PRODUCTS ON PAPER.* A curious offshoot of the growth of this century is found in the multiplication of so-called "exchanges." The original idea of an "exchange" was a mart where a man with some definite commodity to sell could always find a buyer at some price, and where a man wanting to buy some definite commodity could always find a seller at some price. Thus, in their origin, "exchanges" were economic blessings, for they brought about between buyer and 'seller a maximum of nearness, with a minimum of friction. As "exchanges" grew, their origi nal object pretty nearly vanished, and, instead of being marts, where commodities are exchanged, they have become places where bets on prices may be made, recorded and paid. — In exchange jargon the only term now used, which indicates the original object of " exchanges," is "cash sales;" the rest savor of their degeneration, or, at least, of their change. "Shorts,' 'longs,' puts," "calls,"

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With the principles, moral and politico-economical, which this article implies, no one will disagree. Yet, while there is much that is only too true in the views of the writer, more than enough to warrant its publication in a strictly scientific work, there are some things in which no economist can agree with him. The two exaggerations into which the writer has fallen, are, first, his apparently wholesale condemnation of "exchanges"; and, then, his seemingly equally wholesale condemnation of speculation. He plainly confounds the use of both with their abuse. "Exchanges," though abused, are far from having departed entirely from their original purpose. They are still real markets, with some who deal in them, like all other markets; with this difference, however, that commodities are not carried thither in kind, and that transactions are closed in them, for goods previously examined or supposed to have been examined or represented by samples. It is by means of "exchanges" that brokers are enabled to bring buyers and sellers together, which, after all, constitutes the whole of business. The utility of these meetings can not be denied, spite of the abases with which they are almost inevitably connected; They enable merchants to save the time which they would otherwise have to employ in journeys, to and fro, to meet each other. Then, they obviate, in certain cases, for the buyer or seller, the disadvantage it might be to him, to be the first to take steps to meet the other. Business men will appreciate this practically; better, perhaps, than political economists, theoretically. And so with speculation. speculator, in the non-abused sense of the term, is nothing more or less than a person who buys commodities or other exchangeable things, when he thinks that their prices have fallen below their real value, and has reason to believe that at a future time he will be able to sell them at a higher rate than that at which he bought them. The difference between the price which he buys them at, and the price at which he sells them again, should cover the interest on the sum invested, the costs of storage, etc.; it should, further, cover the risk incurred in the purchase, and pay a just compensation for the personal labor of the man making the operation. When this care is taken, speculation is entirely legitimate; but in all cases of speculation, there should be. to render it legitimate, an actual and not an entirely fictitious investment of capital. Speculation acts like the governor in a steam engine; it prevents the too great fluctuation of prices, in which respect it serves both producers and consumers. It intervenes in favor of producers by increasing the demand, when prices go below the cost of production; in favor of consumers, it prevents too great a rise in prices by throwing the products of producers on the market when there is a scarcity of them. (See EXCHANGE, AN; SPECULATION.)—ED.

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'straddles,' spreads," ""options," "privileges,' and the like, are not indicative of commerce, but of speculation pure and simple. -Taking the annual reports of the leading exchanges of the country, it is manifest that the majority of transactions are only bets; because far greater quantities of cotton, corn, wheat, petroleum, etc., are annually sold than the soil produces. It follows, then, that in our so-called "exchanges," the business of members is not so much to exchange commodities, either for themselves or their constituents, as to exchange opinions, and to fix a pecuniary penalty on the party who happens to be wrong, making it payable to the party who happens to be right. Dealing in these opinions may be very accurately called "trading in products on paper.' If the word speculation be preferred, it means, in its nakedness, giving the producer of food, clothing, shelter, etc., the least possible for what he produces, and in making the consumer pay the most possible for what he eats, wears, builds, etc. Speculation produces nothing by itself, neither does it consume anything by itself: hence, the most flattering term we can give it, is to call it the middlemanism of trade. Speculation has never, and can never, benefit any country; the more rampant it has been, is, or may be, the worse its effects. Historically, look at the " South sea bubble," the craze for French assignats, the mania for Dutch tulips, etc., etc. - Commerce is. the exchange of facts; speculation is a chase of phantoms. It follows that the more time people devote to phantom-chasing, the less they have for the securing of facts. Suppose every man, woman and child in this country should to-day turn speculator, or dealer in products on paper, how much corn, wheat, cotton, pork, etc., would beproduced? To-day's stock would be the maximum supply, and it would dwindle shortly to the zero point. Reverse the position, and assume that all dealers in products on paper should engage in producing or distributing the products of the soil, would there be any fewer mouths to feed, or backs to clothe? Would we have a bale less cot-ton, or a bushel less wheat?-The flimsy argument that speculation affords labor a certain market hardly needs refuting. What sort of a market does speculation cause to exist? It is bound, by the nature of things, to injure labor either in its so-called producing or consuming phase. Has any system of trading any excuse for existence, when the best that can be said of it is, that it necessarily does something bad? The moral effect. of dealing in products on paper it always debasing; for such dealings lead to idleness, and the road from idleness to vice is an air-line with a single steel-laid track. "Quick come, quick go," is a truth as old as the stars; and the winnings made by dealing in products on paper are far more apt to be dissipated than the slower returns of legitimate ventures. A more practical way of regarding trading in products on paper is to examine how the business is done. In a majority of cases the man who promises to deliver

