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 “Mankiw & Taylor’s Economics is a superb book for all students
approaching this subject for the first time. The book is both intuitive,
with plenty of examples enabling students to link economic theory and
facts, and rigorous, with analytical supplements and extensive exercises
allowing students to go into depth if they wish to. This book will make
students love this subject and it is simply excellent.”
Dr Gaia Garino, Principal Teaching Fellow in Economics, University of Leicester, UK

“A very well written and modern text, covering a wide and exhaustive range of
topics to be taught in introduction to economics classes. The accessible language and
approach is ideal for all students including those to whom English is a second language,
and a key pedagogical strength of the book is the many examples which show students
how to apply key economics topics within their everyday lives.”

Economics
Prof. Erich Ruppert, Faculty of Economics, Business and Law, University of Aschaffenburg, Germany

Now firmly established as one of the leading economics principles texts in the UK and Europe, this exciting, new third edition
by N. Gregory Mankiw (Harvard University) and Mark P. Taylor (Warwick University), has undergone some significant
restructuring and reorganization to more directly match economics students’ course structures and learning and assessment
needs. There are new sections covering microeconomic and macroeconomic topics and concepts in more depth, whilst at
the same time retaining the book’s reputation for clarity, authority and real world relevance.

New to the third edition:

> In direct response to user feedback, the chapter structure has been reorganized to better map to typical UK
and European course structures
> Brand new Case Studies, In the News features, and examples throughout
> Supplementary maths content provided separately
> Enhanced lecturer and student digital support resources including articles from The Economist with associated
discussion questions linked to every chapter and new assessment practice questions which can be used for
tutorial discussion and assignments
> New coverage on information and behavioural economics, business cycles, supply-side policies the role of
empirical evidence, and economic rent
> Fully updated to reflect the economic arguments which have surfaced following the financial crisis
> Fresh, modern text design with accessible layout and approach

About the Authors

Mankiw
Taylor
N. Gregory Mankiw, Professor of Economics, Harvard University, USA
Mark P. Taylor, Professor of Economics and Dean of Warwick Business School, University of Warwick, UK

N. Gregory Mankiw Mark P. Taylor

Economics
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BRIEF CONTENTS

About the authors ix PART 8 Inequality 385

Preface x
18 Income inequality and poverty 385
Supplements xi
Acknowledgements xiii
PART 9 Trade 405

PART 1 Introduction to economics 1 19 Interdependence and the gains from trade 405

1 Ten principles of economics 1

2 Thinking like an economist 17 PART 10 The data of macroeconomics 437
20 Measuring a nation’s income 437
PART 2 Supply and demand: How 21 Measuring the cost of living 456
markets work 41
3 The market forces of supply and demand 41 PART 11 The real economy in the
4 Elasticity and its applications 72 long run 473
5 Background to demand: The theory of consumer 22 Production and growth 473
choice 102 23 Unemployment 497
6 Background to supply: Firms in competitive
markets 134
PART 12 Interest rates, money and prices
in the long run 519
PART 3 Markets, efficiency and welfare 169
24 Saving, investment and the financial system 519
7 Consumers, producers and the efficiency 25 The basic tools of finance 539
of markets 169 26 The monetary system 558
8 Supply, demand and government policies 187 27 Money growth and inflation 583

PART 4 The economics of the PART 13 The macroeconomics

public sector 203 of open economies 605
9 The tax system and the costs of taxation 203 28 Open-economy macroeconomics: Basic
concepts 605
PART 5 Inefficient market allocations 221 29 A macroeconomic theory of the open
economy 622
10 Public goods, common resources
and merit goods 221
11 Externalities and market failure 239 PART 14 Short-run economic fluctuations 637
12 Information and behavioural economics 264 30 Business cycles 637
31 Keynesian economics and IS-LM analysis 655
PART 6 Firm behaviour and 32 Aggregate demand and aggregate supply 679
market structures 279 33 The influence of monetary and fiscal policy on
aggregate demand 702
13 Firms’ production decisions 279
34 The short-run trade-off between inflation
14 Market structures I: Monopoly 290
and unemployment 721
15 Market structures II: Monopolistic
35 Supply-side policies 745
competition 314
16 Market structures III: Oligopoly 329
PART 15 International macroeconomics 759

PART 7 Factor markets 355 36 Common currency areas and european

monetary union 759
17 The economics of labour markets 355
37 The financial crisis and sovereign debt 782

iii
 CONTENTS

About the authors ix 4 Elasticity and its applications 72

Preface x
The price elasticity of demand 72
Supplements xi
Other demand elasticities 81
Acknowledgements xiii
Price elasticity of supply 83
Applications of supply and demand elasticity 95

PART 1 5 Background to demand: The theory

INTRODUCTION TO ECONOMICS 1 of consumer choice 102
The standard economic model 102
The budget constraint: What the consumer
1 Ten principles of economics 1 can afford 104
What is economics? 1 Preferences: What the consumer wants 108
How people make decisions 2 Optimization: What the consumer chooses 113
How people interact 6 Summary: Do people really think this way? 126
How the economy as a whole works 8 Behavioural approaches to consumer
Conclusion 12 behaviour 126

2 Thinking like an economist 17 6 Background to supply: Firms

Introduction 17 in competitive markets 134
The economist as scientist 17 The costs of production 134
The economist as policy advisor 23 Production and costs 135
Why economists disagree 24 The various measures of cost 138
Let’s get going 28 Costs in the short run and in the long run 145
Appendix Summary 146
Graphing and the tools of economics: A brief Returns to scale 147
review 30 What is a competitive market? 150
Profit maximization and the competitive firm’s
supply curve 153
The supply curve in a competitive market 160
PART 2 Conclusion: Behind the supply curve 164
SUPPLY AND DEMAND:
HOW MARKETS WORK 41
PART 3
3 The market forces of supply MARKETS, EFFICIENCY
and demand 41 AND WELFARE 169
Markets and competition 41
Demand 43
Supply 50 7 Consumers, producers and the efficiency
Supply and demand together 56 of markets 169
Conclusion: How prices allocate resources 67 Consumer surplus 170
Producer surplus 176
Market efficiency 179
Conclusion: Market efficiency and market
failure 183

iv
 CONTENTS v

8 Supply, demand and government 12 Information and behavioural

policies 187 economics 264
Controls on prices 187 Principal and agent 264
Taxes 192 Asymmetric information 265
Subsidies 198 Deviations from the standard economic
Conclusion 199 model 271
Conclusion 274

PART 4
THE ECONOMICS OF THE PART 6
PUBLIC SECTOR 203 FIRM BEHAVIOUR AND MARKET
STRUCTURES 279
9 The tax system and the costs
of taxation 203 13 Firms’ production decisions 279

Taxes and efficiency 203 Isoquants and isocosts 279

The deadweight loss of taxation 204 The least-cost input combination 284
Administrative burden 210 Conclusion 286
The design of the tax system 211
Taxes and equity 214 14 Market structures I: Monopoly 290
Conclusion 216
Imperfect competition 290
Why monopolies arise 291
How monopolies make production and pricing
decisions 294
PART 5 The welfare cost of monopoly 300
INEFFICIENT MARKET Price discrimination 303
Public policy towards monopolies 307
ALLOCATIONS 221 Conclusion: The prevalence of monopoly 309

10 Public goods, common resources

and merit goods 221 15 Market structures II: Monopolistic
competition 314
The different kinds of goods 222
Competition with differentiated products 315
Public goods 223
Advertising and branding 319
Common resources 230
Contestable markets 323
Merit goods 232
Conclusion 324
Conclusion 234

16 Market structures III: Oligopoly 329

11 Externalities and market failure 239
Characteristics of oligopoly 329
Externalities 239
Game theory and the economics of
Externalities and market inefficiency 240
cooperation 335
Private solutions to externalities 244
Models of oligopoly 344
Public policies towards externalities 248
Public policy toward oligopolies 347
Public/private policies towards
Conclusion 350
externalities 251
Government failure 254
Conclusion 260
vi CONTENTS

PART 7 PART 10
FACTOR MARKETS 355 THE DATA OF
MACROECONOMICS 437
17 The economics of labour markets 355
The demand for labour 356 20 Measuring a nation’s income 437
The supply of labour 360 The economy’s income and expenditure 438
Equilibrium in the labour market 364 The measurement of gross domestic
Wage differentials 367 product 439
The economics of discrimination 373 The components of GDP 441
The other factors of production: Land Real versus nominal GDP 445
and capital 376 GDP and economic well-being 449
Economic rent 379 Conclusion 452
Conclusion 380

21 Measuring the cost of living 456

The consumer prices index 456
PART 8 Correcting economic variables for the effects
INEQUALITY 385 of inflation 465
Conclusion 468

18 Income inequality and poverty 385

The measurement of inequality 386
The political philosophy of redistributing PART 11
income 395 THE REAL ECONOMY IN THE
Conclusion 401
LONG RUN 473
22 Production and growth 473
PART 9 Economic growth around the world 474
TRADE 405 Growth theory 476
Productivity: Its role and determinants 477
Economic growth and public policy 482
19 Interdependence and the gains from
Conclusion: The importance of long-run
trade 405
growth 493
The production possibilities frontier 405
International trade 410
The principle of comparative advantage 414 23 Unemployment 497
The determinants of trade 418 Identifying unemployment 497
The winners and losers from trade 420 Job search 504
Restrictions on trade 423 Minimum wage laws 506
Conclusion 431 Unions and collective bargaining 508
The theory of efficiency wages 510
The cost of unemployment 511
Conclusion 514
 CONTENTS vii

PART 12 29 A macroeconomic theory of the open

economy 622
INTEREST RATES, MONEY AND
Supply and demand for loanable funds and for
PRICES IN THE LONG RUN 519 foreign currency exchange 622
Equilibrium in the open economy 625
24 Saving, investment and the financial How policies and events affect an open
system 519 economy 628
Financial institutions in the economy 520 Conclusion 634
Saving and investment in the national income
accounts 527
The market for loanable funds 530
Conclusion 535 PART 14
SHORT-RUN ECONOMIC
25 The basic tools of finance 539 FLUCTUATIONS 637
Present value: Measuring the time value
of money 539 30 Business cycles 637
Managing risk 541 Trend growth rates 638
Asset valuation 548 Causes of changes in the business cycle 645
Conclusion 554 Business cycle models 646
Conclusion 650
26 The monetary system 558
The meaning of money 559 31 Keynesian economics and IS-LM
The role of central banks 565 analysis 655
The European Central Bank and the The Keynesian cross 655
Eurosystem 566 The multiplier effect 659
The Bank of England 567 The IS and LM curves 665
Banks and the money supply 568 General equilibrium using the IS-LM model 667
Conclusion 579 From IS-LM to aggregate demand 669
Conclusion 675
27 Money growth and inflation 583
The classical theory of inflation 584 32 Aggregate demand and aggregate
The costs of inflation 594 supply 679
Conclusion 599 Three key facts about economic fluctuations 679
Explaining short-run economic fluctuations 680
The aggregate demand curve 682
The aggregate supply curve 686
PART 13 Two causes of economic fluctuations 691
THE MACROECONOMICS OF OPEN New Keynesian economics 697
ECONOMIES 605 Conclusion 698

28 Open-economy macroeconomics: Basic 33 The influence of monetary and fiscal

concepts 605 policy on aggregate demand 702
The international flows of goods and capital 606 How monetary policy influences aggregate
The prices for international transactions: Real demand 702
and nominal exchange rates 609 How fiscal policy influences aggregate
A first theory of exchange rate determination: demand 709
Purchasing power parity 612 Using policy to stabilize the economy 713
Conclusion 618 Conclusion 716
viii CONTENTS

34 The short-run trade-off between inflation 37 The financial crisis and sovereign
and unemployment 721 debt 782
The Phillips curve 721 Bubbles and speculation 782
Shifts in the Phillips curve: The role of The sovereign debt crisis 793
expectations 724 Austerity policies – too far too quickly? 797
The long-run vertical Phillips curve as an
argument for Central Bank independence 730
Glossary 805
Shifts in the Phillips curve: the role of supply
Index 814
shocks 732
Credits 820
The cost of reducing inflation 734
Inflation targeting 739
Conclusion 740

35 Supply-side policies 745

Shifts in the aggregate supply curve 745
Types of supply-side policies 749
Conclusion 756

PART 15
INTERNATIONAL
MACROECONOMICS 759
36 Common currency areas and European
monetary union 759
The euro 760
The single European market and the euro 760
The benefits and costs of a common
currency 762
The theory of optimum currency areas 765
Is Europe an optimum currency area? 768
Fiscal policy and common currency areas 772
Conclusion 777
ABOUT THE AUTHORS

AUTHORS
N. GREGORY MANKIW is Professor of Economics at Harvard University. As a student, he studied eco-
nomics at Princeton University and the Massachusetts Institute of Technology (MIT). As a teacher he has taught
macroeconomics, microeconomics, statistics and principles of economics. Professor Mankiw is a prolific writer
and a regular participant in academic and policy debates. In addition to his teaching, research and writing,
Professor Mankiw has been a research associate of the National Bureau of Economic Research, an advisor to
the Federal Reserve Bank of Boston and the Congressional Budget Office. From 2003 to 2005, he served as
chairman of the US President’s Council of Economic Advisors and was an advisor to Presidential candidate Mitt
Romney during the 2012 US presidential election. Professor Mankiw lives in Wellesley, Massachusetts, with his
wife Deborah, their three children and their border terrier Tobin.

