Political Economy

DISTRIBUTION OF WEALTH (continued).

Causes which Divert Labour from the Production of Commodities for the use of Labouring Families.
I. Rent. II. Taxation. III. Profit.

If all labourers were employed in the production, direct or indirect, of commodities for their own use, the rate of wages would depend solely on the productiveness of labour. But it is obvious that this could never be the case, unless the labourers themselves were the owners of all the capital and all the natural agents of the country; a state of existence so utterly barbarous as to be without distinction of ranks or division of labour; a state in which a few scattered savage families have sometimes been found, but which exhibits none of the phenomena which it is the business of Political Economy to trace to their causes. A great portion of the labour employed in a civilized community is employed in the production of things in the use of which the labourer is not to participate. In a civilized community, therefore, the extent of the fund for the maintenance of labour depends not only on the productiveness of labour, but also on the number of persons employed in the production of things for the use of labourers, compared with the whole number of labouring families.

It appears to us that there are three purposes to which labour, which might otherwise be employed in supplying the fund for the use of labourers, may be diverted; namely, the production of things, first, to be used by the proprietors of natural agents; secondly, to be used by the government; and thirdly, to be used by capitalists; or, to speak more concisely, though less correctly, Labour, instead of being employed in the production of Wages, may be employed in the production of Rent, Taxation, or Profit.

First, with respect to Rent.

We have already seen that Rent depends in part on the productiveness of the natural agent for the assistance of which it is paid. Now any increase in the productive powers of that agent has a tendency to increase Rent, and can have none to diminish Wages.

The improvements in agricultural skill which have taken place during the last one hundred years have greatly increased the productiveness of the Lowlands of Scotland, and greatly increased the amount of rent; but that increase has been accompanied by an increase, though not in an equal ratio, of the amount of wages. Adam Smith states, that at the time when he wrote, (the period of the American War,) the usual price of common labour there was 8d. a-day, or 4s. a-week. It is now more than 8s. a-week; a sum capable of purchasing one-third more of raw produce, and three or four times as much of manufactured produce, as the former wages. Though the rental of the Lowlands has more than tripled, though a much larger portion of what the labourer produces is produced for the benefit of the landlord, yet the positive increase of the whole produce more than compensates this apparent inconvenience. Instead of producing, we will say, twenty bushels, of which the landlord received ten, the capitalist two, and the labourer eight, he produces perhaps thirty-five, of which the landlord receives twenty, the capitalist three, and the labourer twelve.

It appears, therefore, that the whole fund for the maintenance of labour is not necessarily diminished in consequence of a considerable portion of the labourers in a Country being employed in producing commodities for the use of the proprietors of the natural agents in that Country. Such labourers may, in fact, be considered as existing only in consequence of the existence of natural agents of extraordinary productiveness. They draw their subsistence not from the common fund, such as it otherwise would be, but from the addition made to that fund by that extraordinary productiveness.

Of course, when we speak of the amount of rent as unimportant to the labourer, we must be understood to mean only that rent which arises from the peculiar or increased productiveness of the natural agent in question, not of that which arises merely from an increase of population. We have already stated that, in the absence of disturbing causes, subsistence may be expected to increase in a greater ratio than population. But, as we then remarked, it certainly is possible, and perhaps, under the influence of superstition and misgovernment, it is probable, that the number of inhabitants in a Country might increase without a commensurate increase of the means, direct or indirect, of obtaining raw produce. Under such circumstances, rents would rise, and labour, which, if the population had remained stationary, would have been employed in the production of commodities for the use of labourers, would now be employed in producing commodities for the use of landlords. A rise of rent so occasioned would of course be detrimental to the mass of the community. It must be recollected, also, that the government of every Country has in some measure the power of deciding in what proportions the different classes of its subjects shall contribute to the public burdens. Some governments have attempted to exempt, as far as they could, the labourers from these burdens, and to throw them as far as they could upon the landlords. Others again have charged, or have allowed individuals to charge, the revenue arising from land with an expenditure for purposes in which the landlords were not solely or principally interested; such as the establishment and maintenance of roads and bridges, the supply of religious, moral, and intellectual instruction, the affording gratuitous medical relief to the sick, and even support to the able-bodied poor or their families. Others, on the other hand, have endeavoured to favour the landlords by imposing public expenditure on the more defenceless portion of the community, the labourers; and many have adopted each of these different lines of conduct on different occasions, or with respect to different portions of their expenditure. The tendency of every such institution must be to augment or diminish the proportion of the labourers employed for the benefit of landlords, compared with that of those who are employed for the benefit of labourers.

Another cause disturbing these proportions is the attempt by a government to create rent, if it can be called rent, by forcibly limiting the bounty of nature. It is possible that, if we had continued to prohibit the corn of Ireland, the incomes of English landlords might have been increased. So, if no coal were allowed to be burned except the produce of a single colliery, the possessor of that colliery would enjoy a princely revenue. But the gain from such a monopoly is not strictly rent; it is oppression and robbery.

2. Taxation:—Direction of Labour to supply the Consumption of Government.—The second purpose to which labour may be diverted from the supply of commodities for the use of labourers is the supply of the consumption of government. It is clear that all the labour that is employed in the support of unnecessary establishments, and all the surplus labour which is employed in supporting on an unnecessary scale of expense those establishments which are strictly wanted, is so much taken from the revenue of the whole people. Still more injurious is the employment of labour for the purposes not merely useless, but positively mischievous; in the support of pagodas or bonzes, to keep up or disseminate a demoralizing superstition; in the support of armies and navies to plunder the commerce and ravage the territories of States, which nature enabled to confer mutual benefits, but the folly or wickedness of their rulers force to inflict mutual evil; or in the support of barriers and blockades to maintain the commercial war in which nations are accustomed to spend the breathing time of actual hostility. Unnecessary taxation, even when innocently applied, is fraud or robbery. It is difficult to find a designation for that which is applied to ends still more mischievous than the means; for that which makes plunder and extortion the instruments of still further injury.

It appears at first sight that only this mischievous or useless expenditure ought to be considered as a deduction from wages, since the labour which is employed in effecting the legitimate purposes of government is as much employed for the benefit of the labouring classes as that which is employed in the direct production of commodities for their use. The great object of government is to afford security, and security is of all blessings the most important, and the one least capable of being obtained by uncombined exertions. Those writers who have maintained that whatever is raised by taxation is deducted from the revenue of the Country, seem to have been led to this conclusion, by observing that the object of government is to occasion not positive but negative effects, not to produce good, but to prevent evil. And they have thought it right to deduct what is so spent from the net revenue of the people. But it must be recollected that the mere prevention of evil is one of the principal objects even of individual expenditure. We do not build houses because it is pleasant to breathe the confined atmosphere of a room, but because roofs and walls are the only means by which the inclemency of the seasons can be avoided. We do not buy drugs for our pleasure, but to avert or remove disease. Yet no one ever thought what he spends on medicines and on house rent a deduction from his income. When the members of a Friendly Society raise among themselves a fund for their relief in sickness, they do not consider their contributions a deduction from their wages, but a mode of expenditure. And it may be asked, in what respect does each man's contribution towards the means by which the community is to be protected against internal and external violence and fraud differ from his contribution to a Friendly Society, excepting that those evils are more severe and more constantly imminent than sickness, and less capable of being warded off by individual efforts? It is true that, if the protection could be less expensively obtained, the fund for the maintenance of labour would be increased. But this is merely an exemplification of what we have already stated, that the extent of the fund for the maintenance of labour depends mainly on the productiveness of labour. If fewer fleets, and armies, and magistrates, could preserve the peace, that is, if labour were more productive in affording security, the labouring classes would, cœteris paribus, be better off, just as they would be better off if fewer husbandmen or artisans could produce, directly or indirectly, the same quantity of corn; that is, if labour were more productive in supplying food.

But admitting all this to be true, it is also true, as we have already remarked, that the labourer is interested not only in the amount and application of the public revenue, and in the degree in which its payment affects the productiveness of labour, but also in the manner in which the burthen of supplying it is distributed. If the duty on wine were abolished, and an equal revenue raised by substituting an additional duty on coarse tobacco, the labourers, who are the only consumers of coarse tobacco, would purchase, with the same proportion of their wages, less tobacco than before, and the landlords and capitalists, who are the only consumers of wine, would purchase, with the same proportions of their rent and profits, more wine. The productiveness of our labour and the export of our manufactures would be undiminished; even the nature of our exports need not be altered; the only change would be in the returns. More wine and less tobacco would be imported. More labourers, therefore, than before, would be employed in obtaining wine for landlords and capitalists, and fewer in obtaining tobacco for labourers.

Nor must it be forgotten that a part of the taxes received by the government of one Country is often paid by the inhabitants of another. We now purchase annually in China about thirty millions of pounds of tea, at about 1s. a pound. On the tea so purchased we impose in different ways taxes to the amount of about two hundred per cent. Were we to repeal that taxation, and the price in China were to remain unaltered, our consumption would probably quadruple; but it is highly improbable that we could purchase one hundred and twenty millions of pounds of tea at 1s. a pound. The price in China might possibly double; it probably would rise one-half. That rise would have a tendency to raise the rent of land and the wages of labour in the tea-growing districts of China. It must be admitted, therefore, that they are both kept down by the existence of the tax; and that a portion of our duty on tea is, in fact, paid by the inhabitants of the tea-growing districts of China. The same reasoning proves that a part of the English duty on claret is paid by France, and that a part of the duties imposed by foreign nations on some of the commodities which we export, is paid by England. As a portion of the taxes raised by every State is, in fact, paid by the inhabitants of those Countries with which it has commercial relations, and as war and misgovernment are the great causes of taxation, an additional proof is afforded of the degree in which each Country is interested in the freedom and tranquillity of its neighbours.

