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CYBER SECURITY
ESSENTIALS
CYBER SECURITY
ESSENTIALS

Edited by
James Graham
Richard Howard
Ryan Olson
Auerbach Publications
Taylor & Francis Group
6000 Broken Sound Parkway NW, Suite 300
Boca Raton, FL 33487-2742
© 2011 by Taylor and Francis Group, LLC
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Contents

A Note from the E xecutive Editors xi

About the Authors xiii
Contributors xv

C h a p t e r 1 C y b e r S e c u r i t y F u n d a m e n ta l s 1
1.1 Network and Security Concepts 1
1.1.1 Information Assurance Fundamentals 1
1.1.1.1 Authentication 1
1.1.1.2 Authorization 2
1.1.1.3 Nonrepudiation 3
1.1.1.4 Confidentiality 3
1.1.1.5 Integrity 4
1.1.1.6 Availability 5
1.1.2 Basic Cryptography 6
1.1.3 Symmetric Encryption 11
1.1.3.1 Example of Simple Symmetric
Encryption with Exclusive OR
(XOR) 12
1.1.3.2 Improving upon Stream Ciphers
with Block Ciphers 14
1.1.4 Public Key Encryption 16
1.1.5 The Domain Name System (DNS) 20
1.1.5.1 Security and the DNS 24
1.1.6 Firewalls 25
1.1.6.1 History Lesson 25
1.1.6.2 What’s in a Name? 25
1.1.6.3 Packet-Filtering Firewalls 27

© 2011 by Taylor & Francis Group, LLC v

vi C o n t en t s

1.1.6.4 Stateful Firewalls 28

1.1.6.5 Application Gateway Firewalls 29
1.1.6.6 Conclusions 29
1.1.7 Virtualization 30
1.1.7.1 In the Beginning, There Was
Blue … 31
1.1.7.2 The Virtualization Menu 31
1.1.7.3 Full Virtualization 33
1.1.7.4 Getting a Helping Hand from the
Processor 34
1.1.7.5 If All Else Fails, Break It to Fix It 35
1.1.7.6 Use What You Have 35
1.1.7.7 Doing It the Hard Way 36
1.1.7.8 Biting the Hand That Feeds 37
1.1.7.9 Conclusion 38
1.1.8 Radio-Frequency Identification 38
1.1.8.1 Identify What? 39
1.1.8.2 Security and Privacy Concerns 41
1.2 Microsoft Windows Security Principles 43
1.2.1 Windows Tokens 43
1.2.1.1 Introduction 43
1.2.1.2 Concepts behind Windows
Tokens 43
1.2.1.3 Access Control Lists 46
1.2.1.4 Conclusions 47
1.2.2 Window Messaging 48
1.2.2.1 Malicious Uses of Window
Messages 49
1.2.2.2 Solving Problems with Window
Messages 51
1.2.3 Windows Program Execution 51
1.2.3.1 Validation of Parameters 52
1.2.3.2 Load Image, Make Decisions 55
1.2.3.3 Creating the Process Object 56
1.2.3.4 Context Initialization 57
1.2.3.5 Windows Subsystem Post
Initialization 58
1.2.3.6 Initial Thread … Go! 60
1.2.3.7 Down to the Final Steps 61
1.2.3.8 Exploiting Windows Execution
for Fun and Profit 63
1.2.4 The Windows Firewall 64
References 70

Chapter 2 A t ta c k e r Te c h n i q u e s an d M o t i vat i o n s 75
2.1 How Hackers Cover Their Tracks (Antiforensics) 75
2.1.1 How and Why Attackers Use Proxies 75

© 2011 by Taylor & Francis Group, LLC

 C o n t en t s vii

2.1.1.1 Types of Proxies 76

2.1.1.2 Detecting the Use of Proxies 78
2.1.1.3 Conclusion 79
2.1.2 Tunneling Techniques 80
2.1.2.1 HTTP 81
2.1.2.2 DNS 83
2.1.2.3 ICMP 85
2.1.2.4 Intermediaries, Steganography,
and Other Concepts 85
2.1.2.5 Detection and Prevention 86
2.2 Fraud Techniques 87
2.2.1 Phishing, Smishing, Vishing, and Mobile
Malicious Code 87
2.2.1.1 Mobile Malicious Code 88
2.2.1.2 Phishing against Mobile Devices 89
2.2.1.3 Conclusions 91
2.2.2 Rogue Antivirus 92
2.2.2.1 Following the Money: Payments 95
2.2.2.2 Conclusion 95
2.2.3 Click Fraud 96
2.2.3.1 Pay-per-Click 97
2.2.3.2 Click Fraud Motivations 98
2.2.3.3 Click Fraud Tactics and Detection 99
2.2.3.4 Conclusions 101
2.3 Threat Infrastructure 102
2.3.1 Botnets 102
2.3.2 Fast-Flux 107
2.3.3 Advanced Fast-Flux 111
References 116

C h a p t e r 3 E x p l o i tat i o n 119
3.1 Techniques to Gain a Foothold 119
3.1.1 Shellcode 119
3.1.2 Integer Overflow Vulnerabilities 124
3.1.3 Stack-Based Buffer Overflows 128
3.1.3.1 Stacks upon Stacks 128
3.1.3.2 Crossing the Line 130
3.1.3.3 Protecting against Stack-Based
Buffer Overflows 132
3.1.3.4 Addendum: Stack-Based Buffer
Overflow Mitigation 132
3.1.4 Format String Vulnerabilities 133
3.1.5 SQL Injection 138
3.1.5.1 Protecting against SQL Injection 140
3.1.5.2 Conclusion 141
3.1.6 Malicious PDF Files 142
3.1.6.1 PDF File Format 143

© 2011 by Taylor & Francis Group, LLC

viii C o n t en t s

3.1.6.2Creating Malicious PDF Files 144

3.1.6.3Reducing the Risks of Malicious
PDF Files 145
3.1.6.4 Concluding Comments 147
3.1.7 Race Conditions 147
3.1.7.1 Examples of Race Conditions 148
3.1.7.2 Detecting and Preventing Race
Conditions 151
3.1.7.3 Conclusion 152
3.1.8 Web Exploit Tools 152
3.1.8.1 Features for Hiding 153
3.1.8.2 Commercial Web Exploit Tools
and Services 154
3.1.8.3 Updates, Statistics, and
Administration 157
3.1.8.4 Proliferation of Web Exploit Tools
Despite Protections 158
3.1.9 DoS Conditions 159
3.1.10 Brute Force and Dictionary Attacks 164
3.1.10.1 Attack 168
3.2 Misdirection, Reconnaissance, and Disruption
Methods 171
3.2.1 Cross-Site Scripting (XSS) 171
3.2.2 Social Engineering 176
3.2.3 WarXing 182
3.2.4 DNS Amplification Attacks 186
3.2.4.1 Defeating Amplification 190
References 191

C h a p t e r 4 M a l i c i o u s C o d e 195
4.1 Self-Replicating Malicious Code 195
4.1.1 Worms 195
4.1.2 Viruses 198
4.2 Evading Detection and Elevating Privileges 203
4.2.1 Obfuscation 203
4.2.2 Virtual Machine Obfuscation 208
4.2.3 Persistent Software Techniques 213
4.2.3.1 Basic Input–Output System
(BIOS)/Complementary Metal-
Oxide Semiconductor (CMOS)
and Master Boot Record (MBR)
Malicious Code 213
4.2.3.2 Hypervisors 214
4.2.3.3 Legacy Text Files 214
4.2.3.4 Autostart Registry Entries 215
4.2.3.5 Start Menu “Startup” Folder 217
4.2.3.6 Detecting Autostart Entries 217

© 2011 by Taylor & Francis Group, LLC

 C o n t en t s ix

4.2.4 Rootkits 219

4.2.4.1 User Mode Rootkits 219
4.2.4.2 Kernel Mode Rootkits 221
4.2.4.3 Conclusion 223
4.2.5 Spyware 223
4.2.6 Attacks against Privileged User Accounts
and Escalation of Privileges 227
4.2.6.1 Many Users Already Have
Administrator Permissions 228
4.2.6.2 Getting Administrator
Permissions 229
4.2.6.3 Conclusion 230
4.2.7 Token Kidnapping 232
4.2.8 Virtual Machine Detection 236
4.2.8.1 Fingerprints Everywhere! 237
4.2.8.2 Understanding the Rules of the
Neighborhood 238
4.2.8.3 Detecting Communication with
the Outside World 240
4.2.8.4 Putting It All Together 241
4.2.8.5 The New Hope 243
4.2.8.6 Conclusion 243
4.3 Stealing Information and Exploitation 243
4.3.1 Form Grabbing 243
4.3.2 Man-in-the-Middle Attacks 248
4.3.2.1 Detecting and Preventing MITM
Attacks 251
4.2.3.2 Conclusion 252
4.3.3 DLL Injection 253
4.3.3.1 Windows Registry DLL Injection 254
4.3.3.2 Injecting Applications 256
4.3.3.3 Reflective DLL Injections 258
4.3.3.4 Conclusion 259
4.3.4 Browser Helper Objects 260
4.3.4.1 Security Implications 261
References 264

C h a p t e r 5 D e f e n s e an d A na ly s i s Te c h n i q u e s 267
5.1 Memory Forensics 267
5.1.1 Why Memory Forensics Is Important 267
5.1.2 Capabilities of Memory Forensics 268
5.1.3 Memory Analysis Frameworks 268
5.1.4 Dumping Physical Memory 270
5.1.5 Installing and Using Volatility 270
5.1.6 Finding Hidden Processes 272
5.1.7 Volatility Analyst Pack 275
5.1.8 Conclusion 275

