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credit at once and was able to borrow at very reasonable rates.
The British ministry in the reign of Queen Anne replaced all
the old loans by others that paid interest at market instead of
war rates ; giving the lenders the choice between that and re-
demption. During the war that England waged with Napoleon
her capitalists were on the outlook to prevent any renewal of
that proceeding. The government was forced or induced to
fund the debt as fast as it was contracted. That is, money was
raised by selling perpetual annuities, redeemable at par, for such


price as they would bring in the market. These annuities,
considered as the interest upon the nominal principal, were at
very low rates, but the principal itself was not paid in full to
the government. The buyer offered to take the loan at thirty,
forty or fifty per cent, discount, according to the state of the
money market. Thus of the 600 millions sterling added to
the national debt, only 484 millions was actually paid to the
government. The perpetual annuities amounted to 3 per cent,
interest upon the nominal, and 5J per cent, upon the actual
loans. With every rise in the national credit, the nominal value
has become more nearly the actual one, so that even by pur-
chases in open market the nation could now redeem its debt
only at the par value, i. e., by paying a sum to its creditors that
it never received from them. As capital is worth much more
than 3 per cent., taking year with year, it is thought by many a
saving not to pay the debt. Others oppose payment on the
ground that its wide distribution imparts a certain stability to
the whole political edifice by identifying the interests of the
people with those of the government. Cobden, Bright and the
Manchester school generally oppose its payment on the ground
that it holds England back from engaging in new wars, by putting
her under bonds to keep the peace. The population of England
is twice as great, and her wealth four times as great, as when the
debt was contracted two generations ago, yet its amount has been
but slightly diminished. Few people seem to expect that it ever
will be paid, and one Tory organ, denouncing Gladstone for his
policy of harassing interests, expressed the fear that he would
be for attacking the national debt next. Two measures, how-
ever, look toward its redemption. There is a Sinking Fund
managed by commissioners, which uses such money as is placed
at its disposal to buy up " consols," and hold them at interest,
expending that interest in fresh purchases. Another measure
of Mr. Gladstone's has been to sell terminable annuities chanre-
able to the budget, and buy up with the proceeds the perpetual
annuities formerly granted. But at the present rate of re-


demption four centuries must elapse before the whole would be

§ 199. The United States have always acted on the policy
of speedy redemption. The debt of the Revolution and that
of the second war with England were discharged by 1835, less
than sixty years after the former began. At the rate of redemp-
tion pursued since the close of the civil war, the nation would
be out of debt by 18 , and much sooner if the national revenue
be not reduced and the large sums that are now expended in
paying interest are applied to paying the principal.

§ 200. The existing debt of the United States was not funded
as fast as contracted; high rates of interest were offered rather
than large discounts on the principal. Secretary Chase, what-
ever his mistakes, strove to keep the debt under national control,
and even borrowed for periods that were far too short, so that
some of his earlier loans fell due during the war. Afterwards
three forms of bonds were adopted, — 7-30s, 8-40s and 5-20s, i.
e., payable at the option of the government at any time between
seven and thirty years, &c, after issue. Yet. as in England,
the real rate of interest upon the debt is much higher than the
nominal one, — in some cases nearly eleven per cent, instead of
six. The government had made large issues of paper money,
which after a time depreciated in value very greatly, fluctuating
with the course of our military history, as the public confidence
in its redemption rose or fell. But vast quantities of this money
were subscribed for United States bonds and accepted at par;
so that the nation received on an average about fifty-seven cents
in gold on the dollar for its obligations, on which it pays full
interest and is bound in all honesty to pay the full principal.

This is the calculation of Prof. Bowen of Harvard College.

§ 201. With the return of peace the value of this paper
money rose steadily until the dollar is now worth about ninety
cents in gold. Secretary McCulloch's reduction of its volume
from 4581 to 38G millions seems to have had its influence in this


regard, especially as the policy of contraction was regarded as a


pledge of the speedy resumption of specie payments. It is more
certain that that policy inflicted great hardships upon a large
part of the community; that it checked industry and benefited
the lending class at the expense of the borrowers. It might
have ended in making paper-mouey so scarce that all depreciat-
ing comparison of its value with that of gold would have ceased ;
but could never have effected a return to the use of specie, for the
simple reason that no such volume of specie exists in the country.
We produce a large quantity of the precious metals, but our im-
port trade and the payment of interest upon government bonds
held in Europe, causes a stead}' drain in that direction. The go-
vernment requires customs to be paid in gold, which causes a
full demand for what we have. This large demand and limited
supply co-existing furnish an opportunity for those disastrous
corners in gold that have at one time lasted over a whole
year. However much the volume of the currency might be
reduced, for the government to begin the resumption of specie
payments with its limited stock of gold would be to commence a
battle of Armageddon with the brokers, which could not but
result in disaster. We will be able to resume specie payments
when we cease to rank among the debtor nations, when our
national debt is owed to our own people, and when our industry
is adequate to the supply of the nation's need of manufactured

