1. The Concept of Capital

It is difficult, if not impossible, to define the concept of capital in a wholly satisfactory way, that is to say, in a way which would combine scientific precision with close adherence to everyday language. In the exact sciences one simply disregards the ordinary use of the language and creates an entirely new terminology; but this is not yet possible in a subject like political economy, which is and must be wholly concerned with practical problems. Considerably more harm than advantage would result from it.

But when we think of the history of the development of the concept of capital it is easy to understand why, in everyday life, the use of language became so very vague just at this point. Originally the word expressed, as we know, simply the main stock of a loan (capitale or capitalis pars debiti) as contrasted with the interest, and therefore an interest-bearing sum of money. All further meanings of the word are now obtained by more or less apt extensions of this root concept.

It was most natural to wish to apply the name capital to all interest-bearing objects of wealth—that is to say, all goods or groups of goods which procure for their possessors an income, without being consumed themselves in this process; and all the more so, in that all sources of income excepting human abilities themselves obtained a money or capital value with the increasing money circulation.

On the other hand, I do not think it permissible to say, with Böhm-Bawerk,² that the other interest-bearing goods received the name capital because it ‘had become clear that the interest-bearing power of sterile money was, after all, a borrowed one—borrowed from the fruitful power of objects which could be bought for money.’ This was indeed a popular way of explaining the origin of money interest; but if it had been really understood ‘clearly,’ then, properly speaking, money would have had to be excluded from the concept of capital.

But this Böhm-Bawerk himself does not do, and he is right; for the interest-bearing power of money is by no means a ‘borrowed’ one. When, for instance, money serves as a medium of exchange, it really creates the value or increase in value which is later added to it as interest—and even more. It is, however, true that so-called money capital is often money only in name; in reality it merely denotes a sum of goods estimated in money.

This extension of the concept of capital, through which it comes to mean approximately fortune or at least interest-bearing fortune, may be fittingly employed in several respects. It is usually adopted in socialist and other popular writings, so that in these writings capitalists and workers are more or less the same as propertied and unpropertied classes. The ‘capital market,’ in the usual sense of the word, is made up, as we know, of all possible securities which represent interest-bearing fortune.

For most economic considerations, however, a certain limitation of this more general concept proved expedient. A concrete sum of money has obviously its analogue and counterpart not so much in landed property or other natural sources of goods as in the produced goods themselves; it is a type of stored-up wealth. The most important economic difference between landed property and produced goods seems to lie in the fact that the former yields its useful services only successively in a chronological sequence previously determined and unchangeable, but, to compensate for this, in an infinite sequence. Produced goods, on the other hand, can yield only a finite number of useful services, but in an almost optional sequence, much as a sum of money can be spent either all at once or by instalments over a longer period. This distinction, however, is not precise. An ore-mine or coal-pit, for instance, which can be exhausted at very different rates, has, from this point of view, more in common with a produced store of food or clothes than with landed property agriculturally used. On the other hand, a dwelling-house, for instance, which lasts perhaps for centuries, but which can provide accommodation for only a certain number of people at one and the same time, has, from the economic point of view, very much in common with landed property. However, the above-mentioned attribute of most produced goods is important, especially with regard to further production: it can be said of the tools of production that the more they can be used optionally the more they preserve a capitalistic character (in its narrower sense); for instance, machines, which can be made to run quicker or slower, or can stop, without suffering wear and tear, etc. Other arrangements, on the contrary—for instance, certain land improvements—once carried through, become so completely part and parcel of the landed property that they lose the above-mentioned character; that is to say, they are now really rent-goods and no longer capital-goods in the narrower sense of the phrase.

The seemingly paradoxical phenomenon, that consumable goods—that is to say, goods which exhaust or seem to exhaust their whole content of usefulness in a limited series of acts of use—can nevertheless be employed ‘capitalistically,’ so that their entire value remains stored up for the owner, and yet provides him with an income—this perpetuum mobile of the economic mechanism forms, as was said previously, the real pith of the theory of capital, which we shall now consider more closely.¹

On the whole, of course, this can only happen through the re-creation by production (in the widest sense of the word, which includes traffic) of the consumable goods or their equivalent in value. Their former existence must, in this case, be a necessary condition of the production, otherwise a part of the produced goods could not possibly fall to the owner of the capital as owner.

But according to the usual conception, other means of acquisition are supposed to exist besides production (in the above-mentioned widest sense), and accordingly a further distinction should be made between ‘private capital’ and ‘national capital’—or as it ought to be called, according to Böhm-Bawerk, ‘social capital’—where the former category comprises all means of acquisition (usually with the exception of landed property), whilst the latter comprises only the real means of production.

I am doubtful whether this distinction is really a scientifically fruitful one. It is, of course, allowable in this as well as in other economic spheres to keep the point of view of private enterprise separate from the social point of view. But I think there is little justification for the attempt to draw up certain categories of goods, some of which are supposed to be capital only from the point of view of private enterprise, whilst others are supposed to be capital from the social point of view as well.