what he does not possess, deposits in the hands of a third party some valuable thing, that is, some product of labor, as a guarantee of his sincerity. In exchange jargon this is called a "margin," and is but a fraction of the valuable things he has promised to deliver. Against this, deposit, the man who promises to receive what he does not want, deposits a similar "margin.” What mean these so-called “margins"? Are they not practically the same as the "stakes" wagered on a horse-race or a cock-fight? The conclusion, then, is forced upon us, that trading in products on paper amounts to gambling, more or less refined, and is as far removed from legitimate commerce as the equator from either pole. By promising to buy and receive that which he does not want, a speculator may make higher prices for producers; so much the worse for consumers. By promising to sell and deliver what he has not, he may make lower prices for consumers; so much the worse for producers. All production is the result of labor, capital, and some natural agent. Consumption is the same, for nothing can be consumed unless something equal be produced. Denying this, we must deny the indestructibility of matter. The equation of exchange, then, is P (or production)=C (or consumption): now, if we add or subtract products on paper from either side of the equation, we get PS-C, or CSP, either of which is absurd; for two things equal to one another can not remain equal to one another when either be increased or diminished, while the other remains unchanged. Reducing one and increasing the other makes the equation of exchange still more absurd. Unless it be claimed that production can exist without consumption, or consumption without production, it follows, mathematically, that speculation must injure labor. —If a man have 100 bushels of wheat, the product of his labor, and I have ten gold eagles, the product of my labor, and we exchange each for each, the equation of exchange is labor-labor; if, however, I bet the man owning the wheat that within sixty days my money will buy 110 bushels of wheat instead of 100, and he bets to the contrary, the only exchange is one of opinion. At the end of the sixty days either I have some of his wheat and have given nothing for it, or he has some of my money and has no return to make. In either case something has been sliced from somebody's labor. Philosophically speaking, then, trading in products on paper benefits labor in no respect. And now let us see how it affects capital. Many speculators borrow money (which is capital in its most active form), but they borrow it on the products of others' labor, not on labor of their own. If the dealer in products on paper had not "middlemanized,” the same amount of labor's product would call for the aid of capital to move it from a point of abundance to one of scarcity. If a thousand bushels of wheat passed through a thousand hands, it would never be but a thousand bushels of wheat. Speculation has for its vade mecum

a summer's night draws countless moths and other insects; the brighter it burns, the more there are drawn so it is with speculation; its lurid light attracts only to destroy, and its most certain victims are those who, in their first flight around it, feel only an exhilarating warmth. The smallest of the hovering unfortunates generally burn first, but, sooner or later, a common cremation furnace is the end of all. As speculators neither produce anything, nor consume anything, and, like all others, must live, it follows that they must either live on outsiders, or, like fishes, on one another. The world has no record of a specu lator who died happy and respected. trader in products on paper wins, another must lose; the grand law of commerce, the law of mutual benefit, can not exist between traders in product on paper; the knife of every one is against the throat of every other; to take all, and give nothing, is the object of all. — If, then, no one can gain without somebody losing in trading in products on paper, it seems fair to conclude that such trading will never add a whit to the wealth of nations. T. T. BRYCE.

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PROFITS. The theory of profits, as developed by the leading English economists, has been simple but inadequate. Starting from English agriculture as a type of productive industry, they have divided the returns into rent, wages and profits; have described profits as the surplus remaining after rent and wages are paid; and have analyzed this surplus into the three elements of interest, insurance and wages of superintendence. This treatment has caused several mistakes. It has led men to speak of profits as an element in the cost of production in the same way that wages is an element. It has led them to think that what is here called wages of superintendence is properly classed with ordinary wages. It has been based on a circle in the definitions: for after defining rent as what is left after wages and profits are satisfied, they go on to speak of profits as what is left after rent and wages are satisfied. It was adopted to meet the case of a large body of men doing business on other people's land with their own capital, in the production of staple articles comparatively little subject to speculative change in value. If any of these conditions are changed, the theory needs re-statement. And in the United States to-day nearly all these conditions are changed. In those industries which furnish the most serious problems for a theory of profits, we generally find men doing business on their own land, but depending for their circulating capital upon an exceedingly elastic credit system; dealing in goods and services whose values may change or vanish in a hundred different ways, and are

