2. Not desirable to redeem a national Debt by a general Contribution.

When a country, wisely or unwisely, has burdened itself with a debt, is it expedient to take steps for redeeming that debt? In principle it is impossible not to maintain the affirmative.

Two modes have been contemplated of paying off a national debt: either at once by a general contribution, or gradually by a surplus revenue. The first would be incomparably the best, if it were practicable; and it would be practicable if it could justly be done by assessment on property alone. If property bore the whole interest of the debt, property might, with great advantage to itself, pay it off; since this would be merely surrendering to a creditor the principal sum, the whole annual proceeds of which were already his by law, and would be equivalent to what a land-owner does when he sells part of his estate, to free the remainder from a mortgage. But property, it need hardly be said, does not pay, and can not justly be required to pay, the whole interest of the debt. Whatever is the fitting contribution from property to the general expenses of the state, in the same, and in no greater proportion, should it contribute toward either the interest or the repayment of the national debt. This, however, if admitted, is fatal to any scheme for the extinction of the debt by a general assessment on the community. Persons of property could pay their share of the amount by a sacrifice of property, and have the same net income as before.



If a person owns a property, A B, which returns him $1,000 income, and if he pays $10 a year in taxes as his share of interest on the public debt, suppose that part of his estate represented by X, which returns him annually $10 (and which return he has annually handed over to the state), to be carved out of it, and that he is to be hereafter relieved of his share of taxes. He would then, after having paid the capitalized value (X) of that which was his share of the annual tax to the state on account of the public debt, have the same net income as before; for he was never able to enjoy the income of X.

If those who have no accumulations, but only incomes, were required to make up by a single payment the equivalent of the annual charge laid on them by the taxes maintained to pay the interest of the debt, they could only do so by incurring a private debt equal to their share of the public debt; while, from the insufficiency, in most cases, of the security which they could give, the interest would amount to a much larger annual sum than their share of that now paid by the state. Besides, a collective debt defrayed by taxes has, over the same debt parceled out among individuals, the immense advantage that it is virtually a mutual insurance among the contributors. If the fortune of a contributor diminishes, his taxes diminish; if he is ruined, they cease altogether, and his portion of the debt is wholly transferred to the solvent members of the community. If it were laid on him as a private obligation, he would still be liable to it, even when penniless.

When the state possesses property, in land or otherwise, which there are not strong reasons of public utility for its retaining at its disposal, this should be employed, as far as it will go, in extinguishing debt. Any casual gain, or god-send, is naturally devoted to the same purpose. Beyond this, the only mode which is both just and feasible, of extinguishing or reducing a national debt, is by means of a surplus revenue.



3. In what cases desirable to maintain a surplus revenue for the redemption of Debt.

The desirableness, per se, of maintaining a surplus for this purpose does not, I think, admit of a doubt.

It is not, however, advisable in all cases to maintain a surplus revenue for the extinction of debt. The advantage of paying off the national debt is, that it would enable us to get rid of the worst half of our taxation. But of this worst half some portions must be worse than others, and to get rid of those would be a greater benefit proportionally than to get rid of the rest. If renouncing a surplus revenue would enable us to dispense with a tax, we ought to consider the very worst of all our taxes as precisely the one which we are keeping up for the sake of ultimately abolishing taxes not so bad as itself. In a country advancing in wealth, whose increasing revenue gives it the power of ridding itself from time to time of the most inconvenient portions of its taxation, I conceive that the increase of revenue should rather be disposed of by taking off taxes, than by liquidating debt, as long as any very objectionable imposts remain. In the present state of England, therefore, I hold it to be good policy in the Government, when it has a surplus of an apparently permanent character, to take off taxes, provided these are rightly selected. Even when no taxes remain but such as are not unfit to form part of a permanent system, it is wise to continue the same policy by experimental reductions of those taxes, until the point is discovered at which a given amount of revenue can be raised with the smallest pressure on the contributors. After this, such surplus revenue as might arise from any further increase of the produce of the taxes should not, I conceive, be remitted, but applied to the redemption of debt. Eventually, it might be expedient to appropriate the entire produce of particular taxes to this purpose; since there would be more assurance that the liquidation would be persisted in, if the fund destined to it were kept apart, and not blended with the general revenues of the state. The succession duties would be peculiarly suited to such a purpose, since taxes paid as they are, out of capital, would be better employed in reimbursing capital than in defraying current expenditure. If this separate appropriation were made, any surplus afterward arising from the increasing produce of the other taxes, and from the saving of interest on the successive portions of debt paid off, might form a ground for a remission of taxation.

The relative amount of the United States public debt may be seen, by Chart No. XXII, from an early date down to 1880. Since the war, the surplus revenue of the United States has been constantly appropriated for the payment of the public debt incurred during the late war, until, what with the reduction of debt and the fall in the interest charge, our income is now so much greater than expenditure that we are (1884) actually in difficulties owing to the surplus. To the present time the Treasury has been able to use its excess of receipts in redeeming matured debt; but the rapidity of the payment has been such that in two years or more no matured debt will exist to be redeemed: $250,000,000 of 4-1/2 per cent bonds remain, but they do not fall due until 1891; and the 4 per cent bonds to the amount of $737,620,700 do not mature until 1907. Having once raised a large revenue under war pressure, it seems very difficult for people to understand now why heavy duties were originally levied, and the extraordinary suggestion is often made that the surplus should remain, and new channels of expenditure should be made (such as enormous pensions), simply in order to keep up the heavy taxation. The difficulty is, however, that the unnecessary surplus exists because of customs duties levied for war purposes. But the heavy burden of war taxation ought not to be continued, adding to the cost of production in all industries, without doing a greater wrong than would be done by the passing—and only possible—trouble of a redistribution of capital in a few cases; especially since that distribution of capital will be one from less productive to more productive industries; otherwise, no change would be made.

The condition of foreign debts, and the progress made in their reduction, may be studied in Chart No. XXIII. That of the United States is exceptional. The interest-bearing debt, as given by the last report of the Secretary of the Treasury, 1883, has been reduced to $1,312,446,050, and the reduction is more striking than is indicated in the chart for the year 1880.



Chart XXIII. Reduction of National Debts in Various Countries.



Chapter VI. Of An Interference Of Government Grounded On Erroneous Theories.



1. The doctrine of Protection to Native Industry.

We proceed to the functions of government which belong to what I have termed, for want of a better designation, the optional class; those which are sometimes assumed by governments and sometimes not, and which it is not unanimously admitted that they ought to exercise. We will begin by passing in review false theories which have from time to time formed the ground of acts of government more or less economically injurious.

Of these false theories, the most notable is the doctrine of Protection to Native Industry—a phrase meaning the prohibition, or the discouragement by heavy duties, of such foreign commodities as are capable of being produced at home. If the theory involved in this system had been correct, the practical conclusions grounded on it would not have been unreasonable. The theory was that, to buy things produced at home was a national benefit, and the introduction of foreign commodities generally a national loss. It being at the same time evident that the interest of the consumer is to buy foreign commodities in preference to domestic whenever they are either cheaper or better, the interest of the consumer appeared in this respect to be contrary to the public interest; he was certain, if left to his own inclinations, to do what according to the theory was injurious to the public.

It was shown, however, in our analysis of the effects of international trade, as it had been often shown by former writers, that the importation of foreign commodities, in the common course of traffic, never takes place except when it is, economically speaking, a national good, by causing the same amount of commodities to be obtained at a smaller cost of labor and capital to the country. To prohibit, therefore, this importation, or impose duties which prevent it, is to render the labor and capital of the country less efficient in production than they would otherwise be, and compel a waste of the difference between the labor and capital necessary for the home production of the commodity and that which is required for producing the things with which it can be purchased from abroad. The amount of national loss thus occasioned is measured by the excess of the price at which the commodity is produced over that at which it could be imported. In the case of manufactured goods the whole difference between the two prices is absorbed in indemnifying the producers for waste of labor, or of the capital which supports that labor. Those who are supposed to be benefited, namely, the makers of the protected articles (unless they form an exclusive company, and have a monopoly against their own countrymen as well as against foreigners), do not obtain higher profits than other people. All is sheer loss to the country as well as to the consumer.

Of the industries in a country some are said to "need protection" and others not—that is, those industries which are carried on at a relative disadvantage are the only ones which need protection in order that they may continue in operation. By relative disadvantage is meant a greater relative cost, or sacrifice, to the same amount of labor and capital. Those industries which can not yield so great a value for the labor and capital engaged in them as other more profitable industries are those which are said to "need protection." Wherever protective duties exist it is implied by those who lay them on that there production is carried on under more onerous conditions than in other competing places or occupations. After duties are thus supposed to have protected the less advantageously situated occupations, it may be said that all industries will then have an equal chance. "No doubt," as Mr. Cairnes says, "they would be equalized just as by compelling every one to move about with a weight attached to his leg. The weight would, indeed, be an impediment to locomotion, but, provided it were in each case exactly proportioned to the strength of the limb which drew it, no one ... would have any reason to complain. No one would walk as fast as if his limbs were free, but then his neighbor would be equally fettered, and, if it took him twice as long to reach his destination as before, he would at least have company on his journey."(357)



2. —had its origin in the Mercantile System.