© 2011 by Taylor & Francis Group, LLC

x C o n t en t s

5.2 Honeypots 275

5.3 Malicious Code Naming 281
5.3.1 Concluding Comments 285
5.4 Automated Malicious Code Analysis Systems 286
5.4.1 Passive Analysis 287
5.4.2 Active Analysis 290
5.4.3 Physical or Virtual Machines 291
5.5 Intrusion Detection Systems 294
References 301

Chapter 6 iDefense S p e c i a l F i l e I n v e s t i g at i o n To o l s 305

© 2011 by Taylor & Francis Group, LLC

A Note from the Executive Editors

This is not your typical security book. Other books of this genre exist to
prepare you for certification or to teach you how to use a tool, but none
explains the concepts behind the security threats impacting enterprises
every day in a manner and format conducive to quick understanding.
It is similar to a reference book, an encyclopedia of sorts, but not
quite. It is not comprehensive enough to be an encyclopedia. This
book does not cover every security concept from A to Z, just the ones
that we have observed having the most impact on the large-enterprise
network battle.
It is similar to books like the Unix Power Tools series, but again not
quite. Those authors collected small snippets of practical information
about how to run a UNIX machine. This book has no code samples.
It is not a “how-to” book on hacking skills. This book, instead, covers
key security concepts and what they mean to the enterprise in an easy-
to-read format that provides practical information and suggestions for
common security problems. The essays in this book are short, designed
to bring a reader up to speed on a subject very quickly. They are not
70-page treatises, but rather high-level explanations about what the
issue is, how it works, and what mitigation options are available.
It is similar to the Physician’s Desktop Reference (PDR), but once
again not quite. The PDR is an annually published aggregation of
drug manufacturers’ prescription information. The information in
© 2011 by Taylor & Francis Group, LLC xi
xii A N o t e f r o m t he E x ecu ti v e Ed it o rs

this book does not change often enough to require an annual update.
Most of the material covers baseline concepts with which all security
practitioners should be familiar and may serve as the first step toward
developing a prescription to solve security problems they are likely to
see daily.
It is similar to military “smart books,” but, ultimately, not quite.
Smart books are built by the soldiers themselves when they are placed
in charge of a new mission. These are generally looseleaf notebooks
that carry snippets of key information about how to get the job
done—everything from stats about a unit’s combat reaction drills to
information about the entire unit’s weapons capabilities. They contain
checklists and how-to’s and FAQs and any other critical information
that a soldier cannot afford to forget. In summary, we took the liberty
of building a cyber security smart book for you.
This book builds on the methods that all these types of books use.
The contents are inspired by the cyber security experts around the
world who are continuously learning new concepts or who have to
explain old concepts to bosses, peers, and subordinates. What they
need is a desktop reference, a place to start to refresh their knowledge
on old subjects they are already familiar with or to come up to speed
quickly on something new they know nothing about.
We do not want you to read this from cover to cover. Go to the table
of contents, pick a topic you are interested in, and understand it. Jump
around; read what interests you most, but keep it handy for emergen-
cies—on your desk, on your bookshelf, or even in your e-book reader.
By the time you are done with all the issues explained throughout this
book, you will be the “go-to” person in your security organization.
When you need a refresher or you need to learn something new, start
here. That’s what we intend it to do for you.

© 2011 by Taylor & Francis Group, LLC

About the Authors

This book is the direct result of the outstanding efforts of a talented

pool of security analysts, editors, business leaders, and security profes-
sionals, all of whom work for iDefense® Security Intelligence Services;
a business unit of VeriSign, Inc.
iDefense is an open-source, cyber security intelligence operation
that maintains expertise in vulnerability research and alerting, exploit
development, malicious code analysis, underground monitoring, and
international actor attribution. iDefense provides intelligence prod-
ucts to Fortune 1,000 companies and “three-letter agencies” in various
world governments. iDefense also maintains the Security Operations
Center for the Financial Sector Information Sharing and Analysis
Center (FS-ISAC), one of 17 ISACs mandated by the US govern-
ment to facilitate information sharing throughout the country’s busi-
ness sectors.
iDefense has the industry-unique capability of determining not only
the technical details of cyber security threats and events (the “what,”
the “when,” and the “where”), but because of their international pres-
ence, iDefense personnel can ascertain the most likely actors and moti-
vations behind these attacks (the “who” and the “why”).
For more information, please contact [email protected].

© 2011 by Taylor & Francis Group, LLC x iii

Contributors

Executive Editors Editor-in-Chief

Jason Greenwood James Graham

Rick Howard
Steven Winterfield
Design
Ralph Thomas
Joon-Hyung Park
Lead Author
Editors
Ryan Olson
Bryan Richardson
Kellie Bryan
Authors
Pam Metrokotsas
Michael Ligh Meredith Rothrock
Greg Sinclair Taryn Sneed
Blake Hartstein
Shahan Sudusinghe
Jon Gary
Robert Falcone
Aldrich De Mata
Ryan Smith
Arion Lawrence

© 2011 by Taylor & Francis Group, LLC xv

 1
C yber S ecurit y
Fundamentals

1.1 Network and Security Concepts

1.1.1 Information Assurance Fundamentals

Authentication, authorization, and nonrepudiation are tools that

system designers can use to maintain system security with respect
to confidentiality, integrity, and availability. Understanding each of
these six concepts and how they relate to one another helps security
professionals design and implement secure systems. Each component
is critical to overall security, with the failure of any one component
resulting in potential system compromise.
There are three key concepts, known as the CIA triad, which any-
one who protects an information system must understand: confidenti-
ality, integrity, and availability. Information security professionals are
dedicated to ensuring the protection of these principals for each system
they protect. Additionally, there are three key concepts that security
professionals must understand to enforce the CIA principles properly:
authentication, authorization, and nonrepudiation. In this section, we
explain each of these concepts and how they relate to each other in
the digital security realm. All definitions used in this section originate
from the National Information Assurance Glossary (NIAG) published
by the U.S. Committee on National Security Systems.1

1.1.1.1 Authentication Authentication is important to any secure sys-

tem, as it is the key to verifying the source of a message or that an
individual is whom he or she claims. The NIAG defines authentication
as a “security measure designed to establish the validity of a transmis-
sion, message, or originator, or a means of verifying an individual’s
authorization to receive specific categories of information.”

© 2011 by Taylor & Francis Group, LLC 1

2 Cy ber Securit y E s sen tia l s

FACTOR EXAMPLES

Something Information the system assumes others do not know; this information may be
You Know secret, like a password or PIN code, or simply a piece of information that most
people do not know, such as a user’s mother’s maiden name.

Something Something the user possesses that only he or she holds; a Radio Frequency ID
You Have (RFID) badge, One-Time-Password (OTP) generating Token, or a physical key

Something A person’s fingerprint, voice print, or retinal scan—factors known as biometrics

You Are

Exhibit 1-1 Factors of authentication.

There are many methods available to authenticate a person. In each

method, the authenticator issues a challenge that a person must answer.
This challenge normally comprises requesting a piece of information
that only authentic users can supply. These pieces of information nor-
mally fall into the three classifications known as factors of authentica-
tion (see Exhibit 1-1).
When an authentication system requires more than one of these fac-
tors, the security community classifies it as a system requiring multifac-
tor authentication. Two instances of the same factor, such as a password
combined with a user’s mother’s maiden name, are not multifactor
authentication, but combining a fingerprint scan and a personal iden-
tification number (PIN) is, as it validates something the user is (the
owner of that fingerprint) and something the user knows (a PIN).
Authentication also applies to validating the source of a message,
such as a network packet or e-mail. At a low level, message authen-
tication systems cannot rely on the same factors that apply to human
authentication. Message authentication systems often rely on crypto-
graphic signatures, which consist of a digest or hash of the message
generated with a secret key. Since only one person has access to the
key that generates the signature, the recipient is able to validate the
sender of a message.
Without a sound authentication system, it is impossible to trust
that a user is who he or she says that he or she is, or that a message is
from who it claims to be.

1.1.1.2 Authorization While authentication relates to verifying iden-

tities, authorization focuses on determining what a user has permission
© 2011 by Taylor & Francis Group, LLC
 Cy ber Securit y F un da m en ta l s 3

to do. The NIAG defines authorization as “access privileges granted to

a user, program, or process.”
After a secure system authenticates users, it must also decide what
privileges they have. For instance, an online banking application will
authenticate a user based on his or her credentials, but it must then
determine the accounts to which that user has access. Additionally,
the system determines what actions the user can take regarding those
accounts, such as viewing balances and making transfers.

