the land when they could get a higher rate from commerce. They would be actuated by no sentimental considerations in such matters. They will get the best profit they can. And the owners of the inferior land have no resource but to wait till the price of corn has risen high enough to make it profitable to improve them; or some means has been found of supplying cheap Capital.

19. It was precisely this circumstance that gave rise to the numerous schemes for founding banks and creating paper money which were so rife at the close of the 17th century. When men grew weary of burning and slaughtering each other for theological and political differences, they turned their energies to agriculture and commerce; and they rightly perceived that the very first requisite for the improvement of the land was cheap money, or capital. At that time the usual rate of interest for metallic money was 10 per cent. per annum. Of all species of industry the profits from agriculture are the most moderate: and if agriculture would only give perhaps a profit of 6 per cent., it would have been manifestly impossible to borrow money at 10 per cent., which the additional demand would probably have raised still higher. Hence the numerous projects for founding banks for the express purpose of multiplying paper currency and reducing the rate of interest to 3 per cent. This was also the origin of the schemes for creating Paper Money on the basis of the land; of which John Law's was the most celebrated, and which he had the opportunity of carrying out on a great scale in France, and ended in the catastrophe of the Mississippi scheme, as is described in a future chapter. All these schemes sprang out of a real necessity of the times; and, although they were founded on a false theory, we must carefully refrain from considering them as mere fraudulent bubbles, as is so commonly done. The great system of banking in Scotland, whose mechanism and effects we have described in a former chapter, carries out their intention as far as it can be done with safety.

It is also a matter of the commonest observation that a long continued very low rate of interest is a very usual precursor of an outburst of speculative mania. High profits in particular businesses attract quantities of capital into these businesses; and, of course, often lead to great overtrading and catastrophes. But when the Rate of Interest remains for a long time at 1 or 2 per cent., persons' incomes are reduced so much that they become

willing to adventure in enterprises to pay them a better profit. Hence, as is so often the case in Economics, the same effects are produced by opposite causes. Very high profits and very low profits are each the cause of a speculative mania. The most healthy condition is a medium rate of 4 or 5 per cent. When the rate is below that, every time it is lowered multitudes of new enterprises start into existence. At every raising of the rate, multitudes of new schemes are strangled in the birth. Now it is not these new enterprises which lower the Rate of Profit; but it is the low Rate of Profit which is the greatest stimulant of new enterprises.

20. It is now manifest that those who have assailed Smith's doctrine proceed upon the plain fallacy of inverting cause and effect. But Mill's assertions are also self-contradictory, as is so often the case.

Mill says truly that prices are determined, not by the competition of the sellers only, but also by that of the buyers, by demand as well as by supply, which is most true. He says truly that prices are affected by the money in the hands of the community to be laid out in commodities; and also that so long as the proportion of money to commodities remain the same, prices will not vary. Then he asserts that if commodities increase, the quantity of money imported, or produced, to buy commodities will increase in exactly an equal ratio, and therefore that no change in price can take place.

No doubt if this were true in fact, the consequence he states would follow. But notoriously it is not true in fact: and, as usual, he immediately proceeds to contradict himself. For he asserts that an increase of capital cannot produce a fall in prices, because if it did so money would be imported in an equal ratio to reap the profits to be made by buying these commodities very cheap; and then he says that this result only takes place in those commodities in which the improvements in production have taken place greater than in the production of the precious metals, such as spun and woven fabrics.

Now, as every one knows and he himself admits what cannot be denied, that an immense diminution in the price of these commodities has taken place, owing to their enormously increased quantity produced, what becomes of his previous doctrine that

such a fall cannot occur, because money will always be imported to buy them in an equal ratio; and therefore their price cannot change.

Now it is an indisputable fact that an enormous mass of commodities have increased a great deal faster than money, and that their prices have immensely diminished in consequence of this increase: Mill, however, says that it is an often-refuted notion that the competition of capital lowers general prices.

But it unquestionably does so in all commodities which increase faster than money.

Now it is a mere accident that all commodities are not increased faster than money. All manufactured commodities are so and if agricultural products have not hitherto been so, it is probably partly owing to the fact that they cannot be multiplied in such enormous quantities as manufactures, because, being far more bulky in proportion to their value, their cost of production, i. e., the cost of placing them in the market when they are offered for sale-cannot be reduced in the same proportion: and partly because the same skill and science have never hitherto been applied to increase the products of the earth as has been done in manufactures.

There is not the smallest doubt that by the application of skill and science the products of the soil could be increased to several their present amount, and far beyond what is often supposed.

