The Online Library of Liberty

A project of Liberty Fund, Inc.

• Political Economy
• Part I.: Character and Logical Method of Political Economy.
• Part II.: Production.
• Chapter I.: Land and Natural Agents.
• Chapter II.: Labor.
• Chapter III.: Capital: Its Origin and Office.
• Chapter IV.: The Productive Capability of a Community.
• Part III.: Exchange.
• Chapter I.: The Theory of Value.
• Chapter II.: The Theory of International Exchanges.
• Chapter III.: Money and Its Value.
• Chapter IV.: Money and Its Value—continued—debased Coin: Seigniorage.
• Chapter V.: Inconvertible Paper Money.
• Chapter VI.: Bank Money.
• Chapter VII.: The Reaction of Exchange Upon Production.
• Part IV.: Distribution.
• Chapter I.: The Parties to the Distribution of Wealth.
• Chapter II.: Rent.
• Chapter III.: Interest.
• Chapter IV.: Profits.
• Chapter V.: Wages.
• Chapter VI.: Wages.—continued.
• Chapter VII.: Two Other Shares In Distribution.
• Chapter VIII.: The Reaction of Distribution Upon Production.
• Part V.: Consumption.
• Chapter I.: Subsistence: Population.
• Chapter II.: The Appearance of New Economic Wants.
• Chapter III.: Consumption: the Dynamics of Wealth.
• Part VI.: Some Applications of Economic Principles.
• I.: Usury Laws.
• II.: Industrial Co-operation.
• III.: Political Money.
• IV.: Pauperism.
• V.: The Doctrine of the Wage-fund.
• VI.: The Multiple Or Tabular Standard of Deferred Payments.
• VII.: Trade Unions and Strikes.
• VIII.: The Knights of Labor.
• IX.: Attacks On the Doctrine of Rent.
• X.: The Nationalization of the Land.
• XI.: The Banking Functions.
• XII.: The Present Banking System of the United States.
• XIII.: Foreign Exchanges.
• XIV.: Bi-metallism.
• XV.: The Revenue of the State.
• XVI.: The Principles of Taxation.
• XVII.: Protection Vs. Freedom of Production.
• XVIII.: Socialism.

PART II.

PRODUCTION.

CHAPTER I.

LAND AND NATURAL AGENTS.

45. What is the Production of Wealth?—By this term we signify all those acts and courses through which it comes about that an article confers upon its possessor the power, irrespective of legal authority or personal sentiments, to command, in exchange for itself, the labor, or the products of the labor, of others. Briefly and somewhat elliptically, we may say, the production of wealth means the creation of values.

This, of course, does not imply the creation of matter; it does not, of necessity, imply even a change of form in the thing which before had not value but now becomes possessed of it.

46. Modes of Production.—A distinguished German professor has classified values, in respect of their origin, as time-value, place-value, and form-value. Thus, a cake of ice which has no value in the winter may acquire value through being kept over into the following summer. The preservation of the ice, whatever of effort and care and expenditure that may involve, is the production of wealth to that extent. The value thus created would be, in the phrase of Prof. Knies, time-value.

Again, a cake of ice which has in summer a certain value in the region where it was first formed, say, Maine, would have a much higher value in a semi-tropical region, where water is seldom frozen at any season of the year, say, Louisiana. The transportation of the ice, and its protection from the melting heat of the climate, would be a further production of wealth. The value thus created would be, in the phrase of the writer already quoted, place-value.

In neither this nor the former case has human effort effected the formation of the ice, which work was the gratuitous operation of nature. The vast bodies of values created by commerce are mainly what would be termed place-values, the value created in giving form to the articles concerned being but small in comparison.

In the creation of form-value, there is the widest possible range of operations, mechanical or chemical, from that of the agriculturist, by whose intervention the black earth of the prairie is transmuted into golden grains, to that of the lace-maker, whose whole industry is to arrange his gossamer into fantastic shapes. However little the material may be wrought, and by whatever agencies that little may be effected, we say that wealth is produced whenever value is added or acquired through any act or any process.

47. The Agents of Production.—The three primary agents in the production of wealth are Land, Labor and Capital.∗

48. Land.—The school of economists in France, prior to the revolution, who were known as the Physiocrats, insisted upon regarding land as the sole source of wealth. According to this school, of which the physician Quesnay was the founder, labor is incapable of creating value except as employed upon the soil. Agriculture is, therefore, the sole means of increasing the wealth of a nation. All applications of labor or capital in manufacture, in transportation, or in trade, must be barren, since there is no net produce remaining, as in agriculture,† after the expenses of cultivation have been met.

There was this much of truth in the physiocratic theory, that the raw material of all manufactures, the subject matter of all trade and transportation, comes originally from the soil; and its value can not escape the influence of the great, comprehensive principle to which we give the name, “the law of diminishing returns in agriculture,” the principle, namely, that after a certain stage of cultivation has been reached, the soil fails to yield a proportionally increased return to new applications of labor and capital. Since, then, this law is so far-reaching and all-embracing that even the operations of trade and manufacture do not escape its influence, it requires to be stated here with great precision and fullness of illustration. There is no use in the reader going on if he does not master this principle in all its bearings. He might just as well stop short here, for, as Prof. Cairnes has said, if this principle did not exist, “the science of political economy would be as completely revolutionized as if human nature itself were altered.”

49. The Great Law of Agricultural Production.—In any given condition of the art of agriculture, there is a limit to the amount of labor and of capital which can advantageously be employed or expended upon a given area of land. If, after this limit has been reached, more laborers are employed, each will have to be content with a smaller quantity of produce at harvest. And, in the same way, if more capital be expended upon the land, each dollar of capital—whether in the form of hoes or carts or oxen, will make a smaller addition to the crop of the year than a dollar expended before the point of diminishing returns was reached. We shall sufficiently illustrate the principle if we confine our view to applications of labor, assuming the amounts of capital to increase correspondingly with the number of laborers.

50. Increasing Returns.—Let us suppose that ten laborers, with a certain outfit of tools and implements, are engaged in cultivating, in common, a tract of land of a hundred acres, producing 2,000 bushels of wheat a year, being twenty bushels per acre, and two hundred bushels per capita. Now, let it be supposed that two new laborers appear and join themselves to this company. What will be the crop of that year for the united twelve, assuming agricultural conditions constant? Will it be 2,400 bushels, or more, or less? The answer to this question will depend upon whether the point of diminishing returns has been reached with the original ten laborers, or not. If not, the crop of the new year may be not merely 2,400 bushels, but even more, say, 2,500 bushels, since, the limit of the chemical capabilities of the soil not being reached, the mechanical advantages which result from the division of labor, to be explained under a subsequent title, will enable the twelve laborers to raise more, per man, than the ten could do.

51. Diminishing Returns.—But if the limit indicated in paragraph 49 had been reached when the ten were laboring together upon the land, the new crop will fall short, much or little, of 2,400 bushels; and consequently, each of the twelve laborers will have to be content with less than 200 bushels. Let us suppose the crop to amount to 2,280 bushels, each acre producing 22.8 bushels. Each man will, then, receive 190 bushels as his share.

Now, let it be supposed that three additional laborers are received into the company. Will the crop now be 3,000 bushels, or 200 bushels per man of the fifteen? Clearly not. Will it prove to be 2,850 bushels, 28.5 bushels per acre, giving each man 190 bushels as his share, as before? Not if the industrial character of the laborers and the knowledge of the art of agriculture undergo no change. If twelve laborers make the land yield but 22.8 bushels per acre, the fifteen can not make the same amount of land yield 28.5 bushels per acre. The crop will be something less than that: say, 27 bushels per acre, which would give each man 180 bushels.

If, again, we suppose five additional laborers to join the company, the crop will not be 40 bushels per, acre; as would be necessary in order to give each man 200 bushels, which the original ten received; or 38 bushels per acre, as would be necessary in order to give each man 190 bushels which the first twelve received; or even 36 bushels per acre, as would be necessary in order to give each man 180 bushels, which the first fifteen received; but the crop could not be forced by the labor of twenty laborers above, say, 32 bushels per acre, which would give each of the laborers 160 bushels.

In like manner, it would be found that, however far the accession of new laborers were carried, each new arrival would result in reducing the quantity of grain which each laborer of the entire body could obtain by a year's work. This reduction of the per capita produce would go forward, at first slowly and afterwards rapidly, until the result would be reached, that, whereas the original company lived comfortably, or even luxuriously, the forty or fifty who had come to work on the same area would be found living wretchedly, perhaps reduced to the verge of starvation.

52. This Condition is Universal.—About the universal application of this condition there can be no intelligent question. There is not an acre of land on the face of the earth on which 60 and afterward 120 bushels of wheat can be raised by the application, first of twice, and afterward of four times, the amount of labor needed to produce 30 bushels. At some time in the progressive cultivation of every field, sooner or later, according to the state of agriculture, a stage will be reached after which every successive increment of the product will be obtained only through a more than proportional expenditure of labor. This condition applies, not only to the cultivated field, but to grazing lands, to the mine, the forest and the sea. It governs the cost of producing fish and whale oil; fuel and timber for manufactures; coal, iron and copper, for the furnace and the forge; wool for clothing, and the carcasses of cattle and sheep for food. The operation of the principle is in some of these cases obscured by the accident of great discoveries of natural stores and resources, or important inventions in the chemical or mechanical arts involved in the extraction of these articles for the use of man.∗

53. The Law of Diminishing Returns in Application to Manufactures.—Such is the law of diminishing returns in agriculture. As has been stated, no part of the field of production but is overshadowed by this great dominating condition of human life and labor. Not only is the whole body of agricultural produce subject to its influence, but the raw material of all manufactures, and the subject matter of all trade and transportation, coming originally from the soil, are affected in value by the increasing difficulty which attends each successive increment of product.