1.1.1.3 Nonrepudiation Imagine a scenario wherein Alice is purchas-

ing a car from Bob and signs a contract stating that she will pay
$20,000 for the car and will take ownership of it on Thursday. If
Alice later decides not to buy the car, she might claim that someone
forged her signature and that she is not responsible for the contract.
To refute her claim, Bob could show that a notary public verified
Alice’s identity and stamped the document to indicate this verifica-
tion. In this case, the notary’s stamp has given the contract the prop-
erty of nonrepudiation, which the NIAG defines as “assurance the
sender of data is provided with proof of delivery and the recipient is
provided with proof of the sender’s identity, so neither can later deny
having processed the data.”
In the world of digital communications, no notary can stamp each
transmitted message, but nonrepudiation is still necessary. To meet
this requirement, secure systems normally rely on asymmetric (or
public key) cryptography. While symmetric key systems use a single
key to encrypt and decrypt data, asymmetric systems use a key pair.
These systems use one key (private) for signing data and use the other
key (public) for verifying data. If the same key can both sign and
verify the content of a message, the sender can claim that anyone
who has access to the key could easily have forged it. Asymmetric
key systems have the nonrepudiation property because the signer of
a message can keep his or her private key secret. For more informa-
tion on asymmetric cryptography, see the “State of the Hack” article
on the subject published in the July 6, 2009, edition of the Weekly
Threat Report.2

The term confidentiality is familiar to most

1.1.1.4 Confidentiality
people, even those not in the security industry. The NIAG defines
© 2011 by Taylor & Francis Group, LLC
4 Cy ber Securit y E s sen tia l s

confidentiality as “assurance that information is not disclosed to unau-

thorized individuals, processes, or devices.”
Assuring that unauthorized parties do not have access to a piece of
information is a complex task. It is easiest to understand when broken
down into three major steps. First, the information must have protec-
tions capable of preventing some users from accessing it. Second, limita-
tions must be in place to restrict access to the information to only those
who have the authorization to view it. Third, an authentication system
must be in place to verify the identity of those with access to the data.
Authentication and authorization, described earlier in this section, are
vital to maintaining confidentiality, but the concept of confidentiality
primarily focuses on concealing or protecting the information.
One way to protect information is by storing it in a private location
or on a private network that is limited to those who have legitimate
access to the information. If a system must transmit the data over a
public network, organizations should use a key that only authorized
parties know to encrypt the data. For information traveling over
the Internet, this protection could mean using a virtual private net-
work (VPN), which encrypts all traffic between endpoints, or using
encrypted e-mail systems, which restrict viewing of a message to the
intended recipient. If confidential information is physically leaving
its protected location (as when employees transport backup tapes
between facilities), organizations should encrypt the data in case it
falls into the hands of unauthorized users.
Confidentiality of digital information also requires controls in the
real world. Shoulder surfing, the practice of looking over a person’s
shoulder while at his or her computer screen, is a nontechnical way
for an attacker to gather confidential information. Physical threats,
such as simple theft, also threaten confidentiality. The consequences
of a breach of confidentiality vary depending on the sensitivity of the
protected data. A breach in credit card numbers, as in the case of the
Heartland Payment Systems processing system in 2008, could result
in lawsuits with payouts well into the millions of dollars.

1.1.1.5 Integrity In the information security realm, integrity normally

refers to data integrity, or ensuring that stored data are accurate and
contain no unauthorized modifications. The National Information
Assurance Glossary (NIAG) defines integrity as follows:
© 2011 by Taylor & Francis Group, LLC
 Cy ber Securit y F un da m en ta l s 5

Quality of an IS (Information System) reflecting the logical correctness

and reliability of the operating system; the logical completeness of the
hardware and software implementing the protection mechanisms; and
the consistency of the data structures and occurrence of the stored data.
Note that, in a formal security mode, integrity is interpreted more nar-
rowly to mean protection against unauthorized modification or destruc-
tion of information.3

This principal, which relies on authentication, authorization, and

nonrepudiation as the keys to maintaining integrity, is preventing
those without authorization from modifying data. By bypassing an
authentication system or escalating privileges beyond those normally
granted to them, an attacker can threaten the integrity of data.
Software flaws and vulnerabilities can lead to accidental losses
in data integrity and can open a system to unauthorized modifica-
tion. Programs typically tightly control when a user has read-to-write
access to particular data, but a software vulnerability might make
it possible to circumvent that control. For example, an attacker can
exploit a Structured Query Language (SQL) injection vulnerability
to extract, alter, or add information to a database.
Disrupting the integrity of data at rest or in a message in transit
can have serious consequences. If it were possible to modify a funds
transfer message passing between a user and his or her online banking
website, an attacker could use that privilege to his or her advantage.
The attacker could hijack the transfer and steal the transferred funds
by altering the account number of the recipient of the funds listed in
the message to the attacker’s own bank account number. Ensuring the
integrity of this type of message is vital to any secure system.

1.1.1.6 Availability Information systems must be accessible to users

for these systems to provide any value. If a system is down or respond-
ing too slowly, it cannot provide the service it should. The NIAG
defines availability as “timely, reliable access to data and information
services for authorized users.”
Attacks on availability are somewhat different from those on integ-
rity and confidentiality. The best-known attack on availability is a
denial of service (DoS) attack. A DoS can come in many forms, but
each form disrupts a system in a way that prevents legitimate users
© 2011 by Taylor & Francis Group, LLC
6 Cy ber Securit y E s sen tia l s

from accessing it. One form of DoS is resource exhaustion, whereby

an attacker overloads a system to the point that it no longer responds
to legitimate requests. The resources in question may be memory,
central processing unit (CPU) time, network bandwidth, and/or any
other component that an attacker can influence. One example of a
DoS attack is network flooding, during which the attacker sends so
much network traffic to the targeted system that the traffic saturates
the network and no legitimate request can get through.
Understanding the components of the CIA triad and the concepts
behind how to protect these principals is important for every security
professional. Each component acts like a pillar that holds up the secu-
rity of a system. If an attacker breaches any of the pillars, the security
of the system will fall. Authentication, authorization, and nonrepu-
diation are tools that system designers can use to maintain these pil-
lars. Understanding how all of these concepts interact with each other
is necessary to use them effectively.

1.1.2 Basic Cryptography

This section provides information on basic cryptography to explain

the history and basics of ciphers and cryptanalysis. Later sections will
explain modern cryptography applied to digital systems.
The English word cryptography derives from Greek and translates
roughly to “hidden writing.” For thousands of years, groups who wanted
to communicate in secret developed methods to write their messages
in a way that only the intended recipient could read. In the information
age, almost all communication is subject to some sort of eavesdropping,
and as a result cryptography has advanced rapidly. Understanding how
cryptography works is important for anyone who wants to be sure that
their data and communications are safe from intruders. This section
discusses cryptography, starting with basic ciphers and cryptanalysis.
The ancient Egyptians began the first known practice of writ-
ing secret messages, using nonstandard hieroglyphs to convey secret
messages as early as 1900 bc. Since that time, people have developed
many methods of hiding the content of a message. These methods are
known as ciphers.
The most famous classical cipher is the substitution cipher.
Substitution ciphers work by substituting each letter in the alphabet
© 2011 by Taylor & Francis Group, LLC
 Cy ber Securit y F un da m en ta l s 7

with another one when writing a message. For instance, one could
shift the letters of the English alphabet as shown:

abcdefghijklmnopqrstuvwxyz
nopqrstuvwxyzabcdefghijklm

Using this cipher, the message “the act starts at midnight” would be
written as “gur npg fgnegf ng zvqavtug.” The text above, showing how
to decode the message, is known as the key. This is a very simple sub-
stitution cipher known as the Caesar cipher (after Julius Caesar, who
used it for military communications) or ROT13 because the charac-
ters in the key are rotated thirteen spaces to the left.
Cryptography is driven by the constant struggle between people
who want to keep messages secret and those who work to uncover
their meanings. Substitution ciphers are very vulnerable to crypta-
nalysis, the practice of breaking codes. With enough text, it would be
simple to begin replacing characters in the ciphertext with their pos-
sible cleartext counterparts. Even without knowing about the Caesar
cipher, it is easy to guess that a three-letter word at the beginning of
a sentence is likely to be the. By replacing all instances of the letters g,
u, and r with t, h, and e, the ciphertext changes to

the npt ftnetf nt zvqavtht

Next, the analyst might notice that the fourth word is only two letters
long and ends with t. There are two likely possibilities for this word: at
and it. He chooses at and replaces all occurrences of n in the sentence
with an a.

the apt ftaetf at zvqavtht

With at in place, the pattern is clearer, and the analyst guesses that if
the letter g translates to t, the adjacent letter f may translate to s.

the apt staets at zvqavtht

The word sta_ts now looks very close to starts, and the analyst makes
another substitution, indicating that rst is equivalent to efg, which
reveals the full pattern of the cipher and the message. While the
message is now clear, the meaning of “the act starts at midnight” is
not. Code words are an excellent way of hiding a message but, unlike
© 2011 by Taylor & Francis Group, LLC
8 Cy ber Securit y E s sen tia l s

LETTER FREQUENCY LETTER FREQUENCY

e 12.70% m 2.41%

t 9.06% w 2.36%

a 8.17% f 2.23%

o 7.51% g 2.02%

i 6.97% y 1.97%

n 6.75% p 1.93%

s 6.33% b 1.49%

h 6.09% v 0.98%

r 5.99% k 0.77%

d 4.25% j 0.15%

l 4.03% x 0.15%

c 2.78% q 0.10%

u 2.76% z 0.07%

Exhibit 1-2 Frequency of letters in the English language.

