93 



CAPITAL. 



CAPITAL. 



594 



of the United States of North America, iu wealth and population, with 

 that of England and Holland, and ascribes the comparative rapidity of 

 their advancement to the fact, that the rate of profit is generally twice 

 as high in America as in either of the other countries. (' Principles of 

 Pol. EC.') He adds, that if the rates of profit have become comparatively 

 low, the condition of a nation, " how prosperous soever in appearance, 

 is bad and unsound at bottom." Professor Jones, on the other hand, 

 denies this inference, and takes a more encouraging view of the state 

 and prospects of our own country. He says, " That fall of the rate of 

 profits, which is so common a phenomenon as to be almost a constant 

 attendant on increasing population and wealth, is, it will be seen, so 

 far from indicating greater feebleness in any branch of industry, that 

 it is usually accompanied by an increasing productive power in all, and 

 by an ability to accumulate fresh resources more abundantly and more 

 rapidly. So far, therefore, is this circumstance from being, as it has 

 hastily been feared and described to be, an unerring symptom of 

 national decay, that it will be shown to be one of the most constant 

 accompaniments and indications of economical prosperity and vigour." 

 (' Distribution of Wealth,' Preface.) 



These opinions, apparently conflicting, upon matters of fact, may 

 prove, upon examination, not to be wholly irreconcilable. It is doubtful 

 whether the United States of North America be a good example for 

 the purpose of this inquiry, as there have been many concurrent cir- 

 cumstances in operation in that country, all tending to the same result ; 

 and of which high profits may be regarded as the effect rather than 

 the cause. It will be safer, therefore, to confine the examination of 

 the effects of high profits upon accumulation to our own country at 

 different times. 



First, then, it will be admitted on all hands that individual fortunes 

 have been more rapidly accumulated in England at those times in 

 which the profits in particular departments of industry were the 

 highest. This admission is no more, in other words, than the truism, 

 that when a trade is prosperous money is made by it. The next 

 question is, whether a high rate of profit in all departments of industry 

 has the same effect in augmenting the sum total of national capital. 

 Political reasoners are too apt to assume a universal analogy between 

 individuals and nations, which is often deceptive, and leads to inaccurate 

 conclusions. In the present instance, if this analogy were allowed, it 

 would be decisive of the whole question, and would exclude all obser- 

 vation of facts. The fact, as stated by Professor Jones, is undeniable, 

 that a fall in the rate of profits is the ordinary accompaniment of in- 

 creasing population and wealth. There is more capital in England and 

 hi Holland, in proportion to the population, than in any country in the 

 world, and in those countries the rate of profit is the lowest. The 

 resources of England have been increasing in an extraordinary manner 

 during the last half century ; and, at the same time, the more evident 

 the wealth of the country has become, the lower has fallen the general 

 rate of profits. 



The examination of the causes of profit is reserved for a separate 

 article [PROFITS] ; but here it may be stated that a fall iu the rate of 

 profits is the inevitable result of enormous accumulations of capital- 

 Capitalists are forced into competition with each other, and are ulti- 

 mately obliged to content themselves with lower profit*. But in the 

 meantime, does the aggregate .vccumulation of national wealth 

 diminish ? This inference is contradicted by all the statistics which 

 illustrate the progress and present condition of Great Britain. All 

 evidence shows that British capital ' positively overflowing, and 

 seeking employment in every enterprise at home or abroad. 



This fact, it is submitted, is nevertheless consistent with the general 

 proposition, that high profit* are favourable to accumulation. In cal- 

 culating the aggregate savings of a people already rich and populous, it 

 must be borne in mind, first, that the existing generation has inherited 

 the accumulations of many preceding generations ; and, secondly, that 

 a large number of persons continually saving a small portion of their 

 individual gains may produce a greater aggregate accumulation than 

 the larger proportionate savings of a less number of persons. 



With reference to the first point, it need only be observed, that if 

 the inherited capital be not squandered or wasted, its annual interest 

 alone affords the means of enormous accumulation ; while the rent of 

 land, the profits of trade, and the wages of labour, are continually 

 Hupplying new funds for further production and accumulation. The 

 second point may be made clearer by an illustration. Let us suppose 

 one hundred men, each saving 1001. annually out of their profits. 

 Their aggregate accumulations would amount to 10,0001. But suppose 

 one thousand men, with equal capitals, but unable, on account of a 

 lower rate of profit, to save more than 501. a year ; their aggregate 

 accumulations would amount to 50,000/. In both cases they would 

 have maintained themselves and their families out of their profits, and 

 have paid the wages of all the labour required in their business ; after 

 which their savings remain available for increased production, and for 

 the employment of a larger quantity of labour. This example falls far 

 short of the circumstances of Great Britain, for the number of small 

 capitalists is even more extraordinary than the enormous capitals pos- 

 sessed by a comparatively small number of wealthy men; and their 

 annual additions to the national capital are of incalculable amount. 



