"profit upon capital laid out in improvements" to a far greater extent than previously, and that this accounts for the difference; others, alleging that 58. 6d. rents represent a greater rise on mediæval rates than the current rate of wages at that time (Th. Rogers, l.c. v. 815), attribute this phenomenon to the superior agility of the landlords. Perhaps both causes were at work. Anyhow the wisest economists treat these and similar questions historically, and admit that hitherto history supplies results which do not justify confident predictions as to the future.

J. D. R.

[In addition to the above-mentioned references to Caird, Giffen, Prothero, Thorold Rogers, A. Smith, etc., see L. Brentano, preface to James Anderson, Drei Schriften über Korngesetze und Grundrente (1893); E. Cannan, "Origin of the Law of Diminishing Returns" in Econ. Journal, ii. 53.-E. de Laveleye, Primitive Property, transl. Marriott (1878).-R. E. Prothero in Social England (1894), ed. H. D. Traill.-W. Roscher, Political Economy, transl. Lalor (1878), bk. iii. ch. ii.—F. A. Walker, Land and its Rent (1883).] RENT SEC. A rent secured by rent charge not expressly giving a right of distress (see DRY RENT).

E. S.

RENTE (Fr.). In primitive times, the annual fee paid by the vassal to the seigneur, or the tenant farmer to the landlord; now almost exclusively applied to the interests on the consolidated debt or rentes sur l'État, the word loyer being employed for the hire of land or buildings. The consolidated public debt dates from the creation of the GRAND LIVRE (q.v.) in 1793. The total nominal capital then amounted to 2,556,060,000 francs (£102,242,400), which increased to 3,494,320,000 francs (£139,772,800) in 1797, when two-thirds of the debt was paid off by ASSIGNATS or national bonds of little or no value, and the remainder was refunded under the designation of consolidated thirds. The nominal capital was thus reduced to 1,164,773,333 francs (£46,590,933), the rate of interest at 5 per cent remaining unchanged. In 1814, at the first abdication of Napoleon, the debt had only increased to 1,226,152,740 francs (£49,046,109). The borrowing during the restoration for the liquidation of the empire and the two invasions, had raised the debt in 1830 to 4,426,297,611 francs (£177,051,184). Down to 1825 the rate of interest had always been 5 per cent. In that year the first 3 per cent rentes were created for payment of the indemnity to partially compensate the royalists and suspects whose property

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had been confiscated during the revolution and sold for the benefit of the state as biens nationaux. The sum thus raised is known in history as the milliard des émigrés, and the operation was combined with an optional conversion of the existing five per cents into threes at 75, or four and a halfs at par, guaranteed for ten years against any further reduction of interest. The conversion was only accepted for a small portion of the debt, and a 4 per cent loan having been issued in 1829, four different stocks in rente existed down to 1852. In that year there was a compulsory conversion of the five per cents by reimbursement, with the option of an exchange for four and a half per cents. The next conversion in 1862 was an optional one without reimbursement. Holders of four and a half and four per cents were offered in exchange three per cents to produce the same amount of rente or annual interest on payment of a premium called a soulte of 5 francs 40 cent for each unity of 4 per cent rente, and 1 franc 20 cent for the four per cents. The conversion was accepted for about three-fourths of the two stocks in circulation, and the soulte produced a sum of 157,820,296 francs (£6, 312,811) to the treasury without any increase in the annual charge, but at the cost of a considerable augmentation in the capital of the debt. After this operation there still remained in circulation 38,443,707 francs of 4 per cent in rente or interest, and 453,027 francs in four per cents. Between 1854 and 1859 four loans were issued in 4 or 3 per cent stock at the option of the subscribers, and from the latter year down to the war of 1870 all the creations of rente were in three per cents. In October 1870 the government of national defence raised a loan of 250,000,000 francs nominal in London in 6 per cent bonds at 85. This loan was to be paid off by annuities in thirty-four years, and did not give rise to any creation of rente. It was reimbursed in 1875 by an appropriation of 14,541,780 francs of rentes belonging to the savings banks, and held by the Caisse des Dépôts et Consignations, which received an annuity of 17,300,000 francs for interest and redemption for thirtynine years. The bondholders obtained the same interest of 6 per cent as before in 3 per cent rentes, but, as in 1862, had to pay a soulte which produced to the treasury a bonus of 60,000,000 francs. The war indemnity loans of 1871 and 1872 increased the capital of the consolidated debt by 6,720,032,100 francs (£268,801,284) in five per cents, which were reduced in 1883 to four and a half per cents, and again in 1894 to three and a half, with a guarantee against any further reduction for eight years.

