the prime stimulus to exertion, and to that abstinence for the sake of future enjoyment, which leads to accumulation. Where that confidence is weak, labour will be unproductive, and capital increase slowly. Where the aggregate of profit is small, the rate of profit is large; capital then secures a large proportion. Interest is therefore high, where, from the absence of security, production is trifling. It is high in Egypt, where the fellah is robbed by the agents of his government the moment he becomes worth plundering. It is high, whenever despotism, anarchy, or war, puts the rewards of industry in peril, and retards the increase of wealth. It was higher than ten per cent. in England before the Parliament of Henry VIII. legalized it at that rate, and it has continued to fall from that time with the progress of national well-being. England was getting rich more rapidly when the rate of profit had fallen, and interest was restricted by a statute, passed in the twenty-first year of James I., to eight per cent. In the reign of his grandson, Charles II., it was reduced to six per cent., and in that of Queen Anne to five, which is now the legal rate, and is from one to one and a half per cent. higher than can be obtained for permanent investments upon good security. The tendency to a fall in the rate of profit and of interest with the progress of wealth is so generally admitted, and the fact that they have everywhere fallen with that progress so well known, as to require no further illustration.

It is proper to remark that, in denying the proposition that the prosperity of a country is to be measured by the rate of profit prevailing in it, we are supported by the authority of Adam Smith. His doctrine upon this point is, that the rate of profit "is naturally low in rich and high in poor countries, and that it is always highest in the countries which are going fastest to ruin."* Mr. M'Culloch characterizes this as a most erroneous statement, and regards it as inconsistent with the opinion maintained elsewhere in the "Wealth of Nations," that those countries in which capital is increasing with the greatest rapidity, are, cæteris paribus, the most prosperous. It is not for the purpose of recalling attention to the distinction which reconciles these doctrines, which, though nowhere clearly expressed

* Wealth of Nations, Book I., chap. 11.

by Dr. Smith, was manifestly felt by him, that we refer to this criticism. It is because Mr. M'Culloch distinctly perceives and remarks, that another doctrine, in which nearly if not quite all the modern English Economists are at variance with the author of the "Wealth of Nations," is dependent upon that we have stated-the doctrine that individual advantage is not always a true test of the public advantageousness of different employments of capital. The successors of Smith maintain that it is, and strenuously deny what he teaches, that domestic trade is more productive, and maintains a larger industry than foreign trade. The consideration of this point will naturally occupy us in the following chapter.

CHAPTER VII.

EXCHANGE.

EXCHANGE arises from the division of labour. From the moment that men have attained the power to protect themselves and their crops from the wild beasts, agriculture begins to yield a surplus beyond the subsistence of those engaged in it. It would appear, from the prominence given by the traditions of most nations to the mighty hunter in their early history, that the struggle of man with the ferocious animals has been severe, and may for a time have seemed dubious. From Hercules down to St. George, the dragon-killer, prowess in the destruction of savage animals has been so marked a feature in the character of legendary heroes, as to afford evidence that men put a very high estimate upon services of this kind; an estimate naturally proportionate to the danger which such service averted. There are portions of the world at this day, in which carnivorous beasts divide the occupation of the earth with the human race, and greatly impair its power to multiply and find subsistence. The beasts of prey require graminivorous animals for their food, and the latter require vegetation, which is thus abstracted from the nourishment of human beings. The crisis of humanity is in the warfare by which the carnivorous animals, whose subsistence exhausts great tracts of land, are exterminated. An end once put to their joint occupation of the territory, there is no assignable limit to its power to maintain human population, and a surplus beyond the wants of its actual occupants at once rewards their toil. A portion of the community is then found withdrawing itself from the cultivation of the land, and employing its industry in the mechanic arts. The blacksmith and the weaver obtain their food by bartering their services and their wares with the farmer. Even before this stage of social advancement is reached, exchange of services is established in the domestic relations. The savage husband procures food and the wife dresses it; he hunts the fox and the beaver, and she makes their skins into clothing. Both are producers of services, which

they barter with each other. Exchange in the family was organized when Adam delved and Eve spun.

To effect an exchange requires two products, two producers, and that the latter should be brought into association. What is really exchanged is a service given on the one side against a service given on the other. The one party may render a service by his present labour; as, when the blacksmith fastens a shoe upon the horse of the traveller, who stops at his door for the purpose, the other may render the service by past labour, embodied in a material form; as if, in the case supposed, the traveller were a pedlar, and should pay for his horse-shoeing with a tin pan. That which enters into the estimation of value on both sides is the service received-the amount of labour avoided by each in availing himself of the labour of the other. It is only for the sake of simplifying the discussion by dropping the human agents from consideration, that we speak of exchange as being the barter of commodities. The tin pan represents portions of the labour of various individuals that of the miner, of the artizan who made the miner's tools, of the sailors and wagoners who transported the tin from the mines to the shop where it was made up into utensils, as well as that of the tinsmith, were all essential to its manufacture. Indeed, if we endeavour to trace the constituents of its value to their elements, we shall find that minute fragments of the labour of a host of men, of different generations, extending over long tracts of space and time, have contributed to the production of any article we may select. Each possessor of it, in the various stages of its formation, has obtained it by remunerating the labour of all his predecessors. Its ultimate labourcost is the summation of an infinite series of fractions, decreasing as we recede into the past, as it is of another infinite series, each term of which will dwindle through a protracted future. The labour of a man who makes a hammer to-day, may be regarded as entering into every stroke of that hammer for all coming time; and the value of the hammer will thus be diffused among all the articles it shall aid to construct, and be mingled with values derived directly and indirectly from the labour of thousands. A vast multitude will share in the service which the hammer-maker is rendering to-day, who are as unregarded by him as he will be unknown to them. He

looks to have his service paid once for all, by an equivalent service, or what he esteems such, received from the individual with whom he exchanges the hammer for something else. If he could construct that something else for himself with as little privation and trouble as the hammer cost him, there would be no motive for parting with it; certainly none for making hammers with the express view of parting with them. So, on the other hand, no person wanting a hammer would make something else for the purpose of getting it, if he could as easily make the hammer by his own direct exertions. Each exchange implies a double profit-an advantage on both sides; and that advantage consists in the time and labour which each saves, and which can be devoted to further production, in consequence of his confining himself to that kind of industry in which he possesses special skill and efficiency. Value, it is true, is a matter of estimation, and it is this which controls in Exchange. Each party may suppose himself to have received a greater value than he has parted with; but, whether true or not, this cannot affect the interests of the community of which both are members. The general stock of commodities in the society is no larger the moment after the exchange than the moment before; and no general advantage can be derived from exchange unless it occasions an increase of material production.

We have said that exchange requires the association of producers. The truth of this is sufficiently obvious in the case where personal services are bartered as in the most intimate form of association, the family, or in the natural good offices of neighbourhood, as when farmers assist each other in getting in their harvests. There are a great many forms of co-operation, in which the persons who associate are brought face to face, and the advantage is palpable; because they are able to accomplish works by their united exertions in a very brief period, which are plainly impossible to a single individual, unaided by machinery, in any length of time. Every house-raising and logging-bee furnishes an example. In the exchange of services embodied in material products, there is ordinarily very much to obscure our perception of the fact. The actual producers are seldom brought into personal communication, and the products which they exchange are rarely compared directly with each other. A farmer of the town of Hamburgh brings a cheese to market, sells it for