/^ THE LIBRARY OF THE UNIVERSITY OF CALIFORNIA Digitized by the Internet Arciiive in 2007 with funding from IVIicrosoft Corporation http://www.archive.org/details/capitalpopulatioOOhawlrich CAPITAL AND POPULATIOl^:. A STUDY OF THE ECOx\OMIC EFFECTS OF THEIR RELATIONS TO EACH OTHER. BY FREDEKICK B. HAWLEY. , " o° J . >» NEW YORK: D. APPLETON AND COMPANY, 1, 8, AND 5 BOND STREET. 1882. COPTBIGHT BY D APPLETON AND COMPANY, 1882. HBir/ PREFACE. My position as an economist, as exemplified in this treatise, is a peculiar one. While classing myself, I believe justly, as a strict disciple of what is usually called the English or orthodox school, I have arrived at results, in many instances, diametrically opposed to theirs ; especially on the subjects of free trade and taxation. On the other hand, my reasoning presup- poses the falsity of most of the arguments heretofore advanced in support of the very conclusions I uphold. As I antagonize the results of one side and the meth- ods of the other, I can look for friends in neither camp. ]^evertheless, as the principle I have enunci- ated really effects the reconciliation of two lines of thought, apparently hopelessly divergent, I may, per- haps, expect to be sustained by those of both sides who prefer construction to destruction. It would be false modesty in me to seem unaware that the economic law I have attempted to establish equals in its influence upon economic conclusions any hitherto ascertained. Granted its truth, it throws new M850521 iv PREFACE. and decisive light on nearly all the unsolved problems of the science. That it is true, I venture to be the more confident of, because I find it conceded bj both Mill and Kicardo, although thej failed to apply it, or at all recognize its importance. What I have here at- tempted is to reason on their lines beyond the limit where they stopped, with the result of greatly modify- ing and sometimes subverting their conclusions. This I have done without in any case impugning their pre- mises, or controverting their reasoning, further than to show that, while otherwise valid, it was incomplete. My anxiety to place myself in accord with, rather than in antagonism to, these great thinkers has been so great as to lead me to injure the literary form of my work by making it substantially a critique upon Mill's "Prin- ciples " instead of an independent and consecutive argu- ment. This has necessitated long quotations, already so familiar to students as to lack interest for them. The importance of showing that my ideas are really but the further development of those of the orthodox school must be my excuse for this ; and I shall be pardoned if it has enabled me, as I believe it has, to more readily place the law I enunciate, and in some degree eluci- date, in its proper relation to the established truths of the science. Frederick B. Hawlet. New York, February^ 1882, COlsTTEIfTS CHAFTEE PAGE I. — Capital ...... 5 II. — Increase of Capital . . . . 13 III. — The Tendency of Capital to oijtsteip Population 51 IV.— Fixed Capital . . . . .64 V. — Panics ...... 77 VI. — Ceedit . , . . . .97 VII. — Wages and Pkofits . . . . 113 VIII. — Capital and Labob . . . .130 IX. — Co-opeeation . . . . . 139 X. — Feee Teade and Peoteotion . . .144 XI. — The Equation of International Demand . 175 XII. — Disteibution of Wealth in a Peotected Nation 204 XIII.— Rent ....... 210 XIV. — Commerce ..... 214 XV. — Ultimate Effects of Feee Teade and Peotection 224 XVI.— Taxation 235 XVII. — Some othee Effects of the Law . . 251 XVIII.— Conclusion 262 ,.)„»»» CAPITAL AND POPULATION, CHAPTER I. CAPITAL. John Stuart Mill, in his "Principles of Political Economy," in defining capital, says : " The distinction, then, between capital and not-capital, does not lie in the kind of commodities, but in the mind of the capitalist — in his will to employ them for one purpose rather than another ; and all property, however ill adapted in itself for the use of laborers, is a part of capital, so soon as it, or the value to be received from it, is set apart for productive reinvestment. The sum of all the values so destined by their respective possessors, composes the capital of the country. Whether all those values are in a shape directly appli- cable to productive uses, maJces no difference. Their shape, whatever it may he, is a temporary accident ; hut, once destined for produc- tion, they do not fail to find a way of transforming themselves into things capable of being applied to if'' — (Mill, Book I, chapter iv, sec- tion 1.) In Hicardo's works, chapter v, " On Wages," page 51, I find the following definition : " Capital is that part of the wealth of a country which is em- ployed in production, and consists of food, clothing, raw materials, machinery, etc., necessary to give effect to labor.'''* 6 CAPITAL AND POPULATION. It is evident that these definitions differ radically, es- pecially in'tHe/passagesfY-'.hi^ihjI have put in italics. Mill includes, in the ^rm, all wealth destined to ^vo- ductive'''V.QCijqiliptip'n^;VrhetKer. fi^^ utilized or not. Until the mental disposition of the holder is changed, it remains capital, and only ceases to be such when its des- tination is changed to unproductive consumption. He also includes, not only the necessaries and conveniences that will, or may, actually be demanded by the laborer as wages and for the facilities and tools for production, but also the sum of such luxuries as are destined, before be- ing consumed, to be exchanged for such necessaries and conveniences. Ricardo's meaning is not so clear, on account of the ambiguity of the words " is employed." He seems, how- ever, to intend to confine the term to that part of wealth actually in process of consumption by the laborer for his sustenance, or actually being used by him, as tools or machinery, to facilitate production, and to exclude not only all wealth not fitted for consumption or use by la- borers, but such part as is fitted, but not at the time so employed. If this is his meaning, circulating capital be- comes identical with what is commonly called " the wages fund," and fixed capital with such part of the machinery, tools, etc., as are actually in use. It may be, though I do not so understand him, that by " is employed " he means, is eventually employed — in which case his definition approaches nearer to that of Mill, but is yet far from being identical with it. If we attempt to gather his meaning from his writ- ings, we shall find that he uses the term, not only in ac- cordance with both senses of his own definition, though with the first far more often than with the second, but CAPITAL. 7 also with the sense in which Mill has defined it. And the same remark will apply to the writings of Mill, who likewise uses it, not only in accordance with his own defi- nition, but in accordance with both senses of Ricardo be- sides. Mill, indeed, seems utterly oblivious of the fact that his definition differs at all from that of his predeces- sor ; while Ricardo, in passages, exhibits some perception, or rather, perhaps, I should say, an indistinct feeling of the distinction to which I am drawing attention. Among others, I would instance the note to chapter viii, in which he says : *' There can be no greater error than in supposing that capital is increased by non-consumption. If the price of labor should rise so high that, notwithstanding the increase of capital, no more could be employed, I should say that such increase of capital would be still unproductively consumed." Ricardo, as we shall see elsewhere,* and as this passage shows, perceived and acknowledged that an increase of capital, in Mill's sense of the term, does not always lead to an increase in his, although his arguments constantly assume that an increase of wealth does practically result in an increase of the wages fund and an increased produc- tion. He here perceives the dilemma, and attempts to es- cape from it by the assertion that such increase of capital is still " unproductively consumed " — i. e., is not capital at all. But in no sense is this true. It is not unproduc- tively consumed in any way or shape, but eventually, though not immediately, productively consumed. He can, if he so chooses to use the word, refuse to call it capital, but he can not claim that it is unproductively consumed, for it is not consumed at all. * For a further instance, see chapter on wages and profit. 8 CAPITAL AND POPULATION. I shall assume throughout this treatise that Ricardo intends to denote, bj capital, onlj such portion of wealth as is actively engaged in production, as it will appear, in the course of the argument, that most of his deductions only hold good when the word is used in this exceedingly restricted sense; and no student of this most exact of deductive reasoners can doubt for a moment his intention of using the term mainly in accordance with the deduc- tions he draws from it. Places can, indeed, be found in his writings where he gives to it a broader signification, and adopts more or less fully its popular use ; but when this occurs, the fault must be attributed rather to the application than to the accuracy of his deductions. The assertion that both Ricardo and Mill used such a fundamental term as capital in various senses, without perceiving that they did so, is a bold one for any one to make, but it has been forced upon me by a careful, and I may say reverential, study of their writings ; and I shall, I am sure, be borne out in it by fellow-students when their attention is drawn to the subject. This at least is patent even at this stage of the inquiry, that they defined the term very differently ; and it will be acknowledged by all that, starting thus from conflicting definitions, they proceed by the same arguments to identical conclusions. This could hardly have been the case if they had really differed in their understanding of the nature of capital ; and I do not fear to assert that in similar parts of their argument they rarely do differ in the sense in which they use the term, notwithstanding the radical difference in their definition of it. Which definition is correct must be our next consid- eration ; and there can be no doubt but that the prefer- ence must be given to that of Mill. We already have a CAPITAL. 9 term, viz., the " wages fund," which accurately coincides with " circulating capital " as defined by Ricardo ; and a supplementary term can only lead to the further confusion of an intricate subject, while a term to define active fixed capital from idle is not needed. The popular use of the word certainly accords with Mill's definition; and the scientific sense should certainly agree with the popular, in considering as capital all wealth destined to be em- ployed productively, and from which an increase is ob- tained or hoped for. Ricardo's definition differs so much from the popular use of the word, that conclusions drawn from it, however correct, are sure to be misunderstood and misapplied in practice. Eeally valuable results are with difficulty reached, and, when reached, with difficulty appreciated, when the words in which they are expressed are ambigu- ous. Furthermore, the real object of inquiry is, not how production is effected by the increase of the wages fund — that is a simple matter ; but by the general increase of wealth in all its forms — a much more complicated subject. I would myself prefer a definition of the term, when scientifically used, broader than that of Mill, but not broader than its popular use. "Wealth I would define as the existent products of labor, whose utility is not yet exhausted ; capital, as that portion of wealth from which an income or profit is expected in addition to a return of the principal. Under this definition national capital would be the same as under MilFs, for no wealth not productively employed can add to the net income of the community, but much wealth not productively employed nevertheless produces an income or profit to its possessors. All that part of wealth reserved from immediate for pro- longed unproductive consumption, such as houses, places 10 CAPITAL AND POPULATION. of amusement, works of art, etc., the use and enjoyment of which are a source of income to their possessors, I would prefer to regard as capital to them, though not of course to the community, because to their possessors they are productive. The distinction does not affect this argu- ment, and is of no great importance, further than to no- tice that such wealth is of no less advantage to the nation than that productively engaged, as, although it adds noth- ing to the sum of material products, it immediately grati- fies desires similar to those ultimately satisfied by material products, and on account of which alone material products have any utility. Using Mill's or my own definition of capital, it will be necessary to divide it into two portions, which we will call " dead stock " and " active stock " : active stock be- ing coincident with that portion of wealth that Ricardo defines as capital, according to our first exemplification of his meaning — ^i. e., all wealth that is at the time pro- ductively engaged ; and dead stock being that portion excluded by him and included by Mill — i. e., all wealth destined eventually, but not immediately, to be employed in production. This distinction is of the first importance, and must be constantly borne in mind during any discussion and investigation of the laws and nature of capital. Al- though distinctly recognized by all economists,* I know * Mill, Book I, chapter iv, section 2 : "As whatever of the produce of the country is devoted to production is capital, so, conversely, the whole of the capital of the country is devoted to production. This sec- ond proposition, however, must be taken with some limitations and ex- planations. A fund may be seeking for productive employment, and find none adapted to the inclinations of its possessor ; it then is capital still, but unemployed capital. Or the stock may consist of unsold goods, not susceptible of direct application to productive uses, and not, at the mo- CAPITAL. 11 of none who have realized its importance, or who have consistently observed it in their arguments. They, one and all, assume that the amount of production depends upon the amount of capital, whereas it is really depend- ent only on the amount of "active stock," as will be immediately acknowledged by every one who gives the subject a moment's consideration. Ricardo would have been an exception to this criticism, if he had always been consistent with his own definition, faulty as it is. He identified " active stock " and capital ; but, if he had fully appreciated the distinction, he could hardly have failed to recognize that he was defining a part of capital as if it were the whole, and that his deductions were not true of the term in its broad sense. More than any other economist, his views coincide with mine, and it is mainly owing to his failure to perceive this distinction that our conclusions differ so radically. It is as a pupil of his and of Mill that I write, and I wish to be distinctly understood as accepting nearly all the premises and conclusions in both of them not here especially controverted, and to draw attention to the fact that all of my premises, both so far and yet to be ad- vanced, are theirs also with a single exception — the effect ment, marketable ; these, until sold, are in the condition of unemployed capital. Again, artificial or accidental circumstances may render it neces- sary to possess a larger stock in advance — that is, a larger capital before entering on production— than is required by the nature of things. Sup- pose that the government lays a tax on the production in one of its earlier stages, as, for instance, by taxing the material. The manufacturer has to advance the tax before commencing the manufacture, and is, therefore, under a necessity of having a larger accumulated fund than is required for, or is actually employed in, the production which he carries on. He must have a larger capital to maintain the same quantity of productive labor." 