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 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.

Notes for this chapter

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.
Grundlagen der Nationalökonomie, § 42.
Grundlagen der Nationalökonomie, p. 211.
See also the acute criticism of Knies, Das Geld, p. 46.
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.
Das Geld, pp. 83 and 92.
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.
Knies himself has pronounced this opinion in saying (Das Geld, p. 22) that no one would claim that "capital is identical with economic goods."
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.
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.
For instance, Adam Smith, ii. 1; Umpfenbach, Das Kapital in seiner Kulturbedeutung, 1879, p. 19; Say, Cours Complet, part i. chap. x.
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.
See my Capital and Interest, p. 99.
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.
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).
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 pił 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.
See Knies, Das Geld, p. 33; Schömberg, Handbuch, second edition, vol. i. p. 210; Roscher, Grundlagen, § 42. note 1.
Die Grundlagen und Ziele des sog. wissenschaftlichen Sozialismus, Innsbruck, 1885, p. 185.
"In the strict physical sense, of course, this is not correct" (p. 192).
Capital and Interest, book vi. p. 313.
Theory of Political Economy, second edition, pp. 242, 263.
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!
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.

End of Notes

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