Politics economy for high schools and academies

Preface

This work is the result of twenty-five years of experience in teaching the subject in the University of Pennsylvania, in the Ogontz School for Young Ladies, in the Central High School of Philadelphia, and in University Extension courses delivered in Philadelphia and the adjacent towns and cities. In this prolonged practice I have aimed at acquiring clearness and conciseness, without coming down to twaddle and commonplace. My experience at Ogontz has been of especial value to me in this respect, as it was there that I learned to adjust teaching to the understanding of younger students, without insulting their intelligence by "talking down" to them. That lesson I found just as useful in addressing the more miscellaneous audiences, young and old, trained and untrained, which University Extension work brings together.

The book presents the views of Political Economy which are held by the American or National , School of List and Carey. I leave it to be judged whether these or the rival doctrines of the English or Orthodox School — whether as originally taught, or as modified by what is called the Historical School — are most in harmony with the experience of mankind and the needs of our own country. In treating

IV

PREFACE.

of Bimetallism and Protection especially, I have been obliged to tread on the ashes beneath which the lava glows. I have tried to walk on the straight line of justice, and to deal with entire fairness in discussing opinions which I do not share.

In using the book teachers will deal with the Notes in small print according to their judgment. They contain matters which I thought the student should know of, but which it is not necessary for him to study. I would suggest that in no case should the words printed in Italics be passed, until it is known that the class has a clear sense of their meaning.

Philadelphia, June, 1895.

Contents

CHAPTER PAGB

I. What Political Economy is, and how it came to

BE I

Chapter I

What Political Economy is, and how it came to be.

1. Economy means housekeeping. In early times housekeeping was much more of an affair than it now is. The people of each house built their own home, fashioned their tools, tanned their leather, got ready their wool and flax for spinning, spun and wove them, made their clothes, and in fact produced all or nearly all they needed, instead of buying them ready-made. Each houseful was a group much larger than a family, and it provided itself with whatever it needed.

2. It is that kind of housekeeping that we mean when we speak of Political Economy, which is the housekeeping of the nation or State. It is not merely keeping the house clean, home-like and wholesome, seeing that the food is wholesome, and that the outlay on what is bought is no greater than the income. It is, as in the early household, seeing that all who can work are busy at, work which needs to be done, and that there is plenty of material on which they may work, and a proper distribution of what is made according to the needs of each person. There is indeed some buying and selling with other national households. We send them what they cannot so well provide themselves and we take in exchange what they have that we do not produce. And in managing this we have to take care that our outlay is no greater than we can afford. But in the main each national household provides for its own wants, and is not unlike the big " halls," of a single room, in which our forefathers lived, with the fire burning in the centre and the house-father sitting opposite it on the high-seat. There on the long winter evenings, on one side of the hall the women carded wool or flax, spun it with their distaff, and wove it on the loom. On the other side the men repaired their weapons, made their rude tools for farming, fashioned hides and leather into shoes, saddles and jackets, and did other rough work. Macaulay in his ballad, " How Horatius kept the Bridge," gives us a glimpse of such a household in old Rome:

When young and old in circle around the firebrands close ; When the girls are weaving baskets, and the lads are shaping

plume ; When the goodwife's shuttle merrily goes flashing through the

loom.

3. Political Economy, as an art or business, began with the beginning of nations. Even before people had any theory about how to do it, they hit upon ways of doing it, just as people learned to play musical instruments and to sing, before they had any theory about music.

In the ancient world a few men gave some attention to the reasons of these methods, but not very much. They were too much occupied with the comparison of different forms of government, and other matters of poUtics, to have time for Political Economy.

4. It was the discovery of America which first called attention to the subject. That discovery caused a great inflow of Gold and Silver into Europe, where there had been a growing scarcity of both. It made Europe quite a different continent in the course of a hundred years. It put men to work to improve farming, set up manufactures, build ships, improve harbors, enlarge and beautify cities. As people could not but see the great difference this made, they began to ask why it was. The first simplest answer was that it was plenty of money that made a nation prosperous and its people industrious. And so the first economists spent their time in planning how to get money into the country, and keep it from going out. Some of their plans were rather foolish.

