Charles Franklin Dunbar.

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ECONOMIC ESSAYS



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ECONOMIC ESSAYS



BY

CHARLES FRANKLIN DUNBAR

LATE PROFESSOR OF POLITICAL ECONOMY IN HARVARD UNIVERSITY



EDITED BY

O. M. W. SPRAGUE

ASSISTANT PROFESSOR OF ECONOMICS IN HARVARD UNIVERSITY



SEitij an Entrotiuctton

BY

F. W. TAUSSIG

HENRY LEE PROFESSOR OF ECONOMICS IN HARVARD UNIVERSITY



THE MACMILLAN COMPANY

LONDON: MACMILLAN & CO., LTD.
1904

All rights reserved



Copyright, 1904,

By the macmillan company.



Set up and electrotyped. Published November, 1904.



Norivood Press

J. .<?. Cashing & Co. — Berwick & Smith Co.

Nurivood, Mass., U.S.A.



CONTENTS

PAGE

Introduction , . . vii

I. Economic Science in America, 1776-1876 . . . . i

II. The Reaction in Political Economy 30

III. The Academic Study of Political Economy ... 52

IV. RiCARDO's Use of Facts 68

V. Some Precedents Followed by Alexander Hamilton . 71

VI. The Direct Tax of i 861 94

VII. The New Income Tax 116

VIII. Early Banking Schemes in England 135

IX. The Bank of Venice 143

X. Accounts of the First Bank of the United States . 168

XI. Deposits as Currency 172

XII. The Bank-note Question 188

XIII. The Safety of the Legal Tender Paper .... 207

XIV. The National Banking System 227

XV. Can we keep a Gold Currency ? 248

XVI. The Crisis of 1857 266

XVII. The Crisis of i860 294

XVIII. State Banks in i860 314

».' XIX. The Establishment of the National Banking System . 330

XX. The Circulation of the National Banks, 1865-1900 . 346

Index 365



INTRODUCTION

Charles Franklin Dunbar was born at Abington, Massachu-
setts, July 28, 1830, and died at Cambridge, Massachusetts, Janu-
ary 29, 1900. For nearly thirty years, from 1871 until his death,
he was Professor of Political Economy in Harvard University ; and
it was during this period that he prepared the essays printed in
the present volume.

Professor Dunbar did not enter on his academic career, how-
ever, until he had passed the age of forty. The best years of his
early manhood were given to work of a very different sort. For
ten years he was editor of a daily newspaper ; a phase of his life
little known to those who afterwards felt his influence as teacher
and author, but one in which his success was no less marked.

After graduating from Harvard College, in 185 1, he engaged
for a short time in business ; health failing, spent a year at farm-
ing ; then entered on the study of the law, and was admitted to
the bar in 1858. Meanwhile, contributions from his pen had
appeared in the Boston Daily Advertiser. In 1859 he became
part owner and associate editor of that newspaper, and soon was
sole responsible editor. From 1859 to 1869 all his energies were
given to its editorial and business management.

These ten years witnessed the most perilous and momentous
events in the country's history. The times were trying for all
men, and not least so for a high-minded man in charge of an im-
portant daily newspaper. Rapid decisions were called for on
great questions ; news of vital concern had to be gathered, sifted,
presented ; the conflicting tides of opinion in the community had
to be at once followed and guided. The Advertiser, as conducted
by Professor Dunbar, was a model newspaper, and deserved its
position as the most influential journal in New England, It stood
stoutly for the cause of the North, and never abated its unfaltering
faith in the justice of that cause and in its ultimate triumph. Its



viii INTRODUCTION

support of President Lincoln and his associates was firm, yet not
slavish. Professor Dunbar was by nature conservative and judi-
cial, and both sides of a disputed question presented themselves to
his mind. It is probable that on many of the measures re-
sorted to during and after the Civil War he had his own doubts
and reservations. But those were times for united action, and
such the Advertiser stood for. Its editorials, written without
exception by him, show a warmth and exaltation of spirit very
different from the measured tone of the scientific papers printed
in the present volume. And thus they show an aspect of the
man not so conspicuous to the reader of these sober and judicial
writings : a capacity for great enthusiasm and a fervid love of the
right.

