"The variations, therefore, in the rate of profits, and those in the cost of production of wages, go hand in hand and are inseparable. Mr. Ricardo's principle that profits cannot rise unless wages fall, is strictly true.

"The only expression of the law of profits which seems to be correct is, that they depend upon the cost of production of wages. This must be received as the ultimate principle.

"The rate of profits, therefore, tends to fall from the following

causes :

An increase of capital beyond population producing increased competition for labour.

2. An increase of population, occasioning a demand for an increased quantity of food, which must be produced at a greater cost.

The rate of profit tends to rise from the following causes :—

1. An increase of population beyond capital, producing increased competition for employment.

2. Improvements producing increased cheapness of necessaries, and other articles habitually consumed by the labourer."

And following up this train of error, he says2-" The capitalist, then, may be assumed to make all the advances, and receive all the produce. His profit consists of the excess of the produce above the advances; his rate of profit is the ratio which that excess bears to the amount advanced.

"It thus appears that the two elements on which, and which alone, the gains of the capitalists depend, are first the magnitude of the produce, in other words, the productive power of labour; and secondly the proportion of that produce obtained by the labourers themselves; the ratio which the remuneration of the labourers bears to the amount they produce. These two things form the data for determining the gross amount divided as profit among all the capitalist of the country; but the rate of profit, the percentage on the capital, &c.

"We thus arrive at the conclusion of Ricardo and others, that the rate of profits depends on wages; rising as wages fall, and falling as wages rise.

"The cost of labour, then, is, in the language of mathematics, a function of three variables: the efficiency of labour: the wages of labour (meaning thereby the real reward of the labourer); and 2 Principles of Political Economy, B. II., ch. 15, § 6.

the greater or less cost at which the articles composing that real reward can be produced or procured. It is plain that the cost of labour to the capitalist must be influenced by each of these three circumstances, and by no others. These, therefore, are also the circumstances which determine the rate of profit; and it cannot be in any way affected except through one or other of them."

6. We have laid these long extracts before our readers because the method of estimating rate of profit shewn by them is so palpably erroneous that we might almost be supposed to be misrepresenting the doctrines of men of eminent reputation, unless we produced the most conclusive evidence of the fact. But there it is, and it cannot be gainsaid. Nor is it a mere casual slip which might be overlooked. It is of the greatest practical importance; for, if it were true, it would mean that Capital and Labour are always necessarily antagonistic to each other; and that the gain of one must necessarily be accompanied with loss to the other. It was precisely this melancholy doctrine of Ricardo's-along with a similar error regarding Rent, and the absurd doctrines of Malthus on Population, which are also founded on a most manifest arithmetical error-which seemed to shew that the state of society must necessarily deteriorate with the increase of numbers, that led a caustic philosopher of the present day to nickname Political Economy the "dismal Science."

But a very few sentences will dissipate these gloomy ideas; and we shall shew by the simplest arithmetical calculation that Profits and Wages may very well rise together.

Suppose the capital advanced is £100, and the Profit is

£20.

Then if the Profit be made in a year the Rate of Profit is evidently 20 per cent. per annum.

If the Profit be made in a month, the Rate of Profit is evidently per cent. per annum.

240

If the Profit be made in a week, the Rate of Profit is evidently 1,040 per cent. per annum.

If the Profit be made in a day, the Rate of Profit is evidently 7,300 per cent. per annum.

We presume that this is so clear that no one can dispute it. We shall now test the doctrines of Ricardo, McCulloch, Malthus, and Mill by these plain arithmetical rules. It will have been seen that

they repeatedly declare that the Rate of Profit can by no possibility be increased except by a diminution of Wages.

Now let us suppose that the Capital advanced, including Wages, be £100, and the actual Profit be £20: then if it be made in a year, it is Profit at the Rate of 20 per cent. per annum; if made in a month, it is Profit at the Rate of 240 per cent. per annum ; if made in a week, it is Profit at the Rate of 1,040 per cent. per annum; and if made in a day, it is Profit at the Rate of 7,300 per cent. per annum.

Thus we see by the most simple arithmetical calculation, that supposing the Capital and actual Profits to remain exactly the same, the Rate of Profit may be enormously increased by the accelerated rapidity with which the Profits are made.

And similarly if the Capital and actual Profits remained the same, the Rate of Profit might be immensely diminished by a retardation of the periods in which they were made.

7. So also it is quite easy to shew that wages may be increased, and the actual profit diminished, and yet the Rate of Profit greatly increased.

Suppose, as before, the Capital is £100, and the Profits £20, made in a year.

