Front Page Titles (by Subject) ESSAY No. LXX. - The Principles of Free Trade
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ESSAY No. LXX. - Condy Raguet, The Principles of Free Trade 
The Principles of Free Trade illustrated in a series of short and familiar Essays originally published in the Banner of the Constitution, 2nd ed. (Philadelphia, 1840).
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ESSAY No. LXX.
november 24, 1830.
Mischief likely to result from forcing the construction of canals and rail roads. True nature of capital described.
AFTER the awful scourging which the people of the United States experienced from the mania for banks that prevailed some sixteen years ago, it is a little remarkable, that they have not been led to reflect upon the danger of applying the forcing principle to other matters quite as likely to result in disaster. At the period we refer to, banks were brought into unnatural existence for the purpose of forcing the manufacture of money, and in precisely the same manner as the tariff was brought into unnatural existence for the purpose of forcing the manufacture of certain descriptions of goods. They were both the offspring of what is called log-rolling, and were effected by combinations founded upon the erroneous principles that two wrongs could make a right. Of forty banks authorized in Pennsylvania, in 1814, not one could have obtained a charter upon its individual claims; and of the hundred or more taxes on foreign merchandise, imposed by what are called our protective laws, not one could ever have found a majority of Congress to support it, unconnected with others. The banking system occasioned the loss of millions of dollars, by inviting the people to abandon industrious pursuits for speculation. The tariff system has already destroyed tens of millions of dollars, by driving the industry of the people from more productive to less productive pursuits. They were the twins of a common parent, and had their origin in the avarice of a few, who desired to grow rich at the expense of the many.
But there is another species of manufacture to which the forcing principle is now getting applied; and, without pretending to the gift of prophecy, we foretell, that the day will arrive when the nation will most sorely repent of its establishment. We allude to the manufacture of rail roads and canals. In making this assertion, we are fully aware that we run the hazard of being denounced as narrow minded, and as destitute of the enlightened views entertained by the great statesmen in Congress, and in the various State Legislatures, upon the subject of Internal Improvements. We cannot however help that. Simon Snyder was denounced in the same way by the bank manufacturers, because he put his veto upon the bill for creating the forty banks above referred to; and yet Simon Snyder’s independence and disregard of personal consequences upon that occasion, commanded the respect of the reflecting part of the community, and left on the records of the state an imperishable monument of sound and irrefutable reasoning. But to the point: How is it possible that rail roads and canals can do injury to the public? Do they not facilitate intercourse and diminish the expenses of transporting produce to the market, and merchandise to the interior of the country? Do they not afford employment to thousands of labourers, and improve the value of the lands through which they pass? How then can they, under any circumstances, do mischief? To reply to these questions in a manner satisfactory to those whose minds have never been directed to the important study of the true nature of capital, and the intimate connexion that subsists between its judicious employment and the public prosperity, will be no easy matter. Still we shall attempt to do it; and as our object is the development of truth, we should take it as a favour if any one, who thinks our logic unsound, would point out its errors.
Most people, when they hear of capital, think of money. When it is said, such a merchant has a large capital in trade, it is supposed that he has a great deal of money; and when it is said that such a one is a great capitalist, it is immediately supposed that he has a great quantity of money. A little reflection, however, will show, that what is meant in both these cases by capital, is not money, but money’s worth. The capital of the merchant may be, and generally is, in merchandise and ships, or, even in bills of exchange, promissory notes, and book debts, which are in reality not money, but mere contracts for the payment of money. And so of the capitalist. If he be a dealer in stocks, the whole of his capital may consist of certificates of stock in banks, insurance offices, or the public funds. It is therefore evident, that capital does not always mean money; and it is therefore necessary that reasoners on this subject should have a clear view of this fact, in order to enable them to comprehend the nature of capital. What, then, is capital? Are the bills of exchange, promissory notes, book debts, and certificates of stocks, capital? We answer, not in the strict sense of the term; for although they may at pleasure enable their owners to command capital, yet they are not capital itself. And this brings us to the answer. The capital of a community is that mass of property, and things possessing exchangeable value, which is made up of the private capitals of the individuals who compose the community; such as the lands, houses, buildings, cattle, agricultural implements, and the produce, of the farmers; the ships, merchandise, and gold and silver, of the merchants; and the factories, machinery, tools, raw materials, and manufactured goods, of the manufacturers and mechanics. It comprises, consequently, all articles necessary for the food and clothing, and comfortable accommodation of man, as well as all the instruments which he employs in the application of his labour; and when it is said, that a capital of a million of dollars is to be expended in a particular work, this is the sort of capital alluded to, and not the mere money which acts as the instrument of conveying the capital to the labourers who consume it.
Now, every one may know, if he will reflect a little, that upon the abundance or scarcity of this capital, must depend the wealth or poverty of the whole people. He may also know, that upon its judicious application will necessarily depend the prosperity of the public, precisely as upon the judicious application of private capital, must depend the prosperity of an individual family. If, for example, a large portion of the existing capital of a community were to be burnt up, or lost in the sea, or ruined by tempests or wet weather, as crops sometimes are, any one can perceive that the community would suffer. Indeed, no loss whatever can happen without affecting the interests, directly or remotely, of all; for, although the loss may be subsequently repaired, it cannot be repaired without the sacrifice of a new capital of the raw materials, food, and clothing, consumed by the labourers in producing an article corresponding to the one destroyed. This position is a beautiful illustration of the intimate relation which subsists between all the members of a community. Each is benefited by the prosperity of the rest, and each is injured by the misfortune of either.
It is not, however, only by such causes as we have enumerated that capital may be destroyed. It may be equally annihilated by injudicious applications to roads and canals. No road or canal can possibly be constructed without the sacrifice of a capital equal to the value of the raw materials and the labour applied to its construction. It is therefore of great importance, in determining the question of the expediency of a road or canal, to ascertain whether the capital can be drawn from other employments, without occasioning to them an injury greater in amount than the benefit which the public would derive from the road or canal. If, for example, it appear that capital employed in agriculture, commerce, or manufactures, would yield ten per cent. per annum; in order to render the expediency of a road or canal unquestionable, it ought to be shown, that the benefits accruing to the public from its construction, from the moment of its completion, would be equal to more than ten per cent. upon the capital expended, and the interest which could have been earned during the time the work was progressing. Should this result not take place; if, for example, the benefits should only be equal to nine per cent. upon the capital expended, the effects on the community would be precisely the same as if one tenth of the capital had been sunk in the ocean; and so of any greater disparity. It is not an answer to this position to say, that at a future day the road or canal would produce a benefit of ten per cent. If that be pretended, there must be added to the capital the profit it could have earned for the intervening term of years, as a part of the real cost; and the ten per cent. must be yielded upon that total sum. It appears to us that this matter is so clear, as hardly to require any further illustration; and as we are inclined to think, from the wide spreading mania for internal improvement, which seems now to be raging every where throughout the country, that many roads and canals will be undertaken without reference to the only sound principles of calculation applicable to the subject, we are fully persuaded that an extensive injury will ensue, which will retard the solid prosperity of the country, unless those who have the State Legislative power in their hands shall try to understand the matter better.