French version published in the Dictionnaire de l’économie politique, 2 vols., 1852-1853 ; english version published in Cyclopædia of Political Science, Political Economy, and the Political History of the United States (1881).
CAPITAL, a politico-economical term. It may be said, in a general way, that capital is the result of accumulation. It is the sum total of values withdrawn from unproductive consumption, and bequeathed to the present by the past.
This definition is exact enough. and is, strictly speaking, sufficient. It agrees with that of J. B. Say, which is as follows: “Capital, in the broadest sense, is an accumulation of values withdrawn from unproductive consumption.” It differs, however, in some respects—if not in substance, at least as to the number and variety of the objects it embraces—from that given by some other economists, and, in certain cases, from that given by J.B. Say himself.
With the exception of certain writers who are not authority in the science, all economists are agreed in not comprising under the term capital, either land or the instruments of production furnished by nature, but only such values as are created by man and which are the result of previous accumulation. Thus, in treating of the great agents of production, economists always enumerate three: land, labor and capital; drawing a clear distinction between land, the primitive basis of production given by nature, and the total of the values or products which man has successively added to it by his labor, and which is called capital.
But does capital comprise all the values previously produced by man, or only those which are used for purposes of reproduction? Here economists are not all agreed; for some consider all accumulated products as capital, whatever their nature or use, even articles reserved for the immediate consumption of man; while others consider as capital only such objects as are directly devoted to reproduction, such as raw materials, tools, machinery, buildings, etc.
What is most remarkable is, that in the minds of all economists, without distinction, the idea of reproduction is inseparably associated with the idea of capital. However great their disagreement may seem, all conceive capital to be not only wealth acquired to society by its previous labor and saving, but also a lever to increase the energy, the power and the fruitfulness of its future labor. But some accord the reproductive faculty to a greater number of objects than others. Some grant it to all acquired wealth, even to things reserved for the immediate satisfaction of human wants, now considering them as a necessary reserve to facilitate future labor, sometimes as productive of utility or pleasure. Others recognize this productive faculty only in instruments of labor, properly speaking, to the exclusion of articles intended for immediate consumption.
This disagreement is more apparent than real, in this sense, at least, that it is more about words than things, and does not modify substantially the final conclusions of economists. As it tends nevertheless to introduce an element of uncertainty into economic reasoning, we shall endeavor to put an end to it, so far as in us lies; or at least to show the real cause of the disagreement, which is the insufficiency of the language economists are forced to use.
To understand the exact nature of capital, says Rossi, is one of the most difficult things in political economy. However this may be, we shall endeavor, first, to define precisely the nature of capital. We shall then show what are the functions of capital in human society, the nature and the extent of the services which it renders, the manner in which it is distributed and employed, the necessity of its alliance with labor, and the manner in which it divides with labor the new wealth produced. This is one of the most important parts of economic science.
I. What is capital? Of what does it consist? We have just seen that there are two very different definitions of capital. In the one, all accumulated values are comprehended under the term; in the other, it applies exclusively to those which are directly devoted to purposes of reproduction, such as raw materials, tools, machinery, etc. Between these extreme opinions there are intermediate ones; but we take them in their absolute formularization, better to estimate their respective value.
Among French economists this difference is most marked between J. B. Say and Rossi. Among English economists we find the difference at least as great between Adam Smith and Malthus on the one hand, and M’Culloch on the other. Garnier, in his Eléments de l’Economie Politique, thus sums up the divergent opinions of Say and Rossi: “According to the same economist,” says he, speaking of Rossi, “we must define capital, a product saved and intended for reproduction. This definition includes three notions, the notion of product, of saving, and of reproduction. J. B. Say has frequently introduced into his definition only the first two. He understands by capital, the simple accumulation of products. Rossi, to explain his thought clearly, analyzes the labor of the savage who, having killed a beast, divides its carcass into three parts: one of them he eats, one he lays by for the next day, and one he uses in hunting—the horns of the animal for instance, which thus become an instrument of labor or of production, in other words, capital. Rossi does not consider as capital what is laid by to be consumed on the following day. If it were capital, then it might be said that even the ant accumulated capital.”
Such is the difference of opinion found in the writings of these two men. The difference is even more marked than it seems here; for although he does not always say so, and attaches the idea of capital inseparably to the idea of reproduction, J. B. Say certainly includes in the term all objects of consumption which Rossi just as certainly excludes from it.
The English economists we have mentioned differ in about the same way. M’Culloch agrees with J. B. Say, whose views he sometimes carries to an extreme; while Adam Smith and Malthus seem to have suggested Rossi’s views to him.
Whichever one of these views we adopt it is proper to remark that the principles of political economy are not seriously involved here. It is a question of nomenclature and nothing more. But nomenclature has its importance, for, if it is not science, it serves at least to make science accessible to those who do not know it. There is nothing more annoying than the endless discussion of the use of words. It uselessly taxes the minds of men who might make better use of their faculties. It tends even to discredit science in the eyes of those who only follow it at a distance.
In political economy it is useful, nay almost necessary, for the explanation and demonstration of certain great truths of science, to posses a word to designate and include generally the sum total of the values which the past has bequeathed to the present, which are the fruit of previous labor, of saving, of accumulation, and which add so much to the power of mankind In the beginning man found himself alone, with only his natural faculties, face to face with brute nature. In this condition, his existence was very precarious, his influence over nature small, and his power of production extremely limited. But owing to the peculiar foresight with which he was gifted, he, by degrees, invented for himself instruments fitted to second the labor of his hands. He built dwellings to shelter him from the inclemency of the weather. He stored up provisions, reserve stores, which enabled him to devote himself to more continued labor by assuring him sustenance for the morrow. In a word, he adapted the earth to his own use, while he continually increased his means of turning it to account. The values with which he surrounded himself in order to better his condition, assumed a thousand different forms, and ministered to a thousand wants. These are instruments, tools, dwellings, domestic animals, seeds, clothing, provisions of every kind; but they all have this in common, that they elevate the condition of man and increase his power over nature. It is desirable that we should be able to designate by a single word this immense stock of values which has been added in a thousand forms to man’s original domain, and to distinguish it from the primitive basis of production furnished by nature, to which it is only an addition The word capital has been used by political economists to perform this service.
