Front Page Titles (by Subject) CHAPTER XVII: the productivity of capital - Natural Value
The Online Library of Liberty
A project of Liberty Fund, Inc.
Search this Title:
Also in the Library:
CHAPTER XVII: the productivity of capital - Friedrich von Wieser, Natural Value 
Natural Value, edited with a Preface and Analysis by William Smart (London: Macmillan, 1893).
About Liberty Fund:
Liberty Fund, Inc. is a private, educational foundation established to encourage the study of the ideal of a society of free and responsible individuals.
The text is in the public domain.
Fair use statement:
This material is put online to further the educational goals of Liberty Fund, Inc. Unless otherwise stated in the Copyright Information section above, this material may be used freely for educational and academic purposes. It may not be used in any way for profit.
the productivity of capital
Land being permanent and indestructible, it is not a matter of surprise that it should continue yielding, year after year, that return which it yields in one year. And if we designate a continually-recurring return as “rent,” the rent of land requires no special explanation. It is much the same with the fact that human labour is source of a permanent return. In the case of a healthy person, labour power is renewed constantly after pauses for rest and refreshment.
On the other hand, it is a matter for wonder to find that the perishable powers of the soil, and an the movable means of production, raw materials, auxiliary materials, implements, tools, machinery, buildings, and other productive apparatus and plant, which are consumed, quickly or slowly, in the service of production, are sources of permanent returns,—returns which are constantly renewed, although the first factors of their production may have been long before used up. This brings us face to face with one of the most important and difficult problems of economic theory; with the question, namely, how we are to explain the fact that capital yields a net return.1
All capital yields, proximately and directly, only a gross return; that is to say, a return purchased by a diminution of the parent capital. The condition under which this gross return may be the source of a net return is very easily formulated. In the gross return must be found newly produced all the consumed capital, and beyond this there must be a certain surplus. This surplus will be net return;—a return which may, permanently and without diminution of the parent capital, be obtained and consumed.
If now we ask whether this condition is actually fulfilled, we find, in the first place, that the nature of capital does permit of it. If capital is, on the one side, perishable, on the other, it is reproducible. It serves for production and it is produced. Is it, however, produced in sufficient quantity, and produced from capital itself in sufficient quantity, to fully replace what has been consumed, and leave a surplus beyond? Before trying to answer this question I should like to make one observation of a formal nature.
Capitals which yield gross return may undoubtedly be designated “ productive goods ” on this account alone. They certainly produce; they transform themselves from an unfinished form of goods to a finished one, or to one that comes nearer a finished one. It is, however, preferable to speak of capital as productive only when it yields a net return. And in this sense exclusively we shall understand the “ Productivity of capital.”
As Böhm-Bawerk has shown, productivity may be either physical productivity or value productivity. It is important that this distinction should be clearly kept before us. Physical productivity exists where the amount of goods which form the gross return is greater than the amount of capital goods destroyed; and in the foregoing deduction of the conceptions of gross and net return we have assumed this physical productivity. Value productivity exists where the value of the gross return is greater than the value of the capital consumed. The task of our theory is, in the last resort, to prove the value productivity of capital; but for this purpose it is necessary first to prove the fact of physical productivity, as the scaffolding on which the other rests. The value productivity already presupposes the determination of the value of capital, but the value of capital can only be determined when the question of how to impute the physical return has been answered, because the value of capital rests on the share of return imputed to it. Just as the rent must first be ascertained before the value of any land can be calculated, and just as, generally speaking, the rules of imputation must be recognised before the value of production goods can be determined, so must also the imputation of the return to capital first be settled before we can take up the problem of its value. In pursuance of our division of the subject, we have meanwhile only the problem of the physical productivity of capital to deal with.
There is no doubt that the total return of all three productive factors, land, capital, and labour, taken together, is large enough to replace the capital consumed, and give a net return. This is a notorious economic fact, and as little in need of proof as the fact that there are such things as goods, or such a thing as production. Of course, now and then, a productive undertaking may be unsuccessful, and fail to cover its outlay; indeed many undertakings furnish no usable product whatever. But these are exceptions. The rule is that net returns are obtained,—indeed, net returns of such enormous magnitude, that not only can the millions of human beings be supported, but capital can go on accumulating out of the surpluses.
