unproductive, just as agricultural labour is, which does not pay for its cost. A shoemaker may fill whole shops full of boots and shoes, but if no one will buy them they have no value, and the labour produces no profit. Now, Mill would make this labour productive and give a profit because the boots and shoes produced are more than is required for the maintenance of the labourer. But productive labour is, as we have before explained, labour which produces or draws forth a profit.

It may be that in a Socialist or Communist state of society where the members labour in common, and the products are distributed to each by public authority, an exchange is not necessary for Profit. But in an Economic state of society, in which private property prevails, and the principle of the division of labour has been much developed, so that producers limit their products to a single article, and everything else they want is obtained by exchange, it is utterly erroneous to say that Profit does not depend on the "incident of exchange." On the contrary, it entirely depends on the "incident of exchange." If a producer cannot exchange away his product for something else it has no Value, and produces no Profit. What would it profit a man if he had mountains of kelp, pyramids of granite stones, forests of timber, warehouses stuffed with calicos and silks, granaries choking with corn, tuns of wine, or shops full of books, if he could not exchange them away for something else?-and that something else is his profit.

Few persons understand what unproductive labour is so feelingly as authors. An author may devote any amount of time and labour in producing a work of the highest genius and merit. The printed books last much longer than the tools and implements used in producing them. Therefore, according to Mill, the labour is productive, and the capital employed in them yields a profit. But if an inappreciative world refuses to buy the treasures of wisdom laid before them, the labour is unproductive-as too many authors well know.

The Tuscan Father's Comedy Divine has long outlived the materials used in its production; but when he felt the shaft from the bow of exile, and found how bitter is the taste of another's bread, and how hard the way up and down another's staircase, his labour certainly produced no profit. And many of the producers

of the world's highest literary treasures could tell the same sad

F

story. When our English Dante had spent years of labour in telling us how he imagined Paradise was Lost, the commercial Value of his labour was found to be £5-certainly not very productive. When Newton had discovered the Laws which govern the motions of the heavenly bodies, if tested by commercial principles the Value of his labour would probably have been-0. Pope, Scott, Byron, Macaulay, Thackeray, Dickens, no doubt acquired vast sums by their literary labours; but the reason was -not that they had bestowed more labour and genius on their works than their hapless predecessors, but because the times had changed, and there was an immense demand for their works, and therefore they were profitable.

Malthus says most truly1 that it is necessary to estimate both the advances and the returns of the capitalist in VALUE and not in QUANTITY: a principle most manifestly true, but which has been lost sight of both by the Physiocrates in speaking of the productiveness of agricultural labour, and by Mill in speaking of the productiveness of labour in general, and by Malthus himself in speaking of the vineyard of Tokay.

Whether labour in agriculture, manufactures, and commerce is productive, i. e., profitable, or not, depends upon exactly the same general principle, namely, whether the Demand for the product is so great, and its Supply so limited, that its Value exceeds its Cost of Production.

We see, therefore, that it is a great fundamental error to say that Profit does not arise from exchange. No doubt in some few cases an exchange is not necessary to profit-as when the product itself is wanted. But in all other cases, where persons require other things than what they obtain by their own labour, it is absurd to say that Profit does not arise out of the incident of exchange; on the contrary, it can arise only out of an exchange. Products which are not required, and cannot be exchanged, are not wealth, and have no Value: and it is only by means of an exchange that they become wealth. Hence we see demonstrated that great fundamental principle which we have so often inculcated, that it is not the Labour of the Producer that constitutes a thing Wealth, but the Demand of the Consumer. All Value proceeds exclusively from Demand; and all Profit arises from the Value of a product exceeding its Cost of Production.

Principles of Political Economy, p. 263.

Hence, also, Labour may be productive, i. e., profitable, which is not associated with any material, tools, and implements. A great actor or performer earns an income far beyond the sum necessary for his support, as well as to pay the interest on the capital expended in his training and education. His labour is therefore productive, because its Value exceeds its Cost of Production.

26. Mill says "In short, if we compare the price paid for labour and tools with what that labour and those tools will produce, from this ratio we may calculate the rate of profit."-" From this it seems to follow that the ratio between the wages of labour and the produce of that labour gives the rate of profit."

