The use and abuse of money

Preface

This book is intended for those who are already famihar with the outUnes of the subject, and it is meant to help them to think on topics about which everybody talks. Primers and elementary manuals of economic science usually make a general assumption about human nature, and take for granted that man is actuated by a single motive, — the desire of wealth. But if we examine in greater detail the personal qualities and various motives that influence conduct in regard to economic affairs, we shall obtain a more complete explanation of the observed phenomena, and we shall also be better able to bring our knowledge to bear on actual occurrences.

I cannot hope that those who read this Manual will agree with all the conclusions reached. It deals throughout with subjects on which there are many conflicting opinions, and it deals with them from a single and well-defined standpoint. It aims at working vi Preface

towards a consistent treatment of social difficulties, not by propounding any new doctrine, but by recognising that each of the conflicting doctrines has some elements of truth, and by suggesting the questions How far, and within what limits is this opinion true?

The subject discussed is Capital in its Relation to Social Progress. When first entering on economic studies we are advised to lay aside all other matters, and confine our attention to wealth as something we can isolate from other social phenomena. And this is the simplest way to begin and the best way to go on for examining some problems, but not for examining all. It is necessary for some purposes to look at these matters in another way, and to consider an economic force, not apart from, but in its relation to the other sides of human life and interest. In the present day, when Capital dominates in so many directions, it is not uninteresting to select this particular factor, and consider the part which Capital has played and its bearing on the material progress of the race. Thus we shall traverse a field which affords us an opportunity of surveying the strong positions occupied by modern socialists.

But though this is its subject, the book is called, The Use and Abuse of Money, I wish to lay stress on the element of personal responsibility. Much has been written about the duties of landowners, and it seems worth while to say a little about the responsibilities of moneyed men for the manner in which they employ their capital and spend their income. When people discuss economic matters as if the changes were due to a play

Preface vii

of forces that act on men and so impel men, the importance of the part played by the man himself is obscured. Man in his highest aspects, and the best of all he does, is not susceptible of thorough treatment by economic science, so long as it concentrates attention on the play of measurable motive forces. As has been well said, ' much of the best work of the world has no price, and evades altogether the economic calculus.' Mill's great achievement as an economist was in his attempt to combine a careful study of the higgling of the market with a full recognition of the importance of the nobler elements in human nature, and a study of the increase of wealth with discussions of the improvement of society. Though recent economists have done much to correct his solution of particular problems, it is not clear that they have been wise in deliberately rejecting the example he set them of bringing into prominence ' the human as opposed to the mechanical element in economics.' The present sketch simply follows out some of the suggestions made by Mill, with the view of raising the question. Whether a full recognition of the hiunan element in economics may not be the best means of attaining to clear definitions of economic terms, and to the distinct statement and thorough discussion of fundamental economic problems ?

As one of the pioneers of the University Extension Movement in 1874, I found great advantage in providing a careful syllabus. I have thought it worth while to prefix a similar syllabus to this Manual. It mentions the names of several books which will enable readers viii Preface

to pursue their studies further; but I have not insisted on burdening the pages of a popular treatise with detailed references to authorities in regard to every matter of fact to which allusion is made.

W. C.

Trinity College, Cambridge, November, 1890.

SYLLABUS OF THE SUBJECT AND BOOKS FOR REFERENCE.

I

1. Adam Smith made an advance on his predecessors, because he did not discuss the maintenance of national power, but concentrated attention on one element — wealth. He stated the problems regarding political prosperity in a more general form than either mercantilists, physiocrats, or other writers had done . Page I

2. He assumed the existing social order and current motives. Most economists have followed him in taking for granted the facts of human nature and of the physical world. Mill, Political Econo?jiy, P- 13 2

II

For some purposes it is convenient to start with such assumptions, but,

1. It is difficult to make the most convenient assumption about changing nature, and still more so to state precisely what has been assumed. Mill, Political Econotny, II, iv. § I . . . 4

2. It may be confusing, since it is not easy to divest ourselves of these fundamental assumptions when we try to do so, as our very language involves them 5

3. It is disappointing to find that we have made so little advance towards the scientific treatment of questions which lie beyond our assumptions, and require us to recognise changes in human nature itself 6

