Impairment of the Value of Capital relatively to Labor.—While the remuneration of labor has enormously increased during recent years, the return to capital has not been in any way proportionate, and is apparently growing smaller and smaller. For this economic phenomenon there can be but one general explanation; and that is, that regarding labor and capital as commodities, or better, as instrumentalities employed in the work of production and distribution, capital has become relatively more abundant than labor, and has accumulated faster than it can be profitably invested; and, in accordance with the law of supply and demand, the compensation for its use—interest or profits—has necessarily declined as compared with the compensation paid for labor.
One efficient cause of this greater abundance of capital is, that every new invention or discovery produces always as much, and often a much greater amount, of product on a less amount of capital than was previously invested. The result of material progress is, therefore, to supplement the need, or economize the use of capital, and at the same time increase it. For example, a first-class iron freighting screw-steamer cost in Great Britain, in 1872-'74, $90 (£18) per ton. In 1887 a better steamer, constructed of steel, fitted with triple compound engines, with largely increased carrying capacity, and consequent earning power, and capable of being worked at much less expense, could have been furnished for $35 (£7) per ton. How rapidly capital has accumulated in recent years under the new conditions of production is indicated by the circumstance that, although most of the great loans which have been negotiated within the last twenty-five
- The position has been taken, by some investigators and writers, that the great decline in the value of capital—by reason of an impairment of the ability of its owners, i.e., through loss of dividends on investments and of profits in business, to purchase and consume the products of labor, and a diversion of capital, from lack of remunerative income-yielding investments, into enterprises not needed and so occasioning overproduction—has been a prime and perhaps the main cause of all the economic disturbances in recent years. That such a factor, in common with many others, has been instrumental in occasioning serious disturbances, may not be questioned; but that its influence has not been in any sense primary would seem evident, when it is considered that the reason why capital has increased and cheapened in these latter years is, that mankind, through a larger knowledge and better use of the forces of Nature, has been enabled to produce, and actually has produced, a far greater abundance of almost all material things (or, in other words, a greater abundance of capital) than at any former period of their history. Capital, at the outset, greatly contributed to such a development, or, like the wizard in the Eastern fable, it pronounced the incantation which set the natural forces at work; but the wonderful increase and consequent impairment in the value of capital was an after-result, something not anticipated, and the continued progress of which the owners of capital, like the enchanter, now find themselves powerless to check. The saving in the cost of the freight moved on the railroads of every country, comparing 1887 with 1850, and assuming like quantities to have been transported at the different periods, would represent every year more than the original cost of the railroads and their equipment.