Social science and national economy

Front matter

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Preface

The author of this book has had a twofold purpose in its preparation, — -first, to furnish a readable discussion of the subject for the use of those who wish to get some knowledge of it, but have neither the time nor the inclination to study elaborate or voluminous works ; secondly, and more especially, to provide a text-book for those teachers — in colleges and elsewhere— who approve of our national policy as in the main the right one, and who wish to teach the principles on which it rests and the facts by which it is justified. Of course the book is not exactly what it would have been had either of these purposes been kept singly in view. Some explanations are given, which are here only because this is meant to be a text-book ; there are discussions of a political kind, for instance, in the second chapter, whose presence is necessitated by the fact that no specific instruction in political philosophy is ordinarily given in our college courses, and the teacher of National Economy cannot always assume that his classes are already familiar with the conception of the state in its full significance. On the other hand, in the closing chapters, what the theological controversialists used to call "the present truth " has been stated and defended with a fulness which would ordinarily be needless in a text-book, and it is sug-

IV PREFACE.

gested ' that in the use of those chapters a selection be made, and the rest omitted. But it is believed that nothing has been inserted, and it is hoped that nothing has heen omitted, whose insertion or omission will interfere with either purpose of the book.

As a text-book for instruction prepared by an actual teacher, who holds what he has called Nationalist views, the book comes into comparison with very few others, because the writers who hold those views have seldom been engaged in teaching. Prof. Bowen of Harvard University is the only exception that occurs to the writer, and the exception is more formal than real. The present work embodies the results of an experiment carried on for several years in the actual instruction of classes in the University of Pennsylvania, and with a view .to ascertain on what side the subject could be most successfully approached, and what form of statement would best convey the lecturer's meaning. AVhile it covers much more ground than was possible in a course of dictated lectures, those lectures themselves, after having been repeatedly re-written and reconstructed, form the basis of this book, and much of what is here said grew out of questions asked and discussions started during recitation.

The form of the book is entirely different from the ordinary arrangement under the three rubrics, " Production, Distribution and Consumption." The method pursued of itself excludes that artificial and symmetrical distribution of its parts, which — the author believes — sacrifices life and reality to system. Whatever interest or other merits the book possesses it owes to the method which underlies its construction. In so far as the author has succeeded in being faithful to that method, he must have succeeded also in showing that this science is not or.3 that is " up in the clouds," but one that touches on human life and the world's history at all points.

PREFACE. V

The author lias had access to the library of the late Stephen Colwell, Esq., now in possession of the University, and only regrets that he has not been able to use its treasures more freely. It contains some eight thousand books and pamphlets, whose collection occupied Mr. Colwell 's leisure till his death in 18G9, and it embraces nearly every important book, periodical or pamphlet on the subject that had appeared in the English, French or Italian languages, besides a large number in German and Spanish.

Of the books that the author has drawn upon, the writings of Mr. Henry C. Carey hold the first place. Then come those of his school — Dr. Wm, Elder, Hon. E. Peshine Smith (especially in chapter III.), Dr. E. Diihring (chapter XL) and Stephen Colwell (chapter VIIL). Free use has also been made of the writings of Sir Henry S. Maine and Rev. E. Mulford (chapter II.), W. R. Greg (chapter IV.), Cliffe Leslie, Maine and E. Laveleye (chapter V.), W. T. Thornton (chapter VII.), R. H. Patterson (chapter VIII,), J. Noble (chapter IX.), and Edward Youug (chapter XII.). Other authorities are specified in the notes appended to various paragraphs.

The author has everywhere sacrificed mere symmetry and literary form to his conception of what the practical uses of the book called for. The desire to be terse and brief has in some places interfered with the flow and the evenness of the style, and has made their perusal resemble a ride on a corduroy road. This will be corrected, as far as possible, in a revised edition, should any be issued.

A necessity of avoiding delay in publication has prevented the preparation of an index, but it will be prepared if there be opportunity for its use. To the same cause it is due that some unimportant mistakes, in the spelling of names and the like, have not been corrected.

For the correction of many small and some large errors,

VI PREFACE.

and for suggestions which have contributed to whatever completeness of discussion or other merits the book possesses, the author is greatly indebted to the kindness of Cyrus Elder, Esq., of Johnstown, to Joseph Wharton, Esq., and especially to his friend Wharton Barker, Esq., to whose encouragement this book owes its existence.

