Practical economics; a collection of essays respecting certain of the recent economic experiences of the United States

Front matter

Oass VV^aAni .

. 7

\t

Preface

The essays embraced in this volume — with three exceptions — were originally contributed to and published inihe Atlajitic Magasiiie, the Priyiceton Review, the Nation, and the N. Y. World, at different dates from 1872 to 1884. The exceptions are "The Dollar of the Fathers vs. The Dollar of the Sons," which was published privately ; the essay on " The Production and Distribution of Wealth," which has heretofore been published only in the Proceedings of the American Social Science Association ; and the fourth chapter of " Our Experience in Taxing Distilled Spirits," which was written specially for this volume, and has never before been printed.

The chief warrant for their republication in a collected form is to be found in the circumstance that, with the exception of the final article of the series, they each illustrate a phase in the recent economic experiences of the United States, which has not as yet been discussed or related as a part of any detailed and consecutive history ; an experience in which questions of the highest importance in respect to the use and issue of currency, the imposition of taxes, the collection of revenue, and the regulation of trade and commerce — all involving transactions of enormous magnitude and infinite detail — have been discussed, regulated by legal enactments, and carried to practical results, without, for the most part, any reference whatever to accepted economic principles, and often mainly under the influence of selfish and sometimes of corrupt motives and agencies. A century hence, except for such chronicles of recent tariff legislation as are here given, the writer is of the opinion that the world would find it very difficult to believe that such an illiberal commercial policy and body of tax and navigation laws as now exist could ever have been maintained and defended for any length of time, by a people so free, well educated, and jealous of their individual

VI PREFA CE.

rights as those of the United States ; while in respect to the experience of the United States in the taxing of distilled spirits, it is safe to affirm that nothing similar, viewed from an economic and moral standpoint, ever before occurred in any country of modern civilization, or is likely to occur again.

The author accordingly indulges in the belief that these essays, although fragmentary, will not, as now published in a collected form and Avith some revisions and additions, be regarded as a wholly unimportant contribution to the existing stock of economic knowledge.

David A. Wells.

Norwich, Conn., October, 1885.

Contents

)>AGE

A Modern Financial Utopia : How It Grew Up, and What Became of It . . i The True Story of the Leaden Statuary ; or, A Curious Chapter in Economic

Are Gold and Silver Indispensable as Measures of Value ? .... 58

Conclusion

There can be no objection to the use of silver as a subsidiary or token currency, issued only in exchange for gold at nominal values, or at all times redeemable in gold at nominal value, not legal tender in excess of $10 for any one specific payment, to any extent the people will desire. But when it is proposed to go further, and compel the sons to accept the dollar of the fathers to an unlimited amount, then an answer to this proposition, simple and conclusive, is that the dollar of the fathers is not, on grounds of convenience, adapted to our use. The " sons " want something better — the most improved tools of trade, — as they want better methods of conveyance, of warming, of lighting, ventilation, printing, and communication of news, than did the fathers. They want, as a condition for success in business, the coin receivable without discount by the great commercial nations with which the bulk of our foreign commerce is conducted. And herein is another point that ought not to fail of receiving full consideration, namely, that whereas, in most cases, the first cost of an improved tool is greater at the outset than that of a poor and unimproved one, in this case the conditions are reversed ; for the first cost of the good tool — a gold currency — will be no greater at the outset to the country than the first cost of the poor one — a silver currency ; while in all subsequent respects the advantages are immeasurably in favor of the gold. Any attempt to restore the old silver dollar to its place as lawful money, without qualification or limitation, — to adopt a coin currency not suited to our wants or the age, — is as foolish and absurd as an attempt to displace through legislation railroads by stage-coaches, and steamships by sailing-vessels. Sovereign power can violate natural laws, the same as individuals can : but the penalty of violation is inevitable in both cases.

ARE GOLD AND SILVER INDISPENSABLE AS MEAS- URES OF VALUE.

AN EPISODE OF THE DAYS OF CURRENCY INFLATION AND PAPER

MONEY.

