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.
First Pub. Date
London: Macmillan and Co.
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13 of 55

Book II, Chapter II

Capitalist Production


We have already sketched, in its most general outlines, the process of capitalist production.*7 There are certain features of it which now require more exact treatment. I shall briefly recapitulate, interpolating what remains to be said as we go along.


All human production aims at the obtaining of goods for consumption. These consumption goods are dependent for their existence on physical conditions, and are subject to natural laws. To obtain them, as we have seen, we must seek to bring about such combinations of active forces as will result in the desired object. Thus we get a product which has come into existence under natural law and continues to exist under natural law. Now look a little more closely at the nature of the power which man can employ towards these productive combinations. It is made up of two components very dissimilar in amount—first, an enormous mass of powers which the natural world exerts spontaneously year out year in; and second, the much more limited natural powers which reside in the human organism.


The natural world, in midst of which man lives, is endowed with a vast number of forces which are never for a moment idle. Gravitation holds this ball of earth together; keeps all things fast to its surface; makes the rain fall to earth, and rolls streams and rivers to the sea; governs the ebb and flood of the tides; works unceasingly at every point of the earth's crust as stress, weight, pressure. The sun sends our earth light and heat, and thereby develops an infinity of mechanical and chemical processes, of which vegetation particularly attracts our attention, both by its mysterious magic and by its enormous importance for the human race. Uncounted and countless again are the molecular, electric, and chemical effects and counter-effects which every atom of matter exerts without intermission on its neighbours. The total of those energies which nature pours forth in ceaseless stream, without help from man, we may look upon as one branch of the productive endowment of humanity; and this extremely valuable branch we shall call man's natural endowment. It is an infinite treasure-house from which the producing man may draw as much as he will and can. As yet it is only the very smallest part of this treasure that has been touched. As yet by far the greater portion of the energies of nature pass away in combinations which, from the human teleological standpoint, seem useless or even harmful. The resistless rise and fall of the tide, the rush of rivers and waterfalls, the atmospheric movements, the giant forces of electricity, magnetism, and gravitation slumbering in our earth, are powers turned to human account only to a very small extent. Others again, such as the vegetative powers of land, have been utilised to a greater, but still very far from complete extent. The steady advancement in agricultural science not only leads us to expect a constantly increasing amount of utility from the land, but makes us suspect that the possibility of such advance is still far from being exhausted.


Now, as we have seen, the way in which we get command of these natural treasures is through the other branch of our productive endowment, our own personal powers. We put forth our labour in all kinds of wise combinations with natural processes. Thus all that we get in production is the result of two, and only two, elementary productive powers—Nature and Labour. This is one of the most certain ideas in the theory of production. Man finds ready to hand an abundance of natural processes, and allies his own powers with them. What nature by herself does, and what man does along with her—these form the double source from which all our goods come, and the only source from which they can come. There is no place for any third primary source.


These two elements, then, technically do everything in the work of production. But, economically, a further and very suggestive limitation must be drawn. Of the vast natural endowment which serves as foundation for man's productive combinations, one portion particularly claims the interest of economics, and that is, those useful things offered by nature only in limited amount. In nature, indeed, there is no lack either of materials or powers; carbon and nitrogen, oxygen and hydrogen—generally speaking, most of the "elements"—are per se not more scarce than are electrical, magnetic, chemical, and gravitation forces. But certain spontaneous combinations of these elements that are peculiarly well adapted to human want may be, relatively, scarce; such, for example, as useful plants and minerals, water for driving power, fertile land, etc. These limited gifts and energies of the natural world obtain for us a peculiar economic importance. It would be foolish not to economise them. Technical elements of production which we may have in any quantity, like atmospheric air or water or sunlight, we may employ or waste as we please without suffering loss in our productive returns. But the limited technical elements must be treated with consideration, must be saved, must be fully utilised. In a word, within the technical natural endowment, as a wider circle, they form the specifically economic natural endowment of man. Since all, or at least almost all, limited sifts and energies of nature are connected with land, we may, without much danger, take Land, with its activities or uses, as the representative of this economic natural endowment.*8


To the uses of land the exertions of labour form the counterpart. Labour has almost entirely an economical character. This is due partly to the fact that physical strength is given us in such scanty measure, as compared with the very extensive claims put forward by human needs, that even the most assiduous exertions of labour power cannot fully satisfy our desire for goods, not to speak of supplying them in superfluity; partly to the fact that the exercise of our powers is usually attended by the painful feeling of distress and fatigue—at least when carried beyond a certain point,*9—and the feeling warns us to economise our labour.