Originally all rentes were inscribed into names in the "grand livre," but in consequence of complaints of the formalities required to obtaiu

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payment of the interest in the provinces or transfers of the capital, a law of 1831 authorised the creation of bonds to bearer with coupons, and in 1864 a new category called rentes mixtes (mixed) was authorised, the capital of which is inscribed but with certificates carrying coupons for the payment of interest. The sheets of coupons of the three and the threé and a half per cents are for five years, and those of the rentes mixtes for ten years, after which they require to be renewed. Money being required in 1878 for M. de Freycinet's great scheme of spending four milliards (£160,000,000) in ten years on railways, roads, canals, and improvements in navigable rivers, another class of rentes was created by M. León SAY namely, that of redeemable three per cents, the capital to be reimbursed in seventy-five years. This loan was issued as required in 175 numbered series for the drawings according to a table of redemption, the number of series to be paid off annually to increase progressively. There are no redeemable three per cents in rentes mixtes. A nominal sum of 4,070,690,000 francs (£162,827,600), which produced 3,286,580,884. francs, was thus raised between 1878 and 1884, but the system of redeemable rentes was abandoned in 1888, when a new loan of 500,000,000 francs was raised in ordinary three per cents as in all subsequent borrowings. The remainder of the old 4 and 4 per cent outstanding from the conversion of 1862 was refunded in three per cents in 1877, and only two classes of rentes ordinary and redeemable 3 per cent now remain (1912) in circulation.

Rentes enjoy certain privileges over other classes of public securities. They are exempt from all taxes on capital or interest excepting those on succession and donations, and in the numerous schemes put forward for a general income tax their authors have invariably proposed to exclude rentes for the reason that, as the government had promised a certain rate of interest it would be a breach of faith towards the public creditor to levy a tax on the interest. Governments have also been influenced in exempting rentes by the consideration that future loans would have to be issued under less favourable conditions if the interest was

exposed to taxation. A claim for the capital of rentes is not barred by lapse of time, but the interest cannot be claimed after five years from the date for payment. Rentes cannot be the object of a judicial seizure, and an injunction to suspend payment of interest is not allowed. They are expressly exempted from the operation of the law of 29th June 1872, relative to lost or stolen public securities. The bourse tax of five centimes per thousand francs paid by both buyer and seller in the same negotiation is also reduced to one-fourth of that rate for dealings in rentes. The

smallest inscription of inscribed rentes admitted is three francs interest for 3 per cents; if to bearer, the same. These small divisions assist to make the stock popular. Bonds of the redeemable threes are for 15 francs interest or 500 francs capital and multiples of the same. The capital of the two classes of rentes in circulation is about 25 milliards of francs (£1,000,000,000), but this does not constitute the total public debt of France, which, with the floating debt and the annuities capitalised, is estimated at over 30 milliards (£1,200,000,000). The number of inscriptions of inscribed rentes and bonds to bearer is about 4,500,000, but many rentiers or fundholders possess several inscriptions or bonds. The number of holders of rentes is believed to be about two millions. In no country is the public debt so widely disseminated among all classes of the people as in France.

[Annuaire des Agents de Change.-Dictionnaire des Finances.-Alph. Courtois, Manuel des Fonds Publics and Tableaux des Cours des Principaux Valeurs depuis 1797.-A. Neymarck, Le Morcellement des Valeurs Mobilières and La Rente Française, son origine, ses développements.-Compte général de l'Administration des Finances.]

The

respective authorities. Only once has the national government declined to pay in full its obligations, and that was at the beginning of its existence, in providing for the redemption of the continental currency issued during the revolution at a rate of 1: 100 of its face value. integrity of states and cities has not, however, been so strictly kept, partly because of the financial and commercial confusion incident to the establishment of new communities, and partly because of constitutional and political reasons not always clearly understood by foreign investors. Owing to the strong "states' rights" feeling existing in the United States and a desire to protect the dignity of the federating commonwealths, an amendment to the constitution of the United States (the eleventh, 1798) was adopted providing that "the judicial power of the United States shall not be construed to extend to any suit in law or equity against one of the united states by the citizens or subjects of any foreign state."

