The Online Library of Liberty

A project of Liberty Fund, Inc.

• Preface
• Chapter I: The State: Its Growth and Evolution
• Chapter II: The Structuee of the State
• Chapter III: The Functions of the State
• Chapter IV: What Is Property?
• Chapter V: What Is Capital?
• Chapter VI: The Labour Question
• Chapter VII: Labour Capitalisation
• Chapter VIII: A Word For Anarchy 1
• Chapter IX: The Basis of Individualism
• Chapter X: Land-law Reformers
• Chapter XI: An Analysis of Socialism
• Chapter XII: Absolutism In Politics

CHAPTER V

what is capital?

WHAT is Capital? Surely many will complain that the conception is clearly defined already, or that the whole science of political economy must be rotten from the very foundation. “If the nature of capital be thoroughly understood,” wrote Mr. John Macdonnel (Survey of Political Economy, 1871) ''political economy is known almost to the bottom; almost all purely economical questions may be solved, and the greater part of future discussions consists of drawing deductions from the fundamental properties of capital. Its momentousness must, in the first place, be impressed upon the mind of every student of political economy. Man without capital is as purely a fiction of the imagination as a line without breadth or a point without magnitude. It is as essential to the continuance of life as air. It is the breath of industry.”

If the term Capital conveys no definite meaning, of what a jargon must nearly all the problems and theorems of the socalled science consist! In Mill's own words: ”A branch may be diseased and all the rest healthy; but unsoundness at the root diffuses unhealthiness through the whole tree.“ And it is in speaking of capital that this apt illustration is called forth. Consequently it behoves us to ascertain, first, whether the term really has one clear meaning, and secondly, whether it is used in the same sense by those whose works on the subject are studied. And in order to answer these questions let us begin by laying side by side two or three definitions of capital extracted from well-known works. In the Principles of Political Economy, by J. S. Mill. we find the following not very concise definition: “What capital does for production is to afford the shelter, protection, tools, and materials which the work requires, and to feed and otherwise maintain the labourers during the process. Whatever things are destined for this use —destined to supply productive labour with these various pre-requisites—are capital.”

In the Manual of Political Economy, by Professor H. Fawcett, 1865, the following is the definition given: “The wealth which has been accumulated with the object of assisting production is termed capital; and therefore the capital of the country is the wealth which is not immediately consumed unproductively, and which may, consequently, be devoted to assist the further production of wealth.” This statement has not been materially altered in later editions.

In a work entitled Political Economy for Plain People, by Mr. G. P. Scrope, 1873, it is written: “We should therefore define capital as that portion of movable stock which is employed or reserved for employment in production; to which we would add (in order to avoid ambiguity as far as possible), with a, view to profit by the sale of its produce.”

Mill's definition may be translated into a single proposition thus: ”Whatever things are destined to supply productive labour with the shelter, protection, tools, and materials which the work requires, and to feed and otherwise maintain the labourers during the process, are capital.“ Scrope's definition already fulfils this desideratum, if the italics, which are his own, be read separately. But Fawcett's definition, though, to use his own words, '' it is a wide definition," will be found on closer inspection to be two wide definitions, of which the second embraces some things and excludes others not embraced and excluded by the first, although they are connected by the form used to indicate identical propositions. According to the first the intention of the accumulator constitutes an essential factor in the conception. In the second the possible destiny of the wealth takes the place of the accumulator's intention. There is much wealth, which, though not accumulated with the object of assisting production, nevertheless may be devoted to that purpose. Such wealth is capital according to the second definition, but not capital according to the first. No doubt Fawcett was led to perpetrate this extraordinary non scquitur by the laudable desire to eliminate from the conception of capital that element of destiny which is so prominent in the definition of the great logician. We are enabled, he no doubt said to himself, with this clue to look back and declare pretty accurately what was capital so many years ago, and in so many years to come we shall be similarly able to decide what is capital to-day; but by what conceivable process can we point to the things around us and say which are capital and which are not, if that depends entirely upon their destiny? The eventual destiny of a thing is not necessarily coincident with the present intention of its possessor or of any one else: but as the latter is ascertainable and the former is not, it shall be taken as the true test of capital. And then, perchance, after coming to this determination, there arose before the professor a vision of an old nobleman on the verge of the tomb, feeding his hunters on the oats that should make porridge for his labourers, with a thrifty son and heir looking on and biding his time; and the object of the accumulator seemed a too nice distinction between capital and non-capital and so was superimposed the second not exactly complementary but rather optional mark. Now since it is quite possible and easy to say whether a given article may or may not by possibility be devoted to production, we have by means of these optional definitions really eliminated the metaphysical factor of destiny or fatality from the conception. And this is, we admit, very satisfactory, when lo! here comes G. Poulett Scrope and spoils the whole design, bringing back destiny in disguise. Disgusted with the professor's canny trick of producing one or other of his two definitions from his pocket as suits his convenience, under pretence that they are equivalent, Scrope rolls the two into one. Instead of this class or that class, he says both this class and that class are capital, both those things which are reserved for employment in production, and also those things which, whether so reserved or not, actually are so employed. It is almost a pity he did not substitute “may by possibility be employed ” for “are employed.” We should so have bid farewell for ever to destiny. But alas! what means that which is employed? Of what particular thing can we say that it is employed in production? Certainly not of any kind of so-called circulating capital. Here is a sack of oats. It certainly has not been employed in production, or it would not be oats, and as to whether it is to be so employed or not, it is impossible to predict with certainty: after all, it is again a question of destiny.

