SECT. III.—: DEFINITION OF CAPITAL—MODE IN WHICH IT CONTRIBUTES TO THE FORMATION OF WEALTH—CIRCUMSTANCES MOST FAVOURABLE FOR ITS ACCUMULATION.

Capital comprises those portions of the produce of industry that may be directly employed either to support human beings or to assist in production.

It includes a vast variety of articles, embracing those required for the food and accommodation of the labouring classes; the lower animals that may be employed for useful purposes; machinery and tools of all sorts; houses, ships, warehouses, waterworks, &c., and the roads, railways, canals, docks, and so forth, that have been formed to facilitate conveyance, and increase the productiveness of industry. The capacity or incapacity of an article to assist in production is the best criterion by which to decide whether it is or is not capital. The nature of its employment, on which much stress has been laid by Adam Smith and others, depends entirely on the judgment or caprice of its owner, and affects neither its character nor its qualities. It is frequently, also, very difficult to distinguish between what are really productive and unproductive employments; so that a definition which depends on such a distinction being made must be of the class of those which explain ignotum per ignotius. But there is never, or but rarely, any difficulty in learning whether an article may be employed to expedite labour or maintain labourers; and that is all that is required for its proper classification. A great many articles, including pictures, prints, statues, vases, most sorts of gems, trinkets, &c., cannot be employed in either of the ways now referred to, and have, therefore, no claim to be called capital. But any article that may be so employed is entitled to that designation, however it may be disposed of. Gunpowder, for example, is capital, for it may be expended in the blasting of rocks, as well as in fireworks; and horses have no better claim to be called capital when they are employed in ploughing or harrowing, than when they are racing at Newmarket or Goodwood.

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It is usual to distribute capital into two great divisions, one called circulating, and the other fixed; the former comprises those portions of capital that are most rapidly consumed—such as the food, clothes, and other articles required for the subsistence of man, the corn and herbage used as seed and in the feeding of horses, coal, &c.; while the lower animals, the houses, and the various instruments and machines employed in production, are classed under the head of fixed capital. But, though this distinction be convenient for some purposes, no clear line of demarcation can be drawn between the different varieties of capital, and all of them are indispensable to the successful prosecution of most branches of industry. Without circulating capital, or food and clothes, it would be impossible to carry on any sort of undertaking where the return was at all distant; and there are very few sorts of labour that can be carried on, at least with any advantage, without fixed capital, or tools and engines. But the foresight and inventive faculty of man, lead him, in the rudest periods, to provide a reserve of food, and to contrive instruments to assist him in his operations. The American hunters have clubs and slings and the same principle which prompts them to construct these rude implements never ceases to operate; it is always producing new improvements; and, in an advanced period, substitutes ships for canoes, muskets for slings, steam engines for clubs, and spinning-mills for distaffs.

Hence it is only by the employment of both descriptions of capital, that wealth can be largely produced, and universally diffused. An agriculturist might have an ample supply of oxen and horses, of carts and ploughs, and generally of all the animals and instruments used in his department of industry; but were he destitute of circulating capital, or of food and clothes, he would be unable to avail himself of their assistance, and instead of tilling the ground, would have to resort to some species of appropriative industry: and, on the other hand, supposing he were abundantly supplied with provisions, what could he do without fixed capital or tools? What could the most skilful husbandman perform without his Edition: current; Page: [49] spade and his plough? — a weaver without his loom? — a carpenter without his saw, his axe, and his planes?

As an accumulation of capital must precede any very extensive division and combination of employments, so their further division and combination can only be perfected as capital is more and more accumulated. Accumulation and division act and re-act on each other. The greater the amount of their capital, the better, speaking generally, will the employers of labour distribute the work to be done among the work-people in their employment, who, consequently, have, as already explained, a greater chance of discovering machines and processes for abridging their various tasks. Hence the industry of every country is not only directly increased with the increase of the stock or capital which sets it in motion; but, by means of this increase, the division of labour is extended, new and more powerful implements and machines are invented, and the same amount of labour is made to produce a much greater supply of commodities.

Besides enabling labour to be divided, capital contributes to facilitate labour and produce wealth in the three following ways:—

First.—It enables work to be executed that could not be executed, or commodities to be produced that could not be produced, without it.

Second.—It saves labour in the production of almost every variety of commodities.

