EALTH-lfaEATION
BY
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^GUSTUS^lONGREDIEN
WITH INTRODUCTION BY
SimonSterne.
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WEALTH-CREATION.
BY
AUGUSTUS MONGREDIEN,
AUTHOR OF
'''Free Trade and English Commerce,'''' &fc.
WITH INTRODUCTION BY
SIMON STERNE,
Author of " Constitutional History and
Political Development of the United States.'^
Cassell, Petter, Gal pin & Co
NEIV YORK, LONDON &> PARIS.
L . -Y^cl/ ^4r. /<;^
Copyright,
188;^,
By O. M. DUNHAM.
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H(3
The Right Honourable THE EARL GRANVILLE, K.G.,
ETC. ETC. ETC.,
I TAKE THE LIBERTY OF DEDICATING THIS WORK,
AS A TOKEN OF MY ADMIRATION FOR HIS PUBLIC CAREER,
OF MY ESTEEM FOR HIS PRIVATE VIRTUES,
AND OF MY WARM APPRECIATION OF THE FRIENDSHIP
VVIIH WHICH HE HAS HONOURED ME.
A. MONGREDIEN.
213035
PREFACE
In the preface to a pamphlet entitled "Pleas for
Protection Examined," which I published in Feb-
ruary of this year, I stated that it formed a part
of, and would be re-incorporated in, a larger work
on which I was then engaged. Accordingly, it
will be found that the greatest portion of that
pamphlet is introduced into the present work, of
which it occupies 47 pages, viz., p. 169 to 216.
I also desire to point out that, while, in the
chapter on Land at p. 251 of this work, I set forth
certain contingent difficulties that may arise out
of the limited supply of land and the unlimited
growth of population, I have carefully abstained
from discussing the remedial measures which may,
at some time or other, have to be adopted. I,
therefore, disclaim all inferences tending to identify
me with any of the theories or schemes that have
been, or may be, broached with a view to solve
the difficulties in question.
Augustus Mongredien.
Forest Hill. S.E.
WEALTH-CREATION,
INTRODUCTION TO FIRST AMERICAN EDITION.
Mr. Mongredien has done such excellent work in
the cause of free trade and in the dissemination of sound
economic doctrines, in essays especially addressed to
American readers, that there is fitness in the publication
of an American edition of this, the most important work
which has, as yet, issued from his pen.
Our author belongs to a class of writers, which, un-
happily, is not a numerous one, composed of men ac-
tively engaged in the affairs of life and thereby made
daily familiar with the practical sides of exchange, barter,
and monetary transactions, and yet capable of reasoning
correctly on the subject ntiatters of their occupations.
Paradoxical as the remark may seem, it is nevertheless
true that familiarity on a small scale with the phenomena
of mercantile life is more likely to vitiate correct reason-
ing than to aid it. Ricardo was an example to the con-
trary, but between him and Mongredien, excepting New-
march, there is scarcely a great political economist of
England belonging to the purely commercial class.
Business men are prone to take too circumscribed an
horizon to be led to universally true rules, and make
therefore unsafe guides in the domains of politico-eco-
nomic science and statesmanship.
The book which follows this introduction is in many
viii INTRODUCTION.
respects — particularly for clearness — a noteworthy one.
It is unrivaled in demonstrating that all trade is barter,
and that the intervention of money is a me^e lubricant
to facilitate barter. No step in advance can be taken in
the science of Political Economy until that truth is
seized, and until it saturates all thought upon the subjects
Avhich are embraced within its domain.
Mill has said that the true theory of value is the poJis
asinorum of Political Economy. That may be true for
those who desire to become professors 2a\d facile princeps
in the theories of the science; but, on the other hand, a
man cannot understand the first principles of international
exchange, nor rid himself of a false and antiquated bal-
ance of trade theory, without making himself master of
the fact that all trade is barter. When men or nations
exchange commodities or services for money, the money
represents the services and the commodities; and the
profitableness or unprofitableness of the exchange is only
then determined when the money is reinvested for com-
modities or services.
