Principles of Political Economy, Vol. 1

Factors Of Production.

Section XXX.

Meaning Of Production.

To create new matter is more than it is given to man to do. Hence, by the term production, in its widest sense, we mean simply the bringing forth of new goods—the discovery of new utilities, the change or transformation of already existing goods into new utilities,184 the creation of means for the satisfaction of human wants, out of the aggregate of matter originally present in the world. (Producere!) We confine ourselves, however, in this to economic goods, as defined in § 2. In a secondary and more limited sense, production is an increase of resources, in so far as the goods produced satisfy a greater human want, than those employed in the production itself.185 186 187

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It would, however, be an error to suppose, that the creation of certain utilities for the producer himself, or for others, constitutes the only end of economic production. The more perfect economic production becomes, the greater grows the pleasure the producer feels in his products, which pleasure is at once the effect and the cause of his success. Hence, production is to a great extent its own end. That this is so in the case of artists is well known. “If you want only progeny from her, a mortal can beget them as well. Let him who rejoices in the goddess, not seek in her the woman,” says Schiller. There is not a really clever workman but has something artistic in his mode of production. And even the meanest productive activity, provided it is neither over-driven nor misdirected, must of itself exert a good influence on the physical and moral development or preservation of the producer. An idle brain is the devil's workshop.188

Section XXXI.

The Factors Of Production.—External Nature.189

The division of natural forces which formerly obtained, into organic, chemical and mechanical, is of no great importance in Political Economy. The tendency is more and more to resolve organic forces partly into chemical and partly into mechanical. Between mechanical and chemical forces, again, the boundary is not fixed, heat being always capable of producing motion, and motion always of producing heat. Hence, it is all the more important for us to find a division of the economic gifts (matter, forces190 and relations) of external nature, into such [pg 121] as are capable of acquiring exchange value, and such as are not. (See § 5.)

A. Those gifts of nature which, because they cannot be appropriated by any one, or which at least are inexhaustible as compared with the wants of man, and therefore never have a direct value in exchange, belong either to the class of free goods, in the fullest sense of the word, as, for instance, sunlight and the atmosphere (supra, § 5);191 or they constitute, by reason of their peculiar and intransmissible connection with the whole country, an essential element of the national resources.

Section XXXII.

External Nature.—The Sea.—Climate.

To the last category belongs, for instance, the sea, the only natural boundary of a country, which from a military point of view, constitutes a protection to it, without, at the same time, disturbing peaceful traffic. (Riedel.) Here, also belong ocean currents, especially when uniformly supported by regular winds,192 the ebb and flow of the tides, which constitute [pg 122] a piece of commercial machinery of the very greatest importance, particularly when they affect the waters of rivers to a great distance.193 In this age, when the love of travel is so great and so universal, what prices are paid in many places by strangers for the beauty of a landscape, to its owner.

Special mention should be here made of climate, and of its heat or moisture. The lines called isothermal, that is, lines of equal annual heat, are, therefore, of greatest importance to public economy, because the “zones of production” depend mainly on them.194 However, we are concerned here, not only [pg 123] with the average temperature of the whole year, but especially with the distribution of heat among the several parts of the day and the different seasons of the year, and the maximum summer heat and winter cold (the isothermal and iso-cheimenal lines). Coast lands are wont to have a milder winter and a cooler summer than continental ones with an equal average yearly heat. This produces a great difference in vegetation, because there are a great many plants which can endure the winter's cold very well, but require a hot summer; and vice versa.195 Were it not for this fact, in connection with the winter-sleep of plants, a large portion of the north would be entirely uninhabitable. Besides, the temperature of a place does not depend exclusively on its latitude, or on its height [pg 124] above the sea-level.196 The humidity of the climate is, as a rule, great in proportion to the quantity of water in its neighborhood, and to the height of its temperature; although, for instance, in Europe, the number of rainy days increases, the further we advance towards the north.197 Although the distance of a place from the equator and its height above the level of the sea have, in many respects, a similar effect (vertical, horizontal isothermal lines and zones of production), mountainous regions are uniformly distinguished by a greater degree of humidity, which makes them better adapted for pasturage and forest-culture. But the flora of a locality, being the resultant of all its conditions, affords us a much better criterion of the value of the climate for economic purposes, than the most accurate thermometric observations. Other things being equal, the productive force of nature operates, doubtless, with most energy, in warm climates. The more remote a country is from the equator, the more is its fertility confined to its lowest parts.198 Greater heat will, as a rule, ripen the same product sooner, and thus permit the same land to be used several times in the same year.199 Each individual [pg 125] harvest, as a rule, is more abundant,200 and the products better in many respects. The fruit, for instance, and wine, contain more sugar,201 and oleaginous plants contain more oil. Lastly, since nature in warm countries is so much more generous, it may be utilized by man with less regard for consequences. There is less need of extensive woods, of large winter supplies, especially for animals;202 fewer buildings are demanded, and there is also less demand for human and brute labor, since the work of plowing, sowing etc., extends over a greater portion of the year.203 It is true, on the other hand, that also the [pg 126] destructive force of nature is greater in warmer than in colder countries. (§ 209.)204