12 CAPITAL AND POPULATION. of a high rate of wages upon population. That my con- clusions are in many points different from theirs, is solely due to their neglectiug to follow up their own arguments to their proper termination. That they did not do so, we shall see, later on, was due, not so much to the want of logical acumen, as to the fact that there was nothing in their surroundings to suggest further pursuit. The eco- nomic condition of England apparently verified their conclusions, and they were naturally satisfied with such verification. I am especially anxious not to be classed in the category of those who have attempted to confute, without understanding, these great writers, but fear I shall not wholly escape, as my conclusions will run counter to some firmly-held opinions, and will conflict with many interests, both national and individual ; but I can do no more than proclaim myself their disciple, and disclaim any attempt at refuting the founders of the science. All I shall say is built upon them as a founda- tion, and all I hope to accomplish is to raise their struc- ture one story higher. CHAPTEE II. INCREASE OF CAPITAL. All wealth, and therefore all capital, is the result of abstinence. The products of labor may be consumed by the producer, or may be exchanged for other products to be consumed, or such products, whether made by him or acquired, may be reserved for personal consumption ; in which cases they are said to be unproductively consumed. If, on the other hand, the producer desires to save what he has brought into being, he can do so in two ways : by employing it as active, or retaining it as dead, stock. He can employ it immediately in sustaining himself and oth- ers while engaged in further production, if its nature is fitted for such use ; or he can, as soon as possible, exchange it for such things as are so fitted, and then employ them productively ; or, if he so elects, he can reserve his prod- uct, or the things for which he has exchanged it, to be ultimately but not immediately employed productively by himself or others. In a barbarous state of society, where each individual endeavors to supply all his wants himself, nearly all prod- uce destined for productive consumption immediately takes the form of " active stock " ; * but, when division of * By the term " active stock " I mean to include not only what is actu- ally at the moment being consumed by the laborer, but also such stock as 14 CAPITAL AND POPULATION. labor has been established, some reservation of products must occur, at least sufficient to allow time for exchanges to be effected. With the exception of the food which farmers reserve for the consumption of themselves, their cattle, and those of their laborers whose wants they immediately supply, very nearly all of the products of civilized labor enter first into "dead stock." All products, which the pro- ducer can not himself utilize, necessarily do so. From this fund of " dead stock " products are distrib- uted to the fund for unproductive consumption and to that for productive consumption. What goes to the former fund, decreases the amount of " dead stock " — what goes to the latter, increases it, as the amount of pro- duction is always, on the average, greater than that of the productive consumption which produces it ; because, when this ceases to be the case, the motive to produce is taken away. But dead stock may not be distributed at once to either fund, but may be reserved, to await contin- gencies. Now, what is it that determines the proportion in which the gross stock will be divided between these three funds ? Evidently the relative strength of the desires to accu- mulate and to enjoy will determine the amount of the fund for unproductive consumption, and the rate of profit the amount of that for productive consumption ; but the rate of profit itself depends upon the amount of dead stock. Any increase of dead stock, other things (includ- ing gold) remaining the same, lowers its money-value without affecting money-wages ; or, if money- wages are lowered, its money-value suffers a yet greater deprecia- he will require to support him until the product he is engaged upon is com- pleted, and which is preserved by him or for him, for that purpose. INCREASE OF CAPITAL. 15 tion.* In the supposed circumstances proportional wages must rise at the expense of profits. But if an increase of dead stock lowers profits, and a decrease of profits dis- courages the conversion of dead into active stock, it fol- lows that the " wages-fund " will be smallest when dead stock is relatively most abundant, and when the rate of proportional wages is the highest. We are entitled, then, to say that the amount of dead stock that will become active depends upon the amount of dead stock itseK, and varies inversely with it : " When the production of a commodity is the effect of labor and expenditure, whether the commodity is susceptible of unlimited multiplication or not, there is a minimum value which is the essen- tial condition of its being permanently produced. The value at any particular time is the result of supply and demand ; and is always that which is necessary to create a marTcet for the existing supply. But unless that value is sufficient to repay the cost of production^ and to afford^ besides, the ordinary expectation of profit^ the commodity will not continue to le produced. Capitalists will not go on perma- nently producing at a loss. They will not even go on producing at a profit less than they can live upon. Persons whose capital is al- ready embarked, and can not be easily extricated, will persevere for a considerable time without profit, and have been known to perse- vere even at a loss, in hope of better times. But they will not do so indefinitely, or when there is nothing to indicate that times are likely to improve. No new capital will be invested in an employ- * This is not true, of course, when the increase of dead stock consists wholly or largely of money. In such cases prices and profits will rise and proportional wages fall, as happens whenever the currency is inflated. But in all cases, when the increase of dead stock is due wholly to saving, there will be no increase in the amount of money through the operations of ex- change until after prices have been depressed by such increase of dead stock disturbing the proportion between gold and other commodities. If such increase of stock is universal, the world over, the depression of money prices will be permanent, until such stock is unproductively consumed or the production of gold increased. 16 CAPITAL AND POPULATION. ment, unless there be an expectation, not only of some profit, but of a profit as great (regard being had to the degree of eligibility of the employment in other respects) as can be hoped for in any other oc- cupation at that time and place. "When such profit is evidently not to be had, if people do not actually withdraw their capital, they at least abstain from replacing it when consumed. The cost of pro- duction, together with the ordinary profit, may, therefore, be called the necessary price or value of all things made by labor and capital. Nobody willingly produces in the prospect of loss. Whoever does so, does it under a miscalculation, which he corrects as fast as he is able." — (Mill, Book III, chapter iii, section 1.) We have supposed in the above argument that " oth- er things remained the same." What was included under that head was the state of the arts, social customs and regulations, the natural fertility of the soil, and the num- ber of the population. Improvement in the two former conditions, or any increase in the two latter, will of course allow of a corresponding increase of dead stock, without its being followed by a rise of proportional wages and fall in profits ; and such increase will go partly to swell the wages-fund or active stock. It is only when the increase of capital outstrips the others that a diminution of the wages-fund and a rise of wages will occur. Economists have, I believe universally, held that such diminution of the wages-fund could be but temporary; because the stimulus to population of a high rate of wages would, before very long, readjust the ratio between capital and population. But the real stimulus to population is not a high rate of wages in the sense in which wages are com- pared with profits, because that surely entails a lessening of employment, but a low rate, because then nearly all the members of the laboring class are earning something, and the average of the necessities and comforts of life that laborers, employed and unemployed, receive is then INCREASE OF CAPITAL. 17 greater than when some are receiving high wages and many are receiving none at all. In other words, the stim- ulus to population is affected not by the rate of propor- tional wages, as economists have hithero universally as- sumed, but by the proportion between the gross amount of the wages-fund and the number [of those depending upon it for subsistence — a very different thing, for such proportion is always the least when the rate of propor- tional wages is highest. The normal ratio between capital and population, when disturbed by an increase of capital, can not there- fore be restored by the stimulus to population afforded by such increase ; because its tendency is not to stimu- late, but to restrain. The proper proportion of dead stock can only be restored, in the absence of exceptional circumstances, by an increase of unproductive consump- tion, which directly decreases the fund, or by converting less of it into active stock, which indirectly decreases the fund, by preventing further additions to it being made, and thus allows the ordinary, or even a less than ordinary, unproductive consumption to deplete it. But the former of these causes can not, or rather will not, act, because, when an excess of dead stock lessens both profits and the wages-fund, neither capitalists nor laborers will have as large incomes to expend, and they will consequently con- sume less unproductively than before, instead of more, and will thus retard instead of assist the readjustment. An excess of dead stock can only be practically done away with by decreasing production, and the only way to escape the necessity of so doing is to prevent a growth of capital faster than that of population. The reader will please notice that I do not here as- sert over-production to be an evil, but only that over-ac- 18 CAPITAL AND POPULATION. cumulation leads necessarily to a lessened production, and tliat such lessened production is an evil. The importance of the preceding paragraphs to the argument can hardly be overstated, and I emphasize them by thus drawing attention to them, fearing from the brevity of my statement that the importance of the prin- ciples involved will not be enough considered. They are the only necessary premises that I nse, for which I am unable to find any authority in Mill and Ricardo them- selves. Their truth can not be doubted, nor can it be gainsaid that, if Mill and Ricardo had taken notice of the fact that increase of dead stock decreases active stock, and restrains population instead of stimulating it, they would have modified their conclusions very nearly, if not quite, in accordance with mine. I now desire to verify, by quotation and criticism, the somewhat bold charge I have made in the preceding chap- ter, that both these writers use the fundamental term " cap- ital " loosely and inaccurately, and in conflicting senses. In Book II, chapter xi, section 3, Mill says : " Wages depend, then, on the proportion between the number of the laboring population and the capital, or other funds, devoted to the purchase of labor ; we will say, for shortness, the capital. If wages are higher at one time or place than at another, if the sub- sistence and comfort of the class of hired laborers are more ample, it is for no other reason than because capital bears a greater propor- tion to population. It is not the absolute amount of accumulation or of production that is of importance to the laboring class ; it is not the amount even of the funds destined for distribution among the laborers ; it is the proportion between those funds and the num- bers among whom they are shared. The condition of the class can be bettered in no other way than by altering that proportion to their advantage; and every scheme for their benefit, which does not proceed on this as its foundation, is, for all permanent purposes, a delusion." INCREASE OF CAPITAL. 19 This passage singularly exemplifies Mill's confusion of thought on the subject we are discussing. In his first sentence, if he means by wages real wages, they depend mainly on the margin of cultivation, and, in so far as they are affected by it, do not depend directly but in- versely on the amount of capital, as he defines it ; though they do depend upon it in Ricardo's sense of the term. If by wages he means proportional wages, they depend not upon " the number of the laboring population," but upon the ratio of the value of the wages-fund to the value of the product. In his second sentence he treats the two clauses, " if wages are higher at one time or place than at another " and " if the subsistence and comfort of the class of hired laborers are more ample," as identical propositions. If he means by wages the rate of real wages — i. e., the average sum- of necessaries and comforts each laborer employed or unemployed receives — they are identical ; but neither assertion is true, unless he uses capi- tal in the sense of Ricardo ; and it is hardly supposable that he does so use it, as it is very unlikely that he should attach the importance he seems to, to so simple a state- ment as that, the amount each laborer receives can be found by dividing the wages-fund by the number of la- borers, and yet that is all the statement will then include. If he means proportional wages, and adheres to his own definition of capital, they are not identical, as his propo- sition is true as to the first clause and not true as to the second. If he uses the term in Ricardo's sense, they are likewise not identical, as the second is true and the first not. Whichever way we interpret Mill's meaning, we find an inaccuracy or an inconsistency. Now let us compare Mill's account of the possible in- crease of capital with that I have ventured to present.. 20 CAPITAL AND POPULATIOK In Book I, chapter v, section 3, lie says : '^ While, on the one hand, industry is limited by capital, so, on the other, every increase of capital gives, or is capable of giving, additional employment to industry; and this without assignable limit. I do not mean to deny that the capital, or part of it, may be so employed as not to support laborers, being fixed in machinery, buildings, improvement of land, and the like. In any large increase of capital a considerable portion will generally be thus employed, and will only co-operate with laborers, not maintain them. "What I do intend to assert is, that the portion which is destined to their maintenance may (supposing no alteration in anything else) be indefinitely increased, without creating an impossibility of finding them employment ; in other words, that if there are human beings capable of work, and food to feed them, they may always be em- ployed in producing something. This proposition requires to be somewhat dwelt upon, being one of those which it is exceedingly easy to assent to when presented in general terms, but somewhat diflBcult to keep fast hold of in the crowd and confusion of the actual facts of society. It is also very much opposed to common doctrines. There is not an opinion more general among mankind than this, that the unproductive expenditure of the rich is neces- sary to the employment of the poor. Before Adam Smith, the doc- trine had hardly been questioned ; and ever since his time, authors of the highest name and of great merit* have contended that if consumers were to save and convert into capital more than a limited portion of their income, and were not to devote to unproductive consumption an amount of means bearing a certain ratio to the capi- tal of the country, the extra accumulation would be merely so much waste, since there would be no market for the commodities which the capital so created would produce. I conceive this to be one of the many errors arising in political economy, from the practice of not beginning with the examination of simple cases, but rushing at once into the complexity of concrete phenomena. Every one can see that if a benevolent government possessed all the food, and all the implements and materials, of the community, it could exact pro- ductive labor from all capable of it, to whom it allowed a share in the food, and could be in no danger of wanting a field for the em- * For example, Mr. Malthus, Dr. Chalmers, M. de Sismondi. INCREASE OF CAPITAL. 21 ployment of this productive labor, since as long as there was a sin- gle want unsaturated (which material objects could supply) of any- one individual, the labor of the community could be turned to the production of something capable of satisfying that want. Now, the individual possessors of capital, when they add to it by fresh accu- mulations, are doing precisely the same thing which we suppose to be done by a benevolent government. As it is allowable to put any case by way of hypothesis, let us imagine the most extreme case conceivable. Suppose that every capitalist came to be of opinion that, not being more meritorious than a well-conducted laborer, he ought not to fare better ; and accordingly laid by, from conscien- tious motives, the surplus of his profits; or suppose this abstinence not spontaneous, but imposed by law or opinion upon all capitalists, and upon land-owners likewise. Unproductive expenditure is now reduced to its lowest limit ; and it is asked, How is the increased capital to find employment ? Who is to buy the goods which it will produce? There are no longer customers even for those which were produced before. The goods, therefore (it is said), will remain unsold; they will perish in the warehouses, until capital is brought down to what it was originally, or rather to as much less, as the demand of the consumers has lessened. But this is seeing only one half of the matter. In the case supposed, there would no longer be any demand for luxuries, on the part of capitalists and land-owners. But when these classes turn their income into capital, they do not thereby annihilate their power of consumption ; they do but trans- fer it from themselves to the laborers to whom they give employ- ment. Now, there are two possible suppositions in regard to the laborers ; either there is, or there is not, an increase of their num- bers, proportional to the increase of capital. If there is, the case offers no difficulty. The production of necessaries for the new population takes the place of the production of luxuries for a por- tion of the old, and supplies exactly the amount of employment which has been lost. But suppose that there is no increase of popu- lation. The whole of what was previously expended in luxuries, by capitalists and landlords, is distributed among the existing laborers, in the form of additional wages. "We will assume them to be al- ready sufficiently supplied with necessaries. What follows? That the laborers become consumers of luxuries, and the capital previ- ously employed in the production of luxuries is still able to employ 22 CAPITAL AND POPULATION". itself in the same maDner; the difference being, that the luxuries are shared among the community generally, instead of being con- fined to a few. The increased accumulation and increased produc- tion might, rigorously speaking, continue, until every laborer had every indulgence of wealth, consistent with continuing to work; supposing that the power of their labor were physically sufficient to produce all this amount of indulgences for their whole number. Thus the limit of wealth is never deficiency of consumers, but of producers and productive power. Every addition to capital gives to labor either additional employment, or additional remuneration ; enriches either the country or the laboring class. If it finds addi- tional hands to set to work, it increases the aggregate produce; if only the same hands, it gives them a larger share of it ; and perhaps even in this case, by stimulating them to greater exertions, aug- ments the produce itself." Even if we assent to every subsequent proposition in this quotation, the assertion in the first sentence, that " every increase of capital gives or is capable of giving additional employment to industry, and this without as- signable limit," is not true. If we suppose population to keep pace with or increase faster than capital, the time must eventually arrive when every capitalist and laborer is reduced to the barest necessities ; and then a further increase of capital can not lead to any increase in popula- tion or production. Such further increase, which must come entirely from rentals, would then surely fail to give "additional employment or remuneration to industry." If population did not increase as fast as capital, the time would eventually arrive when all the population in existence, willing to work for all they produced, would be employed in the most advantageous manner that the state of the arts would allow. An increase of capital, then, coming from rent or wages (it could not come from profits, as they would be annihilated), could give no INCKEASE OF CAPITAL. 