice with the old banks of deposit, such as those of
Venice, Genoa, and Amsterdam. These banks professed
to cover all the paper which they issued by the gold and
silver which they retained. They broke their pledges in-
deed, and they all became finally insolvent, for in those
days public morality was hardly understood. But they
were trusted in the better times of their history. Now
it is plain, had they exactly an4 invariably fulfilled the
pledges which they gave, that they could not have paid
the expenses of their establishment, unless they made a
profit, or set a premium on their notes.
But a banker very soon finds out that the notes which
he issues may be considerably in excess of the gold and
silver which he holds, and that he may employ a portion
of his property in some form from which he may get a
profit, in place of keeping it in that form in which, as we
have seen, it is quite unproductive. If he issues notes
upon no property at all, the issue is fraudulent, and ought
to be criminal, for not only has he committed an act of
bankruptcy, but he has done it in such a way as makes
a loss fall on persons who have had no dealings with him,
and have no privity of information as to his trade. It is
probably because the issue of notes at the discretion of a
banker does not and cannot involve the power on the
other hand of exacting adequate security on the note thus
issued, and because an unsecured and therefore fraudulent
note has worse effects than any other bad debt, that the
government of this country has restrained the issue of notes
by private bankers, and for the future has prohibited them.
ON THE SUBSTITUTES FOR MONEY. 43
The amount of notes which a banker may issue, in
excess of the gold and silver which he retains in his hands,
is not, and cannot be, a fixed quantity. The public which
takes notes, or (which in effect comes to the same thing)
lends a bank deposits on which the banker may trade, takes
the note because it is more convenient than gold or silver ;
makes the deposit, partly because it is safer to put money
into a banker's hands than to keep it oneself, partly be-
cause it is convenient to have an account with a banker,
and thereby to check receipts and payments, partly be-
cause bankers are in the habit of encouraging depositors,
by offering them a share in the gain which the lender
obtains from the borrower. But these conveniences and
advantages are all contingent on the fulfilment of two
conditions. First, the deposit must be in all human pro-
bability safe ; next, the depositor must be able to recover his
deposit at pleasure, and know, (in case he leaves his money
at notice,) that when the period of the notice has elapsed,
he shall certainly recover his deposit. Failing these se-
curities, no one would, if he were in his senses, take a
note or make a deposit. No commercial undertaking
needs so high a reputation, and so unsmirched a credit
as that of banking. At any sacrifice the banker must be
solvent.
We see then that the banker is obliged to take several
circumstances which seem to contradict each other into
account, before he can carry on his business successfully.
In the first place, he must discover the minimum to which
he can, consistently with safety, reduce his stock of
metallic money or, what is the same thing, his power of
drawing money. If he holds more of this money, or
keeps more of this power in his hands than seem to be
44 ON THE SUBSTITUTES FOR MONEY.
necessary, he loses a certain part of his profits. If he
holds less, he runs the risk of commercial ruin, of destroy-
ing his reputation, or at least of sacrificing his property
by a forced or unfavourable sale, in order to save his
reputation. There are, of course, occasions on which the
banker finds it necessary, if he has common prudence, to
fortify himself by enlarging these reserves, but he will never
at any time suffer the amount of his reserve to go below
what experience points out to him is necessary for the
protection of his commercial reputation; and he will of
course take care that all the property which he possesses
in his bank shall be of such a character as can be con-
verted into specie with the least possible delay and loss.
We must not forget that money, i. e. coined gold or
silver, or both, is the measure of value, and that it has
been chosen for this end because it has certain properties.
Hence, though persons will, for certain purposes and for
a certain time, take the representative of money, they will
do so only because they are thoroughly convinced that
they can claim the money which the symbol represents
whenever they please, and on the instant at which they
claim it. There must be no risk or delay, else the repre-
sentative of money falls inevitably in market value below
that which it professes to guarantee. Hence it will be
seen that any attempt to base an issue of notes on any-
thing besides money, or that which can instantly be turned
into money, is sure to be a failure, however valuable the
security may be, and is sure to bring discredit on the
note. The history of banking is full of examples of the
consequences which ensue from issuing notes based on
securities or property, or, in short, on anything but the
precious metals. In our own country an attempt was
ON THE SUBSTITUTES FOR MONEY. 45
made, in 1696, to issue notes on the security of land. It
was a failure, fortunately at an early stage in its proceed-
ings. In France, in 17 18, Law attempted to circulate
paper on the security of stocks. The plan broke down,
and induced widespread ruin. In France again, at the
Revolution, an attempt was made to issue paper on the
security of the public lands. But the government found
out very soon, that a security which is of first class
character for the purpose of a mortgage, is wholly worth-
less as a basis for a currency. Similar though far less
serious consequences ensued from the fact, that during
the greater part of the continental war this country
had an inconvertible paper currency, that is, bank-notes
which the holder could not at his pleasure turn into gold
at the counter of the bank which issued them, though
these notes were based on gold. Just the same results
would ensue if an attempt were made to found a paper
currency on the public funds. In short, what the holder
of a note requires is that he shall be able to change this
into — not public securities, or land, or goods, or anything
of the kind, but simply into — gold or silver. The power
of converting goods into cash diminishes as the amount
of available cash diminishes, but in a progressively greater
degree. The rule applies still more strongly to the con-
version of public securities into cash, because these repre-
sent, not goods, but the future earnings of the community.
We now see why it is that persons will take pieces of
paper (which have absolutely no economical value, since
the pieces have no appreciable worth, and can be pro-
duced at discretion, at no appreciable cost) in lieu of
these costly products, gold and silver. We can also see
under what circumstances they will not take them at all.
46 ON THE SUBSTITUTES FOR MONEY.
Between these two extremes of complete confidence and
entire distrust, there are many degrees. But that which
determines the value at any one time of a paper currency
which does not command complete confidence, is the
answer which the person who holds it can give to the
question ; at what time, and in what degree of fulness
will the persons who issue this paper redeem the pledge
which the paper represents ? It is plain that the power of
answering the question is far more in the hands of astute
men of business whose attention is constantly directed to
these things, and whose acuteness is aided by experience,
than it is in the hands of the general public. A dis-
credited paper currency therefore, as long as it is not
absolutely worthless, when it is of course the same to every-
body, is always a great public injury, for it helps the strong,
and it weakens the weak. It is also a complete reversal
of the true function of government ; for governments are,
in general, the only personages who can commit the crime
of issuing bad paper. The business of government is to
protect the weak against the strong. But such a paper
currency as has been alluded to helps the strong against
the weak. This evil is the more urgent when, as is the
case with many foreign governments, the paper money is
of small denominations. When the lowest note means a
considerable sum, the struggle is between persons who do
not sacrifice much, or do not gain much. But when the
notes are so small that they come into the hands of the
poor who live by day wages, the capitalist has every
power, and therefore every temptation, to employ every
advantage against the labourer.
DISTRIBUTION OF THE PRICE OF PRODUCTS. 47
CHAPTER V.
T/^e Distribution of the Price of Prodticts.
If we were to take the simplest or commonest thing,
we should find on inquiry that a vast number of persons
have contributed to the production of it. For example,
a loaf of bread represents a great variety of labour. The
seed from which the corn was grown was originally saved
and sown, the farmer necessarily subsisting from other
sources during the period in which the wheat was grow-
ing. Various kinds of agricultural labour precede and
accompany the crop, from the time it sprouted till it is
threshed; and several of these operations are aided by
expensive and elaborate machinery. The sale of the corn
is the business sometimes of many intermediaries. To
grind it into flour, it is necessary that another set of
labourers should quarry the stones, build the mill, dig
the coal, spin and weave the cloth. A further class of
labourers supplies the means for baking the bread, and for
selling the article when it is ready for consumption. It is
impossible to calculate the number of persons who have
contributed to so simple and familiar an object.
It would be nearly as impossible to distinguish the por-
tion which each of these contributories receives from the
price of the article when it is sold. It is certain that some
portion of the price does go to each person who assists
in the production, and that the portions, if they could be
48 DISTRIBUTION OF THE PRICE OF PRODUCTS.
determined exactly, would fill up the aggregate price in
quantities like those which chemical analysis discovers
in exceedingly complex substances.
But though we may not be able to count all the agents,
and assign his portion in the distribution of the price to
each, we can distinguish two broad classifications, under
one of which every person who aids in the result will
inevitably come ; and a third, which, when the other two
are satisfied, absorbs the remainder. We shall find, too,
that the circumstances fixing the share which each of
these claimants can appropriate, can be interpreted by a
few broad but invariable laws. These two classifications
are profit and wages ; the third, which represents the re-
siduum, is rent.
The analysis of the process by which value is im-
parted to physical objects cannot be continued to its first
beginnings. The phsenomena of human society, as inter-
preted by the conditions of human life, cannot by any
experience be carried further back than to the existence
of adult men and women. Man has a long and very
helpless infancy, during which he must be maintained by
the labour of others. He must have cost something in
order to have grown up, and to have been able to supply
himself with the coarsest and commonest necessaries of
life. He must receive from the toil of others that subsist-
ence which, continued during his infancy, will enable him
to take his place, when he is strong enough ; in order to fulfil
the same duties towards his descendants which have been
done for him by his progenitors. If the labourer has
children, he must save some of his means in order to
sustain them. We cannot conceive a state of society in
which nothing is saved, but everything is consumed by
DISTRIBUTION OF THE PRICE OF PRODUCTS. 49
those who work. Such a state of society, as far as our ex-
perience can aid us, could have no beginning. If by some
process, of whose possibility we have as yet no scientific
evidence, such a society were suddenly constructed, or ab-
normally developed, but which, when fairly set on foot,
would not or could not save to sustain its offspring, the
society would come to an end in a generation.
These facts are alluded to in order to point out that,
economically considered, the existence of mankind is
conditioned by some sort of saving, even though this
saving be employed in the maintenance of children, or
in the supply of rude aids to manual or other muscular
labour. The veriest savage feeds his children, and manu-
factures tools and weapons; that is, he employs labour on
other objects than his own subsistence. He saves some-
thing, small though it be ; and in this saving we see the
germ of that which constitutes the wealth of nations — the
accumulation of capital.
Capital is that part of a man's labour which he does
not consume on his own necessities or pleasures, but ac-
cumulates in order to be able to continue his labour for
the time during which he cannot get any product for that
labour, or in order to shorten or economize his labour,
or in order to provide for a succession of labourers after
he has played his part. All these conditions must be
fulfilled, and fulfilled simultaneously. He must make
these accumulations, for he has impulses (how originated
or encouraged we need not inquire) which lead him to
provide for his offspring, to foresee the contingency of
want, and to shorten or otherwise aid the labour which
he gives. The accumulations of capital in highly organized
and civilized states are only expansions of these motives
£
50 DISTRIBUTION OF THE PRICE OF PRODUCTS.
or impulses, and may be fairly taken to be constitutive
elements in human nature.
It is important to refer to these facts, because it is the
practice of economists to limit capital in a loose way to
those forms of saving v/hich are exhibited in a tangible or
at least in an alienable form. They are apt, while they
acknowledge the place which accumulated or saved labour
takes in goods, in machines, in cattle, and other live
stock, in improved land, and the like, to ignore it when
expended on maintaining or instructing man. Now,
whatever may be the moral or economical objections to
the institution of slavery, the mere existence of such a
practice is plain proof that capital can be accumulated in
the production of labour ; for, with one exception, there
is no market value to that which has had no labour ex-
pended on it. That exception, as we have seen before,
is the natural properties of land, in so far as they are
exhibited in the form of rent.
Whatever is needed to sustain labour during the time
that it is engaged in such functions as lead to something
which may be bought and sold, is wages. It may be a ser-
vice of the body or of the mind. But whatever the service
may be (and we take for granted that it is required when
it is offered or given), the remuneration is wages. The
demand may be foolish, mischievous, immoral. It may be
in the highest interests of society that the service should
be discouraged ; it may be necessary to control or forbid
both demand and service : but as long as the demand
exists, it is the offer of wages ; as long as the service is
proffered, it is the demand of wages. We shall see in
course of time how important it is to extend the term
wages to the remuneration of all kinds of labour, whether
DISTRIBUTION OF THE PRICE OF PRODUCTS. 51
they be high or low ; to the greatest benefit which, under
economical conditions, man can do to man, as well to the
meanest service ; to the function of the statesman, and to
bird-scaring of the peasant-boy.
If the capital necessary to production, and engaged in
it, is wasted or worn out in the process, it must be re-
placed. As it represents ih^saving of past labour, accu-
mulated with a view to sustain or shorten labour, its pos-
session must present certain advantages to the person
who has saved it and intends to employ it, either for his
own purposes, or to transfer or lend it to another in order
that the borrower or receiver may carry out his purposes.
If no advantage ensued from this accumulation, no man
would save for himself; if no advantage could be secured
by the transfer to another, no one would lend. This
advantage is called profit, a word which, like many other
terms used in Political Economy, is very loosely applied-
Profit is most obviously recognized when a man possessed
of capital lends it to another on certain terms, these being-
that the capital shall at a given date be restored, with the
addition of a certain amount of what is called interest.
But profit is just as fully realized in such cases as those
in which a man makes his own use of his own savings,
and consumes all the product of his labour in the supply
of his own wants and the improvement of his property.
Profit then must be secured, and wages must be paid,
out of the gross value or price of the article or service
tendered to society. These must be satisfied first. When
they are paid as fully as they can be, that is, when they
have appropriated as much as the laws which govern
their remuneration will permit, the remainder of the price
is appropriated by the owner of the soil, under the name
E 2
52 DISTRIBUTION OF THE PRICE OF PRODUCTST.
of rent. In fully settled countries, there is hardly am-
object or service sold which does not pay rent; for a
locus sAuidi is needed for carrying on all industrial occu-
pations ; and as the soil is appropriated, and the licence to
use it is conceded on paying the owner such a price as
may be agreed on, rent inevitably issues from all objects
or services which require the use of a part of the surface
of the soil for their manufacture or development. We
see, to be sure, the place which rent occupies most fully
in those cases in which it forms a dominant element, as
in land used for agricultural purposes, but it is none the
less a condition of the exercise of other industries.
It may happen that the satisfaction of profit, wages, and
rent are combined in the same person. The most ob-
vious illustration of such a state of things, is that in which
a peasant cultivates his own land, with his own capital, a
condition common in almost all countries except our own.
In this country, however, one person often owns the land,
another the house built on it, a third some part of the
capital required for the industry which is carried on in
the premises, a fourth the remaining capital, a fifth great
part of the labour given to exercising the industry. The
first of these persons is paid by a ground-rent ; the second
by what is called a rent, but really is profit on capital laid
out in erecting the premises ; the third is remunerated by
interest or discount, according as he lends money to be
paid at some future date or gives the present value of a
security to be paid also at some future date ; the fourth
gets his portion, partly because he secures profit on his
part of the capital, partly because he earns the wages of
superintendence, and of some other kinds of labour ; while
the fifth receives the wages of labour only. But however
CAPITAL. 53
much these persons may be multiplied, however variously
they may be associated, it will be found that they can all
be referred to these three heads, and receive profit for
capital, wages for labour, rent for land.
CHAPTER VI.
Capital,
Like many other words used in Political Economy^
Capital has been taken from common and familiar lan-
guage. The original meaning of the term is ' a sum lent,
on which interest is paid, and which is therefore con-
trasted with interest.' Hence it has come to mean ' the
source of profit,' and should be distinguished, first, as the
aggregate saving of a community; next, as the stock
which each individual possesses, and which he offers for
sale or exchange. In the latter sense, it makes no prac-
tical difference whether the individual be a numerical unit,
or an aggregate unit, as a partnership, company, or cor-
poration of traffickers.
Origin of Capital. All capital has been saved. As
nations advance in civilization, as societies become more
organized, and a larger number of persons are able to
subsist on a narrower area of the earth's surface, capital
is more and more accumulated. The impulse to save
becomes keener, partly in proportion to the facility with
which such savings may be invested with a view to profit,
partly as persons desire to improve their condition, and
54 CAPITAL.
multiply their conveniences. The general growth of
■wealth in any country, is relative to the security afforded
to property ; the growth of productive wealth, to the multi-
plication of the means of employing accumulations, and
to the facility with which the advantages of trade are
attainable. Hence, when the profitable investment of
saving is discouraged or diminished, capital is less eagerly
accumulated ; and, on the other hand, when the customs
of society favour such investments, capital is increasingly
aggregated. The origin of capital is therefore to be
found in the necessities of human life; its development
and increase, to the assistance which society renders the
individual.
Employment of Capital. This is twofold — the direct
maintenance of labour; and such assistance given to
labour as renders it capable of using its energies with
greater precision, with greater fulness, or in multiplied
degree. The other employments of capital consist in the
education of labour for such services as society may de-
mand ; in the substitution of animal or mechanical forces
for the direct use of human exertion ; and in the improve-
ment of natural agents. The education of labour is one
of the most important investments of capital, conducted
generally of course by those whose moral instincts or
natural affections lead them to bring up persons who
shall supply the waste of human life and strength. So,
again, the progress of human society and the increase of
opulence are connected with the use of animal forces, and
with the discoveries of mechanical science. And lastly,
capital is invested productively in the enclosure, drainage,
and other improvements of land, and in the supply of
means by which produce may be distributed; that is, in
CAPITAL. 55
the construction of roads, railways, shipping, docks, har-
bours, and the like. In the estimate of public wealth,
every investment of capital which is destined to be used
productively, and is so used, must be included, whether it
be represented in the skill of the labourer, the goods,
tools, and money of the capitalist, the improvement of the
natural capacities of the soil, or any other object from
which profit is derived, besides accumulations of unre-
munerative wealth, as plate, pictures, &c. But the rent of
land, the interest on public debts, and the reserves which
are held against emergencies, are not part of the capital of
a country. Rent in the sense of a licence to use the natural
capacity of the soil does not differ from the interest on public
debt, except in the fact that it arises from natural causes, or
has been allowed to be appropriated ; while the dividends
on stock are so much annually deducted from the profits
of capital invested in various directions. A reserve is,
by the meaning of the term, property or wealth which
might be productively employed, but is now withheld from
production. It is equally an error to treat rents and
dividends as part of pubhc wealth, and to deny the name
of wealth to those immaterial properties which bestow on
objects or persons the faculty of fulfilling purposes, or
effecting services which are in demand.
Capital and Labour. These two elements, recipro-
cally necessary to each other's existence, are not at vari-
ance except by error or mismanagement. It is true that
the remuneration which the labour takes under the name
of wages, is naturally determined by the competition of
labourers; the profit which the capitalist appropriates is
equally determined by the competition of capital. But
there is one cause which gives the possessor of capital a
^6 CAPITAL.
great advantage over the labourer, the comparative ease
with which his capital may be transferred from one object
to another, from one centre of industry to another, from
one countr)' to another, when compared with the facilities
with which labour can seek a better market. In order to
sustain or succour this weakness of labour, combinations
have, as we know, been entered into among labourers,
which seek to fix the price, and regulate the process of
labour. These practices are an interference with economi-
cal laws, and it may be doubted whether labour has been
really benefited by the expedient. The true processes by
which the problem of the remuneration of labour can be
interpreted, are the development of those means by which
labour can seek its own market, and the union of capital
and labour in the same persons, under the system of co-
operation.
Profits of Capital, Profit is used popularly, and even
by economists, in a somewhat loose way, and the usage
tends to confuse the relations between capital and labour.
The real rate of profit is the average rate of interest, and
whatever advantage the employment of capital can bestow
on its possessor beyond this rate, is not due to profit, but
as we shall see, to some other cause. Interest on advances
supposes that the principal sum or value is permanent,
and not liable to any diminution. When, therefore,
the person who is engaged in the employment of capital
has satisfied this portion of his return on capital, he re-
quires that the wear and loss of capital should be replaced.
This constitutes another portion of his so-called profits.
Then as he bestows labour, sometimes of the most
arduous and exhausting character, in the management of
his business, he obtains, just as any other labourer
CAPITAL. 57
does, wages for his care and superintendence. And
lastly, in case his occupation involves any risk of loss, he
requires, again in the aggregate of his so-called profits, to
insure himself against such contingencies, and he does so
by the natural competition of trade, even when his pru-
dence and foresight enable him to reduce these contin-
gencies to a minimum.
Accumulation of Capital. The capital of a country
may be stationary, progressive, or retrograde. The first
state is of course, like a mathematical point, wholly hypo-
thetical. The last is, unfortunately for mankind, too
frequently witnessed when the government of any country
is negligent or rapacious, or the moral character of the
community is discredited. It may also ensue from any
great change in the conditions of commerce. Thus the
decline of the trading republics of Italy, and of the Hanse
Towns, is to be chiefly ascribed to the discovery of other
commercial routes than those of which the ancient centres
of commercial enterprise almost possessed the monopoly.
But when the energies of any country are untrammelled,
and the disposition to save is general, (even though the rate
of interest may be low), and investments may be made
which satisfy the community, capital will be enormously
accumulated.
The accmnulation of capital in this and other countries
can of course only be guessed at. The elements of the
calculation however, are to be found, ( i ) in the investments
of a permanent character which have been made, as in
new shares, stocks, and similar employments of industrial
capital ; (2) in loans to foreign governments and foreign
enterprises; (3) in buildings and in permanent improve-
ments of the soil; (4) in the increase of foreign and
58 CAPITAL.
home trade. But though the elements of the calculation
are intelligible and easily distinguished, the calculation
itself must be vague, because we have no precise informa-
tion on some of these heads, in this country.
In the United States the accumulation of capital is still
more rapid. In this community almost all persons are
engaged in business. There is no merely spending class,
for very few persons live on realized property. The
habits of society do not encourage or indeed permit great
personal expenditure ; the rate of profit is high, and accu-
mulations are therefore encouraged ; and the country
affords boundless fields for industrial enterprise, while the
raw produce of the States finds a ready market over the
whole civilized world.
Capital, as has been stated, is antecedent to the employ-
ment of labour, and is devoted to its maintenance. It
will not be accumulated except with a view to profit ; it
must be employed in the sustentation of labour. Hence it
is the interest of the capitalist to discover the most pro-
ductive labour, because this gives him the largest advan-
tage in the use of his capital; and it is the interest of those
who live by wages to protect and foster capital, because
the greater the capital, the larger is the rate of wages, the
fuller and more continuous is the employment. Unfortu-
natel)' however labourers have not always seen the function
which capital fulfils, nor have capitalists always interpreted
the productiveness of labour sagaciously. Like some
married people, they have been at cross purposes when
they should have been at one. Nay, the relation is closer;
for labour and capital, as long as they are not reciprocally
benefiting each other, are paralysed and powerless. The
two blades of a good pair of scissors are not more useless
CAPITAL. 59
when separate, and more effectual, when united, than
labour and capital are when disjoined and combined. It
is idle then for labourers to talk of the tyranny of capi-
talists in the mass. Capitalists have a common purpose —
the attainment of profit. But unless they were united in
a vast partnership, a thing manifestly impossible, they
have diverse and competing interests; in fact, no com-
petition is more active than the competition which regu-
lates profits : there is none, I may add, which is more
beneficent to the general community. Employers may
be individually harsh, but it is to their own detriment ; for
the labourer will always, if he be free to choose, seek the
best market, and the best market is that in which he can
earn the most, and in the least onerous fashion. So again
capitaUsts will employ their capital most readily where
the risks are the least and the mutual confidence of
employer and employed are most fully sustained. It is
wholly unreasonable to suppose that men prefer an atmo-
sphere of vexation and risk and suspicion to one of ease,
security, and good faith. Everything in short, which
facilitates the relations of labour and capital, tends to
raise the wages of the former, and to moderate the profits
of the latter, because it eliminates risk, encourages ac-
cumulation, and suggests the employment of capital at
home.
On the other hand it is an error for capitalists to over-
look the efficiency or productiveness of the labour which
they employ. Of course they require competent skill, and
are ready judges of such skill as is required. But this is
by no means the only condition of efficiency. A man
may be a skilful but a worthless workman. He may be
underfed, and incapable of that muscular exertion which
6o CAPITAL.
is essential to the right discharge of his labour. He may
be overworked, and the last hours of his day's labour may
be unprofitable. He may be irregular in his energies,
negligent when he is unwatched, careless at all times. It
is impossible to estimate how much labour is wasted by
preventible causes, by general bad faith or indifference on
the part of workmen ; but it is certain that the waste is
enormous. This harmony of the two interests, however,
is one of those problems which lie on the border-land of
economical and moral science. But the discovery of the
means by which such a harmony may be effected is a
problem of great and urgent interest, because on its
solution depends the continuous development of public
wealth in this as in other countries.
Capital then is what men save and use. They save
it in order to set labour in motion, whether the labour
be their own or that of others, and to make it more
effective. The capital of a country consists in its food ;
its tools or machines ; its money, in so far as that money
is an instrument of production and exchange ; all im-
provements in the natural powers of the soil which tend
directly to increased produce from the soil ; and lastly the
acquired skill or power of labour itself. These, as all
aids to production, are part of the capital of a com-
munity. A nation is all the poorer by the exportation
of its capital, if it could be productively employed at
home, in whatever form that capital is exported. As
a rule, however, capital is not exported unless it be
accumulated in excess of the wants of the country in
which it is gathered.
As capital is gained by saving, so it is wasted by
such consumption as is not reproductive. It does not
CAPITAL. 6l
indeed follow that such consumption is in itself an evil.
But if a community does not save as much as it con-
sumes, its wealth is declining; if it does not save more,
its wealth is stationary. In those wide regions of western
and central Asia which were once peopled by thriving
communities, capital has been destroyed, and a desert
usurps the place of ancient civilization. In China it is
probable that wealth is nearly stationary. In Europe and
the New World, especially among the Anglo-Saxon races,
it is accumulated rapidly. The best test of rapidly
increasing capital is rapidly increasing population; for
population must perish unless capital maintains it.
Credit however is not capital, except in a metaphorical
sense. The moral qualities of a borrower are, in a
way, part of his capital, in something like the same
way that his intellectual and physical powers are, in
so far as they are rendered available for increasing
the productive agencies in which he is engaged; and
similarly, the moral qualities of a nation are, in a sense,
sources of economical prosperity, but only as conditions.
Without credit, capital would be accumulated by those
only who could use it for their own purposes, i. e. there
would be neither lenders nor borrowers. Such a state
of things, it is plain, would seriously hamper the progress
of any nation, and as between nations would render
trade all but impossible. But capital always represents
a value embodied in some physical object.
6a LABOUR AND WAGES.
CHAPTER VII.
Labour and Wages.
The wages of labour are determined by the same
causes which determine the value of all other economical
quantities, and which may be put into the form of two
questions : first. How much did it cost to produce the
labour.? next, What is the relation between the supply
of labour and the demand for it 1 The answer to the
first question will involve the answer to another question :
What is it which causes labour to be variously remu-
nerated ? The answer to the second is founded on the
proportion which industry bears to population. For a
while we will assume that the demand for labour and
the corresponding supply are exactly in equilihrio, and
then having seen that the cost of production, (no other
cause interfering,) governs the rate of wages, we can
discuss the causes which, disturbing the equilibrium of
demand and supply, disturb also the proportion between
the cost of producing labour and the rate at which it
is remunerated.
The production of labour involves cost. Capital, in
other words, is invested in the maintenance and edu-
cation of children, just as it is in the improvement of
the soil, in the production of machines, in the breeding
of animals, in the discovery and adaptation of various
economies and forces. It is only because the child is
not, for certain moral and political reasons, saleable,
that this investment of capital in the maintenance and
LABOUR AND WAGES. 6^
education of children is not as manifest as it is in those
other objects to which allusion has been made. In
the slave-holding states of the American Union, where
labour was saleable, an infant had its price, which rose
as the child reached adolescence, according as he repre-
sented a greater expenditure of labour in maintenance
and instruction. In certain agricultural districts of
England we have seen a similar phgenomenon in the
establishment of children's gangs. A contractor hires
these children from their parents; and he is able to
hire them, because at their tender years the sale of
their labour is not at their own discretion, and they are
temporarily the property of their parents. Now it is
plain that the value of such a child's labour depends on
his strength and, in some degree, on his quickness and
intelligence — matters on the whole of maintenance and
instruction.
Every adult labourer, then, represents in his existence
and capacity for labour a certain amount of capital
expended. Now capital is accumulated and expended
with a view to profit, and must be replaced. Again,
just as a steam-engine must be supplied with fuel and
other necessary appliances for its activity, so the labourer,
who needs continuous subsistence in order to exhibit
continuous activity, must be maintained. Here however
we must note a difference. The character of a labourer's
maintenance is matter of general habit or tradition. It
cannot be determined at the discretion of his employer.
The owner of a steam-engine may study the cheapest
way in which he may supply the fuel needed for the
force he calls into operation ; but he cannot study these
economies in dealing with free labour. He can dictate
64 LABOUR AND IVAGES.
the quantity and kind of food which a labourer shall
consume only when he is called upon to maintain the
labourer without bargaining for his services, as for
example when he supports him in a workhouse or a
prison, or can exercise the authority of a master over a
slave.
The food of a labourer has a powerful influence over
that part of the rate of wages which is relative to his
maintenance. If his customary food is costly, his wages
will be proportionate, in so far as they designate the
amount necessary to his subsistence. In England, the
staple food of the labourer has for many ages been wheat ;
in Scotland it is generally oatmeal; in Ireland it was,
in great degree is still, potatoes ; in many parts of
Europe it is barley or rye. That part of the rate of
wages which is devoted to the personal subsistence of
the labourer will be determined, on an average, by the
cost of that on which he principally subsists.
Weight for weight, the proportional value of wheat,
barley or rye, and oats, may be represented by the num-
bers ICO, 75, and 60. These numbers are not exact, but
are accurate enough for the purpose of comparison.
Now we may safely predict that, other things being
the same, such part of the rate of wages as is relative
to the subsistence of the labourer, and of those whose
subsistence he provides, will be proportionate to the
value of the kind of food on which he and they subsist.
To this condition we may add the cost of the house which
he ordinarily inhabits, and of the clothing which he
ordinarily wears. These are part of that supply which
is necessary to the work of the man, in the same way
that food and stable-room are needed for cattle, fuel
LABOUR AND WAGES. 65
and other appliances for the continuous working of a
machine. We shall see hereafter that other conse-
quences ensue, whenever we witness the fact that the
labourers of any country insist on a high standard of
living.
The capital invested in the maintenance and instruc-
tion of a labourer must be replaced. Like every other
machine, the labourer, sooner or later, wears out. Now-
just as in the long run, and on an average, capital will
not be invested in objects in which, after a lapse of
time, it is consumed, unless the profit on the capital is
accompanied by a further payment out of which the
capital is virtually replaced, so wages will be increased
or diminished in proportion to the period during which
the labourer is effective. When any calling, however
humble it may be, is surrounded by risks to health or
life, or where the labourer is almost inevitably short-lived,
there the rate of wages rises above the maintenance of
the labourer, and the cost of making him effective. The
labour of a collier is of the lowest kind. It needs no
special training or aptitude. But it is highly paid, even
when compared with many kinds of skilled labour, only
because it is dangerous. The wages of a needle-grinder
are high, for his occupation is so deadly that few
workmen in this craft live beyond forty years of age.
So with other dry grinders. It will not be difficult to
supply many instances, which may illustrate our induc-
tion that the wages of labour are always proportionate
to the period during which the labourer can earn the
wages in question.
But the causes which determine the wages of a collier,
a husbandman, a carpenter, a mason, an engineer, de-
F
66 LABOUR AND WAGES.
tcrmine with equal force the wages of a barrister, a phy-
sician, a clergyman, or any other professional agent,
who enters into the competition for employment. Let us
suppose that supply and demand in all these callings
are m cquilihrio, and that the aggregate earnings of a
husbandman are £40, of an artizan £60, of a person
following one of the three above-mentioned professions
,£500 per annum. The payment made to each will
represent interest on capital expended in fitting the
labourer for his calling, replacement of capital exhausted
in the gradual wearing out of the human machine, and
insurance against the risk which must attend all human
labour, the duration of which is not and cannot be
determined with any precision.
We must therefore recognize that the term ' labour,' in
order that we may be able to give it an intelligible
meaning, and to interpret the economical phaenomena
which accompany it, as well as the laws which regulate
its remuneration, must be used in no restricted sense.
When a physician attends a patient, a barrister defends
a prisoner or supports a claim at law by his advocacy,
the payment which either receives for his services is as
much wages for labour as the compensation made to a
ploughman is when he has finished his day's work.
Furthermore the causes which regulate the remuneration
of both physician and barrister are exactly identical with
those which govern the wages of manual labour, though
the analysis is a little more obscure, the elements, as
might be expected, a little more numerous.
We have hitherto assumed that there is an equilibrium
between supply and demand, that there is just as much
labour as capital can hire, just as much capital as labour
THE GROWTH OF POPULATION. 6^
requires, in order to maintain the ordinary standard of
comfort needed by the labourer. And in truth, if no
artificial hindrance is put in the way, this equilibrium
is a state to which society continually and on an average
tends, though it must be admitted that there occur some
occasions on which the supply of capital is in excess
of the average proportion, more occasions on which
the supply of labour is in excess of the capital available
for its maintenance.
CHAPTER VIII.
T/ie Growth of Poptilation.
It may be well at this point of our inquiry to connect
the theory of population with the analysis of wages
and labour. This theory, which was first investigated
accurately by Mr. Malthus, may be briefly stated as
follows : — Under certain circumstances, there is a ten-
dency for the numbers of any people to increase up to
the means of subsistence — of comfortable subsistence, it
the habits of the people are such as to make them
unwilling to lower their standard of living ; of bare sub-
sistence, if they are content with poor and cheap food,
scanty clothing, and mean lodging. Should anything
occur to permanently depress the condition of the great
mass of the people, it does not follow that population
will be checked ; for the people may accommodate them-
selves to this new position and accept an humbler and,
as we shall see, more precarious state of life. But of
F 2
68 THE GROWTH OF POPULATION.
course they cannot subsist Avithout the means of sub-
sistence, and cannot increase beyond the bare necessaries
of life.
The theory alleged by JNIalthus was, it must be ad-
mitted, stated repulsively, and was disfigured by an
analogy which was at best of a general and metaphorical
character. He said, for example, that the checks to this
tendency were \ice, miser)', and moral restraint. Vice,
as we know, shortens the lives of many. But it does
not necessarily lessen population, at any rate during
the age in which the excess or redundancy is most felt.
As long as the vicious live they subsist on the produce
of labour, and except in so far as they labour them-
selves, they diminish the resources available for productive
labour by their demand and their consumption. And
again, it is only when misery kills that it checks popu-
lation, and then only in the same way that vice does,
by shortening life, not of necessity by diminishing
numbers. The third check, moral restraint, is far more
effectual. Mr. Malthus meant abstinence from marriage,
and thereupon such social habits as on a large scale
would notably diminish the number of births. This
restraint, as has been observed by the critics and com-
mentators on INIr. Malthus and his theory, need not be
dignified by the title of moral ; it is sufficient that it
shoukl be voluntary.
Restraints imposed on marriage by law, with a view to
checking births, or more frequently for the purpose of
limiting the number of persons engaged in certain occu-
pations, are rarely effectual, and, as a rule, involve worse
evils. Thus, for example, the regulations by which
marriage is surrounded in Bavaria, ai\d in particular at
THE GROWTH OF POPULATION. 69
Munich, have often been adverted to, and have been
incautiously praised by Mr. Mill. These rules are not
intended in the public interest, but in that of certain guilds
of artizans and traders. These people have two objects :
one is to keep up prices ; the other is to diminish the
liability to which they are subject, of maintaining such
members of their fraternity as are incapacitated for la-
bour. Hence they check marriage. But they do not care
to check concubinage ; and thus the number of illegitimate
births in Munich is nearly as large as that of legitimate.
On the other hand, public opinion is much more ener-
getic, when it is arrayed against rash and imprudent
marriage and analogous misconduct. Thus we are told
that the general prosperity of the Norwegian peasants is
greatly aided by the custom which prevails there of dis-
couraging marriage till such time as young persons are
possessed of a small farm, and such savings as are needed
to stock it.
In our own country, self-respect, the dread of falling
from a higher to a lower social position, and perhaps
the natural anxiety of parents that their children should
occupy no worse a place and have no less advantages
than they themselves enjoy, are powerful hindrances to
rash and premature marriages among the middle classes
of society. Such prudential motives, however, seldom
operate on the very poor. Agricultural labourers marry
early and improvidently ; so do most artizans : they have
indeed few checks, except those which are imposed by
others ; as for example, the difficulty in getting a house
on the estate where they work, or the bastardy laws,
which put the maintenance of an illegitimate child on its
putative parent, or the paternal authority and control of
70 THE GROWTH OF POPULATION.
their employers. When we consider how low their con-
dition ordinarily is, and how little risk there is of their
sinking further, we may fairly conclude that the ordinary
morality of the poorer classes in England is due to ex-
ternal preventives, and not to any self-restraint or self-
respect.
The customary food of a people, as it has its effect
on the rate of wages, so it powerfully affects the growth
of population. As was said before, wheat has been the
staple food of the English nation for ages; barley and
oats are, or were, the common subsistence of the Scotch;
oats and potatoes of the Irish ; rye of the eastern nations
of Europe ; rice of the various Asiatic communities.
Now as wages will not, on the whole, descend below the
amount necessary to procure this food, so again popula-
tion will not increase beyond the power of attaining it.
If the customary food becomes scarce and dear, a com-
munity, if it can do so, will temporarily, may permanently
in rare cases, descend to a lower and cheaper kind. In
the interval marriage Avill be checked. It has been
noticed over and over again that marriages, and subse-
quently births, are affected adversely by dear, favourably
by cheap years, i. e. by scanty or abundant harvests.
It will be seen, then, that a community which subsists
habitually on dear food, is in a position of peculiar ad-
vantage when compared with another which lives on
cheap food ; one for instance which lives on wheat, as
contrasted with another which lives on rice or potatoes,
and this quite apart from the prudence or incautiousness
of the people. Two instances will illustrate this rule.
The Irish famine of 1846 was due to the sudden disease
v;hich affected the potato. It was equally severe in the
THE GROWTH OF POPULATION. Jl
northern part of Scotland, and particularly in the western
Highlands ; its effects, as we all know, were terrible : but
the same disease affected the same plant in England.
That, however, which was distress to the English, w^as
death to the Irish and the Highlanders ; they had nothing
else to resort to ; they subsisted on the cheapest food.
Now were such a calamity as the potato disease to attack
wheat in England, formidable as the consequences would
be, they would not be destructive. The weakest and the
poorest would no doubt be sacrificed, but the nation
might and would resort to cheaper kinds of food.
No doubt the Irish, whose personal morality is high,
were exceedingly imprudent. They married on a potato-
field, and at a cottier's hut. But, on the other hand, the
Belgian peasantry are among the most thrifty in the
world. It is a general practice, as I have been informed
on the best authority (that of M. Van der Weyer, the late
minister for Belgium), for the people of that prosperous
country to save half their income. Their diligence is
untiring : they have turned sandy wastes into fertile fields.
But again, their chief maintenance in the period referred
to was roots, and especially potatoes. The distress which
they endured was hardly less than that which fell to the
lot of the Irish. Famine-struck by the unexpected cala-
mity, these thrifty but starving peasants clamoured at the
gates of the Belgian towns for food, and were driven
away only by the bayonet. They perished by thousands.
Their imprudence consisted in their choice of food. A
nation, in short, which is contented to live on cheap food,
is always within the risk of famine. The English, who
live on wheat, have never endured a real famine since
1315-1316. With the Irish it has been a periodical visita-
72 THE GROWTH OF POPULATION.
tion : so it has with the Hindoos, who live on rice and
gram. Here the risk is even more imminent, the event
more frequent ; for drought is a more common phaeno-
menon than was the case with the potato, organic dis-
ease in the plant.
During the middle ages the custom of monasticism,
and the celibacy of the clergy, formed, we cannot doubt,
very effective checks to population. It is not easy to
estimate the population of England and Wales up to the
middle of the sixteenth century; it was, however, probably
not more than 2,000,000. But the monks, nuns, and
priests, could not have been much less than a twentieth
of the population. They abstained from marriage, but
were to a great extent engaged in agriculture and other
industrial occupations. When these establishments were
broken up, and this remedy for an overplus of population
was no longer available, considerable distress ensued. I
do not say that it was in any sense caused by the con-
fiscation of the religious houses, but I do not see any
reason to doubt that the existing distress was exaggerated
by this great social change and its inevitable conse-
quences.
Among the illustrations given of his theory by Mr.
Mai thus, was one which has been already alluded to.
It was, that food increases in an arithmetical, population
in a geometrical ratio. This generality has been adversely
commented on, and with justice. The supposed relation
is a mere hypothesis. Population cannot, for obvious
reasons, increase faster than the means of life. In a
rough way, we may say that there are as many people
in England as there are quarters of wheat with which to
feed them. Population, then, increases with the increase
THE GROWTH OF POPULATION. 73
of quarters of wheat, whether these quarters are grown al
home or imported from abroad. Now it is possible to
state with tolerable precision what was the general rate
of increase ,five hundred years ago. It was about on the
whole one-seventh of that which can be obtained at the
present time from equal areas of arable land. The popu-
lation of England and Wales was not, I have said, more
than 2,000,000 from the fourteenth to the sixteenth cen-
turies. At the present time it is ten times that amount.
Of these, about 15,000,000 are fed from native produce:
the rest subsist on imported food.
