The Principles of Political Economy
by John Stuart Mill

Book 4

Chapter 4

Of the Tendency of Profits to a Minimum

    1. The tendency of profits to fall as society advances, which
has been brought to notice in the preceding chapter, was early
recognized by writers on industry and commerce; but the laws
which govern profits not being then understood, the phenomenon
was ascribed to a wrong cause. Adam Smith considered profits to
be determined by what he called the competition of capital; and
concluded that when capital increased, this competition must
likewise increase, and profits must fall. It is not quite certain
what sort of competition Adam Smith had here in view. His words
in the chapter on Profits of Stock(1*) are, 'When the stocks of
many rich merchants are turned into the same trade, their mutual
competition naturally tends to lower its profits; and when there
is a like increase of stock in all the different trades carried
on in the same society, the same competition must produce the
same effect in them all.' This passage would lead us to infer
that, in Adam Smith's opinion, the manner in which the
competition of capital lowers profits is by lowering prices; that
being usually the mode in which an increased investment of
capital in any particular trade, lowers the profits of that
trade. But if this was his meaning, he overlooked the
circumstance, that the fall of price, which if confined to one
commodity really does lower the profits of the producer, ceases
to have that effect as soon as it extends to all commodities;
because, when all things have fallen, nothing has really fallen,
except nominally; and even computed in money, the expenses of
every producer have diminished as much as his returns. Unless
indeed labour be the one commodity which has not fallen in money
price, when all other things have: if so, what has really taken
place is a rise of wages; and it is that, and not the fall of
prices, which has lowered the profits of capital. There is
another thing which escaped the notice of Adam Smith; that the
supposed universal fall of prices, through increased competition
of capitals, is a thing which cannot take place. Prices are not
determined by the competition of the sellers only, but also by
that of the buyers; by demand as well as supply. The demand which
affects money prices consists of all the money in the hands of
the community, destined to be laid out in commodities; and as
long as the proportion of this to the commodities is not
diminished, there is no fall of general prices. Now, howsoever
capital may increase, and give rise to an increased production of
commodities, a full share of the capital will be drawn to the
business of producing or importing money, and the quantity of
money will be augmented in an equal ratio with the quantity of
commodities. For if this were not the case, and if money,
therefore, were, as the theory supposes, perpetually acquiring
increased purchasing power, those who produced or imported it
would obtain constantly increasing profits; and this could not
happen without attracting labour and capital to that occupation
from other employments. If a general fall of prices, and
increased value of money, were really to occur, it could only be
as a consequence of increased cost of production, from the
gradual exhaustion of the mines. 
    It is not tenable, therefore, in theory, that the increase of
capital produces, or tends to produce, a general decline of money
prices. Neither is it true, that any general decline of prices,
as capital increased, has manifested itself in fact. The only
things observed to fall in price with the progress of society,
are those in which there have been improvements in production,
greater than have taken place in the production of the precious
metals; as for example, all spun and woven fabrics. Other things,
again, instead of falling, have risen in price, because their
cost of production, compared with that of gold and silver, has
increased. Among these are all kinds of food, comparison being
made with a much earlier period of history. The doctrine,
therefore, that competition of capital lowers profits by lowering
prices, is incorrect in fact, as well as unsound in principle.
    But it is not certain that Adam Smith really held that
doctrine; for his language on the subject is wavering and
unsteady, denoting the absence of a definite and well-digested
opinion. Occasionally he seems to think that the mode in which
the competition of capital lowers profits, is by raising wages.
And when speaking of the rate of profit in new colonies, he seems
on the very verge of grasping the complete theory of the subject.
'As the colony increases, the profits of stock gradually
diminish. When the most fertile and best situated lands have been
all occupied, less profit can be made by the cultivators of what
is inferior both in soil and situation.' Had Adam Smith meditated
longer on the subject, and systematized his view of it by
harmonizing with each other the various glimpses which he caught
of it from different points, he would have perceived that this
last is the true cause of the fall of profits usually consequent
upon increase of capital. 

