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The Journal 

of political economy 

James Laurence Laughlin, James Alfred Field, University of 
Chicago. Dept. of Political Economy, University of Chicago, 


K I 190^ 

f^arbarti College l.ilirar!} 


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^tf ®nibet0its of ®t){caso '^ttttn 


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January, February, March, April, May, June 

July, October, November, December, 1907 

CompcMcd and Printed By 

Ihe Unirenity of Chicago Press 

Chici«o, IllinoU, U. S. A. 

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Agriculture by Irrigation, Economic Problems in Henry C. Taylor 209 

Can Industrial Insurance Be Cheapened? H, J, Davenport 542 

Capital and Income, Professor Fetter on Irving Fisher 421 

Capital and Income, The Nature of - Frank A, FeUer 129 

Cigar-Making, Employment of Women in Industries: Qgar-Making— 

Its History and Present Tendencies Edith Abbott i 

Combination, The Tendency of Modem. I Anna Toungman 193 ' 

Combination, The Tendency of Modem. II Anna Youngman 

Combinations, Industrial, The Factor System as Related to 

C. C. ArbUthnot 577 

Commercial Policy of Germany, The Walther Lots 257 

Control of Life Insurance Companies Lester W. Zartman 531 

Currency and the Money Market, Elastic /. Laurence Laughlim 22g 

Currency Reform /. Lawrence Laughlin 603 

Distribution, The Marginal Productivity Theory of U, S, Parker 231 

Dividends, The Taxation of H. J, Davenport 552 

Economic Problems in Agriculture by Irrigation Henry C. Taylor 209 

Elastic Currency and the Money Market /. Laurence Laughlin 22g 

Employment of Women in Industries: Qgar-Making— Its History and 

Present Tendencies .Edith Abbott i 

Factor System as Related to Industrial Combinations, The 

C. C. Arbuthnot 577 

Failure of the Telegraphers* Strike, The Robert F. Hoxie 545 

Fetter, Professor, on Capital and Income Irving Fisher 421 

Foreign Commerce 631 

Germany, Reciprocity with. I H. Parker Willis 321 

Germany, Reciprocity with. U H. Parker WUlis 385 

Germany, The Commercial Policy of Walther Lotg 257 

Gold Movements, A Statistical Point in the Riciu-dian Theory of 

Spurgeon Bell 166 

Income, Professor Fetter on Capital and Irving Fisher 421 

Income, The Nature of Capital and Frank A, Fetter 199 

Insurance, Can Industrial, Be Cheapened?.. H. /. Davenport 542 

Insurance, Control of Life, Companies Lester W, Zartman 531 

Irrigation, Economic Problems in Agriculture by Henry C. Taylor 209 


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Labor in the Packing Industry Carl William Thompson 88 

Marginal Productivity Theory of Distribution, The t/. 5*. Parker 231 

Marx, Ricardo and Spurgeon Bell 112 

Money and Banking 624 

Money Market, Elastic Currency and the /. Laurence Laughlin 229 

Money Market, Secretary Shaw and Precedents as to Treasury Control 

Over the Eugene B. Patton 65 

Mortality Statistics: 1905 John Cummings 364 

Municipal Bridge and Terminals Commission of St Louis, The 

Albert T, Perkins 412 

Municipal Employment of Unemployed Women in London. jE(/t7A Abbott 513 

Nature of Capital and Income, The Frank A. Fetter 129 

New Publications 61, 127, 189, 248, 314, 376, 444, 504, 574, 645 

Oil Industry, The Transportation Phase of the 

Gilbert Holland Montague 449 

Packing Industry, Labor in the Carl William Thompson 88 

Permissive Habitation Tax, A H. /. Davenport 614 

Prices, The Quantitative Theory of Albert S, Bolles 26 

Prices, The Standard of Value and Ralph H. Hess 398 

Probable Legislation 633 

Prussian Railway Department and the Milk Supply of Berlin, The 

Hugo R. Meyer 299 

Quantitative Theory of Prices, The Albert S, Bolles 26 

Railway Department, The Prussian, and the Milk Supply of Berlin 

Hugo R. Meyer 299 

Reciprocity 628 

Reciprocity with Germany. I H. Parker Willis 321 

Reciprocity with Germany. II H. Parker Willis 385 

Ricardian Theory of Gold Movements, A Statistical Point in the 

Spurgeon Bell 166 

Ricardo and Marx Spurgeon Bell 112 

Secretary Shaw and Precedents as to Treasury Control Over the Money 

Market Eugene B. Patton 65 

Sense of the State, The ■. Garrett Droppers 109 

Shaw, Secretary, and Precedents as to Treasury Control Over the Money 

Market Eugene B. Patton 65 

Side-Lights on the T^egraphers' Strike John C. Kennedy 548 

Socialistic Tendencies in American Trade-Unions. John Curtis Kennedy 470 

Standard of Value and Prices, The Ralph H. Hess 398 

State, The Sense of the Garrett Droppers 109 

Statistical Point in the Ricardian Theory of Gold Movements, A 

Spurgeon Bell 166 

Statistics, Mortality : 1905 John Cummings 364 

Vs^Stuttgart Congress, The John Curtis Kennedy 489 

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Tax, A Permissive Habitation H, J, Davenport 614 

Taxation in Missouri H. J. Davenport 491 

Taxation of Dividends, The H. /. Davenport 552 

Tax Legislation by Constitutional Amendment H, /. Davenport 611 

Telegraphers' Strike, Side-Lights on the John C. Kennedy 548 

Telegraphers' Strike, The Failure of the Robert F. Hoxie 545 

Tendency of Modem Combination, The. I Anna Youngman 193 

Tendency of Modem Combination, The. II Anna Youngman 284 

Theory of Distribution, The Marginal Productivity U, S. Parker 231 

Theory of Prices, The Quantitative Albert S, Bottes 26 

Trade-Union Point of View, The Robert F, Hoxie 345 

Trade-Union Programme of "Enlightened Selfishness".. /6/w Cummings 149 

Trade-Unions, Socialistic Tendencies in American. /(?A» Curtis Kennedy 470 
Transportation Phase of the Oil Industry, The 

Gilbert Hdlland Montague 449 ^ 
Treasury Control Over the Money Market, Secretary Shaw and Prece- 
dents as to Eugene B. Patton 65 

Unemployed Women in London, Municipal Employment oi, Edith Abbott 513 

Value, The Standard of, and Prices Ralph H. Hess 398 

Washington Notes 

— ^Foreign Commerce 63I 

— Money and Banking 624 

— Probable Legislation 633 

— ^Reciprocity 628 

— ^Work of Interstate Commerce Conmiission 632 

Women in Industries, Employment of: Cigar-Making — ^Its History and 

Present Tendencies Edith Abbott 1 

Women in Manufactures : A Criticism /. M, Rubinow 41 

Women in Manufactures : Supplementary Note Edith Abbott 619 

Women, Unemployed, Municipal Employment of, in London 

Edith Abbott 513 

Work of Interstate Commerce Commission 632 


Abbott, Edith. Employment of Women in Industries : Cigar-Making — 
Its History and Present Tendencies i 

Abbott, Emth. Municipal Employment of Unemployed Women in 

London 513 

Abbott, Edith. Women in Manufactures, Supplementary Note 619 

Arbuthnot, C. C. The Factor System as Related to Industrial Com- 
binations 577 

Bell, Spubgbon. A Statistical Point in the Ricardian Theory of Gold 
Movements 169 

Bell, Spusgeon. Ricardo and Marx : 112 

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viu INDEX 


BoLLES, Albert S. The Quantitative Theory of Prices 26 

Cum MINGS, John. Mortality Statistics: 1905 364 

CuMMiNGS, John. The Trade-Union Programme of "Enlightened 

Selfishness" 149 

Davenport, H. J. A Permissive Habitation Tax 614 

Davenport, H. J. Can Industrial Insurance Be Cheapened? 542 

Davenport, H. J. Taxation in Missouri 491 

Davenport, H. J. Tax Legislation by Constitutional Amendment 611 

Davenport, H. J. The Taxation of Dividends 552 

Droppers, Garrett. The Sense of the State 109 

Fetter, Frank A. The Nature of Capital and Income 129 

Fisher, Irving. Professor Fetter on Capital and Income 421 

Hess, Ralph H. The Standard of Value and Prices 398 

HoxiE, Robert F. The Failure of the Telegraphers' Strike 545 

HoxiE, Robert F. The Trade-Union Point of View 345 

Kennedy, John Curtis. Side-Lights on the Telegraphers* Strike 548 

Kennedy, John Curtis. Socialistic Tendencies in American Trade- 
Unions 470 

Kennedy, John Curtis. The Stuttgart Congress 489 

Laughun, J. Laurence. Currency Reform 603 

Laughun, J. Laurence. Elastic Currency and the Money Market 229 

LoTZ, Walther. The Commercial Policy of Germany 257 

Meyer, Hugo R. The Prussian Railway Department and the Milk 

Supply of Berlin 299 

Montague, Gilbert Holland. The Transportation Phase of the Oil 

Industry 449 

Parker, U. S. The Marginal Productivity Theory of Distribution 231 

Patton, Eugene B. Secretary Shaw and Precedents as to Treasury 

Control Over the Money Market 65 

Perkins, Albert J. The Municipal Bridge and Terminals Commission 

of St Louis 412 

Rubinow,'L M. Women in Manufactures : A Criticism 41 

Taylor, Henry C. Economic Problems in Agriculture by Irrigation.. 209 

Thompson, Carl Wilson. Labor in the Packing Industry 88 

Wnxis, H. Parker. Reciprocity with Germany. 1 321 

Wnxis, H. Parker. Reciprocity with Germany. II 385 

YouNGiiAN, Anna. The Tendency of Modem Combination. 1 193 

YouNGiiAN, Anna. The Tendency of Modem Combination II 284 

Zartman, Lester W. Control of Life Insurance Companies 531 


AiiiES, Hubert H. S. A History of Slavery in Cuba, 151 1 to 1868 503 

Armitage-Smith, G. Principles and Methods of Taxation 368 

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Armour, J. Ogden. The Packers, the Private Car lines, and the People ii8 

AvEBURY, Right Hon. Lord. On Municipal and National Trading 436 

Barnard, J. Lynn. Factory Legislation in Pennsylvania 375 

Beard, Charles. The Industrial Revolution 185 

Beer, George Louis. British Colonial Policy, 1754-1765 570 

Bell, Lady (Mrs. Hugh Bell). At the Works , 501 

Blackman, Frank W. Economics 376 

BoROSiNi voN HoHENSTERN, ViKTOR. Wirtschaftlichc Zustande im 

Mesabi-Gebiet in Minnesota 247 

Braerook, Sir Edward. Building Societies 185 

Brassey, T. a. Problems of Empire 313 

Bresson, Henry. La houille verte 183 

Bulletin of the International Labor Office 643 

Bullock, Charles J. Selected Readings in Economics 570 

Burton, Theodore E. John Sherman 311 

Cadbury, Edward, and Others. Women's Work and Wages. A Phase of 

Life in an Industrial City 563 

Calvert, Thomas H. Regulation of Commerce under the Federal 

Constitution 643 

City op Edinburgh Charity Organization Sooety. Report on the 

Physical Condition of Fourteen Hundred School Children of the City 188 

Clark, Victor S. The Labor Movement in Australasia 242 

Cleveland, Frederick A. The Bank and the Treasury 55 

Commons, John R. Proportional Representation 442 

Cooke, H. B. The Two Tariff Systems Combined: A Plain Statement 

of Results. Also Concerning Trusts and Reciprocity 124 

Cotton MANUFAcnnmis, National Assn. Transactions, 1906 314 

Davenport, Frances Gardner. The Economic Development of a Nor- 
folk Manor, 1086-1565 59 

y Dawson, John Town. Economic and Statistical Studies, 1840-1890 245 

Dewey, Davis R. National Problems, 1885-1897 569 

Dewsnup, Ernest Ritson, Ed. Railway Organization and Working. . 244 

EhETZEL, H. Retaliatory Duties 188 

Dole, Charles Fletcher. The Spirit of Democracy 124 

DuBois, W. E. Burghardt, and Booker Washington. The Negro in 

the South : His Economic Progress 502 

^ England, Minnie Thorp. Statistical Inquiry into the Influence of 

Credit upon the Level of Prices 571 

Fahlbeck, Pontus. La dteidence et la chute des peuples 125 

Finch, James A. Ed. Federal Anti-Trust Decisions 644 

Fisher, Irving. The Rate of Interest, Its Nature, Determination, and 

Relation to Economic Phenomena 635 

FcHtREST, J. DoRSEY. The Development of Western Civilization 313 

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Foster, John W. The Practice of Diplomacy as Illustrated in the 

Foreign Relations of the United States i86 

Freeman, W. G. and S. E. Chandler. The World's Commercial 

Products 644 

Gamble, William. Straight Talks on Business 501 

Gibson, Thomas. The Pitfalls of Speculation 59 

Graham, J. C. Taxation (Local and Imperial) and Local Government 368 
Guthrie, William B. Socialism before the French Revolution: A 

History 497 

GuTMANN, Juuus. Ucber den amerikanischen "Stahltrust" : mit 

Berucksichtigung des deutschen Stahlwerksverbands 125 

Hadley, Arthur Twining. Standard of Public Morality 569 

Haines, Henry S. Railway Corporations as Public Servants 555 

Hall, Prescott F. Immigration and Its Effects upon the United States 125 
VoN Halle, Ernst. Baumwollproduktion und Pflanzungswirtschaft 

in den nordamerikanischen Stidstaaten 247 

Hamilton, Burrttt. Practical Law 376 

Hapgood, Hutchins. The Spirit of Labor 572 

Hasenkamp, Adolf. Die Geldverfassung tmd das Notebankwesen der 

Vereinigten Staaten 247 

Hasse, Adelaide R. Index of Economic Material in the Documents of 

the States 567 

Hendrick, Frank. The Power to Regulate Corporations and Com- 
merce: A Discussion of the Common Law of the United States.. 60 
Howard, Earl Dean. The Cause and Extent of the Recent Industrial 

Progress of Germany 562 

Howe, Frederic C. Confessions of a Monopolist 125 

Howe, Frederic C. The British City. The Beginnings of Democracy 441 

Hull, Walter Henry. Practical Problems in Banking and Currency. . 494 

Hutchinson, Alfred L. The Limit of Wealth 501 

Ingegnieros, Jos^ La legislation du travail dans la Republique 

Argentine 502 

Jenks, Jeremiah W. Citizenship and the Schools 442 

Jenks, Jeremiah W. Great Fortunes: the Winning: the Using 493 

Johnson, Wilus Fletcher. Four Centuries of the Panama Canal ... . 126 
Kemmerer, Edwin Walter. Money and Credit Instruments in Their 

Relation to General Prices 5^5 

Kirk, Wiluam. National Labor Federations in the United States.... 123 

KiRKUP, Thomas. An Inquiry into Socialism 644 

Kobatsch, Rudolph. Internationale Wirtschaftspolitik 498 

Kropotkin, p. The Conquest of Bread 441 

Lanurick, Marcel. L'industrie dans la Russie meridionale 442 

Laughun, J. Laurence. Industrial America. Berlin Lectures of 1906 48 

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Lawsom, W. R. American Finance 438 

MacQkegqr^ D. H. Industrial Combination 120 

McPherson, Logan G. The Working of the Railroads 570 

Mackaye, James. The Politics of Utility: The Technology of Happi- 
ness Applied 313 

Mascuse, Paul. Betrachtungen tiber das Notenbankwesen in den 

Vercinigten Staaten von Amerika 247 

Martin^ Percy F. Mexico's Treasure House: An Illustrated and De- 
scriptive Account of the Mines and Their Operation in 1906 187 

Massachusetts Labor BuRfeAU. Recent British Labor Legislation 

Affecting Workingmen 571 

Meyer, Balthasar Henry. A History of the Northern Securities Case 182 

Meyer, Hugo Richard. Municipal Ownership in Great Britain 370 

Meyer, Maximilian. Statistik der Streiks und Aussperrungen im In- 

und Auslande 569 

Moore, Louise Bolard. Wage-Earners* Budgets : A Study of Standards 

and Cost of Living in New York City 560 

Morrison, Theodore. The Industrial Organization of an Indian 

Province 246 

Munsterberg, £. Amerikanisches Armenwesen 247 

National Civic Federation. Facts on Immigration 375 

Neame^ L. E. The Asiatic Danger in the Colonies \ 642 

Newman, George. Infant Mortality : A Social Problem 247 

Norton, Samuel Wilbur. Chicago Traction 644 

d'Ollone, Le Capitaine. La Chii^ovatrice et guerriere 124 

Patton, Simon N. The New Basis of Civilization 572 

Penty, Arthur J. The Restoration of the Gild System 58 

Pierce, Frankun. The TariflF and the Trusts 308 

PiNKUs, N. Das Problem des Normalen in der Nationalokonomie.... 246 

Porter, Robert P. The Dangers of Municipal Ownership 495 

Pratt, Edwin A. State Railways: Object Lessons from Other Lands 443 
Prentice, E. Parmalee. The Federal Power over Carriers and Cor- 
porations 238 

Pullak, Richard B. Currency and Coin 493 

Reid, Archdall^ and Others. Sociological Papers. Vol. Ill 502 

Revillion^ Albert. L' Assistance aux vieillards, infermes et incurables, 

en France : La loi du 14 juillet 1905 185 

Ripley, William Z. Railway Problems 435 

Robertson, Willlam Bell. Foundations of Political Economy 54^ 

Ryan, John A. A Living Wage: Its Ethical and Economic Aspects.. 641 

SiMiAND, Francois. Le salaire des ouvriers des mines en France 443 

Sinclair, Upton. The Industrial Republic 572 

Small, Albion W. Adam Smith and Modem Sociology 558 •* 

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Smith, J. Allan. The Spirit of American Government 313 

Smith, Samuel G. The Industrial Conflict 500 

Snider, Guy Edwakd. The Taxation of Gross Receipts of Railways 

in Wisconsin 177 

Spabgo, John. Socialism: A Summary and Interpretation of Social 

Principles 122 

Spa&ks, Edwin Erle. National Development, 1877-1885 569 

Spabung, Samuel E. Introduction to Business Organization 57 

Stelzle, Chasles. Messages to Workingmen 181 

Taft, Wiluam Howard. Four Aspects of Civic Duty 59 

Thompson, Holland. From the Cotton Field to the Cotton Mill: A 

Study of the Industrial Transition in South Carolina 57 

Vanderlip, Frank A. Business and Education 440 

Washington, Booker T., and W. R Burghardt DuBois. The Negro in 

the South : His Economic Progress 502 

Washington, Booker T. The Negro in Business 643 

Webb, Sidney and Beatrice. English Lx>cal Government from the Revo- 
lution to the Municipal Corporations Act: The Parish and the 

County 58 

Wells, H. G. The Future in America 175 

Wolfe, Albert B. The Lodging-House Problem in Boston 179 

Wrixon, Sir Henry. The Pattern Nation 187 

Zartman, Lester W. The Investments of Life Insurance Companies. . 184 

Zeitlin, Leon. Der Staat als Schuldner: Funf Volkshochschulvortrage 186 

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No. I 

Vol. 15 

The Journal 


Political Economy 






Women in Manufactures: a Criticism I. .M. Rubinow 


LaughliN*s Industrial ^/w/rira. — Robertson's Foundations of Political Economy, — 
Cleveland's The Batik and the Treasury. — Sparling's Introduction to Business 
OrganizoHon. — Thompson's From the Cotton Field to the Cotton Mill: A Study of the 
Industrial Transition in South Carolina. — Penty's The Restoration of the Gild System, 

NOTICES, — Webbs' English Local Government. — Gibson's Pitfalljs of Speculation. — 
Taft's Four Aspects of Civic Duty. — Davenport's The Economic Development of a 
Norfolk Manor, 1086-156$. — Hendrick's Power to Regulate Corporations and Com- 




Late Secretary of the Treasury 

Chancellor, University of Nebraska 

Professor, University of Minnesota 

Director of Statistics, Norway 

Professor, University of California 

Paris, France 

Professor, University of Illinois 

Professor, Rome, Itafy 

Professor, University of Michigan 


Senator, Rome, Italy 


President, Clark College 


Late Editor New York Evening Post 


Professor, University of Wisconsin 


Late Comptroller of Currency 


Member of Institute, Paris, France 


Crane Company, Chicago 


University of Vienna, Austria-Hungary 


St. Petersburg, Russia 

Gdttingen, Germany 

^\it Stniberssits of <Eri)icago Ij^xzasi 

Otto Harrassowitz, Leipzig 

PnbUsbed monthly except August and September. $3.00 a year in adyance, 

35 cents a copy 

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^*All rig-Ais sentred.*' 

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The increased employment of women in cigar-making seems 
to indicate its tendency to develop into a "women's industry"* 
and furnishes an interesting example of the industrial displace- 
ment of men by women. The history of the industry makes it of 
peculiar interest, because originally the women were displaced 
by the men, and in these later years, they have only come into 
their own again. 

The manufacture of cigars in this country is an industry of 
nearly a century's growth,® but it has not continuously through- 

^The following note is an incidental result of research work for a history 
of women's work and wages in the United States. Information obtained at 
first hand in conversation with employers and employees, particularly 
that relating to the history of the industry, was often found to be 
conflicting, and an effort has been made to verify such statements by reference 
to the sources indicated from time to time in the footnotes. For the oppor- 
tunity to carry on this work the writer , is indebted to the Department of 
Economics of the Carnegie Institution of Washington. 

'The term "women's industry" is applied to two kinds of work: (i) such 
quasi-domestic employment as the needle trades; (2) the lighter factory indus- 
tries — ^the making of paper boxes, hosiery and knit goods, collars and cuffs, corsets, 
and the like. Between 70 and 90 per cent of the employees in these industries 
are women (Twelfth Census, Occupations, p. cxxvii), and in the future cigar- 
making will doubtless be classed, as it belongs, with this second group. 

* It is not mentioned in Hamilton's Report on Manufactures nor in Gallatin's 
Report of x8io. 

Vol. XV, No. I I 

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out its history employed a large proportion of women. This is, 
at first, not easy to understand, for it has always been a trade for 
which women are seemingly better qualified than men. No part 
of the making of cigars is heavy work,* and skill depends upon 
manual dexterity — upon delicacy and sensitiveness of touch. A 
brief description of the three important processes in a cig^r 
factory — "stripping," "making," and "packing" — will serve to 
make this quite clear. 

The preliminary process of "stripping," which includes 
"booking," is the preparation of the leaf for the hands of the 
cigar-maker. The large mid-rib is stripped out, and, if the 
tobacco is of the quality for making wrappers, the leaves are 
also "booked" — ^smoothed tightly across the knee and rolled into 
a compact pad ready for the cigar-maker's table. Even in the 
stripping-room there are different grades of work, all unskilled 
and all practically monopolized by women and girls.*^ 

*"In this occupation, unlike clothing, endurance is not required, «an<l there- 
fore the work of women is a more serious competitor than it is in the manufac- 
ture of clothing." {Reports of the Industrial Commission, Vol. XV, p. 388.) See 
also the Eighth Annual Report New York Bureau of Labor, p. 1024, where it 
is said that the trade has become open to the competition of young women "who 
find in cigar-making a trade readily learned and with easier work than most 
other trades adopted by women;'' and for a similar comment see tiie Fifth 
Annual Report, p. 524. 

'The stripping of the "filler" leaf for the inner "bunch" of the cigar is 
usually piece-work, but the stripping of the wrapper and binder is likely to be 
time-work, to avoid such haste as might tear the more expensive leaf. If a 
woman "books" her own wrappers, she gets higher pay than one who merely 
"strips;" and one who only "books" gets more than either, for this is much 
harder work and keeps the whole body in motion. The scale of wages in a large 
union factory in Boston furnishes a measure of the supposed differences in 
these occupations: binder-stripper, $6 a week; wrapper-stripper who **books," 
$7 a week; filler-stripper, $6 to $10 a week. The lack of skill in any of this 
work is indicated by the fact that in places wfiere the union requires a three- 
years' apprenticeship for cigar-making two weeks is the rule for stripping, and 
competent forewomen say that "a bright girl can learn in a day." In England 
the situation in this occupation is rather different. "The work is well adapted 
for female hands, and in provincial factories they are largely employed in this 
department In London, on the contrary, there seem to be not more than 
thirty women engaged as strippers." (Booth, Life and Labor of the People, 
Vol. IV, p. 224.) 

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Division of labor has been slow in making its way into 
cigar factories. The best cigar is still made by a single work- 
man, and the whole process demands a high degree of skill. 
Slightly inferior cigars, however, can be made with "molds" by 
less skilled workmen.* 

Packing cigars is called a "trade by itself." Those of like 
color must be packed together, and only the experienced eye can 
detect the varying shades of the leaf. Packers are the aristo- 
crats of the trade in most places, and get better pay even than 
cigar-makers, though it is difficult to see that their work really 
requires more skill or more training than "making."^ The 
packer stands at his work, while the maker seldom leaves his 

Cigar-making clearly seems to be a trade for which women 
are peculiarly adapted, and for a long time they have been very 
largely employed in the factories of Germany and England,* and 

*The man who "makes the whole cigar" shapes his own bunch in his hand, 
binds it, and puts on the wrapper himself. "Molds" are blocks of wood in 
which ,a series of cigar-shaped hollows are carved. The bunches are placed in 
these and shaped under pressure. This makes it possible for inferior workmen 
to put on the wrapper. Machines which are now in use, and which will be 
described later, and "team-work," have simplified the process so that a stiU 
lower grade of labor has been made available. 

^In an article in Tobacco, Vol. Ill, No. 19, on "The Boston Lookout," it is 
complained that "too much pay is given cigar-packers anyway. It is simply 
a matter of sharp eyesight, and men can make from $25 to $30 a week if they 
are able to detect the difference between a Madura, Colorado Madura, G>lorado, 
Colorado Garo, or Claro cigar." Packing is the branch of the trade into which 
women have worked their way most slowly. There are, for example, in Boston 
today only two women packers. The wages of the one with whom I talked 
average through the year about $31 a week (piece-work). Her foreman said 
she was as good a workman as the men, who^ however, objected "to having a 
woman around. The men smoke all the time, and they can't talk as free as if 
she weren't here." * 

•For the employment of women in Germany see Frisch, Die Organisations- 
bestrebungen der Arbeiter in der deutschen Tabak-Industrie, pp. 10, 364, 265 ; 
and £. Jaff^, "Hausindustrie und Fabrikbetrieb in der deutschen Cigarrenfabrika- 
tion," Schriften des Vereins fur Socialpolitik, Vol. LXXXVI, pp. 286-99. See 
also the Cigarmaker^s Official Journal, June, 1896. That the trade in England 
is rapidly passing into the hands of women is pointed out in the Economic 
Journal, Vol. X, p. 521. See also Booth's Life and Labor, Vol. IV, pp. 220-22. 

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almost exclusively employed in Austria and France,® where the 
tobacco industry is a government monopcJy. The history of their 
employment in this country is of interest; for, on the hypothesis 
that women's labor is cheaper, and therefore will be substituted 
for men's wherever it can be profitably employed, the woman 
cigar-maker would always have controlled the trade. 

Originally cigar-making was one of the housdiold indus- 
tries,^® and in the early years of the century nearly the whole of 
the Connecticut tobacco crop was made by the farmers' wives 
and dat^hters into cigars known to the trade as "supers," "long 
nines," and " short sixes." These cigars were sometimes ped- 
dled by the women, but more frequently they were bartered at 
the country stores, where they served as a substitute for cur- 
rency. All of the groceries and dry goods used by the family 
during the year were often paid for in this way and represented 
the exchange value of the "leisure hours" of the farmer's wife. 
Although these were very inferior cigars, they were sold pretty 
generally throughout New England." The passing of this 
early "homestead industry," which existed in Pennsylvania and 
other tobacco-growing states as well as in Connecticut, was very 
gradual; for the transition to the factory system did not, in 

*The monopoly of the industry in Austria by women is evident from statis- 
tics in the Bericht der K, K, Gewerbe-Inspectoren uber ihre Amtsihatigkeit, 
1900, pp. 507-38* For French statistics see Mannheim, De la condition dans Us 
manufactures de TStat (tabacs-allumettes) , especially pp. 17, 18, 33-38. Less 
accurate, but interesting, information may be found in the American Federation- 
ist. May, 1896, and April, 1903. In the former it is said that in France work 
in the government factories is considered highly desirable, and that "the women 
who obtain places are besieged with o£Fers of marriage 1" It is perhaps worth 
adding that a Bohemian in the trade in New York said to the writer: ''Oh, yes, 
cigar-making is women's work in Bohemia. The government owns the factories 
and thinks the work is too easy for men!" 

*• Trumbull, Memorial History of Hartford County, Connecticut, Vol. I, w>. 
218 ff.; Morgan, Connecticut as a Colony and a State, VoL III, p. 274; report of 
the New York Bureau of Labor on The Growth of Industry in New York (190a), 
p. 153 ; special century edition of the United States Tobacco Journal (1900), 
which also notes an interesting tradition to the effect that the first domestic 
cigars were made in i8ox by a woman, the wife of a G>nnecticut tobacco- 

"Trumbull, op. cit,, p. aaB. 

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cigar-making, involve the substitution of machine for hand-work, 
and fanners' wives continued to roll cigars until the imposition 
of the internal revenue tax — and even after that.^^ Their cigars, 
however, did not compare favorably with the finer factory-made 
product, and as Connecticut tobacco grew in favor, it became 
unprofitable to use it for the cheaper grades of work. House- 
hold industry, therefore, furnished a gradually decreasing pro- 
portion of the total manufactured product. But, tmlike most 
work that left the home, cigar-making had not finally passed 
into the factory ; for it was to be established as a domestic indus- 
try^* cm a much larger scale in the tenements of New York. 
Two questions are of interest at this point with regard to the 
history of the employment of women: Did they follow their 
work from the home to the factory? and. What was their part in 
the establishment of cigar-making as one of the early tenement 

^In Pennsylyania the makiiig of cigars on the farm has lingered on even 
to the present day. In tobacco counties like York and Lancaster "the tobacco- ' 
growers themsdves with their families occupy winter months and rainy days 
in making cigars." They are, of course, cheap cigars, "without shape." (Reports 
of the Industrial Commission, Vol. XV, p. 387.) Such local conditions haye 
undoubtedly been the cause of the difficulties in the way of organisation in that 
section which are so often alluded to in the Pennsylvania correspondence in the 
Cigarmaker^s OMcial Journal, 1880-1900. See also United States Tobacco 
Journal, loc. cit., p. 38. When the New York law was passed (1883) prohibiting 
tenement-house cigar factories, one of the -large New York manufacturers said: 
"It will benefit the trade of New Jersey and Pennsylvania, where the farmers 
and their families can sit at home and make cigars." ^New York Tribune, March 
14, 1883.) 

^Cigar-making on the Connecticut farm was more like a handicraft than a 
domestic industry, in the accepted technical sense of these words. The farmers' 
wives were quite independent in every sense, except that they commonly dis- 
posed of their product at a single market — the village store. Bucher (Industrial 
Evolution, Wickett's translation, p. 170) emphasizes the fact that dealing directly 
with the consumer is the essential characteristic of handicraft; and Unwin 
(Industrial Organisation in the XVIth and XVIIth Centuries, p. ao) also makes 
the separation of the trading from the handicraft function one of the marks 
of the passing of handicraft Following their classification, the home woric of 
the farmers' wives would be more accurately described as that stage in the 
transition period in which handicraft was coming into "dependence on trade." 

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Women undoubtedly worked in the earliest factories.** 
What was possibly the first cigar factory in this country was 
established at Sufiield, Conn., in 1810 and employed only 
wcttnen.^*^ In 1832 returns from ten dgar factories in Massa- 
chusetts showed 238 women, 48 men, and 9 children employed;** 
but complete statistics for the period are not available. It was 
estimated that one-third of the persons employed at the trade in 
Connecticut in 1856 were women,*'' and the census shows that 
740 women were employed in i860.*® This was, however, but 
one-ninth of the total number of employees, and included the 
unskilled "strippers" as well as all of the women who worked at 
home; so that the number of bona fide women dgar-makers in 
factories was probably very small, although it is difficult to say 
precisely what that number was.*® Mr. Adolph Strasser, for 
many years president of the International Union, thought that 

^This historical account is given with a due sense on the writer's part 
of its fragmentary character. Unlike more important industries, the history 
of cigar-maldng has received little attention, and is entirely neglected by 
Bishop in his useful History of Manufactures. While trustworthy accounts are 
difficult to find, it is believed that the one here given is accurate, even if 

"Trumbull, op. cit., p. 2x9. 

^'"Documents Relative to the Manufactures in the United States," BxecU" 
five Documents, Twenty-second Congress, First Session, Vol. I, pp. 66 ff. Women 
seem to have been employed in other cities too at this time. In 1835 the 
"Journeyman Segar Makers of Philadelphia'' among other resolutions passed the 
following: "Resolved, that the present low wages hitherto received by the 
females engaged in segar making, is far below a fair compensation for the labor 
rendered. Therefore, Resolved, that we recommend them in a body to strike 
with us and thereby make it a mutual interest with both parties to sustain each 
other in their rights." (Proceedings of the Government and CiHsens of Phila- 
delphia, 1835 ; pamphlet published by Boston mechanics.) 

" United States Tobacco Journal, loc. cit., p. 34. 

^Eighth Census, Manufactures, p. 735. 

"Of these 740 women, 531 were in Pennsylvania, Connecticut, and Massa- 
chusetts (Eighth Census, Manufactures, pp. 49, 252, 539), where the household 
industry flourished. In New York, an important center of the factory industry, 
there were 1,968 men and only 60 women employed, and probably all of the 
latter were "strippers." 

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there were not more than 300 women in the whole trade at this 

But if the displacement of the woman cigar-maker is not 
easy to express statistically, the reason for it is not difficult to 
find. Cigar-making, as has been pointed out, is a highly skilled 
trade, and it was early discovered that among our immigrants 
were men able to make cigars that could compete with those 
imported from Germany and Spain. These immigrant cigar- 
makers who proved to have the superior workmanship that was 
indispensable to the development of the industry, took the places 
of the American women who had been formerly employed. The 
Cuban is said to have been the first male cigar-maker emplo)red 
in this country, and as Spanish tobacco and Spanish-made cigars 
were in high favor, a large market was found for the Spanish 
cigars made here by Cuban workmen.*^ Later expert workmen 
among immigrants from other countries became competitors of 
the Cuban, and among German immigrants especially were men 
of exceptional skill and experience in the trade. The woman 
cigar-maker almost disappeared during this time, and there are 
men, both cigar-makers and manufacturers, in New York who 
say that there was "not a woman in the trade," except in the 
unskilled work of stripping, "back of the seventies;" and a 
recent report of the ccMnmissioner of labor ^^ ccwifirms this state- 

^Report of the Senate Committee on Education and Labor, 1883 ("Labor 
and CapitaP'), Vol. I, p. 453, testimony of Adolph Strasser. 

'^"Spanish" cigars are stiU made exclusiyely by men (Cubans) wher^ 
ever they are manufactured In this country. Employers haye told me that 
this is not because women cannot make good cigars, but because no one but a 
Cuban understands Spanish or Cuban work. Women are employed as cigar- 
makers in Spain, but in Cuba they do only the unskilled work, stripping* 
packing, and labeling. 

^Eleventh Special Report of the Commissioner of Labor, p. 575. "Formerly 
men only were engaged in cigar-maldng, but since the introduction of machinery, 
the proportion of female employees has become very large." This is obviously a 
superficial statement, for it disregards the employment of women in the early 
history of the industry, and is at variance with President Strasser's statement 
quoted supra. 

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Before the close of the decade following i860 there was a 
marked increase in the proportion of women employed. Statis- 
tics showing this increase and the increase for later decades are 
given in the census, and the table below has been prepared from 
these census data, and indicates also the percentage which 
women have formed of the total number of employees and the 
increase percentage during each decade.^' 


1870 . . 
1900 .. 

Number of 





Per cent of Total 
Number of 




Increase during 




• It has akeady been pointed out that statistics for 1850 cannot be used because they refer to 

The niunber of women employed not only increased very 
rapidly after 1870, but the increase was greater proportionately 
than the increase in the number of men, and indeed since 1880 
the industry has been a "declining" one for men. That is, the 
percentage increase in the male population has been greater dur- 
ing this time than the percentage increase in the number of men 
employed. In the light, however, of the statistics in this table, 
which show that in 1900 the women constituted only 40 per 
cent, of all the employees, it may seem like hazarding a large 
guess to say that cigar-making is becoming a "woman's indus- 
try." But it is not alone on the basis of the census statistics 
that this assertion is made. It will be shown later that there is 

''The table is compiled from statistics giyen for "cigars and cigarettes" 
in Twelfth Census, Manufactures, Vol. Ill, p. 645. The numbers unfortunately 
do not form a basis for exact comparison. For i860, women and giris are 
represented, and from 1870 to 1900, women are classified separately from 
"children under fifteen." By referring to the Eighth Census, p. 734, and the 
Ninth Census, p. 629 (Manufactures), it appears that the enumeration included 
only cigars in i860 and 1870, while for the other three years cigars and cigarettes 
are represented. Statistics in the Twelfth Census, Occupations, p. lii, for "cigars 
and tobacco/' seem curiously inconsistent with those in the census of manu- 

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a very great difference between the proportion of women among 
the employees in large factories where machinery is used and 
in those* smaller or country establishments where it has not been 
introduced. Since the large machine factory is the factory of 
the future, the fact that it is being monopolized by women 
affords stranger evidence of the displacement of men than sta- 
tistics for the industry as a whole would indicate. ' Testimony 
on this point will be given later. In the meantime an effort will 
be made to analyze the causes that have led to this displacement 

The year 1869 begins a new period in the history of the 
industry. Since then three factors seem to have worked together 
to bring about a very rapid increase in the emplojrment of women : 
(i) increased immigration from Bohemia, where women are 
exclusively employed in dgar factories; (2) the invention of 
machinery, which has made the skilled workman less necessary; 
(3) a feeling on the part of employers that women are more 
docile than men, and that a large proportion of women among 
the employees would mean fewer strikes. 

The immigration of Bohemian women cigar-makers began 
in 1869,** and meant the re-establishment of cigar-making as a 
household industry — ^but this time under the domestic rather 
than under the handicraft system. The home-work which occu- 
pied the leisure of the Connecticut farmer's thrifty wife is 
clearly not to be compared with the home-work of the Bohe- 
mian immigrant in the New York slimis. The New England 
women were independent producers. They owned their raw 

*^ Testimony before the Ford Immigration Committee, p. 364. President 
Gompers, of the American Federation of Labor, who was at that time in the 
trade in New York, told the writer that they were first brought over by 
employers to break the cigar-makers' strike of that year. This is intimated 
also in the testimony referred to above. The Bohemian immigration movement 
was greatly furthered at this time by the effects of the disastrous Austro- 
Prussian War and the granting of the legal rights to emigrate. See the account 
given by Josefa Humpal-Zeman in Reports of the Industrial Commission, VoU 
XV, p. 507, which makes special note of the setUement of cigar-makers in New 
York; and Balch, "Sources of Slav Immigration," Charities, Vol. XV, p. 598. 
It is noted m the latter that a minor cause of immigration was a'^strike in the 
Bohemian tobacco factories in the seventies. 

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material, the homes in which they worked, and the finished 
product which they disposed of at their own convenience; the 
tenement women were helplessly dependent upon an employer 
who furnished the raw material, owned and marketed the prod- 
uct, and frequently charged them exorbitant rentals for the 
rooms in which they both lived and worked; they were merely 
hired wage-earners working for a single employer in their own 
homes instead of in his factory. The explanaticMi of the home- 
woric in both cases is found in the fact that cigar-making is 
peculiarly adapted for household manufacture, and for this 
reason it still exists, not only as a domestic industry, but as a 
lingering survival of handicraft.^** When the only machine 
required is a pair of wooden molds, it is possible for the work- 
man to own his own tools and a pair of molds, purchase his 
tobacco in small quantities, and, by disposing of the product 
quickly, carry on his trade as his own master and without having 
any capital. 

By 1877, the year of the "great strike" which was meant to 
abolish it, cigar-making as a tenement industry had become 
firmly established. It grew rapidly after 1869 and aroused the 
first determined protest against "unsanitary hcwne-work."*^ Its 

* See, for example, Mrs. Kelley's account of the tenement worker in 
Chicago, who buys his own tobacco and disposes of his own product, and is in 
no way connected with a middleman or manufacturer. (Reports of the Industrial 
Commission, Vol. VII, p. 251.) Cigar-making has also an interesting history 
as a household industry in Germany. Recent statistics show that nearly one- 
fourth of the persons making cigars there today are Hausarbeiter, (Frisch, Die 
OrganisationS'Bestrehungen der Arbeiter in der deutschen Tabak-Industrie, pp. 4, 
264; see also notes supra,) In England, ho^^ever, there is no home-work 
in this industry, owing to excise regulations prohibiting the transfer of small 
quantities of the leaf, and to the fact that a rather expensive license must be 
obtained annually. "The trade, being fenced about with these saf^iuards, leaves 
no opening for those small domestic workshops which present such a difficult 
problem in the cheap tailoring and boot-making industries" (Booth, Life and 
Labor of the People, Vol. IV, pp. 319, 220), 

* The Qgar-Maker's Union first called public attention to it in 1873 (Report 
of the Senate Committee on Education and Labor, 1^83, Vol. I, p. 451), and 
began a vigorous campaign against it While the great development of the 
clothing industry began in 1880, yet garment-making was also a very considerable 
tenement industry before that time, and was carried on under distressing condi- 

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development was due to Bohemian women who had worked in 
cigar factories in their own country. It is said that the custom- 
ary method of Bohemian immigration was for the women to 
come first, leaving the men at work in the fields. Five or six 
wives would come over together, work at cigar-making as they 
did in Bohemia, and send money back for their husbands' pas- 
sage, and then "the entire united family would take up the manu- 
facture of cigars, emulating the industry of the mother." ^^ At 
this time, too, came the introduction of the team system — ^ 
division of labor by which one person prepares the bundles and 
another rolls them. In Bohemia the men had worked only in 
the fields, and their wives taught them cigar-making at home 
after they came over. It was much easier, of course, for these 
men to learn the relatively unskilled work of "bunch-making" 
while their wives did the rolling than to learn how to make the 
whole cigar.^® 

tions. See statistics in the Report of the New York Bureau of Labor (1902) on 
the "Growth of Industry in New York/' pp. 88-96, and the testimony regarding 
home-work in ^e Report of the Senate Committee, supra, Mrs. Florence Kelley, 
who has a wide first-hand knowledge of tenement work, says with regard to the 
tenement cigar-making law of 1883: "The manufacture of garments and other 
articles was so slight as not even to suggest to the cigar-markers the inclusion 
of the needle-trade workers in the struggle for the statutory prohibition of 
work in the tenements" (Ethical Gains through Legislation p. 231). A truer 
eicplanation of the restriction of the law of 1883 to cigars is found in the fact 
that the dgar-makers were strongly organized at this time, while the garment- 
workers were not. President Gompers, before the Ford Immigration Committee, 
spoke of the attempt to abolish tenement cigar-malting as "one of our constant 

"New York Tribune, November 6, 1877. An article in the New York Sun, 
October 20, 1877, claimed that as a rule the women cigar-makers were more 
intelligent than the men." This is due to the fact that in Bohemia the women 

work in the government factories and the men till the fields All of the 

members of the [tenement] family help in the housework, the husband being at 
skilled as the wife." The testimony in the Report of the Ford Immigration 
Committee in 1887, p. 381, was to the effect that the trade had been demoralized 
by the Bohemians who came over in large numbers, worked in tenement rooms, 
brought over gradually all of their relations, and taught them the trade. 

"The writer is indebted to President Samuel Gompers for this account of 
the way in which the Bohemian women taught thdr trade to their husbands. 
"Team-work" ultimately became an important means of furthering the employ- 

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This decade, during which cigar-making established itself as 
a tenement industry, was also the decade of greatest prosperity 
in the history of the trade.^* It was surely a decade of extra- 
ordinary exploitation of immigrant labor. Large manufacturers 
acquired blocks of tenements, for which they charged excessive 
rentals to their employees, who frequently, too, found them- 
selves obliged to pay high prices for groceries and beer at stores 
owned by the employer. The expense of maintaining a factory 
was thus made part of the employees' burden; and the wages of 
"strippers and bodcers" were also saved to the manufacturer, 
for the tobacco was prepared in the homes by the workers them- 
selves, or more often by their children.^^ The system also 
proved an effective coercive measure, and the eviction of the 
tenement strikers by the landlord manufacturers in 1877 was 
one of the distressing features of the strike. It is difficult to 
make an exact statement either as to the extent of home-work 
or as to the number of women employed. It was estimated 
roughly that a majority of the cigars in New York were the 
product of tenement-house factories,** and so large was the pro- 
portion of women at work in them that the newspapers and 
manufacturers referred to the strike, which was directed largely 
against the home-work system, as an attack on the emplojrment 
of women and children.** In 1882 a circular issued by the union 

ment of women, employers finding it easy to train young girls for the single 
process of bunch making or rolling, and cheaper to substitute them for skilled 
workmen who could make a complete cigar. 

" United States Tobacco Journal, loc, cit., p. 40. 

''There were numerous accounts of this system in the New York papers 
at the time of the strike in the fall of 1877. See, for example, the New York 
Tribune, July 10, and the New York Sun, December 3 of that year. See also 
Ford Committee Report, pp. 396, 397, 376, 368. 

'^New York Sun, December 3, 1877. Some estimates placed the proportion 
of tenement-made cigars as high as four-fifths of the New York product. 

"The men who "make cigars in factories have struck against the women 
and children who make them in tenement houses" (Editorial in the New York 
Tribune, October 25, 1877). The manufacturers claimed that the strike was 
"a movement on the part of the cigar-makers to throw out of business many 
women who cotild or would not work in shops" (New York Tribune, October 
24, 1877). 

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estimated that between 3,500 and 3,750 persons were employed 
at cigar-making in tenement houses,** and it seems reasonable to 
say that during the decade from 1870 to 1880 between two and 
three thousand women had engaged in cigar-making in their 
own homes.'* 

The increased employment of women as a result of the 
introduction of machinery comes at a later stage in the history 
of the industry.*** So many imsuccessful machines were tried 
from time to time that it is not easy to fix any exact date as the 
period when machinery was first considered successful enough 
to be widely adopted. By 1887, however, several of the large 

'^ Thirteenth Annual Report, New York Bureau of Labor, Vol. I, p. 552. 
Mr. Adolph Strasser, then president of the union, said in 1883 that there were 
10,000 women in the trade, and "the number is increasing very rapidly, increas- 
ing every year almost at the rate of a thousand or more." This estimate was, 
of course, for the whole country and for both factory- and home-work. Mr. 
Strasser called attention to "the gradual introduction of children and females 
into the trade" "as one of the evils cigar-makers were facing." (Report of 
Senate Committee on Education and Labor, p. 453*) 

** An estimate by the president of the union five years later fixed the number 
at 4,000 (Report of the New York Bureau of Labor, 1885, p. 154). While it 
is not necessary in the present study to continue the history of cigar-making 
m tenements, it may be added, to make the accounts somewhat more complete, 
that the law passed in 1883 abolishing this work was declared unconstitutional 
in 1885 (98 New York Appeals, p. 98). The union, however, continued its 
determined opposition to the system, and, owing in part no doubt to the use 
of its label and in part to general public sentiment ag^ainst tenement work, and 
more perhaps to fhe development of the large machine factory, tenement cigar- 
maldng has almost disappeared. In 1901 there were in New York only 775 
persons authorized to make cigars in tenements, while 23,329 family work-rooms 
were licensed in the clothing industry. (Twentieth Annual Report, New York 
Bureau of Labor, p. 46.) 

''"Molds," which have already been described, and which are more like 
tools than machines, were introduced from Germany in 1869 — the year in which 
production was also cheapened by the coming of Bohemian women and the 
introduction of the team S3rstem. Ix>ng after the mold came the long-filler 
bunching machine and the suction table, bot& hand machines; the machines for 
stripping and booking, and the short-filler bunching 'machine operated by power. 
The two last-named machines are used for much cheaper grades of cigars than the 
others. (Elevenlh Special Report of the Commissioner of Labor pp. 565, 572, 
573, 578.) 

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factories had b^un to use machines, and in 1888 we find 
machines with women operators taking the places of skilled 
cigar-makers who were on a strike in Philadelphia.*® In 1895 
a New York cigar-maker said, in describing the situation : 

Colleagues that left New York ten or more years ago would be astonished, 
if they returned now, to find that handwork has almost entirely disappeared. 
.... The suction tables, which are in reality nothing else than wrapper- 
cutting machines, are used .... as price-cutters. More so, because there 
are only girls employed on them. There are a few thousand of these tables 
in operation in this city with the prospect of increasing the number daily.*' 

After a recent investigation made by the federal Bureau of 
Labor, it was pointed out that 

for both machine operators, bunch-making and rolling, a cheaper grade of 
labor may be employed. Formerly men only were engaged in cigar-making, 
but since tHe introduction of machinery, the proportion of female employees 
has been very large. In many factories only women and girls are employed 
on the bunch-making machines and suction tables, and the number of 
females is as high as 80 per cent, of the total ntmiber of employees.** 

Statistics obtained in this investigation show that in nine open, 
or non-union, factories which had more than 4,000 employees, 
and in all but one of which machinery was used, 73.1 per cent 
of the employees were women ; while in eight union shops, which 
used no machinery, and employed only 527 persons, the propor- 
tion of women employed was only 36.1 per cent.^* It is impor- 
tant to note that the machine, the large factory, and the increased 
employment of women go together. ^^ It is also important to 
note that machinery is coming to be almost exclusively used in 

** Cigarmaker's Official Journal, May, 1888. 

''It is also added that "of the girls operating these tables only about 150 
are unionized, .... one-fourth of our members are out of work, and part of 
them are compelled to take jobs they are ashamed of." (Ibid., October, 1895.) 

^Eleventh Special Report of the Commissioner of Labor, p. 575. Atten- 
tion is also called to the fact that "in the printing trade, the type-setting 
machine, owing to the strength of the union, has yielded no advantage to the 
proprietor by way of the introduction of cheaper laSor, while in the cigar 
industry much of the gain to the manufacturer from the introduction of machinery 
comes from the opportunity of employing girls at low wages." 

'^ Ibid,, tables, p. 560. 

^ Ibid,, p. 575. The statistics given above obviously indicate this; and see 
also Twelfth Census, Vol. IX, p. 671- 

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the manufacture of cheap cigars, and that the market for these 
cheap machine-made cigars is rapidly growing.*^ 

Other available statistics add further testimony to show that 
there is a greater proportion of women employed in the large 
factories. In Professor Dewey's report on Employees and 
Wages^^ most of the data for cigar-making, even in the estab- 
lishment comparison, are from relatively small factories; but in 
one of the larger ones, 75.6 per cent.,^^ and in another 75.6 per 
cent.,*^ of the employees were women; and in several others, 
where men are still more exclusively employed, it is noted among 
the changes in the establishment between 1890 and 1900 that 
"no females were employed in 1890/'*** In recent factory 
inspectors' reports there is some further evidence on this point. 
Statistics for the seven large factories in New York City, each 
of which employs more than 200 women, show that 55.5 per 
cent., 60.5 per cent., 70.2 per cent., 73.3 per cent, 86.2 per 
cent, 88.3 per cent., and 91.3 per cent, respectively, of all of 
the employees are women.*® In Binghampton, an important 
cigar-making center, reports from four factories, each of which 
employed more than 100 women, showed that they constituted, 
respectively, 62.6 per cent., 62.9 per cent., 75.9 per cent, and 

*^ "There is no doubt that the use of machinery in cigar-making is on the 
rapid increase. It is estimated that 85 per cent, or more of the cigars manu- 
factured in the United States are retailed at 5 cents or less, and some manu- 
facturers predict that within ten or fiften years all of this class of cigars will 
be made by machinery." {Eleventh Special Report of Commissioner of Labor, 
PP* S74f 575*) It is of interest in this connection that an editorial on "The 
Five Cent Cigar" in Tobacco, January 19, 1900, deprecates the "sudden jumping 
into prominence of tke factory brand/' and complains that the well-advertised 
factory brands of the five-cent cigar have almost usurped the market. 

^Twelfth Census, Special Reports. 

^Ibid,, p. X048. ** Ibid,, p. 1037. 

^Ibid., pp. 1050, X044, 1042. Although not directly to the point, it is inter- 
esting enough to quote that it is noted as a "special feature" of one establishment 
that "in 1900 the wrapper-classer was a woman receiving $6 per week. In 
1890 the wrapper-classer was a man receiving $13 a week." (Ibid., p. 1046.) 

^Fifteenth Annual Report of the Factory Inspector of the State of New 
York (1900). See especially report of the second district. Boroughs of Man- 
hattan and Bronx. 

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68.7 per cent, of all employees.^^ In the largest cigar factory 
in Philadelphia the 996 women who were employed were 97.3 
per cent, of the entire working force; and in the large Harris- 
burg factory 993 women were 95 per cent, of all the persons 

Similar factors that have helped to increase the employment 
of women have been the formation of the trust,** which has 
greatly furthered the movement toward large-scale production; 
and the introduction of the "team system/' which has already 
been described, and which, it has been frankly said, is used, not 
as a method of increasing the output, but because cheaper labor 
can be employed.*^ 

In discussing further the tendency toward increased employ- 
ment of women as a means of avoiding or ending strikes, som^ 
account may also be given of the relation of the women to the 
Cigar-Maker's International Union. The union was organized 
in 185 1 ; and in 1867 the constitution was altered so that women 
and negroes, heretofore excluded, became eligible to member- 
ship.*^^ In 1877 women were employed in large numbers to 
break the strike of that year. Several hundred girls were taught 

*^ Fifteenth Annual Report, etc. 

*^ Thirteenth Annual Report of the Factory Inspector of the Commonwealth 
of Pennsylvania (1902), pp. 387, 417. 

^The tmion brings a bitter indictment against what it calls the "child-labor 
employing trust" "The tobacco trust is its bitter foe and is probably the 
largest employer in the country of tenement-house sweat-shops and child labor." 
(Cigarmaker^s Official Journal, February 15, 1904.) "We estimate that 90 
per cent of the employees of the trust are females, and positively state that the 
great majority are minors." (Ibid., November 15, 1902.) 

^Eleventh Special Report, Commissioner of Labor, p. 565. 

•^Strasser's "History of the Cigar-maker's Union," in McNeill's The Labor 
Movement, p. 600. The union admits only cigar-makers proper, bunch-makers 
and rollers, and packers. The latter, however, are organized in separate "locals." 
(Eleventh Special Report, Commissioner of Labor, p. 557.) "Strippers" and 
other unskilled and miscellaneous help are excluded, but in some cities the 
strippers have unions of their owiv In Boston such an organization has existed 
for six years, and has more than six hundred members, all women, who, 
through their organization, have obtained many privileges from their employers. 

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the trade,*** and employers went so far as to call the strike "a 
blessing in disguise/' since it "offered a new employment for 
women and secured workers whose services may be depended on 
at low wages/'** In this same year, however, the Cincinnati 
cigar-makers struck successfully for the removal of all women 
from the workshops,** and in some other cities similar strikes 
were inaugurated, but failed.** In 1879 the president of the 
union announced that one of its aims would be "the regulation 
of female labor/'*® and in 1881 he strongly advised the unions, 
in view of the fact that the emplojmient of women was con- 
stantly increasing, "to extend the right hand of brotherhood to 
them/' and added: "Better to have them with us than against 
us They can effect a vast amount of mischief out- 
side of our ranks as tools in the hands of the employer against 
us."*^ The president of the New York local in 1886 complained 
that Bohemian women were doing work "that men were form- 

"The employers claimed that between 3,000 and 4,000 girls had been taken 
on (New York Sun, November 26, 1877), but this was clearly an exaggerated 
statement made to overawe the strikers. The New York Tribune, November 
14, 1877, gives what is evidently a reliable statement, showing that eight of the 
largest firms had together employed less than 1,000 girls. 

"New York Sun, November 26, 1877. Employers also claimed an unusually 
large sale for the bad cigars made by these untrained ''strike-breakers/' because 
the boxes bore the legend: "These cigars were made by American girls." 

'^ Cincinnati Daily Inquirer, August 29, 30, and September 30, 1877. The 
employers said that the girls "just left of their own accord" and were not 
discharged to conciliate the strikers I The latter had claimed that the girls 
worked 20 per cent, cheaper than the men. The Inquirer, in commenting on the 
situation, said: "The men say the women are killing the industry. It would 
seem that they hope to retaliate by killing the women." 

"*An account of such a strike in Boston is given in the First Annual 
Report of the Massachusetts Bureau of Labor, p. 241. In Rochester, where 
a similar strike was also unsuccessful, the employer said that the girls did the 
same kind of work as the men, were just as capable and "could be hired for 
fifty cents less; and that is the reason we hire them!" f^Report of the New 
York Bureau of Labor for 1BB5, p. 156.) 

••McNeill, op, cit., p. 603. 

^ President's report at the Qeveland convention, printed in the Cigarmaker's 
OMcial Journal, October 10, 1881. 

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erly emidoyed to do. They have driven the American work- 
men from our trade altogether. They work for a price that an 
American could not work for."^® In 1894 a president of the 
international union said: "We are confronted with child- and 
female labor to an alarming extent;"*^® and in 1901, at a meet- 
ing of the American Federation of Labor, the cigar-makers asked 
for the passage of resolutions expressing opposition to the use 
of machinery in their trade and to the employment of women 
and children.®^ The hostility of the union to women is not 
difficult to understand. The women seemed to be lowering a 
standard wage that the men, through organization, were trying 
to uphold. They had, moreover, the workingman's belief in the 
old "lump of labor" fallacy, and for every woman who was 
employed they saw "a man without a job." The union has, 
however, stood squarely for the same wage scale for both men 
and women, while in Elngland the union maintains a woman's 
scale that is 25 per cent, lower than the men's.®^ As in other 
industries, a much smaller proportion of the women than of the 
men in the trade are members of the union,®^ and the women 
seldom attend the meetings, and take small part in the pro- 
ceedings when they do.*' 

Leaving the subject of labor displa^cement, certain other 
questions connected with the employment of women in the trade 

"Report of Ford Immigration Committee, p. 364. 

^ Ibid,, October, 1894. ^Tobacco, December 20, 1901. 

*^In England the women had a separate union for many years, and when 
they joined the men's union, the question of how to reconcile the wage scales 
that had prevailed in the two unions caused great difficulty. To have raised the 
women's scale to the men's lerel would, it was felt, "have meant to drive the 
women from the trade and to alienate public sympathy." {Economic Journal, 
Vol. X, pp. 564, 570.) 

** President Perkins, in a letter to the writer, estimated that less than 15 
per cent., of the members of the union were women — obviously a very small per- 
centage in view of the fact that women form so large a proportion of the total 
number of employees. 

*'This is almost invariably the rule when men and women are in one 
organiration. It was said in the Report of the Senate Committee on Education 
and Labor, Vol. II, p. 809, that the women allowed the men to take the position 
of superiority that belonged to theml 

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must be briefly noticed. These are : the effect of the work upon 
the health of women, the nationality and conjugal condition of 
the women employed, their relative efficiency in comparison with 
men, and their wages. 

Conflicting testimony is found as to the effect of cigar-making 
upon the health of women. Like all confining sedentary work, 
it must be to some extent unhygienic; but much depends upon 
conditions in the factories themselves, which, of course vary 
widely in regard to light, cleanliness, and ventilation. It has 
been pointed out that the woric is for the most part very light, 
and certainly the strain on the nervous system is far less than in 
factories where there is the constant noise of heavy machinery. 
In London, a recent investigation showed that the trade was not 
an unhealthful one for women,®* and Dr. Oliver, after care- 
fully weighing the testimony that has been given on both sides 
for the last twenty years, confirmed this conclusion.®*^ The 
annual report of the union for 1901 showed that in 1890, 49 
per cent., and in 1900, 33 per cent, of their deceased members 
died of tuberculosis. The average age of deceased members had 
been raised during the same time from thirty-seven and one-half 
to forty-three and one-half years.*® Aside from any question 
as to the effect of tobacco on the system of the worker, it is clear 
that shorter hours and improved conditions can do much to 
make the industry a more healthful one. 

Census statistics r^^ding the nationality of the women in 

^Economic Journal, Vol. X, p. 567. 

** Oliver, Dangerous Trades, p. 793. Some physicians have claimed that 
all tobacco work is injurious to the women engaged in it, that they have very few 
children, and that abortions are frequent among them. An investigation among 
cigar-makers in the New York tenements showed an average of about 1.5 
children to a family', which is, of course, very tmusual in a tenement district. 
Mr. Gompers, president of the American Federation of Labor, who was at that 
time in the trade thought, however, that this was an underestimate. For a 
somewhat lengthy discussion of the whole subject see Report of the New York 
Bureau of Labor for 1884, PP* 224-36. See also the testimony of Mr. Gompers 
and Mr. Strasser in Report of the Senate Committee on Education and Labor, 
pp. 273, 274, 453. 

^Cigarmaker^s OfUcial Journal, September, 1901. 

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"cigars and tobacco" factories show that 53.4 per cent, are 
either foreign-bom or of foreign parents; of these 29.2 per 
cent are German and 20.8 per cent. Austro-Hungarian.*^ In 
New York the great factories are in the "Bohemian district," 
and Bohemian women are largely employed. The official 
journal of the union contains regularly articles and important 
notices in German and Bohemian as well as in English. 

A larger percentage of married women is employed in the 
manufacture of cigars and tobacco than in any other list of 
industries given under the manufacturing group, with the single 
exception of seamstresses; 11.8 per cent, of the women in the 
whole group and 16.4 per cent, of those in "cigars and tobacco" 
were married.^® There are several reasons for this: Among 
the Bohemians there is less prejudice against the woric of mar- 
ried women than among most other nationalities.** There is 
also the fact that cigar-making is to some extent a home in- 
dustry; and, further, it is a skilled trade at which competent 
women can earn higher wages than they can in most other 
industries that are open to women.''^ 

" Twelfth Census, Occupations, pp. cxcix-ccx. 

** Ibid,, p. ccxxii. This seems to contradict the statement that the average 
life of girls at the trade is five years (see Eleventh Special Report of the Commis- 
sioner of Labor, p. 569). For other contradictory evidence see Charities, loc. Ht,, 
p. 195. Census statistics as to age show, however, that 69 per cent, of the 
women in ''tobaco and cigars" are below twenty-four while only 54.1 per cent, 
of all o{ the women in manufacturing pursuits are below this age (computations 
based on Table 4, Twelfth Census, Occupations), Since these figures are not 
for cigars afone, they are not largely significant. The same statistics show a 
very large increase for the decade in the number of girls employed and a very 
small increase in the number of boys. 

•Testimony before the (Reinbard) Committee on Female Labor, New York 
Assembly, 1896, p. 817. 

"This is so true that many of them say it "pays" to go on with their work 
and "hire a cheaper woman" to do part of their housework and look after their 
children. One forewoman spoke as if there were a superstition about the work: 
"It's a trade you always come back to. I don*t know why, but it isl" The 
employment of married women seems also to be common in other countries. In 
Germany there is in the union a confinement benefit for women {Cigarmaker^s 
Official Journal, May 15, 1903) and in interesting contrast to this is section 4 of 
the sick-benefit clause which was adopted by the Americans at the convention of 

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The constant reference to women as a "cheap grade of labor" 
must not lead to the conclusion that women do not become as 
skilled cigar-makers as men and do not work on the higher 
grades of hand-made cigars. Undoubtedly there is a larger pro- 
portion of men than women among the most efficient workers in 
many factories, but some women who are "equal to any man" 
will be found in most of them, and foremen and manufacturers 
alike testify to the fact that the highest passible skill is often 
attained by their women employees/^ But in this, as in all 
other trades, the ever-present possibility of marriage militates 
strongly against the woman worker's attaining her fullest effici- 
ency. The few years that the woman who "marries and leaves" 
spends at the bench cannot be expected to develop the quality of 
workmanship that comes with life-long service. In anticipation, 
too, of the shorter "working-life," a girl is often unwilling to 
serve the real apprenticeship so necessary in a skilled trade like 
cigar-making, and more often still her parents are not willing 
to undergo the sacrifices this may entail. In cities where the 
union is strong and a long period of preliminary training is 
made a condition precedent to entering the trade, there are rela- 
tively fewer women employed.''^ It must not be overlooked, 
however, that this condition is due in some measure to a feeling 

x88o: ''Female members of any local union shall not be entitled to any sick 
benefit three weeks before or five weeks after confinement" (ibid., October, 1888). 
It is a curious bit of history that in Bremen as early as 1847 an exception to a 
law which prohibited women from working in cigar factories was made in favor 
of the wives of the men employed (Frisch, op, cit, p. 12, N. 2), 

" In London Mrs. Oakesbatt found that, while there might be an exceptional 
woman who was "better than any man" yet, on the average, the men were 
faster workers than the women {Economic Journal, Vol. X, p. 570). I regret 
that I was unable to obtain any exact statements as to the relative output of men 
and women engaged in the same kind of work. In the Eleventh AnnucU Report of 
the Commissioner of Labor, pp. 517-19, returns as to their relative efficiency, 
are given from nine establishments. In four, men were more efficient than 
women ; in one, women were more efficient than men ; in four they were of equal 

"In Boston, for example, where a three-years' apprenticeship is required, 
there is one girl to nearly 200 boys regularly apprenticed, and this one girl is 
serving in the small shop of a relative. 

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on the part of employers that boys are more profitable appren- 
tices, and that the work is not proper for girlsJ' It is clearly 
true that, if the "aristocracy of male workers at the head" con- 
tinues, the apprenticeship situation will be one of the explana- 

Turning now to the important but difficult question of wages, 
it appears that statistics of wages that are at all reliable are 
obtainable only for the last decade. The tables given below 
show the weekly medium wage from the Dewey report,^** classi- 
fied wages from the Dewey report, and the weekly average wage 
computed from the data in the Nineteenth Annual Report of the 
Commissioner of Labor. 










Cigar-makers or rollers*. . . 


All occupations 



5. 50 






*As the men are caUed "dKar-maken*' instead of "rollers." it is probable tbat the wages given 
aboTe do not represent the same woric for women as for men. 

"It is said, for example, that girls camiot carry tobacco and wait on the 
women and men at the benches as the boys do, but in England only girls are 
employed for this kind of work {Economic Journal, Vol. X, p. 565). Other 
employers say it is not worth while teaching a girl who is likely to leave the 
trade soon. Until recently a school has been conducted in New York to teach 
cigar-making. The manager said he had, in six years, taught 3,000 persons, of 
whom 80 per cent, were women and girls. There is no apprenticeship now in 
the New York trade, but in Boston it is practically impossible now for a girl to 
obtain a chance to "serve." In London, on the other hand, the large majority 
of apprentices are girls. (See Booth's Life and Labor, VoL IV, p. 227,) 

^* There are two minor advantages connected with the emplojrment of women 
that may, perhaps, be noted in discussing this question of relative efficiency. 
One is that the woman 'is always here on Monday morning," as one employer 
tersely put it; the other is that no inconsiderable saving is effected through 
the fact that the women do not smoke, for it is an unwritten law of the trade 
that the cigar-maker always "gets his smokes off the boss." 

^Twelfth Census, Special Report on Employees and Wages. 

"This table is for all sections of the country. The returns from the New 

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Number op Women Eakning 

Less than 

$3 to $5 

$5 to $7 

$7 to $9 

$9 to $11 

$xx to $13 


• • 

























Men Women 


Men Women 


Men Women 

Men Women 


Cigar-makers or 

rollers (hand)t . . . 










no men 









$ 6.43I 






10. 30 







$ 6.9Si 




* In these occopations the men worked more hours per week than the women, 
tin both of these occupations the women worked more hours per week than the men. As in the 
Dewey zeport, lor men the designation is **cigar-makers" and for women "roUers.'' 

Cigar-making is one of the few industries in which men and 
women compete directly/^ and for this reason the difference in 
their wages is extremely interesting. It is not easy, however, to 
say just how much of an injustice the woman's lower wage indi- 

England states are interesting as indicating the division of labor there: 

Claar-makcrs (all men). 
Stnppers (all women) . . 




"It is not fair, ordinarily, to compare women's wages with men's, because 
men and women in factories so seldom do the same work. In cigar-making and 
cigar-packing, however, there have been exceptions to this general rule. See 
Webb, Economic Journal, Vol. I, p. 645, and see also this Journal, January, 1906, 
pp. 38, 39. 

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cates, for the work is largely "piece-work," and the women may 
have been slower, or they may not have worked at the same rate 
and on the same kind of cigars/® That the women "strippers" 
earn more than the men is explained by the fact that very capa- 
ble women are found in this occupation, but ordinarily none but 
very old men who are no longer competent to earn a "man's 
wage" at anything. In the report of the Bureau of Labor on 
Work and Wages of Men, Women and Children the efficiency and 
wages of the employees are both reported, and, with a single 
exception, the returns from all of the cigar factories showed that 
women were receiving less pay than men for equally efficient 
work. It has already been pointed out that in union factories the 
women receive the same rate of wages as the men. 

In following the history of the industry from the home-work 
of the New England farm to the home-work of the New York 
tenement, and from the early factories in which the men immi- 
grants displaced the women to the modem factory in which 
women and machinery have been displacing men, no attempt has 
been made to discuss certain economic questions which arise with 
regard to the employment of women in this as in almost every 
other industry: Why is their labor "cheaper" than that of 
men ? And are there reasons other than this to explain why, in 
coming into an industry, they drive out the men instead of work- 
ing side by side with them? Does their monopoly of a trade 
mean a permanent lowering of the standard of living of the 
workers employed in it? A consideration of these, and some 
other related theoretical questions, is clearly beyond the scope of 
the present study. It should, however, be pointed out in con- 
clusion that, while wages have steadily gone down in the cigar- 
making industry, as it has been taken over by women,^* yet one 
must guard against attributing this solely to what is often vaguely 

**In London women in the cigar-maldng industry get from 15 to 40 per 
cent less than men (Booth, Life and Labor, VoL IV, p. 226). It is pointed out 
supra that in the union there the women's wage scale is 25 per cent, lower than 
the men's. 

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referred to as "the woman's lower standard of life." It must 
not be forgotten that with the women have come the mold, the 
team system, and machinery, all tending to lower wages by 
diminishing the demand for skilled workmen. Distinct, too, 
from the influence of women's work as such has been the deteri- 
orating effect of cheap immigrant labor and the tenement system. 
There are still, however, possibilities for the skilled worker in 
the trade. Reliable statistics show that men can yet earn very 
good wages,®^ so that the future for women is not wholly with- 
out promise. The discouraging features that have marked their 
relation to the industry are, many of them, well known to be 
only temporary, and will disappear as the woman worker's lack 
of proper training, ambition, and realization of the value of 
organization is overcome. 

Edith Abbott 

Washington, D. C 

^The lowering of the wage-level by the women was a subject of complaint 
in the decade 1880-90 .and even earlier. See the accounts of the strike of 1877 
referred to supra, and see also the testimony in the Report of the Ford Immigra^ 
tion Committee, pp. 379 ff., in which it is said that "the wages of joumesrmen 
cigar-makers have fallen down to the level of the wages of the women." 

**The Dewey report (supra) showed that the medium wage for dgar-makers 
in New England, where the union was strong, was $x8 to $18.40, and the highest 
wage was $32 to 32.49 a week. A few cigar-packers were earning even more — 
from $32 to 42 a week. The report of the Bureau of Labor on The Restriction 
of Output, p. $63, showed an average wage of $18.29 and a maximum wage of 
$29.40 in union shops in Chicago. 

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Though all the facts pertaining to the quantitative theory of 
prices are either known or ascertainable, economists are still divided 
over the truth of the theory, which is nevertheless most funda- 
mental in the science of money. The desirability of attaining ima- 
nimity no one will question, for, so long as economists are divided, 
legislators should be pardoned for many of their errors in monetary 

As the truth or error of the theory can perhaps be more easily 
shown by analyzing transactions in which money either directly or 
indirectly is used, than by any other method, we shall examine first 
the simple conditions of a retail purchase. A person stands at a 
coimter wishing to buy a hat. Regarded narrowly and immediately 
by the seller, the purchaser's ability to fulfil his wishes depends <mi 
the quantity of money at his command. If the purchaser has 
enough to pay the price, the seller is eager to make the exchange ; 
otherwise he is not, unless he knows the customer and is willing 
to give him credit. If this were the entire transaction, and all other 
retail transactions were similar, it could be truly said that retail 
prices depend on the quantity of money.' In other words, money 
is the other side of the exchange, is absolutely essential, leaving 
out the custom or possibility of credit. 

But is this the entire transaction? Before going farther, how- 
ever, let us inquire into the effect of giving credit to a customer who 
has not the money in pocket to pay. Does the crediting of a sale to 
him enhance the price? Generally it does not the immediate price; 
for the retail dealer, as everyone knows, rarely has two prices, one 
for cash and one for credit customers. There may, indeed, be 
exceptions ; but the seller is so eager to part with his goods that he 
tempts his customers by offering them credit, instead of requiring 
money in exchange. It is true that some losses are sustained by 
this practice, and to cover these a higher price is put on all goods, 
which cash and credit customers alike pay — 2l kind of insurance; 
and in this respect, by giving credit, prices are enhanced. 

Does the giving of credit increase sales, the increase in turn 


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enhancing prices? Probably credit transactions do increase sales. 
A workingman intends to save a portion of his earnings and with 
them to buy a house. His thriftless wiiei however, is tempted by 
the subtile magic of credit to buy so many other things that her 
husband never succeeds in executing his good intention. Of course, 
there is a limit to his credit, it cannot exceed his income, or sooner 
or later he will fail to pay, and through this costly experience to all 
parties his credit will be lessened or cut off entirely. But it would 
seem to follow that, if credit be thus extended and purchases also, 
the increased demand of purchasers would lead producers to demand 
higher prices, which purchasers in selling would be obliged to fol- 
low. While this generalization contains some truth, it cannot be 
carried too far; for doubtless cases happen every day in which a 
change in demand, either in the way of increase or of decrease, 
does not affect prices either in raising or in lowering them. 

Again, the workingman's thriftless wife, by purchasing on her 
husband's credit, prevents him from accumulating means to buy a 
house ; consequently the prices of houses may remain stagnant from 
lack of demand which, except for credit, would arise for them. So, 
while there may be a rise of prices in one direction, caused by the 
operations of credit, there may be a greater or less decline in other 
things in which no credit, or only partial credit, may be given. 

But we are not sure that prices are raised even by credit opera- 
tions in the manner above explained. For all goods pa)rment must 
be made, and the workingman cannot, by buying on credit, increase 
the means of payment This is just the same — ^no greater, no less — 
whether he buys for cash or on credit. And if he cannot in the 
long run buy beyond his means to pay, how can it be said that the 
giving of credit enhances prices, since in the end no more oxn- 
modities are, or can be, sold by the credit than by the cash-down 
system? Is not the only effect, therefore, of credit to hasten sales; 
to effect sales today which otherwise would be postponed another 
week, month, or for a longer period? 

It is possible that by receiving credit the workingman is stimu- 
lated to work harder in order to pay for his house ; in other words, 
to escape from debt; and by putting forth a greater effort, thus 
increasing his income, he may stimulate prices. But the reverse of 
this may result. He may become discouraged by his debt, work 
less, purchase less, and production fall off accordingly. 

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It is true that under the credit system many purchases are 
made for which buyers are eventually imable to pay, and the volume 
of purchases to this extent is larger by giving credit. But is the 
increase large enough to aflfect prices ? I know of no way to answer 
the question. 

The relation between the amount of credit given to purchasers 
and their ability to discharge their credit obligation may be illus- 
trated by taking a community in which laborers depend chiefly 
on a small number of stores for their supplies. So long as they 
are regularly employed, the storekeepers do not hesitate to sell to 
them; as soon as their emplo)rment is reduced or cut off, their 
credit is curtailed. Thus the relation between the credit given and 
the debtor's ability to pay in the future is very close. Of course, 
it is not so easy for sellers in the larger as in the smaller places to 
watch their debtors, but the principle is quite the same ; no seller will 
give credit beyond the supposed ability of the buyer to discharge his 

We have looked on the purchases of the workingman because it 
is easier to diagnose his case than the case of other classes of 
purchasers. The nature of the transaction between him and the 
seller of goods is clearly seen ; not less clearly too the exchange of 
his labor for the means wherewith to make purchases. As for the 
relation between sellers of other commodities than labor and other 
purchasers, if an analysis were made, would not the result be the 
same? Surely the seller is after pa)rment from all, and he will in 
no case give credit unless assured of the purchaser's ability to 
respond at the end of the credit period. 

Thus credit is simply a money payment deferred; we are still 
clearly in sight of money that is to be given in exchange for things 
purchased ; and if the inquiry we are making should stop here, the 
quantitative theory would clearly explain all. 

Before leaving this preliminary inquiry concerning credit, the 
profit-margin in sales and purchases should be considered. A seller 
may give credit acquiring a smaller profit than he would in a cash 
sale ; a producer may sell at the old price — though the demand may 
have strengthened — for reasons that are satisfactory to himself. 
But there is no reason in the economic constitution of things why a 
change of price in a commodity at one given place of exchange 
should cause change of price at every exchange after- 
ward; every seller expects to receive a profit which is an elastic 

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element and within his control. If, for example, a shoe-dealer is 
ordinarily making 10 per cent clear profit on shoes when selling 
them at the same prices as his competitors, he can, if so minded, 
lessen prices, and if the profit still remaining is enough to preserve 
his solvency, no other prices will necessarily be changed by reason 
pi his division of profits with his purchasers. In explaining prices, 
therefore, the margin of profits should be Kept always in sight, 
because the prices of a dealer or of all dealers in a given place may 
vary somewhat without affecting prices elsewhere. 

Having now disposed of the influence of credit, and of the 
profit-margin, let us retuwi to cash transactions. The customer* 
exchanges his money for cloth and goes away. But how did he 
come by his money? By labor, or by exchange of something else 
for money. And the quantity of money he has acquired has depended 
on the demand for his labor or other commodity by some possessor 
of money. A fine illustration may be cited. Everyone in our country 
a few years ago was rejoicing over the condition of general pros- 
perity. The millions were employed; consequently they had ample 
means for making purchases, which, in turn furnished emplo3rment 
to others to produce. Then followed a series of labor strikes, 
during which a vast army ceased to labor, their earnings were 
greatly lessened or utterly cut off, and consequently they had less 
money to exchange for the things ordinarily obtained and con- 
sumed. A decline so great in the power to purchase affected pro- 
duction, and after a while the prices of many things declined. But 
some manufacturers, not believing that a reduction would stimulate 
trade, did not lessen their prices. And why not? Because reduc- 
tion would not affect the purchasing power of the strikers ; so long 
as that vast army of laborers were without employment they would 
be without means to purchase, whatever might be the price of 
things. Yet during this period the quantity of money had not 
diminished. The production of gold was going on without hindrance, 
the national banks as well as the government were increasing some- 
what the currency supply, just as they had been doing for many 
months previously; and the agencies of monetary circulation had 
not been impaired by any unnatural event. What, then, had 
caused the diminution in sales and decline in prices? Surely not 
the lack of money, for the quantity had not been lessened. The 
demand for goods fell off because the employers of labor could not 
exchange their money for labor, and consequently laborers had 

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less wherewith to make purchases. In other words, prices fell off 
because the workingmen would not, as they had previously done, 
exchange their labor for goods or work to acquire the money need- 
ful to buy goods, which is the same thing. Is not this explanation, 
though brief, essentially complete ? 

An upholder of the quantitative theory insists that, if there were 
no money, the workingman could not exchange his labor there- 
for. Of course, he could not If, then, he is after money, there 
must be some relation between the monetary supply and the labor 
offered in exchange. We do not question the existence of such a 
relation. But the truth, in our judgment, is that the quantity of 
money at almost all times is so large that the prices of labor and 
other things exchanged therefor are not affected by the quantity. In 
other words, money is a commodity like labor, flour, hats, and all 
other exchangeable and desirable things; but the existing quantity 
of money is so large and fluid that, the prices of other things having 
become adjusted to it, they are affected, so far as money can affect 
them, only by extraordinary changes in the quantity. 

If this statement be put in the following form, is it not essentially 
similar? An employer of labor possessing ample wealth or credit, 
gives perhaps hardly a thought to the quantity of money he may 
have when employing men. In truth, his bank account is not very 
large, and surely not large enough to pay them. But he expects 
to obtain money from the sale of goods, produced, it may be, by the 
labor he has employed, or by borrowing, and consequently the fact 
of paying his men in money is not an element determining the 
price he will pay them. He will pay them just the same, whether 
his bank account is large or small; whether he expects to receive 
the needful money from the sales of goods or from loans. The 
supply of money is so ample, so near at hand, that it cuts no figure 
whatever in making contracts with his employees. 

In one respect money is unlike every other commodity, and this 
fact must be kept in sight. Though desired by everybody, it serves 
only a temporary use ; everyone is just as eager to part with it as to 
obtain it. A man buys a beefsteak for his breakfast, eats it ; from 
the economic view it is consumed, but the money is not The 
butcher may give the twenty-five cents he received the next moment 
to an errand boy, who in turn pays it back to the butcher for another 
steak. Consequently it is always in circulation, like the waters in 
the ocean. While, therefore, the volume of products seeking 

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exchange for money may greatly expand, the money needed to 
effect their exchange is usually sufficient, because it is so fluid, 
because such effective substitutes can be used therefor, and because 
pajmients in many cases are by agreement delayed. 

Money with respect to its rapidity of circulation may be divided 
into three parts : first, the portion among the people, in their pockets, 
which circulates with varying rapidity in different sections of the 
country; second, the portion on deposit in banking institutions, 
through which agencies its circulation is vastly accelerated ; thirdly, 
the portion which circulates least rapidly, that is held by monetary 
institutions as a reserve for paying depositors, or other liabilities. 

But it may be asked: "Is not the varying interest rate an 
infallible test of the changing demand, a true barometer, and does 
not the change of interest rate for money affect the prices of other 
things?" Let us, in the way of answer, look at some actual cases. 
Two merchants are competitors in business. The one employs his 
own capital; the other, borrowed money. Must not the latter sell 
his goods at as low price as his competitor in order to win and 
retain trade? The interest must come out of his profit-margin. 
Again, two merchants borrow more or less, paying varying rates 
of interest ; but this fact will not reveal itself in different prices of 
goods. Let us take another case of merchants in a community where 
all borrow, and where the interest rate, very high perhaps, has 
been taken into account in fixing the price for their goods in the 
beginning. Nevertheless, should variations in interest occur, these 
would hardly be declared in new prices for their goods, save 
under extraordinary conditions. In short, we think it can be main- 
tained, though much is said about the varying rates of interest, 
that the variation in mercantile loans is too small to form an element 
of influence in changing the prices of general commodities. 

On the other hand, it is admitted that, under exceptional condi- 
tions, the opposite statement may be the truth. Thus, in New York 
City, a few banks, taking advantage of the peculiar conditions exist- 
ing there for balances demanded by western banking institutions, 
often exact a high rate of interest from borrowers on call ; so high 
indeed that some would-be borrowers prefer to sell their stocks, 
even at losing prices, rather than pay. In other words, the high 
rates exacted check speculation and perhaps force liquidaticm. Such 
conditions may exist in other markets, but only on rare occasions. 

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They ate in every sense exceptional, and not the occurrences of 
normal business. 

The fact, therefore, that the demand for money as a commodity 
changes, and that these changes are registered in the varying rates 
of interest is little or no indication that the varying demand has 
any appreciable eflfect in the way of changing prices of the com- 
modities bought and sold. Proof of the assertion lies all around us 
and may be readily observed. An increased demand for money 
and higher interest rate may not lessen bujring and weaken prices, 
nor a diminished demand and lower rate stimulate them. . Prices 
rise and fall quite independently, and generally without regard to 
the interest rate; this is the common experience of the mercantile 

But it may be again asked: "Is not the object of obtaining 
money to exchange other things therefor? And, if so, will not an 
advance in the interest rate (which means an inadequate supply) 
check loans, and thereby diminish purchases, and thus ultimately 
lessen prices ?" To this inquiry there is a complete answer. First, 
many loans are made to pay for past purchases. In other cases, 
perhaps in the larger number of cases, a loan is contemporaneous 
with a purchase; in other words money is borrowed to devote to 
the payment of a particular purchase. The higher rate, if demanded, 
has not prevented the purchase, for it has been made. Again, if the 
effect of higher rates were to check purchases, the check ought to 
prove an unfailing corrective and bring rates down. 

The way is now prepared to see clearly our ground. Once 
exchanges were usually effected by means of barter, and they still 
are on a colossal scale; while the smaller ones are effected by the 
use of money. The civilized world having beccmie accustomed to 
the mode of effecting the smaller exchanges, and having obtained 
a sufficient supply of money for this purpose, we contend that fluctu- 
ations in prices are rarely caused by any changes in the monetary 
medium. What has led many people astray is a wrong interpreta- 
tion of facts. Thus, during the American Civil War there was 
a vast increase in the monetary medium, and also in prices and in 
the volume of Business. Soon after the close of the war the govern- 
ment began a policy of contraction, with the view to restoring specie 
payments. Soon business began to wither and dry up, and many 
ascribed the unwelcome change to the acticm of the government 
in contracting the currency. The real cause was the decline in the 

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government demand for the chief supplies of life, which had been 
enormous. The monthly withdrawal of $4,000,000 of currency had 
no more real effect in curtailing business, except in the imaginations 
of men, than the movements of the stars. 

More recently another wave of depression passed over the country 
during the demonetization of silver, and many, with as little reason, 
accredited the depression to this cause. In both cases there were a 
diminution in the volume of business and a decline in prices, solely 
because there was a smaller demand for goods, not because there 
was an insufficient supply of money to effect exchanges. 

Lastly, the increase in the gold supply has no more effect in 
expanding business and raising prices than a thunder-shower would 
have in raising the waters of the Atlantic. Prices rise and 
fall every day, week, and month, and yet the volume of currency, 
including the supply of gold, is constantly advancing. The fluctua- 
tions vary greatly, but of late years there has been a strong general 
tendency upward ; yet sooner or later the unwelcome visitation 
of a business depression will come with a decline in prices, just as 
surely as if not a single dollar had been added to the world's gold 

It is true that, imder abnormal conditions, both the quality and 
quantity of money may be a price-making factor. Thus, if the 
money in use is debased, prices will fall; the workingman will 
demand more for his labor to cover the depreciation and so will 
the merchant for his goods. The American pec^le were treated 
to an illustration on a great scale during the Civil War, when an 
excess of paper money was issued, causing a general fear of its 
redemption. It is true that the great rise of prices at that time was 
not a mere registration of depreciated currency ; a part of the rise 
was caused by an enormous demand for the entire range of com- 
modities, as has been the case in the like rise in prices within 
recent years while the currency has been in a normal condition. 

Again, there may be a sudden unusual demand for more money, 
which, if not met, may result in the general fall of prices. Thus 
years ago millions of money were hoarded by persons having large 
payments to make — manufacturers and the like — through fear that, 
if the accumulation were not made, they would not have the means 
needful for pay-days and to meet varied obligations. In other 
words they distrusted the ability of the bank to meet all demands 
for deposits. Manufacturers knew that a steady depletion of the 

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monetary fluid was going on, and feared the consequences. Such 
a state of things retards the execution of many enterprises, fewer 
men are employed, they have less money to spend, and prices fall, 
Under these conditions it may be truly said that prices are affected 
by the insufficient monetary supply. These abnormal conditions 
are never long endured. Moreover, if they were to become per- 
manent, prices would harmonize with the diminished monetary 
supply, and things would go on as before. 

Passing from retail to whole^le prices, what shall be said of 
them? Let us suppose that a wholesale buyer purchases on long 
credit. He informs the vendor that he has no means to pay until 
he can sell the goods and collect from the retail buyer. This was 
the condition of much of the South American trade a few years 
ago, and probably still is to some extent. Sales were made on 
long time to enable the buyer to make collections before pajring. 
Of such sales it may be asserted that the prices depend to a large 
degree on the prices that can probably be obtained by the wholesale 
buyer from the retail buyer; while the price he in turn can com- 
mand depends on the quantity of money the final purchasers possess ; 
who, in turn, must depend for obtaining it on the sale of their 
labor or their products ; in other words, on general prosperity. 

Suppose, however, that the wholesale purchaser does not wish 
to wait so long, but resorts to credit, are prices anywise different — 
leaving out the question of insurance for bad debts, and other 
elements of that nature lying outside the field of dispute — from 
what they would be were these larger payments made in money? 
The means of payment does not enter into the proposed prices for 
the reason that he possesses an ample fund, or can obtain it for 
the asking, knowing there is ordinarily an unlimited supply within 
his command. 

There may be indeed two prices, one for cash and another for 
credit. But this does not, we conceive, affect the question of 
purchasing one way or the other. If the buyer has not the money 
to pay and borrows, in the purchasing and estimating his future 
profit the interest paid becomes simply an element in his profit- 
margin. Even if he had money enough without ever borrowing, 
the same consideration would, in another way, enter into his 
calculation. If he cannot get more than ordinary interest on his 
money in the way of profit in his business, he will not continue 

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therein with all its risks and cares. We may, therefore, dismiss 
interest as a price element from our inquiry. 

Returning therefore to the statement that there is an ample 
supply of money, imder ordinary ccmditions in the commercial world, 
where the banking system is fully developed and the credit of bor- 
rowers is established, what proof is needed to remove all doubt of 
the correctness of the statement? Suppose in the village of Aix 
there are four banks, and that yesterday morning each of them had 
a loanable fund of $10,000. Suppose they lend it, and that during 
the day the borrowers chedc it all out, while the receivers of the 
checks deposit them in the four banks, though not in all cases in 
the bank on which the checks were drawn. Early the next day 
the checks are cleared, and the four banks at the end of the settle- 
ment find themselves in possession of $10,000, the same as the day 
before. Can they not lend this money if it is wanted? It has 
performed its office; has returned to the banks; and they are just 
as free to lend it as they were on the previous day. And this 
process, under the same conditions, could be repeated many times 
with safety. 

Is there any forgotten element in this analysis? The bank on 
its side is not dealing with mere wind, in mere credit, as so many 
writers have asserted, but with money, a real thing as much as 
com or iron. The bank loaned money yesterday, not credit ; it has 
the same amount of money, not credit, to lend today; and it can 
make a second series of loans just as safely as it made the first. 

Let us illustrate the statement in another way. Formerly, when 
the state banks made loans based chiefly on their own notes, it may 
be truly said that the operaticm of lending consisted in exchanging 
individual credit for bank credit ; a narrow or more local credit for 
a broader or more general one. It must, we think, be admitted 
by everyone that wherever that system prevailed money was an 
unlimited supply, bounded only by the supply of paper and the 
capabilities of the printer. Whoever wanted bank credit could get 
it so far as the medium of payment entered into the operation. 
There was never lack of supply. 