Suppose that the period of making the Profit is reduced to a month, then the Rate of Profit is 240 per cent. per annum.

Suppose that in consequence of making the greater Rate of Profit, the capitalist advances wages £5. Then cost of production is £105, and the Profit is £15 made in one month or nearly 14.3 per cent. per month: which is Profit at the Rate of more than 167 per cent. per annum.

Suppose a still more accelerated sale, and let the trader make the Profit in one day: then, as we have seen above, that is Profit at the Rate of 7,300 per cent. per annum.

Suppose that the trader, in consequence of this greatly increased Rate of Profit, raises wages, so that cost of production amounts to £110. Then, with an outlay of £110, he makes a Profit of £10 in one day; being more than 9 per cent. per day: or at the Rate of more than 3,318 per cent. per annum.

Hence, while price remains exactly the same, Wages may be considerably, and Rate of Profit be enormously, increased by the simple acceleration of the periods of return.

So also these cases may, of course, be reversed. The price may remain the same, the wages diminished, the actual Profits increased, and yet the Rate of Profit enormously diminished, by the simple retardation of the periods of sale.

So also the price may be reduced, and wages increased, and therefore the actual Profit reduced, both by an increase of wages and a reduction of price, and yet the Rate of Profit greatly increased.

Suppose that in the last case the trader, in consequence of competition, or for any other reason, reduces the price by £5, so that, as before, wages come to £110; then actual Profits are £5: this would still be Profits at the Rate of 4.545 per cent. per day; or more than 1,659 per cent. per annum.

Thus it is clearly proved that, by the simple acceleration of the rapidity of sale, Price may be reduced, Wages may be increased, actual Profit be reduced, and yet the Rate of Profit increased: that is, that the Customer, the Capitalist, and the Workman may all gain together; and of course e converso they may all lose together.

There may, therefore, be a solidarity of interests between Customer, Capitalist, and Workman; and not a necessary antagonism, according to the doctrine of Ricardo and his followers. Of course different results may happen in other cases; and in these the Ricardian doctrine may have an appearance of truth: but what we wanted to shew is that these writers have entirely omitted the most potent method of increasing the Rate of Profit; and thus the gloomy views of the progress of society are dissipated by the simple rectification of an arithmetical definition.

The current doctrine of Economists is, that Rate of Profit varies directly as the excess of the Profit above the Cost of Production, whereas the true doctrine is

RATE OF PROFIT varies directly as the excess of the Profit above the Cost of Production, and inversely as the Time in which it is made.

8. Economists have adopted this manifest error from the usage of traders. When a banker charges his customer Interest or Discount on an advance, the rate per cent. and per annum is always agreed upon, and the customer pays a sum according to the

the time of the advance. But when a trader buys goods from a wholesale dealer, he simply adds on to the goods a percentage on the wholesale price, and makes no difference whether he sells the next day, the next week, or the next month: and he erroneously calls that advance his Rate of Profit. And to shew how an apparently very moderate actual Profit is a high Rate of Profit we may take two examples.

A retail bookseller is entitled by the custom of trade to a reduction of 25 per cent. off the published price of a work. Many retail booksellers offer to obtain any book for their customers at a discount of 20 per cent. off the published price. Suppose the book is ordered one day and paid for the next day. The customer is pleased at getting the book so cheap, and no one grudges the bookseller his apparently very modest profit of 5 per cent. Let us now see what his Rate of Profit is. By such an operation he gains a Profit of 5 per cent. on three-fourths of the price of the book, which is an actual Profit of 6.666 per cent. made in a day; which is at the Rate of more than 2,433 per cent. per annum. Traders complain when bankers charge 6 per cent. by the year; what would they say if a banker charged 6 per cent. per day?

Even if the bookseller made only 1 per cent. profit, that would still be at the Rate of 365 per cent. per annum. What would be said of a banker who made such a profit?

A costermonger buys baskets of strawberries in Covent Garden Market at 2ąd., and sells them the same afternoon at 3d. Every one would call that an extremely moderate profit. Yet it is a profit of one-eleventh part, or more than 9 per cent. per day, which is a Rate of Profit of more than 3,300 per cent. per annum.

Thus, when trading Profits are brought to the test of arithmetic, they present results which may startle some persons. Traders just place a certain advance of price on their goods, and they invariably call that advance the Rate of Profit, thus throwing great obscurity and misconception over the subject. But certainly professed writers on Economics should have perceived this fallacy, and rectified it.

9. Smith says" Apothecaries' profit is become a by-word denoting something uncommonly extravagant. This great appa1 Wealth of Nations, B. I., ch. 10.