5. Others who watched the change more closely saw that money was not everything. Spain had got more of the new Gold and Silver than any other country, but did not grow rich thereby. Money flowed out of Spain as fast as it flowed in, because her people were not industrious. It stayed with the countries whose people were willing to work, but had been prevented from finding employment by the want of money, in a way which will be explained hereafter. So these writers, whom we shall call economists, said that the country which had the most industries and fewest idle people, would both get and keep Gold and Silver. They would have more to sell to their neighbors, and would need to buy less from them, and the " balance of trade," as they called it, would be paid in coin. So they urged governments to favor the establishment of as many industries as possible, by paying bounties on their products, or by taxing imported goods which could be made at home.

6. As time passed, the impression produced by the results of the inflow of Gold and Silver became weaker. The subject began to be studied in other ways. A second school of economists arose in France which taught that natural wealth is to be sought neither in money nor in any industry but farming. Only the tillage of the soil, they said, gives us a real addition to what we have already. Manufactures only change the form of things, just as commerce only changes their place. A yard of cotton cloth is but so much raw cotton plus the food needed to support the workmen who spun and wove it. And both the cotton and the food are the result of tillage. They therefore taught that it was foolish to be trying to have other industries estabUshed than agriculture, and wished the State to allow entire freedom of trade.

7. A Scotchman called Adam Smith studied very closely the writings of both schools, and worked out a theory of his own, which became very popular. He asserted that all kinds of industry help to make a people rich, but farming does the most, while trade does the least ; manufactures coming between the other two. He believed that all three would grow up naturally, and without the government doing anything to promote them. So he too advocated Free Trade between nations, while he also taught that trade at home, and especially between town and country, is far more profitable to the nation. He declared that if every man were left free to " do what he will with his own," he would always do that which is best for society also. So he reduced Political Economy, as an art, to doing nothing besides collecting taxes and regulating the issue of money. In fact the idea of the State as a household, with common interests requiring a common management, disappeared. Every man was to be left to shift for himself, except that government was to protect him against theft and outrage.

8. While it was some seventy years before these new ideas were avowedly adopted by any country, yet they began very soon to give a new direction to public policy. Governments became less meddlesome. They stopped trying to fix the price of bread and the rate of wages, and to keep manufactures up to an established quality, by their inspection.

Labor was set free from the restrictions of the guild system, so that a man might practice any trade without having served an apprenticeships and might open a workshop as a master or employer, without having been a journeyman. Men were thrown more upon their own resources of mind and character, and were told not to lean upon the government. There was thus a great development of self-reliance and of enterprise. New inventions made labor more productive, and enabled employers to organize it on a large scale. The factory and the steam-engine replaced the hand-labor of the old workshop.

9. Not all classes, nor yet all countries, prospered equally in this age of free competition. The working classes felt that they were getting the worst of it, as the power of the modern capitalist over labor was vastly greater than that of the old master in the guild. They therefore declined to stand each by himself, and take his chances of work and wages, as the new economists said was best. They organized their Trades' Unions to control and restrict competition in the labor-market, and by this means they exacted better wages and reduced the hours of labor. Some of them, not content with this result, propose to put an end to free competition altogether. They want the State to take possession of all the capital, and to employ all the labor of the country, paying each man the largest wages his work will permit. There have been some very able writers among these Socialists, Karl Marx being the foremost. There is also a school of Political Economists who try to satisfy the Socialists by going half-way. They believe in extending the power of the State to the control of industry, to the insurance of laborers against loss of employment and sickness, and to the ownership of railroads and telegraphs.

10. The less wealthy nations also suffered from this free competition, wherever it was adopted in trade between them and their richer neighbors. That natural growth of the industries, which Adam Smith promised, was not helped but hindered, or rather prevented, by the competition of foreign manufactures. Countries which had possessed manufactures lost them; those which had none failed to acquire them. Both were kept on the level of merely farming their lands to produce food and raw materials, which the richer countries took in exchange for hardware and dry goods. In this trade the rich grew richer, but the poorer countries poorer. These " sold the hide for sixpence, and bought back the tail for a shilling."

It was this experience which drove the less wealthy countries generally to adopt a system of Protection to Home Industry. They laid duties on the imported articles which might be made at home. Thus they tried to discourage the use of foreign wares, and to secure the growth of manufactures alongside their farming.

