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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1. See my Capital and Interest, 1890, p. 111.

Book I, Chapter I

2. See Menger, Grundsätze der Volkswirthschaftslehre, p. 1. Vienna, 1871.

3. P. 219 (German edition, p. 265). See also my Rechte and Verhältnisse, p. 51. Innsbruck, 1881.

4. See Mill's Principles, i. 1. 2.

5. If we were to carry our analysis of what man does in production a step further, we might appropriately distinguish three fundamental ways in which the producing man "moves things." The first is what, for want of a better name, we may call simple movements or changes of place—where men transport entire objects from one locality to another. Thus the miner brings the ore from the depths of the shaft to the upper air; the merchant takes his goods from the place where they are produced to the place where they are demanded and used. The second embraces those movements of parts of one and the same object whereby it experiences a change of form, as when nails are made from iron, statues from marble, pipes from clay, dials from ivory, combs from caoutchouc, tumblers from glass, furniture from wood. The third, and much the most common way, is where different objects are brought together in space to form combinations of matter. These combinations may be merely temporary, or they may be lasting. Instances of the one are where the stamp falls on the coin, the chisel chips at the marble, the carving tool is applied to the wood, the ore put into the furnace, the yarn into the loom, the paper under the printing press, the stuff under the shears, the plough through the clods. Instances of the other are where we build a house out of wood, stone, lime, iron, etc.; where we put together a watch out of wheels, springs, pendula, weights, stop-action and many other things; in fact in manufacture generally. I must warn the reader that this division into three fundamental forms neither has, nor is meant to have, the character of strict scientific classification. Indeed, these forms merge in many instances into one another. Temporary combinations, for instance, are very often half-way to changes of form, and what I have called a simple change of place is at the same time, in a certain point of view, a material combination, a bringing together of the thing moved and the object (personal or impersonal) to which it is moved. This division, however, will make it easier to find our reckoning, and will prove too, if necessary, the correctness of the general characteristics which I have ascribed in the text to productive processes. I mean to say that it is easy to see that every productive activity which one can think of ranges itself under some one of these three fundamental forms, and to that extent it is proved that such an activity must, a fortiori, range itself also under the general formula given in the text, where we have described the nature and method of the production of material goods as the mastery of natural powers by means of putting objects in motion.

Book I, Chapter II

6. Menger has suggestively called these Goods of the First Rank, classing all goods which go to their production as Goods of Higher Rank. It is unfortunate that we cannot use the literal English equivalent of the "Genussgüter," but, as next to it in convenience, I propose to use the expression Consumption Goods for what otherwise we should have to translate as Goods for Immediate Consumption. See Manger's Grundsätze, p. 8, and Böhm-Bawerk's Rechte and Verhältnisse, p. 101.—W. S.

7. The expression Capitalist Production is generally used in one of two senses. It designates either a production which avails itself of the assistance of concrete capital (raw materials, tools, machinery, etc.), or a production carried on for the behoof and under the control of private capitalist undertakers. The one is not by any means coincident with the other. I always use the expression in the former of these two meanings.

8. Looking back over the last few years only, I can recall, as coming in quick succession, the researches of Knies (Das Geld, Berlin, 1873, pp. 1-56); of Cossa (La Nozione del Capitale, 1874, published in the Saggi di Economia Politica, Milan, 1878); of Ricca-Salerno (Sulla Teoria del Capitale, Milan, 1877); of Umpfenbach (Das Kapital in seiner Kulturbedeutung, Würzburg, 1879); of Kühnast (Ueber den rechtlichen Begriff des Kapitales in Beiträge zur Erläuterung des Deutschen Rechtes, 1884); of Supino (Il Capitale nell' Organismo Economico e nell' Economia Politica, Milan, 1886). Meanwhile we have the well-known works of Rodbertus and Marx, both bearing the title Das Capital, and again the elaborate statements in the more comprehensive systems, particularly those of Wagner (Grundlegung, second edition, 1879, p. 36); of Kleinwächter (Schönberg's Handbuch, first edition, p. 170; second edition, p. 206); and of Cohn (Grundlegung der Nationalökonomie, Stuttgart, 1885, § 145-147).

