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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 suf. ferer, 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 Circui,ATING AND FIXED CA i-ITAL.

§ 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. f 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 ser. vice, nor 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, though 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 cottonspinner which he pays away to his workpeople, once so paid, exists no longer as his capital, or as a cottonspinner's capital: such portion of it as the workmen consume, no longer exists as capital at all: even if they save any part, it may now be more properly regarded 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 is 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 class 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 capitals, 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 repair. The same character of perpctuity 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 accessary for keepin; 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 source from which the owner can replace the capital, or obtain any 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 permanently 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 uarters. 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

* Infra, book ii, chap. xvi. On Rent.

his capital have been reproduced in the usual way: he has now only those thousand quarters and his improvements. He will cmploy, 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, with. out 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 reo the one thousand quarters forming is 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 frequent practice, is regarded by modern agriculturists as the reverse of an improvement. The clear ing away of the small farmers in the north of Scotland, within the present century, was however a case of it; and Ireland, since the potato famine and the repeal of the corn-laws, is another. The remarkable decrease which has lately attracted notice in the gross produce of Irish agriculture, is, to all appearance, partly attributable to the diversion of land from maintaining human labourers to feeding cattle: and it could not have taken place without the removal of a large part of the Irish population by emigration or death. We have thus two recent instances in which what was regarded as an agricultural improvement, has diminished the power of the country to support its population. The effect, however, of all the improvements due to modern science is to increase, or at all events, 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 in annel" ..". not enable a part of the labour previously employed 2n 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 longer his original capital of two thousand quarters disposable for the purpose. One thousand of them are lost and gone—consumed in making the improvement. If he is to employ as many labourers as before, and pay them as highly, he must borrow, or obtain from some other source, a thousand quarters to supply the deficit. But these thousand quarters already maintained, or were destined to maintain, an equivalent quantity of labour. They are not a fresh creation; their destination is only changed from one productive employment to another; and though the agriculturist has made up the deficiency in his own circulating capital, the breach in the circulating capital of the community remains unrepaired. The argument relied on by most of those who contend that machinery can never be injurious to the labouring class, is, that by cheapening production it creates such an increased demand for the commodity, as enables, ere long, a greater number of persons than ever to find employment in producing it. This argument does not seem to me to have the weight commonly ascribed to it. The fact, though 20 broadly stated, is, no doubt, often

true. The copyists who were thrown out of employment by the invention of printing, were doubtless soon outnumbered by the compositors and pressmen who took their place: and the number of labouring persons now occupied in the cotton manufacture is many times greater than were so occu#. previously to the inventions of argreaves and Arkwright, which shows that besides the enormous fixed capital now embarked in the manufacture, it also employs a far larger circulating capital than at any former time. But if this capital was drawn from other employments; if the funds which took the place of the capital sunk in costly machinery, were supplied not by any additional saving consequent on the improvements, but by drafts on the general capital of the community; what better are the labouring classes for the mere transfer? In what manner is the loss they sustained by the conversion of circulating into fixed capital, made up to them by a mere shifting of part of the remainder of the circulating capital from its old employments to a new one 2 All attempts to make out that the labouring classes as a collective body cannot suffer temporarily by the introduction of machinery, or by the sinking of capital in permanent improvements, are, I conceive, necessarily fallacious. That they would suffer in the particular department of industry to which the change applies, is generally admitted, and obvious to common sense; but it is often said, that though employment is withdrawn from labour in one department, an exactly equivalent employment is opened for it in others, because what the consumers save in the increased cheapness of one particular article enables them to augment their consumption of others, thereby increasing the demand for other kinds of labour. This is plausible, but, as was shown in the last chapter, involves a fallacy; demand for commodities being a totally different thing from demand for labour. It is true, the consumers have now additional means of buying other things; but this will not create the other things, unless there is capital to produce them, and the improvement has not set at liberty any capital, if even it has not absorbed some from other employments. The supposed increase of production and of employment for labour in other departments therefore will not take place; and the increased demand for commodities by some consumers, will be balanced by a cessation of demand on the part of others, namely, the labourers who were superseded by the improvement, and . will now be maintained, if at all, by sharing, either in the way of competition or of charity, in what was previously consumed by other people.

§ 3. Nevertheless, I do not believe that as things are actually transacted, improvements in production are often, if ever, injurious, even temporarily, to the labouring classes in the aggregate. They would be so if they took place suddenly to a great amount, because much of the capital sunk must necessarily in that case be provided from funds already employed as circulating capital. But improvements are always introduced very gradually, and are seldom or never made by withdrawing circulating capital from actual production, but are made by the employment of the annual increase. There are few, if any, examples of a great increase of fixed capital, at a time and place where circulating capital was not rapidly increasing likewise. It is not in poor or backward countries that

eat and costly improvements in proš. are made. To sink capital in land for a permanent return—to introduce expensive machinery—are acts involving immediate sacrifice for distant objects; and indicate, in the first place, tolerably complete security of property; in the second, considerable activity of industrial enterprise; and in the third, a high standard of what has been called the “effective desire of accumulation:” which three things are the elements of a society rapidly progressive in its amount of capital. Although, therefore, the labouring classes must suffer, not only if the increase of fixed capital takes place at

the expense of circulating, but even if it is so large and rapid as to retard that ordinary increase to which the growth of population has habitually adapted itself; yet, in point of fact, this is very unlikely to happen, since there is probably no country whose fixed capital increases in a ratio more than proportional to its circulating. If the whole of the railways which, during the speculative madness of 1845, obtained the sanction of Parliament, had been constructed in the times fixed for the completion of each, this improbable contingency would, most likely, have been realized; but this very case has afforded a striking example of the difficulties which oppose the diversion into new channels of any considerable portion of the capital that supplies the old : difficulties generally much more than sufficient to prevent enterprises that involve the sinking of capital, from extending themselves with such rapidity as to impair the sources of the existing cmployment for labour. To these considerations must be added, that even if improvements did for a time decrease the aggregate produce and the circulating capital of the community, they would not the less tend in the long run to augment both. They increase the return to capital; and of this increase the benefit must necessarily accrue either to the capi. talist in greater profits, or to the customer in diminished prices; affording, in either case, an augmented fund from which accumulation may be made, while enlarged profits also hold out an increased inducement to accumulation. In the case we before selected, in which the immediate result, of the improvement was to diminish the gross produce from two thousand four iii. quarters to one thousand five hundred, yet the profit of the capitalist being now five hundred quarters instead of four hundred, the extra one hundred quarters, if regularly saved, would in a few years leplace the one thousand quarters subtracted from his circulating capital. Now the extension of business which almost certainly follows in any department in which an improvement

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