The Online Library of Liberty

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• Translator's Preface
• Author's Preface
• Introduction
• Book I: The Nature and Conception of Capital
• Book I, Chapter I: Man and Nature
• Book I, Chapter II: The Nature of Capital
• Book I, Chapter III: Historical Development of the Conception
• Book I, Chapter IV: The True Conception of Capital
• Book I, Chapter V: The Competing Conceptions of Capital
• Book I, Chapter VI: Social and Private Capital
• Book II: Capital As Instrument of Production
• Book Ii, Chapter I: Introductory
• Book Ii, Chapter II: Capitalist Production
• Book Ii, Chapter III: The Function of Capital In Production
• Book Ii, Chapter IV: The Theory of the Formation of Capital
• Book Ii, Chapter V: Formation of Capital In a Community
• Book Ii, Chapter VI: Possible Objections
• Book III: Value
• Book Iii, Chapter I: The Two Conceptions of Value1
• Book Iii, Chapter II: Nature and Origin of Subjective Value
• Book Iii, Chapter III: The Amount of Value
• Book Iii, Chapter IV: The Marginal Utility
• Book Iii, Chapter V: Complications
• Book Iii, Chapter VI: What Determines Marginal Utility
• Book Iii, Chapter VII: Alternative Uses
• Book Iii, Chapter VIII: Subjective Exchange Value
• Book Iii, Chapter IX: The Value of Complementary Goods
• Book Iii, Chapter X: The Value of Productive Goods. Value and Costs.
• Book IV: Price
• Book Iv, Chapter I: The Fundamental Law
• Book Iv, Chapter II: Isolated Exchange
• Book Iv, Chapter III: One-sided Competition
• Book Iv, Chapter IV: Two-sided Competition
• Book Iv, Chapter V: The Law of Supply and Demand
• Book Iv, Chapter VI: The Individual Determinants of Price
• Book Iv, Chapter VII: The Law of Costs
• Book V: Present and Future
• Book V, Chapter I: Present and Future In Economic Life
• Book V, Chapter II: Differences In Want and Provision For Want
• Book V, Chapter III: Underestimate of the Future
• Book V, Chapter IV: The Technical Superiority of Present Goods
• Book V, Chapter V: Co-operation of the Three Factors
• Book VI: The Source of Interest
• Book Vi, Chapter I: The Loan and Loan Interest
• Book Vi, Chapter II: The Profit of Capitalist Undertaking. Principles of Explanation.
• Book Vi, Chapter III: The Profit of Capitalist Undertaking. Complications.
• Book Vi, Chapter IV: The Profit of Capitalist Undertaking. the Labour Market.
• Book Vi, Chapter V: The Profit of Capitalist Undertaking. the General Subsistence Market.
• Book Vi, Chapter VI: The Profit of Capitalist Undertaking. the General Subsistence Market—(continued)
• Book Vi, Chapter VII: Interest From Durable Goods
• Book Vi, Chapter VIII: Interest From Durable Goods—(continued)
• Book Vi, Chapter IX: Results
• Book Vi, Chapter X: Interest Under Socialism
• Book VII: The Rate of Interest
• Book Vii, Chapter I: The Rate In Isolated Exchange
• Book Vii, Chapter II: The Rate In Market Transactions
• Book Vii, Chapter III: The Rate In Market Transactions—(continued)
• Book Vii, Chapter IV: The Market For Capital In Its Full Development
• Book Vii, Chapter V: The Market For Capital In Its Full Development—(continued)
• Appendix to Page 327 [book Vi, Chapter V]: Amount of Subsistence Fund Necessary Before Entering On a Production Period of Given Length

BOOK I

THE NATURE AND CONCEPTION OF CAPITAL

Book I, Chapter I

Man and Nature

There is scarcely a system or a text-book of Political Economy which does not, at some point or other, bring in discussions of matters belonging to the physical sciences. Usually these are introduced in the chapter on Production. There we are taught that to create new goods does not mean to create new material, since matter is constant and cannot be increased. We learn what nature contributes to the work of production in the shape of materials and powers; what is done by the mechanical, what by the chemical, and what by the organic powers of nature; what importance climate, heat, moisture have on the development of production; on what physical and technical foundations the working of machinery rests; and many things of this sort.

To the principle of this custom no sensible person will object. It is the form in which, consciously or unconsciously, we pay homage to one of the weightiest principles of our knowledge, the unity of all science. Ever since Bacon we have recognised that no single branch of inquiry explains to the very end the facts with which it deals, but breaks off at some point or other, and passes on its facts to some sister science for further treatment, so that the total explanation is only given by the totality of all the sciences. Thus it is that if one would not set before his readers simply a collection of barren fragments, he must add to what is distinctively departmental at least so much as will connect it with the related sciences in the organic whole of human knowledge, and thus indicate the way in which the explanations begun by him may be concluded.

It would, however, be rather impertinent if we theorists were to think that such terminal truths—as we may appropriately call them—are added only for purposes of statement and for the good of our readers. Rightly employed they are of much greater use to ourselves as scientific inquirers. They may be an effectual means of preventing us from lightly building our whole system, or parts of it, on air, and unintentionally maintaining in the name of Political Economy something which, in its assumptions or conclusions, is, physically or psychologically speaking, nonsense. I must not be misunderstood however. It is not in the least my meaning that Political Economy should assume a nature foreign to it, and become natural science or psychology; what I do mean is that it must never be in contradiction with these sciences. What is false in natural science or psychology is false in all and every science. And to prevent us unwittingly running counter to certain fundamental truths, perhaps the best way is to put these truths explicitly in black and white before our eyes.

Now the subject with which we have to deal in this work is of such a nature that it very specially requires to be based on sound natural principles, and a very great deal may be lost by neglect of this. I have therefore strong reasons for following the good old custom, and prefacing my theory by some fundamental truths that stretch over into the neighbouring sphere of the natural sciences. I shall endeavour not to abuse the opportunity by inflicting a mass of learned scientific detail on the reader. The few truths I mean to start with would indeed, in a professional classification, be put within the sphere of the natural sciences, but they are of so general a character that, practically, they are outside departmental limits, and belong to the commonwealth of knowledge. They are known and recognised by everybody, and, in one form or other, they have been expressed all along in our economic literature. There is really only one thing that, I should like to think, will distinguish my use of them: I shall try so to put them that they will not be mere paragraphs introducing the theory, but will remain present and living in the spirit of it. Usually these excursuses into the domains of physics are placed in some corner of economical books rather for ornament than use. In one chapter they are made much of; in the next they are forgotten and contradicted. In what follows I shall try to avoid this error, and wherever anything depends upon these fundamental truths—which will very often be the case in a discussion on capital—to keep unobtrusively but firmly in touch with them. In this way, while there is no fear of our economical theory obtaining the character of a theory of natural science, it will not be one that runs counter to physical facts.

Men strive after happiness. This is perhaps the most general and, certainly, the most vague expression for a complex of strivings, all of which have for object the bringing about of such occurrences and conditions as we know and feel to be pleasant, and the averting of those we know to be unpleasant. Instead of "striving after happiness" we may use the expression "striving after self-preservation and self-development," or "striving after the greatest possible furtherance of life"; or we may, with equal propriety, use the words, "striving after the most complete possible satisfaction of wants"; for the expressions we are so familiar with in economic terminology, "want" and "satisfaction of want," mean, in the last resort, nothing else than, respectively, the unsatisfied craving of man to be put under conditions he thinks desirable or more desirable than those he has, and the successful obtaining of such conditions.

The whole world, as we know it, is subject to the law of cause and effect; no effect can take place without sufficient cause. From this law man and his conditions have no exemption; none of those beneficent changes of condition, which we call "satisfactions of want," can come about otherwise than as the effect of a sufficient cause; every satisfaction presupposes an adequate instrument of satisfaction. The adequate instruments for the satisfaction of human wants, or—what is the same thing—the causes of beneficent changes in human conditions, we call goods.2

The man who "wants" finds goods in different spheres of the world in which he lives; he finds them in the world of persons as well as in the world of things. For obvious reasons, which need not be discussed here, we use the word "good" in somewhat different ways in these two spheres. On the one hand, we designate by the name of goods not the persons who are of use to us, but only the acts, the services, through which they are of use; on the other hand, we give the name to the impersonal material shapes themselves, and call them Material as opposed to Personal goods.

In what follows we have to do with material goods only.

Material goods are part of the external world; they are natural things. As such they are, in constitution and action, wholly and entirely natural products, and subject to natural laws. The fact that men's goods are instruments towards the personal ends of the "lord of creation" gives these goods no kind of immunity from complete subordination to the natural order, any more than man himself is able to emancipate the natural side of his being from similar control. Material goods, therefore, come into existence only as natural laws allow and demand that a material shape, thus and not otherwise constituted, should come into existence. They pass out of existence if a new combination of natural powers, working according to natural laws, results of necessity in the dissolution of their former material shape. They cannot exert the smallest effect, be it useful, hurtful, or indifferent to men, unless the given coincidence of materials and powers under natural laws produce this very effect and no other.

These seem peculiarly trifling propositions. They are trifling enough to require no formal proof; indeed, no one will seriously dispute them. But, simple and trifling as they are, on certain tempting occasions these fundamental truths have been lost sight of, and theories have been put in circulation which implicitly contradict them. The theorist, therefore, has good cause to emphasise them, and even follow out their logical conclusions to a certain extent into those departments where they have to do duty as, peculiarly, the fundamental truths of economic theory. These departments are the function of goods and the origin of goods; in other words, the theory of the Use of goods, and the theory of the Production of goods.

The theory of the use of goods I have already gone into at length in Capital and Interest.3 I there showed that material goods are nothing else than such distinct forms of matter as admit of the natural powers residing in them being directed to human advantage. I showed how the "use" they afford is realised through concrete activities of these natural powers, and, therefore, by real forth putting of power. I showed how a use (Gebrauch or Nulzung) cannot be made of them otherwise than by taking the peculiar forms of the energy of the good at the proper moment, supplying the conditions necessary to render them available where they previously existed in an unavailable form, and then bringing these forms of energy into proper connection with that object in which the useful effect is to take place. On these considerations I based the conception of the "Material Services" (Nutzleistungen) which I believe to be the only one that corresponds with facts, and rejected certain shadowy ideas which connected the old theory of interest with the word "Uses" of goods. What remains for us here is, on the same lines, to lay down certain fundamental ideas as to the origin of material goods.

We have already said that the origin of natural goods lies entirely under the control of natural laws. No material good can come into existence except when a previous coincidence of materials and powers has made it necessary in physical law that exactly this form of matter should emerge. Looked at from the point of view of nature, the formation of goods is a purely natural process. Not so, however, from the point of view of man. Man has cause to lay emphasis on a distinction which is not visible from the purely physical standpoint. One great class of useful forms of matter comes into existence, without interference from man, as the product of favourable coincidences of matter and force—a product which, from the teleological human standpoint, we should call accidental. Thus originate fruitful islands in the courses of streams; thus the grass on natural pastures and prairies; thus berries and trees of the wood; thus deposits of useful minerals. But though in this way accident does much for man it does not do nearly enough. In nature left to herself we have on a large scale what we should have on a small one if we wished to make a definite picture out of coloured bits of stone, and, instead of piecing the picture together deliberately, were to put the bits of stone into a kaleidoscope and wait till accident shook the planless stones into the wished-for picture. Among the infinite number of ways in which the working materials and powers might combine there are, in the one case as in the other, a countless number of possible effects, but only a few favourable ones; and in the natural undisturbed course of things these few turn up too seldom for man, with all his wants, to rest content with them. Accordingly he interposes another factor in the natural process, his own consciously directed energies—he begins to produce the goods he requires.

To "produce": what does this mean? It has been so often said by economists that the creation of goods is not the bringing into existence of materials that hitherto have not existed—is not "creation" in the true sense of the word, but only a fashioning of imperishable matter into more advantageous shapes, that it is quite unnecessary to say it again. More accurate, but still exposed to misinterpretation, is the expression that in production natural powers are the servants of man, and are directed by him to his own advantage. If this proposition be taken to mean that man in any case can impose his sovereign will in place of natural laws, can at will "bully" natural law into making a single exception at his bidding, it is entirely erroneous. Whether the lord of creation will it or no, not an atom of matter can, for a single moment or by a hair's breadth, work otherwise than the unchangeable laws of nature demand. Man's rôle in production is much more modest. It consists simply in this—that he, himself a part of the natural world, combines his personal powers with the impersonal powers of nature, and combines them in such a way that under natural law the co-operation results in a definite, desired, material form. Thus, notwithstanding the interference of man, the origin of goods remains purely a natural process. The natural process is not disturbed by man but completed, inasmuch as, by apt intervention of his own natural powers, he supplies a condition which has hitherto been wanting to the origination of a material good.

If we look more closely at the way in which man assists natural processes, we find that his sole but ample contribution consists in the moving of things. "Putting objects in motion" is the idea which gives the key to all human production and its results;—to all man's mastery over nature and its powers.4 And this is so simply because the powers reside in the objects. Now when man by his physical powers—the power of moving things—is able to dictate where the object shall be, he obtains a control over the place at which a natural power may become effective; and this means broadly a control over the way and over the time in which it may become effective.

I say a control over the way in which a natural power may become effective. Of course a pound weight acts as a pound weight and never in any other way; whether it be a paper weight on a writing-table, or a counterpoise on a scale-beam, or whether it keep down the valve of a steam-engine, it never ceases to exert the force of gravitation with which its mass is endowed. But just because the expression of one and the same natural power always remains the same, results that are extraordinarily different may be obtained by getting it to work in different combinations—just as by adding like to unlike a different sum may be got every time. And so our pound weight, while in itself constantly acting with perfect uniformity, will, according to the different surroundings in which we place it, sometimes hold together a heap of papers on a writing-table, sometimes indicate the weight of another object, sometimes regulate the pressure of steam in the boiler.