But while no part of the field of production lies beyond the shade of this primary condition, various classes of products are affected by it in very different degrees, according as they stand nearer to, or further from, agriculture or the purely “extractive” industries. Thus, every product of iron, is in some measure, subject to the influence of this condition. If a greater and still greater quantity of iron ore is to be derived from a given number of known mines, this involves mining at a lower and still lower depth, which, in turn, involves a greater expenditure of labor in hoisting, ventilating, pumping, etc.

But it is only the iron, as ore, or as an ore product, which is subject to this condition. If a hundred weight of ore be rendered into pig iron, the cost of the latter will be very much increased by the necessity of mining at an increasing depth. If the pig iron be taken to the forge or foundry, and there rendered into plate iron or stove castings, the cost of the latter will be enhanced but little if any more, since the production of wealth, (i. e., the creation of values) by mechanical processes, is not subject to the law of diminishing returns. Ten men in mechanical pursuits can produce ten times as much as one. If, again, the iron be rendered by successive processes into fine screws, knife-blades or watch springs, the first cost of the material becomes small, in comparison with the cost of the labor expended in working and perfecting it.

Mr. Babbage, in 1832, estimated that bar iron of the value of %1 became worth when manufactured into—

It is evident that the only part of the cost of the %657 worth of knife blades, here, which is affected by the condition of diminishing returns, is the original dollar's worth of bar iron, and the cost of the bushel or two of coal necessary to produce the mechanical power and the melting and tempering heat for the successive processes of manufacture. An increase of the difficulty of mining which should double the price of bar iron might affect the price of scissors very slightly.

54. So far, then, as human wants can be met through the elaboration of the raw materials taken from the soil, there is a constant tendency to a greater and still greater satisfaction of those wants, through the perfection of mechanical and chemical processes. But, after all, the chief concern of the masses of the people is with the cost of the raw materials of food, clothing and shelter. The bulk of their consumption is of coarse forms of agricultural produce, simply prepared. It is of no advantage to the laborer that at a small additional expense he can have his cotton wrought into forms which a century ago would have excited the admiration of a court, if all the cotton he can procure is not enough to keep him warm.

55. The Soil, a Fund for the Endowment of the Human Race.—Subject always to the condition which has been described in the foregoing paragraphs, the soil, consisting of rock pulverized at one period or another of the world's existence, constitutes the sole original endowment of the human race. The different varieties of soil possess the capability of rewarding human labor in very different degrees; but every kind of decomposed rock will, if treated with due quantities of water, yield vegetables, grains or fruits for man's food, fibers for his clothing, timber to construct his house, fuel to warm it. Even the undecomposed rock which forms the crust of the earth, constitutes a store from which human wants may be supplied, though in smaller degree and with greater pains. Metals and minerals, of an almost infinite number of uses, mechanical, chemical, physiological, are extracted by the aggressive enterprise of man from the very rock which has withstood unbroken all the effects of fire and frost, earthquake and torrent. It is wholly upon this natural endowment that the race have lived in the past; and it is the extent of this endowment which is to determine the maximum number the race can reach, aud the longest period of time through which the race can survive. Now, of this fund with which mankind are endowed, we note, in addition to the limited capability of production within a given season, upon a given area, already dwelt upon, that the fund, in the present state of the art of agriculture, is subject to waste and possible ultimate exhaustion.

56. Exhaustion of the Soil.—Those writers who advocate what is known as the policy of Protection, have made great use of the fact that the soil is subject to exhaustion; that its productive capabilities are, in the strict sense of the word, a fund, from which so much and no more can be taken. Besides the outright destruction of fertility due to wanton abuse of nature, the ordinary prudent use of the soil steadily diminishes the fund of productive essences from which future generations must draw their supplies of food, clothing and shelter. “For every fourteen tons of fodder carried off from the soil,” says Prof. Johnston, “there are carried away two casks of potash, one of soda, a carboy of vitriol, a large demijohn of phosphoric acid and other essential ingredients.”

But what becomes of the materials thus taken away? Surely, if the doctrines of modern physical science are true, no force can be lost out of nature; consumption must be followed by production in other forms; or, rather, consumption is nothing but the production of new forms.

It is true that no force can be lost out of nature; yet force may be transmuted from forms in which it ministers to human wants into forms in which it serves no purpose useful to man, as, for example, when your house burns down and goes off into the air, in sudden heat and with a great smoke; or a certain amount of force may be so dissipated that men can no longer employ it for their advantage. The productive essences taken from the soil, in the form of food for man and beast, may, without being diminished in actual amount, be so scattered as to be unavailable for the nourishment of vegetable life in the future.

“Whenever,” says Prof. R. E. Thompson, “the products of the soil are consumed in the vicinity of the farm, the farmer will have at hand the means of making such a return to the soil as will keep up and even increase its fertility. But whenever they are transported to a considerable distance for consumption, the power to make an adequate return to the soil is seriously diminished, if not absolutely destroyed. The richest soil can not long sustain such a process of exhaustion, if its proprietors are engaged in sending its natural wealth over land and sea to a distant market”.

57. Free Trade and Exhaustion of the Soil.—It is upon this the protectionist bases his chief argument. He claims that local markets should be everywhere created to prevent what he calls “earth-butchery.” The tendency to make new countries the magazines from which older countries draw their supplies of raw materials should be crossed and checked by legal impositions, not so much upon the exportation of the raw materials from the former, as on the importation of finished products from the latter. Every considerable community should be driven, against the impulses of immediate interest, to fashion for its own consumption the materials produced from its own soil.

Now, the most obvious and natural answer to this is, that men are the best judges of their own interests, and that producers and consumers should be left to make their bargains unhindered. But it will appear, in the further progress of our inquiry, that the interests of individuals do not always consist with the interests of the community. This is clearly seen, in the case of the felling of the forests, where immense injury may be done to the soil, an injury perhaps that is practically irreparable, through the selfish action of a few persons seeking their own immediate advantage.

If the same is not true in an equal degree of the abuse of the soil through an excessive drain upon its productive essences, due to the passion for sudden gain inducing the cultivators to take much from the ground and put back little, this is due to two facts. First. The arable land of a country is generally owned by a larger number of persons than the wood land, so that more of those who would suffer by the effects of an abuse of nature are in a position to prevent abuse. Secondly. The consequences of “earth-butchery” in the destruction of forests are more instant and less remediable than in the waste of the soil in cultivation.

58. Some Waste Unavoidable.—The liability to exhaustion of the soil, through exportation of its produce, is a fact properly to be taken into account. The importance which should be attributed to the fact is a matter of question. I believe the protectionist writers generally give it more weight than it deserves, chiefly through omitting two considerations.

First. Even the building up of manufacturing and commercial towns would not prevent a large part of the waste.

In nearly all such towns, when of considerable size, the excreta of men and even of animals, and, also, to a great extent, the refuse of kitchens and of manufactures, are thrown into the streams and carried out to sea. The utilization of sewage, on any large scale, has never yet been made profitable. It has been done as a matter of experiment, as a matter of sentiment, or to prevent the defilement of rivers; but almost invariably it costs, in the present state of the arts, more than a hundred cents on the dollar's worth of soil-dressing obtained. Some waste of this kind seems inseparable from the human occupation of the earth.

59. Natural Renewal of the Soil.—Secondly. The protectionist's argument overlooks the consideration that, in addition to the progress of invention, postponing, though it may not avert, exhaustion, a continuous addition is being made to the soil available for the raising of food, through the decomposition of rocks and the formation of rockdust (weathering). The mountain loses of its substance by the force of frosts and floods, and the valleys are enriched with the material thus worn away. Even the stones that lie in the earth, a mere encumbrance to cultivation, yield to the unceasing action of the elements that surround them and give up to the soil the same properties to which its pristine fertility was due. Moreover, the conversion of the nitrogen of the atmosphere into nitrates (nitrification), is continually going on. “In rare cases,” writes one of the most eminent of agricultural chemists, “these agencies alone maintain a high state of fertility, as where red-rock easily disintegrates and is exceptionally rich in plant food, or where plains are fertilized by the matter brought from mountains and deposited by streams. More commonly, these natural causes maintain a moderate productiveness only, and require tillage, irrigation and manuring to raise the production to a high pitch: tillage, irrigation and manuring all operating to accelerate and intensify rock-disintegration and nitrification; irrigation and manuring acting also by replacing removed matters.

“Any region that has once been fertile for a period of fifty years, under a given system of management, may remain fertile under that system forever, unless the soil is removed or buried by flood, or unless the climate becomes unpropitious.”∗

CHAPTER II.

LABOR.

