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far more seldom, tends to lower it. The discovery of a practical method of applying steam power to locomotion is the stock example of an invention which caused a considerable pause in the downward progress of the rate of interest by providing a new investment of enormous magni. tude. There is no such striking instance of the other kind of invention, but the discovery of means of sending several telegraphic messages at once on the same wire is a case. To this theory, which bases the determination of the rate of interest entirely on the productivity of the marginal investment, it is sometimes objected (e.g. by H. J. Davenport, Outlines of Economic Theory, 1896, § 114) that the demands for loans for consumption by spendthrift individuals, belligerent governments, and others, obviously affect the rate of interest. This is true enough, out it must not be forgotten that if B borrows and spends as income all that A saves, there is no accumulation of capital. Borrowing for consumption or unproductive purposes tends to raise the rate of interest simply because the consumption tends to reduce the accumulation of capital, and therefore tends to make the rate of interest obtainable in the marginal productive investment higher than it would otherwise be (see INTEREST).

A high rate of interest, or, as it is more often elliptically expressed, "high interest," does not necessarily mean that the aggregate amount received as interest is high, nor that individual interest-receivers are paid a large amount per head. It only means that the ratio of interest to principal is high. The importance of this ratio is obvious; the annual return to be expected from further savings is indicated by it. But the ratio between profits in the narrower modern sense-i.e. the earnings of business management by the capitalist, or profits in the wide sense after deducting interest -and the capital of the profit-receiver is not of much importance, and little but vague generalities can be laid down respecting it. As between trade and trade at the same time it will depend on the amount and value of the labour performed by the profit-receiver compared with the amount of the capital required. The rate of profit, exclusive of interest, obtained by Adam Smith's "apothecary" (Wealth of Nations, bk. i. ch. x.) was high because the amount and the value of his labour were large in proportion to his small stock of drugs. Marshall's rollingmill proprietor, on the other hand (Principles of Economy, 3rd ed., 1895, vol. i. p. 691), obtains a low rate of profit, exclusive of interest, because in proportion to his enormous capital his labour is of little account. The same rule holds good of the rate of profit, exclusive of interest, in the same trade at different times. A large and well-paid portion of apothecaries' labour having been taken over by medical men paid by fees, and the stock of drugs required having consider

ably increased, apothecaries' profit has ceased to be " a bye-word denoting something uncommonly extravagant." The value of the labour of the capitalist will vary in consequence of the same causes which bring about variations in wages (see WAGES). Its amount varies with changes in the organisation of industry. The general introduction of the joint-stock company system, for example, has reduced the average rate of profit, both by throwing open to all competent persons certain labour formerly confined to capitalists, and thereby reducing the value of that labour, and by diminishing the amount of the labour performed by capitalists by handing over a portion of it to wage-paid managers and others. (For Walker's theory of profits see RENT OF ABILITY.)

A third element is sometimes said (e.g. by J. S. Mill, Principles, II. xv. § 1) to be present in profits, viz. "compensation for risk." Here we must distinguish between the profits of a single particular investment and the average profits obtained from a particular class of investments. If every one calculated risks perfectly accurately, and if chance of loss were generally reckoned as exactly counterbalancing an equal chance of gain, competition would so regulate the supply of capital that the successful investments in the more risky classes would pay just enough, and no more than enough, to counterbalance the losses incurred in the unsuccessful investments. Each particular successful investment would bring in something which might be called "compensation for risk,' but the average of profits obtained from the whole class would contain no such compensation. If, of course, it were generally recognised that a chance of loss outweighs an equal chance of gain, competition would so regulate the supply of capital that the riskier classes would return on the average somewhat higher profits than the less risky. There is, however, no evidence that this is the case. The probability is that the classes of investments which on the average return most to the investor are neither the very safest of all nor the very riskiest, but the intermediate classes which do not appeal either to timidity or to the gambling instinct.

[A very complete bibliography will be found in BÖHM-BAWERK, Capital and Interest, a Critical History of Economical Theory, 1884, transl. by Smart, 1894, in the Index of the authors mentioned in the work at the end of the volume. See also INTEREST. Marshall, Princ., 3rd. ed. bk. vii. chs. the authorities quoted in the text above and under vi.-viii., 5th ed., bk. vi. chs. vii., viii., deals with the remuneration of business management more completely than his predecessors. Wieser's Natural Value, transl. by Malloch 1893, shows how the main principles of the theory of interest are independent of any particular social organisation.]

B. O.

PROFIT AND LOSS ACCOUNT. See art. on BALANCE SHEET, in which reference is made to the point under Heading vii.