The broad meaning given to the word capital by J. B. Say, is rejected by Rossi, who considers as capital only that part of accumulated values which is so employed as to produce a revenue. He thinks that he is thus more faithful to the definition and classification adopted by the English economists, Adam Smith, Malthus and others. We shall see directly if he is right on this point. But when he refuses to apply the term capital to the total of accumulated values, has Rossi found any other word to take its place? He has not. In his vocabulary all this mass of wealth previously acquired, has no special appellation, and can only be designated by means of a circumlocution. This seems to us decisive. J. B. Say’s vocabulary appears to us decidedly preferable, in this, that it is not irreparably defective.
Shall we therefore say with M’Culloch, that accumulated values should always be considered as a whole; that there is no distinction to be drawn between those reserved for the immediate satisfaction of the wants, or even the fancies, or the caprices of men, and those which are specially intended for production? Assuredly not. To pretend that all these values are equally productive, and productive in the same sense, is to go counter to reason which bears witness to the contrary. J. B. Say has perhaps fallen into this error sometimes, but it is especially peculiar to M’Culloch, who, in his extreme desire to place all accumulated values on the same level, goes so far as to pretend that articles of luxury which merely satisfy the desire of ostentation of the rich, contribute as much as anything else to production, as much as agricultural implements, for instance.
But it does not follow necessarily that, because these values should not be confounded with one another, they may not receive the same designation, especially since there are not two names equally fitted to apply to them separately. All that follows is, that there is a good reason to divide and to classify different kinds of capital, and to distinguish them from one another by adding to the general and common appellation qualifying terms to indicate the difference between them. Rossi believes that values intended for purposes of reproduction are distinct from others. We believe so, too, though the distinction does not appear to us always easy to make. Let them, therefore, be called productive capital, to distinguish them from other values called simply, capital. Thus, whatever meaning be attached to the word, we must admit that there are several kinds of capital, and classify them. This merely necessitates our drawing a distinction the more, a first and general distinction which will serve as a point of departure for all other distinctions. In this way there need be no defect in the vocabulary of political economy, and all the demands of science may be met.
Rossi, in restricting the sense of the word capital as he has, believed he was following the thought or the method of Adam Smith and Malthus. He was mistaken. It is very true that these two economists understand by capital only values used for purposes of reproduction, but they have another and broader word by which they designate the total of values produced and accumulated by man: stock is the word.
The nomenclature of these writers is satisfactory and complete. They use the word stock to designate the total of accumulated values, and the word capital to express that portion of the values accumulated which is specially devoted to reproduction.
This is capital as Rossi understands it. Thus, stock is the total of accumulated values, of whatsoever nature they may be, and to whatsoever use they are applied, whether they serve solely to support men or are used in reproduction. Capital is a part of stock, that part which is specially employed in reproduction, that is to say, in the creation of revenue. Owing to the use of these two words, the nomenclature is complete; the whole and the part being designated by special terms.
Let no one suppose that these definitions are peculiar to Malthus. They are literally conformable to those followed by Adam Smith. In book II. of his work, where he treats specially of accumulated wealth and the employment of capital, he establishes very precisely the distinction just made, first in the introduction to his work; then in the commencement of chapter 1, he writes as follows: “When the stock which a man possesses is no more than sufficient to maintain him for a few days or a few weeks, he seldom thinks of putting it out to interest. He consumes it as sparingly as he can, and endeavors by his labor to acquire something which may supply its place before it be consumed altogether. His revenue is, in this case, derived from his labor only. This is the state of the greater part of the laboring poor in all countries.
But when he possesses stock sufficient to maintain him for months or years, he naturally endeavors to derive a revenue from the greater part of it; reserving only so much for his immediate consumption as may maintain him till this revenue begins to come in His whole stock, therefore, is distinguished into two parts. That part which he expects is to afford him this revenue, is called the capital. The other is that which supplies his immediate consumption, and which consists either, first, in that portion of his whole stock which was originally reserved for this purpose; or, secondly, in his revenue, from whatever source derived, as it gradually comes in, or, thirdly, in such things as had been purchased by either of these in former years and which are not yet entirely consumed; such as a stock of clothes, household furniture, and the like. In one, or other, or all of these three articles, consists the stock which men commonly reserve for their own immediate consumption.”
Since in the English language, there are two words well fitted to designate, the one the genus stock, the other the species capital, why should writers confound the two under a common designation? The English nomenclature is a good one. Besides, it is sanctioned by the authority of the first masters of the science. We are, therefore, very far from approving the attempt made by M’Culloch to change the old vocabulary, by giving to the word capital a meaning broader than that given by J. B. Say. Malthus is right in accusing him on this account of introducing obscurity into the science, breaking with traditions without any valid cause. The arguments by which he undertakes to justify his new theory are of still less value than the theory itself. English economists will do well to preserve their nomenclature as it is fixed by Adam Smith and his immediate successors.
II. Division or Classification of Capital. Capital may be divided or classed in different ways. There is no absolute or unvarying rule in this matter. This alone is important, that no kind of value produced should be omitted, and that the classification should be from generals to particulars.
Adam Smith has given a classification of capital which seems to us satisfactory enough, and which has been adopted as he gave it, or only slightly modified, by a great number of his successors. It is true that he uses the word capital to designate only such values as are directly intended for purposes of production, but his classification embraces, none the less, values put aside for purpose of consumption. He was far from ignoring the importance of the latter.
It is not capital only as he conceived it, but the general stock of accumulated values which he divided and classified. We may advantageously adopt his classification of capital.
Adam Smith divides the general stock of accumulated values into three parts: the first comprising all the objects which serve only for the maintenance of man; the second, that part of productive capital which is stationary and which he terms fixed capital; the third, that part of productive capital which is not fixed, and which he calls circulating capital. He thus illustrates his division of capital: “The general stock of any country or society,” he says, “is the same with that of all its inhabitants or members, and therefore, naturally divides itself into the same three portions, each of which has a distinct function or office.