Section XXXIII.

External Nature.—Gifts Of Nature With Value In Exchange.

B. Those gifts of external nature which may become objects of private property, and at the same time possess sufficient relative scarcity to give them value in exchange, are either movable, and exhaustible in a given place, or firmly connected with the land. The first category embraces, for instance, such wild animals and plants as serve some useful purpose, minerals, above all, fossil combustible matter 205—the [pg 127] “black diamonds,” coal, of which, with its canals, Franklin said that it had made England what it is. The economical effect of their moveable character is best seen, when the use made of an ordinary stratum of coal is compared with that of a protracted subterranean fire in a coal mine.206 The latter can be directly useful only to those in its immediate vicinity. Every lower layer of the burning coal would be less useful. An increase of its actual power by accumulation in time or place is scarcely possible. In all these respects, the movable coal is incomparably better adapted to the satisfaction of man's wants. It may be said that the capacity of heat for drying, distilling, melting and hardening purposes, of imparting rapid motion to heavy objects by the production of confined steam, is, at least, a thousand times as great when a thousand bushels of coal are consumed as when one is consumed. In most cases even the concentration of a large quantity of coal will increase, the result not only absolutely, but relatively.207 208

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Section XXXIV.

External Nature. (Continued.)

The materials, forces and relations or conditions of external nature, immovably connected with parts of the land, even when in themselves exhaustless, either allow only of a definite amount of economic utilization, as, for instance, the mechanical force of a given waterfall, which can drive only a definite number of mills of a definite size;209 or their increased utilization is accompanied by difficulties which increase with still greater rapidity. This last is the case, especially in the employment of land for agricultural purposes. It is, according to Senior, one of the four fundamental axioms of Political Economy, that additional labor, spent on a given quantity of land, produces, as a rule, a relatively smaller yield; assuming, of course, that the art of agriculture remains the same. It is not possible to [pg 129] determine either generally, or in particular cases, the precise point at which agriculture should stop, to prevent relatively smaller returns from increased expenditure of labor and capital. Improvements in the art of agriculture may remove it a great distance. But, that there is such a point admits of no doubt. No one will believe that an acre of land can be made to produce a quantity of the means of subsistence sufficient to support all Europe, no matter what the amount of seed used, or of manure etc. employed.210 This is most apparent in forest-economy, where the absolute increase of the so-called wood-capital becomes, after a certain time, smaller from year to year.211

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Section XXXV.

External Nature.—Elements Of Agricultural Productiveness.

