whose transactions are large and of a public character, enjoy a preference.

But on the whole, capital is every day assuming more of a cosmopolitan character, and the time when the rates of interest will become nearly equal in all commercial countries cannot be far distant. "The inequality in the rate of profit throughout the civilized world," says Mr. Senior, "is much less than the inequality of wages. And as the general progress of improvement tends more and more to equalize the advantages possessed by different countries in government and habits, and even in salubrity of climate, the existing inequalities of profits are likely to diminish.”

Deducting compensation for risk and the wages of management, Mr. J. S. Mill considers that the rate of profits strictly so called "is measured by the current rate of interest on the best security; such security as precludes any appreciable chance of losing the principal." If he means that the current rate of profits in the narrowest sense of that term is identical with the current rate of interest, the proposition may be doubted. He who superintends the employment of his own capital expects to gain much more than the rate of interest; and the whole of this excess can hardly be attributed to the two elements that have been mentioned. The hazard, in the estimation of the capitalist, cannot be great, or he would not encounter it, as he has a choice among different modes of employing capital; or if there be an extra risk, it is balanced by the chance of an extra profit. And though the wages of management, as we have seen, may sometimes be very high, it should be remembered, that, if great skill, enterprise, and sagacity are needed for the successful use of capital, a command of capital is equally necessary to give full scope to these high qualities of character and intellect; and the joint effect is properly divisible between the two factors. Still, as the rate of profit unquestionably varies proportionally with the current rate of interest, though exceeding it by an indefinable amount, we may take the latter as a measure and type of the former, and investigate the causes which affect equally the rates of both.

In English systems of Political Economy, the theory of the circumstances which determine the average rate of profit, as

well as the doctrine respecting the average rate of Wages, is a deduction from the theories of Malthus and Ricardo respecting population and rent. Indeed, ever since Ricardo's time, it has been the ambition of English writers upon the subject to erect Political Economy into the rank of a deductive science; - to begin with a few postulates or universally recognized facts; to trace these to their consequences, under the law of competition, by a course of abstract reasoning; and to make the results thus obtained square with observed facts by the method of exhaustions, eliminating, evading, or explaining away all the phenomena that do not coincide with the theory. This method has elevated some startling paradoxes into the dignity of first principles of the science; he who does not possess the key to them, or is incapable of explaining them in what is claimed to be the true scientific method, that is, by reference to the very few and simple facts which alone are admitted to be the proper data of the science, is held to be unworthy of mingling in the discussion. He is ruled out of court, on the ground of ignorance. Hence an offensive tone of assumption and dogmatism has crept into the writings of the expounders of the system, and the breach between scientific economists and practical business men is unnecessarily and injuriously widened,

Some of these paradoxes we have already reviewed, and traced them to their origin in the arbitrary assumptions, or arbitrarily limited definitions, which have been made the basis of the science. Thus, it is assumed that the growth of the population everywhere tends to outrun the increase of the means of subsistence; and the inference is, that the natural or necessary standard of wages is the smallest sum that will furnish the laborer with what his class in society regard as the necessaries of life. It is assumed that the most fertile soils are always the first to be cultivated, and that the population, as it increases, remains on the same spot; and the inferences are, that additional food is always obtained at a disadvantage, that additional capital can never be applied to the land but with constantly diminishing returns; and hence, that the increase of the population anywhere, and under all circumstances, is a great evil;a paradox of the most startling kind, inasmuch as the common sense of mankind has everywhere taken it for

granted, that the rapid growth of the population is one of the most unfailing indications of great prosperity. Profits are arbitrarily defined to be, what remains to the capitalist from a division of the whole value created between him and the laborer, rent having been previously deducted; and the inference is, that profits and wages vary in inverse proportion, or that high wages and high profits are incompatible; whereas it is a matter of the commonest observation, that they vary in direct proportion, high wages being incompatible with low profits. It is assumed that individuals are always the best judges of their own interests, that nations are composed only of individuals, and that individual and national interests are identical; and it is inferred, that, as it would be unwise to place restrictions upon trade between individuals, so it would be impolitic to put any fetters upon international commerce; but that a little kingdom like Denmark should be exposed, in every branch of her industry, to the overpowering competition of the immense capital and other resources of a great nation like England. Yet it is certain, as Mr. Rea remarks, that individual and national interests are not always identical, because individuals often grow rich by the acquisition of wealth previously existing, but nations by the creation of wealth that did not before exist; and we have already seen, (pp. 36–38,) that private persons may be impoverished by the conversion of artificial into natural wealth, though nations are always benefited by this process. For the case of Denmark, I borrow the language of Mr. Laing, an English Political Economist who has partly shaken off the trammels of this system, and prefers to reason from facts rather than assumptions.

