Chapters in political economy

Preface

The chapters embraced in this work treat of the leadifig economic questions which are rife in our country. Although most of the chapters have appeared in magazines during the past two years, yet a unity will be foimd pervading the work. An attetnpt has beeti made to handle the questions in a thorough manner, to dig down for principles which are fundamental, though the author was conscious t/iat, in so doing, the work would lose something of its interest to those who only seek to glide over the surface of things. If ever the questions of labor, money, exchange, taxation, and the like, are to receive a permanent settlement, they must be traced back into the region where prejudice and feeling do not enter, however dry and uninviting may be the investigation.

Noriuich, Conn., September, 1874.

Contents

PAGE.

I. — The Field and Importance of Political Economy, i

II. — The Payment of Labor, . . . . 15

I. The Field And Importance Of Political Economy

In The Principles of Economical Philosophy* Macleod has given an elaborate criticism upon several definitions of political economy, and then offered one himself which, in his opinion, " appears to state clearly and distinctly the nature and extent of the science, and to be free from the ambiguities connected with the words wealth and value." At the risk of being ambiguous, we shall not give a definition so precise, because a commoner one can be more easily understood. According to an old and well-received definition, the principles of political economy relate to the production, distribution, exchange, and consumption of wealth. No higher origin is claimed for these principles than an enlightened self-interest. They are such as every man entertains having regard solely for his own interests from the most enlightened point of view.

Although without moral foundation, these principles yield the same results in the production, distribution, exchange, and consumption of wealth, as obedience to a perfect moral code. Wherever economic and moral science touch, the principles of human

2 FIELD AND IMPORTANCE

conduct prescribed by each are seen to be the same.* The remark of Dr. Wayland is perfectly true, that " the principles of political economy are so clearly analogous .to those of moral philosophy, that almost every question in the one may be argued on grounds belonging to the other. "f

For example, moral science condemns laws made in restraint of trade. I It teaches that every man has the right to traffic where he pleases, unfettered by State lines. The primary object of enacting such laws is to enrich the few at the expense of the many. The protectionist urges their enactment for the public good, or for some reason beyond his own aggrandizement; the history of legislation clearly shows that the prime object of all protective laws is to benefit particular individuals, or a class, and not all. Of course, moral science condemns such legislation.

They are condemned by political economy also, which looks at them with the sharp eye of enlightened selfishness. It sees that if the public good is the object of protection, everything must be protected conducive to that end; and if this doctrine be admitted, protective laws will be enacted so generally as to afford protection to nothing. If the principle is not to receive a logical and just application, and merely that a few things most needed by the public are to be protected, their increased cost to the consumer will result in his protecting himself by charging more 'for whatever he sells, so that, after a time, the effect of protective laws is completely neutralized.

Moral science, then, condemns legal protection because it is wrong; economic science because it is impossible to get protection by operation of law. The conduct of people in either case is the

*■ Perry's El. of Polit. Econ., p. 37, 5th ed.

t Pref. El. of Polit. Econ., p. 4, 4th ed.

X For an elucidation of the operation of protective laws, see chap. isth.

OF POLITICAL ECONOMY. 3

same, only it is impelled by different motives in one case than in the Other.

As this position will hardly be assailed by any one — that the principles of economic and moral science yield the same results — is it not better to transfer the principles of political economy from a selfish to a moral basis ? We favor this transfer for four reasons.

First, more persons will be drawn to the study of economic principles. Now, it is said, they are cold and bloodless, and tend to increase human selfishness. If made a portion of the truths of moral science, . this objection to them will disappear.

Secondly, in the classification of knowledge, it will be easier to find an appropriate place for political economy. Instead of being a piece of knowledge standing apart by itself, it will form a subdivision of moral science. Political economy in that case would constitute that part of moral science relating to the production, distribution, exchange, and consumption of wealth.

Thirdly, after deriving the principles from a moral source, they can be enforced by showing their harmony with enlightened self-interest. Thus the combined power of morality and selfishness can be used to sustain these principles by founding them upon a moral basis. We have previously seen in the example of protective legislation, how the selfish mind, cold, clear, and enlightened, supplements and enforces the transparent conclusions of morality. Moral science condemns such laws because they are wrong; economic science because they are at war with self-interest and have only a nominal, and not a real, existence after a period.*

Fourthly, political economy is properly a subdivision of moral science, because the will operates in every transaction with which

* The insufficiency of enlightened self-interest as a competent basis for economic science has been ably discussed by Frederic Harrison in the Fort. Rev., vol. t, p. 336.