    2. Mr Wakefield, in his Commentary on Adam Smith, and his
important writings on Colonization, takes a much clearer view of
the subject, and arrives, through a substantially correct series
of deductions, at practical conclusions which appear to me just
and important; but he is not equally happy in incorporating his
valuable speculations with the results of previous thought, and
reconciling them with other truths. Some of the theories of Dr
Chalmers, in his chapter 'On the Increase and Limits of Capital',
and the two chapters which follow it, coincide in their tendency
and spirit with those of Mr Wakefield; but Dr Chalmers' ideas,
though delivered, as is his custom, with a most attractive
semblance of clearness, are really on this subject much more
confused than even those of Adam Smith, and more decidedly
infected with the often refuted notion that the competition of
capital lowers general prices; the subject of Money apparently
not having been included among the parts of Political Economy
which this acute and vigorous writer had carefully studied. 
    Mr Wakefield's explanation of the fall of profits is briefly
this. Production is limited not solely by the quantity of capital
and of labour, but also by the extent of the 'field of
employment'. The field of employment for capital is twofold; the
land of the country, and the capacity of foreign markets to take
its manufactured commodities. On a limited extent of land, only a
limited quantity of capital can find employment at a profit. As
the quantity of capital approaches this limit, profit falls; when
the limit is attained, profit is annihilated; and can only be
restored through an extension of the field of employment, either
by the acquisition of fertile land, or by opening new markets in
foreign countries, from which food and materials can be purchased
with the products of domestic capital. These propositions are, in
my opinion, substantially true; and, even to the phraseology in
which they are expressed, considered as adapted to popular and
practical rather than scientific uses, I have nothing to object.
The error which seems to me imputable to Mr Wakefield is that of
supposing his doctrines to be in contradiction to the principles
of the best school of preceding political economists, instead of
being, as they really are, corollaries from those principles;
though corollaries which, perhaps, would not always have been
admitted by those political economists themselves. 
    The most scientific treatment of the subject which I have met
with, is in an essay on the effects of Machinery, published in
the Westminster Review for January 1826, by Mr William Ellis;(2*)
which was doubtless unknown to Mr Wakefield, but which had
preceded him, though by a different path, in several of his
leading conclusions. This essay excited little notice, partly
from being published anonymously in a periodical, and partly
because it was much in advance of the state of political economy
at the time. In Mr Ellis's view of the subject, the questions and
difficulties raised by Mr Wakefield's speculations and by those
of Dr Chalmers, find a solution consistent with the principles of
political economy laid down in the present treatise. 

    3. There is at every time and place some particular rate of
profit, which is the lowest that will induce the people of that
country and time to accumulate savings, and to employ those
savings productively. This minimum rate of profit varies
according to circumstances. It depends on two elements. One is,
the strength of the effective desire of accumulation; the
comparative estimate made by the people of that place and era, of
future interests when weighed against present. This element
chiefly affects the inclination to save. The other element, which
affects not so much the willingness to save as the disposition to
employ savings productively, is the degree of security of capital
engaged in industrial operations. A state of general insecurity,
no doubt affects also the disposition to save. A hoard may be a
source of additional danger to its reputed possessor. But as it
may also be a powerful means of averting dangers, the effects in
this respect may perhaps be looked upon as balanced. But in
employing any funds which a person may possess as capital on his
own account, or in lending it to others to be so employed, there
is always some additional risk, over and above that incurred by
keeping it idle in his own custody. This extra risk is great in
proportion as the general state of society is insecure: it may be
equivalent to twenty, thirty, or fifty per cent, or to no more
than one or two; something, however, it must always be: and for
this, the expectation of profit must be sufficient to compensate.