X Syllabus of the Subject

III

We are therefore forced, in order to apply our economic laws, if for no other purpose, to enter on an economic investigation of a purely empirical character Page 8

1. Such empirical investigations may be possible when the hypothetical method is least applicable 8

2. Each method of investigation supplements the other, but they may be contrasted for the sake of distinctness. We cannot dispense with either, but it is important to understand at each step how we are proceeding, and what is the value of our results . . 9

3. The hypothetical method of investigation follows the analogy of Mechanics, and gives 1 1

{a) Results which are universally valid . . . .11

(J?) It reduces all human desires to their most general form,

Jevons, Theory of Political Econojny, 31, and rejects rigid

definitions of terms. ^2Lg€^<:)\., Economic Studies, d^() II

(f) It applies conceptions drawn from Mechanical Science 12

4. Empirical investigation results in statements of what is actually true, over a larger or smaller area and for a longer or shorter time; and it requires precision in the use of the terms employed to analyse personal motives 13

IV

Object and method of the present enquiry regarding the use and abuse of capital 14

Chapter II. Industry Without Capital

I.

1. Capital is commonly regarded in the present day as a fund of wealth which can be realised in money, and from which the owner expects to derive an income in money . . . . .16

2. Villagers who do not use their hoards regularly, but merely keep them as a reserve for times of special need, and tribes that do not form hoards, have no capital 17

3. And since they are able to produce the supplies they need, it is not true to say that capital is a requisite of production in all times and places 17

4. There may be something analogous among primitive peoples, but we must beware of extending the use of terms by analogy . 18

5. It is especially necessary to be careful with economic terms, so that we may be able to discriminate the various stages in a continuous process 19

Syllabus of the Subject xi

1. Man and his environment act and react on each other. We may describe the process of national progress in terms drawn from the nature of man (^personal) , or in physical terms drawn from his surroundings ......... Page 19

2. Physical circumstances mark the barriers which limit farther progress, until an increase of skill enables man to pass these limits 20

3. Physical circumstances enable us to describe the extent of the difference between savage and civilised peoples; personal qualities are the powerful factors in effecting progress .... 21

4. Condition for the formation of hoards of money.

(«) Regular trading communications and a circulating medium are necessary physical conditions for the formation of capital 21

(3) Friendly intercourse, skill, and foresight are necessary personal qualities. Brooke, Ten Years in Sarawak, i. 156 22

5. Conditions for the use of money-hoards as capital. Working for sale and a profit, not directly for livelihood. The gradual introduction of capitalistic organisation in different industries . 24

III.

1. Economists have been accustomed to treat capital employed in industry as the typical if not the only form of capital. Bohm- Bawerk, Kapital und Kapitahins, II. Abtheil. 38. This must lead to giving too narrow a definition of capital, and may lead to a misunderstanding of its functions 27

2. Capital is an ' historic ' category, as the economic conditions which render it possible have appeared in historic times. But these conditions are so deeply seated that it may be regarded as likely to be a very permanent factor now that it has come into being. Marx, Das Capital, 128. Diihring, Geschichte der Nationalokonomie u. des Socialismiis, 480 27

Chapter III. Capitalist Era. 1

The Capitalist Era in England.

1. Capital permeates the whole of our industrial life; this change has taken place since the fifteenth century, both in manufacturing and in industry. See my Growth of English Industry and Commerce, 391 30

2. It also exercises great political power . . . .31

3. And many philanthropists urge the wider diffusion of capital as a means of social reform 32 xii Syllabus of the Subject

II.

The Capitalist Era in Rome. A. Deloume, Manieurs d' argent.

1. Contractors farming the taxes, and carrying on all great undertakings. Polybius, i^zj/. vi. 17; Qicexo, Pj^o lege Manilla, 6, "j. Page 2,3

2. Contracts as distinguished from loans .... 34

3. Political power of the moneyed class at Rome; comparison with East India Company. Plutarch, Lucullus. Cicero, Ep. ad Q. Pratrem, I, 1 1, 12 34

4. Decline of the power of the Equites under the Empire . 36

Chapter IV. Material Progress And Moral Indifference

I.

Material Progress.