4 FIELD AMD importance

economic science is concerned. This faculty exercises only moral functions. If the principles of political economy were immutable, if the will were a stranger in their production, if no moral quality adhered to them, political economy would be entitled to a seat among the exact sciences. But these principles are not fixed, because the human will is an element determining what they are. The rules which have guided men in the past respecting the acquisition or disposition of their wealth, are only hypotheses in respect to what they will do in the future. Quite absurd is the claim that economic principles are absolutely fixed, and therefore purely scientific principles. Having no place in exact literature, and the will being a part of the machinery by which economic principles are created, they ought to be relegated to the domain of moral science.*

If the principles of political economy are transferred from a selfish to a moral basis, the method of searching for them is not changed. Economic principles are still the fruit of induction. And it is worthy of note how extensively employed is the inductive method in political economy. Adam Smith, it is true, did not write an inductive treatise. His Wealth of Nations is a great landmark in the history of thought, but its success is due to the fact that he put ten years of patient labor upon the work, combining in the happiest manner a philosophic insight with a knowledge of practical life, deducing therefrom principles which have found universal acceptance. It is easier to dream and speculate than to burrow amid a great mass of facts; yet, as the gold in the

, * Jevons, in his Theory of Polit. Econ., has united moral and economic science, making pleasiire the end, and declaring that "the object of economy is to maximise happiness by purchasing pleasure, as it were, at the lowest cost of pain" (p. 27). As Jevons is a utilitarian, of course pleasure is the highest end for man according to his philosophy, though he gives a wider interpretation to the term than his master, Bentham, whom he so much admires. See pp. 27-32.

OF POLITICAL ECONOMY. 5

earth can be found only by toilsome mining, so the gold of economic truth is hid in great masses of facts which must be dug over to find it. Never did finer logicians or acuter reasoners exist than the schoolmen; never did a class of men commit greater mistakes. These followed from wrong premises. Political economy has followed too much a similar method. This is one reason why it has failed to convert men. It has been too speculative.* The change of method among economists in this respect is remarkable. Fifty years since, Thomas Tooke applied the inductive method in his History of Prices with enduring success. Later, Richard Jones applied it to the subject of Rent ; similarly, Edwin Chadwick in his investigations into the questions of Factory and Infantile Labor, and Sanitary and Poor-Law Legislation. In 1867, Rogers published his work upon the Agricultural Prices and Wages in England during the Twelfth and Thirteenth Centuries, a monument of patient investigation, a work which gave a new rendering of the social and economic history of England for the period it covered, "enabling us to see," says NEWMARCH,t "in detail, how far-reaching and potent were wages, prices, and pestilences in modifying from top to bottom the coherence of the English polity, and the power of our sovereign lord the king, under the early Plantagenets."

Other economic works might be spoken of, prepared in a similar way, Dudley Baxter's books upon National Income, and Taxation of the United Kingdom, and Leoni Levi's History of British Commerce, are examples. As for France, she has been noted for her economists who have burrowed and lived among the facts.

* " Half, and more than half, of the fallacies into which persons who have handled this subject have fallen, are the direct outcome of purely abstract speculation." Rogers in preface to his edition oi Smiih's IVealth of Nations, p. 41.

t Address before the British Social Science Association, 1871.

6 ' FIELD AND IMPORTANCE

Chevalier, in all his works, has kept close to the inductive method. So has M. de Lavergne when treating upon the moral economy of his own and other countries. M. Levasseur and M. Le Play have considered the claims of the working classes of France in a similar manner. The same may be said of M. Jules Simon.

Of the political economists in our own country following this method, not so much can be said. The most prominent example who has addressed himself to the mastery of facts as the foundation of his subsequent reasonings, is David A." Wells. In his reports to the National Government and to the State of New York, and in other papers, he has adhered rigidly to the inductive method. For many years pursuing physical science, he has employed its methods in finding out the principles of political economy. His results have, in some instances, been as unexpected to himself as they were startling to the public. They are none the less true, however, or less likely of being accepted in the end. The National and State Governments are learning the value of this method, for they are appointing commissions and requiring investigation and reports upon many subjects lying in the province of political economy. Never was a more inviting field of investigation open to the student of economic science than our own country, nor one where patient, honest investigation was more needed. The facts are lying around in the greatest profusion, while the honest and accurate gatherers are few.