So that, on the one hand, the wealth which, though intended for the purchase of luxury, is eventually rescued from destruction by some accident, such as the death of its possessor, and on the other hand, that which, though intended to assist the further production of wealth, stands an equal chance of being wasted, are both included under the head of capital. Heads I win, tails you lose; in either case Poulett Scrope smiles on the wealth around him and dubs it capital.

Concerning this factor intention, Courcelle Seneuil writes (Traite d'Economic Politique, 1867, p. 49): ”Comme notre definition du mot ' capital' differe de celle qui est généralement admise, ét qui a éte accréditée par les auteurs les plus respectables, il est nécessaire de donner á ce sujet une courte explication. La plupart des économistes comprennent sous le nom commun de capital cette parti seulement des richesses existantes que ses possesseurs ont pintcntion, de conserver ou de reproduire par 1'industrie. Ainsi tel object compté entre les richesses serait ou ne serait pas capital selon 1'intention de son possesseur et acquerrait ou perdrait la qualité de capital selon les changements que subirait cette intention. Une telle classification a le: defaut de ne s'attacher à aucun fait materiel sensible; le même objet deviendrait ou cesserait d'être capital en changeant de proprietaire; un pain, par example, serait capital dans la boutique du boulanger, mais une fois acquis par le consommateur, il ne serait plus un capital. Qui ne voit tout se qu'une telle classification a de conventionel et d'arbitraire? Mieux vaut ramener le mot capital a son acception vulgaire, d'apres laquelle il designe une somme de richesses, d'utilites existantes créés par un travail antérieur.“

This popular definition is almost identical with the one adopted by J. B. Say, though it is only fair to the latter to say that he distinguished between capital product if and capital improductif, denoting by the first what is commonly denominated capital by the English economists, namely, in Bastiat's rough categories, “tools, materials, provisions.” Though heartily admitting the force of Courcelle Seneuil's critical arguments against the current acceptation of the term, I cannot find that he makes any use, in his two cumbrous and erudite volumes, of the popular conception. I concur rather with Mr. Macdonnel in regretting that a useful term should be wasted. ”J. B. Say seems to have needlessly spoiled a term which fitted a well-defined idea,“ or rather, a very vague idea, which deserves to be well defined.

M'Culloch's definition agrees with what we must call Professor Fawcett's second definition: ”The capital of a country consists of those portions of the produce of industry existing in it which are DIRECTLY available either for the support of human beings or the facilitating of production.“ When Mr. Macdonnel says that “whatever wealth, labour excluded, is devoted to help to form new wealth is capital,” we must interpret “devoted ” in the sense of “already applied ” or of “intended to be applied ” to the said purpose, to either of which senses my objections apply.

On the whole, then, after comparison, I think we must give the preference to Mill's definition. And no doubt it is the most representative of the generally-accepted usage of the term. So for the purposes of this analysis we may mainly confine ourselves to the condensed form of it given above, namely: ”Whatever things are destined to supply productive labour with the shelter, protection, tools, and materials which the work requires, and to feed and otherwise maintain the labourers during the process, are capital.“

Now, passing over the objectionable factor destiny, and assuming for the present that the destination of an article may be approximately coincident with the present intention of its possessor, even then the definition is merely one of enumeration. What is a quadruped? A quadruped is a horse, or a rat, or an elephant, or a pig, etc., without any reference to the distinctive attributes of the class. Of what conceivable use is such a definition? You may walk through a forest, and every now and then mark a tree with chalk. When you have done, no doubt a certain class does exist, viz. the chalked trees. But, so far as scientific utility is concerned, the classification might just as well never have been made. If the enumeration be exhaustive we may have a very distinct idea of the various things denoted by capital, but what we want is an equally distinct idea of the attributes connoted by the term.

Until we have found the connotation of a term it cannot be said to have been defined, though it may have been translated into other words.

But the connotation of a term is often implied before it is expressed, because it is often felt before it is seen. Even in the case of the chalked trees the grouping may be of use provided you were guided in your selection by some clearly or dimly recognised features common to all the trees chalked and peculiar to them. And so it is with capital. That there is an actual something approximately common and peculiar to all the groups of things enumerated in Mill's definition of capital we cannot deny. On the contrary, it is this vaguely conceived connotation which has enabled economists to do so much work with such a classification; just as a chemist may do good work with an ill understood or impure chemical. And it is this something which 1 propose to bring into the light of day shorn of its imperfections and denuded of the fog which has hitherto surrounded it. Like tainted water in the kitchen, it has been mixed with all our food, doing more harm in some quarters than in others, and, on the whole, sufficing better than no water at all. What classes have suffered most from the pollution I shall point out in the next chapter.