We have lastly to consider the influence of profits on wages; or, in other words, the extent to which wages may be affected by the employment of labour to produce, instead of wages, things for the use of capitalists. In civilized and well-governed communities, this is the principal purpose to which labour, that otherwise might be employed for the benefit of the labourers, is diverted. The labourers who are employed for the benefit of the owners of natural agents may, as we have seen, be in general considered as a separate class, not withdrawn from the general body, but added to it by the existence of those natural agents. Those who are necessarily employed in effecting the legitimate purposes of government are, in fact, employed for the benefit of the labouring population, and the taxation which supplies their maintenance is not necessarily a deduction from wages, but a mode of expenditure. That few governments have confined themselves to their legitimate office, or employed in effecting that office only the necessary amount of labour, is a melancholy truth; and it is true that the fund for the maintenance of labour may be, and in most Countries has been, and is, more diminished in its amount, and more retarded in its increase, by misgovernment than by all other causes put together. But both misgovernment and that interference of the ruling power between the different classes of its subjects which we have already described as affecting the proportions of rent, profit, and wages to one another, are rather disturbing causes than necessary elements in the calculations of Political Economy; and with these allusions to their influence we shall dismiss them.

3. Influence of Profit on Wages.—Rent, then, being considered as something extrinsic, and Taxation a mode of expenditure, the only remaining deduction from Wages is Profit. And the productiveness of labour being given, the extent of the fund for the maintenance of labour will depend on the proportion which the number of labourers employed in producing things for the use of capitalists bears to that of those employed in producing things for the use of labourers; or, to use a more common expression, on the proportions in which the produce of labour is shared between the capitalist and the labourer.

In a previous portion of this Treatise we defined the word "abstinence" to mean the conduct of him who abstains from the unproductive consumption of any commodity, or who employs labour to produce distant results. In fact, the act of deferring enjoyment. And we explained that labour cannot be efficient unless assisted by, what is the result of abstinence, capital; nor abstinence in itself efficient unless assisted by labour; that each is disagreeable, and must therefore be called into exertion by the prospect of its specific remuneration; abstinence by the hope of profit, and labour by the hope of wages: and we stated, that although in fact the same individual often undergoes both abstinence and labour, yet that we thought it more convenient to consider the capitalist and the labourer as different persons. In the absence of rent, and of unnecessary or unequally distributed taxation, it is between these two classes that all that is produced is divided; and the question now to be considered is, what decides the proportion of the shares?

The facts which decide in what proportions the capitalist and labourer share the common fund appear to be two: first, the general rate of profit in the Country on the advance of capital for a given period; and, secondly, the period which in each particular case has elapsed between the advance of the capital and the receipt of the profit.

General Rate of Profit.—First, as to the General Rate of Profit. We have seen that Profit is the remuneration of abstinence, and that abstinence is the deferring of enjoyment. The commodity which owes its existence or its preservation to abstinence is Capital. Its owner is termed a Capitalist, and he is said to advance the means by which it is created or preserved. These means are partly materials and implements, (including, under the last term, not merely the ordinary tools of manual labour, but machinery, ships, and even roads, wharfs, and canals,) and partly labour. The materials and implements are supplied by the capitalist directly, the labour is supplied by him indirectly, by advancing the wages of the labourers. The labourers, aided by their implements, convert the materials into a new and vendible commodity, which is termed the return of the capitalist. And the capitalist's profit depends on the difference between the value of the advance and the value of the return. In producing the return, the wages and materials are necessarily consumed; they are parted with by the capitalist, and therefore termed circulating capital. The implements are not necessarily consumed; so far as they are unconsumed they remain the property of the capitalist, and are therefore termed fixed capital. The value of that portion of them which remains unconsumed must be added to that of the other returns before the profit can be estimated. The capital of a builder is almost entirely circulating. It consists principally of the bricks, lime, timber, stone, and slate which are the materials with which the house is to be constructed, and of the money necessary to pay the wages of the workmen. His fixed capital (exclusively of his knowledge) consists merely of scaffolding and ladders. All these he advances, and the result, after a certain interval, is a house, together with the former ladders and scaffolding somewhat the worse for wear. The cotton-spinner's advances consist of raw cotton and wages, which are his circulating capital, and buildings and machinery, which are his fixed capital. His returns are a certain quantity of manufactured cotton, and the old buildings and machinery. So, a ship-owner's advances consist of his ship, which is his fixed capital, and of its stores, and the wages of his sailors, which are his circulating capital; his returns are his freight, or, in other words, the hire which he receives for the use of his ship, the ship itself, such as it may be, after the voyage, and the stores, if any of them remain unconsumed. The profit in every case consists, as we have already stated, of the difference between the value of the advances and the value of the returns.

How Profit is to be Estimated.—But in what is this value to be estimated? Of course in something as unsusceptible as possible of variations in its general value. If the value of the advances and returns of the capitalist were estimated in corn or in hops, an abundant season might so reduce the value of either as to make him appear a gainer when in fact a loser. His returns might be worth twenty per cent. more of corn or hops than his advances, and yet be inferior in general value. The commodity least susceptible of variation in its general value, during short periods, is money; and partly from this circumstance, and partly from its general use as a measure of value, it is the medium in which calculations of profit are usually expressed. But, if considerable periods are to be taken, even money is subject to great variations, and any sudden change in the facility of obtaining it, arising from an increased fertility of the mines, or an increased productiveness of labour, or an abuse of banking or paper currency, or from similar causes operating in an opposite direction, may materially raise or depress the general value of money in any one Country, even during short periods.

The best Standard of Value for philosophical purposes appears to be the command of labour. In the first place, labour, next to money, is the principal subject of exchange. And, in the second place, labour, as the principal instrument of production, as the only instrument that can be employed at will in the creation of whatever is most wanted, varies less in its general value than any other article of exchange. Money, and the necessaries of life which approach nearest to it, derive in part their steadiness of value from their constant power of commanding labour, a power belonging to no other commodity. Estimated indeed in one class of objects, and it is the class most coveted by man, we mean power and pre-eminence, the value of the command of labour is almost invariable. Two persons who, at different times or in different places, can each command the labour of one thousand average labourers, may indeed enjoy in very different degrees the comforts and conveniences of life; but in power and pre-eminence in their respective Countries they must be nearly on a par. Each must be one man in a thousand. Each must be a thousand times richer than the mass of his Countrymen. If two shillings in Hindostan will command as many labourers as twenty in England, a Hindoo with £3000 a-year is, generally speaking, as great a man in Hindostan as an Englishman with £30,000 a-year in England.

Philosophically, therefore, we think that the value of the capitalist's advances and returns ought to be estimated in their command of labour; popularly, their value is estimated in money; and, as the reciprocal values of money and labour seldom vary much between the times of those advances and returns, the popular mode of estimation is seldom incorrect; and we shall therefore use both indifferently.

The great difficulty of the subject arises from the circumstance, that the rate of profit is not the subject of contract, but of experiment, and cannot be ascertained even by an individual, except as to his past operations. While a transaction is going on, the capitalist may hope that the value of the returns will exceed the value of the advances; he may hope that the excess will be considerable; but he cannot be certain that there will be any excess at all; that there will not be a positive loss. He may say what his profit has been, but not what it is. Frequently, indeed, he cannot say what it has been. A whole series of mercantile or manufacturing transactions may be so linked together that, after having been apparently profitable for years, they may terminate in ruin.

If, however, we could ascertain the value of the returns in all the transactions in this Country which were concluded in the year ending yesterday; and also could ascertain what was the value of the advances, and the average time for which those advances were made before the returns were received, we should know what was the average rate of profit in this Country during the last year. Suppose this point ascertained, and the result to be, that the average rate of profit on an advance of capital for a year was in this Country during the last year ten per cent., the question recurs, what were the causes which determined it to be ten per cent. rather than five per cent. or twenty per cent.?

It appears to us that it must have depended principally on the previous conduct of the capitalists and of the labourers of this Country; on the value of the capital which at some previous period was appropriated by the capitalists to produce commodities for the use of labourers, or, to use a more concise expression, to produce wages; and the number of labourers whom the previous conduct of the labouring population had caused to exist.

Causes regulating the Rate of Profit.—It will be admitted that, in the absence of disturbing causes, the rate of profit in all employments of capital is equal. If we can ascertain, therefore, what are the causes which regulate the rate of profit in any one of the main employments of capital, we may infer that, in the absence of peculiar disturbance, either the same causes, or, causes of equal force, occasion it to be the same in all others. We will inquire, therefore, into the causes which regulate the rate of profit in one of the main employments of capital,—the advance of wages to the labourers who are themselves employed in producing wages, using the word wages to signify commodities for the use of the labouring population.

