ciency, of the implements and machines with which any community performs its work. Between these extremes, the field of employment for capital, and the consequent demand for it, vary to every conceivable degree; and according as the supply of such capital falls short of, or exceeds, the demand, the profits are large or small.* This can be best illustrated by a glance at the successive stages of progress of an infant settlement formed by civilized men in a country hitherto unoccupied, or inhabited only by savages.

In the infancy of such a settlement, the demand for capital is urgent, for the capacities and wants of the settlers får exceed their means. The sources of its prosperity as yet are latent, and need to be developed. Clearings are to be made in the forests, buildings are to be erected, roads are to be opened, tools to be provided, and nearly the whole of the complex machinery through which an organized society applies its energies is to be created out of the raw materials afforded by the land, the sea, and the forest. Luxuries as yet do not exist; there is hardly any opportunity for unproductive consumption, beyond that of the mere necessaries of life. The people are frugal by compulsion; the fruits of nearly all their toil, then, become capital, or are converted into means for the future more advantageous application of industry. The profits of what capital there is are also, of necessity, very great; one tool must be applied to many purposes, and is therefore constantly in use. The axe for a time must do its own work, and that of the hammer, the saw, and the plane. The possession of this one instrument must, then, be a source of great gain to its owner; he can buy the unaided services of his fellows, the only payment they have to offer, for a long time, by the loan

* Dr. Chalmers states this reasoning very clearly in the form of an argumentum ad hominem for the Malthusians. "As surely as there might be too many ploughmen," he says, "so there might be too many ploughs. If, in virtue of the excessive number of ploughmen, all cannot find employment without forcing an entrance upon soils that would return inadequate wages for the labor, so, in virtue of the excessive number of ploughs, all cannot find employment without a like return of inadequate profit for the capital. What is true of the living, is true of the inanimate instrument; both might be unduly multiplied. As there might be too many men, so might there be too many machines, too many power-looms, as well as too many weavers at hand-looms, too many cotton-mills, as well as too many cottonspinners."-Chalmers's Political Economy, Vol. I. pp. 93, 94.

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of it. And in a similar way, every other item which constitutes capital in such a community will be productive of large gains.

After the hardships and privations of the first season are surmounted, each laborer probably finds himself provided with tools, so that the profits on this branch of capital are lessened, and, as an opening has been made in the forest, the operations of agriculture can begin. There is now a great demand for seed-corn, for the natural fertility of the land will return a hundred fold, if the settler has only what is requisite for planting. He can safely promise to return three bushels of grain in the autumn, for one bushel lent to him in the spring; in other words, he can offer the capitalist a profit of two hundred per cent for seed. But after the first harvest is successfully gathered in, so bountiful is the product of the virgin soil, that very probably grain cannot be sold at all in the infant settlement, the supply altogether exceeding the colonists' own wants, and the means of transportation and export not being yet provided; that is, no profit can be made on food till the means are obtained for sending this food to market. Capital is now required to construct roads and furnish shipping; and as the commodity is to be carried from a place where it has little or no value, to one where it will command a ready sale and a high price, the gains of the merchant engaged in this transportation will necessarily be immense. For the first few seasons after American farmers had established themselves in the Oregon Territory, it is an historical fact that they fed their horses with the finest wheat, no market being within their reach for the sale of this product. California was then suddenly peopled, almost in a single season, after the gold-deposits and auriferous sands were found there; and the gold-seekers being too eager in their proper pursuit to find time for planting grain for themselves, the agricultural products of Oregon suddenly rose to a high price. The farmers on the banks of the Willamette found that they could obtain California gold more cheaply by raising maize and wheat on their own farms, than by going to the country to dig it for themselves. The discovery of gold in the neighboring Territory, instead of tending to the depopulation of Oregon, as was at first apprehended, was the great source of its prosperity, as it furnished a market, and indirectly supplied the country with capital.

After a country is once sufficiently stocked, as it would seem, with capital, the progress of invention may suddenly create a great additional demand for it, by calling for the construction of new machines and improved implements, the use of which soon supersedes the old ones. Thus the invention of railways, and the application of steam to the purposes of land conveyance, have occasioned, both in England and America, during the last twenty years, an immense demand for the investment of capital, some of the old forms in which it was embodied being rendered useless or unproductive. Turnpikes cease to be productive property, and canals are less profitable than before. For a time, floating or circulating capital is in great request, as it is needed for conversion into this form of fixed capital; and accordingly, the rate of interest rises. But when the improvement is completed, this demand ceases, the returns from the new processes are very great, floating capital accumulates more rapidly than ever, and the rate of interest falls again. The railway improvement in England and in the eastern portion of the United States may now be said to be completed; only the great Valley of the Mississippi, and the lines of communication with the Pacific coast, still call for additional investment on roads to be traversed by the agency of steam.*

