Front Page Titles (by Subject) Are Articles in the Consumers\' hands Capital? - The Theory of Political Economy
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Are Articles in the Consumers' hands Capital? - William Stanley Jevons, The Theory of Political Economy 
The Theory of Political Economy (London: Macmillan, 1888) 3rd ed.
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Are Articles in the Consumers' hands Capital?
The views of the nature of capital expressed in this chapter generally agree with those entertained by Ricardo and various other economists; but there is one point in which the theory leads me to a result at variance with the opinions of almost all writers. I feel quite unable to adopt the opinion that the moment goods pass into the possession of the consumer they cease altogether to have the attributes of capital. This doctrine descends to us from the time of Adam Smith, and has generally received the undoubting assent of his followers. The latter, indeed, have generally omitted all notice of such goods, treating them as if no longer under the view of the economist. Adam Smith, although he denied the possessions of a consumer the name of capital, took care to enumerate them as part of the stock of the community. He divides into three portions the general stock of a country, and while the second and third portions are fixed and circulating capital, the first is described as follows:—1
"The first is that portion which is reserved for immediate consumption, and of which the characteristic is, that it affords no revenue or profit. It consists in the stock of food, clothes, household furniture, etc., which have been purchased by their proper consumers, but which are not yet entirely consumed. The whole stock of mere dwelling-houses too subsisting at any one time in the country make a part of this first portion. The stock that is laid out in a house, if it is to be the dwelling-house of the proprietor, ceases from that moment to serve in the function of a capital, or to afford any revenue to its owner. A dwelling-house, as such, contributes nothing to the revenue of its inhabitant; and though it is, no doubt, extremely useful to him, it is as his clothes and household furniture are useful to him, which, however, make a part of his expense, and not of his revenue."
MacCulloch, indeed, in his edition of the Wealth of Nations, p. 121, has remarked upon this passage, that "the capital laid out in building houses for such persons is employed as much for the public advantage as if it were vested in the tools or instruments they make use of in their respective businesses." He appears, in fact, to reject the doctrine, and it is surprising that economists have generally acquiesced in Adam Smith's view, though it leads to manifest contradictions. It leads to the absurd conclusion that the very same thing fulfilling the very same purposes will be capital or not according to its accidental ownership. To procure good port wine it is necessary to keep it for a number of years, and Adam Smith would not deny that a stock of wine kept in the wine merchant's possession for this purpose is capital, because it yields him revenue. If a consumer buys it when new, and keeps it to improve, it will not be capital, although it is evident that he gains the same profit as the merchant by buying it at a lower price. If a coal merchant lays in a stock of coal when cheap, to sell when dear, it is capital; but if a consumer lays in a stock, it is not.
Adam Smith's views seem to be founded upon a notion that capital ought to give an annual revenue or increase of wealth like a field yields a crop of corn or grass. Speaking of a dwelling-house, he says: "If it is to be let to a tenant for rent, as the house itself can produce nothing, the tenant must always pay the rent out of some other revenue, which he derives either from labour, or stock, or land. Though a house, therefore, may yield a revenue to its proprietor, and thereby serve in the function of a capital to him, it cannot yield any to the public, nor serve in the function of a capital to it, and the revenue of the whole body of the people can never be in the smallest degree increased by it. Clothes and house-hold furniture, in the same manner, sometimes yield a revenue, and thereby serve in the function of a capital to particular persons. In countries where masquerades are common, it is a trade to let out mas-querade dresses for a night. Upholsterers frequently let furniture by the month or by the year. Undertakers let the furniture of funerals by the day and by the week. Many people let furnished houses, and get a rent, not only for the use of the house, but for that of the furniture. The revenue, however, which is derived from such things, must always be ultimately drawn from some other source of revenue."1
This notion that people live upon a kind of net revenue flowing in to them appears to be derived from the old French economists, and plays no part in modern Economics. Nothing is more requisite than a dwelling-house, and if a person cannot hire a house at the required spot, he must find capital to build it. I think that no economist would refuse to count among the fixed capital of the country that which is sunk in dwelling-houses. Capital is sunk in farming that we may have bread, in cotton mills that we may be clothed, and why not in houses that we may be lodged? If land yields an annual revenue of corn and wool, milk, beef, and other necessaries, houses yield a revenue of shelter and comfort. The sole end of all industry is to satisfy our wants; and if capital is requisite to supply shelter, and furniture and useful utensils, as it undoubtedly is, why refuse it the name which it bears in all other employments?