60. The Hunter State.—The second great agent in the production of wealth is human labor. Up to a certain low point, the grosser human wants are supplied by the bounty of nature. So long as this continues, value does not emerge; wealth is not produced. Man may live like the squirrels or the monkeys, from the spontaneous fruits of shrubs and trees; or, like other large and fierce animals, he may prey upon smaller and weaker species, which, in their turn, are nourished without care by grasses or nuts. So long as races of men subsist in this fashion, they are doomed to remain few in numbers, low in character, subject to occasional visitations of famine, the victims of ferocious enemies among the higher orders of animals, or of internecine war in the unceasing struggle for existence. Political economy has no more to do with men in such a state than with the monkeys who compete with each other for cocoanuts and bananas.

61. The Pastoral State.—Labor, in the economic sense, first clearly appears in the pastoral state. Here men no longer subsist on the bounty of nature, or perish miserably and helplessly when that bounty fails. They no longer hunt for nuts and roots and fruits which have grown without care and without labor, or for casual animals nourished upon the spontaneous products of the soil, bred and reared without human intervention. In the pastoral state, tribes tame the cattle and sheep and goats and asses which once ran wild, training them to be easily guided, handled and controlled, caring for their subsistence, driving them to fresh pastures, digging wells or diverting streams to give them a constant supply of water, even cutting the abundant food of summer and curing and storing it against the season of scarcity. The hunter protects the animals he has tamed against those that still remain savage, and folds or houses them against severe storms and protracted cold; he bleeds, blisters and physics them in sickness; superintends their breeding after their kind, and cares for the young far beyond the power or the wisdom of the dam. By all these forms of labor, men in the pastoral condition make that to be wealth which in a state of savagery was no wealth.

62.—And of this social condition we note two things: First, population increases largely. It requires many thousands of acres to support a family of hunters; as many hundreds will support a family of shepherds. The animal that in the one condition yielded, once for all, a carcass of three or four hundred pounds net, now returns, for the little care given her, five hundred gallons of milk every year, making, if the owner pleases to expend some additional labor, three hundred pounds of cheese. Another animal that once yielded a carcass of fifty pounds, covered with a pound of coarse stiff hair, now parts every year with four or five pounds of soft, flexible wool, susceptible of being wrought into forms of the greatest beauty and usefulness.

Secondly, the subsistence derived by communities in the pastoral state is not only more ample; it is also far more secure. Men are no longer subject to be swept by famine, as by a hurricane, from the face of the earth. In the main, subsistence, and with it existence, has ceased to be precarious; it has become constant and calculable.

63. Agriculture.—The next economic state is reached in agriculture. Man no longer skims the surface of the land; he plows into the depths of the soil, and brings up the productive energies that lay hidden far below the roots of the grass on which the cattle were wont to graze. And now, where hundreds of acres were required to support a family, as many score suffice. Population rapidly increases. Man and beast no longer wander to seek their food. Food is brought to them. Tribes cease to shift their place from season to season as the exigencies of pasture demand. The cottage replaces the tent. New wants are felt, now that men are not obliged to carry around with them all they own. New and varied forms of wealth appear.

To do only the things which formerly were done, would require less exertion, and consequently values tend to diminish, since value measures, speaking roughly, the difficulty of attainment; but more things now require to be done; there are more who feel wants, and each of them feels more wants, than formerly, and hence the body of values increases, in the face of improvements in the arts which tend to substitute gratuity for value.

64. Two Factors of Labor Power.—The labor power of any community, whether in the pastoral or in the agricultural state, or in the higher state where manufactures and commerce enter, is compounded of two factors, that derived from the efficiency of the individual laborer, and that derived from what we call by the somewhat unsatisfactory term, the division of labor, which embraces the joint action of men in production, the differentiation of productive processes, the specialization of trades and the organization of productive forces.

65. The Efficiency of the Individual Laborer.—The degree in which the labor of an individual shall be efficient in the creation of values, i. e., the production of wealth, depends upon several causes.

First: His inherited strength, his original endowment of physical force. This endowment varies greatly, not only as between individuals of the same community, but as between communities, races and nations. Into the causes of the differences in this respect existing, it is not necessary to enter. That inquiry belongs to the physiologist and the ethnologist. The economist has to do only with the fact. In the matter of sheer lifting-strength alone, the individuals of one race may, on the average, surpass those of other races by fifty, one hundred or two hundred per cent.; while in the matter of the use of that strength, in operations at once difficult and delicate, the range of existing differences is very much wider.

66. Relation of Food to Industrial Efficiency.—A second reason for the higher industrial efficiency of the laborers of one class or nation than belongs to those of another, is found in the quantity and quality of the food consumed by the laborers of the two classes or nations, respectively. The human stomach bears much the same relation to the whole frame as the furnace to the steam engine. In the one, as in the other, must all the forces which are to drive the machine be generated. In the one, as in the other, the force generated will, within certain limits, increase with the material supplied. With more fuel, the engine will do more work. With more food, the man will do more work.

But not proportionally more. To a great extent the return made, in force, to the introduction of new fuel into the furnace varies according to a principle which is strongly analogous to that which governs the returns made, in crops, to the application of new labor to land. Thus, if we suppose that, with a furnace of a given height of chimney, 3 lbs. of coal to the square foot of grate surface, are supplied, we should have, resulting from the consumption, a certain amount of force available to do the engine's work. But that amount would be small. A great part of all the heat generated would be lost by radiation in the tubes and through the cooling effect of the water in the boilers. Now, suppose that, instead of 3 lbs., 6 are consumed. Will the efficiency of the engine be doubled merely? No, the engine will do easily three times as much work. If 9 lbs. are used, the power will be still further increased, not only positively but proportionally, that is, there will not only be more power, but more power for each pound of coal. If 12 lbs. are consumed, there may be a still further addition to the force generated, not only positively but proportionally. It might be easily found that, with this amount of fuel, the resulting force would be, not four times as much as with 3 lbs., but eight or ten.

The parallelism which exists between the economy of applying labor to land and the economy of supplying fuel to the furnace, is broken at one point. Labor may be applied to land indefinitely with an increase of absolute, though not always of relative, production. But coal can not be added indefinitely to the fire beneath the boiler.

67. The economy of supplying food to the human machine is in a high degree analogous. If, for example, a laborer were supplied with only 100 oz., per week, of a certain kind of food, the laboring power which would be generated by the digestion and assimilation of that food would be very slight. After a course of such diet, the man would crawl feebly to his task; would work with a very slight degree of energy when he first started out, and would soon become exhausted. Were 125 oz. given to the laborer, he would be able, with no greater strain on his constitution, to accomplish an amount of work which would be not merely one quarter more, but largely in excess of it. He would perhaps be able to do one-half as much more. Were his subsistence to rise to 150 oz. there would be a still further gain. His efficiency would be to his efficiency when receiving 125 oz., not as 6 to 5, but as 7, or perhaps 8, to 5. With 150 oz., the laborer's diet might be regarded as sufficient for comfort, health and a reasonable development of muscular strength. Let the amount of food be carried up to 200 oz., and we should have a liberal, generous diet, ample to supply all the waste of the tissues, and to keep the fires of the body burning briskly, generating force enough to allow the laborer to put forth great muscular exertions through long periods of time.

Up to a certain limit, then, with food as with fuel, the true economy of consumption is found in increasing the supply. Niggardliness is waste, and waste of the worst sort. But just as there is a maximum limit with the fuel, so there is with food. After that limit is reached, the increase of food does not imply a proportional increase of force, if, indeed, any increase at all; and after a certain still higher point is reached, the increase of food brings mischief.

68. Under-fed Laborers.—The consideration here presented is of great importance in explaining the varying efficiency of labor. Probably the inhabitants of the United States constitute the only large population in the world who are thoroughly well-nourished; that is, who have enough of wholesome food to secure the greatest economy of consumption. “Many a French factory hand,” writes Lord Brabazon, “never has any thing better for his breakfast than a large slice of common sour bread, rubbed over with an onion, so as to give it a flavor.” “Meat,” says a careful observer, “is rarely tasted by the working classes in Holland. It forms no part of the bill of fare, either for the man or his family.” Of the laborers of Belgium, an official report states: “Very many have for their entire subsistence but potatoes, with a little grease, brown or black bread, often bad; and for their drink a tincture of chicory.” Even through large portions of happy England, the fabled land of the beef-eater, there is a mass of unimpeachable testimony to show that the working classes are able to obtain less nourishment by far than is necessary to the highest efficiency of their labor. “In the west of England,” wrote Prof. Fawcett, in 1864, “it is impossible for an agricultural laborer to eat meat more than once a week.” Of the peasantry of Devonshire, Canon Girdlestone wrote: “The laborer breakfasts on tea-kettle broth—hot water poured on bread and flavored with onions—dines on bread and hard cheese, at 2d. a pound, with cider very washy and sour; and sups on potatoes or cabbage, greased with a tiny bit of fat bacon. He seldom more than sees or smells butcher's meat.”

Now, as to the want of true economy in thus reducing the consumption of food among the working classes, there can not be a moment's question. The case may perhaps be best put by saying that if cattle were not kept better nourished than are the majority of laborers in the world, it would not “pay” to have cattle at all. It would be better to do without them entirely. Barely to keep them alive would require a large expenditure of food, and to give them, in addition to this, only enough to secure a low grade of muscular strength and activity, would not make them worth their keep.

