THE FIRST RIGHT OF INDUSTRY.

153

sufficiently numerous and strong, call for another division of property, that is, once more plunder the barns, granaries, homesteads, and warehouses of the industrious;-or, if they are not strong enough to attempt this, they will humble themselves to the owners of these same barns and warehouses, and petition for food and clothing in return for all they have to offer, their labour; that is to say, they will apply to them for employment and wages. If the owners of property refuse their petition, starvation and disease must rapidly carry them off; not however before they have robbed, and plundered, and done all the injury to the remainder of society which their despair and destitution will prompt. If their request is acceded to, the old system of masters and men, capitalists and labourers, will recommence; and the society at least whatever portion of it we can suppose to have survived the shock of such a convulsion,-will be reconstituted on its old and natural principles, to recommence the difficult march of improvement, and with the feeble hope of regaining, after the lapse of years, perhaps of ages, the elevated position we are at present so fortunate as to occupy, as yet unscathed, to reproduce slowly and painfully the vast stock of accumulated capital which it once possessed, but which, in a fit of popular insanity, had been broken down and scattered to the winds.

The security of property and the liberty of consuming or employing it in whatever way the owner pleases, or finds most for his interest, is, as has been truly observed, the first of the rights of industry, and the essential condition of her pro

gression. But of all modes of employing property, the very last which it would occur to an enlightened friend of humanity to obstruct, is its employment in aiding production—that is, as capital. It is quite clear that the profit or interest to be gained by the employment of capital is the principal motive to its accumulation, and the only one to its employment in furthering production. It is quite clear that if the owner of capital is not allowed to make what profit he can upon it by lending it to others, no one will accumulate more capital than he can use himself, and nearly all savings would thenceforward be hoarded in cellars and closets, instead of aiding industry and facilitating production.

Adam Smith and other economists distinguish two kinds of capital, fixed and circulating. The latter is defined to consist of such things as are continually going from and returning again to their owner, and afford a profit only on being parted with; such is the money which a master keeps by him to pay his workmen, his stock of materials, and of worked-up goods-and the stock in trade of all wholesale or retail tradesmen. Capital is said to be fixed which is invested in buildings, machinery, implements for facilitating labour, improvements of land, roads, canals, bridges, railways, &c.; things which yield a profit, not by being parted with, but while remaining in their owner's hands, and employed in producing other things. Smith considers as fixed capital the acquired skill and ability of the members of society. It is doubtless serviceable to distinguish those

CIRCULATING CAPITAL.

155

kinds of capital which are rapidly circulated-that is, consumed and replaced within brief periods, as a year for example, from capital of a more durable nature. But it may be surmised that except in the time during which they remain unconsumed in the employer's hands, there is no real distinction between the two classes of capital here mentioned. The capital laid out by a manufacturer, farmer, or tradesman, in the payment of his labourers' wages, circulates most rapidly; being turned, perhaps, once a week, if his men are paid weekly by the weekly receipts on his bills or sales. That invested in his materials and stock in hand circulates less quickly, being turned, perhaps twice, perhaps four times, in the year, according to the time consumed between his purchases of the one and sales of the other, supposing him to buy and sell on equal credits. The capital invested in his implements and machinery circulates still more slowly, being turned, that is consumed and renewed, on the average, perhaps, but once in five or ten years; though there are many tools that are worn out in one set of operations. The capital which is embarked in buildings, as mills, shops, warehouses, barns, in roads, irrigation, &c., may appear scarcely to circulate at all. But in truth, these things are, to the full, as much as those we have enumerated, consumed in contributing to production, and must be reproduced in order to enable the producer to continue his operations; with this only difference, that they are consumed and reproduced by slower degrees than the rest. The continual repairs they require attest their consumption and reproduction; and the

capital invested in them may be turned, perhaps, every twenty or fifty years. If then the terms fixed and circulating capital are to be retained, I would confine the latter to such portions of capital as are renewed or repurchased, and consumed or parted with, within a year; that of fixed capital to such as remain more than a year with the person who employs them for profit.*

In some trades the whole capital embarked is turned or circulated several times within the year. In others a part is turned oftener than once a year, another part less often. It is the average period which his entire capital takes in passing through his hands or making one revolution, from which a capitalist must calculate his profits. Suppose, for example, that a person engaged in a particular business has one-half of his capital invested in buildings and machinery, so as to be turned only once in ten years; that one-fourth more, the cost of his tools, &c., is turned once in two years, and the remaining fourth employed in paying wages and purchasing material is turned twice in one

The futility of Smith's distinction is seen in his efforts to separate a farmer's stock into fixed or circulating capital, according as it is kept by him or parted with for profit. Thus the cattle and sheep a farmer milks and shears are said to be fixed, those he grazes and breeds, circulating capital. The seed he throws into the ground to produce next year's crop of corn is a fixed,-the hay he feeds his breeding or lean cattle upon to produce next year's crop of lambs or fat beef, a circulating capital. The truth is, that with a farmer as with any other producer, of the capital which the extent of his business requires, part circulates more, part less slowly. The average period in which his entire capital is turned, that is, parted with and reproduced, is the time upon which his profit is calculated.

PROFIT CALCULATED ON THE MEAN RATE. 157

year.

Say that his entire capital is 10,000l. Then his annual expenditure will be

£5000 10 = £500
2500- 2=

1250

2500 X 2= 5000

£6750

7 per cent. on £10,000 = 750

£7500

To which sum his annual sales should amount in order to clear seven and a half per cent. profit on his capital, and for this end he must charge á profit of ten per cent. on the value of his goods; the mean term in which his capital is turned being sixteen months.

Take another case, in which the fixed capital required bears a smaller proportion to that which circulates rapidly. Say that one-fourth of the entire capital circulates in ten years, one-fourth in one year, and one-half twice in the year. Then the annual expenditure will be,

In this case a profit of little more than five and a half per cent. on the value of the goods will bring in to the producer seven and a half per cent.