Third.—It enables work to be executed better, as well as more expeditiously.

With regard to the first of these advantages, or the circumstance of the employment of capital enabling commodities to be produced that could not be produced without it, we have seen that the production of such articles as require a considerable period for their completion, could not be attempted unless a stock of circulating capital, or of food and clothes sufficient for the maintenance of the labourer while employed on them, were previously provided. But the command of fixed Edition: current; Page: [50] capital, or of tools and machines, is frequently as necessary in production as that of circulating capital. Stockings, for example, could not be knitted without wires; and, although the ground might be cultivated without a plough, it could not be cultivated without a spade or a hoe. If we run over the vast catalogue of the arts practised in a civilized country, t will be found that extremely few can be carried on by the mere employment of the fingers, or rude tools with which we are furnished by nature. It is almost always necessary to provide ourselves with the results of previous industry, and to strengthen our feeble hands by arming them, if we may so speak, “with the force of all the elements.”

In the second place, besides supplying many descriptions of commodities that could not be produced without its co-operation, the employment of capital occasions a saving of labour in the production of many others: and, by lowering their cost, brings them within reach of a far greater number of consumers. We have been so long accustomed to the services of the most powerful machines, that it requires a considerable effort of abstraction to become fully aware of the advantages they confer on us. If, however, we compare the arts practised by highly civilized societies and those in a less advanced state, we must be convinced that we are indebted to the employment of machinery for a very large share of our superior comforts and enjoyments. Suppose, that, like the Peruvians, and many other people of the New as well as of the Old World, we were destitute of iron,1 and unacquainted with the method of domesticating Edition: current; Page: [51] and employing oxen and horses, how prodigious a change for the worse would be made in our condition! It was customary, in some countries, to make cloth by taking up thread after thread of the warp, and passing the woof between them by the unassisted agency of the hand; so that years were consumed in the manufacture of a piece which, with the aid of the loom, may be produced in as many days.1 Nothing, perhaps, has contributed so much to accelerate the progress and diffuse the blessings of civilization, as the establishment of a commercial intercourse between different and distant nations. But how could this be effected without the construction of vessels and the discovery of the art of navigation? And if we compare the early navigators, creeping timidly along the shore in canoes, formed out of trees partly hollowed by fire, and partly by the aid of a stone hatchet, or the bone of some animal, with those who now boldly traverse the trackless ocean in noble ships laden with the produce of every climate, we shall have a faint idea of the advance of the arts, and of what we owe to machinery and science. Those who have distinguished themselves in this career, though they have rarely met with that gratitude and applause to which they had a just claim, have been the great benefactors of the human race. By pressing the powers of nature into our service, and subjecting them to our control, they have given man almost omnipotent power, and rendered him equal to the most gigantic undertakings. Without their assistance we should be poor indeed! Such as we now find the naked and half-famished savage of New Holland, such would the Athenian, the Roman, and the Englishman have been, but for the invention of tools and machines, and the employment of natural agents in the great work of production.

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The third advantage derived from the employment of capital consists in its enabling work to be done better, as well as more expeditiously. Cotton, for example, may be spun by the hand; but while the admirable machines invented by Hargreaves, Arkwright, and others, spin a hundred or a thousand times as much yarn as could be spun by means of a common spindle, they have also improved its quality, and given it a degree of fineness and of evenness, or equality, which was not previously attainable. A painter would require months, or it might be years, to paint with a brush the cottons, or printed cloths, used in the hanging of a single room; and it would be very difficult, if not impossible, for the best artist to give that perfect identity to his figures, which is given to them by the machinery now in use for that purpose. Not to mention the other and more important advantages resulting from the invention of movable types and printing, the most perfect manuscript—one on which years of patient and irksome labour have been expended—is unable, in point of delicacy and correctness, to match a well printed work, executed in the hundredth part of the time, and at a hundredth part of the expense. The great foreign demand for English manufactured goods results no less from the superiority of their manufacture than from their greater cheapness; and for both these advantages we are principally indebted to the excellence of our machinery.