The best recipe for exposing the weakness of a so-called definition by enumeration is to hunt it down through all the groups said to be comprised within it, and by selecting extreme examples of each to show how they are at variance with the vaguely implied connotation as interpreted by common sense This we will now proceed to do.

First example.—Here is a cotton-mill, with machinery, coal, cotton, oil, an organised body of workpeople, and every other evidence of being devoted to production. It is burnt down. Was it capital? Common sense, guided by a vague perception of the connotation of the term, answers, It was capital: but the definition says No; it was not destined to assist production, and therefore it was not capital.

Second example.-A Scotch nobleman has a hundred sacks of oats intended to be consumed by his hunters; he dies, and his thrifty heir converts the oats into porridge for his workpeople. Were the oats capital? Mill says, Yes, and common sense thinks so too, while Professor Fawcett first says No, and then says Yes.

Third example.-A thousand colliers on the eve of a monster meeting eat their suppers, not knowing whether a strike will commence on the morrow or not. Is their supper capital? Mill gives it up, so does Scrope, and so does Fawcett till, on second thoughts, he says it may possibly be devoted to production, and therefore it is capital. Common sense feels that it is capital.

Quitting destiny, the next factor that merits attention is productive labour. The commodity in question may be destined to supply labour with the shelter, production, tools, or materials which the work requires, hut unless that labour be productive labour the article is not capital. And now arises the question: What is productive labour? Half a dozen different answers are at once forthcoming. J. B. Say confers that title upon all labour which results in utilities or, in other words, gives pleasure to others. M'Culloch goes one step farther, and includes all labour which gives pleasure even to the labourer, such as eating turtle or blowing bubbles; Mill rejects all utilities that are not capable of being embodied mediately or immediately in material objects other than human, while the stricter sect exclude all that cannot at once be carried off: for example, Mill regards as productive labour the work of the schoolmaster, because eventually the country will be the richer for it materially; but not until the country is the richer for it will Professors Scrope and Fawcett pay any regard to it; and even then, if it comes through the medium of the skill of labourers, as it needs must, the former refuses to class the new increment as due to capital, but rather as due to labour. We will, however, as heretofore, follow Mill. According to him productive labour includes ”only those kinds of exertion which produce utilities embodied in material objects “ as the direct or the ultimate result. Lest I should appear to some wilfully to misunderstand Mill's exact meaning, and to complicate purposely this definition within a definition, I shall do well to quote him on this point in full. “I shall. . . understand. . . by productive labour only those kinds of exertion which produce utilities embodied in material objects. But in limiting myself to this sense of the word I mean to avail myself of the full extent of that restricted acceptation, and I shall not refuse the appellation productive to labour which yields no material profit as its direct result, provided that an increase of material products is its ultimate consequence.” As examples of this indirectly or mediately productive labour, he cites the labour expended in the acquisition of manufacturing skill, and the labour of otticers of Government in affording the protection which is indispensable to the prosperity of industry.

Now the only objection I have to offer to this definition is, that it can have no conceivable application. It is clearly impossible to draw a line, even a rough line, between labour that will eventually conduce to material wealth and labour that will not. We have already admitted the labour of the educator and the Government officer, and it will be hard to exclude the soldier and the tragedian if one will but think of the ultimate results of their work. To avoid the indefinite extension of the class, Mill had recourse to a new bondary line: he again falls back on the intention of the labourer and worker. Concerning the labour of the musical performer, actor, and showman, he observes: ”Some good may, no doubt, be produced beyond the moment upon the feelings and disposition or general state of enjoyment of the spectators: or, instead of good there may be harm; but neither the one nor the other is the effect intended, is the result for which the exhibitor works and the spectator pays: nothing but the immediate pleasure.“ Surely this sudden change of front is lamentable—is inadmissible. We follow tediously the consequences of a given action through several generations down to the final embodiment of its resulting utility in a material object, and we triumphantly claim for the said action the title of productive labour, when to our chagrin we are met by the very prescriber of the requisite qualifications with the objection that such embodiment was not the original object of the worker. May we not safely retort that such is not the aim of anything like half the labourers whose work has been styled productive; of the soldier, for instance, or the clergyman? Nor should we better ourselves by accepting any other economist's definition of productive labour in preference to Mill's.

We must, however, take things as we find them, and having obtained the value of productive labour in known terms, substitute them in the original equation; and we have the following: ”Whatever things are destined to supply those kinds of exertion which produce utilities immediately or mediately embodied, and intended to be embodied, in material objects, with the shelter, etc. etc., are capital.“

In order to apply the term to any given article we have to ascertain not only what it is destined to be devoted to, but also whether the utility possibly resulting from it is ever destined to be embodied in material objects, and further whether, if so, such embodiment was the intention of its original employer.