To simplify the question, we will suppose a small colony settled in a district where there is abundance of fertile land, and protected by situation and character from external and internal violence, so that neither rent nor taxation need be supposed to exist: we will suppose it to be inhabited by ten capitalists and one thousand two hundred labouring families; that the use of money is unknown; that all the buildings, the clothes, the furniture, and the food, in fact, the whole consumption of the people, is consumed in one year and reproduced in the next; that each family receives its wages for the year on the first day of the year, and completes its production on the last day, so that all the advances are made on the first day of the year, and all the returns received on the last day; and that, at the time when the situation of the colony was first noticed, each capitalist had in his possession wages for one hundred and twenty families during a year, the produce of the labour of one hundred families during the previous year, (being his capital, and which, to reduce it to one denomination, we will call one thousand quarters of corn;) and commodities for his own use, which we will call twenty casks of wine, the produce of the labour of twenty families during the previous year; (being the stock reserved for his own consumption.)

Under such circumstances, if each capitalist should employ his capital in setting one hundred families to work to reproduce wages, and twenty more to reproduce commodities for his own use, and the labouring population should neither increase nor diminish, the rate of profit would remain stationary at twenty per cent. per annum. The advances every year would be one thousand quarters of corn, being wages produced by the labour of one hundred families, and commanding the labour of one hundred and twenty; the returns would be a stock of wages commanding the labour of one hundred and twenty families during the next year, which would be, in fact, a reproduction of the previous capital of one thousand quarters, and also a stock of commodities for the capitalist's own use, produced by one-sixth of the labour employed in reproducing the capital, and therefore one-sixth of the value of the capital. The value of the returns on an advance of capital for a year would exceed the value of the advances by one-sixth. The rate of profit therefore would, as we said before, remain stationary at twenty per cent. per annum. And five-sixths of the labourers would be employed in producing commodities for their own use, and one-sixth in producing commodities for the use of the capitalists.

We will now consider the effects of any alteration in the proportion of capital to labour. Suppose that emigration or an unhealthy season should diminish by fifty the number of labouring families: each capitalist would have the same capital; consisting of wages produced by the labour of one hundred families during the year, and which we have called one thousand quarters of corn: but the number of labourers being diminished by one-twenty-fourth, instead of commanding the labour of one hundred and twenty families, they would command the labour of only one hundred and fifteen. The one thousand quarters of corn would be divided among one hundred and fifteen families instead of among one hundred and twenty, and the capitalist would get only fifteen casks of wine during the subsequent year instead of twenty. To take the converse: if immigration or an increase of population should have increased the number of labourers by fifty, each capitalist, instead of one hundred and twenty families, would be able to command the labour of one hundred and twenty-five. The one thousand quarters would be divided among one hundred and twenty-five families, instead of among one hundred and twenty, and the capitalist might employ twenty-five families to produce wine for himself instead of twenty. In the one case, profits rise from twenty to about twenty-five per cent.; in the other, they fall to about fifteen. On the other hand, if we suppose the labouring population to remain stationary at one thousand two hundred families, but the capitalists, instead of employing each one hundred families in the production of wages, and twenty in the production of profits, to employ each one hundred and five in the production of wages, each capitalist would at the end of the year have a capital of one thousand and fifty quarters produced by the labour of one hundred and five families, and commanding the labour of one hundred and twenty; or if they each employed in the production of wages only ninety-five families, and in the production of profits twenty-five, each would have at the end of the year a capital of nine hundred and fifty quarters, produced by the labour of ninety-five families, and commanding the labour of one hundred and twenty. Profits would fall in the first instance from twenty per cent. to less than fifteen; in the second, they would rise to more than twenty-five. If, however, the increase of the number of labourers employed in the production of wages should be accompanied by a proportionate increase in the whole number of labourers; or if, when the number of labourers employed in the production of wages was diminished, the whole number of labourers should be diminished in proportion; or, in other words, if the proportion of capital to labour remained unaltered, the rate of profit would be also unaltered. If each were increased, or each diminished, but in different proportions, profits would rise or fall according to the relative variations in the supply of wages and labour.

It appears, therefore, that, under the most simple state of circumstances, the rate of profits depends, as we said before, on the previous conduct of the capitalists and the labourers in a Country.

In this hypothesis we have supposed all the capitalists to act together. And as every permanent increase of capital while the number of labourers remained the same would, under the supposed circumstances, occasion a proportionate diminution of the rate of profit, it never could be the interest of the capitalists, as a body, to increase their capital, except with a view to increase the number of labourers; or even to keep up their capital, except so far as it should be necessary to keep up the existing number of labourers. It would be their interest, if the population were incapable of increase, to devote to the production of wages labour just sufficient to produce the necessaries of life for that stationary population, if the population were advancing just sufficient to enable it to advance; to treat the labourers, in short, as a farmer treats his horses, or a slave-owner his slaves.

Under such circumstances, supposing the capitalists to be governed solely by their interest, the rate of profit would depend partly on the productiveness of labour, and partly on the period that must elapse between the time of the advances and of the returns. Given the period of advance, it would depend on the productiveness of labour. If a labourer by a year's labour could produce a return which, to reduce it to one denomination, we will call ten quarters of corn, and five quarters were enough for his support, the rate of profit would be one hundred per cent. per annum. By an advance of five quarters the capitalist would obtain a return of ten. If the labourer could produce fifteen, the rate of profit would be two hundred per cent.; by an advance of five the capitalist would obtain fifteen. If the labourer could produce only seven and a-half, profits would be fifty per cent. On the other hand, the productiveness of labour being given, the rate of profit would depend on the period for which the capital must be advanced. When the labourer receiving five quarters as wages could, by a year's labour, produce ten, a capitalist with a capital consisting of ten quarters could employ two labourers, each of whom would return to him ten quarters every year. But if, instead of returning ten quarters at the end of one year, a labourer returned twenty quarters at the end of two years, a capitalist with a capital of ten quarters would be able to employ only one labourer instead of two; for if he were to employ two his capital would be exhausted before it was reproduced. Only one-half of the number of labourers could be employed by the same amount of capital, and instead of getting a net revenue of ten quarters every year, the capitalist would get a net revenue of only ten quarters every two years.

Happily, however, the capitalists of a Country, do not act as a body. Each pursues his own scheme of aggrandizement, indifferent to its effect on his neighbours, and it is chiefly to their mutual competition that we owe the increase both of capital and of population. To revert to our original hypothesis; suppose one of the capitalists, instead of employing, like each of the others, twenty labourers to produce commodities for his own use and one hundred to produce wages, to employ one hundred and ten labourers in the production of wages. At the end of the year he would have a capital consisting of one thousand one hundred quarters of corn produced by the labour of one hundred and ten families, and commanding, at the existing rate of wages, the labour of one hundred and thirty-two families; and the nine others would have each a capital consisting of one thousand quarters, produced by the labour of one hundred families, and commanding, at the existing rate of wages, one hundred and twenty families. The whole capital of the Country, instead of its former amount, namely, ten thousand quarters, being wages for one thousand two hundred families, would amount to ten thousand one hundred quarters, being wages for one thousand two hundred and twelve families. But as there would be only one thousand two hundred families to receive them, profits would fall about one per cent., or from twenty per cent. to a fraction less than nineteen per cent. per annum. This fall of profits would prevent the capitalist, to whose conduct it was owing, from reaping the full benefit of his accumulation. He would find himself possessed of a capital consisting of one thousand one hundred quarters, being wages produced by the labour of one hundred and ten families, and commanding the labour of one hundred and thirty and a fraction; but every other capitalist would find his capital of one thousand quarters, produced by the labour of one hundred families, commanding the labour of a small fraction less than one hundred and nineteen families. The first, or accumulating capitalist, would find the value of his capital and the amount of his profits increased, though the rate of profits had fallen one per cent. But all the other capitalists would find both the value of their capital and the amount of their profits diminished.

Now there is nothing to which a capitalist submits so reluctantly as the diminution of the value of his capital. He is dissatisfied if it even remain stationary. Capitals are generally formed from small beginnings by acts of accumulation, which become in time habitual. The capitalist soon regards the increase of his capital as the great business of his life; and considers the greater part of his profit more as a means to that end than as a subject of enjoyment. It is probable, therefore, that the other capitalists in the Country would endeavour to keep the value of their capitals unimpaired, though at the expense of a diminution of the general rate of profit. One after another would follow the example of the first-mentioned capitalist, and devote to the increase of their respective capitals a portion of the labour previously employed in furnishing commodities for their own use. In time each capitalist, instead of employing one hundred families in the reproduction of capital, and twenty in supplying his own enjoyments, would employ one hundred and ten in the reproduction of capital, and only ten for his own purposes. The rate of profit would fall from twenty to ten per cent., and, of the one thousand two hundred labouring families, one thousand one hundred would be employed in producing wages, and only one hundred in producing profits. The annual produce of the Country, instead of ten thousand quarters of corn and two hundred casks of wine, would consist of ten thousand one hundred quarters of corn and one hundred casks of wine. Instead of five-sixths of the labourers in the Country being employed in producing commodities for the use of the labourers and one-sixth for the use of capitalists, eleven-twelfths would be employed for the benefit of the labourers, and only one-twelfth for the benefit of the capitalists.