There are other considerations which equally illustrate the extreme importance of the accumulation and employment of capital. Setting aside the variations of harvests and such like accidental occurrences, the produce of the land and labour of a nation cannot be increased except by an increase in the number of its labourers, or in their productive powers. But without an increase of capital, it is in most cases difficult to employ more workmen with advantage. When the articles applicable to the support of the labourers, and the tools and machines with which they are to work, are required for the maintenance and efficient employment of those already in existence, there can be little or no demand for others. Under Edition: current; Page: [53] such circumstances the rate of wages cannot rise; and if the number of inhabitants be increased, they will be worse provided for. Neither is it probable that the powers of the labourer should be materially augmented, unless capital has been previously increased. Without the better education and training of workmen, the greater subdivision of their employments, or the improvement of machinery, their productive energies cannot be materially augmented; and in almost all these cases, additional capital is required. It is seldom, unless by its means, that workmen can be better trained, or that the undertaker of any work can either provide them with better machinery, or make a more proper distribution of labour among them. Should the work to be done consist of a number of parts, to keep a workman constantly employed in one only requires a much larger stock than when he is occasionally employed in different parts. “When,” says Adam Smith, “we compare the state of a nation at two different periods, and find that the annual produce of its land and labour is evidently greater at the latter than at the former, that its lands are better cultivated, its manufactures more numerous and more flourishing, and its trade more extensive, we may be assured that its capital must have increased during the interval between these two periods, and that more must have been added to it, by the good conduct of some, than had been taken from it, either by the private misconduct of others, or by the public extravagance of government.”1 It is therefore apparent, that countries which add to their capital can never reach the stationary state. While they do this, they have an increasing demand for labour, and will be uniformly augmenting the mass of necessaries and conveniences, and generally, also, the numbers of their people. But when no additions are made to capital, no more labour will be, or, at least, can be advantageously employed. And should the national capital diminish, the condition of the bulk of the people will deteriorate; the wages of labour will be Edition: current; Page: [54] reduced; and pauperism, with its attendant train of vice, misery, and crime, will spread its ravages throughout society.

Having thus endeavoured to show what capital is, the importance of its employment, and the manner in which it contributes to assist production, we proceed to explain its origin, and the circumstances most favourable for its accumulation.

Had it been a law of nature that the produce obtained from industrial undertakings merely sufficed to replace what had been expended in carrying them on, society would have made no progress, and man would have continued nearly in the state in which he was originally placed. But the established order of things is widely different. It is so constituted that, in the vast majority of cases, more wealth or produce is obtained through the agency of a given quantity of labour, than is required to carry on that labour. This surplus, or excess of produce, has been denominated profit; and it is from it that capital is wholly derived. It is not enough that a man’s immediate wants are supplied, he looks forward to the future. Even the savage who kills more game in a day than he can consume, does not throw the surplus away; experience has taught him that he may be less fortunate on another occasion; and he, therefore, either stores it up as a reserve against any future emergency, or barters it for something else. Experience, too, would speedily show, that without a stock of provisions no one could engage in any undertaking, however productive in the end, that required any considerable time before it made a return. No doubt, therefore, the principle which prompts to save and amass, which leads man to sacrifice an immediate gratification for the sake of increased security, or of greater enjoyment at some future period, manifested itself in the earliest ages. At first, indeed, its operation must have been comparatively feeble. But it gathered fresh strength and consistency, according as the many advantages of which it is productive gradually disclosed themselves. The dried fish, Edition: current; Page: [55] canoes, and spears of the wretched inhabitants of Tierra del Fuego exhibit the first fruits of that powerful passion, to which we owe all the riches of the world.