"Denmark has no metals or minerals, no fire power, no water power, no products or capabilities for becoming a manufacturing country supplying foreign consumers. She has no harbors on the North Sea. Her navigation is naturally confined to the Baltic. Her commerce is naturally confined to the home consumpt of the necessaries and luxuries of civilized life, which the export of her corn and other agricultural products enables her to import and consume. She stands alone in her corner of the world, exchanging her loaf of bread, which she can spare, for articles she cannot provide for herself, but still providing for herself everything she can by her own indus

try. This is no unhappy condition either for an individual or a nation. This home industry of hers is protected by heavy import duties on all foreign articles which could compete with her own manufactures, and these are avowedly imposed, not for revenue, for which a lower duty would be more productive, but for protection. The object of this policy of the Danish government is simply to secure a living and occupation to that portion of the population which is not engaged in husbandry, and which, without protective duties on all that interferes with their branches of industry, would become a burden on the rest of the community, owing to the natural want of products or capabilities in the country of giving employment in manufactures, commerce, or in any branch of industry but agriculture, and the few arts and trades connected with it. This protective system in any country, and under any circumstances, would have been scoffed at a few years ago by our English Political Economists, as contrary to all sound principle; but it wears a less foolish aspect if we examine it closely, and with reference to the physical circumstances which impose it upon some countries, such as Denmark, and to the social or conventional circumstances which dispose the classes the most distant and most opposed to each other in general, to clamor for it in our own. The Danish government appears to have adopted, and always acted upon, that policy which the physical circumstances of the country — namely, the natural want of all products or means by which a surplus population could be employed in manufactures or commerce-have imposed upon it; and to have protected, as a species of property, the skill and labor of her working operative classes by heavy import duties on all articles that interfered with their industry; and to have protected them, also, against themselves, that is, against an accumulation of more labor and skill in any trade than the locality required and could subsist; and to have protected the landed interest and their laborers by a free export of their products."

But I return from this digression to a consideration of the circumstances that determine the average rate of profits. The phenomenon to be explained by any theory that may be broached upon this subject, is the gradual but sure declension of the rate of profit in all countries, as their population and

wealth are augmented. The growth of national opulence resembles that of the human body. It is most rapid in infancy, the body usually doubling in weight during the first year of its existence, a rate of increase which it never afterwards equals. In early childhood, the growth is still quick, though not so rapid as at first; and it steadily declines, as the child approaches maturity, till at last it reaches its stationary point in full manhood, when, though all the corporeal powers and functions are in full vigor and activity, the body no longer increases either in stature or weight, except as a consequence of disease or other extraordinary circumstances. Adam Smith long ago remarked, that in a new colony, which is "more understocked in proportion to its territory, and more underpeopled in proportion to the extent of its stock, than the greater part of other countries," profits are very large, and the rate of interest is consequently high. "As the colony increases, the profits of stock gradually diminish"; and "in a country fully stocked in proportion to all the business it had to transact, the competition would everywhere be as great, and consequently the ordinary profit as low, as possible."

Thus, in California, soon after its cession to the United States and the discovery of its gold-washings, profits rose with unexampled rapidity, and the current rate of interest was from thirty-six to forty-eight per cent a year. These extravagant rates, however, soon began to decline, and they are now not more than twice as high as in New York. Similar changes have taken place in Australia, since the discovery of gold in its southern region. I have already observed, that the rate of interest in England, which was over ten per cent in the early part of the sixteenth century, slowly but steadily declined, till it reached its present ordinary rate of three per cent. I have also cited the case of Holland, which seems to have attained the stationary state over a century and a half ago. The rate of interest there, on government security, had then fallen to two per cent, the lowest point to be generally established through a whole country that is known in the history of commerce. For fifty years before this stage was attained, — that is, during the latter half of the seventeenth century,-the Dutch were the most active commercial and manufacturing power in the world. Their colonies were scattered over both