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Introduction to
Econophysics
 Introduction to
Econophysics
Contemporary Approaches with
Python Simulations

Carlo Requião da Cunha

First edition published 2022
by CRC Press
6000 Broken Sound Parkway NW, Suite 300, Boca Raton, FL 33487-2742

and by CRC Press

2 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN

© 2022 Carlo Requião da Cunha

CRC Press is an imprint of Taylor & Francis Group, LLC

Reasonable efforts have been made to publish reliable data and information, but the author and pub-
lisher cannot assume responsibility for the validity of all materials or the consequences of their use.
The authors and publishers have attempted to trace the copyright holders of all material reproduced
in this publication and apologize to copyright holders if permission to publish in this form has not
been obtained. If any copyright material has not been acknowledged please write and let us know so
we may rectify in any future reprint.

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hereafter invented, including photocopying, microfilming, and recording, or in any information stor-
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Trademark notice: Product or corporate names may be trademarks or registered trademarks and are
used only for identification and explanation without intent to infringe.

Library of Congress Cataloging-in-Publication Data

Names: Requião da Cunha, Carlo, author.

Title: Introduction to econophysics : contemporary approaches with Python
simulations / Carlo Requião da Cunha.
Description: 1st edition. | Boca Raton, FL : CRC Press, [2022] | Includes
bibliographical references and index.
Identifiers: LCCN 2021020191 | ISBN 9780367648459 (hardback) | ISBN
9780367651282 (paperback) | ISBN 9781003127956 (ebook)
Subjects: LCSH: Econophysics. | Economics--Statistical methods. | Python
(Computer program language)
Classification: LCC HB137 .R47 2022 | DDC 330.01/5195--dc23
LC record available at https://lccn.loc.gov/2021020191

ISBN: 978-0-367-64845-9 (hbk)

ISBN: 978-0-367-65128-2 (pbk)
ISBN: 978-1-003-12795-6 (ebk)

DOI: 10.1201/9781003127956

Typeset in Nimbus font

by KnowledgeWorks Global Ltd.

http://www.filosofisica.com/books/econophysics.html
 Dedication

for Marco, Mônica, Ingrid, Sofia, and Arthur

Contents

Preface.......................................................................................................................xi

Chapter 1 Review of Economics ......................................................................1

1.1 Supply and demand.................................................................2
1.2 Efficient market hypothesis ....................................................6
1.3 Stocks and derivatives.............................................................6
1.3.1 Options.......................................................................8
1.3.1.1 Strategies with Options.............................. 8

Chapter 2 Asset Return Statistics................................................................... 13

2.1 Return rates........................................................................... 13
2.2 Probability theory ................................................................. 16
2.2.1 Probability Measure ................................................. 17
2.2.1.1 Conditional Probability ...........................17
2.2.2 σ -Algebra ................................................................18
2.2.3 Random Variables .................................................... 19
2.2.3.1 Conditional Expectation .......................... 20
2.2.4 Distribution Functions ............................................. 21
2.2.4.1 Moments of a Distribution....................... 23
2.2.5 Lévy Processes......................................................... 24
2.2.5.1 Infinitely Divisible Processes ..................25
2.2.5.2 Stable Distributions .................................25
2.2.6 Distribution Tails...................................................... 27
2.2.6.1 Subexponential Distributions ..................29
2.2.6.2 Long and Fat Tails ...................................30
2.2.7 Pareto Distribution ...................................................31
2.2.7.1 Lorenz Curve ...........................................34
2.2.7.2 Gini Index ................................................ 35
2.3 Models for financial time series............................................ 37
2.3.1 Autoregressive Model (AR)..................................... 37
2.3.2 Moving Average (MA)............................................. 40
2.3.3 Autoregressive Moving Average (ARMA) ..............42
2.3.4 Box-Jenkins Approach.............................................44
2.3.4.1 Partial Autocorrelation ............................45
2.3.4.2 Durbin-Levinson Recursive Method ....... 47
2.3.4.3 Yule-Walker Equations ............................48
2.3.5 Heteroscedasticity ....................................................49
2.3.5.1 Generalized ARCH Model ...................... 50

vii
viii Contents

2.4 Stylized empirical facts of financial time series ................... 52

2.4.1 Stationarity............................................................... 53
2.4.1.1 Fourier Transform.................................... 55
2.4.2 Common empirical facts .......................................... 57

Chapter 3 Stochastic Calculus........................................................................ 61

3.1 Martingales and fair games................................................... 61
3.1.1 Random Walks ......................................................... 64
3.1.2 Pólya Processes........................................................ 65
3.1.3 Stopping Times ........................................................ 67
3.1.4 Wald’s Equation ....................................................... 69
3.1.5 Galton-Watson Process ............................................ 71
3.1.5.1 Extinction ................................................ 72
3.1.6 Azuma-Hoeffding Theorem..................................... 74
3.2 Markov chains....................................................................... 77
3.2.1 Transition Function .................................................. 78
3.2.2 Stationary Distribution............................................. 79
3.2.2.1 Detailed Balance...................................... 81
3.2.3 First Passage Time ................................................... 83
3.2.4 Birth-and-Death Process .......................................... 85
3.2.4.1 Pure Birth Process ................................... 86
3.2.4.2 Yule-Furry Process .................................. 87
3.2.4.3 Pure Death Process .................................. 88
3.2.4.4 Linear Birth and Death Process............... 89
3.3 Ornstein-Uhlenbeck processes.............................................. 90
3.3.1 Langevin Equation ................................................... 90
3.3.1.1 Solution.................................................... 92
3.3.1.2 Dissipation-Fluctuation Theorem............ 94
3.3.2 Limited OU Process................................................. 94
3.4 Point processes...................................................................... 95
3.4.1 Hawkes Process ....................................................... 97
3.4.1.1 Solution.................................................... 98

