CAPITAL.
#33. What is capital?# We will now endeavour to understand the nature of
#the third requisite of production, called capital, which consists of
wealth used to help us in producing more wealth#. All capital is wealth,
but it is not true that all wealth is capital. If a man has a stock of
food, or a stock of money with which he buys food, and he merely lives
upon this without doing any labour, his stock is not considered to be
capital, because he is not producing wealth in the meantime. But if he
is occupied in building a house, or sinking a well, or making a cart, or
producing anything which will afterwards save labour and give utility,
then his stock is capital.
The great advantage of capital is that it enables us to do work in the
least laborious way. If a man wants to convey water from a well to his
house, and has very little capital, he can only get a bucket and carry
every bucket-full separately; this is very laborious. If he has more
capital, he can get a barrel and wheel it on a barrow, which takes off a
large part of the weight; thus he saves much labour by the labour spent
upon the barrel and barrow. If he has still more capital his best way
will be to make a canal, or channel, or even to lay a metal pipe all the
way from the well to his house; this costs a great deal of labour at the
time, but, when once it is made, the water will perhaps run down by its
own weight, and all the rest of his life he will be saved from the
trouble of carrying water.
#34. Fixed and Circulating Capitals.# Capital is usually said to be
either fixed or circulating capital, and we ought to learn very
thoroughly the difference between these two kinds. #Fixed capital#
consists of factories, machines, tools, ships, railways, docks, carts,
carriages, and other things, which last a long time, and assist work. It
does not include, indeed, all kinds of fixed property. Churches,
monuments, pictures, books, ornamental trees, &c., last a long time, but
they are not fixed capital, because they are not used to help us in
producing new wealth. They may do good, and give pleasure, and they
form a part of the wealth of the kingdom; but they are not capital
according to the usual employment of the name.
#Circulating capital consists of the food, clothes, fuel, and other
things which are required to support labourers while they are engaged in
productive work.# It is called circulating because it does not last
long; potatoes and cabbages are eaten up, and a new supply has to be
grown; clothes wear out in a few months or a year, and new ones have to
be bought. The circulating capital, which is in the country now, is not
the same circulating capital which was in the country two years ago. But
the fixed capital is nearly the same: some factories may have been burnt
or pulled down; some machines may have become worn out, and have been
replaced by new ones. But these changes in fixed capital are
comparatively few; whereas the whole or nearly the whole of the
circulating capital is changed every year or two.
But the fact is that we cannot distinguish so easily as we may seem to
do between fixed and circulating capitals; there may be kinds of capital
which are neither quite fixed nor quite circulating, but something
between the two. Flour is soon eaten up, and is circulating capital. A
flour mill lasts fifty years, perhaps, and may certainly be called fixed
capital; a flour sack lasts about ten years on an average. Is such a
sack fixed or circulating capital? It seems to me difficult to say. In
the case of a railway, the coal and oil wanted for the engine are used
up at once, and are clearly circulating capital; the railway wagons last
about ten years, the locomotive engines twenty years or more; the
railway stations last at least thirty years; there is no reason why the
bridges and tunnels and embankments should not last hundreds of years
with proper care. Thus we see that #capital is altogether a question of
time, and we must say that capital is more fixed as it endures or
continues useful a longer time; it is more circulating in proportion as
it is sooner worn out or destroyed, and thus requires to be more
frequently replaced#.
#35. How Capital is obtained. Capital is the result of saving or
abstinence#, that is, it can only be obtained by working to produce
wealth, and then not immediately consuming that wealth. The poor savage
who has to labour hard every day for fear that he may have to go without
food, has no capital; but when he has food in hand, and can employ
himself in making bows and arrows to facilitate the capture of animals,
he is investing capital in the bows and arrows. Whenever we work in this
way for a future purpose, we are living on capital and investing it. The
abstinence (Latin, _abs_, from, and _tenens_, holding) consists in
holding off from the enjoyment of something which we have produced, or
might produce with the same labour. #To save# is to keep something whole
or untouched for future use; we save it as long as we do not consume it.
