capital more rapidly, they will employ their labourers more constantly, or employ a greater number than before. So that an increased demand for a commodity does really, in the particular department, often cause a greater employment to be given to labour by the same capital. The mistake lies in not perceiving that in the cases supposed, this advantage is given to labour and capital in one department, only by being withdrawn from another; and that when the change has produced its natural effect of attracting into the employment additional capital proportional to the increased demand, the advantage itself ceases.

The demand for commodities is a consideration of importance rather in the theory of exchange, than in that of production. Looking at things in the aggregate, and permanently, the remuneration of the producer is derived from the productive power of his own capital. The sale of the produce for money, and the subsequent expenditure of the money in buying other commodities, are a mere exchange of equivalent values, for mutual accommodation. It is true, that the division of employments being one of the principal means of increasing the productive power of labour, the power of exchanging gives rise to a great increase of the produce; but even then it is production, not exchange, which remunerates labour and capital. We cannot too strictly represent to ourselves the operation of exchange, whether conducted by barter or through the medium of money, as the mere mechanism by which each person transforms the remuneration of his labour or of his capital into the particular shape in which it is most convenient to him to possess it; but in no wise the source of the remuneration itself.

§ 10. The preceding principles demonstrate the fallacy of many popular arguments and doctrines which are continually reproducing themselves in new forms. For example, it has been contended, and by some from whom better things might have been expected, that the argument for the income tax, grounded on its falling on the higher and middle classes only, and sparing the poor, is an error; some have gone so far as to say, an imposture; because in taking from the rich what they would have expended among the poor, the tax injures the poor as much as if it had been directly levied from them. Of this doctrine we now know what to think. So far, indeed, as what is taken from the rich in taxes, would, if not so taken, have been saved and converted into capital, or even expended in the maintenance and wages of servants or of any class of unproductive labourers, to that extent the demand for labour is no doubt diminished, and the poor injuriously affected, by any tax on the rich; and as these effects are almost always produced in a greater or less degree, it is impossible so to tax the rich as that no portion whatever of the tax can fall on the poor. But even here the question arises, whether the government, after receiving the amount, will not lay out as great a portion of it in the direct purchase of labour, as the tax-payers would have done. In regard to all that portion of the tax, which, if not paid to the government, would have been consumed in the form of commodities (or even expended in services if the payment has been advanced by a capitalist), this, according to the principles we have investigated, falls definitely on the rich, and not at all on the poor. There is exactly the same demand for labour, so far as this portion is concerned, after the tax, as before it. The capital which hitherto employed the labourers of the country, remains, and is still capable of employing the same number. There is the same amount of produce paid in wages, or allotted to defray the feeding and clothing of labourers.

If those against whom I am now contending were in the right, it would be impossible to tax anybody except the poor. If it is taxing the labourers, to tax what is laid out in the produce of labour, the labouring classes pay all the taxes. The same argument, however, equally proves, that it is impossible to tax the labourers at all; since the tax, being laid out either in labour or in commodities, comes all back to them; so that taxation has the singular property of falling on nobody. On the same showing, it would do the labourers no harm to take from them all they have, and distribute it among the other members of the community. It would all be "spent among them," which on this theory comes to the same thing. The error is produced by not looking directly at the realities of the phenomena, but attending only to the outward mechanism of paying and spending. If we look at the effects produced not on the money, which merely changes hands, but on the commodities which are used and consumed, we see that, in consequence of the income-tax, the classes who pay it do really diminish their consumption. Exactly so far as they do this, they are the persons on whom the tax falls. It is defrayed out of what they would otherwise have used and enjoyed. So far, on the other hand, as the burthen falls, not on what they would have consumed, but on what they would have saved to maintain production, or spent in maintaining or paying unproductive labourers, to that extent the tax forms a deduction from what would have been used and enjoyed by the labouring classes. But if the government, as is probably the fact, expends fully as much of the amount as the tax-payers would have done in the direct employment of labour, as in hiring sailors, soldiers, and policemen, or in paying off debt, by which last operation it even increases capital; the labouring classes not only do not lose any employment by the tax, but may possibly gain some, and the whole of the tax falls exclusively where it was intended.

All that portion of the produce of the country which any one actually and literally consumes for his own use, does not contribute in the smallest degree to the maintenance of labour. No one is benefited by mere consumption, except the person who consumes. And a person cannot both consume his income himself, and make it over to be consumed by others. Taking away a certain portion by taxation cannot deprive both him and them of it, but only him or them. To know which is the sufferer, we must understand whose consumption will have to be retrenched in consequence: this, whoever it be, is the person on whom the tax really falls.

CHAPTER VI.

ON CIRCULATING AND FIXED CAPITAL.

§1. To complete our explanations on the subject of capital, it is necessary to say something of the two species into which it is usually divided. The distinction is very obvious, and though not named, has been often adverted to, in the two preceding chapters: but it is now proper to define it accurately, and to point out a few of its consequences.

Of the capital engaged in the production of any commodity, there is a part which, after being once used, exists no longer as capital; is no longer capable of rendering service to production, or at least not the same service, or to the same sort of production. Such, for example, is the

portion of capital which consists of materials. The tallow and alkali of which soap is made, once used in the manufacture, are destroyed as alkali and tallow; and cannot be employed any further in the soap manufacture, although, in their altered condition, as soap, they are capable of being used as a material or an instrument in other branches of manufacture. In the same division must be placed the portion of capital which is paid as the wages, or consumed as the subsistence, of labourers. That part of the capital of a cotton spinner which he pays away to his workpeople, once so paid, exists no longer as his capital, or as a cotton spinner's capital: such portion of it as the workmen consume, no longer exists as capital at all: even if they save any part, it exists not as the same but as a fresh capital, the result of a second act of accumulation. Capital which in this manner fulfils the whole of its office in the production in which it lis engaged, by a single use, is called Circulating Capital. The term, which is not very appropriate, is derived from the circumstance, that this portion of capital requires to be constantly renewed by the sale of the finished product, and when renewed is perpetually parted with in buying (materials and paying wages; so that it does its work, not by being kept, (but by changing hands.