The first is that portion which is reserved for immediate consumption, and of which the characteristic is that it affords no revenue or profit. It consists in the stock of food, clothes, household furniture, etc., which have been purchased by their proper consumers, but which are not yet entirely consumed. The whole stock of mere dwelling houses, too, subsisting at any one time in the country, make a part of this first portion. The stock that is laid out in a house, if it is to be the dwelling house of the proprietor, ceases from that moment to serve in the function of a capital, or to afford any revenue to its owner. A dwelling house, as such, contributes nothing to the revenue of its inhabitants; and though it is, no doubt, extremely useful to him, it is as his clothes and household furniture are useful to him, which, however, make a part of his expense, and not of his revenue.”
Passing then to the specifically productive part of capital which he calls fixed capital, he describes it in the following manner, with his subdivisions, in which he does not fail to include that which afterward has been called immaterial capital, that is to say, useful talents and varieties of knowledge acquired by man.
“The second of the three portions into which the general stock of the society divides itself, is the fixed capital; of which the characteristic is, that it affords a revenue or profit without circulating or changing masters. It consists chiefly of the four following articles: 1. Of all useful machines and instruments of trade which facilitate and abridge labor. 2. Of all those profitable buildings which are the means of procuring a revenue, not only to their proprietor who lets them for a rent, but to the person who possesses them and pays that rent for them; such as shops, warehouses, workhouses, farm houses, with all their necessary buildings; stables, granaries, etc. These are very different from mere dwelling houses. They are a sort of instruments of trade, and may be considered in the same light. 3. Of the improvements of land, of what has been profitably laid out in clearing, draining, inclosing, manuring, and reducing it into the condition most proper for tillage and culture. An improved farm may very justly be regarded in the same light as those useful machines which facilitate and abridge labor, and by means of which, an equal circulating capital can afford a much greater revenue to its employer. An improved farm is equally advantageous and more durable than any of those machines, frequently requiring no other repairs than the most profitable application of the farmer’s capital employed in cultivating it. 4. Of the acquired and useful abilities of all the inhabitants or members of society. The acquisition of such talents, by the maintenance of the acquirer during his education, study, or apprenticeship, always costs a real expense, which is a capital fixed and realized, as it were, in his person. Those talents, as they make a part of his fortune, so do they likewise of that of the society to which he belongs. The improved dexterity of a workman may be considered in the same light as a machine or instrument of trade which facilitates and abridges labor, and which, though it costs a certain expense, repays that expense with a profit.”
We have next, the other part of productive capital circulating capital, with its three principal subdivisions.
“The third and last of the three portions into which the general stock of the society naturally divides itself, is the circulating capital; of which the characteristic is, that it affords a revenue only by circulating, or changing masters. It is composed likewise of four parts: 1. Of the money by means of which all the other three are circulated and distributed to the proper consumers. 2. Of the stock of provisions which are in the possession of the butcher, the grazier, the farmer, the corn merchant, the brewer, etc., and from the sale of which they expect to derive a profit. 3. Of the materials, whether altogether rude, or more or less manufactured, of clothes, furniture, and buildings, which are not yet made up into any of those three shapes, but which remain in the hands of the growers, the manufacturers, the mercers and drapers, the timber merchant, the carpenters and joiners, the brick makers, etc. 4. And lastly, of the work which is made up and completed, but which is still in the hands of the merchant or manufacturer. and not yet disposed of or distributed to the proper consumers; such as the finished work which we frequently find ready-made in the shops of the smith, the cabinet maker, the gold-smith, the jeweler, the china merchant, etc. The circulating capital consists in this manner, of the provisions, materials, and finished work of all kinds that are in the hands of their respective dealers, and of the money that is necessary for circulating and distributing them to those who are finally to use or to consume them.”
This classification leaves little to be desired. It comprises capital in the broadest acceptation of the term. Besides, it enumerates all the species of capital, while putting each one in its own place. It is to be wished, perhaps, that Adam Smith had drawn a distinction in the case of values reserved for the immediate consumption of man, similar to that which he drew in the case of capital specially devoted to reproduction. The latter is divided, as we have seen, into fixed and circulating capital; into fixed capital which renders continual service in the hands of its possessors, and circulating capital which renders no service except in so far as it is exchanged or transformed. In like manner, of objects destined for immediate consumption there are some which are consumed altogether, and are of use only because they are thus consumed: such are eatables generally. There are others, on the contrary, which last, at least for a time, and only their use is consumed: such are furniture and especially dwelling houses. But we do not insist on this distinction which is much less important than the other.
III. Formation and Increase of Capital. There is scarcely an economist who has not devoted a special chapter of his work to explain the manner in which capital is acquired and increased. The different kinds of capital are the fruits of saving and accumulation. (See SAVING, ACCUMULATION.)
IV. Necessity of Capital as an Auxiliary to Labor. Whatever difference of opinion may exist among economists, on the definition of capital, there is none on the necessity of capital as auxiliary to labor. Here all disagreement disappears. From Adam Smith’s time all adepts in the science are at one on this point, that without the assistance of capital in production man can do nothing and his labor is even fruitless.
How could so simple a truth be ignored? The cultivator of the soil can not till his land without the plow or spade. He can not utilize the fruits of the harvest without wagons, beasts of burden, granaries, threshing machines and other implements. The black-smith can not work without his hammer and his anvil. He needs, besides these instruments, a bellows, a furnace, fuel and iron, not to speak of his shop which is also capital. A weaver can not weave his cloth without a loom. He also needs thread. He must buy it or it must be furnished him; not to mention many other necessary things. There is no industry, no trade, in which certain instruments are not needed, although the importance of these instruments varies much with the kind of labor.
“This part, however,” writes Adam Smith, “is very small in some, and very great in others. A master tailor requires no other instrument of trade but a parcel of needles, to which should be added, however, scissors and a board. Those of the master shoemaker are very little more expensive. Those of the weaver rise a good deal above those of the shoemaker.” But, considerable or not, instruments are always necessary, and the difference relates only to their number. And this is only a small part of the capital required in every trade. It is necessary, moreover, to have raw material, which is sometimes more costly than the tools. If a tailor’s tools are of little account, the cloth, on the other hand, which he makes into clothes, and which he generally pays for in advance, is higher in price. The case is the same with the leather which the shoemaker uses, and both one and the other must have a certain supply of material to enable them to live while waiting for the price of their labor. Tools, raw material, supplies of every kind, are indispensable in different degrees, whatever the trade may be; and all these are capital.