Again I say a control over the time in which a natural power may become effective. This proposition, also, must not be taken too literally. It must not be imagined that natural powers work intermittently; that man can sometimes bring them to a standstill, sometimes set them working again. On the contrary, natural powers are always at work; a natural power not active would be a contradiction in terms. But it is possible that several powers may be so combined that their activities may for a time mutually balance each other, and the resultant be rest—if not complete rest, still some movement so slight that, as regards human purposes, it may be neglected. When this is the case, before any new resultant can emerge that is of interest to man, there must be an entirely different combination of materials and powers. This suggests how man may get control of the point of time at which a definite resultant emerges. It is only necessary for him, by skilful use of his power to move objects, to provide the causes of the desired effect, all but one. So long as this one is not present the conditions are unfulfilled, and there cannot be the desired result. But when at the proper moment he adds the last condition, the movement hitherto held in leash, as it were, is suddenly set free, and the desired effect is obtained at the opportune time. Thus the sportsman moves powder and lead into the barrel of the gun; he shuts the breech; he raises the cock. Each of these things has for long possessed and expressed its peculiar powers. In the powder are present the molecular powers whose energy later on is to expel the shot from the barrel. The barrel now, as formerly, exerts its forces of cohesion and resistance. The trigger which is to let the cock smash down, strains and presses against the spring. Still the arrangement, the disposition of the collective powers, is such that the resultant of their mutual energies is rest. But the sportsman covers the wild fowl with the barrel: there is a slight pressure on the tongue, a little dislocation of the arrangements, and the shot flies.5

The same considerations which show us the kind of mastery man has over nature show us at the same time the measure and the narrow limits of his mastery. As we have seen, man has a certain power to make natural forces act where, when, and how he will; but this power he possesses only in so far as he can control the matter in which these forces reside. Now the masses of matter, and therefore the masses of inert resistance, which have to be overcome before our purposes are served, are often immense, while the physical force which is at our command is very modest and comparatively trifling. Often, on the other hand, the matter is too fine to be manipulated by our rude hand. Our interests often call for infinitely delicate rearrangements of infinitely small pieces, and how unsuited are our clumsy fingers to deal with molecules and atoms! How entirely incapable is the human hand of imitating even one of those wonderfully delicate cellular tissues which nature flings out in thousandfold, every day, in every plant and leaf! Thus human powers are doubly deficient; they are too slight as against the mass, too rude as against the structure of the matter which they have to subdue.

In those circumstances we should be very badly off for the wherewithal of production if we had not some real allies behind these doubly insufficient powers. One of these allies is the human mind. In investigating the causal relation of things we come to know the natural conditions under which the desired goods come into existence: we thus come to learn where human force can be applied with advantage and where not; and thus we are taught to avoid exertions which are barren and choose those which are profitable. Human power so directed is like a small but well-officered army, which makes up in mobility, cohesion, and energetic use of opportunity, what it wants in numbers. Another powerful ally in the struggle against nature is nature herself. All that we are able to do in production would be wretchedly small were it not that, in the storehouse of nature, we find the means of dividing nature against herself and setting force against force. But here we touch on a subject which is, in itself, too important, particularly as regards our inquiry, to admit of merely a passing mention.

Book I, Chapter II

The Nature of Capital

The end and aim of all production is the making of things with which to satisfy our wants; that is to say, the making of goods for immediate consumption, or Consumption Goods.6 The method of their production we have already looked at in a general way. We combine our own natural powers and natural powers of the external world in such a way that, under natural law, the desired material good must come into existence. But this is a very general description indeed of the matter, and looking at it closer there comes in sight an important distinction which we have not as yet considered. It has reference to the distance which lies between the expenditure of human labour in the combined production and the appearance of the desired good. We either put forth our labour just before the goal is reached, or we, intentionally, take a roundabout way. That is to say, we may put forth our labour in such a way that it at once completes the circle of conditions necessary for the emergence of the desired good, and thus the existence of the good immediately follows the expenditure of the labour; or we may associate our labour first with the more remote causes of the good, with the object of obtaining, not the desired good itself, but a proximate cause of the good; which cause, again, must be associated with other suitable materials and powers, till, finally,—perhaps through a considerable number of intermediate members,—the finished good, the instrument of human satisfaction, is obtained.

The nature and importance of this distinction will be best seen from a few examples; and, as these will, to a considerable extent, form a demonstration of what is really one of the most fundamental propositions in our theory, I must risk being tedious.

A peasant requires drinking water. The spring is some distance from his house. There are various ways in which he may supply his daily wants. First, he may go to the spring each time he is thirsty, and drink out of his hollowed hand. This is the most direct way; satisfaction follows immediately on exertion. But it is an inconvenient way, for our peasant has to take his way to the well as often as he is thirsty. And it is an insufficient way, for he can never collect and store any great quantity such as he requires for various other purposes. Second, he may take a log of wood, hollow it out into a kind of pail, and carry his day's supply from the spring to his cottage. The advantage is obvious, but it necessitates a roundabout way of considerable length. The man must spend, perhaps, a day in cutting out the pail; before doing so he must have felled a tree in the forest; to do this, again, he must have made an axe, and so on. But there is still a third way; instead of felling one tree he fells a number of trees, splits and hollows them, lays them end for end, and so constructs a runnel or rhone which brings a full head of water to his cottage. Here, obviously, between the expenditure of the labour and the obtaining of the water we have a very roundabout way, but, then, the result is ever so much greater. Our peasant needs no longer take his weary way from house to well with the heavy pail on his shoulder, and yet he has a constant and full supply of the freshest water at his very door.

Another example. I require stone for building a house. There is a rich vein of excellent sandstone in a neighbouring hill. How is it to be got out? First, I may work the loose stones back and forward with my bare fingers, and break off what can be broken off. This is the most direct, but also the least productive way. Second, I may take a piece of iron, make a hammer and chisel out of it, and use them on the hard stone—a roundabout way, which, of course, leads to a very much better result than the former. Third method—Having a hammer and chisel I use them to drill a hole in the rock; next I turn my attention to procuring charcoal, sulphur, and nitre, and mixing them in a powder, then I pour the powder into the hole, and the explosion that follows splits the stone into convenient pieces—still more of a roundabout way, but one which, as experience shows, is as much superior to the second way in result as the second was to the first.

Yet another example. I am short-sighted, and wish to have a pair of spectacles. For this I require ground and polished glasses, and a steel framework. But all that nature offers towards that end is silicious earth and iron ore. How am I to transform these into spectacles? Work as I may, it is as impossible for me to make spectacles directly out of silicious earth as it would be to make the steel frames out of iron ore. Here there is no immediate or direct method of production. There is nothing for it but to take the roundabout way, and, indeed, a very roundabout way. I must take silicious earth and fuel, and build furnaces for smelting the glass from the silicious earth; the glass thus obtained has to be carefully purified, worked, and cooled by a series of processes; finally, the glass thus prepared—again by means of ingenious instruments carefully constructed beforehand—is ground and polished into the lens fit for shortsighted eyes. Similarly, I must smelt the ore in the blast furnace, change the raw iron into steel, and make the frame there from processes which cannot be carried through without a long series of tools and buildings that, on their part again, require great amounts of previous labour. Thus, by an exceedingly roundabout way, the end is attained.

The lesson to be drawn from all these examples alike is obvious. It is—that a greater result is obtained by producing goods in roundabout ways than by producing them directly. Where a good can be produced in either way, we have the fact that, by the indirect way, a greater product can be got with equal labour, or the same product with less labour. But, beyond this, the superiority of the indirect way manifests itself in being the only way in which certain goods can be obtained; if I might say so, it is so much the better that it is often the only way!

That roundabout methods lead to greater results than direct methods is one of the most important and fundamental propositions in the whole theory of production. It must be emphatically stated that the only basis of this proposition is the experience of practical life. Economic theory does not and cannot show a priori, that it must be so; but the unanimous experience of all the technique of production says that it is so. And this is sufficient; all the more that the facts of experience which tell us this are commonplace and familiar to everybody. But why is it so? The economist might quite well decline to answer this question. For the fact that a greater product is obtained by methods of production that begin far back is essentially a purely technical fact, and to explain questions of technique does not fall within the economist's sphere. For instance, that tropical lands are more fruitful than the polar zone; that the alloy of which coins is made stands more wear and tear than pure metal; that a railroad is better for transport than an ordinary turnpike road;—all these are matters of fact with which the economist reckons, but which his science does not call on him to explain. But this is exactly one of those cases where, in the economist's own interest—the interest he has in limiting and defining his own task—it is exceedingly desirable to go beyond the specific economic sphere. If the sober physical truth is once made clear, political economy cannot indulge in any fancies or fictions about it; and, in such questions, political economy has never been behind in the desire and the attempt to substitute its own imaginings! Although, then, this law is already sufficiently accredited by experience, I attach particular value to explaining its cause, and, after what has been said as to the nature of production, this should not be very difficult.

In the last resort all our productive efforts amount to shiftings and combinations of matter. We must know how to bring together the right forms of matter at the right moment, in order that from those associated forces the desired result, the product wanted, may follow. But, as we saw, the natural forms of matter are often so infinitely large, often so infinitely fine, that human hands are too weak or too coarse to control them. We are as powerless to overcome the cohesion of the wall of rock when we want building stone as we are, from carbon, nitrogen, hydrogen, oxygen, phosphor, potash, etc., to put together a single grain of wheat. But there are other powers which can easily do what is denied to us, and these are the powers of nature. There are natural powers which far exceed the possibilities of human power in greatness, and there are other natural powers in the microscopic world which can make combinations that put our clumsy fingers to shame. If we can succeed in making those forces our allies in the work of production, the limits of human possibility will be infinitely extended. And this we have done.

The condition of our success is, that we are able to control the materials on which the power that helps us depends, more easily than the materials which are to be transformed into the desired good. Happily this condition can be very often complied with. Our weak yielding hand cannot overcome the cohesion of the rock, but the hard wedge of iron can; the wedge and the hammer to drive it we can happily master with little trouble. We cannot gather the atoms of phosphorus and potash out of the ground, and the atoms of carbon and oxygen out of the atmospheric air, and put them together in the shape of the corn of wheat; but the organic chemical powers of the seed can put this magical process in motion, while we on our part can very easily bury the seed in the place of its secret working, the bosom of the earth. Often, of course, we are not able directly to master the form of matter on which the friendly power depends, but in the same way as we would like it to help us, do we help ourselves against it; we try to secure the alliance of a second natural power which brings the form of matter that bears the first power under our control. We wish to bring the well water into the house. Wooden rhones would force it to obey our will, and take the path we prescribe, but our hands have not the power to make the forest trees into rhones. We have not far to look, however, for an expedient. We ask the help of a second ally in the axe and the gouge; their assistance gives us the rhones; then the rhones bring us the water. And what in this illustration is done through the mediation of two or three members may be done, with equal or greater result, through five, ten, or twenty members. Just as we control and guide the immediate matter of which the good is composed by one friendly power, and that power by a second, so can we control and guide the second by a third, the third by a fourth, this, again, by a fifth, and so on,—always going back to more remote causes of the final result—till in the series we come at last to one cause which we can control conveniently by our own natural powers. This is the true importance which attaches to our entering on roundabout ways of production, and this is the reason of the result associated with them: every roundabout way means the enlisting in our service of a power which is stronger or more cunning than the human hand; every extension of the roundabout way means an addition to the powers which enter into the service of man, and the shifting of some portion of the burden of production from the scarce and costly labour of human beings to the prodigal powers of nature.

And now we may put into words an idea which has long waited for expression, and must certainly have occurred to the reader; the kind of production which works in these wise circuitous methods is nothing else than what economists call Capitalist Production, as opposed to that production which goes directly at its object, as the Germans say, "mit der nackten Faust."7 And Capital is nothing but the complex of intermediate products which appear on the several stages of the roundabout journey.

It is in this way I interpret the most important fundamental conception in the theory of capital, and I should be very glad to stop here. But, like so many another conception in the theory of capital, this conception of capital itself has become a veritable apple of discord to the theorists. A perfectly amazing number of divergent interpretations here confront each other, and block the approach to the theory of capital with one of the most vexatious controversies in which our science could be involved. This uncertainty as to the conception of capital, bad enough in itself, becomes worse in proportion as Capital gives modern science new questions to consider and discuss. It is certainly very unfortunate when a science already earnestly, even acrimoniously engaged on the solution of questions which affect society to its depths,—questions which all the world knows, ponders, and discusses as the great "problems of capital,"—is struck, as it were, by a second confusion of tongues, and becomes involved in an endless wrangle as to what kind of thing it is that properly is called Capital! Such a controversy at such a point is more than embarrassing; it is a calamity; and has been found so in the history of Political Economy. Almost every year there appears some new attempt to settle the disputed conception, but, unfortunately, no authoritative result has as yet followed these attempts.8 On the contrary, many of them have only served to put more combatants in the field and furnish more matter to the dispute.

I confess that, to me, the settlement of the real problems connected with the name of capital seems more important, and certainly is more attractive, than the cataloguing of controversies as to the proper use of the word. All the same the fact remains that the confusion about the name has brought a great amount of confusion into the matter; and, again, it might be open to misconstruction—and not without reason,—if the author of a somewhat comprehensive work on capital were to pass over the discussion of what is certainly the most noisy, if not the most weighty controversy about capital. On these two accounts I feel obliged again to tread the heated path of controversy, in the hope that impartial and sober inquiry into the matter in dispute may succeed in ending it.

Book I, Chapter III

Historical Development of the Conception

It will be most convenient to open the discussion by a historical survey of the development of the conception.9

Originally the word Capital (Capitale from Caput) was used to signify the Principal of a money loan (Capitalis pars debiti) in opposition to the Interest. This usage already foreshadowed in the Greek formation , became firmly established in mediæval Latin, and appears to have remained the prevailing one for a very long time, even pretty far down in the new era.10 Here, therefore, Capital meant the same thing as "an interest-bearing sum of money."