In Böhm-Bawerk’s opinion, dwelling-houses, for instance, can only represent private capital (if they are let to others)—not social capital, because they are only consumption goods, not productive goods. It is true that they yield their useful services spontaneously, without considerable addition of labour. But the same is true to a large extent of meadows, woods, preserves, etc., which, however, cannot be denied the name of capital—in the ‘social’ sense of the word—if one wants to extend this concept to landed property at all. Therefore it seems best to me to put dwelling-houses in the same category as landed property. However, if they are to be regarded as capital at all, it seems clear to me that they must be considered as belonging to social capital.

This would indeed still be contrary to the remark of Adam Smith quoted by Böhm-Bawerk, that the community (as contrasted with a single individual) ‘can only enrich itself by production.’ But the enrichment of the community is a matter of comparative detail. Nor, by the way, is the private capitalist primarily enriched by interest, but lives on it. The chief aim of economic life, for the community as well as for the individual, is obviously to maintain the level of well-being already achieved. And this end is served not only by real production, but by the mere storing-up of durable utility goods regardless of whether these are produced or were the direct gift of Nature. The opinion that durable goods cease to be capital the moment they are consumed by their owner and consequently no longer provide him with a money income, is, as A. Marshall remarks,¹ really nothing but a relic of the prejudices of the old mercantile system.

It is not quite clear to me in what way exactly the poor circulating libraries have offended, which, along with articles for hire (e.g. fancy-dresses and the like), must serve as standing examples of things which represent only private, but not social capital. As long as social conditions do not make it possible for everybody to possess an extensive collection of books, public libraries, whether they can be used free of charge or for a fee, are certainly an ingredient, and a not unimportant one, in social capital. The keeping of a lending library is a business, like all the others. If now, with Böhm-Bawerk—and quite correctly, as I see it—one calls ‘the consumption goods in the hands of producers and merchants, stored up as warehouse stock,’ capital and, what is more, social capital,² then it seems strangely inconsistent to wish to exclude lending libraries simply because it is their purpose to sell reading-matter instead of books.

But more important is the question of what is to be done with the ‘means of subsistence of workers.’ Strange to say, Böhm-Bawerk saw that he was obliged to place this important category of goods called by Jevons, as is well known, the real substance of productive and consequently of social capital, in the mixed collection of exclusively private capital together with ‘rentable houses and lending libraries.’ For to this collection belong, according to him, ‘all those consumption goods which their owner does not use himself but employs by exchange (selling, letting, lending) for the acquisition of other goods’; and amongst them must be included, as he explicitly remarks, the ‘means of subsistence which the entrepreneurs advance to their workers.’³

But again: he himself, a few pages before, has represented the ‘stored-up consumption goods in the hands of producers and merchants’ as social capital, and to money he gives the same name. If now wages, as usual, are paid in money and the workers themselves obtain what they require from the merchants, then these goods, before they pass into the hands of the workers, are social capital according to Böhm-Bawerk’s terminology. But if the entrepreneur buys the same goods for the same money, in order to transfer them subsequently as wages to the workers, then these goods in the hands of the entrepreneurs—and once again before they pass to the workers—would not be social capital any longer, but simply private capital !

That a writer so sagacious and circumspect as Böhm-Bawerk could be led to such strange conclusions, is, if I am not mistaken, due to a circumstance which, in other respects as well, has done great damage in political economy, namely to the vague idea that from the economic point of view it is, practically speaking, of no consequence to whom the goods belong, provided only they are there. As soon as it is a question of deciding whether or not the means of subsistence of workers are social capital, Böhm-Bawerk always reasons as if these means of subsistence were already in the hands of the workers. But since workers are human beings and members of the community—at least according to the modern way of thinking—their means of subsistence must be regarded in the same way as those of the rest of the population. ‘The goods with which the working members of the community feed, warm and clothe themselves, are goods for immediate consumption, not means of production.’¹

Economically understood, this is certainly true. It could even be added that these goods, from the technical point of view also, are means of production only in so far as they are really converted into labour, so that only that portion of the means of subsistence which corresponds to about the exact minimum of life would, in fact, (technically) be productive. From the economic point of view, the means of subsistence, as soon as they have passed into the possession of the workers, are no longer means of production at all and no longer capital (either ‘social’ or ‘private’), because their productive equivalent has in this case already been parted with and has entered into the possession of the capitalist.

But if the means of subsistence have not yet passed over into the hands of the workers, but are still (directly or indirectly through money) in the possession of the capitalist, then they are undoubtedly means of production, because they serve for the purchase of labour.¹

It will perhaps be best, if we are to find our way in this rather complicated state of affairs, to base our thinking throughout upon the assumption of a stationary community, as the simplest hypothesis. For all productive factors, and consequently capital too, could then be considered as approximately constant magnitudes. Though in this case the forms of the latter change, its total value remains unchanged, since in place of the consumed capital goods new ones of equivalent value enter successively.