Today the banks pay in money. It is true that a portion may 
be their own notes ; but the means of payment is radically changed. 
The ability to make notes, as all know, is rigidly limited, and they 
are based essentially on wealth, actual or potential. But while 

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Banks no longer lend their credit as in former days but money* 
— ^by which we mean gold, silver, and government and bank notes, 
excluding checks, and all other notes of private or municipal cor- 
porations and individuals for money — ^yet the supply of this for 
lending purposes increases in the manner described, and conse- 
quently is, under ordinary conditions, practically unlimited. 

One may, however, ask : "Is it really true that four banks had 
$40,000 on the second day to lend ? Were they not required, let us 
say, to keep 25 per cent, of it as a reserve to answer the calls of 
the depositors? And, if this be true, would not the fund, after 
relending a few times more, be exhausted ?" Two answers may be 
made to this inquiry. In many states and places no fixed reserve fund 
is required or kept. But suppose law and usage require this to be 
done, as it surely ought, the objection may be easily answered in 
another way. There are always many depositors who do not desire 
loans, and while their deposits and withdrawals can never be pre- 
cisely foretold, there is a balance in their favor that may be loaned, 
usually much larger in amount than the reserve that need be kept 
In other words, assuming that of the $40,000 above mentioned only 
$30,000 can be loaned it may also be assumed that other depositors 
or borrowers have put into the bank at least $10,000 more during 
the day, and thus have kept the loanable fund good. For we must 
not forget that, imder ordinary conditions, all loans by banks have 
their correlative in payments to them. 

Let us loc4c at the cycle of transactions in a large city such as 
New York or Boston. Loans are desired of banks, and applications 
are granted. The applicants may desire new funds for several pur- 
poses — to pay debts, or to strengthen their accounts at the bank — 
without the thought of any special use of the money. A portion of 
the loans thus granted and credited to borrowers is checked out, 
some of the checks are sent away from the city, the others are 
quickly deposited in the city banks. During the day fresh deposits 
of money and checks are received in payment of merchandise and 
notes, and other obligations. Every day an exchange of checks 
between the banks is made, and the differences are paid in money. 
What is the monetary condition of the banks at the end of such a 
settlement? Ordinarily the sum of money is quite as large as the 

^ Of course, the borrower is seeking capital, but, as between bank and 
borrower, the capital takes the form of money, or its representatives, or 

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day before ; and the fund can be loaned again without regard to the 
action of the banks on the previous day. This is a bald statement 
of fact, which anyone can easily verify by an inquiry of any banker. 
"Here is a vast amount of loans," declares same doubting reader, 
"which the banks have granted, but have not in fact paid. How 
can they take the money they have once lent and lend it again?" 
The reply is: "How dare they lend for two, three, or even four 
months, the deposits they have agreed to keep and return on 
demand? May they not be all demanded, and what will then hap- 
pen?" This is possible, and more than once has happened. But 
bankers know from long experience that they can safely lend the 
larger portion, because fresh supplies may be expected from 
depositors and borrowers. 

Let us not forget that in wholesale transactions, if money is 
taken from the bank, it flows bacic again in most cases very quickly, 
especially if used in the same city or vicinity. Generally, how- 
ever, money for large payments is checked out, not drawn out, and 
the checks soon find their way back to the drawee bank or to other 
banking institutions. Indeed, as everyone knows, the larger part 
of the money lent is not disturbed at all, and can be, and is, lent 
again and again with safety. 

Let us also keep in sight the fact that in this country many, 
perhaps most, of the larger Business concerns keep an account with 
one or more New York banks, and make many payments through 
them, thereby expediting settlements and economizing the use of 
money. In general, the trend of business throughout the greater 
part of the commercial world is to use money more rapidly, to 
make less and less actual use of it, to keep more and more <xi 
deposit in the banks, and thus to swell the fund that may be loaned. 
An objector may assert there must be some flaw in this theory ; 
otherwise a bank by the simple process of lending could heap up 
a vast deposit. Is it possible to create something, a real deposit, 
out of a negative, a debt ? Suppose A wishes to borrow $50,000, to 
make a payment for that amount, but dares ask for only one-fifth 
of fliat sum, and that his application is granted. He does not draw 
out the money, however, and a few days later makes a similar appli- 
cation. The bank, having his undrawn loan, and perhaps more, 
grants the request; and the process goes on until he has acquired 
his loan of $50,000, which is all lying in the bank. Others, seeing 
the bank's statement, wonder at the rapid increase of the bank's 

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deposits, and how it happened. Suddenly the amount is at once 
withdrawn or demanded. The bank, not expecting or prepared for 
such a demand, does not have that amount on hand. The objector 
triumphantly exclaims: "Behold how your increase has vanished 1 
Does not this prove that you cannot build up deposits on loans?" 
Well, if you cannot, how has the City National Bank of New York 
acquired its $140,000,000? Is not every dollar of this huge sum a 
debt which the bank owes to its depositors? 

The only difference between the case of borrower A and other 
depositors is this: He is acquiring through the bank's action a 
deposit of money, all of which he intends to withdraw; the other 
depositors have no such intention. It is a risky thing to permit 
a man to create a deposit under such circumstances, and no bank 
will knowingly do it, for such action jeopardizes a bank's existence. 
But it is possible for a bank to do such a thing, lend the money of 
a depositor over and over again without any harm to itself. In 
truth, banks are doing this thing every day. On the other hand, 
there is the ever-present danger that more money will be demanded 
by depositors than the bank possesses, and this brings me to the 
limitations of the above theory. 

Practically an unlimited supply exists only during normal condi- 
tions. And the first limitation arises when a loan is asked largely 
in excess of the ordinary amount. No bank professes to be pre- 
pared for this, and the payment of such a sum may, and generally 
does, enter into the price of tfie thing for which it is to be used. 
Thus, if Mr. Morgan negotiates for the purchase of a railroad, 
the means and time of payment doubtless affect the price. No bank 
expects to make a $10,000,000 loan save on notice, and only a very 
few under any conditions. Unlimited supply must therefore be 
confined to the wants of ordinary borrowers — merchants, manu- 
facturers, and others engaged in the ordinary operations of produc- 
tion and exchange. 

The second limitation is found in the fact that the unlimited 
supply exists only while business is in a normal, regular condition. 
When depositors, through fear of the solvency of their bank or for 
other reasons, begin to feel that they cannot obtain all the money 
that they may need to pay their notes or other demands that are 
imperative, as usual, and therefore make unusual demands, the 
unlimited supply no longer exists; and under this condition the 

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means of pa)rment becomes a price-making factor, and often a very 
important one. 

It is not difficult to understand the nature of this change. Credit 
has not collapsed in the sense that banks have less faith in the 
ability of men to pay than before, but they have not the means to help 
borrowers. Why? Because depositors are withdrawing and with- 
holding the means and hoarding it. The situation is always serious 
when depositors begin to make unusual demands for their deposits ; 
but the situation is still more intensified by their withholding the 
money flowing to them from ordinary sources, instead of depositing 
it as they do at other times. By this double drastic process of tap- 
ping the life-blood of a bank, its funds for making payments of any 
kind to depositors or borrowers may be quickly exhausted. On 
the other hand, as soon as depositors recover from their scare and 
put their hoarded money back into the ordinary channels of circula- 
tion, and cease to impound any more, the unlimited bank supply 
again exists. 

Thus it will be seen that the unlimited supply exists only while 
this wonderful go-between, money, moves around society under 
normal conditions ; that is, so long as faith between banks and the 
ccMnmercial world outside is unquestioned. Just as soon as men 
begin to fear that they cannot get actual money, not credit, needed 
to transact their business and build dams to intercept its ordinary 
movement, it inevitably follows that loan operations, transactions 
requiring money payments of every kind, may suddenly and 
temporarily become uncertain. 

What, then, is the doctrine of our paper ? Once people exchanged 
their goods directly with each other; later money was invented to 
facilitate exchanges by parting with, or bartering, goods not desired 
for money, and with this obtaining other goods that were needed. 
The world of exchange accommodated itself to this new condition 
and obtained in due time all the money required for the purpose. 
By far the larger portion, by reason of its very nature, unlike any 
other commodity, is kept in constant use, and the amount is so 
large that exchanges are thereby neither impeded nor accelerated; 
only extraordinary withdrawals or additions have this eflfect. 
Furthermore, while exchanges are constantly assuming larger pro- 
portions annually, if there were no corresponding addition to the 
monetary supply, there would be but little, if any, danger of a dis- 

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arrangement of prices, for the reason that the greater volume of 
exchanges is effected, as we Have shown, through the extension oa 
a large scale of the modem method of barter, and only compara- 
tively small sums of money are needed to pay the balances resulting 
from these transactions. 

And herein is the answer to the belief, entertained by some 
persons, that the need for more money is greater than it was a few 
years ago, because of the general rise of prices. All the larger 
payments are paid in checks, and these are discharged, as we have 
already explained, with the use of only a small amount of money. 
A larger sum to discharge employers' pay-rolls is the only impor- 
tant additional demand; and this in turn is often met by giving 
checks instead of money — an improvement with many valid reasons 
in favor of the innovation. 

It is of the highest importance that this question should be 
studied until sound conclusions are reached, for the reason that, 
when the next business depression comes — which, let us hope, is far 
off — 2i large party of business-restorers will doubtless spring up, 
who, if not finding a cause of the depression in some kind of cur- 
rency contraction, will find an infallible cure in its expansion. All, 
therefore, should be taught how small a part the currency plays in 
changing prices or facilitating exchanges, so long as the existing 
quantity is k6pt sound and employed in its proper uses. There 
should always be kept in the front in every discussion of this subject 
the familiar fact that the people are after money only for temporary 
use, as a medium for getting other things. What they really are 
after is land, stocks, merchandise — ^money cutting no important 
figure in obtaining these things, not affecting their prices, unless 
the supply for some unusual reason has greatly changed. 

Albert S. Boixbs 


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In her very interesting study of "The Industrial Employment of 
Women in the United States," Miss Edith Abbott makes some 
striking assertions in regard to the tendency of this important 
phenomenon. These assertions, based upon a wealth of statistical 
material, are so different from the commonly accepted views of the 
subject that Miss Edith Abbott is certainly to be congratulated, if 
she has actually succeeded in establishing new and important eco- 
nomic generalizations. But before the statistical fraternity will 
accept these generalizations, a careful verification of the data would 
seem to be necessary. 

It has been the accepted maxim with all who have studied 
the industrial development of this country that the proportion of 
women in American industries is increasing. Not cmly census 
figures, but many direct statements in the census reports, may be 
quoted to that effect The statistics of occupations has shown that 
the proporticMi of women "employed in manufacturing and mechani- 
cal pursuits" has increased from 13.0 per cent in 1870 to 16.6 per 
cent in 1880, to 18.1 per cent, in 1890, and to 18.5 per cent in 
1900. But, says Miss Abbott, this census statement is misleading, 
since it relates to changes only during the last thirty years, frc»n 
1870 to 1900. The statement is further made that "this increase has 
been far from enabling the women to recover the ground lost 
between 1850 and 1870, and the long-time point of view would have 
disclosed a tendency exactly the reverse of that indicated by the 

The data for this striking conclusion are all to be found in the 
table given on page 488. It is to be very much regretted that, in an 
article containing about 150 references to a wealth of authorities, 
only this, the most important table, is left without any indications 
as to its exact sources. The table is entitled as follows: "Table 
Showing the Relative Number of Women and Men Employed in 
Manufacturing and Mechanical Pursuits from 1850 to 1900." I 
confess, it was this title that made me suspicious in regard to the 
accuracy of the data. For I remember that the accurate occupation 


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statistics of the censuses did not go back of 1870 ; the author of the 
report on Occupations at the Twelfth Census makes the authorita- 
tive statement that the return of occupations in 1850 did not apply 
to females ; in i860, while both sexes were included, the report con- 
tains the number of persons m each occupation "without distinction 
of sex." Again, the inquiry related only to free inhabitants, which 
of itself would invalidate all comparisons. 

Now, the data in the table on page 488 for the last four censuses 
are the data for occupation statistics; they contain the well-known 
percentages which I have quoted above — ^namely, 13.0, 16.6, 18. i, 
and 18.5. Yet they also contain the startling data showing that 
in i860 the proportion of women in "mechanical and manufactur- 
ing pursuits" was 20.65 P^^ cent., and in 1850 even 23.65 per cent ; 
in other words, that during those twenty years the proporticm of 
women in these occupations was decreasing, and that very rapidly. 

Where, then, has Miss Abbott obtained these data, the existence 
of which the census denies? A search through the volumes of the 
Twelfth Census reveals the following: The data quoted for 1850 
and i860 are not occupation statistics at all ; they do not show the 
number employed in "manufacturing and mechanical industries," 
but instead are the figures of the censuses of manufactures and 
show the "average number of wage-workers as reported by the 
manufacturers." ^ 

Anyone familiar with the publications of the Census Office 
knows that in regard to this "average number of wage-workers 
employed in the manufactures" the methods used by the various 
censuses have been so different as to make any comparison very 
difficult and unreliable. But to compare the data of the statistics 
of manufactures of those two early censuses with the occupations 
statistics of the later four censuses, without even stating the 
unusual method used, is certainly a very hazardous undertaking; 
and it is not surprising that by means of such methods very novel 
results have been obtained. 

The problem involved is of such importance that one is justified 
in going into detailed criticism of this risky statistical method and 
the fallacies consequent thereto; and I take the liberty to ask the 
interested reader to keep that table before his eyes in following 
my argument. According to the occupation statistics of 1870, 
the number of people in mechanical and manufacturing pursuits 

* See the Twelfth Census, Vol. VII, p. xlvii. 

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was 2,701421, while the number reported in the statistics of manu- 
factures was 2,053,996; for the year 1880 the numbers are respectively 
3,784,726 and 2,732,595; in 1890, 5fi77A^ and 4,251,613; and 
finally in 1900, 7,085,329 and 5,316,802. This is sufficient evidence 
how incomparable the data are. 

Nevertheless, the question may be asked: Granted that the 
totals obtained by these two methods are very unlike, what reason 
is there to think that distribution between the sexes is affected 
thereby? And if the sex distribution be not specifically affected, 
may not the data still be compared for that particular problem of 
sex distribution? 

In the data for manufactures in 1850 and i860 the wage-workers 
are divided into men, women, and children, the sex of the latter 
not being indicated, so that a comparison is made difficult Never- 
theless, the following startling comparison may be obtained by 
means of a simple calculation : 

Pescemtagk o7 Women Employed 

According to Occu- 
pation StatisticB 

According to Manu- 
facture Statistics 

Pescsntage of 
Childken Employ- 

Statistics ot 



19. 1 
30. o 




It is seen, then, that in the statistics of manufactures the propor- 
tion of working-women is invariably greater than that shown in 
the statistics of occupations. It is also necessary to point out that 
in the second column the girls have not been taken into considera- 
tion, their number not being known ; but adding them to the pro- 
porticMi of women would evidently further increase the difference. 

Now, the main reason for this discrepancy is undoubtedly the 
fact, entirely overlooked by Miss Abbott, that the statistics of occu- 
pations include building trades and miners under "mechanical and 
manufacturing pursuits," while the data of the statistics of manu- 
factures do not, and these two groups do not contain any women. 
Their inclusion in one case and their exclusion in the other case 
will make a very great difference in the percentage of women. But 
there are also other reasons to think that the statistics of occupations 
are much more dependable for the problem under discussion, for no 

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census of manufactures can possibly be complete. Only in the latest 
census have the small industrial establishments been carefully 
canvassed ; and it is a well-recognized fact that as we go back the 
number of small establishments existing, and especially the propor^ 
tion of those omitted, is rapidly increasing. 

The small industrial establishments employing no hired labor, 
or perhaps one or two hands, must have been very numerous in the 
first half of the past century, and these establishments very rarely 
employed female labor. The omission of these has imduly exagger- 
ated the proportion of women employed. 

That these are not mere assumptions is shown by the very table 
which we are criticizing. But, unfortunately. Miss Abbott has 
overlooked these important facts; for, according to this table, the 
number of men employed in manufactures and mechanical pursuits 
has increased from 1,040,349 in i860 to 2,353,471 in 1870, or pro- 
portionately to the male population over ten years of age from 
90.25 per thousand in i860 to 165.06 per thousand in 1870. Miss 
Abbott uses these comparative figures in her text, and makes a g^eat 
deal of them ; but, in comparing the figures for 1850 and 1900 (86 
as against 194 per thousand, or an increase of 108 j)er thousand in 
fifty years), she does not notice that, according to her table, the 
greatest proportionate increase has taken place between i860 and 
1870, namely 75 per thousand; and therefore she is perfectly 
oblivious to the fact that this seeming sudden rise in American 
manufactures in the sixties, which no historian has previously 
noticed, is simply due to a sudden change of a statistical method. 

It is only necessary to say that, according to the occupation 
statistics of 1850 and i860 (which may be found in the vdume on 
Occupations of the Twelfth Census), the number of wcwkers 
employed in the building trades was: in 1850, 325,585, in i860, 
428,825,* and in 1870, 593,337; that these buildings trades are 

'In 1850 the total number of male persons employed in manufacturing and 
mechanical pursuits was about 1,332,000, as an addition of all the items in Table 
V ("Occupations at the Twelfth Census") shows. The data reported for manu- 
factures for that year show 73i»i37 ; and if to the latter figures be added 325,585 
persons in the building trades, 82,390 miners, and 22,616 manufacturers — three 
clases not containing any women — we get a total of 1,161,628 men, as against 
225,922 women. Even presuming the census of manufactures to be correct 
as far as all the other industries are concerned, the proportion of women is only 
16.3 per cent, instead of 23.6 per cent The same calculation for i860 shows 
428,825 men in the building trades, 158,157 miners^ and 22,750 manufacturers, 

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included in the statistics of 1870, and not included in. the data of the 
preceding two decades by Miss Abbott ; that in 1870 the number of 
women employed in the building trades was exactly 2,660 ; that the 
miners are also excluded in 1850 and i860, and included in the 
following years ; and, finally that, even manufacturers are included 
in 1 870-1900, and not before (and the number of manufacturers in 
1900 was 243,000, with only 3,360 women) — to see what little 
foundation there is for the supposition made by Miss Abbott that 
1870 represents a "point of depression*' in the employment of women, 
and how hasty she is in condemning the census for chosing this 
"point of depression" as a basis of comparisons with recent years. 
This "point of depression" is purely illusory, and caused by an 
effort to make a comparison beyond the point of existing data — an 
effort which the census very properly refused to make. 

This illusion has had a very deep effect upon the entire work of 
Miss Abbott. In many tables the proportion of women in various 
separate industries is studied, and everywhere the same mysterious 
point of depression is found. The persistency of this phenomenon 
should have aroused the suspicions of the investigator, as every- 
where this "point" coincided with the radical change of method; 
instead, it seems to have strengthened the conviction that an impor- 
tant discovery has been made. The real reason for this seems to 
have been a misunderstanding of the word "census," which 
includes many different sources of informaticm. Various frag- 
mentary sources have been used for conditions before 1850, but 
since 1850 and until 1900 federal census statistics have been 
used (see footnote 96), and therefore the unwarranted con- 
clusion that figures for 1850- 1900 are of necessity comparable. 

In the study of individual industries the absence of the building 
trades and miners in the data of 1850 and i860 could not, naturally, 
be felt The more interesting is the evidence that, even were it not 
for these important omissions, the data for manufactures and of 
occupations are not comparable. It is not necessary to go into a 
very exhaustive analysis of all the faulty statistics quoted. Moreover, 
in a few industries, as in the cotton industry, the observation as to a 
decrease of the proportion of women is imdoubtedly correct, though 
the faulty data used by Miss Abbott greatly exaggerate it. But 

which added to the total of 1,311,346 gives a grand total of 1,931,978; and the 
proportion of. women drops down 14.1 per cent, instead of 30.6 per cent While 
much lower than the percentages obtained by Miss Abbott, and undoubtedly 
nearer the truth, they are still arbitrary and of little scientific worth. 

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in the cotton industry there is no point of depression in 1870; there 
is instead a continuous decrease from 1850 to 1900 (table p. 484). 

Only one set of figures will be analyzed — where the "point of 
depression" is greatest, and where, as a matter of fact, the fallacies 
committed are most palpable; that is, the "boots and shoes indus- 
try." The proportion of women in that industry is claimed to be : 

183 1 504 

1^27 39.3 

184s 40.7 

1850 31.3 

i860 23.1 

1870 5.6 

1880 10.8 

1890 15.7 

1900 18.9 

Truly a most surprising column, which would baffle the most 
learned student of American economic history. The very inspection 
of these figures should be evidence conclusive of their untrust- 
worthiness; and the fallacy here is an economic and historic no 
less than a statistical one. 

Does Miss Abbott suppose that seventy-five years ago half of 
our shoemakers were women? Who has ever seen a woman cob- 
bler? Yet seventy-five years ago the manufacture of shoes as a 
large industry was in its infancy. It is explained in footnotes that 
the data for 1831 are for Lynn alone, and the data for 1837 and 
1845 for Massachusetts alone — ^a shoe-manufacturing state. The 
rest of the data are for the entire United States. But there again 
the data for 1850 and i860 pertain to the manufactures of boots and 
shoes, while for the years 1870-1900 the data are for the occupa- 
tional class, "boot- and shoemakers and repairers," which includes 
all the cobblers. Is it necessary to point out how misleading such a 
comparison is? 

If Miss Abbott wanted to trace the changes in the proportion 
of women in the industry "boot and shoes, factory product," she 
could have done so ; but she should have used the data of the statis- 
tics of manufactures for all the later years as well, and not have 
reverted to the occupation statistics. She would then have seen 
that in 1880 the prc^rtion of women in that industry was 22.6 per 
cent. ; in 1890, 29.8 per cent. ; in 1900, 33.7 per cent. — a«id that not 




including the girls below sixteen years of age — ^and not 10.8, 15.7, 
and 18.9 per cent, as appears from the occupational statistics. And 
the cause of this difference is easily understood, if one but glances 
at the data for the industry "boot and shoes, custom work and 
repairing," where the women constituted in 1880 only 3.6 per cent. 
(824 out of 22,667) ; in 1890, 2.4 per cent. (405 out of 16,991) ; and 
in 1900, 1.3 per cent. (126 out of 9,698). Yet in the occupation 
statistics both these groups are thrown together; and those are the 
figures which Miss Abbott compares with the factory data of 1850 
and i86o!» 

The whole argument represents a most interesting combination 
of statistical fallacies, which a professional statistician enjoys to 
unravel. Still; this prolonged criticism would hardly be worth 
while, if not for the fact that Miss Abbott's studies on the problem 
of employment of women are among the most painstaking private 
investigations and are attracting considerable attention. The 
fallacies committed by her, therefore, threaten to lead to such wide- 
spread erroneous popular conceptions that early refutation becomes 
a duty, more especially since the article in question is stated to be 
"part of a larger history of women's work and wages in this 
country." The reappearance of these serious fallacies in the book 
would be regrettable indeed. 

Bureau of Statistics 
U. S. Department of Agriculture 
Washington^ D. C. 

'According to the statistics of occupations there were employed in 1900, 
i63>393 men and 39,519 women in "shoe-making and repairing. According to 
the census of manufacture there were in all the four industries corresponding 
to the same group, 96,978 men, 50,608 women, and 4,740 children in all branches 
of the shoe and boot industry. The smaller number of men may be explained 
by the failure of the census of manufactures to include all the cobblers, though 
the census of 1900 made greater efforts than any other census to include the 
hand trades. But how may one explain that the census of manufactures shows 
11,000 more women than the census of occupations? May not one advance 
the hypothesis that shoe-making was one of the industries of which women 
are ashamed, and which they therefore tried to deny in the answers to the 
census enumerators? 

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Industrial America. Berlin Lectures of 1906. By J. Laurence 
Laughlin, Ph.D. New York: Charles Scriteer's Sons.. 
Pp. 261. 

In the seven lectures contained in this volume Professor 
Laughlin, during the past summer, presented to German audiences, 
in the German language, the principal features of existing indus- 
trial problems in the United States. The themes discussed embrace 
protectionism and reciprocity, the labor problem, the trust prob- 
lem, the railway question, and the banking problem. There is an 
introductory chapter on American competition with Europe, and 
a concluding chapter on the present status of economic thinking 
in the United States. 

As the author's aim was to clear the ground for correct thinking 
by foreigners on these subjects, much of the work has an elementary 
flavor ; yet there is nothing now in print Letter worth the attention 
of American readers of average intelligence, who are looking for 
explanations of those problems at once clear, calm, and of moderate 
compass. Hence the brief apology in the preface for presenting to 
our own people the results of studies undertaken primarily for 
Germans in Germany is imnecessary. 

The introductory chapter, on American competition with 
Europe, contains an interesting array of facts, but no novel sug- 
gestion, except possibly the lecturer's admonition to his hearers 
that, if they would have the most efficient masters of production in 
the industrial field, they must put them on an equal footing with 
the learned professions, as regards social position. The steel-maker 
must rank with the lawyer, the parliamentarian, the college pro- 
fessor, each according to his grade in his own calling. "The ablest 
men in America," he says, "are not in the army, or navy, or in 
the public service, but in industry. In most countries of Europe 
until lately this is exactly the reverse." Until lately! Such 
words imply that this industrial drawback, if it be such, is already 
correcting itself. There is perhaps nothing which stands less in 
need of stimulus than the readiness of society in both Europe and 
America to make room for the almighty dollar. 


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Professor Burgess has been much maltreated by the press on 
account of some remarks made in his first lecture in Germany on 
protectionism and the Monroe doctrine. The verbatim report, 
which followed at a long interval behind the telegraphic synopsis, 
was quite mild in its treatment of the tariff, in compariscxi with 
Professor Laughlin's. Professor Burgess said that in the minds of 
the educated classes in America the doctrine of protection is 
superannuated and sh(q)-wom — ^which is true. Professor Laughlin 
is more incisive. In his exordium he likens the tariff to a savage 
animal with sharp teeth, that a hunter (Uncle Sam) has caught in 
such a way that it cannot Wte while the latter maintains his grip 
firmly, but the himter is very anxious to find somebody to help him 
let go. Other figures of speech disrespectful to the "standpatters" 
are found, but it must not be inferred that the author looks at the 
tariff mainly in its humorous aspects. A more weighty treatment 
of a serious theme can hardly be found than his exposure of the 
political virus and the socialistic germs bom of protectionism and 
growing visibly from day to day. 

There is a great deal of loose talk in the newspapers and on 
the platform about "settling the labor question," by which is com- 
monly meant such an adjustment of the pay, the hours, and the 
environment of wage-earners that controversies between them and 
their employers shall cease. Professor Laughlin does not look for 
any such settlement. "The rank and file of the laboring class fully 
believe that there is no economic reason why the wages, for instance, 
of a plumber now receiving $4 per day should not be increased 
to $10 or even to $50 per day." There is no reason except the fact 
that the business cannot afford it. But the plumbers will not 
take the employer's word for that In order to find the economic 
limit for themselves, they will form a union, make demands, and 
strike from time to time. The process will be repeated as often as 
they think they can secure higher pay, or shorter hours, or better 
conditions; and the process will keep pace with the process of the 
suns. This outlook may be painful for the lovers of peace and 
quiet to ccmtemplate, but the alternative is state socialism, which 
would be far worse. Yet Professor Laughlin is no pessimist. The 
general ferment in the field of labor, in his view, "is but the sign 
of an awakening desire for better things on the part of a virile 
and ingenious race," and it will lead to a higher standard of living 

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which will add to the productiveness of labor, to the intelligence 
and reasonableness of the laborer, and to the advantage of the 

The author makes it pretty clear — ^and here he follows Professor 
J. B. Qark, to whom due credit is given — that indiscriminate trust- 
killing is no remedy for any present industrial evil. The trusts 
have cheapened both production and distribution enormously, and 
this makes for the common good. The trust problem is not to be 
solved by the thunder of the captains and the shouting, as a recent 
candidate for governor of New York imagined. Trust regulation 
does not necessarily mean trust destruction. "The problem of 
regulation is to permit large companies, but to prevent, if possible, 
monopoly." Monopoly has existed because discriminations in the 
market have been tolerated, such as secret rebates in transportation, 
secret (and sometimes open) discrimination in the sale of goods. 
The New York Central Railway Company, has been convicted in 
court and heavily fined for giving rebates to the Sugar Trust. The 
Sugar Trust itself has often crushed competition by making its 
prices lower in one part of the country than in other parts, perhaps 
with the help of the railroads, perhaps not. Congress and the 
courts have found a way to reach the offending carriers. May 
they not reach the discriminating sellers also by making it a criminal 
offense for a trust to charge different prices to different buyers? 
We are at the threshold of this and similar inquiries now. The 
suit against the Standard Oil "holding company" is interesting 
because it points to the solution of the general problem. 

Society is setting itself to work to retain all the essential advantages of 
large operations, and yet to protect the rights of individuals. There is no 
reason yet to believe that this task, any more than others in the past, is 
beyond the powers of the American people with its Anglo-Saxon traditions. 

The words here quoted are seemingly confirmed by the New York 
election, although they were written months before the issues of 
that campaign were settled. 

It is a short step from the trust question to the railway question. 
The trust and the railway feed each other from the public corpus. 
Which of the two is the greater sinner it is not easy to say. Most 
commonly the railways receive the first chastisement, but they are 
perhaps not the first to deserve it. "The large shippers have their 
heels on the necks of the railways." The founder of the house of 
Vanderbilt, a man accustomed to ride rough-shod over everybody 

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and everything, once said that there was only one man in the world 
whom he was afraid of, and his name was Rockefeller. This was 
said at a time when the latter was known only in a narrow circle, 
but he already had the power to control the shipment of oil in large 
quantities. So old Commodore VanderWlt was deferential and 
obsequious to young Mr. Rockefeller, although he was the Grand 
Turk to everybody else. The Oil Trust, the Sugar Trust, the Beef 
Trust, and all the other large shippers, whether corporate or non- 
corporate, each holds a whip over the railway traffic manager who 
has been, these many years, debating the question whether he can 
best afford to brave the terrors of the law or those of the whip- 
holder. As the latter are near and certain, while the former are 
remote and doubtful, the decision has usually been in favor of 
illegal rebates. We have now reached the point where the govern- 
ment is determined to make itself the more terrible master of the 

Putting a stop to discriminations between the individual shippers 
will solve the most exasperating of the railway problems, although 
discriminations between localities, together with commodity rates 
and general rates, will remain to be battled over. These great and 
complicated questicnis, upon which so much time and energy have 
been expended in Congress and the press, are treated by Professor 
Laughlin without passion or prejudice, and without the omission 
of amy real factor of the problem. Government ownership of rail- 
ways is not, in his judgment, desired by any large number of 

That the banking question deserves a place in any comprehensive 
survey of American industrial problems is the prevailing opinion, 
and is not to be gainsaid; but few persons, even bankers, under- 
stand what tlie problem consists of, or in what particular our 
present system is defective. Professor Laughlin points out clearly 
the important difference betwen a lack of deposit currency and a 
lack of hand-to-hand currency. A lack of the former may appar- 
ently exist when there is no shortage of the latter. The rate of 
interest in Wall Street may go to 125 per cent., and cause wailing 
and gnashing of teeth in the circles of high finance at a time when 
there is plenty of currency for the payment of wages and for all 
the purposes of retail trade everywhere. In such a case the high 
rates cannot be due to any defect in the National Bank Act. The 

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power to issue bank-notes ad libitum would not relieve the strin- 
gency. The circulation being already full, additional notes would 
not be taken out by the bank's customers, or, if put out, would 
immediately come back for redemption. The stringency in such a 
case can be relieved only by an addition to the reserves of the banks 
(i. e., by more gold), or by such a decline of prices as shall enable 
the collateral for bank loans to be carried by the existing reserves. 
If the prices of commodities and securities refuse to go down, gold 
will be imported, perhaps to such an extent as to cause a rise in 
the rate of discount in foreign capitals. The movement is auto- 
matic and self-regulating. 

While there is no necessary connection between the two kinds of 
shortage — ^that of deposit currency and that of the circulating medium 
— ^there is frequently a close connection which looks like the opera- 
tion of cause and effect. At the crop-moving season there is a 
larger demand for circulating money than at other seascms; and 
this circulating money, under present banking conditions, will con- 
sist for the most part of bank reserves, which will be depleted 
accordingly. The depletion means the sudden calling-in of loans in 
the reserve cities, and the resulting stringency may even bring on a 
panic, as it did in the autumn of 1873. The cause of the panic, 
however, is to be found in the inflation and speculation in business 
generally — 2l kind of explosive material liable to be touched off at 
any time, but especially by a sudden depletion of bank reserves. As 
a remedy for this rhythmical depletion of reserve money Professor 
Laughlin adheres to the plan of "asset currency" embraced in the 
Report of the Indianapolis Monetary Commission, of which he 
was a member. 

In the chapter on banking are one or two slips, quite unimpor- 
tant in themselves, but which should be corrected in any future 
edition. On page 185 it is said that "by a popular agitation in favor 
of cheap money Andrew Jackson was carried into the presidency." 
This must refer to his first election. Although there was much 
turmoil over the money question at that time, no biography of 
Jackson with which the reviewer is acquainted mentions it as one 
of the issues in the presidential campaign of 1828. If it had been 
such, it would not have escaped the notice of Sumner. 

On page 212, in a paragraph dealing with the security taken by 
the treasury for the deposit of the government's money in national 

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banks, we read that "so far only government bonds have been ac- 
cepted, and once the line is crossed to other securities the danger will 
be in not knowing where to stop." That line was crossed nearly two 
years ago by the present secretary of the treasury, whose amend- 
ments to the laws passed by Congress include one which substitutes 
the word "or" for the word "and," where it occurs in section 220 
of the National Bank Act, viz.: "The secretary of the treasury 
shall require the associations [banks] thus designated to give satis- 
factory security by the deposit of United States bonds and other- 
wise, for the safe keeping and prompt payment of the public 
money deposited with them," etc. Under^the law as amended by 
himself Secretary Shaw has accepted, for deposits in New York, 
miscellaneous securities in which savings banks are allowed to 
invest their deposits. The words "and otherwise" in the law of 
CcMigress mean the personal bonds of the high officers of the banks 
receiving the deposits, as the House debate on the bill, and the 
uniform practice of forty years, show. 

Professor Laughlin's concluding chapter, on the present status 
of economic thinking in the United States, does not deal with indus- 
trial America. It seeks to give the range and variations of economic 
theory from the close of the Civil War to the present time. More 
stress is laid upon the wages-fund controversy than upon any other. 
The works of F. A. Walker, Henry George, J. B. Qark, T. N. 
Carver, F. A. Fetter, Irving Fisher, S. N. Patten, and A. T. Hadley 
are particularly noticed, but without dogmatical treatment. Inci- 
dentally the marginal-utility nomenclature, which so much abounds 
in latter-day discussicms, is discountenanced, since the intelligent 
layman cannot understand them. The following words on this 
subject, with which the reviewer heartily concurs, may fitly bring 
to an end this examination of Professor Laughlin's Berlin lectures : 

One is forced to believe that, when any real truth has been arrived at, 
it can be stated in simple, comprehensive language. One is also obliged 
to express the opinion that the concentration of time and thought upon 
speculative questions of value, which properly belong to psychology, will 
result in little gain to the body of economic principles; nay more, that this 
inclination toward the speculative side of economics stands in the way of a 
needful progress in our main scientific formulations. 

Horace White 

New York 

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Foundations of Political Economy. By William Beix Robert- 
son. London and New York : The Walter Scott Publish- 
ing Co. 8vo, pp. xiii+249. 

A book brightly, clearly, fluently, interestingly written. The 
writer is of the classical school, and of the severer discipline — of 
the pain-cost, rather than of the labor-time or labor-value sect. He 

that one of the effects of this treatise will be to recall political economy from 
Saturn and effectually sever from any future connection with it the epithet 
of "dismal." If this be achieved, it is only fair to say that it will have been 
achieved through a strict adherence to the methods of Adam Smith, Ricardo, 
Malthus, the Mills, Caimes — ^to the methods, in sfiort, of what has been 
called the orthodox or classical political economy. 

To point out wherein he differs from the old school our author 
takes Ricardo 

since whom no man has made any essential change in the science, and r^^d- 
ing whom Alfred Marshall .... justly observes, "The foundations of the 
theory as they were left by Ricardo remain intact." 

The point of equilibrium, the point at which exchange rates of com- 
modities tend to settle is the point at which are exchanged equal quantities 
of labor. (P. 41.) 

This is not labor-time cost or labor-value cost; it is labor-pain 
cost. Is it not in fact fundamentally an opportunity-cost doctrine? 
Our author does not say so: 

Labor must always be taken to embrace not merely the exercise of work- 
ing but the whole sacrifice involved. The fisherman's toil may be so much 
more arduous, exacting, disagreeable and dangerous than the baker's that in 
eight hours he expends as much labor as the latter does in ten. In such cases 
the equivalent value of the produce of the fishermaSTs eight hours will be the 
produce of the baker's ten hours. Political economy has no cognizance of 
time. (P. 49.) 

The outward and visible sign of a man's desire for an object is the 
quantity of labor or the sacrifice he undergoes to acquire that object. In 
the material, the weight of objects is in proportion to their mass. We do 
not, therefore, say that mass is the cause of weight. That is due to gravity. 
So though the value of commodities is proportioned to the labor bestowed 
upon them, we are not therefore entitled to say that labor is the cause of the 
value. (Pp. 49, So.) 

But what is this proportion doctrine more than an unconsciously 

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accepted illustration of opportunity cost? In any event, the basis 
of value is not found in entrepreneur cost : 

Value [is] unaffected by wages: at this stage we can set forth the inde- 
pendence of wages and value. It is a popular notion that an increase of wages 
leads to an increase of price and vice versa. Ricardo showed the fallacy 
of this long ago. (P. 76.) 

Thus for anycme who still believes that somehow, and under 
some one of its diverse interpretations, the labor-cost theory of value 
may be made to serve, this ought to be an interesting and reassuring 
book — ^but for no one else. 

H. J. Davenport 

Univsksity op Chicago 

The Bank and the Treasury, By Frederick A. Cleveland. 
New York : Longmans, Green & Co. 

Under the above somewhat ambiguous titie, Professor Frederick 
A. Qeveland presents an able and timely discussion of current prob- 
lems in banking and currency. There are few subjects connected 
with banking from the public point of view that the author fails to 
consider. Capitalization, deposits, reserves, note-issue, investments, 
government paper money, publicity in banking, the relation of the 
banks to the Sub-Treasury, the place of the Sub-Treasury in the 
currency system, and proposed plans for currency reform are topics 
suggestive of the scope of the work. However, there is a singleness 
of purpose in the book that g^ves unity to the discussion considered 
as a whole. The avowed intention of the author has been, not to 
produce a "general treatise on money and banking," but rather "to 
contribute something to a single subject of national interest — ^the 
problem of providing a more 'sound* and 'elastic' system of current 
credit-funds" (p. v). 

Professor Qeveland is both critical and constructive in his treat- 
ment of the different topics, pointing out what he considers serious 
defects in present law and practice, and suggesting important modi- 
ficaticms of existing institutions. The book is a strong presentation 
of the views of the "capital-assets" school of thought upon banking 
in contrast with the views of the "commercial-assets" school. The 
proposals for the establishment of a system of note-issue based upon 
the general assets of the banks, for the right of banks to establish 
branches, for the abolition of the Sub-Treasury, and for the deposit 

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of all revenues of the government in the commercial banks are vigor- 
ously criticized and condemned. On the other hand, the writer argues 
for legal provisions requiring larger capitalization of the banks, for 
the abolition of the present system of reserves, for the prohibition of 
the payment of interest by one bank upon deposits in it of another 
bank, for an invested reserve in "gilt-edge" securities that may be 
hypothecated for cash in time of need, for making the note-issue of 
the national banks a pure emergency circulation, for the requirement 
of interest payments on deposits of government funds in the banks, 
and for a guarantee fund for the insurance of deposits. 

To remedy the evils of the present reserve system, Professor 
Qeveland recommends a number of radical changes in the National 
Bank Act. His basic principle is that the redemption equipment 
should be provided from capital. "Instead of the money-reserve 
being a criterion by which to gauge the soundness of credit-accounts, 
the law should adopt the measure of unimpaired capital available for 
redemption purposes" (p. 218). In brief, he contends for a pre- 
scribed cash reserve proportioned to the credit-accounts outstanding 
at a given time, supplemented by an invested reserve in "gilt-edge" 

Is there not a considerable element of idealism in the proposition 
that bank capitalization should be sujfficiently great to provide a 
redemption equipment from capital large enough to support the maxi- 
mum demand for credit accommodation? Have all parts of the 
country sufficient capital available to meet the standard proposed? 

Further, such an equipment as that proposed would be inadequate 
in times of panic. Professor Qeveland himself recognizes that, in 
the past, investments in corporation securities have diminished rather 
than increased the elasticity of bank credit (pp. 148, 149). 

Again, to state that "the form of bank credit demanded by the 
American business man is not a bank-note, but a 'credit-account* " 
(p. 56) overlooks important factors in the situation. According to 
Professor Cleveland's own characterization of the note-issue under 
the existing law, the business man has no choice in the matter at 
present, for the reason that the banks do not, in reality, exercise the 
issue function. Further, it is not true that the deposit serves all the 
purposes for which the bank-note is adapted. 

Once more, the characterization of the proposals of the com- 
mercial-assets banking school as a movement in the direction of 
"wild-cat" banking will carry conviction to few persons who have 

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studied the proposals of this school at their best. It seems remarkable 
that Professor Qeveland in his description (pp. 62, 63) of the pro- 
posals of the commercial-assets school failed to mention the guarantee 
fund for note-issue. Robert Morris 

University of Chicago 

Introduction to Business Organisation. By Samuel E. Spar- 
ling. New York: The Macmillan Co., 1906. 8vo, pp. 

This book is another indication of the growing interest in the 
systematic study of business. In the introductory part of the work 
definiticHis and analysis of business organization are given with 
considerable attention to the legal aspects and forms of organization. 
After this introduction Professor Sparling passes to a discussion of 
such topics as, Business Aspects of Farming, Factory Organization, 
Factory Cost-Keeping, Commercial Organization, Exchanges, Direct 
Selling, Wholesaling and Retailing, Advertising, Credits and 

Only an elementary and outline treatment is attempted. But 
wherever possible the underlying principles of general application 
are set forth. 

The work is clear and readable. While it is not likely to offer 
much detailed information of value to any thoughtful business man 
about the organization of fiis own business, it is likely to prove 
helpful and suggestive to the student who wants a general view of 
the field and to the beginner who is studying methods of systema- 
tizing his own business. Wm. Hill 

University of Chicago 

From the Cotton Field to the Cotton Mill: A Study of the Indus- 
trial Transition in South Carolina, By Holland Thomp- 
son. New York: The Macmillan Co., 1906. 8vo, 
pp. ix+284. 
The character of this descriptive account of the industrial 
development of South Carolina is sufficiently indicated in its title. 
It follows the development of the textile industry, as a domestic 
industry before the war, and since that period as a factory industry. 
Present conditions are described, and an account is given of wages, 
cost of living, social life, and agencies of social betterment, child 

Digitized by 



labor, and negro competition. Conditions in South Carolina are 
presented as typical of conditions throughout the South. The 
author's interest in this study was awakened, he asserts, by "the 
sight of scores of wagons transferring scanty household goods from 
farmhouses to factory tenements" in one southern mill town. 

It is pointed out that the cost of labor, as of living, is less in the 
South than in the North, that freight charges on transportation 
of raw materials are sometimes less; but that these and other 
advantages are neutralized by greater efficiency of labor in the 
North, more skilful management, and easier access to foreign 
markets. Employmemt of negro labor presents embarrassments 
which are not economic, but social. The labor in a factory must be 
all white or all black. In this matter the efficiency of negro labor 
has not been sufficiently tested to warrant conclusions regarding 
future developments. The author gives evidence of thorough 
familiarity with social and industrial conditions in the southern 
states, and his study is a valuable ccMitribution to the literature 
descriptive of our industrial development. J. C. 

The Restoration of the Gild System. By Arthur J. Penty. 
London: Swan, Sonnenschein & Co., 1906. Pp. ix+103. 
The author of this little essay criticizes the coUectivist and 
socialistic philosophies as offering no satisfactory solution of our 
social-industrial problems, since they are grounded upon the institu- 
tions of capitalism. Hope lies, he believes, in a restoration of the 
^Id system, and his interest is to discover and indicate practical 
ways and means of re-establishing these associations under, modem 
conditions. The difficulties in the way of the arts-and-crafts move- 
ment are appreciated, but are not regarded as insuperable. Econo- 
mists today are perhaps too little open to the appeals of that sort 
of reversionary idealism with which the name of Ruskin is so 
commonly associated. J. C. 


English Local Government from the Revolution to the Municipal Corpora^ 
tions Act: The Parish and the County. By Stoney and Beatrice 
Webb. London and New York: Longmans, 1906. 8vo, pp. xxv-f664. 

The authors present this volume, of nearly 700 pages, as a "first instalment 
of a detailed description of the local government of England and Wales as it ex- 
isted between 1689 and 1835." Book I of this volume is devoted to a historical 

Digitized by 



account of "The English Parish and its Vestry/' as a form of local government, and 
Book II to an equally exhaustive study of "The County." Volumes II and III 
are announced, which will deal with "the various immunities, franchises, and 
liberties which, embodied in manorial jurisdictions and municipal corporations 
stood out as exceptions," and with statutory authority for special purposes, 
together with a summary of the authors' conclusions regarding English local gov- 
ernment. Economists will be more particularly interested in the appearance of the 
fourth and fifth volumes, annotinced to deal with the functioning of local govern- 
ment in the relief of destitution, provision of markets, and regulation of trade. 
The present volume with its announcements gives promise of a study of English 
local government as exhaustive and monumental as the study of trade-unionism 
by the same authors, and it may be assumed that this study will not be unrelated 
to the recent extension of the functions of local government in England due to 
the movement for municipal trading. 

The Pitfalls of Speculation. By Thomas Gibson. New York: The Moody 
G>rporation, 1906. 8vo, pp. 159. 

The author of this little treatise undertakes to demonstrate that business 
methods are applicable to speculation, and that, when so applied, speculation 
itself becomes a "safe business." In this business gains are not to be secured 
through the adoption of any mechanical sjrstem, but through a just estimation 
of probable future values. Chapters are devoted to "Ignorance and Over-Specula- 
tion," "Manipulation," "Accidents," "Business Methods in Speculation," "Market 
Technicalities," "Tips," "Mechanical Speculation," "Short Selling," "What 500 
Speculative Accounts Showed," "Grain Speculation," and "Suggestions as to 
Intelligent Methods?' The book treats mainly of speculative deals on margins, 
which are regarded as entirely legitimate forms of speculative trading. 

Four Aspects of Civic Duty, By William Howard Taft. New York: 
Scribner, 1906. 8vo, pp. iii. 

The four aspects of civic duty considered by Secretary Taft in these lectures, 
delivered at Yale University, are indicated as the duties of citizens viewed from 
the standpoint of a recent graduate of a university, of a judge on the bench, 
of colonial administration, and of the national executive. It is urged that the 
recent graduate of a university is ordinarily for a few years after graduation 
freer to enter into political life than he may be later on, when other responsi- 
bilities than those of citizenship absorb his energy. The recent graduate is 
accordingly urged to enter immediately into the social and political life of the 
community in which he lives. In the second lecture the dignity of the bench 
is maintained against the somewhat irreverent disposition of the people, mani- 
fested in certain issues, to take the law into their own hands. The chapter on 
"Colonial Administration" deals with the Philippine problems, to the honorable 
solution of which the community has, it is urged, been more or less fortuitously 
committed. The final chapter, in which the responsibilities of the national 
executive are considered, is clearly written with recent national administrative 
problems and policies in mind. The lets and hindrances under which the national 
executive works, as well as his responsibilities, are indicated. 

The Economic Development of a Norfolk Manor, 1086-1363, By Frances 
Gardiner Davenport. Cambridge University Press, 1906. 8vo, pp. 

This essay publishes the results of painstaking and scholarly original 
research, regarding the economic development of the manor of Moulton in 

Digitized by 



Norfolk. The account is made up from the court rolls of the manor, and 
from a "rich series of manorial documents found to be in the possession of the 
steward of the adjoining manor of Fomcett." In an appendix, occupjring more 
than half of the yolume, many interesting documents, including leases, accotmts, 
and court rolls, conveyances and surveys are included. 

The Power to Regulate Corporations and Commerce: A Discussion of the 
Existence, Basis, Nature, and Scope of the Common Law of the United 
States, By Frank Hendrick. New York and London: Putnams, 
1906. 8vo, pp. lxxii+516. 

The exercise by the federal and state governments of the power to regulate 
corporations and commerce raises serious legal as well as economic problems, and 
it is to the legal aspects of government regulation that Mr. Hendrick's treatise is 
devoted. In defining the development of a body of constitutional principles into a 
common law of the United States which shall serve as a basis of remedy for 
violation of constitutional rights, and in defining the relations of the legislative, 
judicial, and executive departments of state and federal governments, reference 
is made to "over two thousand cases involving questions of constitutional law." 
The author believes that adequate power of regulation is vested in the state 
and federal governments, and that "unconstitutional legislation and the attempt 
of the executive and legislative to reduce the efiiciency of the courts and to 
prevent resort to them will delay the solution of present problems and aggravate 
them in the future. In short, it is not the restraint of all commerce in ill- 
judged efforts to prevent restraint by dishonest commercial methods that is 
sought, but the free development of all honestly transacted commerce of whatever 
scope or importance." The legal definition of the regulative power of our 
state and federal governments respectively is clearly an essential condition of any 
intelligent discussion of the economic problems involved in the exercise of that 

Digitized by 



Amfiteatroff, A. Der Ursprung des Anti- 
semitismus in Russland. Beriin: Stuhr, 

Annales du commerce ezt^eur de France. 
Situation commerdale: Expos^ com- 
paratif pour la pdriode 1890-1904-1905. 
Paris: Impr. nationale, 1906. Pp. 291. 

Annuaire g^ndral des finances, pour 1906- 
1907, public d'apr^ les documents 
offidels sous les auspices du minist^ 
des finances. Nancy: Berger-Levrault, 
1906. Pp. ziii+519. 

Annuaire du minist^ du commerce de 
rindustrie et du travail pour Tann^ 
1906. Paris: Vinbert et Nony. Pp. 

Arbeiterwohlfahrtseinrichtungen, Die, in 
bayerischen Fabriken u. grosseren Ge- 
werbebetrieben. Nuremberg, 1906. 

Arbdtszeit-Verl&ngerungen im J. 1905 
in fabrikmftssigen Betrieben. Wien: 
Hof- u. Staatsdruckerei, 1906. 

Arquier, J. Economie sodale coopera- 
tive de production. Pertuis: Auber- 
gier, 1906. Pp. 15. 

Auer, E. Grundet Ortskrankenkas- 
sen: Ein Beitrag zur Vereinheidichg. 
der Arbeitsversicherung. MUnchen: 
Birk, 1906. 

Avcbury, Lord. On Municipal and Na- 
tional Trading. London: Macmillan, 
1906. 8vo. 5 s, net. 

Bebel, A. Sozialdemokratie u. Anti- 
semitismus. Berlin: Vorw&rts. 

Beck, J. Der heutige Stand der Kranken- 

. versicherungsfrage in der Schweiz. 
Luzem: Baessler, Drescler u. Co. 

Bericht d, k.-k. Gewerbe-Inspektoren (ib. 
ihre Amtstfttigkeit im J. 1905. Wien: 

Bericht d. k.-k. Permanenz-Kommission 
f. die Bewertung u. Bewegung des 
Zwischenverkehres zwischen dan in 
Reichsrat vertretenen Kdnigsreichen 
u. LEndem u. den Landem der ungari- 
schen Krone im J. 1905. Wien: Staats- 

Bericht, Statistischer, iib. den Betrieb der 
\mter kdnigl. s&chsischer Staatsverwd- 
tung stehenden Staats- u. Privat- 
Eisenbahnen m. Nachrichten Hh. Eisen- 
bahn-Neubau. Dresden: Burdach. 

Bericht {iber Handel u. Industrie der 
Schweiz im J. 1905. Zurich: Schwei- 
zer Handels- u. Industrie-Vereins. 

Bernstein, Ed. Die neuen Rdchssteuem, 
wie sie wurden a. was sie bedeuten. 
Berlin: Vorwftrts. 

Biedaud, J. Des laiteries cooperatives 
dans Touest de la France: Etude 
d'^conomie rurale (th^). Poitiers: 
Courrier de la Vienne, 1906. Pp. 

Bielefeldt, A., u. Hartmann, K. Die 
deutsche Arbeiterversicherung als so- 
dale Einrichtung. Berlin: Ascher, 

Bdhmer, P. E. Der Risikogewinn in der 

Lebens- u. in der Invaliditats-Versiche- 

rung. Berlin: Puttkammer u. MOhl- 

brecht, 1906. M. 2. 
Boissieu, H. de. La question de classes 

moyennes: Ce que la Belgique fait pour 

la r^soudre. La Chapelle-Mondigeon: 

Montligeon, 1906. Pp. 23. 
Boninger, E. Demokratie u. Zukunft. 

BerUn: Walther, 1906. 
Bouchmil, O. Origines et cr^tion de la 

banque nationale suisse (i 834-1905). 

Montpellier: Firmin, Montane et 

Sicaroi, 1906. Pp. 279. 
Bourguin, M. Die sozialistische Sys- 

teme u. die wirtschaftliche Entwicke- 

lung. Tubingen: Mohr. 

Brassey, T. A. Problems of Empire: 
Papers and Addresses. Humphre3rs, 
1906. 8vo, pp. 228. 2 5. 6d» net. 

Braun, A. Russland und die Revolution. 
Niimberg: FrSlnk, 1906. 

British Assodation of Labor Legislation. 
Reports on the Legal Limitation of 
Hours of Work in Industry and Com- 
merce, etc., in the United Kingdom. 
British Institute of Sodal Service, 1906. 
8vo, pp. 42. 6d, 

Buder, L. Vortrag tib. Misst&nde im 
kauf m&nnischen Prozessverf ahren nebst 
ErglLnzimgen: Ein Notschrd aus der 
G^chaftswelt. Mainz: Verlagsanstalt 
u. Druckerd, 1906. 

Calli^ R. De la conversion de la dette 
publique en France (th^). Paris: 
Rousseau. Pp. 148. 


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Calling, George. Richard Elliott, Finan- 
cier. Boston: Page, 1906. i6mo, 
pp. 4+348. $1.50. 

Chatelain, H. Des sod^^s fran^aises de 
cr^t agricole mutuel constitu6es con- 
form^ment aux lois des 5 novembre 
1894 et 31 mars 1899 (th^). Niort: 
Merder, 1906. ^p. 161. 

Compte g6i^ral de Tadministration des 
finances rendu pour Tann^e 1909 par 
le minist^ des finances. Comptes de 
divers services publics. Paris: Impr. 
nationale, 1906. Pp. xzxii+733. 

Cooke, H. B. The Two Tarifif Systems 
Compared: A Plain Statement of Re- 
sults; also concerning Trusts and Re- 
dprodty. Louisville: Brewers Ptg. 
House, 1906. i6mo. pp. 5+218. 

Crozier, John Beattie. The Whed of 
Wealth: Being a Reconstruction of 
Sdence and Art of Political Economy 
on the Lines of Modem Evolution. 
London: Longmans, 1906. Svo, pp. 

546. 12 5. 6d, 

Damme, F. Das deutsche Patentrecht: 
Ein Handbuch f. Praxis u. Studium. 
Berlin: Liebmann. M. 11. 

Daniel. L'ann6e politique 1905, avec 
un index alphab^que, une table 
chronologi(}ue, des notes, des documents 
et des pieces justificatives. Paris: 
Alcan, 1906. Pp. xii+678. Fr. 3.5. 

Des Lyons, C. La propri6t6 immobilize 
inaccessible et insaisissable au point de 
vue ^conomique (th^). Nantes: 
Biroche et Dautais. Pp. 237. 

Dittmer, E. Lohn- u. Arbdtsverh&lt- 
nisse der stSldtischer Arbdter Beriins 
1906-1907. Berlin: Vorwftrts. 

Dorst, Frz. Der Kaiifmann, die Gesell- 
schaften des Handelsgesetzbuches u. 
die Gesellschaften m. verschr&nkter 
Haftung: Systematische Darstellung 
m. Formularen zum pracht. Gebrauche 
f. Juristen und Kaufleute. Cologne: 
O. Neubner, 1906. M. 9.25. 

Dimeker, Kate. Die Kinderarbdt u. 
ihre BekSjnpfimg. Hisg. v. der Red. 
der "Gleichheit," Zeitschrift f. die 
Interessen der Arbeiterinnen. Stutt- 
gart: Diety, 1906. Svo, pp. 78. M. 

Egidy, Mor V. Betrachtungen Ub. die 
Gegenwart v. e. Hamburger Arbeiter. 
Altona: Hary. 

Einkommensteuergesetz in der Fassung 
der Bekanntmachung vom 1 901 -1906, 
nebst Ausfuhrungsanweissung vom 25. 

VII, 1906. Berlin: Heymann, 1906. 
M. 0.80. 

Erzberger, M. Die Kolonial-Bilanz: 
Bilder aus der deutschen Kolonialpoli- 
tik auf Gnmd der Verhandlgn. der 
Rdchstags im Sessionsabschnitt 1905- 
1906. l^rlin: Germania, 1906. 8vo, 
PP- 93" 

Fdlgenhauer, R. Bomben-Anarchismus. 
Lapzig: Mutze. Pp. 7. 

Frankfurth, E. Das arbdtslose Einkom- 
men: Eine Skizze. Arosa: F. Jun- 
ginger Hefti, 1906. Svo. M. i. 

Fritze, W. M. K. Die kommende 
Gesellschaftsordmm^. Ldpzig: Tdch- 
mann, 1906. Pp. vii+75. 

Fuchs, C. J. Volkswirtschaftliche Ab- 
handlungenderbadischen Hochschulen. 
Kaiisruhe: Braun. 

Funke, E., u. Hering, W. Die rdchs- 
gesetzliche Arbeiterversicherung 
(Kranken-, Unfall- u. Invalidenver- 
sicherung). Berlin: Vahlen, 1906. 
Pp. 256. M. 1 .4. 

Gison, S. C. Contribution i, Thistoire 
de rimp6t sous I'anden regime: La 
r^olte de la Gabdle en Guyanne (1548- 
1549)- Paris: Champion. Pp. 29S. 

Glass, James. Octopus and Co. Ltd.: 
The Bitter Cry of the Private Trader. 
Published by the author. Svo. dd. 

Gyurkovics, G. V. Der Sozialismus in 
Russland. Budapest: Rath, 1906. 
Pp. 9. M. 0.50. 

Handebgesetze des Erdballs, Die. Ber- 
lin: Decker. M. 2.50. 

Handelshochschule, Berlin: Erdffnung, 
Oktober, 1906. Organization u. Lehr- 
plan der Handelshochschule der Kor- 
poration der Kaiifmannschaft v. Ber- 
lin. Berlin: Reimer, 1906. Pp. 58. 
M. 0.50. 

Handelskammem, Die: Ihre Organisa- 
tion u. TSltigkdt. Bericht an dem in- 
temationalen Handelskammer in Mai- 
land 1906. Berlin: Rdmer. M. 2. 

Hansen, P. 25 Jahre rdchsgesetzlicher 
Arbdterfttrsorge: Ein Gedenkblatt 
Hamburg: Agentur des Rauhen Hauses 
Svo. M. 0.15. 

Hanus, F. Der Zukunftstaat: Eine 
soziale Studie. Leipzig: Altmann. 
Pp. vii+46. ^ 

Herzberg, W. Sozialdemokratie in 
Anarchismus. Ludwigshafen: Gerisch. 
Svo, pp. 32. M. 0.20. 

Hobson, John A. The Evolution of 

Digitized by 




Modem Capitalism: A Study of Ma- 
chine Production. (New and revised 
edition.) W. Scott, 1906. 8vo. pp, 
3^+450. 6 s. 

Hoffmann, H. V. Das deutsche Kolonial- 
Gewerberecht. Berlin: Siisserott 8vo, 
pp. 78. M. a. 

Josef, £. Rechtsf&Ue zu den gewerb- 
lichen Schutzrechten. Berlin: Vahlen. 
8vo, pp. ivH-ii8. M. 2. 

Kirkpatrick, F. A. Lectures on British 
Colonization and Empire. First Series, 
1600-1783. London: Murray, 1906. 
2 s, 6d, 

Labor, Capital and the Public: A Dis- 
cussion of the Relations between Em- 
ployes, Employers, and the Public. 
Columbus, Ohio, 1906. Pp. viii+220. 

Malvagia, M. H sodalismo nel cristia- 
nisimo: Nuovo prozetto di liforma. 
Florence: Bamella. i6mo, pp. viii+ 
127. L. 2. 

Manes, A. Berichte, Denkschriften u. 
Verhandlungen des 5. intemationalen 
Kongresses f. Versicherungs-Wissen- 
schaft zu Berlin 10. bis 15. IX, 1906. 
Berlin: Mittler. 

Martin, Saint-L&>n E. Le travail de 
nuit des adolescents dans I'industrie 
fran^aise: Rapport pr6sent6 d 1' Associa- 
tion Internationale pour la Protection 
l^ale des TravaiUeurs. Paris: Alcan. 
Pp. 55. Fr. 0.60. 

Meline, Jules. The Return to the Land. 
Preface by Justin McCarthy. Chap- 
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5 s, net. 

Morrison, T. The Industrial Organi- 
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Murray, 1906. 8vo. 105. 6d. 

Mutterschaftsversicherung, Die: Ein Bd- 
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w&rts. M. 0.50. 

Neuen Handekvertr&ge, Die. Separat" 
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Panunzio, Sergio. II sodalismo guiridico: 
Esposizioni critica. Geneva: Moder- 
na. 16 mo, pp. 243. L. 2.5. 

Pape, R. Der gewerbliche Kredit : Licht- 
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wesens: Ldtfaden f. Gewerbetreibende. 
Kdnigsberg: Ostpreuss. Druckerd u. 
Verlagsanstalt, 1906. 8vo, pp. 51. 
M. I. 

Petrovie, A. Wahrhdt u. Trug im 
Sozialismus. Berlin: Walther. 8vo, 
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Pierstorff, J. Abhandlungen des staats- 
wissenschaftlichen Seminars zu Jena. 
Jena: Fischer. 

Preussische Elnkommensteuer u. Erg&n- 
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Privat-Aubouard, A. Du contrdle de 
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Paris: Larose. Pp. 246. 

Puisieux, R. L'imp6t du tabac sou 
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seau. Pp. 98. 

Raynaud, B. Droit international ouv- 
rier. Paris: Alcan. Pp. 171. Fr. 4. 

R^ementation du contrdle des assurances 
sur la vie. Paris: Impr. nationale. 
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Riquoir, A. L'encouragement des ma- 
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Ruhland, G. System der politischen 
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Volkswirtschaftslehre ; 2. Band; Ent- 
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Rundnagel. Die Haftung des Eisenbahnf . 
Verlust, Beschadigung u. Liefenfrist- 
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bahnf rachtrecht Ldpzig: Dieterich, 
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Savarian, V. L'agriculture au Daho- 
my. Paris: Challamd, 1906. Fr. 4. 

Scherma, G. II pensiero economico di 
Francesco Ferrara. Palermo: 1906. 
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Schloesing, H. La concentration capi- 
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Schldgl, E. Die osterreichisch-ungarische 
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Schwdzerische Arbeitertag, Der. Ztirich: 
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See, H. Les classes rurales en Bretagne 
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Paris : Giard et Bri^e, 1906. Fr. 10. 

A. S. and £. M. S. Henry Sidgwick: 
A Memoir. London: New York: 
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Signorini, C. L'agricotura e i lavora- 
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Simon, A. L. History of the Wine 
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Socialism: Its Fallacies and Dangers. 
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Spencer, George. Nationalisation of the 
Land: Showing How ;gi 20,000,000 a 
Year May Be Lawfully Restored to the 
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16. I d. 

Staley, E. Guilds of Florence. Illus- 
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Statistique des chemins de fer fran^ais 
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Stieda,W. Abhandlungen volkwirtschaft- 
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Stirling, A. M. Sketch of Scottish In- 
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Eighteenth and Nineteenth Cen- 
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Synge, M. B. Short History of Social 
Life in England. London: Hodder 
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Theodore- Vibert, P. La philosophic de 
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Thomas, Henry Wilton. The Sword 
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Timmermann, W. Die Enthohnungs- 
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138. M. 3. 

Valbuena, Valverde F. Capital y trabajo. 
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Worms, R. Etudes d*^conomie et de 
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et Bribre, 1906. Pp. viii-f 304. Fr. 4. 

Digitized by 


strong Testimony from the University of 





Goo. Bon. Johnston, M.D., LL.D., Prof. Gynecology and Abdominal Surgery, UniversUf 
of Virginia^ Ex-Pres. Southern Surgical and Gynecological Assn., Ex-Pres. Virginia Medical 
Society and Surgeon Memorial Hospital^ Richmond^ Va,: **If I were asked what mineral water hat 
the widest range of usefulness, p • m In Uric Add DIathesU, Ooatt 

I would unhesitatingly answer, BUFEaUI LTIfllA nKlER Rheumatism, X.ithaemla, and 

the like, its beneficial effects are prompt and lasting Almost any case of Pyelitis and 

Cystitis will be alleviated by it, and many cured. I have had evidence of the undoubted Disin- 
tegrating Solvent and Eliminating powers of this water in Renal Calculus, and have known its long 
continued use to permanently break up the gravel -forming habit." 

Jamos L. Caboll, M.D.y A.M., LL.Dm^ former Prof Physiology and Surgery in the Medical 
Department in the University of Virginia, ilB,~— -.^ ■ muH lAtePFD *° ^""'^ ^^^^ 
and Pres, of the National Board of Health: DUf filUI lil rillii fMI Ul Dlatliesls is a 

well-known therapeutic resource. It shoulct be recognized by the profession as an article of 
Materia Medica.*' 

Dp. p. B. Barrlngori Chairman of Faculty and Professor of Physiology, University of Vir- 
ginia, Charlotisville, Va.: ** After twenty years' practice I have no hesitancy in stating that for 
prompt results I have found Huvm^m « g% ■ iTlfIS IMVIVD ^° preventing Uric Acid Deposits 
nothing to compare with DVI EdlO LITIlUt WlirER j^ ^^ body. 

Wm. B. TowloSi M.D., late Prof oj Anatomy and Materia Medica^ University of Virgina:, 

<«in Uric Acid Diathesis, Qout, Rheumatism, Rheumatic Qout, Renal Calculi and Stone in the 

Bladder, I know of no b^-——— ^^ • imbm h Spring 

remedy comparable to UUIVihUD LfllOJI WlllJI No. 2. 

Voluminions medical testimony sent on request. For sale by the general drug and mineral 
water trade. 


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ct food, as 
I as it is 
B — highly 
, easily di- 
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ength, pre- 
th and pro- 

lat you get 
(le, bearing 


Walter Raker & Co. Ltd. 

EAtabliAhed 1 780 Dorchester, Mass. 

Plaf te rblondss, 


A oolorlets liquid, powerhil, —k. uh) economiol. Sold oi*r 
in qnait bocdes by dni(citt< eveiywhere. Prepaied onJjr taj 
Henry B. Piatt. '^ 

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No. 3 

Vol. IS 

The Journal 


Political Economy 







The Seuse of The State 


Garrett t>ROfPERs^ 



Aemour*S TAf Filckers, the Private Car Lifus and Ike People, — Macgregor's Industrial 
Combination, — Sparoo's Socialism: A Summary and Interpretation of Social Principles,^ 

NOTICES, — Kirk's National Labor Federation in the United States. — Cooke's The 
Two Tariff Systems Compared. — d'Ollone's La Chine novatrice et guerri^re. — Dole's 
The Spirit ot Democracy. — Howe's Confessions of a Monopolist. — Gutmann's Ueber 
dea amerikaniscben *' Stahltnist." — Hall's Immigrationand its Effects upon the Uaited 
States. — Fahlbeck's La decadence et la chute des peuples. — Johnson's Four Centuries 
of t^ Panama Canal. 




Late Secretary of tlie Treasury 

Chaacelkv, University of Nebraska 

Pfo fc saoi, University of Minnesou 

Director of Statistics, Norway 

Professor, University of California 

Paris, France 

Professor, Univenity of Illinois 

Professor. Rome, Italy 

Professor, University of Michigan . 

Senator, Rome, Italy 


President, Clark College 


Late Editor New York Evening Post 


Professor, University of Wisconsin 


Late Comptroller of Currency 


Member of Institute, Paris, France 


Crane Company, Chicago 


University of Vienna, Austria-Hungary 


St. Petersburg, Russia 

G^ktingen, Germany 


iC1)e fftutbetsstts of <Sl)tcago ^ressss 

Otto Hakrassowitz, Leipzig 

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The year 1906 was marked in the United States by a wide- 
spread discussion of the currency problem, which may be said 
to have culminated in the proposal made by the secretary of the 
treasury in his annual report for the year 1906, as follows : 

If the secretary of the treasury were given $100,000,000 to be deposited 
with the banks or withdrawn as he might deem expedient, and if in addition 
he were clothed with authority over the reserves of the several banks, with 
power to contract the national bank circulation at pleasure, in my judgment 
no panic as distinguished from industrial stagnation could threaten either 
the United States or Europe that he could not avert. No central or govern- 
ment bank in the world can so readily influence financial conditions through- 
out the world as can the secretary of the treasury under the authority with 
which he is now clothed.* 

This recommendation is a logical outcome of the recent prac- 
tice of the Treasury in coming to the "relief* of the money 
market. Secretary Shaw is not the first of Treasury officials 
who have wished the Treasury to assume the function of r^^- 
lating the money market of the country. In the Treasury Report 
lor 1872 Secretary Boutwell set forth the belief that to the Treas- 
ury rather than to the banking institutions of the country should 
1^ intrusted the power of regulating the amount of currency 
needed in the transaction of business, in the following words : 

^Treasury Report, 1906, p. 55. 


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As the circulation of a bank is a source of profit, and as the managers 
are usually disposed to oblige their patrons by loans and accommodations, it 
can never be wise to allow banks or parties who have pecuniary interests at 
stake to increase or diminish the volume of currency in the country at their 
pleasure. ... . Upon these views I form the conclusion that the circulation 
of the banks should be fixed and limited, and that the power to change the 
volume of paper in circulation, within limits established by law, should 
remain in the Treasury Department* 

In accordance with this theory, under Secretary Boutwell, 
and his immediate successor, the Treasury did exercise this 
power by increasing the amount of United States notes in circula- 
tion, as a means of relief to the monetary situation. It is in 
connection with these instances that attention is here directed, in 
the belief that they throw some light on the results of Treasury 
interference with the money market, and on the wisdom or 
unwisdom of vesting in the secretary of the treasury a regulative 
discretion over the operations of the national banking institutions 
of the country. 

In connection with the quotation already made. Secretary 
Shaw says further : 

If it be said that such power, augmented with the authority which I 
have outlined, would be dangerous, I reply that no man has yet been at the 
head of the Treasury Department, and no man is likely to occupy that posi- 
tion in whose hands such authority would not be safe. The best financial 
advice on earth is at his command, and the selfishness or unselfishness of the 
advice tendered, and, therefore, the value thereof, can be readily weighed.* 

In the two instances given in this paper — one of which has 
become historic — ^the secretary of the treasury did exercise discre- 
tion over the circulation, and the statement that there has been 
no secretary in the post in whose hands the power asked for 
by Mr. Shaw would have been misused, should be tested by these 

The Act of February 25, 1862, in providing for the issue of 
$150,000,000 of United States notes, contained the following 
provision as to their reissue : 

and such United States notes shall be received the same as coin, at their 
par value, in payment for any loans that may be hereafter sold or negotiated 

* Treasury Report, 1872, p. xx. * Treasury Report^ 1906, p. 55. 

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1^ the secretary of the treasury, and may be reissued from time to time as 
the exigencies of the public interests shall require.^ 

The Act of July 11, 1862, in authorizing a further issue of 
$150,000,000 of United Stat^ notes, provided that United States 
bonds might be exchanged for such notes, and that the secretary 
of the treasury 

may reissue the notes so received in exchange; may receive and cancel any 
notes heretofore lawfully issued under any act of Congress, and in lieu 
thereof issue an equal amount in notes such as are authorized by this act 

Further, all the provisions of the Act of February 25, 1862, 

so far as the same can or may be applied to the provisions of this act, and 
not inconsistent therewith, shall apply to the notes hereby authorized to be 

The Act of March 3, 1863, authorized a third issue of $150,- 
000,000 of United States notes, including the $100,000,000 of 
such notes authorized by joint resolution on January 17, 1863. 
The provisions for reissue were as follows : 

and any of the said notes, when returned to the Treasury, may be reissued 
from time to time as the exigencies of the public service may require. And 
in lieu of any of said notes, or any other United States notes, returned to the 
Treasury, and canceled or destroyed, there may be issued equal amounts of 
United States notes, such as are authorized by this act.* 

These three acts, it will be seen, authorize the reissue of 
United States notes as "the exigencies of the public interest may 
require." The notes authorized by them were not regarded as a 
minimum which must be maintained in circulation, but as a maxi- 
mum below which the amount might be reduced to any degree 
by retaining them in the Treasury when received in exchange for 
bonds or treasury notes, or paid in as ordinary receipts. Indeed, 
unless required by the "exigencies of the public interest," there 
was no authority for their reissue. And it was supposed at the 
time of the passage of the acts that the necessity for their remain- 
ing in circulation would disappear with the restoration of peace. 

The Act of June 30, 1864, which authorized the issue of 

* 12 Statutes at Large, p. 345. 

*Ibid., p. 53a. •/W(f., p. 709. 

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$400,000,000 of bonds and treasury notes, contained the follow- 
ing provision : 

nor shall the amount of United States notes, issued or to be issued, ever 
exceed $400,000,000, and such additional sum, not exceeding $50,000,000, as 
may be temporarily required for the redemption of temporary loan/ 

This was a distinct pledge that the amount should never be 
increased beyond the sum already authorized. It cannot, how- 
ever, be interpreted as meaning that this amount was a minimtun 
which could not be decreased. The intent of the act was entirely 
in the other direction — ^to give assurance that the present amount 
was a maximum* which would be strictly observed. 

In regard to the $50,000,000 provided as a reserve for the 
redemption of temporary loan, it was enacted that the United 
States notes, 

so held in reserve, shall be used only when needed, in his {the secretary's] 
judgment, for the prompt pa3rment of such deposits on demand, and shall be 
withdrawn and placed again in reserve as the amount of deposits shall again 

This was a direct warrant to the secretary to withdraw from 
circulation the entire $50,000,000 whenever the temporary loans 
should have been paid off in full. Certainly no further legisla- 
tion was needed to effect a reduction of the currency to this 

In his report of 1865, Secretary McCuUoch stated the amount 
of United States notes to be on October 31, $428,160,569. He 
placed the currency question foremost in the report, and took 
strong ground against the continuance of an irredeemable paper 
currency. In discussing the acts under which United States notes 
had been issued, he said: 

He [the secretary] is of the opinion that not only these [legal tender] 
provisions, but the acts also, should be regarded as only temporary, and that 
the work of retiring the notes which have been issued under them should 
be commenced without delay, and carefully and persistently continued until 
all are retired.* 

^13 Stamtes at Large, p. 218. * Ibid. 

* Annual Report, Secretary of the Treasury, 1865, p. 5. 

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. The restoration of specie payments was of prime importance, 
and, in order to effect this end, it was urged that contraction of 
the paper currency was indispensable. 

The secretary was not able, however, to proceed far upon the 
policy of contraction without further legislation. The currency, 
he said, could not be contracted to any considerable extent save 
by the sale of bonds.^^ The Act of June 30, 1864, providing for 
the issue of $400,000,000 of bonds and treasury notes, had 
authorized the secretary of the treasury to 

redeem and cause to be canceled and destroyed any treasury notes or United 
States notes heretofore issued under authority of previous acts of Congress, 
and substitute, in lieu thereof, an equal amount of treasury notes such as are 
authorized by this act." 

The amoimt of treasury notes authorized by this provision was 
limited to $400,000,000, which was precisely the amount of 
United States notes outstanding in excess of those issued for 
redemption of temporary loan.^* This act gave the secretary 
power to fund the United States notes into treasury notes, which 
were in turn fundable into bonds.^* It was, however, a permis- 
sion, not a direction, to do so, and there was small probability, 
while the war continued, that the funding would be carried out. 
fiut by the date of Secretary McCuUoch's first report practically 
the entire amount of bonds and notes authorized by the act had 
been issued, and there was no distinct l^islation authorizing him 
to retire or fund the United States notes. He recommended, 
therefore, that he be authorized to sell bonds, bearing not more 
than 6 per cent, interest, for the purpose of retiring United 
States notes, as well as compound interest notes.^* 

The views of the secretary received a hearty indorsement by 
the House of Representatives, which promptly acted upon the 
report by passing the following resolution on December 18, 1865 : 

Resolved, That this House cordially concurs in the views of the secre- 
tary in relation to the necessity of a contraction of the currency, with a view 

^Ibid,, p. 12, "13 Statutes at Large, p. 218. 

^The withdrawal of these $50,000,000, as already seen, was provided for by 
their being set apart as a reserve. 

"Sec. 2, Act of June 30, 1864, to provide ways and means (13 Statutes at 
Large, p. 218). 

^Report of Secretary of the Treasury, 1865, p. 14. 

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to as early a resumption of specie payments as the business of the country 
will permit; and we hereby pledge co-operative action to this end as speedily 
as practicable." 

The overwhelming majority of 144 to 6 by which this resolution 
was adopted gave promise that Congress was about to put into 
execution a policy in accordance with the secretary's recommenda- 
tion. That any contraction of the currency, however, would 
be opposed, despite this seeming agreement, soon appeared. 

On February i, 1866, Mr. Morrill, of the Ways and Means 
Committee, reported to the House of Representatives a financial 
bill by which the Act of March 3, 1865, was extended and con- 
strued so as to authorize the secretary of the treasury to fund 
any of the government obligations, whether bearing interest or not, into 
bonds, and to sell bonds in the United States or abroad in exchange for 
lawful money, treasury notes, certificates of indebtedness, certificates of 
deposit, or other representatives of value, which have been or which may be 
issued under any act of G)ngress, the proceeds thereof to be used only for 
retiring treasury notes or other obligations issued under any act of Congress ; 
but nothing herein contained shall be construed to authorize any increase of 
the public debt 

This provided for the funding of all the short-time obliga- 
tions of the government, including the United States notes. The 
secretary would have complete power to contract the paper cur- 
rency at his discretion, no limitation as to amount being placed 
upon him. The opponents of contraction took instant alarm, and 
a vigorous opposition to any reduction of the currency developed, 
which was surprising in view of the attitude so recently taken 
by Congress. An attempt was made to limit retirement to 
interest-bearing obligations. The arguments against contraction 
which later became so familiar were brought out in the debate. 
But the point wished to be here emphasized is that it was under- 
stood by all that contraction of the currency was authorized,** 
and this feature of the bill met strong objections. The opponents 
of contraction finally succeeded in adding the following proviso : 

^Congressional Globe, Thirty-ninth Congress, First Session, p. 75. 

"• See remarks of Messrs. Wentworth, Pike, Price, Allison, Boutwell, Stereos, 
Darling, and Conkling in House of Representatives, March 15, 1866 {Con- 
gressional Globe, Thirty-ninth Congress, First Session, Part a). 

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Provided, that of United States notes not more than ten millions of dollars 
may be retired and canceled within six months from the passage of this act, 
and thereafter not more than four millions of dollars in any one month. 

In this form it left the House and was passed by the Senate, 
although there was considerable opposition to the power of con- 
traction allowed to the secretary. It was clearly understood that 
reduction of the currency would result from the act. Said 
Senator Cowan: "He [the secretary] can only retire to the 
amount of $34,000,000 in the year, and those are to be retired 
and canceled and put out of existence." ^^ On April 9 the bill 
passed the Senate and received the signature of the President 
on April 12. This act was a disappointment to the secretary, 
because of the limitation placed upon him as to contraction.*^ 
The growing hostility in Congress and in the country ta contrac- 
tion prevented him from using his authority even to the extent 

The reduction of United States notes under this act may be 
seen from the following statements of the public debt :*• 

April I, 1866 $422,749^52 

May I, 1866 415,164,318 

June I, 1866 402,128,318 

August I, 1866 400^61,728 

September i, 1866 599*603,592 

October i, 1866 399*165,292 

November i, 1866 390,195,785 

December i, 1866 385,441,849 

January i, 1867 380,497,842 

February i, 1867 381,427,090 

March i, 1867 376,235,626 

April I, 1867 375,417,249 

May I, 1867 374,247,687 

June I, 1867 373,209,737 

August I, 1867 369,164344 

September i, 1867 365,164,844 

October i, 1867 361,164344 

November i, 1867 357,164,844 

December i, 1867 356,212,437 

January i, 1868 356,159,217 

February i, 1868 356,159,127 

^Senate, April 9, 1866 {Cong, Globe, Thirty-ninth CongretB, First Session, 
Part 2, p. 1853). 

^Treasury Report, 1866, pp. 8, 9. 

^ Taken from New York Commercial and Financial Chronicle, 

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Any further reduction of the United States notes was stepped 
by the Act which became a law February 4, 1868, providing: 
that from and after the passage of this act, the authority of the 
secretary of the treasury to make any reduction of the currency, by 
retiring or canceling United States notes, shall be, and is hereby, suspended; 
but nothing herein contained shall prevent the cancellation and destruction of 
mutilated United States notes, and the replacing of the same with notes of 
the same character and amount** 

The measure was passed in the House on January 7, no discus- 
sion being allowed. In the Senate there was considerable dis- 
cussion. In view of the claim made later of the power to 
reissue notes, some of the statements made while the bill was 
under discussion are here given: 

Under the law, when a note is brought in ordinarily it may be reissued, 
but when it is canceled under the authority conferred by the Act of April la, 
1866, that is the end of the note; it cannot be reissued.*^ 

The apprehension expressed by the senator from Vermont that, if this 
amendment is not adopted, the secretary of the treasury will have a right 
to reissue legal-tenders so as to make the whole amount $400,000,000 again, 
I regard as without foundation. The law gave him the authority to issue 
to the amount of $400,000,000 besides the reserve. When that amount was 
issued, his power was exhausted; and if it was afterward contracted down 
to $350,000,000, or to any amount, he has no authority without new legisla- 
tion to issue to the amount of $400,000,000.** 

On January 13, 1868, the Senate passed the bill, and, without 
receiving the President's signature, it went into effect on 
February 4. 

On Febraury 4, 1868, the date when reduction of the green- 
back currency was stopped by act of Congress, there were out- 
standing practically $356,000,000 of United States notes. The 
monthly debt statement for February i, 1868, gives the amount 
as $356,159,127.2* Thereafter there were slight reductions from 

** 15 Statutes at Large, p. 34- 

'^ Senator Sherman {Congressional Globe, Fortieth Congress, Second Session, 
Part I, p. 435> January 10, x868). 

"Senator Morton (ibid,, January 10, x868). 

" The debt statements, unless otherwise noted, are from the New York Com" 
mercial and Financial Chronicle. 

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time to time. On July i, 1869, the amount appears in the debt 
statement as $355,935,195. On August i it was $356,000,000, 
from which point there was no change until October, 1871. 

On the date last mentioned $1,500,000 of United States 
notes were issued to replace that amount burned in the fire at 
Chicago. The burned notes were in the possession of the govern- 
ment depository. It was definitely known that they had been 
destroyed, but the new notes were put out before formal proof 
of their destruction had been received ; hence it was technically a 
reissue.^* The monthly debt statements show this increase, 
making the amount $357,500,000, down to August i, 1872, 
when the figures are once more given as $356,000,000. 

The next reissue was made in October, 1872. The debt state- 
ment for November i, 1872, showed $360,566,764, an increase 
of $4,566,764 over the previous month. Before the debt state- 
ment had appeared, rumors were current that the secretary con- 
templated such action, and it was pointed out that it would be 
without legal authority.^*^ When the fact of reissue became 
definitely known, the question of legality of reissuing retired 
kgal-tender notes was, for the first time, brought sharply to 
public notice. Criticism of the action became strong, and with- 
drawal of the reissued notes was begun — ^the debt statement for 
December i, 1872 showing $358,051,256 outstanding, a reduction 
of $2,515,508. 

•^ On the assembling of Congress the following resolution was 
adopted by the House of Representatives, December 3, 1872 : 

Resolved, That the secretary of the treasury be, and he is herewith, 
directed to inform this House, at the earliest time practicable, under what 
law authority is given to the secretary of the treasury to make an increased 
issue of legal-tender notes, as was done in October last, or at any other 
time, by the Treasury Department; and whether such issue was made in the 
legal-tender notes heretofore retired, or whether new legal-tender notes 
were printed for the purposes of said issue; if of the retired 1^^-tender 
notes uncanceled, then to inform this House what portion of the retired legal- 

'^Senate Finance Committee Report, No. 275, Forty-second Congress, Third 
Session, p. 5 ; see also Practical Information concerning the Public Debt of the 
United States, by William A. Richardson (26 ed., Washington, 1873), P> 40. 
*New York Nation, October 10 and 34, 187J. 

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tender notes of $44000,000, or thereabouts, heretofore retired by operation of 
law, have been actually canceled, and what amount remains uncanceled. 
And, further, it is requested that the secretary communicate to this House 
all information he may possess of the manner and mode of issuing such 
increased amount of legal-tender notes, by whose order and for what pur- 
pose such issue was used.** 

In reply to this resolution, Secretary Boutwell, on December 
13, 1872, transmitted a letter to the House.^^ He stated that the 
new issues were made, during his absence, by Assistant Secretary 
Richardson, then acting secretary: 

The object of the issue was the relief of the business of the country, 
then suffering from the large demand for currency employed in moving the 
crops from the South and West. The condition of affairs then existing in 
the country seems to me to have warranted the issue upon grounds of 
public policy. (Ibid., p. i.) 

The authority for the issue was found in the three legal- 
tender acts of February 25, 1862; July 11, 1862; and March 3, 
1863. These acts, the secretary asserted, provided for a perma- 
nent circulation of $400,000,000 of United States notes. 

The cancellation and destruction of notes that have been issued by the 
Treasury Department has ^o legal effect upon the power of the department 

^Hous€ Journal, Forty-second Congress, Third Session, p. 29. The above 
is a copy of the resolution as it appears in the House Journal. As originally 
introduced, the phrase "or at any other time" was not in the resolution. Mr. 
Garfield suggested that some such phrase be included, since it had been asserted 
that other issues had been made by the Treasury Department besides the one in 
October last He had supposed, he said, that the October issue was an exceptional 
one; that it had not been the custom of the Treasury in years past, but was an 
innovation. He wished the resolution made broad enough to include the whole 
matter, whether not only in October last, but at any other time the Treasury had 
made issues of this sort Mr. Randall, who had introduced the resolution, had 
no objection to this suggestion of Mr. Garfield, but thought one case was sufficient 
to test the legality of all, and did not wish "to confuse the subject or enlarge it 
too much.*' He, therefore, demanded a vote on the resolution, and it was 
adopted. ^^Congressional Globe, Forty-second Congress, Third Session, Fart z, * 
p. 15). As stated above, the phrase "or at any time" is included in the House 
Journal, and also appears in the letter of reply which the secretary transmitted to 
the House in response to the resolution. The conflicts between the Journal and 
the Record may, perhaps, be explained by assuming either that something was 
inadvertently omitted from the latter, or that the mover of the resolution 
included the phrase after the discussion. 

'"Executive Documents, No. 4a (House of Representatives, Forty-second 
Congress, Third Session. 

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to rdssue notes in their stead, as is apparent from the language employed in 
the Act of 1863, already referred to." 

It will be seen that the secretary here ignores any intervening 
legislation between the legal-tender acts and the date of his 
report. No change in the legal status of the United States notes 
is recog^zed as having occurred since the passage of the third 
1^-tender act, although the Act of April 12, 1866, had pro- 
vided expressly for a limited retirement and cancellation of them, 
and had remained in force until repealed by the Act of February 

The secretary further stated that since the Act of February 
4, 1868, large sums of United States notes had been held by the 
Treasury Department, in excess of the $356,000,000, as a sur- 
plus fund to meet any sudden demand upon the treasury. But, 
as we have seen, 6n\y one instance had previously occurred where 
a reissue had been made, and this was not really an addition to 
the amount of circulation. This reserve was, he said, the source 
from which the new issue was made. 

This explanation was not satisfying. Criticism continued in 
Congress and in the press.*^ It was pointed out that, if any por- 
tion of the notes retired under the law of 1866 might be replaced 
in circulation, the entire $44,000,000 retired under that act might 
be reissued. The power of increasing the currency to such an 
extent, especially by the addition of irredeemable paper, was 
rightly felt to be too great to be intrusted to any one man. It 
was felt, further, that there was but flimsy authority in law for 
the exercise of such power, and the letter of explanation from 
the secretary was not convincing on this point. 

On January 6, 1873, the following resolution was adopted in 
the Senate : 

Resohedj That the Committee on Finance be directed to inquire whether 
the secretary of the treasury has power, under existing law, to issue United 
• States notes in lieu of the $44,000,000 of notes retired and canceled under 
the Act of April 12, 1866.*^ 

"•/Wd., p. 2. 

•Sec New York Nation, issues of November 7, December 5, la, and 19, 1872. 

^Congressional Globe, Forty-second Congress, Third Session, Fart i, p. 340. 


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During the days immediately following, Secretary Boutwell 
and Assistant Secretary Richardson appeared before the com- 
mittee defending the legality of the issues. On January 14, 
1873, ^^ committee handed in a majority report, concluding 
with the following resolution: 

Resolved, That in the opinion of the Senate the secretary of the treasury 
has not the power, under existing law, to issue United States notes for 
any portion of the forty-four millions of the United States notes retired 
and canceled under the act approved April, 12, 1866." 

On January 15, 1873, two members of the committee, dis- 
agreeing with the majority of the committee, submitted a minority 
report, with this resolution : 

Resolved, That in the opinion of the Senate the secretary of the treasury 
has the power, under existing laws, to issue United States notes for any 
portion of the forty-four million dollars retired and canceled under the 
several laws on that subject" 

The reasoning which led to such divergent conclusions may 
be worth examining. The minority report asserted, and laid stress 
upon the assertion, that the three legal-tender acts had given 
unequivocal power to the secretary to issue and reissue United 
States notes up to $400,000,000. Unless that power had been 
taken away by subsequent legislation, it still remained. Any 
modification of this power must be found, if found at all, in the 
Acts of April 12, 1866, and February 4, 1868. The Act of 
1866 did not confer any new power upon the secretary over the 
currency. He had the right under the legal-tender acts to retire 
and destroy notes, or to reissue them. The desire of the secretary 
to reduce the legal-tender circulation was well known, and the Act 
of 1866 was confined to an express limitation of his power 
to reduce the currency, without affecting in any way the power 
previously granted, of reissuing notes which had been retired. 

After conferring by previous acts, and in such express and positive terms, 
the power to reissue notes, it would seem that, had Congress designed by the 
new legislation to abridge that power, appropriate words to indicate that 
intent would certainly have been used.** 

"^ Senate Reports, No. 275, Forty-second Q>ngress, Third Session, p. 6. 
^Ibid^ p. II. '*Loc. cit,, p. 8. 

