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Let ns now vary the hypothesis still further, and suppose that the money is borrowed, not by a landlord, but by the State. A lends his capital to Government to carry on a war: he buys from the State what are called government securities; that is, obligations on the goyernnieritla pay a certain annual income. If the government employed the money in making a railroad, this might be a productive employment, and A's property would still be used as capital; but since it is employed in war, that is, in the pay of officers and soldiers who produce nothing, and in destroying a quantity of gunpowder and bullets without return, the government is in the situation of C, the spendthrift landlord, and A's ten thousand pounds are so much national capital which once existed, but exists no longer: virtually thrown into the sea, as far as wealth or production is concerned; though for other reasons the employment of it may have been justifiable. A's subsequent income is derived, not from the produce of his own capital, but from taxes drawn from the produce of the remaining capital of the community; to whom his capital is not yield

ing any return, to indemnify them for the payment; it is lost and gone, and what he now possesses is a claim on the returns to other people's capital and industry. This claim he can sell, and get back the equivalent of his capital, which he may afterwards employ productively. True; but he does not get back his own capital, or anything which it has produced; that, and all its possible returns, are extinguished: what he gets is the capital of some other person, which that person is willing to exchange for his lien on the taxes. Another capitalist substitutes himself for A as a mortgagee of the public, and A substitutes himself for the other capitalist as the possessor of a fund employed in production, or available for it. By this exchange the productive powers of the community are neither increased nor diminished. The breach in the capital of the country was made when the government spent A's money: whereby a value of ten thousand pounds was withdrawn or withheld from productive employment, placed in the fund for unproductive consumption, and destroyed without equivalent.



§ 1. If the preceding explanations have answered their purpose, they have given not only a sufficiently complete possession of the idea of Capital according to its definition, but a sufficient familiarity with it in the concrete, and amidst the obscurity with which the complication of individual circumstances surrounds it, to have prepared even the unpractised reader for certain elementary propositions or theorems respecting capital, the full comprehension of which is already a considerable step out of darkness into light.

The first of these propositions is, That industry is limited by capital. This is so obvious as to be taken for

granted in many common forms of speech; but to see a truth occasionally is one thing, to recognise it habitually, and admit no propositions inconsistent with it, is another. The axiom was until lately almost universally disregarded by legislators and political writers; and doctrines irreconcileable with it are still very commonly professed and inculcated.

The following are common expressions, implying its truth. The act of directing industry to a particular employment is described by the phrase "applying capital" to the employment. To employ industry on the land is to apply capital to the land. To employ labour in a manufacture is to invest capital in the manufacture. This implies that industry cannot he employed to any greater extent than there is .capital to invest. The proposition, indeed, must be assented to as soon as it is distinctly apprehended. The expression "applying capital" is of course metaphorical: what is really applied is labour; capital being an indispensable condition. Again, we often speak of the "productive powers of capital." This expression is not literally correct. The only productive powers are those of labour and natural agents; or if any portion of capital can by a stretch of language be said to have a productive power of its own, it is only tools and machinery, which, like wind or water, may be said to co-operate with labour. The food of labourers and the materials of production have no productive power; but labour cannot exert its productive power unless provided with them. There can be no more industry than is supplied with materials to work up and food to eat. Self-evident as the thing is, it is often forgotten that the people of a country are maintained and have their wants supplied, not by the produce of present labour, but of past. They contjume what has been produced, not what is about to he produced. Now, of what has been produced, a part only is allotted to the support of productive labour; and there will not and cannot be more- of that' labour than the portion so allotted (which is the capital' of the country) can feed, and provide with the materials and instruments of . production.

Yet, in disregard of a fact so evident, it long continued to be believed that laws and governments, without treating capital, could create industry. N ot by making the people more laborious, or increasing the efficiency of their labour; these are objects to which the government can, in some degree, indirectly contribute. But without any increase in the skill or energy of the labourers, and without causing any persons to labour who had previously been maintained in idleness, it was still thought that the govern

ment, without providing additional funds, could create additional employment. A government would, by prohibitory laws, put a stop to the importation of some commodity; and when by this it had caused the commodity to be produced at home, it would plume itself upon having enriched the country with a new branch of industry, would parade in statistical tables the amount of produce yielded and labour employed in the production, and take credit for the whole of this as a gain to the country, obtained through the prohibitory law. Although this sort of political arithmetic has fallen a little into discredit in England, it still flourishes in the nations of Continental Europe. Had legislators been aware that industry is limited by capital, they would have seen that, the aggregate capital of the country not having been increased, any portion of it which they by their laws nad caused to be embarked in the newly-acquired branch of industry must have been withdrawn or withheld from some other; in which it gave, or would have given, employment to probably about the same quantity of labour which it employs in its new occupation.*

* An exception must be admitted when the industry created or upheld by the restrictive law belongs to the class of what are called domestic manufactures. These being carried on by persons already fed—by labouring families, in the intervals ot other employment—no transfer or capital to the occupation is necessary to its being undertaken, beyond the value of the materials and tools, which is often inconsiderable If, therefore, a protecting duty causes this occupation to be carried on, when it otherwise would not, there is in this case a real increase of the production of the country.