It is certain then that in all production, capital is the companion, the indispensable auxiliary of labor, so that it may be truly said that without capital there is no labor. This is true, even in the savage state, such as it has always been known, where man does not go to hunt without a bow and arrows, or some other instrument to take their place This for a more cogent reason is strictly true in civilized life, where labor is always more complicated and never gives such speedy results.
This truth, we say, is so simple that it almost flows from the simple definition of the words. It does not seem to need any demonstration. However it is denied daily, not by economists, it is true, but by eccentric writers, whose pens, unfortunately, do not fail to exercise great influence on a considerable part of the public. They declaim against capital which is supposed to be, not the servant, but the lord of labor; they wish to free labor and workmen from the yoke which this alleged tyrant imposes on them. They go further: they pretend that capital is really unnecessary and that they can do without its assistance. It seems almost useless, at first sight, to refute propositions of this kind which refute themselves. But it is necessary to pause when it is seen that they find a great number of adherents among a misled public. It is well, moreover, to go to the source of these errors which generally originate from the false idea formed of capital. Let us first look at an example of this kind of eccentricity.
We find it in an extract from a so-called democratic journal, one reproduced with approval in Proudhon’s last work. [1] Although he had only imperfect ideas of economic matters, frequently disfigured by the eccentricities with which he associated them, Proudhon knew enough when it suited him not to be mistaken on the nature of capital, which he defined sometimes in rather exact terms. But it often suited him to depart from the definitions which he himself had given, or to accept the grossest errors of his disciples, when these errors seemed to prop up his system. Thus he approved the vagaries of which we here make mention.
A certain number of journeymen tailors come together and associate for the purpose of making clothing, and profess to be without capital; that is to say, they work on their own account, without the intervention of any employer. These workmen, as it appears, succeed in their endeavor, which is nothing very surprising. The writer cited by Proudhon concludes from this that they have refuted an axiom of political economy and dethroned capital. He thus sets forth and justifies this singular proposition. “Here are workmen who deny altogether this saying of the old economists, No capital, no Labor, a saying, which, if it were true in principle, would condemn to slavery and misery without hope and without end, a numberless class of laborers who live from hand to mouth, and have no capital whatever. These journeymen tailors could not admit the truth of this terrible conclusion of official science. Seeking for the rational laws for the production and consumption of wealth, they discovered that capital which was supposed to be a generative element in labor, has only a conventional utility; that the only agents of production are man’s intellect and muscles; that hence it is possible to produce and to guarantee the normal circulation and consumption of commodities, by the sole fact of the direct communication of producers and consumers with one another. That by the doing away of a burdensome intermediary, and the establishment of new relations, producers and consumers would reap the profits now given to capital, that sovereign lord of the labor, life and wants of all.”
According to this theory the emancipation of workmen is possible by the union, in groups, of individual powers and wants; in other words, by the association of producers and consumers, who, ceasing to have opposing interests, escape forever the domination of capital.
The wants of consumption being permanent, if producers and consumers enter into direct relation, associate together, and give credit to each other, it is clear that the rise or the fall, the artificial increase or the arbitrary decrease which speculation forces upon labor and production, would no longer have a cause.
It is scarcely necessary to say, as we shall see presently, that the maxim, No capital, no labor does not in any manner condemn to endless servitude and wretchedness, that numerous class of workmen who have no capital. Capital may indeed come to the assistance, in different ways, of those who have none; and this necessarily happens every day. But to the principal question: How have the workmen above referred to, refuted the truth of the axiom, No capital, no labor? Have they, perchance, discovered how to sew without needles, to cut cloth without scissors? They probably have not been able to do without a shop and a press-board. Now the needles, scissors, shop and press-board used by the tailors are capital. Further, these workmen could not have made the clothing without the use of cloth, which is also capital. In fact, they have been satisfied to work on cloth, that is to say on capital, which did not belong to them but was furnished by others. But this capital was none the less an indispensable auxiliary to their labor. and if it be true that it was put at their disposition by third parties, it is only a proof of the truth of what we have just said, that it is not always necessary to be the owner of capital in order to make use of it. Moreover, these workmen, whatever be the manner in which they did it, were obliged to provide for their own maintenance, until they had received the price of their labor; and they could thus provide for their maintenance, only by means of capital possessed by themselves or borrowed from others. They, therefore, have had recourse to capital. But they did not, we are told, submit to conditions imposed by an employer. Furthermore, they found means of dispensing with the agency of merchants in dealing with consumers. This is apparently what the unknown author of the strange dissertation just quoted, wished to say, and this is what he calls destroying the tyranny of capital. If the workmen found a way of doing without an employer, or took his place themselves, they did well, especially if any real advantage resulted to them therefore. They did well also to dispense with the aid of merchants, if they were able to do so without prejudice to the sale or circulation of their products. But what has all this to do with the truth of the economic proposition? The workmen in question, no more than other men, discovered the means of dispensing with capital. They simply worked with their own capital instead of working with the capital of others, a thing done every day, for the majority of employers who have come from the working class have acted in this manner. After accumulating their savings as workmen, they used them to begin business with on their own account, and to become employers of labor. The workmen whose example is cited here did the same, with this difference, that as the savings of each man were probably not large enough alone, they united them in a common stock. They called to their aid the power of association, which is not to be despised when a good use is made of it; thus forming, by the union of several small savings, a capital sufficient to found an establishment of their own. From workmen, which they were, they become employers. There is nothing in this which strikes at the dignity of capital. On the contrary, it is in many respects a new proof of its productiveness, since by its aid the workmen in question succeeded in changing, if not in bettering their condition.
We have noted the preceding passage, which is really unworthy to appear here, for the sole purpose of showing by an example, the kind of ideas that are current in certain circles, and how the simplest truths of science are interpreted in them. Surely if those who wrote these strange lines had given themselves the trouble of opening any work on political economy, they would have easily found in it a correction of their error. But what is their idea of capital?
