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M A R C H ,


A r t . I .— T H E P R IN C I P L E S O F C R E D IT .
[ T he following Lecture was originally prepared for the Mercantile Library Asso­
ciation, but as when finished it appeared too long, and in some portions too abstract,
for delivery as a lecture, the author substituted another in its place, reserving it, how­
ever, in its original form, for publication in our Magazine.]

I n selecting for the topic o f consideration, this evening, the subject o f
credit, I was not prompted by the b elief that I could set forth any very
new or startling theory, or make it a medium for the display o f brilliant
images or effective declamation.
M y only motive for preferring it,
sprung from a conviction that the discussion might he useful. There is
no question more generally agitated at this time, than that which relates
to the precise use and value o f credit, and none wherein the opinions
formed are more widely divergent from each other, or more frequently
rest upon a very lax foundation. And inasmuch as in our country men
generally act at once upon the modes o f thinking which they have formed,
without waiting very nicely to sift their abstract soundness, it is not
impossible that a period may soon arrive, when those which shall prevail
upon this subject may have immediate and very seriously injurious effects
upon the public welfare, if some attempt is not previously made to keep
them from going wrong. Circumstances, which I need not name, have
o f late made most o f us think more about credit than we ever did before;
and out o f the conflicting views taken o f its operations, parties have
already made themselves distinctly visible. On the one hand, there axe
some who, from very narrow and exclusive observations o f the evil that
follows its abuse, so far overlook its real nature and indispensable utility,
as to arrive at the remarkable conclusion, that its use does not benefit
society. And, on the other, a different class, whose habits o f life have
led them to exaggerate its force, have ascribed to it a degree o f active
power which does not appear to me to exist, and the performance o f
effects in my judgment far beyond its reach. Between these wide e x ­
tremes, you will perceive that there must be a great deal o f ground.
Unhappily, however, it is too much the case, that whenever any subject
v o l . n. — n o . h i .


The Principles o f Credit.

falls into the hands o f men previously inclined to differ with one another,
the tendencies are to fly to extremes equally wide from the truth, and
even studiously to shun the middle ground where it may usually be
found. F or that is too plain, and too solid, and too commonplace a
situation, to satisfy the minds o f combatants more anxious to fight than
to be pacified.
Y et it is just so plain, and so solid, and so commonplace a situation, as
I have now described, that I am anxious this evening before you to
occupy. M y desire is only to follow what appears to me truth, no mat­
ter how old or unprepossessing she may appear. Y et in doing so I
know I must give up the hope o f picking up in the path a jew el or two
o f fancy, that I could throw out to dazzle your imaginations, and I fear
I shall not avoid passages o f dry disquisition that may tax your patience.
It is idle to hold out expectations which must be disappointed: rhetoric
can doubtless be made to adorn many branches o f knowledge, but you
will probably agree with me in opinion that it would make political
economy look tawdry; and however happily metaphor may serve to
illustrate ideas in other departments, I feel very uncertain o f its use
when, as in this, the path is not so clear, but that a very slight misconcep­
tion o f similarity may have important results in misleading us into
It is o f credit, then, that I would speak this evening ; and to that end I
deem it best to begin by stating, as simply as possible, what I mean by
the word.
Credit, in political economy, appears to me to be the general belief
entertained o f men, that their action will correspond to promise. And
commercial credit is the same b elief applied to the performance o f p e ­
cuniary contracts.
I f I am right in this definition, credit, in commercial nations, is little
more than public opinion. The private b elief o f any one member o f
society, that the persons with whom he is in the habit o f dealing will
perform what they promise, coincides in this point with that o f every
other member to such an extent as to make a basis upon which the
action o f the whole may rest. But this b elief does not spring up o f
itself in their minds, but is rather the result o f experience. Credit can­
not therefore be considered a voluntary act o f the mind, nor can it be
created by an artificial process. Y ou can as little refuse it to one indi­
vidual who has in all his life performed every engagement made with
you, as you can give it to another who has as regularly failed in so doing.
It is dependent upon the performance o f certain preceding conditions,
which no state o f circumstances can for any length o f time materially
change. And in this light it is utterly immaterial who the promiser is
that is brought under consideration, whether societies o f men or indi­
viduals, whether chartered companies, cities, states, nations, or the hum­
blest citizen. They, none o f them, possess any peculiar claim to credit,
beyond that which may belong in common to them all. They all equally
depend for the free enjoyment o f it upon the knowledge which their
own conduct has contributed to furnish, as well o f their ability as o f their
being trustworthy.
But in order to make this more plain, it may be as well to analyze
the parts which go to the establishment o f the knowledge here alluded
to. Credit cannot be maintained in a commercial community, unless,

The Principles o f Credit.


F irst— There is a positive amount o f capital existing in i t ;
Secondly— There is general fidelity in the performance o f engage­
ments ;
T hirdly— The co-operation o f the sovereign authority may be relied
And, first, o f the manner in which credit follows capital, I fancy it
will not be necessary for me to take up much time to treat. In every
society at all advanced in civilization, where the division o f labor and
the right to property have once been established, there will be some
individuals who will have accumulated a greater share o f the excess o f
their earnings beyond their wants than their neighbors. This excess
will in their hands constitute capital. And the knowledge commonly
had o f their possession o f it, and hence o f their ability to compensate a
given amount o f labor whenever they choose to set it in motion, consti­
tutes their credit. But inasmuch as it is wholly impossible for the public
opinion to be always accurate in estimating the precise amount o f capital
which each citizen can command, and there is a natural inclination in
the human mind to magnify what is not certain, it is not unusually the
case that a greater ability is ascribed than proves actually to exist, and
through this means a greater degree o f credit arises than the positive
amount o f capital acquired would seem to justify.
But whatever the sum o f capital may be, and the degree o f credit
which will necessarily attach to it in any community, they can never be
made practically beneficial, unless the second o f the conditions I have
enumerated is fully complied with— general fidelity in the performance
o f engagements. This is the stimulus to all the active industry o f modern
society ; for it creates the disposition to believe a promise o f future
labor equivalent to present capital, and hence promotes exchanges be­
tween the two. T o make men work to the production o f commodities
or o f the fruits o f the earth beyond their own immediate wants, there is
nothing like the conviction that they will realize the worth o f their labor
beforehand assured to them. But the certainty o f this will necessarily
depend in a great measure upon the moral qualities o f the population;
and the belief in its probability o f occurrence will vary with the opinion
had o f the prevalence o f honesty, or its opposite, in the construction o f
contracts. M y desire is, by no means, in what I have now to say, to
trench upon the province o f the teacher o f m orals; but no mere scruple
o f delicacy ought to weigh so far as to deter me from proving the value,
even in the narrowest and most economical view o f the subject that may
be taken, o f a strict sense o f moral justice to the maintenance o f credit.
I f it is important to a people who trust to this resource as much as we
do, to understand its exact nature, it surely is not less important fully to
be sensible how inseparably it is intertwined with the code o f private
life, and how soon it will decline under a lax construction o f the term
duty. Commercial engagements, doubtless, frequently rest in part for
fulfilment upon the sense that it is the best policy, in a worldly point o f
view, to adhere to them ; but as this can work no restraint upon the vio­
lation o f them one moment after the period when that policy may appear
to lie on the opposite side, it is plain that self interest can not be a basis
for perfect credit— nor can it take the place o f the reliance upon good
faith and substantial honesty, which alone will insure the execution o f an
agreement after it is clearly ascertained to be disadvantageous to the


The Principles o f Credit.

party performing it. This reliance is at the bottom o f almost all under­
takings. W ithout it, the fabric o f mercantile honor would fall to the
ground at once. It lies at the foundation o f the punctuality expected in
money payments, without which credit would be o f little value. Could
a state o f things be attainable, in which this punctuality would be per­
fect, and no promise ever fail o f performance, it is not too much to say,
that the precious metals would be no longer useful as coin, and would
remain, like other merchandise, valuable only in settlement o f balances.
But the imperfection o f human calculations puts out o f all probability any
happy result like this, and leaves us to the exercise o f our own sagacity
to avoid the evils that flow from it. A mixture o f good and bad fortune
(as it is commonly called) is incidental to undertakings which have any
proportion o f uncertainty in result. Y et, inasmuch as in the ordinary
course o f affairs, the success o f prudent men is likely to preponderate
over failure, there is a fair field left open upon which credit may be
tried. This cannot be the case, the moment dishonesty and fraud are
carried so far as to sap the foundations o f mutual dependence. There
can be no credit where there is no confidence in one another. A nd if
w e rise from this as the very lowest point, it will be found to be true as
a general proposition, that exactly in the proportion in which sound
principles and morals preponderate with a people, in forming their
rules o f action, over infidelity and fraud, will be the measure in which
credit may be turned to profitable use.
The disposition to perform promises is, then, as essential to the estab­
lishment o f credit, as the ability. The two combine in every community
to create that species o f confidence which may be made the basis o f ac­
tion. But it is the first, only, which makes the prosperity o f a nation an
index o f moral qualities o f superior excellence. It is advisable to re­
member the connexion which a good state o f credit bears with the per­
formance o f duties o f a higher character, on many accounts, but most
particularly on this, that the enemies o f the former may clearly under­
stand the precise nature o f the position they are about to assume against
the latter. Credit may be most effectually destroyed, if the sense o f the
people can be demoralized, and they are made regardless o f all law, di­
vine or human, but their own will. But it may be as well to reflect a
little upon the consequences to social prosperity o f adopting any step
that may lead to such an end ; and also to endeavor to discriminate
between the evils to which an abuse o f credit may lead, and those which
may follow a decline o f its use. The mere payment o f a merchant’s
note when due, may not in evety case, I admit, be unequivocal evidence
o f the good character o f the signer. But in the long run, it will be
found, that the same motives which prompt that payment, will in the
great majority o f cases extend their influence over general conduct in
all the relations o f life ; and that they trace their origin to the obser­
vance o f that golden rule o f our religion, the doing to others as we would
they should do unto us.
But besides the possession o f capital, and in addition to the prevalence
o f fidelity to promise, I have mentioned still another element which is
quite as important as either o f these to the support o f good credit in a
community— and that is, the co-operation o f the sovereign authority.
This is very important, as well because o f the force which the example
o f a government will always have either for good or for evil, as because

The Principles o f Credit.


o f the control which it must necessarily exercise over all the means by
which contracts can be executed. A llow ing the amount o f wealth in a
country to be great, and the disposition to perform engagements to be
ever so strong, there must yet co-exist with them some medium which
may be resorted to by all parties as a known standard o f value in every
case o f adjustment o f differences — and this medium it is the province o f
the sovereign power in the state to establish on a permanent and dura­
ble foundation. A well settled confidence that no obstacles will be arti­
ficially interposed to the fulfilment o f promise in the sense in which it is
made, and that in case o f violation, recourse may be had to means o f
enforcing justice between man and man, is indispensable to credit. P e r -'
haps there is no lesson which has been more fully taught by the experi­
ence o f the past, in every part o f civilized Europe, than that which
shows the fatal effect o f errors o f rulers upon the public prosperity in this
regard. But as it is easier to explain this point by illustration than in
any other mode, I propose to cite, from among many, only one or two
historical examples o f its truth.
The importance o f preserving the standard o f value uniform, is no
where more strikingly shown than in the history o f the great Louis o f
France. Reaching the throne at a peculiarly fortunate moment, when
the policy o f two successive ministers had brought into some order the
previously discordant elements o f his government, it would seem as if
he had little to do but to cherish the prosperity o f his people, just reviving
from the horrors o f civil broils. Instead o f this, however, his pride led
him into wars ; and these, at the end o f forty years, had produced few
conquests and many very heavy debts. It was found that the resources
o f the kingdom had been so heavily drained, that it was not possible to
meet the interest that became due. Then occurred the remarkable ex ­
pedient o f tampering with the coin. The marc o f silver, a weight equal
to about eight o f our ounces, which had uniformly before that time been
coined into twenty-eight pieces, called livres, was now made by a decree
o f the king to furnish forty. A nd a livre being a livre, whether it con­
tained one grain o f silver or one hundred, o f course all promises made
to pay in livres were materially affected in value b y the change. The
king was thus enabled with every marc o f silver to pay forty livres o f a
debt, in contracting which he had received the same marc for twentyeight livres, and every private debtor had it in his pow er to follow his
example. Every contract previously made to pay money in livres, was
therefore broken to the extent o f the difference between twenty-eight
and forty, and every creditor was robbed o f about three tenths o f
the silver which was actually due. This is one o f those measures
which credit cannot very well endure. The sovereign pow er had sanc­
tioned a deliberate fraud, and his mint was daily busy in issuing to them
the evidences o f it, stamped with a falsehood on one side, and his own
image, to attest to his participation in it, on the other. There was not
probably a single industrious citizen o f France who did not feel the effect
o f this measure.
Indeed, so soon did it becom e palpable, that the
sovereign endeavored to apply a remedy, which proved in fact even
worse than the disease. A new decree brought back the coin to the old
standard. But this was a gradual process, establishing eleven different
changes before it arrived at the desired point, at the end o f two years.
In the meantime, however, let us reflect for a moment upon the operation


The Principles o f Credit.

o f such a system upon all new contracts as well as old ones. W as there
a debtor in France who could tell exactly what he should have to pay, or
a creditor who could estimate precisely what he might receive ? And,
to fill the measure o f dishonesty, when these laborious steps o f a disor­
dered and fluctuating metallic currency had all been passed, the death
o f the repenting monarch again changed the system, and brought back
a repetition o f the original offence. Twenty-eight livres o f the standard
o f one day were made to pay forty livres o f the standard o f the next.
A nd strange it is to observe among the striking inconsistencies o f human
action and human reasoning upon it, which the records o f life furnish, that
the regent Philip o f Orleans could at one and the same moment reject
with scorn a proposition for a declaration o f bankruptcy on the part o f the
state, and adopt a measure which at a blow deprived all public creditors
o f nearly a third o f what was justly due to them. A nd writers have
been found to laud the magnanimity o f a profession which did no man
any good, whilst they have passed over with little censure' an act which
robbed a whole class o f citizens o f a considerable part o f their lawful
• It is plain from this example, that the possession o f capital and the
disposition to fulfil promises are not o f themselves sufficient to establish
credit upon a solid footing, without the co-operation o f the sovereign power
o f the state. T o that power only can we look for the regulation o f the
medium in which money contracts are performed, in such a manner as
to insure a ready means o f construing their nature, and for the establish­
ment o f a mode by which compulsion may be resorted to whenever
there is hesitation or neglect o f performance. In this view o f the sub­
je c t it is, that mere instability in the administration o f affairs has so in­
jurious an effect. In the case which I have presented to your consider­
ation, the vacillation in policy was even more fatal than its positive dis­
honesty; for this could be remedied by the action o f that conservative
principle o f our nature, which in the future guards against the recurrence
o f contingencies that experience has proved to be injurious, provided
always that any data can be given beforehand upon which calculations
may be made. But it is the misfortune o f an unstable public policy, to
destroy all possibility o f arriving at such data. W h en the charac­
ter o f the currency o f a country by which all property is measured is
suddenly and arbitrarily and frequently changed, what industrious citizen
can ever feel sure even o f earning bread by his labor l Let him agree
to make a hat, a pair o f shoes, a chair, or to furnish any other commodity
or product which is the result o f industry, and what security can he
arrive at, that between the date o f his agreement and performance, a
new expression o f the value o f the money o f account will not deprive
him o f the fruits o f his industry, and make him even poorer than before?
A lender o f money can, under such circumstances, have no confidence
that he will get back as much as he le n t; and a borrower may equally
feel liable to repay a great deal more than he received. It is then the
natural consequence that both operations stop — that is, in other words,
that credit dies. Tampering with the currency is one o f those things
that uproot all mutual confidence. In the instance already cited, the in­
dustry o f France sunk under the blow struck by the hand o f a more
renowned than enlightened monarch, and from that day the predomi­
nance o f her island rival may be said to have become more and more de-


The Principles o f Credit.


cided. The statesmen o f Great Britain, to whom a similar policy was
then, as it has often there and elsewhere been since recommended, were
wise enough to listen to the voice o f that profound thinker, and not less
safe practical guide, because a deep metaphysician, John L ocke, and
thus to avert from their country the train o f calamities which the sister
kingdom suffered as a penalty for error.
There is another example o f the effect o f misgovemment upon credit,
which I cannot help quoting, for the striking absurdity o f the measure
adopted. Every body in our day is acquainted with the general history
o f Charles X II. o f Sweden. But the particular fact is not much known
that, when by the exhausting effects o f the long wars which he so much
delighted in carrying on, his military chest became entirely empty o f
gold and silver, and no hope remained o f squeezing out more from
the exhausted resources o f his people, he resorted to a somewhat novel
experiment in currency to supply his necessity.
H e caused to be
stamped at the mint many small bits o f copper, with the words One
Daler upon one side, and certain figures drawn from the pagan mytho­
logy on the other, and these he proceeded to pay out to his troops at the
nominal value expressed on their face. N ow a king may no doubt do
many things which common men cannot, but none yet heard o f have
discovered the secret o f the philosopher’s stone, or transmuted base
metal into gold. The whole thing was a cheat o f the worst kind, the
barefaced nature o f which was its only recommendation; for its effects
upon the community thus became much more circumscribed than they
might have been, had he done what has been so often done elsewhere,
infused a little silver into his coin. His act was a fraud, but it at least
had none o f the meanness o f deception. It seriously affected his credi­
tors, but extended its injury to not many else.* I cite it most particu­
larly to remind you, gentlemen, that it is not, after all, the mere fact o f
a currency being metallic which makes it more safe than paper, and that
credit has an important part to play in the stamp even on the most valua­
ble metals.
The great importance o f government to the maintenance o f credit, is
then to be found in the duty which devolves upon it, o f giving certain sta­
ble means as well for the voluntary as the compulsory performance o f
contracts. The standard o f value to which all may appeal, can be pro­
vided in no manner so well as by the sovereign authority, when that au­
thority is properly and judiciously exerted. This done, nothing remains
but to secure a fair and equitable dispensation o f justice. The first reli­
ance o f a creditor is commonly upon the good will o f his d eb tor; the
second, upon the law o f the land. If, when the first fails him, the second
proves effective— if the forms o f proceeding are simple and cheap, the
judgment upon the merits certain, and the decree easy o f execution,
then is all done towards the support o f credit which government can do,
or should be expected to do. But if, on the contrary, the laws are ob­
scure and unintelligible, the courts capricious and unsteady, or their de­
cisions are annulled or evaded by the successful resistance o f the com­
munity or any part o f it, then will there be a plentiful brood o f dark

* The writer lias in his possession a series o f these copper coins o f Charles X II.
They are believed to be still common in Sweden.


The Principles o f Credit.

suspicions engendered, and confidence will immediately decline. The
indispensable thing is uniformity o f system, both in the institutions o f a
country and in the manner in which they are administered. Fluctua­
tions bring on the process o f hoarding treasure; great masses o f capital
cease to be o f any value at all, and the productive energy o f society, with
all its effects upon public improvement, is, to a corresponding extent,
paralyzed. Such being the operation o f errors in governing to under­
mine the prosperity o f a nation, you can easily form to yourselves an idea,
gentlemen, how important it is that correct notions should be exten­
sively prevalent, and how much evil may happen, if, by an indistinct
confounding o f the abuses to which a high state o f credit sometimes
leads, with the principles upon which that state o f credit itself reposes,
hasty measures, intended to remedy the former, may be adopted, which
shall have the effect o f undermining the latter, and bringing the whole
fabric to the ground.
T he daily and hourly influence which the mode o f administering pub­
lic affairs has upon credit, is the consequence o f the conviction generally
entertained o f the effect for good or evil which every act o f a ruler has
upon the body politic. There is not an event o f importance that takes
place in any part o f the world, that has not some operation upon the
good or bad termination o f the plans o f active merchants in highly com­
mercial countries. Even the chance words o f leading statesmen have,
sometimes, made great changes in the pecuniary affairs o f individuals
having no sort o f connexion with them. The reason o f this is, that they
are construed with a direct reference to the probability o f performing
promises, which we have defined to be the essence o f credit. Hence
it is, that a duty would seem to fall upon men in high place
and authority, to be slow and considerate in the introduction
o f new projects, however good they may in the abstract appear; and
above all, to be wise as well as moderate, in their speech. A nd a correla­
tive duty lies upon every active citizen liable to be affected, no matter
what his condition in life may be, thoughtfully and with care to exercise
that part in the direction o f the government, which the particular form
he lives under may happen to have assigned to him.
But such is the chain that binds together all the duties o f life, whether po­
litical , moral, social, or economical, that it is difficult to consider one division
o f them without including all the rest. I may thus have appeared to you
to be digressing from m y topic, even when I have, in my own opinion,
done nothing more than simple justice to it. M y object has been to show
you what credit is ; and in order to do this, I have been obliged not
merely to define it, but to go on to show the elements upon which it de­
pends for existence. I f my attempt has been at all successful, you will
now understand, that capital supplies the means ; private fidelity, the
w ill; and the sovereign power, the ways, to the performance o f promise;
a general conviction o f which makes credit, as it exists in commer­
cial communities. The foundation being thus firmly laid, I can with
greater confidence proceed to the edifice itself. The peculiar forms in
which credit is used in the daily transactions o f mercantile life, must
now come under our consideration ; and, inasmuch as these give occa­
sion to most o f the differences o f opinion entertained upon the subject,
it behooves us to creep with modesty and caution over the disputed

The Principles o f Credit.


Supposing, for a moment, credit to be well established in a country,
by a concurrence o f all the elements which I have considered as essen­
tial; the next question that comes up is, o f what precise advantage is it
to the community ? The answer to which is, that it stimulates produc­
tion. It comes in to make available the greatest possible amount o f the
national resources. It acts as the common friend o f capital on the one
hand, and industry on the other; the first o f which supplies the tools,
the second the will and strength to use them; in this manner concentrating
the force o f both upon the attainment o f some valuable end. The pro­
verbial tendency o f wealth is to relax exertion— that o f poverty, to breed
despair. The rich incline to fear— the poor, to rashness. The former,
frown uponnewschemes,the result o f which depend in any measure upon
fortune— the latter eagerly embrace them, even when the chances o f
success are not much in their favor. Between these extremes, there is
obviously a great interval, which can only be filled by the agency o f
some third power like that o f credit. She comes to both with a smiling
face, and while she inspires the one with the confidence that makes his
purse strings fly open, and his money to flow into new channels, she pre­
sents to the eager hope o f the other party, visions o f the future which set
into full exercise the wits, and bones, and muscles, and sinews, that con­
stitute all his natural inheritance. United, these parties co-operate to
the advancement o f the social prosperity; whereas, in a state o f separa­
tion, they consult neither the general good nor their own. Set before
the man o f property, whose habits are not those o f labor, an object as se­
ductively profitable as you can make it, and if the condition to attain­
ment is the severe application o f his physical as well as mental
efforts to the overcoming all obstacles, he will rather prefer to bury his
money under ground, and stand perfectly still. Present, on the other
hand, to the poor laborer the same object, and give him no means to buy
wherewith to live whilst he works it out, and you might just as ration­
ally ask him to leap over the Andes. It is hope that presents incentives
to exertion— hope, which marshals in order that body o f pioneers who
take the van in the army o f life, and who level the forest and drain the
morass, that future thousands may take up their line o f march in behalf
o f the added millions to come after them.
It must be borne in mind, that this interference o f credit is, however,
made only by appealing equally to the self-interest o f both parties in the
connexion that it forms. Credit has little to do with the loans made
sometimes for mere purposes o f immediate consumption. Its opera­
tions are carried on upon a presumption that some positive benefit is to
accrue, and some addition is about to be made to the resources o f man­
kind. W hatever shape commercial credit may assume, it will always
be found to rest upon some basis o f value, real or supposed, at present
existing, or to be created out o f the application o f labor. The object o f loans
is to realize a profit both to the lender and the borrower. And this end is
commonly arrived at through the modes o f satisfying the wants, whether
natural or artificial, which a high state o f civilization will always create.
N o man borrows money to please his creditor merely. The usual mo­
tive is to be found in the compensation for his labor and risk which a ju ­
dicious employment o f it may furnish. But that labor is always exercised
upon some positive object, which for the time is considered as valuable
property, no matter what it may be. Commonly, it is land, or its variVOL. II. — NO. III.



T he Principles o f Credit.

ous products which sustain life, ships, or commodities o f general utility.
Sometimes it consists o f varieties o f tulips, India rubber, fine pictures,
or mere objects o f fancy or taste. It matters not much what the subject
matter for industry to work upon may be, so long as it procures some
return for the outlay. But the probability o f such a return is much less
strong in the one class o f such cases than in the other. Upon this probabili­
ty it is peculiarly the province o f credit to determine. The good or had
results o f all undertakings partake very largely o f the character o f the
individuals who carry them on, o f the precise circumstances under which
they are executed, and, in short, o f a thousand undefinable chances which
will inevitably happen even to the most wisely planned. But it is the
preponderance o f the one or the other fortune which gives to credit
its vibration; and the average o f success or misfortune in a trading and
business community, during any season o f length, will furnish some cri­
terion o f the force or feebleness o f the movement it will make.
Commodities find their way from one portion o f the globe to another
in the course o f trade, to be exchanged for others. But as these cannot
be uniformly exchanged upon even terms, balances will arise to be set­
tled in money. One o f the most useful methods in which credit is em­
ployed, is in the contrivance o f bills o f exchange, which simplify the
payment o f these balances. These are generally resorted to as simple
modes o f exchanging equivalents, without the necessity o f complicating
individual transactions, or o f a constant resort to money. Their value,
however, depends entirely upon the credit which is given to them, that is,
the confidence had that the promise they contain will be exactly and
literally performed. And so general has been the sense, over the world,
o f the benefits to be derived from their use in commerce, that there
are few governments who have not enjoined that performance upon
their subjects, by the application o f penalties o f peculiar severity for
every violation.
But inasmuch as this is a branch o f the subject upon which there is
little diversity o f opinion, let me take up no more o f your time upon it,
but pass on at once to more disputed points. It may be recollected that
in a former part o f this lecture, I stated it to be a peculiarity attending
the possession o f capital, that a greater ability to perform promises made
upon the strength o f it was commonly ascribed to it in a community
than usually proves to exist, and hence a greater degree o f credit arises
than the sum actually possessed would seem to justify.
This, gentlemen, is the origin o f banking. Dealers in money soon
discovered that their obligations to pay money were received among their
neighbors and friends with exactly as much confidence as if they were
money ; and that these obligations were often retained in the hands of
those persons for a considerable time before they were called upon to
redeem them. Experience reduced the length o f that time to a matter
o f calculation; and hence it became clear, that a profit might be realized,
not only upon the amount o f positive capital in possession when lent out
upon interest, but also upon a certain amount o f credit which could be
kept in active circulation upon the mere faith that it could at any mo­
ment be converted into capital. I f this faith was strong and extensively
entertained over large sections o f populated country, and the amount o f
capital was considerable, the profits derived from the use o f it would o f
course be great in proportion; but, in every case, experiment was

T he Principles o f Credit.


sufficient to make data upon which cautious managers could safely
rest their calculations.
This simplest form o f bank money would,
probably, have been the best and safest for all the community, if none
but real capitalists had ever been likely to issue i t ; for they would, in
most cases, be restrained by their fears o f loss from carrying their credit
beyond a certain and very safe limit. But the misfortune is, that none
but very sharp and well-trained vision can readily discern who it is that
really possesses capital, from those who only pretend to it; and even that
is sometimes at fault, until at least a portion o f the damage caused by
the mistake has been done, and is beyond remedy. There will always
be individuals in every community, who will seek for the profits attend­
ing the skilful use o f capital and credit, without having either the skill
or the capital, and who, therefore, will make up their deficiencies by
fraud upon a credulous and confiding public. And the discovery o f their
dishonesty will have such a reactive operation to withdraw all confidence
in any but the most positive and undoubted names, that the inevitable
consequence results o f a monopoly o f credit among those names already
famous for the possession o f overgrown wealth, and through this m o­
nopoly increased opportunities o f piling gold upon the already towering
mountain o f their worldly goods.
These considerations may help us to a decisionupon the question thathas
been much agitated o f late years, whether the business o f banking, and the
advantage drawn from the use o f credit, should not be left open to all the
members o f society, exactly as every other kind o f occupation is. The
theory must be admitted to weigh strongly upon the affirmative sid e;
but here, as in many other points o f political economy, the abstract
right, when applied to men all over the globe, marked 1, 2, 3, and so
on, like so many cattle, is one thing; and the same right, considered with
due regard to all the circumstances which surround men in daily life, is
another thing. Our political institutions, for example, rest in a great
degree upon the preservation o f a general equality o f outward condition
among our citizens. Now, if an unreserved course could for a time be
given to the circulation o f all promises resting upon credit, the uatural
consequence would be a great abuse o f it by many. This would, for a
moment, occasion extensive public distress. Dear-bought experience
would then, perhaps, teach a lesson o f such caution as would reject all
faith excepting in the very few persons whose large visible property
could admit o f no doubt o f their solvency. But what would this bring
about, if not the erection o f the colossal and very anti-republican for­
tunes which w e see even now to exist sometimes in the banking houses
o f the countries o f the old world ?
The desire to avoid the dangers likely to flow equally from these ex­
tremes, probably combined with the poverty o f individuals, to originate
the peculiar system o f joint-stock banking, for which our country is re­
markable. On the one hand, the wish to deprive knaves and mere ad­
venturers o f the opportunity o f imposing upon their neighbors merely
specious promises in lieu o f money ; and, on the other hand, the wish to
deprive the few relatively rich o f the monopoly which the reputation o f
their wealth would have given to them in the use o f credit, gave rise to
the practice o f applying to the state legislatures for acts o f incorporation.
This appears to have been the beginning o f the principle o f association
which has been so extensively carried into practice during the last half


The Principles o f Credit.