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The Act of 1868, the report goes on to say, was passed when 
any further contraction was thought to be inexpedient. 

While provision is thus made against any further reduction of the cur- 
rency for the time being, no language is introduced taking away or restricting 
the power of the secretary to issue and reissue notes within the limit originally 

The act suspended merely the power to reduce the currency, but 
not to expand it. The several acts, then, bear this relation to one 
another : The legal-tender acts authorize a maximum circulation 
of United States notes of $400,000,000; below this amount 
reduction may be carried to any degree. The Acts of 1866 and 
1868 prescribe a minimum circulation of $356,000,000; beyond 
this the amount may be increased to $400,000,000 at the discre- 
tion of the secretary. There is no conflict between the earlier 
and the later acts; the limits of contraction and expansion are 
established, while, within these limits, the power of the secretary 
to expand or contract is left untouched. 

A decision of the United States Supreme Court is cited as 
upholding the view that the legislation of 1866 and 1868 did not 
alter the secretary's power of expansion. In the case of Bank 
vs. Supervisors,^ decided in December, 1868, the chief justice 

Under the Act of March 3, i863» another issue of one hundred and fifty 
millions was authorized, making the whole amount authorized four hundred 
and fifty millions, and contemplating a permanent circulation, until resump- 
tion of payment in coin, of four hundred millions of dollars. 

Had the later acts effected any change in the secretary's power of 
expanding the currency, the report urged, it would not have been 
overlocJced by the court, since the decision was rendered 
subsequent to those acts. Remembering that, unless the legis- 
lation of 1866 and 1868 takes away the power of reissue given 
by the legal-tender acts, there is no other legislation which does 
so, it is clear that such power yet remains with the secretary, 
argued the report 

Over against this ingenious and somewhat plausible line 
of reasoning, the majority report pointed out that the power of 

••/Wd., p. 8. "7 Wallace, 26. 

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issue given by the legal-tender axrts was carefully guarded, and 
could be exercised only if required by "the exigency of the public 
service." The policy of issuing such notes was r^;arded as 
dangerous, and a maximum limit was clearly ^t and maintained. 
The Act of June 30, 1864, was a distinct assurance that the 
amount then outstanding should never be increased. 

At the close of the war the policy of the secretary to fund 
all short time obligations was clearly announced, and received 
congressional approval. But unlimited reduction of the United 
States notes congress was unwilling to grant ; hence the Act of 
1866 placed a limitation upon the extent to which reduction of 
these notes might be carried. The notes were to be retired by 
being received in exchange for bonds, and the act expressly 
declared that no increase of the public debt should be made in the 
process of reduction. On this point the report says : 

To construe the act as permitting the reissue of United States notes can- 
celed under it would allow the secretary to increase the debt in direct vio- 
lation of the act. To evade the act he would only have to receive the notes 
in payment of a bond issued, and then cancel the notes and issue others in 
their place. In this way both notes and bonds would be outstanding. The 
plain intent of this act was to reduce and contract the currency .** 

The Act of 1868, continues the report, was passed when Congress 
had come to believe that contraction was being carried on too 
rapidly. The power of reduction given by the Act of 1866 was 
repealed, showing clearly that the reduction which had been 
effected under it was regarded as permanent. 

If the power to reissue had been a power coexisting with that of retiring, 
it is evident the Act of February 4, 1868, was unnecessary, for the evil to be 
arrested by that act could as well have been arrested by the reissue of the 

The legal-tender acts could not be construed to authorize the 
reissue of notes retired under the Act of 1866. The clear intent 
of the latter act was to secure a reduction of the currency, and a 
reissue of the notes retired in accordance with its provisions 
would nullify the end sought to be attained. In regard to the 

"Loc cit,, pp. 2, 3. "Ibid., p. 4. 

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Supreme Court decisions*® it was pointed out that the chief 
justice was not called upon to pass judgment on the later acts, 
and hence the decisions had no bearing on the question. It may 
be here noted that, although, as the majority report points out, 
the decisicMi quoted does not give warrant for the interpretation 
placed on it by the secretary, still some legitimate criticism 
might be made of the words used. The legal-tender circulation 
was not, it can be safely asserted, even at the time of its issue, 
regarded as a "permanent" circulation, but as a temporary 
resource for the pressing exigencies of the time. The National 
Banking Act of February 25, 1863, was entitled "An act to pro- 
vide a national currency," thus showing that a permanent national 
currency was not yet in existence, and provided a permanent sub- 
stitute for the legal-tender notes when they should have been 

The crucial point of difference in the two reports is as to the 
intent of the Act of April 12, 1866. What was meant by "retir- 
ing" notes? Was the reducticm intended to be permanent or 
temporary? When the circumstances under which the act was 
passed are taken into consideration, it seems clear that a perma- 
nent reduction was intended. The recommendation of Secretary 
McCuUoch in 1865, promptly followed by the resolution of the 
House of Representatives indorsing the secretary's views, led to 
the introduction of a measure in Congress to enact them into 
law. The act, as finally passed April 12, 1866, while far from 
supporting fully the desires of the secretary, was nevertheless a 
step in the direction advocated by him — ^namely, the reduction of 
the currency as a means toward resuming specie payments, and 
the funding of all short-time obligations of the government. The 
bill which, as originally introduced, provided for the funding of 
all obligations of the government, whether bearing interest or 
not, was, as we have already seen, amended by a provision that 

**See also Veazie Bank vs. Fecmo, 8 Wallace, 537, in addition to case pre- 
Tiously cited. The expression there given is similar to, but not quite so pro- 
nounced as in. Bank vs. Supervisors. 

** 12 Statutes at Large, p. 665. The act was revised and became law on June 
3, 1864, retaining the same title (13 Statutes at Large, p. 99)* 

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only a limited amount of United States notes should be retired. 
The retirement of this amount, however, was to be as complete 
and permanent as the retirement of any of the other obligations — 
as of the compound interest notes, or of the certificates of indebted- 
ness. The clause forbidding" any increase of the public debt by 
the operation was a positive prohibition of their later reissue. 
A reissue would rob the act of power to effect a reduction of the 
currency, and thus defeat its purpose. 

With this interpretation of the Act of 1866, the claim that 
$356,000,000 of United States notes constituted a minimum 
beyond which the secretary could reissue at pleasure up to $400,- 
000,000 becomes untenable. The retirement of the notes had 
been effected by an exchange for bonds. If, then, the notes should 
be reissued, both notes and bonds would be outstanding, and the 
public debt would have been increased. 

The annual report of the secretary of the treasury, made 
December 2, 1872, contained no allusion to the recent reissue, 
but recommended that "the power to change the volume of paper 
in circulation, within limits established by law, should remain in 
the Treasury Department."*^ The annual movement of crops, 
he said, demanded an increase in the volume of the currency, 
which the banks should not have the power to exercise.*^ 

The resolution of the House and Senate, which have just 
been recited and discussed above, were subsequent to this recom- 
mendation, and the majority report of the Senate Finance Com- 
mittee was a clear denial that the (secretary possessed the power 
claimed. No specific prohibition was passed, since it was generally 
imderstood that the right of reissue did not exist,*^ and that the 
secretary would not again exercise it In view, however, of the 
later action of the secretary, it was unfortunate that definitive 
legislation was not enacted to prevent a recurrence of this arbi- 
trary action. In the Senate afterward Mr. Boutwell argued that 
the inaction of Congress was a virtual assent to the secretar/s 

*^ Treasury Report, 1872, p. xx. 
^Ihid., pp. XX, xxi. 

^New York Commercial and Financial Chronicle, January i, 1873; New 
York Nation, January 9, 1873. 

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authority, and even Mr. Sherman admitted that there was ground 
for it.*« 

The financial effect of the treasury action was not wholesome. 
The reissue had been made by purchasing* $5,000,000 of bonds, 
for payment of which United States notes had been issued in 
excess of the $356,000,000 then outstanding. Five million dollars 
of gold was also sold for United States notes. The notes received 
in payment for the gold were placed on deposit with the New 
York City Banks, so that by the two operaticms $10,000,000 had 
been added to the bank reserves.** 

Temporary relief was thus afforded, but the situation soon 
became aggravated. The secretary began almost immediately to 
withdraw from the banks the greenbacks received from the 
sale of the $5,000,000 gold, and also to withdraw from circula- 
ti<Mi the greenbacks reissued in payment of bonds. By January 
4, 1873, all the bank deposits had been withdrawn, and about two 
and one-half millions of the reissued notes. This unsettled the 
money market and the stringency became more severe than 
before.**^ The debt statements show the amount of expansion 
and the process of retirement to have been as follows : 

October i, 1872 $356,000,000 

November i, 1872 360,566,764 

December i, 1872 358,051,256 

January i, 1873 3S8,5S7,907 

February i, 1873 358,013336 

March i, 1^73 356,000,000 

In March, 1873, Secretary Boutwell resigned and entered the 
Senate. Assistant Secretary Richardson succeeded him in the 
Treasury Department. Mr. Richardson had been an ardent advo- 
cate of the theory that the government could reissue greenbacks at 
pleasure, up to $400,060,000. As seen above,, it was he who 
ordered the reissue in October, 1872, although Secretary Bout- 

^ Congressional Record, Forty-third Congress, First Session, VoL II, Part i, 
pp. 704, 705. 

^Commercial and Financial Chronicle, November ii, 187a; Nation, January 
9, 1873. 

^Nation, January a, 1873 ; Chronicle, November 16, December 7, and ai, 187a. 

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well subsequently approved it. In the closing months of 1872, 
in a published statement, he asserted : 

Between that amount ,[$356,000,000] and the four hundred millions 
authorized by law, the issue of the reserve of forty-four millions of dollars 
is left to the discretion of the secretary of the treasury.^ 

In the same place he pointed out that during the month of Sep- 
tember, 1869, about one and one-half millions of United States 
notes were issued from the reserve to redeem an equal amount 
of 3 per cent, demand certificates which were suddenly presented 
to the Treasury for redemption. They were restored to the 
reserve, he said, in two weeks. No evidence of this reissue 
appeared in the monthly debt statement for October, 1869. 

It remained to be seen whether the new secretary would 
accept the report of the Senate Finance Committee and the 
opinion of the business world in regard to such reissues, or 
adhere to his own point of view. The debt statement for April 
I, 1873, showed an increase of United States notes of $2,509,- 
047. This was issued to meet current expendittu-es, made neces- 
sary by congressional appropriations.*^ By June i the amount 
was again down to $356,000,000. Enough had been done to 
indicate his attitude on the question. 

No further change in the amount of United States notes was 
made until the panic which occurred in the autumn of 1873. 
The failure of many business institutions brought a demand for 
Treasury relief in the form of reissue of greenbajcks. The pre- 
vious instances of Treasury interference were seized upon as 
precedents for this demand. On September 20, 1873, the New 
York Stock Exchange was closed. Secretary Richardson 
announced that the treasury would purchase $10,000,000 of 
bonds at noon, but only about two and one-half millions were 

On September 21 President Grant and Secretary Richardson 
held a conference in New York upon the financial situation. 

^Practical Information concerning The Public Debt of the United States 
with the National Banking Laws (ad ed., Washington, 1873), P* 40. 
^Nation, March 20, 1873. 
^New York Chronicle, September 27, 1873. 

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Representatives of Wall Street recommended that the forty-fout 
million "reserve" of United States notes be placed in the New 
York banks. The president and secretary were both opposed to 
this, and the announcement was finally made that the Treasury 
would purchase bonds in unlimited amount at not more than 
par in gold. Doubts as to constitutionality, it was said, pre- 
vented placing the forty-four millions at the disposal of the 
banks, but if the present policy did not give relief, the notes 
would be reissued despite the unconstituticMiality.** 

On September 22 nearly three and one-half millions of bonds 
were purchased, and nearly six millions of greenbacks were paid 
out in exchange for legal-tender certificates.*^® On September 
23, $3,205,200 of bonds were purchased, and $1,322,000 of legal- 
tender certificates redeemed.*^ On September 25 the secretary 
announced that no more bonds would be purchased; that all 
necessary relief had been given to legitimate business; that no 
part of the forty-four million reserve had been trenched upc»i; 
but he was quoted as saying that he would 

use it to a very limited extent, if it should become necessary to do so, not 
for the purpose of inflating the currency, but to pay ordinary expenses, with 
an intention of restoring the amount as soon as circumstances will allow " 

At that date the Treasury had paid out for bonds purchased and 
certificates redeemed about twenty-four millions of currency.*^* 

The efforts of the Treasury to afford relief to the money 
market were comparatively futile, if not indeed positively harm- 
ful.** Most of the greenbacks disbursed by the Treasury went 
to the savings banks, where they were hoarded, and had small 
effect in allaying the panic.*^*^ The rate on call loans advanced 
steadily, and from September 20 to September 2y, the week in 
which the Treasury made its disbursements of currency, there 

^Springfield Republican, September 22, 1873. 

^Ibid., September 23, 1873. 

'^Chronicle, September 27, 1873. 

^Springfield Republican, September 26, 1873. 

^Chronicle, September 27, X873. 

■•Kinley, The Independent Treasury, p. 189. 

'* Chronicle, October 11, 1873. 

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were no rates quoted on call loons.** In his annual report the 
secretary stated that, although the currency paid out by the 
Treasury strengthened the savings banks and checked the general 
alarm to some extent, the disturbance of business "could not 
be avoided by any amount of currency which might be added to 
the circulation."*^^ 

This report, dated December 2, did not make mention of 
the fact that an increase in the volume of United States notes 
had been made. Indeed, the statement was made that at the time 
purchase of bonds ceased no part of the forty-four million reserve 
had been issued.*® The debt statements for November and Decem- 
ber showed, however, that nearly $11,000,000 increase in United 
States notes had been made. The bond purchases had been car- 
ried to such an extent that the currency balance had been 
exhausted, and issues had been made from the "reserve" to meet 
ordinary expenditures, which had, since the panic, exceeded the 
revenue. It was pointed out that, had the Treasury retained its 
currency instead of purchasing bonds, the humiliating necessity 
of a reissue of greenbacks would not have occurred.** 

The increase in United States notes appears as follows in 
the monthly debt statements : 

October i, 1873 • $356,000,000 

November i, 1873 ". 360,952,206 

December i, 1873 366,922,018 

February i, 1874 38i,7i5437 

March i, 1874 382,000,000 

The experience afforded by the above incident runs counter 
to Secretary Shaw's opinion that it is wise to grant discretionary 
authority to the Treasury to enter the money market as a r^fula- 
tive factor. While the ineffectiveness of Treasury action to 
afford relief was demonstrated, the evil results were also appar- 
ent. An addition of $26,000,000 had been made to the irredeem- 
able paper currency of the country, and, to this extent, the 

'^ Chronicle, September 20 and 27, 1873. 
''^ Treasury Report, X873, p. xvi. 

"/«d., p. XV. 

^Springfield Republican, October 3, 1873. 

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results of the Act of April 12, 1866, had been nullified. There 
is evidence that Secretary Richardson, although believing in the 
legality of the reissues — as we have seen — doubted the wisdom 
of reissuing in the fall of 1873.*® But, feeling that the power 
of discretion was his, he yielded to pressure brought to bear upon 
hini. Such action was distinctly injurious, and, in the light of 
this precedent, the opportunity for such a blunder should not be 
allowed to occur again. Neither is there sufficient ground for 
the statement that no secretary in the future would ever make 
an improper exercise of such authority. Politics in the United 
States is still too uncertain to predict the action of any secretary 
whom we may have in the future. While a rehabilitation of the 
crude and unintelligent fiat money doctrine is hardly conceivable, 
the silver agitation of 1896 is so near as to deprive us of any 
assurance that the financial education of the country has gone far 
enough to prevent a recurrence of monetary delusions. Unreason- 
ing hostility to banks, which has been a striking feature of the 
political and financial history of the United States, has not alto- 
gether passed away, and the probability that the future will bring 
us a secretary of the treasury who will conceive the interests of 
the banks to be inimical to the interests of the people is as great 
as the probability that we shall have one who is subservient to 
the banks. 

That there are defects in our currency system is patent. The 
problem of providing for an excess of revenues over expendi- 
tures — ^which has often occurred in our history — ^has never been 
satisfactorily solved. The receipts from customs duties, amount- 
ing in 1906 to approximately three hundred and five million 
dollars, cannot, under present provisions of the law, be deposited 
in national banks. Some means should be provided by which 
this money can find an outlet into the channels of trade. But 
this is an argument for revision of the sub-treasury law, not for 
granting autocratic power to the secretary of the treasury. 
There is need for a greater element of elasticity in our currency 
to meet the seasonal demands for movement of crops. It should 

^Springfield Republican, September 22 and 23/ 1873. 

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be carefully noted, however, that this seasonal demand is not 
merely for increased note circulation, but for loons in the form 
of deposit credits. Instead of contenting himself with recom- 
mending a revision of laws which the business needs of the 
country have long since outgrown, Mr. Shaw asks for power to 
control the banks in the regulation of their loan^, accumulation of 
reserves, and in the contraction and expansion of their note cir- 
culation. Here the question forces itself upon one: To whom 
should this power be given? To an independent, irresponsible 
treasury official, or to the banking institutions of the country 
which are in close touch with business conditions? Is not the 
Treasury ex natura in a position where it cannot possibly know 
the banking needs of the country, since it is not in contact with 
the world of trade? The words of Professor Dunbar on this 
point are worth quoting : 

It is, in fact, one of the great services rendered by the national banking 
system that, for a most critical quarter-century, it carried note issue and 
deposit banking side by side throughout the greater part of the country, 
under the management of a class of remarkably sound institutions, giving to 
the community many of the benefits of free banking with the minimum of 
its risks. As a substitute for this system, the issue of notes by the Treasury 
is as little to the purpose as the striking of coins by the mint; nor is there 
any machinery by which the operations of the Treasury can be made to 
perform the desired office. Happily, those operations are quite distinct from 
the commercial movement of the country, and are unsuited by their nature 
for any closer connection with it, even if such connection were expedient*^ 

There must, it is true, be allowed to the secretary a certain 
degree of discretion. If for instance, the price of bonds is fixed 
by Qmgress, he should be allowed to determine the rate of interest 
they shall bear; if the interest rate is fixed, he should be given dis- 
cretion as to the price of the bonds. Of course, if the secretary 
is to imdertake the task of regulating the monetary situation of 
the country, he should have increased power. But the assump- 
tion of such a task is not the function of the Treasury. "Actual 
experience justifies the statement that the American people hold 
the secretary of the treasury quite largely responsible for financial 

*' Quarterly Journal of Economics, July, 1887, p. 413. 

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conditions," says Mr. Shaw.** If this be true — ^which is to be 
strongly doubted — it is due largely to the practice of the present 
secretary during his incumbency in office. That a proposition 
should be gravely advanced by a secretary of the treasury to 
make himself the dictator of the financial interests of the country 
is astonishing. It seems, however, to be only a somewhat radical 
expression of the present tendency toward centralization of 
powers at Washington, but one which, forttmately, stands small 
chance of encouragement from any source. 

Eugene B. Patton 

Univbksity of Chicago 
^Trgasury Rgport, 1906, p. 54. 

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Of the thirty thousand laborers at work in the Union Stock 
Yards of Chicago, twenty thousand are unskilled. The total 
thirty thousand means workers employed in the packing-houses 
as butchers, helpers, and those who cure and handle by-products 
directly. It does not include office help, nor men employed in 
handling live-stock for the Stock Yards Company. Most of the 
unskilled laborers reside on the west and southwest sides of the 
Yards. They have grouped themselves largely according to 

One does not have to walk many steps from the University 
Settlement in the Stock Yards district to find prototypes of the 
characters in Upton's Sinclair's Jungle, Nevertheless, the pack- 
ers deny the inference to be drawn from Sinclair's description 
for the same reason that southerners in general resent the indict- 
ment implied in Uncle Tom's Cabin, The filth apd bad odors 
surrounding the wretched laborers who crawl in the hide and 
hog cellars cannot easily be exaggerated, but it is a far cry from 
the animal life of many of the Lithuanian and Slovak workers 
to the manner of living that obtains among the Bohemian "aris- 
tocracy." For a considerable fraction of the Stock Yards 
employees labor conditions are bad, but the home-life of those 
same workers is even worse. To one used to the American 
standard of living it may seem incredible that human beings can 
become adjusted to such surroundings. The fact, however, that 
these people live in just such conditions at even less cost in other 
parts of the world is the fundamental difficulty encountered in 
any attempt at a solution of the Stock Yards labor problem. 
These laborers are living the life and maintaining the social 
and economic standards to which they are wonted. To lift them 
out of their present degradation is a matter not so much of 
wages, as of education. 

The district immediately surrounding the packing-houses 
has been the scene of a constant shifting of its population. Before 


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1890 the section north of Forty-seventh Street and west of 
Ashland Avenue was inhabited by Irish and German families 
that then represented almost the only laborers in the Yards. 
Nearly all these people came from other parts of Chicago. For 
a time they lived in comparative isolation, and seldom went 
back and forth into the main part of the city owing to the ten- 
cent street-car fare which was then charged from this district. 
Bohemian workers joined the Irish and Germans at an early date, '^ 
and these were followed by the Poles. With the advent of the 
latter peoples the Germans and Irish b^fan to move out of the 
old district and establish homes farther south, toward Fifty- 
first street Later, when the Lithuanians and Slovaks began 
pouring in from southern Europe, the Bohemians and many of 
the Poles likewise moved southward. This induced the Germans 
and Irish to press on in the van, each in their direction, leaving 
the territory between Forty-seventh and Fifty-first streets to 
the Bdiemians and Poles. The southern Europeans are grouped 
mainly according to nationalities, the Lithuanians and Slovaks 
being west of Ashland Avenue, while the Galicians and a few 
Slovaks are on the east side. These, with the Bdiemians and 
the Poles, constitute the bulk of the Stock Yards laborers at the 
present time. The dirtiest work within the packing-houses, 
such as that done in the fertilizing departments and in the hide 
and pork cellars, is done mainly by Lithuanians and Slovaks. 

Woric within the packing-houses, and especially in the cattle- 
killing departments, is graded variously from sixteen to fifty 
cents an hour. Most of the laborers begin work at the lower 
figure, and some are advanced gradually to better-paid jobs. 
The floormen and splitters are the highest-paid laborers on the 
cattle-killing floor, but comparatively few of those who work 
up from the lower ranks can split or aim to become splitters. 
The ambition of most of the men is to become floormen. How 
to reach this goal was a comparatively simple matter so long as 
the policy of the butchers' union was enforced in the packing- 
houses. Since the collapse of the union in 1904, however, no 
definite system of promotion has prevailed. A personal friend 
of the foreman, or one of his own nationality, is now apt to be 

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( chosen for a better job, in preference to the man who formerly 

i might have laid claim to such a position by virtue of seniority in 

In all grades of work it is obvious that each laborer is 
anxious to get the place of the one just a little above himself in 
rank and wages. This imiversaJ desire for the next man's job 
- makes each laborer fear lest he be superseded by the one next 
below. A sense of insecurity thus prevails all along the line. 
Even the man getting sixteen cents an hour knows that there 
are unemployed men at the gate who would be willing to take 
his work if they could get it. This conflict in interests between 
laborers is nowhere more clearly brought out than where the 
system of "go-betweens" prevails. A "go-between" is one 
whose time is divided between different grades of work. The 
employer may not have enough men to do all the work graded 
forty cents an hour. Still, perhaps, the extra work is not suffi- 
cient to give an additional man full time. The employer may 
then have some laborer from the lower ranks work part time at 
the forty-cent rate and the remainmg time at cheaper grades of 
work. In the meantime this "go-between" learns the forty-cent 

, job. The other laborers working full time at the forty-cent rate 
now fear this man more than anyone else. They know that his 
chances to get one of their places are better than those of any 
of the laborers in the rank immediately below their own, since 
( he is rapidly learning their trade. This explains, too, why the 
butchers' union was opposed to the go-between system. 

Promotion is, of course, impossible in any event unless the 
laborer has opportunity to acquire the necessary training. The 

I go-between system serves this purpose, but only a small fraction 
of the Stock Yards laborers are thus enabled to fit themselves 
for higher grades of work. While a few of the more aggressive 
workers may become fairly proficient in some new line of work by 
repeated practice during spare moments, the larger number of 
those who are advanced fit into the plan that prevails among the 
splitters. There are two classes of splitters: the main splitters 
and the neck splitters. Any strong man can do the woric in the 
' latter class. Skill as well as strength is needed by the main 

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splitters, however. When the foreman wants to put in a new 
main splitter, he usually turns the beginner over to one of the 
old workmen, and the latter is then supposed to give the necessary 
instruction and aid, and be responsible for the results of the 
work. The old splitter generally tells the new man to take only 
the smaller animals at first and to quit as soon as the line of 
splitting is off the center of the back bone. In such cases the 
old splitter must finish up the work, covering up the defect, if 
there shall be any, as well as he can. The apprentice does not 
get the wage of a splitter during his period of apprenticeship, 
but is paid the wage he received while at his former job. When 
he has practiced on the smaller animals until he can split them 
safely, he tries the larger ones. It is common to hear splitters 
say: "There is a world of difference in bullocks." Even after 
a man can split the largest animals correctly, he is not gfiven 
the full wage immediately. Deduction is made from this for a 
time so as to make up for the mistakes made during the period of 

Many of the laborers would be satisfied to work even though 
there were no prospect of promotion, provided the hours of work 
were reasonably steady. As it is, Monday and Saturday are, as 
a rule, only half-days. In the middle of each week the men 
have often to work overtime. Steadiness of employment alsp 
varies with the time of the year, the summer season being usually 
slack. Even though a man may get a good hourly wage, there- ^ 
fore, his pay for the week may be small, since the weekly time 
is often only forty hours. 

The fcJlowing table, showing weekly changes from 
Jime 24, 1905, to Jime 9, 1906, in (a) average weekly time, in 
hours, worked by the cattle-butchers, (&) the number of 
employees each week among cattle-butchers, represented as a 
percentage of the average weekly number for the year, and (c) 
the total number of hours worked each week by all the cattle- 
butchers, represented as a percentage of the average wedcly 
number of hours worked by all the cattle-butchers, has been 
worked out from the pay-rolls of one of the large packing- 
houses. In the accompan)ring diagram the curves plotted are 
based upon columns (&) and (c). 

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JUNE 24, 1905, TO JUNE 9, 1906 

No. of Week 


































































































































! 8> l?§ s § ?§ !pa^s sE^R-js* 








i « k s? 8 "i? 2 V *8 » *& i i ie a s 

, The irregularity thus made apparent is seen to be, not in 
the number of men hired at different times of the year, but rather 
in the amount of work done. This irregularity in employment 

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has been an important factor in promoting intemperance among 
the Stock Yards laborers. While these men, as a group, and 
especially those from southern Europe, are very heavy drinkers, 
the evil has, no doubt, been aggravated because of the idle time 
forced upon the laborers. The packers, too, deplore the evil of 
unsteadiness in employment, but declare that conditions inherent 
in the industry, the great shipments of cattle on Mondays and 
Thursdays, and the wide variations in supply at the different 
seasons of the year, are the causes of the irregularity. 

It will be noted that neither the table nor the chart takes 
account of the daily fluctuations in employment within the wedc 
mentioned above, which are perhaps fully as mischievous and 
demoralizing as the seasonal changes. 

To those laborers who are accustomed to irregular times for 
work before coming to the Stock Yards the evils may not seem 
so great. This is especially true of the Lithuanians and Slovaks, 
because of certain habits and customs that prevailed among them 
in their native provinces, to which they cling long after their 
advent to this country. The average number of holidays observed 
by these people indicates that they are accustomed to considerable 
irregularity in their habits of work. When a wedding is cele- 
brated, the guests prolong the festivities, amid drinking and 
dancing, for a week. Three or four days are devoted to each 
funeral. At least a week, and sometimes two, is set aside each 
summer to a yearly celebration known as the kalvreea. If we 
include the large number of religious holidays and the customary 
fifty-two Sundays, and make a conservative estimate of the 
average number of weddings and funerals attended by men of ; 
the class employed in the packing-houses, we find that 125 out 1 
of the 365 days of the year, or over orte-third of the time, is 
thus occupied. 

It has been noted above that the people maintaining the lowest 
standard of living in the Stock Yards district live in just such 
conditions at even less cost in other parts of the world, and 
that this is the initial cause of whatever difficulty any attempt 
toward the solution of the Stock Yards labor problem presents. 
Let us examine the evidence furnished by a study of Lithuanians 

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and Slovaks of the class that prevails in the packing industry. 
None of these own land in their native country. All have served 
as hired help for farm labor. Until within four or five years, 
such men received from twenty to thirty rubles (about 
ten to fifteen dollars), including board and clothes, for a year's 
work in their home districts. A hired girl's wages would be 
ten rubles, or about five dollars a year, including board and 
clothing. The board afforded these people is easily described. 
Breakfast, which was their heavy meal, consisted of one of the 
following dishes: mashed potatoes and lard, or barley flour 
mush, or chopped beets boiled with salt pork, or sauerkraut 
and salt pork, or on some occasions other meat. Black rye 
bread would be served with one of the above. At noon they 
received soup from greens or from potatoes and a little flour. At 
the evening meal they were given either potato or barley soup. 
Meat was seldom forthcoming at the noon or evaiing meals. 
All their clothing was home-made and made by hand. They 
wore shoes on Sundays and holidays only. On work dBys a 
leather sole, called a nagenes, bound to the foot by means of 
home-made linen strings, was worn by men and women alike. 
The farm-houses were one story buildings containing from three 
to five rooms. None of the floors were made of wood, but were 
simply a hardened clay. These houses would have to accommo- 
date the farmer and his wife and children (six on the average), 
and from one to three hired girls ; also from one to three hired 
men where these were not required to sleep in the bam. These 
laborers saved nothing from their wages. What little money 
they received was spent in a sociable way at the various festivi- 
ties. There was no inducement to save, and nothing in which 
they could invest their small earnings. 

People accustomed to such a standard of living in their home 
country are the kind who supply the major part of the poorest- 
paid labor in the Stock Yards. While now working at sixteen 
cents an hour or less, they are able to lay by a large portion of 
their earnings, even though they live more expensively than 
they could have thought of doing in their native country. It is 
customary for these men to board in groups at the home of one 

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of their countrymen. The landlady buys provisions at the grocery 
and meat-market for each of the boarders separately, and a 
separate book account is kept for each of the men at the store for 
such purchases. Each boarder pays his own book account at the 
store, and pays the landlady for preparing the meals, and for 
his lodging and washing. The average monthly expense is nine 
dollars on the book account, three dollars and fifty cents to the 
landlady, and three dollars or more per month for beer, a pint 
of which is consumed at each noon meal, and another in the 
evening. All the laborers buy both meat and beer — ^the food 
and drink they most enjoy. They could never have indulged in 
such high living in their native country, and they have all been • 
accustomed before entering the Stock Yards district to living in 
crowded quarters. 

One new experience, however, comes to them after having 
woriced a while in the packing-houses. They see money coming 
in at a rate they have never witnessed before. They translate 
their wages into the coins of their native country, and then the 
amount seems fabulous. Now for the first time they feel they 
are getting something worth saving. Moreover, there is an 
opportimity to invest money in real estate, and this appeals to 
many of the laborers. They have the opportimity to buy a lot 
. on an easy payment plan — only fifteen dollars down, perhaps, 
and the rest in small instalments which, their wages will permit 
them to meet. Those who are not interested in making an 
investment look forward to the time when they can take the 
savings of two or more years with them back to their native 
country. The writer knows of one laborer, who was among the 
lowest-paid men in the Stock Yards, who had accumulated two 
hundred dollars within a period of two years. 

The Slovak and Lithuanian girls working in the packing- 
houses at the low wage of five dollars a week also save a con- 
siderable fraction of their income. These girls do not live 
according to American standards, and could not under the cir- 
cumstances. By doing their own washing and preparing their 
own meals to a large extent, they do not have more than half 
the living expenses of the men. They never exceed six dollars 

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per month in their book account, and pay their landlady two 
dollars, making a total of eight dollars per month. 

Comparatively few of these people complain about their con- 
ditions. On the other hand, if any outsider speaks deprecatingly 
of their standard or shows signs of pity for their lot, they will 
often resent it. 

These people have their own societies and clubs, and all 
belong to the same church. It is very difficult for an outsider to 
gain their confidence. Such a privilege is limited to those of 
their own nationality, and especially to their priest. The writer 
called on one influential priest, and was met with the curt reply: 
"Very busy." The offer was made to call later at some time 
that would better suit the priest's convenience. Without even 
knowing the purpose of such a visit, he wheeled about and 
walked into another room, ejaculating as he went, "Busy all the 
time! Busy all the time!" 

The members of his "flock," too, are "busy all the time." 
But their state of being busy is essentially static. The only 
dynamic force they themselves inject into their society is increase 
of population. Changes tending to better their conditions have 
invariably come from the outside. Packers regard the present 
standard of living of these people as an improvement over earlier 
conditions to which the laborers have been accustomed. Settle- 
ment workers make personal visits to tlie various hovels, and try 
to instil habits of cleanliness and decency. It is largely due to 
their influence that public baths, play-grounds, and reading- 
rooms have been placed in close proximity to the children of the 
Stock Yards laborers. And these children respond to the new 
and better environment thus afforded. It is a pleasure to see 
how they rise to higher planes of living. They are not willing to 
take jobs like those of their parents, and the restlessness thus 
made manifest is the most encouraging sign we have for their 
future. Another external force brought to bear on conditions 
of Stock Yards laborers is that of the butchers' union. To a 
study of this, attention is now directed. 

In the fall of 1896 the American Federation of Labor was 

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asked to issue a call to local unions of butchers to send dele- - 
gates to the next annual convention of the federation, for the 
purpose of organizing an international union of butchers. Five 
local unions were represented at the Cincinnati convention — ^two 
from packing-houses in Kansas City, two meat-cutters from New 
York state, and one representative from the general organiza- 
tion of Boston. The delegates thus assembled in convention 
drafted the constitution for the International Union of Amalga- - 
mated Meat Cutters and Butcher Workmen of North America. 
All other local unions of butchers directly chartered by the 
American Federation of Labor were now obliged to take out a 
charter from this new international organization. The date of 
organization was January 26, 1897. 

The main purpose in thus forming an international tmion was 
to get uniformity, as far as possible in the wages and conditions 
of labor among cattle^butchers in the different localities. The 
lack of uniformity is evident when we compare conditions at dif- 
ferent packing centers. Thus, in Milwaukee, even now, butchers 
get only 50 per cent, of the wages paid in Chicago. The most 
highly skilled butchers in Milwaukee receive only twenty-five 
cents per hour. Only one man out of the two thousand in the 
packing business gets three dollars per day. In New York, on 
the other hand, the lowest weekly wage paid to cattle^butchers * 
m packing-houses is eighteen dollars per week. The average 
wage received by a highly skilled butcher is forty dollars per _ 
week. The men are paid according to the piece-work system, 
but their speed is, on the average, no greater than that which 
obtains in the Chicago Stock Yards. A difference may be 
noticed, too, in the arrangement of the work. In New York, 
where kosher meat is prepared, the division of labor is not carried 
oat so minutely as in Chicago. Thus, the floorman, who 
removes the hide from the side of the animal, is also feld-cutter 
and cuts open the animal. The cattle-finisher must be able to 
rump the back and split, combining the kind of work done by 
four different specialists in the large houses in Chicago. Atten- 
tion has been called to this lack of uniformity by the international 
union through the medium of its national officials. These 

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officials are a president, secretary-treasurer, and five vice-presi- 
dents, all of whom together constitute the international executive 
board. Similarly, each local union has a president, vice-president, 
corresponding and financial secretary, recording secretary, 
treasurer, and sergeant-at-arms, and these local officers consti- 
tute the local executive board. 

When the local unions were first organized, only skilled men 
were admitted. The organizations of unskilled workmen began 
to be formed in 1902. At the time of the strike in 1904, when 
the international union included fifty-six thousand members, 50 
per cent, of the membership was unskilled. The strike brought 
about a complete collapse of the unions of unskilled worker^ 
Since then the packers have refused to enter into any agreement 
with these men. Previously, for a period of over a year, the 
packers at all the packing centers had been bound by an agree- 
ment with the unskilled workers. That is the only period in the 
history of the butchers' union when the packers have been willing 
to deal with the imskilled workers as a body. 

Today the membership of the butchers' union is only one- 
half what it was in 1904. It consists of skilled workers only, 
except in cities like Baltimore, Cincinnati, Louisville, Ky., and 
Evans ville, Ind., where half the membership is unskilled. In 
these four cities, it may be noted, the unskilled workers are 
employed in independent packing-houses outside of the "big 

When the international union was organized, it was decided 
to hold conventions annually. Since 1900, however, the meetings 
have been biennial. Each local union sends delegates to the inter- 
national conventions. The representation has changed from time 
to time to suit the growth of the organization, until at present 
each local is entitled to one delegate for the first two hundred 
members or fractional part thereof, and one additional delegate 
for each additional five hundred members or major fractional 
part thereof. These delegates serve merely at the convention to 
which they are elected. The seat of government has been fixed 
at Syracuse, N. Y., and it is required that "the president or 
secretary-treasurer of the international organization shall reside 

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in the city where the general office is located. Any change of 
headquarter^ shall be left to the decision of the international 
executive board." 

The executive board is the supreme power of the inter- 
national union.* If matters are placed before the secretary- 
treasurer or president, and these officials do not see fit to decide 
the matter independently, they submit it to the executive council, 
and final decision is rendered by a majority vote of that body. 
The members of the first international executive council received 
no salary, and continued their respective trades in packing-houses 
or meat-markets. The secretary-treasurer became a salaried f 
official in 1899, and the president in 1900. These two officials J 
have since then devoted all their time to official wodc. 

Since 1904 the international union has provided for death 
benefits. Up till that time death benefits were maintained by 
nearly all the local unions. These abolished it when the work 
was taken up by the international union. The members of 
local unions pay thirty cents per mc«ith to the international body. 
Of this, fifteen cents goes to the general-expense fund, ten cents 
to the strike fund, and five cents to the death fund. A fifty- 
dollar death benefit is paid where the deceased has been a mem- 
ber of good standing for six months. This stun is increased 
to one hundred dollars if the deceased had been member for a 
year, and to one hundred and fifty dollars where the member- 
ship was three years. The total amount of strike benefits paid > 
out by the union exceeds one hundred thousand dollars. 

The membership of a local union usually consists of laborers \ 
of some one department. Where the departments are small, 
as in some of the smaller cities, several may unite to form a mixed - 
local. In Chicago a few of the meat-cutters' local unions have 
been organized according to nationalities, such as the Bohemian 
meat-cutters, Hebrew meat-cutters and German sausage-makers. 
The members of local unions pay an entrance fee and monthly 
dues. Among the Chicago unions it has been found impossible 
to compel members to attend the r^fular meetings of the locals. 

^Appeal to the union body as a whole has been made possible through the 
adoption of the initiatiye and referendum. 


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\ In many other cities, however, a fine is imposed where a member 
is absent from more than two consecutive meetings without 
reasonable excuse. The meetings are usually held twice a month. 
Each member is provided with a due-book, which is stamped 
when the monthly dues are paid. Before a member can gain 
admittance to any meeting he must give the pass-word, and also 
show that his due-book is stamped up to date. Qualifications for 
membership are passed on by an investigating committee. 

Each union has its house or shop committee, which consists 
of three members elected semiannually. It is the duty of this 
committee to hear grievances presented either by members of 
the union or by the representative of the company. Wherever 
the committee finds itself unable to settle the matter presented, 
it is either referred to the local executive council or brought 
before the local union at its next meeting. In practice such 
matters are usually presented at a meeting of the local union. 
The house committee always consists of laborers in the craft 
represented by the union. Inasmuch as a union includes within 
its department several branches of work, care is usually taken to 
have the different forms of work represented in the committee. 
The committee members receive no pay for their services. Any 
laborer who is unable to get a fair hearing before the house 
committee can report to the business agent, who in turn would 
report at the next meeting of the local union. The committee 
are then asked to clear themselves of the charge made, and, if 
unable to do so, are discharged, arid a new committee is 
appointed. Although semiannual elections are held, the commit- 
tee members are usually re-elected so as to serve year after 
year. The bulk of the work is generally left to the chairman of 
the committee. He settles many of the questions that arise, and 
calls in the other members of the committee for only the more 
important matters. 

Nearly every local union has a business agent.^ It is his 
duty to collect the regular dues, solicit membership, secure the 
signature of employers to contracts and agreements where such 
exist, and try to unionize shops not thoroughly unionized. The 

'In 1904 diicago had twenty-six local unions and eighteen business agents. 

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business agent is expected to devote all his time to such work. 
He is the only salaried official in the local union. His wages 
vary from twenty dollars to twenty-seven dollars and fifty cents 
per week. Most of his work now consists in collecting dues 
and trying to get new members. The office of the business 
agent was established at the Cleveland convention in 1900. The 
business agents have often been men who were ignorant as to 
conditions of the labor movement as a whole. Nevertheless, 
they have been thoroughly familiar with the work performed in 
their own departments. Many of these men have realized that 
they wielded power in their control of labor, and have often 
used such power to advance their own individual interests. 

In section 4, Article IV, of the constitution of the Amalga- 
mated Meat Cutters and Butcher Workmen of North America 
we read : 

In any locality covering a radius of twenty miles or less, where there are 
three or more local unions of Amalgamated Meat Cutters and Butcher Work- 
men, there shall be formed a Packing Trades Council; but no local union 
shall be eligible to affiliation therewith, excepting such local unions as are 
chartered by the Amalgamated Meat Cutters and Butcher Workmen of North 

The above section is the revised form as adopted in May, 1904. 
In 1 901 it was intended to limit membership to those unions 
chartered by the international organization, but it was not so 
specified at the time. Shortly after the council was first 
established, unions of coopers, firemen, engineers, and others who 
applied for admission were taken in. These continued to hold 
their seats until the revision of the constitution of the inter- 
national tinion in the spring of 1904. The first packing-trades 
council was organized in Chicago in August, 1901. Other coun- 
cils were organized soon afterward in New York City, Kansas 
City, South Omaha, St. Joseph, East St. Louis, and San Fran- 
cisco. All of these continued to exist until after the strike in 
1904. Those in New York City and Chicago have been active *- 
until the present time. The latter included in its membership, at 
one time, all the local unions in the city connected with the meat 
industry, except the teamsters' unic«i. The aim and purpose in 

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organizing such a cx>uncil was to bring the local unions into close 
touch with each other, so as to make the grievance of one the 
concern of all; also, to further movements which could not be 
advanced by the local unions separately. 

The packing-trades council is made up of del^;ates from the 
different local unions eligible to membership. For the first one 
. hundred and fifty or less number of members each union has a 
J representation of two del^;ates, and for each additional one 
hundred and fifty members one additional delegate. These dele- 
gates serve for a period of one year. Meetings of the council are 
held at least twice a month. 

As originally organized in 1901, each packing-trades council 
had a president, vice-president, recording secretary, financial and 
corresponding secretary, who also acts as business agent, a treas- 
urer, sergeant-at-arms, three trustees, and an executive board of 
five members. Last May the international executive council 
^ ordered a change in the number of officials within the packing- 
trades councils both in New York City and Chicago. The office 
of president was abolished, and in his place a temporary chair- 
man is now to be selected at each meeting of the council. While 
the other officers served for one year previously, they are now to 
be elected every six mcmths. Questions of jurisdiction arising 
between locals are no longer determined by the packing-trades 
council, but are decided exclusively by the international execu- 
tive board. The packing-trades coxmcil had in many localities 
\ assumed the function of the international executive board, and 
I this is why the powers of the former body were curtailed. 
Shortly after the defeat of the butchers in the strike of 1904, all 
the packing-trades councils, except the two in New York City 
and Chicago, were disbanded. This followed as a result of the 
packers' refusal to have any further dealings with the officials 
of these bodies. It may be noted that the present packing-trades 
councils are found in two cities where there are independent 
packing-houses neither owned nor controlled by the "big six" 
companies. Moreover, in all those cities where the packing- 
trades councils have ceased to exist (except on the Pacific coast), 
the stock yards and packing-houses are all owned by some or all 
of the "big six" companies. 

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In 1902 and 1903 the union through its house committees 
arranged a definite system of promotion for laborers. Thus, 
the man who b^^ work by raising gullets w6uld become a 
foot-skinner, and he in turn could become a leg-breaker. The 
last-named could be advanced to the position of a feld-cutter. 
The next higher step was the work of the rumper. Above this 
again was the work of the floorman ; and, as already mentioned, 
the ambition of most of the men is in the direction of this job. 

According to the union regulations as enforced in 1902 and 
1903* a vacancy in any of the ranks would be filled by the oldest \ 
in employ from the rank next below, provided the union did not , 
have among its unemployed one who was a specialist in such 
woric. The plan of promoting according to seniority in employ- 
ment was rigidly followed by the union; but if the man thus ^ 
promoted could not fill the place, he would have to yield to the 
next in rank. From 1901 to 1904 a boy could rise from one 
grade to the next, but no one was permitted to skip any of the 
grades of work; that is, no boy raising gullets or breaking legs, \ 
for example, would be permitted to become floorman directly, 
but had to rise gradually from job to job. There was a while 
when it might happen that a laborer working as leg-breaker 
would at odd times practice on the work of a floorman. In a 
short time such a laborer might go to some other city and hire 
out as floorman. In order to prevent this, the cattle-butchers' 
union, with the sanction of the international organization, estab- 
lished a system of transfer cards, 1901. These cards were issued 
to members of the union desiring to go to scwne other city, and 
showed the kind of work the owner had been doing and in what 
line of work he was proficient. These transfer cards were issued 
by the secretary of the local union, but the local shop or house 
committee was judge of what should go on the card. A laborer 
sedcing employment in a packing-house of some other city would 
have to show his transfer card to the house committee in the 
department where he sought work, and they would determine 
the grade of work to which he was eligible. 

Again, if a certain gang were needed by the packers in their 
busy season, it was the policy of the union to compel the packers 
to retain the same number of men in slack seasons. The packers 

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thought it better to lay off some men in the slack season and 
so give to the others full time. The union, on the other hand, 
insisted that all should be retained, even though none got full 
time during the slack season. They held that this was not only 
the more humane plan, but that it was the better way from a 
business view-point Their argument was that the price of labor 
is not fixed by the man at work, but by the man at the gate. 
More men would be at the gate during slack seasons if 
the packers were permitted to carry out their policy, and the 
standard of wages would be lowered accordingly. 

The policy of the butchers' union in its relation to the princi- 
ple of the closed shop, the union label, the minimum wage, 
entrance fees, and the boycott, may also be noted briefly. No 
closed-shop agreement was made or carried out in any packing- 
house in America until in the spring of 1906. At that time the 
companies and employees in all the packing-houses in Evansville, 
Ind., and in nearly all the packing establishments in Louisville, 
Ky., agreed to abide by the union-shop agreement. This agree- 
ment provides that the packers shall employ in their establish- 
ments only union men, or men who are willing to become union 
men. The unions have also prepared a union stamp, which 
they try to have placed on all meats sold by their employers. 
Some employers, friendly toward the union and even bound 
by the union-shop agreement, are nevertheless unwilling to adopt 
the use of such a stamp, because they claim the large packing 
companies will then invade their market, purposely undersell 
them, and drive them out of the business. This objection to the 
use of the union stamp was mentioned recently by large packing 
firms in Evansville, Ind. ; and the same difficulty was pointed to 
four years ago by Mr. Jacob Dold, when he was asked to adopt 
the union label in the Dold packing-houses at Buffalo, N. Y., 
Kansas City, and Wichita, Kan. 

While no union shop agreement existed in any packing 
house until last May, the same has been in force among the 
meat-cutters ever since the formation of the international umoa 
in 1897. All retail markets that become unionized oiust adc^t 
a union-shop agreement. Such markets are provided with a 

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unicwi market card, which certifies that the meat-market is con- 
ducted in accordance with the rules of the Amalgamated Meat 
Cutters and Butcher Workmen of North America, American 
Federation of Labori The card is not to be placed in any market 
without the permission of the international union, and may be 
removed by them at the discretic«i of the international secretary- 
treasurer. The rules for the union meat-market provide that all 
employees shall be imion men, or willing to become union men. 
They also provide that the employers shall abide by a imiformly 
established time for closing the markets, which in most cases 
includes strict Sunday closing. When conferences were first 
held between the international union and the meat-dealers' asso- 
ciations in the East, it was agreed that the daily hours should be 
from 6 A. M. to 7 130 p. m. This working-day has been gradually 
reduced, until now the markets open at 7 a.m. and close at 
6 p. M. in all the union markets in the East. Through the 
influence of the international union, a bill was introduced into 
the legislature of the state of New York, providing for Sunday 
closing of all meat-markets, and making it a criminal offense to 
sell, expose for sale, or deliver any fresh or salt meats or meat 
products. The measure was bitterly fought by the Hebrew 
meat-dealers, even the Jewish unions opposing the measure. ( 
The bill was passed, and has been declared constitutional by the 

In Syracuse, Utica, Albany, Rochester, and other cities in the 
state of New York, the meat-cutters' union has arranged with; 
the employers for a minimum wage of twelve dollars per week 
for meatkutters. This does not affect the wages paid the 
apprentices or delivery boys employed in these establishments. 
In this connection it will be remembered that the demand by the 
butchers' union for a minimum wage for unskilled labor in the 
packing-houses was what provoked the great strike of 1904. 

. The attitude of the union toward unfair goods is reflected in 
the position taken by the American Federation of Labor. The 
latter body has sanctioned the publication in its official journal 
of the names of companies that are deemed unfair in their atti- 
tude toward organized labor. Such names are included in a list 

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under the caption "We Don't Patronize," and may be seen in any 
copy of the American Federationist. This journal also publishes 
the names of those companies that arrange a settlement with the 
federation. If any packing-house is deemed unfair toward the 
butchers' union, arrangement will be made with the federation 
to have such a company included in the above-mentioned list. 
Whenever the American Federation of Labor indorses the publi- 
cation of a company on the unfair list, organized labor every- 
where is officially notified not to patronize any business houses 
using the products of the imfair company. When this system 
of boycott was first established, the list published was very large. 
At the convention of the federation held three years ago, the 
provision was so modified as to limit the numbers of names 
published. Thus, 

an international union is not allowed to have published the names of 
more than three firms at any one time. Similar course is followed when 
application is made by a local union directly affiliated with the American 
Federation of Labor. Directly affiliated local unions arc allowed the publica- 
tion of but one firm at any one time. 

When a boycott is levied on some meat company, and this is 
indorsed by the American Federation of Labor, all local unions 
are notified to that effect. The products of the imfair firm can- 

l not thereafter be handled in any of the union meat-markets. The 
imion card would be removed from any shop handling the goods 
of the boycotted company. 

The regulations of the butchers' imion with reference to the 
use of initiation fees afford interesting comparison with those of 
the Packing House Teamsters' Union of Chicago. The latter 

^ union charges a fee of twenty-five dollars to all applicants for 
membership. To that union body it is a paying proposition to 
have old members drop out and new members come in, as this 
affords an important source of revenue. In contrast with this^ 
notice the regulation passed at the last convention of the inter- 
national union of butchers. It was decided that 

members in good standing in any organization of meat-cutters, coming from 
any foreign country, shall be admitted upon presentation of their membership 
card, without charge. 

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Moreover, no local unicm has ever been permitted to charge an 
initiation fee exceeding five dollars. 

In addition to those policies of the international union referred 
to above, mention should also be made of certain demands urged 
by the packing-trades 6Duncils. These councils have been vigor- 
ous in their denunciation of convict labor, wherever the products 
of such labor is offered in the open market in competition with 
similar products of other labor. They have agitated child-labor 
laws, and were among those who urged the adoption of the bill 
recently enacted by the l^slature of Illinois. They have also 
asked the packers to abolish the present system of paying laborers 
by the check syst«n. They hold that all laborers should be paid 
in cash. At present, only one of the big packing-houses in the 
Chicago Stock Yards uses the cash system.* 

Carl William Thompson 

University op South Dakota 

*It is estimated that more than 95 per cent, of the checks issued to the 
laborers in the Stock Yards are cashed in saloons. The sign, "Packing-house 
checks cashed here," is conspicuous in many saloons near the stock yards of the 
large packing centers. Whenever a saloonkeeper cashes a check, he always' retains 
the odd cents, if there are any. Then, too, custom demands that the man 
cashing a check shall buy a glass of beer, and if any fellow-workers are present, 
as is usually the case, the owner of the check is supposed to set up drinks to the 
crowd, sometimes including the bartender. Even more important than this to 
the saloonkeepers is their use of a credit system, made possible under the check- 
payment plan. The saloonkeepers learn the amount of wages paid their patrons. 
The drinks are then sold on credit, the amount being gauged in some proportion 
to the size of the laborer's check. When the check is brought in to be cashed, 
the saloonkeeper deducts the amount due him and turns over the balance. The 
saloonkeeper is enabled to make much greater sales under such a plan than he 
could where the cash system is used. This is well illustrated by conditions in 
Kansas City, Kan., five years ago. While Kansas has a prohibition law, no attempt 
was made to enforce it in Kansas City at that time. All the packers were asked 
to abolish the check system. The "S. & S." company agreed to pay their laborers 
in non-negotiable orders drawn on a certain bank located near their packing- 
houses. This, of course, made it impossiLle for the laborers to cash their 
checks at any other place than the bank on which the checks were drawn. The 
officials of this bank agreed to l^eep their offices open on the evenings of each 
pay-day. The saloonkeepers around the **S. & S." packing-houses immediately 
raised a protest. One of them told an official of the butchers' union that the new 
system would drive him out of business. He explained that he had several 
hundred dollars due him for drinks credited during the week. Not being given 

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the opportunity to cash the checks, he would be unable to collect more than a 
fraction of this, and could not think of extending credit in the future as h\e 
had heretofore. He affirmed that it would not pay for him to try to run his saloon 
under a cash system. It is a well-known fact that several saloonkeepers mored 
away from the vicinity of the "S. & S." houses after the above-mentioned change 
was made. 

On Ashland Avenue, near the Chicago Stock Yards, the saloonkeepers get 
in most of their money today indirectly by the cashing of checks. Here the 
saloonkeepers are largely ex-employees in the Stock Yards, each of which has 
his circle of friends from "packing-house" days. These men make nearly all 
their money on beer sales, that being the customary drink. Of the wholesale 
houses, the breweries do most of the business with these saloons, and therefore 
take the greatest interest in the saloon traffic of this region. It is not uncommon 
for saloonkeepers to have money advanced them by breweries in order that they 
may be able to cash the checks that come in. Brewery companies own many of 
the saloons and are the owners of the fixtures in nearly all the saloons on Ash- 
land Avenue, north of Forty-seventh Street. That the saloon traffic pays in this 
region is evident from the number of saloons. In one block on Ashland Avenue 
where there are thirteen buildings, all are saloons except one. Moreover, since the 
license was raised, last spring, from five hundred to one thousand dollars, 
practically none of the saloons in the above territory have gone out of business. 

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Thirty-five years ago, when Japan emerged from the feudal 
system and started to adopt the institutions, the form of govern- 
ment, and the laws of western nations, the leaders of this movement 
invited experts from Europe and America to aid them in the task 
of reformation. The new government was face to face with a 
prc^^ramme of enormous difficulty and complexity. Japan needed 
a total reorganization of the national and local governments. She 
needed to create a modem army and navy ; to establish banks, tele- 
graphs, railways, a postal system, schools, a university. She had 
the task of revising the laws for the transfer of land and other 
property, personal and real; to abolish the old Chinese system of 
medicine, and to replace it with a more rational system ; to organize 
a new method of local and national taxation, and a thousand other 
indispensable necessities of modem civilization. Wisely then did 
the Japanese invite the assistance of foreigners in this great work; 
and, as it happened, nearly all the early advisers were Americans. 
America at this time held a high place, not only in the affections, 
but in the judgment, of the Japanese. It was due to an American, 
Commodore Perry, that Japan had in part abandoned her policy of 
seclusion, and it was due to another American, Townsend Harris, 
less known but as much entitled to credit as Commodore Perry, 
that the treaty was enlarged and certain available treaty ports were 
thrown open to the commerce of the world. 

In nearly all the various departments of the reorganized Japanese 
government American advice was followed. America was the home 
of individual initiative, of personal liberty; and in the years 
following the downfall of the Shogunate, 1869-72, these ideas were 
g^ding-stars to the Japanese. In the field of economic develop- 
ment the influence of Americans was absolutely decisive at this 
time, as a single instance will indicate. A banking system for the 
issue of notes was necessary, and in accordance with American 
advice a national banking system was established precisely on the 
lines of the American national banking system. The first law was 


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passed in 1872, and several banks of issue were organized under 
this law. Later, in 1876, the law was amended, and a larger num- 
ber of banks of issue were established. These banks for the most 
part had a charter for twenty years. The note issue was based, 
just as in the case of the American system, on a deposit of govern- 
ment bonds. 

The position of Japan in regard to reforming her institutions 
was and is peculiar in this respect, that she had no preferences 
or exclusions, no traditions or shibboleths, in the matter of choice 
beyond the absolute merits of each case. Before her at this time 
(1870) were the civilizations of Europe and America to select from^ 
and she went to work in a quite practical and hard-headed manner 
in the matter of selection. She profited quickly by experience, and 
when she saw that a g^ven line of procedure was not advantageous, 
she quickly abandoned it for something better. Her experience 
with the national banking system was very unsatisfactory. It was 
found that business and credit were unstable; that there was 
restriction when an extension of credit was desirable, and expansion 
when conservatism was needed. At last a commission was appointed 
to go abroad to investigate all modem banking systems. After a 
very thorough examination, the commission recommended the 
establishment of a central bank of issue, mainly on the model of 
the Bank of Belgium. In accordance with this report, the Nippon 
Ginko was chartered — a semi-government institution with a capital 
of 30,000,000 yen, of which the government itself was to hold a 
considerable fraction. It has a monopoly of the note issue of the 
empire, and several branch banks in the larger commercial centers ; 
its profits are shared with the government, and it is a government 
depository. Above all, it can expand its note issue at will beyond 
the legal limit on payment of a tax of 5 per cent, on the excess to the 
government. The unanimous opinion of Japanese authorities is 
that the bank is an immense improvement on the older segregated 
banking system, and has provided a far more stable credit machinery 
for the commercial interests of the country. 

Many other instances could Be given showing how in the first 
intention American advice was followed in Japan, and then later 
discarded. The mode of transferring land was at first copied liter- 
ally from the American method. Later on transfer of land through 
a land office was substituted for the cumbrous and expensive 
American system. During the past year the Japanese government 

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has entirely reversed its old policy with regard to railways. It has 
purchased all the private lines and merged them into one compre- 
hensive system of state railways. 

What is the criticism that the Japanese and the European advisers 
of the Japanese government make with regard to American advice 
and American ideas? It is this, that Americans do not have an 
organic, comparative, or coherent idea of a national policy. All 
their conceptions, and the advice based on these conceptions, are 
scattered, fragmentary, and unrelated. America, the Japanese 
believe, no doubt has good institutions in spots, but it does not 
work them out organically. Now, the Japanese, above all, desire a 
strong state as a base for further growth and reform. There must 
be a definite purpose in the general scheme of political development. . 
They dislike the American method of individual and fragmentary 
opinionativeness, and prefer the European method of finding as 
much common ^ound as possible for all parties, and uniting on this 
as a working basis. 

Recently an English writer, Mr. H. G. Wells, who has been 
studying America and American opinions, has in a very acute way 
pointed out this characteristic quality of the American mind. In 
his volume t>f criticism, entitled The Future in America, he has a j 
chapter on "State Blindness in America." The criticism is so perti- ] 
nent that no American with a vision taking in more than merely 
his own private interests can read it without benefit to his intellectual 
horizon. It is precisely the sort of criticism that an experienced 
and educated Japanese would make from his own knowledge of 
American ideas and American advice. Says Mr. Wells : 

First and chiefly I have to convey what seems to me the most significant 
and frequent thing of all. It is the matter of something wanting, that the 
American shares with the great mass of prosperous middle-class people in 
England. I think it is best indicated by saying that the tjrpical American has ' 
no "sense of the state." I do not mean that he is not passionately and 
vigorously patriotic. But I mean that he hzs no perception that his business 
activities, his private employments, are constituents in a larger collective 
process; that they affect other people and the world forever, and cannot, as 
he imagines, begin and end with him. He sees the world in fragments; it 
is to him a multitudinous collection of individual "stories" — as the news- 
papers put it. If one studies an American newspaper, one discovers it is 
all individuality, all a matter of personal doings, of what so and so said and 
how so and so felt. All these individualities are unfused. Not a touch of 
abstraction or generalization, no thinnest atmosphere of reflection, mitigates 

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these harsh, emphatic, isolated happenings. The American, it seems to me, 
has yet to achieve what is, after all, the product of education and thought, 
the conception of a whole to which all individual acts and happenings are 
subordinate and contributory. 

The tendency of the typical and successful American is to look 
at all state and social activities largely throup^h the medium of his 
private and personal interests. "What are we here for, if not for 
the offices?" is but a crude form of this kind of thinking. The 
Japanese feel this. While they value personal liberty as intensely 
as any people, they abhor the fragmentary view of life. Individu- 
ally the Japanese may not be as shrewd, as clever in business, as the 
Chinese. But they have what the Qiinese have not — ^a "sense of the 
state," of the immense importance of collective and civilized action, 
of wise organization, of social discipline. This is the secret of 
their successes in war, in commerce, in their various competitions 
with the nations of the West. 

Garrett Droppers 

University of Chicago 


The philosophic foundations of political economy were of no 
great concern to Ricardo. He thought in practical terms of busi- 
ness life, and not upon the assumptions upon which his theory was 
based. He was a man of affairs rather than a scholar. He lived 
during the the time of the industrial revolution, when enterprises 
were carried on largely under the entrepreneur regime. He was 
concerned with the proportional distribution of the products of 
industry. The question of cost was for the most part a commodity 
cost to the entrepreneur. The questions of concern are: What is 
the process by which the entrepreneur gets the portion of the 
product falling to him? And under what circumstances and 
influences does it vary? The same inquiries must be made con- 
cerning wages and rent. 

Ricardo's age in England was distinctly an industrial era, and 
he was intimately connected with the business life of his time. 
The man who thinks in terms of the industrial process must express 
himself in quantitative terms of time and mechanical efficiency. 
This may account largely for his habit of speaking in mechanical 
terms. Ricardo doubtless had philosophical assumptions, but they 

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NOTES 113 

were not the subject of his speculation ; and perhaps they controlled 
his theory less than the facts of the industrial process in which he 

There appears less of the pleasure-and-pain calculus in 
Ricardo than in the other classical economists. There seems to be 
an unconscious assumption of a rough parallelism between the 
mechanical labor-time cost and the pain-cost. At least the distinc- 
tion between pain-cost and labor-time cost did not seem to him 
important. This appears in such expressions as the following: 

The estimation in which different qualities of labor are held comes soon 
to be adjusted in the market with sufficient precision for all practical 
purposes, and depends much on the comparative skill of the laborer and the 
intensity of labor performed. The scale, when once formed, is liable to 
little variation. If a day's labor of a working jeweler be more valuable than 
a day's labor of a common laborer, it has long ago been adjusted, and 
placed in its proper position in the scale of value.^ 

Assuming that there is an ordinary intensity of the application of 
labor in the various pursuits, and also that a certain number of 
hours ordinarily count for a day's labor, Ricardo finds it possible 
to speak of amounts of labor in a somewhat mechanical way, rather 
than in terms of pain or disutility. He looked at the process as 
the entrepreneur would see it. It is amounts of labor in terms of 
time-and mechanical efficiency that concern the manager. As above 
noted, it would seem that Ricardo assumes a given degree of 
intensity of application of labor for a given length of time to be 
ordinarily accompanied by about the same expenditure of human 
life and about the same amount of discomfort. 

Before any discussion of the essentials of his theory it seems 
necessary to examine briefly some of the terms of frequent occur- 
rence in his Political Economy. In discussions of value the terms 
"real value" and "relative value" are frequently used. The relative 
values of commodities are determined by the comparative amounts 
of labor required to produce them (p. 11). This is exchange 
value, and is seemingly the sense in which the word is, in most 
cases, used in the chapter on value. But in the use of the term 
"real value" there seems to be, in the mind of Ricardo, a more abso- 
lute value than the value ordinarily spoken of as exchange value. 
It was possibly this kind of value which Ricardo had in mind when 
he wrote : 

^Conner's third edition of Ricardo's Political Economy, p. 15. 

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If any one commodity could be found which now and at all times requires 
precisely the same quantity of labor to produce it, that commodity would be 
of an unvarying value, and would be eminently useful as a standard by 
which the variations of other things might be measured.' 

It is also this type of value which the author has in mind when he 
discusses the value of the total mass of capital.' In order that the 
whole product of labor may have a mass value, some such concep- 
tion of value seems necessary. "Natural price" corresponds to real 
value. It does not correspond to actual price — just as real value 
does not, in general, correspond to actual value. Real value depends 
upon the amount of labor that has been crystallized in the com- 
modity produced. In the Marxian political economy there is a more 
complete elimination of the pleasure-and-pain considerations in con- 
nection with economic theory. Ricardo assumes the pleasure-and- 
pain calculus, but develops the subject more in terms of the material 
calculations of the entrepreneur than in the language of the utili- 
tarian philosophy. Although Ricardo writes of profit as a remtmera- 
tion to the entrepreneur for waiting or the postponement of con- 
sumption, he makes no attempt to show a parallelism between the 
amounts of discomfort and remuneration. The amount of profits 
was discussed in terms of an amount left over after the payment of 
rent and necessary wages. Marx has made the complete trans- 
formation and entirely eliminated the idea of equality between 
amounts of discomfort and remuneration. The terminology of 
Marx also bears a resemblance to that of Ricardo. The term "value" 
in Marxian theory has a meaning similar to that of "real value" 
in the Ricardian phraseology. 

Ricardo seems to regard his theory of wages as the key to the 
problem of distribution. As rent is not, in his theory, a part of the 
problem of value, the more difiicult complications arise in connec- 
tion with the distribution of the products going to the laborers and 
entrepreneurs. As rent is a differential, depending on the fertility 
of the soil and upon advantages of position, the difference between 
the value-productiveness of the poorest soil which must be culti- 
vated to bring forth an adequate supply, and that of the most 
fertile soil will constitute the rent of the most fertile soil. If A, B, 
C, D, represent the value-productiveness per acre of soils having 
respectively all the varying degrees of productive advantage, and 

*0p, cit., pp. II, 12, 
•Ibid., p. 12, 

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NOTES 115 

G, H, K, L, the number of acres in each class, then the whole amount 
of rent, which may be represented by X, is 

X=G{A—D)+H{B—D)+K{C—D) i 

Space need not here be taken for the purpose of discussing the 
causes in the variation of X. The vaiiables are clearly seen in the 
formula and the effect of machinery, discovery, or creation of, new 
land is most clearly discussed by showing the effect either on the 
differences {A — D)y (B — D), and (C — D), or on the quantities 
G, H, K, L. This might be taken up either from the standpoint of the 
effect on the absolute amount of the product going to rent or the 
portion of the whole product going to rent. It is the latter which 
seems most to interest Ricardo.* 

In order to give the wage doctrine a similar treatment it is 
necessary to assume certain units for the purpose of quantitative 
statement. Let the unit of labor be the amount required to produce 
a unit mass of goods. 

i=the value-productiveness of the unit of labor. 

ft = the fraction of every unit-mass of commodities, which is an 

output of the productive process, required to sustain the 

laborer in doing a unit of work. 
Jlf ==the mass of commodities produced in time T. 

With these units the Ricardian theory may be represented by the 
following equations: 

Mk = F = the value of the commodities produced in time T. 2 

Afn* = fF = the value of the real wages of labor, Mn being the 
mass of necessaries required for the support of laborers. 3 

If c be the portion of each unit-mass produced, which is consumed 
by the landlords and entrepreneurs, 

M — Mn — Mc = M{i — n — c) =D = ihe sum which represents the 
source of the possible demand for labor. 4 

The mass of necessaries required to support the laborers was 
not, in Ricardo's theory, a very flexible quantity. It might vary in 
different countries and in the same country at different times. One 
of the corrections suggested for the lowering standard of living is 
a decrease in the birth-rate.*^ It may therefore be inferred that it 

*/Wd., p. 60. •Ibid., p. 77. 

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takes about a generation for habits of consumption to crystallize 
into a standard of living, according to Ricardian theory. 

The relation of profits to wages is very simply expressed in 
quantitative terms. If the portion going to the landlords be already 
separated as rent, there remain only the two quantities, wages and 
profits, for consideration. Let R represent rate of profits. The 
following formulas may then be constructed : 

M — X — ^Mn = P= the mass of profits. s 

On the margin of cultivation X becomes zero, and the equaticm 

M—Mn = P, 6 

and the rate of profit is 



= 1— n = /?. 

The portion going to profits depends entirely on n, the portion of 
every unit-mass required by the laborer. It is clear then, that, as 
wages rise profits fall.* 

The above only serves to indicate the method which may be 
employed for working out in detail a mechanical expression of 
Ricardian theory. Mn, the mass of necessaries required to sustain 
and keep up the number of laborers, may be said to be the cost of 
production of the labor-force to the entrepreneur. If Mc be the 
mass of commodities consumed by the entrepreneurs and land- 
lords, then the quantity D corresponds approximately to surplus 
value as defined by Marx. The departure of Marxian economy 
from the political economy of Ricardo lies chiefly in the discussion 
of the quantity D. Marx might go to the extreme of including Mc 
in the quantity of surplus value, at least in so far as Mc exceeded 
the necessaries required to sustain the landlords and entrepreneurs 
in their productive labor. Marx regarded all costs of production 
as being paid for in proportion to their labor-cost. The labor-cost 
of labor-force, by which is meant the amount of necessaries 
required by laborers, is less than the amount of the products of 
labor. Hence arises surplus value. Ricardo would have admitted 

*The above expression of Ricardian theory was worked out before any 
study of Marx. The kinship of this expression of Ricardian theory to the Marxian 
interpretation was suggested by Dr. Veblen, and appeared more clearly in a later 
study of Marx's Capital, 

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NOTES 117 

that there is a surplus, but would have contended that this is a 
reward to the owner of capital for the postponement of consump- 
tion. The controversies between the socialist and his opponent 
might then arise as to the justice of turning over the quantity D to 
the owners of capital. 

There is no intention here to discuss the relative merits of the 
two contentions. The object is merely to show the kinship as well 
as the divergence between the economic theories of Ricardo and 
Marx. It is also thotlght that the expression of the political economy 
of Ricardo in mechanical units will be of value in an understanding 
of his theoretic analysis. 

Spurgbon Bell 

Univsbsitt of Chicago 

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The Packers, the Private Car Lines and the People, By J. 
Ogden Armour. Philadelphia: Henry Altenus Co., 
1906. 8vo, pp. 380. 

In the magazines many writers have discussed these subjects 
during the past two years. Books and official documents have dealt 
with them. Many of the writers have not hesitated to tell the 
people just how they were being robbed by the packers and the private 
car lines. Mr. Armour, who is certainly in a position to know, 
unhesitatingly and unequivocally declares that the information so 
abundantly provided is often based on ignorance and oftener on 
malice. He says two classes have a pecuniary interest in making 
the attack: the commission men, whose opportunity to rob fruit- 
growers through claims of damaged fruit has been destroyed by the 
efficient service of the private car line ; and the publishers of maga- 
zines, whose circulation is increased more rapidly by sensational 
criticism of successful men and industries, than in any other way. 

Mr. Armour certainly makes a strong case, by quotation and by 
arguments, in support of his charge of animus or malicious motive. 
He admits the existence of a prejudice against the packers, and 
thinks this is "inevitable and will always continue without regard 
to the manner in which the packing business is conducted" (p. 162). 
The reason for this prejudice he finds in the universal and extensive 
use of meat as a basis of living, and the necessity for higher prices of 
meats as population increases, with no new ranges or com land to 
furnish additional cheap supplies. Also the consumer has a natural 
feeling of resentment against the man who furnishes the goods that 
must be bought. 

The analysis of the motives of those who have conducted this 
vigorous campaign of criticism may or may not be correct. Mr. 
Armour may be in no better position to know about their motives 
and their business than they are to know about his. He is, how- 
ever, in a position to speak with full knowledge when he treats 
of his own business. He is very frank and explicit in his state- 
ments. On many points he certainly scores against his critics and 


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leaves the reader with a feeling that, whatever advantages of wealth 
and power the packers possess, they have not been able to secure a 
square deal in the magazines. 

No claim is made of philanthropic motives, or any motives other 
than ordinary business loyalty and self-interest; but Mr. Armour 
shows that pursuit of self-interest has led to the use of capital and 
business opportunity in a way that has vastly improved the well- 
being of all the commiMiity by bringing fresh meat, fruit, and 
v^etables within their reach the year around. 

In his clever chapter on "Magazine vs. Actual Profit," Mr. 
Armour admits that the business pays a reasonable profit, but he 
says that the profit is not equal to that obtainable in other lines. 
On p. 72 he says : 

Perhaps I am not called upon to say so, but I will make the statement 
that had I put my holdings, at the time I came into them, into railroads, 
national banks, and other enterprises, I should have made more money, made 
it with less trouble, and been subjected to less attack than I have been 
subjected to in the lines which I have followed. 

In tracing the development of the private car-line three points are 
emphasized. First, the refrigerator-car was necessary to the develop- 
ment of the packing industry. Second, the railways refused at 
first to build refrigerator-cars, and thus forced the packers to 
furnish them or fail to grow. Third, railroad administration is not 
efficient enough to guarantee the promptness and cleanliness that 
are indispensable in the meat and fruit business. 

From the time P. D. Armour was earnestly pleading with the 
railway management to furnish refrigerator-cars for his meat busi- 
ness, because he had not sufficient capital to go into the car business, 
until he was ordering 4,000 cars for the fruit business, seems in the 
book to have been a very short time, but perhaps the four or five 
million dollars required for the cars was borrowed. It could hardly 
have come from merely ordinary profits of the business. 

Strong reasons are urged in favor of tfie exclusive contract 
which will make it possible for the private car line to make the 
needed preparations and carry the risk incidental to efficient service 
in the fruit regions. The interest of the car line in developing 
traffic is held to insure a reduction of refrigeration charges as 
rapidly as conditions permit, and the policy of the Armour Company 
is explicitly stated to be in favor of the most rapid reduction con- 
sistent with first-class service. It is further explicitly and broadly 

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stated that the private car lines are not used in any way to secure a 
reduction of rates, rebate, or discrimination of any kind in favor 
of any company or individual. Mr. Armour is in a position to know 
the facts, and his word should be as good as those of the commission 
men and magazine writers, who also have a motive and are dealing 
in suspicions more frequently than in facts. If Mr. Armour's state- 
ment that no favors from the railways are given the packers be 
accepted, it will be easy to accept his vigorous and unqualified 
statement that the price of cattle is and must be regulated by com- 
petitive forces. The industry is certainly one in which, aside from 
railway favors, monopoly will find greatest difiiculty in securing 

Though professedly an advocate's presentation on these impor- 
tant questions, it gives the reader the impression of being more 
straightforward and reliable than much of the "unbiased and public- 
spirited" criticism does. Similar statements from other men who 
are doing things would add much to public enlightenment and fair 

William Hill 

UNivBRsrrY OF Chicago 

Industrial Combination, By D. H. Macgregor. London: 
George Bell & Sons, 1906. Pp. 245. 

The author of Industrial Combinations presents the facts of the 
varied forms of modem industrial combinations in a new light 
Everything that can be said either in favor of or against trusts, 
cartels, and unions is stated fairly and minutely. For every affirma- 
tive he has a negative, and by this method he tries, or lets the 
reader try, to strike a balance. He analyzes with much skill the 
various phases of modem organizations — their productive efficiency, 
the greater or less risk as compared with con^titive methods, their 
bargaining strength, their resources — and discusses at length their 
relation to labor, especially in connection with trade-unions. He 
sums up his general views in the two final chapters — ^the attitude 
of public opinion and legislation. 

Mr. Macgregor does not agree either with those who believe 
that the tmsts must be demolished, or with those who regard them 
as a stepping-stone to a socialistic organization of production. 
Some economists boldly take the stand that the modem tmst must 

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either be abolished by legislation, or, if that way be closed, then 
production by public bodies must supersede these private monopo- 
lies. The author discusses these alternatives, but accepts neither. 
He takes the ground that the transferability of the commodity or 
service provides the essential line of demarkation between govern- 
ment and private enterprise. Water, gas, transportation of pas- 
sengers and goods — ^these, the author admits, may properly be 
within the sphere of government ownership and operation, because 
they have to do with specific articles or services not transferable to 
other markets ; but the production of articles freely transferable to 
national or international markets, he holds, cannot be relegated to 
government officials. With respect to railways he says that 
the ground for public control is now not so much in the desire to avoid 
the interference of private interests with the public domain, since railway 
transport serves all commodities alike, as in the nature of the service and its 
exceptional strategic position in the industrial system. There are very few 
goods which the consumer is bound to buy; but whatever he buys he pays 
for transport. 

Perhaps the least satisfactory portion of Mr. Macgregor's work 
is the analysis of the existence of trusts and other combinations. 
To what cause or causes do they owe their origin and g^rowth? 
True, he attributes some of them to a protective tariff where the 
original need and demand for protection no longer remain. But 
other causes he either passes over or mentions only incidentally. 
Much has been said in recent years concerning the distinction 
between good and bad trusts. Is the distinction in an economic 
sense difficult to establish? Does it not lie in the attainment of the 
purpose for which the trust is, at least ostensibly, organized and 
• defended — viz., lower and more stable prices resulting from econo- 
mies in production? This object is not likely to be attained where 
monopolistic conditions prevail— conditions of which a high tariff 
is but one example. If under a regime of perfect freedom it is 
found that large combination does furnish definite commodities or 
services more cheaply than are obtainable under the conditions of 
independent and competing producers, the public are not likely to 
clamor for legislative interference with trusts and similar organiza- 

Mr. Macg^regor's style and mode of presentation are disa^ 
pointing. His method, while detailed, is essentially abstract. There 
is no gliding purpose visible in the work. It is altogether a fair 

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and impartial study of the subject, and in this respect is wholly 
admirable. But there seems to be no point to which the author is 
aiming. It is as if he did not see the wood for the trees, and yet 
the trees are all abstractions, not concrete things. This quality 
will prove a serious handicap to the success of the work. 

University op Chicago GarrETT DropperS 

Socialism: A Summary and Interpretation of Social Principles. 
By John Spargo. New York : The Macmillan Co., 1906. 
8vo, pp. xvi+2S7. 

Mr. Spargo is a veteran propagandist. This book therefore pre- 
sents the view of the convinced socialist In tone it is afiirmative, 
in outline, historic-biographic and expository. It is written pretty 
definitely from the Marxian standpoint, with a strong tendency 
to make the essentially difficult and economically false doctrines of 
the master "beautifully simple." It is rather diffuse, quite elemen- 
tary, and very uneven in quality. On the whole, however, it is 
readable, and in some portions inspiriting. 

The author's treatment of his topic, falls essentially, though not 
formally, into three parts. The first, consisting of chapters i, ii, iii, 
vii, introduces the reader to the general character and genesis of the 
modem socialist movement. It makes him acquainted with the 
chief nineteenth century Utopians, and the life and activity of Marx 
and Engels. It adds nothing essential to that which has become 
common knowledge through the writings of Kirkup, Ely, and other 
contemporary writers. 

The second part of the boc4c, including chapters iv, v, vi, and viii, 
aims to be an exposition of the essential element of Marxian socialist 
theory. Socialism is here presented as a doctrine of social evolution 
founded on the materialistic conception of history. The author 
denies that the acceptance of this conception involves either a belief 
in economic determinism or a denial of the potency of ideals in 
shaping events. He attempts to prove the essential correctness of 
the materialistic conception, and of Marxian prophecy based on it, 
by a brief account of institutional evolution and by an extended dis- 
cussion of the tendency under the capitalistic regime to concentra- 
tion of production and wealth, and to the development of industrial 
classes and a contemporary class-struggle. These discussions are 
suggestive and form by all odds the best part of the book. 

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The strength of the author and the weakness of socialist eco- 
nomic theory are brought out very definitely in chapter viii, on the 
"Economics of Socialism." Marxian doctrine is beheaded, disem- 
boweled, and served up as the genuine article with such skilfulness 
and dispatch that no tmsophisticated reader can doubt the simplicity, 
clearness, and correctness of the original. At the same time, modem 
economic theory is disposed of with a deftness and appearance of 
familiarity admirable in its way. However, like more laborious 
efforts to revamp the Marxian value theory, this exposition serves 
mainly to excite wonder that socialist leaders should persist in 
regarding economic doctrine as so essential. Their cause would 
undoubtedly be strengthened by admitting the validity of modern- 
ized economics and by more frankly basing their case on humanism 
so far as it concerns economic justice. 

"Outlines of the Socialist State," which, as chapter ix, completes 
this exposition, is rather a presentation of fundamental and "detailed 
specifications" and ideals than a constructive account based on prin- 
ciples. It serves, on the whole, to blunt the impression previously 
created of a distinct, class-conscious socialist theory and propaganda. 
The reader of it wonders at times how to distinguish socialism from 
the purposes and ideals of the "square-deal" reformers. 

As an elementary presentation Mr. Spargo's work is distinctly 
meritorious, in spite of undoubted faults of style, exposition, and 
reasoiiing. Economically it need mislead no one. Sociologically it 
will prove stimulating to many. It is _probably well worth publish- 
ing, though it adds nothing to the specialist's knowledge of socialist 
history or theory. 

R. F. HoxiE 
University op Chicago 


National Labor Federations in the United States. By William Kirk. Balti- 
more: The Johns Hopkins Press, 1906. 8vo, pp. 150. 

Dr. Kirk defines national labor federation as being synonymous with "inter- 
trade association/' and organizations effecting such association are classified into 
three groups: (i) "general federations," such as the Knights of Labor, the 
American Federation of Labor, and the American Labor Union; (3) "trades 
councils," such as the Building Trades Alliance and the Metal Trades Federa- 
tion; and (3) "industrial unions," such as the Mine Workers and the Brother- 
hood of Railway Employees. The author details the history, structure, and func- 
tion of these forms of organization in the United States, which are differentiated 
by the degree of trade autonomy preserved. The present essay is intended, not 

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"as a comprehensive description of labor federations, but as an analysis of their 
distinctive characteristics/' Inter-trade afiiliation has given rise to many serious 
and perplexing issues in trade-union administration, where the exact power of 
the several representative bodies has not always been, and is not today, clearly 
defined. In making his analysis Dr. Kirk has performed a real service for 
those who would understand these issues. 

The Two TariiF Systems Compared: A Plain Statement of Results, Also 
Concerning Trusts and Reciprocity. By H. B. Cookb. Louisville: 
Barnes Printing House, 1906. 8vo, pp. 218. 

In this r^sumi of the tariff controversy the author attempts to defend the 
policy of lev3ring duties for protection as against the policy of levjdng duties 
for revenue only. The author believes that this "work placed in the hands of 
the farmer, laborer, or the young man about to cast his first vote, will teach 
him in a few hours as much about the tariff, trusts, and reciprocity as the average 
newspaper reader learns in a lifetime." This is probably true — as much. 

La Chine novatrice et guerrihre. Par le Capitaine d'Ollone. Paris: 

Armand Colin, 1906. 8vo, pp. 319. 

Those who see in the awakening of the Orient economic consequences of 
great import to western civilizations will find much of interest in this account 
of Chinese social and financial institutions, although the point of view of the 
author is rather that of the historian than that of the economist In the 
author's opinion, one pressing economic problem confronting the Chinese people 
today, if they are to enter into further commercial intercourse with western 
nations, is the provision of an adequate supply of specie. Not less than two 
thousand million dollars, he estimates, is required to provide a per-capita 
supply of specie equal to that possessed by the French people. China's present 
monetary supply is less than two dollars per capita, and is largely concentrated in 
the great commercial ports, and in the hands of bankers and certain rich 
families. The author believes that the immediate adoption by China of the mone- 
tary system of western nations would prove disastrous. It is further pointed out 
that China's favorable balance of trade today depends not upon an excess exporta- 
tion of commodities, but upon the exportation each year of some three million 
coolies who eventually return bringing with them their earnings in the form of 

The Spirit of Democracy. By Chasles Fletcher Dole. New York : T. Y. 

Crowell & Co., 1906. 8vo, pp. yiii+435. 

The author of this treatise, while recognizing the evils of our social order, 
the mischiefs of militarism and partisanship, the evidences of innate savagery and 
barbarism manifested by civilized peoples and the difficulty of forecasting* and 
analyzing the trend of civilization, undertakes a defense of the ideals of 
democracy. He seeks to show what democracy is, "what makes its life and upon 
what its good health depends." The teachings of history and the development 
of good will as a social force, based upon ideals of liberty, equality, and fra- 
ternity, are regarded, as is also the experience of democracy in the solution of 
practical problems involved in the extension of the suffrage, in municipal gov- 
ernment, in present-day imperialism, in the treatment of crime and pauperism, 
in education, and in the protection of the family. The chapters which will 
appeal most directly to economists are those dealing with democratic forms of 
taxation, immigration, socialism and anarchy, and labor unions. The author 
condemns indirect taxation, and indicates land as peculiarly a "natural subject 
of taxation." Socialism is described as appealing to the conservative side of 

Digitized by 



human nature, while anarchy "is only an extreme form of that tendency in 
human nature which aims to vary and grow." The discussion of labor unions 
gives evidence of ssrmpathy with those objects of unionism which are commonly 
regarded as legitimate, while deprecating the militant spirit not infrequently 
manifested by labor organizations. 

Confessions of a Monopolist. By Frederick C. Howe. Chicago: The 

Public Publishing Co., 1906. 8vo, pp. vii+157. 

These confessions are dedicated to "those to whom justice is the law of 
life, monopoly the creature of legislation, poverty the product of privilege, and 
liberty a living inspiration." The confessions are those of a straw monopolist 
who writes in the first person singular, and the gist of his philosophy is that the 
secret of success in business is to make society work for you. "If you are big 
enough the whole world," if not, America alone, or even some one city. The 
"monopolist" enters politics, has experiences upon Wall Street, becomes a state 
boss, and in the light of his own experience he lays down the "rules of the 
game." Mr. Howe is author of a more serious work, The City the Hope of 

Ueber den amerikanischen "Stahltrust": Mit BerUcksichtigung des deutschen 
Stahlwerksverbands. Von Julius Gutmann. Essen: G. D. Baedeker, 
1906. 8vo, pp. viii+i6o. 

Written primarily for German readers, but dealing with a subject of especial 
interest to Americans, this monograph describes the development of American 
iron and steel industries and the formation of the several companies which 
have consolidated into the United States Steel Corporation. The reorganization 
of the industry itself which has been effected through consolidation of the com- 
panies, and the problem of monopoly, are considered. Further chapters are 
devoted to a discussion of pooling, to the organization of labor and the institu- 
tion of profit-sharing schemes, to the methods of trust finance, and finally to a 
comparative study of the organization of the iron and steel industries in Germany 
and the United States. 

Immigration and Its Effects upon the United States. By Prescott F. Hall. 

New York : Henry Holt & Co., 1906. 8vo, pp. xiii+393. 

Immigration is announced as "the first of a series which the publishers plan 
gradually to augment until it covers the field of controverted topics in American 
political, economic, and social affairs." To quote from the author he aims to 
present, "first, the facts in regard to immigration — its history, causes, and 
conditions ;" secondly, the effects of immigration — ^racial, economic, social, and 
political ; thirdly, immigration legislation — regulative, restrictive, and protective, 
considering the effects of past legislation and proposed legislative remedies for 
present evils. A chapter is devoted to the history of Chinese immigration and 
of the exclusion acts. In appendices are presented statistical tables, United 
States immigration laws, and a bibliography. The treatise is detailed and 
exhaustive in summing up the experience of the United States in solving its 
hydra-headed immigration problem. 

La decadence et la chute des peuples. Par Pontus Fahlbeck. 

Professor Fahlbeck here discusses the decadance of ancient civilizations. 
These, he contends, have succumbed to decreasing natality rates. Upper social 
classes have first suffered social displacement and extinction, the race has blighted 
at the top, and gradually the blight has extended to the whole population. 

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Examining demographic data regarding European populations during the nine- 
teenth century, Professor Fahlbeck finds that, while these populations hare 
increased numerically, they have manifested very different rates of increase — 
the population of Russia having increased most rapidly, and that of France most 
slowly — and an analysis of the data shows that the growth in population has 
generally taken place concurrently with a decreasing natality rate. During this 
period Uie decline in natality has been partially offset by a decrease in mortality 
rates, but, as there are natural limits to the reduction of mortality, should the 
natality rates continue to decline during the present century as they have done 
during the last, European populations generally will in the near future begin to 
decrease numerically. Professor Fahlbeck constructs a chart based upon the 
vital statistics of Great Britain and Ireland, 1 871-1900, to illustrate this tend- 
ency. A projection of mortality and natality curves indicates the middle of the 
present century as the period when the British population will begin to decline 
numerically, should present tendencies continue. 

Four Centuries of the Panama Canal. By Wnxis Fletcher Johnson. 

With maps and illustrations. New York: Henry Holt & G>., 1906. 

8vo, pp. xxi+461. 

Quite properly the author of this exhaustive historical study of the canal pro- 
ject devotes himself mainly to the development of the last five years — 
from the early explorations of Columbus. It is recorded that four rival canal 
routes were proposed in the time of Cortez, and that Humboldt suggested early 
in the nineteenth century nine possible routes. Beginning with an account of 
Louis Napoleon's futile schemes, the experience of the French in their effort to 
construct a canal, and the causes of their failure, are recounted. American 
interest in the construction of a canal may be said to date from the organization 
of the Central American and United States Atlantic and Pacific Canal Company in 
1825. The United States has from the first opposed any concessions by Central 
American states inconsistent with the Monroe Doctrine. The policy of "an 
American canal" was enunciated by Grant In recounting the history of the last 
quarter-century, the author goes into considerable detail, following the work of 
Uie several canal commissions appointed by Congress, reviewing the negotiations 
with Colombia, the Panama revolution, the establishment qf the Panama republic, 
and the advent and work of Americans on the Isthmus. In a chapter headed 
"Stultiloquentia" the administration policy is defended against its critics. 

Digitized by 




Andeisoiii Sir Robert Side lights on the 
Home Rule Question. New York: 
Dutton, 1906. $3. 

Barrett, Arthur Merritt Ambart Insur- 
ance Tables for Figuring EUuned and 
Unearned Premiums of Insurance Poli- 
cies. Chicago: Ambart, 1906. Folio, 
pp. 14. $5. 

Beadev, C. Raymond. The Dawn of 
Modem Geography. Vol. m. Henry 
Fronde. $6.75. 

Benjamin, C. H. Modem American 
Machine Tools. London: Constable. 

Brooks, W. Geography and Geology of 
Alaska. London: Wesley. 105. 

Burton, Theodore E. John Sherman. 
[American "Statesman" series, 2d se- 
ries.] Boston: Houghton, MifiBin, 
1906. lamo, pp. 5 + 449. $1 . 25. 

