profitable character, on the other hand, find a market for their securities as soon as they have convinced the public that they meet a public need. Through this mechanism of the stock exchange, therefore, is placed in the hands of the public the determination of the direction in which new capital shall be applied. Inevitably, this determination is not arbitrary. It follows the lines of the greatest profit upon capital. In so doing it follows the lines of the greatest utility of capital to the community. The enterprises which meet wide public demands, whether these are ethically high or not, are those which attract capital because they pay the highest return. Their securities rise in the stockmarket. The securities of enterprises which do not meet a public need either find no market from the beginning or decline in price as their lack of earning power becomes apparent.

The speculator who applies intelligence and foresight to the study of market conditions, and is not merely a gambler on chances, aids the community in determining the direction in which capital may be applied with the greatest economy. In a broad sense commercial operations justify the analysis made by Professor Flux:*

"It may be acknowledged that every producer for a future market— that is to say, practically every producer-is to some extent a speculator. He anticipates what will be wanted, at what prices, and in what quantities, and sets to work to provide a supply in accordance with those anticipations. If his anticipations turn out to have been sound, he profits; if otherwise, he loses. The adjustment of the different parts of the productive forces of the society to the satisfaction of its various needs, depends in very great degree on the correct formation of these anticipations."

It is thus through the mechanism of the exchanges that the true relations of supply and demand are revealed to producers. On the produce exchanges and stock-markets are reflected, by fractional fluctuations in prices, the slightest changes in supply and demand, and the reaction of these causes upon one commodity in producing changes in the demand and supply of other commodities. As money permits the measurement of one article against another by price, enabling the relative cost of production and utility of any two or more articles to be accurately compared

*"Economic Principles,” p. 158.

according to a common standard, so the stock-market permits the reduction of all these price comparisons to a common unit of measurement for the operations of stock companies.

The stock-market affords the most sensitive barometer of the operation of the scientific laws of value. On this market are decided the contests between buyers and sellers, which result in the settlement of the price of any particular security at just the point of its marginal value in relation to other securities. The level of prices established represents, upon the whole, all the known facts regarding the value and earning power of any enterprise represented by securities and the average judgment of competent persons regarding its future value and earning power. As the fall in the price of commodities below cost of production is a warning to their producer to diminish his output, so a similar fall in the price of securities of a given class is a warning to their holders that their capital has been unwisely applied, and is a warning to the investing community that future investments of capital should be made in other directions. The stock-market, therefore, affords a daily and sensitive test of the usefulness of enterprises to the industrial community. Under its operation, useless production which might otherwise be continued in ignorance is arrested, and capital is diverted from paths which afford less utility to those which afford the highest utility. "It has been seen," says Professor Pareto, " that bargaining was an operation by means of which the market resolved in practice the equations of production; speculation is an operation by which it is sought to reach in the promptest possible way the solution of these equations."

CHARLES A. CONANT.

THE MERCHANT MARINE INVESTIGATION.

BY JAMES W. GARNER, ASSISTANT PROFESSOR OF POLITICAL SCIENCE IN THE UNIVERSITY OF ILLINOIS.

I.

THE MERCHANT MARINE COMMISSION.

THE decline of the American merchant marine from a position of maritime supremacy to a position of comparative insignificance is one of the commonplaces of American economic history. It is encouraging to note that at no time since the disappearance of the flag from the high seas, however, has there been more general demand for the revival of the merchant marine than at present. At the last session of Congress, no less than three measures were enacted in the interest of American shipping. One of these requires all supplies for the use of the army and the navy to be carried in American vessels; another extends the application of the coasting - trade laws to all trade between the United States and the Philippines; the third created a commission to consider and recommend legislation for the development of the merchant marine and the amelioration of the condition of those engaged in the seafaring trades.