We are still on the threshold of our inquiry. We now come to the consideration of the separate groups of things which alone, even under the above-mentioned circumstances, can be classed as capital. And the first of these is shelter. It will be remembered that Scrope was careful to reject everything as capital that is not movable. But shelter is usually afforded by something immovable, such as a roof and walls. The warehouse that protects the finished goods is to be rejected; the light shed that protects the machinery is also to be rejected. The tarpaulin that protects the waggons in the yard is or is not included according to the nature of the fastenings by which it is connected with the poles in the earth; while the umbrella, beneath whose grateful shelter the foreman inspects the works and the workers, is unmistakably capital of the first water, being very movable.

Surely political economy had its origin long prior to the days of Adam Smith, in the brains of the ancient lawyers, who distinguished real from personal property, on the grounds that no mau, be he never so feloniously disposed, can run away with an acre of land. I lay stress on this movable qualification, because, though not expressly contained in Mill's definition, it is throughout his work assumed to be so contained, and everywhere land and its appurtenances are excluded from the category of capital.

The next station at which we shall stop is called ”protection.“ Does this include the high wall that wards off the thief; the iron bars in front of the jeweller's window; the policeman who watches the premises; the law that protects the property of citizens? All, any, or none of these? Mill's definition would, I suppose, include all: but in practice, as we have seen, he excludes all things attached to the soil. Professors Fawcett and Scrope would exclude also the policeman and the law, except in so far as the latter is embodied in material statute-books, more or less movable. Let not the reader smile at these divisions and differences. Even the most frivolous of them has its origin in philosophical distinctions more or less profound.

Nor does the term “tools” convey any clearer meaning. Is the anvil a tool as well as the hammer? the chimney as well as the bellows? the stream as well as the water-wheel? The steam as well as the piston? the coal as well as the boiler ? It would be hard to draw the line between them: yet would any of the above-named economists call the wind that fills the sail capital? Arid similarly with materials. We do not seem to emerge from the fog as we advance. What, in the name of clear conception, are materials? There is a branch of them known as raw materials. Here is a piece of undyed cloth. It is the dyer's raw material, and therefore, by definition, capital. Again, here is a plastered house, destined to be painted custard colour, according to the genius of the English people. Evidently it is precisely in the situation of the undyed cloth, and therefore it must be regarded as the painter's capital. Is it so regarded? Everything, in short, destined to be improved, repaired, touched up, is capital; and hence the greater the quantity of unfinished articles in a country the greater its potential capital. So that we may create capital by scratching the paint off a neighbour's door, because the door will probably soon become raw material in the hands of the painter. The fog thickens.

We need not push ”materials“ any farther, but after noting that the shelter, protection, tools, and materials must not only be devoted to but actually required by the work in order to merit the title of capital, we will proceed to consider the next group of commodities included under Mill's definition. Whatever things are destined to feed and otherwise maintain the labourers during the process are also capital. Farther on Mill admits that not all the food, but only so much as is absolutely requisite to enable the labourers to perform their share of the work, is capital. Now, unless we are prepared to show how much of John's beer, bread, and beef goes to the repair of John's muscles and motor nerves, and to what extent the latter are actually confined to the work he has to do, I cannot perceive of what use the term capital can be to science. How can we compare profits with capital, quantitatively—that is, find the ratio of profits to capital-unless we can measure both '. Again, one bootmaker, devouring in one week fifty shillings' worth of turtle, venison, and old port, works hard and turns out six pair of boots; are the sources of his strength to be deemed all capital? It may be that a smaller quantity of the same stuff would not have sufficed to support him, any more than a reduction could have been made in the amount of beer, beef, and bread consumed by another bootmaker at a cost of fifteen shillings, who turns out an equal number of similar boots. There is no stipulation in the definition as to the kind of food that may be called capital, but only that the quantity must not exceed that which is actually converted into labour. Mr. Macdonnel handles this question in rather a remarkable and amusing manner. After putting the question whether a bottle of champagne is or is not capital, he answers that it depends on circumstances. If consumed by one who produces nothing valuable it is not capital (but was it?). If by one who produces something valuable, then it is capital; “or, to be accurate, so much of the value of it as would have bought equal nourishment forms capital, the rest being purely unproductive expenditure.”

So that not the champagne, or even part of it, which would not have sufficed to afford the requisite stimulus, but part of the value of the whole of the champagne, is capital. The value, not the matter, is capital. This recalls the definition of J. B. Say: ''Le valeur de toutes ces choses" (before enumerated) "compose ce qu'on appelle un capital productif.”

Laughable as this shuffle appears, it is paralleled, and indeed eclipsed, by the feats of legerdemain performed by Mill himself and his whole army of disciples, which have yet to be exposed.

As to those things which otherwise maintain the labourers, no doubt clothes, fuel, and shelter are meant, but so dense is the mist already surrounding us that even this cloud adds little or nothing to the darkness.

