Analytical Table of Contents

Why these problems discussed here were neglected in the past. Attempts in the right direction were stultified by the treatment of capital as a single factor. The proper starting point is a full description of the component parts of the capital structure. Concentration on single capital concepts also caused neglect of important aspects of the problem. The two relevant quantitative relationships. These differences have been disregarded because they dis· appear in stationary equilibrium. For dynamic analysis the two concepts must, however, be carefully distinguished. Some causes and consequences of the treatment of real capital as a homogeneous quantity. This leads to an over·simplified theory of derived demand. The concept of net investment. CHAPTER II EQUILIBRIUM ANALYSIS AND THE CAPITAL PROBLEM The construction of a stationary state is unsuitable for discussion of capital problems. General equilibria which are not stationary.

Stationary equilibrium without reference to what happens in the process of reaching it. The ambiguity of the concept of" dynamics ". Non·stationary equilibrijl. defined. Why the concept of a temporary partial equilibrium is inadequate for our purpose. To make full use of the equilibrium concept we must abandon the pretence that it refers to something real. Intertemporal equilibrium and capital analysis. Relation to causal analysis and to the ex ante and ex P08t view of a given situation. xv PA.GE V 3 14 XVI The Pure Theory of Oapital Application to problems of investment. The correspondence between production plans analysed by treating them as parts of a single plan. Relation of this state of equilibrium to reality. CHAPTER III THE SIGNIFICANCE OF ANALYSIS IN REAL TERMS. Equilibrium analysis is analysis in real terms. The introduction of money into equilibrium analysis would cause unnecessary and irrelevant complications.

Defects· of traditional attempts to "abstract from money". Real term analysis is legitimate only within equilibrium construction. Analysis in real terms not useless. Usual argument in defence of real term analysis un satisfactory. Instability and self-reversing character of monetary changes. An illustration of the different effects of real and monetary changes. Certain conditions of stability can be stated in real terms and in real terms only. Analysis in real terms involves abstraction from lending and borrowing of money. Use of the term " rate of interest" in this study. Limitations of analysis in real terms. CHAPTER IV THE RELATION OF THIS STUDY TO THE CURRENT THEORIES PAGE 29 OF CAPITAL . 41 The "productivity" theories of interest most helpful for our purpose. The founders of modern productivity analysis. The development of the time preference approach. The development of the productivity approach.

Predecessors and other important contributions. The two current methods of approach to the capita] problem. CHAPTER V THE NATURE OF THE CAPITAL PROBLEM Elementary equilwrium analysis proceeds as if all pro ductive resources were permanent. Actually most productive resources are of limited durability. Perlnanent and nonpermanent resources. The central problem how the existence of nonpermanent resources increases the permanent income stream. Capital as the aggregate of all nonpermanent resources. 50 Analytical Table of Oontents Relation of this to other capital concepts. The temporary services of the nonpermanent resources enable us to invest the services of the permanent resources and thereby to increase their return. The causes of the productivity of investment. Not all postponements of returns will cause them to increase. Scarce and free, used and latent services of resources. Many potential resources remain unused because their exploitation would require the withdrawa1 of other l"esources from current use.

The return from investment has to be considered relative to the loss of current satisfaction and the time we have to wait for the return. As more current resources are invested some of the formerly latent resources will also grow scarce and begin to count as investments. CHAPTER VI THE DURATION OF THE PROCESS OF PRODUCTION AND THE xvii PAGE DURABILITY OF GOODS: SOME DEFINITIONS 65 Definition of " input" and" output". The" continuous input - point output" and the" point input - continuous output" cases. They are special cases of joint demand and joint supply, Combination of the two aspects in the complete process of production. Investment periods and " periods of production" or the " length of the process ". The meaning of a " single process". Investment and changes in the technique of production. Only those more productive methods which are known but not used at any given moment will involve more waiting.

