Political economy is that branch of social science, or economy of the nation as a household, which treats of the production of wealth and its application to the well-being of society. The word "political" is not used in the ordinary sense, but simply as it applies to the body politic—the city or state. In other words, political economy is the systematic arrangement of the laws which, under the present system of competition, govern the relations of man, whether individual or social, to the objects of his desires.

The science is based on four elemental principles: 1. The unlimited desire of man for the development of nature's resources. 2. The conveniences and comforts of civilized life, which are to be enjoyed only as the result of human labor. 3. The right of property in the fruits of labor, established by individual exertion with the idea of exclusive possession, as a natural consequence. 4. The natural possibility and right of exchange of the fruits of labor attending the right to property. All these things touch the sphere of man's social life with its manifold and complicated relations, from which proceed the most powerful incitements to stimulate desire, to nerve up labor, to maintain rights and to multiply and distribute the innumerable elements of wealth. The study of political economy delves into man's wants, nature's resources, the statistics of human invention and industry, and the principles which should obtain in social relations. Self-interest is regarded as the universal motive of human action, and in this study of prime interest, are the mutual relations and intercourse of men as governed by that motive. It takes it for granted that labor is irksome in most cases, and that every man is striving to obtain the utmost possible gratification with the least possible effort.

Since wealth, the fruit of labor and desire, is the principal thing about which this science treats, a clear idea of what wealth is should be obtained at the outset. The term wealth embraces all useful things which can be appropriated and exchanged. This naturally combines utility, or fitness to gratify desire, and fitness to be seized and held in exclusive possession. It is an error to identify wealth with money. Money measures things, and to a certain extent is a medium of exchange for all things, but it makes up only a small part of wealth. It is desirable not for what it is, but for what it can purchase. It is also an error to regard as wealth such thins as mortgages, bonds, stocks and the like. These are simply indications of wealth which exists in another form. These are signs, not substance. It is also in error to exclude from the list of the things that make up wealth, a song, speech, or other things that are not tangible or durable.

In distinction from wealth, we have a term "value," which is only a vague way of expressing the desirability of an object. Value is purchasing power, or that quality which gives an object power to command other objects in exchange. Price is a term distinct from value, in that it has reference to a single article,—money. To illustrate, the difference between the terms value and price, it may be said there can be no general rise or fall of all values, but there may be a general rise or fall of prices, from the inflation of currency, or some similar cause that affects money, which is the only object by which all things are compared. Value, also is distinct from utility, for anything that gratifies a desire is of value, but some things of the highest utility, such as air, light, or water have no exchangeable value. Thus it may be said that value has two elements, viz.: utility and cost, or the difficulty of obtainment measured by the amount of labor necessary to secure the object.

From this point the study of political economy branches in several directions. Production and its methods and means, such as natural resources, labor, and capital, should be considered. The distribution of wealth such as property, wages, profits and rent, also come in for study. Then there follow the study of the exchange of wealth, of the laws which govern value, the rise and fall in prices, the stability of currency or money, the supply and demand which regulate prices, and other similar conditions. There is also the influence of society at large, and of government, upon wealth, its method of production, etc.

From the study of this science it has been thought at times that a nation could be regulated the same as a household, by adjusting the getting and spending of the national wealth. Thus have arisen doctrines, now in the main discarded by economists, such as that of "the balance of trade," which teaches that trade with any nation is profitable only when more can be sold to that nation than is bought from it. The system of bounties upon special trades arose, and similarly, has grown up to the great system of protection to native industry, which has marked the revenue policy of the United States for many years past. Following the laws and theories on this question, have arisen numerous schools of economists, who believe that their particular tenets constitute the cure for all ills. Among these schools are the socialists, the communists, the single-tax followers, and even the anarchists, who believe in no government.

In the space permitted here, it is not possible to treat of the details of the numerous laws which make up this science. Those subjects most important for consideration are the actual methods that have been put into use by governments, or have been made the rallying cry of some political party.