Book I, Chapter III

9. See on this subject Knies, Das Geld, Berlin, 1873, p. 6 (second edition, p. 24); Ricca-Salerno, Sulla Teoria del Capitale, 1877, chap. ii.; and Schönberg's Handbuch, second edition, vol. i. p. 206.

10. The English word "Cattle," as Knies (p. 7) has rightly remarked, has nothing in common derivatively with our conception.

11. Capital and Interest, book i. chaps. ii, and iii.

12. Glossarium of Dufresne du Cange, quoted by Umpfenbach, Das Kapital in seiner Kulturbedeutung, Würzburg, 1879, p. 32.

13. Wealth of Nations, book ii. chap. i.

14. Rodbertus, passim; Wagner, Grundlegung, second edition, p. 39.

15. Staatswirthschaftliche Untersuchungen, Munich, 1832, p. 59, and similarly in the second edition of 1874, p. 111. On p. 56 he expressly calls capital "Wealth which brings in income."

16. Grundsätze, Vienna, 1871, p. 130.

17. See Mataja, Der Unternehmergewinn, 1884, p. 180.

18. Grundlagen und Ziele des sog, wissenschaftlichen Sozialismus, 1885, p. 184.

19. Theory of Political Economy, second edition, London, 1879, p. 242.

20. Ibid. p. 242, and very emphatically p. 264: "The capital is not the railway, but the food of those who made the railway."

21. Das Kapital, vol. i., second edition, p. 796 (first edition, p. 747). See also Knies, Das Geld, first edition, p. 53.

22. Das Geld, first edition, p. 47. In the second edition (1885) the same conception is on the whole retained, but often formulated in a less exact manner. Accordingly, where I do not explicitly mention the contrary, I quote from the more distinct formulation of the first edition.

23. Élements d'Économie Politique Pure, Lausanne, 1814, p. 213. Launhardt (Mathematische Begründung der Volkswirthschaftslehre, Leipsic, 1885, § 2) has closely followed Walras.

24. "It does not represent commodities in any way whatever, but only the power its owner has of purchasing what he wants" (Elements of Political Economy, 1858, pp. 66 and 69).

25. "Ueber den rechtlichen Begriff des Kapitals," in the Beiträge zur Erläuterung des Deutschen Rechtes, 1884, p. 356; and particularly pp. 385-387.

26. See also Knies, Das Geld, p. 17 (second edition, p. 38).

27. Thus occasionally Adam Smith, J. B. Say,, and others.

28. Thus Canard: "The fundamental wealth of one who pursues an art or a handicraft is his own person"; and later, M'Culloch (Principles of Political Economy, 1825, p. 319): "A labourer is himself a part of the national capital." Elsewhere he explains the wage of labour as an interest on capital of the "machine called man."

29. Grundlagen der Nationalökmomie, § 42.

Book I, Chapter IV

30. Das Geld, p. 5.

31. See above, p. 24. [Book I, Chapter III, par. I.III.2.—Econlib. Ed.]

32. 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).

Book I, Chapter V

33. 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.

34. Grundlagen der Nationalökonomie, § 42.

35. Grundlagen der Nationalökonomie, p. 211.

36. See also the acute criticism of Knies, Das Geld, p. 46.

37. 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.

38. Das Geld, pp. 83 and 92.

39. 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.

40. Knies himself has pronounced this opinion in saying (Das Geld, p. 22) that no one would claim that "capital is identical with economic goods."

41. 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.

42. 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.

43. For instance, Adam Smith, ii. 1; Umpfenbach, Das Kapital in seiner Kulturbedeutung, 1879, p. 19; Say, Cours Complet, part i. chap. x.

44. 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.

45. See my Capital and Interest, p. 99.

46. 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.

47. 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).

48. 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.

49. See Knies, Das Geld, p. 33; Schömberg, Handbuch, second edition, vol. i. p. 210; Roscher, Grundlagen, § 42. note 1.

50. Die Grundlagen und Ziele des sog. wissenschaftlichen Sozialismus, Innsbruck, 1885, p. 185.

51. "In the strict physical sense, of course, this is not correct" (p. 192).

52. Capital and Interest, book vi. p. 313.

53. Theory of Political Economy, second edition, pp. 242, 263.

54. 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!

55. 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.

