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in production without the accompaniment of an increased demand for food.

Agricultural improvement, then, is always ultimately, and in the manner in which it generally takes place also immediately, beneficial to the landlord. We may add, that when it takes place in that manner, it is beneficial to no one else. When the demand for produce fully keeps pace with the increased capacity of production, food is not cheapened; the labourers are not, even temporarily, benefited; the cost of labour is not diminished, nor profits raised. There is a greater aggregate production, a greater produce divided | among the labourers, and a larger gross profit; but the wages being shared among a larger population, and the profit spread over a larger capital, no labourer is better off, nor does any capitalist derive from the same amount of capital a larger income.

The result of this long investigation may be summed up as follows. The economical progress of a society constituted of landlords, capitalists, and labourers, tends to the progressive enrichment of the landlord class; while the cost of the labourer's subsistence tends on the whole to increase, and profits to fall. Agricultural improvements are a counteracting force to the two last effects; but the first, though a case is conceivable in which it would be temporarily checked, is ultimately in a high degree promoted by those improvements; and the increase of population tends to transfer all the benefits derived from agricultural improvement to the landlords alone. What other consequences, in addition to these, or in modification of them, arise from the industrial progress of a society thus constituted, I shall endeavour to show in the succeeding chapter.

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CHAPTER IV.

OF THE TENDENCY OF PROFITS TO A MINIMUM.

§ 1. THE tendency of profits to fall as society advances, which has been brought to notice in the preceding chapter, was early recognised by writers on industry and commerce; but the laws which govern profits not being then understood, the phenomenon was ascribed to a wrong cause. Adam Smith considered profits to be determined by what he called the competition of capital; and concluded that when capital increased, this competition must likewise increase, and profits must fall. It is not quite certain what sort of competition Adam Smith had here in view. His words in the chapter on Profits of Stock* "When the stocks of many rich merchants are turned into the same trade, their mutual competition naturally tends to lower its profits; and * Wealth of Nations, book i. ch. 9.

are,

when there is a like increase of stock
in all the different trades carried on in
the same society, the same competition
must produce the same effect in them
all." This passage would lead us to
infer that, in Adam Smith's opinion,
the manner in which the competition
of capital lowers profits is by lowering
prices; that being usually the mode
in which an increased investment of
capital in any particular trade, lowers
the profits of that trade. But if this
was his meaning, he overlooked the
circumstance, that the fall of price,
which if confined to one commodity
really does lower the profits of the
producer, ceases to have that effect as
soon as it extends to all commodities;
because, when all things have fallen,
nothing has really fallen, except nomi-
nally; and even computed in money,
the expenses of every producer have

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production of the precious metals; as for example, all spun and woven fabrics. Other things again, instead of falling, have risen in price, because their cost of production, compared with that of gold and silver, has increased. Among these are all kinds of food, comparison being made with a much earlier period of history. The doctrine, therefore, that competition of capital lowers profits by lowering prices, is incorrect in fact, as well as unsound in principle.

diminished as much as his returns. Unless indeed labour be the one commodity which has not fallen in money price, when all other things have: if so, what has really taken place is a rise of wages; and it is that, and not the fall of prices, which has lowered the profits of capital. There is another thing which escaped the notice of Adam Smith; that the supposed universal fall of prices, through increased competition of capitals, is a thing which cannot take place. Prices are not determined by the competition of the sellers only, but also by that of the buyers; by demand as well as supply. The demand which affects money prices consists of all the money in the hands of the community destined to be laid out in commodities; and as long as the proportion of this to the commodities is not diminished, there is no fall of general prices. Now, howsoever capital may increase, and give rise to an increased production of commodities, a full share of the capital will be drawn to the business of producing or importing money, and the quantity of money will be augmented in an equal ratio with the quantity of commodities. For if this were not the case, and if money, therefore, were, as the theory supposes, perpetually acquiring increased purchasing power, those who produced or imported it would obtain constantly increasing profits; and this could not happen without attracting labour and capital to that occupation from other employments. If a general fall of prices, and increased value of money, were really to occur, it could only be § 2. Mr. Wakefield, in his Comas a consequence of increased cost of mentary on Adam Smith, and his improduction, from the gradual exhaus-portant writings on Colonization, takes tion of the mines.

