Chapter II. Influence Of The Progress Of Industry And Population On Rents,
Profits, And Wages.
§ 1. Characteristic features of industrial Progress.
Continuing the inquiry into the nature of the economical changes taking
place in a society which is in a state of industrial progress, we shall
next consider what is the effect of that progress on the distribution of
the produce among the various classes who share in it. We may confine our
attention to the system of distribution which is the most complex, and
which virtually includes all others—that in which the produce of
manufactures is shared between two classes, laborers and capitalists, and
the produce of agriculture among three, laborers, capitalists, and
landlords.
The characteristic features of what is commonly meant by industrial
progress resolve themselves mainly into three, increase of capital,
increase of population, and improvements in production; understanding the
last expression, in its widest sense, to include the process of procuring
commodities from a distance, as well as that of producing them. It will be
convenient to set out by considering each of the three causes, as
operating separately; after which we can suppose them combined in any
manner we think fit.(298)
§ 2. First two cases, Population and Capital increasing, the arts of
production stationary.
For the sake of clearness we will form two general groups of these
causes:
A. _The Influence of Population and Capital_ (_Improvements
remaining stationary_).
B. _The Influence of Improvements_ (_Population and Capital
remaining stationary_).
We will first take up A, and under this division make for
convenience two separate suppositions:
I. The first is that, while Population is advancing, Capital is
stationary. By this means we can study separately the operation of
one of the factors of societary progress, Population, and see its
influence on rents, profits, and wages. There being only the same
given quantity of wealth in the form of capital to be now
distributed among more laborers (1), real wages must fall;
whereupon, if the same capital purchases more labor, and obtains
more produce (2), profits rise. Now, if the laborers were so well
off before as to suffer the reduction of wages to take place not
in their food, but in their other comforts, then, if each laborer
uses as much food as before, and if, as by the supposition, there
are more laborers, an increased quantity of food will be required
from the soil. This supply can be produced only at a greater cost,
and, as inferior soils are called into cultivation (3), rents will
rise. This last action (3), however, will have an influence on the
rise of profits (2). For it was only by a reduction of real wages
that profits rose; but if the cost of food, that is, the real
wages, have since risen, then one of the elements entering into
cost of labor has risen, and in so far will offset the fall of
real wages; so that profits will not gain so much as if rents had
not risen. The result of this first supposition, then, is, that
the landlord is the chief gainer:
I. (1.) Wages fall.
(2.) Profits rise (less if rents rise).
(3.) Rents rise.
II. We will now take up the second supposition under A, that while
Capital is advancing Population remains stationary. Then, of
course (1), wages will rise; and, as there is no improvement to
cheapen the cost of their real wages, there will be an increase in
cost of labor to the capitalist, and (2) profits will fall. If,
now, the laborers, being better off, demand more food, the new
food would cost more, as the margin of cultivation was pushed
down, and (3) rents would inevitably rise. But not only have the
laborers received more real wages, but since that change the cost,
as just described, of these real wages has increased. Therefore
(2), profits would fall still more than by the rise of real wages.
In this supposition, consequently, while the laborer gains, so
does the landlord:
II. (1.) Wages rise.
(2.) Profits fall (more if rents rise).
(3.) Rents rise.
A. It is easy for us now to take into our view the total effects
under A, and see what the combined action of I and II would be.
That is, if both Capital and Population (improvements remaining
stationary) increase, what will be the effect on Wages, Profits,
and Rent? Of course, we must suppose that Capital and Population
just keep pace with each other; and in that case (1) real wages
remain the same, each laborer receiving the same quantity and same
quality of commodities as before. Hence, if each laborer receives
the same quantity as before, and there are many more laborers,
there will be an increased demand put upon the soil for food,
poorer soils will be cultivated, and the cost of the products will
rise. So (3) rents rise. But if each laborer receives the same
quantity of real wages as before, and the cost of them has risen,
as just explained, an increased cost of labor will result which
must come out of profits. (2) Profits will fall. So that the
results of A upon distribution, taken separately from B, are that
the owner of capital loses; but the owner of land again gains.
A. (1.) Wages the same.
(2.) Profits fall.
(3.) Rents rise.
§ 3. The arts of production advancing, capital and population stationary.