69. Influence of Sanitary Conditions on the Efficiency of Labor.—A third reason for the higher industrial efficiency of the laborers of one class or nation than of another, is found in different sanitary conditions, especially those which concern the quality of the air. The food which is taken into the animal system is converted into blood which is kept in a state of purity by being oxydized in the lungs, through the process of breathing. In this process, the foul and stupefying element, carbon, is thrown off into the atmosphere, and the life-giving element, oxygen, is taken into the system. That this may be done, there should be, in all inclosed habitations, a sufficiency of space to each person and a free access of fresh air. Human beings confined in small, unventilated rooms inevitably lose vigor; the process of the oxidization of the blood being checked, the process of making blood, through the digestion and assimilation of the food taken into the stomach, is checked. With foul air, therefore, a smaller amount of muscular force is generated from the same amount of food. Not only so, but the food taken into the system may become an actual obstruction and cause of disease, through the failure of digestion and assimilation. Moreover, in close rooms, unventilated and uncleaned, the germs of certain diseases, known as filth-diseases, viz., typhus and typhoid fevers, scarlet fever, diphtheria and others, are preserved and readily communicated, to the impairment of health and the destruction of life.

70. The cause here adduced is not of slight importance in accounting for the differences in the labor power of different communities and nations of men.

As the people of the United States are the best nourished, so they are, by a long interval, the best sheltered people in the world. It is impossible for an American who has not traveled widely, to form an adequate conception of the manner in which the laborers of other countries are housed. “Hovels, cellars, mere dark dens,” wrote Mr. Inglis of the city homes of Ireland, in 1834, “damp, filthy, stagnant, unwholesome places.”

In 1861, one-third of the population of Scotland lived in houses of one room only; another third in houses of two rooms. In England the character of the country cottages and of the dwellings of the poorer classes in the cities is even worse than in Scotland. Cases are not infrequent where families of 7 to 13 members occupy a single bedroom.

Of the cottages of Devonshire, Canon Girdlestone says: “They are, as a rule, not fit to house pigs in.” The cottages of the County of Durham were thus described by the Poor Law Commissioners of 1842. “The average size of these sheds is about 24 by 16 feet. They are dark and unwholesome; the windows do not open, and many of them are not larger than 20 feet by 16; and into this space are crowded eight, ten, or even twelve persons.”

71. If this is the way Englishmen have to live in the country, we might expect to hear worse things of the towns, where land is sometimes worth as many silver crowns as would coverits surface. Some years ago Mr. Edwin Chadwick declared that more filth, worse physical suffering and mental disorder than John Howard described in his account of the prisons of his day, were to be found among the cellar populations of the working people of Liverpool, Manchester, or Leeds, and in large portions of the Metropolis. Much has of late been done, both by private philanthropic effort and under the authority of law, to cure the evils described; yet still much that is hideous remains.

It is in such homes that the greater part of the present laborers of the world were born and reared. And it is in homes like these, that, in their estate as laborers, they have to live, to eat, to rest and to sleep after the exhausting toil of the day. It is not to be wondered at that children grow up puny and deformed; that scrofula and rheumatism become deeply seated in the constitution; that the blood grows foul and the pulse feeble; that the efficiency of the laborer falls to a low point, while his power to labor at all becomes liable to be prematurely terminated.

72. The Laborer's Intelligence.—A fourth reason for the superior efficiency of the laborers of one class or nation over those of another, is found in their higher intelligence. Intelligence is a powerful factor in industrial efficiency. I speak not now of technical knowledge, but of clearness of mind, quickness of apprehension, strength of memory, and the power of consecutive thought, in no more than the degree in which these may fairly be expected to be found in a nation where popular education has existed for generations; in the degree, for instance, in which they are found in New England, in Saxony, in parts of Scotland.

The intelligent is more useful than the unintelligent laborer:

(a) Because he requires a far shorter apprenticeship. He can learn his trade in a half, a third, or a quarter the time which the other requires. (b) Because he can do his work with little or no superintendence. He is able to carry instructions in his mind, and to apply them with discretion to the varying conditions of his work. (c) Because he is less wasteful of materials. In some branches of manufacture the value of the materials used is equal to the amount paid in wages. In others it is twice, thrice, and even ten times as much. A very little difference in the degree of thoughtfulness, foresight and regard for instructions, on the part of the laborer, may make a great difference in the net product.

73. (d) Because he readily learns to use machinery, however delicate or intricate. The extent to which labor is saved and power increased by the use of machinery hardly needs illustration here. It is only the intelligent workman who can freely avail himself of this great help. Brains are not alone required for the invention of machines; they are wanted for their adjustment, their ordinary use, and their occasional repair. He who is to use a machine need not be the same man as he who made it; but, to a great extent, he should be the same kind of man.

74. Race Characteristics Regarding Machinery.—The capability of dealing with costly and delicate machines varies greatly between different races and nations of men. Notwithstanding the prodigious increase in the power of producing cotton goods, through the inventions of Watts, Arkwright, and Sitgreaves, vast quantities of cotton are still spun or woven by hand. In some of the countries of Europe, as Turkey and Greece, the ordinary “mechanical powers,” the screw, the lever, the inclined plane, etc., are used but little, or not at all, the lifting or pulling being done by direct physical force, at, of course, the expenditure of a vast amount of animal strength. Even in highly civilized nations the application of agricultural machinery is limited by the inability of the peasantry to use it. The Judges of the World's Fair of 1852 reported that there was probably as much sound, practical labor-saving invention and machinery unused, at that time, as was used; and that it was so far unused, “solely in consequence of the ignorance and incompetence of the work-people.”

75. Machinery in the United States.—The United States is the only country in the world, excepting some of the English colonies, in which it can be safely assumed of the average laborer that, after a reasonable period of experiment and trial, he will be able to use delicate and costly machinery to the advantage of his employer.∗ In all other countries, even the most civilized, it is only picked laborers who can use intricate machinery without doing more damage than their labor is worth.

76. Cheerfulness and Hopefulness in Labor.—A fifth reason for the higher efficiency of the laborers of one class or nation than of another, is found in greater cheerfulness and hopefulness, growing out of higher self-respect and social ambition, and a more direct and certain interest in the product of industry.

The first three causes which have been adduced are purely physical, affecting the laborer's muscular force and capability of endurance. The fourth cause adduced, viz.: the laborer's general intelligence, determines his intellectual qualification for his work, his ability to direct his bodily powers, such as they are, to the production of wealth, with the maximum of effect and the minimum of waste. The cause now adduced is moral, affecting the will.

The importance of this cause is most conspicuously seen in the wastefulness and inefficiency of slave labor. Always and everywhere, that labor has been found to be vastly inferior to the labor of freemen. Even the stimulus of the lash fails to command the faculties which instantly spring into activity under the inspiration of an ample reward. Fear is far less potent than hope in evoking the energies of mind or body; while efforts made under the influence of the former passion are far more exhausting than those made under the influence of the latter.

77. Nearness and Directness of the Reward.—Even among free laborers, the degree in which the physical and intellectual powers may be engaged in the production of wealth depends greatly on the directness and certainty of the reward. This is proved by the difference everywhere observed between the exertions of wage laborers and those of men working on their own account. The wage laborer necessarily becomes, in a great degree, a time server, an eye pleaser. He saves himself as much as he can; he counts his hours; he measures the work he does. But more than this, a laborer not merely will not, he can not, the laws of human nature remaining the same, work as hard for another as he would if working as his own man.

On the other hand, he who is working for himself keeps no grudging account of his time or exertion. If the proprietor of land, he knows that every stroke of his arm is creating wealth which he and his children are to enjoy; that every straw saved is his own. He watches against waste with unfailing eagerness. His vines, his plants, his animals, his fences, his buildings, are borne upon his mind; and no care or pains are withheld to guard them against the almost infinite forms of injury which beset these species of wealth. He is early afield, for the day is not long enough for all he wishes to do; and when night falls, he still lingers, tying up his vines, tinkering his sheds, tending his cattle, bringing home the harvest.

Even beyond the mere love of wealth, of what can be bought and sold, enters the love of his land, which is his own, which was his father's, which shall be his son's after him; and he works upon it, sparing himself little more than does the mother caring for her child. “Give a man the secure possession of a bleak rock,” said Arthur Young, “and he will turn it into a garden.” The vineyards of the Rhine, built up, in many cases, of earth brought in baskets up the sides of the mountains, are speaking witnesses to the truth of this saying; while many of the richest fields of Holland and Belgium, once drifting wastes, illustrate that other saying of the eminent traveler: “The magic of property turns sand into gold.”

78. Influence of Bad Laws in Producing Idleness.—Doubtless much of the indolence we have been accustomed to regard as constitutional with certain races and nations, and as indicating lack of physical endurance or feebleness of will, is due simply to the absence of incentive, resulting from unjust laws or bad social institutions. It would be enough to make one laugh to hear the Scotch spoken of as lazy. The energy and perseverance of that people have been illustrated in every quarter of the globe. Yet, three or four generations ago, the Scottish people, says Prof. Hearn, “were conspicuous for their incorrigible indolence.” The ample explanation was found in the almost universal system of short leases or of tenancy at will. A single wise action of legislation cured this defect; and with it disappeared the laziness of the Scotchman.