And so, having at last groped our way to the end of our journey, we confess with disappointment that the currently accepted and best definition of capital, apparently clear and definite enough when seen at a distance, on nearer and closer scrutiny ”dissolves, and, like the baseless fabric of th' air vision, leaves not a rack behind.“

Enough of this sort of analysis is as good as a feast. In fact, some people have no sympathy with us in such work, and indeed get very angry when we attempt it.

“In political economy,” says Scrope, ”much labour has been expended in vain, and great confusion introduced where all is really plain enough, by over-refining and by ill-judged endeavours to give a mathematical accuracy to definitions and propositions which, from the nature of their subject, can pretend to no more than the grouping of phenomena according to their most striking general characters." But what are the most striking general characters of those things which are grouped together under the head of capital? That is precisely what we want to get at—the connotation of the term.

However, let us lay aside our dissecting-knife and assume that, to all practical intents and purposes, our political economists mean roughly to comprise in the class just what Bastiat groups together as ”tools, materials, provisions,“ and that the variance between them is due to a desire to be more exact— one regarding this feature, another that, as most requiring elucidation or qualification; let us grant that all these various and elaborate definitions do but testify to a consciousness of the imperfection of the original proposition, embodied in so many qualifying clauses. Be it so. Tools, materials, provisions; this is what is meant in plain words by capital. We will ask no questions about anvils and chimneys; we will ask no questions about raw materials and painted houses; we will ask no questions about venison and beef, beer and port wine. After all, honest folk know what they are talking about when they speak of tools, of materials, and of provisions. Like good children, we will not ask troublesome questions.

Now may we not say we know what capital is? at least roughly? Not a bit of it. Just as we begin to try and accommodate ourselves to loose forms of speech, and to rest content with tolerably clear ideas of things, all our limits are suddenly swept away by the intrusion of two new elements into the conception, both wholly subversive of our newly-found interpretation of the term.

In two extraordinary propositions we are informed, firstly, that anything of value whatsoever which can be exchanged for capital (as defined) is itself capital, by which we must understand anything of value whatsoever, for the value of a thing means that it can be exchanged for other things; secondly, that there is no such thing at all as capital in an absolute sense, but that an article may be capital in relation to one person, not capital in relation to another person.

These statements seem so remarkable that they must be borne out by suitable quotations from the works of our representative economist Mill. Speaking of a man's capital on p. 69 of the Principles he says: ”What, then, is his capital? Precisely that part of his possessions which is to constitute his fund for carrying on fresh production. It is of no consequence that a part or even the whole of it is in a form in which it cannot directly supply the wants of the labourers.“ Again, on p. 71: “Whether all these values are in a shape directly applicable to productive use makes no difference. Their shape, however it may be, is a temporary accident, but once destined for production they do not fail to find a way of transforming themselves into things capable of being applied to it.”

To some minds it would appear almost desirable to employ two technical terms—one to designate the group of articles hitherto classed together as capital, and another to designate whatever of value is destined to be exchanged for such capital. But as neither term would be of any conceivable use to exact science, I shall not waste space in converting one bad tool into two not much better. Let us rather prepare ourselves for the second revelation, to the effect that, after all, there is no such thing as capital per sc. Speaking of a particular instance, Mill, on p. 74 of the Principles, writes: ”In the present instance that which is virtually capital to the individual is or is not capital to the nation according as the fund which, by the supposition, he has not dissipated, has or has not been dissipated by somebody else.“ In other words, wealth which is capital to an individual may be not-capital to the nation or another individual or group of individuals. The same article is capital to A, not-capital to B; and capital is, therefore, merely a relative term, i.e. implies a particular relation between a particular person and a particular thing.

Our original definition, to be more accurate, requires to be so expanded as to embody these two new important factors somehow or other. I submit the following:—

“Whatever things are destined to supply those kinds of exertion which produce utilities immediately or mediately embodied (and originally intended to be embodied) in material objects with the shelter, protection, tools, and materials which the work requires, and to feed and otherwise maintain the labourers during the process, or whatever things are capable of being and destined to be exchanged for such, are, in relation to some person or persons according to circumstances not specified, capital.” Or, to adopt Bastiat's abbreviated form, as we have consented to do, ”Tools, materials, provisions, and whatsoever is intended or destined to be exchanged for such, are capital with respect to somebody.“

Our determination to look at things kindly, and, as Scrope advises us, with our eyes half-closed, has, 1 fear, landed us in a quagmire not much better than that in which our method of analysis terminated.

If we really wish to know what the term capital means we must have recourse to the comparative method, and by extracting that which is common and peculiar to all forms of so-called capital that we can bring together within our field of vision, finally discover the true connotation, instead of barely enumerating the more convenient forms, and averting our gaze from the ugly borderland specimens, the ornithorhynchuses and pterodactyluses of our kingdom.

Let us commence operations by colligating the following cases drawn together from various points of the compass:—

The above-mentioned factory in working order before it is burnt down.

The hundred sacks of oats intended for his hunters by the above-mentioned old nobleman.

The slaves on a sugar-plantation.

The tall chimney which causes the strong draught in a boiler-house.

An acre of plough land in Middlessex.

