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.
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.
In countries which are further advanced in industry and population, and have therefore a lower rate of profit, than others, there is always, long before the actual minimum is reached, a practical minimum, viz., when profits have fallen so much below what they are elsewhere that, were they to fall lower, all further accumulations would go abroad. As long as there are old countries where capital increases very rapidly, and new countries where profit is still high, profits in the old countries will not sink to the rate which would put a stop to accumulation: the fall is stopped at the point which sends capital abroad.
Chapter IV. Consequences Of The Tendency Of Profits To A Minimum, And The Stationary State.
§ 1. Abstraction of Capital not necessarily a national loss.
The theory of the effect of accumulation on profits must greatly abate, or rather, altogether destroy, in countries where profits are low, the immense importance which used to be attached by political economists to the effects which an event or a measure of government might have in adding to or subtracting from the capital of the country. We have now seen that the lowness of profits is a proof that the spirit of accumulation is so active, and that the increase of capital has proceeded at so rapid a rate, as to outstrip the two counter-agencies, improvements in production and increased supply of cheap necessaries from abroad. A sudden abstraction of capital, unless of inordinate amount, [would not] have any real effect in impoverishing the country. After a few months or years, there would exist in the country just as much capital as if none had been taken away. The abstraction, by raising profits and interest, would give a fresh stimulus to the accumulative principle, which would speedily fill up the vacuum.
Probably, indeed, the only effect that would ensue would be that for some time afterward less capital would be exported, and less thrown away in hazardous speculation.
In the first place, then, this view of things greatly weakens, in a wealthy and industrious country, the force of the economical argument against the expenditure of public money for really valuable, even though industriously unproductive, purposes. In poor countries, the capital of the country requires the legislator’s sedulous care; he is bound to be most cautious of encroaching upon it, and should favor to the utmost its accumulation at home, and its introduction from abroad. But in rich, populous, and highly cultivated countries, it is not capital which is the deficient element, but fertile land; and what the legislator should desire and promote, is not a greater aggregate saving, but a greater return to savings, either by improved cultivation, or by access to the produce of more fertile lands in other parts of the globe.
The same considerations enable us to throw aside as unworthy of regard one of the common arguments against emigration as a means of relief for the laboring-class. Emigration, it is said, can do no good to the laborers, if, in order to defray the cost, as much must be taken away from the capital of the country as from its population. If one tenth of the laboring people of England were transferred to the colonies, and along with them one tenth of the circulating capital of the country, either wages, or profits, or both, would be greatly benefited, by the diminished pressure of capital and population upon the fertility of the land. The landlords alone would sustain some loss of income; and even they, only if colonization went to the length of actually diminishing capital and population, but not if it merely carried off the annual increase.
§ 2. In opulent countries, the extension of machinery not detrimental but beneficial to Laborers.
From the same principles we are now able to arrive at a final conclusion respecting the effects which machinery, and generally the sinking of capital for a productive purpose, produce upon the immediate and ultimate interests of the laboring-class. The characteristic property of this class of industrial improvements is the conversion of circulating capital into fixed: and it was shown in the first book(303) that, in a country where capital accumulates slowly, the introduction of machinery, permanent improvements of land, and the like, might be, for the time, extremely injurious; since the capital so employed might be directly taken from the wages fund, the subsistence of the people and the employment for labor curtailed, and the gross annual produce of the country actually diminished. But in a country of great annual savings and low profits no such effects need be apprehended. It merely draws off at one orifice what was already flowing out at another; or, if not, the greater vacant space left in the reservoir does but cause a greater quantity to flow in.
Accordingly, in spite of the mischievous derangements of the money market which have been occasioned by the great sums in process of being sunk in railways, I can not agree with those who apprehend any mischief, from this source, to the productive resources of the country. Not on the absurd ground (which to any one acquainted with the elements of the subject needs no confutation) that railway expenditure is a mere transfer of capital from hand to hand, by which nothing is lost or destroyed. This is true of what is spent in the purchase of the land; a portion too of what is paid to agents, counsels, engineers, and surveyors, is saved by those who receive it, and becomes capital again: but what is laid out in the _bona fide_ construction of the railway itself is lost and gone; when once expended, it is incapable of ever being paid in wages or applied to the maintenance of laborers again; as a matter of account, the result is, that so much food and clothing and tools have been consumed, and the country has got a railway instead.
