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to do if one's income is small, and becomes practically impossible when one's income will supply only the necessaries of life, while it becomes relatively easy as one's income increases. Generally speaking, the larger one's income, the easier it is for one to increase one's capital. Therefore, the people who are in the best position to take advantage of the growing demand for capital which results from inventions are those whose incomes are already largest. “To him that hath shall be given."

It may perhaps be argued that even tho the gain from use of machinery seems to go first to the wealthy classes in the form of increased incomes, yet it eventually finds its way to the laborers through the expenditure of these incomes. This is an argument which figures in popular rather than scientific discussion. Probably no writer to whom the term "scientific" could be applied, certainly none of those already cited, would use it, but it plays such a part in pseudo-scientific discussion as to demand notice. In the first place, “it is a poor rule that will not work both ways.” If an increase in the incomes of the capitalists works eventually to the advantage of the laborers through the expenditure of those incomes, it would seem also that increased incomes for the laborers would work eventually to the advantage of the capitalists. When the income is spent in purchasing goods, it does not matter who receives and who spends it,-it does not matter whose income it was. It goes to all those who get part of the price of the goods purchased; that is, to both capitalists and laborers. But it is not necessary to bring in any consideration of this kind. The whole matter is very simple, when looked at properly.

Let us assume that the total income from a certain industry is $100 per day, of which the capitalists get $75 and the laborers $25. There is then a total of $100 to be spent for other goods, and this $100 will set labor and sha

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capital to work producing them. But there would be exactly as much expended if the figures were reversed, and the laborers got the $75 and the capitalists the $25. Given a total income from the industry, it makes no essential difference to the rest of society how it is divided between labor and capital. It will do the rest of society exactly as much good if the laborers in this group get the $75 as if the capitalists get it; but it makes a great difference to the laborers themselves in this particular group.

Another argument equally misleading is that, while the general rate of wages has risen, the rate of interest has fallen. As an objection to our conclusion that the capitalist class has gained more than the laboring class as the result of modern improvements, this looks plausible. In reality, however, it has three fatal weaknesses. In the first place, tho the rate of interest has fallen, the 1, the gross amount of interest has risen. The opportunities for the use of capital have so expanded as to make it possible for a considerable portion of the community to live entirely from the income of its capital. Before the régime of machine production, the opportunities for the use of capital were so limited that it was practically impossible for any considerable number to make a living as mere capitalists. It was usually necessary for each would-be capitalist to combine the function of a laborer with that of the capitalist. It was this aspect of the case which led Karl Marx and some of his admirers into the mistaken notion that capital in the modern sense came into existence with the rise of the factory system. Of course, capital existed in the same sense as now, as far back as there were tools; but, so long as there were very few and simple tools, there was no room for any one to own and manipulate sufficient capital to make a living from it alone, without combining also the function of the laborer. But the régime of machine production

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has so enormously increased the opportunities for the use of capital that it became possible to separate the function of the capitalist from that of the laborer. In other words, it became possible for certain men to own and manipulate enough capital to enable them to live from its income alone. In this sense, the capitalists, as a distinct class in society, may be said to have come into existence with the rise of the modern factory system, tho capital had existed always. It has also become advantageous to use capital in large aggregates, and this has given a phenomenal growth to the joint-stock principle, and this in turn has stimulated the multiplication of paper evidences of joint ownership. These are sometimes mistakenly called capital, and have even led certain economists astray as to the nature of capital.

The real point is very well illustrated by the example cited by Professor Marshall, of certain money-lenders in London and Paris, who lend small amounts at 10 per cent. per day to costermongers. This rate is enormously high, but the amount which can be loaned is so small that the lenders themselves cannot become opulent. In a more primitive condition the operations of the capitalist resembled these rather than the stupendous operations of the present-day capitalist. Tho the rate of interest was high, the amount of capital which any man could handle and find employment for was so small as to keep the capitalist class from coming into existence as such, or at least to keep it from attaining to any considerable importance. In spite of the fall in the rate of interest, the capitalists as a class are vastly better off under present conditions, and these conditions have been largely brought about by the era of mechanical invention.

The second fallacy in the argument that the fall in the rate of interest indicates that the capitalists have lost rather than gained under modern conditions lies in a misunderstanding of the meaning of a rate of interest. A rate of interest is a deceptive thing. It is, as BöhmBawerk has shown, merely a ratio between the valuation of present and future goods. If I possess a given fixed income, say of $1,000, from the ownership of some form of property, the rate of interest will be high or low according as I evaluate the property which is the source of this income. If I and others in my community have so little appreciation of the future, or if we so much prefer present over future goods that we prefer $10,000 now to an income of $1,000 per year through the future, the rate of interest will be high; that is, above 10 per cent. If, on the contrary, the average member of the community prefers the annual income of $1,000 to $20,000 in cash, the rate of interest would be low (that is, below 5 per cent.), tho the income would be precisely the same in both cases. The difference would be that in the one case the value of my property would be estimated at $10,000, and in the second case at $20,000. It would be the same property, would yield the same income, but would yield a lower rate of interest in the latter case merely because it was evaluated more highly.

Principles of Economics, p. 589.

5th edition. London, 1907.

To be sure, if $10,000 has been the normal valuation of my property, and if it is some form of capital rather than land, presumably $10,000 is what it would cost to reproduce it. In that case a rise in the appreciation of the future would, at first, tend to give this capital a higher present selling value. But this would stimulate the production of other instruments to compete with mine. If the cost of producing them remains at $10,000, so many will be produced and put into operation as to reduce my income to $500. In that case I will have the

I same capital, and also as much capital, measured in dollars, as before, but my income will be cut in half. That is to say, if the appreciation of the future should so increase as to make a property yielding an income of $1,000 sell for $20,000 instead of $10,000, it would also make a property yielding $500 sell for $10,000. Since capital is capable of reproduction, my particular form of capital will be duplicated until its annual yield will be only $500, since this, capitalized at the new rate, will give it a selling price high enough to cover its cost of production. In case my income were derived from land, however, which could not be reproduced, the annual yield would remain at $1,000, and the capitalized value of the land would rise to $20,000, and remain there.

Finally, even tho the actual return per unit of capital should have fallen, it would not invalidate our argument. The fall in the return per unit is the result of the enormous increase in the quantity of capital. But the employment of this enormous quantity at any rate of interest would not have been possible, had it not been for the inventions of machinery. Imagine our trying to use enough old-fashioned hand tools to make up an aggregate of capital equal to that which is now in use! Their marginal productivity would probably have been something less than zero.

The argument seems conclusive that the general results of inventions of machinery have been more to the advantage of the capitalist class than of the laboring class, especially if we include only the wage-workers under the latter class.

The justice or the injustice of this result depends upon certain broad questions in social philosophy. It has often been observed that sweeping social changes produce results which are hard to justify. Men of admirable personal qualities, men who were the epitome of all that made men great in the conditions that were passing away, have sometimes been forced to the wall under new con

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