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pass a loan of the same extent of capital, the ratio of interest remained unaltered. The quantity of specie or money, in the market, might increase ten-fold, without multiplying the quantity of disposable, or circulating capital.*

Wherefore, it is a great abuse of words, to talk of the interest of money; and probably this erroneous expression has led to the false inference, that the abundance or scarcity of money regulates the rate of interest. t Law, Montesquieu, nay even the judicious Locke, in a work expressly treating of the means of lowering the interest of money, have all fallen into this mistake; and it is no wonder that others should have been misled by their authority. The theory of interest was wrapped in utter obscurity, until Hume and Smith dispelled the vapour. Nor will it ever be clearly comprehended except by such as shall have acquired a correct notion of what has, throughout this work, been denominated capital, and shall proceed in the conviction, that the object lent or borrowed, is not a particular commodity or object of merchandise, but a portion of value, of the aggregate value of the capital available for that object; and that the per centage paid for the use of this portion of capital, at all times and places, depends on the relative supply and demand of capital to be lent, and is wholly independent of the specific form or quality of the commodity, wherein the loan is made, whether it be money, or any other article whatever.

This is no contradiction to the former position, that the precious metals form part of the capital of society. They form an item of capital, but not of disposable, or lendable capital; for they are already employed, and not in search of employment;-employed in the business of circulating value from one hand to another. If their supply exceed the demand for this object, they are sent to other parts, where their price continues higher; if their general abundance lower their price every where, the sum of their value is not increased, but a larger quantity of them is given in exchange for the same value in other commodities.

If interest were always low in proportion to the greater supply of money, it would be lower in Portugal, Brazil, and the West Indies, than in Germany, Switzerland, &c. which is by no means the case.

Essays of D. Hume, part ii. ess. 4. Wealth of Nations, Book ii. c. 4. It is well for the student in political economy, that Locke and Montesquieu have not written more upon it; for the talent and ingenuity of a writer serve only to perplex a subject he is not thoroughly acquainted with. To say the truth, a man of lively wit can not satisfy his own mind without a degree of speciousness and plausibility, which is of all things the most dangerous to the generality of readers, who are not sufficiently grounded in principle to discover an error at first sight. In those sciences, which consist in mere compilation and classification, as in botany or natural history, one can scarcely read too much; but, in those dependent upon the deduction of general laws from particular facts, the better course is to read little, and select that little with judgment.


Of the Profits of Capital.

WE have now sufficiently considered the nature and motive of the interest paid by the borrower to the lender of capital, and, though it appears pretty plainly, that this interest is compounded of the rent of the capital, and of the premium of insurance against the risk of its partial or total loss, we have also seen enough, to comprehend the extreme difficulty of severing and distinguishing these two ingredients.

Let us then proceed, in the next place, to investigate the causes of the profit derivable from the employment of capital, whether by a borrower or by the proprietor himself: to which end it will be necessary, in the outset, to sever it from the profit of the industry, that turns it to account; and here again we shall meet with the greatest difficulty, in drawing the line of distinction; though it is easy to perceive, that these two classes of profit, generally speaking, are combined in the recompense or portion of the adventurer. Smith, and most of the English writers on this science, have omitted to notice this distinction; they comprise under the general head of the profit of capital, or stock, as they term it, many items, which evidently belong to the head of the profit of industry.

Perhaps an approximation may be made to the accurate appreciation of that part of the aggregate profit, which appertains to the capital, and that, which appertains to the industry employing it, respectively, by comparing the mean ratio of total.

This omission is justified by Smith, on the following grounds. "Let us suppose," says he, "that in some particular place, where the common annual profits of manufacturing stock are 10 per cent., there are two different manufactures, in one of which the coarse materials annually wrought up cost only 7001., while the finer materials in the other cost 70001. If the labour in each cost 300l. per annum, the capital employed in the one will amount only to 10007.; whereas, that employed in the other will amount to 73001. At the rate of 10 per cent., therefore, the undertaker of the one will expect a yearly profit of 1007. only, and that of the other 7301.;" and he goes on to infer, "that the profit is in proportion to the capital, and not to the labour and skill of inspection and direction." But the instance put is altogether inconclusive: and it is equally easy to suppose the case of two manufactures, carried on in the same place, and in the same line, each with an equal capital of 10007.; the one under the conduct of an active, frugal and intelligent manager, the other under that of an idle, ignorant, and extravagant one; the former yielding a profit of 150l. per annum, the latter one of 50%. only. The difference in this case will arise, not from any difference in the respective capitals employed, but from the difference in the skill and industry employing them; which latter qualities will be more productive in the one instance than in the other.

profit with the mean ratio of the difference of profit in the same line of business, which seems a fair index of the difference of the skill and labour engaged. We will suppose two houses, in the fur trade for example, to work each upon a capital of 100,000 fr., and to make, on the average, an annual profit, the one of 24,000 fr., the other of 6,000 fr. only; a difference of 18,000 fr., fairly referable to the different degree of skill and labour, the mean of which is 9000 fr.; this may be considered as the gains of industry, which, deducted from 15,000 fr.; the mean profit of the trade, will leave 6000 fr. for the profit of the capital embarked in it.

