The Online Library of Liberty

A project of Liberty Fund, Inc.

• Preface.
• Conversation I.: Introduction.
• Conversation II.: Introduction — Continued.
• Conversation III.: On Property.
• Conversation IV.: On Property— Continued.
• Conversation V.: On the Division of Labour.
• Conversation VI.: On Capital.
• Conversation VII.: On Capital — Continued.
• Conversation VIII.: On Wages and Population.
• Conversation IX.: On Wages and Population. Continued.
• Conversation X.: On the Condition of the Poor.
• Conversation XI.: On Revenue.
• Conversation XII.: On Revenue Derived From Property In Land.
• Conversation XIII.: On Revenue Derived From the Cultivation of Land.
• Conversation XIV.: On the Revenue of Those Who Do Not Employ Their Capital Themselves.
• Conversation XV.: On Value and Price.
• Conversation XVI.: On Money.
• Conversation XVII.: Subject of Money Continued.
• Conversation XVIII.: On Commerce.
• Conversation XIX.: On Foreign Trade.
• Conversation XX.: Continuation of Foreign Trade.
• Conversation XXI.: Subject of Foreign Trade Continued.
• Conversation XXII.: On Expenditure.

CONVERSATION VI.

ON CAPITAL.

mrs. b.

In tracing the progress of society towards civilisation, we noticed the happy effects resulting from the security of property and the division of labour. From this period we may also date the diversity of ranks, and the general distinction between rich and poor.

caroline.

And all the evils that arise from inequality of condition. This, alas! is the dark side of the picture.

mrs. b.

So far from viewing the diversity of rank and condition as an evil, I consider it as productive of much general benefit, as it is that state of society best calculated to stimulate the industry, and bring into action the various faculties of mankind. If it does not exist in a savage state, it is because indigence is universal; for no one being able to acquire more than what is necessary for his immediate maintenance, every one is poor. When civilisation takes place, the advantages arising from the security of property and the division of labour enable an industrious and skilful man to acquire more wealth than will suffice to gratify his wants or desires. By continued exertion, this surplus produce of his industry in the course of time accumulates, and he becomes rich; whilst the less industrious, who acquires merely a daily subsistence, remains poor, or accumulates nothing, and the idle are reduced to positive indigence.

caroline.

I cannot perceive what advantage arises from the accumulation of wealth, for it must either be spent or hoarded; if spent, the hard-working man is eventually no richer than his less industrious neighbours; and if hoarded, the accumulation is of no use to any one.

mrs. b.

Your dilemma is put with some ingenuity, but you must at least allow that, where more is spent, there is a greater scope for enjoyment; and in regard to hoarding, I hope you are not recurring to your notions about riches and money, and forget that the wealth of which we have been speaking consists of exchangeable commodities, either agricultural or manufactured, many of which are not of a nature to be kept, were men inclined to hoard them. A much better mode of disposing of them has been devised; one which not only secures, but augments them.

caroline.

What can that be?

mrs. b.

This you will hardly understand without some previous explanation.

In civilised society men cannot, as in a state of nature, obtain a subsistence by hunting, or from the spontaneous produce of the earth; because the wilderness has been destroyed by cultivation, and the land has become private property.

caroline.

And when the land is occupied by the rich, there seems to be no resource left for the poor?

mrs. b.

What do you suppose the rich do with their wealth?

caroline.

The poor, I am sure, partake but little of it; for the sums the most charitable give away are but trifling compared to what they spend upon themselves.

mrs. b.

I am far from wishing that the poor should be dependent on the charity of the rich for a subsistence. Is there no other mode of partaking of their wealth but as beggars?

caroline.

Not that I know of, unless by stealth. Oh no, I guess now — you mean they may earn it by their labour?

mrs. b.

Certainly. The poor man may be supposed to say to the rich one, “You have more than you want, whilst I am destitute. Give me some little share of your wealth for a subsistence; I have nothing to offer in exchange but my labour; but with that I will undertake to procure you more than you part with — if you will maintain me, I will work for you.”

caroline.

