Adam Smith thought that agricultural rent was "seldom less than a fourth and frequently more than a third of the whole duce" (Book ii. Ch. v.), but that "in the progress of improvement

pro

pire, 3d Edn., p. 553.) The gross agricultural produce of the United Kingdom is now two hundred and seventy millions sterling, and the gross agricultural rental seventy millions. Mr. Mulhall, indeed, estimates it at only fifty-eight millions, but at seventy millions it would be as nearly as possible 26 per cent., curiously enough the same figure as in 1843 and in 1779, and almost the same as in 1689." These facts show that rent tends to take a fourth part of the gross product of such industries as are carried on on the rented surface, or that the enterpriser who hires all his plant pays out one-half the capital share for rent.

As to rates of interest, it is easy, by comparison, to see that they usually range at onehalf the profits earned by a capital invested by its owner in active business. Says Roscher:

"At the end of the last century English farmers expected 10 per cent. profit on their capital, i. e., after paying for rent, wages, implements, and raw materials." As current rates of interest were 5 per cent., it would follow that if the farmer borrowed all his capital he would work at the halves with his usurer. The principle of division between usurer and farmer is the same as between farmer and landlord. (A. Young, "View of the Agriculture of Suffolk," 179, 128.) Senior is of opinion that in England to-day (1830) industrial enterprises of £100,000 yield a profit of less than 10 per cent. a year; those of £40,000 at least 12% per cent.; those of from £10,000 to £20,000 15 per cent.; smaller ones 20 per cent., and even more. He mentions fruit hucksters who earned over 20 per cent. a day, i. e., over 7,000 per cent. a year ("Outlines," 203 seq.) In Manchester manufacturers, according to the same authority, turn over their capital twice a year at 5 per cent. (each turn), retail dealers, three times a year at 3%1⁄2 per cent. (Ibid. 143.) Torrens, "The Budget," (1844) 108, designates 7 per cent. as the minimum profit which would induce an English capitalist to engage in an enterprise of his own." (No'e to Am. Edn. of Roscher, Pol, Econ., vol. ii., p. 151).

By profit in the last illustration I assume is meant the residue after paying rent, wages, cost of raw materials, and every other charge except that of interest on the capital invested. The profit of per cent. therefore would be the regular rate of interest, viz., 5 per cent., and the regular rate of commissions ou managing small investments, viz. 21⁄2 per cent. Each of the above cited rates of profit is twice the current rates of interest in transactions of similar dimensions. For it is well known that in the same circumstances in which profits on small capitals rise to 20, 30 or 40 per cent. interest on small loans rises to 10, 15 and 20 per cent. Hence interest ranges at a fourth of the gross proceeds of the industry on which the capital is loaned. The mode of distribution of the price of the gross product tends theoretically toward the following result:

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it increases in proportion to the extent, but diminishes in proportion to the produce of land" (B. ii. Ch. iii.) thus leaving it at not more than one-fourth.

Adam Smith saw this ratio of division between capital and

But this is equivalent to saying that the distribution tends constantly to obliterate profits, to one who neither owns his plant nor his capital. This is true. It is exceedingly rarely that such an one can continuously maintain himself in any business. It is almost an axiom that a profit-maker, to succeed as such, must own either his fixed capital, or his circulating capital, or both. Without either, he is a man of straw, an adventurer, and is likely to travel out of one bankruptcy into another. Hence, in practice, profits proper, i. e., considered apart from both rent of land and remuneration to capital, seem almost to narrow themselves down to a reward for getting the start of every body; for making money in new or shrewd modes not known to either money-lenders generally or to landlords generally. Of course the profit-maker nas four funds out of which to save a profit if he can, viz.: in buying raw materials, in hiring labor, in hiring his plant, and in borrowing his capital. He has four more out of which to create a new gain, viz.: in discovering new channels of demand, in inventing new processes of supply, in widening his market, and in cheapening his means of reaching it. But out of all these there is none which has the fixity which belongs to rates of wages, of rent, or of interest. Hence, it is singular that Adam Smith should have begun to reason concerning distribution by assuming an ordinary rate of profit on capital as a first fact. Profits, meaning a compensation for capital in excess of rates of interest, are so fluctuating as to be always extraordinary. For if profits perform the same function which a rudder of a ship performs, viz.: that of steering the course of industry, the rudder must be constantly changing, even when the course of the vessel is straight. Hence, of two commercial houses in business side by side, one may be making heavy profits, one may be losing heavily, and both may be mistaken as to their actual condition, or whence the profits or losses will come.

