A capitalist, then, must have some inducement for running into these disagreeable risks; by lending his capital to the government he might get interest for it, and be nearly sure not to lose. If, then, he puts it into trade, and runs the risk of loss, he must have a recompense for the risk. This ought to be at least enough to make the profits of the successful business balance the losses of the unfortunate ones, so that on the average capitalists will get the interest of capital and the wages of superintendence free from loss. We may say, then, that—
profit = wages of superintendence + interest + recompense for risk.
42. About Interest. That which is paid for the use of capital altogether apart from what is due for the trouble and risk of the person conducting the business, is called interest. This interest, of course, will be greater or less according as the amount of capital is greater or less; it will also be greater or less according as the capital is employed for a longer or shorter time. Thus the rate of interest is always stated in proportion to the capital sum and to the time; five per cent. per annum means that, for every hundred pounds of capital, five pounds are paid during every year in which the capital is used, and in the same proportion for longer or shorter times.
The rates of interest actually paid in business vary very much, from one or two per cent. up to fifty per cent. or more. When the rate is above five or six per cent., it will be to some extent not true interest, but compensation for the risk of losing the capital altogether. To learn the true average rate of interest, we must inquire what is paid for money lent to those who are sure to pay it back, and who give property in pledge, so that there may be no doubt about the matter. It seems probable that the true average rate of interest in England is at present about four per cent., but it varies in different countries, being lower in England and Holland than anywhere else. In the United States it is probably six or seven per cent.
The most important fact about interest is that it is the same in one business as in another. The rates of profit differ very much, it is true, but this is because the labour of superintendence is different, or because there is greater risk in one trade than another. But the true interest is the same, because capital, being lent in the form of money, can be lent to one trade just as easily as to another. There is nothing in circulating capital which fits it for one trade more than another: accordingly it will be lent to that trade which offers ever so little more interest than other trades. Thus there is a constant tendency to the equality of interest in all branches of industry.
CHAPTER VII.
WAGES.
43. Money Wages and Real Wages. Wages, as we have already learnt, are the payments received by a labourer in return for his labour. It does not matter whether these payments are received daily, weekly, monthly, quarterly, or yearly. A day gardener is, perhaps, paid every evening; an artisan is usually paid on Saturday or Friday night, or sometimes fortnightly; clerks receive their salaries monthly; managers, officers, secretaries, and others, are paid quarterly, or sometimes half-yearly. When the wages are paid monthly, or at longer intervals, they are generally called salary (Latin, salarium, money given to Roman soldiers for salt); but if the salary is paid for labour and nothing else, it is exactly the same in nature as wages.
I said, in the last chapter, that wages consist of a share of the produce of labour, land, and capital; in the preceding paragraph, I have been saying that it consists of payments. Here arises one of the great difficulties of our subject. As a matter of fact, the wages received by labourers, in the present day, consist almost always of money. A person working in a cotton mill produces cotton yarn; but he does not receive at the end of the week so much cotton yarn; he receives so many shillings. This is much more convenient; for if the labourer received cotton yarn, or any other commodity which he produces, he would have to go and sell it in order to buy food and clothes, and to pay the rent of his house. Instead, then, of receiving an actual share of the produce, he receives from the capitalist as much money as is supposed to be equal in value to his share.