It already appears, from these considerations, that the conversion of circulating capital into fixed, whether by railways, or manufactories, or ships, or machinery, or canals, or mines, or works of drainage and irrigation, is not likely, in any rich country, to diminish the gross produce or the amount of employment for labor. There is hardly any increase of fixed capital which does not enable the country to contain eventually a larger circulating capital than it otherwise could possess and employ within its own limits; for there is hardly any creation of fixed capital which, when it proves successful, does not cheapen the articles on which wages are habitually expended.
As regards the effects upon the material condition of the wages-receiving class, since it seems clear that capital increases faster than improvements, and probably faster even than population, it follows that in countries where the laboring-classes are evidently growing in intelligence, they gain in wages with the progress of society. Such certainly seems to be the teaching of Mr. Giffen’s late studies (see Book IV, Chap. III, § 5).
§ 3. Stationary state of wealth and population dreaded by some writers, but not in itself undesirable.
Toward what ultimate point is society tending by its industrial progress?
When the progress ceases, in what condition are we to expect that it will leave mankind?
It must always have been seen, more or less distinctly, by political economists, that the increase of wealth is not boundless; that at the end of what they term the progressive state lies the stationary state, that all progress in wealth is but a postponement of this, and that each step in advance is an approach to it. We have now been led to recognize that this ultimate goal is at all times near enough to be fully in view; that we are always on the verge of it, and that, if we have not reached it long ago, it is because the goal itself flies before us. The richest and most prosperous countries would very soon attain the stationary state, if no further improvements were made in the productive arts, and if there were a suspension of the overflow of capital from those countries into the uncultivated or ill-cultivated regions of the earth. Adam Smith always assumes that the condition of the mass of the people, though it may not be positively distressed, must be pinched and stinted in a stationary condition of wealth, and can only be satisfactory in a progressive state.
The doctrine that, to however distant a time incessant struggling may put off our doom, the progress of society must “end in shallows and in miseries,” far from being, as many people still believe, a wicked invention of Mr. Malthus, was either expressly or tacitly affirmed by his most distinguished predecessors, and can only be successfully combated on his principles.
Even in a progressive state of capital, in old countries, a conscientious or prudential restraint on population is indispensable, to prevent the increase of numbers from outstripping the increase of capital, and the condition of the classes who are at the bottom of society from being deteriorated. Where there is not, in the people, or in some very large proportion of them, a resolute resistance to this deterioration—a determination to preserve an established standard of comfort—the condition of the poorest class sinks, even in a progressive state, to the lowest point which they will consent to endure. The same determination would be equally effectual to keep up their condition in the stationary state, and would be quite as likely to exist.
I can not, therefore, regard the stationary state of capital and wealth with the unaffected aversion so generally manifested toward it by political economists of the old school. I am inclined to believe that it would be, on the whole, a very considerable improvement on our present condition.
It is only in the backward countries of the world that increased production is still an important object; in those most advanced, what is economically needed is a better distribution, of which one indispensable means is a stricter restraint on population. On the other hand, we may suppose this better distribution of property attained, by the joint effect of the prudence and frugality of individuals, and of a system of legislation favoring equality of fortunes, so far as is consistent with the just claim of the individual to the fruits, whether great or small, of his or her own industry. We may suppose, for instance (according to the suggestion thrown out in a former chapter(304)), a limitation of the sum which any one person may acquire by gift or inheritance, to the amount sufficient to constitute a moderate independence. Under this twofold influence, society would exhibit these leading features: a well-paid and affluent body of laborers; no enormous fortunes, except what were earned and accumulated during a single lifetime; but a much larger body of persons than at present, not only exempt from the coarser toils, but with sufficient leisure, both physical and mental, from mechanical details, to cultivate freely the graces of life, and afford examples of them to the classes less favorably circumstanced for their growth. This condition of society, so greatly preferable to the present, is not only perfectly compatible with the stationary state, but, it would seem, more naturally allied with that state than with any other.