Butterfield, Virginia M. Parental Rights 
and Economic Wrongs. Chicago: 
Stockham Publishing Co., 1906. Pp. 
92. $0.50. 

City of Edinburgh Charity Organization. 
London: King. 55. 

Clark, H. B. Modem Spain. Cam- 
bridge: Cambricjge University Press. 
1906. 8vo. ys. od. 

Coz, Harold. Land Nationalization and 
Land Taxation. London: Methuen, 
1906. 35. 6d. 

Comfort, Randall, and Steurer, C. D. 
Histoiy of Bronx Borough, City of New 
York. New York: North Side News 
Press, 1906. 4to, pp. 11+422. $10. 

Collins, T. Byard. New Agriculture: 
Popular Outline of the Changes Which 
Are Revolutionizing the Method of 
Farming and the Habits of Farm Life. 
New York: Munn, 1906. 8vo, pp. 
4+374. la- 
Cooper, Francis. Financing an Enter- 
prise: A Manual of Information and 
Suggestions for Promoters, Investors, 
ana Business Men Generally. 2 vols. 
New York: Ronald Press Co., 1906. 
8vo, pp. 543, 543. $2 per voL 

Cross, Alfred W. S. Public Baths and 
Wash-Houses. Imported by Scribner. 

DerbjTshire's Rapid-Simplex Calculator 
for all Railway Goods and Passenger 
TraflSc, 55. 

Dicksee, L., and Blau, H. E. Office Or- 
ganization and Management. Lon- 
don: gd. 

Dietzel, H. Retaliatory Duties. Transl. 
by D. W. Simon and W. Osboume 
Brigstocke. (Imported.) New York: 
A. Wessels Co., 1906. Pp. 2 + 128. 

Defebaugh, J. E. History of the Lum- 
ber Industry of America. Vol. I. 
Chicago: American Limiberman, 1906. 
8vo. $5. 

Economics for Irishmen, by Pat. 15. 

Fleming, Walter H. Slavery and the 
Race Problem in the South, with Special 
Reference to Georgia. Boston: Dana, 
Estes, 1906. 8vo. $1. 

Fleming, Walter Lynwood. Freedmen's 
Savings Bank. From Yale Review 
May and August, 1906. New Haven: 
Yale Review, 1906. 8vo. $0.75. 

Gibb, Spencer T. The Problem of Boy- 
Work. London: Wells, Gardner, Dar- 
ton. 15. 6d. 

Gofif, A., and Levy, J. H. Politics and 
Disease. London: King, 1906. 

Graham, J. C. Taxation and Local 
Government London: King. 2 s, 

Graham, J., and Oliver, G. A. S. Span- 
ish Commercial Practice. London: 
Macmillan. 45. 6d. 

Griffin, Appleton Prentiss Clark (comp.). 
Library of Congress List of Books (mth 
References to Periodicals) on Mercan- 
tile Marine Subsidies. Compiled im- 
der the Direction of A. P. C. Griffin. 
3d ed., with additions. Washington, 
D. C: U. S. Office of the Superintend- 
ent of Documents, 1906. 8vo, pp. 
140. $0 . 20. 

Griffin, Appleton Prentiss Clark (comp.). 
Library of Congress Select List of R^- 
erences on the Nepo Question. Com- 
piled under the Direction of A. P. C. 
Griffin. 2d ed., with additions. Wash- 
ington, D. C. : U. S. Office of the Super- 
intendent of Documents. 

Huntsman, J. Fletcher. The Life Insui^ 
ance Premium. New York: Spectator 
Co., 1906. i6mo, pp. 23. $0.25. 

Henderson, George R. Cost of Loco- 
motive Operation. New York: Rail- 
road Gazette, 1906. 8vo, pp. 4+ 192. 


Digitized by 




Howe, Frederick Clemson. Confessions 
of a Monopolist Chicago: Public 
Publishing Co., 1906. i2mo, pp. 10+ 
157- Si- 

Jebb, Eglantyne. Cambridge: A Brief 
Study in Social Questions. Macmillan 
& Bowes. 4 J. 6 d. 

Johnson, Willis Fletcher. Four Centu- 
ries of the Panama Canal. New York: 
Holt, 1906. 8vo, pp. 21 +461. $3. 

Kirk, W. National Labor Federations 
in the United States. Baltimore: 
Johns Hopkins University Press, 1906. 
Pp. 150. $0.75. 

Kirkpatrick, F. A. Lectures on Britbh 
Colonization and Empire. 25. 6d. 

Kirkup, Thomas. A History of Social- 
ism. New York: Macmillan. $2.25. 

Labor, Capital and the Public: A Discus- 
sion of the Relations between Employ- 
ees, Employers, and the Public. In- 
troduction by Hayes Robbins. A. R. 
Foote, 1906. i2mo. $1. 

M. P. Atlas, Showing the Commercial 
and Political Interests of the British 
Isles and Empire. 255. 

Morison, Theodore. The Industrial Or- 
ganization of an Indian Province. 
London: Murray, 8vo. 105. 6d. 

Martin, Percy Falcke. Mexico's Treas- 
ure House: An Illustrated and De- 
scriptive Account of the Mines and 
Their Operation in 1906. New York: 
Cheltenham Press. 8vo, pp. 7+259. 

Marten, R. The Future of Russia. Tr. 
by Hulda Friederichs. London: Smith 
& Elder. 8vo. ^s. 6d. 

Mackaye, James. Politics of Utility; 
the Technology of Happiness Applied: 
Being Book 3 of "The Economy of 
Happiness." Boston: Little, Brown, 
1906. 1 2mo, pp. 2 1 + 1 79. $2 . 50. 

Pease, Norton J. Economic Advisability 
of Inaugurating a National Department 
of Health. New Haven: Norton J. 
Pease, 1906. 8vo, pp. 15. Gratis. 

Raleigh, Walter. The English Voyages of 
the Seventeenth Century. New York: 
Macmillan. Pp. 6+205. Si-^S* 

Reader, T. Time Tables on a New and 
Simplified Plan to Facilitate the Opera- 
tion of Discounting Bills, etc. New 
York: Longmans, 1906. $1. 

Readings in Descriptive and Historical 
Sociology. Ed. by F. H. Giddings. 

Reed, Albert S. San Francisco's Confla- 

gration of April, i9o6.SSpecial}Report 
to the National Board^of FirefUnder- 
writers. National Bosurd of Fire|Un- 
derwriters, i9o6.)S|^8vo.fl[^* 

Russell, Charles E.lB., and.Rigby,tL. M. 
The Making of the^Criminal-XMac- 
millan. $1.25. u^Ml^ 

Schweiger-Lerchenfeld. Freiherr v. Kul- 
turg^chichte. 2 vols. M- ^5* 

Synnestredt, Paul. Notes on Patents and 
Patent Practice. Pittsburg: Federal 
.' Publishing Association, 1906. dvo, 
pp.97. $1. 

Snider, Guy E. Taxation of the Gross 
Receipts of Railroads in Wisconsin. 
New York: Macmillan, 1906. 8vo, 
pp. viii+138. $1. 

Strachey, S. St. Loe. The Manufacture 
of Paupers: A Protest and a Policy. 
London: Murray. 8vo. 

Sparling, Samuel E. Business Organi- 
zation. New York: Macmillan, 1906. 
i2mo, pp. 374. $1.25. 

Tarver, H. M. Negro in the United 
States, from the Beginning of English 
Settlements in America in 1607 to the 
Present Time. Austin: State Print- 
ing Co., 1906. 8vo, pp. 31 + 186. $1. 

Tillyard, Frank. Banking and Nego- 
dable Instrrmients. London: Black, 
1906. 55. 

Tolstoy, Count Lyoff N. A Great Ini- 
quity. (Tr. by V. Tchertkofif and L 
F. M.) Chicago: Public Publishing 
Co., 1906. 8vo, pp. 42. $0 . 10. 

Vanderlip, Frank Arthur. Urgent Need 
of Trade Schools. Indianapolis: Van- 
deriip, 1906. i6mo, pp. 15. $0.05. 

Wridon, Sir H. The Pattern Nation: 
Attempts to Solve the Question: What 
Will the Poor Do with the Rich ? New 
York: Macmillan, 1906. i2mo, pp. 
172. $1. 

Wells, H. G. Socialism and the Family. 
London: Fifield. 

Wolfe, Albert Benedict. Lodging-House 
Problem in Boston. [Harvanl Eco- 
nomic Studies, II.] Boston: Hough- 
ton, Mifflin, 1906. Pp. 5 + 200. $1.50. 

Young, T. E. Insurance: A Practical 
Exposition for the Student and the 
Business man. 2d ed., new and re- 
vised. New York: Pitman, 1906. 
8vo, pp. 18+386. $2.50. 

Zartman, Lester W. Investments of life 
Insurance Companies. New York: 
Holt, 1906. i2mo, pp. 5 + 259. $1 . 52. 

Digitized by 


strong Testimony from the University of 





Geo. Ben. Johnston, M.D., LL.D., Prof. Gynecology and Abdominal Surgery, UniversiOy 
of Virginia^ Ex-Pres, Southern Surgical and Gynecological Assn., Ex-Pres. Virginia Medical 
Society and Surgeon Memorial Hospital, Richmond, Va,: "If I were asked what mineral water hmi 
the widest range of usefolness, »^ ^ Xkimmm n '" ^^^ ^^^^ Diathesis, Qout* 

I would unhesitatingly answer, dUFEauI LiIIIIAIHmER Rheumatism, Llthaemla, and 

the like, its beneficial effects are prompt and lasting Almost any case of Pyelitis and 

Cystitis win be alleviated by it, and many cured. I have had evidence of the undoubted Disin- 
tegrating Solvent and Eliminating powers of this water in Renal Calculus, and have known its long 
continued use to permanently break up the gravel -forming habit." 

James L. Cabell, M.D.y A.M., IX.,D*^ former Prof Physiology and Surgery in the Medical 
Department in the University of Virginia, iip.,«— .. -^ « »ruiH IAIjmvd ^^ ^^^^ ^^^^ 
and Pres. of the National Board of Health: OUrtllUl LITIllii imriJC Diathesis is a 

weU-known therapeutic resource. It should be recognized by the profession as an article^ of 
Materia Medica." 

Dp. p. B. Barringer, Chairman of Faculty and Professor of Physiology, University of Vir- 
ginia, Charlottsville, Va.: "After twenty years' practice I have no hesitancy in stating that for 

prompt results I have found ||i»Kim« g^ | ITIII A l|fjfiwii| ^° preventing Uric Acid Deposits 
nothing to compare with DVEEIIIAI UTIIIJI WfOTER j^ ^^ ^^^^y 

Wm. B. TowleSf M.D., late Prof oj Anatomy and Materia Medica, University of Virgina: 

••In Uric Acid Diathesis, Gout, Rheumatism, Rheumatic Qout, Renal Calculi and 5tone In the 

Bladder, I know of no jj--^— ^ • ____ , Spring 

remedy comparable to WUIIMO LflHUL flHIEB No. 2. 

Voluminious medical testimony seat on request. For sale by the general drug and mineral 
water trade. 


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f Where a fttmace is used the water-box should be 
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Where steam heat, hot water radiators, Baltimore heal- 
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There is no waste for the purse where the housekeeper uses 
Sapolio. It has succeeded grandly although one cake goes as far as 
several cakes or packages of the quickly- wasting articles often substi- 
tuted by dealers or manufacturers who seek a double profit. 

Powders, sifters, soft soaps, or soaps that are cheaply made, 

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By ears 


3 piano. We take old i 
the new piano in your 

No* 3 

Vol. 15 

The Jourhal 


Political Economy 

MARCH 1907 

Spurgeon Bell 



SELFISHNESS " John Cummings 


A Statistical Point in the Ricardian Theory of Gold 


Wells's The Future in America. — Snider 's Taxation of the Gross Receipts of Railways 
in IVisconsin, — Wolfe's Lodging-House Problem in Boston. — Stelzle's Messages to 
IVorkingmen. — Meyer's History of the Northern Securities Case. — Bresson's La houilU 
verte. — Zartman's Investments of Life Insurance Companies.. 

NOTICES.— Br ABKOOK's Building Societies. — Beard's Industrial Revolution. — 
Revillion's L'assistance aux vieillards, infermes et incurables, en France. — Zeitlin's 
Der Staat als Schuldner. — Foster's Practice of Diplomacy as Illustrated in Foreign 
Relations of the United States. — Wrixon's The Pattern Nation. — Martin's Mexico's 
Treasure House. — Report on Physical Condition of Fourteen Hundred School Children. — 
Dietzkl's Retaliatory Duties. 




Late Secretary of the Treasury 

Chancellor, Univcnity of Nebraska 

Professor, University of Minnesota 

Direc«>r of Statistics, Nonray 

Professor, University of California 

Paris, France 

Professes, University of Illinois 

Professor, Rome, Italy 

Professor, University of Michigan 

Senator, Rome, Italy 


President, Clark Collefi^e 


Late Editor New York Evening Post 


Professor, University of Wisconsin 


Late Comptroller of Currency 


Member of Institute, Paris, France 


Crane Company, Chicago 


University of Vienna, Austria«Hungary 


St. Petersbuig, Russia 

Gtfttingen, Germany 

EfK Slnibetssits of Otticago ^tessss 

Otto Hakrassowitz, Leipzig 

Digitized by 





• ji/i rights secured. ' * 

Digitized by ^OOOlC 




MARCH— igol 


The work before us ^ notably strengthens the forces making 
for the new conception of capital. Professor Fisher here 
renders a threefold service. He demonstrates mathematically 
the inconsistency of the old classification and conception of factors 
and incomes; he shows the mathematical consistency of the 
value concept of capital and of the capitalization theory of inter- 
est; and he illustrates by actuarial methods the application of the 
new conceptions to business problems. All three of these proofs 
have been offered before in verbal form, and the results are 
already accepted by a number of American economists. But it 
is always possible to miss the point more easily in a verbal argu- 
ment, especially when it involves the rejection of familiar con- 
ceptions. The argument at a number of points is here restated 
fully, clearly, and conclusively. The peculiar endowment arid 
training of Professor Fisher as both mathematician and econo- 
mist made him uniquely capable of this notable performance in 
economic exposition. 

The chief topics and the order in which they are treated are 
as follows : The introduction treats of the nature of wealth, of 
property, and of utility. Part one deals with the nature of 
capital, of capital accounts in private and corporate business, and 
of various correct and incorrect methods of summing up 
capital, as revealed in a study of the principles of accountancy. 

"^The Nature of Capital and Income, by Irving Fisher, Ph.D., Professor of 
Political Economy, Yale University. Pp. xxi+427. New York: The Macmillan 
Co., 1906. 


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Part two deals with income in the usual concrete form of com- 
modities and money, applies the methods of accountancy to the 
estimation and summation of incomes, and concludes with the 
discussion of psychic income as the final or true form of which 
all others are but reflections. Part three approaches the central 
theme of the book, the ratios between capital and income : here 
are treated the interest rate, capitalization, and various account- 
ancy questions involving the distinction between capital and 
income. Summaries of the last part and of the whole work 
conclude the text which is followed by appendices, aggregating 
seventy pages, mostly on the mathematical formulae and methods 
of expressing capital and income. Many parts of the text also 
are illustrated with diagrams and mathematical examples. Such 
a brief list of topics gives no adequate idea of the methods and 
style of treatment. For these, as well as for substance of doc- 
trine, many of the chapters merit and must receive careful 
reading by economic students. 

Agreeing so fully with the general doctrines defended by 
Professor Fisher in opposition to the conventional conceptions, 
the reviewer deems it unneedful to attempt here a mere epitcnne 
of the various arguments. Nor would it be profitable to dissi- 
pate the discussion over a score or more of minor questions 
where the author may be in error. It seems best in the cause of 
economic science however, to call attention to some doubtful con- 
clusions, and, as a help to the interpretation of this work, to 
indicate how Professor Fisher's views have developed since his 
first essays in this subject ten years ago. These comments con- 
veniently g^oup themselves about the three parts of the text: 
(i) the nature of capital, (2) the nature of income, (3) the 
relation of capital and income, with a conclusion (4) on the rela- 
tion of Fisher's doctrines to contemporary speculation. 

The nature of capital, — Professor Fisher sees the essence 
of his contribution to the theory of capital in the distinction 
between a fund and a flow, "the most important application" of 
which "is to differentiate between capital and income."* He 
gives this definition: 

*The Nature of Capital ai^d Income, p. 52. 

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Capital is a fund and income a flow. This difference between capital and 
income, is, however, not the only one. There is another important difference, 
namely, that capital is wealth, and income is the service of wealth. We have 
therefore the following definitions : A stock of wealth existing at an instant 
of time is called capital. A flow of services through a period of time is 
called income.* 

Thereafter he refers not to one but to two fundamental dis- 
tinctions between capital and income, those "between fund and 
flow, and between wealth and services."* Here without com- 
ment or footnote, is introduced into the definitions of capital 
and income which he had presented ten years before a radically 
new element, and one denoting the abandonment of the former 
thought. His original view is indicated in the following 
quotations : 

All wealth presents a double aspect in reference to time. It forms a 
stock of wealth, and it forms a flow of wealth. The former is, I venture to 
maintain, capital, the latter, income and outgo, production and consumption.* 

The total capital in a community at any particular instant consists of all 
commodities of whatever sort and condition in existence in that community 
at that instant, and is antithetical to the streams of production, consumption 
and exchange of these very same commodities.^ 

These [older] definitions .... assume that capital is one sort of wealth 

and income another Economists have thought of capital and income 

as different kinds of commodities instead of different aspects of commodity 
in time.^ 

Endeavoring to account for the fact that Marshall did not 
apply this antithesis of fund and flow to capital and income, 
Fisher says : 

Possibly the reason why this step was not taken lies in the fact that 
Marshall conceives of income as a flow of pleasure rather than of goods. 
He conceives of capital as antithetical to the enjoyable income which it 
brings in. But the simpler antithesis is not between a stock of goods and 
the particular flow which it may earn or purchase, but between the stock and 
the flow of goods of the same kind.* 

*0p. cit,, p. 52. The italics in all the quotations in this review follow 
exactly the original texts. 

* Op. cit., pp. 58, 324, et passim, 

•"What is Capital?" Economic Journal, Vol. VI (1896), p. 514. 

*Ibid., p. 514. ^ Ibid,, p. 516. * Ibid., p. 527. 

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Marshall .... allowed the notion to survive that capital is one species 
of wealth and income another.* 

In criticizing an expression of Edwin Cannan's Fisher 
expresses what; in his view is the error in it : 

the omission of the explicit statement that income and capital consist of the 
self-same goods." 

Speaking of the distinction between capital and income, 
Fisher rejects again 

the old and harmful notion .... that this distinction implies some differ- 
ence in the kind of goods concerned." 

At the beginning of the second article he reiterates the view 
that the sole distinction between capital and income is that 
between fund and flow. 

A full view of capital would be afforded by an instantaneous photograph 
of wealth." 

The reviewer pointed out some years ago^* the impossibility 
of this view, saying: 

this conception shares what I believe to be an error common with it to 
both of the others [Dark's and Bohm-Bawerk's] in that it makes the 
income of a community consist of "streams .... of the very same com- 
modities that compose the original capital." There arc many things that are 
a part of Fisher's capital only and never are a part of the flow of income. 
Income differs from wealth not merely as an aspect but in the group of 
goods which compose it. 

In the book one may search in vain for the idea that wealth 
and income consist of goods of the same kind. It has been with- 
out comment abandoned and therewith has been taken away the 
very raison d'etre of the contrast between fund and flow. The 
original concept was unsound, the new idea is the all important 

*Loc, cit., p. 528. ^Ibid., p. 533. ^ Ibid., p. 534. 

^Ibid,, Vol. VII, p. 199. So desirous was the author to emphasize the idea 
of stock as the essense of the capital concept, that he framed a definition doubly 
tautological : "stock of wealth existing at an instant of time." In any applicable 
sense of the word stock, the stock of wealth must be both existing and at an 
instant of time. "Stock of wealth" tells it all. 

^Quarterly Journal of Economics, Vol. XV (1900), p. 19. 

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Let us look more closely at the origin and defects of the 
original concept. The only applicable definitions of stock that 
are found in the two authorities at hand are as follows: The 
Standard Dictionary definition (6) : "any accumulated store or 
reserved supply that may be drawn on at will;" (7) "material 
accumulated or ready for employment." The Century Diction- 
ary, definition (18) reads: "hoarder accumulation; store; supply; 
fimd which may be drawn upon as occasion demands." These 
meanings accord fairly well with the thought of fund and flow of 
the same things, but accord ill with a stock of wealth and a flow 
of services. The stock of wealth of concrete goods is not an 
accumulaticwi of services nor of incomes to be drawn upon as 
occasion demands, or a supply that may be drawn on at will. 

Is it not possible for the reader to make a shrewd guess as 
to one or two of the causes leading to the error in Fisher's 
original definition? The first is, that he apparently identifies 
two very different propositions. He is contending for a con- 
ception of capital that includes all existing wealth and not merely 
produced productive agents. The proposition that "capital is 
not any particular kind of wealth, but a stock of wealth of any 
kind existing at an instant of time," he deems equivalent to the 
proposition that capital is a fund and income a flow. So long as 
he held the idea that income consisted of the same things as 
capital, it was easy to identify the two thoughts. When later the 
idea of sameness of substance was given up, the definition was 

Another contributory cause of this error may be better under- 
stood after the discussion of income and of ratios, but may be 
referred to now. Fisher began his study of capital^* with his 
attention fixed upon the relations between the inflow and out- 
flow of ccMicrete goods. Not until the third article ^*^ do other 
relations take a prominent part. All his illustrations in the first 
two articles apply to the ccwicepticwi of stocks and flows of the 
same goods (not incomes at all, as he later comes to see). Some 
examples will make this clear: 

"Three articles in Economic Journal, Vols. VI and VII (1896 and 1897). 
»/Wrf., Vol. VII, p. 511. 

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Stock relates to a paint of time, flow to a stretch of time. Food in the 
pantry at any instant is capital, the monthly flow of food through the 
pantry is income." 

Commodities of which a large stock exists are usually commodities 
whose flow is not conspicuous, while in those where the flow is large, the 
stock in turn is insigniflcant. Factories, ships and railways illustrate the 
first class ; food, drink, fuel, illuminants, the second. The former arc there- 
fore set down as capital and the latter as income." 

The stock of carpets in a store is not so closely associated with the 
flow of interest paid by the merchants in maintaining this stock, or of the 
profits earned by its use, as it is with the flow of carpets into and out of the 
store. The distinction between a stock and a flow of the same kind of 
goods is prior to that between a stock of one kind and a flow of another." 

Other examples implying the same view are found in the 
contrast of rivers and lakes where in fact the water is the same, 
and of which Fisher says that behind the "arbitrary classification 
lies the real scientific distinction between 'gallons' and 'gallons 
per second.' " ^® In another illustration of the case of money 
loans, the language used is: "the sum lent being a stock and 
the succession of interest payments constituting a flow." Speak- 
ing of the wage fund, he says that it should have been looked 
upon as a flow dependent 

not upon the magnitude of the fund, but upon the rate at which it is 
replenished. This rate is not a fund at all, but a flow; it bears the same 
relation to a fund that a flow of so many gallons per hour does to a reservoir 
holding so many gallons of water." 

At a later point, Fisher seems unconsciously criticizing his 
own doctrine when he says : 

in [most theories of income] the annual supply or constmiption of food 
and clothing, not their use, is regarded as income. That is, income is con- 
ceived as a flow of the first of three kinds distinguished in this article 
instead of one of the third." 

This is in the last article in which he has come to look upon 
services as the only thing deserving the name of inccwne. 

Thus in the first article Fisher forms his peculiar concept of 
capital and frames a definition to fit a case which later analysis 

"o^ cit,. Vol. VI, p. 514. "/wrf., p. 516. 

"/W</., p. 516. »/Wrf., p. 526. 

»/Wd., Vol. VI, p. 527. "/Wd., Vol. VII, p. 530. 

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compels him to relegate to a nan- fundamental place in his theory. 
Beginning by emphasizing as essential the sameness, he ends by 
emphasizing the contrast, of the things composing capital and 

The instant we include any such concrete wealth under the head of 
income, that instant we begin to confuse capital and income." 

The misleading phrase "fund and flow" must be looked upon as 
a historical accident and one unsuited to the better capital con- 
cept which Professor Fisher has now adopted. 

Another difficulty that will be more clearly seen later in this 
review is that the earlier concept applied to stocks or sums not 
expressed in terms of value. The reviewer has, on a previous 
occasion, directed a criticism to this point.^^ In the first of the 
earlier articles, Fisher objected to Clark's definition of value on 
the ground that he tried to include different sorts of capital imder 
the same fund, reduced to a common equivalent in terms of 
value. He added : "the objection is not that the summation of 
value is inadmissible, but that it is a secondary operation." ^^ 
The whole implication is not clear but this much is, that in 
Fisher's opinion the value summation is no essential part of 
the capital concept, and that a summation of concrete objects 
by inventory or by description of physical qualities, not only is 
a capital sum, but that it is the primary and essential capital 
sum. In the second article,^*^ value of wealth and value of prop- 
erty are admitted as two of the senses of capital, but stocks of 
wealth and of property as quantities (inventory and description 
without valuation) are given the titles of capital- wealth and 
capital-property. In the book these terms are retained but as 
hardly more than formalities, for nearly the whole attention is 
given to the value concept of capital. Fisher's own treatment 
becomes subject to his own former criticism directed against 
another, for he includes "different sorts of capital in the same 

"The Nature of Capital and Income, p. 106. 

• See Quarterly Journal of Economics, Vol. XV, p. 19. Further comment on 
Fisher's present use of the value relation is found below, p. 143. 
*^ Economic Journal, Vol. VI, p. 530. 
» Ibid., Vol. VII, p. 199. 

Digitized by 



fund, reduced to a common equivalent in terms of value." 
Capital is still thought of as the "flash-light picture" of incomes,** 
but it is said to be 

heterogeneous; it cannot be expressed in a single sum. We can inventory 
the separate columns, but we cannot add them together. They may, how- 
ever, be reduced to a homogeneous mass by considering not their kinds and 
quantities, but their values. And this value of any stock of wealth is also 

called capital Unless it is otherwise specified, the term capital will 

be understood in this sense. 

This brings the treatment pretty nearly in harmony with the 
criticism to the effect that "the total quantity of many different 
kinds of goods cannot be expressed for economic purposes in a 
single sum, except in terms of value.*^ That this is a good and 
necessary change is unquestioned, but that it shifts Fisher's con- 
cept from its original basis is no less certain. 

The nature of income. — Fisher's income concept has under- 
gone a change no less radical and beneficial than has his capital 
concept. Three stages can be pretty clearly distinguished. First, 
income is conceived of as the flow of the same concrete com^ 
modities which make up the fund of wealth, as seen in the 
examples given above. "The monthly flow of food through the 
pantry is income."^® It is because he thus thinks of wealth as 
"used both for capital and income" *• that Fisher framed his 
concept as he did.* He criticized Marshall for conceiving of 
"income as a flow of pleasure rather than of goods." Quite as 
strongly he criticized Cannan : 

Like Marshall, Cannan seems to conceive of income as a flow, of 
pleasure, but capital as a stock of things; and thus, in spite of the dear 
statement of the time distinction between them, this distinction is not 
regarded as fully adequate, and there persists a trace of some additional 
distinction between the substances of which capital and income are com- 

No hint of any other view appears in the first article. 

^Nature of Capital and Income, p. 66, 

"Recent Discussion of the Capital Concept/' Quarterly Journal of Beth' 
nomics. Vol. XV, p. 19. 

^Economic Journal, Vol. VI, p. 514. 

^Ibid., p. 532. "/Wrf., p. 534. 

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In the second article in distinguishing between wealth and 
property, a different thought is suggested .of the services of 
wealth, i. e., the desirable events it occasions. A footnote refers 
to several writers who have discussed this subject. The thought 
lies near that these services are the income of the wealth ; but no 
statement to that effect is made. Near the end of the third 
article, these services suddenly are presented, not only as income, 
but as the only income. The last problem treated in the article, 
that "of income and its distribution,"** begins: 

In some respects, the third group of relations, those between stocks of 
wealth and the flow of services they render is the most important and 

fundamental of all The value of the services we shall call the income 

from the wealth Textbooks now usually point out that a "part^ of 

income consists of services of man and uses of durable >yealth. I propose to 
go a step further and show that all income consists of services." 

The services cease in this view to be tangible things of the nature 
of wealth. 

Every article of wealth is to be pictured as simply the tangible and 
visible handle to hold fast invisible streamers or filaments of services reach- 
ing into the future.** 

In the book this is in the main the notion of income presented : 
The only true method, in our view, is to regard uniformly as income 
the service of a dwelling to its owner (shelter, money or rental).** 

The belief is implied that this stun of money-rentals and enjoyable 
services is a homogeneous income because it all consists of 
services to the owner.*** This is a complex of contractual money 
incomes and economic services of goods to men. This summa- 
tion of heterogeneous elements, direct services from goods and 
money payments by men in exchange for services of goods, is 
not a satisfactory solution of the problem, but it is "the solution 
offered in the present book" as a homogeneous expression of the 
real income concept.** 

^Ihid,, Vol. VII, pp. 513, 533. 

''Ibid,, p. 526. ** Nature of Capital and Income, p. 106. 

"Ibid,, p. 536. '^Ibid,, pp. 105, 106, 112. 

'^Ibid,, pp. 105, 113. In a later stimmary of enjoyable objective services 
the money income is not named (p. 165), and it is recognized as a different 
method of reckoning, apparently in conflict with the former view (p. 107). 

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Fisher is not satisfied with this himself, and in the third 
stage of his concept he is led to the "psychic stream of events as 
final income." '^ The income of enjoyable objective services 
leads up to subjective satisfactions. He says: "it is usually 
recognized by economists that we must not stop at the stage of 
this objective income. There is one more step before the process 
is complete." He then defines subjective income "as the stream 
of consciousness of any human being," ^® or "simply one's 
whole conscious life." ^® Does this not go a bit too 
far in the widening of the concept, and ought it not to 
be limited to certain of the states of consciousness, making the 
definition run somewhat as follows: "the pleasurable psychic 
impressions which objective goods aid to produce"?*® Fisher 
implies this limitation in saying later that to evaluate this income 
"it is only necessary for the individual to answer the question 
what money is he willing to pay for any enjoyment brought 
about by means of external wealth." *^ The chapter has many 
just observations on the subjective items which "are by no 
means to be despised by the economist, who has far too long 
busied himself with a study of the superficial objective phe- 
nomena." *^ The thought, however, is far removed from that of 
an income of concrete wealth, indeed the original idea has quite 

Fisher ends his formal anal)rsis by enumerating three kinds 
of income, subjective, objective services, and money.*^ It is 
true, as Fisher says, that "we are at liberty to consider any one 
of them as income in its proper place," but there is still danger 
of confusion, and he does not escape it. The argument that the 
process of exchange cannot contribute anything to the total 

" Op, cit.f p. 177. This is the view that was rejected by Fisher in the articles ; 
see above, p. 136. 

"/WJ., p. 168. 

**It is very questionable whether this is "usually" recognized. Only one 
reference in support of the statement is given in the footnote p. 165, and that 
one is to the reviewer's text which cites few precedents for the view. 

*" Fetter, The Principles of Economics, p. 43 (1904). 

*^ Nature of Capital and Income, p. 177. 

*»/6tJ., p. 176. **/WJ., p. 177. 

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income of society becomes involved in ambiguities. The sale of 
a bocJc occasions "an element of income to the seller and an 
element of outgo to the purchaser/' *^ And it is said that the book 
yields no income until the reader peruses it. This evidently con- 
fuses mere accounting in terms of money with psychic income. 
In the same vein it is said that "book selling adds nothing to the 
income of society, but the reading of the book does." The error 
of this appears when we consider that, using words in the same 
sense, labor however productive, wealth however well directed 
toward increasing the fitness of goods to gratify wants, would 
add nothing to income ; the final act of consumption alone would 
add to the income of society ! 

A number of other passages present difficulties of the same 
kind. It is especially hard to tell what is the real or the "realized 
income" under discussion. At times it is purely "psychic satis- 
factions;"**^ again it seems to mean money income actually 
secured ; *^ again money expenditure, even when largely made by 
using up invested capital.*^ 

This same shifting meaning of income possibly accounts for 
the origfin of Fisher's doctrine that increase of capital value is 
not income.*^ The doctrine in brief is that the increase of capital 
as it grows in value, as for example between two interest pay- 
ments, is not income when both capital and increase are reckoned 
in terms of money. If a forest, worth $20,000 ten years ago, is 
now worth $32,000, the increment of $12,000 may be counted as 
capital but not as income during that period.*® Fisher would not 
speak of income until the wood is cut and sold, and insists upon 
the distinction "between income that is realized by the investor 
and income which is earned by the capital." ^^ This implies some 
idea of a kind of income that does not come to any person. He 
goes on: 

Realized income is the value of the actual services secured from the 

^Ibid,, p. 149. **Ibid., p. 326. ^ Ibid,, p. 232. 

** Chap, xiv, passim, especially p. 250. 

**It first appeared in criticizing Edwin Cannan, Economic loumal. Vol. VII, 
p. 53^. 

*• Op. cit,, p. 232. ■• Ibid,, p. 234. 

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capital ; earned income is found by adding to realized income the increase of 
capital value, or deducting from it. the decrease.*^ Expressed in a single 
sentence, the general principle connecting realized and earned income is 
that they differ by the appreciation or depreciation of capital* 

It is venturesome to question mathematical examples when 
presented by Professor Fisher, but these seem quite misleading. 
He says the truth of the doctrine "is evident from the fact that 
this item is never discounted in making up capital value." ^^ 
This example follows : 

Suppose, for instance, with interest at 4 per cent., that a man buys an 
annuity of $4 a. year, which does not begin at once but is deferred one year. 
Since this annuity will be worth $100 one year hence, its present value 
will be about $96, which, during the ensuing year, will gradually increase to 
$100. If this increase of value of (about) $4 is itself to be called income, 
it should be discounted. But this is absurd. The discounted value of $4 
would be $3.85, which, if added to the $96, would require $99^5, or prac- 
tically the same as a year later instead of $4 less as is actually the case. In 
other words, the hypothesis which counts an increase of value as income is 
self-destructive; for if the increment is income, it must be discounted, but, 
if discounted, it is practically abolished. 

It would indeed be absurd to discount the income a second 
time and add it to the capital value, for it has already been dis- 
counted and added to the capital sum. If it had not been, the 
capital sum would be the discounted value of an annuity to begin 
two years hence, which would be about $3.85 less than $96. 
And so every successive annuity has been included to arrive at 
the capital sum. Of course it would be an error to count it first 
as increase of capital and then as an additional sum of income 
the moment it becomes pajrable. But take away this increase of 
the capital value during the year and you take away the income, 
which is nothing but the increment in capital value detached at 
certain conventional points and put at the disposal of the owner. 

Does not the thought shift in this example from the stage of 
money income to the stage of enjoyable income? Yet Fisher is 
discussing money income and deems the income to be realized 
whenever the money is paid to the owner of the capital. In 
the merely monetary aspect of the question, there is as yet no 

"0/>. ci*., p. 334. "/^W., p. J38. •■/Wd., p. 248. 

Digitized by 



enjojrment, but in a developed money market the capital value of 
the annuity would be salable any day for a sum including the 
accrued income. On the other hand, the annuity at the expira- 
tion of the year may be money income not expended for grati- 
fications, but reinvested in other future incomes. The increment 
of money income in any elapsed year is therefore the primary 
fact, and increase of capital occurs only on condition that the 
accrued money income is not withdrawn but is added by reinvest- 
ment, or is saved. 

The same difficult doctrine is set forth in an elaborate illus- 
tration in which three brothers are supposed to be subjected to 
an income tax. Each supposedly inheriting $10,000, the first 
invests the sum in a perpetual annuity of $500; the second puts 
his in trust to be invested in an annuity of $1,000 after fourteen 
years when the capital has doubled; the third, a spendthrift, 
buys an annuity of nearly $2,000 for six years.*^* In Fisher's 
view, the $500, the $1,000 and the $2,000 are the true realized 
incomes, which alone should be taxed under income taxation. 
The second brother should be taxed on nothing until after four- 
teen years, as until then he would be spending nothing, and the 
third brother would be taxed during his brief spendthrift career 
on an income of $2,000, the amount he is spending. The argu- 
ment is substantially that a tax on expenditures is more equitable 
and expedient than either a tax on the annual net incrjsase of 
capital in the owner's hands (the usual ideal of an income tax), 
or a tax on capital value (the general property tax). The 
general argument as to the virtues of consumption taxes is 
frequently made, but if true it hardly supports the proposition 
Fisher is advancing. There is no pretense that the ordinary 
income tax is a consumption tax; it is frankly, however crudely, 
a tax on net earnings which are at the disposition of the tax- 
payer either to save or to spend without encroaching upon his 
other capital. Where, therefore, is the fallacy to which reference 
is made ? ^^ There is no pretense that the general property tax 
is a consumption tax; its ideal is frankly the taxation of all 
property rights in proportion to their present capitalized value. 

**Ibid,, p. 349. ^Ibid,, p. 353. 

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The double taxation and injustice too frequently found in its 
practice is caused by bad administration and by bad reasoning 
of quite a different nature. 

In this illustration "true realized income" is used in the sense 
of the amount of money expended for enjoyment, whether it is 
taken from the current earnings of capital or from the original 
capital sum invested. According to this usage income is never 
money coming in but always money going out. Income is not 
an addition but always a subtraction. The confusion between 
money income and subjective income could not be more evident. 

No more convincing are the other illustrations. In the case 
of the vacant land rising in value,*^* it is not necessary to wait 
until the land is built on and enjoyed, for it is money income that 
is to be calculated and that is realized in every resale of the land. 
Is this not a "proper place" at which money income can Ic^cally 
be estimated? According to the view taken *^'' the exemption 
from taxation of forests in Europe, cited as a "more rational 
system" due to longer experience and to a recognition tihat the 
growing forest should not be treated as income, is not, it is safe 
to say, based upon the reason assigned by Fisher. It is simply 
a social expedient, a conscious subsidizing of forestry, because 
forests more than most other wealth in the hands of individuals 
confer broad social benefits upon others than the owner. 

Another minor point in this connection. The treatment of 
money income is out of harmony with the conception and defini- 
tion of income as a flow. Capital is repeatedly spoken of as 
"for the present yielding no income;"**® there are long periods 
"during which no income is realized;"^® in annual contractual 
payments of interest or annuities, it is said that "during the 
entire year up to the very end there is no income at all."*^ 
Income thus is treated not as a flow but as a number of sums of 
money due at definite though perhaps very irregularly distributed 
points of time. 

The relations between capital and income. — Coming to the 
examination in detail of the relations between capital and income, 

'*0p. cit,, p. 230. *^ Ibid,, p. 230. ''Ibid., p. 235. 

*^ Ibid,, p. 177. ^Ibid., p. 232, 

Digitized by 



Fisher presents "the four income-capital ratios," capital being 
called a stock of wealth or of property and being expressed 
either in physical terms or in value.^^ These four "ratios" are : 
(i) physical productivity, (2) value productivity, (3) physical 
return, (4) value return. "The ratio of the quantity 
of services per imit of time to the quantity of capital which yields 
those services may be called physical productivity." These 
quantities are expressed physically as acres, as bushels, not as 
values. The first difficulty here is that a large part of the 
services yielded by goods is not physical, and in such cases 
and in so far there is not physical productivity. The examples 
chance to be chosen where there is some (wheat from acres, cloth 
from looms). But the second difficulty is that it is not possible 
to ascribe to a particular piece of "capital" in a physical sense 
the whole product which is at the same time and in the same 
sense the product of labor and of other pieces of "capital," such 
as the building, the land, etc. This physical productivity is not 
a measuraWe thing which can be compared with the physical 
pieces of "capital." ^^ Not until value has been imputed to it 
can it be so compared, and that is the fourth ratio. 

These objections do not apply to the third ratio called 
"physical return" (bushels per $100 of capital applied), for here 
it is not the whole product but the part imputed by marginal 
measurement that seems to be considered. The second ratio is 
the "value productivity" (dollars rent per acre or per dwelling, 
and wages per laborer). The fatal objection lies to all three of 
these so-called ratios that they are not ratios. With some diffi- 
dence the point must be raised that ratio in mathematics implies 
the relation between two numbers or magnitudes of the same 
kind. There may be a "rate" described as dollars per acre per 
year, but not a "ratio," for that must be a numerical relation 
between two quantities of similar dimensions. No wonder that 
after only three pages of formal definitions this statement is 
made: "in this book we are concerned chiefly with the fourth 

•"/frtd., p. 184. 

•In these cases the word "wealth" would be more fitting than the word 

Digitized by 



relation, value return, or the ratio of the value of income to the 
value of capital." •^ Most of what has preceded and all^of what 
follows pertains to this value ratio, which is the essential feature 
of the capital concept, though a different idea is embodied in 
Fisher's definition, as has been indicated above. The author as 
he proceeds comes to recognize that no other subject is engaging 
his attention. At the conclusion of the part on the relations 
between capital and income, he says : "we have finished our study 
of the relations between capital-value and income-value."** 
"Our special theme has been the value return — ^the relations 
between mcome-value and capital-value." ^^ Still more significant 
is the last page but one of the text. 

It is to the relation between capital and income in the value sense that 
our attention throughout this book has been chiefly devoted. It has been 
noted that the relation between capital and income, taken in the value sense, 
is profoundly different from the relation between capital and income when 
either or both are measured in their various individual units. When capital 
and value are measured as "quantities," capital may be said to produce 
income; but when they are measured in "values," we find that it is necessary 
to reverse this statement, and to say that income produces capital.** 

In this it appears that the rejected stone has become the 
headstone of the comer. This profound difference between 
capital and wealth comes very near being recognized as the 
essence of the capital concept. But the thought halts short of 
the inevitable conclusion that the wealth aspect of value is to be 
found in the production of incomes, whereas the essential capital 
aspect is the evaluation of incomes and the expression of their 
present worth. Fisher early committed himself to a conception 
of capital that has dimmed this distinction, from which concep- 
tion criticism has as yet only partially freed him. 

Relation to contemporary speculation. — ^With these exceptions 
this work presents the modern capitalization theory with an 
invigorating air of practicality. There is no worship of the 
old fetiches, such as artificially produced or as hypothetically 
unimproved agents. There is no illusion that the inccwne of land 

'^Op. cit., p. 1 88. ^Ibid,, p. 303. ** Ibid,, p. 303. 

^ Ibid,, p. 327. See also above, p. 135, where is shown Fisher's change from 
this earlier thought to the value concept. 

Digitized by 



bears a peculiar relation to price, or that the influence of time 
upon value is limited to some classes of produced agents. Capital 
is treated as the present worth of expected incomes, and the 
essence of the capital problem is found in the value relations 
between incomes and capital sums. Professor Fisher here shows 
that this problem has now, by the aid of the new value concq)t of 
capital, been brought within the range of logical and mathe- 
matical treatment and of the usages of business. As Professor 
Fisher's suggestive articles ten years ago helped to attract atten- 
tion to this subject and to present the issues involved, so this 
riper and weightier contribution will help to tip finally the scales 
of judgment. A bode not appealing directly to a large audience, 
it will be carefully read by the critical few, and its influence will 
spread with the new conception of distribution to ever-widening 
circles of thought. 

Every author draws his inspiration from sources of which 
he is rarely quite conscious. Fisher's mathematical interest 
led him to ascribe to the mathematician Simon Newcomb the 
paternity of his original conception of capital and income as fund 
and flow of the same goods, although his account of the influence 
shows that it was only a phrase caught frcMn a quite different 
connection, and that it was not intended by Newcomb to have 
attached to it the thought that Fisher gave it. 

Newcomb applied his distinction only to problems of monetary circula- 
tion Intent on elucidating questions of monetary circulation, New- 
comb failed to see that the same conception would clear up questions of 
capital .... The fact that the author of the distinction between stock and 
flow did not apply it to capital, and the fact that also Professor Marshall, 
who was quick to see the importance of Newcomb*s distinction, did not so 
apply it, have often caused serious doubts in my own mind as to the pro- 
priety of that application." 

There was indeed occasion for serious doubt. Fisher did 
not note that because Newcomb's use of it was confined to 
monetary problems the funds and flows were expressible in 
homc^eneous units of value, whereas Fisher extended the thought 
to heterogeneous masses of agents and their incomes, even when 

^Economic Journal, Vol. VI, p. 526. 

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not expressible in value units, and insisted that the concept of 
capital be not limited to funds expressed or measured in terms 
of value. All the development of the concept since has been away 
from Fisher's original idea toward a conception derived from 
other sources. 

So quickly have the sounder and tested fruits of the studies 
of Patten and Clark been appropriated, so thoroughly have they 
become a part of our thought, that they now seem simple truths. 
Many remember the stimulus they found in Patten's analysis 
of the ideals, tastes, and economic nature of man; How revolu- 
tionary was the thought that life, aspirations, and effort were the 
center of economic study rather than acres, clay, and iron. Under 
the influence of a theory of consumption, economics has changed 
from a study of the physical sources of wealth to a psycholc^cal 
science. The novel of yesterday has become the commonplace 
of today. 

A score of years ago Clark reopened the question of the 
capital concept by challenging the usual classification of capital 
and land, of rent and interest. His thought so traversed the 
conventional definitions and conceptions that for years it found 
few disciples, yet its fault was rather that it changed the old 
view too little than too much. Slowly the new thought became 
familiar as it was presented in its different aspects; the difficul- 
ties of the older view became more evident ; while here and there 
the new idea bore fruit in comment or critical essay that clarified 
details or showed new applications to practical problems. 

Among such essays showing the awakened interest in the 
concept of capital must be classed the articles from Professor 
Fisher's hands ten years ago. The present work is an evidence 
of the growing part now played in economic theory by the psycho- 
logical analysis and of the development that the capital concept 
has undergone of late. Fisher's present views are in some 
regards the logical outcome of the recent psychological studies 
in economics, and in other regards, of the Clarkian protest against 
the old classification of economic factors. The relation to the 
latter is probably more close ind direct than Fisher has recc^fnized. 

However it may be as to the particular influences, Fisher in 

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his later thinking has probably been more affected by the spirit 
of his times than his citation of authorities would indicate. 
Outlining his conceptions of capital and income with little con- 
scious reliance upon contemporary speculation, and guided 
largely by a mathematical analogy, he has been forced as he 
developed the thought to take account more and more of the con- 
clusions reached by others. His first articles had, as he later 
found, been to a considerable extent anticipated.*® The capital 
concept of a fund of concrete wealth changes beyond recognition 
into a valua.tion or present worth of rights to future incomes. The 
income concept of a flow of the same goods that compose the 
flow of wealth is transformed into the at-first-rejected thought of 
psychic gratifications. The four capital-income ratios shrink in 
the course of the treatment to one, and that the very one whose 
character as capital he at first most doubted. Yet he still believes 
that the whole bode is "only the elaboration of the ideas out- 
lined sc«ne years ago in the Economic Joumdl,^^ His treatment 
continues to labor under the incubus of the original erroneous 
definitions and of the original impossible fourfold hyphenated 
terminology, compelling us to talk of wealth-capital, property- 
capital, etc. 

These are perhaps but the inevitable penalties of a certain 
isolation in Fisher's capital theory. He b^^ the analysis and 
reconstructicrti of the capital concept as if it were a task apart 
from the theory of distribution as a whole. Banning with the 
a priori mathematical concept of stock and flow, he tried to 
embrace under it all the forms and the whole problem of wealth. 
A large part of this is prior to, and a necessary condition of, a 
theory of capital, which is peculiarly the time aspect of value. 
His study as it has advanced has led to the incidental considera- 
tion of difficulties which demanded systematic and fundamental 
treatment. The capital theory presented has therefore a certain 
character of intellectual aloofness that leaves it out of touch with 
the larger theory of distribution of which it should be but one 
part. Much of what is best in the present work is thus some- 

^ Economic loumal. Vol. VII, p. 511, note. 

** Nature of Capital and Income, Preface, p. viii. 

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what belated, keeping the plane of the discussions of a decade 
ago and lacking that sense of unity and co-ordination in the 
theory of distribution which of late has been increasingly felt 
and expressed. 

These criticisms are offered to center attention upon the points 
most controverted, and to give the perspective in which the 
work should be viewed. The work as a whole has a marked sig- 
nificance. It puts into convincing form some important disputed 
conceptions, and it must rank among the memorable contribu- 
tions made by Americans to economic study. 

Frank A. Fetter 

Cornell University 

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The philosophy of unionism today is regarded as complete 
and final, as absolutely established and unimpeachable — much 
as certain economic doctrines were regarded as being finally 
determined a half-century since. This sense of absolute finality 
and unimpeachability presaged for economic science immediate 
disintegration and general repudiation of doctrines, and the re- 
writing of the whole science. Other absolutely established social 
philosophies have experienced the same sudden and final dissolu- 
tion. In fact, history teaches that absolutism, and consequent 
sensitiveness to criticism, together with a certain disposition to 
irrascibility, is historically speaking, commonly symptomatic of 
declining vitality in social institutions, as it is in the natural 
htunan body. Trade-unionism, certainly has no occasion to 
rely upon any doctrine of infallibility to establish its power. 

On the contrary, it may safely, and might wisely, rely upon the 
strength of its own programme, upon the justness of 
its cause, and upon its record of achievement for its main 
defense against detractors— even against its honest-minded 
critics; but it has not chosen to do so. It not only does 
not seek honest criticism of its programme but resents any impli- 
cations of fallibility as essentially impious. In the minds of 
labor leaders the programme of unionism is characterized as one 
of '^masterful and surpassing intelligence," and one who pre- 
sumes to criticize is asstmied to be insincere and regardless of the 
welfare of the toiling masses. A judge who issues an injunction 
distasteful to org^ized labor, however exemplary and incor- 
ruptible the life he may have led, becomes at once, ipso facto, a 
"capitalistic tool." The judge who refuses such an injunction is 
an "able and distinguished chancellor, a judge loved by all 
honest men, and feared by respectable criminals." The injimc- 
tion itself is an "outrageous, impudent, revolutionary invention 
of lawless plutocracy." The detective who runs down some 


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union man who has committed manslaughter is a "hireling 
anxious to make a record so as to earn his blood money." The 
critic of unionism is always actuated by "sickening hypocrisy," 
and his "mouthings" are devoid of "honesty and truth." The 
foremost educator of the country, and p^haps the strongest 
American personality, loses character when he presumes to com- 
ment upon unionism today, or upon the practices of unionism. 
Then his utterances and his actions clearly show him to be 

not only unsympathetic to labor, but positively and bitterly hostile, taking 
advantage of every opportunity afforded, creating the opportunity when it 
did not present itself, to use the high position he occupies to vent his antagon- 
ism to every effort of labor to emerge from the misery of the past, the 
injustice of the present, and to achieve its hopes and aspirations for a higher 
and better life. 

No declaration on the part of the critic that he too cares for the 
welfare and happiness of the toiling masses can be accepted as 
made in good faith. As a great movement in the interests of 
labor, unionism has developed an abnormal sensitiveness to 

This sensitiveness does not seem warranted by any disposi- 
tion on the part of the community to be unduly severe in its 
judgments. On the contrary, there would seem to be a general 
inhibition and suspension of judgment by the community 
where unionism is involved. Where any decision may reflect 
indirectly upon the practices of org^ized labor, even courts of 
justice and juries act slowly and uncertainly. In Chicago recently 
it required the examination of 700 veniremen to secure one juror 
in a trial of trade-union officials for manslaughter. In another 
case men who have been held mainly accountable for resort to 
violence and blackmail during the Chicago teamsters' strike 
have recently been freely acquitted of all guilt. There is no 
disposition to persecute or to martyrize unionism, but rather on 
every hand a disposition to bid it godspeed in the achievement 
of its purposes, and to impute honesty to its leaders. 

It has been noted above that economic principles which were 
regarded as being finally determined a half-century since, have 

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been generally repudiated, necessitating a rewriting of 
the whole science. The disintegration of the old doctrines 
induced general confusion of thought, and the rehabilitation of 
economic science has not yet been accomplished. The body of 
fundamental principles upon which economists agree seems at 
times reduced to a negligible mass of axiomatic platitudes. As a 
natural consequence of this general falling-out with themselves, 
economists have lost caste in the community. Nor can it be 
denied that this general discrediting is warranted by the quality 
of much economic writing — more particularly of economic writ- 
ing dealing with the labor problem, which is not infrequently 
characterized by a sort of intellectual cowardice and self-stultifi- 
cation. When a certain train of reasoning leads to a 
conclusion distasteful to the writer, the conclusion is 
seen afar off, and reasoning along that line is stopped. One 
may illustrate this by quotation from a single standard economic 
treatise written by a French author, who complacently develops 
the following conclusions regarding the distribution of wealth 
and the payment of wages, apparently without any consciousness 
that they are incongruous. The translation of this treatise, it 
may be noted, is widely used in the United States as an ele- 
mentary textbook in teaching economics. In the text the follow- 
ing quotations are not consecutive : 

We cannot distribute wealth, for it distributes itself in virtue of natural 
laws which men have not invented, cannot change, and have no motive to 
alter; for, taking all in all, they approach the largest measure of justice that 
we can hope to expect for any social system. In fact, the automatic work- 
ing of these laws enables each member of modem society to be remunerated 
in proportion to the services rendered by him 

Contrary to the popular belief, the amount of wealth produced is small 

and insufficient, even , in the professedly wealthy classes Gearly the 

most skilful distribution in the world will never succeed in allotting large 
shares where the whole mass to be divided is small. 

The social question will be solved, first, by guaranteeing each man the 
minimum without which he is in danger either of not becoming, or of not 
remaining, a "man," in the full sense of the word. The next step would be 
to give the working classes something more than a minimum: viz., a grow- 
ing share in the benefits of that civilization of which they form a more and 
more important factor. Further, any wealth which remained over should 
be put into the hands of those who can make the best use of it. 

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Here is an absolute denial of the writer's own logic: a 
shrinking-away from obvious conclusions, and a complete sur- 
render to unreasoning sentimentality unfortunately not imchar- 
acteristic of much economic writing of the day. It follows from 
the degenerate state of economic doctrine that little competent 
criticism has been brought to bear upon the programme of trade- 
unionism by economists. 

Economic criticism of trade-unionism does not imply justi- 
fication or condemnation; it implies nothing more than correct 
and searching analysis of the programme of organized labor as 
a practical rule of industrial action. It is not the business of 
the economist to justify the working of social institutions or of 
economic laws on ethical grounds. An economic law, as has been 
often pointed out, is neither right nor wrong, any more than is 
the law of gravitation. An economic law is descriptive of a 
condition or fact, not a justification. If the economist finds the 
prime motive of action in the business world to be self-seeking, 
he notes that fact. In noting it he is neither justifying nor 
condemning human nature. Moral judgments do not constitute 
any portion of economic science. The only judgment germane 
to ea>nomic science is summed up in the word "economic." The 
economist may not say of the tariff on imports that it is right or 
wrong, wise or unwise; but if it be asserted that the tariff 
advances wages of labor, the economist is justified in declaring 
such a conclusion true or false, provided he can present evidence 
warranting any conclusion whatever. He may declare that it 
advances the wages of certain groups of labor, at the expense of 
other groups or of the community as a whole; or that the effect 
of the tariff is to advance profits rather than wages. In any 
case, his judgment is economic, not ethical. In considering the 
programme of unionism, also the economist neither condemns 
nor justifies; but if it be contended that unionism advances 
wages, the economist is, or should be, competent to declare judg- 
ment upon that question. He should further be able to declare 
what are the economic consequences, or some economic conse- 
quences, of such a programme of action in the business world. 

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Regarding the economic consequences of the programme of 
unionism certain judgments would seem to be warranted. That 
programme is put forward as a programme of economic advance- 
ment of labor. Trade-unionists justly pride themselves upon the 
fact that they have ridded themselves of certain doctrinnaire prin- 
ciples of humanitarianism. As an individual the trade-unionist 
may be socialist or an anarchist, a Christian or an atheist ; but as 
a trade-unionist he is a wage-earner, seeking to secure a price for 
his labor. In the sale of labor no social philosophy is involved. 
The trade-unicMi is an institution for higgling over the price 
of labor, and as such it is an institution without political or 
social philosophy. It acts always with an eye single to the inter- 
ests of its members. 

Enlightened selfishness is assumed to be a fundamental prin- 
ciple of action in the business world. The corporation employer 
is conceived to be soulless, sordid, and self-seeking, and entirely 
impervious to appeals based upon other than economic interest 
and necessity. To the extent that this is true, trade-unionists can- 
not be singled out for especial arraignment on grounds of undue 
selfishness. If the economist has any criticism to bring against 
the programme of unionism, it certainly is not properly based 
upon its self-seeking character, but rather upon a consideration 
of the question whether or not trade-union selfishness, in itself 
entirely justifiable, may in fact be properly styled an "enlight- 
ened" selfishness, regarding the general welfare of laborers; 
in a word, whether the practical programme of unionism is cal- 
culated to achieve in the industrial world the economic end 
which it seeks to achieve — ^namely, the general advancement of 
wages, and amelioraticMi of the conditions under which labor 
is exerted. In making this inquiry the programme of organized 
labor may be discussed briefly under two general heads, con- 
sidering first its political and secondly its industrial character. 

I. Organized labor's espousal or repudiation of political doc- 
trines is naturally determined with the interests of the class 
which it represents in mind. A present instance illustrating 
this tendency is found in the attitude of the Labor party in 

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England on the question of woman's suffrage. On general 
principles organized labor has favored extension of the suffrage 
in England as in the United States, since extension of the suffrage 
confers political power which may be exerted in the interests of 
labor; but at the recent conference of the Labor party in Belfast, 
in January, 1907, the* following resolution was voted down by 
a vote of 605,000 to 268,000: 

That this conference declares in favor of adult suffrage and equality of 
the sexes, and urges an immediate extension of the rights of suffrage and 
of election to women on the same condition as to men. 

The explanation of this negative vote is found in the fact that the 
"feeling of the delegates had been alienated by the election policy 
of the Women's Political Union and the ascendancy of middle- 
class influence in their ranks." In a word, the attitude of organ- 
ized labor upon woman's suffrage depended upon what use it was 
conceived women might make of their right to vote. If they 
were likely to vote for labor, then they should have the suffrage; 
if not, not. Upon the declaration of this vote, Mr. Keir Hardie 
evidently actuated by more fundamental considerations, and by 
a sense of devotion to a cause, announced that he might feel 
obliged to resign the leadership of the Labor party. But the 
delegates were obviously voting consistently, having regard to 
class interest rather than principle. 

The same principle of action is the determining one in other 
political issues. In Chicago, where the municipal ownership of 
street railways has been under discussion for several years past, 
and in • other localities, the attitude of organized labor has 
depended upon how labor conceived the municipality as an 
employer of labor. There is no dispositicMi whatever to depend 
upon the democratic organization of the municipality to insure 
the public employee fair treatment. The president of the 
Amalgamated Association of Street and Elevated Railway 
Employees responded to an address by Mayor Ehmne advocating 
municipal ownership a^ follows : 

To those who are discussing the question of municipal ownership of 
street railways we want to say that we propose to maintain this organization 
whether we work for a municipal owner or any other. We know the duplicity 

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of politicians, and are not enamored of any of their rosy promises. We 
do not intend to surrender this organization to any of their old "isms" or new 
"isms" either. 

The attitude of organized labor upon the immigration question is 
determined by its belief — ^based upon an economic fallacy — ^that 
the immigrant by woricing more cheaply than the American 
workman thereby lowers the wages of American wage-earners 
generally. So also similar reasoning regarding the effect upon 
wages of the competitic«i of convict labor has led organized 
labor to join with manufacturers and traders in opposing the 
employment of convicts in trades which will enable the convict 
to be self-supporting when he leaves the penitentiary. In its 
"Bill of Grievances" presented to the President last March, the 
following complaint is entered : 

While recognizing the necessity for the employment of the inmates of 
our penal institutions so that they ijiay be self-supporting, labor has urged in 
vain the enactment of a law that shall safeguard it from the competition of 
the bbor of convicts. 

If convicts may not compete with labor in honest work 
there is small hope of their regeneration. On the tariff 
issue, although the first convention of the American 
Federation of Labor in 1881, declared for protection, organized 
labor is in fact divided, because it is uncertain whether or not 
the tariff really advances wages. On the whole it is disposed 
today to accept the protectionist reasoning 00 the tariff, and it 
may be observed that trade-unionism is itself based upon prin- 
ciples of protectionism applied to labor, and may therefore, con- 
sistently favor protectionism in general, as opposed to freedcwn. 

A good simimary of the general political programme of 
organized labor is found in the following pronunciamento, which 
in one form or another is spread broadcast by the labor press : 

We will stand by our friends and administer a stinging rebuke to men 
or parties who are either indifferent, negligent, or hostile, and, wherever 
opportunity affords, secure the election of intelligent, honest, earnest trade- 
unionists, with clear, unblemished, paid-up union cards in their possession. 

There can be no question as to the self-seeking activity of 
capitalistic organizations in influencing legislation by state and 
federal l^slatures, and this is perhaps sufficient justification for 

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adoption of a similar policy by organized labor. The above state- 
ment of political policy might obviously be rewritten for other 
self-seeking interests in sctfne such way as follows: "We 
[capitalists, etc.,] will stand by our friends [etc.], and secure 
election of intelligent, honest, earnest shareholders [etc.], with 
clear, unblemished, paid-up campaign-fund receipts." 

The assumption clearly underlying the above official and 
semi-official declarations of policy is that organized labor repre- 
sents labor in general, and this assumption prevails in the face 
of the often reiterated assertion that the great mass of labor is 
outside the trade-union fold. At a liberal estimate not above 
one-tenth of the labor in the United States is organized into 
trade-unions. Further, the trade*unic«i definiticMi of the wage- 
earning group excludes a very considerable portion of the popu- 
lation who, if they are not wage-earners strictly speaking, are 
nevertheless industrious workers, whose interests the state ought 
to regard as carefully as it regards the interests of wage-earners, 
oi^fanized or unorganized. Class legislaticMi does not cease to 
be class legislation, and as such vicious and demoralizing in a 
democracy, because the class represented happens to be relatively 
numerous. Every political issue should be decided with the 
interests of the community in mind, rather than the interests of 
a single class. The American FederaticMi of Labor may hcMiestly 
believe, as it declares, that its object in politics is "to secure 
legislation in the interests of the working masses," but this claim 
is always made more or less sincerely by any class, large or 
small, seeking political power. In any specific case, legislation 
favored by organized labor will be found to be legislation in the 
interests of a relatively small group of wage-earners. 

The political programme of organized labor may be summed 
up by the statement that it is a policy of exploitation of the state, 
and through the state of the community, in the interests of a 
class. It goes without saying that this exploitation is, in the 
minds of the exploiters, in the interests of society as a whole, and 
of wage-earners in particular — more especially in the interests 
of organizd labor. If the immigraticMi of indigent foreigners is 
conceived to weaken the power of organized labor to advance 

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wages, the state is appealed to to stop off that immigration. In 
administering its penal institutions, the state must regard the 
interests, not of the convict, but of organized labor. In the per- 
formance of any public work, the state must regard, not the 
taxpayer, but the interests of labor employed either directly or 
indirectly imder contract. As an employer of labor, either directly 
or indirectly, the state is unique in one respect : its wage-paying 
power is not related to the efficiency of its employees. There is 
no limit to the power of the state to advance wages, other than 
that found in the willingness of the community to subject itself 
to taxation. The state alone among all employers of labor can 
raise wages indefinitely and "stay in the business." The private 
employer's wage-paying power is dependent upon a speculative 
market. In the market the employer negotiates the sale of the 
product of labor, and out of the proceeds pays wages. Generally 
speaking, prices in the market are fixed for, not by, the employer. 
They are determined largely by the shifting appetites and caprices 
of the consuming public. The state's wage-paying power is not 
dependent upon the market but upon its power to levy and 
collect taxes. 

Labor demands of the state that it shall be an exemplary 
employer of labor. The public employe of state or municipality 
expects to render less service than is rendered by the employee 
of a private corporation; he expects to work shorter hours, and 
to earn higher wages, than he could do under any private 
employer. Therefore organized labor favors municipal owner- 
ship of street railways, and other public-service properties, and 
is, generally speaking, favorably disposed to all forms of col- 
lectivism or state socialism. As an employer of labor, a democratic 
state develops a weak power of resistance to any organized 
demand made in the interests of a specific class of its employees. 
As the niunber of employees on its pay-roll increases, its power 
of resistance weakens. Any attempt to adjust wages and condi- 
tions of employment to market conditions is bound to encounter 
the same sort of resistance that is encountered by any effort to 
revise our tariff schedule upon a scientific basis either of pro- 
tection or of revenue. As an employer of labor the municipality 

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or state develops a highly unstable disciplinary power, which 
is bound to yield to the pressures of political expediency. 

Obviously the state cannot fix the standard of living in the 
community; that is determined ultimately by industrial capacity 
and output, by productivity of labor and capital, by the state of 
the industrial arts, by the natural resources and processes of 
production. These economic conditions determine the material 
welfare of the community. But the state can tax the whole 
commimity in the interests of its employees. It is, therefore, an 
ideal employer for those whom it employs, who are the immediate 
beneficiaries of the state's taxing power. 

Historically the state has always been an exploiting institu- 
tion, performing its service of exploitation in the interests now 
of one class or group of individuals, now of another. Democracy 
differs from other forms of government in that the exploiting 
group is more numerous. At least the ideal of democracy is to 
substitute a large for a small group as the controlling body. It 
is a matter of common observation that, in its practical woricing, 
the small group continues to control in democracy as in aristoc- 
racy, only the character of the group is changed. There is no 
reason to believe that the interests of the community will suffer 
any greater violation, if the state is taken over by organizd labor, 
than they have suffered at the hands of other classes or groups. 

It is a significant fact that, while many in the rank and file 
of the trade-unionists are avowed socialists, who regard unionism 
as a present means of advancing their cause, trade-unionism 
officially repudiates the doctrines of socialism. The socialistic 
tendencies of unionism are determined by the character of the 
state as an employer of labor — an employer whose wage-paying 
power is determined by taxation, not by product. Socialism, 
however, does not look upon the state as a wage-payer, much 
less as an exploiting institution, but as an institution few- 
directing labor and apportioning the product of labor arbitrarily, 
having regard to the interests of the whole community, not of 
any organized class within the community. Socialism is not 
based upon the doctrine of enlightened selfishness, but upon the 
doctrine, enlightened or unenlightened, of unselfishness. Obvi- 

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ously no form of trade-unionism could be tolerated in a socialistic 
state, since trade-unionism implies non-unionism, and is avowedly 
self-seeking", while socialism proposes the general welfare of 
the whole comrnunity. Socialists favor the organization of 
labor into trade-unions, just as they favor the organization of 
capitalistic monopolies generally. It cannot be inferred, how- 
ever, that socialism and unionism are fundamentally reconcilable, 
any more than it can be inferred that socialism favors the present 
capitalistic system of industry. The fundamental difference 
between unionism and socialism lies in this: under unionism, 
what a man shall do, and what he shall receive for doing it, is to 
be determined by him; while under socialism, what a man shall 
do, and what he shall receive for doing it, is to be determined 
by the state. 

2. The industrial programme of organized labor is somewhat 
more complex and difficult of analysis. Trade-unionists have 
abandoned some of the more naive doctrines which marked their 
earlier development. They do not generally today lay claim 
to the whole product of industry as the product of manual labor. 
They admit the claims of other than manual labor to a share of 
the product, and they have more or less consciously adopted the 
principles of demand and supply as affecting wages. They are, 
however, still inclined to repudiate the suggestion that wages 
are very closely related to productivity of labor, and that the 
sure means of advancing wages is to increase the efficiency of 
labor. Essentially the labor-union is an organization, not pri- 
marily against the employer, who is only a middle-man, but 
against the public, and against non-union labor. Each trade- 
union is, in fact, an organization of that trade against all other 
trades, organized or unorganized. 

Undoubtedly the fullest and most convincing statement of 
the case for trade-unionism today is found in the writings of 
Sydney and Beatrice Webb. Their judgments are based upon a 
wider range of information than that possessed by any other 
writers. They know the history of the labor movement from its 
remote origins, and they have an intimate knowledge of the 

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motives and programme of trade-unionism today. Their defense 
of unionism embraces, moreover, a consideration of economic 
literature past and present. It is doubtful if any economist in 
England or America can raise a question of fact with these 
writers — few have attempted to do sa In the main, their histori- 
cal account of the labor movement in England, and their state- 
ment of the programme of unionism, stand today unimpeached. 
In England since the appearance of the Webbs's books little 
has been added to their statement; in the United States, nothing 
at all. In some respects it seems almost unfortimate that such a 
complete summing-up of the achievements and purposes of 
imionism should have been made. It has almost destroyed the 
power of original research and thinking in the field which they 
have covered. 

The Webbs's argument in justification of trade-unionism is too 
familiar to require more than a brief resume. It is restated in 
every discussion of the labor problem. In the main, it is as 
follows: The individual wage-earner is at a disadvantage in 
bargaining with an employer for employment. The wage-earner's 
necessities are greater, his knowedge of conditions inferior, to 
those of the employer. Under a regime of free competition, 
moreover, the employer is not free, even if so disposed, to pay 
any higher rate of wages than that paid by the most unscrupulous 
employer with whom he enters into competition. The ruling 
rate of wages in any employment is, therefore, fixed under com- 
petition, by the employer who exacts the most labor for the least 
pay, and the tendency of competition is to depress wages indefi- 
nitely. Moreover, employers, finding the pressure of competition 
severe, seek to avoid embarrassment by entering into combina- 
tions with competitors, thus increasing their power to maintain 
prices on the one hand, and to depress wages on the other. Labor 
is thus forced to combine in order to place itself upon a footing 
of equality in bargaining for wages — to oppose combination to 

It is not proposed to enter into any general discussion of 
this argument, which is developed in great detail and fortified at 
every point. Some brief comment is, however, in order in this 

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connection. Regarding industrial combination, it may be observed 
that the motive of combination is not primarily to avoid com- 
petition, as suggested by the Webbs, but rather to increase 
efficiency and economy in production. This motive does not 
underlie the organization of labor; on the contrary, labor leaders 
distinctly repudiate the idea tfiat there is any very direct reaction 
of wages upon efficiency of labor; they resent the suggestion 
that the way to increase wages is to make labor more productive, 
choosing to rely upon the power of combination and control of 
labor supply. Again, the assumption that labor organization has 
been forced by industrial combinaton is not entirely borne out by 
historical experience or by present conditions. Historically, 
labor organization has preceded industrial organization of 
capital and at the present time the organization of labor is more 
extensive in many occupations than is the organization of capital. 
But the especial significance of the Webbs's exposition lies in 
its bearing upon the general assumption of unionism that labor, 
under the capitalistic system of industry, is subject to organized 
exploitation by a class of capitalist employers. According to the 
Webbs's philosophy, under a regime of free competition there can 
be no such class of exploiting employers of labor. What the 
manufacturer exacts from labor he must yield up in competition 
with other employers through the wholesale dealer and the 
retailer to the consumer, who as a result of free competition 
buys cheaply. It is, in fact, the depression of prices to the con- 
sumer, not the machinations of capitalists or traders, which 
reacts ultimately upon wages to depress them. When, however, 
producers or distributors effect a combination, they may, it is 
contended, hold prices up without raising wages correspond- 
ingly. This condition is conceived to be labor's opportunity. 
A monopoly gain or profit exacted from an unorganized public 
is not determined to capital or to labor by any economic law; it 
is, to adopt the Webbs's phraseology, "debatable land," and may 
be taken over by labor or capital according as one or the other 
develops bargaining power. If labor is sufficiently well 
organized, it can take over the whole of the debatable or monopoly 
profit. The power of the labor-union to advance wages beyond 

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the point where they would be fixed by free compeiticMi is meas- 
ured by the existence of this monopoly profit exacted from 
the consuming public. In operating to secure its share of 
this gain the trade-union appears as a monopolistic combination, 
entering into combination with the capitalistic organization 
r^farding the apportionment of a monpolistic profit. 

The philosophy of exploitaticMi thus obtains in the industrial 
prc^jamme of unionism as it does in its political programme. 
In a word, the trade-union seeks to control wages by controlling 
the supply of labor, not by affecting or modifying its character. 
In dealing with capitalistic organizations which are conceived to 
have succeeded in establishing monopolies, the trade-union appesLts 
as an organization for taking over as large a share of the monop- 
oly g^ns as can be seized upon. The president of the United 
Mine Workers of America stated that as a result of the last 
strike in the coal-fields the operators took from the public in 
increased price of coal some $30,000,00)0, of which the miners 
got as their share only $16,000,000, and he proposed to demand 
a larger share for labor. The labor-union may or may not enter 
into alliance with capitalistic organization in winning these 
monopoly gains out of the community, but wherever the monopoly 
profit or gain appears the trade-union seeks to share in its appor- 

In dealing with its own members the exploiting policy of 
unionism appears in the tendency to standardize wages irrespec- 
tive of individual efficiency. The trade-union standard wage is 
presented as a minimum wage which may be exceeded by the 
employer. It is, in fact, the common wage actually paid. In the 
building trades of Chicago unions have stipulated that any man 
who works on the inside of a building shall be paid a fixed rate ; 
years of experience and individual skill not counting in determin- 
ing the man's earnings. The given "standard" wage is fixed 
with reference to the whole group, the inexperience and ineffi- 
ciency of certain members being offset by the superior skill and 
efficiency of others. This is clearly a policy of explcwting the 
skilled, rapid workman in the interests of the slower, less skilled, 
or average man. It would perhaps be unduly severe to char- 

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acterize this policy as one of exploitation of the industrious, ambi- 
tious workman in the interests of the inefficient. In fact, wherever 
trade-imionism has become supreme, as in Australasia, this 
exploitation of the skilled and efficient has led to a depression of 
energy, loss of ambition, and economic stagnation, rather than to 
actual exploitation, and has thus defeated its own ends. 

The introduction of any evidence tending to show that trade- 
unionism is based upon the policy of self-protection and self- 
seeking, such as that cited above, is perhaps quite gratuitous, in 
view of the fact that unionists do not themselves resent the 
implication. About the middle of the last century trade-union- 
ism tock over certain fundamental economic principles of conduct 
which it had previously denied, and established itself upon a 
philosophy of enlightened selfishness. It had put up a splendid 
fight against the sordid doctrine of the survival of the fit, and 
against the iron law of wages. It had organized the wage- 
earners into great national associations for the uplift of toilers. 
It had denied that wages depended upon supply and demand. 
It had declared that manual labor created all wealth, and that it 
had only to demand its own product in order to secure general 
amelioration. In this effort at general amelioration of the wage- 
earning class it failed. One organization after another achieved 
rapid growth in membership, only to disintegrate when the test 
came. Then the more intelligent and better-paid groups of 
wage-earners adopted the economic philosophy based upon .en- 
lightened selfishness, and sought to improve their own conditions 
by acting in accord with those very principles of demand and 
supply which they had earlier repudiated. Today the trade- 
unionist takes a justifiable pride in the fact that he is acting 
in accordance with these principles. 

The history of social movements during the nineteenth cen- 
tury seems to justify the generalization that achievement has 
been inversely proportional to idealism. The pull of con- 
sciously adopted ideals upon the natural trend of affairs has been 
a n^ligible influence. Great expectations of social amelioraticMi 
have presaged failure, and progress has been achieved blindly, 

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in directions which have not been intended — fortuitously, fatally, 
accidentally. Idealism has inspired devotees, but it has developed 
little or no power to uplift or ameliorate social conditions. 
Socialism as a philosophy has presented alluring Utopias, but for 
actual achievement it has depended upon the fatal working of 
economic laws, and upon the machinations of selfish interests, 
upon those tendencies and characters of capitalism which it has 
denounced as sordid and vicious. Wherever it has attempted to 
realize its ideals in isolation from these sordid and vicious 
tendencies it has failed. G>operation as a panacea failed, but 
when it became a petty and uninspired sort of shop-keeping, it 
began to achieve great results. Even trade-unionism could not 
succeed until it became petty and essentially selfish in its ends; 
based upon ideals of universal brotherhood, it failed disastrously 
and repeatedly. If, therefore, trade-unionism today appears as 
a movement somewhat devoid of idealism, petty and self-seeking 
in character, indisposed to commit itself to any doctrine or pro- 
gramme of social amelioration, philosphically pragmatic and 
opportunist, in that very barrenness of ideal lies it surest 
promise of practical achievement. In view of this promise of 
success and practical achievement, trade-unionists will not resent 
the characterization of their programme as one which is essen- 
tially a programme of action rather than of inspiration. 

As a programme of action it is essential to the welfare of 
labor that it shall be an enlightened one. The trade-imion 
appears in the modem industrial world as an institution for nego- 
tiating the sale of labor in the open market; in effecting this 
sale, upon the terms most favorable to labor, it performs a 
useful service. A wise merchant, however, regards the quality 
of the wares which he offers for sale, and it would seem that the 
same principle should apply to the sale of labor. The trade- 
union should be jealous of the quality of union labor, and 
should insist that it be better than any other put upon the 
market. It should rely upon the quality of the labor which it 
controls to enhance the price or wages of labor. But unionism 
relies upon everything else first and upon efficiency last: it 
relies upon the tariff to raise wages, upon monc^xJistic organiza- 

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tion of capital and of labor, upon force and intimidation, upon 
legislation and political intrigue. 

All this violates fundamental economic principles. The 
economist recognizes that economic la^ys encounter a great deal 
of friction in practical experience, but he cannot admit that mere 
organization, mere legislation, mere combinaton, much less such 
expedients as resort to a tariff on imports, or exclusion of immi- 
grants, or government or municipal ownership, are real economic 
factors affecting the amount of wages. They are extra- 
economic. The standard of living of the American workman is 
not fixed by legislation or by combination, but by industrial 
capacity of labor and capital, and by natural resources. To 
ignore economic forces and conditions, and to rely upon expedi- 
ents and exploitation, does not appear to the economist to be a 
policy of "enlightened" selfishness. 

John Cummings 

UinvsRSiTY OF Chicago 

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Mr. Whitaker, in the Quarterly Journal of Economics, Feb- 
ruary, 1904, treating of "The International Movement of Specie," 
presented certain statistical data which, it was claimed, verified the 
Ricardian theory. There is no intention to discuss in this note the 
theoretical questions raised by Mr. Whitaker. The only purpose 
here is to inquire into the value of the statistical data employed in 
the verification of the Ricardian theory. 

Mr. Whitaker states the Ricardian theory of the international 
movement of specie briefly as follows: 

The theory does not at all assert that prices maintain a different level 
in different countries. The stages in the process described by the doctrine 
are stated separately as (i) gold inflow, (2) rise of prices, (3) extra import 
of goods, (4) counterbalancing, gold outflow. It is not meant that this 
process takes place in several disjointed steps with a certain interval of time 
between each. The steps are disjointed only in the analysis. As the first 
inflow sets in, while it is running, the resisting price forces are generating.* 

In order to substantiate this theory, a series of charts was pre- 
sented. Chart I of this series 

shows the course of the loans and discounts of the Associated Banks of 
New York City during a period of six months, from December 13, 1902, to 
May 9, 1903, in relation to the reserves of these banks for the same period. 
But, as indicated on the margin, the course of the reserves for any given 
series of dates is placed directly under that of the loans for a period just 
three weeks later.* 

The author then continues : 

The movement of the loans is (in part) a consequence of the movement 
of the reserves; and it was found that, with remarkable uniformity, it takes 
three weeks for the change in reserves to work their effect on the loans.* 

The argument that surplus reserves cause loans, and hence an expan- 
sion of credit is presented as a link in the chain of sequence by 
which the inflow of gold from foreign countries affects the price- 

* Quarterly Journal of Economics, Vol. XVIII, p. 238. 

'Ibid,, p. 243. 


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It may be noted that the data above mentioned were given for 
a period of expansion in business activity. During such a period 
capital of every kind is being well used, and the correspondence 
between the reserves and the amount of loans pcMnted out by Mr. 
Whitaker would be expected. In the New York banks from which 
the data are taken the lower limit of the ratio of bank reserves to 
liabilities is fixed by law at 25 per cent, and in a period of business 
expansion the bank does not keep a reserve much in excess of this 
minimum. If the bank needs more money for increasing loans, this 
may be had by cashing some of its assets, or by borrowing cash at 
home or abroad on collateral of a stable and recognized value. The 
question may be raised whether the bank reserves are secured to 
meet the need, or the need is created by the autcwnatic appearance of 
the bank reserves and the lowering of the rate of discount. 


Ratio of Reserves to DEPosrrs in the New York Clearing House Banks 
IN THE Years 1902 and 18943 

Julys 26.1 


Aug. 2 26.4 


Sept. 6 25.0 


Oct. 4 25.2 


Nov. 1 27.4 


Dec. 6 26.1 


'The data from which these ratios were calculated are found in the weekly 
Commercial and Financial Chronicle. The data for Chart I were taken from the 
same journal. 

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CELART I. — ^LoANS, Discounts and Reserves of New York Clearing-Hoxtse Banks 


^^^imailai^ iii^iittiU HU^iitii 


tO«IC««l<|MMMM •ocicvci 

I I I . 


Chart I together with Table I raises anew the question of the 
relation of bank reserves to price fluctuations. If the calculation 
of the percentages of reserves, as made in Table I, be made for the 
longer period, January i, 1894, to September i, 1898, the percent- 
ages will be found to vary between 27 and 45.2, averaging approxi- 
mately 32. During this period of about four years there might have 
been at any time an expansion of credit and a rise of prices, so far 
as reserves are concerned. The fact that no pronounced expansion 
of credit occurred in this period seems to discredit Mr. Whitaker's 
conclusion that, in general, surplus reserves create an expansion of 
credit and rise of prices. 

The loan item, as quoted in the Commercial and Financial 
Chronicle, shows that a pronounced expansion of credit began 
about July, 1897. Yet the reserve item did not vary widely from 
two hundred millions of dollars during the period between the 
months of January and September of this year. It seems fairly 

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NOTES 169 

clear that it was not the surplus reserves which created the expan- 
sion of credit arid rise of prices beginning at this time. Indeed, it 
has been pointed out by another author* that this expansion of 
business was initiated by a widening of demand due, in part, to the 
war with Spain. It has also been shown that the large crops in 
this country, accompanied by small crops abroad, favored the initia- 
tion of a credit expansion. * The expansion of demand for Ameri- 
can products was based, not on large bank reserves, but on an 
increased demand from the ultimate consumers of American wares. 

Does not the theory proposed by Mr. Whitaker assign an undue 
importance to bank reserves as a cause of inflations of credit? Was 
Mr. Whitaker justified in claiming that the data from the New 
York banks, for a period of only six months, were sufficient to 
justify his important conclusions from Chart I? If there is any 
truth in his theory, does it not require restatement and modification ? 

But Chart I of Mr. Whitaker's article was presented by him as 
only indirectly corroborative of the Ricardian theory. The specific 
evidence in confirmation of the theory was presented in Chart II, 
drawn to show the reaction of gold movements on merchandise 
movements for the years 1889-1903. This chart (II) is designed to 
prove that increased exports of gold are accompanied by a fall of 
prices, which in the succeeding year is followed by an increased 
export of merchandise. Likewise, a fall in the exports of gold, or 
an increase in the imports of gold, is accompanied by a rise in 
prices, which in the succeeding year is followed by a fall in the 
exports of merchandise. There was accordingly a line representing 
the exports and imports of gold, and beneath this line another 
representing the increase or decrease of the exports of merchandise 
compared with the excess of the year just preceding. The latter 
line was so drawn that every section was directly under the sections 
of the first line for the year preceding. According to the Ricardian 
theory, a rise in the exports of gold would be accompanied by a fall 
of prices, and there would consequently be a corresponding rise 
in the exports of merchandise in the succeeding year. There should 
therefore be a correspondence in the up-and-down movement of 
the lines drawn as above indicated. In such a correspondence Mr. 
Whitaker found satisfactory verification of the Ricardian theory. 

*Vcblcn, Business Enterprise, p. 194, n. i. 

•Andrews, "The Influence of the Crops upon Business in America," 
Quarterly Journal of Economics, May, 1906. 

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CHART II. — Relation op Gold and Merchandise Movements 

1880 1890 1900 -^ 

















1871 1880 1890 1900 

CC. 23456789 123456789 123456789 1234 iSS 

AA. — Curve of U. S. net gold exports or imports in millions of dollars. 

BB. — Curve of U. S. net excess of exports or imports of merchandise compared with the excess of the 

preceding year. 
CC. — ^The same as BB, except drawn to time schedule below chart. 
DD. — Ciirve showmg the increase or decrease of each year's product of cotton, wheat, pig iron, and steel 

compared with the excess of the preceding year. 
All curves except CC are drawn to time schedule above chart. 

Instead of taking the period 1889-1903, let us take the longer 
period 1870-1903. In our Chart II, given herewith, we present 
from the same data and in the same position, the lines AA and CC, 
which were drawn in Mr. Whitaker's Chart II. There is added, 
however, the line BB plotted from the same data as the line CC, but 
by the time schedule above the chart. 

It will be observed that there is almost a uniform lack of corre- 
spondence in the up-and-down movements of the two lines AA and 
BB, The explanation of these data seems rather simple, and does 
not require the round-about theory proposed by Mr. Whitaker. 
When the excess of exports of commodities increases, the excess of 

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From Which Chart II Is Made (000,000 Omitted) 


Net Excess of Gold 
Movement, Imports (— ) 

Increase or Decrease (—) of 
Each Year's Excess of Mer- 
chandise. Exports Com- 
pared with Excess of Pre- 
ceding Year. 


Products of Extract- 
ive Industries 











■ 4 

■ I 

• 77 

• 97 

- 2* 

■ 6 

- 18 

• 33 

• 25 





■ 45 

■ 51 


- 13 

- 3 


■ 34 

- 38 


- 5 

- 85 



- 28 



" 52 

■ 30 







- 85 


- 85 


• 3 

• 2 

' 3 
' I 


• 2 


• 6 

• 6 

• 9 

- 6 

• 3 

• 9 

* Column D is expressed in annual increases over excesses of preceding 
year. The products of extractive industries taken for the chart are cotton, 
wheat, pig iron, and steel. After selecting for units a bale of cotton, fifty bushels 
of wheat, two tons of iron, and two tons of steel, respectively, the sum of the 
amounts of the annual output of these four commodities was taken for the 
annual product of extractive industries. The numbers were then expressed in 
millions, and the comparative increase of the output of each year over the excess 
of the preceding year was calculated as indicated under B. The data were 
taken from the Monthly Summary of Commerce and Finance for the first 
qtiarter of the fiscal year ending June 30, 1904. For the purposes of the chart, 
the annual output of extractive industries for each year was considered as 
belonging to the succeeding fiscal year. 

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exports of gold decreases at the same time, because there is a larger 
balance due us from foreign countries. The fact that there is this 
necessary and natural lack of correspondence, in the up-and-down 
movements of the lines AA and BB, would require some appearance 
of correspondence if the line BB were moved back one year to the 
position CC which was assigned the line in Mr. Whitaker's chart. 
But there would be just as good a correspondence if the line BB 
were moved forward instead of back one year, as suggested by Mr. 
Whitaker. By moving the data forward one year the correspond- 
ence would tend to show that gold movements tend to follow 
merchandise movements, which is just the reverse of Mr. Whitaker's 
conclusion. The data, therefore, seem to be worth nothing for 
Mr. Whitaker's purposes. 

But, to examine this point further, let the line DD be drawn to 
represent the annual product of cotton, wheat, iron, and steel in 
the United States. The product of each year is considered as 
belonging to the succeeding fiscal year (ending June 30), as its 
exportation will probably fall in this year. There appears here some 
relation between the variation in production of our chief extractive 
products and the variation in exports. There can be no exact corre- 
spondence here because the chart does not take into consideration 
the productiveness of foreign countries, and the special conditions 
of the financial panics during this period. At least, this line throws 
some light on the following statement made in the article under 
review : 

But as the excess of exports increased through these years, it rose by 
jerks. In a nutshell, it is these jerks that we find correlated with the gold 
movement The explanation, therefore, runs as follows: Dynamical 
influences (of production and commerce, entirely independent of the Ricar- 
dian specie forces) led our excess of exports to increase generally through 
the period. But, while pursuing this general line, the excess swings from 
side to side along the course. .... Along the dynamical path of our foreign 
commerce at one time our exports swing too far in excess even of our 
expanding debits, then again swii^g below thenu Thus they produce flows 
of gold, at one time to the country and again from it All is accom- 
plished by gentle movements of the home price-level relatively to foreign 

But, from an observation of line DD in our Chart II, it 24)pears 
that the variation in the production of wealth in this country has a 

^Quarterly Journal of Economics, Vol. XVIII, pp. 352, 253. • 

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NOTES 173 

"jerky" nature, corresponding somewhat to the "jerky" nature of 
the line representing the imports and exports of gold. The varia- 
tion in a country's production of wealth suitable for exportation 
may, therefore, so far as the data are concerned, be looked upon as 
the dominant force in determining the variations in exports of 
goods and exports of gold. The data presented in Chart II seem to 
be without value for the purpose of verifying the Ricardian theory. 

There is no intention, in this note, to set up a positive theory of 
the international movement of specie. The only purpose is a criti- 
cism of the use of certain data for the verification of the Ricardian 
theory, and to show that the same data might be used, perhaps more 
convincingly, for the purposes of casting some doubt on its 
sufficiency. Spurgeon Bell 

University of Chicago 

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The Future in America, By H. G. Wells. New York and 
London: Harper & Brothers, 1906. 8vo, pp. 259. 

No living author is perhaps better qualified to write about 
America than Mr. Wells. His intelligence, his open-mindedness, 
his penetration, his training in economic and sociological methods, 
were made evident in his Anticipations and Mankind in the Making. 
In his latest volume he appears in a somewhat new role. He 
wishes to translate certain formulae into living realities. He comes 
to America to study its tendencies and on the basis of his observa- 
tions to forecast the probable future. While on the Atlantic steamer 
on his way to New York he writes : 

I want to cross the Atlantic .... to question more or less openly 
certain Americans, not only certain men and women, but the mute expres- 
sive presences of house and appliance, of statue, flag and public building, 
and the large collective visages of crowds, what it is all up to, what it thinks 
it is all after, how far it means to escape or improve upon its purely 
material destinies. I want over there to find whatever consciousness or 
vague consciousness of a common purpose there may be; what is their 
vtsion, their American Utopia; how much there is shaping to attain it; 
how much capacity goes with the will — ^what, in short, there is in America, 
over and above the mere mechanical consequences of scattering multitudes 
of energetic Europeans athwart a vast, healthy, productive, and practically 
empty continent in the temperate zone. 

This is rather a large order, and yet Mr. Wells has written a 
book that, if it does not satisfy the curiosity of Americans, at 
least will leave their minds clearer to the difficulties of the question. 
Mr. Wells admits the large and growing scale of national wealth in 
America. He stints no words in picturing the mere size of industry, 
buildings, ships, crowds, and cities. He compares his own experi- 
ence and observation in some of these matters with those of Dickens 
in the earlier half of the nineteenth century. He wishes con- 
clusively to demonstrate to the reader that he is fully alive to this 
material growth, that he does not underestimate its importance, 
its benefits or its possibilities; and yet — ^he is not satisfied. There 
is hardly a tinge of pessimism in his nature, and yet with the fullest 


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comprehension of all the progressive factors in America he doubts, 
and the doubt is seemingly a very inevitable one. 