PROFIT SHARING is a mode of industrial | remuneration under which those employed receive, besides their salary or wages, a stipulated proportion of the net profits of the year, either in cash or deferred advantages. This definition excludes cases where an unfixed bonus is distributed, at the discretion of the employer, but this "chrysalis stage" has not seldom led to profit-sharing proper. The amount of remuneration received varies very greatly, but, in the majority of cases, is, roughly speaking, from 4 to 10 per cent of the wages of the year. Where the benefit is prospective, a definite share of the profits is either paid over to a provident fund against old age or sickness, or invested, on behalf of the workmen, in the shares of the employing company. Whatever, however, be the form it takes, the raison d'être of profit-sharing remains the same. The present time-wage system, it is contended, gives no incentive to the workman to work his best, while piece-work is often impossible, and, in any case, tends to an increase of quantity, at the expense of quality. By profit-sharing it is sought to enlist the interests of the workman on the side of the employer. A new source of profit is thus opened, which benefits labour, without diminishing the returns of capital. The sources of this profit spring from a reduction in the waste of material, an improvement in the work done, economy in supervision, avoidance of strikes, a greater stability in the staff, and, lastly, from the enlistment, on the employer's behalf, of the men's best facultiessuggestions as to improvements and new processes being thereby obtained. If these claims be good, and they are advanced by practical men, who have made trial of profit-sharing, they afford an obvious answer to the argument that the system is unfair because the workmen do not share losses as well as profits. A more formidable criticism is, that inasmuch as profits mainly depend on causes over which workmen have little control, it is illogical that they should enter into the calculation of wages. For this reason some economists would prefer what they term a PROGRESSIVE WAGE (q.v.), but in any case there is room for a variety of systems.

Profit-sharing was first adopted in England by Lord Wallscourt about 1832; the credit of its introduction into France, in 1842, is generally ascribed to a Frenchman, LECLAIRE (q.v.). In England the first notable trial of it was made by H. Briggs and Co. in 1865, at their Whitwood collieries. The experiment was a failure, and after nine years the system was abandoned. Its introduction had been widely blazoned abroad, and had met with the warm approval of J. S. MILL, W. T. THORNTON, and H. FAWCETT, hence its failure became equally conspicuous. It is to this, in great measure, that the little progress made in the ensuing years must be ascribed. There had,

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however, been special hindrances at work in the Briggs case. Before the introduction of profit-sharing, the relations between masters and men had been extremely strained, and a quarrel about the local trade union supervening before mutual confidence had been established, created distrust of the system, both among the men and the shareholders. Among English firms that continue the system, there is one (1912), Messrs. Fox of Wellington, Somerset, which adopted it in 1866, but it was not till 1889-91 that the progress of the movement became rapid. During these three years profit-sharing was adopted by no less than fifty firms. Of individual cases of profit-sharing firms, among the more notable are :—

1. South Metropolitan Gas Co., 6000 to 7000 employees.

2. South Suburban Gas Co. (formerly Crystal Palace District Gas Co.) on same lines as South Metropolitan Gas Co.

3. Sir W. G. Armstrong, Whitworth, and Co., Ltd., at Newcastle, 18,000, at Openshaw, Manchester, 5000 employees.

4. Messrs. Cassell and Co., Ltd., printers, 1200 employees.1

5. Messrs. Clarke, Nickolls, and Coombs, Ltd., confectionery manufacturers, London, 2700 to over 3000 employees.

In 1894 Mr. Schloss reported on 152 experiments, of which 101 were still being carried on; only in 16 of the failures did he attribute the abandonment to dissatisfaction with the system. It is disappointing to find that the very favourable co-partnery scheme of the late Lord Furness (in Furness, Withey, and Co., Ltd.), made 1908, was discontinued 1910, through Trade Union opposition, as stated in the Times, 11th Nov. 1912, after working successfully.

The profit sharing scheme of the South Metropolitan Gas Co. calls for special notice. It is an extension to the employees of the principle of the sliding scale, whereby the dividends are regulated by the price of gas; any increase of the one involving a diminution of the other, and vice versa. The condition of acceptance of this bonus is willingness to enter into a contract of service for a limited period not exceeding twelve months. The bonus percentages during the years 1890-1896 were 5, 5, 3, 4, 6, 6, and 7. In 1894 the percentage rate was increased on condition that one half of each man's total bonus shall be invested in the company's ordinary stock; the other half being payable in cash annually as before. It was already possible to leave the bonus on deposit with the company at 4 per cent. About 2500 profitsharing stockholders held in 1897 stock to the market value of about £60,000, while there was a further sum of about £27,000 on deposit.

