of capital and income is discerned, the working of which may be thus expressed :

Capital on its way out to production divides into wages and salaries, or primary incomes, which, after variously subdividing, recombine, and throw off profit incomes on their way back to capital.

In this case the point of departure and the point of return must lie in different branches of industry, the outgoing capital in one department always presenting itself as return in one or more of the others.

Return to New Capital.

But now we are brought up sharply by a difficulty which has often presented itself to economists, and which may be thus stated:

The return power to capital is clearly the aggregate of income. Just so much capital can revolve and come back with its profit or successive profits in the course of the year, as is necessary to bring within the reach of the consumers the commodities and services in the prices of which their incomes are spent. No tossing backward and forward of goods between dealer and dealer can get rid of this limitation. New capital, therefore, must meet with a return, from increased income; but if it be also true that new capital is itself to constitute the addition to income, it would seem as if the famous image of the dog feeding upon his own tail exactly represented the position of the new capitalist. Mr. Mill's solution, as applied, however, to a state of barter, is, that such capital must be so distributed as that what is outlay in one department shall become return in another. But if the aggregate of new outlay and the aggregate of new return be equal, it does not appear where the surplus or new profit is to come from; and, failing this, of course the dog is still in the same predicament as before.

Return to Old Capital diminished.

The successful investment of new capital does actually take place under circumstances of so much complexity as to place great difficulty in the way of any attempt at analysis. In some cases new capital obtains its return, by taking away that which would have been made to other capital already in employment. Thus the earlier railway profits were obtained at the expense of various coach proprietors, carriers, and innkeepers, whose incomes were partially or wholly dried up, the expenditure which used to supply them being drawn off to the railway. Part of the return to railway capital, and to other capital, employed in meeting new wants, is obtained by calling into play as active demand that which may have previously existed as dormant income. The whole of the annual income might be devoted to expenditure, but, in fact, never is so, part being held back designedly and with effort as saving, part remaining as it were inactive, but at hand, for the use of its wealthy owners. new article of consumption is found, which excites the desire of the owners of such income, this dormant portion is called into activity. With respect to new capital invested in foreign trade there is no difficulty. It obtains a return only by meeting with increased demand in the foreign market. When it has done so there is an addition made to the incomes of the exporters, which then becomes an addition to the return power, ready to meet new capital invested in home industry. It is in this manner, that is to say, through the channel of foreign trade, that the chief additions are made to the aggregate of national money income.

Old Capital spent as Income.

If a

The industry of the whole nation is composed of innumerable series of industrial operations existing in different stages at the same moment, the incomes derived from capital in one

E

case being the return power to capital in another. If these were adjusted with such exact harmony as to produce a perfect balance of outlay and return, it is not easy to conceive how a mass of new capital could be added to the stock in active and profitable employment, in a country situated like England. But this is never our actual condition. One or other portion of the old capital is continually losing its ground, and in the very process of doing so is going off as return to some other part of the old capital. For instance, a shopkeeper with a capital of one thousand pounds may find his business decline, from change of fashion, diversion of thoroughfare, or some other cause, and may go on living in his usual way until his capital is all gone. During this period, what he is foolish enough to spend as income continues to be the return to some portion of the old capital; but those portions of the incomes of his former customers which used to yield the return to his own capital have now gone off, and form the return to new capital, which thus becomes successfully invested. It is probable that there is in England a continually-increasing portion of capital in process of destruction, either by the decline of old industries, the undertaking of rash speculations, or the dishonesty of individuals who waste the property of others; and all such capital is actually destroyed by a process which causes it to pass into income, and thereby to become a return to some other capital whose owners are more fortunate.

Effect of New Income on the Aggregate of Income.

In addition to these circumstances favouring the investment of new capital, there is a further peculiarity connected with the mechanism by which incomes are formed, which causes every portion of new capital, applied as income, to increase the aggregate of income, and therefore the aggregate of the return power, by an amount greater than itself. If, for instance, a thousand pounds of new capital be distributed in the course of a year in wages to railway labourers, previously unemployed,

the aggregate of annual income is at once increased by that amount; but the wages of the labourers go immediately as new demand into the markets for commodities, and the profits and incomes of the dealers must thereby be increased, and then again another series of incomes increased through the action of the new demand of those dealers, until the whole return, which is brought back to the aggregate of capital, comes to exceed the return previously brought back, by an amount much greater than the thousand pounds of new capital spent upon the railway.

CHAPTER V.

THE REVOLUTION OF CAPITAL AND INCOME.

"I pass through the pores of the ocean and shores ;

I change, but I cannot die."-SHELLEY.

Law of Revolution.

FROM the principle stated at the end of the foregoing chapter it results that the more rapidly new capital is converted into income, whether in profitable or unprofitable speculations, the more rapidly will the aggregate stock of money capital be enlarged, after the usual revolution of commerce has brought back the capital out of the channels of income. This is, in fact, the main principle which governs the revolution of capital and income.

No matter how rash or wasteful the outlay, no matter how much attended with loss to individuals, the result to the aggregate of money capital will be exactly the same. I say to "the aggregate," because upon this point everything turns. After the most prodigal expenditure, whether by Government or companies, the revolution of twelve months will make the contents of the great reservoirs stand higher than ever.

This is a startling conclusion; it is arrived at deductively, and therefore by a method which in matters of such com

plexity is extremely liable to error. It appears to me, how

ever, to be completely verified by the facts of our experience.

Verification of the Law of Revolution.

It is the key to the great phenomena under the Restriction Mr. Blake has shown how the Government loans turned

Act.