There remains, therefore, but one thing to ask—whether a share in this undoubted net return can be imputed to the factor capital. But the question can not be put seriously. Why to capital alone should no such share be imputed? Once understood and granted that capital is one of the economic factors of production, to which, with the others, the productive return is ascribed (Book III. chap. iii.), it is also understood and granted that to it belongs by right a share in the net return in which the productive return first embodies itself. Are we to suppose that capital is always in a position to produce only somewhat less than replace itself? This would obviously be an arbitrary supposition. Are we, then, to suppose it capable only of replacing its own loss, however various the success of production may be? This supposition would clearly be no less arbitrary. Whoever denies net return to capital can only do so by denying it any return.
I should fear to repeat myself were I to bring forward any formal proof of the fact that capital does have a share in the productive net return I shall content myself with mentioning one or two cases which show, in eminently clear fashion, the necessity for attributing net return to it. 1
Wherever labour is crowded out by capital, as, e.g., where a machine takes over the work hitherto accomplished by human labour—a thing which will happen no less frequently in the communistic state than it does now,—the capital, or machine, must be credited with at least the same return as that formerly imputed to labour. But this was a net return: therefore, the capital or machine must also be credited with a net return. Were the machine capable of reproducing only its own substance as that is worn away in course of use, it would be less effective than human labour, and would not have had power to displace it, But why should a machine such as this be favoured in the imputation more than any other form of capital? What experience would speak for this?
In accordance with the universal law of differential imputation, every form of concrete capital of better quality has a higher return imputed to it than the concrete capital of lower quality, and this return is measured by the amount of increase in productive results which the employment of the better qualities brings. And as, when we look at production and its results as a whole, it is only net returns that are taken into consideration, it is thereby proved that, in comparing qualities of capital, the standard of imputation must be taken from the net return.
Whoever employs his capital according to the measure in which he sees it influence the productive net return, employs it well; whoever does otherwise, employs it badly. On this point universal opinion is united now, as it will be in the communistic state. The universal opinion to which we refer is not, however, the untrained judgment of the public in matters of theory, but the ripe expression of experience.1
In what follows I understand by the term capital the perishable or (with the extended meaning explained in the text) the movable means of production. This conception is adapted to the conditions of a communistic state, in which the national income is obtained solely through production. To take note of those forms of capital which serve in the formation of income outside of production, seemed to me out of place, these being too closely connected with the specific conditions of the existing economic order of things. For the same reason I also refrain from taking into consideration those constituent parts of an undertaker's capital which do not belong to the technical means of production. I have, however, appended, in Book IV. chap. viii., a discussion of the interest on consumption loans and house rent, and, at the end of Book V. chap. xi., I have looked at the interest which comes from the undertaker's wage fund.
Among such cases I should include also those where the use of capital in-creases the previous productiveness of production. Here we see with particular clearness that the additional net return must be credited to the capital. It would, however, be an error to believe that capital can receive a share of net return only when its use has directly increased the previous productiveness of production, or that it would be deprived of this share as soon as the world became accustomed to the increased effects. Experience shows us the productivity of capital even in a stationary economy. On this account all theories are inadequate which derive the productivity of capital solely from its capacity to promote the development of economic life.
The theory of interest, like that of rent, has always been discussed very much by itself; discussed. I mean to say, without any previous examination of the general laws of imputation. The result, however, as regards interest, has been immensely less satisfactory than as regards rent. It is easy to understand that in the case of interest we have to deal with the essential point in the problem of imputation, while in the case of rent we have to deal substantially with a detail capable of being conceived by itself,—that, namely, of the differential imputation. Bö hm-Bawerk's great work Geschichte und Kritik der Capitalzins-theorien (Innsbruck, 1884), translated as Capital and Interest (Macmillan), has clearly shown to the scientific world how unsatisfactory all previous attempts at explanation have been.