The restrictive and prohibitory policy was originally grounded on what is called the Mercantile System, which, representing the advantage of foreign trade to consist solely in bringing money into the country, gave artificial encouragement to exportation of goods, and discountenanced their importation. The only exceptions to the system were those required by the system itself. The materials and instruments of production were the subject of a contrary policy, directed, however, to the same end; they were freely imported, and not permitted to be exported, in order that manufacturers, being more cheaply supplied with the requisites of manufacture, might be able to sell cheaper, and therefore to export more largely. For a similar reason importation was allowed and even favored, when confined to the productions of countries which were supposed to take from the country still more than it took from them, thus enriching it by a favorable balance of trade. As part of the same system colonies were founded, for the supposed advantage of compelling them to buy our commodities, or at all events not to buy those of any other country: in return for which restriction we were generally willing to come under an equivalent obligation with respect to the staple productions of the colonists. The consequences of the theory were pushed so far that it was not unusual even to give bounties on exportation, and induce foreigners to buy from [England] rather than from other countries by a cheapness which [England] artificially produced, by paying part of the price for them out of [their] own taxes. This is a stretch beyond the point yet reached by any private tradesman in his competition for business. No shopkeeper, I should think, ever made a practice of bribing customers by selling goods to them at a permanent loss, making it up to himself from other funds in his possession.

The principle of the Mercantile Theory is now given up even by writers and governments who still cling to the restrictive system. Whatever hold that system has over men's minds, independently of the private interests exposed to real or apprehended loss by its abandonment, is derived from fallacies other than the old notion of the benefits of heaping up money in the country. The most effective of these is the specious plea of employing our own countrymen and our national industry, instead of feeding and supporting the industry of foreigners. The answer to this, from the principles laid down in former chapters, is evident. Without reverting to the fundamental theorem discussed in an early part of the present treatise,(358) respecting the nature and sources of employment for labor, it is sufficient to say, what has usually been said by the advocates of free trade, that the alternative is not between employing our own people and foreigners, but between employing one class and another of our own people. The imported commodity is always paid for, directly or indirectly, with the produce of our own industry: that industry being, at the same time, rendered more productive, since, with the same labor and outlay, we are enabled to possess ourselves of a greater quantity of the article. Those who have not well considered the subject are apt to suppose that our exporting an equivalent in our own produce, for the foreign articles we consume, depends on contingencies—on the consent of foreign countries to make some corresponding relaxation of their own restrictions, or on the question whether those from whom we buy are induced by that circumstance to buy more from us; and that, if these things, or things equivalent to them, do not happen, the payment must be made in money. Now, in the first place, there is nothing more objectionable in a money payment than in payment by any other medium, if the state of the market makes it the most advantageous remittance; and the money itself was first acquired, and would again be replenished, by the export of an equivalent value of our own products. But, in the next place, a very short interval of paying in money would so lower prices as either to stop a part of the importation, or raise up a foreign demand for our produce, sufficient to pay for the imports. I grant that this disturbance of the equation of international demand would be in some degree to our disadvantage, in the purchase of other imported articles; and that a country which prohibits some foreign commodities, does, caeteris paribus, obtain those which it does not prohibit at a less price than it would otherwise have to pay. To express the same thing in other words: a country which destroys or prevents altogether certain branches of foreign trade, thereby annihilating a general gain to the world, which would be shared in some proportion between itself and other countries, does, in some circumstances, draw to itself, at the expense of foreigners, a larger share than would else belong to it of the gain arising from that portion of its foreign trade which it suffers to subsist. But even this it can only be enabled to do, if foreigners do not maintain equivalent prohibitions or restrictions against its commodities. In any case, the justice or expediency of destroying one of two gains, in order to engross a rather larger share of the other, does not require much discussion; the gain, too, which is destroyed, being, in proportion to the magnitude of the transactions, the larger of the two, since it is the one which capital, left to itself, is supposed to seek by preference.



3. —supported by pleas of national subsistence and national defense.

Defeated as a general theory, the Protectionist doctrine finds support in some particular cases from considerations which, when really in point, involve greater interests than mere saving of labor—the interests of national subsistence and of national defense.(359) The discussions on the Corn Laws have familiarized everybody with the plea that we ought to be independent of foreigners for the food of the people; and the Navigation Laws were grounded, in theory and profession, on the necessity of keeping up a "nursery of seamen" for the navy. On this last subject I at once admit that the object is worth the sacrifice; and that a country exposed to invasion by sea, if it can not otherwise have sufficient ships and sailors of its own to secure the means of manning on an emergency an adequate fleet, is quite right in obtaining those means, even at an economical sacrifice in point of cheapness of transport. When the English navigation laws were enacted, the Dutch, from their maritime skill and their low rate of profit at home, were able to carry for other nations, England included, at cheaper rates than those nations could carry for themselves: which placed all other countries at a great comparative disadvantage in obtaining experienced seamen for their ships of war. The navigation laws, by which this deficiency was remedied, and at the same time a blow struck against the maritime power of a nation with which England was then frequently engaged in hostilities, were probably, though economically disadvantageous, politically expedient. But English ships and sailors can now navigate as cheaply as those of any other country, maintaining at least an equal competition with the other maritime nations even in their own trade. The ends which may once have justified navigation laws require them no longer, and afford no reason for maintaining this invidious exception to the general rule of free trade.

Since the introduction of steamships and the advance of invention in naval contrivances, the plea for navigation laws on the ground that they keep up a "nursery of seamen" for the navy is practically obsolete. The "seaman" employed on the modern naval ships more nearly resembles the artisan in a manufacturing establishment; he need have but comparatively little knowledge of the sea, since the days of sailing-vessels have passed by, so far as naval warfare is concerned. Steam and mechanical appliances now do what was before done by wind and sail.

While Mr. Mill thinks navigation laws were economically—that is, so far as increase of wealth is concerned—disadvantageous, yet he believes that they may have been "politically expedient." It is possible, for example, that retaliation by the United States and other countries against England early in this century brought about the remission of the English restrictions on foreign shipping. But it is quite another thing to say that such laws produced an ability to sail ships more cheaply. That the English navigation acts of 1651 built up English shipping is not supported by many proofs; whereas it is very distinctly shown that English shipping languished and suffered under them.(360) Moreover, under the regime of steam and iron (which drew out England's peculiar advantages in iron and coal), in all its history English shipping never prospered more than it has since the abolition in 1849 of the navigation laws—events which have taken place since Mr. Mill wrote.

The United States is still weighed down by navigation laws adapted to mediaeval conditions, and the relics of a time when retaliation was the cause of their enactment. So long as wooden vessels did the carrying-trade, the natural advantages of the United States gave us a proud position on the ocean. Now, however, when it is a question of cheaper iron, steel, and coal for vessels of iron and steel, we are at a possible disadvantage, and the bulk of navigation laws proposed in these days are intended to draw capital either by raising prices through duties on ships and materials, or by outright bounties and subsidies from industries in which we have advantages, to building ships. And until of late no distinction has been made between ship-building and ship-owning (or ship-sailing). Within the last year (1884) many burdens on ship-sailing have been removed; but even when we are permitted to sail ships on equal terms with foreigners, we can not yet build them with as small a cost as England (which is proved by the very demand of the builders of iron vessels for the retention of protective duties), and our laws do not as yet allow us to buy ships abroad and sail them under our own flag.(361)

With regard to subsistence, the plea of the Protectionists has been so often and so triumphantly met, that it requires little notice here. That country is the most steadily as well as the most abundantly supplied with food which draws its supplies from the largest surface. It is ridiculous to found a general system of policy on so improbable a danger as that of being at war with all the nations of the world at once; or to suppose that, even if inferior at sea, a whole country could be blockaded like a town, or that the growers of food in other countries would not be as anxious not to lose an advantageous market as we should be not to be deprived of their corn.

In countries in which the system of Protection is declining, but not yet wholly given up, such as the United States, a doctrine has come into notice which is a sort of compromise between free trade and restriction, namely, that protection for protection's sake is improper, but that there is nothing objectionable in having as much protection as may incidentally result from a tariff framed solely for revenue. Even in England regret is sometimes expressed that a "moderate fixed duty" was not preserved on corn, on account of the revenue it would yield. Independently, however, of the general impolicy of taxes on the necessaries of life, this doctrine overlooks the fact that revenue is received only on the quantity imported, but that the tax is paid on the entire quantity consumed. To make the public pay much, that the treasury may receive a little, is no eligible mode of obtaining a revenue. In the case of manufactured articles the doctrine involves a palpable inconsistency. The object of the duty as a means of revenue is inconsistent with its affording, even incidentally, any protection. It can only operate as protection in so far as it prevents importation, and to whatever degree it prevents importation it affords no revenue.



4. —on the ground of encouraging young industries; colonial policy.