Seeing, therefore, that capital is formed out of the excess of the produce realized by those who engage in industrial pursuits, over and above the produce necessarily expended in carrying them on, it plainly follows, that the means of amassing capital will be greatest where this excess is greatest; or, in other words, that they will be greatest where the rate of profit is highest. This is so obvious as hardly to require illustration. Husbandmen who produce a bushel of wheat in two days, may, it is evident, accumulate twice as fast as those who, through a deficiency of skill, or from their being obliged to cultivate a bad soil, have to labour four days to produce the same quantity; and it is the same with capitalists who invest stock so as to obtain a profit of ten per cent. compared with those whose investments do not yield more than five per cent.1 It is true that high profits give the means only of amassing capital; and had men always lived up to their incomes, expending their entire amount upon their immediate wants and desires, there would have been no such thing as capital in the world. But experience shows, that while high profits afford greater means of saving, they, at the same time, give additional force to the parsimonious principle. If the sum that remains to a man, after his necessary expenses are deducted, be but trifling, he may, perhaps, choose rather to consume it, than to hoard it up in the expectation, that by the addition of farther savings it may, at some distant period, become the means of making a small addition to his income. But wherever profits are high, or where there is a great power of accumulation, we deny ourselves immediate gratifications, because we have a certain prospect that by doing so, we shall speedily attain to comparative affluence; and that our Edition: current; Page: [56] future independence will be better secured by our present forbearance. Give to any people the power of accumulating, and you may depend upon it they will not be disinclined to use it effectively. In the United States, previously to their disruption, the rate of profit was commonly twice as high as in Great Britain or Holland; and it was to its greater magnitude that their comparatively quick progress in wealth and population was wholly to be ascribed. The desire of adding to our means, and improving our condition, that is inherent in the human constitution, and is the fundamental principle,—the causa causans,—of every improvement, can never be eradicated. There may, no doubt, be circumstances under which it may have no room to manifest itself; but whenever an opportunity offers, it never fails to put forth all its untiring energies. “No measure of fortune, or degree of skill, is found to diminish the supposed necessities of human life; refinement and plenty foster new desires, while they furnish the means or practise the methods to gratify them.”1

Perhaps it will be said, in opposition to these statements, that the rate of profit is high in Eastern countries, and that they are, notwithstanding, either retrograding or advancing only by imperceptible degrees. It may be questioned, however, whether the rate of profit be really higher in them than in Europe. The rate of interest is no doubt higher; but that is a consequence of the hazard to which the principal is exposed from the prejudices against usury. All taking of interest is prohibited by the Korân; and this is in truth, the chief cause of its being so very high in the countries which respect its authority. “L’usure,” says Montesquieu, “augmente dans les pays Mahometans à proportion de la sévérité de la défense. Le prêteur s’indemnise du peril de la contravention.”2 It is not meant, however, to affirm, that great productiveness of industry, or a high rate of profit, is necessarily, and in every Edition: current; Page: [57] instance, accompanied by a great degree of prosperity. Countries with every other capacity for the profitable employment of industry and stock, may have the misfortune to be subjected to governments that do not respect or uphold the right of property; and the insecurity thence resulting, may suffice to paralyze all the exertions of their inhabitants. But, it may, we believe, be laid down as a principle which hardly admits of exception, that if two or more countries, nearly in the same physical circumstances, have about equally tolerant and liberal governments, and give equal protection to property, their prosperity will be proportioned to the rate of profit in each. Where, cæteris paribus, profits are high, capital is rapidly augmented, and there is a comparatively rapid increase of wealth and population; and on the other hand, where profits are low, the means of employing additional labour are proportionally limited, and the progress of society rendered so much the slower.

It is not, therefore, by the absolute amount of its capital, but by its power of employing that capital with advantage—a power which, in all ordinary cases, is correctly measured by the common and average rate of profit—that the capacity of a country to increase in wealth and population is to be estimated. Before the laws regulating the rate of profit and the increase of capital were thoroughly investigated, the great wealth and commercial prosperity of Holland, where profits, from 1650 downwards, were comparatively low, were considered by Sir Josiah Child, and many later writers, as the natural results, and were consequently regarded by them a as convincing proof of the superior advantages of low profits and interest. But this, as will be afterwards seen, was to mistake the effect of heavy taxation, for the cause of wealth! A country where profits are low, may, notwithstanding, abound in wealth, and be possessed of immense capital; but it is the height of error to suppose, that the lowness of profits facilitated its accumulation. The truth is, that the low rate of profit in Holland during the eighteenth Edition: current; Page: [58] century was at once a cause and a symptom of her decline. Sir William Temple mentions, in his Observations on the Netherlands, written about 1670, that the trade of Holland had then passed its zenith. The vast capitals of the Dutch merchants were principally amassed previously to the wars in which the republic was successively engaged with Cromwell, Charles II., and Louis XIV., when the rate of profit was higher than at any subsequent period.

