The science of wealth: a manual of political economy

Front matter

Class. H b

Book

THE

Preface

TO THE FOURTH EDITION.

The demand for another issue of The Science op Wealth gives the author an opportunity to express his high gratification at the unexpected favor with which the work has been received, not so much from any considerations personal to himself, as from the evidence it affords of the greater interest now felt than formerly in the subjects of which it treats.

Once the sale, within a few months, of even one hundred copies of a work on Political Economy, would have been regarded as remarkable ; * while at present it appears, not only from the sale of this, but of similar cotemporary works, that the reading public begins to appreciate the importance of a science which a few years since was almost entirely neglected ; and not only neglected, but contemned.

* It was a common saying of one of the trade in Boston, thirty years ago, that " only three men ever purchased a new work on Political Economy ; and those were Nathan Appleton, Henry Lee, and Abhott Lawrence." This was nearly the literal- fact. An edition of one thousand copies of J. S. Mill's admirable work, republished in this country in 1848, supplied the demand for some fifteen years, averaging a sale of about seventy copies per annum !

iv PREFACE.

To be sure, Political Economy has for many years been placed in the curriculum of our colleges, but not unfrequently as a matter of mere form ; the s*tudy being superficially passed over, or, more frequently, omitted altogether.

The author will further remark, that it has given him great pleasure to learn that the demand for his work has been largely from business men. Feeling as he does the importance of the science to that class of persons ; knowing how much perplexity and loss he encountered himself, while in trade, from an entire ignorance of the laws of currency, — the author cannot but believe that no rank or profession has a greater pecuniary interest in the subject than those engaged in the commerce and manufactures of the country.

Some additions have been made in an Appendix attached to the present edition.

The great changes that have taken place in the production and use of gold within the past few years, has induced the author to insert an article showing its present position in the commerce of the world, the fluctuations that have taken place in the premium since the suspension of specie payments in the United States, and the cause of those fluctuations. A table is given of the monthly price of gold, from Jan. 1, 1862, to the present time; also, a table showing the extreme quarterly fluctuations, for the same time, illustrated by a diagram. The influence which the great discoveries of gold have exerted upon the trade of India and China is also exhibited ; and tables given of the prices of the principal staples of those countries for the last eighteen years.

PREFACE. V

The peculiar relation of California, as a gold-producing State, to the mixed-currency system of the United States, is also described. Gold mining, as a means of discharging the national indebtedness, is also considered ; together with the effect of the present currency expansion upon wages and salaries, and other matters of interest.

Corrections have been made, in the present edition, of errors discovered in previous ones, and some modifications in the form of expression ; but no principle has been changed, and the work, in all its essential features, remains intact.

A. W.

November, 1867.

PREFACE.

In the preparation of the following work, it has been my hope, while furnishing a Manual of Political Economy, which should present clearly and intelligibly the leading principles of the science, to afford a full and thorough analysis and description of the different currencies used in the commerce of the world, especially to exhibit the nature and effects of the mixed-currency system of the United States.

Regarding the instruments of exchange as essential, not only to the largest production, but to an equitable distribution and advantageous consumption, of wealth, I have long felt that a work was needed which should give more prominence to the subject of money and currency than it has heretofore received. I have searched in vain for any work on Political Economy, domestic or foreign, which even attempted such a complete view of the monetary question, in all its bearings, as it appears to me to demand. Especially does such a work seem to be called for at the present time, when there are more conflicting views and wider differences viii PREFACE.

of opinion among professors of economic science on this subject, and more popular ignorance and misconception, than on any other. To pass lightly over a matter so important, so interwoven with all the great interests of society, has seemed to me a great wrong to those who, as scholars, are expected to prepare themselves for active duties and responsible positions, and, as citizens, are to decide by their votes the financial policy of the country.