century. Under it, the positive advantage has been, that the industri­
ous but poor borrower has been able to procure the use o f capital at a
reasonable price, without having to thank a rich lender for doing him
so great a favor; and what is more important still, the small properties
o f the country have, in a very safe and legitimate way, come into the
enjoyment o f a portion o f the profits o f credit which ordinarily follow
only great masses o f capital. An accurate survey o f the ownership o f
our joint-stock banks would, if I am not much mistaken, establish the
fact, that the shares are in general held in very small sums, and by per­
sons o f moderate means. The effect o f which has been, t o . establish
moneyed institutions, in which the interest o f the capitalist is n'ot strong
enough to overbalance that o f the active producer; and the natural right
o f the former to the exclusive use o f the advantages inseparable from
his wealth, is qualified in its character by extension to a great circle o f
poorer individuals, who could have expected to avail themselves o f it
for their own benefit by no other conceivable way.
It must, nevertheless, be freely admitted, that this practice has been
attended with one o f the worst perversions o f the system o f credit that
can well be conceived of. It has been sometimes carried so far, as to
make the right o f the capitalist to lend his money entirely secondary
and subsidiary to the interest o f him who desires to borrow it. It has,
moreover, stimulated the organization o f a banking system which does
not rest as much as it ought upon capital, and hence fails in one o f the
great essentials o f the credit which it seeks to establish. The strange
anomaly has more than once presented itself in our annals, o f bankers
professing to lend when they do nothing but borrow money, and that
only through a gross deception practised upon the credulous public.
The privilege o f credit has thus been made to pass from the hands o f
the possessors o f capital, and to go, by a wholly artificial process, into
the hands o f those who most want it. Hence, banks have at times
ceased to be created even by the aggregation o f small sums o f capital,
and becom e mere instruments to raise funds out o f the confidence o f a
good-natured community. In this form, they have occasionally been in
the nature o f screens, behind which daring individuals have played at
very deep stakes in the game o f fortune— taking the profit if they won,
and without any means o f making good their deficiencies if they lost. Here
is to be found the root o f most o f the doubt and dissatisfaction so gene­
rally entertained at this day o f the working o f the credit system. I will
not pretend to deny the existence o f this abuse, nor to cover it from
sight. But it does not appear to my judgment out o f the reach o f cor­
rection, without the necessity o f resorting to remedies, which, by their
natural harshness and ill-considered severity in applying them, might be
the means o f creating greater distress than does that evil which they
propose to cure.
But if we are to expect a correction o f it, the first step towards it
must, unquestionably, be a modification o f the views which are very ex­
tensively held by commercial men, o f the nature and force o f credit.
There are not a few honest and well-disposed citizens, both here and in
Europe, who, by viewing some facts which are well known in the history
o f banking rather too one-sidedly, have almost convinced themselves
that there is a substantive existence in credit remaining even when sepa­
rated from capital, and after promises made cease to be performed or

T he Principles o f Credit.


even relied upon. The consequence has been a tendency to disregard
the safe proportion which credit should always bear to capital, and entirely
to overlook the indispensable necessity o f literally performing contracts.
Even in the most prudent and cautious circles o f our oldest cities, opi­
nions are often broached, and action based upon them, the grounds o f
which ought at least to be thoroughly investigated before men should
rest satisfied with their soundness. The practical effects o f them ap­
pear to me to be made manifest in two ways. The first o f these being,
that most banks do not pay proper attention to the necessity o f keeping
the resources they have in their capital sufficiently within their reach to
hold up their credit when it is in danger; the second, that in the desire
to secure the ultimate value o f promises, the necessity o f insisting upon
their never being violated appears to be underrated.
It has sometimes appeared to me, gentlemen, that the radical error
o f the banking portion o f the credit system in America was to be seen
in the mode in which the capital is originally invested; and, moreover,
that many o f the most favorite m odem projects o f reform in this regard,
although decided improvements upon the old method, are not in any
sense to be regarded as correcting it. There is some confusion o f ideas
more or less prevalent every where between the forms o f credit, by
means o f which the business o f the mere money lender is confounded
with that o f the lender o f both money and credit. It is wholly imma­
terial to the first in what shape he decides to invest his capital, or for
what length o f time he parts with the control o f it, inasmuch as he has no
use for it other than to realize the profit which accrues from the lending.
But the case is wholly different with the second. The first duty o f the
bank which emits bills o f credit, is to be always provided with the means
o f instantly redeeming them when presented; hence, it is as important that
the capital, which ought to furnish those means, should be frequently re­
turned to it as that it should be profitably employed. Investments for
long periods are then dangerous, because there never can be a certainty
that credit will remain the same to the end o f them. Permanent in­
vestments, though less dangerous, must nevertheless limit very much
the sphere o f credit, as they ought never to be depended upon to redeem
obligations to pay on demand. Even the prevailing practice o f taking
notes which have six months or more to run, does not seem to me con­
sistent with the undeviating support o f cre d it; and if, at the end o f the
period, there is a reasonable certainty that, instead o f a payment, a re­
newal o f the notes must take place for a farther time o f equal length,
then is it clear that a gross mistake has been committed in selecting the
quarter in which such loans should be applied for, and that the banker
has been made to do what he cannot safely do, and what is properly the
business o f the retired capitalist who lends money without lending
It is a law o f the first necessity, that those individuals who take ad­
vantage o f public opinion to wield promises as money, should be required
at all times so to arrange their resources, as to furnish money in lieu o f
them when it is wanted. They ought not in such moments to be driven
to the expedients o f substituting one kind o f credit for another. Y et
these are inevitable if they cannot readily command a good proportion
o f their capital. The fluctuations o f public opinion are always full o f
danger to them if they are not on the watch for them. But there is no


The Principles o f Credit.

way to be ready for them, if the ship will not obey the rudder at the
critical moment. The theory o f credit is based not merely upon the
amount o f capital, it will be recollected, but also upon the performance
o f promise. But this performance should by every law be reciprocal,
and benefit the banker, when himself a creditor, exactly as it does the
person to whom he is a debtor. N ow if he could rely upon this so far,
as that by dividing his capital into sixty or ninety parts, and lending each
part on a separate day for a given and equal length o f time, he could
enjoy a reasonable certainty o f the daily return o f one o f those portions
throughout the year, he might make the support o f his credit a matter
o f the simplest arithmetical calculation.
There is no other method
which can at all approach to it in certainty; for it implies a capacity
o f ready accommodation o f the principle to the prospect o f the future,
as well as a guard against the past. In times o f great public danger,
the bank o f France has been known to shorten the length o f discounts
down to periods o f thirty, twenty, and fifteen days, which, i f carried
through, would make a failure on its part to redeem its obligations next
to impossible. This, and this alone, is the impregnable position o f
credit. But it must readily be perceived that it is not o f that kind o f
credit which presupposes only the rigid performance o f obligations on
the one side, and leaves them all at loose ends on the other.
I am fully aware o f the probability, that to many o f you this doctrine
will appear to be a little o f the theoretical and impracticable, and cal­
culated to draw within a comparatively very narrow compass the present
boundless field o f credit. But I have always inclined to the belief, that
a principle which is found to be true in the closet may be extensively
modified in its application to life, but is rarely reversed. The experience
o f modern times is teaching us a lesson, which we may neglect or over­
look to-day, but which will force itself to our notice to-morrow. The true
use o f credit will only be learnt from the experience o f its abuse ; and
when it is found that no expedient will avail, and that we must after all
come back to the reformation o f public opinion, i f we desire a safe and
proper basis for the mercantile transactions o f our community, perhaps
there will be many who will then join me in the opinion, that the indis­
pensable elements o f credit are the possession o f capital, and the literal
and rigid performance o f all promises, and that there is but a single
method by which they may be at all times within our power.
My limits compel me to hurry to the consideration o f another much
agitated question. I mean the precise benefit which a country receives
from the substitution o f credit for money in the currency. In order to
form an idea o f it, we must go back to the fact, that gold and silver will
never o f themselves flow towards any country, and least o f all, to those
which have no mines. The sum acquired o f these metals must be earned
and paid for by hard labor. And when acquired, it is not an object o f
the first necessity in life, like food, or raiment, or shelter from the storm,
all o f which must be earned and paid for by the same hard labor which
earns and pays for gold and silver. The chief use o f these metals, which
is, to exchange the articles previously produced by labor, is then but a
secondary one in infant communities. Hence in these, where it is so
much more important to procure the means o f life, the tax to be paid for
purchasing a mere medium for exchanging superfluities, is too onerous to
be endured. It thus appears to me that there is a perceptible difference

The Principles o f Credit.


in the value o f credit as a substitute for coin, when the question is about
old, and when it applies to new countries; and this has not, so far as I know,
been fully appreciated. F or in the former, where earnings have been ac­
cumulated far beyond immediate wants, and where industry can he easily
diverted from objects o f the first necessity, the permanency o f value in
the precious metals maybe well worth the labor spent in procuring them;
and the substitution o f credit in their place, as money, may be considered
advantageous, only in as far as the bullion thus dispensed with may be
profitably added to the capital already used in trade. But in new com­
munities, where the first object is production o f the articles indispensably
necessary to the support o f animal life, it becomes distressing to set aside
so considerable a portion o f labor as the acquisition o f gold and silver
necessarily requires. W here it m aybe easy to get bread, it may not be
equally easy to get the precious metals. The one may be attained by the
sweat o f man’s brow in the field, hard b y ; the other can be procured only
through commerce with older countries, which may not be willing to part
with them in exchange for such articles as they can give. In these cases,
there would arise a serious difficulty for the want o f some medium by
which the exchange o f necessary products could be effected, if the wit o f
man could not sometimes hit upon cheap instruments, which make the
absence o f the dear ones less severely felt.
I f it were possible within the scope o f a single lecture, I think it
would be easy to illustrate the truth o f the preceding observations, by
reference to the early history o f some o f our states when British colo­
nies. There never has been presented to the world so fair an opportu­
nity o f watching the mode in which the gold and silver in a country has
been acquired, from the first commencement o f the social system to its
present large amount with us, as that which our records present. But
they tell a tale o f constant struggle and frequent depression, from the
time when Indian corn, tobacco, and beaver skins, were the most approved
medium o f exchange, down to the present hour. They also teach many
a neglected lesson o f the dangers o f stretching credit too far, which
would have been far more lasting upon the memory o f people in older
countries, who could not enjoy the same means o f recovery from its
The reason why credit may be abused in a new country with less
effect upon its prosperity than in an old one, is, that the quickening which
even a bad medium o f exchanging commodities gives to the creation o f
them, is a positive benefit, which would be lost if there was a difficulty
in finding any at all, even supposing it might, when found, prove a better
one. The frequent turning o f the same capital, where there is not much
o f it, supplies in a great measure the want, and rapidly increases its
amount. F or all the earnings o f industry, over and above the demand
for immediate consumption, in new settlements, take a productive shape,
independent o f the character o f the currency. They do not remain in
ready money, or in stocks, or any o f the artificial forms in which wealth
is dependent upon the stability o f the standard by which they are valued.
On the contrary, they run into new lands, and implements for making
commodities o f the first necessity, cattle, and the materials for home
manufactures, all o f which have in themselves a value in supporting life
comparatively out o f the reach o f injury from a bad currency. It is
only after these modes o f original investment are in some degree used


T he Principles o f Credit.

up, and men begin to look round for new objects upon which to exercise
their activity, no longer confined to the satisfaction o f merely natural
wants, that the common measure o f the value o f labor becomes a matter
o f very serious consequence. Then the question rises daily into greater
importance, whether the durability o f value in the precious metals is
not a full compensation for the cost o f them, and the hazard attending
the overstraining o f credit, is not a just reason against too great a reliance
upon its force 1 A mechanic, when poor, will manage to do without many
tools which would nevertheless be extremely useful to him if he could
spare the cash to purchase them. The fact o f his poverty is a sufficient
justification for his resort to less effective instruments; but whenever the
moment occurs that he can see his way clear to procure better, without
starving, it is economy in him to lay out his savings in purchasing them.
F or he may thenceforward be enabled to increase, to a more than pro­
portionate extent, the productiveness o f his labor, as well as to perfect
in a higher degree the commodities to which he has been in the habit
o f applying it.
But after all, the greatest abuses to which credit has been applied in
this, and in almost every other country, have grown out o f the confusion
which has been generally made o f the interests o f the sovereign power
with those o f commerce. The violation o f private credit has, it is very
true, been frequently made the instrument o f injury to an industrious
community— but against this the individual citizen finds, in the- sense o f
injury received, a sufficient warning ever after. The instances o f exten­
sive and permanent ruin from this cause are few, compared with those
which have taken their origin from the connexion o f political passions
with public credit. The government o f a country never can be, in the
nature o f things, a fit originator o f all the credit which may be put in
the place o f coin in the community, for the reason that it ordinarily acts
under a set o f motives wholly different, and partially at war, with those
which regulate the movements o f commerce. The administration o f
public affairs embraces a very wide circle o f duties, and is operated upon
by almost every event o f importance in the world. A n act o f foreign
aggression may in an instant throw it upon the verge o f war, or a do­
mestic disturbance may unhinge it from its place, and wholly obstruct
its movement. The temptation in such cases is generally very strong
to resort to credit for support. But credit is at the very same moment in
the greatest danger. It is impossible to dictate to men what they shall
think, or to persuade them that performance is most likely to follow
promise, when the facts all tend to prove the direct opposite. W hen a
government is most embarrassed is not the best time for resorting to
new promises nor for redeeming old ones. Y et it is generally the one
when it is itself most inclined to the first measure, whilst it is called
upon by the public to adopt the last.
In short, the general proposition may here be laid down at once, that
the rule o f expediency in regard to political credit, can rarely be made
to square with the rule o f expediency for commercial credit
The sove­
reign power in the state is not the right source to look to for much beyond
restraints upon the misdoings o f individuals ; it should never place the
weight o f its own authority in the scale o f those misdoings. I state this
broadly, because there has been, o f late, a growing inclination among
writers upon subjects o f this sort, to favor the idea that the issue o f paper

T he Principles o f Credit.


currency, resting upon credit, is a business properly belonging to the
sovereign, and is wholly inconsistent with that o f lending by hankers,
with which it has heretofore been generally associated. H ence the de­
sire to separate the two departments o f credit has arisen, and to leave
discounting only to hankers, while the regulation o f the currency, by a
special board o f commissioners to be appointed for the purpose, shall
belong to the government. The error at the foundation o f this new doc­
trine appears to me to he closely connected with misconception o f the
true nature o f credit. Can it be, that the b elief that performance will
follow promise will ever he so strong, when applied to commissioners
who have no interest in the result excepting that which a salary may
give them, as when it is applied to private citizens, whose stake is their
whole fortune and their character in life 1 Can it be, that an arbitrary
species o f discretion vested in a few men having no great calamity to
dread from the commission o f mistakes, and perhaps a thousand consider­
ations to influence their action other than their mere notions o f abstract
right, would prove a better guide to a sound currency, than the fear o f ruin
operating upon the minds o f citizens whose interests have impelled them to
the study o f the subject in all its practical bearings, and whose experience
has furnished the surest landmarks by which to g o '! W h ere the pecuniary
negotiations fluctuate, as they notoriously will in every highly commercial
state o f society, the exact amount o f currency necessary from day to day
cannot be estimated, even by the wisest and most practised heads. Artificial
movements will give rise to a demand to-day, which will to-morrow throw
back a large mass as redundant. N o movement o f the machine o f credit
can be regular, where the wants o f the borrower do not find their full
counterpoise in the fears o f the lender. The merchants and traders are,
after all, the great movers o f the currency. They cut out the great chan­
nels in which it takes its course, and this under the guidance o f no ab­
stract rule o f right or arbitrary sum in arithmetic, but simply whilst they
are pursuing the path pointed out in their daily business. They are
also the only proper customers for banks o f discount, who consult their
own interest by facilitating with credit the exchanges o f value that are
making through their agency. The operations are all safe enough, pro­
vided only that public opinion remains sufficiently sound to demand the
performance o f promise as the one indispensable concomitant o f action
in the premises; and the agency o f the government is in no way neces­
sary, excepting in restraint o f the imprudence o f individuals before, and
correction o f their error after, violation o f their obligations. I f the
failure to support their credit could be attended with the instantaneous
withdrawal o f confidence, and the application o f decided penalties for
misconduct, it seems to me that there would be no need o f apprehension
for the safety o f our banking establishments, or o f a surer guage o f the
proper amount o f currency for any community, than that made by the
caution o f those who would issue it. But let the supplying o f a circu­
lating medium once fall into the hands o f salaried government commis­
sioners, or be in any degree connected with the fancies o f political rulers,
or depend upon the ebb and flow o f the national revenue, and it is believed
that no security can be entertained against the daily perpetration o f abuse,
or that the whole credit system would not experience a perpetually vary­
ing, irregular, zigzag movement, at war with the calculations o f the
shrewdest merchant, and subversive o f his best founded expectations,
von. i i . — n o . in.


The Principles o f Credit.

N or yet has it appeared to my judgment, that many o f the modes
most commonly resorted to at this day to guard against losses by credit,
are in themselves deserving o f unmixed approbation. In the desire to
procure ultimate security, the importance o f the immediate obligation is
overlooked. A kind o f artificial credit is thus created for a promise af­
ter it has been violated ; and the most effective check upon the impru­
dence o f the issuer, in the danger o f destroying his character for punctu­
ality, is in a great measure removed. The moral sense o f the community,
upon which credit very materially depends, is thus rather blunted than
sharpened by this system, and the public are to be made to rest content­
ed, i f they are not in the end losers, no matter how far they may have
just right for immediate redress. The attempt to bolster up credit in this
way,has always seemed to m elike beginningwork at the wrong end. The
indispensable attribute o f money is the capacity to command labor or
commodities at will; so long as credit will do this as well as gold or
silver, there is no substantial difference between the two. But credit
will not do this as well as those metals, from the moment there is a sha­
dow o f doubt thrown upon its ability; and whenever such doubt arises,
the true method o f remedy would seem to be entirely to remove the
cause o f it, instead o f proceeding to confirm its justice. A promise to
pay five dollars on demand will never be considered as equal to five dol­
lars, i f that promise is not redeemed when it is challenged. The mo­
ment it is ascertained that it is not redeemed, the whole o f the credit at­
tached to it is altered in its character. Prom being equal to money, it
becom es an article o f merchandise, depending for its value upon the
opinion that every individual will entertain o f the probability o f its re­
demption at some future time. N ow this is not the kind o f currency
which credit seeks to establish, but on the contrary is exactly o f that
species which it should as soon as possible drive out o f all the channels
o f circulation. A nd in this it should be the duty o f the sovereign power
to co-operate with the action o f public opinion.
But in disapproving the prevailing inclination to give so much artifi­
cial support to credit, by requiring o f those who use it extraordinary
conditions, in exchange for extraordinary privileges, it may very natur­
ally occur to many o f you to consider me as over captious. Perhaps
you might wish to know what m y own ideas were o f the proper system to
be adopted. I will cheerfully submit them, not however without some
diffidence, and regarding them rather as suggestions for general con­
sideration than very matured thoughts. Proceeding from the definition
I have made o f credit, as the b elief that action will in a community cor­
respond to promise, I would begin by removing all the barriers which
have been raised against the natural and healthy action o f that belief.
B y these barriers, I more particularly intend to allude to the various
statutory jwovisions to be found in almost every part o f our country, by
which, on the one hand, irresponsible bodies can be created with certain
peculiar privileges, which obtain a degree o f credit the managers could
never secure, so long as they acted only for themselves; or, on the other,
responsible individuals are sheltered from responsibility, beyond a cer­
tain and definite amount o f their property. I see no obstacle in the
way o f throwing open the whole business o f credit to be done just like
any other business, upon the character o f the conductors. But cotemporaneously with this, I should deem it absolutely essential to the safety

The Principles o f Credit.


o f the community, that the sovereign authority should at once interfere,
to stop operations, whenever promise proved to he broken.
The ac­
tion should be so prompt, and the duty so imperative, that no possibility
o f combination to resist it could for an instant be entertained. It would
then devolve upon those who did not desire to forfeit their credit, to im­
pose the necessary check upon the careless or the dishonest, and in fact,
to protect the community, when in the act o f protecting themselves. I
am sufficiently aware, that this is not the most common method o f re­
garding the subject, though it is not altogether unheard of; but, although
startling at first, I apprehend its simplicity, and its solid basis in gene­
ral principles, will contribute to recommend it more and more upon re­
flection. The only serious objection that has occurred to me has been,
that it would ultimately put the control o f credit into few hands, and
thus lead to monopolies; but as this might be counteracted by the ad­
mission o f the principle o f association or partnership to any extent, I do
not know that much danger need be apprehended from that quarter.
The condition o f the penal action o f the government is, however, en­
tirely indispensable to its success or even to its safety.
But farther than to adopt some effective system o f restraint o f injuries
committed or meditated against the public, I would not have the govern­
ment to go ; least o f all would I expose the currency to the agitations
for which the political histories o f most modern and especially free na­
tions are so noted. Neither are merely temporary fluctuations all that
we have to fear from them. I need hardly remind you, at this time, o f
the fate o f our continental paper money o f the revolution, uttered under
a plea o f stern necessity; but the grievous injustice o f which, to all those
who in the field, and at the cost o f toil and blood, achieved the indepen­
dence o f their country, has been but feebly compensated b y the tardy
establishment o f pensions to the few survivors. N or yet have I space
left to discuss the criminal use made o f assignats in France, based
upon the foulest perversion o f all the most sacred laws o f property, and
implying, in their very redemption proposed but never performed, the
acts o f rapine and murder by which they were introduced. These two
examples, so different in their origin and purpose, are yet marked by the
same distinguishing characteristics in regard to the commercial interests
o f the respective countries in which they originated — that o f wholly
overlooking their existence. Created from the impulse o f political e x ­
pediency, and without reference to the laws which regulate the circula­
ting medium, they retained a value so long as they accidentally coincided
with them, and lost it when the fact o f their worthlessness became per­
fectly well established. These may be at once admitted to be extreme
cases; yet as such, they very clearly explain the precise nature o f the
difficulty which arises, whenever the credit o f the government is the entire
basis o f dependence. The impropriety o f making that power the guide o f
the credit system, which, in times o f difficulty and danger, is always under
the strongest temptation to mislead it and use it improvidently, must then
be obvious ; for those times happen when the ordinary channels o f reve­
nue becom e choked up, and when declining commerce needs no increase
o f currency, and drooping credit is least able to sustain it. The super­
structure is thus made to tower higher and higher in the air, at the very
moment when the foundation is crumbling beneath its weight.
But i f these cases o f pure paper money are thought to be too strong,


The Principles o f Credit.

let us cite, as more to our purpose, that o f the Bank o f England, upon
the occasion o f her suspension o f specie payments in 1797. I am the
more ready to discuss this, as, in my belief, it has been productive o f false
reasoning and confusion o f principles, even down to this day, beyond any
other single event in the history o f finance. H ad the Bank o f England
been strictly a commercial institution, having no object in view but to
keep her credit and the currency o f Great Britain upon a sound footing,
there can be no question that her act o f suspending payments, or, in other
words, violating her faith, is not to be justified by any solid method o f
reasoning; but the fact was, that she had no real independent existence
apart from the will o f the government. Political events made it expe­
dient for that government to avoid the pressure upon it which would
have unavoidably followed the pressure upon the bank for performance
o f its promises, and, moreover, to provide additional resources for itself
in an artificially created system o f credit, for the execution o f enormous
projects o f expenditure abroad for the purpose o f regulating the p o­
litical balance o f power in Europe. The scheme was therefore a politi­
cal, and not a financial, one, and grew out o f the disposition o f the
government to stretch its credit beyond the point where it is safe to the
commercial interests o f the public. The experiment was made upon a
great scale and for a long period, in the course o f which a wholly artifi­
cial state o f property became established. The b elief in the performance
o f promise by the bank declined so much, that a paper bill retained only
about three quarters o f the value it professed to promise, and the go­
vernment was driven to the offer o f terms most disadvantageous to itself,
in order to raise the supplies which it absolutely needed. Y et because
it did not becom e bankrupt, because it was enabled to stop in this down­
ward career before it was too late, and because, at an immense sacrifice
in all the relations o f property between debtor and creditor, a return was
actually effected to the redemption o f all promises without a positive
convulsion, the idea has been very generally entertained, that it is possi­
ble to make credit survive the destruction o f its principal elements. It
does, to he sure, take some time to destroy the credit o f a national sys­
tem o f government so firmly fixed as that o f Great Britain ; but if I might
be allowed to express an opinion, I should say, no more effective method
o f doing it could be adopted than the policy now under consideration,
and that it is too early to pronounce unequivocally upon the full effect it
may yet have, while the national debt remains at its present amount. F or
upon the stability o f that depends the stability o f the bank, and with it
the stability o f the entire system o f currency, based upon credit, which
that hank supplies to the community. O f course, then, i f this is true, the
politics, and not the trade o f the country, form the basis o f its currency,
and the third element o f credit, as I have described it, that is, the sove­
reign authority, is made to be the principal rather than the secondary
reliance; a reliance which, I must repeat, I cannot, for my own part,
regard as well founded, because it is open to the assault o f every politi­
cal storm.
A nd even in the memorable case o f John Law, it may be said in his
behalf, that the necessity under which he was to consult the interests o f
a profligate and bankrupt regency, brought on quite as many o f the ca­
lamities which France endured through his agency as his peculiar theory
o f finance and credit. The main inducement with the government to

T he Principles o f Credit.


take him up at all was, the wretched condition o f the national finances,
brought on by a complicated series o f extravagant and infatuated mea­
sures, which he promised to cure. Just as diseased persons will fly to
empirical treatment when dissatisfied with the slow and limited relief
which true art can give them, did Philip o f Orleans fly to the system o f
L a w ; and, as with them, when his caprice or impatience prompted to a
change or qualification o f the treatment, no obstacle, however at war with
the general system, was allowed to stand in the way o f indulgence.
It was, to he sure, a somewhat novel idea, to expect that credit should
pay the debt o f France after government had done its utmost to destroy
it. The changes in the coins had made the issues o f the mint synonymous
with bad faith; and an arbitrary reduction o f the public debt, by the de­
cree o f a commission appointed by the debtor, had not contributed to
fortify the hopes o f any immediate payment o f principal, or the arrears
o f interest due. It was to remedy the state o f things consequent upon
such a policy, that L aw was allowed to make his experiments. Had his
sole object been to relieve the people o f France from the effect o f a
wretched currency, he might, and probably would, have effected i t ; but
when there became joined with this the payment o f the king’s debts, in
order that he might borrow more, the latter purpose only counteracted
the former. Credit was to be restored only that it might be farther
abused, and the interests o f commerce and o f industry were made sub­
servient to the end o f procuring farther supplies for the exhausted coffers
o f a greedy and voluptuous court.
Y et it is not less remarkable than true, that the first movements made
by Law were highly beneficial in their effect upon the nation. The rea­
son why they were so, was, that they were made upon sound principles,
and therefore revived credit. Such had been the disorder introduced
into the metallic currency by reason o f the vacillating policy o f the last
days o f Louis X IV ., that the people o f France, as with a single move­
ment, rushed from the doubt and distress created by hard money, to the
uniformity o f that which Law proposed to substitute in paper. A nd a
greatly advantageous change it actually proved, so long as the principle
upon which it rested was adhered to. But the cupidity o f the regent in­
terfered to make this period very short. The bank originated by Law
engaged to pay its promises at any time in coin at the value at which
it was current when they were issued; hence these promises were as
much more valuable than coin, as a certain and definite amount o f m o­
ney will always be over a doubtful and fluctuating one. The govern­
ment could not fix a new value to the livre which the bank had agreed
to consider as o f the old standard, although it could easily do so to the
piece o f money which it might choose to call in future by that nam e;
hence, a bank bill was likely to return a specific sum at any time, when
a coin was liable daily to depreciate. The consequence was, that the
credit o f the bank became better than the credit o f the government, and
the extraordinary spectacle was presented to the world, o f a paper cur­
rency resting upon opinion, esteemed by a great nation as positively
and deservedly more entitled to confidence than one supported by the
positive value o f the precious metals.
Cotemporaneously with this improvement in the character o f the cir­
culating medium, a new company was organized, the capital o f which
was paid in by subscription o f a portion o f the public debt. Upon this


The Principles o f Credit.

portion the payment o f some arrears o f interest due was procured from
the regent by Law, and the event was hailed by all the public creditors
as the opening o f a new era in the financial history o f France. The
news came like breath to the drowning; it inspired hopes which went
a great way to remedy the very evils under which they most suffered,
and which might probably have extricated the country from its unfortu­
nate position, if the object had been only to benefit France, and not to
play into the hands o f those who managed its public affairs.
It may here be noted, that up to this moment the peculiar theory o f
L aw had not been in any degree practised upon ; and yet the great ma­
jority o f the French people had probably ascribed to it and its effects,
the sudden and striking improvement which was perceptible every
where, in the condition o f trade; and this will serve to show upon
what slight foundations a great reputation in financiering may be some­
times made to rest. The two measures already described, namely, the
issue o f notes representing a definite value, and the payment o f interest
upon a small part o f the public debt, were in themselves not remarkable
in conception, nor out o f the reach o f any man o f ordinary practical
sense. They were merely in correction o f enormous evils that were
afflicting the community, and by no means productive o f positive benefit;
and yet such was the consequence o f their adoption in the revival o f
credit, that, had death or any accidental obstacle occurred to stop the
farther career o f Law, his name might have come down to us as among
the most deserving o f record on the rolls o f fame, and his system could
ever afterwards have been quoted and looked up to by the many as the ne
plus ultra o f financial wisdom. H e had, in fact, worked a wonderful
change with very small means. H e had given a very powerful impulse
to public opinion, even before he had put his hand to the working out
o f his experiment; and as it ever has been the nature o f sanguine pro­
jectors not to wait to analyze effects, it is not unfair to suppose that he
himself partook o f the general delusion, and was therefore inspired with
a more unhesitating confidence to dash into the execution o f his schemes,
even though injuriously modified by the regent, and destined to be pro­
ductive in this shape even o f greater disaster than could have been ex­
pected naturally to belong to them.
But though Law was thus induced to overlook the evil influence which
the regent was exerting over his plan, others, who look upon the history
long afterwards with the single view o f drawing instruction from it,
should be careful to assign to each party the share o f responsibility
which properly belongs to them. It was the regent o f Orleans who
took the bank into his own hands, when he found how prosperously it
wras going on under L aw ; and it was he who, under pretence o f making
money fixed, altered the tenor o f its promise in such manner as to make
it redeemable only in current coin. This was bringing back the very
evil which the former policy had avoided. It was making the bank pa­
per no better than the issues o f the treacherous mint; and it was doing
this only as a preparative to a stupendous stockjobbing operation which
the regent was to conduct, and Law to advise, for the benefit o f the go­
vernment, at the expense o f the nation.
It is needless, even if it was practicable within these narrow limits, to
go into any detailed explanation o f the events which followed. Their
general character may be gathered from the single fact, that the principal

