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ESSAY X.

ON THE DIFFERENT EMPLOYMENTS OF CAPITAL.

DIFFERENT modes of employing capital are commonly preferred or avoided by the owners according to the rate of profit, which the employments are expected to yield, as compared with the degree of risk to which the capitals are exposed. The diligence of the owners is naturally directed to render that mode of employment the most advantageous which they have determined to select; but the success of their endeavours must depend much upon personal skill and previous knowledge. If they are well acquainted with business, and have skill in its management, they may be able to derive a profit from it by the employment of their capitals, when other capitalists more deficient in skill, or of more limited information, would sustain a loss. He, who understands well the best mode of arranging and conducting his proceedings, may be able to carry on a trade where capital is employed not only with profit, but also with little risk; at the same time that another, less skilful or more ignorant in the business, will perhaps derive no profit, and may

further expose his capital to the imminent hazard of being entirely lost.

Where much competition exists, the superiority of those who conduct their affairs with prudence and economy is soon made manifest. Should their prosperity excite the emulation of neighbours, they also will study to excel in the particular virtues, from the practice of which success has evidently proceeded. When once a considerable degree of prudence and economy in business is fully established, the like discretion will regulate the individual in his private expense. Whilst due regard to his own comfort, and to the good opinion of others, will induce the most prudent to maintain that station in society which properly belongs to him; yet, by proportioning his expense to his revenue, he endeavours equally to avoid the extremes of meanness and of extravagance. By proper parsimony in times of prosperity, prudent people prepare to meet those adversities which sooner or later assail the industrious, as well as the other classes of the community.

Free and ample competition in the employment of capital is likewise the greatest stimulus to good management, and to the acquisition of knowledge and skill. In a state of active competition every one must exert himself, otherwise he will speedily be surpassed by his neighbours. All the motives of

emulation and of self-interest are then called into action.

On the contrary where monopoly exists, the capitalists, who enjoy its benefit, feel assured of a profit. Before making any diligent exertions to increase the rate of profit, they will probably take time to consider in what way the object can be accomplished with the greatest facility to themselves. Those persons who are already secure of good profits, will for no small addition agree to sacrifice their own personal ease and enjoyment. Hence the

desire of all monopolists is to benefit themselves rather by increasing the price of their goods, than by endeavouring to diminish the cost of production. In almost all occupations they, who have long been established, complain of new competitors for selling too cheap, or for carrying on their business in return for too small a remuneration. At lower prices, however, the rate of profit may continue the same as before, if the goods can be provided at a diminished cost. The youngest and most recently established in business are often the most active, but at the same time they are the most wanting in experience. Their exertions are stimulated by knowing well, that they have little chance of competing successfully with others already in possession of business, unless they exert more than common diligence. By extreme diligence and by good management, new establishments in trade will frequently succeed without other support of im

portance. From the desire of adding increased activity to their own experience, old commercial houses often adopt younger partners.

As in a numerous society the degrees of knowledge, of skill, and of good management, are much diversified among the people, so are employments varied to the great convenience and general advantage of all. An agriculturist, accustomed to husbandry and skilful in its management, sees little risk, and perhaps the prospect of much advantage, from employing his capital in the cultivation of land; whilst another person practised in commerce, if about to commence farmer, would probably be apprehensive of the inconstancy and vicissitude of the seasons. Even were the seasons propitious, he might well be in doubt, whether any profit would result from the employment of his capital in an undertaking, with the details of which he was almost unacquainted. A manufacturer, who perhaps has actually wrought at the loom for information in the texture of various fabrics, and is in consequence perfectly conversant with his business, can proceed with far greater confidence, and probably with more advantage than another, who has yet to acquire an equal degree of knowledge. A manufacturer will possess another kind of superiority, when, from intimate acquaintance with the markets where in general his goods may be most advantageously sold, he can proceed on proper occasions with a confident assurance of success.

This is unknown to others who have, perhaps, never understood fully how to meet the varying tastes of the consumers for whose use the goods are ultimately intended, and such manufacturers are in consequence placed under some disadvantage.

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"A capital may be employed in four different ways: either first, in preparing the rude produce annually required for the use and consump❝tion of the society; or secondly, in manufacturing "and preparing that rude produce for immediate "use and consumption; or thirdly, in transport

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ing either the rude or manufactured produce "from the places where they abound to those "where they are wanted," and in storing up such produce until required for use or consumption; "or lastly, in dividing particular portions of either "into such smaller parcels as suit the occasional "demands of those who want them. In the first

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way are employed the capitals of all those who "undertake the improvement or cultivation of lands, "mines, or fisheries; in the second, those of all "master manufacturers; in the third, those of "all wholesale merchants" and dealers; "in the "fourth, those of all retailers. It is difficult to "conceive that a capital should be employed in

any way which may not be classed under some "one or other of these four." The capital of a banker may be employed in giving more efficiency to the capitals which are directly engaged in any or in all of the employments before-mentioned.