◆¹ In days preceding the rise of the modern industrial system, the average rate of interest was as high as ten per cent. As the modern system developed itself, as Ability more and more was diverted from war, and concentrated on commerce and industry, and produced by the use of Capital a larger and more certain product, ◆² the price it paid for the use of Capital fell, till by the middle of this century it was not more than five per cent. During the past forty years it has continued to sink still further, and can hardly be said now to average much more than three. [Sidenote ◆1 In spite of appearances to the contrary;] ◆¹ This fact is sufficiently well known to investors; but there are other facts known equally well which tend to confuse popular thought on the subject, and which accordingly, in a practical work like this, it is very necessary to place in their true light. For, in spite of what has been said of the fall in the rate of interest from ten to six, and to five, and from five to three per cent, it is notorious that companies, when successful, often pay to-day dividends of from ten to twenty per cent, or even more; and founders’ shares in companies are constantly much sought after, which are merely shares in such profits as result over and above a return of at least ten per cent on the capital. [Sidenote ◆1 As much of what is vulgarly considered interest is something quite different.] But the explanation of this apparent contradiction is simple. Large profits must not be confounded with high interest. ◆¹ Large profits are a mixture of three things, as was pointed out by Mill, though he did not name two of them happily. He said that profits consisted of wages of superintendence, compensation for risk, and interest on Capital. If, instead of wages of superintendence, we say the product of Ability, and instead of compensation for risk, we say the reward of sagacity, which is itself a form of Ability, we shall have an accurate statement of the case. A large amount of the Capital in the kingdom is managed by the men who own it; and when they manage it successfully, the returns are large. Sometimes a man with a Capital of _a hundred thousand pounds_ will make as much as _fifteen thousand pounds_ a year; but that does not mean that his Capital yields fifteen per cent of interest. Let such a man be left another _hundred thousand pounds_, which he determines not to put into his own business, but invests in some security held to be absolutely safe, and he will find that interest on Capital means not more than three and a half per cent. If he is determined to get a large return on his Capital, and if he does this by investing it in some new and speculative enterprise, this result, unless it be the mere good luck of a gambler, is mainly the result of his own knowledge and judgment, as the following facts clearly enough show.