    There would be adequate motives for a certain amount of
saving, even if capital yielded no profit. There would be an
inducement to lay by in good times a provision for bad; to
reserve something for sickness and infirmity, or as a means of
leisure and independence in the latter part of life, or a help to
children in the outset of it. Savings, however, which have only
these ends in view, have not much tendency to increase the amount
of capital permanently in existence. These motives only prompt
persons to save at one period of life what they purpose to
consume at another, or what will be consumed by their children
before they can completely provide for themselves. The savings by
which an addition is made to the national capital, usually
emanate from the desire of persons to improve what is termed
their condition in life, or to make a provision for children or
others, independent of their exertions. Now, to the strength of
these inclinations it makes a very material difference how much
of the desired object can be effected by a given amount and
duration of self-denial; which again depends on the rate of
profit. And there is in every country some rate of profit, below
which persons in general will not find sufficient motive to save
for the mere purpose of growing richer, or of leaving others
better off than themselves. Any accumulation, therefore, by which
the general capital is increased, requires as its necessary
condition a certain rate of profit; a rate which an average
person will deem to be an equivalent for abstinence, with the
addition of a sufficient insurance against risk. There are always
some persons in whom the effective desire of accumulation is
above the average, and to whom less than this rate of profit is a
sufficient inducement to save; but these merely step into the
place of others whose taste for expense and indulgence is beyond
the average, and who, instead of saving, perhaps even dissipate
what they have received. 
    I have already observed that this minimum rate of profit,
less than which is not consistent with the further increase of
capital, is lower in some states of society than in others; and I
may add, that the kind of social progress characteristic of our
present civilization tends to diminish it. In the first place,
one of the acknowledged effects of that progress is an increase
of general security. Destruction by wars, and spoliation by
private or public violence, are less and less to be apprehended;
and the improvements which may be looked for in education and in
the administration of justice, or, in their default, increased
regard for opinion, afford a growing protection against fraud and
reckless mismanagement. The risks attending the investment of
savings in productive employment require, therefore, a smaller
rate of profit to compensate for them than was required a century
ago, and will hereafter require less than at present. In the
second place, it is also one of the consequences of civilization
that mankind become less the slaves of the moment, and more
habituated to carry their desires and purposes forward into a
distant future. This increase of providence is a natural result
of the increased assurance with which futurity can be looked
forward to; and is, besides, favoured by most of the influences
which an industrial life exercises over the passions and
inclinations of human nature. In proportion as life has fewer
vicissitudes, as habits become more fixed, and great prizes are
less and less to be hoped for by any other means than long
perseverance, mankind become more willing to sacrifice present
indulgence for future objects. This increased capacity of
forethought and self-control may assuredly find other things to
exercise itself upon than increase of riches, and some
considerations connected with this topic will shortly be touched
upon. The present kind of social progress, however, decidedly
tends, though not perhaps to increase the desire of accumulation,
yet to weaken the obstacles to it, and to diminish the amount of
profit which people absolutely require as an inducement to save
and accumulate. For these two reasons, diminution of risk and
increase of providence, a profit or interest of three or four per
cent is as sufficient a motive to the increase of capital in
England at the present day, as thirty or forty per cent in the
Burmese Empire, or in England at the time of King John. In
Holland during the last century a return of two per cent, on
government security, was consistent with an undiminished, if not
with an increasing capital. But though the minimum rate of profit
is thus liable to vary, and though to specify exactly what it is
would at any given time be impossible, such a minimum always
exists; and whether it be high or low, when once it is reached,
no further increase of capital can for the present take place.
The country has then attained what is known to political
economists under the name of the stationary state. 

