The Principles of Political Economy
by John Stuart Mill

Book 1, Chapter 11

Of the Law of the Increase of Capital

    1. The requisites of production being labour, capital, and
land, it has been seen from the preceding chapter that the
impediments to the increase of production do not arise from the
first of these elements. On the side of labour there is no
obstacle to an increase of production, indefinite in extent and
of unslackening rapidity. Population has the power of increasing
in an uniform and rapid geometrical ratio. If the only essential
condition of production were labour, the produce might, and
naturally would, increase in the same ratio; and there would be
no limit, until the numbers of mankind were brought to a stand
from actual want of space.
    But production has other requisites, and of these, the one
which we shall next consider is Capital. There cannot be more
people in any country, or in the world, than can be supported
from the produce of past labour until that of present labour
comes in. There will be no greater number of productive labourers
in any country, or in the world, than can be supported from that
portion of the produce of past labour, which is spared from the
enjoyments of its possessor for purposes of reproduction, and is
termed Capital. We have next, therefore, to inquire into the
conditions of the increase of capital: the causes by which the
rapidity of its increase is determined, and the necessary
limitations of that increase.
    Since all capital is the product of saving, that is, of
abstinence from present consumption for the sake of a future
good, the increase of capital must depend upon two things -- the
amount of the fund from which saving can be made, and the
strength of the dispositions which prompt to it.
    The fund from which saving can be made, is the surplus of the
produce of labour, after supplying the necessaries of life to all
concerned in the production: (including those employee in
replacing the materials, and keeping the fixed capital in
repair.) More than this surplus cannot be saved under any
circumstances. As much as this, though it never is saved, always
might be. This surplus is the fund from which the enjoyments, as
distinguished from the necessaries, of the producers are
provided; it is the fund from which all are subsisted, who are
not themselves engaged in production; and from which all
additions are made to capital. It is the real net produce of the
country. The phrase, net produce, is often taken in a more
limited sense, to denote only the profits of the capitalist and
the rent of the landlord, under the idea that nothing can be
included in the net produce of capital, but what is returned to
the owner of the capital after replacing his expenses. But this
is too narrow an acceptation of the term. The capital of the
employer forms the revenue of the labourers, and if this exceeds
the necessaries of life, it gives them a surplus which they may
either expend in enjoyments, or save. For every purpose for which
there can be occasion to speak of the net produce of industry,
this surplus ought to be included in it. When this is included,
and not otherwise, the net produce of the country is the measure
of its effective power; of what it can spare for any purposes of
public utility, or private indulgence; the portion of its produce
of which it can dispose at pleasure; which can be drawn upon to
attain any ends, or gratify any wishes, either of the government
or of individuals; which it can either spend for its
satisfaction, or save for future advantage.
    The amount of this fund, this net produce, this excess of
production above the physical necessaries of the producers, is
one of the elements that determine the amount of saving. The
greater the produce of labour after supporting the labourers, the
more there is which can be saved. The same thing also partly
contributes to determine how much will be saved. A part of the
motive to saving consists in the prospect of deriving an income
from savings; in the fact that capital, employed in production,
is capable of not only reproducing itself but yielding an
increase. The greater the profit that can be made from capital,
the stronger is the to its accumulation. That indeed which forms
the inducement to save, is not the whole of the fund which
supplies the means of saving, not the whole net produce of the
land, capital, and labour of the country, but only a part of it,
the part which forms the remuneration of the capitalist, and is
called profit of stock. It will however be readily enough
understood, even previously to the explanations which will be
given hereafter, that when the general productiveness of labour
and capital is great, the returns to the capitalist are likely to
be large, and that some proportion, though not an uniform one,
will commonly obtain between the two.

    2. But the disposition to save does not wholly depend on the
external inducement to it; on the amount of profit to be made
from savings. With the same pecuniary inducement, the inclination
is very different, in different persons, and in different
communities. The effective desire of accumulation is of unequal
strength, not only according to the. varieties of individual
character, but to the general state of society and civilization.
Like all other moral attributes, it is one in which the human
race exhibits great differences, conformably to the diversity of
its circumstances and the stage of its progress.