It may seem that the proportion above claimed for the share of capital is widely in conflict with that arrived at by Mr. Edward Atkinson,* who expresses the opinion that "what portion" of the total product of a nation's industry "constitutes the average share of the capitalist at the present time can not be substantially proved. In a normal year under normal conditions," Mr. Atkinson is "of the profound conviction that not exceeding 10 per cent, can be set aside as either rent, interest, profit, or savings ;" and that nine-tenths constitutes the share of the laborer, which by subdivision becomes expressed in personal wages." In saying that "not exceeding 10 per cent. can be set aside as either rent, interest, profit, or savings " Mr. Atkinson first awards 10 per cent. to each of these, making 40 per cent. for all, but by assuming that nine-tenths of the product would be left for wages he reconstructs his 10 per cent. so as to make it cover all instead of each of the four. This may be a slip of the pen, but in view of the actual facts it seems much like a fatal leap in the thought. Among fully one-half the population of the United States, and over three-fourths of the area, say in all parts south of Cincinnati and west of Toledo, 10 per cent. is the current and average rate of interest alone on all loans except the largest of those made in cities. Most real estate rented for productive purposes draws from 8 to 10 per cent. rent, even in Eastern cities, and frequently 20 per cent. Most corporate shares are rated at the principal sum on which they will pay 20 per cent. instead of 10, thus showing that capital values itself for investment at 20 per cent., not 10. Thus a corporation having a par capital of $200,000 and earning $200,000 a year will sell its shares in the aggregate at about $1,000,000, or the sum on which it pays 20 per cent. Twenty per cent., therefore, is capital's own valuation on itself when invested productively. Again, the ratio of the annual prod* Essay, "What Makes the Rate of Wages," p. 27.

labor and states it very comprehensively. (Book ii. Ch. iii.) He says: That part, of the annual produce of the land and labor of any country, which replaces a capital, never is immediately employed to maintain any but productive hands. It pays the wages of productive labor only."

"When it (the annual produce) first comes either from the ground or from the hands of the productive laborers it naturally divides itself into two parts. One of them, and frequently the largest, is in the first place destined for replacing a capital (i. e., re-imbursing for wages paid) or for renewing the provisions, materials, and finished work, which had been withdrawn from a capital; the other for constituting a revenue, either to the owner of this capital, as the profit of his stock (or interest), or to some other person as the rent of his land. Of the produce of a great manufactory, in the same manner, one part, and that always the largest, replaces the capital of the undertaker of the work; the other pays his profit, and thus constitutes a revenue to the owner of this capital."

Dr. Smith also describes interest as ruling at one-half the cur

uct of the nation's industry to its principal capital is 25 per cent., showing a tendency to earn that amount through the joint efforts of capital and labor. Again, Mulhall and other statisticians estimate the annual national savings alone, or the increase of wealth that goes over to another year, at upwards of $800,000,000, or at least 12 per cent. Suppose A to desire a property worth $20,000 for manufacturing purposes. As rents go

he would begin by paying $2,000 for it as rent. If he should form a stock company the capitalized value of the shares in the money market would be that sum on which his earnings would pay from 15 to 20 per cent. dividends. How many times would he turn his entire capital over in a year? In a daily newspaper at least three times. In other branches of manufactures nearly as often. The total value of the establishment will be the principal on which the profits of these three turnings over will be 20 per cent. The average of business establishments apply nearly 10 per cent. per annum, sooner or later, to the extension of their business or to private residences of their owners. Either is an embodiment of profit. Contemplate the enormous manufacture of private residences constantly going on as a means of embodying the profits of business. All this does not come out of a 10 per cent. on the money invested.

Mr. Atkinson seems to have in mind, moreover, the net profit of the capitalist appropriable to personal and family expenditure, after paying cost of erection and annual wear and tear of plant and implements, insurance, losses of bad years, and the like. The distributive share which capital must disburse in other ways than in payment of wages and raw materials is another matter. The latter forms the object of my pursuit.