In treating of the agricultural productiveness of a piece of land, it is necessary to distinguish three things,—its bearing-capacity, its capacity for cultivation, and its direct capacity to afford food to plants.212 Plants grow by drawing a part of the elements which enter into their composition from the atmosphere, and a part from the earth through the agencies of sunlight and of water. While the air, the sun's heat, and in most parts of the world, water, are free and inexhaustible goods, the earth's supply of food for plants must be considered as analogous, so far as its exhaustibility and capacity to be appropriated are concerned, to the beds of coal and of ore etc. which occur in mining districts. This is certainly true, with a few important differences, however, as for instance, that, as a rule, it is impossible, except through the cultivation of plants, to obtain from the earth the stores of plant food which it contains;213 and that it is possible to husbandry to replace the portion of these stores taken from the earth by the harvest, through the agency of manures.214

Incomparably more important in the economic valuation of a piece of land is its capacity for cultivation, because this depends [pg 131] much less on the good or bad quality of the husbandman's art. I mean here the so-called physical constitution of the vegetable soil; its water-holding power, its consistency (light or heavy soil) on which the difficulty of working it depends; its ability to dry, in a shorter or longer time, and its accompanying diminution in volume; its ability to draw moisture from the atmosphere and to absorb the various kinds of gases; its heat-absorbing and heat-containing power (hot, warm and cold soils).215 Much depends here on the depth of the vegetable soil and on the constitution of the sub-soil, which, for instance, when it is very permeable, improves a very moist soil, but in the form of meadow iron-ore (Wiesenerz), works great injury. The vertical form of the land is also a very important element in estimating the natural fertility of the soil. In mountainous districts, the quantity of land which can be used (and with what labor!) is wont to be relatively smaller than in low lands. Hence it is, that the former become too small for their inhabitants; who, therefore, swarm over the plains lying before them either as settlers or conquerors.216 In the eastern hemisphere, the northern slopes [pg 132] of mountain regions are most unfavorably situated, although the southern slopes are frequently subjected to more trying and more sudden variations of thawing and freezing weather.217

But all these more special qualities of the soil must be distinguished from their general basis, the bearing or carrying capacity which land possesses as a mere superficies, and which the most naked rock (Malta!), and the bed of a flowing stream (the floating gardens of China!) possess to some extent, since there is a possibility of establishing a plant-feeding surface on them. This bearing capacity, which in most instances is given only by nature, and which can be added to only to a very limited extent and at great outlay, is wont, when the population is very dense, to acquire considerable exchange value in the vicinity.218 219

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Section XXXVI.

External Nature.—Further Divisions Of Nature's Gifts.

The gifts of nature, we further divide into those which can be directly enjoyed and those which are of use only indirectly, by facilitating production. (Natural means of enjoyment,—means of acquisition.)220 An extreme superfluity of the former is as disastrous to civilization as a too great scarcity of them. How simple the economy of a tropical country! A banana field will support twenty-five times as many men as a wheat field (K. Ritter); and with infinitely less labor; for all that is needed is to cut the stems with their ripened fruit, to loosen the earth a little and very superficially, when new stems shoot up.221 At the base of the mountains of Mexico, a father needs labor only two days in the week to support his family. Hence, nothing so much excites the wonder of the traveler there as the diminutiveness of the cultivated ground surrounding each Indian hut.222 But in these earthly paradises, [pg 134] where, as Byron said, even bread is gathered like fruit, the powers of man slumber as certainly as they grow torpid in polar deserts.223 The sentence: “In the sweat of thy brow shalt thou eat bread,” has been a blessing to mankind. Athens was not only the literary and political, but also the economic capital of Greece; and yet Attica was one of the most sterile countries in the world.224 Unfortunate Messina, on the other hand, was the most fertile province of Greece. In modern times, no countries of equal extent have produced as many great captains, statesmen, savants and artists as Holland, whose securest portions are as unfertile as those which are fertile are threatened by the sea. On the other hand, how lately and imperfectly has the so-called black-earth of southern Russia fallen under the influence of civilization!225

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Section XXXVII.

External Nature.—The Geographical Character Of A Country.

