This, accordingly, is a popular mode of speaking on the subject of profits; but it has only the semblance, not the reality, of an explanation. The "productive power of capital," though a common, and, for some purposes, a convenient expression, is a delusive one. Capital, strictly speaking, has no productive power. The only productive power is that of labour; assisted, no doubt, by tools, and acting upon materials. That portion of capital which consists of tools and materials, may be said, perhaps, without any great impropriety, to have a productive power, because they contribute, along with labour, to the accomplishment of production. But that portion of capital which consists of wages, has no productive power of its own. Wages have no productive power; they are the price of a productive power. Wages do not contribute, along with labour, to the production of commodities, no more than the price of tools contributes along with the tools themselves. If labour could be had without purchase, wages might be dispensed with. That portion of capital which is expended in the wages of labour, is only the means by which the capitalist procures to himself, in the way of purchase, the use of that labour in which the power of production really resides.
The proper view of capital is, that anything whatever, which a person possesses, constitutes his capital, provided he is able, and intends, to employ it, not in consumption for the purpose of enjoyment, but in possessing himself of the means of production, with the intention of employing those means productively. Now the means of production are labour, implements, and materials. The only productive power which anywhere exists, is the productive power of labour, implements, and materials.
We need not, on this account, altogether proscribe the expression, "productive power of capital;" but we should carefully note, that it can only mean the quantity of real productive power which the capitalist, by means of his capital, can command. This may change, though the productive power of labour remains the same. Wages, for example, may rise; and then, although all the circumstances of production remain exactly as they were before, the same capital will yield a less return, because it will set in motion a less quantity of productive labour.
We may, therefore, consider the capital of a producer as measured by the means which he has of possessing himself of the different essentials of production: namely, labour, and the various articles which labour requires as materials, or of which it avails itself as aids.
The ratio between the price which he has to pay for these means of production, and the produce which they enable him to raise, is the rate of his profit. If he must give for labour and tools four-fifths of what they will produce, the remaining fifth will constitute his profit, and will give him a rate of one in four, or twenty-five per cent, on his outlay.
It is necessary here to remark, what cannot indeed by any possibility be misunderstood, but might possibly be overlooked in cases where attention to it is indispensable, viz., that we are speaking now of the rate of profit, not the gross profit. If the capital of the country is very great, a profit of only five per cent upon it may be much more ample, may support a much larger number of capitalists and their families in much greater affluence, than a profit of twenty-five per cent on the comparatively small capital of a poor country. The gross profit of a country is the actual amount of necessaries, conveniences, and luxuries, which are divided among its capitalists: but whether this be large or small, the rate of profit may be just the same. The rate of profit is the proportion which the profit bears to the capital; which the surplus produce after replacing the outlay, bears to the outlay. In short, if we compare the price paid for labour and tools with what that labour and those tools will produce, from this ratio we may calculate the rate of profit.
As the gross profit may be very different though the rate of profit be the same; so also may the absolute price paid for labour and tools be very different, and yet the proportion between the price paid and the produce obtained may be just the same. For greater clearness, let us omit, for the present, the consideration of tools, materials, &c, and conceive production as the result solely of labour. In a certain country, let us suppose, the wages of each labourer are one quarter of wheat per year, and 100 men can produce, in one year, 120 quarters. Here the price paid for labour is to the produce of that labour as 100 to 120, and profits are 20 per cent. Suppose now that, in another country, wages are just double what they are in the country before supposed; namely, two quarters of wheat per year, for each labourer. But suppose, likewise, that the productive power of labour is double what it is in the first country; that by the greater fertility of the soil, 100 men can produce 240 quarters, instead of 120 as before. Here it is obvious, that the real price paid for labour is twice as great in the one country as in the other; but the produce being also twice as great, the ratio between the price of labour and the produce of labour is still exactly the same: an outlay of 200 quarters gives a return of 240 quarters, and profits, as before, are 20 per cent.
Profits, then (meaning not gross profits, but the rate of profit), depend (not upon the price of labour, tools, and materials—but) upon the ratio between the price of labour, tools, and materials, and the produce of them: upon the proportionate share of the produce of industry which it is necessary to offer, in order to purchase that industry and the means of setting it in motion.
We have hitherto spoken of tools, buildings, and materials, as essentials of production, co-ordinate with labour, and equally indispensable with it. This is true; but it is also true that tools, buildings, and materials, are themselves the produce of labour; and that the only cause (cases of monopoly excepted) of their having any value, is the labour which is required for their production.