Many economists of great reputation have been con-
cerned at the risk which society runs from the contin-
gency of over-population. The alarm I am persuaded is
futile. First, the supply of food is a ' condition precedent,'
as lawyers say, to the growth of population itself. Next.
the area from which this country can procure food is,
day by day, increasing in width. The risk of famine is
far more remote than it was fifty or sixty years ago. We
draw our supplies of food from all regions. A perpetual
harvest contributes to our wants. All over the world corn
is being reaped for the necessities of such industries as
can exchange the products of their labour for that of the
agriculturist. Food is the raw material of labour, and
just as cotton and wool and other textile materials are
gathered from all quarters of the earth, so is food forth-
coming. England, and other great industrial countries,
resemble in the density of their population and the ne-
cessity of their consumption, when contrasted with those
thinly peopled nations of the world from which they draw
their supplies of food, great cities surrounded by a fertile
plain. Nor is it probable that the supply will be cut off. A
74 THE GROWTH OF POPULATION.
city, to be sure, may be beleaguered by a hostile army, and
suffer a famine. So if we had the misfortune or the folly,
(both we may hope inconceivable,) to quarrel with the
whole civilized world, we might not perhaps be visited by
famine, but should certainly be afflicted by dearth. So, again,
if the whole available area of the globe were so occupied
that the produce of the soil in each country were wholly
consumed by its people, densely peopled countries, like
populous cities, might starve. But we need contemplate
no such contingency. In the first place, it must be ages
off; and in the next, fair warning of the event, when ages
have past, will be given. To dread such a result is to
dread a cataclysm or a glacial epoch, to distress oneself,
not only M'ith the sorrows of Hecuba, but with the grief of
a future creation.
At the time at which INIalthus wrote, there was reason
in the alarm. The nation was sunk in penury. A suc-
cession of deficient harvests, never, I believe, paralleled
since the beginning of the fourteenth century, the period
alluded to before, was aggravated by an exhausting foreign
war. The only people who prospered were the merchants
and manufacturers, for the northern counties were com-
mencing that career of industrial success which has raised
this country to the position of the first producer of the
world. But the mass of the people had no share in these
partial and imperfect benefits. Pauperism was devouring
the farmers, the landowners, the retail traders. The
fiscal system of the country was absolutely destructive.
Taxes were imposed on raw materials, and worst of all,
prohibitions were put on the importation of that which, as
I have said, is the raw material of labour, food. Every-
body, with some few exceptions, believed in the necessity
THE GROWTH OF POPULATION. 75
of protection. The genius of financiers was directed
towards fostering exportation, checking importation. The
trade with the East was in the hands of a company which
was much more busied with aggressive politics than with
successful commerce. The United States were in their
infancy, and the wounds of the War of Independence were
not closed. The greatest part of the New World was under
the wasteful tyranny and exclusive control of Spain.
EurojDC, then our best and nearly our only market, was
entering into the gigantic war with Napoleon. Even if
food had been forthcoming, our corn laws, the silly dream
of which was a fixed and invariable price, would have
checked the market by rendering it wholly uncertain.
No wonder, then, that Malthus, grasping the fundamental
truth, that population and the supply of food must be
exactly relevant, laid down crudely the harsh laws which
appeared to him to check or control the growth of that
which was already over-abundant. At the present time,
indeed, the significance of the inquiry into the causes of
population has become less important, less Hkely to
arrest attention. The fear of deficient supply, (on the
hypothesis that the course of the seasons throughout the
world is nearly uniform, and that the process of collection
and distribution is continually economized and improved),
and the alarms which some persons feel as to the future
of this country when its population seems to increase
rapidly, and to depend more and more on foreign markets
for the supply of food, are as rational as the dread enter-
tained in the time of the Stuarts that the excessive growth
of London must sooner or later end in dearth or even
famine.
But though there seems no great risk of over-population
76 THE GROWTH OF POPULATION.
in any country whose fiscal system is sound, and whose
foreign trade is encouraged by being freed from restric-
tions, temporary instances of an excessive supply of
labour do occur, and furnish, as long as they exist, ap-
parent exceptions to the general principle laid down in
the foregoing pages, as to the remuneration of labour
being on an average due to the cost of producing it.
For example, the remuneration of those who are en-
gaged in what are called the liberal professions, represents
a less percentage on the outlay incurred in fitting persons
for these professions than ceteris paribus is awarded to
humbler offices. Here however social position forms
part of the incentive to entering into these callings, and
therefore diminishes the remuneration. People press into
a calling which is held in honour, which gives inde-
pendence or dignity. The payment made on an average
to a barrister, a physician, a clergyman, an officer in the
regular army, is less, when the labour given is considered,
and the preparation requisite for fulfilling the function is
estimated, than that awarded to a retail trader. It is not
that men are paid by reputation and social standing, but
that men compete for these objects, and thereupon compete
against each other with greater energy for such remunera-
tions as these callings afford. And conversely, when any
discredit attaches to the calling, the competition is scanty
and the remuneration is high. As Adam Smith says, the
labour performed by a common hangman is easy, but the
remuneration is very high. The office is in the fullest
sense discreditable ; there is no competition for filling it ;
the service, it seems, must needs be performed, and the
functionary can exact what terms he pleases, short, of
THE GROWTH OF POPULATION. 77
course, of such a sum as would attract others, who might
conquer their squeamishness by their desire of gain, into
the field of operations.
Again, the risk of an over-supply of labour attends such
offices as are liable to the unforeseen caprices of fashion.
Female costume is, it seems, affected, in wealthy countries
at least, by extraordinary and unintelligible fickleness.
Sudden changes occur, the origin of which cannot be
traced, the duration of which cannot be anticipated.
Those who minister to these precarious demands are
consequently liable, more than any other artizans, to the
contingency of over-production, to the revulsion of de-
mand, and to the suspension of occupation. A year or
two ago, every woman who made any pretension to dress
according to the custom of the day, surrounded herself
with a congeries of parallel steel hoops. It is said that
fifty tons of crinoline wire were turned out weekly from
factories, chiefly in Yorkshire. The fashion has passed
away, and the demand for the material and the labour has
ceased. Thousands of persons once engaged in this
production, are now reduced to enforced idleness, or
constrained to betake themselves to some other occupa-
tion. Again, a few years ago women decked themselves
plentifully with ribbons. This fashion has also changed :
where a hundred yards were sold, one is hardly purchased
now, and the looms of a multitude of silk operatives are
idle. To quote another instance. At the present time
women are pleased to walk about bareheaded. The
straw-platters of Bedfordshire, Bucks, Hertfordshire, and
Essex, are reduced suddenly from a condition of tolerable
prosperity to one of great penury and distress.
78 THE GROWTH OF POPULATION.
The most serious inconvenience however ensues, when
the supply of any important raw material is materially
diminished or arrested. As a rule, the phenomenon of a
glut in the labour market attends any great exaltation in
the price of food ; for food, as has been stated more than
once, is the raw material of labour, must be procured at
any sacrifice, and therefore when it happens to be very
dear, the consumption of such articles as are of voluntary
use must needs be diminished. In dear years the home
trade is stunted, industry which is ordinarily engaged in
matters of domestic convenience, comfort, taste, or luxury,
is less in demand, and the only labour which is likely to
be engaged is that which is occupied in production for
such foreign markets as, directly or indirectly, can con-
tribute to the demand for food. When however the
deficiency of the raw material is on a grand scale, as
happened five years ago with the supply of cotton, the
gravest consequences follow — consequences a little pal-
liated by the growth of analogous industries, but not
materially remedied.
Excess of labour is not peculiar to the mechanical or
manual occupations in which men engage. The prox-
imity of persons in the higher classes of society to the
margin of bare subsistence is not indeed witnessed fre-
quently, but it is constandy seen to be close upon the
margin of comfortable or decent or customary subsistence.
It is seldom, for example, that a poor clergyman, or medi-
cal practitioner, or barrister, is literally starving ; but he
may be and constantly is, close upon penury, and forced
to unbecoming or squalid shifts. On the whole, to be
sure, these cases are exceptional, and when persons be-
come more alive to the conditions under which different
RESTRICTIONS ON OCCUPATIONS. 79
kinds of labour can subsist, will become scarcer; but every-
one is aware of how urgently these prudential motives to
which Malthus referred are present with the professional
classes.
CHAPTER IX.
Restrictions on OcciLpations.
Op course all persons who are engaged in any calling
are aware that the demand for the labour or products of
labour in that calling remaining stationary — greater com-
petition will mean diminished remuneration. As a rule,
too, those who practise any craft or profession, do not
believe that an increased supply will be met by a corre-
sponding demand, and therefore feel naturally concerned
to occupy and retain the market for their own labour or
products. They attempt to bring about or maintain this
result, either by keeping up prices artificially, or by putting
artificial checks on the supply of labour. Hence ensue
some of the most significant phzenomena in the working
of society — phsenomena the interpretation of which is
rendered obscure by the fact that a number of irrelevant
issues, and indirect arguments are alleged in support of
the customs adopted by such parlies, while the true
motives are generally denied.
In the early ages of European social history the control
over the market of the trader or producer was secured or
supposed to be secured by the establishment of guilds or
trading companies. These guilds were universal, and
the character of such associations is suggested by the
8o RESTRICTIONS ON OCCUPATIONS.
great companies which still survive, though in an altered
form, in the city of London. The general purpose of
these associations was that of prohibition. No trader
was allowed to exercise his calling within the privileged
district unless he were enrolled in these protected bodies,
which ordinarily, in consideration of certain sums given
to the Crown, at that time supposed to be the fountain of
such privileges, had the right of framing bye-laws for the
management of their several trades. It is of course
obvious that the companies conceded the right of trade
sparingly, and under well-defined and strict regulations.
Such guilds exist at the present time in Munich, and
exhibit faithfully the character of similar incorporations
hi England, as they were one or two centuries ago.
In course of time, the Crown assumed to itself the
right of permitting associations of merchants a monopoly
of particular trades or commerce. The privileges ac-
corded by our monarchs to the merchants of the Hanse
Towns, trading as the Aldermen and Merchants of the
Steelyard, are among the earliest of these mercanule
monopolies. The discovery of the New World gave birth
to another set of privileged merchants. That of the Cape
passage, and of the sea route to the East, were the
occasions out of which a third set of adventurers were
chartered. At last, when the Crown began to grant
monopolies of home trade and production to particular
individuals, the country became indignant and the pre-
rogative was surrendered.
But it was soon found that the grant of trading privi-
leges and monopolies might form an important branch of
pubHc revenue ; and as soon as Parliament took the com-
plete control of the supplies into its own hands, the grant
RESTRICTIONS ON OCCUPATIONS. 8 1
of these powers, always in consideration of sums applied
to the public service, became frequent. This was the day
of the Bank of England, the South Sea Company, and a
host of similar associations. Of these companies none
however has exercised so vast an influence as the East
India Company which, before it was transformed into a
body of fund-holders, conquered and governed a vast
empire as well as carried on trade.
The example of England was followed by other nations.
Holland and France adopted the same expedients; the
latter with but scanty success, the former with a well-
defined and vigorous policy. The Dutch East India
Company was a very powerful body, and at the present
day, Holland is the only European state which draws a
large revenue for public purposes from its possessions in
the Indian Archipelago. But the theory of all these com-
panies was one ; they sought to keep up prices by re-
straining supply. Of course these monopolists could not
prevent smuggling, or, as the East India Company called
it, ' interloping' ; while the incessant wars, and the necessary
police of the seas, to say nothing of the deadening in-
fluence of trade privileges, soon lowered the profits and
curtailed the trade of these associations.
There is nothing which gives a better illustration of
the mischief attending these trade monopolies than the
history of the East India Company's traffic. The people
of England, dazzled with the astonishing growth of the
empire of Hindostan, and the political influence which is
supposed to be involved in the maintenance of our
supremacy in India, is apt to forget the losses and the
sacrifices which the establishment of the empire has cost
us. It was the proximate cause of the American War of
a
8a RESTRICTIONS ON OCCUPATIONS.
Independence. The severance of those colonies from the
British crown, is not, as we now are aware, matter for
regret; but the lurking hostility of the two families of
the British race is matter of profound regret and con-
tinual danger. But not to enter on this part of the
historical question, it is sufficient to say, that for more
than a century and a half the produce of the Indian
peninsula and of the Chinese empire was lessened in
English markets by the monopoly of these imperial
traders. The art of navigation in tropical waters, the
foundation of independent colonies in the islands of the
Paciiic, were arrested by the trade jealousies of the East
India Company. Every stranger in their eyes was a rival,
every colonist an interloper. They prevented the ac-
climatization of Europeans in India, they checked the
development of native produce. And conversely, since
their monopoly has been rescinded, hardly a generation
ago, the passage from the East to Europe has been so
shortened, that a freight from thence to England is re-
duced to one-fourth, the time required to one-third, and
the produce of India and China have been powerfully
stimulated by the freedom of trade.
It is by machinery like this that in times past trading
companies, having induced the executive or the legislative
power of the country to grant them special privileges,
have sought, but almost invariably in vain, to derive
certain benefits from a monopoly, antl in order to stereo-
type these benefits, have attempted to keep up prices
artificially. The defence alleged for the practice has pro-
fessedly been derived from ihe princij)les of natural justice.
It has been said that it would have been impossible for
privr.te individuals to have ventured on trade with those
RESTRICTIONS ON OCCUPATIONS. 83
distant countries; that it was necessary to incur vast
outlay, not only in vessels, and merchandise exported for
purposes of exchange, but in factories and the like; and
that it would have been unfair, had others, who had taken
no part in the venture, and had not incurred the risks of
the experiment, been enabled to enter on the fruits of those
labours which had been undertaken. It is not difficult lo
see that these charges were either visionary or unnecessary.
It has been found possible to carry on trade with foreign
countries, though they have been only newly discovered,
or only newly opened to such trade, without it being
necessary to adopt the expedients which the founders of
the East India Company thought proper in their early
relations with Hindostan.
Similar or analogous restrictions have been adopted
by various classes of persons who carry on trade or prac-
tise professions at home. They have, for example,
insisted that no person shall engage in any branch of
business unless he has passed through a period of appren-
ticeship, or has completed a formal course of study, or has
consented to a series of bye-laws framed for the purpose
of narrowing the number of persons who may be em-
ployed. Thus, for example, entrance into the medical
and legal professions is restricted to those who have
attended a certain curriculum of study, and the practice
of these professions is guarded by a number of regulations.
The functions too are divided : the etiquette of the la^v
requires the presence of two functionaries, an attorney
and a barrister, whenever the agency of a court of law is
required. So though here the distinction is less rigorous,
the ordinary medical practitioner is distinguished from the
more dignified physician. In all cases, the restrictions
G 2
84 RESTRICTIONS ON OCCUPATIONS.
put on these callings is justified on the plea of the public
good. It is averred, that were these rules swept away,
great injury would ensue by the introduction of unqualified
or dishonest practitioners. But the police of these bye-
laws is, unfortunately, no guarantee against dishonesty,
and the regulations by which both these professions guard
against the intrusion of incompetent persons are far later
than the concession of professional privilege in the case
of medicine, and are hardly operative at all in the case of
law. It does not, in short, seem possible to doubt, that
the purpose of all these restrictions has originally been to
raise prices, by imposing obstacles on practice ; and it may
well be questioned, whether the testimonium of a board
of examiners has not been gifted with greater import-
ance than it deserves when, instead of being treated as
a certificate of proficiency, it is turned into a hcence to
practise.
We do not indeed imagine that any great inconveni-
ence follows on these regulations. The use of legal and
medical services is, to a great extent, voluntary ; and the
advantages of competition are, on the whole, secured by the
fact that though these persons are united together against
those who lie outside the privileged body, they compete
eagerly against each other. We have referred to these
facts because they illustrate the causes which tend to
derange the operation of that fundamental law of wages
and labour, that the remuneration of a service is due on
an average to the cost of producing the labourer.
The effect, however, of various attempts to artificially
inflate the rate of wages on the one hand, or to artificially
depress it on the other, in certain commoner and more
necessary callings, is far more important, and far more
RESTRICTIONS ON OCCUPATIONS. Gj
deserving of consideration. The machinery which has
been employed to depress the rate is older, and the
policy adopted in both cases has produced such impor-
tant consequences on the social history of this country,
and is now dominant in many important industries, that
it will be well to give a short sketch of the course which
this policy has taken, before we proceed to analyze the
social effects of these endeavours to interfere with the
natural relations of supply and demand in the labour
market.
Five hundred years ago and upwards the whole cf
Europe was afflicted with a plague of uncommon severity.
According to contemporary accounts, more than half the
population perished ; and though probably the loss was
exaggerated, there can be no doubt that labour became
so scarce and dear that a complete revolution ensued in
the tenure and cultivation of land. In order to obviate
these inconveniences, the landowners of the day at-
tempted to regulate the rate of wages by acts of parlia-
ment : at first, by enacting that no more wages should be
paid than had been customary before the visitation of the
great plague, and by restricting husbandmen and their
children to the calling which they had hitherto followed,
and to the place in which they were born ; next, by fixing
rates of wages from time to time in parliament; and
finally, by leaving the right of fixing the rate with the
justices of the peace, who, as employers of labour, or at
least as letting their lands to employers of labour, would
be interested in prescribing and enforcing low rates of
wages. These provisions of course were only temporarily
operative ; they could not affect in any notable degree the
wages of artizans, and in practice it was found that they
86 RESTRICTIONS ON OCCUPATIONS.
lud only a partial operation on those kinds of labour the
dearth of which was the original cause of these legislative
enactments. Of course, as far as possible, the labourers
retaliated. They rose in insurrection, and once, under
Tyler, nearly overthrew the constitudon. Fresh laws were
enacted, severe punishments were inflicted, but it was not
possible for a long time to break down the opposition to
the law. The Lollards, OldcasUe, Cade, and others, were
all combatants on behalf of labourers as opposed to land-
owners. It appears that, on the whole, the labourers
succeeded in bettering their condition ; serfage was ex-
tinguished, and an influential class of yeomanry, partly
possessed of free and copyhold estates, partly the bene-
ficial lessees of the various monastic corporations, arose.
A great alteradon took place in the middle of the six-
t.^enth century. It was due partly to the confiscation of
the church lands ; partly to a change in the method of
tillage, and the adopdon of sheep-farming in lieu of corn-
growing ; partly to the debasement of the currency ;
partly to the depreciation of money — always a serious
evil to those who live by wages ; partly to the growth of
population. These and other concurrent causes led to
the enactment of a poor-law, followed subsequently by
the law of settlement, which put the burden of maintain-
ing the destitute poor on the parish of their birth or legal
adoption, and by implication forbad or restricted the
migradon of labourers in search of employment. This
law of parochial settlement, which had a great influence
in lowering the rate of wages, was modified at last in-
directly by the rise of the great industries in the north
of England, by cotton manufactories, and by the increase
of iron and other hardware products. The demand for
RESTRICTIONS ON OCCUPATIONS. 87
labour became urgent, and the migration from agri-
cultural regions to those in which these industries were
carried on became great and uninterrupted. The em-
ployers of labour in the north of England were too eager
for labour to care for the risks of its becoming a burden
on the parochial rates. But meanwhile the laws against
the combinations of labourers remained on the statute-
book, though they were gradually becoming obsolete,
and were seen to be unjust and invidious. In 1825,
i. e. 476 years after the enactment of the first statute of
labourers, they were repealed.
With the repeal of these laws commences that organ-
ized system of combination known familiarly under the
name of a trades-union. The purpose of a trades-union
is to keep up the price of labour, and if possible to
enhance it. In order to effect this, restrictions are put
on the number of persons entering into the employment,
by insisting on apprenticeship, and regulating the number
of apprentices kept by any employer. Restrictions are
put upon the mode in which work is done, upon the
hours during which labour is employed, on the rate of
wages paid to those who work over-time, on job or
piece-work, and in particular on the rate of wages them-
selves. Obedience to these regulations is enforced among
the members of the union by fines, and in cases where
the offence according to the bye-laws is great or reiter-
ated, by expulsion from the benefits of the union. Those
who do not belong to the union are slighted, threatened,
or even maltreated, some acts of extreme ferocity having
lately come to light. The machinery adopted against the
employer is a strike, i. e. a refusal to work, the time in
which this strike is decided on being generally one
88 RESTRICTIONS ON OCCUPATIONS.
which is critical lo the employer. Of course, too, work-
men on strike look with great dislike on such other
workmen as take employment under the master whom
they have made war against, and strive to deter them by
persuasives more or less cogent, or even by acts more or
less violent ; since the success of the manoeuvre consists
in starving the master's capital. On the other hand, em-
ployers also naturally combine, and obviate these threats
or these acts by a retaliatory process called a ' lock-out,'
the lock-out being, as a rule, more general than a strike,
and being of course felt more severely by the men. In
order to carry out the organization of a trades-union,
large funds are subscribed, out of which labourers on
strike or locked-out are supported. It may be added,
that trades-unions answering to the above general de-
scription are almost peculiar to this country, great hin-
drances being put in other countries on the use of the
machinery by which the ultimate ends of the union are
achieved.
Now my reader will remember that the rate of profit,
by which, as we have seen, must be understood the in-
terest on advances, is in a manner fixed. It may rise by
competition for capital ; it may sink by a superfluity of
capital. It fluctuates most largely when advances are
made for short terms ; it varies very little on permanent
investments. The occujiation of a man's own capital in
his own business is of a permanent character ; the assist-
ance which he obtains from bankers and other dealers in
money is of a short or precarious character; and as a rule,
therefore, the rate of profit is the quantity which is large
enough to induce persons to save or accumulate capital.
If it falls too low, the owner will not save, or, which is the
RESTRICTIONS ON OCCUPATIONS. 89
same in an economical sense, will hoard or reserve his
capital. Interest or profit is, as Mr. Senior used to say,
the wages of abstinence ; but no man gets wages unless
he works, nor does any man get profit or interest unless
he lends, either indirectly to an employer of labour, or
directly in the employment of labour.
It will be clear then that the machinery of a trades-
union cannot increase wages by depressing the profits
of capital. On the contrary, if these profits are rendered
insecure, the rate payable to the employer will increase
with the risk. This increase is not, to speak exactly, a
rise in the rate of interest ; but a compensation or
insurance for and against the contingency of loss. And
in just the same way that superior intelligence, ac-
tivity, and skill, (qualities, it will be remembered, which
make labour more eifective, and which are therefore
in an economical analysis to be classed with labour
itself), invariably obtain an increase of remuneration as
compared with the labour of those who are deficient
in these qualities, or devoid of them ; so when they are
applied to the management of capital, they raise the
amount which the capitalist is enabled to appropriate
under the general name of profits. The ingenuity which
substitutes machinery for muscular force, which discovers
a short way of transacting business, which eliminates
a superfluous intermediary in trade, which satisfies a
new want or supplies an old want at an easier rate,
aids its possessor towards what is familiarly called 'making
a fortune.' This fortune is obtained really by an increase
of eff'ective labour. But in just the same way, the in-
telligence which can anticipate disaff'ection among ar-
tizans, which can prophesy a strike, or see that labour
90 RESTRICTIONS ON OCCUPATIONS.
is under particular circumstances unable to dictate terms
to employers, and which is therefore cautious or bold
as the case may be, takes advantage to its own profit
or gain, of the very organization which at first sight
is directed against it. The labourer seeks to get more
out of the capitalist, and the effect is that the capitalist
gets all that the labourer gets, and something over, out
of the public. In popular language, the struggle of a
trades-union is supposed to lie between labour and
capital; in effect it lies between the labourer and the
purchaser, the man who sells the service and the man
who buys it, and to whom the employer is only an inter-
mediary. To this rule there is but one exception.
The effect however of a combination to raise the
rate of wages will be found to vary with the relation of
the labour to the product : in no case will it fall on the
capitaHst; i.e. the person who advances the wages.
If by any arrangement, agricultural labourers could
combine together so effectually as to raise the rate of
wages without making their labour more productive or
valuable to the employer, the loss would not fall on
the farmer, but on the landlord; i.e. the increased cost
must be compensated out of rent. Rent is all that remains
out of the price of the articles produced from the soil,
after the cost of production is satisfied. When the
farmer has received interest on his capital, is insured
against the risks of weather, and is paid for his own
labour in superintendence, and the like, the residual
value of that which he obtains from the soil is paid by
him to his landlortl as rent. Just the same facts apply
to the rent of a house in a crowded thoroughfare as
are manifest in the i)rocess of ordinary agricultural
RESTRICTIONS ON OCCUPATIONS. 9 1
business, though in the former case the facts are more
complex. A man pays £500 a year for a shop in
Cheapside, and only one-fifth of such a rent for equal
accommodation in a country town, because the returns
of a Cheapside business, as a rule, leave such a margin
over the ordinary compensation obtained by a trader,
from which the owner of the house can levy this rent.
If rents fall by reason of such a combination, no
one but the landlord will be injured : for the origin of his
rent, in so far as it is merely compensation for the use
of the natural powers of the soil, is entirely due to the
competition of purchasers for the products of land.
There is no rent in countries where land is cheap,
abundant, and naturally fertile : there could be no rent,
if the cost of production swallowed up the whole return
from the soil. Such a result, in an indirect way, was
actually almost reached under the old poor-law, when
in some country districts the rate amounted to twenty
shillings in the poimd, and therefore if the assessment
to the poor-rate and the net rent of the land approx-
imated, rents were wellnigh or entirely extinguished.
As I have said above, it was because the cost of pro-
duction during the middle ages was relatively so high,
that the rent of land was so low; and it is because the
cost of production has so marvellously diminished that
in our own day the rent of land is so high.
But there are two causes which will always make the
contingency of this diminution in rent very remote, and
perhaps prevent its occurrence altogether. One is, the
difficulty of combination among agricultural labourers.
In those counties which include or are contiguous to
the manufacturing districts, agricultural wages are high:
92 RESTRICTIONS ON OCCUPATIONS.
and in those regions where emigration is practised,
wages are also high ; in both cases owing to scarcity
of hands. But no combinations among labourers have
yet been heard of. In one or two examples, benevolent
persons have relieved the plethora by emigration ; and
in some purely agricultural counties, population is di-
minishing. But the difficulties which stand in the way
of any voluntary association among farm-hands are so
great, that we may fairly predict that, if at all, it will be
a very long time before they are surmounted.
But even if such a combination could be effected, the
incidence of the event would be obviated by the in-
creased use of machinery in agricultural operations. At
the present time, though the use is increasing, it is slowly
increasing. Labour is still in excess, and must be main-
tained ; the incentive therefore to substitute mechanical
for muscular forces is at present weak. If at some
future time the use of such machinery becomes general,
the result will be that wages will be lowered till such
time as labourers emigrate from the district; and rents
will rise when the emigration takes place and the
diminution in the poor-rate is effected/ for whatever be
the way in which the cost of production from the soil
is economized, the benefit, as long as competition for
the product exists, will enure to the landlord only.
When the product on w'hich labour is exercised, is
capable of importation from abroad, the effect of a
combination to raise wages, supposing it to be effectual,
will not raise prices beyond the amount at which the
article can be produced and imported from abroad.
Thus, for example, if a piece of English silk cost eight
shillings a yard, and could be produced, but for the
RESTRICTIONS ON OCCUPATIONS. 93
restrictions and charges of the unions, at seven shillings,
and if foreign silks, produced under these cheaper con-
ditions, are allowed free importation, the price of the
home product must fall, and the manufacture will either
be abandoned or the labourer must accept lower prices.
Such indeed was only lately the case in this country.
Up to the time in which the commercial treaty with
France was negotiated, foreign silks were burdened with
a fifteen per cent, ad valorem duty. During the con-
tinuance of this duty the silk-throwsters and weavers
took incredible pains to raise wages by the adoption of
trades-union regulations. The natural remedy for dear
laboiu- (by which I do not mean high wages, but high
wages for inferior labour), i.e. the adoption of improved
machinery, was not available, for most of the best silk
fabrics were manufactured at their own looms, and in
their own lodgings, by the silk-weavers. Hence when
the duty was remitted, the price fell, the home silk ma-
nufacture shrunk in the competition, and the weavers
were wellnigh ruined. Such at least was the case at
Coventry. Exactly the same circumstances have attended
other processes, which at one time or another have been
sustained by protection. There is therefore a natural
limit to the operation of a trades-union, or of any com-
bination for the purpose of raising wages, when the
article produced can be freely imported from abroad ;
and hence the union of such labourers as are engaged
in these occupations would be practically harmless to
the purchaser, though it might, perhaps does, operate
injuriously on the aggregate interest of the countr)-.
Much more important however is the operation of
a trades-union on those products which cannot be
94 RESTRICTIONS ON OCCUPATIONS.
imported from abroad. Here, supposing the combination
to be effectual, the rise in price may be continued as
long as the purchaser will submit to the enhancement ;
or until he economizes its use. According to the terms
of my hypothesis, he can substitute nothing for the
article produced, and must use it in a greater or less
degree. Such, for example, are the materials for house-
building, and the labour engaged on constructing houses ;
and it is upon these, technically known as the building-
trades, that the union is most active and effectual. Here
there is hardly any operation on which artificial restraints
are not imposed : the making of bricks and tiles, the
cutting of stones, the process of building, the work of
carpenters and joiners, of smiths, and whoever else
contribute to the result, is limited by specific regulations,
and controlled by jealous supervision. The number of
apprentices, the hours of labour, the method of labour,
the quantity of labour, the quickness and slowness of
labour, and a variety of other particulars, are determined
by the rules of the union or the custom of the trade.
And the effect, it may be predicted, is that houses are
bad and dear — dearest and worst for the working classes
themselves ; for of course the necessaries of life consume
a far greater portion of the incomes of the poor than
they do of the incomes of the rich. It may indeed be
doubted whether the real benefit of a rise in the price
of labour has ensued ; and whether such an increase
as has been effected in the money wages of labour, may
be more than compensative for the general rise in most
prices, which has characterized late years ; or at least has
not been due to the operation of natural causes, which
are quite independent of a trades-union : but it cannot
RESTRICTIONS ON OCCUPATIONS. 95
be doubted, I think, that the manipulation of labour by
trades-unions has heightened prices, and heightened
them to the consumer, without in the least degree
diminishing the gains of the employer.
It has been said, epigrammatically, that trades-unions
are a machinery by which ten per cent, of the working
classes combine in order to rob the remaining ninety
per cent. Let us state the grounds upon which this
epigram is founded. The amount available for the
payment of wages is a certain quantity : we may not,
to be sure, know what the amount exactly is, but it is
certain, notwithstanding, for it is all the capital which a
community uses productively; everything which is paid
for services, of whatever kind these services may be.
Now we have seen that a very large class of labourers
cannot combine for the purpose of aggrandising them-
selves : these are the agricultural labourers. We have
seen that another class of labourers have exceedingly
limited powers in this direction : they are those who
are engaged on such products as can be freely imported
from abroad. The only labourers whose discretion is
apparently uncontrolled in this direction, are those who
produce such necessaries as can only be supplied at
home. Now it is clear that no act on the part of
labourers can increase the amount of capital existent in
the country, but that it can only decrease it; either by
causing it to be withdrawn from productive operations,
or by inducing the possessor to export it in foreign loans,
or for the subvention of foreign industry. If therefore
a trades-union succeeds in extorting a larger share of
this fund on behalf of the operatives who enter into the
combination, it can do so only by leaving less to those
95 RESTRICTIONS ON OCCUPATIONS.
who are unable or unwilling to enter into a union. It
does not deserve therefore the sympathy either of other
labourers or of consumers; not of the former, because
it diminishes the resources available for them ; not of the
latter, because it heightens the price of the articles which
they buy, and curtails the comforts which they might
enjoy. And it need hardly be said, that most men are
in one way or the other labourers, and that all men
are consumers. Moreover if the union, while it raises
prices, does not raise wages, it is of no real or even
apparent benefit to those on whose behalf the union is
constituted, it is even more mischievous, for in this case
it inflicts a wrong on all, a wrong which only ceases
to be wanton, when it is shewn to be done ignorantly.
The case however will be made still more clear if
we take a hypothetical instance. I have the greatest
aversion to the introduction of hypothetical cases into
a subject like Political Economy, in which a flaw in the
reasoning, an error in induction, has often had serious
consequences. But the hypothesis is so remote, and yet
the inference from it is so manifest, and its partial
application to existing facts is so plain, that I hope
my reader will see at once the apology for its intro-
duction, and the lesson which it conveys. Suppose that
all men could combine for the purpose of raising wages,
and that a Japanese system of complete exclusion from
the other markets of the world were adopted; suppose
that the people of these islands determined to supply
all their wants from their own resources, and repudiate
all commercial intercourse with the rest of mankind ;
because, unless this were done, some of those articles
which can be imported from abroad would come into
RESTRICTIONS ON OCCUPATIONS. 97
competition with the products of some labour at home,
and so interfere with the efforts of this universal deter-
mination to put an artificial protection on labour. Now
on my hypothesis, as all wages would rise, all prices
would rise. The labourer would get more money, but
he could buy less with it. He would be nominally
richer, but virtually in the same position as he was
before he set to work with such great pains to achieve a
larger remuneration for his services ; and ultimately, unless
some labourers were more powerful than others, and
therefore got better terms in the distribution of that which
was produced by the joint labour of the community, all
would be on the same level ; with this sole difference, that
the trade of the country would be annihilated, its industry
reduced to the lowest level, and its people demoralized
by the search after a good which is about as real and
tangible as the philosopher's stone or perpetual motion.
Some labourers in any country may be guilty of a partial
folly and a partial wrong, but a universal folly means
the annihilation of the place which the misguided country
occupies among nations ; and a universal wrong is
universal barbarism.
The sentiment which is manifested so strongly in a
trades-union, and which might develope such serious re-
sults, is identical with the fallacy of Protection. Nobody
has ever doubted — if no necessity arose for levying an
income for public purposes, and therefore if it were im-
possible to say that any person's enjoyments or resources
or powers were curtailed or limited — that trade should be
as free as the winds. The principle of Protection was
excused because it was thought that some interests were
crippled by taxation, or because it was insisted that they
98 RESTRICTIONS ON OCCUPATIONS.
were, and therefore that compensation should be secured
them by giving them a sole market; that as they were
taxed, they should have and enjoy a right to tax others.
The cry of ' peculiar burdens ' always intends a claim
for peculiar privileges. As we have seen, there was a
time in which labour was peculiarly burdened, and
particularly manual labour. It was tied to the spot, it
was hampered by restrictions ; its own raw material, i. e.
its food, was taxed, wastefully and wantonly; its operations
were checked by a host of foolish and vexatious imposts
and excises. It would have shown wonderful sagacity
and intelligence, if the mechanics and artizans of this
country, after the labour laws were abolished, had not
retaliated, because they knew that protective regulations
are delusive; it would have shown wonderful patience
and virtue, if they had decided that wrongs are never
cured by wrongs, and that the past, in which employers
had armed themselves against labour, was no wise pre-
cedent in pursuance of which labourers should arm
themselves against employers. For it is one of the
consequences — and one of the worst consequences — of
bad laws, that when they cease to operate, and are
even repealed, they leave a feeling of revenge and hatred
behind them, and that the most inveterate antipathies
are nourished and strengthened by the fact that certain
classes of society have used the law to do injustice.
In quitting this subject we should repeat that the prin-
ciple of trades-unions is not confined to certain operatives.
Its consequences on the general industry of the country
are however more significant when it is dominant upon
manual labour, because it affects or might affect the
general prosperity of the British nation. There are a
RESTRICTIONS ON OCCUPATIONS. 99
thousand restrictions on the freedom of labour in other
and only less important branches of human industry, a
thousand artificial hindrances put on the right of indi-
viduals to make the best use of their faculties and oppor-
tunities. But as time goes on, and the conditions of civil
society are more carefully studied and recognized; the
more fully men see that the prosperity of mankind is due
to the acceptance of a few principles; the more we get rid
of those prejudices, fears, and hatreds which hinder the
true progress of mankind, and which spring originally,
and have such vitality as they possess, from the evil pas-
sions and selfish appetites of men ; the more surely shall
we gain our true ends in aiming at social perfection and
just civil government.
If therefore the adoption of these restrictive combina-
tions is no security for economical progress, but a hin-
drance to it, and may be a danger ; what remedies can we
propose for the elevation of labour above the actual
degradation in which it is placed in some callings, from
the uneasy and hostile attitude which it takes in others .?
Many schemes have been suggested, several principles
have been announced, some of which I will attempt to
discuss in order.
I. The first and most obvious remedy is the diminution
of the number of persons competing for wages. Many
economists have been profoundly impressed by the reason-
ings of Malthus, and have inferred instantly that the cure
for the depression of the rate of wages is to be discovered
in wholesale emigration in the first instance, and in pru-
dential restrictions, either personal or legal, on marriage
in the next. I have already observed that legal restric-
tions on marriage lead, as evidence aftlrms, to evils
II 2
100 RESTRICTIONS ON OCCUPATIONS.
which are morally far worse, and more subversive of
social order, than any encouragement to marriage, how-
ever indiscreet. But voluntary migration generally takes
away the best, the most thrifty, the most active, the most
hopeful of the population. Such has been the case in the
Scotch Highlands, and in Ireland. The same cause is
probably at work, surely but slowly, in the English agri-
cultural districts. Emigration on a large scale has never
been made the business of government in this country,
which has only colonized with convicts. Colonization
will be a very poor remedy for over-population, a very
scanty corrective to low wages, unless it is undertaken on
a large scale, is general in its character, and is carried
on under the superintendence of a wise and judicious
executive. The British colonies, even in a fuller sense than
the United States, are colonies developed under the prin-
ciple of selection, and are of a voluntary character; the
colonization which relieves society, is that of both sexes
and of nearly all ages and, except criminals, of all classes
of society. Neither the labour nor the capital of this country
is benefited by expatriating the cream of the working and
small-farmer classes — a contingency which we should see
fulfilled in a formidable shape if the working people in
England were thrifty and a general exodus began. The
facts indeed that great colonies have been founded by men
of Anglo-Saxon origin, that they are growing rapidly, that
they form a commercial, and should form a great political
connexion with this country, are matter of congratula-
tion to statesmen ; but these phccnomcna do not, as
economical facts, bear, except very slightly, on the cor-
rectives of a redundant population or of low wages. Enter-
prise and energy are valuable qualities in a people, and
RESTRICTIONS ON OCCUPATIONS. 1 01
therefore are too good to lose, when they are most fully
manifested. The indirect benefits of colonization have
been and will be large, but the causes which have led to
the foimdation of the British colonies are historically not
over creditable to the government which made them ex-
pedient, or the social state which made them almost
necessary.
II. Thrifty habits on the part of the population, i. e.
such a custom of forethought as enables the labourer, by
virtue of being possessed of some savings, to transfer his
labour to a better market. It is said that the labourers of
Cumberland and Westmoreland, where the highest rate of
wages is secured, never allow themselves to be destitute
of such a sum of money as will enable them to emigrate,
in case the ordinary rate of wages shows signs of yielding
to the pressure for employment. With these men such a
sum is a sacred fund, which is laid up against this last
emergency, as the Athenians laid up of old a hoard of
looo talents in the Acropolis, against the risk of siege
or the appearance of a hostile fleet in their port. For
although a labourer, able to work, and ordinarily in such
a position as will secure him employment, does really, as
I have said above, represent a sum of capital fixed in him-
self, as certainly as capital is invested in improving land
and buying goods ; so, equally with the agriculturist and
the tradesman, he should have some stock of money or
other hoard which he can draw on when the seasons are
untoward or business is slack, in order that he may save
himself from the chance of being obliged to sell his crop
or his goods, or his labour indeed, at a loss. It is of
course a maxim in business that no man should have all
his funds in such a shape as is not immediately convertible
102 RESTRICTIONS ON OCCUPATIONS.
except at a serious loss, but he should have a hoard or re-
serve from which he can draw, when the times are untoward.
In practice the labourer makes no reserve except against
sickness, or, in case he belongs to a trades-union, against
the enforced idleness of a strike or lock-out. But he makes
no provision against a falling market for labour and the
consequent risk of diminished wages.
A labour fund of such a kind would be of great service
against the contingencies alluded to. It would be above
all others a substitute for the organization of a trades-
union, it would supply all the possible benefits, and ob-
viate all the disadvantages, of such a combination. An
illustration of the working of such a system, though in an
imperfect form, has come before my notice, as recounted
to me by one of the largest employers of labour in the
Manchester district. This employer, during the course of
the year 1866, was visited by a deputation of some of his
factory hands, with a request for a rise in wages. He
recognized the justice of the claim, and forthwith con-
ceded it. A short time after this arrangement had been
made, one of his best hands came to him and said that he
v/as about to quit his work. On being asked why he did
so, since the claims made were at once agreed to, he
answered, that the men with whom he was associated had
come to the conclusion that the union was a great waste
of power, that they had abandoned it, and in place of it
created a fund, out of which one or more of their number
should be selected by ballot to visit other labour markets,
especially those of the United States; that he had been
thus selected, and was on the point of going on this tour
of discovery; and that if he reported favourably of the
places to which he went, the hands would as prudently
RESTRICTIONS ON OCCUPATIONS. 103
as possible withdraw themselves to the more favourable
market.
The chief reason why artizans and mechanics are so
much at the mercy of employers in the first instance, and
of trades-unions in the next, is because they live from
hand to mouth. A man who is absolutely without any
reserve of his own to fall back upon, must take such
terms as are offered him ; whereas if he thought proper
to save a portion of his income, he could make far better
terms with his employer, or at least, if these terms are not
before him, betake himself to a market where he would
be better paid.
