BOOK I. CH. VIII. be due to two motives -foresight and desire for profit. to make wealth by an advantageous investment. The first motive is by far the more powerful. To its action has been which may due the greater part of all wealth which has been saved. But the second motive is the chief cause of fluctuations in the amount of a nation's capital. Whether the amount of capital at any time existing in the country is above or below the average is almost entirely determined by the profit which it may be thought capital will realise. This profit may be estimated by the current rate of interest. But in political economy, as in many other sciences, the causes which produce the disturbing fluctuations require a more careful investigation than those causes whose action is more constant, and more undeviating. The earth when revolving in its orbit is acted on by a great number of forces. It is attracted by every body in the planetary system, yet these forces combined are almost immeasurably inferior to the force of attraction which is exerted by the sun. Most important mathematical investigations, however, depend upon the action of these disturbing forces. Similarly, in political economy, the effects of the more constant causes can be readily estimated; but causes more varying in their action introduce fluctuations and disturbances which must be investigated and classified by the scientific principles of political eco Importance of the desire to accumulate wealth. nomy. As civilisation advances the desire to accumulate wealth increases, and foresight for the future becomes more general. The more men's intellectual and moral faculties are developed, the more careful will they be to make a reasonable provision for the future. The Jesuit missionaries, who a century since formed a settlement in Paraguay, found the great difficulty they had to contend with was the utter recklessness of the people. The missionaries gave them seed. They knew that this seed would, if sown, in a few months yield them a plentiful supply of food, yet they could not be restrained from eating the seed instead of sowing it; the smallest present enjoyment was by them preferred to the greatest prospective advantage. People in such a condition can be very little superior to the more intelligent animals, whose hereditary instincts induce them to provide against danger which they may have to encounter. Birds build nests which are most perfectly adapted to protect their young; beavers construct their habitations on a plan so admirable that it seems almost to rival the skill of man; and even dogs collect a store of food to which they will resort when pressed by hunger. In England the desire to accumulate wealth acts with great force amongst certain classes. It is impossible accurately to define the causes which regulate the amount. saved by any individual, but it may be stated generally that in England each class of society has a recognised standard of living which involves a certain expenditure, and the whole of an individual's income which is in excess of this expenditure is usually saved and invested. The amount which is saved is, therefore, partly dependent at any particular time upon the material prosperity of the country. If activity of trade or any other such circumstance should increase the incomes of any particular class, there would be a larger fund from which savings might be made, and more would be saved. Habit has such a powerful influence in determining expenditure, that it often happens that a man does not spend more, although his income may be greatly increased. Any circumstance, therefore, which tends to augment the wealth of the nation, will induce increased saving. The con It may also be remarked that the amount of an individual's expenditure is to some extent determined by the cost of the commodities which he consumes. sumption of some articles diminishes in proportion to the rise which may take place in their price. In Madras, when the salt duties were recently raised 18 per cent., the result was an increase in the revenue of only 12 per cent. This proves that the consumption of salt was diminished by the increase in its price. It was, for instance, found that when the sugar duties were raised beyond a certain amount, they did not produce a larger revenue. A rise in the price of sugar induces large numbers to give up its use. Such articles, however, as tea and bread, are, in this country, almost universally regarded as necessaries of life; and the quantity of tea and bread which is consumed by those classes who accumulate the capital of the country, is not materially affected by a variation in the price of these commodities. If, therefore, bread and tea decline in price, BOOK I. CH. VIII. Causes of fluctua tions in the saving. the household expenses of the middle and upper classes will be diminished, and a larger portion of their income will remain to be saved as capital. We mention this as applying particularly to the middle and upper classes, because there is no doubt that our labouring population would gladly consume a greater quantity, even of the ordinary necessaries of life, had they the means of purchasing them. If the price of tea is reduced one-half, the labourers will probably continue to spend upon this article as much as they had previously done; they would spend less upon bread if its price was reduced, but the amount which they thus saved would not, as a general rule, be invested by the labourers as capital, but would be applied to satisfy some of the many wants and desires of life, which they have not the means of gratifying. The labourers therefore are benefited in two distinct ways, by the cheapening of any article of ordinary consumption. They have, in the first place, to pay less for it when they purchase it, and secondly, the cheapening of such a product has a tendency to augment the capital of the country, by enabling the middle and upper classes to increase their savings, and the labourers will receive higher