To give only one instance. Near Edinburgh there were some tracts of the sea-shore which were worth absolutely nothing. By the skilful application of the liquid sewage of the city these fields, which were originally nothing but pure sea sand, now yield six crops of hay in the year, and give a rent of £36 or £40 an acre. If this has been done at Edinburgh why could it not be done in numerous other places?

When Mill says that the competition of Capital does not lower Profits by lowering prices, he seems to forget that the commodities produced are themselves Capital, as well as the money originally employed in producing them. The money was Capital because it was used for the purpose of profit. When the commodities were produced they were also equally capital, because they were intended to be exchanged away for profit.

If, then, a certain expenditure of money-capital produces (by means of skill and machinery) an enormously increased quantity

of goods-capital, the immensely increased quantity of goodscapital can only be sold off by a very great reduction of price. Consequently the price and profits of each particular parcel are immensely reduced: but the profits upon the whole quantity are enormously increased; and, of course, Mill contradicts himself in the very same chapter-" What would really be not merely difficult, but impossible, would be to employ this Capital without submitting to a rapid reduction of the Rate of Profit" ! !

21. It is this very truth that the immensely increased Value of the whole quantity produced much more than makes up for the diminished value of each particular parcel that furnishes a very simple solution of what J. B. Say declares to be one of the most thorny questions in Economics. He states the question thus:"Wealth, being composed of the value of articles possessed, how can it be that a nation shall be just the more rich, as things are there at a lower price?" "1 The problem, as far as we understand it, is this, "If wealth depends upon the value of articles, how is it possible that a nation can be richer when cotton goods are 6d. a yard than when they were at 3s. 6d. a yard? The answer is very simple. Let us suppose that, at any given time, cotton goods were 3s. 6d. a yard, and there were only a certain number of people who could afford to buy them at that price, but there were a great many others who would buy them if the prices were reduced within their means. Now, the question is, to discover what reduction of price will enable any given increased production of cotton goods to be bought. What reduction of price, for instance, will cause the consumption to be doubled? Now, if by ingenious devices the manufacturers can diminish the cost of production of the cotton goods to one-fourth, but no increased quantity is produced, we have already shewn that no reduction in price will ensue. Hence, we may say, that the value of the cotton goods (i. e., what people will give for them), is 3s. 6d., without reference to their cost of production. Now, if the change in price bore the direct proportion to the change in the relation between supply and demand, it would require the price to be reduced one-half before the consumption could be doubled. That is, though a greater number of individuals might receive the convenience of having cotton goods, still the total value of the whole quantity produced 1 Cours d'Economie Politique, Vol. I., p. 371. Edit. Guillaumin.

would still be the same as it was before. But in practice this is not found to be the case. Instead of requiring a reduction of one-half in the price to ensure a consumption of double the quantity, it is probable that a reduction of a fifth, or a fourth, in the price would do so. If a reduction of 1s. were effected in the price, it would probably quadruple the consumption. Then the value of the total quantity consumed would be 10s. instead of 3s. 6d. Consequently the total wealth of the nation would be increased by that amount. And as the price was still further reduced, the consumption would proceed in a still more rapid ratio, in proportion to the greatly increased number of persons who would find the article within their means of purchase. A reduction of the price from 3s. 6d. to 6d., instead of increasing the quantity consumed sevenfold, would probably increase it a thousand-fold. That is, as the diminution in price proceeded in an arithmetical proportion the quantity consumed would increase in a geometrical proportion of a very high order. And the value of the totality of the article would proceed in a similar ratio. Thus, though the value of each individual yard was seven times greater in the former case, yet the value of the total quantity produced would probably be at least a hundred-fold in the latter, and the wealth of the nation is to be judged by the value of the totalities, and not by that of each yard. This is universally true. The value of the totality of the cotton manufactures of Great Britain is probably a hundred-fold now to what it was when the value of each piece was ten-fold what it is now. So of books. The value of the totality of book manufactures is now probably a hundredfold what it was when each separate book, being in M.S., cost a hundred-fold as much. The only apparent paradox in the case lies in the ambiguous form of expression in which Say has stated the question, because in the first part of the sentence," the value of the articles possessed," it manifestly means the totality of the articles possessed, in the latter part it refers to the price of each individual article.

22. Smith, therefore, is perfectly right in saying that the increase of Capital reduces prices and actual profits, and every person who has any knowledge of business will at once recognise the truth of this doctrine; and it will be further exemplified in the next section on Interest and Discount. The larger a man's