Although the true principles of political economy are ascertained by induction, and all others are only guessed, yet none are hard, fixed laws that never change in their occurrence, like the movements of the sun. On the other hand, the element of human freedom, as we have previously remarked, enters into their composi-

OF POLITICAL ECONOMY. 7

tion, preventing us from determining their absolute truth, as we can the laws of physical science. Macleod, in his Principles of Economical Philosophy* has labored industriously, and with great ability, to bring economic science within the domain of physical science, but we cannot regard his attempt as successful. Comte and John Stuart Mill have comprehended the nature of economic principles more perfectly. They admit the play of the human will ; hence the Frenchman was consistent in rejecting political economy from his scheme of positive philosophy. One of his disciples,t in vindicating his master, has very well said : " So far as physical conditions go, and up to a point where moral conditions begin, strict scientific laws can be established. . . . Directly the data of the study become affected by moral conditions, the conclusions of the economist as such cease to be scientific laws, and are only hypotheses." For this reason, therefore, political economy can never become an exact science. However far we may carry our inductions, a large element of variation must be allowed for the action of the will. As the land surveyor can never determine with exactness surface and direction on account of variation of the needle, so the economist can never discover by the most patient study of facts, any unalterable laws of economic science, because of the infinite variations in the will of men. The farthest he can go is to ascertain how men have acted under former conditions, and form the hypothesis that, under like conditions, similar actions will be produced. \

As the principles of political economy are ascertained by induc-

* Chap. I. t Frederic Harrison, Fort. Review, vol. i, p. 369.

* David Svme has declared that the "inductive method is alone apphcable to the investigation of economic science, and that we shall never be able to make any solid progress so long as we continue to follow the A priori method." IVest. Rev., vol. 95, p. 100. On same subject, see Prof Cairnes' Character uTtd Logical Method 0/ Polit. Ecoii., Lee. ii.

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tion, any one capable of making an induction can find them out. A knowledge of economic principles involved in a particular pursuit is not necessarily limited to those engaged in that business. The sole advantage one man has over another of equal ability is in a knowledge of facts, out of which inductions spring.

Thus the charge, that only business men, practical men, can understand the principles of political economy, is conclusively refuted. The charge contains this basis of truth and no more— that business men often know more facts concerning their business than outsiders; hence they are more capable of forming correct conclusions.

The history of political economy attests the truth of this, assertion. For, who are the most successful cultivators of the science? Who have wrought out those principles which most persons are willing to admit as true and of great importance ? Are they the discovery of practical men ? By no means. The great lights in economic science, from the day of Adam Smith to this, have not been practical men.* Political economists have walked with the man of business, have gleaned from him all that he knew, and, not content with exhausting one storehouse of experience, have exhausted others, dug in rare and rich mines of which practical men had no knowledge perhaps, or no time or inclination to explore. As the reader of the description of a battle may acquire a more perfect knowledge of it than a participator therein, because, as an eye-witness, the latter knows only what happened immediately around him, so the pohtical economist may acquire a wider knowledge of economic principles governing a particular business

* " In every country in which it has been successfully cultivated, most of the contributions to it of any value have been made by writers who were not of the business world, but surveyed its operations from a distance; men for whose opinions op business matters few merchants or manufacturers would have given five cents." The Nation, vol. 2, p. 146.

OF POLITICAL ECONOMY. 9

even, than a person who has given to it the attention of a Hfetime.

A poHtical economist can see economic principles more clearly because his view is not mystified by pecuniary interest. His judgments are unclouded by prejudice; undisturbed by the thought of gain or loss. We need not indulge in any platitudes as to the unconscious warpings of opinions and beliefs by interest and desire ; the fact is common to all.

A conspicuous illustration of the eminent service sometimes rendered by the theoretical economist, is the creation of the National banking system. This was the work of the Rev. John McVickar, Professor of Political Economy in Columbia College. In 1827, he wrote a letter to a member of the legislature of the State of New York, entided Hints on Banking, in which he developed the system now in practice. This discovery excited the admiration of an eminent banker, John E. Williams, President of the Metropolitan Bank of New York, who has remarked that " to a practical man of business — an every-day banker — it seems wonderful that a scholar, investigating questions in political economy, on purely scientific principles, should be able to see not only the practical workings of existing laws, and understand the indissoluble relations of money and trade, but should be also able to foresee and foretell what changes were necessary to produce the highest prosperity and secure the greatest safety to the community."*

Not infrequently the principles of political economy are declared to be mere theories. Some of them are nothing more. The difference, however, between theoretical principles, and those derived from experience, is clear enough. Scientists are continually mistaking principles for theories, regarding things as proved which are

* Old and New Mag., voL 8, p. 590.