The only case in which, on mere principles of political economy, protecting duties can be defensible, is when they are imposed temporarily (especially in a young and rising nation) in hopes of naturalizing a foreign industry, in itself perfectly suitable to the circumstances of the country. The superiority of one country over another in a branch of production often arises only from having begun it sooner. There may be no inherent advantage on one part, or disadvantage on the other, but only a present superiority of acquired skill and experience. A country which has this skill and experience yet to acquire may in other respects be better adapted to the production than those which were earlier in the field; and, besides, it is a just remark of Mr. Rae that nothing has a greater tendency to promote improvements in any branch of production than its trial under a new set of conditions. But it can not be expected that individuals should, at their own risk, or rather to their certain loss, introduce a new manufacture, and bear the burden of carrying it on, until the producers have been educated up to the level of those with whom the processes are traditional. A protecting duty, continued for a reasonable time, will sometimes be the least inconvenient mode in which the nation can tax itself for the support of such an experiment. But the protection should be confined to cases in which there is good ground of assurance that the industry which it fosters will after a time be able to dispense with it; nor should the domestic producers ever be allowed to expect that it will be continued to them beyond the time necessary for a fair trial of what they are capable of accomplishing.

The great difficulty with this proposal is that it introduces (what is inconsistent with Mr. Mill's general system) the Socialistic basis of state-help, instead of self-help. If industries will never support themselves, then, of course, it is a misappropriation of the property of its citizens whenever a government takes a slice by taxation from productive industries and gives it to a less productive one to make up its deficiencies. The only possible theory of protection to young industries is that, if protected for a season, the industries may soon grow strong and stand alone. Mr. Mill never contemplated anything else. But the difficulty is constantly met with, in putting this theory into practice, that the industry, once that it has learned to depend on the help of the state, never reaches a stage when it is willing to give up the assistance of the duties. Dependence on legislation begets a want of self-reliance, and destroys the stimulus to progress and good management. It is said: "There has never been an instance in the history of the country where the representatives of such industries, who have enjoyed protection for a long series of years, have been willing to submit to a reduction of the tariff, or have proposed it. But, on the contrary, their demands for still higher and higher duties are insatiable, and never intermitted."(362) The question of fact, as to whether or not the United States is indebted for its present manufacturing position to protection when our industries were young, seems to be capable of answer, and an answer which shows that protection was imposed generally after the industries got a foothold, and that very little assistance was derived from the duties on imports.(363)

The following explanation by Mr. Mill(364) of the meaning put upon his argument of protection to young industries by those who have applied it to the United States will be of no slight interest:

"The passage has been made use of to show the inapplicability of free trade to the United States, and for similar purpose in the Australian colonies, erroneously in my opinion, but certainly with more plausibility than can be the case in the United States, for Australia really is a new country whose capabilities for carrying on manufactures can not yet be said to have been tested; but the manufacturing parts of the United States—New England and Pennsylvania—are no longer new countries; they have carried on manufactures on a large scale, and with the benefit of high protecting duties, for at least two generations; their operatives have had full time to acquire the manufacturing skill in which those of England had preceded them; there has been ample experience to prove that the alleged inability of their manufactures to compete in the American market with those of Great Britain does not arise merely from the more recent date of their establishment, but from the fact that American labor and capital can, in the present circumstances of America, be employed with greater return, and greater advantage to the national wealth, in the production of other articles. I have never for a moment recommended or countenanced any protecting industry except for the purpose of enabling the protected branch of industry, in a very moderate time, to become independent of protection. That moderate time in the United States has been exceeded, and if the cotton and iron of America still need protection against those of the other hemisphere, it is in my eyes a complete proof that they aught not to have it, and that the longer it is continued the greater the injustice and the waste of national resources will be."

There is only one part of the protectionist scheme which requires any further notice: its policy toward colonies and foreign dependencies; that of compelling them to trade exclusively with the dominant country. A country which thus secures to itself an extra foreign demand for its commodities, undoubtedly gives itself some advantage in the distribution of the general gains of the commercial world. Since, however, it causes the industry and capital of the colony to be diverted from channels which are proved to be the most productive, inasmuch as they are those into which industry and capital spontaneously tend to flow, there is a loss, on the whole, to the productive powers of the world, and the mother-country does not gain so much as she makes the colony lose. If, therefore, the mother-country refuses to acknowledge any reciprocity of obligations, she imposes a tribute on the colony in an indirect mode, greatly more oppressive and injurious than the direct.



5. —on the ground of high wages.

The discussion by Mr. Cairnes on the question of wages as affected by the tariff is such that I have quoted it as fully as possible: "The position taken in the United States is that protection is only needed and only asked for where American industry is placed under a disadvantage, as compared with the industry of foreign countries.... The rates of wages measured in money are higher in the United States than in Europe, and, therefore, it is argued, the cost of producing commodities is higher.... The high rates of wages in the United States are not peculiar to any branch of industry, but are universal throughout its whole range. If, therefore, a high rate of wages proves a high cost of production, and a high cost of production proves a need of protection, it follows that the farmers of Illinois and the cotton-planters of the Southern States stand in as much need of fostering legislation as the cotton-spinners of New England or the iron-masters of Pennsylvania! A criterion which leads to such results must, I think, be regarded as sufficiently condemned. The fallacy is, in truth, ... that all industries are not in each country equally favored or disfavored by nature, and have not, therefore, equal need of this protecting care. If American protectionists are not prepared to demand protective duties in favor of the Illinois farmer against the competition of his English rival, they are bound to admit either that a high cost of production is not incompatible with effective competition, or else that a high rate of wages does not prove a high cost of production; and if this is not so in Illinois, then I wish to know why the case should be different in Pennsylvania or in New England. If a high rate of wages in the first of these States be consistent with a low cost of production, why may not a high rate of wages in Pennsylvania be consistent with a low cost of producing coal and iron?

"The rate of wages, whether measured in money or in the real remuneration of the laborer, affords an approximate criterion of the cost of production,(365) either of money, or of the commodities that enter into the laborer's real remuneration, but in a sense the inverse of that in which it is understood in the argument under consideration: in other words, a high rate of wages indicates not a high but a low cost of production.(366) ... Thus in the United States the rate of wages is high, whether measured in gold or in the most important articles of the laborer's consumption—a fact which proves that the cost of producing gold, as well as that of producing those other commodities, is low in the United States.... I would ask [objectors] to consider what are the true causes of the high remuneration of American industry. It will surely be admitted that, in the last resort, these resolve themselves into the one great fact of its high productive power.... I must, therefore, contend that the high scale of industrial remuneration in America, instead of being evidence of a high cost of production in that country, is distinctly evidence of a low cost of production—of a low cost of production, that is to say, in the first place, of gold, and, in the next, of the commodities which mainly constitute the real wages of labor—a description which embraces at once the most important raw materials of industry and the most important articles of general consumption. As regards commodities not included in this description, the criterion of wages stands in no constant relation of any kind to their cost, and is, therefore, simply irrelevant to the point at issue. And now we may see what this claim for protection to American industry, founded on the high scale of American remuneration, really comes to: it is a demand for special legislative aid in consideration of the possession of special industrial facilities—a complaint, in short, against the exceptional bounty of nature.

"Perhaps I shall here be asked, How, if the case be so—if the high rate of industrial remuneration in America be only evidence of a low cost of production—the fact is to be explained, since fact it undoubtedly is, that the people of the United States are unable to compete in neutral markets, in the sale of certain important wares, with England and other European countries?(367) No one will say that the people of New England, New York, and Pennsylvania, are deficient in any industrial qualities possessed by the workmen of any country in the world. How happens it, then, that, enjoying industrial advantages superior to other countries, they are yet unable to hold their own against them in the general markets of commerce? I shall endeavor to meet this objection fairly, and, in the first place, let me state what my contention is with regard to the cost of production in America. I do not contend that it is low in the case of all commodities capable of being produced in the country, but only in that of a large, very important, but still limited group. With regard to commodities lying outside this group, I hold that the rate of wages is simply no evidence as to the cost of their production, one way or the other. But, secondly, I beg the reader to consider what is meant by the alleged 'inability' of New England and Pennsylvania to compete, let us say, with Manchester and Sheffield, in the manufacture of calico and cutlery. What it means, and what it only can mean, is that they are unable to do so consistently with obtaining that rate of remuneration on their industry which is current in the United States. If only American laborers and capitalists would be content with the wages and profits current in Great Britain, there is nothing that I know of to prevent them from holding their own in any markets to which Manchester and Sheffield can send their wares. And this brings us to the heart of the question. Over a large portion of the great field of industry the people of the United States enjoy, as compared with those of Europe, (1) advantages of a very exceptional kind; over the rest (2) the advantage is less decided, or (3) they stand on a par with Europeans, or (4) possibly they are, in some instances, at a disadvantage. Engaging in the branches of industry in which their advantage over Europe is great, they reap industrial returns proportionally great; and, so long as they confine themselves to these occupations, they can compete in neutral markets against all the world, and still secure the high rewards accruing from their exceptionally rich resources. But the people of the Union decline to confine themselves within these liberal bounds. They would cover the whole domain of industrial activity, and think it hard that they should not reap the same rich harvests from every part of the field. They must descend into the arena with Sheffield and Manchester, and yet secure the rewards of Chicago and St. Louis. They must employ European conditions of production, and obtain American results. What is this but to quarrel with the laws of nature? These laws have assigned to an extensive range of industries carried on in the United States a high scale of return, far in excess of what Europe can command, to a few others a return on a scale not exceeding the European proportion. American enterprise would engage in all departments alike, and obtain upon all the high rewards which nature has assigned only to some. Here we find the real meaning of the 'inability' of Americans to compete with the 'pauper labor' of Europe. They can not do so, and at the same time secure the American rate of return on their work. The inability no doubt exists, but it is one created, not by the drawbacks, but by the exceptional advantages of their position. It is as if a skilled artisan should complain that he could not compete with the hedger and ditcher. Let him only be content with the hedger and ditcher's rate of pay, and there will be nothing to prevent him from entering the lists even against this rival."(368)