Now, let us go back to our first general group of causes, B—an
advance in the arts of production (while capital and population
remain stationary). We can now study by themselves the effect of
improvements on wages, profits, and rent. The general effects
arising from the extended introduction of machinery into
agriculture and manufactures, the lowered cost of transportation
by steam, have been to lessen the value of articles consumed
chiefly by the laboring-classes. For the sake of clearness,
imagine that the improvement comes suddenly. The first effect will
be to lower the value and price of articles entering into the real
wages of the laborers; and, if those consist mostly of food, there
will be a rise in the margin of cultivation and a fall in rents
(3). It has been previously shown(299) that improvements retard,
or put back, the law of diminishing returns from land (or in
manufactures compensate for it), and so lower rents. The poorest
soil cultivated is now of a better grade than before, and the
produce is yielded at a less cost and value; so that the land with
which the best grades are compared, to determine the rent, is not
separated from the best grades by so wide a gap. It would at first
blush seem, then, that the interests of the landlord were
antagonistic to improvements, since they lower rents; but, in
practice, it is not so, as we shall soon see.
We have seen that improvements cheapen the price of articles
entering into the real wages of the laborer. Having had a given
sum as money wages before the change, then, when the sudden change
of improvements came, it lowered prices to the laborer, and the
same money wages bought more (1) real wages. If nothing more
happened, we could see that improvements raised real wages—without
lowering (2) profits (because cost of labor remains the same,
since the lowered cost of the articles consumed was exactly in
proportion to the increase of real wages). And, if the laborers
chose to retain this higher standard, this would be the situation.
Sadly enough, however, in practice they are apt to be satisfied
with the old standard; and the amount of real wages to give the
old standard of living can be had now for less money wages. While
only the same number, without any increase, can live at the new
(higher) standard, a larger number can live at the old (lower)
standard. In short, the obstacles to an increase of population
will be removed by the possession of higher money wages. After a
generation, it is very probable that a larger number of laborers
will be in existence living at the same (or possibly a slightly
higher) standard of real wages, and money wages will have fallen.
Now we can understand better than before what would be the
practical result of the causes under B. (3.) Rent has fallen;
money wages have fallen (even if (2) real wages have not); and,
since real wages have not fallen in the proportion that their cost
has been reduced, (2) profits will have risen. The general result
of the causes under B alone, acting as just described, will then
be:
B. (1.) Real wages remain the same; money wages less.
(2.) Profits rise.
(3.) Rents fall.
§ 4. Theoretical results, if all three Elements progressive.
We have considered, on the one hand, under A, the manner in which
the distribution of the produce into rent, profits, and wages is
affected by the ordinary increase of Population and Capital; and
on the other, under B, how it is affected by improvements in
production, and more especially in agriculture, as follows:
A. (1.) Wages the same. B. (1.) Real wages the same, money wages
less.
A. (2.) Profits fall. B. (2.) Profits rise.
A. (3.) Rents rise. B. (3.) Rents fall.
The effects are clearly contrasted. Under A, we see a tendency to
a rise of rents (3), an increased cost of labor, and a fall of
profits (2); under B, a fall of rents (3), a diminished cost of
labor, and a rise of profits (2). We have, therefore, analyzed the
forces belonging to the progress of industry, and found two
distinct and antagonistic forces, working against each other. If,
at any period, improvements (B) advance faster than population and
capital (A), rent and money wages will tend downward and profits
upward. If, on the other hand, population advances faster than
improvements (B) either the laborers will submit to a reduction in
the quantity or quality of their food, or, if not, rent and money
wages will progressively rise, and profits will fall.
§ 5. Practical Results.
This, however, is not the final and practical result. We have
hitherto supposed that improvements, B, come suddenly. In point of
fact, agricultural skill is slowly diffused, and inventions and
discoveries are, in general, only occasional, not continuous in
their action, as is the increase of capital and population.
Inasmuch as it seldom happens that improvement has so much the
start of population and capital as actually to lower rent, or
raise the rate of profits, population almost everywhere “treads
close on the heels of agricultural improvement,” and effaces its
effects as fast as they are produced.