cryptography, cannot hide the meaning of arbitrary information with-

out agreement on the meaning of the code words in advance.
Short messages can be difficult to decrypt because there is little for
the analyst to study, but long messages encrypted with substitution
ciphers are vulnerable to frequency analysis. For instance, in the English
language, some letters appear in more words than others do. Exhibit
1-2 shows the frequency of each letter in the English language.
E is by far the most common letter in the English language and, as
such, is also the most likely character in an article written in English.
Using the table above, an analyst could determine the most likely
cleartext of any ciphertext encrypted with a substitution cipher. As
shown in the example sentence above, while the ciphertext appears to
be random, patterns remain that betray the original text.
The ultimate goal of any cipher is to produce ciphertext that is
indistinguishable from random data. Removing the patterns inherent
in the original text is crucial to producing ciphertext that is impos-
sible to decode without the original key. In 1917, Gilbert Vernam
© 2011 by Taylor & Francis Group, LLC
Exploring the Variety of Random
Documents with Different Content
trades. Public institutions also, some of them on a great scale, as the
Cooper Union in New York and a more recent munificent foundation
in Philadelphia, have been established on purpose to train boys and
girls both in eye and hand to render skilfully those artisan services of
the various kinds which will always be in demand among men, and
which have certainly deteriorated among us owing in part to the
disuse of the old apprenticeship-system.
In Europe, on the other hand, the laborers as a class are far less
mobile than here; and in Asia still less so. There is said to be no
country in Europe in which the proportion of foreigners to the native
population exceeds three per centum. In England, which is a small
country, the difference in Wages between the northern and southern
counties is very remarkable. Professor Fawcett is authority for the
statement, that an ordinary agricultural laborer in Yorkshire during
the winter months earns 13 shillings a week, while a Wiltshire or
Dorsetshire laborer doing similar work during the same number of
hours earns but 9 shillings. The contrast in general between the
Wages of English agricultural laborers and those paid in mills and
mines and furnaces is still more striking. And so more or less, in
respect to the Value of Commodities: competition is yet by no means
perfect in distributing these so as to make their price uniform in the
same country or even in the same county; but the immobility of
laborers for an obvious reason is much greater than the immobility
of goods. While laborers should certainly be free to go wherever
their services may be in greater Demand, the natural reluctance of
most men to leave their native haunts, enables each of the nations
to work out its freely chosen ends without wholesale interference
from abroad. If China should precipitate itself upon the United
States, or India upon England, as the mere economical impulse
might indicate, it would be disastrous to the western nations; but
men are everywhere under other influences besides the economical
one, although this is strong and distinct and pervasive; Political
Economy deals with men as they are all things considered, and with
Buying and Selling as this actually takes place over the world, or
rather as it would take place if factitious economical restraints were
removed; and Providence has other great ends in view besides
commercial prosperity, vital as that is to all other progress, and often
holds one impulse in check by a stronger one.
(f) Custom, with its cognates Prejudice and Fashion, has still a good
deal to do with the Supply of laborers in certain departments of
effort, and of course with the rates of wages in them. In former
times in this country and in the older countries particularly, Custom
and decree were dominant in determining, for example, the current
fees of lawyers and doctors, competition coming in to decide how
many such fees a professional laborer should get, rather than the
amount of each particular fee. The shares of the produce going
respectively to the agricultural tenant and to the landowner, were
specially under the dominion of Custom; as the mode (now
decadent) of taking farms "at the halves," once universally prevalent
in New England, sufficiently shows. In certain other matters relating
to land and trade, Custom has long been gradually hardening into
express law, as, for instance, the famous "Ulster Right" in Ireland.
Prejudice, which is only another name for Custom, has some voice
still in adjusting rates of wages, as may be seen in women's wages
crowded down apparently to a point unreasonably low as compared
with the wages of men; and also in the rate of John Chinaman's
wages in those parts of the United States where he ventures to offer
his services in the teeth of public opinion and hostile legislation. It
may be spoken with general truth and satisfaction, that competition
seems now to be breaking down mere custom and prejudice in all
directions, and may perhaps in the good time coming reign supreme
over the economic field; while Fashion, which bears indeed on one
side of its shield the motto "custom," carries too on the other the
bold word "competition," and this second side is likely to be
presented to the public mostly in the future, because, they who lead
the styles in any department whatsoever will always offer their
services to Society at an advantage to themselves, that being one
form of competition, and their rate of compensation will be
legitimately higher than the average rate of their fellows, of which a
good instance was the marked worldly prosperity during the decade
of the Eighties of Worth, the man-dressmaker of Paris.
(g) Legal Restrictions are another cause acting on wages, by acting
directly on the Supply of laborers. Laws inhibiting or promoting
immigration; laws appointing the fees and salaries of officials; tariff-
taxes, whether prohibitory or only restrictive; laws creating
privileged classes of any kind, which is only another designation for
laws restricting the rights of the masses; unequal modes of taxation,
whether adopted in ignorance or by design; all have a direct and
powerful agency upon the distribution of laborers, upon the supply
of them at given points, and upon the rates of their wages.
Governments are coming, however, much more freely than formerly,
but never through their natural choice and drift as governments,
only by the gradual and oft-disappointed compulsion of their citizens,
to leave all these matters Economical except the wages of their own
servants and those commodities which they choose to tax, to the
simple and safe action of Supply and Demand.
(h) Voluntary Associations for that avowed purpose were a
mediæval, and have come to be again a modern, agency in
adjusting the Supply of laborers to their respective markets, and in
regulating the wages of various classes of them. The Guilds of the
Middle Ages, and particularly the old guilds of London, had a
remarkable history, upon which we can not here even touch. Their
local importance is sufficiently attested by the fact, that the City Hall
of London is to this day the "Guildhall." King Edward III. humored
the civic feeling of his time by becoming himself a member of the
Guild of Armorers. "A seven years' apprenticeship formed the
necessary prelude to full membership of any trade-guild. Their
regulations were of the minutest character; the quality and value of
work was rigidly prescribed, the hours of toil fixed from daybreak to
curfew, and strict provision made against competition in labor. At
each meeting of these guilds their members gathered round the
Craft-box, which contained the rules of their Society, and stood with
bared heads as it was opened. The warden and a quorum of guild-
brothers formed a court which enforced the ordinances of the guild,
inspected all work done by its members, confiscated unlawful tools
or unworthy goods; and disobedience to their orders was punished
by fines, or in the last resort by expulsion, which involved the loss of
right to trade. A common fund was raised by contributions among
the members, which not only provided for the trade objects of the
guild, but sufficed to found chantries and masses, and set up
painted windows in the church of their patron saint. Even at the
present day the arms of the craft-guild may often be seen blazoned
in cathedrals, side by side with those of prelates and kings."[6]
The Trades-Unions and Brotherhoods of the present day cannot
plead the provocations and justifications of their mediæval
predecessors. It cannot be denied, however, that they have some
provocations and justifications in the bad example set before them
by the various combinations (implied or explicit) of the Wages-
payers as a class. If the Wages-payers combine, then the Wages-
takers would seem to have no resource but in combination. Both
alike are wrong in this. Both alike oppose in this the spirit of Political
Economy, which is ever the spirit of Freedom, and is ever against
such factitious associations for such purposes, because they tend to
destroy the independence of personal action on the part of both
payers and takers of wages, and tend also to bring all the workmen
of any one general grade down to one level of effort and reward.
(i) Lastly, we must note the influence of Casual Events upon wages,
as these events affect the Supply of laborers. For example, in 1348,
a terrible plague, called the Black Death, invaded England and swept
away more than one-half of its population. "Even when the first
burst of panic was over, the sudden rise of wages consequent on the
enormous diminution in the supply of free labor, though
accompanied by a corresponding rise in the price of food, rudely
disturbed the course of industrial employments; harvests rotted on
the ground, and fields were left untilled, not merely from scarcity of
hands, but from the strife which now for the first time revealed itself
between Capital and Labor" (Green). The landowners of the country
districts, and the craftsmen of the towns, not understanding the law
of Wages as an invariable resultant of the Demand and Supply of
laborers, were scandalized by what seemed to them the extravagant
demands of the new labor-class. Parliament equally ignorant with
the People of the natural economic law, enacted as follows: "Every
man or woman of whatsoever condition, free or bond, able in body,
and within the age of threescore years, and not having of his own
whereof he may live, nor land of his own about the tillage of which
he may occupy himself, and not serving any other, shall be bound to
serve the employer who shall require him to do so, and shall take
only the wages which were accustomed to be taken in the
neighborhood where he is bound to serve two years before the
plague began." Afterwards, the runaway laborer was ordered by
Parliamentary enactment to be branded in the forehead by a hot
iron, and the harboring of the country serfs in the towns, in which
under their civic rules a serf keeping himself a year and a day was
thereafter free, was rigorously forbidden. These acts of Parliament,
and many more of the same kind, were powerless to keep down
wages to the old standard, but were powerful to keep up ill-blood
and social discontent. They prepared the way for agitators like John
Ball, for the poet-agitator Piers Ploughman, and for the great
Peasant Revolt of 1381. John Ball's famous rhyme condensed the
scorn for the nobles, the longing for just rule, and the resentment at
oppression, of the peasants of that time and of all times:—

"When Adam delved and Eve span,

Who was then the gentleman?"

