We will now consider the third great source of national wealth - capital; by which is meant that portion of the former products which has been saved for future use, and which may consist of provisions, of raw materials, of manufactured goods, or of money, which is exchangeable for them all.

Capital contributes to production in three ways. First. It is indispensable to the execution of any useful or profitable operation; since, unless the materials for the work, and provisions to feed the workmen, or their equivalent, had been previously saved by some one, the operation could not be performed. Without this preliminary saving, man would be unable to build, forge, weave, mine, plow, sow, or reap; nor could he engage in commerce without the previous accumulation of capital.

Secondly. Capital is productive by being converted into labor-saving machines. In this way it may produce many times the value expended. Thus, to take one of the simplest forms of such machinery - a wheelbarrow. By means of the capital laid out in making this machine, a man may transport in a day three or four times as much as he could carry on his shoulders. The profits of a cart or wagon, as the means of transport, would be yet more considerable. To give another example, suppose two men to want a large quantity of plank for building. Instead of sawing it by their own hands, at the rate of from one to two hundred feet in a day, they might, by employing themselves a few weeks in erecting a saw-mill, turned by running water, obtain more plank in a month, and with far greater ease, than they could by their whip-saw in a year. Man can also, by means of tools, which his previous savings have enabled him to provide, often achieve a mastery over brute matter to which his unaided natural powers would be utterly inadequate. Without a saw, for example, or other tool, he would have been incapable of making a plank by his personal efforts.

Thirdly. Capital is productive by enabling its possessor to have the benefit of co-operation, or what has been called "the division of labor;" which often, as we have seen, so greatly increases production. Without capital, a manufacture, the different parts of which may be advantageously distributed among several workmen, cannot be carried on; but with it, the power of production may be prodigiously multiplied, and the cost of the article produced be proportionally cheapened.

By the first of these three modes, capital merely changes its form, without adding to the exchangeable values in the community; but by the two last, the quantity of useful products having been greatly augmented, the effect is partly to make those products cheaper, and partly to add to the exchangeable values or the capital of the community. Thus, suppose a certain amount of capital vested in a manufactory of nails. The consumers of those articles will be gainers by their greater cheapness, and the whole community will have gained by the amount thus saved, and by the profit accruing to the manufacturer after repaying the cost of the raw material and labor expended.

Capital is of two kinds - circulating and fixed. By circulating capital is meant that portion which, having been vested in raw materials or labor, is consumed and reproduced in some manufacture or profitable operation. Of this character are the wool or cotton worked up, and the pay of the workmen in manufacturing those articles. So the iron and labor expended in the fabrication of hardware or cutlery; and the capital thus consumed is reproduced, and again circulates in the manufactured article. It yields a profit only by circulation. Fixed capital consists of those articles employed in any productive operation, which are not thereby consumed, but may be repeatedly used, until they are worn out; such as the buildings, machinery, and tools of a manufactory. The fixed capital of a tailor is his shears, his goose, and his shop, if it belong to him. If he merely rents it, then the rent, like the cloth he works up, is a part of his circulating capital. Fixed capital yields profit without exchanging hands.

Capital, like land and labor, has its appropriate remuneration. What are called the profits of capital, both popularly and by some political economists, means the entire gains of any extensive employment of capital; but where the profit has been the fruit of the personal superintendence and judicious management of the owner, that is properly the wages of labor, and the residue is alone the profits of capital, which is the same thing as the interest of money.

Interest, or a compensation for the use of money or capital lent, has been in some countries deemed unjustifiable, and therefore prohibited. But this was when money, hoarded away, brought no profit to the lender, and when the borrower, wanting it only to spend, derived no profit from the use of it. Where, then, the lender had sufficient security for the repayment of the loan, it seemed unconscientious to demand also interest.

But after communities became commercial and industrious, and money could be made by the use of money, it was as reasonable that a consideration should be paid for the use of capital, as that rent should be paid for land, or hire for the use of a slave or a horse. Where, by an outlay of capital, a labor-saving machine, yielding large profits, could be procured, it could make no difference whether a rent was paid for the machine, or an interest on the money required for its purchase.

Besides, a present pleasure outweighs one that is distant and future. When, therefore, one forbearing to use the means of present gratification, transfers them to another by way of loan, he has a fair claim, when the money is returned, to a further compensation for the delay, and for his forbearance; or, in other words, interest, which thus rewards privation or abstinence, as rent pays for the use of land, and wages for the toils of labor.

The profits of capital or interest, like everything else exchangeable, obeys the law of supply and demand; and is higher or lower, according to its abundance and the field for its employment. In general, interest is high in newly-settled countries, where the more profitable modes of employing capital have not been pre-occupied; and as a country advances in population and wealth, interest commonly declines. In England, in the 15th century, it was 10 per cent. It then successively fell to 8, 6, and at last to 5 per cent. But the government is able to borrow at about 3 1/2 per cent., and the public securities, at the ordinary price, do not yield more; while in all the new British colonies, whether in Australia, Cape of Good Hope, New Zealand, or North America, interest is high. There is a striking difference in this respect between the new and the old States of the Union - interest being much higher in the first than the last.