" Maudit argent^ maudit argent" exclaimed the great
Bastiat, almost in despair ; and truly not only from the
point of view of the moralist, but also of the economist,
do the words frequently arise to the lips that money is
accursed : because it vitiates all popular thought upon,
and hides the truth of, economical facts to such a degree
that whole nations have been misled by the intervention
of money as a medium of exchange.
From the Spanish or French monarch who, in the
early period of modern history, plunged his nation into
war to turn the current of gold into his own country, be-
cause he regarded the drain of gold as so much lost to
INTRODUCTION. ix
the life of the nation and its influx as a return of the
elixir of hfe to his ])eople, down to our western farmer,
who regards an unUmited supply of greenbacks issued by
the government as an addition to the national, and in
some degree to his own individual, wealth, the same
error has pervaded the minds of prince and peasant, of
the noble and the farmer, of regarding means for ends,
and the instrument of exchange for the exchange itself.
Not only prince and farmer, who in different degrees are
removed from the actual business of exchange, but also
merchants and bankers, are almost equally imbued with
and misled by this error ; and even authors of financial
articles in the newspapers and in the more ponderous
ephemeral literature write about the balance of trade as
though Adam Smith, Quesnay, Turgot, and Genovesi
had not laid this figment to rest more than a century ago.
Error, however, dies hard, particularly when each in-
dividual's experience seems to be leagued against the
truth, and the truth to be tantamount to the denial of in-
dividual experience. Superstition would be everlasting
if men were so organized that they had daily hallucina-
tions leading them to believe that they saw hobgoblins
and ghosts, or that they beheld miracles performed
under their very eyes ; and indeed there was a period in
the history of mankind when the imaginations of men
were so inflamed, upon subjects supernal, that they be-
lieved, and swore away the lives of their fellow-beings
on the belief, that they saw persons riding through the
air on brooms, and that they heard incantations, and
traced the mischievous effects from " the casting of the
evil eye."
With but very rare exceptions, the writers of financial
X INTRODUCTION.
articles in the press of the City of New York never see
the national imports in excess of the exports with
anything but alarm, nor regard it as anything but a
healthy sign when we export more largely than Ave
import. They never stop to reflect that if our exports
continue in value in excess of our imports, we must
necessarily impoverish ourselves just as surely as the
longest purse must run dry if it continuously gives out
more than it receives, and that if we import more in
value than we export, unless we owe the balance which
must be made up by future exports, we are growing
in wealth.
Mr. Mongredien, in using his strongest efforts to lift
the veil of unreason that rests upon the minds of men in
this particular, has done a great service, especially to
our own people, who are more prone than others to
fall into this error.
Taking the official Board of Trade reports of England
from 1855 to 1878 as a guide, we find that the average
excess of imports over exports of Great Britain ranged
from $65,000,000 to $500,000,000 annually.
The figures following are taken from Leonie Levi's
History of Commerce, and are doubtless correct :
Average. Imports. Exports. Excess of imports.
1855-1859.. ;^i69,54o,ooo ^139,512,000 ;^30,o28,ooo
1860-1864... 193,415,060 179,969,000 13,446,000
1865-1869... 286,334,000 229,685,000 56,649,000
1870-1874... 346,067,000 290,180,000 55,887,000
1875-1878... 378,071,000 259,055,000 119,016,000
The excess in 1880 of imports over exports, taking
into consideration the specie as well, was, in England,
upwards of ^6,000,000 ($30,000,000). As England is
INTRODUCTION. xi
manifestly a prosperous country and constantly growing
in wealth, it is clear that there can be no validity to the
balance of trade theory, for the reason that she con-
tinues her vicious system of free trade which produces
this result, and does not seem to be in the slightest
degree anxious to change it. Indeed, all the prosperous
countries of the world seem to be in the same con-
dition. On the other hand, Peru, for instance, exported
$49,000,000 and imported but $30,000,000 in 1878,
and therefore should have been a remarkably prosperous
country, according to the theories of those who believe
that the balance of trade only shows a favorable result
when the exports exceed the imports in value.
A proper understanding of the causes which produce
wealth is a great promoter in the production of wealth.
In this respect, political economy is to the nation what
the principles of hygiene are to an individual. When he
knows what to avoid and what to do for the purpose of
sound living, considerable is already done in counteract-
ing disease and promoting health.