Free trade is a term expressing a principle which has been used to a great extent as a party platform for the Democratic party in the United States. Trade consists in buying and selling.

There is free trade when there is no interference with the natural course of buying and selling, if such interference be intended to improve or otherwise to influence trade. It is necessary to keep this distinction in view, because there are many laws not contrary to the spirit of free trade, which interfere with buying and selling. For instance, it is unlawful to deal in slaves, because we do not acknowledge the right of one human being to be the owner of another; it is unlawful to sell intoxicating spirits without having obtained a license, because the tax for the license brings revenue to the treasury, and intoxicating spirits are a commodity which it is advisable to tax in preference to the common necessaries of life, or even harmless luxuries. Many of the last named cannot be brought into this country without paying customs duty. In some countries, however, this tax is for revenue merely, and is a restraint on trade.

The many attempts made by governments to regulate trade for the purpose of benefiting the communities over which they rule, may be divided into two great classes: the one prohibiting the exportation of commodities, and the other encouraging exportation and prohibiting or discouraging importations. The former was the old rule in many countries. It was supposed that the wealth of the country depended on retaining within its limits certain productions of native growth or industry, and their removal out of the country was prohibited or restrained. Until a late period, the exportation of machinery was prohibited in some countries, but this was an exceptional remnant of the old rule, which had yielded to its converse, in which it was maintained that exportation is the source of wealth, and importation is a wasting of the nation's wealth.

Nations are like individuals, making in trade, profit on what they buy and sell. Whatever communities import they pay for by exports. This can be shown by analysis in any class of national transactions. If we pay for the goods we import by bills of exchange, these bills represent goods exported, otherwise they would not be paid. If we pay for goods in money, it is the same thing. It is a sort of a dynamic law that exportation causes importation just as a vacuum is filled up by air.

As applied to the individual, and not to the nation, free trade is the right of every man to do as he pleases with his capital and abilities; and as the general desire of man is to improve his condition, and in fact, the great majority are thoroughly devoted to this purpose, the interests of the nation at large cannot be in better hands than in those of men, who, in increasing their own wealth, are increasing the wealth of the public. Free trade expresses the principle that a nation's wealth and prosperity are best promoted by securing the utmost freedom for the exchange of all commodities among its own people, and with the people of other countries. In contradistinction with free trade, protection expresses the principle that in order to promote home industry, the importation of certain articles from countries where they can be produced cheaper than at home, should be prohibited, or restricted by heavy duties.

It is generally admitted by both parties that, theoretically, the presumption is in favor of free trade. For all economic processes and results in their general aspect, the law of free trade is most favorable. The right of property implies freedom for every one to do wat he will with his own, providing he does not infringe upon, the rights of others. Any law restricting the free exchange of one form of property for any other, or its free transfer from one place to another, is a violation of a natural., universal, inherent right. The social instincts of men prompt them to the practical adoption of this principle of freedom of exchange. Free commercial intercourse between the nations of the earth tends evidently to establish their mutual relations upon a basis of peace and good will. But by the mutual exchange of values, different peoples become acquainted and assimilated with each other, and a feeling of interdependence creates a common interest, out of which grow the ties of abiding friendship. The nations of men are of one blood and constitute one family; and all the face of the earth, with its great diversity of resources and productions, is given to the one human race. In view of these things, we are justified in saying that the presumption is strongly in favor of free trade. On the advocates of protection, is thrown the burden of proof of the soundness of the principle of restriction. Let us look at some of the arguments, pro and con.

It is said protection is necessary to secure that variety of industry and that balance of different industries which are essential to a people's prosperity. Every country has a great variety of resources, and the developmerit of all its resources conduces to its greatest wealth. Among the population of every country there is a corresponding diversity of native talent, and labor is most effective when every one has scope for doing that for which he is best fitted. The actual wants of men are equally diverse, and the highest happiness of a community depends upon the degree in which all are provided for.

