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Capital is, the smaller is the profit he can live upon. If he has a million of money he may perhaps just manage to exist and bring up a family upon a profit of 4 per cent., or £40,000 a year; but if he has only a capital of £100, it is not possible for him to exist and bring up a family upon £4 a year.

Hence, as Capital increases, and the sums dealt with in each transaction are larger, the smaller is the profit a trader can live on. The smaller the transaction is, the greater always is the profit charged. A grocer always charges much higher for tea bought by the ounce than when bought by the pound. Paper bought by the quire costs more than when bought by the ream: and the fact that when commodities are bought in large quantities a reduction in price is invariably made is too familiar to every one's experience to require being exemplified more in detail. If then this is so notorious, what becomes of the assertion of those who contradict Smith, and say that increase and competition of capital does not, and cannot, reduce prices and profits?

This shews that production on a large scale is always more economical and advantageous for the community generally, because not only is the cost of management much smaller in proportion, but the capitalist can be satisfied with a much smaller profit. Hence large enterprises of all sorts inevitably end by devouring small ones, whether in land, commerce, or manufactures: and the effects of this natural law produce great changes in society, as we shall shew in a future chapter.

In a new country wages are high because there is a great demand for labourers and not many of them: Profits are high because the number of transactions is comparatively speaking small, and the amount insignificant, and capital very scarce. When people and Capital increase operations multiply in number and increase in magnitude. So capitalists can subsist on smaller profits, and a lower actual Profit may produce a very much larger actual amount. The use of banks is to substitute cheap credit, and so anticipate the slow accumulation of metallic Capital.

23. These considerations shew the error of Smith's assertion that" No equal capital puts into motion a greater quantity of productive labour than that of the farmer. No equal quantity of productive labour employed in manufactures can ever ! Wealth of Nations, B. II., ch. 5.

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occasion so great a reproduction. In them nature does nothingman does all; and the reproduction must always be in proportion to the strength of the agents that occasion it. The capital employed in agriculture, therefore, not only puts into motion a greater quantity of productive labour than an equal capital employed in manufactures, but in proportion, too, to the quantity of productive labour which it employs, it adds a much greater value to the annual produce of the land and labour of the country, to the real wealth and revenue of its inhabitants. Of all the ways in which a capital can be employed it is by far the most advantageous to the society.

"It has been the principal cause of the rapid progress of our American Colonies towards wealth and greatness, that almost their whole capitals have hitherto been employed in agriculture.

"It is thus that the same capital will in any country put into motion a greater or smaller quantity of productive labour, and add a greater or smaller value to the annual produce of its land and labour according to the different proportions in which it is employed in agriculture, manufactures, and wholesale trade."

It is certainly extraordinary that Smith should have made such assertions which are most contrary to the plainest facts of history. Taking simply the increase of wealth, and omitting all moral and political considerations, is it the agricultural or the commercial States of the world which have attained the greatest amount of wealth? The single City of Venice carried on a war against the Empires of the East and the West at the same time. The small commercial Republic of Holland conquered its independence from the Spanish monarchy, the most powerful State of the age. The slightest appeal to experience shews the entire fallacy of Smith's assertion and the explanation of it is very simple. Even if a considerable amount of profit can be made by agriculture, yet that profit is made only once in the year. In no way is so large an amount of capital attended with so moderate a remuneration, except in banking. A farmer upon all his outlay and capital receives perhaps a profit of 10 per cent. in the whole year. A tradesman puts an increase of 10, 20, or perhaps 50 per cent. on the wholesale price of his goods, and may make that profit in a day or a week. A manufacturer may perhaps put a smaller actual profit on his goods, but he sells in large masses, in a short time, so that he makes a very large Rate of Profit by the year. A trader in a

moderately sized shop will make as much profit in the year as a farmer upon 300 acres of land. A farmer very rarely indeed farms more than a thousand acres of land; but a trader may trade with hundreds of thousands of pounds.

Hence, so far as mere increase of wealth goes, manufactures and commerce are immensely more productive than agriculture. Was it agriculture that made Holland the richest State in Europe? Was it agriculture that made Tyre, Sidon, Genoa, Venice, the Hanse Towns, Nuremberg, Augsburg, and multitudes of other great cities? Of course, for political stability the union of the two is most desirable. A commercial State may grow wealthy without agriculture; but no agricultural State can become very wealthy without commerce and manufactures. The purely agricultural States are the poorest in the world; and the resources of a purely agricultural State are soon exhausted. Was it her agriculture or her commerce and manufactures which more contributed to enable England, a small island with a scanty population, to contend in arms against all Europe? Certainly, if Smith had lived through the great revolutionary war, he never would have asserted that agriculture is more productive of wealth than commerce and manufactures.