III. Co-operation. This is the favourite expedient
of those who, looking to the condition of the working
classes, attempt to provide a remedy for the evils attached
to that condition. It is supposed that if working men
could unite in themselves the functions of capital and
labour, they would, in the first place, make much more
of their time and labour; in the next, be better able to
distribute the proceeds of their labour, according to the
intelligence, capacity, diligence, and perseverance of the
several workers ; in the third, discover the real conditions
which underlie the production of wealth ; and in the
fourth, discover a real remedy for those inconveniences
for which the trades-union is at best an imperfect coun-
terpoise. There are, however, many kinds of co-opera-
tion, in all of which, it should be observed, there is an
attempt to eliminate some intermediary in the process of
production and sale, whose services under this system
might, it is hoped, be dispensed with.
The most obvious and familiar is co-operation of
supply. Such a scheme, now getting very general, is
104 RESTRICTIONS ON OCCUPATIONS.
exhibited on a large scale by the ' Rochdale Pioneers.'
The artizans who framed this association purposed, as
many reformers do, to reconstruct society at large. Such
a plan, vast, impracticable, and I need hardly say absurd,
broke down ; but the preliminaries of the plan succeeded,
in the form of a grocer's shop or store. It is not extra-
ordinary that such a plan should succeed. Common
honesty and intelligence in keeping accounts are indis-
pensable ; but every purchaser is, more or less, and as a
rule, sufficiently competent to judge of the goodness or
badness of grocery. But the co-operation of production
has not been so successful. Skill in buying and selling,
in management and control, are not so readily available
for the projectors of such a scheme. The intelligence
which can organize and carry out a great manufactory
is of such value and rarity, that the possessor of these
faculties would hardly be content to remain an artizan,
or on the wages of an artizan, when he can easily better
himself in the calling which he follows by managing
for a capitalist, or becoming a capitalist and employer
himself
The systems of co-operation on the continent have
either sought the necessary capital from the state, or
have obtained it by a combination of workers from their
joint resources, or by their joint credit. The national
workshops founded in Paris during the epoch of the
revolutionary government of 1848 were of the former
Character ; those of Germany, instituted under the scheme
of M. Schultze Delitzsch, are of the other kind. We need
not dwell at length on the former. A scheme which needs
the support of the state for its organization must obtain
the necessary funds from taxation or from loan. In the
RESTRICTIONS ON OCCUPATIONS. IO5
latter case, the action of the government is nothing but
the diversion of capital from one branch of industry to
another ; in the former, though a tax may be nothing but
a curtailment of an individual's enjoyments, the strongest
plea of necessity must be alleged to justify such an appro-
priation, while in the great majority of cases such a tax
would be a mere diversion of capital from a man's own
ends to that of another, without even so much as giving
him interest on his advances.
The plan of M. Schultze Delitzsch, as gathered from
the excellent report of Mr. Morier (Correspondence of Her
Majesty's Missions Abroad on Trades Unions, 1867), is
as follows : — ' If it be found possible to lend a producer,
i. e. an artizan, capital at the ordinary rate of interest, he
will be able not only to obtain the wages of his labour,
but the profits of trade, i. e. in our nomenclature, the
wages of superintendence ordinarily secured by the em-
ployer. It is true that the risk of lending an individual
capital is so great, that it cannot be done at the ordinary
rate of interest, for the labourer has nothing but his
labour to pledge, i. e. inconvertible capital, and the trader
has his stock in trade, i. e. convertible capital. Besides,
with all the will to pay, the artizan may be disabled by
sickness or accident ; and thus the disposition to lend is
restrained by two risks, that of dishonesty and incapacity.
If, however, the loan is made to more than one artizan,
the risks both of dishonesty and incapacity diminish with
the increase of the number of co-operators. The in-
surance against incapacityis calculated on the ordinary %
risks of life and health ; that against personal dishonesty
may be obtained by information as to the borrower's
character, and by accumulating motives to honesty. This
106 RESTRICTIONS ON OCCUPATIONS.
scheme is formulated in two sentences — the minimum of
risk, the maximum of responsibility.'
In order to accomplish these results, M. Delitzsch
established credit banks on a peculiar principle. The
capital of the bank is provided either by the contribu-
tions or deposits of the artizans, or from the advances of
capitalists, the latter being the most considerable. The
members of the association of credit banks can alone
borrow. They need not, it appears, be possessed of
capital themselves, but they must be able to work, and
in regular employment. The best guarantee, however,
of their fitness for association, and one which can be
easily and most satisfactorily fulfilled, is the possession of
a share in the bank. The principle of unlimited liability
is the keystone of the system. If the assets of the busi-
ness fail, the creditor may recover on the private property
of the associates, each and all being jointly and severally
liable to the debts of the association. In this way the
maximum of responsibility is attained. It should be
added, that the object of the credit bank is the interest
of the borrower, not of the lender ; and yet, according to
Mr. Morier, the credit banks have become exceedingly
lucrative to the lenders. The safety of the bank consists
in its rigid limitation to the loans required by members of
the association, and, as has been said, to the maximum
of responsibility annexed to the personal property of the
borrower — a responsibility which is made to continue for
twelve months after any member ceases to belong to the
association. The principle of the accumulation of the
stock capital is, that ultimately it should amount to fifty
per cent, of the borrowed capital. Each member is to
have one share, and the shares must be all alike. The
RESTRICTIONS ON OCCUPATIONS. 107
cardinal rule in loans is, not to lend for a longer time
than the bank can borrow, and the general practice is
to limit the time to three months.
Here then is a scheme, in active and successful working,
by which the labourer can unite the functions and earn
the wages of labourer and employer, by superseding the
necessity of using the services of the latter functionary.
The reason why this personage exists in modern trade
and manufacture arises from the facts that he has security
on which to borrow, and that general interest in the well-
doing of the work which gives unity to the plan of
operations stimulates economy in the details, and provides
supervision over the whole mass of transactions. He
subsists, in short, by the weakness of unassociated and
irresponsible labour. Supply these two defects in the
action of artizans, and the advantages obtained by the
intermediary employer become an additional remuneration
to the operative. Of course the high rate of interest ob-
tained by these credit banks (Mr. Morier informs us that
it is as much as eight to ten per cent., especially on
short loans), is a merely temporary phaenomenon, which
only results from the fact that at present the borrowers
obtain in their competition with employers all, or nearly all,
the advantages which the ordinary trader or manufacturer
accumulates. When the time comes — and come it will,
should the system succeed largely and be largely adopted —
that the associations practically compete against each
other, the margin will inevitably be narrower, and the
terms of interest lower.
IV. Association of Employers with Operatives. The
jealousies, quarrels, and frequent strikes of labourers, and
when these do not occur, the negligence, inefficiency,
lo8 RESTRICTIONS ON OCCUPATIONS.
and slovenliness of the persons employed, have suggested
to some employers, that it would be well to take such men
into a sort of modified partnership, so that two things
might be effected : first, that the workman should be in-
formed of the course of business and rate of profit ; next,
that he should be stimulated to activity and intelligent
industry by motives of self-interest. Several years ago,
M. Leclaire attempted some such scheme in Paris with
the happiest and the most abiding results. The idea and
the practice is of course not novel; for the custom of
allowing certain subordinates in many kinds of trade a
commission on goods sold is familiar. But the modern
practice, now it appears increasing, is to lower the rate of
wages by a certain percentage, and to offer the employ^
a share, calculated on an average at the residue, in the
profits of the business. The objection alleged against the
plan — an objection which may probably be fatal to its
adoption in several kinds of business — is that it necessitates
the abandonment of that secrecy which it is believed is
essential at all times, and particularly in some emergencies,
to success. The value of secrecy may be overrated,
probably is ; but its significance is felt, and will in all like-
lihood be felt more and more as the principle of limited
liability is adopted. In some kinds of business, however,
secrecy is of no importance. Thus, to take an example in
which the association of employers and operatives has
been tried, and, as I am informed, with great and un-
interrupted success ; I have learnt from Mr. H. Briggs,
one of the partners in a colliery near Barnsley, that his
firm had been harassed by incessant discontent, claims,
and strikes on the part of the colliers. It appeared to the
partners that these inconveniences might be obviated if
RESTRICTIONS ON OCCUPATIONS. IC9
some plan could be devised by which the colliers could
be made to feel an interest in the success of the under-
taking. It was thereupon resolved to turn the colliery
into a joint-stock company, to pay the workmen, in part
at least, according to the market price, arxJ to encourage
them in the purchase of share capital. The plan has
succeeded admirably, and the inconveniences felt under
the old arrangement have been obviated.
My reader will see, however, that all these remedies for
low wages, or rather all these expedients by which it is at-
tempted to instruct operatives in the economical conditions
under which wages are paid for work, and by which the
labourer is enabled to better his own position in life, respect
certain classes of labour only, and leave out of calculation
the function of the peasant. Here in point of fact we
have other difficulties to contend with. The system of
farming in England is increasingly that of large as opposed
to small culture. This is not the place in which to dis-
cuss the relative advantages of either method. The sys-
tem of tenure in England is favourable to the accumulation
of land in few hands ; and the passion for becoming the
possessor of a vast estate, and founding a family, is aided
by the direct enactments of law and its indirect sanctions.
This again is not the place in which to discuss the social
and economical consequences of such a system. But of
one thing we may be clear : if the advantages be great,
the sacrifices are great also ; if the large farm system be
favourable to production — a position by no means proved;
if the accumulation of real estate gives a solidity to public
interests, and provides a variety of social safeguards — an
hypothesis by no means certain ; — these customs also
condemn the largest part of the agricultural population to
no ON THE CAUSES
a condition in which there is no hope, from which there is
not, except by a general emigration, any escape. Society
does not exist merely for the accumulation of the largest
amount of material products, still less in order to give
facilities for their being accumulated in favour of a few
persons. It must take into account, (if it be true to its
mission, if it would escape pressing, imminent dangers,
and would obviate certain decline), the machinery by which
wealth is distributed. This fact is the more manifest
when the legal system which may be endured, though as
I have said with great hardship, in a country which is
largely devoted to commerce and manufacture, is made
to apply to another in which agriculture alone is practised.
Here the evil is of the most serious kind, the danger is
the most minatory. If we needed an example of such
a state of things, we should find it easily in the chronic
disaffection of Ireland.
CHAPTER X.
On the Causes luhich depress the Rate
of Wages.
My reader will remember, that according to the theory
of wages given above, the remuneration of a labourer is
generally relative to the cost of producing his services :
and that wages are partly interest on capital; partly a
sinking fund, the operation of which is the replacement of
ca])ital as it is gradually extinguished by the growing age
WHICH DEPRESS THE RA TE OF WA GES. 1 1 1
or declining strength, or certain wearing out of the la-
bourer ; partly an insurance against the risk of the prema-
ture extinction, or of any extraordinary liability to a
suspension of work, in the case of the labourer. Hence
such callings as involve risks are invariably paid more
highly than others are in which no such risk is present ;
and such callings also as concentrate risks, i. e. those
which cut human life short at an early period, as for
example, the trade of needle-makers and dry-grinders,
always secure greater wages than others the following of
which does not tend towards an easy destruction of the
vital powers.
It will be clear therefore, if these charges and risks are
compensated by certain legal provisions, which transfer the
risk from the labourer to some other parties, an economy
will be induced on wages. If, for example, a large per-
centage of labourers is reared and instructed at the
public cost, up to the age in which their labour becomes
available, the tendency of such an arrangement will be to
lower the wages of those who are not so maintained and
instructed. This rule holds good, whatever be the labour
which is seeking employment and wages. For example,
a common practice with wealthy and benevolent persons
in bygone ages was the foundation of colleges, in which
persons destined for the Christian ministr)' should be
gratuitously boarded, lodged, and taught. The recipients
of this benefaction were undoubtedly advantaged, for they
went into the market to compete against the labour of
others who were not so circumstanced. But they di-
minished the earnings of the latter; for the aggregate
earnings of any one class of labourers is proportioned,
as I have said several times, to the aggregate cost of
112 ON THE CAUSES
producing all those who are, at any given time, competing
to supply a service which is in general demand.
The fact to which I allude was recognized and com-
mented on by Adam Smith, who rightly explained the low
earnings of clergymen on the ground that the education
of many among them, both at school and in the University,
was practically gratuitous. And just the same facts apply
to the fulfilment of other analogous functions. To com-
municate a high education requires a person of great learn-
ing and considerable skill. Now setting aside those who
would do their best to supply this service to mankind for
other than the wages which an economist recognizes (such
persons being few at all times, and not causing any marked
effect upon the general rate of remuneration), the fact that
there exist large endowments in aid of the highest education,
in the shape of salaries to teachers, has a depressing effect
on the rate of remuneration obtained by those who are
unendowed ; and this in two ways, first by increasing the
number of those who enter on these callings, secondly by
lowering the earnings of all. For just as the aggregate
, earnings of any class of labourers is proportioned to the
aggregate cost of producing these labourers, so the amount
distributed among the several labourers, caJcris paribus,
is not increased by that which is added to the general
fund from permanent sources, but diminished to a tanta-
mount degree by it ; for all other things being considered,
the profits of all occupations tend to an equality, and
all conditions being fulfilled, are never far distant from
this equality.
What then, may be asked by the way, is the use of
educational endovvTnents ? Are they not an inconvenience
and an evil, if they reduce the rate of remuneration in the
WHICH DEPRESS THE RATE OF WAGES. II3
case of one class of workers, by the permanent quantity
which they add to the gross remuneration divisible, but
not divisible equally, among all those who are employed
in the same function ? Whatever benefit may be conferred
by them on individuals, are they not a wrong to others,
either by the fact that they depress their earnings, or by
checking free competition in the field of employment,
because they limit competition, in some degree at least, to
those who are endowed ? It does not seem to be a fact
that they restrain competition for the endowment ; for as
a rule, those occupations in which there are occasional
prizes are more eagerly entered on than those are in
which the rate of remuneration is generally uniform.
The excuses for the existence and continuance of
educational endowments are two, one of these relating to
the teacher, the other to the pupil. Neither however is,
strictly speaking, of an economical character. The need
or the advantage of these aids is to be found in the facts
that the economical value of high education, or even in
some cases of education at all, is only slowly and imper-
fectly appreciated by the public, and that the free com-
petition of labourers, with what is implied in this competi-
tion — ample opportunity for the development of the
individual's natural abilities and capacities — is in reality
a merely hypothetical state, which has never yet occurred
in the actual working of society.
Let us see what Education is. Properly speaking, it is
the cultivation of the reflective faculties, with the view of
making the acquisition of knowledge easier and the pro-
cess of thought and reason more rapid. The benefit of a
high education, that is, one in which these faculties are
most thoroughly sharpened and trained, is of manifest
I
114 <^^' "^^E CAUSES
significance to the possessor of such powers. But as the
number of such persons as possess this education deter-
mines in general the intellectual position of a nation
among other nations, it is of great importance to a nation
that high education should be cultivated and used. Public
opinion, however, appreciates this fact very slowly and
very indistinctly. It confounds education with the know-
ledge of facts, whereas it really is the possession of
method. It affects to prefer ' common sense/ which is
in effect a rough and imperfect education. It is prone to
lunit education, even when it does acknowledge its value,
to the simpler and more familiar branches of it, those the
use of which is common and convenient; and to disparage
its higher growths, the use of which is less obvious and
less material. Lastly, even when it is available for service,
society is very slow to employ it, partly from prejudice,
partly from fear, partly because it is often sharply cor-
rected by it, partly because it prefers other agencies which
are more familiar and in appearance more submissive.
Hence, as the demand for the higher education is slow,
and the use of it is great, (owing perhaps to the fact that
society is artificially constituted and a variety of interests
are protected in it,) it is argued, and with much reason, that
this education should be also protected, and protected in
the least invidious form, that is, by permanent endowments
or grants in aid of it. The same reason applies to a
minor, but by no means unimportant subject, assisted
education in art. The value of the service is undoubted,
but at present it could not be secured by the ordinary
agencies of public competition. The government there-
fore interposes, and rightly estimating the value of the
process, fills up the deficiency of public or general opinion.
WHICH DEPRESS THE RATE OF WAGES. 1 1 5
It provides, in short, that a teaching which would not
otherwise be given, but is of great public importance,
should be supplied or supported.
Secondly, it is of great importance to the pupil. Indi-
viduals have different capacities, different impulses, dif-
ferent degrees of activity or diligence. The possessor of
these faculties, under certain moral conditions, is of
greater service to society than another would be in
whom these characteristics are defective or wanting.
Now if the progress of such persons could be secured
by any process of natural selection, if the higher intel-
lectual powers and qualities were as certain of making
their way as bodily powers and lower intellectual gifts
can, there would be no need for any artificial selection
by examination or certificate and for the artificial stimu-
lants of rewards and aids. But it -will probably be a long
time before society can dispense with these assistances,
and meanwhile its business is to make such use of the
forces as are at its disposal, as will enable it to select and
promote the greatest diligence and capacity, wherever it
may be placed by birth or fortune.
These statements however as to the depressing effect
of endowments on the wages of unendowed teachers, and
of similar endowments on the remuneration of unassisted
pupils, do not refer to general education. If the whole
community were taught at the public charge, no one
could suffer exceptionally or gain exceptionally ; but all
could gain, in so far as the instruction given increased
the powers of labour by diminishing the amount of
muscular or nervous exertion, and so enhanced the en-
joyments of society. An educated people works less and
earns more than one which is untaught can. The reason
I 2
Il6 ON THE CAUSES
is obvious, if the reader will recall the definition of educa-
tion given above — that, namely, which makes it to consist
in the cultivation of the reflective faculties. Men in whom
these faculties are developed see the end before them and
the means to its achievement with greater clearness, and
combine both ends and means with greater dexterity
and swiftness, than uninstructed people can. To take
one of the simplest and most familiar instances : a recruit
who knows how to read and write can learn his drill in
half the time in which a totally ignorant person can. Now
it is said that it costs, on an average, £ioo to teach each
man to be a soldier. The sum may be exaggerated, but
this does not affect the illustration. The British army is
about 250,000 men, and according to this estimate it has
cost £25,000,000 to instruct it in its calling. If we
suppose that the average duration of service is ten years,
and that primary education could reduce the cost by one-
half, there is an annual outlay of £2,500,000, which could
be made £1,250,000 by the use of the economy of pri-
mary education. There are other and similar economies
in manufacture and trade : for example, it is computed
that the adoption of a decimal system in currency, weights,
and measures, would save the services of half the clerks
employed on the railways of Great Britain.
A high standard of general education, as it promotes
efficiency in the labourer, tends also to raise the rate of
wages. Men who reflect on the conditions which sur-
round labour, do not rashly incur risks ; they make labour
scarce in the best way in which it can be made scarce, by
forethought ; they make labour cheap, in the best way in
which it can be made cheap, by increasing its efficiency,
and thereupon the demand for it. For cheapness and
WHICH DEPRESS THE RATE OF WAGES. liy
dearness in matters of political economy do not mean
low and high prices, low and high wages, but efficiency
and inefficiency, capacity and incapacity. The dearest
labourer is not the man who gets most for his labour, but
the man who does least for his money. This is, I admit,
a truism; but it is a truism which, like many other axioms,
is apt to be forgotten, most of all by employers of
labour.
The maintenance of labourers during nonage, during
temporary incapacity for work, after the time in which
they become incapable of work, and during the intervals
in which they are capable but unwilling or unable to
work, is provided for in this country by laws which have
been in existence for nearly three hundred years. They
are peculiar to England, having been lately introduced
into Scotland and Ireland, and existing, even in these
countries, only in a modified form. They have produced,
as I shall attempt to show, special and important eco-
nomical consequences — consequences which remain, al-
though the machinery of relief accorded under what are
technically called the poor-laws, has been materially mo-
dified. Practically the English poor-law is a legal, and
therefore compulsory, system of insurance against the
risks of certain kinds of labour.
The feeling which has led men to consider it their
duty to provide for the pressing wants of their poorer
fellow-creatures is not the impulse of a social law, but
of a corporate sympathy . It had no place in the ethics,
public or private, of ancient civilization in the West ; it
sprang in the first place from the national wants and the
national weakness of the Jewish race, was imported into
early Christianity, and has been a special characteristic
Il8 ON THE CAUSES
of the latter religion. It was copied by Mohammed, and
it has since been endorsed by many publicists and eco-
nomists, who have ignored or repudiated that theory of
human obligations by which this social rule has been
sanctioned. If we look on men as merely possessed of
animal life, it is clearly the interest of those who are
strong in any sense and can work, to eliminate those
who are weak and cannot contribute to the general ag-
gregate of products and services. All the lower animals
do so ; they starve or kill their weaker fellows ; they are
unable to exchange services, but they know how to eco-
nomize resources, and are wholly merciless or indifferent
to the weak and ailing. The right to live on the part
of all human beings now existent, till such time as they
perish by natural causes, is a maxim which has no coun-
terpart in the physical world, has no necessary connexion
with social laws. It is a modern equivalent of Jewish
sympathy, confined by the Jews to their own race, but
extended by Christian teaching into a duty incumbent on
all such men as are brought up under a Christian code.
There is no part of political economy which diverges so
widely from the rules of social morality and habit, and seems
to contradict them so pointedly, as is found in its interpre-
tation of the aids given by charity or sympathy to weakness,
suffering and incapacity. Undoubtedly, if we considered
society as a mere machine for collecting and distributing ma-
terial enjoyments, and for stimulating the means by which
these enjoyments could be enlarged and economized, we
should leave the weak and unprotected poor to perish, if
indeed we did not arrest peremptorily such a drain on the
resources of those who work and possess, on behalf of
those who are destitute and incapable, by the violent
WHICH DEPRESS THE RATE OF WAGES. II9
extinction of such useless lives. And, as my readers are
aware, there do arise, happily under rare circumstances,
occasions on which the economical view of human life
necessarily overrides the moral and religious.
Here it will be desirable to give a short sketch of the
history of those enactments which are known collectively
and familiarly as the poor-laws. They are in effect a
means for bestowing assistance on the destitute poor (in
the failure of voluntary effort to meet the want) by a
public charity, to which all contribute according to their
income, or in some cases according to their expenditure.
It is needless to say that any discrimination in inter-
preting the claims of such recipients must be of a very
general character, and that (if a few broad lines of distinc-
tion be laid down between the measure and manner of re-
lief in cases of infancy, sickness and old age, as contrasted
with able-bodied destitution) all are equally entitled to
assistance when in want.
Before the Reformation, and during the time in which
the numerous monasteries were in being, the wants of
such poor as were reduced to penury by great necessity
were relieved through these sources of charity. Land was
generally distributed, the leases of corporations were easy
or beneficial, excessive population was checked by the
celibacy of the monastic and clerical orders, and, accord-
ing to all testimony, absolute want was on the whole un-
known. The scene changed after the epoch referred to.
The monastic lands were divided among the rapacious
and prodigal courtiers of Henry and Edward ; the lands
of the bishops in a great degree shared the same fate ;
sheep-farming, the obvious resource of landowners with-
out capital or enterprise, became general ; and the mass
120 ON THE CAUSES
of the population fell into great distress. Added to these
several changes was the great wrong inflicted on the
community by the issue of base money under Henry VIII
and his son. Any disturbance of the currency affects the
working classes, that is, those who live by weekly and on
the whole fixed wages, far more severely than it does
other ranks. These evils are greatly aggravated when
the government commits, as Henry VIII committed, a
vast fraud. Every circumstance then of society, all the
policy of the court, tended to the aggrandisement of the
few and the misery of the many. In Henry's time popu-
lation and misery were kept down by excessive executions,
the laws regularly sacrificing thousands yearly on the
gallows. The times of Elizabeth were milder, but the
destruction of capital had been effected, and its accu-
mulation was slow. England fell into the rear of other
nations, and the government attempted to meet the suf-
fering of the time by levying a local tax for the relief of
the impotent, and by providing the machinery of employ-
ment for the able-bodied poor. It has been said that the
latter provision was neglected ; it is hardly necessary to
say that it is economically impossible, as a permanent
arrangement.
The necessity which arose in the days of Elizabeth
was as urgent in those of Charles II, while the ma-
chinery of relief was found totally inadequate. Pau-
perism began to be burdensome, and the owners of
the soil strove to confine it within such limits as could
be laid down. Hence the strict law of settlement, under
which the liabilities of the parish on which the pauper
was chargeable were defined. The strictest precautions
were taken as time passed on to prevent these liabilities
WHICH DEPRESS THE RATE OF WAGES. 121
from being transferred from one parish to another. As
far as possible the peasant was literally tied to the
soil ; if he attempted to quit the place of his settlement,
and reside in a new parish, his intrusion was watched
with the greatest jealousy, and he was liable to eviction
in case the parochial authorities of his adoptive parish
suspected that he could by any possibility come on the
rates. When an employer wished to engage a servant
from a foreign parish, he was not permitted to do so
unless he entered into a recognizance, often to a con-
siderable amount, to the effect that the incomer should
not obtain the settlement, else the bond to be good
against the employer. Parochial registers are full of such
acknowledgments. The stringency of the law of settle-
ment was far more severe than the old manorial view
of frankpledge; but the law was so obscure, perhaps
necessarily so obscure, that the litigation between
parishes, each trying to throw the burden of main-
taining paupers on the other, was enormous, incessant,
and ruinously expensive. The law served only one
notable end : the legal learning connected with the
law itself, and the adjudged cases under it, was so vast
that many a distinguished practitioner owed his elevation
on the bench to well-pleaded settlement cases. Mean-
while the cost of maintaining the poor increased greatly.
Under the allowance system, by which payments in
money were made to parents in proportion to the
largeness of their families, the burden became intoler-
able. Labourers actually saved small fortunes during
the great continental war, out of these parochial doles.
At last the rates threatened to swallow up rent, and in
some parishes actually did so. In 1835 the law was
122 ON THE CAUSES
altered, out-door relief was as a rule prohibited, and most
of the incapable and able-bodied paupers were collected
into workhouses.
During the prevalence of this system, however, all
parishes were not equally affected. The limits of a parish,
though ancient, are artificial and arbitrary, being, it
appears, generally the boundaries of some manor, whose
extent was accidental. In fact they were not settled
till the system of parochial relief began. In some of
these parishes parcels of land had been freely alienated,
and there were many proprietors. These were called
' open.' In others, the estate of the proprietor was un-
broken, and only one person owned the soil. In some,
again, a few proprietors, who could easily act in concert,
were in possession. These were called ' close.' When
there were one or a few of these large owners, it was
the object of the proprietors to extinguish all outlying
freeholds, and to constitute the boundaries of the parish
into a ring fence. Landowners paid many times their
worth for these fragments ; for the possession of a ' close
parish' rendered it possible to improve the property
in a peculiar way.
The process was to evict the tenants and to pull
down the cottages, so as to force the labourers to
migrate to some adjoining 'open parish,' in which they
might dwell, and from which they might go to and
fro on their work in the ' close parish.' The employer,
to be sure, if there were degrees of labour, got only
inferior labour; but this, in the general beggary, was
a comparatively trifling evil by the side of heavy rates
and decreasing rents. The policy was general, and on
the whole successful. Farm labourers even now are
WHICH DEPRESS THE RATE OF WAGES. 1 23
deficient in those parishes in which the whole of the
soil is owned by one or a few proprietors.
The act of 1834-5 remedied this evil to some extent, for
it distributed certain of the charges over the whole union.
But up to the year 1864 each parish bore the greater
part of the charge of such paupers as lived within its
boundaries, whether they worked within the parish or
without it ; and the change of that year, notwithstanding
its obvious equity, was resisted fiercely by the owners
of close parishes, was achieved with difficulty, and is
by no means perfect yet. The pleas put forward against
the change were amusing and contradictory. At one
time it was said that the poor would be neglected if
the charges were levied on the whole union instead of
being confined to the locality in which the necessity
arose; at another time it was averred that the interest
of the rate-payers would be neglected if the guardians
could spend out of a common fund.
After this sketch we shall perhaps be able to see
the economical bearing of a rate in aid of wages. It
is a means for paying a portion of wages indirectly.
Were poor-rates abolished — and perhaps it is under the
circumstances impossible to do so now — the labourer
must receive, in lieu of this aid, such an increase as
would enable him to do that for himself which the poor-
law does for him, to insure him against sickness and old
age, and to provide for the nonage of his orphan chil-
dren. In those parts of England in which the con-
tingency of coming upon the rates is dreaded as a dis-
grace, the labourer strives by benefit and other societies
to secure himself against such a risk. To do this, he
sets aside a part of his wages. But where no such
124 ON THE CAUSES
feeling exists, wages are lowered to the bare margin of
such subsistence as is customary with the labourer,
prudential motives are ignored, the labourer is indifferent
to seeking a better market for his labour, and he be-
comes immoveable and unthinking. In a parish or
district where the labourers are thoroughly pauperized
the lowest morality prevails, family feeling, filial and
parental duty, almost wholly die out, and the people
become nearly brutal. ' The parish,' they say, ' is bound
to find them;' they have no care, life is bounded by
animal pleasures and enjoyments, and they cherish
neither hope nor thought. These traits still exist in
the rural population, though there is hope that they
are being slowly modified, to be subsequently effaced.
If the burden of supplementing low wages by the
machinery of a poor-rate were cast on the employers of
labour only, the process, though it would still bear with
it the moral evils adverted to, would yet be equitable.
But this is not the practice. The employer, though
paying most of the rate in agricultural parishes, does
not pay the whole rate. The rate is collected from
all occupiers, whether employers of labour or not. The
farmer of course reckons the ordinary rate as part of
his outgoings, and regulates his power of agreeing to
rent accordingly. But the ordinary occupier has, by
the machinery of the poor-law, to supplement the wages
of the labourer, who is underpaid by the amount of the
rate, from his own resources and for the benefit of the
employer. It is from the fact that people confound
the moral obligation of maintaining distressed and
starving fellow-creatures with the systematic supply of
a fund, the object of which is to aid and increase wages
WHICH DEPRESS THE RATE OF WAGES, 1 25
indirectly, that the economical significance of a poor-
law is not more generally discerned, and the incidence
of the rate is not more clearly recognized.
The legal -aid of labour, then, lowers wages, annuls
prudential motives, checks industry and improvement,
and disposes labour to be passive and immoveable. The
poor-law was, as I have said, peculiar to England : it
prevails in no other country. Up to the Irish famine
of 1846, it had not been adopted in that island; up
to the disruption of the Scotch kirk, and the scarcity of
the same epoch, it was existent only in a very modified
form in Scotland. Even now in both these countries
it is administered severely, and with a wise severity.
As a consequence, the ill-fed Irish labourer and the
thrifty Scotch peasant are incomparably more enter-
prising and alert than the English farm -labourer; though
the Irish have never colonized independently, and the
Lowland Scotch are of the same race with ourselves.
We shall moreover find, as we study history by the
light of jurisprudence and political economy, that laws
and customs have effects which last beyond their actual
existence. The repeal or modification of a law is not
always and instantly followed, as legislators are apt to
dream, by the social reform which the change is intended
to effect. The consequence of past legislation endures
beyond its legal life. We have not yet escaped, and we
shall not escape for a long time yet, the results of those
laws which were devised in 1349, by which attempts
were made to coerce and control the wages of labour.
Similarly we still suffer from the law of settlement,
enacted now nearly two hundred years ago, though
modified thirty years since, and all but repealed lately.
126 ON THE CAUSES
To Study a nation's history we must study its laws : not
alone such laws as are the spontaneous development of the
principles and the policy in which a nation is self-contained,
and which form its lineaments ; but those which have been
established in the interest of a section of the community,
and maintained for the benefit of the few. The histor)' of
this country, its policy, its trade, its habits, its character,
have all been affected by the legislation of bygone
centuries. Thus the studies of the antiquary become
constantly the key to those problems which baffle the
publicist and amaze the economist: for the present life
of the nation is founded on the past, in the accumulation
of its labours, and in the waste of its errors and short-
comings ; just as its pedigree is a commingling of races,
its arts and its literature an inheritance from forgotten
or undiscovered ancestors; its constitution, the spoils of
many a victory, the losses of many a defeat; its cha-
racter, the product of many habits, some perhaps natural,
most acquired, all of which converge in the present,
though their source is distant and often hopelessly
undiscoverable.
The effect of machinery on the rate of wages at first
sight appears to be necessarily depressing. Men sub-
stitute mechanical for muscular forces because they are
cheaper, that is, enable them to dispense with some
part of the manual labour hitherto occupied in the work
for whose production machinery is employed as a sub-
stitute. Some workmen must, it appears, be thrown out
of employment, and the effect of a glut of labour in
the particular calling which has been modified, is, it
seems, inevitable. So obvious, on a superficial estimate
of the consequences, is the impression that labour prices
WHICH DEPRESS THE RATE OF WAGES. IZJ
will fall as machinery is adopted, that we cannot wonder
at the hostility which workmen have constantly displayed
when their labour is threatened by the competition of
machinery. In practice, however, these results do not
ensue, and for several reasons.
In the first place, and in the great majority of cases,
the development of machinery is the escape from the
dearness of labour, i.e. its dearness in an economical
sense, its largeness as an item in the cost of production.
But when the cost of production is diminished and the
market for the product is wide and increasing, the
labourer is in greater demand, and the products of labour
are supplied at cheaper rates. If he is superseded in
one direction, he is required in another; for all capital
must be employed in the maintenance of labour; and
as an enlarged business and a consequent aggregation
of profit are developed, larger demands are made on the
labour in the market. If the economy of labour did
not increase production and stimulate demand, the sub-
stitution of machinery for manual exertion would be a
loss to the labourer ; but as we see in such a contingency,
labour would not be superseded by machinery. Ma-
chinery then benefits the labourer in two ways: first
by accumulating capital for his subsistence; next by
diminishing the cost of the articles he consumes. Under
each case it increases his actual wages : in the first by
enlarging their amount, in the second by increasing their
power of purchase. For example, the cost of manufac-
turing a yard of cotton cloth has been lowered by the
use of machinery to one-twentieth at least of the outlay
originally incurred in the process ; but the labour re-
quired to meet the demand of an enlarged market has
128 ON THE CAUSES
brought masses of people to the great centres of this
industry, while the product of this labour has been
brought within the familiar use and convenience of
thousands or even millions who, before such reductions
in the cost of production, were either debarred from its
use or stinted in supply.
Next, it rarely happens that labour of any kind is so
special in its character as to render the labourer unfit
for analogous labour. Thus, for example, a smith may
be engaged generally in forging or worming screws.
These screws are now made by machinery to a very
great extent; but the smith, though this part of his
work may be cut off, is still a smith, and capable of a
variety of other occupations known as smith's work.
The simpler the labour is, the more ready is the change.
The training of an artizan is in the method of doing a
variety of things, although in practice he may betake
himself to one only. It is especially in agriculture that
specialties of labour are extinguished, and without im-
mediate compensation. Thirty years ago all corn, or
nearly all corn, was threshed by the flail : at the present
time, the sound of the flail has all but passed away, and
before long the art of the thresher will be quite extinct.
But the circumstances which require that the agricultural
labourer must be instructed in a variety of operations
also prevent any material lowering of his condition. He
must, to supply the demand of the farmer, be able to
live ; and should any of the customary occupations of
indoor work be taken away from him, his general wages
must be compensated in order that he should exist at all.
Even though labour be extinguished totally, and with-
out compensation in its own way, yet if it be able to
WHICH DEPRESS THE RATE OF WAGES. 1 29
transport itself to new industries, the evil lasts but a short
time, and is immediately counterbalanced by a demand
for other kinds of labour. It is possible — to judge from
the local diminution of population, it is probable — that the
introduction of machinery has diminished the general de-
mand for agricultural labour, or in other words, that equal
quantities of produce are grown and secured at less cost.
But concurrently with this state of things, there has con-
tinued a great and increasing demand for skilled and
unskilled labour in manufacturing districts. In effect,
labour which was wasted in agriculture, as long as the
process might be cheapened and was not cheapened,
is economized and transferred to manufactures. It is
true that all the beneficial effects of a diminished supply
of labour have not been appropriated by the farm hand,
for in the absence of any effective control over the labour
of children and women, the wages of adults are lowered
by the competition of those who should be precluded
in whole or in part from such occupations. But the
extension of the factory acts to agricultural operations
is merely matter of delay.
It is seldom the case, then, that the displacement of
labour, when the result is due to machinery, implies more
than temporary inconvenience to the labourer whose work
has been superseded. To the mass of labourers it is
a positive gain. The adoption of mechanical forces is
at once the effect of a desire to economize the cost of
production, and a stimulus to the demand for labour
in other directions. It means a greater outlay of capital,
with the object of compensating a lower rate of profit
on each transaction by a higher aggregate of profit on
a larger number of transactions. Thus in so far as he
130 PROFIT AND INTEREST.
is a consumer of produce, the labourer is directly be-
nefited; for the adoption of machinery in manufacture
is always most obvious in articles of general or universal
consumption, because it is in these that the market is
most rapidly widened, and the additional outlay of capital
obtains its earliest and most permanent profit.
CHAPTER XL
Profit and Interest.
I HAVE already observed that the rate of profit is to
be identified with the rate of interest. Whatever else is
secured to the capitalist, beyond the average rate of
interest, is either wages of labour, i.e. the labour of
superintendence, superior intelligence, and tact, and the
task of supplying the purchaser with what he wants,
all which are kinds of labour, wherein great skill is
ordinarily necessary; or replacement of capital; or in-
surance against risk. It will be found that any instance
of common or average trade-profits is susceptible of
this division, and that exceptional rates of trade-profit
are due to exceptional ability, invention, or as people
sometimes say, good fortune.
Suppose, for example, that a man invests £1000 in the
business of a grocer, and borrows another £1000 from
his banker in the shape either of an advance to his
credit or in the discount of bills which he draws. Let
us also suppose that he pays, on the average, five per
cent, for the convenience granted him by his banker;
PROFIT AND INTEREST.
131
this being the average rate of interest on mercantile
advances, abundantly secured by goods or credit. Let us
add that he derives an income of £400 a year from this
sum invested in business. Of this sum he has .£350 to
spend or save from, since ,£50 must be transferred to
the banker in payment of interest for the sum advanced.
Of the remaining £350, a seventh part is the interest
on his own capital, such an amount as he would have
gained had he lent his money to another person. The
remaining three-fourths of his income, is wages for his
labour, and insurance against the risk of bad debts and
other similar contingencies. It is as much wages as the
salary of a clerk is, or the commission of an agent
who buys and sells with other people's money, or the
fee of a lawyer or physician, or the payments made for
manual labour to artizans and farm hands.
The only circumstance which obscures this analysis
of what are called ' trade-profits,' is the fact that in certain
occupations a source of income, orginally nothing but
wages, accumulates so as to form a fund, closely analo-
gous in its characteristics to capital, and, like capital,
capable of direct sale at a valuation. This is commonly
known as 'good-will' or 'connexion.' As a man is able
to increase his business, he is also able, in accordance
with the principle of the division of labour, to substitute
for that direct labour which he formerly gave, other
labour subordinated to himself and superintended by
him. The extent to which this labour can be introduced
and superintended is not determined. There is no doubt
a limit of greatness as well as smallness, in which the
profitable employment of capital is checked, the super-
intendence becoming too vast for any individual mind,
K 2
132 PROFIT AND INTEREST.
and too complicated for the effectual working of any
subordinate machinery. It is said that this limit of large-
ness has been reached in some railways and in certain
joint-stock enterprizes, and that the control of the whole
organization is incomplete and pro tanto unprofitable,
from the ver}' greatness and complexity of the under-
taking. So of course we are ver}- familiar with cases in
which the shrewdness and intelligence of traders are
checked and wasted by lack of capital.
The good-wU or connexion of a business, considered
apart from the capital and labour of the trader, is partly
due to the reputation of the trader, partly to the indolence
of those who deal with him. In a great many articles,
the buyer is a good deal at the mercy of the seller. Only
a practised eye can detect the amount of alloy in an
ornament professedly manufactured of gold. The quality
of cloth is not easily decided on by an inexperienced
purchaser. Even articles of common use are so skilfully
adulterated, that ordinary customers cannot detect the
fraud. But as long as fraudulent sellers abound, trust-
v.orthiness and integrity are marketable qualities, whether
they exist in the trader or the labourer, or, as we should
say, in whatever kind of labour they are present. Of
course if guarantees can be given that goods will be
honestly supplied, by any other process than the personal
integrity of the trader, or from any other motive than
the sense of prudent self-interest, which is at the bottom
of all honest dealing in trade, that part of ' good-will '
or ' connexion' which depends on the real or supposed
exercise of these qualities will be seriously compromised.
Now such a displacement of the voluntary exercise of
moral qualities in trade, by means of what may be called
PROFIT AND INTEREST. 1 33
a self-acting honesty, is not undiscovered. I am not of
course referring to the honesty of a servant or manager,
who does not embezzle or peculate, but to that for which
the public is constrained to pay, the integrity which
warrants a real sale of that which is professed to be sold.
Now this was done by the promoters of the ' Rochdale
Equitable Pioneers.' I cannot do better than quote the
case in the words of Messrs. Ludlow and Lloyd Jones.
Speaking of the establishment of co-operative stores,
these gentlemen say, that ' the great difficulty with the
first stores was to bring custom ; and failing in this, they
broke down.' ' In Rochdale however,' they say to the
public, 'invest in the trading capital here, and you shall
have five per cent, on your money, inasmuch as we bind
ourselves not to put it to risk by speculative trading,
no credit being given; in the next place, whatever re-
mains as profit, after paying interest on capital, will be
divided as bonus on the amount of money spent in the
store by each member.' ' The advantages of this pro-
posal soon began to make themselves apparent. Pre-
suming a hundred men invested twenty shilHngs each,
one shilling each would be due to them at the expiration
of the year, as five per cent, interest on their separate
investments. They had each done precisely the same as
investers, and each was justly entitled to the same re-
ward. But custom is as necessary as capital for the
production of profit, and in contributing this all-im-
portant element, they almost necessarily differed from
each other. The family income made a difference ; the
number in the family made an important diflerencc.