[The history of repudiation, its canses and remedies proposed, is very fully treated by William A. Scott in The Repudiation of State Debts, New York, 1893, p. 325. For State Repudiation see Sidney Smith. Repudiation has also been practised in other countries with disas trous results to their credit.]

D. R. D.

RESERVE. The reserve of a bank is essential to its safety, but the amount must be left to the discretion of its managers. Few would be inclined to hold now the opinion of RICARDO, who, in his evidence before the committee of the House of Commons on cash payments in 1819, said, "I should think that a reserve of three millions would, under good management, be amply sufficient upon a supposition of twenty-four millions of Bank of England notes in circulation" (Tooke's History of Prices, vol. iv. p. 477, note).

The reserve of the Bank of England has of recent years been far larger in amount than what was contemplated eighty years since. The average for the year 1844 was £8,500,000; for 1895, £29,900,000; for 1899, £21,191,000; and for 1911, £27,971,000. This sum, which, though nominally described as "notes," really consists of specie, represents a very large part of the reserves of the other banks of the country, which at times probably even exceed the amount of the reserve of the Bank of England. The "cash in hand, at call and at short notice," held by the banks of the United Kingdom at any usual time, may in a regular way amount to about £280,000,000. This sum includes the till-money" of the banks, which is no doubt considerably larger now than in former years.

The natural objection on the part of those who have the management of banks to allowing any part, more than is actually necessary, of their deposits to remain "idle money," accounts for the smallness of the amount held in reserve, but there are many signs that an increase of it is very desirable.

[See Banker's Magazine, April number, 18941898.]

RESERVE LIABILITY. See LIABILITIES ON SHARES.

RESERVES (BANKING). The banker's cash reserve is that portion of his resources which he holds uninvested. In ordinary times the daily receipts may be roughly reckoned to provide for the day's demands, but there is the possibility of extra requirements, and for these a fair provision of cash in hand is necessary. In London the cash in hand includes, and mostly consists of, the balance at the Bank of England; with country bankers the cash reserve is largely kept on balance with their London agents.

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The banking reserve held by the Bank of England consists of the bullion and coin in the banking department, which is really the "tillmoney of the bank itself, and of the notes in hand in the same office. As these notes can be immediately exchanged at the issue department for gold, the reserve is practically held in gold.

It is not possible to lay down a proportion which the cash reserve should bear to the deposits. The experience of the banker can alone decide what is necessary or desirable, and this experience differs in different localities, and in different classes of business in the same locality. The ratio of the reserve of the Bank of England has been somewhat reduced in recent years. This is much to be regretted in view of increased and increasing demands on our market. Highest 52.51 per cent Lowest

In 1885 it was

In 1911 it was

{

32.98

In the

In 1894 the cash and money at call held by the Metropolitan and Suburban Banks was 31.5 per cent of the deposits. In 1911 it was Besides the cash and money 25.4 per cent. at call, there is a second line of Reserve in Government and similar securities. national banking system of the United States the proportion of reserve is prescribed by law, and must consist of specie, legal tender notes, or gold and silver certificates; the ratio ranging from 15 per cent to 25 per cent; the former being for banks in the provinces, who may reckon therein their balances with agents in the reserve cities (see BANKS, NATIONAL).

R. W. B.

RESIDUAL AND WASTE PRODUCTS as those (BY-PRODUCTS) may be defined materials which in the cultivation or manufacture of any given commodity remain over, and which possess or can be brought to possess a market value of their own, apart from the value of the article from whose manufacture or in connection with whose cultivation they have resulted. In this way straw is a residual or by. product resulting from the cultivation of grain. J. E. Cairnes, Some Leading Principles of Political Economy, 1884, p. 128, refers to them as "accessory products," and defines them as commodities which are produced, not separately, but as parts of a common industry, and of which the most obvious examples are mutton and wool, beef, tallow and hides, gas and coke, and the like.