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not, but only asserted or believed. That theories are useless, as some contend, we deny. Nay, they are absolutely necessary ; no man can conduct his business without them. " What is practice without theory," enquires an eminent French economist,* " but the employment of means without knowing how or why they act." To which the words of Prof Price t may be added. "It is a mistake, though a very common one, to suppose that practical men, as they are called, are destitute of theory. The exact reverse of this statement is true. Practical men swarm with theories, none more so." Theories are well enough,^ only they must be regarded as such ; no harm is done to economic science in including both, if the separation of principle from theory be clearly made.

The flaw with some of the principles of political economy, like many of the inductions of science, is that they rest upon insufficient foundations. A few facts are gathered, and from them a principle is deduced, which, indeed, may be correct, yet which would give way to another principle, perhaps, were a wider induction made. Every result is produced by several causes, nevertheless we are constantly blundering by satisfying ourselves with finding a single cause, and so look no farther.

To some it may seem a waste of time and space to say anything concerning the importance of knowing the principles of political economy. Yet there are peculiar reasons for saying something on this point. The extraordinary prosperity that has visited our country has spread a kind of poetic haze over the whole machinery of society, and led us to regard all inquiry into its

* Say. Treat, on Polit. Econ., Intro., p. 24, 4th Am. ed.. t Princ. of Currency, p. i,

% Sir William Hamilton says : " Theory is dependent on practice ; practice must have preceded theory; for theory being a generalization of the principles on which practice proceeds, these must originally have been taken out of, or abstracted from, practice." Lecture on Met., p. 120, Am. ed.

OF POLITICAL ECONOMY. II

working as an idle speculation. Before the enactment of the great tragedy between the North and South, there were but few questions relating to the administration of the government involving the application of any principles of political economy. The great debates in Congress were upon constitutional law, internal improvements, slavery, and like questions. With the breaking out of war, these questions passed away. The country had gone through the formative period of finding out the meaning and scope of the organic law. Congress was confronted with economic questions. With these it was ill prepared to deal. It had only the scantiest knowledge of them, except the question of taxing importations. The Congressional Globe is the enduring monument . of the ignorance displayed by members of congress upon questions involving economic principles.*

To what new economic conditions did the war give rise ? It created a great debt, the interest and principal of which must be provided for and paid. A national currency and system of banking have been created. How our country blundered in raising money to maintain the war, and spent it ; how the strife might have been carried on and the debt been less than half it is, are mistakes which we shall not recall.

Unquestionably our country has suffered most fearfully from an ignorance of, or failure to apply, some of the most familiar principles of political economy. One of its most distinguished teachers,

* We shall give a couple of fair specimens. "All governments fix the value of gold and silver; and without their guvemment stamp gold and silver would be a simple commodity, like other things having intrmsic value. Some governments fix the value of coin higher, and some lower; just as each for itself chooses to determine." — E. G. Spaulding; speech on Demand- Note Bill, January 28, 1862.

"This currency," referring to demand notes or legal tenders, "can be converted in such a manner as to yield six per cent interest on its par value; it can never greatly depreciate, because the moment the capitalist holding it sees any evidence of its depreciation, he will convert it into the bonds bearing interest, giving him a perma'nent income. Thus it secures itself against over-circulation." — Speech 0/ Samuel Hooper on same subject.

12 FIELD AND IMPORTANCE

Amasa Walker, clearly set forth in a congressional speech, during the early part of the war, how it might be carried on at less than half the expense which Congress was likely to incur, by sticking to specie payments, instead of abandoning them for an irredeemable paper currency. His words, deemed foolish then, have long since borne evidence of their wisdom and truth. The issue of an irredeemable currency, so pointedly condemned by him and other economists, has wrought a thousand curses to our country, from which we are suffering to-day and are to suffer for years to come.

Letting the past go, many of our politicians do not yet understand the principles of political economy, the application of which are needed to settle questions confronting the nation. For example, there are questions of taxation both upon imports and property at home. The principles which should govern in these matters, some of our politicians are as ignorant of as the grandest truths in astronomy. The National banking system, the currency, free banking, specie payments, redemption of legal-tender notes — are all subjects within the domain of political economy, whose principles must be mastered if these matters are to receive a rational settlement. The views entertained upon these questions, the nonsense and ignorance displayed by Congress when grappling with them, would be laughable were the results not so sad and so disastrous to the people.