The geographical character of a country is, as a rule,226 most intimately connected, not only with its flora and fauna, but also with the character of its people. One of the crowning glories of the progress of modern science is, that it has recognized anew the power of this wonderful organism, and that it has made geography an explanatory medium between nature and history. The conditions most favorable to the development of civilization are found in a well developed country which slopes gradually through a series of intermediate terraces from a mountain summit to a plain; especially when they are connected with one another by a good system of streams; since here the opposite peculiarities of the populations of the highlands and coast-lands227 tend to produce a nationality both one and varied. Where the transitions are too abrupt, as for instance, in New Holland, they easily impede inter-communication; and, still more, where the several parts of the country are of very great extent; as, for example, the desert of North Africa, the plateau of South Africa or that of Central Asia. Europe is favored above all other parts of the world by the happy combination of mountain and plain.228 We might pursue the parallel existing between the soil and the character of a people into the minutest details, and discover, even in the [pg 136] difference between Spanish, French, German and Hungarian wines, a reflection of the different characters of the people.229

But whence is this? Can it be that dead nature has thus irresistibly affected the living mind? We do not need to give a materialistic answer to the question.230 Almost every people has migrated at some period of its existence. Urged on by their peculiar tastes and tendencies, they settled in the places most in harmony with their character. A higher hand was over them; one which, we should unreservedly trust, placed them in such external circumstances as were most favorable to the development of all their faculties.

But the influences of man on nature are no less notable than those of nature upon man. The greater number of domestic animals and plants which Europe possesses to-day, it has been obliged to introduce from other parts of the globe.231 In the interior of Gaul, the vine rarely ripened, at the time of Christ.232 On the other hand, Mesopotamia, formerly one of the gardens [pg 137] of the world, is now covered with dried-up canals, filled a little below the surface with heaps of brick and broken vases, the remains and other vestiges of a once dense population. Its former rich alluvial soil, now almost calcined, produces at present scarcely anything except a few saline plants, mimosas etc.233 The higher the civilization of a people, the less does it depend on the nature of the country.

Section XXXVIII.

Of Labor.—Divisions Of Labor.

Man's capacity for most economic labor is so closely connected with the exquisite articulation of the human hand, that Buffon could say without exaggeration that reason and the hand made man man.234 But it is true of economic labor, as of all other labor, that it is more efficient in proportion as mind predominates over matter.

The best division of economic labor is the following:235

A. Discoveries and inventions.236

B. Occupation of the spontaneous gifts of nature, as, for instance, [pg 138] of wild plants, wild animals, and of minerals.237 Where this is the only kind of economic labor, man is necessarily dependent on nature in a high degree.

C. The production of raw materials; that is, a direction given to nature in order to the production of raw materials, by stock-raising, agriculture, forest-culture etc., but not by mining.

D. The transformation (Verarbeitung) of raw material by means of manufactories, factories, the trades etc.

E. The distribution of stores of goods among those who are to use them directly, whether from people to people or from place to place (wholesale), or among the individuals of the same place (retail).238 To this class also belong leasing, renting, loaning, etc.

F. Services, in the more limited sense of the term, which embraces personal as well as incorporeal goods; as, for instance, the labors of the doctor, teacher; virtuoso, of the statesman, judge, and of preachers, whose office it is, by way of eminence, to produce and preserve the immaterial wealth, known as the State and the Church.239

The order followed in the above classification is that in which the different classes of labor are wont to be historically developed.

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Section XXXIX.

Labor.—Taste For Labor.—Piece-Wages.

Man's taste for labor is conditioned especially by the extent to which, and the security with which, he may hope to enjoy the fruit of his labor himself. Hence it is that, as a rule, the slave (§ 71, ff.) and socager work least willingly, the day laborer with less industry than the piece-worker,240 who is at the same time more satisfied with himself, and gives most satisfaction to his master,241 since he acquires more both for himself and for his master. The superiority of piece-paid labor is [pg 140] greater in proportion as the workman calculates his own advantage. It is, therefore, smallest in the case of ingenuous uneducated workmen, and in that of the really conscientious.242 The fear of seeing one's condition grow worse, through want of industry, exerts an influence precisely similar to the hope of improving it. In both respects, free competition (§ 97) must be considered one of the principal means of furthering the taste for labor.243