In order to render our theoretical proposition invulnerable, this peculiar case must be allowed for: but it does not touch the practical doctrine of free trade. Domestic manufactures cannot, from the very nature of things, require protection, since the subsistence of the labourers being provided from other sources, the price of the product, however much it may be reduced, is nearly all clear gain. If. therefore, the domestic producers retire from the competition, it is never from necessity, but because the product is not worth the labour it costs, in the opinion of the best judges, those who enjoy the one and undergo the other. They prefer the sacrifice of buying their clothing to the labour of making it. They will not continue

§ 2. Because industry is limited by capital, we are not however to infer that it always reaches that limit. Capital may be temporarily unemployed, as in the case of unsold goods, or funds that have not yet found an investment; during this interval it does not set in motion any industry. Or there may not be as many labourers obtainable, as the capital would maintain and employ. This has been known to occur in new colonies, where capital has sometimes perished uselessly for want of labour: the Swan River settlement (now called Western Australia), in the first years after its foundation, was an instance. There are many persons maintained from existing capital, who produce nothing, or who might produce much more than they do. If the labourers were reduced to lower wages, or induced to work more hours for the same wages, or if their families, who are already maintained from capital, were employed to a greater extent than they now are in adding to the produce, a given capital would afford employment to more industry. The unproductive consumption of productive labourers, the whole of which is now supplied by capital, might cease, or be postponed until the produce came in; and additional productive labourers might be maintained with the amount. By such means society might obtain from its existing resources a greater quantity of produce: and to such means it has been driven,' when the sudden destruction of some large portion of its capital rendered the employment of the remainder with the greatest possible effect, a matter of paramount consideration for the time.

Where industry has not come up to the limit imposed by capital, governments may, in various ways, for example by importing additional labourers, bring it nearer to that limit: as by the im-" portation of Coolies and free Negroes into the West Indies. There is another way in which governments can create additional industry. They can create capital. They may lay on

their labour unless society will gire them more for it, than in their own opinion its product is worth.

taxes, and employ the amount productively. They may do what is nearly equivalent; they may lay taxes on income or expenditure, and apply the proceeds towards paying off the public debts. The fundnolder, when paid off, would still desire to draw an income from his property, most of which therefore would find its way into productive employment, while a great part of it would have been drawn from the fund for unproductive expenditure, since people do not wholly pay their taxes from what they would have saved, but partly, if not chiefly, from what they would have spent. It may be added, that any increase in the productive power of capital (or, more properly speaking, of labour) by improvements in the arts of life, or otherwise, tends to increase the employment for labour; since, when there is a greater produce altogether, it is always probable that some portion of the increase will be saved and converted into capital; especially when the increased returns to productive industry hold out an additional temptation to the conversion of funds from an unproductive destination to a productive^

§' 3. While, on the one hand, industry is limited by capital, so on the other, every increase of capital gixeg, or is capable of giving, additional em"ploymerit to industry; and thiswrthj"out assignable limit. I do not mean "to deny that the capital, or part of it, may be so employed as not to support labourers, being fixed in machinery, buildings, improvement of land, and the like. In any large increase of capital a considerable portion will generally be thus employed, and will only co-operate with labourers, not maintain them. What I do intend to assert is, that the portion which is destined to.ffigm maimcjiance, may (supposing no alteration in anything else) be indefinitely increased, without creating an impossibility of finding them employment: in other words, that if there are human beings capable of work, and food to feed them, they may always be employed in producing something. This proposition requires to be somewhat

dwelt npon, being one of those which it is exceedingly easy to assent to when presented in general terms, but somewhat difficult to keep fast hold of, in the crowd and confusion of the actual facts of society. It is also very much opposed to common doctrines. There is not an opinion more general among mankind than this, that the unproductive expenditure of the rich is necessary to the employment of the poor. Before Adam Smith, the doctrine had hardly been questioned; and even since his time, authors of the highest name and of great merit* have coutcnded, that if consumers were to save and convert into capital more than a limited portion of their income, and were not to devote to unproductive consumption an amount of means bearing a certain ratio to the capital of the country, the extra accumulation would be merely so much waste, since there would be no market for the commodities which the capital so created would produce. I conceive this to be one of the many errors arising in political economy, from the practice of not beginning with the examination of simple cases, but rushing at once into the complexity of concrete phenomena.