11. At the same time there arose a school of writers on Political Economy who showed the reasons for this policy. They agreed with Adam Smith that all the three great industries — farming, manufacturing and trading — are sources of wealth, and necessary to the general welfare. They also said, as he did, that of these farming is the most important, and trading the least so ; and that trade between town and country is vastly more profitable to the nation than is foreign trade. But they showed, not only from experience, but from the reason of things, that a poorer and more backward country cannot expect to obtain a well balanced growth of the three great industries unless its government takes pains, and its people will make sacrifices, for that purpose. Of this school Frederick List in Germany and Henry C. Carey in America are the foremost writers.

12. Political Economy is National housekeeping, after the manner of our forefathers when each family was an industrial unit. As an art it is as old as government itself. As a science it dates from the discovery of America, when the effects of a new supply of money set men athinking as to the reasons for the great change this made. First money was the chief thought; then agriculture. Adam Smith founded the school of " natural liberty," whose teachings came into practice, but caused in later times a reaction on the part of weaker classes and nations. The National school of List and Carey justify this reaction, and present the whole subject from a new point of view.

CHAPTER II. The Conquest of Nature

1. The good book tells us that man was put into the world with orders to " replenish (or fill up) the earth, and subdue it." Our well-being depends on our subduing its forces to our service. Some things nature gives us without an effort ; but these are very few, and not enough to keep us alive. She is more exacting of men than of the lower animals, who generally find their food at hand, and have at most to catch it as it moves or flies, or gather it as it grows. And as more is demanded of man, greater power of intelligence has been developed in him, or given to him, that he may meet the demand.

2. Savage vAzxi lives a good deal as do the lower animals, on what nature offers him without his foresight being brought into play. He kills wild beasts and birds, catches fish, gathers fruits and nuts, collects nutritious roots and seeds. The quantity of these to be found in a given area is generally so small that a single family needs square miles of earth's surface for its support, and often suffers greatly from want at that. The savage's condition is one of almost constant hunger, broken by surfeits of food when a supply is obtained. He starves over an area which would supply an abundance of food to a thousand times as many people, if it were brought under cultivation. Thus at the discovery of America the present area of the United States was occupied by about a quarter of a million of Indians, and these — except where the supply of fish was abundant — suffered from frequent famines.

3. The barbarous tribes rank a grade higher than the savage. They generally begin their advance from the savage condition by bringing some of the useful animals, the sheep or the ox for instance, under control, and thus creating flocks and herds, upon which they depend for food and clothing. As these animals find nourishment in plants on which man cannot feed, the shepherd and cow-tending races derive far more sustenance from a given area than can the savage. Their food supply is far less uncertain ; and the habit of caring for animals, instead of simply killing them at sight, develops in them gentler and more humane ways of dealing with each other. As they are more confined to the places on which they find pasture, they have better opportunity of studying its vegetation as a source of supply for food and clothing; and they begin to cultivate some plants in preference to others, gathering seeds in the fall and planting them in the spring. Under this tillage these plants naturally improve as foodproducers.

4. Our own continent was retarded in the development of its people, by the want of animals like the sheep and ox. It was the greater density of the population in the warmer countries, to which the Indian tribes thronged to escape the northern winter, that drove them to till the soil and cease depending on what nature offered without labor. Out of a species of wild grass, which still grows in southern Mexico, they developed the maize plant by artificial selection. They also cultivated the cassia root, and the cocoa, and various species of grains. To secure a water-supply in many places they had to construct stone aqueducts ; and to know when the time had come for planting they had to study the calendar of the year. Thus a rude architecture and a ruder science were forced upon them by their necessities; and the denser population made it both necessary and possible for them to undertake works which the weaker tribes of the north never attempted.

5. Civilized man does not depend upon what nature offers him, but obtains inteUigence of nature's forces, and uses this to subdue them. He finds abundant resources where the savage and even the barbarian can get but little, and is thus enabled to support a large population on an area where a handful of savages or a barbarous tribe would starve. He exercises a careful selection in the vegetable and animal kingdoms, exterminating those species which are unfitted to his use, and developing the others into greater usefulness. He adds to the wealth of the soil by manuring, and widens the area of tillage by draining wet lands. He brings the forces of nature — wind, water, steam and electricity — into his service, and adds their power to his own. Thus with every year he becomes more fully master over nature, and better able to supply his wants out of her stores.