Among the causes which have contributed to make England the first country in the world, viewed from a politico-economical stand-point, English writers on Political Economy have pointed out as one of the principal, the prevalence there of piece-wages.244 Payment by the piece should, of course, be [pg 141] practiced, only in cases in which the work may be broken up into a series of isolated tasks, and is completed by such a series. Hence, it is not applicable where a great many different things are required of the same workman; nor in relations in which continuity, as, for instance, of the inclination or disposition of the workman is the chief thing.245 The further the division of labor is carried in our day, the greater the part money plays in our social economy, and the more lasting relations are dissolved, the more general becomes piece-work, which, with all its material advantages, has, speaking morally, its dark side. (Atomism!)246 In a great many branches [pg 142] of manufactures it has been relinquished because the excellence of his work suffered from the workman's haste, and because he could not be properly controlled.247 It is rather the quantity than the quality of work which increases with piece-work, and where the quality of the work is what is desired, this system has not the same field. And where it obtains, as, for instance, in the case of ordinary type-setters, resort is had to payment by the day for compositors engaged on mathematical treatises, fac-similes, inscriptions etc. On the side of the workman, it is generally only the idle and awkward who oppose piece-work on principle. It is a subject of regret that the best and most industrious workmen are carried away by it to an extent detrimental to their health.248 However, many [pg 143] of the deficiencies of the piece-wage principle may be removed by agreements made with whole groups of workmen; provided, always, that the groups are not too large to prevent the mutual knowledge and surveillance of their members.249 The quantity of work is greatest, its quality best, and the material250 employed used most sparingly, when the workman works on his own account, or has a share in the profits. This last is proper only in those branches of the business the success of which depends on the quality of the work. To compel the workman to share in the profits alone will not do, because he is generally too poor to run any risk or to do long without his earnings. The system of paying “commissions,” therefore, is to be recommended all the more strongly, since it is a combination of fixed wages with a share in the profits. This system is very prevalent in North America, where a great deal has to be confided to the workmen. It is practiced, also, in the whale fisheries, and on the Greek ships in the Levant engaged in coasting, where much more depends on the care of the sailors than on the ability of the captain.251 It presupposes [pg 144] good workmen, equal almost to their master in education,252 for instance, in the case of overseers of labor; since every better inducement to the taste for labor which is not only juster but more complicative, is not only a condition but also the effect of higher culture. But if the economy of a people is ripe for share-wages, and masters begin to introduce them in earnest in individual cases, the work produced will be improved to such a degree that it can not be long before all others will be necessitated to follow them.253

If, however, workmen are to enjoy the fruit of their industry, it is necessary, first of all, that public order should be secure. Even the most industrious become discouraged where despotism or anarchy prevails. On the other hand, even the greatest security is no sufficient incentive to a nation of fatalists.254

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Section XL.

Labor.—Labor-Power Of Individuals.

The average labor-power of individuals varies very much in different nations.255 The reason of this is, in part, doubtless a difference in natural endowments. Thus, for instance, no people surpass the English and Anglo-American in energy, none the German in intelligence in work or the French in taste. Where we can assume that the same meaning is attached to the expression, “military capacity,” by the different recruiting bureaus, important conclusions as to the physical labor-power of different localities may be drawn from the ratio existing between [pg 146] the number of those fit for military service and those who are legally liable to military duty.256

But these conclusions are greatly modified by the state of civilization and that of society. Where the laboring classes are despised and paid in a manner unworthy of human beings, the badness of their work will be in keeping with the estimation in which it is held. The reverse of this, also, is usually true under different circumstances. (§ 173.) Thus, it has been noticed in France, that native workmen, provided with as substantial food as English workmen, are scarcely inferior to the the latter in the technic value of their labor.257 A Mecklenburg day laborer eats almost twice as much as a Thuringian workman, but then he accomplishes almost twice as much. Hence, employers gain in the long run by paying their workmen well. As civilization advances, the same number of workmen become, not only more industrious and more capable, but the same quantity and quality of labor becomes, as a rule, cheaper.258