There are few anomalies so striking as the fact that
our nation should be, in its political theories and practices,
so sound and yet so backward and wrong-headed in the
adoption of politico-economic truth. Yet there is an ex-
planation which lies on the surface if we will but see it.
The Dutch and English colonists brought with them an
intense hatred of political misgovemment and religious
intolerance, and had, of course, no knowledge of that
which did not then exist — sound views of the laws of
exchange ; hence local self-government and freedom of
thought and of speech was at an early day instituted
in the United States in such a way as to command the
xii INTRODUCTION.
admiration of students of history. That it was not the
function of government to interfere with the poUtical con-
victions of men or with their right to move from place to
place, and that government from a distance was an evil,
were beliefs and principles brought by the colonists with
them to be crystallized into law for the purpose of avoid-
ing the tyranny from which they suffered at home ; hence
the New England " Town System " as a method of de-
centralization to insure local self-government was devel-
oped, and was the germ of American municipal and
representative government. The protest of the Dutch
against the religious intolerance of Spain, and of the
Puritans against the like intolerance of the Queen of
England and of James, led in the Colonies on these sub-
jects to more liberal legislation, and American govern-
mental institutions expanded in the atmosphere of tole-
rance so that it became in matters of freedom of worship
or of opinion a model for other nations.
There are many reasons Avhy upon the subject of ex-
change the same development as to freedom of action
did not take place, and to some of these it is proper in this
introduction to give prominence. England exploited her
colonies by impeding their establishment of manufac-
tories, and insisting upon supplying their wants exclu-
sively from the products of English anvils and looms.
In the period from 1765 to 1775, which may be properly
tenned the period of irritation between the colonies
and the mother country, patriotism on the part of the
colonists was mainly displayed by refusing to purchase
imported articles and depending upon home manufac-
tures. When the contest actually began, and until its
close in 1783, they necessarily relied almost wholly upon
INTRODUCTION. xiii
home products to supply them with clothing and farm-
ing utensils. To be clad in the raw and inartistic pro-
ducts of American manufacture, and to abstain even
from the smuggled goods from abroad, was a badge of
patriotism; so that when Hamilton, in the very first
congress which met under the newly formed constitution,
asked for the moderate aid of ten per cent duty for home
manufactures, a sentimental element entered into the
cheerful accord which was given to the proposition that
American manufacturers during the war enabled the
American people to carry on that war, and that they
should not be destroyed by competition with the Eng-
lish manufacturer who was part and parcel of the common
enemy successfully combated by the aid of colonial
manufacturers.
During the Napoleonic wars, the Berlin and Milan
Decrees, and the Decrees of Council, considerably im-
peded America's foreign trade. When the War of 1812
broke out, the United States was again thrown upon its
own manufacturing resources. Prior to the War of 1 8 1 2 ,
the incessant and harassing interferences with ocean com-
merce by both the French and English cruisers and
privateers, made the seas for merchantmen of either
country and of neutral nations insecure, and therefore
produced for the people of the United States a condition
analogous to war in its effects on trade as to inability
to procure foreign commodities.
A number of hot-house plants were thus created
in the manufacturing industries ; and from a mixture of
patriotic and interested motives, without much regard to
sound economic principles, the country felt impelled to
maintain them. During this period, however, and down
xiv INTRODUCTION.
to 1816, the tariff, although incidently protective, was
still, compared with the subsequent tariffs, an extremely-
light one. Cotton goods were charged 5 per cent ; iron
and iron wares, 7^^ per cent; woolen goods, 5 per cent;
silks and luxuries not in excess of 10 per cent. These rates
were subsequently slightly increased, but there were no
duties beyond i o per cent except upon goods imported
in foreign ships.
The tariff of 181 6 increased the duties on an average
about 42 per cent over the previous rates ; and this was
done mainly for the purpose of preserving the industries
which had been created during the War of 1812, and
was intended as a temporary measure only.
