January 17, 1908] 



SCIENCE 



101 



omics instead of reposing upon the com- 

 fortable assumption that economic forces 

 operate in a vacuum. Experience demon- 

 strates that even the movement of capital 

 is not without friction. If friction did not 

 exist, the interest rate for loans upon 

 equally secure collateral would be the 

 same in New York as in London, in St. 

 Petersburg as in Paris, in Arkansas as in 

 Chicago. Wherever good opportunities 

 for loans arose, money would flow like 

 water into the vacuum of demand. The 

 merchant of Little Rock, other things be- 

 ing equal, would obtain his borrowed 

 capital at the same rate as the mercer of 

 London or the jeweler of the Rue de la 

 Paix. But the merest tyro in finance 

 knows that this is not the case. Not only 

 has the creation of physical means of 

 communication been necessary to bring 

 markets together, but the creation of the 

 means of exchange has also been necessary. 

 And so far as markets have been brought 

 together, it is largely by state-created, but 

 not state-operated, institutions. How 

 could the market of Paris draw to itself 

 the savings of France for investment in 

 the securities of the world and maintain 

 the lowest and most uniform discount rate 

 of any great market but for the giant 

 mechanism which Napoleon created, under 

 the guidance of Mollien, under the name of 

 the Bank of France? How could Canada 

 enjoy comparative uniformity of interest 

 rates in all her provinces but for the Cana- 

 dian banking law, which confers upon in- 

 stitutions of limited liability the privilege 

 of issuing circulating notes and establish- 

 ing branches in every part of the Domi- 

 nion? As Bagehot truthfully declared of 

 the conditions under which capital is trans- 

 ferred, "You can not have it unless you 

 have a strong government, which will keep 

 peace in the delicate line on which people 

 are moving." And again he sets forth, as 

 indicating the narrow limits within which 



the law of the transfer of capital operates 

 even in modern society: 



But though the loan fund begins so early in 

 civilization, and is prized so soon, it grows very 

 slowly; the full development — modem banking 

 such as we are familiar with in England — stops 

 where the Englisli language ceases to be spoken. 



And if there are fetters upon the free 

 movement of capital, how much greater are 

 those upon the free movement of labor! 

 It is a favorite argument, and a sound 

 one, of even the most orthodox of 

 economists, that the effect of a de- 

 preciating currency is felt in the rise 

 of prices before it results in the rise of 

 wages. The friction which attends the 

 lifting of the wage scale is forged into a 

 powerful argument in favor of giving 

 steadiness to the unit of value. Why then 

 is not the effect of this friction worthy of 

 consideration when it affects rates of cus- 

 toms duties and other national economic 

 policies? I do not say that this argument 

 is not often abused, but I do say that the 

 classical economist is not justified in ap- 

 pealing to its finality in the one case and 

 treating it as beneath contempt in the 

 other. 



The abstract principle of wages is that, 

 other things being equal, similar service 

 should command the same equivalent in 

 every part of the world. But one finds 

 skilful carpenters in Manila working for 

 about fifty cents a day in gold, and in 

 America at two dollars and fifty cents. In 

 Hong Kong in 1901 I was told that good 

 Chinese brick-layers were working for 

 forty cents a day in silver or about twenty 

 cents in gold. Why did they not strike 

 for the same wages as their fellow-work- 

 men in London or New York, or San Fran- 

 cisco? Because, behind them, in the in- 

 terior of China, were millions upon mil- 

 lions of their fellow-countrymen, as ready 

 to take their places in the ranks of cheap 

 workers as the loyal Japanese soldiers and 