Book I, Chapter VI

56. As I have already remarked on p. 38 I consider the terms in brackets, Productive and Acquisitive Capital, as essentially the more appropriate. But since Rodbertus and Wagner the terms National and Private capital have been used almost universally, and as I consider it conducive to the final settlement of this jumble of terminology not to disturb names that are fast rooted in common usage, unless there is some quite overwhelming reason for doing so, I content myself with making the one change—which seems to me in any case indispensable—of the term "National" into the term "Social capital.

57. See particularly Zur Erklärung und Abhilfe der heutigen Kreditnoth des Grundbesitzes, second edition, vol. i. p. 90, vol. ii. p. 286, where das reale Kapital, as consisting of the natural objects of capital, is sharply opposed to Kapitalbesitz, or property in capital. Similarly Das Kapital, pp. 304, 313, and passim.

58. Wagner, Grundlegung, second edition, p. 39.

59. See my criticism of this theory in Capital and Interest, p. 337.

60. I may be accused of want of logic here on the ground that such improvements are always products which serve towards further production, and therefore come under our definition of capital. The criticism is correct as to the letter, but wrong as to the spirit. A stay propped up against a tree is certainly not the tree itself but an outside body. But who would still call it an outside body if after some years it had grown inseparable from the tree?

61. Grundlegung, second edition, pp. 39, 43.

62. See Schmoller, Tübinger Zeitschrift, vol, xix. (1863), pp. 10, 25.

63. See above, p. 42.

64. See also above, p. 43, note 1.

65. The case is exactly the same with the notorious Wage Fund theory. In it also I see a misbegotten fruit of an idea which is quite right in itself. It is, as we shall see later, a very unsuccessful attempt to express certain relations that really do exist between the national subsistence fund on the one hand, and the height of wage and interest on the other. Against the inclusion of the labourers' means of subsistence in national capital Rodbertus has expressed himself in a quite classical style, Das Kapital, p. 294, and before that in his Zur Erkenntniss unser, staasw. Zustände, theorem i. Very clear and convincing, too, is Gide, Principes d'Économie Politique, Paris, 1884, p. 150. See also Sax, Grundlegung, p. 324, note.

66. Rechte und Verhältnisse vom Standpunkte der volks. Güterlehre, 1881, passim. Since then, see H. Dietzel (Der Ausgangspunkt der Socialwirthschaftslehre und irh Grundbegriff, in the Tübinger Zeitschrift, 1883, p. 78), and Sax (Grundlegung, pp. 39, 199), who surely goes too far in excluding personal service from the conception of goods. Neumann, on the other hand (Schönberg's Handbuch, second edition, p. 151), remains firm in recognising rights and relations as real goods on grounds which do not commend themselves to me as at all convincing. On one single a point I feel myself bound to reply. In my definition of the conception of goods, Neumann "does not find" the lines sufficiently distinctly drawn, and quotes, in a tone of irony, a number of expressions which, taken by themselves, certainly do not draw any distinct line (ibid. note 41). But Neumann can only have read portions of the work he objects to, or read it very hurriedly. Otherwise it would not have escaped him that the expressions he quotes stand at the end of a chapter Rechte, p. 29), and that the beginning and middle of that chapter (p. 13 onwards) are devoted to what he "does not find," and that, obviously, the later expressions are to be taken and understood along with what goes immediately before.

67. Wagner, Grundlegung, second edition, p. 42.

68. Roscher, Grundlagen, eighteenth edition, § 42.

69. Hermann, Staats. Untersuchungen, second edition, p. 122.

70. The careful reader will, without doubt, have remarked that the statement as to the nature of capital given in the second chapter, relates solely to Social economic capital. For obvious reasons I did not wish to mix up the dogmatic statement with the terminological and critical discussion which, I am afraid, has been terribly prolix. And, for reasons as obvious, I did not wish to commence this discussion without having, at least partially, put before my readers the object to which the discussion refers. I therefore made use, for the time being, of the word Capital without any of the clauses and additions which would at once have necessitated the tedious terminological discussions I wished at the time to avoid. The more exact explanations which follow will prevent any misunderstanding to which this may, perhaps, have given rise.

Book II, Chapter I

1. Adam Smith, book ii. chap v.

2. Lauderdale, Enquiry, p. 181, passim.

3. Lauderdale, ibid. So also J. B. Say, "Il faut, pour ainsi dire, que les capitaux travaillent de concert avec l'industrie" (Traité, i. 3).