wages if capital is increased. We have however before remarked, that the fluctuations in the amount of capital which is saved, depend upon the amount of nature of the opportunities which present themselves for investment. If the profits which can be realised upon capital increase, a greater inducement is offered to save, and a larger amount is sure to be saved. From such a source, either directly or indirectly, any large increase of capital which may be required is mainly supplied. At any particular time there is a certain interest upon capital which people expect, and with less they will not be satisfied. But it will perhaps be said, what does a capitalist do with his capital? if he wants 3 per cent. interest and can only obtain 3 per cent., he will not squander it because he is not satisfied with so low a rate of interest; will, therefore, less wealth be saved? Less, no doubt, will be saved, because a low rate of interest offers less inducement to save; the most important point, however, to be borne in mind is that a much smaller portion of the wealth which is saved will be invested as capital in our own country, when the rate England, far more than any other BOOK I. CH. VII of interest is low. country, offers a striking example of the vast amount of capital which the people are ready to invest, if a favour- Foreignin able opportunity presents itself. When the government vestments. requires a loan, many millions are at once subscribed, without encroaching in the slightest degree upon either the circulating or fixed capital of the country. The loan is not altogether supplied from capital which was previously unemployed, but England has vast sums invested in almost every civilised country. Magnificent as are the tokens of England's wealth which surround us on every side, yet our manufactories, our railroads, our mercantile marine will not give us an adequate idea of England's riches, unless we remember that there are few countries either in the new or the old world that are not our debtors. Russia, Turkey, India, Australia, Canada, the United States, the Republics of South America, all have satisfied their state necessities, by loans supplied from English capital. But it is not only foreign governments who borrow from us; a vast number of foreign speculations have been supported by English capital. A considerable number of railroads throughout the world have been made by English capital; the Grand Trunk Railway of Canada has absorbed 15,000,000l. of English capital. The railways, irrigation works and roads of India have been constructed by English capital, and some of the richest mines in South America have been worked by English companies. Consequently only a portion of the wealth which is annually accumulated in England is retained to be invested in this country. If, therefore, England requires a greater amount of capital to extend any branch of trade or to carry out any public work, she can supply an amount which is practically unlimited. If, for instance, there were such an expansion in our cotton manufacture, that 100.000,000l. of additional capital was required, it would be readily obtained, by placing a check upon the investments of English capital abroad. The amount of capital, therefore, which is applied to the production of wealth in this country, does not depend so much upon the amount which is saved, as upon the proportion retained by the country itself of all the wealth which is saved. The relative amount of English capital which is invested at home and BOOK I. CH. VIII. Economi cal condition of foreign countries abroad is regulated by many considerations, the chief of which is the rate of interest which can be obtained at home compared to that which can be obtained in foreign countries. We have explained that the English government may raise large loans without diminishing the capital invested in English industry, the loans being chiefly derived from capital which would otherwise have as to the re-been embarked in foreign investments. Yet it must be quisites of borne in mind that this remark does not apply to France production. and to other countries from which little capital is exported. Thus France was congratulated at the close of the war upon the ease with which she raised successive loans, amounting to many hundred millions of pounds, to defray the expenses of her war with Germany and to pay the German indemnity. A portion of these vast loans was probably supplied from money which had been hoarded; but a great portion of them was no doubt obtained from capital which would otherwise have been re-employed in the production of wealth. The war had caused, over a great part of France, an almost entire cessation of production. Hence, as the war proceeded and as trade declined, there was a large amount of capital which had previously been employed in productive industry ready at hand to be lent to the government to be consumed in war. It is a most serious misfortune to France that even after the war was concluded, the indemnity of 240,000,000l. which she had to pay to Germany withdrew a large amount of capital from France which might have been employed in reviving the various branches of industry which had suffered so much during the war. India has abundance of land and labour, but little ca pital. India affords another example that the economic condition of England must not be taken to be the type of the economic condition of other countries. England, in many respects, offers a direct antithesis to other countries; thus, she possesses an almost unlimited capital, but has very little fertile land at the present time uncultivated. India and many other countries are very deficient in capital, but possess vast tracts of fertile land still untilled; therefore, contrasting England and India, the increased production of wealth will take place under very different conditions in the two countries. In England capital is readily supplied to assist an increased production of wealth. The labourers' |