The Online Library of Liberty

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• Preface to the First Edition (1871)
• Preface to the Second Edition (1879)
• Preface to the Third Edition By Harriet Jevons
• Errata
• Chapter I: Introduction
• Mathematical Character of the Science.
• Confusion Between Mathematical and Exact Sciences.
• Capability of Exact Measurement.
• Measurement of Feeling and Motives.
• Logical Method of Economics.
• Relation of Economics to Ethics.
• Chapter II: Theory of Pleasure and Pain
• Pleasure and Pain As Quantities.
• Pain the Negative of Pleasure.
• Anticipated Feeling.
• Uncertainty of Future Events.
• Chapter III: Theory of Utility
• Definition of Terms.
• The Laws of Human Want.
• Utility Is Not an Intrinsic Quality.
• Law of the Variation of Utility.
• Total Utility and Degree of Utility.
• Variation of the Final Degree of Utility.
• Disutility and Discommodity.
• Distribution of Commodity In Different Uses.
• Theory of Dimensions of Economic Quantities.
• Actual, Prospective, and Potential Utility.
• Distribution of a Commodity In Time.
• Chapter IV: Theory of Exchange
• Importance of Exchange In Economics.
• Ambiguity of the Term Value.
• Value Expresses Ratio of Exchange.
• Popular Use of the Term Value.
• Dimension of Value.
• Definition of Market.
• Definition of Trading Body.
• The Law of Indifference.
• The Theory of Exchange.
• Symbolic Statement of the Theory.
• Analogy to the Theory of the Lever.
• Impediments to Exchange.
• Illustrations of the Theory of Exchange.
• Problems In the Theory of Exchange.
• Complex Cases of the Theory.
• Competition In Exchange.
• Failure of the Equations of Exchange.
• Negative and Zero Value.
• Equivalence of Commodities.
• Acquired Utility of Commodities.
• The Gain By Exchange.
• Numerical Determination of the Laws of Utility.
• Opinions As to the Variation of Price.
• Variation of the Price of Corn.
• The Origin of Value.
• Chapter V: Theory of Labour
• Definition of Labour.
• Quantitative Notions of Labour.
• Symbolic Statement of the Theory.
• Dimensions of Labour.
• Balance Between Need and Labour.
• Distribution of Labour.
• Relation of the Theories of Labour and Exchange.
• Relations of Economic Quantities.
• Various Cases of the Theory.
• Joint Production.
• Over-production.
• Limits to the Intensity of Labour.
• Chapter VI: Theory of Rent
• Accepted Opinions Concerning Rent.
• Symbolic Statement of the Theory.
• Illustrations of the Theory.
• Chapter VII: Theory of Capital
• The Function of Capital.
• Capital Is Concerned With Time.
• Quantitative Notions Concerning Capital.
• Expression For Amount of Investment.
• Dimensions of Capital, Credit and Debit.
• Effect of the Duration of Work.
• Illustrations of the Investment of Capital.
• Fixed and Circulating Capital.
• Free and Invested Capital.
• Uniformity of the Rate of Interest.
• General Expression For the Rate of Interest.
• Dimension of Interest.
• Peacock On the Dimensions of Interest.
• Tendency of Profits to a Minimum.
• Advantage of Capital to Industry.
• Are Articles In the Consumers' Hands Capital?
• Chapter VIII: Concluding Remarks
• The Doctrine of Population.
• Relation of Wages and Profit.
• Professor Hearn's Views.
• The Noxious Influence of Authority.
• Appendix I
• Appendix Ii

Advantage of Capital to Industry.

We must take great care not to confuse the rate of interest on capital with the whole advantage which it confers on industry. The rate of interest depends on the advantage of the last increment of capital, and the advantages of previous increments may be greater in almost any ratio. In considering the laws of utility, we found that an article possessing an immensely great total utility, for instance corn or water, might have a very low final degree of utility, because our need of it was almost entirely satisfied; yet the ratio of exchange always depends upon the final, not the previous degree of utility. The case is the same with capital. Some capital may be indispensable to a manufacture; hence the benefit conferred by the capital is indefinitely great, and were there no more capital to be had, the rate of interest which could be demanded, assuming the article manufactured to be necessary, would be almost unlimited. But as soon as ever a larger supply of capital becomes available, the prior benefit of capital is overlooked. As free capital is always the same in quality, the second portion may be made to replace the first if needful: hence capitalists can never exact from labourers the whole advantages which their capital confers—they can exact only a rate determined by the advantage of the last increment. A lender of capital cannot say to a borrower who wants £3000: "I know that £1000 is indispensable to your business, and therefore will charge you 100 per cent interest upon it; for the second £1000, which is less necessary, I will charge twenty per cent; and as upon the third £1000 you can only earn the common profit, I will only ask five percent." The answer would be, that there are many people only earning five per cent on their capital who would be glad to lend enough at a small advance of interest; and it is a matter of indifference who is the lender.

The general result of the tendency to uniformity of interest is, that employers of capital always get it at the lowest prevailing rate; they always borrow the capital which is least necessary to others, and

either the labourers themselves, or the public generally as consumers, gather all the excess of advantage. To illustrate this result, let distances along the line ox, in Fig. XIII., mark quantities of capital employing in any branch of industry a fixed number of labourers. Let the area of the curve denote the whole produce of labour and capital. Thus to the capital, on, results a produce measured by the area of the curvilinear figure between the upright lines oy and qn. But the amount of increased produce which would be due to an increment of capital would be measured by the line qn, so that this will represent F't (p. 245). The interest of the capital will be its amount, on, multiplied by the rate qn, or the area of the rectangle oq. The remainder of the produce, pqry, will belong to the labourer. But had less capital been available, say not more than om, its rate of interest would have been measured by pm, the amount of interest by the rectangle op, while the labourer must have remained contented with the smaller share, psy. I will not say that the above diagram represents with strict accuracy the relations of capital, produce, wages, rate of interest, and amount of interest; but it may serve roughly to illustrate their relations. I see no way of representing exactly the theory of capital in the form of a diagram.