Not half so long ago as that, the Irish were a proverb over Europe, for indolence and shiftlessness. Arthur Young describes them as “lazy to an excess at work,” but “spiritedly active at play.” The Irishman of that day was spiritedly active at play, because the fun was sure to be all his own. There were no laws or institutions which robbed him of his sport. He was lazy to an excess at work, because invidious laws, social proscription and the customs relating to land kept from him a large part of the natural fruits of his labor. Every country of the globe has witnessed, since 1850, the indomitable pluck and energy of the Irish at work under equal laws and with “a fair chance.”

79. The Varying Efficiency of Labor.—I have indicated the chief causes which influence the efficiency of the individual laborer in the production of wealth. The joint effect of all these is very considerable. Industrial operations conducted upon a large scale have shown that wide differences exist in the working power of men of different nations. In comparing the cost of constructing railroads in India and in England, for instance, it was found that, though the Indian laborer received but 4½ to 6d. a day, and the English laborer, 3s. to 3s.6d., the sub-contracts in the two countries were let at the same prices. The English cotton spinner is paid as many shillings as the East India spinner gets pence; yet the cotton cloth of England undersells that of India in Indian markets. As between England and Russia, it is found that a weaver in the former country tends from two to three times as many looms as in the latter, the English looms, moving, moreover, at a higher rate of speed.

As between England and France, the superiority of the labor of the former country has been repeatedly shown in great competitive experiments. Mr. Brassey states that, in the construction of certain French railways, it was found that the working capacity of the Englishman was to that of the Frenchman as five to three. Superior as are the workmen of England to those of other countries of Europe, they are, in turn, surpassed, on the average, by those of the United States, in the respects of strength, intelligent direction of force, and ability to use machinery to advantage.

80. The Division of Labor.—The second factor of the labor power of a community is that which is commonly called by the unsatisfactory term, division of labor, embracing, as was said on an earlier page, the joint action of men in production, the differentiation of productive processes, the specialization of trades, and the organization of industrial forces. The term, organization of labor, is perhaps the best single term that can be used to cover all this ground.

In primitive society the division of labor does not exist, or is found only in a rudimentary state. Each able-bodied man does all which any one does. Each builds his wigwam or hut, shapes his bows and arrows; cares for his horses, if he have any, and hunts or fishes in his own right and name. Yet, even here, the division of labor as between the sexes is in some degree carried out. The women make the nets, weave the blankets and cook the food, as duties suitable to their powers.

Soon, however, emerges a division of labor founded on differences of capability less fundamental than those of sex. The smith appears, working at first alike in iron, wood and stone. He does all the work of this class which the community requires; and, in return, receives flesh and fish from those whose spears and hooks are sharpened and pointed at his forge. As the amount of this class of work to be done increases, three smiths, instead of one, come to be employed; one working in iron, one in wood, and one in stone, known respectively as the blacksmith, the carpenter and the mason. As the wants felt by the community are multiplied, as modes and fashions appear, new classes of artisans come into existence, each working on some one class of substances, or making some one class of articles. The cabinet-maker follows the carpenter; the jeweler the blacksmith; the sculptor, in time, the mason. Finally, the operations of each trade come to be distributed among several distinct classes of laborers.

81. How the Division of Labor Increases Production.—It is difficult adequately to appreciate the increase of production which results from the application of this principle.

(a) It shortens apprenticeship. If each man had to learn the whole of a trade, much more to learn several trades, he would have to take a great deal of time and spoil a great deal of material and many tools in doing so. But when each workman is required to learn but a single trade, and, within that trade, to practice only one simple operation, the period of instruction becomes very brief. The end of a few months finds him intelligent, if not expert, in his business.

(b) It develops dexterity. Long after the workman has so far mastered his trade as to be able to perform its operations without mistake, he continues to gain in productive power, through the incessant repetition of his task. The sense especially concerned in his work, be it sight, or touch, or hearing, becomes preternaturally acute. The muscles brought especially into play gain in size and activity. Even certain organs may become involved in the operations of the trade, and undergo changes which, whether favorable to the general health and symmetry, or not, are of a nature to facilitate the customary work. Any one who watches a cashier counting notes, a telegraph operator sending messages, can see how wonderfully practice must come into industry, to make perfect the workman.

82. (c) It obviates the loss of time and the distraction of thought which would be involved in passing from place to place, and in laying down the tools of one trade to take up those of another. In agriculture, where the division of labor can be carried but a little way, we know a great deal of time is thus lost.

(d) It facilitates invention and leads to the discovery of improved processes and new materials. Practiced thus in detail, every art or trade is studied in detail, and, one by one, here a little and there a little, its mechanical possibilities come to be seen and realized. Some of the most conspicuous discoveries in the history of industry have, indeed, come through scientific research, or by casual suggestion; but an infinite multitude of inventions and improvements in processes, accomplishing, in their aggregate effect, an incredible gain to productive power, have been the result of the minute study of the operations of industry, in detail, by men each of whom was dealing with a single class of substances, performing a single operation, with the aid, perhaps, of a single tool.

(e) It allows women and children, as well as men who are suffering from some partial disability, to find places in the industrial order where they can labor to advantage; while among men of full powers it assigns to each that work which is best suited to his individual capacity.

83. The Territorial Division of Labor.—This is a phrase devised by an English economist during the great popular agitation which preceded the repeal of the Corn Laws,∗ to express the carrying out of the principle of the division of labor, which we have thus far contemplated in operation among the individuals of a community, to communities and to nations. The phrase intimates that the vast industrial advantages which attend the application of that principle within the hamlet and throughout the country, will accompany that principle in its extension over the whole field of the world's production.

This is the main, indeed, we may say the sole, economic argument in favor of Free Trade, as opposed to what is called Protection. The claim to freedom of trade as a “natural right” is not one of which the economist can properly take account. On the other hand, the arguments of the protectionist, based on the political importance of the industrial self-sufficiency of the nation, and on the alleged social and intellectual advantages resulting from a diversification of national industry, are equally out of his view.

Inasmuch as the protectionist plea for limiting the territorial extension of the principle of the division of labor, includes a claim that the creation by law of industrial entities corresponding to existing political entities, has an influence, not only upon the production, but also upon the distribution of wealth (which department of our inquiry we have not yet reached), and as the whole question of protection or free-trade is bound up with political and sociological considerations, it has seemed best to postpone the remarks we have to make upon that question to Part VI, “Some Applications of Economic Principles.”

84. The Organization of Industry.—But the advantages derived immediately from the division of labor, are but a part of the total advantage which is attributable to what we have termed the organization of industry. In addition to those already indicated, we find, under the larger title, a vast gain of productive power resulting from the introduction of the principle of competition, the creation of esprit de corps, and the direction given to the mass of laborers by the few clear, strong spirits, which, under such a system, dominate the industrial operations of the community.

(a) Competition can only be introduced as an active force where the opportunity for exact and easy comparison of results exists. Where each one of a number of persons is performing every day a large number of miscellaneous duties, now a little of this, then a little of that, it is difficult or impossible to measure the achievements of the several persons so employed, bring them to a scale, and assign credit or blame. But when those duties are so distributed that each person is charged with the performance of a certain, definite task, comparison becomes possible.

(b) The creation of esprit de corps within trades and professions becomes a tremendous force in industry. Competition operates upon the laborer, through the employer's desire to get the most out of each workman, and through the laborer's desire to obtain and retain employment. The principle now invoked operates on the laborer, perhaps not less powerfully, through the public sentiment of the craft, establishing standards of workmanship and laws of conduct which tend to lift each workman to the level of the best.

85. (c) Mastership in Industry.—But the most important of the sources of gain in productive power, now under consideration, is found in that mastership of industry which is created by the division of labor. That division can not proceed to its natural limits without giving rise to the subordination of the mass of the laboring population to a select and comparatively small body of employers, who assume the responsibilities and direct the agencies of production.

Whether this gain is accomplished at a certain social and political cost, is a question the economist is not called upon to discuss. That question belongs to the social philosopher or the statesman. The economist, as such, is guilty of an unwarrantable presumption if he undertake to measure the quantity of economic advantage which would offset the smallest ethical or physiological injury. He does all that he is called upon to do, all that he can undertake to do without impairing the scientific value of his results, when he traces causes to their effects within the field of economics alone.

Looking at the matter in its purely economic aspect, it is clear that the gain in question is not realized without an initial loss, inasmuch as the laborer, under the wages system, necessarily has a less direct and certain interest in the product of his industry, than the man who labors on his own account. But this loss is compensated, many times over, by the gain to production which results from the impulse and direction given to industry by the thought-power and will-power of the ablest minds in the community.

CHAPTER III.

CAPITAL: ITS ORIGIN AND OFFICE.

86. The third great agent in the production of wealth is Capital. The capital of a community is that part of its wealth (excluding land and natural agents, considered as unimproved∗ ) which is devoted to the production of wealth.

Some writers, indeed, insist that the climate of a country, so far as it especially favors production, is to be reckoned as a part of the capital of that country. I prefer to say that the beneficent distribution of heat and moisture, by the gratuitous action of nature, is a favorable condition of production, but is not capital. A sound system of jurisprudence, which secures the impartial administration of justice; a sound organization of the political body, which maintains peace and order, are most favorable conditions of production; they lead to a vast creation of values; they are better than much capital to the people enjoying them; but they are not capital.