The reason why agricultural improvement seldom lowers rent is, that it
seldom cheapens food, but only prevents it from growing dearer; and
seldom, if ever, throws land out of cultivation, but only enables worse
and worse land to be taken in for the supply of an increasing demand. What
is sometimes called the natural state of a country which is but half
cultivated, namely, that the land is highly productive, and food obtained
in great abundance by little labor, is only true of unoccupied countries
colonized by a civilized people. In the United States the worst land in
cultivation is of a high quality (except sometimes in the immediate
vicinity of markets or means of conveyance, where a bad quality is
compensated by a good situation); and even if no further improvements were
made in agriculture or locomotion, cultivation would have many steps yet
to descend, before the increase of population and capital would be brought
to a stand; but in Europe five hundred years ago, though so thinly peopled
in comparison to the present population, it is probable that the worst
land under the plow was, from the rude state of agriculture, quite as
unproductive as the worst land now cultivated, and that cultivation had
approached as near to the ultimate limit of profitable tillage in those
times as in the present. What the agricultural improvements since made
have really done is, by increasing the capacity of production of land in
general, to enable tillage to extend downward to a much worse natural
quality of land than the worst which at that time would have admitted of
cultivation by a capitalist for profit; thus rendering a much greater
increase of capital and population possible, and removing always a little
and a little further off the barrier which restrains them; population
meanwhile always pressing so hard against the barrier that there is never
any visible margin left for it to seize, every inch of ground made vacant
for it by improvement being at once filled up by its advancing columns.
Agricultural improvement may thus be considered to be not so much a
counter-force conflicting with increase of population as a partial
relaxation of the bonds which confine that increase.
Now, since improvements enable a much poorer quality of land to be
ultimately cultivated, under the constant pressure of the increase
of population and capital, improvements enable rent (3) in the end
to rise gradually to a much higher limit than it could otherwise
have attained.
If a great agricultural improvement were suddenly introduced, it might
throw back rent for a considerable space, leaving it to regain its lost
ground by the progress of population and capital, and afterward to go on
further. But taking place, as such improvement always does, very
gradually, it causes no retrograde movement of either rent or cultivation;
it merely enables the one to go on rising, and the other extending, long
after they must otherwise have stopped.
Inasmuch as, in point of fact, B never gets the start of A, but
follows along with A, the general result will be that which we
found true under A—a rise of rents (3), and increased cost of
labor to the capitalist, arising from an increased cost of
laborers’ subsistence and a fall of profits (2). The effect of a
more rapid advance of improvements, at any one time, will
temporarily better the condition of the laborers and also raise
profits; but, if it is followed immediately by an increase of
population, the land-owners will reap the benefits of the
improvement in the rise of rent. The final result, then, is as
follows:
(1.) Real wages, probably higher.
(2.) Profits fall.
(3.) Rents rise.
It is possible that a different combination from the above may
sometimes occur in the causes which underlie the progress of
society: (1.) There may be a period in which capital is increasing
more rapidly than population, and when there seems to be an era of
industrial improvements also. Then both wages and profits will be
high, and it will be a period of general satisfaction. (2.) If
capital goes on increasing, but improvements are few, wages will
rise; but profits must suffer a fall. In this country, where
population has not yet increased so as to press seriously against
subsistence, and where capital increases with incredible
swiftness, these cases are often exemplified. The extraordinary
resources of the newer States have permitted an unlimited increase
of population, and capital has found no difficulty in finding an
investment. But yet those States which have been burdened with the
disabilities of the old slave _regime_ are far behind the others.
The changes in the rank of the States, in respect of population,
at each decade, as seen in Chart No. XVI, are suggestive.
[Illustration: Chart XVI.]
Chart XVI. _Changes of the Rank of the States in the Scale of
Relative Population, from 1790 to 1880._
Chapter III. Of The Tendency Of Profits To A Minimum.
§ 1. Different Theories as to the fall of Profits.
The tendency of profits to fall as society advances, which has been
brought to notice in the preceding chapter, was early recognized 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. 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
nominally; and, even computed in money, the expenses of every producer
have diminished as much as his returns. Unless, indeed, labor 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 can not 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 labor 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 as a consequence of increased cost of
production, from the gradual exhaustion 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 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.
Mr. Wakefield, in his Commentary on Adam Smith, and his important writings
on Colonization, takes 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. Mr. Wakefield’s
explanation of the fall of profits is briefly this: Production is limited
not solely by the quantity of capital and of labor, 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.(300)
§ 2. What determines the minimum rate of Profit?
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. 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 of society is insecure: it may be equivalent to twenty, thirty, or
fifty per 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 capital permanently in existence. 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 children or others, independent of their exertions. Now, to
the strength of these inclinations it makes a very material difference how
much of the desired object 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 person will
deem to be an equivalent for abstinence, with the addition of a sufficient
insurance against risk.
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:
(1.) 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. 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.
(2.) 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,
favored 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. But, though the minimum rate of profit is 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.
§ 3. In old and opulent countries, profits habitually near to the minimum.
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. 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 time.