An acre of land on the banks of Lake Tanganyika.

A casket of diamonds cut and polished.

I shall assume that common sense, or rather the opinion of all those whose vague idea of capital is sufficiently clear to cause them to desire a term or name for the conception, will admit that of this group of cases the first five are capital and the last two are not capital. What we have to do is to find out what is common to the five and not common to the last two.

And, first of all, we see that the element of destiny is excluded by the factory, which by supposition is not destined to produce new wealth. Next we see that the intention of the possessor does not affect the question, for although the oats are intended to be unproductively consumed, yet they are regarded as capital.

The case of the slaves disposes of the allegation that man is not capital, ”but only that for which capital exists.“

The tall chimney excludes the factor movability, which, but for high authorities, I should hardly have considered worthy of express exclusion.

And land may or may not be capital according to circumstances, for in Middlesex we regard it as such, but not on the banks of Tanganyika.

Lastly, value is not a sufficient mark, for the diamonds are not capital, though no one will dispute their value.

Up to the present we can see only two factors common to the five examples of capital. Firstly, they all possess value; and secondly, they are all originally fit or suitable for the production of wealth. They contain a possibility of helping to form new capital.

But value is already excluded because it is not only common to the forms of capital but also to the casket of diamonds. Nor are we more fortunate with our potentiality, for there is that in the acre of land on the shores of the African lake which would enable it to assist in the production of new wealth, viz. a fertile soil. Moreover, the wind that turns the mill-sails and drives the ship contributes most unmistakably to the creation of wealth, and yet it is not capital.

To what straits, then, are we driven.

It seems as though there were no attribute at once common to all forms of wealth properly called capital and yet peculiar to them. Nor does any amount of search and scrutiny serve to throw any light on the position. If we increase the number of cases we are no better off. Have we not tried everything, and in vain? Must we after all give it up? One more attempt. Value is common to all, and fitness to assist in the creation of new wealth is also common to all. Yet neither of these attributes is peculiar to capital. May it be that the combination of the two is the required connotation? We feel we are getting nearer. The wind that helps to create wealth has no value, and the diamonds that have great value help to create no wealth. Alas.' consider these bananas at Covent Garden. They are sold for threepence each, and are therefore very valuable. Humboldt calculated their productiveness as compared with that of wheat as 133 to 1; and in many parts of India and the West Indies they form the chief food of labourers. Yet as we look at them we feel they are not capital in this country. Again, this fibrous variety of actinolite, called asbestos from its incombustibility, has been utilised, and would be in a hundred ways in the shape of incombustible cloth (for its fibres are as fine as flax) but for its high value.

Suddenly the truth flashes in upon us. The connotation of capital rends its veil of mist and gloom and comes forth clear, sharply-defined, and brilliant as a crystal. Once seen there is no mistaking it.

“Capital is that the value of which is due to the value of its products.”

It is not long, it is not vague, but pithy, transparent, and to the point. Anything which owes its value to the demand, not for itself, as calculated to afford immediate gratification to the consumer, but for some other commodity into the creation of which it enters as an element, whether as raw material, as tool or machine, as worker, brute or human—such a thing is capital.

If the value of a commodity partly consumed for its own sake, partly in the manufacture of other articles (as coals, for example), varies with the value of the goods manufactured by means of it, it is clearly capital, whether or no the portion of it under consideration be or be not destined for immediate consumption.

With this key we at once and easily unlock all difficulties. Take the piece of undyed cloth. Is it capital in the hands of the dyer? In order to answer this question we first inquire whether the value of the said cloth is due to the demand for it in the dyed state. If so, if the immediate consumer does not offer so high a price for the undyed material as the dyer can afford to do, then it is capital. Take the diamonds, supposing them to be of a fair size. Are they capital? Clearly the polisher or glass-cutter cannot afford to buy them for the purposes of his trade at the value their unassisted pleasure-giving power can command in the market as ornaments: their value is not affected by his demand, hence they are not capital.

Is venison capital? Certainly not. Because its value is due, not to the demand for the products into which it may enter (as labourers, for instance), but to its intrinsic power of affording immediate gratification.

Is bread capital in England? In order to answer this question we must ascertain whether an extended demand for any commodity into which bread enters as an element causes a rise in the value of bread. Unquestionably an extended demand for labourers (or, as is commonly said, for labour) is followed by a rise in the value of bread, other things equal. Hence bread is capital in England. And so on with any commodity that may be proposed for consideration.

Both land and labourers must now be reinstated under the head of capital, for clearly the value of labourers is entirely due to the value of their productions, and not to the gratification obtainable from them immediately, except in a few cases, such as singers, dancers, actors, and the like, who in the exercise of their functions cause direct satisfaction.

Labourers in general, commonly so called-that is to say, human beings engaged in the creation of new and valuable matter, whether by manual exertion or as managers, superintendents, co-ordinators, or inventors-are capital. There is nothing new in this. It has been admitted, for various insufficient reasons, by some of our shrewdest economists.

