The Online Library of Liberty

A project of Liberty Fund, Inc.

• Preface.
• Conversation I.: Introduction.
• Conversation II.: Introduction — Continued.
• Conversation III.: On Property.
• Conversation IV.: On Property— Continued.
• Conversation V.: On the Division of Labour.
• Conversation VI.: On Capital.
• Conversation VII.: On Capital — Continued.
• Conversation VIII.: On Wages and Population.
• Conversation IX.: On Wages and Population. Continued.
• Conversation X.: On the Condition of the Poor.
• Conversation XI.: On Revenue.
• Conversation XII.: On Revenue Derived From Property In Land.
• Conversation XIII.: On Revenue Derived From the Cultivation of Land.
• Conversation XIV.: On the Revenue of Those Who Do Not Employ Their Capital Themselves.
• Conversation XV.: On Value and Price.
• Conversation XVI.: On Money.
• Conversation XVII.: Subject of Money Continued.
• Conversation XVIII.: On Commerce.
• Conversation XIX.: On Foreign Trade.
• Conversation XX.: Continuation of Foreign Trade.
• Conversation XXI.: Subject of Foreign Trade Continued.
• Conversation XXII.: On Expenditure.

CONVERSATION VII.

ON CAPITAL — continued.

mrs. b.

I have some further remarks to make to you on the natural of capital.

A land-owner, when he increases his wealth by savings from his income, may probably, instead of employing the whole of his additional capital on husbandmen, find it more advantageous to lay out some part of it on workmen to build barns and outhouses, to store his crops and shelter his cattle; he may plant trees to produce timber, build cottages, and bring into cultivation some of the waste land on his farm.

A manufacturer also, in proportion as he increases the number of his workmen, must enlarge his machinery or implements of industry.

caroline.

But the capital laid out in buildings, tools, and machinery, will not yield a profit like that which is employed in the payment of workmen, the produce of whose labour is brought to market?

mrs. b.

Not so immediately; but the farmer and manufacturer would not lay out their capital in this way, did they not expect to reap a profit from it. If a farmer has no barn or granary for his corn, he will be compelled to sell his crops immediately after the harvest, although he might probably dispose of them to greater advantage by keeping them some time longer. So a manufacturer, by improving or enlarging his machinery, can, with less labour, perform a greater quantity of work, and his profits will be proportionate.

caroline.

No doubt if he employ machines instead of men, he will have no wages to pay, and the whole will be profit.

mrs. b.

Thus, for instance, when a manufacturer can afford to establish a steam-engine, and use a stream of vapour as a substitute for the labour of men and horses, he saves the expense of more than half the number of hands he before employed.

The capital laid out in this manner is called fixed capital; because it becomes fixed, either in land, in buildings, in machinery or implements of art; it is by keeping this capital in possession, and using it, that it produces an income. Whilst the capital employed in the maintenance of productive labourers, whose work is sold and affords an immediate profit, is distinguished by the name of circulating capital.

The produce of a farm, or the goods of a manufacturer, afford no profit until they are brought to market; and sold or exchanged for other things. This description of capital is, therefore, constantly circulating. It is transferred first from the master to the labourer, in the form of wages and raw materials; then from the labourer it is returned to the master, in the form of produce or workmanship of increased value; but the latter does not realise his profits until this produce is sold to the public, by which it is consumed.

caroline.

I think I understand the difference between fixed and circulating capital perfectly. A farmer derives profit from his implements of husbandry by their use, while kept in his possession; and from his crops by parting with them. But to which kind of capital should the farming cattle be referred?

mrs. b.

It depends upon the nature of the cattle. The value of the labouring cattle is fixed capital, like the implements of agriculture; thus, the horses which draw the plough, as well as the plough itself, are fixed capital. But sheep and oxen intended for market are circulating capital.

caroline.

But should the plough be drawn by oxen, Mrs. B., how would you settle the point then? for whilst they labour for the farmer they are fixed capital; but when they are sold to the butcher they become circulating capital.

mrs. b.

They alternately belong to each of these descriptions of capital; because the farmer makes his profit, first by keeping, and afterwards by selling them.

caroline.

I do not understand why you should call the maintenance of labouring men circulating capital, whilst you consider that of labouring cattle as fixed capital: they appear to me to be exactly similar.

mrs. b.

And so they are. The maintenance of cattle as well as that of labourers is circulating capital; that maintenance is in both cases consumed and reproduced with advantage: it is therefore by parting with it that profits are derived. But the value of the cattle themselves is fixed capital; and if labourers, like cattle, were purchased, instead of being hired, thus becoming the property of their employers, they also would be fixed capital.

caroline.

