explanation of the functions of capital. This introduces another branch of the science of political economy, and must be reserved for a future chapter.

I.

QUESTIONS ON CHAPTER II. On Labour.

Shew that labour is indispensable to the production

of wealth.

2. Enumerate some of the different kinds of labour necessary to produce such a commodity as bread.

3. Define the exact service rendered by labour to production.

4. What is productive labour?

5. Shew that unproductive labour is often indirectly very productive.

6. How does division of labour increase its productiveness? Quote Adam Smith's three advantages of division of labour.

7. What fourth advantage has been pointed out by Mr Babbage?

8. Is there any drawback to the usefulness of division of labour?

9. Shew that Free Trade is simply division of labour. 10. What is cooperation of labour?

II. Define simple and complex cooperation.

12. What is Wakefield's theory of colonization ?

13. In what ways does machinery increase the productiveness of labour?

14. What moral agencies increase the productiveness of labour?

15. What is productive and unproductive consumption? 16. Shew by M. Bastiat's example that unproductive consumption does not conduce to national prosperity.

I. Is the air in a diving-bell wealth, and if so why? 2. Is the labour of a boy writing Virgil for a punishment productive or unproductive?

3. What kind of cooperation of labour is there in a game of cricket, and what division of labour between the different parts of the human body?

4. What are the advantages gained by division and cooperation of labour in games?

5. What is the effect of the division of labour which now universally prevails, on the highest kind of artistic skill; as, for instance, Herr Joachim's violin playing?

6. Is the cooperation of labour in a game of cricket simple or complex?

7. In a game of cricket is the cooperation of any labour required except that of the players?

8. Is smoking a productive or unproductive consumption of wealth?

9. Would it be good for trade if an earthquake shook down all the houses in London?

10. Would it be good for trade if an explosion of gunpowder blew up the Houses of Parliament?

II. State the economic result of your father's gardener knocking off one of his quarts of beer.

12. What would become of undertakers if people left off dying?

CHAPTER III. On Capital.

It is erroneous to suppose that Capital and Money are synonymous. Capital is sometimes spoken of as if it were synonymous with money; if this were so it would not be true that Capital was one of the three requisites of the production of wealth, for money in itself does not assist in the production of wealth. A few pages back the use and functions of money were explained, and if this explanation is borne in mind it becomes evident that money is not identical with either wealth or capital. It must not be forgotten that money is a measure of value and a medium of exchange: in other words that it is a substance which is selected by universal consent to serve as a standard by which the value of all other commodities may be estimated, and which consequently may be exchanged for all other commodities.

A Definition of Capital. Capital may be defined as that part of wealth which is saved in order to assist future production. It is sometimes objected that capital is not really necessary to the production of wealth, because a savage, for

instance, may gather the berries and roots on which he subsists without the help of any previously stored up wealth; or a civilised man thrown naked on a desert island may by his labour applied to the land gradually accumulate and create wealth. The objection however is fanciful rather than essential. The moment the savage shapes a flint and uses it as a tool, he is no longer independent of capital; the moment Robinson Crusoe saves back half the berries gathered on Monday to supply himself with food while he works uninterruptedly at his canoe on Tuesday, he is no longer without capital. It may be stated broadly that in the conditions of modern life and modern industry, capital is one of the requisites of production.

An example of the service which Capital renders to Production. Agricultural operations could not be carried on unless the labourers were supported by wealth which had been previously accumulated. Many months elapse between the sowing of the seed and the time when the produce of that seed is converted into a loaf of bread. It is therefore evident that the labourers cannot live upon that which their labour is assisting to produce; but they are maintained by that wealth which their labour or the labour of others has previously produced. This wealth is Capital. Formerly the service which the wealth produced by past labour rendered to future production was more apparent; because farmers, instead of paying their labourers in money, paid them by giving them so much corn, potatoes, beer, cider, etc. This was called paying "in kind." A somewhat similar method of paying labourers is also known as "truck," which has been restrained and regulated by many Acts of Parliament. The farmer now exchanges his wealth for money, and distributes that portion of it which he gives as wages to his workpeople in money also. Wages are now almost universally paid in money; this money is the representative of wealth previously accumulated, and renders the same assistance to future production as the food with which the labourer was formerly remunerated. Let it then be remembered that the wealth which is distributed as wages to productive labourers is capital, and that it renders an essential service to production by maintaining the labourer