6. As in the warmer parts of America, so probably in Asia and Europe also, it was the growth of population which drove men to give up the old savage way of living, and then that of the barbarian, and to adopt methods which would increase the food supply. It was the same increase of population which made the adoption of better methods possible. A single man, or a mere handful of men, is unable to achieve the conquest of nature we call civilization. When a handful of settlers, who have been brought up in civilized ways, find themselves alone in a new country, they have to go back to barbarous ways of providing for their wants. They are too weak to do better, and they run the risk of dying for want of food in the midst of natural resources capable of supporting a dense population. Hence the failure of so many small colonies and settlements in our own history. They were destroyed or beaten back by absolute want ; and those which succeeded did so at the cost of undergoing severe hardships of cold and hunger, and consequent sickness.

7. Single men and small bodies of men are weak in the presence of nature. She is their mistress, not they her masters. They must take what she chooses to give, and retreat or perish if her gifts are not sufficient for their needs.

Large bodies of men, united by industrial association for the mastery of nature, are strong in her presence. They can wrest from her what they need. They can clear away her forests, drain her swamps, bring the soil under tillage, and secure a larger share of necessary things for each, than when a small number seemed to possess everything.

8. Association with his fellowmen is man's first need, if he is to attain a comfortable existence. By this term "association" is meant not only a conscious and understood agreement between several men for the pursuit of a common object; it means the interlacing of men's lives in mutual service, even though they never have seen each other's faces. Thus when I buy a barrel of flour, I am acting in association with the farmer who grew the wheat ; the trader who bought it of him; the miller who ground it ; the barrel-maker who prepared the packing which holds it ; the railroad men who brought it from the mill ; the dealer from whom I bought it ; and many others besides these. Of the whole series I know only the last, yet each of them has been serving me ; and I in turn, by my payment for the flour, have been serving each of them. It is this association which is the mark of a civilized life, and which makes it possible for millions to have the use of more food and clothing than hundreds did before.

9. The power over nature which we attain through this association, we call wealth. As it is not a single man, but the whole body of men in the country, who acquire this power, wealth is first of all a social possession. When we speak of individual men as wealthy, we mean that in the distribution of this power a larger share has fallen to some than to others. This is just when it is the result of greater personal intelligence or capacity, which has enabled these to render greater services to society than others have. It is unjust when it has been obtained by force, as in the conquest of a weaker people by a stronger, or by fraud of any kind. So long as men differ in ability, some will command a greater share of the results from subduing the world to our use than others do. We have a right to complain of this only when they have got their larger share by wrong ways.

10. While wealth is the same as power over nature, value is the measure or indication of nature's resistance to our obtaining the things we need. It is not the same as utility: air and water are the most useful substances we know of, but air has no value and water very little, because they are so plentiful.

Value does not depend on mere scarcity, for there are some very scarce things for which there is very little demand, as they have no use that we know of. To be valuable a thing must be wanted for use, or for ornament, or as a curiosity, and also must be something we cannot get without an effort. If we can reduce the amount of effort needed to obtain it, then the value falls. If there be a great decrease of the supply, then the value rises. The value of diamonds has fallen since the discovery of the diamond-mines in southern Africa, while rubies and emeralds are as valuable as before. The value of petroleum has risen since the Pennsylvania oil-wells began to give out.

11. It is not always true that value falls proportionally to an increase of the supply. If new uses are found for the article, and a greater demand is thus created, its value may remain much the same, or the fall in its value may be much less than the increase. Thus between 1492 and 1792 the supply of Gold and Silver coin in Europe increased thirtyfold by importation from America. Their value, however, fell not to one-thirtieth, but to one-twelfth of what it had been before America was discovered. In this connection it is necessary to remember that Gold and Silver are not metals whose value remains fixed. They are called the precious metals because they are the rarest for which men have much use, and are therefore the most valuable that are largely used. Their value varies from time to time with the demand for them, and with the supply, just as does the value of iron or of wheat.