It is often said that wages are kept at a high rate in the United States by the existence of protected industries. On the other hand, the truth is that the protected industries must pay the current high rate of wages fixed by the general productiveness of all industries in the country. When the facts are investigated, it is surprising how small a portion of the laborers of the United States are employed in occupations which owe their existence to the tariff. A general view of the relative numbers engaged in different occupations may be seen by reference to Chart No. XXIV, based on the returns for the census of 1880. The data are well worth examination:(369)

(1.) Agriculture 7,670,493 (2.) Manufacturing, 3,837,112 mechanical, and mining (3.) Trade and transportation 1,810,256 (4.) Professional and personal 4,074,238 services All occupations 17,392,099



Chart XXIV. Chart showing for the United States, in 1880, the ratio between the total population over ten years of age and the number of persons reported as engaged in each principal class of gainful occupations. Compiled from the returns of the Tenth Census, by the Editor. NOTE.—The interior square represents the proportion of the population which is accounted for as engaged in gainful occupations. The unshaded space between the inner and outer squares represents the proportion of the population not so accounted for.

Of the second class, less than 450,000 work-people are engaged in the chief protected industries—cotton, woolen, and iron and steel, combined. This class, it is to be noted, in the census returns, includes bakers, blacksmiths, brick-makers, builders, butchers, cabinet-makers, carpenters, carriage-makers, and so on through the whole list of similar occupations practically unaffected by the tariff (so far as protection to them is concerned). So that, at the most, there are less than a million laborers engaged in industries directly dependent on the tariff, and the number is undoubtedly very much less than a million. When some writers assert, therefore, that the existence of customs-duties allows industries (even including all those employed in producing cotton, wool, iron, and steel) to employ less than a million laborers in such a way that the remuneration is fixed for the remaining 16,000,000 laborers in the United States, keeping wages high for 16,000,000 by paying current wages for less than a million, the extravagance and ignorance of the statement are at once apparent; while, on the other hand, it is distinctly seen that the causes fixing the generally high rates of wages for the 16,000,000 are those governing the majority of occupations, and that the less than one million must be paid the wages which can be obtained elsewhere in the more productive industries. The facts thus strikingly bear out the principles as stated above.

Confirmation—if confirmation now seems necessary—may be found in a study(370) by our ablest statistician, Francis A. Walker, upon the causes which have operated on the growth of American manufactures. This growth has not been commensurate, he finds, with the remarkable inventive and industrial capacity of our people, and with the richness of our national resources: "I answer that the cause of that comparative failure is found, primarily and principally, in the extraordinary success of our agriculture, as already intimated in what has been said of the investment of capital. The enormous profits of cultivating a virgin soil without the need of artificial fertilization; the advantages which a sparse population derives from the privilege of selecting for tillage only the choicest spots,(371) those most accessible, most fertile, most easily brought under the plow; and the consequent abundance of food and other necessaries enjoyed by the agricultural class, have tended continually to disparage mechanical industries, in the eyes alike of the capitalist, looking to the most remunerative investment of his savings, and of the laborer, seeking that avocation which should promise the most liberal and constant support.

"It has been the competition of the farm with the shop which, throughout the entire century of our national independence, has most effectually hindered the growth of manufactures. A people who are privileged to cultivate a reasonably fertile soil, under the conditions indicated above, can secure for themselves subsistence up to the highest limit of physical well-being. If that people possess the added advantage of great skill in the use of tools, and great adroitness in meeting the large and the little exigencies of the occupation and cultivation of the soil, the fruits of their labor will include not only everything which is essential to health and comfort, but much that is of the nature of luxury."

It remains to be said in this connection that workmen are already discerning the practical and real causes at work affecting their wages—affecting them more directly than any tariff system possibly could—by showing no small alarm at the immigration of foreigners, such as the Hungarian miners and Italian laborers, who willingly underbid them. In other words, they are beginning to realize, in a practical way, the truth that increasing numbers are far more potent than anything else in reducing wages. So long as immigration is free to any race or nationality, there is no such thing as "protection to home laborers"; the only protection to them—not that I am urging the desirability of such measures—can come solely from forces which limit the number of workmen who enter into competition with them. Any other protection to laboring-men than the prohibition of immigration—which no one thinks of (except for the Chinese)—is an economic delusion. Instead of "protecting" them to the extent of affording higher wages, the tariff increases the cost of woolen clothing and other articles of their consumption, in addition to forcing capital into employments which yield a less return, and so insure lower wages.



6. —on the ground of creating a diversity of industries.

It must be kept in mind that Political Economy deals only with the phenomena of material wealth; it does not supply ethical or political grounds of action. It is quite conceivable that a legislator, in coming to a decision, may have to balance economic gains against moral or political losses, and may choose to give up the former to prevent the latter. But the economic truth remains unchanged. Political economy, for instance, to the question, Is there any gain in international trade? answers, unequivocally, yes. Would it be a loss of wealth to the community to have the goods formerly bought abroad now produced at home? The answer is, certainly it would. But here it has been ably urged by intelligent writers that a state has other ends to gain than the accumulation of mere riches; that it must aim to secure the greatest moral, social, and elevating influences possible for the working-classes; and that while free exchange of goods may add to wealth, it may injure the social and political well-being of a nation. So far as these are social and political questions they do not belong to Political Economy. But the commonest form of argument is that, under free exchange, the United States would become purely an "agricultural" country, its social horizon would become narrowed, and a lower standard of industrial activity would then ensue; instead of which, it is said, we should, by protection, keep in existence diversified industries by which the national mind may be better stimulated, and greater enterprise may be encouraged in all branches of industry. This argument for "diversity of industries," however, is not merely a sociological question; it can only be fully discussed from an economic stand-point, and deserves even more than the brief attention we can give it here.

In the first place, as soon as any purely agricultural country gains even a slight density of population—a density only such as to warrant the introduction of the principle of division of labor—there comes an inevitable differentiation of pursuits, wholly outside of legislation, and through the operation of natural causes. Not all of any population is required in agriculture to provide the whole with food. By a division of labor, one man in agriculture can produce the sustenance of himself and many others. "The United States have at the present time but five persons engaged in agriculture for each square mile of settled area." By the side of the farm must early spring up a wide circle of industries—the shoemaker, the carpenter, the blacksmith, the wagon-maker, the painter, the builder, the mason, and all the ordinary employments which arise in any small community from the earliest division of labor. Moreover, "agriculture" is often used in a too limited sense as confined to producing food alone (although even in that limited sense employing nearly one half of the total number of our laborers). In a new country the natural field of employment is found in the "extractive industries," which include the preparation for the market not only of food, but also of all ores, coal, minerals, oils, hides, leather, wool, lumber, and the industries intimately connected with them; all the employments which transport these from one part of the country to another (employing at present over one ninth of all our laborers); and professional and personal services of an extended variety. Even, therefore, if we were obliged to forego manufactures entirely, the "extractive industries" would necessarily involve a very extensive diversity of employments.