§ 202. There is no question that such a resumption is ex-
ceedingly desirable. Our paper money does fluctuate in value
far more than gold. The possession of two standards of pay-
ment — a fixed one for foreign trade and a fluctuating one for
domestic trade — complicates and confuses the business of the
nation. A daily and unforeseen variation in the number of
inches to the yard, or the number of ounces to the pound, would
be no worse. Stability in the standards by which business is
transacted is absolutely necessary to the industrial health of the
country. Any inflation of the volume of currency, therefore,
is to be deprecated, as tending to perpetuate and increase these


fluctuations, by weakening the popular confidence in the worth
of the national money.

§ 203. But to say so much is not to assent to the attacks
upon that currency made by those who say that " the promise
to 'pay a dollar' is a promise to pay 23.8 grains of gold and
nothing else. Till that pledge is redeemed, we have four hun-
dred millions of broken promises in circulation ; and every legal
tender note is the national credit sandwiched between a lie on its
face and brute force at its back."

If this were true, it would be the duty of government to re-
sume specie payments to-morrow; which nobody proposes. To
whom is this promise broken, if broken it be ? Not to the first
receivers, for they took these notes knowing them to be incon-
vertible. If they were obliged to take them in payment of
debts contracted in gold, they had the option to invest them in
government bonds at par value. And the present holders of
these notes are not wronged at all. Not a living man can hold
up one of them and say : " Here is a note that I would not have
received in payment if I had known that the treasury would not
give me gold for it." They were certainly not worth more than
at present when any of the present holders came into possession
of them.

As to the word " dollar" printed on them, it is certainly to
be interpreted according to the mutual understanding between
the issuer and receiver; that it was held to mean " 23.8 grains
of gold " is certainly not proved. And even if we conceded
that a wrong was done in lowering the standard of the current
dollar, the moral duty of returning to the former standard is not
so clear. When English kings reduced the weight of the silver
coin they did such a wrong to their people. A pound in silver
once weighed a pound ; but the British mint is not defrauding
the public when it now coins shillings that do not weigh one-
twentieth of that amount.

§ 204. Treasury notes, like other forms of paper-money, are
not the best possible instrument of exchange and association ;
but in the present organization of domestic commerce we


especially require a currency that will pass current in all
parts of the nation; and that currency is furnished us by
guaranteed national bank-uotes and treasury notes. The impulse
that these imparted to business in the worst times of the civil
war, their affect in accelerating circulation, abolishing long
credits, and giving us a live money in place of a dead one, deserves
to be remembered. Our currency before the war was vastly infe-
rior to that which we now possess ; the bulk of it was country
bank-notes guaranteed by nobody, and subject to from one to five
per cent, discount when carried a few miles from home. That
the treasury notes alone are not a perfect currency may be ad-
mitted; they lack one good feature of bank-notes — their volume
is not elastic, is not under control of the public. The country
needs more of them at certain fixed seasons of the year than at
others; but when those seasons are over the banks are " choked
with greenbacks."

This want of elasticity in our paper-money is obviated by
recent legislation, which has substituted national bank-notes for
treasury-notes, and put an end to the limitation of their amount.


The Science and Economy op Commerce.

§ 205. Commerce is the interchange of services or pro-
ductions between persons of different industrial functions, effected
either directly or through the intervention of third parties.
The motive to such an interchange is found in the fact that the
labor which each expends upon the production of the article
that he gives is less than that which he would have to expend
to reproduce the article which he receives. Thus each receives,
therefore, what is of greater value to him, than what he gives.

§ 206. Commerce is therefore the outgrowth of the division
of labor, and has kept pace with that in its growth. In the
first stage, commerce existed only between persons of the same
family or tribe, and involved no formal exchange of commodities.
The savage husband undertook the dangerous duties of hunting,
fishing and war; the wife the laborious work of the household
and their petty agriculture. Both shared in the products.
Afterwards members of the same tribe rendered each other
certain customary services, such as mutual help in the pastur-
age of the cattle and the tillage of the Jiehh of the mark (§ 79).
Then through the rise of a difference of employments or pos-
sessions between the tribes, a piece of neutral ground became
the meeting-place of a group of these tribes for mutual ex-
changes, in which exchange cattle were used, less as money
than as a standard to estimate comparative values. Then arose
a class of traders, whose business it was to facilitate exchanges
by ascertaining the reciprocal wants of different persons, and to
negotiate for terms advantageous to each. Either from the first
or in course of time, these traders became possessed of capital
enough to purchase what was offered for sale, which they then
again offered to those who needed it, on terms advantageous to

The rise of this class was clearly an advance in social develop-


meut. A function hitherto discharged by persons, who might
be better employed, was transferred to more competent men.
The trader knew the demand and supply of every article more
thoroughly and readily than its producers or its consumers : to
obtain that knowledge was his special work. Instead of spending
much of their time in searching for a customer, they found it
to their advantage to employ his knowledge and skill, and to
devote the time thus saved to larger production. While he
added nothing directly to the amount or the utility of the pro-
ducts of industry, he helped to increase the amount of pro-
duction indirectly by economizing the time of the producers.