In 1824 a still further increase was made; in 1828 a
tariff was passed which again advanced duties; and in 1833
what was called a compromise tariff was passed to appease
the nullification agitation, by which it was agreed that all
duties over 20 per cent should be reduced in each alternate
year until 1842, and the duties thereafter should be 20
per cent ad valorem. This reduction of tariff continued
until 1842, when a new rate of duties of 50 instead of
20 per cent was imposed, which tariff lasted until 1846,
when, by the introduction of the Walker tariff, duties
were again reduced to about 20 per cent. This tariff
continued until the one of 1857, which again considera-
bly lowered the rates of duties, added largely to the
free list, and was, in strictness, a revenue measure. This
tariff was in force until 1861, the first year of the War
of the Rebellion, when the Morrill tariff became a law,
inaugurating a system of protective duties higher than
had theretofore been known in the history of our country,
and which, in stringency and intricacy, outdid them all,
INTRODUCTION. xv
and which has been added to, amended, increased, and
elaborated until it has become the most stupendous
system of incongruities, absurdities, and injustice which
exists in the shape of a tariff anywhere in the civilized
world.
At every step taken in this continuously changing fiscal
legislation, meretricious circumstances were urged for the
increase of the rates. After the close of the war of 1812,
it seemed hard that the men who had supplied the iron
for our gallant little navy, and the guns and shoes and
clothing of our army, should immediately suffer by the
close of the war, and have their products brought into
competition with those of foreign manufacturers, and
more especially with the products of that nation with
which we were at war and was our superior in
manufacturing industry. Protection and patriotism, and
free trade and British sympathy, seemed to go hand in
hand.
The spirit of independence on the part of the American
people was so largely increased by success in the wars
that naturally a feeling gained prominence to exploit to
the uttermost the great resources of our country ; and
this sentiment played so prominent a part in the dis-
cussion, and found for its insidious suggestions so ready
an absorbent in the American's pride of country, that to
build our own machines, mine our own coal, and manu-
facture our own clothes, at whatever cost, seemed a
patriotic and desirable result to be attained.
When the Southern States, which were almost purely
agricultural communities, and possessed in the slaves a
vast amount of cheap agricultural labor, found that a
protective system operated against their interests, their
xvi INTRODUCTION.
Statesmen and people became free traders, and from
1833 to 1 86 1, with the exception of the interval from
1842 to 1846, compelled a constant advance toward a
tariff framed mainly with a view to revenue alone.
Since 1861 the selfishness of the coddled manufacturer
of the Eastern, Northern, and Western States used the
sentiment against slavery as a means of persuading all
those who wers opposed to slavery that there Avas some
occult affiliation between slavery and free trade; and
when the war broke out between the Northern and
Southern States, the northern manufacturers, upon the
withdrawal of the representatives of the South from the
American Congress, immediately took advantage of the
situation and increased the tariff to a high protective
point. Thenceforth, free traders, during the continuance
of the war, and shortly after its conclusion, were looked
upon as unpatriotic citizens who were either in favor of
slavery or in favor of Great Britain, whose course during
the war (whether justly or unjustly is not to the purpose)
was regarded by many as being inimical to the success
of the Northern States.
That this system of protection has created industries
of enormous value must be conceded. The city of Pat-
erson, N. J., for instance, with its silk industry, has been
almost wholly created by protection ; and if protection
were to cease to-morrow, there is scarcely any doubt but
that the operation of most of its looms would have to
cease, but at the same time it is proper to ask at what
expense has this artificial prosperity been created ?
So great has been the forward march of agricultural
development, as well as manufacturing, during the same
period from 1S60 to 1880, that it is scarcely possible to
INTRODUCTION. xvii
make an American realize that this development of manu-
facturing industries has necessarily been at the expense
of its agricultural interests, because during the same
period of time the export of cereals has become so very
great. America is now the main source of supply for
the breadstuffs consumed by European nations. The
general prosperity of the United States has so vastly
increased, notwithstanding this pernicious system, that,
taking into consideration the insufficiency of human
nature, it is but natural for the average man to con-
clude that this prosperity is largely due to the very
vicious system which is gradually sapping and under-
mining it. In that respect the American people are
very much in the position of a great athlete, who,
during the period of his most remarkable growth of
strength, is suffering from a tumor, which grows as
his strength increases. He very naturally attributes
his strength to his tumor. To tell him that the tumor
is a source of danger, that if not extirpated it will
undermine his health, sap his energies, and eventually
destroy his life, is to tell him, from his point of view, ar-
rant nonsense. He will probably reply, " I have noticed
this tumor from the time when it was no bigger than a
small pea ; it is now the size of a goose egg. When the
tumor first began, I could lift but two hundred pounds;
I can now lift two thousand : therefore, if you attempt to
extirpate my tumor, I shall break your head, for the
tumor is the source of my strength." He will for the
time being be uninfluenced by the fact that he is at the
full zenith of his powers. That his strength grew from 25
to 35 years by healthy living and constant exercise, and
under the impetus of a splendid constitution inherited
xviii INTRODUCTION.