IN a discusssion which occupied no small part of the columns of the newspaper press of the United States in 1875-77 on the maintenance, further inflation, or redemption of the then "legal-tender" (irredeemable paper) currency of the country, the Rev. Thomas K. Beecher, a prominent clergyman, settled in Elmira, New York, in a communication to the N. V. Nation (October, 1875), submitted the propositions, as to whether t/icrt^ is anj/ valid distinction between gold atid legal tender (paper) as a measure of value ; and whether the use of gold and silver as a measure of value is an indispensable prerequisite for a sound and correct system of exchange ; and supported the negative view of the same by the following course of argument and illustration.

" Agreeing that gold is a measure of value that has attained an almost world-wide acceptance, does it follow that gold should be the only legal tender, and that all currencies or other debt-certificates of whatever kind should be " redeemable in gold only? I detect in the general flow of commerce phenomena which I will call closed circles of exchange — /. r,, circles of exchange, within which the same currency may revolve for ever, independently of gold. Such circles are indeed little short of countless. Some of them are very small, as, for instance, the dealings of a grocer with his milkman ; the grocer taking five dollars' worth of milk-tickets and crediting the milkman accordingly, and the milkman redeeming the tickets in milk — gold meanwhile serving the use of a measure both of the groceries and the milk.

" Am I safe in asserting that whenever a closed circle like this can be demonstrated, there is need of neither gold nor silver as a

GOLD AND SILVER AS MEASURES OF VALUE.

legal tender? True, if either party dies and the business be wound up by strangers, there must come in an outside currency. But so long as the milkman and the grocer continue in their respective relations, have we not a trade of say one hundred dollars a year, in which milk-tickets serve all the uses of currency? From this smallest circle step at once to the largest circle — a sovereign government like the Government of the United States, with an undisputed right to tax the people — say two hundred million dollars a year. The people at large are to pay to the national treasury, in the course of a year, two hundred millions of dollars. The Government is to disburse precisely the same sum to the people. Have we not here a closed circle — foreign creditors excepted ?

" Where lies the fallacy, then, in asserting that any stable government may wisely meet its obligations by issuing its notes promising to pay, just as our greenbacks do promise to pay ? And inasmuch as by the tax law every citizen must pay to the Government, and these notes of the Government by their very face are receivable for taxes, why not make them, for all purposes of internal commerce, legal tender, their volume to equal at least the amount of the annual budget ?

" The Treasury notes thus issued are, on a large scale, what the milk-tickets were on a small scale.

"If the Government has a legal right to take from citizens at large two hundred million dollars, I am not able to see that there is any unwisdom or injustice in requiring citizens to recognize Treasury notes — which are legal tender to the Government — as legal tender also in the settlement of private accounts, etc., etc."

To these interrogatories and deductions, Mr. Wells returned through the columns of the Nation the following reply, which, at the time, attracted considerable attention, and was the occasion also of no little merriment on the part of the public.

It was prefaced by the editors of the Nation with the following title :

"dr. wells' opinion in consultation on MR. beecher's case."

" Mr. Beecher says he detects in the general flow of commerce what he is pleased to term ' closed circles of exchange,' and asks why some currency other than gold may not be used and continue to revolve for ever independent of gold in such circles. To this I reply that I, for one, see no objection to the use of such other currency, under the conditions specified. I'or example, take the illustrations which Mr. Beecher brings forward ; ^x\6, first, that of the grocer and the milkman, who exchange between themselves groceries for milk-tickets. What objection can there be to their so doing, or why should any one interfere to prevent this little arrangement, any more than any other mutually agreeable trade or bargain the grocer and milkman may choose to make ? So, in the second case supposed by Mr. Beecher — namely, that of the Government issuing notes promising to pay and made receivable for a year's taxes — I can see no objection to that either, further than that, as a general rule, it is better for Government and individuals alike to pay cash down, rather than issue their I. O. U.'s or get trusted. And if the Government wishes to obtain commodities or services, and promises to pay for them in its own notes or cabbage-leaves, and people are found ivilliiig to take such notes or cabbage-leaves in exchange, I see no reason for entering any protest against it, or calling on any one to prevent the Government from issuing, on the one hand, or the people from receiving, on the other. The highest right of property is the right freely to exchange it for other property ; and the highest attribute of personal freedom is for each person to determine for himself under what conditions he will render service. Thus far, then, there is no disagreement in our respective positions. But when Mr. Beecher goes a step further, and says he is unable to see * any unwisdom or injustice in requiring citizens to recognize Treasury notes [whether the same be greenbacks or cabbage-leaves], which are legal tender to the Government, as legal tender also in the settlement of private accounts,' then Mr. Beecher and I walk apart ; and it is just here, in my opinion, that Mr. Beecher's mental obscurity about money and legal tender begins, for he seems unable to recognize any broad distinction between * may,' or the permissive sense, and ' must,' or the compulsive sense, in its application to money. To make this clear let us take an illustration.