"I believe," he says " — ^passionately, as a doubting lover believes 
in his mistress — in the future of mankind." Mr. Wells admits not 
only the material progress of America, the general high standard 
of living, but much more. He perceives, and in part at least 
admires, the hopefulness, the self-reliance, the individual alertness, 
the shrewdness of Americans ; and yet he sees something wanting — 
wanting in a profound social sense. He does not for one thing 
believe in a lot of self-complacent aphorisms or popular formulae 
as, "If each individual looks out for himself, society will take care 
of itself," or as, "It is only three generations from shirt sleeves to 
shirt sleeves" — and similar easy abstractions. He writes as 
follows : 

Surely the greatness of life is still to come; it is not in such accidents as 
mountains or the sea. I have seen the splendors of the mountains, sunrise 
and sunset among them, and the waste immensity of sky and sea. I am not 
blind because I can see beyond these glories. To me no other thing is 
credible than that all the natural beauty in the world is only so much 
material for the imagination and the mind, so many hints and suggestions 
for art and creation. Whatever is, is but the lure and symbol toward what 
can be willed and done. 

Elsewhere he says : 

The material factors in a nation's future are subordinate factors 

The essential factor in the destiny of a nation, as of a man and of mankind, 
lies in the form of its will and in the quality and quantity of its will. 

But the individual will for his personal concerns is not the determin- 
ing agent 

I am told, and I am disposed to believe it, that the Americans are a 
people of great individual force of will, and the clear, strong faces of many 
young Americans .... incline me to give a provisional credit to that; 
but how far does all this possible will-force aggregate to a great national 
purpose? — What algebraically does it add up to when this and that have 
canceled each other? That may be a different thing altogether. 

And so beyond the glitter, the show, the luxury, the immense 
activity and enterprise of America he looks to find something else, 
and he is not sure but that it is wanting — a want of some national 
human purpose consciously working out. Each person, each group 
of persons, has certain interests at heart; but he notes a lack of 
civic discipline, a lack of organization of the state, a lack of achieved 

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national result. In chapter 5 he gives a brief survey of the historical 
origin of American political institutions. The subject-matter of 
this chapter is not new, yet for the busy, eager American has ele- 
ments in it of a liberal education. Americans too readily assume 
that prevailing conditions in this country are wholly natural and in 
essence have always existed. This is a mistake resulting from sheer 
ignorance. No nation, the author holds, can expect to survive and 
progress that is interested altogether or mainly in merely industrial 
efficiency, that does not take into account its own past and its future. 
It must look, nationally, so to speak, both before and after. It must 
have a human end in view. Differences of individual opinion are 
inevitable and even necessary, but there must be also a common 
ground of achieved and augmenting result. The political philosophy 
of the eighteenth century to which he refers was valuable, even 
noble, in its day, but it was in a great measure a philosophy founded 
on a reaction against absolutism. It was negative. Now freedom 
is not attained merely by absence of government interference. It 
is a positive thing to be achieved by the solution of gjeat human 
and economic problems. Are we Americans to be forever held in 
bondage by the negative philosophy of the eighteenth century? Or 
at least may we not interpret the eighteenth century ideals to meet 
the needs of the twentieth century? Mr. Wells evidently sees the 
signs of a coming change in our point of view. 

My impression is clear that he [Roosevelt] and all the world of men he 
stands for have done forever with the threadbare formulae that have served 
America such an unconscionable time. 

The corruption from which America is suffering in political and 
corporation circles is neither a wholly surprising fact to Mr. Wells 
nor a very depressing one. He admits that there is perhaps some 
ethical confusion in this country, but disbelieves the existence of any 
fundamental dishonesty. Nor does he attribute this corruption to 
the greed either of politicians or of the leaders of industry. He 
withholds any very direct explanation of these conditions, but 
between the lines it is not difficult to get his meaning : "All men are 
equal at the great game of business. You try for the best of each 

bargain, and so does your exponent You play fair and 

hard." Evidently Mr. Wells does not believe that this method 
exclusively pursued produces the best results. 

This is the reality of American corruption, huge, exclusive pre-occu- 

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padon with dollar-getting. What is called corruption by the press is really 
no more than the acute expression in individual cases of this general fault. 

He adds ironically : 

I wish I could catch the soul of Herbert Spencer and tether it in 
Chicago for awhile to gather fresh evidence upon the superiority of unfet- 
tered individualistic enterprises to things managed by the state. 

Mr. Wells takes little interest in the campaign of personalities which 
seems at the present moment to be an obsession in America. 

In a game [he is speaking of business in America] which is bound to 
bring the losers to despair it is childish to charge the winners with murder. 
It is the game that is criminal. 

From scattered sentences as well as from the general tenor of his 
book one may get the gist of his criticism of the sources of corrup- 
tion. The economic and political disorders from which we seem 
at present to be suffering in America are attributable in his opinion 
to general causes for which all are nearly equally responsible. And 
they can be cured, not by an outburst of brutalities and insults, but 
by political and social action, by strengthening the powers and 
organization of the state, and by securing to each one the rewards 
of effort within the limits of public welfare. For the general out- 
line of a programme to carry this reform into effect the reader will 
have to consult the book itself. 

Garrett Droppers 

University of Chicago 

The Taxation of the Gross Receipts of Railways in Wisconsin. 
By Guy Edward Snider. ["Publications of the American 
Economic Association," November, 1906.] 8vo, pp. viii+ 
This paper presents numerous facts of interest to the student of 
taxation and is valuable as an investigation of original sources. 
The author attempts to justify the acceptance of gross receipts as 
the basis for taxation of railways from the experience of Wis- 
consin, Michigan, Missouri, and Iowa, with different methods of 
taxation. The main argument he advances in favor of the tax on 
gross receipts is its simplicity of administration in comparison with 
the ad-valorem tax. However, he considers that the tax on gross 
receipts is not without its defects, even from the point of view of 
administration. There is difficulty in determining the mileage upon 

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which the tax should be assessed, in accurately defining and ascer- 
taining gross receipts, and in determining what proportion of the 
gross receipts of an interstate line should be credited to a particular 

The market price of stocks and bonds is not a practical criterion 
for the valuation of railways, because in many cases the securities 
are not on the market (p. 65). Nor do the securities quoted repre- 
sent the property appraised. "The value of stocks and bonds .... 
includes localized property not used for railway purposes and locally 
taxed — perhaps even located in different states" (p. 66). Stock- 
exchange practices and the desirability of securities for purposes of 
control vitiate market price as a basis for valuation. "The market 
value of stocks and bonds is sometimes inflated beyond the real 
value by these circumstances of control" (p. 68). 

Unfortunately, the author fails to show why value due to 
stock-exchange practices and to the desirability of control is not 
as proper a subject for taxation as any other form of value. Talk 
of market value not corresponding with real value is naive, to say 
the least. The same is true of the following statement, which, if 
taken seriously, would constitute an objection to taxing any class 
of property upon the basis of market value : 

It is doubtless true, however, that, while the few shares transferred on 
the exchange may bring a given price, if the total number of securities were 
placed on the market, the price would decline so materially that the price 
paid for the few would be no indication of the market price of the whole 
(p. 68). 

Although' the author condemns the market value of stocks and 
bonds as a Basis of taxation yet one of his arguments for the plan 
he advocates is : 

There is so marked a relation between the amount of gross earnings per 
mile and the market price of stocks and bonds per mile that, while gross 
earnings cannot be said to be an absolutely accurate guide, they are a fairiy 
reliable measure of the extent that market price indicates value (p. 70). 

He reaches this conclusion after presenting figures that show 
wide variations in the ratio of gross receipts and market value. 

Rejecting the market price of stocks and bonds as an index to 
the value of railway property, he accepts net earnings as a satisfac- 
tory standard (pp. 70, 71). However, in a preceding footnote he 
had remarked: 

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Too great weight should not be given to results based upon the statistics 
showing net earnings. The term "net earnings" or "receipts" is used by 
railway officials to describe several different items, as may be seen by an 
examination of railway reports (p. 60). 

After examining the experience of Missouri, Iowa, and other 
states with the ad- valorem tax, the author concludes : 

The inequalities in the ad-valorem system are especially insidious ami 
dangerous. They are not due to some circumstance within the industry, as 
in the gross-earnings tax, but are forced from the outside and to a great 
extent are due to political causes (pp. 98, 99). 

While he shows that the assessment upon the ad-valorem basis 
in Michigan and Wisconsin is not perfect, yet it appears from the 
facts he presents that the ad-valorem tax as applied to railways has 
been superior in these states to the tax on gross receipts. 

His final conclusion is against the utility of attempting to secure 
equality of taxation. In the place of the principle of equality he 
would substitute the idea of "social utiHty" (pp. 11&-21). However, 
he fails to indicate cleariy the connotation of this term. 

Would not the adoption of the vague principle of "social utility" 
be equivalent to the abandonment of all definite bases of taxation? 
What is social utility? The ideal of equality is difficult to attain, 
but no system of taxation that does not attempt to equalize burdens 
will ever find acceptance in the popular consciousness. Propert)' 
as the measure of ability and obligation to pay taxes certainly has 
its disadvantages, but it is superior to the indefinite generality 
"social utility." The fundamental defect in the author's argument 
is that it fails to recc^^ize the necessity of considering the taxation 
of railways as a part of a general system of taxation. No matter 
how simple the administration of a tax may be, the tax is unjusti- 
fiable if it tends to produce inequality in the distribution of burdens. 
It may be shown from the data presented in the monograph that the 
tax on gross receipts does this even among railways, to say nothing 
of railways and other property. 

University of Chicago ROBERT MoRRIS 

The Lodging-House Problem in Boston, By Albert B. Wolfe. 
["Harvard Economic Studies," Vol. II.] Boston: Hough- 
ton, Mifflin & Co., 1906. 8vo, pp. 200. 
A great deal of minute observation is certainly included in this 
volume. We learn, for instance, that in the Boston lodging-house 

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bedroom brussels is more frequently used for carpet than ingrain; 
that its windows are ''incumbered with lace or muslin curtains;" 
that the furniture of the house is usually plush; that on summer 
evenings the lodger luxuriates on the front steps; that he — lucky 
fellow— can get- his trousers pressed for fifteen cents, or a whole 
suit sponged and pressed for fifty cents. 

Considerable stress is laid upon the childless lodging- (i. e., 
rooming-) house — "The lodging-house population is not repro- 
ducing itself" — all of which impresses one as a work of supereroga- 
tion. If the author had been able to establish that the lodging- 
house population has a markedly less inclination toward marriage 
than the "boarding-house" or the "stay-at-home" population of 
similar class, the fact would have been of interest, though still not 
of much value until demonstrably correlated with its causes. No 
such correlation is established. Statistics were not available for the 
purpose, and the quasi-evidence produced on this point is practically 
valueless. Even the man in the street has never supposed that the 
lodging-house population did reproduce itself, nor conceived of this 
fact as constituting a reform problem. He has been well aware that 
the great bulk of such population consists of comparatively young 
men and women in their prenuptial stage, busily engaged in estab- 
lishing themselves economically. When they marry they generally 
pass out into the "cottage" or "flat" population, and reproduce 
imder that head, their places in the boarding-house ranks being 
supplied by the steady stream of newcomers from country or 
smaller towns to the city. 

That vice and immorality exist in the middle-class lodging-house 
goes without saying, but that they are characteristic of such places 
needs more proof than the present volume affords. Any moral 
deterioration that takes place in the "lodger" is probably more likely 
to arise from associations of working hours than from "the free 
and leasy relations" of rooming-house life. That the moral concep- 
tions of not a few of our young men and women are unfortimately 
elastic can be evidenced from the "home" and the "boarding" popu- 
lation as well as from the "rooming" class. 

Taking the volume as a whole, the student of social conditions 
will find in it much to interest him, and he will certainly credit the 
author with much conscientious industry. At the same time, he 
will hardly avoid the conclusion that valuable time and energy have 
been sacrificed to microscopic detail of trivial importance and leading 

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to nowhere in particular. A priori reasoning is far too prominent, 
though one can sympathize with the author in the extreme difficulty 
of securing reliable data. The conclusions arrived at are more or 
less unsatisfactory, and some of them comparatively insignificant, 
as the climax of nearly two himdred octavo pages of discussion. 

While the local interest of the book far exceeds its general impor- 
tance, there is much in it that will be suggestive to the observer of 
urban life. The historical side of the book is exceedingly well writ- 
ten, and there is a liberal supply of charts. The early part of the 
volume is devoted to the historical evolution and present economic 
structure of the South End (Boston) lodging-house section, fol- 
lowed by a description of the lodging-house itself. The position 
of the lodging-house keeper and the condition of the real-estate 
market of the district are then dealt with. The second half of the 
book analyzes the social and economic condition of the lodger, 
including discussions upon the relation of prostitution and of mar- 
riage to lodging-house conditions. A bibliography is appended. 

E. R. Dewsnup 
University of Chicago 

Messages to Workingmen. By Charles Stelzle. New York : 
Fleming H. Revell Co., 1906. Small 8vo, pp. 120. 

What we really have here is a plea for the church as a means of 
economic and social betterment. Economic and social problems — 
such as the conflict between capital and labor — ^are at bottom moral 
and religious, says Mr. Stelzle. To solve them we must get more 
brotherly love. But brotherly love is a product of the Christian 
religion. The Christian church, therefore, is the great instrument 
of economic reform — ^the true friend of the workingman and his 
best hope. Hence "seek ye first the Kingdom of God" through the 
church is Mr.' Stelzle's message to workingmen. 

Mr. Stelzle delivers this message in a very pleasing manner. 
His language is simple ; his style spirited. He deals with familiar 
things in a familiar way. He knows the workingmen, sjmipathizes 
with them, believes in their organizations, wants sincerely to help 
them ; and he has a deal of common-sense which crops out frequently 
and g^es an air of reality and sanity to his work. 

The fatal error of the book is just in this air of reality and sanity. 
It imparts this air to a statement and solution of the problem alto- 

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gether too simple. Mr. Stelzle apparently has not been sufficiently 
struck with the significance of the fact that workingmen and em- 
ployers are the products of heredity and environment. He appar- 
ently does not understand that the market and the workshc^ are 
also pulpits from which for generations sermons have been preached 
from very diverse texts six- days in the week, and nine to twelve 
hours of the day. Because he does not realize this fact and its 
significance his Messages to Workingmen is a book likely to foster 
false hc^es on the part of earnest philanthropic workers, and to 
comfort some others who are already too willing to cast responsi- 
bility upon Providence. 

University of Chicago R. F. Hoxie 

A History of the Northern Securities Case. By Balthasar 
Henry Meyer. Madison: The University of Wisconsin, 
1906. 8vo, pp. 131. 

Professor Meyer has added to the voluminous literature on this 
important case a careful and scholarly treatment from the economic 
view-point. The first chapters of his bulletin were written two 
years ago, but publication was delayed until the final decision was 
rendered by the Supreme Court. 

The work begins with a carefully prepared list of references, 
then g^ves a history of the case showing the genesis of the idea of 
a holding company, the immediate causes of organization, and the 
form of organization. The action of the state and federal authori- 
ties, and the different court decisions, are briefly and clearly analyzed. 
Half a dozen documents that have an important bearing on the case 
are printed in an appendix. 

The economic principles involved are summarized, in the con- 
clusions in chapter 10. The principal points there made are in no 
danger of being too strongly emphasized. They arc: (i) that 
competition as a force to protect the public interest is out of the 
question; (2) that open concerted action of the railways, under 
public control, must supersede the tacit and illegal agreements 
which long experience shows cannot be prevented. The author says 
(p. 308) : 

Opposition to the Securities Company rested chiefly upon the same 
ground that opposition to agreements among railway companies, pools, and 
all co-operative movements among carriers has generally rested. This 

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undiscriminating opposition to all forms of open concerted action on th^ 
part of the railways is in my mind the greatest single blunder in our public 

policy toward railways Some legislation which will enable companies 

to act together under the law, as they now do quietly among themselves 
outside of the law, is imperative. The American public seems to be unwill- 
ing to admit that agreements will and must exist, and that it has a choice be- 
tween regulated legal agreements and unregulated extra-legal agreements. We 
should have cast away more than fifty years ago the impossible doctrine of 
protection of the public by railway competition. We still need a campaign 
of education on the limitations of competition among public carriers, aAd 
adequate legislation for the protection of all interests where competition 

William Hill 
University op Chicago 

La houille verte. By Henry Bresson. Paris : Dunod et Pinat. 
8vo, pp. xxii+278. 
To M. Bresson France owes the phrase which gives a title to 
his book. "White coal" has already come into wide use to denote 
the hydroelectric power derived from great waterfalls, especially 
from streams fed by the eternal white glaciers of the Alps. 
"Green coal" is coined by analogy to describe the supplies of 
energy, small in the individual instance, but enormous in the aggre- 
gate, which may be drawn from the streams which rise in the 
green depths of the forest and flow through comparatively level 
country to the sea. But M. Bresson is more than a phrase-maker ; 
he is an ardent and practical propagandist. Ever since 1900, when 
experiments at his chateau of Messelino first revealed to him 
the possibilities of houille verte, he has devoted his entire energies 
to bring^g his countr)rmen to his own enthusiastic point of view. 
In the present volume he takes stock of the available water-powers 
of Normandy, and with remarkable completeness has charted every 
milldam and waterfall in its eight departments. Already in scores of 
districts where the old-fashioned water-wheel had been forced into 
silence by the rivalry of the steam engine, turbine and dynamo are 
utilizing the wasting power again, aaid with French thrift even 
little ten-horse-power falls are being harnessed to light the neigh- 
boring commune's streets. M. Bresson frankly acknowledges the 
limitations of power thus derived: its low voltage puts long- 
distance transmission out of the question, and, more important, 
summer dryness cuts the power in two. Reservoirs — French rivers 

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lack these natural lake-reservoirs whidi are the unique endow- 
ment of the power streams of this continent— storage batteries, and 
auxiliary gas engines will, he believes, solve the problem for power 
purposes, while as for lighting Providence has thoughtfully syn- 
chronized the periods of low water and short nights. The detailed 
and practical instructions given for utilizing this force cannot fail 
greatly to accelerate the movement throughout France. 

To the outsider interest will chiefly center in the vistas opened 
of farm-work lightened and cottage industry revised by the new 
power — ^possibilities which are already being rapidly realized in 
the whole Alpine regicm. M. Paul Leroy-Beaulieu, whose appre- 
ciative comment is quoted in the text, finds this decentralizing 
eflfect only second in importance to the shifting he predicts of the 
industrial balance of power from the black-cool countries which 
dominate the present — England, Belgium, Germany, and the United 
States — ^to tiie white- and green-coal countries of the future — 
France, Italy, Switzerland, Austria, and Canada. 

O. D. Skelton 
Kingston, Ontario 

The Investments of Life Insurance Companies, By Lester 
W. Zartman. New York: Henry Holt, 1906. 8vo, k>. 


It is not clear to precisely what market this book is intended to 
appeal. For the non-technical reader, over-much familiarity with 
the general theory of life insurance appears to be assumed, while, 
for the more technical reader, a large part of the material presented 
could well have been omitted as matter of common knowledge. 

It is, however, at the same time true that the book contains 
an exhaustive, careful, and laborious assembling of materials not 
readily accessible to the investigator, and that these materials are 
analyzed and digested with temperate judgment and with great 
practical insight. The author's conclusions appeal to the reader as 
thoroughly sane and the recommendations as wise and salutary. 

From the point of view of economic doctrine in the stricter 
sense, some question might be raised as to the validity of the tacit 
assumption that all individual saving — no matter by whom made 
or how directed — is socially advantageous — that is that saving is 
per se, and without modification, a desirable thing; but adequate 

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consideration of this problem would doubtless have carried the dis- 
cussion too wide afield. And yet some of the fundamental problems 
of life insurance lie in that direction. 

An ocasional bit of careless rhetoric and even, now and then, 
a slip in syntax, are perhaps fairly to be ascribed to the lack of 
thorough proofreading: unfortunately we all make these slips. 

H. J. Davenport 

University of Chicago 


Building Societies, By Sir Edwaio) Brabrook. London : P. S.* King, 1906. 

idmo, pp. 160. 

The author, late Registrar of Friendly Societies, has undertaken to write 
"a brief, popular treatise developing the social value of building societies, and 
advocating their extension on right principles." The importance of the build- 
ing-societies movement in England may be inferred from the following figures 
for 1904 : number of societies registered, 2,075 ; membership, 609,785 ; income, 
£38,729,009; mortgages held, £53,196,112; other assets, £14,952,485. The 
author discusses the building society as a social agent, as a means of thrift, 
as a matter of business. He points out certain dangers to be avoided, and con- 
cludes that the building societies of England, having profited by the severe 
lessons of past experience, have entered upon a career of continuous improvement. 

The Industrial Revolution, By Charles Beard. With a Preface by F. York 
Powell. London: Swan, Sonnenschein & Co., 1906. i6mo, pp.' xix+105. 
This is a second reprint of Mr. Beard's essay upon The Industrial Revotu- 
tion, practically unrevised since the last issue. The author's purpose, in which 
he has succeeded well, has been to "supply a concise and inexpensive outline 
of the industrial revolution as a guide to students se^ng for the first time the 
historical basis of modem social and economic problems." Written primarily 
for the working-man, there is, as Professor Powell observes, "in its plain pages 
and its straightforward substance a good deal of food for thought, a good deal 
that is worth remembering, a good deal that is of the nature of guidance and 
warning." The author deals with the commoner facts of industrial history 
since 1760. 

U Assistance aux vieUlards, infermes et incurables, en France: La loi du 14 
juillet 1905, Par Albert Re^oluon. Preface de M. Paul Beauregard. 
Paris: Larose, 1906. 8vo, pp. vi+247 

Under the law of July 14, 1905, taking effect January i, 1907* France has 
provided compulsory assistance for the ag^, the invalid, and the incurable. M. 
Revillon gives a brief- account of conditions and legislation prior to 1905, but 
devotes the greater portion of his treatise to an exposition of the law, which 
as a piece of social legislation is in many respects comparable in its significance 

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to the provision of compulsory insurance in Germany. The details of the law 
are generally familiar. The burden of this relief is put upon the local govern- 
ments, so far as possible. Each commune must determine what income is to 
be regarded as necessary to procure in that community the means of subsistence ; 
to this income, any indigent Frenchman, aged more than seventy years, or sick 
of an incurable disease, or incapable of self-support, may prefer a claim. Th6 
law not only compels the granting of relief, but establishes the right of indi- 
viduals falling into one of the specified categories to demand support, and pro- 
vides courts in which he may prefer his claim. M. Revillon discusses the 
practical difficulties which are likely to be encountered, and raises question as 
to the ultimate effect of this relief: Will it discourage individual thrift? How 
will it react upon schemes of insurance, compulsory or voluntary? It is, he 
believes, in the direction of social progress. 

Der Stoat als Schuldner: Funf Volkshochschuhortrdge, Von Leon 
Zettun. Mit ciner Tabelle-Beilage. Tiibingen: Laup, 1906. 8vo, pp. 

In these five lectures the author discusses the elementary principles involved 
in the maintenance of public credit. Lecture I treats of the occasions of bor- 
rowing, the bases of public credit, and the economic and political significance of 
indebtedness. The second lecture describes the forms of indebtedness — as 
funded, floating, and non-interest bearing, including legal-tender paper money. 
Following chapters deal with the technique of interest payments, conversions, 
refunding, and redemption. In the final lecture is given a brief historical 
accotmt of public debts, and of their present amounts in the more important 
countries of the world. This is supplemented by some general statistical tables. 
The author's purpose is rather to popularize than to advance the difficult science 
of public finance. 

The Practice of Diplomacy as Illustrated in the Foreign Relations of the 
United States. By John W. Foster. Boston and New York: Hough- 
ton, Mifflin & Co., 1906. 8vo, pp. 401. 

This work treats of the utility of the diplomatic service; the rank, appoint- 
ment, reception, immunities, and duties of diplomatic agents ; court dress, decora- 
tions, and presents; the negotiation, ratification, interpretation and termination 
of treaties. There are two final chapters on arbitration and its procedure, 
and international claims. The author tells us in his preface that the present 
work is designed as a companion volume and complement of his Century of 
American Diplomacy, "As the latter sought to show the influence exerted by 
the United States in the framing and improvement of international law, the 
present work is intended, primarily, to set forth the part taken by American 
diplomatists in the elevation and purification of diplomacy; and, secondarily, to 
give in popular form, through such a narrative, the rules and procedures of diplo- 
matic intercourse. While it is prepared for the general reader, numerous cita- 
tions of authorities are given to enable the student to pursue his investigation 
by an examination of the original sources of information." With this purpose 
in mind the author has accomplished his task well. 

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The Pattern Nation. By Sir Henry Wrixon. London and New York: 

Maonillan, 1906. 8vo, pp. 172. 

The fate of our present civilization is conceived by Sir Henry Wrixon to 
depend upon the answer which democracy makes to the question: What will 
the poor do with the rich. "Democracy, the reign of the masses under some 
form, is its destiny." In this connection is quoted Macaulay's statement that 
"universal suffrage is incompatible, not with this or that form of government, 
but with all forms of government, and with everything for the sake of which 
forms of government exist; that it is incompatible with property, and that it is 
consequently incompatible with civilization." In the United States the "ma- 
chines," the Constitution, and the Supreme Court, together with the use and 
misuse of accumulated wealth for political purposes, and a spirit of individualism 
have thus far inhibited the practical working-out of the popular will ; but those 
checks cannot be expected to be permanently effective. Ultimately the people will 
yield to "the charm of political relief for industrial ills." The pattern nation 
makes its socialist experiments, but when the "delusive experiences of semi- 
socialism" are lived through, choice must be made between freedom and social- 
ism. The people will in that crisis choose freedom. "But if they do not, what 
then? .... Why, in that case it will be made clear that the present era of 
civilization has run its appointed course. The element of progress will be gone. 
Things move quickly in our time, and the present century will see either 
socialism discredited or Europe declining." In an appendix the demands of 
the labor party in England are cited in evidence that the revolution feared by 
Macaulay is already begun. 

Mexico's Treasure House (Guanajuato): An Illustrated and Descriptive 
Account of the Mines and Their Operations in igo6. By Percy F. 
Marhn. 44 pages illustrations; 6 panoramic views; 2 maps and dia- 
grams. New York: The Cheltenham Press, 1906. 8vo, pp. 259H-vi. 
Except for the presumption that Mr. Martin's account is disinterested and 
true, though exceedingly enthusiastic, this elaborately gotten-up book might be the 
gilt-edge prospectus of a syndicate to take over certain mining properties, with a 
view to floating them upon the public. As one reads, one has a subconscious 
feeling that the following page or chapter will uncover the proposition; but 
as no scheme develops, the conclusion is finally forced upon one that here are 
great treasures which the investing public, excepting the late Cecil Rhodes, has 
somehow not appreciated at their full value. Cecil Rhodes declared himself to 
be "not blind to the unison of opinion as expressed by scientists and experts 
that Mexico will one day furnish the gold, silver, and copper of the world; 
that from her hidden vaults, her subterranean treasure-houses, will come the 
gold, silver, copper, and precious stones that will build the empires of tomorrow 
and make future cities of this world veritable New Jerusalems." Mr. Martin is 
anxious that the Anglo-Saxon races, which "have already 'cornered' four-fifths 
of the gold-producing mines of the world," shall be informed regarding Mexico's 
hidden treasures. Except for a saving clause introduced in his concluding 

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paragraphs, to the effect that even in Mexico "every recurring day has its 
delights and its delusions/' one might infer that mining in Mexico is not a 
speculation, but a safe employment for trust funds. 

Report an the Physical Condition of Fourteen Hundred School Children of 
the City, together with Some Account of Their Homes and Surround- 
ings. City of Edinburgh Charity Organization Society. London: P. S. 
King & Son, 1906. 8vo. 5s. 

Every care has been taken to make this investigation of the physical condi- 
tion of fourteen hundred school children of Edinburgh thorough and searching. 
The work is an admirable example of painstaking gathering of statistics und of 
their effective presentation. In the case of each child the home was visited, 
answers to an elaborate schedule of questions were checked up by reports from 
all authorities accessible, and the whole was intelligently commented on by the 
investigator. The result is a most depressing account of economic and moral 
poverty, which, although the compiler attributes it to nn excessive indulgence 
in strong drink, he claims is aggravated by unsystematic and indiscriminate 
charitable relief. 

Retaliatory Duties. By H. Dietzel. Translated by D. W. Simon and W. 

Osborne Brigstocke for the Unionist Free Trade Qub. London: 

Unwin, 1906. Svo, pp. 128. 

Professor Dietzel's thesis around which he has written this little treatise 
upon international trade policies, may be summed up in the words of Lord 
Salisbury to the effect that "retaliation is rational if by its means we can obtain 
freer access to foreign markets." The dangers of the policy, are, however, indi- 
cated; aside from self-inflicted injuries involved, they lie chiefly in the creation 
of vested interests under the retaliatory duties, which ultimately demand protection. 
Retaliatory duties thus tend by imperceptible degrees to become protective 
duties. Reciprocity is discussed as being practically one variant of the retaliative 
policy. In this connection the experience of Germany since 1891, with especial 
reference to the campaign of 1902 and the working of Bulow's policy of recipro- 
city is cited. Such a policy has, according to the author, a "twofold fatal effect,'' 
in stimulating the "outbreak of an international arming epidemic" of tariff 
legislation abroad, and at home in "unchaining hankerings after protection by 
exciting hopes of higher duties. 

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Addams, Jane. Newer Ideals of 
Peace. New York: MacmiUan, 
1907. $i.a5. 

Alford, C J. Comp. Mining Laws of 
the British Empire. Philadelphia: 
Uppincott, 1906. lamo. $3. 

Allix, K Traits 61^m. de . science 
des finances et de l^slation finan- 
ciire fran^ise. Paris: Rousseau, 
1906. 8vo. Fr. 10, 

Auge-Larib^, M. Le programme 
agraire du socialisme. La viticul- 
ture industrielle du midi de la 
France. Paris: Giard et Bri^re^ 
1906, 8vo, pp. 362. Fr. 6. 

Australasia. Papers re Working of 
Taxation of the Unimproved Value 
of Land. London: Wsnnan, 1906. 

Avfbury, Lord. On Municipal and 
National Trading. London: Mac- 
miUan, 1906. 8vo, pp. 182. 5^. 

Baron, A. Le Minist^re des Finances, 
organization et attributions. Paris: 
Laveur, 1906. 8vo, pp. 266. Fr. 5. 

Beitrage, zur statistik des Konigr. 
Bayem. Hrsg. von kgl. statist. 
Bureau. LXVIII. Heft Munchen: 
Lindauer, 1906. 8vo, pp. cvH-3s6. 

Bement, A. The Peabody Atlas t 
Shipping Mines and Coal Railroads 
in the Central Commercial Pis- 
trict of the United States; Ac- 
companied by Chemical, Geological, 
and Engineering Data. Chicago: 
Peabody Coal Co., 1906. Folio, pp. 
149 (with maps and diagrams). $5. 

Bericht, amtlicher, ub. Weltausstel- 
lung in St Louis 1904. Erstattet 
vom Reichskommissar. 2 Tie. in 
iBde. Berlin, Heyman, 1906. 4to, 
pp. viiiH-i7i, iv+577. M. 12, 

Bericht ub. die Tatigkeit des Verban- 
des der Metalarbeiter Oesterreichs 
in den Verwaltungsj. 1904 u. 1905. 
Wien: Wiener Volksbuchh., 1906. 
(M. 13 graph. Taf.). 8vo, pp. 640. 
M. 5. 

Bertrand, J. La propri6t£ et la 
classe ouvri^re devant le socialisme. 
Nimes: Guillot, 1906. 8vo, pp. 44. 

Blair, M. The Paisley Thread Indus- 
try. London: Gardner. 6^. 

Bohler, L. Personnaliti et respon- 
sabilit^ civile des syndicats pro- 
fessionels (th^e). Paris: Rous- 
seau, 1905. 8vo, pp. viiiH-279. 

Bolce, Harold. The New Internation- 
alism. New York: Appleton, 
1907. i2mo, pp. 309. $1.50. 

Booth, C. Old Age Pensions and the 
Aged Poor. Reissue. London: 
Macmillan, 1907. 8vo. 21. 

Bretano, Lujo. Der Unternehmer. 
Berlin: L. Simion. (Announced.) 

Browne, Edward Frederic. Socialism 
or Empire: A Danger. Omaha: 
Klopp & Bartlett Co., 1906. 8vo, 
pp. 229. $1. 

Callie, J. W. S. Socialism Not the 
Best Remedy. Reprint of John 
Smith's reply to "Merrie England." 
Liverpool: Post & Mercury, 1907. 
8vo, pp. 106. IS. 

Census of Manufactures: 1905. 
Washington : Government Print- 
ing Office, 1906-7* Bulletin 59: 
New York. 4to, pp. loi. Bulletin 
60: Pennsylvania. 4to, pp. 81. 
Bulletin 61 : Canning and Preserv- 
ing, Rice Oeaning and Polishing, 
and the Manufacture of Beet 
Sugar. 4to, pp. 69. Bulletin 62: 
Glass and Clay Products. 4to, pp. 

Chas8aigne-(^yon. Notes sur la 
journe^ de huit heures. Rapport 
au Conseil municipal de Paris, 
1906. 4to, pp. 108. 

Cirkel, August. Looking Forward; 
16 chapters. Chicago: Looking 
Forward Publishing Co., i907« 
i2mo, pp. 10+365. $1.25. 

City of Edinburgh Charity Organiza- 
tion Society. Report of the Physi- 
cal Condition of 1,400 School Chil- 
dren in the City. London: King, 
4to. 5*. 

Da Cunha, A. Les accidents du 
travail et les mus^s de prevention. 
Paris: Chaix. 8vo, pp. 108. 

Decline in Agricultural Population of 


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Great Britain. Report 1881-^906. 
London: Wyman, 1907. 8d. 

Dubois, P. Le budgets departmental. 
Paris: Gazette du palais, 1906. 
8vo, pp. 243. Fr. 5. 

Eberstadt, Rud. Die spekulation im 
neuzeitlichen Stadtebau: eine Un- 
tersuchg. der Grundlagen des stadt 
Wohnungswesens. Zugleich e. Ab- 
wehr der gegen die system. Woh- 
nungsreform gerichteten Angriffe. 
Jena: Fischer, 1906. 8vo, pp. iv 
H-220. M. 4. 

Edge, J. H. An Irish Utopia: Story 
of a Phase of the Land Problem. 
London: Simpkin. 8vo, p. 304. 
3J. 6<f. 

Fontana-Russo, L. Trattato di poli- 
tica commerciale. Milano, Hoepli, 
1907. Pp. 640. 

Foreign Import Duties 1906. (Duties 
in force so far as notified to the 
Board of Trade.) London: Wy- 
man, 1906. Pp. 694. 2s. lod. 

Foster, William. The English Fac- 
tories in India, 1618-1621. Lon- 
don: Henry Froude. 4^6 i$s, 

Fromont, L. G. Une experience in- 
dustrielie de reduction de la jour- 
n^e de travail. Avec un preface de 
Prof. E. Mahaim. Brussels: Misch 
& Thron, 1906. Pp. xviii+120. 

Fulda, Ludw. Amerikanische Ein- 
drucke. Stuttgart: Cotta, 1906. 
8vo, pp. 216. M. 3. 

Gamble, W. The Business Life; or, 
Straight Talks on Business. New 
York: Putman & Sons, 1907, 
i6mo. pp. 6+202+8. $0.50. 

Gannett, Henry. Statistical Abstract 
of the World. New York: Wiley, 
1907. 24mo, pp. 8+84. $0.75. 

Gerbino, F. Commercio interregionale 
e politica commerciale. Palermo: 
Reber, 1907. Pp. 640. 

Gilman, Qiarlotte Perkins. Women 
and Economics: A Study of the 
Economic Relation between Men 
and Women as a Factor in Social 
Evolution. With an Introduction by 
Stanton Coit. New York: Put- 
nam Sons. Cr. 8vo, pp. xxiii+358. 

Grangle, D. V. El problema de los 
cambios. Madrid : Blass, 1906. 
Pp. 107. 

Hainisch, Michael. Die Entstehung 
des Kapitalzinses* Wien: F. 
Deuticke, 1907. 8vo, pp. 112. 
M. 2.50. 

Hamilton, Burritt. Practical Law: 
A Treatise on Business Law Especi- 
ally Compiled for Schools that teach 
Accounting, Business Practice, Office 
Methods, and Kindred Subjects. 
Battle Creek: Ellis Publishing 
Co., 1906. 8vo, pp. 1 5+ 1 22. 65 

Handbuch, 5sterreichisches statis- 
tisches, fur die im Reichsrate ver- 
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Wien: Holder, 1905. 8vo, pp. 
ivH-484. M. 6. 

Handbuch, statistisches, f. das Konig- 
reich Wiirttemberg. Jahrg. 1904-5. 
Stuttgart: Kohlhammer, 1906. 8vo, 
pp. 254. M. 2 farb. Karten. M. 

Hill, W. E. The Workmen's Com- 
pensation Act 1906. London: 
Waterlow, 1906. 

Imle, Fanny. Die TarifvertrSge 
zwischen Arbeitgebem und Arbeit- 
nehmem in Deutschland. Jena: 
Fischer, 1907. 8vo, pp. vi+159. 

Jahrbuch, statistischies, der Stadt 
Ziirich. Zurich: Statist, Amt, 1906. 
8vo, pp. 187. Fr. 2. 

Jahrbuch, statistisches, f. den preus- 
sischen Staat. 4. Jahrg. 1906. 
Hrsg. vom konigl. statist. Landes- 
amt. Berlin, 1907. 8vo, pp. xii-h 
316. M. I. 

Jones, L. A. Atherley-, and Bellot, 
H. H. L. Commerce in War. Lon- 
don: Methuen, 1907. Roy. 8vo. 
pp. 676. 6s, 

Judson, F. N. Federal Rate Bill and 
Negligence Act of 1906 ; annotated 
by F. N. Judson. Chicago: Flood, 
1906. Pp. 40. $0.50. 

Kaufmann, Rich. von. Die Kom- 
munalfinanzen. (Grossbritbnnien, 

Frankreich, Preussen.) 2 Bde. 
Leipzig: Hirschfeld, 1906. Ppu 
xv-f-336, xviiH-354. M. 27, 

Klein, A. Les theories agraires du 
collectivism (th^se). Paris: Giard 
et Briire, 1906. 8vo, pp. iv+198. 

Korosy, Jos. von. Die Sterblichkeit 
der Haupt. u. Residenzstadt Buda- 
pest in den J. 1 901-5 u. deren 
Ursachen. Berlin : Puttkammer 
& Miihlbrecht, 1906. M. i. 

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8vo, pp. 47. K. 80. 

Lawrence, E. W. P. and Edwards, 
Joseph. Editors. The Reformer's 

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Year-Book for 1907. London: The 
Labor Record Office, vgoy, 8vo, 

pp. 273. IX.. 

Lawson W. R. British Economics. 
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Lee, Gerald Stanley. The Voice of 
the Machines: An Introduction to 
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Levasseur, M. E. Apergu de revolu- 
tion des doctrines 6conomiques et 
socialistes en France sur la troi- 
si^me r^publique. Paris: Picard, 
1906. Pp. 190. 

Loria, A. Economic Foundations of 
Society. Transl. by Lindley M. 
Keasby. New preface by the au- 
thor. Social Science Series. Lon- 
don: Sonnenschein, 1907. 8vo, 
pp. 40. 3*- 6d. 

Lubbock, John. On Municipal and 
National Trading. New York: 
Macmillan, 1906. Svo, pp. 6-f-i 76. 

McPherson, Logan G. The Work- 
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Holt. lamo, pp. 273. $1.50. 

Martin, P. F. Through Five Repub- 
lics of South America) : A Critical 
Description of Argentina, Brazil, 
Chile, Uruguay, and Venezuela in 
1905. New York: Dodd, Mead & 
Co., 1906. Pp. 48.7 (128 illustra- 
tions and maps). $5. 

Mills, Herbert Elmer. Outlines of 
Economics: A Syllabus for Intro- 
ductory Study. Part I. Pough- 
keepsie, N. Y.: H. E. Mills, 1906. 
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Moeller, P. Entwurf e. Abtschat- 
zungsverfahrens f. Land- u. Renten- 
giiter, m. e. graph. Darstellg. als 
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8vo, pp. iv-H89. M. 2.50. 

Mouvement de la population dans le 
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Luxembourg, 1906, Pp. 108 (text) 
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Movimento della popolazione secondo 
gli atti della stato civile neir anno 
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deutschem Reichsrecht. Leipzig : 
Duncker & Humblodt. (Announced.) 

Pierce, Franklin. Tariff and the 
Trusts. New York: Macmillan, 
1907. $1.50. 

Ponkus, N. Das Problem des Nor- 
malen in der Nationalokonomie. 
Leipzig: Duncker & Humblodt, 
1906. P. 295. 

Plothow, Anna. Die Begriinderinnen 
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Poisson, C. Le salaire des femmes, 
Paris: Lib. des Saints-Peres. 
1906. i2mo, pp. 407. Fr. 3.50. 

Pond, Oscar Lewis. Municipal Con- 
trol of Public Utilities. New 
York: Macmillan. 8vo, pp. 115. 

Porter, Robert Percival. The Dan- 
gers of Municipal Ownership. New 
York: Century, 1907. Pp. 11+356. 

Prentice, Parmalee E. Federal Power 
over Carriers and Corporations. New 
York: Macmillan, $1.50. 

Raffalovich, A. Le marche financier. 
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1906. 8vo. Fr. 12. 

RentoHl, Reid R. Race Culture or 
Race Suicide? Plea for the Un- 
born. W. Scott, 8vo, pp. 196. 7s. 

Report and Proceedings of the Select 
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etc. (Scotland). London: Wyman, 

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Ringwood, R. Outlines of Banking 
Law. London: Stevens and 
Haynes, 8vo. 51. 

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Alcan, 1907. 8vo, pp. xxH-46o. 

Schooling, J. H. London County 
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down to March 31, 1907. Made 
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diagrams. London: Murray, 1907. 
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Sella, E. Le trasformazione econo- 
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Sodoffsky, Gust. Zur Frage der 
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Riga: Plate, 1906. 8vo, pp. vii-h 
87. M. 2. 

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Sweetaer, Geoise A. Brief Practical 
Statement regarding Massadrasetts 
Corporations. Boston: G. A. 
Sweetser, 1906. i6mo. pp. 31. 

Tanschel, A. Die Erhebung n. 
Beitrdbung ▼. Staats- u. Gemein- 
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1906. Cr. 8yo, pp. yiii+ii8. M. 

Tillyard, Fraidc Banking and Ne- 
gotiable Instruments. London : 
Black, 1906. 8vo, pp. 386. 55. 

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G>al Mining. Ilhis. Londbn: Mac- 
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Turgeon, C Introduction k lliistoire 
des doctrines 6conomiqiies. Tra- 

vaux jar. et 6con. de rUniversit6 
de Rennes. I. i. pp. 9-81. 

United States Department of Com- 
merce and Labor. Amendments to 
the Navigation Laws of 1903. 
Washington, U. S. Superintendent 
of Documents, xsK>6. 8yo, pp. 64. 

Washington, Charles G. Technical 
Education in Relation to Industrial 
Equipment. Worcester, Mass. : 
Washburn. i2mo, pp. 39, gratis. 

Wilshire, Gaylord. Editorials on 
Socialism. New York: Wilshire 
Book Co. 

Zweig, Emil. Die russische Handels- 
politik'Seit 1877. Unt. besond. 
Berucksicht des Handels ub. d. 
europ. Grenze. Leipzig: Duncker 
& Humblodt, 1906. 8yo, pp. 181. 
M. 4.80. 

Digitized by 



strong Testimony from the University of 





Geo. Ben. Johnston, M.D., LL.D., Prof. Gynecology and Abdominal Surgery, University 
of Virginia, EX'Pres. Southern Surgical and Gynecological Assn., Ex-Pres. Virginia Medical 
Society and Surgeon Memorial Hospital, Richmond, Va.: "If I were asked what mineral water hat 
the widest range of usefulness, p^ • wrUMM. llllfllJ'U '" ^^^ ^^*^ Diathesis, Qoutt 

I would unhesiUtingly answer, DvfTJlUI Lf IffUAWMUl Rheumatism, Llthaemla, and 
the like, its beneficial effects are prompt and lasting. .... Almost any case of Pyelitis and 
CystItU will be alleviated by It, and many cured. I have had evidence of the undoubted Dlsln- 
tecrating Solvent and Eliminating powers of this water in Renal Calculus, and have known its long 
continued use to permanently break up the gravel -forming habit." 

James L. Cabell, M.D.y A.M., LL.Dm^ former Prof. Physiology and Surgery in the Medical 
Department in the University of Virginia, Mu,-«-«-^ ■ .«»,»- lAlA-rrD ^° ^""^^ "^^'^ 
and Pres. of the National Board of Health: Dllf riUAl LI 1 flUi IIIU Elf Diathesis is a 

well-known therapeutic resource. It should be recognized by the profession as an article of 
Materia Medica." 

Dr. P. B. Barrlnger, Chairman of Faculty and Professor of Physiology, University of Vir- 
ginia, Charlottsville, Va.: **After twenty years* practice I have no hesitancy in stating that for 
prompt results I have found Haawn^m w g^ I |»nna Wjrmr ^° preventing Uric Acid Deposits 
nothing to compare with Dwl EMAI LITnllt WuER j^ ti^e body. 

Wm. B. TowleSi M.D., late Prof oj Anatomy and Materia Medica, University of Virgina: 

•*\n Uric Add Diathesis, Qout, Rheumatism, Rheumatic Qout, Renal Calculi and Stone In the 
Bladder, I know of no b^-—^— ^^ . Spring 

remedy comparable to DUFtnlil LflHUL WUIJI No. 2. 

^ Volumtnioua medical testimony sent on request. For sale by the general drug and mineral 
water txade. 


Digitized by 


:t food, as 
! as it is 
I — highly 
, easily di- 
^ to repair 
ength, pre- 
hand pro- 

lat you get 
le, bearing 
-mark on 

^ / EUROPE and ^MBRtCJi 

Walter Baker & Co. Ltd. 

Eatabluhed 1780 Dorchester, Mass. 









There is no waste for the purse where the housekeeper uses 
Sapolio. It has succeeded grandly although one cake goes as far as 
several cakes or packages of the quickly-wasting articles often substi- 
tuted by dealers or manufacturers who seek a double profit. 

Powders, sifters, soft soaps, or soaps that are cheaply naade, 

All powder fornois of soap are easily wasted by the motion of 
your elbow. Many scouring soaps are so ill-made that if left a few 
minutes in the water they can only be taken out with a spoon. 

A well-made, solid cake, that does not waste, but wears down 
"to the thinness of a wafer," is the original and universally esteemed 





hwn been ettebUthed over M VBARS. By ow fl 

^ erenr faail]r in i 

05B plane. Wetekeoldl 

Write lor CetelOKiie D ead earplanadoos. 

^■^igitil?S^ ^ 

No. 4 

Vol. 15 

The Journal 


Political Economy 

APRIL 1907 



Henry C. Taylor 


Elastic Currency and the Money Market J. Laurence Laughlin 

The Marginal Productivity Theory of Distribution ^ U. S. Barker 


Prentice's The Federal Power over Carriers and Corporations, — Clark's The Labor 
Movement in Australasia: A Study in Social- Democracy, — Dewsnup's Railway Organiza- 
tion and Working, 

A^P7yC^5. — DANSON*s Economic and Statistical Studies, 1840-1890. — Pinkus' Das Prob- 
lem des Normalen in der Nationalokonomie: Beitrag zur Erforschung der Stdru.ngen im 
Wirtschaftsleben. — Morrison's The Industrial Organization of an Indian Province. — 
Newman's Infant Mortality: A Social Problem. — Halle's Baumwollproduktion und 
Pflanzungswirtschaft in den nordamerikanischen Siidstaaten. — HaseNKamp's Die Geld- 
verf assung und das Noteribankwesen der Vereinigten Staaten. — Marcuse's Betrachtungen 
iibcT das Notenbankwesen in den Vereinigten Staaten von Amerika. — Munsterberg's 
Ameiikanisches Armenwesen. — Hohenstern's Wirtscbaftliche Zustande im Mesabj- 
Gebiet in Minnesota, unter besonderer Beriicksichtigung der Stadt Eveleth und der 




L«te Secretary of the Treasury 

Chaiicelk>r, Unirerdty of Nebraika 

Profeaaor, University of Minnesota 
A. N. KIABl^, 

Director of Sutiitlcs, Norway 

Professor, Univenity of California 


, Paris, France 


Professor, University of Illinois 

^ i Professor, Rome, Italy 


Professor, University of Michigan 


': ' ' Senator, Rome, Italy 


President, Clark ColFege 


. Late Editor New York Evening Post 


Professor; University of Wisconsin 


Late Comptroller of Currency 


Member of Institute, Parit> France 


4 ' Crane Company, Chicago 


University of Vienna, Austria-Huiagary 


St. Petersbtirg, Russia 
W. LEXIS,. . . ^ 

' ' Gtfttinten, Germany 

(T^e atniberssitfi of Chicago ^resss 

Otto Hakrassowitz, Leipzig 

Digitized by 


Digitized by 





APRIL— 1907 


The rapid expansion of trade and industry during the years 
immediately succeeding the Civil War was accompanied by an 
excessive competition which led to the elimination of large num- 
bers of producers within various lines of activity. In conse- 
quence, sporadic attempts were made to relieve the pressure of 
this competition by means of pooling agreements. As early as 
1872, for example, certain distillers north of the Ohio (many 
of whom had gone into business to reap the speculative profits 
of changes in the excise) combined in an imsuccessful effort to 
restrict their output^ The same year, moreover, witnessed a 
combination among six cool roads which by this time had 
secured a sufficient interest in the anthracite fields to be able to 
enter into an agreement to r^^ulate production and fix trans- 
portation rates.^ 

Shortly after the close of the war the sugar-refining industry 
also be^^ to suffer from an aggravated case of competition. 
DiUTng the period from 1875 ^ ^880 the number of refineries 

^ Later, in 1882, the Western Exporters' Association was formed to limit pro- 
duction and export surplus stock. This agreement was succeeded by others, and 
from that time until 1887 pools including from seventy to eighty distilleries were 
maintained for brief periods. Cf. The Report of the Industrial Commissioner, 
1900, Vol. I» pp. 76, 168. 

'This agreement lasted until 1876, and then after an interval of two years 
another short-lived combination was formed. In 1885, succeeding a brief period 
of competition, co-operation was once more inaugurated, only to be checked 
(ostensibly at least) by the anti-pooling regulations of 1887. Cf. Peter Roberts, 
The Anthracite Coal Industry, chap, iv, pp. 66, 69, 70. » 


Digitized by 



was reduced from forty-two to twenty-seven establishments,* 
and in 1882 the surviving concerns were forced into the tempor- 
ary protection of a pool. At the beginning of the seventies 
very similar conditions of indiscriminate competition prevailed 
within the petroleum-refining industry and gave impetus to the 
movement which early made for the union of the large interests 
composing what came to be known as the Standard Alliance.* 

During the ten years from 1870 to 1880 the railroad systems 
of the country increased rapidly in size and power, and numerous 
significant changes took place. Gould abandoned Erie^ and 
betook himself to the West, where he b^fan to acquire impor- 
tant holdings in such roads as the Union Pacific, the Missouri 
Pacific, the Missouri, Kansas & Texas, the Wabash, St. Louis 
& Pacific, and the Denver & Rio Grande.® The Vanderbilt 
lines shared largely in the general expansion and were said to 
have been operated in close connection with the Gould proper- 
ties.'' The Pennsylvania, the Baltimore & Ohio, and other big 
systems had also undergone an unusual growth, mainly by the 
absorption of smaller independent roads. But this process of 
growth was not proving to be an easy matter; instead it was 
being forced by a self-destructive competition which was making 
independent existence impossible. Moreover, the active rivalry 
of the railroads was hastening the competitive elimination of the 

• C. M. Depew, cd., One Hundred Years of American Commerce, Vol. I, 
chap, xxxvii, by John E. Searles, secretary and treasurer of the American 
Sugar Refining Co. 

*The working arrangements of the "alliance" were close and effective 
because of the fact that the stock-ownership of the various companies composing 
it was distributed in such a way as to make the advantage of one member of the 
organization more or less the advantage of all. In other words, the device of 
a "community of interests" was employed, with such good results, moreover, 
that by 1879 the association included from 90 to 95 per cent, of the refining 
interests of the country, besides having control of all the principle pipe lines 
for the transportation of oil. Cf. Ida M. Tarbell, The History of the Standard 
Oil Company, 

' For an account of Gould's connection with Erie cf. Charles F. Adams, 
Chapters in Erie and Other Essays. 

* Commercial and Financial Chronicle, March 27, 1880, Vol. XXX, p. 308; 
also consult directors' lists of Poor's Manual, 1870 to 1880. 

^ Commercial and Financial Chronicle, March 27, 1880, Vol. XXX, p. 309. 

Digitized by 



smaller producers within various occupations resulting as it did 
in excessive fluctuations in freight rates and open bidding for 
the favor of large shippers. It would appear, then, that the 
movement toward industrial combination received a double 
impetus at this time, being aided by the machinations of the rail- 
roads as well as by the competitive conditions existing within 
the several industries. 

At the close of the seventies the most effective and powerful 
of all the industrial organizations that had come into being was 
the Standard Oil Alliance, and when the trust succeeded the 
looser, extra-legal combination in 1882, it had an estimated capital 
of $70,000,000, of which the pipe-line interests were said to 
have constituted about one-third. The later organization 
speedily suggested an escape from the unsatisfactory pooling 
agreements then in vogue, and it was accordingly soon suc- 
ceeded by a number of similar combinations, such as the Ameri- 
can Cotton Oil Trust,® the Linseed Oil Trust, the Distilling 
and Cattle Feeding Trust, and the National Lead Trust. In 
view of these well-known instances that have just been cited, it 
would seem that the trust movement was in a fair way to expand 

' The American Cotton Oil Trust was formed in 1884 ; the next year the 
Linseed Oil Trust was organized, acquiring the property of some fifty or more 
concerns, while in 1887 the Distilling and Cattle Feeding Trust, with a capital 
of $30,000,000, superseded the loose and informal agreements which had existed 
among the distillers prior to that period. The National Lead Trust, 1887, also 
grew out of various unsuccessful attempts to lessen competition by informal 
association, and about this same time nineteen sugar refineries were united into 
the Sugar Refineries Trust, having a capital of $50,000,000. 

It was generally believed at that time that the Cotton Oil Trust had Stand* 
ard Oil men among its backers, although no substantial evidence was adduced 
to support such a belief. Cf., for instance, J. S. Jeans, Trusts, Pools, and Comers, 
chap, viii, p. loi. It is reasonably certain that Standard Oil men were interested 
in the National Lead Trust. Indeed, W. P. Thompson, at one time secretary 
of the Standard Oil Co., of Ohio, became president of the Lead Trust about 
two years after its formation, at the solicitation, as he himself says, of Charles 
Pratt and H. H. Rogers. "In 1889 my friends H. H. Rogers and the late Charles 
Pratt, both of whom bad had large experience in the lead and paint business, 
knowing that I was about to retire from my association with the Standard Oil 
Co., called my attention to the fact that the National Lead Trust was desirous 
of my becoming interested with them." Cf. Depew, ed., One Hundred Years 
of American Commerce, Vol. II, chap. Ixiv, p. 440, "The Lead Industry," by 
William P. Thompson. 

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indefinitely, and there was good reason to suppose that the "in- 
dustrials" might one day come to compete with the railroads for 
the favor of the investing and speculating public. Until 1887 
or 1888, however, although the movement toward combination 
was progressing rapidly, attention was mainly directed toward 
a unification of control within the limits of certain well-defined 
productive areas. Changes had been brought about because of 
the existing competitive situation. They were the outcome of a 
need for defensive measures felt no less by the financially strong, 
whose aggressive policy hastened the corporate movement, than 
by their weaker rivals, whose condition forced the maintenance 
of a passive attitude. The result of these defensive xmions (an 
incidental result as far as the individuals immediately interested 
were concerned) was an increase in industrial efficiency and a 
diminution of social waste. There was as yet no thought of 
combination for investment purposes as such that would trans- 
cend the limits of certain well-defined lines of activity. 

In support of this statement may be cited the case of the 
Standard Oil Trust, the most advanced type of industrial organi- 
zation in existence at the close of the eighties. In 1888 it was 
earning dividends of from $16,000,000 to $20,000,000 on a 
capitalization of $90,000,000; and in view of these large returns 
it might have been expected that the investments of the men in 
control of the Standard Oil properties would be found to be of 
considerable extent. But, in point of fact, their outside interests 
do not seem to have been of any great importance prior to 1887 
or 1888. Clearly there were no evidences of that unanimity of 
action in the placing of investments which has later operated to 
make the so-called Standard Oil group a power in the industrial 
and financial world at large. Then they were pre-eminent in 
only one field of activity — ^that of petroleum-refining. The 
explanation of this fact is not far to seek. In the earlier days 
large dividend payments could be very profitably reinvested in 
the business from which they were derived — ^in improvements in 
processes, in additions to holdings, and in the development of 
allied and subsidiary industries. The pipe-line S)rstem, for 
example, which had been so effectively extended, had required 

Digitized by 



large expenditures for the purchase of competing lines and the 
building of new ones. The utilization of by-products, too, had 
been largely undertaken since 1875, while natural gas, being 
found in the neighborhood of the oil fields and requiring similar 
methods of piping and drilling, offered another obvious avenue 
of investment But, although with this growth in size and com- 
prehensiveness, and with increased economies of production, divi- 
dends were becoming progressively larger, the opportunities for 
their reinvestment were none the less rapidly diminishing. A 
time must come when profits would grow to be sufficiently 
imwieldy to present a serious problem in investment, and that 
time seems to have been reached toward the close of the eighties. 
All this does not mean that there had been no outside invest- 
ments whatever prior to the period in question. Individual mem- 
bers of the Standard Oil Trust had without doubt been connected 
with other lines of activity, notably with the railroads of the 
country.* But none of these early investments are of particular 
importance as evidencing an extension of the group interests. 
They seem to have been purely personal matters, and as such 
they are significant only as indications of the probable direction 
to be taken by later and more important investments. As has 
been said, the period of general group expansion does not begin 
until 1887 or 1888. In the former year John D. Rockefeller 
became a member of the syndicate that bought out the Minnesota 

*For example, Henry M. Flagler appeared on the directorate of the Valley 
Railroad Co., in 1879. In i88a William Rockefeller became director of the 
Chicago, Milwaukee & St Paul. Benjamin Brewster, a holder of Standard Oil 
certificates, was perhaps more especially a railroad man prior to x88i, when he 
became vice-president of the National Transit Co. (the Standard Oil pipe-line 
organization). He had been interested in the construction of the Chicago, Rock 
Island & Pacific, becoming a director of the company in 1879 and continuing 
his connection with it until his death in 1897. Jabez A. Bostwick (one-time 
president of the American Transfer Co. and later trustee and treasurer of tiie 
Standard Oil Trust) also had large individual interests in railroads. In 1886 
he became president of the New York & New England, and about the same time 
acquired stock-holdings in other New England roads. 

Concerning Brewster, cf. Railway and Engineering Review, September 11, 
1897, VoL XXXVII, p. 530 ; concerning Bostwick, cf. Railroad Gaiette, December 
17, 1886; concerning Flagler's appearance on the directorate Valley Railroad, 
cf. Poor's Mammal, 1879; concerning William Rockefeller, director of the Chi- 
cago, Milwaukee & St. Paul, cf. Poor's Manual, x88a. 

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Iron Co.*^ Following the change of management, Benjamin 
Brewster and Henry M. Flagler were elected directors of the 
company as well as of its railroad, the Duluth & Iron Range,* ^ 
leaving no doubt that the "Standard" (to use the term in a 
newer, more detached sense) was interested. About 1887, or 
somewhat later. Rockefeller's interests appeared in the Northern 
Pacific and in the Missouri, Kansas & Texas,*^ while in 1888 
William P. Thompson, C. W. Harkins, Charles Pratt, and 
Oliver H. Payne — all Standard Oil men in high standing — 
entered simultaneously the directorate of the Ohio River Railroad 
Co. Evidences of an organized expansion of investment interests 
are therefore not lacking to afford justification for dating the 
beginning of a second period of development from this time. 
During the new era Standard Oil holdings ceased to be regarded 
as trust stocks simply; they also included the outside investment 
interests of members of the group. In short, the emphasis b^^ 
to shift from the industrial organization — ^the trust proper — 
toward the larger, more exclusively financial unit. The earlier 
combination had come about, in part at least, as the result of 
industrial ex^encies. At any rate, it certainly made for increased 
facilities of production within the limits of the industry in ques- 
tion. But the later movement (so far as it was not concerned 
with allied industries) could not have legitimately redounded to 
the commercial advantage of the trust itself — certainly it could 
have had no effect upon methods, processes, and economies of 

^Commercial and Financial Chronicle, May ai, 1887, Vol. XLIV, p. 653. 

" Cf. Poor's Manual of Railroads, 1888. 

^Commercial and Financial Chronicle, Jiine 7, 1890, Vol. L, p. 801, sajrs: 
"Parties familiar with the affairs of the company [i. e., the M. K. & T.] remark that 
the presence on the board of Mr. Freeman, treasurer of the Standard Oil Co., and 
Mr. Colgate Hoyt, the Standard Oil representative in Northern Pacific, is a 
feature of the reorganization as accomplished. It emphasizes the fact that the 
Standard Oil people whom Mr. Enos has represented for over two years in his 
relations with the property continue to have a large and active interest in the 

"Cf. T. B. Veblen, The Theory of Business Enterprise, especially pp. 35- 
37 f P' 37' "The end of his [the business man's] endeavors is not simply to 
effect an industrially advantageous consolidation, but to effect it under such 
circumstances of ownership as will give him control of large business forces or 

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Notwithstanding the nature of the expansion that was taking 
place, the trust was nevertheless still recognized as the nucleus 
from which the larger alliance took its growth. Men interested 
directly in the Standard Oil Trust formed the Standard Oil 
group; and it was not until some years later, when this connec- 
tion had become exceedingly attenuated, that the trust sank into 
a position of relative insignificance. Meanwhile the group-con- 
trol was being constantly extended, with a facility assuredly 
deserving of comment. It is true that the methods whereby 
large industrial concerns compel or otherwise induce their weaker 
competitors to join with them or else be forced out of business 
have become fairly familiar from constant iteration. But less 
space has been given to discussion of the means by which a group 
of investors (dating their union from some enterprise undertaken 
in common) may further extend their control by proceeding 
against the property of unorganized alien interests. The more 
powerful the group and the greater its resources, the more 
numerous, of course, are its opportunities to enlarge the scope of 
its activities. It may gain a foothold in legitimate commercial 
fashion by extending aid, perhaps, to the financially embarrassed 
upon terms favorable to itself. Or it may increase its holdings 
by direct purchase, by gradual acquisition, or by other means. 

A narration of the incidents leading up to the acquirement 
of control of certain Minnesota ircwi-ore properties by the "Stand- 
ard" affords an excellent illustration of the methods whereby 
this earlier extension of investment interests was effected. The 
owners of the Mountain Iron and Biwabik mines — ^two rich 
properties of the Missabe range — had been engaged in building 
a railroad, the Duluth, Mesaba & Northern, from the mines to 
the lake.** Early in 1892 they became involved in financial 
difficulties, and at this juncture they were approached by an 
agent of Mr. Rockefeller, who offered them a loan of $1,600,- 
000, in return for which the Duluth, Mesaba & Northern, and 
the mining companies owned by those interested in the road, 

bring him the largest possible gain. The ulterior end songht is an increase of 
ownership, not industrial service ability." 

^Iron Age, January 7, 1893, Vol. XLIX, p. 16; also ibid., February 4, 1892, 
p. 198. 

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were to contract to ship ore in the vessels of the American Steel 
Barge Co.^^ for a certain number of years. The original bond 
issue of the road was also to be retired and a new issue of 
$2,000,000 to be put up as collateral for the loan.^* Having 
quelled opposition to this plan by purchasing the interests of 
certain minority shareholders,*''^ the newly formed syndicate pro- 
ceeded to buy a number of valuable properties.*' Early in 1893 
rumors of a pending consolidation began to be rife. It was an 
especially propitious time to conduct negotiations aiming at the 
control or acquisition of mines. The panic of 1893 was on ; ore- 
producers were in desperate straits; mines were shutting down; 
loans on any terms were desired. The situation emphasized the 
advantage possessed by a wealthy group of investors with 
judiciously distributed holdings and well-established banking 
connections. The men in control of the Duluth, Mesaba & 
Northern needed assistance, as did the rest of the mine-owners. 
They secured therefore, through the vice-president of the Ameri- 
can Steel Barge Co., a loan of $432,575, for which they gave 
their notes secured by shares of stock of the Mountain Iron and 
the Missabe Iron companies, and the Duluth, Mesaba & Northern 
Railway.** It is highly probable, too, that direct loans were 
made them.^^ At any rate, it soon became evident that the trans- 
action was but another step in the direction of an ultimate shift- 
ing of control. 

In September, 1893, rumors of a pending consolidation 
became justified by the formation of the Lake Superior Consoli- 
dated Iron Mines Co., which took over the majority interests of 
some ten or eleven Messabe mines, the Duluth, Mesaba & Northern 

" The American Steel Barge Co. was a Rockefeller property ; cf. Iron Agt, 
December 29, 189a, Vol. L, p. laSi. 

^Iron Age, December 29, 1892, Vol. L, p. laSi ; also Iron Trad€ RevUn, 
June 6, 1895, Vol. XXVIII. 

"For mention of the controversy preceding a sale of minority interests, cf. 
Iron Age, February 2, 1893, VoL LI, p. 249; Railway Age, February xo, 1893, 
Vol. XVIII, p. 123. 

^Iron Age, March 16, 1893, Vol. LI, p. 622; ibid., April 13, 1893, p. 858. 

^Cf. facts disclosed in suit of Merritt, et al. v. American Steel Barge Co., 
Federal Reporter, Vol. LXXIX, p. 228. 

^New York Tribune, Jime 15, 1895. 

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Railway (with its ore docks), and the Rockefeller interests on 
the Gogebic range and in the Spanish-American mines of Cuba.*^ 
The consolidation had been effected but a short time^ when it 
became evident that the original mine-owners and railway pro- 
jectors had been dispossessed of control. A series of disputes 
and litigations arose, some of the owners claiming that the stock 
offered as collateral for loans had been imlawfully disposed of;** 
others asserting that their property had been taken over at 
unjustly low valuations, as the result of misrepresentation.** 

*^Iron Ag9, September 7, 1893, Vol. LII, p. 444. 

''The Menitt brothers had contributed to the consolidation of 51 per 
cent of the share capital of the Mountain Iron, the Biwabik, and the Missabe 
Mountain mines in addition to other properties (cf. Iron Agg, July 21, 1893). 
In 1894 they brought suit against The American Steel Barge Co. to recover 
the value of 1,33 1*3 shares of stock in the recentiy formed Lake Superior 
Consolidated Iron Mines Co. The loan of $432,575 obtained from Wetmore 
(of which mention has been made) was secured by stocks of the Mountain 
Iron and Missabe Iron companies, and the Duluth, Mesaba & Northern Railway 
— ^which stocks were not to be repledged nor disposed of in any way. Wetmore, 
however, transferred all the railway stocks to Mr. Rockefeller — as a pledge for 
a debt, he said. The Merritts agreed to let this pass as a sale of stock for 
their benefit, although a short time before the same man had converted $90,000 
worth of their bonds to his own use, upon which occasion they had "elected to 
waive the tort committed." It is no surprise, tiierefore, to learn that Wetmore 
later sold the promissory notes and the rest of the pledged stocks in his possession 
to the American Steel Barge Co., of which he was vice-president and managing 
officer. The stocks were subsequentiy converted into shares of the Lake Superior 
Consolidated Iron Mines Co. Upon maturity of the notes, the Barge Co. brought 
suit in a New York court and secured a decision authorizing the sale of the 
notes and collateral, the latter being bought in by the company for $25^000. 
The Merritts had previously sued the Barge Co. for the value of this collateral, 
but, the suit being brought in a Minnesota court, it was held that the decision of the 
New York court rendered first constituted a bar to action. Had the Merritts 
sued for the return of their stock, the Minnesota court, as having first jurisdic- 
tion, would have been entitied to retain it, since it would have been compelled 
to take possession of personal property. The decision of the United States Gr- 
cuit Court was reaffirmed March i, 1897, by the Qrcuit Court of Appeals. Cf. 
Suit Merritt et al. v. American Steel Barge Co., Federal Reporter, Vol. LXXV, 
p. 8x3, and Vol. LXXIX, p. 22S. 

"Another suit afterward compromised was brought by the Merritts on the 
ground that the Spanish American and Gogebic properties were taken into the 
consolidation at greatiy inflated values. Cf. Federal Reporter, Vol. LXXVI, p. 
909, Rockefeller v. Merritt. For conjectures as to the terms of settlement, cf. 
Iron Trade Review, February x8, 1897; *W</., March 4, 1897, Vol. XXX; New 
York Tribune, February 13, 1897. For details concerning the McKinley proper- 

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Matters were not completely adjusted until sometime in 1897. 
Meanwhile the company once within the control of wealthy 
financiers rapidly acquired new mines both by lease and by 
purchase, while the Duluth, Mesaba & Northern soon had a 
practical monoply of the ore transportation of the range. 

The most important development, however, of the period under 
discussion lay not in the acquisition by the Standard Oil group 
of valuable mining properties, but in the addition to its resources 
of substantial banking facilities. The alliance with the National 
City Bank had presumably been established by 1894, and although 
the bank was by no means in a position of such exceptional 
power as at present, its connections were nevertheless extensive.** 

ties cf. Iron Age, June 22^ 1893, Vol. LI, p. 387. Regarding controversies, cf. 
Iron Age, Msiy 30, 1895, Vol. LV, p. 11 36; Iron Trade Review, June 6, 1895; 
ibid,, June 13, 1895. G>ncerning "terms of settlement/' cf. ibid,, August 15, 1895, 

** It had a large representation in the United States Trust G>. and in the 
Farmers' Loan and Trust Co. Its president, James Stillman, was a director of 
the New York Security and Trust Co., and two of its directors were also on the 
board of the Bank of the State of New York. Moreover, William Rockefeller 
was director both of the Hanover National Bank and of the Leather Manu- 
facturers' National Bank. Other important financiers interested in the bank were 
connected with outside ventures, as for instance the Consolidated Gas Co., 
of which Percy R. Pyne (president of the National Gty 1882-91) and Samuel 
Sloan (vice-president of the National City) had been directors since its formation 
in 1884. That the National City interests in this company in 1894 were quite 
heavy is evidenced by the fact, that besides the two men just mentioned, 
Roswell G. Rolston, Moses Taylor Pyne, and James Stillman were on its 

The National City contingent also figured prominently in railroads. Still- 
man had long been interested in western roads. He was director of the Chicago, 
Milwaukee & St Paul from 1879 to 1889, and he had held a place on the 
directorates of several smaller railroads. In 1893 he became director of the 
Delaware, Lachawanna & Western, with which William Rockefeller had been 
connected since 1890, and of which Samuel Sloan was president at the time 
(1893). Moses Taylor (president of the National City from 1855 until his 
death in 1882) had been identified with the road during his lifetime. He had 
also been interested in the Western Union Telegraph Co.; and the presence of 
Samuel Sloan and Percy R. Pyne on the directorate of the latter company in 
1894 would indicate that the interest of the National City thus acquired had 
not been relinquished. 

For facts concerning Moses Taylor, cf. Rhodes' Journal of Banking, May 
1 88a ; Bankers Magasine, May, 1882 ; for the accession of Stillman to the 
presidency of the National City, see Bankers Magasine, December, 1891 ; cf. 
also lists of directors in Poor's Manual of Railroads, 

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Its affiliations resulted indeed in the annexation by the Standard 
Oil group, of financiers who later became more prominently- 
identified with it than many men foremost in the field of 

Sufficient evidence has now been adduced to make it apparent 
that by 1893 or 1894 Standard Oil had developed into an impor- 
tant investment power. Standard Oil men had gained entrance 
into rich ore properties, such as- the Minnesota Iron Co., and the 
Lake Superior Consolidated Iron Mines Co. They were in west- 
em railroads, such as the Northern Pacific and the Missouri, 
Kansas & Texas. They had holdings in eastern roads (the New 
York, New Haven & Hartford, the Ohio River Railroad Co., 
and the Delaware, Lachawanna & Western) . Some of the group 
were identified with the National Lead Co. (successor to the 
Lead Trust, 1891) ; others (probably) ^^ with the American Cot- 
ton Oil Co. Standard Oil men had acquired interests in street- 
railway and electric-lighting properties, to wit, the North Ameri- 
can Co. ; ^^ and finally they were allied (more correctly perhaps, 
identified) with the financial interests in control of the National 
City and its affiliated Institutions. In short, the. term Standard 
Oil had by this time gained a wider significance than was 
attached to it in the early days of its formation. The trust was 
no longer the cohesive force that kept the group together. In 
fact, it was only one of many interests that the men composing 
it had in common — some of them no doubt being financiers who 
had never had the slightest direct connection with the Standard 
Oil Trust. " 

• Cf . note 8. 

""The North American Co. was originally intended to take over the assets 
of the Oregon and Transcontinental Co. It was later empowered to acquire stock 
of street railway and lighting properties. Charles L. Colby, the first vice-presi- 
dent of the company, had been frequenUy associated with Mr. Rockefeller; 
Colgate Hoyt, a member of the board of directors, represented the Rockefeller 
interests in the Northern Pacific; £. D. Bartlett was also a director. Iron Agt, 
April 13, 1893, Vol. LI, p. 858; cf. also ComMercial and Financial Chronicle, 
November 15, 1890, Vol. LI, p. 680; ibid,, June 3, 1893, Vol. LVI, p. 931. 

"It should be borne in mind that the personnel of all the important 
financial groups of today is in the nature of the case subject to frequent 
changes, many of the men formerly active within their circle gradually surrender- 

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But the fact that the group had secured recognition as a force 
in the investment world at large did not mean that its evolution 
was complete. It was merely in a position to enter upon a new 
developmental era furnishing some striking parallelisms with 
the early period when Standard Oil was struggling for pre- 
eminence in the petroleum-refining industry. But the competi- 
tors in this more comprehensive struggle were not to be refiners 
of petroleum, but groups of financiers representing important 
and highly diversified industrial and financial interests. Compe- 
tition among these groups was quite a different matter from 
competition within the limits of a single industry, covering as it 
did so wide an investment field. Obviously, when such exposing 
forces contended one against another, the results were certain 
to prove much more far-reachin|g than if the several group hold- 
ings had been confined to but one line of investment. 

Here again it is possible to trace the growth of a community 
of interests among these competitive groups, and to adduce 
certain facts which seem to indicate that one particular group — 
namely, the Standard Oil — ^may sometime come to dominate the 
entire investment field, as the smaller unit long ago came to 
control tiie industry of petroleum-refining. First, however, it 
will be necessary to touch briefly upon certain facts relating to 
a number of the important groups of investors who were brought 
into relations with Standard Oil in the course of the next few 

.In 1893, a date which marks a turning-point in the financial 
history of the country, the Goulds and the Vanderbilts were 
still in the ascendency. The men in control of the Pennsylvania 
Railroad were also a force in the community, while Huntington 
in the Southern Pacific wielded a powerful one-man control. 
But all the group interests, extensive though they might be, were 
more or less jealously confined to a single investment field — ^rail- 
roads. The Vanderbilt power was grounded almost exclusively 
upon its control of the New York Central and subsidiary lines. 
The Gould investments likewise were practically limited to rail- 
ing the conduct of affairs into the hands of, younger, more efficient men» while 
death and various causes are responsible for the disappearance of others. 

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roads, especially western roods, such as the Missouri Pacific, 
the Wabash, the Texas & Pacific, the International & Great 
Northern, and the St. Louis, Iron Mountain & Southern.*® 
Indeed, outside of the Western Union Telegraph Co.,** in which 
Jay Gould became interested in 1881, the Goulds may be said 
to have had no other important holdings. Harriman had not 
yet been spoken of in connection with Standard Oil, and the 
Moores were unknown save as organizers of the New York 
Biscuit and Diamond Match companies.*® Morgan was still in a 
subordinate position as an ally of the Vanderbilts. In factv the 
firm of Drexel, Morgan & Co., though well established and 
enjo)ring influential financial connections, had apparently been 
chiefly occupied up to that time with placing the investments of 
its rich clients. Nothing had been heard of the so-called Morgan 
railway systenjs, steamship lines, or steel trusts. But with the 
financial disturbances of 1893, which led to the bankruptcy of 
so many railroads, came the rise of the Morgan group as an 
independent investment power — a development almost spectacu- 
lar in its suddenness. An account of the growth of the Morgan 
railroad interests may properly be given in some detail, in order 
that an idea may be had of the character and strength of one of 
the most formidable groups of investors that Standard Oil would 
have to encounter dining the period of its later development as 
a financial aggregation representing many and highly diversified 

The first of the railroad reorganizations undertaken by the 
firm was that of the Richmond & West Point Terminal Railway 
and Warehouse Company. In this case the security-holders 
themselves made application to Drexel, Morgan & Co., who, 
after one refusal, at length agreed early in 1893 to take charge 

^Commercial and Financial Chronicle, January 12, 1895, concerning the 
report of the appraiser appointed to fix the value of the *Jay Gould estate at 
the time of his death, December, 189a. 

•For Western Union Telegraph Co. cf. "Investors' Supplement" of the 
Commercial and Financial Chronicle, July, 1887. 

''For accounts of illegitimate speculation in the stocks of these companies 
carried on by the Moores, cf. Commercial and Financial Chronicle, August 29, 
1896, and October 10, 1896. 

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of the reorganization upon assurances of a strict compliance with 
their terms.^^ By the close of 1894 the new Southern Railway 
Co. had been established, to operate upon a more conservative 
financial basis than its bankrupt predecessor. The stock of the 
company was placed in the hands of a voting trust consisting of J. 
P. Morgan, George F. Baker (president of the First National 
Bank of New York), and Charles Lanier,^ while Messrs. 
Spencer, Wright, and Coster, all of the firm of Drexel, Morgan 
& Co., were placed on the beard of directors.** The reorganiza- 
tion resulted in the Morgan interest being left in control of a 
road that later developed into one of the great railway s)rstems of 
the country. 

In February, 1893, ^^ Philadelphia & Reading — ^the most 
important of the anthracite coal roads — went into bankruptcy. 
It was reported that Morgan- Vanderbilt interests had secured 
control of the company, but this report was vigorously denied 
at the time. Morgan, however, eventually undertook to adjust 
the finances of the road,** and it was thought that he, as well 
as others associated with him, secured large amounts of the 
stock and preference bonds thrown on the market by holders 
unwilling to pay the 20 per cent, assessment announced under 
the reorganization plan.**^ The road was sold under foreclosure 
(September, 1896), together with the Philadelphia and Read- 
ing Coal and Iron Co., and was purchased by the reorganization 
committee for $20,500,000.** When the reorganization was 
completed, the stock of the New Reading Co. (which took over 
the securities of the older road and its subsidiary properties) 
was deposited with a voting trust consisting of J. P. Morgan, 
F. P. Olcott (president of the Central Trust Ca), and one 

^Bradstreet's, April 22, 1893, Vol. XXI, p. 243; May 27, 1893, Vol. XXI, 
p. 339. 

^Commercial and Financial Chronicle, November 10, 1894, Vol. LIX, p. 836. 

'*Ibid., October 27, 1894, Vol. LIX, p. 739. 

** Bradstreet's, July 13, 1895, Vol. XXIII, p. 437. 

^ Ibid., December 21, 1895, Vol. XXIII, p. 805; cf. also Poor's Manual of 
Railroads, 1896, pp. 805, 806. 

** Commercial and Financial Chronicle, September a6, 1896, Vol. LXIII, 
p. 560. 

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Other selected by them. The first board of managers, moreover, 
contained three strong Morgan representatives.^'' 

Similarly, the New York, Lake Erie & Westerri, which went 
into the hands of a receiver shortly after the Reading bankruptcy, 
came within Morgan's power,'^ as did the Hocking Valley, which 
defaulted in its interest payments in 1897.^* Later in the same 
year Morgan's assistance was invoked again in behalf of the 
Lehigh Valley Railroad, as it was thought that, in view of the 
control he had come to exercise over certain coal roads, it would 
be to his interest to preserve the solvency of all of them.*^ How- 
ever that may be, the banking house of J. P. Morgan & Co. 
agreed to adjust the finances of the road ** — ^a task which was 
successfully performed; and by the beginning of January, 1901, 
Morgan men had come into undisputed control of this company.*^ 

" C H. Coster, F. L. Stetson, and George C. Thomas (cf. Poor's Manual of 
Railroads, 1896 and 1897). In 1901 Morgan secured control of the Central of 
New Jersey and turned it over to the Reading, upon payment, it is said, of a most 
adequate compensation. Cf. Report of the Industrial Commission, Vol. XIX, p. 
461 (1902) : "According to competent testimony before the Industrial Com- 
mission, the price paid to the banking house of J. P. Morgan & Co., which 
secured control of the shares before selling them to the Reading Co., was the 
highest in the history of the Central Railroad of New Jersey. 

"J. P. Morgan, Louis Fitzgerald (president of the Mercantile Trust Co.), 
and Sir Charles Tennant held the stock of the Eric in a voting trust, while 
Charles Coster, E. B. Thomas, Samuel Spencer, and F. L. Stetson were among 
the directors. The syndicate in charge of the reorganization agreed to provide 
$10,000,000 for -assessments on all stock not assenting to the plan proposed, and 
to take $15,000,000 new prior lien bonds. — Bradstreet*s, August 31, 1895. 

•The Hocking Valley defaulted in the interest payments on its consolidated 
5's, of which Mr. Morgan was said to have been the largest individual holder, 
although he also owned a considerable amount of preferred stock. Cf. Com- 
mercial and Financial Chronicle, February 20, 1897, Vol. LXIV; February 27, 
1897, Vol. LXIV. 

^Indeed, it was said at the time that through the absolute power of the 
Morgan interests in the Reading and the representation which allied financial 
powers [Standard Oil and Vanderbilt representatives?] had obtained in the 
Delaware & Hudson and the Delaware, Lachawanna & Western, it was believed 
that fully 60 per cent, of the anthracite coal production of the country was in 
his hands. Cf. Bradstreet's July 17, 1897, Vol. XXV, p. 453- 

** Commercial and Financial Chronicle, March 13', 1897, Vol. LXIV, p. 516. 

«/Wd., June 24, 1899. Vol. LXVIII, p. 1226; January 12, 1901, Vol. LXXIL 
p. 87. 

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Still another of the roads that went under during the period 
from 1893 to 1897 c^i^c under the Morgan influence. It was 
the Northern Pacific, which became insolvent in 1893, ^^^ 
because of complications, due to the appointment of numerous 
receivers with conflicting duties, was not reorganized until 1896, 
when the plan brought forward by J. P. Morgan & Ca, with the 
co-operation of the Deutsche Bank of Berlin, was successfully 
executed.*' As a result of his interest in the Northern Pacific, 
Morgan first came into relations with James J. Hill, president of 
the Great Northern, who was supposed to have bought largely 
.of the Northern Pacific securities the year before.** The two 
roads, under the leadership of Morgan and Hill respectively, 
thus came into harmonious relationship some time before the 
Northern Seciuities Co. was formed. 

Anna Youngman 


** Poof's Manual of Railroads, 1896. The syndicate subscribed $45,000,000 
for the purpose of carrying the plan through and of providing for working 
capital and improvements. 

** Commercial and Financial Chronicle, May 18, 1895, Vol. LX, p. 874. 

[To be continued.] 

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Agriculture by irrigation presents some of the most interesting 
as well as some of the most difficult problems found in the field of 
agricultural economics. It has been with enormous rapidity that 
the frontier of American agriculture has moved westward during 
the past century. One by one new conditions have presented new 
problems which had to be met and solved. The westward move- 
ment long since reached the arid region. The new economic prob- 
lems here presented to the homeseeker center about the organiza- 
tion of agriculture by irrigation. While the greater part of the arid 
West must ever remain relatively fruitless, the favored spots where 
irrigation can be practiced are becoming the centers of the most 
pr(^table and the most progressive agriculture in America. 

Without irrigation the land of the arid states would be valued 
according to the profits of the grazing industry which could be based 
upon it, and this would probably not exceed, on the average, $1.25 
an acre. Some of the best, irrigated land in Colorado sells for $300 
per acre, some of the hop lands of the Yakima Valley in Washing- 
ton sell for $700, and citrus-fruit lands in California sell for as 
high as $1,800 per acre. 

But the profits of agriculture by irrigation are not confined to 
those special crops, which are, it is true, more especially adapted to 
this form of agriculture because they are crops requiring intensive 
culture. The ordinary farm crops are being produced with gjeat 
prc^t in the irrigated regions. Wheat, oats, barley, hay, and 
potatoes are grown almost exclusively by irrigation in seven of the 
Rocky Mountain states, namely: Mcwitana, Wyoming, Colorado, 
New Mexico, Arizona, Utah and Nevada. It is true that when the 
figures showing the quantities of these crops produced in the arid 
states are compared with those of the United States as a whole, 
they seem relatively small; yet in themselves 32,000,000 bushels of 
grain, 13,000,000 bushels of potatoes, and 4,500,000 tons of hay, 
with an aggregate value of more than $60,000,000, are an important 
contribution to the nation's annual income. 

The average returns of these five crops in the seven Rocky 


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Mountain states have been compared with the averages for the 
same group of crops for the remainder of the United States. The 
figures are based upon those g^ven in the Yearbook of the Depart- 
ment of Agricultuire for 1904. The figures show clearly that the 
average value per acre of crops is much greater in the states where 
irrigation is commonly practiced than in the humid regions. The 
average return of the area devoted to grain, hay, and potatoes in 
the seven States is $19.82 per acre, whereas the average for the 
remainder of the United States is $12.55 — ^m advantage in the 
favor of agriculture by irrigation of %7,27 per acre. The advantage 
in the case of wheat is $11.82 per acre, and in the case of potatoes 
$17.40 per acre. 

According to the last report on the "Progress of the Sugar Beet 
Industry in the United States," ^ the area of sugar-beets harvested 
in the United States in 1904 was 197,784 acres, 105,000 acres, or 
53 per cent., of this area being in the four states of California, 
Colorado, Idaho, and Utah, in which irrigation is necessary to 
sugar-beet production. Owing to the higher average )rield of sugar- 
beets per acre and to the higher average percentage of sugar in the 
beets grown in these irrigated states this 53 per cent, of the total 
area )rielded over 60 per cent, of the total quantity of sugar manu- 
factured. The return to the farmer was $54.18 per acre in the arid 
states, and $39.15 in the remainder of the United States, leaving a 
balance in favor of beet production by irrigation to the amount of 
$15.03 per acre. 

When the returns per acre in the irrigated areas in the United 
States devoted to these six crops — ^barley, hay, oats, potatoes, sugar- 
beets, and wheat — are compared with the average returns per acre 
on the areas devoted to these crops in the remainder of the United 
States, it is found that the general average returns on the former 
area is about $21 per acre, while that for the latter is about $12.50, 
showing a general average advantage of $8.50 per acre in favor of 
irrigation. This does not mean, of course, that agriculture by irri- 
gation yields larger returns per unit of labor and capital invested; 
so far as these figures are ccwicemed, the reverse might be true. 
But these figures do emphasize the fact that agriculture by irriga- 
tion seems to warrant a larger investment per acre of land in the 
production of the crops named, than does the agriculture of the 
humid regions of the United States. 

' Report No. 80, U. S. Department of Agriculture. 

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The crop returns in the seven Rocky Mountain states (Montana, 
Wyoming, Colorado, New Mexico, Arizona, Utah, and Nevada), 
compared with those for the remainder of the United States, in 
1905, are as follows: 



Rocky Mountain 

Remainder of the 
United States 

Di£Ference in Favor 
of Irrigation 





Sugar beets* 


General average . 

$23 • 16 






39 15 




♦Califomia and Idalio are induded in case of sugar beets. 

The area for which we have figured these average returns repre- 
sents only about one-third of the total irrigated area in the United 
States. According to the census figure for 1902, about 9,500,000 
acres of land were irrigated in the United States. There has been 
some increase since that time in the area irrigated, but to make our 
estimate conservative we have multiplied this area by the general 
average returns described above, which g^ves a total product of 
nearly $200,000,000 for the entire irrigated area. That $200,000,- 
000 is a very conservative estimate will be appreciated when it is 
remembered that these are crops which generally )rield relatively 
small returns. The vast fruit industries of all the irrigated states 
have not been included in the figures used for calculating this 
general average, and could statistics for these crops be secured and 
included, the average return might be much above $21 per acre. 
But assuming $200,000,000 to be a fair estimate of the farm value 
of the crops grown upon irrigated land, this would be by no means 
the whole truth as to the importance of agriculture by irrigation. 
To this must be added the industries that are based upon these crops 
and the many indirect results of irrigation. 

The range live-stock industry has been greatly influenced. In 
the early days the live stock had to depend upon the range in winter 
as well as in siunmer and great losses were common because of the 
lack of a winter food-supply. At the present time the range is 
supplemented by the production of alfalfa hay for winter feed, and 
the range industry has been insured against heavy losses. Not only 

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is the industry secure, but the products are of a higher quality, the 
lambs fed in Colorado being noted for their fine quality. 

Likewise the mining interests have been greatly influenced by 
agricultural development resulting from irrigation. The presence 
of a relatively cheap food-supply in the Rocky Mountain region 
has made possible the exploitation of many natural resources of that 
region which could not have been so extensively developed had it 
been necessary to depend upon eastern states for food-supply. 

More general, and yet equally important, has been the influence 
of agriculture by irrigation upon the transportation lines from East 
to West The agricultural products and the increased mineral pro- 
ducts have an important influence upon the profits of railway-build- 
ing, making it possible to have much better means of transportation 
through these regions than could have been built without the profit 
due to the population and industry made possible by irrigation. 
A good example is the influence of the fruit industry of southern 
California upon the transportation lines between that region and 

Agriculture by irrigation is developing a new type of farmer. 
There are several reasons for this : ( i ) relatively large investments 
are necessary to this form of agriculture; (2) the profits due to 
superior efficiency as a manager are very large, while the losses 
due to careless management are sufficient to eliminate the n^ligent 
farmer; and (3) the opportunities for planning the woric of the 
farm, as if it were a factory, are much better than in the humid 
regions, because the water-supply can be so regulated that the 
field operators move on regularly from seed-time to harvest. Where 
the farmer is secure in his right to an. adequate supply of water, 
the chance element is less also with regard to quantity of crops 
produced. While the operator of the irrigated farm is surrounded 
by forces and conditions which seem not only to make possible, but 
even to compel, development of the business side of agriculture, he 
is at the same time confronted with difficult problems of his own. 