Chapter 4 Options Pricing............................................................................ 101

4.1 From a random walk to a Wiener process .......................... 101
4.2 Binomial trees..................................................................... 103
4.2.1 Cox-Ross-Rubinstein Model.................................. 106
4.3 Black-Scholes-Merton model ............................................. 108
4.3.1 Diffusion-Advection .............................................. 110
4.3.2 Solution .................................................................. 111
Contents ix

Chapter 5 Portfolio Theory .......................................................................... 117

5.1 Markowitz model................................................................ 117
5.1.1 Risk Estimation...................................................... 119
5.1.2 Risk-free Asset....................................................... 123
5.1.2.1 Market Portfolio .................................... 124
5.1.3 Tobin’s Separation Theorem .................................. 124
5.1.3.1 CAPM.................................................... 127
5.2 Random matrix theory ........................................................ 127
5.2.1 Density of Eigenvalues .......................................... 129
5.2.2 Wigner’s Semi-Circle Law.....................................130
5.2.3 Marčenko-Pastur Law ............................................ 133
5.2.3.1 Correlation Matrix ................................. 135
5.2.4 Wigner’s Surmise................................................... 138
5.3 Other portfolio measures .................................................... 141

Chapter 6 Criticality..................................................................................... 147

6.1 Crises and cycles................................................................. 147
6.2 Catastrophe theory .............................................................. 151
6.2.1 Cusp Catastrophe ................................................... 152
6.2.2 Catastrophic Dynamics .......................................... 153
6.3 Self-organized criticality..................................................... 160
6.3.1 Cellular Automata.................................................. 160
6.3.2 Simulations ............................................................ 162

Chapter 7 Games and Competitions............................................................. 169

7.1 Game theory through examples .......................................... 170
7.1.1 The El Farol Bar Problem ...................................... 170
7.1.1.1 Minority Game ...................................... 171
7.1.2 Cooperative Games ................................................ 176
7.1.3 Ultimatum Game.................................................... 179
7.1.3.1 Nash Equilibrium................................... 180
7.1.4 Prisoner’s Dilemma................................................ 181
7.1.4.1 Pareto Optimum..................................... 182
7.1.4.2 Walrasian Equilibrium........................... 183
7.1.5 (Anti-)Coordination Games ................................... 184
7.1.5.1 Ratchet Effect ........................................ 188
7.2 Evolutionary game theory................................................... 189
7.2.1 Mixed Strategy....................................................... 191
7.2.2 Replicator Dynamics.............................................. 193
7.3 Lotka-Volterra equations ....................................................196
x Contents

Chapter 8 Agent-Based Simulations ............................................................ 205

8.1 Complex networks .............................................................. 205
8.1.1 Metrics ................................................................... 207
8.1.1.1 Clustering Coefficient............................ 208
8.1.1.2 Centrality ............................................... 209
8.1.1.3 Assortativity........................................... 211
8.1.2 Random Networks ................................................. 213
8.1.2.1 Average Path Length.............................. 214
8.1.2.2 Clustering Coefficient............................ 215
8.1.3 Scale-Free Networks.............................................. 215
8.1.3.1 Degree Distribution ............................... 216
8.1.3.2 Clustering Coefficient............................ 218
8.1.4 Small World Networks...........................................219
8.2 Socioeconomic models ....................................................... 219
8.2.1 Schelling’s Model of Segregation .......................... 220
8.2.2 Opinion Dynamics ................................................. 224
8.2.2.1 Kirman Model ....................................... 227
8.2.3 Market Spin Models............................................... 229
8.3 Kinetic models for wealth distribution ............................... 233
8.3.1 Conservative Market Model................................... 234
8.3.2 Non-Conservative Market Model .......................... 235

Appendix A Simulation of Stochastic Processes ............................................. 239

Appendix B Monte Carlo Simulations............................................................. 243

Appendix C Fokker-Planck Equation .............................................................. 245

Appendix D Girsanov Theorem ....................................................................... 249

Appendix E Feynman-Kack Formula .............................................................. 251

Appendix F Boltzmann Equation .................................................................... 253

Appendix G Liouville-BBGKY ....................................................................... 255

G.1 Liouville theorem................................................................ 255
G.2 BBGKY hierarchy .............................................................. 256

References ............................................................................................................. 259