In the meantime the disputes which had arisen over the legitimacy or illegitimacy of loan interest brought about an essential deepening and widening of the conception.11 It had become apparent that the interest-bearing power of "barren" money was at bottom a borrowed one—borrowed from the productive power of things that the money could buy. Money only gave the exchange form—to a certain extent the outward garb—in which the interest-bearing things passed from hand to hand. The true "stock" or parent stem which bore interest was not money but the goods that were got for it. In these circumstances the obvious course was so to change the conception that, besides embracing the representative thing, money, it would embrace the represented thing, goods. And, indeed, popular language seems to have made this change before science did. At least, as early as the year 1678, in a glossary of that year, besides the meaning of a sum of money there appears this further interpretation of the word capital, "Capitale dicitur bonum omne quod possidetur."12 But science was not long behind in sanctioning the adoption of the conception. We find it substantially in Hume in his essay on Interest, when he shows that the rate of interest altogether depends, not on the amount of money, but on the amount of riches or stocks available; the only thing wanting is that he should have formally called these riches or stocks "real capitals." This formal change was finally made by Turgot: "Whoever," he says in his Réflexions sur la Formation et la Distribution des Richesses, "gets possession of more goods in a year than he requires to use, can lay past the surplus and accumulate it. These accumulated goods are what people call Capital.... It is absolutely the same whether this sum of goods, or this Capital, consists of a mass of metal, or of other things, since money represents every kind of goods, just as, on the other side, all other kinds of goods represent money." Thus Turgot gave the second reading in historical succession to the conception of capital.

It was very soon superseded by a third. For when Turgot designated all saved goods indiscriminately as Capital, he seemed to have gone too far in broadening the conception. To replace the word "money" in the definition by the word "goods" only reflected, indeed, the more thorough grasp which was now taken of the subject. But to give the name of Capital, without any further discrimination, to stocks of goods, was to give up, without sufficient reason, the second feature in the old conception,—the reference that capital had to a capability of yielding interest, to an acquisition of goods. To that extent Turgot's conception of capital was only in part a development born of the time: in part it was an entirely new reading of the term; a reading which, at the same time, exposed him to the charge that, without due cause, he had neglected the very suggestive differences there are between goods and goods. It was no less a man than Adam Smith who changed and rectified Turgot's definition. The "saved" stocks, he said, must be distinguished as containing two parts.13 One portion is destined for immediate consumption, and gives off no kind of income; the other portion is destined to bring in an income to its owner, and this part alone rightly bears the name of Capital.

With this distinction, however, Adam Smith connected another consideration, which was destined to have very serious consequences on the development of the conception. He remarked that his use of the term was applicable as well to the case of individuals as to that of a whole community; only, with this shifting of the standpoint, the group of things embraced by the conception was also somewhat changed. Individuals, that is to say, can make a gain, not only by the production of goods, but also by lending to other individuals for a consideration goods which are destined in themselves to immediate consumption, such as houses, masquerade dresses, furniture, etc. But the community, as a whole, cannot enrich itself otherwise than by the production of new goods. For the community, then, the conception of "means of acquisition" coincides with the otherwise narrower conception of "means of production." In harmony with this the conception of capital, from the point of view of the community, must be limited to a complex of the means of production. It is worth our while to put more exactly before us the bearing of this insignificant remark—which, by the way, in Adam Smith is put more unpretentiously, and much less sharply, than in the abstract which I have given of his meaning.

First of all, this was the beginning of the division of capital into two independent conceptions—the conceptions afterwards distinguished as National Capital and Individual Capital. Or, to indicate the relation still more exactly, the parent conception of capital as a stock of goods yielding income lived on under the designation of "private capital," but, under the name of "national capital," it sent out an offshoot which quickly grew to independent importance; soon, indeed, to greater importance than the parent conception itself. It was immediately recognised that a very notable importance as regards production attached to that class of goods which people now began to call capital par excellence; and this became the occasion of a great many profitable applications of the new conception to the theory of production. Thus we find the national conception in a short time taking its place as one of the chief fundamental conceptions of that theory, and engaged in those very important problems that are now associated with its name. In the triad, Land, Labour, and Capital, we find the new conception giving its name to one of the three great sources of wealth, or, as it was put later, to one of the three factors of production.

But all the time, in virtue of the old parent conception—that known later as Private Capital—the term capital remained connected with the phenomenon of interest, which belonged to the theory of distribution or income. Thus, from that time onward appeared the peculiar phenomenon which was to be the source of so many errors and complications, that two series of fundamentally different phenomena and fundamentally different problems were treated under the same name. Capital, as National Capital, became the central figure of the weightiest problems of Production; as Private Capital, of the fundamentally distinct problem of Interest.

In view of this it becomes of consequence to state clearly that Adam Smith's two varieties of the conception of capital are, properly, two entirely independent conceptions, resting substantially on quite different foundations, and only connected externally by a very loose bond. As chance, however, would have it, it was just this secondary and external relation that caused the name to be given to the younger conception, and brought about the identity of name between the two. The centre of gravity of the conception of private capital, as has been pointed out, lies in the acquisition of interest, in the characteristic of being a source of income: the centre of gravity of the conception of national capital, on the other hand, lies in production, in the characteristic of being a tool of production; and the loose bond that connects them is the accidental circumstance that the goods of which men make use in production are the same goods as are the source of profit and interest to a people considered as a whole, and are, therefore, capital in the original sense. Now this latter reference to income gave the national conception of capital its name, but it was very far from giving it its living substance. This was found so exclusively in the relation to production that, in a short time, the formal definition of capital was based upon that relation alone. It was defined as a complex of "produced means of production," and such like, and in the end it scarcely caused any misgiving when, on closer consideration, the produced means of production seemed never to be quite identical with those stocks which constitute the income-bearing capital of a people. For there can be no question that communities obtain income from consumption goods loaned to other countries against interest. When this incongruity was expressly noted, and yet, notwithstanding, national capital was quietly defined as a complex of means of production, it amounted to a practical and emphatic recognition of the fact that people were interested in capital solely on account of its relations to production, and not at all on account of its accidental characteristic of being the source of interest to the community. To put it shortly: in National Capital the characteristic of being the national source of interest came to the front only for a moment, but this moment was long enough to attach the name of "capital" to it. Scarcely was this done when the centre of gravity was shifted, and placed in its relation to production, and since then National Capital has been looked on as an independent conception, substantially quite foreign to its namesake, Private Capital.

Clearly as the historian of economic theory may now distinguish between these conceptions as developed, the distinction was not seen at the time, nor for long afterwards. With Adam Smith himself the whole matter lies, I might say, in embryo. His ideas were so far from being fixed that he could occasionally ascribe to them meanings which were quite distinct from and did not at all fit in with the fundamental conception. An instance of this is his extension of the national conception to all sorts of personal properties, talents, skill, etc.,—which seem a little out of place as elements of a "stock," and which, like spirits rashly conjured, banished peace for many a long day from the theory of capital. This, however, is an episode of only secondary importance. The principal point is that the followers of Adam Smith not only failed to get rid of the confusion in which he had left the conception of capital, but, on the contrary, positively put their seal to one of its worst mistakes. They did not notice that, in what Adam Smith and they themselves called "capital," there were two fundamentally distinct conceptions; they considered the capital of which they spoke in the theory of production as identical with the capital which bears interest. As we know, Adam Smith had already noticed that there was a certain difference in the meanings usually given to the word capital, and that, for instance, rented houses, hired furniture, or masquerade dresses were capital in one sense and not in another, and his followers had not failed to loyally transmit the remark. But obviously they attached no importance to it,—what was the use of making a fuss about a distinction which referred only to a few hired fancy dresses and such like?—and held fast by their conception of capital, the factor of production being capital, the source of interest. And now one confusion resulted in another. Before, it was the conceptions that were mixed; now, it was the phenomena and the problems. Capital produces, and it bears interest. What more natural than to say shortly;—it bears interest because it produces. And thus, introduced and made possible by the confusion in the conception of capital, originated that naïve and one-sided theory of the Productivity of capital which, from Say's days to our own, has held, and still, in some measure, holds economic science under its baneful influences. The Socialist or semi-socialist writers of our time were the first to face in earnest the confusion of conceptions by distinguishing capital into "pure economic capital," and capital as a "historico-legal category."14 This distinction, as we shall see, did not indeed hit the nail on the head; but it was at least a distinction which, of necessity, finally distinguished between the object of the production problem and the object of the interest problem, and thus paved the way for an advance in the treatment of the still viciously confused problems. But this is to anticipate the course of development: to resume the methodical narrative we must go back to Adam Smith.

It may be said that Adam Smith's fundamental conception was never afterwards quite neglected; the relation of capital to acquisition and to production, which in opposition to Turgot he had again imported into the conception, has, in some form or other, been retained by all later writers. On the other hand, it very soon became manifest that, within the common fundamental conception, there was a surprising amount of latitude for different readings of it, and, as it chanced, there were certain circumstances which very much favoured the taking advantage of this latitude. First of all, economists fell heir not only to the fundamental conception, but to the seed of ambiguity which Adam Smith had planted in it. This seed now burst into full life. Almost everybody, entangled in the confusion we have just described, thought that "Capital" must be defined by one uniting conception. But the one party, and indeed the majority, thought more about the instruments of production, while the other thought more about the source of income; and thus they attached to capital the characteristics of two different conceptions. This was one fruitful cause of divergent definitions, but there was another still more fruitful. Whether the theoretical conception of capital was made to include productive instruments only, or whether, more liberally, it was made to embrace acquisitive instruments as well, in any case there are many different kinds both of productive and of acquisitive instruments. Now, in proportion as economists discovered more similarities or more contrasts between the various groups of goods which serve for production and for acquisition, they considered it appropriate to group together, under the conception which they called capital, sometimes all acquisitive or all productive instruments without exception, sometimes only a certain circle of the same. And this circle again, according to the tendencies of the writer, might be larger or smaller; sometimes of moderate dimensions, and sometimes, again, very closely limited. It may be said, indeed, that of all combinations and permutations which were logically and mathematically conceivable, economical science in this case was not spared one.

Without attempting either to give a complete tale of these, or to keep to the chronological order, I shall shortly collocate the more important of them.

Numerous writers define capital as a group of "products that serve towards production," or as groups of "produced means of production." This conception, which is expressly based on the relation of capital to production, excludes, on the one hand, land (as not produced) and, on the other hand, all goods that serve for immediate satisfaction of wants. This conception I have followed in defining capital as a group of Intermediate Products. In so far as it is not so much an alteration as a more distinct formulation of Adam Smith's (national) conception, I do not reckon it an independent variation.

The variation which Hermann, however, has given must be considered an independent one, and is the fourth reading in arithmetical order given to the conception. He goes back to capital as the source of income, and makes this the object of his definition: Capital, he says, is "every durable foundation of a utility (Nutzung) which has exchange value."15 In opposition to the last definition this one includes under the conception of Capital all land, and besides embraces such consumption goods as are durable, like furniture, houses, etc., even if they are personally used by the owners.

A fifth variation is given by Menger. He defines capital as such groups of economic goods of higher rank (productive goods) as are now available to us for future periods.16 This definition is, in one way narrower, in another, wider than Hermann's. It excludes durable consumption-goods ("goods of the first rank"), but it is wide enough to take in the productive services of labour,17 which Hermann had not reckoned as capital.

A sixth variation comes from Kleinwächter. He finds it a characteristic mark of capital that it lightens the toil of acquisition or productive labour. Now this characteristic appears to him not to belong to all means of production, but only to one category of these, the tools of production, while the matter or materials of production are absolutely passive during the whole production process; they are worked up or used up but give no assistance in working. "Logically," therefore, "the conception of capital should be limited to tools of production."18

A seventh interpretation has Jevons for its author. It runs parallel to a certain extent with the foregoing. That is to say, Jevons also considers it proved that by capital is to be understood "wealth employed to facilitate production,"19 But he finds this characteristic in quite another group of concrete goods from that of Kleinwächter. "The single and all-important function of capital," he says, "is to enable the labourer to await the result of any long lasting work—to put an interval between the beginning and the end of an enterprise." Capital, then, "consists merely in the aggregate of those commodities which are required for sustaining labourers of any kind or class engaged in work. A stock of food is the main element of capital; but supplies of clothes, furniture, and all the other articles in common daily use are also necessary parts of capital." The true and only capital thus, according to Jevons, is the sustenance of the labourers.20

Marx arrived at an eighth reading of the conception. As every one knows he sees in interest a profit got by the capitalist at the expense of the wage-earner. This element of exploitation seems to him so important that he brings it in to the conception of capital as a constitutive feature of it: he conceives of capital as only those productive instruments which, in the hand of the capitalists, serve as "instruments for the exploitation and enslaving of the labourer." The same things in the possession of the labourer, on the other hand, are not capital.21

A ninth variation we owe to the distinguished critic of the theory of capital, Karl Knies. It originates in a well-meant attempt to settle the terribly tangled controversy to the satisfaction of everybody. To this end Knies endeavours to construct a conception of capital which will be so wide that the most important of the contending interpretations may find room in it beside each other. The uniting element in the conception he imagines he finds in the devotion of goods to the service of the future. Accordingly he defines the capital of a community as "its available stock of goods (whether for consumption, acquisition, or production) which may be applied to satisfying wants in the future."22 This definition does, as a fact, afford room both for Turgot's "saved stocks of goods" and for the "produced means of production" of Adam Smith's school, as also for all goods embraced in Hermann's definition as affording the foundation of a durable—and therefore a conspicuously future—utility.

