are at least six per cent. It was formerly true of banks in North Carolina.

12. Net earnings. This is true of railroads in Delaware and Virginia; of insurance companies in Alabama, Indiana, Maine and Nebraska; of foreign insurance companies in Illinois, Missouri and New Jersey; of express and sleeping car companies in Virginia; of mining companies in Massachusetts; of savings banks without capital stock in Pennsylvania; and of gas-works, water-works, electric-light companies, ferries, toll-bridges, public mills and gins, and cotton compresses in Alabama.

But

13. Franchise. This is true of a large number of cases. the term franchise denotes nothing definite, as we shall see, and the value of the franchise is measured by each one of the preceding twelve tests except that of property.

So much for the existing confusion. It is plain that we are still groping in the dark and that no one method has yet commended itself to the American sense of justice and expediency. In the next paper we shall learn the judicial interpretation put upon these various methods, and shall attempt to analyze the situation from the economic point of view. That some change is imperative seems evident. Precisely what the change should be can be ascertained only after the most careful consideration. This is the complicated problem that confronts us.

EDWIN R. A. SELIGMAN.

IN

WELLS' RECENT ECONOMIC CHANGES.

'N the March number of the POLITICAL SCIENCE QUARTERLY Professor Patten of the Wharton School of Finance and Economy criticised what he considered serious errors in logical method in Mr. David A. Wells' Recent Economic Changes. It is of importance to know whether these are errors or not, since Mr. Wells' book, from the nature of the subject with which it deals, if for no other reason, is likely to have a wider circulation than is commonly accorded to economic treatises.

The first exception taken by Professor Patten on the score of logical method is to pages 124 and 125. For the sake of clearness and fairness, we will first lay before the reader the passage criticised and then examine the objections made to it. Mr. Wells says:

Preliminary to entering upon any review of this vexed question, a consideration of the following general propositions may possibly help to a determination of opinion in respect to it: First. It is a universally accepted canon, alike in logic and common sense, that extraordinary and complex agencies should never be invoked for the explanation of phenomena, so long as ordinary and simple ones are equally available and satisfactory for the same purpose. Second. The most natural presumption, and the one which the commercial world most readily accepts, is that when an article under free competition declines in price, the supply has outrun the demand; not of demand in the abstract, for in a certain sense there is no limit to the demand for useful and desirable things, but of demand at the pre-existing price. If this presumption is not correct, then the hitherto universally accepted influence of the law of supply and demand on prices has been entirely misunderstood, and belief even in any such law may as well be abandoned. On the other hand, if the presumption is correct, then any cause, other than a disturbance of preexisting relations of supply and demand, capable of occasioning a decline in prices, must of necessity be an extraordinary one, and demanding evidence, not general, but specific and clear in the highest degree, as a prerequisite to a belief in its actual occurrence and influence. Now, as to the character of the evidence that can be

adduced in support of the two great causes respectively to which the decline in prices has been mainly attributed, it is not to be denied that the evidence pertaining to the first can, either with or without statistics, be stated with precision; while the evidence pertaining to the second is at best indefinite, and mainly conjectural. In other words, the "how of the depression of prices," as Professor Lexis, of Göttingen, has happily expressed it, through a lowering of the cost of production and transportation, and a widening of the area of cultivation, is clear to all; but the how of the effect of the enhancement in value of one description of money no one has, thus far, proved to us in concreto. If any one "affirms a connection between the prevalent low prices and the assumed appreciation of gold arising from scarcity, let him explain the modus operandi; let him set forth the process of reasoning; the motive which impels a seller to accept, except upon the issue of the struggle between supply and demand, a lower price for his goods in the face of an abundance of capital and a low rate of interest."'

I presume that if this passage were presented to the recognized economists of the world, nine out of ten would give their unqualified assent to it. If we confine our list of recognized economists to those holding chairs of political economy in colleges and universities, the proportion would be no less. Until

I saw Professor Patten's objection I should have said with confidence that nobody could be found to dispute so plain a proposition.