Index...................................................................................................................... 271
Preface
It was 2017 when I was approached by a group of undergraduate students asking me
to offer an elective course in econophysics. The course was listed in the university
catalog but had never been offered before. As I was progressively being attracted to
intersectional areas of physics I took the challenge.
The first obstacle that I had to overcome was the limited number of resources.
Econophysics is still a relatively new field and there were not many books available
on the topic if compared to books about well-established fields such as quantum me-
chanics. Moreover, most of the books about econophysics that I had the opportunity
to find were aimed at graduate level or above. On the other hand, the public demand-
ing the course had barely completed their first course on statistical mechanics. This
made me structure the discipline with adjacent topics to make the subject easier to
tackle by undergraduate students. Finding all these topics in the same book, however,
was impossible for me at that time.
It was also important to motivate the students with real life examples before in-
troducing some mathematically intense theories. Therefore, the book often begins a
chapter with a real story related to the subject and many applications are discussed
throughout the chapters. Furthermore, brief code snippets are included to show how
sophisticated theories can be translated and simulated in a current computer lan-
guage: Python. In many cases, compiled languages such as C and Fortran would
render faster simulations, but Python was chosen for its simplicity and also for the
opportunity it offers for the students to advance in a language that is highly demanded
by today’s industry.
The book was written in two languages: English and mathematics. Although many
authors prefer to produce more conceptual materials, I advocate that quite often math
can speak for itself and say much more than a spoken language. The only constraint
is that the reader must know how to read this language. Nonetheless, this book was
written for physics students, and, although there is some good level of math, it lacks
the deep formal rigor that a mathematician would expect. Also, since the book was
written with undergraduate students in mind, many derivations are explicitly shown.
I also found it the perfect opportunity to introduce some advanced math that physics
students would not typically encounter in an undergraduate program such as measure
theory, stochastic calculus, and catastrophe theory. Being firstly aimed at undergrad-
uate students, though, it does not mean that the book cannot be used by graduate
students and researchers in general. On the contrary, the material developed here had
also been used in a graduate level course in physics at UFRGS.
Econophysics, as it will be discussed, tries to build an interface between physics
and economics. The latter, though, unlike physics, can have many different schools
of thought. Typically, the school of economic thought an author tries connect with
is not made explicit in most materials about econophysics. Schools of thought
that experimentally failed are vehemently discarded in this book, unless they are

xi
xii Preface

useful to highlight improved theories from other schools. Consequently, it is not by

mere chance that the reader will find many references to the Austrian school of eco-
nomic thought. Although it is not perfect, this school establishes a good link between
physics and economics as it will be discussed along the book.
Finally, I support Paul Feyerabend’s view that science, its history and philosophy,
make an inseparable triad. When one fails, the other two are also compromised and
knowledge eventually halts. Therefore, the reader will notice several endnotes with
very short biographies about some of the authors who helped construct the theories
we have today.

PLAN OF THE BOOK

This book was primarily designed to be useful for those learning econophysics.
Therefore, every major theory necessary to understanding fundamental achievements
in econophysics are included. Most of the derivations are present but those that are
not are skipped because they are well beyond the scope of the book. All snippets are
tested and should reproduce most of the presented figures. Moreover, several appen-
dices are included to help the reader dive more deeply into some topics.
The book begins with a conceptual review of economics drawing some links with
physics. Still on the first chapter the efficient market hypothesis is introduced and
some strategies with derivatives are used to illustrate the behavior of investors.
Chapter two mixes probability theory with some concepts used in econophysics
such as log-returns. The reader will become familiarized with mathematical termi-
nology such as sigma-algebras and probability spaces but will also study how proba-
bility distributions can have curious behaviors such as heavy tails. The Pareto distri-
bution is used to discuss some common topics in economics such as the Lorenz curve
and the Gini index. The chapter continues by exploring some basic econometrics for
financial time series. Particularly, the GARCH model is discussed making a bridge
to stylized facts.
Chapter three deals with stochastic calculus for physicists. It begins with the con-
nection between martingales and fair games and moves to Markov chains. The latter
is used to model a three-state market that can be bullish, bearish or crabish, a con-
cept that appeared in one of the classes and was joyfully adopted. Mean reverting
processes are then discussed bringing the Langevin equation to the table. The chap-
ter ends with point processes that are currently being used to model some economic
problems such as the Epps effect. This is another mathematically intense chapter
that explores the fundamental properties of each of the models. Although it is not
strictly about the intersection of economics with physics, it holds the fundamental
knowledge to deal with some important concepts in later chapters.
Chapter four uses many concepts derived in the previous chapter to study op-
tions pricing. It begins defining Wiener processes and introduces the Fokker-Planck
equation. Two important models are then discussed: binomial trees and the Black-
Scholes-Merton model. Some additional stochastic calculus is used throughout the
chapter.
Preface xiii

Chapter five introduces the concept of portfolio. It begins with the well-known
Markowitz portfolio and CAPM models and then makes a connection between port-
folios and random matrix theory, speculating if some of the tools used in quantum
mechanics can be used to study these portfolios.
Chapter six is dedicated to crises, cycles and collapses. It begins with a review of
the Austrian business cycle theory and then advances to catastrophe theory, a topic
that finds connections with phase transitions in physics, but is uncommon in most
undergraduate programs. The chapter closes with self-organized criticality under a
cellular automata approach.
The next topic, game theory, is shown in chapter seven mainly through examples
without dwelling too much on its mathematical formalities. Some famous examples
such as the minority, cooperative and coordination games are discussed. By the end
of the chapter, we discuss evolutionary game theory and the prey-predator model.
This book ends with a treatment of agent-based simulations. First, an introduction
to complex networks, their properties and models are presented. Some important
socioeconomic models that resemble the famous Ising model are then presented.
The chapter closes with some brief introduction to interacting multiagent systems in
a Boltzmann equation approach.
They say that “an author never finishes a book, he only abandons it,” and I couldn’t
agree more! Non-linear effects and chaos theory, for instance, are currently important
topics in econophysics. Nonetheless, these and many other topics are left for future
editions of this book.

ACKNOWLEDGMENTS
I am most grateful to friends at Arizona State University where parts of this book
were written. I particularly acknowledge with gratitude the hospitality of Ying-
Cheng Lai in his group and am indebted to David Ferry who indirectly helped to
bring this project up to life. I am also grateful to the AFOSR for financial support
under award number FA9550-20-1-0377.

Carlo Requião da Cunha

Porto Alegre, March 2021
Another Random Scribd Document
with Unrelated Content
 —​Arrival at Malta.—​Quarantine Regulations.

