CAPITAL AND INTEREST

71

ing. Depreciation is treated precisely as is the outlay for materials
and supplies. Such items are treated in the accounts as if they
were quite separate from the wages bill and the “labor cost.” For
the purposes of the economist, however, and not least for the theory
of international trade, they must all be reckoned in the labor
account. Their significance for our purposes lies in the fact that
the economic analysis of capital outlays points to differences in
labor cost; to variations in this essential regard from country to
country and from commodity to commodity.
A country that makes large use of tools, machines, plants, and
uses them better than another country, has a comparative advantage
in the production of the commodities turned out with the abundant
use of capital. Such in general is the situation between the countries
 of advanced capitalistic development, Western Europe and
the United States, when compared with the tropical and backward
 countries. As between the Western countries themselves,
there are similar differences. England had a marked advantage
of this kind for a considerable period, from the early stages of the
Industrial Revolution in the 18th century through the first third
of the 19th, perhaps the first half. England continued during
that period to have a comparative advantage in making those
articles to which the machine-using processes could be applied
with most effect; all countries applied them more or less, but
England applied them better. The United States attained a
development of a similar kind by the middle of that century,
Germany and Switzerland before its close. Gradually all the
Western countries learned to apply the new labor-saving processes.
Yet they did not all learn to apply them with equal effect. Differences
 persisted, and these had their effects on international trade.
A curious contrast appeared in the latter part of the 19th century
between the situation in England and that in the United States.
It serves to bring into clear relief the distinction between the two
ways in which the use of capital affects international trade, according
 as it operates on the one hand to introduce the element of
return on capital or on the other hand to increase the effectiveness
of labor. In both countries the use of well-devised tools and