    4. We now arrive at the fundamental proposition which this
chapter is intended to inculcate. When a country has long
possessed a large production, and a large net income to make
savings from, and when, therefore, the means have long existed of
making a great annual addition to capital; (the country not
having, like America, a large reserve of fertile land still
unused;) it is one of the characteristics of such a country, that
the rate of profit is habitually within, as it were, a hand's
breadth of the minimum, and the country therefore on the very
verge of the stationary state. By this I do not mean that this
state is likely, in any of the great countries of Europe, to be
soon actually reached, or that capital does not still yield a
profit considerably greater than what is barely sufficient to
induce the people of those countries to save and accumulate. My
meaning is, that it would require but a short time to reduce
profits to the minimum, if capital continued to increase at its
present rate, and no circumstances having a tendency to raise the
rate of profit occurred in the meantime. The expansion of capital
would soon reach its ultimate boundary, if the boundary itself
did not continually open and leave more space. 
    In England, the ordinary rate of interest on government
securities, in which the risk is next to nothing, may be
estimated at a little more than three per cent: in all other
investments, therefore, the interest or profit calculated upon
(exclusively of what is properly a remuneration for talent or
exertion) must be as much more than this amount, as is equivalent
to the degree of risk to which the capital is thought to be
exposed. Let us suppose that in England even so small a net
profit as one per cent, exclusive of insurance against risk,
would constitute a sufficient inducement to save, but that less
than this would not be a sufficient inducement. I now say, that
the mere continuance of the present annual increase of capital,
if no circumstance occurred to counteract its effect, would
suffice in a small number of years to reduce the rate of net
profit to one per cent. 
    To fulfil the conditions of the hypothesis, we must suppose
an entire cessation of the exportation of capital for foreign
investment. No more capital sent abroad for railways or loans; no
more emigrants taking capital with them, to the colonies, or to
other countries; no fresh advances made, or credits given, by
bankers or merchants to their foreign correspondents. We must
also assume that there are no fresh loans for unproductive
expenditure, by the government, or on mortgage, or otherwise; and
none of the waste of capital which now takes place by the failure
of undertaking, which people are tempted to engage in by the hope
of a better income than can be obtained in safe paths at the
present habitually low rate of profit. We must suppose the entire
savings of the community to be annually invested in really
productive employment within the country itself; and no new
channels opened by industrial inventions, or by a more extensive
substitution of the best known processes for inferior ones. 
    Few persons would hesitate to say, that there would be great
difficulty in finding remunerative employment every year for so
much new capital, and most would conclude that there would be
what used to be termed a general glut; that commodities would be
produced, and remain unsold, or be sold only at a loss. But the
full examination which we have already given to this
question,(3*) has shown that this is not the mode in which the
inconvenience would be experienced. The difficulty would not
consist in any want of a market. If the new capital were duly
shared among many varieties of employment, it would raise up a
demand for its own produce, and there would be no cause why any
part of that produce should remain longer on hand than formerly.
What would really be, not merely difficult, but impossible, would
be to employ this capital without submitting to a rapid reduction
of the rate of profit. 
    As capital increased, population either would also increase,
or it would not. If it did not, wages would rise, and a greater
capital would be distributed in wages among the same number of
labourers. There being no more labour than before, and no
improvements to render the labour more efficient, there would not
be any increase of the produce; and as the capital, however
largely increased, would only obtain the same gross return, the
whole savings of each year would be exactly so much subtracted
from the profits of the next and of every following year. It is
hardly necessary to say that in such circumstances profits would
very soon fall to the point at which further increase of capital
would cease. An augmentation of capital, much more rapid than
that of population, must soon reach its extreme limit, unless
accompanied by increased efficiency of labour (through inventions
and discoveries, or improved mental and physical education), or
unless some of the idle people, or of the unproductive labourers,
became productive. 
    If population did increase with the increase of capital, and
in proportion to it, the fall of profits would still be
inevitable. Increased population implies increased demand for
agricultural produce. In the absence of industrial improvements,
this demand can only be supplied at an increased cost of
production, either by cultivating worse land, or by a more
elaborate and costly cultivation of the land already under
tillage. The cost of the labourer's subsistence is therefore
increased; and unless the labourer submits to a deterioration of
his condition, profits must fall. In an old country like England,
if, in addition to supposing all improvement in domestic
agriculture suspended, we suppose that there is no increased
production in foreign countries for the English market, the fall
of profits would be very rapid. If both these avenues to an
increased supply of food were closed, and population continued to
increase, as it is said to do, at the rate of a thousand a day,
all waste land which admits of cultivation in the existing state
of knowledge would soon be cultivated, and the cost of production
and price of food would be so increased, that, if the labourers
received the increased money wages necessary to compensate for
their increased expenses, profits would very soon reach the
minimum. The fall of profits would be retarded if money wages did
not rise, or rose in a less degree; but the margin which can be
gained by a deterioration of the labourers' condition is a very
narrow one: in general they cannot bear much reduction; when they
can, they have also a higher standard of necessary requirements,
and will not. On the whole, therefore, we may assume that in such
a country as England, if the present annual amount of savings
were to continue, without any of the counteracting circumstances
which now keep in check the natural influence of those savings in
reducing profit, the rate of profit would speedily attain the
minimum, and all further accumulation of capital would for the
present cease. 