And this, I suppose, is the case with the poor Africans in the West Indies?

mrs. b.

Yes, and with slaves of every description. Even the peasantry of Russia and Poland are in general considered as fixed capital, because their state of vassalage is such as to amount to slavery, the proprietors of the land having a right to their labour without remuneration: and the value of an estate in Russia is not estimated by the number of acres, but the number of slaves upon it; in the same manner as a West Indian plantation. A similar state of vassalage prevailed throughout most parts of Europe some centuries ago; but in later times the progress of civilisation has been such, that I believe every country, excepting Russia and Poland, has emancipated the labouring classes; experience having proved that the more free and independent men are, the more industrious they become, and the better the land is cultivated.

caroline.

I wish that the West Indian planters could be induced to adopt this opinion.

mrs. b.

The time will no doubt arrive when slavery will be abolished in every civilised country. But important changes ought not to be introduced without extreme caution. The minds of men should be freed from the degrading fetters of ignorance, before they can reap advantage from personal emancipation. An ingenious author observes, “that liberty is an instrument with which men may either make their fortune or destroy themselves; that they should therefore be taught the use of it before it is intrusted to their hands.” In all cases we shall find that gradual and progressive improvement is invariably conducive to the happiness of mankind, whilst sudden and violent revolutions are always attended with danger. But we are deviating from our subject.

caroline.

Well then, to return to it. I thought at first that I understood the difference of fixed and circulating capital perfectly; but I find upon reflection, that I am at a loss to determine to which kind of capital several articles of property belong. For instance, does the money laid out in the improvement of land constitute fixed or circulating capital?

mrs. b.

The money laid out on waste land to bring it into a state fit for cultivation, such as inclosing, draining, ditching, preparing the soil, &c. is fixed capital; and so is that which is employed in the improvement of land already cultivated. If it is the proprietor who lays out capital on land which he lets, he receives in remuneration an increase of rent; if the farmer, he makes greater profits. But the money laid out in the regular course of cultivation, such as ploughing, sowing, reaping, &c., consists, as we have before observed, partly in fixed and partly in circulating capital.

caroline.

I must say that I prefer the employment of wealth in the form of circulating, rather than in that of fixed capital. Granaries, barns, machinery, &c. may be advantageous to the proprietors, but they must be injurious to the labouring classes; for the more a man lays out as fixed capital, the less remains to be employed as circulating capital, and therefore the fewer labourers he can maintain.

mrs. b.

You must always remember that the greatest good you can do the labouring classes, is to increase the consumable produce of the country. Whilst plenty of the necessaries of life is raised, it signifies little to whom it belongs; for whoever may be the proprietors of this wealth, they can derive no advantage from it but by employing it; that is to say, by maintaining with it productive labourers. The more abundant, therefore, this wealth is, the more people will be employed.

Now it is evident that whatever tends to improve or facilitate labour, increases the productions of the country; and if fixed capital should eventually occasion the raising a greater produce than circulating capital, it must be more beneficial to the labourers as well as to the capitalist.

caroline.

So it appears; and yet I cannot understand how this operates with regard to machinery. We cannot substitute the powers of nature for human industry without throwing people out of work. How then can the poor derive any benefit from inventions and improvements which prevent their being employed?

mrs. b.

It may appear paradoxical, but it is nevertheless true, that whatever abridges and facilitates labour will eventually increase the demand for labourers.

caroline.

Or, in other words, to turn people out of work is the most certain means of procuring them employment! —This is precisely the objection I was making to the introduction of new machinery.

mrs. b.

The invention of machinery, I allow, is often attended with much partial and temporary inconvenience and hardship; but on the other hand, the advantages resulting from it are almost incalculable both in extent and duration. When any new machine or process whatever which abridges or facilitates labour is adopted, the commodity being produced at less expense falls in price, the low price enables a greater number of persons to become purchasers, the demand for it increases, and the supply augments in proportion; so that it frequently happens that more hands are eventually employed in its fabrication than there were previously to the adoption of the new process. When, for instance, the machine for weaving stockings was first invented, it was considered as a severe hardship on those who had earned a maintenance by knitting them; but the superior facility with which stockings were made in the loom, rendered them so much cheaper, that those, who before were unable to purchase them, could now indulge in the comfort of wearing them, and the prodigious increase of demand for stockings enabled all the knitters to gain a livelihood by spinning the materials that were to be woven into stockings.

caroline.

That was a resource in former times, but household spinning is scarcely ever seen since Arkwright’s invention of machinery for spinning. Where are the spinners now to find employment? The improvements in machinery drive these poor workmen from one expedient to another, till I fear at last every resource will be exhausted.

mrs. b.