T he Principles o f Credit.


result was a joint-stock company, in which the regent o f France was a
main subscriber, and the object o f which was, by the engrossing o f all
possible privileges and monopolies in the pow er o f government to confer,
to create for it a sufficient degree o f credit to enable it to advance an
immense sum at very low interest. The operation was carried on by
means o f a great issue o f paper money, with which the shares were paid
for by the regent as well as others, and the return o f this same paper
furnished the sum which had been agreed to be advanced to government.
Things went on swimmingly for a short time, but presently the necessity
o f redeeming these promises became urgent in order to support their
credit. The regent had hoped to effect this by exchanging his shares,
which he had subscribed at about 500 livres a piece, for $10,000, the price
to which they had been forced up ; but in this he was destined to be dis­
appointed. A rush took place from all quarters to realize, which pre­
vented his converting them, and thus left him with no other means o f
absorbing the paper he had so rashly issued. The great speculation
failed, and twenty-two hundred millions o f livres, in bank notes, were to
be faced, without any thing to give for them but Mississippi company stock,
o f which there were already in the market many sellers but no buyers.
The expedient actually adopted under these circumstances is too re­
markable not to merit full notice many thing purporting to treat o f the phe­
nomena o f credit. A decree was issued, reducing at one blow the value o f
all the promissory notes issued by the bank to one half o f the amount ex ­
pressed on their face. N ow , Ipray you, gentlemen, particularly to observe
the consequence o f this measure. Instead o f falling from twenty-two hund­
red millions o f livres, the original sum issued, down to eleven hundred
millions o f livres, the value proposed to be assigned, the whole paper cur­
rency o f France sunk down to nothing in a moment. A man might
have carried a load o f it on his back the next day, and it would not have
bought him a breakfast. The reason o f this was, that credit is not, poly­
pus-like, to be cut in halves, and either half survive the operation. The
same kind o f trick had been played in coin often enough ; and in so far
as any precious metal was left in its composition, the same result had
been prevented— but in paper it would not answer in the least. Its
whole value depended upon public opinion, which had no other basis
than the probability o f its being in some way or other absorbed by the
government. W hen, therefore, the fact was distinctly presented before
the community, that this probability had failed, and the government was
seeking relief in breach o f faith, there was no greater reason for depend­
ing upon one valuation o f that breach than upon another. The entire
edifice o f credit was prostrate in France, and the pecuniary affairs o f
that country remained to be organized, just as much as i f it had been a
new o n e ; subject, however, to drawbacks from the operation o f human
passions, which at a much later period, and among a new generation o f
actors, caused the final settlement o f the account to be written out in
But why need I quote one instance and another, o f the abuses to
which credit has been exposed in the hands o f the sovereign pow er o f
the state, when history furnishes them at every turn 1 Indeed, it may be
affirmed, that there is no record o f any issue o f paper currency, made
by any known government, which has not been perverted from the true
purpose, o f promoting the exchanges o f value among members o f the


The Principles o f Credit.

same community, to the more narrow and unsafe one, o f helping the
necessities o f those who for the time manage the public affairs. They
surely, then, cannot be constituted a safe depository for any such power.
Credit may safely be left in the hands o f those who are most interested
to preserve it— the capitalists o f the country; and its extent may be
regulated by the demands o f a natural and productive industry directed
to useful ends. The law o f demand and supply may be left to take
care o f the whole matter, with perfect confidence o f a happy result,
provided, always, that sound public opinion, and an energetic and uni­
form system o f restraint upon fraud, shall always co-operate to keep
private enterprise from running into hurtful and extravagant excess.
Y et let it not be supposed, that this or any other method o f using
credit that may be devised, can have the effect o f preventing the fluc­
tuations which frequently take place in the transactions o f commerce.
It is too much the tendency o f the present age, to consider credit as
wholly responsible for effects, the origin o f which is really to be seen in
trade. The very law o f supply and demand, which has been already
alluded to, is one which can never be arranged according to any known
scale, for the reason that it is impossible to foresee the direction which
human wants and passions in civilized life will next take. There will,
therefore, be frequent fluctuations, which may defy the sagacity o f the
wisest merchant; and although to the calm observer these may appeal*
always to work themselves out in the long run, within very clear and
definite limits, and to subside into a tolerably regular channel, yet this
process may, to the industrious merchant, be not unfrequently attended
by extremely trying and critical conjunctures. The course o f trade does
not run much more smooth than that which the poet has singled out to
make into a proverb. A nd whether credit is employed in it to a greater
extent, or whether it is not, every commercial community must calculate
upon it as a fact o f the highest probability, that some periods will be
periods o f particular success, and others, again, will make themselves
remembered as signally disastrous. T o quarrel with credit upon this
account, would be about as reasonable as to impeach the D eity because
w e are not consulted in the disposition o f good and evil.
What, then, is the general practical inference which I would draw
from the whole doctrine I have endeavored to explain this evening I Is
it not, that credit being no thing o f involuntary origin in a state, but
rather a consequence o f certain preceding causes, which must coincide
to give it a true and proper efficiency, the true object for our exertion is
to regulate our action to those causes, rather than to be spending time in
counteracting effects. There is doubtless a tendency to some abuses in
the present day, which it is the duty o f a prudent community to check if
not prevent. But after all, the only true preventive will be found by going
to the fundamental principles. There can be no security against error,
where there is no effort made to distinguish it from truth. There must
be clear notions formed o f the difference between capital and credit, as
well as o f the dependence in which the latter stands upon the former.
There must above all be a rigid attachment to the dictates o f the moral
sense, and a uniformity with it in the co-operating restrictive policy o f
the sovereign authority. These, and these alone, will answer as a perfect
protection from the attacks o f avarice and sensuality. Y ou may pile
statute upon statute on your legislative tables, you may put a bar here

The Principles o f Credit.


and a padlock there, but your house will never be the stronger against
any combination o f cunning and fraud, without you take pains to force,
the mask from the face o f the hypocrite. In that public opinion is the
greatest safeguard, which will not overlook or pardon dishonesty— which
will break up at once the haunt o f the gambling speculator— and above
all, and most o f all, which will suffer no violation o f promise to the
honest and innocent o f the community to be repeated, without effective
interference and permanent prevention.
W hen I look round, gentlemen, and observe, the relative situation o f
the great countries o f the w orld— when I consider that the credit which
some enjoy and make use o f is an unfailing index o f their prosperity,
while the adversity o f others appears to go hand in hand with its disuse,—
it is with not less amazement than regret that I see a disposition mani­
festing itself among us to preach up a crusade against it. It is most es­
pecially on this account that I would earnestly recommend it to you who
live in this great city, promising as it does to be the commercial centre
o f our northern continent, ever to bear in mind the indispensable requisites
for its natural support. In adherence to them as landmarks, credit may
ever be relied upon as a safe and efficient adjunct to all great enterprises ;
by neglect o f them, a resort to it as an instrument o f power must at best
be playing a game o f chance. The strict adherence to truth, the unfail­
ing redemption o f promises, the untiring exercise o f human energy, are
what form the groundwork o f all the valuable success o f mercantile life.
And when these are once joined with a portion o f capital, however small,
credit will come in to extend the field o f operation and facilitate the
gathering in o f the harvest. But a little more than two centuries since,
and a few patient and plodding Hollanders were to be found on this spot,
who could send home only four thousand beaver skins as the evidence
o f their surplus industry; and now, your daily operations in your mag­
nificent Exchange set in motion huge masses o f wealth over every part
o f the habitable globe. This change, extraordinary as it is, cannot have
resulted from the slow process o f accumulating the savings o f labor.
Credit has come in to facilitate and advance the work, and this the most
obviously during the last half century, in which she has had the freest
play. She has concentrated the powers o f all the producing classes
upon the discovery and pursuit o f the boldest paths, as well o f maritime
as domestic adventure. She has stepped in to inspire the navigator with
confidence in spreading every sail over the ocean o f fortune. And when
I perceive on every side the palpable results which have followed— when
I think o f the almost magical transformation o f this petty island into a
rich and multitudinous city— when I reflect that the sum o f the heaviest
losses yet endured is nothing to the gains which stand piled up in your
streets,— it is with no small astonishment that I hear the commercial
system under which all this has taken place pronounced even here to be
irredeemably vicious. Such doctrine as this strikes at the root o f im­
provement, and demands revolution. It seeks for perfection, and goes
backward in the search. There are great spots in the magnificent orb
o f day, but its heat is not the less a genial, vivifying, creative influence
upon our earth. There are evils attending the use o f all the great
agents in nature, but these do not prevent man from controlling them to
great and beneficial purposes o f human progress. The great secret,
after all, gentlemen, is in the mind. A nd most happy will that commuVOL. II. — n o . in .

Theory o f Profits.


nity become, which most steadily unites with its industry, content.
W ithin a few years last past, you have been visited with not a few trials
o f your fortitude ; and it is among the most encouraging circumstances
that surround us, that you have passed through them with so little
shrinking. It rests with you to persevere only in the same policy, to
remember that credit is a moral property as well as an economical in­
strument, and to go on unswervingly in the support o f it through evil
report and good report, here and elsewhere, and the unfailing conse­
quence will be, that to you will the honor be due o f saving the name o f
Am erica from becom ing synonymous with faithlessness all over the
w o rld ; and to your moral courage under temptation, will this city be
indebted for the proudest pedestal o f its future fortunes.
N ow like a maiden queen she will behold,
From her high turrets, hourly suitors come —
The East with incense, and the W est with gold,
W ill stand like suppliants to receive her doom.



II.— T H E O R Y O F P R O F I T S .— N o. II.

H av in g seen that Mr. Ricardo and his followers have erred in their
analysis o f rent, and that, by mistaking a common accompaniment for
one o f its elements, they have needlessly embarrassed a subject which
admits o f an explanation as simple as it is just, let us now see how they
have connected it with the theory o f profits.
Their reasoning on this part o f the subject is briefly this : The price
o f raw produce consists o f that portion o f the labor and capital expended
on the soil which pays no rent. This portion, commonly that which is
last expended, is therefore divided between the wages o f labor and the
profits o f capital, and determines the rate o f each. N ow , as in the pro­
gress o f society it is necessary to resort to soils o f less and less fertility,
and as the returns made to equal portions o f capital applied to the same
soil must also gradually diminish, it follows, that the fund which is thus
divided between wages and profits, must, in like manner, experience a
gradual decrease when estimated in the quantity o f raw produce. But
as the laborer must receive as much raw produce as is “ sufficient to
subsist, and perpetuate his race,” when this, the natural price o f his labor,
is deducted from a constantly decreasing fund, the necessary consequence
is, that his proportional part o f that fund is continually increasing, and
that the residue, which constitutes the profits o f capital, is continually
diminishing. In this way, the gradual fall o f profits, as exhibited in the
market rate o f interest, which had taken place in England and some
other parts o f E urope, was accounted for, contrary to the explanation o f
Adam Smith, who referred it to the increasing competition o f capitalists,
in consequence o f the growing accumulation o f wealth.
There is more than one error involved in the preceding rationale o f
profit. In the first place, it assumes that the laborer must always re­
ceive the same amount o f raw p rod u ce; but this supposition is contra­
dicted by the past history o f society. W e know that it greatly varies in
different countries; that it is in general more than twice as much in the

Theory o f Profits.


United States as it is in England, twice as much in that country as in
Ireland, and more than four times as much as in India. W e know, too,
that it has greatly varied in the same country; that the daily wages o f or­
dinary labor in England, for example, which are now but about a peck o f
wheat a day, have once been as much as two pecks. W e know that in
the progress o f society the real wages o f the laborer, that is, the value o f
the raw produce received by him, has generally diminished with the in­
crease o f numbers, and that he is able to accommodate himself to the re­
duction by resorting to a cheaper fo o d — as by the substitution o f bread
for meat, and o f potatoes for bread. It is, indeed, by reason o f these
substitutions, that landlords are able to command more and more labor
for the same amount o f raw p rod u ce; and thus they constitute, as we
have seen, a main source o f rent.
S econ dly: But i f the wages and consumption o f the laborer were an
invariable quantity, it would not follow that profits would necessarily
continue to fall. That inference assumes that capital has no other means
o f profitable employment than in agriculture; in which case, the gradual
decline o f profits would be merely the affirmance o f the simple arithme­
tical proposition, that if the same number be subtracted from a decreasing
series o f numbers, the residues will also decrease. Nay, farther, profits
must gradually decline i f the laborer bore only his proportion o f loss
arising from the diminution o f the common fund, instead o f receiving, as
has been supposed, the same actual amount o f wages.
But the assumption that is thus made is altogether unwarranted.
E very branch o f industry furnishes a field for the profitable employment
o f capital, and the profits afforded by any one branch cannot be permanentlym ore or less than those afforded by the other branches. Each one, then,
which would avail itself o f the beneficial aid o f capital, whether it be the
farmer, the manufacturer, or the merchant, must pay the market price
o f such capital, that is, the current rate o f profits.
That current rate, we shall find, does not depend on the rise or fall o f
wages or rent, as the Ricardo school have assumed, but is governed by
its own separate la w s; and though it tends, like wages, to fall with the
progress o f society, yet this tendency may be, and actually is, sometimes
counteracted, so as to continue high when wages have reached the low ­
est point o f depression, as is the case in India, China, and a few other
T o establish the preceding positions, it will be necessary to consider
the nature and functions o f capital.
The origin o f capital is to be found in man’s moral nature. I f the
wants o f that nature impel him to efforts o f industry, the same wants
make him put by a part o f his earnings for future use. H e wishes to
possess the means o f subsequent as well as o f present enjoyment, and to
make provision for those whose happiness is dear to him as well as for
his own. His foresight and his affections thus make him frugal as well
as industrious, and all the products which he has stored away, no matter
in what materials they consist, or from what sources derived, are called
But how is capital a source o f profit to its owner 1 The answer to
this question may also be found by a reference to man’s moral nature.
Those who have stored away useful commodities, or, in other words,
have accumulated capital, cannot be expected to let others have the gra-


Theory o f Profits.

tuitous use o f it. It may never be returned, and the owner might rea­
sonably require something to compensate him for this risk. But profit
is something more than indemnity against loss, and we may find founda­
tions for this profit both in the common motives o f human action, and in
the creative powers o f capital itself.
I. W e have seen that fertile land, after it has, in the progress o f socie­
ty, becom e relatively scarce, yields an annual rent to the proprietor for
its temporary use. N ow it would often happen in the diversified con­
cerns o f human life, that the proprietor would gladly exchange his land,
which was thus a source o f perpetual profit, for the gross sum it would
yield in a limited number o f years, and that other persons would be
found who would as gladly pay the money and take the land. In other
words, land, like commodities that yield no rent, has its market price,
which is but a part o f the indefinite amount it is expected to yield. N ow
whatever was the price o f the land, the money paid for it being an equi­
valent for that which yielded a clear annual profit, would, by the act o f
purchase, becom e invested with the like faculty o f yielding an annual
In this capacity o f money to purchase land, we see a just foundation
for interest, over and above a compensation for the risk o f loss; and the
rate o f that interest evidently depends upon the proportion between the
price o f the land and its clear annual rent. Thus, suppose the rent to
be $100, and the price $1,000, then, money, like land, yields an annual
profit o f 10 per cent. This is what is called selling land at ten years’
purchase. So, i f the price o f the land was $2,000, then the annual pro­
fit or interest would be 5 per cent., and the land would have been sold
at twenty years’ purchase.
So long, then, as the desires and occasions o f men induce them to pre­
fer a large sum in hand to a small sum indefinitely repeated every year,
or, rather, a smaller sum in hand to a larger sum for which he must wait,
land will have its price, and those who are able to pay it have the ready
means o f obtaining for it an annual profit.
But supposing that by the laws or usages o f a country land could not
be transferred, or that it was the property o f the sovereign, as is gene­
rally the case throughout Asia, capital would not, on that account, the
less yield a clear profit to its owners for its temporary use.
In every community, after society has so advanced that capital has
been accumulated, it would be very unequally distributed and variously
invested. Some would be rich, and some p o o r ; some rich in one spe­
cies o f property or commodities, and some in another. N ow it would
often happen, that one individual would want the temporary use o f some
machine, or tool, or other convenience, which another possessed, as o f a
house, a boat, or wagon, and which convenience he had not the means
o f procuring, or which, though he had, would not be worth to him the
cost o f procuring. H e then would be willing to pay for such temporary
use. I f the owner did not receive more than a fair proportion o f the
cost, he would not be induced to permit the temporary use; and if he
did receive more, the excess would be profit or interest. Those, on the
other hand, who did not possess these conveniences, would be willing
to pay this excess, as the easiest, and perhaps the only, means o f obtaining
It may, therefore, be inferred, that capital vested in perishable articles,

Theory o f Profits.


and the products o f human labor, would yield a neat profit to its owner
no less than when it was vested in land. In truth, the two cases differ
more in appearance than reality as to the circumstances and motives
which occasion them. In both cases, a smaller amount o f present en­
joym ent is deemed equivalent to a larger amount that is postponed —
the value o f any commodity', like its magnitude, decreasing in men’s eyes
according to the distance. The only difference between the two cases
is, that the owner o f capital, in the purchase o f land, has a security for
the annual profit which lie has not in the hire or loan o f property that
may be lost or destroyed. But, in lieu o f such security, he trusts to the
ability and good faith o f the hirer or borrower, and requires a greater
rate o f profit to indemnify him for the risk o f loss. In both cases, too,
the profits o f capital naturally arise from the inequality o f human condi­
tion, and the diversity o f men’s tempers and desires.
In these cases, however, the profits o f capital may be merely the trans­
fer o f a part o f the products o f land and labor from one portion o f the
community to the other. T hey only suppose that some, from temper or
necessity, think only o f the present, whilst others are not unmindful o f the
future; and that the price which one class pays for its self-indulgence or
its poverty, the other receives as the reward o f its forbearance and selfdenial. Capital, thus made to change hands by the force o f these moral
agents, and thus altering the distribution o f national wealth, adds nothing
to its amount. But capital has also a creative power, by which it adds
to the wealth o f the nation, as well as o f its individual possessor ; and
this, the higher and worthier source o f its profits, we will now consider.
II. In every industrious community, capital co-operates with its land
and labor, and is one o f its main instruments o f production. It is thus
creative o f wealth in two w a y s; first, by the use o f tools and labor-sa­
ving machines, and secondly, by the division o f labor.
F irst: B y the aid o f the tools which his ingenuity has devised, man
can perform many operations on the rude products o f nature, which
would otherwise be impracticable. O f this, the axe, the saw, the auger,
nay, every cutting tool whatever, furnishes ready examples. But it is
by those machines by which the cheap powers, wind, running water, or
steam, are made to substitute human labor, that the productive faculty
o f capital is most strikingly manifested. Thus, i f an individual, wish­
ing to provide a large quantity o f plank, were to vest a certain amount
o f capital in a saw mill, he might thereby obtain ten, or perhaps twenty,
times as much plank in a year as the same capital would have procured
if he had employed it in having the plank sawed by hand, as would have
been necessary without the invention o f the saw mill, and is still occa­
sionally practised. H ere, all the additional quantity o f plank obtained,
after deducting the proportional part o f its cost, is the nett product o f
the capital, and its powers o f production are precisely similar to those
o f a piece o f fertile land which has yielded a ten fold or twenty fold in­
crease. If, in the one case, a bushel o f wheat is made (with the aid o f
human skill and industry) to produce twenty bushels, so, in the other,
capital skilfully applied may be made to perform twenty times the
labor by which that capital was produced. The saw mill is a type o f
all the labor-saving machines by which the power o f man over the seve­
ral products o f the material world has been so greatly multiplied, and


Theory o f Profits.

the amount o f his wealth in industrious and intelligent communities has
been so prodigiously increased.
Secondly: Capital, also, greatly increases production, by enabling its
owner to employ many workmen in a single manufacture, and to assign
to each a separate operation, whereby the aggregate result is greatly
multiplied. This distribution o f employments, which has, ever since the
days o f Adam Smith, been called the division o f labor, increases produc­
tion in three different ways, as Smith remarks: “ First, by the increase
o f dexterity in every particular workman; secondly, by the saving o f the
time which is commonly lost in passing from one species o f work to
another; and lastly, by the invention o f a great number o f machines which
facilitate and abridge labor, and enable one man to do the work o f
It might seem to some, that as this distribution o f the various parts
o f a complicated business might be effected by the voluntary co-opera­
tion o f individuals, without the employment o f more capital than the
same number o f persons would require in any other branch o f industry,
the great benefits o f their combined efforts are not fairly attributable to
capital. But as such enterprises are rarely undertaken, and still more
rarely succeed, except when under the superintendence and control o f
a master mind, and as in such a case a large outlay o f capital is required
to pay numerous workmen, and to provide the raw materials for their
manufacture, it seems strictly right to regard the advantages o f a divi­
sion o f labor as among the functions o f capital, so far as respects the dis­
tribution o f employments in the same manufactories, but not as it
respects the distribution o f different branches o f business over different
countries, or different parts o f the same country. The first, we have
seen, is not likely to be carried on, except by great capitalists ; but the
benefits arising from carrying on one branch o f business in Manchester,
another in Birmingham, and another in Leeds, may be attained with no
greater expenditure o f capital, nay, probably with less, than if the manu­
facture o f cotton goods, hardware, and woollen, were indiscriminately
carried on in each place.
W h en capital has thus, by the progress o f science and art, added the
faculty o f a powerful agent o f production to that o f furnishing the ready
means o f expense, a new set o f moral agents then direct its distribution.
It is now sought as eagerly for the purposes o f gain, as it once was for
the pleasure o f spending it, and he who pays for the use o f it may be
yet more benefited than he who receives its profits. By its means, the
enterprising and industrious may avail themselves o f the past savings o f
the frugal and forbearing, and these again may share in the future gains
o f well directed industry. Temporary transfers o f capital are made for
the purposes o f production rather than o f consumption, and the average
profit it yields in this its later and predominant function, controls and
regulates the rate o f profit in every other.
From the preceding analyses o f capital, we may see that the sources
o f its profits are to be found in man’s moral nature, and that so far as it
is derived from his preferring a smaller immediate gratification to a
greater one at a distance, it is unconnected with the value o f raw produce
or o f labor, and consequently, with the progress o f rent. It would de­
pend partly upon the proportion between the disposition to save and the
disposition to spend, and partly upon the amount o f capital that had been

T heory o f Profits.


accumulated. W ith the same amount o f capital, the larger the propor­
tion o f thrift over expense, the smaller the rate o f profit, and vice versa ;
and with the same proportion between the two, the larger the amount o f
capital accumulated, the smaller the profit, and the smaller the amount,
the larger the profit.
So far, too, as capital is an instrument o f productive rate o f profit, it
is equally independent o f the price o f raw produce and o f labor. The
profits o f capital, from this source, depend partly upon the extent to
which it is capable o f abridging labor, and partly on the amount accu­
mulated. W e know that the various implements and machines which
man has invented to aid him in rendering brute matter subservient to
his purposes, and by which he has imparted to it a new value, possess
this pow er in very different degrees; that some may moderately increase
his power, whilst others enlarge it ten or twenty fold. N ow , it is clear,
that the greater the saving o f labor that capital can effect, the greater
must be the profit it is capable o f yielding. The machine, for instance,
which can save the labor o f one hundred men in a year, yields twice the
profit o f one which saves the labor o f only fifty men, supposing their
cost to be the same, and the capital vested in one is twice as productive
as that vested in the other. A s those modes o f investing capital which
effect the greatest profit will be first preferred, the successive savings
made hy thrift and frugality will naturally be employed in those ways
which yield less and less profit; and the precise point at which these
investments will stop, will, therefore, depend on the progress o f science
and mechanical invention, together with the amount o f capital accumu­
lated. Supposing the degree o f advancement the same, the rate o f
profit will be inversely as the amount o f capital accumulated; and sup­
posing the amount the same, the rate o f profit will be directly as the
rate o f advancement; or, in other words, the unoccupied field o f abridg­
ing labor. O f two nations possessed o f the same amount o f capital, the
profit will be the greatest in the one which is most advanced in science
and mechanical art.
If, then, we have correctly traced out the moral principles which deter­
mine the rate o f the profits o f capital, whilst we in the main must agree
with Adam Smith that profits diminish with the increase o f capital, yet
that theory must be taken with some qualification, since it assumes not
only that the proportion between the frugal and luxurious continues un­
changed, but that the field for labor-saving machines and contrivances
is not susceptible o f much variation, neither o f which suppositions ac­
cords with the history o f society. A nation may have a greater propor­
tion o f the thrifty class at one time, and o f idle consumers at another;
and in any style o f its advancement some happy discovery may greatly
enlarge the field for the profitable employment o f capital. The inven­
tion o f Arkwright’s machine, and, yet more, that o f the steam engine in
England, the application o f that engine to navigation by Fulton, and
more recently its application to rail-roads, have, at different periods, so
increased the demand for capital, that its profits have been kept from
falling, and in some cases have actually risen, notwithstanding the coun­
teracting influence o f a prodigious increase o f capital. W ith these quali­
fications, the doctrine o f Smith, that the profits o f capital in every country
are in the inverse proportion to its amount, which is only saying that
capital obeys the general law o f losing a part o f its value from abundance,


Theory o f P
’ rofits.

is substantially true; consequently, that the rate o f profit is as indepen­
dent o f the rate o f wages, as the price o f iron is o f the price o f wool ;
and that after that rate has been determined by the circumstances which
have been mentioned, no branch o f industry can have the aid o f capital
without the payment o f that rate.
But if the principal foundation o f the profits o f capital is its faculty o f
saving labor, as we have contended, some may ask how can those profits
be independent o f the price o f labor % The answer is, that in ascertain­
ing the price o f labor we compare labor, with something else, as with
raw produce; but in ascertaining the rate o f profits, we compare capital
with itself. The rate being a proportionate part o f the whole capital
employed, is the same, whether that whole represent a greater or less
value. Thus, if capital equivalent to the labor o f one hundred men should,
when vested in some labor-saving machine, save the labor o f ten men after
paying all expenses, the rate o f profit, which would be ten per cent.,
would be the same whether the labor o f the one hundred men were great­
er or less, for whatever is the value o f the one hundred, the capital, so is
the value o f ten, the profit; and the capitalist who receives ten per cent, in
India, where labor is four cents a day, derives precisely the same profit
from his capital as i f he received ten per cent, in the United States, where
labor is ten or twenty times as high.
It has also been gravely maintained, that an increase o f capital, and a
consequent increase o f competition among capitalists, cannot lower the
profits o f capital. “ A ll that competition can do,” it is said “ and all that it
ever does, is to reduce the profits obtained in different businesses and
employments to the same common level.” * But the tendency o f compe­
tition to lessen the general average o f profits, is as certain and as natural
as the tendency to equalize them among individuals, and the same pro­
cess by which the one is effected also effects the other. I f competition
among the laborers o f a country tend to bring wages to one common
level, it is no less certain that the increased competition o f double the
number o f laborers would lend to make that common level yet lower.
T hey are both consequences o f the same underbidding o f rival com­
F or the purpose o f better illustrating the relation o f profits to wages
and rent, let us suppose a small community o f thirty families, o f whom
one third were the proprietors o f the soil, another third owners o f the
capital required for its cultivation, and another, common laborers; that
the best land had been taken into cultivation, and that its annual product
was equally divided among each o f the three classes, so as for each farm
to rent for one hundred bushels o f wheat, each laborer to receive one
hundred bushels, and o f course each farmer to receive the same for his
outlay o f capital.
L et us farther suppose that the population went on to increase, so as
to make it necessary to resort to inferior soils, and that this process had
continued until the population had doubled, by which time the produce
o f the same capital and labor which had previously produced three hund­
red, was now, on the inferior lands, reduced to one hundred and eighty

♦ M'Culloch’s edition o f the Wealth o f Nations, p. 476.

Theory o f Profits.