    On topics which if they were to be fully investigated would
exceed the bounds that can be allotted to them in this treatise,
it is satisfactory to be able to refer to other works in which
the necessary developments have been presented more at length. On
the subject of Population this valuable service has been rendered
by the celebrated Essay of Mr. Malthus; and on the point which
now occupies us I can refer with equal confidence to another,
though a less known work, "New Principles of Political Economy,"
by Dr. Rae.(1*) In no other book known to me is so much light
thrown, both from principle and history, on the causes which
determine the accumulation of capital.
    All accumulation involves the sacrifice of a present, for the
sake of a future good. But the expediency of such a sacrifice
varies very much in different states of circumstances; and the
willingness to make it, varies still more.
    In weighing the future against the present, the uncertainty
of all things future is a leading element; and that uncertainty
is of very different degrees. "All circumstances" therefore,
"increasing the probability of the provision we make for futurity
being enjoyed by ourselves or others, tend" justly and reasonably
"to give strength to the effective desire of accumulation. Thus a
healthy climate or occupation, by increasing the probability of
life, has a tendency to add to this desire. When engaged in safe
occupations, and living in healthy countries, men are much more
apt to be frugal, than in unhealthy or hazardous occupations, and
in climates pernicious to human life. Sailors and soldiers are
prodigals. In the West Indies, New Orleans, the East Indies, the
expenditure of the inhabitants is profuse. The same people,
coming to reside in the healthy parts of Europe, and not getting
into the vortex of extravagant fashion, live economically. War
and pestilence have always waste and luxury among the other evils
that follow in their train. For similar reasons, whatever gives
security to the affairs of the community is favourable to the
strength of this principle. In this respect the general
prevalence of law and order, and the prospect of the continuance
of peace and tranquillity, have considerable influence." * The
more perfect the security, the greater will be the effective
strength of the desire of accumulation. Where property is less
safe, or the vicissitudes ruinous to fortunes are more frequent
and severe, fewer persons will save at all, and of those who do,
many will require the inducement of a higher rate of profit on
capital, to make them prefer a doubtful future to the temptation
of present enjoyment.
    These are considerations which affect the expediency, in the
eye of reason, of consulting future interests at the expense of
present. But the inclination to make the sacrifice does not
solely depend upon its expediency. The disposition to save is
often far short of what reason would dictate: and at other times
is liable to be in excess of it.
    Deficient strength of the desire of accumulation may arise
from improvidence, or from want of interest in other.
Improvidence may be connected with intellectual as well as moral
causes. individuals and communities of a very low state of
intelligence are always improvident. A certain measure of
intellectual development seems necessary to enable absent things,
and especially things future, to act with any force on the
imagination and will. The effect of want of interest in others in
diminishing accumulation will be admitted, if we considered how
much saving at present takes place, which has for its object the
interest of others rather than of ourselves; the education of
children, their advancement in life, the future interests of
other personal connexions, the power of promoting, by the
bestowal of money or time, objects of public or private
usefulness. If mankind were generally in the state of mind to
which some approach was seen in the declining period of the Roman
Empire -- caring nothing for their heirs, as well as nothing for
friends, the public, or any object which survived them -- they
would seldom deny themselves any indulgence for the sake of
saving, beyond what was necessary for their own future years;
which they would place in life annuities, or in some other form
which would make its existence and their lives terminate
together.

    3. From these various causes, intellectual and moral, there
is, in different portions of the human race, a greater diversity
than is usually adverted to, in the strength of the effective
desire of accumulation. A backward state of general civilization
is often more the effect of deficiency in this particular, than
in many others which attract more attention. In the
circumstances, for example, of a hunting tribe, "man may be said
to be necessarily improvident, and regardless of futurity,
because, in this state, the future presents nothing which can be
with certainty either foreseen or governed...... Besides a want
of the motives exciting to provide for the needs of futurity
through means of the abilities of the present, there is a want of
the habits of perception and action, leading to a constant
connexion in the mind of those distant points, and of the series
of events serving to unite them. Even, therefore, if motives be
awakened capable of producing the exertion necessary to effect
this connexion, there remains the task of training the mind to
think and act so as to establish it."
