§ 1. HAVING treated of the labourer's share of the produce, we next proceed to the share of the capitalist; the profits of capital or stock; the gains of the person who advances the expenses of production-who, from funds in his possession, pays the wages of the labourers, or supports them during the work; who supplies the requisite buildings, materials, and tools or machinery; and to whom, by the usual terms of the contract, the produce belongs, to be disposed of at his pleasure. After indemnifying him for his outlay, there commonly remains a surplus, which is his profit; the net income from his capital: the amount which he can afford to expend in necessaries or pleasures, or from which by further saving he can add to his wealth.

As the wages of the labourer are the remuneration of labour, so the profits of the capitalist are properly, according to Mr. Senior's well-chosen expression, the remuneration of abstinence. They are what he gains by forbearing to consume his capital for his own uses, and allowing it to be consumed by productive labourers for their uses. For this forbearance he requires a recompense. Very often in personal enjoyment he would be a gainer by squandering his capital, the capital amounting to more than the sum of the profits which it will yield during the years he can expect to live. But while he retains it undiminished, he has always the power of consuming it if he wishes or needs; he can bestow it upon others at his death; and in the meantime he derives from it an income, which he can without impoverishment apply to the satisfaction of his own wants or inclinations.

Of the gains, however, which the possession of a capital enables a person to make, a part only is properly an equivalent for the use of the capital itself; namely, as much as a solvent

person would be willing to pay for the loan of it. This, which as everybody knows is called interest, is all that a person is enabled to get by merely abstaining from the immediate consumption of his capital, and allowing it to be used for productive purposes by others. The remuneration which is obtained in any country for mere abstinence, is measured by the current rate of interest on the best security; such security as precludes any appre ciable chance of losing the principal. What a person expects to gain, who superintends the employment of his own capital, is always more, and generally much more, than this. The rate of profit greatly exceeds the rate of interest. The surplus is partly compensation for risk. By lending his capital, on unexceptionable security, he runs little or no risk. But if he embarks in business on his own account, he always exposes his capital to some, and in many cases to very great, danger of partial or total loss. For this danger he must be compensated, otherwise he will not incur it. He must likewise be remunerated for the devotion of his time and labour. The control of the operations of industry usually belongs to the person who supplies the whole or the greatest part of the funds by which they are carried on, and who, according to the ordinary arrangement, is either alone interested, or is the person most interested (at least directly), in the result. To exercise this control with efficiency, if the concern is large and complicated, requires great assiduity, and often, no ordinary skill. This assiduity and skill must be remunerated.

The gross profits from capital, the gains returned to those who supply the funds for production, must suffice for these three purposes. They must afford a sufficient equivalent for absti nence, indemnity for risk, and remu

There is a still wider difference in the element which consists in compensation for risk. I am not now speaking of the differences in point of risk between different employments of capital in the same society, but of the very different degrees of security of property in different states of society. Where, as in many of the governments of Asia, property is in perpetual danger of spoliation from a tyrannical government, or from its rapacious and illcontrolled officers; where to possess or to be suspected of possessing wealth, is to be a mark not only for plunder, but perhaps for personal ill-treatment to extort the disclosure and surrender of hidden valuables; or where, as in the European middle ages, the weakness of the government, even when not itself inclined to oppress, leaves its subjects exposed without protection or redress to active spoliation, or audacious withholding of just rights, by any powerful individual; the rate of profit which persons of average dispositions will require, to make them forego the immediate enjoyment of what they happen to possess, for the purpose of exposing it and themselves to these perils, must be something very considerable. And these contingencies affect those who live on the mere interest of their capital, in common with those who personally engage in production. In a generally secure state of society, the risks which may be attendant on the nature of particular employments seldom fall on the person who lends his capital, if he lends on good security; but in a state of society like that of many parts of Asia, no security (except perhaps the actual pledge of gold or jewels) is good: and the mere possession of a hoard, when known or suspected, exposes it and the possessor to risks, for which scarcely any profit he could expect to obtain would be an equivalent; so that there would be still less accumulation than there is, if a state of insecurity did not also multiply the occasions on which the possession of a treasure may be the means of saving life, or averting serious calamities. Those who lend, under these wretched governments, do it at

the utmost peril of never being paid. In most of the native states of India, the lowest terms on which any one will lend money, even to the govern. ment, are such, that if the interest is paid only for a few years, and tho principal not at all, the lender is toler ably well indemnified. If the accumulation of principal and compound interest is ultimately compromised at a few shillings in the pound, he has generally made an advantageous bargain.