But is it not usual to pay wages to labourers instead of maintaining them?

mrs. b.

It is in effect the same; for the wages purchase a maintenance; the money merely represents the things of which the labourer stands in need, and for which he may exchange it.

caroline.

The labourer may then be supposed to say to the rich man, “Give me food and clothing, and I by my labour will produce for you other things in return.”

mrs. b.

Precisely; the rich man exchanges with the labourer the produce or work that is already done, for work that is yet to be done. It is thus that he acquires a command over the labour of the poor, and increases his wealth by the profits he derives from it.

caroline.

This is a resource for the poor, I own; but not enough to satisfy me entirely, for they are left at the mercy of the rich, and if these did not choose to employ them, they would starve.

mrs. b.

True; but what could the rich do without their assistance?

caroline.

Their wealth would furnish them a plentiful subsistence.

mrs. b.

At first it might, but in time it would be consumed. Their harvests and their cattle would be eaten, their clothes worn out, and their houses fallen into decay.

caroline.

But you know that the harvests are annually reproduced, new clothes are purchased, and houses repaired or rebuilt: riches easily obtain all these things.

mrs. b.

And who is it that re-produces the harvests? Who manufactures new clothes, and builds new houses, but the poorer classes of men?

caroline.

That is very true; I was indeed aware that it was necessary to employ labourers for this purpose; but I did not consider that it created reciprocity of benefit, by rendering the poor in a great measure independent of the will of the rich.

mrs. b.

The rich and poor are necessary to each other; it is precisely the fable of the belly and the limbs; without the rich the poor would starve; without the poor the rich would be compelled to labour for their own subsistence.

caroline.

And this, I suppose, is what you alluded to, when you said that the rich had a means of securing their wealth without hoarding it?

mrs. b.

Yes; the labouring classes consume and reproduce it. Wealth, thus destined for re-production by the employment of labourers, is called capital. You have heard of capital before, no doubt?

caroline.

Oh yes; a man of fortune is said to be a man of capital: I always considered these as synonymous terms.

mrs. b.

So they are; and you may have heard also that to spend a capital is very ruinous; that it should be placed in some profitable line, so as to yield an income; that is to say, it must be employed to set labourers to work, and the profit derived from their labour is called revenue or income.

caroline.

If capital is employed in paying the wages of labourers, it is spent and consumed by them, and is lost to the capitalist as much as if he spent it.

mrs. b.

No; capital employed is consumed, but not destroyed; it is at least no more destroyed than the seed sown in the ground, which is re-produced with increase. Thus the capital consumed by labourers is re-produced with increased value in the articles of their workmanship. If the labourer raise corn for twenty loaves of bread whilst his wages are equivalent to the value of ten, if he manufactures cloth for two coats whilst his wages are equal to the price of one, the second coat and the second loaf of bread will be the profit, and constitute part of the income of his employer. It is thus that the employment of capital produces an income.

caroline.

Yet I have some scruple as to the mode of obtaining this income. If the labourer can by his industry produce more than the value of his wages, it seems but fair that he should keep the whole of his earnings; it is surely a great discouragement to his industry to be obliged to yield part of them to his employer?

mrs. b.

If the labourer re-produce for the capitalist commodities equal in value to his wages, the income is only equivalent to the out-going; he restores therefore exactly what the capitalist has advanced him, the latter being neither a loser nor a gainer by the bargain; any further, at least, than that, by reproduction, perishable produce is made to last. Now it is evident that no capitalist would consent to such an agreement. When therefore the poor man applies to the rich one for a maintenance, offering his labour in return, he does not say — for the food you give me during the present year, I will produce an equal quantity of food next year — because he knows that he would not be employed on such terms; he must, by the prospect of some advantage, induce the capitalist to exchange food that is already produced for something that is yet to be produced. He therefore says — for the food you give me now, I will raise you a greater or more valuable supply next year.

caroline.