The conclusions to which we are led by these inquiries, are that a 



high rate of profit is favourable to accumulation ; that rich and popu- 



rl'Miied this advantage; that if they enjoyed it, 



ARTS AND BCI. DIV. VOL. II. 



their capital would continue to increase more rapidly than it does, in 

 fact, increase ; but that under ordinarily favourable circumstances, the 

 masses of inherited capital and the aggregate savings of vast numbers 

 of capitalists still facilitate accumulation in a greater ratio than the 

 increase of population. 



II. The consideration of the application and uses of capital will be 

 disembarrassed of much complexity by explaining, at the outset, the 

 distinction raised by political economists between what is called pro- 

 ductive and unproductive labour and expenditure. The end of all 

 production is use or consumption : some products are immediately 

 destroyed by the use of them, as food or coals ; others are consumed 

 more slowly, but are ultimately destroyed by use, as clothes or fur- 

 niture : but whatever is the durability of the thing produced, its sole 

 use is the enjoyment of man. A man is rich or poor according to his 

 power of obtaining the various sources of enjoyment which the skill 

 and industry of others produce ; aiid the aggregate of such permanent 

 sources of enjoyment constitutes the wealth of nations. Whatever 

 labour or expenditure, therefore, may be devoted to the increase or 

 continuance of those sources of enjoyment, must be deemed productive : 

 and labour and expenditure, which have no such tendency, must be 

 viewed as unproductive. 



The most scientific classification of productive and unproductive 

 descriptions of labour and expenditure which we have met with is that 

 of Mr. Mill. According to his definition the following are always pro- 

 ductive : When their " direct object or effect is the creation of some 

 material product useful or agreeable to mankind," or " to endow 

 human or other animated beings with faculties or qualities useful or 

 agreeable to mankind, and possessing exchangeable value : " or " which, 

 without having for their direct object the creation of any useful 

 material product, or bodily or mental faculty or quality, yet tend 

 indirectly to promote one or other of those ends, and are exerted or 

 incurred solely for that purpose." Labour and expenditure are said to 

 be unproductive when they are " directly or exclusively for the purpose 

 of enjoyment, and not calling into existence anything, whether- sub- 

 stance or quality, but such as begins and perishes in the enjoyment ; " 

 or when they are exerted or incurred " uselessly or in pure waste, and 

 yielding neither direct enjoyment nor permanent sources of enjoy- 

 ment." (' Essays on Unsettled Questions of Political Economy,' 

 Essay III.) Examples of these several classes would transgress our 

 limits, but a study of the above definitions may serve to correct an 

 erroneous impression, that no expenditure is productive xmless it be 

 incurred directly in aid of further production. 



The employment and aid of productive industry is the most import- 

 ant end of capital. Its first and most important use is the division oi! 

 employments, which, though necessary for any advance in arts, U 

 impracticable without some previous accumulation of capital. Until 

 there is a fund for employing labour, every man's business is the 

 seeking of his own daily food ; but as soon as the capital of another 

 secures that for him, his labour is available for the general good. The 

 more capital is accumulated, the more extended are the facilities for 

 indefinite distribution of employments, according to the wants of the 

 community. 



Capital may be applied either directly in the employment of labour, 

 or directly in aid of labour : it may be spent in the food and clothes of 

 labourers, or in tools and other auxiliary machinery, to assist their 

 labour and increase its productiveness. The former is usually termed 

 circulating capital, and the latter fixed capital. Both are equally 

 essential to the progress of the arts and national wealth, and are used 

 in combination ; but the effects produced by each are not always the 

 same. If a farmer employs three labourers, and his capital is after- 

 wards doubled, it is a very important question whether he expend his 

 increased stock in the payment of three additional labourers, or in pro- 

 viding auxiliary machinery to increase the power of the three labourers, 

 already employed. In the latter case we may be assured that his 

 machinery will do the work of more than three men ; for otherwise no 

 ingenuity would have been applied to its contrivance. It is truly said 

 by Professor Jones, that " when, instead of using their capital to 

 support fresh labourers in any art, (a people) prefer expending an equal 

 amount of capital in some shape in which it is assistant to the labour 

 already employed in that art, we may conclude with perfect certainty, 

 that the efficiency of human industry has increased relatively to the 

 amount of capital employed." (' Distribution of Wealth,' p. 222.) The 

 same able writer has pointed out another difference in the results of 

 auxiliary capital, namely, "that when a given quantity of additional 

 capital is applied, in the results of past labour, to assist the labourers 

 actually employed, a less annual return will suffice to make the 

 employment of such capital profitable, and therefore permanently 

 practicable, than if the same quantity of fresh capital were expended 

 .n the support of additional labourers." (Ibid. p. 224.) This circum- 

 stance arises from the greater durability of the fixed capita], which 

 may not require renewal for several years, while the direct expenditure 

 on labour must be renewed annually. Thus 1001. spent in labour to 

 cause a profit of 10 per cent, must produce results amounting in value 

 M 1101. : but the same sum expended upon any machinery calculated 

 to last for five years would be equally well repaid by a return of 30/. 

 a year; being 101. for profit upon the outlay, and '201. for the annual 

 wear and tear of the capital. 



Not only does capital facilitate divisions of employment, and hi- 

 fi '! 