    For instance: "Upon the banks of the St. Lawrence there are
several little Indian villages. They are surrounded, in general,
by a good deal of land, from which the wood seems to have been
long extirpated, and have, besides, attached to them, extensive
tracts of forest. The cleared land is rarely, I may almost say
never, cultivated, nor are any inroads made in the forest for
such a purpose. The soil is, nevertheless, fertile, and were it
not, manure lies in heaps by their houses. Were every family to
inclose half an acre of ground, till it, and plant it in potatoes
and maize, it would yield a sufficiency to support them one half
the year. They suffer, too, every now and then, extreme want,
insomuch that, joined to occasional intemperance, it is rapidly
reducing their numbers. This, to us, so strange apathy proceeds
not, in any great degree, from repugnance to labour; on the
contrary, they apply very diligently to it when its reward is
immediate. Thus, besides their peculiar occupations of hunting
and fishing, in which they are ever ready to engage, they are
much employed in the navigation of the St. Lawrence, and may be
seen labouring at the oar, or setting with the pole, in the large
boats used for the purpose, and always furnish the greater part
of the additional hands necessary to conduct rafts through some
of the rapids. Nor is the obstacle aversion to agricultural
labour. This is no doubt a prejudice of theirs; but mere
prejudices always yield, principles of action cannot be created.
When the returns from agricultural labour are speedy and great,
they are also agriculturists. Thus, some of the little islands on
Lake St. Francis, near the Indian village of St. Regis, are
favourable to the growth of maize, a plant yielding a return of a
hundredfold, and forming, even when half ripe, a pleasant and
substantial repast. Patches of the best land on these islands are
therefore every year cultivated by them for this purpose. As
their situation renders them inaccessible to cattle, no fence is
required; were this additional outlay necessary, I suspect they
would be neglected, like the commons adjoining their village.
These had apparently, at one time, been under crop. The cattle of
the neighbouring settlers would now, however, destroy any crop
not securely fenced, and this additional necessary outlay
consequently bars their culture. It removes them to an order of
instruments of slower return than that which corresponds to the
strength of the effective desire of accumulation in this little
society.
    "It is here deserving of notice, that what instruments of
this kind they do form, are completely formed. The small spots of
corn they cultivate are thoroughly weeded and hoed. A little
neglect in this part would indeed reduce the crop very much; of
this experience has made them perfectly aware, and they act
accordingly. It is evidently not the necessary labour that is the
obstacle to more extended culture, but the distant return from
that labour. I am assured, indeed, that among some of the more
remote tribes, the labour thus expended much exceeds that given
by the whites. The same portions of ground being cropped without
remission, and manure not being used, they would scarcely yield
any return, were not the soil most carefully broken and
pulverized, both with the hoe and the hand. In such a situation a
white man would clear a fresh piece of ground. It would perhaps
scarce repay his labour the first year, and he would have to look
for his reward in succeeding years. On the Indian, succeeding
years are too distant to make sufficient impression; though, to
obtain what labour may bring about in the course of a few months,
he toils even more assiduously than the white man."*
    This view of things is confirmed by the experience of the
Jesuits, in their interesting efforts to civilize the Indians of
Paraguay. They gained the confidence of these savages in a most
extraordinary degree. They acquired influence over them
sufficient to make them change their whole manner of life. They
obtained their absolute submission and obedience. They
established peace. They taught them all the operations of
European agriculture, and many of the more difficult arts. There
were everywhere to be seen, according to Charlevoix, "workshops
of gilders, painters, sculptors, goldsmiths, watchmakers,
carpenters, joiners, dyers," * &c. These occupations were not
practised for the personal gain of the artificers: the produce
was at the absolute disposal of the missionaries, who ruled the
people by a voluntary despotism. The obstacles arising from
aversion to labour were therefore very completely overcome. The
real difficulty was the improvidence of the people; their
inability to think for the future: and the necessity accordingly
of the most unremitting and minute superintendence on the part of
their instructors. "Thus at first, if these gave up to them the
care of the oxen with which they ploughed, their indolent
thoughtlessness would probably leave them at evening still yoked
to the implement. Worse than this, instances occurred where they
cut them up for supper, thinking, when reprehended, that they
sufficiently excused themselves by saying they were hungry....
