ing on personal security, which would be the uniform market price in the absence of usury laws, must be paid for the odium and risk they incur by violating the laws of the land. There is no sound reason why the charge for the use of money should be fixed by law, that would not equally apply to fixing by law the rent of lands and houses, or the freight of ships, the hire of horses and carriages, or the profit on merchandise sold. The lending of money for a year is nothing but selling capital upon a credit for a year, and so convinced of the absurdity of discriminating between a sale of money, and a sale of goods is a large proportion of the capitalists of every country, that evasions of the usury laws are every where practised by expedients which it is not easy to prevent. Some of these expedients will be treated of in a future part of this work, but a very common one is that practised almost daily on the stock exchanges of New York and Philadelphia, whereby under a fictitious purchase of stock for cash, and a fictitious sale on credit of the same ideal stock, through the agency of a broker, money is loaned at a rate as far above the legal rate as covers the risk of trusting to personal security, as well as the charge for the odium and hazard incurred by an illegal transaction.*

These remarks on the value of money, as a component part of the circulating capital of a country, it will be observed, have reference to that general and

*This operation is thus performed: A borrower is willing to give 12 per cent. per annum for the use of money, and he agrees to give $112 at twelve months' credit for a stock worth in the market only $100, and stipulates with the broker, that contemporaneously with the purchase he is to sell the stock at $100 cash. The broker finds a lender who has money but no stock, but who is willing to give $100 cash for stock, if he can contemporaneously sell it at $112 for an approved note at twelve months credit. The broker manages the negotiation, and thus two persons are made to buy and sell what has no real existSuch transactions, however, are clearly illegal, but cases rarely occur in which an appeal is made to the law.

ence.

enduring state of things, which covers a period of years. Thus, I would say, that capital is more plenty in the United States in the year 1840 than it was in the year 1798. In the latter year the Federal government could not borrow money at less than eight per cent. It could now borrow at five per cent., and has even, at one period since the year 1815, borrowed at four and a half per cent. Most of the Atlantic states, and some of the western states, have of late years borrowed money at five per cent., and it may be remarked, that although the market price of public stocks may be temporarily affected by various causes, yet no permanent influence can be exerted upon them, unless a diminution of the aggregate mass of the circulating capital of the country, that is, of the national wealth, should take place.' The fluctuations in the money market of merchants and stock-jobbers, and even at times in the market of mortgages, by which sometimes a high rate of interest is paid for capital, are generally of a temporary nature, and to be accounted for upon the principle that wherever there is credit, and especially if there be banks, there will at times be over-trading and over-speculation. The rate of interest upon capital must in the long run be governed by the rate of profit to be made by its employment; whilst for short periods, it will depend upon the ratio of the supply to the demand, and upon the security offered in the money market.

Since the first edition of this work was published, a great depression has taken place in the English and American markets in the price of state stocks, putting an end for the present to the possibility of obtaining loans at five per cent.

CHAPTER X.

EXAMINATION OF THE COMMON OPINIÓN RESPECTING THE SINKING OF CAPITAL.

THERE is a subject intimately connected with that of money, which deserves a passing notice in a work of this kind. I allude to the common notion, that a community sustains no injury from the construction of public works or improvements that turn out unproductive, inasmuch as they afford employment to many people without occasioning any loss of capital, the money not being sunk, but merely having changed hands. To this error, which is more widely spread than many people imagine, may be ascribed the loss of tens of millions of dollars of property in the United States, and if not eradicated, it will lead to the loss of tens of millions more. Immense expenditures are annually made by the federal government, by all the state governments, by counties, townships, cities, towns, boroughs, and villages, by private corporations of every description, and by institutions established for every imaginable purpose, literary, charitable, and religious, which would never be made if this matter were perfectly understood; and as it is one that can be made plain by a very simple illustration, I will present such a one to the reader.

In a former chapter it was shown that metallic money was never employed as capital for the carrying on of any branch of industry, except that of the manufacture of gold and silver ware, but was the mere instrument by which capital, consisting of other commodities, could be conveniently transferred from hand to hand. The function, therefore, which money performs in the business operations of the community, may be compared to the function performed by carts, wagons, ships and railroad-cars, in transporting

from one possessor to another the commodities which he needs to carry on his business. Now every body can perceive, that in performing the business of transporting commodities, the vehicles here mentioned are not destroyed or sunk until they are worn out, so neither is the money which performs the function of conveying the commodities from the possession of one person to that of another, destroyed or sunk. It is, therefore, clear, that although the common mode of expressing a loss by an abortive undertaking is that "money has been sunk," yet it is easy to be seen, that no money can ever have been sunk, but that the sinking has been of something else than money. What that something else has been will now appear.

In Pennsylvania, as well as in other states, there have been at times extraordinary excitements in reference to internal improvements. Turnpike roads, bridges, canals, and railroads, have each in their turn commanded popular favor, and have been extensively constructed, without a due examination of their cost and of their probable results. The consequence has been, that some of these enterprises have proved wholly abortive, and have been abandoned without being completed, or, if completed, have been useless as a source of income, and have consequently occasioned to their proprietors a loss equal to the whole expenditure. Now in all such cases, what has been the capital that has been sunk? I answer, the raw materials of which the works were structed, such as stone, lime, wood, timber and iron, the food and drink, clothing and fuel of the laborers employed upon the same, (for the procuring of which the money paid to them as wages only served as the instrument,) the vehicles, implements, and tools worn out or deteriorated by the work, and the food consumed by the horses and cattle employed. All these articles, being forms of accumulated capital, possessing a value equivalent to the sum in money paid for

con

them, constitute the capital sunk, and they are said to have been sunk, because after they have been used or consumed, there is nothing of value to be shown in their place. The process which has in reality taken place has been the mere transmutation of stone and lime, wood and iron, from a form in which they possessed a value into one in which they possess no value, and the conversion of a large quantity of bread and meat, whiskey and rum, butter and milk, sugar and coffee, coats and jackets, coal and wood, hay and oats, into roads and canals, without the possibility of a reconversion to those original elements.

But it may be said, that even admitting all this to be true, still a vast number of people will have been employed. Granted; but employed in producing nothing of value, so that their industry has been of no more benefit to the community than if it had been. employed in turning grindstones where there was nothing to grind, or in digging ditches merely to fill them up again. It would hardly be argued that had it not been for this employment, these people would have remained idle. This would have been impossible. The identical capital consumed in the abortive enterprise would have been seeking for laborers in some other pursuit, and these laborers would have met it on the way, or have taken the place of those who did. These remarks, it will be observed, have reference to cases where the whole enterprise has failed, such as happened many years ago, with a total sinking of large capitals, in the construction of the Philadelphia and Susquehanna, and the Chesapeake and Delaware canals. They are, however, equally applicable to partial failures of enterprises as far as they go, and the only true test of the result of an improvement, is to be found in its nett income. If that be greater than the amount that could have been derived from the employment of the same capital in some productive branch of agriculture, commerce, or manufactures, the investment will have been a profit