Observe that Mr. Wells says: "The most natural presumption, and one which the world most readily accepts, is that when an article under free competition declines in price the supply has outrun the demand," - not all articles but some particular article. That he did not mean all articles when he said "an article" is made plain by the next succeeding paragraph, in which, to show the causes which have disturbed pre-existing relations of supply and demand, he selects for treatment twenty-three articles, which are divided into two groups. The dividing line of the groups is between certain articles concerning which the evidence of new relations of supply and demand is very clear and decisive, and others as to which it is more or less inferential and circumstantial. Nothing could be more

1 The quotation is from Lord Addington.

patent than that Mr. Wells did not mean all articles when he said "an article."

The criticism upon this passage has no other force or point than what is derived from the assumption that he meant something different from what he said. As the readers of this paper are presumed to have the whole of Professor Patten's article. within reach, I will reproduce only the words which embrace the gist of his answer to the passage quoted from Mr. Wells, viz.:

Yet this method of accounting for the general fall of prices, natural as it may seem to Mr. Wells, has never been used before the present bimetallic discussion. The whole subject of the changes in the value of the precious metals has occupied the attention of economists for the last two hundred years; and in every such discussion until the present time, the assumption has been that if prices as a whole have fallen it was a result of the appreciation of the value of money. It is almost comical, therefore, to see Mr. Wells, in the face of the whole economic discussion of the last two centuries, setting up a new point of view, not yet a dozen years before the public, as the natural one. Does it need any more proof to show that the attempt to distinguish between the ordinary and . the extraordinary, or the natural and the artificial, is of no value in arriving at correct logical conclusions?

As it is not to be presumed that Professor Patten has intentionally misrepresented Mr. Wells, it becomes not only almost but altogether comical to find an economist lecturing his brother economist about logical method, with such a sample as this for illustration. The "attempt to distinguish between the ordinary and the extraordinary, or the natural and the artificial," here spoken of as being of no value in arriving at correct logical conclusions, refers to Mr. Wells' idea that, if the price of crude petroleum, for instance, has declined eight cents per gallon in a given period, and if the production of it is found to have increased in the same period from 9,000,000 barrels to 28,000,000 barrels per year, then the ordinary and simple explanation would be that the supply has outrun the demand, and that this explanation should be preferred to any extraordinary and complex one. Bad logic, thinks Professor Patten, "because it does not give any criterion by which to distinguish an extraordinary

or complex agency from an ordinary or simple one." Another man, he conceives, may say that the increased production of oil is the extraordinary and complex agency, and scarcity of gold the ordinary and simple one. If this is mere logomachy it may be passed by. If it means that the over-production1 of an article is not a more simple and rational explanation of a fall in its price than the state of the circulating medium, it is the same as saying that a demonstrable cause is no better than an undemonstrable one.

In the closing section of the paragraph to which I have referred [continues Professor Patten] Mr. Wells makes the serious mistake of confusing the abundance of capital and a low rate of interest with an abundant supply of money. From the approving manner in which he quotes Lord Addington he seems to affirm that there can be no appreciation of the value of money so long as there is an abundant supply of capital and a low rate of interest.

Then we are favored with a brief homily on the difference between money and loanable capital.

How far a writer is bound by the quotations he makes from other writers, is a question that calls for separate treatment in each separate case. It is fair to presume that Mr. Wells is acquainted with Wayland and other horn-books that were in use in our colleges forty years ago, in which the distinction between money and loanable capital was fully explained. Whether Lord Addington is acquainted with the difference we cannot know without having the full text of his discourse before us. Assuming that Mr. Wells is not wholly unmindful of it, we might suppose that, finding in Lord Addington's paper something that coincided with his point of view as to what price-causes can and what can not be readily explained, he rather hastily quoted it, not thinking that he would be held responsible for the remoter consequences of Lord Addington's reasoning. But does Professor Patten succeed any better than Lord Addington in expounding the matter in hand? His criticism ends with these words:

1 By over-production is meant, of course, production in excess of demand at preexisting price.