Front Page Titles (by Subject) Advantage of Capital to Industry. - The Theory of Political Economy
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Advantage of Capital to Industry. - William Stanley Jevons, The Theory of Political Economy 
The Theory of Political Economy (London: Macmillan, 1888) 3rd ed.
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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.