But I need not trace further these successive steps in the progress of opulence and the accumulation of capital. It is evident that the rapidity of its increase depends on the rate of profit, which is necessarily high in a new country, where the people are frugal and industrious. The rate gradually diminishes, both as the primary and most imperative wants of the community are satisfied, and as artificial tastes and an ap

According to Mr. Porter, (Progress of the Nation, p. 330,) up to the end of 1849 there had been constructed in Great Britain and Ireland 5,996 miles of railway, representing a capital of £197,500,000. Over 14,000 miles of railway have been completed in the United States; and if those be added which are in process of construction, the sum will be 17,146. Taking the average cost of construction and equipment at $ 25,000 per mile, which is a very low estimate, the capital vested in these American roads will be $428,750,000. The capital of the British railways, reckoned in our currency, being about $975,000,000, we have a grand total of $1,403,750,000, as the sum which the English and American people have converted into this one form of fixed capital during the last thirty years. What effect would have been produced on the rate of profit, if this immense sum had remained in the form of circulating capital, seeking investment?

petite for luxury and unproductive consumption are diffused among the colonists. Yet floating capital is soon acquired in sufficient quantities for the ordinary purposes of industry and traffic. In such countries as England and Holland, however, immense sums gradually take the form of fixed capital, being vested in making land-improvements of the largest and most expensive character; in constructing docks, harbors, and canals, erecting dikes, and furnishing manufactories with costly machinery. Vast as the field is which such works open for the investment of capital, it needs but a glance at the present condition of England and Holland to satisfy us, that this field is all occupied, and the work of fixed capital is done. What farther savings from income are made, must go into the market as floating capital, seeking investment, seeking borrowers who will take it offering undoubted security, and a very moderate rate of interest. There is great competition of the lenders with each other in the English and Dutch markets, petition which is most strikingly shown when the government appears as a borrower, and puts up a large loan at what is virtually an auction, to be sold in shares to the highest bidder.

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A diminished rate of profit tends to throw the great branches of manufacture and commerce exclusively into the hands of large capitalists, and thus to increase that inequality in the distribution of wealth which was one of the original causes of a fall of profits. Hence it is that, in such countries as Holland and England, where a low rate of interest has prevailed for a long period, there is as great an inequality of fortune among manufacturers and merchants, as among land-owners. "It is in the nature of trade and manufacture," says Mr. Laing, "that great capital drives small capital out of the field; it can afford to work for smaller returns. There is a natural tendency in trade to monopoly, by the accumulation of great wealth in a few hands. It is not impossible, that, in every branch of trade and manufacture in Great Britain, the great capitalist will, in time, entirely occupy the field, and put down small capitalists in the same line of business; that a moneyed aristocracy, similar to that in Genoa, will gradually be formed, the middle class of small capitalists in trade and manufacture become gradually extinguished, and a structure of society grad

ually arise in which lords and laborers will be the only classes or gradations in the commercial and manufacturing, as in the landed, system. An approximation, a tendency towards this state, is going on in England. In many branches of industry, -for instance, in glass-making, iron-founding, soap-making, cotton-spinning,—the great capitalists engaged in them have, by the natural effect of working with great capital, driven small capitals out of the field, and formed a kind of exclusive family property of some of these branches of manufacture. Government, by excessive taxation and excise regulation, - both of which have ultimately the effect, as in the glass and soap manufacture and the distillery business, of giving a monopoly to the great capitalist who can afford the delay and advance of money these impediments require, - has been hitherto aiding rather than counteracting this tendency of great capital to swallow all the employments in which small capital can act. It is not an imaginary, nor perhaps a very distant evil, that our middle classes with their small capitals may sink into nothing, -may become tradesmen or small dealers, supplying a few great manufacturing and commercial classes with the articles of their household consumpt, and rearing supernumerary candidates for unnecessary public functions, civil, military, or clerical; and that in trade, as in land, a noblesse of capitalists, and a population of serfs working for them, may come to be the two main constituent parts in our social structure.” *

I shall afterwards have occasion to show, that it is the abundance of floating capital seeking investment, the competition of lenders with each other, and the consequent depression of the rate of interest, that is the great incentive to those wild and ruinous speculations which usually precede a commercial crisis, and are commonly, though improperly, attributed to some defective regulation of the currency. The state of the currency, it is true, is an index of this perilous condition of things. The currency feels the first whispers of the approaching storm; and it is by a judicious management of the banking system of the country that the force of the tempest may be somewhat checked. But the real origin of the difficulty is situated farther back, and is attributable to the imprudence of capitalists

*Notes of a Traveller, ed. of 1854, p. 187.