University of Pennsylvania, March \bth 1875.

CHAPTER I. (§§ 1-17.) Definition and History of the Science .... 11

gg 1-6 : Definition ; gg 7-17 : History (g 7 : The Mercantile School ; g 8 : The Physiocrates; gg 9-13: Adam Smith and the Cosmopolitical School ; gg 14—17 : The Nationalist School).

CHAPTER II. (§§ 18-35.) The Development of Society. — The Nation ... 32

gg 1S-22 : The Growth of Society; gg 23-29 : The Nation, its Nature, its Origin and its Vocation; gg 30-35: The Method and Goal of National Progress.

Chapter III. (§§ 36-48.)

"Wealth and Nature 41

g 36: Wealth and Value defined; gg 37, 38: Man's need of Nature; gg 39-43 : Fertility a Process ; gg 44-48 : Human Stupidity may defeat Nature's Beneficence.

CHAPTER IV. (§§ 49-73.) T he Science and Economy of Population .... 49

gg 49-52: The Growth of Wealth through the Growth of Numbers; gg 53-55: The State* s Stewardship of Health and Life; gg 56-61:

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Viii CONTENTS.

Malthus's " Law of Population ;" gg 62-66 : It is refuted by experience ; gg 67-73 : It is against the reason of things.

CHAPTER V. (§§ 75-100.) The National Economy op Land 70

gg 74—77: Agriculture first extensive, then intensive; gg 78, 79: Petty Tillage and its Antiquity; gg 80-83: History of English Land Tenure; gg S4-S7 : The Causes and Consequences of the Decay of the Yeomanry ; gg 8S-91 : The Land Tenures of France, Belgium, Prussia, etc.; gg 92, 93: The Farmer's need of a Home Market; gg 94-97: Ricardo's Theory of Kent; gg 98-100 : It is refuted by experience.

Chapter VI. (§§ 101—129.)

The National Economy of Land (continued) : How the Earth was occupied . 98

gg 100, 101 : The History of the Earth's Occupation refutes Ricardo ; g 102: China: g 103: Egypt; g 104: The Shemites; g 105 : The Sanskrit and Dravidic Races in India and Ceylon; g 106: The Persians and Medes : ^ 1 U 7 : The Caucasus ; g 108 : Italy and its Islands ; g 109: Greece; g 110 : Gaul (and France) ; g 111: Spain; gg 112-116 : England; gg 117, 118: Scotland and its Islands; g 119: Ireland; gl20: Belgium: g 121: Holland; g 122: Germany; g 123: Scandinavia; gg 124-127: The United States; g 128: Spanish America; g 129 ; Conclusions.

Chapter VII. (§§ 130-156.)

Tin: National Economy of Labor 129

g<> 130-135: The Rate of Wages and the "Wage-Fund" Theory; \\ 136-141: The History of Labor; g 142: Labor gains more and faster than Capital; gg 143-148: Some Obstacles to its Welfare; gg 149-151 : Trades' Unions and Strikes: g 152: Arbitration; g 153: Cooperation : g 154 : Industrial Partnerships; g 155 : Labor Banks; g 150: Woman's Work and Wages.

CONTEXTS. IX

CHAPTER VIII. (§§157-185.) The Science and Economy of Money 156

% 157, 158: The Function of Money; gg 158-160: The "Precious Metals" and their History; gg 161-104: The Theory of the Passivity of Money ; gg 105-107: Paper-money; gg 108-171: Money of Account, Banking and Panics ; gg 172-176 : Banking in England : g 177: Scotland: g 178: France; g 179: Land Banks; gg 180-185: Banking in the United States.

CHAPTER IX. (§§ 186—204.) National Economy of Finance and Taxation . . 191

gg 186, 187 : The need of a Revenue ; § 1SS : Old Methods of getting it; g 1S9 : The Sorts of Taxation : gg 190, 191 : Indirect Taxes : gg 192- 195: Direct Tnxation; g 196: Economy of Taxation; gg 197-200: War Debts; gg 201-204: Our Treasury Notes.

