have wherewith to pay for their satisfaction. It is not necessary to be a philanthropist to assist them; it is only necessary to be in a condition to understand one's own true interests. - These truths so important, which are beginning to penetrate among the enlightened classes of society, were absolutely unknown in the periods previous to our own. Voltaire made patriotism consist in wishing evil to one's neighbors. His humanity, his natural generosity, lamented this. How much happier are we, who, by the simple advance of enlightenment, have acquired the certainty that we have no enemies but ignorance and perversity; that all nations are, by nature and by their interests, friends of one another; and that to wish prosperity to other peoples, is to love and serve our own country."

J. B. SAY.

OVER-PRODUCTION. Over-production is a term which is clear and simple as each man applies it in his own business, but which is liable to be misunderstood when applied to the business of the community. This combination of apparent clearness and real doubt has caused much confusion and unnecessary argument; so that we must begin with a careful analysis of its meaning in various aspects. It is defined by Malthus as occurring "when the production of anything is carried beyond the point where it ceases to be remunerative." For instance: a manufacturer owns his plant, but depends upon credit for the purchase of raw materials and the means of paying wages. Now if his product brings the expected price, it compensates him for all these advances, and gives him his business profit in addition. But a slight fall in the price of his product, from whatever cause it arises, will sweep away his business profit. This is the point where production ceases to be remunerative. A further fall will not only leave him without business profit, but also without compensation for the wages he has advanced, or without the means of paying for his raw material; so that the more he has manufactured the poorer he is for it. To him, then, all production on these terms is over-production. And to him the result is the same in its main features, whatever be the reason for the fall in price. He could have avoided the worst of the trouble to himself, had he but curtailed his production in time. – But if we go one step back, and look for the causes which occasion this fall in price, we find that it may be due to any one of three things: 1. A disproportionate production of this particular article; 2. A hindrance of any kind which prevents placing goods in the most advantageous market; 3. A general fall in prices. As regards its relation to the general business of the community, the first of these causes acts in a very different way from the second and third; and it is to the first of these causes that the name over-production is most properly applied. The mistakes of Sismondi, Chalmers and even Malthus in this connection arose from their supposing that it meant the same thing in

the second and third causes as in the first. They said that depression in individual branches of trade arose from over-production in those branches, and inferred that when phenomena of the same kind were seen everywhere there was the same kind of over-production everywhere. But this is by no means the case. Disproportionate production is one thing; failure to sell at the expected price may be quite another. It may look like the same thing to the individual producer, and yet mean very different things respecting the past and future of the business community. Disproportionate production is liable to occur at any time in individual branches of trade. It is only when it becomes much more serious than usual, and is combined with other causes, that it is followed by a commercial crisis. But the so-called general over-production does not ordinarily occur except in connection with a crisis, and there it is a result rather than a cause. By keeping this distinction in mind we shall avoid confusing the real partial over-production which usually precedes commercial crises, with the apparent general over-production which is characteristic of their advanced stages. It is with the former of these that this article mainly deals. — Disproportionate production on a small scale, such as constantly occurs in one or another branch of industry, readjusts itself so easily as to occasion no harm except a temporary one to a few individual producers in that line. The capitalists see their mistake the moment their business profits are swept away, and use less capital in their business; the excess of supply is quickly consumed, prices recover, and the business goes on as before. But special circumstances may aggravate the trouble to the extent of a public calamity, and special lines of production are particularly liable to such misfortune. When large amounts have been invested in fixed capital, such as machinery, public works, or, above all, railroads, such excess of supply can not be quickly consumed, but exerts its depressing influence for a long time to come. And, on the other hand, when special lines of production have been stimulated by a temporary demand at abnormally high prices, as was the case in the iron business in 1873, and is liable to be the case to a less marked extent in almost any other line of manufacture, it will be found that after the excess is worked off and consumed, prices still do not recover anything like their former figures. We thus have two types of business liable to over-production; one because the excess of supply is permanent, the other because the high price is abnormal. The history of railroad building on the one hand, and of iron production on the other, furnishes the most striking instances of these results, as well as the most complete statistics for our purpose. - Ever since the invention of railroads excessive railroad building has been a leading symptom of an approaching crisis. In 1837, it is true, the system of railroads was not yet far enough advanced to be an important factor, yet here we had the same kind of extrava