The law creating the Merchant Marine Commission provided that it should consist of five members of the Senate and five Representatives, to be appointed by the presiding officers of each House, respectively, and that at least four of the ten members should belong to the minority party. Twenty thousand dollars were appropriated to defray the necessary expenses of conducting the inquiry. In spite of the large minority representation allowed on the Commission, and notwithstanding the fact that the purpose of the law was simply to procure information for the intelligent guidance of Congress, the bill encountered fierce opposition and was passed by a narrow majority, after the rejection of an

amendment intended to prohibit the Commission from making any recommendation which should contemplate the granting of subsidies or bounties. The Commission as constituted consisted of Senators Gallinger of New Hampshire, chairman, Lodge of Massachusetts, Penrose of Pennsylvania, Mallory of Florida, and Martin of Virginia; and Representatives Grosvenor of Ohio, Minor of Wisconsin, Humphrey of Washington, Spight of Mississippi, and McDermott of New Jersey. Beginning on May 22nd, the Commission conducted hearings at New York, Philadelphia, Baltimore and Boston on the Atlantic coast; at Chicago, Detroit, Cleveland and Milwaukee on the Great Lakes; at San Francisco, Seattle and Tacoma on the Pacific coast; and at Washington, Galveston, New Orleans, Pensacola, Brunswick, and Newport News in the South. Altogether, about three hundred persons appeared before the Commission, and either gave oral testimony or submitted written statements. No reflection on the character of the investigation is intended when it is said that nine-tenths of those who appeared before the Commission were advocates of government aid in some form or other. Presidents and agents of ship-building and marine transportation companies; representatives of boards of trade, maritime associations and commercial bodies; importers and exporters, manufacturers, navigation experts and representatives of various maritime trade-unions-constituted the great bulk of the witnesses, and they all had the same story to tell of the disappearance of the American flag from the high seas, of the decadence of the ship-building and shipping industries, and of the unattractiveness of seafaring life under present conditions. In the present article an attempt will be made to describe the present status of the merchant marine, the schemes suggested for its rehabilitation and the arguments advanced in favor of government subsidies by those who testified before the Commission.

II.

PRESENT STATUS OF THE MERCHANT MARINE.

According to the last report of the Commissioner of Navigation, about nine per cent. of the imports and exports of the United States are now being carried in vessels flying the American flag, and a few years ago the proportion was even lower. In 1826, the amount carried was ninety-two per cent. The volume of foreign

tonnage carried in American bottoms to-day is actually smaller than it was half a century ago. The decline began about 1828, mainly as a result of the abandonment by the United States of the policy of discriminating tariff duties and tonnage dues; it was accelerated by the Civil War, which caused a falling off of about one-half; while various economic causes since the war have contributed still further to reduce the carrying-trade to its present insignificant proportions. In 1903, of 423 steamships sailing out of the harbor of New York for foreign ports only twenty-eight, or about seven per cent., carried the American flag. Two hundred and sixty-five sailed for European ports, only six of which were built in American yards. Seventy-one were bound for ports in Cuba, the West Indies and Mexico, but only a paltry twenty-two were of American registry, notwithstanding the fact that the carryingtrade of these countries should naturally belong to the United States by reason of their geographical proximity. No vessel carrying the American flag cleared for an Asiatic, an African or a South-American port. The record of other large port cities of the United States is equally discouraging. Last year, of 50,000,000 bushels of grain exported from the port of Baltimore, not over 10,000 bushels were carried in American bottoms. In the year 1901, of ninety-two cargoes of wheat exported from Tacoma, only two small cargoes of 10,000 bushels were carried in American vessels. The bulk of it was carried by British, German, Norwegian, Russian and Italian ships. Illustrations of this character, showing the comparative insignificance of the American carrying-trade might be multiplied indefinitely. The Hon. John Barrett, Minister of the United States to Panama, testified before the Merchant Marine Commission at Chicago (Hearings, vol. II., p. 682) that, in the course of a recent journey around the world, he travelled 75,000 miles, including side trips, without seeing a single large American merchant vessel engaged in interocean traffic, although he saw in every port visited the flags of England and Germany, and in many of them the flag of Japan.

With the decline of the carrying-trade has gone the decay of the ship-building industries. Nearly every ship-builder who appeared before the Merchant Marine Commission stated that, if it were not for the Government work he was doing, his yards would be practically idle. Cramp's, the largest ship-building concern in