The conduct of a daily newspaper, however far-reaching it
may be in its influence on public affairs, rarely gives rise to con-
tributions of permanent value to science or literature. To this
rule Professor Dunbar's editorial career offers no exception. No
one would have been more averse than he to a reprint of selections
from his writings in the Advertiser. Yet in another sense these
writings have a permanent value of the highest sort. Here is a
record from day to day of the history of the United States during
its most dramatic and trying decade — a record prepared or super-
vised by a man of great sagacity, of unswerving patriotic spirit, of
scrupulous truthfulness, and of high skill in exposition. To the
friends and associates of Professor Dunbar, his editorials still have
a value, in that they show the intellectual and moral qualities of the
man. To the future historian, wishing to come close to the march
of events when our own still vivid recollections of the Civil War
shall have faded away, they will have a much higher value. They
reflect in the mirror of a clear and well-tempered mind the im-
pressions of every day's events in those ten years of fierce com-
bat and slow recovery.

The financial and economic events of the period were of the
most extraordinary kind. A huge national debt was incurred ;
paper money was issued to an excess that caused great and
sudden depreciation ; a wide-reaching system of excise taxes was
rapidly created, and as rapidly swept away ; a high protective
tariff was set up, and unexpectedly retained ; millions of slaves
became frecdmen, and the entire industrial organization of the



INTRODUCTION ix

South was revolutionized. Professor Dunbar's attention was
necessarily given to all phases of the country's history, but the
financial and economic phenomena enlisted his special interest.
He gathered a fund of experience such as few economists have
been fortunate enough to possess. He learned much in the later
years of his scholarly life, and settled on conclusions and prin-
ciples which were not accurately defined in his mind during his
newspaper career. But it may be doubted whether any research
was so productive or any experience so profitable as the unremitting
observation and reflection during these years of varied economic
history. Scholarly as his work was in later life, and recondite as
were some of his researches, he never became a closet economist.
Whether discussing contemporary proposals for legislation on the
currency, or the history of banks in past centuries, he kept a
close view of the working of economic forces in their concrete
details.

The best years of his life and the best of his strength were
given to the Advertiser. It is probable that he never recovered
completely from the strain then endured. In 1869 his health
seemed sapped, and he was glad to dispose of his interest in the
paper and to withdraw from its management. Fifteen years later,
when he had been long settled in his academic post, he was sud-
denly called on to conduct it again, during a brief period of stress.
In 1884 the Republican party nominated for the presidency Mr.
Blaine, whom many independent Republicans could not conscien-
tiously support. The Advertiser had then come into the hands of
friends and associates of Professor Dunbar's. Over night, a deci-
sion had to be reached whether to support the nomination or to
bolt. The bolt was voted ; whereupon the editor, who would not
abandon Mr. Blaine, resigned on the spot. Professor Dunbar was
asked to step into the breach, and did so without hesitation.
Stanch as he had been in support of the RepubHcan party during
its days of storm and stress, he was equally stanch in opposing it
when it fell into ways he thought evil. Immediately after the
election of 1884, he resumed undivided attention to academic
duties.

Shortly after his retirement from the Advertiser, in 1869, he
was asked by President Eliot, then just entering on his career as
head of Harvard University, whether he would accept a professor-



X INTRODUCTION

ship of political economy in that institution. He doubted his
qualifications for the post, and for a time would give no answer.
He finally assented, but first gave two years to travel and study
in Europe. He was formally appointed to his professorship in
1 871, and entered on its duties in the fall of that year.