But without referring to the examples of America, Holland, or any other country, the smallest reflection on the motives to engage in any branch of industry is sufficient to show that the advantages derived from it are always supposed, cæteris paribus, to be directly as the rate of profit. Why does a man employ himself or his capital in this or that undertaking?—because he expects it will afford the largest profits. One branch of industry is said to be peculiarly advantageous, for the single and sufficient reason that it yields a comparatively large profit; and another is, with equal propriety, said to be peculiarly disadvantageous, because it yields a comparatively small profit. It is always to this standard, to the high or low rate of profit which they respectively yield, that every individual refers in comparing different undertakings; and it is hardly necessary to add, that what is true of individuals, must be true of states.

No certain conclusion respecting the prosperity of any country can be drawn from the magnitude of its commerce or revenue, or the state of its agriculture or manufactures. Every branch of industry is liable to be affected by secondary or accidental causes. They are always in a state of flux or reflux; and some of them are frequently seen to flourish when others are very much depressed. The average rate of profit would seem to be, on the whole, the best barometer—the best criterion of national prosperity. A rise of profits is, speaking generally, occasioned by industry having become more productive; and it shows that the power of the society to amass capital, and to add to its wealth and Edition: current; Page: [59] population, has been increased, and its progress accelerated: a fall of profits, on the contrary, is occasioned by industry having become less productive, and shows that the power to amass capital has been diminished, and that the progress of the society has been clogged and impeded.1 However much a particular, and it may be an important, branch of industry, is depressed, still, if the average rate of profit be high, we may be assured that the depression cannot continue, and that the condition of the country is really prosperous. On the other hand, though there were no distress in any particular branch—though agriculture, manufactures, and commerce were carried to a greater extent than they had ever been carried before—yet, if the rate of profit have become comparatively low, we may pretty confidently affirm, that the condition of such nation, how prosperous soever in appearance, is unsound at bottom; that the plague of poverty is secretly creeping on the mass of her citizens; that the foundations of her greatness have been shaken; and that her decline may be anticipated, unless measures be devised for relieving the pressure on her resources, by adding to the productiveness of industry, and, consequently, to the rate of profit.

It has been wisely ordered, that the principle which prompts to save and amass should be as powerful as it is advantageous. “With regard to profusion,” says Adam Smith, “the principle which prompts to expense is the passion for present enjoyment; which, though sometimes violent and very difficult to be restrained, is in general only momentary and occasional. But the principle which prompts to save is the desire of bettering our condition; a desire which, though generally calm and dispassionate, comes with us from the womb, and never leaves us till we go into the grave. In the Edition: current; Page: [60] whole interval which separates these two moments, there is scarce, perhaps, a single instant in which any man is so perfectly and completely satisfied with his situation as to be without any wish of alteration or improvement of any kind. An augmentation of fortune is the means by which the greater part of men propose and wish to better their condition. It is the means the most vulgar and the most obvious; and the most likely way of augmenting their fortune is to save and accumulate some part of what they acquire, either regularly and annually, or upon some extraordinary occasion. Though the principle of expense, therefore, prevails in almost all men upon some occasions, and in some men upon almost all occasions, yet in the greater part of men, taking the whole course of their life at an average, the principle of frugality seems not only to predominate, but to predominate very greatly.”1

Bacon objects to that parsimony which is the source of accumulation, that “it withholdeth men from works of liberality and charity.” (Essays, No. 34.) But unless a man be born to affluence, which is the lot of few, the exercise of parsimony is required to enable him to be really charitable. Those who spend as fast as they acquire, are almost always in difficulties; they live, as the phrase is, from hand to mouth, and are without the means, even if they had the inclination, to act liberally. But it is not necessary to the practice of a proper degree of parsimony that people should submit to painful privations, or that they should behave in a mean or niggardly manner. Parsimony is not to be confounded with the base passion of avarice. It does not regard accumulation as an end, but only as a means to an end; and it should correspond to, and be consistent with, a man’s situation and prospects. And in truth it is everywhere found that the establishments of those parties, whether in the lower, middle, or upper classes, who are said to be saving or parsimonious, are Edition: current; Page: [61] more distinguished by their good order and the avoidance of waste than by anything else. They do not deny themselves gratifications, but they keep the taste for them within due bounds, and do not allow their means to be made away with (as many do) they know not how. They are careful and economical upon principle, and add to their fortunes that they may be able to live better and be more hospitable and generous. Cicero says of Rabirius Postumus, “In augenda re non avaritiæ prædam, sed instrumentum bonitati quærere videretur.” (Pro Rabirio Postumo, cap. 2.)