4. Strasburger, Hildebrand's Jahrbücher, vol. xvii. (1871), p. 325; and Carey.

5. Jevons, Theory of Political Economy, second edition, 1879, p. 243.

6. In economic literature the clearest views as to the nature of capitalist production are, in my opinion, to be found in Rodbertus, Jevons, and Carl Menger. The works of Rodbertus, where they are not directly disfigured by the influences of his one-sided Socialist standpoint, are of quite classical accuracy and clearness. Unfortunately there are certain features which very sensibly mar what he has said. This is true in particular of his omission to notice the share which the valuable natural powers take in production, and the influence of time—two things which, obviously, could not easily be fitted into the "exploitation" theory he maintained so vigorously, and so were suppressed. We shall see this more fully later on. Carl Merger, again, by his arrangement of goods according to "rank" (Grundsätze, p. 7), and his statement of the laws which connect together goods of various ranks, has given at once a brilliant proof of his clear insight into the developed phenomena of production, and an invaluable tool to the hands of succeeding investigators.

Book II, Chapter II

7. Book i. chap. ii.

8. 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.

9. 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.

10. 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.

11. "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.

12. 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.

13. 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.

14. 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.

15. Der isolirte Staat, third edition, part ii. div. i. p. 97. See particularly the table on p. 101.

16. 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.

17. 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.

18. Das Kapital, p. 236.

19. 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.

20. 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.

Book II, Chapter III

21. It would be somewhat different if we were to adopt the other conception of capital, and understand by it, not intermediate products only, but the entire national subsistence fund, which would therefore include the labourers' subsistence. In that case, but only in that case, one might say that capital was the cause of these profitable roundabout ways of production being adopted.

22. Schäffle very finely speaks of capital as "Consumption wealth as it were in the stalk, when it is still only swelling bud and ripening fruit" (Schönberg's Handbuch, second edition, vol. i. p. 208).

23. e.g. Say, Traité, seventh edition, p. 344.

24. Of older writers, e.g. B. Fulda, Grundsätze der Oek. pol. or Kameralwissenschaften, second edition, 1820, p. 135; Schön, Neue Untersuchung der National-Oekonomie, 1835, p. 47. Of later writers Cossa himself, Elementi, eighth edition, p. 34; and Gide, Principes d'Éc. Pol. 1884, pp. 101, 145.

25. Book i. chap. vii. § i.

26. See Capital and Interest, p. 114.

27. Handbuch der Staatswirthschaftstlehre, Erlangen, 1821, i. p. 66, in note.

Book II, Chapter IV

28. The dispute as to the share which Saving plays in the formation of capital is almost old as economic science. The theory which ascribed it the prominent place was the first to appear. Already suggested by the Physiocrats, it was formulated by Adam Smith in the often-quoted proposition, "Parsimony and not industry is the immediate cause of the increase of capital" (Wealth of Nations, book ii. chap. iii.) Supported by his authority it was for a long time almost the only one that held the field, and, although in later times it has suffered many reverses, it still finds some notable apostles: thus, among others, Mill—"Capital is the result of saving" (book i. chap. v. § 4); Roscher—"Capital is mainly the result of saving" (Grundlagen, § 45); Francis Walker—"It arises solely out of saving. It stands always for self-denial and abstinence" (Political Economy, p. 67). But from a very early period there was sharp opposition to the theory, first from Lauderdale (Inquiry, 1804, chap. iv.); then, after some time, from the socialist theorists, Rodbertus (Das Kapital, pp. 240, 267—"Just as the capital of the isolated individual originates and increases, so does the national capital,—only through labour and not through saving"); Lassalle (Kapital und Arbeit, p. 64); Marx (Das Kapital, i. second edition, p. 619). To these opinions a great many recent writers of other schools more or less incline; thus, very clearly and decidedly, Gide (Principes, p. 167); less decidedly, Kleinwächter (in Schönberg's Handbuch, second edition, p. 213), and R. Meyer (Das Wesen des Einkommens, 1887, p. 213); more by way of reconciliation, Wagner (Grundlegung, second edition, § 298); and, a little obscurely and confusedly, Cohn (Grundlegung, 1885, § 257). Although, however, this tendency to ascribe capital to labour is unmistakably rapidly gaining ground, that view which ascribes to saving a share in the formation of capital is still the view of the majority. But the later representatives of this view are in the habit of rightly limiting it, and expressly emphasising the fact that saving alone is not sufficient, and that there must also be "labour," or "devotion to productive purposes," or such like—which, indeed, may very well have been the true meaning of many of the older adherents of the Saving theory, and only not expressed by them because of its assumed obviousness. See, e.g., Rau (Volkswirthschaftslehre, eighth edition, i. § 133), Ricca-Salerno (Sulla Teoria del Capitale, chap. iv. p. 118—"Il capitale deve la sua origins all' industria e al risparmio"), Cossa (Elementi, eighth edition, p. 39), and many others.

