CHAPTER XX.

WAGES AND PROFITS.-DEFINITION.

THE whole revenue of a nation, or the sum of exchangeable values produced, is due to the exertion of present labour, aided by capital, the result of anterior labour, and is divided between them. The reward of the former is wages; the share of the owner of the latter is profit. The two combined constitute what are termed the profits of trade, which are not unfrequently confounded with profits of capital, by which much difficulty is produced. We propose now to inquire in what consists the difference between them.

A man possesses one hundred thousand dollars in government stock, yielding him five per cent. He sees that by investing it in bank stock he may obtain six per cent.; in stock of insurance companies, seven per cent.; in ships, nine or ten per cent., but that if he will engage in trade he may make perhaps twelve per cent., thus more than doubling his income. Why does he not? Why does he permit his money to remain where it yields him only five thousand dollars per annum, when he might have ten or twelve thousand? Because he desires to avoid the labour, anxiety, and risk, attendant upon other modes of investment. By one he would be called upon to devote a small part of his time, and take a small risk; by another, the labour and risk would be increased; and, by the last, he would be called upon to devote his whole time, and assume a large amount of care and risk, the return for which would be his increased income. In other words, he would be required to devote his time and his talents to its employment and would receive wages therefor. The actual profits of capital would be five per cent., and the additional sum would be received as wages, or a reward for the devotion of his time and attention in superintending his investments, and would enable him to provide a fund to insure himself against any loss that might arise out of the mode of invest

ment he had chosen. The whole would be styled "profits of trade."

If a man occupied a house in which he could employ a capital of fifty thousand dollars, yielding him six thousand dollars, interest being six per cent., he would have three thousand dollars for the profit of capital, and an equal sum for the payment of rent and for his wages. If the former were five hundred dollars, his wages would be two thousand five hundred dollars. If, in an adjoining street there were a house in which he could use one hundred thousand dollars as advantageously, he would rent it provided it could be obtained at such rate as would give him an amount of wages that would pay him for the greater amount of time required, and for the increased risk to be incurred, but not otherwise. Interest, at six per cent., upon the capital to be used, would amount to six thousand dollars, leaving six thousand dollars for rent and wages. If the house could be had at fifteen hundred or two thousand dollars, leaving him four thousand or four thousand five hundred dollars, to compensate him for the devotion of his time and attention, he would probably transfer himself and his business to it.

Before doing so, he would ascertain that he could have the proper amount of capital at six per cent. If, on inquiry, he found that the rate of interest had risen to seven per cent., he would see that the increased rent and interest would absorb nearly all the additional return, and that his profits of trade would yield him little more wages than before. He would be obliged to insure to the possessor of the house a certain interest upon its value, and to the owner of other capital a certain interest upon the sum that he required to use, and unless he could do so and retain a sufficient compensation for the application of his time and talents, it would be better for him to try some other pursuit. The great mass of the people in trade are in this situation. They use the capital of others in various forms, paying rent for some of it, and interest upon other portions. They insure to the owners a certain profit, and their own reward, or wages, is contingent upon the result, and may be ruin, or a large fortune. Their clerks give up the chance of large wages, for a small, but certain, compensation for their labour.

Another person sees an opportunity of using one hundred

thousand dollars in such a manner as will yield a profit of twenty thousand dollars. If he value his time and talent, for such an operation, at four thousand dollars, he will be willing to give to the person who supplies the capital, sixteen thousand dollars, unless he can make a better arrangement. All he wants is a proper reward, or wages, for his time.

Were there no usury laws, he might offer to the capitalist an interest of eight, ten, or twelve per cent., but as wise legislators undertake to limit the extent of profits, he is debarred from making such an arrangement, and compelled to give the chief part of what can be made by the operation. Were men permitted to manage their business in such manner as they might deem most advantageous, capital would be rendered more productive; many men who are now obliged to live upon moderate salaries would be enabled to command double, or treble, the reward for their time and talents; and the return to the capitalist would be increased by the freedom with which it could be employed. Production would be increased, and all would be benefited.

