Profits tend to a minimum. It has long been held that profits, including in that term the en tire remuneration of employers and capitalists, constantly tend to diminish because of the in crease of capital faster than the opportunities for its remunerative employment. It is obvious that neither a fall nor a rise in the rate of prof its, if we include two such diverse elements as interest on capital and the returns obtained by employers for their participation in industry, can be continuous. The ability to discover new and profitable fields for investment will show itself only the more promptly if a low rate of interest renders it comparatively easy for one who has organizing ability, but no capital at his disposal, to secure the amount needed. Profits in the narrower sense are therefore very apt for a time, at least, to show a tendency directly the reverse of interest. There is abundance of his torical evidence that there has been a consid erable fall in the rate of interest, limiting the term to the return for capital. The tendency is checked by the opening of new fields of invest ment, for these are of benefit, not merely to the organizer of industry who discovers them, but also to the capitalist whose capital thus finds new employment, the landowner whose mate rials are called into requisition, and the laborers whose cooperation will be necessary to any utili zation of the new fields. But the increase in the number of the men who can find or make such opportunities, especially if they are of a similar type, tends to reduce their own rewards by their competition with each other. Eventually profits as well as interest will tend to a minimum, though not with the same uniformity.
Wages vary with the expense of subsistence. The relation between wages and the standard of living has been explained in another chapter. Whatever margin we recognize between the laborer's income and the bare cost of subsist ence, it is clear that there is such relation between them that total wages must be in creased to meet any general and permanent increase in the expenses of the necessaries of life, and that any decrease in those expenses will permit a decrease of wages without either diminishing population or setting in motion the forces which produce a change in the standard of living. Employers of labor have therefore correctly regarded a cheapening of food and clothing as desirable from their own standpoint. Wages are to them merely one of the expenses of production, and anything which reduces house rent and the expenses of living in any other respect permits 'a corresponding reduction of wages. Not every such lowering of the ex penses of living is followed by a lowering of wages. But any conditions which enable laborers to maintain high wages, under such circumstances, would have enabled them to secure an increase if the expenses of subsistence had not decreased. It is simply evidence that there was a favorable trend in their direction which they had not realized. And, indeed, the greater part of the very great increase of wages during the past hundred years has been brought about in pre cisely this manner. It is much easier to keep nominal wages at a given point, when that has come to mean higher real wages, than to in crease at the same time real and nominal wages. A chief factor is a united and vigorous senti ment in favor of a definite demand, and this is more easily created in behalf of wages which have already been nominally _enjoyed. Fort unately the cheapening of commodities has continually expanded the purchasing power of both money and labor.
Population tends to increase faster than the means of subsistence. The doctrine of popula tion, ably propounded and defended by the English economist Malthus, has been the sub ject of much controversy. Its statement has usually been coupled with specific remedies for the calamities which the unchecked tendency of population to outrun subsistence would bring. Both these remedies and the doctrine itself have been savagely attacked, but it cannot be said that the doctrine has been overthrown.
Where there is a full sense of responsibility for the welfare of children on the part of parents and of the community, so that marriages do not take place earlier than is warranted, and the desire to provide for the welfare of offspring furnishes a constant spur to effective industry, there exists what Malthus calls the preventive check to overpopulation. Where there is no such feeling of responsibility, nature steps in to prevent a too rapid increase by such positive checks as pestilence and famine. Communities are given their choice of positive or preventive checks. The preventive checks are not always or usually exercised consciously. Through the development of the family and of capital, social instincts are created which hold in check the tendency in population to increase faster than the means of subsistence and so to press hard upon the food supply.
The application of labor and capital to ,land is subject to the law of diminishing returns. A certain amount of work can be expended upon a given piece of land with a maximum return per unit of labor or capital. If additional work is done the result will be to increase the product somewhat, but not in the same pro portion to the increased expenditure of en ergy. If, for example, bl000 a year is spent on a farm with a result that 5000 bushels of corn are produced, it may be that $1200 on the same farm would produce 6000 bushels, in which case the additional $200 has brought as good a return as the original $1 000. In some instances, where the land has not been culti vated to its full capacity, it might even bring a larger proportional return. But it is obvious that a point would be reached after which this would no longer be true : $1400 spent on the farm would probably yield more than $1200, but not one•sixth more, or 7000 bushels, as it should if the ratio were to be continued. The return may be put at 6500. This ratio would rapidly diminish as additional amounts of work are applied. Each addition would add something, but not so much as previous applications had done. It is this fact of diminishing returns in agriculture that has given color to all the specu lations of the English school of political econ omy. It has been regarded as the corner-stone of the science. Upon it have been built the law of population, of wages, of profits, of rent, and of social progress. The niggardliness of nature has been held responsible for the limita tions experienced in the increase of prosperity and general happiness. Whether the law is really of this character we shall inquire more minutely in the chapter on the "Obstacles to Social Progress." Rent arises from differences in the fertility of soils. When soils of different grades of fertility are cultivated for the same market, the value of the crops must be such that those who cultivate the poorest soils are as well rewarded for their labor as producers of equal abilities in other branches of industry, or, putting it in another way, capital expended in the cultivation of the inferior soils must be as well remunerated as capital in general ; otherwise the inferior soils will be thrown out of cultivation and the dimin ished supply will again bring prices up to the point where they can be cultivated with the ordinary profit. If, however, prices are high enough to enable crops to be produced at a profit on the poorest soils in cultivation, every piece of land which is more fertile or better situated will yield a surplus revenue measured in amount by the extent of its superiority over the poorest or marginal land. This surplus is economic rent. Land cannot be said to yield a rent unless after paying wages and interest and profits there is a clear surplus to which neither the farmer nor his laborers nor the capitalist from whom he may have borrowed his capital can establish a claim.