A diversity of occupations makes a home market for all sorts of products, saving cost of transportation, favoring division of labor, and binding all classes together by ties of mutual helpfulness and common interests. Varied industry favors the social and moral advancement of a people, quickening and broadening minds, enlarging hearts, and impelling to noblest action in the lines of rectitude and benevolence.

The advocates of the protective system strongly affirm that it is necessary to secure diversified industry. Foreign competition crushes out the home production of all but the crudest and coarsest articles of manufacture, and prevents the establishment of varied industry, unless the government interferes to restore the equilibrium by discouraging imports. Superior natural resources or more abundant capital, or cheaper labor, or greater skill and better improved machinery, may enable manufacturers in another country to produce certain articles more cheaply than they can be produced at home. If the way is open, the country having these advantages can, at first, control the marketing of these articles in a country less favored in this respect. Having once gained that control, it will do all in its power to keep it.

The introduction of a new manufacture is a matter of costly experiment, and individuals should not be expected to bear the whole burden of carrying it on at their own loss, or great risk, until they are strong enough to compete with those who have had a long training and successful experience.

It is contemplated that this burden will be but temporary, and will be more than compensated for by the greater ultimate benefits of a diversified industry fully established. Protection is needed to nurse our manufactures in their infancy, and to hasten their development.

Foreign competition bears directly and hardly on the wages of labor. The general rate of wages in our country is higher than elsewhere. Protection is also said to be a necessary means of maintaining national independence. It is of the highest importance that a nation in the time of war should be independent of foreign countries, with respect to supplies for subsistence, etc. The advantage of a home market for agricultural products presents a strong reason in favor of protection, because many products are perishable. It is also regarded, as before stated, as favoring the fullest and best application of the principle of the division of labor.

Protection is often advocated and used as a means of retaliation for commercial disabilities imposed by other nations. A foreign government bars out our products and, in turn, we refuse to receive theirs.

Aside from these causes for the protection policy, of which the Republican party in successive administrations of the United States government has been the best exponent, political policy may be pointed out as one favorable argument. The business community in this country has adjusted itself to the protective tariff, and anything that threatens to disturb the present system causes alarm in manufacturing and other business centers, whether warranted or not.

Gradually, a good many people have come to believe that inasmuch as great prosperity has followed the protective policy, it will continue so to do. Moreover, the revenues of the country have been so large from customs duties that the country has greatly increased its national wealth, and on a similar scale the protection of certain industries has been so marked that, becoming monopolies, almost, of the entire trade in their particular branches, they have dominated the world, and largely increased the influence of the United States.

On the other hand, we have a goodly array of argument against protection. Foremost, because what is known as the "Iowa idea," formulated by a section of the party that has fostered protection, is that heavy tariffs, such as have been enforced for this purpose, in reality foster trusts and monopolies, by driving out foreign competition. This strikes at the root of protection. Akin to this idea is that of reciprocity, or trading with a friendly country on a free basis, but by treaty. Anti-protectionists argue that if it is good to exchange with certain friendly countries on a treaty basis, the same idea carried still further would be productive of further good.

Protection introduces and fosters antagonism between the different, industries of the country. The idea of giving protection to every branch of industry is absurd. The theory implies special encouragement to the production of certain articles. But when government interferes to favor one industry by raising the price of all its products, it taxes all other interests. The unnatural stimulus given by protective legislation to a single industry leads to over production and consequent stagnation and failure. Protection diminishes the legitimate revenues of the government, at the same time that it lays a heavy tax on the people.

A government must be sustained by revenues derived from taxation. The imposition of equitable duties on imports is admitted by the advocates of free trade as a legitimate mode of raising a revenue. A strictly revenue tariff has no discouraging influence on trade, nor does it conflict with the free development of a nation's varied industries. But a protective tariff has another end in view. That end would be most fully obtained by duties high enough to prevent altogether the importation of certain articles.