It is surprising that Mill, who found so much fault with speaking of the ratio between Demand and Supply-a desire and a quantity -should not perceive that it is absurd to speak of the ratio between the cost of the product and the product itself. Ratio is the relation of like quantities with respect to magnitude. How can there be a ratio between a sum of money and a quarter of corn? between a sum of money and a horse or a house? To speak of a ratio between money and a product is as absurd as to say-If a sack of potatoes cost 10s., what is the price of a dozen of champagne? Evidently we must compare a price with a price. And if the product cannot be sold, how can the labour be productive?

Hence, to make sense, these sentences should have been written -"If we compare the price paid for the labour and tools with the price which the product of these labours and tools will produce [ie., draw forth or exchange for]," and "the ratio between the wages, of labour, and the price which the produce of that labour earns gives the ratio of profit," it would have a portion of truth, although they omit the time as a necessary element of the definition of rate of profit. But if we rectify these sentences in this manner, as they must be, to be made intelligible, what becomes of Mill's doctrine that profit has nothing to do with the "incident of exchange"?

27. It is thus seen how erroneous the doctrine is that labour only is productive, i. e., profitable. It has been shewn that agricultural, manufacturing, and commercial labour are productive 1 Essays, &c. Essay IV.: on Profits and Interes!.

under exactly the same circumstances, and for the same reason. But the products of the earth themselves have in many cases a Value, without any labour being bestowed on them, or far beyond any labour that has been bestowed upon them. We have seen this in the case of minerals, timber, trees, cattle, kelp-shores, &c.

When a Colonial Government leases out the natural pastures of a colony, that pasture produces them a revenue, and is therefore productive Capital to them. Are these natural pastures the product of labour? When a landlord lets out plots of ground on building leases, and so derives an annual Profit from the land itself, is that land the produce of labour? And so many other instances might be adduced to shew the complete absurdity of the doctrine that all Value proceeds from labour; and that all Profits are the "reward of abstinence."

Hence we see plainly that all these phenomena are reduced to the great General Equation of Economics we have obtained. Demand alone is the origin of all Value: and the value of any product at any time and at all times depends exclusively on the Intensity of the Demand and the Limitation of the Supply: that whether labour of any sort is productive or not depends purely on its Value exceeding its Cost of Production: and that the Rate of Profit varies directly as the excess of the Value of anything above its Cost of Production and inversely as the Time in which it is made.

Upon INTEREST and DISCOUNT.

28. Having considered the cases of Rent and Profits, we now come to the question of Interest. When a man employs his own capital in trade it is perfectly clear that he is entitled to retain for his own use all the profits resulting from such operations, whether those profits be twenty per cent., one hundred per cent., or a thousand per cent. If any one of superior powers of invention were to employ his capital in producing a machine, which should be of great public utility, he might realise immense profits and accumulate a splendid fortune, and no one in the ordinary possession of their senses would grudge such a man any amount that he might legitimately make, or would think it inherently wicked of him to gain as much as he could; on the contrary, he would probably be applauded, he would be called a benefactor to

his country, and his name would be handed down with honor to posterity.

It often happens, however, that persons endowed with such powers of mind and habits of industry as would tend to enrich themselves and benefit their country, are deficient in capital, or means of setting their industry in motion. On the other hand, it often happens that persons who possess capital, or the latent power of setting their energies in motion, are deficient in the active qualities which are necessary to give it effect, or they may not have the necessity or inclination to do so. Under these circumstances it is manifestly advantageous to all parties, and the community in general, that those who have skill and industry without capital, and those who have capital without skill or energy, should meet together and combine their respective latent qualities. Such a combination would produce a beneficial result, and it seems clear that each party should have the profits of the combined enterprise in some previously agreed proportion. Such operations are extremely common, and there are two methods usually adopted as to the sharing of the profits. The person who advances the capital may either agree to receive a certain definite proportion of the profits realised, or he may stipulate to receive a certain definite sum in proportion to the capital advanced. In the former case he agrees to share the risk of there being no profit at all, or he becomes a partner. In the latter case he restricts his share to a certain amount previously defined, however large the profits may be, but he endeavours to shield himself from any loss which may arise; and in this case the sum he receives as a reward or hire for the use of his capital is called INTEREST.

29. The price to be paid for the service rendered by the capitalist does seem to be entirely a subject for private arrangement between the parties, just as much as the price paid for any other service; nor does there appear to the eye of common sense anything in the nature of things inherently wicked in any particular division of the profits they may agree upon between themselves. The service rendered by lending money in such cases may vary in intensity according to circumstances, just as any other service may vary. Nobody thinks it wicked for a man to make 1,000 per cent. of his own capital if he can do so; nay, those who do so are frequently looked upon as the greatest benefactors to mankind,