But without insisting further on these considerations, it is found that the spirit of parsimony, and the efforts of the frugal and industrial classes to improve their condition, suffice in most instances to balance not only the profusion of individuals, but also the more wasteful profusion and extravagance of governments. This spirit has been happily compared by Smith to the unknown principle of animal life—the vis medicatrix naturæ—which frequently restores health and vigour to the constitution, in spite both of disease and of the injudicious prescriptions of the physician.

But though the principle of accumulation be powerful enough, when its vigorous action is not paralyzed by any fear of insecurity to make good the waste or loss of large amounts of capital, we must take care not to fall into the error of supposing, as very many have done, that its efficiency is in all cases promoted by a large public expenditure. To a certain extent, indeed, this is true. A moderate increase of taxation has the same effect on the habits and industry of a nation, that an increase of his family, or of his necessary and unavoidable expenses, has upon a private individual. Man is not influenced solely by hope; he is also powerfully operated upon by fear. Taxation brings the latter principle into the field. To the desire of rising in the world, inherent in the breast of every individual, an increase of taxation superadds the fear of being cast down to a lower station, of being deprived of conveniencies and gratifications which habit has rendered all but Edition: current; Page: [62] indispensable; and the combined influence of the two principles produces efforts that could not be produced by the unassisted agency of either. They stimulate individuals to endeavour, by increased industry and economy, to repair the breach taxation would otherwise make in their fortunes; and it not unfrequently happens that their efforts do more than this, and that, consequently, the national wealth is increased through the increase of taxation. But we must be on our guard against the abuse of this doctrine. To render an increase of taxation productive of greater exertion, economy, and invention, it should be slowly and gradually brought about; and it should never be carried to such a height as to incapacitate individuals from meeting the sacrifices it imposes by such an increase of industry and economy as it may be in their power to make without requiring any very violent change of their habits. The increase of taxation must not be such as to make it impracticable to overcome its influence, or to lead to the belief that it is impracticable. Difficulties that are seen to be surmountable sharpen the inventive powers, and are readily grappled with; but an apparently insurmountable difficulty, or such an excessive weight of taxation as it was deemed impossible to meet, would not stimulate but destroy exertion. Instead of producing new efforts of ingenuity and economy, it would produce only despair. Whenever taxation becomes so heavy that the produce it takes from individuals can no longer be replaced by fresh efforts, they uniformly cease to be made; the population becomes dispirited: industry is paralyzed; and the country rapidly declines.

A striking illustration of what has now been stated, may be derived from observing the influence of fair and low rents on the industry of farmers. It might seem, on a superficial view of the matter, that the circumstance of a farm being low-rented would not lessen the enterprise or industry of the tenant, seeing that every thing he could make it produce over and above the rent would belong to himself. Such, however, is not found to be the case; and it is difficult to say whether Edition: current; Page: [63] the over or under-renting of land be most injurious. If a farm be too high-rented, that is, if no exertion of skill, or reasonable outlay on the part of the tenant, will enable him to pay his rent and obtain a fair return for his trouble, he gets dispirited. The farm is, in consequence, ill-managed; scourging crops are resorted to; and ultimately it is thrown on the landlord’s hands, in an impoverished and deteriorated condition. But the disadvantages attending the under-renting of land are hardly less obvious. To make farmers leave those routine practices to which they are very strongly attached, and become really industrious and enterprising, they must not only have the power of rising in the world, but their rents must be such as to impress them with a conviction, that if they do not exert themselves their ruin will assuredly follow. Estates that are under-rented are, uniformly almost, farmed in an inferior style compared with those that are let at their fair value; and the tenants are not generally in good circumstances. “I have not,” says Arthur Young, “seen an instance of rent being very low, and husbandry, at the same time, being good. Innumerable are the instances of farmers living miserably, and even breaking, on farms at very low rents, being succeeded by others, on the same land, at very high rents, who make fortunes. Throughout my journey I have universally observed, that such farms as were the most wretchedly managed were very much under-let.”1

What an increase of rent is to the farmers, an increase of taxation is to the public. If it be carried beyond due bounds, or to such an extent that it cannot be fully balanced by increased efforts to produce and save, it is productive of national poverty and decline; but so long as it is confined within moderate limits, it acts as a powerful stimulus to industry and economy, and most commonly occasions the production of more wealth than it abstracts.

