[| 1, 2|What is the basis of capital, that is, of private property in the 
products of other men’s labour? 

“Even if capital itself does not merely amount to theft or fraud, it still requires 
the co-operation of legislation to sanctify inheritance.” (Say, [Traité d’économie 
politique,] t. I, p. 136, note.) 

How does one become a proprietor of productive stock? How does 
one become owner of the products created by means of this stock? 

By virtue of positive law. (Say, t. II, p. 4.) 

What does one acquire with capital, with the inheritance of a 
large fortune, for instance? 

“The person who [either acquires, or] succeeds to a great fortune, does not 
necessarily [acquire or] succeed to any political power [....] The power which that 
possession immediately and directly conveys to him, is the power of purchasing; a 
certain command over all the labour, or over all the produce of labour, which is 
then in the market. ” (Wealth of Nations, by Adam Smith, Vol. I, pp. 26-27 [Garnier, 
t. I, p. 61).)° 

Capital is thus the governing power over labour and its products. 
The capitalist possesses this power, not on account of his personal 
or human qualities, but inasmuch as he is an owner of capital. His 
power is the purchasing power of his capital, which nothing can 
withstand. 

Later we shall see first how the capitalist, by means of capital, 
exercises his governing power over labour, then, however, we shall 
see the governing power of capital over the capitalist himself. 

What is capital? 

“A certain quantity of labour stocked and stored up to be employed.” (Adam 
Smith, op. cit., Vol. I, p. 295 [Garnier, t. II, p. 312).) 

Capital is stored-up labour. 

(2) Fonds, or stock,’ is any accumulation of products of the soil or 
of manufacture. Stock is called capital only when it yields to its owner 
a revenue or profit. (Adam Smith, op. cit., p. 243 [Garnier, t. II, p. 
191}. 

2. THE PROFIT OF CAPITAL 

The profit or gain of capital is altogether different from the wages of labour. This 
difference is manifested in two ways: in the first place, the profits of capital are 
regulated altogether by the value of the capital employed, although the labour of 
inspection and direction associated with different capitals may be the same. 
Moreover in large works the whole of this labour is committed to some principal 
clerk, whose salary bears no regular proportion to the |{II,2} capital of which he 
oversees the management. And although the labour of the proprietor is here 
reduced almost to nothing, he still demands profits in Proportion to his capital. 
(Adam Smith, op. cit., Vol. I, p. 43 (Garnier, t. I, pp. 97- 99},.)6 

Why does the capitalist demand this proportion between profit 
and capital? 

He would have no interest in employing the workers, unless he expected from the 
sale of their work something more than is necessary to replace the stock advanced by 
him as wages and he would have no interest to employ a great stock rather than a small 
one, unless his profits were to bear some proportion to the extent of his stock. (Adam 
Smith, op. cit., Vol. I, p. 42 [Garnier, t. I, pp. 96-97].) 

The capitalist thus makes a profit, first, on the wages, and 
secondly on the raw materials advanced by him. 
What proportion, then, does profit bear to capital? 

If it is already difficult to determine the usual average level of wages at a 
particular place and at a particular time, it is even more difficult to determine the 
profit on capitals. A change in the price of the commodities in which the capitalist 
deals, the good or bad fortune of his rivals and customers, a thousand other 
accidents to which commodities are exposed both in transit and in the 
warehouses — all produce a daily, almost hourly variation in profit. (Adam Smith, 
op. cit., Vol. 1, pp. 78-79 (Garnier, t. 1, pp. 179-180].) 

But though it is impossible to determine with precision what are the profits on 
capitals, some notion may be formed of them from the interest of money. Wherever a 
great deal can be made by the use of money, a great deal will be given for the use of it; 
wherever little can be made by it, little will be given. (Adam Smith, op. cit., Vol. I, p. 79 
[Garnier, t. I p. 181}.) 

The proportion which the usual market rate of interest ought to bear to the 
rate of clear profit, necessarily varies as profit rises or falls. Double interest is in 
Great Britain reckoned what the merchants call a good, moderate, reasonable profit, 
terms which mean no more than a common and usual profit. (Adam Smith, op. cit., 
Vol. I, p. 87 [Garnier. t. I, p. 198].) 