Though we had been quite alone on the Atlantic, yet as soon as

we entered the Mediterranean we found ourselves in company with a
large fleet of vessels. We had a fair wind up the strait, and kept
along with our companions for two or three days; but as the strait
grew wider, and at length expanded into the broad Mediterranean
sea, these vessels dispersed towards their several ports of
destination. We sailed along the Spanish coast for nearly a week,
and found the landscape everywhere picturesque and striking. The
shore is high and abrupt at first; farther onward it rises into lofty
mountains. Here the scenery became truly grand and sublime. It was
mid-winter, and the mountains of Granada were covered with snow.
A lofty ridge, called the Sierra Nevada, runs parallel to the shore,
and rises to the height of 11,000 feet. At this time it presented a most
noble sight—an immense wall of snow, glistening in the bright
sunshine and towering up to the clouds.
Winds are commonly regulated by the direction of the shores,
especially where the coasts are mountainous. At Cape de Gatt,
where the coast makes a sudden bend to the north, a change of
wind is always expected by vessels sailing up the Mediterranean;
and so it happened with us. The fair breeze from the west, which had
hitherto driven us on our course, now shifted to a strong easterly
breeze, directly in our teeth. We had also a short chopping sea,
peculiar to the Mediterranean, which brings on sea-sickness to one
coming from the Atlantic, although the waves of the Mediterranean
never rise so high as the Atlantic billows. We beat against the wind
some days, till at length it sprung up astern again, when we ran
before it till we came in sight of the island of Sicily.
We found the mountains of Sicily, like those of Spain, covered
with snow; and considering the bleak wintry prospect which the
country offered at the distance from which we viewed it, we never
should have guessed that the gardens were full of green trees,
bending under the weight of ripe oranges. This however was the
fact, as we afterwards discovered. In steering from this quarter
towards Malta, we sailed over the spot where a volcanic island
suddenly rose up from the bottom of the sea a few years ago; a
surprising phenomenon, of which the reader may like to hear a short
account.
This part of the Mediterranean is known to abound in
subterranean fires. Ætna is always burning; the Lipari islands contain
volcanoes, and Vesuvius, with its terrible eruptions, has long been
familiar to every reader. This whole region, both land and sea,
probably rests on an immense bed of fire. Wherever this fire can get
vent, it breaks out; the Lipari islands all present the appearance of
having been formed in this manner. On the south coast of Sicily, the
inhabitants were surprised one day to behold tremendous flames of
fire breaking out of the sea in a spot where the water was known to
be very deep. This alarming eruption continued for several days, with
dreadful explosions, like the discharges of artillery, and showers of
ashes and thick columns of smoke that obscured the light of the sun.
When the eruption had partially subsided, a considerably large island
was found to have emerged from the bottom of the sea. It continued
smoking for many days, and at length several persons had the
courage to venture off in small vessels, and land upon it. They found
it to consist of black scoriæ, cinders and ashes, the substances
which are commonly ejected from volcanoes. Pools of hot water
stood here and there in the cavities of the surface; great heaps of
dead fishes were scattered about, and the smoke of sulphur was
steaming up from the hollows and crevices that abounded in the
island. Such was the singular appearance of a spot that rose up from
the sea, as it were out of the bowels of the earth. It would have been
hazardous for a man to take up his permanent abode on this newly-
formed territory, and we do not find that any one had the inclination
to make any long stay on the spot. After standing a few months, the
new island sunk as suddenly as it rose, and the sea over it appears
to be as deep as ever.
 A Volcanic Island thrown up from the Sea.
The little island of Gozo now came in sight ahead, warning us that
we were approaching our port. At day-break we saw the island of
Malta, and ran for the western extremity, after which we stood along
the northern coast for the harbor of Valette. The island appeared of a
moderate height, but I could hardly discern a tree or any marks of
cultivation. Watch-towers at regular intervals along the shore, and
some rude structures in the interior, were all that appeared to
diversify the landscape. As we approached the harbor, we
discovered a fleet of small boats putting off to meet us, and we were
soon surrounded by them. The men were a wild-looking set, tawny
and stout, wearing brown woollen caps that hung down over their
shoulders. They rowed standing, instead of sitting, as our boatmen
do. The boats were very neatly built, of olivewood, with high and
ornamented prows. They were painted of a bright vermilion in the
bows, and it is remarkable that Homer describes the ancient Grecian
ships as painted in the same manner. A loud clamor and hubbub of
voices now rose around us. All the boatmen had some service to
offer. One offered a pilot, another offered to tow us into the harbor,
which is highly necessary here, on account of the narrowness of the
entrance. Others were ready to supply us with fresh provisions, fruit,
&c., and others wanted our clothes to wash. Every vessel that
arrives is beset in the same manner, and the number of persons who
depend for a living upon what they get for these services must be
quite large.
As we approached the entrance of the harbor, we came suddenly
in sight of the city of Valette, with its castle and fortifications. They
stand close to the sea, and burst upon the spectator before he is
aware. We were much struck with their noble and commanding
appearance—and the bells of the city chiming merrily at the time, the
agreeable sensations they inspired were still further heightened. It
was a great mortification to us, however, to find that we were to be
subjected to a quarantine of more than a week. For this purpose our
vessel was taken into that part of the harbor adjoining the lazaretto,
where we were brought to anchor, and treated with a prospect of the
shore close at hand without the privilege of setting foot upon it for a
week to come.
The quarantine regulations are very troublesome in almost all
parts of the Mediterranean. The people in this quarter are always
afraid of contagious diseases, particularly the plague, which in
former days committed terrible ravages. The quarantine on vessels
from the Levant, or the eastern part of the Mediterranean,
sometimes lasts for forty days. This restriction, when applied to ships
from the United States, is very useless and absurd; yet it is rigidly
enforced, for these people have heard that a contagious disease,
called the yellow fever, sometimes prevails in America, and as they
have little knowledge of geography, they make hardly any distinction
between one portion of the western continent and another. The
quarantine therefore is laid upon all vessels from America.
We found ourselves in company with fifteen or twenty other
vessels performing quarantine, English, French, Spanish,
Portuguese, Austrian and Greek. There was an Austrian brig, loaded
with beans from Alexandria in Egypt. She had forty days quarantine,
and as the weather was rainy and the vessel’s deck leaked, the
captain was afraid his cargo would sprout and shoot up into a forest
of bean-stalks before he could get it on shore.
It was now the first of February, a season when, by our
recollection, the country at home must be covered with snow; yet
here we found the fields green, the air soft, and the trees in full
foliage. The oranges were just ripening, and the Maltese boatman
brought them to us on board for four cents a dozen. The Malta
oranges are famed for being the finest in the world, and I must admit
that they are worthy of their reputation. The oranges we get in
Boston are gathered before they are quite ripe, that they may keep
the better; but an orange in full ripeness, fresh plucked from the tree,
as far surpasses the imported fruit, as a ripe apple does a green
one. We had, besides, dried figs strung upon reeds, somewhat in the
manner in which we prepare dried apples. Here I saw for the first
time the pomegranate, a fruit larger than an orange, full of little sweet
kernels. So we contented ourselves with eating fresh fruit and
wishing the quarantine at an end.
(To be continued.)
 The New Custom-House, Boston.