It appears to me a hardship, notwithstanding, that after the rich have engrossed the whole property of the land, nothing being left to the poor beyond their own labour, that they should not be allowed to reap the whole of the advantages it affords. If I were a legislator, I should be disposed to establish a law compelling the capitalist to allow the labourer the whole of the profit arising from his work. Such a regulation would surely tend to improve the condition of the poor. You smile, Mrs. B.; I am afraid that you do not approve of my plan.

mrs. b.

I would suggest an addition to it, which is, a law to compel the capitalist to employ the labourers; for on your terms none would give them work. The farmer, were he obliged to pay the husbandmen the value of the crop they raised, would derive no profit from their sale; he would, therefore, leave his fields uncultivated, the land would lie waste, and the husbandmen starve. Manufacturers for the same reason would discharge their workmen, merchants their clerks; in a word, industry would be paralysed; and were you to devise a system of certain and inevitable ruin to a country, I do not think you could adopt a more efficacious mode of promoting your design.

caroline.

So much for the wisdom of my laws! I certainly ought to have foreseen these consequences, since, as you observed before, the inducement for the rich to employ the poor is the advantage the former derive from it.

mrs. b.

Undoubtedly. The profits the rich derive from the employment of their capital constitutes their income; without such income the capital, it is true, might, by your compulsatory laws, be reproduced annually; but yielding no income, the capitalist would gradually consume it in the maintenance of his family; he would every year become poorer, and his means of employing labourers would annually diminish.

caroline.

This is an idea which often perplexed me when I was a child. I thought that in proportion as my father spent his money he must be impoverished; but now I understand that wealth is reproduced and augmented by the labour of the poor.

mrs. b.

And observe, that an income can be obtained by no other means than the employment of the poor.

So far from considering the profits which the capitalist derives from his labourers as an evil, I have always thought it one of the most beneficent ordinations of Providence, that the employment of the poor should be a necessary step to the increase of the wealth of the rich.

Thus the rich man has the means of augmenting his capital, not by hoarding, but by distributing it among his labourers, who consume it, and reproduce another and a larger capital — hence have they obtained the name of productive labourers.

caroline.

When a man, therefore, becomes possessed of a capital, whether by accumulation of his savings or by inheritance, it is no longer requisite for him to work for a maintenance, as others will labour for him?

mrs. b.

It depends on the amount of his capital, and the extent of his desires. If it will yield an income sufficient to maintain him and his family with the degree of comfort or affluence which satisfies his ambition, he may live in idleness; if not, he will work himself; or at least superintend his labourers. This is the case with the farmer, the merchant, the master-manufacturer, each of whom superintends his respective concerns.

Do you understand now, that no productive enterprise can be undertaken without capital? Capital is necessary to pay labourers, to purchase materials to work upon, instruments to work with; in short, to defray the whole expense attached to the employment of labourers.

caroline.

But a man may undertake a productive enterprise without employing labourers: for instance, if he gathers mushrooms on a common, he requires no capital for that purpose; no tools are used; the earth produces mushrooms spontaneously, and every one has a right to gather them. The same may be said of nuts and wild strawberries.

mrs. b.

These are small remnants of the resources of a savage state, in which subsistence is derived from the spontaneous produce of the earth: but the employments which require no capital are very inconsiderable, and occur only during a short season of the year.

caroline.

There is one, which appears to me of great importance — fishing. Fishermen are in no want of capital; the fish costs them merely the trouble of catching. Oh no! I am mistaken; I forgot the nets and the boats that are necessary for fishing; besides, the men must have something to subsist on, when the weather will not allow them to venture on the water.

But there is another case, Mrs. B.; I have known persons who were worth nothing, and yet who set up in business on credit.

mrs. b.

That is no exception; for credit is the employment of the capital belonging to another.

caroline.

Well, it is a melancholy reflection that one must always possess something in order to gain more. He then who has nothing to begin with, has no means of escaping from poverty.

mrs. b.