23 additional employment, for there would be no more laborers to be set to work. There are then " assignable limits" to capital, even under the wildest and most improbable suppositions. But, passing this, if we hold Mill to his definition, the whole reasoning is unsound, for the infinite increase of capital he supposes might go to the increase of dead and not of active stock, as indeed it would, capitalists being human ; in which case no more labor would be employed than before it took place. If, on the other hand, by capi- tal he means the wages-fund, his argument is true enough, but more curious than valuable. Indeed, I fail to see how it can in any sense be called political economy. I have always conceived that science to be an inquiry into the acquisition and distribution of wealth, not by disinterest- edly benevolent beings, but by self-interested men. That men will act in accordance with their real or supposed in- terest, is the major premise of all economic reasoning. I do not know to what science to refer an argument based on the supposition that any class of men will not do so, but I am quite certain that such science is not economic. This whole quotation is an attempt to show what would, or could, occur if capitalists were content to go on pro- ducing with no hope of a gain. Is there a single eco- nomic doctrine that can stand such a test ? What would become of Malthus's theory of population, if laborers would work without wages ? What of Kicardo's theory of rent, if landlords and tenants were indifferent to the rentals paid and received ? What of the proposition that profits tended to equalization, if capitalists were careless of what profit they obtained ? And yet we are asked to believe that over-accumulation is impossible, because it would be so if capitalists were indifferent to profit, and ^ 24 CAPITAL AND POPULATIOIT. we are scouted as ignorant visionaries if we venture to suggest tliat it may be the cause of our periods of indus- trial stagnation. Mill sajs : "Authors, of the highest name and of great merit, have con- tended that if consumers were to save and convert into capital more than a limited portion of their income, and were not to devote to unproductive consumption an amount of means bearing a certain ratio to the capital of the country, the extra accumulation would be merely so much waste, since there would be no market for the com- modities which the capital, so created, would produce." If he merely means to assert, following Say, that the supply of commodities constitutes the demand, what he says is true, but is inapplicable to the discussion. The word " market," as used by his opponents, implies very much more than he seems to suppose, and the sense in which they use the word is its proper signification, both popu- larly and scientifically. When men speak of a good or bad market, they do not mean a market in which more goods can be bought than can be sold, or vice versa^ but they mean a market in which, at the going prices, goods can be exchanged for such amount of money or other things as will, when expended in production, more than reproduce or less than reproduce the original things. If the goods will buy more labor than it took to produce them, the market is good ; if less, the market is poor. Now insert before the word " market " the word '' remu- nerative," and, tautological though it be, the addition makes it evident that Mill's opponents have given a true and valid reason for all their assertions. I do not remember to have anywhere seen the obser- vation that Say's principle, applied as Mill applies it, proves as well that no single commodity can be in excess, as that material commodities generally can not be so. No INCREASE OF CAPITAL. 25 matter what the quantity of a single commodity, it would exchange for something ; and we can not say of it that more has been produced than can he exchanged^ and like- wise we can not say this of commodities generally, but we can say both of single commodities and material com- modities in general, that more has been produced than will he exchanged ; and this is all that there is any neces- sity of affirming to establish the fact that over-accunwi- lation and general glut can occur. In the sense of our dis- cussion, labor is a commodity, though not a material one. When the possibility of a general glut is asserted, it is not meant that both labor and material commodities may be in excess, but only that all material things may be in excess as compared with labor — the one great immaterial com- modity. In that sense, and it is the sense in which its ad- vocates have really used the term, a more or less general glut is not only a possible but a frequent occurrence. As this is an important point in the discussion, I make another quotation from Mill — premising that a "gen- eral glut " is the result of over-accumulation and not of over-production. Excessive production, supposing such a thing possible, need not necessarily result in accumulation at all. To affirm that over-production and over-accumu- lation are equivalent things, can only be done on the sup- position that Mill's definition of capital coincides with Ricardo's; or, in other words, that all wealth destined for productive consumption immediately constitutes the wages-fund. Accumulation will ordinarily be large when the pro- duction is great, because production will not be great un- less profits are high, and savings are mainly made from profits; but there is no necessary connection between them, as many things can intervene to prevent accumu- 26 CAPITAL AND POPULATION. lation in sucli times. There is, of course, a tendency for rapid production to result in excessive accumulation ; and it is the counteraction of this tendency that Mill argues against and that I advocate. To fully present Mill's reasoning to the reader, I here quote at great length from Book III, chapter xiv, sec- tion 1 : "After the elementary exposition of the theory of money con- tained in the last few chapters, we shall return to a question in the general theory of value, which could not be satisfactorily discussed until the nature and operations of money were in some measure understood, because the errors, against which we have to contend, mainly originate in a misunderstanding of these operations. *' We have seen that the value of everything gravitates toward a certain medium point (which has been called the natural value), namely, that at which it exchanges for every other thing in the ratio of their cost of production. We have seen, too, that the actual or market value coincides, or nearly so, with the natural value only on an average of years, and is continually either rising above or falling below it, from alterations in the demand, or casual fluctuations in the supply ; but that these variations correct themselves, through the tendency of the supply to accommodate itself to the demand which exists for the commodity at its natural value. A general con- vergence thus results from the balance of opposite divergences. Dearth, or scarcity, on the one hand, and over-supply, or, in mercan- tile language, glut, on the other, are incident to all commodities. In the first case the commodity affords to the producers or sellers, while the deficiency lasts, an unusually high rate of profit; in the second, the supply being in excess of that for which a demand exists, at such a value as will afford the ordinary profit, the sellers must be content with less, and must, in extreme cases, submit to a loss. *' Because this phenomenon of over-supply, and consequent incon- venience or loss to the producer or dealer, may exist in the case of any one commodity whatever, many persons, including some dis- tinguished political economists, have thought that it may exist with regard to all commodities ; that there may be a general over-pro- INCREASE OF CAPITAL. 27 duction of wealtli ; a supply of commodities in the aggregate, sur- passing the demand; and a consequent depressed condition of all classes of producers. Against this doctrine, of which Mr. Malthus and Dr. Chalmers in this country, and M. de Sismondi on the Con- tinent, were the chief apostles, I have already contended in the First Book ; * but it was not possible, in that stage of our inquiry, to enter into a complete examination of an error (as I conceive) es- sentially grounded on a misunderstanding of the phenomena of value and price. " The doctrine appears to me to involve so much inconsistency in its very conception, that I feel considerable difficulty in giving any statement of it which shall be at once clear, and satisfactory to its supporters. They agree in maintaining that there may be, and sometimes is, an excess of productions in general beyond the de- mand for them; that when this happens, purchasers can not be found at prices which will repay the cost of production with a profit ; that there ensues a general depression of prices or values (they are seldom accurate in discriminating between the two), so that producers, the more they produce, find themselves the poorer, in- stead of richer ; and Dr. Chalmers accordingly inculcates on capital- ists the practice of a moral restraint in reference to the pursuit of gain ; while Sismondi deprecates machinery, and the various inven- tions which increase productive power. They both maintain that accumulation of capital may proceed too fast, not merely for the moral but for the material interests of those who produce and accu- mulate ; and they enjoin the rich to guard against this evil by an ample unproductive consumption. " When these writers speak of the supply of commodities as out- running the demand, it is not clear which of the two elements of demand they have in view — the desire to possess, or the means of purchase ; whether their meaning is that there are, in such cases, more consumable products in existence than the public desires to consume, or merely more than it is able to pay for. In this uncer- tainty, it is necessary to examine both suppositions. " First, let us suppose that the quantity of commodities produced is not greater than the community would be glad to consume ; is it, in that case, possible that there should be a deficiency of demand ■a, pp. 41-43. 28 CAPITAL AND POPULATION. for all commodities, for want of the means of payment? Those who think so, can not have considered what it is which constitutes the means of payment for commodities. It is, simply, commodities Each person's means of paying for the productions of other people consists of tliose which he himself possesses. All sellers are inevita- bly, and by the meaning of the word, buyers. Could we suddenly double the productive powers of the country, we should double the supply of commodities in every market ; but we should, by the same stroke, double the purchasing power. Everybody would bring a doub- le demand as well as supply ; everybody would be able to buy twice as much, because every one would have twice as much to offer in ex- change. It is probable, indeed, that there would now be a superfluity of certain things. Although the community would willingly double its aggregate consumption, it may akeady have as much as it desires of some commodities, and it may prefer to do more than double its consumption of others, or to exercise its increased purchasing power on some new thing. If so, the supply will adapt itself accordingly, and the values of things will continue to conform to their cost of pro- duction. At any rate, it is a sheer absurdity that all things should fall in value, and that all producers should, in consequence, be in- sufficiently remunerated. If values remain the same, what becomes of prices is immaterial, since the remuneration of producers does not depend on how much money but on how much of consumable articles they obtain for their goods. Besides, money is a commodity ; and if all commodities are supposed to be doubled in quantity, we must suppose money to be doubled too, and then prices would no more fall than values would. " A general over-supply, or excess of all commodities above the demand, so far as demand consists in means of payment, is thus shown to be an impossibility. But it may, perhaps, be supposed that it is not the ability to purchase, but the desire to possess, that falls short, and that the general produce of industry may be greater than the community desires to consume — the part, at least, of the community which has an equivalent to give. It is evident enough that produce makes a market for produce, and that there is wealth in the country with which to purchase all the wealth in the coun- try ; but those who have the means may not have the wants, and those who have the wants may be without the means. A portion, therefore, of the commodities produced may be unable to find a mOREASE OF CAPITAL. 29 market, from the absence of means in those wlio have the desire to consume, and the want of desire in those who have the means. "This is much the most plausible form of the doctrine, and does not, like that which we first examined, involve a contradiction. There may easily be a greater quantity of any particular commodity than is desired by those who have the ability to purchase, and it is abstractedly conceivable that this might be the case with all com- modities. The error is in not perceiving that, though all who have an equivalent to give might be fully provided with every consum- able article which they desire, the fact that they go on adding to the production proves that this is not actually the case. Assume the most favorable hypothesis for the purpose, that of a limited community, every member of which possesses as much of necessa- ries and of all known luxuries as he desires ; and since it is not c(mceivable that persons whose wants were completely satisfied would labor and economize to obtain what they did not desire, suppose that a foreigner arrives, and produces an additional quan- tity of something of which there was already enough. Here, it will be said, is over-production ; true, I reply ; over-production of that particular article : the community wanted no more of that, but it wanted something. The old inhabitants, indeed, wanted nothing ; but did not the foreigner himself want something? When he pro- duced the superfluous article, was he laboring without a motive? He has produced, but the wrong thing instead of the right. He wanted, perhaps, food, and has produced watches, with which everybody was sufficiently supplied. The new-comer brought with him into the country a demand for commodities equal to all that he could produce by his industry, and it was his business to see that the supply he brought should be suitable to that demand. If he could not produce something capable of exciting a new want or desire in the community, for the satisfaction of which some one would grow more food and give it to him in exchange, he had the alternative of growing food for himself; either on fresh land, if there was any unoccupied, or as a tenant, or partner, or servant, of some former occupier, willing to be partially relieved from labor. He has produced a thing not wanted, instead of what was wanted ; and he himself, perhaps, is not the kind of producer who is wanted ; but there is no over-production; production is not excessive but merely ill-assorted. We saw before that whoever brings additional 30 CAPITAL AND POPULATION. commodities to the market, brings an additional power of purchase ; we now see that he brings also an additional desire to consume ; since, if he had not that desire, he would not have troubled himself to produce. Neither of the elements of demand, therefore, can be wanting when there is an additional supply ; though it is perfectly- possible that the demand may be for one thing, and the supply may unfortunately consist of another. "Driven to his last retreat, an opponent may perhaps allege that there are persons who produce and accumulate from mere habit; not because they have any object in growing richer, or desire to add in any respect to their consumption, but from vis inerticB. They continue producing because the machine is ready mounted, and save and reinvest their savings because they have nothing on which they care to expend them. I grant that this is possible, and in some few instances probably happens; but these do not in the smallest degree affect our conclusion. For, what do these persons do with their savings? They invest them productively ; * that is, expend them in employing labor. In other words, having a purchasing power belonging to them, more than they know what to do with, they make over the surplus of it for the general benefit of the laboring class. Now, will that class also not know what to do with it ? Are we to suppose that they too have their wants per- fectly satisfied, and go on laboring from mere habit? Until this is the case ; until the working classes have also reached the point of satiety — there will be no want of demand for the produce of capital, however rapidly it may accumulate ; since, if there is nothing else for it to do, it can always find employment in producing the neces- saries or luxuries of the laboring class. And when they too had no further desire for necessaries or luxuries, they would take the benefit of any further increase of wages by diminishing their work ; so that the over-production, which then. for the first time would be possible in idea, could not even then take place in fact, for want of laborers. Thus, in whatever manner the question is looked at, even though we go to the extreme verge of possibihty to invent a supposition favor- able to it, the theory of general over-production implies an absurdity. * That is just what they do not do — they add them to dead stock, and keep them inactive until the rate of profit tempts them to employ them productively. INCREASE OF CAPITAL. 