The real question, however, for most persons, centers in the next stage of the industrial evolution—that of the manufactures of these above-mentioned products of the "extractive industries." It will be remembered, here, that a country does not possess an equal ability in producing each of these or any commodities: the timber formerly near great rivers may vanish into the interior; the oil-sources may be more or less fertile; or the ore-deposits may be more or less rich, more or less accessible, than those of other countries. This being understood, then, as soon as the demand in the country calls for an increased quantity of a particular article, the cost may increase under the law of diminishing returns until a foreign country—having inferior agents of production as compared with our best—may be able to send supplies into our markets. It all depends on whether the United States wants more articles than can be produced on grades of natural agents superior to those possessed by foreigners, taking cost of carriage to this country into consideration. Even though foreign competition appears when we reach poorer grades of natural agents, it does not follow that some of the particular articles will not be produced. What ought to be clear is, that untrammeled exchange between countries will not prevent the existence of various industries, but only limit production to those grades of agents which are its best. This may be better seen by a simple diagram:

Iron and Coal: England 7 6 5 4 3 2 1 Iron and Coal: United States 4 3 2 1 Wheat: England 4 3 2 1 Wheat: United States 7 6 5 4 3 2 1

England may have seven different grades of productiveness in her iron and coal supplies, of which her grades 1, 2, and 3 are superior to the best grade of the United States, while grades 1, 2, 3, and 4 in the United States may compare only with grades 4, 5, 6, 7 of England. So long as England can supply herself and the United States also with coal and iron from the three superior grades, the United States can not work grade 1 at home. But if the supply for England and the world requires grade 5 to be worked, then the United States can begin the industry on her best grade, although that is far inferior to the best grade in England. Likewise, if the United States has three grades of wheat-land superior to England's best grade, the ability of England to grow wheat depends on whether the United States can, or can not, supply both herself and England from grades 1, 2, and 3. If we must resort to grade 4, then England can begin to grow wheat as well as we. In short, under a system of free exchange, as great a diversity as under protection is probably possible, but only in such a way that the best possible advantages in each particular industry are employed. Smaller amounts in some branches, and greater amounts in others, may be produced under a free than under a restrictive system, but with all the greater gain which arises from a proper and healthy adjustment of trade. The most poorly endowed enterprises in each occupation would be given up, but not the whole industry itself. No class of persons feel the competition of rivals more than English farmers since American wheat has come into English markets, and yet it does not follow that England can not grow a bushel of wheat. The fact is, merely, that some kinds of lands were thrown out of cultivation, and a readjustment made, to the benefit of those wanting cheaper food. So with us: we should not, by the free exchange, be forced to give up the iron and coal industries entirely; for the best mines would still keep that occupation in existence to "diversify" the others.

So far the explanation covers the "extractive industries" only, or those industries affected by the law of diminishing returns when a larger quantity is demanded. The real question arises as to the manufactures of these materials. But we count upon larger industrial rewards, in the form of wages, and profits, here than in England; we must get more from an industry than England in order to satisfy us. Our grades of occupations, therefore, must be more productive to a certain extent, grade for grade, than English grades, in order to allow of their remaining free from competition. But we have this superiority, as regards our home market, owing to natural causes: (1) cheap raw materials (if we except wool and other commodities whose price is raised by the tariff); (2) advantage over England in cost of transportation of raw products; and (3) in the cost of transportation, again, of the finished goods in reaching our markets. Now, the processes of manufacture which do not put much labor upon the materials, especially where the articles are bulky, are conducted in this country without fear of foreign competition. And the range of this class of manufactures is surprisingly large. It includes the manufactures of iron, such as stoves, and the common utensils of every-day life; of hides, such as leather, harnesses, etc.; and of wood, such as all the furniture of common use. The list is too long to be fully stated here. These industries are not kept in existence by the tariff; and a diversity as wide as this would arise under a system of free exchange, as well as of restriction. Indeed, if duties were removed from so-called "raw materials," it is altogether probable that a wider diversity would exist than ever before.

And yet, it will be said, there are some things we can not produce in free competition with England. Of course there are; and it is to be hoped it will long continue so. If there are not some kinds of commodities which foreigners can produce to better advantage than we, then there will be no possibility of any foreign trade whatever; since, if they can send us nothing, they can take nothing from us. To deny this position, is to say that the export and import trade of the United States (amounting in 1883 to more than $1,500,000,000) is of no profit, and had best be entirely destroyed, in order that a few industries in which we have no natural advantages (and which employ less than one seventeenth of the laborers in the United States) should be continued at a loss to the general productiveness of our labor and capital, and so to a general diminution of wages and profits.



7. —on the ground that it lowers prices.

The argument—heard less frequently now than formerly—has been advanced, drawn inductively from statistics, that protection does not raise prices; because, after duties are put on, a larger quantity is produced, the advantages of large production are reaped, and then the price of the manufactured commodity falls lower here than it was before the duty was imposed. The position is then held that protection does not raise prices. It is, of course, understood to mean the prices of protected commodities—a necessary precaution, because we find our own agricultural (unprotected) commodities cited to show that prices are lower here than in England.

No one, however, will deny that there has been a fall in the prices of textile fabrics and manufactured goods. That is the result of a general law of value, and of the tendencies of a progressive state of industry.(372) The causes of this acknowledged fall would be at work, no matter whether tariffs existed or not. It is the result of the general forward march of improvements, as evidenced in the application of new inventions and the display of skill and ingenuity in new processes. To say that it comes because of a tariff, is a complete non sequitur. How true this is may be seen by observing that a country like England, without tariffs, shares in the general fall of prices of manufactured goods equally with the country which has heavy customs-duties. The causes must be wider than tariffs, if they are seen working alike in tariff and non-tariff countries.

But the fact itself can not be gainsaid that protection does raise the prices of the protected goods in the home market. The comparison is not to be made between prices as they now are in this country and as they were twenty or forty years ago also in this country, for this would show only the general march of improvements in this country; but a comparison is to be made between prices in this country to-day and present prices in foreign countries. Does, for instance, the tariff increase the price of woolen goods and clothing to every consumer far beyond what the price would be if the duty on imported woolens were removed? The very existence of a protecting duty is the answer to this. If the duty does not raise the price, then why does the woolen industry wish a continuance of the duties? If goods can be sold as cheaply here as the foreign goods, why do protectionists want any duties? The duties are intended to keep foreign goods out of our markets; and they would be unnecessary if our goods could be sold as cheaply as the foreign wares.

The facts, however, are at hand to show that the statement of principle as made above is corroborated by the statistics. In 1883, although average weekly wages in Massachusetts were over 77 per cent higher than in England, the American laborer had to pay more for the articles entering into his real wages; and to that extent lost the advantage of his higher reward in this country. This is to be seen in the following figures,(373) which show, in percentages, whether prices are higher or lower here than in England:

Classes of Articles. Higher Percent. Lower Percent. Groceries 16 Provisions, including meat, 23 eggs, butter, and potatoes Dry goods (all grades) 13 Boots, shoes, and slippers 62 Clothing 45

And yet, in spite of the high prices, 31 per cent of the Massachusetts workman's expenditure represents more comfort and better home surroundings than is enjoyed by the English workman. If the American could purchase at English prices, he would have no less than 37 per cent of a surplus for additional enjoyments (after making due allowance for the higher rents paid here than in England). In other words, higher prices cut off the American laborer from reaping all the superiority in comfort which might be expected from knowing that he had an advantage over the English laborer of 77 per cent in the money wages received.

In order that the reader may easily find the arguments of the protectionists, he is referred to the following books:

Carey's "Principles of Social Science" (3 vols.). The form of argument is, briefly, that all industries should be kept going within the bounds of a country so as to avoid foreign trade. The change of form into the finished commodity should, he holds, take place near the spot where the raw materials are produced, so that not so great a share should go to the mere middle-men, or transporters.

Bowen's "Political Economy," Chap. XX, advocates protection on the ground that it is needed to secure diversity of industries, and that it lowers the prices of imported goods.

Sir J. B. Byles's "Sophisms of Free Trade" is an answer to Bastiat's "Sophisms of Protection," the latter having been translated into English by Horace White.

Erastus B. Bigelow's "The Tariff Question." This is one of the ablest discussions, from the protectionist point of view, based on statistical tables and comparisons of the policy of England and the United States.

Stebbins's "Protectionists' Manual" is a brief and handy statement.

Ellis H. Roberts's "Government Revenue" is the form into which he has thrown his lectures at Cornell University (1884) on protection, and is the latest statement emanating from that side of the discussion. He goes at length into the history of taxes in various countries; holds that wages are higher here than in England because of protection; that our manufactures are more flourishing than our agriculture, etc.

Frederick List's "National Economy" is the German statement of protection, much on Carey's own grounds.

"The Congressional Globe" contains numerous speeches of members of Congress on the tariff; and the Iron and Steel Association of Philadelphia send out pamphlets explaining the protectionist position.

The free-trade arguments may be found also in W. M. Grosvenor's "Does Protection Protect?" He studies the results of the various tariffs of the United States, and gives many very valuable tables and collections of statistics bearing upon this question.

W. G. Sumner's "History of Protection in the United States" is a very vigorous account of the evils of the various tariffs and the protective system.

D. A. Wells's "Reports" as Special Commissioner of the Revenue, and his numerous pamphlets (see Putnams' publisher's catalogue), are full of facts, and give the results of special study of the subject as affecting the United States.

A. L. Perry's "Political Economy" gives a radical free-trade view.

Henry Fawcett's "Free Trade and Protection" explains the causes which have retarded the more general adoption of free trade.

J. E. Cairnes's "Leading Principles of Political Economy" gives the ablest discussion of the economic principles involved in the question which has yet been offered to the reader. Moreover, almost all our systematic writers on political economy (excepting, perhaps, Bowen and R. E. Thompson) give the system of free exchange their support on economic grounds.



APPENDIX I. BIBLIOGRAPHIES.



A Brief Bibliography Of The Tariffs Of The United States.