But Böhm-Bawerk goes on to remark that if the whole national subsistence fund is called capital, ‘then not only must the means of subsistence of the productive workers be reckoned as capital, but also the subsistence of the capitalists and landowners, as standing in exactly the same indirect relation to the adoption of capitalist methods of production.’² As far as the landowners are concerned, this is undoubtedly correct. The landowners, too, live during production, which in certain cases takes several years before the products are finished; that is to say, they live on their ground-rents. Therefore, either they are capitalists themselves (at least up to the amount of the ground-rents due after the completion of the production process), or they get their ‘subsistence,’ that is to say their rents, as an advance from the capitalists, who must in consequence successively keep in stock the consumption goods concerned or the money for them. And in so far as these consumption goods in the hands of the capitalists serve for the purchase of the productive services of land, they must certainly be conceived as productive capital. But if they have passed into the possession of the landowners, they no longer serve production and are therefore no longer capital; but then their equivalent, the services of the land, raw materials, etc., is already added to the capital stock of the country.

Lastly, so far as the means of subsistence of capitalists themselves are concerned, one might be tempted to give up calling these capital, and to call them instead just—interest. Consistency requires, however, that they should be thought of all the time as capital until the moment when they find themselves in the possession of the consumers concerned. In other words, capital is regarded in stationary economy as capable of a certain, but on the whole not noticeable, oscillation, since it continuously increases by interest and is in the same way continuously decreased by the consumption of this interest.

The distinction between private and social capital laid down by Adam Smith and even extended by Böhm-Bawerk, does not therefore really exist, in my opinion. Social capital simply consists of the sum of private capitals. One might think that at least in one point a real difference must be made between social and private capital, namely in respect of the consumption loan. But this difficulty disappears at once if, according to the commendable example of Böhm-Bawerk, we reckon as capital only material goods, but not either ‘rights and situations’ (Rechte und Verhältnisse) or personal attributes. A patrimony, dissipated by the heir in advance of his inheriting it, who thus gets into debt, exists afterwards solely in the form of a claim, which at the moment is not counterbalanced by a single material commodity and the like is true of every consumption loan.

But claims can, of course, be reckoned as belonging to capital (as social capital, to be sure), if at the same time debts are admitted into the final sum of social capital as negative items or quantities.

It must, however, be remarked that social capital, so carefully defined by Böhm-Bawerk, plays almost no part in his following investigations. When he speaks about the real problems of the theory of capital interest, the difference, so laboriously demonstrated, between ‘aggregate of the intermediate products’ (social capital) and ‘national subsistence fund’ (also called by him ‘national capital’) is again missing. And rightly so; for if the sphere of ‘intermediate products’ is extended over the entire domain of production in its widest sense, up to the moment of consumption,¹ all concepts are, in fact, simply congruent: social or productive capital, national subsistence fund or ‘national capital,’ and finally private capital or simply capital (with the exception of landed property).

To sum up: in the wider sense, all interest-bearing (material) goods are capital; but the different capitals do not all play the same economic role. There is ‘capital in the narrower sense,’ as distinct from ‘capital in the wider sense.’ But it is more difficult to decide where the line of demarcation can best be drawn here—whether, as is usually assumed, it ought simply to separate produced goods from pure natural goods (landed property), or (according to Wieser) must be more closely related to the ‘consumability and mobility,’ and therefore the ready availability and utilization of capital-goods in the narrower sense.

Probably, too, the different economic problems will require a different delimitation of the concept, just as in popular terminology the word capital forms a real Proteus concept.

However, it seems best to me for the purposes of the following investigation to class the different capitals simply according to their durability. In what follows I shall call the highly durable goods rent-goods, whether they are products themselves, or, like virgin soil, goods furnished by nature itself and whether they yield useful services spontaneously or only by the addition of human labour.¹ Consumable or quickly exhausted production or consumption goods, so long as the latter are not yet in the hands of consumers, I shall call capital-goods or capital in the narrower sense.²

The boundary line in this case remains to be determined, of course. However, this indeterminateness is of no importance when it is merely a question of explaining the nature of capital interest. On the other hand, as soon as one approaches the problem of ascertaining exactly the reasons which determine the level of interest and the relations between capital-interest, wages and ground-rent (the imputation of the productive factors, according to Wieser’s terminology), it at once appears necessary to unite the different capital-goods, as far as possible, in one sum ; which, of course, assumes a previous, more or less rigorous, demarcation of the sphere of capital. This obviously cannot be done with this or that definition established a priori; on the contrary, it requires an exact exploration of the true functions of these economic forces and also an investigation into how far these forces can really be united in one sum or—to use an analogy from mechanics—in one single resultant. This sum or resultant would then be the capital—within the limits of the problem concerned.

If we wish to interpret the divergent views regarding the concept of capital as a testimonium paupertatis of political economy, we shall not be wholly wrong. Only it must be remembered that strict definitions of concepts always form the keystone rather than the basis of a scientific system ; and it will be a comfort to reflect that even the most exact of the sciences, mathematics, has not yet arrived at satisfactory definitions.