Nature and Labour are, then, the technical elements of production; Uses of Land and Labour are the economic elements. These latter are the talents which the producing man puts out at usury with nature, with her great fruitful soil and infinite store of force. They are the only powers that require economic treatment, inasmuch as the co-operation of the free natural powers, which, technically, is also indispensable, is given without question and without cost. It is only the man who has command over the requisite uses of land and services of labour who receives the desired economic product; the man who has not these must do without the product; the man who owns a double allowance or a half allowance of them will—if the technique of production remain the same—receive double or half the product. In production, therefore, they are the only powers with which the economic community has any concern, and with which it has to reckon. In short, land and labour—or, more accurately, uses of land and services of labour—are the primary economic productive powers.*10


Now in what way does man use these original productive powers? In answering this question we turn back for a little into familiar paths.


To construct goods for human consumption out of these productive elements man may take one of two ways. He may combine the economical productive powers with one another,—or with activities of free natural powers,—in such a way that the desired good immediately emerges as result of the combination; as when he gathers shellfish on the shore. Or he may take a roundabout way, and, with the element at his command, may make, first, another good, and then, with its assistance, the good he wishes; as, for instance, when he makes a boat and net and takes to fishing systematically. We already know that the former method is identical with what the Germans call kapitallos production, the latter with capitalist production; and that the intermediate products, which come into existence in the course of the indirect methods, represent economic social capital.


The adoption of capitalist methods of production is followed by two consequences, equally characteristic and significant. One is an advantage, the other a disadvantage. The advantage we have already looked at; it consists in the greater technical productiveness of those methods. With an equal expenditure of primary productive powers*11 (that is to say, labour and valuable natural powers) more or better goods can be produced by a wisely chosen capitalist process than could be by direct unassisted production. This proposition, which is quite convincingly accredited by daily experience, we illustrated and tried to explain in the second chapter of Book I. by a number of examples. We found the explanation to be that, when roundabout methods are skilfully chosen, new allies are obtained from the immense stores of natural powers, and their activity is enlisted in the work of production. It is this well-known fact that is usually indicated by the term "productivity of capital." This name, however, imports into the facts a particular interpretation, the correctness of which has yet to be examined in the next chapter.


The disadvantage connected with the capitalist method of production is its sacrifice of time. The roundabout ways of capital are fruitful but long; they procure us more or better consumption goods, but only at a later period of time. This proposition, no less than the former, is one of the ground pillars of the theory of capital. We shall see later on that the very function of capital, as a means of appropriation or source of interest, to a great extent rests upon it. I must, therefore, guard it against any misunderstanding by the two following remarks.


In the first place, it may very well happen, in an exceptional case, that an indirect method of production is not only better but speedier. A man wishing to gather apples from a high tree will evidently attain his purpose sooner by first cutting a stick from another tree, and using it to knock down the apples, than by climbing the tree and trying to break off the apples one by one with his hand. But this is not the rule. In the overwhelming majority of cases we must tread the roundabout ways of capitalist production under technical conditions of such a nature that we have to wait, and often for a very long time, before we get the ripe final product. Instead of giving examples which must occur of themselves to every reader, I would rather draw attention to the fact that, in the loss of time which is, as a rule, bound up with the capitalist process, lies the sole ground of that much-talked-of and much-deplored dependence of labourer on capitalist. If capitalist production led as quickly from the hand to the mouth as unskilled direct production does, there would be nothing to hinder the workers carrying on such roundabout methods from beginning to end on their own account. They would still be dependent on the landowners, who could prevent them from access to the land which at the outset they require, but they would not be dependent on the capitalists. It is only because the labourers cannot wait till the roundabout process—which begins with the obtaining of raw materials and making of tools—delivers up its products ready for consumption, that they become economically dependent on the capitalists who already hold in their possession what we have called "intermediate products."*12