1. Capital is a very important factor which contributes to material progress, but is such progress a good thing? .... 38

2. Increased power over nature gives the opportunity for increase of population, unless the standard of comfort is raised. 77ie Statement of the Malthusian Pj-inciple in Macmillan^ s Magazine, 1884 39

3. The fact that population overtakes the new ground opened up by invention need not make us fear its pressure if there were a pause in progress. Marshall, Principles, I, 223 .... 40

4. Material progress is a good thing (even though it facilitates increase of population), because it gives opportunities for intellectual and artistic culture. Ratzinger, Volkswirthsschaft, 52 . . 40

5. The fact that wealth may be misused does not show that wealth is a bad thing or that the pursuit of wealth is necessarily selfish and wrong 42

6. But material wealth only gives opportunities; it is under the influence of a high ideal that we learn to use these opportunities wisely 43

7. It is well to afford opportunities as widely as possible in the present (without sacrificing posterity), but this is a different thing from enforcing equal opportunities. ..... 45

II.

Capital is an important factor in progress, but it is a very dangerous power.

1. The capitalist as such is indifferent to political, artistic, and moral considerations, but looks for pecuniary gain ... 47

2. The danger of this indifference, even when it is not reckless 47

3. The reasons for this indifference 48

Syllabus of the Subject xiii

Chapter V. The Control Of Capital

I.

Different modes of administering capital according to different objects to which it is devoted Page ^i

1. National purposes, and national administration of capital. Importance of

(«) Good judicial administration . . . . '52

(b^ Security from rebellion and attack . . . .52

{/) Intercourse with other nations, and consequent necessity to

be prepared for war, which, whether successful or not, is

costly 52

(d) General education 53

2. Municipal purposes: Sanitation, recreation, and technical education 54

3. Private enterprise and individual management . . 55

4. Joint Stock Companies ....... 56

II.

Are any of these modes of administering capital likely to supersede the others? 57

1. Apparent increase of national management (^The Progress of Socialism in England, in Contemporary Review, 1 879), but there are also signs of international and cosmopolitan arrangement in economic matters 57

{a) Postal Union and Bimetallism 57

If) Economic argument : world as unit and transfer of capital.

2. Private enterprise and selfish jealousy of State interference. Bagehot, Lombard Street, 10. The interest of the State is that of the citizens as a body ........ 60

3. Municipal life and decentralisation. Petty rivalries. Strength of national feeling 61

III.

Our present social system gives scope for using any one of these three methods of administration, wherever it is likely to answer better than the others 63

1. Socialists complain of the waste by competition, and propose to substitute organisation 64

2. But what method of organisation? Any single type is unsuitable for some purpose or other 64

3. Material wealth gives the opportunity for moral welfare, and we cannot count on increased welfare under any arrangements which diminish wealth 65

Syllabus of the Subject

PART IL PRACTICAL QUESTIONS.

Chapter VI. The Formation Of Capital

I.

Conditions for the formation of capital . . . Page 66

2. Personal qualities, are the effective force. The power of postponing enjoyment and of saving varies in different characters and among different races. It depends on

{a) The moral qualities and power of will ... 70 (j)) Intellectual qualities, imagination . . . -71 (a) Wish for reserve fund.

ifi) Wish for an increased income. Of these the former is

the more important motive, and the possession of a

reserve is the great class distinction of the present

day.

{c) Facilities for helping those to save in whom the disposition

is weak 73

3. Opportunities for saving.

{a) Good harvests, or high profits, or diligence give an opportunity. Bohm-Bawerk, A'a/zVa/, II. Abtheil, 130 . 74 (J)) Suitable commodities for hoarding .... 75 (a) Precious metals. ()8) Credit; Co-operative Stores.

(7) The case of improving properties distinguished. Wine.

{c) It is in the mind of the possessor that the distinction between

capital and non-capital really lies. Mill, Polit. Econ.

I, iv. I, and it is in the purpose of the possessor that the

explanation of the genesis of capital is found . 77

II.

The things which capital denotes 78

1. 'Personal capital,' so called by analogy. But 'skill 'is not a fund, nor is it even a possession, except in the case of slaves . 78

Syllables of the Subject xv

2. ' National capital,' so called by analogy . . . Page 80

(a) Is better described as National resources . . . 8l

(J?) Or if it be used in another sense, as the aggregate of private

capital together with remunerative public works. . 81

III.

