cause many persons to expend their wealth in their own enjoyments rather than employ it productively as capital. A reward of £2 a year for every £100 which they abstain from spending would not be sufficient in a great many instances to induce persons to save. Hence, the supply of capital would be checked. On the other hand, there are many persons who would say, "We cannot live on the income yielded by 2 per cent. on our capital; as we cannot get more than this here we will invest in some foreign enterprise, in an Indian tea-garden, an American railway, or a Peruvian mine." A large amount of capital is consequently exported, whilst at the same time the accumulation of capital is checked by decreasing the inducement to save. Such circumstances would gradually produce a very great diminution in the capital of the country. Circulating capital always bears some proportion to the gross amount of capital. As previously explained in Section I., Capital is divided into Fixed Capital and Circulating Capital. If, therefore, the capital of a country is diminished, both these portions of it will in all probability be reduced. The principal employment of circulating capital is the maintenance of labourers; that is, paying the wages of labour. A decrease in the amount of circulating capital will therefore inevitably produce a decrease in the wages of labour. Hence, it is seen that any circumstance which materially reduces the rate of interest in a country checks the accumulation of capital, and leads to the export of capital. The capital of the country is thereby reduced, circulating capital is diminished, and wages fall. If the rate of interest is unduly decreased by the demand of labourers for higher wages, the sufferings of the working-classes when the consequent reduction of circulating capital takes place will probably be very acute. The increased wages which for a time they were able to secure would have stimulated a considerable increase of population. When, therefore, the reduction of wages takes place, the labourers find that their numbers have increased, and that their means of subsistence are diminished. Misfortune comes upon them like a two-edged sword that cuts both ways. The labouring population of the east end of London was a few years since suffering under this double calamity. The expenses which a working man necessarily incurs are much larger in London than in most places; house-rent and fuel are dear, and the rates are extremely high, the wages of labourers are therefore necessarily higher in London than in such a place as Glasgow. The consequence of this has been that one of the principal trades of the east end of London, ship-building, was for a time carried on by capitalists at a comparative loss; it has consequently been gradually removed from London to such ports as Glasgow, where labour and the requisite materials can be obtained cheaper than in London. During the time in which high wages were being realised by the London workmen a large increase of population was stimulated, and the miseries produced by the subsequent stagnation of trade were thus greatly aggravated. The Export of Capital widens the area of Competition. The principal effect of the export of capital upon profits is that it widens the area of competition. It has been said that when the profits realised in a particular trade are exceptionally high, the competition of other capitalists gradually reduces profits to the ordinary rate. If this is true between one trade and another in the same country, it is also true, though in a more limited degree, between one country and another. Competition is not so active between different countries, because in many cases the export of capital would be attended by great loss and inconvenience. A shopkeeper in London may find his expenses so heavy that, when he has deducted wages for superintendence and compensation for risk, his capital only returns him an interest of 2 per cent. He may at the same time be well aware that the interest on capital in Australia is 10 per cent., and yet there may be insuperable obstacles to prevent him from entering into business in Australia. The difficulty of obtaining authentic information respecting the best way of investing his money in that country, the distance which he would have to travel, the expense he would incur if he determined upon emigrating, and many other minor considerations, would very probably be sufficient to deter him from leaving his own country or investing in foreign enterprises. The obstacles which have hitherto to a large extent prevented the export of capital are gradually becoming less powerful. As intelligence is more widely diffused, and the means of locomotion and communication are improved, the export of capital will in all probability steadily inIn many parts of the Continent there are a great number of manufactures which are carried on by Englishmen with English capital. A large firm of stocking manufacturers at Nottingham have a branch of their business established in Saxony. If by a strike their workmen in England should succeed in getting such wages as to reduce the profits of the Nottingham trade below those realised in Saxony, the heads of the firm would no doubt take every opportunity of reducing the Nottingham business and increasing the manufacture of stockings in Saxony. In other words, there would be an export of fixed and circulating capital from England to Saxony. Such a phenomenon as a manufacturer carrying on his business in a foreign country was almost unknown a century ago, but it will in all probability become more and more common until the rate of profit realised in different countries is more nearly similar than it now is. crease. The three great divisions into which wealth is divided have now been investigated; this section cannot, however, be brought to a close without explaining the effect of trades' unions, strikes, and co-operation upon wages and profits. This explanation will form the subject of the following chapter. QUESTIONS ON CHAPTER III. The Profits of Capital. 2. 3. Of what three elements are the profits of capital composed? 4. What is the interest on capital, and how can the rate of interest in any country at any particular time be ascertained? 5. Why does the rate of profit vary in different trades? 6. Explain the effect of insecurity of property upon profits. 7. Is the rate of interest variable in the same country and at the same time? 8. Why does the rate of interest decline as population increases? 9. Give an illustration shewing that the rate of interest declines as the margin of cultivation descends. IO. It is sometimes said that profits depend on the rate of wages; explain why this is inaccurate, and state on what profits really depend. II. 12. Do high prices necessarily denote large profits? Give an example shewing that higher prices are sometimes accompanied by a decline in the rate of profit. 13. On what three variables does the cost of labour to the capitalist depend? 14. In what two ways does a reduction of the rate of interest in any particular country tend to decrease the national capital? 15. Explain the effect of such a decrease on the condition of the labouring classes. 16. What therefore is the effect of the export of capital upon profits? 17. Why does competition act more slowly between different countries than between different trades in the same country? 18. Why is the export of capital likely to increase? I. How can the fact be accounted for that the profits of a speculator on the stock exchange are larger than the profits of farming? 2. Is usury wicked? rate of profit any good? Were the laws regulating the 3. What effect has the export of English capital on the rate of profit in England? 4. Suppose the whole labouring population of the world by a combination succeeded in obtaining wages so large that capital was deprived of any share of the wealth it assisted to produce; what effect would this have on production, and on the welfare of the entire community? 5. Shew that a high rate of profit sometimes indicates that a country is in a satisfactory condition, and sometimes the reverse. Illustrate this by the United States and Mexico. CHAPTER IV. On Trades Unions, Strikes, and Cooperative Societies. The Functions of a Trade's Union explained. A Trade's Union is a society formed by the workmen engaged in any particular trade; this society generally fulfils the double purpose of a benefit club and an organization for protecting the interests of the workmen by obtaining for |