87. The Origin of Capital.—The origin of capital is so familiar that it need not be dwelt upon at length. A simple illustration may suffice. Let us take the case of a tribe dwelling along the shore, and subsisting upon fish caught from the rocks which jut into the sea. Summer and winter together, good seasons and bad, they derive from this source a scanty and precarious subsistence. When the fish are plentiful, the people live freely, even gluttonously. When their luck is bad, they submit to privations which involve suffering, sometimes famine.

Now let us suppose that one of these fishermen, moved by a strong desire to better his condition, undertakes to lay by a store of fish. Living as closely as will consist with health and strength, he denies himself all superfluity, even at the height of the season, and by little and little accumulates in his hut a considerable quantity of dried food. This is wealth. Whether it shall become capital or not depends upon the use which is to be made of it.∗ If destined to be merely a reserve against hard times, it remains wealth, but does not become capital.

But our fisherman, in laying by his store of fish, has higher designs than to equalize the food consumption of the year. As the dull season approaches, he takes all the food he can carry and goes into the hills, where he finds trees whose bark can be detached by sharp stones. Again and again he returns to his work in the hills, while his neighbors are painfully striving to keep themselves alive. At the end of the dull season he brings down to the water a canoe, so light that it can be borne upon his shoulders, so buoyant that he can paddle in it out to the “banks,” which lie two or three miles from shore, where in one day he can get as many fish as he could catch from off the rocks in a week.

88. The Professional Boat-Builder.—The canoe is capital; the fisherman is a capitalist. He can now take his choice of three things. He may go out in his canoe and bring home supplies of fish which will allow him to marry and rear a family in comfort, and with his surplus hire some of his neighbors to build him a hut, their women to weave him blankets, and their children to bring water from the spring and wait upon his family. Secondly, he may let out the canoe to some one who will be glad to get the use of it on payment of all the fish which one family could fairly consume, and himself stay at home in complete idleness, basking in the sun, and on stormy days seeking refuge in his hut. Thirdly, he may let out the canoe and himself turn to advantage the knowledge and experience acquired in its construction by making more canoes.

The last is the course he decides to take. Again and again he reappears upon the shore, bringing a new canoe, for the use of which a score of his neighbors clamorously compete. And later canoes, be it noted, are made with a smaller effort and sacrifice on the part of the builder. He has become familiar with the groves where the trees are largest and the trunks most clear of branches. He has acquired a knack which makes it almost a pleasure to strip off the vast rolls of tough elastic bark. He never spoils his half-completed work, now, by an ill-directed blow. Moreover, his toil is reduced to a minimum, for he has hired men to carry his burdens and do the heavy labor.

89. The Increase of Capital.—But soon the canoe-builder's profits are threatened. Thus far, in the possession of exceptional skill and knowledge, he has been a monopolist, and has reaped a monopolist's gains. Now, however, stimulated by the sight of such great wealth gathered (that is, so great a command of other people's labor acquired) by one man, others begin to enter the field.

As an essential condition, each must save and accumulate enough food to support him while making his first boat, that is, must accumulate a certain amount of capital. This, however, is less difficult than it was in the case of the original builder, first, because fish have come, through the multiplication of boats, to be much more easily obtained; secondly, because there are fewer experiments to make; thirdly, because certainty and nearness of success will inspire the labors of ten men where one will be moved to great sacrifice and exertion by a prospect that is distant and doubtful. Moreover, some of the shrewdest of the assistants of the old boat-builder, who have watched him at work, and whom he has trusted more and more to do even the nicer parts of his task, begin to desert him and to set up for themselves. The rent of boats falls rapidly; the old master, who has become rich and self-important, and perhaps a little lazy with years, goes out of the business.

90. First Effects of Competition.—For a time, while the number of boats increases rapidly, the quality suffers deterioration; two fishermen are drowned upon the banks by the breaking up of boats in a sudden squall. The boat-builders in fault are condemned by the general assembly of the tribe to support the widows and orphan children. The rage for mere cheapness is checked. Boats are now tested before they are used, and some ambitious builders find themselves driven out of the trade by the failure of their work.

And it is important to be noted that the profits of boat-building are rapidly reduced. The first boat built repaid the cost of its construction in a few weeks. The boats now made only repay the cost of their construction in the course of months. Yet, the men who make boats still get a better livelihood than those who use them; while those who use boats get a better livelihood, even after paying the rent, than those who still fish off the rocks.

91. What Will They Do with It?—Now let us suppose that the manufacture of boats has proceeded so far that there is one serviceable boat for every four adult males of the tribe. At this point, one of two widely divergent courses may be adopted, with very important results to the future of the community.

First, the multiplication of boats goes forward until each man is provided with a boat in which he can catch enough fish, in two or three hours a day, to keep him and his family, summer and winter, good seasons and bad. The creation of capital has at least led to this result: it has put famine out of the question. There is always an abundance of fresh fish, on the banks, and of cured fish even in the meanest hut. The rest of the time is spent in idleness or sport.

Secondly, the manufacture of boats stops at the point where fish for the whole tribe can be provided by one-fourth of its members, toiling early and late upon the banks. The remaining members, those who, through youth or self-indulgence, have failed to provide themselves with boats, those who through misfortune have lost their boats and have become discouraged, those who by physical weakness or natural or acquired infirmity are least fitted to undertake the rugged duty of the fisherman, and those who have been intimidated by tales or by experience of hardships, or by the sight of the bodies of drowned fishermen rolled ashore after a storm—these all betake themselves, in one capacity or another, to the service of the fishermen, the capitalist-employers (Par. 304) of the tribe. Only so many boat-builders remain as are needed to repair and keep up the existing stock. The house-builder now takes the place of the boat-builder. No one is satisfied to live in the sort of hut which would once have been thought good enough for the chief. Menial servants become numerous. The fashioning of ornaments and trinkets takes up a vast amount of labor.

92. New Economic Desires.—Soon a new want emerges. A plant with bright flowers is discovered among the hills and brought home as a curiosity. It is raised, as a rather distinguished thing, in front of houses of especial pretension. By cultivation it undergoes more or less change, particularly in the development of large tubers which are found to be highly palatable and nutritious. The absurd name, potatoes, is applied to these tubers. As affording a change from the everlasting sea-food of the fathers, they are relished greatly, and soon a number of persons are breaking up ground to plant and cultivate these tubers, which are exchanged, on liberal terms, for fish taken on the banks.

The introduction of a vegetable diet marks the beginning of a revolution in the life of the community. After this, any thing is possible. The taste for a diversified diet, once felt, knows no limits. Agriculture has begun, involving the necessity of capital in a hundred forms. New foods are followed by new fibers; manufactures spring into being, and all the potentiality of the modern nation now resides in a tribe which a generation ago lived wholly on fish caught from rocks along the shore.

93. The Law of Capital.—It is not necessary to trace further the increase of capital. At every step of its progress, capital follows one law. It arises solely out of saving. It stands always for self-denial and abstinence. At the first beginning, savings are made slowly and painfully; and the first items of capital have a power in exchange (an ability, that is, to command the labor of those who have not capital), corresponding to the difficulty with which they are secured. The bow, the spear, the canoe, the spade, much as they cost, pay for themselves in a few days. Subsequent increments of capital are gained at a constantly diminishing sacrifice,∗ and receive a constantly diminishing remuneration, until, in the most advanced countries, buildings are erected and machines constructed which only pay for themselves in ten, twelve or even twenty years.

At every stage, we note, too, that capital releases labor power which was formerly occupied in providing for the wants of the community according to its then prevailing standard of living. At every stage, the members of the community make their choice, whether they will apply the labor power, thus released, to the production of wealth, in other branches, or will content themselves with living as well as before, upon easier terms, giving up the newly acquired leisure to idleness or sport.

94. Subsistence.—The office of capital has been perhaps abundantly shown in the account given of its origin. Capital, as we have seen, is that portion of wealth∗ which is employed in the production of new forms of wealth.

At first, capital is limited to the means of subsistence for the producer. It was not easy in the first stage of industrial progress, to lay by enough of the game or the fish of one season to last until the next. For want of such a store of food many a tribe perished. Many another was kept in a low, miserable condition, unable to shift its seat to more promising localities, and continually depleted by famine and disease. But when once a tribe, by exceptional good fortune, or through prudence and self-control, acquired a reserve sufficient for a full year's subsistence, it became in a degree master of its conditions. It could shift its seat to better hunting or fishing grounds. It could pursue its avocations systematically and economically, doing that which should be esteemed most productive in the long run, not, as before, hurriedly and wastefully, under the stress of immediate want. The physical strength of its members was kept at the highest point by ample and regular diet.

An ample year's subsistence forms the most important advance which a people ever make in their progress towards industrial prosperity. No subsequent step costs one-half, or a tithe as much. Many peoples never find themselves able quite to accomplish this. The people of British India can hope for no more, in good years, than to be carried through into the next; while, once in every four or five years, a famine following a short crop sweeps away millions by sheer starvation, or by the fevers which feed upon half-famished populations. Even in Ireland, there was known, half a century ago, a period two or three months long, preceding harvest, which was called by the peasantry “the starving season.”

