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 coun- 
tries of advanced capitalistic development, Western Europe and 
the United States, when compared with the tropical and back- 
ward 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. Differ- 
ences 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, accord- 
ing 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