12. As nearly everything we have a use for keeps falling in value, through our devising better ways of getting it, or finding new supplies of it, the price we pay for articles is not always what it costs to produce them. If we can reproduce or replace them with less outlay of labor than when they were made, we will not pay more for them than they would now cost. Thus a house that has stood for a century is not worth what it cost to build it. All the materials of which it is made had to be hauled to the site by horses or oxen. The bricks in the walls were made by hand. The timber was cut into boards in a saw-pit, one man pulling the saw up through the log, another down. The boards were planed by hand. The glass was made by a laborious method. All these things are done more cheaply now, mostly by machinery and steam-power. So we are willing to pay for such a house only what it would require to build another house like it, using modern tools, machinery and the like.

13. The price of anything, therefore, is not the cost of making it, but the cost of replacing it, or making another like it. In some cases, as of articles recently made, the two costs are the same. In the case of the bulk of the wealth of a country the two are not the same. The present price of a State like Pennsylvania, for instance, is not equal to the amount of labor expended in clearing, fencing and draining the fields, making the roads, streets and railroads, building the houses, bridging the rivers, sinking the wells, digging the mines, tunnelling the mountains, and so forth. It is only the cost of the labor needed to have taken Pennsylvania as WilHam Penn found it, and to make it what it is by means of modern machinery, tools and appliances of all sorts. Even if we deduct all the labor whose results have been consumed, we shall find that Pennsylvania cost a great deal more than it could be sold for.

14. With the progress of intelligence, and the growth of numbers, man acquires the power over nature we call wealthy while the values of the things we desire fall. Mankind passes through savagery and barbarism to civilization, through increase of numbers and of industrial association, which this makes possible. The more people in a country, the larger should be the share of necessaries which falls to each. Men pass from worse to better in land, labor and food.

CHAPTER III. "ti'

1 . We have seen that man passes through three stages in the use of land. He is first a hunter, then a shepherd, then a farmer. In each new stage he needs less land, and gets more out of it, than in the preceding. This lessening of the area he needs, and increase of food and clothing obtained, does not stop with his entrance upon farming. As he acquires more power through the increase of numbers and of intelligence, and through the association with his fellows thus made possible, he narrows still further the area of land he tills, and yet increases his crops.

2. Early farming is confined to the poorer soils, which are dry, thin and easily tilled. They need no drainage, and can be ploughed with a roughly shaped log, and harrowed with a bush. The crop will be a scanty one, perhaps seven or eight bushels of wheat to the acre ; but that is the best that is possible to a farming which is weak in its power to conquer nature.

Later farming comes down from the dry hilltops to the richer valleys below them. It finds in the creek and river " bottoms " the elements of fertility, which the circulation of water has carried down from the higher lands. It applies drainage to their wetter soils, and gets a far larger return for the labor expended.

It is a mistake therefore to assume that those who first settle a country will bring the best lands under tillage. We might as well assume that they will burn coal rather than wood, or travel by rail rather than on horseback. They take the best they can make use of, and men pass from what is worse to what is better in the use of land.

3. Early farming is extensive. It spends a small capital on a great acreage of soil, and gets a small return. Thus in the Middle Ages, when England had a population of about two millions and a half, there was a great acreage of wheat sown, so that the people of the towns had to turn out to help to reap it. Also the students of the Universities, who were counted by tens of thousands at that time, had to go home to help. This is the origin of the summer vacation of schools and universities. The crop averaged about seven or eight bushels to the acre, and the whole food-supply was what we now would think enough for a million and a half of people. The yield of wheat in England is now more than thirty bushels an acre, and some of her farmers have raised sixty.

4. Later farming is inteftsive. It spends a large capital on a small acreage. As some one says, it leaves off thinking of the soil as a quarry, and begins to think of it as a piece of scientific apparatus. Instead of letting the land lie fallow one year in three, that nature may restore it after exhaustion, it supplies each year by manures what the last crop has taken. For this purpose it maintains a great stock of cattle, and takes from the barnyard what enriches the fields. It keeps these cattle under cover in winter, and thus saves the food which would be needed to keep them warm, and prevents their degenerating through exposure. It establishes a rotation of crops, and thus avoids drawing from the soil the same material every year. It keeps the wetter soils warm by drainage, and thus increases the crops. It uses tools and implements constructed on the strictest scientific principles, and thus saves the labor of men, and uses the toil of horses and oxen to the best advantage.