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That capital is formed out of profits, and that profits are the surplus obtained from industrial undertakings, after the stock expended in carrying them on has been fully replaced, are propositions which, though universally true, are, at least the latter, at variance with the common notions on the subject. Instead of supposing profits to originate in the manner now stated, they are almost uniformly supposed to depend on the sale of produce, and to be made at the expense of the purchaser. Thus, to take a familiar instance, the hat-maker who sells a hat for thirty shillings, which cost him twenty-five shillings of outlay, believes he has made the five shillings of profit at the expense of the buyer of the hat, and this is, also, the universal belief of others. In truth and reality, however, he has done no such thing. He produced, in a given time, a hat equivalent to, or worth thirty shillings, while the expense of its manufacture amounted to only twenty-five shillings. But then it is to be borne in mind that the various individuals who deal with the hat-maker are placed in the like situation; farmers, clothiers, bootmakers, &c. speaking generally, make the same profits in their respective businesses; that is, they are all producing quantities of corn, cloth, boots, &c., equivalent to thirty shillings, by an outlay of twenty-five shillings. It is, consequently, clear that in exchanging the precious metals for commodities, or in exchanging one sort of commodities for another, one party gains nothing at the expense of the other. Profit is, in all cases, the excess of the produce raised in given periods over that which has been consumed in those periods. The introduction of exchanges would not be advantageous, if they merely enabled one set of persons to prey upon some other set. This, however, is not their effect. They enable labour to be divided, and individuals to addict themselves to certain pursuits; and by thus separating and combining their efforts, they make, as already seen, very great additions to the capacities of production; but they do nothing more.

If the popular opinions with respect to the source of profits were well founded, it would inevitably follow, inasmuch as Edition: current; Page: [65] they take for granted that they are universally made at the expense of the buyers, that no additions can be made to capital, and that the capital now in the world must be very soon annihilated. Were such a really correct view of the circumstances under which we are placed, our lot would be any thing but enviable. Happily, however, this is not our situation. The produce of labour judiciously directed and vigorously pursued is always greater than the produce consumed in carrying it on; and the surplus or profit being accumulated, becomes, in its turn, a new instrument of production.

There is really, therefore, no class of industrious individuals that live at the expense of the other classes. The retail dealer, for example, is in no respect more indebted to his customers than they are to him. It is not his, but their own interest they have in view, when they resort to his shop. Society is, in truth, as M. Destutt Tracy has sagaciously remarked, nothing but a series of exchanges;1 but they are exchanges in which full equivalents are given for whatever is received. Profits are a consequence of the bounty of Nature; and do not in any degree depend on the superior acuteness of those who sell, or on the weakness and simplicity of those who buy. The advantages observed to result from the separation of employments has occasioned the division of society into particular classes, which interchange products and services; this intercourse, by its reducing the cost, increasing the number, and improving the quality of all sorts of articles and services, being universally advantageous. This, however, it should always be kept in mind, is the whole effect of the division of labour, and the introduction of exchanges. How far soever that division may be carried, it is still true that profits do not depend on it, or on exchanges, but on the commodities produced exceeding those that are consumed.

However extended the sense previously attached to the term capital may at first sight appear, we are inclined to Edition: current; Page: [66] think that it should be interpreted still more comprehensively. Instead of understanding by capital all that portion of the results of industry which may be applied to support man and assist him in his work, there does not seem to be any good reason why man himself should not, and very many why he should, be considered as forming a part of the national capital. Man is as much the produce of the outlays on his subsistence, education, &c., as any of the instruments constructed by his agency; and it would seem, that in those inquiries which regard only his mechanical operations, and do not involve the consideration of his higher and nobler powers, he should be regarded in the same point of view. Every individual who has arrived at maturity, though he may not be instructed in any particular art or profession, may yet, with perfect propriety, be viewed, in relation to his natural powers, as a machine which it has cost twenty years of assiduous attention, and the expenditure of a considerable capital, to construct. And if a farther sum has been expended in qualifying him for the exercise of a business or profession requiring unusual skill, his value will be proportionally increased, and he will be entitled to a greater reward for his exertions, as a machine becomes more valuable when it acquires new powers by the expenditure of additional capital or labour on its improvement.