CHAPTER X. (§§ 205—225.) The Science and Economy of Commerce .... 209

gg 205, 206 : The Function of the Trader: gg 207-210 : His Profits and his Power; gg 211-213 : The Reform of Commercial Methods ; gg2l4- 218: The English Theory of International Exchanges; gg 219-223: Refutation of its Current Form; gg 224, 225: True and False Commerce.

Chapter XI. (§§ 226—268.)

The Science and Economy of Manufactures. — The Theory 231

gg 226-228: The Natural Growth of a Varied Industry; gg 229-231 : The Interferences with this Growth: gg 232-230: Political Theorists object to State Resistance to these Interferences ; gg 237-239 : Tariffs, their Methods and the Incidence of their Duties; \\ 240-243: Protection benefits the Laborer; gg 244-251 : Protection benefits the Farmer;

X CONTENTS.

§§ 252-254: Protection makes Commerce equitable; §§ 255-261: Protection fosters Manufactures and reduces the Prices of their Products, §§ 262-26S : Objections to Protection answered.

Chapter XII. (§§ 269—329.)

The Science and Economy of Manufactures. — The Practice 279

§ 269 : The Relation of Theory to Practice; § 270 : Protection in Anriquity; §271: Mediajval and Spanish; g^ 272-274 : France; §§275- 288: England; §287: Canada; §§ 288-290: Australia; §§291-297: Ireland; §§298,299: India; §300: Belgium; §§301-304: Germany; §305: Russia: §306: Sweden and Denmark; §307: Spain; §308: Portugal; § 309: Turkey; §§ 310-329: The United States (§' 310: Colonial Times; § 311 : The Revolution and the Constitution ; § 312: Federalist Times; §§ 313, 314: AVar of 1812: §§ 315-317: Three Democratic Tariffs ; § 318 : Hays, the Whig and Dallas Tariffs ; § 318 : The Morril Tariff and the Rebellion ; §§ 319-329 : The Results of Protection).

Chapter XIII. (§§ 330-346.)

The Science and Economy of Intelligence and Education 383

§§ 330, 331 : The Need and Nature of a National Education; §§ 332- 335 : History of National Education ; § 336 : Our Public Schools ; '0 337 : National Education has three Aspects ; §338: For the Culture State; §§ 339, 340 : For the Jural State; §§ 341-346 : For the Industrial State (§ 341 : Agricultural Education; §§ 342-6: Technical Tra;n;ng for Workmen engaged in Manufactures).

SOCIAL SCIENCE

AND

NATIONAL ECONOMY.

' CHAPTER 'FIRST; Definition and History of the Science.

§ 1. Social Science (in the sense in which we shall use that term) is that branch of the science of man which treats of man as existing in society, and in relation to his material wants and welfare. The related art by which this science is carried into practice is the art of national or political economy. For sake of definiteness, we prefer the former name.

§ 2. It has been objected by some that there can be no such thing as a science of man. " Science," they say, " deals only with things whose actions and reactions can be foretold, after we have mastered the general laws by which they are governed. The test of science, as Comte says, is the power of prediction. There is a science of Chemistry, because there is a possibility of foretelling what compound will be produced by the union of any two elements or known compounds. But man is not governed by laws of that sort ; he is a being possessed of affections and a will, which often act in the most arbitrary way, — in a way that no one can foresee or predict."

This objection expresses a truth which can never be left out of sight. If we ignore it we shall miss the conditions under which man's material welfare is to be achieved. Men can never be put to a good use of any sort, while they are regarded or

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treated as things. To do so will be to keep them poor, as well as to degrade them morally; for the best work and the wisest economy can be got out of them, only by bringing their free will into play in the desirable direction.

But the possibility of constructing a science of man does not rest upon the power to foresee the line of action that each individual man will pursue. Man lives in a world which his will did not create, and whose " constitution and course of nature " he cannot change. If he act in violation of its laws, he must take the penalty.; Thus if. he Jildftlge'in habits that contravene the constitution of his moral nature* then moral degradation, unhappiness and re.taor^e: w.ili;be tfie.'keces'sary results. Because there is such a moral '" constitution and course of nature," there is a science of ethics, which enables us to predict, not the conduct of each individual man, but the consequences of such conduct, whatever it may be. And there exists equally for society an economic "constitution and course of nature ;" the nation that complies with its laws attains to material well-being or wealth, and the nation that disobeys them inflicts poverty upon itself as a whole, or upon the mass of its people. To learn what those laws are, is the business-of the student of social science ; to govern a nation according to them is the business of the statesman, and is the art of national economy.