    5. What, then, are these counteracting circumstances, which,
in the existing state of things, maintain a tolerably equal
struggle against the downward tendency of profits, and prevent
the great annual savings which take place in this country, from
depressing the rate of profit much nearer to that lowest point to
which it is always tending, and which, left to itself, it would
so promptly attain? The resisting agencies are of several kinds. 
    First among them, we may notice one which is so simple and so
conspicuous, that some political economists, especially M. de
Sismondi and Dr Chalmers, have attended to it almost to the
exclusion. of all others. This is, the waste of capital in
periods of over.trading and rash speculation, and in the
commercial revulsions by which such times are always followed. It
is true that a great part of what is lost at such periods is not
destroyed, but merely transferred, like a gambler's losses, to
more successful speculators. But even of these mere transfers, a
large portion is always to foreigners, by the hasty purchase of
unusual quantities of foreign goods at advanced prices. And much
also is absolutely wasted. Mines are opened, railways or bridges
made, and many other works of uncertain profit commenced, and in
these enterprises much capital is sunk which yields either no
return, or none adequate to the outlay. Factories are built and
machinery erected beyond what the market requires, or can keep in
employment. Even if they are kept in employment, the capital is
no less sunk; it has been converted from circulating into fixed
capital, and has ceased to have any influence on wages or
profits. Besides this, there is a great unproductive consumption
of capital, during the stagnation which follows a period of
general overtrading. Establishments are shut up, or kept working
without any profit, hands are discharged, and numbers of persons
in all ranks, being deprived of their income, and thrown for
support on their savings, find themselves, after the crisis has
passed away, in a condition of more or less impoverishment. Such
are the effects of a commercial revulsion: and that such
revulsions are almost periodical, is a consequence of the very
tendency of profits which we are considering. By the time a few
years have passed over without a crisis, so much additional
capital has been accumulated, that it is no longer possible to
invest it at the accustomed profit: all public securities rise to
a high price, the rate of interest on the best mercantile
security falls very low, and the complaint is general among
persons in business that no money is to be made. Does not this
demonstrate how speedily profit would be at the minimum, and the
stationary condition of capital would be attained, if these
accumulations went on without any counteracting principle? But
the diminished scale of all safe gains, inclines persons to give
a ready ear to any projects which hold out, though at the risk of
loss, the hope of a higher rate of profit; and speculations
ensue, which, with the subsequent revulsions, destroy, or
transfer to foreigners, a considerable amount of capital, produce
a temporary rise of interest and profit, make room for fresh
accumulations, and the same round is recommenced.
    This, doubtless, is one considerable cause which arrests
profits in their descent to the minimum, by sweeping away from
time to time a part of the accumulated mass by which they are
forced down. But this is not, as might be inferred from the
language of some writers, the principal cause. If it were, the
capital of the country would not increase; but in England it does
increase greatly and rapidly. This is shown by the increasing
productiveness of almost all taxes, by the continual growth of
all the signs of national wealth, and by the rapid increase of
population, while the condition of the labourers is certainly not
declining, but on the whole improving. These things prove that
each commercial revulsion, however disastrous, is very far from
destroying all the capital which has been added to the
accumulations of the country since the last revulsion preceding
it, and that, invariably, room is either found or made for the
profitable employment of a perpetually increasing capital,
consistently with not forcing down profits to a lower rate. 