If I have a stock of flour and eat it up, there is an end of the flour,
and I cannot be said to save that. But if, while eating the flour, I am
engaged in making a plough or a cart, or any other durable thing which
will help me in production, I have turned one form of capital into
another form. I might have eaten the flour in idleness, in which case it
would not have been capital. But, while eating it, I worked for a future
purpose. In so doing I am said to #invest capital#, which means #to turn
circulating into fixed capital, or less durable into more durable
capital#. Capital, accordingly, is invested for longer or shorter
periods according to the durability of the form in which it is invested
(Latin, _in_, on, and _vestire_, to clothe). A good plough will perhaps
last twenty years; all through that time the owner should be getting
back by its use the benefit of the labour and capital spent in making
it. When it is worn out, he ought to have all the capital it cost paid
back, with some increase or interest. Capital invested in railway wagons
should pay itself back during the ten years that the wagons last on an
average.
The capital invested in any work may always be said to consist of wages
or what is bought with wages. Thus the capital invested in railways
really consisted of the food, clothes, and other commodities consumed by
the labourers who made the railways. It is true that tools also were
needed as well as the iron rails, sleepers, bricks, and other materials
required for the work. But as these things had previously been made by
labour, we may consider that the capital really invested in them was the
wages of the labourers who had already made them. Thus, #when we go far
enough back, we always find that the capital invested consisted of the
maintenance of labourers#.
#36. Investment of Capital.# We have two things to consider with regard
to the investment of capital, #firstly, the quantity of the capital#,
#and secondly, the length of time for which it is invested#. The same
quantity of capital will keep more or less men at work, according as it
is invested for shorter or longer periods. A man in growing potatoes
only needs to wait for the result of his labour during one year on an
average. If his food and clothing during one year cost thirty pounds,
then capital worth thirty pounds is sufficient to keep him at work in
this way. Three men cultivating potatoes will of course require three
times as much capital, or ninety pounds worth; ten men will need three
hundred pounds worth, and so on in proportion. But in growing vines it
is necessary to wait several years after the vines are planted before
they begin to bear. Suppose it to require five years waiting, then the
labourer will want 5 x 30, or one hundred and fifty pounds worth of
capital before he can grow vines. Three vine-growers will want 3 x 5 x
30, or four hundred and fifty pounds worth of capital; ten men, 10 x 5 x
30, or fifteen hundred pounds worth, and so on in proportion. Thus we
see clearly that the capital required in any kind of industry is
proportional to the number of men employed, and also to the length of
time for which the capital remains locked up, or invested on the
average. But there is no fixed proportion whatever between the number of
labourers and the capital they require--it entirely depends upon the
length of time in which the capital is turned over, that is, invested,
and got back again. A poor savage manages to live on a few days' capital
in hand; a potato grower on one year's capital. On a modern farm in
which many durable improvements are made, the quantity of capital
required is very much greater. To employ men upon a railway requires
immense capital, because so much of it is sunk in a very fixed and
durable form in the embankments, tunnels, stations, rails, and engines.
#37. Labour cannot be Capital.# It is not uncommon to hear it said that
#labour is the poor man's capital#; and then it is argued that the poor
man has just as much right to live upon his capital as the rich man upon
his. And so he has, if he can do it. If a labourer can go and produce
any kind of wealth, and exchange it for food and necessaries, of course
he may do so. But, as a general rule, he cannot do this without working
for a length of time, waiting till the produce is finished and sold. In
order to do this he wants something more than his labour, namely, his
food in the meantime, besides materials and tools. These form the
required capital, and there is no good in calling labour capital when it
is really quite a different thing. At other times I have heard it said
that #land is capital, intelligence is capital#, and so forth. These are
all misleading expressions. The intended meaning seems to be that some
people live upon what they get from land, or from intelligence, as other
people live upon what they get as interest upon capital. Nevertheless,
land is not capital, nor is intelligence capital. Production requires,
as we have seen, three distinct things, namely, land, labour, and
capital; and there is much harm in confusing things together by giving
them the same name when they are not the same thing.