Every session of Congress discloses its inability to grapple with economic questions.* When matters of foreign policy are discussed,

* Perhaps our congressmen may profit by learning what Burke thought of political economy : " If 1 had not deemed it of some value, I should not have made political economy an object of my humble studies from my very early youth to near the end of my service in Parliament, even before (at least to any knowledge of mine) it had employed the thoughts of speculative men in other parts of Europe. At' that time it was still in its infancy in England, where, in the last century, it had its origin. Great and learned men thought my studies were not wholly

OF POLITICAL ECONOMY. I3

or treatment of the Indians, or internal improvements, or, in the olden time, when dealing with slavery, a knowledge and mastery of the several subjects is evinced, although not all reached similar conclusions. This cannot be said of the senators and representatives in Congress in respect to economic questions, excepting a member who appears occasionally, for a brief season, within the national halls.

It is desirable, therefore, for every person proposing to serve his country in a public capacity to understand the principles of political economy, for they apply to the most important questions of national legislation.* No one will dispute how the character of national legislation has been changed by the war, and that financial measures and taxation are the most conspicuous questions upon which Congress legislates.

Again, the principles of political economy are growing in importance to the individual in his business relations. Consider the relations of capital and labor. How this question looms up before the whole world. It is one of the mightiest questions of the age. It has assumed a magnitude surpassed by no other. It is convulsing the business of manufacturing and other pursuits. For years and years this question will hang like a mighty cloud over the people. Is it not desirable to find out all that can be known concerning the relation of the capitalist and laborer? Yet who has investigated this question most profoundly ? The political economist. The question lies within the domain of economic

thrown away, and deigned to communicate with me now and then on some particulars of their immortal works. Something of these studies may appear incidentally in some of the earliest things I puhlished. The House has been witness to their effect, and has profited of them, more or less, for above eight-and-twenty years." — Letter to a Noble Lord on the attacks upon his pension ; Burke's works, vol. 5, />. 192.

* Said CoBDEN to the House of Commons, when addressing them on the com laws: "It may be material for you to get right notions of political economy ; questions of that kind will form a great part of the world's legislation for a long time to come." — Speeches, vol. i, /. 384.

14 FIELD AND IMPORTANCE OF POLITICAL ECONOMY.

science. And it has been patiently and thoroughly investigated by the economist in all its phases.*

The same is true of other questions. Take the question of restrictive laws upon foreign importations, for example. Shall the policy of the government be continued? Is it for the advantage of any one ; if so, whom ? Are the laboring classes benefited by it ? Is the National banking system a good one ? Do we need more currency ? These, and a host of similar questions, fall within the range of political economy, and have been more carefully investigated by economists than by empirics, who, possessing a little knowledge and having achieved fortunes, find it hard to believe that any one has anything to tell them upon trade, finance or commerce.!

For these special reasons, the principles of political economy have a value to the statesman and man of business hitherto unknown or denied.| It is gratifying to know that a knowledge of these principles is rapidly widening. The issuing of eleven editions of Prof. Perry's Elements of Political Economy within so short a period, is proof that the people are awaking out of sleep and coming to believe that ignorance of the principles of political economy— which has cost us so much as a nation and as individuals — is not bliss pure and unalloyed. A little wisdom is to be preferred, and the streaks of light beginning to be seen in Congress we trust will grow in. power and magnitude until that body possesses the knowledge necessary to discuss and settle wisely the great economic questions which involve the prosperity and happiness of the republic.

* If the remark of Cobdkn be true — that " the principles of political economy have elevated the working class above the place they ever filled before" — should they not seek to master these principles ? — Speeches, vol. 2, p. 373.

t The advantages to 'be derived by the Christian ministry from the study of political economy are admirably stated by Prof. Boardman in the Bib. Sacra, vol. 23, p. 73.

\ The reasons why political economy has not been cultivated in America, are concisely given in The Nation, vol. 2, p. 255.

THE PAYMENT OF LABOR.

This question has attracted more attention in Europe, especially in England, than here; for there laborers have been paid less and have suffered more, and they have oftener resorted to strikes and other rude methods to increase their wages. Yet the wave of discontent has reached our shore, and is breaking, with more or less fury, over every part of the land. Not a more important question in political economy calls for settlement ; not one is likely to give rise to graver difficulties and greater suffering before a settlement is reached.

The contest between capitalist and laborer is a contest between present and accumulated labor. Capital is labor saved, nothing more.* The contest is between him who has saved his labor, or inherited it, and him who has less. It is a contest of the laborer with the laborer, after all.

There is a very gradual shading between the capitalist having many millions, and the laborer having nothing except his brains and limbs. One man has a vast fortune, another a hundred thousand dollars, another a quarter of that sum, another his farm, another his brains, one a store of goods, one a set of tools, another a shovel. Thus the gradations from the capitalist to the