*' Suppose I go on a certain Saturday to Elmira, to hear Mr. Beecher preach. Time hanging heavy while waiting for Sunday to come, I stroll on Saturday evening to Smith's pleasant gambling-

GOLD AND SILVER AS MEASURES OF VALUE. 6 1

saloon to have a little amusement, and being at the same time on * frugal thought intent,' I conclude to risk but five dollars for my evening's diversion, and so bet but fifty cents at a time on the green cloth. To enable me to do this, I get a five-dollar green-back exchanged at the cashier's desk for ten red ivory counters, or ' chips,' as they are technically called ; and after playing to my heart's content I leave, and Sunday morning finds me at Mr. Beecher's church. (I acknowledge that my conduct is rather inconsistent ; but it is not my conduct that we are looking after just at present.) The sermon pleases me so much that at its close, when a collection is taken up to help pay Mr. Beecher's wellearned salary, I determine to contribute ; and finding one of those red chips I received in exchange the night before in my pocket, I put it in the hat. When the money comes to be delivered over to Mr. Beecher, he very naturally expresses some surprise at finding this strange-looking visitor nestled in among the bank-notes, the fractionals, the cabbage-leaves, and the milk-tickets, and asks what it all means.

" To this I may be supposed to respond that the chip is currency, ' revolving perfectly in the closed circle ' of the faro-bank, and fulfilling within that circle all the offices of money, independently of gold. Mr. Beecher has only to go, after church, down to Smith's saloon, and present the red chip I have given him to Jones, the cashier, and Jones will either allow him to bet with it or, if the bank was not cleaned out the night before or seized by the pohce, will probably redeem it in a fifty-cent scrip. ' But, my dear sir,' responds Mr. Beecher, ' I am a minister, and I don't want to be seen going into Smith's saloon.' I answer : ' I suppose it would be somewhat disagreeable to you, but you can give this chip to the milkman, the grocer, or the Government tax-collector to-morrow morning. They understand all about these " close circles " of exchange ; they will take it.' ' But I am not so certain of that,' says Mr. Beecher. ' How will they, any more than I, know what its value is, or whether it will be redeemed in any thing else?' 'Don't trouble yourself about that matter,' I rejoin ; ' I have fixed all that. I happened to be a member of Congress last year, and after devoting two weeks' earnest study to the subject of finance, I was not able to see, any more than you now are, ''that there is any unwisdom or injustice in requiring

62 rKACTTCAL ECONOMICS.

citizens to recognize Treasury notes " and gambling chips — the one of which is legal tender to the Government, and the other legal tender in the faro-bank — " as a legal tender also in the settlement of private accounts." More than this, the ivory chips are prettier than the greenbacks, and more convenient for carrying ; and what better device can there be for indicating their difference in value than by a change in their color ? They have also in perfection another attribute of really good money, inasmuch as they are non-exportable ; and if we take into consideration the number of fights, feuds, and murders that take place in gambling-saloons, I think that we are fairly entitled to claim for the chips that they are " battle-born " and " blood-stained." So I accordingly persuaded the National Legislature to pass a law making Treasury notes, gamblers' chips, milk-tickets, and every other instrumentality of exchange which is capable of revolving perfectly in a closed circle, legal tender in payment for all private debts. ' You see it now, don't you, Mr. Beecher?' 'I rather think I do,' responds Mr. B. ; ' but at the same time I wish that when you next come to hear me preach, and feel that I have rendered you a service and strengthened you up to further good work in Washington, you would give me something that don't belong to a closed circle of exchange — something that I shall not feel obliged, before accepting, to examine a statute-book, read my Bible, consult the resolutions of the last political convention, or wait the news of an election in Ohio, to decide whether I had better take it, and, if I do take it, how much I can get for it.*