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 fulfill the conditions of the hypothesis, we must suppose an entire
cessation of the exportation of capital for foreign investment. 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.
The difficulty in finding remunerative employment every year for so much
new capital would not consist in any want of a market. If the new capital
were duly shared among many varieties of employment, it would raise up a
demand for its own produce, and there would be no cause why any part of
that produce should remain longer on hand than formerly. What would really
be, not merely difficult, but impossible, would be to employ this capital
without submitting to a rapid reduction of the rate of profit.
As capital increased, population either would also increase, or it would
not. If it did not, wages would rise, and a greater capital would be
distributed in wages among the same number of laborers. There being no
more labor than before, and no improvements to render the labor more
efficient, there would not be any increase of the produce; and, as the
capital, however largely increased, would only obtain the same gross
return, the whole savings of each year would be exactly so much subtracted
from the profits of the next and of every following year.
[Illustration.]
This can be illustrated by supposing that the whole capital is
handed out to the producers in a vessel which is returned full at
the end of the period of production with the original outlay, plus
an advance called profit. B C represents the total outlay, A C the
total produce, and A B the profit on B C. Now, since the
conditions of production remain the same, the same number of
laborers can produce, as before, no more than A C; even though in
the second year some of last year’s profit, represented by D B, is
saved and added to the outlay by the capitalist. If D C is now the
outlay of capital, the profit can only be A C, minus D C, or A D;
that is, the profit of the second year is diminished by D B,
exactly the amount of savings of the year before. And this would
be repeated each successive year, each saving added to B C being
“exactly so much subtracted from the profits of the next and of
every following year.”
It is hardly necessary to say that in such circumstances profits would
very soon fall to the point at which further increase of capital would
cease. An augmentation of capital, much more rapid than that of
population, must soon reach its extreme limit, unless accompanied by
increased efficiency of labor (through inventions and discoveries, or
improved mental and physical education), or unless some of the idle
people, or of the unproductive laborers, became productive.
If population did increase with the increase of capital and in proportion
to it, the fall of profits would still be inevitable. Increased population
implies increased demand for agricultural produce. In the absence of
industrial improvements, this demand can only be supplied at an increased
cost of production, either by cultivating worse land, or by a more
elaborate and costly cultivation of the land already under tillage. The
cost of the laborer’s subsistence is therefore increased, and, unless the
laborer submits to a deterioration of his condition, profits must fall. In
an old country like England, if, in addition to supposing all improvement
in domestic agriculture suspended, we suppose that there is no increased
production in foreign countries for the English market, the fall of
profits would be very rapid. If both these avenues to an increased supply
of food were closed, and population continued to increase, as it is said
to do, at the rate of a thousand a day, all waste land which admits of
cultivation in the existing state of knowledge would soon be cultivated,
and the cost of production and price of food would be so increased that,
if the laborers received the increased money wages necessary to compensate
for their increased expenses, profits would very soon reach the minimum.
The fall of profits would be retarded if money wages did not rise, or rose
in a less degree; but the margin which can be gained by a deterioration of
the laborers’ condition is a very narrow one: in general, they _can not_
bear much reduction; when they can, they have also a higher standard of
necessary requirements, and _will_ not. On the whole, therefore, we may
assume that in such a country as England, if the present annual amount of
savings were to continue, without any of the counteracting circumstances
which now keep in check the natural influence of those savings in reducing
profit, the rate of profit would speedily attain the minimum, and all
further accumulation of capital would for the present cease.
Mr. Carey, on the other hand, asserts the existence of a law of
increasing returns from land, and that, while wages are constantly
increasing with the progress of society, there is a diminution in
the rate of profit, although the increasing returns permit an
increase of absolute, if not of proportional, profit. That is,
although wages increase more in proportion than profit, there is
still a larger gross amount to be divided among capitalists as
profit, out of a larger product.
§ 4. —prevented from reaching it by commercial revulsions.
What, then, are these counteracting circumstances which, in the existing
state of things, maintain a tolerably equal struggle against the downward
tendency of profits, and prevent the great annual savings which take place
in this country from depressing the rate of profit much nearer to that
lowest point to which it is always tending, and which, left to itself, it
would so promptly attain? The resisting agencies are of several kinds.
First among them is the waste of capital in periods of overtrading and
rash speculation, and in the commercial revulsions by which such times are
always followed. Mines are opened, railways or bridges made, and many
other works of uncertain profit commenced, and in these enterprises much
capital is sunk which yields either no return, or none adequate to the
outlay. Factories are built and machinery erected beyond what the market
requires, or can keep in employment. Even if they are kept in employment,
the capital is no less sunk; it has been converted from circulating into
fixed capital, and has ceased to have any influence on wages or profits.
