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therefore seen that the principal element in the cost of producing a manufactured commodity is labour ; the ab

' stinence of the capitalist is also an important component of the cost of production; the influence of the price of the raw material is in most cases of minor consideration as compared with the cost of labour and abstinence. The price realised by the commodity must be, as previously explained, such as to yield a sufficient inducement to the capitalist and the labourer to continue their exertions.

It very often happens that the cost of the production of manufactured commodities not only does not increase but actually diminishes when the supply is increased. When production is carried on on a large scale, many of the processes of manufacture can be economised. Steampower, in nearly all cases where it can be applied, effects a great saving both of capital and labour. Unless, however, there is a large system of production steam-power cannot be successfully introduced. Hand-loom weaving, for instance, could never have been superseded by steampower and machinery, if production on a large scale had not taken the place of production on a small scale. As a rule, the expenses of carrying on business do not increase in proportion to the quantity of business done. The same buildings can very often accommodate an increased number of workmen. The overlooker and the designer can superintend and direct the labour of a large number of workmen as well as that of a smaller number. The bookkeeping department does not require a proportionate increase of clerks and accountants when business transactions are doubled or trebled. It is also obviously much easier to have complete division of labour where production is carried on on a large scale. For instance, when the hand-loom was used, all the processes of weaving cloth were performed by one individual. Now each process is performed by a separate set of workers, and production is thereby greatly assisted. A small capitalist who carries on a limited trade cannot afford to purchase expensive machinery, because he would not be able to keep it in full work. There are some commodities for which there is a very limited demand, the cost of whose production would be greatly diminished if a largelyincreased supply were wanted. A remarkable instance of this is afforded by the manufacture of small rowing boats. A machine has been invented for the manufacture of these boats which would effect a reduction in their cost of 30 per cent. The machine has not, however, been adopted by boat-builders, for this reason; the machine works so rapidly that it would soon turn out more planks than are required for all the boats built in a year. If, therefore, a boat-builder went to the expense of buying one of these machines he would most likely not require to keep it at work more than one month in the year. During the eleven remaining months the machine would be lying idle, and not returning any profit to its owner. This machine will therefore probably never be used unless the demand for boats should very largely increase; or unless all the boats required in several countries could be made by the same builder.

Cost of Labour to the Capitalist does not vary with the amount of wages. It must be borne in mind that the cost of labour to the capitalist does not always vary with the amount of wages which he pays his men; it varies in proportion to the work done as compared with the wages given. For instance, it is well known that skilled, and therefore highly-paid labour, is more remunerative in such a business as watch-making or glass-blowing than unskilled labour; the former is therefore less costly than the latter, although the wages of the unskilled workman may be only half as much as those of the skilled work

When some railways were being made in France, it was found by Mr Brassey, the great railway contractor, that it was to his advantage to bring over large numbers of English navvies ; for although they received twice as large wages as the French navvies, they did more than twice as much work. The labour of the Englishman was therefore not so costly as that of the Frenchman, although the Englishman's wages were double those of the French



There is another aspect in which the effect of the efficiency of labour may be considered. The increased efficiency of labour is capable of conferring a vast benefit upon the labourers themselves. Increased efficiency signifies that a given quantity of capital and labour becomes more productive of wealth. If, therefore, prices remain unchanged, the profits of capital and the wages of labour may both be increased by the increased efficiency of labour. Suppose that education increased the efficiency of the labour of the agricultural peasant. It might very possibly have this effect by making him more intelligent, more trustworthy and more sober. His employer could in this case increase his wages without decreasing his own profits and his landlord's rent, and without raising the price of agricultural produce.

The Profits of Capital. It will not be possible here to state the various agencies which produce the average rate of profit at different times and in different countries. The subject will be dwelt upon in a future section on the distribution of wealth. It is sufficient here to state that causes are constantly in operation which tend to make the interest of capital in all trades in the same country and at the same time approximate to an average. When capital appears permanently to realise higher profits in one trade than in another, these additional profits ought not in strict accuracy to be looked upon as profits of capital ; they are cither wages of labour, compensation

for risk, for the disagreeableness of the occupation, or for its dishonourable reputation. When all these disturbing causes are removed, it will be found that the interest of capital tends to an equality.

The nature of capital has been already explained; it is now therefore sufficient to state that the profits of capital are the share of the wealth, produced by the joint agency of land, labour, and capital, which is allotted to capital. The amount of this reward differs at different times and in different nations. In some countries capitalists obtain a clear return of £10 a year upon every £ 100 which they invest in trade; besides what they receive as compensation for risk and as wages for superintendence. When this is the case the rate of interest is said to be 10 per cent. In most countries the average rate of interest is much lower; in England it is about 34 per cent.

The relation between Profits and Prices. It must always be remembered that the reward of the capitalist and of the labourer (i.e. their profits and wages) must be contained in the price of the commodity which they have combined to produce. This price must (if the manufacture is to be continued) be sufficient to yield to the capitalist and labourer the rate of profits and wages current in the trade at that time. If the price is less than this the labourer and capitalist would earn more by engaging in other industries, and the production of the commodity would be checked. Therefore any circumstance which raises the rate of profit current in a country, or which raises the rate of wages in any particular trade without increasing the efficiency of labour and capital, will cause a higher price to be paid for the commodity produced.

It will however be obvious on a brief consideration that the rate of profits and wages will be in the main dependent on the efficiency of a given exertion of capital and labour resulting in a large production of commodities. When this is the case cost of production is low, wages and profits are high, and prices may be low. It is thus seen that high profits do not always accompany high prices, nor low profits low prices. Suppose, for instance, that a village carpenter invents a machine which increases the productive power of his capital and labour 50 per cent. Where he bef nade ten boxes or ten tables, he is now able to make, by the same expenditure of capital and labour, fifteen boxes or fifteen tables. It is evident that unless prices decline he will realise 50 per cent. more as a return to his capital and labour. His wages and his profits have both increased ; and the cost of production

l; has decreased. It is not, however, probable that he would be able permanently to retain the whole of the advantage of his invention. The increased supply of boxes, chairs, tables, etc., would ultimately cause a reduction of price. The demand, it has often been repeated, must be made equal to the supply. The supply is in this case increased 50 per cent. It may be supposed that the supply was equal to the demand before this increase took place. The carpenter will therefore find it necessary to reduce the price of his manufactures, if he desires to find customers for them. He may perhaps find by experience that a reduction of 15 per cent. in the price is sufficient to sell all his stock. He therefore parts with this portion of the advantage produced by his invention, and retains an addition to his own wages and profits of 35 per cent. In this case wages and profits are both increased, whilst the cost of production and ultimately prices are diminished.

In the case just investigated it has been supposed that the village carpenter who invents this machine has no rival, of his own trade, in his locality. But suppose there were three or four carpenters in the same village ; they

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