Quite by itself stands the tenth interpretation, that of L. Walrus. He divides all economic goods into "capital" and "income" (revenu). All kinds of goods, irrespective of their destination, which can be used more than once—that is, all durable goods—he calls capital; while all perishable goods are income. Going into details he mentions the following as capital:—Land (capitaux fonciers), persons (capitaux personnels), and movable durable goods (capitaux proprement dits or capitaux mobiliers), while he considers food, the raw materials of industrial production, fuel and the like, as income.23

If the interpretations just mentioned are divided in opinion as to the goods which should be designated capital, they are, at any rate, all agreed that it is goods that are to bear that name. But, finally, an eleventh reading of the conception calls this in question, and, instead of making capital a real concrete quantity, distils out, as it were, some kind of abstraction as the essence of capital. Thus M'Leod, who sometimes recurs to a favourite metaphor of earlier writers and defines capital as a "stock of accumulated labour;" sometimes goes still deeper in abstraction and defines it as "purchasing power" or "circulating power." These phrases are not meant as illustrations, but explanations given in full earnest; he gives us to understand this in the most emphatic way by saying, in one place, that the application of the word capital to goods is a simple metaphor, and on another occasion, in so many words, that capital does not represent goods in any way whatever.24 Quite recently too we have a strikingly similar conception in the suggestive work of a juristic writer, Kühnast. He also tells us emphatically that capital is of an immaterial nature, and does not consist of material objects at all—of goods themselves, that is to say—but only of their value. "Capital is... the value of the productive power contained in material goods... or a complex of productive material values."25

Numerous as are these various readings of the conception, our list does not by any means exhaust the divisions and subdivisions that might be given. In addition to the above interpretations which differ in form—which are, that is, different definitions—there may be complete unanimity as to the formula of the definition, and yet a good deal of disagreement as to the essence of it. This might happen where a word employed in all the definitions as characteristic and distinctive was not used in all of them in the same sense. Not to speak of less important instances, there are two characteristic terms which, as capable of different readings, involve materially different interpretations of the conception of capital. One of these is the word "good." Of the many economists who were agreed in defining capital as a stock or group of goods, some, taking the word in its narrower sense, thought only of a supply of material goods; some, extending it to immaterial objects, thought of things like the state, peace, law, national honour, virtue;26 some again, under the same term, included useful personal properties and powers;27 while others took man himself into the conception.28 A similar ambiguity has attended the use of the characteristic term "means of production," or simply "production." While some economists, and those the majority, understood by production simply a producing of materials for the satisfaction of human want, others included the producing of what they called "inward goods," the creation of satisfactory conditions for and in the human person. The consequence of this was that the significant term "means of production" lost every possible limitation, and that even goods for immediate enjoyment were received into the conception of capital on the ground of being instrumental in producing the "inward goods" of content, health, culture, etc. The greatest sinner in this respect is Roscher. He first defines capital to be "every product which is dedicated to further production," but then divides this general conception into "Productive capital" and "Use capital," according as these products affect the production of material goods or "the production of personal goods or useful relations."29 Thus, notwithstanding the difference in definition, his conception of capital practically comes very near to that of Turgot.

Book I, Chapter IV

The True Conception of Capital

Political economists have not, as a rule, been noted for the unanimity of their definitions. But here the differences in the interpretation of the conception are so excessive as to suggest that there may be something quite peculiar about the object of dispute. I think Knies has quite correctly estimated the peculiar position of the case when he says that "there is something else in it than an ordinary scientific dispute as to whether a particular definition is happy or unfortunate, or, indeed, true or false."30 It is not the definition that is the matter of dispute, but the thing defined; or, as I should prefer to say, the terminology. The material difference in the definitions is not so much that the one thing to be defined appears to each one in a different light, as that each one is defining an entirely different thing; and thus definitions that are really incompatible come within the same ring-fence, because each one claims the expression Capital for the object he is defining.

It is clear that, while this circumstance may explain the striking divergence of opinions, it makes it, unfortunately, more difficult to decide between them. For in questions of nomenclature there is, strictly speaking, neither right nor wrong. There is, therefore, nothing to compel conviction; there is only an appeal to a greater or less appropriateness; and people may, to a considerable extent, remain of different opinions as to the appropriateness. All the same it is clear that our controversy must be settled. It is impossible that economic science can for all time allow its representatives liberty to call ten or eleven fundamentally different things by the same name. Political Economy requires clear thinking, and for that the prerequisites are clear ideas and clear speech. We must come to an agreement, and it will be come to exactly as men have agreed and continue to agree over the innumerable disputes to which the nomenclature of the descriptive natural sciences, zoology, botany, mineralogy, geography, continually gives rise. The majority unite, and slowly but surely leave the dissentients and pass to the order of the day.

But on which of the numerous readings of our conception of capital can we hope to unite unprejudiced persons? To my mind, if we have once realised the nature of the controversy as pre-eminently one of terminology, we shall not find it so difficult to decide as the amount of confusion up till now might lead one to suppose. Happily there cannot be much doubt as to certain leading principles that have to be observed in questions of terminology; if these are impartially acted upon, the great majority of the competing definitions will be definitely thrown out, and there will not remain more than two or three between which there need be any real hesitation. And, even in this short leet, the arguments of appropriateness which must decide are so unequally distributed that, though we may not be able actually to force a universal acceptance of one definite conception—as it is, after all, only appropriateness that must guide us,—yet we may confidently look for the voluntary adhesion of a vast majority.

The leading principles we have to observe seem to me to be as follows. First, and chiefly, it is quite clear that our reading of the conception must be logically unassailable; that is to say, it must not contradict itself, and it must apply to the object which it proposes to define. Then, we must not be spendthrift in our terminology; that is to say, we must not attach the name capital to, and make it synonymous with, a conception that already has a name, while other suggestive conceptions, to which naturally the word would equally well apply, have to do without any name. Thirdly, the conception we adopt must be scientifically important and scientifically useful. Lastly, and not least, unless an alteration be urgently demanded on some grounds of logic or appropriateness, the name of capital must be left to that conception for which it has been longest and most generally used. Or, to put it in a more roundabout way: as things are at present, everybody treats of the most weighty theoretical and social problems under the general name of "problems of capital"; that being so, the word capital, wherever possible, should be so used as to spare us the aggravated difficulties that will attend the great controverted questions of the day if we rebaptize their terms.

In view of these rules I would suggest the following as the most adequate solution of the controversy.

Capital in general we shall call a group of Products which serve as means to the Acquisition of Goods. Under this general conception we shall put that of Social Capital as narrower conception. Social Capital we shall call a group of products, which serve as means to the socio-economical Acquisition of Goods; or, as this acquisition is only possible through production, we shall call it a group of products destined to serve towards further production; or, briefly, a group of Intermediate Products. Synonymous with the wider of the two conceptions, the term Acquisitive Capital may be very suitably used, or, less suitably but more in accordance with usage the term Private Capital. Social Capital again, the narrower of the two conceptions, may be well and concisely called Productive Capital. The following are my reasons for this classification.

Capital in its wider sense, and capital in its narrower sense, both mark out categories which, economically, are of the highest importance. "Products which serve to acquisitive ends" possess a pre-eminent importance for the theory of income as being the source of interest; while the "intermediate products" possess at least as great an importance for the theory of production. The distinction between production from hand to month and production which employs roundabout and fruitful methods, is so fundamental that it is eminently desirable that a special conception should be coined for the latter. This is done—if not, as we shall see, in the only possible way, yet in a way that is not inappropriate—in grouping together, under the conception of capital, the "intermediate products" which come into existence in the course of this roundabout production.

Again, the solution suggested is the most conservative one. Without laying any particular weight on the fact that the historical origin of the word Capital31 indicates a relation to an acquisition or a gain, and that our reading remains true to this, it preserves the double relation—the relation to acquisition of interest on the one side and to production on the other—which was imported into the conception of capital by Adam Smith, and since his time has been adopted in scientific usage. It is no inconsiderable advantage, then, that we do not require to create a majority in its favour by a revolution in terminology; the majority is already with us, and the conception may easily be carried unanimously if we add some new unbiassed members. Here, too, it is worthy of particular attention that those writers who have occupied themselves professedly and most profoundly with the investigation of the conception of capital and its problems, have ended, almost without exception, by adopting exactly the same conception, or at least one which comes very close to it.32

Connected with this is the further advantage, that we avoid a puzzling change of name for the two classes of problems which are both treated of now under the name of problems of capital. The popular name is retained both for the "factor of production " and for the "source of interest." And finally, it seems to me no small advantage that, notwithstanding the material difference there is between capital the factor of production, and capital the source of interest, it is not necessary in our reading of it to make two conceptions of capital that are entirely foreign to one another, and have nothing more in common than cat has with category. Our two conceptions have just enough in common to allow of their being formally coupled under one common definition, and then distinguished as narrower and wider conceptions. True, their connection is not an intimate one, and in the light of what has been said it cannot be so; it rests simply on the accidental circumstance that, for society as a whole, which cannot acquire except through producing, the goods which constitute the produced means of acquisition (capital in the wider sense) coincide with the goods which constitute the produced means of production (capital in the narrower sense, or Social Capital). It will be noted that I use the phrase Social Capital, and not the common expression National Capital. I do so for this reason, that, for a limited community, the means of acquisition embrace not only productive goods but consumption goods lent to foreign countries. Those who hold by the conception of National Capital, then, must either take in the above-named consumption goods along with productive goods, thereby arriving at a very uninteresting conception indeed; or if they mean to confine it to productive goods only, they must build their national conception on a quite independent basis, and break off all logical connection with the other conception,—which would at any rate be a doubtful policy. Our "Social Capital" avoids both these difficulties.

Book I, Chapter V

The Competing Conceptions of Capital

And now we may review the other conceptions of capital already mentioned, and see if any of them can better satisfy scientific requirements.

The conception which seems to me to come nearest to ours is that suggestive one which may be most concisely called the "National Subsistence Fund," and which very much coincides with Turgot's "Saved Stocks of Goods." This conception embraces all material goods with the exception of land. Later on we shall have to make ourselves very accurately acquainted with it, and to avoid repetition I refrain from going farther into it here. I shall only say this much. The conception of the national subsistence fund is, like our own, a conception of great scientific suggestiveness, and is so as regards those very problems which connect themselves with the word capital. In particular, as being so much in touch with the phenomenon of capitalist production (production carried on in lengthy processes and roundabout methods), it is even more happy than our conception of the Intermediate Products. The latter, indeed, embraces all those goods which come into existence during the production process, the goods which carry it on and help to complete it; but it does not embrace the initial fund of consumption goods needed to commence the process. It therefore leaves out the first link in the chain, which is a very important one, while the conception of the Subsistence Fund, as I understand it, embraces the entire group of goods by means of which the capitalist process is begun and carried through.

Notwithstanding the importance of this conception in the theory of capital, I put it second to the other for the following reasons. First, on account of the difficulty of sharply dividing between those funds of subsistence which serve for acquisition and production, and those which stand outside of any relation to acquisition and consequently have nothing at all to do with the scientific problem of capital.33 Second, that in any case the conception of "intermediate products" is so conspicuously important, that it is scarcely less worthy of being indicated and emphasised by the name of capital, than is the conception of the "national subsistence fund." Third, that, as compared with the latter, the "intermediate products" appear to me to have in their favour the distinct and also the decisive advantage of being already familiar expressions. Capital, the factor of production, cannot again be left without a name, and for that reason the conception of "national subsistence fund" must come second.

Next in importance comes Roscher's conception. It is due as much to the high scientific position of this writer as to the widely spread acceptance of his doctrine that we should go more fully into the definition he gives of capital. Unfortunately, I am bound to say that it seems to me anything but happy. In the form of it Roscher appears to come very near to the same conception as lies at the basis of our definition, in claiming the designation capital for "every product saved for further production."34 But in the very next lines, when enumerating the elements of a community's capital, he veers round to Turgot's conception, and includes dwelling-houses, "utensils of personal service;" and, in short, goods for immediate consumption. This vacillation is due to the fact that Roscher gives an unusually wide interpretation to the conception of "product" and "means of production." He looks upon every satisfaction of a real want as the production of a "personal good;"35 and this causes him to recognise everything that serves to the satisfaction of human want (that is, simply, all goods) as means of production. Any unbiassed person can see how unfortunate this is. Without due cause it obliterates the very important opposition that exists between the production of goods which satisfy want, and their consumption. It christens, for example, the idler as a zealous producer, always thinking how he may produce the personal goods of satiety, of ease, of contentment, and so on. It leads, moreover, to a lamentable waste of terminology. When the conception "means of production" is made synonymous with the conception "good;" there is no name left for the true instrument of production. But the latter, as a highly important economic category, must be kept prominent and distinct from goods for immediate consumption, and so we fall from one confusion and ambiguity of terminology into another. This shows itself most significantly in Roscher's own conception. He feels the very sensible need of distinguishing, inside his conception of capital, those goods which serve to the production of "material goods" from those other goods which serve simply to the production of "personal goods," and he does this by designating the former as "productive capitals" and the latter as "use-capitals." This expression is doubly unfortunate. First, in putting "use-capitals" in opposition to "productive capitals;" the capacity of being means of production is implicitly refused to "use-capitals"; while they found admittance to the conception of capital only on the ground of this very capacity, viz. as "products saved for further production." And second, the same word "productive" is made to serve in the one breath as the predicate which binds together all capitals, and as the predicate which divides capital into two. Could any terminology be more unfortunate?36

But Roscher's definition of capital is not only inappropriate; it is, in my opinion, logically unsound, inasmuch as it does not cover those things which Roscher means it to define. After he has christened all goods productive instruments, it might be thought that he would consider the totality of goods as capital, with the exception of land. The definition of "products saved for further production"—if the production of personal goods be included—seems to apply to them all. That, however, is not Roscher's meaning. From his enumeration of the elements of a community's capital, as well as from an expression used in § 43, where he puts the use-capital in opposition to objects of use which are not capital, it follows that, of consumption goods he will reckon as capital only those which are durable, such as houses, furniture, etc., and not those which are perishable (with the exception of the means of subsistence of productive labourers). He justifies this by saying:—"On the other hand, the sharp line of division between the Use-Capital and those objects of consumption which are not capital rests, in conformity with our definition of capital, on the fact that the latter are not only more speedily consumed, but are always meant to be consumed; whereas, in the case of the former, the consumption is only the inevitable and the reverse side of the use." These words cannot very well mean anything but that the speedy intentional consumption of goods is the direct opposite of "saving," so that one characteristic demanded by Roscher's definition is not present in perishable consumption goods. Suppose this granted, is the same defect not inherent in the perishable raw materials and auxiliary materials of production as in the means of subsistence of the productive labourers, which Roscher has expressly enumerated among the elements of the community's capital? Is not "the coal at the forge," the "gunpowder in the chase and in blasting operations," the bread in the worker's mouth, quickly and intentionally consumed? It is either, or——! Either speedy and intentional consumption is the opposite of "saving," and takes away from such goods the property of being capital, in which case Roscher must also exclude the perishable raw and auxiliary materials of production and the maintenance of the producers; or speedy consumption is not a ground of exclusion from the conception of capital, in which case the perishable means of "production of personal goods" cannot be refused admittance to the conception. Roscher's definition therefore fits either a wider or a narrower circle of things, but never exactly that circle which he meant to define as capital.37

The conception of capital most closely allied to this—in so far as it also enumerates consumption goods along with acquisitive instruments—is that laid down by Knies. It is based on an idea which, from the point of theory, is as interesting as it is important. All the same, I think that, on closer examination, it will not be preferred to ours.