In fact, a poor workman with a large family was a far
more profitable customer than a well-paid artizan witla
134 PROFIT AND INTEREST.
a small one. These former men, therefore, the most
difficult to move, because usually the most encumbered
by debt, were the most directly appealed to by this new
plan. There was no interest in buying inferior articles
atid selling them at high prices, no temptation to adulterate
anything sold, no inducement to give short weight and
measure, inasmuch as everything taken from the cottsumer
by fraud would go back to him again as increased bonus.'
(Progress of the Working Classes, p. 133.) This society,
which commenced with a capital of £28 in 1844, ^^^d
with twenty-eight members, had 6,246 members in i866,
a capital of £99,989, did business to the amount of
£249,122, and divided a 'profit' of £31,931, having
steadily increased in all these elements, except during
the disastrous year of the cotton famine, 1862.
My reader will observe in this passage that the word
' profit' is used in the ambiguous sense which common
language ordinarily assigns to it. The Rochdale co-
operators, or, as they quaintly called themselves, pioneers,
took the common prices of retail trade (in which as I
have said are included risk and labour, highly paid when
the business is small, still highly paid when the business
is large ; for no man will reduce his rate of remuneration
below that which is necessary to secure custom), and
sold at these rates. The diftcrence between the price at
which they could have sold, when all expenses were paid,
and the price at which they did sell, was conventional,
and in a manner arbitrary. Some difference was neces-
sary, in order to secure custom, or, more correctly, to
jjiduce it. In fact, of course, the so-called profit had been
paid already when the customer bought his goods, and
need not, in order to carry out the principle on which
PROFIT AND INTEREST. 135
these stores are founded, have been added to the cost
and divided at the end of the year. But it is very hard
for people to forget traditions and experiences, and the
Rochdale co-operators did wisely in deferring to habits
of trade, to customary expressions.
. The system, however, which they adopted, when the
ambiguity referred to is cleared away, will illustrate to us
what is one of the sources of ' connexion' or 'good-will.'
It is very hard work for a man to build up a character
for commercial integrity. Perhaps no labour of his life
is so severe as this, none which needs more constant
watchfulness. There is a story told of a certain Colonel
Charteris, who was a notorious cheat and swindler. He
once said that he would give £5000 if he could get a
good character ; and when he was asked why he valued
it so highly, answered, that he could immediately borrow
£10,000 upon it. But we see from the case given above
that, if it be possible to bring about what I may call a sort
of mechanical morality, a saving may be effected, and
society be all the better off, in just the same way as it is
when physical forces are employed in place of manual
labour. There is no reason why we should not economize
moral forces, when they are susceptible of a market-price,
as well as those which are muscular or intellectual.
Another cause of connexion or good-will is the indo-
lence of customers. They wish to have the fact of a
man's business brought to them, and not this only, but
the favour of their purchases canvassed. Hence the
prodigious outlay on advertisements, and the gross trade-
falsehoods which are prevalent, as to the merits of
particular goods, the skill of particular traders, the im-
possibility of securing such advantages elsewhere, as
136 PROFIT AND INTEREST.
those which the advertiser offers. These devices are
developed most fully in this country, and have probably
had something to do with those frauds which have dis-
credited several branches of our trade, in the imitation
of trade-marks, and of other special signs by which pro-
ducers in credit seek to prevent others from appropriating
dishonestly a part of their reputation. The same desire
to attract customers, and the weakness which leads cus-
tomers to rely on such attractions as merely guide the
eye, give a fictitious value to certain streets, and cause
extravagant expenditure on shop-fronts and other deco-
rations. These causes of expense — for of course they
must needs be paid by the customer, who simply bears
the charge for gilding the trap in which he is to be
caught — are obviated under the co-operative system de-
scribed above ; for those dealers have no need to adver-
tise their wares, or spend their capital on an attractive
outside, or incur heavy rents in a fashionable or crowded
locality, in order to get custom. The machinery of their
combination secures them those advantages, which the
ordinary trader, whose sole object is the benefit of the
seller, can hardly obtain, except with heavy outlay and
trouble ; though when he docs obtain them, he finds that
they ordinarily possess accumulated value.
Having then explained the anomalous position occupied
by ' connexion' and ' good-will,' and having therefore
shown that all business-returns, after capital is replaced
and loss insured against, are divisible into wages and
profit, i. e. profit proper or interest ; it will be convenient
to say a little about the position which interest on money
assumes in all acts and processes which bear an econo-
mical value.
PROFIT AND INTEREST. 137
My reader will remember that money is a measure
of value, and is accepted in lieu of goods and services,
because it is easily disposed of, and is, under ordinary
circumstances, more susceptible of exchange than any
other commodity. But he will also remember that people
take money in order to get rid of it ; for as long as they
keep it, it brings them no further advantage than a dor-
mant power of exchange. And as men take money only
for what it will fetch and buy, so when they lend money,
they do not really lend pieces of gold and silver, but that
which pieces of gold and silver will purchase, i. e. labour
or goods. The lender surrenders his right to buy goods
or hire labour, or use goods which he has bought or
might buy, in order that another person may effect the
purchase. But as persons exchange with a view to some
ulterior advantage, the surrender of this right of purchase
or exchange must be compensated by an offer of some of
the advantages attending that transaction, which is com-
pleted by the interposition of money. You cannot induce
a man to surrender these rights without offering him some
equivalent. This equivalent is profit proper, or interest ;
and hence Mr. Senior defined interest to be ' the wages
of abstinence.' The owner of the money abandons his
beneficial use of the money to another. He may give it
if he will, or lend it without interest. These, however,
are exceptional acts, the great majority of lenders per-
forming this function of relinquishing their own use to
others on condition of gaining some benefit by doing so.
For a long time, however, partly in consequence of
some inveterate misconceptions as to the nature of
money, partly from traditions derived from certain re-
ligious feelings, the levy of interest on advances was
138 PROFIT AND INTEREST.
discouraged, reprobated, and even forbidden. Thus, for
example, so sagacious an analyst as Aristotle objected to
the payment of interest, on the ground that it was the
productive addition to an unproductive object. This view
seems to have been traditional, for it is foxmd, under an-
other figure, i. e. of the rivers and the sea, in the ' Clouds'
of Aristophanes. It is quoted in Bastiat's works as
a popular delusion among certain socialists of modern
times. We find, however, how gross the fallacy is, when
we recognize what is really the economical position of
money, and see that to repudiate interest on advances
is in effect to prohibit a rate of profit, a regulation mani-
festly absurd if carried out, because it would effectually
stop all exchange by stopping the motive to exchange,
and so be destructive of society.
The levy of interest was forbidden to the Jews. Various
reasons have been assigned for this prohibition. The two
most obvious are, first the desire on the part of the Jewish
lawgiver to prevent the accumulation of great fortunes by
individuals; secondly, the motive of inculcating mutual
good-will and benevolence among a race peculiarly keen
in striving to obtain pecuniary advantages. From the
Jewish code, in which the avoidance of usury forms a
peculiar and repeated command, it was imported into the
morals of Christian societies. The office of a lender on
interest was viewed with suspicion, and even treated with
infamy. It was forbidden to Christians, and was practised
at first almost entirely by Jews, though it was in course
of time taken up by the Lombard merchants, who were
either indifferent to ecclesiastical censures, or were too
important in the economy of society at that time to be
repressed.
PROFIT AND INTEREST. 1 39
At the Reformation, the claiming and giving of interest
was legalised, though under the supervision of government,
and at fixed rates ; a distinction being taken between in-
terest, which was admitted to be fair, and usury, which
was treated as rapacious, excessive, unlawful. It is only in
the present age that all restrictions have been abandoned,
and the rate of interest left to the discretion of lenders
and borrowers, as they may agree ; the courts of equity
interfering, as in other cases, to prevent fraud and over-
reaching. It should be added, that the usury laws were
attacked in the most conclusive manner by Bentham, who
contributed in this, as in other subjects, to great social
and legal reforms.
The first condition under which loans are made on
interest, is that the interest be not only paid, but the
principal sum be restored at the termination of the
period during which the loan is to continue. Unless
security of such a kind be given, loans will not be made
at all : unless the security be satisfactory or complete,
loans will not be offered except at exorbitant rates of
interest, the rate varying with the greatness or smallness
of the risk incurred. These rates however are only in-
terest in appearance, the difference between them, and
such rates as are accepted on perfectly valid security, being
only variations in the rate of insurance, though here
again popular language is misleading. The reason, nine
cases out of ten, why persons pay highly for accommo-
dation, is because they have no security, or no good
security, to offer. This may affect individuals, or classes
in the community, or the community itself Merchants
whose personal honour is suspected, or whose prudence
is questionable, find it difhcult to get assistance in what
140 PROFIT AND INTEREST.
is called the money market. Mercantile credit may be
generally low, and governments may be justly distrusted,
in consequence of their having been guilty of breaches
of faith towards the public creditor.
As a rule, mercantile credit is higher than government
credit. The maintenance of perfect good faith, especially
in countries where trade is open to severe competition
and the profitable employment of capital is limited, is
of absolute necessity to the trader. He dares not break
his engagements, except to the ruin of his reputation.
But the case is somewhat different with a government.
The security which it offers, the pledge namely of the
industry exercised by its subjects, is more permanent
than that which a merchant offers. It contains the pre-
sent property and the future earnings of the nation
whose government borrows. But the security is apt to
be repudiated, especially when the obligation is entered
into by an irresponsible government. There is not,
I believe, a single European government, with the ex-
ception of our own, which has not repudiated its obli-
gations in whole or in part, cither by refusing altogether
to pay interest on its debts, or by forcibly converting
high into low rates of interest, and thus depreciating
violently the saleable value of the security or principal.
Even this country run considerable risk of partial re-
pudiation after the close of the great continental war,
during the debates which preceded the resumption of
cash payments by the Bank of England. Now though
the lender in such a case is i)owerless against the present
action of a repudiating and dishonest government, and
cannot prosecute it, coerce it, or chastise it, yet he
can put it under a future disability, and he does so very
PROFIT AND INTEREST. 141
effectually. Governments are apt to be borrowers, but
a defaulting government borrows in a very narrow and
reluctant market. It may be, and frequently is, absolutely
excluded from the market. The police of the stock-
exchange is exceedingly weak in attack, but it is ex-
ceedingly powerful in its defensive or retaliatory action.
It may be pillaged, but its memory is very long, and
its revenge is ample. Charles I and his son Charles II
never committed more fatal errors than they did when
they robbed the exchequer and appropriated the gold-
smiths' money.
Another circumstance which determines the rate of
interest is the abundance or scarcity of capital. There
is a point in the rate of interest, no doubt hypothetical,
below which capital will not be accumulated, and on
the margin of which it is less abundantly accumulated.
The ordinary or average rate of interest is itself deter-
mined, supposing the community accumulates in any
notable degree, by the amount of demand which there
exists for capital, in other words, by the number of chan-
nels into which it may be profitably diverted and em-
ployed, and by the amount of compensation which will
satisfy the lender. In penurious and thrifty countries,
especially those in which there are few objects on which
capital may be safely and advantageously lent, the rate
is low. Such for example was the case with Holland,
and in some degree is so still. During a great part of
the last century, money in that country would fetch only
from two to two-and-a-half per cent, on loans. On the
other hand, the rate of interest in Australia is very
high, not because the security is inadequate, but because
the available quantity is small, and the competition of
142 PROFIT AND INTEREST.
lenders, who can employ the labour of superintendence
in its beneficial employment, is great. The reason why
this competition is keen is manifest. Most persons are
actively engaged in production, and thus though many
may save, few are willing to transfer their savings from
their own occupations to those of others ; whereas in old
countries, the savings of many are accumulated for the
loans of comparatively few. Again, the beneficial em-
ployments of capital are far more numerous. Land is
abundant and cheap, labour, though expensive, is produc-
tive. The commoner manufactures are protected by the
distance of fully-settled countries and the cost of transit ;
and even the more costly products of labour enjoy
certain advantages by the same causes. Hence all
persons can be, as a rule, beneficially engaged. When
wages are very high, rates of interest are very high also ;
for a rise in the rate of wages implies an increasing
demand for labour; an increasing demand can be sus-
tained only by an increase in the capital which maintains
labour ; and such capital can be borrowed only by con-
tinually offering better terms to the lender, as long as
the demand is in existence. The reverse of these phae-
nomena is discerned in old and fully-settled countries,
especially when the people are parsimonious, indisposed
to venture or speculate, and on the whole stationary.
Here however it would be well to refer to some cases,
not on the whole common in this country, but frequent
in continental ones ; the apparent occurrence, so to
speak, of different rates of interest on the same kind
of security. Thus, for example, in France and Belgium,
particularly in the latter country, the price of land is
so high that agricultural plots are often purchased at
PROFIT AND INTEREST. I43
such rates, that the capital sum invested, as measured
in rent, will not give more than from one-and-a-half
to two per cent, interest. But the same purchaser, should
he pledge his land on mortgage, will give from four to
five per cent, on advances. That is to say, the buyer
who gives fifty pounds an acre for land, and can only
get one pound per acre rent, will, if he becomes a bor-
rower, be obliged to pay two pounds or two pounds ten
shillings for every fifty pounds which he borrows, though
he offers a security purchased at so high a price, and
generally saleable at as high a price, for the loan which
he wishes to contract.
Part of this discrepancy may be accounted for by the
passion of proprietorship. There is no inclination so
strong among men as that of possessing land. Land is
visible, enduring, personal. It is well known that, within
certain intelligible limits, a divided estate will fetch a
higher price than an aggregate does ; because it answers
the demand of a larger, and, on the whole, of a keener
body of competing purchasers. But a proprietor reserves
rights against a mortgagee, and though he may lose
some part of the control over his property, these rights
are only suspended or in abeyance.
Next, the rent of land, or the interest issuing from
it, is a very diff"erent thing from the cultivation of
it. Writers, especially those writers who take a political
view of economic science and an aristocratic view of
politics, are perpetually confounding, either wilfully or
ignorantly, land as an investment and land as a machine.
Land as an investment is possessed of a few intelligible
properties. Its value is determined at any given time,
and is relative to the rate of interest; though as this
144 PROFIT AND INTEREST.
value is continually increasing, partly from the cause
mentioned above, partly from causes which will be dis-
cussed in a subsequent chapter, the rate of interest on
investment in land is low ; in other words, land is dear.
But land as an instrument or machine has vast powers,
powers as yet only partially discovered, but continually
comprehended and appropriated by intelligence and in-
dustry. It is in the discovery of these powers that
absolute proprietorship busies itself, with alacrity and
success; for a precarious occupation, while it may make
and appropriate discoveries of which the occupier can-
not be deprived, is necessarily indifierent to those which
the occupier cannot secure. The pains which an owner
will take, for the purpose of improving his land, are
incredibly greater than those which the farmer can or
will take, and though it may be sometimes the case that
part of his labour is wasted, or as far as he is concerned,
is comparatively unremunerative, it is far better for the
country at large that such work should be given, than
that it should not be exercised at all. Labour no doubt
should be as productive as possible, but labour which
is scantily productive has a value, which is not possessed
by indolence or indifference.
We have hitherto considered interest, that is, the sum
of money or value promised at a future date, and pro-
mised in consideration of capital advanced to the bor-
rower. Such interest, if the security be valid and ample,
is generally liable to very slight variations. An excellent
example of such interest is the rate at which advances
on mortgage of freehold land are compensated. The
great majority of advances however are made in another
form, and are known as discounts.
PROFIT AND INTEREST. I45
When a trader borrows, he generally borrows on the
debts owing to him; his debtor acknowledges the debt
in a technical form, known as a bill of exchange. In
this bill, which is an open letter, the creditor calls on
the debtor to pay at a given date, generally three months
from that at which the obligation is drawn, a specified
sum of money, for which value has been received. The
process by which the debtor acknowledges the bill, and
accepts the responsibility, is by formally declaring his
responsibility, and by specifying the place at which the
bill is payable. Formerly this used to be the debtor's
counting-house, and the practice of making the bill pay-
able at this locality may linger still. But in almost all
cases, at present, the debtor, or as he is called the ac-
ceptor, agrees to pay it at his bankers', who treat the bill
when it is presented for payment as they would a check,
and debit their customer, the acceptor, with the amount.
Many millions in value of such bills are weekly cleared
through the London bankers, and these clearances re-
present a large but by no means an exhaustive amount of
these commercial instruments. It should be added, that
a share in the responsibility involved in a bill of exchange
attaches to all those through whose hands it passes, and
who are said to endorse it. This responsibility in the
persons of such endorsers as have a very high credit, is,
relatively to those whose credit is inferior, as in sin"ular
cases, a marketable commodity. Thus, for example, if
the current rate of discount on bills of exchange known
as first class is five per cent., but a trader whose repu-
tation is not so accredited is constrained to pay six per
cent., the bill may be subsequently endorsed by a firm
of high character, and be re-discounted at a lower rate,
L
146 PROFIT AND INTEREST.
the endorsing house reaping the benefit of the transaction.
This kind of business was, it is said, attempted on a
large scale by the now notorious house of Overend and
Gurney, but was summarily put an end to by the Bank
of England. The process has nothing in it which is
inconsistent with the ordinary principles of trade ; for, as
we have seen several times, a high commercial reputation
is acquired with great difficulty, and, like other objects of
laborious acquisition and economical value, bears a
price in the market.
The fact that discount is a deduction from the present
value of a security the payment of which is postponed,
while interest is the compensation made for the past use
of an advance, constitutes no real difference between
discount and interest. How then comes it to pass that
great variations occur in the rate of discount, while the
rate of interest varies very little? Thus, in the year 1866,
discounts were as high as ten per cent., and had re-
mained at that amount for some months. At the close
of 1867 they were as low as two per cent. During the
same time the interest obtainable from a first class
security has stood with little change at four per cent.
The cause of this difference, of the uncertainty of the one,
and the comparative unchangeableness of the other, is
partly to be found in the difference between the objects
on which the loan is made, partly in the peculiar cha-
racter of the obligation incurred.
Mercantile bills are generally drawn for short periods.
Now, assuming that the transactions are perfectly safe,
in other words, that there is no doubt at all that the
bill will be met at the time when it becomes due, the
fact that the loan is for short periods tends to reduce
PROFIT AND INTEREST. I47
the rate, because, as the ordinary lender on these trans-
actions wishes, it makes his money as manageable as
possible. Of all securities, bills of exchange are the
most easily saleable, because the interval at which the
advance is recovered is short. A banker cannot afford,
even at the prospect of securing a larger rate of interest,
to have his capital locked up in long advances; he has
liabilities to which he is perpetually exposed, and the
best way in which he can gain a profit on his capital,
and yet make it as accessible as possible, is to advance
it on short loans. But the competition of lenders on
short periods, when money is at an average amount, is
sharper than the competition of lenders for long periods.
Still more sharp is the competition of the former class
of lenders when money is abundant. The advantage
of lending money at short dates makes a good mercantile
bill a more convenient form of investment than any other
security is, and so, whatever be the average rate of
discount, causes that at certain periods low rates prevail.
The same causes operate with increasing force when, for
certain reasons, the supply of money is very abundant.
But, on the other hand, when the supply of money is
short, the competition of borrowers raises the rate to a
height which is far in excess of the ordinary rate of
interest. No great increase can be suddenly made in
the amount of capital available for discounting bills, and
the consequence is, that as the market tightens, in the
language of the Exchange, the rate of discount rises.
Another cause which leads to great fluctuations in the
rate of discount, is the peculiar character of the obliga-
tion incurred. The Bill of Exchange, as I have said,
is an order written by the drawer, and addressed to the
L 2
148 PROFIT AND INTEREST.
acceptor. Now this acceptor stipulates that at a future
date he will pay a certain sum of money. His power
of fulfilling this obligation depends on the prospect
which he has of obtaining at the end of the period
a certain portion of the precious metals, or of their
equivalents. The amount of this fund for payment is,
ordinarily, enough and to spare for the purpose of liqui-
dation. The trader has his capital, as a rule, invested
in commodities, by the sale of which he purposes to
create and meet obligations as they are needed or be-
come due. But if business becomes dull, or the market
falls, or supply is checked, or the amount of money
available for all discounts is seriously diminished by the
efflux of specie from the Bank, the power which the
borrower has of supplying himself from this fund is cur-
tailed, and the competition of borrowers for a limited
supply of assistance becoming keen, the rate of discount
natiu-ally rises. The difficulty however of meeting the
obligation already created, is not so great as that of
creating other obligations. For, as the trader knows very
well that unemployed capital is loss, and strives to reduce
the amount of such unemployed capital to the lowest
possible quantity, he regularly anticipates the liquidation
of those obligations under which buyers lie to him, and,
as they are paid, issues new bills drawn for new debts.
These new bills then supply the means by which his
purchases can be made and his trade be carried on.
It is true that he might contract his trade by purchasing
less and selling less under such emergencies, but to
shorten his accommodation is not only to shorten his
power of purchase, but to interrupt his transactions, to
diminish his connexion. He will, therefore, frequently con-
THE RENT OF LAND. 149
sent to pay as large a discount for his bills as will absorb
all his business profits, because the temporary evil of a
high rate of discount is not so serious as the permanent
evil of a contracted or interrupted business. I am speak-
ing, of course, of bona fide trade, conducted with a
reasonable hope of profit, which is affected, in so far as
it enters into the market to borrow, by such high rates
of discount as have been induced by speculative pur-
chases and the losses of a declining market, although
it may never have contributed in the least degree to the
speculation and the reaction, and therefore is compelled
to reduce its operations or lose its profits by events
with which it has not had any relations, and over
which it has never had any control. This explanation
will I hope be enough to render, in some degree, in-
telligible the causes which lead to fluctuations in the
rate of discount, as compared with those which affect
the rate of interest. I shall have to enter into a fuller
statement when I deal with the question of foreign
trade.
CHAPTER XII.
T/ie Rent of Land.
The payment made for the use of the soil, known
under the name of the rent of land, has attracted the
attention of English economists, to a far greater extent
than it has that of those who have derived most of their
information from foreign countries. The reason is, that
the occupation of land in this country is peculiar, and the
150 THE RENT OF LAND.
phaenomena of rent are more manifest. In this country
the cultivator of the soil and the owner of the soil are, as
a rule, different persons ; in other countries they are, as
a rule, the same; or, when they are not the same, the
owner of the soil rather occupies the position of a per-
petual lessor, or mortgagee, than that of a landlord whose
contracts with his tenants are constantly liable to revision,
and who is able to exercise a considerable control over
the acts of the person who occupies and works the soil.
Rent has been defined to be the payment made for
the natural powers of the soil. This definition is some-
what vague, because it must be limited by several con-
ditions before it becomes true, and when it is true, it
becomes necessary again to define the meaning of the
expression ' natural powers.' For it will be seen that
as long as any part of the territory of a country is un-
occupied and unappropriated, rent will not be paid for
such natural powers as such a residue possesses in com-
mon with other occupied and appropriated soils; and
rent will be paid for the use of the appropriated soil only
because it is nearer to the market, and its produce may
therefore be more easily disposed of. But it would be
a mere figure of speech to say that the demand of pur-
chasers for agricultural produce, and the nearness of a
field to such a market, had anything to do with the
natural powers of the soil.
For exami)le, fertile land in the western parts of the
United States is almost worthless, or at any rate is worth
no more than a dollar an acre, the price at which the
government, which has assumed an ownership in all the
land lying within the political limits of the United States,
is accustomed to sell it. Land however which lies within
THE RENT OF LAND. 151
ten miles of the city of New York, may bring a rent
perhaps as high as any within ten miles of London, The
reason why, within the same political community, in two
tracts, possessing equal natural powers, the rent of the
one is nil, and that of the other is high, is to be found,
not in the natural powers, but in the artificial demand of
a dense and near population. Before this demand arises
therefore, rent will not be paid, for a primary condition
of rent is demand for the produce, a demand which be-
comes more urgent as population increases. Hence the
growth of population is intimately connected with the
rent of land.
But again, there is no doubt that certain natural powers
must exist in land before produce can be obtained from
it. Neither corn, nor grass, nor roots, which directly or
indirectly form the food of man, will grow on the surface
of a rock, or on soils whose chemical properties render
them incapable of sustaining vegetation, nor, except par-
tially, on such soils as those whose vegetative constituents
are defective. Beyond the conditions that cultivable land
must be pulverized and watered, in order that plants may
get root and grow, it is necessary that they should also
contain certain other constituents which are not found
naturally in air and water. Thus, for example, all wheat-
growing soils must contain potash, phosphorus, iron,
manganese, and sulphur, to judge from the analysis of
the grain. These constituents exist in various degrees in
various soils, and are supplied in various proportions
of sufficiency and solubility by those soils which possess
them.
So again, though heat and light and water are gene-
rally distributed over the surface of the earth, the extent
152 THE RENT OF LAND.
of their distribution may variably affect the productive
powers of the soil. Excessive heat, joined to excessive
moisture, is peculiarly favourable to vegetable growth.
But it is unfriendly to human life, and these natural
forces are therefore, in so far as man cannot live under
their influence, of no economical value. But they are also
unfavourable to the growth of the most valuable kinds of
human food. The best wheat, as a rule, is grown close
to the margin of those climates in which it will not
grow at all, and becomes inferior the more southerly
the soil on which it is cultivated. Fertility, to constitute
an economical quantity, must be capable of appropri-
ation and be appropriated.
Again, the demands of population may be very urgent,
but rent may be scanty or almost unattainable. I have
alluded in a previous chapter to the very different value
of land in England, as measured by rent, five hundred
years ago and at the present time. While corn has risen
about nine times in nominal or money value since that
period, the rent of the same plots of arable land has risen
from forty to sixty times, while much land which could
bear no rent at all has become available for this purpose.
But the pressure of population was just as keen during
the period referred to as it now is, in point of fact far
more keen, for dearths, now happily infrequent, were
common in those times, and there was just as much
eagerness to cultivate poor soils as there now is.
The common theory entertained about the occupation
of land is, that the best soils were first cultivated, that is.
those soils the cultivation of which cost least labour in
proportion to the produce attained ; that as population
increased, poorer soils were taken into cultivation ; and
THE RENT OF LAND. 1 53
that, under these circumstances, the better land yielded
a rent, the inferior land just paying for the cost of cul-
tivation, and leaving no margin over from which rent
could be derived. The theory is quite hypothetical, and
has absolutely no historical foundation. It may account
for the difference between the rent of two plots of land,
both equally open to the same stimulants of demand and
the same facilities or difficulties of supplying the demand,
but it does not give any real account of the mode by
which rents have arisen and have increased. Now there
is no great discovery in telling any one, that differ-
ence between rents arises from difference in the relative
fertility of soils. Every man who rents or lets land is
perfectly familiar with this fact.
There is not a shadow of evidence in support of the
statement, that inferior lands have been occupied and cul-
tivated as population increases. The increase of popu-
lation has not preceded but followed this occupation
and cultivation. It is not the pressure of population
on the means of subsistence which has led men to cul-
tivate inferior soils, but the fact that these soils being
cultivated in another way, or taken into cultivation, an
increased population became possible. How could an
increased population have stimulated greater labour in
agriculture, when agriculture must have supplied the
means on which that increased population could have
existed.? To make increased population the cause of
improved agriculture is to commit the absurd blunder
of confounding cause and effect. Had this theory
of rent been merely speculative, no harm would have
happened. But it has been carried out into that of
population, and a number of imaginary dangers and safe-
154 I'^E RENT OF LAND.
guards have been suggested, from this presumed origin
of rent. In dealing with the question of population, a
great many fallacies have been defended, and a great
many wrong practices encouraged. The development of
agriculture, the advantageous cultivation of inferior soils,
goes on simultaneously with the numerical decline of that
part of the population which labours on and is directly
subsisted by the soil.
The question may be asked however, What was the
origin of that theory which is alluded to above, and
which conceives that rents have arisen from the necessity
that has existed of taking inferior lands into cultivation as
population pressed on the means of subsistence ? The
answer is to be found in the same exceptional set of
circumstances which originated and confirmed the Mal-
thusian theory of population. The ordinary resources of
the community, owing to a succession of deficient har-
vests, and to the cessation of foreign supplies, consequent
upon an exhausting and general foreign war, were cur-
tailed. The laws of the time starved the people. It was
therefore advantageous, under an abnormal set of cir-
cumstances, to take lands into cultivation which, under
the ordinary conditions of supply, would never have re-
paid the charges of agriculture. Hence arose the notion
that rent was invariably due to those causes, to which
an enquiry into economical history shows it can be only
exceptionally due. If by any mischance, or mismanage-
ment, that fraction of the British population, (amounting
as a rule to one-fourth of the whole) which subsists on
imported corn, were suddenly deprived of this supply,
and the produce of the world were shut out from the
British market, (a contingency which we may fairly con-
THE RENT OF LAND. J 55
ceive impossible,) the same circumstances would occur
which induced, sixty years ago, the cultivation of grain
on poor land, and which gave colour to the opinion that
rent was due to the pressure of population on the means
of subsistence.
The occupation of inferior soils and the increased
fertility of land long cultivated is due to the growth of
agricultural art, and is stimulated at once by demand and
by high prices of labour. In just the same way as a
manufacturer strives to attain greater results at less cost
of labour, and thereupon invents, economizes, and adds
new and cheaper forces, so the agriculturist busies him-
self in such inventions and economies as increase his
gains, by diminishing the charge of labour, and by
effecting a greater return for his outlay. The progress
of agriculture, just as with other arts, is due to a judicious
interpretation of forces, an intelligent self-interest. There
must be a demand, in order that improvement may be
stimulated, but we know also, that the demand may
be urgent, but the improvement may be slow or non-
existent. To improve agriculture needs capital, industry,
intelligence, a sense of security, and a conviction that
cost incurred will be remunerated. And this is just what
has happened in the history of the art of agriculture.
We cannot see this better than by comparing the pro-
cess of agriculture 500 years ago with that of the present
time.
In those days, then, half the arable land lay in fallow.
The amount produced was, to take wheat as an example,
about eight bushels the acre in ordinary years, i. e. little
more than a third of an average crop at the present time.
There were no artificial grasses. Clover was not known,
156 THE RENT OF LAND.
nor any of the familiar roots. As a consequence, there
was little or no winter feed, except such coarse hay as
could be made and spared. Cattle were small, and stunted
by the privations and hard fare of winter. The average
weight of a good ox was under four cwts. Sheep too
were small, poor, and came very slowly to maturity.
The average weight of a fleece was not more than two
lbs. With ill-fed cattle, there was little or no manure.
Iron was very dear, costing, to take wheat as a standard
of relative value, nine times as much as it does now.
But the number of persons engaged in agriculture was
nearly as numerous as it now is. It embraced, to be
sure, nearly the whole population, though all their labour
did not produce an eighth part of that which is gathered
at present. Permanent improvements of the soil too
were very imperfectly carried out, not for want of will,
but for want of knowledge. The farmers of the time
were shrewd enough, but they knew very little. Rough
draining, ditching, and ridging were used in wet soils,
and this drainage was sometimes done on a large scale
where land admitted its use. But their ploughing was
superficial, and as for selecting breeds of cattle, though
they had many varieties of oxen and sheep, it was useless
to think of it. No selection could be effectual when
the stock was half starved in the winter; for improve-
ment in the breed of cattle is only possible when food is
plentiful and regularly supplied.
The development of agricultural science, and its ap-
plication to practical farming, is not the result of a pres-
sure of population upon the means of subsistence, (such
an event would rather check than aid it,) but the effect
of intelligent self-interest. The customary demand ex-
THE RENT OF LAND. l^J
isted, and if the farmer could satisfy it at one-third the
cost, he could at least be able to appropriate a portion
of that percentage. Hence the introduction of roots,
originally, it seems, from Holland, the discovery of arti-
ficial grasses, the supply of artificial manures, the analysis
of the chemical properties possessed by the soil, the
adaptation of mechanical forces to agricultural processes,
and the selection of seeds and cattle. All these discoveries
and adaptations have increased produce, or diminished
cost, or both.
Now if these discoveries and substitutions had not
been conditioned by the occupation of a large area of
the earth's surface, most of the benefit would have been
the property of the producer, the labourer, and the con-
sumer. Everybody is now sharing in the benefit of
Watt's and Arkwright's discoveries, for the commodity
is cheapened, and the process is free. The general be-
nefit of these agricultural discoveries lies in the fact that
a large portion of the population was liberated for other
productive energies, and that the resources of society were
pro tanto increased. But the particular or special benefit
lies with the owner of the soil, the person who licenses
another to use it, and who is able, by reason of the fact
that the instrument of agriculture is limited in extent, to
exact, in accordance with a social law, a certain compen-
sation from the occupier. The landowners of a country, in
short, are, as agriculture advances, in the position which
a nation would be with regard to the interest of money in
case the capital which could be employed were a rigid and
invariable quantity, and its productive use were regularly
increased. The landowners possess just such a capital,
and they are continually enabled to raise the interest
158 THE RENT OF LAND.
on advances of land, as the science of cultivation in-
creases.
Assuming then that the demand for the produce of
land is constant, we shall find that the proper definition
of rent is : — all that remains in the price at which the pro-
duce of land is sold, when the cost of production is de-
ducted. If the average produce of a farm is worth
£1000, and the average cost of production is £800, the
average rent of the farm will infallibly be, should the land
be let by open competition, £200. Of course, as in other
business, exceptional skill, early adaptation of new dis-
coveries, judgment in interpreting the rise and fall of
markets, will give one farmer an advantage over another ;
but if agricultural skill be generally diffused, nothing will
prevent the excess of price over cost from finding its
way to the landowner in the shape of rent.
The landowners in this country, whose influence was
overwhelming in the legislature, were well enough aware
that high prices of agricultural produce involved high
rents for land. They had unhappily adopted, at least
those who were most intelligent among them, the po-
sition that rent is due to the pressure of population, and
the consequent occupation of inferior soils ; and they
therefore strove to starve population, and force this un-
productive cultivation, by excluding the general mass of
the population from the foreign market of supply. To
some slight extent, and in appearance to a large extent,
they succeeded; for the machinery of the poor-law enabled
them to put part of the charge of labour on those who
did not employ labour with a view to profit. But in the
greater part of this scheme they failed, and inflicted on
themselves evils similar to those which they strove to put
THE RENT OF LAND. l^g
on others, and to a great extent did put. They wished to
keep the people poor, in order that they might maintain
a high price of wheat. They kept the people poor, and
they lowered rents, because they could not appropriate
more in the shape of rent than the quantity by which the
demand of purchasers could exalt the price of produce
over the cost of production, and as they narrowed the
circle of purchasers, they lowered the motives of im-
provement, and stinted the powers of the cultivator.
For throughout the whole of the controversy on the
nature of rent, people argued persistently, as though every-
thing was to be measured by wheat. Wheat was the
staple food of the people, and therefore, every process
of production was to be referred to this standard. But
the staple food of the people is one thing, the staple
industry of the home-producer is another. To Hmit the
latter by the former, unless under compulsion, is pro-
digious folly. But this was done by the corn-laws, which
prevented the farmer from seeking to supply a market
for other agricultural produce, by forcing him to devote
all his energies to the production of wheat. The act was
only less absurd than it would be to abandon all the
cultivation of grain in the south of England, in order to
take up with that of vineyards.
At the present time we know better. The farmer, it is
true, grows wheat, it may be advantageously, but also it
may be necessarily, as one in the rotation of crops. But he
also grows other kinds of grain, and especially provides
meat and dairy produce ; articles in which he is naturally
protected, because they cannot be imported, or cannot
be easily imported from foreign countries. Now no one
pretends to say that the soil of Great Britain has gone
l6o THE RENT OF LAND.
out of cultivation since the repeal of the corn-laws, or
is occupied less beneficially for the landowner. On the
contrary, there has been a regular annual rise in rent,
since the repeal of the corn-laws. The fact is, if the fanner
has lost on the cultivation of wheat, he has gained on
that of barley, probably on that of oats, while the price
of meat is fifty per cent, higher, and butter and milk,
especially in country places, are nearly twice the price they
were twenty years ago. The farmer, in short, has turned
that to account which free-trade in corn has silently
taught him ; has abandoned, or resigned in some mea-
sure, the production of wheat to the American farmer and
the Russian peasant, and has occupied himself in pro-
ducing that which pays him better, and ultimately in-
creases the margin from which rent is payable. The
cheaper the artizan or other labourer can get bread, the
better able is he to buy meat, for the larger overplus
there is in wages above the price of the first necessaries
of life, the larger means are there for buying the se-
condary necessaries, its comforts, and its luxuries. A
densely peopled country like England is, as I have
said before, like a vast city, to which the less peopled
parts of the civilized world are an agricultural country,
which is glad to send its overplus of provisions in ex-
change for the luxuries and conveniences of a manu-
facturing region.
Since therefore the rent of land is all that is over and
above the price at which the produce of land is sold,
after the cost of production is deducted, we shall find that
what measures the rent of agricultural land, equally
measures the rent of business premises. A large trading
house in one of the great London thoroughfares may be
THE RENT OF LAND. l6l
let at, say £2000 per annum of rent. Now some part
of this sum is interest on capital expended in the building
itself. Let this amount to £10,000, and, at six per cent.,
be £600 a year: the remaining £1400 is ground-rent,
i.e. is a payment made for a particular site because it
has certain conveniences, productive powers, or, to use
an analogous term, fertilities, which another site, on which
a building equally costly might be erected, would not
possess. The person who rents such premises believes,
and no doubt with good reason, that it is worth his
while to pay this large rent, because he recovers it in
the business qualities of the site. And we may be quite
sure that, roughly and on an average, the superior busi-
ness properties of such a site as I have described are
worth just the difference between the rent of an equally
costly building in a locality which has no such advan-
tages, and the rent of a place which has them. Ex-
actly the same rule will apply to the rent of a coal or
other mine, a shooting moor, a salmon stream, or any
other right of using the surface of the earth by purchase
from its owner. %
These facts, which explain the origin of rent and the
measure of its extension, will also account for great
fertility or capacity on the part of some soils not being
followed by the rent which apparently should b^ derivable
from them. For example, it is constantly the case that
land which has only lately been taken into cultivation
(such for example as the gentler declivities of chalk
downs) will bear a rent of, say eighteen shillings an acre,
while old arable land will bear no more than thirty shil-
lings, and this while the produce of wheat on the former is
not more than twelve bushels, that of the latter is twenty-
Mi
1 62 THE RENT OF LAND.
eight bushels the acre. On investigation, and on all other
crops being taken into account, this seeming discrepancy
will always be explained by the comparative cost of pro-
duction. It will be found for instance that the cost of
ploughing, dressing, and manuring the richer' land is
greater, that the capital employed is more to the acre,
that it costs more to get the crop in, and so forth; and
that we may be quite sure of the formula (supposing the
rent in each case were to be equally determined by com-
petition) being as follows : — As eighteen shillings are
to thirty shillings, and as twelve bushels of wheat, &c.,
are to twenty- eight bushels, so is the cost of pro-
ducing the smaller quantity to the cost of producing the
larger.
Thus it comes to pass that the rent of grass or
meadow land is so much higher than that of arable. It
costs less to cultivate it, and the margin of rent is greater.
The farmer can always pay more, the less capital he
needs for cultivation. This fact is equally clear in the
history of rent derived from the same parcels of land.
Arable rents, as I have said, have risen from forty to sixty
times, natural meadow-land rents have risen from ten
to twelve times only ; for that which was possessed of
these qualities five hundred years ago was, with some
slight differences, cultivated with as little cost as it now is.
As the rent of land is that which remains over and
above the cost of production, it is paid last, i.e. when
all the other contributories are satisfied. Such a state of
things is perhaps never historically exhibited, for as a
rural population, however poor, can always be made to
pay some tax, so they may be always made to pay some
rent. Such a rent however is artificial, just as the rent
THE RENT OF LAND. 1 63
of land would be in those parts of the United States
where a dollar an acre is paid for fresh prairie, or in the
Australian colonies where a pound an acre is charged
for grants of public land, these regulations being accom-
panied by prohibitions of squatting. The rents of the
middle ages were rather taxes than rents, simis extracted
from the subject peasantry rather than compensations
for the use of a natural agent, the amount of which was
limited and the whole appropriated. But though the
satisfaction of rent comes last, the amount of rent, as
my reader will anticipate, is an increasing quantity. If by
some device or invention the produce of the soil could be
procured at half the cost at which it is procured at pre-
sent, nothing could prevent the whole difference from being
(other things being equal) paid as rent, just as the pro-
duct of past inventions has been and is appropriated by
the landowner as soon as these inventions are generally
used. Such an appropriation is inevitable if we recog-
nize a permanent property in land, and if a right be con-
ferred on the owner of securing all the future as well as
the present value of his estate. Such a right has almost
invariably been accorded, because it is believed that
industry in developing the resources of the soil would
not be exercised were the ownership imperfect or con-
tingent, or liable to sudden determination on paying the
present capital value of the usufruct. If this be the
case, it will be seen that the argument is very strong for
securing fixity of tenure for the occupier of the soil as
well as for the owner.
My reader will now be able to anticipate the causes
which will increase rent and those which will diminish it,
viz. everything which diminishes or enhances the cost of
M 2
164 THE RENT OF LAND.
production. Thus the introduction of machinery, if, as
is invariably the case, it is cheaper in the gross than
human or animal labour, will tend to increase rents.
