comes not from men having all that they wish for, but from their having nothing to give in exchange to producers for the articles they make. A glut of any single commodity may easily happen, either because only a very small quantity of it can be used, or, which is the ordinary case, because the means of purchasing it are limited. A haunch of venison might be sent into London for every one of its families. There would be a prodigious glut, not because there was a deficiency of desire for it, but because there was a great defect of other things to give in exchange for it. Let those other things be made and provided, and all the venison would be readily sold. The trade of the world might be multiplied a thousandfold, if only there were the means of producing and exchanging. Trade is exchange, and there cannot be general over-production if there are things to be exchanged.

It is contended, however, that an excess of fixed capital, such as has been described, is in substance a case of over-production, and so it is in reality. But it is very desirable that this name should not be diverted from the specific meaning which has hitherto been appropriated to it; only confusion can arise from using the same word needlessly under very different circumstances. Over-production properly denotes a speculative supply of goods, intentionally made, beyond what it is subsequently found the demand in the market can take off. The makers overdo the thing. In the case of a great commercial depression following a period of excited prosperity, the evil result is that a large amount of fixed capital, of machinery for production, passes into the state of over-construction. Too many mills and

factories are practically found to have been built, too many coal mines opened, too many iron works erected. The demand is found to fall away from special causes -such as overspending, over-destroying, and the poverty ensuing from consuming more than is reproduced. Hence there is for a while real over-production, because the new works go on producing till they find themselves involved in ruinous loss. In true over-production the fault lies in the supply; eager producers have carried their operations too far. In over-construction, the fault rests with the demand which sinks below its previous level. These are phenomena of different kinds; they had better not be indicated by the same word.

CHAPTER V.

PROFIT.

CAPITAL leads us to Profit. Profit is the reward of the capitalist, whether in the shape of interest, or in the stricter sense of that portion of the produce which accrues to the man who owns the business. Either with his own means entirely, or with the assistance of a lender, whom he must compensate for the service afforded by the loan, he supplies buildings, tools, machinery, materials, and the necessary maintenance of the labourers. Whether he does the work himself or whether he engages men to work under his direction, wages and profit must be provided. If he is workman. and capitalist at the same time, the business must yield him reward for his labour, and further additional reward for the capital used.

The conditions under which continuous industry maintains itself are,

1. The capital engaged in the business must be replaced in full by the products; for no business goes on permanently at a loss. We have seen that capital is consumed in producing; capital is wealth; and there must be restoration of such wealth as is destroyed, not by enjoyment, but in creating other wealth. If that new wealth were not forthcoming, there could be no motive to apply any wealth to capital. Profit, which is reward, cannot begin till the replacement of the things con

sumed has been completed. Every expense, wear and tear of fixed capital included, must first be made good.

2. If a man, as in a Colonial back-settlement, works only for his own consumption, he receives wages and profit together, he is under no need to distinguish them. But if he works under the great principle of civilised life, division of employments, he must look forward to selling for compensation. Selling is attended wth risk, especially under the system of producing goods not upon order, but in the expectation of demand coming forward to purchase them. Prices may alter, buyers may be poorer and fewer, a new fashion may have set in. If the business is carried on with the help of banking,—and what large business in England is not ?the rate of discount may have mounted up to a disturbing height. In a word, endless unforeseen causes may convert hope of profit into loss. In some operations, especially in farming, the product may not appear at all, after all the outlay for procuring it has been incurred. Now all such risks for the restoration of the capital consumed must be met by an adequate insurance embodied in an increase of price. By some writers this insurance is regarded as a deduction from profit; but the more correct way of viewing it is to consider it as an item in the cost of production, as an expense included in it. It cannot be doubted that owners of merchant vessels treat insurance as a portion of their cost; were insurance a diminution of profit, it would seem to follow that the businesses which are exposed to the greatest risks would realise the smallest net profits; but this is not true. Net profit has a wonderful tendency to stand on the same level in all industries. The hazardous ones

may show grosser returns of profit, if their accounts are so drawn up; but allowance for risk being deducted, the net result, it is well-known, tends to be much the same in most trades.

3. Remuneration must be provided for the labour, the personal services of the capitalist himself, who labours in conducting his own business. If the business of a market-gardener, for instance, gave him only a handsome return on his capital, but not enough to maintain himself and family, he would necessarily abandon it. But here a distinction must be drawn. In large establishments, such as those of great merchants or bankers, the feeling that personal wages must be earned for work done in the counting-house seldom arises. The set off to be made on that ground in the results of the balance sheet would be too small to be worth separate notice; the reward of the business is thought of only as it exists in the general profits. The merchant or banker may think himself very clever, and attribute the success won to that cleverness; but wages, in the highest form, or reward for skill, are merged in the idea of profit.

4. It follows, that after all these charges have been allowed for, the surplus product, the residuum, as Mr Danson happily terms it, will be profit; what is the nature, the principle of this gain? It is a reward for two things: for the creation and for the employment of capital. Economists have rightly explained the need and justification for such a reward for the creation of capital, that it is a compensation for abstinence. The owner of the wealth might have devoted it to his own enjoyment; he preferred to save it, to turn it into an