While men are beings possessed of a will, they ordinarily act from motives. This is especially true of their conduct in regard to their material welfare; in this connection the same motives act with great uniformity upon almost all men. The same wants exist for all ; the same welfare is desired by all ; so that in this department of the science of man there is so little caprice, that there is nearly as much power to foresee and foretell what men will do, as in some of the sciences to foresee the actions of things. Nearly, but not quite so much ; for while men are agreed as to the end here, there is room for difference of opinion as to the means, and consequently for variety of action — for wise and unwise ways of procedure.

§ 3. What Social Science lacks in certainty, as compared with

SOCIETY A PRIMARY FACT. 13

the sciences of nature, it more than makes up in the higher interest that it excites. Whatever science deals with our own species and its fortunes, comes very close to each one of us. Whatever it can tell us of the probable future of our nation, or our race, concerns us more than predicted eclipses or chemical discoveries. The most brilliant chemical or astronomical certainty could not move an Englishman so deeply as that bare conjecture of Macaulay, that the time may come " when some traveller from New Zealand shall take his seat on a broken arch of Westminster bridge to sketch the ruins of St. Paul's." The other sciences have an independent value ; but they interest us most when we see that they have a bearing upon this, when they open still larger utilities of nature to human possession, and add to the welfare of mankiud. We ask the chemist: " Will the time ever come when we will be no longer dependent upon our coal deposits for light and warmth, but will be able to produce both from the decomposition of water V We ask the physicist: "Will we soon be able to use this subtle, omnipresent electric force as a motive power ? Will we ever be able to move through the air in manageable balloons, with speed and safety ?" These are not the greatest problems that science has to solve, hut they have an interest for us all that more abstract questions can never possess.

§4. Our Science considers man as existing in society; we find him, indeed, nowhere else. The old lawyers and political philosophers talked of a state of nature, a condition of savage isolation, out of which men emerged by the social contract, through which society was first constituted. But no one else has any news from that country; everywhere men exist in more or less perfectly organized society ; — they are born into the society of the family without any choice of their own ; and they grow up as members of tribes or nations, that grew out of families. All their material welfare rests upon this fact, and must be considered in connection with it. The cooperation by which they emerge from the most utter poverty to wealth, is possible only within society and under its protection. Upon the wise management of its general policy, and the efficiency of its government, the welfare and the security of the individual depend. The natural right to property, by which that welfare is perpetuated from day to day, is realized only in society. The transmission of the things that contribute to material welfare from one generation to another — of real and personal property, of knowledge, skill and methods of industry — would be impossible but for the existence of bodies that outlive the single life, and aim at their own perpetuation. Vita brevis, ars long a, or else each new generation would have to begin at the foundation. Hence it is that this science begins with the conception of social state ; not with the study of wealth in the abstract, nor of the individual man and his desires.

At the fall of the civilized societies that made up the ancient world, the useful arts and sciences would have perished in Western Europe with the polities under which they were developed, had not the great Benedictine order gathered both into their monasteries. These were at once schools of learning and industrial establishments, and the only places safe from the barbarous intrusions of half-Christianized barbarians.

§ 5. Social science reduced to practice is the art of national economy. The term ecouomy, or house-thrift, does not mean here wise saving, any more than it means wise spending. It is borrowed from the management of the first and simplest of all human societies, the unit out of which all other societies have grown — the family. The adjective national prefixed indicates the transfer of the conception of thrift to the society which exists that justice may be done and natural rights be realized, and which for that purpose is put in trust with the lives and the material possessions of the whole people.

§ 6. National economy is much older than social science. The former came into existence with the first nation, the latter began to be studied about the time of the discovery of America, and first gained a place as a recognised science a century ago. There is nothing utmsual in this, for nearly every science lags for a time behind its related art. Themistocles knew " how to make a small city great" lung before Plato and Aristotle

ART BEFORE SCIENCE. 15

founded the science of politics. Dyeing, cooking, and a thousand other applications of chemistry were in use from the earliest historic periods; but the first centennial of Dr. Priestley's discovery of oxygen, that laid the foundation of that science, has been celebrated in our own time. Sometimes the two — the science and the art — exist together, with little or no influence upon each other, for a long period. Thus there was for centuries a science of music, taught and studied by men who were not practical musicians ; while those that were, pursued their art without giving the slightest heed to the science.