There is room in the world, no doubt, and even in old countries, for a great increase of population, supposing the arts of life to go on improving, and capital to increase. But even if innocuous, I confess I see very little reason for desiring it. The density of population necessary to enable mankind to obtain, in the greatest degree, all the advantages both of co-operation and of social intercourse, has, in all the most populous countries, been attained. If the earth must lose that great portion of its pleasantness which it owes to things that the unlimited increase of wealth and population would extirpate from it, for the mere purpose of enabling it to support a larger but not a better or a happier population, I sincerely hope, for the sake of posterity, that they will be content to be stationary, long before necessity compels them to it.
It is scarcely necessary to remark that a stationary condition of capital and population implies no stationary state of human improvement. Even the industrial arts might be as earnestly and as successfully cultivated, with this sole difference, that instead of serving no purpose but the increase of wealth, industrial improvements would produce their legitimate effect, that of abridging labor. Hitherto it is questionable if all the mechanical inventions yet made have lightened the day’s toil of any human being. They have enabled a greater population to live the same life of drudgery and imprisonment, and an increased number of manufacturers and others to make fortunes. They have increased the comforts of the middle classes.
The statement that inventions have not “lightened the day’s toil of any human being” has been persistently misquoted by many persons and has been taken out of its connection. Mr. Mill distinctly holds that the laborer’s lot could have been improved had there been any limitation of population; that it is the constant growth of population as society progresses which destroys the gains afforded to the laboring-classes by improvements. But it is quite certain that the material facts of Mr. Mill’s statement are no longer true. In the United States wages have risen, with an additional gain in lower prices; and Mr. Giffen shows the same progress in England. Moreover, travelers on the Continent speak of a similar movement already noticeable there. Mr. Giffen’s statement in his comparison(305) with fifty years ago, is as follows: “While the money wages have increased as we have seen, the hours of labor have diminished. It is difficult to estimate what the extent of this diminution has been, but collecting one or two scattered notices I should be inclined to say very nearly 20 per cent. There has been at least this reduction in the textile, engineering, and house-building trades. The workman gets from 50 to 100 per cent more money for 20 per cent less work; in round figures he has gained from 70 to 120 per cent in fifty years in money return. It is just possible, of course, that the workman may do as much, or nearly as much, in the shorter period as he did in his longer hours. Still, there is the positive gain in his being less time at his task, which many of the classes still tugging lengthily day by day at the oar would appreciate.”
Chapter V. On The Possible Futurity Of The Laboring-Classes.
§ 1. The possibility of improvement while Laborers remain merely receivers of Wages.
There has probably never been a time when more attention has been called to the material and social conditions of the working-classes than in the last few years. The great increase of literature and the extension of the newspaper has brought to every reader, even where public and private charities have not sent eye-witnesses into direct contact with distress, a more explicit knowledge of the working-classes than ever before. The revelation of existing poverty and misery is, often wrongly, taken to be a proof of the increasing degradation of the working-men, and the cause has been ascribed to the grasping cruelty of capitalists.
Instances of injustice arising from the relations of employers and employed will occur so long as human nature remains imperfect. But the world hopes that some other relation than that of master and workman may be evolved in which not only many admitted wrongs may be avoided, but also new forces may be applied to raise the laborer out of his dependence on other classes in the community.
We are, at present, living under a _régime_ of private property and competition. But certainly the progress of the laborer is not that which can excite enthusiastic hopes for the future, so long as he remains a mere receiver of wages. The progress of industrial improvements has resulted, says Mr. Cairnes, in “a temporary improvement of the laborer’s condition, followed by an increase of population and an enlarged demand for the cheapened commodity...Laborers’ commodities, however, are for the most part commodities of raw produce, or in which the raw material constitutes the chief element of the value (clothing is, in truth, the only important