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The moral culture of a people exerts the greatest influence here. In every private undertaking, a great part of the expense attending it, and in every state, a great part of the expense of its police system, and of its system of administering justice, is occasioned only by the dishonesty of men. If all this expense could be dispensed with, and full confidence placed in individuals, it would be possible to devote much more time and energy to positively useful labor.259 In estimating the labor-power of different nations or different periods of time, the division of population according to age is also of importance. As a rule, the labor-power of males is greatest from the age of twenty-five to the age of forty-five. The more numerous, therefore, the class of the population between these ages is, the more favorably, other things being equal, is it situated as regards labor.260 261 But, as a rule, the relative number of full-grown people is greatest in highly civilized nations. (§ 248.)262

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Section XLI.

Labor.—Effect Of The Esteem In Which It Is Held.

As civilization advances, labor becomes more honorable. All barbarous nations despise it as slavish. Pigrum et iners videtur sudore adquirere quod possis sanguine parare: has been the motto of all medieval times. In heathen Iceland, the owner of a piece of land might be deprived of it by an adversary who could overpower him in single combat. This mode of acquisition was considered more honorable than purchase. It was Thor's own form of investiture. The ideas of the Romans on rightful acquisition may be inferred from the word mancipium (manu capere).263 Pure Christianity, on the other hand, preached the honorableness of labor from the first (Thess. 4, 11; II. Thess. 3, 8 seq.; Eph. 4, 28). And so in the time of the Reformation,264 when Christendom was returning to its primitive purity.

In keeping with this is the fact, that the most cultivated [pg 149] nations, and the same may be said of individuals, value time most highly. “Time is money.” (Benjamin Franklin.) An English proverb calls time the stuff of which life is made.265 While in negro nations, individuals do not even know their own age; while in Russia, there are very few clocks to strike the hours, even in the towers of churches, in England, a watch is considered an indispensable article of apparel, even for very young people and for some of the lower orders of society.266 Railroads operate in this respect as a kind of national clock. The introduction of machinery and the more minute division of labor, make punctuality a necessity. While South Americans and West Indians are frightfully careless in their every movement, a carelessness which betrays itself even in their drawling speech,267 the life of a New Englander has been compared to the rush of a locomotive. In the markets of Central Asia, nothing strikes the European with so much surprise as the little value put upon time by the merchants of India and Bucharia, who are fully satisfied when, after endless waiting, they succeed in obtaining a somewhat higher price for their wares.268

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Section XLII.

Of Capital.—The Classes Of Goods Of Which A Nation's Capital Is Made Up.

Capital 269 we call every product laid by for purposes of further production. (§ 220).270

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Hence, the capital of a nation consists especially of the following classes of goods:

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A. Soil-improvements, for instance, drainage and irrigation works, dikes, hedges etc., which are, indeed, sometimes so far part of the land itself that it is difficult to distinguish them from it.271 To this class belong all permanent plantations.

B. Buildings, which embrace workshops and storehouses as well as dwellings; also artificial roads of all kinds.

C. Tools, machines and utensils of every description;272 the latter especially for personal service, and for the preservation and transportation of other goods. A machine is distinguished from a tool in that the moving power of the former is not communicated to it immediately by the human body, which only directs it; while the latter serves as a species of equipment, or as a better substitute for some member of man's body.273 To be of advantage, these three kinds of capital must save more labor or fatigue than it has cost to produce them. Tools are, however, older than machines. The aborigines of Australia used only a lance and a club in hunting; the somewhat more civilized American Indians, the bow and arrow; Europeans use firearms: in all of which a gradual progress is observable. Of the blind forces which communicate motion to machines, water was the first used, then the wind, and last of all, steam.274

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D. Useful and laboring animals, in so far as they are raised, fed and developed by human care.

E. Materials for transformation (Verwandlungsstoffe): either the principal material which constitutes the essential substance of a new product, the yarn of the weaver for instance, the raw wool, silk or cotton of the spinner; or the secondary material which, indeed, enters into the work, but only for purposes of ornamentation, as gold-leaf, lac, colors etc.