I f all the three classes had increased in the same proportion, it is not
improbable that the lands last taken into cultivation would rent on the
same terms as the best lands had done, that is, for one third o f the pro­
duce— the same circumstances o f mutual competition which had brought
about that result before, existing now. In this case, the farmers would
be entitled to one hundred and twenty bushels, to pay the wages o f the
laborer, and the profits o f his capital.
H ow would the one hundred and twenty bushels be distributed? A c ­
cording to the Ricardo school, the laborer should receive one hundred
bushels, or near it, as before; or supposing one half o f his wages to be
appropriated to raw produce, to eighty bushels, leaving forty bushels to
the farmer, or two fifths o f what he formerly received as profit for the
same amount o f capital. But if capital and labor had increased in the
same proportion, on the ordinary principles o f supply and demand, the
same division between them which had previously taken place would
still continue, and each would receive sixty bushels, or three fifths o f what
it had formerly received.
But let us suppose that capital had not increased in the same propor­
tion, and that there was an accession o f only four fifths o f the requisite
horses, ploughs, and other implements o f husbandry, for the cultivation o f
the additional soil. Then there would be a demand for less labor,
whereby the competition among laborers would be increased, and their
wages would consequently fall. But in the same degree that wages were
reduced would the profits o f the farmer be augmented.
But if, on the other hand, by the prevalence o f thrift, capital had in­
creased faster than population, as it commonly does in a prosperous
community, and there was more than double the former amount o f the
implements o f husbandry and o f commodities stored away to pay labor­
ers, in that case the increased competition among farmers would raise the
wages o f labor, and in the same degree that the latter exceeded sixty
bushels, the profits o f capital would fall short o f that quantity. Thus we
see, that while the profits as well as wages tend to decline with the pro­
gress o f population, yet in the same stage o f that progress, profits will
have declined more or less than wages, according as capital has been ac­
cumulated in a greater or less proportion, and that in the division which
capital and labor make o f the products o f the soil allotted to them, the
proportion that they respectively receive, depends upon their proportion
to each other.
As wages and profits tend to equality throughout the same communi­
ty, when the capitalists and laborers are obliged to put up with a smaller
return from inferior soils, they will be able to obtain no higher a return
from the cultivation o f the more fertile soils, and the difference goes to
increase rents. Thus, in the supposed reduction o f wages and profits
from two hundred bushels to one hundred and twenty, the rents on the
best lands would be raised from one hundred, to one hundred and eighty
bushels, or from one third to three fifths.
W ith all this variance in the relative distribution o f rent, wages, and
profits, we find that each in its rise or fall obeys the great law o f supply
and demand. Thus, as in the progress o f population the supply o f fer­
tile land becomes less in proportion to the demand, its products rise in
value ; while for the opposite the price o f labor falls, and the profits o f
V O L . I I .— n o . m .


Theory o f Profits.

capital, in like manner, rise or fall, as the supply falls short or exceeds the
demand for it, that is, the occasions o f using it to aid human labor.
In the preceding example, we have considered it as employed solely
in agriculture, in which case the demand for it will depend mainly upon
the amount o f the laboring class. But it must not be forgotten that it
is also demanded for the purposes o f commerce and manufactures as
well as o f agriculture, and the portion allotted to the last may be di­
minished by the field o f profitable employment afforded by the other
two, as well as by any other cause; for the rate o f profit depends upon the
proportion between the entire demand in all employments, and the whole
supply; and o f course, the greater the demand, the greater the rate, o f
profit, until the increased rate o f profit checks the demand, and restores
the equilibrium.
A considerable diminution o f supply has the same effect in raising
the rate o f profits as an increased demand. Whatsoever, then, checks the
accumulation o f wealth yet more than the progress o f population, en­
hances the profitableness o f the remaining capital. It is in this way
that interest continues so high in India and China, and indeed through­
out all Asia, where, by reason o f the land being regarded as the property
o f the sovereign, he is able to exact so large a proportion o f the products
o f the soil as to leave a mere pittance to the cultivators, so that no wealth
can be accumulated from that source. The unlimited power o f taxation
derived from the same arbitrary character o f their governments, and the
insecurity o f property, also impede the acquisition o f wealth in other
employments. Taxes, by lessening the amount o f capital, have the
same effect in raising the profits o f the residue, that a scanty harvest
has in raising the price o f corn.
W e see, on the other hand, the profits o f capital fall with the increase
o f its amount. It has been owing to the steadily increasing opulence o f
Great Britain, in spite o f a still increasing taxation, that interest has
fallen from 10 per cent., in the time o f Henry V III., successively to 8,
7, 6, and 5 per cent., at which rate it has been fixed by law, for more
than a century; though, in point o f fact, for large sums the proprie­
tors cannot get more than from 3 to 3£ per cent. It was the extraor­
dinary opulence o f Holland, too, which made the interest o f money, and
the ordinary profits, lower than in any country in the world— private
individuals having formerly been able to borrow money there at 3 per
cent., and the government at only 2 per cent. This low rate o f in­
terest, which was the natural consequence o f the wealth she derived
from her unequalled commerce, from her numerous manufactures, her
extensive fisheries, and from her cultivating and fertilizing every portion
o f her territory like a garden, has been strangely attributed to her very
heavy taxation.* In truth, both the taxation and the low rate o f profits
are the effects o f extraordinary riches both in Holland and England, and
if the additions to the national capital had not exceeded the whole amount
o f expenditure, public and private, interest would have risen instead o f
fallen. In like manner, the profits o f capital may continue low notwith­
standing a decline in the amount o f capital, if there has also been a cor­
respondent diminution o f demand. In this way, the interest o f money
continues to be still somewhat lower in Holland than in any part o f E u ­

* In M'Culloch’s Principles o f Political Economy.

Theory o f Profits.


rope, although she has lost many o f the sources o f her former opu­
lence ; but much o f the capital she had acquired in the palmy days o f
her prosperity she still retains ; and if being more than the narrower
field o f her commerce and manufactures can employ, has to seek invest­
ment in foreign countries, to avoid the expense and hazard o f which a
much lower interest is taken at home. Taxation does indeed lessen the
revenues o f all classes, including the capitalist; it may impair the amount
o f the national capital, and it always tends to check its grow th ; but, so
far as it has that effect, it tends to raise the rate o f profit rather than to
lower it.
In the preceding inquiry, the profits o f capital have been taken in a
narrower sense than is usual, and have been considered as identical with
the interest o f money lent, exclusive o f the risk o f loss. The term
profits is commonly used by political economists to comprehend not only
the return made by the capital itself, but also that which rewards him
who employs it for his judgment, foresight, and personal superintendence
in the management o f it. This last is, strictly speaking, only a par­
ticular species o f industry and talent, and the compensation it receives
is o f the nature o f wages, and is regulated by the laws which govern
wages. It is, then, much more favorable to scientific precision to separate
the two, and to consider nothing as the profits o f capital, but that return
which capital yields independent o f the personal exertions o f its pro­
prietor. The rate o f profit in this sense is nearly uniform in the same
country at the same point o f time, but the personal services with which
they are commonly conjoined have all that diversity which ever attends
the rewards o f human labor, according to the agreeableness o f the em­
ployment, the risk o f success, the difficulty o f acquiring the requisite
skill, etc.; and consequently, the rate o f profit, in its ordinary sense,
must have the same diversity. It may be five or even ten times as great
in a business employing a small capital as in one employing a large one
— at one rate in a safe, or an easy, or a reputable business, and another
in a precarious, or a difficult, or a discreditable employment. T o con­
found things so essentially distinct cannot but produce embarrassment
in our reasonings, and in our practical applications o f them often lead
us into positive error.
It deserves to be remarked, that as in this way much that is called
profits is in reality wages, so a part o f what commonly goes under the
name o f rent is properly profits. O f this character is the compensation
which the landed proprietor receives for the use o f all buildings erected
on his land, all improvements made by ditching, draining, fencing, or by
any other employment o f capital.
The annual return they yield is
governed by the laws o f capital, and rises or falls with the ordinary rate
o f profits, independent o f the progress o f rents.
W e have thus seen that the theory o f Ricardo and his followers involves
two fallacies as to profits : one, that the laborer will continue to receive
the same real wages after his labor has becom e less productive ; and the
other, that whenever an increase o f population makes it necessary to re­
sort to inferior soils to furnish the requisite amount o f food, the necessi­
ties o f the augmented population extend to the proprietors o f capital, and
compel them to advance capital for the cultivation o f such inferior soils.
If these two points be conceded, the ingenious theory they have built on
them is the logical consequence; but we have shown that they are contra­
dicted by the whole history o f civil society, and the most undeniable

Theory o f Profits.


motives o f human action; nor could minds o f this stamp have adopted
such errors, if they had been sufficiently impressed with the conviction
that political economy is essentially a moral science, and if they had not
prematurely attempted to reduce its laws to mathematical form ula before
they had sufficiently investigated the moral principles on which those
laws are founded.
On this subject w e may aptly quote the concluding remarks o f P ro­
fessor W hew ell, in his “ Mathematical E xposition” o f some o f Mr. Ri­
cardo’s doctrines in political economy :
“ A ny attempt to make this subject at present a branch o f mathema­
tics, could only lead to a neglect or perversion o f facts, and to a course
o f trifling speculations, barren distinctions, and useless logomachies.
‘ Collocatio ejus inter mathematica,’ as Bacon says o f another science,
‘ hunc ipsum defectum et alios similes p ep erit; quia a phcnomenis pra,ma­
ture discessum est.’ And these defects may be incurred, even though
common verbal reasoning be substituted for mathematics, if the course
adopted be that o f assuming principles and definitions, and making these
the origin o f a system. The most profitable and philosophical specula­
tions o f political economy are, however, o f a different kind : they are
those which are employed not in reasoning from principles hut to them;
in extracting from a wide and patient survey o f facts, the laws accord­
ing to which circumstances and conditions determine the progress o f
wealth and the fortunes o f men. Such laws will necessarily affix, and
probably always be too limited and too dependent on moral and social
elements, to become the basis o f mathematical calculation; and I am
perfectly ready to admit, that the discovery o f such laws, and the inves­
tigation o f their consequences, is an employment o f far higher philo­
sophical dignity and importance than any office to which the mathema­
tician can aspire.” *
Mr. Senior’s name having been mentioned as one o f the supporters o f
the new school o f political economy, as to the theory o f rent, it is hut
justice to that political economist to remark, that he has not embraced
the doctrine o f that school as to profits — on which subject his views do
not conflict with those o f Adam Smith, though he has aimed in this, as
in other parts o f his excellent treatise, to reduce his principles to the
strict form o f science, far beyond what Smith attempted or seemed to
have thought practicable.
The principles which I have endeavored to establish in the preced­
ing investigation, will be now briefly recapitulated. They are,
1. That after the best land o f a country is taken into cultivation, raw
produce, from the increased demand for it to supply the wants o f an in­
creased population, gradually rises in price compared with human labor;
in other words, that in the progress o f society more labor is given for
the same quantity o f raw produce.
2. That it is in consequence o f such rise o f raw produce, or fall o f
labor, that new and poorer soils are taken into cultivation; which culti­
vation, b y increasing the quantity o f raw produce, tends to lower its
price. But as such farther cultivation is the effect o f the increased price
o f raw produce, it can never bring down the price to its former level.

* Cambridge Philosophical Transactions, vol. iv., part i.

Theory o f P rofits.


The effect o f increasing numbers, in raising the price, and o f a resort
to inferior soils in lowering, may be illustrated by the ascent o f a body
lighter than air, which, as it ascends, takes up a chain that connects it
with the earth, and which is prevented, by the increasing weight o f the
chain, from ascending as high as it otherwise would, before it finds its
3. That as population and cultivation extend, the laborer must receive
less raw produce, unless the capitalist receive less. But the portion
received by the capitalist depends upon the number o f his competitors,,
and the demand for capital.
4. That the laborer receiving less raw produce for his labor, must con­
sume less either in the quantity or quality o f his food, unless he re­
trenches in other things. H e commonly retrenches both in food and
other things.
5. That the reduction o f wages from the increase o f numbers may be
counteracted by improvements in husbandry. But while the price o f
raw produce may thus be rendered stationary, the landlord gains by the
increase o f quantity.
6. That profits are increased by whatever lessens the supply o f capi­
tal, as taxation, dearth, or increased demand for it, as new avenues to
trade, new modes o f abridging labor, and the like. They are dimin­
ished by an increased supply o f capital, as a long course o f prosperity
in commerce or manufactures, or by a diminished demand, as where for­
mer modes o f employment are cut off', land, labor, and capital.
7. That though affected by different circumstances, all obey the great
law o f supply and demand, in the profits they severally yield. Thus, the
profits o f land, or rent, rise with the demand for raw produce. The
profits o f labor, or wages, fall with the increase o f numbers. The profits
o f capital fall with the accumulation o f capital.
The following table will illustrate the effect o f an increase o f popula­
tion on rent, wages, and profits, according to the preceding principles.
It supposes all the best lands to be taken into cultivation, improvements
in husbandry stationary, capital to increase in the same ratio with num­
bers, and the raw produce to be equally divided into rent, wages, and
profits, during the whole six periods o f time supposed. The number o f
agricultural laborers are assumed to be one tenth o f the gross population.

P O P U L A T IO N .


N um ber o f


A n n u a l p ro ­
duce in b u sh ­
els o f wheat.

P r o p o r tio n o f
W a g e s o f la­ W hole am ount
p ro d u ce in
o f ren ts in
bor p e r day,
r e n t , w a ges,
da ys o f la ­
i n p in ts oj
a n d p rofits
w heat.

160 =



6 ,6 6 6 ,6 6 6 1
1 0 .6 6 6 ,6 6 6 1

It thus appears, that while the population had doubled, rents had
increased 50 per cent., estimated in raw produce, and 100 per cent.,
estimated in labor, and that wages had fallen from two pecks a day to
one and a half peck.

L ife Insurance.


But as improvements in husbandry are rarely stationary in any coun­
try where art and civilization have made much progress, let us now
suppose that they have been sufficient to make the produce o f the soil
keep pace with the population. In that case the last line o f the table
would stand thus :
Number o f laborers................................................................
Annual product...................................................................... 20,000,000
Proportion o f produce in rent, & c ....................................... 6,660,666}
Daily wages o f labor..............................................................
160 pints.
Rents estimated in labor.....................

If, however, capital had not accumulated as fast as population, its
proportional part o f the raw produce would have an increase corres­
pondent to the deficiency, by which the amount o f raw produce received
for rent would be less than b e fo re ; but as wages would also be farther
reduced, the landlords might be able to command as much labor as before.
The distribution o f the annual produce would then be altered in this
way, supposing it to be 15,000,000 bushels, and the profits o f capital to
be two fifths o f the produce,
W ages..............................
D aily w ages....................
Rents estimated in labor

6,000,000 bushels.
4.500.000 ..
4.500.000 ..
108 pints.

On the other hand, if capital should increase faster than population,
as it commonly does in intelligent and well regulated communities, it
would proportionally increase both wages and rents.

A r t . I I I .— L IF E IN S U R A N C E .
T he proximity o f death in all the varied and shifting scenes o f life—
the sudden and fatal accidents which expose men to be cut down in the
prime o f their youth, leaving fond and helpless relatives to mourn the
loss o f those upon whom they were dependent for protection and sup­
p ort— and the uncertainty o f a life, whether in youth or age, which the
slightest casuality may take away,— are subjects that naturally prompt
an individual who is surrounded by a family, and connected with rela­
tives relying upon him for necessaries to preserve them from the freez­
ing charity o f the world, to devise some means by which they can be
saved from want and suffering, after his physical strength and mental
energies shall have been destroyed by some one o f the mysterious ope­
rations o f a Divine Providence.
Under these circumstances he feels it to be indispensably necessary to
the creation and continuance o f his happiness while living, that some
sure and unfailing provision should be made for securing to those who
are dear to him, a sufficient competency to place them beyond a misera­
ble dependence upon public charity after his death; and most o f his
aims in the business o f life are directed towards this desirable consum­

L ife Insurance.


W hen we look abroad upon the busy action o f the world, and view
the varied and exciting scenes o f life, and mark the struggling o f man­
kind as they rush to and fro on the great stage o f their employment—
almost the sole object which we see them striving to attain is wealth,
that they may transmit it with their names to posterity. It is not a
miserly selfishness which thus induces men to exert the energies o f
their minds for the purpose o f obtaining a portion o f the world’s trea­
sures ; they are actuated by sentiments o f a nobler and more elevated
character. The acquirement o f sufficient property for the support o f
their families is generally the main object in v ie w ; and after this is ac­
complished, we often see them withdraw from the bustle o f active life to
scenes o f retirement. The ends for which they have toiled from the
dawning o f manhood are then satisfied; and those dependent upon
them are surrounded by all the comforts necessary to constitute happi­
ness ; and they are impressed with the consoling consciousness, that if
death overtakes them, the pecuniary interests o f their families cannot be
prejudiced or injured.
The energies o f men being directed by these impulses, and their
duties pointed out and controlled by the feelings w e have mentioned, it
is o f the deepest importance that the means which are most effectual
in securing the desired object, and those attended with the least risk,
should be generally known and appreciated, and their peculiar applica­
tion thoroughly understood.
An individual may be engaged in the most prosperous business, from
which he anticipates the realization o f golden returns ; he may be in
the possession o f every material calculated to create the foundation, and
rear the superstructure, o f a splendid fortune — and death steps in to
darken the bright vision which his hopes had painted in perspective, and
his wife and family are left almost penniless and destitute. A person
may toil during a long life, and owing to the various misfortunes which
he encounters, be unable at the time o f his death to leave any considera­
ble sum for the support o f those dependent upon him for a livelihood,
who are thus left unprotected, and exposed to the misery and suffering
which poverty seldom fails to carry in its train. Almost every under­
taking in life is attended with risk and uncertainty ; and in whatever
business the feelings o f men may lead them to engage, they will find
something which, in its direct or remote consequences, is calculated to
unsettle the conviction their minds had formed, o f the certainty o f de­
riving large and profitable gains from the pursuit in which they embark.
A s the ordinary employments o f men so frequently terminate un­
favorably to their pecuniary interests, and as the most brilliant auspices
and flattering prospects are often annihilated and destroyed by the hand
o f death, it is a matter o f grave importance to those whose situations in
life compel them to rely upon the hazardous future for the acquirement
o f a competencey upon which to support their families, to reflect upon
the means best calculated to secure this object, and to seize upon that,
which, in the event o f misfortune in fife, and impoverishment at death,
will surround their wives and children with pecuniary comforts. F or
the attainment o f this very desirable end, nothing is so safe and effectual
as the contract o f life insurance, by which, for a sum proportioned to
the age, health, profession, and other circumstances o f the individual
whose life is the object o f insurance, the insurers engage that he shall


L ife Insurance.

not die within the time limited in the p o lic y ; and that i f he does, a
specified sum o f money shall be paid to his heirs, or to those entitled to
claim it by the terms o f the instrument.
The numerous and obvious advantages resulting from insurance o f
this nature, led to its early adoption on the continent o f Europe ; and
although its antiquity cannot be ascertained with much certainty, yet
the old French authors mention it as perfectly well known so early as
the middle o f the seventeenth century. Before proceeding to point out
the many benefits which flow from it, the principles upon which it rests,
and the leading rules o f law which govern its construction and control
its effect, we shall briefly notice the objections which were made to it
shortly after its introduction into the states o f E u ro p e ; and which, in
France and many other countries,led to the creation o f positive regulations
declaring this species o f contract illegal and void.
The reasons which are given for abolishing insurance o f this nature,
after it had been introduced and sanctioned as productive o f good results,
do not seem to be very satisfactory. The main argument used against
it in France being, that it fixed and determined the price o f a man’s
life, which ought to be beyond all valuation, particularly that o f a free­
man. The manner in which it was at that time used, was, without
doubt, often repugnant to good morals, and in many instances opened
a wide door to a variety o f frauds and abuses ; for it permitted the most
unlicensed gambling, by allowing an individual to insure the life o f any
person in which he had not the slightest interest; and in some cases,
perhaps, led to the employment o f the assassin to take away the life in­
sured. These considerations probably formed the grounds upon which
its illegality was declared, and yet they furnish no sufficient cause for
its utter annihilation. E very necessary modification and restriction
could have been imposed, and all the numerous benefits and advantages
resulting from its use retained, and only those persons have been per­
mitted to effect the policy who were interested in preserving the life
It is true, that when this prohibition was made in France, and other
states o f continental Europe, the feelings and passions o f mankind,
whether influenced by avarice, or any other consideration which prompts
human action, were less restrained within the bounds o f morality and
justice, than they have been at later periods, when a more wholesome
and salutary system o f laws has existed; but it is unnatural, and con­
trary to the feelings and principles o f human nature, to suppose that the
love o f the wife and the affection o f the child would, in any age be so
far overcome by the desire o f gain, as to induce them to sacrifice the
life o f the husband and parent, that they might enjoy the sum to which
an insurance upon his life would then entitle them. The objections, then,
with which this contract was met, upon its early introduction, arose from
the immorality which prevailed, on account o f the discordant materials
o f which society was then composed, the insufficiency o f laws for the
punishment o f violence and force, and the unlimited extent to which it
was carried; and did not result from any repugnant features intrinsically
existing. This is evident from the fact, that in whatever country in­
surance o f this nature has been allowed, under proper conditions and
restrictions, it has ever been productive o f the most inestimable results,
and has been widely and extensively encouraged, by the most liberal

L f e Insurance.


and favorable legislation. The important advantages resulting from it
were early perceived in England; and in the reign o f Queen Anne, the
Bishop o f Oxford, Sir Thomas Allen, and some other gentlemen, were
induced to apply for a charter to incorporate themselves and their suc­
cessors, for the purpose o f enabling them to provide for their families
in an easy and beneficial manner. A nd the queen, in 1706, granted her
royal charter, incorporating them by the name o f the “ Amicable Society
for a Perpetual Assurance Office.” This was the first institution o f the
kind ever established in England; and the benefits which it conferred
upon the public were found to be so extensive, and the security it fur­
nished for the support o f families so great, that other companies for the
same object were soon incorporated, and every facility was afforded to
persons desirous o f effecting insurance o f this nature. A s these socie­
ties were originally established in England, an unqualified permission
was held out to all persons, allowing them to insure the life o f any indi­
vidual they pleased, in the same manner as had been practised in
France, although it did not lead to the same results; for instead o f
abolishing it, a law was created, declaring that no insurance should be
made by any person upon the life o f another, in which the individual
for whose use, benefit, or on whose account it should be made, should
have no interest, or by way o f gaming or w agering; and if made con­
trary to this law, it was declared void, to all intents and purposes. This
provision effectually annihilated every species o f gambling which had
been carried on under cover o f the p o lic y ; and destroyed all founda­
tion, upon which objections to the legality and justice o f this contract
could rest, and placed it upon the broad principles o f morality and sound
A fter wise and enlightened legislation had in this manner eradicated
the deep seated evils which had existed in the use o f this species o f in­
surance, the good results following from it were felt and appreciated,
and the beneficial ends which it produced were considered o f deep
public importance. The prejudices existing against it gradually dimin­
ished, and finally almost disappeared; and objections against it were
viewed as having little more foundation in justice or good policy, than
could be pointed out in the case o f an insurance upon a ship, or any
other species o f property.
Having glanced at the early history o f this contract, and noticed the
leading objections which were met and obviated previous to its being
extensively introduced, and the benefits which it confers widely known
and acknowledged, our next object will be, to point out some o f the
many advantages which may be derived from its use, and to consider a
few o f the instances where it is calculated to invest the person for whose
use it is made, with pecuniary rights o f a nature highly important.
The cases in which beneficial results may arise, are numerous, and can­
not fail to impress upon the mind a conviction o f its great value in
effecting objects for accomplishing which it may be used. I f an indi­
vidual has a wife and family dependent upon him for support, a small
portion o f the yearly income which he derives from the employment in
which he is engaged, will secure to them at his death a sufficient sum
to preserve them in the enjoyment o f those comforts to which they have
always been accustomed. W here married persons have a jointure, an­
nuity, or pension, depending upon either o f their lives, b y insuring the
VOL. I I . —

n o

. h i.



L ife Insurance.

life o f the one entitled to such annuity, pension, or jointure, the other
may secure a competency after death shall have taken away the one
upon whom the life interest depended. I f an individual is desirous o f
borrowing money, he may insure his life, and thus give the lender a
security for the sum obtained.
A merchant commences in business with the fairest prospects o f ul­
timate success, and is looked upon by those with whom he deals as worthy
o f liberal credit, but life is uncertain, and they are fearful that death may
overtake him before he realizes sufficient to satisfy their demands; an
insurance effected upon his life, will add materially to the credit he en­
joys, and secures to his creditors the payment o f their claims. I f a credi­
tor is in danger o f losing his debt, in case the person who owes it to him
should suddenly die, he may insure his debtor’s life, and guard against
the consequences o f an event to which mankind are always liable.
A person possessed o f an annual income only, may, upon marriage,
secure by settlement, for the benefit o f his widow and family, such a sum
as it may suit his circumstances to insure. The cases we have mention­
ed are a few o f the many instances in which life insurance is o f incal­
culable advantage, In this country, however, the most frequent use to
which it is applied, and the most valuable object it attains, is that o f
enabling a parent to provide for his family, when his income principally
depends upon his own life or exertions; as in the case o f professional
men, merchants, mechanics, and persons living ujton incomes. A nd how
many helpless and destitute families would have been saved from suffer­
ing and want, if the husbands and fathers, who perished in the late
dreadful conflagration o f the steamer Lexington, had in this manner
guarded against the fearful consequences which resulted from embarking
their lives on board this ill-fated vessel. The experience o f men is
daily convincing them o f the necessity which exists for obtaining this se­
curity for the benefit o f their fam ilies; and when we examine the prin­
ciples upon which it is based, and scrutinize their bearing upon the
moral and social condition o f mankind, we are unable to perceive any
reasons which ought to prejudice the mind against it, or to observe the
least tendency which it possesses towards the introduction o f fraud or
evil practices.
In a disordered state o f society, where the administration o f the law
is too feeble and ineffective for the punishment o f acts o f violence, and
where the midnight assassin and noonday murderer can walk securely
abroad, clothed in the protection which is afforded by the strong arm o f
force, life insurance, unless confined within very narrow limits, may be
dangerous; but in a community like our own, where stern justice is sure
to overtake those by whom it is outraged, where the laws are respected
and observed, and where the passions and feelings o f mankind are go­
verned and controlled by considerations o f morality and the public good,
it is eminently calculated to ensure the most important benefits, and to
confer many valuable blessings. The prejudices which exist against it,
on the ground that it trifles with the decrees o f Providence b y setting
a price upon the solemn event o f death, are without the least foundation
in reason or good sense, and hardly deserve to be seriously considered.
T hey arise from a want o f due reflection, and proceed from ignorance o f
the true principles b y which it is governed. W hat infringement o f the
rules o f morality or religion is committed by an individual who pays a

L ife Insurance.


small yearly sum, that his family may enjoy a humble competence at his
death. Is there any presumption towards his Maker, in thus endeavoring
to make an event, which must inevitably produce mourning and unhappi­
ness in the hearts o f his wife and children, fall upon them as lightly as pos­
sible 1 can there he any impiety in looking forward to his final dissolution,
and preparing for its consequences ? or will it be pretended, that his duties
towards those with whom he is connected by the most endearing ties o f
life extend only to their support and protection until his death, and that
poverty and wretchedness should then be the portion o f the widow and
the orphan 1 W here is the moral distinction between insuring a ship for
a voyage, with a hundred souls on board, and insuring the life o f an in­
dividual 1 In either case, the loss may depend upon numerous circum­
stances, an d allof themequally uncertainandcontingcnt. I f the lightnings
o f heaven, the billows o f the sea, or the rocks which sleep beneath the
ocean’s wave, destroy the vessel, death may annihilate every person on
board, and the event thus insured against is productive o f the most
dreadful consequences ; while insurance upon the life o f an individual
contemplates a result which involves the safety o f but a single person.
After examining the foundation upon which this species o f insurance
rests, we cannot discover any material difference which exists to distin­
guish it from insurance upon property; for in either case, a loss usually
depends upon chances which men cannot foresee, and over which they
have no con trol; and although a wide distinction may prevail in resjtect
to the purposes and objects for which they are obtained, yet they are
based upon the same principles, and are governed by the same rules. F or
the purpose o f presenting the subject o f life insurance in all its various
bearings, as well with reference to the case o f an individual who obtains
the policy upon his own life, as to the person effecting it upon that o f his
debtor, we shall endeavor to illustrate and explain the principles o f law
b y which it is controlled, and to point out some o f the leading rales which
govern the construction and effect o f this species o f contract. T o the
person desirous o f insuring his own life, or that o f an individual in which
he is interested, the nature o f the preliminary measures which he must
take is important to be understood, and the facts and circumstances
which he is bound to disclose, as the foundation upon which the policy
is based, for the purpose o f giving validity and effect to its provisions,
should be faithfully and unreservedly communicated.
The usual mode o f proceeding is, for the party to procure, at the office
o f the company, a printed form o f proposal, containing a number o f
questions relating to the profession, situation in life, and health o f the
person, all o f which must be satisfactorily answered, or the proposition
for effecting the insurance will not be entertained. Queries to nearly
the same general import are also propounded to the medical attendant
and intimate friend o f the person whose life is the subject o f insurance,
which must be replied to in a manner calculated to convince the com­
pany o f the safety o f the risk they are about to assume.
A declaration or statement must then be signed by the party, embo­
dying the answers to the questions contained in the proposal, with an
agreement that so far as such declaration relates to the age o f the person
to be insured, and the state o f his health, it shall form the basis o f the
contract between the party and the com pany; and the policy is then
made out and executed. A s this declaration constitutes the foundation


L ife Insurance.

upon which the agreement rests, too much caution cannot be exercised
in ascertaining the real state o f the facts which it contains. It is the
duty o f the assured to disclose every material fact which may in any
manner affect the assumed risk ; and although specific questions, which
are alike applicable to all classes o f men, are proposed by the offices,
yet if any circumstances exist calculated to shorten the life o f the per­
son insured, or which operate to the serious detriment o f his health, they
must be disclosed in all cases where a general question is put by the
insurers at the time o f effecting the policy. In construing the effect o f
the various conditions which form the subject o f this agreement, the
broad principles o f justice prevail, and its provisions are not controlled
by strict technicalities, or formal unmeaning rules. So long as it appears
that the party effecting the insurance has not been guilty o f fraud, and
that he has made no concealment or misrepresentation, it will be ex­
pounded with that liberality in his favor which equity demands.
The offices will never take advantage o f trifling objections, for the
purpose o f discharging their liability; and a resort to legal measures
seldom becomes necessary.
It is important that the health o f the party, at the time his life is in­
sured, should correspond with the statement in the declaration ; for
although he may be o f plethoric habit, or consumptive, or o f a naturally
delicate constitution from causes not ascertained, and which could not
have been known and communicated, and are consequently risks which
the insurers must assume, yet i f any particular disorder exists, tending
to shorten life, it must be divulged, and if kept a secret it will vitiate
the policy.
F or the purpose o f showing the important necessity which in all cases
exists for disclosing the true state o f health which the insured enjoys,
and the materiality o f a concealment o f any particular physical disa­
bility under which he may labor, we shall mention the circumstances
connected with an insurance which was effected in 1824, by the Atlas
Insurance Company in England, upon the life o f the Duke o f Saxe
Gotha, in Germany. W hen the policy was effected, it appeared from
the declarations and answers o f the duke’s physicians, and the state­
ments o f other persons, that he had lived a dissolute life in former days,
by which he had lost the use o f his speech ; but his physicians did not
mention the state o f his mental faculties, the use o f which he had also
lost. In 1825 the duke died, and a large tumour, pressing upon his
brain, was then discovered, which had existed for many years, and to
which might be attributed the loss o f his speech and mental faculties.
Under these circumstances, the company refused to pay the sum for
which the life o f the duke was insured, and an action was brought
against it upon the policy. Upon the trial o f the cause, all the medical
testimony went to establish that the symptoms during the duke’s life
were not such as to excite the suspicion that such a tumour existed, or
that he was afflicted with any particular disorder tending to shorten life;
but a foreign physician said, had he been consulted, he should have
thought it his duty to state that he attributed the loss o f speech to a para­
lysis o f the organs ; and an English surgeon said, he should have con­
sidered it right, in answer to the general question, “ whether he knew
any other circumstances that ought to be communicated to the directors
o f the company,” to mention the state o f the duke’s mental faculties.