One of the most important of these traders is the banker or dealer in
money, whose function has already been discussed. All that is said in
Chapter VIII. is, in some sense, a subordinate part of this chapter.

§ 207. Still the trader, the middleman or go-between of these
exchanges, is but a means or instrument, whose end is com-
merce. And as in the case of other instruments, how to dispense
as much as possible with his services is one of the problems of
economic organization. His power over the producer and the
consumer, which is measured by the proportion that his profits
bear to the value of the article exchanged, declines steadily
with the advance of society in intelligence and the power of
association. In the early time he took a very large share, be-
cause the producer and consumer being at a distance from each
other, knew little of each other, and because the risks and the
expenses of his business were great. Afterwards his profits de-
clined, mainly because with the growth of population and the
advance of mutual knowledge, the chances of producer and con-
sumer dispensing with his services and dealing directly with
each other, increased. But even now his profit is a tax upon
both, which should be reduced to a minimum. For he adds
nothing to the real wealth of society. He neither directs and
manages a vital change in the form of matter as does the
farmer, nor a chemical and mechanical change in form as does
the manufacturer. He merely transfers things from the place
of their production to the place of demand : The products of


other men's labor pass unchanged through his hands, — with
their value increased by the cost of transportation and the
amount of his profits.

When Charles Fourier was young, he was on a visit to Paris, and
priced at a street stall some apples of a sort that grew abundantly in his
native province. He was amazed to find that they sold for many times
the sum that they would bring at home, having passed through the hands
of a host of middlemen on their way from the owner of the orchard to
the eater of the fruit. The impression received at that instant never
left him ; it gave the first impulse to his thinking out his socialistic
scheme for the reconstruction of society, in which, among other sweeping
changes, the whole class of traders and their profits are to be abolished.

§ 208. It is evident that the amount of this tax upon indus-
try is greatest when the consumer and producer are at the
greatest distance from each other, and are consequently most
dependent upon the trader. Where the producer has the
market close at hand he is under no necessity of sacrificing any
large part of his profits. Sooner than do so, he will be his own
trader, and deal directly with his customers.

Commerce between persons in neighborhood is also a com-
merce of swift returns. The capital employed circulates much
more rapidly, and accomplishes a much larger amount of service
in proportion to its amount. Instead of considerable amounts
of it being thrown out of possible use, because in transit between
distant points, the whole is directly and immediately available;
as soon as the manufactured goods have left the factory, they are
ready for purchasers. As soon as the flour has left the mill, it
is available for human food. The waste of time involved in
more distant commerce is totally avoided or reduced to a

§ 209. Commerce between persons in neighborhood leaves
little opening for those traders' speculations by which artificial
scarcity is produced. Commerce between distant points involves
the passage of large quantities of goods through single ports of
entry and exit, on their way from the field of their production
to that of their consumption. As they change hands at this
point from one trader to another, their price to their final pur-


chaser is mainly fixed. If a number of traders foresee a slight
scarcity of supply, it is not unusual for them to club resources, buy
up all that they can lay their hands on, and hold it for an advance.
Unless some unforeseen circumstance defeat their plans, they are
thus enabled to put into their pocket large sums, which repre-
sent simply no service rendered to society, — no benefit to either
producer or consumer. Thus in the grain-trade, which centres
so largely in Chicago, traders have repeatedly brought about a
scarcity of this sort, and raised the price of flour to the Eastern
and European consumer. Were the wheat-crop of the whole
country, like that of Pennsylvania, consumed in the vicinity of
the farms, " such corners in wheat," as they are called, would
be impossible. Very different is the desert of those, who,
foreseeing an actual scarcity, buy up the present supply and
hold it over till the scarcity occurs, or buy up in one district to
sell in another. They diminish the present consumption and
enforce economy of resources ; they spread the dearness over a
larger space and time, and thus prevent scarcity from becoming
real famine by making the supply go as far as possible. What-
ever the motive, a real service is rendered in this case.