It is to be regretted that neither Smith, Ricardo, Mill, Carey, Cairnes, MacLeod, nor any other writer, so far as I have met with their writings, attempts to fix the ratio of the distributive share of capital by an appeal to data sufficiently extensive to be called scientific. Hence any attempt to reduce the hitherto unrestrained course of assumption to a basis of fact may give rise to the charge of empiricism. This we must endure, so that the course of the combat may in time be shifted from the empirical to the scientific basis.

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rent rates of profit. (Book i. Ch. x.) He had thus in mind, exactly the division outlined in this chapter, viz., one-half to reimburse capital (which he defines as all going to pay wages of productive labor) and the other half to interest (one-fourth) and rent (one-fourth).

Three facts in our American rates of wages tend to confirm this view. These are:

1. The standard of wages in agriculture goes far toward fixing the standard of wages in manufactures. In agriculture the extent to which the farm labor contracts to work for half the product, as against the land and the capital jointly, both of which get the other half, shows that in farming the real rate of wages is adjusted upon the principle of giving half the product to labor and half to capital and land jointly. A presumption would arise that the same must be true in manufactures, mining, railroading, and merchandising, simply as an effect of the natural tendency toward an equation of rates of wages (other things being equal) in all occupations.

2. The practice, in manufactures, of arranging the wages of workmen on a sliding scale, whereby the workman's compensation is proportionate to the price of the products, prevails in certain branches of the iron manufacture, and indicates, so far as it goes, that wages in manufactures generally are proportionate to product.

3. When colored laborers in the Southern States were the subjects of property, the price which attached to the laborer as an object of purchase would naturally be adjusted according to the amount of capital on which his earnings in excess of the cost of subsisting him would pay a better profit than would be obtained on the same capital in other forms of industry, other things being equal.

Agricultural laborers brought from $800 to $1,200. In free agricultural labor at the same period the amount of capital required to work in partnership with a laborer, i.e., the amount of capital which would, when invested in farming, land, and implements draw the same return which the laborer would draw, was from $800 to $1,200. Of course the slave became himself capital, to the amount of the capital he exempted his owner from the necessity of acquiring, in order to use his labor. The free laborer works in partnership with this same equivalent of capital, invested in land and implements and takes half the product.

Doubtless in a shrewdly conducted commercial business like that of the late A. T. Stewart, the share of capital, and even per

haps the annual net profits of the proprietor, might amount to more than the clerk hire and labor bills. But I have heard it remarked, by practical merchants, that what a clerk or salesman makes in his last years of clerking and the profits of his first years of trade, are so nearly on a level as seldom to result in any sudden change in his condition.

70. Productive Industry Is a Form of Social Government.-Though I have thus far treated the wages contract as if labor were the thing sold by the worker to his employer, it will help to clear away many deceptions, which have misled some to their injury, if I point out that, as a rule, the essence of the wage contract is not in the sale of labor but of obedience, sovereignty, or will, so as to produce not so much force, as flow or harmony of action, which can only come from the subordination of many wills to a single will. A man may put any amount of time and vigorous toil into his work, but if it is done disobediently to his employer's will, he is entitled to no pay legally or morally. It is universally understood that what the employer buys, is not so much, or so specifically, muscular effort, as the right to direct the effort, whatever its kind, whether it be muscular or nervous, bodily or mental. The porter who stands at the door of a residence, hotel, or restaurant, and opens the door, perhaps electrically by touching a spring, whenever he sees a guest about to enter, can not be said to labor, for no more physical effort is required to do this than to do nothing. But he earns his wages and is a productive laborer. Why? Because his employer's interests prosper better, or his employer's pleasure is subserved more truly, by impressing every person who enters with a sense of politeness pervading the establishment than if the visitor is required to ring and wait, or is left to open the door himself. In this case, therefore, the wages are earned, not by labor, but by that subserviency, which shall stand for, and represent, the intended politeness, or taste, or style, or dignity of the master.

Subordination, therefore, is the one thing bought and paid for in the wages contract. "They also serve who only stand and wait." On the other hand, insubordination destroys utterly the working value of the most capable, skillful, or experienced worker. It is, in the wages contracts, the chief and most unpardonable of all viciousness. An insubordinate, or self-inspired worker, can not be depended on, in any capacity which requires organization or co-operation with others on a large scale, and must either become his own employer or must degenerate into pauperism.