Investment and the division of the process into stages. The complete process of production includes the provision of tools which are usually durable. The concept of the period of investment, as applied to a process as a whole, has no definite meaning. The relevant time intervals are the periods for which the individual units of input are invested. Investment periods of particular units of input may change without any change in the technique of production used in any particular industry. The significance of the durability of goods. The use of durable goods and the quantity of capital. Factors determining durability. The reasons for using durable goods. Sometimes the strength required of an instrument makes it incidentally durable.

xviii The Pure Theory of Capital In most cases, however, durability is aimed at because it gives additional services for a less than proportional increase in costs. Effects of variations in durability on the amounts of services obtained at different periods. Changes in the quantity of durable goods used. This will usually involve a change towards more or less labour.saving (" automatic ") type of equipment. CHAPTER VII CAPITAL AND THE "SUBSISTENCE FUND" The relation between the stock of capital and current investment. Under perfectly stationary conditions the stock of non· permanent resources would be identical with the stock of produced means of production. Most capital problems arise only outside the limits of a stationary state. Under dynamic conditions the relevant fact is only that resources are non·permanent, and not that they have been produced. The traditional capital concept is a remnant of the cost of production theory of value.

The double aspect of the capital problem. The significance of the " augmentability " of resources. The sense in which the constituents of the stock of capital can be said to have a common quality. The concept of capital as a fund. PART II INVESTMENT IN A SIMPLE ECONOMY CHAPTER VIII THE OUTPUT FUNCTION AND THE INPUT FUNCTION The plan of this part of the investigation. Simplifying assumptions. The stock of capital at any moment represents definite contributions to the income expected at different future dates. Diagrammatic representation of the two portions of the output stream. The curve describing the time distribution of the returns from current input. The use of curves in this and later connections involves the abstract concept of a time rate of flow. The output curve. Interpretation as a cumulative frequency distribution. The same situation represented by a simple frequency curve. PAGE 85 07 Analytical Toole of Oontents The description of the range of periods during which we have to wait for the different units of output must be sup· plemented-by a description of the range of periods for which we have to wait for the products of different units of input.

The construction of the input curve. All input applied is here described as being invested. The difference between the output curve and the input curve. , The difference restated in terms of non· cumulative curves. Both the input and the output curve are required for the discussion of the economic problems involved. Either may, however, serve as a basis for the schematic description of the continuous process of production. CHAPTER IX THE CONTINUOUS PROCESS OF PRODUCTION The use of the input function and its limitations. The result of continuously repeated investment in the simplest (" point input - point output ") case. H Synchronised" production. Continuous investment over a range of periods. Representation of the stock of intermediate products existing at a moment of time. Representation of the process in time. The range of investment periods may extend into the indefinite future. The input curve in its inverted form.

The meaning of the solid. The three fundamental aspects of the input function. The relation between the time rates shown in the diagram and concrete quantities. The input function as a description of time.consuming processes. Its shape in a single branch.process of production. Its shape in the complete process of production of one commodity. Its shape for the system as a whole. The units in terms of which input is measured. Application of the diagram to the representation of changes. CHAPTER X THE POSITION OF DURABLE GOODS IN THE INVESTMENT STRUCTURE The importance of durable goods. " Ideal" durable goods assumed. Limitations to use of input function. Shape of the (constructed) input curve. Discontinuity of repla.cement. The stock of durable goods. XIX PAGE 113 126 xx The Pure Theory of Oapital The concept of stages in the case of durable goods. Distribution of expected useful life of durable goods.

The period of gestation of durable goods. Jevons' investment figure. Difficulties of combining the period of gestation and the period of use in one diagram. The representation of the combined process. CHAPTER XI THE PRODUCTIVITY OF INVESTMENT. Effect of changes in the investment structure on the size of the product. The ranges of investment periods cannot usefully be reduced to one single time interval. Neither the range of waiting periods embodied in a given investment structure nor the supply of " waiting" are one dimensional magnitudes. C~:mditions under which description in terms of a single time interval would be valid. The two main points in which the traditional assumptions are contrary to reality. The "amount of waiting" is not directly proportional to the investment period. Which of the two investment structures as a whole involves more waiting cannot be decided on purely techno logical grounds.

The corresponding difficulty in the concept of a given supply of waiting. Bohm-Bawerk's subsistence fund. Meaning of the" supply of oapital .. The data of the problem. The problem of time preference postponed by assump tion that constant income stream is desired. The general relation between the size of the output and the range of investment periods. Only effects of marginal ohanges need be known fo. purposes of further analysis. It is not always possible to connect individual units of input with individual units of output. Use of the principle of variation. . Sometimes we cannot establish any physical relationship beyond that between aggregates of input and aggregates of output. CHAPTER XII PLANNING FOR A CONSTANT OUTPUT STREAM Assumptions on whioh the prinoiples determining the time structure of production will be first disoussed : (a) The supply of resources, (b) The general value problem will be studied for a " simple economy" : PAGE 139 154 A nalyticalTable of Oontents That is, for a communist society - which has previously been stationary - and now aims at producing in the future the greatest possible constant income stream.