Again—though this scarcely needs pointing out—when we speak of capitalist production taking time, it is not relevant to raise the objection that, with a piece of concrete capital once made, say a tool, a definite product can be made more quickly than it could be without the assistance of capital; that, for instance, a tailor takes three days to sew a coat by hand, and one day to do it with a sewing-machine. For it is clear that the machine sewing forms only one part, and indeed the smaller part, of the capitalist process; the principal part falls to the making of the sewing-machine, and the total process lasts considerably longer than three days.


Thus far we have considered capitalist production as an undivided whole, and have contrasted it with production carried on entirely without capital. But here we are reminded of a fact that has to be reckoned with, viz. that in capitalist production there are stages and degrees; to speak accurately, there are innumerable degrees of "Capitalism." In the making of a consumption good the possible roundabout methods are of very varying length. We may make intermediate products from which the final good will be obtained in a month, or a year, or ten years, or a hundred years. The question now is, what influence such differences of degree have on product.


On the whole it may be said that not only are the first steps more productive, but that every lengthening of the roundabout process is accompanied by a further increase in the technical result; as the process, however, is lengthened the amount of product, as a rule, increases in a smaller proportion.


This proposition also is based on experience, and only on experience. What it says must be simply taken as a fact of the technique of production. The reader, moreover, will easily be able to check its accuracy if he follows in thought the steps which lead to the production of any consumption good. For instance, firewood can be got quite directly so long as we limit ourselves to the gathering of dry branches or breaking off of weak twigs. We take a short roundabout path in making and using a stone axe. A longer process involves digging ore out of the ground, getting the fuel and necessary tools, and smelting iron out of the ore, working up the iron into steel, and finally turning out a finished steel axe. Beginning farther back, we may construct cunning machinery for mining and raising the ore, elaborate blast furnaces for smelting it, special machines for making and sharpening the axe. Going farther back still, we may put up engineering shops and machinery for constructing each kind of appliance, and so on. It will scarcely be doubted that every additional step increases the productiveness of the total process; that is, results in the obtaining of the unit, say the cubic foot of wood, at a smaller total expenditure of labour (mediate and immediate). But just as little will it be doubted that the first two productive methods, the use of the stone axe and then of the steel axe, must have caused a much greater revolution in the productiveness of woodcutting than the later improvements, although, absolutely, these may be by no means inconsiderable.


If necessary, this may easily be proved to demonstration by a little calculation. Assume, for example, that a labourer working with his hands can cut in one day 2 cubic feet of wood, and working with a stone axe, which has taken three days to make, can cut 10 cubic feet: the three days' capitalist process is rewarded by a surplus return of 8 cubic feet per labour day. Now possibly the doubling of the process—say that the more careful fashioning of the stone axe takes six days—may also double the surplus return, and give 16 cubic feet. But it is scarcely likely that trebling the roundabout process can treble the surplus return. And it is quite certain that extending the roundabout process a thousandfold—say by sinking of pits, from which the ore for the axe may be got after years have elapsed—will not be able to increase the surplus return a thousandfold. Otherwise we should have the all but inconceivable possibility that a worker in one day could cut 8000 feet of wood! From some one point—probably a point not far off—the surplus, though still increasing, will increase in a less ratio than the production period.


