ding a
factory, the demand for the goods which he is going to produce falls
off; sometimes the materials cannot be bought; perhaps it is discovered,
when too late, that the factory has been built in an unsuitable place;
occasionally, too, the workmen are discontented, and refuse to work for
such wages as the capitalist can afford to pay. Now, whenever any of
these mistakes or misfortunes happen, it is the capitalist who mainly
suffers, because he loses a great deal of money, on which he might
otherwise have lived comfortably. Sometimes men who have worked hard
all their lives, and grown rich by degrees, lose all their wealth again
in the end, by some error of judgment or by some unfortunate event due
to no fault of their own.
A capitalist, then, must have some inducement for running into these
disagreeable risks; by lending his capital to the government he might
get interest for it, and be nearly sure not to lose. If, then, he puts
it into trade, and runs the risk of loss, he must have a recompense for
the risk. This ought to be at least enough to make the profits of the
successful business balance the losses of the unfortunate ones, so that
on the average capitalists will get the interest of capital and the
wages of superintendence free from loss. We may say, then, that--
profit = wages of superintendence
+ interest + recompense for risk.
#42. About Interest.# That which is paid for the use of capital
altogether apart from what is due for the trouble and risk of the person
conducting the business, is called #interest#. This interest, of course,
will be greater or less according as the amount of capital is greater or
less; it will also be greater or less according as the capital is
employed for a longer or shorter time. Thus the rate of interest is
always stated in proportion to the capital sum and to the time; _five
per cent. per annum_ means that, for every hundred pounds of capital,
five pounds are paid during every year in which the capital is used, and
in the same proportion for longer or shorter times.
The rates of interest actually paid in business vary very much, from one
or two per cent. up to fifty per cent. or more. When the rate is above
five or six per cent., it will be to some extent not true interest, but
compensation for the risk of losing the capital altogether. To learn the
true average rate of interest, we must inquire what is paid for money
lent to those who are sure to pay it back,
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