CHAMBERS'S INFORMATION FOR THE PEOPLE. 



CONSIDERATION PAID FOR THE USE OF CAPITAL. 



In last section we saw how land is let to a 

 tenant from year to year in consideration of rent. 

 It was truly, however, a case of capital, the use 

 of which was given to the tenant, rent being the 

 annual consideration or price paid to the owner. 

 But though land be a portion of the capital of a 

 country, capital embraces much besides land, and 

 much besides natural products. A large division 

 of capital consists, as we have seen, in the pro- 

 duce of labour, either in a floating or in a fixed 

 form. Indeed, a large portion of the value of 

 land itself is referrible to the labour permanently 

 laid out upon it, as in the reclamation of waste 

 land, in drainage, in inclosures, in farm-buildings, 

 &c. 



The main distinction between capital that con- 

 sists in natural products, and capital that is the 

 produce of labour, is, that the former is limited 

 in its measure ; and that the latter, or the produce 

 of labour, may be accumulated to any extent. If, 

 for a time, the employment of capital be very re- 

 munerative, people have a strong inducement to 

 save, and so increase their stock ; and this takes 

 place till capital becomes abundant in comparison 

 to the labour open for its employment. The 

 supply then exceeds the demand ; the price got 

 for its use declines ; people become reckless in its 

 application or investment, and its surplusage is 

 often thrown away on bubble undertakings, and 

 otherwise lost 



Our illustrations on the subject of rent explain 

 the principle on which the use of capital is re- 

 munerated. Labour, without the use of capital, 

 has a certain productive power ; but with the use 

 of capital that is, of fixed machinery, railways, 

 shipping, and other fixed capital, and of stored 

 goods, consignments, and other floating capital 

 is much more productively employed than it 

 could have been had the same amount of labour 

 been employed without the aid of capital that 

 is, each labourer producing commodities for his 

 own consumption. This excess of production is 

 regarded as the produce of capital, distinguished 

 from the produce of labour, and is called the 

 profits of capital. 



When the capital is owned by the labourer, all 

 the produce, including the profits of that capital, 

 go, of course, to the labourer himself. When the 

 capital belongs to a person who gives its use to 

 the labourer, the maximum remuneration that the 

 capitalist can expect is the surplus produce over 

 the cost of the labour in aid of which the capital 

 is applied ; but the remuneration he actually 

 receives ranges according to the general law of 

 supply and demand. 



In the case where the labourer whether skilled 

 or unskilled makes use of his own capital, the 

 rate of profit varies according to the success of 

 those processes of production and exchange in 

 aid of which he applies it, and, indirectly, accord- 

 ing to the prosperity of trade in general, for 

 exchanges are so interwoven, that one cannot suffer 

 injury without affecting all. 



Subordinate to these general considerations, the 

 profits of capital invested by its owner vary very 

 much with such particulars as the following 

 namely : 



i. The risk he runs. 



480 



2. The rapidity with which his fixed capital is 

 worn or consumed. A spinning-frame or a ship 

 is useful only for a few years, and the profits 

 made must replace them within the period. 



3. The security afforded by the laws of a 

 country, and the business probity of a community. 

 These, by diminishing the risk of loss, enable the 

 trader to charge a lower profit than he could 

 have done if out of that profit he had to compen- 

 sate himself for spoliation and fraud. 



4. But at best the trader has always to provide 

 against some amount of loss as by fire and ship- 

 wreck, and against other occasional losses. To 

 meet this, he must set aside a percentage from 

 his profits, called insurance. Sometimes the 

 trader is his own insurer, sometimes he contracts 

 with an underwriter or an insurance company, 

 whose business it is to guarantee people against 

 certain risks, in consideration of a premium 

 paid. 



When the capital does not belong to the 

 labourer, but is lent him by a capitalist, the loan 

 usually takes place not in kind, but in money, 

 leaving the borrower to convert that money into 

 such articles as he is truly in want of and of 

 which capital is chiefly composed such as ma- 

 chinery and goods. In this case, the compensa- 

 tion afforded to the capitalist also takes a money 

 form, and is termed interest, the rate of which is 

 said to be so much per cent, per annum that is, 

 so much price for a year's use of each hundred 

 pounds. 



The limits within which the rate of interest 

 varies have been already shewn, the actual interest 

 for the time being determined by the law of supply 

 and demand. But as in the case of profits them- 

 selves, the rate of interest varies with the risk 

 incurred. For loans in which the return of the 

 loan can be securely relied upon, there is always a 

 certain class of lenders at low rates ; and accord- 

 ing as the risk increases, we have other lenders at 

 higher rates. The rate of interest for each class 

 of loan depends on the supply and demand for 

 the time as applicable to that sort of loan. Of 

 course, when profits are high, the demand for 

 loans of capital increases, and interest rises. 



According to the market rate of interest for the 

 time, a permanent source of rent, revenue, or 

 interest is sold or exchanged for a capital sum, 

 or a capital sum is sold or exchanged for the right 

 to a permanent revenue. If the revenue be secure, 

 as the rent of land, or the perpetual annuities pay- 

 able by a well-established government, the capital- 

 ised price is high ; if the revenue is fluctuating, 

 as when it is derived from mines or fisheries, the 

 capitalised price is comparatively low. 



From the course of our remarks, it will be 

 apparent that in estimating the capital a person 

 is possessed of, we must deduct the amount he 

 is owing to capitalists who have lent him money, 

 and who really, to the extent of their loans, are 

 proprietors of the capital represented by those 

 loans ; and that, in like manner, from the revenue 

 of any one must be deducted the interest he pays 

 on sums borrowed by him. In the case of the 

 national debt, it must be regarded as a loan due 

 by the community distributively, and must be 

 deducted from the capital of each proportionally, 

 just as the interest of it is charged on each of us 

 proportionally in taxation. 