Between Long and Central wharves, in Boston, a large edifice is

now in progress, called the New Custom-House. A picture of it as it
will be when finished, engraved by Mr. Devereux, whose office you
will find at No. 47 Court street, is given on the opposite page. The
building is of granite, and already it may be seen that it is to be one
of the finest structures in the city. The lofty fluted columns have
already an imposing effect. They are thirty-two feet in length, and
weighed forty-three tons each—they were obtained in one of the
quarries at Quincy. It required forty or fifty yoke of oxen to bring one
of these enormous pillars to the city.

New Custom-House, Boston.

This Custom-House is constructed by the government of the
United States. I suppose most of my readers know the use of a
custom-house; but for the benefit of those who do not, I will explain
its object. It is a place where the customs, or duties, laid on goods
brought into port by ships from foreign countries, are paid and
received.
The course of the business is this. When a vessel from England,
or France, or any other place, comes into port, a person from the
custom-house, called a boarding officer, goes into her, and receives
from the captain the ship’s papers. These consist of—1. The
Manifest, which is a paper setting forth the cargo, and signed by the
master of the vessel. 2. The Register, which is a paper signed by an
officer of the treasury at Washington, and countersigned by the
collector of the port where she belongs—giving a description of the
vessel, with her name, her size, who her owners are, and where she
was built. 3. The Roll of Equipage, which contains the names of the
ship’s company, that is, the captain, mate, and hands; and, 4. A list
of the passengers.
These papers are taken by the boarding officer to the collector of
the port, and the captain is required to enter his ship at the custom-
house within twenty-four hours after his arrival. Then, if all the
papers are right, the goods brought in the vessel may be entered at
the custom-house by the several persons to whom they belong.
These persons must make oath that the invoices are correct, pay the
duty or tax on the goods, and then take them away.
There are public stores attached to the custom-house, to which
goods may be sent, if the master applies for the privilege, or if they
are not called for in five days. During the unlading of a vessel, an
officer of the custom-house, called a tidewaiter, remains on board,
and takes an account of the cargo, so as to see that it corresponds
with the manifest and the entries made by the owners.
The great object of all this is to get money to support the
government with. The tax on some goods is twenty-five per cent.,
and on some it is thirty per cent., and on some there is no tax. The
amount of goods received at the Boston custom-house is immense.
You may judge of this by considering that several millions of dollars
are taken there every year. About eighty persons are employed at
the custom-house in Boston. The superintendent of the whole
business is called the Collector. The old custom-house of Boston,
now used, is inconvenient; the new one will be much larger and
better.
There is a new custom-house at New York, which is a very
different edifice from this at Boston; it is also much larger, for the
business done there is more than four times as great as that done at
the Boston custom-house. There are many other custom-houses in
this country, as at Philadelphia, Baltimore, and other places where
ships come. From all these, the government of the United States
receives about twenty millions of dollars every year. With this money,
and what they get from the sale of public lands and other sources,
they pay the expenses of the government, which are very great. The
army costs a great deal of money, and so does the navy. I suppose
one ship of war will cost half a million of dollars a year while in active
service! Then the President receives 25,000 dollars a year, and each
of the foreign ministers has 9,000 a year, and the officers of the
custom-houses, members of Congress, and ten thousand
postmasters, and a great many other persons, in the service of the
government, must all be paid. So you will see that if the government
receives a great deal of money, it has need of a great deal. The
average expense of our government is 25,000,000 of dollars, which
is about six hundred and fifty tons of silver, and would be as much as
four hundred horses could draw!
 The New Patent Office, Washington