A hundred years after the Black Death the wages of a common

English laborer—we have the highest authority for the statement—
commanded twice the amount of the necessaries of life which could
have been obtained for the wages paid under Edward III.
3. Having now seen fully the varied action of Supply and Demand
upon the Value of personal services in their three kinds, we come at
length to the most important general point in this chapter, namely,
that in the second class of Services, those purchased in connection
with the use of Capital, Wages are all the time enlarging relatively to
Profits. We have seen clearly already, that Cost of Labor and Cost of
Capital are the only onerous elements in the cost of Commodities;
because, while Natural Agents are all the time assisting and assisting
more and more effectively in such production, they work without
weariness or decay and without fee or reward. The reward of
laborers is Wages, and the reward of capitalists is Profits; and we
are now to demonstrate, that the part of their joint products falling
to laborers as wages is all the while increasing as compared with the
remaining part falling to capitalists as profits. This truth is of the
deepest significance, and of the most cheering character; because
men are more important in the universe than things; and because
the number of men who sell their services as laborers is vastly
greater than the number of men who sell their services as
capitalists.
It is another indisputable and exhilarating truth for the masses of
mankind, that the Value of each item or article of those products
created by the joint action of laborers and capitalists is ever
becoming less and less as measured by any relatively fixed standard
as Money; so that, while wages as thus measured becomes a larger
and larger aggregate as compared with the aggregate of profits, and
is shared of course by a much larger number of people, those
commodities looked at as a collection of items for which the wages
of these many is usually expended for their own comforts, are
becoming all the time cheaper and cheaper to everybody, owing to
the ever-enlarging and wholly gratuitous action of natural forces.
For the sake of simplicity in the argument on this great point, we will
first look at what the facts are through recent illustrations gathered
by other parties for a wholly different purpose, and then give in
detail the economical grounds for these patent and universal facts.
Take for example, from Poor's Railroad Manual for 1889 a table
showing in a graphic way the steady reduction in freight charges per
ton per mile from 1865 to 1888 of seven representative Eastern
trunk railroad lines, namely, the Pennsylvania, Fort Wayne and
Chicago, New York Central, Michigan Central, Lake Shore, Boston
and Albany, and Lake Erie and Western; and of six leading Western
roads, namely, the Illinois Central, St. Paul, Burlington and Quincy,
Chicago and Northwestern, Rock Island, and Chicago and Alton. The
following are the figures:—
Rate Charges per Ton per Mile (in Cents).

Year. Eastern. Western. Year. Eastern. Western.

1865 2.900 3.642 1877 .971 1.664
1866 2.503 3.459 1878 .898 1.476
1867 2.305 3.175 1879 .764 1.279
1868 2.132 3.151 1880 .869 1.389
1869 1.860 3.026 1881 .763 1.405
1870 1.593 2.423 1882 .756 1.364
1871 1.478 2.509 1883 .829 1.310
1872 1.504 2.324 1884 .740 1.220
1873 1.476 2.188 1885 .636 1.158
1874 1.332 2.160 1886 .711 1.111
1875 1.161 1.979 1887 .718 1.014
1876 .985 1.877 1888 .609 .934

This reduction of rates in the case of the group of Eastern roads has
amounted to 79 per centum, and in the Western group to 73 per
centum, in the twenty-four years. Not less remarkable than the
extent of this decline in freight charges per mile is its uniformity.
Both groups show a wonderful steadiness in the progress of rate
reductions. Starting at quite different points as to territorial
development, they have yet travelled at a nearly equal pace in the
same direction. This shows the operation of causes at once steady
and universal. Statistics can never of themselves yield us causes; but
they guide the way to them; at any rate, they prevent any radical
misinterpretation of them. The great and overshadowing cause here
of the cheaper freights per ton, as everywhere else of cheaper rates
at the junction of efforts by capitalists and laborers, is of course the
perpetual and augmenting and ever-gratuitous assistance of natural
forces at every point.
While the rates of freight per ton have decreased more than three-
quarters in less than one-quarter of a century in the case of these 13
railroads on the whole average, the entire cost of the operation of
these roads in this interval of time has not been diminished to any
appreciable extent, as also stated by the same Manual. The main
item in all the operation-expenses of railroads is the wages paid to
the laborers of all grades; and the laborers are quite as well paid
now on these 13 roads as they were in 1865, proper allowances
being made for the changed and changing standards in the national
Money. If, on a broad view, railroad employees of all grades have
lost nothing as such in their wages in this interval; and the general
public, including these laborers and also the capitalists concerned,
have greatly gained, how can we account for the immensely
lessened freight-charges while the whole operation-expenses
continue substantially as before?
There is only one rational account to be given of this. And it is
trustworthy. All known facts jump with it, and nothing substantial
can be urged against it. The gains to the masses including the
capitalists and the laborers have come out of the capitalists as such.
This is apparent as well as real. Cost of Labor and Cost of Capital is
the whole cost. If the whole cost of moving one ton of freight from
Boston to Chicago is ¾ less than it was ¼ of a century ago, the cost
of the labor being the same at the two points of time, then the
conclusion is inevitable, that the cost of the capital at the second
point is less than it was at the first point. With this conclusion all
facts agree. All the laborers connected with a railroad from highest
to lowest must be paid at any rate, or else the trains will certainly
cease to move, whether the stockholders receive any dividend or not
on their capital invested. The original stock—the capital that built the
roads—of many if not of most the railroads in the country, has been
annihilated, a new indebtedness in another form called bonds having
taken the place of it. Even the nominal dividends of dividend-paying
roads have declined in the interval from 10 or 8 to 5 or 4 per centum
in the general, that is, 50 per centum. It is perfectly evident on
every hand, that there is something in the nature and progress of
things, that makes for wages as contrasted with profits: wages hold
on and relatively enlarge, profits decline or go out altogether.
Fortunately we are not left to generalities here, however plain and
certain these may be. One of the 13 railroads specified above, the
Illinois Central, made a remarkable exhibit in its own annual Report
of 1887, showing the cost of its locomotive service for each year of
the thirty years preceding. This cost per mile run had fallen from
26.52 cents in 1857 to 13.93 cents in 1886. This reduction had been
effected wholly on the Capital side of the account, by inventions and
improvements of all sorts in the machinery of locomotion; while the
wages of the engineers and firemen had risen in the period from
4.51 cents to 5.52 cents per mile run. The cost of the labor had risen
both relatively and absolutely while the cost of the capital had
declined both absolutely and relatively. In 1857 the engineers and
firemen had received as wages 17% of the entire cost of the
locomotive service, but in 1886 they had received 39% of that total
cost. The table is as follows: —
I. C. R. R. CO.
Performance of Locomotives. Relation of Wages to Total Cost per Mile
Run.

Total Total
Cost of wages of Cost of wages of
cost cost
engineers and engineers and
Years. per Years. per
firemen per mile firemen per mile
mile mile
run. run.
run. run.
Cents. Cents. Cents. Cents.
1857 Gold. 4.51 26.22 1872 Currency. 5.77 21.76
 1858 3.97 19.81 1873 5.84 21.10
1859 3.81 20.78 1874 6.02 19.57
1860 3.96 20.17 1875 6.03 19.57

1861 3.84 18.92 1876 5.79 18.81

1862 3.85 17.42 1877 5.54 17.21
1863 3.93 22.28 1878 5.46 15.29

1864 5.56 33.52 1879 5.41 14.15

1865 5.65 37.44 1880 5.41 14.95
1866 5.78 32.67 1881 5.54 16.58
Currency.
1867 6.18 29.62 1882 5.09 15.82
Gold.
1868 6.11 27.57 1883 5.35 15.57
1869 5.88 25.49 1884 5.28 14.45
1870 5.95 25.15 1885 5.49 15.02
1871 5.72 21.50 1886 5.52 13.93