At first one would be tempted to believe they have simply confounded capital with money—a very common error. Money, as we know, is only a fraction, and rather a small fraction, of capital. But even if this were their point of departure, would they be justified in saying, in the case they mention, that capital has been dethroned? The workmen of whom they speak have not succeeded in dispensing with money, more than with any other article. They have been obliged to make use of it, at least to buy provisions while awaiting the completion of their work. All they can mean to claim is that the workmen, through association, succeeded in freeing themselves from the rule of a master, from that inconvenient and annoying person whom they looked upon as a tyrant, and who in their eyes is the personification of capital.
J. B. Say has shown the necessity of capital in these terms: “We shall soon see, by observing its processes, that industry alone and unaided is not able to give value to things. It is necessary that the person engaged in industry should possess products already existing, without which his labor, however skilled, would remain inactive. These things are: 1. Tools, implements of the various arts. The cultivator of the soil can do nothing without his pick and spade, the weaver without his loom, nor the sailor without his ship. 2. The products which are to support the workman engaged in industry, until he has completed his part in the work of production. The product on which he is busied, or the price which it will bring, ought in reality to bring back the expense of keeping him; but he is obliged continually to advance what is necessary for his support. 3. The raw material which his industry has to change into finished products. It is true that these materials are often furnished him gratuitously by nature; but more frequently they are industrial products already existing, such as seeds furnished by agriculture, metals furnished by the miner and founder, etc. The manufacturer who uses them in his industry is obliged to advance their value. The value of all these articles constitutes what is called productive capital.” All economists are agreed on this subject. Here, for example, is another quotation taken from the “Theory of Social Wealth,” by Fredrick Skarbek, professor of political economy at Warsaw: “When we observe man occupied in collecting primitive values, or in producing new ones, we see that, in both cases, he can not act without having in his possession a certain stock which furnishes him the means of subsistence, or the objects necessary to fit him to work. A hunter needs some kind of weapon to strike down the wild beast that is to furnish him with food or clothing. Uncertain of the result of the chase, he must be supplied with a certain amount of provisions to enable him to endure one day’s or several days’ fatigue. If, later, with more developed means, he wishes to construct a dwelling he can not do so without first having the necessary tools for the purpose, without having felled the trees to be used in its construction, without having such a supply of provisions as will free him from the care of procuring a subsistence while he is building his house; in one word, he can neither collect the values which he finds ready in nature, nor produce new ones, without possessing a stock which will enable him to work by giving him the means of existence and the objects of labor.”
These are exactly the same ideas which we found in the works of J. B. Say. Both are agreed in considering as necessary for the execution of any labor whatever, not only the preliminary possession of tools and raw materials, but also a certain supply of food which enables the laborer to live till his work is finished and its product sold; thus considering such supply as an essential part of the capital. Although Rossi and some other economists deny this last, they have really the same views; since they consider the stock of provisions necessary to the laborer, as well as the raw materials and tools.
Earlier than any of these economists, Adam Smith had established the same principles. He first supposes, it is true, that capital is not necessary in a barbarous or savage state. This we must not take too literally, for it is sure, and Adam Smith is not mistaken here, that the savage himself has need of tools. But he shows later, which is strictly true, that the necessity of capital increases in proportion as civilization advances and the division of labor extends.
“In that rude state of society in which there is no division of labor, in which exchanges are seldom made, and in which every man provides everything for himself, it is not necessary that any stock should be accumulated or stored up beforehand in order to carry on the business of the society. Every man endeavors to supply by his own industry his own occasional wants as they occur. When he is hungry he goes to the forest to hunt; when his coat is worn out, he clothes himself with the skin of the first large animal he kills; and when his but begins to go to ruin he repairs it, as well as he can, with the trees and the turf that are nearest. But when the division of labor has once been thoroughly introduced, the produce of a man’s own labor can supply but a very small part of his occasional wants. The far greater part of them are supplied by the produce of other men’s labor, which he purchases with the produce, or, what is the same thing, with the price of the produce of his own. But this purchase can not be made till such time as the produce of his own labor has not only been completed, but sold. A stock of goods of different kinds, therefore, must be stored up somewhere sufficient to maintain him, and to supply him with the materials and tools of his work till such time, at least, as both these events can be brought about. A weaver can not apply himself entirely to his peculiar business, unless there is beforehand stored up somewhere, either in his own possession or in that of some other person, a stock sufficient to maintain him, and to supply him with the materials and tools of his work, till he has not only completed, but sold his web. This accumulation must, evidently, be previous to his applying his industry for so long a time to such a peculiar business.”
We have underlined in the text the words maintain materials and tools, in order to call attention to the fact that Adam Smith, although he does not include the stock for maintenance in his definition of capital, does not fail to consider it as an indispensable condition precedent of production.
Capital being necessary, in different degrees, in all the employments of labor, we may conclude, first, that the number of these employments naturally increases in proportion as capital increases; then, that labor becomes more productive in the same proportion in the sense that it gives more abundant results for the same amount of labor and effort, consequences equally favorable to the progress of society and the well being of the masses.
We say that the increase of capital increases the employment of labor. Just as man can produce nothing without capital, capital can not act without the assistance of man. If the agricultural laborer can do nothing without his plow and his spade, the plow and the spade can do nothing unless the arm of the laborer puts them in operation. Dependence is reciprocal; it is even greater in the case of the instrument than of the hand and the intelligence which urges it on. It is easy to understand from this, that every increase of capital, every creation of a new capital, affords man new opportunities to utilize his power or his intelligence. As soon as there is formed anywhere, by saving and accumulation, by an excess of production over consumption, any amount whatever of capital—unless the owner hides it away, which happily is becoming rarer every day—that capital seeks employment in production, and it can not find that employment unless an ampler field for the employment of human labor be found. It is very true, moreover, that the sphere of possible labor widens in proportion as capital increases, because if there are many kinds of labor like those of the tailor and shoemaker, which can be carried on successfully on small capital, there are many others. which can not be completed or even undertaken, except by the aid of enormous advances.
If we wish to appreciate this truth in its broadest bearings, we have but to follow humanity in its principal stages, from the savage or barbarous state to the condition of civilization to which it has advanced.