made the subject of speculation at every turn. In business as now organized the current expenses may be grouped under three heads: 1, raw materials; 2, insurance and repairs; 3, wages. The first of these elements may take the form of a rent charge, as in certain systems of agriculture and mining, or may fall away almost altogether, as in transportation of certain kinds; the second and third are tolerably constant in their form, though of course not in their importance. Any excess in the value of the product over these expenses may be termed gross profits, and nearly coincides with the definition of profits used by the English economists. But gross profits are received by the capitalists as a return for two distinct services. As owners of capital they receive a reward for their saving in the form of interest; as employers of capital they receive a reward for their business abilities in the form of net profits. Gross profits consist of earnings less current expenses: net profits consist of gross profits less interest on capital invested. A century ago it was natural to group these two elements together, because these two services were largely rendered by the same men. The employer of capital was then the owner of capital. In many localities and industries the same thing is true to-day; mainly so in the case of handicraft, and partially so in the case of joint stock companies. But it is certain that the tendency of the day is to separate these two functions; for a man of business ability to control far more capital than he really owns, and in some form pay the owners a fixed interest on which he himself takes the chances of loss or of extraordinary gain. There is no room here for a systematic discussion of the causes which affect the rate of interest. We must confine our main attention to the element of net profits, or entrepreneur's profits, as they are called by Gen. Walker, who has done more than any one else to develop this distinction. The minimum of net profits is roughly determined in the same way as the minimum of wages. The business man, like the workman, must make a living according to his own standards of comfort and decency. But the application of this principle to profits is less simple than its application to wages. In the latter case we have a large body of men ready to work for a certain remuneration, but liable to become a burden on society if the pay sinks below that amount. In business the margin of difference between what will induce men to begin and what will compel them to stop, is far greater. No man will begin business unless he expects to make more as a capitalist than he was previously earning as book-keeper or foreman. But once engaged in business he can not go out of it when he fails to make the expected profit, without sacrificing a great part of his invested capital and losing the chance of ever again doing business on the same terms. He will then hold on as long as he can meet his expenses and sees any chance of making a profit in the future. In hard times he will actually produce at a loss to save his capital

and connections, in the hope of a better future. Thus, we have not a fixed but a varying minimum; in times of expanding credit and increasing production on a level with the wages of a superintendent, foreman or head clerk in the same industry; in times of diminished credit and production falling away to nothing, or less than nothing. Now, the price of goods is approximately determined by the cost of production of those produced at the greatest disadvantage, that is, by men earning this minimum of profits. If any individuals carry on the business on more advantageous terms, so that the cost of production is less, every such advantage means, for the time being, just so much increase in their profits. Cheap raw materials, cheap transportation, cheap labor, will, other things being equal, have the effect either to drive less favored competitors out of the business or to secure the margin of advantage to the capitalist in the form of additional profit. It is to causes like these that local variations in the rate of profit are due. These are not as great as might seem likely, because in the presence of any of these special advantages other things are not often equal. In general, cheap raw material means high interest, cheap transportation means high rent, cheap labor means inefficient labor. It is to the personal qualities of the capitalist rather than to his environment, that extraordinary instances of profit are to be ascribed. Skill in organizing labor, quickness in utilizing improvements, and sagacity in foreseeing high prices, are qualities which give the capitalist the power of raising his own profits almost indefinitely above the minimum. — The effect of skill in organizing labor manifests itself chiefly in capacity for carrying on business on a large scale. A man who can make a given profit | by superintending the work of ten men, ought to be able to make nearly twice as much if he can superintend the work of twenty with equal efficiency; or to sell his goods cheaper (in case he must do so to extend his market) without sweeping away all the added profit. Why, then, it may be asked, does not production on a large scale prevail altogether in competing against smaller concerns? It undoubtedly tends to do so. In 1850 the establishments enumerated in the United States census of manufactures employed on an average less than 8 hands, with an average of $4,300 returned capital. In 1860 the averages were 9 hands, and $7,100. In 1870 this advance had received a check; but in 1880 the numbers had risen to 10.7 hands, and about $11,000 capital. But there are two causes which operate to restrain this tendency. In most industries and with most men the efficiency of superintendence rapidly decreases when carried beyond a certain moderate limit. And, on the other hand, a man's power of borrowing capital can not be extended out of all proportion to his own property. Both borrower and lender feel the growing insecurity as the proportion of borrowed capital increases. The former is unwilling to take the risk of bankruptcy for the chance of inordinate gain. The latter indemnifies