In 1857, 1 endeavored, in a series of articles upon Political Economy, in the (New York) "Merchants' Magazine," to show the nature and effects of mixed currency, and its practical influence upon trade and industry. This, so far as I know, was the first attempt of the kind. These articles, in connection with other matter appertaining to the same subject, were published in pamphlet form in December of that year.* In 1859, a small but excellent work on Political Economy appeared, from the pen of Professor Bascom, of "Williams College, presenting the currency question with great correctness, but with such brevity as not, in my view, fully to meet the wants of the public. Within the present year, and since this work has been mostly in manuscript, a manual has been published by Professor Perry, also of Williams College. It is a work of great merit ; the chapter on Foreign Trade being the most able essay iipon that subject which has fallen under my observation. The work contains sound views in regard to currency, and a more extended discussion than any that has preceded it ; yet it does not give so full analysis as I had already prepared, such as it seems to me one work, at least, should contain.

* Walker on Money and Mixed Currency, 83 pp.

P E E F A C E. IX

And here I would recognize the earnest and efficient labors of William M. Gouge, of Philadelphia, who published in 1841-2 " A Journal of Banking," and subsequently " A Short History of Paper Money," in both of which he presented an immense array of facts, statistics, and arguments, calculated to awaken inquiry. He was the pioneer in the great work of calling public attention to the effects of such a substitute for money ; and his labors are appreciated in this country and Europe, by those acquainted with Ms writings.

Nor would I fail to acknowledge the valuable services rendered to this department of the science by a profound student and able writer in our public journals, over the signature of " Bullionist," whose untiring efforts have done very much to diffuse correct ideas in regard to the nature of money and currency.

I presume many persons will feel that a larger space has been given to currency than properly belongs to it. To this I can only reply, that nothing is inserted not deemed relevant and essential to a complete understanding of the question at issue, in all its relations. Statistics, facts, and diagrams have been introduced to substantiate the principles announced, and impress their truthfulness.

It may be thought, that too many and too minute details have been given in regard to trade and business affairs ; but experience has shown me, that we cannot safely assume that the students of a college, or the masses of the people, are so well informed in regard to these matters as to make such explanations and illustrations unnecessary.

Another motive that has influenced my mind in the

X PREFACE.

preparation of this volume has been the desire to produce a work especially accessible and useful to business men, merchants, manufacturers, &c. They have a deep and immediate personal interest in all economical questions, and need particularly to be fully informed of the character of that instrumentality by which exchanges are made, and obligations discharged. They are not prepared for the responsibilities and hazards of their several callings, unless they fully comprehend the causes which operate to increase or depress trade, to assure or endanger credit, to expand or contract currency. Political Economy may be considered as emphatically a business science.

But, while a knowledge of the laws of wealth is especially desirable and useful for particular classes and professions, it is obvious that the masses of the people should have an intelligent understanding of its principles, In a country where suffrage is universal, every man is virtually a lawgiver. His opinions will influence his action in his choice of those who are to decide the policy of the government, which will be but the general expression of the popular will. Every man has his ideas of currency, trade, and finance ; and, however imperfect or mistaken, they influence his political action. Hence the great desirableness of a general diffusion of sound views upon all questions appertaining to the economical interests of the country.

That Political Economy is a science having nothing to do with morals or religion, nor in any way appertaining to human welfare, except so far as relates to the production and accumulation of wealth, is a common opinion ; but it may be fearlessly asserted, that no other science is so inti-

P E E F A C E. XI

mately connected with the destiny of the human race, in its highest and most enduring interests. Such has been the uniform testimony of those in the clerical profession who have given special attention to its teachings. Dr. Chalmers, while he held the chair of Divinity in the University of Edinburgh, gave lectures upon Political Economy. In the preface to the volume he published upon the subject, he says, " We cannot bid adieu to Political Economy without an earnest recommendation of its lessons to all who enter upon the ecclesiastical profession." Rev. Dr. Bethune, in his address before the Literary Society of Yale College, 1845, spoke of Political Economy " as that philanthropic science, which, next to the gospel, whose legitimate offspring it is, will do more than any thing else for the elevation and fraternization of our race." Bishop Whately was heard to remark, a short time before his death, that " no theological seminary should be without its chair of Political Economy." Agreeing fully with the opinions expressed by these eminent men, I have felt desirous, throughout the following work, to show how perfectly the laws of wealth accord with all those moral and social laws which appertain to the higher nature and aspirations of man.