In the savage state there is scarcely anything but the chase, the most elementary and fruitless of all kinds of work. The soil can not yet be cultivated. Even if the savage had the idea, which he has not, of cultivating the soil, which he occupies, to increase its natural fertility, he would be unable to carry out this idea in practice from want of capital. Having neither plow nor spade to break the earth, he would be reduced to stirring it up with the branch of a tree. And even if he should succeed in this, which would be very difficult, he would be stopped in the course of his work for want of seed. Let us add, besides, that the cultivation of the soil which hardly repays the laborer after a year’s waiting, is not suitable to a man whose stock of provisions can last only a few days. The vast circle of agricultural labor is closed to him by this fact. All that he can do in this direction is to collect here and there, in a very small number, such fruits as the earth produces spontaneously.
When, thanks to the accumulation of capital, the cultivation of the earth becomes possible, the circle of agricultural labor enlarges, but it does not reach at once its greatest extent. With a few tools, such as the spade and the plow, the harrow and a small number of draught animals, and with seeds and provisions for a year, a man can doubtless set about the cultivation of some lands, but not of all kinds of land, at first. Tools being imperfect, as always happens when capital is not abundant, only the lighter soils are cultivated, those which offer the least resistance and yield the least. Even on them, all the labor necessary to make them as productive as they might be, is not expended. Men abstain from the working of the heavier soils which are the most fertile but which require more powerful implements. Especially lands are avoided which present obstacles that must be removed before they can be cultivated at all, and which are not susceptible of giving immediate results. Such are lands covered with forests or swamps. In a state which we shall not call savage but only barbarous, man is merely able to cultivate bare or prairie land which responds to the touch of the feeblest instrument in his possession, and which at most presents no other obstacles but the long weeds that fire can destroy. As soon as he meets greater obstacles, such as forests or marshes, he halts. It would be necessary previous to the cultivation of such lands, to fell the forests and drain the swamps. But these operations require time, tools, etc., and can be performed only with the assistance of a large amount of capital. In this state of things the sphere of the agricultural laborer is still quite restricted. It widens only in proportion as the amount of capital increases.
It is the same in almost all the paths of production. A nascent people, or one which is not sufficiently provided with capital, can not begin the working of mines and quarries. All that such a people ask of the mines and quarries is what can be got from them with little effort and labor. Later, when the amount of their capital becomes greater, they explore its depth to wrest from the earth the riches hidden in its bosom. Here is a vast career closed almost entirely during the earlier ages to the labors of man, which is opened and developed only by degrees, through the increase of capital. No monuments or edifices are constructed in a barbarous state; men scarcely build houses. They are content with the most modest dwellings, built at the smallest cost possible. The great building industries, which play so great a part in civilized countries, in which they give employment to so much intelligence and so many hands, are here reduced to their simplest expression. What shall we say of navigation, ship-building, preparing, transporting, collecting materials, lading and unlading, the piloting of ships, building and management of harbors, etc.? Much more might be said on manufacturing industry, which scarcely exists in barbarous states. It is almost always the last to follow in the path of civilization, for, more than any other, it requires a large appliance of acquired knowledge and a considerable development of capital. Still what a vast career this industry opens to the activity of man, when we consider it in its various branches. And what a lively impulse it gives through its contact with them to all the others! It is true, therefore, that in a barbarous state human labor is restricted on every side, and that it multiplies and extends at once in all directions in proportion as the increase of capital furnishes men with the means of action which they need.
It is proper to remark that if capital, generally speaking, increases the employment of labor by the opening up of new careers to the activity of men, it sometimes diminishes also their number in certain special branches of industry, since by the introduction of machinery it dispenses with the labor of many hands. This is a reproach directed especially against machines, which have, it is said, the great drawback of depriving workmen of work by doing a great part of that which was theirs. It is true that a steam engine, under the care of a single man, is able to replace the muscular power of a great number of men. It is none the less true that a spinning machine, for example, managed by one or two persons at most, can do the work of many women, and it may be said that in this sense it takes a part of their work from the women. These are facts. The error consists solely in the general consequences drawn from them.
We do not intend to anticipate here what will be said in the article MACHINES. We may be permitted, however, some brief reflections on this subject, which are very naturally related to the subject of capital.
The object of industry is not to furnish occupation to man, but to provide for his wants. Labor is but a means; the satisfaction of his wants is the end. When, thanks to the increase of capital, industry enters new paths, it is to satisfy these wants that it enters them. In this way it offers, it is true, more numerous employments to the activity of man, but this is only accessorily. Its final aim is the extension of production and the increase of the number of products. Even when by simplifying its methods, by increasing the power of its means, by subjecting a greater number of natural agents to its empire, industry increases production with a less expenditure of force, or assists the labor of man by natural forces which it yokes to labor, it merely remains faithful to its chief mission. In this way it continually increases the mass of our wealth. Does it result from this that the amount of labor which man performs is really decreased? By no means. Capital, by increasing, always creates more labor than it destroys. If, thanks to the power of the agents set at work, it does away with part of the labor of man in special branches, it communicates a great activity to all the other branches; it opens in other directions so many new paths to industry, that for one employment it destroys it creates ten.
If men were well convinced of this truth, they would have given the great question of machinery a solution different from what they have sometimes given it. Does the invention of new machines increase or diminish the employment of labor? It diminishes it, say some economists, at least in certain cases, by satisfying the demand for commodities by a much smaller amount of labor. Others say it does not diminish it, except temporarily, for the simplification of the process of production by lowering the price of products, increases the demand for them, and industry grows in the same proportion. Taken in this sense, the question does not appear to us susceptible of a general decision. There are facts in support of both sides of it. There are today more printers than there were formerly copyists: this is an undoubted fact. Cotton spinning also employs more persons now that it is done by machinery, than it employed when it was done by hand. But again, are there more printers of music than there were formerly copyists of music? Does paper making by machinery employ as many workmen, notwithstanding the real increase of the demand, than paper making by hand employed some years ago? Does linen spinning by machinery employ, in France, as many men, and especially women, as hand spinning employed some time ago? Here we can boldly answer, no. But this is not the real question at issue. What should be asked is this: Is it not true that the introduction of machines—which in certain directions supplant the labor of man—is the result of the increase of capital and would not have taken place without such increase? Is it not true, on the other hand, that this increase of capital has given to all the other branches of industry a greater impetus, to say nothing of the new industries which it has called forth; and that, in consequence, the small number of employments which have been done away with on one side have been amply replaced by new ones? Thus put, the question will not appear to us subject to the least doubt. It will always be objected, it is true, that if labor has not been decreased, it has been at least displaced. But displacements of this kind which are less annoying than is generally supposed, would be almost imperceptible were they not too frequently sudden, produced as they are by artificial means, and if the distribution and handling of capital were less subject to restrictions.