Of course in such cases no definite figure can be named, either for the point from which the productiveness of further extensions of the process begins to decrease, or, speaking generally, for the amount of surplus result connected with any definite length of process. These data vary according to the technical circumstances of each branch of production, and at each stage of productive skill. Every new invention alters them. The discovery of gunpowder, for example, opened up at a flash the possibility, which did not exist the moment before, of increasing the productiveness of the chase by perhaps one half, and the productiveness of stone-quarrying by perhaps a hundredfold.*13 We may, however, with sufficient confidence repeat the proposition already formulated, that every extension of the production process (so far as it is wisely chosen, of course) leads, generally speaking, to some surplus result. It may be confidently maintained that there is not one branch of production the returns of which may not be considerably increased in this way, as against the method of production prevailing at the time; and that without any new invention, but simply by the intercalation of intermediate members long familiar to capitalist production,—whether it be by the adoption of a steam motor, or an apt transmitter, or some ingenious gearing, blast, lever, regulator, or the like. How far behind, indeed, in capitalist equipment are the most of our agricultural and industrial businesses compared with the most advanced typical businesses! And certainly these latter are no less far behind an ideally perfect equipment.*14


The fact that the prolongation of production processes leads to surplus results, and the fact that these surplus results usually decrease from a certain point onwards, have long been noticed and acknowledged in our science; mostly, I must say, in another form, and one borrowed from the jargon of the Productivity Theory. It is many years since Thünen put them in the most impartial manner, and showed that, in the case of progressive increase of capital, the capital that comes last does lead to an increase in the product of labour, but in a constantly decreasing proportion.*15 On this foundation of fact he himself framed the well-known doctrine that the rate of interest adjusts itself to the productiveness of the last dose of capital applied in the least productive employment, and, in the wake of this doctrine, the facts were recognised and received in the widest circles.*16 In harmony, however, with the fashion of the time, these facts were forced into the special forms of presentation and terminology of the Productivity Theory, whereby the most vexatious mistakes and confusions slipped in along with them.*17 Before going further it seemed to me advisable here to try to restate the facts in their naked simplicity.


It scarcely, perhaps, requires to be proved that the capitalist production of consumption goods, although carried out in roundabout ways and by many stages, does not, on that account, cease to exhibit an intimately connected and united work of production. The labour which produces the intermediate products—the mediate labour, as we shall call it with Rodbertus*18—and the labour which, out of and with the intermediate products, produces the desired good—the immediate labour—both form apart of the production of the consumption good. The production of timber is more than the labour of felling wood in the forest; it embraces the labour of the smith who makes the axe, of the carpenter who cuts the haft, of the miner who raises the ore, of the iron workers and steel workers who prepare it, and so on. True, our modern division of employment to outward appearance breaks up the unity of the process into a number of independent parts, but it is the theorist's business to understand economic processes in their living connection, and he dare not, of course, let himself be deceived by appearances, but must reproduce in his own mind the real unity of the work of production thus obscured. The masterly manner in which Rodbertus has done this is one of his best services to economics.


But this very consideration, essentially economic as it is, raises a doubt we must fairly meet. According to what has been said, the production period of a consumption good is, strictly speaking, to be reckoned from the moment on which the first hand was laid to the making of its first intermediate product, right down to the completion of the good itself. In our times, when unassisted production has almost entirely disappeared, and one generation builds on the intermediate products laid down by earlier generations, the production period of almost any consumption good could, in any strict calculation, trace its beginning back to early centuries.


The boy who cuts a stick with his knife is, strictly speaking, only continuing the work of the miner who, centuries ago, thrust the first spade into the ground to sink the shaft from which the ore was brought to make the blade. Of course the finished product of to-day owes a quite infinitesimal fraction—not worth calculation even if that were possible—to the firstlings of labour in these far-off centuries, and it would therefore give a very false view of the degree of capitalism expended in the cutting of the stick, if we were to estimate it by the absolute period of time intervening between the atom of labour first put forth and the completion of the work.