No; that cannot be the case. Where there is capital the poor will always find employment. In countries possessed of great wealth we see prodigious works undertaken. Roads cut through hills, canals uniting distant rivers, magnificent bridges, splendid edifices, and a variety of other enterprises which give work to thousands, independently of the usual employment of capital in agriculture, manufactures, and trade. What is the reason of all this? It is in order that the rich may employ their capital; for in a secure and free government no man will suffer any part of it to lie idle; the demand for labour is therefore proportioned to the extent of capital. Industry, we have already observed, knows no other limits. The capitalist who employs a new machine is no doubt the immediate gainer by it; but it is the public who derive from it the greatest and most lasting advantage. It is they who profit by the diminution of price of the goods fabricated by the machine; and, singular as it may appear, no class of the public receives greater benefit from the introduction of those processes which abridge manual labour, than the working classes, as it is they who are most interested in the cheapness of the goods.

caroline.

Well, Mrs. B., I must confess myself vanquished, and beg pardon of Mr. Watts for having ventured to doubt the beneficial effects of his steam-engine, and of Sir Richard Arkwright for having found fault with his mechanical improvements.

mrs. b.

I will read you a passage in Macpherson’s History of Commerce, which will show you the degree of estimation in which the inventions of Arkwright were held by that writer.

“If Mr. Arkwright made a great fortune, he certainly deserved it; for the advantages he conferred upon the nation were infinitely greater than those he acquired for himself; and far more solid and durable than a hundred conquests. Instead of depriving the working poor of employment by his vast abridgment of labour, that very abridgment has created a vast deal of work for more hands than were formerly employed; and it was computed that in 1785, about 25 years after the invention of his spinning jennies, half a million of people were employed in the cotton manufactures of Lancashire, Cheshire, Derby, Nottingham, and Leicester. And it is but justice to the memory of Sir Richard Arkwright to say, that he was unquestionably one of the greatest friends to the manufacturing and commercial interests of this country, and to the interest of the cotton planters in almost all parts of the world, and that his name ought to be transmitted to future ages, along with those of the most distinguished benefactors of mankind.”

caroline.

This is indeed a magnificent eulogium of Sir Richard Arkwright, but not more so, it appears, than he really deserves.

mrs. b.

I shall conclude my observations on the benefits arising from machinery, by reading to you some remarks on the invention of printing, extracted from Mr. Say’s excellent treatise on Political Economy.

“Au moment où elle fut employée une foule de copistes dûrent rester inoccupés, car on peut estimer qu’un seul ouvrier imprimeur fait autant de besogne que 200 copistes. Il faut donc croire que 199 ouvriers sur 200 restèrent sans ouvrage. Hé bien, la facilité de lire les ouvrages imprimés, plus grande que pour les ouvrages manuscrits, le bas prix auquel les livres tombèrent, l’encouragement que cette invention donna aux auteurs pour en composer un bien plus grand nombre, soit d’instruction, soit d’amusement; toutes ces causes firent, qu’au bout de très peu de temps, il y eut plus d’ouvriers imprimeurs employés, qu’il n’y avoit auparavant de copistes. Et si à présent on pouvoit calculer exactement non seulement le nombre des ouvriers imprimeurs, mais encore des industrieux que l’imprimerie fait travailler, comme graveurs de poinçons, fondeurs de caractères, relieurs, libraires, on trouveroit, peut-être, que le nombre des personnes occupées par la fabrication des livres est cent fois plus grand que celui qu’elle occupoit avant l’invention de l’imprimerie.”

caroline.

And the number of readers must have increased in a still greater proportion. You may recollect observing, in our conversation on the division of labour, that the invention of printing was a circumstance most favourable to the diffusion of knowledge.

But a considerable increase would not, in the case of every commodity produced by machinery, be required?

mrs. b.

Certainly not. It is not a necessary consequence of the invention of machinery, that more hands should be required in the manufacture where it is applied; the additional quantity of the commodity produced by the same number of hands will in some instances be sufficient to supply the increased demand. But supposing even that no augmentation of the commodity should be required, and that a certain number of hands should be dismissed in consequence of the abridgment of labour, the capital thus economised, by being applied to some other purpose, is an advantage both to the proprietor and the public, and eventually affords employment for the labourers thrown out of work.

Thus you see that capital, whether fixed or circulating, invariably promotes the increase of the produce of the country; we may, therefore, I think, define capital to be any accmulated produce which tends to facilitate future productions. And the capital of a country is composed of the aggregate property of all its inhabitants.