The policy of protection in its application must be unstable, disturbing the course of industry, by frequent changes. Protection tends to demoralize national legislation. The so-called lobby influence at Washington has become proverbial. Protection tends also to corrupt the public morals and the public service. It offers a strong temptation to the violation of the law, by smuggling.

In the study of political economy, much attention has been given to the subject of money and currency. The country has seen great waves of change in ideas as to the proper circulating medium. Careful study will convince any one that, as we have said, the value of money lies not so much in its intrinsic merit or value, as in its utility as a measurer for exchange, and to some extent as a medium by which exchange is made. Gold has been in constant use by most countries of importance, because, seemingly, its fluctuation in actual value as compared to the value of the things exchangeable for it, is less than that of any other precious metal. For in ideal measure of exchange several qualities are necessary. It should always bear the same relative value to other things—those things whose value is to be measured by it; it should be in sufficiently large supply to serve as a medium, and of convenient size and weight. These determine its serviceability, both as a measure and as a medium of exchange.

In the original state of trade, everyone simply bartered one thing against another. To-day when most business is done on credit, we must have a third thing by which to measure one thing against the other. This, if it is acceptable to everyone, and has the qualities noted, will be good money. Naturally, supply and demand cause fluctuation in money as in other commodities. If the currency of a country is suddenly inflated by heavy issues, it cannot be quickly absorbed, and falls off in its purchasing power. This was the harm done by the excessive issues of greenback money, and it was this inflation, instability of value and medium power, that people objected to in the free coinage of silver. It was known that the price of silver fluctuated violently at times and consequently it would not serve as a stable measure of exchange, for future contracts. The most ideal measure would be a composite of all values of all commodities, compared with each other, to serve as a unit. That is by comparing cloth, potatoes, gold, silver, coal, eggs, butter, etc., a unit could be arrived at which would never relatively change. This, however, is considered impracticable.

Intrinsic value is a good thing in money, for then it is not necessary to vouch that the measure of exchange when presented in exchange is of good value. As a matter of fact, governments, and private firms, to a great extent, simply use the dollar in the United States as a convenient way of measuring the exchange of goods, and often do millions of dollars worth of business with the actual exchange of only a few dollars. This is credit. The government does like-wise in monetary matters. Great issues of money are put out for the use of those who need a medium of exchange, but, much of this is simply printed paper—in other words we do business on the credit of the government, which assures the final payment for the paper in actual value. Faith in the government sustains this credit.

One of the most dramatic events in the history of any nation is a panic. This is purely a phase of political economics. It has to, do with the expansion of credits to such an extent that business is no longer safe, and fear, coming over the people who have granted credit, brings down ruin on financial and commercial undertakings. A panic is the direct result if over speculation. When times are good and everyone has plenty of wealth, and more than he needs, he seeks to find some way of investing it. He lends his wealth, gives credit, and enters enterprises of dubious character without hesitation. With so much money on hand, prices advance, people feel in good spirits and everything is boomed. Then the trend in this direction reaches its limit. Men who have borrowed against the future find that they have invested poorly, and have no means with which to reimburse their creditors. Creditors become frightened at the risk; everyone calls for a return of loans, and no one cares to give credit except at a greatly advanced interest. Inasmuch as the greater part of the business of the country is done on credit, this sudden contraction brings on a desire on the part of everybody to secure value or cash money for what they have in hand that is of value. No one, therefore, wants to buy; all desire to sell. Prices fall terribly. People who owe debts, when they have realized only a small sum for what they thought was very valuable, see that they cannot meet their obligations, because their wealth has diminished in price measure. Bankruptcies follow, and sometimes the disaster spreads ruin over many.

DARWIN'S THEORY OF EVOLUTION
INTERNATIONAL LAW
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© 1998, 2002 by Lynn Waterman