L ife Insurance.


In deciding this case, the court held, that the concealment o f these facts
by his physicians was o f sufficient importance to vitiate the policy, and
to discharge the company from all liability upon the instrument, on the
ground that the suppression o f a material fact is, in contemplation o f law,
a fraud. A misrepresentation or concealment, which is material, will
have the same effect, whether the policy is effected for the benefit o f the
insured or his creditor.
In the latter case, the party whose life is insured is considered the
agent o f hiS* creditor, and all his statements, and those o f his physician,
with reference to his health, and other circumstances necessary to be
divulged, are governed and controlled by the rules o f law which have
already been mentioned.
After the policy is executed, every stipulation and warranty which it
contains must be strictly observed. Any material departure from its terms
will, in contemplation o f law, be sufficient to discharge the company from
responsibility; although it will seldom avail itself o f any excuse for this
purpose, unless strong circumstances o f fraud exist, or a wilful violation
o f its conditions is made to appear. W here insurance upon life is effected
for the ordinary premium, certain limits and boundaries are prescribed
in the policy, within which the person insured is bound to remain, and he
cannot depart beyond them without vitiating it. This, in some cases, may
be deemed unreasonable, as a slight deviation from its terms may often
occur without in the slightest degree enhancing the risk o f the compa­
ny ; but in order to prevent the multiplicity o f questions which would
arise in the settlement o f losses if this enhancement was left open to in­
quiry and investigation, instead o f being fixed and determined by arbi­
trary rules, the various insurance offices have deemed it imperatively
necessary to mark out and define, by general provisions, the extent o f
country within which the assured must confine himself. It would be
foreign to our present purpose, to enumerate all the various and minute
warranties and stipulations which a policy o f the nature we are consi­
dering embodies; or to notice and point out the high legal adjudications
by which their construction and effect have been established.
The general principles o f law by which ordinary agreements are go­
verned, apply with equal force here ; and as our main object is, to men­
tion only those peculiarities which distinguish a policy o f life insurance
from other written instruments, we shall not depart frofn it by entering
into a discussion o f that which is wholly disconnected with its accomplish­
ment. There is one branch o f this subject, however, which yet remains
to be considered in a legal point o f view, with reference to an impor­
tant feature it presents, and which has a material bearing upon the rights
o f the' insured. W e allude to the case o f a creditor who insures the life
o f his debtor as security for the ultimate payment o f his demand. In
this case, it is necessary that the party insuring should have a plain, legi­
timate interest in the person whose name is inserted in the policy. Statu­
tory provisions to this effect have long existed in England, it having been
found o f the utmost importance to check the notorious gambling and ten­
dency to crime which it otherwise was calculated to produce ; and in
this country the same rule universally prevails, and such interests must
not only exist at the time the policy is obtained, but must actually continue
until the period when the sum for which the life is insured shall be
claimed. W hat would be deemed a sufficient interest, or what must be


Ijife Insurance.

its nature, in order to constitute a foundation upon which to base the
policy, it would be difficult in some instances to define, although, in the
case o f a debt, the company would, under any circumstances, be liable
to its amount.
Upon the general principle o f allowing an individual to insure the
life o f another whose death may deprive him o f a pecuniary right, there
does not seem any good reason for denying this privilege to a person
who is dependent upon the life o f another for support; as in the case o f
aged and infirm parents, who rely upon the exertions o f tlieir children
for the comforts and enjoyments o f life ; and under these circumstances
policies have been effected, although their legal efficacy has never been
determined by judicial decisions.
Although, as a general ride, the death o f the person whose life is the
subject o f insurance determines the right o f all the parties, yet if the
creditor is subsequent^ paid the amount o f his claim he cannot recover;
for the insurance is regarded in the light o f an indemnity against the
loss o f his debt, and i f it is paid, the contingency upon which the loss
depends no longer exists. This principle was laid down and established
in England, in an action brought upon a policy effected upon the life o f
the Hon. W illiam Pitt.
The insurance was obtained by his coach
makers, for five hundred pounds, he being indebted to them in more
than twice that amount. After his death, and before the commencement
o f the suit, his executors paid out o f the amount granted by parliament
for the discharge o f his debts, the full sum which they were entitled to
receiv e; and under these circumstances, the court held, that they could
not recover upon the policy, on the ground that the damages occasioned
by the death o f Mr. Pitt were prevented by payment o f the debt before
the action was commenced. A s we have before observed, the company
insuring will seldom avail itself o f a defence o f this nature ; and in the
case we have mentioned, the office did not take advantage o f the verdict
which was rendered in their favor, but paid the money to the insured
before they left the court.
Our examination o f some o f the more important principles o f law
upon which this species o f insurance is based, and b y which it is govern­
ed, is perhaps sufficient to point out the material legal rights which the
insured enjoys, and the rules o f action he is bound to pursue in order
to preserve tlieffi unimpaired. A more minute detail in this respect
would involve numerous technicalities, most o f which are o f minor con­
sequence even to those most interested.
The brief legal outline which is here given, will no doubt be unin­
teresting to many, and seem unnecessary to be noticed ; but for the pur­
pose o f rendering contracts o f this nature, for which so many entertain
a prejudice, familiar to the mind, and to illustrate the principles which
constitute their foundation, we have thought its introduction useful in
connexion with the more miscellaneous and varied materials o f which
the whole is composed.
The numerous life insurance companies which have sprung into ex­
istence within the last few years, are more conclusively evident o f the
many benefits which they are capable o f conferring upon mankind, than
any thing else which can be advanced.
W e do not pretend to deny that they are founded upon self interest,
and governed in their operations by hopes o f gain; but the theory o f

L ife Insurance.


this species o f insurance, from its very nature, is calculated to effect the
most benevolent objects.
T he calculation o f chances by which the
amount o f premium is determined, is governed by the probabilities o f
human life, deduced from long and varied experience and observation,
which, together with the spirit o f competition prevailing among the dif­
ferent offices, precludes the possibility o f unfairness or imposition.
Many evils may exist in their management, calculated to prejudice the
rights o f individuals whose interests are entrusted to their care; but
when they are placed under the direction and control o f men possessing
a high integrity o f character, combined with respectable talents and en­
larged business capacity, no doubts or fears need be entertained o f the
honorable adjustment o f every equitable claim.
Many o f these companies in England, present an array o f names in
their list o f directors, who are known as well for the high rank which
they occupy among the nobility o f that kingdom, as for the benevolence
which induces them to lend their powerful influence in the support o f
whatever is calculated to produce results o f a beneficial character; while
others endeavor to create and support a reputation far beyond what
they deserve, by parading a number o f lords and honorables in their
directorship, who are ignorant o f the very existence o f such institutions,
except, perhaps, by a glance at a newspaper advertisement. It must be
borne in mind, however, that many o f them are mere associations o f in­
dividuals without charters, loosely constituted, with iiresponsible offi­
cers, a nominal capital, and who assume a borrowed guise in order to
insure a greater prospect o f success in their schemes o f managing,
trickery, and fraudulent conspiracy. The larger portion, however, are
conducted in a highly honorable manner, possess enormous capitals,
and afford the most perfect guarantee against every species o f unfair­
ness. Their long standing presents the strongest evidence o f the great
advantages which they have conferred upon the public, and at the
same time furnishes a powerful presumption in favor o f supposing that
their dealings with individuals have been characterized by the strictest
integrity. There are now about seventy offices o f this kind in London,
some o f which have been established more than one hundred years.
The lives which they insure number more than four hundred thousand,
and are rapidly on the increase, and have been for a great number o f
It is true that more persons exist upon a life income in Great Britain
than in the United States, and consequently, the number o f families de­
pendent upon its duration is greater, which partially illustrates the
cause why life insurance has been so generally introduced and exten­
sively used in the former country, while it has, until recently, been
almost unknown in the latter. But this is by no means the only cause,
nor can it with any justice be assigned as a principal one; for with the
credit system, almost infinite in its extent, and with every variety o f
complicated business transactions, which are calculated to swell the re­
lationship o f debtor and creditor, no country on earth presents so vast a
field for its beneficial employment, in securing the ultimate payment o f
those obligations which depend upon the lives o f men for their dis­
charge, as the United States.
In a country combining all the elements calculated to demand the ex­
tended use o f insurance o f this nature, how does it happen that it is so


L ife Insurance.

seldom employed, while every other species o f securities are eagerly
sought after, and unhesitatingly grasped 1 It certainly cannot be for
want o f safe and honorably conducted institutions, in all respects calcu­
lated to afford the assured every protection which his interests require,
for in no country are they established upon a firmer basis, with more
salutary checks to guard against an abuse o f their chartered privileges,
than in our own.
The N ew Y ork Life Insurance and Trust Company, in the city o f
N ew York, has been in operation but a few years; but the vast confi­
dence which the Court o f Chancery reposes in its management, by en­
trusting it with the disposition o f those immense sums o f money over
which this court exercises a control, together with the public counte­
nance and support which has ever attended the efforts o f this company
to promote the objects o f usefulness for which it was created, conclu­
sively show with what fidelity every trust reposed in it would be exe­
cuted, and with how much integrity every engagement which it enter­
ed into would he performed. The president o f this company has taken
a great interest in facilitating a knowledge o f the numerous benefits
which life insurance confers, and his efforts, i f attended with a success
at all commensurate with the ability he has evinced in putting them
forth, cannot fail o f producing many beneficial results. Connected as
he is with an institution o f this kind, and being deeply interested in pro­
moting its welfare, his exertions may be biased in its favor by precon­
ceived opinions; but it is from men who have studied the principles o f
life insurance that we must look for information, and the high stand­
ing o f this officer before the public, precludes the probability that he
would attempt to mislead the community.
The Farmers’ Loan and Trust Company, in the city o f N ew Y ork, a
branch o f its business being the insurance o f lives, is o f still more recent
establishment; and if a heavy capital, under the direction o f able and ex­
perienced officers, are considerations calculated to inspire public confi­
dence, and afford any inducement for selecting it as the depository o f im­
portant interests, this company possesses these requisites, and is every
way calculated to confer those benefits upon community which were con­
templated at its creation. The Massachusetts Hospital L ife Insurance
Company, in Boston, which was established many years since, is every
way deserving o f the high reputation for usefulness which it has so uni­
versally and eminently acquired; and in observing that its present officers
discharge the various important duties which devolve upon them with a
skill and integrity not inferior to that evinced by the late lamented Dr.
Bowditch, its former president, who with the purest principles and feel­
ings which ennoble human nature combined the most transcendant in­
tellectual powers that endow the mind o f man, we are pointing out the
highest recommendation which can exist to render it deserving o f public
Many other offices are established in this country, in all respects worthy
o f confidence and trust, so that every opportunity exists for effecting insu­
rance o f this nature ; and nothing is now wanting, but a correct appre­
ciation o f its importance, to induce an indefinite multiplication o f poli­
This importance we have endeavored to show, and in doing so we have
attempted to keep in view the many evils which inevitably result from

Mercantile L ibrary Association Lectures.


carrying this kind o f insurance too far; for, notwithstanding the theory
which one or two modem writers have advanced, advising its almost un­
limited extension, we are o f opinion that no person should be permitted
to effect it upon the life o f another in which he has no interest, and for
whom he entertains no affectionate regard calculated to prevent him from
endeavoring to hasten that contingency upon which depends his pecuni­
ary reward.

p r o f e s s o r o l m s t e d ’ s cou rse


m eteorology.


H a il Storms and W ater Spouts.
T he lecturer, according to his usual practice, first recited the leading
facts, and then proposed his explanation.
It is a very singular fact attending hail storms, that they are confined
chiefly to the temperate zones, being seldom met with in the torrid zone,
and never in their violent forms in the polar regions. O f all countries
in the world, the south o f France is visited with the most frequent and
destructive hail storms.
These storms are most violent during the
warmer half o f the year, and in the hottest months.
N o one can doubt o f the existence o f an extraordinary degree o f
cold in the region o f the atmosphere where the hail stones are form ed;
but the question is, how is this cold produced 1 Some suppose it owing
to the agency o f electricity. Professor Olmsted discarded this explana­
tion, on the ground, that no known properties o f electricity would cause
such a degree o f cold ; moreover, were hail stones produced in any way
by the agency o f electricity, we should find them most frequent and
violent in the ton-id zone, where electrical phenomena are most remarka­
ble ; w’hereas such storms seldom occur in those regions. The true
cause o f hail storms is, the sudden cooling o f a body o f very hot and
humid air, through the agency o f the region o f perpetual congelation.
It had before been explained, that the atmosphere becomes continually
colder as we ascend from the earth, until, at a certain height above every
country, w e reach a temperature where water freezes. This is called
the term o f congelation. Beyond this the temperature still decreases,
until it reaches a degree o f cold inconveniently intense. Such a region
as this is well fitted to be nature’s grand magazine o f storms and clouds.
In the lower parts o f this region, the temperature is suited to the forma­
tion o f clouds and rain merely ; but at a short distance above, the cold
becomes intense enough to condense watery vapor into h a il; nor do
we require any thing more than that a hot body o f air, largely charged
with watery vapor, should be suddenly transported into this region, in
order to cause a hail storm. The modes in which such a body o f air
may be subjected to the influence o f the region o f congelation may be
various. W ere a body o f hot air from the confines o f the torrid zone to
flow northerly at the elevation o f two miles, it would soon plunge into
vol ,

n .—

no . h i .



Mercantile L ibrary Association Lectures.

the region o f congelation over the colder latitudes ; and if it should meet
with a current o f cold air at the same height, coming from the northetn
regions, (where such a height would be far beyond the term o f per­
petual congelation,) the effects o f such a meeting would be very violent,
and the sudden condensation o f the water contained in the hotter current
into hail would be a certain consequence. The lecturer, however, did
not say that this was the precise mode in which the congelation is ef­
fected. In whatever way a hot and humid portion o f air is suddenly
transported into the region o f intense cold, a hail storm will result,
whether the air flow horizontally from the hot regions o f the south into
the region o f congelation that exists at the same elevation over the tem­
perate latitudes— or whether, as some suppose, the air rushes up from
the surface o f the earth, in consequence o f a sudden and extraordinary
rarefaction occurring in the upper regions— or whether, as others sup­
pose, it is suddenly transported upward by a violent whirlwind. The
explanation proposed, is independent o f the peculiar mode in which the
air, from which the hail is precipitated, is brought under the influence o f
the region o f congelation. It asserts merely that the cold in question is
derived from this region, and is not produced by the agency o f electri­
city, or any other occult or mysterious cause.
On comparing this explanation with the leading facts before enume­
rated, we find it affords a happy solution o f several difficulties never
before removed. Thus, we readily see why hail storms should be con­
fined chiefly to the temperate zones, since the region o f congelation is so
high in the torrid zone, that such a body o f hot and humid air as that
from which the hail is precipitated would seldom or never reach i t ; and
although in the polar regions the term o f congelation is very low, yet
there we cannot find the hot and humid body o f air itself to transport
into the cold medium. In the temperate zone, mixtures o f very hot and
very cold airs may be easily effected; or a volume o f very hot and humid
air may be easily transported by a whirlwind far above the term o f con­
gelation. That the most violent hail storms are produced by such whirl­
winds is very probable, since such large hail stones as are sometimes
formed imply the existence o f some force which sustains them in the
upper regions for a considerable time.
The frequency and violence o f hail storms in the south o f France is
also easily understood, since here occurs the meeting o f an extremely
hot and humid body o f air, that frequently crosses the Mediterranean
from Africa, with the cold atmospheres o f the Pyrennees on the one
side, and o f the Alps on the other. A similar explanation is afforded to
all the other leading facts regarding hail storms.
W ater Spouts.— W ater spouts are whirlwinds formed over the sea.
Suddenly the attention o f the sailor is arrested by the formation o f an
exceedingly dense and black cloud, (often formed in a clear sky,) which
descends in the shape o f an inverted cone, towards the surface o f the
sea, where it is met by a more obtuse column, formed on the sea itself.
It rains on all the surrounding region, often with great violence. Some­
times several o f these spouts occur near each other at the same time.
Fourteen have been known to form at once within a small distance o f
each other. They are proved to be whirlwinds, because they exhibit
all the properties o f whirlwinds. They move slowly forwards, and
sometimes suddenly break up. W ater spouts sometimes are formed


Aurora Borealis.


over land, and become identified with tornadoes. Instances have oc­
curred where they have crossed a river, and have taken up the contents
o f the stream, and distributed them over the neighboring country. Fish
and mud have been thus raised from the bed o f rivers, and scattered
over the surrounding region.
Although we have proofs that water spouts are whirlwinds, and we
can accordingly assign to them the same laws, yet it is extremely diffi­
cult to assign the true cause o f their formation. Like fame, “ they
stalk on earth, and hide their heads among the clouds.”

Aurora Borealis.
The Aurora Borealis exhibits a number o f distinct varieties. In its
simplest form, it has merely the appearance o f a twilight in the north.
In its more exalted forms, it shoots up into slender spindles called
streamers — or spans the heavens with a luminous arch— or forms a
ringlet, called the corona, around a point a little southeast o f the zenith,
around which the streamers arrange themselves, as a common focus. In
the more splendid exhibitions o f the aurora, a large bank o f light is first
seen near the northern horizon, which afterwards sends forth streamers,
flickering corruscations, and waves which flow with immense velocity,
sometimes upwards towards the corona, and sometimes around the
horizon, crossing the streamers apparently at a much lower elevation.
These are called “ M erry Dancers.”
Although similar exhibitions have occurred in all ages, and are often
described in history, yet they have their periods;— for a number o f
years, usually not exceeding twenty, auroras are frequent and magnifi­
cent, and then are scarcely seen for fifty years or more. One o f these
periods embraced the era o f the revolutionary war, and o f the old
French war; and another period, probably as brilliant as any on record,
is now in progress, having commenced in the year 1827.
The leading facts respecting the aurora are as follows :
They are very frequent and splendid in the polar regions; but are
seldom seen at all below the latitude o f forty degrees. They are seen
over an immense extent at the same time. The aurora o f September
3d, 1839, was seen, almost in equal magnificence, at London,in Canada, at
N ew York, and at N ew Orleans. H ence its height must, sometimes at
least, be very great. Estimates carry it as high as fifty or sixty, or even
one hundred miles.
The aurora has singular magnetic properties.
The magnetic needle is violently agitated during its presence; streamers
arrange themselves parallel to the magnetic meridian; and the corona is
formed around that part o f the heavens towards which the dipping needle
spontaneously directs itself, that is, towards the pole o f the dipping
In seeking an explanation o f the aurora, general recourse has been
had to electricity; but Professor Olmsted objected, that it cannot be ac­
counted for from any o f the known properties o f electricity— that it. is
no explanation to call it “ an electrical phenomenon” — that if electri­
city could satisfactorily account for the properties o f the aurora, yet it
does not account for its origin, which is the principal thing to be ex-


Mercantile L ibrary Association Lectures.

plained— and finally, that the atmosphere exhibits, during an aurora, no
peculiar electrical excitement, and in the torrid zone, where electrical
phenomena are the most remarkable, the aurora does not occur at all.
A fter discussing, in a similar manner, all the existing hypotheses pro­
posed to account for the aurora, the lecturer came to the conclusion, that
they all fail to explain either its phenomena or its origin. H e then
urged the probability that its origin is extrinsic to the earth— that it is a
“ celestial visitant” — that the matter o f the aurora is thrown into the
atmosphere from some o f those nebulous bodies that are known to be
circulating in the solar system, one or more o f which, in his opinion, p ro­
duced meteoric showers. H e did not think, however, that we are able
to arrive at present at a full explanation o f the origin o f the aurora
borealis, but holds that this is one o f those points which are in reserve
for the next or some future age.

M eteoric Showers.
The most remarkable display o f shooting stars on record, occurred
on the morning o f November 13th, 1833. From a little after midnight
to sunrise, the sky was lighted up with the most brilliant fire-works.
The leading facts, when collected from various sources, and systemati­
cally arranged, proved to be as follow s:
The exhibition o f shooting stars was seen in nearly equal magni­
ficence and splendor all over North America, and it was chiefly con­
fined to this country, having been witnessed on the east only about
ten degrees from our coast, and on the west only a little farther than
the confines o f the Pacific Ocean ; while, on the south, it fairly reached
to the coast o f South America. A great portion o f the meteors were
minute points which described a narrow streak o f light in the air, ap­
pearing somewhat like snow driven furiously by the wind, and hence it
was said to “ snow fire;” but, at frequent intervals, much larger bodies
descended along the arch o f the sky, all seeming to proceed in lines,
which, when traced back, came from one and the same point in the con­
stellation L eo. A t every return o f the Novem ber shower since, the ap­
parent “ radiant,” or place among the stars from which the meteors have
appeared to emanate, has been likewise in the constellation L eo. In
this, and in all the other November showers, the maximum, or period o f
greatest brilliancy, has occurred about four o ’clock in the morning.
Immediately after the occurrence o f this great meteoric shower, it
was ascertained that a similar one had occurred in 1799, on the morn­
ing o f the 12th o f November, arriving at its maximum at the same hour
o f the m orning; and that, only one year previous, namely, the morning
o f November 13th, 1832, a like display o f shooting stars was witnessed
at Mocha, in Arabia. Subsequent investigations have established the
fact, that the phenomenon has been exhibited in a greater or less degree
on the 13th or 14th o f November, every year since 1831, inclusive.
In France, and other parts o f Europe, in 1836, observations were made
in a great number o f observatories, which resulted in establishing a full
conviction o f the periodical return o f the meteoric shower at this time o f
the year. Professor Olmsted remarked here, that it was no part o f
his theory o f meteoric showers, that a shower should be exhibited every
November. I f it should occur at all, it would probably visit different

Cause o f Meteoi'ic Showers.


parts o f the earth in different years; but, according to his views o f the
origin o f these showers, it is most probable that, like the aurora borealis,
they have particular periods, which occur after long intervals, and last
only a few years.
T w o other annual returns o f the same phenomenon have been es­
tablished,— one about the 10th o f August, the other about the 7th o f
December. These showers, however, differ materially in several re­
spects from those o f November, and it is uncertain whether or not they
depend on the same cause.
The lecturer next examined several o f the leading hypotheses which
have been proposed to account for meteoric showers, such as that they
are produced by electricity, by magnetism, by hydrogen gas collected
in the upper regions, and by terrestrial comets revolving around the
earth as ordinary comets do about the sun. A ll these suppositions he
showed to be incapable o f explaining the jihenomena, or o f accounting
for the origin o f these showers.

Cause o f M eteoric Showers.
Professor Olmsted began this lecture by stating the difficult inquiries
involved in the investigation o f the cause o f Meteoric Showers. Such
are the follow ing: W as the origin o f the meteors within the atmosphere or beyond i t ? From what height did they descend ? In what
direction ?• W ith what velocity ? O f what size were the meteors ?
W hence their light and heat? And, finally, whence their origin?
In answer to these inquiries, it was shown, that the meteors came
from a region beyond the atmosphere— that they came from an im­
mense height, so great as not easily to be estimated by any data in our
possession— that they fell towards the earth in parallel lines, their ap­
parent radiation from a common centre being the effect o f propulsion
— that they moved with an immense velocity, greater than could arise
simply from the earth’s gravity, which can never give to a body a
greater velocity than seven miles per second— that some o f the meteors
were bodies o f great size, often, at least, a large fraction o f a mile in
diameter— that they took fire and burned by falling into the atmosphere,
and condensing the air before them so suddenly and so powerfully as to
elicit from it the light and heat obscured. A ll these points were clearly
proved by the most substantial reasons, which our limits will not per­
mit us fully to recite.
The professor finally instituted the inquiry, “ W hat is the origin o f
these meteors 1” The meteors were evidently composed o f exceed­
ingly light matter, else they would have come down to the earth — and
o f transparent matter, otherwise we should have seen them, at least by
reflected light, before they entered the qarth’s atmosphere — and o f
combustible matter, since they were seen to bum . N ow were these
meteors all collected and restored to their situation in space, they would
o f themselves compose a body o f great extent, and yet many reasons
go to prove that they constitute but a small part o f the body itself from
which they are derived, being only the “ extreme portions” o f that
body. Hence it is inferred, that the meteors fell to the earth from a
large body in space, composed o f such materials as the meteors them­
selves, and hence o f anebulous character, or analogous to the tails o f comets.


M ercantile L ibrary Association Lectures.

But the earth, in its revolution around the sun, had fallen in with this
body for several successive years, in the same part o f its orbit. Had
the body remained there while the earth had gone round the sun ]
That is impossible, since no body in the solar system can remain at rest.
I f not attracted by some nearer body, it would descend immediately to
the sun. This body, therefore, must have a revolution around the sun,
in order to be found for several successive years in the same part o f
W hat is the period o f its revolution l It must be either the same as
that o f the earth, or greater, or less. It could not be greater, for in
that case it would not have got round so soon as the earth. It must
therefore be either the same, or less. I f less, the period must be some
aliquot part o f the earth’s period, as one half, one third, etc., so as to
perform just two or three revolutions while the earth performs one,
otherwise the two bodies could not Come together at the end o f a year.
L et us suppose, then, that the period o f the meteoric body is one third
o f a year, or four months. N ow when we know the time in which a
body revolves around the sun, we can find the longer axis o f its orbit by
K epler’s law — that the squares o f the periodic times o f the planets are
to one another as the cubes o f the major ones o f their orbits. This law
is known to govern all the bodies o f the solar system, and must govern
the body in question. But were the period o f this body only one third
o f a year, the greater axis o f its orbit, as determined by the foregoing
law, would not be sufficient to reach from the sun to the earth, and
therefore a body revolving about the sun in such an orbit could never
com e so near the earth as this body actually did. H ence the period
could not have been so small as one third o f a year. W as it half a
year ? The determination o f its orbit on this supposition, gives a major
axis sufficient to permit the body to go around the sun, and still at its
aphelion, or greatest distance from the sun, to come very near to the
earth. Hence it is inferred, that the period must be either a year or
half a year. Some reasons induce the belief that it is half a year; but
this point is not yet fully decided.
Since, then, a large nebulous or cometary body comes very near the
earth about the 13th o f November, ought it not to be seen by reflect­
ing the light o f the sun, even if it does not shine by its own light!
There is a body o f this description seen in the solar system, known by
the name o f the zodiacal light, exhibiting a faint pyramid o f light, either
after the evening or before the morning twilight. D oes this body cor­
respond, in its appearances and its different positions, with those which the
body in question must assume l Professor Olmsted thinks there is much
reason to believe that such is in fact the case, and that the zodiacal light
itself is no other than a nebulous body revolving in the solar system, and
coming at its aphelia very near to the earth. Still he does not consider
this opinion respecting the zodiacal light as essential to the p roof o f the
existence o f such a meteoric body as that contemplated by the theory,
but only as lending an incidental confirmation o f it. H e claims that all
the conclusions respecting such a body are made out by a fair induction
o f facts, except what relates to its period o f revolution. It is still un­
certain whether that is a year or half a year. W e may assume each o f
these periods, and compare it with the phenomena, and that which cor­
responds best to the facts will prove the true period.

H istory and Law o f F ire Insurance.