" Seriously, however, the trouble with Mr. Beecher and a good many other persons is, that they fail to recognize, that ' legal tender,' whose father is Government and whose mother a Statute Law, is a suspicious character, and has been engaged in all manner of disreputable transactions ever since he was born ; whilst gold and silver, of acknowledged weight and purity — i. e., coined money — are nature's noblemen, whose patent of honesty is so written on their front that they require no passport, in the shape of a legal-tender statute, to find acceptance everywhere, as the universal equivalent for all exchangeable commodities and services, and as the universal solvent for all debts ; and, furthermore, that no matter how great may be their recommendation on the score of cheapness, it is very poor economy for a man or a com-

GOLD AND SILVER AS MEASURES OF VALUE. 63

munity to work with poor tools or dishonest, tricky servants if good tools and honest servants are available.

" Money existed before statutes, and owes its origin to man's instincts or natural promptings. Gold and silver came into use as money also before statutes, and were made choice of for use as money for exactly the same reason that men have made choice of cotton, flax, wool, and silk as materials for clothing, and stone, brick, and timber as materials for houses ; because they best of all things supply certain wants and necessities.

" If the Government will confine itself simply to the business of saying how much pure gold and silver shall be entitled to use the name of ' dollar ' ; that the standard of a dollar once judiciously fixed shall never be changed ; that everybody Avho talks dollars shall always and under all circumstances be understood to mean but this one kind of dollar ; that any promises to pay, without specifying what the payment is to be in, shall also be interpreted to mean the acknowledged standard — if the Government will do these things, and these things only, then all legal-tender laws may be wiped at once off the statute-books, and everybody will be better for it. And when that day comes, if the milkman, grocer, keeper of faro-bank, or children on a rainy day up in an old garret, want to trade, swap, barter, or exchange, and use milk-tickets, ivory chips, or pieces of old newspapers respectively, to serve as memoranda, checks, counters, or symbols, I will promise Mr. Beecher that no one will object ; unless the milkman, grocer, faro-bank keeper, or garret children want to make them legal tender, and compel him, and me, and all other persons, because of the artificial character thus given them, to take them in payment of commodities and services, when we don't want to."

" I am yours, most respectfully,

"David A. Wells."

TARIFF REVISION : ITS NECESSITY AND POSSIBLE

METHODS.

THE old writers, before the discovery of America, were accustomed to indulge in all manner of fanciful speculations respecting the conditions and actions of the people on the " other side" of the world, or their antipodes, supposing, indeed, that there were any. It was generally agreed that they must walk with their heels upvv^ard and their heads hanging down, and do everything in a reverse order from that which was then regarded as proper and natural in the Old World experience. A little practical experience, however, in enlarged navigation soon showed the absurdity of such imaginings ; and yet if the old speculators had restricted the sphere of their imaginings to the mental rather than the physical actions of the " other side" men, they might not have been considered by posterity so far out of the way in their conclusions. For America, or rather that part of it known as the United States, has always been to Europe a country of surprises or contraries, in most matters political, financial, economic, and theological. And of these surprises none could be more remarkable than that one of the tvvo great parties into which the country is politically divided should regard the continued maintenance in time of peace of an extraordinary, onerous, and unnecessary system of taxation as a policy likely to insure to it a popular favor and support ; while the other great party, either through ignorance or cowardice, shirks the issue, hesitates to boldly array itself in favor of exempting the masses from excessive public burdens, and through some of its chief leaders even favors the policy and tries to do business on the capital