Every one can see that if a benevolent government possessed all the food, and all the implements and materials, of the community, it could exact productive labour from all capable of it, to whom it allowed a share in the food, and could be in no danger of wanting a field for the employment of this productive labour, since as long as there was a single want unsaturated (which material objects could supply), of any one individual, the labour of the community could be turned to the production of something capable of satisfying that want. Now, the individual possessors of capital, when they add to it by fresh accumulations, are doing precisely the same thing which we suppose to be done by a benevolent government. As it is allowable to put any case by way of hypothesis, let us imagine the most extreme case conceivable. Suppose that every capitalist

* For example, Mr. Mai thus, Dr. Chalmers, M. de Sismondi.

came to be of opinion that not being more meritorious than a well-conductedlabourer, he ought not to fare better; and accordingly laid by, from conscientious motives, the surplus of his profits; or suppose this abstinence not spontaneous, but imposed by law or opinion upon all capitalists, and upon landowners likewise. Unproductive expenditure is now reduced to its lowest limit: and it is asked, how is the increased capital to find employment? Who is to Duy the goods which it will produce? There are no longer customers even for those which were produced before. The goods, therefore, (it is said) will remain unsold; they will perish in the warehouses; until capital is brought down to what it was originally, or rather to as much less, as the demand of the consumers has lessened. But this is seeing only onehalf of the matter. In the case supposed, there would no longer be any demand for luxuries, on the part of capitalists and landowners. But when these classes turn their in•come into capital, they do not thereby annihilate their power of consumption; they do but transfer it from themselves to the labourers to whom they give employment. Now, there are two possible suppositions in regard to the labourers; either there is, or there is not, an increase of their numbers, proportional to the increase of capital. If there is, the case offers no difficulty. The production of necessaries for the new population, takes the place of the production of luxuries for a portion of the old, and supplies exactly the amount of employment which has been lost. But suppose that thero is no increase of population. The whole of what was previously expended in luxuries, by capitalists and landlords, is distributed among the existing labourers, in 'the form of additional wages. We will assume them to be already sufficiently supplied with necessaries. What follows? That the labourers become consumers of luxuries; and the capital previously employed in the production of luxuries, is still able to employ itself in the same manner: the difference being, that the

luxuries are shared among the community generally, instead of being confined to a few. The increased accumulation and increased production might, rigorously speaking, continue, until every labourer had every indulgence of wealth, consistent with continuing to work; supposing that the power of their labour were physically sufficient to produce all this amount of indulgences for their whole number. Thus the limit of wealth is never deficiency of consumers, but of producers and productive power. Every addition to capital gives to labour either additional employment, or additional remuneration; enriches either the country, or the labouring class. If it finds additional hands to set to work, it increases the aggregate produce: if only the same hands, it gives them a larger share of it; and perhaps even in this case, by stimulating them to greater exertion, augments the produce itself.

§ 4. A second fundamental theorem respecting Capital, relates to the source from which it is derived. It is the result of saving. The evidence of this lies abundantly in what has been already said on the subject. But the proposition needs some further illustration.

If all persons were to expend in personal indulgences all that they produce, and all the income they receive from what is produced by others, capital could not increase. AH capital, with a trifling exception, was originally the result of saving. I say, with a trifling exception; because a person who labours on his own account, may spend on his own account all he produces, without becoming destitute; and the provision of necessaries on which he subsists until he has reaped his harvest, or sold his commodity, though a real capital, cannot be said to have been saved, since it is all used for the supply of his own wants, and perhaps as speedily as if it had been consumed in idleness. We may imagine a number of individuals or families settled on as many separate pieces of land, each living on what their own labour produces, and consuming the whole pro

I duce. But even these must save (that is, spare from their personal consumption) as much as is necessary for seed. Some saving, therefore, there must have been, even in this simplest of all states of economical relations; people must have produced more than they used, or used less than they produced. Still more must they do so before they can employ other labourers, or increase their production beyond what can be accomplished by the work of their own hands. All that any one employs in supporting and carrying on any other labour than his own, must have been originally brought together by saving; somebody must have produced it and forborne to consume it. AVe may say, therefore, without material inaccuracy, that all capital, and especially all addition to capital, are the result of saving.

In a rude and violent state of society, it continually happens that the person who has capital is not the very person who has saved it, but some one who, being stronger, or belonging to a more powerful community, has possessed himself of it by plunder. And even in a state of things in which property was protected, the increase of capital has usually been, for a long time, mainly derived from privations which, though essentially the same with saving, are not generally called by that name, because not voluntary. The actual producers have been slaves, compelled to produce as much as force could extort from them, and to consume as little as the self-interest or the usually very slender humanity of their taskmasters would permit. This kind of compulsory saving, however, would not have caused any increase of capital, unless, a part of the amoun t had been saved over again, voluntarily, by the master. If all that he made his slaves produce and forbear to consume, had been consumed by him on personal indulgences, he would not have increased his capital, nor been enabled to maintain an increasing number of slaves. To maintain any slaves at all, implied a previous saving; a stock, at least of food, provided in advance. This saving may not, however, have been made by any self-imposed privation of the master;

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