24. Senior originated an expression which gives a very inadequate and far too narrow a view of Profits: he says that Profits are the reward of abstinence. This arises from the imperfect conception of Economists who consider Capital only as the accumulation of past labour, and thus they make what is only true in some cases, a general proposition. Senior himself says that Economists are agreed that whatever gives a profit is rightly termed Capital. Now, profits are made not only by employing the accumulation of the past, but also, in the modern system of Credit, by sagaciously utilising the anticipation of the future. Smith says" In great towns, trade can be extended as stock increases, and the CREDIT of a frugal and thriving man increases much faster than his stock. His trade is extended in proportion to the amount of both, and the sum or amount of his profits is in proportion to the extent of his trade, and his annual accumulation in proportion to the amount of his profits." Hence, a trader may make profits in proportion to the extent of his "purchasing 1 Wealth of Nations, B. I., ch. 10.

power"; and his purchasing power consists of all his money, of all debts due to him, as in the form of bank notes, bills of exchange, and of all his CREDIT. A trader, therefore, makes Profits by purchasing with his Credit as well as with money, and hence Credit is Capital by the very force of the definition.

Hence it is manifestly a very inadequate description of Profits to say they are only the reward of abstinence. Money and Credit equally give profits, and therefore are equally Capital. They are inverse, or opposite to each other, one being the Right to the products of the past, the other the Right to the profits of the future. If, therefore, one be called positive, the other may be called negative, but the general word Capital includes them both.

Furthermore, we have shewn that Production is held by all modern Economists-Smith, Say, Mill, Chevalier-to include transport or exchange.

With marvellous inconsistency Smith, after expressly saying that Capital may be employed productively in commerce, that is, in exchange or transport, says that money produces nothing, to which McCulloch justly replies, that money is productive by facilitating exchanges. Now, we have seen that Credit produces profits by facilitating exchanges exactly in the same way as money does; hence Credit is Productive Capital exactly in the same sense and in the same way that money is. What the ratio of Money to Credit in commerce is may perhaps be fairly gathered from the table we have already given, in which it appears that in the operations of a great commercial house in London only £30,000 out of one million received were in specie, and only £11,000 of one million paid-all the rest of this great movement was effected by Credit. And there is no reason to suppose that this is not the usual ratio of Credit to Money in commerce: and that the Profits obtained by the employment of Credit are not in the same ratio. Leaving out of consideration for the present the enormous amount of Credit employed to put Labour in motion, which we shall consider in the next chapter, we see how utterly futile is the dogma laid down by Mill as a fundamental proposition of Capital, that "Industry is limited by Capital." Unless Credit be admitted to be Capital this doctrine is completely erroneous; if Credit be admitted to be Capital then it may be nearer the truth.

25. The Physiocrates asserted that agricultural labour only is productive of wealth, because the earth alone produces more than sufficient to maintain the labourers.

This general proposition, however, is quite inaccurate, because we have seen that persons cannot live upon one product only, however necessary it may be. It is upon the VALUE of their products, i. e., upon the things they can get in exchange for them, that they live. Now, it is wholly erroneous to say that under all circumstances agricultural labour is productive. In many cases the Value of the produce does not repay the cost of production, and therefore such labour is unproductive. Agricultural labour is productive only when the Demand for the produce is so great and the Supply so limited, that the Value of the produce exceeds its cost of production. Hence, whether agricultural labour is productive or not entirely depends upon the great general law of Demand and Supply.

Some writers, seeing the fallacy of the doctrine that agricultural is the only kind of productive labour, deny that the earth produces at all. They assert that labour only is productive. Thus, among others, Mill says1-"The only productive power is that of labour."—"The only productive power which anywhere exists, is the productive power of labour, implements, and materials."-" In the ultimate analysis, therefore, labour appears to be the only essential of production."

So again" The cause of profit is that labour produces more than is required for its support."-"The reason why Capital yields a profit is because food, clothing, materials, and tools last longer than the time which was required to produce them."-" We thus see that profit arises, not from the incident of the exchange, but from the productive power of labour."

Now, it is perfectly obvious that this doctrine is open to the same objection as that of the productive power of agricultural labour. No man can live upon a single product of labour, any more than upon a single product of the earth. The workman lives upon the VALUE of his labour, i. e., upon the things he can get in exchange for it. If the product of his work will exchange for nothing, it is of no value, and his labour is unproductive. If the products of labour do not pay for their cost, that labour is 1 Essays on some unsettled questions in Political Economy. 2 Principles of Political Economy, B. II., ch. 15., § 5.

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