the critical reader is, that a law precisely similar applies, not only to a piece of corn-growing land, but also to every form of auxiliary material capital,-buildings, machinery, and the like,—and applies equally to labouring cattle and to labouring men. In a factory of a certain size, with certain methods of production only a limited amount of capital and labour can be employed; after a certain point is reached there will be a diminishing return to successive doses of capital and to additional pairs of hands. In a steam-engine, up to a certain point, the motive power will increase with every additional unit of coal burned; but after this point is reached the return will diminish, and ultimately the fire may be choked or the boiler burst. A ship cannot be navigated at all without a certain number of sailors; and in this case also it is easy to formulate a law of increasing return which gradually merges into a law of diminishing return. Similarly, the food of horses and the food of men may be said to follow this same law (after a certain point), with regard to the efficiency of the labour which they perform.

If, then, the law as applied to land is to be something more than a particular case of undèv ayav, and is of such peculiar importance as to deserve Mill's description of it as the most important proposition in political economy, we should expect to discover some peculiar property in which land differs from other forms of capital or instruments of production. Such a differential quality is found in the limited quantity of land or more strictly of superior land.

In any single factory there is a limit to the advantageous increase of the labour and machinery employed; but, for practical purposes, the number of factories can be indefinitely increased, and equal quantities of labour and capital will give at least equal returns. If only time is allowed, old machinery can be replaced by new, and thus any advantage obtained by one factory will soon be open to others. But with land it is not so; the better land is limited and the differences in productive power are comparatively perma

nent.

Accordingly, in old countries in which all the land best adapted to agriculture or (to take the same example as before) to corn-growing has been taken up, the produce can

only be increased so long as the arts of production remain the same, either by more intensive cultivation of the land (with the diminishing return already explained) or by more extensive cultivation in the recourse to inferior land. The limit of intensive cultivation is soon reached, apart from improvements. As a matter of fact, in the case of wheat, it is probable that the land which yields fifty bushels an acre will cost no more and possibly less to cultivate than the land which yields only fifteen. Accordingly, whether the increase in produce is a cause or an effect of the increase in population (a point to be discussed later), it can only be obtained, in the absence of improvements, by the cultivation of inferior land. Thus we arrive at the second form of the law of diminishing return applicable to a country or industrial area embracing lands of different qualities.

II.* "After a certain point is reached, every additional acre taken into cultivation, the arts of production remaining the same, gives a diminishing return to a given amount of labour and capital."

* [The numeral and quotation marks are inserted by the editor.]

READING X.

THE TYPICAL MONETARY SYSTEM.

While the detailed study of money must be left for a special course, the student of Elementary Economics needs very early to master the principal facts of the subject. The following is intended as a descriptive account of a typical modern system, containing "several different kinds of money, each performing a different office in the system and all organized into a more or less coherent whole, with its scale of denominations, its standard, its various funds, and so on." Doubtless most actual systems contain inconsistent, anomolous, elements; for accident has played a large part in their origination. Still they are true systems, and, on careful study, prove to be more harmonious than is commonly supposed.

I. THE DENOMINATION SYSTEM.*

The first element to be remarked in any monetary system is the system of denominations, that is, the names with which quantities of money are expressed, e. g., dollar, dime, eagle. The necessity for some means of expressing quantities of money is easily seen. Since money is the common thing which exchanges against all other goods and since these goods range in value from almost nothing to millions of dollars, it is necessary that we should be able to make up sums of money from the highest to the lowest, and in some way to describe or express these sums. Conceivably this could be done by the use of the ordinary denominations by which weight or bulk is expressed. As a matter of fact

* Taylor-Chapters on Money. Copyright 1906 by F. M. Taylor. From Chapter II.

this seems to have been the practice in all early systems. The monetary denominations were originally nothing but weight denominations, e. g., the Hebrew shekel, the Roman as, the English pound.

to

But, while a procedure like that described is possible. it is natural and inevitable that we should come have denominations which express quantities of money rather than quantities of metal. First, just as soon as money became fully differentiated from the mere stuff of which it was made, men would tend to dissociate a given denomination when applied to money from the same denomination when applied to metal. Secondly, this dissociation would become necessary as soon as governments introduced the practice of debasing coin, reducing its weight or fineness, so that a shekel or pound of gold coin meant much less than a shekel or pound of gold bullion. Accordingly, every welldeveloped monetary system has a full set of denominations of its own, the connection of which with weight denominations, if there is any, no one thinks of in the ordinary course of business.

Monetary denominations may be divided into Primary and Secondary. The Primary denomination is what we more often call the Monetary Unit-that denomination which is thought of as fundamental in the system, the other denominations being referred to it in defining their value. The primary denomination or monetary unit in the United States is a dollar; in England, a pound; in France, a franc; in Germany, a mark; and so on. The Secondary denominations are those which are looked on as derived from the monetary unit-being multiples or fractional parts of that unit. Thus in the United States, the law provides for the mill or thousandth of the dollar, the cent or hundredth of a dollar, the dime or tenth of a dollar, and so on. Frequently a system will contain secondary denominations outside those regularly authorized which survive from some older order. In our case the survival is illustrated by the shilling, still used, though much less often than fifty years ago.

II. THE MONETARY STANDARD.

A. General Account.

The second essential element in a monetary system is the monetary standard. The special office of the standard is to fix the meaning or value of the primary denomination or monetary unit. The precise significance of this statement is most easily explained by comparison with an analogous case, the standard of liquid measure. As we all know, there are in the United States at the present time thousands upon thousands of vessels for measuring liquids which contain a gallon or some multiple or fraction of a gallon. Some of these measures are made of wood, some of tin, some of stoneware, and so on. Some are cylindrical in shape, some like the frustum of a cone, and so on. But nevertheless, in one particular, they are all alike or at least intended to be alike. As respects their capacity to hold liquids each is supposed to be equal to every other. And this equality is of prime importance. For, if gallon measures were not substantially equal in this particular, the significance of the gallon would be constantly changing, and so the way would be opened for an infinite amount of trouble, error, or cheating. Now, how is this equality among gallon measures attained? How is it brought about that the gallon shall always signify just one thing? Simply by requiring that a gallon measure shall be able to hold a certain fixed amount by weight of some one substance, no more and no less. The substance chosen is pure water under certain conditions of temperature and air pressure. The amount is 8.33 pounds. This fact we express by saying that 8.33 pounds of pure water is the standard of liquid measure in the United States.

Now the case of money is in this respect substantially the same as that of liquid measure. As we are all aware, the money unit—one dollar—has very many different forms. It shows itself now in the guise of a gold dollar, now as a silver dollar, now as a greenback dollar, now as a bank note dollar, now as two fifty cent pieces, and so on. In like manner it takes the form of private checks, John Smith's check, or H. Jones' check, thus making possible millions