MARK P. TAYLOR is Dean of Warwick Business School at the University of Warwick and Professor of
International Finance. He obtained his first degree in philosophy, politics and economics from Oxford University
and his Master’s degree in economics from London University, from where he also holds a doctorate in econom-
ics and international finance. Professor Taylor has taught economics and finance at various universities (including
Oxford, Warwick and New York) and at various levels (including principles courses, advanced undergraduate and
advanced postgraduate courses). He has also worked as a senior economist at the International Monetary Fund
and at the Bank of England and, before becoming Dean of Warwick Business School, was a managing director at
BlackRock, the world’s largest financial asset manager, where he worked on international asset allocation based
on macroeconomic analysis. His research has been extensively published in scholarly journals and he is today
one of the most highly cited economists in the world. Professor Taylor lives with his family in a 15th-century farm-
house near Stratford upon Avon, Warwickshire, where he collects clocks and keeps bees.

CONTRIBUTING AUTHOR
ANDREW ASHWIN has over 20 years experience as a teacher of economics. He has an MBA and is currently
researching for a PhD investigating assessment and the notion of threshold concepts in economics. Andrew is an
experienced author, writing a number of texts for students at different levels and journal publications related to his
PhD research, and learning materials for the website Biz/ed, which was based at the University of Bristol. Andrew
was Chair of Examiners for a major awarding body for business and economics in England and is a consultant for
the UK regulator, Ofqual. Andrew has a keen interest in assessment and learning in economics and has received
accreditation as a Chartered Assessor with the Chartered Institute of Educational Assessors. He is also Editor of
the Economics, Business and Enterprise Association (EBEA) journal. Andrew lives in Rutland with his wife Sue
and their twin sons Alex and Johnny.

ix
 PREFACE

T he third edition of Economics has a different look to the previous two editions. Feedback from users, both
students and instructors, has resulted in some reorganization of the material and some new sections cover-
ing more depth in both micro- and macroeconomic issues. Readers should note that this edition adapts Greg
Mankiw’s best-selling US undergraduate Economics text to reflect the needs of students and instructors in
the UK and European market. As each new edition is written, the adaptation evolves and develops an identity
distinct from the original US edition on which it is based.
We have tried to retain the lively, engaging writing style and to continue to have the novice economics stu-
dent in mind. Economics touches every aspect of our lives and the fundamental concepts which are introduced
can be applied across a whole range of life experiences. ‘Economics is a study of mankind in the ordinary
business of life.’ So wrote Alfred Marshall, the great 19th-century British economist, in his textbook, Principles
of Economics. As you work through the contents of this book you would be well advised to remember this.
Whilst the news might focus on the world of banking and finance, tax and government policy, economics
provides much more than a window on these worlds. It provides an understanding of decision making and the
process of decision making across so many different aspects of life. You may be considering travelling abroad,
for example, and are shocked at the price you have to pay for injections against tropical diseases. Should you
decide to try and do without the injections? Whilst the amount of money you are expected to give up seems
high, it is a small price to pay when you consider the trade-off – the potential cost to you and your family of
contracting a serious disease. This is as much economics as monetary policy decisions about interest rates and
firm’s decisions on investment.
Welcome to the wonderful world of economics – learn to think like an economist and a whole new world
will open up to you.

Maths for Mankiw Taylor Economics is available for purchase as a supplementary resource carefully explaining
and teaching the maths concepts and formulae underlying many of the key chapter topics.

x
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ACKNOWLEDGEMENTS

Michael Barrow, University of Sussex, UK Jassodra Maharaj, University of East London, UK

Brian Bell, London School of Economics, UK Paul Melessen, Hogeschool van Amsterdam, The
Thomas Braeuninger, University of Mannheim, Netherlands
Germany Jørn Rattsø, Norwegian University of Science &
Eleanor Denny, Trinity College Dublin, UK Technology, Norway
Gaia Garino, University of Leicester, UK Frédéric Robert-Nicoud, University of Geneva,
Chris Grammenos, American College of Switzerland
Thessaloniki, Greece Jack Rogers, University of Exeter, UK
Getinet Haile, University of Nottingham, UK Erich Ruppert, Hochschule Aschaffenburg, Germany
Luc Hens, Vrije Uni, Belgium Noel Russell, University of Manchester, UK
William Jackson, University of York, UK Munacinga Simatele, University of Hertfordshire, UK
Colin Jennings, King’s College London, UK Robert Simmons, University of Lancaster, UK
Sarah Louise Jewell, University of Reading, UK Alison Sinclair, University of Nottingham, UK
Arie Kroon, Utrecht Hogeschool, The Netherlands

xiii
PART 1
INTRODUCTION TO
ECONOMICS

1 TEN PRINCIPLES OF
ECONOMICS

WHAT IS ECONOMICS?
The word economy comes from the Greek word oikonomos, which means ‘one who manages a house-
hold’. At first, this origin might seem peculiar. But, in fact, households and economies have much in
common.
A household faces many decisions. It must decide which members of the household do which tasks
and what each member gets in return: Who cooks dinner? Who does the laundry? Who gets the extra slice
of cake at tea time? Who chooses what TV programme to watch? In short, the household must allocate
its scarce resources among its various members, taking into account each member’s abilities, efforts and
desires.
Like a household, a society faces many decisions. A society must decide what jobs will be done and
who will do them. It needs some people to grow food, other people to make clothing and still others to
design computer software. Once society has allocated people (as well as land, buildings and machines)
to various jobs, it must also allocate the output of goods and services that they produce. It must decide
who will eat caviar and who will eat potatoes. It must decide who will drive a Mercedes and who will take
the bus.

The Economic Problem

These decisions can be summarized as representing the economic problem. There are three questions
that any society has to face:
● What goods and services should be produced?
● How should these goods and services be produced?
● Who should get the goods and services that have been produced?
The answer to these questions would be simple if resources were so plentiful that society could produce
everything any of its citizens could ever want, but this is not the case. Society will never have enough

1
2 PART 1 INTRODUCTION TO ECONOMICS

resources to produce the goods and services which will satisfy the wants and needs of its citizens. These
resources can be broadly classified into three categories:
● Land – all the natural resources of the earth. This includes things like mineral deposits such as iron ore,
gold and copper, fish in the sea, coal and all the food products that land yields. David Ricardo (1817) in
his book On the Principles of Political Economy and Taxation referred to land as the ‘original and indes-
tructible powers of the soil’.
● Labour – the human effort both mental and physical that goes in to production. A worker in a factory pro-
ducing precision tools, an investment banker, a road sweeper, a teacher – these are all forms of labour.
● Capital – the equipment and structures used to produce goods and services. Capital goods include
machinery in factories, buildings, tractors, computers, cooking ovens – anything where the good is not
used for its own sake but for the contribution it makes to production.

land all the natural resources of the earth

labour the human effort both mental and physical that goes in to production
capital the equipment and structures used to produce goods and services

Scarcity and Choice

What resources society does have need to be managed. The management of society’s resources is
important because resources are scarce. Scarcity means that society has limited resources and therefore
cannot produce all the goods and services people wish to have. Just as a household cannot give every
member everything he or she wants, a society cannot give every individual the highest standard of living
to which he or she might aspire.
Economics is the study of how society manages its scarce resources and attempts to answer the
three key questions we noted above. In most societies, resources are allocated through the combined
actions of millions of households and firms through a system of markets. Economists:
● Study how people make decisions: how much they work, what they buy, how much they save and how
they invest their savings.
● Study how people interact with one another. For instance, they examine how the multitude of buyers
and sellers of a good together determine the price at which the good is sold and the quantity that is sold.
● Analyse forces and trends that affect the economy as a whole, including the growth in average income,
the fraction of the population that cannot find work and the rate at which prices are rising.

scarcity the limited nature of society’s resources

economics the study of how society manages its scarce resources

Although the study of economics has many facets, the field is unified by several central ideas. In the
rest of this chapter we look at the Ten Principles of Economics. Don’t worry if you don’t understand them
all at first, or if you don’t find them completely convincing. In the coming chapters we will explore these
ideas more fully. The ten principles are introduced here just to give you an overview of what economics is
all about. You can think of this chapter as a ‘preview of coming attractions’.

HOW PEOPLE MAKE DECISIONS

There is no mystery to what an ‘economy’ is. Whether we are talking about the economy of a group
of countries such as the European Union (EU), or the economy of one particular country, such as India,
or of the whole world, an economy is just a group of people interacting with one another as they go
about their lives. The economy refers to all the production and exchange activities that take place every
day – all the buying and selling. The level of economic activity is how much buying and selling goes on in
the economy over a period of time.
 CHAPTER 1 TEN PRINCIPLES OF ECONOMICS 3

the economy all the production and exchange activities that take place every day
economic activity how much buying and selling goes on in the economy over a period of time

Because the behaviour of an economy reflects the behaviour of the individuals who make up the eco-
nomy, we start our study of economics with four principles of individual decision making.

Principle 1: People Face Trade-offs

The first lesson about making decisions is summarized in an adage popular with economists: ‘There is no
such thing as a free lunch.’ To get one thing that we like, we usually have to give up another thing that we
also like. Making decisions requires trading off the benefits of one goal against those of another.
Consider a student who must decide how to allocate her most valuable resource – her time. She can
spend all of her time studying economics which will bring benefits such as a better class of degree; she
can spend all her time enjoying leisure activities which yield different benefits; or she can divide her time
between the two. For every hour she studies, she gives up an hour she could have devoted to spending
time in the gym, riding a bicycle, watching TV, napping or working at her part-time job for some extra
spending money.
Consider parents deciding how to spend their family income. They can buy food, clothing or a family
holiday. Or they can save some of the family income for retirement or perhaps to help the children buy a
house or a flat when they are grown up. When they choose to spend an extra euro on one of these goods,
they have one less euro to spend on some other good.
When people are grouped into societies, they face different kinds of trade-offs. The classic trade-off is
between spending on defence and spending on food. The more we spend on national defence to protect
our country from foreign aggressors, the less we can spend on consumer goods to raise our standard
of living at home. Also important in modern society is the trade-off between a clean environment and a
high level of income. Laws that require firms to reduce pollution raise the cost of producing goods and
services. Because of the higher costs, these firms end up earning smaller profits, paying lower wages,
charging higher prices, or some combination of these three. Thus, while pollution regulations give us the
benefit of a cleaner environment and the improved levels of health that come with it, they have the cost
of reducing the incomes of the firms’ owners, workers and customers.
Another trade-off society faces is between efficiency and equity. Efficiency means that society is get-
ting the most it can (depending how this is defined) from its scarce resources. Equity means that the
benefits of those resources are distributed fairly among society’s members. In other words, efficiency
refers to the size of the economic cake, and equity refers to how the cake is divided. Often, when govern-
ment policies are being designed, these two goals conflict.

equity – the property of distributing economic prosperity fairly among the members of society

Consider, for instance, policies aimed at achieving a more equal distribution of economic well-being.
Some of these policies, such as the social security system or unemployment insurance, try to help those
members of society who are most in need. Others, such as income tax, ask the financially successful to
contribute more than others to support government spending. Although these policies have the benefit of
achieving greater equity, they have a cost in terms of reduced efficiency. When the government redistrib-
utes income from the rich to the poor, it reduces the reward for working hard; as a result, people work less
and produce fewer goods and services. In other words, when the government tries to cut the economic
cake into more equal slices, the cake gets smaller.
Recognizing that people face trade-offs does not by itself tell us what decisions they will or should
make. A student should not abandon the study of economics just because doing so would increase the
time available for leisure. Society should not stop protecting the environment just because environmental
regulations reduce our material standard of living. The poor should not be ignored just because helping
4 PART 1 INTRODUCTION TO ECONOMICS

them distorts work incentives. Nevertheless, acknowledging life’s trade-offs is important because people
are likely to make good decisions only if they understand the options that they have available.