Another large portion of capital, however, consists in instruments of production, of a more or less permanent character; which produce their effect not by being parted with, but by being kept; and the efficacy of which is not exhausted by a single use. To this belong buildings, machinery, and all or most things known by the name of implements or tools. The durability of some of these is considerable, and their function as productive instruments is prolonged through many repetitions of the productive operation. In this class must likewise be included capital sunk (as the expression is) in permanent improvements of land. So also the capital expended once for all, in the commencement of an undertaking, to prepare the way for subsequent operations: the expense of opening a mine, for example; of cutting canals, of making roads or docks. Other examples might be added, but these are sufficient. Capital which exists in any of these durable shapes, and the return to which is spread over a period of corresponding duration, is called Fixed Capital.

Of fixed capital, some kinds require to be occasionally or periodically renewed. Such are all implements and buildings: they require, at intervals, partial renewal by means of repairs, and are at last entirely worn out, and cannot be of any further service as buildings and implements, but fall back into the class of materials. In other cases, the capital does not, unless as a consequence of some unusual accident, require entire renewal: but there is always some outlay needed, either regularly or at least occasionally, to keep it up. A dock or a canal, once made, does not require, like a machine, to be made again, unless purposely destroyed, or unless an earthquake or some similar catastrophe has filled it up but regular and frequent outlays are necessary to keep it in repair. The cost of opening a mine needs not be incurred a second time; but unless some one goes to the expense of keeping the mine clear of water, it is soon rendered useless. The most permanent of all kinds of fixed capital is that employed in giving increased productiveness to a natural agent, such as land. The draining of marshy or inundated tracts like the Bedford Level, the reclaiming of land from the sea, or its protection by embankments, are improvements calculated for perpetuity; but drains and dykes require frequent repairs. The same character of perpetuity

belongs to the improvement of land by subsoil draining, which adds so much to the productiveness of the clay soils; or by permanent manures, that is, by the addition to the soil, not of the substances which enter into the composition of vegetables, and which are therefore consumed by vegetation, but of those which merely alter the relation of the soil to air and water; as sand and lime on the heavy soils, clay and marl on the light. Even such works, however, require some, though it may be very little, occasional outlay to maintain their full effect.

These improvements, however, by the very fact of their deserving that title, produce an increase of return, which, after defraying all expenditure necessary for keeping them up, still leaves a surplus. This surplus forms the return to the capital sunk in the first instance, and that return does not, as in the case of machinery, terminate by the wearing out of the machine, but continues for ever. The land, thus increased in productiveness, bears a value in the market, proportional to the increase: and hence it is usual to consider the capital which was invested, or sunk, in making the improvement, as still existing in the increased value of the land. There must be no mistake, however. The capital, like all other capital, has been consumed. It was consumed in maintaining the labourers who executed the improvement, and in the wear and tear of the tools by which they were assisted. But it was consumed productively, and has left a permanent result in the improved productiveness of an appropriated natural agent, the land. We may call the increased produce the joint result of the land and of a capital fixed in the land. But as the capital, having in reality been consumed, cannot be withdrawn, its productiveness is thenceforth indissolubly blended with that arising from the original qualities of the soil; and the remuneration for the use of it thenceforth depends, not upon the laws which govern the returns to labour and capital, but upon those which govern the recompense for natural agents. What these are, we shall see hereafter.*

§ 2. 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, or at any rate finally lost to the owner, by a single use; and the product resulting from that one use being the only scurce from which the owner can replace the capital, or obtain 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 example, is not wholly consumed by one use, it is not necessary that it should be wholly replaced from the product of that use. The machine 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 taking place at the expense of circulating, must be, at least temporarily, prejudicial to the interests of the labourers. This is true, not of machinery alone, but of all improvements by which capital is sunk; that is, rendered per

manently incapable of being applied to the maintenance and remuneration of labour. Suppose that a person farms his own land, with a capital of two thousand quarters of corn, employed in maintaining labourers during one year (for simplicity we omit the consideration of seed and tools), whose labour 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 labourers, and occupies them for a year, after which he will only require, for the effectual cultivation of his land, half as many labourers as before. The remainder of his capital he employs as usual. In the first year there is no difference in the condition of the labourers, except that part of them have received the same pay for an operation on the land, which they previously obtained for ploughing, sowing, and reaping. At the end of the year, however, the improver has not as before a capital of two thousand quarters of corn. Only one thousand quarters of his capital have been reproduced in the usual way : he has now only those thousand quarters and his improvement. He will employ, in the next and in each following year, only half the number of labourers, 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 quantity of labour, 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 labour. But it is conceivable that this may not be the case; for (supposing, as we may do, that the improvement will last indefinitely, 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 labourers.

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 common practice, is regarded by modern agriculturists as the reverse of an improvement. The effect of the agricultural improvements of the present day (of those, at least, which operate on the soil itself),* is to increase, 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 labour previously employed on the land to be dispensed with-but only enables the same labour 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 labour, is all wanted, and will find purchasers. The improver will in that case require the same number of labourers as before, at the same wages. But where will he find the means of paying them? He has no * For the distinction between these and the other kind of improvements, which do not take effect upon the soil itself, but upon the operation of cultivating it, see infra, chap. xii. of the present book, § 3.