This example I could suggest as a means, rather of distinguishing those items of profit thus mixed up together, than of estimating their respective ratio with any tolerable certainty. But, without any index to the precise line of demarcation between the profits of capital and those of the industry employing it, we may take it for granted, that the former will always be proportionate to the risk of partial or total loss, and to the duration of the employment. In practice, adventurers, having capital at their command, always weigh before hand the advantages and disadvantages of the different modes of investment, as specified above, and naturally prefer, ceteris paribus, those presenting the smallest risk and the quickest return; so that there is less competition of capital for hazardous and long-winded adventurers; indeed, none whatever is embarked in them, unless they hold out a rate of profit so much above the average rate, as to tempt the capitalist to run the risk. Theory, therefore, leads to the presumption, which is confirmed by the test of experience, that the profit of capital is high, in proportion to the hazard of the adventure, and to the length of its duration.

When a particular employment of capital, the trade with China for instance, does not afford a profit proportionate, not only to the time of the detention, but likewise to the danger of loss, and the inconvenience of a long, perhaps a two years' duration of one single operation before the returns come to hand, a proportion of the capital is gradually withdrawn from that channel; the competition slackens, and the profits advance, until they rise high enough to attract fresh capital.†

This will serve also to explain, why the profits, derivable from a new mode of employment, are larger than those of common and ordinary employments, where the production and consumption have been well understood for years. In the

* Book II. chap. 7. sect. 3.

To say nothing of the other motives, that attract industry towards any particular profession or repel it thence, which have been noticed in the preceding chapter. These motives sometimes operate all in the same direction, and then the profits of both industry and capital rise or fall together; when they act in opposite directions, the difference on the profit of capital balances that on the profit of industry; or vice versa.

former case, competition is deterred by the uncertainty of success; in the latter, allured by the security of the employment.

In short, in this matter, as in all others, where the interests of mankind clash one with another, the ratio is determined by the relative demand and supply for each mode of employment of capital respectively.

It is a maxim with Smith and those of his school, that human labour was the first price,-the original purchase-money, paid for all things. They have omitted to add, that, for every object of purchase, there is, moreover, paid, the agency and co-operation of the capital employed in its production. Is not capital itself, they will say, composed of accumulated products, -of accumulated labour? Granted: but the value of capital, like that of land, is distinguishable from the value of its productive agency; the value of a field is quite different from that of its annual rent. When a capital of 1000 fr. is lent, or rather let on hire, for a year, in consideration of 50 fr. more or less, its agency is transferred for that space of time, and for that consideration; besides the 50 fr. the lender receives back the whole principal sum of 1000 fr., which is applicable to the same objects as before. Thus, although the capital be itself a pre-existent product, the annual profit upon it is an entirely new one, and has no reference to the industry, wherein the capital originated.

Wherefore, when a product is ultimately completed by the aid of capital, one portion of its value must go to recompense the agency of the capital, as well as another to reward that of the industry, that have concurred in its production. And the portion so applied is wholly distinct from the value of the capital itself, which is returned to the full amount, and emerges in a perfect state from its productive employment. Nor does this profit upon capital represent any part of the industry engaged in its original formation.

From all which it is impossible to avoid drawing this conclusion, that the profit of capital, like that of land and the other natural sources, is the equivalent given for a productive service, which, though distinct from that of human industry, is nevertheless its efficient ally in the production of wealth.


Of the Employments of Capital most beneficial to Society.

To the capitalist himself, the most advantageous employment of capital is that, which with equal risk yields the largest profit; but what is to him most beneficial, may perhaps not be so to the community at large; for capital has this peculiar fa

culty, that, besides being productive of a revenue peculiar to itself, it is, moreover, a means, whereby land and industry may generate a revenue likewise. This is an exception to the general principle, that what is the most productive to the individual, is so to the community at large. A capital lent to a foreign country may very probably produce to the proprietors and the nation the highest possible rate of interest; but can afford no assistance towards extending the revenue of the national territory, or for the national industry, as it would do, if employed within the pale of the nation.

The portion of capital embarked in domestic agriculture is employed best for the interests of a nation; it enhances the productive power of the land and of the labour of a country. It augments at once the profits of industry and those of real property. Capital, employed under intelligent direction, may make barren rocks to bear increase. The Čevennes, the Pyrenees, and the Pays de Vaud, present on every side the view of mountains, once a scene of unvaried sterility, now covered with verdure and enriched by cultivation. Parts of these rocks have been blasted with gunpowder, and the shivered. fragments employed in the construction of terraces one above another, supporting a thin stratum of earth carried thither by human labour. In this manner is the barren surface of the rock transformed into shelving platforms, richly furnished with verdure, and teeming with produce and population. The capital originally expended in these laborious improvements might, perhaps, have produced larger profits to the capitalist, if employed in external commerce; but probably the total revenue of the district would have been inferior in amount.

For a similar reason, capital can not be more beneficially employed, than in strengthening and aiding the productive powers of nature. Well contrived and useful machinery produces more than the interest of its prime cost; and, besides affording additional profit to the proprietor, benefits the consumer and the community at large, to the full extent of the saving effected by its means; for every thing saved is so much. gain.

The productive employments, that rank next in point of national benefit, are those of manufacture and internal commerce: for the profits of the industry they set in motion are earned at home; whereas, capital embarked in foreign trade. benefits the industry and natural resources of all nations indiscriminately.

The employment of capital, that tends least to the national advantage, is the carrying trade between one foreign country and another.

When a nation is possessed of an immense accumulation of capital, it will do well to embark it in all these different channels of industry; for they are all lucrative, and in nearly equal degree to the capitalist, though in very different degrees to the nation at large. What prejudice can arise to the lands of Hol

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