It is more important and more correct to look at the period of time which elapses on the average between the expenditure of the original productive powers, labour and uses of land, as successively employed in any work, and the turning out of the finished consumption goods. Production is more or less capitalistic according to the average remoteness of the period at which the original productive powers exerted during the process are paid. Say, for example, that the production of a commodity costs in all a hundred days of labour—for the sake of simplification we shall leave out the co-operating uses of land—and that, of these hundred, one day was expended ten years before the completion of the work, another nine years, others respectively eight, seven, six, five, four, three, two, and one year, while the remaining ninety days were expended immediately before the completion. Then the first day of labour is paid ten years later, the second nine years later, the third eight years later, and so on, while the last ninety days are paid immediately. The calculation is as follows.—

That is to say, on the average the hundred days of labour are paid in about half a year. Say that the production of another good were also to demand in all a hundred days of labour, likewise spent in the course of a ten years' period, but spread over it in such a way that twenty days' work was expended ten years before, other twenty days' work nine years before, five days' work in each year from the eighth to the first successively, while the last twenty clays were spent immediately before the completion of the work, the average would come out quite differently and much higher:

or more than five and a half years. It is highly probable, moreover, that in both cases some fraction of a day's work will have been spent centuries before, but such a small element will scarcely influence the average, and may in most cases be simply neglected.*19


Where I have spoken above of extension or prolongation of the roundabout process of production, and of degrees of capitalism, I must be understood in the sense just explained. The length or the shortness of the process, its extension or its curtailment, is not to be measured by the absolute duration of the period that lies between the expenditure of the first atom of labour and the last—otherwise the cracking of nuts with a hammer which might chance to be made of iron brought from a mine opened by the Romans would perhaps be the most "capitalistic" kind of production. Nor is it to be measured by the number of independent intermediate members which the production process embraces—otherwise when, by means of the three intermediate products, twig, lime, and bird-lime, a boy catches birds on the same day as he commences making these three forms of capital, his bird-catching would be more capitalistic than the far-back labour of the miner who devotes years to the sinking of a shaft. But it is to be measured by the average period which lies between the successive expenditure in labour and uses of land and the obtaining of the final good. It is only in methods of production where the expenditure in original powers is distributed equally over the whole production period that the absolute length of the process affords at the same time the proper measure for the degree of capitalism.*20


Let us now apply what has been said of single acts of production to the circumstances of an entire community. Every year a community comes anew into possession, and gets the disposal of a certain quantum of original productive powers, the powers represented by its labour and land. The farther away its production is from capitalist production—there is no production, of course, absolutely without capital—the greater will be the proportion of the year's productive powers that is changed into consumption goods during the same year. The more capitalistic the production is, the smaller will be the proportion of the year's productive powers consumed within the year, and the greater the proportion invested in intermediate products that will come to maturity as finished goods only in future years. And again, the higher the degree of capitalism is, the more remote will be the period at which these intermediate products mature. Thus a community producing from hand to mouth consumes in each year the fruits of the productive powers of that same year. A capitalist community consumes only to a small extent the fruits of the productive powers of the present year, and to a great extent the fruits of the productive powers of past years, while it again is making intermediate products for the service of future years. And the higher the degree of capitalism, the farther back in the past, on the average, are the years whose productive powers it consumes, and the farther on in the future are the periods for which it provides.


And now, I trust, the following proposition, which puts together the chief features of the capitalist production process, will be understood beyond possibility of mistake.


All consumption goods which man produces come into existence through a co-operation of human power with natural powers, which latter are partly economic, partly free. By means of these primary productive powers man may make the consumption goods he desires, either immediately, or through the medium of intermediate products called Capital. The latter method demands a sacrifice of time, but it has an advantage in the quantity of product, and this advantage, although perhaps in decreasing ratio, is associated with every prolongation of the roundabout way of production.

