CHAPTER VI.

PROFITS.

WE have treated Profits and Wages as the shares of the Capitalist and the Labourer, in the product resulting from their combination. Each, in point of fact, contributes capital. The food of the preceding day, transformed into muscular and nervous fibre in the labourer's body, may be the whole of his part. It is a small one, and is expended in the course of a few hours; that is, is transformed, through the vital mechanism, into force, exerted upon the materials of the greater capitalist, and changing their form or location. It is necessary that it should be restored to him immediately, or his ability to exert force is exhausted; and it must be restored with some addition, bearing the same relation to the little capital that profits do to the greater, or the disposition to labour will fail, though the physical ability may continue. It is seldom, however, restored in kind. The employer of a slave, indeed, supplies him with food, raiment, and shelter; but the free labourer is ordinarily paid in money, which he transforms into materials for his physical renovation, at his own discretion. The money, moreover, from which the wages of a month or a week are paid, is not provided long in advance, but is supplied from day to day, by the sale of the commodities or the services in which the employer deals. The materials also undergo such transformations, as to prevent the direct comparison of their quantity with that of the product. Ore, limestone, coal-the grain, meat, &c., on which the labourer subsists, are virtually fused together, and run out of the furnace in the shape of a mass of iron, whose bulk and weight are many times less than those of the elements whose utilities are incorporated in it. For such reasons, the comparison between the advances of the capitalist and the return, is made, not by their quantities, but by their relative value. In practice, it is the difference between the price of the advances and the return, by which the profits are estimated. For the short period usually intervening between the beginning and the end of an industrial enterprise, value

and price may generally be regarded as identical, or at least as differing by the same proportion at the two dates. In either case, the ratio between the price of the advance and that of the returns, will correspond with that of their values, and enable the capitalist to express his loss or gain, by the aliquot part that the deficiency or excess constitutes of the original capital. He computes that he has made or lost, as the case may be, three, six, or ten per cent. As his wants, like those of the labourer, vary with the seasons, but recur each year, and as the element of time enters into every calculation of profit-because the frequency with which operations can be repeated determines the gross amount of gain that can be realized-it is usual to denote the growth of capital by the per centage added to it in a year.

To an individual, the increase in the value of his capital, not in its quantity, is the point of vital concern. If he produced for the purpose of consuming in his own person and in his family the iden. tical commodities which he produces, the annual addition to their quantity would determine his means of enjoyment. This supposition is true, however, only of the savage. Men in civilized countries produce for the sake of exchanging the products of their industry with each other. The man who makes ploughs does not use them to prepare the earth for raising his own food, and may never turn a furrow in his life. The men who grow corn eat but a small portion of their crop, and exchange the remainder for agricultural implements, for clothing, for books, &c. Each one, therefore, measures his progress in the year by the command which the increment to his capital-his profits-gives him over the labour of others, either in their future services, or as embodied in commodities—services already in the shape in which he desires them; in other words, by the value of his profits.

The capital of a society is the same as that of all the individuals who compose it. The aggregate of the additions which each has made to his capital, is the increase of the capital of the nation. It is natural enough, therefore, to jump to the conclusion, that the progress of a community in wealth is measured by the prevailing rate of profit; that when its citizens find by their annual balancesheets that they are gaining six per cent. upon their capitals, the

nation is accumulating capital twice as fast as when they gain but three per cent., and producing twice as much of the materials on which the physical comfort of its people depends. There is a fallacy in this conclusion, which lurks in the reasoning of many Economical writers, though not always distinctly expressed in their language, and which has infected the policy of nations. "To transfer," says Mr. Mill, "hastily and inconsiderately to the general point of view, propositions which are true of the individual, has been a source of innumerable errors in Political Economy." In another place he writes, "With Mr. M'Culloch, prosperity does not mean a large production and a good distribution of wealth, but a rapid increase of it; his test of prosperity is high profits." We cite this passage, not merely because it is an instance of the error to which we refer, in Mr. M'Culloch, but as showing it to be at least doubtful whether Mr. Mill himself does not regard high profits as the evidence of a rapid increase in national capital.