Meaning of a constant income stream. It need not be of constant composition. Every change in disposition of resources involves two shifts in opposite directions. The extension of the investment periods of individual units of input. The compensatory shortening of the investment periods of other input. Similar changes will have to be made in the ufle of input at all future dates. The net effect of the double change is a new constant income stream. Diagrammatic illustration. The conditions under which the rearrangement will give a net gain. The condition for maximising the income stream is equalisation of all rates of increase. Necessary qualification of this statement. The rates of incroo.se when the kind of output changes. Why the relative values of the different commodities will usually change during the process of adjustment. The rates of increase when the values of the different commodities change.

No one rate of increase can be regarded as " the" rate of productivity of investment. CHAPTER XIII COMPOUND INTEREST AND THE INSTANTANEOUS RATE OF INTEREST A uniform rate of increase for all investments between any two points of time is only one condition of maximum. Rates of increase for investments for different intervals of time. Intervals of different length. Rates of increase not simply proportional to length of interval. The rate ruling for the longer interval must be equal to the product of the rates for all the shorter intervals into which it can be divided. The instantaneous rate of interest. Rela.tionship to effective rate of interest. - illustrated by compound interest curve. Ambiguity of the term " ra.te ". The "rate" of interest a rate of growth expressed as a ratio. XXI PAGE 170 xxii The Pure Theory of Capital CHAPTER XIV THE MARGINAL PRODUCTIVITY OF INVESTMENT AND THE RATE OF INTEREST The distribution of investments over periods of different length.

Cases where the physical marginal product of units of input can be isolated. This is impossible where the input function is rigid or where it can only be derived in value terms. The" point input - point output" case. Equalising the marginal productivity of different invest ments. Distribution of investments between different "point input - point output" processes. Equalisation of marginal productivities of investment a necessary but not a sufficient condition of equilibrium. Conditions of equilibrium in a " continuous input - point output" process. The marginal productivity of investment in this case is not the increase in product obtained by continuing the same process-- but the increase obtained by choosing an alternative, slightly longer, process. The return from the investment of a unit of input can here no longer be regarded as a function of the investment period of that unit only: Partly owing to the effect of changes in the relative quantities of different products on their values - but mainly owing to the technical complementarity between investment periods of different units of input.

The productivity curves of different units of input are not independent. Jevons' "rate of increase of the produce divided by the whole produce". The investment period not one of the data but one of the unknowns of the problem. The investment periods are not given by a determinate supply of free capital. A final solution can be given only after the introduction of time preference. CHAPTER XV INPUT, OUTPUT. AND THE STOCK OF CAPITAL IN VALUE PAGE 176 TERMS 193 The relationship between input and output in value terms. Graphic repres.entation of changes of value in time. The principle on which the earlier diagram is modified. Limitations to the use of a single input curve. The process in time in value terms.

A nalytical Table of Contents XXlll Representation of the value of the stock of capital. Its value can be determined only if we have a full descrip tion of the range of investment periods and the rate of interest. Derivation of the output curve from the input curve. CHAPTER XVI THE MARGINAL VALUE PRODUCT OF INVESTMENT: THE PAGE PROBLEM OF ATTRIBUTION (IMPUTATION) 202 particular input functions are uniquely correlated with particular output functions only if physical marginal product of every unit of input can be isolated. The case where only the relation between aggregates of input and aggregates of output is known. Main instances to be considered. (1) Time-consuming processes with an input function of invariable shape. The relation between value of input and value of output is adjusted by varying the total quantity of output. The general problem of attribution (imputation). The determination of the "marginal value product"

analogous to other cases of fixed coefficients of production. (2) Durable goods with fixed lengths of life. Effect of rate of interest on shape of (constructed) input curve. Influence of shape of output function on shape of input function at given rate of interest. The more complicated cases. The " continuous input - continuous output " case. Partial rigidities. Changing the length of life of a durable good: the time distribution of the result of a marginal investment. Combined effect of varying quantity and varying dura bility of durable goods. CHAPTER XVII TIME PREFERENCE AND ITS EFFECTS WITH CONSTANT RETURNS ON INVEST~ENT The assumption that.a constant income stream is desired under all circumstances is abandoned. In all other respects the assumption of stationary conditions is still retained. The expected flow of pure input is assumed to be constant. The significance of the assumption of constant tastes.