Besides this, there is a great unproductive consumption of capital during
the stagnation which follows a period of general overtrading.
Establishments are shut up, or kept working without any profit. Such are
the effects of a commercial revulsion; and that such revulsions are almost
periodical is a consequence of the very tendency of profits which we are
considering. By the time a few years have passed over without a crisis, so
much additional capital has been accumulated that it is no longer possible
to invest it at the accustomed profit; all public securities rise to a
high price, the rate of interest on the best mercantile security falls
very low, and the complaint is general among persons in business that no
money is to be made. But the diminished scale of all safe gains inclines
persons to give a ready ear to any projects which hold out, though at the
risk of loss, the hope of a higher rate of profit; and speculations ensue,
which, with the subsequent revulsions, destroy, or transfer to foreigners,
a considerable amount of capital, produce a temporary rise of interest and
profit, make room for fresh accumulations, and the same round is
recommenced.
This, doubtless, is one considerable cause which arrests profits in their
descent to the minimum, by sweeping away from time to time a part of the
accumulated mass by which they are forced down. But this is not, as might
be inferred from the language of some writers, the principal cause. If it
were, the capital of the country would not increase; but in England it
does increase greatly and rapidly. This is shown by the increasing
productiveness of almost all taxes, by the continual growth of all the
signs of national wealth, and by the rapid increase of population, while
the condition of the laborers certainly is not on the whole
declining.(301)
§ 5. —by improvements in Production.
This brings us to the second of the counter-agencies, namely, improvements
in production. These evidently have the effect of extending what Mr.
Wakefield terms the field of employment, that is, they enable a greater
amount of capital to be accumulated and employed without depressing the
rate of profit; provided always that they do not raise, to a proportional
extent, the habits and requirements of the laborer. If the laboring-class
gain the full advantage of the increased cheapness, in other words, if
money wages do not fall, profits are not raised, nor their fall retarded.
But, if the laborers people up to the improvement in their condition, and
so relapse to their previous state, profits will rise. All inventions
which cheapen any of the things consumed by the laborers, unless their
requirements are raised in an equivalent degree, in time lower money
wages, and, by doing so, enable a greater capital to be accumulated and
employed, before profits fall back to what they were previously.
Improvements which only affect things consumed exclusively by the richer
classes do not operate precisely in the same manner. The cheapening of
lace or velvet has no effect in diminishing the cost of labor; and no mode
can be pointed out in which it can raise the rate of profit, so as to make
room for a larger capital before the minimum is attained. It, however,
produces an effect which is virtually equivalent; it lowers, or tends to
lower, the minimum itself. In the first place, increased cheapness of
articles of consumption promotes the inclination to save, by affording to
all consumers a surplus which they may lay by, consistently with their
accustomed manner of living. In the next place, whatever enables people to
live equally well on a smaller income inclines them to lay by capital for
a lower rate of profit. If people can live on an independence of [$1,000]
a year in the same manner as they formerly could on one of [$2,000], some
persons will be induced to save in hopes of the one, who would have been
deterred by the more remote prospect of the other. All improvements,
therefore, in the production of almost any commodity tend in some degree
to widen the interval which has to be passed before arriving at the
stationary state.
§ 6. —by the importation of cheap Necessaries and Implements.
Equivalent in effect to improvements in production is the acquisition of
any new power of obtaining cheap commodities from foreign countries. If
necessaries are cheapened, whether they are so by improvements at home or
importation from abroad, is exactly the same thing to wages and profits.
Unless the laborer obtains and, by an improvement of his habitual
standard, keeps the whole benefit, the cost of labor is lowered and the
rate of profit raised. As long as food can continue to be imported for an
increasing population without any diminution of cheapness, so long the
declension of profits through the increase of population and capital is
arrested, and accumulation may go on without making the rate of profit
draw nearer to the minimum. And on this ground it is believed by some that
the repeal of the corn laws has opened to [England] a long era of rapid
increase of capital with an undiminished rate of profit.
Before inquiring whether this expectation is reasonable, one remark must
be made, which is much at variance with commonly received notions. Foreign
trade does not necessarily increase the field of employment for capital.
