phasise the importance of security as affecting the accumulation of capital, and, accordingly, they argue that if in any society the security of property is endangered, a direct stimulus is given to immediate consumption. The conclusion is that people will not save unless tempted by a very high rate of compensation for risk. "The rate of profit,' says Mill, with reference to the insecurity under Asiatic governments, "which persons of average dispositions will require to make them forego the immediate enjoyment of what they happen to possess, for the purpose of exposing it and themselves to these perils, must be very considerable." But it by no means follows that the rate of profit will rise in response to the feelings of the capitalist. His feelings may, indeed, diminish the supply if a high rate is not forthcoming; but demand must also be taken into account. Under a system of official and unofficial robbery and extortion there may be very little effectual demand. The desire to borrow may be very strong, but mere desire is not sufficient, the will must be backed by ability. It is the same as in the case of a famine. It is said that in Eastern countries people may be dying by thousands of starvation. without any appreciable effect on the price of food, because their demand is not effectual. But, if they cannot buy for present payment, neither can they borrow for future payment. Again, to take a modern instance from highly developed societies, after a commercial crisis there is a general feeling of insecurity on the part of the owners of capital, but instead of a rise in the rate of profit there is a contraction of enterprise; the field of effectual demand. is narrowed.

The general conclusion, then, appears to be that insecurity checks the accumulation of capital,1 but it also fetters industry. Taking a broad view, there is less to divide between capital and labour, and, though labour may be compelled to take less, it does not follow that capital will obtain more. And, indeed, it would be against all experi

1 See Bk. I., Ch. XI.

ence to maintain that under a system of arbitrary and tyrannical government the general profits of industry must be high on account of the risk. Thus, we again see the danger of relying on a subjective analysis; even in compensation for risk, there is more to be considered than the feelings of the lender.

§ 9. Wages of Superintendence. Adam Smith, in a passage which has been too often overlooked, calls attention to the fluctuation in the rate of profit. "It varies, not only from year to year, but from day to day, and almost from hour to hour." Later on, in maintaining that ordinary profits in the same neighbourhood in different industries are more nearly on an equality than the wages of different forms of labour, he points out that the apparent differences in the profits of different trades is generally a deception, arising from not always distinguishing what ought to be considered as wages from what ought to be considered as profit. It is thus indicated that the principal source of uncertainty and inequality in profit is to be found in the third element, namely, wages of superintendence. This position has been developed by recent writers 2 until it has become quite usual to consider the wages of superintendence as the wages given for the exercise of certain business powers. In old established industries which have felt the full force of competition, if allowance is made for interest on capital and for insurance against risk, the part left over as wages of superintendence is comparatively small. It may, indeed, often vanish entirely, and yet the industry ontinue o be carried on for a considerable time. This accounted for by the fact that the only way to obtain interest on the capital sunk in the business and to prevent its deterioration is to go on working.

On the other hand, however, especially in new undertakings, the possession, or the command, of a certain

1 Bk. I., Ch. IX.

2 E.g., Walker and Marshall.

3 E.g., the Lancashire cotton manufacturers are said to have fallen into this state for several years past.

amount of capital is a necessary condition of obtaining the opportunity of exercising business power and obtaining wages of superintendence. With the development of credit and the democratising, as Bagehot called it, of capital, this restriction on competition becomes less and less, and wages of superintendence tend to conform to other kinds of wages. What is most requisite, is not so much material as personal capital, the result of training and education, but this applies also to other forms of wages; and, after the long examination already given of wages, both general and relative, it seems unnecessary to notice this element in greater detail. I will only observe that, so far as profits can be reduced to wages, a reconciliation is effected between capital and labour. Most of the crude fallacies of socialism arise from neglecting the higher forms of labour, including that of the management of capital.

$10. The Element of Chance in Profits. There is a further element in profits, to which, in general, sufficient attention has not been paid. Led astray by supposed tendencies and harmonies, and by appeais to the long run, many economists have eliminated altogether what is, in some instances, the most important element in profits, namely, the reward for good fortune and audacity. It has been supposed that, on the average, in the long run, the risk will, so to speak, just effect its own insurance. In a stable society, with established methods of production, this tendency may be admitted; but in progressive societies, and with revolutions in industry, the reward may far exceed the risk. The most striking case is afforded by the rapid development of new countries. A speculator who has the good luck (for, in general, there is more luck than skill) to hit upon the site of a future town has simply to sit still. But there are many other instances of Conjunetur, as the Germans call it, and they naturally excite a good deal of envy on the part of the less fortunate. In my opinion, this envy is more natural than reasonable.

The possibility of obtaining these occasional large returns has always been one of the greatest incentives to enterprise; it has been the principal factor in spreading the Anglo-Saxon race over the world. At the same time, it must be admitted that the artificial monopolies of trusts and syndicates are on a different footing, and, also, that certain kinds of exceptional gain may be a good subject for exceptional taxation. The discussion, however, of these topies must be deferred, and, following Mill's example, I shall also postpone the consideration of the tendency of profits to a minimum.

CHAPTER XIV.

ECONOMIC RENT.

§ 1. Ambiguity of the Term Rent. "Rent," says Ricardo, "is that portion of the produce of the earth which is paid to the landlord for the use of the original and indestructible powers of the soil. It is often, however, confounded with the interest and profit of capital, and, in popular language, the term is applied to whatever is annually paid by a farmer to a landlord."1 He goes on to observe that the term is used in a still wider sense, as, for example, in the case of the price paid for cutting timber or for extracting minerals, in which it is plain that the price is paid for the commodities, and not for the use of the original and indestructible powers of the soil. And he might have given instances of still wider applications. Thus, as Madox 2 shows, "in ancient times, both in England and France, Ferm signified Rent," and the fee ferme which the towns paid to the king for their privileges was a perpetual rent. The word is still applied to the hire of many other things besides land, and, in French, any one who lives on the interest of his capital is a rentier, and rente means revenue. A recent writer,3 in a very able work, has contended that there is no essential difference between the rent of land and these other species of rents, and has endeavoured to reduce Ricardo's theory to mere verbalism.

That the theory calls attention to real causes, and that economic rent is not to be confounded with profits or in

1 Principles, Ch. II.

2 Firma Burgi, p. 3.

3 The Duke of Argyll, Unseen Foundations, p. 35.