29. On the many divergent and contradictory readings of the conception of Income, see R. Meyer's Das Wesen des Einkommens, 1887, particularly pp. 1-27. I purposely avoid going into the controversy as to this conception, which Meyer's work, notwithstanding its many merits, seems to me to have by no means adequately settled. Where I use the word Income in the sequel it is to be understood, not in Meyer's sense, but in a sense very much in agreement with popular usage.

30. Adam Smith's celebrated proposition therefore—"Parsimony and not industry is the immediate cause of the increase of capital"—is, strictly speaking, to be turned just the other way about. The immediate cause of the origin of capital is production; the mediate cause is a previous saving.

31. It is only in cases where, in the meanwhile, the technique of the particular production has improved, that the transference of a less amount of productive powers to the service of the future is sufficient. If, for instance Crusoe learns how to make in fifteen days those weapons which formerly had taken thirty days, it is, of course, sufficient for the upkeep of the capital if he works only half an hour daily at the repair of his weapons, and nine and a half hours can now be spent in directly obtaining a more plentiful maintenance without prejudice to his economical position

Book II, Chapter V

32. Durable productive goods, which give off their use gradually in the course of several years, belong naturally (in various parts of their content as useful goods, or in various annual circles of their activity) to several circles simultaneously.

33. Under this name (Gegenwartsproduktion) I mean to group, for the sake of shortness, all those acts of production which agree in this, that the original productive powers which are put forth in these acts reach their goal, and turn out consumption goods, within the same economic period. This applies to two kinds of productive acts; partly and principally to those of the final stages, the labour required to transform the first circle of capital into consumption goods (e.g. agricultural labour, the labour of the miller, baker, shoemaker, tailor, etc.), partly to industries where the production process is short, and can be carried through from beginning to end within a single economic period.

34. If, during the current year, there should be introduced such improvements in the technique of production that the capital, which had taken six million labour-years to produce, could be fully replaced by an expenditure of five million labour-years, there would be a change in the figures of our illustration, but the principle would remain the same. It would now be possible to preserve the capital already in existence, even if five million labour-years were spent in present production, and if the produce of eleven million labour-years in all were spent in immediate consumption (see above, note to p. 109). But in any case the formation of new capital would require the renunciation of some portion of that immediate consumption which would be possible if it were only wished to preserve capital at the same level; in other words, would require that a portion of the "income," which might be consumed without diminishing the stock of capital, be not consumed but saved. Moreover, if technical improvements did not continue to be made, then, after some years—that is to say, when the capital produced according to the old methods of production was quite used up,—the old figures would come true again; capital would be kept at the same level if in any period the produce immediately consumed just corresponded to the productive powers which came forward anew in the same period.

35. I have neither time nor desire to go into subtle distinctions here, although there is material enough for them. Interesting investigations into the relation between national product and national income—although I cannot altogether agree with them—may be found in R. Meyer's book, pp. 5, 84. See also the investigations of Loris (which appeared while the present volume was passing through the press), entitled Ueber gewisse Werthgesammtheiten und deren Beziehungen zum Geldwerth (Tubinger Zeitschrift, forty-fourth year, part ii. p. 221), where also the yearly "consumption sum," "production sum," and "primary income sum" are treated as "quantitatively, approximately equal" amounts.

36. The change of disposition will, as we have seen, be made essentially easier by the adaptability of many forms of capital to various uses.

37. Viz. six million from the original provision of the first circle, one million diverted and added to that by changed disposition, and five millions from the current labour endowment.