Knies defines as capital "that complex of goods available to a community which may be applied to the satisfaction of want in the future." This definition, as we can easily see, agrees almost word for word with that of another conspicuously important and fundamental conception. If we leave out the words "in the future," it takes in all the goods in a community available for the satisfaction of want, and that is an amount which most writers are in the habit of calling the "wealth" (Vermögen) of the community. If, like Knies,38 we emphasise the fact that wealth embraces only the net amount of goods after deduction of debts, we may perhaps call that amount the community's "gross property"39(Guterbesitz). In any case we have in this to deal with an independent amount bearing an independent name, with which "capital" neither coincides nor should coincide.

Now from this amount Knies would distinguish his conception of capital by adding the words "in the future." Do these words really convey a distinction? In my opinion they do not; at least, if we strictly give them the meaning they naturally have. It is an attribute of all wealth without exception that it is used for the satisfaction of wants in the future. All accumulation of wealth is based on provision for future requirements. Every atom of wealth in my possession at this moment has been acquired at a previous point of time with the view of being spent at a future point of time. That point of time may not be far away; it may, perhaps, be the next day, or the next hour; but certainly it is still in the future. If, therefore, we take the word "future" in its strict sense, Knies's formula has obviously defined not only Capital but Wealth; and his conception of capital coincides with the ordinary conception of wealth.

If Knies had actually contemplated this, it would not be difficult to pronounce upon his conception of capital. We should have to accuse him of waste of terminology. It would evidently be a highly inappropriate duplication of terms to use the word capital as a synonymous expression for the familiar conception which already bears the name of wealth, while other weighty conceptions—as, for instance, certain groups of acquisitive instruments—have no name.40 But Knies had no thought of any such identification. Indeed, he repeatedly and emphatically says that his conception embraces only a part of the total possession of goods, and he opposes to it, as the second member of his division, those goods that serve for the satisfaction of "current present want." This classification obviously assumes that the word "present" is not to be taken altogether literally. For if by the "present" were to be understood strictly that point of time which divides the past from the future, the goods which entered into employment in that moment of time would, of course, represent so insignificant an amount that it would not be worth while to speak of them, to say nothing of basing a scientific classification and a new conception on their short lease of life. If the second member of Knies's classification is to be anything at all, the "present" must be extended from a point of time to a period of time, and this, naturally, can only be done at the expense of the future. By the "present" we must understand a period of time which goes beyond the narrow limits of the fleeting moment, and takes in some part, large or small, of the immediate or near future.

Now, while it would be pedantic to say that such a deviation from strict literal exactness is inadmissible, it seems to me unfortunate if a scientific conception can only hold its own by allowing its most important, indeed its only characteristic feature, to be used in a loose sense; all the more so that Knies, in order to guard his conception of capital from merging into that of wealth, should have made the distinction between present and future into a sharp opposition. It is not too much to say that his conception of capital lives by the opposition between present and future, and this opposition must lose its strength whenever, and so far as, goods devoted to the service of a near future, but all the same a future, find their place not on the side of capital devoted to the future, but on the other!

But to look further: if we add a portion of the future to the present, how far is this addition to go? Is it to be the next hour, or the next day, or is it to be a longer period—say the current month or the economic year? This seems to me rather an important point to determine, but Knies himself has not said anything about it. If, in his place, we consider the different possibilities, it is easy to see that the addition of a short period, an hour or a day, does not secure the end contemplated. The amount of goods that a people consumes in a day is 1/365 of its income, and is a much smaller fraction of its wealth. Now, very few people would think it appropriate to separate off a thousandth part from the total amount of goods which form the total wealth of a community in order to put the remaining 999/1000 together under one independent conception—particularly when that thousandth part is not divided off from the principal sum by a clear and well-marked opposition, but only by a conventional and somewhat metaphorical reading of the word "present." To put it shortly: a conception of capital which embraces roughly 999/1000 of the conception of wealth comes too close to the conception of wealth to have any scientific significance.

But if we add a longer period of time, say a month, we encounter new difficulties. Owing to this altered reading we shall now deduct from the conception of capital all goods that are destined to be consumed in the ordinary purposes of life during the current month. Good. But it is possible that I may make a profit out of these very goods previous to their consumption and without prejudice to it. For instance, a sum of money which I intend to dispose of finally on the fifteenth of the current month, I may lodge with a bank as an interest-bearing deposit from the first to the fifteenth, against a deposit receipt, or I may put it into open account. What then? Does this interest-bearing money belong to capital or does it not? Whatever the answer, we do not avoid serious difficulties. If we answer it in the affirmative, we lay ourselves open to the charge of being illogical; for, by hypothesis, the whole of the current month is a widened present. But if we answer it in the negative, we first put ourselves in a position of flagrant contradiction with firmly-established usage; then we commit ourselves to the strange doctrine that a thing which undoubtedly bears interest is not capital; and, finally, we give up what formed the strongest recommendation of Knies's conception—its purpose of reconciliation. This conception of capital has been put forward by Knies with the express intention of uniting under it, as a higher and broader unity, all former and competing conceptions. In it Turgot's "stocks of goods," and Adam Smith's "complex of acquisitive instruments;" and Hermann's "goods of durable use" were to find ample room beside each other. But this mission of reconciliation, and with it the raison d'être of Knies's theory, disappears the moment that any one acquisitive instrument is denied recognition as capital—especially interest-bearing money, the first parent of the conception.41

In whatever way, then, it is looked at, we get no clear satisfaction from Knies's conception. But, to be just to Knies, I must recognise emphatically that there is a deep and significant idea at the root of it, and that if his conception fails of its end it is only because of external defects, or, if I might say so, defects that belong to the technique of conception. As a fact their destination to the service of the future is a peculiarly important characteristic of the goods we call capital, indeed, a characteristic which gives us the key to the most important problems connected with the subject. Only it is not exactly the distinguishing characteristic, but one that capital shares with several other classes of goods which we have good reasons for not reckoning as capital; and for that reason—but only for that reason—it is not fitted to act as the constitutive and distinctive feature on which to base our definition.42

The conceptions of capital hitherto mentioned are distinguished, as a whole, from our conception in that they include consumption goods as well as acquisitive instruments. We come now to certain conceptions that agree with ours in reserving the name of capital for a complex of acquisitive instruments, but differ from it, and from each other, as to what this complex includes.

The widest of these would simply include under capital all acquisitive instruments—not only material but personal. Under different names it counts labour as capital. Many conceive of the work of the labourer as capital; others, of his labour power;43 others, again, of the entire person of the labourer.44 In itself of course there is nothing in the world to prevent the totality of things which serve in acquisition from being grouped together under one uniting conception, and called by one common name. This has already been done substantially in the conception and under the title of "acquisitive instruments," or "productive goods," or "goods of higher rank." But it is an entirely different question whether one is justified in claiming the name of "capital" for such a conception. I should say with all possible emphasis that one is not. First of all, if the title is given to the totality of all acquisitive instruments, it can only be at the cost of refusing it to any narrower group of acquisitive instruments which likewise claims it. Now the former conception is already sufficiently known by the above-mentioned names, while the narrower and rival conception is very important and has no other name but capital. Even were the question, then, in other respects an entirely open one, we should, on the ground of economy of terms, decide against the use of the word capital for the totality of acquisitive instruments. But it is not an open question; it is already prejudiced by universal usage. In political economy and in practical life, generally we have long been accustomed to treat of certain great social problems as problems of capital, and in doing so we have had in our minds, not a conception which embraced labour, but a conception that opposed capital to labour. Capital and Labour, Capitalism and Socialism, Interest on capital and Wages of labour, are certainly not harmless synonyms; they express the strongest conceivable social and economical contrasts.

Now what would be the consequence if people began all at once to call labour capital? In the most favourable circumstances it would be an innovation in terminology with little to recommend it. If all the world were to adapt itself to the innovation, and were to do so in full consciousness that it was an innovation in terminology and nothing more, it might remain perfectly clear that, in putting under one common name the real differences that separate labour from what has hitherto been called capital, these differences are not in the least reconciled. As before, everybody would notice these differences, and work without bias at the social problems to which they give rise. Economic theory would not then suffer any material injury beyond the inconvenience of having no name for the chief object of such inquiries; for, of course, from the moment that labour is reckoned capital we must cease to give the name of capital to its social opposite.

This, I say, might be the result in the most favourable circumstances; unfortunately such a result is most unlikely. It is much more probable that the blending of the names would bring confusion into the matter. We need not deceive ourselves on this point; names and catchwords always exert an immense influence over us. Most of us are very fond of slurring over inconvenient contradictions and smoothing down thorny problems. How could one resist the tempting opportunity which the new meaning of the word capital would offer? Between Capital and Labour, as these words were used formerly, there was discord, contrast, conflict. Now one single happy word unites all contrasts; what we thought opposites are really homogeneous; labour is capital; wage and interest are at bottom one!

The reader will perhaps think it a mere jest to put such words in the mouth of serious thinkers. Economic literature, unfortunately, witnesses to the earnest of it, as we see in the case of those writers who conceived the unlucky idea of rebaptizing labour as capital. There is first M'Culloch. He represents the labourer as a piece of fixed capital, as a kind of machine. When he has thus torn down the partition wall between capital and labour he immediately goes on to the logical conclusion, and abolishes the distinction between Interest and Wage. To him they are homogeneous; but—and it is as significant as it is ridiculous—he does not very well know whether he should explain interest by wage, or wage by interest. He gets out of the difficulty by explaining each by the other. He first sets forth, at great length, how interest is essentially nothing else than the wage for "previously accumulated labour," and then he tries to make the nature of wage clearer by explaining it as a profit of capital—"the common and ordinary rate of profit on his capital, exclusive of a sum to replace its wear and tear, earned by the machine called man."45 It does not seem to have occurred to him that a see-saw like this does not really explain either of the phenomena.

M'Culloch's ill-digested doctrines have nearly fallen into well-deserved oblivion. But if I am not mistaken, we are threatened with a resurrection of them in changed form. Quite lately we have had a number of views, closely related to the foregoing, put forward with that suddenness and abundance which is at all times a sign that the idea is, so to speak, in the air, and promises to be fashionable. We are told almost simultaneously, and in almost the same words, by Weiss, by Dargun, and by Ofner, that every labourer represents a capital equal to the cost of his upbringing—say, a thousand thalers for the unskilled, or three thousand thalers for the skilled labourer. Or, on another method of valuation, we are taught that the labourer is equal to the capitalised net return of his year's labour. His wage, therefore, is peculiarly a kind of hire of capital, and must, like every other hire, contain at least the three following elements: (1) The replacement of the cost of necessary upkeep of the human machine, calculated at the minimum of existence; (2) a quota for amortisation, in premiums of assurance against old age; and (3) a net interest calculated on the capital value of the human machine at the ordinary interest rate.46

All honour to the motives which have given rise to this theory. It is devised in the interests of the poor, and for the reconciliation of all classes. Between the iron law of wages which takes away all hope from the worker of earning anything but bare necessaries, and the socialist theory which promises the labourers everything, and the propertied classes nothing, it steers a middle course; it leaves the owner of material capital his hard contested interest, but would have him share it with the owner of personal capital. Thus the joint capitalism of the worker becomes on this theory the magic formula that is to be followed by the golden fruits of reconciliation and humanity. The pity is that it is only a formula; a parade of words with no soul of truth in it. Very few people would deny that, in certain points, there is a real analogy between a worker, the cost of whose education and training in production has been advanced to him, and a piece of capital. But how deep does this analogy go? On occasions when we wish to make use of it in making comparisons that are really instructive, or when nothing depends on scientific exactitude, the analogy goes deep enough to permit of using a figure of speech and calling the labourer a "capital;" just as capital also is often spoken of figuratively as "previous labour" or "stored-up labour." But the analogy does not hold right through, and in particular it fails as regards wage and interest. That capital yields a profit or gain, rests on a quite peculiar ground—a ground that does not obtain in the case of labour, or does so very exceptionally. I hope to establish this with perfect clearness when we come to the theory of interest, but this much I may say meantime,—that a man must have curiously shifted his point of view if he thinks to make the essential nature of wage more intelligible by supporting it on the phenomenon of interest. Of the two phenomena, that of wage is by far the more simple and self-explanatory. One man gives the valuable good called labour, and another man gives him a price for it. Anything simpler cannot well be imagined. But the fact that capital yields an interest is much less easy to understand. Witness the many theories we had to discuss in Capital and Interest, none of which were ever able to state satisfactorily the essence of that phenomenon. To think of explaining the simple facts of wage by reading into them the much more involved and obscure facts of interest, is really to explain the church by the steeple. Moreover, the value of these forced interpretations receives a vivid illustration in the fact that, as we have seen, numerous writers are at the same time striving to get at a better understanding of the nature of interest by expounding it as a peculiar kind of wage. Where then the one sees the riddle, the other sees the solution. What an amount of vagueness as to the nature of the problems waiting solution is involuntarily betrayed in all this.47

To sum up. The inclusion of labour in the conception of capital would be, in the most favourable circumstances, inappropriate; in the more unfavourable, which unfortunately have been the real circumstances, it has been pernicious, calculated to perpetuate the confusion of terminology, to open door after door to false analogies, and to obscure and prevent clearness of thought in those very questions which are at once the most difficult and the most important in the social science of to-day. We shall therefore decide very emphatically and, I hope, unanimously, to exclude personal means of acquisition from the conception of Capital.48

The next stage of the controversy brings us to the question whether we are to give the name of capital only to the products of labour that serve for acquisition, the "previous stored up labour," or are to include land. Both views claim for the name of capital a really important and fruitful conception. As contrasted with labour, land has so much in common with the "produced" acquisitive instruments of material nature that a union of them under one conception has good justification. So, too, the income which flows from the two kinds of acquisitive instruments has, in many essential respects, the same nature, and this likewise favours the uniting of them in one conception. On the other hand, in many essential respects land and capital take different ways. The former is immovable; the latter, for the most part, movable. The former is a gift of nature; the latter, a result of labour. The former cannot be increased, the latter can be. The landowner has a social and economical position essentially different from that of the capitalist; property in land is justified on essentially different grounds from property in movables. Land is the special object of a kind of production which is economically distinguished by many important peculiarities. Income from land, while subject to many laws in common with income from capital, obeys many distinct laws of its own—land rent, for instance, rising with economical development, while interest falls. On all these considerations, the number of which might easily be increased,49 it is most convenient to keep land quite distinct from the other kinds of productive wealth.