These fathers, says Ulloa, have to visit the houses, to examine
what is really wanted: for without this care, the Indians would
never look after anything. They must be present, too, when
animals are slaughtered, not only that the meat may be equally
divided, but that nothing may be lost." "But notwithstanding all
this care and superintendence," says Charlevoix, "and all the
precautions which are taken to prevent any want of the
necessaries of life, the missionaries are sometimes much
embarrassed. It often happens that they" (the Indians,) "do not
reserve to themselves a sufficiency of grain, even for seed. As
for their other provisions, were they not well looked after, they
would soon be without wherewithal to support life."*
    As an example intermediate, in the strength of the effective
desire of accumulation, between the state of things thus depicted
and that of modern Europe, the case of the Chinese deserves
attention. From various circumstances in their personal habits
and social condition, it might be anticipated that they would
possess a degree of prudence and self-control greater than other
Asiatics, but inferior to most European nations. and the
following evidence is adduced of the fact.
    "Durability is one of the chief qualities, marking a high
degree of the effective desire of accumulation. The testimony of
travellers ascribes to the instruments formed by the Chinese, a
very inferior durability to similar instruments constructed by
Europeans. The houses, we are told, unless of the higher ranks,
are in general of unburnt bricks, of clay, or of hurdles
plastered with earth; the roofs, of reeds fastened to laths. We
can scarcely conceive more unsubstantial or temporary fabrics.
Their partitions are of paper, requiring to be renewed every
year. A similar observation may be made concerning their
implements of husbandry, and other utensils. They are almost
entirely of wood, the metals entering but very sparingly into
their construction; consequently they soon wear out, and require
frequent renewals. A greater degree of strength in the effective
desire of accumulation, would cause them to be constructed of
materials requiring a greater present expenditure but being far
more durable. From the same cause, much land, that in other
countries would be cultivated, lies waste. All travellers take
notice of large tracts of lands, chiefly swamps, which continue
in a state of nature. To bring a swamp into tillage is generally
a process, to complete which, requires several years. It must be
previously drained, the surface long exposed to the sun, and many
operations performed, before it can be made capable of bearing a
crop. Though yielding, probably, a very considerable return for
the labour bestowed on it, that return is not made until a long
time has elapsed. The cultivation of such land implies a greater
strength of the effective desire of accumulation than exists in
the empire.
    "The produce of the harvest is, as we have remarked, always
an instrument of some order or another; it is a provision for
future want, and regulated by the same laws as those to which
other means of attaining a similar end conform. It is there
chiefly rice, of which there are two harvests, the one in June,
the other in October. The period then of eight months between
October and June, is that for which provision is made each year,
and the different estimate they make of to-day and this day eight
months will appear in the self-denial they practise now, in order
to guard against want then. The amount of this self-denial would
seem to be small. The father Parennin, indeed, (who seems to have
been one of the most intelligent of the Jesuits, and spent a long
life among the Chinese of all classes,) asserts, that it is their
great deficiency in forethought and frugality in this respect,
which is the cause of the scarcities and famines that frequently
occur."
    That it is defect of providence, not defect of industry, that
limits production among the Chinese, is still more obvious than
in the case of the semi-agriculturized Indians. "Where the
returns are quick, where the instruments formed require but
little time to bring the events for which they were formed to an
issue," it is well known that "the great progress which has been
made in the knowledge of the arts suited to the nature of the
country and the wants of its inhabitants" makes industry
energetic and effective. "The warmth of the climate, the natural
fertility of the country, the knowledge which the inhabitants
have acquired of the arts of agriculture, and the discovery and
gradual adaptation to every soil of the most useful vegetable
productions, enable them very speedily to draw from almost any
part of the surface, what is there esteemed an equivalent to much
more than the labour bestowed in tilling and cropping it. They
have commonly double, sometimes treble harvests. These, when they
consist of a Cain so productive as rice, the usual crop, can
scarce fail to yield to their skill, from almost any portion of
soil that can be at once brought into culture, very ample
returns. Accordingly there is no spot that labour can immediately
bring under cultivation that is not made to yield to it. Hills,
even mountains, are ascended and formed into terraces; and water,
in that country the great productive agent, is led to every part
by drains, or carried up to it by the ingenious and simple