38. The stock originally embraced the return of thirty million labour-years; it now gives seven millions to the consumption of the correct year, and it receives only five millions to replace them, whereby it falls from thirty to twenty-eight million labour-years.

Book II, Chapter VI

39. This is very strongly put by the Socialist writers, as, e.g., Lassalle (Kapital und Albeit, p. 69); Rodbertus (Das Kapital, p. 271). In a somewhat diluted form the same doctrine appears in Wagner (Grundlegung, second edition, p. 600), who makes a distinction between goods in which the peculiarities of capital are inherent, and those in which they are not. The former are not, at least "directly," objects of saving. Similarly Kleinwächter (Schönberg's Handbuch, first edition, p. 173).

40. Lassalle.

41. In the second edition of Schönberg's Handbuch (p. 214) Kleinwächter comes a long way nearer our conception in assenting to it, as regards at least one of the chief forms of capital—tools of production. He allows that the making of such tools "always involves, to a certain extent, the renunciation of an immediate enjoyment," because the materials which are made use of in making the tools of production might have been employed in making some kind of consumption goods; and thus there is no reason for objecting to call such a renunciation of enjoyment by the name of Saving. But it is different, he says, with the materials of production. Such things as raw wool, stone, and lime, etc., could not in any way be objects of direct consumption, and so could not be saved; they must be looked on, therefore, economically as products of labour only, and not as the result of saving. In this Kleinwächter is not logical. As regards the tools of production he, quite correctly, does not consider whether the finished tools themselves might have been consumed, but whether, by the instruments from which the tools were made, any consumption good might have been made; and because this is the case he answers the question as to saving in the affirmative. But if he had kept to this line of thought as regards the materials of production, he must have seen that, by means of the same productive powers as man uses to quarry stone, to build a house, or obtain lime for mortar, he might have made himself goods for immediate consumption,—e.g. hunted wild animals or caught fish,—and that here, consequently, on exactly the same grounds and in exactly the same way as in the case of tools, saving does come into the question.

42. See above, p. 102.

43. See Capital and Interest, p. 3.

44. Das Kapital, p. 242.

45. Kleinwächter, in Schönberg's Handbuch, second edition, p. 215.

46. A very striking illustration of these words may be found in the already-mentioned utterances of Rodbertus on the subject. On p. 242, from the fact that, if the productivity of capital is too small, there can be no saving and no formation of capital, he contents himself with drawing the quite correct conclusion that "necessarily some other element besides saving must intervene." Thus he ascribes to saving its proper place, as not sufficient by itself, but, all the same, as a factor of the formation of capital. It is only on p. 243 that the fact of a certain degree of productivity of labour being indispensable is dialectically changed into the statement that only the increase of productivity, and not saving, makes the formation of capital possible.

47. A similar objection was urged by the old economist Lauderdale against the Saving theory, Inquiry, pp. 207, 272.

48. Political Economy, third edition, p. 57, where three great agents or instruments of production are distinguished—Labour, Natural Agents, and Abstinence.

49. Marx, Das Kapital, second edition, i. p. 619, in note (English translation, p. 608): "It has never occurred to the vulgar economist to make the simple reflection, that every human action may be viewed as 'abstinence' from its opposite. Eating is abstinence from fasting, walking abstinence from standing still, working abstinence from idling, idling abstinence from working, etc. These gentlemen would do well to ponder, once in a way, over Spinoza's Determinatio est Negatio." Gide, Principes d'Éc. Pol. p. 168: "Un act purement négatif, une abstention ne saurait produire quoi quo ce soit.... Sans doute on peut dire que si ces richesses avaient été consommées au fur, et à mésure qu'elles ont pris naissance, elles n'éxisteraient pas à cette heure, et qu'en conséquence l'épargne les a fait naître une seconde fois. Mais à ce compte, il faudrait dire qu'on produit une chose toutes les fois qu'on s'abstient d'y toucher et la non destruction devrait être classée parmi les causes de la production, ce qui serait une singulière logique."

50. I will not, a priori, deny that possibly one might contrive to hunt up some subtle examples where capital (particularly social capital) comes into existence without saving properly so called. But all the more strongly do I hold by my proposition that, as regards the great mass of the economic formation of capital, saving, in the way I have indicated, has its place.

End of Notes to Frontmatter and Books I-II.
Frontmatter, Books I-II Books III-V Books VI-VII

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