Dependence of the State on borrowed capital ... 82

1. Lack of opportunity and of will to form capital . . 2>Tf

2. This would present a difficulty in maintaining industry and replacing waste if capital were once successfully nationalised . 84

IV.

The definition re-considered 84

1. Analogies discarded 84

2. The landed interest and the moneyed interest. How far is there a justification for the popular distinction? ... 85

The ordinary landlord's interest in his estate, and purpose in purchasing it, differs from that of the ordinary merchant or manufacturer. Rent is determined by different principles from those which explain interest and profit 85

3. The importance of Mill's principle 87

Chapter VII. The Investment Of Capital

I.

The moneyed man desires to invest his capital safely so as to procure a regular income, which is the extra inducement he obtains for consenting to lie out of his money for a time .... 88

1. Lending money and bargaining for interest ... 89 (a) Taking security. Orderic Vital, vi. Duchesne, Hist. Norm.

628 89

{F) Public and wealthy bodies can borrow on easy terms . 90 {c) Convenience to the lender 90

2. Employing money in any enterprise in the hope of profit which arises . . ....... 91

{a) Through combining natural processes. Farming. Mill, Political Economy, I, i. I 92

{h) Through using natural forces to render some industrial or commercial process more rapid. Division of labour and saving of time and skill ..... 92

The flow of capital and the machinery of investment . . 94

1. According to personal preferences, the * desire of wealth ' will

take very different forms 94 xvi Syllabus of the Subject

(a) Desire of large income — high rate of return . Page 94 (i5) Desire of increased capital — low price ... 94 (^) Desire to be fully acquainted with the details of business 95

2. The transference of capital by means of — • • • 95 {a) Bankers. Rae, Country Banker, 48 . . '95 \})) Foreign bills. Ba.geh.ot, ZomOa^'d Street, 21 . . 96 (^) The Stock Exchange, apparently ' anti-social,' but facilitates

the flow of capital, and thus subserves a social purpose of great importance. Report of Commission on London Stock Exchange, ^"1^. (), 10 . . . . -97

3. The fluidity of capital is not an unmixed good, as . -91 {a) It gives opportunity for the waste of capital.

(J?) It appears to intensify the fluctuations of trade.

III.

The preference for lending and for borrowing capital, rather than employing it personally in enterprise, appears to be increasing, and raises important social and ethical questions .... 98

1. The cosmopolitan influence of capital in breaking down nationalism 99

2. The diminished personal responsibility of the lender for evils that arise in connexion with the use made of his money . loo

Chapter VIII. Capital In Action

I.

The services of capital to the public loi

1. As viewed by the Manchester school. Senior, Political Economy, 58, Plutarch's Life of Cato, by Langborne, ii. 483 . loi

2. Discounted by those who have approached the subject from the side of the influence of capital on the labourer . . 102

3. Its service consists in saving time and thus enabling mankind to enjoy more in a given time . . . . . .103

{a) Great works could be done without it, but not so easily, or so as to be enjoyed by those who began them. Jevons,

Theory. 3rd Ed. 234 103

if) Service of capital illustrated from English history, (a) the supply of foreign products, (fi) more rapid work, and (7) diminution of risks. Turner, Domestic Architecture,

II.

The destruction of social organisations of a simple kind . 106

1. Self-sufficing villages 106

2. Mediaeval cities 107

Syllables of the Subject xvii

3, The loss is real, even though the ultimate gain through material progress is so great that we do not venture to try to check it P(^ge 107

III.

Capital renders labour a less important factor in production.

1. The introduction of machinery. Nicholson, Effects of Machinery on Wages 109

2. The former importance of skilled labour and the industrial revolution in England. — Marx, Das Capital, xiii. . . .110

{a) Lengthening of hours IIO

lb) Increased strain of work 1 1 1

(<r) Relative depression of labour, distinguished from absolute depression of labourer i n

IV.