Taxation in all its forms, as imposed by national, state, or municipal authority, has received a large share of attention in this work. The great change that has taken place in the fiscal condition of the country, by which the different modes of raising revenue have become matters of the first importance to every citizen, has been an inducement to enter more fully into details than usual with writers on the general science of public economy. The American system xii P E E F A C E.

of taxation is more complex, perhaps, than any other, from the fact of its triple character; that on the part of the general government being both direct and indirect, while that by State and municipal authorities is, in the main, direct, upon property and polls. The National Debt and Public Finances occupy that position in the present work which their importance seems to require. The subject may almost be regarded as a new one in this country.

References are made in this work to the writings of the late M. Frederick Bastiat. No author of the present age has done more to dispel popular delusions, and expose popular sophisms, — especially in his own country, France. It would be well if his writings were more extensively read in this country ; and the republication of his " Harmonies of Political Economy " here would be a great benefaction to the public.

We are already furnished with the valuable work of John Stuart Mill, who is undoubtedly the ablest of living writers. Though more especially adapted to European than American use in the application of economic principles, it is extensively read in this country. While the science of wealth is always and everywhere the same, it is equally true that certain subjects of which it treats have a more practical interest in one country than another; and, of course, the importance attached to different topics will be determined by that consideration. Pauperism, and the economy of the poor-laws, may be a matter of deep concern where a frightful proportion of the people are dependent upon public charity, but of little consequence where very few, as in this country, are found in that condition. It is for this reason, p E E p A c E. xiii

that each community, while recognizing precisely the same economic laws, finds that the subjects to which they may be applied vary greatly in importance.

I cannot claim for myself any peculiar qualifications for the work I have undertaken. Some twenty years of my early life were devoted to pursuits connected with the trade and manufacturing industry of the country, while a longer period has since been devoted to the study of the laws of wealth. A practical knowledge of business and banking affairs generally, and a most earnest and persistent search for the truth in all matters appertaining to my favorite science, are the only claims I have to the attention of the public.

I should do injustice to my own feelings, if I did not acknowledge the valuable assistance of my son, General Francis A. Walker, late of the volunteer service of the United States, without whose aid it would have been nearly impossible, amid other avocations, to complete this work.

A. W.

North Brookfield, Mass., 1866.

Book I.— Definitions

Chapter I. — Character of the Science. — Distinguished from politics, 1. — The economical circle, 2. — Man's wants and nature's supply being constant, political economy a positive science, 3. — How far affected by legislation, 4. — Prejudices which retard its progress, 5.

Chapter II. — Definition of Wealth. — Includes all articles of value, and nothing else, 7

Chapter IH. — Definition of Value. Objects of human desire, obtained by human effort, have value, and none else. Value is power in exchange, and nothing else, 8. — Illustrations, chiefly from F. Bastiat, 9.

Chapter TV. — Distinction between Value and Utility. — One of kind, and not of degree, 14. — Material wealth assumed to be a good, 15. — Nature gives value to nothing, 16.

Chapter Y. — Definition of Labor. — Services of slaves not labor, 18.

Chapter VI. — Definition of Capital. — The labor of the past, 19, — Growth of capital illustrated, 20.

Chapter YII. — Relation of Capital and Labor. — Should be competitors, not antagonists, 21. — Results of their hostility in France, 22.

Chapter Vffl. — General Division of the Science. — Production, exchange, 22. — Distribution, consumption, 23.

Xvi CONTENTS.

Book II. — Production

Chapter I. — Forms of Production. — Transmutation chiefly work of agriculturist, 24. — Agriculture supplies men and materials for other industries, 25. — Includes mining and fisheries, 26. — Transformation chiefly work of manufacturer, 26. — Distribution of manufactures, not so generally as agriculture, governed by the industrial genius of peoples, 27. — By territorial advantages; by great accidents, 28. — Manufacturers employ fewer laborers, but greater machine power, 29. — Transportation chiefly work of merchant, 29. — Where does the chemist belong? this division arbitrary; their forms generally united, 30.

Chapter II. — Conditions of the Highest Production. — Division of labor; co-operation of capital; economic culture, 31.

Chapter III. — Division of Labor. — Illustrated; does this saving of time promote indolence? 32. — How far carried in fact? 33.