Agriculture by irrigation, as well as agriculture under less arti- 
ficial conditions gives rise to two classes of economic problems. 
In the first class are those problems which confront the farmer in 
his efforts to select land, choose crops, and regelate the proportions 
between land, water, labor, and equipment in such manner as will 

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enable him to secure the largest total net prc^ts. In the second 
dass are those problems which confront the statesman whose duty 
it is to formulate laws, and institutions which will set such limita- 
tions on free actions of individuals as may be required to bring 
their actions into harmony with the interests of society as a whole. 

There is manifestly a close relation between these two classes of 
problems. It is necessary that the statesman shall understand the 
motives and actions of individuals when left to do as they please. 
It is also necessary that he shall have a clear comprehension of the 
actions required of the individual to secure the highest degree of 
social well-being. 

It is perhaps true that the primary function of public authority 
is, through its laws and institutions, to bring the actions of indi- 
viduals into harmony with the interests of society as a whole, but 
another function of the state is the education of the farmers to 
know and to do that which is, at the same time, in their own interest 
and in the interest of society as a whole. To take a familiar 
instance, for example, it may be to the interest of Farmer D, in an 
irrigated region, to take from the stream the water which Farmer 
C has long used. This may enable Farmer D to convert relatively 
worthless lands into fruitful fields, but it will be at the expense of 
farmer C, whose fields would be fruitless and whose improvements 
would be rendered worthless. Thus it is that freedom on the part 
of each farmer, to follow his own interest in the appropriation of 
water, would lead to the destruction of property. It has, in fact, 
been true in the irrigated regions, as is generally known, that lack 
of state regulation has resulted in a sort of anarchy. The farmers 
have at times resorted to their g^ns to enforce what they looked 
upon as their rights. Laws regelating the appropriation of water 
are manifestly necessary to the well-being of society in the arid 

Under proper regulation of the water-supply, it may be to the in- 
terest of the farmer to use water with that degree of economy which 
makes the water-supply add most to the national wealth, and yet 
because of ignorance of his best interest the farmer may fail to live 
up to this ideal. It is not a simple problem to make sure that the 
water is used on the proper land, in the production of the proper 
crops, and in the proper quantities per acre to enable the farmer to 
secure the best results. It is very important, therefore, to carry on 
fliose lines of investigation which will lead to the education of the 

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farmers in the economical use of water. These are problems which 
are important in every branch of agriculture ; but in agriculture by 
irrigation, where the farmers are required to act together to secure 
their water-supply, and where the investments are relatively very 
large per acre, both regulation and education are exceedingly impor- 

The economic problems involved in the use of water whether 
viewed from the standpoint of the individual farmer or from the 
standpoint of the nation as a whole, may be included under four 
heads: (i) On which land should the water be used? (2) To which 
crops should the water be applied? (3) How should the water be 
applied ? (4) How much water should be used per acre in the pro- 
duction of a given crop ? 

I. On which land should the water be used? — The social ideal is 
the largest gross return from the sum-total of the resources of the 
country. The goal of the individual farmer is the largest total net 

The supply of irrigable land is very great when compared with 
the supply of water which can be used for purposes of irrigation. 
Since only a small part of the land can be irrigated, on which land 
should the water be used ? Should it be used on the land which is 
most fertile when irrigated? Not necessarily, because such land 
may be located far from the market, so that less fertile land near the 
market may enable the user of the water to secure larger returns in 
values. But, again, where the fertility and the distance from the 
market are the same, one piece of land may be much more accessible 
than another for purposes of irrigation, and for this reason enable 
the user of the water to secure larger returns for his investment 
Fertility and location, location with respect to the market and with 
respect to the water-supply, are the physical factors which underlie 
productivity. By productivity of the land is meant its value-pro- 
ducing power per unit of expenditure for productive purposes. 

Shall we say, therefore, that the water should be used upon the 
most productive land ? From the standpoint of the individual farmer, 
this question may be answered in the aflSrmative, for this would 
enable him to win the largest total net profit. If the water of a 
stream were used once for all and the location of its use affected 
only the land on which it is first applied, this use would conform to 
the social as well as to the individual ideal. But it is said to be true 
that with present methods of irrigation the same water may be used 

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several times for purposes of irrigation; that a large percentage 
of the water put upon the land finds it way, by seepage, back to the 
stream and may be diverted by those whose head gates are farther 
down the stream. Other things being equal, the water-supply of 
a given stream can be made to )rield the largest results for the nation 
when it is diverted as it first emerges from the mountains. This 
will give the greatest opportunity for return seepage and secondary 
and tertiary diversion before the stream passes from the arid to the 
humid r^ons.* This use of the water is likewise most desirable 
when viewed from the standpoint of losses from the stream due to 

The problem of where the water should be used in order to 
secure the best results is, therefore, a very complex one ; and even 
if the individual farmers were capable of making the right choice 
of land, it is by no means clear that their interests would coincide 
with the social ideal. 

2. The crops for which the water should be used. — ^Having 
selected the land, the next problem is to ascertain which crops 
should be gjown in order that the best results may be secured. The 
value of the crop per acre of land, the value of the crop per unit of 
water used, the net profit per acre of land, and the net profit per 
unit of water used, have each been taken by different men, and even 
by the same man at different times, as a standard by which to esti- 
mate the relative profitableness of the different crops which will 
thrive. When the subject is viewed from the standpoint of the indi- 
vidual farmer, whose purpose it is to secure the largest total net 
profit in return for the time and energy which he puts into agri- 
cultural production, none of these criteria would necessarily prove 
correct. In the first place, the crop which )rields the highest return 
per unit of land may require such large quantities of water that the 
return per unit of water is relatively small ; and, again, it may prove 
true that the crop which yields the highest gross return in value 
per acre may require such large investments of labor and capital 
that the net return per acre may be relatively small. The same 
criticism may be made if the largest gross return per unit of water 
be taken as the standard. It may prove true, moreover, that neither 
the crop which )rields the largest net prc^t per acre nor that which 
)aelds the largest net profit per unit of water used will enable the 

*Sce Bult€tin 157, U. S. Department of Agricnlttire, Office of Experiment 

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fanner to secure the largest total net profit for his time and energy. 
For example: Sugar-beets may yield a higher gross return per 
acre and per unit of water, and at the same time yield a larger net 
profit per acre and per unit of water used, than alfalfa, and yet it 
may prove true that a given farmer can secure a larger net profit 
per unit of time and energy devoted to alfalfa than to sugar-beets. 
This may be true for the reason that sugar-beets require much more 
labor and managerial activity per acre of land, or per unit of water 
used, than alfalfa. The farmer who follows business principles will 
subtract from the total gross returns secured from a given crop the 
total expenditures for the use of the land, water, and machinery, 
and for labor in case he hires any. This gives the net profit to be 
secured from this crop. This net profit should be compared with 
that to be secured from another crop to which the same time and 
energy may be devoted. This will require careful accounting, and 
yet it is essential if the farmer is to ascertain which crops are most 
profitable. In this comparison of the profitableness of crops, one 
factor should be taken into account Different crops require water at 
different seasons. It is likewise true that different crops require the 
attention of the farmer at different times in the year. Crops requiring 
the attention of the farmer at the same time of the year may be 
called competing crops, because they compete for the time of the 
farmer. When the crops have been classified into groups of compet- 
ing crops, these groups may be called non-competing groups because 
each member of the groups requires the time and attention of the 
farmer, his horses, tools, machinery, and water-supply at different 
times of the year. Sugar-beets and potatoes may be given as one 
group of competing crops ; winter wheat and rye, as another ; spring 
wheat, oats, and barley, as another. From a pven group of com- 
peting crops the farmer should select that one which, one year with 
another, will add most to his net profits. 

It may be true that the most profitable crop in the spring-grain 
group yields the farmer a smaller net profit per unit of time and 
energy than he is able to secure by the production of the most profit- 
able of the root crops and yet, since they require his attention at 
different seasons, his total net profit for the year will be much 
greater when he cultivates both crops than when he confines his 
attention to the (me which yields the highest net profit per unit of 
energy devoted to its production. 

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It is a well-recognized fact that the different crops make differ- 
ent demands upon the soil. For this reason the crops which are 
associated together in the systems of rotation should be such as will 
make supplementary demands upon the soil's elements of fertility. 
This in itself, however, is not a safe guide in determining which 
plants should be introduced into the field system ; for it might lead 
to the cultivation of the less profitable of two competing crops, and 
thus reduce the farmer's total net profit. Yet it should ever be kept 
in mind that if one of two competing crops exhausts the soil, while 
the other adds to its fertility, this must be taken into account when 
calculating the net profit which these crops can be made to yield. 
The crops being chosen which will, one year with another, enable 
the farmer to win the largest net profit, they should be arranged 
in the field system in such a manner as best to supplement each other 
in their demands upon the soil. 

Thus far it has been assumed that the water-supply, like the time 
of the farmer must be used as it passes by. This is not exactly 
true. The relatively high value of water in July and August has led 
to a desire on the part of owners of water rights in Colorado to store 
some of the water, which they have a right to use on grain crops in 
May and June, to be used on root crops later in the season. This 
practice has been objected to on the ground that the law states 
specifically that 

persons desiring to construct and maintain reservoirs, for the purpose of 
storing water, shall have the right to take from any of the natural streams 
of the state and store away any unappropriated water not needed for immediate 
use for domestic or irrigation purposes.* 

That it is economically desirable to store water which would 
otherwise be used in the irrigation of wheat, when the greater value 
of water used later in the season justifies the expense, will, doubt- 
less, be quite readily granted. The objection arises from the fact 
that, once established, there is thought to be danger that this will 
lead to the expansion of earlier rights at the expense of the later 
appr(q)riators. Whether or not this fear is well grounded depends 
mainly upon the efficiency of the administrative system. Water stor- 
age is expensive, and it is only when the high profits to be derived 
from the growing of the root crops enable the farmers to pay high 
prices for its use, that the practice is economical. And yet, when the 

'Mills's Annotated Statutes, sec. 2270. 

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farmer's profits can be increased by storing the water whidi he has 
a right to use in the wheat-irrigation season, and using it later for 
the irrigation of roots, it would seem that irrigation laws should not 
be so formulated as to prohibit this use of the water. The laws 
which apparently prohibit this practice will be recurred to later. 
Our aim here is to state principles. 

With freedom to use his land and his water-supply at the time, 
and in such a manner as will enable him to secure the largest net 
profits, the farmer should select from each group of competing 
crops that one which enables him to add most to his net profit, and 
every gjoup should be represented in the field system if the most 
profitable crop in the group adds a sufficient amount to the total net 
profit to pay the farmer for his extra effort. 

Does the principle of crop selection which enables the farmer to 
secure the largest net profit lead at the same time to the best results 
socially? It seems clear that, when the individual farmer follows 
the above principle, he in no way limits other individuals from 
doing likewise. It is true also that this means of securing the high- 
est net profits has no tendency to reduce wages, interest, land values, 
nor water values, but rather to increase them. It is apparent, there- 
fore, that the choice of crops which enables the farmer to secure 
the largest net profits is also in harmony with the highest d^jee of 
productivity for the resources of the nation as a whole. Unfor- 
tunately, few farmers attain to this ideal. The information neces- 
sary to rational action is often lacking. The state has an important 
function, therefore, in securing and disseminating information which 
will enable the farmers to select those crops which one year with 
another will yield him the largest net profit 

3. The methods of applying water, — The flooding system, the 
check system, the furrow system, and the pipe and hose system 
are the most important of the different methods of applying water 
to land for purposes of irrigation. These methods are given in the 
inverse order of their expensiveness per unit of water applied. By 
the cheaper method — ^that of flooding — ^a larger share of the water 
applied to the land is lost by seepage and by evaporation. By the 
use of pipes and hose both of these losses are reduced to a minimum. 
The local value of water and the local value of labor are the 
principal factors which determine which method will prove most 
profitable. It has been common for irrigation engineers to speak of 
those methods of. irrigation which require much water and little 

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labor, as wasteful. This is a wrong notion of economy in the use 
of water. Where water is plentiful and laborers few, the highest 
degree of economy is attained by that method of application which 
requires littie labor, even if large quantities of water be used. We 
have here the problem of adjusting the pr(q)ortions between expendi- 
tures for water and for labor in such a manner as will enable the 
farmer to secure the largest net profits. This is a problem that 
can be solved only by a system of accounting which will enable the 
farmer to act rationally. 

One point which has often been discussed under this head is 
the rotation of the water-supply. Where each farmer must take a 
continuous flow of water, it often happens that the quantity received 
by each farmer is much less than he is capable of handling. This 
results in a waste of time and an increased cost of distribution. It 
has also been pointed out on various occasions that where the 
fanner receives his water in such small quantites the loss from 
evaporaton and seepage is greatiy increased. A system of rotation 
in the distribution of water which will give to each farmer, and 
especially to the small farmer, his water-supply in relatively large 
quantities for short periods at given intervals, or when he may 
choose to call for it, rather than a continuous flow of small quantity, 
is eminentiy desirable from the standpoint both of public and private 

4. The duty of v^ter. — ^The proper quantity of water to be 
applied to an acre of land in the production of a given crop is 
referred to by irrigation engineers as the "duty of water." Investi- 
gations have been carried 'on by the United States Department of 
Agriculture in co-operation with several of the agricultural experi- 
ment stati<Mis, to ascertain how much water should be applied to a 
given area of land in the producticwi of a g^ven crop in order that 
the best results shall be obtained. The method has been to secure 
several plats of land which have a uniform soil, and to apply water 
in varjring quantities per acre to the different plats in the production 
of a given crop. 

The experiments seem to indicate that to a certain point the 
produce increases more rapidly than the quantity of water applied, 
after which the total product per acre can be increased for a time 
by further additions of water, but a point is finally reached where 
the total product per acre decreases as the quantity of water applied 
is increased. This means, of course, that the maximum product per 

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,inch in depth of water applied is reached long before the point of 
maximum return per acre has been reached. In the production of 
oats at the Utah station, for example, it was found that the largest 
product per acre was secured where water was applied in amounts 
equivalent to 30 inches of rainfall, but the largest product per unit 
of water was secured when limited to 15 inches. In the productioti 
of wheat at the New Mexico station it was found that the largest 
product per unit of water was secured when limited to 24 inches, 
but that the product per acre continued to increase until 35.3 inches 
had been applied. 

Thus far the experiments have not been planned with sufficient 
care. In most cases no account has been kept either of the costs or 
of the values of the products. But they give ground for the belief 
that carefully planned experiments may )rield results of great value. 
In the planning of these experiments there is work for the 
economist and the accountant. 

The problem of the economical use of water is not simply that of 
ascertaining the proportions in which water and land should be 
brought together; it involves as well the proportions in which 
expenditures should be made for cultivation and irrigation. It is 
believed that irrigation can, to a certain extent, be made to take 
the place of cultivation, and it is certainly true that surface culture 
conserves moisture, and thus reduces the quantity of water required 
to produce a good crop. 

We have here the whole problem of the proportions in which the 
factors of production should be brought together, with one new 
element added — ^that of an artificial water-supply. This problem is 
discussed in works on eccwiomics under the captions of "the intensity 
of culture" and "diminishing returns.^' Most economists have con- 
fined themselves to the one problem of the quantity of labor and 
capital which should be applied to a given area of land, and have 
concluded that the intensity of culture should be such that the 
increase in the total value of the product attributable to the final 
increment in the outlay shall be just suffident to pay the cost of 
this final increment. 

Professor Carver * has made an advance over other economists 
by recognizing that the problem is not so simple as this ; that the 
proportion between laborers and equipment, or between horses and 
machines is an equally important question. That is, if the farmer 

* Distribution of Wealth, chap. ii. 

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desires to harvest a particular crop, he may choose between several 
methods: the man and the sickle, where labor predominates over 
capital ; the self-rake, where labor and capital are more nearly equal 
in importance ; and the combined harvester and thresher, where the 
expenditure for the machine is very great and the number of men 
employed relatively very small. Or again, if the farmer desires to 
plow a particular field, he has his choice between the two-horse plow 
with which one man can plow two acres a day and a steam plow with 
which two men can plow 100 acres in a day. This is the problem of 
the proportions in which the factors of producton should be asso- 
ciated. Professor Carver's solution to this problem is as follows: 

To ascertain the quantity of labor to be associated with a pven 
quantity of capital in the form of machines, tools, and horses, one 
should increase the quantity of labor until the product attributable 
to the last increment of labor is just sufficient to pay the cost of 
employing that increment Again, the quantity of capital to be asso- 
ciated with a given quantity of labor should be such that the product ' 
attributable to the last increment of capital will be just sufficient to 
pay the cost of securing the use of that increment of capital. The 
proportion between these two factors and land is to be ascertained 
in the same manner. That is, the degree of intensity should be 
such that the product attributable to the final increment will just 
pay the cost of securing that increment of the labor and capital ; or, 
what is the same thing according to Professor Carver, the quantity 
of land cultivated by a g^ven supply of labor and capital should be 
increased or decreased until the product attributable to the final 
increment is just sufficient to pay the rent on that increment of land. 

If correct, the application of this method to the determination of 
the proportions in which water, land, labor, and capital should be 
associated gives a simple solution to this phase of the problem of the 
economical use of water: Simply increase the quantity of water 
until the product attributable to the last increment is just sufficient 
to pay for the water and its application. 

But it may have occurred to the reader to ask if the result is 
always the same whether the quantity of water used on a given area 
of land be such that the product attributable to the last increment 
of water is just sufficient to pay the costs involved in its application, 
or whether the quantity of land irrigated by a g^ven quantity of 
water be such that the product attributable to the last increment 
of land is just sufficient to pay the cost of securing the use of the 

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land, the first would bring the largest net profit per unit of 
land, the latter the largest net profit per unit of water; and the 
writer doubts if these two usually coincide. 

If it were true that all farmers possessed ability of the same 
quality — ^that is, if all managers of farms secured the same return 
per unit of labor and capital operated, and the wages of superin- 
tendance were a known quantity which could be added to the cost 
of applying a given increment of labor and capital to a given 
piece of land — then (if all crops were equally profitable, 
which will here be granted only for the sake of concentra- 
ting the argument upon the one point — ^variation in the quality 
of the management) it would not make any diflFerence whether suc- 
ceeding increments of land be applied to a given amount of labor 
and capital until the product attributable to the last increment of 
land is just sufiicient to pay the rent of the last increment of 
land, or whether succeeding increments of labor and capital be 
applied to a fixed area of land until the product attributable to the 
last increment is just sufficient to pay its hire; but it is right here 
that the complexity arises. Professor Carver's line of thought 
seems to assume that all men make the same profit per unit of 
investment in labor and capital, and that this profit is a definite 
known quantity which may be used in figuring the proper degf^ee 
of intensity of culture. On the other hand, the writer believes that 
the farmer^ s profit is an indefinite residuum which it is the desire of 
the farmer to make as large as possible, and which will vary with 
the quality of the farmer^ s managing ability. This being true, Pro- 
fessor Carver's method of ascertaining the proper degree of intensity 
of culture cannot be applied to the problem of ascertaining the 
proper amount of water to be applied to a given area of land, nor, 
in fact, to any other practical problem. 

The difficulties involved in the application of this method are 
illustrated by the figures in the following table in which it is assumed 
that each of two farmers, A amd B, applies succeeding increments 
of labor and capital to an acre of land, and that Farmer B alwa)rs 
secures 25 per cent, less product on the same grade of land with the 
same expenditure. When Farmer A must pay a rent of $5 per acre 
for the use of land, he can (according to this table of returns) 
secure the greatest net profit per unit of labor and capital by 
expending $12.50 per acre; but the net profit per acre of land is 
greatest when $17.50 is expended. In this case Farmer A will have 

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to choose between the maximum net profit per acre and the maxi- 
mum net profit per unit of expenditure for labor and capital. In 
case he should find that the same amount of managerial activity is 
required per unit of land regardless of the intensity of culture, he 
should spend $17.50 per acre ; but if the same amount of managerial 
activity is required per unit of labor and capital whether expended 
upon a larger or a'smaller area, then his best interests are conserved 
by seeking the maximum net profit per unit of labor and capital, 
for this would enable him to win the largest total profit from the 

per Acre {or 

Vahie of Product Se- 
cored by Fanner 

Increoient of Pro- 
duct Due to an In- 
crease in Expendi- 
ture of $9.50 

Net Return per $ 

of Expenditure, with 

Rent at tsjoo per 


Net Return per Acre, 

i.e., Return minus 

Costs in Labor *"H 











$ 5-00 







$ 9.00 

17 50 

19 75 

23 25 





% 3-75 




1. 00 


$ 4.00 






*The net return per dollar of expoaditure for labcv and capital is ascertained by subtracting the 
rent from the gross return and dividing die remainder by the numoer of dollars expended. This method 
it p r ef erred to including the rent in Uie costs, for the reason that the rent comes out of the product 
at a rule, and is not commonly looked upon as an expense of production; and again, the money paid 
at rent, even if it were paid in advance and looked upon as an expense of production, does not make 
a demand on the managerial activity of the fanner in the way that expenditures for labor and 
capital do. 

It is true that, if the rent were always put at just the requisite 
figure in this illustration, the degree of intensity which would )rield 
the farmer the largest net profit per acre would be that which would 
yield him the largest net profit per unit of labor and capital. And if 
it were true that all farmers made the same rate of profit per 
composite unit of land, labor, and capital they manage — that is, 
if the quality of the management were always the same — ^then com- 
petition would drive rent up to the point where there would be only 
enough to pay costs, including the standard wages of superintend- 
ance, and the degree of intensity would be the same whether the 
farmer looked to the maximum average net product per unit of 
investment upon the land or to the maximum net profit per unit of 
land ; but when we recur to the fact that there are variations in the 
quality of the management, and that the farmer is the residual 
claimant in this enterprise whose profits are larger or smaller accord- 

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vag as he is more or less successful as a manager, the problem 
becomes very much more complex. 

Let us note the position of the two farmers, A and 6, in the 
above table. When a rent of $5 is charged for the land, they both 
find that after paying the rent they have the maximum average net 
return per unit of investment in labor and capital when they each 
expend $12.50 per acre. This is also the degree of intensity which 
enables Farmer B to secure the maximum net return per acre of 
land but Farmer A can get a larger net return per acre of land 
by applying $17.50 per acre. Five dollars is, however, all that 
Farmer B can pay for the land; even then it is only as a laborer 
that he secures an income from which to live. It is fair to assume 
that Farmer A will not have to pay appreciably more rent for the 
use of the land than will Farmer B ; and it will never be true, there- 
fore, of the farmer whose managing ability is of superior quality, 
that it is the same thing whether he applies labor and capital to a 
given amount of land until the product attributable to the last incre- 
ment of labor and capital is just sufficient to pay its cost (which is 
equivalent to the maximum net profit per unit of land), or whether 
he applies land to a g^ven amount of labor and capital imtil the 
product attributable to the last increment of land is just sufficient 
to pay for the use of that increment of land (which is equivalent to 
the maximum net profit per unit of labor and capital). 

If the reader has followed thus far, he will understand why the 
writer conceives the problem to be a complex one. If the farmer 
could be sure that the demands upon him as manager would vary 
with the number of laborers employed, then he could secure the 
largest total net profit by applying land to any g^ven number of 
laborers until the product attributable to the last increment of land is 
just sufficient to pay its rent, or, what is the same thing, by seeking 
the maximum net profit per unit of labor. In actual practice, how- 
ever, there are certainly many exceptions to this. It may help in 
solving the problem to classify the factors according as their 
increase does or does not make a proportional increase in the 
demand for managerial activity. The aim should then be to secure 
the maximum net profit per unit of the former class. 

So far as the available evidence is concerned, it may quite as 
well be true in the application of water to land that a farmer can 
operate a given amount of labor and capital without regard to the 
quantity of water used or to the area to which it is applied. It 

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would seem, therefore, that we can go no farther here than to say 
that the farmer should not increase the quantity of water per acre 
after the point is reached where, due to diminishing returns per 
succeeding unit, the increment of water could be made to add more 
to his total net profits by adding it to other land. In order that any 
satisfactory conclusion shall be reached on this subject, it is neces- 
sary to carry out experiments and to have a very careful system of 
accounting such as will show the relative profitableness of different 
combinations of the factors of production. 

The statement may be true that the fanner who is free to use 
his water supply as he pleases will find it to his economic self- 
interest to cease to increase the quantity of water applied to a given 
area, before the point is reached where the final increment of water 
would add more to his net profit if applied to other land, and it may 
be that in so doing he adds most to the total wealth of the country ; 
yet the problem remains of developing a system of accounting which 
will enable the farmer to attain this ideal, and this duty devolves 
upon the state.' 


Water rights under streams. — In formulating laws and institu- 
tions to regulate the use of water, it is important that, so far as 
possible, the regulation should make it to the interest of the farmer 
to strive after the highest social economic ideal, or, in other words, 
harmonize individual and social interests. Under present irriga- 
tion institutions there are two methods of granting the use of water. 
One is to grant a definite quantity of water which may be used 
where the g^ntee may choose and on any quantity of land he may 
choose; the other method is to grant sufficient water to irrigate a 
specific tract of land of a given area, with a maximum limit as to 
the quantity of water which may be taken. Irrigation authorities are 
not agreed as to the relative merits of these two systems. The attach- 

*The problem of ascertaining the most profitable degree of intensity of 
culture as well as that of crop selection is one which demands attention in all 
lines of agricultural production in this day of increasing land values. The 
United States Department of Agriculture and some of the state experiment 
stations are commencing to work on these problems. It is expected that the 
results will be highly interesting to economists as throwing light upon some 
unsettled questions in economic theory, as well as beneficial to the agricultural 

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ment of the water right to a specific tract of land has been objected 
to because, if strictly adhered to, it might require a farmer to use 
his water upon relatively unproductive lands; whereas, if he were 
free to exercise a second choice, he might use better land and add 
more to his income and to that of the nation. On the other hand, 
so closely interrelated are the interests of the different* farmers on 
the same stream, owing especially to the effects of return seepage, 
that perfect freedom to change the place of using water may 
endanger the rights of others; and again it is claimed that where 
rights are not attached to the land there is great danger that the 
rights of earlier appropriators will be expanded to the detriment of 
later appropriators. In Wyoming, where the law of 1890 attached 
the water definitely to a specific piece of land, experience has 
emphasized the advisability of allowing transfers of rights from one 
piece of land of a given area to another of equal area, where the 
owner of the right is dearly to be benefited and where the interests 
of others are not injured. On the other hand, in Colorado there 
was no statutory regulation of the transfers of water rights prior 
to 1 90 1, and yet in that state, as throughout the arid West, the courts 
have declared against transfers wherever it has been proved that 
others have been injured thereby. At the present time transfers are 
closely restricted in Colorado. While experience has proved tht 
desirability of granting transfers of water rights from one piece of 
land to another in order that farmers may use water to better 
advantage, it has likewise demonstrated the wisdom of regulating 
such transfers in such a manner as will protect the interest of other 

Regarding the relative merits of granting a specific quantity of 
water, as is the practice in Colorado, and granting sufficient to irri- 
gate a given area of land, there are wide differences of opinion. It 
is very generally believed that the farmers will use the water more 
economically if it is secured in fixed quantities, without reference 
to the extent of the area to be irrigated, than where the area is 
the fixed unit. For example, if the farmer has a fixed quantity of 
water which he is free to use as he pleases, he will cease to add 
another increment of water to a given area when this water will 
yield him a greater net profit when applied to other land which 
would otherwise be left unirrigated. On the other hand, if the 
farmer has a right to sufficient water for a given area, he will desire 
to add succeeding increments of water to that given area so long 

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as each addition will result in an increase in his total net prc^ts, 
when nothing is counted as the cost of the final increment of water. 

The author of the Wyoming system recognizes that water will 
be used more economically when paid for by the unit quantity than 
when paid for by the acre irrigated regardless of the quantity used.* 
This is equivalent to saying that where a farmer has the right to 
the use of a specific quantity of water, without regard to the number 
of acres of land on which it is to be used, he will use the water more 
econcMnically than he would if he had a right to irrigate a given 
number of acres of land without regard to the quantity of water 
used per acre. 

But the author of the Wyoming system realized at the same time 
that, especially where agriculture by irrigation is first being estab- 
lished and where water is plentiful, there were other questions which 
were of more immediate importance than the highest degree of 
economy in the use of water. From the experience of other states 
where irrigation had longer been practiced, he had learned that 
where water rights were granted in cubic feet per second, without 
regard to the area of land on which it was used, no administrative 
system had been developed to keep the earlier appropriators from 
establishing rights to much more water than they were actually 
using. This led to a great injustice in later years ; for, after later 
appropriators had established themselves by improving their farms, 
they found that the earlier appropriators had a legal means of 
expanding their diversions from the stream to such an extent as to 
leave the later appropriators without water. 

The injustice of excessive rights which enabled the earlier appro- 
priators to expand their diversions, enrich themselves, and impover- 
ish their neighbors, was uppermost in the mind of the author of the 
Wyoming system, and his aim was to avoid this injustice. -As a 
system of water administration in a country where the water rights 
are first being acquired, and where water has not become so 
valuable as to make economical use a very important factor, the 
system seems to be highly desirable. The question arises, however, 
if this system will prove most satisfactory after the rights to the 
entire water supply have been established and water has come to 
have a very high value placed upon it. 

It would seem to be true that the interest of the state which 

*E]wood Mead, Irrigation Institutions, pp. 133, 134; and U. S. Department 
of Agriculture, Office of Experiment Stations, Bulletin No, 86, p. ai. 

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grants the water would lead to a restriction in the quantity of water 
which would be turned into the ditches of the farmers, and in this 
manner force the farmers to use the water in that manner which 
conforms to the social ideal of economical use. In order to 
accomplish this result, it would be necessary however, for the state 
to ascertain, by a careful system of experimentation and accoimting, 
the most economical use of water in every locality and for every 
crop produced in each locality, and then to limit the water-supply 
accordingly. In favor of this means of securing economy in the 
use of water it is argued that the state will have to carry on the 
experiments in any case ; for these experiments are too difficult and 
too expensive to be carried out by the individual farmers. It may 
well be questioned, however, if it would not be much cheaper, lead 
to less friction, and be more stimulating to the intelligence of the 
farmers, to develop a system of accounting and teach the farmers to 
ascertain for themselves when they are securing the best results, 
and then so to frame the laws regulating the use of water that, when 
the farmer follows his own interest within the limits of the law, the 
best interests of society will be conserved. When the rights have 
been established, and a complete and rigid system of distribution 
has been developed, the dangers from excessive impropriation tend 
to pass away, and it would seem the simplest solution of the prob- 
lem to continue granting each farmer, or his grantee, the quantity of 
water he has been receiving for many years, leaving him to use it 
on more or less land as seems most economical. 

Henry C. Taylor 

University of Wisconsin 

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The arguments in favor of a bill to establish an elastic currency 
failed to produce legislation in the session of Congress just closed; 
nor is this result to be wondered at, if the validity of the arguments 
sometimes proposed be closely examined. While the necessity of 
having the means of expanding and contracting our bank-issues is 
highly important for certain conditions and districts, it is obviously 
undesirable to assume that an increase of a bank's demand obliga- 
tions is as effective as an increase of its resotu'ces ; or, that exchanges 
are carried on in this country only by the use of bank-notes. 

It cannot be too emphatically repeated just now that laws, which 
would enable a city bank to issue more of its own notes, would not 
thereby increase one whit the amount of its reserves, and con- 
sequently would not increase one whit its ability to make discounts 
to borrowers. When banking institutions have absorbed their funds 
in carrying large loans to railways, or to industrial syndicates, the 
only way they can meet the varying and legitimate demands of the 
merchant and manufacturer for loans based on exchanges of goods 
is by introducing more capital into the banking business; or by 
making less use of existing banking capital in promotions, or in 
other speculative operations, which are more or less removed from 
the usual demands of business. And it should also be emphatically 
repeated that a high and changeable rate of interest at the banks is 
an indication, not necessarily of a scarcity of money, but of a 
scarcity of capital in the loan market. Therefore, when a sensitive 
and high rate of interest in New York is referred to as a reason 
why our currency system is dangerously inelastic, the claim has very 
little, in principle or fact, to support it. 

Although interest is paid for capital, which gives ccmtrol over 
purchasing power, the function of money, while important, is really 
secondary. In this case, money only serves as a medium of 
exchange to transfer capital from the lender to the borrower. Any- 
thing which serves as a medium of exchange, whether gold, bank- 
notes, or checks, will serve to convey the capital to a borrower. In 
truth, if a bank has capital to lend, there is little real trouble 

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in finding means to transfer it to a customer. In New York, 
a deposit account as the result of a loan, and a check on that 
account, serve the whole purpose. In making loans to its usual 
customers, a New York bank has no more need of greater issues of 
its own notes than a wagon has of a fifth wheeL Its own notes are 
needed only in cases where a customer could not make use of a 
check on a deposit-account. 

Obviously if a bank can increase its reserves, it can in due 
proportions increase — as a result of loans — its demand liability in 
the form of deposit accounts. This is now freely permitted. No leg- 
islation is needed to enable this to be done. But if a bank were given 
the power by new enactments to increase its notes and if it were 
obliged to protect these note liabilities by fresh reserves (as in the 
bills recently proposed in Congress), it would have no greater ability 
to loan than before. In our financial centers, where we have recently 
heard a violent clamor for more circulation, an increase of bank- 
notes would not increase the lawful money usable in reserves ; and if 
issued, it would increase the demand liabilities just as would an 
increase of deposits. 

What we have witnessed in the money market during the recent 
collapse of stocks in New York is an illustration of the above 
principles. The outcome was in no way due to a scarcity of money, 
but, if not due to lack of capital, it was wholly due to questions 
relative to the kind and value of collateral carried by the banks. If 
the collateral had been good, and additonal loans were wanted 00 
their security, then more reserves of lawful money were needed. 
Hence, the usual appeals to the Treasury in times of emergency, to 
put out — not more bank-notes but — more lawful money. If the col- 
lateral was not sotmd; if the banks had been carrying swollen 
securties marjced up to fictitious prices as in the case of the Union 
Pacific ; and if the banks at the same time, had demands for loans 
based on legitimate movement of goods from seller to buyer — ^there 
were but two alternatives. In the first place, the banks might turn 
more capital into banking, in amounts sufficient to carry all their 
business on increased reserves; or, in the second place, they could 
drop their speculative customers, and thus safely carry their legiti- 
mate loans. As it happened, the latter alternative in all probability 
was chosen by the New York banks. The enlargement of old busi- 
ness concerns, and the opening of new ones, the development of new 
resources, and the unparalleled extension of trade in the United 

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NOTES 231 

States have brought us to the limit of our available capital; and 
foreign capital, through such devices as finance bills on Europe, 
could at present no longer be drawn upon. Clearly, then, the banks 
could not expect to obtain more capital at once, even if all the 
demands upon them had been legitimate. 

As the fall in the stock market has shown us, however, some of 
the collateral was undoubtedly not worth the high prices established ; 
and, when the banks as the only wise alternative, were obliged to call 
their loans based upon this questionable collateral, the lending insti- 
tutions returned to a sounder basis of credit and placed themselves 
in a position where the general business public could receive better 
accommodation. The result is one which, while reached only by 
drastic treatment, is unmistakably healthier and safer than the con- 
dition before the disturbance. The emetic has been given ; and the 
patient has been purged, much to his advantage. 

It is needless to say, therefore, that the late debacle could not have 
been prevented by the existence of an elastic asset currency. The 
essential evil was in the kind of loans made — i. e., the kind and prices 
of collateral used — ^and the evil could have been accomplished 
through the means of granting to the borrower either a deposit 
account, or the banks own issues (had the latter been possible). It 
is not the special weapon used to kill, which is to be held responsible, 
but the assassin who wielded the weapon. It is not the special 
liability in the form of a deposit, or of a note, which is dangerous, 
but the character of the loan which gives rise to the consequent 

J. Laurence Laughlin 


The two main propositions of this theory are, that each agent 
of production creates a distinguishable share, and that each gets 
what it creates.^ The first question we have to answer, therefore, 
is, whether or not there are distinguishable shares in production. 
In order to simplify the problem, we will confine our attention 
chiefly to labor and wages. 

According to the theory under consideration, there are two mar- 
ginal zones of production, the extensive and the intensive, where 
labor creates the whole product, all of which goes to labor. The 

*J. B. Qark, Distribution of Wealth, p. 3. 

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extensive margin consists of worthless land and worthless tools 
with which labor works. 

There are machines that have outlived their usefulness to their owners, 
but still do their work and give the entire product they help to create to the 
men who operate them.* 

It may be true that under the circumstances indicated labor gets the 
whole product, but it does not follow from that fact that labor 
creates all of it. If these "worthless" machines "do their work" and 
"help to create" the product, it is a contradiction in terms to say 
that labor creates it all. Moreover, it is begging the question to call 
machines "worthless," for they become such, not because they chose 
to be agents of production, but because, it would seem, wages are 
so high that labor gets all of the joint product of labor and capital 

Let the general rate of wages rise, and many of these instrtunents will be 
thrown out of use. Let the rate then fall, and the utilization of them will 
be resumed.* 

We cannot accept this part of the argument because it contradicts 
itself and assumes the point that should be proved, that labor creates 
the whole product in the extensive margin. 

The intensive marginal field in which labor is supposed to create 
the whole product is of two kinds, one in which the same tools are 
used more intensively and one in which the forms of capital are 
changed to suit the niunber of laborers. But since the method of 
detecting the share produced by labor is the same on both 
margins, we may for the present neglect the difference between the 
two. This method has been aptly called the "method of diflference." 
Add or subtract a unit of labor, and the increase or loss in product 
measures the amount created by the marginal man added or taken 
away ; and since all units of labor are assumed to be alike, mutiply- 
ing the marginal product by the number of men gives the total 
product of labor. 

Now the question arises : Is the marginal product really created 
by labor alone, or is it a joint product ? If the marginal man works 
with capital, the marginal product, is a joint product In order that 
the marginal product be really due to labor alone, the marginal man 
must work unaided by any other agent. And this seems to be the 
premise upon which the argument at this point is based. We are 
told that "land makes its own contribution to the product of each 

■ Cark, op. cit., p. 96. • Ibid,, p. 96. 

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unit of labor except the last one," and that the surplus that each 
earlier unit of labor creates above the amount created by the mar- 
ginal unit is "the diflference between the product of aided labor and 
that of the labor that is virtually unaided." * But why does not land 
aid the last laborer, and why does not capital aid the last comer? 
Are we not again assuming what should be proved ? Moreover, we 
are distinctly told in another connection that "the new working 
force and the old one share alike in the use of the whole capital." • 
If all the units of labor share alike in the use of capital, it cannot be 
admitted that the marginal imit works unaided, and it cannot be 
admitted, therefore, that the marginal product is created by labor 

It would appear that where two agents are working together, 
neither of which could create anything alone, it is impossible to 
determine the share of each, since we have nothing to reckon from. 
But the apparently impossible is seemingly accomplished by assum- 
ing that one of the agents is passive while the other is expanding, 
the expanding agent creating the whole product while the dynamic 
process is going on ; then when the static state is reached the last unit 
of labor is assumed to be working imaided, its specific product is 
taken as the standard of all units of labor and all the surplus 
products of labor above the marginal product are imputed to capital, 
which for some unaccountable reason now becomes active. This 
curious process of reasoning is illustrated by the following passage, 
which is t3rpical of many others : 

Labor, applied to the wbole fund of capital in land and all other instru- 
ments, is now subject to the law of diminishing returns. The first unit 

*Ib%d., pp. i9S» 199. 

*Ibid,, p. 3^3' 

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produces the amount AB, the second produces the amount A'B\ the third 
creates the quantity A'^B", and the last the quantity DC. This last amount 
sets the rate of wages, and the area AECD measures the amount of wages. 
It leaves the amount expressed by the area EEC as the rent of the fund 
of social capital. All interest is thus a surplus, entirely akin to the rent 
of land, as that is expressed by the Ricardian formula: it is a concrete pro- 
duct, attributable to the agent that claims it as an income.* 

Now, if labor creates all of AB, none of it is created by capital, 
since two agents cannot exclusively produce the same thing. On 
the other hand; if all the increments, except the last are joint pro- 
ducts, CD is also a joint product, since the new working force and 
the old one share alike in the use of the whole capital. We have 
in this chain of reasoning two contradictory statements, and one 
unwarranted assumption which conflicts with express statements in 
other parts of the theory. We have found, therefore, no way of 
distinguishing the products of the different agents. 

Our general conclusion is that the first proposition, that there 
is a distinguishable share in production, has not been proved. We 
might, therefore, properly end our discussion at this point, since the 
whole theory hangs upon this proposition ; but in order to test the 
theory more thoroughly, it may be well to examine all its parts. 

We will, therefore, proceed to inquire how and why the mar- 
ginal product, whether we call it a joint or a specific product, sets 
the standard of wages. According to one view, employers are com- 
pelled to give the marginal product all to labor by the force of 
competition among them for laborers. 

Theoretically, there is competition between employers for every workman 
whose presence in an establishment affords the owner any profit over what 
he pays to him ; and the competition stops only when this profit is annihilated.* 

An intensive margin, indefinitely elastic, is supposed to be furnished 
by the changes in the forms of capital to suit the nuniber of laborers. 
There could, therefore, be no surplus of labor vainly seeking 
emplo)mient, for the beneficent changes in the forms of capital 
accommodate all who may come. As the number of laborers 
increases, the fund of capital remaining the same, tools are multi- 
plied, but they are "all less costly and less efficient" • 

This certainly looks like a strange law, and somewhat out of 
harmony with the facts of industrial life; for those who have 
investigated the subject tell us that an over-supply of common, 

•Clark, op, cit., p. 198. ''Ibid., p. no. * Ibid., p. 176. 

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NOTES 23s 

unskilled labor has been the chronic condition for a hundred years ; 
and we have as yet seen no indication that modem employers intend 
to return to less efficient forms of capital. 

Moreover, the theory is not Ic^cal. In the first place, employers 
would have no economic motive in using less efficient tools on 
account of cheaper and a more abundant supply of labor; because 
the efficiency of a tool depends upon the mechanical principals upon 
which it is constructed and not upon the rate of wages. In the 
second place, lower wages would mean lower cost of making 
machines ; hence, employers would have no reason for wanting less 
efficient machines, because they would be cheaper. In case some 
special machine is held at a very high price owing to some patent 
right, there may be some tendency to use cheaper machines in case 
wages fall ; but there could be no general tendency in that direction. 

Another version of the productivity theory bases its argument 
upon the marginal-utility theory of value — ^a theory that has 
by no means been fully established. The arg^imient runs 
thus: The value of all production goods depends upon 
the value of the consumption goods. Labor is a production 
good. Therefore, the value of labor depends upon the value 
of its product* It is doubtless true that "if the price of iron pro- 
ducts falls, the price of ircm ore will fall ;" but it is also true that, 
if the price of iron ore falls, the price of iron products falls. It is 
true that, if the price of the products of labor falls, the price of 
labor falls ; it is also true that, if the price of labor falls, the price of 
the product of labor falls. And it is in order to ask at this point how 
"we know that the ultimate explanation of value is found on the 
side of utility and that marg^inal cost adjusts itself to marginal 
utility." ^^ 

If laborers have it in their power to raise their standard of 
life by limiting the supply of labor, and by decreasing the supply of 
labor to raise the marginal product, how can it be maintained that the 
marginal product is the ultimate force ? And that laborers have the 
power to limit their number does not seem to be denied by the 
advocates of the marginal-productivity theory. Nor could it well 
be maintained that men have no control over the increase of popula- 
tion, for we have abundant evidence that such control is exercised 
at the present time by the more prosperous classes, and sometimes 
by the less prosperous who live close to the land. 

* Seligman, Principles of Economics, pp. 418, 417. ^ Jbid,, p. 712. 

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The final objection to the marginal-productivity theory is its 
failure to prove that there is an indefinitely elastic marginal field 
where all labor can find employment; and we therefore have no 
assurance that wages may not fall below the marginal product by 
the competition among laborers. In such a case the value of the 
marginal product may tend to equal the wages ; but it is the fall in 
wages that causes the fall in the value of the marginal product 
Under such circumstances there is no definite formula by which 
we can express the rate of wages ; for the fierceness of the compe- 
tition may possibly send wages below the minimum of subsistence 
for a certain length of time. 

The third general question with which we have to deal is 
whether or not the marginal-productivity theory implies the exploi- 
tation of all the earlier units. If only the marginal men get what 
they produce and all the others are robbed, society stands con- 
demned, according to the advocates of the theory. But it would 
seem that the idea of diminishing productivity should lead to 
inequality of wages and not equality. Mcweover, it would seem 
that the idea of diminishing productivity contradicts the idea of 
equal productivity. The explanation offered to clear away this con- 
tradiction is that 

the new working force and the old one share alike in the use of the whole 
capital, and with its aid they now create equal amounts of product. The 
earlier men have relinquished a half of the capital that they formerly 
had; and in making this surrender the men of the earlier division have 
reduced the productive power of their industry, by the amount that the 
extra share of capital imparted to it." 

But if the extra share of capital possessed by the earlier men aided 
them in producing the extra product, the earlier men did not produce 
all that was formerly paid them, and capital was robbed. This 
theory of "imputation" is concisely stated thus : 

A correct conception of the nature of any rent makes it a concrete 
addition which one producing agent is able to make to the product that is 
attributable to another producing agent." 

That is, labor makes an addition, x, in the product, x-^-y, and the 
whole product, x-^-y, is "imputed" to capital. But if labor produced 
X, capital did not produce it. Moreover, this explanation contradicts 

" Clark, DistrihuHon of Wealth, pp. 323-25. 

"^Ibid., p. 195. 

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NOTES 237 

another part of the theory. Here it is claimed that the new men, 
the marginal men work with capital; elsewhere we are told that 
the marginal men are unaided. Now, the marginal men are either 
aided or unaided. If they are unaided, they are robbed when their 
pay is reduced on taking on additional men ; because, if unaided by 
capital before the new men are added, they cannot under any cir- 
cumstances be any less unaided. If the marginal men are aided by 
capital and yet receive the whole marginal product, capital is robbed. 
Hence, whichever of these contradictory views we adopt, we have 
an exploitation theory of distribution. 

U. S. Parker 


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The Federal Power over Carriers and Corporations. By K 
Parmalee Prentice. New York and London : The Mac- 
millan Company, 1907. 8vo, pp. xii+244. 
This book is obviously, though not very frankly, a brief for 
those interested in denying to the federal government the constitu- 
tional power to regulate and control large corporations engaged 
in interstate transportation or trading. The author argues that at 
the time the Constitution was adopted the grant of power to Con- 
gress to regulate commerce with foreign nations among the 
several states, and with the Indian tribes was meant, as regards 
interstate transportation, to give only the power of regulating car- 
riage by water, because, at the time, interstate carriage by land was 
utterly insignjficant and could not have been in the minds of those 
adopting the Constitution as needing national regulation. Also, 
prior to 1824 when Gibbons v. Ogden was decided, a large number 
of stage monopolies over certain roads and between certain points 
had been granted by the states without protest, although over some 
of these routes goods must have been carried from state to state; 
and many exclusive grants of ferriage had been granted across 
waters separating two states. He quotes from contemporaneous 
writings and congressional debates various opinions to the effect 
that Congress could not authorize or regulate land carriage within 
a state, and contends that the broad language of Marshall in Gib- 
bons V. Ogden was not meant by him literally, but only as applied to 
navigation (pp. 70-98). He also thinks that the present decisions 
upon the subject of interstate commerce "go to the limit of federal 
power, and extension of present rules" (as by upholding federal 
interstate rate-making) "would be embarrassed by extraordinary 
constitutional difficulties" (pp. 136-37). Federal power to license 
or incorporate corporations for interstate trading is denied, and 
doubts are expressed whether Congress can really charter a railway 
empowered to do interstate carrying against the will of any state 
in which it operated (pp. 149-55). The Sherman anti-trust law is 
disapproved as an improper and unnecessary interference with mat- 
ters that should be left to state regulation. 


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As a brief for one side of a controversy the book might pass 
without much criticism, but as an effort fairly to state the power 
Qjngress now probably possesses over carriers and corporations it 
lacks either ingenuousness or care. For instance, the gloss put 
upon Marshall's opinion in Gibbons v. Ogden seems quite imper- 
missible when the exact words of the judge are read : 

It has, we believe, been universally admitted that these words comprehend 
every species of commercial intercourse between the United States and 
foreign nations. No sort of trade can be carried on between this country 

and any other, to which this power does not extend If this be the 

admitted meaning of the word in its application to foreign nations, it must 
carry the same meaning throughout the sentence and remain a unit, unless 
there be some plain intelligible cause which alters it. (9 Wheat. 193-94- ) 

The power of G>ngress, then, whatever it may be, must be exercised 
within the territorial jurisdiction of the several states. The sense of the 
nation on this subject is unequivocally manifested by the provisions made in 
the laws for transporting goods by land between Baltimore and Providence, 
between New York and Philadelphia, and between Philadelphia and Balti- 
more. (9 Wheat. 196.) 

Yet Mr. Prentice says of this case that the decision, "without 
reference to transportation, held that the federal power over com- 
merce included control of navigation" (p. 75). 

As regards the state stage and ferry monopolies of the first 
third of the nineteenth century, their existence, even if legal, was in 
no wise inconsistent with a concurrent power of the United States 
to regulate them with reference to interstate commerce. Gibbons v. 
Ogden itself was expressly based upon the inconsistency of the 
New York monopoly with an act of Congress, Marshall 
refusing to discuss the question of its invalidity on any other 
ground. Five years later he admitted the concurrent power of a 
state to obstruct a navigable tidal stream until Congress controlled 
such action {Willson v. Blackbird Creek Marsh Co., 2 Pet. 245). 
There is no reason to believe it would' have been held at this time 
that the power of Congress over interstate land transportation was 
not at least concurrent with the states. With respect to interstate 
ferries it is true that up to the time of the Civil War there were dicta 
in the federal courts declaring the power to establish and regulate 
such ferries was reserved to the states. This Mr. Prentice empha- 
sizes (p. 130). He does not see fit, however, to mention at all that 
since then the Supreme Court has declared this power to be con- 

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currently in the United States (Gloucester Ferry Co. v. Pa., 114 
U. S. at 215-17; Covington Bridge Co, v. Ky., 154 U. S. at 211), 
and that within three years it has expressly reserved the right to 
redecide whether the states may regulate such ferries at all (St. 
Clair Co. v. Interstate Transfer Co., 192 U. S. 454, 470 [1904]). 

In the discussion of present-day questions also the book is 
markedly biased in presenting the evidence for one side only, much 
of this consisting of quotations from partisan speeches in Qjngress 
and from dissenting opinions of the Supreme Court, the fact of dis- 
sent not being always indicated. For instance, in the discussion of 
the federal power to charter interstate railways the author endeavors 
to throw doubt upon its existence, without citing or quoting from 
cases like California v. Central Pacific R. R. Co. (127 U. S.), 
where it is strongly affirmed. The arg^ument against federal power 
to license or incorporate corporations to do interstate commerce 
appears to attribute to the author's opponents the claim that Congress 
can arbitrarily deny to any individual or combination of individuals 
the right to do interstate commerce (see pp. 87, 217, 219, 226). Of 
course, no such claim is made, and Mr. Prentice disregards the 
real point at issue in order to attack his man of straw. The argu- 
ment which the author does not answer runs thus: 

The Fourteenth Amendment prohibits a state from depriving 
any person of property or liberty without due process of law, yet 
it has always been held that a state may forbid a corporation, foreign 
or domestic, from doing internal commerce of no matter how inno- 
cent a nature, wthin its borders. It could not do this to a natural 
person. This is because the right of a corporation to act is a fran- 
chise which may be granted or refused at pleasure by the sovereignty 
having jurisdiction over the class of acts in question. If a particular 
sovereignty does not indicate its dissent, it is assumed to assent to 
acts done in it by a corporation, on the grounds made familiar in 
Bank of Augusta v. Earle (13 Pet. 519). But it may withdraw 
this consent at any time, unless it has validly contracted not to do 
so. If the corporate acts consist in doing interstate commerce, such 
acts are within the jurisdiction of Congress, and the franchise to 
do them may be controlled by Congress. So long as it does not 
deny the right, its assent is presumed, but it may expressly with- 
draw this consent, and regrant it on terms, as by a license. That 
the franchise of a corporation to do interstate commerce is subject 
to the jurisdiction of Congress appears negatively in the decisions 

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which forbid a state to deny its exercise to a foreign corporation, 
whose other franchises, however, may not be exercised within a hos- 
tile state. If Congress cannot forbid the exercise of this franchise, 
no cme can, and we have, consequent upon the formation of the Union, 
the curious disappearance of a valuable and much-used governmental 
power, though there is nothing in the Constitution that expressly 
or by necessary implication denies the power either to the states 
or the United States. The Fifth Amendment certainly does not, 
for it is in the same language as the Fourteenth, and the denial of 
it to the states has been based upon that interpretation of the com- 
merce clause which reserves to Congress exclusively such reg^la- 
ticm of the subject as ought to be uniform throughout the country. 
Hence the deduction is irresistible that Congress has the same power 
over a corporate franchise to do interstate commerce, no matter 
by whom granted, that a state has over a franchise to do internal 
commerce, no matter by whom g^ranted ; and, likewise, congressional 
power to forbid an individual's doing interstate commerce, is 
limited by the Fifth Amendment as state power is by the* Four- 

The only suggestion in Mr. Prentice's book that appears germane 
to this argument is that "the right to engage in commerce is part 
of the liberty derived from the states, which neither the United 
States nor the states may deny" (p. 34). This entirely disregards 
the patent fact that the right to act in corporate form is not derived 
from any ccmstitutional guaranty of liberty, whatever, but solely 
from a franchise permitted to be exercised by the appropriate 
sovereignty, and, as has just been said by the Supreme Court, the 
liberty referred to in the Constitution is the liberty of natural, not of 
artificial, persons (Northwestern Ins. Co. v. Riggs, 203 U. S. at 255 
[December, 1906]). Moreover, if Mr. Prentice is right, why is 
not corporate liberty to engage in internal commerce equally pro- 
tected against state prohibition? 

The weakness of the author's too frequent reliance upon debates 
in Congress to support his constitutional views is amusingly shown 
in cme place. At p. 149 he quotes confidently from a House report 
made in the spring of 1906 to the effect that Congress has no 
visitatorial power over corporations created by a state. About the 
same time (March), in a decision not cited by Mr. Prentice, the 
Supreme Court asserted that state corporate franchises to do inter- 
«^ate commerce must be exercised in subordination to the power of 

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Congress to regulate such commerce, and, in respect to this, the 
general government might exert the same sovereign authority to 
ascertain whether the corporation was exercising its franchise io 
obedience to the laws of the United States as the state would have 
regarding its own laws, or as the United States would have if 
the corporation had been created by act of Congress {Hale v, 
Henkel, 201 U. S. at 75). 

Where the book deals with matters not at present the subject ot 
sharp controversy the author is both acute and fair, as in his dis- 
cussion of the taxation of imports and exports (pp. 37-48), his 
review of the decisions from 1824 to 1851 (pp. 101-20), and in his 
analysis of the consequences flowing from the construction placed 
upon the commerce clause in Brown v, Maryland. On the whole, 
however, it must be said that the book's place is as a readable partisan 
account of the development of a constitutional doctrine, and not as 
a serious contribution to the legal literature of the subject. 

James Parker Hall 

University op Chicago Law School 

The Labor Movement in Australasia: A Study in Social-Democ- 
racy. By Victor S. Clark. New York: Henry Holt 
& Co. Svo, pp. xi+327. 
Dr. Clark's account of the Social Democratic labor movement 
in Australasia presents a simple statement of those conditions past 
and present which have developed peculiar social institutions in 
this remote region. The Australasians have had imique economic 
problems to solve, and in solving them have developed institutions 
which may properly be characterized as socialistic, but the develop- 
ment of these institutions has been in no respect consciously modi- 
fied to conform to any social philosophy. In their social conduct the 
Australasians have been pragmatists and opportunists, content to 
work out results in the world of affairs — to solve each problem in 
the light of immediate experience. In no line of development have 
they sought consistently to carry out any general principle. The 
state, because it could borrow money on better terms than private 
corporations in the early days, has built and operated railways, but 
it has not prevented private capital from entering this field of invest- 
ment It has provided state insurance, but has not prohibited private 
insurance companies from operating in competition with the govera- 

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ment. It has seized upon private property in land, but tolerates private 
ownership. It has provided for the settlement of labor disputes in 
its specially organized courts of arbitration — but resort to those 
courts is not compulsory. The municipalities and colonial govern- 
ments operate street railways, but so, also do private companies. 
Each case where the government has assumed a new industrial func- 
tion has been considered in the light of immediate expediency, with 
no regard whatever to any general principle or philosophy of social 

It is further noted by our author, and it is significant, 
that Australasians themselves are far from being unanimous in 
the belief that they have solved their economic problems wisely, or 
in any concrete case finally. It is true that the labor party has today 
a fairly well-defined programme of political action, but that party 
encounters serious opposition in every community. Those who 
believe that the economic and industrial development of Australasia 
has been inhibited by its social legislation probably constitute a con- 
siderable majority, but of those a sufficient number believe that the 
economic and industrial loss has been more than offset by social 
gains. It is assumed that rapid economic progress is somewhat 
inconsistent with social progress. Therefore the Australasian regards 
with perfect equanimity a country of immense natural resources, 
which are, as yet, quite undeveloped and vast territories as yet 
unpopulated. It is the price, he thinks, of social progress. To 
Americans, who do not regard economic progress as inconsistent 
with, but rather as essential to, social progress, this attitude of mind 
appears inexplicable. 

Dr. Clark's discussion of the working of Social Democracy in 
Australasia impresses one as being eminently fair. After two intro- 
ductory chapters descriptive of the country and its resources, the 
people and their institutions, he devotes chapters to an account of 
trade-unionism, the political labor movement and programme, indus- 
trial arbitration, the operation of minimum wage boards, economic 
and social effects of government regulation, and to the efficiency 
of the government as an industrial organization. The practical diffi- 
culties being encountered, as well as the apparent advantages of 
the Australasian policies, are made clear. Especially interesting is 
the account of the effort in certain industries to establish minimum 
wages through government boards as a means of insuring all a 
decent standard of living. Wherever this effort is made there is 

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a tendency for the minimum wage to conform to the trade-union 
standard wage, to become a maximum as well as a minimum wage — 
in general a tendency to standardize wages irrespective of individual 
skill or efficiency. 

More or less enthusiastic accounts of Australasian experience 
have commonly presented the social achievements of these isolated 
communities as the concrete working-out of preconceived social 
philosophies. In fact, they have been little more than specific 
reactions upon tmiqu^ economic and social conditions. Among these 
conditions may be mentioned as especially noteworthy the character 
of the early population, the system of land grants, the institution 
on a large scale of convict labor, the growth of such industries as 
sheep-raising and mining under conditions involving land-owner- 
ship, and finally social and industrial isolation of a population inade- 
quately supplied with the means of economic exploitation of the 
immense region in which it found itself located. The Australasians 
have been too much occupied with the solution of these practical 
problems to develop a philosophy of social conduct. Such philosophy 
as they have today has been written out for them by enthusiastic 
foreigners, and is to them a matter of comparatively little interest. 

John Cummings 

Railway Organization and Working. A Series of Lectures 

Delivered before the Railway Qasses of the University of 

Qiicago: Edited by Ernest Ritson Dewsnup. Chicago: 

The University of Chicago Press, 1906. 8vo, pp. xii+498. 

This volume contains a series of twenty-five papers or lectures, 

prepared by nearly as many different authors; and an appendix 

containing six special class topics. Ten diagrams are introduced 

to illustrate various chapters, and the purpose and scope of the 

whole volume are briefly set forth in a preface by the editor. 

The academic study of railway transportation has sometimes 
been made a study of speculations and theories, more or less remotely 
connected with real transportation problems. Men have some- 
times talked and written glibly concerning the theory of railway 
rates before they had seen a rate sheet or had acquired even a 
superficial knowledge of what a classification was like. Well- 
roimded periods have been devoted to generalities regarding the 
relative merits of private and public ownership when the author 

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thereof was clearly unfamiliar with the actual workings of either. 
To all persons who suffer from tendencies of this kind the present 
volume is an excellent antidote, for in it one will find a plain, 
matter-of-fact statement of what railway organization and railway 
workings are and mean. Excepting the chapter on Canadian rail- 
ways, the volume contains practically no history. There is very 
little on rates, and nothing on finance. What, then, is to be found 
in this book of nearly five hundred pages? The reader may find 
therein a chapter on railway law, three chapters on the passenger 
traffic, six on freight traflSc and how freight is handled, eight on 
construction and operation, four on auditing and statistics, one on 
railway education. Every chapter bears the impress of freshness 
which comes from actual experience. Among the contributors are 
some of the ablest railway men in the country. It is obviously 
impossible to review the contents of such a composite piece of 
work, and much less can one venture upon a discussion of so 
many different views and points of view. 

The volume contains remarkably few repetitions, considering 
the manner of its construction, and few of the contributors have 
failed to observe the limits of their special subjects. Only occa- 
sionally will the reader encounter general "philosophic" observa- 
tions, which, in reality, are commonplaces that have in some man- 
ner made their way into the vocabulary of a practical man who 
writes or speaks absorbingly and authoritatively regarding his 
own work, but who has never been able to leave his practical 
problems long enough to think out a philosophy of his own or to 
furnish a theoretical background for his practical work. 

I enjoyed reading the book. I believe everyone interested in 
railways will enjoy it. And everyone who reads it will profit by it, 

Balhasar H. Meyer 

Madison, Wis. 


Economic and Statistical Studies, 1840-1890, By John Town Danson. 
With a Brief Memoir by his Daughter, Mary Norman Hill; and an 
Introduction by E. C. K. Conner, London: T. Fisher Unwin, 1906. 
8vo, pp. 282. 

Of Mr. Danson's many economic and statistical studies two only are included 
in this volume: one "A Contribution towards an Investigation of the Changes 
Which Have Taken Place in the Condition of the People of the United Kingdom 
during the Eight Years Extending from the Harvest of 1839 to the Harvest of 

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1847 ; and an Attempt to Develop the Connection (if any) between the Changes 
Observed and the Variations Occurring during the Same Period in the Prices 
of the Most Necessary Articles of Food ;" the other, "Some Particulars of the 
Commercial Progress of the Colonial Dependencies of the United Kingdom, 
during the Twenty Years, 1 827-1 846." These papers, which were read before the 
Statistical Society in 1848 and 1849 respectively, are painstaking statistical 
studies of considerable interest. The raison d'itre of the volume is, however, 
fotmd in the personal memoir of the author, and more especially in a series of 
charts upon which have been plotted the percentage variations in price of twenty- 
two commodities during the period 1851-90, using as a basis the average price 
of each commodity 1846-50, and the rate of discount in London, Paris, and 
Berlin, during the same period. 

Das Problem des Normalen in der Nationalokonomie : Beitrag sur Erf or- 
schung der Storungen im Wirtschaftslehen, Von N. Pinkus. Leipzig: 
Dunker & Humblot, 1906. 8vo, pp. xiv+295. 

The author has made an exhaustive examination of economic theory from 
the dajrs of the Mercantilists down to the present time, with a view to determin- 
ing what in the case of each writer examined, is by him assumed to be a funda- 
mentally normal economic condition of affairs, and what an abnormal condition. 
These fundamental assumptions are found to vary from writer to writer and . 
from age to age. The normal condition of the Mercantilist, that of state regula- 
tion, becomes for Adam Smith and the Physiocrats an abnormal condition of 
state interference with individual liberty. The Mercantilist conceives economic 
disturbance to result from absence of government regulation ; while the Physiocrat 
finds in government regulation itself the cause of the disturbance. Economic 
optimists such as, say. Mill and Bastiat, regard periods of economic depression 
or overstimulation as conditions of unstable equilibrium, which tend automatically, 
through the working of economic laws, to correct themselves. While Malthus 
and his followers, imbued with economic pessimism, are disposed to regard 
economic distur|>ances as being in the nature of punishments consequent upon 
man's fatal, unreasoning disregard of natural laws. The socialist denies this 
fatality and finds the cause of disturbance in incomplete socialization. Finally 
the suggestion of May, Liefmann, and Sombart is noted that the fundamentally 
normal economic state is one of depression. In some respects the most interest- 
ing portion of the treatise is the short chapter in which the author discusses 
attempts to define and measure economic depressions and crises statistically. 
The statistical methods employed are criticized, and statisticians are accused of 
assuming relations which do not in fact obtain. 

The Industrial Organisation of an Indian Province. By Theodore Morri- 
son. London: John Murray, 1906. Svo, pp. vii+327. 

The author explains that his study of The Industrial Organisation of an 
Indian Province has been written primarily for Indian students. He feels that in 
India — and the observation certainly need not be restricted to India — ^"the study 
of economics has a tendency to become undesirably abstract." The Indian 
student of economics uses English books, and the "industrial facts which are 
mentioned in English books to illustrate economic theories are mostly taken from 
European industry, and are, therefore, as remote from the experience of Indian 
students as the theories they are designed to illustrate." The author has, there- 
fore, undertaken "to review the principal economic facts in a society with which 
Indian students are familiar, and to show the relation of those facts to the 
abstract economics which they read in textbooks." These facts have to do 
primarily with the mutual relations of landlords and tenants, and with primitive 
conditions in Indian agricultural communities. The materials of the book 

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have been gathered by the author during his residence in India, and as an 
'^examination of Indian industry from the point of view of the economist," the 
treatise will appeal, as its author hopes it may, to European students of compara- 
tive economics. 

Infant Mortality: A Social Problem. By George Newman. With six- 
teen diagrams. New York: Dutton & G)., 1907. 8vo, pp. vii+356. 

Infant mortality is essentially a problem for the physician, and only remotely 
one for the economist. High infant mortality-rates, according to Dr. Newman, 
are not necessarily associated with poverty, nor with housing conditions alone, 
nor with any external environment, but rather with "evil conditions in the homes 
of the people." It is pointed out as a matter of serious import that this high rate, 
as civilization advances, does not become materially lower. "There is an annual 
loss to England and Wales of iao,ooo lives by the death of infants. In past 
years there has been a similar drain upon the national resources of life." This 
loss is maintained in face of a rapidly declining birth-rate, and is felt to "denote 
a prevalence of those causes and conditions which in the long run determine a 
degeneration of race." One chapter is devoted to a discussion of the effect of 
industrial employment of women upon the mortality of children. Dr. Newman 
has gotten together an immense amount of statistical data bearing upon infant 
mortality-rates, of which data he makes most effective use. 

Baumwollproduktion und PHansungswirtschaft in den nordamerikanischen 
SUdstaaten, Von Ernst von Halle. Zweiter Teil, "Sezessionkrieg 
und Rckonstruktion." Leipzig: Dunker & Humblot, 1906. 8vo, pp. 

Die Geldverfassung und das Notebankwesen der Vereinigten Staaten. Von 
Adolf Hasenkamp. Jena: Gustav Fischer, 1907. 8vo, pp. 213. 

Betrachtungen iiber das Notenbankwesen in den Vereinigten Staaten von 
Amerika. Von Paul Marcuse. Berlin : Carl Heyman, 1907. 8vo, pp. 168. 

Amerikanisches Armenwesen. Von E. Munsterberg. Leipzig: Dunker & 
Humblot, 1906. 8vo, pp. 120. 

Wirtschaftliche Zustdnde im Mesabi-Gebiet in Minnesota, unter besonderer 

Beriicksichtigung der Stadt Eveleth und der BergarbSiter. Von Viktor 

BoROSiNi VON HoHENSTERN. Berlin: Puttkammer & Miihlbrecht, 1906. 

8vo, pp. 143. 

The writing of American economic history seems almost to have taken on the 
form of a competition in Germany, when two studies of our national banking 
system and currency appear simultaneously. Every phase of American economic 
conditions is in a fair way to be written up by German economists, and it must be 
admitted that American economic history will probably be better written up by 
them than it has been done by Americans. The delegation of this service to 
foreigners has, however, serious disadvantages. The German student writes 
for German readers. He naturally includes much that seems superfluous and 
commonplace to American readers. Moreover, working in a foreign language 
seems ordinarily to put more or less constraint upon intellectual processes. 
That which would seem amateurish if done by a native, achieves a certain 
scientific recognition and dignity when done by a foreigner. American students 
are not likely to make much use of this literature. An American wishing to 
learn about industrial conditions in a Minnesota mining community will hardly 

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consult HeiT Borosini's monograph, which is nevertheless an entirely credhable 
account No more will an American student of our poor-relief methods turn to 
Dr. Munsterberg's Amerikanisches Artntnwtsen — a monograph somewhat too wide 
in scope to be exhaustive in treatment, including an account of social settlement 
work, public and private relief, organization of charitable societies, care of 
children, and relief legislation. Of our banking and currency system it may be 
noted that it has been written up better by American economists than any other 
phase of our economic development, so that an American could have small occasion 
to turn to the somewhat superficial German studies. Of the above monographs 
the most exhaustive in treatment is Dr. von Halle's study of industrial conditions 
in the cotton states. The above volume constitutes Part II of the author's 
treatise and covers the period 1 86 1-80 in great detaiL Part I appeared some 
twelve years since, and Part III is promised in the near future. This wodc is 
much more than an account of cotton-planting at the South, and in fact consti- 
tutes an industrial history of the southern states, including an account of political 
and social, as well as industrial, conditions. It is less superficial, less inaccurate, 
and consequently essentially more scientific, than much German American 
economic history. 


Abeille, L. Marine f ran^aise et marines 
^trang^res. Paris: Colin, 1906. 
iSmo, pp. 370. Fr. 3.50. 

Actes de TUnion pour ht probation de 
la propri^t^ industrielle en vigueur 
depuis le 14 septembre 190s. Berne: 
Bureau International de la propri£t6 
industrielle. 8vo, pp. iv-l-31. 

Aftalion, A. Le d^veloppement de la 
fabrique et le travail k domicile 
dans les industries de lliabillement. 
Paris: Larose et Tenin. Pp. 317. 
Fr. 3.50. 

Alfonsi, A. Sulla coltivazione e snl 
commercio del frumento in rapporto 
alia panificazione militare. Naples, 
1906. Svo, pp. 185. L. 4.50. 

Alkoholfrage, Die. 4 vols. Dresden: 
Bdhmert 8vo. 

Alkoholismus, Der. 6 vols. Leipzig. 

Altrock, W. Die landliche Ver- 
schuldung in der Prov. >Posen. 
Posen: F. Ebbeche. Pp. 16. 

Alzow, F. Fleischnot u. Brotverteue- 
rungt Ein Manruf an alle G>nsu- 
menten des Mittelstandes u. der 
arbeit Klassen. Berlin: H. S. Her- 
mann, 1906. Svo, pp. 18. 

Amstblatt d. grossherzogl. Mecklen- 
burg. Stener- u. Zoll-DirektioiL 
Schwerin : Barensprung. 

Annuaire officiale del Cantone Tidno 
e guidia commerciale della Swiz- 
zera Italiana (con i carta e 2 tavole). 

Bellenzona: Colombi. Svo, pp. viii-(- 
388. Fr. 5. 

Arbeiterschutz u. Geweibeinspelction. 
Stuttgart: Wittmer. Svo, pp. iv+ 
98. M. 0.80. 

Aron, E. Daa Reichserbschaftssteuer- 
gesetz m. Erlauterungen u. Aus- 
fQhrungsbestimmungen. Leipzig: 

Hirschfeld. Svo, pp. viii-l-134. M. 

Aschehoug, Th. Sodal-Oekonomik: 
En videnskabelig Fremstilting af det 
menneskelige Samfunds Virkom- 
hed. 33. Hefte. Kristiania: Asche- 
houg, X905. Pp. 79. Kr. 1.60. 

Aufgaben, Neue, in der Bauordnungs- 
u. Ansiedelungsfrage : Eine Ein- 
gabe des deutschen Vereins f. Woh- 
nungsreform. Gottingen : Vander- 
hoeck & Ruprecht Svo, pp. xii-(- 
76, M. I. 

Auskunftsbuch fib. Entkonunen- n. 
Erganzungssteuer. f. den sachsischen 
Steuerzahler. Bearb. v. evorm. 
Kommissions-Vorsitzenden. Dresden : 
Boensch. Pp. 49. 

Badtke, W. Zur EntwickelUng des 
deutschen Backergewerbes. (M. G>n- 
rods Abandlungen.) Jena: Fischer, 
1906. Pp. 333. M. 5. 

Baker, J. H. American Problems. 
London : Longmans. 4^. 

Barker, J. Ellis. Rise and Decline of 
the Netherlands: Political and Eco- 
nomic History and Study in Practical 

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Statesmanship. London : Smith, 
1906. 8to, pp. 49a. xox. 6d. 

Barre, A. Les finances bosniaques. 
Paris: Michand, 1906. 8vo, pp. 
300. Fr. 3.50. 

Beauregard, P. Eltoents d'^conomie 
politique. Nouvelle Edition entidre- 
ment refondne. Paris: Larose, 
1906. Fr. 5. 

Beck, H. (ed.). Bibliographic der So- 
zialwissenschaften, 1906. Dresden : 
Bohmert, 1907. Pp. 700. M. la. 

Belot, A. La Vie Avique: Lectores 
r^publicaines des 6coliers et des 
^li^cs de France. Paris: Dela- 
grave. Pp. 292, Fr. 1.75. 

Bernstein, £. Der Streik: sein Wesen 
and sein Wirken. Frankfurt: Lit- 
erar-Anstalt, 1906. Pp. 119. M. 

Bernstein, E. , Die Voralissetzunzen 
des Sozialismus u. die Aufgaben der 
Sozialdemokratie. Stuttgart : Dietz. 
8yo, pp. XX+188. M. 3. 

Berolzheimer, F. System der Rechts- 
und Wirtschiftsphilosophie. 4. Band: 
Philosophic des Vermogens ein- 
schlicsslich des HandclsYcrkehrs. Mu- 
nich: Beck, X906. Pp. 343. M. 

Biblioteca dell' economista; scelta col- 
lezione delle piu imporlanti pro- 
duzioni di economia politica, antiche 
e moderna, italiane e straniere. 
Quinta serie. Torino: Unione tipo- 
grafico editrice. 8vo, pp. 80. 

Bigwoods, G. Les origines de la dette 
beige. Brussels: Vromant, 1906. 

Bosanquet, Helen. The Family. Lon- 
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Digitized by 




Branntwdnbesteuruag des Deutsch- 
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Renflet, E. La mpttire du contrat dti 
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Digitized by 




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Hypothecbanken. Eene po^mfair- 
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Zorti, A. L'elemento giuridico e 
morale della convenienza economia. 
Rome, 1906. L. 3. 

Digitized by 



strong Testimony from the University of 





Gao. Bon. Johnstonp MI.D.p LL.D., Prof, Gynecology and Abdominal Surgery, University 
of Virginia, Ex-Pres, Southern Surgical and Gynecological Assn., Ex-Pres, Virginia Medical 
Society and Surgeon Memorial Hospital, Richmond, Va,: **If I were asked what mineral water hat 
the widest range of usefulness, ^^ ^ wr§tgm literrM '" ^"^^ ^^^^ Wathesis, Oout* 

I would unhesiutingly answer, DUIIAuI Lfnllll WKTER Rheumatism, Llthaemla, and 

the like, its beneficial effects are prompt and lasting Almost any case of Pyelitis and 

Cystitis will l>e alleviated by It, and many cured. I have had evidence of the undoubted Dlsln- 
tecratlng Solvent and EUminating powers of this water in Renal Calculus, and have known its long 
oontinued use to permanently break up the gravel-forming habit" 

James L. Cabell, MI.D.f A.M., \XJ^n^ former Prof Physiology and Surgery in the Medical 
Department in the University of Virginia, ii||..^«M.«/^ ■ wiwna lAfjvrra ^° tJrlc Add 
and Pres. of the National Board of Health: iHlFilllO LITHUI ¥HJER Diathesis is a 

well-known therapeutic resource. It should be recognized by the profession as an article of 
Materia Medica." 

Dr. P. B. Barrlnger, Chairman of Faculty and Professor of Physiology, University of Vir- 
ginia, Charlottsville, Va,: "After twenty years' practice I have no hesitancy in stating that for 
prompt results I have found flnvn^m ■ g\ M wmmgrnm l|f»iii'n ^° preventing Uric Acid Deposits 
nothing to compare with OHIZWMM LfflllA WfUl^K in the body. 

Wm. B« Towlesi M.D., late Prof oj Anatomy and Materia Medica, University of Virgina: 
••la Uric Acid Diathesis, Oout, Rheumatism, Rheumatic Gout, Renal Calculi and 5tone in the 

Bladder, I know of no -^^^^^ mMa^mmmm ^P"°8 

remedy comparable to DUffTJllD LflHULlMlUi No. 2. 

^ Voluminions medical testimony sent on request. For sale by the general drug and mineral 
water tiade. ^ 


Digitized by V^OOQIC 

'ii' v^^rf^t^ 

iDvHy M iimf cenen ud cnckt-aooka behind plnaUnK amd M u^tta tb« oil 
• leaeked br the Mrabbiag braih, tbcraM be fceelyiytiakled vhkaafataivaCew 
I) »Mt PUn'i ChlwidM Md t*a Cio) putt of vam, by tmrn of • ^lii Im^ 

'IVaste Not— IVant Not' 


There is no waste for the purse where the housekeeper uses 
SAPOLIO. It has succeeded grandly although one cake goes as 
far as several cakes or packages of the quickly-wasting articles often 
substituted by dealers or manufacturers who seek a double profit. 
Powders, Sifters, Soft Soaps, or Soaps that are cheaply made, 


All powder forms of soap are easily wasted by the motion of your 
elbow. Many scouring Soaps are so ill-made that if left a few 
minutes in the water they can only be taken out with a spoon. 

A well-made, solid cake, that does not waste, but wears down "to 
the thinness of a wafer," is the original and universally esteemed 


'l¥aste Not-^Want Not 


_. ^Va^^^^A,^^ Write fciv CataloMM n mimI ««t. 

hMf beeo •rtablfahad unmt ju VBil 

u TiKMs p m i O i w« tuM wd an 
deUrer tbe nmr piaao im jam 

No. 5 

Vol. 15 

The Journal 


Political Economy 

MAY 1907 


Walther Lotz 
Anna Youngman 


The Prussian Railway Department and the Milk Supply of Berlin 

Hugo R. Meyer 


Pierce's The Tariff and the Trusts, — ^\3^io^^% John Sherman. 

NOTICES. — Brassey's Problems of Empire. — Forrest's The Development of Western 
Civilization: A Study in Ethical, Economic, and Political Evolution. — Smith's The 
Spirit of American Government: A Study of the Constitution: Its Origin, Influence and 
Relation to Democracy.— Mackaye's The Politics of Utility: The Technology of 
Happiness Applied. — Transactions of the National Association of Cotton Manufacturers 




Late Secretary of the Treasury 

Chancellor, University of Nebraska 

Professor, University of Minnesota 

Director of Statisdcs, Norway 

Professor, University of California 

Paris, France 

Professor, University of Illinois 

Professor, Rome, Italy 

Professor, University of Michigan 

Senator, Rome, Italy 


President, Qark Collee« 


Late Editor New York Evening Post 


Professor, University of Wisconsin 


Late Comptroller of Currencj 


Member of Institute, Paris, France 


Crane Company, Chicago 


University of Vienna, Austria-Hungary 


St. Petersburg, Russia 

GOttingen, Germany 

Cri)e Qinibetisits of €i)icago i^ressss 

Otto Habrassowiti, Letpsig 

Digitized by 


wRvwSSS^^w w SSBffiwS 

Man's Greatest Pleasure 

Matchless for 

His truest gratification, everywhere in the civilized 
world, is in the use of 


Cleansing — soothing — invigorating, it gives a 
freshness and beauty to the skin, a glow of 
health to the body — satisfying beyond expression. 

the Complexion 


•* J^I rights sgcurtd.** 

Digitized by 


'■^ •-' - 




MAY — igoy 


In 1834, when the German Z Oliver ein went into operation, 
there were within the limits of the present German Empire 
between 30 and 31 millions of people. The vast majority of 
them were then supported by agriculture; industry and com- 
merce, so far as they were then developed, were carried on on a 
small scale. In 1905, on the other hand, there existed on the 
same soil 60.6 millions of people. The excess of births over 
deaths was even greater than these figures would lead us to 
suppose. For several decades Germany has lost great ntunbers 
of her citizens by emigfration. Millions of emigrants have found 
a new home in the United States. In the last fifteen years, how- 
ever, this emigration has greatly diminished. The population 
tends to remain in Germany, and there to obtain its livelihood. 
In what way, then, has this surplus of population obtained its 
support? How has it come about that nearly twice as many 
people now live in Germany, and are richer, better fed, and 
better housed, than in 1834? 

In answer to this question, it is to be noticed that only a 
small proportion of this surplus population is engaged in agricul- 
ture. There can be no question that agricultural effort has 
became more productive : there has been more efficient specializa- 
tion, industrial by-work has been separated from agriculture, 


Digitized by 



and the agricultural piX)cesses have been rendered more effect- 
ive; moreover, there have been great improvements made in the 
technique of agriculture and in the methods of selling agricul- 
tural products, etc. However this may be, the great bulk of the 
increased population does not obtain its support by agriculture. 
The census returns show that Germany is becoming more and 
more an industrial nation. Not that the farms have been 
deserted, but that the surplus of population has been turned into 
industry, commerce, and transportation. It is a well-known 
fact that, in 1895, out of every 100 of the population engaged in 
gainful occupation, 37.5 were occupied in agriculture, forestry, 
and fisheries, and 48 in industry, commerce, and transportation.^ 

During this transformation of Germany into an industrial 
nation the population of the cities increased enormously. We 
can also observe the effects of this same process in the statistics 
of foreign commerce. In the returns of 1837-39, wheat, rye, 
etc., made up a large part of the then small exports; while the 
excess of exports of cereals over the imports had a value of 
nearly 30 million marks. In contrast with these figures it is to 
be observed that today the imports of Germany consist princi- 
pally of food-stuffs and raw materials of manufacture, while 
the exports consist of manufactured articles. 

At the very time of the industrial transformation a trans- 
formation of taxation was going on. Seventy years ago the 
agricultural population paid the largest part of the taxes. While 
today a greater sum of taxation per capita is of course collected, 
yet this is paid chiefly by people other than agriculturists. Even 
those politicians who do not at all approve, and who do not fully 
acknowledge the magnitude, of the industrial transformation, 
have joined energetically in the work of lightening the agri- 
cultural taxation and of increasing the burden upon the non-agri- 
cultural population. Prussia, which represents three-fifths of 
the German population, may be taken as typical. In 1901 the 
town population of Prussia paid an income tax of 8.61 marks 

* See W. Sombart, Die deutsche Volkswirtschaft im neunsehnten Jahrhun^ 
dert (Berlin, 1903) ; H. Rauchberg, Die Berufs- und Gewerbe-Zahlung im 
Deutschen Reich vom 14. Juni 1895 (Berlin, 1905) ; Schriften des Vereins fur 
Sosialpolitik, Vol. L, p. 92 (Leipzig;. 

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per capita, or 126.5 niillion marks, to the state; while the rural 
population paid 2.16 marks per capita, or 41.6 million marks 
in all. In these figures the payments of corporations are not 
included; if they were, their income tax would increase still 
more the relatively greater contribution of the non-rural popu- 

The question before us is whether the economic policy of 
Germany has been properly adapted to the industrial trans- 
formation or not. In order to answer this fundamental question, 
we must study not only the customs duties and commercial 
treaties, but also, in the period since 1880, the transportation 
policies of the state railways, as well as the development of 
inland waterways ; and we must not omit to take some notice of 
the German constitutional situation. 

From 1834 to 1848 it was the policy to develop German 
industries by protective duties which were steadily raised. Not 
only was this policy enforced by customs duties, but still greater 
assistance was rendered by public funds which have been devoted 
from that time to the present day to industrial as well as to agri- 
cultural instruction. Nevertheless, the sacrifices imposed upon 
the nation by duties of a protective nature, based on the "infant 
industries" argument, were not unimportant. After 1862, how- 
ever, the commercial policy was modified. The industrial exports 
had increased. The government had come to believe that the 
time had arrived for German industries to live without protect- 
ive duties. From 1862 to 1877, in some cases by commercial 
treaties, and in other cases by autonomous legislation, industrial 
duties were gradually lowered and abolished. Some few indus- 
tries were opposed to these free-trade measures; but down to 
1873 even those industries which complained of the tariff reduc- 
tion had made great progress after each free-trade reform. The 
agriculturalists, until 1875, ni^ide no opposition to free trade; on 
the contrary, both Conservative and Liberal agriculturalists 
were the most radical free-traders. 

During the first decade of the German Empire — ^more exactly 
from 1 87 1 to 1878 — the Liberal parties had a majority, not only 
in the Reichstag, or the federal parliament, but also in the diet 

Digitized by 



of the most influential state, Prussia. The elective franchise, 
however, is not the same for the federal as for the several state 
parliaments. The franchise for the Reichstag is quite demo- 
cratic — ^universal and equal suffrage with a secret ballot. In 
Prussia to the present time the political power of the electors 
varies according to the amount of direct taxes paid ; nor do the 
electors have the secret ballot. People, therefore, who are 
dependent upon others are easily controlled by their employers 
and by state officials, if they should be inclined to elect opposi- 
tion candidates. 

Neither in federal politics nor in the politics of the several 
states is there realized what English-speaking people would call 
responsible party government. The parties are numerous and 
at odds with each other. It is not the custom to call the party 
leaders into the government. Generally speaking, those persons 
are called to be members of the cabinet upon whom the monarchs 
can rely. Usually permanent administrative officers, sometimes 
also Conservative politicians, become ministers and secretaries 
of state. More rarely some Liberal business man not of noble 
birth is made a minister; but then he is expected to leave his party 
when entering the public service. As a consequence, the gov- 
ernment leaders do not have an organized control over the 
parties upon which they depend for a vote on the budget. 

Until 1878 Prince Bismarck had maintained dose relations 
with the Liberal Party of that time. The agricultural laborers 
did not, on the whole, join in the Social Democratic movement, 
which then remained chiefly industrial. In fact, to the present 
time the agricultural laborers are not an organized factor in 
politics. To this very day they are controlled chiefly by the 
Conservatives and Clericals, or elements other than Liberals and 

Until 1878 the political parties in Germany were not pri- 
marily the representatives of special economic interests. After 
the adoption of the protectionist programme by Prince Bismarck 
the character of the political parties was changed. Free-traders 
among the Conservatives and Clericals, and also among the 

Digitized by 



Moderate Liberals, disappeared. After 1879, Bismarck ruled 
Germany by majorities, made up at one time of Conservatives 
and Moderate Liberals, and at another time of Conservatives and 
Qericals. Those who voted for army and navy expenses were 
rewarded by special favors. These special favors consisted of 
measures "for the protection of German labor" — ^that is, pro- 
tective tariff duties — and, after the nationalization of the rail- 
ways, of a protective policy carried out by railway rates. Special 
favors to the Clerical party appeared in the form of a revision of 
the anti-clerical legislation — ^that is, of the Kulturkampfgesetz- 

It would be an exaggeration to suppose that Prince Bismarck 
imposed protectionism upon Germany against public opinion; 
in truth he educated Germany to protectionism. Since 1875 
a protectionist movement was developing among the Conserva- 
tive landlords — 3, movement influenced by the effects upon the 
German market of the importation of wheat from America and 
of cheap grain from Russia. Moreover, some industries which 
had suffered by the crisis of 1873 joined the protectionist 
alliance. The protected industries at the beginning would have 
preferred industrial protection without duties upon agricultural 
products ; but, since they could not get protection for themselves 
alone, they favored what was called a system of solidarity of 
protectionists. Prince Bismarck himself, who had for many 
years been a believer in free trade, became in his old age a 
convinced protectionist. His great authority, in spite of the 
change in his convictions, contributed powerfully to the victory 
of protectionism; and the free-traders were driven into opposi- 
tion without political influence. 

The programme of the government from 1879 until 1890 
demanded protective duties both on food-stuffs and on manu- 
factured goods, but the free importation of raw materials for the 
use of industries. As far as possible. Prince Bismarck tried to 
avoid the establishment of tariffs by treaties; he believed in an 
autonomous tariff policy. Only in case the protectionists' inter- 
ests were not at all affected, as in some treaties with Spain, Italy, 
and Greece, dic]^ he permit tariff rates to be affected. In the main. 

Digitized by 



Prince Bismarck, like the mercantilists, believed that the 
advantage of one party through a commercial treaty was gained 
at the loss of the other. It was his purpose to reserve for Ger- 
many an opportunity to increase her protective duties, especially 
on agricultural products; and he increased them in 1885 and 
1887. On the whole, differential customs duties were not 
applied; generally speaking, all countries were equally well or 
badly treated. Germany demanded, and accorded to other 
nations, the treatment of the most favored nations ; consequently 
there was little chance to obtain from other nations any promise 
not to raise their tariffs against Germany, since Germany her- 
self was not inclined to grant this condition. Only on special 
occasions, by virtue of the political situation, Germany con- 
trived to get such promises from some of the smaller powers. 
The greater powers, excepting England, but including Russia, 
the United States, Austria, and France, answered Germany by 
raising their tariffs on German articles. In several countries 
however, the protectionist movement had already become effect- 
ive before Germany changed her policy. 

Why did not the enhancement of foreign tariffs have a more 
injurious effect upon Germany's exports? Until 1892 this 
result must be placed to the credit of France. The French gov- 
ernment had imtil 1892 maintained the policy of entering into 
tariff treaties with European countries; consequently, a general 
rise of tariff must in some measure be hindered, and as a 
result of claiming the rights of the most favored nation Ger-* 
many's export' received the advantage of the attitude taken by 

Apart from the influence of the protectionist policy upon her 
foreign trade, it is now necessary to discuss its effects upon the 
internal development of Germany. Until 1888 the prices of 
food in Germany were cheaper than in the period about 1870- 
73. The prices of grain in the world's markets fell so low that, 
in the beginning, the effect of protection to agriculture only pre- 
vented prices from falling as much in Germany as they did for 
example in Great Britain. Consequently, at the start consumers 
did not fed any artificial rise in the prices of food. At the same 

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time, the agriculturalists did not cease to complain that the pro- 
tection to their products had not been sufficiently effective. So 
far as the non-agricultural industries were concerned, the effect 
v/as not the same for them all. The extractive industries, such 
as the mining of cool and ircm, and those industries which trans- 
formed raw materials into half-finished goods, retained nearly 
the same advantages as under full free trade. After a period of 
wild competition, some of them combined into "cartells" or 
pools, and thus contrived to obtain, as sellers, higher prices in 
Germany than abroad. The protectionist railroad tariff, how- 
ever, would have caused some disagreeable effects, had not the 
inland waterways, especially the Rhine, given the means of 
cheap transportation for imports. 