Thus the two competing conceptions are fairly well balanced in importance and suggestiveness, and if these properties were the only things to look to in deciding our controversy the decision might really be left very much to individual choice. If, however, we go on to compare the two in the light of the other rules we have laid down as regulating appropriate terminology, we find several points in which the "complex of produced acquisitive instruments" has a definite advantage over its competitor. The first is that of economy of terms. If we apply the word capital to all the material means of acquisition, then the narrower of the competing conceptions, and the branch of income that corresponds to it, remain, notwithstanding their importance, without any name at all. When we have disposed of the words capital and rent of capital otherwise, we have no correspondingly simple name, either for the group of produced acquisitive instruments, or for the income that comes from them. On the other hand, we avoid any such confusion of terminology by giving the name capital to the produced acquisitive instruments. The totality of all material acquisitive instruments may then, well and simply, be called "acquisitive wealth;" and all income flowing from it may, on Rodbertus's precedent, be called Rent with its convenient subdivisions of land rent and capital rent.

The limitation of capital to "produced means of acquisition" has another advantage in being in accord with popular usage. Both scientific and popular language tell us unmistakably that they do not put land under capital, but oppose the two. The genius of our language plainly distinguishes between landowner and capitalist. No one will say that a nation that has an abundance of fruitful soil is possessed of great capital on that account. The name of interest is never applied by people generally to the income from land, and in scientific literature it is so applied only by an insignificant minority. And in the discussion of the great social problems, property in land and property in capital are generally attacked and defended by quite distinct people and by quite distinct methods. If we sum up all that has been said, the conclusion seems to be that while, for reasons repeatedly given, there can be no idea of an absolutely convincing argument, there is still a considerable balance in favour of defining capital as the "produced means of acquisition," and against the inclusion of land.

Finally, such conceptions as would limit capital still more severely, may, I think, be easily and decidedly refuted. Kleinwächter would distinguish between the materials and the tools of production, and reckon only the latter as capital, on the ground that in production it is only the tools that actively co-operate and assist us, the materials of production being purely passive.50 But this assumption is not correct. The function of materials of production is not simply to serve as a "dead and plastic mass"; by means of the natural powers residing in them these materials take a share in the work of production which is, indeed, less prominent, but is, essentially, no less active. Kleinwächter's view is, by his own confession, incorrect from the point of physical science,51 and as we have here to do with a question of productive technique, where political economy must take its stand on natural science, it is incorrect from the point of economics.

Marx, again, would confine the conception of capital to those productive instruments which are to be found in the hands of persons other than the labourers themselves, and are used to exploit the labourers. With him, therefore, capital is the same thing as "means of exploitation." This distinction would be quite an important and suggestive one if the Exploitation theory itself were correct. But since, as has been shown in my former work,52 it is not, the justification of the distinction based on that theory falls with it.

Jevons's notion of capital is that of "the aggregate of those commodities which are required for sustaining labourers of any kind or class engaged in work"; "the wages of labour either in its transitory form of money, or its real form of food and other necessaries of life."53 If this were correct, every land would be rich in capital in proportion as its wages were high and its means of subsistence cheap. An African tribe that has neither industry, nor machinery, nor factories, nor railways, but lives under a tropical sun, where the necessaries of life are poured forth without stint, would be the richest in capital! Obviously, of course, the idea that Jevons had in his mind was a perfectly correct one, but the expression he gave it was unfortunate. He confused a condition of the formation of capital with capital itself. The way of capitalist production is long and roundabout, and man cannot enter upon it unless he is provided with the means of subsistence for the time that must intervene before he reaps the return. But it is not the means of subsistence, and, in particular, it is not the means of subsistence alone, that constitutes capital. Capital only comes into existence when man actually enters upon the profitable roundabout journey that the means of subsistence have made possible; when he builds machines, tools, railways, factories, raises raw materials, and so on. However abundant the means of subsistence were, if the workers were to consume them in living from hand to mouth, the community would evidently never accumulate capital at all.

Finally, there remain those conceptions which see in capital not a complex of goods, but an abstract quantity hovering over goods, as it were; as, for instance, Kühnast's "sum of value," or M'Leod's "circulating power." I have, generally speaking, a very poor opinion of such idealisations of economic conceptions. They are usually cheap expedients for getting round difficulties. If in any difficult subject there occurs some troublesome, angular kind of conception that corresponds with real life and will not fit in to the particular line of explanation, there are always certain theorists ready to disembody it, whereby, of course, it loses its unmannerly angles and edges, but, at the same time, its strength and truth. It becomes a phrase and leads to phrases. We have an instance of this here. If we were to take the sponsors of those definitions at their word, and ask them whether they would seriously say that an immaterial sum of value or circulating power can grind corn, or spin yarn, or plough up land, or carry a load; or whether it is not the case that these good things are done by the common material goods called mills, looms, ploughs, locomotives, they would be very much perplexed. For, asking at their own consciousness, they could scarcely deny that, under the name capital, they have always and peculiarly thought of that something which helps man to work in his production; and the rude materiality of this something agrees but ill with the high-sounding abstract definition of "sum of value" or "circulating power." It is very significant, as regards this group of definitions of capital, that their origin may be traced to a slipshod expression of a writer who was always too careless about the way in which he stated his conceptions—J. B. Say. Say first—and quite correctly—gives the name of capital to certain results of labour that serve as tools to further production, such as Seed, Dye-stuffe, Wool, Tools, Machines, Buildings, Cattle, etc., and calls their total value Capital Value. Later on he makes the remark that a capital value may take very different forms, such as money, houses, utensils, commodities, etc., and this gives him occasion to call "this value a capital, so soon as it is contained in objects, whatever they be, which are destined to productive activity."54 Evidently a careless and contradictory expression, which, however, his economical disciples made the basis of a serious theory!55

Thus, of all the many readings of the conception of capital, there is only one left on the field,—only one, of which it can be said that it has stood all the tests. It is that which, by capital, understands an aggregate of products destined, not for immediate consumption or use, but to serve as means of acquisition. It is a conception which meets all our logical and terminological requirements. Logically it is unassailable, and it is suggestive; so suggestive that it distances the most of its competitors, and is distanced by none of them. And, terminologically, its investiture with the title of capital best economises our terms, and agrees with that usage which has taken most general and firm root in economics and in popular speech. Finally, it is the conception which most exactly coincides with the object of those great social problems of our time which people are in the habit of discussing as problems of capital. In its one division, as "Social Capital," it indicates the third instrument of economical production in the triad of Nature, Labour, and Capital; and in its other division, as "Private Capital," it indicates the third source of the economical acquisition of goods by individuals in the triad Rent of land, Wage of labour, Interest on capital. If, then, unbiassed people are ever to agree on a conception of capital, we may expect that this will be the one chosen.

Book I, Chapter VI

Social and Private Capital

A few remarks still remain to be made on the relation in which the two divisions of our conception, Social (or Productive) Capital, and Private (or Acquisitive) Capital,56 stand to one another. When enumerating and reviewing the various theories, I have already expressed my views generally on this point, and may here shortly sum them up. Private Capital, as we now call it, is the parent conception. It is not so much a branch, or a subdivision of the general conception of capital, as the conception itself. The conception of National Capital, or, more correctly, Social Capital, has detached itself from the other, in the historical development of theory, as a narrower conception. Substantially it is a quite independent conception. In every essential respect (in definition, in scientific employment, and in scope) it stands on entirely independent principles. It is bound up with the conception of Private Capital only by the external and subordinate circumstance, that the aggregate of its "intermediate products" happens to coincide in extent with the aggregate of those products which are the source of income to society as a whole,—those products which constitute capital in the older sense. But through a historical accident it is this subordinate feature that has had most to do with the naming of the new conception; and thus it also bears, and will perhaps continue to bear, the name capital. And this circumstance, so long as the whole relation was not clearly understood, led to the lamentable tangle so often spoken of, that not only the conceptions themselves, thus similarly named, but the fundamentally distinct problems connected with them, were confused and interchanged.

This unfortunate confusion of the problems was first attacked, so far as I know, by Rodbertus, and his efforts were seconded with peculiar clearness by Adolf Wagner. In the course of this a new interpretation was given to the distinction between National and Private capital, which is highly interesting in itself, and which, at the same time, has been accepted so quickly and over so wide an area that I feel bound to take up a definite position towards it. Wagner, like Rodbertus before him,57 makes a distinction between capital as a "purely economic category," and capital "in the historico-legal sense," or property in capital. "Capital as a purely economic category, considered apart from the legal relations which obtain as regards property in capital, is a store of those economic goods,—natural goods,—which serve as technical instruments to produce new goods to a community; it is a store of productive instruments; it is National capital (or a portion of such). Capital in the historico-legal sense, or property in capital, is that portion of a person's wealth which may serve him as a means of obtaining an income (Rent, Interest), and which, therefore, is owned by him to this end; it is a Rent Fund, or Private Capital."58 In this the distinction between National capital and Private capital is narrowed down to the distinction between a natural store of goods on the one hand, and the legal rights which private individuals have over that natural store on the other.

I am far from denying the very great importance and usefulness of this new distinction. Its appearance was an event of the first rank in economic criticism, and it has done good and laudable service in clearly stating the fundamentally distinct problems associated with the one name of capital. Without it, certainly, the far-reaching consequences of the other distinction, that between Social and Private Capital, would never have been noticed. One thing, however, I cannot allow. It does not exhaust the meaning of this latter distinction, and, consequently, it is not exactly fitted to take its place. The categories of Social Capital and Private Capital on the one hand, and of Natural Capital and Property in Capital on the other, do not coincide, either in compass or in content, so as to allow us simply to explain or replace the former by the latter. They are rather independent categories, each of them resting on a different basis of distinction. Social Capital and Private Capital are not distinguished from each other simply as a natural store of goods and property in these goods; they represent two distinct natural stores of goods. Social Capital embraces only the means of production; Private Capital embraces also certain consumption goods. These distinct natural quantities or stores of goods, further, exert distinct economic functions. And if to these we add the further distinction that Social Capital is a category independent of any regulations of positive law,—is, that is to say, a purely economic category,—while all capital as Source of Income presupposes an owner, and therefore a right of ownership founded on history and law, then this is only one distinction out of many, and that not the peculiar and essential distinction. For if we were to drop the two former distinctions, and draw our dividing line according to the absence or presence of historico-legal claims of ownership, we should find that the division had made some very considerable changes in the constitution of the members. In the first branch, indeed, we should have as before Social Capital, the natural means of production. But in the second branch we should have only the same means of production now looked at as private property and as source of rent, and we should not have those consumption goods, such as dwelling-houses, libraries, etc., which serve as sources of rent. To cover these latter, and so fill out the compass of private capital to its true extent, we must set against the natural means of production not only private claims based on history and law, but also another natural store of goods that is still more extensive.

Perhaps the peculiar inappropriateness of confusing these two distinctions may be most strikingly shown by taking an exactly analogous example. If one were asked to characterise the distinction between the two conceptions "producing" and "exchanging," and were to answer that production is a purely economic category, whilst exchange, as presupposing the existence of private property, is a historico-legal phenomenon, the answer would scarcely be taken as sufficient. We should certainly have the impression that it gave us a distinction but not the distinction between producing and exchanging. For the essence of exchanging obviously does not consist in its being a "historico-legal category." It is also a very important economic category; indeed, it is just such another as producing; and one who would explain both conceptions must, at once and before anything else, establish the distinction between the economic nature of the two. And, similarly, in this opposition between "purely economic" and "historico-legal" categories, a distinction is put forward—and a very important distinction,—but not the characteristic distinction between Social and Private Capital.

Let me say once more that I consider the distinction made by Rodbertus and Wagner between natural capital and property in capital a very important one indeed, and one which, in any case, must also be drawn. What I want to point out is, that it should not be confused with the distinction between social and private capital, which rests on an entirely different basis; and the definition of social and private capital should not be based on characteristics borrowed from another and totally different distinction.

The example of Rodbertus himself is the best proof that this is not simply a quarrel about formulas. His one-sided conception led him directly into a false theory of interest. In his view the essence of private capital consisted in the historico-legal circumstances of force that were connected with it; and he was thus logically committed to explain the interest on private capital simply and solely from the existence of those circumstances. Interest to him was robbery; a profit which the owners of capital squeezed out of the labourers in virtue of the brute strength which their exclusive property in the means of production gave them.59

If, on the other hand, Rodbertus had attended to the peculiarly economic side of the matter, he would have found that that other natural complex of goods, called private capital, has exerted and continues to exert a peculiar economic function quite equally with social capital; and, further, he would have found that it is simply as the natural fruit of this economical element that interest originates. Thus he would have found that interest is not purely a growth of history and law, but an original economic growth, the emergence of which is, to a certain extent, independent of the form which history and law have given it. This will be shown with sufficient clearness, I trust, in the investigations into the origin of interest which follow.

Before concluding this chapter there is still one question to be put: What in the concrete are the groups of goods that constitute Social capital, and what Private capital? The answer to this should, by rights, follow from the very definition of the two conceptions. But peculiar circumstances have led to disputes not only as to the correct definition, but even as to the compass which was to be allowed to each conception in conformity with the accepted definition. It is well, therefore, to be quite clear on this point.

Social Capital, as an aggregate of products destined to serve for further production, covers—

• 1. Productive improvements, arrangements and dispositions of land, so far as these preserve an independent character, such as dams, drains, fences, etc. So far, however, as they are completely incorporated with the land, they are to be kept separate from capital for the same reasons which made us keep land itself separate from capital.60
• 2. Productive buildings of all sorts—workshops, factories, sheds, steadings, shops, streets, railways, and so on. Dwelling-houses, however, and other kinds of buildings, such as serve immediately for any purpose of enjoyment or education or culture, e.g. theatres, schools, churches, law courts, do not come under Capital.
• 3. Tools, machines, and other kinds of productive utensils.
• 4. Useful animals and beasts of burden employed in production.
• 5. The raw and auxiliary materials of production.
• 6. Finished consumption goods in the hands of producers and merchants as (warehouse) stock.
• 7. Money.