The meaning of constant tastes. The use of the indifference curve method makes consider able simplifications necessary. Income conceived as a single (composite) commodity. Investment assumed to be pOBBible only for one definite period. Any investment once made is assumed to be intended as permanent. 216 xxiv The Pure Theory of Capital In consequence, net (and not gross) returns of the invest· ments have to be compared. The construction of the diagram. Only cases where investments are expected to yield a positive return need be considered. Possible and probable rates of time preference. The slope of the indifference curves. The curvature of the indifference curves. Investment opportunities represented by transformation lines. The first act of saving. The path of saving. The relative importance of productivity and time prefer. ence. The final stationary equilibrium. CHAPTER XVIII Tn!:E PREFERENCE AND PRODUCTIVITY: THEIR RELATIVE IMPORTANCE.

The assumption of constant returns on investments abandoned. Consequent difficulties of diagrammatic representation. The shape of the transformation curves. It is practically independent of the length of the period over which the investments are made. The willingness to save a given amount depends on the length of period during which it is to be saved. The relevant period. At every step in the process of saving the variable rate of time preference adapts itself to the relatively constant rate of return. Time preference directly affects only the rate of saving: its effect on rate of interest is indirect only. Positive time preference a condition for the existence of interest under stationary conditions. Factors determining the path of saving. The effect of the rate of interest on saving. The construction of the demand curve for future income. The elasticity of demand for future income. No general rule as to whether the rate of saving will move· in the same or in the opposite direction to the rate of interest.

Effect of limitation of period over which plan extends. Significance of uncertainty. Effect of anticipated length of life on willingness to save. Effect of anticipated decrease ofnon.anticipatableservices. Rates of time preference for different commodities. Effects of accumulation of capital on relative values of commodities. Conditions of intertemporal equilibrium of values. Effect of foreseen changes in relative preferences for different commodities. PAGE 229 A nalytical Table of Oontents xxv PART III CAPITALISTIC PRODUCTION IN A COMPETITIVE COMMUNITY CHAPTER XIX THE GENERAL CONDITIONS OF EQUILIBRIUM Still a study of equilibrium relationships. The data of the problem: (1) Individual tastes. (2) The distribution of resources. Classification of available resources based on nearness of date when they can bring a return. Specificity and ve1'llatility of different kinds of input. The two respects in which specificity or ve1'llatility varies.

The facto1'll determining the use to which resources are put. The danger of a circular argument. The key position of the owne1'll of ready consume1'll' goods. The" command over ready consume1'll' goods". It will be in the interest of the owners of ready consume1'll' goods to give up part of them - in order to secure replacement of their stock. Principles determining choice of resources for which con sume1'll' goods will be offered. Part of command of ready consume1'll' goods that will be transferred. Effect of successive transfe1'll of increasing parts of command over ready consume1'll' goods_ Fall of rate of return on investments. Changes in relative prices of different resources. The sum of the potential command over ready consumers' goods of all individuals may be many times the total of ready consume1'll' goods in existence. Effects on use and replacement of existing nonpermanent resources_ Effects of existing equipment on direction of reinvest ment.

Limits to the profitability of replacement by equipment of same kind. The asymptotic approach towardsastationaryequilibrium. Unlikelihood that stationary equilibrium would ever be closely approached. Uniform rate of interest a condition of equilibrium, even in a society where there is no lending of money. The "s,upply of capital" as such not a datum of equi librium:. CHAPTER XX THE ACCUlIlULATION OF CAPITAL Types of changes to be discussed. Absence of unused resources assumed. PAGE 247 268 xxvi The Pure Theory of Capital Discussion confined to changes in capital relatively to pure input. The effects of planning for an increasing or a decreasing income stream. Net changes only will be considered. " Saving" and" dissaving ". Foreseen and unforeseen saving. The producers of new capital goods are not supported out of the consumers' goods saved. The use of savings to pay increased remuneration to factors neither necessary nor profitable.