hydraulic machines which have been in use from time immemorial
among this singular people. They effect this the more easily,
from the soil, even in these situations, being very deep and
covered with much vegetable mould. But what yet more this marks
the readiness with which labour is forced to form the most
difficult materials into instruments, where these instruments
soon bring to an issue the events for which they are formed, is
the frequent occurrence on many of their lakes and rivers, of
structures resembling the floating gardens of the Peruvians,
rafts covered with vegetable soil and cultivated. Labour in this
way draws from the materials on which it acts very speedy
returns. Nothing can exceed the luxuriance of vegetation when the
quickening powers of a genial sun are ministered to by a rich
soil and abundant moisture. It is otherwise, as we have seen, in
cases where the return, though copious, is distant. European
travellers are surprised at meeting these little floating farms
by the side of swamps which only require draining to render them
tillable. It seems to them strange that labour should not rather
be bestowed on the solid earth, where its fruits might endure,
than on structures that must decay and perish in a few years. The
people they are among think not so much of future years as of the
present time. The effective desire of accumulation is of very
different strength in the one, from what it is in the other. The
views of the European extend to a distant futurity, and he is
surprised at the Chinese, condemned through improvidence, and
want of sufficient prospective care, to incessant toil, and as he
thinks, insufferable wretchedness. The views of the Chinese are
confined to narrower bounds; he is content to live from day to
day, and has learnt to conceive even a life of toil a blessing."*
    When a country has carried production as far as in the
existing state of knowledge it can be carried with an amount of
return corresponding to the average strength of the effective
desire of accumulation in that country, it has reached what is
called the stationary state; the state in which no further
addition will be made to capital, unless there takes place either
some improvement in the arts of production, or an increase in the
strength of the desire to accumulate. In the stationary state,
though capital does not on the whole increase, some persons grow
richer and others poorer. Those whose degree of providence is
below the usual standard, become impoverished, their capital
perishes, and makes room for the savings of those whose effective
desire of accumulation exceeds the average. These become the of
the lands, manufactories, and other instruments of production
owned by their less provident countrymen.
    What the causes are which make the return to capital greater
in one country than in another, and which, in certain
circumstances, make it impossible for any additional capital to
find investment unless at diminished returns, will appear clearly
hereafter. In China, if that count has really attained, as it is
supposed to have done, the stationary state, accumulation has
stopped when the returns to capital are still as high as is
indicated by a rate of interest legally twelve per cent, and
practically varying (it is said) between eighteen and thirty-six.
It is to be presumed therefore that no greater amount of capital
than the country already possesses, can find employment at this
high rate of profit, and that any lower rate does not hold out to
a Chinese sufficient temptation to induce him to abstain from
present enjoyment. What a contrast with Holland, where, during
the most flourishing period of its history, the government was
able habitually to borrow at two per cent, and private
individuals, on good security, at three. Since China is not a
country like Burma or the native states of India, where an
enormous interest is but an indispensable compensation for the
risk incurred from the bad faith or poverty of the state, and of
almost all private borrowers; the fact, if fact it be, that the
increase of capital has come to a stand while the returns to it
are still so large, denotes a much less degree of the effective
desire of accumulation, in other words a much lower estimate of
the future relatively to the present, than that of most European
nations.

    4. We have hitherto spoken of countries in which the average
strength of the desire to accumulate is short of that which, in
circumstances of any tolerable security, reason and sober
calculation would approve. We have now to speak of others in
which it decidedly surpasses that standard. In the more
prosperous countries of Europe, there are to be found abundance
of prodigals; in some of them (and in none more than England) the
ordinary degree of economy and providence among those who live by
manual labour cannot be considered high: still, in a very
numerous portion of the community, the professional,
manufacturing, and trading classes, being those who, generally
speaking, unite more of the means with more of the motives for
saving than any other class, the spirit of accumulation is so
strong, that the signs of rapidly increasing wealth meet every
eye: and the great amount of capital seeking investment excites
astonishment, whenever peculiar circumstances turning much of it
into some one channel, such as railway construction or foreign
speculative adventure, bring the largeness of the total amount
into evidence.
