1. Exceptionally high profits exercise a marked power in attracting capital into the business which yields them. The capitalist naturally looks to the quarter from which he will obtain the greatest return. This tendency has been justly regarded by economical writers as a leading principle in Political Economy, but the carrying it out in practice often meets with great impediments. It is attended with much friction, so to speak, and no small uncertainty. The capitalist encounters a considerable difficulty at the outset. How is he to discover what is the real amount of profit in the business which attracts him? If he seeks information from individuals, he will get many different answers. This has been well put by Mr Mill: "Gross profit which does not vary much from employment to employment, varies very greatly from individual to individual. It depends on the knowledge, talents, economy and energy of the capitalist himself, or of the agents he employs, on the accidents of personal connection, and even on chance. Hardly any two dealers in the same trade, even if their commodities are equally good and equally cheap, carry on their business at the same expense, or turn over their capital in the same time. That equal capitals give equal profits, as a general maxim of trade, would be as false as that equal age or size gives equal bodily strength, or that equal reading or experience gives equal knowledge. The effect depends as much upon twenty things, as upon the single cause specified."*

The actual position of the capital which the capitalist proposes to invest will have much influence over the

* Book II., chap. xv.

decision.

If it is fixed capital, he must sell it before it can be at his disposal, and this may involve difficulty. Hence the set of the tide towards employments which are exceptionally profitable will act chiefly on capital which has not been definitely appropriated, such as new wealth acquired by fresh savings or capital which for the time is at the command of bankers. Not that banks actually possess the capital itself, very far from it, but they command it and can place it in such hands as they select, and from the nature of banking, for a limited time only. By discounting a bill a bank enables a spinner to get hold of cotton. The bank never handled the cotton, but it placed the material, or capital, in the spinner's hands. This is commonly called in the city floating capital, but it is a misleading and objectionable phrase. The cotton and the other things bought with advances and discounts from banks do not float at all. They are capital moved by banks, but they are at once fixed in cloths, or yarns or other goods. The thing that floats is the power of buying lodged with banks by depositors, which they leave in their accounts for a limited period, and may recall at any time. This floating power of buying deposited with banks is one of the strongest forces which direct the movements of capital, and lead it to battle against excessive prices and profit.

2. By the confusion which Mr Mill, followed by others, has introduced into the subject of profit, he has countenanced an idea which is most widely spread in these days, and which produces mischievous results of the very gravest kind. He first tells us that the gains of capitalists depend on two elements alone. First,

on the magnitude of the produce, in other words, the productive power of labour; and, secondly, on the proportion of the produce obtained by the labourers themselves. Then he adds that the rate of profit, the per centage of gain on the capital invested, depends only on the second element, the proportional share of the produce obtained by labourers. By the help of this statement, he is brought to accept Ricardo's conclusion that the rate of profit depends upon wages, rising as wages fall, and falling as wages rise; only he draws a distinction between wages and the cost of labour-that is, between what labour brings in to the labourer, and what it costs to the capitalist. The inevitable consequence which flows from a state of facts, such as is here described, is that the production of wealth becomes a battle field, that in making commodities required by society, the services of two forces, two sets of men, are enlisted, that these men are antagonists, fighting over the division of the common fund which is to reward these services, that what one set wins the other loses, and that the unionists are right in pronouncing capital to be the enemy of labour, and is to be dealt with on the footing of combat. Such a conclusion, if true, would indeed be lamentable for the happiness of mankind.

One fatal fallacy pervades this doctrine. Mr Mill, and before him Ricardo, did not know that profit was a remainder what is left after all charges have been paid. He did not see that wages is one of these charges and one only. Nor did he perceive that the capitalist buys labour, as he buys materials, coals, tools, and all other things required for his operations. He did not understand clearly that he bargains for labour as he bargains

for everything else, and that he runs the whole risk of his investment in these outlays ending in loss or gain. Nor was he conscious that the bargaining for labour may have gone badly for the employer, and the wages exacted have been exceptionally high, and yet that other causes of prosperity wholly unconnected with the labour market may have so come to his help, that with this rise of wages there was not a fall of profit, as he and Ricardo preached, but a rise of profit and very possibly a handsome one. It is not true that profit depends on two elements, gross produce and wages; or that its rate depends upon one only, wages. Mr Mill assumes that if the produce were doubled, and wages doubled, the capitalists would have double gain also, but upon the same rate of profit, because they would have doubled also the capital invested. But where did he get the fiction that the capital must have been doubled? From imagination alone. The introduction of better machinery might have doubled produce or wages, and yet might have cost prodigiously less than the value of the capital already invested in the concern. It did not occur to Mr Mill that, all else being the same, a business which used large banking accommodation might have its rate of profit, calculated as a per centage on the same capital, very seriously diminished by the bank rate during the year standing at 7 per cent. instead of 2. A heavy fall it might be, but what would wages have had to do with it? The coals consumed in the factory may have been much cheaper or much dearer, cotton much less abundant through civil war in America, other materials may have altered in value, and yet wages may have continued substantially un

changed for a long period. A farmer does not alter the weekly wage of his labourers, because the rain has spoiled his hay, or the foot-rot his sheep; yet what would he tell about his profits and their rates? Great merchants buy large cargoes of woollen or cotton cloths for export to India or China. They may gain great fortunes or land themselves in ruin. What have wages to do with these events? It may be said that they are not engaged in production. True, but they are profit winners and their numbers are legion. Must a separate chapter and a separate definition be provided for these mercantile profits? So also with banking profits. We know how large and numerous they are; yet wages and labourers count for nothing there. Mill and Ricardo have given no formula for these profits, as they are omitted from their definition, but a lawful place is found for them in the residuum doctrine. Whatever be the nature of the business, profit always is the same, the surplus remainder after every portion of cost has been paid. That wages tell for much in manufacturing industry on profit no one disputes, but so does the ground rent to be paid for the mill, or the expensive machinery to procure water.

The efficiency of labour, its worth to the purchaser, what he gets in return for what he pays for the labour, is a great force acting on the success of the business, beyond doubt, but as labour is bought in a market, the purchase rests on the universal principle of what is obtained for the money. The employer takes the risk of all these outlays. He pays for labour, materials, and other things in advance. Till he has sold his goods and drawn up the balance-sheet he does