I. General Works.—Young's "Special Report on the Customs-Tariff Legislation of the United States" contains useful extracts from debates of Congress, and also valuable tables of duties; in the Index, p. cciii, under "Tariff Act," will be found references to, and dates of, all acts to 1870. See, also, Sumner's "History of American Currency," and his "Lectures on Protection in the United States"; A. L. Perry's "Political Economy," chap. xiii; Grosvenor's "Does Protection Protect?" A valuable study is E. J. James's "Studien ueber den Amerikanischen Zoll tariff." For different views, see Carey's "Social Science"; Bolles's "Financial History of the United States," vol. ii, Bk. i, chap. v, Bk. iii, chaps. iii to x; and Stebbins's "American Protectionists' Manual."

II. Earlier Periods.—H. C. Adams's "Taxation in the United States, 1789-1816"; F. W. Taussig's "Protection to Young Industries"; the works of Hamilton, Madison, Jefferson, Webster, and Clay; "The Statesman's Manual"; and of course the Debates in Congress, etc. See, also, Bristed's "Resources of the United States"; Pitkin's "Statistical View of the Commerce of the United States"; Seybert's "Statistical Annals" (1818); and the "American Almanac."

III. Noteworthy Documents.—Hamilton's Reports: "Report on Manufactures," Works, ii, pp. 192-284, or American State Papers, Finance, i, 123-144. Dallas, Treasury Report of 1816, American State Papers, Finance, iii, 87-91.

A report which is of the greatest importance and weight is Albert Gallatin's "Memorial in Favor of Tariff Reform" (1832). Printed separately. Unfortunately, not in his collected works.

Walker's Report, see Finance Report, December 3, 1845.

J. Q. Adams's Report of 1832, Congressional Documents, 1831-1832, H. R. No. 481.

D. A. Wells's "Reports as Special Commissioner of the Revenue," 1866, Senate Documents, second session, Thirty-ninth Congress, vol. i, No. 2; 1868, House Executive Documents, second session, Fortieth Congress, vol. ix, No. 81; 1869, House Executive Documents, third session, Fortieth Congress, vol. vii, No. 16; 1869, House Executive Documents, second session, Forty-first Congress, vol. v, No. 27; and his paper in the Cobden Club Essays (second series).

W. D. Kelley's "Speeches, Addresses, and Letters."

"Report of the Tariff Commission," 1882 (two vols). H. R. Miscellaneous Documents, No. 6, Part I, Forty-seventh Congress, second session.

IV. Pauper-Labor Argument.—See Taussig, "Protection to Young Industries," p. 69, note 1; Calhoun's speech, Works, iv, pp. 201-212; Greeley's speech of 1843; Cooper's "Politics," pp. 99-109; Webster's Works, v, pp. 161-235; Cairnes, "Leading Principles," pp. 382-388. Fifteenth Annual Report of the Massachusetts Bureau of Statistics (1884), by Carroll D. Wright. D. A. Wells, "Princeton Review," November, 1883, p. 261; Schoenhof, "Wages and Trade."

V. View of Early Manufactures.—Bishop, "History of American Manufactures"; Batchelder's "Introduction and Early Progress of the Cotton Manufacture in the United States"; N. Appleton, "Origin of Lowell"; G. S. White, "Memoir of Samuel Slater"; B. F. French, "History of the Rise and Progress of the Iron Trade of the United States for 1621-1857"; H. Scrivenor, "History of the Iron Trade"; "Bulletin of the National Association of Woolen Manufactures," ii, pp. 479-488. Tench Coxe, "Statement of the Arts and Manufactures of the United States for 1810" (1814).

VI. Later View of Manufactures:

(1.) THE IRON MANUFACTURE.—See Swank's "Reports of Iron and Steel Association," 1882; ibid., "Census Report," 1880; ibid., "Iron Trade," 1876; J. S. Newberry, for an excellent article in "International Review," i, pp. 768-780.

For Bessemer steel, Swank, "Census Report," 1880, pp. 149-153; and Schoenhof, "Destructive Influences of the Tariff," chap. vii. A. S. Hewett, Speech in Congress, May 16, 1882. Separately printed.

(2.) WOOL, WOOLENS, AND COTTONS.—Production and importation of wool, see "United States Statistical Abstract"; "Tariff Commission Report," i, pp. 1782-1785; ii, p. 2432.

Production and importation of woolens, see "Bulletin of Woolen Manufacturers," vii, p. 359; "Commerce and Navigation Reports."

Prosperity of woolen manufacturers after 1867, see Wells, "Wool and the Tariff" (a letter to the "New York Tribune," March 20, 1873); R. W. Robinson, article of December, 1872, in "Bulletin of Woolen Manufacturers," iii, p. 354. Edward Harris, "Memorial of the Manufacturers of Woolen Goods to the Committee of Ways and Means," Washington, 1872. John L. Hayes, "The Fleece and the Loom."

Production and importation of cottons, see "Commerce and Navigation Reports"; Census Report of 1880.

(3.) SILK.—Manufacture since 1860, see "Silk Association Reports"; Wyckoff, "Silk Manufacture in the United States" (1883) for recent history, pp. 42-51. Wyckoff, "The Silk Goods of America" (1880), on methods of manufacture, chaps. ii, iv, vi.

(4.) SUGAR DUTIES.—D. A. Wells, "Princeton Review," vi (November, 1880), pp. 319-335; and "The Sugar Industry of the United States and the Tariff" (1878).

VII. Present Tariff.—Heyl's "United States Duties on Imports" (1881) contains all acts in force to date of publication, and gives all acts since the year 1861 in full. It is used by the United States officials.

"Imports Duties from 1867 to 1883 inclusive" (House of Representatives, Miscellaneous Documents, No. 49, Forty-eighth Congress, first session) gives duties on each article by years, and reduces specific to ad valorem rates.

"The Existing Tariff on Imports into the United States," 1884 (Senate Document, Report, No. 12, Forty-eighth Congress, first session).



A Brief Bibliography Of Bimetallism.

"The Report of the International Monetary Conference, 1878" (p. 754), contains an extended bibliography on money, by S. Dana Horton. Chevalier's third volume of his "Cours d'Economie politique," entitled "Monnaie," also gives a bibliography.

I. Standard of Value.—See Jevons, "Money and the Mechanism of Exchange," chaps iii, xxv; S. Dana Horton, "Gold and Silver," chap. iv, p. 36; F. A. Walker, "Political Economy," pp. 363-368, "Money, Trade, and Industry," pp. 56-77; Wolowski, "L'Or et l'Argent," pp. 7, 22, 207; Mill, "Principles of Political Economy," book iii, chap. xv; Walras, "Journal des Economistes," October, 1882, pp. 5-13.

II. Bimetallic Theory.—Horton, "Gold and Silver," p. 29; F. A. Walker, "Money, Trade, and Industry," p. 157, "Political Economy," p. 408; Giffen, "Fortnightly Review," vol. xxxii (1879), p. 279; Wolowski, "L'Or et l'Argent," p. 35; Jevons, ibid., chap, xii; A. J. Wilson, "Reciprocity, Bimetallism, and Land Reform," p. 107; S. Bourne, "Trade, Population, and Food," p. 227; Seyd, "The Decline of Prosperity," and the various pamphlets of Cernuschi.

III. Operation of Gresham's Law.—Macaulay, chap. xxi for clipped coin of 1695; Jevons, ibid., pp. 80-85, also gives an example taken from the Japanese currency; for the case of France, see "Report of the Select Committee of the House of Commons on the Depreciation of Silver, 1876," p. xlii, and Appendix, pp. 86, 148; for the United States, see supra, book iii, chap. vii, 3. See, also, Lord Liverpool's "Treatise on the Coins of the Realm," chap. xii, for changes in the coin of England.

IV. Compensatory Effect of Two Standards.—Jevons, ibid., pp. 139, 140; F. A. Walker, "Political Economy," pp. 411-416; Wolowski, "L'Or et l'Argent," p. 28; Mannequin, "Journal des Economistes," August, 1878, p. 202.

V. Effect of a League of States, or Law, on the Relative Value of Gold and Silver.—Giffen, "Fortnightly Review," vol. xxxii (1879), pp. 285-290; Wolowski, "L'Or et l'Argent," pp. 23, 24, 31; F. A. Walker, "Political Economy," p. 410, "Report of the International Monetary Conference, 1878," p. 74; Sumner, "Princeton Review," vol. iv, p. 563; S. Dana Horton, "Report of the International Monetary Conference, 1878," p. 741; Bourne, "Trade, Population, and Food," pp. 228, 230; Jevons, "Contemporary Review," vol. xxxix (1881), p. 750; S. Newcomb, "International Review" (1879), p. 314.

VI. Production of Gold and Silver; Relative Value of the Two Metals.—Ad. Soetbeer, Petermann's "Mittheilungen," No. 57; "House of Commons Report on Depreciation of Silver," 1876, Appendix, pp. 11, 12, 24; Bourne, "Statistical Journal," vol. xlii, p. 409, gives Sir H. Hay's figures corrected by him to 1878; Spofford's "American Almanac," 1878, gives tables from the "Journal des Economistes"; the figures of Seyd, Hay, Jacob, and Tooke and Newmarch are in the "House of Commons Report," above. Also see, supra, book iii, chap. vi, for references.