A typical supermarket shelf offering a

variety of cereals. What are the trade-offs
an individual faces in this situation?

SELF TEST Does the adage ‘there is no such thing as a free lunch’ simply refer to the fact that someone has
to have paid for the lunch to be provided and served? Or does the recipient of the ‘free lunch’ also incur a cost?

Principle 2: The Cost of Something is What You Give Up to Get It

Because people face trade-offs, making decisions requires comparing the costs and benefits of alternat-
ive courses of action. In many cases, however, the cost of some action is not as obvious as it might first
appear.
Consider, for example, the decision whether to go to university. The benefit is intellectual enrichment
and a lifetime of better job opportunities. But what is the cost? To answer this question, you might be
tempted to add up the money you spend on tuition fees, books, room and board. Yet this total does not
truly represent what you give up to spend a year at university.
The first problem with this answer is that it includes some things that are not really costs of going to
university. Even if you decided to leave full-time education, you would still need a place to sleep and food
to eat. Room and board are part of the costs of higher education only to the extent that they might be
more expensive at university than elsewhere. Indeed, the cost of room and board at your university might
be less than the rent and food expenses that you would pay living on your own. In this case, the savings
on room and board are actually a benefit of going to university.
The second problem with this calculation of costs is that it ignores the largest cost of a university
education – your time. When you spend a year listening to lectures, reading textbooks and writing essays,
you cannot spend that time working at a job. For most students, the wages given up to attend university
are the largest single cost of their higher education.
The opportunity cost of an item is what you give up to get that item. When making any decision, such
as whether to go to university, decision makers should be aware of the opportunity costs that accompany
each possible action. In fact, they usually are. University-age rugby, basketball or golf players who can earn
large sums of money if they opt out of higher education and play professional sport are well aware that
their opportunity cost of going to university is very high. It is not surprising that they often decide that the
benefit is not worth the cost.

opportunity cost – whatever must be given up to obtain some item; the value of the benefits foregone (sacrificed)
 CHAPTER 1 TEN PRINCIPLES OF ECONOMICS 5

SELF TEST Assume the following costs are incurred by a student over a three-year course at a university:
● Tuition fees at €9,000 per year = €27,000 ● Accommodation, based on an average cost of €4,500 a year =
€13,500 ● Opportunity cost based on average earnings foregone of €15,000 per year = €45,000 ● Total cost =
€85,500 ● Given this relatively large cost why does anyone want to go to university?

Principle 3: Rational People Think at the Margin

Decisions in life are rarely straightforward and usually involve problems. At dinner time, the decision you
face is not between fasting or eating as much as you can, but whether to take that extra serving of pizza.
When examinations roll around, your decision is not between completely failing them or studying 24 hours
a day, but whether to spend an extra hour revising your notes instead of watching TV. Economists use the
term marginal changes to describe small incremental adjustments to an existing plan of action. Keep
in mind that ‘margin’ means ‘edge’, so marginal changes are adjustments around the edges of what you
are doing.

marginal changes small incremental adjustments to a plan of action

In many situations, people make the best decisions by thinking at the margin. Suppose, for instance,
that you were considering whether to study for a Master’s degree having completed your undergraduate
studies. To make this decision, you need to know the additional benefits that an extra year in education
would offer (higher wages throughout your life and the sheer joy of learning) and the additional costs that
you would incur (another year of tuition fees and another year of foregone wages). By comparing these
marginal benefits and marginal costs, you can evaluate whether the extra year is worthwhile.
Individuals and firms can make better decisions by thinking at the margin. A rational decision maker
takes an action if and only if the marginal benefit of the action exceeds the marginal cost.

Principle 4: People Respond to Incentives

Because people make decisions by comparing costs and benefits, their behaviour may change when
the costs or benefits change. That is, people respond to incentives. When the price of an apple rises, for
instance, people decide to eat more pears and fewer apples because the cost of buying an apple is higher.
At the same time, apple farmers decide to hire more workers and harvest more apples, because the benefit
of selling an apple is also higher. As we shall see, the effect of price on the behaviour of buyers and sellers
in a market – in this case, the market for apples – is crucial for understanding how the economy works.
Public policymakers should never forget about incentives, because many policies change the costs or
benefits that people face and, therefore, alter behaviour. A tax on petrol, for instance, encourages people
to drive smaller, more fuel efficient cars. It also encourages people to switch and use public transport
rather than drive, or to move closer to where they work. When policymakers fail to consider how their
policies affect incentives, they often end up with results they did not intend. For example, the UK govern-
ment provided tax relief on business premises that were not being used as an incentive to the owners to
find new uses or owners for the buildings. The government decided to remove the tax relief and sugges-
ted that in doing so there would now be an incentive for owners of premises to get them back into use
as quickly as possible so that they avoided losing the tax relief. Unfortunately, as the new policy came
into being the economy was going through a severe recession. It was not easy for owners of premises to
find new tenants let alone get new businesses created in these empty properties. Some property owners
decided that rather than have to pay tax on these properties it was cheaper to demolish them. Is this the
outcome the government wanted? Almost certainly not.
This is an example of the general principle that people respond to incentives. Many incentives that
economists study are straightforward and others more complex. No one is surprised, for example, that
people might switch to driving smaller cars where petrol taxes and thus the price of fuel is relatively high.
6 PART 1 INTRODUCTION TO ECONOMICS

Yet, as the example of the removal of tax allowances on empty business premises shows, policies can
have effects that are not obvious in advance. When analysing any policy, we must consider not only the
direct effects but also the indirect effects that work through incentives. If the policy changes incentives, it
will cause people to alter their behaviour.

SELF TEST Many people across the EU are without work and claiming benefits. Governments throughout the
EU are trying to cut spending but find themselves having to spend more on welfare benefits for the unemployed.
What sort of incentives might governments put in place to encourage workers off welfare and into work? What
might be the unintended consequences of the incentives you identify?

HOW PEOPLE INTERACT

The first four principles discussed how individuals make decisions. As we go about our lives, many of our
decisions affect not only ourselves but other people as well. The next three principles concern how people
interact with one another.

Principle 5: Trade Can Make Everyone Better Off

America and China are competitors to Europe in the world economy. In some ways this is true, because
American and Chinese firms produce many of the same goods as European firms. Toy manufacturers
compete for the same customers in the market for toys. Fruit farmers compete for the same customers
in the market for fruit.
Yet it is easy to be misled when thinking about competition among countries. Trade between Europe
and the United States and China is not like a sports contest, where one side wins and the other side loses
(a zero-sum game). In fact, the opposite is true: trade between two economies can make each economy
better off.
To see why, consider how trade affects your family. When a member of your family looks for a job, he or
she competes against members of other families who are looking for jobs. Families also compete against
one another when they go shopping, because each family wants to buy the best goods at the lowest
prices. So, in a sense, each family in the economy is competing with all other families.
Despite this competition, your family would not be better off isolating itself from all other families. If it
did, your family would need to grow its own food, make its own clothes and build its own home. Clearly,
your family gains much from its ability to trade with others. Trade allows each person to specialize in the
activities he or she does best, whether it is farming, sewing or home building. By trading with others,
people can buy a greater variety of goods and services at lower cost.
Countries as well as families benefit from the ability to trade with one another. Trade allows countries to
specialize in what they do best and to enjoy a greater variety of goods and services. The Japanese and the
Americans, as well as the Koreans and the Brazilians, are as much Europe’s partners in the world economy
as they are competitors.

Principle 6: Markets Are Usually a Good Way to Organize Economic Activity

The collapse of communism in the Soviet Union and Eastern Europe in the 1980s may be the most import-
ant change in the world during the past half century. Communist countries worked on the premise that
central planners in the government were in the best position to guide economic activity and answer the
three key questions of the economic problem. These planners decided what goods and services were
produced, how much was produced, and who produced and consumed these goods and services. The
theory behind central planning was that only the government could organize economic activity in a way
that promoted economic well-being for the country as a whole.
Today, most countries that once had centrally planned economies such as Russia, Poland, Angola,
Mozambique and the Democratic Republic of Congo have abandoned this system and are trying to develop
 CHAPTER 1 TEN PRINCIPLES OF ECONOMICS 7

market economies. In a market economy, the decisions of a central planner are replaced by the decisions
of millions of firms and households. Firms decide whom to hire and what to make. Households decide
which firms to work for and what to buy with their incomes. These firms and households interact in the
marketplace, where prices and self-interest guide their decisions.

market economy an economy that addresses the three key questions of the economic problem through allocating
resources through the decentralized decisions of many firms and households as they interact in markets for goods and services

At first glance, the success of market economies is puzzling. After all, in a market economy, no one
is considering the economic well-being of society as a whole. Free markets contain many buyers and
sellers of numerous goods and services, and all of them are interested primarily in their own well-being.
Yet, despite decentralized decision making and self-interested decision makers, market economies have
proven remarkably successful in organizing economic activity in a way that promotes overall economic
well-being.

FYI
Adam Smith and the Invisible Hand
Adam Smith’s great work An Inquiry likely to prevail if he can interest self-interest into promoting general
into the Nature and Causes of the their self-love in his favour, and economic well-being.
Wealth of Nations was published in show them that it is for their own Many of Smith’s insights remain
1776 and is a landmark in economics. advantage to do for him what he at the centre of modern economics.
In its emphasis on the invisible hand requires of them. … It is not from Our analysis in the coming chapters
of the market economy, it reflected the benevolence of the butcher, the will allow us to express Smith’s
a point of view that was typical of brewer, or the baker that we expect conclusions more precisely and
so-called ‘enlightenment’ writers at our dinner, but from their regard to to analyse fully the strengths and
the end of the 18th century – that their own interest. … weaknesses of the market’s invisible
individuals are usually best left to Every individual … neither intends hand.
their own devices, without gov- to promote the public interest, nor
ernment guiding their actions. This knows how much he is promoting
political philosophy provides the it. … He intends only his own gain,
intellectual basis for the market and he is in this, as in many other
economy. cases, led by an invisible hand to
Why do decentralized market promote an end which was no part
economies work so well? Is it of his intention. Nor is it always the
because people can be counted on worse for the society that it was
to treat one another with love and no part of it. By pursuing his own
kindness? Not at all. Here is Adam interest he frequently promotes that
Smith’s description of how people of the society more effectually than
interact in a market economy: when he really intends to promote it.

