expressed, not in aliquot parts of the produce, but of this capital. It is not so much per cent of the produce that a capitalist is said to receive, but so much per cent upon his capital.'1

He gives a numerical example in which a capitalist receives £20 of profits, which is 10 per cent on his capital of £200 and 28 per cent of the total produce of £70, and then makes this oracular comment:

'It is only, however, the language which here is different; the thing expressed is precisely the same; and whether the capitalist says he receives 10 per cent upon his capital or 28 per cent of the produce, he means in both cases the same amount, viz. £20.

'There are, therefore, in reality but two cases. The one that in which we speak of proportions; the other that in which we speak of quantity of commodities.' 2

He seems to mean that when we are speaking of the rate of profit in the ordinary sense we understand by the phrase the quantity of commodities, and consequently he is willing to admit that the rate of profit in the ordinary sense does not depend altogether on wages, but also on the productive powers of labour and capital:

'If,' he says, 'at the same time that the shares of the capitalists are reduced by a rise of wages, there should happen an increase of the productive powers of labour and capital, the reduced shares might consist of as great a quantity of commodities as the previous shares, and of course the exchangeable value, and percentage on the capital, expressed in the language of exchangeable value, would remain the same.' 8

He omitted altogether the pages of the earlier editions in which he had explained how the 'inevitable' 'diminution of the return to capital employed upon the land' causes the historical decline of profits. It would be rash, however, to conjecture that his belief in that theory was at all shaken. The omission may very probably have been suggested by the feeling that the passage was out of place in a book on the pure theory of the subject.

Senior's theory with regard to the causes which determine the rate of profit, as we have already had occasion to say,5 is

1 Elements, 3d ed. p. 75. 2 Ibid., pp. 75, 76. Ibid., 1st ed. pp. 60, 62; 2d ed. pp. 78-80.

• Ibid., p. 77. * Above, pp. 269, 270.

simply that additions to the circulating capital or wage capital of a country, unaccompanied by additions to the population, lower the rate, and additions to the population, unaccompanied by additions to the wage capital, raise the rate. But he puts forward nothing in support of his view except a hypothetical example, in which the most monstrous assumptions are made.1

J. S. Mill, taught by so confused and vacillating a tutor as his father, could scarcely be expected, at the age of twentythree, to contribute much towards the solution of the question as to the causes which determine the rate of profit. His Essay on Profits, and Interest begins with an elaborate attempt to rehabilitate the theory that 'profits depend on wages.'

For this purpose he tacitly adopts the plan suggested by his father in the third edition of the Elements, of taking 'produce' to mean, not the net produce which is divided between wages and profits in a given period, but this amount plus the fixed and other capital remaining in hand at the end of the period: 3

'We may,' he says, 'consider the capital of a producer as measured by the means which he has of possessing himself of the different essentials of production; namely, labour, and the various articles which labour requires as materials, or of which it avails itself as aids. The ratio between the price which he has to pay for these means of production, and the produce which they enable him to raise, is the rate of his profit. If he must give for labour and tools fourfifths of what they will produce, the remaining fifth will constitute the profit, and will give him a rate of one in four, or twenty-five per cent on his outlay.' 4

To understand the verb 'produce' in its usual sense would obviously make the last sentence unintelligible. When a capitalist has £10,000 invested in fixed capital, spends £1000 in the first year in wages, and makes £2750 profit, £3750 is

1 Political Economy, 8vo ed. pp. 188-192.

No. iv. in Essays on some Unsettled Questions of Political Economy. The comma after 'Profits' occurs both in the contents and in the heading of the essay.

8 See James Mill's Elements, 3d ed. pp. 80, 81.

4 Essays, pp. 91, 92.

the value of what his labourers produce' in the ordinary sense of the word, and his profits (granting the assumption of a year's wage-fund collected before the business is begun and retained in a box till exhausted by 52, weekly payments) are 25 per cent. But obviously he cannot be said to have 'given for labour and tools' four-fifths of £3750, i.e. £3000. If, however, we adopt James Mill's most misleading suggestion, and say that the labour and tools' produced the capital as well as the real produce, their produce would be in this case £3750+ £10,000, i.e. £13,750; and the capitalist, having paid £10,000 for his 'tools' and £1000 for his 'labour,' would have given for labour and tools four-fifths of their pseudo-produce.