Adam Smith has fully admitted the justice of this principle, though he has not reasoned consistently from it. The acquired and useful talents of the inhabitants should, he states, be considered as making part of the national capital. “The acquisition of such talents,” he justly observes, “during the education, study, or apprenticeship of the acquirer, always costs a real expense, which is a capital fixed and realized, as it were, in his person. Those talents, as they make a part of his fortune, so do they likewise of that of the society to which he belongs. The improved dexterity of a workman may be considered in the same light as a machine or instrument of trade, which facilitates and abridges labour, and Edition: current; Page: [67] which, though it costs a certain expense, repays that expense with a profit.”1

Instead, then, of being entirely overlooked, as is most frequently the case, the dexterity, skill, and intelligence of the mass of its inhabitants should be most particularly attended to in estimating the capital and productive capacities of a country. Much stress is uniformly and justly laid on the efficacy of the machines which man has constructed to co-operate in his undertakings; but he is himself the most important of all machines, and every addition made to his skill and dexterity is an acquisition of the utmost consequence. The discrepancies that actually obtain in the physical organization of the various races of men, are seldom very considerable; and yet how vast is the difference, in other points of view, between an Indian of Mexico and an Englishman or a Frenchman! The former, ignorant and uninstructed, is poor and miserable, though placed in a country blessed with a soil of exhaustless fertility and a genial climate; the latter, intelligent and educated, is wealthy, prosperous, and happy, though placed under comparatively unfavourable circumstances. Lord Bacon’s aphorism, that knowledge is power, is true in a physical as well as in a moral sense. It gives its possessors an ascendency over their less instructed neighbours, and makes immeasurable additions to their productive capacities. An ignorant and uneducated people, though possessed of all the materials and powers necessary for the production of wealth, are uniformly sunk in poverty and barbarism: and until their mental powers begin to expand, and they learn to exercise the empire of mind over matter, the avenues to improvement are shut against them, and they have neither the power nor the wish to emerge from their degraded condition.

It has been said, and perhaps truly, that it was the rapid growth of the cotton manufacture that bore us triumphantly Edition: current; Page: [68] through the contest with revolutionary France, and gave us wealth and power sufficient to overcome the combined force of almost all Europe, though wielded by a chief of consummate talent. But what is the cotton manufacture? Is it not wholly the result of the discoveries and inventions of Hargreaves, Arkwright, Crompton, Cartwright, and a few others?1 It was their sagacity that discovered and explored this mighty channel for the profitable employment of millions upon millions of capital, and of thousands upon thousands of workmen; so that the many advantages derived from it, are to be ascribed to them as to their original authors and inventors.

To those who are impressed with a conviction of the truth of the principles thus briefly stated, who are duly sensible of the importance of science to the advancement of nations, nothing can be more gratifying than the progress made of late years in diffusing instruction among the great mass of the community. The schools founded on the principles of Bell and Lancaster, have powerfully contributed to spread a knowledge of the elementary branches of instruction, while the Mechanics’ Institutions formed and lectures given in the metropolis, and other great towns, afford the labouring part of the population an opportunity of perfecting themselves in their respective arts, by making them acquainted with the principles on which they depend, and from the better application of which every new improvement must be derived. It is impossible to form any accurate estimate of the influence of this general instruction over the future fortunes of the empire; but it can hardly fail to be alike great and beneficial. More discoveries will be made, according to the degree in which more individuals are placed in a situation to make them. We are every day becoming better acquainted with the properties of matter, with the laws to which it is subject, and with the manner in which portions of it act and re-act on each other. Every fresh discovery Edition: current; Page: [69] leads to others, and instead of narrowing enlarges the field for new discoveries, at the same time that it adds to the means by which they are made. No bounds can be set to this progress. And it is neither impossible, nor at all improbable, that the lustre which now attaches to the names of Arkwright, Watt, and Stephenson may be dimmed, though it can never be wholly effaced, by the more numerous, and, it may be, more important discoveries, that will hereafter be made by those who would have passed from the cradle to the tomb in the same obscure and beaten track that had been trodden by their unambitious ancestors, had not the education now so generally diffused, and the greater scope for inquiry and observation, served to elicit and ripen the seeds of genius implanted in them for the common advantage of mankind.

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