Of course machinery is costly; but no one would use
it except it were cheaper than other labour and unless it
lowered the cost of production. And on the other hand,
any increase in the cost of labour, any scarcity of labour
v/hich cannot be compensated by an increased use of
animal or mechanical labour, will tend to, and in the end
will ultimately effect, a diminution of rents. Every per-
manent improvement of the soil, every railway and road,
every bettering of the general condition of society, every
facility given for production, every stimulus supplied to
consumption, raises rent. The landowner sleeps, but
thrives. He alone among all the recipients in the dis-
tribution of products owes everything to the labour of
others, contributes nothing of his own. He inherits part
of the fruits of present industry, and has appropriated the
lion's share of accumulated intelligence. But if he gets
it from no merit or labour of his own, he gets it by the
operation of natural causes. The only hindrance to his
prosperity is his too frequent wish to be wiser than
iiature, more eager to grasp than society is to give, and
therefore to be apt to hinder the beneficence of other
men, in his desire to intercept their earnings before they
begin to pour them into his lap.
What has been said applies only to those powers of
the soil to whose development the landowner has con-
tributed nothing. Those which are the result of posi-
tive outlay on his part, exactly like every other kind of
fixed capital, are constituted in the immediate anticipation
of profit, and like every similar investment, are followed
VARIOUS TENANCIES, ^C. 1 65
by profit if the outlay be wise. In some cases, as for
example in the draining of Whittlesea Mere and the
great enclosure near Beddgelert, the rent of such land
may be entirely interest on capital. In the great majority
of cases however, as for instance in subsoil and surface
draining, the outlay which renders the land more fertile
is very small beside the capital value of its unimproved
powers. Nor, again, do these statements apply to pay-
ments made for the use of houses, and which are fami-
liarly but improperly called rents. These are merely
payments, the ground-rent being deducted, for the use
of capital invested in buildings, and are exactly analogous
to interest on advances ; for the tenant borrows a house
on which he makes a periodical payment, in just the same
way that a borrower gets a loan for which he pays a
periodical interest.
CHAPTER XIII.
Various Tenancies of Agrictiltural Land.
It was stated at the commencement of the previous
chapter that farmers' rents are almost peculiar to England.
The phaenomena of rent are not altered in those countries
in which a different system prevails ; they are only obscured
when the same person reaps the wages of his labour
and the profits of his capital, and also enjoys the pro-
gressive rise in the natural value of land. There are no
means by which he can be deprived of this natural value
and the benefits which accrue to him on his possession,
unless government were to give him the present value of
l66 VARIOUS TENANCIES
his estate, and reducing him to the position of the owner
of a perpetual rent-charge, were to appropriate these pro-
gressive profits to public ends. To some extent, at least,
such a relation between governments and owners is found
in the Indian land tenures, where the absolute ownership
lies with the king or state, just as it was the characteristic
of our own feudal tenures, which held that the ultimate
ownership of the soil was the property of the crown, that
the relations of feudal tenancy were capable of modifi-
cation or even reconstruction on this basis, and which,
for a time at least, took the improved value of land into
account in fines on re-grants or successions.
In many parts of Europe the occupation of the tenant
is permanent ; but he pays a fixed quantity in money or
produce for the use of his farm, generally using the
landlord's stock and seed. This kind of tenancy is called
mitayer in France, from the fact that the produce is or-
dinarily divided into equal moieties between the landowner
and the cultivator. The tenure is as old as the days of
republican, or at least imperial Rome, and arose probably
from the system under which a part of the lands, pre-
viously possessed by independent governments, but gra-
dually absorbed by the conquests of the republic, were
confiscated and re-granted. In metayer tenancy, the
motive to improvement is stunted by the fact that the
inventor of better agricultural processes has to share
the profit of his intelligence or invention with the land-
owner. On the other hand, it is said to be unfavourable
to the landowner whose live stock is likely to be over-
worked by the tenant.
Such a tenancy prevailed in England for about sixty
years. The earliest agricultural records which are pre-
OF AGRICULTURAL LAND. 1 67
served to our own time exhibit the surface of the soil
divided into manors, the boundaries of which ultimately,
as it seems, became the parochial limits. In these manors
the best and most central lands were possessed by the
lord, who generally had, besides, all or most of the
natural meadow, if any such existed. This land he cul-
tivated himself, or by the hands of his bailiff, using for
farm-work a certain number of hired hands, and such
other labour as his feudal dependants were bound to
give. These dependants generally occupied lands at
labour rents, the liabihty to labour on the manorial estate,
and the right to a share in the manor estate, being, if
we may judge from an enormously wide induction,
mutual and invariable. The rest of the manor was oc-
cupied by free tenants, who were however, besides their
obligation to do what was called suit and service in the
manor-court or court-baron, liable to fixed annual rents,
generally in money, but always so considerable as not to
fall far short of the average rack-rent of arable land.
Sometimes the parish contained more than one manor,
but this is rare.
The estates of these free and serf tenants were scat-
tered up and down the manor, generally in the form of
strips containing so many furrows. There were usually
also some common pasture and some common wood or
turbary, in which latter the villagers had the right, under
certain restrictions, of cutting or gathering fuel. The
quantity occupied by these peasants was from twenty to
fifty acres as a rule, and the distribution of land under
these conditions was very general.
After the Great Plague of 1348 this system was rudely
broken up. Labour became so costly that the land-
1 68 VARIOUS TENANCIES
owner could not cultivate his farm by hired hands, except
at a loss. The surviving peasantry however, who lived
on their labour, were incomparably better off. Wages
were high, but profits were high also; and in a short time
the condition of the agriculturists, who were part peasant
proprietors, part labourers, was greatly improved. They
could not however take in hand the large farm of the
manor, not being possessed of such capital as would be
sufficient to work it. Hence the temporary adoption of a
system like the vi^tayer. One of the small proprietors
of the manor engaged to take the lord's farm and stock
at an annual rent, generally in money, and stipulated at
the end of the term, which was almost always short, to
restore stock and seed, either at a fixed rate, or in the
same quantity. This method of cultivation lasted, as I
have said, for about sixty years, and was superseded by
the growth of a hardy and prosperous yeomanry, who
either purchased the land in parcels, or bargained to
work it with their own capital and at a money rent.
Peasant proprietorship, i. e. the union in the same per-
son of ownership and occupancy, is by far the most
common form in which land is distributed among civilized
nations. It prevails over nearly the whole continent of
Europe, and is all but universal in the United States. It
is found in the Eastern world as generally as in the
Western, for it is the rule in India and China. Most
persons who have studied its peculiarities agree that it
has great advantages, when the government is just, in
elevating the character and promoting the social morality
of the people. It appears to stimulate economy, to in-
duce habits of parsimony and forethought, to render any
legal relief to the poor unnecessary, and to obviate certain
OF AGRICULTURAL LAND. l6g
tendencies to any over-population, with its consequent
degradation and danger.
Peasant proprietors are often heavily burdened with
mortgage debts. It is said that in France the amount
of capital invested in mortgage of real estate is not less
than £500,000,000 sterling, this estimate being taken from
the public registers in which every mortgage, to be legal,
must be inscribed. No doubt the real amount is large, but
it is certainly less than these figures would imply, for in
France it is necessary to go through a form and pay
a fee in order to cancel a mortgage, this process being
in practice avoided. Hence many estates in France, to
judge from the registers, are mortgaged to far more than
their real value. Still there is, no doubt, considerable in-
debtedness in the case of peasant proprietors in a country
like France or Belgium.
Such a fact however, though alleged against peasant
proprietorship as a system, is in reality no objection. In
the first place, it does not follow that the indebtedness of
such persons is greater as a rule than that of persons
who possess large estates. As a matter of fact, it is cer-
tain that the amount of money which is out on mortgage
of real estate in this country, where large proprietorships
are general, is very great, and would probably not fall
short, all things considered, of that in France. But, be-
sides, my reader will remember the distinction which has
been made above between land as an investment of capital
and land as an instrument of agriculture. The peasant
is far more concerned with the latter aspect of his tenure
than he is with the former ; though as his mortgage merely
stipulates that he should pay such a sum of money, of
which the value of his farm at the time when the mortgage
lyo VARIOUS TENANCIES
is effected is constituted a pledge, he has the power of
securing such advantages as the growing value of his
land gives him.
For it must be remembered, that as long as society
progresses, invents, economizes, labours, grows, land is
the only article the value of which constantly and inva-
riably increases. The value of gold and silver may fall
by the discovery of abundant mines and by economy
in reducing ores. The value of corn may decline by the
cultivation of land at cheap rates, or by inducing culti-
vation on other lands where corn could not previously be
grown, or by abundant and easy importation from foreign
regions. The value of manufactured articles may fall
by economy in the production of raw materials and by
cheapening the process of production. But as these
various saving processes are adopted, and the more fully
they are adopted, so the rent of land rises, and rises more
certainly. The general distribution therefore of land not
only gives those moral advantages to the possessor which
observers have discovered, but secures to the general
benefit of society, or at any rate to the benefit of a
larger number of persons, the advantages which ensue
from the growth of society itself.
The real disadvantage of these small holdings — if in-
deed the inconvenience be not exaggerated — lies in the
difficulty which there is in supplying peasant tenants with
that animal or mechanical labour which, though so ex-
pensive at first, eff'ects so great a saving afterwards.
Suppose it costs .£50 to purchase a reaping-machine,
and 2J. 6d. to purchase a reaping-hook, but the annual
saving on machine reaping is so great as to diminish the
cost of reaping by one half, it is plainly expedient to
OF AGRICULTURAL LAND. IJI
make the outlay. But it will be expedient only if the
farm be wide enough to bring about the saving in ques-
tion. So, again, improved breeds of horses, cattle, sheep,
poultry are really economies, in which a first increased
cost is rapidly counterpoised by diminished cost or in-
creased gain. But it is not possible for the small tenant
to effect these beneficial changes. His farm is too small
for their economical use, even if his capital be not too
scanty for their purchase. So he uses the cheaper
implement, but costlier process, the reaping-hook.
Hence people point to small tenancies as instances of
agriculture being stationary, and assert that when land
is held in little parcels, there can be no progress in the
art of cultivating the soil. These observations of course
apply in chief to the commonest and most general agri-
cultural processes. Vineyards must be trimmed and their
produce gathered by hand, silkworms must be fed and
reared with the greatest care, and so only small culti-
vation is possible with a variety of similar products.
It does not appear however that the difficulties are
insuperable. Such machines are readily hired, and it is
possible to conceive that small farmers should co-operate,
or form a species of company, by which they might be
enabled to purchase such machines by a common sub-
scription, and use them according to a rota to be agreed
on between each other. The system of co-operation or
co-operate industry is in its infancy as yet, but there
seems no reason to doubt that so obvious an application
of its principle as that which I have indicated might be
readily adopted.
There is yet another kind of tenancy, peculiar to the
United Kingdom, but now, it may be hoped, becoming
172 VARIOUS TENANCIES
rarer, though it will not probably disappear for a long
time yet. This is the Ij-ish cottier tenancy. A similar
kind of holding appears to have existed in the Scottish
Highlands, but to be nearly obsolete. The Irish system,
ho-wever, was partly due to historical circumstances,
partly to peculiarities in the social life of the people.
The ancient Irish tenancy consisted of a village or
district, or, in the phraseology of the island, a ' country,'
in which there was a paramount chief, selected (according
to what was called the custom of tanistry) as the worthiest
and best of the blood, and a number of dependent clans-
men. . These local chiefs were in their way subordinated
to the several lords or native princes who held authority
over sections of the island. So completely was the tenure
of land a village system in which the various members
of the sept, though they possessed personal property,
were precarious occupiers of particular plots of land, that
on the decease of the chief a fresh allotment of the
common estate was made among the members of the
sept. The right of the chief was that of maintenanc \
his duty that of defence. These relations were embodied
in an adage, ' Spend me and defend me.'
The English conquest of Ireland introduced the Anglo-
Norman law, the basis of which was the assignment of all
actual and reversionary rights in the soil to some owner.
It held that the ultimate owner of all land was a person,
not a community, was an individual, not a clan. There
can be no iloubt that such a theory of property is more
favourable to the progress of society and the accumulation
of wealth than a system which gives the individual no
right to anything but the produce, and acknowledges no
permanent proprietary rights except in the community.
OF AGRICULTURAL LAND. 1 73
Such a view of the comparative merits of the English
and Irish law was alleged as a reason, among others, for
superseding the latter by the former. My reader will
remember however, from what has been previously stated,
that in early times the cost of production and the value
of the produce were very nearly equal, and that therefore,
as the margin of rent was very narrow, the loss conse-
quent upon these frequent partitions and the insecurity
induced upon improvement by the liability to fresh dis-
tributions were almost trifling. The case of course was
different when land became more valuable, owing to
increased skill, diminished cost, and an enlarged popu-
lation. Five hundred years ago the capital invested in
live and dead stock on a well-managed farm was pro-
bably worth three times the land.
This village occupation, in which all the land was
treated as the common estate of the sept, appears to
have been general among Celtic races. It prevailed till
late years in Scotland ; it is seen to have existed in
Ireland ; it was extinguished in Wales by the statute of
Rutland (1284). Its abandonment in Ireland was due to
a remarkable decision given in the Irish King's Bench in
the year 1608. Tanistry and Irish gavelkind, as the
system of electing the worthiest to the headship of the
clan and re-dividing the estate among all the males of the
sept on certain occasions were called, were, it appears,
formally recognized by the English law as late as the
reign of Elizabeth.
In the year 1608, then, a case was brought before the
Irish King's Bench, in which the plaintiff was the tanist,
the defendant a donee in tail, i. e. a person in whose
behalf an estate tail had been created. The plaintiff
174 VARIOUS TENANCIES
defended the custom as reasonable, and appears to have
propounded a charter of Elizabeth in -which it had been
recognized. The defendant, on the other hand, urged
that the custom was unreasonable, uncertain, contrary to
the EngHsh common law, contrary to public policy, as
discouraging the permanent improvement of the soil, and
injurious to the people at large. The pleadings are given
in abstract by Sir. J. Davis, who was the king's attorney-
general in Ireland and counsel for the defendant. The
case was before the court for three or four years, and
then a judgment was given, in point of law for the defen-
dant, though in point of fact a compromise was effected,
the donee in tail taking the castle and certain adjacent
lands, the tanist the remainder. But from this time forth
it became a rule that tanistry was obsolete and contrary
to the law of the three kingdoms; and thus English
custom was placed in its room, with such powers of
settlement and ownership as the law at the time allowed.
I have adverted to this ancient form of tenure partly
because it was a very widespread system in primitive
times, partly because, tenaciously as customs relating to
the tenure of land are retained by communities, the
ancient Celtic rule appears to have been broken through
by this judicial decision. It probably lingered a long
time in remote localities, but it had no legal status, and
could not be pleaded. It appears plain too that as the
English law became more strictly followed, the perma-
nent rights of the dependent members of the sept were
gradually extinguished, and the customary occupation
was reduced to a tenancy at will.
Successive rebellions, confiscations, and immigrations
of English settlers did their work in lowering the material
OF AGRICULTURAL LAND. Ij^
condition of the native Irish ; a faith hostile to that of
the dominant class widened the breach between the Eng-
lish conquerors and the Irish peasantry ; and a change in
the customary food of the people completed their degra-
dation. This change was the substitution of the potato
for oatmeal, or whatever other kind of grain had been
used before for food.
A nation increases ordinarily up to the supply of that
food which is sufficient to sustain life. If the food be
cheaply attained, population will grow rapidly. Again, as
the wages of labour are relative to the cost of producing
labour, if food be cheaply got, wages will be low. The
use of the potato increased the numbers of the Irish, and
reduced their wages. Five or six centuries ago the wages
of labour in Ireland were as high as those in England.
Twenty-five years ago they did not, we are told, amount
to much more than a fourth of the rate of English wages.
But this abundance of cheap food was grievously counter-
balanced by the excessive misery of the people, and the
risks, ultimately the occurrence, of famine.
The staple industry of Ireland is agriculture. The
population of Ireland was excessive. It is possible, had
there been abundant capital in the hands of landowners
or farmers, that even this population might have been em-
ployed. But neither landowner nor farmer had capital, and
it was therefore necessary that the peasantry should sub-
sist by their own labour on the plots of land which they
rented. These tenants were called cottiers, and there was
the keenest competition for these plots, which were put up
from time to time to auction. The system has been to
some extent remedied by the famine and the subsequent
emigration of a large percentage of the population, because
iy6 VARIOUS TENANCIES
the competition for land has become somewhat less active
and wages have increased.
There is nothing to limit the rate at which land will
be let when the sole or nearly the sole occupation of
a people is agriculture, the price paid for the use of the
soil is determined by the competition of an auction, and
the population is abundant. Property in the soil, under
such circumstances, may be used as a means for inducing
a scarcity price on its occupation, and for constantly
heightening the price as opportunity arises. It will not be
difficult to point out the causes and conditions which
bring about such a result.
If a town were besieged by an enemy, or its com-
munication with the supply of agricultural produce were
effectually arrested in any other way, the price of food
would rise. It would become necessary that the inhabi-
tants should practise economy. It would be to the ad-
vantage of those who possessed such granaries as existed
in the town or district, to exact the fullest price which the
demand of the public for such food as they had to sell
might put into their power. To the rise which might thus
be effected there is no limit. The people who could not
buy might perish, and the demand might slacken ; but as
long as they had such resources as could tempt the owner
of food to dispose of part of his store, so long he could
exact the largest price within their means, and they would
be constrained to sacrifice everything to the necessity of
maintaining life. If the whole available food of the town
or region were in the hands of one man, like Bishop
Hatto in the German story, he would be moved to sell by
only one of two risks — the supply from some new quarter,
or the extinction of all demand by the starvation of all
OF AGRICULTURAL LAND. IJ'J
those who wished to buy. It is hardly necessary to say that
a society, however much it might in the abstract respect the
rights of property, would never permit its own destruction,
by according to any one man such unhmited powers over
the necessities of all the rest. It would assuredly (as has
occasionally been done when similar or analogous circum-
stances have occurred) assume that the right of society to
exist was more sacred than the ownership of property. For
it would hold that sacredness is accorded to private pro-
perty because it is by maintaining such rights that society
exists and prospers ; but that when society is threatened
with dissolution, the plea on which the maintenance
of property depends is about to disappear. INIuch more
then, when the existence of society and the sustentation
of certain private rights became incompatible, would the
former override the latter; not only because it is stronger,
but because it has more urgent and permanent claims.
Now this condition of absolute scarcity in an object
which was nearly as important for the continuous existence
of the people as the supply of food to a besieged town,
was actually effected in Ireland. This country had but
few manufactures, and these were little capable of expan-
sion. The owners of the soil had no capital, or if they
had, they were not disposed to employ it in hiring Irish
labour. The population was abundant, and either could
not or would not relieve itself by emigration. The only
means of life available for the people was the cultivation
of the soil, not as hired labourers, but as small occupiers.
At any cost they must have land. In order to gain tem-
porary possession of it, they were willing to offer rents
many times in excess of the possible value of all that
could be produced from the soil. These promises to pay
178 VARIOUS TENANCIES
were of course never fulfilled, but the occupier gave all
that he could; that is, he paid everything which he earned
over and above his necessary subsistence and the subsist-
ence of his dependants. He had of course no motive of
any kind for prudence or thrift, since the possession of
any property, except by stealth, would have been merely
a plea for the exaction of arrears of rent. The Irish
peasantry were incomparably worse off than the French
peasantry were before the Revolution and during the
period in which an arbitrary /ai7/e was exacted from them;
for the latter could not be easily dispossessed, and might
be able to hoodwink the government agent ; while the
former was absolutely at the mercy of his landlord, except
of course in so far 'as the full exaction of all the legal
rights of the landlord might be attended with personal
danger to the agent or his principal. The Irish land sys-
tem familiarized the peasantry with agrarian outrages,
because these outrages were the solitary remedy against
oppression — an oppression, it should be added, which was
not the less real because it was exercised under those
forms of law which to all appearance are universally
necessary in every society, in order to protect and en-
force voluntary contracts. It is a standing rule in all
legal procedure that such contracts must hold good unless
they are obtained by force or fraud, and that no plea of
temporary necessity can be raised against the fulfilment of
obligations which have been consciously entered on.
That there are contracts, which arc voluntary indeed,
but should not be protected by law, would be admitted
on all hands. Immoral bargains are of this kind. But
it is a nicer question to determine when the law should
interfere cither to fix a price, or to strike a balance
OF AGRICULTURAL LAND. 179
between the parties among whom the value of a produce
is distributed. For example, it would be all but impos-
sible to determine the share of the workmen and the
capitalist in any product to the development of which
both agencies are requisite. Nor is the difficulty less in
the case of land. The tenant pays a rent for certain
properties inherent in the soil. This rent, as we have seen,
constantly tends to being everything which is over and
above the cost of producing various articles from the
earth, when the demand for such articles enables the
producer to sell them at a price in excess of the cost at
which they have been produced, this cost including the
remuneration of the producer's own labour and the profit
on his capital. It is clear then that should this rent, or a
portion of this rent, be taken away from the owner of the
soil, it will not be to the advantage of any one besides the
person who occupies the soil. The portion of rent which
the landlord loses the farmer gains ; and as, by the very
terms of our hypothesis, this rent must be over and above
the cost of production, the position of a farmer under such
circumstances will be pro tanto that of a landowner. He
would, for example, be able to borrow on the security of
his portion of the natural powers of the soil. Now we
know that these natural powers have been enormously
developed by the progress of the art of agriculture. The
soil of England produces eight times as much food as it
produced 500 years ago, three times as much as it did
250 years ago. But to maintain that the present generation
of landowners has a natural right to the benefit of every
improvement which may be induced hereafter on the use
of the soil, is not only an extravagant assumption, but
cannot be sustained as long as the legislature insists
N 2
l8o VARIOUS TExXAACIES
that owners may be dispossessed of their lands at their
present value when public exigencies require the sacrifice.
It is plain injustice to take such possessions without
making full compensation ; but it may be matter of the
highest policy, when such compensation is made, to
establish a body of farmers whose rent shall be permanently
fixed, whose holdings shall be incapable of subdivision
below a fixed amount, but whose interest in improving
the soil should be stimulated by the security which is
given them in the fruit of their own intelligence and
labour. And surely, as a matter of equity, the outlay of
labour and capital is more naturally entitled to the fruits
of an improved market and the economy of continued
skill than the passive owner is, the value of whose estate
grows as he sleeps. The remedy at least for Irish agricul-
tural distress and agrarian disaffection is fixity of tenure,
and this fixity can apparently be attained only by granting
a permanent ground-rent, representing the average value
of the rack-rent, to the landowner, and by securing him
in his income by sufficient powers of distress.
JNIy reader will see also that there is another reason
which may justify exceptional action on behalf of the Irish
cottier, even though it be conceded that no such stringent
remedy is needed in the case of the English and Scotch
farmer. The latter can protect himself. He will not
consent to rent land at such a rate as will not secure
him the ordinary profits on capital, the ordinary compen-
sation for a laborious and anxious superintendence over
his farm. Any attempt to extort exorbitant rents would
be defeated, for capitalists would decline to take land on
disadvantageous terms. They would transfer their capital
to other occupations, or such an outlet for it in the British
OF AGRICULTURAL LAND. ]8l
colonies or foreign countries. In point of fact, agricul-
tural land in England is rather under than over let, rents
rarely reaching the maximum which capitalists, especially
those who are inclined to farm a few acres highly, are or
would be willing to give, and frequently falling below the
price at which ordinary tenant farmers eagerly compete
for the privilege of occupying farms.
But the case of the Irish peasant is, as we have seen,
totally different. With him there is no alternative to agri-
culture. He must labour on the land, or starve. He has
little option now ; he had no option when the fullest pos-
sible rent was extorted from his exigencies, when he was
constrained to pay a scarcity price for the use of land. In
one particular only he was better off than the English
farm-labourer. He often contrived to secrete a little store
which availed him for emigration ; for the Irish emigra-
tion, great as it was, was spontaneous, and unassisted by
government. But pending this movement, he was wholly
at the mercy of the landowners, as he now is in a modi-
fied degree.
The claim of tenant right— that is, the demand to be
compensated for the actual outlay of capital in the im-
provement of the soil — is in effect an assertion that
the farmer is unprotected against the landowner. In
England and Scotland the wrong of which the Irish
complain is not likely to be committed on a large scale ;
for public opinion is a powerful corrective to such a
practice. The English tenant farmers, as Adam Smith
observed, constantly lay out great amounts of capital on
the land which they occupy, and are yet unsecured against
the cupidity of the landowner. But the insecurity was
and is only apparent. The tenant is virtually protected
I»2 DEMAND AND SUPPLY.
by the disreputable publicity which would be given to a
sudden eviction, or a dishonest appropriation of the
tenants' improvements. Whether indeed improvement
be checked by the fact that the tenancy is legally pre-
carious, is a question which Arthur Young answered
negatively, and reasonably so.
CHAPTER XIV.
Demand and Supply.
As we have several times seen, the keystone of society,
from the point of view which the economist takes, is that
capacity for and disposition towards the mutual exchange
of services and utilities which is manifested in its mem-
bers. On this aspect every one wishes to buy and wishes
to sell.
The words Demand and Supply have been adopted
by economists to express those states of mind. But every
one who buys, sells ; and, pari ratione, every one who sells,
buys ; the completion of demand and supply being an act
of exchange in which both are interlaced. My reader
will remember that the interposition of money merely
postpones the actual termination of the true exchange,
by enabling the recipient of money to use his pleasure
in selecting the lime which shall be most convenient for
the completion of the transaction; the function of money
being like that implement in mechanics which is called
an endless screw.
The origin of demantl is the sense of necessity, utilit) ,
DEMAND AND SUPPLY. 183
or convenience. The condition of human life is that it
must be maintained by the products of labour. The
condition, of social life is that different persons should
be engaged in different pursuits. A continuous supply of
food must be afforded in order that man may exist; and
food is got by labour. Hence the earliest and most
essential function of labour is the supply of food ; the
possibility of any other than agricultural labour being
practised by any community, depending on the precedent
condition that such labourers as are engaged in procuring
food can produce more than they must needs consume
themselves. The machinery available for these ends must
show a surplus produce over that which it expends in
maintaining its own activity. As then the demand for
food is incessant, so, when the supply is straitened, it is
urgent. Under such circumstances every other demand
is suspended or circumscribed ; for utility or convenience
give way to necessity. If however this universal want be
readily and fully satisfied, the demand for articles of
utility or convenience will vary with the habits and tastes
of the individual, and with the power which he has of
enjoying or using them.
Only a little less urgent than the demand for food is
that for clothing and house-room. In some parts of the
world these demands are reduced to a minimum, the
natural warmth of the climate enabling persons to dis-
pense with them altogether, or at most to be satisfied
with scanty clothing and slight protection from weather.
Now the possessor of any object in demand may,
and indeed does, temporarily raise the value of it (i. e.
its value at any particular time and to any particular
person) to the maximum amount which his intended
184 DEMAND AND SUPPLY.
customer will endure to give. In the great majority of
cases now-a-days this debate about the value of an article,
called by Adam Smith the higgling of the market, is
confined to wholesale purchases and sales. But a gene-
ration or two ago the habit of bargaining in matters of
retail trade was general. It still is a custom in many
European countries. It is all but universal in the East.
The adoption of a different plan in small transactions
is partly due to indolence, partly to necessity. In the
multiplicity of objects which may tempt a purchaser
(supply in fully settled countries, as far as the utilities
and conveniences of life go, being regularly in excess of
demand), it is all but impossible to form an estimate of
the exact value of retail commodities; and purchasers
prefer to trust to the judgment and honesty of those with
whom they deal. Hence, as I said above, ' good-will '
and ' connexion.'
The sense of utility or convenience is not absolute, but
relative or personal. ]Mr. De Quincey, in a passage
quoted by Mr. INIill, observes, that no supply of hearses
in any town would induce customers to buy more than
was absolutely necessary. No better instance of limited
demand could perhaps be given; for a hearse is no
pleasurable object for contemplation, is cumbrous, and
does not improve in value by keeping. But it is possible
to conceive an eccentric person with a taste for collecting
hearses, as men have gathered walking-sticks and fishing-
rods by the hundred.
Now this fact that the possessor of any object in de-
mand may, and does, temporarily raise the value of it, is
the solution of many social questions, in so far as they
are examined from an economical point of view. For
DEMAND AND SUPPLY. I 85
reasons fully stated before, the best index of such a de-
mand is the price of the object in question. It is perhaps
hardly necessary to say, that the demand must be ' eflfec-
tual,' i. e. the requisition of the object must imply that
the intending purchaser is not only willing but able to
render that which the possessor of the object demanded
considers an equivalent for such an object. But the im-
portance of the fact which has been stated above is so
great that it is desirable to illustrate it abundantly.
The demand for food is incessant, primary, urgent.
By food is meant, not the luxuries or conveniences with
which the great mass of the people can dispense, but that
without which they cannot exist. This, in our country,
is bread. At any sacrifice bread must be procured. No
article then exhibits more clearly the demand of society
than bread does. Hence, the demand remaining constant,
and the supply falling short, the competition of purchasers
will raise the price in a far greater proportion than will
be manifested in the case of any other deficient article.
For a reason which we shall give below, such a rise will
also adversely affect the price at which all other articles
can be concurrently sold.
If the adequate or ordinary supply of bread to any
community is contained in 10,000,000 quarters of wheat,
which under such circumstances is sold at £2 los. the
quarter (the quantity and price are merely hypothetical),
the falling off of such a supply will, according to its
degree, affect the price of that which is available for sale
in a geometrical proportion. If, for example, it fall to
7,500,000 quarters, it must not be supposed that this
quantity will sell for £25,000,000 only, i.e. the price at
which 10,000,000 quarters used to sell. It will fetch
1 86 DEMAND AND SUPPLY.
much more. This fact, which is fundamental in the
theory of demand and in the history of prices, was
noticed long ago by Gregory King. Nor in case the
scarcity is so high that sufficient food cannot be procured
by all persons, will anything check the rise in price,
except the starvation of some. The price will constantly
increase, if no aid can be given to the deficiency, until
the number of those competing for food has been fully
reduced. Happily we have had no experience of this
excessive dearth for centuries ; nor, in the extension of a
free import trade, are we likely to ever experience more
than a slight and temporary deficiency. When the dearth
is absolute, it may be added, all articles of food, all
materials which may avail for the sustentation of life, rise
proportionately; though, as a matter of fact, such kinds
of food as are not habitually and universally necessary
are consumed at an early period in such a scarcity. Do-
mestic animals, though they assist human labour, are
maintained by that labour, and in some degree at least
subsist from the means on which labour subsists.
Whenever the deardi of the necessaries of life does not
amount to absolute famine, the secondary conveniences
are sure to get cheaper. A high price of corn always in-
volves (all other circumstances remaining the same) a low
price of meat. When people have to stint themselves of
necessaries, they abjure luxuries, they economize the use
of conveniences. High prices of corn under the pressure
of a particular crisis are the indications of a peremptory
demand; high prices of other articles are an index of
a voluntary demand. Just then as the positive neces-
saries of life rise in price as they become scarce, so do
the comforts and conveniences of life fall in price under
DEMAND AND SUPPLY. 187
ihe influence of causes which exalt the price of neces-
saries. In order to interpret the events which aflfect the
price of articles we must not take Mr. De Quincey's
hypothetical cases ; that of a musical-box on Lake Su-
perior, offered by a dealer who is on the point of depar-
ture, to a supposed purchaser who will not have, for many
years, the opportunity of a similar purchase ; or that of
a town which is offered a superabundance of hearses ; but
the constant conditions of society, in which, by some
occasional dearth in the necessaries of life, we may and
shall find that the rise in one article is the inevitable
depression of others.
In the long run the price of commodities depends, as
we have several times seen, on the cost of production. At
any particular time the price depends upon the demand of
the purchaser, the discretion of the seller. The fact that
commodities are produced at all depends on the pre-
existence of demand for them — a demand which is per-
sonal when the producer intends them for his own use
or consumption, indirect when the producer employs them
as a means of exchange. It is perfectly true that the
most urgent demand may not induce a corresponding
satisfaction. The article may be absolutely limited in
quantity, it may not be procurable for a time, it may not
be procurable for want of that capital or industry which
is essential to all production ; capital being, on an eco-
nomical analysis, labour maintained by the accumulations
of previous labour.
Thus, for example, the number of known pictures
painted by the great masters of the art is limited. No
power could add to the number, though time or acci-
dent may diminish it. The value then which wall be
l88 DEMAND AND SUPPLY.
assigned to these masterpieces is absolutely relevant to the
demand for them. The price which they will fetch is
wholly sctUed by the competition of purchasers. A fashion
may exalt this price to an extravagant amount, a fashion
may depress the price. Forty or fifty years ago it was
the custom for book-collectors to search out Aldine and
Elzevir editions of the classics. As a consequence the
price at which perfect copies were purchased was often
enormous. The fashion it seems has passed away, and
books which once cost many pounds would not now
fetch as many shillings. But on the other hand, the
market value of earl}- English printed books is greatly in-
creased. These indeed are examples of that exceptional
demand to which Mr. De Quincey referred when he
gave his case of the traveller on Lake Superior and the
possessor of a musical-box. The value of the article at
the crisis is determined solely by the desire of the
purchaser and the rarity of the object which he wishes to
appropriate. But such cases are only exceptional, and
do not bear in any notable degree on the economy of
society.
Far different however is the case with those objects
the demand for which is urgent and continued, but the
supply of which cannot, for a time at least, be increased.
Such was till lately the case with food in this country.
Almost all nations depend to a great extent on their own
harvest for subsistence from year to year. If they have,
either by lack of foreign trade, or by a corn-law imposing
prohibitive duties or precarious duties on foreign produce,
insulated themselves from the harvests of other countries,
and therefore cannot get foreign supplies, they must
economize their resources, and put up with hardship,
DEMAND AND SUPPLY. 189
dearth, or even famine. But in order to buy, they must be
able to sell. Thus, had the trade in corn during the Irish
famine been ever so free, the peasantry of that island
could not, any more than the peasantry of Belgium could,
have obtained foreign supplies, for they had nothing to
offer in exchange. But to sell or buy, they must create
a market for the dealer. Thus, during the existence of the
sliding-scale system of duties (i. e. a rule that the duties
on imported corn rose as home-grown corn fell in price,
and fell as it rose), it was all but impossible for foreign
corn-growers to anticipate the market, wholly impossible
to anticipate the produce of the United Kingdom. Now
uncertainty is the most serious obstacle to commerce ; and
hence the continuance of the sliding-scale system was
fatal to regular importations from abroad. It also made
the trade of the corn-dealer or corn speculator, instead of
being useful only, unnaturally important. The usefulness
of the corn-dealer consists in his economizing the sup-
plies of any country during seasons of scarcity by high
prices, in economizing the supplies during abundant sea-
sons by reserving the surplus for harder tunes. But when
the market was so precarious and fluctuating, as it was
during the continuance of our corn-laws, the greatest
risks attended the trade of the corn-dealer ; and as a con-
sequence he required, in popular language, large profits
for his services. At no period were there such constant
and such serious fluctuations in the price of corn as
during the existence of those laws, the very object of
which was to maintain, as far as possible, a uniform rate
of price.
It was not, as my reader may anticipate, any advantage
to the producer. If a farmer grew nothing but corn, it is
190 DEMAND AND SUPPLY.
doubtful whether he could have gained anything by the
machinery of the corn-laws. In the first place, the mar-
kets, as I have said, were subject to violent fluctuations,
the gain of which, in so far as it could be secured, fell to
the corn speculator. If a dealer desires above all things
a uniform or, as Adam Smith calls it, a natural price, still
more does a producer ; for a fall may overset the calcu-
lations and destroy the profits of a harvest, seeing that
the producer cannot, as a dealer may, easily extricate his
carpital from his investment. And if the farmer's profits
were precarious, his landlord (if we remember that rent is
all that remains over and above the cost of producing an
object in demand) could not enter upon the advantage
of high prices.
But a farmer does not produce corn only. The main-
tenance of animals is, not only for the purpose of the
market, but for the development of rural economy, alto-
gether of primary and paramount importance. But, as
we have seen, high prices of corn involve low prices of
other agricultural produce. Unless wages increase with
scarcity (a very rare and exceptional phasnomenon), the
purchasing power of incomes falls with the increase in the
price of the first necessaries of life. Every shilling added
to the quarter of corn, or, to be more exact, every half-
penny added to the price of the quartern loaf, cuts oflf
a certain number of purchasers in the market of meat
and dairy produce. Any scarcity, I repeat, in the supply
of primary necessaries, lowers the value of secondary
necessaries, whether this scarcity be the effect of the sea-
sons, or of legislation, or of such artificial regulations as
have the effect of legislation.
But thanks to those changes in our fiscal system which
DEMAND AND SUPPLY.
9'
have allowed the free importation of food, the explanation
of these facts has become little more than a matter of
abstract speculation. There is already, or there is rapidly
being effected, a perpetual harvest before those who
adopt the practice of free importation and have the power
to make their demand effectual by the supply of home
produce to foreign markets. The alarms which honest
fear endorsed, or which interested parties spread, as to the
risks of dependence on foreign supplies, or as to the
extent to which the foreign producer of food could supply
the wants of those with whom he could enter into a bene-
ficial exchange, have passed away. The real cost of
carriage is diminishing yearly. The nominal cost can
hardly increase, since a great amount of this cost is in
satisfaction of interest on capital already fixed in perma-
nent roads. I mean by 'real cost,' the charges incurred at
any given time in performing a service ; by ' nominal cost,'
the price paid for an irrecoverable outlay. Thus the
charges of transit by sea are determined by the real cost
of the service rendered, or again, by the working expenses
of a railroad ; while the nominal cost, in the latter case,
would refer only to the dividend derivable from the capital
invested in the line. The latter is, if competition be free,
a decreasing quantity.
It does not follow, however, that demand will be satis-
fied, even though the natural circumstances are favourable
to the supply. We have lately had a striking illustration
of this fact.
The outbreak of the Civil War in the United States
arrested the supply of an important raw material of British
industry. In i860, about 621,000 tons of raw cotton
were imported into the United Kingdom. In 1862, the
192 DEMAND AND SUPPLY.
quantity fell to 232,000 tons, i.e. to little more than one
third of the supply two years before. The circumstances
of this exceptional occurrence exhibit with great precision
the economical conditions under which demand and sup-
ply are related ; for although clothing is not so necessary
to human life as food is, it is only less necessary, and the
raw material of clothing, giving as it does the opportunity
of labour to millions, is indirectly as important to those
who are engaged in manufacturing it as food itself.
The price of best cotton was quadrupled. Not at once,
indeed ; for the stock of manufactured articles was very
large, and the capitalist employer was placed for a time
in a particularly advantageous position. But United States
cotton rose from £60 the ton, at which it was returned in
1 860, to £267 in 1864. The rise in Egyptian and Bra-
zilian cotton was nearly as great, while the inferior produce
of British India rose from £37 the ton to £169 ; for it is
a rule in the price of objects in demand, that scarcity
operates most energetically on the inferior article in the
same class. A sudden dearth of labour always raises in-
ferior more than it does skilled labour. High prices of fine
wool are accompanied by higher relative prices of common
wool. This rule does not apply to the first necessaries of
life ; for here the urgency of the demand puts an end to
all other considerations by dwarfing the desire to appro-
priate other objects.
Great however as was the rise in raw cotton, it would
have certainly been greater still had it been the only raw
material available for textile purposes. To some extent
the deficiency was supplied by flax, still more by sheep's-
wool. But no article could satisfy so many, so varied, and
such common uses as cotton does. The demand was
DEMAND AND SUPPLY. I93
exceedingly urgent, the supply very deficient. The agents
of the cotton-spinners,, already associated for this purpose,
since there is always great risk in depending on a single
market, scoured the world in order to stimulate the pro-
duction of cotton and to buy up stocks of the raw ma-
terial. To a certain extent they succeeded. Imports
came from countries which had never supplied cotton
before. Egypt and India put forth all their energies in
order to fill up the void in the British market. These
energies, however, were only imperfectly successful, for
in the year 1865, when the American war was over, and
the stocks had been liberated, the imports were only
436,000 tons.
The fact is, as demand, to be effectual, must be accom-
panied by the power to exchange ; so supply, to be
effectual, must be accompanied by the power to produce.
Now in order to produce, capital must be forthcoming,
i. e. the means for maintaining labourers. But in order
that capital should be provided, first, there must be ante-
cedent saving; next, there must be confidence in the
course of production; and lastly, there must be confi-
dence in the development of a market. There was plenty
of capital saved ; but there was little or no information
as to the best way in which a cotton supply could be
secured, and no certain prospect of an advantageous
market. In other words, there was no capital with which
to start the production of cotton on a great scale, for
there was no knowledge (perhaps it may be said, there
was a perverse blindness) as to the duration of that
political difficulty which induced the cessation of the
ordinary market.
And yet there is no produce for which there is a wider
o
194 DEMAND AND SUPPLY.
area of cultivation than that available for the cotton-plant.
It grows freely as a perennial in all tropical climates; it
flourishes as an annual over that wide belt of land which
occupies the warmer part of the temperate zones. Wheat,
the geographical range of which is perhaps next in width,
cannot grow in the tropics, is always highest in quality
the more nearly it approaches the latitude in which it
will best ripen, the more nearly it is brought to those
climatic conditions in which the human race is most
healthy and vigorous.