31 " What, then, is it by which men who have reflected much on economical phenomena, and have even contributed to throw new light upon them by original speculations, have been led to embrace so irrational a doctrine? I conceive them to have been deceived by a mistaken interpretation of certain mercantile facts. They imag- ined that the possibility of a general over-supply of commodities was proved by experience. They believed that they saw this phenome- non in certain conditions of the markets, the true explanation of which is totally different. " I have already described the state of the markets for commodi- ties which accompanies what is termed a commercial crisis. At such times there is really an excess of all commodities above the money-demand ; in other words, there is an under-supply of money. From the sudden annihilation of a great mass of credit, every one dislikes to part with ready money, and many are anxious to procure it at any sacrifice. Almost everybody, therefore, is a seller, and there are scarcely any buyers : so that there may really be, though only while the crisis lasts, an extreme depression of general prices from what may be indiscriminately called a glut of commodities or a dearth of money. But it is a great error to suppose, with Sis- mondi, that a commercial crisis is the effect of a general excess of production. It is simply the consequence of an excess of specula- tive purchases. It is not a gradual advent of low prices, but a sud- den recoil from prices extravagantly high : its immediate cause is a contraction of credit, and the remedy is not a diminution of supply, but the restoration of confidence. It is also evident that this tem- porary derangement of markets is an evil only because it is tempo- rary. The fall being solely of money-prices, if prices did not rise again no dealer would lose, since the smaller price would be worth as much to him as the larger price was before. In no manner does this phenomenon answer to the description which these celebrated economists have given of the evil of over-production. That perma- nent decline in the circumstances of producers, for want of markets, which those writers contemplate, is a conception to which the nat- ure of a commercial crisis gives no support. " The other phenomenon from which the notion of a general ex- cess of wealth and superfluity of accumulation seems to derive coun- tenance, is one of a more permanent nature, namely, the fall of profits and interest which naturally takes place with the progress of 32 CAPITAL AND POPULATION. population and production. The cause of this decline of profit is the increased cost of maintaining labor, which results from an increase of population and of the demand for food outstripping the advance of agricultural improvement. This important feature in the eco- nomical progress of nations will receive full consideration and dis- cussion in the succeeding book. It is obviously a totally different thing from a want of market for commodities, though often con- founded with it in the complaints of the producing and trading classes. The true interpretation of the modern or present state of industrial economy is, that there is hardly any amount of business which may not de done if people will ie content to do it on small profits; and this all active and intelligent persons in business per- fectly well know : but even those who comply with the necessities of their time, grumble at what they comply with, and wish that there were less capital ; or, as they express it, less competition, in order that there might be greater profits. Low profits, however, are a different thing from deficiency of demand, and the production and accumulations, which merely reduce profits, can not be called excess of supply or production. What the phenomenon really is, and its effects and necessary limits, will be seen when we treat of that express subject. "I know not of any economical facts, except the two I have specified, which can have given occasion to the opinion that a gen- eral over-production of commodities ever presented itself in actual experience. I am convinced that there is no fact in commercial affairs which, in order to its explanation, stands in need of that chimerical supposition. "The point is fundamental; any difference of opinion on it in- volves radically different conceptions of political economy, especially in its practical aspect. On the one view, we have only to consider how a sufficient production may be combined with the best possible distribution ; but, on the other, there is a third thing to be consid- ered : how a market can be created for produce, or how production can be limited to the capabilities of the market. Besides, a theory so essentially self-contradictory can not intrude itself without carry- ing confusion into the very heart of the subject, and making it im- possible even to conceive with any distinctness many of the more complicated economical workings of society. This error has been, I conceive, fatal to the systems, as systems, of the three distinguished INCREASE OF CAPITAL. 33 economists to whom I have referred — Malthus, Chalmers, and Sis- mondi — all of whom have admirably conceived and explained several of the elementary theorems of political economy ; but this fatal mis- conception has spread itself, like a veil, between them and the more difficult portions of the subject, not suffering one ray of light to penetrate. Still more is this same confused idea constantly crossing and bewildering the speculations of minds inferior to theirs. It is bnt justice to two eminent names, to call attention to the fact that the merit of having placed this most important point in its true light belongs principally, on the Continent, to the judicious J. B. Say, and in this country to Mr. Mill, who (besides the conclusive exposition which he gave of the subject in his 'Elements of Polit- ical Economy ') had set forth the correct doctrine with great force and clearness in an early pamphlet, called forth by a temporary con- troversy, and entitled 'Commerce Defended'; the first of his writ- ings which attained any celebrity, and which he prized more as having been his first introduction to the friendship of David Ricardo, the most valued and most intimate friendship of his life." It is, of course, needless to point out that here again Mill uses capital in the sense of Ricardo. It will also be noticed that over-accumulation and over-production are not at all distinguished, and that arguments valid against the latter are taken for granted as valid against the for- mer also. As to the argument, it is, of course, true v^hen money and labor are considered as commodities ; but what the advocates of over-accumulation assert, and what Mill is really interested in denying, is only that the amount of all material commodities can be and sometimes is excess- ive. That this is what Mill opposes is evident from sec- tion 4, in which he refuses to accept over-accumulation as an explanation of panics. It would be too absurd to suppose that any one claimed that panics were due to an excess of labor as well as of material commodities ; and, therefore, MiU's meaning must be that the excess of 34 CAPITAL AND POPULATION. material commodities has no influence in leading to in- dustrial stagnation. This is the objective point of his whole argument, and all his disciples, notably Bonamj Price and Fawcett, have so understood and accepted him, and in the most unequivocal terms have attributed the lessened production of such periods to the general pov- erty resulting from the extravagance of preceding periods of high profits and large production. INow, it is evident that the whole argument, contained in the 'quotation I have last made, is inapplicable to the conclusion thus drawn. Fortunately, there is a test which can not but be accepted, as decisive between the view of Mill's disciples and my own, by any who doubt. To this test I am anxious to draw the closest attention, as no one who appreciates its significance can, I think, fail to agree with me. If any particular panic and the period of industrial idleness which follows it are caused 'by the poverty of the community — i. e., hy the amount of mate- rial commodities heing less than usual — the rate of profit during such panic and period will he high {not the rate of interest^ which is then liable to violent fluctuations and does not at all indicate the rate of profit) ; for what capi- tal is left in the community can not fail of finding profit- aUe employment. If on the contrary^ the rate of profit is low^ it can he due to no other cause than that capital hears a larger proportion than usual to population. In Book II, chapter viii, section 3, Mill, speaking of prices, says : " It is to be remarked that this ratio would be precisely that in which the quantity of money had been increased. If the whole money in circulation was doubled, prices would be doubled. If it was only increased one fourth, prices would rise one fourth. There would be one fourth more money, all of which would be used to INOEEASE OF CAPITAL. 35 purchase goods of some description. When there had been time for tbe increased supply of money to reach all markets, or (according to the conventional metaphor) to permeate all the channels of circula- tion, all prices would have risen one fourth. But the general rise of prices is independent of this diffusing and equalizing process. Even if some prices were raised more, and others less, the average rise would be one fourth. This is a necessary consequence of the fact that a fourth more money would have been given for only the same quantity of goods. General prices, therefore, would in any case be a fourth higher. *' The very same effect would be produced on prices if we sup- pose the goods diminished, instead of the money increased ; and the contrary effect if the goods were increased, or the money dimin- ished. If there were less money in the hands of the community, and the same amount of goods to be sold, less money altogether would be given for them, and they would be sold at lower prices ; lower, too, in the precise ratio in which the money was diminished. So that the value of money, other things being the same, varies in- versely as its quantity; every increase of quantity lowering the value, and every diminution raising it, in a ratio exactly equiva- lent. " This, it must be observed, is a property peculiar to money. We did not find it to be true of commodities generally that every dimi- nution of supply raised the value exactly in proportion to the defi- ciency, or that every increase lowered it in the precise ratio of the excess. Some things are usually affected in a greater ratio than that of the excess of deficiency, others usually in a less ; because, in ordinary cases of demand, the desire, being for the thing itself, may be stronger or weaker; and the amount of what people are willing to expend on it, being in any case a limited quantity, maybe affected in very unequal degrees by difiiculty or facility of attainment. But in the case of money, which is desired as the means of universal purchase, the demand consists of everything which people have to sell ; and the only limit to what they are willing to give, is the limit set by their having nothing more to offer. The whole of the goods being in any case exchanged for the whole of the money which comes into the market to be laid out, they will sell for less or more of it, exactly according as less or more is bought. "From what precedes, it might for a moment be supposed that 36 CAPITAL AND POPULATION. all the goods on sale in a country at any one time, are exchanged for all the money existing and in circulation at that same time ; or, in other words, that there is always in circulation in a country a quantity of money equal in value to the whole of the goods then and there on sale. But this would be a complete misapprehension. The money laid out is equal in value to the goods it purchases; but the quantity of money laid out is not the same thing with the quan- tity in circulation. As the money passes from hand to hand, the same piece of money is laid out many times, before all the things on sale at one time are purchased and finally removed from the market ; and each pound or dollar must be counted for as many pounds or dollars as the number of times it changes hands, in order to effect this object." This passage supplies another test of whether any par- ticular period of activity or stagnation is due to a large or small amount of disposable wealth. If, for instance, low prices generally prevail during a period of inactivity, it shows that the stock of commodities must be large as compared with the stock of money. If the industrial in- activity is due to a scarcity of circulating capital, using the term according to Mill's definition, prices should be high, unless there has been an enormous exportation of gold ; but the movement of gold — except when driven out by an irredeemable currency, which then becomes money, and, as far as prices are affected, supplies its function — is always too insignificant to account for the variations in general prices which occur, as will be evident when we reflect that the rise or fall must always be mathematically proportional ; that is, if the stock of commodities remains the same, one quarter of the gold of the country must be exported to account for a fall in general prices of twenty- five per cent, and, if the stock of commodities has also diminished, it would only account for a fall proportion- ally less by the percentage of such diminution. We are INCREASE OF CAPITAL. 37 forced, therefore, to account for such falls in general prices by supposing that they are due to an actual in- crease of material commodities. As prices are always low during hard, and high during flush times, it neces- sarily follows that it is during the former that the amount of material wealth is greatest. We see, therefore, that low prices prevailing during any period of stagnation are an indication that the de- pression is not caused by poverty, but by excessive accu- mulations ; but they are not as good a test as that of low profits. If any improvement be made, such, for instance, as the establishment of a clearing-house, other things re- maining the same, a certain amount of gold is not needed and must be exported. This can only be effected through a rise in prices. Kapidity of circulation tends to raise prices, and sluggishness to depress them. During good times, therefore, the greater efficiency of money tends to raise prices beyond the point they would otherwise attain, and during bad times its greater sluggishness correspond- ingly depresses them. This produces the same effect upon prices as the proportion between money and other commodities, and low prices are not, therefore, as accurate a test as low profits of the true cause of the industrial in- activity, but they possess the advantage of being more readily ascertained and compared. Mill admits that any one commodity may be in ex- cess. He must therefore also grant that all but one can be so. If that one exception is labor, his opponents have granted to them all they claim and he denies. Mill truly " The point is fundamental ; any difference of opinion on it in- volves radically different conceptions of political econoray, especially in its practical aspect." 38 CAPITAL AND POPULATION But he is at sea when he goes on to assert : *' On the one view, we have only to consider how a sufficient production raaj be combined with the best possible distribution ; but, on the other, there is a third thing to be considered — how a market can be created for produce, or how a production can be lim- ited to the capabilities of the market." The practical application of the theory of over-accu- mulation involves no such considerations as he here sup- poses. It indeed concerns itself with limiting the ten- dency to accumulate, but it effects by this a greater not a lessened production, and all it does to secure a " market " is to endeavor to sustain a rate of profit under which pro- duction can go on most readily. As to Say's famous argument, with which I am in en- tire accord, it is enough to call attention to the fact that, though commodities, no matter how great their quantity, will exchange for each other freely, if they are produced in such proportions as to satisfy the desires of those who exert an efficient demand, such proportions are ipso facto not sustained when a certain and natural proportion be- tween the demand for productive and for unproductive consumption is not maintained. My whole position is granted by Mill when he says, " The true interpretation of the modern or present state of industrial economy is, that there is hardly any amount of business which may not be done, if people will be content to do it on small profits." Yery well, then. Let us attribute our periods of indus- trial inactivity to low profits. Nothing is more certain than that people will cease pi^oducing as profits decline, and that they must so decline when capital increases faster than population. I complain of Mill, not only that he is confused in his theoretical conceptions as to capital and accumulation, but INCREASE OF CAPITAL. 