Effects of a single unforeseen act of saving. The use of the savings and the redirection of investment. What is saved is not consumed at the time it is saved. Savings are usually required only some time after new investments have been started. Misleading effects of the idea of a uniform period of pro· duction. Defects of analysis based on this idea. Diffusion of effects of investment on the output stream. The effects of foreseen savings on the plans of entre· preneurs. The mechanism of the redirection of investment. Equalisation of all returns from investment at the new lower rate. Effect of investment on value of specific resources. The source of the increased remuneration of the services of the permanent resources. CHAPTER XXI - THE EFFECT OF THE ACCUMULATION OF CAPITAL ON THE QUANTITIES PRODUCED AND ON RELATIVE PRICES OF PAGE DIFFERENT COMMODITIES • 285 Capital accumulation may lead to the expansion of some lines of industry at the expense of others.

" Deepening" and "widening" of the structure of production. A fall in rate of interest may affect only relative size of different industries. A special case of the general rule for fixed coefficients of production. Effects on relative values of different factors more com· plicated. Effects on value and distribution of a single kind of input recapitulated. Effects on relative value of different sorts of input. Problems of complementarity involved. Effects on value of different capital goods.

A nalytical Table of Contents XXVII CHAPTER XXII PAGE THE ADJUSTMENT OF THE CAPITAL STRUCTURE TO FORESEEN CHANGES 294 Dangers of conceiving capital as a "fund" of quanti tatively determined magnitude. The quantity of capital cannot be treated as given in the analysis of dynamic changes. Nor is there a clearly defined neutral attitude of entre preneurs which can be sa.id to represent the normal, involv ing neither additions to, nor subtractions from, their capital stock. The reaction of the capitalists to foreseen changes. Maintaining the money value of capital constant. The rationale of maintaining capital intact. The significant magnitude is the time shape of the income to be obta.ined. Keeping the composition or the money value of the stock of capital constant will not secure a constant income stream. Changes in the measurable dimension of the capital stock itself play no essential role in the complete economic calculus.

Obsolescence. Differences according as only income from capital or all income is regarded as relevant. CHAPTER XXIII THE EFFECTS OF UNFORESEEN CHANGES AND IN PARTICULAR OF INVENTIONS 30H Reactions of the capitalists to unforeseen changes. Factors to be considered. Usefulness in alternative employments not necessarily connected with original value. "Windfall profits" (and losses) made on specific assets. Effects on time preference. Effects of inventions to be discussed as special instance. Two cases to be considered : (a) Capital gains. (b) Capital losses; an example of "capital saving" inventions. Effects on owners of old equipment. General conditions under which introduction of invention will prove profitable. Amortisation policy of owners of old equipment. Significance of proportions between operating and capital CO&ts. Case 1: Operating cost of the new process greater than in old process.

The " release" of capital for other purposes. Case 2: Operating cost in new process smaller absolutely; but larger in proportion to capital cost.

xxvm The Pure Theory oj Oapital PAGIll Case 3: Operating costs absolutely and proportionately smaller in the new proceBB. Effects where durable instruments are not completely specific. The probability of capital saving effects of inventions. Effects of inventions on wages. Unllkelihood that inventions will decrease the relative share of labour CHAPTER XXIV THE MOBILITY OF CAPITAL Circumstances on which preservation of capital will depend. " Fixed" and " circulating" capital. Conflicting definitions. Neither of the traditional distinctions is based on the mobility of capital. Circulating capital and the income fund. Significance of distance from consumption. Further factors affecting mobility: (al mobility between lines of production, (b) possibility of speeding up amortisation. Magnitude of loss involved. Consequences of complementarity. No simple classification sufficient. Distinctions. between fixed and circulating capital often misleading.

The role of foresight. Main factor affecting the supply of capital at any given moment. Capitalised windfall gains - an important source of capital supply in a dynamic system. Capitalised windfall gains not saving. CHAPTER XXV " SAVING", "INVESTMENT", AND THE "CONSUMPTION OF 323 CAPITAL" 334 Changes in data lead to spontaneous changes in the quantity of capital. Changes in value of capital need not correspond to saving or investment. Possible divergence between plans of investors and the intentions of consumers. Comparison between shape of income streams provided and demanded. Relative values of present and future incomes - compared with their relative costs.

A nalytical Table of Contents xxix Differences between saving and investment in real terms . .. Net" investment need not increase quantity of capital. Restatement of conditions when" saving" will be equal to "investment". Causes that will disturb this correspondence. Savings exceeding expectatiQns. Savings falling short of expectations - may mean an actual consumption of capital. The effect of an enforced rise of wages. The symptoms usually a.ssociated with a "consumption of capital" independent of absolute changes of quantity of capital. But an absolute reduction of capital has a tendency to become cumulative. Although useful in certain contexts, the concepts of accwnulation and decumulation of capital have to be used with caution. PART IV PAGE THE RATE OF INTEREST IN A MONEY ECONOMY CHAPTER XXVI FACTORS AFFECTING THE RATE OF INTEREST IN THE SHORT RUN • 353 The "rate of interest" of equilibrium analysis and the money rate of interest.