M'Culloch (Principles, p. 116) writes:—

“However extended the sense previously attached to the term capital may at first sight appear, we are inclined to think that it should be interpreted still more comprehensively. Instead of understanding by capital all that portion of the produce of industry extrinsic to man which may be made applicable to his support and to the facilitating of production, there does not seem to be any good reason why man himself should not, and very many why he should, be considered as forming a part of the national capital Man is as much the produce of previous outlays of wealth expended on his sustenance, education, etc., as any of the instruments constructed by his agency; and it would seem that in those inquiries which regard only his mechanical operations and do not involve the consideration of his higher and nobler powers, he should be regarded in precisely the same point of view. Every individual who has arrived at maturity, though he may not be instructed in any particular art or profession, may yet with perfect propriety be viewed in relation to his natural powers as a machine which it has cost twenty years of assiduous attention and the expenditure of a considerable capital to construct. And if a further sum be expended in qualifying him for the exercise of a business or profession requiring unusual skill, his value will be proportionally increased, and he will be entitled to a greater reward for his exertions, as a machine becomes more valuable when it acquires new powers by the expenditure of additional capital or labour in its construction. Adam Smith has fully admitted the justice of this principle, though he has not reasoned consistently from it. He states that the acqured and useful talents of the inhabitants should be considered as forming a portion of the national capital. ' The acquisition of such talents,' he justly observes, ' during the education, study, or apprenticeship of the acquirer, always costs a real expense, which is a capital fixed and realised, as it were, in his person.'”

Unfortunately M'Culloch finds himself just as unable to cope with his new principle as Smith did before him, not because it was a false one, but because it was based by both on a false reasoning, a rotten foundation.

Nor is it by any means new to comprehend land under the head of capital, though we are in a minority in so doing. Mr. Macdonnel passes this criticism on the English economists, after comprising land under materials or tools, and therefore under capital: ”This is indeed contrary to the usage of English economists, who put land, the representative of all other natural agents, in a category by itself. But two reasons, I think, warrant a deviation. In the first place, the classification of English economists with regard to this point involves an inconsistency; for though laying it down-to take Mr. Fawcett as their spokesman—' that capital is all that wealth, in whatever shape or form it may exist, which is set aside to assist future production,' and though of course viewing land as a portion of wealth, they exclude land from the kinds of wealth included under capital.“

However, without troubling ourselves to examine authorities on this point further, we perceive that under capital fall both land and labourers—not labour, which is a mere metaphysical entity, or, what comes to the same thing, no entity at all, but labourers. Strange to say, this confusion of materials with forces is made by all the leading economists without exception, including even the great logician and philosopher, J. S. Mill, who says: ”The human being himself I do not class as wealth. He is the purpose for which wealth exists.“ And then he proceeds to class his ability to work under the head of labour. “But his acquired capacities, which exist only as means, and have been called into existence by labour, fall rightly, as it seems to me, within that designation.”

A weak objection to classing labour under the head of capital is offered by Scrope in the form of a criticism on M'Culloch's opinion just quoted.

“We need hardly observe,” he says, “that things which are identical can have no reciprocal action on each other ”— from which we are to conclude that if land and labour be capital, disquisitions on the reciprocal influence of land, labour, and other kinds of capital, of rent, wages, and other kinds of profits, must needs be vain delusions and absurdities. We may reply that species of one genus may differ considerably amongst themselves, and may act and react one upon another to any extent, notwithstanding the fact that they have attributes in common.

Nor is it disputed that there are well-marked species or sub-classes of capital which are approximately coincident with the old so-called genera, land and labourers, and it is this fact which gives value to the problems and theorems contained in works which are based upon an erroneous view of the term capital. Were it not so the whole tree would indeed be rotten because of the disease at the root.

But no one denies that, of all kinds of capital, human beings alone have this peculiarity, that they are the cause of values as well as the part cause of valuables. No wonder labourers are a very marked and distinct sub - class of capital:

Land, too, has most important peculiarities, into which we need not enter here.1 Rarities are often classed together and distinguished by a class-mark. Por instance, we talk of monopoly prices in speaking of coal, of the works of old masters, and the like. Then there is the well-known division of capital into fixed and circulating, which we will now proceed briefly to consider; and at the same time we must observe that this division testifies to a real but vaguely-discerned distinction which underlies the flimsy one commonly alleged. We are told (Mill's Principles, p. 114): "Of the capital engaged in the production of any commodity there is a part which, after being once used, exists no longer as capital, is no longer capable of rendering service to production, or at least not the same service, nor to the same sort of production… Capital which in this manner fulfils the whole of its office in the production in which it is engaged, by a single use, is called circulating capital. . . . Another large portion of capital, however, consists in instruments of production of a more or less permanent character, which produce their effect, not by being parted with, but by being kept, and the efficacy of which is not exhausted by a single use. . . . Capital which exists in any of these durable shapes, and the return to which is spread over a period of corresponding duration, is called fixed capital.”