The situation of those industries which bought half-finished 
goods from German producers and from abroad, and trans- 
formed them into finished goods, became much more difficult. 
These industries were accustomed to send a considerable part of 
their manufactured goods abroad. The "infant industries" argu- 
ment in favor of protection to manufacturers had at that time no 
validity at all for Germany. The true meaning of industrial 
protection was disclosed by enabling those who were able to 
ccMnbine into "cartells" to obtain higher prices within the country 
than abroad, and to employ the gain got from the domestic 
market in order to sell cheaply abroad; while those who were 
not able to form "cart ells'* were placed at a great disadvantage 
and were obliged to produce their goods at higher costs than 
under free trade. The latter class were, nevertheless, forced to 
export the excess of their products, but under more onerous 
conditions than before. Many industries, especially those which 
produce finished goods, work under circumstances which do not 
allow the formation of "cartells." They produce a great variety 
of articles, the demand for which changes with changing 
fashions; or they are engaged in producing, not a few standard 
articles, but a great variety of objects. They do not want pro- 
tection ; they want cheap materials and no obstacles to exporta- 
tion. Such industries have suffered from the protectionist 

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Notwithstanding all of this, the industrial development 
brought some advantages to Germany. It is, to be sure, an error 
to praise the protectionist S)rstem as one which protects the 
weakest. On the contrary, in Germany it has woriced in favor 
of the strangest industrial producers; and, so far as industry 
upon a large scale is more productive than that on a small scale, 
and so far as large production is an element of progress, it was 
furthered by the protectionist policy. 

But it would not be correct to ascribe all the progress of 
German industry to the effects of the tariff policy. Germany 
at that time had begun to reap the ripe fruits of inventions, of 
her excellent technical high schools, and of the system of obliga- 
tory primary schools. A period of uninterrupted peace, and a 
system of taxation which was less oppressive and less irrational 
than in some other European countries, favored the increase of 
capital. Moreover, the German banks in this period had learned 
how to apportion wisely the sums saved by the people between 
German and foreign investments, and thus to help efficiently in 
the development of industrial concerns at home. The courts of 
justice, and the state and the municipal adriiinistrations, were 
free from corruption, and, on the whole, had a beneficial influence 
on the economic life. The railway rates could have been cheaper, 
but there existed two advantages of a state railroad system which 
cannot be denied: highly efficient technical service and no 
preferential treatment of any private shippers. 

But there were not only the bright phases in the economic 
situation; there were also some dark ones; and of these dark 
phases there are some which yet exercise great influence. 

In other countries the existence of an opposition is r^^rded 
as healthy and beneficial. Where bureaucracy exists opposition 
is r^iarded as an evil. In Germany the opposition parties are 
not regarded as a necessary institution in woricing out the control 
of public life; moreover, the opposition parties are inclined to 
adopt a merely negative policy, since there will be no opportimity 
for them at any time to come into office and to assume responsi- 
bility. The character of the political situation under Prince Bis- 
marck is shown by the fact that people who voted formerly for 

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protecticwi in fact voted also for army and navy expenses, and were 
thereby regarded as patriots. The free-traders, now chiefly Radi- 
cals and the Social Democracy, regularly voted against army and 
navy expenses, or at least against new taxes. The adversaries of 
Prince Bismarck's policy at that time were usually termed "ene- 
mies of the empire." After the nefarious attempts on the life of 
Emperor William I, the Social Democracy in particular was 
r^arded until 1890 as a party of non-loyalists. The law against 
the socialists did not operate to check socialism, but it had two 
other eflfects : first, trade-unionism was repressed, and for a long 
time, even after the abolition of the anti-socialist law, it had little 
or no development ; secondly, at each election for the Reichstag, 
or federal parliament, the extreme socialists gained more and 
more votes. It is to be observed, of course, that Bismarck's 
policy did not aim only at the suppression of the socialists; he 
introduced laws, supported by the government, for a magnificent 
system of social insurance, by which the workman would obtain 
benefits when he became sick, or invalided by old age, or when he 
suffered from an accident. Still the workmen demanded equality 
of rights in the battle for better wages and shorter hours of woric; 
they demanded freedom of movement, so long as they were not 
suffering from sickness, infirmity, or accident; they demanded 
political freedom, which ideal, in the eyes of the workmen, every- 
where seems to be realized by a radically democratic constitution. 
All these demands were not granted. The socialists were regarded 
as, and admitted themselves to be, revolutionaries and they were 
distinctly opposed to the monarchical constitution prevailing in 
government. As a consequence of this attitude, many prosecu- 
tions and convictions were carried on through the courts, and the 
administrative organs allowed themselves to engage in many 
persecutions. Those who were condemned were regarded by the 
workmen as martyrs, and the more they were persecuted, the 
more followers they obtained. Because of the political character 
given to the labor movement, trade-unionism was stunted, and, 
notwithstanding the importance of the industrial classes, and not- 
withstanding the universal suffrage, the political influence of 
these classes remained insignificant. 

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By way of summary it may be said that until 1890, and to 
^me extent to the present time, Germany's industrial situation 
has been acknowledged only by a distribution of the burdens of 
taxation, but not by a distribution of political influence. It is to be 
added that the economic policy was adapted in some degree, but 
not perfectly, to the interests of industrial capitalists; while, on 
the other hand, the industrial workmen were not persuaded that 
in the new German Empire they had obtained their share of free- 
dom of movement and political influence. The future develop- 
ment of Germany is to be interpreted in the light of the fact that 
industrial capitalists and industrial workmen are not org^ized 
in one body for their common economic advantage. Therefore the 
agrarians retain a preponderating influence over the situation, 
which is not justified by the share which they carry of the 
burdens of the empire and of the several states. 


After Bismarck's dismissal, in 1890, it seemed for a short 
tin^ as if a radical change in the situation was at hand. Bis- 
marck's successor, General von Capri vi, was by conviction a Con- 
servative, but his benevolent and righteous disposition did not 
incline him to maintain the violent methods which Bismarck's 
genius had adopted in the last decade of his domination. The 
social and commercial policy of the empire was radically changed. 
In place of anti-socialist legislation, great progress was made 
in l^slation for the protection of women and children in fac- 
tories. Instead of a policy of violent suppression directed against 
those of foreign nationalities living in Germany, there ensued 
for a few years a policy which aimed to treat all German citizens 
according to the same enlightened principles. Instead of an 
autonomous tariflf system with high protective duties, there was 
introduced after 1892 a policy of regulating and lowering of 
tariff duties by international treaties. The protection accorded 
to agriculture was reduced, but the industrial duties were not 
much altered. 

What was the cause of this change in commercial policy? 
Two causes had the chief influence upon the government and 

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upon public opinion. First, after 1888 the prices of food began 
to rise throughout the world, and by 189 1 they reached such a 
height that the very existence of agricultural protection seemed 
to be in serious danger. Secondly, after 1892 France was not at 
all inclined to continue the policy of regulating tariff duties with 
European countries by treaties; and Germany could no longer 
obtain the advantage resulting from the endeavors of other 
nations at stopping the general increase of European tariffs. 
France resolved to adopt the system of an autonomous maxi- 
mum and minimum tariff, and she was not willing to enter into 
international agreements which would restrict her in making 
alterations in the tariff. Germany then could not well avoid 
playing the role, which to that time had been played by France, 
as a champion of a policy of tariff treaties throughout Europe. 
The first treaties proposed by Caprivi were adopted by an 
enormous majority in the Reichstag. The later treaties, 
especially that with Russia in 1894, found many opponents 
among the Conservatives and Moderate Liberal parties, and 
they were carried through only by the support of the Radical, 
the Socialist, and a part of the Clerical parties. The year 1891 
was followed by years of very rich harvests and very low prices 
of food, which raised discontent among agriculturalists of all 
parts of the world. In Germany other causes than the altered 
commercial policies helped to keep down the prices of food. 
Favored by Caprivi's mighty opponent, the old Prince Bis- 
marck, the agrarian protectionists, after 1892-93, organized a 
very strong league and opposed Caprivi with reckless energy 
and irreconcilable hatred. In 1893 Caprivi saw that the parties 
which continued to support his commercial policy would not be 
willing to support the military scheme proposed by the govern- 
ment. His resignation from office, however, was not caused 
by parliamentary defeats, but by other and somewhat mysterious 
causes. Since 1894, under Hohenlohe and Biilow, the govern- 
ment of the German Empire and the governments of the several 
states have been striving to reconcile the angry agrarians. 
Meanwhile the industrial capitalists were sornewhat indolent in 
politics. They were absorbed in making money, and from 1895 

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to 1900 their business was so prosperous that they did not care 
much about the commercial policy of the future. They unfortu- 
nately maintained a position of political antagonism toward their 
workmen, and this political antagonism, which exists to the 
present time, is responsible for many errors committed on each 
side. In addition, the industrial capitalists have been divided 
into two hostile sections: first, the protectionist section, which 
is very ably organized, and which is controlled chiefly by the 
iron-masters and cotton-spinners; and, secondly, the section 
more inclined toward free trade, which is guided by the chemical 
industries and many other industries whose finished products 
are of such a nature as to afford no opportunity of forming 
*cartells'* or to obtain no advantage by such organization. 

The treaties concluded by Caprivi remained in force until 
March, 1906. Under this regime the wealth of Germany made 
very great progress; not only the foreign trade, but also the 
home consiunption, increased as never before. Nor were the 
industrial capitalists the only ones who grew richer and richer; 
the industrial working class also obtained higher wages, and a 
higher standard of living was wide-spread. Not only in the 
great cities, but also throughout the country, the organizaticms 
of workmen began to be recognized by the smaller employers as 
a factor entitled to equal consideration in establishing the con- 
tract for labor. This attitude makes headway daily. In the 
largest industries, on the other hand, in Rhineland, Westphalia, 
Saxony, and Silesia, trade-imionism to the present time remains 
very weak, and the workmen are in discord among themselves; 
their organizations are little recc^ized by mine-owners, iron- 
masters, and master-spinners as a factor entitled to influence the 
ccMitracts for labor; and in those large industries there are no 
boards of arbitration and conciliation, as in the Anglo-Saxon 
world. Consequently, there is no social peace, and no means 
have yet been devised for the permanent regulation of the condi- 
tions of labor by agreements between the organizations of both 
parties. It is therefore to be understood that at the present 
time there is no political alliance between the captains of industry 
and the workmen of the large industries of Germany; but, on 

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the contrary, bitter social and political strife prevails between 
them. As a consequence of this situation, the political influence 
of the whole industry upon the country is lessened; and, more 
than that, it is to be remembered that the distribution of the 
elective franchise is unfavorable to industry as compared with 
agriculture. The population of Germany has increased ivom 40 
millions in 1841 to 60 millions at the present time. Still not all 
districts have made the same progress, and only the industrial 
sections have attracted the surplus of population. The appor- 
tionment of the electoral districts for the Reichstag and for the 
Prussian diet has for a long time been a source of injustice. 
Today the districts which have not shared in the progress of 
industry and population still elect the same number of representa- 
tives to which they were entitled in 1871, while the densely popu- 
lated industrial districts have no more representatives than they 
had in 1871. Thus the agricultural districts retain a dominating 
influence solely because a just redistribution of electoral districts 
has not been carried out. Those districts which have remained 
stationary rule Germany today, and they are protectionist. Why 
is it that they are protectionist? 

As regards agriculture, one must make a distinction between 
the region east of the river Elbe and the region in the west and 
south of Germany. In the eastern section feudalism has resulted 
in a system of farming on a large scale and in the concentration 
of the ownership of land. In the south and west, on the other 
hand, the small peasants prevail. Everywhere throughout Ger- 
many there exists a system of cultivation through the management 
of the owner of the land, and not under a system of tenants, as in 
England. There are, of course, some small landowners in the 
east, but they have not the same influence as in the west. The 
t3rpical agriculturalist in the east is the great landlord. The great 
landowners of the east produce for the market wheat, rye, and 
potatoes, from which they distil spirits; and some also produce 
sugar beets. They have made much money by distilling 
spirits on the farm and by the cultivation of beets; and until 
1873 they also profited largely through the sale of large quanti- 
ties of wheat and especially of rye. 

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With the industrialization of Germany wheat bread more 
and more took the place of rye bread. But until 1873 ^^^ prices 
of all sorts of grain had on the average steadily advanced. The 
values of the farms, however, advanced in a greater proportion 
than the rise in the prices of grain. Very often the high prices 
of the land could not be fully paid in cash by the purchaser, and 
mortgages were given. The working capital at the disposal of the 
great owners was often insufficient; very often indeed they were 
not specially trained for farming. Even during the period when 
the prices of grain were advancing, the indebtedness of the land- 
owners increased enormously. Moreover, even in this period of 
prosperity the great farm-owners had difficulty with their 
laborers. Ever since the abolition of the feudal system and of 
enforced service, farming on a large scale has become difficult 
The production of grain on a large scale does not afford. remun- 
erative work for free laborers during the whole year. In the 
course of time the laborers departed, at first in order to emigrate 
to foreign countries; but later, after the extensive industrial 
development, they have turned to the industrial employments and 
to the coal-mines. Finally, the crisis came when the prices of 
grain went down. 

The fall in the prices of farm lands had been prevented by 
the psychological effect of the introduction of protective duties 
on agricultural products. Grain prices, on the other hand, did 
not maintain the height of 1873. By 1893-95 prices of agri- 
cultural products had fallen so low that owners of the big farms 
in the east began to despair. Since 1895, however, prices have 
begun to rise more or less. During this period gjeat progress 
had been made in agricultural technique. Hard times educated 
the farm-owners of the east to learn their trade more thoroughly. 
Today the better-cultivated farms of the east depend no longer 
on the selling of grain and spirits alone. The stock of cattle has 
increased ; yet even now our statistics show that in Germany the 
stock of cattle per acre is smaller as the farm is greater ; and it is 
shown that in the larger, but not in the smaller, farms the 
receipts from gjain exceed the receipts from dairy produce and 

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In reality, the eastern landlords have never ceased the com- 
plaint of bad times since 1879, whether the duties on grain were 
high or low. There has been, of course, a good deal of exag- 
geration ; but there is nevertheless a kernel of truth in their com- 
plaints. The chronic difficulties are the indebtedness of the large 
owners and the scarcity of laborers. So long as industrial capi*- 
taJists will pay higher wages for shorter hours of work, and will 
give more freedom and more regular employment, this labor 
difficulty will continue. Especially where all the land is monopo- 
lized by a few persons, the agricultural laborers see no chance 
of becoming independent owners of parcels of land, and hence 
they go away. The great proprietors of the east beg^ to engage 
laborers for the season, mostly from Russia and Austria; some 
also engaged prisoners. More and more did the tendency for 
the rest of the permanent laborers to go away increase. Recently 
some great landlords have employed Polish workmen, not only 
for the harvest, but for all their work. A policy which pro- 
claimed its intention to protect the German workmen against 
foreign workmen has ended in a system of protection to grain 
raised in Germany by foreign labor. 

If farming on a large scale meets such difficulties, why are 
not the great farms in the east divided into small parcels ? This 
process has begun ; but it has not made as much prepress as the 
situation demands. For this there are several reasons. One is 
that the great proprietors in the east are imbued with feudal tra- 
ditions, and wish to preserve as great farmers a dominating 
political and social position which they are not willing to sacrifice. 
They see already that the industrial capitalists are becoming 
much richer than the agricultural class, and they fear that they 
may more and more lose that social position which depends upon 
wealth. They have paid such high prices for their land, and 
have incurred such great indebtedness, that if they were to sell 
their farms and go to the town, they would possess very little 
capital and no great social position. 

Thus the landlords of the east believed that their only escape 
rested in the possibility of obtaining higher prices for grain. Yet 
they needed the political help of the small peasants of the south 

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and west. Had they only recommended an increase in the duties 
on rye and wheat, they would not have obtained the support of 
the peasants in the west. Of course, in the west and south there 
is also some grain sold; but the position of the average small 
peasant in these sections of Germany is not the same as that of 
the great owners of the east. The peasants have no sympathy 
with the feudal ideals imbedded in the minds of the average land- 
owner of the east and of the parvenus who strive to imitate the 
eastern noblemen. These peasants are indebted for all that they 
are to the abolition of feudalism. They do not suffer as do the 
great owners of the east from similar difficulties with the labor 
question. The family of the small peasant very often helps to do 
the agricultural work, and his hired servants are not separated 
frcMn him by any social scale; they dine at the peasant's table; 
and from their wages as servants they very often save enough 
to purchase parcels of land where it is not monopolized by a few 
peasants. The variety of fruit produced by the farmer is much 
greater in the west and south, and the receipts from dairy-farm- 
ing and cattle-breeding and -fattening are greater. The prices of 
cattle and dairy produce were not reduced by international com- 
petition as were grain prices; on the contrary, they have risea 
The peasant, therefore, ought not to be jealous of the industrial 
development. He gets a large profit because of the industrial 
population for all the products of the small farm. 

Nevertheless, some groups of peasants in the west and south 
about the year 1893 passed through hard times. They suffered 
partly because of poor crops of food needed for cattle, partly in 
consequence of cattle diseases, and partly in consequence of lack 
of capital, of indebtedness, and of bad technique. Since that 
time all these evils have been largely removed. During the last 
decade agricultural instruction, agricultural insurance, agricul- 
tural co-operation, and the improvement of technique have made 
greater progress among the peasants than during the previous 
century. Yet the eastern landowners contrived successfully to 
form an alliance with the peasants of the other parts of Ger- 
many, with whom they maintained, during the hard times, an 
excellently managed agitation in favor of a policy of higher prices 

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for all agricultural products. But the great landowners could 
not win over the peasants by a programme of duties only on 
wheat and rye. They were obliged to demand at the same time 
what the peasants themselves desired — ^higher duties upon barley, 
cattle, dairy produce, etc. Through the compromise between the 
eastern and western agriculturalists the protectionist movement 
issued in demands, not for partial, but for complete, protection for 
agriculture. In a political sense it was a great step forward for 
the great landlords who controlled the elections in the country on 
the east to unite with the peasants who controlled the elections in 
the country on the west. In consequence of the distribution of 
electoral districts no longer representatives of the changing spirit 
of the times, they maintained from this time on a control over 
the situation. They contrived also to gain elective votes among 
the town population. The small shopkeeper and the small artisan 
were jealous of the great bazaars and of large production. By 
promising to fight in favor of the middle classes and against the 
upper classes, the agrarians found supporters among the town 

In most countries the great industrial capitalists are inclined 
to make terms with those who control the political power of the 
state. Thus they grudgingly compromised with the agrarian pro- 
tectionists when they saw that their influence was growing. 
Industrial capitalists, on the other hand, were not enchanted by 
the higher duties on food, and they feared retaliation against 
German pi'otectionism by other nations. But they acted on the 
belief that the great and small landowners together would furnish 
efficient support against the Social Democracy and against radi- 
cal democratic legislation controlled by the industrial workmen; 
and they submitted to the higher duties on food in order to con- 
serve the industrial protection. Some of the most prominent 
manufacturers were convinced that when food became dearer 
the higher level of wages would be inevitable; but they also 
believed that a permanent advance in the prices of all articles of 
food would lead to reaction ; they held that consequently the dis- 
cussion would be confined to agricultural protection, and that in 
the general strife industrial protection would be preserved. This 

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argument is based on the assumption that the industrial capi- 
talists should regard the help of the agrarians against the labor 
movement as more profitable to them than a combination of 
industrial capital and industrial labor, whose purpose would be 
to transform the economic policy of Germany in the interest of 
industry as a whole. Again, this argument supposes that the 
industrial protective duties are an advantage to the industrial 
capitalists of Germany. Most of these capitalists adhere to the 
first of these two propositions, but not all of them believe in the 
second. Nevertheress, to the present time among the industrial 
capitalists the protectionists are better organized than the free- 

One concession, however, was granted to those industries 
which could not exist without being able to export their goods 
to foreign markets. It was understood that when Caprivi's 
treaties should expire, new tariff treaties should be concluded 
with the most important European states. Both the protec- 
tionists and the free-trade wing were interested in securing an 
opportunity to send forth their exports, for none of them could 
dispense with the privilege of exportation. Thus all the indus- 
trial interests united in demanding, through new treaties of long 
duration, guarantees against continual enhancements of foreign 
and Grerman duties. 

On this basis, and with the support of the government, there 
has been formed since 1897 what the protectionists call the "alli- 
ance of all interests capable of defending the state against radical- 
ism" {Sammlung der staatserhaltenden Interessen). The gov- 
ernment took the advice of the large interests, especially of the 
protectionists, and prepared a new general tariff. After long 
debate and a somewhat irregular parliamentary proceeding, the 
new tariff, with some alterations, was adopted by the Reichstag 
and became law on December 25, 1902. It was provided, how- 
ever, that the new general tariff should not yet go into force, but 
that it should serve as a basis for n^otiating new treaties. 

To this point we have studied the arguments and tactics of the 
interested parties and of the politicians. Were there no argu- 
ments whatever brought forward by independent persons, in 

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order to defend the new policy from the standpoint of the nation 
as a whole? At the first glance one phenomenon may be 
observed : The more protection became the practically dominat- 
ing principle of commercial policy and of state railway rates, the 
more we observe in Germany a renascence of all the old mercan- 
tilists' arguments. As in mercantilist days, persons whose 
authority might have entitled them to put forth better arguments 
repeated the obsolete argument of the passive balance of trade, 
and the argument that commercial treaties could be successful 
only if one party should contrive to block the other. Influential 
people prophesied that the coming treaties would be much more 
favorable to Germany, if the German tariff could be first raised 
before negotiations were undertaken. Foreign countries would 
be very glad to reduce their tariffs in order to get a reduction 
from the new high level of German duties. A high tariff would 
strengthen the position of the German negotiator. But the great 
landowners of the east were cautious people. They did not wish 
to see the proposed higher duties on grain reduced too much by 
negotiation, and so they fixed a minimum of grain duties below 
which negotiations were not allowed to go. 

It cannot be said that the new mercantilism has been more 
successful than the old. Russia, Austria, Roumania, and 
Switzerland likewise adopted the theory that, if a higher tariff 
strengthens the n^otiators of treaties, every intelligent state 
should strengthen its own negotiators by a high tariff. It is true 
that Germany was able successfully to conclude new treaties, or, 
more correctly speaking, to prolong Caprivi's treaties until the 
end of December, 1917, by introducing important alterations in 
the duties. But what was the nature of these alterations? 
Germany raised her duties, but other countries granted 
higher duties in exchange. Prince Bulow's government con- 
sidered that it had won a success if the foreign duties were 
not much enhanced by the treaties of 1905, and the official intro- 
duction to the new treaties tells us that better concessions could 
not be got from foreign countries because Germany was not 
willing to concede more. Bluffing had not been a success. 

As another argument in favor of higher agricultural duties 

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it was urged that it did not seem to be desirable to transform 
Germany more and mcx-e into an industrial country. Influential 
authors began to be enchanted with the idea of a self-support- 
ing agricultural state; a strong national agriculture must be 
aimed at in order that Germany might become independent of a 
foreign food-supply, and in order that she might get better 
soldiers than from the industrial population. The argument of 
"no dependence upon foreign food-supplies" had, however, some 
very weak points. Since 1879 agriculture had been protected; 
and yet, as the population grew, the excess of imports over 
exports of food had grown almost continually. And more serious 
still was another fact. The dependence of the great landowners 
of the east upon foreign labor was such that foreign countries, 
by prohibiting the migration of workmen to Germany, could, in 
case of war, really stop the agriculture of eastern Germany.* 

A greater impression on the political leaders of the country 
was produced by the military argument. A great mass of litera- 
ture has been written on the question whether an industrialized 
country may furnish an army efficient enough and large enough to 
be able to fight as successfully as former Prussian armies did. 
Some points of the controversy are no longer debatable. It can 
be granted, first, that agriculture alone would not be able to pay 
the taxes and furnish the money indispensable for carrying on a 
great war ; and, secondly, that to the present time there have been in 
Germany more persons fitted for military service than are needed 
for the army. There is now no lack of recruits at all ; but there 
is a vigorous debate on the points whether, first, all the districts 
where agriculture prevails send better recruits and a higher per- 
centage of persons fit for the army than do the industrial dis- 
tricts; and whether, secondly, the official statistics in regard to 
recruits are of any use for the solution of this problem. Finally, 
Professor Brentano has several times repeated that, even if 
industrial districts send a less percentage than agricultural dis- 
tricts of fit recruits, the more densely populated industrial 
districts may send a greater number of fit recruits per area, 

"See Vol. XXXIV of Landwirtschaftliche JahrbUcher, Supplement I, p. 
318 (Berlin, 1905). 

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because in these districts there are more persons at the disposal 
of the recruiting board. 

The arguments for and against agricultural protection were 
seriously discussed. During the debates the industrial protective 
duties did not attract the attention of the public very much, and 
no very serious proof for their necessity was submitted. The 
conditions of industries were excellent; if the industrial employers 
demanded protection, they could only argue that agricultural 
protection had increased the cost of production, and that they 
needed compensation for the damage done by agricultural duties. 
But finally two arguments were devised for the defense of indus- 
trial duties : first, the expenses of industrial insurance for work- 
men against sickness, accidents, and infirmities of old age ought 
to justify special protective duties; and, secondly, the British and 
American worlds seem to be setting up a policy of autarchy, 
which would justify Germany in doing all she cotdd to keep the 
German market for herself. 

The really burning question concerning the effect of indus- 
trial protection upon Germany, in the present stage of her 
development, was quite another one : Does protection by import 
duties and railway rates really favor the monopolistic organiza- 
tions, which dominate the coal and iron market and many other 
markets in Grermany? It is very surprising that the government, 
when preparing the new tariff, did not seem to be concerned at 
all about the "cartell" question. Only after the tariff was dis- 
posed of was an inquiry about "cartells" begun. This inquiry 
was not at all a model for such investigations, and cannot be 
compared in its methodical value with English reports. But, 
nevertheless, the results were not without value. The main con- 
clusion is that in truth the growth of monopolistic organizations 
in Germany has been strongly favored by the protectionist system 
of duties and railway tariffs. More than that, it has been proved 
that because of the monopolistic organizations abuses have 
occurred; but that the abuses concerning prices, etc., committed 
by the monopolists immediately cease whenever they are endan- 
gered by any real competition from abroad. It cannot be definitely 
claimed that the monopolistic organizations, which have once 

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grown strong, would all disappear when free trade in commercial 
and railway policies should be introduced; but it is very probable 
that most of the abuses of which people complained would 
disappear with the disappearance of the protectionist system. 

At the time of these investigations the typical monopolistic 
organizations in Germany were "cartells" or syndicates. Not all 
of them were successful in all departments of German industries; 
on the whole, they were less successful where finished articles 
were produced for the national market and for exportation, than 
where articles in the first stages of production were produced. 
Those industries which produced finished articles complained 
that they were hzmptrtA by the practice of monopolists in 
selling at cheaper prices abroad than at home. The monopolistic 
organizations could not completely deny that these complaints 
were justified, and they granted private bounties based upon the 
exports of their customers. But those bounties were only grudg- 
ingly paid, and they were not regular and not always sufficient. 
The outcome of this situation leads all the producers of finished 
articles to strive as much as possible to concentrate and control 
in one concern all stages of the processes of production from 
beginning- to end. More and more there grew up what Ameri- 
cans call "vertical trusts" and what Germans call gemischte 
Betriebe. In the last few months it would seem also that the 
horizontal trusts — ^the concentration of the whole stage of pro- 
duction in few hands — is making progress. 

There can be no doubt, however, that the two most ardent 
champions of industrial protection, Germany, and the United 
States, develop industrial monopolistic organizations much more 
quickly and more radically than the free-trade coimtry, par excel- 
lence. Great Britain. And it must also be added that the same 
monopolistic development which in America has been favored by 
private railways has not been hindered by the national railways 
in Germany. 


To this point we have been engaged in indicating the tenden- 
cies which have led up to the tariff of 1902 introduced by Prince 
Biitow. How have affairs developed since that time? Is it 

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possible yet to say anything- about the effects of the new poHcy? 
On the first of March, 1906, the treaties with Russia, Roumania, 
Servia, Italy, Austria-Hungary, Belgium, and Switzerland, 
which were formally modified prolongations of the old treaties, 
became effective. Since 1905 Germany has also concluded several 
treaties with smaller states. In addition, she grants and receives 
treatment as the most favored nation with many states ; and she 
retains some treaties with smaller states wherein they gfrant 
certain duties to Germany without a reciprocal arrangement of 
German tariffs. 

For a long time everyone has known when the new treaties 
would become effective. Compared with the previous rates, not 
only the German duties, but also those of her customers, chiefly 
Austria-Hungary and Russia, have been increased. In the new 
tariff Germany has increased the duties on bread-stuffs, "malt 
barle/' (a problem for tariff interpreters), and on meat and 
cattle. There could be no surprise that before March i, 1906, in 
view of the imminent rise of duties at home and abroad, Ger- 
many's imports and exports were immensely increased. It would 
have been possible, of course, that immediately after March i, 
1906, the markets in Germany and abroad should have been over- 
supplied. Thereupon a depression of trade and low prices would 
have been the consequence. But a different state of affairs was 
to be observed. Ever)rwhere, more conspicuously in England 
than in Germany, a great boom was preparing. In Germany 
there was a special matter which was of only temporary impor- 
tance. Many manufacturers were engaged in working up foreign 
orders before March i, 1906, and they could not afford to deliver 
goods ordered for the domestic market. At this time these 
orders for the home maricets became urgent. Thus the German 
manufacturers had an abundance of orders, not only for the 
domestic market, but also for exportation during the whole year 
of 1906, and even after that time. In free-trade England, how- 
ever, the foreign commerce and home comsumption had in 1906 
increased in even a greater amount. But in truth Germany was 
benefited by the general prosperity of industry. The reaction 
must come, of course, but it has not yet come. Some manu- 

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facturers have complained that the rise of Austrian duties has 
affected the usual exports to Austria; but, on the whole, at the 
present writing, exports have been developed in a satisfyii^ 
fashion. As in every boom period, there have been a great 
advance in prices, the establishment of new enterprises, and the 
investment of more capital in old ones. 

The demand for investments has led to new orders coming 
in to many establishments. The rise of prices has been chiefly in 
raw materials and half-finished articles. The manufacturers of 
finished goods are disappointed because they cannot raise the 
prices of their products in the same proportion as the prices have 
risen in the earlier stages of production. Consumers will not pay 
such higher prices without a diminution of demand. But the rise 
of prices has not merely affected coal, metals, most raw materials, 
and half-finished articles, still other elements in the expenses of 
production have arisen. Prices have been affected partly in conse- 
quence of an increase of imperial taxes passed by the Reichstag in 
1906. The income from the higher level of customs duties has 
not proved sufficient to cover the increasing expenses of the 
Empire. Several millions of the new revenue from customs were 
reserved specially for the insurance of widows and orphans of 
workmen. New taxes were levied which could not in all cases 
be prevented from falling upon industrial expenses of produc- 
tion. The expenses of production will be increased still more 
when the Prussian government has carried out its plan of intro- 
ducing fees on river transportation; for these fees will make 
dearer a form of cheap carriage which so far had competed with 
the state railways and was independent of their system of rates. 

The most remarkable phenomenon to be observed since the 
new treaties have gone into operation is that nearly all cattle prod- 
ucts, especially meat, have risen enormously in price. Although 
this enhancement in the prices of food was prophesied, still the 
rise came sooner than anyone expected. While wheat and rye 
bread have not yet become sensibly dearer, yet meat and nearly 
all other agricultural products of daily consumption have risen in 
price. Not all this enhancement of price was artificially caused 

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by the tariff. At the time when the new tariff came into effect 
the price of cattle was already rising throughout Europe. 

The prices of goods imported from foreign countries have 
been affected, not only by the customs tariff, but also by the 
veterinary measures and by the German meat-inspection bill. Still 
the effect has become distinctly apparent, because all the various 
circumstances have worked together. Living has become so 
dear that many municipal and some state administrations have 
been obliged to grant some additions to the salaries of the lower 
officials. The industrial workmen, moreover, took advantage of 
the industrial boom and obtained higher wages. But these 
higher wages have not been the means of improving their stand- 
ard of living, because they are no more than the equivalent of the 
higher prices of food. It cannot be expected, therefore, that any 
greater efficiency of labor will result from what is only a com- 
pensation for the higher prices of food. Employers must pay 
more to get the same amount of work done. For the lower and 
middle classes Germany was formerly a land of very cheap cost 
of living. Now it is more expensive for these very classes to live 
in Germany than for the same classes in free-trade England. If 
higher prices of wheat and rye, and consequently higher prices of 
bread, should be added to the high prices of meat, the effect 
would be much more serious. 

Meanwhile there is much discussic«i about another effect of 
the new policy. To the present day it has been a regular phe- 
nomenon, after duties have been raised by foreign countries, ior 
German exporters to build manufacturing establishments in 
foreign countries, or at least to establish branches abroad 
whenever it was no longer possible to export German manu- 
factures. It may be that such an emigration of capital has already 
begun here and there since the new treaties ; but the time is too 
short to prove the fact and test the assertions of capitalists. 

On the other hand, how is agriculture developing under the 
new conditions ? The first result is one which was prophesied by 
many of the opponents of the new policy. Rents and farm prices 
have risen in such a speculative way that no one can feel any 
doubt about an imminent danger. Persons who have bought land 

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at these high prices cannot obtain a profit even under the present 
high prices of agricultural products. Suffering will come anew 
to them as to the former owners, if prices are not again raised. 
Obviously not all farmers are suffering from these unsound con- 
ditions. Some did not purchase their land at the time of high 
prices, and they get more money for their products ; but as con- 
sumers they also feel many effects of the general rise of prices. 
The increase in the rise of products is so violent that the most 
thoughtful agrarians feel somewhat like Polycrates when he had 
too much luck : they fear that the good luck will perhaps not last 
very long. Without doubt, after the industrial boom shall have 
passed there will come a reaction in public opinion. In the long run 
it will not be possible to govern an industrial country as if only 
agricultural interests existed. How quickly public indignation 
against artificial increases in the prices of food may develop has 
been shown by the experience in 1891, when a general rise of 
prices throughout the world was combined with a depressed con- 
dition of industry and with the perceptible results of agricultural 
protection. In such a case it would be very dangerous to uphold 
the protectionist system. The instant the agricultural protec- 
tionist duties are endangered the agrarians will not tolerate the 
industrial duties. 

It is not wholly impossible, although not likely, that some 
reduction of the protective duties will in time be brought about 
by further commercial treaties. To the present time German 
commercial relations with England and her colonies, with the 
United States, and with Argentina have not yet been guaranteed 
by treaties of a definite character. But it will be very difficult by 
means of such treaties to carry through the necessary reductions 
of the German tariff. Apart from other difficulties, it is inevi- 
table that reductions granted by treaties should not have a system- 
atic, but an accidental, character. On the whole, it may be said 
that the chief features of the German protective system cannot 
be changed before people have ceased to believe in protection. 
Before such a change can come years must elapse, and to produce 
such a change there would also be needed the statesmen who 
really have the power to lead the nation. Heretofore the Ger- 

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man system of ruling has consisted in granting special favors 
of an economic character to those who will vote for the national 
budget. Moreover, the men who administer the state railways 
are so much imbued with protectionist ideas, and their system of 
rates is so much influenced by protectionism, that in order to 
reform the railway policy a radical change in the leading rail- 
way men will be absolutely necessary. Without a change, how- 
ever, in the system of railway rates even such a radical reform 
of customs duties as was carried out under Peel and Gladstone 
in England would not be sufficient to give Germany the same 
blessings of free trade which England enjoyed as a consequence 
of her reforms. 

Provided a tariff war with a foreign power should not arise 
to strengthen jingoism and the protectionist feeling, in the future 
some slight improvements of no fundamental character may be 
accomplished by means of new commercial treaties. Obviously 
a radical change would be brought about earlier should the 
United States of America adopt autonomous free trade as their 
commercial policy. Germany would be too much of a loser if 
she did not quickly imitate such a policy of the United States. It 
is, however, quite too optimistic to suppose that either of these 
two great nations will take such a step within the near future. 
At the present time the tendency to surpass other nations by 
increasing their tariffs is without doubt a more widespread prac- 
tice than a tendency toward a reduction of duties. Under these 
circumstances it can be regarded as a distinct gain even if the 
two nations should strive only to oblige each other, and not to 
injure themselves by any further increase of tariff. But even a 
measure so beneficial as this would be difficult to carry through 
so long as each state regards every step in the direction of freer 
trade as a sacrifice to foreign interests. 

Walther Lotz 
Univsbsity or Mukich 

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By end of 1897, as a result of the panic conditions of the 
preceding four years, Mr. Morgan tc^ether with his associates 
had succeeded in gaining a position of pre-eminence among the 
important railroad groups of the country. He either had control, 
or was in a fair way to gain control, of four important coal roads 
— the Reading, the Erie, the Lehigh, the Hocking Valley. He 
held chief place in the Southern Railway and in the Northern 
Pacific system; and he had come into amicable contact with James 
J. Hill, of the Great Northern.^* A record such as this affords 
an excellent illustration of the ease with which powerful groups 
of financiers (or individuals with powerful financial backing) 
can enlarge their spheres of influence in times of crisis. Then 
it is that opportunities for investment abound, and large capital- 
ists coming to the aid of the financially embarrassed may freely 
dictate their own terms, in many cases demanding a controlling 
interest in the companies requiring assistance. 

While the Morgan group was striding so rapidly into promi- 
nence. Standard Oil had been strengthening its hold on proper- 
ties already acquired. It had also entered into important con- 
tracts with the Oliver Iron Mining Co.,^® which was engaged in 
extensive operations on the Mesaba; and it had materially 
extended its gas interests, notably in the Brookl)ni Union Gas 
Co.^^ incorporated in 1895 for the purpose of taking over control 
of the various gas companies of that city. The same period 
( 1893-97) saw the rise of another important group of financiers 

' His railroad holdings have continued to enlarge since that time. The 
Southern Railway has made large additions to its mileage by the annexation of 
other roads. In 1902 Morgan came into control of the Louisville & Nashville, 
acquiring his interests from John W. Gates. This road he afterward turned 
over to the Atlantic Coast Line, a system in which he is also dominant. Cf. 
Bradstreefs, October 4, 1902, Vol. XXX, p. 627. 

^At that time five-sixths of the stock of the Oliver Iron Mining Co. was 
owned by the Carnegie Steel Co. Cf. James H. Bridge, History of the Carnegie 
Steel Co,, chap, xvii, pp. 258-60. 

^"'Commercial and Financial Chronicle, June 15, 1895, Vol. LX, p. 1057; 
ibid., September 14, 1895, Vol. LXI, p. 473. 


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— ^the Harriman-Kuhn-Loeb syndicate, which was soon to 
become generally recognized as a part of the larger Standard 
Oil group.*® The syndicate first attracted public attention as a 
result of its successful reorganization of the Union Pacific. As 
early as 1895 it had been formed to carry out some plan looking 
toward a rehabilitation of the financial standing of the road, 
but nothing was accomplished until the property was sold under 
foreclosure in 1897. It was then bought in by a reorganization 
committee which was in agreement with the syndicate headed 
by Kuhn, Loeb and Co.*^ 

After the reorganization Jiad been carried through by the 
latter, K H. Harriman appeared as chairman of the executive 
committee, of which James Stillman was also a member. Repre- 
sentatives of the Gould interests, which had gained control of the 
Union Pacific in 1890,*^^ still held place, on the board of directors, 
but they were evidently no longer of first importance. It was 
significant, however, that there should be found identified with 
a single property adherents of three different groups. Clearly 
indications were not lacking of the manner in which there was 
gradually to be brought about an advance toward an increasingly 
comprehensive form of combination for purposes of investment. 

Along with the growth of the railroad interests a new move- 
ment began to develop about the banning of 1898; for with 
the return of prosperity after a period of prolonged financial dis- 

^ Of the early history of this group I am ignorant. • I have seen a statement 
to the effect that its nucleus was the Illinois Central Railroad, of which Harri- 
man had been a director since 1883. Cf. Commercial and Financial Chronicle, 
November 30, 1901, Vol. LXXIII, p. 11 38; cf. also Poor's Manual of Railroads, 
1883. As to whether Harriman and the banking house of Kuhn-Loeb & Co. 
had any connection with Standard Oil prior to the reorganization of the Union 
Pacific, I cannot say.' Subsequent to the completion of that reorganization in 
1897 there is no doubt that Harriman became the recognized representative of 
Standard Oil railroad interests. 

^On agreement with the reorganization committee this syndicate provided 
$44,000,000 in cash, receiving in return for' each $1,000 advanced, $1,000 par 
vahie 4 per cent, first-mortgage bonds and $500 par value preferred shares of the 

^Commercial and Financial Chronicle, November 29, 1890, Vol. LI, p. 748; 
directors' lists in Poor's Manuals of Railroads, 

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tress there was a marked launching-out of the various groups of 
investors into the field of the "industrials." Some years before, 
adverse court decisions had led to the abrogation of all trust 
agreements which had for the most part been succeeded by hold- 
ing companies made possible by the New Jersey law of 1889.'^ 
A few new companies had also been formed, such as the Diamond 
Match Co. and the New York Biscuit Co. (both Moore organiza- 
tions) ; but as yet the holding company was not an important 
factor in the industrial field. 

But with the inauguration of the era of the so-called "indus- 
trials" came notable combinations in the iron and steel trades. 
J. P. Morgan & Co. and their allies, having acquired an assured 
position in the railroad world, now made their entry into the 
field of the industrials as organizers of Federal Steel (Septem- 
ber, 1898).*^^ It was said that the profits of the firm derived from 
its services in organizing was about $200,000;** but, apart from 
that consideration, the Morgan representation on the directorate 
of Federal Steel would indicate that a very substantial interest 
in the company had been acquired, although Standard Oil men 
were no doubt the dominant factor.** Here, then, was another 

"^The Standard Oil organization existed without taking advantage of the 
New Jersey law until 1899, & community of interests being maintained through 
the manner of distribution of the stocks of the various companies composing 
the "trust" 

"The stocks of the companies it was proposed to combine having been 
secured (or, at any rate, a sufficient proportion of them) were then turned over 
to the new corporation together with $14,075,000 in cash (such part as was 
not furnished by stock assessments being guaranteed by Morgan). In return 
$53*000,000 preferred and $46,000,000 common stock of the Federal Steel Co. was 
received by the organizers to be used in paying for the underlying properties. 

" Report of the Industrial Commission, Vol. I, pp. 986 if. (testimony of 
Judge Gary). 

^In substantiation of this statement it may be mentioned that Standard 
Oil men had been connected with the Minnesota Iron Co. (an important under- 
lying property of Federal Steel) since 1887. Moreover, H. H. Rogers was a 
member of the executive committee of Federal Steel, and Roswell P. Flower 
(who had come to be closely identified with Standard Oil financiers through his 
copper interests) was a large holder of the company's stock. After his death, 
in May, 1899, it is probable that the Standard's hold on the property was materially 
strengthened. Cf. Bradstreet's, May 20, 1899, Vol. XXVII, p. 306; September 
30, 1899, Vol. XXVII, p. 61 a. 

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case in which the adherents of different financial groups had 
come into contact through widening spheres of interest. 

The year following the formation of the Federal Steel Co. 
Morgan succeeded in uniting the leading tube-works of the 
country into a single organization — ^the National Tube Co. ;^* 
and in April, 1900, he assumed charge of the underwriting for 
another large steel "trust" — ^the American Bridge Co.*^^ During 
this same prolific period W. H. and J. H. Moore sprang into 
prominence as organizers of the American Tin Plate, National 
Steel (February, 1899), American Steel Hoop (April, 1899), 
and American Sheet Steel (March, 1900) companies °^ — all 
four of which came to be controlled by the small coterie of men 
for whom the Moores had been acting.^® The only other impor- 
tant steel combination prior to the formation of the United States 
Steel Corporation was the American Steel and Wire Co. (1899), 
at whose head stood John W. Gates. 

As the panic of 1893 made for the growth and furthered the 

"Standard Oil men were certainly associated with this enterprise, if the 
presence of Daniel O'Day (connected with the Standard Oil pipe-line system) 
and Jacob Vandergrift (one-time president of the United Pipe Lines Co.) 
on the directorate of the company can be considered in the least significant. 

"Both in the case of the National Tube Co. and in that of the American 
Bridge Co., Morgan was given power to direct their policy absolutely for a 
stated number of months: nine months in the case of the former, and eighteen 
months in the case of the latter. 

''Judge Moore explained the manner in which these organizations were 
effected, as follows: "I will not charge you anything," he reported himself as 
having said to the owners of the companies it was proposed to unite. "I will 
buy your properties and formulate a plan, and if you do not want to go into the 
new plan, you can take cash." (Cf. Testimony of W. H. Moore, Report of the 
Industrial Commission, Vol. I, p. 963.) 

"The nucleus of the Moore group consisted of certain iron and steel manu- 
facturers interested at one time in the various companies that went to make 
up the four new combinations. The group later extended its investments, branch- 
ing out into the domain of railroads. It bought control of the Chicago, Rock 
Island & Pacific (1901), reorganized it as the Rock Island Co., and took over 
other properties, purchasing the St. Louis & San Francisco (May, 1903), and 
entering into an alliance with the Seaboard Airline the next October. The 
financiers composing the group are, however, relatively weak, and the chances 
are that they are scarcely in a position to be considered an independent power 
at the present time. In all probability their railroad management has come 
under the tutelage of Standard Oil. 

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amalgamation of certain large investment interests, so the indus- 
trial depression which set in toward the close of 1899 and con- 
tinued through 1900 was to produce readjustments and to carry 
tlie process of absorption and combination still further. G>ndi- 
tions within the iron and steel trades were peculiarly severe, and, 
with so many important groups of investors represented therein, 
a competitive struggle on a more comprehensive scale than ever 
before experienced, might be fairly deduced. As a matter of 
fact, the formation of the United States Steel Co. in 1901 seems 
to have been the outgrowth of some such struggle. 

The evidence points strongly in the direction of a shrewdly 
planned attack by the joint Carnegie-Rockefeller forces ag^nst 
the other groups interested. In order to understand the situa- 
tion, it is necessary to enter somewhat minutely into the relations 
formerly existing between the Carnegie and the Rockefeller inter- 
ests in the Minnesota iron regions. The Oliver Iron Mining Co. 
(a Carnegie property), which was one of the largest shippers of 
ore on the Mesaba range, had in 1896 made a fifty-year contract 
with the Lake Superior Consolidated Iron Mines Co., whereby, 
upon payment of a certain royalty, it obtained possession of two 
rich mines on the Mesaba, guaranteeing in return a minimum 
annual output of 600,000 tons of ore, to be shipped over the 
Rockefeller road (the Duluth, Mesaba & Northern) and carried 
in vessels belonging to the Rockefeller fleet.*^ These shipments, 
together with the output from the Oliver mines, insured an annual 
tonnage of from 1,200,000 to 1,500,000 tons.®^ 

Although the Lake Superior Consolidated Iron Mines Co. 
continued to increase the carrying capacity of its lake fleets for 
some years subsequent to this contract, it was by no means secure 
in its hold upon the transportation of the Carnegie ore. By 
1899 ^^ Oliver Iron Mining Co. had by the acquirement of 
new holdings attained to an average annual output of perhaps 
4,000,000 or 4,500,000 tons of ore,®^ and obviously it would be 

^ Iron Age, December 31, 1896, Vol. LVIII, pp. 1309, 13 10; James H. 
Bridges, The Inside History of the Carnegie Steel Co., chap, xvii, p. 259. 
^Iron Trade Review, March 11, 1897, Vol. XXX. 
" Ibid., April 27. 1899, Vol. XXXII. 

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advantageous to carry such part of its own output as had not 
been disposed of by contract. Accordingly the properties of the 
Lake Superior Iron G>. were bought, and with them its fleet of 
six vessels, which were turned over to the newly formed Pitts- 
burg Steamship Co. (1899) ®^ — ^Y ^SKX) the third largest 
fleet on the lake.** 

It now began to be rumored that not so long before this time 
Mr. Rockefeller had offered to sell his large ore properties as 
well as his steamship and railway holdings to Mr. Carnegie for 
$50,000,000, and that it was the refusal of this offer which led to 
the adoption of coercive measures, taking shape in an attempt to 
comer the lake shipping in 1900.** However that may be, the 
Bessemer Steamship Co. (the fleet of the Lake Superior Consoli- 
dated Iron Mines Co.) purchased in the fall of 1899 the thirty 
vessels of the American Steel Barge Co,; and these, together 
with the twenty-four or more already owned, gave it a dominant 
position in the lake-ore shipping.*^ The ore of the Oliver Iron 
Mining Co. shipped under the contract of 1896 was taken at a 
rate which was an average of the wild and contract rates 
of each season. In an endeavor to keep up the wild rates so as 
to force this ore to pay a lake tonnage of $1.25, all but twenty 
of the vessels owned by the Bessemer Steamship Co. were laid 
up.** As a result of this action the Carnegie Co. made public its 
intention of building its own railroad from the Minnesota mines 
to the lake. Furthermore, it was announced (July, 1900) that 
the Cam^e Co. proposed the erection of "what would probably 
be the largest rod-mill ever built.*^ The bearing of this proposal 
upon the situation becomes apparent if it be remembered that the 
plan to build a rod-mill would, if carried out, put a serious com- 
petitor in the field against the Federal Steel Co. — ^a property in 
which Standard Oil interests were prominent. As matters stood, 
both sides bid fair to prove losers in the pending struggle, and 

^Ibid., November 16, 1899, Vol. XXXII. 

^ Iron Age, May 10, 1900, p. 5, Vol. LXV. 

•*/W(/., October 19, 1899, P- 3o d.. Vol. LXIV. "/Wd. 

"•Ibid,, June 14, 1900, p. 26 f.. Vol. LXV. 

" Commercial and Financial Chronicle, July 28, 1900, Vol. LXXI, p. 184. 

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there was little reason for surprise when it was announced in 
August that harmony had been once more decreed and new and 
satisfactory traffic agreements entered into.*® The amicable 
working arrangements thus effected between the two interests 
continued from this time on until both were absorbed into the 
United States Steel 0>. Whether the formation of the latter 
was hastened because of this union is a question open for debate. 
But certainly, apart from any active personal su^Kwl which Mr. 
Carnegie may have received in his efforts to dispose of his 
holdings,** the increased control over the ore situation obtained 
by his alliance with the Rockefeller interests added to the strategic 
value of his position. 

The campaign of aggression, initiated in 1900 with an attack 
upon the Federal Steel and the American Steel Hoop companies/* 
was continued without abatement from this time forth. The 
situation was peculiarly favorable, indeed, to the success of Mr. 
Carnegie's plans. In the earlier part of the year the iron and 
steel trades had suffered a relapse from a condition of overstimu- 
lated prosperity, and it needed only the dosing of the mills of 
the American Steel and Wire Co., on "account of an excessive 
accumulation of supplies," ^^ to start a decline in the prices of 
steel stocks. By the end of June, 1900, quotations had been cut 
down more than half in the case of the common stocks, and pre- 
ferred holdings had lost from 13 to 20 points. In November, 
when speculative securities were just beginning to be salable 
once more,^* the Carnegie Ca made further announcement of 
its intenticm to manufacture sheet steel, steel wire and nails, and 
steel pipes — an intention which, if carried out, was likely to pro- 
duce a general demoralization in steel stocks. The Morgan inter- 
ests were endangered as well as the Moore and Gates properties, 
and consternation was widespread. When, therefore, the Came- 

^Iron Age, August 9, 1900, p. 4, Vol. LXVI. 

••He was admittedly anxious to "sell out" 

" The American Steel Hoop Co. was hit by the suggestion that the Carnegie 
Co. "might go into the manufacture of hoops and bands." Cf. Commercial and 
Financial Chronicle, July 28, 1900, Vol. LXXI, 1840. 

""- Commercial and Financial Chronicle, April a8, 1900, Vol. LXX, p. 843. 

" Cf. Meade, Trust Finance, chap, xi, pp. 213 ff. 

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gie G>., early in January^ 1901, announced the immediate con- 
struction of large tube-works at Conneant/* Mr. Morgan, as the 
representative of the National Tube Co. as well as of other 
organizations that had been threatened, was compelled to enter 
into negotiations looking toward the purchase of the Carnegie 
holdings J* By the end of February a consolidation of the lead- 
ing steel companies of the country was announced, with J. P. 
Morgan & Co. as organizers. It is no surprise to learn that the 
property of the Carnegie Co. was taken over at an exceedingly 
liberal valuation, Mr. Carnegie alone receiving approximately 
$217,720,000 in 5 per cent, first-mortgage gold bonds for his 
individual holdings.*^^ As for the rest of the companies incor- 
porated, the Lake Superior Consolidated Iron Mines obtained the 
most favorable terms,''* although the majority secured bonuses 
both in preferred and in common stock. 

Notwithstanding the resultant condition of inflation, it was 
thought that the Morgan syndicate had reaped an immense profit 
as the result of its operations.''^ But this belief was considerably 
shaken by the proposed bond-conversion scheme of the following 
year,^® and subsequent events served to strengthen a gradually 

^Iron Trade Review, January 10, 1901, Vol. XXXIV. 

^Iron Age, February 7, 1901, p. 33, Vol. LXVII. 

"Cf. J. H. Bridges, The Inside History of the Carnegie Steel Co,, 6bap. 
Todii, pp. 363, 364; also Moody, The Truth about the Trusts, p. 154. 

'•Moody's Manual of Corporation Securities, 1904, p. 16 16. 

" Some estimates put its gain as high as $56,500,000 (Iron Age, February 6, 
190a ; cf. also Commercial and Financial Chronicle, May, 2, 1903, Vol. LXXVI, p. 

"The plan (ratified May, 1902) contemplated the exchange at par of $200,- 
000,000 of 7 per cent, cumulative preferred stock of the corporation for 5 per 
Cent, second-mortgage gold bonds. As a result of litigation it did not go into 
effect until March, 1903. From May 16 to November 19 the syndicate enjoyed 
the sole right of conversion. It is estimated that it exchanged $104,800,000 of 
stock during a period in which, although bond quotations were falling, prices of 
preferred stock were falling relatively even lower. The conversion plan may 
have been merely a clever profit-making device, or it may have been a desperate 
remedy adopted by men laden with securities of which they were unable to 
dispose. At any rate, opposition to it led to a dissolution of the syndicate earlier 
than had been expected (November, 1903). For an account of bond conversion 

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growing conviction that Morgan had not acted altc^ther as a 
voluntary agent. Perhaps he had been "held up/' so to speak, 
and forced to take over properties at a valuation that later made 
it difficult to dispose of the securities of the new company to 
advantage. Opinions upon this point may vary, however, but 
that the organization of the United States Steel Co. was imder- 
taken primarily for the purpose of securing harmony among the 
several groups interested in the underlying companies is a con- 
clusion fairly deducible from a consideration of the incidents 
leading up to the consolidation. All the constituent companies 
represented large combinations of capital and were more or less 
industrially complete units in themselves. Viewed wholly from 
the industrial standpoint, therefore, the question might well have 
arisen as to whether a further unification might not prove so 
unwieldly as to offset any resultant economies. But, to put all 
such considerations aside, the main purpose of the union was 
accomplished in that it prevented a war of the large financial 
interests, bringing together as it did, the Morgan, Moore, Rocke- 
feller, Carnegie, and Gates holdings. Undoubtedly it marked an 
important step forward in the general movement toward a fusion 
of investment interests and a concentration of financial control. 
But the most advanced type of union had not yet been reached — 
i. e., a union of groups of financiers designed to bring about co- 
ordinate action in every field in which such groups operated. 
The organization in question represented, to be sure, a combina- 
tion of groups of investors for purposes of control ; but it was a 
combination operative only within one industrial field. 

It is not possible even to indicate all the other lines of cor- 
porate investment which these same financiers were entering 
during the period from 1897 and 1898 onward. Some of the 
new holdings which were being acquired by the Standard Oil 
group may be mentioned briefly, however. As early as 1898 
their interest in the Western Union Tel^japh Co. began to 

and litigation cf. Meade, "The United States Steel Corporation Bond Conversion," 
Quarterly Journal Economics, Vol. XVIII, p. 22 ; also Commercial and Financial 
Chronicle, November 21, 1903 ; Moody's Manual of Corporation Securilies, I904t 
pp. 16 1 3, 1634 't Ripley, "The Later History of the Steel Corporation Bond Con- 
version," Quarterly Journal of Economics, Vol. XIX, p. 316 (February, 1905) • 

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develop/^ thus bringing them into contact with another impor- 
tant group of financiers, the Goulds. In 1898 Standard Oil men 
launched the Amalgamated Copper Co., in which Morgan inter- 
ests were likewise represented.®^ The death of Roswell P. 
Flower (May, 1899), who was prominently identified with the 
copper trust, brought other property into the hands of Standard 
Oil men, since they bought largely of his stock-holdings, notably 
securities of the Brooklyn Rapid Transit Ca, of which it is said, 
they subsequently gained control.®^ The American Smelting 
and Refining Co. (1899) was organized under Standard Oil 
influence,®^ and some years later (1903) entrance was secured 
into the Colorado Fuel and Iron Co., with which latter venture 
the Gould g^oup was again associated.®* In the same year there 
was rumor of an alliance between the Standard Oil and the 
Widener-Ryan parties with a view to the purchase of the Metro- 
politan Securities Co. All idea of such purchase was vigorously 
denied at the time, but as Ryan subsequently took possession of 
the property, the denial lost somewhat of its force.®* 

While Standard Oil was thus engaged in acquiring holdings 
in the corporations mentioned, as well as in others that might be 
named, the group was at the same time extending its great rail- 
way system by purchase and by alliance. In 1899 a syndicate 
composed of Gould, Schiflf, Harriman, and Stillman, had pur- 
chased a controlling interest in the Chicago & Alton.®* In 1900 

^ Roswell G. Rolston (president of the Farmers' Loan and Trust Co., affiliated 
with Standard Oil, and likewise a National City man) became a director of the 
Western Union Telegraph Co. in 1897; James Stillman entered the board in 
1898 or 1899 ; while Henry M. Flagler and Charles Loclchart (both "original" 
Standard Oil men) and E. H. Harriman went in in 1900. 

""Fred P. Olcott and Robert E. Bacon were among the directors. 

*^ Bradstreefs, May 20, 1899, Vol. XXVII, p. 306; September 30, 1899, Vol. 
XXVII, p. 612. 

'^Commercial and Financial ChronicU, April 15, 1899, Vol. LXVIII, p. 668. 

" Concerning the Colorado Fuel and Iron Co., cf. Bradstreefs, November and 
December, 1902; June and December, 1903. 

** Commercial and Financial Chronicle, September 5, 1903, Vol. LXXVII, 
p. 511. 

"John D. Rockefeller's name was first mentioned in place of Stillmaa'f 
as a member of the syndicate (cf. Commercial and Financial Chronicle, February 
II, 1899, and Bradstreefs, February 25, 1899). An investigation of the Inter- 

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Harriman, Stillman, and Gould cctfnbined to buy out the Kan- 
sas City Southern ®® — a, road which had been a disturbing factor 
in the western rate situation. 

The facts just mentioned are important in that they bear 
witness to a growing community of interests between the Stand- 
ard Oil and the Gould adherents. But the events of the next 
few months were to be of even greater significance. In 1901 the 
Harriman-Kuhn-Loeb S3mdicate, on behalf of the Union Pacific 
(which was dominated by Standard Oil), acquired control of the 
Huntington-Speyer interests in the Southern Pacific for $40,- 
000,000 or $50,000,000®^ — a purchase which added greatly to 
the power of the group in the western railroad world. The 
same year was marked by the entrance of Standard Oil into the 
Northern Pacific under the leadership of Harriman.®® The raid 
which resulted in their gaining control of the stock ®^ and secur- 
ing, as they thought, a "say-so" as to the disposal of the Qii- 
cago, Burlington & Quincy (the joint purchase of the Great 
Northern and Northern Pacific) was a short-lived victory. 
Morgan and his allies still held a majority of the common stock, 
which carried with it a provision to retire the preferred holdings 
at any time at par. This they threatened to do, and the result 
was a compomise — ^the formation of the Northern Securities Co. 

state Commerce Commission (New York City, January 6, 1907) brought out the 
fact that the Chicago & Alton is now under the joint control of the Chicago, 
Rock Island & Pacific Railway and the Union Pacific (one road having charge 
of it one year; the other, the next). The present arrangement grew out of a 
contract between Harriman and Leeds (of the Moore group) entered into in 1904 
for a period of fourteen years. 

'^ Bradstreefs, November 3, 1900, Vol. XXVIII, p. 692. 

"Ibid., February 9, 1901, Vol. XXIX, p. 84. 

""It is probable that Standard Oil men had an interest in the Northern 
Pacific prior to this time. They were creditors of the road when it went into 
bankruptcy in 1893 ; F. T. (jates ( a representative of John D. Rockefeller) and 
James Stillman were members of a committee to arrange for a collateral trust 
agreement to extinguish the floating debt (cf. Commercial and Financial ChronicU, 
May 30, 1893). Subsequent to the reorganization, John D. Rockefeller and 
James Stillmen were mentioned as members of the new board (ibid., October 
17, 1896). Rockefeller's name did not appear thereafter, however, but Stillman 
continued as director, and in 1897 Oliver H. Payne also became a member of 
the board. 

^Commercial and Financial Chronicle, May 11, 1901, Vol. LXXII, p. 936; 
October 12, 1901, Vol. LXXIII, p. 783^ October 19, 1901, Vol. LXXIII, p. 843. 

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(November, 1901), in which all three interests involved — Stand- 
ard Oil, Morgan, and Hill — ^were represented. The Northern 
Securities Co. is an illuminating example of a corporation 
organized purely and simply to secure a unification of the invest- 
ment interest concemed^^— quite as t)rpical, indeed, as the 
United States Steel Corporation, a product of the selfsame year. 

It was in 1901, too, that Gould acquired control of the Den- 
ver & Rio Grande and the Rio Grande & Westem.^^ The next 
year he purchased the West Virginia Central and the Western 
Maryland,^* while shortly thereafter it was noised abroad that 
Standard Oil had acquired large holdings in a Gould road — the 
Missouri Pacific ®* — ^and that the two interests were working in 

As early as 1900 it had been rumored that Standard Oil 
men had entered the territory of the New York Central (the 
Vanderbilt stronghold). During 1904 their interests were mark- 
edly increased, while the relations between the Union Pacific and 
the New York Central came to be regarded as especially close. 
Furthermore, Standard Oil and Vanderbilt representatives were 
operating in joint control of the Delaware, Lachawanna & West- 
tm,^^ and it may be fairly said that all the available evidence 
would indicate that there was a very substantial identity of inter- 
ests between the groups in question. 

In February, 1905, the Union Pacific secured ai representa- 
tion in the Atchison, Topeka & Santa Fe^* (practically annexed 

••/Wd., Jtmc I, 1901, Vol. LXXII, p. io8x ; July 20, 1901, VoL LXXIII, 
p. 138. 

*^ Railway Age, May 17, 1901, Vol. XXXI, p. 531. 

^ Bradstreefs, July 12, 1902, Vol. XXX, p. 436. 

''Ibid., September 13, 190A, p. 578. The appearance on the director- 
ate of the Missouri Pacific of E. P. Prentice (John D. Rockefeller's son-in-law), 
F. T. Gates, and John D. Rockefeller, Jr., woud tend to verify reports as to 
stock purchases. Cf. Poor^s Manual of Railroads, 

•*Cf. Bradstreefs, September 13, 1902, VoL XXX, p. 578. A statement was 
likewise made with reference to another road as follows: "St Paul, as is well 
known, is dominated by Standard Oil." 

"Cf. Commercial and Financial Chronicle, February 24, 1894, Vol. LVIII, 
P* 345 ; cf> ^80 Moodsr's Manual of Corporation Securities, 1904, for lift of 
directors; and note 24 of this article. 

"In the persons of H. H. Rogers and H. C. Frick. It has been recently 
divulged that the Oregon Short Line owns $10,000,000 of preferred stock of 
tiie Santa F€, bought since July i, 1906. 

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it in all probability), and thus added materially to the mileage 
of the so-called Harriman system of railroads. There is no 
doubt that Standard Oil was back of a notable and very recent 
victory won by Mr. Harriman, who led the fight against the 
president of the Illinois Central, whom he succeeded in deposing, 
thereby demonstrating the power which he and his backers could 
exert in controlling the policy of the road.^*^ It is quite probable, 
therefore, that the Illinois Central will soon by common consent 
be added to the already long list of Harriman or Standard Oil 
roads; while it seems likely, in view of recent developments, that 
the Baltimore & Ohio is also within the system.*® 

The conclusion that must be reached in any case even after 
a superficial review of the facts, is that the financial interests in 
control of the great railroad systems of the country have become 
connected in one way or another in almost inextricable fashion. 
Furthermore, it looks as if the Harriman (Standard Oil) and 
the Morgan groups are coming to hold first place among these 
various interests, and indicati(Mis are not lacking to support the 
belief that the Standard Oil group may one day come to occupy 
the position of chief control. At any rate, its aggressive pciicy 
has thus far been exceedingly successful, and the scope of its 
influence has grown with surprising rapidity. To mention the 
most notable of its achievements, it has within the space of a 
few years acquired contrcJ of the Himtington properties, allied 
itself to some extent with the Goulds,** secured a portion of the 
Vanderbilt holdings, encroached upon the Morgan-Hill territory, 
and made its way into other roads less closely identified with 
particular groups. 

The unification of the banks and other financial institutions 

''In a recent hearing before the Interstate Commerce Commission (New 
York, January^, 1907) it was learned that the Oregon Short Line (part of the 
Harriman system) owned securities of the Illinois Central to the amount of 
$28,123,100, which had been acquired since July i, 1906. The same road also 
holds $39*540,600 of the stock of the Baltimore & Ohio, also acquired since last 
July. It was rumored, some months ago that Harriman was buying heavily of 
the stock of the B. ft O. 

"Cf. abore. 

** Since (^rge J. Gould decided to build the Western Pacific his relations 
with Harriman are apparently not so close as formeriy. Cf. recent hearing 
(January, 1907), Interstate Commerce Commission (New York City). 

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of the country which has progressed rapidly since 1897 presents 
another striking illustration of the general tendencies of the time; 
(or, more correctly perhaps), reflects the general trend of devel- 
opment. It is, as I have said elsewhere, but one aspect of the 
general movement toward an extension of investment interests, 
together with a concentration of group control which has been 
so characteristic of late years. Since extensive banking connec- 
tions are the sine qua non of such financial operations as are 
undertaken by the large groups of investors, an alliance of the 
banks that furnish support to one group with those that are 
identified with another becomes in consequence exceedingly sig- 
nificant. In short, it implies, or at any rate, looks toward, a 
union of a more general sort than has thus far been dealt with — 
that is, a union of individual groups of financiers designed to 
cover in its scope miscellaneous investment interests. 

It is impossible in the present article to do more than touch 
upon this phase of the subject,*^^ but it may be well to state that, 
as the Standard Oil group extended its investment activities and 
came into closer contact with other groups, the National City 
Bank began to contract new alliances, to admit representatives 
of outside interests to its directorate, and to purchase control of 
other banks, until today it stands at the head of cwie of the most 
powerful financial org^izations in the country. Nor has the 
growth of this aggr^ation ceased, for each year the National 
City banks are becoming more closely allied with that other 
important chain of institutions, the so-called Morgan banks. 
The practically endless chain of interrelations that has thus been 
brought about points strongly in the direction of a complete uni- 
fication of control of these financial institutions to be concen- 
trated in the hands of that group of financiers who shall eventu- 
ally come to dominate the general investment field. 

Even such a cursory review of the situation from 1870 to 
the present as has been offered, leads then to the conclusion that 
the modem movement toward combination is much more com- 
prehensive than that of the preceding era. It oversteps the 
bounds of any single field of activity ; and it is significant of this 

"•Cf. Journal of Political Economy, July, 1906, "The Growth of Financial 

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fact that the public no longer cares to know whether a particular 
tobacco factory or sugar refinery, for example, is to be brought 
into a combination with other tobacco factories or sugar refiner- 
ies. The questions asked have come to be of wider scope, such 
as: "Are the Vanderbilts woricing in harmc«iy with Morgan?" 
"Have the Goulds quarreled with Standard Oil?" Information 
upon these points will send gas, electric, steel, street-railway, 
and numerous other stocks up or down, as the case may be. 
There is no use attempting to diagnose probable future develop- 
ments by setting up inquiries within the limits of any one industry 
as might have been done twenty or thirty years ago. It would 
be foolhardy to limit the field of investigation in such fashion, 
when there is always a probability that the policy to be pursued 
may be dictated by considerations quite apart from the circum- 
stances of any particular industry. 

This entire movement toward an extension of investment 
interests together with a concentration of group contrcJ, which 
has become especially marked during the past decade, is still in 
process of growth, and with its steady progress one is forced to 
the conclusion that, apart from governmental interference and 
considerations of general expediency, there is no inherent reason 
why an all-inclusive holding company might not be eventually 
formed, with the Standard Oil group of financiers, perhaps, in 
control. The fact that industries allied only in the slightest 
degree, if at all, would thus be brought together in one l^;al 
entity does not make the hypothesis the least untenable. It would 
be no more than an enlargement upon the holding company in its 
most highly develoijed modem form — such, for instance, as the 
North American Co., which, operating street-railway lines in 
several different cities, as it does, secures practically no more 
economies than if the constituent companies were entirely differ- 
ent in kind. Such an organization stands first of all for an alli- 
ance of investors, an elimination of heterogeneous minority inter- 
ests, and a concentration of control. It q>itomizes, as it were, 
the possibilities of the whole modem movement toward a general 
centralization of interests. 

Anna Youngman 


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In February, 1903, and in February and June, 1905, the Statis- 
tical Department of Berlin made three investigations into the 
sources of the milk supply of Berlin and its three immediate 
suburbs, Charlottenburg, Schoneberg, and Rixdorf.^ In June, 1905, 
those cities had a population of 2,533,000; and they constituted 
the center of an aggregate population of upward of 3,250,000; 
which aggregate in turn, was increasing at the rate of 190,000 
people a year. 

The foregoing investigations showed that for all practical pur- 
poses the railway freight charges prohibit the importation of milk 
from points distant more than 75 miles ; ^ that the railway freight 
charges are so high that it pays to utilize the courts and back-yards 
of Berlin, Charlottenburg, Schoneberg, and Rixdorf for the pur- 
poses of stabling milch-cows which supply 17 per cent, of the milk 
consumed in those cities;' that the effect of the distance tariff — 

^The retolts of the first investigation were published in Berliner Statistik, 
Heft I ; the results of the last two investigations have not yet been published, 
but the Statistical Deparment permitted me to read them in the manuscript form 
and to make extracts therefrom. 

' Proportion borne by the milk carried the following distances by rail to the 
total of milk carried by rail : 

Distance in Mikt 


96 to 4A 

45 to 56 

57 to 75 

76 to 176 

Imported from Denmark 













June, 1905 





Dbcembxk, 1902 



No. of 

No. of 

No. of 

No. of 








1 1998,500 

Chark)ttrabiirc. . . . ,. w . . w 







X 2.8X1 



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described in the issue of this Journal of April, 1906 — ^has been to 
concentrate within a distance of 56 miles of Beriin no less than 
85 per cent, of the dairy cows whose milk is sent to Berlin by rail. 
The following facts are added in order to enable the reader to 
appreciate the significance of the presence in Berlin in December, 

1904, of 763 dairies with a total of 10443 cows. The Administra- 
tive County of London has an area of 121 square miles, and a 
population of 4,600,000, or 62 people to the acre. Berlin has an 
area of 25.4 square miles, and 116 people to the acre. In December, 

1905, there were in the Administrative County of London 4,602 
head of cattle, maintained in 251 dairies and cowhouses. The 
number of cattle had decreased year by year, from 6,253 head, 
kept in 353 dairies and cowhouses, in December, 1898.* Cow- 
houses, slaughter-houses, and knackers' yards, when maintained 
within the limits of the Administrative County of London, the 
London County Council deems "offensive" trades. 

Nor have the large German cities outside of Berlin anything 
like the number of cows that Berlin has.* Those cities still have 
something like the same number of cows that Berlin had when it 
was the size of those cities, and still could be supplied to a consider- 
able extent from dairies that sent their milk into the city by wagon. 
In Nordamerikanische Eisenbahnen, in the course of an attempt 
to controvert an argument made by myself in Government Regulch 
tion of Railway Rates, Geheimer Ober-Regierungsrat W. Hoff and 
Geheimer Regierungsrat F. Schwabach have asserted that the 
railway charges had nothing to do with the presence of 9,435 cows 
in Berlin, in December, 1902. They have asserted that those cows 
produced all but exclusively milk for infants, children, and invalids, 
which milk sold at double the price of the milk brought in by the 
railways, and therefore did not compete with the latter. Since 
Berliner Statistik, which lay before Messrs. Hoff and Schwabach 
when they made the foregoing statement, stated that the dairy- 

* Statistical Abstract for London, 1906, Vol. IX. 


Berlin (zgoa) 

HftmbuTff (xQoa) 

Munich TxQoa) 

Leipzig (1903). 

Dresden (xQoa) 

Frankfort a/M (190a) 

Cfty Milk 







41. s 







7a. 0% 






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NOTES 301 

men of Berlin had reported only 4.3 per cent, of their milk as 
children's milk, I inquired in person at the city's Statistical Depart- 
ment whether Messrs. Hoff and Schwabach's statement were 
accurate. The gentleman who had been in charge of the 
investigations of 1903 and 1905 assured me that the milk produced 
in Berlin and the milk brought in by railway were practically iden- 
tical in quality; that they sold at the same retail prices, and com- 
peted with each other. I mention this fact, partly because it is 
essential to the argument, partly because the incident illustrates the 
peculiar nature of the arguments by means of which Wirklicher 
Geheimer Ober-Regierungsrat von der Leyen and Messrs. Hoflf 
and Schwabach, in Germany, and Professors B. H. Meyer 
Frank H. Dixon, and Willard Fisher, in America, have sought 
to support their statements, oral and written, that the author of 
Government Regulation of Railway Rates had misrepresented 
facts, and was in truth little better than a charlatan. 

The Bund der Landwirte is one of the most powerful political 
organizations in Germany existing for the purpose of promoting 
class and sectional interests as distinguished from the national well- 
being. At one end it consists of peasants ; at the other end it con- 
sists of members of the landed aristocracy. Its purpose is to 
secure legislation which shall arrest the decline in the prices of 
farm products and farming land which has resulted from the 
improvement in the means of transportation by land and by sea 
effected since, say, i860. In the year 1900 the Brandenburg mem- 
bers of the Bund der Landwirte, under the leadership of Mr. 
Ernst Ring, a prominent G^nservative member of the Prussian 
diet, organized the Berliner Milch-Centrale, Upon the retirement 
of Mr. Ring, in 1905 or thereabout, Mr. Diedrich Hahn, chairman 
of the Bund der Landwirte, became chairman of the Berliner 
Milch-Centrale. Bodies similar to the Berliner Milch-Centrale 
were organized in other parts of Germany under the auspices of 
the Bund der Landwirte, 

The members of the Berliner Milch-Centrale obliged themselves 
not to sell milk to the retail dealers of Berlin at less than 13.5 pfen- 
nige per liter; the retail price of milk being 18 pfennige for milk 
sold across the counter, and 20 pfennige for milk delivered at the 
door. Before the formation of the Centrale the wholesale price of 
milk delivered at the railway stations in Berlin had been about 

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II to 12 pfennige. In order to protect its members, the Centrale 
agreed to purchase all the milk which the members should fail to 
sell to retail dealers at 13.5 pfennige. The Centrale converted the 
purchased milk into butter and cheese, and assessed its members for 
the purpose of making good any losses incurred in the aforesaid 
manufacture of butter and cheese. At first the assessment was 
fixed at 0.5 pfennig per liter produced by each member; subse- 
quently it was raised to 1.5 and 2 pfennige. 

The retail dealers organized a counter-movement, pledging 
themselves not to pay more than 12.5 pfennige per liter. There 
ensued the so-called milk-war, which dragged on for many years. 
The Centrale finally sold milk at retail, from street wagons as well 
as from shops. The retail dealers appealed to the Railway Depart- 
ment for such reductions in freight charges as should make it 
possible to ship milk into Berlin from points distant 187.5 "^3^- 
A large retail dealer offered to undertake to induce farmers distant 
as far as 187.5 miles to supply milk for Berlin; but the Railway 
Department declined to co-operate with him,* or to grant any 
reductions whatever in rates. The leading commercial organiza- 
tions of Berlin, the Aeltesten der Kaufmannschaft and the Cham- 
ber of Commerce, supported the request for railway rates which 
should permit milk to be shipped from points distant 187.5 n^ilcs. 
They stated that the increase in the supply of milk which would 
follow upon such a reduction of freight charges would lower the 
retail price of milk in Berlin, and that the increased supply was 
demanded by public necessity and convenience. They added that 
the concession in question would benefit also the djstant dairyman, 
who at present was obliged to sell his milk locally at comparatively 
low prices, either for local consumption or as raw material for the 
manufacture of butter and cheese. Similar requests for reduced 
freight rates, as well as for the transportation of milk in refriger- 
ator cars and special milk trains,^ the aforesaid commercial bodies 
had expressed as far back as 1895 ^^^ 1896, when the wholesale 

^Berliner Jahrbuch fur Handel und Industrie: Bericht der Aeltesten der 
Kaufmannschaft von Berlin, 1902, Part II. p. 33. 

''Berliner Jahrbuch fUr Handel und Industrie: Bericht der Aeltesten der 
Kaufmannschaft von Berlin; 1895, p. 130; 1896, p. 145; 1901, Part I, p. xx, and 
Part II, p. 54; 1902, Part II, p. 32; 1903, Part II, p. 94; Part, pp. 120-33; 1905, 
Part II, pp. X46, X47 ; and Jahresbericht der Handelskammer s% Berlin, X903, p. 
434 ; X904» p. 406 ; and 1905, p. 329. 

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NOTES 303 

price of milk delivered at the railway stations in Berlin had been 
10.5, II, and 12 pfennige per liter.® 

The refusal of the Railway Department to grant the reductions 
in freight charges demanded by the leading commercial bodies in 
1895, 1896, and in 1901 to 1905, was due to the unwillingness of 
the Railway Department to precipitate a conflict of interests 
between the near-by producer and the distant producer. The fact 
that the Bund der Landwirte desired to raise the price of milk by 
limiting the production for the Berlin market also was a factor 
that influenced the Railway Department. The whole episode 
simply was one of those innumerable ones, now large, now small, 
which one finds whenever one looks beneath the surface in one's 
investigations into Prussian railway rates and Prussian conditions 
of trade and industry. The making of railway rates by govern- 
ment, through the state ownership of the railways, has brought the 
element of politics into innumerable Prussian rate questions. The 
government of Prussia, even though it is an enlightened despot- 
ism, has not its being in a vacutmi, but in a medium of politicians 
and politicians' constituencies. 

The annual report for 1904 of the Aeltesten der Kauftnann- 
schaft von Berlin stated that there was no prospect of the Railway 
Department granting the reduction in the freight charges that had 
been demanded time and again. 

In the latter part of 1904 the Association of Berlin Milk- 
Dealers began the importation of milk from the Danish islands of 
Falster, Laaland, and Seeland, said milk being carried a little over 
190 miles. At the same time the association announced that, upon 
the completion of tfie tank-cars that were building, it would import 
milk regularly from the mainland of Denmark, or Jutland, Sweden 
and Holland in the north and east, as well as from Bohemia in the ' 
west It expected to establish the price of milk at the railway 
stations in Berlin at 11.5 pfennige per liter. The Danish state rail- 
ways had agreed to take milk shipped in tank-cars on the same 
terms as petroleum, acids, wine, mineral waters, and other specific- 
ally entmierated articles are taken when shipped in tank-cars and 

* In 1905 the railway milk was brought into Berlin as follows : 70 per cent, 
by fast freight trains; 20 per cent, by ordinary freight trains; and xo per cent 
by passenger trains. 

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imported into Germany from adjacent countries. The Danish state 
railways apparently assumed that the Prussian Railway Department 
would co-operate with them in that policy; they made no inquiry 
of the Prussian Railway Department until the first shipment of 
milk in tank-cars had been started on its way to Berlin. Liquids in 
tank-cars in international trade are charged freight on the basis 
of their net weight. The reduction in the freight charge on milk, 
should the latter be charged only on the basis of its net weight, 
together with the saving in the wear and tear of cans through the 
use of tanks, was estimated at i pfennige per liter, or 7 to 8 per 
cent, of the wholesale price of milk in Berlin in recent years. With 
that saving the retail dealers believed they would be able to organize 
and maintain a regular import trade in milk. 

No attempt was made to ship milk into Berlin in tank-cars from 
distant points in Germany; for there was no possibility of the 
Railway Department permitting tfie use of tank-cars for German 
milk on the basis of charging freight on the net weight of the milk. 

On September 18, 1905, arrived in Berlin the first tank-car 
carrying Danish milk. It came from Jutland, a distance of upward 
of 300 miles. For some time after that date each tank-car ship- 
ment of milk was received at Berlin by a squad of health officers 
accompanied by policemen in plain clothes; but it proved impossi- 
ble to establish anything against the purity and wholesomeness of 
the tank-car milk. In the middle of November, 1905, the Railway 
Department forbade the further use of tank-cars in the international 
milk traffic, on the ground that milk was not one of the articles 
enumerated in the tariff governing the shipment of liquids in tank- 
cars. After issuing the aforesaid order, the Railway Department 
took evidence and testimony upon the question of the shipment of 
milk in the international traffic in tank-cars. In the middle of 
December the Railway Department again permitted the use of 
tank-cars. But it imposed a freight charge on the weight of the tank, 
both coming and going, and thus effected the withdrawal of the 
tank-cars in February, 1906. 

In the fall of 1905, when the danger of a large import trade in 
milk being developed appeared real and serious, and even Ameri- 
can producers were considering the question of exporting milk to 
Germany, the Milch-Centrale announced that for the year ending 
with September 30, 1906, the members of the Centrale might con- 
tract to sell their milk at the railway station in Berlin at 12 pfennige 

Digitized by 


NOTES 30s 

per liter, the official price of the Centrale up to that time having 
been 13.5 pfennige.* In October, 1906, when the threatened 
danger had been averted by the ruling of the Railway Department, 
the Centrale raised the retail price of milk from 18 pfennige to 20 
pfennige for milk sold across the counter, and from 20 pfennige to 
22 pfennige for milk delivered at the house. The Centrale, whose 
operations up to this time had resulted in a deficit of something 
like $1,500,000, hoped to pay off a part of that deficit through 
increasing the retail price of milk. In March, 1907, the retail 
prices of milk still were respectively 20 pfennige and 22 pfennige. 

Early in January, 1907, the Chambers of Commerce of Berlin 
and Hamburg petitioned tfie Railway Department to put milk on 
the list of articles which may be carried in tank-cars on the basis of 
the payment of freight charges on the net weight of the liquid 
carried.*® The petition was denied on the last day of February, 

The argument of the Berlin Chamber of Commerce was as 
follows: The ruling of the Railway Department, together with 
the increased price asked by the dairymen of Jutland, had destroyed 
the importation of milk in tank-cars. The increasing difficulty of 
supplying Berlin from the limited territory which had been drawn 
upon in the past, made it necessary to draw upon East and West 
Prussia, Posen, eastern Pomerania, and, possibly, even upon Hol- 
land and Denmark, which latter countries now offered large sup- 
plies at reasonable prices. The tank carload rate would reduce the 
freight charge sufficiently to make it possible to draw on the 
enlarged territory aforesaid. Every summer and fall there was a 
serious scarcity of milk; in 1906 even the large dealers had been 
unable to meet the demands of their customers. The recent increase 
in the demand for milk had been due mainly to the rapid growth 
of the large cities, but in part also to the spread of the practice of 
abstention from alcoholic indulgence. Even among workmen in 
the iron trades, the building trades, and other callings making 
large demands upon men's physical strength, milk was beginning 
to compete with alcohol. It would promote the cause of temper- 
ance to have available at all times and at appropriate prices an ade- 

* Jahresbericht der Handelskammer su Berlin, 1905, p. 329; and Berliner 
Jahrbuch fUr Handel und Industrie, 1905, Part II, p. 146. 

^ Mitteilungen der Handelskammer su Berlin, January ao, 1907. 

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quate supply of milk. Finally, while the large cities at present 
were inadequately supplied, the dairymen in the remoter country 
districts were unable to obtain from the local butter and cheese 
manufactories such prices as they would be able to command should 
their product be given access to large cities.** 

In 1887, when the population of Greater New York was 
materially smaller than was the population of Greater Berlin in 
1905, the Erie Railroad was bringing milk to Greater New York 
from Summit, a distance of 183 miles ; and the Ontario & Western 
was bringing milk a distance of 202 miles. In the ten years end- 
ing with 1895 the "railway" milk supply of Greater New York 
increased by 47 per cent., whereas the population increased only 
40 per cent In the production of that increased supply of railway 
milk, participated but little the section of land comprised within a 
radius of 100 miles of New York by direct line. 

In 1905 milk was brought into Greater Boston, which had a 
population of about 1,000,000, from points distant 213 miles. In 
that same year it was brought into Philadelphia, which had a popu- 
lation of 1,368,000, from points distant 353 miles. 

The foregoing facts prove beyond the possibility of controversy 
that, so far as the Prussian State Railway Department is concerned, 
the business of supplying Berlin with milk is done wretchedly. That 
is the verdict of the facts in the case— of the German facts no less 
than of the American facts. For, as will be remembered, from 
September 18, 1905, to February, 1906, the enterprise of the Berlin 
dealers in milk, actively supported by the enterprise of the Danish 
state railways, and unwillingly supported by the Prussian state 
railways, regularly maintained an import trade in milk into Berlin 
from points distant upward of 300 miles. And in January, 1907, 
no less a body than the Berlin Chamber of Commerce stated that, 
if the co-operation of the Prussian state railways could be secured, 
a regular trade from points distant 300 miles, and more, could be re- 
established. The wretched conditions under which Berlin is supplied 
with milk are in no way due to lack of enterprise on the part of the 
milk-dealers of Berlin ; nor are they in any way due to any lack of 
technical efficiency on the part of the Prussian state railways. Those 
wretched conditions are due solely to the fact that under the mak- 

^ Mitteilungen der Handelskammer mu Berlin, January ao, 1907. 

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NOTES 307 

ing of railway rates by government in Prussia it has been found 
politically necessary to make railway rates very largely on the 
principle that "the natural disadvantages of the more distant pro- 
ducers" may not be "overcome," lest "the producers nearer the 
market" be "denied recognition of their more favorable location," 
to use the words employed by the Interstate Commerce Commission 
in Milk Producers' Protective Association v. Railways. 

Hugo R. Meyer 

Berlin, March i, 1907 

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The Tariff and the Trusts. By Franklin Pierce. New Yoric : 
The Macmillan Co., 1907. Pp. xi+387. 
Attacks upon graft, special privilege, and extortion are popular 
these days, and the book before us seems primarily intended to dis- 
close such evils of this sort as the author believes are to be laid at 
the door of the protective tariff. Its object, he tells us, 
is to supply in simple form a clear statement of the flagrant wrongs of thit 
[the Dingley] tariff. It is idle with such a tariff existing to attempt a dis- 
cussion of the general question of free trade. Simplification is the keynote to 
every issue with a moral core, and the simple but comprehensive question 

which we shall discuss is the injustice of the Dingley Tariff I have 

therefore sought in this volume to present an array of concrete facts which 
condemn our tariff; and to present them so fairly and candidly that my read- 
ers, forgetting their party alliances, will remember only that they are citizens 
of this great democratic Republic, which will live as long only as it secures to 
its people equality of opportunity and protection from oppressive monopolies 
(pp. V, vii). 

The book is frankly based on secondary sources, apparently not on 
very many, and is written for the general public, not for the student. 

Starting out with an explanation of the conditions which con- 
front industry in this country, the author attributes our superiority 
in manufacturing to the energy, enterprise, and inventive talent of 
our people, the extensive use of machinery, our rich natural 
resources, and low taxes. Yet, in spite of these advantages, "the 
United States Government has been picking out favorites and 
bestowing upon them special privileges through the tariff," result- 
ing in such excesses as are pointed out in the cases of the duties on 
wool and woolens, iron and steel, tin plate, sugar and glass, which 
allow "powerful industries to extort from the people of a cotmtry 
billions of dollars in enhanced prices" (p. 44). 

One chapter is devoted to the trusts, the most unsatisfactory 
one in the book, wherein the author declares: "Our protective 
tariff is the genesis of the trust. The trust comes out of it as 
naturally as fruit from blossom" (p. 51). It is elsewhere admitted 
that "there are other causes for the existence of combinations aside 
from protective tariffs" (p. 56), but they receive practically no 


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further notice. The author continues : "Hundreds of other trusts, 
not so vast as the steel trust, but just as oppressive in their extor- 
tions, have been formed to avail themselves of the tariff (p. 74) ; 
and he adds a list of trusts "fostered by the tariff," including the 
"Meat Trust," the Standard Oil Company, the International Har- 
vester Company, and the Diamond Match Company. The trusts 
are burdened with the responsibility for the growing separation 
between the laborer and the employer, as well as for the growth of 
trade unions, while they will ultimately lead to state socialism. It is 
useless to criticize this in detail. Admittedly the abolition of the 
tariff would help to check the extortions of certain monopolies; 
nevertheless, the general impression of the trusts which one here 
obtains is hopelessly one-sided and superficial, showing the most 
inadequate study and a total failure to grasp the absolutely funda- 
mental aspects of the problem. 

In contrast with the preceding, the chapter entitled "Protective 
Tariffs and Public Virtue" is the best in the book, developing as it 
does, a phase of the tariff question which the general public so 
commonly overlooks. Here we are told that "these seekers after 
protective tariffs have been corrupting both themselves and our 
public men." 

A more stupendous instrument for corrupting congressmen than the lodg- 
ing of this power in them was never conceived by the perverse ingenuity of 
man (pp. 117, 118). Our country will never go down in the momentous sweep 
of battle; but it will as surely die from corruption as the moral law pervades 
the universe, if these conditions continue to exist (p. 127). 

Other evils for which the tariff is held responsible are— control of 
newspapers by special interests and trusts, wasteful expenditures 
by the government, the destruction of patriotism, increasing cen- 
tralization, and the undermining of free government. The pictiwe 
is overdrawn, but it deserves most serious reflection. 

Another chapter explains how the tariff and our "barbarous 
navigation laws" are responsible for the decline of American ship- 
ping. Still others are devoted to "Talks with Manufacturers, 
Laborers, and Farmers," wherein are pointed out the usually 
described disadvantages under which these classes suffer as a result 
of the protective tariff, while the author also seeks to disclose the 
fallaciousness of the blessings frequently supposed to be derived 
from it. After accounts of "Our Tariff History," "How England 
Got Free Trade," and "The Tariff in Germany," in each case mainly 

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summarizing a single book, we come to "The Remedy." This is 
found in the abolition of the protective tariff, and the consequent 
prevention of trust extortions; and is to be obtained through a 
rebirth of patriotism among the people, their organization outside 
of party lines for the discussion of these evils, and finally the sub- 
mission of the question to a referendum vote. 