This fall of profit, however, could take place only on the supposition of the number of labouring families remaining unaltered. But it is highly improbable that it could remain unincreased. The increase of wages would enable the labourers to marry earlier, or to raise more numerous families. If labour should remain equally productive, their numbers might increase until the former proportion of labourers to capital had been restored. All the results would be beneficial. The labourers would not be worse off than before the additional accumulation took place, and the capitalists would be better off. The value of their capitals and the amount of their profits would be increased, and the rate of profit would be again twenty per cent. per annum.

We set out with supposing a Country possessing an abundance of fertile land. Under such circumstances the productiveness of labour might for a long period continue, or even increase, with every addition to the number of its inhabitants. But in a densely-peopled Country the powers of labour seldom remain the same during an increase of population. In manufactures labour becomes proportionably more productive. In agriculture, unless aided by increased industry or skill, or by permanent improvements of the soil, it becomes proportionably less so. And, as the labourer consumes chiefly raw or slightly-manufactured produce, the increased facility of obtaining manufactures may not make up for an increased difficulty in obtaining raw produce. In an old country, therefore, when the rate of profit has been reduced by an increase of capital, it seldom can be fully restored by a proportionate increase of population, unless either the labourer receives a smaller quantity of raw produce than before, or the necessity of cultivating lands of inferior productiveness is obviated either by permanent improvements, such as draining marshes, or fertilizing bogs, or by additional industry or skill, or by the importation of raw produce. In such Countries the natural progress seems to be an increase of capital, occasioning a fall of the rate of profit; a check to that fall, occasioned by an increase of the labouring population; a check to that increase, occasioned by an increased difficulty in obtaining raw produce; and a diminution, rarely amounting to a removal, of that difficulty, occasioned by permanent agricultural improvements, increased industry or skill, or foreign importation; leaving, as the general result, a constant tendency towards an increase of capital and population, and towards a fall in the rate of profits.

In our hypothesis we have supposed the whole capital of the Country to be consumed and reproduced every year. Under such circumstances it has appeared that, the number of labourers remaining the same, no permanent addition could be made to capital without occasioning immediately a proportionate diminution of the rate of profit, since that addition would disappear in a year unless reproduced by a repetition of the sacrifice on the part of the capitalist by whom it was originally created. But the result would be different if that addition were made in a form requiring no further labour for its reproduction. Suppose the capitalist, instead of adding five to the hundred families employed in producing wages, were to employ the additional five in the construction of a durable machine enabling one man to do some piece of work that previously required two. At the end of the first year each capitalist would possess wages for one hundred and twenty families, produced by the labour of one hundred families; commodities for his own use, produced by the labour of fifteen families; and his machine, produced by the labour of five families. But in every subsequent year he might obtain wages for one hundred and twenty families by employing only ninety-nine families and his machine, and might employ twenty-one families in producing commodities for himself. Both the rate and the amount of profit would be increased without any diminution of wages. Such a machine is a new labourer added to the existing number of labourers, but a new labourer whom it costs nothing to maintain. It adds to the amount of the profit of the capitalist who has constructed it, without either taking from the profits of other capitalists, as must be the case when additional capital is created, which must be kept up and worked by additional labour; or taking from the wages of the other labourers, as must be the case when an additional labourer is added, whose subsistence must be taken from the common fund. A machine or implement is, in fact, merely a means by which the productiveness of labour is increased. The millions which have been expended in this Country in making roads, bridges, and ports, have had no tendency to reduce either the rate of profit or the amount of wages. They have, in fact, had a tendency to keep up both, by enabling labour to be more productive, and consequently enabling the circulating capital and the population of the Country to increase in corresponding ratios.

It appears, therefore, that in one of the main employments of capital, namely, the employment of labourers to produce commodities for the use of labourers, or, in other words, to produce wages, the difference between the value of the returns and the value of the advances depends on the amount of labour which at a previous period was devoted to the production of wages, compared with the amount of labour which those wages when produced can command. And as the rate of profits in every different employment of capital has a tendency to equality, we may infer that all capitals, however employed, yield about the same rate of profit as those which are employed in the production of wages.

Average Period of Advance of Capital.—The first of the two principles which regulate the division of the produce between the capitalist and the labourer, namely, the rate of profit in the advance of capital for a given time, having been, in some measure, ascertained, we proceed to inquire into the causes which regulate the second principle, namely, the average time for which the capital must be advanced.

It must be recollected, however, that the expression "the capitalist's share," though familiarly used by Economists, is not strictly correct. When the product is completed, it is the sole property of the capitalist, who has purchased it by paying in advance the labourer's wages. What is meant, therefore, by "the capitalist's share," is that portion of the product, or of the price for which it sells, which the capitalist can retain and apply for his own purposes, keeping the value of his capital unimpaired. What is meant by "the labourer's share," is that portion of the produce, or of the price for which it sells, which the capitalist, if he keep his capital unimpaired, cannot employ for his own purposes, but must employ in advancing the price of the labour by which the work of reproduction is to be performed. We have already shown that, the period of advance being given, these proportions are determined by the rate of profit. It is equally clear that, the rate of profit being given, they must be determined by the period of advance. If a capitalist has a return which we will call twelve quarters of corn, and we wish to know how much of it he must retain as capital, and how much he may use as profit, the first inquiry is, For what period must he advance his capital before he can again obtain a similar return? The next inquiry is, What is the current rate of profit? If the answer to the first inquiry be, one year, and to the second, twenty per cent. per annum, it follows that, by constantly employing ten quarters as wages, he will receive two as profit. If the period of advance be only six months, the rate of profit continuing at twenty per cent. per annum, he must employ eleven and a fraction as capital, and will not receive quite one as profit. If the period of advance be two years, the rate of profit continuing at twenty per cent. per annum, rather less than eight quarters will form a sufficient capital, and rather more than four will be profit. With every prolongation of the period of advance, the rate of profit continuing the same, the capitalist's share must increase. With every abridgement of that period it must diminish. And it is equally obvious that, the period of advance being given, the capitalist's share must augment with every increase of the rate of profit, and diminish as that rate decreases.

On what then does the period for which capital is to be advanced depend? To this question no general answer can be given. The period differs according to the accidents of soil and climate; it varies indefinitely in every different business, and even in employments which, in other respects, are perfectly similar.

In Europe the harvest is annual; in Hindostan it recurs every six months. The average period for which agricultural wages are advanced must at least be twice as long in Europe as in Hindostan. A great part of the capital employed in breeding horses must be advanced four or five years; that employed in planting must be advanced forty or fifty. A very small part of the capital of a butcher or a baker is advanced for more than a week. The stock of a fishmonger spoils in a day; that of a Reinish wine-merchant is improved by being kept a century. As a general rule, the average period is longer or shorter in one Country than in another, in an inverse proportion to the general rate of profit. In the general market of the world, a Country in which the rate of profit is low has over one where it is high an advantage which increases at compound interest, as the period of advance is prolonged. The rate of profit in Russia is supposed to be above twice as high as in England. We will suppose that rate to be five per cent. per annum in England, and ten in Russia. A commodity produced in Russia by an advance of £10 for twenty years would sell for nearly £70. A commodity produced in England by the advance of £20 for the same time would sell for less than £60. The difference in the rate of profit would far outbalance a doubling of the first expenditure. Profits are supposed to be lower in Holland and in England than in any other part of the globe. The English and the Dutch, therefore, have almost a monopoly in those trades in which the returns are distant. Abstinence with them is a cheap instrument of production, and they use it to the utmost. In their commerce with other nations they generally pay in ready money, but give a very long credit. They purchase raw produce, and sell manufactures. In many instances they even advance to the foreign Countries the first expenses of production. The indigo of Bengal, the wines of the Cape, the wool of Australia, and the silver of Mexico, are in a great measure produced by the advance of English capital. The accumulated interest on such advances would be an intolerable addition to the value of the returns if the rate of profit were high. This circumstance occasions a tendency to uniformity in the proportion, in different Countries, in which the produce is shared between the capitalist and the labourer. Where profits are high, the capitalist's share is kept down by the shortness of the period for which his capital is advanced. Where they are low, it is kept up by the prolongation of that period.

The labourer is far more interested in the comparative rate of profit than in the comparative period for which capital is advanced. The productiveness of labour and the period of advance being given, we have seen that the amount of his share of the product depends on the rate of profit. It is his interest, therefore, in the first place, that when capital is employed in the production of the commodities which he consumes, all other things remaining the same, the rate of profit should be low. And if it were possible that the rate of profit in other employments could be higher, capital would be diverted from the only production in which the labourer is directly interested—the production of commodities for his own use—and the general fund for the maintenance of labour would be diminished. All other things, therefore, remaining the same, it is the labourer's interest that the rate of profit should be universally low. But it must be recollected, first, that the average period for which capital is advanced, especially in the production of the commodities used by labourers, is so short that the capitalist's share is small even when profits are high: if the advance has been for six months, the capitalist's share, at the high rate of twenty per cent. per annum, would be less than one-eleventh: and, secondly, that a high rate of profit is generally found to accompany a great productiveness of labour. And therefore that, in general, the labourer is better paid, or, in other words, receives a larger amount of commodities, when profits are high, that is when he receives a small share, than when profits are low, that is when he receives a large share, of the value of what he produces. The increase of the labourer's share from ten-elevenths to twenty-one-twenty-seconds, which would be the consequence in the case which we have supposed of a fall of profits by one-half, would add very little to the amount of his wages.