of its opponents. In short, taxation in excess of any legitimate requirements of the State — the thing which in all other countries has heretofore been regarded by politicians and statesmen as the certain precursor of popular wrath and party defeat — has really in the United States come to be looked upon as a good thing in itself, and as politically and economically expedient. '■'■If there were no public debt, no interest to pay, no pension-list, no army or navy to support, I should still oppose ' tariff for revenue only' and favor protective duties" {taxes). {Speech of Hon. Wm. P. Frye, Se7tate of the U. S., Feb. 10, 1882,) Again in a debate in the U.S. House of Representatives, March 4th, 1882, on a proposition to reduce or abolish the oppressive and obsolete fees, exactions, and formalities of the existing consular system of the United States, Frank Hiscock, a representative of the State of New York — a State that is pre-eminently commercial — after admitting the existence of the grievances alleged, nevertheless declared himself in favor of their continuance, and simply for the reason that they were an obstruction to commerce ; and if removed it might be difficult to replace them with other equivalent obstructions. Out of such a curious state of things have come certain results so plain " that he may run who reads," and which may be enumerated in part as follows :

First. The annual gathering through the tax-gatherer of a surplus revenue of from one hundred to one hundred and fifty millions of dollars in excess of any legitimate requirements of the government; the same constituting a constant incentive for needless and corrupt expenditures, the multiplication of offices, and the enlargement of the sphere of influence of the federal government. The rapid reduction of the public debt occasioned by the war has been a never-ending theme of national self-congratulation ; but taking taxation as the measure of the burden of obligation which the war entailed upon the country (and it is the only proper measure), the war debt has in reality been diminished by a sum which in comparison with the national receipts of revenue is very inconsiderable.'

' Thus the current burden of the war debt (omitting the repayments of the principal of the debt, which is not in the nature of a demand obligation) is the annual taxation required to provide means for the payment of interest on the debt, and the requirements for pensions. The largest obligation incumbent on the United States in any one year on account of national debt-interest was In 1867, and amounted to $143,781,000. The disbursements for pensions during that same

(£ PRACTICAL ECONOMICS.

Second. A condition of things in which the country depends almost exclusively on its harvests for its prosperity, and has no export trade worth mentioning except in the raw produce of its soil, representing in the form in which it is exported the minimum of embodied labor. In place of an annually increasing ability on the part of the nation to withstand foreign competition in respect to the production of the so-called products of manufacturing industries, all the evidence points in the opposite direction ; our exports of manufactured articles forming a considerably smaller percentage of the total exports in 1879-80 than they did in 1859-60.' Never, moreover, in the history of the

year were $20,936,000. In 1871, six years after the termination of the war, and when it is reasonable to infer that nearly every person who had a legitimate claim for injuries directly and iiiuncdiatcly contingent on his service in, or to, the federal armies had presented the same and made a settlement with the government, the pension disbursements amounted to $34,443,000; and after reaching this maximum, the annual expenditure on this account, in accordance with all former experience of the United States and other countries, and also with the life-expectation tables of life-insurance companies, began to rapidly decrease, and in 1S78 had become reduced tc $27,137,000. The payments on account of interest during this same year were $125,576,000. The direct aggregate burdens of the war debt, as measured by taxation and expenditures, were therefore $164,717,000 in 1867 and $152,713,000 in 1871; on the other hand, the obligations on the part of the government for interest on the public debt ($57,360,000 on the 1st of July, 1882) and for pensions ($100,000,000 actually appropriated) will probably amount for the current fiscal year to about $150,000,000; thus making the aggregate burden of the present war debt but little less than it was soon after the close of the war. For the future, some who have made a very careful study of the matter do not hesitate to predict that the enactment of the so-called " arrears of pensions" law (in accordance with which every man who served in the army or navy of the United States during the war and was discharged in fair health is practically considered to have a valid claim for a pension against the United States on account of personal disabilities contingent on advancing age) will entail, from first to last, a further aggregate expenditure on the country of not less than two thousand millions of dollars.