two years; and this decline on the whole continued till November, 1878, when the price was $16.50, scarcely one-third of what it had been in 1872, even if we make allowance for the gold premium. In Great Britain the same change was still more marked. Scotch pig, which in 1870 had sold as low as 494s., rose in 1870 to 145s., and in 1878 had fallen to 42ts., less than three-tenths of what it had brought five years before. A similar change was seen in America at the beginning of 1880, when iron, which in July, 1879, was selling at $19.25, rose to $40 and $41, only to fall, three months later, to $23. The reason for these extraordinary changes is to be found in the character of the demand for iron. A demand for iron at all often means a demand at any price, whether it be for a railroad that can make no money till its tracks are laid, or a factory that can make none without new machinery. But the demand that forces up the price is moderate in quantity; and though the high rates may be submitted to by the immediate demand, they may check the future demand. Thus, those who have gone into the iron business under the stimulus of high rates find that the pressure was only temporary; the extra supply, by the time they are ready with it, no longer wanted; and in place of the readiness to buy at any price, however high, comes an unwillingness to buy at any price, however low. Just this course of events is indicated by the statistics of iron production. The American pig iron product, which in 1870 had been about 1,859,000 net tons, and in 1871 about 1,905,000, rose under the stimulus of high prices in 1872 to 2,855,000, and in 1873 to 2,868,000 tons. But by this time the fall in prices had been so marked that the iron men checked production as best they might. In 1874 they reduced their product to 2,689,000 tons; but in spite of this reduction and of the further fall in prices there remained at the end of the year 796,000 tons unsold in the producers' hands. The further course of events is shown in the following table, compiled from figures in the report for 1881 of the secretary of the American iron and steel association:

From this it appears that in spite of diminished production and prices it was not until 1877 that they were able to reduce materially the proportion of their product unsold. As soon as they began to do this they were on a sounder basis; but what this involved may be inferred from the fact that out of 700 furnaces in the United States only about 250 were in blast in the year 1877; and that in the whole iron industry there was probably not a branch worked up to half the capacity which its fixed capital would admit. (For the statistics

of the same general depression throughout the world, see "Economist," Com. Hist. and Rev. of 1878, supplement to March 5, 1879.) A repetition of some of these phenomena has been seen in the last four years; notably in the case of steel rails, whose price increased from $42 per gross ton in May, 1879, to $85 in February, 1880, but at the end of the year 1882 had fallen to $39. There was the same reckless investment of capital to meet a temporary demand at high prices, and the same impossibility of maintaining anything like those prices when the extra supply was thrown on the market. Railroad production and iron production furnish types of the two causes which render disproportionate production a source of lasting evil: in the former case, because the increase of supply is permanent; in the latter, because the high demand is only momentary. The introduction of machinery is apt to produce effects of the former character; the supply of articles of fashion and luxury is subject to the latter. It was the combination of these two that had a large share in causing the English crises of 1818 and 1825. Agricultural produce is less liable to these disturbances than anything else, the exception in the case of cotton in 1837 and 1839 being only apparent; the evil was due to speculation on the part of cotton producers rather than to disproportionate production of cotton. So in England in 1847, when an exceptionally good harvest was the occasion of a crisis, it was not because there was more food than people had been in the habit of demanding, but because to certain individuals, who had speculated in the price of grain, normal production meant ruin. Results like these may occur when any combination makes a speculative attempt to control production and prices both. When such a combination is powerful enough to form a monopoly, there is no doubt that a check to production generally increases their returns, the prices rising more rapidly than the quantity diminishes. And, conversely, an increase of production, even under their own hands, actually diminishes the gross returns. If an individual extends his production his gross returns are commonly increased. If a monopoly extends its production the opposite effect is quite as common. -We have hitherto spoken of over-production only in the sense of disproportionate production. It was shown at the outset that the same effect upon individual producers might result from a failure to reach the right market, or from a general fall in prices. The first may be due to transportation difficulties, or to tariff legislation; the second, to a contraction of the currency; but by far the commonest cause of both is a commercial crisis. It renders the credit system so far inoperative that it is impossible to place goods where they are the most needed; and it so far increases the demand for ready money instead of credit documents that it has the same effect upon prices as currency contraction. may thus happen that the appearance of over-production will occur as the result of a crisis even in

It

PROVEMENTS, RAILROADS.)