On the other hand, it is his interest that, when capital is employed in the production of what he himself consumes, the period of advance should be short. We will suppose a labourer employed on the least productive soil to produce by a year's labour, employed in hoeing and weeding, an additional produce of twenty-two quarters of corn; the wages of labour to be £20 a-year; the rate of profit to be ten per cent. per annum, and a year to elapse between the advance of the wages and the corn being fit for use; the price of the corn would be £22; the labourer would receive twenty quarters, or, what is the same, £20, with which he could purchase twenty quarters. But if corn were not fit for use until it had been kept for ten years, on the same data, the corn, instead of selling for £22, would sell for above £50; the labourer would receive less than ten quarters instead of twenty, or, what comes to the same, his wages, instead of twenty, would purchase less than ten quarters. To produce the corn would require the same degree of labour as before, but ten times as much abstinence.

Another consequence of the prolongation of the period of advance would be, that with the same amount of capital the capitalist would be able to maintain much fewer labourers than before. If ten quarters were necessary to maintain a labouring family during a year, and they could reproduce eleven in a state fit for consumption at the end of the year, a capital of one hundred quarters would enable a capitalist to keep in constant employ ten labouring families during the first year, and eleven during every subsequent year. But, if the corn were not fit for consumption till the end of ten years, a capitalist starting with a capital of one hundred quarters could not maintain more than a single family, for, if he were to maintain more, the capital would be exhausted before it was reproduced. The prolongation of the period of advance would have precisely the same effect as a diminished productiveness of labour.

But the prolongation of the period of advance of the capital employed in the production of the commodities which the labourer does not consume is utterly indifferent to him. If a labourer by a year's labour can produce twenty-two ounces of lace, his wages being £20 a-year, and advanced for a year, and the rate of profit being ten per cent., he will receive ten-elevenths of the value of the lace, or, in other words, he might purchase with his wages twenty ounces of lace. If the lace required keeping for ten years, his wages would purchase less than ten ounces of the lace in its complete state. But as he never wishes to purchase lace, and as the prolongation of the period for which capital must be advanced in the production of lace would not affect either the productiveness of labour, or the rate of profit, or the period of advance in any other employment, it would be utterly indifferent to him; it would affect only the consumers of lace.

We have seen that, although practically high wages and high profits generally go together, yet, all other things remaining the same, it is the interest of the labourers that profits should be universally low. It is equally clear that it is the interest of the capitalists that they should be universally high. A fall in the rate of profit in any one employment has a tendency to force capital into the others. This diminishes the competition among the first-mentioned capitalists, but increases it among the others. The first are relieved, but it is only by the loss being spread over the whole body.

But a prolongation of the period of advance affects the capitalist only so far as he uses the specific commodity with respect to which that prolongation has taken place. The rate of profit on the advance of capital for a given period being given, the length of the period between the bottling of a pipe of port and its being fit for use affects a wine merchant only so far as he drinks port. As a consumer, it is his interest that the period should be short; as a capitalist it is immaterial to him.

We have now given an outline of the causes which affect the general rate of wages, the most important and the most difficult of all the subjects embraced by Political Economy. It has appeared, first, that the general rate of wages depends on the amount of the fund for the maintenance of labourers, compared with the number of labourers to be maintained.

Secondly, that the amount of that fund depends partly on the productiveness of labour in the production of the commodities used by the labourer, or, to speak more concisely, in the production of wages, and partly on the number of labourers employed in the production of wages compared with the whole number of labourers.

Thirdly, that the productiveness of labour depends on the character of the labourer, or the assistance which he derives from natural agents, and from capital, and on his freedom from interference.

Fourthly, that, in the absence of rent and improper or unequally-distributed taxation, the proportion of the labourers employed in producing wages to the whole number of labourers depends partly on the rate of profit, and partly on the time for which the capital employed in the production of wages must be advanced.

Fifthly, that the rate of profit, at any given time, depends on the previous conduct of capitalists and labourers.

And, sixthly, that the period for which capital must be advanced is subject to no general rule, but has a tendency to be prolonged when profits are low, and shortened when they are high.

The inquiry into the causes which regulate wages has, in a great measure, ascertained those which affect profits. We have to add only that profits may be considered in three points of view: first, as to their rate; secondly, as to their amount; and, thirdly, as to the amount of desirable objects which a given amount of profit will command. The causes which decide the rate of profit have been already considered. It has been shown that they depend on the proportion which the supply of capital employed in providing wages bears to the supply of labour. The rate being given, the amount of the profit received by any given capitalist must depend, of course, on the amount of his capital. It follows that, when the rate of profit falls in consequence of an increase of capital without a proportionate increase of labourers, the situation of the existing capitalists, as a body, cannot be deteriorated, unless the fall in the rate has been so great as to overbalance the increase of the amount. Two millions, at five per cent., would give as large an amount of profit as one million at ten. At seven and a-half per cent. they would give a much larger. And such is the tendency of an increase of capital to produce, not indeed a corresponding, but still a positive increase of population, that we believe there is no instance on record of the whole amount of profits having diminished with an increase of the whole amount of capital.

Totally distinct from the amount of profit is the amount of desirable objects which a given amount of profit will purchase. A Chinese and an English capitalist, each of whose annual profit will command the labour of ten families for a year, will enjoy in different degrees the comfort and conveniences of life. The Englishman will have more woollen goods and hardware, the Chinese more tea and silk. The difference depends on the different productiveness of labour in China and in England in the production of those commodities which are used by the capitalists in each Country. In the command of labour, and, in the rank in society which that command gives, they are on a par. We have seen that, as population advances, labour has a tendency to become less efficient in the production of raw produce, and more productive in manufactures. The same amount of profit therefore, will enable the capitalist in a thinly-peopled Country to enjoy coarse profusion, or among a dense population moderate refinement. A South American, with an annual income commanding the labour of one hundred families, would live in a log-house on the skirts of a forest, and keep, perhaps, one hundred horses. An Englishman with the same command of labour would live in a well-furnished villa and keep a chariot and pair. Each would possess sources of enjoyment totally beyond the reach of the other.

Variations of the Amount of Wages and the Rate of Profits in different Employments of Labour and Capital.

In the previous discussion we have assumed the existence of a certain average rate of Wages and average rate of Profits. We now propose to consider the influence of some specific causes on the amount of wages and the rate of profits in Different Employments of Labour and Capital.

The justly celebrated chapter on this subject in the Wealth of Nations begins with the following words:—

"The five following are the principal circumstances which, so far as I have been able to observe, make up for a small pecuniary gain in some employments, and counterbalance a great one in others. 1. The agreeableness or disagreeableness of the employments themselves. 2. The easiness and cheapness, or the difficulty and expense, of learning them. 3. The constancy or inconstancy of employment in them. 4. The small or great trust which must be reposed in those who exercise them. 5. The probability or improbability of success in them." Book I. Ch. X.

As our remarks will be chiefly a commentary on those of Adam Smith, we shall, as far as we can, follow his arrangement. We shall begin, therefore, by the influence of agreeableness or disagreeableness.

1. Agreeableness.—The act of labouring implies a sacrifice of ease, and it is chiefly to this sacrifice that our attention is directed when we speak of wages as the remuneration for labour. But, as we have already observed, the indolence which generally indisposes to severe or long-continued bodily exertion is not in all cases the only feeling which the labourer has to conquer. His employment may be dangerous, or physically disagreeable, or degrading. In any one of these cases his wages are the reward not only of the fatigue, but of the hazard, the discomfort, or the discredit which he has encountered. Adam Smith, however, has remarked, that the prospect of hazards from which we can hope to extricate ourselves by courage and address is not disagreeable, and does not raise the wages of labour in any employment. "The dangers and hair-breadth escapes of a life of adventure, instead of disheartening young people, seem frequently to recommend a trade to them. But it is otherwise," he observes, "with those in which courage and address can be of no avail. In trades which are known to be very unwholesome the wages of labour are always remarkably high."*34

Unwholesomeness, indeed, is generally united to other disagreeable circumstances. Dirt, dust, deleterious atmosphere, exposure to continued heat or cold, or to sudden transitions from the one to the other, which are the principal causes of unhealthiness in any business, are also the principal causes of its being generally disagreeable. When toil, disease, and discomfort, are all to be encountered, the temptation must indeed be high. But this union is not universal. The trade of a house-painter is one of the most agreeable, and one of the most unwholesome, among ordinary occupations. On the other hand, that of a butcher, though brutal and disgusting, is eminently healthy. The wages of each are, we believe, about equal, and considerably exceed the remuneration for the mere labour undergone, which, in fact, is in both cases very trifling. But the fear of popular odium, and, what is always strongest amongst the least educated, the fear of popular ridicule, as they are amongst the most powerful feelings of our nature, are the most effectual means by which the wages of an employment can be increased. To Adam Smith's instance of a public executioner may be added that of a common informer; both of whom are remunerated at a rate quite disproportioned to the quantity of work which they do. They are paid not so much for encountering toil as for being pelted and hissed. The most degrading of all common trades, perhaps, is that of a beggar; but when pursued as a trade, it is believed to be a very gainful one.