Notes for this chapter

Book i. chap. ii.
Where population is scanty, of course, it is possible that land, or at least certain of the uses of land, such as the growing of timber, may be free goods, as obtainable in any quantity. But in modern communities, to which naturally I refer by preference in this statement, the uses of land—with the exception of waste land or desert—are entirely economic goods.
On the common experience that "as labour is prolonged the effort becomes, as a general rule, more and more painful;" see Jevons, Theory of Political Economy, second edition, p. 185; and Gossen, Entwicklung der Gesetze des menschlichen, Verkehrs, 1854.
This is the state of the case, as I believe, expressed with perfect clearness in the facts, and this is what Rodbertus profoundly misunderstood when he maintained, and repeated with emphasis, that labour is the sole original power with which human economy has anything to do, and drew from that the conclusion that all goods, economically, are to be conceived of as products of labour alone (Zur Erkenntniss unserer staats. Zustände, theorem i.; Zur Erklärung, second edition, p. 160; Zur Beleuchtung, p. 69). If to-day we allow a fruitful field to lie fallow, or a mine or water power to remain unexploited; if, in short, we do not act economically with valuable uses of land, we act as directly against our economic wellbeing as when we throw away labour uneconomically.
"Primary productive powers" is the more correct expression, which we must now employ instead of the partial expression "labour" used by me in the second chapter of Book I. in order to avoid tedious explanations.
It is very characteristic that Rodbertus, when describing the economical effects of adopting roundabout ways of production, chooses his illustration just out of that minority of cases where the roundabout way is the quicker (Das Kapital, p. 236). The consequence is that, on this and other occasions, he leaves in the shade all the economical elements which form the basis of the phenomenon of interest—and of these the most notable is the loss of time connected with the carrying through of productive methods—and, taking a very one-sided view, lays the origin of rent at the door of the existing circumstances of private right (e.g. p. 310). But private rights in capital would not, by themselves, do any harm to the labourers, and it would be very easy for them to avoid the toll-bars which the capitalists have erected, if the fatal lapse of time between beginning and end of the lengthy capitalist process did not make it impossible for labourers to adopt similar processes on their own account.
Inventions, so-called, generally mean the discovery of a new and more productive method of production. Frequently—probably in most cases—the new way is longer than the old, and in this case to utilise the invention requires the making of a great number of intermediate products, or, as it is usually expressed, a large investment of capital: e.g. in machinery, building of railways, and the like. But often a happy invention may lead to a better, and at the same time shorter, way of production, such as the manufacture of certain dye-stuffs from chemical instead of plant bodies. However elaborate the former may be, it is still certainly far more direct and speedy than a manufacture which has to wait on tedious processes of growth.
It may be asked here, by way of objection, why man does not fully utilise the chances offered him of increasing the technical result by the technical knowledge he has at the moment. The common explanation runs—from want of capital. With the limited amount of capital at his disposal man can only utilise those chances of employment, among the infinite number of remunerative ones, which are most remunerative, and a great number of less, but still remunerative, employments must be passed over. This explanation is not quite exact, but it is at least right in the main contention. We may therefore be content with it until, in another connection, we can examine the matter with perfect accuracy.
Der isolirte Staat, third edition, part ii. div. i. p. 97. See particularly the table on p. 101.
For instance by Roscher, Grundlagen, § 183; by Mangoldt, Volkswirthschaftslehre, 1868, p. 432; by Mithoff in Schönberg's Handbuch, second edition, p. 663, and by many others. Jevons independently adopted quite similar views, Theory of Political Economy, second edition, p. 277.
In particular the "physical" or "technical productivity," which is founded on these facts (that is, the circumstance that by the assistance of capital more products can be produced than without it), was confused with a "value productivity" (that is, a pretended power of capital to produce more value than it itself possesses). See my Capital and Interest, pp. 112, 131.
Das Kapital, p. 236.
The first of the above schemes corresponds to the case of a production where one single tool is employed, and where the total process extends over ten years—for instance, the making and using of an axe of Bessemer steel. The second scheme, again, corresponds to a production where, besides the axe, a number of other capitalistic tools, auxiliary mechanism, and materials, are employed, the existence of which, however, does not date from farther back than ten years. This comparison clearly shows how, without increasing the absolute length of the production period, the degree of capitalism may be very considerably increased; all that is necessary is to alter the proportion between the number of early workers and that of the finishing ones. Whether it is ten workers employed in the final stage against one worker employed ten years before, or one worker in the final stage against ten workers ten years before, in either case the total production process extends over a period of ten years. But in the former case the finishing workers would be very sparingly provided with tools, machines, etc.; in the latter case they would be very amply provided. The latter, of course, would be far and away the more capitalistic of the two.
See the interesting calculation and graphic statement of the amount of investment of capital in Jevons's Theory of Political Economy, second edition, p. 249.

End of Notes

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