95. Tools.—The next purpose, in logical, and generally, also, in historical order, for which capital is accumulated, is the acquisition of tools. I use the word here in its largest sense, including all apparatus, utensils and machinery. The knife, the bow, the spear, the canoe, the net, are the tools of a certain stage of industrial society. The spade, 0the cart, the plow, the distaff, the forge, are the tools of a later stage. The loom, the lathe, the printing press, the trip-hammer, the railroad and the ship, may, with equal propriety, be called the tools of to-day. The buildings which protect machinery from the weather, and the shops in which trade and manufactures are carried on, are, in this sense, tools.

96. Materials.—The third form which capital takes is that of Materials. The word, as here used, covers all kinds of wealth which are devoted to the production of wealth in any other way than as subsistence for the laborer, or as tools to increase his power in production. In a primitive state, materials play a small part. The bait for the hook among the tribe of fishermen; the corn saved for seed in a planting community, are the most prominent materials of early industry. In a later age a large part of all the accumulated wealth of a community exists in this form.

Ultimately, indeed, these materials will be wrought partly into tools, partly into the means of subsistence. A part, also, may come to be devoted to purposes of luxury or display, and, hence, cease to be capital at all. But at any given time, the capital of a community may be classed under these three heads: Subsistence, Tools, Materials.

97. The Three Forms of Capital.—In a certain sense these three may be resolved into one, Subsistence; as, indeed, all the forms of subsistence itself may be resolved into one, Food. Thus, the first simple tools of the barbarous community may be said to be exactly represented by the subsistence required by the laborers engaged in making the tools. The first materials produced by the aid of these tools may be said to be represented by the subsistence of the laborers using the tools, added to that of the laborers who made the tools. And so of the more elaborate tools and the more various and costly materials of after ages: all may be said to represent the subsistence of the laborer while engaged in the act of production.

Likewise all the forms of subsistence, food, clothing, shelter and fuel, may, in theory, be reduced to one, food. The clothing of the laborer, for example, represents the food which he consumed while he was gathering the fibers of the wild grasses and weaving them into a blanket. The hut represents the food consumed during its erection. The fuel represents the food consumed while the laborer was gathering fagots in the forest.

98. One of the advantages of this classification is, that it directs the attention to the part performed by tools, machinery and apparatus, in the production of wealth. Look into many text books on Political Economy, and you will find capital spoken of as if its main, or even its sole office, were to furnish subsistence to the laborer. Yet two nations may be equally provided with subsistence, while the superiority of one of them in the possession of tools may give it a prodigious advantage over the other in the power of producing wealth. One man with simple tools may do the work of ten men equally well fed, but having only their hands to work with. Ten men with the wood-working, cotton and wool-working, or metal-working machinery of to-day, run by steam or water power, may easily do the work of a thousand, with distaff, chisel, saw and axe.

CHAPTER IV.

THE PRODUCTIVE CAPABILITY OF A COMMUNITY.

99. We have spoken, in succession, of land power, labor power and capital power. The productive capability of any community is determined by these three elements, in the degrees in which they are severally found to exist there.

While the land remains in the condition of increasing returns (Par. 50), as in the Eastern States of the American Union during their earlier history, production may be large, per head of population, with but a small amount of capital available. Even after cultivation has reached the condition of diminishing returns (Par. 51), the energy, intelligence and skill of the laboring class, and the thorough organization of industry, may wrest a comparatively high rate of produce from the reluctant soil; or, in spite of an ignorant, clumsy and spiritless population, as in the west of England, the concentration of a vast capital upon a naturally rich soil may yield large returns, long after the same stage of cultivation has been reached.

100. Where all three conditions are found favorable to production, i. e., fertile lands not yet fully taken up, an intelligent and energetic laboring population, with abundant capital, as in the opening up of parts of our Western States within the last thirty years, and notably in the development of Minnesota and Dakota now going on, the rate at which wealth grows appears almost fabulous. Surely, inevitably, however, the increase of population will bring about the condition when an increasing labor power and capital power must struggle with a decreasing capability of the soil. Mechanical inventions, chemical discoveries, may long postpone the diminution of the per-capita product; all improvements in the industrial character of the working classes, or in the organization of labor, enable a larger population to be supported without reduction in the quality of their subsistence; but not the less is the power of one of the factors of production steadily on the decline.

This principle applies, be it observed, only to the per-capita product. The absolute quantity produced increases constantly with every increment of labor or capital judiciously applied to the land. There never comes a time when more laborers will not produce larger harvests. There never comes a time when additional capital introduced into agriculture cannot secure for itself some return.

101. Such is the condition under which the earth is cultivated by human labor, for the supply of human wants. The production of wealth by mechanical processes is, however, as we have seen (Par. 53.), subject to this condition only so far as relates to the materials employed in manufactures, all of which are derived from agriculture. The mechanical processes themselves are subject to no such drawback. On the contrary, the increase of population for a considerable period allows the division of labor to take place more fully, with the result of enlarged production. Hence the multiplication and diversification of conveniences and refinements, so far as they involve no increase in the amount of material consumed, may be carried forward literally without limit.∗ Labor and capital here act with prodigious force, not, as we might say, by addition, but by multiplication, each step rendering every successive step easier, as the force of habit and invention give to production a constantly accelerating rate of movement.

102. Productive Capability not fully Realized.—Productive capability being thus determined by the three elements which have been stated, the greatest question which the economist has to answer, the most difficult, the most important question in economics, is, why the actual production of wealth falls so far short of its productive capability. But this is a question which cannot be finally answered till the reader has been taken through all the departments, by turns, of economic science. It is not until the economist reaches the department of consumption, that he can show how the use which is made of wealth may waste the capital power of a community, or may impair its labor power through the effects of vicious indulgence upon muscular strength and upon the will of the laborer. In the department of distribution, again, we shall see how the division of the product of industry, among the several persons and classes of persons engaged, may work great and permanent injury to those who are at disadvantage in making their claim; and how disputes and contests over that division may seriously reduce the amount to be divided. In the department of exchange, the economist meets the question in a special form, namely, what is the cause of those occasional stoppages of production which are known as crises, or “hard times,” when the wheels of industry move with painful slowness, and the wealth which has been gathered in preceding periods is wasted in an inactivity from which all classes suffer, and yet for which no one seems accountable, since all are, or profess to be, ready and desirous to work. Under each of these titles, thus, we shall find something by which to explain the phenomenon that the actual production of every commercial and manufacturing country, taking a term of years together, falls far below the possible production.

103. Industrial Structure.—Even under the present title, we have to note a liability which besets the productive power of a community arising from what we may term its industrial structure. By this term is intended that organization of the capital power and the labor power of a community, which makes the productive capability of the whole depend, in a greater or less degree, upon the character of individuals or classes of individuals, and, in consequence, upon accidents affecting the fortunes of such individuals or classes. This is a matter far too little regarded in reasoning about the wealth of nations and communities. Writers in economics are apt to speak of the labor power and the capital power of a community as if they were aggregates of pure force. No reference is made to structural organization. Complete homogeneity and the highest mobility are assumed for the whole labor-mass and the whole capital-mass.

In such a way of looking at the subject we lose sight of the possibilities of great loss to production arising out of two conditions.

104. (a) Partial Immobility of Capital and Labor.—In all advanced industrial societies, labor and capital become committed to certain courses, from which they can only depart after much delay, against great resistance, at heavy cost. We have seen how vast is the increase in productive power caused by the division of labor, the differentiation of industrial functions, the specialization and localization of trades and the organization of the productive forces.

Precisely according to the chances of gain resulting here-from, is the risk of loss, in the case of mistake or misadventure. The artisan who has learned a trade becomes comparatively helpless if the opportunities for working at that trade are taken away. The factory hand who has learned to perform only one operation out of the multitude that go to the spinning of a single yard of cloth, can do little if he be thrown out of the place where that operation is to be performed in immediate connection with all the others. In theory, the artisan or the factory hand may turn to some other field of production, and soon acquire the knowledge and the manual skill required in some new art or trade. The observation of large populations, through long periods, shows that such readjustments of specialized labor demand more energy and more enterprise than are possessed by most laborers, occupy a great deal of time, at the best, and involve no small waste of labor power.

Not infrequently that readjustment is not fully accomplished in the generation that first feels the necessity for it. The population or class of laborers upon whom this demand is made, prove unequal to the task, lose hopefulness, courage and self-respect, and by a slow decline sink into pauperism, squalor, vagabondage and vice, too often transmitting tainted blood and tainted minds to the generation that follows.

105. (b) Misdirection of Labor and Capital.—Capital power and, in perhaps a greater degree, labor power are in the hands of individuals whose peculiarities of character, of habitude, of station, seriously modify the application of capital and labor to production; whose mistaken aims, whose erroneous impulses, may divert these forces from the object which we have supposed them to be seeking with an unremitting and an unmistaking attraction; whose accidents of fortune may impair the energy of the industrial movement, or for a time arrest it completely.

The most familiar illustration we could use is that of a factory whose master has suddenly died. The labor power remains; the capital power remains; but the spring that set them in motion is broken. It may happen that a son, or a partner, of equal ability, will at once step forward and take up the burden that has fallen from the nerveless hands. It may be, on the other hand, that a long period of embarrassment will result, during which labor and capital will stand idle. Perhaps the loss will never be made good. An incompetent person succeeds by right of relationship. Bad management dissipates both the accumulated wealth and the reputation of the establishment. After a dreary struggle, the stock and fixtures are sold, the factory is dismantled, and the operatives go forth to find employment elsewhere as they may. There is many a thriving town in New England, whose only reason for growth, through fifty years, from small beginnings, has been found in the accident of the birth there, and the long life, of a single energetic, able, careful man of business. There is many a “deserted village” whose decay dates from the sickness or death of one man, out of the many hundreds who thronged its streets.