In 1857 the engineers and firemen received 17 201⁄1000 per cent. of

total cost.
In 1865 the engineers and firemen received 15 91⁄1000 per cent. of
total cost.
In 1867 the engineers and firemen received 20 865⁄1000 per cent. of
total cost.
In 1886 the engineers and firemen received 39 627⁄1000 per cent. of
total cost.
These illustrations from the railroads are plainly indicative of a
general truth of the utmost importance in Political Economy, namely,
that all increase of Capital and all inventions and improvements in its
practical application, while it redounds to the benefit of capitalists as
a class, redounds in a still higher degree to the benefit of laborers as
a class. Let us now attend for a moment to the convincing Proof of
this truth in two phases of such proof, and also to a cheering
conclusion that follows it.
(a) As any country grows older in time and richer through
abstinence, and as the whole world thus grows older and richer, the
tendency there and everywhere towards a general decline in the rate
per centum for the use of capital becomes patent and universal. The
rate of interest on money loaned, and the rate of profits on capital
used, tend all the while to go down as and because capital
accumulates. No one will dispute this as a simple fact of history. And
no economist will dispute, that this is just what we might expect
beforehand as a corollary from the admitted proposition, that, other
things being equal, an increased Supply of anything means a
lessened Value for any specific part of it. Three centuries ago in
England the legal rate of interest was 10%, while now the current
rate is about 4% in that country, and has been considerably lower
than that in Holland, although in both countries and everywhere else
there are temporary interruptions and reactions in the constant
tendency now being considered. During the first years of mining
operations in California, from 8% to 15% per month with security of
real estate was paid for the use of money, which enormous rates
long ago declined to rates not much higher than those paid in the
States along the Mississippi River, and in these also the rates are all
the while approximating those current in the older Eastern States,
whose own rates too are slowly declining. But, while there is a less
rate of profit or interest on each 100 invested, there are many more
hundreds capitalized; consequently, there is an absolute gain to
capitalists as a class, at once in the aggregate amount of the capital
and in the aggregate sum of the profits from it, since no capitalist
would have a motive to capitalize further under the smaller rates of
profit, unless the aggregate of profits under the new conditions were
greater than under the old condition of higher rates; and, as much
of this accumulating capital in order to become productive must now
be offered to laborers in the form of wages, we might almost
pronounce beforehand, that it would prove both an absolute and
also a relative gain to laborers as a class. And so it is.
(b) Let us take to figures. An hypothesis or supposed case,
whenever it may easily become an overt fact, may be reasoned from
just as logically and securely as the overt fact itself. Let
$100,000,000, while the rate of profit is 6%, and $500,000,000,
when the rate has fallen to 4%, be expended in payment of simple
wages. So far forth as that one element of cost goes, the value of
the products to be divided yearly between capitalists and laborers
will become respectively $106,000,000 and $520,000,000. In the
first case, $6,000,000 is profits and $100,000,000 is wages; in the
second case, $20,000,000 is profits and $500,000,000 is wages.
Here is an absolute gain to the capitalists, since profits have gone up
from $6,000,000 to $20,000,000, and so are more than three times
as great as before. But wages have gone up both absolutely and
relatively to the rise of profits. They have risen from $100,000,000
to $500,000,000, and are five times as great as before. Profits have
risen as in the ratio 1:3+, but wages in the ratio of 1:5. This
arithmetical example is put for the sake of illustration merely, but the
principle of it holds good in every case, in which the rate per centum
goes down in consequence of the increase of capital in business;
and, therefore, the advantages of ever-enlarging Capital are even
greater to laborers as a class than to the capitalists themselves.
Most assuredly, if the capitalists take less out of each hundred of the
swelling hundreds now than before, the laborers must take more out
of each hundred than before. Profits and Wages are reciprocally the
leavings of each other, because the aggregate products created by
the joint agency of Capitalist and Laborer are wholly to be divided
between the two. There can be no other claimant even.
(c) This demonstration is extremely important in Political Economy,
and consequently in Social Life; for it proves beyond the possibility
of a cavil, the Value of personal services tends constantly to rise, not
only as compared with the Value of the material commodities which
by the aid of capital they help to create (a truth we have seen
before), but also as compared with the Value of the use of its co-
partner capital itself; and therefore, that there is inwrought into the
very substance of things in this world a tendency towards an
equality of economical condition among men. God has ordered it,
and men cannot radically alter it. Self-interest is indeed the
mainspring of movement in the economic world; but the beauty of it
and the wonder of it is, that no man can labor intelligently and
productively under the influence of self-interest without at the same
time benefiting the masses of men. His fair exchanges benefit the
parties of the other part as much as they benefit himself. His very
savings productively employed are poor men's livings. Only under
the blessed freedom of universal Buying and Selling, subject only to
the taxation of a good Government for public purposes purely, can
these broad benefits designed by a wise Providence be fully realized
in action; and the power of individual greed and corporate privilege
and governmental perversion to thwart the beneficent though
complicated workings of these laws of Capital and Labor towards the
common weal and universal progress of mankind is shortlived and
soon punished.
4. How comes it about, then, if these laws of mutual inter-
dependence between capitalists and laborers are so well-placed and
Providentially balanced, that there always have been and are still so
many misunderstandings and ill-feelings and actual collisions
between employers and skilled laborers, whose interests are at
bottom one and whose relations ought to be so cordial? This is the
last topic in our Chapter on Personal Services. Here we must look
around narrowly and tread carefully. But there is a path. We can find
it if we will. It leads through many short-comings in men's characters
and through much ignorance of plain economical truths and past
unreasoning jealousies and aggregated action on the part of both
classes, and over the needful distinctions between impulsive
selfishness and a true self-interest back to the same old laws of God
laid down at once in the constitution of things and in the constitution
of men.
Labor-troubles are almost as old as Civilization. The Greek poet
Euripides in his play of the "Supplicants" both indicates facts as they
were then, and points out a future hope in which we may share, that
these middle classes by a better harmony preordained and mutually
beneficial may yet "save the State":—

"In each State

Are marked three classes: of the public good
The rich are listless, all their thoughts to more
Aspiring; they that struggle with their wants,
Short of the means of life, are clamorous, rude,
To envy much addicted, 'gainst the rich
Aiming their bitter shafts, and led away
By the false glosses of their wily leaders.
'Twixt these extremes there are who save the State,
Guardians of order, and their country's laws."