It is true that capital, by increasing, tends unceasingly to produce a wider development of human labor. This truth is strikingly evident when we compare two nations placed at a great distance from each other with respect to the accumulation of wealth. A sparse population may be seen to languish in inaction for want of employment, while another and a dense population works and is active. But even when the contrast is not so strongly marked, this truth is none the less apparent.
As to the advantages which the increase of wealth yields to society in other regards, by augmenting, in ever-increasing proportions, the sum of the products which it can dispose of, they are so evident that it is scarcely necessary to dwell on them.
V. By what Methods is the Co-operation of Capital and Labor effected in a Nation. Since capital and labor can do nothing alone, they always seek each other. They have been represented as necessarily in conflict. Nothing falser can be imagined. The fact is, that placed by the law of their nature in reciprocal dependence, they tend constantly to association. It is true that the conditions of this alliance vary, as we shall soon see, according to circumstances, and these are not always equally favorable to labor. But association is none the less necessary to them in all cases. We have here to explain the different methods by which this association is effected.
When capital is in the hands of a man who can use it, there is nothing simpler than this association. The man who possesses an amount of capital sufficient to engage in some industry, and strength enough to employ this entire capital, has no need of inquiring further as to the manner in which he shall utilize the one and the other, nor to have recourse to outside aid in this matter. He works and calls his own capital to his assistance. A water-carrier whose capital consists in a barrel and a few pails, goes for water to the public well every day, and distributes the water to his customers himself. In this work he needs no outside aid: capital and labor are naturally allied in his hands. It is the same with most itinerant vendors who travel the streets of great cities, and even of some small hawkers. In general they own an amount of capital sufficient to buy in the morning the wares which they dispose of during the day. Sometimes, it is true, the capital which they use does not belong to them; they are forced to borrow it from others. In this case the alliance between capital and labor is not so simple; but if we suppose that they are really owners of the merchandise which they sell, capital and labor are combined, so to speak, in their persons, and work without difficulty side by side. It is the same with certain small artisans who carry on a trade on their own account, without employing workmen, their personal labor being sufficient to accomplish the work they have to do.
But these simple combinations of capital and labor are rare. They are moreover only applicable to very small industries, which require only the strength of a single man. The moment an owner of capital possesses a greater amount than he can utilize in his own work, he is forced to call in, in some way, the labor of another person. He must then either undertake an industry, by associating with his labor assistance, under the name of workmen, with whom he will naturally share the fruits of their common toil, by paying them a remuneration freely agreed upon between them, or turn over a portion of his capital as a loan, as stock or in some other form at a stipulated price to a master of an industry who will make it effective in his stead. On the other hand, when a man does not possess the amount of capital necessary to employ his mind and his hands usefully, he is forced to associate his labor in some way with the capital of another. This is the condition of the greater number of those who belong to what is called the working class We have here various situations, in which capital and labor, not being at first united in proper proportions in the same hands, men are obliged to bring them together. How is this done? The preceding suffices to give an idea of the operations, it only remains to enumerate and define the several ways.
An owner of an amount of capital which he can not utilize himself, or of an amount of capital so great that he is unable to utilize it at all, has three principal means of calling to his assistance the labor of others: 1. He can engage in some industry by setting up an establishment answering to the amount of the capital which he possesses. and calling to his assistance men who, under the name of workmen, and for fixed wages, will give him the co-operation of their labor. 2. He can lend his capital to a man of enterprise who engages in some branch of industry, and who will use the capital at his own risk and peril, on condition of returning it later, and in consideration of the payment of a yearly percentage, under the name of interest, during the time he keeps it. 3. He can become interested in an industrial enterprise, by investing his capital in it as a shareholder, that is to say, by associating his capital with all the chances of the enterprise in order to share its profits or losses. In each of these cases, which comprise, in their general expression, nearly all the possible combinations, the owner of capital, in reality, but associates his capital with the labor of another. Whether he makes it of avail directly, through the co-operation of his workmen, or gives it, in consideration of a yearly interest, to another proprietor who will make it available at his own risk and peril, or invests it in an outside enterprise by exposing it to all the risks of that enterprise, it is always true, that this capital is put at work, in whole or in part, by the hands of other men. There is here, therefore, a real alliance of the capital of the one with the labor of the other. These two necessary instruments of production, capital and labor, placed in different hands, are brought together, combined, united, and owing to this alliance they work from that time forward together.
The man who possesses only his labor has also three methods of obtaining what he wants by joining this labor to the capital of another; and these methods correspond exactly to those which we have just examined. He can either offer his services to the proprietor of an industry, or try to obtain by a loan and for a given interest the capital which he lacks, or he can call upon money-lenders who will consent to risk their capital in his enterprise. Of the three methods, the first is undoubtedly the least favorable to workmen, in this sense at least, that if they run no risk of loss, neither can they hope for very great advantages. The returns which they get vary doubtless according to places and times. They also vary frequently with individuals, on account of their activity or respective capacity; but in general they are very much inferior to those which men may hope for who succeed, either by means of a loan, or in any other way, in putting the capital of others at work for their own profit, and at their own risk. But the reasons for this are so easily understood that it is scarcely worth while to set them forth. The man who obtains the capital of others in the form of a loan, to make it available on his own account, is in an altogether special position. The very fact of the loan which he has contracted, proves that special confidence is placed in his morality or capacity, which all workmen do not inspire in the same degree. He is besides weighted with a heavier responsibility than comes upon others, and is exposed to greater risks. It is therefore quite natural that he should aspire to make greater profits. It is the same with him who has been able to induce capitalists to interest themselves in his undertaking, by investing their money in his enterprise.