The building of which we here give a representation, is a

depository for the models of such inventions as are patented in the
United States. The old patent office was burnt down a few years ago,
and this has just been erected. It is a handsome and extensive
edifice, and well adapted to the purpose for which it is designed.
The contents of this building display in an eminent degree the
inventive and ingenious character of our countrymen, and especially
of the New England people, for a large proportion of the models here
collected are furnished by New England men. There are machines
here for almost every purpose under the sun. There are ploughs,
and harrows, and coffee-mills, and saws, and water-wheels, and
rakes, and corn-shellers, and stump-removers, and a multitude of
other things, all arranged according to their kinds. In one part are
agricultural implements; in another, are machines for the
manufacture of cotton; in another, those for the manufacture of wool,
&c. The number of these inventions amounts to many hundreds, and
some of them display admirable skill and contrivance on the part of
the inventors.
Perhaps some of my readers hardly know why these things are
collected in a great building at Washington. I will endeavor to make
them understand it. If a man contrives a plough, which is on a new
principle, he may send a model of it to the superintendent of the
patent office, and he will grant him Letters Patent, which set forth
that such a model has been so deposited, according to an act of
Congress. This being done, the inventor has the sole right to make
and sell said ploughs, and have the profit arising from the same.
Thus he has what is called a “Patent Right” for the plough he has
invented.
 The reason why the government grants such patents is this: if a
man who invents good and useful things can have the advantage of
their sale, he will be encouraged to invent more useful things, and
thus society will be benefited.
The utility of some inventions to mankind, is immense. Robert
Fulton, of New York, about thirty years ago, invented a steam engine
that would propel a steamboat through the water. This led to steam
navigation, which is the greatest improvement of modern times. A
man in England contrived an engine that would drive a car upon a
rail-road track, and thus rail-roads came into use. Eli Whitney, of
Connecticut, about forty years ago, contrived a cotton gin, for
separating the seed from the cotton, which saved a vast deal of
labor, and reduced the price of cotton one half. Thus it is that
ingenious inventions improve the condition of mankind. But many of
these inventions cost vast labor and expense to perfect them. Fulton
spent several years and thousands of dollars before he completed
his steamboat. Therefore it is that, in most cases, men could not and
would not produce these useful contrivances, if the result of their toil
and expense could not be secured to them. Therefore we see that
there is good reason for giving them encouragement by granting
patents. By means of these patents, good clothes, good food, good
houses, good roads, good means of travelling, become cheaper and
easier to be got, and, therefore, it benefits everybody to have
government promote useful inventions by granting patents.
 What sort of Heart have you got?