    There are many circumstances, which, in England, give a
peculiar force to the accumulating propensity. The long exemption
of the country from the ravages of war, and the far earlier
period than elsewhere at which property was secure from military
violence or arbitrary spoliation, have produced a long-standing
and hereditary confidence in the safety of funds when trusted out
of the owner's hands, which in most other countries is of much
more recent origin, and less firmly established. The geographical
causes which have made industry rather than war the natural
source of power and importance to Great Britain, have turned an
unusual proportion of the most enterprising and energetic
characters into the direction of manufactures and commerce; into
supplying their wants and gratifying their ambition by producing
and saving, rather than by appropriating what has been produced
and saved. Much also depended on the better political
institutions of this country, which by the scope they have
allowed to individual freedom of action, have encouraged personal
activity and self-reliance, while by the liberty they confer of
association and combination, they facilitate industrial
enterprise on a large scale. The same institutions in another of
their aspects, give a most direct and potent stimulus to the
desire of acquiring wealth. The earlier decline of feudalism
having removed or much weakened invidious distinctions between
the originally trading classes and those who had been accustomed
to despise them; and a polity having grown up which made wealth
the real source of political influence; its acquisition was
invested with a factitious value, independent of its intrinsic
utility. It became synonymous with power; and since power with
the common herd of mankind gives power, wealth became the chief
source of personal consideration, and the measure and stamp of
success in life. To get out of one rank in society into the next
above it, is the great aim of English middle-class life, and the
acquisition of wealth the means. And inasmuch as to be rich
without industry, has always hitherto constituted a step in the
social scale above those who are rich by means of industry, it
becomes the object of ambition to save not merely as much as will
afford a large income while in business, but enough to retire
from business and live in affluence on realized gains. These
causes have, in England, been greatly aided by that extreme
incapacity of the people for personal enjoyment, which is a
characteristic of countries over which puritanism has passed. But
if accumulation is, on one hand, rendered easier by the absence
of a taste for pleasure, it is, on the other, made more difficult
by the presence of a very real taste for expense. So strong is
the association between personal consequence and the signs of
wealth, that the silly desire for the appearance of a large
expenditure has the force of a passion, among large classes of a
nation which derives less pleasure than perhaps any other in the
world from what it spends. Owing to this circumstance, the
effective desire of accumulation has never reached so high a
pitch in England as it did in Holland, where, there being no rich
idle class to set the example of a reckless expenditure, and the
mercantile classes, who possessed the substantial power on which
social influence always waits, being left to establish their own
scale of living and standard of propriety, their habits remained
frugal and unostentatious.
    In England and Holland, then, for a long time past, and now
in most other countries in Europe (which are rapidly following
England in the same race), the desire of accumulation does not
require, to make it effective, the copious returns which it
requires in Asia, but is sufficiently called into action by a
rate of profit so low, that instead of slackening, accumulation
seems now to proceed more rapidly than ever. and the second
requisite of increased production, increase of capital, shows no
tendency to become deficient. So far as that element is
concerned, production is susceptible of an increase without any
assignable bounds.
    The progress of accumulation would no doubt be considerably
checked, if the returns to capital were to be reduced still lower
than at present. But why should any possible increase of capital
have that effect? This question carries the mind forward to the
remaining one of the three requisites of production. The
limitation to production, not consisting in any necessary limit
to the increase of the other two elements, labour and capital,
must turn upon the properties of the only element which is
inherently, and in itself, limited in quantity. It must depend on
the properties of land.

NOTES:

1. This treatise is an example, such as not unfrequently presents
itself, how much more depends on accident, than on the qualities
of a book, in determining its reception. Had it appeared at a
suitable time, and been favoured by circumstances, it would have
had every requisite for great success. The author, a Scotchman
settled in the United States, unites much knowledge, an original
vein of thought, a considerable turn for philosophic
generalities, and a manner of exposition and illustration
calculated to make ideas tell not only for what they are worth,
but for more than they are worth, and which sometimes, I think,
has that effect in the writer's own mind. The principal fault of
the book is the position of antagonism in which, with the
controversial spirit apt to be found in those who have new
thoughts on old subjects, he has placed himself towards Adam
Smith. I call this a fault, (though I think many of the
criticisms just, and some of them far-seeing,) because there is
much less real difference of opinion than might be supposed from
Dr Rae's animadversions and because what he has found vulnerable
in his great predecessor is chiefly the "human too much" in his
premises; the portion of them that is over and above what was
either required or is actually used for the establishment of his
conclusions.