J. S. Mill, in his chapter on "Some Peculiar Causes of Value," Principles of Pol. Econ., vol. ii. bk. iii. ch. xvi., treats of the joint cost of production of two such articles, and shows how

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"the outlay is incurred for the sake of both together, not part for one and part for the other"; that cost of production does not determine their prices, and that to determine their prices we must "revert to a law of value anterior to the cost of production and more fundamental-the law of demand and supply. The gas may find an easy market, but purchasers may not be forthcoming for the coke, and vice versa. In this case, the coke being lowered in price to force a market will lower the whole rates of profit on the joint production; it will cease to be remunerative and less gas will be produced, whereupon gas prices will rise, the stationary condition of the supply of coke will clear the market of it and cause a demand for more; the rise in gas and coke will attract capital, but, as to supply the demand for coke gas must be manufactured, gas prices will fall, and this time it will be the coke which has supplied the lion's share of the profitable return on the manufacture."

'Equilibrium will be maintained when the demand for each article fits so well with the demand for the other that the quantity required of each is exactly as much as is generated in producing the quantity required of the other" (p. 109 ib.). Mill then sums up: "When, therefore, two or more commodities have a joint cost of production, their natural values relatively to each other are those which will create a demand for each in the ratio of the quantities in which they are sent forth by the productive process."

Charles Babbage, in his Economy of Machinery and Manufacture, London, 4th ed. 1835, refers to waste products, p. 11, par. 9, such as the employment of hoofs of horses and cattle, and other horny refuse, in the production of the prussiate of potash; and also to the re-use of old iron and old tin-ware. On p. 217, par. 270, he writes: "Among the causes which tend to the cheap production of any article, and which are connected with the employment of additional capital, may be mentioned the care which is taken to prevent the absolute waste of any part of the raw material. An attention to this circumstance sometimes causes the union of two trades in one factory. . . An enumeration of the arts to which the horns of cattle are applicable will furnish a striking example of this kind of economy. The tanner who has purchased the raw hides separates the horns, and sells them to the makers of combs and lanterns. The horn consists of two parts-an outward horny case, and an inward conical substance, somewhat intermediate between hair and bones. The first process consists in separating these two parts. . . The horny exterior is then cut into three portions. . . . The lowest of these is made into combs; the middle of the horns forms a substitute for glass in lanterns of the commonest kind; the tip of the horn is

used by the makers of knife handles, and of the tops of whips. The interior or core of the horn is boiled down in water. A large quantity of fat rises to the surface. This is put aside and sold to the makers of yellow soap. The liquid itself is used as a kind of glue, and is purchased by cloth-dressers for stiffening. The insoluble substance which remains behind is then sent to the mill, and, being ground down, is sold to the farmers for manure, as also are the comb shavings from the horn."

This example will serve as an instance of the economic uses of a "waste product." Chief products and waste products are, however, relative terms. What is a waste product to one man may be a chief product to another.

A. L.

[P. L. Simmonds, Waste Products and Undeveloped Substances, London, 1873; see also BY-PRODUCT; BY-PRODUCTS, THEORY OF VALUE OF PROGRESS, INFLUENCE OF, ON VALUE; SHODDY.]

RESIDUAL SHARE (Wages). A wellknown American economist, the late F. A. WALKER, has advanced the theory that wages equal the product of industry minus rent, interest, and profits, or in other words that "the labourer is the residual claimant of the product of industry." Hence he concludes that if the total amount of the production of a community be increased, the increase will go, not to the landlords, nor to the capitalists, nor to the employing class, but to the labouring class in enhanced wages. As a practical illustration he points to the western states in America, where "employers were paying their labourers by the year, giving the full wages only when the crops were harvested or the goods marketed, making meanwhile such advances as their means allowed, or as were required by the varying wants of their workmen." He allows that in England and other settled countries, the practice is wholly different, and that the labourers fail to obtain that share in the product to which, according to his theory, they are entitled. he attributes this to imperfect competition, and especially to the immobility of labour and its consequent failure to find the best market. Given perfect and enlightened competition, he holds that the labourers and not the employers will receive the residue of the product, and that the other shares, no matter how they are actually paid, may be regarded as preliminary deductions.