Chapter P7. — The Advantages of Division of Labor. — Increased dexterity; better knowledge of business, 34. — Time saved in transition ; invention facilitated, as in American manufactures, 35. — Individual abilities adapted to work; the weakest employed, 36. — Power of capital increased; manufactures concentrated; profits reduced, 37. — Apprenticeship shortened, 38. — Social development facilitated, and influence of laboring classes increased, 39.

Chapter V. — The Limitations to the Division of Labor. — When the operation can no longer be subdivided; when interested personal supei-vision fails ; when the operations cannot be sufficiently localized, 40. — By the necessities of the seasons; for example, agriculture, 41. — Hence tendency of agricultural products to rise in price; division of labor applied to sciences and professions, 42. — Specialties recommended, 43.

Chapter VI. — The Disadvantages of Division of Labor. — Tends to enervate the laborer, 43. — This may be avoided, 44. — Lesson of the recent war ; tends to cramp and enfeeble the mind ; this compensated, in part, by the greater communicativeness, 45. — By the intimate connection of mental faculties, and by opportunities outside

CONTENTS. 5V11

of labor for culture, 46. — Tends to lower average of health, shorten life, and diminish reproduction, 47. — Table showing average of life in different occupations; inaccuracies in vital statistics, 48. — Checking propagation in cities not an evil; lessens the number doing business for themselves ; relation of this to the formation of character, 49. — To the fairness of remuneration; to steadiness of employment, 50. — The last disadvantage being removed by the mutual system in trade, insurance, fisheries, &c, 52.

Chapter VII. — The Division of Labor (concluded). — Balance of results in favor of extension of the principle, 53. — The mercantile theory, 54.

Chapter VIII. — The Co-operation of Capital. — Capital is wealth employed in reproduction, 55. — Distinction between capital and wealth; capital comes from savings of labor, 56. — Fixed and circulating, 57.

Chapter IX. — The Co-operation of Capital (continued). — No unproductive capital, 58.

Chapter X. — The Co-operation of Capital (continued). — The union of capital and labor effective when in just proportions ; labor to decide the amount, 60. — That amount varies in different countries, 61.— What in United States? 62.— In Great Britain? why Ireland is so depressed, 63. — Can there be a surplus of capital? lesson from Genoa and Venice, 64. — Capital checked by luxury, 65.

— Emigration of capital, 66.

Chapter XL — The Co-operation of Capital (concluded) . — Its union with labor effective, again, when each is sure of its reward ; injustice the death of industry, 66. — Warning from France, 67. — From Spanish conquests ; from Asia ; again, when capital is well distributed ; 68. — Limits to its aggregation; American error in regard to corporations; again, when there is freedom of industry, 69. — Mischief of multiplied restrictions ; work of politician impertinent, 70.

Chapter XII. — Economic Culture. — Is the distinction between productive and unproductive labor real ? Adam Smith's list of unproductive laborers, 71.— All labor productive, 72.— Examples, 73.

— Economic culture concerned with secondary influences of production, the rebound from consumption, 74. — Here production touches consumption. 75.

Xviii CONTENTS.

BOOK HI.— EXCHANGE.

Pakt I. — Trade.

Chapter I. — The Principle of Trade. — Arises from division of labor; illustrated by savage life v 77. — Divided as domestic, carrying, and foreign, 78. — Its amount governed by surplus production, 79. — ' Those trade most together whose productions differ ; kind of products determined by soil, 80. — Climate, social condition, ethnical peculiarities; territorial division of labor, 81. — Has few limitations and no disadvantages, 82. — General principles of trade are necessity of surplus, community of interests ; that community often independent of direct exchange, 83. — Largest production and best distribution effected by territorial division of labor; international unity secured; wars diminished in number, malignity, and duration, 84.

Chapter II. — Obstructions to Trade. — May be regarded as protection to local industry; protection from physical obstructions, 85. — Measured chiefly by bulk and weight ; diminished by improved transportation, 86. — But never annihilated, 87. — Protection from social obstructions; illustrated by American civil war, 88. — Legal protection; this of three kinds, — prohibition, bounties, imposts, 89. - Only necessary to discuss the last, 90.