Since the demand for the necessaries and chief con-
veniences of life is regulated by those conditions of
comparative urgency and comparative rarity, it is mani-
fest that such artificial circumstances as give the seller
an exceptional advantage over the purchaser should be
discouraged. We have already recognized the mischief
and wrong which are involved in the maintenance of a tax
on imported food. We have in a previous chapter com-
mented on the effect of those regulations which workmen
in particular callings have been able to induce on that
labour which is engaged in supplying some of the neces-
saries of life, the artificial dearness which such arrange-
ments involve, the charge they put on the resources of
the labourer himself, and the risk they impose on the
continuity of his occupation. Nor must we omit to
notice also, that any restriction put on the free transfer
of land, any check on the supply of that which is neces-
sary for all social uses, is similarly an artificial assistance
given to the seller, an artificial disadvantage put upon the
buyer. Whatever may be said about other objects, it is
inexpedient on every economical ground to permit the
right of settling land ; that is, of allowing the decisions of
DEMAND AND SUPPLY. I95
those who are dead to have force against the will or wish
of the hving. Land and its incidents, in fully settled
countries, are absolutely limited in quantity. To permit
its accumulation in few hands, to hinder its distribution
by permissive enactments and direct legislation, is to give
its owner an exceptional advantage against the rest of the
community, to unduly enhance its price, to lay a special
burden on those who require its use.
Where land is occupied with a view to profit, and is
therefore brought under the ordinary conditions of pro-
duction and exchange, the accumulation and settlement
of land in few hands does not affect adversely the pur-
chaser of such articles as can be freely and abundantly
imported from abroad, except in so far as the cost of
freight gives an advantage to the home producer. It
does not of course affect at all the purchaser of such
objects as are exported to foreign countries, because
here the conditions of competition are necessarily fulfilled.
But it does affect the purchaser adversely in the cost of
articles which cannot be freely imported. It may be
the case that the price of corn (on the hypothesis that
the price of land and its use are heightened by the legal
accidents which are permitted to surround its transfer
or alienation in England) is not seriously affected, but
the price of other provisions is. Still more however
is the ground-rent of houses affected, and by implica-
tion the supply of house accommodation. This artificial
enhancement of cost in the supply of this necessary is of
course greatest in the case of those whose incomes are
small.
Not long ago the greatest part of a considerable
port on the north-east coast of England was the property
o 2
ig6 DEMAND AND SUPPLY.
of a great corporation and a wealthy nobleman, the one
moiety lying on one side, the other on the other side
of the tidal river which constitutes the port. The pro-
perty of the corporation was (owing in part to the
disability imposed on all corporations up to a compara-
tively recent date of leasing their land for a longer period
than forty years) occupied by all or nearly all the
poverty and wretchedness of the town. In the course
of time this property was alienated, and distributed
among a number of purchasers in fee. Almost im-
mediately the tide of misery set in to that part of the
town which was the property of the nobleman. The
distribution of the corporate estate induced a healthy
competition for the possession of building-sites and the
erection of suitable dwellings. The aggregation of the
nobleman's estate was unfavourable to these circum-
stances. So, again, it is probable that had there not
been an all but universal custom in Lancashire of letting
building-sites on what is called chief, that is at a perpe-
tual ground-rent, the industry of the Manchester district
would hardly have been developed, or if it had been
originated, would have been small by comparison with
that which has been exhibited under what is, in ever}'thing
but name, an easy and total alienation of land.
Demand, then, is measured by the necessity of the
consumer or purchaser; supply by the power of the
producer or seller. The check on the claims of the latter
is competition on the part of sellers. Everything how-
ever which checks competilion on the part of the seller,
increases competilion on the part of the buyer, and so
enables the former to extort more from the necessities
of the latter.
TRADE IN MONEY. 1 97
CHAPTER XV.
Trade in Money.
We have been hitherto considering the phaenomena
of supply and demand as exhibited in the purchase
and sale of those material products of industry, those
services which society recompenses on economical
grounds, and that locus standi for all production which
is implied generally in the expression ' the rent of land.'
The demand and supply of money and capital are so
important, the circumstances connected with their har-
mony and the disturbance of their ordinary relations
so intricate, that they need a separate treatment and
explanation. The functions of money are complex, and
the use of the word is exceedingly ambiguous.
We have already seen that in the first instance the
precious metals are produced under the same conditions
which govern the production of other articles, occupying
as articles of value just that place which other values
occupy, a price proportionate to their average cost of
production, and distributed among those who require
and use them in the same way, though with far greater
ease, that other values are distributed. When a country
produces the precious metals in such quantities as to
always have a surplus over the wants of an internal
currency and such domestic arts as employ these metals,
the distribution of gold and silver is effected in exactly
the same way that any other merchandise is. Australian
gold and INIexican silver are exchanged for some kinds
198 TRADE IN MONEY.
of British, colonial, or foreign produce, by the same
agencies as distribute cotton or wool. The country
which imports them, procures them at a cheaper rate
than another community does which merely obtains them
by the action of the intermediary, since the value
of an article produced abroad will be governed by
the value of the article against which it is exchanged.
The value of gold in Australia is determined by the
cost of producing it there. But the value of Australian
gold in Great Britain will depend on the value of that
against which it is exchanged. So the value of wine
is not determined in England by the cost of producing
it in Spain, but by the cost at which the goods were
produced in exchange for which it is sold to the British
importer. In this case gold and silver are mere m^atter
of merchandise.
Gold and silver are articles of mere merchandise,
whether in a raw or manufactured form — that is, as dust,
ingots, bullion or coin — when they are re-exported from
countries which merely receive them for the purpose
of distributing them. They are still articles of mere
merchandise when they are imported for use in the arts,
as for gold and silver plate, or for decoration, whether
of furniture or of the person, or in any other way than
that of currency. They are still articles of mere mer-
chandise when they are exported in the shape of coin
to satisfy obligations created in foreign countries.
But concurrently with these uses of the precious metals,
they are employed as the machinery of trade, and as the
form in which obligations are expressed, and therefore
may be compulsorily satisfied. In small transactions
these obligations are liquidated by the transfer of money.
TRADE IN MONEY. 1 99
for reasons given in a previous chapter. In transactions
between nation and nation, except in cases where gold
and silver are the natural products of a country, they are
rarely used, the imports and exports of the nation as a
rule balancing each other, and the influx and efflux of
specie out of or into any one country being determined
by causes similar to those which govern the distribution
of other products. Nor are all the transactions between
the inhabitants of any one country settled by the ma-
chinery of the precious metals. The result may be ef-
fected by their substitutes. Thus, for example, trans-
actions representing an average of .£10,000,000 sterling
are daily adjusted in one room in London, the bankers'
clearing-house, without the intervention of a sovereign,
a shilling, or even a penny. In the absence of these
substitutes for the precious metals, the adjustment of
these mutual obligations would be so inconvenient as
to be practically impossible. Convenience as well as
economy induces a community to dispense as far as pos-
sible with the machinery of a metallic currency. Every one
of these obligations is expressed in quantities of the pre-
cious metals. But the business done in three ordinary days
at the clearing-house represents more specie than is to
be found in all the reserves of all the banks in London.
Even if these were the only transactions in which sub-
stitutes are found for money, the specie possessed by the
London banks would be made to operate as the ma-
chinery of trade more than a hundred times a year.
A country then supplies itself with such gold and silver
as it needs for the arts in the same way that it supplies
itself with other raw materials — by the exchange of its
exports. In the same way it obtains such sums of the
200 TRADE IN MONEY.
precious metals as it needs for the purposes of ordinary
retail trade and exchange. The amount which it retains
of these metals is increased as its home-trade increases,
but is diminished by economies in the substitution of
symbols for coin. Thus the general use of cheques has
tended to diminish the amount of specie circulating in
a country, and, were one-pound notes adopted, a further
economy would ensue, in so far as such notes when put
into circulation represented a larger sum than might be
retained by the bank which issued them and was bound
to exchange them on demand for gold. There is reason
to believe then that the amount of specie circulating
within a country varies little from year to year ; for, as we
have seen before, there is no motive to increase its amount,
every motive to reduce it to the least possible quantity
consistent with the fulfilment of those functions for which
money is adopted as a measure of value. It is possible
that at the beginning of the present century there was
nearly as much metallic money in England as there now
is; for although the population has doubled, and the
wealth of the country has grown in a far greater pro-
portion, it is very likely that the enlarged demand for
money is compensated by the increased use of banking
and drawing facilities, and the abandonment of the habit
of hoarding, a practice which was very general sixty and
seventy years ago.
The ordinary suj)ply then of gold and silver, in so far
as it is employed in the arts, and employed for the pur-
poses of an internal currency, is effected in the same way
as that by which other wants are satisfied. It does not
seem that these quantities of the precious metals can be
materially diminished, just as they will not be materially
TRADE IN MONEY. 201
increased. There may be, as there was during the great
continental war, a demand for specie in order to pay
troops ; and if paper can be substituted for gold and silver,
a drain upon the metallic circulation may take place.
But in the absence of such a substitute, but little of these
metals will pass out of the home circulation. Dealers in
the precious metals find it possible to trench on other
resources, the amount of which is far less than that in
circulation, but which is far more open to these influences.
Gold and silver will hardly be extracted from circulation,
except in some slight degree, and usually by offering a
premium on them in the shape of imports at a reduced
price. But persons who need to export money can ob-
viously procure gold in exchange for notes, and thus by
contracting the paper circulation, and thereupon by putting
an additional strain on the metallic currency, render any
effect on the latter increasingly remote and difficult.
A paper circulation purports to give the holder of the
note a right to demand the sum specified in the note at
his pleasure. Under no other circumstances will paper
circulate at par, i. e. be exchanged at the sum which it
represents. If the paper has a forced currency, it will
circulate only because the solvency and good faith of
the issuing parties is trusted ; if it be suspected, or the
prospect of redeeming the note be distant, it will circulate
at a depreciated rate, this rate appearing in the country
which uses the note in a rise in prices, and in trans-
actions with foreign countries in an adverse state of the
exchanges. For example, the par of exchange, omitting
fractions, between England and France, is twenty-five
francs, = j£i. If however French notes were inconvertible
and had a forced circulation, and the suspicion or risk
202 TRADE IN MONEY.
attending on the use of the paper amounted to twent}'
per cent., the prices of articles purchased in the French
market would rise by this or more than this amount,
and it would take thirty-one francs, speaking roundly, in
paper, to procure an English sovereign. This rise in the
value of gold, or, to be more exact, fall in the value of
inconvertible paper, is manifested in the national currency
of the United States. The discredit attaching to this
paper at one period was so considerable that it took more
than 280 paper dollars to procure 100 gold dollars. But
with the return of peace, and with an abundant revenue,
the government was able to grapple with its public debt
and its state paper, and to offer a prospect that ere long
it might be able to meet the over -issue and resume
payments in gold.
As we have seen above, banks of issue find it possible
to circulate a far larger amount of paper than the gold on
which the paper is based. A bank, for example, may in
ordinary times circulate £30,000,000 of notes, and be quite
safe from risk if it retains only £10,000,000 of specie,
i.e. has its metallic assets only one-third of its liabilities.
It takes care of course, if it is dealing honestly with those
who use its notes, that the remainder of its liabilities are
covered by property, i.e. by bills of exchange arriving at
maturity, or by quantities of government securities. It
is only obliged to have all its assets in such a position,
as that they can be easily convertible into specie.
Now it is plain that if it become necessary to transmit
a portion of this gold upon which notes are issued, that it
is only necessary to present a certain number of these
notes in order to get gold in exchange. But it is also
clear that if any notable portion of this gold is abstracted,
TRADE IN MONEV. 203
the bank is by so much nearer the position in which its
notes bear a high proportion to the specie on which they
rest. If the bank then be not empowered to issue notes on
government or other securities, it must not only (to main-
tain such a proportion as that which has been referred to,
and which is assumed to be generally necessary in order to
sustain the reputation of the bank) diminish its circulation
by all the notes returned on its hands, but by more than this
amount, i.e. by just so much more as will restore the equi-
librium. Thus, for example, if the ordinary circulation be
£30,000,000, the ordinary amount of specie £10,000,000,
the rest being held say as £10,000,000 of public and
£10,000,000 of private securities; and £4,000,000 of gold
be abstracted from the reserve, the bank must, to keep
itself safe, reduce its public or private securities, or both,
by £8,000,000, as well as curtail its notes by £4,000,000.
That is, in the event of such an operation, its circulation
would fall from £30,000,000 to £18,000,000. In its own
interest, however, it would rather lower the amount of
its private securities, than resort to a sudden or large
sale of its government stock. In practice, too, the incon-
venience which would ensue from curtailing the accom-
modation of the bank, will induce the public to be content
with an over-issue of notes, provided always that this over-
issue be based upon a security which is readily convertible
into specie. The customers of the bank will agree, either
formally as they did in 1797, or informally as on many
other occasions, to accept and circulate notes, even
though the metallic basis be fallen to a very low amount.
Experience teaches them that when trade is profitable and
credit good, the most rapid and alarming efflux of bullion
from any country will be speedily followed by a reflux.
204 TRADE IN MONEY.
The same reasoning which induces persons lo economize
their stock of the precious metals, instructs them also in
the fact that large accumulations of specie are mere hoards
from which no economical profit is derivable.
We shall however see that during the course of this
operation, by which the metallic reserves of a country
are diminished, great injury to traders is certain to tempo-
rarily ensue, and that the phenomena of straitened supply
and urgent demand are as full\- manifested as they are
when society is straitened by a dearth in the necessaries
of life.
An efflux of specie may arise from many causes. The
purchases of a country may be speculative ; or the public
may be constrained to buy large supplies of food, in con-
sequence of deficient harvests; or capitalists may have
invested largely in foreign loans ; or sometimes the credit
of a country has been temporarily suspected, and it is
therefore necessary to make larger specie payments than
heretofore; or a country may be forced to make large
purchases of raw material or finished goods in other
countries, which do not deal conversely with it. All
these causes may produce such a result.
The illustration of these phaenomena would however be
too lengthy for an elementary work. They have all been
exhibited in a marked form within the present century,
and have all, as occasion has arisen, created serious em-
barrassments. It is with the last named case that we
are principally concerned.
The object of a merchant is to use his capital as com-
pletely as possible. He imports goods, and gives bills to
such countries as receive and negotiate bills ; he exports
goods and draws bills on his customers. The same facts
TRADE IN MONEY. 205
apply, though in a minor degree, to the home trade.
Sellers take bills from buyers, unless from the terms of the
market the latter can gain a greater advantage from the
discount allowed for ready money. But with foreign trade
it is necessary that bills of exchange should be drawn, for
otherwise the purchase of merchandise would involve the
export of specie, the sale of merchandise its import. It is
plain however that such a continual export and import of
the precious metals would involve risk, and certainly loss ;
for there is more or less peril in the transit, and there is
certain loss involved in locking up part of the machinery
of trade.
When therefore trade exists between two countries, the
buyers of each country draw bills, which are negotiated
generally by means of certain persons who make it their
business to effect the exchange and liquidation of these
instruments, in consideration of a small premium on the
transaction. These bills are set oft" against one another,
and may exactly balance between country and country.
In such a case, the trade between two countries is said to
be in equilibrio, and the exchange at par — i. e. it is no
advantage to export the precious metals.
It does not however follow that when Paris holds more
bills on London than London does on Paris, that it will be
expedient to transmit specie from London to Paris. There
may be a third place, for example Hamburg, which owes
more to London than it has to receive, and receives more
from Paris than it has to pay. This third city then may
intervene, and the difference between Paris and London
may be settled by this indirect or, as it is called, arbi-
trated exchange. A fourth or fifth city may be added ;
and so on through the whole range of the mercantile
2o6 TRADE IN MONEY.
world, the exports of every country taken together paying
for its imports taken together. In a country like our own,
which carries on trade with the whole world, exchanges
are arbitrated between such commercial centres as can
hold convenient intercourse together. If however the im-
ports regularly exceed the exports in one of these regions,
and the exports as regularly exceed the imports in another,
it is necessary that specie should be shipped. The latter
has been the rule between the United States and Great
Britain since the Californian discoveries, as it is steadily
between Australia and Great Britain. The former has
generally ruled between Great Britain on the one hand
and France and Hamburg on the other. In this way
Great Britain has distributed the mineral treasures of the
New World and the Australian continent, each transac-
tion involving a profit or advantage to the community.
A country, however, may regularly import more in
value than it exports. Such, it is said, is the case with
Russia. In this case, it must either pay the balance in
specie or create some new kind of export with which to
meet the cost involved in the excess of imports. Com-
monly it exports securities, i. e. it turns its private debts
into a public debt, on which it pays or agrees to pay
interest. It does not follow that a public debt, created by
one country and taken by another, represents a sum of
money exported to the former; it may be goods, muni-
tions of war, machinery, railroad plant, or any other
valuable commodity. And the export of securities may
be new debts created, or debts hitherto due to the in-
habitants of an importing country transferred to some
foreigner. We might, for example, supposing we im-
ported more in value than we exported, pay the balance
TRADE IN MONEY. 207
in consols, should foreigners be willing to accept this
kind of security in liquidation of their claims.
If, on the other hand, the excess of imports is tem-
porary, it may be, and generally is, liquidated by an
efflux of specie ; nor will this efflux be arrested until the
excess is made to cease, and the irregularity is rectified.
The way in which an attempt is made to check an excess
of imports, is by raising the rate of discount. Under
these circumstances it is supposed, and generally with
reason, either that profits must fall, and so business must
be straitened, or that consumption must be lessened, and
so importation be diminished. But the power of controlling
importation depends upon the object imported. It will
have but scanty influence on the demand for the neces-
saries of life. A drain of specie consequent upon large
imports of foreign corn will not be checked by a rise
in the rate of discount. Such a drain, so far as it operates
upon the reserve of gold held by the Bank of England,
will continue either until the exporting country is willing
to take goods, or until the demand for this produce be
satisfied. The importer will readily bear the loss involved
in a high rate of discount, because he feels sure that he
will be reimbursed by the rising market for food.
But notwithstanding the fact that a drain of specie,
in order to purchase food, is not compensated or arrested
by a rise in the rate of discount, this rise is necessary
and inevitable. As there is less gold, so there are less
notes. The paper currency diminishes as specie dimi-
nishes ; should in this country, for reasons alleged before,
diminish more rapidly. For a share of this remaining
gold all importers are competing, in order to complete
their bargains, to carry out their purchases. Now as
2o8 TRADE IN MONEY.
competition for a limited quantity always raises its price,
much more does competition raise the price if the limited
quantity cannot be readily increased, and its supply is
of primary necessity to the person demanding it. Thus
it is that discounts, the shape in which money is bor-
rowed among persons engaged in commerce, rise under
the effects of a drain and the exigencies of foreign trade,
as rapidly and to as great a height as that of food does
on the occurrence of a dearth. The borrower of capital
has to make the best terms which he can with the lender.
It is no doubt possible, when the rate of discount is
exceedingly high, to cause a rapid fall in the price of
capital advanced on temporary loan. An increased issue
of paper will bring this result about when the drain has
reached the highest flow and is on the point of ebbing.
The convenience of this excess is so great, and the cir-
culation of such an excess is certain to be so short, if
the rebound can be foreseen, that the power of adopting
this expedient will always check the rate of discount
and turn the tide. Much more certain however is the
issue of notes representing smaller sums than those
ordinarily circulated. If this expedient be adopted, a
certain amount, equivalent to such notes as can be put
into circulation, will be liberated from the home currency,
and flowing to the bank will fill up the void which has
been created, either wholly or partially. Even permission
to use such an issue is, as was the case in 1825, suffi-
cient, for the holders of capital anticipate that they will
soon be constrained to accept a lower rate of discount,
and be obliged to compete as lenders, instead of being
an object for the competition of borrowers.
The effect, then, of a drain of gold which has been
TRADE IN MONEY. 209
originated from the necessity of meeting the requirements
of foreign purchases in an excess of imports over exports,
is all the more manifest when we compare, under the
economy of banking, the amount of a foreign trade by
the side of the quantity of specie on which it is based, and
the service which that specie is made to render to the
paper currency at home. The amount of these imports
is more than seven times as much, in money value, as the
amount of the gold ordinarily retained by the banks.
Upon this sum, then, must fall the function of paying
for an occasional excess of purchases. But this sum also
sustains the internal circulation of paper, and a vast mass
of credit expressed in money.
In the ordinary course of things, and when mercantile
credit is good, capital is procured by borrowers at some-
thing less than the average rate of interest, for loans made
for short terms are always more satisfactory to lenders
than loans which cannot be readily recovered. Lenders
in this case, acting through their agents, that is, bankers,
wish, as a rule, to have their assets as available as they
can. When, however, loans have been freely made, and
the articles towards the purchase of which these loans
have contributed fall in value, and therefore a loss is
imminent on the purchaser, attempts will be made by
borrowers to procure an extension of such loans as they
have already contracted, in order to tide over the de-
pression, and to save themselves against the time when
diminished importation will enable them to recover, in
some degree at least, the present loss. But the readi-
ness of lenders diminishes with the eagerness of bor-
rowers ; the price of the assistance, known as the rate
of discount, rises, the number of loans is lessened, and
p
210 TRADE IN MONEY.
they whose commercial position is most unsound, are
obliged to suspend their payments. Such occurrences
increase the distrust ; every man seeks to entrench him-
self against risk ; lenders are more than ever wary, and
increase their reserves of capital. The feeling of in-
security may, and does ordinarily, increase, and what is
called a commercial panic ensues ; that is, a state of
things in which loans of any kind are made with the
greatest difficulty, even when the security is unexception-
able. The deficiency of loan capital does not occur at
an early stage in these proceedings, but when the reaction
on prices sets in and the speculation is disappointed. In
such cases the difficulty has been met, and always suc-
cessfully, by permitting an issue of bank notes over and
above the fixed legal amount, or by the issue of govern-
ment paper in aid of merchants, under the form of
exchequer bills. These bills are really certificates of
indebtedness on the part of government, payable at a
fixed date, and bearing interest in the interval. The
former expedient was adopted in 1847, 1857, and 1866;
the latter in 1792, 181 1, 1822, and 1825. 'Commercial
distress,' it should be added, almost always arises from
over or speculative trading, but its incidence is as severe
on prudent as it is on injudicious trading. High rates of
interest arrest the profits of those who borrow capital in
order to carry on trades in which there is the least possible
amount of risk, as well as the gains of those who have
borrowed in hopes of getting the advantages of a rising
market.
It is possible for a country to carry on a large and
increasing foreign trade, and to labour under a severe
depression of its industry at home. Such facts have
DISTRIBUTION OF CAPITAL. 211
characterized the trade of the year 1867. The exports
and imports have increased, but many branches of do-
mestic industry have been adversely affected. The price
of all metals has been very low ; the production of textile
fabrics has been carried on under the disadvantageous
condition of a constantly falling market; ship-building
has been almost arrested. Added to these, there has
been a general and well-founded distrust in the numerous
joint-stock enterprises which have been attempted, and
which have failed, partly by an over sanguine confidence,
much more by the gross dishonesty of many among
their promoters, and the utter inadequacy of the English
bankruptcy law in arresting and punishing offences
against mercantile credit. There may be low rates of
interest, and great stagnation of business, consequent
upon speculations carried on at home, and carried on
unwisely or dishonestly.
CHAPTER XVI.
T/ie Distribution of Capital.
The profits on capital tend to equality. The same
conditions fulfilled, the rate of profit obtainable from
advances of capital must be the same ; and the circum-
stances will not vary, whether the possessor of capital
uses it in his own business, or lends it to others. There
is, as we have seen before, no real difTerence between the
rate of profit and the rate of interest.
If, therefore, all kinds of business were equally safe,
p 2
212 DISTRIBUTION OF CAPITAL.
and all borrowers equally trustworthy, capital would be
equally distributed over all kinds of labour for the pro-
duce of which a demand exists. Insecurity alone, when
capital has been accumulated, is a hindrance to its equal
flow over ever}^ field of industry. This sense of insecurity
is either entertained towards the intelligence or the in-
tegrity of the borrower. Where the average intelligence
of traders is insufficient to interpret and provide against
the risks of any business, capital will not be attracted to
the calling in which such risks arise ; or what is in effect
the same thing, the apparent rate of profit in such callings
must be greater than it is in others. Thus, for example,
capital flows more readily to ordinary kinds of agriculture,
especially to those which involve but little danger of
failure from the contingencies of weather and markets,
than it does to exportation for a new and uncertain
foreign demand. Again, where the business is liable to
periods of depression, or to the chance of sudden cessa-
tion, the attractions of such a calling are less than those
which belong to a safer industry, and the apparent rate
of profit rises ; an index that the competition of lenders
for such investments or advances is small. I have already
stated that the risks of a strike increase the gains of those
who engage in such occupations as are liable to these
occurrences, and will increase them until such times as,
the power of calculating or predicting such emergencies
being taken away, the possessor of capital absolutely de-
clines to employ his resources in such occupations.
Frauds and similar malpractices on the part of bor-
rowers are also hindrances to the easy distribution of
capital. It has been more than once found impossible to
carry on trade in certain articles, because manufacturers, in
DISTRIBUTION OF CAPITAL. 2I3
their haste to get rich, have sold worthless goods, or fa-
bricated the trade marks of their rivals on inferior goods,
or have in other ways deceived their customers. Again,
the want of trustworthy agents in particular localities is
not only a bar, but an actual hindrance to the distribution
of capital. The rate of interest or profit would approach
identity over the world, if commercial honour were gene-
rally dominant, and the police of the exchange were
universally effective. So, again, a lax bankruptcy law in
one country, and a rigorous administration of such laws
in another, are obstacles to the free diffusion of capital.
Whenever civilisation advances so far as that there shall
be an international code of commercial law, the distri-
bution or circulation of capital between country and
country, for instance, between France, Germany, and
England, will be as easy and obvious, or nearly as easy
and obvious, as the distribution of capital over the United
Kingdom. Such a reform in the international relations
of countries is a mere matter of time, of short time when
its expediency is known, just as the adoption of inter-
national currencies is.
Pending these changes in the comity or commercial
diplomacy of nations, the distribution of capital over any
given country is effected by the ordinary machinery of
demand and supply ; the exportation of its overplus being
effected by investments in foreign stocks and under-
takings, and occasionally, but rarely, in loans to finance
or banking companies. It remains to comment upon the
effect of these extraordinary diversions of capital, which
interrupt its natural distribution, and cause it to be ab-
normally occupied in particular objects. These are loans
for state purposes, and protective regulations.
2 14 DISTRIBUTION OF CAPITAL.
A government may borrow just as a private trader
borrows in order to carry out some public work, in which,
capital being invested, a regular profit is obtained. Thus,
for example, several foreign governments have constructed
railways by entering into the money market and contract-
ing loans, the interest on these loans being paid by the
tolls taken for the use of works when they are completed.
Again, a government may establish a post-office, and in-
vest a large capital obtained on loan in the various con-
veniences which contribute to such a service, paying the
interest, and making a further gain from the rates of
postage. Here it is plain that the government borrows
just as any other trader does, and may be able, as is done
with the post-office system of the United Kingdom, to do
the service more cheaply than any individual or joint-
stock company could do, and obtain a considerable sur-
plus to the credit of the public revenue.
Again, a government may contract a loan for a purely
unproductive purpose. The term is not used in con-
demnation, for a branch of public expenditure may be
in the highest sense necessary or useful, but could not,
except by violently straining the use of the term, be con-
sidered productive. Thus, for example, a loan made for
carrying on a defensive war may be exceedingly neces-
sary; a subsidy paid to a foreign state may be exceed-
ingly politic. But no one would call war expenditure
productive, except by a figure of speech, which should
include the defence of what is produced in the act of
production itself; and still less would any one hold that a
subsidy paid to a foreign state could be treated as pro-
ductive expenditure. In these cases then, when the sum
is spent, no periodical profit recurs to the community
DISTRIBUTION OF CAPITAL. 215
which has undertaken the expenditure. It does not
follow that the sum is squandered, but it is spent and
gone, and is irrecoverable in any shape.
Now in both these cases the government which con-
tracts the loan comes into the market to compete with
other borrowers. This competition may be felt in a rise
in the rate of interest; but the reserves of capital, i.e.
the amount of capital waiting for borrowers, and not
lent, may be very large. The possessor of capital often
does that which the possessor of goods does ; keeps
back part of his capital in hopes that there will be a
greater demand hereafter, or at least is unwilling to
lend except upon undoubted security. If governments
merely reduce the amount of this reserve, they will not
raise the rate of interest, and so it constantly happens
that when the rate of interest is very low, owing to the
fact that capital is accumulated and unemployed, con-
siderable sums may be borrowed by governments with-
out inducing any effect on the rate.
In general, however, the effect is to raise it. In this
case capital is directed from its ordinary channel, into
another which a government has dug. The ordinary bor-
rower suffers from the enhanced rate; the lender is
benefited. Labour is benefited, for unemployed capital,
or capital less actively employed, is devoted to labour,
and in general, as government expenditure is concerned
with the commoner kinds of labour, a larger number of
labourers are maintained than would have been, in case
the capital had been left to the ordinary demands of
borrowers for production. If, for example, a government
loan, by raising the rate of interest, checks speculative
trade, or dwarfs such manufactures as are concerned with
2l6 DISTRIBUTION OF CAPITAL.
the supply of luxuries, and expends the sum borrowed
in keeping soldiers, or employing navigators, or in build-
ing ships, or constructing docks ; it is plain that a larger
number of labourers will reap the advantage of govern-
ment expenditure than would have earned wages in supply-
ing luxuries. A great government expenditure, as has been
seen many times, gives all the appearance of activity,
plenty, prosperity. Very intelligent persons are deceived
by it, and have even imagined that nations are prospering,
when, after all, they are squandering their resources. They
are misled by the abundance of employment, and the
consequent command possessed by labourers over neces-
saries and conveniences.
When the work is done for which the loan was con-
tracted, there will be, of course, a cessation of the
demand for the labour which has been called into activity.
If, however, the advantage obtained by the employment
is permanent and productive, the expenditure may, and
frequently does, call into activity a series of fresh agencies
or conveniences which absorb the labour which has
been employed in the construction of the work, or com-
pensate for its cessation. Thus, a railway or canal which
makes a particular region accessible, or supplies a road
and a market for the products of industry, though its
completion involves the discharge of the excavators and
builders who made it, may open a way for the products
of factories, quarries, or collieries. For example, the coal
and petroleum-fields of the United States are at a great
distance from the sea; so great, indeed, that the carriage
of the former for foreign trade is out of the question,
and the cost of conveying the latter is so great that it
is proposed to lay down a vast pipe from the interior
DISTRIBUTION OF CAPITAL. aij
10 the nearest port. If the plan be practicable, it is clear
that its adoption would involve a permanent benefit.
The case, however, is different when the expenditure
is unproductive. The employment of a large number
of persons in military operations and military works
may indeed relieve the labouring class by diminish-
ing the number of persons competing for employment
in peaceful avocations, and by affording occupation for
a larger number of persons than would have been en-
gaged under ordinary circumstances ; but the survivors
of these works generally return to a market which is
understocked with capital, fully stocked with labour, and
which is further burdened with the interest payable on
the loan contracted for the purpose of unproductive
expenditure. The cessation of war expenditure is almost
invariably followed by great commercial distress and
great industrial languor. It was followed by such a re-
action in Great Britain after the Continental war, it was
in the United States after the civil war. The causes
are not far to seek. In the exhaustion of capital, and in
the absorption of resources by heavy and crippling tax-
ation, occupation in some industries ceases altogether,
and that in others is narrowed and overcrowded.
In this way, we may understand the seeming paradox
of Dr. Chalmers, who urged that a war expenditure
should always be paid out of income, and not be met
by loans, because, as he averred, a nation which adopts
the former expedient pays the cost once, while the em-
ployment of the latter is to pay it twice, once in the
necessary absorption of capital and its diversion from
one kind of employment to another, a second time in
the payment of interest and the ultimate repayment of
2l8 DISTRIBUTION OF CAPITAL.
the principal. In case the loan, however, does not raise
the rate of interest, and does employ more labourers
than would have been employed had it not been nego-
tiated, it does not seem that the negotiation can be
called a payment. The second payment is, of course,
inevitable.
There is, however, a difference between a loan and
a tax. A loan is raised upon capital, a tax is generally
levied on income. The former may raise prices, the
latter generally diminishes enjoyments. The former
affects borrowers and lenders, the latter curtails the
power of expenditure. The former affects the present
convenience of an existing society but slightly, the latter
is oppressive. Now as no nation ever admits that it goes
to war solely for the interest of the present generation,
but always affirms that its military action is essential to
the security of the future powers of the community, the
plea that the parties who are to get the advantage of this
security should undergo the charge of some part of the
cost involved in the process of defence or aggrandisement
is naturally put forward, and is as naturally irresistible. We
are, it is argued, transmitting to posterity a vast and
valuable inheritance, which must, like other splendid lega-
cies, be a little burdened. This reasoning was very
general during the American civil war, just as it was
during our great Continental war, and was accepted as
implicitly.
It should be added here, in extenuation of such a course
of proceeding, that it is very difficult to apportion a war-
tax fairly. If it be put on general expenditure, it weighs
most heavily on those who have the largest families, who
are the parents of the future nation, who are putting their
PROTECTION. 219
capital out in the maintenance and education of their
children, and are taxed for doing so. Besides, as we
have seen before, a tax on the food of a people is a tax
on the raw material of labour, and is at once unwise and
oppressive. But a tax on luxuries, though not open to
the charge of oppressiveness, is uncertain in its incidence,
and still more uncertain in its productiveness. There
remains an income or rather a property-tax, i. e. a tax
on profits. Such a tax is less unjust, if it be fairly levied,
than any other; but it is in the worst sense unjust, and
continues all the worst evils of the worst taxes on ex-
penditure, when it is unfairly levied, to say nothing of
the moral evils which it induces, and which, it appears, are
invariably connected with it. There is, however, a grow-
ing conviction among enlightened financiers, that in any
case, a large part of war expenditure should be paid out
of the income of the nation which undertakes the war ;
and most nations which take a true view of their duties
to the present and the coming generation, seek to appor-
tion the burdens of war among those who undertake
the responsibility, and who will hereafter enter on the
inheritance.
CHAPTER XVII.
Protection.
Among the causes which check the distribution of
capital, none is more powerful, and none has operated,
and still operates with greater energy, than that control
over the natural right of free exchange which is known
by the name of protection. There is no society which has
220 PROTECTION.
not adopted, and which does not still maintain, the pro-
priety of protecting certain interests, whether they be civil
ranks, or employments of capital, or kinds of labour.
Sometimes the assistance given to particular interests is
derived from direct legislative enactment, often it is the
result of private combination, of voluntary association, of
professional etiquette, and of t's/>n'/ de corps.
No one questions the natural right of free exchange.
I assume, of course, that there are such rights as are called
natural, and that these are the inalienable conditions
under which individuals take part in social life. Nor do
I think it worth while to occupy my reader's time with the
contemptible quibble as to whether these rights flow from
municipal law, or control it. It is sufficient that in prac-
tice municipal law is ultimately amenable to natural
justice, because a law which does wrong is worse than
violence. We are slowly affirming that society is consti-
tuted and that it exists in order that the largest possible
freedom may be given to the individual will, in so far
as this individual will does not trespass on the w-ill of
others ; that the most perfect society which we can con-
ceive treats freedom as the normal state, and force as a
reserve against violence or wrong-doing; and that the
progress of society has been marked, on the part of kings
and governments, by the gradual abandonment of the
privilege of controlling innocent opinion and innocent
action, and by the recognition, in the interests of truth
and honour, first of complete toleration, and next of ab-
solute equity in adjudicating on contending interests.
The use of free exchange is the simplest and most
obvious of these rights or concessions. It consists in
permitting each individual to make the best use which his
PROTECTION. 221
own experience or judgment gives liim of such powers
and faculties as he has in the purchase or sale of what-
ever he wishes to acquire or to relinquish. Free exchange
is the economical aspect of free will or personal liberty.
Now it will be plain to every one that this right of free
exchange is granted only sparingly in this country, and is
granted even more sparingly in other countries. But it
will be also plain, that if there be such a thing as natural
right; if a discretion over a man's own labour and the
fruits of it, and its natural consequence, the power of
disposing them to the best advantage, are the final pur-
poses of social life ; if that theory of government which
presumes that the administration can make a man's bar-
gains, direct the employment of his capital, prescribe the
field of his labour, is exploded ; the institution of any re-
striction on the course of free exchange must be per-
petually on its trial, and must be justified either on the
ground that absolute liberty gives an advantage to the
strong against the weak, and so frustrates the real ends of
government, or on the ground that incontestable reasons
of public policy justify interference with free action.
It will not be difficult to give illustrations of the cases in
which individual liberty is properly curtailed under each of
these circumstances. Government helps, or should help,
the weak against the strong in various ways. All civilized
communities, nearly all Christian communities, have pro-
hibited a parent from holding such a property in his
children as enables him to sell them into slavery. With
equal propriety a government may, and sometimes does,
superintend all contracts which parents may make for the
labour of their children, either by prohibiting such con-
tracts altogether when the children are of tender years,
222 PROTECTION.
as under the factory acts, or by limiting theTiours during
which they may labour, as under the same acts. Similar
legislation, it appears, is threatened in respect of agri-
cultural gangs. So, again, equity interferes to annul frau-
dulent contracts, and to protect persons from extortion.
For analogous reasons the law checks 'free banking' and
the issue of paper money. In the same way the law con-
trols certain trades, regulating, for example, the hours
during which public houses may be opened ; determining
the rates of interest which pawnbrokers may exact on
pledges; fixing the maximum fares which public con-
veyances can charge for the services which they render.
In these and many other cases which might be cited, the
government is rightly occupied in protecting the weak
against the strong, in preventing the holder of a supply,
the demand for which is urgent and temporary, from
taking advantage of the position which he occupies.
For similar reasons government has interfered with the
free course of trade in order to protect discoverers and
inventors. The plea on which the old trading companies
were sustained, when the rule that the crown or parlia-
ment was justified in granting commercial monopolies had
been exploded, was, that it would be unfair to those who
had developed commerce in some new direction, if other
persons who had not incurred the previous expense and
risk of opening up the trade were permitted an unre-
stricted use of the new market. The reasoning was
unsound because the facts were false. So again, on far
more plausible and perhaps on solid grounds, the law pro-
tects inventors and authors by patents and copyright, when
it provides that they who have discovered some new pro-
cess, or have written or composed a literary work, should
PROTECTION. 223
have the sole right of manufacture or publication. But
the expediency or justice of patent laws and copyright are
far too large a subject for the present work.
Again, and in the second place, government may inter-
fere with the freedom of exchange on grounds of public
policy. It is easy to find illustrations of such a justifiable
interference. In times of peace there is no reason why
the sale of gunpowder, firearms, or any other commodity
which may be brought within the definition of munitions
of war, should be prohibited, or controlled. In times of
war it is plainly the duty of a government to prevent its
subjects, if possible, from supplying the public enemy
with such assistance, on the simple principle of self-
defence. If a blockade can be justified, much more can
the prohibition of such an exportation be defended.
Again, a government may with propriety check the too
rapid exhaustion of a limited quantity of any commodity,
when that commodity is not only valuable, but is a con-
dition to the economical prosperity of a country. Thus,
for example, government may prohibit the exportation of
coal, or limit its use to the higher kind of mechanical
operations. In this country, the area of whose coal-fields
are limited, and in which the quantity of coal which can
be worked can be calculated with more or less precision,
the manufacturing eminence which Great Britain pos-
sesses depends upon the continuity of the supply. Now,
if other means fail, it could not be said that the legislature
would not be justified, if it be possible, in inducing a forced
economy of these resources. The real defence against
government interference in such a case lies in the fact
that economy is naturally induced by dearness, and that
when the scarcity is felt, its effects are far more complete
2 24 PROTECTION.
than those which any regulation of the legislature could
bring about. But it is possible to give instances in which
economy may be enforced by legislative restrictions on
exportations. These restrictions should not appear in the
form of export duties, for though these duties involve an
economy of the article so burdened, they operate also to
put those regions in which the article is produced most
disadvantageously in a position of artificial sterility; but
in the shape of a limitation of the quantity exported. Thus,
for example, a check might have been advisedly put on the
destruction of cinchona trees, and on the exhaustion of
certain other forests in which timber available for in-
dustrial and other purposes used to grow, and which
have been recklessly consumed.
Again, for obvious reasons, a government may inter-
fere to confirm or annul contracts for the use of that,
the quantity of which is limited and the use of para-
mount importance, and in such cases can properly control
the relations subsisting between seller and bu}'cr. The
most important illustration of such a justifiable inter-
ference is, that which related to the letting, devising,
and settlement of land.
No civil government has ever accepted the doctrine
that the absolute ownership of the soil should, or indeed
can, be conferred on any individual. The largest rights in
its usufruct, many of which are usurpations, fall far short
of a complete discretion. The community, or the monarch,
as a corporation, not as an individual, is invariably pre-
sumed to have an ultimate and recoverable interest in
the soil. The extent of this remainder interest varies
from such a reality as that which forms the dominion
of the government in India, to so slender a claim as
PROTECTION. 225
that with which our modern notion of English law makes
us familiar. It could not indeed be surrendered without
reducing society to a deadlock, for there are and must
be occasions on which it is necessary to resume, in the
public interest, land the usufruct of which is enjoyed
by private individuals, after due compensation is made
for the present value of the land in question.
The land of any fully settled country is limited. Its
adequate cultivation, even under the freest system of im-
portation, is of paramount importance. The largest de-
velopment of scientific agriculture is not only the
measure of population, but also effects the fullest possible
distribution of many secondary necessaries or comforts
of life. Part of a nation may subsist on imported corn,
but a much smaller part can obtain imported meat. But
the maintenance of cattle in any country is for the most
part relevant to the cultivation of arable land, to the
rotation of crops, to the growth of succulent roots. If
therefore the arrangements under which land is pos-
sessed, or let as farms, are such as to check the develop-
ment of agriculture, and thereby to diminish the re-
sources or reduce the comforts of a community; or
if the system of land tenure is unfavourable to the dis-
tribution of wealth, the laws which bring about such
a result are fairly open to revision, and the causes which
contribute to these evils should be met by the necessary
remedies. The common adage that ' a man may do
what he will with his own' is false in reference to such
property as can be indefinitely increased ; it is not only
false, but destructive, if it could be extended to the
possession of land.