F. Auxiliary substances, which are consumed in production, but do not constitute a visible part of the raw product,275 as coal in a smithy, powder in the chase or in mining, muriatic acid, in the preparation of gelatin, chlorine in bleaching etc.

G. Means of subsistence for the producers, which are advanced to them until production is complete.

H. Commercial stock, which the merchant keeps always on hand to meet the wants of his customers.

I. Money as the principal tool in every trade that is made.

K. There is also what may be called incorporeal capital (quasi-capital according to Schmitthenner), which is as much the result of production as any other capital, and is used in production, [pg 154] but which, for the most part, is not exhausted by use. There are species of this kind of capital which may be transferred, as for instance, the good will of a well-established firm. Others are as inseparably connected with human capacity for labor as soil-improvements with a piece of land; e.g., the greater dexterity acquired by a workman through scientific study, or the greater confidence he has acquired by long trial.276 The state itself is the most important incorporeal capital of every nation, since it is clearly indispensable, at least indirectly, to economic production.277

The greater portion of the national capital is in a state of constant transformation. It is being continually destroyed and reproduced. But from the stand-point of private economy, as well as from that of the whole people, we say that capital is preserved, increased or diminished according as its value is preserved, increased or diminished.278 Pretium succedit in locum roi et res in locum pretii. “The greater part in value of the wealth now existing in England, has been produced by human hands within the last twelve months. A very small proportion indeed of that large aggregate was in existence ten years ago; of the present productive capital of the country, scarcely any part except farm-houses and a few ships and machines; [pg 155] and even these would not, in most cases, have survived so long, if fresh labor had not been employed within that period in putting them into repair.... Capital is kept in existence from age to age like population, not by preservation, but by reproduction.” (J. S. Mill.)

Section XLIII.

Capital.—Productive Capital.

Capital, according to the employment that can be given it, may be divided into such as affects the production of material goods, and such as affects personal goods or useful relations. The former, under the name of productive capital, is, in recent politico-economical literature, usually opposed to capital in use.279 Evidently any one of the two kinds of capital mentioned above, may be used for both purposes.280 Indeed, the two classes are, in many respects, coincident. Thus, a livery-stable carriage or a circulating library is productive capital to its proprietor, and capital in use281 (Gebrauchskapital) to the nation [pg 156] in general; although the circulating library from which an Arkwright obtains technic information, or the livery-stable vehicle which carries a Borsig to his counting-room, has certainly been used in the production of material goods. Almost all capital in use may be converted into productive capital, and hence, the former might be called quiescent capital, and the latter working capital.282 One of the principal differences between productive capital and capital in use is, that the former, even when most judiciously employed, does not so immediately replace itself, as the latter, by its returns.283 On the other hand, the real dividing line between capital in use, and objects consumed which are not capital, is, and it is in complete harmony with our definition of capital, that the latter are subject not only to a more speedy destruction and one which is always contemplated, while in the case of the former, its destruction is only the unintended reverse-side of its use.

Among a highly civilized people, a great amount of capital in use, as compared with the productive capital of the country, may be considered a sure sign of great wealth. When this is the case, the people, without losing the desire of further acquisition, think that they have enough to richly enjoy the present. I need only call to mind the munificence displayed by the middle classes in England, in their silver plate and other domestic utensils. But the people of Russia, and Mexico also, can make no mean display of silverware.284 Here luxury [pg 157] is only a symptom of the disinclination or inability of the inhabitants of the country to use their capital in the production of wealth. How much richer would Spain be to-day, if it had employed the idle capital spent in the ornamentation of its churches in constructing roads and canals!285 Most nations in a low state of civilization suffer from the absence of legal guarantees. Each one is compelled to turn his property into a shape in which it can be most easily transferred from one place to another and hidden. This is the principal reason why [pg 158] the Orientals possess, relatively speaking, so many precious stones and so much of the precious metals. The same cause accounts for the simplicity of their dwellings.286 On the other hand, productive capital is to be found in the greatest proportion among civilized nations which are making very rapid strides towards wealth, the people of the United States, for instance.

Section XLIV.

Capital.—Fixed Capital, And Circulating Capital.