Chapter HI. — Protection. — May be for four causes, — revenue, to encourage home production, to support capital already enlisted, to secure commercial independence ; for revenue, considered ; a species of taxation, 90. — Should be governed by what shall be decided in regard to protection ; to encourage home production, considered; the battle-field of protection ; two propositions, 91. — Reducible to one, i.e. man's economic desires need government by law; that, false, 92. — Illustrated by American manufacture of iron; best example, for six reasons stated ; yet we do not produce successfully ; why? not for want of knowledge, 93. — Nor of capital: business creates its own; nor of facilities and material, 94. — Importance of juxtaposition ; example from India ; nor of natural protection ; why, then ? we can do better ; superior profitableness of agriculture, 95. — Yet protection was applied, 96. — Effect? iron produced; a great loss to general production, 97. — Wasteful experiments, 98. — Excluded country suffers less than the protected,

CONTENTS. XIX

99. —Folly of anticipating agricultural glut; the natural growth of manufactures, 100.

Chapter TV .— Fallacies of the Protection TJieonj.— That it is necessary to protect infant manufacturers, 101. — Answer, this protects good and bad alike, and encourages the birth and growth of worthless enterprises ; the infant may cost more than the man will be worth ; example, beet-root sugar in France, 102.— That it will protect us against the pauper labor of Europe ; answer, this system started the immigration, and has continued it, 104. — That it raises the average of profits, which is simply absurd, 105. —That manufacturing countries are, somehow, richer than agricultural ; answer, they are older, 105. — Besides, only those are richer which have taken to manufactures by reason of natural adaptations, 106. — Manufactures, to a certain extent, arise by natural protection in every country; to attempt more than this is simply waste of power, 107. — That it is necessary to develop our resources; answer, American labor has always been fully occupied, and, when let alone, in the most profitable business ; it can do no more by force of law ; our ores will not spoil by waiting, 108.

Chapter V .— Protection (continued) . — Have discussed two reasons given in chap. iii. ; next, to support existing manufactures, on the ground of justice ; answer, not a question of economy ; better, however, to pay outright for them than repeat and continue mistakes by false legislation ; allowing all the protectionist claims, protection is an absurdity in American politics, 109.— Fourth reason, to secure independence ; answer, simple barbarism ; rejoinder, it is necessary to safety in war, 110. — Examined and found untrue, 111.— Final claim of the protectionist, retaliation ; found to be more injurious to the protected than the excluded, 1 12. — French treaty of Mr. Cobden, 113. — The natural industry of the United States is agriculture; some sections would manufacture without protection, as they began to do, 115. — " Let us alone," the policy of trade, 115. — Was the original policy of New England; protection the disease of in-, dustry, 117.

Chapter VI.— Balance of Trade.— The true state of trade cannot be ascertained by inspection of official returns ; the profit of exportation and importation generally make the difference between an adverse or favorable trade; our foreign trade in 1863, 118.— Frauds at Custom House sufficient to change the balance from one side to the other, 120.

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book m.

Part II. — Instruments of Exchange

Chapter I. — Barter and the different forms of Currency. — Three instruments of exchange, viz. barter, currency, different forms of credit; difficulties attending barter, 121. — A currency wanted to act as a medium of exchange, 122. — And as a standard of value ; requirements of such a standard, 123. — Currency of four kinds, viz. money, credit, mixed, and mercantile currency, 124.

Chapter II. — Money. — Forms used in different ages and countries, 126. — Advantages of gold and silver; possess value, are stable in value, 127. — Conveniently portable, malleable, of uniform quality everywhere, can be readily alloyed or refined, are indestructible by accident, generally diffused, sufficiently plentiful for trade, 128. — And nearly inconsumable by use, 129. — Coinage, its advantages, 130. — United States Government seigniorage, 130 ; government gives no value to coin, only certifies weight and fineness, 131.

Chapter III. — Credit Currency. — Transfers debts, does not pay them ; inevitably at a discount ; folly of gold bill by Congress, 132. — Occasions rise of prices ; effect on United States during Rebellion ; depreciates fixed incomes and real estate, 133. — Vitiates contracts (see American Revolution and Rebellion), 184. — Never kept to the natural volume of currency; seldom paid, 135. — In effect a forced loan ; a direct tax, 136. — Government does not get full value, 137. — Loss to United States during late war from use of credit currency, 138.