The tendency of capital to depress labour in England and in Rome compared 113

1. The condition of Roman slaves. — Wallon, Hist, d^esclav, dans Vantiq. II, 213, 223. Plutarch, Lives of Cato and Coriolanus 1 1 3

2. In England the labourer now possesses . . . .114

{a) Political freedom 114

(^) Freedom for emigration 1 15

(J) And has some support for public opinion. This is chiefly

of active in preventing evil, and it is important in diffusing better ideals of human life . . . -US {d) Trade organisations 118

3. At the time of the Industrial Revolution the labourer had not the same safeguards 119

(a) No fluidity of labour. Adam Smith, Wealth of Nations y I, 10 119

(J)) Public opinion was callous. Parliamentary History^ XXXIV, 1427 119

(tr) Laws against combination . . . . . 1 20

{d) But the Poor Law marks the contrast with Roman practice even then ....... I2I

4. How far was the misery of the time due to the greed of private capitalists, and how far to the want of adaptability in national regulations? 122

5. The moral forces which have tended to correct the evils which accompanied the industrial revolution . . . . .123

(Ji) Christian philanthropy .123 xviii Syllables of the Subject

Chapter IX. The Replacement Of Capital

I.

The manner of replacement Page 12^^

1. Loaned capital 125

2. Capital engaged in commercial speculation is replaced . 125

{a) By the public .126

{b) By successive transactions — turning over capital . 126 {c) Rapidity in turning over capital, and extension of business . . ,126

3. Capital employed in carrying on an industrial process . 128 (a) The requisites for continuing the process, materials, tools

and food. — Columella, i. 6, 9 . . . .129 (J)) The means of hiring labour is a necessary part of capital

(as defined above) when employed in industry . 129 (<:) Extension of business — manufacturing on a larger scale

and at less cost. Marshall, Principles, I, 339 . 133

11.

The rate of replacement — bad times and prosperity . -134

1. Lent capital . . . 134

2. Commercial capital 134

3. Industrial capital . . . . . . . .135

{a) Stagnation and stoppage 135

{b) The various causes of stagnation; destruction of purchasing

power 136

{c) The meaning of a glut, and the possible means of relief 136 {d) When industry recovers it may probably take somewhat

different lines from those before . . . -137

4. The meaning of prosperity and of bad times. Bagehot, Lombard Street, 122 138

(«) Rapidity of replacement 138

{b) Waste of capital from different causes . . .138 (J) Exhaustion and depression 140

5. But prosperity, though good in its way, is not the only thing to be considered 140

Chapter X. The Direction Of Capital

I.

Fluidity of Capital and of Labour. Bagehot, Economic Studies, 2 1 . 1. The withdrawal of capital; relatively fixed, and circulating capital 141

Syllabus of the Subject xix

2. The capitalist's forecast of public demand . . Page 142

3. Loss of labourers, when there is a change of the direction in which capital is used, is minimised by . .... 143

(a) Opening up new employments.

(b) Increasing the adaptability of, or

(c) Facilitating the emigration of labour.

4. Forecasting demands 144

5. Doomed industries, and the reluctance of labourers to relinquish them. Burnley, Wool and PVoolcombers, i^g . . . . 145

((2) Hand-looming weaving 145

(b) Peasant farms — for ordinary agricultural produce . 146

II.

Productive and unproductive consumption .... 147

1. Replacement of capital when there is no change in the character of public demand 147

2. When there is a change in the character of the public demand 147

(«) Increase of demand for articles of productive consumption 148

((5) Increase of demand for articles of unproductive consumption. War 149

(<r) The two directions of change contrasted . . . 149

3. Rich nations can afford a large amount of unproductive consumption, without touching on the supply of the requisites of production 150

{a) The production of more »bjects of wealth is less important than the question whether unproductive consumption is of a useful or of a useless kind . . . -150

(3) Kinds of expenditure which are most useful, although unproductive 151

PAJ^T III.

PERSONAL DUTY.

Chapter XI. Personal Responsibility

Political economy is wrongly charged with being immoral, but it commonly claims to be non-mooal, and to follow out tendencies as they exist, without pronouncing on right and wrong . .152

Questions of economic duty were much discussed by the schoolmen, but under different aspects from those they now present 152

XX Syllabus of the Subject

The schoolmen tried to detect cases where men, in pursuing gain, fell into sin; and the cases they considered were comparatively simple, as, P^g^ 153

I.