The relative values of gold and silver since 1834, as given in Pixley and Abell's (London) tables, are trustworthy. Previous to 1834 there is much uncertainty. Soetbeer, ibid., gives Hamburg quotations since 1687. Another table, probably incorrect in places, is that of White, see "Report of the International Monetary Conference," 1878, p. 647.

VII. Demonetization of Silver by Germany.—For copy of laws of 1871 and 1873, see "Report of Directors of the United States Mint, 1873," p. 82; "House of Commons Report on Depreciation of Silver," 1876, p. 18; "Conference Monetaire Internationale," 1881, index, p. 215 for "Allemagne."

VIII. Latin Union.—For treaty, see "Journal des Economistes," May, 1866; "House of Commons Report," ibid, xxxviii, Appendix, pp. 92, 98, 106-109, 116; "Report of Monetary Conference," 1878, pp. 779-787.

IX. Flow of Silver to the East.—The figures of Sir Hector Hay after 1851, "House of Commons Report," ibid., App., p. 24, are fullest, and should be combined with Pixley and Abell's figures for years before 1851, ibid., Appendix, p. 21. See also Bourne, "Statistical Journal," 1879, p. 422; Waterfield, "House of Commons Report," ibid., Appendix, pp. 171, 172, 174; Quetteville, ibid., p. 184; "Conference Monetaire Internationale," 1881, p. 197; London "Economist," February 24, 1883, Supplement, p. 7; "Parliamentary Documents," 1881, vol. xciii; "Report of the Director of the United States Mint," 1880 (in the Finance Report, 1880, p. 194); J. B. Robertson, "Westminster Review," vol. cxv, p. 200.

X. Depreciation of Silver, 1876.—Causes, Bourne, ibid., pp. 206, 212, 222, 233; Wilson, ibid., p. 128; "House of Commons Report," ibid.; Sumner, "Princeton Review," vol. iv., p. 570; S. Newcomb, "International Review," vol. vi (1879), p. 326; Cochut, "Revue des Deux Mondes," i, December, 1883, p. 514; Cairnes, "Essays"; F. Bowen, "Minority Report of the United States Silver Commission," 1878.

Supposed cause of panic of 1873, see Williamson, "Contemporary Review," April 1879; Seyd, "Decline of Prosperity"; Bourne, ibid., pp. 226, 227.

XI. Appreciation of Gold.—Giffen, "Statistical Journal," vol. xlii, p. 36, started the theory for the period 1873-1879. Also see Bourne, "Statistical Journal," vol. xlii, p. 406; S. Newcomb, "International Review," 1879, p. 329; Wolowski, ibid., pp. 29, 30; Goschen, "Journal of the Institute of Bankers" (London), vol. iv, part vi, May, 1883; Patterson, "Statistical Journal," vol. xliii, p. 1; for table of prices see London "Economist" (e.g., December 28, 1878).

XII. Bimetallism in the United States.—See supra, book iii, chap. vii; for a vast array of materials, see "Report of the International Monetary Conference," 1878; Linderman's "Money and Legal Tender"; the Finance Reports of the United States; and Congressional Documents. For the coinage laws of 1792, 1834, 1853, 1873, 1878, see pamphlet, "Extracts from the Laws of the United States relating to Currency and Finance," by C. F. Dunbar. For detailed account of passage of Act of 1873, see "Report of the Comptroller of the Currency," 1876, p. 170. Present situation, "Atlantic Monthly," May, 1884, "The Silver Danger."



A Brief Bibliography Of American Shipping.

I. English Navigation Acts.—Macpherson's "Annals," ii, pp. 442, 484; Scobell, "Collection of Acts," p. 176; Ruffhead, "Statutes at Large," iii, p. 182; Roger Coke, "Treatise on Trade" (1671), p. 36; Sir Josiah Child, "New Discourse on Trade" (1671); Sir Matthew Decker, "Essay on the Causes of the Decline of Foreign Trade" (1744); Joshua Gee, "Trade and Navigation of Great Britain" (1730); Lindsay, "History of Merchant Shipping and Ancient Commerce"; McCulloch, "Dictionary of Commerce" (new edition), articles "Navigation" and "Colonial Trade"; ibid., edition of Adam Smith, note xii, p. 534; Huskisson, speeches, iii, 13, 351; Levi, "History of British Commerce," p. 158.

II. Navigation Laws of the United States.—"United States Statutes at Large," i, 27, 287, 305; Act of 1817, Statutes, iii, 351; Revised Statutes (1878), "Commerce and Navigation," p. 795; Lord Sheffield, "Observations on the Commerce of the United States"; Pitkin, "Statistical View of the Commerce of the United States," chap, i; D. A. Wells, "Our Merchant Marine," chap. v; Seybert's "Statistical Annals"; Macgregor, "Commercial Statistics of America."

III. Growth of American Shipping.—Rapid growth, 1840-1856. Levi, "History of British Commerce," p. 582; Bigelow, "Tariff Question," Appendix No. 57; "Harper's Magazine," January, 1884, p. 217; Lindsay, "History of Merchant Shipping," iii, p. 187; for ship-building, see Report of the United States Bureau of Statistics, "Commerce and Navigation," 1881, p. 927; for tonnage, ibid., pp. 928-930; also, see "United States Statistical Abstract"; Dingley's Report to House of Representatives, December 15, 1882, No. 1,827, Forty-seventh Congress, second session, pp. 5, 8, 254.

IV. Steam and Iron Ships.—Preble, "History of Steam Navigation"; Colden, "Life of Fulton"; Porter, "Progress of the Nation," section 3, chap. iv; Nimmo, "Report to the Secretary of the Treasury in Relation to the Foreign Commerce of the United States and the Decadence of American Shipping" (1870); Dingley's Report, pp. 4, 23; Kelley, "The Question of Ships," Appendix ii, p. 208.

V. Decline of American Shipping.—"Report on Commerce and Navigation" (1881), pp. 927, 928; Lindsay, ibid., iii, pp. 83, 187, 593, 645; ibid., iv, pp. 163-180, 292, 316, 376; "North American Review," October, 1864, p. 489; "Report on Commerce and Navigation," 1881, lxv, pp. 915, 916, 922, 934; Lynch, Report to House of Representatives on "Causes of the Reduction of American Tonnage," February 17, 1878, pp. ix, 80, 176, 195-213; remission of duties, Revised Statutes of the United States (edition of 1878), section 2,513; Report on "Commerce and Navigation," xi, 83, 210; Dingley's Report; Nimmo, "Decadence of American Shipping" (which gives several charts), p. 17, "The Practical Workings of our Relations of Maritime Reciprocity" (1871); Kelley, ibid.; Reports of the New York Chamber of Commerce; Sumner, "Shall Americans own Ships?" in "North American Review," June, 1880; Codman, "Free Ships"; for high-rate profit in the United States, Dingley's Report, p. 4.

VI. Burdens on Ship-Owners.—Tonnage duties, Wells, p. 179; sailors' wages, Revised Statutes, sections 4,561, 4,578, 4,580-4,584, 4,600; consular fees, Dingley's Report, p. 9; pilotage, taxation, Wells, p. 172, et seq.; see also Act of 1884, abolishing many of these burdens.



APPENDIX II. EXAMINATION QUESTIONS.

The following problems and questions have been arranged to indicate to the reader the character of examinations set by English(374) and American universities. They have been taken in each case from papers actually given. It is hardly necessary to state, perhaps, that these questions do not exhaust the subject, and are only some of a kind of which many more might be added:

DEFINITIONS.

1. Define briefly, Fixed Capital; Unproductive Consumption; Law of Diminishing Returns; Effective Desire of Accumulation; Law of Increase of Labor; Communism; Wages Fund; Wages of Superintendence; Real Wages; Value; Price; Demand; Medium of Exchange; Gresham's Law.

2. Explain carefully the following terms: Productive Consumption, Effectual Demand, Margin of Cultivation, Cost of Production, Value of Money, Cost of Labor, Wealth, and Abstinence.

3. Explain the following terms: Real Wages, Fixed Capital, Allowance System, Margin of Cultivation, Price, Demand, Medium of Exchange, Seignorage, Value of Money, and Bill of Exchange.

4. Define Supply, Value of Money, Productive Consumption, Cost of Production, Cost of Labor, Exchange Value, Law of Production from Land, Rate of Profit, Capital, and Gresham's Law.

5. Define Political Economy: State the parts into which it may be divided, and show how they are mutually related.

LABOR.

6. Distinguish between direct and indirect labor, and give an illustration of the distinction.

7. Apply the distinction between productive and unproductive labor, and productive and unproductive consumption, respectively, to each of the following persons: a tailor, an architect, an annuitant, a sailor, and a brick-layer.

8. Is an actor to be classed as a productive laborer? The inventor of a machine? A confectioner?

9. In which of the two classes of laborers, productive and unproductive, would you place the following?

(1.) The officers of our Government. (2.) The maker of an organ. (3.) An organist. (4.) A schoolmaster. (5.) An artist. (6.) He who makes an article for which there is no use.