As his hesitancy in accepting the appointment showed, Pro-
fessor Dunbar was keenly alive to the need of adequate equipment
for his new duties, and unduly modest as to his own com-
petence. At that time it would have been a rare chance to find
a man better equipped. Systematic training in economics, such
as is now offered in a dozen American universities, — and is so
offered, it may be added, largely as a result of the growth of
economic study in Harvard University under Professor Dunbar's
own guidance, — was then unknown in this country and in England,
and was barely begun in Germany. Any appointee to a professor-
ship in the subject must then have been a self-made economist.
There were, it is true, not a few persons, with more or less repute
as writers on economic topics, on whom, rather than on the little-
known editor, the choice of the Harvard Corporation might have
fallen. Yet that choice proved a singularly fortunate one. Pro-
fessor Dunbar was by temperament a scholar, open-minded and
judicial, averse to the superficial treatment of any topic, and with
interests that looked far beyond the horizon of the day. He
possessed, also, what men of scholarly bent often lack, both
executive capacity and sound judgment, and thus became an
invaluable coadjutor and counsellor in the tasks that lay before
the new administration of the University. Not only was he the
natural leader in the organization of the instruction which most
directly concerned him ; he took also a large part in the rapid
transformation of the institution from a small college with loosely
attached professional schools into a great and consistently organ-
ized university.

P^or many years after his appointment Professor Dunbar
was virtually engaged in equipping himself as a teacher of eco-
nomics. Cherishing high ideals of scholarship, he delved in the
earlier and later literature of his subject. He became widely read
in the classic writers of England and France. It was not until
a later period that he turned to German writers also, who indeed
hardly deserved attention in so great degree at the outset of his



INTRODUCTION xi

academic career. He knew his Locke and Hume, Quesnay and
Turgot, Adam Smith and Malthus and Ricardo and Mill, not
to mention Say, Senior, Storch, Rossi, Bastiat, and the whole
host of minor writers. Perhaps he gave an undue amount of
time to some parts of this reading. There was in him not only
a strong historical bent, but a streak of antiquarianism. A lively
curiosity of this sort sometimes led him, in later years as well as
during this formative period, to follow clews and unravel minor
tangles, which after all lay apart from his dominant interests and
diverted him from his main work.

Not less characteristic than this absorption in the general
literature of economics was his complete abstention from the
discussion of current questions of economics and politics. His
experience as editor had informed him of every detail in contem-
porary history, and had habituated him to constant and prompt
discussion of questions of the day. It would have been natural
that, as professor, he should continue such discussion. He never
did so, and consistently rejected all proposals to contribute to
periodicals on current topics. No doubt this was due in some
degree to weariness of work of the sort : ten years of newspaper
writing had sated him. In part, also, it was due to innate
conservatism of judgment. But most of all, it was due to his
ideal of the duties of the University teacher. Such a teacher
should be, as he believed, a leader in thought and in investiga-
tion, elucidating the principles on which the solution of current
problems must depend, contributing by slow accretions to the
mass of information on which the advance of knowledge must
rest, and leaving it for others to spread abroad and apply the results
of the scholar's research.

While thus engaged in equipping himself more fully for his
duties as professor, he was also soon drawn into the adminis-
trative work of the University. For such work he was eminently
fitted, and his strong sense of loyalty to the University and to
its head led him to enter on it, if not with zest, at least with
strong interest and willing spirit. In 1876 he was elected Dean
of Harvard College, and remained in that post until 1882. When
the enlarged and remodelled Faculty of Arts and Sciences was
organized in 1890, he became its first Dean, and so acted until
1895. In addition, he served repeatedly on committees, and his



xii INTRODUCTION

aid and counsel were unfailingly asked when any large question
of policy was under consideration. Of such questions there was
a plenty throughout his academic career. President Eliot found
in him a warm friend, as well as a stanch supporter and wise
counsellor, and frequently called on him for conference and
advice. The great measures of that brilliant administration, —
the extension of the elective system, the increase and broadening
of the requirements for admission, the liberal and manly policy
in dealing with undergraduates, the elevation of the professional
schools, the creation and fostering of advanced instruction and of
the Graduate School, — all enHsted his support, and all brought a
drain on his time and energy. The labor he was thus called on
to perform was cheerfully assumed and borne, yet was felt to be
a distraction from the scholarly work which he regarded as the
vital part of his academic duties.

