THE INCREASE OF CAPITAL. ΤΗ CHAPTER I. HE decision of most of the questions raised at the present time by the claims of labour, depends to a large extent on the importance of increasing the amount of the national capital. Many other controversies that have sprung up of late years turn upon the same point. In order to make what I have to say as clear as possible, it may be well to begin with a few general statements on the subject of capital. Capital must be distinguished from wealth. Capital is that part of wealth which is employed with the object of production. In manufactures, the requisites of production are labour and capital. Labourers must be supported while they are engaged in any manufacture, and it is capital which furnishes necessaries for the labourers. Capital is the result of saving. It is, however, to be observed, that though capital is the result of saving, capital does not include all that is saved. What is saved in order to be consumed, otherwise than for the purpose of production, is not capital. There is no necessity in the nature of things that labour and capital should be in different hands, as they generally are in modern times. If a labourer works on his own account, he supports himself by his own capital. Such a person is not likely to add much to the capital of the country. If he is wise, he will no doubt save when he is in full employment, so as to provide for want of work, sickness, and old age. He may also save enough to support his family after his death, as long as they are unable to support themselves. But if he puts these savings by without investing them, they never become capital. Even if the savings are invested, yet if they are afterwards spent unproductively, the temporary increase of capital in the country disappears. As matters stand, manufactures are carried on in this country by the two classes of labourers and capitalists. Labourers include clerks, and commercial travellers, as well as common and skilled workmen. The capitalist, if he superintends the work, is, in fact, a labourer as well as a capitalist, since he does the work of managing. To avoid confusion, I shall not include in the term labourer those capitalists who superintend the employment of their capital. The capitalist supports the labourer by paying him wages. Capital is commonly said to consist of the advances of the capitalist; and, as advances are almost entirely wages, capital is also said to be the amount paid in wages.* In strictness, so much of wages as exceeds the necessary expenses of the labourer is not capital. I shall, however, mean by capital, unless the contrary is expressed, not the necessaries of the labourers, but the advances of the capitalist. The necessary expenses of living of the capitalist, when he himself superintends the labour, are part of his capital. In manufactures the produce of labour is divided between the labourers and the capitalist. What the labourers receive is wages. What the capitalist receives for the use of his capital, is interest. What the capitalist receives both for the use of his capital and for the trouble of his superintendence (if he superintends the labour) is profit. The produce is divided between labour and capital, according to supply and demand. If capital increases, other things being equal, interest tends to diminish, and the reward of labour tends to rise. If capital decreases, interest tends to rise, and the reward of labour tends to fall. If the supply of labour increases, interest tends to rise, and the reward of labour to fall. If the supply of labour decreases, interest tends to fall, and the reward of labour to rise. I am here speaking of interest and the reward of labour as compared with one another. Both may rise or fall together, if the produce of labour is itself increased or diminished. To return to the division of the produce. There is another thing that must be observed. When interest has been deducted from the produce, for the use of capital, the remainder, which is the reward of labour, has still to be divided. There are many different kinds of labour. There is the labour of the common unskilled workman, there is the labour of the skilled and educated man, whether workman or clerk, and there is the labour of the capitalist in superintendence. These three divisions are plainly very rough, because there are several kinds of skilled and educated labour, * Mill's Principles of Political Economy, Book ii., ch. 15, sec. 6. I refer to the sixth edition. but they are enough for the purpose. That part of the produce which is the reward of labour, is not divided among these three kinds of labour on a footing of equality. And this does not mean merely that the educated workman receives higher wages than the common workman. This is but fair and natural. It means that he receives a greater excess of wages than is enough to repay him for the expense and trouble of his education. Education is so difficult to obtain, that educated workmen have a monopoly of the market for their labour. The possession of capital in addition to education, gives a stricter monopoly. Educated workmen are accordingly able to obtain a price for their labour, much larger even, after reckoning the expense of education, than the wages of common workmen. Capitalists are able to obtain a still more disproportionate share of the produce as a reward for the labour of superintendence. The larger the capital which they possess, the more strict their monopoly, and the larger the advantage which they can obtain. If the supply of labour, other than the labour of the capitalist in superintendence, increases, profits tend to rise, and wages to fall. If the supply of labour, other than the labour of the capitalist in superintendence, decreases, profits tend to fall, and wages to rise. The last sentence contains the principle of which use will be chiefly made in this publication. We shall soon see its bearing on the increase of capital, which is our subject of consideration. The increase of capital under the present system of things depends principally upon the rate of profit. Profits, as I have said, are the gains of capitalists who themselves superintend the labourers. These capitalists are the persons who amass by far the greater part of capital in this country. It has been calculated by Mr. Hubbard that the industrial and professional classes save a third of their incomes over and above the proportion saved by other classes. He estimates the savings effected out of incomes derived from invested property at one-tenth, and the savings effected out of industrial incomes at four-tenths. He says that these two classes of income are nearly equal in their aggregate amount.* The increase of capital is affected by the rate of profit in two ways. The higher the rate of profit, the larger the amount of profits, and, consequently, the larger the fund out of which savings can be made. Again, the higher * * Mill, Book v., ch. 2, sec. 4. |