At the first glance the two latter categories may be called in question. Consumption goods as found in warehouses are, to all appearance, no longer "intermediate products," but "finished goods," and Money is not a tool of production but a tool of exchange. Still, I think it correct to put both conceptions under capital. They both serve to complete a roundabout way of production. When, in order to take advantage of more favourable conditions, goods are produced, or caused to be produced, at a different place from where they are demanded, it is nothing else than a peculiar kind of roundabout process. The consequence then is—and it is here that the "roundaboutness," which is to be understood literally in this case, comes in—that, after the product is technically finished, it must be conveyed to the place where it is demanded. All this is done very often inside the narrow limits of an isolated economy; the peasant must bring his harvested grain from the field, his felled wood from the forest. But it is done, on an immensely greater scale, in the wider field of social production and divided labour. Just as the peasant may raise his crop a quarter of an hour's distance from his house, or cut his wood an hour's distance off, because in this way he can best utilise the conditions of production, so for good reasons it is quite common in organised and divided industry to obtain the objects of our demand from other people's workshops, indeed often from other places, other lands, other continents; and then, naturally, in the end we have to provide their means of conveyance. In the one case as in the other the conveyance forms the last act of production, and before this last act is finished we cannot properly say that the products are ready for human consumption. So, just as everybody would include among instruments of production and capital the horse and cart which assist the peasant in carrying in his grain and wood, must we reckon as capital the objects and apparatus of that more extensive "leading in" of the national harvest—the conveyed products, the streets, rails, ships, and the commercial tool money. It may be noted, besides, that those commercial roundabout ways, arising out of the division and organisation of labour, rank, as regards the advantage they confer, along with the other technical roundabout ways. They are as profitable as, or even more profitable than, any of the capitalist methods of production to which the most famous technical inventions have led.

These seven categories exhaust, in my opinion, the group of things which constitute Social Capital. It goes without saying that economists who take another view of the conception of capital add other categories, such as land, durable consumption goods, the person of the labourer, and so on, and this needs no further elucidation here. It is surprising, however, to find writers, who take exactly the same view of the conception as we do, proposing to add certain other categories.

Most surprising of all in this connection is the unanimity with which economists, from the earlier English writers down to Adolf Wagner,61 put the maintenance of productive labourers under social capital. Certainly the real wages of the labourers—the articles of food, clothing, fuel, lighting etc., which the labourers use—are, from the standpoint of the undertaker who advances them, his private capital. But it is just as clear in my opinion that, from the standpoint of the whole community, these objects cannot be counted capital if capital is defined as a complex of means of production. The conception of "means of production" should and does form an antithesis to the conception "means of consumption." There cannot be the slightest doubt as to the meaning of this antithesis, and just as little can there be as to the fact that the workers' subsistence is the immediate instrument to the satisfaction of their wants, and that labourers are men and members of society. But if this is so, it seems to me absolutely proved that the maintenance of the labourer must be classed along with wealth destined for consumption and for the immediate satisfaction of the wants of society, and not with the means of production or capital. It could only be otherwise if the labourers were to be looked upon, not as members of the civil society in whose interest industry and commerce are carried on, but as material machines of labour. Then, but only then, the maintenance of the labourers would, as a matter of course, fall under the same category as the feeding of beasts of burden and the stoking of furnaces; it would be a means of production, or capital. The idea, however, scarcely needs refutation.

It may be pointed out, however, that productive labourers are not simply consuming subjects, but are also active economical instruments; and that, consequently, the subsistence which does directly serve for the maintenance and furtherance of their life indirectly serves towards the further production of goods. But in this case a simple indirect relation to production is not sufficient. For it is easy to see that the distinction between means of production and means of consumption has a meaning only if it refers to the immediate destination of goods. If we were to take notice of their indirect or mediate destination we should require to put all goods without exception under the category of means of consumption, since even the means of production serve indirectly to the satisfaction of human wants. Then this raises another difficulty. The division of goods into goods for consumption and goods for production is intended to be a real division; it should be based on an opposition. Now it is impossible to deny that the food which the labourer consumes serves for the immediate satisfaction of the wants of a member of the community; that is, it corresponds entirely to the definition of a consumption good. How then could we class a thing which has all the properties of one category under the category opposed to it? Thus, as is so often the case, the laboured explanation leads us into a net of confusion, and the simplest is the truest. The goods with which the working members of the community feed, heat, and clothe themselves, are goods for immediate consumption, not means of production.

That, in face of arguments so obvious, the opposed doctrine should be held so universally and so tenaciously is a phenomenon scarcely intelligible at first sight, but easily explained when we inquire more closely into the circumstances of the case. Two powerful factors, I think, co-operated towards it. One was historical tradition, which, in this case, was very strong and deep-rooted. It should not be forgotten that the inclusion of the labourers' maintenance into the conception of capital came at a time when the conception itself was not yet clearly defined, and when, in particular, Private capital, to which the labourers' maintenance in any case belongs, was not yet sharply divided off from Social capital, to which it does not belong. This was assisted by the peculiar view, dominant for a long time, that the function of capital was the "putting of labour in motion"—a function which the labourers' maintenance conspicuously realised. It was assisted, moreover, by the famous Wage Fund theory. That theory made the rate of wages depend chiefly on the proportion between the number of labourers and the amount of the Wage Fund; that is, the amount of capital destined for the support and payment of the labourers—an idea which helped to connect the means of subsistence still more closely with the conception of capital. And, finally, another impulse in the same direction may have been given by the frequently and justly criticised tendency of the English school to look upon the labourer as a machine of production, and to consider his wage simply as an element of the costs of production—a deduction from the national income and not a part of it.62

Resting on such a wide basis of support, the proposition that the maintenance of productive labourers forms an element in Social capital worked its way by degrees so firmly into the scientific consciousness, that it was considered by many as an axiom quite above discussion; and in the end it was able to maintain its position on the strength of its own authority, even after the ground had really been taken from under it by the discovery of the distinction between Private and Social capital, and by the definition of the latter as an aggregate of means of production.

The second factor has had even more effect than the weight of historical tradition; and not only has it co-operated in the past in the creation of these traditions, but it still asserts its living influence. That factor was, if I am not very much mistaken, the conscious or unconscious inclination towards another reading of the conception of capital than that recognised in what we may call the official definition. Economists have stood, and still stand, in hesitation between those two conceptions which have the most numerous and suggestive relations to the problems of capital—the conception of "produced means of production" and the conception of "national subsistence fund."63 In the official definition, it is true, the preference was finally given to the "produced means of production"; but economists, quite rightly feeling that the "national subsistence fund" had also something to do with the theory of capital, could not quite give up this conception. And thus they put together a hybrid conception, adding to the Means of Production proper, which had the stamp of the official definition, a portion of the Subsistence Fund conception, in the maintenance of productive labourers. Of course a classification like this, which is nothing else than the result of uncertainty and compromise, cannot be satisfactory. Economic theory must make decisive choice between the two competing conceptions, and, however the choice turns out, the conception will be limited and determined otherwise than it is by the writers now being criticised. Either we shall decide for that conception which makes capital an aggregate of Intermediate Products—and this choice, for reasons of appropriate terminology already stated, I consider the happier one—and in this case the labourers' maintenance falls outside the conception; or we shall give the name capital to the Subsistence Fund which makes the roundabout way of production possible, and then, as will be shown later,64 not only must the means of subsistence of the productive labourers be reckoned as capital, but also the subsistence of the capitalists and landowners, as standing in exactly the same indirect, relation to the adoption of "capitalist" methods of production. If all this cannot justify, it may at least explain the phenomenon, otherwise almost incomprehensible, that, in flat contradiction to the official definition of capital, people continue to add to it the maintenance of the labourers; and perhaps the exposure of this origin may help to put an end to the curious habit.65

Another category which seems to me wrongly placed among the constituents of Social capital is the so-called "incorporeal capitals," such as debts and other kinds of claims, goodwill of businesses, the state, etc. These things are not capital, because they are not real goods. They are, as I have shown at length in another place,66 nothing but representative words or collective names for a sum of real goods, which may be capital, or may not. If they are, then they are already contained in our seven categories; if they are not, we should not, of course, open a special category for them.

Finally, Private capital consists of the following:—

• 1. All goods which form Social capital.
• 2. Those consumption goods which their owners do not use for themselves, but employ by exchange (sale, hire, loan) in the acquisition of other goods, e.g. let-houses, lending-libraries, means of subsistence advanced by undertakers to their labourers, and many others.

Many writers add certain "relations," patents,67 trade connection,68 legal claims.69 These, of course, on the same grounds of theory as above, I must reject as constituting an independent category of capital.

And now, after this very lengthy introduction, which can only be excused by the singular confusion in which we found the theory, we may turn from the conceptions to the problems which are associated with them. In the book which follows we shall work out the theory of the conception we had to glance at in the two first chapters of the present book; the theory of capital as Instrument of Production, or the theory of Social Capital.70

[2.]See Menger, Grundsätze der Volkswirthschaftslehre, p. 1. Vienna, 1871.

[3.]P. 219 (German edition, p. 265). See also my Rechte and Verhältnisse, p. 51. Innsbruck, 1881.

[4.]See Mill's Principles, i. 1. 2.

[5.]If we were to carry our analysis of what man does in production a step further, we might appropriately distinguish three fundamental ways in which the producing man "moves things." The first is what, for want of a better name, we may call simple movements or changes of place—where men transport entire objects from one locality to another. Thus the miner brings the ore from the depths of the shaft to the upper air; the merchant takes his goods from the place where they are produced to the place where they are demanded and used. The second embraces those movements of parts of one and the same object whereby it experiences a change of form, as when nails are made from iron, statues from marble, pipes from clay, dials from ivory, combs from caoutchouc, tumblers from glass, furniture from wood. The third, and much the most common way, is where different objects are brought together in space to form combinations of matter. These combinations may be merely temporary, or they may be lasting. Instances of the one are where the stamp falls on the coin, the chisel chips at the marble, the carving tool is applied to the wood, the ore put into the furnace, the yarn into the loom, the paper under the printing press, the stuff under the shears, the plough through the clods. Instances of the other are where we build a house out of wood, stone, lime, iron, etc.; where we put together a watch out of wheels, springs, pendula, weights, stop-action and many other things; in fact in manufacture generally. I must warn the reader that this division into three fundamental forms neither has, nor is meant to have, the character of strict scientific classification. Indeed, these forms merge in many instances into one another. Temporary combinations, for instance, are very often half-way to changes of form, and what I have called a simple change of place is at the same time, in a certain point of view, a material combination, a bringing together of the thing moved and the object (personal or impersonal) to which it is moved. This division, however, will make it easier to find our reckoning, and will prove too, if necessary, the correctness of the general characteristics which I have ascribed in the text to productive processes. I mean to say that it is easy to see that every productive activity which one can think of ranges itself under some one of these three fundamental forms, and to that extent it is proved that such an activity must, a fortiori, range itself also under the general formula given in the text, where we have described the nature and method of the production of material goods as the mastery of natural powers by means of putting objects in motion.

[6.]Menger has suggestively called these Goods of the First Rank, classing all goods which go to their production as Goods of Higher Rank. It is unfortunate that we cannot use the literal English equivalent of the "Genussgüter," but, as next to it in convenience, I propose to use the expression Consumption Goods for what otherwise we should have to translate as Goods for Immediate Consumption. See Manger's Grundsätze, p. 8, and Böhm-Bawerk's Rechte and Verhältnisse, p. 101.—W. S.

[7.]The expression Capitalist Production is generally used in one of two senses. It designates either a production which avails itself of the assistance of concrete capital (raw materials, tools, machinery, etc.), or a production carried on for the behoof and under the control of private capitalist undertakers. The one is not by any means coincident with the other. I always use the expression in the former of these two meanings.

[8.]Looking back over the last few years only, I can recall, as coming in quick succession, the researches of Knies (Das Geld, Berlin, 1873, pp. 1-56); of Cossa (La Nozione del Capitale, 1874, published in the Saggi di Economia Politica, Milan, 1878); of Ricca-Salerno (Sulla Teoria del Capitale, Milan, 1877); of Umpfenbach (Das Kapital in seiner Kulturbedeutung, Würzburg, 1879); of Kühnast (Ueber den rechtlichen Begriff des Kapitales in Beiträge zur Erläuterung des Deutschen Rechtes, 1884); of Supino (Il Capitale nell' Organismo Economico e nell' Economia Politica, Milan, 1886). Meanwhile we have the well-known works of Rodbertus and Marx, both bearing the title Das Capital, and again the elaborate statements in the more comprehensive systems, particularly those of Wagner (Grundlegung, second edition, 1879, p. 36); of Kleinwächter (Schönberg's Handbuch, first edition, p. 170; second edition, p. 206); and of Cohn (Grundlegung der Nationalökonomie, Stuttgart, 1885, § 145-147).

[9.]See on this subject Knies, Das Geld, Berlin, 1873, p. 6 (second edition, p. 24); Ricca-Salerno, Sulla Teoria del Capitale, 1877, chap. ii.; and Schönberg's Handbuch, second edition, vol. i. p. 206.

[10.]The English word "Cattle," as Knies (p. 7) has rightly remarked, has nothing in common derivatively with our conception.

[11.]Capital and Interest, book i. chaps. ii, and iii.

[12.]Glossarium of Dufresne du Cange, quoted by Umpfenbach, Das Kapital in seiner Kulturbedeutung, Würzburg, 1879, p. 32.

[13.]Wealth of Nations, book ii. chap. i.

[14.]Rodbertus, passim; Wagner, Grundlegung, second edition, p. 39.

[15.]Staatswirthschaftliche Untersuchungen, Munich, 1832, p. 59, and similarly in the second edition of 1874, p. 111. On p. 56 he expressly calls capital "Wealth which brings in income."

[16.]Grundsätze, Vienna, 1871, p. 130.

[17.]See Mataja, Der Unternehmergewinn, 1884, p. 180.

[18.]Grundlagen und Ziele des sog, wissenschaftlichen Sozialismus, 1885, p. 184.

[19.]Theory of Political Economy, second edition, London, 1879, p. 242.

[20.]Ibid. p. 242, and very emphatically p. 264: "The capital is not the railway, but the food of those who made the railway."

[21.]Das Kapital, vol. i., second edition, p. 796 (first edition, p. 747). See also Knies, Das Geld, first edition, p. 53.