What is the lowest rate of profit? And what the highest? 

The lowest rate of ordinary profit on capital must always be something more than 
what is sufficient to compensate the occasional losses to which every employment of 
stock is exposed. It is this surplus only which is neat or clear profit. The same 
holds for the lowest rate of interest. (Adam Smith, op. cit., Vol. I, p. 86 (Garnier, t. 
I, p. 196].) 

it1.3) The highest rate to which ordinary profits can rise is that which in the 
price of the greater part of commodities eats up the whole of the rent of the land, and 
reduces the wages of labour contained in the commodity supplied to the lowest rate, 
the bare subsistence of the labourer during his work. The worker must always be 
fed in some way or other while he is required to work; rent can disappear entirely. 
For example: the servants of the East India Company in Bengal. (Adam Smith, op. 
cit., Vol. I, pp. 86-87 [Garnier, t. I, pp. 197-98].) 

Besides all the advantages of limited competition which the 
capitalist may exploit in this case, he can keep the market price 
above the natural price by quite decorous means. 

For one thing, by keeping secrets in trade if the market is at a great distance from 
those who supply it, that is, by concealing a price change, its rise above the natural 

level. This concealment has the effect that other capitalists do not follow him in 
investing their capital in this branch of industry or trade. 

Then again by keeping secrets in manufacture, which enable the capitalist to 
reduce the costs of production and supply his commodity at the same or even at 
lower prices than his competitors while obtaining a higher profit. (Deceiving by 
keeping secrets is not immoral? Dealings on the Stock Exchange.) Furthermore, 
where production is restricted to a particular locality (as in the case of a rare wine), 
and where the effective demand can never be satisfied. Finally, through monopolies 
exercised by individuals or companies. Monopoly price is the highest possible. 
(Adam Smith, op. cit., Vol. I, pp. 53-54 [Garnier, t. I, pp. 120-24].) 

Other fortuitous causes which can raise the profit on capital: 

The acquisition of new territories, or of new branches of trade, often increases 
the profit on capital even in a wealthy country, because they withdraw some capital 
from the old branches of trade, reduce competition, and cause the market to be 
supplied with fewer commodities, the prices of which then rise: those who deal in 
these commodities can then afford to borrow at a higher rate of interest. (Adam 
Smith, op. cit., Vol. I, p. 83 [Garnier, t. I, p. 190].) 

The more a commodity comes to be manufactured—the more it becomes an 
object of manufacture—the greater becomes that part of the price which resolves 
itself into wages and profit in proportion to that which resolves itself into rent. In 
the progress of the manufacture of a commodity, not only the number of profits 
increases, but every subsequent profit is greater than the foregoing; because the 
capital from which ||IV,2] it is derived must always be greater. The capital which 
employs the weavers, for example, must always be greater than that which employs 
the spinners; because it not only replaces that capital with its profits, but pays, 
besides, the wages of weavers; and the profits must always bear some proportion to 
the capital. (op. cit., Vol. I, p. 45 [Garnier, t. I, pp. 102-03].) 

Thus the advance made by human labour in converting the 
product of nature into the manufactured product of nature 
increases, not the wages of labour, but in part the number of 
profitable capital investments, and in part the size of every 
subsequent capital in comparison with the foregoing. 

More about the advantages which the capitalist derives from the 
division of labour, later. 

He profits doubly —first, by the division of labour; and second- 
ly, in general, by the advance which human labour makes on the 
natural product. The greater the human share in a commodity, 
the greater the profit of dead capital. 

In one and the same society the average rates of profit on capital are much 
more nearly on the same level than the wages of the different sorts of labour. (op. 
cit., Vol. I, p. 100 [Garnier, t. I, p. 228].) In the different employments of capital, 
the ordinary rate of profit varies with the certainty or uncertainty of the returns. 

The ordinary profit of stock, though it rises with the risk, does not always seem 
to rise in proportion to it. (op. cit., Vol. I, pp. 99-100 [Garnier, t. 1, pp. 226-27].) 

It goes without saying that profits also rise if the means of 
circulation become less expensive or easier available (e.g., paper 
money). 

3. THE RULE OF CAPITAL OVER LABOUR