from vigorous ancestors ; and that therefore, during this
period of growth, he was laying up vital strength far su-
perior to that which was being drawn from him by the
tumor, so that the evils created by the malady were not
yet apparent. But the period must come when his ener-
gies will fail, or at all events not be so vigorous as now,
and when any drain of an abnormal character must be-
gin to tell. To make an impression on him we must either
wait until his energies are not so exuberant, or until he
becomes more conversant with the laws of hygiene. To
wait until the former contingency occurs is dangerous
to the life of the patient, and it is therefore our duty to
instruct him in the laws of physiology.
To aid the bringing about of a change of mind on the
part of our people, it is well to call their attention to a
few statistical facts in connection with the growth of their
manufacturing industries and agricultural productions
during the last thirty years.
From 1850 to i860 was a period of a strictly revenue
tariff, during which, if it be true that manufacturing
industries can subsist only under a protective system,
that rule would have made itself most manifest. We
find, however, that, according to the census of 1850, the
total capital invested in manufacturing at that time was
$533,245,352; that the total output or product of such
manufactories was $1,019,106,616.
Upon turning to the census of i860, we find that the
capital invested was $1,009,855,715, and that the annual
value of the products was $1,900,000,000.
During the period from 1850 to i860, therefore, a
period of free trade, the amount invested in manufactur-
ing and the output was actually doubled.
INTRODUCTION. xix
In 1 86 1 began the protective period and the extraor-
dinary stimulus given to the northern manufacturing in-
dustries by the war. The capital invested in 1870 was
$2,118,208,769, and the value of the products was
$4,232,325,000, Again an increase in round numbers
of 100 per cent, about the same ratio of increase under a
protective system as under free trade from 1850 to i860.
From this increase it is proper to deduct at least 25
per cent in consequence of the fact that in 1870 we were
still upon an unsound financial basis. In January of
1870 gold was worth 20 per cent premium, and all
values were inflated at least to the amount of such pre-
mium. From 1870 to 1880 the tariff increased in its
protective features. Duties upon articles manufactured
in the United States were almost universally raised in-
stead of lowered, and if there be any virtue in protective
tariffs, this was the time in which it should have been
made manifest, and yet we find from the census of 1880
that the ratio of increase was considerably less than from
1850 to i860 and from i860 to 1870. The capital in-
vested in 1880 was $2,790,223,506, and the value of
the output or product was $5,369,667,706, an increase
during that decade of a trifle over 25 per cent.
From 1850 to i860 America's exports of manufactures
increased 170 per cent. From i860 to 1880, a period
of twenty years and of protection, the exports of manu-
factured goods increased but 90 per cent.
During the same period the agricultural industry of
the country, which is not only unprotected, but which
bears the burden of taxation imposed by the protected
industries, increased in an entirely different ratio, as the
following table of exports will show :
XX INTRODUCTION.
f
Exports Cotton. Corn. Flour. Wheat. ^^^^^^'^
1850 $71,984,616 $3,892,193 $7,098,570 $643,745 $
i860 191,806,55s 2,399,808 15,448,507 4,076,704 2,273,768
1870 227,027,624 1,287,575 21,169,593 47,171,229 6,123,113
1880 261,439,683 50,702,673 45,047,257 167,698,485 60,681,869
The shipping industry of the United States engaged in
foreign trade has during the protective period steadily-
decreased. The official report of the government of the
United States as to its foreign commerce, and so much of