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which are already full of capital up to the point of " di minishing returns," where overflow must take place into newer branches of production. Thus no small part of the net annual profits of agriculture in Somersetshire and Hampshire go up to London to be loaned to the manufacturers of Yorkshire and Lancashire;' while in the United States the current is reversed, and the manufacturing divi. dends of New England go to the West to be invested in agriculture, which can still afford to pay eight, ten, and even twelve per cent. Here again we have a large body of capital, which, though the owners of it are einployers in some branch of industry, yet goes to swell the aggregate of loanable capital to which employers who are not capi. talists, or who wish to be employers beyond the extent which their own capital permits, may resort under the modern organization of credit.

It is so clear that the membership of the capitalist class is not coincident with that of the employing class, notwithstanding the use by the economists of the word capitalist to signify the employer of labor; and the subject of the relation of the capitalist to the employer is, as far as I have occasion to consider it, so simple, that I should not have devoted a separate chapter to this class, but have detined it in remarks introductory of the employing class proper, were it not that I desired to emphasize this my difference with the text-book writers; and secondly and chiefly, that it becomes necessary for me to take exception to the use, by the same writers, of the word Profits, an exception best taken under the present title.

My exception is not on linguistic grounds. Profits, so far as the etymology of the word goes, might include interest, rent, wages, and the gain derived from the conduct

· Bagehot's Lombard Street, p. 12.

of business, any one or all of these. The economists gen. erally use the word to express the returns of capital. I propose to express by it the gains of the employing class, letting the returns of capital stand as previously explained in this chapter. By what, then, do the economists express that which I call profits? I answer, that as they refuse to the employing class a separate entity,' so they, logically enough, practically deny the existence of profits distinctly from the returns of capital. If the employer, who is assumed to become an employer because he is a capitalist, and to the extent to which he is a capitalist, gives his per sonal attention and his time to the business, they acknowl. edge that he receives an addition to his income on that account, which addition they define as “ the wages of supervision and management.” This they regard as belonging strictly to the category of wages, and treat the case precisely as if the employer or “capitalist” had dispensed with a paid overseer, superintendent, or manager, and drawn the salary of the position himself—otherwise his “profits” are all the proper returns of capital. If he chooses to withdraw his personal attention and retain the overseer, superintendent, or manager, then bis “profits” have no such foreign admixture.

But inasmuch as the theory of distribution offered in

1 “Profits proper, or interest.”—Prof. Rogers, Pol. Econ., p. 139.

“The return for abstinence is profit.”—Prof. Cairnes' “Some Leading Principles," etc., p. 48.

* As Mr. Amasa Walker is the only systematic writer on political economy, with whose work I am familiar, who recognizes the employ. ers of labor as constituting a distinct industrial class, so he is the only one who gives the word Profits the significance it has in the text. “ By the term profits we mean that share of wealth, which, in the general distribution, falls to those who effect an advantageous union between labor and capital .... the parties, then, to production are (1) the laborer, (2) the capitalist, (3) the employer, or manager. Each has a distinct province and a separate interest."--Science of Wealth, pp. 279–80.

this treatise requires the recognition of the employers of labor as a distinct industrial class (see Chapter XIV), performing a function of high importance, something beyond “supervision and management," as exercised by hired agents, it is evident that a term is needed to designate the share of this class in the product of industry. Now, while the use which the text-books make of the term Profits is, as has been said, not objectionable on linguistic grounds, that which is here proposed certainly corresponds far better to the popular usage, at least in America. I cannot speak with assurance in respect to the significance of the word in England; but with us, few practical men would understand a manufacturer's or a merchant's profits to include his interest-account. Webster's Dictionary gathers the American sense of the word correctly in the following detinition : "The profit of the farmer and the manufacturer is the gain made by sale of produce or manufactures, after deducting the value of the labor, materials, rent, and all expenses, together with the interest of the capital employed, whether land, machinery, buildings, instruments, or money." And since this use of the word agrees thus with the speech of practical men, while the term, Returns of Capital, is perfectly descriptive of the object to which it is applied, I trust the reader will not revolt at being asked to carry through the further course of this enquiry the definition of Profits, as the remuneration of the employing class, or the gains of business.

According to our analysis and definition, then, the parties to the distribution of the product of modern industry, in its highest organization, and the shares they respectively receive, are as follows: 1. The Wages Class........... Wages. 2. The Capitalist Class........ Returns of Capital (Rent: Interest) 8. The Employing Class....... Profits.

Are the returns of capital already at or near he minimum? A very common answer to complaints respecting the inadequacy of wages, or to schemes for securing their increase, is that the returns of capital are already as low as it is for the interest of the laborers themselves they should go; that if a smaller annual return were to be made to the capitalist for the use of his accumulated wealth, the disposition to save would be so far affected thereby as to reduce the store of capital, and thus diminish employment. I am embarrassed in making quotations from economical writers to show the direction of this argument, by the fact that they generally use the word profits' to express the returns of capital (including remu. neration for its risk), but with always a possible addition of “the wages of supervision and management.” It is, therefore, difficult to say whether, in a specific instance, the rate of interest is referred to alone, or the remunera tion of the man of business, after estimating the proper returns of capital, is also included. But as the latter element is treated as of comparatively slight importance, I think I may assume that, when Professor Cairnes says “ Profits are already at or within a hand's breadth of the minimum," he refers chiefly, if not wholly, to the returns upon capital. Of course, if profits be at the minimum, any increase of wages which involved a further reduction in the returns of capital,' would unquestionably be detrimental. Prof. Fawcett thus works out the effects of such a reduction : “If profits are diminished, there is not so great an inducement to save, and the amount of capital accumulated will decrease; the wages fund will conse

1 “Profit: a word which, like many others in political economy, is very loosely applied.”—Profv Rogers' Pol. Econ., p. 5.

2 “Some Leading Principles,” etc., p. 258.

8 It has been shown that it is possible that an advance of wages may be made in several ways without involving a reduction either in profits or in the returns of capital.

quently be diminished, and there will be a smaller amount to distribute among the laboring classes.” 1

But I fail wholly to understand what evidence Prof. Cairnes can have had that the returns of capital are at or near the minimum. If he had in view the fact that in England the rate of interest and the returns from capital invested in land are now so low that a continually increasing amount of capital is going abroad to newer countries, this is undoubtedly true; but it affords no proof that the rate of interest in England has reached the point where a further reduction would touch the principle of frugality in the quick. Every dollar of British capital fortunately invested in Australia or the United States helps to cheapen the materials of British manufactures, and to widen the market for British products. So long as these new countries enjoy such extraordinary natural advantages, English capital will doubtless continue to go abroad ; but were these countries filled up with capital, so as to bring the rate of interest down to what it is in England, where is the reason for believing that Englishmen would not save their wealth for the sake of an annual return lower than the present? The return to an investor in the British consols, which are regarded as the ideal security, is about three and three-sevenths per cent. per annum. The insurance companies realize about four and one-half per cent. on their investments. Railway shares paying five per cent. a year sell ordinarily close on 100. Could Prof. Cairnes have meant that, if Englishmen could not get five per cent. for their capital, or at least three and three-sevenths per annum, they would consume it in self-indul. gence? But we know that the Dutch have accumulated vast savings on still lower inducements, for the rate of interest in Holland long ruled at two and one-half per cent., while the government borrowed freely at two per

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