    6. This brings us to the second of the counter.agencies,
namely, improvements in production. These evidently have the
effect of extending what Mr Wakefield terms the field of
employment, that is, they enable a greater amount of capital to
be accumulated and employed without depressing the rate of
profit: provided always that they do not raise, to a proportional
extent, the habits and requirements of the labourer. If the
labouring class gain the full advantage of the increased
cheapness, in other words, if money wages do not fall, profits
are not raised, nor their fall retarded. But if the labourers
people up to the improvement in their condition, and so relapse
to their previous state, profits will rise. All inventions which
cheapen any of the things consumed by the labourers, unless their
requirements are raised in an equivalent degree, in time lower
money wages: and by doing so, enable a greater capital to be
accumulated and employed, before profits fall back to what they
were previously.
    Improvements which only affect things consumed exclusively by
the richer classes, do not operate precisely in the same manner.
The cheapening of lace or velvet has no effect in diminishing the
cost of labour; and no mode can be pointed out in which it can
raise the rate of profit, so as to make room for a larger capital
before the minimum is attained. It, however, produces an effect
which is virtually equivalent; it lowers, or tends to lower, the
minimum itself. In the first place, increased cheapness of
articles of consumption promotes the inclination to save, by
affording to all consumers a surplus which they may lay by,
consistently with their accustomed manner of living; and unless
they were previously suffering actual hardships, it will require
little self-denial to save some part at least of this surplus. In
the next place, whatever enables people to live equally well on a
smaller income, inclines them to lay by capital for a lower rate
of profit. If people can live on an independence of 500l. a year
in the same manner as they formerly could on one of 1000l., some
persons will be induced to save in hopes of the one, who would
have been deterred by the more remote prospect of the other. All
improvements, therefore, in the production of almost any
commodity, tend in some degree to widen the interval which has to
be passed before arriving at the stationary state: but this
effect belongs in a much greater degree to the improvements which
affect the articles consumed by the labourer, since these conduce
to it in two ways; they induce people to accumulate for a lower
profit, and they also raise the rate of profit itself. 

    7. Equivalent in effect to improvements in production, is the
acquisition of any new power of obtaining cheap commodities from
foreign countries. If necessaries are cheapened, whether they are
so by improvements at home or importation from abroad, is exactly
the same thing to wages and profits. Unless the labourer obtains,
and by an improvement of his habitual standard, keeps, the whole
benefit, the cost of labour is lowered, and the rate of profit
raised. As long as food can continue to be imported for an
increasing population without any diminution of cheapness, so
long the declension of profits through the increase of population
and capital is arrested, and accumulation may go on without
making the rate of profit draw nearer to the minimum. And on this
ground it is believed by some, that the repeal of the corn laws
has opened to this country a long era of rapid increase of
capital with an undiminished rate of profit. 
    Before inquiring whether this expectation is reasonable, one
remark must be made, which is much at variance with commonly
received notions. Foreign trade does not necessarily in. crease
the field of employment for capital. It is not the mere opening
of a market for a country's productions, that tends to raise the
rate of profits. If nothing were obtained in exchange for those
productions but the luxuries of the rich, the expenses of no
capitalist would be diminished; profits would not be at all
raised, nor room made for the accumulation of more capital
without submitting to a reduction of profits: and if the
attainment of the stationary state were at all retarded, it would
only be because the diminished cost at which a certain degree of
luxury could be enjoyed, might induce people, in that prospect,
to make fresh savings for a lower profit than they formerly were
willing to do. When foreign trade makes room for more capital at
the same profit, it is by enabling the necessaries of life, or
the habitual articles of the labourer's consumption, to be
obtained at smaller cost. It may do this in two ways; by the
importation either of those commodities themselves, or of the
means and appliances for producing them. Cheap iron has, in a
certain measure, the same effect on profits and the cost of
labour as cheap corn, because cheap iron makes cheap tools for
agriculture and cheap machinery for clothing. But a foreign trade
which neither directly, nor by any indirect consequence,
increases the cheapness of anything consumed by the labourers,
does not, any more than an invention or discovery in the like
case, tend to raise profits or retard their fall; it merely
substitutes the production of goods for foreign markets, in the
room of the home production of luxuries, leaving the employment
for capital neither greater nor less than before. It is true,
that there is scarcely any export trade which, in a country that
already imports necessaries or materials, comes within these
conditions: for every increase of exports enables the country to
obtain all its imports on cheaper terms than before.
    A country which, as is now the case with England, admits food
of all kinds, and all necessaries and the materials of
necessaries, to be freely imported from all parts of the world,
no longer depends on the fertility of her own soil to keep up her
rate of profits, but on the soil of the whole world. It remains
to consider how far this resource can be counted upon, for making
head during a very long period against the tendency of profits to
decline as capital increases.
    It must, of course, be supposed that with the increase of
capital, population also increases; for if it did not, the
consequent rise of wages would bring down profits, in spite of
any cheapness of food. Suppose then that the population of Great
Britain goes on increasing at its present rate, and demands every
year a supply of imported food considerably beyond that of the
year preceding. This annual increase in the food demanded from
the exporting countries, can only be obtained either by great
improvements in their agriculture, or by the application of a
great additional capital to the growth of food. The former is
likely to be a very slow process, from the rudeness and ignorance
of the agricultural classes in the food-exporting countries of
Europe, while the British colonies and the United States are
already in possession of most of the improvements yet made, so
far as suitable to their circumstances. There remains as a
resource, the extension of cultivation. And on this it is to be
remarked, that the capital by which any such extension can take
place, is mostly still to be created. In Poland, Russia, Hungary,
Spain, the increase of capital is extremely slow. In America it
is rapid, but not more rapid than the population. The principal
fund at present available for supplying this country with a
yearly increasing importation of food, is that portion of the
annual savings of America which has heretofore been applied to
increasing the manufacturing establishments of the United States,
and which free trade in corn may possibly divert from that
purpose to growing food for our market. This limited source of
supply, unless great improvements take place in agriculture,
cannot be expected to keep pace with the growing demand of so
rapidly increasing a population as that of Great Britain; and if
our population and capital continue to increase with their
present rapidity, the only mode in which food can continue to be
supplied cheaply to the one, is by sending the other abroad to
produce it. 