When foreign trade makes room for more capital at the same profit, it is
by enabling the necessaries of life, or the habitual articles of the
laborer’s consumption, to be obtained at smaller cost. It may do this in
two ways: by the importation either of those commodities themselves, or of
the means and appliances for producing them. Cheap iron has, in a certain
measure, the same effect on profits and the cost of labor as cheap corn,
because cheap iron makes cheap tools for agriculture and cheap machinery
for clothing. But a foreign trade, which neither directly nor by any
indirect consequence increases the cheapness of anything consumed by the
laborers, does not, any more than an invention or discovery in the like
case, tend to raise profits or retard their fall; it merely substitutes
the production of goods for foreign markets in the room of the home
production of luxuries, leaving the employment for capital neither greater
nor less than before.
It must, of course, be supposed that, with the increase of capital,
population also increases; for, if it did not, the consequent rise of
wages would bring down profits, in spite of any cheapness of food.
Suppose, then, that the population of Great Britain goes on increasing at
its present rate, and demands every year a supply of imported food
considerably beyond that of the year preceding. This annual increase in
the food demanded from the exporting countries can only be obtained either
by great improvements in their agriculture, or by the application of a
great additional capital to the growth of food. The former is likely to be
a very slow process, from the rudeness and ignorance of the agricultural
classes in the food-exporting countries of Europe, while the British
colonies and the United States are already in possession of most of the
improvements yet made, so far as suitable to their circumstances. There
remains, as a resource, the extension of cultivation. And on this it is to
be remarked that the capital by which any such extension can take place is
mostly still to be created. In Poland, Russia, Hungary, Spain, the
increase of capital is extremely slow. In America it is rapid, but not
more rapid than the population. The principal fund at present available
for supplying this country with a yearly increasing importation of food is
that portion of the annual savings of America which has heretofore been
applied to increasing the manufacturing establishments of the United
States, and which free trade in corn may possibly divert from that purpose
to growing food for our market. This limited source of supply, unless
great improvements take place in agriculture, can not be expected to keep
pace with the growing demand of so rapidly increasing a population as that
of Great Britain; and, if our population and capital continue to increase
with their present rapidity, the only mode in which food can continue to
be supplied cheaply to the one is by sending the other abroad to produce
it.
Chart XVII. _Grain-Crops of the United States._
Year. Bushels.
1865 1,127,499,187
1866 1,343,027,868
1867 1,329,729,400
1868 1,450,789,000
1869 1,491,412,100
1870 1,629,027,600
1871 1,528,776,100
1872 1,664,331,600
1873 1,538,892,891
1874 1,455,180,200
1875 2,032,235,300
1876 1,962,821,600
1877 2,178,934,646
1878 2,302,254,950
1879 2,434,884,541
1880 2,448,079,181
1881 2,699,394,496
1882 2,699,394,496
1883 2,623,319,089
Not even Americans have any adequate knowledge of the productive
capacity of the United States. The grain-fields are not yet all
occupied; and we can easily produce the total cotton consumption
of the world on that quantity of land in Texas alone by which the
whole cultivable area of that State exceeds the corresponding area
of the empire of Austria-Hungary (see Chart No. XVIII, which shows
the remarkable proportion of land possessed by the United States
as compared with European countries); and the exports of
agricultural food from the United States are now six times what
they were in 1850, about the time when Mr. Mill made the above
statements. Immense areas of our soil have not yet been broken by
the plow, and the quantities of cereals grown in the United States
seem to be steadily increasing. In fact, the greatest grain-crop
yet grown in this country was that of 1882. The comparison of the
crops of late years with those just succeeding the war (as seen in
Chart No. XVII) shows a very suggestive increase; since it
indicates where employment has been given to vast numbers of
laborers, and where investment has been found for our rapidly
growing capital.(302)
§ 7. —by the emigration of Capital.
This brings us to the last of the counter-forces which check the downward
tendency of profits in a country whose capital increases faster than that
of its neighbors, and whose profits are therefore nearer to the minimum.
This is, the perpetual overflow of capital into colonies or foreign
countries, to seek higher profits than can be obtained at home. I believe
this to have been for many years one of the principal causes by which the
decline of profits in England has been arrested. It has a twofold
operation: In the first place, it does what a fire, or an inundation, or a
commercial crisis would have done—it carries off a part of the increase of
capital from which the reduction of profits proceeds; secondly, the
capital so carried off is not lost, but is chiefly employed either in
founding colonies, which become large exporters of cheap agricultural
produce, or in extending and perhaps improving the agriculture of older communities. |
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