' The ratios which the exports of the unmanufactured and manufactured products from the United States have sustained to each other during the three decennial periods included between the years 1859-60 and 1879-80 are as follows:

Unmanufactured products 87.5

Manufactured do 12.5

Unmanufactured products have risen, therefore, from being 82.3 per cent of the total exports in 1859-60 to 87.5 per cent in 1879-80; while, during the same oeriod, manufactures have fallen from 17.7 per cent to 12.5 per cent.

Per cent

Per cent of total.

of total.

86.6

82.3

13-4

17.7

TARIFF REVISION.

country has the import — responsive to domestic demand and ready sale — of the products of foreign industries into the United States been greater than at present (1882)'; while, on the other hand, the stocks of American manufactured products continually tend to accumulate and bring on the stagnation and disaster consequent on what is termed '' over-production."

Third. The " merchant marine," or carrying trade, of the United States upon the ocean— a branch of national industry once second only in importance to agriculture— has practically ceased to exist. Differ as men may as to the proper remedial legislation for such a state of things, there ought to be no difference of opinion as to its cause. Commerce is the interchange of commodities and services between men and men and countries and countries ; and its one essential condition of existence and growth is that such exchanges shall be reciprocal. To sell we must buy, and in order to buy we must sell. Now for many years the policy of the United States has been to impose taxes with the avowed purpose of restricting so much of the commerce of the country as is carried on by the agency of ships upon the ocean ; and that it has been eminently successful in its results will not be disputed. If it were not a most serious matter, it ought to be regarded as a huge joke, to propose, as has recently been done, to assemble the several American States by their representatives in a Congress, and try to get them to reverse the principles of human nature by agreeing, on account of neighborhood and good feeling, to permanently trade at the United States shop, when a shop across the way offers to sell cheaper and take the products of the purchaser in barter payment. It can't be done.

Fourth. That the market for the products of the manufacturing industries of the United States is practically limited to the requirements for home consumption, and that the power of domestic production in all branches of industry, consequent

1 The imports of merchandise have never been so large as in the fiscal year ending June 30, 1S82. The largest imports of any one year prior to 1880 occurred in 1873 and amounted to $642,13.6,000. For 1880 the aggregate was $667,954,000, but for the fiscal year 1882 the imported values were returned at $7241623,000 ; of this increase, $10,533,000, or 12 per cent of the present aggregate'import of $93,000,000, occurred in the class of metals, and $23,731,000 in articles of clothing.

upon the application of machinery, conjoined with high intel- Hgence, to our great natural resources, continually tends to exceed the power of domestic consumption, are facts too evident to be disputed. The natural, nay more, the inevitable, outcome of such a condition of affairs is an effort on the part of the producer to prevent the accumulation of a surplus, by restricting production and keeping a part of his machinery idle ; and this in turn means limitation of the opportunity for employment to the laborer. The manufacturer also sees clearly, that if he could produce and sell cheaper he could enlarge his markets, and at least maintain if he did not enlarge the sphere of his business activity ; but having become thoroughly indoctrinated with the idea that the maintenance of a system of national taxation, which abnormally augments the cost of all his services and supplies, is absolutely essential to his industrial prosperity, and even existence, he naturally opposes any reduction of taxes, denounces as unpatriotic and visionary those who favor such reductions, and as naturally seeks to avail himself of the only other avenue open to him for cheapening the cost of his products, namely, that of cheapening his supply of labor. This the laborer resists, and the outcome of this resistance is seen in strikes, local disturbances, and the extensive interruption of the business and exchange of the country such as has characterized the history of the present year. But what chance has the laborer for successful resistance, with a limitation of market for the sale of the products of his industry and an annual import of 700,000 foreign laborers, ready to compete for and embrace every opportunity for domestic employment ? Under such circumstances there is no possibility of any strike or resistance on the part of labor being successful ; and the result of recent experience might have been predicted in the absolute certainty at the commencement of the present year, as can be at present predicted of the future.