The various circumstances described in the preceding para-
graphs — the ten years of newspaper work, the period of conscien-
tious preparation for the professor's duties, the repeated pressure
of administrative work — account for the comparatively small
amount of Professor Dunbar's publications. In 1876 he con-
tributed to the North American Review, then still a scholarly
repertory, the article on " Economic Science in America," which is
the first of the papers reprinted in the present volume. After
this modest beginning there was a long period of silence. For the
use of his classes in the University, he soon began to collect docu-
ments and put together materials ; and out of these grew impor-
tant works. The financial history of the United States had of
necessity enlisted his attention while editing the Advertiser, and he
early prepared careful lectures on this subject. For use in connec-
tion with the lectures, he printed privately, in 1875, a selection of
the laws of the United States on currency and finance. His researches
steadily widened, and as the instruction in the University grew, he
gave an independent course on the financial history of the country,
— a course remembered with admiration by a long series of grate-
ful students. For use in this instruction he published in 1891 the
volume of " Laws of the United States on Currency, Finance, and
Banking " (Boston : Ginn & Co.). To the average reader, and even
to some hasty fellow-scholars, this had the appearance of an easy
task : a simple reprint of matter from the statute-book. But the



INTRODUCTION xiii

selection of all the important laws, the rejection or compression of
the less important, the unearthing of vetoed bills and other histori-
cal documents, the cross-references to apposite sources, — these
show the author's scholarly qualities at their best. The volume is
characteristic in another way. It was Professor Dunbar's undevi-
ating habit to turn to the primary sources of information, to
statutes, official documents, the writings of contemporaries. He
trained his students likewise never to content themselves with
secondary sources. Hence he prepared for their use collections of
documents such as this volume contained, modestly putting in the
background his own skill and labor in selection and preparation.

The book by which he is best known to the general public
grew in a similar way out of his teaching. Side by side with his
general economic reading, he began at an early date to give special
attention to the subjects which most attracted him, — the theory
and history of currency, banking, and pubhc finance. Finding no
serviceable book to put into the hands of his students, he prepared
something on banking, as he had done on financial history. In
1885 he printed for the use of students, again privately, certain
chapters on banking. Expanded and revised, these were published
in 1891, under the title "Chapters on the Theory and History of
Banking" (New York: G. P. Putnam's Sons). A second edition,
again revised throughout, was in course of preparation and well
advanced at the time of his death, and was carried to completion
by the editor of the present volume. Dr. O. M. W. Sprague. The
little volume shows Professor Dunbar's qualities at their best, and
deserves its place as a classic on the subject. Planned originally
for the use of college students, it retained in the successive editions
the directness and conciseness of a book addressed to those new
to the topic. Yet, ahke in the exposition of principles and in their
illustration by concrete example and by history, it goes to the root
of things, and leaves the most competent critic with no sense of diffi-
culties skimmed over. A wide range of learning is shown in the
notes and the historical sketches, yet with no parade, and with
rigid exclusion of irrelevant matter.

In 1886 the University was enabled, by the gift of an adequate
guarantee fund, to authorize the publication of the Quarterly Journal
of Economics, of which Professor Dunbar was at once appointed
editor. The establishment of the Journal opened virtually a new



xiv INTRODUCTION

phase in his career. For the remaining years of his life he gave
to it a large share of his time. The task of editing was congenial
to one of his reserved temperament ; and a taste for work-
manlike effects made him take a satisfaction in the niceties of
typography and appearance, as well as in solidity of contents.
His guiding principle as editor was the sound and simple one of
conducting a journal for investigators, a medium of communication
for those who had something to contribute to the advance of
knowledge. He succeeded from the outset in making for the
Journal a distinguished place in the literature of the subject, and
in securing notable papers from scholars the world over. Through
it he exercised an important influence in stimulating the remarkable
advance of economic science which took place in the United States
in the decade after its establishment ; and Professor Dunbar was
content with what he had here achieved, and found in it some solace
for his failure to carry out plans for independent publication.

