currency of the most objectionable type. The question was then raised whether it should be allowed to continue thus, or steps be taken to bring it to par with gold. Here two parties were developed. One proposed to accumulate gold in the treasury, and fix a day for resumption. The other proposed to make these notes convertible into bonds bearing interest at 3.65 per cent. or some similar rate, and reconvertible into treasury notes at any time at the holder's option. The former plan prevailed, and was carried into effect January 1, 1879.

The steady appreciation of our paper-money under the steps preliminary to resumption caused great suffering to the debtor classes of the country. Farmers, for instance, who had borrowed money on mortgage when the dollar was worth sixty cents in gold, found themselves obliged to repay these mortgages in dollars worth one hundred cents. They very naturally resisted the policy which made this necessary, not only as regards their own debts, but also those of the government. Hence the rise of the Greenback Party, with its theory that money is the creation of a governmental fiat, its demand that the debt be paid in paper-money, and its proposal to substitute treasury notes for national bank notes. The party reached its maximum strength during the years of business distress which began in 1873, and declined with the actual resumption of specie payments and the revival of our industries. There is a possibility that its proposal to replace bank by treasury notes may come to the front again when the repayment of the outstanding bonds has gone so far as to deprive the banks of the basis on which their paper-money rests. (See § 170.) Instead of devising some other basis of issue equally or sufficiently secure, it will be proposed to issue an equal amount of treasury notes. As a note is a debt bearing no interest, owed by the issuer to the holder, there would seem to be some fairness in asking that the privilege of such issues should be confined to the government. But any advantage which would be derived from making such issues a government monopoly would be more than counterbalanced by the loss to the country through the destruction of its local centres of issue, and the substitution of the Treasury at

INTERNAL REVENUE TAXATION.

195

Washington and its branches in the great cities as the only places of issue. Our monetary system tends too much to centralization already. This plan would increase that tendency tenfold. It would destroy many of the country banks, which depend on the privilege of issue for their profits, and in this way would deprive us of the most important agencies for the facilitation of association and the fertilization of industry.

§ 187. During the war the government found it necessary to establish a system of internal revenue taxation, by which a great number of articles were made to contribute to its support. When the necessity for such a revenue ceased, these taxes were removed, with the exception of duties on whiskey, tobacco, playing-cards, matches, patent medicines and bank-checks, and a tax on the capital and deposits of banks. The removal of all these except the two first is now accepted generally as advisable. But there is good reason for objecting to these two being made exceptions. Of course the appetite for whiskey and that for tobacco are as legitimate objects of taxation, with a view to discouragement, as anything can be. But these taxes fall upon the States with no fair reference to their ability to bear the burden they impose. In particular, the Southern States pay under the whiskey and tobacco taxes large sums into the national treasury which would be better expended on the education of their people and the payment of their debts. These taxes should be removed, not to give the country "free whiskey" or "free tobacco," but to enable the States to relieve their necessities from this very source of revenue.

§ 188. The United States government is one of a series of governments-national, State, and county or township or municipal-whose aggregate costliness is greater than that of any other system in the world. All our officials are paid, and we have more of them in proportion to the population than has any other country. Under the peculiar provisions of the national Constitution, the general government discharges fewer functions than in any other country, except perhaps Germany. It leaves to the States the local police and the most part of the manage

ment of civil and criminal justice, but it retains to itself several of the easiest and most popular sources of revenue, and compels the States to raise their revenue by direct taxation mainly. It alone can impose duties on imports. It alone can levy internal revenue taxes in such a way as not to discourage the production of any article in any particular locality. Ordinarily, the revenue of the general government must be much in excess of its legitimate expenses. This leads to very gross abuses in congressional legislation, by which large sums of this surplus are appropriated for public works which have no real claim upon the national treasury. It would be much better to arrange for its distribution among the States in proportion to population, as was done with the surplus of 1835. Such a distribution could be accompanied by conditions as to its expenditure in the education of the illiterate and the extinction of local and State debts. It would bind the States more closely to the national Union, while relieving their people of burdens which at present press with severity upon many of them.

CHAPTER TENTH.

THE SCIENCE AND ECONOMY OF COMMERCE.

§ 189. COMMERCE is the interchange of services or productions between persons of different industrial functions, effected either directly or through the intervention of third parties. The motive to such an interchange is found in the fact that the labor which each expends upon the production of the article which he gives is less than that which he would have to expend to reproduce the article which he receives. Thus each receives. therefore, what is of greater value to him, than what he gives.

§ 190. Commerce is therefore the outgrowth of the division of labor, and has kept pace with that in its growth. In the first stage, commerce existed only between persons of the same family or tribe, and involved no formal exchange of commodities. The savage husband undertook the dangerous duties of hunting, fishing and war; the wife the laborious work of the household and their petty agriculture. Both shared in the products. Afterwards members of the same tribe rendered each other certain customary services, such as mutual help in the pasturage of the cattle and the tillage of the fields of the mark (§ 80). Then through the rise of a difference of employments or possessions between the tribes, a piece of neutral ground became the meeting place of a group of these tribes for mutual exchanges, in which exchange cattle were used, less as money than as a standard to estimate comparative values. Then arose

a class of traders, whose business it was to facilitate exchanges by ascertaining the reciprocal wants of different persons, and to negotiate for terms advantageous to each. Either from the first or in course of time, these traders became possessed of capital enough to purchase what was offered for sale, which they then again offered to those who needed it, on terms advantageous to themselves.

The rise of this class was clearly an advance in social develop

ment. A function hitherto discharged by persons, who might be better employed, was transferred to more competent men. The trader knew the demand and supply of every article more thoroughly and readily than its producers or its consumers to obtain that knowledge was his special work. Instead of spending much of their time in searching for a customer, producers found it to their advantage to employ his knowledge and skill, and to devote the time thus saved to larger production. While he added nothing directly to the amount or the utility of the products of industry, he helped to increase the amount of production indirectly by economizing the time of the producers.

One of the most important of these traders is the banker or dealer in money, whose function has already been discussed. All that is said in Chapter VIII. is, in some sense, a subordinate part of this chapter.

§ 191. Still the trader, the middleman or go-between of these exchanges, is but a means or instrument, whose end is commerce. And as in the case of other instruments, how to dispense as much as possible with his services is one of the problems of economic organization. His power over the producer and the consumer, which is measured by the proportion that his profits bear to the value of the article exchanged, declines steadily with the advance of society in intelligence and the power of association. In the early time he took a very large share, because the producer and consumer being at a distance from each other, knew little of each other, and because the risks and the Afterwards his profits de

expenses of his business were great. clined, mainly because with the growth of population and the advance of mutual knowledge, the chances of producer and consumer dispensing with his services and dealing directly with each other, increased. But even now his profit is a tax upon both, which should be reduced to a minimum. For he adds nothing to the real wealth of society. He neither directs and manages a vital change in the form of matter as does the farmer, nor a chemical and mechanical change in form as does the manufacturer. He merely transfers things from the place of their production to the place of demand: The products of