39 that he entirely failed to appreciate their practical bear- ing upon production, as is evidenced by his attempt to explain panics as due alone to the action of credit, and by his constant exhortations to abstinence. Let us now turn to Kicardo, who, in his chapter on " Taxes on Kaw Produce," page 95, says : "An accumulation of capital uaturally produces an increased competition amoDg the employers of labor, and a consequent rise in its price." If in this sentence he uses the term " capital " accord- ing to his own definition, he is not entitled to use the term " accumulation of capital " at all, as applied to circulating capital, which alone affects the competition for labor. Capital, according to him, being merely the wages-fund, does not become capital until it is expended, and is phys- ically incapable of being accumulated ; or, if we suppose him to include under capital funds set apart for the main- tenance of the laborer until the product he is then en- gaged upon is brought to market, there can be no increase of the wages-fund beyond that amount. Anything set apart for the employment of labor, beyond that at the time employed, is not capital in his sense, but in Mill's. But it is only such increase of capital that can affect the competition for labor. The demand for and supply of labor do not at all depend upon capital, in his sense of the term. The wages-fund is the effect and not the cause of the demand for labor. The word, therefore, must be used in the sense in which Mill defines the term, and in that sense his assertion is inaccurate. Population being stationary, an increase of capital beyond the limits I have pointed out decreases the de- mand for labor. The demand for labor must, then, depend 40 CAPITAL AND POPULATIO^T. upon something else. The proportion that determines the demand is not between commodities already in exist- ence and the number of laborers, but between the com- modities needed, or supposed to be needed, sufficiently to sell for a profit, and the number of laborers. It is not between the accumulations of past production and labor, but between the amount of future production and labor. But the amount of future production supposed to be need- ed will be least when things already in existence are most plenty, and greatest when they are scarce, and the direct opposite of Kicardo's assertion as to the demand for labor is what really follows. As to its price, he is right if he means relative price, but not otherwise. As a rule, Kicardo is more faithful to his definition than Mill is to his. Accepting his faulty definition, his conclusions are accurately true. Mill, on the other hand, persistently asserts Ricardo's conclusions as also true of capital as he defines it, and is, therefore, much more at fault than his predecessor. Sometimes, however, as in our quotation, Ricardo himself applies conclusions only true of the wages-fund to capital in its broader and truer signification. Although not strictly in the line of our argument, it may be well here to notice the principle enunciated by Mill, that the demand for commodities is not a demand for labor, as it is connected with our subject, and its con- sideration will throw additional light on the discussion. This proposition has attained the place of the pons asi- norum of political economy. It remains an insoluble puzzle to most minds, as, although they perceive Mill's reasoning to be irrefutable, they can not get rid of the conviction tlmt it really makes no difference, in the amount of labor that finds employment, whether it is employed mCREASE OF CAPITAL. 41 directly by themselves or by the funds that they turn over to others. The proposition is enunciated in the following pas- sage, Book I, chapter v, section 9, of Mill's work: "We now pass to a fourth fandamental theorem respecting capital, which is, perhaps, oftener overlooked or misconceived than even any of the foregoing. What supports and employs productive lahor is the capital expended in setting it to work, and not the de- mand of purchasers for the produce of the labor when completed. Demand for commodities is not demand for labor. The demand for commodities determines in what particular branch of production the labor and capital shall be employed ; it determines the direc- tion of the labor, but not the more or less of the labor itself, or of the maintenance or payment of the labor. These depend on the amount of the capital or other funds directly devoted to the suste- nance and remuneration of labor. " Suppose, for instance, that there is a demand for velvet ; a fund ready to be laid out in buying velvet, but no capital to estab- lish the manufacture. It is of no consequence how great the de- mand may be, unless capital is attracted into the occupation, there will be no velvet made, and consequently none bought ; unless, in- deed, the desire of the intending purchaser for it is so strong that he employs part of the price he would have paid for it in making advances to work-people, that they may employ themselves in mak- ing velvet ; that is, unless he converts part of his income into capi- tal, and invest that capital in the manufacture. Let us now reverse the hypothesis, and suppose that there is plenty of capital ready for making velvet, but no demand. Velvet will not be made ; but there is no particular preference on the part of capital for making velvet. Manufacturers and their laborers do not produce for the pleasure of their customers, but for the supply of their own wants, and having still the capital and the labor which are the essentials of production, they can either produce something else which is in demand, or, if there be no other demand, they themselves have one, and can pro- duce the things which they want for their own consumption. So that the employment afforded to labor does not depend on the pur- chasers, but on the capital. I am, of course, not taking into con- 42 CAPITAL AND POPULATION. sideration the effects of a sudden change. If the demand ceases un- expectedly after the commodity to supply it is already produced, this introduces a different element into the question ; the capital has actu- ally been consumed in producing something which nobody wants or uses, and it has therefore perished, and the employment which it gave to labor is at an end, not because there is no longer a demand, but because there is no longer a capital. This case, therefore, does not test the principle. The proper test is to suppose that the change is gradual and foreseen, and is attended with no waste of capital, the manufacture being discontinued by merely not replacing the machinery as it wears out, and not reinvesting the money as it comes in from the sale of the produce. The capital is thus ready for a new employment, in which it will maintain as much labor as before. The manufacturer and his work-people lose the benefit of the skill and knowledge which they had acquired in the particular business, and which can only be partially of use to them in any other ; and that is the amount of loss to the community by the change. But the laborers can still work, and the capital which previously employed them will, either in the same hands or by being lent to others, em- ploy either those laborers or an equivalent number in some other occupation. '' This theorem — that to purchase produce is not to employ labor ; that the demand for labor is constituted by the wages which pre- cede the production, and not by the demand which may exist for the commodities resulting from the production — is a proposition which greatly needs all the illustration it can receive. It is, to com- mon apprehension, a paradox ; and even among political economists of reputation, I can hardly point to any, except Mr. Eicardo and M. Say, who have kept it constantly and steadily in view. Almost all others occasionally express themselves as if a person who buys commodities, the produce of labor, was an employer of labor, and created a demand for it as really, and in the same sense, as if he bought the labor itself directly by the payment of wages. It is no wonder that political economy advances slowly when such a ques- tion as this still remains open at its very threshold. I apprehend that if by demand for labor be meant the demand by which wages are raised, or the number of laborers in employment increased, de- mand for commodities does not constitute demand for labor. I conceive that a person who buys commodities and consumes them INCREASE OF CAPITAL. 43 himself does no good to the laboring classes ; and that it is only by what he abstains from consuming and expends in direct payments to laborers in exchange for labor, that he benefits the laboring classes or adds anything to the amount of their employment. "For the better illustration of the principle, let us put the fol- lowing case : A consumer may expend his income either in buying services or commodities. He may employ part of it in hiring jour- neymen brick -layers to build a house, or excavators to dig artificial lakes, or laborers to make plantations and lay out pleasure-grounds ; or, instead of this, he may expend the same value in buying velvet and laces. The question is, whether the difference between these two modes of expending his income affects the interest of the labor- ing classes. It is plain that in the first of the two cases he employs laborers who will be out of employment, or, at least, out of that employment in the opposite case. But those from whom I differ say that this is of no consequence, because in buying velvet and lace he equally employs laborers, namely, those who make the velvet and lace. I contend, however, that in this last case he does not employ laborers ; but merely decides in what kind of work some other person shall employ them. The consumer does not, with his own funds, pay to the weavers and lace-makers their day's wages. He buys the finished commodity, which has been produced by labor and capital, the labor not being paid nor the capital furnished by him, but by the manufacturer. Suppose that he had been in the habit of expending this portion of his income in hiring journeymen brick- layers, who laid out the amount of their wages in food and clothing, which were also produced by labor and capital. He, however, deter- mined to prefer velvet, for which he thus creates an extra demand. This demand can not be satisfied without an extra capital ; where, then, is the capital to come from ? There is nothing in the consumer's change of purpose which makes the capital of the country greater than it otherwise was. It appears, then, that the increased demand for velvet could not for the present be supplied were it not that the very circumstance which gave rise to it has set at liberty a capital of the exact amount required. The very sum which the consumer now employs in buying velvet, formerly passed into the hands of journeymen brick-layers, who expended it in food and necessaries, which they now either go without, or squeeze by their competition from the shares of other laborers. The labor and capital, therefore, 44 CAPITAL AND POPULATION. which formerly produced necessaries for the use of these brick-layers are deprived of their market, and must look out for other employ- ment ; and they find it in making velvet for the new demand. I do not mean that the very same labor and capital which produced the necessaries turn themselves to producing the velvet ; but, in some one or other of a hundred modes, they take the place of that which does. There was capital in existence to do one of two things — to make the velvet, or to produce necessaries for the journeymen brick- layers; but not to do both. It was at the option of the customer which of the two should happen; and if he chooses the velvet, they go without the necessaries. " For further illustration, let us suppose the same case reversed. The consumer has been accustomed to buy velvet, but resolves to discontinue that expense, and to employ the same annual sum in hiring brick-layers. If the common opinion be correct, this change in the mode of his expenditure gives no additional employment to labor, but only transfers employment from velvet-makers to brick- layers. On closer inspection, however, it will be seen that there is an increase of the total sum applied to the remuneration of labor. The velvet manufacturer, supposing him aware of the diminished demand for his commodity, diminishes the production and sets at liberty a corresponding portion of the capital employed in the manu- facture. This capital, thus withdrawn from the maintenance of velvet-makers, is not the same fund with that which the customer employs in maintaining brick-layers ; it is a second fund. There are, therefore, two funds to be employed in the maintenance and remuneration of labor, where before there was only one. There is not a transfer of employment from velvet-makers to brick-layers ; there is a new employment created for brick-layers, and a transfer of employment from velvet-makers to some other laborers, most probably those who produce the food and other things which the brick-layers consume. *' In answer to this it is said that the money laid out in buying velvet is not capital, it replaces capital ; that, though it does not create a new demand for labor, it is the necessary means of en- abling the existing demands to be kept up. The funds (it may be said) of the manufacturer, while locked up in velvet, can not be directly applied to the maintenance of labor ; they do. not begin to constitute a demand for labor until the velvet is sold, and the capital INOEEASE OF CAPITAL. 45 which raade it replaced from the outlay of the purchaser; and thus, it may be said, the velvet-maker and the velvet-buyer have not two capitals, but only one capital between them, which by the act of purchase the buyer transfers to the manufacturer ; and if, instead of buying velvet he buys labor, he simply transfers this capital elsewhere, extinguishing as much demand for labor in one quarter as he creates in another. "The premises of this argument are not denied. To set free a capital which would otherwise be locked up in a form useless for the support of labor is, no doubt, the same thing to the interests of laborers as the creation of a new capital. It is perfectly true that if I expend £1,000 in buying velvet, I enable the manufacturer to employ £1,000 in the maintenance of labor, which could not have been so employed while the velvet remained unsold ; and if it would have remained unsold for ever unless I bought it, then by changing my purpose and hiring brick-layers instead, I undoubtedly create no new demand for labor, for while I employ £1,000 in hiring labor on the one hand, I annihilate for ever £1,000 of the velvet-maker's capital on the other. But this is confounding the effects arising from the mere suddenness of a change with the effects of the change itself. If, when the buyer ceased to purchase, the capital employed in making velvet for his use necessarily perished, then his expend- ing the same amount in hiring brick- layers would be no creation, but merely a transfer of employment. The increased employment which I contend is given to labor, would not be given unless the capital of the velvet-maker could be liberated, and would not be given until it was liberated. But every one knows that the capital in- vested in an employment can be withdrawn from it, if sufficient time be allowed. If the velvet-maker had previous notice, by not receiving the usual order, he will have produced £1,000 less velvet, and an equivalent portion of his capital will have been already set free. If he had no previous notice, and the article consequently remains on his hands', the increase of his stock will induce him next year to suspend or diminish his production until the surplus is car- ried off. When this process is complete, the manufacturer will find himself as rich as before, with undiminished power of employing labor in general, though a portion of his capital will now be em- ployed in maintaining some other kind of it. Until this adjustment has taken place, the demand for labor will be merely changed, not 46 CAPITAL AND POPULATION. increased ; but, as soon as it has taken place, the demand for labor is increased. Where there was formerly only capital employed in maintaining weavers to make £1,000 worth of velvet, there is now that same capital employed in making something else, and £1,000 distributed among brick-layers besides. There are now two capitals employed in remunerating two sets of laborers, while before one of those capitals, that of the customer, only served as a wheel in the machinery by which the other capital, that of the manufacturer, carried on its employment of labor from year to year. " The proposition for which I am contending is in reality equiva- lent to the following, which to some minds will appear a truism, though to others it is a paradox : that a person does good to labor- ers, not by what he consumes on himself, but solely by what he does not so consume. If, instead of laying out £100 in wine or silk, I expend it in wages, the demand for commodities is precisely equal in both cases ; in the one it is the demand for £100 worth of wine or silk ; in the other, for the same value of bread, beer, laborers' clothing, fuel, and indulgences : but the laborers of the community have in the latter case the value of £100 more of the produce of the community distributed among them. I have consumed that much less, and made over my consuming power to them. If it were not so, my having consumed less would not leave more to be con- sumed by others, which is a manifest contradiction. When less is not produced, what one person forbears to consume is necessarily added to the share of those to whom he transfers his power of pur- chase. In the case supposed I do not necessarily consume less ulti- mately, since the laborers whom I pay may build a house forme, or make something else for my future consumption. But I have at all events postponed my consumption, and have turned over part of my share of the present produce of the community to the laborers. If after an interval I am indemnified, it is not from existing prod- uce, but from a subsequent addition made to it. I have there- fore left more of the existing produce to be consumed by others; and have put into the possession of laborers the power to consume it." That tlie demand for commodities is not a demand for labor as here enunciated assumes that productive con- sumption can take the place of unproductive indefinitely, mOREASE OF CAPITAL. 