Most people seem to think only of their external appearance—of

their personal beauty, or their dress. If they have a handsome face,
or a good figure, or a fine attire, they are perfectly satisfied; nay,
more—we often see persons showing vanity and pride merely
because they have beautiful garments on, or because they are
called pretty or handsome.
Now I am not such a sour old fellow as to despise these things—it
is certainly desirable to appear well; but I have remarked that those
persons who are vain of outside show, forget that the real character
of a person is within the breast, and that it is of vastly greater
importance to have a good heart than a handsome person.
The heart within the body is of flesh, but it is the seat of life. Upon
its beatings our life depends. Let the heart stop, and death
immediately follows. Beside this, the heart is influenced by our
feelings. If one is suddenly frightened, it beats more rapidly. Any
strong emotion, or passion, or sensation, quickens the action of the
heart. It is for these reasons,—because the heart is the seat of life,
and because it seems to be the centre or source of our passions and
feelings,—that we often call the soul itself, the heart. Thus the heart
of flesh is a sort of emblem or image of the soul. When I ask,
therefore, what sort of heart you have got? I mean to ask what sort
of soul you have got? We often hear it said that such a person has a
hard heart, and such a one has a kind or tender heart. In these
cases we do not speak of the heart of flesh within, but of the soul. A
hard heart, in this sense, is a soul that is severe, harsh, and cruel; a
kind and tender heart, is a soul that is regardful of the feelings of
others, and desirous of promoting the peace and happiness of
others.
 You will see, therefore, that it is very important for every individual
to assure himself that he has a good heart. The reasons why it is
important, I will endeavor to place before you.
In the first place, “God looketh on the heart.” He does not regard
our dress, or our complexion, or our features. These do not form our
character; they have nothing to do with making us good or bad. If
God looks into the breast and finds a good heart there, a tender, kind
soul, full of love toward Him and all mankind—a heart that is
constantly exercised by feelings of piety and benevolence, he
approves of it, and he loves it. God does not care what sort of
garment covers such a heart, or what complexion or features a
person with such a heart has got. He looketh on the heart, and
finding that good, he bestows his blessing, which is worth more than
all the wealth of this wide world. Personal appearance is of no value
in the sight of God. It is only because men value it, that it is to be
regarded. But upon the character of the heart, the favor or
displeasure of God depends. It is of the greatest importance,
therefore, for each person to see what kind of heart he has got. If he
loves to do mischief; if he loves to say or do harsh and unkind things;
if he loves to wound the feelings of others; if he loves to see another
suffer; if he wishes, in any way, to injure another in his mind, body, or
estate, then he has a bad heart; and God looks on that bad heart as
we look upon a malignant and wicked countenance. Before God,
every heart has a character. We cannot see into the bosom, but God
can. All things are transparent to Him, and he looketh on the heart as
we do upon one another’s faces. And to Him, every heart is as
distinctly marked as men’s countenances are to us. A wolf has a
severe, harsh, and cruel expression in his countenance. A bad heart
has as distinct an expression in the sight of God, as the wolf’s face
to human eyes. God cannot love, and he will not bless such a heart.
He only bestows his love and his blessing on a good heart.
The second reason for having a good heart is, that it not only wins
the favor of God, but of men. However we may fancy that mankind
think only of outside appearance, they do in fact think more of
internal goodness. Mankind, in all ages and countries, love, respect,
and revere the person who has a good heart; the person whose soul
is habitually exercised by piety toward God and love toward
mankind, is always esteemed and loved in return. Such a person is
almost sure to be happy; even if he is destitute of money, he has that
which in this world is of more value—the good will, the sympathy, the
kind wishes and kind offers of his fellow-men. If a person wishes
success in life, therefore, there is no turnpike road to it like a good
heart. A man who seeks to extort, to require, to command the good
will of the world, will miss his object. A proud person, who would
force men to admire him, is resisted; he is looked upon as a kind of
robber, who demands what is not his own, and he is usually as much
hated as the person who meets you on a by-road at night, and,
holding a pistol in your face, demands your purse. The proud person
—the person who demands your respect, and tries to force you into
good will toward him—turns your feelings against him; but the gentle,
the humble, and the kind-hearted, appeal to the breast with a power
we cannot resist. The person, therefore, of real power, is the person
with a good heart. He wields a sceptre which men would not resist if
they could, and could not if they would.
The third reason for having a good heart is, that while the
exercise of a bad heart is painful, the exercise of a good heart is
blissful. A heart that indulges in envy, malice, anger, revenge,
jealousy, covetousness, becomes unhappy and miserable; a heart
that exercises piety, love, charity, candor, peace, kindness,
gentleness, becomes happy. The exercise of piety and good feelings
brings pleasure and enjoyment to the soul, as cool, fresh water does
to a thirsty lip; bad feelings bring pain and misery to the soul, as
bitter and poisoned water does to the palate and the stomach. A
person, therefore, who indulges in bad feelings, is as unwise as one
who refuses pure water and drinks poison.
The fourth reason for having a good heart is, that it is the surest
way to be handsome! A person with a good heart is almost always
good-looking; and for this reason, that the soul shines through the
countenance. If the heart is angry, the face is a tell-tale, and shows
it. If the heart is exercised with piety, the countenance declares it.
Thus the habits of the soul become written on the countenance; what
we call the expression of the face is only the story which the face
tells about the feelings of the heart. If the heart is habitually
exercised by malice, then a malicious expression becomes habitually
stamped upon the face. The expression of the countenance is a
record which sets forth to the world, the habits, the character of the
heart.
I know very well that some persons learn to put a false expression
upon their faces: Shakspeare speaks of one who can smile and
smile and be a villain still. This false veil, designed to hide a bad
heart, is, however, generally too thin to answer its purpose. Mankind
usually detect the veil of hypocrisy, and as flies see and shun a
spider’s web, so mankind generally remark and avoid the hypocrite’s
veil. They know that the spider—the dastardly betrayer—is behind it,
ready to make dupes and victims of those whom he can deceive.
The only true way, therefore, to have a good face, a truly and
permanently handsome face, is to have a good heart, and thus have
a good expression. There can be no genuine and abiding beauty
without it. Complexion and features are of little consequence. Those
whom the world call handsome, have frequently neither regularity of
features nor fineness of complexion. It is that indescribable thing
called expression—the pleasant story which the countenance tells of
the good heart within, that wins favor.
There are many other good reasons for having a good heart; but I
have not room to tell them here. I must say a word, however, as to
the means of curing a bad heart and getting a good one.
The first thing is, to find out what a good heart is, and what a bad
heart is; and the best way to do this, is carefully to read the account
given of Jesus Christ in the gospels of Matthew, Mark, Luke, and
John. There are no pages like these, so full of instruction, and that
so readily impart their meaning to the soul of the reader. They give
us a portrait of our Savior,—and what a portrait! How humble, yet
how majestic! how mild, yet how dignified! how simple, yet how
beautiful! He is represented as full of love toward God, and toward
mankind; as going about doing good; as having a tender and kind
feeling for every human being; as healing the sick, giving sight to the
blind, and pouring the music of sound upon the deaf ear. Love to
God, which teaches us to love all mankind, evidently fills the heart of
Jesus Christ; and his great desire seems to be, that all mankind shall
have hearts filled with the same feeling that governs his. A good
heart, then, is one like Christ’s; a bad heart is one that is unlike
Christ’s. A good heart is one that is habitually exercised by love to
God and charity to man; a bad heart is one that is exercised by
selfishness, covetousness, anger, revenge, greediness, envy,
suspicion, or malice.
Having learned what is meant by a good and bad heart, the next
thing is to look into our own breasts and see what kind of a heart we
have got. This is of first-rate importance, and therefore it is that I ask
the question at the head of this article—“What sort of heart have you
got, Reader?”
Having, by careful examination, found out what sort of a heart you
have got, then you are prepared to act with good effect. If you find
that you have a good heart, a heart like Christ’s, filled with love of
God and feelings of obedience to God, and with love and charity to
all mankind, evinced by a desire to promote the peace and
happiness of all; then be thankful for this best of gifts, and pray
Heaven that it may continue to be yours. An immortal spirit, with the
principle of goodness in it, is yours—and how great a benediction is
that!
But if you discover that you have a bad heart, pray set about
curing it as soon as possible. An immortal spirit with a principle of
badness in it, is surely a thing to be dreaded; and yet this is your
condition, if you have a bad heart. In such a case, repentance is the
first step for you to take. Sorrow—sincere sorrow, is the easy
condition upon which past errors are forgiven by God; yet this
condition must be complied with. There is no forgiveness without
repentance, because there is no amendment without it. Repentance
implies aversion to sin, and it is because the penitent hates sin, that
the record of his wrongs is blotted out. While he loves sin, all his
crimes, all his transgressions must stand written down and
remembered against him, because he says that he likes them; he
vindicates, he approves of them. Oh take good care, kind and gentle
reader—take good care to blot out the long account of your errors,
before God, speedily! Do not, by still loving sin, say to God that you
are willing to have those that you have committed, and those you
may commit, brought up in judgment against you! Draw black lines
around the record of your transgressions, by repentance!
And having thus begun right, continue to go on right. At first, the
task may be difficult. To break in a bad heart to habits of goodness,
is like breaking a wild colt to the saddle or harness: it resists; it rears
up; it kicks; it spurns the bit; it seeks to run free and loose, as nature
and impulse dictate, and as it has been wont to do before. But
master it once, and teach it to go in the path, and it will soon be its
habit, its pleasure, its easy and chosen way to continue in the path.
To aid you in this process of making a good heart out of a bad
one, study the Bible, and especially that which records the life and
paints the portrait of Christ. Imitate, humbly, but reverently and
devoutly, his example. Drink at the fountain at which he drank, the
overflowing river of love to God.
This is the way to keep the spark of goodness in the heart; and to
cherish this, to keep it bright, exercise yourself as much as possible
in good deeds, in good thoughts, in good feelings. If a bad thought
comes into your heart, turn him out—he has now no business there!
Turn him out as you would a rat from the larder. Keep your hearts
pure before God, for God looketh on the heart!
It is my purpose to follow up this subject hereafter, and to tell you
some tales which will show you more clearly how to make a good
heart out of a bad one.
 Professions and Trades.