The fact which is overlooked in the hasty deduction, which measures the advance of national capital by the rate of profit, as individuals compute it, is, that while the individual does not personally consume his own products, the nation does consume the products of the industry and capital of its people. It is doubtless true, that some portion of the products of its domestic industry is exported, to be consumed abroad. This, however, instead of being a large, is a very small proportion of the commodities annually brought to market. The great mass of the exchanges effected by every nation, are made within their own borders, and its exports are of trifling amount compared with its internal consumption. The exports of the United States constitute but about five per cent. in value of their annual production; those of England, the greatest exporting nation in the world, are ordinarily below one-tenth of the products of its industry. The prosperity of its people is measured, not by the value, but by the quantity of the annual increment to its capital. In the year preceding the census of 1850, there were produced in the United States, 592,141,230 bushels of Indian corn, and 100,479,150 bushels of wheat. In the same year, 7,632,860 bushels, in corn and meal, and 7,535,901 bushels, in wheat and flour, were exported. An individual wheat-grower is indifferent

whether his crop, after supplying him with seed and what is consumed in his family, leaves him 400 bushels, to be sold at 75 cents a bushel, or 300, to be sold at $1. But, to the 25,000,000 of people in the United States, the difference between a crop of 75,000,000 and one of 100,000,000 of bushels, is, that in the one. case there is three, and in the other four bushels for each of them. If the crop of the next year should rise to 125,000,000, it would be a positive addition to the national capital and prosperity; though its value, or the profits of the wheat-growers, estimated by value, should prove less instead of more than in a year when the crop was but 75,000,000. What is true of wheat is true of every other product, of the growth and manufacture of the country. It is the increase in their quantity, not in their value, on which the national well-being depends—and this is not indicated by the rate of profit. We have seen, indeed, that as labour becomes more productive, and the increase of capital more rapid, the rate of profit declines, though the absolute quantity of commodities which the capitalist can obtain for the use of his capital is enlarged, because their value diminishes more than the rate of profit. The gratuitous co-operation of the forces of Nature adds immensely to the capital of a nation, without adding to its value. Book-keeping by double entry makes no account of this on the merchant's ledger, and the statesman must, therefore, go to other sources of information to ascertain the rate of his country's progress in wealth.

Mr. M'Culloch holds the following language :

The

"As capital is nothing more than the accumulated produce of previous industry, it is evident its increase will be most rapid when industry is most productive; or, in other words, when the profits of stock are highest.* man who can produce a bushel of wheat in three days, has it in his power to accumulate twice as much as the man who, either from a deficiency of skill, or from his being obliged to cultivate a bad soil, is forced to labour six days to produce the same quantity; and the capitalist who can invest stock so as to yield him a profit of ten per cent., has it equally in his power

*Mr. M'Culloch adds the following note to this passage:

"To avoid all chance of misconception, it is necessary to observe that this refers to net profit, or to the sum which remains to the capitalist after all his outgoings are compensated, including therein a sum sufficient to insure his capital against risk, and to make up for whatever may be peculiarly disagreeable in his business."

to accumulate twice as fast as the capitalist who can only obtain five per cent. for his capital. Conformably to this statement, it is found that the rate of profit, or, which is the same thing, the power to accumulate capital, is always greatest in those countries which are most rapidly augmenting their wealth and population. * * * * * We have no hesitation in laying it down as a principle which holds good in every case, and from which there is really no exception, that if the governments of any two or more countries be equally liberal, and property in each equaily well secured, their comparative prosperity will depend on the rate of profit. Wherever profits are high there is a great demand for labour, and the society rapidly augments both its population and its riches. On the other hand, wherever they are low the demand for labour is proportionably reduced, and the progress of society rendered so much the slower."- Principles of Political Economy, Chap. i. Sec. 3 of Part I.

"rate

If we understand Mr. M'Culloch in this passage, he uses of profits" in the ordinary mercantile sense, and believes that it is a true measure of the growth of a nation's capital. We have sufficiently elucidated the misconception upon which this belief rests. We cannot dismiss the quotation, however, without referring to one of the consequences of that error, which it briefly indicates. Capital, it is argued, is the fund for the support and employment of labour. The increase of labourers and of industry depends upon the increase in the quantity of capital, and is limited by it. There can be no more industry than is supplied with materials to work up and food to eat. These propositions may be freely admitted, without conceding that the demand for labour is proportioned to the rate of profit, in the mercantile sense. A barrel of flour will maintain a labourer in equal health and efficiency for no longer period when it costs him ten days' labour than when it costs him five. It will enable him to exert the same amount of mechanical force in working up a ton of iron into plough-shares, whether those plough-shares command fifty days' labour or twenty-five; and more plough-shares are likely to be demanded by farmers at the cheap rate than the dear. It is the aggregate of a country's production that measures its power to maintain and employ labour, and if the aggregate value of a given quantity is smaller at one time than another, it proves that labour is efficient, and has increased power to command the necessaries and conveniences of life. The largest amount of these is distributed to labour, and the profits of the capitalist also command the largest amount, when the rate of profit is low.

We have said that the fallacy of which we are treating infects