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ling their value is abstracted from the capital of the country. If however these commodities are consumed productively, the capital of the country is increased. In other words, if with the money obtained by selling his wheat, the farmer buys velvet, this purchase in no way assists production. It may add to the pleasure and gratification of the purchaser ; but when it is worn out, so much wealth has been consumed rithout any productive result whatever. If however the farmer uses the money for which he sells his wheat in paying his labourers, they spend it in procuring the necessaries of life; these are consumed productively, for they maintain the labourer while he is assisting to produce future wealth. In the first case the purchase of the velvet leads to no result beyond the pleasure of the purchaser ; in the second case the purchase by the labourers of bread and beef leads to the reproduction of wealth.

That part of wealth which consists of luxuries cannot be consumed productively, therefore the consumption of luxuries decreases the capital of a country; for capital is that part of wealth which is set aside to assist future production. But it may be said that the capital of a country is decreased by the persons who manufacture articles of luxury, and not by those who purchase them. This remark would not be made if it were remembered that articles of luxury would not be made if there were no demand for them. A demand for commodities does not increase the amount of capital and labour, but it determines the direction in which they shall be employed.

Another illustration. As a further illustration of the principle just enunciated, let it be supposed that the owner of a valuable picture intended to sell it, in order to buy jewelry. The intended purchase, if it were carried out, would have no more effect upon the wages-fund and the condition of the labourer, than would be produced if by

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some accident the picture were destroyed, and in consequence the purchase of jewelry prevented. If the picture were destroyed the demand for jewelry would be diminished by the amount of the value of the picture; the manufacturer of the jewelry would withdraw a corresponding amount of capital from his business; but he would, in all probability, still continue to employ it as capital, and therefore the capital of the country would be neither increased nor diminished.

Another aspect of the subject. It has been shewn that the purchase of luxuries has no beneficial effect upon the wages-fund and the condition of the labourer, but there is still another case to be considered. A farmer, instead of spending £200 in employing labourers to improve his land, spends the same sum in paying labourers for painting, papering, and otherwise decorating his house. In each case the £ 200 goes directly into the pockets of the labourers, and it may therefore perhaps be thought that each employment of the money is equally beneficial to the labourers. The immediate result is the same, but the ultimate result may be widely different. In the first case the wages are consumed by labourers who cause a reproduction of wealth, from which capital may be saved, and the wages-fund increased. In the second case the benefit to the labourers cannot extend beyond the time when they are actually receiving the wages; for their labour causes no reproduction of wealth, and consequently it can produce no augmentation of the capital of the country.

Capital is the result of Saving. Enough has been said to shew that capital is the result of saving, and not of spending. The spendthrift who wastes his substance in riotous living decreases the capital of the country, and therefore the excuse often made for extravagance, that it is good for trade, is based upon false notions respecting capital. If two tons of coals are consumed in producing

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a pine-apple in March, the wealth represented by that coal is wasted, or at any rate it produces only the very inadequate return of giving two or three people a pleasant taste in their mouths for a few minutes. If the same coal had been used to smelt iron or to make gas, it would have had a much more productive result.

All unproductive consumption decreases the national capital, or tends to prevent its increase. Almsgiving, therefore, confers no benefit on the labourer comparable with a productive expenditure of wealth, which increases the national capital, and consequently augments the wages-fund.

Capital in order to fulfil its functions must be consumed. Though capital is the result of saving, it must not be supposed that hoarded wealth increases the capital of the country. Capital, in order to fulfil its functions, must be consumed. Let it be constantly borne in mind that capital is that part of wealth which is set aside to assist future production ; and that the way in which it assists production, is in feeding and maintaining the labourers, and in providing the shelter, protection, tools and materials, which the work requires. If this definition is remembered, it becomes evident that all capital is consumed, either partially or wholly, in performing its functions. The food which sustains the labourer is immediately consumed; the buildings, machinery, and tools which the work requires are gradually consumed. It will, however, be at once perceived that the food which sustains the labourer does not perform its functions in the same way as the buildings, machinery, and tools. This indicates a very important distinction.

Circulating Capital. A part of the capital employed in any industry, such as that which provides the food of the labourers and the fuel which is consumed in the furnaces, only can perform its function once. This is called circu. lating capital. The definition of circulating capital given by Mr Mill is as follows : “ Capital which fulfils the whole of its office in the production in which it is engaged, by a single use, is called circulating capital.” (Prin. Pol. E. vol. 1. p. 112.)

Fixed Capital. Besides the capital which is consumed in giving food to the labourers, or in providing materials and fuel, there is in nearly every industry a large amount of capital in a far more permanent form, such as buildings, machinery, etc. The plough will fulfil its office, of preparing the earth for receiving the seed, a very great number of times before it is worn out. Buildings which are erected for the purpose of protecting the workmen and the materials of their labour are in a still more permanent form. This sort of capital, which exists in a durable shape, and which is not destroyed by a single use, is called fixed capital.

The whole return upon circulating capital is immediate; the return on fixed capital is extended over the period during which the capital is used. The entire value of the circulating capital together with the profits upon it are replaced by the value of the immediate product; whereas in the case of fixed capital, the value of the immediate product only covers so much as is worn out together with the profit on the whole. The farmer looks to obtain by the sale of his crops a full and immediate return for all the capital which he has used in paying his labourers, and in procuring seed. But if he nases a steam plough he will use it a great number of times, and for many successive years, and the return upon the original expense will therefore be extended over as long a period as the plough is used.

This fact explains the reason why labourers are often temporarily injured by the conversion of circulating into fixed capital. The wages of labourers, called the wagesfund, are, as before stated, circulating capital ; therefore any circumstance which decreases the amount of circulating capital must cause a corresponding decrease in wages.

For example, if a manufacturer withdraws circulating capital to the amount of £1000, for the purpose of buying machinery, a considerable number of men are thrown out of employment, whose competition in the labour market must cause a fall in wages.

The injury to the labourer is, however, only temporary in most instances, where circulating capital has been converted into fixed capital. The introduction of machinery vastly increases the reproductive power of labour, and it therefore causes a rapid augmentation of capital ; the wages-fund is in consequence ultimately increased. As an example it may be mentioned that the capital which was needed for the construction of the railways in England was probably in part withdrawn from the circulating capital of the country. The labourers consequently suffered through a temporary reduction of the wages-fund. But the wealth of England has been so immensely increased by the construction of railways that the ultimate result has been to increase the wages-fund and the demand for labour. Consequently, the temporary injury to the labourer has been more than compensated.

There are two motives which produce a desire to save. It has already been remarked that capital is the result of saving. It is therefore evident that increased capital implies increased saving. The desire to save differs in intensity in different ages and countries. It is generally produced by two motives :-First, a prudent foresight for the future ; secondly, the desire to acquire wealth by investments. In this country both these motives act with great force ; this is partly owing to the national character and the habits of the people, and partly to the security of life and property which exists here. In uncivilised

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