47 while the truth is, it can only do so for a limited pe- riod, and must be followed bj a comparative increase of unproductive, equal or greater in amount, usually the latter. Let us vary Mill's illustration by supposing the demand of the individual possessing £1,000 to be for a house to live in, and that he will decide to buy a house, or build for himself, according as either action will most benefit the laboring classes. If he decides to buy, his demand in principle is the same as if he ex- pended the one thousand pounds for velvet. If he de- cides to build, he undoubtedly gives additional employ- ment to labor at the time. But if the society in which he lives is increasing in capital faster than in population, or will do so at some future time, sooner or later, some- where in the land, a house will not be built which would have been built if he had not anticipated such actiou. If, at the time he builds, houses are already in excess, the house that he would have bought if he had not built will remain unoccupied, or will serve by lowering rentals as a discouragement to others building, and he will only have anticipated the demand for labor by a very short inter- val. If there happens to be a scarcity of houses, his build- ing one lessens that scarcity and will prevent others sup- plying it by just one house. He has then only anticipated the demand for labor, but by a somewhat less interval than when houses are plenty. He can not at all increase the wages-fund, taking one year with another, by his de- cision between buying and building. He can, however, benefit the situation of the laboring class by equalizing in some slight degree the demand for labor, which he could effect by building in depressed and by buying in prosperous times. The contrary, however, is the usual course of those desiring houses, as they are prone to buy 3 48 CAPITAL AND POPULATION. in depressed and build in prosperous times, because they find an individual profit in so doing. The proposition that the demand for commodities is not a demand for labor has therefore little or no signifi- cance, but is merely a verbal distinction, utterly unworthy of the prominence it has attained, and has no bearing in any way or shape on the arguments here advanced, except as such arguments afford the solution of the puzzle. If, however, instead of a house or any other article of pro- longed consumption possessed of exchangeable value, the owner of the one thousand pounds employs labor to pro- duce objects of no utility — as, for instance, if he employed them in removing and then bringing back a pile of bricks — he would benefit the laboring class at his own expense. His expenditure would be purely of the nature of a gift to his employes ; likewise, if he employs labor in personal services the utility of which perishes in the doing, he certainly adds to the wages-fund. But even then he makes no permanent addition to it, nor does he when his expenditure is of the nature of a gift, even when the funds he expends come from dead stock, or from active stock the product of which was destined by him to serve as capital. If he restricts his own unproductive consump- tion to obtain, in lieu of it, personal service, he disturbs the normal ratio between capital and population ; as the amount of capital remains the same, while the number of laborers seeking employment is less by the number of them employed by him. This results in a rise of propor- tional wages and fall of profits, which leads to a decline of productive consumption until the ratio is adjusted, and there is for a time less employment for laborers than if he had expended the one thousand pounds unproductively. If his demand for services is permanent, population re- INCREASE OF CAPITAL. 49 maining the same, there is a permanent decline in the normal amount of capital, and the nation is permanently poorer in accumulated wealth than it would have been if his expenditure had been for unproductive consumption of material things. This permanent loss will be to the detriment, not of the rate but of the gross amount of profits, and the wages-fund will be as large as, but no larger than, before. If the one thousand pounds be taken from capital or from funds which would have been added to capital, our supposed employer of labor in services would lessen equally the amount of capital and the number of produc- tive laborers, except to the degree in which he disturbed the normal ratio of fixed to circulating capital ; i. e., labor employed in personal services requiring no fixed capital to speak of, the same amount of capital would employ more labor than before, which would entail some slight decline in profits, and the employment of labor. As be- fore, the community at large will be able to retain some- what less of capitalized wealth, while the wages-fund will be unaffected. Every diversion of labor from productive to unpro- ductive employment necessarily decreases the number of laborers productively engaged and the amount of capital that can he utilized — and can not^ as Mill practically claims^ at all increase the total number or remuneration of laborers employed productively and unproductively. If Mill is right in claiming that the demand for com- modities is not a demand for labor, it would follow that the greater the demand for services the better the condition of the laborer should be. During feudal times this de- mand was very much greater than it has ever since been, but the rates of both proportional and real wages were 50 CAPITAL AND POPULATION. then normally lower than at present, and no one will claim that a return to feudal customs would now be of any benefit to laborers, nor that it would not certainly lead to an enormous decrease in capitalized wealth, and the annual product of material things. The appeal to facts, therefore, is decidedly against Mill's ingenious theory. The w^orld can elect what proportion of its labor shall be utilized productively, and what in services, but it can not increase the amount of services and enjoy the same amount of material products as before ; and this, when analyzed, is what the proposition, that the demand for commodities is not a demand for labor, really asserts. Certain economists propose to include services under the term " wealth." To this misuse of language I can not agree ; not that I deny that services possess exchangeable value, but because the distinction between material and immaterial things is too radical. The latter can neither be accumulated nor distributed, and the discovery of the laws governing the accumulation and distribution of material wealth is the chief object of the science. As we have seen, services, although not themselves material things, nevertheless aifect the production and accumula- tion of material things, and possess as well both value and utility. They come certainly under the cognizance of the science, but as causes, not effects. They them- selves stand in but little need of explanation, but aid in explaining what does. CHAPTER III. THE TENDENCY OF CAPITAL TO OUTSTRIP POPULATION. I HAVE now reached tlie more agreeable task of show- ing that my views of the nature and limits of capital dif- fer from those of Mill and Ricardo mainly in the manner of statement, and are not essentially diverse. I do, in- deed, object most strenuously to the way in which they present the subject ; as I hold that it prevents in great part the practical application of economic ideas, and leads these great thinkers, as we shall see later on, to several erroneous theoretical conclusions. I may be pardoned if I quote somewhat more extensively than the argument strictly calls for, on account of my personal anxiety to be considered rather as supplementing than as supplanting their contributions to the science. To commence, then, with Mill, I will first quote from Book I, chapter xi, section 3 : "When a country has carried production as far as in the existing state of knowledge it can be carried, with an amount of return cor- responding to the average strength of the effective desire of accu- mulation in that country, it has reached what is called the stationary state — the state in which no further addition will be made to capi- tal unless there takes place either some improvement in the arts of production, or an increase in the strength of the desire to accumu- late. In the stationary state, though capital does not on the whole increase, some persons grow richer and others poorer. Those whose degree of providence is below the usual standard, become im- poverished, their capital perishes, and makes room for the savings 52 CAPITAL AND POPULATION. of those whose effective desire of accumulation exceeds the average. These hecome the natural purchasers of the land, manufactories, and other instruments of production owned by their less provident coun- trymen." Also from Book lY, chapter iv, section 5 : " I now say that the mere continuance of the present annual in- crease of capital, if no circumstance occurred to counteract its effect, would suflBce in a small number of years to reduce the rate of net profit to one per cent. " To fulfill the conditions of the hypothesis, we must suppose an entire cessation of the exportation of capital for foreign investment. No more capital sent abroad for railways or loans; no more emi- grants taking capital with them to the colonies, or to other coun- tries ; no fresh advances made, or credits given, by bankers or mer- chants to their foreign correspondents. We must also assume that there are no fresh loans for unproductive expenditure by the gov- ernment, or on mortgage, or otherwise ; and none of the waste of capital which now takes place by the failure of undertakings, which people are tempted to engage in by the hope of a better income than can be obtained in safe paths at the present habitually low rate of profit. We must suppose the entire savings of the community to be annually invested in really productive employment within the coun- try itself; and no new channels opened by industrial inventions, or by a more extensive substitution of the best-known processes for inferior ones. " Few persons would hesitate to say that there would be great difficulty in finding remunerative employment every year for so much new capital, and most would conclude that there would be what used to be termed a general glut ; that commodities would be produced, and remain unsold, or be sold only at a loss. But the full examination which we have already given to this question has shown that this is not the mode in which the inconvenience would be experienced. The difficulty would not consist in any want of market. If the new capital were duly shared with many varieties of employment, it would raise up a demand for its own produce, and there would be no cause why any part of that produce should remain longer on hand than formerly. What would really be, not TENDENCY OF CAPITAL TO OUTSTRIP POPULATION. 53 merely difficult, but impossible, would be to employ this capital without submitting to a rapid deduction of the rate of profit. "As capital increased, population either would also increase, or it would not. If it did not, wages would rise, and a greater capital would be distributed in wages among the same number of laborers. There being no more labor than before, and no improvements to render the labor more efficient, there would not be any increase of the produce ; and as the capital, however largely increased, would only obtain the same gross return, the whole savings of each year would be exactly so much subtracted from the profits of the next and of every following year. It is hardly necessary to say that in some circumstances profits would very soon fall to the point at which further increase of capital would cease. An augmentation of capital, much more rapid than that of population, must soon reach its extreme limit, unless accompanied by increased efficiency of labor (through inventions and discoveries, or improved mental and physical education), or unless some of the idle people, or of the unproductive laborers, became productive." And, again, from Book I, chapter xiii, section 1 : *' But there are other countries, and England is at the head of them, in which neither the spirit of industry nor the effective desire of accumulation need any encouragement ; where the people will toil hard for a small remuneration, and save much for a small profit ; where, though the general thriftiness of the laboring class is much below what is desirable, the spirit of accumulation in the more pros- perous part of the community requires abatement rather than in- crease. In these countries there would never be any deficiency of capital, if its increase were never checked or brought to a stand by too great a diminution of its returns." And from Book lY, chapter v, section 1 : "It must always have been seen, more or less distinctly, by political economists, that the increase of wealth is not boundless ; that at the end of what they term the progressive state lies the stationary state ; that all progress in wealth is but a postponement of this, and that each step in advance is an approach to it. We have now teen led to recognize that this ultimate goal is at all times 54 CAPITAL AND POPULATIOK near enough to he fully in mew ; that we are always on the verge of it, and that, if we have not reached it long ago, it is because the goal itself flies before us. The richest and most prosperous coun- tries would very soon attain the stationary state, if no further im- provements were made in the productive arts, and if there were a suspension of the overflow of capital from those countries into the uncultivated or ill-cultivated regions of the earth." And from Book Y, chapter iv, section 4 : " In England the great emigration of capital, and the almost periodical occurrence of commercial crises through the speculations occasioned by the habitually low rate of profit, are indications that profit has attained the practical though not the ultimate minimum, and that all the savings which take place (beyond what improve- ments, tending to the cheapening of necessaries, make room for) are either sent abroad for investment or periodically swept away." To this I must object that no destruction of capital or wealth in any form occurs during a panic. The excess of capital is not " swej)t away " in any sense of the term. It is not even devoted to unproductive consumption, as that itself in such times is lessened. The readjustment comes, and can only come, from a decrease in productive consumption, greater than the accompanying decrease in unproductive. If unproductive consumption did not de- crease, the proper ratio of capital to population would be obtained much sooner than it now is, viz., when produc- tion had been decreased to an amount exactly equal to the previous over-accumulation; and the only loss that society would suffer would be what it would have lost if the superabundant capital had been destroyed by fire, or in any manner consumed without affording any enjoy- ment or satisfaction. But the curtailment of unproduc- tive consumption adds to this loss one of many times its extent, viz., the loss for ever of all those enjoyments TENDENCY OF CAPITAL TO OUTSTRIP POPULATION. 