All human experience shows that science can be of the greatest service to its related art. As chemistry has improved and simplified the industrial methods that existed before Priestley and Lavoisier, so the discovery of the economic laws that govern the advance of society in wealth, has greatly changed for the better the economic methods of the nations. Some of the older empirical rules it has vindicated as right ; others it has condemned and set aside as wrong ; it has suggested new and extended the applications of others that were old. It runs the risk, indeed, of rejecting some methods that were clearly right ; and it must guard against this, by making the most careful and thorough survey of all the facts of the case.

In the first stages of a science, which we may call the mechanical, empirical rules predominate among the doctrines ; but gradually the simpler and far less numerous scientific principles that underlie these rules are perceived. When these are once grasped, the process of submitting rules to the test of principles is an easy and safe one. The science has then passed into its dynamical stage.

The ancients knew no science of political or national economy. Commonplace remarks and moralizing reflections on the subject are found scattered here and there through their literatures. Single facts that could hardly escape their notice, such as the advantage of the division of labor, and of the transition from barter to the use of money, and the difference between value and utility, were remarked upon, especially by Aristotle. In these hints lay the possible germs of social science, but they were not followed up, nor the underlying laws investigated.

§ 1. The rivalry excited in other parts of Europe, by the prosperity of Venice and Genoa, first led men to study the subject, and we find it occupying a place in the literatures of Italy and Spain, France and England, from the sixteenth century. The circumstances of the times gave shape to these studies. This was the nationalist period of history. Europe had revolted against all the schemes of a universal monarchy ; and independent sovereign kingdoms, with national languages and literatures, and even churches, divided its area among them. That a thing was Spanish or was English, was praise enough in the ears of Spaniard or Englishman. How to aggrandize to the utmost their own country, at whatever expense to others, was the great problem of statesmanship, especially after the religious heats, that had divided Europe into two hostile camps, cooled off" somewhat. And of all means to that end, the possession of an abundance of money seemed the best and readiest. After a money-famine that had begun with the Christian era, and had grown in intensity for fifteen centuries, the discovery of America and the East Indies had brought in a vast and sudden supply, which had given Spain for a time an undue preponderance in European politics, and had everywhere bettered the condition of the people. How to acquire it by a foreign trade that would give a balance in favor of our own country, — how to keep it here at home for general circulation and national uses in case of need, was the question. The Mercantile school of writers, as they are now called, set themselves to find methods. As a rule their books were corrective of common errors ; they showed that the best way was the indirect way, — to stimulate home industry and have plenty of commodities to sell, not to put a premium on foreign coins and prohibit the export of gold. Theirs was a real science, but in the mechanical stage.

Among the notable writers of this school are Antonio Serra (1613, a Neapolitan) ; Thomas Munn ( England's Treasure by Foreign Trade, 1664) ; Andrew Yarranton {England's Improvement by Land and Sea, 1677-81); John Locke (jOn the Interest and Value of Money, 1691 and 1698); Sir

THE MERCANTILE SCHOOL. 17

Wm. Petty (Essays in Political Arithmetic 1691). The systematic writers are the Abbe Genovesi (Lezzioni di Commercio e di Economico Civile, 1765) and Sir James Steuart (Principles of Political Economy, 1767). Contemporary opponents are Sir Josiah Child (Brief Observations concerning Trade, 1608); le Sieur de Boisguillebert (Factum de France, 1712, <fcc); Marshal Vauban (Projet d'une Dime lioi/a/e, 1707); and J. F. Melon (Essai Politique sur le Commerce, 1734.) The opinions of the Mercantile school are wretchedly caricatured by many modern writers.