[22.]Das Geld, first edition, p. 47. In the second edition (1885) the same conception is on the whole retained, but often formulated in a less exact manner. Accordingly, where I do not explicitly mention the contrary, I quote from the more distinct formulation of the first edition.

[23.]Élements d'Économie Politique Pure, Lausanne, 1814, p. 213. Launhardt (Mathematische Begründung der Volkswirthschaftslehre, Leipsic, 1885, § 2) has closely followed Walras.

[24.]"It does not represent commodities in any way whatever, but only the power its owner has of purchasing what he wants" (Elements of Political Economy, 1858, pp. 66 and 69).

[25.]"Ueber den rechtlichen Begriff des Kapitals," in the Beiträge zur Erläuterung des Deutschen Rechtes, 1884, p. 356; and particularly pp. 385-387.

[26.]See also Knies, Das Geld, p. 17 (second edition, p. 38).

[27.]Thus occasionally Adam Smith, J. B. Say, and others.

[28.]Thus Canard: "The fundamental wealth of one who pursues an art or a handicraft is his own person"; and later, M'Culloch (Principles of Political Economy, 1825, p. 319): "A labourer is himself a part of the national capital." Elsewhere he explains the wage of labour as an interest on capital of the "machine called man."

[29.]Grundlagen der Nationalökmomie, § 42.

[30.]Das Geld, p. 5.

[31.]See above, p. 24. [Book I, Chapter III, par. I.III.2.—Econlib. Ed.]

[32.]Cosec (La Nozione del Capitale), Saggi di Ec. Pol., p. 157, has the definition: "Capitals è un prodotto impiegato nella produzione." Ricca-Salerno (Sulla Teoria del Capitale, 1877, p. 51) says: "Il capitale è ricchezza prodotta applicata alla produzione." Rodbertus, whose opinion I am inclined to put particularly high, because, although not altogether happy in his solution of the problems of capital, he had an insight into its essence such as scarcely any one before him had, explains (Das Kapital, p. 234, also Zur Beleuchtung der soz. Frage, p. 98) that "Capital (materials and tools) is product which serves for still further production." A. Wagner, also, who has done good service in the theory of capital (Grundlegung, second edition, p. 38), calls capital a "Stock of economical goods, which serve as instruments to the making or acquiring of new economical goods." In the most recent Italian monograph on capital, Supino (Il Capitale nell' Organismo Economico e nell' Economia Politica, 1886, pp. 9 and 17) defines capital again as "Il prodotto del lavoro passato che serve a produzione successivea," or as "ricchezza impiegata produttivamente allo scopo di ricavarne un profitto." Of other prominent modern writers may be mentioned Pierson (Leerboek der Staathuishoudkunde, Haarlem, 1884, p. 157); Schönberg (Handbuch, second edition, p. 209), "Capital is a material means of production obtained by human labour, which, employed as such, is destined to give a return to its owner"; E. Sax (Grundlegung der theoretischen Staatswirthshaft, pp. 115, 315, 323, etc.) Of recent French writers on the subject Gide (Principes d'Économie Politique, Paris, 1884) recognises the two varieties in the conception of capital with a clearness rare even in French literature, and distinguishes them an "capitaux simplement lucratifs" and "capitaux productifs." "Les premiers," he says, "sont ceux qua rapportent an revenu à une personne; les seconds sont ceux qui produisent une richesse nouvelle dan le pays" (p. 148). His only failure is that he would recognise productive capitals alone as "true" capitals.

In English literature our conception of capital (without, of course, any clear distinction being kept between its two varieties) is almost exclusively the prevailing one; this is so well known that I may spare quotations. Generally speaking, it is very significant of the state of "public opinion" in the matter that not long ago Kleinwächter (Schönberg's Handbuch, second edition, p. 210) could explain "Common usage in political economy to-day considers it an essential characteristic of capital that it is a material means of production." The only difference of opinion is as to whether land should be reckoned as capital or not. Finally, I think I may venture to express the opinion that even the foremost representative of a rival definition, Knies, is in opposition to us more in form than in matter. It is he at any rate who has, in a masterly manner, developed the idea—the really important one in our statement of the conception—that, in defining capital, we must define that which is the object of those problems that "have appeared on the scene under the name of capital" (Das Geld, p. 19).

[33.]I do not care to waste more words than necessary here on things which will become clear of themselves se we go on, but I may make one remark. For reasons that Rodbertus (Das Kapital, p. 301) has seen through tolerably correctly, and which will be fully explained later, it is by no means my meaning to emphasise only the subsistence advanced to productive labourers, and reckon it capital. Either the conception of capital is limited to goods which serve immediately in production, and therefore to productive goods proper,—in which case means of subsistence in general, and also the means of subsistence of labourers, have no share. Or, besides "intermediate products," such finished consumption goods are taken into the conception as serve indirectly by their existence to production,—in which case, as will be shown in the proper place, certain advances of subsistence given to landowners and capitalists must be included. But then we are at once met with the difficulty suggested in the text of fixing definitely, when the advances of subsistence, given to people who do not themselves produce, are of indirect assistance to production, and when they occupy no relation to it.

[34.]Grundlagen der Nationalökonomie, § 42.

[35.]Grundlagen der Nationalökonomie, p. 211.

[36.]See also the acute criticism of Knies, Das Geld, p. 46.

[37.]In latest editions Reacher, evidently under the influence of what Knies has said on the subject, formally widens his definition of capital to some extent by an addition. It now runs: "Every product which is destined to further economical production (even to systematic later use) we call capital." This addition, however, does not materially widen the conception, as Roscher, independent of this, has already included every use—therefore every "systematic later use"—in the production of (material or personal) goods.

[38.]Das Geld, pp. 83 and 92.

[39.]For the community as a whole, moreover, which, naturally, has neither claims nor debts, its material property, according to Knies's definition, completely coincides with its wealth.

[40.]Knies himself has pronounced this opinion in saying (Das Geld, p. 22) that no one would claim that "capital is identical with economic goods."

[41.]It needs no showing that the group of short-dated money claims, although the most obvious, is by no means the only example that might be given in proof of the objection urged in the text.

[42.]Among others Ricca-Salerno (Sulla Teoria del Capitale, Milan, 1877, p. 58) and lately Emil Sax (Grundlegung der theoretischen Staatswirthschaft, p. 310) have criticised Knies on this point. Sax's criticism of the weaknesses of Knies's conception is both trenchant and substantially correct, but he does not recognise the kernel of truth that is in it, and ends by a judgment which, on the whole, is rather rudely expressed.

[43.]For instance, Adam Smith, ii. 1; Umpfenbach, Das Kapital in seiner Kulturbedeutung, 1879, p. 19; Say, Cours Complet, part i. chap. x.

[44.]Thus Say, Cours Complet, part i. chap. xiii.; M'Culloch, Principles, first edition, p. 319; fifth edition, p. 294; Walras, Élements d'Économie Politique, p. 217.

[45.]See my Capital and Interest, p. 99.

[46.]Fr. Albert Maria Weiss, Ord.-Priester, Die Gesetze der Berechnung von Kapitalzins und Arbeitslohn, Freiburg, 1883. Quoted by Schäffle in Tübinger Zeitschrift, vol. xli. p. 225. Dargun, Arbeitskal und Normalerwerb, Tübinger Zeitschrift, vol. xl. p. 514, and specially pp. 530-535. Ofner, Ueber das Rechtsprinicip des Arbeitslohnes nach herrschendem System, Juristische Blätter, 1884, Nos. 3 and 4. Engel, Der Werth des Menschen, 1883.

[47.]It is very significant that none of the authors who explain wage by interest makes any attempt to explain interest itself. They simply accept it as a given fact—with the exception of M'Culloch, who, with amazing naïveté, repeats the trick again in the opposite way, and explains interest by wage. It is very gratifying to me to note that Schäffle holds himself aloof from the theories just criticised, although his social and political tendencies must certainly lie in their direction (Tübinger Zeitschrift, vol. xli. p. 225).

[48.]See also Schmoller, whose conclusions agree with mine (Lehre vom Einkommen in ihrem Zusammenhang mit den Grundprincipien der Steurlehre, Tübinger Zeitschrift, 1863, p. 24); Knies, Das Geld, pp. 15-22; Ricca-Salerno, as before, p. 28; and Cossa, La Nozione dal Capitale, in the Saggi di Ec. Pol., 1878, p. 163. What Coen says against the passion for immoderately widening the conception of capital is well worth noting. He is remarking that one very often feels the want of an expression which would indicate without ambiguity just those products which serve immediately for production, and he continues:—"Se il concetto del capitale at allarga di troppo, comprendendovi altri prodotti, o altri fattori della produzione, esso o sfuma del tutto, o non ha piɉ la sua ragione di essere. Si contruisce, per dir la cosa in altro modo, ono strumento od imperfetto o superfluo, il quale o non serve punto, o non serve bene. E tali categorie debbonsi senz' altro espellere, e non già moltiplicare nelle investigazioni economiche, se non vogliamo che la scienza si isterilisca in polemiche oziose a puramente nominali," p. 168.

[49.]See Knies, Das Geld, p. 33; Schömberg, Handbuch, second edition, vol. i. p. 210; Roscher, Grundlagen, § 42. note 1.

[50.]Die Grundlagen und Ziele des sog. wissenschaftlichen Sozialismus, Innsbruck, 1885, p. 185.

[51.]"In the strict physical sense, of course, this is not correct" (p. 192).

[52.]Capital and Interest, book vi. p. 313.

[53.]Theory of Political Economy, second edition, pp. 242, 263.

[54.]Cours Complet, part i. chap. viii. It may be added that Say, in this and other passages formerly quoted, gives no less than four contradictory readings of the conception of capital. In one place, chapter viii., he explains it as products of labour which serve towards production; and in the same chapter he speaks of it as the value of these products. In chapter x. (see above, p. 50) be makes it the talents and skill of the labourers; and in chapter xiii., again, the persons of the labourers!

[55.]That theories of such doubtful value should commend themselves to the recognition of eminent jurists like Kühnast may, perhaps, be explained by pointing out that jurists, as having to deal in their systems, to a very great extent, with abstract persons and objects, have, generally, a strong tendency to hypostatize conceptions; a practice which may be quite suitable for their special field of investigation, but is certainly misapplied in political economy.

[56.]As I have already remarked on p. 38 I consider the terms in brackets, Productive and Acquisitive Capital, as essentially the more appropriate. But since Rodbertus and Wagner the terms National and Private capital have been used almost universally, and as I consider it conducive to the final settlement of this jumble of terminology not to disturb names that are fast rooted in common usage, unless there is some quite overwhelming reason for doing so, I content myself with making the one change—which seems to me in any case indispensable—of the term "National" into the term "Social capital.

[57.]See particularly Zur Erklärung und Abhilfe der heutigen Kreditnoth des Grundbesitzes, second edition, vol. i. p. 90, vol. ii. p. 286, where das reale Kapital, as consisting of the natural objects of capital, is sharply opposed to Kapitalbesitz, or property in capital. Similarly Das Kapital, pp. 304, 313, and passim.

[58.]Wagner, Grundlegung, second edition, p. 39.

[59.]See my criticism of this theory in Capital and Interest, p. 337.

[60.]I may be accused of want of logic here on the ground that such improvements are always products which serve towards further production, and therefore come under our definition of capital. The criticism is correct as to the letter, but wrong as to the spirit. A stay propped up against a tree is certainly not the tree itself but an outside body. But who would still call it an outside body if after some years it had grown inseparable from the tree?

[61.]Grundlegung, second edition, pp. 39, 43.

[62.]See Schmoller, Tübinger Zeitschrift, vol, xix. (1863), pp. 10, 25.

[63.]See above, p. 42.

[64.]See also above, p. 43, note 1.

[65.]The case is exactly the same with the notorious Wage Fund theory. In it also I see a misbegotten fruit of an idea which is quite right in itself. It is, as we shall see later, a very unsuccessful attempt to express certain relations that really do exist between the national subsistence fund on the one hand, and the height of wage and interest on the other. Against the inclusion of the labourers' means of subsistence in national capital Rodbertus has expressed himself in a quite classical style, Das Kapital, p. 294, and before that in his Zur Erkenntniss unser, staasw. Zustände, theorem i. Very clear and convincing, too, is Gide, Principes d'Économie Politique, Paris, 1884, p. 150. See also Sax, Grundlegung, p. 324, note.

[66.]Rechte und Verhältnisse vom Standpunkte der volks. Güterlehre, 1881, passim. Since then, see H. Dietzel (Der Ausgangspunkt der Socialwirthschaftslehre und irh Grundbegriff, in the Tübinger Zeitschrift, 1883, p. 78), and Sax (Grundlegung, pp. 39, 199), who surely goes too far in excluding personal service from the conception of goods. Neumann, on the other hand (Schönberg's Handbuch, second edition, p. 151), remains firm in recognising rights and relations as real goods on grounds which do not commend themselves to me as at all convincing. On one single a point I feel myself bound to reply. In my definition of the conception of goods, Neumann "does not find" the lines sufficiently distinctly drawn, and quotes, in a tone of irony, a number of expressions which, taken by themselves, certainly do not draw any distinct line (ibid. note 41). But Neumann can only have read portions of the work he objects to, or read it very hurriedly. Otherwise it would not have escaped him that the expressions he quotes stand at the end of a chapter Rechte, p. 29), and that the beginning and middle of that chapter (p. 13 onwards) are devoted to what he "does not find," and that, obviously, the later expressions are to be taken and understood along with what goes immediately before.

[67.]Wagner, Grundlegung, second edition, p. 42.

[68.]Roscher, Grundlagen, eighteenth edition, § 42.

[69.]Hermann, Staats. Untersuchungen, second edition, p. 122.

[70.]The careful reader will, without doubt, have remarked that the statement as to the nature of capital given in the second chapter, relates solely to Social economic capital. For obvious reasons I did not wish to mix up the dogmatic statement with the terminological and critical discussion which, I am afraid, has been terribly prolix. And, for reasons as obvious, I did not wish to commence this discussion without having, at least partially, put before my readers the object to which the discussion refers. I therefore made use, for the time being, of the word Capital without any of the clauses and additions which would at once have necessitated the tedious terminological discussions I wished at the time to avoid. The more exact explanations which follow will prevent any misunderstanding to which this may, perhaps, have given rise.