THE YALE REVIEW

A QUARTERLY JOURNAL OF HISTORY AND POLITICAL SCIENCE.

THE YALE REVIEW is owned by The Yale Publishing Company. It is edited by Professors GEORGE P. FISHER, GEORGE B. ADAMS, HENRY W. FARNAM, ARTHUR T. HADLEY, and JOHN C. SCHWAB.

Committed to no party and to no school, but only to the advancement of sound learning, it aims to present the results of the most scientific and scholarly investigations in history and political science.

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All communications relating to articles, book reviews, exchanges, and editorial work in general should be addressed to

PROF. JOHN C. SCHWAB,

New Haven, Conn.

Copyright, 1893, by

The Yale Publishing Company, New Haven, Conn.

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ZORARY

THE

YALE REVIEW.

AUGUST, 1893.

COMMENT.

The present Commercial Crisis: Ethics and Economics: the Chicago Silver Convention.

A

COMPARISON of the present crisis with others through which the business community has passed is interesting, as showing which lessons of experience have been learned, and which yet remain to be learned.

We have learned something about credit as a substitute for money, and do not put the strain upon it which we did a few decades ago. The older crises were directly connected with a breakdown of public and private credit. It used to be an axiom that a commercial crisis must begin with a banking panic. The crises of 1825, 1837, 1847, and 1857 were conspicuous in this respect; that of 1873 was hardly less so. They seemed for the most part to be the direct result of bad banking. But in 1885 there was no financial panic, except as an incident of the industrial decline; and in 1893 the same history has repeated itself. There has been surprisingly little bad banking in either instance. The banks have been able to pay what they undertook to, and their customers have taken care to see that such was the case. The panic of 1857 was directly connected with the attempt to do business on inadequate reserves. That of 1893 is, in the opinion of some observers, due to precisely the opposite cause-the hoarding of currency reserves in general, and gold in particular, for fear of such emergencies as may arise. Certain it is that, in spite of the difficulty of

obtaining money accommodation to-day, current demand for goods and percentage of collections have both remained reasonably high. Some of the lessons of experience about the necessity of using cash as a basis for credit appear to have been well learned.

But some of the wider industrial lessons have hardly been learned at all. People may have ceased to depend on credit without cash for the payment of their debts; but they have not ceased to contract debts on the supposition that the currency is going to expand all the time. That is to say, they invest capital in new enterprises, on the supposition that they will be able to market an increased product at something like the old prices. But if the country's output in a given line is increased 50 per cent., while the currency of the country remains substantially unchanged, prices must fall. Consumers will not increase their demand, unless prices are lowered. Every effort to evade this result by combination is apt to make matters worse in the long run; because the effort to maintain the old prices under new conditions of production keeps tempting additional capital into the field. The same result follows from increased tariffs, or from government purchases of silver, or other means of enhancing demand. The permanent effect on profits is often the reverse of what was intended.

When a man has borrowed money in the expectation of high prices and finds himself confronted with low ones, he is apt to look to an inflation of the currency as a means of relief. This is the source of part of the strength of the silver agitation. To do the debtor classes justice, many of them are ranged on the side of sound currency in the present fight.

But the general tendency of debtors is naturally enough to seek a cheaper dollar. They have not learned that their present course is suicidal. They are not strong enough to expand the currency to a silver basis in the face of all the tendencies of the financial world; but they are strong enough to shake investors' confidence and cause a contraction of credit. As matters stand at present, the volume of the currency is regulated by the supply of gold, and its effi

ciency as a basis for credit by the degree of public confidence in silver. On a gold basis we should have a small currency, commanding a high degree of confidence; on a silver basis, a large currency, commanding a low degree of confidence. Under the present nondescript system, we get the small currency and small confidence combined, and hit the debtor hard at both ends. Let us hope that the present crisis may teach us a lesson in public finance which shall prevent the perpetuation of this state of things.

A few years ago a great deal was said, even among enlightened men, about an alleged conflict between Science and Religion. This phrase has now become practically a thing of the past; and the man who continues to use it stamps himself as one who lives in the past rather than the present. But we hear more than ever before of a conflict between economics and ethics. Just as astronomy was once attacked as unscriptural, or biology as irreligious, so economics is now criticised as immoral, even by those who most pride themselves on their acceptance of scientific progress in general.

For this state of things the economists themselves are partly to blame. They have often claimed that economics occupied a province by itself; that it had nothing to do with ethics, and could tolerate no interference from that quarter. This view became more and more obviously untenable as time went on. People have outgrown the conception of isolated sciences; they have come to regard science as a whole, and to see that no part of the truth can claim to ignore other parts. Scientific economics and scientific ethics must be in harmony. There is no room either for a system of economics which does violence to the consciences of the people, or for a system of ethics, which ignores the conditions of material well-being.

Economists have gradually learned to recognize this truth. John Stuart Mill did so to a very high degree-more than he was sometimes willing to admit. The whole historical school of German economists lays great stress on the ethical

element in economics. The younger generation of English and American economists accepts it as a fact. Even in France, where traditional forms of exposition have held sway longer than elsewhere, one of the most conservative of writers, M. de Molinari, has just published a book entitled La Morale et l'Économie Politique, whose avowed object is to make this connection clear to the public mind.

But this widening of the scope of economic science is far from satisfying the mass of critics. The extension of the methods of economic enquiry into the field of ethics is something which they resent rather than welcome. Their hostility is not the opposition of scientific ethics to economic errors, but the opposition of feeling and emotion to scientific enquiry. They have masked this opposition under the name of ethics, because in the somewhat chaotic condition of ethical science many writers have held that each man's feelings and emotions constituted the ultimate test of right and wrong. They know what they themselves think and feel, whether they can give a logical reason for it or not; they object to any science which draws conclusions at variance with their feelings. They hardly recognize the obligation to prove such conclusions wrong before disregarding them. Rather than accept the influences, they will shut their eyes to the facts.

In a brilliant address recently delivered before the British Economic Association, Mr. Goschen calls attention to the character of much of the so-called ethical objection to economics and the dangers connected with it. To the men who are swayed only by the most obvious ethical considerations he applies the term "emotionalists."

"The emotionalist is influenced by the impression made on him by what he sees and feels—the visible, the palpable, the direct. The economist looks beyond-not at the present only, but at the future-and is swayed, not only by the visible and the direct, but by the invisible, the more remote. The one is mainly impressed by the fact; the other by the consequence of the fact. . . . Mark that the attitude of the economist is no less ethical than that of the emotionalist-it is more far-seeing, more social. It looks to the interest of