Poverty is a word of vague signification. If you mean to express by it a state of positive indigence, the labourer who earns a subsistence from day to day cannot come under that description. But if you use the word poverty in opposition to wealth, that is to say, to the possession of capital, labourers, though usually in that state, are not necessarily condemned to it. A healthy and hard-working man, may, if he be economical, almost always lay aside something as the beginning of a little capital, which by additional savings accumulates.

caroline.

That is true. Thomas, our under-gardener, who is a very intelligent, industrious man, was saying the other day to one of his fellow-labourers, that as soon as he had laid by a little money to begin the world with, he intended to marry. But it seems to me that if my father would give him a cottage, and an acre or two of ground, he might raise vegetables for market, and by these means support himself and his family.

mrs. b.

In that case your father would supply the capital. The cottage and the land is a capital, but they will not do alone. Thomas would besides require garden tools to work with, and an assistant, if not several, to prepare the ground. Then he must not only subsist himself, but maintain his family till the produce of his garden can be brought to market. In the course of three or four years, from the earnings of daily labour, he may have amassed a little capital sufficient to enable him to undertake this; he will then no longer be a labourer for hire, but will work on his own account. It is thus every thing has a beginning; the largest fortunes have often had no greater origin.

Now, supposing Thomas to be able to rent an acre of land when he is worth 100l., he may rent ten acres when he is worth 1000l., but he cannot rent more; he cannot increase his farm, beyond his means of paying for it; his industry, therefore, is limited by the extent of his capital.

caroline.

I do not quite understand that.

mrs. b.

Let us imagine a tradesman, a shoemaker for instance, to be master of a capital which will enable him to maintain ten workmen, and that the following year he finds that he has gained 100l. by the profits derived from their labour. This 100l. constitutes his income; if he spend it, his capital remains what it was before: but if he adds it to his capital it will enable him to maintain and provide work for a greater number of journeymen. Let us say that he can now employ twelve instead of ten men; these will make him a greater quantity of shoes, and the additional profits arising from their sale, will, if added to his capital, still further increase his means of employing workmen. Thus the demand for labour, or, in other words, employment for the poor, will ever increase with the increase of capital, and be limited only by its deficiency.

caroline.

But we must not forget that the master shoemaker and his family are to be maintained out of these profits; the whole of them cannot, therefore, be added to his capital.

mrs. b.

Certainly not. The expenses of his family consume, in general, by far the greater part of a man’s income; but, if he is prudent, he will lay aside as much as can be spared, and these savings will enable him to enlarge and improve his business, of whatever description it may be.

caroline.

Thus a farmer would be able to extend and improve the cultivation of his farm by increasing the number of his labourers — and a merchant proportionally to extend his commercial dealings — so that the richer a man becomes, the more it will be in his power to increase his wealth?

mrs. b.

Yes; the second thousand pounds is often acquired with less difficulty than the first hundred.

caroline.

That is hard upon those who have nothing. The rich have too many advantages over the poor.

mrs. b.

The man who accumulates a large fortune by his industry injures no one; on the contrary, he confers a benefit on the community. You will understand this better by-and-by. In the mean time I must observe to you, that happiness, so far as it is dependent on wealth, consists less in the possession of riches than in the pleasure of acquiring them. Every degree of increasing prosperity is attended with its enjoyment. Your gardener, who saves his earnings with the prospect of settling at the end of two or three years, has probably more satisfaction in the anticipation of his future wealth than he will have in the possession of it; as long as he continues making annual additions to his capital, the same source of enjoyment will be preserved, but will never excite so strong an interest as at first. Merchants will tell you that their first gains gave them greater pleasure than all their subsequent accumulations. Nature has wisely attached happiness to the gradual acquisition, rather than to the actual possession of wealth, thus rendering it an incitement to industry; and we shall hereafter see that this progressive state of prosperity is most conducive also to the happiness of nations.