His own contributions to the Journal, however, were important
both in quality and quantity. As it happened, the teaching staff in
the department of economics at Harvard University was enlarged at
the time of the establishment of the Journal, and he was enabled
to turn over to younger hands the instruction in parts of the sub-
ject of which he had grown weary, and to devote himself to others
that had always chiefly interested him. His duties as editor at
the same time impelled him to put together some results of his
researches. But for this pressure, much more of the work he had
planned would probably have been left undone. Great modesty
and a high degree of indifference to the world's applause
combined with lack of physical vigor in making him slow to
put pen to paper. Fortunately, the obligations which he felt
as editor led him to contribute with some degree of freedom to
the columns of his Journal. The present volume is made up
chiefly of those contributions. They tell their own tale as to
the quality of his mind and the range of his interests. Those
on current problems, — on the lessons of our legal tender cur-
rency, on the remodelling of the national banking system, on the
income tax, — naturally attracted mo.st attention at the time of
their publication, and, in the slow progress of reform, will be read
with profit for years to come. But their author took greater sat-
isfaction in the papers on less familiar topics, such as those on the



INTRODUCTION xv

Bank of Venice, the Precedents followed by Alexander Hamilton,
and the history of the Direct Tax in the United States. He had a
just pride in doing a task thoroughly, — in putting on record once
for all the definitive results of exhaustive inquiry.

These papers, though each is in a sense complete in itself, are
yet fragments from larger work. Those on the finances of the
United States are the outcome of prolonged investigation, cover-
ing the whole range of the subject, which was expected to lead to
a systematic history. Unfortunately Professor Dunbar allowed
himself to be deterred from this project, for which no one was
so well equipped, by the publication of a pretentious but highly
unsatisfactory book by another hand on the same subject. He had
pushed his way into the literature on the history of banking ; and
here also the essays on the Bank of Venice in the present volume,
and the chapter on the Bank of Amsterdam in his book on Bank-
ing, represent only a portion of his learning. He had gathered a
large and interesting store of contemporary material on the Assig-
nats of the French Revolution, and had noted the peculiarities in
the course of the depreciation of that curious issue of paper money.
He had followed the history of commercial crises through two cen-
turies, with special regard to the supposedly regular recurrence of
these industrial storms, and had begun the preparation of a care-
ful monograph on the question of their periodicity. He had made
an exhaustive study of the financial administration of Alexander
Hamilton ; but of this also nothing was put on record except the
essay on the Precedents followed by Hamilton. He had conducted
at the University systematic courses of instruction on still other
topics: on the theory and methods of taxation ; on financial admin-
istration and public debts in the leading countries ; and on the
economic history of Europe and America since 1763. On the
subject-matter of these courses he was led both by an alert intel-
lectual curiosity and by conscientious devotion to academic duty,
to carry his work much farther than was called for by the strict
needs of teaching. He cannot be absolved from the blame of hav-
ing in some degree scattered his energies.

Among the notes and papers found after Professor Dunbar's
death, some were in such a stage of completion as to warrant
their publication. He had begun a history of banking in the
United States since i860, and of this the first three chapters were



xvi INTRODUCTION

virtually completed. They are printed in the present volume, and
illustrate adequately the style and the method of his maturest
days. Of quite a different kind are the accounts of the crises of
1857 3-i^d i860. They were prepared at an early stage in his aca-
demic career ; certainly as early as 1875, and not improbably before
1876. That Professor Dunbar left these papers in his desk for
over twenty years without taking any steps toward printing them,
indicates that he was not disposed to give them to the public ; and,
indeed, the mode of treatment is not such as he would have followed
in later years. Yet they are contributions of no mean value to the
economic history of the United States and to the history of crises,
and are accordingly included in the present volume, notwithstanding
the author's evident doubts as to their suitability for publication.

Professor Dunbar was by nature reserved, and as to his own



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