692 



REPORT — 1889. 



faculties and opportunities, c,. is the amount of borrowed capital employed by the 

 individual ; i is the rate of interest ; land and labour are not expressed. In equilibrium 



dcr dc, dct 



(2.) Again Mr. Webb discerns that the ' law of diminishing returns ' is applicable 

 to capital as well as to land (ibid., p. 9, 20, &c.). This is probably a new truth to 

 the literary economist, who will have some difficulty in reconciling it vyith the law 

 of increasinff returns received into the text-books. To the mathematician it is 

 evident that, in order to maximise the net earnings /(c) — ic, not only must the first 



differential of this expression vanish, but also the second differential -^— must be 



dc^ 

 negative, which is the law of diminishing returns. It is quite consistent with the 

 supposition that for certain valvies of the variable, not admissible as a solution of 



the problem, -I. should be positive, agreeably to the km of increasing returns, 

 dc 



Fig. 8. 



Diagrammatically, let us represent the conditions under which capital is applied 

 by a certain individual, according as the scale of production is large or small, by the 

 curves ^gf ssad. jj'q' in Fig. 7 ; where the abscissa denotes quantity of capital, and the 

 ordinate the increment of (gross) produce due to an increment of capital. There cannot 

 be equilibrium, unless the increment denoted by the ordinate is just balanced by the 

 sacrifice thereby incurred — in the case which I have supposed the payment of interest. 

 There cannot then, on this supposition, be stable equilibrium, unless the curve is 

 ascending. The descending (dotted) branches correspond to the law of increasing 

 returns. (The explanation of other features in the Figure is given in the next note.) 



(3.) Mr. Webb dwells much on 'the special industrial advantages not due to 

 superiority of site or skill ' which are enjoyed by some individuals. The use of an 

 expression for the product like our f^ may serve at least to keep in mind the existence 

 of such specialities. It also brings into view a difficulty which has not been suffi- 

 ciently noticed by those who use rent in its metaphorical or secondary sense. 