It is usual to speak of similar operations as yielding profits, but the profits of capital are received as rent and interest only, and additional reward will always be found to be received as compensation for risk incurred, for the exercise of skill, or for the devotion of time; and therefore to be included under the term wages. To show the difficulty that arises from attaching the idea of profits of capital to any portion of this additional return, we will state the following cases.

A man whose business is to sell oysters, but who, from having no machine in which to carry them about, is compelled to depend upon his hands for the purpose, finds that he can obtain but a shilling per day for his labour. In a short time he obtains a sufficient amount of capital to purchase a basket, and thereby doubles his compensation. No one would undertake to say that the additional reward was profits of capital. He would be considered as receiving better wages. In a short time he saves enough to purchase a wheelbarrow, and again doubles his wages, obtaining, now, four shillings per day. By and by the streets of the town are paved, and he is able to wheel twice the quantity that he has heretofore done, and his wages rise to

eight shillings per day. If the advantage arising out of the substitution of the wheelbarrow for the basket constitute "profits," so does that which arises out of the paving of the streets, towards which he has perhaps contributed a small sum in taxes. His real wages, in this case, would be eight shillings, deducting therefrom whatever he would have been allowed as interest upon the capital used in purchasing the wheelbarrow, and the tax imposed upon him for paving the street. His profits would be what he could obtain for the use of the wheelbarrow, if hired out to another person, after deducting wages for the time that he would be employed in collecting it.

A hair-dresser who occupies a shop for which he pays fifty dollars per annum, and in which he can make only two hundred dollars wages, transfers himself to a more fashionable street, rents a shop that is already furnished with mirrors, &c., for which he pays five hundred dollars, and is thereby enabled to make one thousand dollars, as the reward of his time and talent. He has obtained the use of a better machine, precisely as did the owner of the wheelbarrow, and makes better wages.

Another hair-dresser who has accumulated some capital, rents a room, and employs his means in furnishing it. The result, being precisely the same as in the former case, would here be styled profits of capital, while the other would be called wages, whereas the whole of his income, except interest of the capital employed in furnishing his room, is due to his personal exertions, and may properly be termed wages.

The man who enjoys a reputation for honesty and attention to business, is able to obtain the use of the machine he wishes to use, call it money, or sugars, cottons, cloths, or horses, at a lower rate of interest and to a greater extent, than a man of doubtful character, and is thereby enabled to obtain a larger reward for his time. Here the reduced rate of interest is the reward of his honesty and integrity, and should be added to wages, whereas, according to the ordinary use of the term, it would be only additional profits.

If a woman who had made twenty-five cents per day at sewing, were able, on obtaining the use of a spinning-wheel, to double her wages, it would be deemed absurd to ascribe the difference to profits of capital; but it is not more so than in a

case where a man doubles his income in consequence of chartering a ship, instead of a schooner that he had been accustomed to use.

A man possessed of a capital of ten thousand dollars invests it in the purchase of merchandise, and realizes from it two thousand dollars per annum, all of which, according to the usual mode of speech, would be termed profit. He really receives six hundred dollars interest, or profit, upon his capital, and fourteen hundred dollars reward for the time he devotes to the management of it, or wages. If an opportunity occurred of employing his time more advantageously than in the management of his own capital, he would accept a situation in which he would have to manage that of others. If offered a salary of two thousand dollars, he would place his funds in the stocks, and devote his time to the service of his employer. He would then, certainly, be receiving wages. The only difference between that situation and his former one, would be, that in the former case he managed his own capital, whereas he now managed that of others. His next door neighbour had, however, been all the time employed in managing the capital of others, which he had borrowed from them, and for the use of which he paid a compensation termed interest, yet he is considered as living on profits. It may be said, that in the latter case the party employing the capital took the risk of the success of the business, but so does the pedler with his pack, who makes wages only, although employed in the same business which, on a large scale, produces what are usually termed profits.

Here we see that the difference between profits and wages, according to the usual acceptation of the terms, is entirely fanciful, and subject to no rule; that a difference in the mode of investment of capital produces a difference in the terms by which the proceeds are distinguished, while the result is precisely the same. Such are the difficulties arising out of the want of a proper definition of the terms.

Profit is that portion of the product of labour which is assigned to the owner of capital, in return for the aid derived from its use by the labourer, and is received by him under the name of rent, or interest.