Capital, according as it is employed, is divided into fixed capital and circulating capital. Fixed capital may be used many times in production by its owner; circulating capital only once. The value of the latter kind of capital passes wholly into the value of the new product. In the case of the former kind of capital, only the value of its use passes into the new product. (Hermann.) Hence, the farmer's beasts of burthen belong to his fixed capital; their food, and his cattle intended for the slaughter, to his circulating capital. In a manufactory of machines, a boiler intended for sale is circulating capital; while a similar one, held in reserve for the machines used in production, is fixed capital. Ricardo attributes a somewhat different meaning to these two terms: he calls fixed capital that which is slowly consumed, and circulating, [pg 159] that which disappears rapidly.287 Fixed capital is, indeed, produced and preserved by circulating capital; but it is, for the most part, transformed again into circulating capital.288 Besides, it is only by means of the latter, that the former can be productively employed.289 The relative importance of fixed and circulating capital to a country depends upon whether the country is an advanced or only an advancing one. A people with very much and very fixed capital are indeed very rich; but run the risk of offering many vulnerable points to an aggressive enemy, and of thus turning the easily jeopardized mammon into an idol. To make a passing sacrifice of the country that the people and the state may be saved, as did the Scythians against Darius, the Athenians against Xerxes, and the Russians against Napoleon, becomes difficult, in proportion as the nation has become richer in fixed capital.290 But, as [pg 160] the destination of the latter is changed with much greater difficulty than that of circulating capital, highly cultivated nations would find it very hard to satisfy new wants, if they could not always appropriate the results of additional savings to the production of new fixed capital.

Section XLV.

Capital.—How It Originates.

Capital is mainly the result of saving which withdraws new products from the immediate enjoyment-consumption of their possessor, and preserves them, or at least their value, to serve as the basis of a lasting use.291 As capital represents the solidarity of the economic past, present and future, it, as a rule, reaches back into the past and forward into the future, through a period of time longer in proportion as its amount and efficiency are greater.292 Those producers, too, whose products perish rapidly may, also, effect savings by exchanging their products [pg 161] and capitalizing their counter-value. Thus, the actor, whose playing leaves after it nothing but a memory, may use the wheat received by him from a farmer who came to listen to him, in the employment of an iron-worker, and invest the product permanently in a railroad. The transformation may be effected by means of money, bonds etc., but it is none the less real on that account. Order, foresight and self-restraint are the intellectual conditions precedent of saving and capital. The childish and hail-fellow-well-met disposition which cares only for the present is inimical to it. True, the desire of saving can be developed only where there are legal guarantees to ownership;293 guarantees which are both the conditions precedent and the effect of all economic civilization.294 The Indians, Esquimaux etc., had to be taught for the first time by the missionaries and merchants—and it was with the greatest difficulty it was done—to save their booty, and spare the natural sources of their acquisition. Originally, they were, in the heat and excitement of their wild hunting and fishing, wont to destroy on the spot what they could not enjoy in the moment.295 In the lowest stages of civilization, the first saving of capital of any importance is effected frequently through robbery or in the way of slavery.296 In both cases, it is the stronger who compel the weaker to consume less than they produce. See infra, [pg 162] § 68. Where civilization is at its highest, the inclination to save, as a rule, is very marked.297 It begins to decline where a people are themselves declining in civilization, and especially where legal guarantees have lost their force.

But capital may be increased even without personal sacrifice; as for instance, by mere occupation, as of certain goods, not hitherto recognized as such. Thus, also, by the establishment of valuable relations, the advantages of which either become the common good of all; or which, because at the exclusive command of one individual, obtain value in exchange. The progress of civilization itself may increase the value of existing capital. Thus, for instance, a house, considered as capital, may double in value if a frequented street be opened in its neighborhood. To this category belong all improvements in the arts which enable existing capital to achieve more than it could before. The invention of the compass increased the value of the capital employed in the merchant marine to an extent that cannot be calculated.298 The increase of capital effected by saving soon finds a limit unless such limit is widened by the progress of civilization.299 300

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