PAPER MONEY. If there be an experiment which has been seriously made and as to the results of which there can be no doubt, it is the experiment which demonstrates the chimerical advantages and grave dangers of paper money, employed as an instrument of production. Nevertheless, numberless deceptions, the injury done to public credit and national good faith, and the ruins of the past, do not seem to have entirely ⚫ dissipated a dangerous illusion; recent facts, as well as the persistence of false doctrines, prove this but too well; the human mind frees itself with difficulty from the fatal influence exerted over it by the mirage of wealth acquired without labor, of a pretended increase of capital called into existence by the magic wand of credit, and of a new species of alchemy which transmutes paper into gold. Nothing, however, can be simpler than the examination of this problem, and nothing easier of solution. It suffices to know what is the part played by money, to measure how little such an arbitrary creation as paper money can do, and to understand its dangers. Ours is not the age in which the wealth of states was confounded with the possession of coin; money, the great wheel of circulation, as Adam Smith calls it, preserves nevertheless, however, an important place in the economy of nations; it constitutes the mechanism of exchange in the clearest and surest conditions; it enables us to set a value on all products and services; it gievs activity to the creation and facilitates the distribution of wealth. It is in fact owing to money that all are impelled to the common work of the nation, and that the result obtained is divided among those who have contributed to it. It introduces a common language into the operations of social commerce. But it is not a language of the imagination; money is the sign and measure of values, because it is their guarantee, because it represents a value that is known, acknowledged and accepted everywhere. It is a universal commodity, while it at the same time affords each country its local instrument of purchase and sale, and of remuneration for both public and private services. — In our day the fetters which cramp the international movement of exchanges are gradually disappearing, and a regular equilibrium may be established to adapt to the wants of each market the quantity of

when this business preserves its character of purity, and does not degenerate into fiction. Let us suppose, for a moment, that gold and silver alone, without any mixture of fiduciary signs, are the only instruments of exchange. As nothing prevents the transportation of the precious metals, they will always resume their level by going where a certain scarcity of them assures them greater advantage, and abandoning those places in which an over-abundance causes their depreciation. An admirable law of attraction governs them and proportions them to the useful services which they are called upon to render, by opposing equally a sterile abundance and a scarcity of specie. The very force of things establishes a weir for metallic wealth, which always falls into equilibrium with the wants of circulation. - There is a risk of the situation being modified from the very moment that, in order to economize upon the mechanism of exchange, an effort is made to substitute for gold and silver artificial means more or less ingenious, and more or less sure, by calling to its aid what is called the magic of credit, whose power people are inclined to exaggerate. Two ways are open to reach this end. By following one of these ways the movement of exchanges is simplified and the number of actual payments reduced; recourse is had to those ingenious creations which render the actual intervention of specie superfluous, or limited in a number of cases, by means of bills of exchange, of open accounts in the banks, of set-offs and transfers; or else circulation is accelerated in such a manner as to increase the services rendered by each piece of money. In this way we obtain an advantage similar to that which two iron rails placed parallel upon the ground afford by the saving in friction, which increases the traction. The same result is obtained with less expenditure of force and capital, thanks to the economy and energy of the springs set at work. Here all is gain and no danger; such is the largest function of credit and an inexhaustible source of fecundity. - But, by the side of these useful combinations, whose influence is too often ignored, we have the creation of a sign easy to manufacture, which costs next to nothing, and which is substituted in a greater or less proportion for metallic money: we refer to the bank note, which is called upon to act the part of money, because it is or ought to be accepted in business transactions to liquidate debts. — If this