At Rome and in the Roman Empire, instead of the usual voluntary

union of capitalists and laborers for the mutual advantage of each
other, the laborer was owned by the capitalist, and the true relations
between the two were thoroughly disguised and wretchedly
distorted. Business in all its branches came to be carried on by
means of slaves; the lands were tilled by slaves; slaves became the
artisans of the country; the money-lenders and bankers of the
centre scattered branch-banks in the towns under the direction of
their slaves and freedmen; the Company that leased on speculation
the Customs-Taxes from the State had their slaves and freedmen
levy these taxes at each custom-house; the contractor for buildings
bought architect-slaves; and the merchant imported his goods in
ships of his own manned by his slaves or freedmen, and then sold
the same at wholesale or retail by the same means. In this way a
gigantic system of unnatural traffic was built up and extended. In
this way the very name "laborer" became tainted by the vile system
of slavery of which he was a part, and the distinction itself between
capitalist and laborer was obliterated. "Roman mercantile
transactions fully kept pace with the contemporary development of
political power, and were no less grand of their kind." "The Roman
denarius followed up closely the Roman legions." "It is very possible
that, compared with the suffering of the Roman slaves, the sum of
all negro suffering is but a drop" (Mommsen).
We want now to examine critically the causes of these constantly
recurring labor-troubles, the true economical Remedies for them, and
in connection with these the futility of the remedies popularly
recommended for low Wages and the disputes between employers
and employed of the second class.
(1) There is an extremely common misapprehension on the part of
both labor-givers and labor-takers as to the real nature of the
transaction between them. Both parties forget, or rather neither
party is ever fully instructed, that it is a case of pure Buying and
Selling. There is never any obligation of the moral sort between
buyers and sellers. The relation itself is purely economical. Moral
considerations indeed cover this relation from above, just as they
cover all other relations between man and man in human Society;
and any two individuals standing over against one another as buyer
and seller, also stand over against each other in higher and broader
relations as man and man; but it works confusion and mischief as
between both, whenever relations differing in their nature and
operation and reward are not separated from each other in the mind
of each relator, and whenever each does not act in the particular
relation according to the nature and rules of that relation alone.
When A hires B to work in his factory, this new relation is economical
not moral; there were moral relations between the two before this
relation was knit, and will be again after this has been broken, and
indeed are while this continues; but the economical relation is one
thing, and the others a very different thing; they are so different,
that they cannot be blended in mind or motive to any advantage to
either individual or to either set of relations; and any degree of
confusion as between the relations has always wrought mischief as
between the individuals, because instead of seeing either set of
relations in its own clear light, they now see both in a commingled
twilight.
What is the economical relation? This. A desires the personal service
of B in his factory purely for his pecuniary benefit, and assumes his
own ability to make all the calculations requisite for determining how
much he can (profitably to himself) offer B for his service; and B,
who knows all about his own skill, how it was acquired and how
much it has cost, wants to sell his service to A for the sake of the
pecuniary return or wages. There is no obligation resting upon
either. Man to man, each in his own right. There is no benevolence
in the heart of either, so far as this matter goes. Benevolence is now
an impertinence. It is a question of honest gain in broad daylight.
Benevolence is blessed in its own sphere, but there is no call for it
here and now. If it comes in an unbidden guest, it comes in to mar
and to distort. It is an incongruity. "I never knew a Jew converted
but it spoilt him," was the word of one deeply versed in human
nature and in Christian experience. Conversion is good, and its field
is broad; but the Jew as such is incongruous with it. Good is
benevolence and wide its field, but Buying and Selling does not need
it. Its own motives are independent of it, and sufficient without it.
A clouded understanding of this vital distinction has always played its
part in Labor-troubles. Buyers and Sellers of personal services are
always on a plane of perfect equality as such exchangers, and no
one can be more independent than either of them except the hermit
in his cell. Which must look out for the interest of the other beyond
the terms implied in the trade itself? Which is the superior party?
Which should take off his hat, the other remaining covered? The
truth is, and all experience and all analysis brings us up abreast of it,
that the two parties to a trade of any kind stand on a footing of
absolute equality towards each other then and there in the
economical relation about to be knit, and any conception in the mind
of either that he has the other "at his mercy" in either the good or
bad sense of that phrase, disturbs and destroys the proper
conditions and balances of the exchange in hand; and, what is more
to the point, it implies that each party has not all he can do to fulfil
in the letter and in the spirit what is always implied in the terms of a
trade deliberately entered upon by two parties. When B agrees to
work for A at skilled labor in his factory for a year at $15 per week,
he makes a good deal of a contract; and virtually pledges to A not
only the motions of his hands for that period of time, but also the
vigorous attention of his mind to that service and to the general
interests of his employer so far as these come under his own eye
and supervision. Nor is this all: he virtually pledges himself to B to
coöperate with the least possible friction in all plans for betterment
in his division of the work, and to cordially coalesce with all other
employees for the general ends of the business without too much of
self-assertion and without too little of courtesy to others. To fulfil this
contract in all its spirit rounds up the circle of B's economical
obligations to A. He will practically have all he can do, so far as A is
concerned, and in consistency with all his various duties to others, to
make good to him at all points his simple business pledges.
Benevolence, the interests of a common citizenship, and the
reciprocal ties of religion, lie wholly outside.
A will practically have all he can do, so far as B is concerned, to fulfil
in the letter and in the spirit his economical obligations to him,
without troubling himself to see whether B is going to vote the same
party ticket that he himself votes, and without confounding either B's
poverty or prosperity with his own obligation to be polite to him at
all times and to pay him promptly his weekly stipend. So long as B
renders in letter and in spirit what he has agreed to render, and A
returns in the same way what he has promised to return, the less
either thinks and talks and acts about the other in all the other
relations of life, the better hope of good success to both in this
relation. Church relations and social relations and political relations
are all of consequence in themselves; but when any of these begin
to get mixed up with labor-relations, there is soon a muss and a
mess. Incongruous things, things no way vitally connected with that,
often come in to disturb and destroy a simple matter of mutual
renderings.
(a) The first practical remedy for difficulties arising under this first
head, is a clearer separation in the mind of both parties to a trade of
what really belongs to Buying and Selling from what belongs to all
other departments of activity. More common sense is needed at this
point, more simple analysis, more daylight, more personal
independence, more introspection as to motives, more power in
making distinctions, and a more practical separation of what is clear
and fixed from what is complex and obscure in human relations.
Metaphysics may yet lie in cloud-land, Ethics may not yet have
drawn its outer and interior lines so strong and deep as it will,
Sociology also is a vast field of complexities, but truth to tell
Economics has no mysteries to speak of. I buy and sell for my own
advantage, which proves in the nature of things to be for the equal
advantage of my compeer. It is my business and my compeer's
business and every other man's business who buys and sells, to pick
that action out in its motive and result from the great mass of
dubious actions, and to set it up in its own light, to rejoice in it as
the clearest thing in social action, to claim it as God's own plan so
far forth for our comfort and progress, and then to see to it that no
preposterous hand mixes it up with perplexities or theologies or
other abominations—muddying with a tentative pole the stream of
our clear brook! In this country at least, in its ignorance of common
things and common science, the pulpit often fulminates against the
gains of exchange as "materialism," and mixes up buying and selling
with "worldliness," and only half permits its deluded hearers the
privileges of the market, and illustrates again in modern times such
teaching as is denounced to St. Timothy,—"some swerving turned
aside to vain babbling, desiring to be teachers of the Law,
understanding neither what they say, nor whereof they affirm." "Let
every shoemaker stick to his last." Those who have looked into it
with any care have found, that Exchange in all its natural outgoings
is not answerable to these pulpit charges, nor is contrary to the
letter or spirit of the biblical precepts, but on the other hand is in full
harmony with the claims of Conscience and with all the inbreathings
and aspirations of Christianity.
(b) The second practical remedy for the labor-difficulties arising from
the want of thorough understanding by both parties of the real
nature of hired renderings of the second class, is fair common
honesty. More of an easily accessible intelligence, more of
penetration and separation as to social relations in general, meets
the first point; but quite as needful as this simple intellectual
process, is the still simpler moral habit of doing just what one has
agreed to do, without evasions and without diminutions. Labor
difficulties take their origin more often, perhaps, in some clouded
moral action of one of the parties, than in a clouded mental
apprehension. Men are too conscious as men of their own
temptations, to be lax in their pledged renderings and of their own
shortcomings at this point, not to be suspicious of each other as
buyers and sellers, for fear the party of the other part is about to
withdraw something either in quantity or quality of what he has
promised to render; there is almost always something or other to
give color to such a suspicion, and it grows by what it feeds on;
frank explanations are not had at the outset, and a good
understanding is not come to, as it doubtless might be in nine cases
out of ten; and the little cloud, at first no bigger than a man's hand,
by and by becomes black and threatening, and bursts at last in a
strike or lock-out of large proportions. An open honesty that is such
and seems such, that is not beyond the aim and reach of common
men, that is taught in scores of forms in "Poor Richard's Almanack,"
and that each man ever likes to meet with and so ought ever to put
forth, is in fact a preventive of conflicts between laborers and
employers, and would if properly manifested have prevented
multitudes of such actual conflicts. Here is the main, almost the sole,
point of contact between strict Ethics and the Economics. What
buyers and sellers, that is to say, the whole practical world, needs, is
not disquisitions on Morals from Press or Pulpit, but an inner ear to
hear the true click of Conscience, and the quick and open answer in
honest action.
(2) A second general cause of the Labor-troubles of the past and
present has been a strong tendency to neglect the special
preparation for their peculiar functions by both capitalists and
laborers. A successful employer of laborers year in and year out to
their advantage and his own is always one who has been trained to
that function by special preparations. He is a living man with all the
limitations of living men: he has to deal with many living men with
all their imperfections: he has to deal also, and constantly, with what
is in its own nature dead, namely, Capital, always either a
commodity or a claim: to animate and invigorate these dead forms
of value, to put them into vital connection with living men who shall
enhance their value, and thus to become a leader to living men as
towards swelling interests, demands unusual native gifts and a
special long-continued training. When one looks from without upon
such an establishment as this in full action, it seems automatic, it
seems as if almost anybody with a clear head could continue to
direct it; and when this "captain of industry" departs this life,
perhaps his son or some previous subordinate, without the proper
gifts and at least without the peculiar training, assumes the post of
direction. For a little everything seems to go on as before. As sure as
fate, however, a friction will soon develop here, and a
misunderstanding there, there will be whisperings among the men,
some breath of suspicion will be likely to cloud the borrowing-power,
opening difficulties of any kind such as loss of credit or a weakening
of the usual markets are apt to throw a new operator more or less
off his base, and gathering labor-troubles of any sort commonly find
such a man unprepared for lack of suitable training and experience
to ward them off or to make timely concessions to the men or to
minimize the evil results when these become inevitable.
Also labor-troubles are quite as likely to arise from the want of
character and training and considerateness of the employees
towards the capitalists. The relations are reciprocal and they are also
in their very nature delicate. One poor workman however good his
disposition, one unfaithful overseer no matter how great his possible
skill, may mar the current product in such a way as to lose it the
market and cost the establishment the present profit. The strength
of a chain is the strength of its weakest link. It is a matter of
immense difficulty at any time, and emphatically so at the present
time to organize a working force in factory from top to bottom so as
to have it go forward as a unit as towards the marketing of the
product, without bad workmanship at some point and unskilful
supervision at another; because the laborers as a rule have not
given themselves time to learn thoroughly their special parts,
because they are not content to remain steady at one thing and at
one place, and because they do not practically recognize even if they
perceive it that their own permanent interests are exactly coincident
with the permanent interests of their employers. Just now in this
country the public Law robs the manufacturers (at their own behest)
of their best markets at home and abroad, makes it difficult or
impossible for them through wanton taxation of their raw materials
to create a good quality of goods for any market, and so multiplies
frictions and failures and losses along the whole line of production.
The lack of what may be called Apprenticeship on the part of skilled
laborers, the consequent difficulty of rising from one gradation of
effort to a higher and better-paid one, the restlessness of native
laborers under such disabilities, the rapid admixture of foreigners,
the lack of coherence throughout in point of intelligence and
apparent identity of interests, together with the instability and
haphazardness of the resources and personal training of the
employers as a class, gives birth to Labor-troubles which are at the
same time Capital-troubles, to read the daily record of which makes
one sick at heart.