Such appears to be the influence upon wages of danger, discomfort, and disgrace. And it may be supposed that any peculiarly agreeable employment is generally as comparatively underpaid as peculiarly disagreeable ones are overpaid. Adam Smith has accordingly remarked that in a civilized society hunters and fishers, who follow as a trade what other people pursue as a pastime, are generally very poor people. "Fishermen" he observes, "have been poor from the times of Theocritus. The natural taste for these employments makes more people follow them than can live comfortably by them; and the produce of their labour, in proportion to its quantity, comes always too cheap to market to afford any thing but the most scanty subsistence to the labourers." Hunting, however, can scarcely be said to exist as a trade in any well-civilized Country. And we doubt the accuracy of Adam Smith's statement as to fishermen; unless, as perhaps was the case, he intended to confine them to the small number of anglers and poachers on rivers, who do, in fact, follow as a trade what other men enjoy as a pastime. Marine fishery is a business of too much toil and hardship to be very attractive; and if any proof, besides the well-fed persons and ample clothing of the men and their families were required, of its being well paid, it would be found in the fact that the capital employed in it, which is far from inconsiderable, generally belongs to the fishermen themselves.

As a general rule, we fear it must be admitted that the occupations open to those who are not possessed of capital differ only in the degree in which they are disagreeable. The least disagreeable are man's primeval occupations, those of a shepherd and a tiller of the ground. And, accordingly, we believe that in every state of society the lowest wages are those which are paid to agricultural labourers. The current wages of common agricultural labourers, may, therefore, in general be considered as representing the value, at the time and place where they are paid, of mere bodily labour. If, at the same time and place, we find the services of any other labourer more highly paid, we may infer either that this employment is subject to some peculiar disadvantage, or that, in fact, rent or profit enter into his remuneration.

Adam Smith states that, in point of agreeableness or disagreeableness, there is little or no difference in the greater part of the different employments of stock, though a great deal in those of labour; and he infers, as we have seen, that average profits are more nearly on a level than average wages. That portion of profit which is simply the remuneration for abstinence is certainly, at the same time and place, nearly on a level; for abstinence, being a negative idea, does not admit of degrees, excepting in the amount of capital from the unproductive use of which the capitalist abstains, and the length of time during which he abstains.

But we cannot admit that the agreeableness or disagreeableness of the greater part of the different employments of capital is about the same. Nor would Adam Smith have stated them to be so unless he had used wages in a wider, and profit in a narrower sense than that which has been adopted in this Treatise. Wages, in the sense in which we have used the word, are paid almost exclusively for undergoing bodily labour or bodily inconvenience, and bodily labour is almost always disagreeable. But the labour of employing capital is principally mental, and mental exertion is often delightful. We frequently hear of men who are devoted to their profession or their business, however generally unattractive. A surgeon once told us that, whatever were his income, his utmost happiness would be to superintend a great military hospital. Half the miseries of mankind have arisen from the delight of statesmen in governing, and of generals in war. Again, the mere labourer receives mere pecuniary wages, or food, shelter, and clothing, of equal value. The capitalist is often paid by power or reputation, and sometimes receives the highest of human rewards, the consciousness that he has been widely and permanently useful. And, on the other hand, there are employments, as for instance the slave-trade, which imply fatigue, hardship, and danger, public execration, and, if a slave-trader can be supposed to reflect on the nature of his occupation, self-reproach. It is unnecessary to prove by a formal induction that, when almost all that renders life agreeable, or even endurable, is sacrificed to profit, the profit must be great, or that competition must reduce very low the pecuniary reward or valuable remuneration of occupations which seem to carry with them their own reward.

It may not appear obvious why the extra profit of a disagreeable employment should bear any proportion to the value of the capital employed in it. It must be remembered that, since the number of persons possessed of a given capital becomes rapidly smaller as the amount of the supposed capital is larger, the possessors of any given amount of capital enjoy a sort of monopoly, which becomes stricter and stricter as the given amount is larger; and, secondly, that the larger a man's capital, and consequently his income, the greater must be the temptation necessary to induce him to encounter moral or physical evil in the hope of increasing it. On the other hand, both the trouble and the inferiority of rank that accompany any trade are generally in inverse proportion to the capital employed. Where, indeed, the objection to a trade arises from its moral turpitude, as in the case of the keeper of a gambling-house, or of any place of still more shameful resort, its extent will only increase its infamy. But in the absence of this peculiar objection, the same trade which on a small scale is mean, is respectable in a large way, and almost dignified when carried to its greatest extent. The trouble cannot be so completely got rid of, but, when the capital is large enough to enable the employment of clerks and junior partners of great knowledge and high character, it may often be so far reduced as to occupy a small portion of the principal's daily time. There are at this instant many persons busily engaged, and even distinguished in politics and literature, who are also at the head of great banking, brewing, or mercantile establishments. It is not probable that their occupations in business can employ much of their time.

The result that might be anticipated from these opposing circumstances is, that that part of profit which is the remuneration for the trouble and other sacrifices, independent of abstinence made by the capitalist, though it must positively increase in amount, yet generally bears a smaller proportion to the capital employed as that capital increases in value. And this anticipation is, we think, confirmed by observation. There are, we apprehend, few persons employing in England a capital of £100,000, who would not be satisfied with a profit of less than ten per cent. per annum. A manufacturer of considerable eminence, with a capital of £40,000, complained to us of the smallness of his profits, which he estimated at twelve and a half per cent. About fifteen per cent. we believe to be the average that is expected by men with mercantile capitals between £10,000 and £20,000. Scarcely any wholesale trade can be carried on with a capital of less than £10,000. The capitals of less value, therefore, generally belong to farmers, shopkeepers, and small manufacturers, who, even when their capital amounts to £5000 or £6000, expect twenty per cent., and when it is lower a much larger per centage. We have heard that stall fruit-sellers calculate their gains at 2d. in the shilling, or twenty per cent. per day, or something more than 7000 per cent. per annum. This seems, however, almost too low. The capital employed at any one time seldom exceeds in value 5s., twenty per cent. on which would only be 1s. a-day; a sum which would scarcely pay the wages of the mere labour employed. It is, however, possible that the capital may sometimes be turned more than once in a day; and the capitalists in question, if they can be called so, are generally the old and infirm, whose labour is of little value. The calculation, therefore, may probably be correct, and we have mentioned it as the highest apparent rate of profit that we know.

2. Facility of learning the Business.—"Secondly," says Adam Smith, "the wages of labour vary with the easiness and cheapness, or the difficulty and expense, of learning the business.

"When any expensive machine is erected, the extraordinary work to be performed by it before it is worn out, it must be expected, will replace the capital laid out on it with at least the ordinary profits. A man educated at the expense of much labour and time may be compared to one of these expensive machines. The work which he learns to perform, it must be expected, over and above the usual wages of common labour, will replace to him the whole expense of his education with at least the ordinary profits of an equally valuable capital. It must do this in a reasonable time, regard being had to the very uncertain duration of human life, in the same manner as to the more certain duration of the machine. The difference between the wages of skilled labour and those of common labour is founded on this principle." Book I. Ch. X.

We agree with the whole of this admirable passage, except that we think it shows the propriety of rather terming the surplus remuneration of skilled over common labour profit than wages. It is an advantage derived by the skilled labourer in consequence partly of his own previous conduct, and partly of that of his parents or friends;—of the labour and of the expense which they respectively contributed to his education. It is profit on a capital, though on that sort of capital which cannot be made available without the labour of its possessor.

Adam Smith has remarked that, in the liberal professions, this labour and expense are very inadequately remunerated; and he attributes the slightness of their remuneration first to the desire of the reputation which attends upon superior excellence in any of them; secondly, to the natural confidence which every man has, more or less, not only in his own abilities, but in his own good fortune; and thirdly, as far as literature and the church are concerned, to the number of persons who are educated for those occupations at the public expense.

The two first causes operate very forcibly. The influence of the third he has, we think, exaggerated, or, perhaps, its force may have much diminished since he wrote. In the first place, though our population has nearly doubled in the interval, the number of provisions for affording gratuitously the means of a liberal education has not materially increased. And, secondly, from the change which has taken place in the style of living at the places of education, and in many cases from the nominal value of the provisions having remained unaltered, while money has lost more than half its value, these provisions now afford much less real assistance to the persons who obtain them. Adam Smith seems to have supposed that the greater part of the clergy were educated at the expense of the public, and he expressly states that few were educated altogether at their own. But at present there are scarcely any undergraduates at either of our Universities wholly maintained by a foundation: probably there are not twenty who receive from such a source one-half of their expenditure, and by far the greater number receive no pecuniary assistance except from the relative cheapness of instruction. We say relative cheapness, because the sum of money positively paid for instruction is perhaps as great at Oxford and Cambridge as at most other Universities; but the attention bestowed by the teacher on each individual student is considerably greater. In the foreign Universities a lecture is a discourse delivered by the professor; in ours, the College lectures, which are the principal means of instruction, are, in a great degree, examinations undergone by the pupils. There can be no comparison between the labour imposed on the teacher in these two modes of education. But that which is the laborious one necessarily confines each tutor to a small number of pupils. If our foundations did not afford them an income, our tutors must either require a much larger remuneration from each pupil, or adopt the foreign mode of teaching by discourses delivered to large assemblies.

The principal cause which fills the avenues to some of the liberal professions with candidates so numerous as materially to diminish one another's reward is one which Adam Smith has omitted.