    8. This brings us to the last of the counter-forces which
check the downward tendency of profits, in a country whose
capital increases faster than that of its neighbours, and whose
profits are therefore nearer to the minimum. This is, the
perpetual overflow of capital into colonies or foreign countries,
to seek higher profits than can be obtained at home. I believe
this to have been for many years one of the principal causes by
which the decline of profits in England has been arrested. It has
a twofold operation. In the first place, it does what a fire, or
an inundation, or a commercial crisis would have done: it carries
off a part of the increase of capital from which the reduction of
profits proceeds. Secondly, the capital so carried off is not
lost, but is chiefly employed either in founding colonies, which
become large exporters of cheap agricultural produce, or in
extending and perhaps improving the agriculture of older
communities. It is to the emigration of English capital, that we
have chiefly to look for keeping up a supply of cheap food and
cheap materials of clothing, proportional to the increase of our
population; thus enabling an increasing capital to find
employment in the country, without reduction of profit, in
producing manufactured articles with which to pay for this supply
of raw produce. Thus, the exportation of capital is an agent of
great efficacy in extending the field of employment for that
which remains: and it may be said truly that, up to a certain
point, the more capital we send away, the more we shall possess
and be able to retain at home. 
    In countries which are further advanced in industry and
population, and have therefore a lower rate of profit, than
others, there is always, long before the actual minimum is
reached, a practical minimum, viz. when profits have fallen to
much below what they are elsewhere, that, were they to fall
lower, all further accumulations would go abroad. In the present
state of the industry of the world, when there is occasion, in
any rich and improving country, to take the minimum of profits at
all into consideration for practical purposes, it is only this
practical minimum that needs be considered. As long as there are
old countries where capital increases very rapidly, and new
countries where profit is still high, profits in the old
countries will not sink to the rate which would put a stop to
accumulation; the fall is stopped at the point which sends
capital abroad. It is only, however, by improvements in
production, and even in the production of things consumed by
labourers, that the capital of a country like England is
prevented from speedily reaching that degree of lowness of
profit, which would cause all further savings to be sent to find
employment in the colonies, or in foreign countries. 

NOTES:

1. Wealth of Nations, Bk. I, Ch. 9.

2. Now so much better known through his apostolic exertions, by
pen, purse, and person, for the improvement of popular education,
and especially for the introduction into it of the elements of
practical Political Economy. 

3. Bk iii, Ch. XIV.