55 which individuals have foregone by lessening their un- productive consumption, in their endeavor to retain their own capital unimpaired ; or rather the loss of the produc- tion which would have satisfied such unproductive con- sumption. There is here a case where individual are opposed to social interests. By retrenching expenditure the individual adds to, or at least retains more of, his capital ; but he does it at the expense of the capital of his fellow-citizens. The capital that the community can permanently employ, including his own, is actually less- ened by his accretions when the general capital has in- creased more rapidly than population. Again, in Book I, chapter v, section 7 : "This perpetual consumption and reproduction of capital affords the explanation of what has so often excited wonder, the great ra- pidity with which countries recover from a state of devastation; the disappearance, in a short time, of all traces of the mischiefs done by earthquakes, floods, hurricanes, and the ravages of war. An enemy lays waste a country by fire and sword, and destroys or car- ries away nearly all the movable wealth existing in it ; all the in- habitants are ruined, and yet, in a few years after, everything is much as it was before. This vis medicatrix naturm has been a sub- ject of sterile astonishment, or has been cited to exemplify the won- derful strength of the principle of saving, which can repair such enormous losses in so brief an interval. There is nothing at all wonderful in the matter. What the enemy have destroyed, would have been destroyed in a little time by the inhabitants themselves; the wealth which they so rapidly reproduce, would have needed to be reproduced and would have been reproduced in any case, and probably in as short a time. Nothing is changed, except that dur- ing the reproduction they have not now the advantage of consum- ing what had been produced previously. The possibility of a rapid repair of their disasters mainly depends on whether the country has deen depopulated. If its effective population have not been extir- pated at the time^ and are not starved afterward^ then, with the same skill and knowledge which they had before, with their land 66 CAPITAL AND POPULATION. and its permanent improvements undestroyed, and the more durable buildings probably unimpaired, or only partially injured, they have nearly all the requisites for their former amount of production. If there is as much of food left to them, or of valuables to buy food, as enables them by any amount of privation to remain alive and in working condition, they will in a short time have raised as great a produce, and acquired collectively as great wealth and as great a capital, as before, by the mere continuance of that ordinary amount of exertion which they are accustomed to employ in their occupa- tions. Nor does this evince any strength in the principle of saving, in the popular sense of the term, since what takes place is not in- tentional abstinence, but involuntary privation." And, finally, Book lY, chapter iv, section 4 : *'We now arrive at the fundamental proposition which this chapter is intended to inculcate. When a country has long possessed a large production, and a large net income to make savings from, and when, therefore, the means have long existed of making a great annual addition to capital (the country not having, like America, a large reserve of fertile land still unused), it is one of the chief char- acteristics of such a country, that the rate of profit is habitually within, as it were, a hand's breadth of the minimum, and the country, therefore, on the very verge of the stationary state. By this I do not mean that this state is likely, in any of the great countries of Europe, to be soon actually reached, or that capital does not still yield a profit considerably greater than what is barely sulficient to induce the people of those countries to save and accumulate." I will also quote Hicardo in this connection, calling attention to the fact that he here nses capital in Mill's sense, and can not mean by it the wages-fund — although most of his assertions are only true of the wages-fund — as no increase of that beyond the increase of population is conceivable. Kicardo's works, chapter xxi, page 174 : " No accumulation of capital will permanently lower profits, un- less there be some permanent cause for the rise in wages. If the TENDEI^CY OF CAPITAL TO OUTSTRIP POPULATION. 57 funds for the maintenance of labor were doubled, tripled, or quad- rupled, there would not long be any difficulty in procuring the nec- essary number of bauds to be employed by those funds, but, owing to the increasing difficulty of making constant additions to the food of the country, funds of the same value would probably not maintain the same quantity of labor. If the necessaries of the workmen could be constantly increased with the same facility, there could be no permanent alteration in the rate of profit or wages, to whatever amount capital might be accumulated. Adam Smith, however, uni- formly ascribes the fall of profits to the accumulation of capital, to the competition which will result from it, without ever adverting to the increasing difficulty of providing food for the additional number of laborers which the additional capital will employ. ' The increase of stock,' he says, 'which raises wages tends to lower profits.' Adam Smith speaks here of a rise of wages, but it is a temporary rise proceeding from increased funds before the population is in- creased, and he does not appear to see that, at the same time that the capital is increased, the work to be effected by capital is in- creased in the same proportion. M. Say has, however, most satis- factorily shown that there is no amount of capital which may not be employed in a country, because demand is only limited by produc- tion. No man produces but with a view to consume or sell, and he never sells but with an intention to purchase some other commodity, which may be immediately useful to him or which may contribute to future production. By producing, then, he necessarily becomes either the consumer of his own goods, or the purchaser and con- sumer of the goods of some other person. " There can not then be accumulated in a country any amount of capital which can not be employed productively until wages rise so high in consequence of the rise of necessaries, and so little conse- quently remains for the profits of stock, that the motive for accu- mulation ceases. " Whether these increased productions, and the consequent de- mand which they occasion, shall or shall not lower profits, depends solely on the rise of wages ; and the rise of wages, excepting for a limited period, on the facility of producing the food and necessaries of the laborer ; I say for a limited period, because no point is better established than that the supply of laborers will always ultimately be in proportion to the means of supporting them. 58 CAPITAL AND POPULATION. *' There is only one case, and that will be temporary, in which the accumulation of capital, with a low price of food, may be at- tended with a fall of profits, and that is, when the funds for the maintenance of labor increase ranch more rapidly than population ; wages will then he high, and profits low. If every man were to fore- go the use of luxuries and he intent only on accumulation, a quantity of necessaries might he produced for which there could not he any immediate consumption. Of commodities so limited in number there might undoubtedly he a universal glut, and consequently there might neither be demand for an additional quantity of such commod- ities nor profits on the employment of more capital. If men ceased to consume they would cease to produce — this admission does not impugn the general principle." Without any separate criticism of these quotations, I am justified in asserting that, with much from which I dissent, they contain or imply every one of my premises and deductions, except that of the influence of increase of capital upon population. That the conclusions of Ricardo and Mill differ from mine, is owing solely to their ambiguous use of the term " capital." Every one of the principles I have advocated, with the above excep- tion, they enunciate distinctly, except that they usually, but not always, assume that capital, in Mill's sense, and the wages-fund, i. e., capital, in Ricardo's sense, vary together ; whereas I hold that they vary inversely, other things, of course, remaining the same. In this assertion there can be no doubt that I am right and they wrong ; and it is readily seen that they fell into their error from not fully perceiving all the implications of their own defi- nitions of capital, and through, taking it for granted that what was true of it in one tense was true of it in all, and from the misleading supposition that a low rate of profit was a stimulus to population. But I differ from them in a matter I have not yet TENDEJTCY OF CAPITAL TO OUTSTRIP POPULATION. 59 touclied upon, except by implication, viz., in my views as to what constitutes the progressive, stationary, and retrogressive states of society ; and the difference is im- portant, as the soundness of my position here will affect the truth of deductions to be made later on, the practical application of which will profoundly influence the eco- nomic policy w^hich nations should adopt to secure for themselves the greatest possible share of the world's products, and to increase to the highest point their own productive efficiency. The circumstance that seems to me important is the determination of the question whether the net produce of a nation bears an increasing, a decreasing, or a steady ratio to its population. If the income ^^r capita of its people is growing larger, I should say it was enjoying an economic progress ; if smaller, that it was going backward, irrespective of whether such advance or retrogression was accompanied by a growth or decline of the total wealth and population.* It is, indeed, true that any increase in net income per capita is usually accompanied by an increase in the aggregate of accumulation and of popula- tion ; but the latter must be distinguished from the for- mer as being its effect and counteractant. It is its effect, because any increase in net income is an additional stimu- lus to population ; and its counteractant, because every in- crease of numbers lowers the margin of cultivation, and because every increase of capital beyond that of popula- tion decreases the capacity of the nation to produce by lessening the number of laborers employed : but there is no necessary connection between increase of net income * In net income I would include the income of immediate satisfactions and enjoyments derived from commodities reserved for prolonged unpro- ductive consumption, as well as of those derived from services. 60 CAPITAL AND POPULATION". and population, or between a large annual production and accumulation. When people understand and fully ap- preciate the working of economic laws, they will endeavor to dissociate them, and there is no reason why they should be unsuccessful in such efforts. When this is effected, advantages gained in productive efficiency will not be wasted in a mere increase of numbers, or be frittered away and made barren of enjoyment by the attempt to possess more capitalized wealth than economic law allows. Strictly speaking, there is no stationary state of so- ciety at all. The perpetual flux and reflux of human events prevent such a state from being more than mo- mentary, a mere turning-point between the progressive and the retrogressive, or vice versa. When the growth in net incomes, in which I consider the progressive state to consist, is counteracted by the growth of aggregate capital and population, which Mill seems to consider as constituting it, society pauses stationary for a moment, and then enters the retrogressive state, in which its annual produce and net income decline, and this proceeds until the consequent decrease of capital and population checks society in its dow^nward course, and it again momentarily pauses, in a second and lower stationary state, from which an advance is once more effected. If, on the whole, a na- tion progresses in wealth, population, and the average in- come of its inhabitants (without this last ingredient, I refuse to accept it as progress at all), it is not, as Mill seems to suppose, because it has never entered the station- ary or retrogressive states, but because its passage through the progressive state has been longer, and has more influ- enced its economic condition, than its passage through the others. The progress of society is due, not to ground TENDENCY OF CAPITAL TO OUTSTRIP POPULATION. 61 never being lost, but to the fact that, while much is re- peatedly lost, more has been gained: like the incoming tide, each wave has reached a higher level than its predecessor. Mill, and Ricardo with him, seems to have considered the stationary state of society as never practically reached, and to have thought it somewhat problematical that it ever would be. They w^ould both freely admit the con- clusions I have drawn, as well as those to be hereafter deduced, as applicable to such a social condition, and, when induced to admit that all civilized nations complete the round of the three states in constantly recumng periods of about ten years, they could not but regard the validity of my conclusions as established. The possibil- ity of capital pressing upon population is clearly recog- nized by them. If they had recognized that this press- ure is not only an abstract possibility, but an actually existent economic fact, and that the pressure of capital upon population is as constant and steady as that of pop- ulation upon the food-supply, they could not have failed to draw as important conclusions from the principle they neglected, as being merely theoretical, as they did draw from the theory of Malthus. That the tendency of capital to increase faster than population is steady and constant, whenever and wher- ever men in their economic actions are undisturbed by abnormal events, is the central thouglit of this treatise, and is the contribution I bring to the science of political economy. I do not mean by this that capital constantly increases more rapidly than population, any more than Malthus meant that population always increased faster than its food-supply. The increase of capital and of population 62 CAPITAL AN"D POPULATIOK. both have their checks, which operate in very similar manner. Profits are the means of support to capital, as truly and very much in the same sense as food is the means of support to population. The checks upon both capital and population operate in the same manner, and not only often forbid further increase, but sometimes demand an actual decrease. It is not the increase of either popula- tion or capital that is constant, but the tendency to such increase heyond their economic limits. I must not be understood as asserting that all human societies show this tendency in a periodical increase of capital beyond the needs of population. Whenever and wherever capital is physically insufficient to furnish the amount of wages-fund that can be profitably employed, the limitations to capital are removed as long as such condition lasts. In one sense all barbarous, semi-civilized, and despotic countries, where there is but scanty security for life and property, can be said to be in this condition, and the checks to accumulation in them are moral and social, and not economic. What I mean is, that in the absence of war, famine, and bad government, capital will constantly tend to outstrip population, will periodically succeed in so doing, and will be in excess, to the detriment of production for a greater or less portion of the time. The analogy between the pressure it exerts and that ex- erted by population on the margin of cultivation is as perfect as it is the nature of any analogy to be. Even taking Mill's definition of what constitutes the stationary state, viz., the decline of the rate of profit to the minimum and the cessation of accumulation, what is more evident than that such decline is the most important occurrence in every period of industrial stagnation, and that not only TENDENCY OF CAPITAL TO OUTSTEIP POPULATION 63 in such times is the stationary state as defined by him reached, but that the rate of profit then declines below the minimum and carries the community for a time into the retrogressive state in which a decrease of production takes place ? That the state of civilized communities is still on the average progressive, is certainly no proof that the other states are not occasionally reached. A perma- nent stationary or retrogressive state can not occur until all the fertile land of the globe is reclaimed, and then only in the absence of further improvements and inven- tions, and of a decrease of population, except, indeed, pop- ulation increases as fast as, or faster than, the reclamation of fertile land. The condition of mankind in the station- ary and retrogressive states, instead, however, of being a curious problem, the solution of which has a practical in- terest for future generations alone, is a topic of pressing importance. CHAPTEE ly. FIXED CAPITAL. " There is a great difference between the effects of circulating and those of fixed capital, on the amount of the gross produce of the country. Circulating capital being destroyed as such, br at any rate finally lost to the owner, by a single use, and the product re- sulting from that one use being the only source from which the owner can replace the capital, or obtain any remuneration for its productive employment, the product must of course be sufficient for those purposes ; or, in other words, the result of a single use must be a reproduction equal to the whole amount of the circulating capital used, and a profit besides. This, however, is by no means necessary in the case of fixed capital. Since machinery, for exam- ple, is not wholly consumed by one use, it is not necessary that it should be wholly replaced from the product of that use. The ma- chine answers the purpose of its owner, if it brings in, during each interval of time, enough to cover the expense of repairs, and the deterioration in value which the machine has sustained during the same time, with a surplus sufficient to yield the ordinary profit on the entire value of the machine. " From this it follows that all increase of fixed capital^ when talcing place at the expense of circulating^ must he at least tempora- rily prejudicial to the interests of the laborers. This is true, not of machinery alone, but of all improvements by which capital is sunk ; that is, rendered permanently incapable of being applied to the maintenance and remuneration of labor. Suppose that a person farms his own land, with a capital of two thousand quarters of corn, employed in maintaining laborers during one year (for sim- plicity we omit the consideration of seed and tools), whose labor FIXED CAPITAL. 