1 "Various funds have been created for the benefit of the employees which the Board of Trade have regarded as a system of profit-sharing."

In all, it is estimated that there are at the present time nearly 100 firms practising profitsharing, employing from 48,000 to 50,000 persons. Besides these are such of the cooperative productive societies as have introduced the system, e.g. the Scottish Wholesale Society, the Hebdon Bridge Fustian Society, and the Leicester Boot and Shoemaker Society. It must, however, in fairness be admitted that, in spite of general motions passed at co-operative congresses, the system does not seem greatly to commend itself to the rank and file of workmen co-operators (see "Co-operation and Profit-sharing," by B. Jones, Economic Journal, vol. ii. p. 616).

With respect to profit-sharing generally, there is one remark of a disappointing character. Whereas it was the expectation of its early advocates that a half-way house might thereby be provided towards real industrial partnership, the profit-sharing of to-day is, except in the case of the South Metropolitan Gas Co., hardly tending in this direction. Still, on whatever lines, the advance up to a certain point has been so great that it is natural to consider how far profit-sharing would admit of general extension, and thus serve to point the way to "industrial peace." On this question the warning is needed that nothing could be of more sinister omen to the future of profit-sharing than an indiscriminate application of it by all sorts and conditions of employers. Seeing that the supply of unskilled labour is generally in excess of the demand, the inevitable result would be that, in the absence of means such as trade unions to maintain a certain rate, wages would fall in proportion, so that what was gained with one hand would be lost with the other. Even at present, trade unionists are ready to suspect profit-sharing firms of wishing to bring down wages, and though generally this is altogether untrue, in one case a firm giving the high bonus of 26 per cent was found to be paying its workmen less than the recognised wage. Nothing could be more disastrous for profit-sharing than for such cases to multiply. Moreover, it must be remembered that there are industries such as cotton-spinning, etc., in which interest on capital fixed in machinery is the chief element in cóst price, and in which piece-work is especially convenient, so that profit-sharing could give little new benefit to the employer. Still, within these limitations there is room for much

may tend to retard. On the side of the employee, there is danger from the "new unionism"; on that of the employer from the tendency of the time, which Lord GOSCHEN has noticed, for the shares in industrial partnerships to become divided among a great number of small proprietors. The attitude of leaders of working men such as Mr. Burt and Mr. G. Howell has, it is true been and is friendly to the movement, but these men are strong "individualists," and the new school of trade union leaders, who believe much in the action of the state and little in that of private individuals, will hardly view with favour a system which cannot but tend, to some extent, to give workmen interests separate from those common to all fellow-workers in their trade. On the other hand, the small investor, who has perhaps bought his shares in the open market at a high premium, and who is getting a return of not more than 5 per cent on the money laid out, may view with jealousy a system which at any rate appears to be intercepting some of the profits. The conviction is forced upon one that only a strong chairman could have carried through the South Metropolitan Gas Co.'s scheme noticed above. However, there is little reason to fear but that there will be many worthy successors to the present profit-sharers, who have found by experience that "it is twice bless'd; it blesseth him that gives and him that takes."

[Lord Brassey, On Work and Wages, 1873; D. F. Schloss, Report on Profit-sharing, Bd. of Trade Labr. Dept. (c. 7458), 1894, contains an exhaustive history of British profit-sharing, with tabular statements. For most purposes this has superseded the previous Bd. of Trade Report of 1891.-It has been brought down to date in subsequent numbers of the Labour Gazette, July 1895, 1896, 1897, and Aug. 1898.-N. P. Gilman, Profit-sharing between Employer and Employed, London, 1889, 8vo. This is the leading general book on the subject in English. The French translation of Böhmert's Die Gewinnbetheiligung, Leipzig, 1878, 8vo, by A. Trombert, with a preface by C. Robert, Paris, 1888, 8vo, brings down the elaborate German work to the later date. Sedley Taylor, Profit-sharing between Capital and Labour, London, 1884, 8vo; a reprint of essays which did much to arouse public interest on the subject. -T. Bushill, Profit-sharing and the Labour Question, London, 1893, 8vo; in part a reprint of evidence given before the Labour Commission, states the case from the side of a practical employer.-D. F. Schloss, Methods of Industrial Remuneration, London, 1893, 8vo; contains a very subtle and acute treatment of profit-sharing.— Among earlier notices of profit-sharing by Thornton, Mill, etc., may be mentioned the first advocacy of it by BABBAGE in the chapter-"a new system of manufacturing "-in his work On the Economy of Machinery and Manufacture, London, 1833, 3rd ed., 8vo. -Consult quarterly Bulletin de la participation aux béné fices, Paris, published by the association of French

the

employers for the practical study of the question.The Quart. Journ. of Econ., Boston, vol. i. p. 232, contains an article by R. Aldrich against the principle of profit-sharing. For methods of participation, consult H. G. Rawson, Profit-sharing Precedents, London, 1891; with regard to South Metropolitan Gas Co., see letter to Times of 2nd Jan. 1897, from Mr. G. Livesey, Repts. of Ann. Meetings and Co-partnership Journal; see also C. Carpenter, Co-partnership in Industry, 1912.]