Man has almost constant occasion Smith is saying that participants

for the help of his brethren, and it is in the economy are motivated by
vain for him to expect it from their self-interest and that the ‘invisible
benevolence only. He will be more hand’ of the marketplace guides this
8 PART 1 INTRODUCTION TO ECONOMICS

One of our goals in this book is to understand how Smith’s invisible hand works its magic. As you study
economics, you will learn that prices are the instrument with which the invisible hand directs economic
activity. Prices reflect both the value of a good to society and the cost to society of making the good.
Because households and firms look at prices when deciding what to buy and sell, they unknowingly
take into account the social benefits and costs of their actions. As a result, prices guide these individual
decision makers to reach outcomes that, in many cases, maximize the welfare of society as a whole.

Principle 7: Governments Can Sometimes Improve Market Outcomes

If the invisible hand of the market is so wonderful, why do we need government? One answer is that the
invisible hand needs government to protect it. Markets work only if property rights are enforced. A farmer
won’t grow food if he expects his crop to be stolen, and a restaurant won’t serve meals unless it is assured
that customers will pay before they leave. We all rely on government provided police and courts to enforce
our rights over the things we produce.
Yet there is another answer to why we need government: although markets are usually a good way
to organize economic activity, this rule has some important exceptions. There are two broad reasons for
a government to intervene in the economy – to promote efficiency and to promote equity. That is, most
policies aim either to enlarge the economic cake or to change the way in which the cake is divided.
Although the invisible hand often leads markets to allocate resources efficiently, that is not always the
case. Economists use the term market failure to refer to a situation in which the market on its own fails to
produce an efficient allocation of resources. One possible cause of market failure is an externality, which
is the uncompensated impact of one person’s actions on the well-being of a bystander (a third party). For
instance, the classic example of an external cost is pollution. Another possible cause of market failure
is market power, which refers to the ability of a single person or business (or group of businesses) to
unduly influence market prices. In the presence of market failure, well designed public policy can enhance
economic efficiency.

market failure a situation where scarce resources are not allocated to their most efficient use
externality the cost or benefit of one person’s decision on the well-being of a bystander (a third party) which the decision
maker does not take into account in making the decision
market power the ability of a single economic agent (or small group of agents) to have a substantial influence on market prices

The invisible hand may also fail to ensure that economic prosperity is distributed equitably. One of the
three questions society has to address is who gets what is produced? A market economy rewards people
according to their ability to produce things for which other people are willing to pay. The world’s best
footballer earns more than the world’s best chess player simply because people are willing to pay more to
watch football than chess. That individual is getting more of what is produced as a result of his earnings.
The invisible hand does not ensure that everyone has sufficient food, decent clothing and adequate health
care. Many public policies, such as income tax and the social security system, aim to achieve a more
equitable distribution of economic well-being.
To say that the government can improve on market outcomes at times does not mean that it always will.
Public policy is made not by angels but by a political process that is far from perfect. Sometimes policies
are designed simply to reward the politically powerful. Sometimes they are made by well-intentioned
leaders who are not fully informed. One goal of the study of economics is to help you judge when a gov-
ernment policy is justifiable to promote efficiency or equity, and when it is not.

HOW THE ECONOMY AS A WHOLE WORKS

We started by discussing how individuals make decisions and then looked at how people interact with one
another. All these decisions and interactions together make up ‘the economy’. The last three of our ten
principles concern the workings of the economy as a whole.
 CHAPTER 1 TEN PRINCIPLES OF ECONOMICS 9

Microeconomics and Macroeconomics

Economics is studied on various levels. The first seven principles involve the study of the decisions of
individual households and firms and the interaction of households and firms in markets for specific goods
and services. In the last three principles we are looking at the operation of the economy as a whole, which
is just the sum of the activities of all these decision makers in all these markets.
Since roughly the 1930s, the field of economics has traditionally been divided into two broad subfields.
Microeconomics is the study of how households and firms make decisions and how they interact in
specific markets. Macroeconomics is the study of economy-wide phenomena. A microeconomist might
study the effects of a congestion tax on the use of cars in a city centre, the impact of foreign competition
on the European car industry or the effects of attending university on a person’s lifetime earnings. A macro-
economist might study the effects of borrowing by national governments, the changes over time in an
economy’s rate of unemployment or alternative policies to raise growth in national living standards.

microeconomics the study of how households and firms make decisions and how they interact in markets
macroeconomics the study of economy-wide phenomena, including inflation, unemployment and economic growth

Microeconomics and macroeconomics are closely intertwined. Because changes in the overall eco-
nomy arise from the decisions of millions of individuals, it is impossible to understand macroeconomic
developments without considering the associated microeconomic decisions. For example, a macro-
economist might study the effect of a cut in income tax on the overall production of goods and services
in an economy. To analyse this issue, he or she must consider how the tax cut affects the decisions of
households concerning how much to spend on goods and services.
Despite the inherent link between microeconomics and macroeconomics, the two fields are distinct. In
economics, it may seem natural to begin with the smallest unit and build up. Yet doing so is neither neces-
sary nor always the best way to proceed. Because microeconomics and macroeconomics address differ-
ent questions, they sometimes take quite different approaches and are often taught in separate courses.
A key concept in macroeconomics is economic growth – the percentage increase in the number
of goods and services produced in an economy over a period of time, usually expressed over a quarter
and annually.

economic growth the increase in the amount of goods and services in an economy over a period of time

Principle 8: An Economy’s Standard of Living Depends

on its Ability to Produce Goods and Services
Table 1.1 shows gross domestic product per capita (head) of the population in a number of selected
countries expressed in U.S. dollars. It is clear that many of the advanced economies have a relatively high
income per capita; in Norway it is an enviable $98,102, the Netherlands $50,087 and Germany $43,689.

gross domestic product per capita (head) the market value of all goods and services produced within a country in
a given period of time divided by the population of a country to give a per capita figure

Moving away from the prosperous economies of Western Europe, we begin to see differences in
income and living standards around the world that are quite staggering. For example, average income
in Yemen was $1,361 whilst in Afghanistan average income is just over a half a per cent of the size of
per-capita income in Norway.
10 PART 1 INTRODUCTION TO ECONOMICS

Gross Domestic Product Per Capita, Current Prices US dollars 2011

TABLE 1.1
Afghanistan 576
Austria 49,707
Belgium 46,469
Benin 802
Bolivia 1,421
China 5,445
Estonia 16,556
Finland 49,391
Germany 43,689
Hungary 21,732
Italy 36,116
Japan 45,903
Kenya 808
Netherlands 50,087
Norway 98,102
Portugal 22,330
Russian Federation 13,089
Spain 32,244
Sweden 56,927
Switzerland 80,391
Turkey 10,498
United Kingdom 38,818
United States 48,442
Yemen 1,361

Not surprisingly, this large variation in average income is reflected in various other measures of the
quality of life and standard of living. Citizens of high-income countries have better nutrition, better health
care and longer life expectancy than citizens of low-income countries, as well as more TV sets, more
gadgets and more cars.

standard of living refers to the amount of goods and services that can be purchased by the population of a country.
Usually measured by the inflation-adjusted (real) income per head of the population

Changes in the standard of living over time are also large. Over the last 5 years, economic growth in
Albania has grown at about 4.68 per cent per year, in China at about 10.5 per cent a year but in Latvia the
economy has shrunk by around 1.4 per cent over the same time period (Source: World Bank).
What explains these large differences in living standards among countries and over time? The answer
is surprisingly simple. Almost all variation in living standards is attributable to differences in countries’
productivity – that is, the amount of goods and services produced from each hour of a worker’s time. In
nations where workers can produce a large quantity of goods and services per unit of time, most people
enjoy a high standard of living; in nations where workers are less productive, most people must endure a
more meagre existence. Similarly, the growth rate of a nation’s productivity determines the growth rate
of its average income.

productivity the quantity of goods and services produced from each hour of a worker or factor of production’s time

The fundamental relationship between productivity and living standards is simple, but its implications
are far-reaching. If productivity is the primary determinant of living standards, other explanations must be
of secondary importance. For example, it might be tempting to credit trade unions or minimum wage laws
for the rise in living standards of workers over the past 50 years. Yet the real hero of workers is their rising
productivity.
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 Sixth.—The progeny of a standard horse when out of a
standard mare.
Seventh.—The progeny of a standard horse out of a mare by a
standard horse.
Eighth.—The progeny of a standard horse when out of a mare
whose dam is a standard mare.
Ninth.—Any mare that has a record of 2:40 or better, and
whose sire or dam, grandsire or grandam is a standard animal.
Tenth.—A record to wagon of 2:35 or better shall be regarded
as equal to a 2:30 record.

In this, its original form, the standard was administered

successfully and smoothly through the period of the compilation of
volumes four, five, six, and seven of the “Trotting Register,” when it
was revised by the Breeders’ Association as follows:

THE STANDARD.
(AS REVISED AND ADOPTED BY THE NATIONAL ASSOCIATION
OF TROTTING-HORSE BREEDERS, DECEMBER 14, 1887.)
In order to define what constitutes a trotting bred horse and to
establish a breed of trotters on a more intelligent basis, the
following rules are adopted to control admission to the records of
pedigrees. When an animal meets the requirements of admission
and is duly registered it shall be accepted as a standard trotting-
bred animal.
First.—Any stallion that has himself a record of two minutes
and thirty seconds (2:30) or better, provided any of his get has a
record of 2:35 or better, or provided his sire or his dam is already
a standard animal.
Second.—Any mare or gelding that has a record of 2:30 or
better.
Third.—Any horse that is the sire of two animals with a record
of 2:30 or better.
Fourth.—Any horse that is the sire of one animal with a record
of 2:30 or better, provided he has either of the following
additional qualifications: (1) A record himself of 2:35 or better. (2)
 Is the sire of two other animals with a record of 2:35 or better.
(3) Has a sire or dam that is already a standard animal.
Fifth.—Any mare that has produced an animal with a record of
2:30 or better.
Sixth.—The progeny of a standard horse when out of a
standard mare.
Seventh.—The female progeny of a standard horse when out of
a mare by a standard horse.
Eighth.—The female progeny of a standard horse when out of a
mare whose dam is a standard mare.
Ninth.—Any mare that has a record of 2:35 or better, and
whose sire or dam is a standard animal.