§ 3. The remuneration of capital in different employments, much more than the remuneration of labour, varies according to the circumstances which render one employment more attractive, or more repulsive, than another. The profits, for example, of retail trade, in proportion to the capital employed, exceed those of wholesale dealers or manufacturers, for this reason among others, that there is less consideration attached to the employment. The greatest, however, of these differences, is that caused by difference of risk. The profits of a gunpowder manufacturer must be considerably greater than the average, to make up for the peculiar risks to which he and his property are constantly exposed. When, however, as in the case of marine adventure, the peculiar risks are capable of being, and commonly are, commuted for a fixed payment, the premium of insurance takes its regular place among the charges of production; and the compensation which the owner of the ship or cargo receives for that payment, does not appear in the estimate of his profits, but is included in the replacement of his capital.

The portion, too, of the gross profit, which forms the remuneration for the labour and skill of the dealer or producer, is very different in different employments. This is the explanation always given of the extraordinary rate of apothecaries' profit; the greatest part, as Adam Smith observes, being frequently no more than the reasonable wages of professional attendance; for which, until a late alteration of the

any remuneration, except in the prices of his drugs. Some occupations require a considerable amount of scientific or technical education, and can only be carried on by persons who combine with that education a considerable capital. Such is the business of an engineer, both in the original sense of the term, a machine-maker, and in its popular or derivative sense, an undertaker of public works. These are always the most profitable employments. There are cases, again, in which a considerable amount of labour and skill is required to conduct a business necessarily of limited extent. In such cases a higher than common rate of profit is necessary to yield only the common rate of remuneration. "In a small scaport town," says Adam Smith, a little grocer will make forty or fifty per cent upon a stock of a single hundred pounds, while a considerable wholesale merchant in the same place will scarce make eight or ten per cent upon a stock of ten thousand. The trade of the grocer may be necessary for the conveniency of the inhabitants, and the narrowness of the market may not admit the employment of a larger capital in the business. The man, however, must not only live by his trade, but live by it suitably to the qualifications which it requires. Besides possessing a little capital, he must be able to read, write, and account, and must be a tolerable judge, too, of perhaps fifty or sixty different sorts of goods, their prices, qualities, and the markets where they are to be had cheapest. Thirty or forty pounds a year cannot be considered as too great a recompense for the labour of a person so accomplished. Deduct this from the seemingly great profits of his capital, and little more will remain, perhaps, than the ordinary profits of stock. The greater part of the apparent profit is, in this case, too, real wages." All the natural monopolies (meaning thereby those which are created by circumstances, and not by law) which produce or aggravate the disparities in the remuneration of different kinds of labour, operate similarly between dif

§ 4. After due allowance is made for these various causes of inequality, namely, differences in the risk or agreeableness of different employments, and natural or artificial monopolies; the rate of profit on capital in all employments tends to an equality. Such is the proposition usually laid down by political economists, and under proper explanations it is true.

That portion of profit which is properly interest, and which forms the real remuneration for abstinence, is strictly the same, at the same time and place, whatever be the employment. The rate of interest on equally good security, does not vary according to the destination of the principal, though it does vary from time to time very much, according to the circumstances of the market. There is no employ ment in which, in the present state of industry, competition is so active and incessant as in the lending and borrowing of money All persons in business are occasionally, and most of them constantly, borrowers: while all persons not in business, who possess monied property, are lenders. Between these two great bodies, there is a numerous, keen, and intelligent class of middlemen, composed of bankers, stockbrokers, discount brokers, and others, alive to the slightest breath of probable gain. The smallest circumstance, or the most transient impression on the public mind, which tends to an increase or diminution of the demand for loans