VI. Effects of the Scarcity or Abundance of Capital—Absolute and Relative Abundance—Actire Capital and Dormant Capital. We have seen how, in proportion as capital develops in a country, industry opens up new paths for itself, daily extending the dominion of man and daily satisfying new wants. But this is not all. Even in the branches already cultivated, industry operates more profitably and on a larger scale in countries where capital abounds than in countries where it is rare.
“Nations with small capital,” says J. B. Say, “are at a disadvantage in selling their products; they are unable to grant their customers at home or abroad long terms of credit, or easy payments. Those with still less capital are not always in a condition to make even the advances of their raw materials and labor. This is why men are obliged, in India and Russia, to send the price of what is bought six months and even a year before their commissions can be executed. These nations must be greatly favored in other regards in order to make such considerable sales in spite of this disadvantage.”
The total of their sales is considerable, it is true, but not proportionate to the territory they occupy, nor nearly such as they might make if they possessed a greater amount of capital. Besides they always operate at a relative disadvantage, in this, that they scarcely ever realize the amount of profit to which they might lay claim; the greater part of it always comes to those nations who traffic with them, and who, so to speak, lay down the law to them.
This disadvantage, however great, is not the only, nor even the greatest which they have to bear. A nation poor in capital knows little of the spirit of enterprise. It reaps small advantage of favorable occasions which present themselves and which another better provided nation always seizes. It also derives but a medium advantage from new inventions, through lack of power or boldness to put them to use. It drags along painfully in the old ruts, hesitating always to depart from the beaten track. If by chance it takes a risk in some new enterprise, it does so almost always with insufficient capital, and reaps disappointment. It may be that in such a nation the greater part of its land is cultivated; but the cultivation is ill managed, for want of capital sufficient to second the efforts of man, and the results are not proportionate to the energy of the laborers’ work. It may be also that in such a nation the chief branches of manufacturing industry are carried on, but as they are only carried on with defective machinery, because proprietors either dare not or can not renew them in time, industry vegetates instead of flourishing. Their products are almost always imperfect, except when they depend more particularly on the labor of man. Moreover, these products are naturally dearer, at least they would be were it not for an almost fatal necessity which in this case throws the loss, resulting from lack or imperfection of tools, on the workmen, by reducing their wages.
These truths appear in all their prominence when we compare the people of England and the United States, so rich in capital, with the majority of the nations on the European continent, which are so generally devoid of it. The spirit of enterprise is active in England; it is still more active in the United States. Every favorable chance to realize a profit is seized upon there with eagerness. Besides, an enterprise generally obtains all the capital necessary to its success. The agricultural and manufacturing industries are commonly provided with the best instruments, the best tools known, so that they are carried on under the most favorable conditions possible; and the sweat of man, his talents and his acquired knowledge are never spent in vain.
The most serious matter, perhaps, is that the decrease of wages is the inevitable consequence of scarcity of capital. There are two decisive reasons for this. The first is, that where the spirit of enterprise is not much encouraged, there are fewer careers open to the activity of man; consequently there are a greater number of idle men, either voluntary or constrained. The second is, that fewer products are obtained with the same amount of labor. Where there is less labor, where, besides, fewer results are obtained with the same amount of labor, is it not inevitable that each man’s share shall be smaller? We say that in this case wages fall, and it must indeed be so: but this is not all. The general level of wealth falls; the sum total of consumption is reduced, together with the sum total of production. And this is true not only with reference to the laboring classes, but with reference to all classes of society, with a few rare exceptions. The poor become poorer in consequence and the rich less rich, in this sense, at least, that all are obliged to be satisfied with a smaller number of products.
Protests are often raised against these results, in so far as the working classes are particularly concerned. Why is it not seen that they are inevitable under certain circumstances? When the sum total of production is small, is it possible to distribute to each one a large part? Doubtless that of the workmen is relatively very small. There are here and there certain men who obtain much more and whose situation presents a striking contrast to that of their fellows: but if we reduce the part belonging to these latter would that of the workmen be much increased? But the strangest thing is, that men on this account declaim against capital, to which they impute the distress of the working classes. There can be no greater folly. The truth is, that the cause of this evil lies in the absence or in the scarcity of capital. But the abundance of capital is absolute or relative; and this is a truth ignored, upon which we should insist more were it not sufficiently dwelt on elsewhere.
It is not always the relative importance of the values which it has accumulated that constitutes the superiority of one people over another; it is sometimes, and more frequently, its superiority in making use of these values. As to England it may be admitted as very sure that the sum of its actual capital is greater than that of any other nation in Europe. But is the same true of the United States of America? It is more than permitted to doubt it. North America, a new country, which in great part is still almost unexplored, can not possess an amount of capital equal to that which some European countries, France, for example, owe to the labors of past generations and the slow accumulations of many centuries. Nevertheless it is true, in fact, that capital is much more abundant in the United States than in France, in the sense at least that it lends itself more easily and with indefinitely greater profusion to the requirements of labor. Whence comes this? From several causes, which are summed up in one, to wit, that in the United States capital always goes to its real destination and there is never inactive. One would be alarmed if it were possible to give an account, in France, of the amount of capital daily turned away from fruitful employment to be dragged into sterile uses. One would perhaps be still more astonished could an exact calculation be made of the amount of capital lying idle, not only in the form of money, but in the form of merchandise and values of every kind. This evil, though not altogether unknown, is far less in the United States than in France, and this is the reason that with perhaps a smaller amount of actual capital there is relatively a much greater abundance. There is perhaps more capital in France, but in the United States there is much more active capital.
And if it is asked whence comes the inferiority of France in this regard, we shall answer that it comes, first, from the almost total absence of those institutions of credit whose chief object is to distribute and dispose of capital; that it depends, also, on the vices of French legislation on commercial associations, and on the presence of certain ill-planned institutions, which have no other effect than to strike the greater part of social wealth with sterility.
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Footnotes
[1] Idée générale de la révolution au dix-neuvième siècle.