A r t . V .— H IS T O R Y A N D L A W O F F IR E IN S U R A N C E .
F ire insurance, though coming directly home to the interests and bo­
soms o f a large portion o f the community, is o f m odem origin, and is
the offspring, in some degree, o f crowded cities, and great accumulation
o f personal property. Though constituting but a small item in the lawmerchant, properly speaking, lire insurance, in amount o f risks, has
however in Great Britain, and w e presume in this country, far outrun
marine insurance ; and the former has become, in some degree, to those
whose habitations and whose interests are alone upon the land, what
the latter is to those who do business upon the great deep. Still,
though the risks have increased so much, the law in relation to fire in­
surance is neither abstruse nor complicated, and has not occupied much
o f the time or the talents o f the judicial tribunals o f the old or the new
world. Founded upon contracts limiting and defining with much pre­
cision the extent and nature o f the insurer’s risk, the construction o f
these contracts has constituted generally the important point in most o f
the decisions upon this subject. W h en Mr. Park published his treatise
on marine insurance in 1786, he says that he had been able to find but
three leading cases upon fire insurance among the decisions o f the E n g ­
lish courts. Since then, however, fire insurance has greatly extended,
and some new questions have arisen, and been discussed with a zeal
and knowledge corresponding with the importance o f the subject.
The oldest fire insurance society or company now in existence, so
far as we have been able to ascertain, is the Hand in Hand Contributionship Society o f London, which was organized in 1696, about thirty
years after the great fire with which that city was visited.
It has been supposed that fire insurance societies had their origin in
England soon after the fire, and the supposition is by no means impro­
bable. W hen recurring to the condition o f London at that period, we
are led to feel that the afflictions o f our city, severe as they are and have
been, are light in comparison with those o f that then ill-fated city. In
the year 1665, the plague earned away nearly one hundred thousand
o f her inhabitants; and in the following year, the fire rendered houseless
two hundred thousand more, and this with a population o f little more
than half a million. It was one o f the consolations o f the afflicted L on ­
doners, that the fire had burned out the plague. Many o f the narrow
and filthy streets, where it had previously found a fit abiding place, were
destroyed, and that scourge o f London, so far as that city was concern­
ed, might almost literally have been said to have been burned, up. A
brief recapitulation o f the extent and consequences o f that fire may not
be uninteresting.
It raged for three days, and burned over, within the walls o f the city,
three hundred and seventy-three acres, and about seventy-five acres
without the walls. Thirteen thousand and two hundred houses were
destroyed, embracing eighty-nine parish churches, besides chapels, to­
gether with the cathedral o f St. Paul, and the Royal Exchange.
It was checked by the blowing up o f buildings with powder, hut not
until the inhabitants had almost given up in despair, feeling
“ That the strong man’s arm was impotent to save,
And powerless were the mighty and the brave.”


H istory and, Law o f F ire Insurance.

The loss o f property was estimated at ten millions sterling, which,
considering the increase o f personal property and the depreciation o f
money, would probably equal at the present time eighty millions o f
The parliament voted the sufferers one million and eight hundred
thousand pounds sterling, to be assessed upon the whole nation. In
four or five years the city was entirely built up, and commodious streets
and substantial brick and stone edifices took the place o f narrow lanes
and wooden rookeries. This, with the burning out o f the plague, say
the chroniclers o f the day, rendered what at first was considered a
great national calamity, almost a national blessing. Upon individuals
rich and poor this great loss bore heavily, and the heart o f many a
w idow and orphan was wrung with anguish. A calamity so awful and
afflictive might naturally have suggested the adoption o f some means
to prevent thereafter so much individual want and suffering; — some
means which should transfer the loss by fire to a considerable portion o f
the community, and thus render light a misfortune which might otherwise
reduce the immediate sufferers to poverty. H ence, it is said, arose so­
cieties for mutual assistance in case o f fire ; among the earliest o f which
was the Hand in Hand Contributionship Society, already mentioned,
which has survived its contemporaries, if any it had, and which, for a
century and a half, has afforded aid to the unfortunate, and sustained
itself amid all the changes and disasters o f that great emporium o f the
civilized world.
Companies like those in our city, where capitals are employed by own­
ers who are not necessarily among the insured, were o f still more mo­
dem origin, in England at least. Upon the continent o f Europe, fire
insurance, it is said, has never becom e general. It was introduced in
Paris in 1754, but Pothier says that it never became very general in
that city. In Holland it is said to be almost unknown. Magens, who
published a translation o f his work on marine insurance, in London, in
1755, says, that at Hamburg there existed an institution called a Fire
Cassa, o f long standing, and which, in most o f its features, resembled
the mutual assistance societies o f England.
The small risk run in
Hamburg may be judged from the fact that only one quarter o f a mark
premium per annum was charged upon one thousand marks insured—
about one tenth o f the lowest premiums o f this city. B y the rules o f
that institution, no house could be insured, be its value ever so great,
for more than fifteen thousand marks — about five thousand dollars. “ W e
can account for this limitation,” says Magens, “ in no otherwise, than by
supposing the intention o f the legislature to have been to curb by this
restriction the pride o f the citizens, and hinder them from being too mag­
nificent in their buildings” — and he adds, that it is a “ very wise maxim,
certainly, in a trading city.” W e apprehend that abetter solution might
be found, in the supposition that this rule was adopted for the purpose
o f preventing any individuals becoming entirely and completely insured,
and thus leaving sufficient property at stake, in ordinary cases, to protect
the society against culpable negligence, if not against fraud.
In England, in 1755, fire insurance, says Magens, was very com m on;
and he states the usual premium to have been two shillings on the
hundred pounds on the first thousand, and two shillings and sixpence on
the hundred pounds for each additional thousand— being the one tenth

H istory and Law o f F ire Insurance.


o f one per cent, on the first thousand, and one eighth o f one per cent, on
the additional thousand— a rate o f premium, also, farbelowthat o f our own
day, which, before the late fires in our city, varied usually from three
tenths to six tenths o f one per cent. In his day, he blames companies
for making insurances too readily upon property o f persons unknown
and o f doubtful character; an error undoubtedly o f corporations at
the present time — an error which has always been a fruitful source
o f loss, and we might add o f crime, and which has tended to enhance
the insurer’s risk.
W e have already stated, that in amount o f risks fire insurance greatly
exceeds marine insurance, especially in Great Britain. A t the present
time, a tax o f three shillings upon every hundred pounds insured is levied
and collected by the government o f that country. Estimating from the
amount o f this branch o f revenue, in 1830, there must have been insured
against loss by fire in that year, in Great Britain, property to the extent
o f seventeen hundred millions o f dollars. The marine insurance in the
same year amounted to nearly one third, or about five hundred millions.
In our city, previous to the late fires, there was probably taken by all our
fire insurance companies risks to between seventy-five and one hundred
million o f dollars. The law o f the contracts regulating risks o f such
enormous magnitude, though neither abstruse or complicated, becomes o f
great importance.
In ordinary fire policies, the insurers, after reciting the receipt o f the
premium and the subject insured, usually covenant and agree, or under­
take, that from the day named in the policy unto and inclusive o f another
day named in the policy, the stock and funds o f the company shall be
liable to make good any loss or damage by fire which may happen to the
property insured, except loss or damage by fire happening by any inva­
sion, foreign enemy, civil commotion, or riot, or any military or usurped
power. Several o f the exceptions have been the subject o f litigation,
and their meaning defined. Thus, it has been held, or decided, that the
words “ usurped pow er” are meant only to extend to cases where houses
are set on fire by means o f an invasion from abroad, or o f an internal
rebellion, where armies are employed to support it. In another case,
L ord Mansfield defined a civil commotion to be an insurrection o f the
people for general purposes, though it may not amount to a rebellion,
where there is an usurped power.
Another ordinary condition o f the policy' is, that if there shall be any
fraud in the claim for loss, or any false swearing in relation thereto, that
then the claimant shall forfeit all benefit under the policy. This is an
important provision, and is often made the ground o f resistance to the
payment o f claims for losses believed by the insurers to be unfounded.
A s by the terms o f the policy, also, no payment is to be made without
the oath o f the insured, it follows, that in case o f unjust claims, they
could always be resisted, if it were in the power o f the underwriters to
furnish the requisite testimony. But it is not a mere mistake or misap­
prehension o f the insured, in making up the estimate o f his loss, that
will render void his policy. It must be done with a fraudulent intent,
and the intent must be gathered from the circumstances o f each case.
There are also usually different classes o f risks which are enumerated
in the policies, or in schedules annexed to them, and the premium corres­
ponds with the risks. W hen a statement is given by a person proposing
VOL. II.----NO. III.


H istory and Law o f F ire Insurance.

to insure, it is generally necessary that he should specify the property in
such a manner as that the insurer may determine to what class it belongs
and regulate the premium accordingly. In many cases, and especially
in city risks, the insurers make their own survey or examination, and
determine for themselves the class to which the risk belongs. It has
been held that such a statement, though in writing, does not constitute
a part o f the policy, and that there is an important distinction between
a misrepresentation contained in such a statement furnished, whereby
property insured is placed in a more favorable class as regards premium,
and a warranty upon the face o f the policy that it belongs to such class.
But if the representation is referred to as forming a part o f the policy,
the same as i f inserted therein, or any similar words, it becomes a part
o f the policy, and every statement in it becomes a warranty. A war­
ranty in a policy has been defined to be a condition, or a contingency,
that a certain thing shall be done, or happen, and unless that is performed
there is no valid contract. In the former case, when the statement is
not inserted in, or referred to in the policy, i f the misrepresentation has
grown out o f a mistake, or i f the variation is so slight that the risk is
not materially altered, the* insured might recover. But i f there be a
warranty, then the thing to be done or happen must be performed, and
the property insured must conform to the class to which it is assigned,
and the slightest variation will discharge the insurers. Thus, in the case
o f the N ew Castle Fire Insurance Company v. Macmoran & Co., the
defendants were held not entitled to recover their insurance, because, on
the face o f the policy, they had warranted the cotton factory insured by
them to belong to the first class o f risks when it belonged to the second.
The only respect in which the factory differed from one o f the first class
was in the length o f a stove pipe, which was three feet long when it
should have been but two. In all other things it was in accordance with
the warranty, and an alteration in that particular was made after the
execution o f the policy by the company, and before the loss occu rred;
but it was held that the variation at the time o f the execution o f the
policy was fatal, and that the warranty must be strictly and literally com­
plied with ; and the defendants, therefore, lost their insurance.
The application for insurance and the policy should specify particu­
larly the several kinds o f property and the amount insured on each ; or,
i f there are several buildings, they should be described or mentioned in
the policy separately, and the amount insured on each building specified.
So, also, personal property should be described with reasonable certainty
as to its nature or kind. I f an insurance be made on the stock in a
store, or by any similar words, books o f account, written documents,
securities or evidences o f debt, deeds, writings, money, or bullion, unless
particularly specified, would not be protected. So an insurance expressed
to be on household furniture would not protect jew els, plate, paintings,
statuary, sculpture, or other similar articles o f mere ornament.
The nature and amount o f the interest o f the applicant for insurance
should be fully and fairly stated— the interest o f the parly in buildings,
whether as owner in fee, tenant for life, or for years, mortgagee, judg­
ment creditor, or whether legal or equitable ; and some offices require
the applicant to disclose any incumbrance by way o f mortgage, judg­
ment, or otherwise, upon the property.
Another important condition contained in fire polices is, that i f the

H istory and Law o f F ire Lisurunce.


insured shall make any other insurance upon the same property, and
shall not with reasonable diligence give notice, or i f at the time o f effect­
ing the insurance the property shall be insured in another office and no­
tice thereof is not given, in either case the policy is to be void. Then, in
case o f a loss, each company pays only that proportion o f the loss which
its amount o f risk bears to the united risks o f the w hole; so that in no
event can the insured recover beyond the value o f the property destroy­
ed, unless by concealment or misrepresentation, which if discovered
would invalidate his policy. The rule in some cases has operated rather
hardly upon the insurer, and especially in the great fire o f 1835 — as in
cases where a merchant’s stock has been reduced, by sales or otherwise,
below the amount o f his insurance, and he is partly insured in companies
which are solvent, and partly in those which are insolvent. Though his
whole stock o f goods lost may not exceed the amount o f his insurance
in the solvent company, yet his having an insurance also in an insolvent
company prevents him receiving only their proportion from the solvent
company. Still, the premiums charged by each company are the same,
whatever number o f offices the same property may be insured in. The
condition, however, is a good one, and is inserted for wise and prudent
purposes. W ere it otherwise, there would be great temptation to fraud,
and the insured, after obtaining insurance to an amount far beyond the
actual value o f his property, might be induced to become himself the
incendiary, in order to make a good sale o f his effects. In all cases o f
insurance against fire, the insured must have an interest in the property.
The doctrine that insurance against fire is a mere bet or wager, and that
it matters not whether the insured has or has not an interest in the pro­
perty insured, has at times been contended for, but has always been re­
pudiated by the courts. I f allowed, it would indeed be a dangerous doc­
trine. In marine insurance, it was formerly held that wagering policies
were go o d ; and now marine policies are frequently made out to brokers,
or to an indifferent person, specifying that it is for the benefit o f the person
mentioned, or o f whoever it may concern. It appears to us that this is
an objectionable feature even in marine policies, as the character o f the
insured in almost all cases must, in some degree, qualify the insurer’s
risk. The practice is said to have grown out o f the over anxious desire
o f merchants to keep their adventures as far as possible concealed from
the knowledge o f the public. But it is not so objectionable a feature in
marine as it would be in fire policies. The mariner, tossed upon the
lonely ocean, and driven by violent storms upon rock-bound coasts, finds
a check upon his desire to commit a fraud, if any such desire he may
have, in the perils and dangers ordinarily incident to his pursuit. If,
however, wagering policies were allowed in fire insurance, or if indivi­
duals were allowed to effect insurance upon property not their own, or
in which they had no interest, insurance would become an invitation to
fraud, and instead o f being an indemnity in case o f accident, might be­
come a high premium to be paid for successful crime.
The character o f the interest o f the insured has been several times
considered, and a liberal construction has been given to this branch o f
fire insurance law. In the case o f the D e Forrests v. the Fulton Fire
Insurance Company, in the Superior Court o f this city, the question
came up, whether a commission merchant had an insurable interest in
the property consigned to him for sale, and after a full discussion, it


H istory and Law o f F ire Insurance.

was decided that he had such an interest, and that he could recover the
insurance in his own name. In the policy, the property insured was
stated to be the property o f the assured, or held in trust by them, or on
commission. C hief Justice Jones said, “ that in principle the consignee,
who has the actual possession o f the property, with plenary powers o f
sale, must be clothed with a special property in the goods, so as to ena­
ble him to effect a valid insurance upon them in his own name, and to
entitle him to recover for the loss o f them, upon an averment o f interest
in himself. This is undoubtedly a liberal construction, but one which
was considered necessary, as without it it would be difficult for the com­
mission merchant to transact his business. A s between him and the
consignor, in case o f loss, he would be obliged to account to the latter
for such goods as belonged to him, or for such proportion o f the insu­
rance as was effected upon his property, and it being specified in the
policy that the goods are on trust or commission, it is in the pow er o f
the insurance company, if they mistrust that there may be insurance also
by the consignor, to call upon the commission merchant to disclose the
owner o f the property. But care must be taken to have the policy word­
ed so as to cover property held in trust or on commission. Thus, in the
case o f Brichta v. the N ew Y ork Lafayette Insurance Company, also in
the Superior Court, it was held, that an insurance o f the plaintiff upon
goods and furniture in his store, would not cover property left with him
for sale, and upon which he had made advances. Had his policy con­
tained the clause, his goods and furniture in his store belonging to him­
self, or held in trust by him or on commission, then he would have
brought himself w’ithin the rule laid down in the previous case. A bona
fid e equitable interest in property may be insured. Thus, in the case
o f Tyler v. /Etna Fire Insurance Company, in 12 W endell, the Supreme
Court held, that a person holding a contract for the purchase o f a house,
upon which contract he had paid money, and was bound to pay more,
could insure. In equity, he has the same estate as if he had the fee
vested in him, and would have an interest to protect the property, as
much as i f he were the absolute legal owner.
So it is presumed a lessee could insure his rent, especially when there
is a contract on his part to pay the rent, and no contract on the part o f
the lessor to rebuild, or that the rent should cease on the destruction o f
the premises by fire. The lessee, under such circumstances, would
have a bona fid e equitable interest in the premises. So, a judgment
creditor may insure. W hatever may be the amount o f the insurance,
the insured can only recover to the extent o f his interest in the property. _
An insurance against fire having been effected, the insured cannot as­
sign the policy without the consent o f the company ; and even then the
assignment would be o f no use, unless the subject insured, or some in­
terest in it, be transferred also ; for the policy, as we have seen, w'ould
be o f no value, unless the holder has an interest in the property. In
case, however, o f an individual haring a specific lien upon the property,
as a mortgagee for instance, then an assignment o f the policy, with con­
sent o f the insurers, might enure to his benefit. Companies ought to
possess this power to withhold their consent to the transfer o f policies.
Frauds and fraudulent claims upon fire offices are so frequent, that the
character o f the party proposing to insure has become a subject o f great

H istory and Law o f F ire Insurance.


importance. I f the insured were allowed to part with his policy, and to
assign it to whom he chose, he might materially affect the risk, or might
indeed create a new risk, which the insurers would not be willing to as­
sume. After a loss has accrued, it is in the power o f the insured to as­
sign his policy without the consent o f the company, for the risk has
terminated, and it is simply the assignment o f a claim. But though the
policy may be transferred after a loss without consent, and at any time
during the continuance o f the risk'with consent, still the transfer o f the
property insured passes no right to the policy. More than a century ago,
Lord Chancellor King held, that fire insurances do not attach on the
realty, or in any manner go with the same as incident thereto, by any
conveyance or assignment, but they are only special agreements with the
persons insuring against such loss or damage as they may sustain.
It has been an interesting inquiry, how far an equity in favor o f third
persons attaches upon insurance. In more than one case in Chancery,
says Mr. Comyn, where the lessee has covenanted to repair, (accidents
by fire excepted,) and the house having been burned, the lessor being
insured, and having received the insurance money, has neglected to re­
build, an injunction has been granted against an action at law by the
lessor, for the rent, till the house should be rebuilt. In later cases, how­
ever, this principle seems to be denied ; and in the case o f Leeds v.
Chatham, 1 Simon’s Reports, the vice chancellor said, that with respect
to the equity which the plaintiff alleges to arise from the defendant’s re­
ceipt o f the insurance money, there is no satisfactory principle to sup­
port it.
This would seem now to be the law upon this subject; and Mr. Ellis,
ill his work on fire insurance, upon a review o f all the cases, remarks,
that the contract o f insurance is confined to the parties, and that, as a
general principle, no other person has any right in equity to the pro­
In case o f loss by fire, it is usually required by the offices, that written
notices be forthwith given, and that as soon thereafter as possible a full
written statement o f the loss be furnished, accompanied by the oath or
affirmation o f the insured, and by a certificate o f a magistrate or notary
most contiguous to the premises destroyed; the magistrate or notary
certifying as to the loss, and to the origin o f the fire, and that they believe
the fire occurred without fraud on the part o f the insured.
Thus we have endeavored to trace out very briefly the history and
law o f fire insurance. It has been questioned, whether the loss o f pro­
perty occasioned by negligence and avarice, and the frauds and crime
which have directly or indirectly been induced, do not more than coun­
terbalance the good arising from fire insurance. That the multiplication
o f insurance companies, and the consequent facilities afforded for effect­
ing insurances, has led to much fraud, ami occasioned much culpable
negligence, cannot be doubted. It is conceded, by all the writers upon
insurance law, that such has been the effect. Magens, in his day, cen­
sures the companies for making insurances too readily, and for insuring
persons whose characters were unknown, and that such a course led to
great evil. Mr. Marshall ascribes many o f the fires o f London to in­
surance ; and he doubts whether in a general and national point o f view
the benefits are not more than counterbalanced by the mischiefs it occa­
sions. It has been stated that in Paris, after the introduction o f fire in­


H istory and Law o f F ire Insurance.

surance companies, fires were much more frequent than before. In our
own city, the facts which have been established put the matter beyond
question, that insurance is the cause o f many o f our fires. More than
two thirds o f the property annually destroyed is insured property, while
probably not much beyond a half o f the whole insurable property o f the city
is insured. It has been stated by persons connected with insurance com­
panies, that more than three fourths, and probably seven eighths, o f our
fires break out upon insured property. It cannot for a moment be sup­
posed that any very large proportion o f these fires originate in fraud,
at least such was not the impression until recently, but it must be
conceded that they are oftentimes the result o f negligence, which
may be almost equally culpable. The facility and comparative cheap­
ness with which insurance has been obtained, has undoubtedly led
to the erection o f stores and warehouses in a slight and unsubstantial
manner. The owner could obtain an insurance upon them, and the
premium which he would be obliged to pay for that insurance would not
equal the interest o f the additional money required to make them in
truth and in fact, as well as in name, fire proof. Stores which contain
at times goods to the amount o f half a million o f dollars are thus slightly
erected, and, as in the fire o f 1835, and in recent fires, melt away like
wax before the devouring element. The fire in 1835, in this city, was
unparalleled in this respect. The great fire in London destroyed princi­
pally wooden buildings. The fire here swept over a district o f our city
covered almost entirely with buildings denominated fire proof.
Still, it may be contended, that commercial enterprise could not well be
carried on without the aid o f insurance ; and it seems highly important
that when an individual or firm have in their store or warehouse a large
amount o f personal property, that they should by insurance be enabled
to protect themselves against unavoidable and otherwise fatal losses by
fire. Men in moderate circumstances are thus enabled, by paying an­
nually a small sum, to guard against the effects o f accident which other­
wise might ruin them. It is, perhaps, rather the abuse which has been
made o f fire insurance that is to be censured. I f regulations should be
made by the companies whereby they should refuse to insure to the full
value o f property, thereby putting the insured party upon his own care
and attention, perhaps the evil might in part be prevented. There are
some mutual companies established upon this principle in some o f the
eastern states, where risks are taken only to the extent o f two thirds o f
the value o f the property, which have been very successful.
In London, the companies are compelled by their charters usually to
keep at their own expense a certain number o f engines, stationed in dif­
ferent parts o f the city ; and they also employ firemen, and porters to
remove goods when in danger. I f our companies should raise the rate
o f insurance, and should also be compelled to provide engines, and fire­
men, and porters, and if, in every fire that occurs, a rigid investigation
should take place, and when found to be the result o f fraud, or even
culpable negligence, the guilty person should be punished, besides losing
his insurance, important improvements would undoubtedly be the result;
and the stock o f fire insurance companies would become a safe invest­
ment for the funds o f the widow and the orphan, and a protection to
those who may suffer from unforeseen or unavoidable accidents.

R eport o f F ire Commissioners.


W e append a table, compiled from the Fire Commissioners’ Report in
the City o f N ew Y ork, exhibiting the number o f fires which have taken
place in this city, between the 23d day o f May, 1839, and the 1st day o f
January, 1840 ; the amount o f property destroyed, as nearly as the same
could be ascertained, and the amount o f insurance effected thereon.
D a te o f
F ir e s .

A in't Insured.

M ay 21 No Insurance.
.. 23
12,000 00
.. 26
1,000 00
49.000 00
.. 27
2,000 00
.. 27
June 6
3,500 00
2.800 00
6,000 00
.. 18
.. 20
95,000 00
3,400 00
.. 20
.. 20
1,500 00
1,500 00
.. 20
.. 27
.. 29
.. 30
70,000 00
6,000 00
July 1
1,000 00
4 No Insurance.
500 00
70,000 00
8 No Insurance.
.. 10
4,000 00
.. 12 No Insurance.
.. 21
5,000 00
.. 31
1,000 10
August 8
1,500 00
.. 10 No Insurance.
.. 12 No Insurance.
.. 15 No Insurance.
1,000 00
.. 17
5,000 00
.. 18
.. 19 No Insurance.
.. 24 No Insurance.
.. 26
8,000 00
.. 30 No Insurance.
Sept, 5 No Insurance.
.. 10
1,000 00
.. 11
4,500 00
.. 23
90,000 00
.. 25
6,350 00
.. 29
27,000 00
.. 29 No Insurance.
Oct. 5
1,900 00
500 00
631,590 00
4,500 00
7 No Insurance.
.. 10
2,000 00
.. 11 No Insurance.
.. 15
2,000 00
. . 16
2,500 00
.. 17
54,000 00
.. 19
500 00

W hole am ount

20 00
14,943 00
300 00
2,100 00
2.500 00
3,485 00
3,300 00
800 00
200 00
2,000 00
ICO 00
250 00
No Loss.
No Loss.
64,000 00
1,800 00
5,200 00
1.550 00
No Loss.
No Loss.
1,150 00
No Loss.
500 00
5.000 00
350 00
470 CO
300 00
No Loss.
No Loss.
1,100 00
5,000 00
No Loss.
No Loss,
5,000 00
1,500 00
200 00
420 00
30 00
287,100 00
100 00
6,500 00
No Loss.
130 00
500 00
1,000.000 00
6,000 00
No Loss.
5,000 00
30 00
2,200 00
100 00
34,100 00
15 00

D a te o f
F ir e s .

A in't Insured.

W hole am ount

1,200 00
Oct. 21
1,000 00
.. 21
.. 23
.. 23
2,500 00
.. 23
7,500 00
.. 27
.. 28
5.5C0 00
Nov. 1 No Insurance.
30,000 00
11,000 00
5,000 00
9 No Insurance.
20,000 00
800 00
.. 10 No Insurance.
.. 10 No Insurance.
500 00
.. 10
5,000 00
.. 10
.. 11 No Insurance.
.. 11 No Insurance.
.. 13
3,000 00
.. 20
10.000 00
.. 20 No Insurance.
8,000 00
.. 21
.. 23
1,100 00
.. 23 No Insurance.
.. 23 No Insurance.
.. 23
1.060 00
.. 21
3.500 00
.. 27 No Insurance.
.. 28
20,000 00
.. 29
1,000 00
.. 29
20,500 00
.. 30
30,030 00
Dec. y
7,000 00
4 No Insurance.
6,000 00
1.500 00
7,150 00
26,000 00
1,100 00
.. 10
550,000 00
.. 14
2,000 00
.. 15
.. 16
20.000 00
550 00
.. 17
.. 19 No Insurance.
.. 22
6,200 00
5,000 00
.. 24
1,200 00
.. 25
.. 26
3,000 00
.. 28 No Insurance.
1,500 00
.. 30

No Loss.
No Loss.
25 00
1,500 00
1,440 00
1,460 00
150 00
800 00
11,000 00
7,000 00
1,500 00
2,450 00
250 00
1,290 00
200 00
3C0 00
225 00
7,000 00
500 00
200 00
150 00
400 00
70 00
No Loss.
750 00
150 00
250 00
80 00
12,200 00
150 00
21,000 00
900 00
21,105 00
24,000 00
150 00
600 00
No Loss.
40 00
4,500 00
2,100 00
40 00
360,000 CO
1,750 00
1,800 00
No Loss.
3,000 00
400 CO
2,450 00
950 00
1,600 00
2,200 00
2,280 OO

2,015,960 00

1,967,699 00


M ercantile 'Biography.

The origin o f the fires, according to the classification o f the commis­
sioners’ report, were : — supposed to he by incendiaries, 43 — supposed
to be by design, 7 — accidental, 23 — cause unknown, 2 — byan incendia­
ry, 1— by sparks from chimneys, 3 — defect in chimneys, 3 — sparks from
forge, 2 — lighted lamp, 1— locofoco matches, 3 — lighted candle, 1 — spi­
rit lamp, 1 — defect in fire place, 1 — cause not ascertained, 2— from stove
pipe, 1 — sparks from candle, 1 — slack lime, 1.
Description o f buildings in which fire originated. — Frame buildings,
4 3 — brick, 34— stone, 3 — brick fronts, 5 — fireproof, 13.

A r t . V I .— M E R C A N T IL E B IO G R A P H Y — J A M E S L L O Y D .
T he Honorable J ames L loyd , an eminent merchant for twenty-five
years, in the latter part o f the last century and the beginning o f the pre­
sent, and a distinguished politician for twenty years, was the son o f
James Lloyd, M. D., a highly respectable physician o f Boston. Dr.
L loyd was o f the old school in his manners and costume, and in his de­
portment displayed something more o f formality than one now witnesses,
except in a very few in advanced life, who still linger amongst us. There
was more o f dignity as well as o f decorum in his behavior, and more
respect manifested towards others, than at present prevails in society.
H e was also one o f the most skilful physicians o f his time, and might
be ranked with Bulfinch, Rand, Danforth, Tufts, W arren, and Brooks.
T h e son was educated in the University at Cambridge, near Boston,
and received his first degree in 1787, with the reputation o f a good clas­
sical and belles lettres scholar. H e devoted a due portion o f his time
in the University, to the study o f mathematics and geography; and at­
tended more to history, probably, than most o f the students o f that
period. I am not able to say what attention he paid to logic, farther
than the regular studies in the University required ; and yet it may be
justly concluded he studied logic, as well as rhetoric, for his writings
and public speeches were argumentative, lucid, and discovered very
discriminating powers o f mind. His conduct, while at the University,
was highly honorable in a young man, and he early manifested a correct
moral sense in all his intercourse with his fellow students. H e was a
model in this respect. I was three years at the University with Mr.
Lloyd, though not o f the same class. H e was gentlemanly in his man­
ners, even at the age o f eighteen, and though pleasant and very com­
panionable, there was nothing in his conduct which might be justly de­
nominated boyish, or offensive to strict decorum. Indeed, he was a
gentleman when he entered the University, at the age o f fourteen, and
he was free from the common eccentricities o f youth.
On inquiry o f a classmate o f Mr. Lloyd, he wrote me as follows : “ He
entered college when quite young. My impression is, that he was a
classical and belles lettres scholar, was studious, and made good pro­
ficiency in the various branches o f education then constituting the aca­
demic course. H e maintained a respectable rank in the class, was a
young man o f courteous manners, pleasant and amiable, and I believe
his conduct was always honorable.”

Jaynes L loyd .