The new science was as yet a very subordinate branch of the larger subject of politics, and political aims predominated in its treatment of the subject. As we have seen, the questions that it proposed to solve were not of its own suggestion, but were propounded by political leaders. It was not yet strong enough to take the initiative, or to insist on the benefit of an economic policy to the well-being of the people. The final end held in view, both in theory and in practice, was the abundant supply of money for royal coffers, and the practice was far behind the theory. The most absurd financial methods were kept intact if they seemed to subserve this end. Monopolies were created ad libitum, and sold to foreigners; the trade between provinces of the same kingdom was burdened with customs-duties, as if between separate kingdoms ; the export of grain, as well as of gold, was prohibited, that its price might be kept down ; the industry created and fostered with one hand, was crushed under excessive taxation and arbitrary regulations with the other. Even the great Colbert, whose policy was the grandest and most successful illustration of all of the best and some of the worst teachings of the school, died broken-hearted with the ruin of his plans through the royal ambition that wasted the nation's resources in war, and the royal superstition that was robbing France of millions of her best and most industrious citizens.

§ 8. The second school is that of the Economistes or Physiocrates, founded by Quesnay, the physician and "thinker" of Louis XV. If the mercantile school unduly subordinated the science to the art, the Economistes went to the other extreme and made a complete divorce between them. Starting from a few simple ideas as the postulates of the science, they built up a 2 fantastic structure of deductions and theories, that stood in no vital relation to the actual life of society. Their professed aim was to attain a natural line of thought, and in that age the " natural" was conceived as the antithesis of civilization, as then existing.

In Quesnay's view nature, — by which he meant the productive powers of the soil, — is the sole source of a nation's wealth ; agricultural labor is therefore the only productive industry, all others being sterile. That this labor produces more than the farmer and his household consume, is the origin of all wealth, — which is merely the net-product of his tillage. The values produced by all other labor are measured by the cost of the raw materials and of the workman's food. The web of cotton cloth is but so much raw cotton and so much corn turned into another form, but retaining the same value. The utility of the new form is greater; the amount of wealth the same. From this he inferred that national policy should do nothing to develop such sterile industries as commerce and manufactures, but merely remove all restrictions from agriculture, from the trade in grain, &c. As agriculture alone produces wealth, it alone must, in the last resort, bear all the national burdens, however these may be imposed. Turgot, his chief disciple, divests the theory of much that is fantastic, and in his policy as minister of finance applied for the most part merely its just rejection of the system of monopolies, close corporations, duties on exports, &c.

Quesnay's first book {Tableau Ecouomique, 1758) was preceded by articles (on Fermiers and Grains) in the famous Encyclopedic (1756-7). The elder Mirabeau, "the oldest son of the doctrine,'" wrote much, of which L'Ami des Hommea (6 vols., 1755-60) is the best known. His greater son furnished the theoretic part of Mauvillon's voluminous statistical work on La Monarchic Pruasienne (SeejJ 301). Turgot's chief book is Rejlexiona anr la Formation et la Distribution ilea Richessea (1766 and 1778). Of the many other writers, none add either to the substance or the clearness of the doctrine. Dr. Franklin, whose visit to France occurred at a time when these opinions were in fashion, became a disciple of Quesnay.

§ 9. The third or Industrial school of economists was founded by Adam Smith, a Scotch professor, and a friend of Quesnay's.

ADAM SMITH'S "WEALTH OF NATIONS." 19

His great work (An Inquiry into the Nature and Causes of the Wealth of Nations, 1776, 1778, 1784 and 1788) occupied him for five years. It shows that he was influenced by the Physiocrates, yet it is a decided advance upon their teachings. He finds the source of wealth in all the three forms of industry, but gives the first place in point of productiveness to agriculture, the last to foreign commerce; while he classes as unproductive all those forms of human activity that are not directed to the production or exchange of commodities. Tracing the natural growth of the three great industries, through whose association men advance from the poverty of the savage life to material welfare, he pronounces against all efforts of the state to direct and foster any one of the three, as most likely to turn capital out of more into less productive channels. He, like the Economistes, would have the State adopt ordinarily a purely passive policy as regards the industrial life of the people. By leaving every man to do what he will with his own, and to use it in whatever way will secure the largest possible returns to himself, society will receive the largest possible benefit. In the principle of free competition he discerns the tap-root of all national industrial life and growth ; the enlightened .and active selfishness of the individuals who make up society, is the source of general well-being. That which is good for the individual, is good for society also. If there are inequalities of profits or of wages, capital or labor will shift from one channel to another, till things find their natural level.