From the indefinite and unsatisfactory starting point, and without

any rule or guide as to what should be admitted, except the
pointless phrase, “well related to trotting blood,” it soon became
evident that the Register would soon contain as much chaff as
wheat. Through the Monthly, which was established for that
purpose, I did not despair of the success of my aim in leading the
intelligent breeders of the country up to the point of recognizing and
establishing the American trotting horse as a breed. The road was
long, steep, rough in places, and beset with prejudices on all sides,
but labor conquers all things, and we have in the standard and its
revision, as given above, the culmination and perfection of the
implements that were to effect this purpose. To reject a horse from
registration merely because he was running bred would have been
“flying in the face” of the prejudices of nearly everybody, but to
reject him because neither he nor any of his tribe had ever been
able to trot, was philosophical and just; and as it gave no section of
the country an advantage over any other section, and no theory an
advantage over a fact, no man could gainsay or criticise its justice or
its truthfulness. This was the wedge that split the rock of ignorance
and prejudice, and thus exploded the theories of generations as to
the value of running blood in the trotter. As I look at it to-day, the
undertaking to gather up a great lot of fragments and convert them
into a breed was a tremendous one, and although it was backed up
with brains and influence, it is doubtful whether many of its
promoters had any very clear conception of the results that would
follow—either its success or its failure. It assumed to direct and
control the trotting-horse breeding interest of the whole country, and
to leave its impress for all time. It required no gift of prophecy to
see this as the result of success, and neither did it require any gift of
prophecy to foresee that failure would wipe out the work already
done in both the Register and the Monthly. It was the crucial period
in the history of these publications. A misstep or an unwise provision
would have brought a disastrous end. To found a breed of horses
resting primarily and wholly upon performance and the blood
descended directly from performers, or the producers of performers,
was something that never had been attempted in the world. The
basis was wholly unique, but it commended itself to the public
judgment as a just one, and as the only foundation upon which the
proposed breed could be successfully established. The basis was
wisely chosen and the superstructure erected thereon was equally
wise in all its provisions. Never have we known a set of men to work
more earnestly or more unselfishly for the common purpose.
After very careful consideration in a large and intelligent
committee, the finished labors of that committee was reported to
the Association on November 19, 1879, at the Everett House, in this
city, and the standard was then and there adopted without so much
as a question and without a voice or a vote being raised against it.
Thus the standard was launched in unity and wisdom, and from that
day it went forward on its mission of educating the people. The
“Trotting Register” has done much and the Monthly has done
something in the way of education, but the standard has been the
special formula through which all these teachings have been brought
home to the breeder, great and small, in a manner that educated
both his mind and his pocket. If we could conceive of the brightest
mind directing the most pointed pen for the period of a hundred
years in the special department of how to breed the trotting horse,
we feel sure he would fail to accomplish as much as this little,
practical formula called the “Standard” accomplished in the first
dozen years of its existence.
When the standard was adopted and put in operation there was a
material advance in the market value of all animals registered under
its requirements, and it thus became not only a matter of honor, but
of profit, to breed only in the standard ranks. Everybody was willing
to pay more for a good horse that was standard in his breeding than
for one equally good that was not standard in his breeding. A record
of 2:30 was then accepted as evidence of a high rate of speed,
everywhere. There was a grand rush for standard rank and the
number of fraudulent performances sent forward in order to secure
such classification was overwhelming. This led to many rejections of
performances, adroitly shaped up to deceive, and every rejection
made a batch of enemies. But great as this evil was, there was
another that began to manifest itself very strongly. The Register was
rapidly filling up with colts under rules seven and eight, and
everyone of them, as soon as he was able to stand up, wanted his
number, for he was to be kept as a standard stallion. The public
attention was urgently called to the preponderating numbers of
these feebly bred colts, as a menace to the hitherto unimpeded
progress of the grand purpose of establishing a breed. The Breeders’
Association thereupon took up the standard and revised it, wholly in
the direction of higher qualifications and more stringent
requirements. By comparing the revised standard with the original,
above, it will be observed that rule ten was stricken out, and that
rules seven and eight were restricted to fillies only, thus cutting off
the source of danger altogether. The rates of subsidiary speed were
advanced and there was a tightening up of the requirements in other
directions. This revision did not suit all interests, especially beginners
who were just starting to breed their first colt by a standard horse,
but as every one knew there would never be a time when there
would not be just such groundless complaints, the action received
the hearty indorsement and support of all breeders who kept in view
the central object of the standard in building up a breed of trotters.
 When fast horses began to multiply by the thousand, annually, say
about 1890-91, we began to hear an increasing number of gibes at
the standard as “a slow coach,” “away behind the times,” “a 2:30
horse was no longer considered a trotter,” etc., and every one of
these taunts had an element of truth in it. The standard, as the
teacher of the breeders of the country, had not only produced
trotters, but great trotters, with marvelous rapidity. At one time it
was the ambition of all breeders to place their stock inside of the
limits of the standard, not only because it was an honor, but because
it added materially to the bank account and to the value of every
animal, so bred, in the establishment. But breeders both great and
small are no longer stimulated to enter a standard with the
antiquated 2:30 rate of speed that is everywhere received with a
sneer. When the standard was formed on the basis of 2:30, it was
within about fifteen seconds of the fastest performance, and if the
same ratio were now preserved, “2:30” would be stricken out and
“2:20” inserted instead. The breeders would again be stimulated to
look forward with hope, and not backward with regret.
Of the numerous criticisms of the standard after its adoption,
there were none of any special force or practicability, but from one
source there was a persistent war made upon it, not because it was
unfair in its principles or administration, nor because it lacked vigor
in its support, but evidently because it was not controlled in
Kentucky, and that the pivotal authority of that control was not
placed in the hands of the manager at Woodburn. It is but just that I
should say here that many of the stanchest and most enthusiastic
supporters of the standard and the Register were Kentuckians, and
with the exceptions of two or three breeders who stood well in their
community, and a few others who were bankrupt in character and
morals, there were no enemies to engage in this war. I would gladly
skip over this period, for it is of necessity more or less personal, but
to omit it would leave the history of the times and of the formation
of the breed of trotters incomplete, and liable to misrepresentation
by those who may come after us.
 The first public suggestion or demand for a standard, and the first
use of the word “standard” in connection with rules for registration,
was addressed to the Breeders’ Association, in the paragraph quoted
above, from the Monthly for April, 1878. In that paragraph, while no
specific rules were formulated, the whole scope of such rules was
foreshadowed.
In the course of correspondence with breeders all over the
country as to their views about the provisions of the proposed
standard, I received from Mr. Henry C. McDowell, of Kentucky, a little
slip of paper, perhaps as large as your hand, marked “copyrighted,”
on which were printed a number of rules that purported to be rules
for the admission of certain animals, trotters and runners, to some
book that was not named or described. This little paper was
courteously received and commended as a step in the right
direction.
The idea of inserting the word “copyrighted” seemed to be that it
might serve as a “scare head” and thus deter all makers of books
from attempting to make a book under the provisions of these rules.
These rules were strictly tentative, and they were peddled about for
months, and changed several times to see whether they would be
acceptable or not, and every revised and corrected edition was
marked “copyrighted.”
Some of the rules that were, we might say, self-evident, were not
very objectionable, but others again were simply intended to give
Woodburn and those who had their breeding stock from that
establishment a great advantage over all other breeders. The selfish
object of the fourth rule is palpable, as follows: “Any mare, the dam
of any mare or stallion that has produced or sired a horse, mare or
gelding, with a record of two minutes and thirty seconds or better.”
To the original draft of six rules, “rule seven” was afterward
added, which reads: “The full sister of any animal entered under
rules one, two, three, and four.” This was the capsheaf of absurdity,
for it not only made the grandams of trotters standard trotting brood
mares, but all their sisters also. This not only embraced a large
number of running mares, genuine and bogus alike, in Kentucky, but
it reached across the Atlantic and made one of the greatest of
English dams of running horses, and all her famous sisters, standard
trotting brood mares in America. Bonnie Scotland, the great racing
sire, never was able to get a trotter except from old Waterwitch, and
upon the strength of that scratch, his sisters and his mother and his
aunts were all made standard trotters. No wonder this marvelously
stupid production came to be known as the “Pinafore Standard.” [A
more extended review of the “Pinafore Standard” may be found in
Wallace’s Monthly for December, 1879, page 831.]
But when we come to consider the ultimate result intended to be
reached, the scheme was not “marvelously stupid”—it was not the
work of a fool, but of the other kind of fellow. The admission of the
grandmothers and all their sisters was not specially intended to bring
in the great English racing mare and all her sisters as standard-bred
American trotters, but it was intended to bring in a great host of
Kentucky running-bred mares that never could trot a mile in four
minutes, and place them on an exact equality of rank with mares
that had records of 2:20 or less. This would not only place Kentucky
away ahead of the North in the length of her lines of inheritance, but
would place Woodburn away above all competitors, either North or
South, and with a little help of the Edgar-Bruce type, we would soon
have had “twelfth dam, fifteenth dam,” etc., not one of them named
and not one of them honest. Great local, and especially personal,
advantages were to accrue, and the theory that Kentucky running
blood was not the best trotting blood in the world was to be
smashed, and here we reach “the milk in the cocoanut.” So far as we
can understand the conditions as they then existed and so far as we
can analyze the facts developed, this seems to be a fair
interpretation of the impelling motive. In an unfortunate hour I took
up this buntling of the young manager and exposed its absurdities,
addressing the exposure to a highly esteemed personal friend whose
name was connected with the movement, and just as soon as the
gentlemen interested could be got together, every vestige of the
“Pinafore” features was eliminated, the poor old grandmothers and
their sisters being ruthlessly turned out in the cold. This was the first
set-back which Mr. Brodhead received in his enterprise, which was to
accomplish so much for Woodburn, and which ended so disastrously.
There was another feature embraced in the “Pinafore,” and
protected by the same “copyright,” that was of special significance.
It was provided that time made in a public trial, against the watch,
should be accepted as of equal value with time made in a race with
other horses. It is not worth while to stop to consider the question
as to whether these two kinds of performance are of equal merit,
and should receive equal honor, for every honest man will call such a
claim a bald absurdity on its face. Then why has Woodburn, from
time immemorial, it will be asked, always refused to enter a colt in a
stake or start one against others? If you ask the manager he will tell
you that Mr. Alexander, the owner, is opposed to racing in all its
forms. Then why does Woodburn, in one form or other, hold so
much stock in the Kentucky Breeders’ Association, one of the most
notorious gambling concerns in the whole country? We will not press
this question too closely. There can be no shadow of doubt,
therefore, that this feature of the “Pinafore” was the special product
of the mind of the manager at Woodburn, for no one of the other
gentlemen would be willing to own it.
The quasi-organization from which, nominally, the “Pinafore
Standard” emanated consisted of the five gentlemen following:
Lucas Brodhead, Henry C. McDowell, Richard S. Veech, James C.
McFerran, and Colonel Richard West. The names of these five
gentlemen when appended to any matter connected with their
enterprise and given to the public had no rank assigned to them,
except “Committee on Rules.” This implied that there was an
organization behind them that had appointed them to this duty, but
there never was even a shadow of such an organization. Mr.
Brodhead was manager at Woodburn and ambitious to control the
trotting pedigrees of the whole country, and for the methods
employed the reader is referred to page 430 of this volume. Mr.
McDowell is simply Mr. Brodhead’s echo. In December, 1877, he
attended the annual meeting of the National Association of Trotting
Horse Breeders, and out of compliment to Kentucky he was elected
president. He was about the city two or three days, and before he
left for home he resigned without ever intimating any reason why he
resigned. Mr. Veech is a man of undoubted integrity and plenty of
brains, and was identified with the Breeders’ Association from the
start. Mr. McFerran and Colonel West are both dead, and while it was
not my privilege to know them intimately, I knew enough of them to
trust them as honorable and honest men. Not long after the
appearance of the original suggestion in the Monthly, as given
above, that a standard of qualifications for admission to registration
was of paramount importance, and that the preparation of such a
standard was in the special province of the National Association of
Trotting Horse Breeders, Manager Brodhead caught the idea and the
situation, and with Mr. McDowell hurried away to spend a night with
Mr. Veech, near Louisville, and thus forestall the action the Breeders’
Association might take in the premises. They were all of one mind as
to the importance of keeping Kentucky in the foremost position as a
breeding State, but they were not all of one mind as to the means
best adapted to that end. Mr. Veech was very clear and pronounced
in his views that the way to breed the trotter was to go to the trotter
and not to the runner, but what Brodhead said McDowell said, and
that left him in the minority. Seated around a table, each with a copy
of Wallace’s Monthly containing the table of 2:30 trotters under their
sires, they commenced forming some rules. With “The Great Table”
before them they could not fail to strike the self-evident
requirements of a standard, and two or three of their rules were
very good, but as a matter of course the scheme of the majority to
get in all the running-bred mares possible and enter them as
standard trotting mares had to prevail. Hence the provision for
admitting the grandams. Imported Bonnie Scotland was kept many
years in the trotting latitudes, and just got one trotter and no more
at any rate of speed, hence he was a standard horse according to
this scheme, and his dam, Queen Mary, in England, was a standard
trotting brood mare. Now if the dam thus became a standard
trotting mare, why should not Iago, his sire, become a standard
trotting sire? This would have been too glaring and open, and would
have been ridiculed as an absurdity by everybody. The trick had to
be carried through quietly or it could not succeed. At a later period
the sisters of all the standard mares were made standard, and then
came the very appropriate and expressive title of the “Pinafore
Standard,” for it literally embraced “his sisters and his mother and
his aunts.” This scheme would have admitted a vast herd of so-called
trotting mares in Kentucky that had no trotting inheritance, had
never trotted themselves, and never produced a trotter. This part of
the scheme was certainly not the work of the “Committee on Rules,”
but the work of an individual for the purpose of carrying out a selfish
and inadmissible scheme to promote local and personal interests.
When the exposure of this scheme came out Woodburn, with all its
influence in Kentucky, could not stand against it an hour, and every
“Pinafore” feature was promptly eliminated.
When the processes of emendation and change in the “Pinafore,”
and each change “copyrighted,” were going forward, the views of
the different members of the “Committee on Rules” did not always
harmonize, and when it came to the selection of a man to do the
work, part of the committee insisted the work should be placed in
the hands of John H. Wallace, and after some discussion a
committee consisting of Mr. Brodhead and Mr. McDowell was
deputed to tender this work to Mr. Wallace on such terms as would
be equitable and just. In due time a communication was received
from these gentlemen, informing me of the business upon which
they had been appointed and wishing to know for what
compensation I would engage to compile the book, laying down the
conditions upon which it must be done. Without having a copy of
this correspondence before me I can only give the substance from
memory. First, the copyright was to be in the committee or some
member of it; second, the compilations were to be as the committee
directed; and third, the book was to be the property of the
committee when completed. This was a stunner, but I concluded to
play out the rôle they had assigned me and see what they would do.
In my reply I put the case substantially as follows: “Your proposed
book, if ever made, must be made almost, if not quite wholly, from
the first three volumes of the “Trotting Register,” and these volumes
are carefully protected by copyright. I have spent several years of
hard labor in compiling them, and a large amount of money in
traveling over the country tracing and verifying the facts which they
contain. You ask me, in effect, to take my three volumes and to skim
all the cream out of them to make one volume for you. Now, before
going an inch further, we must understand what you are willing to
pay for my property, before I can entertain any proposition to dump
it into the lap of your committee.” Sometimes I have been disposed
to lament my hard fate in coming so near the exalted position of
“hired-man” to two such distinguished characters as Henry C.
McDowell and Lucas Brodhead, but I missed it. To this letter I never
received any reply, nor did these gentlemen ever make any report of
their negotiations with me to the “Committee on Rules.”
The next news we had from the “Pinafore” was the announcement
that the book would be compiled at Woodburn, by LeGrand Lucas,
and on inquiry as to his capacity and knowledge of the subject it was
learned that he was a young kinsman of Brodhead’s, perhaps still in