Can we deny that the property of a hotel-keeper is capital and yields a revenue to its owner? Yet it is invested in pots and pans, and beds, and all kinds of common furniture. In America it is not uncommon for people to live all their lives in hotels or boarding-houses; and we might readily conceive the system to advance until no one would undertake housekeeping except as a profession. Now if we allow to what is invested in hotels, hired furnished houses, lodgings, and the like, the nature of capital, I do not see how we can refuse it to common houses. We should thus be led into all kinds of absurdities.
For instance, if two people live in their own houses, these are not, according to present opinion, capital; if they find it convenient to exchange houses and pay rent each to the other, the houses are capital. At great watering-places like Brighton it is a regular business to lease houses, fill them with furniture, and then let them for short periods as furnished houses: surely it is capital which is embarked in the trade. If a private individual happens to own a furnished house which he does not at the time want, and lets it, can we refuse to regard his house and furniture as capital? Whenever one person provides the articles and another uses them and pays rent, there is capital. Surely, then, if the same person uses and owns them, the nature of the things is not fundamentally different. There is no need for a money payment to pass; but every person who keeps accurate accounts should debit those accounts with an annual charge for interest and depreciation on what he has invested in house and furniture. Housekeeping is an occupation involving wages, capital and interest, like any other business, except that the owner consumes the whole result.
By accepting this view of the subject, we shall avoid endless difficulties. What, for instance, shall we say to a theatre? Is it not the product of capital? Can it be erected without capital? Does it not return interest, if successful, like any cotton mill or steam vessel? If the economist agrees to this, he must allow, on similar grounds, that a very large part of the aggregate capital of the country is invested in theatres, hotels, schools, lecture rooms, and institutions of various kinds which do not belong to the industry of the country, taken in a narrow sense, but which none the less contribute to the wants of its inhabitants, which is the sole object of all industry.
I may add that even the food, clothes, and many other possessions of extensive classes are often indubitable capital; they are bought upon credit, and interest is undoubtedly paid for the capital sunk in them by the dealers. There is hardly, I suppose, a man of fashion in London who walks in his own clothes, and the tailors find in the practice a very profitable investment for capital. Except among the poorer classes, and often among them, food is seldom paid for until after it is consumed. Interest must be paid one way or another upon the capital thus absorbed. Whether or not these articles in the consumers' hands are capital, at any rate they have capital invested in them—that is, labour has been spent upon them of which the whole benefit is not enjoyed at once.
I might also point out at almost any length, that the stock of food, clothing, and other requisite articles of subsistence in the country are a main part of capital according to the statements of J. S. Mill, Professor Fawcett, and most other economists. Now what does it really matter if these articles happen to lie in the warehouses of traders or in private houses, so long as there is a stock? At present it is the practice for farmers and corn merchants to hold the produce of the harvest until the public buys and consumes it. Surely the stock of corn is capital. But if it were the practice of every housekeeper to buy up corn in the autumn and keep it in a private granary, would it not serve in exactly the same way to subsist the population? Would not everything go on exactly the same, except that every one would be his own capitalist in regard to corn in place of paying farmers and corn merchants for doing the business?
[]Wealth of Nations, book ii., chap. i., twelfth paragraph.
[]Wealth of Nations, book ii., chap. i., twelfth paragraph continued.