It is to be regretted that the "fair and candid presentation of 
facts" which the author sought to attain is sadly marked by a use of 
statistics showing either gross carelessness or ignorance of econom- 
ics, as well as by conclusions of the most illc^cal character, abso- 
lutely unwarranted by any evidence presented. Thus because Dun's 
figures for the per capita wholesale cost of living were $73455 on 
July I, 1897, and $106,794 on June i, 1906, showing an increase of 
474 per cent., our author immediately declares: 

These are only a few simple figures, but it is sometimes interesting to 
have the painful testimony of our weekly bills confirmed by statistics, and 
no elaborate exhibit could carry a more convincing indictment of the oppres- 
sion of monopoly (p. 18, and similarly p. 208). 

Comment is superfluous. The argument that the tariff aids the 
laborer is presumably annihilated by adducing the fact that the per- 
centage of increase of the men employed in factories and the 
amount of their wages and salaries did not increase as rapidly 
between 1890 and 1900 as during the previous decade, although the 
years 1890 to 1900 included the McKinley and Dingley tariffs, 
when the duties paid on dutiable articles averaged higher than under 
the Tariff Act of 1883 (p. 204, and similarly p. 195). Such reason- 
ing, whether the final conclusion be right or wrong, reflects little 
credit on a member of the bar. Again, because he finds the state- 
ment that according to the Census of 1900 17J4 per cent of the 
cost of manufactured articles is the proportion which the laborer 
receives, while the average duty paid on dutiable imports averages 
about 50 per cent., we are told that 

the American people pay the trusts in increased price more than the entire 
labor cost of the article for the purpose of taking care of the difference 
between the cost of your labor and that of your foreign competitor (p. 212). 
It is interesting to note that the Census of 1900 (Vol. VII, p. 
ccxvi) says: "It is not possible to ascertain from the census statis- 
tics the so-called labor cost of production." For such use of statis- 
tics as the above there can be no warrant. Examples might be 
multiplied, but enough has been given to indicate the unreliability 
and biased character of the book's conclusions. 

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Thus, although the volume brings out many facts with which 
one could wish that the public might become acquainted, still it 
must be set down as simply another addition to the long list of 
partisan writings on this vexed question — ^a question the satis- 
factory and ultimate solution of which is to be obtained only 
through most cautious, thorough, and judicious study. Hence we 
conclude that even among the staunchest of free-traders a book of 
this character could be welcomed only by the most short-sighted. 

Chester W. Wright 

Cornell University 

John Sherman. By Theodore E. Burton. ["American States- 
men," Second Series.] Boston: Houghton, Mifflin & Co., 
1906. 12010, pp. 429. $1.25 net. 
The active political life of Mr. Sherman covered a period of 
forty-three years, extending from 1855 to 1898. During this well- 
nigh half-century he was a prominent figure in political affairs. 
The story of his life is intimately connected with the financial and 
political history of the United States during these years, with which 
history Mr. Burton shows himself to be familiar. 

Mr. Sherman entered his political career about the time of the 
disintegration of the Whig party. During the six years of his 
service in the House, he became one of the most prominent leaders 
of the new Republican party, being chosen as its candidate for 
speaker. With his election to the Senate in 1861 he entered upon 
sixteen consecutive years of service in a new field. This period, 
and the four years following, as secretary of the treasury, formed 
the most conspicuous portion of his career, the one in which the 
major part of his constructive work in legislation and in adminis- 
tration was accomplished. The financial problems arising out of 
the war were extremely difficult, and in connection with these Mr. 
Sherman's chief services were performed. His greatest triumph, 
of course, was in effecting the resumption of specie payments in 
1879 under his administration of the Treasury. Due emphasis is 
laid upon this by the author, and the financial skill displayed in 
funding the national debt is pointed out. 

The author, although recognizing somewhat fully the evils of 
an irredeemable paper currency, argues that the position taken by 
Mr. Sherman in supporting the first issue of legal-tender notes was 

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justified. That "more buoyant business conditions" were caused by 
the issue he asserts to be true, and adds : 

The measure, however, does not rest for its justification upon any such 
foundation as this, but rather upon the substantial basis of necessity (p. iii). 

This well-known "necessity* argument is thus again pressed into 
service, despite the fact that its fallacy has been several times 
pointed out.* 

The charge of inconsistency, which has been so often brought 
against Mr. Sherman, is not denied. "His changes of attitude were 
not in all instances free from apparent regard for political expedi- 
ency" (p. 421). His advocacy in 1868, which was afterward 
abandoned, of forcing the holders of bonds to exchange them for 
others bearing a lower rate of interest, under penalty of receiving 
payment of the principal in greenbacks, is noted; also his change 
from desiring the greenbacks withdrawn entirely to wishing them 
retained permanently as a part of the circulation; but it is argued 
that for these and other changes 

no adequate explanation can be given except that they were due to a habit of 
his mind. He did not aways change his tack with changes of the tide. 

His political vacillation and trimming to suit public opinion is 
evidenced in his attitude on the silver question. He saw clearly 
enough the impracticability of the free coinage of silver, and argued 
against it in 1877; opposed the Bland- Allison Bill in 1878; 
and yet the Sherman Silver Act of 1890 was a direct concession to 
the silver interests and party feeling. His partisanship is defended 
by the political standards of the time, which is perhaps as strongly 
put as the case will bear. 

Some minor errors may be noted. On page 179, where $319,- 
000,000 is given as the amount of greenbacks in circulation on 
July I, 1867, the true figure should be $369,000,000. "Chinese 
citizens" (p. 326) should, of course, be "Chinese subjects." 

It is a creditable biography, written by one in full sympathy 
with the political ideas of Mr. Sherman, but free, on the whole, 
from undue bias. The binding and press-work are worthy of the 
firm whose imprint the volume bears. Eugene B. Patton 

University op Chicago 

* See especially the careful study by Don C. Barrett, "The Supposed Neces- 
sity of the Legal Tender Paper," Quarterly Journal of Economics, Vol. XVI, pp. 
323-54; also J. Laurence Laughlin, Report of the Monetary Commission (Chi- 
cago, 1898), p. 406 ; W. C. Mitchell, History of the Greenbacks [(Chicago, 1903), 
pp. 48, 50, 73, 74- 

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Problems of Empire, Papers and Addresses by the Hon. T. A. Brassey. 
London : Arthur L. Humphreys, 1906. 8vo, pp. x+218. 

A popular edition of the author's papers and addresses first published in 
book form some two years ago. The chief economic interest lies in the discus- 
sion of imperial preference and tariff reform. The author, who "preached 
preferential trade within the empire some years before Mr. Chamberlain," is a 
staunch imperialist, whose writings have commanded the respect of Englishmen 
irrespective of party affiliations. 

The Development of Western Civilization: A Study in Ethical, Economic, 
and Political Evolution, By J. Dorsey Forrest. Chicago : University of 
Chicago Press, 1907. 8vo, pp. xii+406. 

As the scope of Professor Forrest's study of western civilization is wide, 
extending over the whole field of European social history, and as the point of 
view of the author is rather that of the social philosopher presenting an analysis 
of that history "on the basis of their ethical, economic, or political values," 
than that of the economist, comparatively little space is devoted to purely 
economic discussion. The author's originality lies rather in his analysis of social 
evolution than in the uncovering of new historical material. One chapter is 
devoted to the "Development of Commerce," including an account of the rise of 
the towns, the guilds and commercial leagues of the Middle Ages. Other topics 
of economic interest are the economics of the church and the industrial 

The Spirit of American Government: A Study of the Constitution: Its Origin, 

Influence and Relation to Democracy, By J. Allen Smith. New York: 

The Macmillan Co., 1907. 8vo, pp. xv+409. 

This last volume in the "Qtizen's Library of Economics, Politics, and Sociol- 
ogy" is mainly a discussion of those constitutional checks upon the free rule of 
the majority in our political organization to which the author attributes many of 
the evils and much of the corruption ordinarily associated with democracy itself. 
The spirit of the Constitution is stated to be inherently undemocratic, since it 
places obstacles in the way of majority rule. Operating under these limitations 
universal suffrage does not insure majority rule, which is conceived to be an 
essential condition of ptu'e democracy. While the author devotes himself mainly 
to consideration of our political organization, certain sections are given up to a 
discussion of such economic problems as are involved in government regulation 
of industry, municipal ownership, and labor legislation. The conservative policy 
of the Supreme Court is regarded as one factor in the corruption of state 

The Politics of Utility: The Technology of Happiness Applied, Being Book 
in of the "Economy of Happiness." By James Mackaye. Boston: 
Little, Brown & Co., 1906. 8vo, pp. xxi+179. 

The Politics of Utility is an arraignment of the capitalistic system of 
industry on the ground that it does not insure an excess of happiness over 
unhappiness. The author proposes a modified socialistic programme of public 
ownership of the means of production, and naively suggests the purchase by the 
government of the means of production, through the issuing of non-transferable, 
non-inheritable, low-interest-bearing bonds, or of bonds upon which tJ^ie rate 
of interest shall be gradually diminished through a period of thirty years. This 
is not regarded by the author as being confiscation of property. "The means of 

Digitized by 




production could," he believes, thus, "be gradually restored to the community 
which created them without any violent disturbance of private interests," and a 
system of "pantocracy" — which would appear to be a r^ime of socialism— estab- 
lished, which should insure universal happiness. 

Transactions of the National Association of Cotton Manufacturers. Semi- 
Annual Meeting, September 12 and 13, 1906. Boston : Office of the Asso- 
ciation, 1907. Pp. 352. 

The papers presented at this meeting of the Association of Cotton Manu- 
facturers include a discussion of "The Recent Prog^ress of Textile Education in 
the United States," "The Handling and Marketing of Cotton by the Growers." 
"The Outlook for the Cotton Grower," "Egyptian Cotton," "Child Labor in the 
Textile Factory," together with several discussions of technical processes and 
improved methods of manufacture. 


Abbott, Henry L. Problems of the 
Panama Canal. New York: Mac- 
millan, 1907. 8vo. $2. 

Administration des monnaies et m^ 
dailies. Rapport au ministre des fi- 
nances, lime ann6e. 1906. 8vo. 

Aftalion, Albert. Le d^veloppement 
de la fabrique et le travail k domicile 
dans lea industries de IHiabiUemeot 
Paris: Larose et Tenin, 1906. 
Pp. 312. Fr. 3.50. 

Albi, O. Case e pensioni per gli operai : 
(conferenze) precedute da una let- 
tera di L. Luzatti. Casalbordino : 
De Arcangelis, 1906. 8vo, pp. no. 
L. 2. 

Allen, Dr. W. H. Social Efficiency. 
(Probable title announced.) New 
York: Dodd. 

Altona. Bericht uber die Gemeinde- 
verwaltung der Stadt Altona in den 
Jahren 1 863-1 900. II. Teil, III. 
Teil. Pp. 762 and 734. 

American Academy of Political and 
Social Science. Child Labor. Phila- 
delphia: Am. Acad, of Pol. and 
Soc. Science, 1907. 4to, pp. 2+243. 

Andrews, Frank. Costs of Hauling 
Crops from Farms to Shipping 
Points. U. S. Dept of Agriculture, 
Bureau of Statistics Bulletin. 
Washington, D. C, 1907. 8vo, pp. 
63. $0.25. 

Ankenbrand, Andr. Wege rur Wirt- 
schaftsunion Deutschland-Oesterrdch- 
Ungam. Mit i Kartenridzze. Ber- 
lin: Troschel, 1907. 8vo, pp. 30. 
M. 1.25. 

Arbeits- und Lohnverfaaltnisse in dem 
stadtischen Betrieben 1906. 

Arendt, Otto. Die parlamentarische 
Studienreisen nach West- u. Ost- 
afrika. Reiseberichte aus Togo, 
Kamenm und Deutsch-Ostrafrika. 
Berlin: Schwetschke u. Sohn, 1906. 
Pp. 5+174. M. 3. 

Aron, £. Das Rdchaefbscfaaftssteoer- 
gesetz mit Erlanteningen u. Aus- 
fuhrungsbestimmungen. Leipzig : 

Hirschfeld. 8vo, pp. viii+134. M. 


Assekuranz-Jahrbuch. Begrundet v. A 
Ehrenzweig. Wien: Manz, 1907. 
M. 12. 

Atchadov, V. Slovar polititcheskUdo 
i nekotorykh drogikh slov. (Dic- 
tionary of Political Terms and Some 
Others.) Moskav: Burce, 1906. 
8vo, pp. 160. Fr. 2.40. 

Aug6-Laribe, M. Le probleme agraire 
du socialisme. La viticulture indus- 
trielle du midi de la France. Paris: 
Giard, 1907. Pp. 366. Fr. 6. 

Auswartiger Handel des deutschen 
Zollgebeits im Jahre 1905. 

Baden. Die Entgeltiger. Ergebnisse 
der Volkszahlung vom i. Decem- 
der 1905. Stat. Mitteilungen uber 
das Grossh. Baden. Jahrg. 1905. 
Nos. I, 2, 3. Pp. 94. 

Baemreither, J. M. Die Ursachen, 
Erscheinungsformen und die Aus- 
breitung* der Verwahrlosung von 
Kindem und Jugendlichen in Oes- 
terreich. Wien: Manz, X907. 
Pp. xiv+533. 

Bailey, Liberty Hyde, ed. Cyclopedia 

Digitized by 




of American Agrictilture: a popu- 
lar survey of agricultural conditions, 
practices and ideals in the United 
States and Canada. VoL I, Farms: 
regions, soils, farm-plans, atmos- 
phere. New York: Macmillan. 
4to, pp. 18+61S. $5. 

Baker, Ja. Hutchins. American Prob- 
lems: Essays and Addresses. New 
York: Longmans. Pp. 74-222. 

Barth^lemy, J. Le role du pouvoir- 
ex^cutif dans les ripubliques 
modernes. Paris: Giard et Briire, 
1907. Pp. 762. Fr. IS. 

Bayem. Die eintragenen Genossen- 
schaften im Konigreich Bayem. 
Nach dem Stande in den Jahren 
1902 und 1903 und mit einer vor- 
laufigen Uebersicht uber den Stand 
am Ende 1905. 

Beaumont, W. M. Injuries of the 
Eyes of the Employed and the 
Workmen's Compensation Act Lon- 
don: Brown. Svo. sx. 

Behrend. Enquete uber die weiblichen 
Handelsangestellten Magdebkirgs. 
Magdeburg : Magdeburg Handels- 
kammer, 1907. 

Berenje, Alex, und Tbrjan, Fcrd. Dec 
Erwerb und der Verlust der ungar- 
ischen Staatsburgerschaft. (Trans- 
lated from the Hungarian.) Leipzig: 
Duncker u. HumUot, 1906. Pp. x-h 
184. Fr. 5. 

Bericht der Arbeiter-Unfall-Versiche- 
rungsanstalt fur das Konigreich 
Bohmen fiir 1905. Prag, 1906. 4to, 
pp. 44- 

Bericht der Handdskammer in Bremen 
ftir 1906. Bremen, 1907. 8vo, pp. 

Bericht uber Handel und Industrie der 
Schweiz im J. 1905. Ziirich: Be- 
richthaus, 1906. 4to, pp. yi-i-216. 
Fr. 3. 

Beriin. Die Arbeiterkrankenversiche- 
rung im Jahre 1905. 

Berliner Jahrbuch fur Handel u. In- 
dustrie. Bericht der altesten der 
Kaufmannschaft von Berlin. Jahrg. 

1906. I. Bd. Berlin: S. Reimer, 

1907. 8vo, pp. xi-l-831. M. 10. 
Bernstein, Eduard. Die Grundbedin- 

gungen des Wirtschaftslebens, Wirt- 
schaftswesen u. Wirtschaftswerden. 
II. Vortrag. Berlin: Vorwarts, 1906. 
8vo, pp. 32. M. 0.50. 
Bittmann, Karl. Hausindustrie u. 
Heimarbeit in Grosshertzogt. Ba- 

den zu Anfang des XX. Jahrhun- 
derts. Bericht an das grossherzogl. 
bad. Ministerium des Innen. Hrsg. 
v. der Fabrikinspektion. Karlsruhe: 
Macklot, 1907. 8vo, pp. x-hi207. 
M. 10. 
Bleivergiftungen in huttenmannischen 
und gewerblichen Bletrieben. Ur- 
sachen u. Bekampf. Hrsg. v. K. K. 
arbeitsstatist. Amt. im Handelsminis- 
terium. IV. Tl. : Protokoll uber 
die Expertise betr. die Bleiweiss- u. 
Bleioxydfabriken. Wien : Holder, 

1906. 4to, pp. x-l-38. M. 1.80. 
Boissonade, P. La restauration et le 

developpement de Tindnstrie en 
Languedoc au temps de Colbert. 
Toulouse: Privat, 1906. Pp. 32. 

Bolze. Rechte der Aogestellten und 
Arbeiter an den Erfindungen ihrer 
Etablissements. Leipzig : Akade- 
mische Verlagsgesellschaft, 1907. 
8vo, pp. 44. 

Borie, J. Le metayage et la colonisa- 
tion agricole au Tonkin. (These.) 
Paris: Giard, 1906. 8vo, pp. 124. 

Bosenick, A. Ueber die Arbeitsleis- 
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Manchez, G. L'impot g6n^ral sur le 
revenu. Paris. Alcan et Guillaumin, 
1906. Pp. 68. Fr. I. 

Mannheim. Der Mannheimer Woh- 
nungsmarkt Ende November 1906: 
Ergebnisse der Wohnung^zahltmg 
vom I. Dezember 1905. Mannheim. 

Marazio, Annabale. II partisto so- 
cialisto italiano e il governo (15 
febbrajo 1901-7-4 marzo 1905). To- 
rino : Unioni Tipogrrafica-Editrice, 
1906. Pp. 207. L. 3.6. 

Marian, E. Deutschlands Gefliigelhal- 
tung und sein Handel mit Gefliigel- 
produkten, . (Dissertation.) Leip- 
zig, 1906. Pp. 60, mit 2 Tab. 

Marten, Ludwig. Die Altersverhalt- 
nisse der ehelich und unehelich neu- 
geborenen Kinder. Flensburg: Sol- 
tan, 1906. Pp. 145. M. 3. 

Marz, Joh. Die Fayencefabrik zu 
Freiburg in Baden. (Dissertation.) 
Leipzig, 1906. 8vo, pp. 85. 

Mermeid. Le socialisme: definitions, 
explications, objections. Expos6 du 
"pour" et du "contre." Paris: 
Allendorff, 1906. i2mo, pp. 364. Fr. 

Note. — Remaining titles are carried over to the June Journal. 

Digitized by 



strong Testimony from the University of 





Goo. Bon. Johnston, M.D., LL.D.| Prof. Gynecology and Abdominal Surgery, University 
of Virginia, Ex-Pres. Southern Surgical and Gynecological Assn,, Ex-Pres, Virginia Medical 
Society and Surgeon Memorial Hospital ^ Richmond, Va,: **If I were asked what mineral water hat 
the widest range of usefulness, ^ ^ ^ _ || y in Uric Acid Diathesis, Qout* 

I would unhesitatingly answer, BUFEaIA LllHIA WKTER Rheumatism, Uthaemla, and 

the like, its beneficial effects are prompt and lastlnj: Almost any case of Pyelitis and 

Cystitis will be alleviated by It, and many cured. I have had evidence of the undoubted Disin- 
tegrating Solvent and Eliminating powers of this water in Renal Calculus, and have known iu long 
continued use to permanently break up the gravel -forming habit" 

James L. Cabell, M.D.y A.M.. LL.Dm ^former Prof Physiology and Surgery in the Medical 
Department in the University of Virginia, ii||..— «n-,^^ ■ ■MHavii lAfjvi«ra ^^ ^^Ic Acid 
and Pres. of the National Board of Health: DUFEIIUl LITHIA WKTER Diathesis is a 

well-known therapeutic resource. It should be recognized by the profession as an article of 
Materia Medica." 

Dfn P. B. Barringer. Chairman of Faculty and Professor of Physiology, University of Vir- 
ginia, Charlottstnlle, Va,: ''After twenty years' practice I have no hesitancy in stating that for 
prompt results I have found ||||«Hkm « g^ I n>UI A lifjfiwm ^° preventing Uric Acid Deposits 
nothing to compare with DWkWMM LITnlll WftrER j^ t^e body. 

Wm. B. TowleSf M.D.y late Prof oj Anatomy and Materia Medica, University of Virgina: 

••hi Uric Add DUthesIs, Qout, Rheumatism, Rheumatic Oout,'Renal Calculi and Stone In the 

BhuMer, I know of no -, Spring 

lemedy comparable to DUffTJiUl UIIiUL lUUUi No. 2. 

Volnminious medical testimony sent on request. For sale by the general drug and mineral 
water tiade. 


Digitized by 


t food, as 
as it is 
easily di- 
d to repair 
rngth, pre- 
ii and pro- 

at you get 
t, bearing 
•mark on 


4r/ EUROPE and JkMEHfCJk 

Walter Baker & Go. Ltd. 

Eat«bUahedl780 Dorchester. Mass. 

EM^ Cblsndss. 


A colorless liquid; powerful, safe and econom- I 

I ical. Instantly destroys foul odors and disease- I 

breeding matter. Specially prepared for house- | 

hold use. Sold only in quart bottles by druggists 


'IVaste Not— IVant Not' 


There is no waste for the purse where the housekeeper uses 
SAPOLIO. It has succeeded grandly although one cake goes as 
far as several cakes or packages of the quickly-wasting articles often 
substituted by dealers or manufacturers who seek a double profit. 
Powders, Sifters, Soft Soaps, or Soaps that are cheaply made, 


All powder forms of soap are easily wasted by the motion of your 
elbow. Many scouring Soaps are so ill-made that if left a few 
minutes in the water they can only be taken out with a spoon. 

A well-made, solid cake, that does not waste, but wears down "to 
the thinness of a wafer," is the original and universally esteemed 


"Waste Not— "Want Not' 




No. 6 

Vol. 15 

The Journal 


Political Economy 

JUNE 1907 


H. Parkbk Willis 
Robert F. Hoxie 


Mortality Statistics: 1905 


Graham's Taxation^ Local and Imperial) and Local Government. — Armitage-Smith's 
Principles and Methods of Taxation. — Meyer's Municipal Ownership in Great Britain, 
NOTICES, — Facts on Immigration. — Barnard's Factory Legislation in Pennsylvania: 
Its History and Administration. — Blackman's Economics. — Hamilton's Practical Law. 



Late Secretary of the Treasury 


Chancellor, University of Nebraska 


• Professor, Uiu'versity of Minnesota 


Director of Statistics, Norway 


tfessor, University 


Paris, France 

Professor, University of Illinois 


Professor, Rome, Italy 


Professor, University of Michigan 




Professor, University of California 

Senator, Rome, Italy 


President, Gark College 


Late Editor New York Evening Post 


Professor, University of Wisconsin 


Member of Institute, Paris, France 


Crane Company, Chicago 


University of Vienna, Austria-Hungary 


St. Petersburg, Russia 

G^tingen, Germany 

Cri)e Sinibetsits of <Et1)icago ^tesiss 

Otto Habrassowitz, Leipzig 

Digitized by 


Digitized by 





JUNE— 1907 


After many years of tedious talk about reciprocity, unaccom- 
panied by action, the question has been presented in a new form. 
It has been forced upon an unwilling nation by the necessity of 
meeting in some way the threats of Germany to discriminate 
against our goods entering her ports. This has made it requisite 
to deaJ with the general reciprocity question. Such a neces^ 
sity would probably have arisen in due time under any conditions. 
The German imbroglio is only the temporary and tmessential 
form in which an issue of world-wide importance and of great 
national moment is presented. For this reason no answer can be 
finally given to the demands of Germany which does not in some 
measure commit us to the acceptance of a definite policy with 
regard to the other phases in which the question may offer itself. 
The decision to be made in dealing with the present situar 
tion will be the first step <mi a road that may lead to an entire 
change in our present commercial policy, and may force us to 
conclusions in tariff matters not now foreseen. This is why the 
German issue is more than a controversy over the rates of duty 
to be levied on certain articles interchanged between the two 
countries. The problem has grown complicated, and must be 
viewed historically if it is to be ftdly understood. In this paper 
is discussed the situation which has developed under the new 
German tariff act, with special reference to the United States. A 


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second paper will undertake to explain the elements of the prob- 
lems with which Congress must deal in settling our commercial 
relations abroad, and to analyze the consideraticMis affecting 
its different phases. 


Our recent efforts at reciprocity with Germany date from 
the McKinley act. That measure provided, in section 3, for the 
free introduction of sugar, nK>lasses, coffee, tea, and hides into the 
United States, in return for such concessions as might be deemed 
reasonable by the President of the United States, and authorized 
him to apply retaliatory duties on these products when imported 
from countries which declined to give us reciprocally equitable 
treatment. Under this provision, an agreement with Germany, 
bearing date January 30, 1892, was concluded. That 
government, in consideration of the concessions offered in the 
McKinley act — ^the one article that had much significance 
to Germany being sugar — agreed to give us the same terms of 
admission for our agricultural exports as were granted to Austria- 
Hungary. The articles on which we secured a reduction included 
cereals of various kinds, among them com and wheat; meat 
products, except pork and bacon; most kinds of cheese, oleomar- 
garine, flour, and certain live animals. On the free list were 
placed certain undesignated agricultural pnoducts, hides? and 
skins, tan bark, and wool. 

The status thus created continued until it was altered by the 
Wilson tariff act of 1894. Its effects, such as they were, will be 
reserved for discussion in a later paper. The Wilson act repealed 
the reciprocity section of the McKinley act, thus setting aside 
the commercial treaties, and restored the duty on sugar, which 
had been the chief reason for the acceptance of our offered reci- 
procity. Sharp protest was the result. While the Wilson bill 
was pending in the Senate, Germany, which was then feeling 
very keenly the embarrassments growing out of her sug^ar- 
bounty system, filed a protest at Washington against the poliqr 
proposed in re-establishing 'a duty c«i sugfar. It was maintained 
that the proposed sugar tariff schedule would result in a prac- 
tically discriminatory duty on sugar coming from Germany, 

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that would inevitably drive it from the market of the United 
States. The protest contained a distinct threat of retaliatory 
action. After the Wilson bill had become law, a second protest 
was handed to our secretary of state by the German ambassador. 
In this document the imperial government renewed its complaint 
of the duties levied on sugar, and declined to consider Germany's 
own export bounties on sugar as bearing upon the subject in any 
way. The chief complaint against the new tariff was that it 
violated the principles involved in the reciprocity agreement 
negotiated under the McKinley act. No attention was paid to 
the protest, and at about the same time the growing strength of 
the agrarian movement in Germany was directed toward the 
establishment of higher duties on American agricultural products 
imported into that country. Thus a tariff and commercial policy 
intended to be very unfriendly to us was inaugurated. It was not 
long before Americans dealing with Germany were made to 
suffer severely. American insurance companies operating in that 
country were attacked more or less covertly in legislation, and 
other methods of discrimination against us were adopted. This 
state of affairs, and our loss of ground in exports, went so far as 
to lead to serious proposals for retaliation — ^proposals of which 
President Cleveland took note in his annual message in 1895. 
The warning from the President and the pressure of other matters 
somewhat quieted the rising discontent, and no further steps relat- 
ing to German trade were taken until after the passage of the 
Dingley act. Feeling in Germany, however, continued unfriendly. 
The Dingley act, passed in 1897, partially returned to the 
reciprocity idea, but did so only in a very halting and hesitant 
way. It provided for the free admission of coffee, tea, tonka 
beans, and vanilla beans, and for the reduction to nominal 
amounts of the duties on argols, crude tartar or wine lees crude, 
brandies, champagne, still wines and vermuth, paintings and 
statuary, in return for reciprocal concessions to be made by the 
country receiving the reductions thus enumerated. Another 
section of the act also provided for the negotiation of reciprocity 
treaties with foreign countries, such treaties to require the action 
of the Senate before going into effect. It proved impossible to 

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induce any of the European countries except France to consider 
reciprocity treaties negotiated under the section providing for 
ratification by the Senate; but Germany accepted a conrnierdal 
agreement by which she was given the reductions of duty which 
lay within the discretion of the President, as enumerated above. 
Germany had, some years before, negotiated agreements with 
seven European countries, whereby these countries were all given 
the advantage of a lower schedule of duties than that fixed for 
outside and non-treaty states. The commercial agreement with 
the United States in 1900 gave us the same advantages as were 
accorded to these countries. That agreement was subject to ter- 
mination by either country upon three months' notice. A most- 
favored-nation treaty between the United States and Prussia, 
which had been concluded in 1828, and was still held to be bind- 
ing upon the German Empire, placed us upon the most-favored- 
nation basis, temuinable upon one year's notice. In this relative 
position we have continued until the recent alteration in our 

Tariff dissatisfaction continued in Germany and the protective 
movement increased in strength during the years succeeding 
the passage of the Dingley act. From 1898 onward the imperial 
government was engag-ed in preparing new schedules of duties 
to take the place of those then in force. The commercial treaties 
n^natiated in 1892 and 1893 were to last twelve years, and it was 
consequently designed to put the new tariff enactment into effect 
in 1906. March, 1906, was finally fixed upon as the date for 
beginning its application. Early in 1905 the process of conclud- 
ing commercial treaties with a number of foreign countries was 
brought to a close, and such treaties were proclaimed with 
Russia, AustriarHungary, Italy, Switzerland, Belgium, Rour 
mania, land Servia, This made it certain that there would be a 
considerable group of trading countries which would be given tiie 
advantage of rates lower than the maximum, and made it incum- 
bent upon countries which did not wish to be undersold, to look 
shatply to the possibility of securing equally favorable terms. 
The new tariff has been often described, but its main provisions 

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may be briefly sketched at this point. It was based upon a set of 
"general" rates enacted by the law of December 25, 1902. Lower 
than these were to be certain rates fixed through the medium of 
bargains with foreign countries. Whenever a set of rates differ- 
ing from those already in existence was established with a country 
these rates were automatically extended to all other countries 
enjoying favored-nation relations with Germany. The rates of 
the general tariff were not reduced upon all commodities in the 
conventional tariffs established by negotiation. Such concessions 
as were actually made were to be granted only in return for 
reductions of like value made by the countries with which nego- 
tiations were carried on. The "general rates" referred to are 
also spoken of as the autonomous rates, while the conventional 
rates are frequently described as the minimum schedules, since 
they represent the lowest point to which duties are reduced by 
treaty. In the table on pp. 326, 327, a comparison is drawn between 
some important items in the old schedule of duties applied to 
most favored naticMis, the new schedules applying to such nations, 
and the new maximum or autonomous rates. In the first column 
are shown the approximate values of gxxxis in each of several 
great classes passing from the United States to Germany at the 
time when the intenticxi to enforce the new tariff policy was first 
definitely announced. 

As the new commercial treaties already spoken of were each 
to last for twelve years dating from March i, 1906, tiie new 
arrangement implied the continuance of the schedules established 
under it until the close of the year 191 7. 

The announcement of the actual intention to open a tariff 
war with the United States was received with very little equanimr 
ity by American exporters. Not only were the new rates of 
duty as proposed such as to place us at a material disadvantage in 
a trade where we needed all the openings we could get, but it 
was also true that otu* trade relations with the German Empire 
had greatly expanded since the older days of McKinley and 
Dingley reciprocity. There was a demand for far greater care in 
shaping our tariflf relations with the emfHue than had formerly 
existed, for there were many more interests, small and great, 

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that might be helped or hindered by the duties to be adopted. 
There had been a growth of German exports from all foreign 
countries, between the years 1891 and 1904, from about 756 
million dollars to about 1,243 millions, or in the neighborhood of 
65 per cent. Imports from Germany to this country had grown 
from 97 millions in the year 1 891 to about 109 millions in 1904, 
or about 12 per cent. Exports from the United States to Ger- 
many had increased during the same years from 93 millions to 
about 215 million dollars, or about 131 per cent. During the 
fiscal year 1904 our chief exports to Germany were: unmanu- 

Pmnctpal Articles Imported from the United States into Germany in the 
Calendar Year 1904 and Rates of Duty under Old Tariff of Germany 
Compared with the Autonomous and Conventional Tariff Rates Which 
Went into Effect March i, 1906. (From Blue Sheet 288, U. S. Bureau of 

AitickB Imported into Geniuny 
from U. S. 

Value in Mfl- 

Old Tariff Rates 
on Imports 
from Most 

Favored Nations 

New Autono- 
mous Tariff 


tional Tariff 


Rate per looTbs. 

Total imports from U. S 

Animal products — 


Beef fresh 

Beef simply prepared 

Intestines and other parts 

Lard and oleo oil 


Oleomargarine, butter 

Breadstu£fs — 




Wheat flour 

Copper, crude (bars, ingots, 


Cotton, unmanufactured, 

\ and cotton waste 

Cycles and parts of 

Fertilizers, phosphate of lime 





W .2 

(a) 4.6 

W .3 






(b) .10 
(b) .21 





. -49 
(<0 4.oo 









(i) 2.16 






(a) The vahie of corn imports was nearly as millions in xgoo. 

lb) Per bushel. 

(c) The value of rye imports fluctuates greatly. 

(i) Per busheL 

(«) The value of our cycle exports to Germany has declined from over $z,ooo/xx> in 1899. 

(h) Imports into.Gennany from the United States during faV^tr Year 1903. 

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TABLE 1— Continued 


Aitkks Imparted into Germany 
from U. S. 

Value in Mil- 
Boo Dollars 

Old Tari£F Rates 
on Imports 
from Moat 

Favored Nations 

New Autono- 
mous Tariff 

New Conven- 
tional Tariff 

Rate per xoo lbs. 


Apples, fresh, not packed . 

Sept 25-Nov. 25 

Nov. 26-Sept. 24 


Sept. i-Nov. 30 

Dec. i-Aug 31 



Furs and fur skins 

Hides and skins, cattle 

Iron and steel manfis. of 
machinery — 


Other N. E. S 

Sewing-machines without 


Typewriters and adding 


Leather and manufactures of 
leather, half or entirely 
dressed in pieces of over 

3 kilos, each 

Leather glove 

Leather patent 

Boots and shoes 

Naval stores. 

Turpentine and rosin, oils, 
spirits of turpentine .... 

Oil cake 




Cottonseed — 

In barrels denatured 

In barrels fit for consump- 

In bottles fit for consump- 

Paraffin, stearic acid, etc 

Tobacco leaves 

Wood, for building and in- 
dustrial purposes — 






W .4 













.32-. 86 



if) 5.41-7.02 






(g) .29-1.14 




.32-. 16 



















(/) 6.49-9.74 




(^). 26-1. 37 

(/) Rate decreases as weight of boots and shoes per pair increases. 

(g) Per cubic meter. 

(ib) Imports into Germany from the United States during Calendar Year 2903. 

(«) Driren by motive power. 

Digitized by 



factured cotton, 109 million dollars; breadstuff s, over 16 millions; 
provisions, about 21.5 millions; manufactures of copper, 11.5 
millions; mineral oils, 9 millions; iron and steel manufactures^ 
about 5 millions ; unmanufacttired tobacco, about 5 millions ; 
wood and its manufacttwes, about 4.5 millions; fertilizers, about 
2.5 millions; and agricultural implements about 1.5 millions. 
During the same year our chief imports from Germany were: 
chemicals, over 16 million dollars; cotton manufactures, over 14 
millions; iron and steel manufactures, about 6.5 millions; manu- 
factures of silk, about 6 millions; toys, 4.5 millions; earthen and 
chinaware, 4.75 millions; manufactures of wool, about 3.33 mil- 
lions. We had during the year 1903 held first place among the 
nations from which Germany received her imports, and third 
rank among the countries to which Germany shipped her goods. 
Considering the foreign commerce of the United States as a 
whole, Germany, stood second only to Great Britian in the quan- 
tity of our exports and imports.^ 


It was plain that tariff warfare of unusual- severity and extent 
was within the range of immediate possibility. Yet our repiie- 
sentatives at Washington were inclined at first to r^rard the 
whole tariff position of Germany as mere bluster. They 
altered their attitude when the German embassy assured them that 
the commercial arrangement with the United States would be 
terminated, upon due notice, in time to apply to us the new rates 
from and after March i, 1906, should no new agreement be 
entered into. In view of this vigorous position on the part of 
Germany, State Department officials deemed it worth while to 
look with care into the German demands during the year 1905. 

These negotiations were privately carried on, with growing 
intensity and insistence on the side of Germany, and with increas- 
ing perception upon our own that the desires of that country 
were of a kind which we could not well resist The demands of 
Germany were of two general sorts. In the first place, it was 
urged that there ^ould be a revision of the most-favored- 

^ Bureau of Stetistics, Blue Sheet 283. 

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nation clause in our commercial treaty with Prussia, and a subse- 
quent alteration of our whole most-favored-nation policy. Sec- 
ondly, it was insisted that there be fresh and much more far- 
reaching concessions than could be had under the narrow and 
deceptive provisions of section 3 of the Dingley act. It was 
recognized that the latter concession, and possibly the first, could 
not be made without omsultation with Senate leaders and with- 
out final action by the Senate under our constitution. It was 
also understood that action must in all probability be had from 
the House of Representatives in the event that reductions of duty 
were to be granted, the House having shown in the past a dispo- 
sition to demand a share in the making of reciprocity treaties 
involving genuine changes in the tariff. On our side, it was 
finally and reluctantly recognized that a serious situation had been 
encountered, and Aat the prospect of staving off action could 
not be considered good. Negotiations continued throughout the 
summer and autumn, but when Congress arrived, there began to be 
strong pressure for some results. Germany plainly feared that our 
authorities were scheming merely to evade action. Anxious not 
to be deceived in this way, German authorities finally notified 
this government that the new maximum rates would go into 
effect on the first of March. The situation became acute. Our 
administrators endeavored tm see what could be done to avert 
the threatened discrimination and gain time for molding public 
sentiment into harmony with the German demands. American 
traders eng^ed in exporting and importing also took the 
public sentiment, in harmony with the German demands. Ameri- 
can traders engaged in business with Germany also took the 
alarm, and through committees of the New York Merchants' 
Association sought to bring greater pressure to bear upon the 
administration in Washington. Secretary of State Root and the 
President became finally convinced of the necessity of action. 
The German embassy presented to the State Department, in the 
early winter of 1905, certain demands which must be gfranted as 
the price even of a temporary stay of proceedings and the transi- 
tory extension to the United States of the benefit of the lower 
rates of the new tariff regime. Knowing that it was imposslUe 

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for the President to change any duties, and knowing also that a 
complete reversal of our most-favored-nation policy could not be 
had from the State Department in so brief a time as was offered, 
the Germans wisely confined themselves to requesting for the 
present no more than certain changes in our mode of administer- 
ing the customs tariff act. Customs methods at New York and 
elsewhere had long been obnoxious to German exporters and to 
American importers. It was reasoned with force that, if the 
administration really felt the cogency of the German tariff argu- 
ment, it could well show this feeling in a practical way by alter- 
ing the objectionable features of administration which hampered 
trade, pending the time when it could ascertain whether Con- 
gress would consider the reduction of duties. The points on 
which concessions were asked of the administration were as 
follows : 

1. The holding of hearings in customs cases in public. 

2. The modification of current methods of assessing the duti- 
able value of German goods entering our ports. 

3. The grant of permission to the importer to change the 
stated value of his goods after their arrival and before finally 
declaring them. 

4. The lightening of penalties for imdervaluation of imported 
goods presented for appraisement. 

In order to get the full bearing of the changes in customs 
administration recommended by the German importers, it will 
be worth while to review in brief fashion the mode of proceed- 
ing hitherto employed in the establishment of dutiable values. 
When goods arrive in the United States, they are passed upon 
by an appraiser who assesses the dutiable value upon which the 
tariff rates are to be levied. If the importer or shipper is satisfied 
with that valuation, he pays his duties and removes his goods. 
If he feds that the valuation is unjust, he has the right of Bppesd 
to the so-called Board of General Appraisers, which is a tribunal 
created for the purpose of ascertaining dutiable value. When such 
a case is thus appealed, the proceedings are had before a single gen- 

Digitized by 



eral appraiser, and a notice is given that it will be heard at a speci- 
fied time. At this hearing the importer may present himself either 
in person or by counsel, and may offer such argument and intro- 
duce such witnesses as he chooses in order to show what is the 
value of the goods abroad and the true entry value of the 
merchandise. At a later hearing the general appraiser ordinarily 
calls in the local appraiser from whose decision appeal has been 
made, and secures his statement as to the reasons for retaining 
the value he has fixed. If necessary, the general appraiser who 
has the case in charge may then call in by subpoena such expert 
or trade witnesses as he may desire for the purpose of collecting 
testimony as to Ae true trade value of the goods in dispute. 
The general appraiser then, after a personal examination of the 
goods, fixes their value. The importer, if still dissatisfied, has a 
further right of appeal from the decision of the general appraiser 
in the case to a board composed of three general appraisers. The 
importer receives notice of the hearing that is to be held, and 
may be present himself with counsel, and may suggest to the 
board certain witnesses in the trade whom he wishes to have 
summoned. After due hearing of the importer, the witnesses, 
and the counsel, the Board of Three usually sends for the original 
examiner and for the general appraiser who fixed the value of 
the merchandise, and hears the testimony of these officers. They 
may also get other witnesses, and they have before them the 
reports of ^)ecial agents abroad rendered confidentially. The 
Board of Three then fixes the valuation of the goods for dutiable 
purposes, and this is a final decision. Under certain conditions, 
however, an appeal to the federal courts may be taken from the 
decision of the Board of Three. 

Importers have complained of this mode of proceeding on 
the ground that it did not give them a sufficient opportunity to 
present their views on any given case. They have urged that 
it would be fairer if the hearings before all appraisers could be 
open to them and to the public, and that, should this step be 
taken, it would result in giving them a chance to rebut testimony 
now offered in secret and not capable of answer because of their 
ignorance of the claims that are made. It has been 

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answered, in reply to this line of argument, that no other i»actice 
than that now pursued would be possible, because of the fact 
that importers would be able to ascertain Ihe methods cmgioyed 
and prices paid by iheir oompetitDrs. It has been maintained 
that if they were given access to the hearings, they would, when 
starting a new line of business, bring over a small consig^nment 
of goods which would be undervalued with set intent. The result 
would be to make revaluation necessary, and in the course of the 
hearings the appraiser would produce Ihe invoices of their comr 
petitors. Tliese would at once show theni where they ought to go 
for their goods in Ihe future, as well as the prices which were 
being paid for such goods by others. Further, it has been 
claimed that open hearings would necessarily result in a refusal 
on the part of the larger buyers and importers to testify against 
the small ones, because, were they to give such testimony, they 
would be marked men in the trade and would incur the enmity 
of their competitors. Finally it has been urged that it is always 
possible to buy any class of goods at export prices in New York 
— a practice which would establish a low level of values were 
there no means of checking the values by the private testimony. 
The result of such open hearings, therefore, would be, accord- 
ing to that view, to give the dishonest importer an unfair 
advantage over the honest man who wanted to do a Intimate 
business, and who was willing to declare his values in the regular 
way and pay tariff accordingly. Impwters have not concerned 
tiiemsdves much on these scores. They have suffered from 
extreme and severe decisions by the Board of General AK>raisers 
rendered on secret evidence, and they have desired an opportunity 
to be confronted with the witnesses against them. They have fre- 
quently denmnded such concessions, and the coming-forward of 
the German tariff discussion merely gave them a chance to press 
their case once more, the maijority of those interested being more 
or less engaged in trade with Germany. 


These proposals for customs reform were met with o(^)06i- 
tion from two sources. Sundry congressmen promptly exerted 

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themselves to make matters worse. A very popular plan 
suggested in the House of Representatives was to pass an act 
making the Dingley rates the minimum and assessing maximum 
rates 25 per cent in excess of the Dingley level upon all com- 
modities coming from countries which discriminated against our 
exports to them. This was described by its authors as a means 
of "making Germany sick of the maximum-and-minimum tariff 
scheme." It found its best-known expression in the so-called 
McQeary bill. For a time the plan seemed to stand an excellent 
chance of passing the House of Representatives. The principle 
of bluster was generally approved, and in the Senate even the 
ancient tariff veteran Allison said that the McCleary plan was an 
"excellent thing to talk about." Then came a sudden change. A 
few New England representatives from districts largely interested 
in textiles were called home by tdegram and forced by their 
constituents to hear reason. It was explained to them that a 25 
per cent, increase in the duty on German chemicals and dye^ 
stuffs would make it impossible for the mills to do business and 
was already unsettling trade. The representatives went back to 
Washington, told their story, and the plan was promptly though 
r^retfully "pigeonholed." Congress had done what it could, 
but had not gone far. 

A second source of opposition to the demand of the importers 
was found at the Treasury Department. All of the points raised 
in the demand for modification of customs administration of 
course lay within the jurisdiction of the Treasury, and could be 
acted upon by the State Department only through agreement. 
When the demands were presented to Secretary Shaw, difficulty 
was at once encountered. Mr. Shaw was then in the full excite- 
ment of the chase for the presidential nomination, and was 
asserting and reasserting his devotion to the protective system. 
He saw in the requests of the Germans an attempt to sap the 
foundations of that sacred system, and he proceeded to "view 
them with alarm." Particularly he objected to the plan to grant 
open hearings in customs cases, protesting that such a plan would 
result in preventing the Treasury from ever getting testimony of 
the kind necessary to convict importers of undervaluations. Such 

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testimony as to the foreign, values of goods and the like would 
never be given by the representatives of important houses having 
it in their possession, he contended, unless they were assured that 
imder no circumstances would their identity as the source of the 
information be divulged. This could never be the case if open 
hearings were to be granted. The collapse of the congressional 
opposition naturally weakened Secretary Shaw and his badcers 
who were opposed to making peace with Germany, but they stood 
firm until the President began to be restive imder the prolonged 
delay and resolved to look into the matter himself. At a White 
House conference in February, 1906, the importers stated their 
case plainly to the President, Secretary Root, and Secretary 
Shaw, and received a practical promise of relief. 

Secretary Shaw had the acumen to understand when he could 
go no farther, and he finally accepted the inevitable. On February 
28 he issued an order addressed to the president of the Board of 
General Appraisers in New York. In this order he used the 
following words: 

You are hereby directed that in reappraisement cases the hearings shall 
be open and in the presence of the importer whenever, in the judgment of the 
board, the public interests will not be prejudiced thereby.* 

A Still more important concession, from some points of view, 
was contained in an order addressed to special Treasury agents 
in Germany dated February 28, but not made public until March 
7. This related to the conditions under which market value was 
to be ascertained in making appraisement of goods upon importa- 
tion, and read as follows : 

In conducting investigations for purposes of discovering market value or 
cost of manufacture of merchandise produced within your district, you are 
directed first to confer with chambers of commerce and other trade organ- 
izations, and to report to this department all information by you derived from 
these sources, together with price lists submitted and approved by such 

A general order addresed to all consular agents abroad was 
also made and sent out by the department on March 7 (under date 
of March 5). It read as follows: 

Invoices of merchandise purchased for export to the United States must 

"Treasury Decision 27164. 

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be produced for certification to the consul of the district at which the mer- 
chandise was purchased, or in the district in which it was manufactured, but 
as a rule a consular officer shall not require the personal attendance at his 
office of the shipper, manufacturer, owner, or his agent, for the purpose of 
making declarations to invoices, but he shall certify invoices sent to him 
through the mails or by messenger. To conform to the statute which requires 
that merchandise shall be invoiced at the market value or wholesale price of 
such merchandise as bought and sold at usual wholesale quantities at the 
time of exportation to the United States in the principal markets of the 
country whence imported, consuls will certify to invoices the additional cost of 
transportation from the place of manufacture to the place of shipment when 
ever the invoices presented to be consulated in a country other than the one 
from which the merchandise is being directly exported to the United States. 

When the invoice and declaration are received by the consul, it is his 
duty to examine carefully each item and satisfy himself that it is true and 

In aid of his examination it shall be the duty of each consular officer to 
confer with the official chambers of commerce and other trade organizations 
in his district, and he shall report any and all written communications from 
such commercial bodies and trade organizations that may be submitted to 
him in writing, together with all schedules of prices furnished him officially 
for that purpose; and the consul is authorized in his discretion to call for 
the bills of sale of merchandise purchased for export to the United States, 
to inquire into the cost of production of merchandise not obtained by pur- 
chase, to demand samples, and, if the conditions require it, to examine the 
entire consignment. Whenever an invoice is offered for certification which 
covers the consolidated shipments consisting of the productions of different 
manufacturers, the consul may demand the submission of the manufacturers* 
bill relating thereto. Even when the merchandise has been purchased for 
export and the invoice truly sets out the price paid, the consul should ascer- 
tain whether the price represents the market value of the goods. 

These orders, taken together, introduced a decidedly radical 
change into the existing methods of valuing goods and of making 
appraisements. In addition, the President issued a proclamation 
on February 27, noted also by Secretary Shaw in an order 
published March 7, whereby the reductions of duty specified in 
the Dingley act were renewed. Taken all in all, the con- 
cessions made were considered by the German government suffi- 
cient to warrant the order that the minimum rates of the German 
tariff as established in treaties with the seven countries already 
named be extended to American products entering that country. 
The order was to continue to June 30, 1907, so that about fifteen 

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months were thus granted to the United States government to 
make its preparations and secure the passage of legislation for the 
establishment of relations with Germany on a permanent basis. 
This, however, was conditioned upon action by the United States 
government locking toward immediate legislation by G>ngress 
granting further concessions with reference to the administration 
of the customs service. There is some difference of opinion as to 
whether our administration promised practically that there would 
be such legislation or held out the hope that something of the 
kind would be done, or whether it merely promised to recommend 
to Congress that such acticm be taken. The former interpretation 
is that which has been placed upon the transaction by various 
German authorities, but the latter promise is all that American 
authorities are willing to admit. 


As soon as it was seen that the administration at Washington 
desired some real legislative action with reference to the Ger- 
man situation, and that Secretary Shaw had been obliged to 
yield, congressional leaders agreed to take up the matter of 
further reform, for consideration. They appointed a time for 
hearings before the Ways and Means Committee at which all 
bills dealing with the amendment of the customs administrative 
act should be discussed. These hearings came on during the last 
week in February (1906), and there were present representatives 
of the New Yoric Merchants' Association standing for the import- 
ing interests, and Secretary Shaw, as well as some of the Board 
of General Appraisers standing for the government Incidentally 
the textile and other interests opposed to the modification of the 
act were present by representatives. 

The committee was first addressed by Mr. W. Wickham 
Smith in behalf of the German exporters and New York import- 
ers. Mr. Smith advocated the changing of the customs adminis- 
trative act in four or five important re^)ects, the chief of which 
were as follows : 

I. A change whereby consignees of imported merchandise should be 
allowed to make additions to the invoice value of their merchandise at the 

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ttme of entry — a right which under the present law is confined to the owners 
of merchandise. 

2. A change whereby a margin of 5 per cent for widervaluations would be 
allowed to importers without the imposition of penalty. 

3. An amendment whereby penalties for the undervaluation of imported 
goods should not be imposed upon any article on which the amount of the 
duty imposed by law on account of the appraised value did not exceed the 
amount of duty that would be imposed if the appraised value did not exceed 
the entered value. 

4. An amendment permitting the secretary of the treasury to remit pen- 
alties for the undervaluation of goods whenever such remission should to him 
seem to be wise or expedient. 

5. The authorization of open hearings before the Board of General 
Appraisers in customs cases. 

Secretary Shaw, in reply to Mr. Smith and to other repre- 
sentatives of the interests desiring modification of the tariff, 
strongly rebutted certain of the suggestions and recommended 
the grant of a few points only, coupled with special changes of 
his own planning, in the law as it then stood. The principal 
change suggested by the New York interests and objected to by 
the secretary of the treasury was that by which it was proposed 
to establish open hearings. Secretary Shaw was extreme in his 
denunciation of the idea of open hearings, and of the reasons 
which prompted the importers to ask for them. He, however, 
admitted that, while the customs administrative act needed little 
if any chai^ge, it might be well, in the interest of peace with 
Germany, to yield the following points : 

1. A change permitting the consignee receiving consigned goods to add to 
the consigned valuation in order to make market value. 

2. A conditional concession that no penalty should be imposed for under- 
valuations when such undervaluations were less than 5 per cent. 

3. A change whereby the secretary of the treasury should have power to 
remit penalties upon the next 5 per cent, of undervaluation, provided the 
Board of General appraisers should certify that in their opinion such under- 
valuation was done in good faith and grew out of a difference of opinion as 
to the true market valuation of goods. 

Secretary Shaw further recommended some changes in cus- 
toms administration which had no necessary bearing upon tariff 
relations with Germany, such for instance as the transfer of 

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customs cases to a higher court whose decree should be final in 
instances where importers were not satisfied with the findings of 
the Board of General Appraisers, the appointment of customs 
solicitors, and other points in which the importers were greatly 
interested, though without special reference to German trade. 

It is thus seen that the chief difference of opinion at these 
crucial hearings lay in the fact that, whereas the importers desired 
to have maricet value determined in some fairer way than at 
present, Secretary Shaw was unwilling to see present methods 
modified; and whereas the importers desired to have the hearings 
in customs cases take place in public, the secretary was not will- 
ing to have the existing plan of secret hearings infringed upon. 


In accordance with the practical instructions thus presented 
by Secretary Shaw at the urgent request of the axlmdnistratioa, 
Chairman Payne of the Ways and Means Committee prepared, 
and on May 28, 1906, introduced in the House, a bill to amend 
the Customs Administrative Act This bill embodied most of the 
suggestions made by Secretary Shaw. It was speedily taken in 
hand by the committee, and was altered in a few particulars, 
though none of them was vital. The bill was then reported to 
the House on Jime 3, 1906. 

The main provisions of this "Pa)me bill*' were found in 
amendments to sections 5, 7, 12, 13, 14, and 15, of the Customs 
Administrative Act of June 10, 1890, as amended by the act of 
Juljr 24, 1897. These amendments went in great detail into the 
methods of making declarations of merchandise values in the case 
of imported goods, and into the modes of assessing dutiable values. 
The changes which were introduced into existing law were 
chiefly those providing for adding to invoice values, the reduc- 
tion of penalties for undervaluation, and the grant of a 5 per 
cent, margin for undervaluations. In certain wa)rs there had 
been an effort to "trim** the suggestions of Secretary Shaw by 
omitting changes on which the Germans laid considerable stress. 
These efforts were of course speedily noted, and the alterations 
caused dissatisfaction both among German representatives and 

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New York importers. Various members of the Ways aad Means 
Committee expressed in private the opinion that the act was 
equivalent to the granting of a 5 or 10 per cent, reduction in 
tariff duties, inasmuch as the German exporters would uniformly 
imdervalue the goods, and would do it so skilfully that it would 
be impossible for the Board of General Appraisers to detect the 
frauds. Other extreme talk of the same kind was heard, and from 
the outset it was plain that the action taken in reporting the bill 
was largely pro forma. 

There was a flurry of excitement among Congressmen 
representing special interests when the Payne bill was reported 
by the Ways and Means Committee. Speedily, however, the 
word was sent out that the reporting of the bill meant nothing, 
and that an arrangement had been arrived at with the Senate 
Finance Committee whereby the latter would "pigeonhole" the 
bill when it reached the Senate. It was further admitted that 
it was the intention of the "leaders" merely to press the bill 
through the House in order to placate Germany, and then to send 
it to the Senate to be killed. This assurance was satis- 
factory to the majority of Congressmen, but there were some 
who wanted to make assurance doubly sure. With this end 
in view, it was determined to hold back the bill until a few days 
before the close of the session, and then to pass it at a late date 
when it could not possibly be acted upon by the upper chamber 
owing to the lack of time. This expedient was resorted to. The 
Payne bill was made the imfinished business for the last few 
days of the session at evening meetings, and a nuniber of tireless 
Congressmen were scheduled to fill the whole time with ora- 
tions on the tariff. Campaign speeches of the familiar sort were 
delivered in such numbers as wholly to occupy the time allotted 
for debate. No attention whatever was given to the bill itself. 
Few persons understood its technical contents, and still fewer were 
disposed to discuss them. Thus the measure went dirough the 
House and passed to the Senate Committee on Finance, where 
Chairman Aldrich, according to expectation, pigeonholed the 
whole matter, and without the slightest explanation or apol- 

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During the summer of 1906 little was heard of the German 
tariff question. Occasionally the question was revived by some 
German visitor; but, in the main, American statesmen seemed to 
be content with the fact that for the time we had done as well 
as could be expected by getting the minimtmn rates of the German 
schedules, and at the same time had given relatively little in 
rettun. A rude shock to the self-gratulaitory attitude was admin- 
istered when it was discovered late in the summer that Germany 
had concluded treaties with other countries. These states had been 
granted new low rates of duty which automatically extended 
themselves to the original countries entering into treaty relaticms 
with Germany. To this rule the United States was made an 
exception, although we had previously succeeded in getting as 
good rates as were then given to any nation. The treaties which 
came to the notice of our State Department authorities during the 
summer of 1906 were concluded with Sweden and Bulgaria. 
They contained but few articles in addition to those already 
specified in the older treaties, and these few were not of very 
great significance to the foreign trade of the United States. The 
German authorities refused to extend these few more favorable 
rates to our exports, on the ground that the most-favored-nation 
interpretation which had been complained of, but not rectified 
by the United States, was still at issue, and no satisfactory inter- 
pretation or accommodation of view arrived at. For this reason, 
it was argued, there was no ground on which the United States 
could demand the application of the rates granted in the two new 
treaties, although they were automatically extended to the other 
seven countries. This was a point of little immediate impor- 
tance, but of great ultimate significance. It implied that, no 
matter what tentative concessions we might succeed in getting 
from Germany either through reciprocity treaties, tariff l^sla- 
tion, or in other ways, they would be likely at any moment to be 
overthrown by agreements with other countries which would 
leave us in a positicwi of differential disadvantage. That some 
action be taken toward ending the threatened tariff imbroglio 
was now doubly urgent. In this emergency, the stock method 

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of s^pointing a commission was resorted to. We of course had 
thoroughly learned wliat the German government wanted, but a 
commission was none the less determined on. President Roosevelt 
designated three members of this body and ordered them to dis- 
cuss the tariff relations between the two countries with a board 
of tariff experts representing the Gennan government. The three 
envoys selected for this duty were Mr. S. N. D. North, of the 
Census Bureau, Mr. N. I. Stone, of the Bureau of Manufactures; 
and Mr. E. P. Gerry, of the Treasury Department. Mr. North 
was to be chairman of the commission. He had served as 
secretary of the National Association of Wool Manufac- 
turers and as a member for one year of the Industrial Com- 
mission. He had also, it is understood, drafted the wool and 
woolens schedules of the Dingley act. Mr. North was already, 
on record as opposing one of the principal demands of the Ger- 
mans — that of open hearings in customs cases.* Mr. Gerry had 
had long service in the customs division of the Treasury and was 
familiar with the administraticwi of the customs. Mr. Stone had 
for some years been tariff expert, first in the Bureau of Statistics 
of the Department of Commerce and Labor, and later in the 
Bureau of Manufactures of the same department. He had 
accompanied the body of commissioners which went to the con- 
ference of South American republics at Rio in the summer of 
1906. The commission organized officially in Germany, arriving 
there toward the close of the year 1906, and met a board 
composed of nine well-trained experts who had been designated 
by the German government to talk oyer the situation with our 
commissioners. Debates continued for some two months. It 
had been anticipated that the report of the commission would be 
returned to this country in time for action by Congress, or at all 
events for discussion with the leaders of that body. Why this 
was not done has been a matter of interested speculation. The 
fact remains that the report was not received until toward the end 
of February, and even then was incomplete. There was no 
chance of laying the subject before Congress until the opening 
of a new session. This report is understood to contemplate two 

* Hearings before Ways and Means Cbmmittee February 23, igo6, p. 15. 

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distinct lines of procedure, (i) It proposes the continuation of 
the present tariff modus vivendi for one year from June 30, 1907, 
in consideration of further changes in customs administration 
which can be made by the order of the secretary of the treasury. 
These changes carry somewhat farther the ideas involved in the 
earlier administration concessions. They add to these permis- 
sion to use export prices as a basis of valuation where commodi- 
ties are not commonly traded in or quoted on the German market. 
They ftuther alter the status of the secret and confidential Treas- 
ury agents heretofore employed by the department, and they carry 
farther and conform to the principle of open hearings in customs 
cases. The reductions of duty heretofore granted in accord with 
Section 3 of the Dingley act are renewed, and to the commodities 
already thus included is added the item of champagnes and spark- 
ling wines. In return we receive the rates of duty already am- 
ceded to the seven enumerated countries already mentioned, but 
not those granted to the two countries with which later agree- 
ments were concluded.* (2) The second proposal of tiie report 
(not yet made public) is understood to be the adoption of a 
reciprocity treaty with Germany, in which certain rates of duty 
will be conceded on either side. Fuller discussion of these 
matters must be deferred to another jJace. 

It is thus seen that in our latest tariff negotiation we have 
reached the usual reciprocity impasse. Two or three years of 
work have been required to bring the German problem fairly 
before the country, and even now there is but scant public 
interest in the situation. What has been accomplished thus far 
may be summarized as follows : ( i ) Changes of tariff administra- 
tion have actually been made for the purpose of removing some 
of the nxjst oppressive and obnoxious features of our customs 
administrative system. (2) Further changes and modifications 
of the same sort will be applied from the date of the proclamation. 
(3) The reductions of duty permitted by the Dingley act have been 

* The text of the agreement is appended to Part II of this paper, which will 
appear in the July number of the Journal. 

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made applicable to German exports to the United States, as thqr 
were, under the old tariff schedules, by the agreement of 1900. 
(4) A tariff commission sent to Germany has brought home a 
tentative reciprocity treaty. In return for these concessions, ( i ) 
we have secured a fifteen months' extension of time before the 
application of maximum rates upon oin* exports to Germany; 
(2) we have now the privil^e of securing to ourselves a year's 
further extension of the lower rates already offered us by grant- 
ing the additional changes in customs administration to which 
reference has already been made with the probable power of 
securing further renewals from year to year on a temporary 
basis. The broad question of reciprocity with Germany upon a 
basis which will put to rest all disagreement for a period of years 
to come remains. What will be done widi it? 

We have thus far shown an3rthing but a straightforward 
point of view. We put off any decision with reference to the 
German demands as long as we could. We pretended to consider 
retaliation upon German imports, and failed to adopt such a 
plan only because of the demands of special home interests which 
were insistent against a scheme likely to increase dieir cost of 
production. Our Treasury Department refused to make changes 
in administration which were evidently feasible, on the ground 
that they were impossible; but then, upon feeling the spur of 
necessity, it introduced some of the very things that had been pro- 
nounced, but a week or two earlier, to be out of the question. 
We agreed to urge upon Congress the adoption of a thorough 
measure reforming our system of customs administration, but 
contented ourselves with merely suggesting its passage, while 
Congress took pains to put it through the lower house only, 
quietly leaving it to die in the upper. Lastly, we sent abroad a 
tariff commission which was to report before the close of the 
ccmgressional session 1906-7, but allowed its work to be delayed 
in an unexplained way, so that its return with recommendations 
and a report was too late to permit the matter to come before 
Congress at all. 

For the present we have in view merely an exten- 
sion of existing tariff relations at the cost of certain tedmi- 

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cal administrative concessions of our own. 'This up to date is 
the result of the tariff commission's work. It is fair to ask 
whedier this record does not hopelessly put aside all possibility 
of immediaite reciprocity witfi Germany, and does not practically 
condemn us to a continuation of relations with that country upon 
relatively unfavorable terms. Apart from this question, the 
record is discreditable for its lack of sincerity and frankness. Yet 
there are some factors in the situation which hold out the hope of 
ultimate rectification of the unsatisfactory status now existing. 
It is far from clear that this rectification will come through the 
passage of a reciprocity treaty with Germany. Of late there have 
been indications that, even if the Senate or Gxigress would con- 
sent to the passage of such a treaty, there might be a pro^)ect 
of resultant difficulties with foreign countries other than Ger- 
many. It is entirely possible that much better results mig^t be had 
from an enlai^ement of the list of commodities contained in 
section 3 of the Dingley act as the legitimate basis upon which 
the President may bargain in the effort to get tariff concessions 
from foreign coimtries. There is also a broader a^)ect of die 
reciprocity question as now presented. This is whether it is wise 
to injure the prospects of tariff reform by binding ourselves in 
any way whatever to a foreign country, thereby hampering our 
movements when we come — ^if we ever do — ^to the reconstructioa 
of our antiquated and unjust schedules. Behind these questions 
is the large problem, whether there is a real advantage in recipro- 
city on any terms; whether, in short, it is not better for us to 
take our chances as does England, estaWishing what seem to us 
to be fair tariff schedules, and leaving outsiders to shape their 
own duties in any way they may see fit. These problans it is 
proposed to discuss in another paper. 

H. Parker Wiixis 

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Every outbreak of industrial warfare emphasizes the need 
of a better understanding of trade-union beUef and argument. 
The assumptictti hitherto so common that serious conflicts between 
employers and organized laborers must always be the result of 
knavery or foolishness is becoming altogether untenable. Think- 
ing men are being forced to recognize the existence of a 
distinctive trade-union view-podnt This view-point, experience 
is teaching, is not a thing* manufactured for foolish men by knav- 
ish leaders, but is the inevitable outcome of the conditions 
under which the laborers live and work. It is a thing, therefore, 
which cannot be materially changed by mere argument or denun- 
ciation. On the contrary, it is to be recognized as a matter of 
fact and imderstood, if we are to make any decided advance 
toward industrial peace. In the interests of such recognition and 
understanding, this paper proposes to examine two or three of 
the points on which unionists are ^iritually at variance with 
their employers.^ 

Among the main charges brought against the unionist by the 
employer are these : first, that he refuses to recognize the gener- 
ally conceded rights of the employing class; secondly, that he 
does not recognize the sacredness of contract ; thirdly, that while 
he is struggling to obtain higher wages and shorter hours of 
work, he persistently attempts to reduce the efficiency of labor 
and the extent of the output. Assuming these charges to be 
substantially correct^ let us in the case of each seek without 
prejudice to discover the real grounds of the laborer's attitude 
and action. 

^In this examination I wish to disclaim all bias. I have no intention of 
justifying unionism or of condemning the employers. My attitude is intended to 
be simply and purely scientific The aim is merely to state and to explain on 
scientific grounds the position of the laborers. 

'That these charges as they stand are substantially true there can be little 
doubt Unionists frequently deny them in toto, but when these denials are care- 
fully examined they usually turn out to be, not denials of the facts charged, but 
of the implications of stupidity and immorality which the facts are intended to 


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I. The "rights" which the employer claims, and which the 
unionist is supposed to deny, may perhaps be summarily expressed 
in the phrase "the right of the employer to manage his own 
business/' To the employer it is a common-sense proposition that 
his business is his own. To him this is not a subject for argu- 
ment. It is a plain matter of fact, and carries with it the obvious 
rights of management imhampered by the authority of outside 
individuals. So unconscious and unquestioning indeed is the 
employer's acceptance of the existing order of thingfs that he has 
come to regard his business prerogatives in the light of natural 
rights. It is hard, therefore — almost impossible, in fact — for him 
to believe that the imionist laborer, when he denies these rights, 
is not the deluded tool of self-seeking and unscrupulous leaders. 

This attitude of the employer finds much support in our ordi- 
nary middle-class philosophy of rights. Middle-class thought 
generally recognizes the act of production as the ultimate source 
of proprietary rights. What a man has produced he has made 
his, to do with practically as he will. According to our 
middle-class mode of thinking also, the employer is always con- 
ceived to be the producer of what he owns. It is understood, of 
course, that he is often not the actual or the sole producer of 
wealth which he holds. But in such cases it is imderstood that he 
represents the producer by virtue of gift or contract. He suc- 
ceeds, therefore, to all the proprietary rights of the producer; 
for to deny this would be to shatter our whole theory of social 
relations. To be sure, we recognize the limits which law puts 
upon the uses of property, but as we have been taught for so 
long that law is based on natural justice, we have come to look 
upon it in this case as a confirmation rather than as a limitation 
of the natural proprietary rights of the employing property- 
owner. When the laborer, therefore, demands that he be con- the conduct of business, we naturally and spontaneously 
decide against hinx We are prone to regard his claim as a wil- 
ful attempt to appropriate the property and rights of another. 

Stated thus the case against the laborer's intelligence or 
honesty seems to be a convincing one. But is it so in fact ? Does 
the laborer, can he, situated as he is, look upon these matters from 

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the middle-class or employer's standpoint? The moment we 
honestly attempt to put ourselves in the place of the laborer we 
begin to realize that, in the very nature of things, he cannot 
Though he too is a believer in natural rights and in the proprie- 
tary sanction of production, the circtunstances of his life and 
work are making it absolutely impossible for him to see in the 
employer an actual producer, or the legitimate successor to the 
rights of an actual producer. Let us see how this is necessarily so. 

The laborer, like all the rest of us, is the product of heredity 
and environment. That is to say, he is not rational in the sense 
that his response to any given mental stimulus is invariable and 
is uniform with that of all other men. On the contrary, like the 
rest of us, he is a bundle of notions, prejudices, beliefs, uncon- 
scious preconceptions and postulates, the product of his peculiar 
heredity and environment. These unconscious and subconscious 
psychic elements necessarily mix with and color his immediate 
impressions, and they together limit and determine his intellectual 
activity. What is or has been outside his ancestral and personal 
environment must be either altogether incomprehensible to him, 
or else must be conceived as quite like or analogous to that which 
has already been mentally assimilated. He cannot comprehend 
what he has not, or thinks he has not, experienced. 

Now, it is well known that the environment of the laborer 
under the modem capitalistic system has tended to become pre- 
dominantly one of physical force. He has been practically cut 
off from all knowledge of market and managerial activities. The 
ideals, motives, and cares of property-ownership are becoming 
foreign to him. More and more, in his world, spiritual forces 
are giving way to the apparent government and sanction of blind 
physical causation. In the factory and the mine spiritual, ethical, 
customary, and legal forces and authorities are altogether in the 
background. Eversrthing to the worker, even his own activity, 
is the outcome of physical force, apparently undirected and 
unchecked by the spiritual element The blast shatters the rock, 
and whatever of flesh and blood is in range is also torn in pieces. 
The presence and the majesty of law and contract are altogether 
ineffective in the face of physical forces let loose by the explo- 

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sion. In like manner the knife cuts, the weight crushes, the 
wheel mangles the man and the material with equal inevitaWe- 
ness. No sanction, religious, moral, customary, or legal, is 
there. Even outside the strictly mechanical occupations the 
machine and the machine process are coming to dominate the 
worker, and the growth in size of the industrial unit renders his 
economic relationships ever more impersonal — ^withdraws farther 
from his knowledge the directing and controlling spiritual forces. 
The laborer thus environed inevitably tends to look upon physical 
force as the only efficient cause and the only legitimizing sanction. 
He tends to become mentally blind to spiritual, legal, contractual, 
and customary forces and their effects.* 

To the laborer, as the product of this environment, the pro- 
prietary and managerial claims of the employer tend to become, of 
necessity, simply incomprehensible. The only kind of production 
which he can recognize is the material outcome of physical force 
— ^the physical good. Value unattached to and incommensurable 
with the physical product or means of production is to him 
merely an invention of the employing class to cover up unjust 
appropriation. He knows and can know nothing about the capi- 
talized value of managerial ability or market connections. To him, 
then, only the ownership of the physical product and the physi- 
cal means of production is in question, and the important point 
with him is: By what physical force are these things made 
what they are? It is a matter of simple observation that the 
employer exerts no direct or appreciable physical force in con- 
nection with the productive process. Therefore, in the eyes of 
the laborer, he simply cannot have any natural rights of propri- 
etorship and management based on productive activity. 

In the same way all other g^rounds on which ownership and 
the managerial rights of the employer are based have become 
inconclusive to the laborer. Appropriation, gift, inheritance, 
saving, contract, in themselves do not produce any phjrsical 
effect on the only goods which he can recognize. Therefore they 
cannot be used to prove property in any just or natural sense. 

* These ideas have become familiar to American readers, through the work 
of Professor Thorstein B. Veblen, eq>eciall7 in The Theory of Business Enterprise. 

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They hold in practice simply because back of them is the physical 
force of the police and army established and maintained by the 
middle class to protect its proprietary usurpations. Thus the 
whole claim of the employer to the right to manage his own 
business to suit himself has become and is becoming in a way 
incomprehensible to the laborer on grounds of natural equity. At 
the same time, by virtue of habit and the sanction of physical 
force as a productive agent, he sees himself ever more clearly the 
rightful proprietor of his job and of the products of it. All this 
is the natural and inevitable outcome of the conditions under 
which he lives and toils. 

Undoubtedly the picture drawn here is too definite in its out- 
lines. The laborer of today is not so completely under the domi- 
nation of the machine and the machine process as I have assumed 
him to be. What I have assumed to be actualities exist perhaps 
only as more or less manifest tendencies. Other strong forces 
undoubtedly operate on the laborer to determine his actual view- 
point in this matter. But these forces are to a great extent such 
as to confirm rather than to disturb him in his peculiar beliefs 
and attitude toward proprietary rights. Not the least potent of 
these is undoubtedly the attitude which society itself takes toward 
the assertion of absolute property rights by the individual em- 
ployer. In inntunerable ways society utterly repudiates any such 
claim. This is the significance of building laws, condemnation 
laws, liability laws, factory acts, contract regulations, and a 
thousand and one other legal and customary restrictions on the 
free use of property. The inference — and the worker is not 
slow to take it — is plain that, if society should see fit to allow 
the laborers through their unions to force upon employers regu- 
lations, curtailing the present proprietary rights of management, 
there could be no appeal by the employers except to that same 
physical force which the laborer recognizes as the main founda- 
tion of property rights. 

It must not be thought that I am seeking to justify the laborer 
in his attitude. As a scientific student it is no part of my duty 
either to justify or to condemn him. I am merely pointing out 
that his attitude toward the employers' assertion of rights, as 

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well as toward his own, is reasonable when viewed from his own 
peculiar standpoint, and that this standpoint is not the result 
necessarily of inferior intelligence or morality, but is the inevi- 
table outcome of his mode of life and his peculiar surroundings. 
In short, I am simply trying to show that his attitude has sufft- 
dent basis of natural and generat causation which must be taken 
into consideration in any useful discussion of labor problems and 
their solution. I am merely bringing evidence to bear on the 
assertion that, if you wish to change the laborer's view-point 
materially, you cannot dq it by warfare or denunciation. You 
must begin back of the man upon the determining influences 
which play upon him. 

2. The unionist laborer does not recognize the sacredness of 
contract. This is, if anything, a more serious charge than the 
preceding one. Is it possible that a man who deliberately and 
without any personal grievance stands ready to repudiate his con- 
tract obligations caii be acquitted of moral or intellectual inferior- 
ity ? Is it possible that he can be called reasonable, and that he 
deserves to be dealt with in any other way than by denunciation 
or 1^^ and ph}rsical obstruction? Is it possible tiiat these are 
not proper and effective weapons with which to recall him from 
his seeming perversity? 

The employer returns to these questions, unhesitatingly, a 
decided negative. In so doing he meets with the approval of men 
generally who are well-to-do and educated. To the employer 
contract is the obviously necessary basis for any successful indus- 
trial activity. Violation of contract is therefore to him, and to 
those socially allied to him, the unpardonable economic sin. 
Without doubt it is rightly sa The essential business operaticKis 
involve time and the division of labor. The benefits of capital- 
istic production, therefore — ^without which most of us would be 
reduced to primitive penury — require that men trust their means 
in the hands of others, and that many men be depended upon to 
perform certain economic tasks and obligations in certain definite 
ways and at certain times. Indeed, so delicate has become the 
adjustment of the modem productive enterprise, and so inti- 
mately are apparently independent enterprises related, that the 

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failure of a single individual to perform his contract obligation 
may possibly involve htmdreds of others in financial ruin and the 
members of a whole commonwealth in temporary economic dis- 
tress. This, of course, is in itself altogether commonplace. It is 
stated here merely because it shows why contract is and must be 
considered by the business class as the most sacred of all economic 
obligations. The business man's attitude toward contract is the 
inevitable outcome of his activity and environment. It is not so 
much a personal virtue with him as an evolutional necessity. He 
cannot see things otherwise. He is made so by the conditions of 
his life. 

Such being the case, we naturally jtmip to the conclusion that 
the sacredness of contract must appeal strongly to all men, and 
that in all men, however circumstanced, its violation must be 
the indication of moral depravity. Therefore, when the laborer 
does violate contract he is apt to be considered by us a moral 
pervert, and we naturally feel that to allow him a voice in the 
management of business would, by reason of his innate per- 
versity, be to jeopardize the most important personal and social 
interests. But here we may be again too hasty in our general- 
ization. If the laborers as a class are so circimistanced that 
loyalty to some obligation other than contract necessarily appears 
to them as the sine qua non of their well-being, shall we say that 
they are morally inferior if they violate contracts which by force 
of circxmistances must appear to them to come into direct con- 
flict with some mare essential obligation? 

As a matter of fact, the laborer is so circumstanced that obli- 
gation to contract with the employer must appear secondary in 
importance to his obligations to fellow-workers. This is not 
difficult to show. Ever since the establishment of the money- wage 
system, the everyday experience of the laborer has been teaching 
him the supreme importance of mutuality in his relations with 
his immediate fellow-workers. The money payment, related not 
to the physical result of his efforts, but to its economic impor- 
tance, has been blotting out for him any direct connection between 
effort and reward. Experience has taught him to look upon his 
labor as one thing in its effects 4nd another thing in its reward. 

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As a thing to be rewarded he has learned to consider it a com- 
modity in the market. As such he knows that it is paid for at 
competitive rates, and he sees that the sharper the competition 
between himself and his fellows, the lower the rates are likely to 
be. He has learned that, if he undercuts his fellow, prompt 
retaliation follows, to the detriment of both, and he has learned 
that combination with his fellow results in better immediate 
conditions for both. 

The worker does not, of course, look far beyond the immedi- 
ate results. He is prone to accept them as real and ultimate. He 
knows, because he sees, that the result of competition with his 
fellow is to lower the wage-rate, and, as a product of the factory 
and wa^e systems, he cannot reasonably be expected to go farther. 
In severing the obvious connection between his task and the com- 
pleted product, in removing from him all knowledge of the gen- 
eral conduct and condition of the business, in paying to him a 
fixed wage regardless of the outcome of the particular venture, 
and in paying him a wage never much in excess of his habitual 
standard of living, the factory and wage system have accus- 
tomed him to a hand-to-mouth existence, have barred him from 
all the training effects of property-ownership, and have atrophied 
his faculties of responsibility and foresight. Moreover, it is not 
to be expected that today's empty stomach will be comforted by 
tomorrow's h)rpothetical bread, least of all by bread which is 
likely to comfort the stomach of another. Is it any wonder, then, 
that the laborer does not and that he cannot follow the ec6nomist 
in his complicated arguments to prove that, in the long run and 
on the whole, the keenest competition among laborers brings the 
highest rewards? 

Be that as it may, the essential point is that, as a result of the 
circumstances under which he works, the laborer actually does 
see the best hope for his betterment in ruling out competition 
between himself and his immediate trade associates. He does 
believe that individual underbidding, if habitually practiced, 
must cause the conditions of employment to deteriorate and reduce 
the wage to the starvation limit. From his view-point under- 
bidding therefore is far more destructive of well-being than is 

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breach of contract with the employer. Thus scabbing becomes his 
unpardonable sin. Beside his moral duty to stand by his fellow- 
worker against the scab, standing by contract with his emplo)rer 
becomes relatively unimportant To him it seems a case of self- 
preservation on the one hand, against comparatively slight inter- 
ference with well-being on the other. Proneness to breach of 
contract J therefore, is seen to be a natural and inevitable out- 
come of his life and working conditions. It is a thing to be 
remedied, if at all, only by changing conditions, and it is a thing 
upon which, if we take aJl circumstances into consideration, it is 
difficult to found a charge of moral depravity. 

The fact that the laborer is apt to accompany his contract- 
breaking with acts of brutality does not invalidate our explana- 
tion, and need not alter the conclusions which we have reached. 
The laborer cannot, of course, put himself in the employer's 
place. Therefore the hiring of scabs is, from his view-point, 
just as indicative of immorality as from the view-point of the 
employer is breach of contract by him. To him, indeed, scab- 
hiring is a species of contract-breach, since he looks upon him- 
self as the owner of his job. To eliminate the scab, therefore, 
seems as justifiable to him as to the employer seems the elimina- 
tion of the contract-breaker. That he slugs the scab in violation 
of law, while the employer regularly tries and imprisons the con- 
tract-breaker, does not necessarily indicate on his part greater 
brutality, lack of morality, or lack of reverence for law. It may 
mean simply that there is no law to enforce his essential rules of 
the game. Suppose there were a law to prevent the ptmishment 
of embezzlement, would the employers content themselves with 
moral suasion? What happened to the men who, in the sixties, 
under the protection of law, attempted in California to pay good 
debts with bad money? What happened, two or three years ago, 
to the striking miners in Colorado, and to the officials who tried 
to shield them? In each case the good business men of the com- 
munity let it be understood that violation of the established rules 
of the game would be punished by death. 

3. The third charge against the imionist which we have tmder- 
taken to examine states that while he is struggling for increase 

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of wages he is at the same time attempting to reduce the efficiency 
of labor and the amount of the output. In other words, while 
he is calling upon the employer for more of the means of life he 
is doing much to block the efforts of the employer to increase 
those means. 

There is no doubt that this charge is to a great extent true. 
Unions constantly are demanding higher wages and better con- 
ditions of employment, coincident with shorter hours, limitation 
of the numbers of workers, handicapping of machine introduc- 
tion, and more or less direct restrictions on individual output. 
To the employers "sanding the bearings" constitutes one of the 
most aggravating features of unionism. It is from his stand- 
point a perfectly clear case against the intelligence and right- 
mindedness of the unionist laborers. He reasons thus: The 
industrial product is the industrial dividend. This dividend is 
shared among the productive factors according to certain definite 
laws. Whatever, therefore, hampers efficiency, and thus limits 
or decreases the product, must correspondingly limit or diminish 
the shares. He honestly believes that in matters of output the 
interests of himself and of his laborers are identical. Both gain 
by increased efficiency, however attained; both lose by decrease 
of effort and output. He therefore constantly invites the co- 
operation of his workers in efforts to speed up the process and 
to increase the productive power of the establishment. Their 
refusal to co-operate with him in this simply astounds him. He 
cannot understand it on economic grounds. He feels that he 
has no choice but to look upon it as the result of stupidity or 
perversity. But here again it is possible that validity of con- 
clusions may vary with the standpoint of the observer — ^that the 
laborer's attitude may be the legitimate outcome of what is for 
him a legitimate view-point. Let us see. 

In reasoning upon this matter the employer habitually looks 
at industry either from the standpoint of competitive society as a 
whole or from that of the individual competitive establishment 
Viewing competitive society as a whole, he assumes that actual 
or prospective increase in the goods' output means the bidding-up 
of wages by employers anxious to invest profitably increasing 

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social income. It follows that in competitive society laborers as a 
whole stand to gain with improvements in industrial effort and 
process. In the case of the individual competitive establishment 
it is clear that the maximum income is ordinarily to be sought 
in the highest possible efficiency, resulting in increased industrial 
output. At least this is true where there are numerous estal> 
lishments of fairly equal capacity producing competitively from 
the same market. Under such circimistances the increased out- 
put of any one establishment due to "speeding up'* will ordinarily 
have but a slight, if any, appreciable effect on price. Each indi- 
vidual entrepreneur, therefore, is justified in assuming a fixed 
price for his product and in reckoning on increase of income from 
increase of efficiency and industrial product. Apparently it rarely 
occurs to the employer that this analysis is not complete. Hav- 
ing assumed that definite laws determine the manner in which 
income is shared among the productive factors, he apparently 
concludes, somewhat naively, that just as the laborers in society 
will in the aggregate profit by increase in the social income, so 
also will the laborers in any individual establishment profit by 
increase in its income. 

To this mode of reasoning, and to the conclusions reached 
through it, the unionist takes very decided exceptions. To the 
statement that labor as a whole stands to gain through any 
increase in the social dividend he returns the obvious answer 
that labor as a whole is a mere academic conception ; that labor 
as a whole may gain while the individual laborer starves. His 
concern is with his own wage-rate and that of his immediate 
fellow-workers. He has learned the lesson of co-operation within 
his trade, but he is not yet class-conscious. In answer to the 
argument based on the individual competitive establishment he 
asserts that the conditions which determine the income of the 
establishment are not the same as those which govern the wage- 
rate. Consequently, increase in the income of the establishment 
is no guarantee of increase of the wage-rate of the worker in it. 
Conversely, increase in the wage-rate may occur without increase 
in the income of the establishment. Indeed, in consequence of 
this non-identity of the conditions governing establishment 

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income and wage-rate, increase in the gross income of the 
establishment is often accompanied by decrease in the wage-rate, 
and the wage-rate is often increased by means which positively 
decrease the gross increase of the establishment 

The laborer's statements in this instance are without doubt 
well founded. The clue to the whole situation is, of course, 
found in the fact that the wage-rate of any class of labor- 
ers is not determined by the conditions which exist in the 
particular establishment in which they work, but by the con- 
ditions which prevail in their trade or "non-competing group/' 
The employers of the group bid for the labor of the group under 
competitive conditions, and thus determine the wage-rate in all 
the establishments of the group. It is the group income, then, 
increase or decrease of which raises or lowers the wage-rate in 
any and all establishments ; it is not the income in any particular 
establishment, or in industrial society as a whole, that is the 
determining factor. With this commonplace economic argument 
in mind, the reasonableness of the unionist's opposition to speed- 
ing up, and of his persistent efforts to hamper production, at 
once appears. 

Speeding up in any particular establishment may, as we have 
seen, increase the gross income of the concern. If, however, it 
is adopted in general throughout the trade, it may result in 
serious lowering of the real income of the group. This would be 
apt to result in the case of a common food-stuff. So long as 
the workers in a single establishment speeded up, the price of the 
product might be lowered so little that the incomes both of this 
establishment and of the group might increase. But should the 
establishments in general increase their output, a decided lower- 
ing of the price might be necessary in order to dispose of the 
product. It is conceivable that competition to sell the increased 
output might so break the market as actually to decrease the total 
economic income of the group. In such a case, evidently, out- 
side labor would get the gain resulting from increased effort of 
labor within the group. The same result might follow where 
the total income of the group was not decreased but increased by 
speeding up. Suppose capitalistic competition under such circum- 

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Stances were not keen. Unless the laborers were strongly enough 
organized to force concessions from the employers, outside labor 
would still be apt to get the lion's share of gain through increased 
labor demand resulting from the spending or outside investment 
of the group employers' increased profits. 

If we look at the converse of all this, we see that it is per- 
fectly possible for laborers in any one group to increase their 
wage-rate at the expense of other groups. It is even possible for 
the laborers of one group to draw to themselves a larger share 
of the whole industrial dividend per unit of work by means 
which undoubtedly decrease the industrial dividend as a whole, 
and which, applied solely to any single establishment, would 
decrease its gross income. Take this simple case as a concrete 
example : Group A may be producers of a good with a compara- 
tively inelastic demand ; that is to say, a pretty definite amoimt of 
which the community will consume at prices which may vary 
rather widely. Let the union by restrictive measures decrease 
the efficiency of the workers and reduce the industrial output of 
the group. Will not the value of the product per unit go up, 
and cannot the employer then be forced to increase the reward 
which goes to each unit of labor effort without any necessary 
decrease of his own profit, but rather out of the increased price 
which outside labor has been forced to pay for the products of 
the group? Such a case is perfectly possible. It is merely an 
example of monopoly squeeze, with which we are all familiar 
enough in a somewhat different aspect. The laborer's efforts to 
increase his wage-rate without corresponding increase of effi- 
ciency may be deplored as selfish and unsocial, but they certainly 
seem to be perfectly reasonable outcome of the conditions as they 
exist for him. Moreover, in this matter of monopolistic striving 
"let him who is without sin cast the first stone." 

But it would be a mistake to suppose that the laborer is 
always looking for monopolistic gain when he interferes with 
efficiency of production. The greater part of his efforts in this 
connection are prompted by the motive of self-protection. His 
experience with competition has led him to formulate this rule: 
As against the employer, the competitive strength of the labor 

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group is the competitive strength of the weakest member ; there- 
fore, if wages are not to be progressively reduced and con- 
ditions of employment are not to deteriorate for all, the strength 
of the weakest member must be made equal to the strength of the 
group. This proposition may appear unsound when subjected to 
the keen examination of the economist, but the worker knows by 
experience that, if imemployed or underskilled men are allowed 
to undercut the wage-rate in order to secure or retain employ- 
ment, it is possible that they may start an endless chain of dis- 
placement and undercutting, which may ultimately reduce the 
wages and the competitive conditions of employment of the whole 
group. Thus argues a worker from the facts as he sees them: 
A is out of work; he must have work to support his family; to 
get it he will underbid B who is now employed ; if A can do the 
work of B, he may be taken on and B discharged ; then B must 
have work to support his family; to get it he will underbid C; 
and so on till finally X, Y, and Z have all in ttun been subjected 
to the undercutting and competitive weakening process. 

Of course, this presents the extreme case, and the economist 
will tell the worker that it presents an unreal one. He will learn 
from the economist that he is leaving out of account an important 
factor. He will be told that the competition between employers 
will prevent this degradation of the wage by giving to every man 
what he produces. But the worker knows that, while the employ- 
ers are looking for the lowest cost conditions, competition between 
them for labor is not always keen. He knows that in many 
trades there is a potential, if not an actual, over-supply of labor 
which makes it unnecessary for the employers to attend to get 
from eaqh other their workmen. Anyhow, he has before him the 
immediate facts, and cannot be expected to forecast the remote 
and unseen results. He sees that men do underbid and lower the 
wage-rate when some are competitively weaker than others, and 
the only way that he knows of practically preventing this is to 
shut off all possibility of underbidding through the establish- 
ment of uniformity of wages and conditions. This is the key 
to the greatest part of the working rules which the unionist tries 
to foist upon the employer. It is to secure uniformity of con- 

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ditions in order to cut out all possibility of progressive under- 
bidding, and not because he is seeking deliberately to cut down 
productivity, that the laborer ordinarily insists on recognition of 
the union, collective bargaining, standard wage-rate, a normal 
day, the closed shop, etc., etc ; while at the same time he calls upon 
the employer for a higher rate of wages. 

The examination of this charge, which at the outset seemed 
clearly to indicate both stupidity and perversity on the part of 
the laborer, apparently then results simply in confirming the 
impression left by the examination of the two preceding charges. 
It seems to show in brief that, however invalid the laborer's 
ideas and actions may be from the employer's standpoint, they 
are apparently the inevitable outcome of the peculiar circtmi- 
stances of his life and work, and that, considering his own 
immediate interests merely, they are not foolish, but on the con- 
trary quite reasonable. 

The whole discussion seems to lead pretty definitely to the 
following pregnant conclusions: (j) that men circumstanced 
differently as to both inheritance and present environment are 
bound to reach quite different conclusions as to rights, morality, 
and sound economic policy; (2) that employers and laborers are 
so differently circumstanced that they are likely to differ radically 
on these points, and are likely to be altogether incapable of 
mutual understanding in regard to them; ( j) that these differ- 
ences do not necessarily indicate any lack of morality or vntelli- 
gence on the part of either class; and finally, (4) thai on account 
of the peculiar circumstances of the laborer's life and work there 
is growing up a distinctive trade-union view-point which must be 
reckoned with/ as a matter of