It is not tenable, therefore, in theory, that the increase of capital produces, or tends to produce, a general decline of money prices. Neither is it true, that any general decline of prices, as capital increased, has manifested itself in fact. The only things observed to fall in price with the progress of society, are those in which there have been improvements in production, greater than have taken place in the

But it is not certain that Adam Smith really held that doctrine; for his language on the subject is wavering and unsteady, denoting the absence of a definite and well-digested opinion. Occasionally he seems to think that the mode in which the competition of capital lowers profits, is by raising wages. And when speaking of the rate of profit in new colonies, he seems on the very verge of grasping the complete theory of the subject. "As the colony increases, the profits of stock gradually diminish. When the most fertile and best situated lands have been all occupied, less profit can be made by the cultivation of what is inferior both in soil and situation." Had Adam Smith meditated longer on the subject, and systematized his view of it by harmonizing with each other the various glimpses which he caught of it from different points, he would have perceived that this last is the true cause of the fall of profits usually consequent upon increase of capital.

a much clearer view of the subject, and arrives, through a substantially correct series of deductions, at practical conclusions which appear to me just and important; but he is not equally happy in incorporating his valuable speculations with the results of previous thought, and reconciling them with other truths. Some of the theories of Dr. Chalmers, in his chapter "On the Increase and Limits of Capital," and the two chapters which follow

it, coincide in their tendency and spirit with those of Mr. Wakefield; but Dr. Chalmers' ideas, though delivered, as is his custom, with a most attractive semblance of clearness, are really on this subject much more confused than even those of Adam Smith, and more decidedly infected with the often refuted notion that the competition of capital lowers general prices; the subject of Money apparently not having been included among the parts of Political Economy which this acute and vigorous writer had carefully studied.

Mr. Wakefield's explanation of the fall of profits is briefly this. Production is limited not solely by the quantity of capital and of labour, but also by the extent of the "field of employment." The field of employment for capital is twofold; the land of the country, and the capacity of foreign markets to take its manufactured commodities. On a limited extent of land, only a limited quantity of capital can find employment at a profit. As the quantity of capital approaches this limit, profit falls; when the limit is attained, profit is annihilated; and can only be restored through an extension of the field of employment, either by the acquisition of fertile land, or by opening new markets in foreign countries, from which food and materials can be purchased with the products of domestic capital. These propositions are in my opinion substantially true; and, even to the phraseology in which they are expressed, considered as adapted to popular and practical rather than scientific uses, I have nothing to object. The error which seems to me imputable to Mr. Wakefield is that of supposing his doctrines to be in contradiction to the principles of the best school of preceding political economists, instead of being, as they really are, corollaries from those principles; though corollaries which, perhaps, would not always have been admitted by those political economists themselves.

January 1826, by Mr. William Ellis ;* which was doubtless unknown to Mr. Wakefield, but which had preceded him, though by a different path, in several of his leading conclusions. This essay excited little notice, partly from being published anonymously in a periodical, and partly because it was much in advance of the state of political economy at the time. In Mr. Ellis's view of the subject, the questions and difficulties raised by Mr. Wakefield's speculations and by those of Dr. Chalmers, find a solution consistent with the principles of political economy laid down in the present treatise.

§ 3. There is at every time and place some particular rate of profit, which is the lowest that will induce the people of that country and time to accumulate savings, and to employ those savings productively. This minimum rate of profit varies according to circumstances. It depends on two elements. One is, the strength of the effective desire of accumulation; the comparative estimate made by the people of that place and era, of future interests when weighed against present. This element chiefly affects the inclination to save. The other element, which affects not so much the willingness to save as the disposition to employ savings productively, is the degree of security of capital engaged in industrial operations. A state of general insecurity, no doubt affects also the disposition to. save. A hoard may be a source of additional danger to its reputed possessor. But as it may also be a powerful means of averting dangers, the effects in this respect may perhaps be looked upon as balanced. But in employing any funds which a person may possess as capital on his own account, or in lending it to others to be so employed, there is always some additional risk, over and above that incurred by keeping it idle in his own custody. This extra risk is great in proportion as the general state

*Now so much better known through his apostolic exertions, by pen, purse, and per. son, for the improvement of popular educaof the elements of practical Political tion, and especially for the introduction into Economy.

The most scientific treatment of the subject which I have met with, is in an essay on the effects of Machinery, pub-it lished in the Westminster Review for

of society is insecure: it may be equi- even dissipate what they have re-
valent to twenty, thirty, or fifty perceived.
cent, or to no more than one or two;
something, however, it must always
be and for this, the expectation of
profit must be sufficient to compensate.
There would be adequate motives
for a certain amount of saving, even
if capital yielded no profit. There
would be an inducement to lay by
in good times a provision for bad;
to reserve something for sickness and
infirmity, or as a means of leisure
and independence in the latter part of
life, or a help to children in the outset
of it. Savings, however, which have
only these ends in view, have not much
tendency to increase the amount of ca-
pital permanently in existence. These
motives only prompt persons to save at
one period of life what they purpose to
consume at another, or what will be
consumed by their children before they
can completely provide for themselves.
The savings by which an addition is
made to the national capital, usually
emanate from the desire of persons to
improve what is termed their condition
in life, or to make a provision for chil-
dren or others, independent of their
exertions. Now, to the strength of these
inclinations it makes a very material
difference how much of the desired ob;
ject can be effected by a given amount
and duration of self-denial; which again
depends on the rate of profit. And there
is in every country some rate of profit,
below which persons in general will not
find sufficient motive to save for the mere
purpose of growing richer, or of leaving
others better off than themselves. Any
accumulation, therefore, by which the
general capital is increased, requires as
its necessary condition a certain rate
of profit: a rate which an average per-
son will deem to be an equivalent for
abstinence, with the addition of a suffi-
cient insurance against risk. There
are always some persons in whom the
effective desire of accumulation is above
the average, and to whom less than this
rate of profit is a sufficient inducement
to save; but these merely step into the
place of others whose taste for expense
and indulgence is beyond the average,
and who, instead of saving, perhaps

