§ 3. General Tendency of Profits to an Equality.

After due allowance is made for these various causes of inequality, namely, difference in the risk or agreeableness of different employments, and natural or artificial monopolies [which give greater or less wages of superintendence], [pg 221] the rate of profit on capital in all employments tends to an equality. That portion of profit which is properly interest, and which forms the real remuneration for abstinence, is strictly the same at the same time and place, whatever be the employment. The rate of interest, on equally good security, does not vary according to the destination of the principal, though it does vary from time to time very much, according to the circumstances of the market.

It is far otherwise with gross profit, which, though (as will presently be seen) it does not vary much from employment to employment, varies very greatly from individual to individual, and can scarcely be in any two cases the same. It depends on the knowledge, talents, economy, and energy of the capitalist himself, or of the agents whom he employs; on the accidents of personal connection; and even on chance. Hardly any two dealers in the same trade, even if their commodities are equally good and equally cheap, carry on their business at the same expense, or turn over their capital in the same time. That equal capitals give equal profits, as a general maxim of trade, would be as false as that equal age or size gives equal bodily strength, or that equal reading or experience gives equal knowledge. The effect depends as much upon twenty other things as upon the single cause specified. On an average (whatever may be the occasional fluctuations) the various employments of capital are on such a footing as to hold out, not equal profits, but equal expectations of profit, to persons of average abilities and advantages. By equal, I mean after making compensation for any inferiority in the agreeableness or safety of an employment. If the case were not so; if there were, evidently, and to common experience, more favorable chances of pecuniary success in one business than in others, more persons would engage their capital in the business. If, on the contrary, a business is not considered thriving; if the chances of profit in it are thought to be inferior to those in other employments; capital gradually leaves it, or at least new capital is not attracted to it; and by this change in the distribution of [pg 222] capital between the less profitable and the more profitable employments, a sort of balance is restored.

This may be easily shown by a diagram in which the capital in one employment is represented by A B, and which exceeds C D, that in another employment, by the amount of A F. It is not necessary that the whole of the excess, A F should be transferred to C D to make the two capitals equal, but only A E, which, added to C D, brings C D to an equality with E B.

This equalizing process, commonly described as the transfer of capital from one employment to another, is not necessarily the onerous, slow, and almost impracticable operation which it is very often represented to be. In the first place, it does not always imply the actual removal of capital already embarked in an employment. In a rapidly progressive state of capital, the adjustment often takes place by means of the new accumulations of each year, which direct themselves in preference toward the more thriving trades. Even when a real transfer of capital is necessary, it is by no means implied that any of those who are engaged in the unprofitable employment relinquish business and break up their establishments. The numerous and multifarious channels of credit through which, in commercial nations, unemployed capital diffuses itself over the field of employment, flowing over in greater abundance to the lower levels, are the means by which the equalization is accomplished. The process consists in a limitation by one class of dealers or producers and an extension by the other of that portion of their business which is carried on with borrowed capital.

“Political economists say that capital sets toward the most profitable trades, and that it rapidly leaves the less profitable and non-paying trades. But in ordinary countries this is a slow process, and some persons, who want to have ocular demonstrations of abstract truths, have been inclined to doubt it because they could not see it. The process would be visible enough if you could only see the books of the bill-brokers and the bankers. If the iron-trade ceases to be as profitable as [pg 223] usual, less iron is sold; the fewer the sales the fewer the bills; and in consequence the number of iron bills [at the banks] is diminished. On the other hand, if, in consequence of a bad harvest, the corn trade becomes on a sudden profitable, immediately ‘corn bills’ are created in large numbers, and, if good, are discounted [at the banks]. Thus capital runs as surely and instantly where it is most wanted, and where there is most to be made of it, as water runs to find its level.”177

In the case of an altogether declining trade, in which it is necessary that the production should be, not occasionally varied, but greatly and permanently diminished, or perhaps stopped altogether, the process of extricating the capital is, no doubt, tardy and difficult, and almost always attended with considerable loss; much of the capital fixed in machinery, buildings, permanent works, etc., being either not applicable to any other purpose, or only applicable after expensive alterations; and time being seldom given for effecting the change in the mode in which it would be effected with least loss, namely, by not replacing the fixed capital as it wears out. There is besides, in totally changing the destination of a capital, so great a sacrifice of established connection, and of acquired skill and experience, that people are always very slow in resolving upon it, and hardly ever do so until long after a change of fortune has become hopeless.

In general, then, although profits are very different to different individuals, and to the same individual in different years, there can not be much diversity at the same time and place in the average profits of different employments (other than the standing differences necessary to compensate for difference of attractiveness), except for short periods, or when some great permanent revulsion has overtaken a particular trade. It is true that, to persons with the same amount of original means, there is more chance of making a large fortune in some employments than in others. But it would be found that in those same employments bankruptcies also are more frequent, and that the chance of greater success is balanced by a greater probability of complete failure.

[pg 224]