So difficult is the control and direction of capital and labor, that a distinct class is called into being, in all industrially advanced communities, to undertake that function. This class is known as the employing class, or, to adopt a word from the French, the entrepreneur class.

106. The Entrepreneur Class.—Mastership is essential to a large and varied production. The industrial enterprises of the civilized states could not have been brought to their present height without mastership, and could not be maintained at that height one year without it. Whatever may be true of politics, the industry of the world is not tending toward democracy, but in the opposite direction.

In its first stages, the division of labor does not necessarily imply the introduction of the master-class. When the forms of production are few; when materials are simple; when only hand-tools are used; when each artisan working at his bench makes the whole of the article to be marketed; when styles are standard, and the consumers of the product are found in the immediate neighborhood, the need of the master is not felt. But when the hand-loom gives way to the power-loom; when the giant factory absorbs a thousand petty shops; when many persons, of all degrees of skill and strength, contribute to a result which perhaps not one of them comprehends perfectly or at all; when machinery is introduced which deals with the gauzy fabric more delicately than the human hand, and crushes stone and iron with the force of lightning; when costly materials require to be brought from the four quarters of the globe, and the products are distributed by the agencies of commerce through every land; when fashion enters, demanding incessant changes in form or substance to meet the caprices of the market, then the master becomes a necessity of the situation.

His work is not alone to enforce discipline through the body of laborers thus brought under one roof; not alone to organize these parts into a whole and keep every part in its place, at its proper work; not alone to furnish technical skill, and exercise a general care of the vast property involved. Beyond these and far more than these, he is called upon to assume the responsibilities of production; to decide what shall be made, after what patterns, in what quantities, at what times; to whom the product shall be sold, at what prices, and on what terms of payment. The armies of industry can no more be raised, equipped, held together, moved and engaged, without their commanders, than can the armies of war.

107. Those conditions of production which bring to the laborer the necessity of finding a master under whom he can work, bring to the man of superior abilities and acquirements the opportunity to employ his powers for the greatest economic advantage of society and for the greatest profit to himself. In a community where division of labor has proceeded but a little way, the man of intellect moves but one pair of arms. In a highly organized industrial system, he moves a thousand.

One man who has the genius to plan finds a host of helpers, each of whom can execute his schemes nearly if not quite as well as he himself individually could, who yet would have been wholly helpless and amazed in the presence of the exigencies, the difficulties, the dangers, which only arouse the spirit of the master, stimulate his faculties, and afford him the keenest zest of enjoyment.

108. Whether we regard this as the ideal state or not, whether we rejoice or repine at the extension of the principle of mastership in industry, it is the most characteristic fact of the industrial system of to-day. It is likely to gain rather than to lose importance in the years to come.

During the great moral and political fermentation which brought on the Revolution of 1848, the attention of social reformers in France was called to the possible benefits of Cooperation, being an industrial system in which mastership should disappear. Not a few of the English economists, and, following them, American economists generally, have been led to take up co-operation as a practicable scheme, which only needs to be tried in order to work the most beneficent results.

So far from it being true that the abolition of mastership is at present feasible,∗ there never was a time when the distance between the man and the master was so wide as it is to-day. Nay, the distance between the mere superintendent, or over-seer, on the one hand, who thoroughly understands the technicalities of production, and has all the ability required for executing orders, for enforcing discipline among the working force, and for keeping the machinery of the mill smoothly running, and the real master, the organizer and energizer, on the other, is greater to-day than it ever was before. That distance, so far as I can judge, tends continually to increase. The possibilities of gain or of loss were never so great as now. The choices and decisions essential to the conduct of business were never so frequent or so difficult. The difference in the product, which results from the difference between the able and the inferior management of affairs, was never so great. The toleration offered to the commonplace in industry was never so small.

109. Possibilities of Industrial Damage Involved in the Entrepreneur System.—While the entrepreneur system is, thus, an agency of the highest efficiency in increasing the productive power of a community; becomes, indeed, the condition without which the industrial enterprises of modern society could not exist, it will be seen that it involves the possibility of industrial disasters commensurate with the forces it sets in motion. Just as the accidents of the railway are more destructive and fearful than those of the wagon road, so do the catastrophes of modern production exceed, in their wreck of fortune and waste of capital, all that is possible under the less ambitious organization of productive agencies. The mistakes of the man who controls a thousand workmen are multiplied a thousand fold.

And those mistakes will not be infrequent. While the entrepreneur class in any community consists generally of strong men, that class contains many persons who by the accident of fortune have come into the control of the agencies of production without the necessary qualifications, and who habitually mismanage and misdirect these agencies, to the lowering of the general scale of productiveness in the community. Moreover, the ablest men of business themselves fall far short of the ideal standard. Not to speak of intellectual failings, infirmities of the will are such as to make it a matter of course that no small part of the industrial power placed in the hands of the entrepreneur class will be misdirected. The perfect temper of business is found in few men: oscillations between recklessness, on the one hand, and over-cautiousness, on the other, constitute the rule, while absolute self-poise is the rare exception. In paragraphs 313 to 314, are indicated certain causes which tend to multiply the proportion of incompetent employers.

110. Destruction of Wealth.—Another cause which requires to be mentioned, as in a degree accounting for the failure of industrial society to accumulate wealth and maintain a productive capability corresponding to the theoretical efficiency of the three primary agents of production, land, labor, and capital, is the actual destruction of wealth by accident or convulsions of nature. The losses by fire, alone, in the United States probably exceed a hundred millions of dollars a year, if structures only are considered; while were we to add the damage to crops and forests, the sum of wealth consumed by this fearful agent would be greatly increased. Hurricanes, and storms, and floods, and accidents by rail, annually waste and destroy no inconsiderable portion of the products of human skill and toil.

[∗]Labor will form the subject of Chapter II of the present book; Capital, the subject of Chapter III. We shall necessarily speak of labor and of capital before reaching those topics, in their due order, but what we shall thus say will be confined within limits which will allow no misunderstanding on the part of the reader.

[†]That there is a surplus in agriculture, over the cost of production, is sufficiently proved by the payment of rent to the owner of land. (See Chapter on Rent.)

[∗]It has been shown that this principle of increasing difficulty, or of diminishing returns, applies even to the harvesting of crops. Roscher quotes from Von Thünen a table showing the experience of agricultural laborers in attempting to glean all the potatoes of a field. Supposing 100 scheffels to represent the quantity grown on a given area, a single laborer could gather 30 in a day, while the average of the first four laborers would be 20. But the fifth man would only gather 6.6; the sixth man only 4.4; the seventh man only 3, and so on.

[∗]Prof. S. W. Johnson, of Yale College, Director of the Connecticut Agricultural Experiment Station.

Prof. Johnson further remarks: “The crops that astonish us by their heavy acreage-yield are not the crops that feed the nations. The wheat fields and corn fields of ‘the West’ yield but 15 bushels of wheat and but 40 to 50 bushels of corn. The hay, the pasturage, which make up the grand total of our forage, are obtained at an average rate of one ton, per acre. The 40 bushels of wheat, 90 of corn, 2 ½ tons of hay, that good farmers, in long cultivated regions, gather, per acre, from small areas, are exceptional. For these exceptional natural fertility, or natural manuring, or else exceptional artificial fertilization are required; but for the agricultural production of the world “im grossen und ganzen“ small crops per acre, fed mostly by natural disintegration of the soil and natural nitrification, as by natural rainfall and natural supplies of carbonic acid and solar energy, are the rule.”

[∗]A remarkable illustration of the strong natural aptitude of the American for the use of machinery, has come to my notice during the present year, 1887. A boot and shoe manufacturer, employing eleven hundred hands, had occasion, during a great and long-protracted strike, to replace considerably more than half of the old operatives by new hands. This branch of industry is well known for the vast variety of highly intricate and delicate machinery which it uses. Yet at the end of five months, during which this substitution had been carried through to completion, the machines in this factory were found, on careful inspection, to be in absolutely as good condition, as at the beginning of the strike.

Had an English manufacturer carried through such a replacement of old by new hands, his machinery at the end of that time would have been worth just what it would have sold for, by the pound, as old iron.

[∗]Imposing high duties on foreign grain imported into England. These laws were repealed by Parliament in 1846, under the leadership of Sir Robert Peel. The study of the history of the Repeal movement affords an admirable economic exercise.

[∗]The reason for this exception will appear when we come to treat of the rent and price of land.

[∗]“All labor expended for a distant end falls under the head of capital.”—roscher.

[∗]Prof. Marshall remarks that the whole continent of Asia, with its thousand millions of inhabitants, has less power of saving than England has.

[∗]Excluding land and natural agents, considered as unimproved.

[∗]The important mistake committed by Mr. Henry George, through overlooking this point, will be indicated in Par. 515–7.

[∗]I speak here of industry as a whole, and especially of the largest branches, supplying general markets. When we come to speak of Industrial Co-operation, in Part VI, I shall note certain possible exceptions, in the case of smaller branches of industry supplying narrower markets.