This production of artificial scarcity is not an exceptional or
difficult thing when the producer and consumer are at a distance
from each other. When California was quite a young state, and
depended almost entirely upon the Atlantic States and Europe
for all supplies, the prices of all importations were kept enor-
mously high by forestalling the San Francisco market. " It is
a frequent occurrence that a few wealthy men combine together
to buy up all of a certain kind of merchandise and then control
the price." In Australia (§ 284), especially during the time
when the country was dependent upon England for nearly all
sorts of goods, the same system was " carried on in the most
systematic manner " and has not ceased yet.

See Restrictions on Trade, from a Colonial Point of View, by David
Synie (republished from the Fortniijhtly Review), Boston, 1872.

§ 210. These facts are only extreme instances of the power
of the trader to dictate his own terms, when the producer has to


send his wares to a distant market. These conspiracies are but
the extreme form of the general understanding that grows up
between the body of capitalists, when the chief supply of an
article is concentrated within a limited area and in a small num-
ber of hands. Such an understanding, easily reached in such
circumstances, will, unless checked by some other competition,
enhance the price of goods quietly and by degrees that escape
notice, but are none the less burdens upon the producers and
the consumers. The traders can "fix their own prices" in such

The same power of the trader over the prices that rule in a
distant market is sometimes displayed in producing an artificial
but temporary cheapness, to he followed by such a rise of prices
as will recoup him for the loss. Where the consumers of an
article make an effort to dispense with his services and those of
its distant producer, by developing resources for its supply that
are nearer at hand, he not seldom finds it worth while to offer
large quantities at less than cost price. He shares this sacrifice
with the producer of what he sells, and both have the intention
to hold fast the market, and retrieve their present losses by
larger future gains. The effect is to force the new producer of
the same article to cease operations, " unless he have a very strong
back indeed," and can afford to go as far in making sacrifices as
his longer-established rivals. As this is very rarely the case in the
first stages of an enterprise, there is no choice but to cease pro-
ducing, and the market is left dependent upon the trader and
his partner, the foreign producer, although every facility existed
for producing the article more cheaply and abundantly at home.

Bee \\ 252 and 284. Coleridge says: (VI. 511) " It has already been
shown, in evidence which is before all the world, that some of our manu-
facturers have acted upon the accursed principle of deliberately injuring
foreign manufacturers if they can, even to the ultimate disgrace of the
country and loss to themselves."

§ 211. Even as regards domestic commerce, there is large
space for reform in the diminution of the number and the profits
of the middlemen, who stand between producer and consumer.
" Any one who inquires," says Mr. Mill, " into the amount that


reaches the hands of those who made the things he buys will
often be astonished at its smallness." This bears especially
hard on the working classes; it deprives them as producers of
the benefit of market rates for their workmanship. It taxes them
more heavily as consumers than it does the rich who can afford
to buy at wholesale. He needs most to economize, yet he pays
the highest prices, a fact that does much to counteract the
natural tendency towards an equality of condition ; as Solomon
said, " The destruction of the poor is their poverty." The
earlier English economists regarded free competition as a suffi-
cient corrective of this; if profits were excessive, more capital
would flow into the trade, and the competition for custom would
bring prices down. But while this has had its effects, it is by
no mpans sufficient, especially in small communities ; trades
tend to become informal associations to keep prices up to a cus-
tomary standard of profits, which in England averages about
fifty per cent, of the wholesale price.

Cooperative stores are a means of obviating this difficulty, from
which great things are expected, and perhaps justly. In these
the consumers associate to establish a retail store by their joint
contributions, and employ competent persons or some central
agency to purchase the goods in large quantities and at the
lowest wholesale price, as well as of the best quality. These are
retailed for cash at a margin of profit that more than covers the
cost of the operations, and the net profits are distributed at the
end of the year in proportion either to purchases made or to
stock held. Some of these stores sell only to their stockholders ;
others sell to accepted customers, and give these a small share
in the joint profits proportional to their purchases; others sell
to the public at large, and distribute the profits among stock-
holders only. In the third method (and in the second, in a less
degree) the cooperative basis of their operations is given up ;
the establishment becomes merely a joint stock company to deal
in a certain class of goods, and the ordinary dealers' motive to
overcharge or adulterate goods comes into play. These stores
originated with^he Owenist party in England about 1830; they


exist iu great numbers in that country, in France and in
Germany, where Schultze-Delitzsch has greatly promoted their
establishment. Some look to them for a complete revolution of
the retail trade and the abolition of the retail trader. But the
destruction of any function in the organization of society would
be a retrograde step. The chief service that these stores can
render is in restraining the trader from adulteration, and in
forcing dowu prices to a just rate ; iu substituting cash payments
for book-credits, and perhaps in finally leading him to take his
customers into partnership by dividing among them a share of

Online LibraryRobert Ellis ThompsonSocial science and national economy → online text (page 19 of 38)