(a) The only possible and practicable remedy for this state of things,
so far as the employers are concerned, is in a more conservative
attitude of capitalists as a class about passing over their resources to
the hands of men who have not proven their ability to handle them
wisely by a full course of training in the management of practical
affairs. By a wretched policy in this country at present Capital is
prohibited from building and from buying ships, with which to
navigate the oceans; from selling domestic manufactures in foreign
markets; and also from a profitable agriculture, which may sell its
products abroad and take its pay back. Consequently Capital, eager
in its own nature to be invested to a profit somehow somewhere,
has rushed without due circumspection into the hands of domestic
operators, who have not been half fitted for their task, who have
knitted relations with laborers without being able to secure their
permanent respect or to control their services, and who have lost to
their owners in multitudes of cases the entire capital intrusted to
them. If capitalists had had during the last quarter of a century one-
half of their natural and proper chance to invest their money to a
profit, there would not have been such a reckless investment
through incompetent hands in building mills and foundries in this
interval of time, and such wholesale losses in connection with them.
When capital comes to be at liberty to turn right or left according to
its own will in view of a prospective profit, factory companies and
projectors cannot draw resources from the public for their
operations, without demonstrating to the owners the trained and
tried capacity of the practical operators, who will buy the materials
and hire the laborers and market the products.
(b) The practical remedy for the inexperience and instability and
unskilfulness of laborers as tending towards labor-troubles of all
kinds and degrees, is only to be found in a want of market for such
services. In a natural and wholesome state of things, such as would
exist in the United States were it not for national laws tampering
with Trade and with Money, the questions asked an applicant for
skilled work by any labor-taker would be, "What have you learned to
do? How long and for what pay do you want to do it? What do you
want to reach next, when the present job is done?" When
employment turns on good answers to such questions as these, and
when the questions themselves are put in good faith, there will be
an end of Strikes and Lockouts. Untrained and restless hands will get
nothing to do in mills and factories. Apprenticeship in its various
forms will come back into vogue, and will probably be made a part
of the course in public schools. The division and gradation of
laborers will be carried out further than it ever yet has been.
Laborers will then be organized in the best sense of that word, and
to the best advantage of capitalists. The permanent Supply of skilled
laborers will be constantly adjusting itself to a permanent and
increasing Demand for them. And it requires no millennium for such
a state of things to come in. It requires nothing but an ordinary and
enlightened and beneficent selfishness on the part of capitalists to
adjust itself to the ordinary selfishness of laborers sure to become
enlightened and beneficent to the best and ever-growing interests of
both parties. This is not the spoken word of Morality, still less is it
the divine word of Religion, it is only the common programme of a
common-sense Political Economy.
(3) The third and last general cause of misunderstandings and
embittered disputes as between laborers and capitalists is partly
economical and partly moral, and consequently the remedy for it is
partly moral and partly economical. The Past projects itself down
into the Present partly with blessings and partly with curses. In the
old times under Slavery and Feudalism the laborer always came
forward to his task with a taint upon him. Sometimes the taint
attached to his birth, and at all times it attached to his calling.
Slavery in all its forms always makes manual labor degrading. The
courtly Cicero apologizes in a letter to his friend for his open sorrow
over the death of his favorite slave; and in several passages of his
treatise on Morals he follows his Greek teachers, Plato and Aristotle,
and declaims in a pitiful way against the noble rights of laborers. "All
artisans are engaged in a degrading profession." Again, "there can
be nothing ingenuous in a workshop." When trade and commerce
are carried on on a small scale, "they are to be regarded as
disgraceful"; when on a large scale, "they must not be greatly
condemned—non admodum vituperanda!" (I, 42.)
Serfdom once existed in England, and threw its shade over free
laborers there long after itself had disappeared. A class of indented
servants pervaded all the New England Colonies, and a clause of the
New England Confederation of 1643 provided for their forced
rendition from Colony to Colony, and passed over almost verbally
into the Constitution of the United States of 1787 as applicable to
the slaves of the South. In this way in all parts of this country
manual laborers came to be more or less off color, and this has
continued in a continually lessened degree till this time. When those
who work with their hands are looked down upon by those who do
not, two sets of feelings are apt to be engendered equally
unfortunate to the two classes that entertain them. The non-manual
workers, the employers, are more or less puffed up with pride and a
sense of superiority (there are beautiful exceptions) as towards their
laborers, and the latter in their turn are apt to develop alongside an
unmanly servility and an apparent deference, a sort of secret
breasting up of hostility and defiance, which is sure to manifest itself
when labor troubles come on even when it has not helped to brood
these troubles into life. The parties then are not well placed as
towards each other to negotiate and to compromise and to coalesce
in a future harmony. The party of the first part is too proud to yield
to their inferiors, and the party of the second part is too bitter to be
sweetened. Who is sufficient for these things? And what is the
remedy for them?
(a) So far as employers are concerned, their natural though
unreasonable and provoking arrogance may well be reduced by the
economical reflection, that the laborers are exactly as necessary to
production as the capitalists are, that the two stand on a precise
level so far as the product goes, that each is one blade of the shears
and the other the other and that it takes both blades to cut
anything, that while the laborers are sellers in the open market the
capitalists are likewise sellers and that the same ultimate purchaser
furnishes the market for both sets of sellers, that as sellers they are
only equal in position, that buying and selling is a levelling as well as
an uplifting process the world over, and that as such co-equal
partners in one indivisible operation all haughtiness on one side and
all undue humility on the other is nothing but obstacle as towards
the common end; and also by the moral and social reflection, that
their laborers are just such men as themselves in motive and action,
that the two are very likely to exchange places with each other
before very long, that riches are extremely liable to take to
themselves wings and fly away, that Christianity is no respecter of
persons, that humanity deems nothing human alien from itself, that
morality puts the golden rule upon the fore-front of its precepts, and
that whatever may unite any body of men in a legitimate purpose of
achievement along any line of human action multiplies the power of
each individual and exalts his standing and responsibility as such
individual and thus reduplicates the reward of his individual action.
(b) So far as the employees are concerned, in any temporary sense
of dependence or even of injustice, there is open to them the
economical reflection (and it will do them good to bring it home)
that their best route to the respect and favor and feeling of equality
of their employers is through the excellence of the service they
render them and the courtesy (not servility) with which they render
it, that as every capitalist becomes such by means of abstinence
they may themselves by saving become capitalists, that there is
nothing in the nature of their work or its relations to capital to cause
them to hang down their heads, that handsome is that handsome
does, that the opportune offer of the present capital to work on
gives them a chance to exhibit their skill and to earn a living, that
the capitalists are just as dependent on them as they upon those,
and that as single sellers of a valuable personal service they daily
confront on a footing of equality the sellers of a valuable product so
created; and there is open to them also the moral and social
reflection fortified by constant observation and experience, that no
matter where a man begins it is the end that crowns his work, that
life to all is a series of stepping-stones, that manly qualities are
appreciated everywhere, that character tells in the lowest position
however high and low are reckoned, that the poor gain and hold
friends quite as well as the rich, that there was a certain poor wise
man that saved the city by his wisdom and gained a lasting record in
consequence, that the poor and the rich are constantly changing
places in this world, and that there is no respect of persons with
God.
We may see now what we are to think of some popular remedies
constantly recommended for low Wages. A brief discussion of what
is false will give us a stronger hold of what is true. The chapter will
close with relevant reference to three current remedies.
1. It is being dinned into the ears of the present generation, that
Government has large functions in the ongoings of business, that it
ought sometimes to interfere to better the rate of Wages, at least to
designate a minimum below which they shall not go, and that
Government should hold itself ready to undertake directly to carry on
certain branches of business under certain circumstances. This
scheme goes under the high-sounding name of Nationalism. Richard
T. Ely, Professor of Political Economy in Johns Hopkins University, is
one of the most prominent representatives at present of this school
of thought. In his Introduction to Political Economy just published
(1889), he lays down this principle: "When for any class of business
it becomes necessary to abandon the principle of freedom in the
establishment of enterprises, this business should be entirely turned
over to Government, either local, state, or federal, according to the
nature of the undertaking." He begins his book by attempting to
hammer in the "lesson" that as Civilization improves, coöperation
takes the place of individualism. The golden age of individualism, he
says, is among the wild tribes of Australia. They never coöperate
with each other in their economic efforts, or in anything else. No one
expects anything from his neighbor, and every one does unto others
as he thinks they would do to him. The life there is one prolonged
scene of selfishness and fear. But as civilization comes in, he says,
individualism goes out, and coöperation takes its place. The fine old
Bentham principle of laissez faire, which most English thinkers for a
century past have regarded as established forever in the nature of
man and in God's plans of providence and government, is gently
tossed by Dr. Ely into the wilds of Australian barbarism.
There are some propositions that are certainly true, and one of them
is, that no man can write like that, who ever analyzed into their
elements either Economics or Politics, who ever gained a clear
conception of the sphere of either science in its relation to the other,
or who ever saw distinctly the relations of either to the nature of
Man. The sole motive in Buying and Selling is the gain of the
individual, each for and by himself. That always was the motive, is
now, and always will be. No complications of modern business, no
complexities of credit, no combinations of capitalists or laborers,
ever altered or ever can alter one particle the motives of men in
buying and selling. In a natural and progressive state of things,
Individualism, instead of going out, comes more and more into play,
through the Division of Labor and the falling of all sorts of services
more and more into specialties. To talk glibly, as Professor Ely does,
about Government taking up easily and carrying on in a better way
and to better ends branches of pure business as they are dropped or
forced from the hands of Individuals, is ignorance at once and alike
of the real nature of Government and of Business. Let us look at a
few of the native incongruities and logical fallacies of this
nationalistic position.
(1) What is human Government? Is there anything substantive and
continuous in its personnel and purposes, as there is in the
government of God? Is government anything more, can it be
anything more, than a transient Committee of the citizens charged
and changed to do in certain few particulars the changing will of a
Majority? Government is indeed a necessity, as men are, to restrain
the lawless, and to shape the ends of the law-abiding; but it has to
be administered, if at all, by precisely the same kind of men as the
rest are, chosen for brief periods, their duties sharply prescribed by
constitution or custom, and impeachments or other punishments
provided for them when they transgress. One President of the
United States and one Judge of its Supreme Court have already
been solemnly impeached by the sovereign people themselves.
Government, then, is an Agent, and nothing more. Even nationalists
will not contend for the divine right of kings. And the duties of every
decent government on earth are political in their character. The
agents are chosen and dismissed with a direct reference to that kind
of action. Politics has a sphere wholly distinct from Economics. The
true and only end of politics is the greatest good of the greatest
number, so far as that end can be mediated by governmental agents
of the people. Individualism as such does indeed sink out of sight
under a true Politics, and the inalienable rights of one are
maintained for the sake of and in consistency with the greater rights
of all. But Economics is all individuals from beginning to end. "It
takes two to make a bargain." Only two. Each of the two has his
own motive, estimates for himself, gives and takes for himself, and
enjoys alone his own gain. All this is involved in the very idea of
Property, which is derived from proprius, and which means one's
own. How illogical, then, and incongruous, to suppose, that a set of
limited human agents briefly trained to purely political action, and
liable to be turned out of office by every change in party
administration, can be competent at the same time and in addition
to perform economical functions for the people!
Notice, too, that governmental agents in all good countries are
already overburdened with their mere political duties. Work is
behindhand in every portfolio, on every court calendar, and in every
legislative body, in Christendom. How absurd it is, therefore, to talk
about throwing upon shoulders, already overburdened, additional
loads of a different kind, for which shoulders and heads are wholly
unfitted!
Why not, then, inquires our nationalist innovator, organize new
bureaus to undertake in their behalf the buying and selling of the
people? Ah! Who pays the taxes needful for the support of the
present political bureaus? And who would have to pay the taxes
needful for the support of the new economical bureaus? Besides not
having any substantive existence of its own Government has not one
cent of money, except what the people voluntarily pay in taxes out
of their own personal gains, in order to maintain their own agents to
do certain political things for them, which they cannot do as well for
themselves directly; and when it comes to the cold question for the
people themselves to answer, whether they will organize a new set
of hired men to do their trading for them, and pay them for doing
this out of aggregate gains certainly to be vastly diminished by the
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