The expression, 'free trade in land,' is used a little
Q
226 PROTECTION.
inaccurately. It is commonly employed to designate the
abolition of those powers of settling land which are con-
ferred on its possessor by the law of this country, by which
he can, by deed or will, grant an estate in land to unborn
persons ; and for the reversal of a custom which prevails
over the greater part of the United Kingdom, by which
those estates in land which are known by the names of
fee-simple and fee-tail are conferred (in cases of intestacy
in fee-simple, or failure of extinguishment and intestacy
in fee-tail) on the eldest son. It is manifest that these
customs and rights tend to aggregate land in few
hands.
All rights by which individuals are enabled to de-
termine the course of an estate after their own death
are mere creations of law. Except for reasons of public
policy no person can have the smallest claim to control
the fortunes of the living after he is dead, or even to
devise that which he has accumulated or inherited. Still
less can he claim to extend his control over those who
are living in favour of such as are unborn. A settlement
of land, therefore, is the exercise of the will of a man who
is dead, in constraint of the will of a man who is living,
and every settlement, whether it be of land or of personal
property, is a hindrance to free exchange on the part
of the person whose discretion is thus limited. A removal
of these constraints or hindrances, an abolition of these
privileges and customs, is not free trade in land, but a
removal of certain obstructions which preclude a large
portion of the soil from being brought into the market.
Those who advocate what is called free trade in land,
advocate the subdivision of large estates, the creation
of a class of yeomanry, and the development of peasant
PROTECTION. 227
proprietorship ; for they anticipate that should these cus-
toms be taken away, larger quantities of land would be
annually submitted to sale in smaller parcels.
Some of the reasons which are alleged in favour of
these changes are political. With these we have nothing
to do. Some of them are economical, of which there
are principally two. It is supposed that small cultivation
is more productive than large. It is supposed that the
subdivision of land has a direct effect in elevating the
condition of the working classes, in giving them a real
stake in the country, in encouraging thrift, in diminishing
pauperism. Land as an investment, pays, it must be
admitted, but a poor percentage. But it is certain that
it always pays a higher rate than is given as interest in
the post-office savings' banks, the obvious and nearly
the only investment of the poorer classes. As I have
said before, however, land as an instrument should be
distinguished from land as an investment, and a class
of peasant owners would use land in the former way.
It is possible that the minute division of holdings is an
economical evil. It is also possible that the accumulation
of real estate is another, and a greater economical evil.
Correctly stated, free trade in land consists rather in
the removal of the hindrances which the law puts on the
conveyance of land. These are, the long period required to
constitute a valid title, and, thereupon, the tedious and
expensive recital of the title, the tax imposed on its
transfer, and the professional charges of conveyancers.
Many of these restrictions are traceable to the power
of settling land, some are merely legal rules, the relics
of far more stringent regulations, originally intended to
save the rights of the Crown, or the reversion to the State;
Q 2
228 PROTECTION.
some are relevant to the class interests of legal practi-
tioners. In short, free trade in anything is not only to be
referred to the quantity offered for sale, but to the facility
with which an exchange can be effected, when any part
of the object, be it great or small, is offered. If the
custom of primogeniture and the power of settlement
were instantly and entirely done away, and no person
were enabled to giant a less estate, either by deed or
will, than that which is called a fee-simple, it does not
follow that there would be free trade in land. The change
must be followed by an alteration of the conditions and
processes under which a valid conveyance can be made.
The interests of the great landowners are protected by
the powers of settlement and the custom of primogeni-
ture; but free trade in land is only indirectly affected
by these peculiarities of tenure.
I have adverted in a previous chapter (ix) to the
protection which the law gives to certain recognised
practitioners, and to the equally protective arrangements
of trades-unions. These rules are, as far as the favoured
class is concerned, a means by which competition is
checked and remuneration increased, though they are
often said to be in the public interest, as securing the
efficiency of the practitioner.
After these limitations and explanations we shall be
better able to illustrate the effect of protection as it is
generally understood; i.e. the assistance given to manufac-
ture or agriculture by the levy of duties on foreign pro-
duce, these duties being intended, when they are moderate,
to check imports, and when they are heavy to totally
exclude them. Analogous to these protective duties are
bounties, that is, sums of money paid out of the public
PROTECTION. 229
income to exporters of certain goods, or occasionally to
those who are engaged in particular industries, the con-
tinuity of whose produce is considered to be of public
importance ; as, for example, whale fisheries.
Protective enactments and bounties have both origin-
ated in the belief that it is expedient to give the direct
assistance of law to particular industries. If every pro-
ducer of every kind were protected, foreign trade might
cease, and, as far as regards home trade, everybody would
pay more, i. e. give more labour for what he gets, than he
need have given if the trade were not protected. Such
a system prevails, at least as far as manufactures go, in
Munich, where every craftsman belongs to some guild or
the other. As a consequence, all manufactures in this
city are bad and dear. But it is hardly possible, and were
it possible it would be certainly futile, to protect every-
body, and to thoroughly regulate the employment of
capital. All protection then, to be effectual, is partial ; and,
just as we saw before, when speaking of protected labour
(p. 95), that those who combine in a trades-union may
be said to mulct other labourers, so it has, with equal
pithiness, been said that all protection means robbing
somebody else ; i. e. constrains somebody to pay more
for what he wants than he would have paid had his
market been unrestricted.
It is clear that protection is unnecessary when capital
flows of its own accord and fully into the protected in-
dustry. It is because, under particular circumstances,
capital is not so advantageously employed in certain call-
ings that the State attempts to divert capital from a more
productive to a less productive channel. If protection is
needed to sustain a manufacture, the very act implies
230 PROTECTION.
that, without this assistance, the trade would be carried
on at a loss; in other words, would ultimately not be
carried on at all. Tea and coffee could perhaps be cul-
tivated in hot-houses if the legislature of any country
resolved on protecting such an industry by restraining
foreign importation. Of course such an act would be
madness, as the produce would probably cost fifty times
as much on the adoption of such means. But there is
only a difference in degree between such an expedient
and that of a protective duty on corn, or iron, or silk,
except that, in so far as the use of these latter articles
is necessary, the loss and the mischief is the greater.
It will be clear also that protection cannot stimulate
general industry. The State possesses no capital with
which to aid labour ; it must take capital from other em-
ployments in order to do so. In fact, whenever it pro-
tects particular kinds of labour, it diminishes capital by
rendering some portion of it less productive. It aids one
industry at the expense of others; it dwarfs what is
thriving, in order to help what is weakly ; it makes what
is fertile less productive, in order to rear a scanty crop
on sterile ground. What should we say of a farmer who
starved his best land in order to try experiments on a
rocky waste .'' A community which adopts such a course
is only saved from bankruptcy by its inherent vitality.
It clutches at an imaginary good, and gets a real loss.
It inflicts actual suffering or inconvenience on the public
in order to secure a delusive benefit to individuals. I say
delusive, for unless the Stale were to go so far as to grant
a monopoly of production to one, or a few individuals
whom it protects, it could not prevent the operation of
that economical law which reduces profits, other things
PROTECTION. 231
being equal, to an equality. Manufacturers crowd into
the protected occupation, and the benefit intended to be
secured by the policy of the government is distributed
and annihilated by competition.
It is sometimes alleged, that there are a set of circum-
stances under which protection is defensible. Protecting
duties may, says Mr. Mill, be temporarily imposed with
propriety, especially in a young and rising country, in
hopes of naturalizing a foreign industry in itself perfectly
suitable to the circumstances of the country. The limit
which Mr. Mill allows to such protection is that of the
time necessary for a fair trial.
Few statements made by any writer have, I am per-
suaded, been more extensively, though unintentionally,
mischievous than this admission of Mr. Mill. The pas-
sage which I have referred to (Principles of PoHtical
Economy, vol. ii. p. 525. edit. 1862) has been quoted over
and over again in the United States, and in the British
colonies, as a justification of the financial system which
these communities have adopted. The circumstances in
which they are situated exactly square with the hypo-
thesis of Mr. Mill. The countries are young and rising,
industries, as yet nascent, are thoroughly suited to the
natural capacity of the region and of the people; the latter
being of the same stock with the mother country whose
manufactures they prohibit or discourage. There is no
reason, apparently, except that of priority in the market,
why the industry of the old country should not be trans-
planted to the new. Hence, I repeat, Mr. Mill's concession
is perpetually quoted, and is perpetually mischievous.
Every country enjoys a natural protection to its manu-
factures. When the article is cheap and bulky, the cost
232 PROTECTION.
of carriage is equivalent to a prohibitive duty ; when it is
cheap and light, the same element of cost, amounting to
a considerable percentage, is a protective impost. In the
great majority of cases this charge, and similar incidents
attached to foreign commerce, are abundantly sufficient
to give a legitimate stimulus to home production. That
' trial under a new set of conditions/ if the expression
mean anything at all in relation to manufactures, a
notion which we may reasonably take the liberty to dis-
pute, is best satisfied when the conditions are those of
remoteness from the foreign market, and uncertainty of
supply or cost.
Besides, the reasons which can be alleged against the
diversion of capital from more profitable into less profitable
channels, which is the necessary result of protective re-
gulations, apply with overwhelming force to young and
rising nations, that is to communities whose territory is
imperfecdy occupied. Such societies almost invariably
suffer from a dearth of capital. The natural resources of
the community are so vast, so undeveloped, so unappro-
priated, that most of those persons who constitute the
community in question can employ every particle of
capital productively, and are eager to obtain more. The
rate of interest in young colonies is always high, for
lenders are scarce, borrowers numerous. It is the height
of folly then to starve such capital as does exist by
wasting a portion of it in occupations or employments
which are imperfectly productive, and which need, despite
the natural advantages attached to home-production, the
artificial assistance of legislative protection in order that
they may exist.
But again, who shall decide whether a particular in-
PROTECTION. 233
dustry should be developed in a country by protective
regulations? Who shall determine the period at which
the protection shall cease ? Is it not manifest that the
selection of favoured industries, (of course I except those
which may be conceived as absolutely necessary to the
well-being of the country,) and the prolongation of the
term of protection, will be matter of perpetual intrigue ;
will be a powerful means for demoralizing the adminis-
trative or legislative body which makes or extends these
concessions ? Why too should these indirect subventions
to particular industries be confined to new and rising
nations ? Is it not possible to conceive new industries
which may be developed among old and settled nations,
under a ' new set of conditions,' under circumstances
which are 'perfectly suitable?' And if so, who can resist
the reflux of these protectionist fallacies w'hich have done
so much mischief already, and have been eliminated with
so much difficulty.
There is a further argument constantly alleged in fa-
vour of a protective system, which is not so much eco-
nomical, as political, or social. It is a favourite practice,
especially with the protectionist orators and partizans of
the United States, to insist that it is the duty of govern-
ment to do its best to develope all industries; not so
much in order that the country may be relieved from the
necessity of depending on the foreign producer, as that
the employments of the citizens should be as varied and
the nation as self-contained as possible. We do not want,
these people say, to have the whole community engaged
in the production of raw materials; we want manufac-
turers as well as farmers, artizans as well as agriculturists.
I have already said that they must have this variety from
234 PROTECTION.
the natural protection afforded to all countries in con-
sequence of their distance from the foreign market. If
the importation of foreign goods into the United States
were wholly free, or at least if no duty were imposed on
foreign products in excess of excises at home, the Penn-
sylvanian or New England manufacturer would still enjoy
great advantages over the British importer in the markets
of Illinois, Missouri, and Ohio, because he is several
thousand miles nearer to his customer, and can be much
more easily informed of his customer's wants. But to
strengthen a nation by impoverishing the purchaser, and
by diverting the energies of the producer, is one of the
strangest expedients which a mistaken view of public
policy has ever recommended, or a narrow and suicidal
selfishness ever insisted on.
It is hardly necessary to advert to those arguments
once current among protectionists, which were derived
from the fear of being dependent on foreign producers.
If the British nation were left to the resources of the
United Kingdom only, it would have to abandon most of
its industries, and it would incur far more formidable risks
of a deficient supply of food than it can incur at present.
That nation is always most secure of a regular supply of
food which draws its resources from the widest area.
That nation is most near the contingency of scarcity or
famine which depentls absolutely on its home produce
for the maintenance of its people. That nation can always
get the most regular supplies of food at the cheapest
rate, which constitutes itself a free port for agricultural
produce, and which, by manufacturing such articles as
foreign countries desire and purchase, reaps a perpetual
harvest from the whole surface of the globe. It is hardl}'
PROTECTION. 235
possible to conceive ourselves at war with the whole
world, it is equally impossible to conceive a universal
dearth, a universal failure of crops.
There is one other argument which has been alleged
in favour of protection. It is stated that the landowner
in this country is subject to peculiar burdens, and that
he should be compensated by such legislative arrange-
ments as will raise the price of his produce. In the
language of logicians, the antecedent and consequent of
this argument are both false. It is not true that he is
liable to peculiar burdens. It does not follow, even if he
were made subject to special imposts, that he would be
compensated by artificially raising the price of his pro-
duce. As a matter of fact the price of the produce in
which he is interested has greatly risen in consequence
of the abandonment of protective laws.
The position of a landowner in Great Britain may be
favourably contrasted with that of the owner of any other
kind of property. In the first place, his land, by the
operation of natural causes, has risen and still rises in
annual value. His direct liabilities are a small rent charge
originally imposed on a valuation made one hundred and
seventy years ago, and which, even if it were to be looked
on as an annual tax, which it is not, is far more than
compensated by the shilling duty on imported corn. He
pays, it is true, certain local rates. Some of these rates,
however, are the outlay of capital on the permanent im-
provement of the soil, in the construction and repair of
roads. Some, again, are rates in aid of labour, the abo-
lition of which would inevitably be followed by a rise in
the rate of wages. In both these cases, however, those
persons who derive no benefit from the repair of the
2^6 PROTECTION.
road, and who get no profit from hired labour, contribute
towards the convenience of the former and the necessities
of the latter, since these imposts are generally levied on
the occupier. Rent, as we have seen, is all that remains
over and above the cost of production from the soil.
Anything which diminishes the cost of production, then,
enhances rent. The farmer is relieved from insurance
tluty on his stock. He pays, unlike other men engaged
in business and needing animal labour, no assessed tax on
his horses. The landowner, unlike any other capitalist,
can borrow money of the State at low and fixed rates,
in order to make permanent improvements which return
an interest far in excess of the outlay. He is liable to
no probate duty, and only to a moderate succession duty.
Nay, so tender is the legislature of his interest, that, only
recently, when a murrain of uncommon severity and
great deadliness raged among catde, and it became ne-
cessary to check it by destroying infected herds, the com-
pensation which, according to common justice, should
have been paid by those whose cattle were saved by this
expedient, w^as levied on the general body of ratepayers ;
who thus had to pay the tax twice over, once in the rise
in the price of meat and dairy produce, next in providing
the funds for insuring the losses of their neighbours. So
far is land from suffering under peculiar burdens that it
is really exceptionally favoured. Conveyance by sale or
settlement involves, indeed, considerable cost, but these
charges are, with the exception of the stamp duties,
the necessary consequence of those large powers over the
disposition of landed estates which their owners have
acquired and defend.
Again, it does not follow that, were the landowner ever
PROTECTION. 237
SO burdened, the true compensation is to be found in an
artificial enhancement of that which he produces. His
real interest lies in exactly the reverse policy. A farm
supplies not only corn, but meat and dairy produce. If
the price of corn be raised, the price of other produce
falls. Dear wheat means cheap meat. If the power of
purchasing the first necessaries of life be crippled or
limited, the power of purchasing the second necessaries,
the familiar comforts of Hfe, is much more crippled. I
have adverted to this rule before, but its importance justi-
fies a repetition, for the study of the laws which govern
prices is every producer's business ; a knowledge of these
laws might become the most effectual check to over pro-
duction and rash speculation. The general demand for
different objects varies in intensity with the nature of the
object, and its relevancy to the subsistence or the neces-
sities of the public. The demand of a few consumers
on a large scale does not raise prices so much as that
of many consumers on a small scale does; just as the
bulk of the public revenue is derived from the small
contributions of the general public, the amount of this
revenue being seriously affected by a decline in com-
mercial or industrial activity. Farmers are beginning to
understand these facts, and to look on a deficient, or
merely average harvest, as a loss. Before long they will
also see that any interruption in the supply of foreign
corn, though it may appear as a transient advantage to
them, is certain to be followed by a decline in the pur-
chasing power of the general community, and by a fall
in the value of that on which the)- depend for the net
profits of agriculture.
238 FOREIGN TRADE.
CHAPTER XVIII.
Foreign Trade.
The various regions of the earth are variously favour-
able to the growth of vegetable and animal products.
Different countries, too, have different geological charac-
teristics. Thus, rice and cotton will grow in tropical
or semi-tropical climates. Wool of good quality, on the
other hand, is produced only in temperate regions. So,
again, coal is found only in certain geological formations.
It is remarkable that nearly all, if not quite all, the coal
deposits which exist near the sea or great navigable
rivers, are found in Great Britain or the British colonies.
Gold is found only in primitive rocks, or in the detritus
of such rocks. The produce of silver is characterized by
similar limitations. These instances might be indefinitely
multiplied, and might prove incontestably that the civili-
zation of a people depends on reciprocity of trade. To
buy these foreign commodities or utilities it is necessary
to sell others ; in order to be able to sell, a nation must
labour; in order to labour, it must have the materials
wherewith to work.
Particular commodities, however, though produced in
particular districts or climates, are very seldom produced
in so narrow a district as to be under the control of
one government only. Again, there is no object which
is in general demand but of restricted supply for which
no substitute can be found. For example, at the out-
break of the Continental war the supply of saltpetre from
FOREIGN TRADE. 239
India, at that time the great source of this article, so
essential for war purposes, was practically in the hands
of the English. But the French contrived to obtain the
salt from other and new sources. Again, the supply
of colonial produce, especially sugar, was by reason of
the naval supremacy of Great Britian during the same
period practically denied to the French consumer. The
result of this exclusion from the supply of cane
sugar, led to the manufacture of sugar from beet-root.
It does not follow, therefore, that an export duty will be
really paid by the purchaser of the exported article. It
may be transferred to the seller by lowering the price,
or by checking the production of the article in question.
As geological differences and differences of climate
control the production of commodities or limit products
to particular localities, so differences of race and habit
may exercise a powerful influence on local or national
industries. It is excessively difficult to determine the
share which race has in modifying the economical posi-
tion of a nation. The science of ethnology is in its
infancy, and the inductions of those who study it are
apparently often rash and unsatisfactory. In any case
they are far too uncertain for practice or action, or even
for the explanation of economical phaenomena. Positive
evidence appears to point to an identity in the early
features of social life among races which are physio-
logically very different; developments in the social system
of particular countries being, it appears, due far more
to the progress of social and political science, and to
certain accidents of government and tradition, than to
any peculiarities in the stock from which the nation is,
or is presumed to be, descended. For example, the
240 FOREIGN TRADE.
village system of land tenure belonged to Hindostan, to
Germany, to medieval England, to Ireland, and to Russia.
Its abandonment in any of these regions is due, not to
the influence of race, but to the habits induced by forms
of goverment, rules of law, and similar social forces.
It cannot be doubted, however, that different com-
munities have different, and it appears permanently
different, capacities for special industries, and that, there-
fore, as materials vary with climate and soil, so industries
vary with national peculiarities. It cannot be by mere
accident that, for a long time at least, mechanical and
chemical science, in so far as these sciences are relevant
to mere economical objects, have been almost exclusively
developed in Great Britain.
As climate is a condition for the production of certain
raw materials, so it controls the exercise of certain in-
dustries. Bright dyes cannot be so well imparted to
silk in England as they can in the south of France,
where the sun is more powerful and the atmosphere more
clear than with us. Again, the spinning of fine cotton,
linen, and woollen yarns, is, it appears, much easier in a
moist than in a dry atmosphere, and therefore more
particularly an industry of Western England than of
any other part of the world ; this being a district in which
the annual variation of the thermometer is, comparatively
speaking, inconsiderable, and the air is always or nearly
always moist. Similar peculiarities of climate determining
industry will occur to my reader. In the same way,
(though here we are constrained to speak a little more
doubtfully,) it would seem that the influence of climate
affects the muscular, nervous, or moral capacities of men
or races so much as to develope or check their industrial
FOREIGN TRADE. 24!
powers. The inhabitants of tropical regions are, it is
said, languid and indolent; those of such countries as
suffer from long and severe winters are constrained
to periodical inaction, while those who live in places
where the climate is equable and mild are eminent for
their industrial success.
Plainly, then, natural science confirms the economical
doctrine that civilization is constituted by the interchange
of services, and that the rule which the experience of
one society affirms, is equally true of all societies. The
best hope therefore which men can gather, as to the
gradual and complete civilization of the world, and the
reclamation of nations, if it be possible, from barbarous
customs, is gained from experience as to the humanizing
influences of honest trade. The missionaries of morality
and religion have often failed to make any permanent
impression upon uncivilized peoples, either because they
have been indifferent to the value of those subordinate
agencies ; or because they have been unable to eliminate
those persons who have generally intruded on such
well-meant efforts. The slave-hunter, the buccaneer, the
filibuster, and the trading adventurer have hindered the real
progress of mankind and the wealth of nations far more
effectually than the self-devotion of the moralist or mis-
sionary has helped them. It is very difficult to humanize
a nation by conquest, it is impossible to civilize it by
knavery.
Now in the earliest ages of economical history, even
long before any records which have survived to our time,
or indeed have been written, trade between nations was
familiar. There is indirect evidence of commercial inter-
course between this country and the Tyrian coloaies, in
u
242 FOREIGiW TRADE.
ages long antecedent to the knowledge of Britain by the
Roman and Greek geographers. Fragments of very
ancient porcelain, undoubtedly introduced from China,
have been found in Ireland and the West of England, in
situations which leave no doubt as to the distance of the
time in which they were imported. Tin it appears was
a regular article of traffic in the Homeric age, and tin was
in early times procurable only from Cornwall. In later
times, and onwards to the early part of the middle ages,
wine was imported into England from France, Spain, and
Greece. Spices came from llx- East, either by the water
route of the Red Sea and the Nile, or by the caravan road
over Central Asia to the Black Sea and Mediterranean.
So the policy of the Plantagenet kings was directed to-
wards establishing close commercial relations between the
east of England, then its richest and most prosperous
region, and the thriving manufactures of Flanders.
Unfortunately, however, all men in those days were
occupied by the notion that money was wealth. This
fancy led the kings and statesmen of the age to encourage
exports and prohibit imports, because this seemed to be
the best way of increasing the stock of money. Indirectly
they may have developed manufacturing industry, because
they did everything in their power to induce a home
growth of such products as, being exchanged for foreign
goods, would bring about the result which they aimed at.
But the policy induced the habit also of considering that
trade could not flourish except under protection, and that
the wisdom of government was best exercised in providing
an artificial stimulus to industry.
Slowly, after many a hard struggle, and in the face of
bitter hostility, the economical reformers of this country,
FOREIGN TRADE. 243
long after the genius of Adam Smith had discovered the
true theory of trade, have induced the legislature of the
United Kingdom to accept and act on the principle of
free importation and exportation. The victory is not
complete, for one of the most significant of foreign pro-
ducts, corn, is still burdened by a duty, which is not drawn
back on exportation. This duty, though small, is large
enough to form a great subvention to the land-owners,
and to prevent this country from becoming, as it otherwise
would be, a free port for grain. But we have not yet
acquired the right to say that we have adopted the prin-
ciple of free trade. The discretionary exercise of labour
in whatever direction the individual pleases, is by no
means awarded ; some classes of society being invested
with special privileges, others burdened by special dis-
abilities ; many callings being closed except to particular
persons ; many branches of industry being hampered by
such restrictive regulations as are not intended to pro-
mote the efficiency of the labour, but to check com-
petition within the field of employment.
When a country, by dint of manufacturing or commer-
cial activity, contrives to purchase largely in foreign mar-
kets, or to absorb great part of the carrying trade, so as
to be constituted the port to which this foreign produce
comes and from which it goes, this produce will be
necessarily cheaper in the country which thus becomes
a free port than it is in other countries which draw their
supplies from its store. If, as is very much the case, the
precious metals are drawn to Great Britain from the
countries in which they are mined in exchange for British
goods, or for foreign goods exported in British ships,
these metals will be cheaper in Great Britain than they
R 2
244 FOREIGN TRADE.
will be in any other country, except that from which they
are exported. It does not indeed follow that the prices
of foreign produce will rise, for the same causes which
tend to depress the value of the precious metals, will
tend to depress the value of other articles, as corn, or
cotton, or provisions. But such a trade will tend to raise
the price of home produce, in so far as the imported
stocks of precious metals bear upon the metallic currency
of the country into which they are thus imported, the
price of these metals being determined, other causes
being considered and accounted for, by the amount
which is employed in currency and manufactures.
Similarly the price of any kind of foreign produce is
determined, not by its cost to the producer, but by the
cost of that against which it is exchanged. For example,
the chief imports of Spanish produce to the United King-
dom are wine, oil, and lead. The chief exports of British
produce are iron, linen and cotton manufactures, and coal.
On an average the value of Spanish produce in Spain will
be relative to the cost of production, but its price to the
British purchaser will be relative to the cost, not of pro-
ducing it, but of producing that against which it is
exchanged; not by the cost of wine, oil, and lead in Spain,
but by the cost of the goods sent from Great Britain, and
thence to the Spanish market, added to the carriage of
Spanish goods to the home market. Thus it may even
happen that the importing countr}- ma}' obtain foreign
goods at an easier and cheaper rate, value for value, than
they can be procured in the country which produces them.
The profit of foreign trade consists in the difierence
between the price at which the goods are bought and
carried, and the priice at which they are sold. A rough
FOREIGN TRADE. 245
index of its amount is to be found in the difference be-
tween the money-value of the exports and imports of a
country. The aggregate value of the latter is greatly in
excess of that of the former. Thus, for example, in 1863,
1864, and 1 865, the imports of the United Kingdom were
represented by the figures 249, 275, and 271; the exports
by 197, 213, and 219. At first sight it would seem that
the people of this country bought more than they sold
by 52, 62, and 52, during these three years. In fact, the
exports paying for the imports, they bought the greater
sum by the less, the difference, some deductions being
made, being the profit on the foreign trade. A century
ago these proportions would have excited the liveliest
alarm. It would have been supposed that the country
was being drained of its treasure, that the balance of trade
was against us, and that we were on the high road to
commercial ruin instead of being in the enjoyment of
considerable commercial prosperity. The real test of the
efflux of specie, and of the evils, real or imaginary, which
such an efflux involves, is supplied by the rate of the
foreign exchanges.
When the purchases made from any foreign country
exactly equal in value the sales made to it, the exchange
between the two coimtries is said to be at par. When
this proportion is disturbed, the country which has to
receive specie is said to have the exchange favourable to
it. The expression means that there are more bills drawn
by the receiving country, than there are bills drawn on it,
and that, unless there be some round-about way by which
these obligations can be liquidated, specie must be even-
tually conveyed from the indebted country. Thus the
par of exchange between Great Britain and France is
246 FOREIGN TRADE.
25.30 francs for £1 sterling. If it becomes necessary
for the former to pay more than it has to receive, the
value of the British currency will fall in the exchange,
i. e. the exchange on France will not be 25.30 francs,
but something less, or, in other words, it will take more
English money under these circumstances to buy a cer-
tain amount of French money, than is ordinarily required.
The advantages of foreign trade do not consist so
much in the gains of merchants, on which persons are
accustomed to look with admiration, nor even in the
fact that trade with another country implies productive
industry at home, but in the material advantages which
ensue from the distribution of conveniences or comforts,
in the addition which this trade makes to the enjoyments
of life, and much more in the moral benefits which ensue
from the interchange of services and advantages by the
machinery of trade. People are now disabused of the
notion that the greatness or prosperity of any one country
is to be measured by the poverty or depression of an-
other; and have learned instead that the prosperity of
one country is intimately connected with the moral and
material progress of others. At one time, as Mr. Mill
has justly observed, it was thought the duty of a i)atriot,
if possible, to make other countries poor and weak, or
at least to wish that such should be their condition. It is
impossible to over-estimate the moral value which ensues
from the absolute reversal of this opinion. We have not
yet indeed reached the true inference which can be de-
rived from the rule, that the prosperity of one people is
involved in the prosperity of others; for international law
is in its infancy, and municipal jealousies, the offspring of
long enmities studiously fostered by ambition and selfish-
COLONIAL TRADE. 24/
ness, still exist. But every wise and prudent man knows
that in the present day a war between civilized nations is
more and more a folly and a public crime ; and that as it
is stripped of its old excuses and its false pleas, excuses
and pleas which sprang from the erroneous commercial
theories of a bygone age, it becomes less and less pos-
sible, because it is more and more irrational and mis-
chievous.
CHAPTER XIX.
Colonial Trade.
The British government has never founded a colony.
It has appropriated colonies founded by other nations ;
it has assumed the conquests of the great mercantile
company which gradually occupied the peninsula of
India, and it has associated the so-called colonies, which
were the result of private enterprise. It has never sys-
tematically colonized with anything but convicts. The so-
called colonial empire may be divided into dependencies,
military outposts, and colonies proper. India is a notable
example of the first, Malta and Gibraltar of the second,
Australia, Canada, and the Cape colony of the third.
The last two, however, were more or less conquests.
The colonies of modern Europe, and especially those
of Spain and Holland, were essentially the subjugation of
regions occupied by communities whose political organi-
zation had been considerably developed, but who were
unable to resist the shock of European warfare. In
accordance with the prevalent idea, that the precious
metals constituted wealth, the Spanish conquerors of the
new world busied themselves with the search after o-old
248 COLONIAL TRADE.
and silver. During the time of their sway, they looked
on these dependencies as the sources of revenue, as
tributaries ; and in order to keep them more fully in
hand, they deliberately disabled every native, whether of
European, mixed, or native blood, from any share in the
administraiton. The functions of government were con-
fined to officials who were born in Spain, were sent out
to its Transatlantic possessions for this very purpose,
and were prohibited from forming connexions with the
dependency.
The American plantations were of a different character,
and stood in a different relation to the mother country.
They were not military conquests, nor military colonies.
The Eastern coast of North America has no con-
siderable mines of the precious metals. The emigrants
who settled on its shores, generally in order to escape
religious or political persecution, disturbed no settled or
civilized government. They found only a few hunting
tribes. The savage character however of the native
races became an excellent training-school for the set-
tlers, who developed a strong civil government from
the difficulties and dangers of their early career. The
soil was barren, the climate rugged and inhospitable. The
chief natural wealth of the region was timber and fish.
The colonists were poor, and were rather protected than
ruled. Their earliest charters allowed them municipal in-
stitutions and the privilege of self-government. The home
government exacted no tribute from them, but merely
imposed on them a system which, according to the ideas
of the time, was one of f;\ir and intelligible reciprocity.
By the colonial system the mother country restrained
the colonists from manufacturing goods, or from pur-
COLONIAL TRADE. 249
chasing manufactured articles from any but the mother
country ; and at the same time granted the raw produce
of the colony either differential advantages, or the sole
right of market. The arrangement, as we now see, was
absurd ; for in the pursuit after an imaginary gain, it in-
flicted an obvious and certain loss. Had the colonist
been unable to procure manufactured goods at cheaper
rates, or the mother country to get raw materials of
better quality or at lower prices, the colonial system would
have been wholly nugatory, and its regulations super-
fluous. As a matter of fact, both communities deliberately
excluded themselves from the cheapest market, or, in
the language of exchange, got the goods which each
wanted at greater cost than they could have got them
had the market been free. But, notwithstanding, the
statesmen of the last century believed that the colonial
system was a policy of the highest wisdom, and imagined
that the commercial prosperity of Great Britain depended
on its rigid retention. When the American plantations
resented the attempt of the British parliament to tax
them, and achieved their independence, it was generally
feared that the mercantile supremacy of Great Britain
would be totally and permanently annihilated. The only
consolation which the statesmen of the age entertained,
was the fact that Great Britain had still some colonies
left, in which this beneficent system of reciprocity would
still be maintained.
It is only a few years ago that the last relics of the
colonial system, the differential duties in favour of colonial
limber, were abolished. But for many a year the Briiish
people were condemned to use dear sugar and coffee,
the familiar luxuries, or even necessaries of life, in order to
250 COLONIAL TRADE.
keep up colonial interests, as well as dear and inferior
timber, a raw material, the importance of which in house-
building is of the greatest significance to a country in
which the local supply is far inferior to the demand. At
the present time, the whole of this policy is abandoned.
The colonies put what charges they please on imported
goods, and the home government affords them no ad-
vantage in the markets of the United Kingdom.
Most of the colonies have adopted a protective system.
Occasionally they excuse this policy on the plea alleged
by Mr. Mill — that it is expedient to develope possible or
nascent industries. Sometimes, and with greater reason,
they apologize for their tariffs on the ground that it is
all but impossible to collect excises and direct taxes in
a thinly-peopled country, and that customs' duties are the
most obvious and the cheapest means by which a revenue
may be raised. The proportion of taxation to every head
of population is very high in the British colonies.
The value of these colonies to the British Empire is
maintained by political and economical arguments. With
the former we have nothing to do. The latter are mainl}-
three. It is alleged that the connexion between the co-
lonies and the United Kingdom secures a readier market
to British goods, a more obvious field to British capital,
a readier outlet for British emigration. It may be doubted,
however, whether any of these ends are secured by the
connexion. As I have said, the financial policy of most
of the colonies is strongly protectionist. No direct as-
sistance is therefore given to the British manufactures.
It may be questioned whether this assistance is even given
indirectly. No doubt the emigrant from Great Britain
carries with him a taste for British produce, or at least
COLONIAL TRADE. 251
a preference for it, due to his familiarity with such pro-
duce at home. But these tastes need not be enduring,
and are not necessarily associated with so slender a
political connexion as that which subsists between Great
Britain and a distant society, whose municipal institutions
are not only independent of, but alien to, those of the
mother country ; whose association with imperial policy
is of the slightest kind, and which is chiefly concerned
with the return of such emigrants as have accumulated
wealth in the colony. With the majority of those settlers,
who never could or would return, the connexion between
themselves and the mother country is a mere sentiment
which would not bear the least strain, which is often
nominal, however loudly expressed, while the real ties are
often those between the colony and some near but alien
state. No rational person can doubt that the commercial
connexion between Canada and the United States is far
closer than that between Canada and Great Britain, and
that in the event of a dilemma, the colony would not be
long in making up its mind as to the association which
it would sacrifice. Men buy goods, i.e. enter into those
commercial relations which constitute the ordinary- and
continuous routine of civilized life, for reasons of con-
venience and cheapness far more readily than they do on
grounds of habit and sentiment. Prior to the civil war
in America, the trade between this country and the United
States was worth more than that of all the British pos-
sessions put together, even if we include India under the
latter head. It is the accident, apparently, of that war,
and the consequence of the fiscal system which followed
it, that so much British trade has been diverted into the
Indian possessions.
252 COLONIAL TRADE.
It is probable that the connexion between the mother
country and the colony does facilitate the operations of
borrowers, whether they be public or private, in the latter
society. The connexion between the mother country and
the colony suggests a political unity which does not,
indeed, deceive astute investors, but can be utilized by
speculators, and may be accepted by a less wary public.
It is possible that had Canada been an independent State,
the questionable enterprise known under the name of the
Grand Trunk Railway would hardly have been accom-
plished. It is certain, we may believe, that the Indian
railways would not have been constructed at all, or not
have been constructed on such easy terms, had it not
been for the guarantee implied in the maintenance of
British supremacy in India. But one or two shocks given
to colonial credit may put these colonial enterprises on
the same footing with other foreign speculations. The
colonial connexion may have been useful as a good-will,
but the continuance of this good-will will be determined
by the good faith of the borrowers. A colony may take
liberties with its creditors, but it \vill cease to get fresh
creditors, as assuredly as any defaulting foreign govern-
ment does ; since no legal process can issue, in the
present state of international law, against a society whose
municipal institutions render it independent. Nor will
British caj)ital continue to be available for private enter-
prise in these colonies, unless the borrowers put them-
selves in such a position as will give adequate security
for their commercial integrity, cither by the employment
of responsible agents, or by subjecting themselves to
an easy and efficient civil process.
Lastly, the economical argument which considers the
COLONIAL TRADE. 253
colonies as an outlet for emigration appears to have no
foundation. By far the largest part of the emigrants from
the United Kingdom have settled and do settle in the
United States. Out of 3,142,048 emigrants which have
left the United Kingdom in the years 1851-65, 2,154,826,
i.e. more than two-thirds, have gone to the United States,
and many of those, it is said, whose apparent destination
was the North American colonies, and who are about
300,000 in number, have merely taken these colonies on
their way to the Union. Many reasons have contributed
to this choice. The passage is shorter ; labour has been
in more regular demand, and employment more open to
the emigrant on his landing. Moreover, the United States,
though they have employed no artificial stimulants to
emigration, have by their liberal grants of public land to
bona fide settlers drawn away from Europe a large
number of intelligent and enterprising labourers. The
number of emigrants to the Australian colonies, though
considerable, is far less than that which has gone to the
United States. It -amounted in the period referred to above,
to 703,662. It would have been, however, much scantier
had not these colonies adopted the system of assisted
emigration, first suggested by Mr. Gibbon Wakefield.
It has been said that the British government has never
colonized, and that the Anglo-Saxon settlements began
with private enterprise, assisted subsequently by colonial
legislation on the basis of Mr. Wakefield's scheme. This
process has been to sell public lands to settlers at fixed
prices, (prohibiting, of course, permanent settlement ex-
cept on these terms,) and to employ the funds acquired
by these means in assisting emigration. The objections
to the scheme are two. It takes away from the purchaser
254 COLONIAL TRADE.
a portion of his capital at a time when this capital is of
the greatest value to him ; and it discourages settlers by
fixing a high price on public lands. There is no doubt
that the regulation price in Australia, viz. £i an acre, is
excessive, considering the fact that prairie land, naturally
cleared and immediately available for farming purposes,
can be had in the United States for less than one-fourth
the amount. In practice, we are informed, the full price
demanded by the Australian government is never paid.
Besides, the Homestead Act of Congress gives free plots
to settlers, the quantity of which is proportioned to the
family of the settling emigrant. But, on the other hand, it
is urged that there is no true competition between the
United States and the Australian colonies; that the ad-
vantages which the former possesses are special, and will
be specially attractive; that the growth of the Australian
colonies had to be assisted ; that the inveterate habit of
voluntary colonists, that of scattering themselves, had to
be arrested ; that if the settler was mulcted in a portion of
his capital under particular circumstances, he was com-
pensated by the cheapness of the labour imported under
the system ; and that finally, all things considered, the
plan had worked well. It is better, the advocates of the
Gibbon Wakefield scheme allege, to adopt a process
which draws capitalists as well as labourers, not only
because it has an immediate bearing on the growth of
the colony, but because it tends to constitute a perma-
nent society which shall, as far as possible, contain every
kind of social rank. It should be added, that the Wake-
field scheme is only partially operative at present, the
price of the settler's purchases being no longer devoted
to the sole process of assisting the emigration of labour.
COLONIAL TRADE. 255
It is alleged, and with considerable reason, that it is the
duty of the British government to provide some general
and systematic scheme of colonization. The custom of
voluntary or spontaneous colonization, however assisted
by the Gibbon Wakefield scheme, draws away the best
class of artizans and labourers, leaving the feeblest and
least enterprizing behind. The proof of this lies in the
fact that years in which food is cheap give the lowest
number of emigrants. Nor does it leaven the new colony
with that social class whose culture and habit of life are
of eminent service to society, though their use is only
slowly appreciated, their absence, when the want is felt,
is filled up with difficulty. No one can fail to be pain-
fully struck with the vulgarity, the noise, the coarse
selfishness of some among the newer colonies, especially
those in which wealth has grown rapidly, and the com-
moner kinds of labour only have been attracted. But
though in the abstract it may be asserted that the duty of
systematic colonization has been improperly neglected by
the government, it is by no means easy to sketch the
plan which it would have been wise to adopt, or to dis-
cover the means by which the plan should be carried
out.
Though the government does not colonize, it watches
over emigration. For obvious reasons, the discipline of
an emigrant, or indeed of any other ship, must be nearly
as strict as that of an army. Great discretionary power
must be lodged in the hands of the master or captain ;
but this power is very likely to be abused, and has been
very grossly abused. Seafaring men are apt to be rough
and brutal ; contractors and shippers, in the sharp com-
petition of business, to be rapacious and fraudulent.
Z^6 COLONIAL TRADE.
Hence various regulations, intended to secure the health,
the comfort, the decencies of life among emigrants, have
been enacted by law on the principle alluded to so often
before, that the object of law is to restrain the strong
from aggression on the weak. But these regulations,
highly necessary as they are, rather check than promote
emigration, because they make the process more ex-
pensive. In course of time, perhaps, the transit of pas-
sengers will be further cheapened by the economy of the
means of travel, and by shortening the time necessary for
the conveyance of persons.
But though emigration is no remedy for over-popula-
tion, except it be undertaken on a large scale and under
an organized and inclusive system, the voluntary expatri-
ation of those who have the energy or enterprise to leave
the home of their birth, is developing and will develope
results which are full of the most profound interest to
the statesman and economist. Remote regions, hitherto
occupied by a few savage tribes, are gradually being
peopled by men who bring with them all the appliances
and most of the tastes which have been accumulated by
the highest civilization. By the side of these gigantic
settlements, the efforts of colonists in the early part of
the world's recorded history are puny. Every year of
this action is taking away from the risks of barbarism, is
giving overwhelming strength to the power of intelligent
labour and civil government, is testing the habits and
traditions of the old world. The tide of empire may
change, and the influence of Europe may, in a century or
two, be lost in the vast and rapid progress of communities
which, as yet, are in their infancy. But the course of this
progress will be the gain of humanity.