his “teens,” who was employed there as a kind of clerk or
bookkeeper. He was evidently an innocent lad, for he had been
installed in his new office only a very few days when he wrote me
for certain numbers of the Monthly, in duplicate. In reply I wrote him
that each volume of the “Register” and each number of the Monthly
was legally covered by copyright and that I could not consent to his
taking my property to make up his new book, and that he must do
as I had done—commence at the beginning and hunt for himself.
Poor boy, what could he do? If he were debarred from the use of the
Wallace publications, where on the face of the globe could he get
the information? If cribbing had to be done in order to carry out the
scheme, it would be very indiscreet to do it under the very roof of
Woodburn and under the supervision of its manager. Thus the work
languished for months, and little or no progress was made.
In Chicago there was one James H. Sanders, publishing a paper,
whom I had known for years. He never had an idea of his own in the
world, but he was one of the most notorious and shameless
plagiarists that I have ever known. As an illustration of what I knew
about him in this department of industry and thought, I will give a
single example that will honestly represent many others in my own
experience. At one time he was employed several months as editor
of Wilkes’ Spirit of the Times, and during that time I wrote an article
for that paper that had some pith and point in it, but I was afraid to
send it for fear Sanders would steal it, so I called in a capable friend
and told him the situation, had him read it carefully and make some
notes of the order of thought that he might know it if he ever saw it
again. The paper was then signed and sent forward. In two or three
days I received an acknowledgment of the communication effusively
thankful for the favor, remarking that by a singular coincidence our
minds had been running in the same channel and that when my
communication was received he already had an article in type taking
the same view of the subject. When the paper came my friend
looked it over and remarked “that man is nothing more than a
shameless plagiarist.”
In a short time work on the book, if it were ever begun, came
practically to an end for want of material, and this was probably
brought about by a hint from the proprietor, Mr. Alexander, that
Woodburn, with all its strength, could not afford to sacrifice its good
name for honesty, by taking the property of another man, without
his consent. At this juncture J. H. Sanders, of Chicago, wanted a job,
for ready money, and knowing the situation in Kentucky, published
an editorial going to prove that pedigrees could not be copyrighted,
for they belonged to the owners of the horses, or some other such
brainless argument as this. Brodhead and his echo saw in this the
opportunity of their lives, for Sanders wanted the job, and if my
work were to be appropriated they could blame it all on him. So they
hied away to Chicago, and the three worthies, all fully inspired with
the animus furandi, were not long in reaching an agreement.
Sanders did not want any share in the book or in the profits it might
yield, but he was ready to do the work for a fixed compensation, in
cash, and to be free from all responsibility for damages or loss. The
compensation, as represented by Sanders, was three thousand
dollars. The negotiations were consummated, announced through
the press with a brilliant flourish of trumpets, and the two gentlemen
returned to Kentucky in high feather. Work on the compilation (?)
was soon commenced, and, as related by an eyewitness, the
methods were very simple and expeditious. Mr. Sanders sat at one
side of a table with the three volumes of “Wallace’s Trotting
Register,” and Wallace’s Monthly open before him, and as he read
out the pedigrees in their alphabetical order, his clerk, on the
opposite side of the table, wrote them down. In a very few weeks
the work was done and Sanders put his three thousand dollars in his
pocket. Thus the clerk was paid, his employers were in possession of
his dishonest work, and J. H. Wallace was robbed of the labor of
years, but the instinctive honesty of the public conscience had not
yet been reckoned with.
The book was published under the title of “The Breeder’s Trotting
Stud Book.” The clerical work was well done, closely following the
copyrighted sources from which it was drawn, so closely indeed as
to furnish strong prima facie evidence that it was copied. But this
feature of excellence, if that word can be applied to theft in any
form, furnished literally hundreds of evidences, clear, unmistakable
and conclusive, that from beginning to end it had been copied from
the “Register” and the Monthly. Like all works of the kind, those
volumes were not free from errors, the spelling of a name might be
wrong, the initials of a name might have been misplaced or
reversed, a date or a location may have been incorrect, and as all
these errors were copied and not one of them corrected, and there
were hundreds of them, each one stood up as a competent and
undisputed witness and told the story of the theft. But, knowing the
character of the people with whom I had to deal, I was prompted to
adopt the methods of the detective in using marked bills, and then
finding those bills on the person of the culprit. Fortunately there was
a very easy way of applying this effective and conclusive method
and I adopted it. Instead of marking bills, I marked pedigrees, by
inserting imaginary crosses. As an illustration, there was a horse in
Delaware called Frank Pierce Jr. Nobody ever knew anything about
the blood of his dam, and I supplied the place with “dam by Tom
Titmouse, pacer,” and then waited for my marked pedigrees to make
their appearance. Nobody ever heard of a horse called “Tom
Titmouse” in Delaware or any other country. In due time the book
appeared and there my “marked bills” came to light in the
possession of Lucas Brodhead and Henry C. McDowell. The piracy
was a clean sweep and the evidence of it was just as complete as
the depredation itself. As a matter of course I did not delay in raising
the shout “stop thief,” and after one or two broadsides from the
Monthly giving the extent of the theft and examples of the evidence
to sustain the charge, the moral sense of the breeders of the whole
country, including Kentucky, was aroused, and I was really surprised
at the sudden death of the bantling and its burial out of sight, but
still more surprised that no man opened his head in explanation or
defense of the piracy, and thus was practically confessed the truth of
all that was charged against them. It is said that Mr. Alexander, the
proprietor of Woodburn, tightened the reins on his over-ambitious
manager, at this point, and admonished him that his course had
done great injury to the good name of Woodburn, and that he must
change it, and not attempt any defense of what he had done.
Whether this really occurred or not I am not able to say, but it was
just such a course as any wise employer would adopt toward a
reckless employee whose course was destroying the good name of
an establishment. It then appeared to be my duty to go forward and
under a decree of the courts have this stolen property confiscated
and destroyed, according to law, but as the bantling was already
very dead and growing deader every day, with nothing left of it but a
trace of its putrescence in the nostrils of all honest men, I concluded
that the game was not worth the candle.
Among the amusing things that were developed in the progress of
this controversy was Mr. Brodhead’s peculiar views as to what
“copyright” really meant. He got the idea of restricting admission to
the “Register” to animals possessing certain qualifications from the
Monthly, and he formulated this idea into five or six rules, expressed
in eight or ten short printed lines and, as he claimed, copyrighted
this idea. He evidently seemed to think he had invented a rat-trap
and got his patent on it, and that no man dare make any rules
restricting registration, so long as he safely held the patent on his
rat-trap. He could see no difference between a patent right and a
copyright. An “idea” cannot be copyrighted, no difference whether it
be expressed in one printed line, or in a dozen. The copyright law is
constructed for the special and only purpose of protecting the author
in the results and products of his labor. The work of seeking, tracing
and establishing the pedigrees of trotting horses had been pushed
forward persistently, laboriously and expensively for more than
twelve years, and it had grown into a vast accumulation of facts of
imperishable value to the whole horse world, and every line of it was
protected under the copyright law; but because it didn’t conform to
his “rat-trap” idea he seems to have persuaded himself that it would
be justifiable to hire and pay a man to transfer it from my possession
to his own.
During its very short life and while the memory of the book was
retained in the recollections of the horsemen of that period, it was
very generally, if not invariably, spoken of as “The Tom Titmouse
Stud Book.” It has already been suggested how this name would
aptly fit in among my “marked bills,” but the reason for it has not
been made apparent. In Warren’s romance called “Ten Thousand a
Year,” his “delectable,” or to speak soberly, his “detestable” hero was
named “Tittlebat Titmouse,” and as one of the gentlemen involved in
this controversy strongly reminded me of Warren’s hero, by his
arrogance and ignorance, I involuntarily wrote in the “marked bill”
“dam by Tittlebat Titmouse;” but upon looking at it I concluded it
was not good bait, for it was doubtful whether any man in the world
who ever owned a horse would name him after so contemptible a
character. Hence, to make it less conspicuous it was changed to read
“dam by Tom Titmouse, pacer,” and the bait was swallowed in a
twinkling. The Kentucky scheme, from its very inception, had its
motive in securing a local and personal advantage over the breeders
of every other section of the country and hence the provisions of the
“Pinafore” standard, from which the promoters were only driven by
exposure and ridicule. The piracy was consummated as proved by a
hundred witnesses that will never die, and of which the “marked bill”
element, such as “Tom Titmouse, pacer,” is an unmistakable
representative. With the inception and consummation both
understood and named, how could we find another name so fit as
“The Tom Titmouse Stud Book?” To this might be added, on an
amended title-page: “Edited by a clerk employed by Lucas Brodhead
and Henry C. McDowell of Kentucky.”
Some three or four years after the death and burial of the “Tom
Titmouse” book and when its odoriferous memory had become less
offensive, another effort was made to get control of the registration
business, by the same parties in Kentucky. Mr. Brodhead did not
appear prominently in this move, but worked through his echo,
McDowell. The plan was to present a monster petition to the
National Trotting Association, composed chiefly of track owners and
track followers, to establish a trotting register. This petition
purported to be from breeders, but in fact it embraced all the
“swipes” and stable-boys about Lexington and Woodburn, I was told,
and there were very few actual breeders in the list, and that few
were men who were trying to breed trotters from runners. The
movement was inspired and engineered in good degree from
Woodburn, and Brodhead’s friends were at work in all directions
securing the names of the “rag, tag and bobtail” whose names
appeared on the petition, and a very great noise was raised about
what was going to be done. Whether the association took any action
on the petition, or what it was, I have no recollection, but whatever
the disposition made of the petition, it never was heard of again. To
the reader not familiar with the condition of things in Kentucky at
that time, these persistent and renewed attempts to get control of
the registration of trotting horses can hardly be comprehended.
They did not grow out of ruffled tempers merely, as the result of
friction, but out of strictly business considerations. Kentucky had a
great variety of brood mares from which they were trying to breed
trotters, and practically every one of them was tricked out with more
or less running blood as tail-pieces to their pedigrees, while others
were paraded with pedigrees showing a dozen or more successive
crosses by thoroughbred horses, and not one of them with a name,
a history or a breeder. There were many purchasers flocking to
Kentucky with more money than knowledge for the purpose of
buying a few animals to serve as the nucleus for a breeding stud,
and it was no uncommon thing for such purchasers to estimate the
value of a pedigree by its length. When the purchaser got home with
his stock, his next step was to send them to me for registration, and
here came in the “business” consideration. The pedigree having
reached the office of the “Register,” unless it were already known to
me, every cross had to be established circumstantially and
specifically before it could be accepted, and at the precise point
where reasonable information failed the pedigree was cut off. The
purchaser then goes back upon the seller, and there the trouble
begins. He writes me an indignant letter. “You’re interfering with my
business, sah; that pedigree is just as I got it from Colonel Jones,
sah; and he’s a gentleman, sah.” It was very seldom, indeed, that a
man of this type could be mollified by assuring him that all pedigrees
were judged by the same rule and requirement, whether they came
from Maine or California or Kentucky. He generally remained an
enemy to the “Register” because “it interfered with his business.”
From early in the century, three or four counties out of about one
hundred and twenty in Kentucky bred running horses and grades
and raced them, but no records were kept of their breeding and
nobody knows with certainty to-day anything about the more remote
crosses. For a time the union of two or three trotting horses upon
the top of a line of nameless dams extending ten or fifteen
generations was looked upon as the perfection of a trotting
pedigree. This notion, foolish as it was, gave Kentucky a great
advantage over the breeders of all other sections of the country, and
every exposure, with the evidence, that in nine cases out of ten
these lines of nameless dams were in whole or in part pure fictions,
was cutting the ground from under their supposed superiority in the
breeding of their trotters. Under the arguments and illustrations of
the Monthly, supported by the incontrovertible statistics of the “Year
Book,” the Kentucky cry for “more running blood in the trotter,” was
silenced as the child of ignorance and prejudice, and instead of
looking for pedigrees tracing back to Godolphin Arabian, everybody
began to look for pedigrees that traced to individuals and families
distinguished for producing trotters, no difference what blood they
possessed. Here the public mind reached the truth, and in grasping
it the boasted predominance of Kentucky was crushed, and
producing trotting blood was again placed on an equality in all parts
of the land. The loss of the pretensions of one section could not be
of any specific pecuniary advantage to any other section, but the
establishing of the truth was of inestimable advantage to all. The
loss of mere “pretentions” would not, in ordinary affairs, be
considered a very great loss, but in this instance it was looked upon
as a grievous wrong, because it interfered with their “business.”
Every slippery fellow who failed to pass a bogus pedigree
complained that it interfered with his “business.” Every gang of
cheats that got together and hired the use of a track for a few days
for the purpose of giving their horses bogus records, when detected,
cried out vigorously that this was interfering with their “business.”
Besides these, there were scores, perhaps hundreds, of others,
ready for some such game to cheat the public, but when they
learned the ordeal was severe, their courage failed and they
contented themselves by threatening the “Register” for interfering
with their “business.” Here was an army of jockeys and cheats, and
all they needed to make their numbers formidable was a leader with
courage and money, and whose “business” was their own, to seize
registration and thus recoup the losses they had sustained in their
“business.”
In considering the conspiracy that resulted in the sale and transfer
of the Wallace publications to the American Trotting Register
Association, which means simply Lucas Brodhead, there are some
antecedent conditions connected with these publications that need a
brief explanation. The first volume of “Wallace’s American Trotting
Register” was published in this city in 1871 and the second in 1874.
An office was opened in this city in 1875 and the first number of
Wallace’s Monthly was issued in October of that year. The National
Association of Trotting Horse Breeders was organized December 20,
1876. The attendance was large and many of the States were
represented by men of influence and standing. Mr. Charles Backman
was elected president, and L. D. Packer secretary. From the favor
with which the idea of a national organization was received and from
the character of the men participating in it, I voluntarily and without
judicial advice placed in the association the authority to appoint
annually a Board of Censors to examine and decide all questions
relating to disputed pedigrees sent for registration. The plan worked
smoothly and satisfactorily for several years, in some of which there
was not a single case to be examined. My publications were soon
past the critical point, and they seemed to grow from their inherent
strength, and not from pushing or advertising. The Breeders’
Association seemed to take the opposite chute, and after three or
four years it became merely a name. At first there was trouble in
finding a man to take the presidency, but at last a rich dry goods
merchant was found who was willing to take the presidency, and add
five hundred dollars a year to some stake for the honor conferred;
and the secretary, L. D. Packer, was the mere satellite of the
president, and was willing to give two weeks’ work every year for
the privilege of drawing a thousand dollars a year from the treasury.
The annual meetings became a mere formality, with an attendance
of three or four and the two officers, who seemed to re-elect each
other year after year, until the association was finally buried
somewhere out in Michigan, I think, and the money that had
accumulated in the treasury was, on his petition, donated to the
secretary in consideration of his valuable services for so many years
in carrying the association from the cradle to the tomb.
Owing to my relations to the Breeders’ Association, I felt that I
was in honor bound to maintain its good name in the minds of the
people, while every publication in the whole country was laughing at
it, and that this was my duty as well as my interest until the time
came for a final separation from it. True, when I made these efforts
to uphold it I had to put my tongue in my cheek, for I knew that its
management, like “the Old Man of the Sea,” was riding it to death.
As my business continued to grow and prosper, I began to consider
the propriety of forming a joint stock company of breeders, to own
and control the property absolutely when I was ready to retire.
Greatly to my surprise this proposition gave offense to the two
gentlemen who managed the association, for I had not alluded to
that in any possible manner. When explained to me it became
perfectly plain that the offense was in the fact that making a legal
corporation to own and control the property would leave no
“position” for the president, no salary for the secretary and no
further need for the N. A. of T. H. B.
The Wallace Trotting Register Company, in due time, was
incorporated under the laws of the State of New York, and
commenced business October 1, 1889. The publications of the
company were the “Register,” the Monthly and the “Year Book.” The
capital stock of the company was fixed at one hundred thousand
dollars, and as work came pouring in upon us more rapidly than we
could handle it, labor became a burden and I had no time to
distribute this stock among the breeders of every State, as I
intended. This was the condition of things in the office in the
following spring when, to my horror, I discovered I had been robbed