65 produces him annually two thousand four hundred quarters, being a profit of twenty per cent. This profit we shall suppose that he annually consumes, carrying on his operations from year to year on the original capital of two thousand quarters. Let us now suppose that, by the expenditure of half his capital, he effects a permanent improvement of his land, which is executed by half his laborers, and occupies them for a year, after which he will only require, for the effectual cultivation of his land, half as many laborers as before. The remainder of his capital he employs as usual. In the first year there is no difference in the condition of the laborers, except that part of them have received the same pay for an operation on the land which they previously obtained for plowing, sowing, and reap- ing. At the end of the year, however, the improver has not, as before, a capital of two thousand quarters of corn. Only one thou- sand quarters of his capital have been reproduced in the usual way: he has now only those thousand quarters and his improvements. He will employ, in the next and in each following year, only half the number of laborers, and will divide among them only half the former quantity of subsistence. The loss will soon be made up to them if the improved land, with the diminished quantitj' of labor, produces two thousand four hundred quarters as before, because so enormous an accession of gain will probably induce the improver to save a part, add it to his capital, and become a larger employer of labor. But it is conceivable that this may not be the case; for (supposing, as we may do, that the improvement will last indefi- nitely, without any outlay worth mentioning to keep it up) the improver will have gained largely by his improvement if the land now yields, not two thousand four hundred, but one thousand five hundred quarters ; since this will replace the one thousand quarters forming his present circulating capital, with a profit of twenty-five per cent (instead of twenty as before) on the whole capital, fixed and circulating together. The improvement, therefore, may be a very profitable one to him, and yet very injurious to the laborers. " The supposition, in the terms in which it has been stated, is purely ideal ; or at most applicable only to such a case as that of the conversion of arable land into pasture, which, though formerly a frequent practice, is regarded by modern agriculturists as the re- verse of an improvement. The clearing away of the small farmers in the north of Scotland, within the present century, was, however, QQ CAPITAL AND POPULATION". a case of it ; and Ireland, since tlie potato famine and the repeal of the corn-laws, is another. The remarkable decrease which has lately attracted notice in the gross produce of Irish agriculture is, to all appearance, partly attributable to the diversion of land from maintaining human laborers to feeding cattle ; and it could not have taken place without the removal of a large part of the Irish popula- tion by emigration or death. We have thus two recent instances in which what was regarded as an agricultural improvement has dimin- ished the power of the country to support its population. The effect, however, of aU the improvements due to modern science is to increase, or, at all events, not to diminish, the gross produce. But this does not affect the substance of the argument. Suppose that the improvement does not operate in the manner supposed — does not enable a part of the labor previously employed on the land to be dispensed with — but only enables the same labor to raise a greater produce. Suppose, too, that the greater produce, which by means of the improvement can be raised from the soil with the same labor, is aU wanted, and will find purchasers. The improver will in that case require the same number of laborers as before, at the same wages. But where will he find the means of paying them ? He has no longer his original capital of two thousand quarters dispos- able for the purpose. One thousand of them are lost and gone — consumed in making the improvement. If he is to employ as many laborers as before, and pay them as highly, he must borrow, or ob- tain from some other source, a thousand quarters to supply the deficit. But these thousand quarters already maintained, or were destined to maintain, an equivalent quantity of labor. They are not a fresh creation ; their destination is only changed from one productive employment to another ; and, though the agriculturist has made up the deficiency in his own circulating capital, the breach in the circulating capital of the community remains unrepaired." — (Mill, Book I, chapter vi, section 2.) The necessity whicli the English school of economists labor under, of making it appear that industrial inactiv- ity is due to the scarcity of material wealth, or rather of circulating capital, has led them to assert that the increase of fixed capital often causes the decrease of the wages- FIXED CAPITAL. 67 fund. They generally express themselves somewhat dif- ferently, and substitute the words " circulating capital " for wages-fund; as, in the above passage, Mill says: " From this it follows that all increase of fixed capital, when taking place at the expense of circulating, must be, at least temporarily, prejudicial to the interests of the laborers." The passage is not true, unless circulating capital is understood as the wages-fund alone. It some- times happens that the increase of fixed capital is at the expense of the wages-fund, and Mill gives two instances where this has occurred ; but it is evident that such de- pletion of the wages-fund can not occur until the other part of circulating capital — dead stock — is first converted into fixed capital. But Mill evidently intends to convey the idea that all increase of fixed, at the expense of circu- lating capital (as defined by himself), is prejudicial to the laborers. On the contrary, it is evident that any deple- tion of dead stock by its conversion into fixed capital raises the rate of profit on active circulating stock, and leads to a further depletion of dead stock by the conversion of more of it into the wages-fund than would otherwise go there. The demand for labor resulting from the conver- sion of dead stock into fixed capital can not raise real, though it may money, wages, because while it is taking place the decrease of dead stock will cause the things in which wages are really paid to rise in money-value more than money- wages can by any possibility advance. What finally causes a rise in wages and a decline in the money- value of dead stock is, the demand for labor caused by the attempt to utilize such fixed capital ; and such rise of wages and fall in the value, as compared with wages, of dead stock, can only occur when the labor at first applied to the creation of fixed capital is employed in utilizing it 68 CAPITAL AND POPULATION. in production, and has caused an increase of dead stoch to such degree as to more than make ujp its depletion hy fixed capital. Over-investment, even when it is so great as to use up all the dead and part of the active stock besides, puts off the time when labor can not be profitably employed. Its action is that of an anticipated demand for labor, and its evil effects are not felt until the period of recuperation ; then the demand that has been anticipated can not be exerted. The idle factories and workshops stand ready to be utilized the moment there is a profit in using them ; and no more will be erected until their number becomes insufficient for the demands of industry. If, in times of stagnation, all superfluous fixed capital and dead stock were incontinently destroyed, it would lead to an almost immediate resumption of industrial activity. If this were habitually done, it would be greatly to the advantage of the laborers, as it would result in a permanent increase of the average amount of the wages-fund, l^or would it be at all to the disadvantage of capitalists as a class ; on the contrary, they would gain by it, though not to the extent of the laborers. The real destruction of such property oc- curs when funds that should have gone to unproductive consumption were diverted to fixed capital, or retained as dead stock. Once suffered, the loss is irreparable ; but a further loss is entailed to both labor and capital by the continuance in existence of such property, prohibiting future production often to many times its own amount. I am not advocating any destruction of unprofitable stock ; that would certainly be impracticable without entailing great injustice to individuals ; but I am pleading against its creation. Such arbitrary destruction of superabun- dant capital does sometimes occur in the natural course FIXED CAPITAL. 69 of human events, and is always followed by a season of great industrial activity. This explains the rapid recov- ary of nations from the effects of the most devastating wars, and their prosperity during their continuance, al- though the destruction of human life and the drain of laborers to the army largely counteract the effects of the depletion of capital. Witness the wonderful recovery of France from the terrible losses and enormous indemnity imposed upon her by Germany. Germany brought home with her milliards her own industrial ruin, and has un- dergone a loss in productive power many times greater than the sum she filched from her neighbor, while France is wealthier to-day than before the enormous tribute was exacted. It is incorrect, therefore, to attribute the origin of our depressions to over-investment. What that really effects is, to defer their occurrence, and to prolong them when finally they do occur. That Mill's views really coincide with mine, as ex- pressed in this chapter, I also claim, and submit the fol- lowing extracts to prove the assertion, and shall leave them without further comment than the intelligent read- er can supply for himself from what has been said, and will only ask that Mill's ambiguous use of the term " cap- ital " shall be constantly borne in mind : " The theory of the effect of accumulation on profits laid down in the preceding chapter, materially alters many of the practical conclusions which might otherwise be supposed to follow from the general principles of political economy, and which were, indeed, long admitted as true by the highest authorities on the subject. *' It must greatly abate, or rather, altogether destroy, in coun- tries where profits are low, the immense importance which used to be attached by political economists to the effects which an event or a measure of government might have in adding to, or subtracting 70 CAPITAL AND POPULATION. from, tlie capital of tlie country. "We have now seen that the low- ness of profits is a proof that the spirit of accumulation is so active, and that the increase of capital has proceeded at so rapid a rate, as to outstrip the two counter-agencies, improvements in production, and increased supply of cheap necessaries from abroad : and that unless a considerable portion of the annual increase of capital were either periodically destroyed, or exported for foreign investment, the country would speedily attain the point at which further accu- mulation would cease ; or, at least, spontaneously slacken so as no longer to overpass the march of invention in the arts which pro- duce the necessaries of life. In such a state of things as this, a sudden addition to the capital of the country, unaccompanied by any increase of productive power, would be but of transitory du- ration ; since by depressing profits and interest, it would either diminish by a corresponding amount the savings which would be made from income in the year or two following, or it would cause an equivalent amount to be sent abroad, or to be wasted in rash speculations. Neither, on the other hand, would a sudden abstrac- tion of capital, unless of inordinate amount, have any real effect in impoverishing the country. After a few months or years, there would exist in the country just as much capital as if none had been taken away. The abstraction, by raising profits and interest, would give a fresh stimulus to the accumulative principle, which would speedily fill up the vacuum. Probably, indeed, the only effect that would ensue, would be that for some time afterward less capital would be exported, and less thrown away in hazardous speculation. "In the first place, then, this view of things greatly weakens, in a wealthy and industrious country, the force of the economical argu- ment against the expenditure of public money for really valuable, even though industriously unproductive, purposes. If for any great object of justice or philanthropic policy, such as the industrial re- generation of Ireland, or a comprehensive measure of colonization or of public education, it were proposed to raise a large sum by way of loan, politicians need not demur to the abstraction of so much capital as tending to dry up the permanent sources of the country's wealth, and diminish the fund which supplies the subsistence of the laboring population. The utmost expense which could be requisite for any of these purposes would not, in all probability, deprive one laborer of employment, or diminish the next year's production by FIXED CAPITAL. 71 one ell of cloth or one bushel of grain. In poor countries, the cap- ital of the country requires the legislator's sedulous care; he is bound to be most cautious of encroaching upon it, and should favor to the utmost its accumulation at home, and its introduction from abroad. But in rich, populous, and highly cultivated countries, it is not capital which is the deficient element, but fertile land ; and what the legislator should desire and promote, is not a greater aggregate saving, but a greater return to savings, either by improved cultiva- tion, or by access to the produce of more fertile lands in other parts of the globe. In such countries, the government may take any moderate portion of the capital of the country and expend it as revenue, without affecting the national weath, the whole being either drawn from that portion of the annual savings which would otherwise be sent abroad, or being subtracted from the uni)roduc- tive expenditure of individuals for the next year or two, since every million spent makes room for another million to be saved before reaching the overflowing point. When the object in view is worth the sacrifice of such an amount of the expenditure that furnishes the daily enjoyments of the people, the only well-grounded econom- ical objection against taking the necessary funds directly from cap- ital, consists of the inconveniences attending the process of raising a revenue by taxation, to pay the interest of a debt. " The same considerations enable us to throw aside as unworthy of regard one of the common arguments against emigration as a means of relief for the laboring class. Emigration, it is said, can do no good to the laborers, if, in order to defray the cost, as much must be taken away from the capital of the country as from its population. That anything like this proportion could require to be abstracted from capital for the purpose even of the most extensive colonization, few, I should think, would now assert ; but, even on that untenable supposition, it is an error to suppose that no benefit would be conferred on the laboring class. If one tenth of the laboring people of England were transferred to the colonies, and along with them one tenth of the circulating capital of the country, either wages or profits, or both, would be greatly benefited, by the dimin- ished pressure of capital and population upon the fertility of the land. There would be a reduced demand for food ; the inferior arable lands would be thrown out of cultivation, and would become pasture ; the superior would be cultivated less highly, but with a 4 72 CAPITAL AND POPULATION. greater proportional return ; food would be lowered in price, and, tliough money- wages would not rise, every laborer would be con- siderably improved in circumstances — an improvement which, if no increased stimulus to population and fall of wages ensued, would be permanent ; while, if there did, profits would rise, and accumula- tion start forward so as to repair the loss of capital. The landlords alone would sustain some loss of income ; and even they, only if colonization went to the length of actually diminishing capital and population, but not if it merely carried off the annual increase. "From the same principles we are now able to arrive at a final conclusion respecting the effects which machinery, and generally the sinking of capital for a productive purpose, produce upon the im- mediate and ultimate interests of the laboring class. The charac- teristic property of this class of industrial improvements is the con- version of circulating capital into fixed ; and it was shown, in the first book, that, in a country where capital accumulates slowly, the introduction of machinery, permanent improvements of land, and the like, might be, for the time, extremely injurious ; since the capi- tal so employed might be directly taken from the wages-fund, the subsistence of the people and the employment for labor curtailed, and the gross annual produce of the country actually diminished. But, in a country of great annual savings and low profits, no such effects need be apprehended. Since even the emigration of capital, or its unproductive expenditure, or its absolute waste, do not in such a country, if confined within any moderate bounds, at all di- minish the aggregate amount of the wages-fund, still less can the mere conversion of a like sum into fixed capital, which continues to be productive, have that effect. It merely draws off at one orifice what was already flowing out at another ; or, if not, the greater va- cant space left in the reservoir does but cause a greater quantity to flow in. Accordingly, in spite of the mischievous derangements of the money-market which have been occasioned by the sinking of great sums in railways, I was never able to agree with those who apprehended mischief from this source to the productive resources of the country. Not on the absurd ground (which to any one ac- quainted with the elements of the subject needs no confutation) that railway expenditure is a mere transfer of capital from hand to hand, by which nothing is lost or destroyed. This is true of what is spent in the purchase of the land ; a portion, too, of what is paid to par- FIXED CAPITAL. 73 liamentary agents, counsel, engineers, and surveyors, is saved by those who receive it, and becomes capital again ; but v York Evening Express. D. APPLETON & CO., Publishers, 1, 3, & 6 Bond Street, New York. r 14 DAY USE J RETURN TO DESK FROM WHICH BORROWED LOAN DEPT. Tel, No. 642-3405 Kenewed books are subjea to immediate recall. LD21A-50m-2,'71 General Library (P200l8l0)476— A-32 University of California Berkeley TD buOc^