H. E. E.

PROFITS A PRENDRE. See PROPERTY, p. 230.

As

PROGRESS, INFLUENCE OF, ON VALUE. One consequence of the economic advance of society is a disturbance in relative values. these are proximately determined by the conditions of supply and demand, it is plain that changes may arise either on the side of demand or on that of supply. When population increases, and wants expand, demand becomes on the whole greater, though it is very unequally distributed, and, brought into relation with the conditions of supply, produces different effects. Raw produce being obtained under the law of DIMINISHING RETURNS (q.v.), tends to rise in cost as larger amounts are needed. Manufactured goods, coming under the law of INCREASING RETURNS (q. v.), rather tend to fall. Hence the first of the derivative laws of value, viz. that manufactured goods fall relatively to raw produce. Money being a product of mines, it follows that manufactures tend to fall in PRICE as well as in VALUE.

Within each of the two great groups just mentioned there are several subdivisions. Thus Adam SMITH distinguishes between "three different sorts of rude produce" (bk. i. ch. xi.); the first, consisting of those things whose supply it is hardly possible to increase, may rise in value to any point to which effectual demand will ascend. Scarcity makes the value of such articles depend altogether on the demand. In a second class, where the power of industry in increasing supply is more effective, the value rises with the cost of producing the most costly portion of the commodity, and more especially in the case of the chief articles of food, the movement of value is guided by that of population. Corn cannot exceed in value the purchasing power of the consumers. There is, therefore, an element of truth in the idea of Adam Smith and CAIRNES, that corn oscillates about a fixedvalue point (Wealth of Nations, bk. i. ch. xi. ; cp. Leading Principles, pt. i. ch. v. § 3), though the variations in the standard of living produce considerable fluctuations in this level (cp. Marshall, Principles, bk. vi. ch. xii. § 5). Meat, again, rises from a very low point until it becomes much more valuable than grain.

A further set of influences on the products of extractive industry comes from the varying portability of the articles. The value of such

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a commodity as timber does not rise so rapidly with the progress of a new country, but it rises greatly all the world over in the course of

centuries.

Accessory products-such as hides and wool -have their values affected by those of the commodities with which they are closely connected. As meat rises, these accessory products tend to fall, but demand may be so increased as to raise both classes.

Minerals stand somewhat apart. Though they are, strictly speaking, limited in supply, yet the discovery of fresh fields, and the great improvements in working, tend on the whole to counterbalance the influence of scarcity so that, as against extractive products generally, they have not risen. In like manner manufactures can be grouped into classes. Those in which the raw material forms a large part of the value would naturally tend to rise. Where machinery and invention have been most developed to meet extensive demand, the fall ought to be most conspicuous. But both circumstances are often conjoined-as in the case of the textiles consumed by the poorer classes and in that case the latter element on the whole prevails. Owing to the higher value of special skill, the more finely-wrought products worked by hand tend to rise.

The underlying conditions of increasing and diminishing returns are affected by the opening up of fresh sources of supply through improvements in transport, and particularly by the expansion of foreign trade. In this latter case the results are that (1) imported products fall in value; (2) raw produce exported tends to rise; (3) manufactured exports tend, generally speaking, to fall.

So far as regards the temporary fluctuations of the market, two sets of influences operate, viz. (1) the widening of the circle of exchanges, which tends to produce greater steadiness; as exemplified in the infrequent occasions of famines in modern times, and (2) the greater complexity of modern trading, which makes values less stable. But there is no doubt that retail values are far steadier than formerly.

The values of services are also affected in similar ways. Thus the tendency in recent years has been for unskilled labour to rise relatively to the lower forms of skill which are easily and cheaply acquired. The higher forms of skilled work depending on exceptional natural ability are, however, affected by the absence of an adequate supply and by the greatly increased demand. Hence the value of such services is now higher than ever (see WAGES, NOMINAL, AND REAL).