The average expense of providing in the cheapest manner for the maintenance of a child until it can maintain itself by ordinary labour may perhaps amount to about £40. This is double the sum for which a parish will indemnify the father of a bastard. The parish, however, speculates on the chances of the child's death. The average expense of giving to a gentleman's son the education which is essential to his holding his father's rank cannot be estimated at less than £2040. But neither the labour which the boy undergoes, nor the expense borne by his father, is incurred principally in order to obtain future profit. The boy works under the stimulus of immediate praise or immediate punishment. It never occurs to the father that it would be cheaper to have his child nursed in the country at 2s. a-week till he is eight years old, and then removed to a farm-yard or a cotton-mill; and that in giving him a more expensive education he is engaging in a speculation which is likely to be unprofitable. To witness a son's daily improvement is, with all well-disposed men, or rather with all men, except a few outcasts, one of the greatest sources of immediate gratification. The expense incurred for that purpose is as much repaid by immediate enjoyment as that which is incurred to obtain the most transitory pleasures. It is true that a further object may also be obtained, but the immediate motive is ample.

But the extra expense and labour thus incurred in some cases constitute the whole expense and labour of preparation for a liberal profession, and in all cases constitute the bulk of that expense, and labour. In the church they constitute the whole of the expense, and almost all the labour. A graduate of Oxford or Cambridge may have a very little more to read before he takes orders, but has absolutely nothing more to pay. What he obtains, therefore, as a clergyman, after deducting the mere wages of his additional labour, is pure gain. And when we consider how many are the motives for undergoing that labour, besides the merely pecuniary ones, we might be tempted to wonder that the pecuniary rewards should remain so high. Three circumstances keep them up: two by diminishing the number of candidates, and the third by raising the fund applicable to their use. The two former ones are the indelibility of the clerical character, and the interdiction of clergymen from almost all secular employments, especially from those which offer the most glittering rewards. Many men would enter the church if they could combine it with other occupations, or if they might quit it at pleasure, who refuse to enter into a path in which it is not permitted to turn back or to diverge. These are probably the principal causes which tend in this Country to keep down the number of clergymen. The revenue of the existing members is kept up by means of the fund set apart by law for their use, and somewhat equalized by the repeated intervention of the Legislature to raise the remuneration of curates by prohibiting the incumbent from offering, and the curate from accepting, a stipend as low as would have been fixed on mere principles of competition. The expense of entering the army is probably about equal to that of the church; for though about £600 is to be added for the price of the first commission and for outfit, the difference is about made up by the early age at which the profession can be begun. The expense of the navy is much less, and either profession may be entered upon without further preparatory study. The Legislature has fixed the pay and other advantages of the army and navy (moderate as they appear to be) much higher than would have been necessary to keep up the supply of qualified candidates. The difficulty of obtaining permission to enter either of them is so notorious, that few persons without considerable interest ever think of them. Yet, notwithstanding the influence of this feeling in diminishing the number of competitors, the Admiralty and the Horse Guards are besieged by candidates for first commissions ten times more numerous than the vacancies.

The same may be said of what are the subjects of almost a distinct profession, public offices. Small as the emoluments are, if they are to be considered as repaying the expenses of education, they are objects of eager competition.

If further proof were wanted that the number of the candidates for the liberal professions is principally kept up by the feeling which forces every parent to endeavour to give to his children at least the education of his own rank rather than by calculation, it may be found in the abundance of governesses. The expense of giving to a girl the education which will fit her to be a governess, though not quite equal to that of educating a boy as a gentleman, is yet very considerable: no part of it is ever supplied by the public; and yet that profession is so overstocked with candidates that the pay scarcely equals that of a servant.

An expense of nearly £1000 beyond the common expense of a regular education may be necessary to start a young man as a physician, and perhaps nearly £1500 as a barrister. The lower branches of the legal and medical professions are about as expensive as the church or the army. But no branch of either law or physic admits of practice till after an apprenticeship of from three to five years, or of success, without three or four years of diligent study. The effect of all these causes has been so much to diminish the number of competitors in the medical and legal professions, that we much doubt whether they are now, as Adam Smith states them to have been in his time, under-recompensed in point of pecuniary gain. We speak more doubtfully as to medicine; but we can say, from the observation of many years, that his statement that, "if you send your son to study the law, it is at least twenty to one if he ever makes such proficiency as will enable him to live by the business," has no resemblance to the existing state of things. We have watched the progress of perhaps a hundred legal students, and, where fair diligence has been employed, success has been the rule, and failure the exception. Many, indeed, have not applied fair diligence; but we have seen much more success among the idle than failure among the laborious. So far from the chances being twenty to one against a young lawyer, we should be inclined to rate them at two to one in his favour.

3. Constancy of Employment.—A third cause of variableness both in wages and in profits is constancy or inconstancy of employment. The variations which it occasions are, however, rather apparent than real. A London porter, employed for an hour, would think himself ill paid by less than a shilling. A pavior or a hodman, whose labour is much more severe, seldom receives more than 3d. an hour. But the pavior can always find a market for his services. At 3d. an hour, he can at an average earn three shillings a-day, or about £46 a-year. The porter may be sometimes a day without a job. If his employment be less regular by three-fourths than that of the pavior, to make his annual wages equal, his hourly wages must of course be three times as high. Adam Smith, indeed, thinks that his annual wages ought to be higher than the average, to make him some compensation for those anxious and desponding moments which the thought of so precarious a situation must sometimes occasion. But this evil is compensated, and, in most dispositions, more than compensated, by the diminution of his toil. We believe, after all, that nothing is so much disliked as steady, regular labour; and that the opportunities of idleness afforded by an occupation of irregular employment are so much more than an equivalent for its anxiety as to reduce the annual wages of such occupations to below the common average.

In the employment of capital, however, this compensation does not often exist. The occasional unproductiveness of his capital, generally speaking, affords no relief to the capitalist. It must, therefore, be compensated by a surplus profit, when productive, at least enough to balance its periods of unproductiveness. A house-builder's capital often lies unproductive; there are some places in which the majority of the houses are unoccupied for nine months in the year. The builder's profit during their occupation must be at least four times as great as if they were regularly inhabited. One of the consequences of the effect of irregularity of employment on wages and profits is to occasion many services and commodities to cheapen as the demand for them increases. A man who can count on employment for four hours a-day would be forced by competition to sell his services for nearly half of what he might have asked if he could have reckoned on only two hours. Prices in a watering-place always fall as the season becomes longer.

4. Trust.—The fourth cause assigned by Adam Smith for the variation in wages, the small or great Trust which must be reposed in the workman, appears to be in a great measure included in the second of his causes, the expense of education. Occasionally, indeed, we see persons receiving and deserving confidence though brought up under disadvantageous circumstances. The integrity of such persons must arise from a peculiarly happy natural disposition, and its reward may then be considered a species of rent; but, as a general rule, trustworthiness is the result of early moral cultivation, and in that case is as much to be considered a part of a man's immaterial capital as his prudence or his knowledge.

5. Probability of Success.—The last of the causes mentioned by Adam Smith, as affecting the remuneration of different employments, is the Probability or Improbability of Success.

Uncertainty of success, in some respects, resembles inconstancy of employment. A few examples will show them to be different. The legal and medical professions are generally thought to be remarkably uncertain, but the employment of a successful physician or barrister is painfully incessant. On the other hand, a man may be morally sure that in a given occupation he will have a day's work forty or fifty times during a year, and that his earnings on those occasions will supply well his annual subsistence. Such an occupation would be certain, notwithstanding its inconstancy.

Uncertainty of success cannot well affect the wages of common labour, since no man, unless he be to a certain extent a capitalist, unless he have a fund for his intermediate support, can devote himself to an employment in which the success is uncertain. But its apparent, and indeed its real effect on profits, is very considerable.

Perfect knowledge, of course, excludes the idea of chance; but if all men had sufficient information to enable them to calculate fairly the chances of success, and were subject neither to rashness nor to timidity, it appears clear that even then the average profits of any employment would be raised by uncertainty of success.

When the sums are equal, to lose is obviously a greater evil than to gain is a good. If two men, with each a capital of £2000, toss up for £1000, the gainer augments his fortune by only one-third, and the loser sacrifices one-half. Laplace calculates the disadvantage at twenty-six per cent. At an equal game, he observes, the loss is relatively greater than the gain. Suppose a player with a fortune of 100 francs to risk 50 of them at heads and tails, his fortune, after he has deposited his stake, will be reduced to 87 francs; that is to say, 87 francs unhazarded would procure him as much happiness as 50 unhazarded, with 50 more subjected to the chance of being doubled or lost. Admitting this calculation to be correct, and admitting the existence of the degree of information and prudence which we have supposed, no one possessed of £10,000 would venture £5000 with an even chance of losing it, unless he had an even chance of gaining not merely £10,000, and an adequate profit on his capital of £5000, but could reckon on a further profit of £1300, as the price for undergoing the risk.