Chapter IV. — Mixed Currency. — A modern invention; Bank of England, 138. — Composition ; called mixed, because consisting of value and credit ; its quality the proportion between the two elements, 139. — Convertibility distinguished from redeemableness, 140. — Inconvertible currency annihilated by being redeemed; analysis of bank returns ; definition of terms, 141. — Bank balances the most dangerous element ; agency in suspension of banks of New York and Bank of England, 142. — Resources of banks ; definition of terins, 144. — What the source of profit? motive power in expansion, 145. — Quality of the United States currency 1860, 146. — Grand problem of banking, 147

CONTENTS. XXI

Chapter V.— Analysis of Deposits.— Already defined; arise in five ways, 148. —May be classified as compulsory, fiduciary, and active ;

• the first kept to secure discounts, 149.— Highly dangerous to the currency ; not known in England, as there are no usury laws, 150. — Other kinds legitimate; are deposits currency? opinion of Lord Overstone, 151. — Of New-York Board of Currency; they are as much an instrumentality of exchange as bank-notes, 152. — Indeed, more active ; stocks not immediate resources to a bank ; cannot be realized in panic or pressure, 153.

Chapter VI. — Mixed Currency, Fluctuations in Quantity and Quality. — We have two great questions: 1st, does mixed currency perform satisfactorily the functions of money ? 2d, what its effects upon public interests ? 154. — Only one of these at present (see chap, x.) ; mixed currency not governed by laws of value, bec«ause it has not value ; can be increased without labor, and mus* be withdrawn for reasons not affecting articles costing labor, 155. — Expansion always in excess, because it creates speculation and a feverish demand, 156. — Because, also, banks are interested to crowd it out ; contraction takes place from any cause which affects credit ; hence without regard to laws of value, 157. — Export of specie withdraws only its own amouut of value currency, but of credit currency that amount multiplied by a factor expressing proportion of credit to value, 158. — Sound banks no'better than unsound in panic ; movement of expansion begins with the banks, not from want of trade, 159.— Tides of business need not be ruinous, 160.

Chapter Vn. — Tables and Diagrams of Mixed- Currency Fluctuations. — Table I., in absolute quantity, United States, 1834-59, 161. — Diagram 1, in currency and proportion of specie per capita, same period; Table H., extremes of fluctuation, currency United States per capita, and quality of same, 1834-59, 162. — Table HI., quality of currencies in the several States, 1860 ; Table IT., of currency of Massachusetts, different dates ; currency of New England a unit under Suffolk system, 163.

Chapter VIII. — Mixed Currency as a Medium of Exchange (see chap, vi.). — Two offices of such a medium ; to transfer commodities, 164. — Mixed currency satisfactory for this ; to discharge indebtedness , coin always reliable, 165. — The best trader cannot rely on mixed currency, for it may be withdrawn when his obligations mature, 166. — He must fail ; credit not reliable for money, 167. — Dilemma of banks in panic ; they choose suspension, 168.

XX11 CONTENTS.

Chapter IX. — Mixed Currency as a Standard of Value. — Vast importance of this function, 169. — Denial by some of a standard; answer, 170. — Legal tender, what? 171. — The fluctuations shown in tables and diagrams prove mixed currency to be unjust and mischievous as a standard, 172. — Immense transfers of value without an equivalent, 173. — Extract from "North-American Review;" Price, what is it? 174. — Distinction between price and value, 175 — Illustrated from Confederate States, 176. — Table V., average price often commodities for twenty-six years, 177. — Diagram 2, correspondence of prices and currency circulation, except as explained by law of speculations, 179. — Cotton and Hour omitted for reasons after given ; these calculations per capita ; these fluctuations greater thab possible with value currency, 180. — Effect on former illustrated, 181. — Who gains by all this? not the laborer, 182. —What is gained ? only price ; who gains it ? debtor or creditor, as the case may be ; distinction between general and special prices, 183.