[See Adam Smith, Wealth of Nations, bk. i. ch. xi.-J. S. Mill, Principles, bk. iv. ch. ii.— J. E. Cairnes, Leading Principles, pt. i. ch. v.A. Marshall, Principles of Economics (5th ed.), bk. vi. ch. xii. §§ 1-5.]

C. F. B.

228

PROGRESSIVE TAXATION. TION; GRADUATED TAXATION.

See TAXA

PROGRESSIVE WAGE, a mode of industrial remuneration, under which those employed receive, besides their time or piece-wage, a further premium or bonus in return for any efficiency shown by them beyond a specified degree. This premium may either vary according to the ability of the workman, or be a fixed sum after the defined standard has been reached. It may be given for the quality or for the quantity of the work done, and the recipients of it may be either individual workmen or collective groups. The term was first employed by M. Paul Pierre LEROY-BEAULIEU, Essai sur la répartition des richesses et sur la tendance à une moindre inégalité des conditions, Paris, 1881, 2nd ed. 1883, 3rd ed. 1888, 8vo, and is fully treated in ch. vi. and vii. of Schloss, Methods of Industrial Remuneration, London, 1892, 8vo. Mr. Schloss refers students of the subject to Rapports et documents de la section d'économie sociale, Lyons, 1889.

H. E. E.

PROMISSORY NOTE. By 83 of the Bills of Exchange Act 1882, a promissory note is defined as an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand, or at a fixed or determinable future time, a sum certain in money, to, or to the order of, a specified person or to bearer. And by 85 of that act, a promissory note may be made by two or more makers, and they may be liable thereon jointly, or jointly and severally, according to its tenor.

By § 89 the provisions of the act relating to bills apply, with the necessary modifications, to notes, the maker of a note corresponding with the acceptor of a bill, and the first indorser of a note corresponding with the drawer of an accepted bill payable to drawer's order. Protest of a dishonoured foreign note is, however, unnecessary.

A note made in the United Kingdom must bear an impressed ad valorem stamp. The Stamp Act of 1891 defines the term "promissory note" for its own purposes in somewhat wider language than the act above cited, so that instruments which would not be called in commerce promissory notes may require to be stamped as such, as for instance promises to pay out of a particular fund or on a contingency.

[See Chalmers on Bills of Exchange, ed. 4, and Byles on Bills of Exchange, ed. 15.] M. D. C. See BANKING, BANK NOTE; BILL OF EXCHANGE. The usual form of a promissory note made by a single individual is as follows:

Due 4th July 1897.

London, 1st January 1897. Six months (or any other time) after date I promise to pay (here insert name of the person to

(The name of the maker of the note.) PROMISSUM. A fine or levy offered in lieu of personal service and taken as part of a scutage or AID. Scutagium Promissum occurs in the Red Book of the Exchequer for the composition of non-effective tenants towards the levy for the scutage of Toulouse (1159). Hence promissum became a term for a scutagium or other feudal levy, which was said to be promised or compounded for in advance by the tenant. the composition for scutages and military services became general, the word naturally became obsolete (see KNIGHT'S SERVICE).

When

A. E. S.

PROMOTER. The word is generally used to denote one who is connected with floating JOINTSTOCK COMPANIES by procuring the assistance of BROKERS and UNDERWRITERS to arrange for the issue of shares, and by forming the first board of directors. His connection with the company usually ceases with the commencement of its business career, but the tendency of recent decisions and legislation has been towards fixing the promoter with some greater degree of reThe sponsibility towards the shareholders. inception of a public company frequently offers to the promoter the opportunity of securing large profits at the expense of the future shareholders, and this opportunity has been, in many instances, so unscrupulously used as to bring the office into great disrepute. But his functions, properly exercised, are both legitimate and useful, and have played an important part in the growth of joint-stock enterprise.

Property, the Right of, p. 228; I. What is meant by the Right of Property, p. 228; II. Restrictions on the Right of Property, p. 229; (a) Right of Possession, p. 229; (b) Right of Enjoyment, p. 229; (c) Right of Alienation or Disposition, p. 230; III. Divisibility of the Right of Property, p. 230; (a) Servitudes or Easements, p. 230; (b) Pledge or Mortgage, p. 230; IV. Origin of the Right of Property, p. 230; V. Grounds on which the Right of Property has been Justified, p. 281; VI. Real and Personal Estate, p. 233.

PROPERTY, THE RIGHT OF.-I. What is meant by the Right of Property.—The right of property is described by Professor Holland in his Jurisprudence as an extension of the power of a person over portions of the physical world. In its primary sense the proprietary right has reference to some material object. Further, it

is what jurists term a right in rem,-that is, a right available against all persons other than the one invested with the right, like the right to life or to reputation, as distinct from a right in