10. Classify as productive or unproductive the following laborers: a clergyman, musical-instrument maker, actor, soldier, and lace-maker.

CAPITAL.

11. Explain fully what you understand by capital, and what function it discharges in production. Consider whether or not the following ought to be included in capital: (1) the original and acquired powers of the laborer, (2) the original properties of the soil, (3) improvements on land, (4) credit, (5) unsold stock in the hands of a merchant, (6) articles purchased but still in the consumer's hands.

12. Does a national loan add to the capital of a country?

13. Inquire how far, or in what cases, or in what sense, it may be said that a common dwelling-house, an hotel, a school-house, a police-station, a theatre, and a fortification, constitute part of the capital of the country.

14. Discuss carefully the question whether money lying in a bank (or corn lying in a granary) is always capital, or whether its economic nature depends upon the intentions of the owner.

15. Are railway-shares, stocks of wine, wheat, munitions of war, and land, to be considered capital, or not?

16. Explain fully whether you consider that United States bonds are capital or not.

17. Is an investment in government funds capital, or not? Give your reasons.

18. In what manner does a large expenditure for military purposes affect the operations of capital and labor?

19. Distinguish between wealth and capital. Show that there is no assignable limit to the employment of capital in bettering the condition of the members of a community.

20. "If there are human beings capable of work, and food to feed them, they may always be employed in producing something." Explain the meaning of this fully.

21. What is meant by saying wealth can only perform the functions of capital by being wholly or partially consumed?

22. Explain and illustrate the statement that demand for commodities is not demand for labor.

23. Show that expenditure of money does not necessarily increase the demand for labor.

24. In what way would a general demand for luxuries affect productive laborers and the wealth of the community?

25. In a community where capital is all employed, what would be the effect if one employer gradually withdrew some of his capital, and spent this for personal luxuries?

26. It is contended that "the demand for commodities, which can only be got by labor, is as much a demand for labor as a demand for beef is a demand for bullocks." Criticise this position.

27. "It is often said that, though employment is withdrawn from labor in one department, an exactly equivalent employment is opened for it in others, because what the consumers save in the increased cheapness of one particular article enables them to augment their consumption of others, thereby increasing the demand for other kinds of labor." Point out the fallacy.

28. A college undergraduate, with the applause of shopkeepers, bought twenty waistcoats, under the plea that he was doing good to trade. Examine the economical soundness of his act.

29. A man invested a portion of his capital in a loan to a state which subsequently repudiated its debts. The man thereupon gave up his carriage, discharged superfluous gardeners, and reduced the number of his domestic servants. Examine the effect of these changes on the employment of labor in the district where he resides.

30. In the sixteenth century a great change in the mode of expenditure took place. Retainers were dismissed, households were reduced and a demand for commodities was substituted for a demand for labor. How would this change affect wages, and why?

31. It is supposed by some persons that expenditure by the rich in costly entertainments is good for trade. What is your opinion on the subject?

32. A is an absentee who spends his income abroad. B spends his income chiefly on American pictures and other works of art. C spends most of his income on American servants. D saves and buys United States bonds. E employs most of his income in the production of manufactures. Explain the various effects of these different modes of expenditure on the amount of wealth in the United States, and on the working-classes of the country.

33. Compare the economic effects of defraying war expenditure (1) by loans, (2) by increased taxation.

34. Define the term capital, and distinguish between fixed and circulating capital, giving instances of each.

35. Distinguish between fixed and circulating capital, and point out how far, or in what manner, each of the following articles belongs to one kind or the other: a dwelling-house, a crop of corn, a wagon, a load of coal, an ingot of gold, a railway-engine, a bale of cotton goods.

36. Of the following, which would you class under fixed and which under circulating capital: cash in the hands of a merchant, a cotton-mill, a plow, diamonds in a jeweler's shop, a locomotive, a nursery-gardener's seeds, greenhouses, manures; a carpenter's tools, woods, nails?

37. If in a country like this a large amount of capital becomes fixed in the building of railroads, what effect will this change taken by itself have upon the laboring-class, supposing the capital to be (1) domestic, or (2) borrowed wholly or in part from abroad?

38. What conclusion is reached by Mr. Mill respecting the objections to the use of labor-saving machinery?

39. Is the extension of machinery beneficial to laborers?

40. What is "the conclusive answer to the objections against machinery"?

EFFICIENCY OF PRODUCTION.

41. Explain briefly the chief causes on which the productiveness of labor depends.

42. What are the principal ways in which advantage arises from the division of labor?

43. What are the principal advantages of division of labor? In what cases and why is it better to carry on a productive enterprise on a large scale?

44. Under what circumstances, and in what callings, can the division of employment be carried out to the fullest extent?

45. Show how the amount of available capital and the extent of the market for products limit division of labor.

POPULATION.

46. Give a brief statement of Malthus's theory of population, explaining the different checks on population in different stages of civilization.

47. Enunciate Malthus's law of population, and give an outline of the reasoning by which he established it. Give an account of any objections that have been brought against Malthus's position, and criticise those objections.

48. When the growth of population outstrips the progress of improvements, what are the means of relief for the laborer?

49. Does the increased facility of emigration nullify the Malthusian law of population in your opinion or not, and why?

50. Explain the law of diminishing return and the Malthusian doctrine of population; and trace the connection between them.

INCREASE OF PRODUCTION.

51. Compare the motives to saving in the case of savages, and of a country like the United States. State the causes of diversity in the strength of the effective desire of accumulation.

52. Capital is said to be accumulated by saving; what is saving? Is hoarded money a saving while hoarded?

53. How far does the increasing productiveness of manufacturing industry tend to neutralize the effect on profits of the diminishing productiveness of agricultural industry?

54. What conclusion as to the limit to the increase of production does Mr. Mill deduce from his investigation of the laws of the various requisites of production?

PROPERTY.

55. What are the essential elements of property? Are the grounds of property in land the same as those of property in movables?

56. Give what you conceive to be the chief arguments in favor of the institution of private property, as opposed to common ownership.

57. What arguments does Mr. Mill suggest in favor of some redistribution of landed property?

58. What are the economic arguments for and against Communism?

59. In what way, and by what means, do Socialists want to alter the present distribution of wealth?

60. Sketch the principal forms of Communistic and Non-communistic Socialism.

61. Should the power of bequest be limited?

WAGES.

62. On what, according to Mill, does the rate of wages depend? Hence, show the fallacy of the popularly proposed remedies for low wages.

63. State and examine the principal theories which have been put forward as to the circumstances which regulate the general rate of wages, saying which you deem to be correct, and why so.

64. Mr. Thornton argues that the wages-fund is neither "determined" nor "limited": not "determined," because there is no "law" to compel capitalists to devote any portion of their wealth to the payment of labor, nor are they morally "bound" to do so; and not "limited," because there is nothing to prevent them from adding to the portion of their wealth so applied. Criticise this argument, and, if you dissent from Mr. Thornton's view, state the causes which "determine" and "limit" the fund in question.

65. State precisely what you mean by the "wages-fund," and explain the conditions on which its growth depends.

66. Explain generally the circumstances which determine the rate of wages. Mention some of the reasons why wages should be higher in one occupation than in another.

67. In what way does dearness or cheapness of food affect money wages?

68. What determines—

(1.) The general rate of wages in a country? (2.) The relative rates of wages in different employments?

69. What causes different rates of wages in different employments, and by what methods might wages be raised?

70. How do you explain the fact that some of the most disagreeable kinds of labor are the most badly paid?

71. What, according to Mr. Mill, are the most promising means for the improvement of the laboring-classes?

72. In the Island of Laputa a law was passed compelling each workman to work with his left hand tied behind his back, and the law was justified on the ground that the demand for labor was more than doubled by it. Examine this argument.

73. Some coal-workers are calling for a diminution of the output of coal, so as to keep up their wages. Examine how far, if at all, this result would follow from their proposed action.

74. Discuss any remedies for low wages that have been or might be suggested.

75. Why are the wages of women habitually lower than those of men?

PROFITS.

76. What is the cause of the existence of profits? And what, according to Mr. Mill, are the circumstances which determine the respective shares of the laborer and the capitalist?

77. (1.) What is the lowest rate of profit which can permanently exist? (2.) Why is this minimum variable?

78. Analyze the remuneration received by any of the following: (1) the proprietor of a cotton-mill managing his own mill; (2) a merchant conducting his own business; (3) a railway shareholder; (4) a holder of government funds.

79. Into what portions may we divide the return which is usually called profit? Which of these portions would be received by a merchant carrying on business with borrowed capital?

80. Analyze the payment called profits into its various elements. Point out in what respects the earnings of the employer differ from or resemble the wages paid to other classes of laborers.

81. It is asserted that "profits tend to an equality." What conditions must be satisfied before this position can be maintained?

82. How is the alleged tendency of profits to equivalence in different employments to be reconciled with the notorious difference in the profit of different individuals?

83. Which one of the elements in profit has the greatest effect on its amount? Explain by comparing the causes which regulate each element.