People live by working for money in order to get food, clothes,

houses, and all the other things which they need or would like to
have. If they should not work, all the food that has already been
produced would soon be eaten up, all the clothes would be worn out,
and everything else would decay; so that the inhabitants of towns,
and also those of the country, would be starved, and die very
miserably.
The necessity for each person’s working at some kind of honest
labor, is an obligation laid on us by the Creator; and it is a sin to live
in idleness, without a desire to work. We are also far more happy
when we are working than when we are idle; and this in itself ought
to cause us to follow a course of active industry.
As children are not able to work, they are supported for a number
of years by their parents; but when they grow up, they are expected
to go and work for themselves. Some young persons are so
ignorant, or have such bad dispositions, that they think it would be
pleasant for them to live always by their parents’ or others’ working
for them, and so remain idle all their days. They do not seem to care
how much they take from their fathers or their mothers, who are
sometimes so greatly distressed with the conduct of their children,
that they die of grief. This is very cruel and sinful conduct on the part
of these young persons, which no boy or girl should imitate. It is the
duty of all who have health and strength to labor for their own
support.
In this large world there is room for all persons to work at some
kind of useful employment. Some are strong in body, and are fitted
for working in toilsome professions; others are less strong in body,
but have active minds, and they are suited for professions in which
little bodily labor is required. Thus, every young person chooses the
profession for which he is fitted, or which he can conveniently follow.
Young persons cannot, in all cases, follow the business they would
like; both boys and girls must often do just as their friends advise
them, and then trust to their own industry.
As some choose to be of one profession, and some of another,
every profession, no matter what it be, has some persons following it
as a means of living, and all assisting each other. The tailor makes
clothes, the shoemaker makes shoes, the mason builds houses, the
cabinet-maker makes furniture, the printer prints books, the butcher
kills animals for food, the farmer raises grain from the fields, the
miller grinds the grain into flour, and the baker bakes the flour into
bread. Although all these persons follow different trades, they still
assist each other. The tailor makes clothes for all the others, and
gets some of their things in return. The shoemaker makes shoes for
all the others, and gets some of their things in return; and, in the
same manner, all the rest exchange their articles with each other.
The exchange is not made in the articles themselves, for that would
not be convenient; it is made by means of money, which is to the
same purpose.
Many persons in society are usefully employed in instructing,
amusing, or taking care of others. Schoolmasters instruct youth in
schools, and tutors and governesses give instruction in private
families. Clergymen instruct the people in their religious duties, and
endeavor to persuade them to lead a good life. Authors of books,
editors of newspapers, musicians, painters of pictures, and others,
delight and amuse their fellow-creatures, and keep them from
wearying in their hours of leisure.
Unfortunately, some people, both old and young, are lazy or idle,
and will not work at regular employments, and others spend
improperly the most of the money which they earn. All these fall into
a state of wretchedness and poverty. They become poor, and are a
burden on society. Other persons are unfortunate in their business,
and lose all that they have made, so that they become poor also.
Persons who suffer hardships of this kind should be pitied, and
treated with kindness by those who are able to help them. Many
persons, besides, become poor by old age and infirmity, and it is
proper that they should be taken care of and supported. A beggar is
a poor person, who does not feel ashamed to seek alms. Any one
who is able to labor for a subsistence, should feel ashamed either to
beg or to be classed among the poor.
God has taken care that the wants of all persons who labor, and
lead a regular life, shall be satisfied. These wants are few in number,
and consist chiefly of air, food, water, warmth, and clothing. Some of
these we receive freely, but others we receive only by working for
them. Some persons are contented if they can work for the bare
necessaries of life. If they can get only as much plain food and
coarse clothing as will keep them alive, they are contented. If a
person cannot, by all his industry, earn more than the bare
necessaries of life, it is right to be contented; but if he can easily
earn money to buy comfortable food, comfortable clothing, and other
means of comfort and rational enjoyment, it is wrong to be contented
with the bare necessaries of life.
It is the duty of every one to try to better his condition by skill and
industry in any kind of lawful employment. Let him only take care to
abstain from indulgence in vicious luxuries. One of the most vicious
of luxuries is spirits, or liquors, which some people drink to make
themselves intoxicated, or drunk. When a person is in this debased
condition, his senses and intellect are gone, and he does not know
what he is doing. He cannot walk, but staggers or rolls on the
ground, and is a horrid spectacle to all who see him. Drunkenness is
an odious vice, which leads to great misery and poverty; and the
best way to avoid falling into it, is to abstain from tasting or using any
spirits or intoxicating liquors.