Soon after he left the University, he entered the store o f Thomas
Russell, Esq., one o f the first merchants in Boston, as to character, pro­
perty, and commercial enterprise. Mr. Russell was then engaged more
extensively in commerce than any one o f that enterprising city, and his
counting room was an excellent school for one intending to engage in
mercantile pursuits. It afforded rare opportunities for becoming an in­
telligent merchant; and young L loyd had a laudable degree o f ambi­
tion to be distinguished, or thoroughly acquainted, in the profession
which he had chosen. It is understood, that he read much during the
time he was in Mr. Russell’s store, though he attended diligently to the
detail, or the practical part o f the business. H e continued about two
years with that eminent merchant; and must have acquired extensive
and correct information as to mercantile law, and the customs o f mer­
chants in other countries. In all professions, it is important to unite
theory with practice ; one may not justly expect to be eminent or suc­
cessful without it. There are certain principles which regulate mer­
cantile and commercial pursuits, and by which they are regulated; but
these are o f a general nature, and good judgment and experience are
still necessary to success in such enterprises.
Every successful manufacturer, every fortunate adventurer, every
rich trader, is not justly entitled to the appellation o f an intelligent mer­
chant. A trader in one o f the seaports in Massachusetts, but very
ignorant, sent warming pans to the W est Indies, a few years ago, and,
strange to relate, he made a good voyage. They were bought at a great
advance on their cost, to dip up molasses! H e shipped them by the ad­
vice o f some one who meant to hoax the simple owner. But the article
produced a larger profit than would have arisen from fish, or any other
commodity sent from the place, at that time. On leaving the store o f
Mr. Russell, Mr. Lloyd went to the north o f Europe, and visited various
places in that quarter o f the world; and thus acquired much personal
knowledge respecting the trade and commerce o f the old continent.
W hen he returned to Boston, he engaged in business as a merchant;
and was alike intelligent and devoted in the profession.
On several occasions, he was interested in foreign voyages with the
Messrs. Perkins, the most eminent and enterprising merchants o f that
city in 1793, and for many following years. H e was not one o f that
company, but joined them at different times, when large capital was
necessary to be employed.
I f Mr. Lloyd was distinguished for correct and extensive views on
commercial subjects, he was no less so for probity and punctuality in
his dealings. A ll who transacted business with him, all who knew his
character, had perfect confidence in his promises, and rhlied on a prompt
fulfilment o f them. A nd surely this is a most important trait o f charac­
ter in a merchant: but the mere speculator or adventurer is seldom able
to meet his engagements with punctuality, even if he intended it when
he prom ised; and a truly honest man will be cautious in making pro­
mises which he is not sure o f being able to perform.
Such was the character o f Mr. L loyd for information and uprightness,
that he was selected for a representative in the legislature o f Massachu­
setts, at the age o f thirty-five ; and this was not common thirty or forty
years ago, when Boston had only eight members, and those men o f
talents, good judgment, and great weight o f character. Mr. L loyd was
VOL. II. — n o . m .


Mercantile Biography.

several years in the house, and afterwards in the senate o f Massachu­
setts. H e had great influence in the legislature, arising as well from
his industry and impartiality, as from his talents and information. H e
was firm and decided in his opinions, and at the same time entirely free
from mere party views and feelings. His speeches on important occa­
sions— for though able in debate he was not a great talker— were argu­
mentative, pertinent, and commanded the admiration o f his political op­
ponents. The statute o f Massachusetts, relating to days o f grace on
bills o f exchange and promissory notes, was introduced and supported by
him. In 1808, on the resignation o f Mr. Adams, then a senator in con­
gress from the state, Mr. L loyd was appointed to that important and
elevated station. H e remained in the United States senate several
years, and after having resigned his seat in that august body, on
account o f the feeble state o f his health, he was again, at a little later
period, elected a federal senator for Massachusetts. A nd during the
whole period o f his service in congress, he was faithful to the interests
and rights o f the state, an able defender o f the honor and independence
o f the nation, and eminently useful, by his intelligence and industry, in
legislating both on subjects o f commerce and o f finance. Indeed, no
member o f the national legislature had more influence than Mr. Lloyd,
or used it with more discretion and judgment. His knowledge and ex­
perience as a merchant qualified him to judge correctly as to the effect
o f any commercial regulations proposed to be adopted by the federal go­
vernment, and to point out the operation o f treaties on commerce and
navigation with the maritime countries o f Europe? His opinions were
o f great importance in fixing the duties on foreign imports and tonnage,
with reference to the prosperity o f our own trade and navigation, and to
the advancement o f domestic manufactures. H e was a friend to the
latter, but did not fully approve o f the tariff o f duties as fixed in 1S28.
It was his apprehension that the duties were excessive, and would ope­
rate unfavorably on the navigation o f the country. O f the encourage­
ment given by congress to manufactures, in 1816, he fully approved,
and acquiesced in, rather than advocated, the tariff o f 1824. N ext to
agriculture, as the foundation necessary for general prosperity in a
country like the United States, he deemed commerce highly useful, if
not absolutely necessary, and he was sensible o f the attachment o f a
great portion o f the citizens in the Atlantic states to commercial pursuits.
Far from opposing, he rejoiced to perceive that manufactures were in­
creasing ; he only desired that no unequal protection should be given,
lest foreign trade and commerce should consequently decline.
Mr. L loyd advocated with much ability and zeal the resolution before
the senate, in 1822, for the distribution o f the public lands among the
several states, for the purposes o f education. H e was decidedly o f
opinion that the old or original states should receive an equal share in
the funds accruing from the sales o f lands in the new states, after the
public debt should be paid. They were ceded by different states for the
benefit o f the whole union, and after the general debt should be extin­
guished, it was but just that the proceeds o f their sale should be divided
among the several states, for their respective appropriation, whether
for internal improvements, for education, or other purposes.
A t an early period o f the federal government, in 1798, though a
young man, Mr. Lloyd was a warm advocate for the n a vy; and while a

Jam es L loyd .


member o f the national legislature, he was explicit and active, on all
proper occasions, for its support and increase ; and he considered the
responsibility and efficiency o f a navy to be identified with a prosperous
state o f navigation. Frequently, he was one o f the committee o f the
senate on the increase o f the navy, and for the general naval concerns
o f the United States. A s a debater, also, there were very few superior
to Mr. Lloyd in the senate. H e was master o f the subject which he
undertook to defend and support, and his speeches were clear, argumen­
tative, pertinent, and usually powerful and eloquent.
Mr. Lloyd was candid in his opinions, and courteous and conciliatory
in his deportment towards political opponents
General Smith, o f Mary­
land, and others, often bore public testimony to his impartiality and
magnanimity as a politician, and they always listened to his statements
and speeches with great attention. Y et Mr. L loyd was far from being
a temporizer in politics. H e openly avowed bis opinions, and firmly ad­
hered to them, having formed them after due inquiry and consideration.
And with all his courtesy, he had a very high sense o f honor, and would
not receive insult from any one, unrebuked or unnoticed.
On one
occasion, when a member o f the senate was disposed to make trial o f
Mr. L loyd ’s courage, or to deter him from the full expression o f his
sentiments on an exciting political question, he replied with proper re­
sentment, but with equal firmness, and satisfied his opponent that he
was not to be frightened from his purpose by violence or abuse ; and with
all honorable men his conduct was approved and applauded.
Mr. Lloyd was a member o f the senate o f the United States when
war was declared in 1812 ; but he did not approve o f that measure. In­
deed, it was adopted by a small majority o f the senate. Mr. L loyd was
o f opinion, that the disputes between the United States and England
could be better adjusted by negotiation than by an appeal to arms.
A part o f the war Mr. Lloyd was a member o f the executive coun­
cil o f Massachusetts, Governor Strong being then in the chair; and
he approved o f all the leading measures o f that distinguished ma­
gistrate. O f the Hartford convention he had some doubts, as to its
policy or expediency, but none at all o f its abstract right, or consist­
ency with a deep reverence for the constitution, and an equally high
conviction o f the duty o f preserving the union. H e supposed that it
might afford occasion with some to pretend that the eastern states were
in favor o f a separation, and o f their attachment to Great Britain— pre­
cisely the objections and charges made against that convention. It was
his opinion that there was no such design, either in the members o f
that convention, or in their constituents.
The result he considered
moderate and wise, showing a supreme regard for the welfare and pros­
perity o f the whole people o f the United States, and manifesting the
most ardent desire to preserve the union. Several o f the members o f
that convention were intimate personal and political friends, in whose
wisdom and patriotism he had the most perfect confidence.
W hen President Madison intimated, in a public message, that he
feared some citizens were plotting against the union, in 1812, a resolu­
tion was passed in the senate o f the United States, at the instance o f
Mr. Lloyd, requesting the evidence o f such a plot, and the names o f
the persons who were concerned in it. Mr. Madison replied, that he had


Mercantile Biography.

no proof, and that no particular persons had been named as having such
a design.
Mr. Lloyd was again appointed senator in congress from Massachu­
setts some years after the war, and continued until the state o f his health
obliged him to retire from public life. His former high reputation for
intelligence, judgment, and patriotism, was not at all abated. His atten­
tion to public business was unremitting, and his wise counsels were not
given without effect. In 1 8 2 2 -3 , he devoted himself to explain and urge
the claim o f Massachusetts on the federal government for remuneration on
account o f the expenses o f the militia in the war o f 1812-15 ; and it is
understood that he made a strong impression on the mind o f President
Monroe in favor o f the equity o f a reimbursement.
In his domestic relations, and in the circle o f his friends, Mr. Lloyd
was fitted to receive and to communicate happiness. The lady o f his
choice united intelligence with gentleness and delicacy o f manners in a
remarkable degree. She justly appreciated his worth, she could best
approve his discriminating taste, nor be unaware o f his high and honor­
able character in the estimation o f his fellow citizens. On account o f
feeble health for several years o f his life, Mr. L loyd mixed less frequently
than most others, o f his property and standing, in large companies. But
he administered “ the rights o f hospitality” to his visitors with much ap­
parent cordiality, and with great felicity o f manner. Some young per­
sons o f the present time might charge him with a degree o f formality in
his deportm ent: he was indeed precise, and always consulted decorum
and propriety; or, perhaps, it might be more justly said, that they were
habitual to his character from his early years. But his demeanor was
not, therefore, unpleasant to his friends, who, with his peculiarly urbane
and gentlemanly manners, never felt unduly restrained at his table or in
his company.
The character and political opinions o f the patriots o f the Revolu­
tion, had the respect and admiration o f Mr. Lloyd. His father had been
friendly to the parent government in 1775, but not one o f those who left
their native country to put himself under the protection o f the king.
His submission to the British govemmentwas like that o f many other aged
menin thattryingperiod, who, though friends o f civil liberty, feared amore
oppressive exercise o f pow er over them i f they were unsuccessful in
their resistance, and o f that there was some reason to fear. The aged,
therefore, were generally disposed to subm it; but the younger class,
fortunately, had more resolution and more enthusiasm, and nobly resolved
to resist or to perish. Mr, L loyd early imbibed the principles and sen­
timents o f the whigs o f 1775, and, in theory and sincerity, was a true
republican. But he was too wise to be a leveller, too great a friend to
true liberty to be a radical, and had too much self-respect to flatter the
ignorant for the sake o f popularity. Mr. L loyd passed several o f the
last years o f his life in Philadelphia, where he had many valued friends,
and died in N ew Y ork in April, 1831, where he went to reside for a
short time. Though he retired from the concerns o f public life, his
death was extensively and deeply lamented, and his memory is still
cherished in many hearts with sentiments o f high regard.

Post-Office R eform — Cheap Postage.


A r t . V I I .— P O S T -O F F IC E R E F O R M — C H E A P P O S T A G E .
T he readers o f this Magazine are well aware, that Sir Rowland Hill
has presented to the people and government o f Great Britain a plan, by
which he proposes to reduce the postage o f letters in that kingdom, to
the uniform price o f one penny. The commissioners o f the post-office
having considered his proposition, and being satisfied that a reduction o f
postage could be safely made, have already commenced the preparatory
arrangements to carry it into effect. A s an experiment, they have re­
duced the postage o f single letters to all parts o f the United Kingdom
to the low price o f fo u r pence.
The people o f the United States, always ready to adopt measures o f
economic reform, and eager to open every avenue for the cheap and rapid
diffusion o f useful knowledge, have taken up the subject o f cheap post­
age, and presented petitions to congress to abolish the franking privilege,
and to reduce the present rates o f postage. The public press has dis­
cussed this subject, and urged upon the representatives o f the people
the importance o f immediate action. It was generally supposed that a
subject o f such vital interest to all classes o f the people, and on which
they had expressed so strong and decided an opinion in its favor, would
have induced the post-master general to notice it in his annual report
to the president, and recommend immediate measures to reform the
present unequal and burdensome monopoly. But in this expectation
they have been disappointed. This important subject is disposed o f in
the following summary manner :
“ The radical change in the rates o f postage on letters, recently adopted
in Great Britain, has attracted much attention in the United States. T o
enable me to furnish congress with information on that subject, and all
others connected with the post establishments in several o f the most con­
siderable European countries, I have dispatched one o f the special
agents o f this department to Europe, with instructions to visit them in
person, and furnish me vyith minute details o f their organization and
operations. Many documents, and some interesting particulars, have
been received from him, but he has not yet been able to prepare himself
to make a detailed report. A s soon as such report shall be received, it
is intended to submit to congress all the information it may contain, for
their consideration.”
On this paragraph o f tire report we are constrained to offer a few re­
marks. First, we consider it an unnecessary waste o f time and money
to send out a “ special agent” to make inquiries on this subject. All
the necessary information could have been obtained equally as well from
our highly intelligent ministers at London, Madrid, Paris, Vienna, and
Berlin. The books already published, and the manner in which the busi­
ness o f the Londonpost-office is conducted in allits ramifications, could have
been procured and forwarded to the post-master general without any
delay or expense. And as there are no “ state secrets” connected with
the cheap system o f postage, all the particulars and details could have
been given to Mr. Stevenson without the least hesitation. But secondly,
admitting that it was necessary to send out a special agent, w e would ask,
what has he been doing for nine months, that “ he has not yet been able
to prepare himself to make a detailed re p o rt]” This “ special agent”


P ost Office R eform — Cheap Postage.

left N ew York, in the Great W estern, last June; still he has not given suf­
ficient information to enable the post-master general to report on this
interestjng subject!
The cheap postage system has been in operation in England several
months, and even despotic, sluggish Austria, has followed the example ;
and yet the energetic and industrious Mr. Kendall has not moved one
step in the matter except to send out a special agent, who, after a nine
months’ laborious research, has not been able to understand the system so
as to make a “ full report.” Even the political opponents o f Mr. K en­
dall have heretofore been disposed to allow him business talents o f a high
order, and his friends have confidently believed that he would eagerly
seize the opportunity o f introducing a reform in the rates o f postage;
but alas, he has, at least in this instance, disappointed both his friends
and opponents
It is not our intention in this article to complain o f Mr. Kendall, or his
“ special agent,” but to show the absolute necessity o f adopting imme­
diately a cheap and more equal system o f postage, and eventually a total
reform in the post-office department— a ref orm which is necessary to make
it more congenial to the spirit o f our institutions, and the advancing know­
ledge and improvements o f the age in which we live.
The post-office department in this country has never been looked to
as a source o f revenue, except during the last contest with Great
Britain. Then the rates o f postage were increased to raise a revenue
to enable us to bear the expenses o f the war ; but as soon as it was
ended, the postage was again reduced. A ll that has been required from
the post-office is, that it should support itself. This it has always done,
even when the revenue did not amount to a tenth o f what it now is, and
notwithstanding the immense increase o f revenue, there has been no
reduction in the rates o f postage for the last twenty-five years. The
business o f the department has been so managed, that all its revenue
has been more than expended, and according to the last report o f the
post-master general, the expenditures oflSSS were $4,621,837 16, being
$386,759 19 more than the income, and the last year the “ engagements and
liabilities o f the department were $4,624,117 86, being an excess o f engage­
ments and liabilities $147,479 30 !” H ow is this 1 Surely the public
interest cannot require such expensive outlays upon post routes that
yield little or no revenue, and which can be o f little use to the wilder­
nesses through which they pass. Judging o f the future from the past,
should the revenue from postages amount to ten millions instead o f five
millions o f dollars, the whole will be expended in affording “ mail facili­
ties” to those portions o f the country where little or no revenue is de­
rived, at the expense o f the denser and more populous sections o f the
union. L et us be understood in this matter. W e have no objection,
while the present system exists, that congress should establish post
routes through every portion o f our territory, and even beyond the
R ocky Mountains, but we do solemnly protest against compelling one
portion o f the community to bear this expense for the benefit o f the
It is possible that one reason why Mr. Kendall did not recommend
in his report the immediate reduction o f postages, is that his department
is now in debt! Three years since, he stated that he would have a sur­
plus o f fourteen hundred thousand dollars, after paying the debts in­

Post-Office R eform — Cheap Postage.


curred under the lamented Barry’s administration, and yet in the years
1838-9, the expenses o f the department exceeded the income upwards
o f h a lf a million o f dollars ! I f poverty was the cause o f his not recom­
mending the measure, he should have said so, and not give this impor­
tant subject the go-by, with merely stating that he had not heard from
his agent. England, with her heavy national debt and enormous go­
vernmental expenses, is obliged to look to the post-office for a portion
o f revenue to meet these demands; still, with a promptitude that does
the lords commissioners infinite credit, they have reduced the postage to a
cheap and equal rate throughout the United Kingdom. W h y, then,
should Mr. Kendall hesitate to recommend a measure which is fraught
with so many advantages to our rising country, even if it should require
appropriations from congress to carry it into effect.
But we contend that a cheap system o f postage may be advantageously
adopted in this country without any aid from congress, if equal and ex­
act justice is done to all the parties concerned. F or example, in the first
place, let the fran kin g privilege he wholly abolished, so that no person may
send or receive letters or papers without paying postage. N ow , all the
departments o f government, each member o f congress, and every post­
master in the United States, enjoys the franking privilege; and it is well
known that whatever legal restrictions may be imposed against its abuse,
they are too frequently disregarded. On the departments o f govern­
ment, there is no legal restriction whatever, they send by mail as much
as they please. Some members o f congress send cart loads o f docu­
ments daily ; and during the session o f congress the mails are loaded down
with speeches that are never read, and documents which remain unopened.
Post-masters send myriads o f letters daily on their own private business,
and hundreds take the office solely on account o f the franking privilege.
Abolish this privilege, and the expense o f transporting the mails would
be so reduced, and the revenue so much increased, that a reduction o f
fifty per cent, in the rates o f postage might be made immediately. There
is no justice whatever in requiring the people to pay the postage o f the
departments, members o f congress, and post-masters.
It may be objected, that members o f congress would be heavily taxed
by their constituents, were they obliged to pay postage for all the letters
sent to them. It would be no more burdensome to them than it now is to
the members o f the state legislature. W hen their constituents write
them on their own business, they know it is their duty to pay the postage ;
so would it likewise be as it respects members o f congress. Or if it was
deemed necessary, the congressional post-office might open an account
with each member, and the amount at the close o f the session be paid
from the treasury in the same manner as their other expenses are now
paid. A proposition to abolish the franking privilege will no doubt be
unpopular with all who are interested in its continuance, and from such
no favor is to be expected. Nevertheless, the rights o f the whole peo­
ple are paramount to the interests o f a comparatively few individuals,
and must and will be eventually respected by every friend o f his country.
In the second place, we maintain, that the adoption o f a cheaper sys­
tem would, instead o f decreasing, greatly increase the revenue o f the
post-office department. The present heavy tax upon letters is a serious
interruption to that friendly intercourse which would be kept up between
absent friends, many o f whom are unable to bear the expense, and others


Post-Office R eform — Cheap Postage.

are unwilling. Besides, there are myriads o f letters now sent by pri­
vate conveyance, which, if the postage was reduced, would be sent by
mail. N ot a steam-boat leaves the wharf, nor a mail-stage the tavern,
but takes with them hundreds o f letters, in order to save the expense o f
postage. But i f the postage was reduced, there is hardly an individual,
certainly not a man in business, but would prefer sending his letters by
mail, rather than give his friend or acquaintance the trouble o f carrying
them. H ence, this unequal and burdensome tax excludes daily from the
post-office thousands and tens o f thousands o f letters, which, under a
cheaper and more equal system, would be sent by the mails, and thus
contribute to swell the revenue o f the department. W e might enlarge
upon this subject, but these suggestions are deemed sufficient to show
the practicability o f reducing the rates o f postage to a much low er rate
than they now are.
W e have said that it was our object also to show the necessity o f a
total reform in the post-office department. This we shall endeavor to
do in as few words as possible.
1. The present rates o f postage should be changed because o f their
inequality. L et us take the following for an exam ple: — The postage on
a single letter to Philadelphia is twelve and a half cents, and eighteen
and three quarters cents to Baltimore, Providence, and Boston. This
is a heavy tax upon the citizens and merchants o f those cities, between
whom there is an uninterrupted daily correspondence. There is no
fairness in making our citizens pay twelve and a half cents for 80 miles,
and only twenty-five cents for 2,000 miles ! The conveyance o f a letter
80 miles cannot cost h a lf as much as to carry it 2,000 miles, and, conse­
quently, there can be no justice in requiring us to pay that sum. W hy
should those who send letters only a short distance, be obliged to pay for
those who send their letters to a greater distance ? This inequality in
the postage o f letters should be corrected, even if the rates are not re­
There is likewise an inequality in the rates o f newspaper and pam­
phlet postage, which should be corrected. A newspaper, no matter how
large the sheet, pays only one and a half cents to any portion o f the
Union, and the same is charged for the smallest. The mammoth sheet
o f the papers called the “ N ew W orld ,” and “ B rother Jonathan,” pay
no more than the daily “ Sun,” or “ W h ig ,” which are not one fourth o f
their size. Again, should either o f those sheets be printed in pamphlet
form, and stitched, it would be charged tiro and a h a lf cents as a maga­
zine, and if the same sheet should be issued as an occasional pamphlet
it would be charged six cen ts! Is not this an unequal tax upon know­
ledge, which should be immediately corrected 1 W hat good reason can
be urged, that a small sheet should pay as much postage as one that is
four times heavier and larger; or that because a sheet is folded and
stitched, it should therefore pay double and quadruple another that is
not? Equity demands a reform in the rates o f postage, and he who
takes the lead in this salutary measure will deserve well o f his country.
2. The m onopoly character o f our post-office system renders it pecu­
liarly obnoxious to animadversion, being wholly at war with the spirit
o f our free institutions. The post-office department has the sole and
exclusive control o f transporting letters and papers, and no individual
or company is permitted to come into competition with its operations,

Post-Office R eform — Cheap Postage.


without incurring heavy penalties. W ere it not for this prohibition, let­
ters might be sent to Philadelphia, Baltimore, and Boston, and other'
cities o f the Atlantic coast, for one fourth o f what it now costs, and with
equal if not greater expedition and security. I f this business was left
free to individuals or companies, instead o f the government, they could
be made responsible for the safe transportation and delivery o f letters
containing money. The post-office department charges an additional
sum for letters containing enclosures, but gives no additional security
for their safe delivery; whereas, if the business was thrown open, and
others might engage in this business, ample and satisfactory security
could be obtained for a safe and expeditious delivery o f letters with
their contents.
W e might here ask, why should the government assume the exclusive
right o f transporting our letters and papers any more than our persons
and articles o f trade 1 W ith equal propriety might they claim the right
o f transporting all goods, wares, and merchandise, from city to city, to
the exclusion o f every other person from engaging in the business, and
then charge such rates as they might think proper.
There is no one
but would instantly exclaim against the injustice and oppression o f such
an odious monopoly, and yet this monopoly, in relation to the transmis­
sion o f letters and papers, is submitted to without a murmur, merely be­
cause we have been so long accustomed to it.
T o many o f our readers it may appear strange and heretical doctrine
to suggest the idea that we could do as well or better without what is
called “ the post-office department.” L et us suppose, for example, that
the clause, giving congress the power “ to establish post-offices and post­
roads,” was struck from the constitution; is any one weak enough to
believe that the activity o f commerce would not soon supply another
system equally as efficient and useful 1 In the language o f an eloquent
and powerful writer, who has the honor o f first starting the idea o f a
fr e e trade post-office, “ modes o f conveyance would be instituted at once;
they would speedily be improved by rival efforts o f competition, and
would keep pace step by step with the public demand. It may be said
that the places far inland and thinly inhabited would suffer by the ar­
rangement. The solitary squatter in the wilderness might not, it is true,
hear the forest echoes daily awakened by the postman’s horn, and his
annual letter might reach him charged with a greater expense than he
is now required to pay. But there is no place on the map which would
not be supplied with mail facilities by paying a just equivalent; and if
they are now supplied for less, it is because the burden o f post-office
taxation is imposed with disproportions! weight on the populous sec­
tions o f the land. But there is no reason why the east should pay the
expense o f threading with the mail the thick wildernesses o f the west,
or o f wading with it through the swamps and morasses o f the south.
This is a violation o f the plainest principles o f equal rights.”
The present organization o f the post-office department is liable to
great abuses, inasmuch as it places in the hands o f one individual an im­
mense and dangerous patronage, which may be wielded against the true
interests o f the people. Under the present system, there are upwards
o f thirteen thousand post-masters, holding their appointments directly
from one man, and removable at his pleasure. Nearly two thousand mail
contractors are brought into immediate contact with the head o f the dev o l . i i .— n o . i i i .



Post-Office R eform — Cheap Postage.

partment, and by whose decisions alone contracts are made and fines le­
vied for delinquencies. This numerous army o f postmasters and contract­
ors have a multitude o f subordinates under their control, and if we
include the clerks, carriers, and various other persons more or less de­
pendent for support on this enormous system, it will probably yield an
aggregate o f not much less than half a million o f persons under the im­
mediate direction, to some extent, o f a single individual. W ill it not be
perceived at a single glance that this monstrous power is at all times sus­
ceptible o f being exerted with the most dangerous effect for the advance­
ment o f objects hostile to the true interests o f the people 1
T o use the language o f the powerful writer above mentioned, “ it is
not only tire vast means o f undue influence which the present system gives
to a single federal officer, in enabling him, to some extent, directly to con­
trol the suffrages o f a numerous body o f organized dependents, but the
facilities it furnishes for a rapid and simultaneous diffusion o f political in­
telligence which it may be desired to circulate, for the obstruction o f that
o f a contrary tenor, and for the exercise o f all the arts o f political espion­
age, also render the post-office, as a branch o f government, a dangerous
institution. I f this is a danger not necessary to be incurred, if the duties
which it performs are a matter o f trade which might safely be left to the
laws o f trade, and if the transmission o f our letters and newspapers, from
place to place, might be submitted with salutary results to the operations
o f the same principles which now secure the carrying o f our merchan­
dise and our persons, there are many who will readily admit that the
free trade system, as tending to simplify the offices o f government and
restraining its powers, would be better than one o f political regulation.
W e are ourselves strongly inclined to the belief, that i f the clause in the
federal charter which gives to congress the control o f the post-office
had never been inserted, a better system would have grown up under
the mere laws o f trade. The present system, let it be conducted as it
may, can never, in the nature o f things, be wholly free from political
abuses, and is always in danger o f being converted into a mere political
machine. The abuses which are its inevitable attendants will necessa­
rily increase from year to year, as the population swells in numbers and
spreads over a wider surface. It must always be managed by political
intermediaries and rapacious subordinates, be attended with a vast
amount o f unnecessary expense, and this expense must be drawn from
the people by a method o f taxation in utter violation o f their equal rights.
It is a government machine, cumbrous, expensive, and unwieldy, and
liable to be perverted to the worst uses.” *
B. B.

P u n c t u a l it y . — Sell to a man who is punctual in his payments at a
less profit than to him who is not. One dollar sure is better than two
doubtful, and it will avail you more in an emergency. The way to get
credit is to be punctual; the way to preserve it is not to use it too much.
Settle often— have short accounts. Trust no strangers;— your goods
are better than doubtful charges.— F oster.

The late W illiam Leggett.

M ercantile Law Reports.





V III.— M E R C A N T IL E L A W R E P O R T S .

OF G O O D S .-----B R U SSE L S



S I L K .-----W O R S T E D

R U G S .------S IL K

T W I S T ------


I mport D u ties . — Many important cases have been decided during
the past year, which have a bearing upon the existing tariff. The cases
which follow were reported for the Merchant’s Magazine, and may be
implicitly relied upon for their correctness and fidelity.

OF G O O D S .

