the rent of his house, or the hire of his horse, of the charter of his ship.

2. The civil law cannot fix a price for the use of capital, any more than it can fix a price at which flour, or iron, or any other commodity, must be sold. In all these matters, the law of competition is superior to the civil law.

3. The price of capital is more variable than that of other commodities. This is made evident in the great marts of business, by daily quotations of the rate of interest.

4. These laws, instead of diminishing, actually increase the burden of interest to the most needy borrowers. The lender must be compensated for the additional risk from the penalty of the law.

to.

5. Such laws are never fully enforced, as is obvious from the daily newspaper reports just referred Men who want money will pay what they please for it, and those who have it to loan will get what they can. Such laws only put law-abiding capitalists at a disadvantage, or drive them out of the market for the benefit of unscrupulous sharpers and Shylocks.

Money is a necessity of life in active industry and trade, and for that reason it ought to be left free to the action of the natural law of supply and demand. In active commercial centres this is coming to be understood. Every State should have a statute defining a legal rate of interest for cases in which the contract indicates no specific rate. Beyond this, legal sanction and security for all reasonable contracts in loaning capital, under free

competition, constitute the surest safeguard against excessive interest. It is a hopeful sign that in Great Britain, and in Massachusetts and other American States, usury laws have been abolished.

Dividends. This term denotes the remuneration of capital invested in stock companies. These companies unite contributions of capital from a number of persons for large operations, such as cotton or woollen factories, banking, insurance, railways, telegraphs, &c. The whole capital is divided into shares, usually of one hundred dollars each, which are freely bought and sold in the stock-market. With a company honestly managed, as the business runs on, accounts are balanced semi-annually, and the proceeds are ascertained. The surplus of these proceeds, after providing for all expenses, and laying aside a reserve to meet emergencies, is divided to the stockholders, giving a certain percentage to each share.

This form of compensation for the use of capital is marked by two peculiarities: First, the remuneration depends altogether on the success of the industry in each case. Second, the dividend embraces two elements; viz., interest and profits. If the mill, the railway, or whatever, has barely paid other expenses, capital will have no remuneration; if it has earned enough to pay the capital ordinary interest, the dividend is identical with interest; if it has earned more, so as to make dividends of ten or twenty per cent annually, the capital receives extraordinary remuneration. The chance or expectation of such

extraordinary remuneration, and the convenience of investments in that form, are the chief inducements for putting capital into stocks.

The mismanagement, frauds, and defalcations which attend the operations of stock-companies, nvolve great sacrifices. A careful estimate of the results of such investments would probably show average returns much less than ordinary interest.

EXERCISES.

1. Show the rightfulness of interest in the case of a farmer, who, growing old, sells for ten thousand dollars the farm he has worked for forty years, and loans the money at eight per cent, expecting the interest to support him for the rest of his days.

2. Illustrate the advantage to a young skilled mechanic, of borrowing capital to set him up in business.

3. If a manufacturer sells a farmer a reaping-machine, taking his note for payment to be made in three annual instalments, why is it right to charge interest on the deferred payments?

4. Why should a grocer sell his goods at a less price for cash than if he gives the buyer six months' credit without interest?

5. If it is right for a machinist to take a note with interest in part payment for a steam-engine, is it wrong for a banker to take a like note with interest, for money loaned, that the buyer may pay for the engine at once?

6. What considerations induce capitalists to prefer to invest in government bonds which pay four and a half per cent, rather than in notes and mortgages at eight per cent ?

7. Why is it that the government of Chili can hardly borrow money at ten per cent, while the British government borrows all it needs at three per cent?

8. How could a poor man, who in 1843 pre-empted government land in Wisconsin at $1.25 per acre, afford to pay,

a year after, fifty per cent interest for money to complete his purchase of the government?

9. What reasons combine to cause a high rate of interest in our young Western States ?

10. Account for the decline of interest in Illinois since 1840, from twenty-five per cent to eight per cent. How much has direct legislation done to cause that decline?

11. When is a high rate of interest a sign of prosperity? when of adversity?

12. State some of the ways in which usury laws are evaded. What is the moral effect of laws thus openly disregarded?

13. Can a stock-company be justified in declaring dividends not earned, and borrowing money to pay them?

14. Why are stock-companies specially exposed to frauds ? 15. What do you understand by the "bulls" and "bears" of Wall Street ?

CHAPTER III.

DISTRIBUTION OF PROFITS.

WRITERS on Political Economy have used the term profits with much looseness and ambiguity. Many define it to mean the remuneration paid for the use of capital. Mill says profit embraces the three items, interest, insurance, and wages of superintendence. Mr. Walker represents profits as the share which falls to the employer or manager. This loose and varied use of an important term is not scientific. Our science requires the term with a specific meaning, properly expressed, we think, in the following definition:

Profits are the net proceeds,

the surplus of values, after all necessary expenses of production have been deducted.

According to the principles laid down in previous chapters, the following items are to be included in necessary expenses:

1. Wages paid for common and skilled labor of all grades.

2. Salaries paid for oversight and management, including all superintendence and administration, mechanical and financial.

3. Interest on capital invested.

4. Insurance to guard against certain risks.