fiduciary sign rests on the guaranty of a metallic value, against which it may be exchanged at will, and if we may accept or refuse it at pleasure, it constitutes money paper, which must be carefully distinguished from paper money. If it be imposed by authority, whether it emanates from the public treasury or from a private institution, and we are not at liberty to demand its equivalent in gold or silver, but are obliged to accept it, it degenerates into paper money. In the first case it aims to supply in part the metallic money, of which the country should reserve a sufficient amount to assure the exchange of bills for specie, and to serve in those transactions in which bank notes can not enter. In the second case it has for effect to replace metallic money even to the point of the issue of paper money with compulsory circulation or of so-called legal tender character. The aggregate of business transactions requires but a certain determinate amount of specie in each country at a given time. If bank bills are substituted for a part of the instruments of exchange, the surplus disappears under the form of merchandise, in order to restore the level, unless the coin be reserved in the treasury as a pledge of the paper money in circulation: thus it is that paper money drives out coin. — We may in a certain limited measure, as we shall see, economize upon the portion of the national capital employed in the making of the instrument of exchange. An institution of credit, solidly established, may maintain in circulation a mass of bills which will be in as much favor as specie, provided the metallic reserve guarantees their payment at sight, and provided the bill represents a sufficiently important part of the monetary unit to facilitate transportation and shorten accounts. However, we can supply in this way only a portion of the money needed; but the amount of the latter relatively to the amount of business transactions diminishes in proportion as civilization advances, as society improves, and as credit is extended. In 1873 the wealth of England was estimated at two hundred milliards of francs, and its production at about twenty-four milliards; the total amount of money in the country, metallic and fiduciary, scarcely exceeded three milliards; the wealth of France in the same year was estimated at one hundred and sixty milliards of francs; its production was scarcely inferior to that of England; it had twice the amount (about six milliards) in specie and bank notes. It would be an exaggeration to reckon the wealth of Russia at 50,000,000,000 francs, and its products at 12,000,000,000; it employs about 4,000,000,000 francs in specie and paper money. The possible economy on the amount of capital employed in the medium of circulation, is therefore in an inverse ratio to the sum total of national wealth. The richer a country is, the less it gains by abandoning the solid ground of gold and silver. - The saving of capital effected by the regular use of bank notes would be reckoned high if placed at from onefourth to one-third of the sum required for the

purpose of the exchange of wealth; if we take into consideration the necessary reserves, it does not amount to half a milliard of francs in England, and if it rises to two milliards in France, it is because of an abnormal condition, the result of the FrancoPrussian war, which can not last. It amounts, according to this showing, to the one four-hundredth part of the wealth of the United Kingdom, and to about one-hundredth part of the wealth of France. Regarding this comparison from another point of view, we may say that the interest of the metallic capital thus replaced frees England and France from an annual burden of twenty and eighteen millions of francs respectively, calculating the interest at 4 per cent. This is equivalent to about the one-thousandth part of the production of England, and to about the one three-hun dredth part of the production of France. As a matter of course bank notes render much more important service in France by the facility and convenience which they afford, and by the saving which they render possible, even without taking any account of the inconveniences of compulsory circulation, to which France was subjected after 1870. These gains are not without their accompanying dangers, which grow more serious the more the volume of notes increases. In proportion as this volume increases, the metallic supply decreases, and as confidence is the stuff of which credit is made, if a period of calm and prosperity be succeeded by one of uneasiness, or if imperative needs require a great exportation of specie, every effort must be made to recall the absent metal, even at the cost of great sacrifices and by paying dear for it; this it is that makes the emission of bank notes so perilous; this it is that forbids us to go beyond a certain restrictive limit, unless we would resign ourselves to the dangers of compulsory circulation. If this limit, which is variable it is true, be passed, it necessarily leads to commercial crises when the fiduciary paper has been issued only as the representative sign of private engagements, and to a political crisis when paper money has been issued to meet the wants of the state. - Adam Smith recognized the utility of the “ wagonway through the air" of credit, which enables the “country to convert, as it were, a great part of its highways into good pastures and corn fields," highways represented by metallic money. "Nevertheless," he adds, "the commerce and the industry of the country, it must be acknowledged, though they may be somewhat augmented, can not be altogether so secure when they are thus, as it were, suspended upon the Dædalian wings of paper money, as when they travel upon the solid ground of gold and silver." After having pointed out the danger he endeavors to destroy the attraction of an imaginary benefit: "the whole paper money of every kind which can circulate in any country can never exceed the value of the gold and silver of which it supplies the place." - Let us, by an extreme hypothesis, suppose ourselves in a society from which the use of the precious metals has en