COLONIAL TRADE. 257
There is indeed a reason why the British nation may
congratulate itself on the relation in which her colonies
stand to the mother country. The legal bonds by which
both were once tied together have been nearly fretted
away by the wear of interests which are necessarily
diverse. The presumed economical advantages of that
system of commercial reciprocity which once prevailed
have been exploded by experience, as they were long ago
repudiated by reason and argument. At present, the
colonies are situated in so peculiar a financial position,
that on merely trade principles, they have become worse
customers than many nations of wholly alien origin. The
political connexion between them and the United King-
dom would be, if it were complete, only mischievous ; but
as it is Uttle more than a mere name, it is gradually being
understood by both parties as a sentimental tradition, as
a tie which will be ruptured by the first sharp experience.
It is impossible that the colonies can long submit, except
under manifest degradation, to the policy of Great Britain ;
it is equally impossible that the home government can
continue the duty of their defence or superintendence.
But the possession of that social system which this
country has developed in the course of its political and
economical history, the extension on our part, and the
inheritance on theirs, of those memories, laws, municipal
institutions, and with them those liberties which our race
has won, all which it is bound to commend to its so-
called dependencies, are a tie which is not the less power-
ful, because it is seldom recognized as the real bond
between Great Britain and her distant children. It is,
however, just as strong in the United States as it is in the
so-called colonies.
2^0 THE FUNCTIONS OF GOVERNMENT.
CHAPTER XX.
On the Functions of Government.
A GOVERNMENT, whatever be its form, is always as-
sumed to exist for the benefit of its people or subjects.
The great Greek philosopher, Aristotle, when he treated
of that form of government which was known as a tyranny,
and which was always most odious to the experience
or imagination of his fellow-countrymen, said that the
tyrant aimed at three things : — to crush the spirit of his
subjects ; to sow mutual distrust among them ; and to keep
them poor. In our time, a government which deliberately
preferred to impoverish and distress its subjects, or to
prevent the growth of material prosperity among them, or
to lower their motives for accumulating wealth, or to pro-
hibit or discourage the development of their resources,
would be justly deemed, however powerful it were, a
reproach to humanity and civilization.
We must always therefore, whatever the errors which
it may commit, credit a civilized government with good
intentions. Similarly, a government should always, and
generally does, permit free criticism on its economy. To
refuse this right of criticism is to assume infallibility as
well as power, an assumption which has been often made,
but which abundant experience has made ridiculous. We
shall find however, that most of the errors which govern-
ments have committed in managing the economy of
society have arisen from a wish to further the public
THE FUNCTIONS OF GOVERNMENT. 259
good by interfering with the harmless exercise of the
individual's discretion. But good intentions may lead
to unwise practices, to mischievous laws, to intolerable
oppression, to the destruction of public wealth, to the
permanent hindrance of social progress.
It has been stated several times already, that the ear-
liest and the most urgent duty of government is to protect
the weak against the strong. On this plea government
watches over contracts ; forbids some, annuls others, in-
terprets on equitable principles another set. It is not
only justified in this protective action, but, in case it
is certified of the propriety of taking such steps, it assumes
the initiative of other acts. In our time no one doubts
that a government may wisely and properly undertake
such pubhc works as confer great pubUc benefit, but
are too vast for private or corporate enterprize, or are
not so immediately remunerative as to attract private
capital. Such are, for example, the formation of roads
and harbours, and the erection of hght-houses. The
extent to which a government will take these works on
itself, is relevant to the deficiency of enterprize among
its subjects. Thus, for example, railroads have been
constructed by private enterprize throughout the United
Kingdom, but have been assisted by the State in most
foreign countries. Perhaps the most striking among
these undertakings are the vast tanks whose ruins still
exist in Ceylon, and which a native government con-
structed ages ago, for the purpose of artificial irrigation.
Again, a government may take the initiative in acts
which confer lasting benefit on the whole community
by increasing the powers of some classes in it. At the
present time no one disputes that a government may
s 2
26o THE FUNCTIONS OF GOVERNMENT.
properly take upon itself the duty of insisting- on the
education of the whole community, of controlling the
labour of the young so as to make this education as
complete as possible, and of levying a tax or rate in aid,
in order to supply such an education to children whose
parents are unable or unwilling to incur the necessary
charge of such instruction as may be required. Such
action may be justified on political, on moral, and on
economical grounds. Our business is with the last.
An educated community is more apt in doing what
it knows, and in learning what it does not know, than
one which is generally uninstructed. The German emi-
grants to the United States, most of whom are fairly
possessed of primary education, are much more handy
than those who come from states where equal care is
not taken. Now it does not follow if a general education
were given at the public charge that wages would rise;
but it is almost certain that labour would be greatly
lightened. It is also certain that the risk which every
nation occupying a prominent place among industrial
communities must incur, that of being outstripped in
the race of wealth by other communities, is to a great
extent provided against if the subjects of such a govern-
ment are gifted with education. An educated nation is
stronger and safer than one in which the advantages which
ensue from such culture are not generally present. This
is not the place in which to discuss the details of such
a process, or to state, even in the most general terms,
what is the outline of a primary public education.
Again, a government may properly take in hand spe-
cialties of education when the result of such public
patronage is an increase in the productive powers, the
THE FUNCTIONS OF GOVERNMENT. l6\
economy of industrial undertakings, the moral progress
of a people. Instruction in what is vaguely called tech-
nical education, that is, the acquisition of scientific
method and a knowledge of the principles and practice
of the applied sciences, is of indirect service to the
community at large. It is more doubtful whether the
funds necessary for such a training should be supplied
from general taxation, for as the benefit of increased
power in working and earning wages is not conferred
on all, and the direct advantages of the training belong
to the instructed student, it cannot be equitably argued
that the cost should be borne by the general commu-
nity. One obvious resource, however, for such a system
of special training, is to be found in the fees of the
patent-office. Fees are levied on patents in order to
check useless applications or frivolous claims. The dis-
posal of these fees in developing scientific training, in
the case of persons who possess a peculiar aptitude for
scientific method, would give a proper direction to this
fund, and might compensate for some of the restrictions
which the concession of patents involves.
The government may properly contribute towards the
economy of industrial undertakings. Geological inves-
tigations, astronomical observations, meteorological re-
search, the study of physical geography, (especially the
theory of winds and currents,) the sciences of animal
and vegetable physiology, are all proper objects for
goverment assistance whenever private enterprise is un-
willing or incompetent to carry out these researches.
The value of the inductions gathered from the sciences
adverted to is enormous, even when this value is inter-
preted on the lowest material grounds. The labour given
262 THE FUNCTIONS OF GOVERNMENT.
to the development of this learning, rarely secures any
advantage to those who expend it. Similarly, researches
into the conditions of health, known generally as sanitary
science, have a vast economical importance, for the
saving of health is an economy of labour. Sickness,
and the premature extinction of strength or vigorous
life, when due to remediable causes, are loss and waste,
and induce economical efforts on society, which differ
only in their moral aspect from vice and crime. And
among other sciences which have a direct bearing on
the material progress of society, that which deals with
the conditions of society itself, the interchange of services,
and the distribution of the fruits of labour, and which
is known as political economy, should take as important
a position in public education as any which can be
named.
It is hardly necessary to say that a government cannot
neglect to exercise a due supervision on everything which
bears upon the moral progress of a people. But it is
not possible to define the extent to which it may or should
interfere. No one doubts that it ought to repress what-
ever is indecent or openly profligate. Every one is
agreed that there should be a police over gross im-
morality and impudent vice. Occupations, in themselves
harmless, are justly brought under the censorship of law
when they may easily be turned to the purposes of crime,
or may debauch unwary or unguarded persons. Places
of public resort, houses of public entertainment, theatres,
and the performances exhibited in them, are fairly
brought under the control of the police, and must be
inspected with discretionary severity, because they may
be turned to the worst purposes. The limits however
THE FUNCTIONS OF GOVERNMENT. 263
of such government interference are, and perhaps always
will be, contested, because it is always difficult to decide
between the boundaries of that sense of personal respon-
sibility which constitutes individual character, and a wise
supervision or control. There is a border land, for
the occupation of which the advocates of liberty and
discipline perpetually contend. The contention is of
no small advantage, because liberty and order only differ
in details, the concession of the former and the action of
the latter varying with circumstances and with individuals.
And as the government may and should repress vice,
so should it inculcate morality, not by direct rewards,
but by the sanction of its example; for the intercourse
of nations is the intercourse of individuals on a larger,
a more striking, and a more instructive scale.
In the early economical history of this, as of other
organized governments, the interference of executive or
legislative authority was incessant and minute. The cen-
tral power was perpetually attempting to exercise a super-
vision over the home and foreign trade ; over the labour,
the wages, the incomes, the expenditure of the people.
The police of the parish or manor was exact and precise.
I cannot contrast the difference between past and present
theories of the function of government more clearly than
by giving a short sketch of the policy of England five
centuries ago.
The utmost efforts of government were directed to-
wards preventing the exportation of the precious metals.
To secure this measure of police the principal articles
of export and import could be sold or purchased
only at certain places, sometimes at one place only,
under the supervision of the King's Exchequer. Again,
264 THE FUNCTIONS OF GOVERNMENT.
to protect the community, officers were appointed whose
duty it was to examine foreign imports, especially foreign
cloth, and to secure that they rigidly fulfilled statutable
conditions. Encouragement however was given to foreign
artificers and merchants, who might be willing to settle in
England, and the Eastern counties grew wealthy by the
imported industry of the Flemings. To obviate a fall in
home produce, the exportation of wool and hides was
occasionally forbidden, these being the articles by which
foreign produce was chiefly purchased.
The domestic life of the people was carefully regulated.
The civil rights of a large portion of the community were
mutilated. A person who occupied the status of a villain
could not change his calling without the leave of his lord,
could not educate his son or marry his daughter with-
out licence from his feudal superior. The legislature
strove to tie him to his occupation by distinct enactments.
The police of the manor, at whose courts every member
was bound to appear thrice every year, was of the strictest
character. A man without land, lord, or occupation was a
vagabond, and, as such, was liable to outlawry and condign
punishment. The residence of a stranger for more than
three days in the house of any subject of the manor ren-
dered his host, unless due and careful notice were given,
or privilege pleaded, liable to a fine. Every child had to
be registered when it reached the statutable age. Non-
resident dependants were liable to an annual impost, or
could be reclaimed by their lord.
Various occupations were placed under inspection. The
keeper of an ale-house was fined, if he broached a cask
without due notice given to certain officers, whose duty
is implied in their name of ale-tasters. The assize of
THE FUNCTIONS OF GOVERNMENT. 265
bread, that is the regulation of its price by the price of
wheat, was carefully taken, frauds and over-charges
being visited by severe penalties. The avarice of the
miller, at whose mill the inhabitants were generally bound
to grind their corn, was coerced by similar fines or mulcts.
In order to facilitate the cause of justice, the initiative of in-
formations against offenders was left to aggrieved parties,
the lord of the manor receiving the fines inflicted as part
of his income. Hence, the former were discouraged from
any but bond fide prosecutions, the latter, not being able
to commence proceedings, was also interested in not
levying such penaldes as would check informations.
The dress and other expenditure of the people was
regulated by sumptuary laws. The kind of food, the
number of dishes, the character and fineness of the cloth-
ing which might be used or worn by the various classes
of the community were prescribed. The motive of these
restrictions was not merely that of maintaining the dis-
tinctions of social rank, but, according to the judgment
of the age, public economy. The resources of the com-
munity were few. As the food of the nation was derived
from its soil only, and the climate was as capricious and
uncertain as it now is, the people ran risk of dearth, if
not of famine. It is true that these sumptuary laws were
unsupported by any example on the part of those who
enacted them, and that prodigal expenditure and utter
recklessness characterized the conduct of public affairs.
But persons who are privileged to make laws are too
apt to consider themselves privileged to break them.
The people of this country have slowly escaped from
most of these restrictions, and have achieved complete
social liberty with most of the benefits of free exchange.
266 THE FUNCTIONS OF GOVERNMENT.
In one direction only have these powers been restricted,
this is, in the buying and selling of land, its settlement
and accumulation, in which particulars the freedom of
a past generation is markedly contrasted with the arti-
ficial restraints of the present.
In the time to which I have adverted the conveyance
of land was completed by easy and simple symbols.
The purchaser was taken to the spot, and the land was
transferred to him in the presence of witnesses by the
delivery of a clod or some other visible object, and by
the utterance of a few formal words. But the theory
that the feudal tenant had a permanent and indefeasible
interest in the soil was by no means conceded. Re-
sumptions of grants, especially when these grants were
made by the Crown, were common. The real value of
land was small. The law abhorred a perpetuity. Entails
were looked on with much disfavour. Strict settlements
were invented only after the Restoration. Primogeniture
conveyed certain rights, but as the value of stock on a
well-tilled farm was, as I have said above, worth several
times more than the fee-simple of the soil itself, and
personal property was never liable to this custom, the
privilege of the eldest son was very different from that
which exists at present. Besides, the under tenant was,
in accordance with feudal principles, able to control the
sale of his lord's lands, by refusing to attorn to, that is
acknowledge, the new purchaser. Without his assent the
sale was voidable. The refusal of this assent was, we
may believe, a considerable check upon the rapacity or
oppression of the feudal superior. The free conveyance
of land, therefore, was controlled only by the means which
existed for enforcing the duties of the landowner.
THE FUNCTIONS OF GOVERNMENT. 267
It is contended that the custom of primogeniture sti-
mulates the energies of the younger and dispossessed
children. The fact may be doubted. I have never heard
that the energies of the people in the United States, in
the British colonies, in Holland and Belgium, have been
enervated by the expectation which each child entertains,
of taking a share in his parent's property. If the custom
of this country extended to personal property also, and
the people were divided into a few luxurious millionaires
and a host of impoverished men, if there were a few
hundred elder sons, and the other millions were all de-
barred from a share in their progenitors' estate, it is pro-
bable that the energies of the majority would be aroused,
but first towards doing away with the custom. Primo-
geniture endures only because it affects one kind of pro-
perty, not the whole of that, and even that which it does
affect only rarely and partially. To extend it would be
to secure its destruction, and that which is of greater
significance, the strict settlement of estates.
It is said again that the development of the science
of agriculture has been greatly assisted by the existence
of vast landed wealth, and by the experimental farming
of rich proprietors. I suspect that the science of agri-
culture is far in advance of its application, that much of
this science, has been the discovery of tenant-farmers, and
I am sure that the beneficent influence of great land-
owners is rarely exhibited except when their estates are
unencumbered. Human nature and parental affection
are stronger than the passion for the custom of primo-
geniture, and hence, though the vanity of the head of a
family is consulted by giving him the nominal possession
of the ancestral estate, the estate is generally seriously
26M THE FUNCTIONS OF GOVERNMENT.
burdened, and by implication the improving powers of
the Hfe-owner are seriously crippled by the encumbrances
put upon it in order to make provision for the widow
and children of the last proprietor. If this were not the
case, why was it found expedient to allow landowners the
privilege of obtaining grants of public money at low rates,
when it is well known that land improved by aid of these
grants will let to the full amount of the interest on the
loan, plus the sum annually paid off by the borrower from
the amount of the principal ? If the landowner can borrow
at three per cent, and get six or seven for his improve-
ments, why was it necessary to appeal to the State in
order to enable him to make so advantageous an outlay ?
We know very litUe about the mortgages which en-
cumber real estate in Great Britain ; but it is more than
probable that they do not fall short of those which are
pointed at as characterizing the peasant-proprietorship
of France.
There are moral, social, and political consequences
which flow from the custom of primogeniture on which
it is unnecessary for the political economist to enter. It
is possible that a system which condemns the mass of the
agricultural population to a condition of absolute helpless-
ness and hopelessness, which encumbers the possession
of land with debts, and burdens its conveyance by a host
of artificial disabilities, which cannot be shown to improve
and may be expected to lower the art of agriculture, or
at least to prevent its full development, may have its
compensations. It may supply a nation with a learned
aristocracy, with a host of grandees whose lives are great
and powerful examples of high and unstained morality.
It may intercept the distribution of wealth only in order
THE GENERAL PRINCIPLES OF TAXATION. 269
to supply conspicuous proofs of the way in which its
accumulation may be beneficently employed. It may offer
the leisure needed for the acquisition of political wisdom,
and by giving abundant opportunity for the highest em-
ployments of the human mind, may be the means of
imparting instruction to the world on the true duties of
rulers and nations. But as the custom is opposed to
natural morality, proof should be given of these benefits.
If, therefore, a government interferes with the liberty
of its subjects it is bound to show cause for the inter-
ference. These causes may be summarized as two.
I. The protection of the weak against the strong.
II. The development of such national powers and re-
sources as could not struggle into usefulness except
under such patronage.
CHAPTER XXI.
On the General Principles of Taxation.
Most students of Political Economy are familiar with
those rules of taxation which have been laid down by
Adam Smith and have become classical. Briefly stated,
they are as follows : — I. ' That the subjects of a State
ought to contribute towards the support of the govern-
ment as nearly as possible in proportion to their re-
spective abilities ; that is in proportion to the revenue
which they enjoy under the protection of the State.'
Adam Smith compares this payment to the expense of
managing the estate of a number of joint tenants, who
270 THE GENERAL PRINCIPLES OF TAXATION.
pay to such charges in proportion to the amount of their
interests. The illustration is perfectly accurate and is
of great significance. II. The tax should be certain
and not arbitrary. III. It should be levied at the time
at which it is most convenient to pay it. IV. The
process of collection should be as inexpensive as possible.
This unnecessary expense may occur in four ways : i . By
the number of officials which must needs be employed
to collect it. 2. By obstructing particular industries.
3. By ruining those who evade or fail to comply with the
conditions of the law. 4. By the vexatious interference
of tax-gatherers.
It is plain that this division is not strictly logical, that
the first of these rules is the most important, and that it
virtually contains all the others. An uncertain or arbitrary
tax is unequal. So is an inconvenient tax. A tax which
wastes more than it gathers must affect particular per-
sons, i.e. be partial in its operation, for were all taxation
of this kind, the ends for which the government im-
poses and levies a tax would remain unfulfilled. But
though the enumeration is philosophically inexact, it has
the advantage of showing the various methods in which
an unequal tax becomes unequal, and so violates the
fundamental principles on which government should be
carried on.
A government does a service to its subjects. It protects
them, their persons, and their property against fraud and
violence at home, and against the aggression of foreign
enemies. The defence of private rights cannot be con-
ferred so safely or so cheaply on private persons as it
is undertaken by governments. Individuals form ex-
aggerated notions of their rights and their wrongs, and
THE GENERAL PRINCIPLES OF TAXATION. 27 J
were they left to do themselves justice, would, in the vast
majority of cases, do others wrong in the vindication of
what they beHeve their rights. Civilized nations are not
stirred to war lightly, for public wrongs are distributed,
and do not affect all alike. But in the absence of any
international police, or supreme court of arbitration, war
is resorted to in order to vindicate imagined rights,
or to restrain imagined wrongs. It is not easy, how-
ever, to prove that a single war which has been under-
taken for the last two centuries is capable of a moral
justification.
Again, the government of a country affords the pro-
tection of law and police, civil and military, much more
cheaply than individuals can. The industrial arts of
social life would be brought to an end, or at least seriously
crippled, if the artizan or the husbandman were under the
necessity of perpetually defending himself against aggres-
sion. Men rather abandon a calling than continue it
under the condition of running the perpetual risk of
violence or fraud, and of being constrained to defend
themselves against these chances by extraordinary pru-
dence or force. We have seen that the distribution of
capital over the world is seriously hampered by the ab-
sence of any effectual protection to lenders, when they
negotiate business with such countries as do not extend
the benefits of civil process to the foreign creditor ; and
we must acknowledge that one of the greatest benefits
which diplomacy could bestow, would be the establish-
ment of an international commercial law.
So great are the advantages derived from the assistance
which law gives to the fulfilment of contracts, thai the
members of civilized communities are willing, if need be.
272 THE GENERAL PRINCIPLES OF TAXATION.
to make personal payment for the benefit by incurring
the costs of ci\il process. They do not hesitate to sacrifice
the recovery of their property, and submit to the loss of
time involved in prosecuting criminals who are guilty of
such offences as are indictable, and in which the wrong
done to the individual is forgotten or merged in the greater
wrong done to the well-being of the community. In the
abstract, since private citizens contribute to the public
revenue under the implied contract that the State will,
as far as possible, protect them in the enjoyment of life
and property, the forcible or fraudulent interruption of
this enjoyment should be made good by the State. The
defence of costliness in law proceedings, (sufficient pre-
caution being taken against vexatious and frivolous pro-
secutions,) that were law cheap, lawsuits would be enor-
mously multiplied, was well met by Bentham when he
pointed out that the very fact of a citizen being con-
strained to remedy himself in a court of law is a proof
that the organization of civil society is incomplete for the
purposes of protection, and that, therefore, the aggrieved
person has a right to compensation. In some cases, as,
for example, loss of property during a legal riot, full
compensation is awarded by law to the sufferers.
The collection of a revenue then, in other words, the
legal abstraction from each individual, according to some
proportion or other, of a part of that which he would
otherwise enjoy at his own discretion, is justified on the
principle of the division of labour. A government does
a service more cheaply, more effectually, more justly than
the individual could perform it for himself It can do
this only l)y claiming a portion of each person's resources.
It perpetually defends the claim on the plea of the value
THE GENERAL PRINCIPLES OF TAXATION. 273
which must be assigned to the service done. The policy
of a government stands or falls as it substantiates its
assertion that it has acted and is acting for the public
good. If it fails to make this out, it may coerce criticism,
but it has ceased to be a government. It is treating its
subjects as an inheritance, as the property of the ruler,
as the dupes of an adventurer, or as the slaves of a
despot. When a people is in such a condition, it must
either be content to become demoralized or it will reverse
the policy of its rulers.
It is admitted on all hands that taxation should be
equitable. It should be determined, says Adam Smith,
according to the amount of revenue which each person
enjoys under the protection of the State. If it were de-
termined by the comparative protection accorded to in-
dividuals, it is plain that women and children should pay
a higher rate than strong and healthy adults, since they
have more need of assistance ; and, if the law be effectual,
get more. In fact such was the theory of medieval
tinance. The lord protected his vassal ; the vassal assisted
his lord by his service or by his purse. But minors under
the English military tenures, and women under some
forms of the feudal assize, were in the hands of guardians,
who were enabled to take the rents or profits of their
estates, without account, during legal incapacity. The
reason given was, that there was no reciprocity of service
in these cases, and the plea might be justified because,
in an age of violence, weakness taxes the energies of
defence more than it excites the sentiment of pity. A
more generous and less utilitarian theory has gradually
prevailed. It is held that for practical purposes, and
under the conditions of organized society, the strongest
T
274 ^-^^ GENERAL PRINCIPLES OF TAXATION.
is too much indebted to the security which a wise and
just government gives, to allow any such comparison
between his condition and the condition of the weakest,
as shall tend to lay a heavier impost on the latter.
Taxation then, to be equitable, should be determined
according to the amount of revenue which each person
enjoys. What is this revenue, and to what extent is
the revenue which a person receives available for his
personal enjoyment ?
A man's revenue is not his capital, but the profit on
his capital. His gross wages are not his revenue, for,
as we have seen above, part of the total sum receivable
under the circumstances of competition for the supply
of services, as compensation for these services, is paid for
maintaining the instrument by which the service is rendered,
i. e. the life and health of the agent ; part is insurance
against risk ; part a payment of the nature of a sinking
fund, replacing the capital which is invested in the agent,
and is gradually being worn out. We have seen that
these constituents must be satisfied in the case of those
subordinate animal or mechanical forces by which man
assists his own labour, and that no person would reckon
the whole of the product of a steam-engine or the whole
work of a horse as net profit, but would have to consider
the above-named quantities as deductions from such
profit. He cannot ignore them in his own case. The
only profit which he can recognize in his wages, or
whatever else be the name which he gives to the remu-
neration of his own services, is that portion of the sum
receivable, which is due as interest on the capital originally
invested in making him fit for his employment, or has been
subsequently accumulated in his professional reputation or
THE GESERAL PRINCIPLES OF TAXATION. 275
improved powers of labour. Revenue, in short, is interest
or rent.
Nor can we call that revenue which a man receives
but cannot personally enjoy. If a man is liable to the
maintenance of children, whom he brings up in such a
position as to enable them to labour and take his place
after him, he does not enjoy his revenue, but invests it
productively in the education or training of life for the
purpose of labour. He has, it is true, no lien on the
capital which he has invested in the maintenance of his
children, for the usages of modern society do not recog-
nize any such property in a parent; but he has, when
the case is considered in its economical bearings, and
on the hypothesis that the labour which he has reared
is in demand, as surely invested capital productively as
if he had laid out a part of his earnings in a drove of
cattle, in a workshop full of machinery, in draining an
estate, or in any other form which implies an addition
to the stock of useful objects or useful forces in existence.
Of course, if it be taken for granted, that labour is already
redundant, and that the adult population is excessive,
the existence and the maintenance of children may be
conceived to be at the best a matter of private interest,
or even the calling into being of a number of persons for
whom the world has neither need nor room ; but as
long as men can emigrate, and until the earth is oc-
cupied, the dread of over-population is a vague fear,
and in any case, the maintenance and education of chil-
dren is an investment of capital.
If we take revenue, therefore, in its strictest sense,
and conceive that only to be a man's revenue which is
devoted to his personal enjoyment, under the protection
T 2
X-6 THE GENERAL PRINCIPLES OF TAXATION.
of the State ; and further conclude that this revenue, when
strictly limited in the sense which I have given it, is
alone liable to taxation ; it will be clear that the necessary
maintenance of the labourer, his investments while they
are being made but are as yet unproductive, and such
payments as represent insurance against the risks of
sickness and the certainty of death, are not legitimately
liable to taxation, because they are not a productive
employment of his capital or labour.
This theory of the object on which an impost may
be levied, is to some extent recognized in the income-
tax. Incomes below a certain sum are untouched, below
another limit are only partially visited, and all who are
liable may deduct a certain amount for life-insurances
actually effected. The first of these exemptions recog-
nizes that the bare maintenance of the labourer is no
part of the profit of labour, though even to be roughly
equitable it should be extended to all industrial incomes
alike; the second acknowledges that the capital sum
expended for making the labourer fit for his work should
be replaced. Of course however, if the investment des-
tined to replace the wear and tear of labour be taxed
when it is saved, and taxed while it is being invested, all
appearance of equity passes away. Now, I repeat, that
as far as the aggregate of public wealth is considered,
such a replacement is equally effected, whether the re-
cipient of income devotes some of his savings to insurance,
or employs them more wisely and productively in edu-
cating his children.
These facts are not alleged with a view to inferring
that a system of taxation which levies unequal imposts
on equal revenues is essentially vicious, for such an evil
THE GENERAL PRINCIPLES OF TAXATION. I'JJ
may be inevitable, but to shew what would be the true
incidence of a tax which exactly fulfilled Adam Smith's
condition, and also what should be, as far as possible,
before the mind of a financier when he imposes or
adjusts taxes. That which cannot be cured may be
palliated.
All taxation either diminishes the enjoyments of those
who pay it, or appropriates part of their savings. It can-
not, in the long run, take away from that part of a man's
income which is needed for his maintenance. In such
a case, the source of the tax would be extinguished.
There are persons who may be constrained to say, ' If
we pay we starve.' Their existence may be so near
the margin of bare subsistence, and the food they live
on may be so cheap and scanty, that they may be wholly
unable to contribute any portion of their income to fiscal
purposes. I cannot quote any example of such a class
of persons, but it is said that many millions of the in-
habitants of the Indian peninsula are nearly in such a
condition, and that the salt tax is the only impost which
will reach them.
The margin, therefore, from which taxation can be
procured, increases with the increase of a nation's enjoy-
ments, and by the excess of these enjoyments over the
necessaries of life. The rate of taxation per head levied
on the inhabitants of Australia is much greater than that
levied on the population of the United Kingdom. The
public expenditure may be extravagant and unnecessary ;
but its incidence is much lighter, as food is cheap and
wages are high. The same facts apply to taxation in
the United States. It is possible, to judge from the
present course of events it is probable, that the fiscal
ZyS THE GENERAL PRINCIPLES OF TAXATION.
system of the Union is a \iolation of every one of the
rules laid down by Adam Smith, and endorsed by almost
all economists. But the mischief is not so ruinous as
the adoption of similar expedients would be, in a country
possessing a denser population, and therefore fewer
unappropriated resources.
Again, taxation is borne much more easily when wealth
is distributed. In India a few persons possess much
wealth. The impression which the glitter of such wealth
induced on the imagination of the first visitors of India
was very slowly cifaced. In time it was found out that
the people was in the aggregate poor, that the mass of
the population was sunk in squalid misery. The wealth
of Great Britain, though some portions of it are accumu-
lated in few hands, and particular classes of the commu-
nity are thereupon depressed, is fairly distributed; the
fiscal reforms of the last twenty-five years having greatly
contributed to such a result. As a consequence, that
part of the public revenue is most buoyant which is
derived from the consumption of the mass of the people.
In the fifteen years from 1851 to 1865, the reductions
of taxation were computed at nearly £15,000,000 of
annual impost. But the revenue raised in 1865 was
.£10,000,000 in excess of that raised in 1851. The ex-
planation is to be found in the enormous increase of the
customs, that is, in the taxes paid for the use of common
comforts or luxuries, which a series of prudent changes
has brought more antl more within the reach of a great
part of the community.
I have observed that taxes are generally levied on en-
joyments. But they may be levied on capital, that is, they
may take away part of an individual's savings. Yet it can-
THE GENERAL PRINCIPLES OF TAXATION. 279
not be generally laid down that a tax has the former or
the latter incidence, for the appropriation of any resources
which an individual obtains is matter of private judgment
and action. He may at his discretion spend or save
what he gets.
It is generally assumed, if a tax is likely to be levied
on capital, that it is a bad tax; and on this ground
Mr. Ricardo objected to legacy duties. But apart from
the impossibility of determining what will be the inci-
dence of the tax in particular cases, it does not follow
that a tax which appropriates part of private capital is a
public evil. The resources of the individual are doubt-
lessly diminished ; it does not follow that the resources of
the community will be. The State may employ the pro-
ceeds of the tax in public works, and may add by these
means far more to the public wealth, than the persons
from whom the capital is taken could have possibly added.
The State may consume the proceeds unproductively in
the maintenance of soldiers. But the original possessor
might have also employed it as unproductively in the
manufacture of luxuries to be consumed at home. In
the hands of the State, it has distributed greater benefits
than it would have in the hands of its original owner,
for it has increased the occupation of the commoner kinds
of labour.
If therefore the public at large suffers in no degree,
but rather benefits by such an appropriation of capital,
the particular instance is one in which every condition
of equitable taxation seems to be satisfied. It is only by
municipal law that a person is able to dispose of his
property by will. The heir or legatee enters upon that
which he has never laboured for, in which he has no
zSo THE GENERAL PRINCIPLES OF TAXATION.
property, or at best only an expectation of property.
The law which allows testamentary disposition, can justly
claim something for its concession ; the recipient of the
legacy, who is entering upon increased resources, can
easily bear the deduction from his new acquisition. The
only hmit of such an impost is suggested by the risk which
this source of public income would run, if the tax were
so high as to induce a general evasion of it by a donatio
inter vivos, or the erection of a fictitious obligation, of
which the legacy would be a quittance. The contingency
of such a risk seems to have dictated that graduated scale
of legacy duties, in which the impost varies with the
proximity of relationship between the testator and the
legatee. The risk of this evasion is not imaginary. Some
years ago, a penurious nobleman granted all his personal
estate to his son, reserving to himself an annuity, with the
secret purpose of defeating the legacy duties. The ex-
pedient failed, for the son became a lunatic and died.
The father therefore inherited his own estate, and had
to pay legacy duty on it, besides the additional charges
incurred for the administration of an intestate person's
effects. Ultimately, on the nobleman's decease, the same
estate paid legacy duty again.
Of all taxes the worst are those levied on raw mate-
rials ; i. e. on such goods as are not available for con-
sumption until they have undergone further manipulation,
or those goods the consumption of which is necessary for
some industrial process. Thus, for example, a tax levied
on raw cotton is of the former kind, a tax levied on coal
used for the purpose of putting machinery in motion is
of the latter. A similar tax is that levied on food re-
quired for the maintenance of productive labour.
THE GENERAL PRINCIPLES OF TAXATION. 2 (Si
These taxes violate Adam Smith's fourth rule. They
take out of the pocket of the consumer more than they
put into the coffers of the State. They add to the cost
of production in the first stage of the process, and by
increasing the capital needed for supplying the object in
question, accumulate a charge on the consumer. If a
tax of two-pence a pound were levied on raw cotton,
the increase in the price of a pound weight of cotton
cloth would be much more than the amount of the tax.
A tax on food, moreover, depresses the condition of the
labourer. It creates, says Adam Smith, an artificial bar-
renness.
When a tax is imposed on any article which is im-
ported from abroad, and is produced untaxed at home,
the whole which is consumed will pay the tax. If the
product is agricultural, the tax will be added to the rent
of land. Thus, for example, foreign corn pays three-
pence a hundred-weight, or a shilling a quarter, on im-
portation. If, in order to maintain the population of
the United Kingdom, 25,000,000 quarters of wheat are
needed, and 5,000,000 are imported, the government will
get £250,000 by the tax, the landowner £1,250,000. The
same kind of gain will be obtained from the importation
of other kinds of grain. The whole however of this benefit
would not accrue to the landowner in case the power
possessed by the public of purchasing other kinds of
agricultural produce be curtailed by the charge. But as
the tax when distributed is very small, it is probable that
the saving is eflfected in the consumption of luxuries, and
that the landowner reaps the whole benefit of this fiscal
operation. This incidence of an impost on corn or any
similar product, can be obviated only by an equivalent
2f what a good elementary text-book in any science ought to be : the
language brief, simple, exact ; the arrangement logical, developing in
lucid order principles from facts, and keeping theory always dependent
upon observation ; a book that keeps the reason of the student active
while he strives to master details difficult but never without interest,
and that furnishes him with means for practising himself in the right
management of each new tool of knowledge that is given to him for his
use." — Examiner.
5. An Elementary Treatise on Heat, Avith
numerous Woodcuts and Diagrams. By Balfour Stewart,
LL.D., F.R.S., Director of the Observatorj^ at Kew. (Ext. fcap.
8vo., cloth, price 7s. 6d.)
" All persons engaged in the teaching or study of experimental
philosophy will be glaf logic in the academical course, but hitherto,
Aldrich's Manual, in its strange Latin and with its inconsistent termi-
nolo"^', has been the only text-book upon wliich students commence
their acquaintance with the science of logic. Mr. Fowler's little work is
not intended to be a .substitute for more advanced treatises, but nvther
to put the general reader in possession of an outline of the science of
logic, which will enable him to jmrsue the subject intuUigently for him-
self on a more complete scale. It is a great thing to siiy of a manual
of logic that it is not repulsive on first perusal, and a still higher praise
to be able to (lescril)e it as not unattractive. Now, setting aside the
necessary technicalities and mechanical details that must occur in every
work on logic, we think this short treatise will be read with pleasure ;
partly owing to a judicious arrangement of the subject into short chap-
ters and paragraj>hs, and not k-.ss from the clearness and fi-eshness of
the style. It is a novel ]>lan to add at the end of the chapters, in the
form of a note, a brief statement of ojiinicdis differing from the views
given in the text, with refeiences to the various works where these
opinions may be examineil. In a science like logic, in which doctors
have agreed to disagree, there is a pleasant honesty in this which gives
us confidence in our guiile." — London lieview.
" Books like Mr. Fowler's will do n\uch to popularise the study of
logic." — Scotsmaii.
CLARENDON PRESS SERIES.
12. Specimens of Early English; being a Series of
Extracts from the moat important English Authors, Chronologi-
cally arranged, illustrative of the progress of the English Language
and its Dialectic varieties, from a.d. 1250 to A.D. 1400. With
Grammatical Introduction, Notes, and Glossary. By R. Morris,
Esq., Editor of "The Story of Genesis and Exodus," &c. (Ext.
fcap. 8vo., cloth, price 7s. 6c?.)
" Few have done so much with such success as Mr. Morris, whose
volume is not only a grammar, but a collection of well-selected reading
and a dictionary, all in one. It will surprise some, perhaps, if we say
that they who cannot read this book are ignorant of English, but the
fact is incontrovertible nevertheless, and the task of mastering their
own language is rendered easy by the clearness, good taste, and judg-
ment of this accomplished author." — Athenceum.
"A book of this kind has long been needed for our colleges and
higher schools, and even advanced students have never before had the
results of late study on the earlier English writers thus compactly set
forth. Mr. Morris has noted and classified with great care the
specialties of the early dialects, arranging them under the three heads
of Northern, Midland, and Southern. The outlines of the Early Eng-
lish grammar are, however, based on the Southern dialect only. To
each declension and conjugation is added the Anglo-Saxon one from
which it was degraded, so that its origin is clearly seen. Mr. Morris'
specimens include passages from every important work of the period,
and are very fully and correctly annotated, with a complete glossary." —
Nation (American).
" Anything like an acquaintance with what has been called the
'Old English period' of our literature was impossible to ordinary
readers. The present volume is meant to supply this defect, and it
could not have been better adapted to the object in view. Instead of
the necessarily brief extracts in books of criticism, the student of the
English language is here supplied witli specimens extending from 9 to
42 pages of all the important English authors of the period ; and these
cannot fail to familiarize him with the grammar, dialects, and vocabu-
lary of the early stages of our language in a manner which no amount
of descriptive criticism can equal. The grammatical introduction —
a valuable treatise of itself — and the carefully compiled notes and glos-
sary contain everything necessary to enable the student ' to read the
most difficult passages with pleasure and profit.' On many grounds
we think the Oxford press has done a great service to the cause of
education by the issue of this volume — of such education a^ may be
advantageously pursued 'uy young and old of every class, who may
thus spend many a pleasant half hour in learning what Englislimeii
talked about and how they did it nearly six hundred years ago." —
Times of India,
10 CLARENDON PRESS SERIES
13. Spenser's Faery Queene. Book I. Designed
chiefly for the use of Schools. With Introduction, Notes, and
Glossary. By the Rev. G. W. Kitchin, M.A., Whitehall
Preacher ; formerly Censor of Christ Church. (Ext. fcap. 8vo.,
cloth, price 2«. 6(7.)
" The present editor has done his work, such as it is, in the most
commendable manner, and we can even say that his numerous, though
concise, notes may be found very interesting and instructive by those
of us who have already grown familiar with the Faery Queene by any
ordinary and somewhat irregular course of reading. His etymological
inquiries are often completed and verified by all the resources that
modem scholarship supplies, though we must deem him to have reposed
too much confidence in Home Tooke's system, where he has treated
the pronoun ' it' as a contraction of ' hight,' connected with the Ger-
man ' heissen.' Otherwise he is well informed on most of the needful
points, and skilful in condensing his information, and his literary refer-
ences and parallels are ample and, in general, very striking," — Spectator.
" Le Spencer vient de paraltre ; Faery Queene. II eflt 6t6 impossible
de confier ce travail h, un critique plus capable. Dans une preface
trfes-int^ressante et trfes-bien t^crite, M. Kitchin explique pourquoi
jusqu'k ces derniers temps Spencer a 6t6 comparativement n(^glig(5." —
Courrier Anglais.
" May we be allowed to press upon our readers this admirable edu-
cational edition ? * * * * Through Spenser, properly worked upon the
principles indicated by the philological notes, boys would get (piickly a
large insight into language, as language." — Literary Chnrchman.
14. Chaucer. The Prologue to the Canterbury
Tales ; The Knightes Tale ; The Nonne Prest his Tale.
Edited by R. Morris, Editor for the Early English Text So-
ciety, &c. &c. (Ext. fcap. 8vo., cloth, price 2s. 6d.)
15. Hooker. Ecclesiastical Polity, Book I.
Edited by the Rev. R. W. Church, M.A., Rector of AVhatley ;
formerly Fellow of Oriel College. (Ext. fcap. 8vo., cloth/
price 2s.)
16. French Classics: Vol. I. containing Cor-
neille's Cinna, and MoliiTc's Les Fenmiea Savantes. Edited,
with Notes and Introduction, by Gustave Masson, B.A.,Univ.
Gallic, Assistant Master in Harrow School. (Ext. foap. 8vo.,
cloth, price 2s. 6(L)
" We can speak highly of this little volume." — Educational Times.
" This little work is a model of a text book." — 7'he Museum.
17. Selections from the Correspondence of
Madame de S^vign
i-^i s^^
J!>,
iRYQr ^^•IIBRARY' III lil III lull III I III liJI
^ s-
L 006 678 182 4
UC SOUTHERN REGIONAL LIBRARY FACILITY
AA 001 168 479 2
^OfCAllFOff^ ^OFCAllFOff/jj^
^<»OJI1V3JO>^
.\V\tUNIVtRi/A
i 1
^•lOSANCElfJ^
<^il30NVS01^ ^/5a3AINn-3WV'
.^WfUNIVERj'/A
C
00
so
:R% A^lOSANGfl^ ^MIBRARYOc. ^VUBRARYQ/
^1 i/Tb-l iLli^i iui7l