of something over fifty-four thousand dollars and the thief escaped
to Cuba. The blow was a stunner, and messages of sympathy came
pouring in from all quarters, with many tenders of pecuniary
assistance all of which were thankfully acknowledged, but all tenders
of assistance were declined.
The capitalization at one hundred thousand dollars, and the
robbery of fifty-four thousand dollars, and the company still not
crushed, gave Mr. Brodhead a new view of the possibilities of the
future, and inspired him with a new hope that he might yet reach
the ambition of his life and gain control of the registration of all the
trotting pedigrees of the country. Without much violence to the
processes of Brodhead’s mind we can imagine the way in which he
reasoned out the problem. “This has become a valuable property
and is bound to be still more valuable,” he doubtless reasoned, “and
it is possible it can be bought, but if bought it must be done before
that stock is scattered among the breeders of the different States.
There are Russell Allen and Malcolm Forbes and a whole lot of rich
fellows just coming into the trotting horse business and I can show
them that this property would be a good investment. With the
money in one hand and the bluff of starting an opposition Register in
the other, it is possible the property might be got for something like
its value.” He next probably reasoned: “The first thing to consider
here, is how to make that bluff sufficiently imposing and effective, in
an authoritative way; and shall it be a mass meeting or a delegate
meeting, and where shall it be held? I have seen Packer and he
evidently wants to know what there is in it for him and Mali, in case
they agree to call a National convention. They want to perpetuate
their offices in their present so-called National Association. If it
should be a mass convention, and held at Chicago, I could send up a
few carloads of farmers’ sons from around here and every one of
them would swear he was a breeder. If it should be a delegate
convention from State Breeders’ Associations, there are several
States that have no such associations, but I could get a few friends
to organize for the purpose of sending delegates. The horse papers
would be a unit on our side, for they have been ‘set on’ so often and
so hard that they would like to see the old bear superseded. Beside
this, every one of those papers has at least the one man who is
competent to succeed Wallace, and every editor who has been in the
business six months thinks he is fully qualified for that place. But the
real roar of the shouting would come from the angry men whom
Wallace has disappointed in refusing to accept their pedigrees or
their performances because they were irregular. These men are very
numerous and we must have as many of them present as possible. I
think this plan will work,” he doubtless reasoned with himself, “if we
can only keep Wallace in the dark till we get things fixed, and to
throw him off his guard I will send him three or four pedigrees to
register.”
Thus the plan of the conspiracy, with all the elements to be
employed, were evidently matured in Mr. Brodhead’s mind. There
were two points about which he was specially solicitous. The first
was that I should be kept wholly in the dark as to his movements
and purposes, and the second was some apparently official authority
for calling a convention at Chicago that would be of a nominally
“national” character. On invitation Secretary Packer visited
Woodburn, and for a promised consideration it was all arranged that
the President and Secretary of the N. A. of T. H. B. would call a
convention. With the initial step thus safely provided for, Mr.
Brodhead was everywhere, east and west, north and south, beating
up recruits. In a short time, evidently by preconcerted arrangement,
there was an unusual number of horsemen in town, some of them
very rich men, while the greater number were blowers of the Dr. Day
type with a grievance. The horsemen were hustled together by
Secretary Packer, in what was called an impromptu meeting, and
there President Mali, after some apparent hesitation, fulfilled his part
of the agreement and called the convention at Chicago, and thus Mr.
Brodhead secured his share—and we will see how the other side
fared further on.
When the convention assembled at Chicago it was indeed a
motley mass. President Mali took his place as president, and called
the convention to order, and Secretary Packer took his place as
secretary. This, as I understand, was not by the choice of the
convention, but by virtue of their positions in the N. A. of T. H. B. It
was eventually determined that the meeting should be composed of
delegates from State associations, and when the associations were
called, several of them had never been heard of before and never
have been heard of since. They were bogus associations, and were
gotten up especially for the occasion. Some of the delegates bore
names that never had been heard of in the office of the “Register,”
and it may be inferred they never bred a standard horse. The names
of others, again, were well known in the office from their efforts to
get spurious and unknown crosses accepted. All these men were
anxious for a new management. One man whom I had discharged
from my office a few weeks before represented a New England
State. He was guilty of a flagrant attempt at deception. He was a
fawning sycophant, always laughing at his own supposed wit, and he
was known in the office as “Uriah Heep.” The man who dominated
the convention from beginning to end had not been appointed a
delegate by his own association. The whole thing, as a convention,
was about as hollow a sham as was ever enacted in Chicago. Next
behind the gentlemen who by courtesy may be designated as
delegates, sat the moneyed men who were anxiously looking for a
good investment for some of their loose funds, and Brodhead had
told them this property was paying twenty-five per cent. on a
capitalization of one hundred thousand dollars, and he thought it
could be made to pay more. Like many other fools, they thought it
was a machine that when fired up in the morning would run itself.
Next to the rich men sat a good sprinkling of farmers’ sons, some
carloads of whom had been brought from Kentucky, and all ready to
swear they were breeders. As Brodhead explained this incident to a
gentleman who stated it to me: “If there was any attempt to pack
the convention he was ready to do some packing himself, with these
young men he had brought from Kentucky.”
On the outside circle there was a large number of young men and
some older ones watching the proceedings with great intensity. They
were restless, and some of them looked hungry, and every one of
them was looking for a place if the purchase went through. One had
a copy of the Bungtown Bugle in his pocket containing a report of
the racing at the last county fair, written by him, and he thought that
was sufficient evidence that he was qualified to take charge of the
Monthly. Another had made, with his own hands, as he asserted, a
tabulated pedigree on a large scale and shaded the letters
beautifully and artistically with pokeberry juice; and what evidence
could be more satisfactory that he was qualified to take charge of
the department of registration? Every one of them seemed to think
that there would be a good place for him in the new deal, and hence
his enthusiasm at every incident that seemed to point in that
direction. Thus the little cormorants as well as the big cormorants
were all anxious for the prey.
While the soreheads were wrangling over how best to get hold of
my property, and what they would do with it when they got it, I had
several hours in the privacy of my own apartments to look over all
the conditions of the situation, and the conclusions I then reached I
have never had reason to change. It, therefore, may be of interest
to all to know just what I thought at that crucial period, and I will
give these thoughts as contemporaneous with the event:
“This meeting is a miserable sham, but the action of Mali and
Packer has given it a pseudo-type of regularity as a national
convention of horsemen, and this idea of ‘regularity’ will carry weight
with many who know nothing of the bottom facts.
“The members of the press will, substantially, be a unit against
me, and ring all the changes on ‘the National convention’ at Chicago,
and labor to make it appear as an uprising of the horsemen of the
whole country against me.
“The meeting is packed by Brodhead with his own satellites whose
expenses he has paid, and embraces a good many rogues who have
failed in passing upon me dishonest pedigrees and spurious records.
Besides these there are several men here, and very active, whose
names have never been heard of before in the horse world.
“Taking these elements together, they are in numbers more
formidable than dangerous, but when led by Brodhead, with what
they consider a fair price in one hand and a club in the other, with
the demand ‘take the price or we’ll take the property,’ the occasion
becomes serious.
“The latter alternative means a battle that may last ten years. Ten
years ago these same people employed a man who purloined my
literary property and it was found in their possession. The evidence
of the piracy was so clear that it never was denied.
“Have I time enough, am I strong enough, am I young enough to
enter upon this long battle? Ten years ago I was robbed of my
property, but I was then vigorous and strong; one year ago another
thief robbed me of my money and it was a terrific and lasting strain
upon my vitality.
 “The days of my years number nearly threescore and ten, so there
is no time to enter upon the uncertainties ‘of the law’s delays.’ From
overwork and the anxieties growing out of family afflictions and the
robbery, my health is shattered. It is time, therefore, that I should
seek to rest rather than to struggle.
“And what about the work to which I have devoted the best years
of a long life? Will it be attacked? Certainly it will be attacked for the
reason that it does not suit Woodburn. Will it be overthrown? No,
the laws of nature cannot be overthrown. The trotter can come only
from the trotter and nobody but an ignoramus or a fool can doubt
the truth of this declaration. The experiences of every year, of every
track, and in every race confirm this central truth and will continue
to do so as long as the world stands.”
From the above reasonings and conclusions, when the offer of one
hundred and thirty thousand dollars was made, in a business form, it
was accepted.
When the property was transferred it was on the individual and
joint responsibility of some half a dozen rich men, and they were as
gleeful and happy over their investment as though they had
obtained a gold mine for a song. But, while these men were
rejoicing over their acquisition, there were many others cursing the
deception that had been practiced upon them by promising them
places and perquisites and, in short, whatever they wanted in order
to secure their adherence to the conspiracy. Of all this numerous
class, Messrs. Mali and Packer had so little sense as to make the
nature and terms of their agreement public, namely, that they were
to be clothed with the power to annually appoint the Board of
Censors for the new organization. Poor fools! they didn’t know
Brodhead. For a consideration of place they had betrayed a trust to
him that as honorable men they should have sacredly guarded, and
the more they complained the more bitterly they were condemned
by all right-thinking men. Hence, after they had served his purpose
he kicked them aside as he would an old shoe, and thus he punished
the traitors with whom he had dealt. When the multitude of writers,
statisticians, etc., who had received private assurances of
“something equally as good” in the new deal, saw the fate of Mali
and Packer, they had sense enough to keep their mouths shut. A
man who knew anything about the trotting families and their lines of
descent was not the kind of man that Mr. Brodhead wanted to put in
charge of registration. The only man who could suit Mr. Brodhead
was the man who would implicitly and without doubt follow his
instructions, right or wrong. When Mr. J. H. Steiner was appointed
Registrar it was wholly evident that this was the purpose of the
proprietor, for of all the men in my knowledge, in any way connected
with trotting horse interests, Mr. Steiner seems to be the most
profoundly ignorant of horse history and horse lineage, and till this
day he does not seem to have learned anything thereof.
At this point the public confidence received a shock from which it
has never recovered, and never will recover. From that day till the
present the estimate of value of the publications of the company, in
the minds of breeders, has been on the “down grade,” and coupled
with this is the ever-obtruding doubt as to whether these
publications are managed for the advantage of the general breeding
public, or for the little clique of which Woodburn is the center. The
lack of knowledge displayed has resulted in a profound disgust. This
has been shown most conclusively in the fate of the poor old
Monthly. It started out under its new owners to controvert breeding
history and breeding law in which the public had been thoroughly
and conscientiously indoctrinated. The sham pretense of using the
title Wallace’s Monthly instead of Brodhead’s Monthly was “too thin”
to deceive any one except the most ignorant. The labored
productions of the weaklings hired to overthrow the truth only
tended to deepen the disgust. The price was lowered as an
inducement to support, but nobody wanted the miserable thing
about his house, and thus it died without a tear except from the
eyes of the rich fools who put their money into it supposing it would
live and prosper in the hands of ignorant and incompetent men.
It is natural for the rich men who put their money so gleefully into
this publishing enterprise, at the instigation of Mr. Brodhead, to try
to get some of it back before the final smash, which is evidently not
far removed, and hence the ignorant and blundering emasculation of
the Year Book, in order to reduce its cost. “The Great Table,” as it
was called for years, embraces all others, and all others are merely
subsidiary to that. This table should be restored in its entirety, for it
is worth the whole of them and double as many more. With every
other table thrown out and this one restored, complete, the breeders
would be content. The Year Book—the great instructor of the past—I
have just learned is no longer published for the breeders or for the
press, but for the tracks. The operation is explained as follows:
Every year the secretaries of the National and the American Trotting
Associations send out by express a lot of blank books, blanks, etc.,
to each track in good standing and in this outfit for the year is a
copy of the Year Book, which is charged at the long price. The tables
of fastest records, I am told, are quite carefully made in the offices
of these associations themselves, and the book is thus made a
convenience for the tracks. Thus, by this system of forced loans on
the tracks, the Year Book is kept alive. This method of financing the
company will not last long.
A different method has been adopted in order to secure funds
from registration. Money for registration must come from the
breeders themselves directly, and there is no way of forcing them to
put up through the manipulation of intermediary officials. Hence the
plan has been tried of scaring them into it, but with what success I
am not informed. At the annual meeting in April, 1895, I think it
was, a committee was appointed, consisting of Messrs. Brodhead
and Boyle, if I remember, to consider and report to the next meeting
amendments to the standard advancing the requirements for
registration, and everybody was advised to hurry in their pedigrees
or they might be excluded. At the meeting in 1896 the committee
did not report, but Mr. Brodhead reported in a series of resolutions,
in which the number of standard dams was advanced, which suited
Woodburn exactly, but there was no advance in the time to be
made, and the tin-cup record against time was carefully protected.
The resolutions were adopted unanimously, and went before the
breeding public as the new advanced standard that would be
decided at the next annual meeting. From time to time the breeders
were duly informed of the proposed advance and cautioned many
times to get in while they could. The annual meeting in April, 1897,
came, and instead of a rush of breeders interested one way or
another in the proposed advance, the same stereotyped half a dozen
men were there who had been manipulating the scare for two years,
and not one of them, even Brodhead himself, voted for the advance.
This is no advance at all, in a practical sense, and would accomplish
nothing, and would do no good to anybody except Woodburn or
some other establishment that like her has been breeding trotters
for forty years. It was merely intended for a scare, and it failed
under such circumstances as to fully disclose the object in placing it
before the breeders. The scare is all out of this kind of humbug and
deception, and now what? When the standard was adopted on the
basis of 2:30 that rate of speed was sixteen seconds behind the
fastest record then made. To-day if the standard were placed at 2:20
it would be about sixteen seconds slower than the fastest time now
on record. But this real advance, which is imperatively demanded by
all the considerations of philosophy and progress, will never be made
so long as the standard is under the control of Woodburn. The
reason for this is made obvious by reference to page 504, etc. Mr.
Brodhead’s ambition has been fully gratified, he is in full and
absolute control of the registration of the country, he has completely
demonstrated his incompetency for such a position, and he has the
satisfaction of knowing, if it be a satisfaction, that no sensible
business man on the face of the globe would be willing to pay ten
per cent. of the cost for the property he now controls. And who will
say this is not a righteous retribution for the disreputable means
employed, first and last, to obtain this control?
My life-work in building up a breed of trotting horses and thereby
adding many millions to the value of the horse stock of the country
had been more effective than I had even hoped for. I knew that I
had laid the foundation on the bed-rock of truth, and I knew that
the superstructure had been honestly erected, but I did not know
what a deep root my teachings had taken in the minds of all
intelligent and thinking men. In transferring the property the chief
source of my unhappiness was in the thought that heaven and earth
would be moved to destroy what I had done and overthrow what I
had taught. But I had builded wiser and stronger than I knew, and
when the “feather-weights” were hired to pull the house down and
tear up the very roots of the seed I had planted, the people would
not listen to them and nobody would read their vapid utterances.
And thus the effort ended in the death of the Monthly. The harvest
of thought was much nearer the reaping time when the transfer was
made than I had supposed, and since then it has been ripening and
ripening, and to-day if any man were heard advocating more
running blood in the trotter, he would with very great unanimity be
pronounced either an ignoramus or a fool, on that question at least.
But, much as I disliked to surrender my life-work to a man whose
moral fiber I had tested and found brittle, the transfer was really “a
blessing in disguise.” It gave me rest, it gave me health, and it gave
me leisure to prosecute the study of the horse of history in fields
hitherto untrodden. The years thus employed in digging after the
very roots of history in the libraries, at home and abroad, have
glided by, affording a continuous enjoyment in the discovery of many
things that are very old and yet entirely new to this generation. Very
often, when the work went slowly, I thought I could again hear the
quiet, sympathetic voice of a Pennsylvania Friend gently prompting
me with the remark, “Thee should remember that thee is no longer
a young man.” And now that my long-promised and pleasant
undertaking is completed, it is my very earnest wish that the
thousand friends who have been waiting for it may enjoy the
pleasant surprises it will furnish them as much as I have enjoyed
their exhumation from the archives of long-buried centuries.
 APPENDIX
HISTORY OF THE WALLACE PUBLICATIONS.
BY A FRIEND OF THE AUTHOR.