Having thus found that the rate of profit depends on 'the ratio between the price of labour, tools, and materials, and the produce of them,'1 Mill proceeds to eliminate tools and materials by converting them into labour. If they could be had in indefinite quantity without labour,

'the whole produce,' he says, 'after replacing the wages of labour, would be clear profit to the capitalist. Labour alone is the primary means of production; "the original purchase-money which has been paid for everything." Tools and materials, like other things, have originally cost nothing but labour; and have a value in the market only because wages have been paid for them. The labour employed in making the tools and materials being added to the labour afterwards employed in working up the materials by aid of the tools, the sum-total gives the whole of the labour employed in the production of the completed commodity. In the ultimate analysis, therefore, labour appears to be the only essential of production. To replace capital is to replace nothing but the wages of the labour employed. Consequently, the whole of the surplus after replacing wages is profits. From this it seems to follow that the ratio between the wages of labour and the produce of that labour gives the rate of profit. And thus we arrive at Mr. Ricardo's principle that profits depend upon wages; rising as wages fall, and falling as wages rise.' 2

Clearly there is little but hocus pocus in this argument. Starting from the proposition that the ratio between profits and capital, or the rate of profit, is determined by the ratio 2 Ibid., p. 94.

1 Essays, p. 93.

between capital and capital plus profits, Mill, by successive steps, converts this last ratio into

(1) the ratio between capital (true)+wage-fund and capital (true)+wages+profits.

(2) the ratio between previous wages+wage-fund and previous wages+wages + profits.

(3) the ratio between wages and wages+profits.

'It seems to follow,' according to him, that the ratio between the wages of labour and the produce of that labour gives the rate of profit.' This means that the rate of profit (ratio between profit and capital) is the ratio between absolute profit and wages.

Now, supposing the rate of profit were really the ratio between the amount of profits and wages, which of course it is not, this would not in the least make us arrive' at the 'principle that profits,' meaning the rate of profit, 'depend upon wages, rising as wages fall and falling as wages rise.' The ratio between the amount of profits and wages which is supposed to be the rate of profit does not depend only on the magnitude of wages, but also on the magnitude of the amount of profits. Somewhat obscurely recognising this, Mill proceeds to explain that 'wages' are not to be understood as meaning the quantity, but the ' value,' in the Ricardian sense, which the labourer receives. This Ricardian value, he says, means the proportion of the fruits of his labour which the labourer receives :

'A rise of wages with Mr. Ricardo meant an increase in the cost of production of wages; an increase in the number of hours' labour which go to produce the wages of a day's labour; an increase in the proportion of the fruits of labour which the labourer receives for his own share; an increase in the ratio between the wages of his labour and the produce of it.

'The wages. on which profits are said to depend are undoubtedly proportional wages, namely, the proportional wages of one labourer: that is, the ratio between the wages of one labourer and (not the whole produce of the country, but) the amount of what one labourer can produce; the amount of that portion of the collective produce of the industry of the country which may be considered as

1 Essays, p. 95.

corresponding to the labour of one single labourer. Proportional wages, thus understood, may be concisely termed the cost of production of wages; or, more concisely still, the cost of wages, meaning their cost in "the original purchase money" labour.'1

When it is said, then, that the rate of profit rises as wages fall and falls as wages rise, we are to understand that the rate of profit rises as the proportion of the produce obtained by the labourer falls, and falls as the proportion of the produce. obtained by the labourer rises. This, however, is obviously false, and Mill admits that it is. With the aid of a most preposterous arithmetical example, he arrives at the conclusion that the rate of profit really depends, not on proportional wages, but on proportional wages plus something else. But proportional wages were defined to be the ratio between the wages of one labourer and the amount of what one labourer can produce,' and it is difficult to see how we are to add something to this ratio. We can add 10 per cent to 55 per cent, but to add £10 to 50 per cent seems scarcely a usual operation. Mill, however, unconsciously provided for this difficulty when he introduced, in the passage quoted above, the phrase the cost of production of wages' as an equivalent for the proportion of the fruits of labour which the labourer receives,' or 'the ratio between the wages of his labour and the produce of it.' No ordinary person would understand the 'cost of production of wages' to mean a ratio between wages and produce, and take a rise in the cost of production of wages as meaning an increase in the proportion of the produce received by the labourer. The term is purely absolute, and does not suggest a ratio or proportion in any way. If the difference between the two things had not been slightly disguised by the insertion between them of the number of hours' labour which go to produce the wages of a day's labour,' 2 Mill could never have treated them as equivalent expressions. Taking advantage of the ambiguity which he

1 Essays, pp. 96, 97.

2 In this phrase the idea of a proportion is latent, as it is assumed that 'a day's labour' is composed of a certain fixed number of hours, so that if, for example, wages rise from the produce of six hours' labour to that of seven, the labourer receives, say, instead of of the produce of his labour.