It is needless to say that men are far from possessing this degree either of information or of prudence. It is to be observed, however, that there are two sorts of uncertainty. In some cases the hazard is essentially connected with the employment itself, and recurs, in about an equal degree, at every operation. Smuggling, and the manufacture of gunpowder, are instances. Experience and skill may somewhat diminish the risk; but the best smuggler, and the best maker of gunpowder, probably each, suffers an average amount of loss. But there are employments in which success, if once obtained, is permanent. Such is often the case in mining. That mining is generally the road to ruin is notorious in all mining Countries; but there are miners who have never suffered a loss. The same may be said of the liberal professions. Granting them to be as uncertain as Adam Smith believed them to be, the evil to which that uncertainty refers is experienced only by those who fail. To those who succeed they afford a revenue eminently safe and regular. Their uncertainty is personal. It arises from the error to which every man is subject when he compares his own qualifications with those of his rivals. If he be found on the actual trial inferior, his failure is irretrievable. In the other alternative his success is as permanent. Where any business is necessarily and permanently hazardous, the fortunes of any one individual engaged in it afford a sample from which we may estimate the fortunes of all. If only one old farmer could give to us all his personal experience, we should probably have a tolerably correct conception of the hazards to which farming is exposed. But, if we were to estimate the chances of legal or medical success from the average of ten or twenty selected instances, we should be likely to be grossly misled. The first sort of uncertainty, therefore, is likely to be estimated with a much greater approach to correctness than the second.

Adam Smith believed both to be under-estimated, and, consequently, that the average profits of all hazardous employments are below the average profits of safe ones. His views are stated with so much force and ingenuity, that we will extract them at considerable length.

"The overweening conceit which the greater part of men have of their own abilities is an ancient evil remarked by the philosophers and moralists of all ages. Their absurd presumpt ionin their own good fortune has been less taken notice of. It is, however, if possible, still more universal. There is no man living who, when in tolerable health and spirits, has not some share of it. The chance of gain is by every man, more or less, overvalued; and the chance of loss is by most men undervalued; and by scarce any man, who is in tolerable health and spirits, valued at more than it is worth.

"That the chance of gain is naturally overvalued we may learn from the universal success of lotteries. The world neither ever saw, nor ever will see, a perfectly fair lottery, or one in which the whole gain compensated the whole loss, because the undertaker could make nothing by it. In the state lotteries the tickets are really not worth the price which is paid by the original subscribers, and yet commonly sell in the market for twenty, thirty, and sometimes forty per cent. advance. The vain hope of gaining some of the great prizes is the sole cause of this demand. The soberest people scarce look upon it as a folly to pay a small sum for the chance of gaining £10,000 or £20,000, though they know that even that small sum is perhaps twenty or thirty per cent. more than the chance is worth. In a lottery in which no prize exceeded £20, though, in other respects, it approached much nearer to a perfectly fair one than the common state lotteries, there would not be the same demand for tickets. In order to have a better chance for some of the great prizes, some people purchase several tickets, and others small shares in a still greater number. There is not, however, a more certain proposition in Mathematics, than that the more tickets you adventure upon, the more likely you are to be a loser. Adventure upon all the tickets in the lottery, and you lose for certain; and the greater the number of your tickets, the nearer you approach to this certainty.

"That the chance of loss is frequently undervalued, and scarce ever valued more than it is worth, we may learn from the very moderate profit of insurers. In order to make insurance either from fire or sea risk a trade at all, the common premium must be sufficient to compensate the common losses, to pay the expenses of management, and to afford such a profit as might have been drawn from an equal capital employed in any common trade. The person who pays no more than this evidently pays no more than the real value of the risk, or the lowest price at which he can reasonably expect to insure it. But, though many people have made a little money by insurance, very few have made a great fortune: and from this consideration alone it seems evident enough that the ordinary balance of profit and loss is not more advantageous in this than in other common trades, by which so many people make fortunes. Moderate, however, as the premium of insurance commonly is, many people despise the risk too much to care to pay it. Taking the whole kingdom at an average, nineteen houses in twenty, or rather perhaps ninety-nine in a hundred, are not insured from fire. Sea risk is more alarming to the greater part of people, and the proportion of ships insured to those not insured is much greater. Many sail, however, at all seasons, and even in time of war, without any insurance. This may sometimes, perhaps, be done without any imprudence. When a great company, or even a great merchant, has twenty or thirty ships at sea, they may, as it were, insure one another. The premium saved upon them all may more than compensate such losses as they are likely to meet with in the common course of chances. The neglect of insurance upon shipping, however, in the same manner as upon houses, is, in most cases, the effect of no such nice calculation, but of mere thoughtless rashness and presumptuous contempt of the risk. The ordinary rate of profit always rises, more or less, with the risk. It does not, however, seem to rise in proportion to it, or so as to compensate it completely. Bankruptcies are most frequent in the most hazardous trades. The most hazardous of all trades, that of a smuggler, though, when the adventure succeeds, it is likewise the most profitable, is the infallible road to bankruptcy. The presumptuous hope of success seems to act here as upon all other occasions, and to entice so many adventurers into those hazardous trades, that their competition reduces their profit below what is sufficient to compensate the risk. To compensate it completely, the common returns ought, over and above the ordinary profits of stock, not only to make up for all occasional losses, but to afford a surplus profit to the adventurers of the same nature with the profits of insurers. But if the common returns were sufficient for all this, bankruptcies would not be more frequent in these than in other trades." Book I. ch. X.

Whether Adam Smith's conclusions be true or false, they certainly do not follow from his premises. Bankruptcies might be frequent in a trade of extraordinary profit. We will suppose ten merchants each to employ for a year a capital of £10,000 in a remarkably safe trade, and ten others to employ equal capitals for the same period in a hazardous trade; and ten per cent. per annum to be the average rate of profit in undertakings involving similar trouble. The capital of £100,000 engaged in the safe trade would, at the end of the year, be raised to £110,000, but be distributed in the same proportions as before. If the capital engaged in the hazardous trade were also, at the end of the year, to amount to £110,000, it is clear that each trade would have been equally profitable, although a different distribution of the capital might have ruined some, and made the fortunes of others, among the merchants engaged in it. Two might have lost, and two others might have doubled, their whole property. If the capital in the hazardous trade were found, at the end of the year, to have been raised from £100,000 to £120,000, it is clear that the hazardous trade must have been twice as profitable as the safe one, though the whole of the advantage might have fallen to two or three or even to one of the supposed ten merchants, leaving all the others to bankruptcy.

Insurance was a still more unfortunate source of argument; for all the premises that it affords lead to a conclusion directly opposed to Adam Smith's. Insurance is one of the safest of employments. If its profits be remarkably moderate, their moderation can be accounted for only by the extra competition which its safety invites. It affords, therefore, at least one example in favour of the superior profit of hazardous employments. Nor can it be said that the majority of persons despise the risk too much to secure themselves against it by paying a moderate premium. So much do they fear the risk that they are willing to guard against it by paying a most immoderate premium. The sum received by the insurance office must, as Adam Smith has remarked, exceed the value of the risk by an amount sufficient to pay the expenses of management, and afford ordinary profit. The sum received by the office on common insurance against fire is 1s. 6d. per £100; of which at least 6d. must go to pay expenses and profit, leaving 1s. as the value of the risk. But a duty is also paid to government by the insured of 3s. per £100; so that the whole expense of insurance is 4s. 6d. per £100, or nearly five times the value of the risk. And, even at this extravagant rate, we believe that of good houses not one in a hundred is uninsured. So little do people despise the risk that, with their eyes open, they purchase a security against it at nearly five times its real value.

We suspect the fact to be that the imagination is unduly affected by the prospect either of enormous gain or of enormous loss; and, consequently, that men are ready to purchase the chance of obtaining a very great advantage, or the certainty of not suffering a very great disadvantage, at a price far beyond the value of either contingency. And this appears to be sufficiently proved by the facts which have been stated respecting insurance and lotteries. The English state lotteries of late times, indeed, afforded much more striking proofs of men's tendency to over-estimate the chances of extravagant gain than those which Adam Smith had seen. The tickets were always worth exactly £10 a-piece—£10 for each ticket forming always a sum equal to the aggregate amount of all the prizes; the average price of a ticket was from £21 to £24 a-piece. Instead of twenty or thirty per cent. the purchasers paid more than one hundred per cent. more than the value of their hope, just as, in the case of insurance, they pay nearly five hundred per cent. more than the value of their fear. The purchasers of tickets seem to have considered the relation between £24 and £20,000, not that between £24 and the one two-thousandth chance of getting £20,000. Just as those who insure their houses compare £2 5s. with £1000 instead of comparing it with the one two-thousandth chance of losing £1000. Adam Smith has well remarked, that if the disproportion between the sum paid and the sum attainable were altered, even though the bargain were rendered more favourable, the competition for it would diminish. No one would buy half the tickets in a lottery, even at £12 a ticket; he would at once see the absurdity of paying £120,000 for an even chance of getting £200,000, though, if the state lottery were now opened, a folly just twice as great in kind would be committed by thousands. So if, instead of one in two thousand, which we believe to be about the present average, one house in ten were annually burned down, and the annual expense of insurance were £22 10s. per cent., insurance would diminish, though the terms would be twice as favourable as they now are.

Those employments which offer the possibility of a great return for a small outlay are of the nature of lotteries; and it may be supposed that they attract competition in proportion not so much to the real value of the contingency as to the excess of the possible return over the certain outlay. If that excess be very great, it may be supposed that the number of competitors in proportion to that of prizes will reduce so low the value of each man's contingency as to render such employments on the whole unprofitable. In this C