Limited scope of present discU88ion of money rate of interest. Use of the term "rate of interest ". Relation between the rate of profit and the rate of interest in equilibrium. Influence of monetary changes on rate of interest. Extension of concept of equilibrium used. To the individual the holding of money is one form ot investment. Changes in the distribution of a.ssets will affect the rate of interest and the rate of profit. The short·run determination of the rate of interest: assumptions on which considered. Ca1l8e of erroneous belief that rate of interest is determined solely by quantity of money and liquidity preference. The influence of productivity concealed in "liquidity preference function ". Diagrammatic illustration of relation between productivity and liquidity preference. Conditions under which liquidity preference could be regarded as sole short·run detenninant of rate of interest.

Probable shape of a·curve. The two sources of the demand for money.

xxx The Pure Theory of Oapital CHAPTER XXVII LONG-RUN FORCES AFFECTING THE RATE OF INTEREST Influences determining the shape of the investment demand curve. Meaning of changes in the" amount of investment". Effect of a rise in investment demand on incomes_ Effect of a rise in incomes on investment demand. Final position of rate of return. Nature of assumptions underlying this analysis. Mr. Keynes' economics of abundance. Basic importance of scarcity. Effect of an increase of final demand on profit schedule. At first the rate of profit will rise in the late stages of production only. The rise of the rate of profit cannot be wiped out by a proportional rise of all other prices. The increase in the difference between the price of output and the prices of input generally must lead to changes in the relative prices of different kinds of input. Effect of difference of various magnitudes between the value of input and the discounted value of its marginal product.

Changes in productive combinations (methods of production) in order to adjust marginal productivities. Influence on relative prices of different kinds of input. Effect on the proportional amount of investment. The" tilting" of the investment demand schedule. The amount of investment per unit of output changes inversely with rate of profit. The determination of the money rate of interest and the marginal rate of profit. Changes in the monetary investment demand schedule. Effect on interest rates when supply of money is elastic_ The basic importance of the real factors. The significance of the rate of saving. The supply of capital and the rate of profit and interest in disequilibrium. CHAPTER XXVIII· DIFFERENCES BETWEEN INTEREST RATES: CONCLUSIONS PAGE 369 AND OUTLOOK 397 Differences between interest rates (and rates of profit) a monetary problem-connected with differences of liquidity attaching to various income-bearing assets which were so far disregarded.

Changes in liquidity preference may cause divergent movements of rate of interest and marginal rate of profit. The meaning of liquidity and its relation to risk.

Analytical Table of Oontents xxxi PAGE Effects of changes in relative liquidity of different types of assets-similar to effects of changes in quantity of money. It is often difficult to decide whether a particular change is better treated as a change in the liquidity of an &sset or as a change in the quantity of money. ApPENDIX I: TIME PREFERENCE AND PRODUCTIVITY 413 ApPENDIX II: THE "CONVERSION OF CIRCULATING CAPITAL INTO FIXED CAPITAL" • 424 ApPENDIX III: "DEMAND FOR COMMODITIES IS NOT DEMAND FOR LABOUR" VERSUS THE DOCTRINE OF "DERIVED DEMAND" 433 BIBLIOGRAPHY 441 INDEX OF DEFIN1TIONS OF SOME TECHNICAL TERMS 451 INDEX OF AUTHORS CITED 453 2 PART I INTRODUCTORY CHAPTER I THE SCOPE OF THE INQUIRY THE subject of this study is indicated in the title by the heading under which it is conventionally treated. It gives, however, no indication of the approach which we shall adopt. The contents of the following pages would perhaps have been more appropriately described as an Introduction to the Dynamics of Capitalistic Production, provided the emphasis were laid on the word Introduc tion, and provided that it were clearly understood that it deals only with a part of the wider subject to which it is merely a pteliminary. The whole of the present discus sion is essentially preparatory to a more comprehensive and more realistic study of the phenomena of capitalistic pro duction, and it stops deliberately short of some of the most important problems that fall within that wider context.