I have already observed that this minimum rate of profit, less than which is not consistent with the further increase of capital, is lower in some states of society than in others; and I may add, that the kind of social progress characteristic of our present civilization, tends to diminish it. In the first place, one of the acknowledged effects of that progress is an increase of general security. Destruction by wars, and spoliation by private or public violence, are less and less to be apprehended; and the improvements which may be looked for in education and in the administration of justice, or, in their default, increased regard for opinion, afford a growing protection against fraud and reckless mismanagement. The risks attending the investment of savings in productive employment, require therefore a smaller rate of profit to compensate for them than was required a century ago, and will hereafter require less than at present. In the second place, it is also one of the consequences of civilization that mankind become less the slaves of the moment, and more habituated to carry their desires and purposes forward into a distant future. This increase of providence is a natural result of the increased assurance with which futurity can be looked forward to; and is, besides, favoured by most of the influences which an industrial life exercises over the passions and inclinations of human nature. In proportion as life has fewer vicissitudes, as habits become more fixed, and great prizes are less and less to be hoped for by any other means than long perseverance, mankind become more willing to sacrifice present indulgence for future objects. This increased capacity of forethought and self-control may assuredly find other things to exercise itself upon than increase of riches, and some considerations connected with this topic will shortly be touched upon. The present kind of social progress, however, decidedly tends, though not perhaps to increase the desire of accumulation, yet to weaken the obstacles to

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it, and to diminish the amount of profit | time. The expansion of capital would which people absolutely require as an soon reach its ultimate boundary, if the inducement to save and accumulate. boundary itself did not continually open For these two reasons, diminution of and leave more space.. risk and increase of providence, a profit or interest of three or four per cent is as sufficient a motive to the increase of capital in England at the present day, as thirty or forty per cent in the Burmese Empire, or in England at the time of King John. In Holland during the last century a return of two per cent, on government security, was consistent with an undiminished, if not with an increasing capital. But though the minimum rate of profit is thus liable to vary, and though to specify exactly what it is would at any given time be impossible, such a minimum always exists; and whether it be high or low, when once it is reached, no further increase of capital can for the present take place. The country has then attained what is known to political economists under the name of the stationary state.

§ 4. We now arrive at the fundamental proposition which this chapter is intended to inculcate. When a country has long possessed a large production, and a large net income to make savings from, and when, therefore, the means have long existed of making a great annual addition to capital; (the country not having, like America, a large reserve of fertile land still unused;) it is one of the characteristics of such a country, that the rate of profit is habitually within, as it were, a hand's breadth of the minimum, and the country therefore on the very verge of the stationary state. By this I do not mean that this state is likely, in any of the great countries of Europe, to be soon actually reached, or that capital does not still yield a profit considerably greater than what is barely sufficient to induce the people of those countries to save and accumulate. My meaning is, that it would require but a short time to reduce profits to the minimum, if capital continued to increase at its present rate, and no circumstances having a tendency to raise the rate of profit occurred in the mean

In England, the ordinary rate of interest on government securities, in which the risk is next to nothing, may be estimated at a little more than three per cent: in all other investments, therefore, the interest or profit calculated upon (exclusively of what is properly a remuneration for talent or exertion) must be as much more than this amount, as is equivalent to the degree of risk to which the capital is thought to be exposed. Let us suppose that in England even so small a net profit as one per cent, exclusive of insurance against risk, would constitute a sufficient inducement to save, but that less than this would not be a sufficient inducement. I now say, that the mere continuance of the present annual increase of capital, if no circumstance occurred to counteract its effect, would suffice in a small number of years to reduce the rate of net profit to one per cent.

To fulfil the conditions of the hypothesis, we must suppose an entire cessation of the exportation of capital for foreign investment. No more capital sent abroad for railways, or loans; no more emigrants taking capital with them, to the colonies, or to other countries; no fresh advances made, or credits given, by bankers or merchants to their foreign correspondents. We must also assume that there are no fresh loans for unproductive expenditure by the government, or on mortgage, or otherwise; and none of the waste of capital which now takes place by the failure of undertakings, which people are tempted to engage in by the hope of a better income than can be obtained in safe paths at the present habitually low rate of profit. We must suppose the entire savings of the community to be annually invested in really productive employment within the country itself; and no new channels opened by industrial inventions, or by a more extensive substitution of the best known processes for inferior ones.

Few persons would hesitate to say

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