They could generally fix the direct responsibility for wrong doing, while we have to consider degrees of responsibihty . -154

1. Direct and indirect responsibihty. King James I, Works. True Law of Free Monarchies 154

2. This distinction illustrated in the cases of shipwright and factory owners 155

3. Indirect responsibility, and responsibility as citizens for not doing our best to cure evils 156

{a) Government interference is certainly desirable to prevent the waste of national resources by the deterioration of the population 157

(b) It is not so obviously a duty to interfere by legislation in

order to give better opportunities to any class. But

w'hen this is done it is least likely to fail when it takes

the form of giving better conditions in connexion with

• work 158

{c) The death-rate, as giving an objective test of positive mischief which should be removed. Making men moral by Act of ParHament 159

4. Indirect responsibility of consumers for causing the evils of sweating. How far is an individual consumer bound to inform himself about the conditions of production? The letting of contracts 160

II.

1. The schoolmen could isolate single transactions and judge of the fairness or unfairness, according to the form of the contract 161

{a) Remuneration to merchants engaged in carrying was allowed, but not to forestallers who tried to get gain at the expense of someone else. Rot. Pari. II, 48; III, 254, 27 Ed. Ill, c. 5, 7 161

(J?) Transactions which gave opportunity for extortion. Engrossing. Secured loans and definite return as distinguished from partnership in a venture with contingent gain. Aquinas, Summa 11% II"«, q. 78, a. 2 . 162

(<r) The meaning of extortion as taking advantage of another's need. Charitable loans 164

2. The revolution in opinion in the sixteenth century legislation against an extravagant rate of interest. Malynes, Lex Mercatoria II, 10. The need of maxims for personal guidance in the present day, as to (a) The direction of the employment of capital, {b) The fair return on capital, {c) The right expenditure of income . 165

Syllabus of the Subject xxi

Chapter XII. Duty In Regard To Employing Capital

There are some kinds of business which it is not wrong to pursue diligently, and in regard to which the ethical questions are wholly as to the manner of conducting them .... Page 1 68

And there are kinds of business which are immoral, and are therefore not allowable i68

I.

By what standard shall we discriminate? . . . .169

1. The law and public opinion stigmatise some conduct as wrong, but this standard is necessarily low, and does not distinguish what is right 169

2. Hence we need an ideal to show us what to aim at; and a man's ideal gives him a conception of what is right for him . 169

3. This ideal may be expressed in terms of. . . . 171 (a) External circumstances, when it is a mere dream; for it

gives no help in regard to the means that must be used for introducing it, and there is no security that it could maintain itself if it were introduced; or in terms of 171 (J)) Personal motive, when it gives a direction to our aims, and enables us to test each of our actions . . . 1 72

4. Difference in the attitude we take towards others, according as we cherish an external or a personal ideal . . . -173

II.

1. Duty with regard to the purpose for which a loan is re-

quired 173

(«) The opinion that all loans are immoral may be waived, to be discussed in connexion with the terms on which loans are made. Benedict XIV, Opera, XV. 592, Vix

pervenit 173

(J?) Loans to a government, for an immoral purpose, and for a national undertaking that fails. Stanley, In darkest

Africa 174

(f) Loans to a private individual, which give scope for ruinous extravagance . . . . . . .175

2. Duty in regard to the choice of an investment. How far is the manufacturer to be blamed for the misuse of things he makes? 176

(a) Manufacture of images 176

(U) Translations of the Christian Fathers . . •177

8. Though the evil lies not in the thing, but in the misuse of the

thing, can the manufacturer disclaim responsibility in a case where

the article is habitually misused? 177 xxii Syllabus of the Subject

(a) Brewing is a useful and honourable calling . I'a^'e 177

(^) But beer is much misused, and it may be so difficult to take

precautions against misuse, or to avoid reaping gain

through misuse, or even so tempting to abet misuse,

and discourage legislative efforts to check it, that the

scrupulous man may well prefer to refrain from engaging

in this business . . . • , . . 1 78

4. Advantage and difficulty of carrying on such business as a

state monopoly. Temperance Legislation, Contetuporajy Review,

1886 180

III.

1. But supposing a man desires to clear out of a business about which he has conscientious scruples, he must either . . 181

{a) Wind it up, to his own serious loss and the profit of other houses; or 181