Mr. Wallace’s early life and education—Removal to Iowa, 1845—

Secretary Iowa State Board of Agriculture—Begins work,
1856, on “Wallace’s American Stud Book,” published 1867—
Method of gathering pedigrees—Trotting Supplement—
Abandons Stud Book, 1870, and devotes exclusive attention
to trotting literature—“American Trotting Register,” Vol. I.,
published in 1871—Vol. II. follows in 1874—The valuable
essay on breeding the forerunner of present ideas—Standard
adopted 1879—Its history—Battles for control of the
“Register”—Wallace’s Monthly founded 1875—Its character,
purposes, history, writers, and artists—“Wallace’s Year Book”
founded 1885—Great popularity and value—Transfer of the
Wallace publications, and their degeneration.
The history of the series of works known as the Wallace
publications, even in the brief form here contemplated, involves in a
large degree the biography of Mr. Wallace. It is indeed more than
the sketch of a long and indefatigably industrious life-work. It
involves as well, in the forty years of creative labor, the development
of a great productive industry, and of a distinct branch of literature.
Mr. Wallace’s labors in the field of gathering and systematizing
American horse history began at a day when there was no breed of
trotters, or no trotting literature. When he laid aside active work
there were both, well established and clearly defined factors in the
nation’s progress, and in all the years from the commencement he
was the central figure in the work of establishing a breed of trotters,
and incomparably the clearest and strongest force in the direction
and upbuilding of a trotting literature. That is the simple truth of
history, which the verdict of time will render it puerile to deny.