But

This theory of wages has its basis in Mr. Walker's theory of profits. He holds that profits are akin to rent, that they vary with the abilities or other advantages of individual employers, and they do not form part of the price of goods. Just as the normal price of agricultural produce depends on the cost of production on those lands which pay no rent, so the normal price of manufactured goods depends on the cost of production in the hands of those employers who earn no profits. More

skilful and energetic employers make the goods cheaper and sell them at the same price. Hence they earn a reward which is due entirely to their own merits, which cannot be confiscated, and which inflicts no hardship either on the labourers or on the consumers. The only way in which these profits can be reduced is by raising all round the average skill and ability of the employing class generally, so as to diminish the exceptional gains of the great captains of industry.

For this view of profits there is much to be said, and it unquestionably accounts for some prominent characteristics of modern industry.

But Mr. Walker has pressed the analogy between profits and rent too far. Because rent is measured from no-rent land, therefore he holds that profits must be measured from a "no-profits" class of employers. To quote his own words, "no small part of the posts of industry and trade are filled by men inadequately qualified, and who, consequently, have a very checkered career and realise for themselves, taking their whole lives together, a meagre compensation, so meagre that, for purposes of scientific reasoning, we may treat it as constituting no profits at all." But this assumption seems to go too far. It is quite true that employers sometimes conduct an industry at a dead loss, and find their way to the bankruptcy court. But it is equally true that many people make foolish investments and lose both interest and principal. It is equally true that some landowners cultivate their own lands, and lose money every year in the process. But these exceptional circumstances cannot and do not affect any permanent theory of interest or rent. The minimum rate of interest at any time is not nil, but the lowest rate at which people can be induced to save. So the basis of the theory of rent is not land which is worked at a loss, but the land which it is just worth while to cultivate. The same considerations must apply to industry and trade. The normal minimum of the reward of the employing class must be that which will just induce men to give their time and labour to the work of supervision and organisation. And this minimum is probably one of the most substantial shares of the product of industry. If a struggling employer has succeeded in carrying on an industry for his lifetime, and during that time has supported himself and probably brought up a family, it is preposterous to consider his earnings as nothing at all. What those earnings are to be called is another matter. Mr. Walker would decline to call them profits, because they are not earned by any exceptional ability. The employer who earns them belongs to the lowest normal class of employers, the people who conduct an industry so as to just pay them and no more. The truth is that the earnings of this class are wages, what J. S. MILL called "the wages

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of superintendence." The primary difficulty of any theory of wages is the definition of the "labouring class." A man is none the less a labourer because he works with his head instead of with his hands. And a man is none the less a wage-earner because he pays his wages to himself instead of receiving them from another. The labour of supervision may be done by the master himself, or it may be done by a paid manager, who receives a salary, i.e. wages. The work is the same in both cases, and the reward is also the same. Thus the true conclusion seems to be that we must eliminate the temporary exceptions of production at a loss under conditions that cannot last. In the normal conduct of industry and trade all employers receive the wages of superintendence, and the more able receive an extra remuneration proportioned to their ability, which may be called profits or exceptional profits. The stage from which these profits must be reckoned, corresponding to the no-rent land, is the stage at which employers earn the bare wages of superintendence and nothing more.

If wages be taken in this extended sense, so as to include among the labouring class those who supervise industry as well as those who work with their hands, then Mr. Walker's theory may in the end be accepted, and it may be held that wages equal the residue of the product of industry, after deducting the rent of land, the interest on capital, and the profits of exceptional ability in direction. But this theory is of little practical use, as it leaves us face to face with the great problem of the present day, that this residue has to be further divided between employers and employed, between the class who pay their own wages and the class who receive their wages from others.

[F. A. Walker, Pol. Ec., pt. iv., chs. iv. v. and vi., and The Wages Question, bk. ii.-Taussig, Wages and Capital (1896).-Bonar, "Residual Theory of Distribution," Harvard Quart. Journ. Ec., October 1891.]

R. L.

RESPONDENTIA BONDS. This form of security, now disused through changed conditions and the immense capital employed, was one under which advances were made to the captain of a ship on the security of her cargo; respondentia bonds differed, therefore, from bottomry bonds, whereby the ship herself is pledged as security. (BOTTOMRY, LOAN ON.)

The contract of bottomry and respondentia seems to have deduced its origin from the custom of permitting the master of a ship when in a foreign port to hypothecate the ship in order to raise money to refit. Such permission is implied by the act constituting him master, not by common law but by marine law, for if the voyage is likely to be defeated for want of necessaries, it is better that the master should have power to pledge the ship and goods rather than the ship be lost or the voyage defeated.