whilst he is engaged in assisting future production. It must always be remembered that the money, in which the wages are distributed, is not capital: but the food, clothing, etc., for which this money is exchanged, are capital. Gold and silver cannot of themselves maintain labour; they are useless unless they can be exchanged for the necessaries of life. During the hardships suffered by the French army in the retreat from Moscow, the difficulties of carriage made it necessary to abandon the treasure-chest. Its contents were seized by some of the soldiers, who filled their pockets and knapsacks with the gold. But they did not keep it long; it was entirely useless in alleviating their wretchedness; the weight of it, in fact, increased their distress. They soon flung it out upon the snow rather than endure the burden of carrying it. This incident illustrates the uselessness of money unless it can be exchanged for commodities which are capable in themselves of supporting life or increasing its pleasures.

It is objected by Mr Henry George in Progress and Poverty that it is fundamentally erroneous to say that wages are paid out of capital. He contends that wages are paid from the value of that which labour produces, and that labour thus produces its own remuneration: he urges that if a labourer is paid 16s. for a week's ploughing, it is because a ploughed field has a higher value than an unploughed field, the labourer has created wealth, and the wealth thus created or some part of it is the wages of labour. It is no doubt true that the ultimate source of both wages and profits is the value of that which labour and capital combine to create; but as long as the whole risk of the business is undertaken by the capitalist, who pays to those engaged in the work certain weekly wages for months and sometimes for years before the commodity can be brought into the market, who pays those wages even if the commodity should ultimately prove unsaleable, it seems clear that wages are paid out of capital, that is, out of wealth which has been saved with the object of assisting future production. The Kentish farmer, for instance, pays wages for planting and training hops; he does this because he expects the price he will get for the hops will repay him all he has spent in wages and something

more; but this expectation may be disappointed; a blight, a cold June or a July hailstorm may render his crop almost worthless. If labour were paid directly from the value of the commodity it produces, the labourers who planted and trained the hops would in such a case get nothing; but in the present state of society labourers are not in a position to take this risk, they have generally speaking no reserve on which they can live if their labour results in a loss. Hence they are compelled to sell their labour to the capitalist for a definite price which is probably on an average lower than what they would receive if they could afford to take the risk of the fluctuations of trade: they however secure the advantage, which in their present circumstances is all-important, of a certain weekly income.

The wages-fund. The wealth which is expended in wages is called by some economists the wages-fund. This expression must not be understood to imply that each capitalist possesses a special fund which he must devote to the payment of wages and to no other purpose; but simply that in the absence of great industrial changes, each industry requires its wages-capital to be in a certain proportion to its other capital, i.e., to its buildings, machinery and raw material; and therefore that an increase in the non-wages capital, if the conditions of industry remain unchanged, necessitates a proportional increase in the wages capital or wages fund1.

It must be remembered that the wealth expended in wages is not all employed to support productive labourers. A considerable proportion of it is distributed to those whose labour is strictly unproductive. Only that portion of the wages-fund which supports productive labour, is capital. The wages-fund, therefore, resolves itself into two leading divisions-Ist, that which supports productive labour and forms a part of the general capital of the country; and 2nd, that which supports labour not creative of wealth, and goes in unproductive expenditure.

1 It is not desirable in an elementary book to enter at length into the controversy on the wages-fund theory. Those who wish to do so are referred to Thornton On Labour, pp. 84, 85, Cairne's Leading Principles of Political Economy, pp. 218, 219, and Prof. H. Sidgwick's Principles of Political Economy, Chap. VIII, Book 11.