So that the distinction appears to consist in the number of times a given commodity may be employed in the same process, those which can be employed only once being called circulating, those which can be employed more than once, fixed.

Now to me it seems that, although in ninety-nine cases out of a hundred fixed capital suffices for more than one process, and circulating capital for only one, yet these are but accidental and not the essential characteristics of the two classes.

The real distinction lies deeper. It is this: those things the eventual consumption of which is essential to the creation of the required compound or new product form one class, vaguely indicated by the term circulating; those things the eventual consumption of which is not essential, but only accidental, to the creation of the required compound, form another class—fixed capital. No doubt all capital is consumed, but so is everything else; the iron ladle required to stir this molten metal soon wears out and must be renewed. If it wore out in one use, as the wick of a candle is destroyed as fast as the tallow, Mill would call it circulating capital. So with a quill pen. One day's use destroys it. Yet the ladle, the wick, and the pen are all (so far as they are capital at all) fixed capital. Why? Because, if they never wore out at all, even after a million processes, so far from being less useful, they would not only not impair the product to which they contribute, but rather render it more pure. The gold pen with which this is written has been in use for many years and is in wise worse than when it was new. And so with a permanent wick in an oil-lamp, but not so with the oil or tallow. If that were not changed, consumed, the lamp or candle would give no light, the sempstress would not see to work, and the product, shirt, or dress, would not be made.

The number of processes for which an article will serve is quite immaterial to science; it is a mere question of degree of durability, and we can base upon it no such valuable philosophical classification as can be based upon the distinction between essentially and accidentally consumed capital. And here I may point out that this very distinction is the one which underlies the division of capital into tools and materials. Tools are exactly what I have defined as fixed or accidentally consumed capital. Materials are our circulating or essentially consumed capital. This discovery of identity, and the conception upon which the classes have hitherto been instinctively based, are of immense importance in the study of Plutology.

And now, in conclusion, we may here review, and, with the aid of our new light, with advantage scrutinise, Mill's four theorems concerning capital.

The first is that industry is limited by capital. Now if this means that the creation of new wealth is limited by the quantity of the materials which enter into its constitution, the so-called theorem is merely a truism. But if it means that it is limited by the quantity of capital other than human (which it evidently must do consistently with Mill's doctrines) it amounts to saying generally that where one of the elements is wanting the compound containing it cannot be produced: also a truism. However, it so happens that there are such compounds as combinations of labourers and not-capital, as, for example, a stone statue. Sculpture, provided the material used be not valuable, is an industry not limited by any capital other than labourers. According to Mill's own notion of capital, therefore, his first theorem is false.

The second theorem is that capital is the result of saving. Now in what conceivable sense can it be said of a new and useful invention that it is the result of saving? And yet it may be, and usually is, capital in the highest degree. Or how is a newly-found oil well the result of saving? And yet it is unquestionably capital. No doubt, in so far as articles capable of affording immediate gratification are by preference combined with others for the purpose of producing more valuable products these products are the result of saving; and it is also true that most products do contain such saved elements. But we do not want half truths or accidental truths to stand for general or necessary truths; and so judged the second theorem is false.

The third theorem is that capital is consumed. This proposition we have already discussed in treating of the division into fixed and circulating capital. I have shown that it is not of the essence of fixed capital to be consumed. All things are ever changing of course. But it is no more essential to fixed capital to wear out than it is to a silver teapot to contain a small quantity of lead, indisputable though the fact may be as a merely accidental fact. So that here we have a universal but accidental proposition standing for an essential truth.

The fourth theorem is that a demand for commodities is not a demand for labour. It is difficult to translate this into scientific language, but, so far as it is intelligible, it seems to be, either a truism or misleading. Consider the two following statements: A demand for iron ore is not a demand for limestone and coal. A demand for grapes is not a demand for apples. There is a wide difference between the two negations, for in the first case a demand for iron ore is accompanied by a demand for limestone and coal invariably, and it may roughly be said that a demand for the one is a demand for the other two. To say that it is not so is to state a truism of the weakest order, being based simply on the literal meaning of the words. But in the case of the grapes the negation is of a different character. A demand for grapes is not accompanied by a demand for apples, which is in nowise affected thereby. If we criticise Mill's theorem in the first sense then we have a miserable truism to deal with. A demand for one thing is not, and cannot be, a demand for another. But if we regard it in the second sense, and inquire whether a demand for commodities is or is not invariably accompanied by a demand for labourers, I contend that it depends, in any given case, upon the answer to the question, whether the commodities demanded are or are not capital requiring the assistance of labourers in order to become capable of affording gratification. If they are such capital, then a demand for them is virtually a demand for labourers. If they are not such capital, then a demand for them is not a demand for labourers. We must condemn this theorem as being either a truism or misleading.

There cannot be stronger testimony to the harmfulness of loose thought and corresponding phraseology than is afforded by the spectacle of a great logician like Mill propounding four fundamental theorems as the basis of his work, of which it must be said that the first is false, the second is false, the third non-essential, and the fourth either a truism or misleading.

[1]See chapter on “Property.”