1. In the United States D istrict Court, before Judge Betts, February 12,
1840. T he United States v. Ten Cases o f Merchandise. Hadden If
Co., claimants.
This was an information for the forfeiture o f the goods under the
three clauses o f the penal part o f the 14th section o f the act o f July, 1832.
It contained three counts: 1. That the goods on inspection did not corres­
pond with the entry. 2. That the package contained articles not mention­
ed in the entry, inasmuch as none o f the goods in the package were speci­
fied in the entry. 3. That the package and invoice were made up with
intent to evade or defraud the revenue.
The entry and invoice produced upon the entry were read, in which
the goods were described as worsted shawls ; also the letter o f the ship­
pers to the claimants was produced b y them and read on the part o f the
United States, stating, that in great confidence o f the integrity and high
standing o f the claimants, the shippers had opened a business with them,
by the consignment o f ten cases worsted shawls, and a case o f printed
cotton handkerchiefs.
The evidence for the prosecution farther showed, that upon inspection
the goods were shawls composed o f cotton and worsted ; all the goods
were o f the same kind ; and the materials were palpably to be disco­
vered, and nothing in the way o f concealment appeared.
The Court then suggested, that as it had been decided by the Circuit
Court that the act o f congress did not contain words imposing any for­
feiture for the goods not corresponding with the entry, (owing apparently
to the accidental omission o f words o f forfeiting in the law,) there need
be no discussion as to the first count, seeking the forfeiture on that
ground. The claimants’ council offered to waive any objection on this
ground, and asking to have that question tried, as they were prepared
to show that the goods were invoiced and entered under their usual and
appropriate name in trade. They were therefore desirous in the present
suit to have the law pronounced, that in case o f the non-correspondence
alleged, the goods were forfeited; but the Court said, that it was not at
liberty to lay down law by consent contrary to the decision by which the
Court was bound.
The claimants’ counsel then contended, that under the second count,
charging that the package contained articles not in the entry, reference
was had not to a misdescription o f the whole contents o f the package,
but to an omission o f some part o f the contents in the en try; that a


Mercantile Law Reports.

misdescription o f the whole was the case intended in the first clause o f
the statute, and therefore was not included in the second. The district
attorney insisted, that the misdescription o f one article in a case was
within the act, and much more a misdescription o f every article.
The Court ruled, that the act o f 1832, in question, is to be construed
in connexion with the act o f 1830, o f which it is emendatory. B y the
act o f 1830 the omission o f an article in the package from the entry,
subjected the whole package to forfeiture ; by the act o f 1832 this was
repealed, and the omission o f an article only subjected that article to
forfeiture ; clearly showing that a forfeiture o f the whole package was
not intended by this clause o f the act, but to have been contemplated in
the first clause ; and as the proposition in the present case was to forfeit
every article, in other words, the whole package, not for any omission
o f a part, but a misdescription o f the whole, the forfeiture could not be
claimed under the second clause o f the statute ; and, therefore, that the
second count o f the information might be laid out o f view.
The district attorney then claimed that the evidence was sufficient,
unless contradicted, to claim a forfeiture under the third count, charging
the invoice to be made up with intent to evade or defraud the revenue ;
since by the description in the invoice the goods would have passed free,
while in fact they were liable to a duty o f 25 per cent. The claimants’
counsel insisted, that under this third clause o f the statute, the informa­
tion was too vague and uncertain to allow o f a forfeiture, since it did
not show in what the intent to evade or defraud existed, nor by what
means it was attempted. They also contended, that under the third clause
o f the act, the United States could not claim a forfeiture for the same
faults as were embraced under the first or second clauses, by merely
showing the intent in addition ; since the two first clauses embraced the
cases whether the intent were fraudulent or not.
The Court. This third count alleges the offence in the words o f the
law, and that, in form, is sufficient.
It is not clear, nor is the Court o f opinion, that if the case fall within
the second clause, and an article in a package had been omitted from the
entry, appearing to have been thus omitted through a fraudulent intent,
it would not create a forfeiture under this third clause o f the act and
this count o f the information grounded on it. The Court considers, that
i f such omission were accompanied with circumstances o f concealment,
or other matters, showing the package or invoice made up fraudulently,
it would under this third clause forfeit the whole package.
But here it is not the case o f any omission; it is a description o f the
whole package; all the goods are entered, but, as is alleged, under a
wrong description. This is not the offence contemplated in the second
clause, nor is it punished with forfeiture in the first; and this misdescrip­
tion, therefore, is not o f itself competent evidence, without other proof
o f circumstances o f concealment or art to disguise, from which the jury
can legally infer fraud.
The Court, therefore, directed the jury that the evidence was not com­
petent to warrant a conviction under the count charging fraudulent intent,
and the jury acquitted the goods.
The district attorney made a bill o f exceptions to the several decisions.
B. F. Butler, district attorney. D. Lord, jr., W . Q . Morton, and A.
Hamilton, for claimants.

Brussels and W ilton R ugs.— Silk T ivist; Sewing Silk.



2. In the C ircuit Court o f the United States, before Judge Betts, January
23, 1840. D avid H adden and others v. H oyt.
The plaintiffs had, during 1838 and 1839, imported various parcels o f
Brussels and W ilton rugs. The defendant, collector o f the customs at
N ew York, had exacted duties upon these importations at the rate o f 50
per cent, ad valorem as manufactures o f wool. The plaintiffs insisted
that they were an article not enumerated in the act o f 1S16, (3 Story,
1587,) and therefore by it charged with 15 per cent, ad valorem , and so,
under the actof 1832, (4 Story, 2322,)rendered free. The defendant con­
tended that they were subject to duty as a manufacture o f wool, or as
carpets or carpeting, under the act o f 1832.
The plaintiffs proved the payment o f the duties under protest against
the rate exacted, and that the articles were rugs, composed o f linen and
worsted, without any wool.
It appeared that the article was usually manufactured by carpet manu­
facturers, although in some instances by manufacturers o f this article
only ; that it was made in the same manner as carpets, only the patterns
were different, having a border all around the piece laid out for a single
ru g ; that in the piece they were woven with selvages between every
length o f a rug, which selvages had not the raised figure or filling, and
were so left to separate the pieces, and sometimes to have a fringe sew­
ed on ; that a piece woven for rugs would not serve for a carpet, both by
reason o f the figure and the selvages ; that in the trade, rugs were not
known as carpets or carpeting, but bore a distinct name and had a par­
ticular u se; that in trade, carpets were pieces o f carpeting woven so as
to form a pattern for a room or space o f given dimensions, sometimes
made up by sewing, sometimes woven in its shape, — carpeting was the
cloth woven for carpets in the piece, and to be made into carpets o f any
size. The witnesses stated that under an order for carpets or carpeting they
would not expect, accept, or furnish rugs, nor vice versa. That carpets
were sometimes cut in pieces, and had fringes sewed around, when they
were sold and called rugs, but they were not imported in this manner.
The district attorney conceded that upon the evidence the jury must
find that the articles in question were not carpets or carpeting, nor
chargeable with duty as a manufacture o f wool. But he insisted that
they were a manufacture o f which flax was a component part, and so
liable, under the act o f 1824, (3 Story, 1943,) to a duty o f 20 per cent.
ad valorem , reduced by the 2d section o f the act o f 1832 to 15 per cent.
ad valorem .

The Court was o f this opinion, and so charged the jury.
Verdict for the plaintiffs, $1,436 64. D . Lord, jr., for plaintiffs.
B. F . Butler, district attorney, for defendants.
S I L K T W I S T -----S E W IN G S IL K .

3. In the C ircuit Court o f the United States, before Judge B etts, January
22, 1840. S. and F . D orr Sf Co. v. H oyt.
The defendant, collector o f the customs at N ew Y ork, had exacted
from the plaintiffs duties at the rate o f 40 per cent, upon silk twist, im­
ported by the plaintiffs during the year 1839, insisting on the right to
duty as on sewing silk. The plaintiff's paid the duty, protesting against
the right to exact any duty, and brought this suit to recover hack the


M ercantile Law reports.

The plaintiffs insisted that the twist was a manufacture o f silk, and as
such, made free by the 4th section o f the act o f March 2,1832, (4 Story,
2338.) The plaintiffs proved that the article in question was known in
trade, among importers, dealers, and consumers, as twist, and not as sew­
ing silk; that although made wholly o f silk, and used only for sewing,
yet it was a different article from sewing silk, and they could not both be
used for the same purposes.
The Court charged, that if the article was known in commerce as sew­
ing silk, then the verdict must be for the defendant; but if not, then, as
it was a manufacture o f silk, it was free. That it was for them to de­
termine whether the article was known in commerce under the name o f
sewing silk or not. I f it was not, then, although it was composed o f silk
and used for sewing, it was free.
The jury found for the plaintiffs.
D . Lord, jr., for plaintiffs. B. F. Butler, district attorney, for defend­


4. Circuit Court o f the United States, Judge Betts presiding, January
22, 1840. S. 4' F - D orr Sf Co. v. H oyt.
This was an action for money had and received by the defendant,
collector o f the customs at N ew York, and paid to him by the plaintiffs,
as duties on certain importations o f worsted cravats ; the duties had been
exacted and paid at the rate o f 50 per cent, ad valorem, classing the
goods as a manufacture o f wool, or as ready-made clothing, under the act
o f July 14, 1832, section 2, class 2.
The plaintiffs claimed them to be free ; being, under the act o f 1816,
a non-enumerated article, subject to a duty o f 15 per cent., and, conse­
quently, by act o f 1832, (4 Story, 2322,) section 2, rendered free o f duty.
The goods were proved to be worsted, and woven on the stocking
frame, and were dealt in principally by dealers in hosiery.
The counsel o f the defendant proved that the goods usually went in
commerce by the name or class o f hosiery. H e admitted that they were
not subject to the duty o f 50 per cent., as ready-made clothing, or manu­
factures o f wool, but insisted that they were not free o f duty, but were
chargeable with the duty on hosiery.
The counsel o f the claimants assented to these views.
The Court charged, that the goods were liable to duty as hosiery, and
that the excess over the hosiery duty must be found for the plaintiffs.
Verdict for plaintiffs, $1,321.
D. Lord, jr.,for plaintiffs. B. F. Butler, district attorney, for defendant.

Dividend L ist fo r 1840.— Under this title, Coolidge and Lambert,
57 W all street, have published a sheet, giving the titles o f the various
bank, trust, insurance, rail-road, and miscellaneous stocks, the amount o f
capital, value o f shares, dividend months, and the semi-annual dividends
for 1838, 1839, and 1840. It is compiled by J. N. Williams, and must
prove a valuable table o f reference for those who buy or sell city stocks.

The Book Trade.


A r t . I X .— T H E B OOK T R A D E .

1. A Supplementary Catalogue o f the Books belonging to the M ercantile
L ibrary Association; comprising all those added from July, 1S37, to
January, 1840. N ew York. Printed for the Association.
T he catalogue to which this is supplementary was published in 1837,
and is comprised in a volume o f 312 octavo pages. In 1838 another
supplement was published o f 56 pages. At the first opening o f the in­
stitution, the collection o f books amounted to about seven hundred vo­
lumes, derived principally from personal donation. In 1821, the number
had increased to one thousand. In 1826, to two thousand two hundred
volumes. The library has steadily and rapidly increased, and now num­
bers about twenty-two thousand volumes. The arrangement o f the pre­
sent supplement differs in many particulars from that adopted in other
catalogues o f the library, inasmuch that preference is given to the alpha­
betical order in each division ; and this, we are informed by the compiler,
Mr. Delf, has been done, from a conviction that it offers to the readers,
for whose use it is prepared, advantages over any arbitrary scientific
classification, which, however useful to those advanced in knowledge, is
obviously unfitted for others who are but entering its domain. The notes
introduced by the editor for the purpose o f attracting attention to ne­
glected works, as well as to aid those who have given indications o f a
desire to cultivate a taste for other than the ephemeral productions o f the
day, are generally judiciously selected from reputable authorities. On
the whole, the taste and industry displayed in the arrangement o f the
supplement, is creditable to the compiler.

2. Civil Office, and P olitical Ethics. Containing fa m ilia r Law relating
to Husband and W ife, Parent and Child, Guardian and W ard, W ills,
Executors and Administrators, Witnesses, Jurors, and Arbitrators. F or
the Use o f Citizens and Schools. B y E . P . H u r l b u r t . N ew Y ork :
Taylor & Clement.
This appears to be a very accurate, useful work, and great praise is
due to the author and the publishers for offering our “ citizens and schools”
this necessary knowledge, in a form at once concise and intelligible.
The chapters on “ The judicial powers o f the United States,” and on
“ The rights o f citizens and inhabitants o f the state o f N ew Y ork,” are
important to the merchant.

3. Civil P olity and P olit ical Economy. F or the Use o f Schools and Aca­
demies. By M a r c h ' s W il l s o n . N ew Y o r k : Taylor & Clement.
This work presents, in a concise manner, the first principles o f consti­
tutional law and political economy. It should be studied in every school,
and read by every citizen. The principles o f civil polity and political
economy are level to the capacities o f youth, and therefore should be
taught to youth. Our schools have too long neglected these necessary
branches o f a republican education.

Commercial Regulations.





A pples.................................................
25 Fruits— Apples and Peaches..........
Raisins, per lb ...............................
Almonds, per lb.................................
Axes, Hoes, Ploughs, Harrows, &c.,
for purposes o f husbandry............ free
Arms—Fire-arms and Ammunitions
Peaches in spirits..........................
o f W ar, of all descriptions......... free
B a co n ................................................. free Farming Utensils.............................
Bread Stuffs o f all kinds................ free Furniture o f all classes......................
Bale Rope......................................... free I Groceries not enumerated under their
Barley and Corn, & c........................
respective heads.............................
Beef, pickled..................................... free [Glass and Glass W a re ....................
Butter, per lb ......................................
61 |Hats, o f all descriptions..................
Beets................................................... free Household furniture.........................
Beans.................................................. free Harness..............................................
Books and Stationery...................... free Iron, implements for purposes of hus­
Baggage in actual use...................... free
Boots and Shoes...............................
25 Iron and Steel.....................................
Brass, all articles o f which it forms
“ Bar, per 100 lb s .........................
20 A ll other articles o f which Iron or
a component part...........................
Building Stone, Bricks, Slates and
Steel form a component part, not
T ile s............................................... free
Brushes o f all kinds.........................
30 Implements brought in by emigrants
for their own use..........................
Carts................................................... free
Corn.................................................... free Ivory............................................ . ....
Coffee................................................... free Jewellery............................................
Cinnamon, per lb ..............................
10 j Liquors, see articles of Malts o f all
Candles, T allow ...............................
2 j Liquors in bottles, per d o z ..............
3 |. Linen, all articles o f which it is a
W a x ....................................
component part..............................
Cotton, all articles o f which it forms
Leather, all articles o f which it forms
a component part..........................
a component part..........................
Cotton Bagging................................. free Lumber...............................................
Clothing, wearing apparel in actual
Molassesor Syrup, per gallon..........
use................................................... free M ustard..............................................
Wearing apparel ready made, other­
| Medicines and Drugs o f all descrip­
wise imported than for actual use
tions. ...............................................
Munitions o f war o f all descriptions,
Copper, all articles o f which it forms
a component part..........................
and fire arms..................................
Carriages for pleasure......................
25 Machinery o f all kinds...................
D rays.............................................. free j Nails and Screws, per 100 lbs..........
50 O a ts...................................................
Cards for playing.............................
Coal..................................................... free O nions...............................................
121 Oils, salad.........................................
Corks, per lb .....................................
Spermaceti, Whale, Rape, and
Combs, o f all descriptions..............
Lin seed.....................................
Dry Goods — W ool, all articles of
Provisions, see article of.
which it forms a component part.
25 ' Pork, pickled.....................................
Drugs and Medicines o f all descrip­
“ salted or smoked......................
20 Potatoes.............................................
EarthenW are...................................
20 Pepper, per lb ................................... .
Fish — Cod per lb ...................... . . .
1 Pickles...............................................
Mackerel, per bbl.......................... 1 50 Peaches...............................................
“ preserved in spirits..............
Salmon...............................................2 00
Herrings......................................... 1 00 I Pewter, all articles of which it forms
in boxes per 100 lbs........ 1 00 | a component part.........................
per 100 lbs........................ 1 00 Paints o f all descriptions..................
Shad, per bbl.................................. 1 50 I P a p er.................................................
Flour.................................................... free II R i c e ...................................................




33 J

2 00


1 00


Commercial Regulations.
Raisins, per l b ....................................
Rum, see Spirits.
Rope, bale and cordage, per lb . . . . .
Spices — P im e n to ...........................
Soap— yellow ....................................
Other kinds................................
S a l t . . . . .............................................
Spirits—Brandy, 1st and 2d proof,
per ga ll........................................
Spirits, 3d and 4th proof..............
Gin, same as Brandy.
W hiskey 1st and 2d proof, per gall.
3d and 4th............................
All other Spirits not enumerated, in­
cluding Cordials and Liquors of
all kinds, will pay the same duty
as Brandy.
Silk, all articles o f which it forms a
component part..............................
Syrup, per gallon..............................
Screws, per 100 lb s ..........................
Stone, for building............................
Seeds o f all descriptions................
Salt Petre, per lb ..............................
Tongues, neat, pickled and smoked,
T e a ....................................... ... • ....


3 ! Tools o f trade, in actual use............ free
O f all descriptions, for carpenters,
cabinet makers, joiners, and
5 Tin, all articles o f which it forms a
25 Tiles* for building.........................
free Tobacco— Segars, per 1030.............. 2 50
In any other form than in Segars
50 V inegar.............................................. free
62^ W h e a t.................
Wines—Claret, per gallon..............
Other red French..........................
Oporto or Port.............................. 37£
French W in e..................................
Champaigne.................................. 1 00
In bottles, per d o z .................... 2 0'J
Madeira, per gallon.............
Teneriffe.......................................... 37£
Spanish W h ite..............................
Spanish R ed..................................
German Hock, Rhenish, &c.......
1 00
Wines, all others in bottles, per doz 1 50
free W ool, all articles of which it forms
a component part..........................
free W a g on s.............................................. free
6\ Wares — Glass and Earthen...........
A ll other articles not above enumerated
free shall pay a duty o f 25 per cent, a d valorem .

Masters o f Vessels, and all persons concerned in the shipment o f Goods, Wares, and
Merchandise, are notified, that the rules and regulations o f the Custom House in the
United States will be adopted in this Republic, so far as applicability o f the law and
circumstances will permit. All the reports, therefore, presented to the office o f the Cus­
tom House at Galveston, will be required to be made in due form. Business hours from
9 A. M. till 4 P. M., except on Sunday.
G. BORDEN, Collector.
A N A C T , to amend an Act to raise a Revenue by Impost Duties. S ec . l3t. B e i t
enacted by the S en ate a nd H ouse o f R ep resen tatives o f the R epublic o f T e x a s in C on­
g r e s s assembled , that from and after the passage o f this act, the following articles may be

ir portedinto this Republic free of duty, to wit: sugar, coffee, tea, salt, flour and all kinds
o f bread stuffs, pickled pork, bacon, iron and steel, household furniture, cotton bagging,
bale rope, books and stationery, machinery o f all kinds, wagons, carts, and harness,
with farming utensils, lime and lumber, and implements brought in by emigrants for
their own use.
S ec . 2d. B e it fa rth er enacted, that from and after the passage o f this act, on all dry goods
manufactured o f cotton, or o f which cotton forms a component part, a duty of ten per
cent, ad va lorem shall be levied and collected: all other goods shall be subject to, and pay
the duties laid down in the law passed 2d June, A. D. 1838.

Provisions o f the Foreign D uty B ill lately passed by the Colonial L egisla­
ture o f Jamaica, on most o f the Articles taxed. From the Cornwall
Chronicle o f December 14th, 1839.
For every article o f wheat flour not weighing more than 196 lbs. nett
weight................................................................................................ 2s Gd
For every hundred weight of biscuit or bread................................. 1 6
For every barrel of flour or meal, not weighing more than 196 lbs.,
not made from wheat........................................................................ 2 6
For every bushel o f wheat, peas, rye, calavances, oats, or barley.. 1 6
Rice, for every 112 lbs. weight............................................................ 2 6
For every thousand shingles, not more than twelve inches in length, 7 6
For every thousand shingles, be ng more than twelve inches in
length.. . . ...........................................................................................11 6
V O L . I I .-----N O . I I I.

Commercial Statistics.


For every hundred red oak staves.................. ....................... .......... 15
For every thousand white oak staves or heading.......... ..................12
For every thousand feet o f pitch pine, white or yellow pine lumber,
o f one foot thick............................................................................... 21
Other kinds o f lumber wood, (cedar, logwood, fustic, and maho­
gany excepted,) per thousand feet................................................... 28
For every thousand wood hoops....................................................... 5
Beef and pork, salted beef o f all sorts, for every 122 lbs. w eight-----12





Appended to the Treasury Report, as communicated to congress, is the following
statement, exhibiting the value o f imports and exports o f the United States, in six suc­
cessive years, ending 30th September last. The amount o f imports during the past
year has surprised every one, being greater than in any former'year, except the great
speculation year, 1836. On the other hand, the amount o f exports has been greater
than in any former year, except 1835 and 1836.
V A L U E O P IM P O R T S .

Y ea rs.

F r e e o f D u ly .



P a y i n g D u ty
a d va lorem .

P a y i n g specific
D u ties.

T o ta l.



T o ta l Value o f
E x p o rts .

V alue o f Im ports.




Y ea rs.

F o r e ig n M erch a n ­
D om estic P rod u ce.





S ch u yl­
k ill.

L eh ig h .

1826 16,835
1827 29,493
1828 47,181
1829 78,293


L a ck a w a na .


A ggre­
ga te.

Y ea r .

Comparative Statement o f the Quantity o f Coal shipped from the different
Coal Regions in Pennsylvania, fro m the Commencement o f the Trade, in
1820, to January 1st, 1840.




L eh ig h .

L ackaw a na .

41,750 43,000
123,000 111,777
131,250 90,000
146,502 106,270
223,902 115,387
220,645 122,300

A ggre­
g a te .


Miscellaneous Statistics.


From this statement, it appears, that anthracite coal was first used as fuel (on tide
water) in 1820; and, dividing the twenty years since that date into four periods o f
five years each, the quantity brought from the Schuylkill, Lehigh, and Lackawana
mines, in the first period, ending with the close o f the season o f 1824, was 19,042 tons.
Second period, ending 1829.........................
“ 1834...............................................................1,582,428
1839............................................................... 3,637,369
M aking....................................................................................... 5,570,054
W hich shows an average quantity, for the first five years, o f 3,808 tons per ann.
Second five years............................................................ 68,239 “
316,485 “
727,479 “
and that nearly twice as much has been consumed in the last five years, as there was
in the preceding fifteen years. A new impetus has been given to its consumption in
that period, by the increased safety and economy with which it has been successfully
introduced and used in steamboats, and locomotive engines on rail-roads.

A Statement o f the Charges incurred at the P ort o f Mobile, exclusive o f
Insurance, calculated on a Pale o f 420 Pounds, with F reigh t at \d.> and
Prices at the present Rates.
Wharfage, per bale........................................................................
W eighing.......................................................................................
Draying to press............................................................................
Storage, average, s a y ...................................................................
Factor’s commissions, average this season................................
Add'for freight to city ..................................................................SI 50
Chargeable to planter....................................................... .......... $2 85
Brokerage....................................... ..............................................
Storage until compressed..............................................................
Drayage to vessel or lighter........................................................
W h arfage.......................................................................................
Commission on purchase, average, s a y .........................................
Freight and primage, say............................................................. $6 64£
Chargeable to purchaser.................................................. ....... $8 00
Lighterage to lower b a y...............................................................
Stowing, (done by the day,) say.................................................
Chargeable to vessel.................................................................... Si 30
Total charges on a bale................................................................
Add port charges at Liverpool.....................................................

SI 2 15
6 00

Total, on both sides, per bale.......................................................






A Statement, showing the Population, and also the aggregate Valuation
o f the R eal and Personal Estate, in the several Cities in the State o f
New York, in each year since 1815. Compiled fro m the Comptroller’s
Report, January 14, 1840.

Y e a r . P o s i ti o n .

U. S. Census, 1834 Incorp’d.
State Census, 1835

Real (f* p er ­
sonal estate.

Year. P o p ’Uion.

15,642,290 State Census, 1837


R ea l
p er ­
sonal estate.


Miscellaneous Statistics.


State Census, 1816
U. S. Census, 1820
State Census, 1825

R ea l tf- p e r ­
sonal estate.

Y ear.


8*2.074,*200 State Census. 1828
83,254.031 U. S. Census, 1830
123,706 69,530,753
70,940,820 State Census, 1835
166,086 101,160.046


Y ea r. P opV lion .


R ea l if- 'per­
sonal estate.

166,086 114,019,533
112,5". 6,016
203,007 125,288,518
270,089 218,723,703


R ea l
p er­
Y ea r. P o p ’Uion.
sonal estate.

State Census. 1816
U. S. Census. 1820
State Census, 1825





Y ea r. P o p ’ition.

5,430,636 State Census, 1828
8.089.196 U. S. Census, 1830
2,574,784 State Census, 1835


R ea l
p er­
sonal estate.






Y ea r. P op ’Uion.

State Census, 1816
U. S. Census, 1830
State Census. 1825

R ea l if. p er­
sonal estate.

Y ear. P o p ’Uion.

Ineorp’d. 1.621.670 State Census. 1828
1,818.593 iU. S. Census, 1830
2,464,285 State Census, 1835



R ea l
p er­
sonal estate.

4 221,604


Y ea r.



U. S. Census. 1834 Incorp’d.
State Census. 1835

R ea l
p er ­
sonal estate.

Y ear. P o p ’Uion.

2,587,215 State Census, 1837


R eal p er ­
sonal estate.


M iscellaneous Statistics .



Y ear. P o p ’ltion .

U. S. Census, 1832 Incorp’d.
State Census, 1835

R eal
p er­
sonal estate.

990,000 State Census,

Y ear. P o p ’ltion.



R ea l
p er ­
sonal estate.


U T IC A .

Y ear. P o p ’llion.

U. S. Census. 1832 Incorp’d.
State Census, 1835

R ea l if' p er­
sonal estate.

2,716,225 State Census,

Y ea r. P o p ’ltion .



R ea l if* p er­
sonal estate.



Y ea r. P op 'ltion .

State Census, 1816
U. S. Census,
State Census, 1825




R ea l if* p er­
sonal estate.

State Census,
1,377.211 U. S. Census.
725,544 State Census.

Y ear. P o p ’ltion.



R ea l <|*p e r ­
sonal estate.





H U D SO N .

Y ea r. P o p ’ltion .

State Census, 1816
u. s. Census. 1820
State Census, 11-25




R ea l
sonal estate.

Y ea r. P o p 'ltion .

1,252,475 State Census, 1828
1,663,678 u. s. Census, 1830
1.188,201 State Census, 1835



R ea l <|*p er­
sonal estate.


B ank S tatistics.




Table showing th e’p rincipal Items o f the Bank Statements o f all the Char­
tered Banks o f the State, fo r the last fiv e years.
Jan. 1,1836. Jan. 1, 1837 Jan. 1, 1838. Jan. 1,1839. Jan. 1,1840.
96 B anks.
86 B a nks.
98 B a nks.
95 B a n k s. 96 B a nks.

Capital....................... 31,281,461
Circulation................ 21,127.927
Canal F und...............
Deposits.................... 19,116,170
U. States Deposits...
Due Banks................ 19,783,482








Loans and Discounts. 72,469,282
Stocks ........................
Bank Notes............... 10,237,574
Cash Items. ............
Due from Banks....... 15,991,168






Statement o f all the Chartered Banks o f the State o f New York, distin­
guishing between those located in the City o f New York and elsewhere,
January 1st, 1840.

T w en ty -eig h t
F o r ty -s ix
T w en ty -tw o
L o n g Island cou n try B ’ks
N . Y ork C ity
(f* N orth R i ­ tp tw o bra n ­
B a n k s.
v e r B a nks.

Loans and Discounts..............
Real Estate...............................
S to c k s ......................................
Expenses and Personal Estate,
Bank Fund...............................
Notes o f other Banks..............
Checks and Cash Items..........
Due from b’ks & corporations,
Other Investments...................




T o ta l.



Loans on time.........................
Due to Canal Fund.................
Deposits on debts.....................
Dividends unpaid................ a .
Due other b’ks & corporations,






B ank Statistics.

A Table showing the condition o f the fiv e Banks in the state o f New York
not subject to the Bank Fund L a w.

N orth R i v ­ Chem ical
M an hattan F u lto n
B a n k . er B a n k .
B ank.
Com pany.

Loans and Discounts........ 2,414,722
Real Estate.........................
Expenses & personal estate.
Notes o f other Banks........
Checks and Cash Item s...
Due from other Banks. . . .
Other Investments.............





Bank o f
A lba ny.












Dividends unpaid..............
Due Canal Fund................
Deposits.................... * . . . .
Due other Banks................











5 053.428





l '6 .6 9 0

Aggregate Statement o f ninety-one Banks subject to the Bank Fund Law ,
as reported to the Bank Commissioners, January 1, 1840.

E ig h te e n
S eventy-three
N ew Y o rk C ity
C ou n try B a nks.
B a n k s.

Loans and Discounts..........................
Real Estate...........................................
Expenses and Personal Estate..........
Bank Fund...........................................
Notes o f other solvent Banks.............
Checks and other Cash Items.............
Funds in New York and A lb a n y. . . .
Due from other banks & corporations,


9 5 l’657

, T o ta l.



Loans on time......................................
Due to Canal Fund.............................
Deposits on debts.................................
Dividends unpaid................................
Due other Banks and Corporations..





Bank Statistics.

A ggregate Statem ent o f a ll the Chartered B anks o f the S tate o f N ew York,
on the 1st, o f January, 1840.

N in ety -o n e
S a fety F u n d
B a n k s.

Loans and Discounts.........................
Real Estate............................................
Overdrafts............................. ..............
Expenses and Personal Estate............
Bank F u n d..........................................
Notes o f other solvent Banks.............
Checks and other Cash Items.............
Due from other banks & corporations.
Other Investments................................


F iv e
B a n k s n ot S a fe­
ty F u n d .


T o ta l.



Loans on time......................................
Due Canal Fu nd.................................
Deposits on debts................................
Dividends unpaid................................
Due other Banks and Corporations..

9,937 062




S everal papers intended for the present number, received too late, or omitted for
want o f space, will probably appear in the April issue. Among them are:— 1. The
Commercial League o f the Hanse Towns, by E. W . Stoughton, Esq.— 2. Fraud upon
Underwriters, by James B ergen, Esq.— 3. Suggestions on the Law o f Auctions,
No. III., by F rancis Brinley, Esq., o f New York; and the first o f a series o f papers,
prepared by the same gentleman, on the laws relative to debtor and creditor in the seve­
ral states. The first o f the series presents, in a clear and comprehensive form, the
“ means o f enforcing debts against the citizens o f Maine,” which will be followed by
similar expositions o f the latest statute laws o f the other states. These articles will,
we are confident, prove very useful to a large portion o f the mercantile community.
W e have also been compelled to crowd out a great number o f important legal decisions',
furnished for publication in this Magazine by Judge H opkinson, o f the United States
District Court, Daniel L ord, jr., Esq., o f New York, and P. W . Chandler, Esq., of
the Law Reporter, etc., which will be published at our earliest convenience.
T h e S a l a m a n d e r S a f e .— Mr. Enos Wilder, o f this city, is the patentee o f a safe, for
the preservation o f books and papers against fire, which, we are satisfied, is all that it
purports to be — a perfect security from that destructive element, fire. W e shall, in a
succeeding number o f the Magazine, give a more extended notice o f this important in­
vention, which has already passed through a “ fiery ord -A1,” and found to be superior
to any thing o f the kind now in use.