The Positive Theory of Capital

Eugen v. Böhm-Bawerk, from the Warren J. Samuels Portrait Collection
Böhm-Bawerk, Eugen v.
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William A. Smart, trans.
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London: Macmillan and Co.
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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 Capital*31 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.

Notes for this chapter

Das Geld, p. 5.
See above, p. 24. [Book I, Chapter III, par. I.III.2.—Econlib. Ed.]
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).

End of Notes

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