is a consumer of produce, the labourer is directly benefited; for the adoption of machinery in manufacture is always most obvious in articles of general or universal consumption, because it is in these that the market is most rapidly widened, and the additional outlay of capital obtains its earliest and most permanent profit.

CHAPTER XI.

Profit and Interest.

I HAVE already observed that the rate of profit is to be identified with the rate of interest. Whatever else is secured to the capitalist, beyond the average rate of interest, is either wages of labour, i.e. the labour of superintendence, superior intelligence, and tact, and the task of supplying the purchaser with what he wants, all which are kinds of labour, wherein great skill is ordinarily necessary; or replacement of capital; or insurance against risk. It will be found that any instance of common or average trade-profits is susceptible of this division, and that exceptional rates of trade-profit are due to exceptional ability, invention, or as people sometimes say, good fortune.

Suppose, for example, that a man invests £1000 in the business of a grocer, and borrows another £1000 from his banker in the shape either of an advance to his credit or in the discount of bills which he draws. Let us also suppose that he pays, on the average, five per cent. for the convenience granted him by his banker;

this being the average rate of interest on mercantile advances, abundantly secured by goods or credit. Let us add that he derives an income of £400 a year from this sum invested in business. Of this sum he has £350 to spend or save from, since £50 must be transferred to the banker in payment of interest for the sum advanced. Of the remaining £350, a seventh part is the interest on his own capital, such an amount as he would have gained had he lent his money to another person. The remaining three-fourths of his income, is wages for his labour, and insurance against the risk of bad debts and other similar contingencies. It is as much wages as the salary of a clerk is, or the commission of an agent who buys and sells with other people's money, or the fee of a lawyer or physician, or the payments made for manual labour to artizans and farm hands.

The only circumstance which obscures this analysis of what are called 'trade-profits,' is the fact that in certain occupations a source of income, orginally nothing but wages, accumulates so as to form a fund, closely analogous in its characteristics to capital, and, like capital, capable of direct sale at a valuation. This is commonly known as 'good-will' or 'connexion.' As a man is able to increase his business, he is also able, in accordance with the principle of the division of labour, to substitute for that direct labour which he formerly gave, other labour subordinated to himself and superintended by him. The extent to which this labour can be introduced and superintended is not determined. There is no doubt a limit of greatness as well as smallness, in which the profitable employment of capital is checked, the superintendence becoming too vast for any individual mind,

and too complicated for the effectual working of any subordinate machinery. It is said that this limit of largeness has been reached in some railways and in certain joint-stock enterprizes, and that the control of the whole organization is incomplete and pro tanto unprofitable, from the very greatness and complexity of the undertaking. So of course we are very familiar with cases in which the shrewdness and intelligence of traders are checked and wasted by lack of capital.

The good-will or connexion of a business, considered apart from the capital and labour of the trader, is partly due to the reputation of the trader, partly to the indolence of those who deal with him. In a great many articles, the buyer is a good deal at the mercy of the seller. Only a practised eye can detect the amount of alloy in an ornament professedly manufactured of gold. The quality of cloth is not easily decided on by an inexperienced purchaser. Even articles of common use are so skilfully adulterated, that ordinary customers cannot detect the fraud. But as long as fraudulent sellers abound, trustworthiness and integrity are marketable qualities, whether they exist in the trader or the labourer, or, as we should say, in whatever kind of labour they are present. Of course if guarantees can be given that goods will be honestly supplied, by any other process than the personal integrity of the trader, or from any other motive than the sense of prudent self-interest, which is at the bottom of all honest dealing in trade, that part of 'good-will' or connexion' which depends on the real or supposed exercise of these qualities will be seriously compromised. Now such a displacement of the voluntary exercise of moral qualities in trade, by means of what may be called

a self-acting honesty, is not undiscovered. I am not of course referring to the honesty of a servant or manager, who does not embezzle or peculate, but to that for which the public is constrained to pay, the integrity which warrants a real sale of that which is professed to be sold.

Now this was done by the promoters of the 'Rochdale Equitable Pioneers.' I cannot do better than quote the case in the words of Messrs. Ludlow and Lloyd Jones. Speaking of the establishment of co-operative stores, these gentlemen say, that 'the great difficulty with the first stores was to bring custom; and failing in this, they broke down.' 'In Rochdale however,' they say to the public, invest in the trading capital here, and you shall have five per cent. on your money, inasmuch as we bind ourselves not to put it to risk by speculative trading, no credit being given; in the next place, whatever remains as profit, after paying interest on capital, will be divided as bonus on the amount of money spent in the store by each member.' 'The advantages of this proposal soon began to make themselves apparent. Presuming a hundred men invested twenty shillings each, one shilling each would be due to them at the expiration of the year, as five per cent. interest on their separate investments. They had each done precisely the same as investers, and each was justly entitled to the same reward. But custom is as necessary as capital for the production of profit, and in contributing this all-important element, they almost necessarily differed from each other. The family income made a difference; the number in the family made an important difference. In fact, a poor workman with a large family was a far more profitable customer than a well-paid artizan with

a small one. These former men, therefore, the most difficult to move, because usually the most encumbered by debt, were the most directly appealed to by this new plan. There was no interest in buying inferior articles and selling them at high prices, no temptation to adulterate anything sold, no inducement to give short weight and measure, inasmuch as everything taken from the consumer by fraud would go back to him again as increased bonus.' (Progress of the Working Classes, p. 133.) This society, which commenced with a capital of £28 in 1844, and with twenty-eight members, had 6,246 members in 1866, a capital of £99,989, did business to the amount of £249,122, and divided a 'profit' of £31,931, having steadily increased in all these elements, except during the disastrous year of the cotton famine, 1862.

My reader will observe in this passage that the word 'profit' is used in the ambiguous sense which common language ordinarily assigns to it. The Rochdale cooperators, or, as they quaintly called themselves, pioneers, took the common prices of retail trade (in which as I have said are included risk and labour, highly paid when the business is small, still highly paid when the business is large; for no man will reduce his rate of remuneration below that which is necessary to secure custom), and sold at these rates. The difference between the price at which they could have sold, when all expenses were paid, and the price at which they did sell, was conventional, and in a manner arbitrary. Some difference was necessary, in order to secure custom, or, more correctly, to induce it. In fact, of course, the so-called profit had been paid already when the customer bought his goods, and need not, in order to carry out the principle on which